Panera Bread 2003 Annual Report Download

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PANERA BREAD COMPANY ANNUAL REPORT

Table of contents

  • Page 1
    PANERA BREAD COMPANY ANNUAL REPORT

  • Page 2
    ... 70,000 consumers conducted by Sandelman & Associates. As I write this letter, we have learned that the 2004 study again placed Panera Bread as the customer satisfaction leader in the industry. • Restaurants and Institutions' annual Choice in Chains survey of 3,000 consumers indicated that we were...

  • Page 3
    ...-carb soups and salads available in our bakery-cafes. Also, in the spring of 2004, we will introduce several new breads and bagels that are particularly appropriate for sandwiches, significantly lower in net carbs and, unlike much of what is sold as "Atkins bread," worthy of the Panera Bread name...

  • Page 4
    ... with our Joint Venture Partnership Program, to access new markets. To ensure this development is executed properly, we continue to make significant improvements in our development infrastructure. In 2003, our development team doubled in size to 55 people. In 2004, we expect the department to grow...

  • Page 5
    ... Panera Bread Company (Exact name of registrant as speciÃ'ed in its charter) Delaware (State or other jurisdiction of incorporation or organization) 04-2723701 (I.R.S. Employer IdentiÃ'cation No.) 6710 Clayton Rd., Richmond Heights, MO (Address of principal executive oÇces) 63117 (Zip code...

  • Page 6
    ...the Company entered into a Stock Purchase Agreement to sell the Au Bon Pain Division to ABP Corporation for $73.0 million in cash before contractual purchase price adjustments of $1.0 million. The sale was completed May 16, 1999. At that time, the Company changed its name to Panera Bread Company. As...

  • Page 7
    ...Panera Bread a nationally dominant brand name. Its menu, prototype, operating systems, design and real estate strategy allow it to compete successfully in several sub-businesses: breakfast, lunch, PM ""chill out,'' lunch in the evening, and take home bread. On a system-wide basis, annualized average...

  • Page 8
    ... on breakfast and lunch competitors. Based on analysis of this information including utilization of predictive modeling using proprietary software, the Company determines projected sales and return on investment. The Panera concept has proven successful in a number of diÃ...erent types of real estate...

  • Page 9
    ...its trade areas. The Company's bakerycafes compete based on customers' needs for breakfast, lunch, daytime ""chill-out,'' lunch in the evening, and take home bread sales. The competitive factors include location, environment, customer service, price, and quality of products. The Company competes for...

  • Page 10
    ...support. The Company's in-store information system is designed to assist in labor scheduling and food cost management, to provide corporate and retail operations management quick access to retail data, and to reduce managers' administrative time. The system supplies sales, bank deposit, and variance...

  • Page 11
    ... develop locations through new area developers in that market. At the present time, the Company does not have any international franchise development agreements. EMPLOYEES As of December 27, 2003, the Company had 3,924 full-time associates (deÃ'ned as associates who average 25 hours or more per week...

  • Page 12
    ...forth below: Facility Square Footage Franklin, MA Chicago, IL Cincinnati, OH Washington, DC (located in Beltsville, MD Warren, OH St. Louis, MO Orlando, FL Atlanta, GA Greensboro, NC Kansas City, KS Detroit, MI Dallas, TX Minneapolis, MN Ontario, CA FairÃ'eld, NJ Denver, CO 40,300...

  • Page 13
    ...EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information. The Company's Class A Common Stock is traded on The Nasdaq National Market tier of the Nasdaq Stock Market under the symbol ""PNRA.'' There is no established public trading market for the Company's 9

  • Page 14
    ... sale price for the Class A Common Stock, as reported on the Nasdaq National Market System, was $38.76. (b) Holders. On February 27, 2004, the Company had 1,939 holders of record of its Class A Common Stock and 46 holders of its Class B Common Stock. (c) Dividends. The Company has never paid cash...

  • Page 15
    ...: Bakery-cafe expenses: Cost of food and paper products ÏÏ Labor Occupancy Other operating expenses Total bakery-cafe expensesÏÏÏÏÏ Fresh dough cost of sales to franchisees Depreciation and amortization General and administrative expensesÏÏÏ Pre-opening expenses Non-recurring charge...

  • Page 16
    ...ect of accounting change(5 Net income (loss Weighted average shares of common stock outstanding: Basic Diluted Comparable bakery-cafe sales percentage increases for: Company-owned bakery-cafes Franchise-operated bakery-cafes ÏÏÏÏ System-wide Consolidated balance sheet data: Cash and cash...

  • Page 17
    ... to the Company and the developers party to franchise development agreements within the Company; continued execution of development; obligations by franchisee groups; variations in the number and timing of bakery-cafe openings; public acceptance of new bakery-cafes; competition; availability of...

  • Page 18
    ... 28, December 29, 2003 2002 2001 Revenues: Bakery-cafe sales Franchise royalties and fees Fresh dough sals to franchisees Total revenue Costs and expenses: Bakery-cafe expenses(1): Cost of food and paper products Labor Occupancy Other operating expenses Total bakery-cafe expenses Fresh...

  • Page 19
    ... ROI based real estate decisions relating to new stores that negatively impacted existing store performance in 2003. In addition, during the second quarter of 2003, the Company began to implement increased staÇng and other initiatives that focused on quality and speed of customer service in Company...

  • Page 20
    ... due to the opening of 131 new bakery-cafes in 2003 as well as the increase in system-wide average weekly sales (excluding closed locations) of 0.7% for the Ã'fty-two weeks ended December 27, 2003. Bakery-cafe sales for the Ã'fty-two weeks ended December 27, 2003 for the Company increased 25.1% to...

  • Page 21
    terminate the ADA and develop Company-owned locations or develop locations through new area developers in that market. Fresh dough facility sales to franchisees increased 44.4% to $53.7 million for the Ã'fty-two weeks ended December 27, 2003 from $37.2 million for the Ã'fty-two weeks ended December ...

  • Page 22
    ... revenues, which help leverage general and administrative expenses, and from decreased bonus costs. Pre-opening expenses, which consist primarily of labor and food costs incurred during in-store training and preparation for opening, exclusive of manager training costs which are included in other...

  • Page 23
    .... If a franchisee fails to develop bakery-cafes on schedule, the Company has the right to terminate the ADA and develop Company-owned locations or develop locations through new area developers in that market. Franchise royalties and fees rose 42.3% for the Ã'fty-two weeks ended December 28, 2002 to...

  • Page 24
    ... of bakery-cafe sales. Additionally, food cost improvements resulted from better utilization of information provided by our information technology systems to manage food costs at the bakery-cafe. These eÇciencies were oÃ...set in part by ineÇciencies associated with the artisan bread roll out and...

  • Page 25
    ...-two weeks ended December 28, 2002. This was oÃ...set in part by the increased cost of product purchased under the Bunge Foods sweet goods contract. The Company entered into a Ã've-year supply agreement for sweet goods in 1998 with Bunge Foods Corporation (""Bunge''). The Company's pricing for years...

  • Page 26
    ...is non-refundable and the Company has to perform no other service to earn this fee. The remaining $30,000 is paid at the time an individual franchise agreