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EXCEL - IDEA: XBRL DOCUMENT - PANERA BREAD CO | Financial_Report.xls |
EX-31.2 - EX-31.2 - PANERA BREAD CO | c15877exv31w2.htm |
EX-31.1 - EX-31.1 - PANERA BREAD CO | c15877exv31w1.htm |
EX-32 - EX-32 - PANERA BREAD CO | c15877exv32.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
(Mark one)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 29, 2011
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 | 04-2723701 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
3630 South Geyer Road, Suite 100, St. Louis, MO | 63127 | |
(Address of Principal Executive Offices) | (Zip Code) |
(314) 984-1000
(Registrants Telephone Number, Including Area Code)
(Registrants 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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of May 2, 2011, 29,024,054 shares of the registrants Class A Common Stock, par value
$.0001 per share, and 1,389,087 shares of the registrants Class B Common Stock, par value $.0001
per share, were outstanding.
PANERA BREAD COMPANY
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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EX-31.2 | ||||||||
EX-32 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
PANERA BREAD COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
March 29, 2011 | December 28, 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 250,660 | $ | 229,299 | ||||
Trade accounts receivable, net |
22,779 | 20,378 | ||||||
Other accounts receivable |
21,605 | 17,962 | ||||||
Inventories |
14,079 | 14,345 | ||||||
Prepaid expenses and other |
21,336 | 23,905 | ||||||
Deferred income taxes |
20,568 | 24,796 | ||||||
Total current assets |
351,027 | 330,685 | ||||||
Property and equipment, net |
445,178 | 444,094 | ||||||
Other assets: |
||||||||
Goodwill |
94,510 | 94,442 | ||||||
Other intangible assets, net |
47,383 | 48,402 | ||||||
Deposits and other |
7,279 | 6,958 | ||||||
Total other assets |
149,172 | 149,802 | ||||||
Total assets |
$ | 945,377 | $ | 924,581 | ||||
LIABILITIES |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 8,968 | $ | 7,346 | ||||
Accrued expenses |
186,195 | 204,170 | ||||||
Total current liabilities |
195,163 | 211,516 | ||||||
Deferred rent |
49,247 | 47,974 | ||||||
Deferred income taxes |
33,492 | 30,264 | ||||||
Other long-term liabilities |
35,094 | 39,219 | ||||||
Total liabilities |
312,996 | 328,973 | ||||||
Commitments and contingencies (Note 9) |
||||||||
STOCKHOLDERS EQUITY |
||||||||
Common stock, $.0001 par value per share: |
||||||||
Class A, 75,000,000 shares authorized; 30,145,662 issued and 29,021,212
outstanding in 2011; and 30,125,936 issued and 29,006,844 outstanding in 2010 |
3 | 3 | ||||||
Class B, 10,000,000 shares authorized; 1,389,087 issued and outstanding in
2011 and 1,391,607 in 2010 |
| | ||||||
Treasury stock, carried at cost; 1,124,450 shares in 2011 and 1,119,092 shares
in 2010 |
(79,641 | ) | (78,990 | ) | ||||
Additional paid-in capital |
134,652 | 130,005 | ||||||
Accumulated other comprehensive income |
278 | 275 | ||||||
Retained earnings |
577,089 | 544,315 | ||||||
Total stockholders equity |
632,381 | 595,608 | ||||||
Total liabilities and stockholders equity |
$ | 945,377 | $ | 924,581 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
Table of Contents
PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(unaudited)
(in thousands, except per share information)
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Revenues: |
||||||||
Bakery-cafe sales, net |
$ | 365,579 | $ | 312,500 | ||||
Franchise royalties and fees |
22,582 | 20,863 | ||||||
Fresh dough and other product sales to franchisees |
33,939 | 30,847 | ||||||
Total revenues |
422,100 | 364,210 | ||||||
Costs and expenses: |
||||||||
Bakery-cafe expenses: |
||||||||
Cost of food and paper products |
106,209 | 90,311 | ||||||
Labor |
114,050 | 100,682 | ||||||
Occupancy |
26,773 | 24,389 | ||||||
Other operating expenses |
47,327 | 39,535 | ||||||
Total bakery-cafe expenses |
294,359 | 254,917 | ||||||
Fresh dough and other product cost of sales to franchisees |
28,024 | 24,835 | ||||||
Depreciation and amortization |
19,094 | 17,009 | ||||||
General and administrative expenses |
26,671 | 25,012 | ||||||
Pre-opening expenses |
978 | 276 | ||||||
Total costs and expenses |
369,126 | 322,049 | ||||||
Operating profit |
52,974 | 42,161 | ||||||
Interest expense |
225 | 168 | ||||||
Other (income) expense, net |
(804 | ) | 307 | |||||
Income before income taxes |
53,553 | 41,686 | ||||||
Income taxes |
20,779 | 15,841 | ||||||
Net income |
$ | 32,774 | $ | 25,845 | ||||
Earnings per common share: |
||||||||
Basic |
$ | 1.10 | $ | 0.83 | ||||
Diluted |
$ | 1.09 | $ | 0.82 | ||||
Weighted average shares of common and common
equivalent shares outstanding: |
||||||||
Basic |
29,845 | 31,170 | ||||||
Diluted |
30,160 | 31,521 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
Table of Contents
PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Cash flows from operations: |
||||||||
Net income |
$ | 32,774 | $ | 25,845 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
19,094 | 17,009 | ||||||
Stock-based compensation expense |
3,019 | 2,484 | ||||||
Tax benefit from exercise of stock options |
(593 | ) | (2,755 | ) | ||||
Deferred income taxes |
7,456 | (3,316 | ) | |||||
Other |
870 | 173 | ||||||
Changes in operating assets and liabilities, excluding the effect of acquisitions: |
||||||||
Trade and other accounts receivable, net |
(6,044 | ) | 1,874 | |||||
Inventories |
266 | 644 | ||||||
Prepaid expenses and other |
2,569 | 481 | ||||||
Deposits and other |
(321 | ) | (875 | ) | ||||
Accounts payable |
1,622 | (435 | ) | |||||
Accrued expenses |
(14,877 | ) | 13,007 | |||||
Deferred rent |
1,273 | 798 | ||||||
Other long-term liabilities |
(4,125 | ) | 921 | |||||
Net cash provided by operating activities |
42,983 | 55,855 | ||||||
Cash flows from investing activities: |
||||||||
Additions to property and equipment |
(22,714 | ) | (10,465 | ) | ||||
Proceeds from sale of bakery-cafes |
115 | | ||||||
Net cash used in investing activities |
(22,599 | ) | (10,465 | ) | ||||
Cash flows from financing activities: |
||||||||
Repurchase of common stock |
(651 | ) | (94 | ) | ||||
Exercise of employee stock options |
519 | 10,149 | ||||||
Tax benefit from exercise of stock options |
593 | 2,755 | ||||||
Proceeds from issuance of common stock under employee benefit plans |
516 | 459 | ||||||
Net cash provided by financing activities |
977 | 13,269 | ||||||
Net increase in cash and cash equivalents |
21,361 | 58,659 | ||||||
Cash and cash equivalents at beginning of period |
229,299 | 246,400 | ||||||
Cash and cash equivalents at end of period |
$ | 250,660 | $ | 305,059 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The unaudited consolidated financial statements of Panera Bread Company and its subsidiaries (the
Company) have been prepared in accordance with generally accepted accounting principles in the
United States (GAAP), under the rules and regulations of the United States Securities and
Exchange Commission (the SEC), and on a basis substantially consistent with the audited
consolidated financial statements of the Company as of and for the fiscal year ended December 28,
2010. These unaudited consolidated financial statements should be read in conjunction with such
audited consolidated financial statements, which are included in the Companys Annual Report on
Form 10-K for the fiscal year ended December 28, 2010 as filed with the SEC on February 22, 2011.
The unaudited consolidated financial statements consist of the accounts of Panera Bread Company and
its wholly owned direct and indirect subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation. The Consolidated Balance Sheet data as of December 28, 2010 was
derived from audited financial statements, but does not include all disclosures required by GAAP.
The unaudited consolidated financial statements include all adjustments (consisting of normal
recurring adjustments and accruals) that management considers necessary for a fair statement of its
financial position and results of operations for the interim periods presented. Interim results are
not necessarily indicative of the results for any other interim period or for the entire fiscal
year.
Subsequent Events
The Company has evaluated all events or transactions occurring between the balance sheet date and
the date of issuance of the consolidated financial statements. Refer to Note 12 for information
related to subsequent events.
Recent Accounting Pronouncements
On December 30, 2009, the Company adopted the updated guidance issued by the Financial Accounting
Standards Board (FASB) related to fair value measurements and disclosures, which requires a
reporting entity to separately disclose the amounts of significant transfers in and out of Level 1
and Level 2 fair value measurements and to describe the reasons for the transfers. The updated
guidance also requires that an entity provide fair value measurement disclosures for each class of
assets and liabilities and disclosures about the valuation techniques and inputs used to measure
fair value for both recurring and non-recurring Level 2 and Level 3 fair value measurements. This
guidance was effective for interim or annual financial reporting periods beginning after December
15, 2009. The adoption of this updated guidance did not have an impact on the Companys
consolidated financial position or results of operations. In addition, the updated guidance
requires that in the reconciliation for fair value measurements using significant unobservable
inputs, or Level 3, a reporting entity separately disclose information about purchases, sales,
issuances, and settlements on a gross basis rather than as one net number. This guidance was
effective for interim or annual financial reporting periods beginning after December 15, 2010. The
adoption of this updated guidance did not have an impact on the Companys consolidated financial
position or results of operations.
Note 2. Business Combinations and Divestitures
Texas Divestiture
On February 9, 2011, the Company sold substantially all of the assets of two Paradise Bakery & Café
bakery-cafes to an existing Texas franchisee for a sales price of approximately $0.1 million,
resulting in a nominal gain, which is classified in other (income) expense, net in the Consolidated
Statements of Operations.
New Jersey Franchisee Acquisition
On September 29, 2010 the Company purchased substantially all of the assets and certain liabilities
of 37 bakery-cafes and the area development rights from a New Jersey franchisee for a purchase
price of approximately $55.0 million. Approximately $52.2 million of the purchase price, as well
as related transaction costs, were paid on September 29, 2010, with $2.8 million retained by the
Company for certain holdbacks. The holdbacks are primarily for certain indemnifications and expire
on the first anniversary of the transaction closing date, September 29, 2011, with any remaining
holdback amounts reverting to the prior franchisee. As a result of the acquisition, the Company
gained control of the 37 bakery-cafes and expanded Company-owned operations into New Jersey. The
Consolidated Statements of Operations include the results of operations from the operating
bakery-cafes from the date of the acquisition.
6
Table of Contents
The following supplemental pro forma information has been prepared for comparative purposes and
does not purport to be indicative of what would have occurred had the acquisition been made on
December 30, 2009, nor are they indicative of any future results (in thousands):
Pro Forma for | ||||
the 13 Weeks Ended | ||||
March 30, 2010 | ||||
Bakery-cafe sales, net |
$ | 333,085 | ||
Net income |
$ | 26,574 |
The pro forma amounts included in the table above reflect the application of the Companys
accounting policies and adjustment of the results of the New Jersey bakery-cafes to reflect the
additional depreciation and amortization that would have been charged assuming the fair value
adjustments to property and equipment and intangible assets had been applied from December 30,
2009, together with the consequential tax impacts.
The Company allocated the purchase price to the tangible and intangible assets acquired in the
acquisition at their estimated fair values with the remainder allocated to tax deductible goodwill
as follows: $0.5 million to inventories, $19.9 million to property and equipment, $31.2 million to
intangible assets, which represents the fair value of re-acquired territory rights and favorable
lease agreements, $1.2 million to liabilities, and $4.6 million to goodwill. The fair value
measurement of tangible and intangible assets and liabilities as of the acquisition date is based
on significant inputs not observed in the market and thus represents a Level 3 measurement.
Goodwill recorded in connection with this acquisition is attributable to the workforce of the
acquired bakery-cafes and synergies expected to arise from cost savings opportunities. All of the
recorded goodwill is anticipated to be tax deductible and is included in the Company Bakery-Cafe
Operations segment.
Note 3. Stockholders Equity
The following tables illustrate the changes in stockholders equity for the thirteen weeks ended
March 29, 2011 and March 30, 2010, respectively (in thousands):
Accumulated | ||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Compre- | Additional | Compre- | ||||||||||||||||||||||||||||||
hensive | Common Stock | Treasury | Paid-in | Retained | hensive | |||||||||||||||||||||||||||
Total | Income | Class A | Class B | Stock | Capital | Earnings | Income | |||||||||||||||||||||||||
Balance, December 29, 2009 |
$ | 597,036 | $ | 3 | $ | | $ | (3,928 | ) | $ | 168,288 | $ | 432,449 | $ | 224 | |||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
25,845 | $ | 25,845 | | | | | 25,845 | | |||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
38 | 38 | | | | | | 38 | ||||||||||||||||||||||||
Total other comprehensive income |
38 | 38 | ||||||||||||||||||||||||||||||
Comprehensive income |
25,883 | $ | 25,883 | |||||||||||||||||||||||||||||
Issuance of common stock |
459 | | | | 459 | | | |||||||||||||||||||||||||
Exercise of employee stock options |
10,149 | | | | 10,149 | | | |||||||||||||||||||||||||
Stock-based compensation expense |
2,484 | | | | 2,484 | | | |||||||||||||||||||||||||
Repurchase of common stock |
(94 | ) | | | (94 | ) | | | | |||||||||||||||||||||||
Tax benefit from exercise of stock options |
2,755 | | | | 2,755 | | | |||||||||||||||||||||||||
Balance, March 30, 2010 |
$ | 638,672 | $ | 3 | $ | | $ | (4,022 | ) | $ | 184,135 | $ | 458,294 | $ | 262 | |||||||||||||||||
Balance, December 28, 2010 |
$ | 595,608 | $ | 3 | $ | | $ | (78,990 | ) | $ | 130,005 | $ | 544,315 | $ | 275 | |||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
32,774 | $ | 32,774 | | | | | 32,774 | | |||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
3 | 3 | | | | | | 3 | ||||||||||||||||||||||||
Total other comprehensive income |
3 | 3 | ||||||||||||||||||||||||||||||
Comprehensive income |
32,777 | $ | 32,777 | |||||||||||||||||||||||||||||
Issuance of common stock |
516 | | | | 516 | | | |||||||||||||||||||||||||
Exercise of employee stock options |
519 | | | | 519 | | | |||||||||||||||||||||||||
Stock-based compensation expense |
3,019 | | | | 3,019 | | | |||||||||||||||||||||||||
Repurchase of common stock |
(651 | ) | | | (651 | ) | | | | |||||||||||||||||||||||
Tax benefit from exercise of stock options |
593 | | | | 593 | | | |||||||||||||||||||||||||
Balance, March 29, 2011 |
$ | 632,381 | $ | 3 | $ | | $ | (79,641 | ) | $ | 134,652 | $ | 577,089 | $ | 278 | |||||||||||||||||
Note 4. Fair Value Measurements
The Companys $51.0 million and $44.5 million in cash equivalents at March 29, 2011 and December
28, 2010, respectively, were carried at fair value in the Consolidated Balance Sheets based on
quoted market prices for identical securities (Level 1 inputs).
7
Table of Contents
Note 5. Inventories
Inventories consisted of the following (in thousands):
March 29, 2011 | December 28, 2010 | |||||||
Food: |
||||||||
Fresh dough facilities: |
||||||||
Raw materials |
$ | 2,028 | $ | 2,338 | ||||
Finished goods |
254 | 261 | ||||||
Bakery-cafes: |
||||||||
Raw materials |
8,951 | 8,780 | ||||||
Paper goods |
2,846 | 2,966 | ||||||
$ | 14,079 | $ | 14,345 | |||||
Note 6. Goodwill
The following is a reconciliation of the beginning and ending balances of the Companys goodwill by
reportable segment at March 29, 2011 (in thousands):
Company Bakery- | Franchise | Fresh Dough | ||||||||||||||
Cafe Operations | Operations | Operations | Total | |||||||||||||
Balance as of December 28, 2010 |
$ | 90,813 | $ | 1,934 | $ | 1,695 | $ | 94,442 | ||||||||
Currency translation |
68 | | | 68 | ||||||||||||
Balance as of March 29, 2011 |
$ | 90,881 | $ | 1,934 | $ | 1,695 | $ | 94,510 | ||||||||
Note 7. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
March 29, 2011 | December 28, 2010 | |||||||
Compensation and related employment taxes |
$ | 41,436 | $ | 43,788 | ||||
Unredeemed gift cards |
37,650 | 47,716 | ||||||
Insurance |
19,918 | 20,212 | ||||||
Taxes, other than income tax |
16,327 | 16,281 | ||||||
Advertising |
10,753 | 9,866 | ||||||
Capital expenditures |
10,551 | 13,057 | ||||||
Litigation settlement (Note 9) |
7,125 | 7,125 | ||||||
Rent |
6,468 | 7,084 | ||||||
Fresh dough and other product operations |
5,350 | 5,071 | ||||||
Deferred purchase price |
5,051 | 5,040 | ||||||
Loyalty program |
4,962 | 4,280 | ||||||
Utilities |
3,331 | 3,547 | ||||||
Deferred revenue |
1,892 | 1,962 | ||||||
Other |
15,381 | 19,141 | ||||||
$ | 186,195 | $ | 204,170 | |||||
Note 8. Credit Facility
The Company and certain of its direct and indirect subsidiaries, as guarantors, are parties to an
amended and restated credit agreement (the Amended and Restated Credit Agreement) with Bank of
America, N.A. and other lenders party thereto, which provides for a secured revolving credit
facility of $250.0 million to be used for general corporate purposes, including working capital,
capital expenditures, permitted acquisitions, and share repurchases. The Amended and Restated
Credit Agreement, which is collateralized by the capital stock of the Companys present and future
material subsidiaries, will become due on March 7, 2013, subject to acceleration upon certain
specified events of default.
As of March 29, 2011 and December 28, 2010, the Company had no balance outstanding under the
Amended and Restated Credit Agreement. The Company incurred $0.1 million of commitment fees for
each of the thirteen weeks ended March 29, 2011 and March 30, 2010, and accrued interest related to
the commitment fees was $0.1 million at both March 29, 2011 and December 28, 2010. As of March 29,
2011, the Company was in compliance with all covenants included in the Amended and Restated Credit
Agreement.
8
Table of Contents
Note 9. Commitments and Contingencies
Lease Obligations
As of March 29, 2011, the Company guaranteed operating leases of 27 franchisee or affiliate
locations, which the Company accounted for in accordance with the accounting standard for
guarantees. These leases have terms expiring on various dates from April 30, 2011 to December 31,
2023 and a potential amount of future rental payments of approximately $24.9 million as of March
29, 2011. The obligations under these leases will generally decrease over time as these operating
leases expire. The Company has not recorded a liability for certain of these guarantees as they
arose prior to the implementation of the accounting standard for guarantees and, unless modified,
are exempt from its requirements. The Company has not recorded a liability for those guarantees
issued after the effective date of this accounting standard because the fair value of each such
lease guarantee was determined by the Company to be insignificant based on analysis of the facts
and circumstances of each such lease and each such franchisees performance, and the Company did
not believe it was probable it would be required to perform under any guarantees at the time the
guarantees were issued. The Company has not had to make any payments related to any of these
guaranteed leases. The applicable franchisees or affiliates continue to have primary liability for
these operating leases.
Legal Proceedings
On January 25, 2008 and February 26, 2008, purported class action lawsuits were filed against the
Company and three of the Companys current or former executive officers by the Western Washington
Laborers-Employers Pension Trust and Sue Trachet, respectively, on behalf of investors who
purchased the Companys common stock during the period between November 1, 2005 and July 26, 2006.
Both lawsuits were filed in the United States District Court for the Eastern District of Missouri,
St. Louis Division. Each complaint alleges that the Company and the other defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act),
and Rule 10b-5 under the Exchange Act in connection with the Companys disclosure of system-wide
sales and earnings guidance during the period from November 1, 2005 through July 26, 2006. Each
complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, costs
and expenses, including attorneys and experts fees, and such other relief as the Court might find
just and proper. On June 23, 2008, the lawsuits were consolidated and the Western Washington
Laborers-Employers Pension Trust was appointed lead plaintiff. On August 7, 2008, the plaintiff
filed an amended complaint, which extended the class period to November 1, 2005 through July 26,
2007. Following the filing of motions by both parties and hearings before the Court, on February
11, 2011, the parties filed with the Court a Stipulation of Settlement regarding the class action
lawsuit. Under the terms of the Stipulation of Settlement, the Companys primary directors and
officers liability insurer will deposit $5.7 million into a settlement fund for payment to class
members, plaintiffs attorneys fees and costs of administering the settlement. The settlement
must be approved by the Court before becoming effective. The Stipulation of Settlement contains no
admission of wrongdoing. The Company and the other defendants have maintained and continue to deny
liability and wrongdoing of any kind with respect to the claims made in the class action lawsuit.
However, given the potential cost and burden of continued litigation, the Company believes the
settlement is in its best interests and the best interests of its stockholders. On February 22,
2011, the Court preliminarily approved the settlement and scheduled a settlement hearing on June
22, 2011. If the Court grants final approval of the Stipulation of Settlement, the Court will
dismiss the class action lawsuit with prejudice and the plaintiff will be deemed to have released
all claims against the Company relating to the allegations in the class action. The Company can
provide no assurance that the Court will approve the Stipulation of Settlement. If the Court does
not approve the Stipulation of Settlement, the Company will continue to defend against these
claims, which could have a material adverse effect on its financial condition and business. If
these matters were concluded in a manner adverse to the Company, it could be required to pay
substantially more in damages than the amount provided for in the Stipulation of Settlement. In
addition, the costs to the Company of defending any litigation or other proceeding, even if
resolved in its favor, could be substantial. Such litigation could also substantially divert the
attention of its management and resources in general. The amount deposited by the Companys
primary directors and officers liability insurer into the settlement fund of $5.7 million is
included in other accounts receivable and accrued expenses in the Companys Consolidated Balance
Sheets as of March 29, 2011.
On February 22, 2008, a shareholder derivative lawsuit was filed against the Company as nominal
defendant and against certain of its current or former officers and certain current directors. The
lawsuit was filed by Paul Pashcetto in the Circuit Court of St. Louis, Missouri. The complaint
alleges, among other things, breach of fiduciary duty, abuse of control, waste of corporate assets
and unjust enrichment between November 5, 2006 and February 22, 2008. The complaint sought, among
other relief, unspecified damages, costs and expenses, including attorneys fees, an order
requiring the Company to implement certain corporate governance reforms, restitution from the
defendants and such other relief as the Court might find just and proper. Following the filing of
motions by both parties and hearings before the Court, on February 22, 2011, the parties filed with
the Court a Stipulation of Settlement regarding the shareholder derivative lawsuit. Under the
terms of the Stipulation of Settlement, the Company agreed, among other things, to implement and
maintain certain corporate governance additions, modifications and/or formalizations, and its
insurer will pay plaintiffs attorneys fees and expenses of $1.4 million. The Stipulation of Settlement contains no admission of wrongdoing and
would result in the dismissal of the shareholder derivative lawsuit with prejudice, and under such
settlement, the plaintiff would be deemed to have released all claims against the defendants
relating to the allegations in the derivative action. The Company and the other defendants have
maintained and continue to deny liability and wrongdoing of any kind with respect to the claims
made in the shareholder derivative action. On April 8, 2011, the Court granted final approval of
the settlement, subject to a 30 day appeal period. The amount deposited by the Companys primary
directors and officers liability insurer into the settlement fund of $1.4 million is included in
other accounts receivable and accrued expenses in the Companys Consolidated Balance Sheets as of
March 29, 2011.
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On December 9, 2009, a purported class action lawsuit was filed against the Company and one of its
subsidiaries by Nick Sotoudeh, a former employee of the Company. The lawsuit was filed in the
California Superior Court, County of Contra Costa. The complaint alleges, among other things,
violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest
periods and termination compensation and violations of Californias Unfair Competition Law. The
complaint seeks, among other relief, collective and class certification of the lawsuit, unspecified
damages, costs and expenses, including attorneys fees, and such other relief as the Court might
find just and proper. The Company believes it and the other defendant have meritorious defenses to
each of the claims in this lawsuit and the Company is prepared to vigorously defend the lawsuit.
There can be no assurance, however, that the Company will be successful, and an adverse resolution
of the lawsuit could have a material adverse effect on the Companys consolidated financial
position and results of operations in the period in which the lawsuit is resolved. The Company is
not presently able to reasonably estimate potential losses, if any, related to the lawsuit and as
such, has not recorded a liability in its Consolidated Balance Sheets.
On December 16, 2010, a purported class action lawsuit was filed against the Company by Denarius
Lewis and Corey Weiner, former employees of one of the Companys subsidiaries, and Caroll Ruiz, an
employee of one of the Companys franchisees. The lawsuit was filed in the United States District
Court for Middle District of Florida. The complaint alleges, among other things, violations of the
Fair Labor Standards Act. The complaint seeks, among other relief, collective, and class
certification of the lawsuit, unspecified damages, costs and expenses, including attorneys fees
and such other relief as the Court might find just and proper. The Company believes it and the
other defendant have meritorious defenses to each of the claims in this lawsuit and the Company is
prepared to vigorously defend the lawsuit. There can be no assurance, however, that the Company
will be successful, and an adverse resolution of the lawsuit could have a material adverse effect
on the Companys consolidated financial position and results of operations in the period in which
the lawsuit is resolved. The Company is not presently able to reasonably estimate potential
losses, if any, related to the lawsuit and as such, has not recorded a liability in its
Consolidated Balance Sheets.
On December 20, 2010, a purported class action lawsuit was filed against the Company by Jamie
Ortiz, a former employee of one of the Companys subsidiaries. The lawsuit was filed in the United
States District Court for the Northern District of Virginia. The complaint alleges, among other
things, violations of the Fair Labor Standards Act. Mr. Ortiz also has alleged several individual
claims for Title VII retaliation, defamation and intentional infliction of emotional distress. The
complaint seeks, among other relief, collective, and class certification of the lawsuit,
unspecified damages, costs and expenses, including attorneys fees and such other relief as the
Court might find just and proper. The Company believes it has meritorious defenses to each of the
claims in this lawsuit and the Company is prepared to vigorously defend the lawsuit. There can be
no assurance, however, that the Company will be successful, and an adverse resolution of the
lawsuit could have a material adverse effect on the Companys consolidated financial position and
results of operations in the period in which the lawsuit is resolved. The Company is not presently
able to reasonably estimate potential losses, if any, related to the lawsuit and as such, has not
recorded a liability in its Consolidated Balance Sheets.
In addition, the Company is subject to other routine legal proceedings, claims, and litigation in
the ordinary course of its business. Defending lawsuits requires significant management attention
and financial resources and the outcome of any litigation, including the matters described above,
is inherently uncertain. The Company does not, however, currently expect that the costs to resolve
these routine matters will have a material adverse effect on its consolidated financial position,
results of operations, or cash flows.
Other
The Company is subject to on-going federal and state income tax audits and sales tax audits and any
unfavorable rulings could materially and adversely affect its consolidated financial condition or
results of operations. The Company believes reserves for these matters are adequately provided for
in its consolidated financial statements.
Note 10. Business Segment Information
The Company operates three business segments. The Company Bakery-Cafe Operations segment is
comprised of the operating activities of the bakery-cafes owned directly and indirectly by the
Company. The Company-owned bakery-cafes conduct business under the Panera Bread®, Saint Louis Bread
Co.® or Paradise Bakery & Café® names. These bakery-cafes offer some or all of the following: fresh
baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted
coffees, and other complementary products through on-premise sales, as well as catering.
The Franchise Operations segment is comprised of the operating activities of the franchise business
unit which licenses qualified operators to conduct business under the Panera Bread® or Paradise
Bakery & Café® names and also monitors the operations of these bakery-cafes. Under the terms of
most of the agreements, the licensed operators pay royalties and fees to the Company in return for
the use of the Panera Bread® or Paradise Bakery & Café® names and other services.
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The Fresh Dough and Other Product Operations segment supplies fresh dough, produce, tuna, cream
cheese, and indirectly supplies proprietary sweet goods items through a contract manufacturing
arrangement, to Company-owned and franchise-operated bakery-cafes. The fresh dough is sold to a
number of Company-owned and franchise-operated bakery-cafes at a delivered cost generally not to
exceed 27 percent of the retail value of the end product. The sales and related costs to the
franchise-operated bakery-cafes are separately stated line items in the Consolidated Statements of
Operations. The operating profit related to the sales to Company-owned bakery-cafes is classified
as a reduction of the costs in the cost of food and paper products in the Consolidated Statements of Operations.
Information related to the Companys three business segments follows (in thousands):
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Revenues: |
||||||||
Company bakery-cafe operations |
$ | 365,579 | $ | 312,500 | ||||
Franchise operations |
22,582 | 20,863 | ||||||
Fresh dough and other product operations |
66,025 | 53,742 | ||||||
Intercompany sales eliminations |
(32,086 | ) | (22,895 | ) | ||||
Total revenues |
$ | 422,100 | $ | 364,210 | ||||
Segment profit: |
||||||||
Company bakery-cafe operations |
$ | 71,220 | $ | 57,583 | ||||
Franchise operations |
21,007 | 19,520 | ||||||
Fresh dough and other product operations |
5,915 | 6,012 | ||||||
Total segment profit |
$ | 98,142 | $ | 83,115 | ||||
Depreciation and amortization |
$ | 19,094 | $ | 17,009 | ||||
Unallocated general and administrative expenses |
25,096 | 23,669 | ||||||
Pre-opening expenses |
978 | 276 | ||||||
Interest expense |
225 | 168 | ||||||
Other (income) expense, net |
(804 | ) | 307 | |||||
Income before income taxes |
$ | 53,553 | $ | 41,686 | ||||
Depreciation and amortization: |
||||||||
Company bakery-cafe operations |
$ | 16,244 | $ | 14,115 | ||||
Fresh dough and other product operations |
1,744 | 1,910 | ||||||
Corporate administration |
1,106 | 984 | ||||||
Total depreciation and amortization |
$ | 19,094 | $ | 17,009 | ||||
Capital expenditures: |
||||||||
Company bakery-cafe operations |
$ | 21,890 | $ | 9,194 | ||||
Fresh dough and other product operations |
217 | 525 | ||||||
Corporate administration |
607 | 746 | ||||||
Total capital expenditures |
$ | 22,714 | $ | 10,465 | ||||
March 29, 2011 | December 28, 2010 | |||||||
Segment assets: |
||||||||
Company bakery-cafe operations |
$ | 584,312 | $ | 581,193 | ||||
Franchise operations |
6,629 | 6,679 | ||||||
Fresh dough and other product operations |
47,446 | 48,393 | ||||||
Total segment assets |
$ | 638,387 | $ | 636,265 | ||||
Unallocated trade and other accounts receivable |
3,012 | 9,409 | ||||||
Unallocated property and equipment |
19,532 | 19,798 | ||||||
Unallocated deposits and other |
4,446 | 4,549 | ||||||
Other unallocated assets |
280,000 | 254,560 | ||||||
Total assets |
$ | 945,377 | $ | 924,581 | ||||
Unallocated trade and other accounts receivable relates primarily to rebates and interest
receivable, unallocated property and equipment relates primarily to corporate fixed assets,
unallocated deposits and other relates primarily to insurance deposits, and other unallocated
assets relates primarily to cash and cash equivalents and deferred income taxes.
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Note 11. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in
thousands, except for per share data):
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Amounts used for basic and diluted per share calculations: |
||||||||
Net income |
$ | 32,774 | $ | 25,845 | ||||
Weighted average number of shares outstanding basic |
29,845 | 31,170 | ||||||
Effect of dilutive stock-based employee compensation awards |
315 | 351 | ||||||
Weighted average number of shares outstanding diluted |
30,160 | 31,521 | ||||||
Earnings per common share: |
||||||||
Basic |
$ | 1.10 | $ | 0.83 | ||||
Diluted |
$ | 1.09 | $ | 0.82 | ||||
For the thirteen weeks ended March 29, 2011, and March 30, 2010, weighted-average outstanding
stock options, restricted stock, and stock-settled appreciation rights of less than 0.1 million
shares, were excluded in calculating diluted earnings per share as the exercise price exceeded fair
market value and the inclusion of such shares would have been antidilutive.
Note 12. Subsequent Event
On April 19, 2011 the Company purchased substantially all the assets and certain liabilities of 25
bakery-cafes and the area development rights from a Milwaukee franchisee for a purchase price of
approximately $42 million, which the Company paid with cash on hand at the time of closing. The
Companys results for the reported periods were not impacted by this acquisition as it was
completed subsequent to March 29, 2011.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
Matters discussed in this report and in our public disclosures, whether written or oral, relating
to future events or our future performance, including any discussion expressed or implied, of our
anticipated growth, operating results, future earnings per share, plans, and objectives contain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, or Exchange Act. These statements are often
identified by the words believe, positioned, estimate, project, plan, goal, target,
continue, intend, expect, future, anticipate, and similar expressions, whether in the
negative or the affirmative, that are not statements of historical fact. These statements are not
guarantees of future performance and involve certain risks, uncertainties, and assumptions that are
difficult to predict. Our actual results and timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain factors, including,
but not limited to, those set forth under Risk Factors and elsewhere in this report and those
discussed from time to time in our Securities and Exchange Commission reports, or SEC, including
our Form 10-K for the year ended December 28, 2010 and our quarterly reports on Form 10-Q. All
forward-looking statements and the internal projections and beliefs upon which we base our
expectations included in this report or other periodic reports represent our estimates as of the
date made and should not be relied upon as representing our estimates as of any subsequent date.
While we may elect to update forward-looking statements at some point in the future, we
specifically disclaim any obligation to update any forward-looking statement to reflect events or
circumstances that arise after the date such statement was made.
General
Panera Bread Company and its subsidiaries may be referred to as the Company, Panera Bread, or
in the first person notation of we, us, and our in the following discussion.
Our revenues are derived from Company-owned net bakery-cafe sales, fresh dough and other product
sales to franchisees, and franchise royalties and fees. Fresh dough and other product sales to
franchisees are primarily the sales of fresh dough, produce, tuna, and cream cheese to certain of
our franchisees. Franchise royalties and fees include royalty income and franchise fees. The cost
of food and paper products, labor, occupancy, and other operating expenses relate primarily to
Company-owned net bakery-cafe sales. The cost of fresh dough and other product sales to
franchisees relates primarily to the sale of fresh dough, produce, tuna, and cream cheese to
certain of our franchisees. General and administrative, depreciation and amortization, and pre-opening expenses
relate to all areas of revenue generation.
12
Table of Contents
Use of Non-GAAP Measurements
We include in this report information on Company-owned, franchise-operated, and system-wide
comparable net bakery-cafe sales percentages. Company-owned comparable net bakery-cafe sales
percentages are based on sales from Company-owned bakery-cafes included in our base store
bakery-cafes. Franchise-operated comparable net bakery-cafe sales percentages are based on sales
from franchised bakery-cafes, as reported by franchisees, that are included in our base store
bakery-cafes. System-wide comparable net bakery-cafe sales percentages are based on sales at
Company-owned and franchise-operated bakery-cafes that are included in our base store bakery-cafes.
Acquired Company-owned and franchise-operated bakery-cafes and other restaurant or bakery-cafe
concepts are included in our comparable net bakery-cafe sales percentages after we have acquired a
100 percent ownership interest and such acquisition occurred prior to the first day of our prior
fiscal year. Comparable net bakery-cafe sales exclude closed locations.
Comparable net bakery-cafe sales percentages are non-GAAP financial measures, which should not be
considered in isolation or as a substitute for other measures of performance prepared in accordance
with generally accepted accounting principles in the United States, (or GAAP), and may not be
equivalent to comparable net bakery-cafe sales as defined or used by other companies. We do not
record franchise-operated net bakery-cafe sales as revenues. However, royalty revenues are
calculated based on a percentage of franchise-operated net bakery-cafe sales, as reported by
franchisees. We use franchise-operated and system-wide sales information internally in connection
with store development decisions, planning, and budgeting analyses. We believe franchise-operated
and system-wide sales information is useful in assessing consumer acceptance of our brand,
facilitates an understanding of our financial performance and the overall direction and trends of
sales and operating income, helps us appreciate the effectiveness of our advertising and marketing
initiatives, to which our franchisees also contribute based on a percentage of their sales, and
provides information that is relevant for comparison within the industry.
We also include in this report information on Company-owned, franchise-operated, and system-wide
average weekly net sales. Average weekly net sales are calculated by dividing total net sales in
the period by operating weeks in the period. Accordingly, year-over-year results reflect sales for
all locations, whereas comparable net bakery-cafe sales exclude closed locations and are based on
sales from bakery-cafes included in our base store bakery-cafes. New stores typically experience
an opening honeymoon period during which they generate higher average weekly net sales in the
first 12 to 16 weeks they are open as customers settle-in to normal usage patterns from initial
trial of the location. On average, the settle-in experienced is 5 percent to 10 percent less
than the average weekly net sales during the honeymoon period. As a result, year-over-year
results of average weekly net sales are generally lower than the results in comparable net
bakery-cafe sales. This results from the relationship of the number of bakery-cafes in the
honeymoon phase, the number of bakery-cafes in the settle-in phase, and the number of
bakery-cafes in the comparable bakery-cafe base.
Executive Summary of Results
For the thirteen weeks ended March 29, 2011, we earned $1.09 per diluted share with the following
performance on key metrics: system-wide comparable net bakery-cafe sales grew 3.3 percent compared
to the thirteen weeks ended March 30, 2010 (growth of 3.3 percent for Company-owned bakery-cafes
and growth of 3.4 percent for franchise-operated bakery-cafes); system-wide average weekly net
sales increased 2.7 percent to $43,096 ($42,532 for Company-owned bakery-cafes and $43,568 for
franchise-operated bakery-cafes); and 19 new bakery-cafes opened system-wide (eight Company-owned
bakery-cafes and 11 franchise-operated bakery-cafes).
For the thirteen weeks ended March 30, 2010, we earned $0.82 per diluted share with the following
performance on key metrics: system-wide comparable net bakery-cafe sales grew 9.5 percent (10.0
percent for Company-owned bakery-cafes and 9.2 percent for franchise-operated bakery-cafes);
system-wide average weekly net sales increased 9.2 percent to $41,948 ($41,040 for Company-owned
bakery-cafes and $42,620 for franchise-operated bakery-cafes); and eight new bakery-cafes opened
system-wide (three Company-owned bakery-cafes and five franchise-operated bakery-cafes).
13
Table of Contents
The following table sets forth the percentage relationship to total revenues, except where
otherwise indicated, of certain items included in the Consolidated Statements of Operations for the
periods indicated. Percentages may not add due to rounding:
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Revenues: |
||||||||
Bakery-cafe sales, net |
86.6 | % | 85.8 | % | ||||
Franchise royalties and fees |
5.3 | 5.7 | ||||||
Fresh dough and other product sales to franchisees |
8.0 | 8.5 | ||||||
Total revenues |
100.0 | % | 100.0 | % | ||||
Costs and expenses: |
||||||||
Bakery-cafe expenses (1): |
||||||||
Cost of food and paper products |
29.1 | % | 28.9 | % | ||||
Labor |
31.2 | 32.2 | ||||||
Occupancy |
7.3 | 7.8 | ||||||
Other operating expenses |
12.9 | 12.7 | ||||||
Total bakery-cafe expenses |
80.5 | 81.6 | ||||||
Fresh dough and other product cost of sales to franchisees (2) |
82.6 | 80.5 | ||||||
Depreciation and amortization |
4.5 | 4.7 | ||||||
General and administrative expenses |
6.3 | 6.9 | ||||||
Pre-opening expenses |
0.2 | 0.1 | ||||||
Total costs and expenses |
87.4 | 88.4 | ||||||
Operating profit |
12.6 | 11.6 | ||||||
Interest expense |
0.1 | | ||||||
Other (income) expense, net |
(0.2 | ) | 0.1 | |||||
Income before income taxes |
12.7 | 11.4 | ||||||
Income taxes |
4.9 | 4.3 | ||||||
Net income |
7.8 | % | 7.1 | % | ||||
(1) | As a percentage of Company net bakery-cafe sales. |
|
(2) | As a percentage of fresh dough and other product sales to franchisees. |
The following table sets forth certain information and other data relating to Company-owned
and franchise-operated bakery-cafes for the periods indicated:
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Number of bakery-cafes: |
||||||||
Company-owned: |
||||||||
Beginning of period |
662 | 585 | ||||||
Bakery-cafes opened |
8 | 3 | ||||||
Bakery-cafes closed |
(3 | ) | ||||||
Bakery-cafes sold to a franchisee |
(2 | ) | | |||||
End of period |
665 | 588 | ||||||
Franchise-operated: |
||||||||
Beginning of period |
791 | 795 | ||||||
Bakery-cafes opened |
11 | 5 | ||||||
Bakery-cafes closed |
(2 | ) | ||||||
Bakery-cafes purchased from Company |
2 | | ||||||
End of period |
802 | 800 | ||||||
System-wide: |
||||||||
Beginning of period |
1,453 | 1,380 | ||||||
Bakery-cafes opened |
19 | 8 | ||||||
Bakery-cafes closed |
(5 | ) | | |||||
End of period |
1,467 | 1,388 | ||||||
Comparable Bakery-Cafe Sales, net
Fiscal comparable net bakery-cafe sales growth for the periods indicated were as follows:
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Company-owned |
3.3 | % | 10.0 | % | ||||
Franchise-operated |
3.4 | % | 9.2 | % | ||||
System-wide |
3.3 | % | 9.5 | % |
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Table of Contents
Results of Operations
Revenues
Total revenues for the thirteen weeks ended March 29, 2011 increased 15.9 percent to $422.1 million
compared to $364.2 million for the thirteen weeks ended March 30, 2010. The growth in total
revenues for the thirteen weeks ended March 29, 2011 compared to the same period in 2010 was primarily due to the opening of 87 new bakery-cafes system-wide since March 30,
2010 and to the 3.3 percent increase in system-wide comparable net bakery-cafe sales for the
thirteen weeks ended March 29, 2011. The system-wide average weekly net sales per bakery-cafe for
the periods indicated were as follows:
For the 13 Weeks Ended | Percentage | |||||||||||
March 29, 2011 | March 30, 2010 | Change | ||||||||||
System-wide average weekly net sales |
$ | 43,096 | $ | 41,948 | 2.7 | % |
Net bakery-cafe sales for the thirteen weeks ended March 29, 2011 increased 17.0 percent to
$365.6 million compared to $312.5 million for the thirteen weeks ended March 30, 2010. The
increase in net bakery-cafe sales for the thirteen weeks ended March 29, 2011 compared to the same
period in 2010 was primarily due to the opening of 47 new Company-owned bakery-cafes, the
acquisition of 40 franchise-operated bakery-cafes since March 30, 2010 and the 3.3 percent increase
in Company-owned comparable net bakery-cafe sales for the thirteen weeks ended March 29, 2011,
partially offset by the closure of five Company-owned bakery-cafes and the sale of five
Company-owned bakery-cafes since March 30, 2010. This 3.3 percent growth in comparable net
bakery-cafe sales was driven by approximately 1.7 percent of transaction growth and approximately
1.6 percent average check growth. Average check growth, in turn, was comprised of retail price
increases of approximately 2.0 percent and negative mix impact of approximately 0.4 percent in
comparison to the same period in the prior year. In total, Company-owned net bakery-cafe sales as
a percentage of total revenues increased to 86.6 percent for the thirteen weeks ended March 29,
2011 as compared to 85.8 percent for the same period in 2010. The increase in average weekly net
sales for Company-owned bakery-cafes for the thirteen weeks ended March 29, 2011 compared to the
same period in 2010 was primarily due to an increase in transactions and average check growth. The
average weekly net sales per Company-owned bakery-cafe and the number of operating weeks for the
periods indicated were as follows:
For the 13 Weeks Ended | Percentage | |||||||||||
March 29, 2011 | March 30, 2010 | Change | ||||||||||
Company-owned average weekly net sales |
$ | 42,532 | $ | 41,040 | 3.6 | % | ||||||
Company-owned number of operating weeks |
8,596 | 7,619 | 12.8 | % |
Franchise royalties and fees for the thirteen weeks ended March 29, 2011 increased 8.2 percent
to $22.6 million compared to $20.9 million for the thirteen weeks ended March 30, 2010. The
components of franchise royalties and fees for the periods indicated were as follows (in
thousands):
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Franchise royalties |
$ | 22,152 | $ | 20,675 | ||||
Franchise fees |
430 | 188 | ||||||
Total |
$ | 22,582 | $ | 20,863 | ||||
The increase in franchise royalty and fee revenues for the thirteen weeks ended March 29, 2011
compared to the same period in 2010 was primarily due to the opening of 40 franchise-operated
bakery-cafes since March 30, 2010 and the 3.4 percent increase in comparable franchise-operated net
bakery-cafe sales for the thirteen weeks ended March 29, 2011, partially offset by the closure of
three franchise-operated bakery-cafes and the Companys purchase of 40 franchise-operated
bakery-cafes since March 30, 2011. The average weekly net sales per franchise-operated bakery-cafe
and the related number of operating weeks for the periods indicated were as follows:
For the 13 Weeks Ended | Percentage | |||||||||||
March 29, 2011 | March 30, 2010 | Change | ||||||||||
Franchise-operated average weekly net sales |
$ | 43,568 | $ | 42,620 | 2.2 | % | ||||||
Franchise-operated number of operating weeks |
10,303 | 10,306 | 0.0 | % |
As of March 29, 2011, we had 802 franchise-operated bakery-cafes open throughout the United
States and we have received commitments to open 180 additional franchise-operated bakery-cafes. The timetables for opening
these bakery-cafes are established in the respective Area Development Agreements, referred to as
ADAs, with franchisees, which provide for the majority to open in the next four to five years. An
ADA requires a franchisee to develop a specified number of bakery-cafes on or before specific
dates. If a franchisee fails to develop bakery-cafes on the schedule set forth in the ADA, we have
the right to terminate the ADA and develop Company-owned locations or develop locations through new
franchisees in that market. We may exercise one or more alternative remedies to address defaults
by franchisees, including not only development defaults, but also defaults in complying with our
operating and brand standards and other covenants included in the ADAs and franchise agreements.
We may waive compliance with certain requirements included in our ADAs and franchise agreements if
we determine such action is warranted under the particular circumstances.
15
Table of Contents
Fresh dough and other product sales to franchisees for the thirteen weeks ended March 29, 2011
increased 10.0 percent to $33.9 million compared to $30.8 million for the thirteen weeks ended
March 30, 2010. The increase in fresh dough and other product sales to franchisees for the
thirteen weeks ended March 29, 2011 was primarily driven by the previously described increased
number of franchise-operated bakery-cafes opened since March 30, 2010, the 3.4 percent increase in
franchise-operated comparable net bakery-cafe sales, and increased produce distribution program
sales, partially offset by the closure of three franchise-operated bakery-cafes and the Companys
purchase of 40 franchise-operated bakery-cafes since March 30, 2010.
Costs and Expenses
The cost of food and paper products includes the costs associated with our fresh dough and other
product operations that sell fresh dough and other products to Company-owned bakery-cafes, as well
as the cost of food and paper products supplied by third-party vendors and distributors. The costs
associated with our fresh dough and other product operations that sell fresh dough and other
products to the franchise-operated bakery-cafes are excluded from the cost of food and paper
products and are shown separately as fresh dough and other product cost of sales to franchisees in
the Consolidated Statements of Operations.
The cost of food and paper products was $106.2 million, or 29.1 percent of net bakery-cafe sales,
for the thirteen weeks ended March 29, 2011 compared to $90.3 million, or 28.9 percent of net
bakery-cafe sales, for the thirteen weeks ended March 30, 2010. This increase in the cost of food
and paper products as a percentage of net bakery-cafe sales for the thirteen weeks ended March 29,
2011 compared to the same periods in 2010 was primarily due to modest food cost inflation,
partially offset by improved leverage of our fresh dough manufacturing costs due to additional
bakery-cafe openings and improved leverage from higher comparable net bakery-cafe sales. For the
thirteen weeks ended March 29, 2011, there was an average of 67.9 bakery-cafes per fresh dough
facility compared to an average of 64.3 as of March 30, 2010.
Labor expense was $114.1 million, or 31.2 percent of net bakery-cafe sales, for the thirteen weeks
ended March 29, 2011 compared to $100.7 million, or 32.2 percent of net bakery-cafe sales, for the
thirteen weeks ended March 30, 2010. The decrease in labor expense as a percentage of net
bakery-cafe sales for the thirteen weeks ended March 29, 2011 compared to the same period in 2010
was primarily a result of improved leverage from higher comparable net bakery-cafe sales, lower
costs due to lower than expected self-insurance claims, and lower average wage in our bakery-cafes.
Occupancy cost was $26.8 million, or 7.3 percent of net bakery-cafe sales, for the thirteen weeks
ended March 29, 2011 compared to $24.4 million, or 7.8 percent of net bakery-cafe sales, for the
thirteen weeks ended March 30, 2010. The decrease in occupancy cost as a percentage of net
bakery-cafe sales for the thirteen weeks ended March 29, 2011 compared to the same periods in 2010
was primarily a result of common area maintenance credits, as landlords spent less on common area
maintenance in prior years than anticipated, improved leverage from higher comparable net
bakery-cafe sales, and lower occupancy costs in new bakery-cafes.
Other operating expenses were $47.3 million, or 12.9 percent of net bakery-cafe sales, for the
thirteen weeks ended March 29, 2011 compared to $39.5 million, or 12.7 percent of net bakery-cafe
sales, for the thirteen weeks ended March 30, 2010. The increase in other operating expenses as a
percentage of net bakery-cafe sales for the thirteen weeks ended March 29, 2011 compared to the
same period in 2010 was primarily a result of increased marketing expense, partially offset by
leverage from higher comparable net bakery-cafe sales.
Fresh dough and other product cost of sales to franchisees were $28.0 million, or 82.6 percent of
fresh dough and other product sales to franchisees, for the thirteen weeks ended March 29, 2011,
compared to $24.8 million, or 80.5 percent of fresh dough and other product sales to franchisees,
for the thirteen weeks ended March 30, 2010. The increase in fresh dough and other product costs
of sales to franchisees as a percentage of fresh dough and other product sales to franchisees for
the thirteen weeks ended March 29, 2011 compared to the same period in 2010 was primarily the
result of the year-over-year increase in ingredient costs, partially offset by improved leverage
from new bakery-cafes and higher comparable net bakery-cafe sales.
General and administrative expenses were $26.7 million, or 6.3 percent of total revenues, for the
thirteen weeks ended March 29, 2011 compared to $25.0 million, or 6.9 percent of total revenues,
for the thirteen weeks ended March 30, 2010. The decrease in general and administrative expenses
as a percent of total revenues for the thirteen weeks ended March 29, 2011 compared to the same
period in 2010 was primarily due to improved leverage from new bakery-cafes and higher comparable
net bakery-cafe sales.
Interest Expense
Interest expense was $0.2 million, or 0.1 percent of total revenues and less than 0.1 percent of
total revenues, for the thirteen weeks ended March 29, 2011 and March 30, 2010. The modest
increase in interest expense as a percentage of total revenues for the thirteen weeks ended March
29, 2011 as compared to the same period in 2010 was primarily a result of a modest increase in
interest expense, partially offset by higher comparable net bakery-cafe sales.
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Other (Income) and Expense, net
Other (income) and expense, net was $0.8 million of income, or 0.2 percent of total revenues, for
the thirteen weeks ended March 29, 2011 compared to $0.3 million of expense, or 0.1 percent of
total revenues, for the thirteen weeks ended March 30, 2010. Other (income) and expense, net for
the thirteen weeks ended March 29, 2011 and March 30, 2010 was comprised of immaterial items.
Income Taxes
The provision for income taxes increased to $20.8 million for the thirteen weeks ended March 29,
2011 compared to $15.8 million for the thirteen weeks ended March 30, 2010. The tax provision for
the thirteen weeks ended March 29, 2011 and March 30, 2010 reflects a combined federal, state, and
local effective tax rate of 38.8 percent and 38.0 percent, respectively. The increase in the
thirteen week period rate was primarily driven by a decrease in permanent benefits recognized in
the current period relating to differences between financial and tax reporting requirements.
Liquidity and Capital Resources
Cash and cash equivalents were $250.7 million at March 29, 2011 compared with $229.3 million at
December 28, 2010. This increase was primarily a result of $43.0 million of cash generated from
operations partially offset by $22.7 million used on capital expenditures during the thirteen weeks
ended March 29, 2011. Our primary source of liquidity is cash provided by operations, although we
have the ability to borrow under a credit facility, as described below. Historically, our
principal requirements for cash have primarily resulted from the cost of food and paper products,
employee labor, and our capital expenditures for the development of new Company-owned bakery-cafes,
for maintaining or remodeling existing Company-owned bakery-cafes, for purchasing existing
franchise-operated bakery-cafes or ownership interests in other restaurant or bakery-cafe concepts,
for developing, maintaining, or remodeling fresh dough facilities, and for other capital needs such
as enhancements to information systems and other infrastructure.
We had working capital of $155.9 million at March 29, 2011 compared to $119.2 million at December
28, 2010. The increase in working capital from December 28, 2010 to March 29, 2011 resulted
primarily from the previously described increase in cash and cash equivalents of $21.4 million and
a decrease in accrued expenses of $18.0 million. We believe that cash provided by our operations
and available borrowings under our existing credit facility will be sufficient to fund our cash
requirements for the foreseeable future.
A summary of our cash flows, for the periods indicated, were as follows (in thousands):
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
Cash provided by (used in): |
||||||||
Operating activities |
$ | 42,983 | $ | 55,855 | ||||
Investing activities |
(22,599 | ) | (10,465 | ) | ||||
Financing activities |
977 | 13,269 | ||||||
Total |
$ | 21,361 | $ | 58,659 | ||||
Operating Activities
Cash flows provided by operating activities for the thirteen weeks ended March 29, 2011 resulted
primarily from net income, adjusted for non-cash items such as depreciation and amortization,
deferred income taxes, stock-based compensation expense, and an increase in prepaid expenses and
other, partially offset by a decrease in accrued expenses and trade and other accounts receivable,
net. Cash flows provided by operating activities for the thirteen weeks ended March 30, 2010
primarily resulted from net income, adjusted for non-cash items such as depreciation and
amortization, stock-based compensation expense, deferred income taxes and the tax benefit from the
exercise of stock options, an increase in accrued expenses and a decrease in trade and other
accounts receivable, net.
Investing Activities
Capital Expenditures
Capital expenditures are the largest ongoing component of our investing activities and include
expenditures for new bakery-cafes and fresh dough facilities, improvements to existing bakery-cafes
and fresh dough facilities, and other capital needs. A summary of capital expenditures for the
periods indicated consisted of the following (in thousands):
For the 13 Weeks Ended | ||||||||
March 29, 2011 | March 30, 2010 | |||||||
New bakery-cafe and fresh dough facilities |
$ | 13,336 | $ | 5,154 | ||||
Bakery-cafe and fresh dough facility improvements |
6,397 | 4,096 | ||||||
Other capital needs |
2,981 | 1,215 | ||||||
Total |
$ | 22,714 | $ | 10,465 | ||||
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Our capital requirements, including development costs related to the opening or acquisition of
additional bakery-cafes and fresh dough facilities and maintenance and remodel expenditures, have
been and will continue to be significant. Our future capital requirements and the adequacy of
available funds will depend on many factors, including the pace of expansion, real estate markets,
site locations, and the nature of the arrangements negotiated with landlords. We believe that cash
provided by our operations and available borrowings under our existing credit facility will be
sufficient to fund our capital requirements in both our short-term and long-term future. We
currently anticipate 95 to 105 system-wide bakery-cafe openings in the fiscal year ending December
27, 2011.
Investing activities for the thirteen weeks ended March 29, 2011 included additions to property and
equipment of $22.7 million offset by $0.1 million received from the sale of two bakery-cafes.
Investing activities for the thirteen weeks ended March 30, 2011 consisted solely of additions to
property and equipment.
Business Combinations
In the thirteen weeks ended March 29, 2011 and March 30, 2010 there were no acquisitions.
Financing Activities
Financing activities for the thirteen weeks ended March 29, 2011 included $0.6 million received
from the tax benefit from exercise of stock options, $0.5 million received from the exercise of
employee stock options under employee benefit plans, and $0.5 million received from the issuance of
common stock, offset by $0.7 million used to repurchase shares of our Class A common stock.
Financing activities for the thirteen weeks ended March 30, 2010 included $10.1 million received
from the exercise of employee stock options, $2.8 million received from the tax benefit from the
exercise of stock options, $0.5 million received from the issuance of common stock under employee
benefit plans, and $0.1 million used to repurchase shares of our Class A common stock.
Share Repurchases
On November 17, 2009, our Board of Directors approved a three year share repurchase authorization
of up to $600.0 million of our Class A common stock, pursuant to which share repurchases may be
effected from time to time on the open market or in privately negotiated transactions and which may
be made under a Rule 10b5-1 plan. Repurchased shares may be retired immediately and will resume
the status of authorized but unissued shares or they may be held by us as treasury stock. The
repurchase authorization may be modified, suspended, or discontinued by our Board of Directors at
any time. During the thirteen weeks ended March 29, 2011 and March 30, 2010, we did not repurchase
any shares under the share repurchase authorization. As of the date of this report, under the
share repurchase authorization, we repurchased a total of 1,932,969 shares of our Class A common
stock at a weighted-average price of $78.50 per share for an aggregate purchase price of
approximately $152.0 million. We have approximately $448.0 million available under the existing
$600.0 million repurchase authorization.
We have historically repurchased shares of our Class A common stock through a share repurchase
authorization approved by our Board of Directors from participants of the Panera Bread 1992 Stock
Incentive Plan and the Panera Bread 2006 Stock Incentive Plan, or collectively, the Plans.
Repurchased shares are netted and surrendered as payment for applicable tax withholding on the
vesting of participants restricted stock. During the thirteen weeks ended March 29, 2011, we
repurchased 5,358 shares of Class A common stock surrendered by participants of the Plans at a
weighted-average price of $121.51 per share for an aggregate purchase price of $0.7 million
pursuant to the terms of the Plans and the applicable award agreements. These share repurchases
were not made pursuant to publicly announced share repurchase authorizations.
Credit Facility
On March 7, 2008, we, and certain of our direct and indirect subsidiaries, as guarantors, entered
into an amended and restated credit agreement, referred to as the Amended and Restated Credit
Agreement, with Bank of America, N.A., and other lenders party thereto to amend and restate in its
entirety our Credit Agreement, dated as of November 27, 2007, by and among us, Bank of America,
N.A., and the lenders party thereto, referred to as the Original Credit Agreement. Pursuant to our request under
the terms of the Original Credit Agreement, the Amended and Restated Credit Agreement increased the
size of our secured revolving credit facility from $75.0 million to $250.0 million. We may select
interest rates equal to (a) the Base Rate (which is defined as the higher of Bank of America prime
rate and the Federal Funds Rate plus 0.50 percent), or (b) LIBOR plus an Applicable Rate, ranging
from 0.75 percent to 1.50 percent, based on our Consolidated Leverage Ratio, as each term is
defined in the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement
allows us from time to time to request that the credit facility be further increased by an amount
not to exceed, in the aggregate, $150.0 million, subject to receipt of lender commitments and other
conditions precedent. The Amended and Restated Credit Agreement contains financial covenants that,
among other things, require the maintenance of certain leverage and fixed charges coverage ratios.
The credit facility, which is secured by the capital stock of our present and future material
subsidiaries, will become due on March 7, 2013, subject to acceleration upon certain specified
events of defaults, including breaches of representations or covenants, failure to pay other
material indebtedness or a change of control of our Company, as defined in the Amended and Restated
Credit Agreement. The proceeds from the credit facility will be used for general corporate
purposes, including working capital, capital expenditures, and permitted acquisitions and share
repurchases. As of March 29, 2011 and December 28, 2010, we had no balance outstanding under the
Amended and Restated Credit Agreement.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon the
consolidated financial statements and notes to the consolidated financial statements, which have
been prepared in accordance with GAAP. The preparation of the consolidated financial statements
requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based
on the information available. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of contingent assets and
liabilities. Variances in the estimates or assumptions used could yield materially different
accounting results. On an ongoing basis, we evaluate the continued appropriateness of our
accounting policies and resulting estimates to make adjustments we consider appropriate under the
facts and circumstances.
We have chosen accounting policies we believe are appropriate to report accurately and fairly our
operating results and financial position, and we apply those accounting policies in a consistent
manner. As described in Item 7., Managements Discussion and Analysis of Financial Condition and
Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 28,
2010, we consider our policies on accounting for revenue recognition, valuation of goodwill,
self-insurance, income taxes, lease obligations, and stock-based compensation to be the most
critical in the preparation of the consolidated financial statements because they involve the most
difficult, subjective, or complex judgments about the effect of matters that are inherently
uncertain. There have been no material changes to our application of critical accounting policies
and significant judgments and estimates since December 28, 2010.
Contractual Obligations and Other Commitments
We currently anticipate 95 to 105 system-wide bakery-cafe openings in fiscal 2011. We expect to
fund our capital expenditures principally through internally generated cash flow and available
borrowings under our existing credit facility, if needed.
In addition to our planned capital expenditure requirements, we have certain other contractual and
committed cash obligations. Our contractual cash obligations consist of noncancelable operating
leases for our bakery-cafes, fresh dough facilities and trucks, and support centers; purchase
obligations primarily for certain commodities; and uncertain tax positions. Lease terms for our
trucks are generally for six to eight years. Lease terms for our bakery-cafes, fresh dough
facilities, and support centers are generally for ten years with renewal options at most locations
and generally require us to pay a proportionate share of real estate taxes, insurance, common area
maintenance, and other operating costs. Many bakery-cafe leases provide for contingent rental
(i.e. percentage rent) payments based on sales in excess of specified amounts or changes in
external indices. Certain of our lease agreements provide for scheduled rent increases during the
lease terms or for rental payments commencing at a date other than the date of initial occupancy.
Off-Balance Sheet Arrangements
As of March 29, 2011, we guaranteed operating leases of 27 franchisee or affiliate locations, which
we account for in accordance with the accounting standard for guarantees. These leases have terms
expiring on various dates from April 30, 2011 to December 31, 2023 and a potential amount of future
rental payments of approximately $24.9 million as of March 29, 2011. Our obligation under these
leases will generally decrease over time as these operating leases expire. We have not recorded a
liability for certain of these guarantees as they arose prior to the implementation of the
accounting standard for guarantees and, unless modified, are exempt from its requirements. We have
not recorded a liability for those guarantees issued after the effective date of the accounting
requirements because the fair value of each such lease guarantee was determined by us to be
insignificant based on analysis of the facts and circumstances of each such lease and each such
franchisees performance, and we did not believe it was probable we would be required to perform
under any guarantees at the time the guarantees were issued. We have not had to make any payments
related to any of these guaranteed leases. The applicable franchisees or affiliates continue to
have primary liability for these operating leases.
Recent Accounting Pronouncements
On December 30, 2009, we adopted the updated guidance issued by the Financial Accounting Standards
Board (FASB) related to fair value measurements and disclosures, which requires a reporting
entity to separately disclose the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and to describe the reasons for the transfers. The updated guidance also
requires that an entity provide fair value measurement disclosures for each class of assets and
liabilities and disclosures about the valuation techniques and inputs used to measure fair value
for both recurring and non-recurring Level 2 and Level 3 fair value measurements. This guidance
was effective for interim or annual financial reporting periods beginning after December 15, 2009.
The adoption of this updated guidance did not have an impact on our consolidated results of
operations or financial condition. In addition, the updated guidance requires that in the
reconciliation for fair value measurements using significant unobservable inputs, or Level 3, a
reporting entity separately disclose information about purchases, sales, issuances and settlements
on a gross basis rather than as one net number. This guidance was effective for interim or annual
financial reporting periods beginning after December 15, 2010. The adoption of this new guidance
did not have a material effect on our financial position or results of operations.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
There were no material changes in the quantitative and qualitative information about market risk
since the end of our most recent fiscal year. For further information, see Item 7A. of our Annual
Report on Form 10-K for the fiscal year ended December 28, 2010.
Item 4. | Controls and Procedures |
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of March 29, 2011. The
term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act are recorded, processed, summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act are accumulated and communicated to the
companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and
procedures were designed to provide reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the evaluation of our disclosure controls and procedures as of
March 29, 2011, our Chief Executive Officer and Chief Financial Officer concluded that, as of such
date, our disclosure controls and procedures were effective at the reasonable assurance level.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the first fiscal quarter ended March 29, 2011
that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
On January 25, 2008 and February 26, 2008, purported class action lawsuits were filed against us
and three of our current or former executive officers by the Western Washington Laborers-Employers
Pension Trust and Sue Trachet, respectively, on behalf of investors who purchased our common stock
during the period between November 1, 2005 and July 26, 2006. Both lawsuits were filed in the
United States District Court for the Eastern District of Missouri, St. Louis Division. Each
complaint alleges that we and the other defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10b-5 under the Exchange
Act in connection with our disclosure of system-wide sales and earnings guidance during the period
from November 1, 2005 through July 26, 2006. Each complaint seeks, among other relief, class
certification of the lawsuit, unspecified damages, costs and expenses, including attorneys and
experts fees, and such other relief as the Court might find just and proper. On June 23, 2008,
the lawsuits were consolidated and the Western Washington Laborers-Employers Pension Trust was
appointed lead plaintiff. On August 7, 2008, the plaintiff filed an amended complaint, which
extended the class period to November 1, 2005 through July 26, 2007. Following the filing of
motions by both parties and hearings before the Court, on February 11, 2011, the parties filed with
the Court a Stipulation of Settlement regarding the class action lawsuit. Under the terms of the
Stipulation of Settlement, our primary directors and officers liability insurer will deposit $5.7
million into a settlement fund for payment to class members, plaintiffs attorneys fees and costs
of administering the settlement. The settlement must be approved by the Court before becoming
effective. The Stipulation of Settlement contains no admission of wrongdoing. We and the other
defendants have maintained and continue to deny liability and wrongdoing of any kind with respect
to the claims made in the class action lawsuit. However, given the potential cost and burden of
continued litigation, we believe the settlement is in our best interests and the best interests of
our stockholders. On February 22, 2011, the Court preliminarily approved the settlement and
scheduled a settlement hearing on June 22, 2011. If the Court grants final approval of the
Stipulation of Settlement, the Court will dismiss the class action lawsuit with prejudice and the
plaintiff will be deemed to have released all claims against us relating to the allegations in the
class action. We can provide no assurance that the Court will approve the Stipulation of
Settlement. If the Court does not approve the Stipulation of Settlement, we will continue to
defend against these claims, which could have a material adverse effect on our financial condition and business. If these matters were concluded in a manner
adverse to us, we could be required to pay substantially more in damages than the amount provided
for in the Stipulation of Settlement. In addition, the costs to us of defending any litigation or
other proceeding, even if resolved in our favor, could be substantial. Such litigation could also
substantially divert the attention of our management and our resources in general. The amount
deposited by our primary directors and officers liability insurer into the settlement fund of $5.7
million is included in other accounts receivable and accrued expenses in our Consolidated Balance
Sheets as of March 29, 2011.
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On February 22, 2008, a shareholder derivative lawsuit was filed against us as nominal defendant
and against certain of our current or former officers and certain current directors. The lawsuit
was filed by Paul Pashcetto in the Circuit Court of St. Louis, Missouri. The complaint alleges,
among other things, breach of fiduciary duty, abuse of control, waste of corporate assets and
unjust enrichment between November 5, 2006 and February 22, 2008. The complaint seeks, among other
relief, unspecified damages, costs and expenses, including attorneys fees, an order requiring us
to implement certain corporate governance reforms, restitution from the defendants and such other
relief as the Court might find just and proper. Following the filing of motions by both parties
and hearings before the Court, on February 22, 2011, the parties filed with the Court a Stipulation
of Settlement regarding the shareholder derivative lawsuit. Under the terms of the Stipulation of
Settlement, we agreed, among other things, to implement and maintain certain corporate governance
additions, modifications and/or formalizations, and our insurer will pay plaintiffs attorneys
fees and expenses of $1.4 million. The Stipulation of Settlement contains no admission of
wrongdoing and would result in the dismissal of the shareholder derivative suit with prejudice, and
under such settlement, the plaintiff would be deemed to have released all claims against the
defendants relating to the allegations in the derivative action. We and the other defendants have
maintained and continue to deny liability and wrongdoing of any kind with respect to the claims
made in the shareholder derivative action. On April 8, 2011, the Court granted final approval of
the settlement, subject to a 30 day appeal period. The amount deposited by our primary directors
and officers liability insurer into the settlement fund of $1.4 million is included in other
accounts receivable and accrued expenses in our Consolidated Balance Sheets as of March 29, 2011.
On December 9, 2009, a purported class action lawsuit was filed against us and one of our
subsidiaries by Nick Sotoudeh, a former employee of ours. The lawsuit was filed in the California
Superior Court, County of Contra Costa. The complaint alleges, among other things, violations of
the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and
termination compensation and violations of Californias Unfair Competition Law. The complaint
seeks, among other relief, collective and class certification of the lawsuit, unspecified damages,
costs and expenses, including attorneys fees, and such other relief as the Court might find just
and proper. We believe we and the other defendant have meritorious defenses to each of the claims
in this lawsuit and we are prepared to vigorously defend the lawsuit. There can be no assurance,
however, that we will be successful, and an adverse resolution of the lawsuit could have a material
adverse effect on our consolidated financial position and results of operations in the period in
which the lawsuit is resolved. We are not presently able to reasonably estimate potential losses,
if any, related to the lawsuit and as such, have not recorded a liability in our Consolidated
Balance Sheets.
On December 16, 2010, a purported class action lawsuit was filed against us by Denarius Lewis and
Corey Weiner, former employees of one of our subsidiaries, and Caroll Ruiz, an employee of one of
our franchisees. The lawsuit was filed in the United States District Court for Middle District of
Florida. The complaint alleges, among other things, violations of the Fair Labor Standards Act.
The complaint seeks, among other relief, collective and class certification of the lawsuit,
unspecified damages, costs and expenses, including attorneys fees, and such other relief as the
Court might find just and proper. We believe we and the other defendant have meritorious defenses
to each of the claims in this lawsuit and we are prepared to vigorously defend the lawsuit. There
can be no assurance, however, that we will be successful, and an adverse resolution of the lawsuit
could have a material adverse effect on our consolidated financial position and results of
operations in the period in which the lawsuit is resolved. We are not presently able to reasonably
estimate potential losses, if any, related to the lawsuit and as such, have not recorded a
liability in our Consolidated Balance Sheets.
On December 20, 2010, a purported class action lawsuit was filed against us by Jamie Ortiz, a
former employee of one of our subsidiaries. The lawsuit was filed in the United States District
Court for the Northern District of Virginia. The complaint alleges, among other things, violations
of the Fair Labor Standards Act. Mr. Ortiz also has alleged several individual claims for Title
VII retaliation, defamation and intentional infliction of emotional distress. The complaint seeks,
among other relief, collective, and class certification of the lawsuit, unspecified damages, costs
and expenses, including attorneys fees and such other relief as the Court might find just and
proper. We believe we have meritorious defenses to each of the claims in this lawsuit and we are
prepared to vigorously defend the lawsuit. There can be no assurance, however, that we will be
successful, and an adverse resolution of the lawsuit could have a material adverse effect on our
consolidated financial position and results of operations in the period in which the lawsuit is
resolved. We are not presently able to reasonably estimate potential losses, if any, related to
the lawsuit and as such, have not recorded a liability in our Consolidated Balance Sheets.
In addition, we are subject to other routine legal proceedings, claims and litigation in the
ordinary course of business. Defending lawsuits requires significant management attention and
financial resources and the outcome of any litigation, including the matters described above, is
inherently uncertain. We do not, however, currently expect that the costs to resolve these routine
matters will have a material adverse effect on our consolidated financial position, results of
operations, or cash flows.
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Item 1A. | Risk Factors |
Our business is subject to a number of risks, some of which are beyond our control. In addition to
the other information set forth in this report, you should carefully consider the factors discussed
in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December
28, 2010, as filed with the SEC on February 22, 2011, that could have a material effect on our
business, results of operations, financial condition and/or liquidity and that could cause our
operating results to vary significantly from period to period. As of March 29, 2011, there have
been no material changes to the risk factors disclosed in our most recent Annual Report on Form
10-K, although we may disclose changes to such factors or disclose additional factors from time to
time in our future filings with the SEC. Additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial also may materially adversely affect our business,
financial condition, or operating results.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the thirteen weeks ended March 29, 2011, we repurchased Class A common stock as follows:
Approximate Dollar | ||||||||||||||||
Total Number of | Value of Shares That | |||||||||||||||
Shares Purchased as | May Yet Be Purchased | |||||||||||||||
Total Number of | Average Price | Part of Publicly | Under the Announced | |||||||||||||
Period | Shares Purchased | Paid per Share | Announced Program | Program | ||||||||||||
December 29, 2010 January 25, 2011 |
| $ | | | $ | 448,238,968 | ||||||||||
January 26, 2011 March 1, 2011 |
227 | (1) | 115.83 | | 448,238,968 | |||||||||||
March 2, 2011 March 29, 2011 |
5,131 | (1) | 121.76 | | 448,238,968 | |||||||||||
Total |
5,358 | $ | 121.51 | | $ | 448,238,968 | ||||||||||
(1) | Represents Class A common stock surrendered by participants under the Panera Bread 1992
Stock Incentive Plan and the Panera Bread 2006 Stock Incentive Plan, as amended, as payment of
applicable tax withholding on the vesting of restricted stock. Shares so surrendered by the
participants are repurchased by us pursuant to the terms of those plans and the applicable
award agreements and not pursuant to publicly announced share repurchase authorizations. |
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Item 6. | Exhibits |
Exhibit | ||||
Number | Description | |||
31.1 | Certification by Chief Executive Officer |
|||
31.2 | Certification by Chief Financial Officer |
|||
32 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer |
|||
101.INS | * | XBRL Instance Document |
||
101.SCH | * | XBRL Taxonomy Extension Schema Document |
||
101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase Document |
||
101.LAB | * | XBRL Taxonomy Extension Label Linkbase Document |
||
101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase Document |
||
101.DEF | * | XBRL Taxonomy Extension Definition Linkbase Document |
* | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly
Report on Form 10-Q shall be deemed to be furnished and not filed. |
23
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Panera Bread Company | ||||
(Registrant) |
||||
Dated: May 4, 2011 | By: | /s/ William W. Moreton | ||
William W. Moreton | ||||
President, Chief Executive Officer (on behalf of registrant and as principal executive officer) |
||||
Dated: May 4, 2011 | By: | /s/ Jeffrey W. Kip | ||
Jeffrey W. Kip | ||||
Senior Vice President, Chief Financial Officer (principal financial officer) |
||||
Dated: May 4, 2011 | By: | /s/ Amy L. Kuzdowicz | ||
Amy L. Kuzdowicz | ||||
Vice President, Controller | ||||
Dated: May 4, 2011 | By: | /s/ Mark D. Wooldridge | ||
Mark D. Wooldridge | ||||
Assistant Controller, Chief Accounting Officer |
24
Table of Contents
EXHIBIT INDEX
Exhibit | ||||
Number | Description | |||
31.1 | Certification by Chief Executive Officer |
|||
31.2 | Certification by Chief Financial Officer |
|||
32 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by
Chief Executive Officer and Chief Financial Officer |
|||
101.INS | * | XBRL Instance Document |
||
101.SCH | * | XBRL Taxonomy Extension Schema Document |
||
101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase Document |
||
101.LAB | * | XBRL Taxonomy Extension Label Linkbase Document |
||
101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase Document |
||
101.DEF | * | XBRL Taxonomy Extension Definition Linkbase Document |
* | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly
Report on Form 10-Q shall be deemed to be furnished and not filed. |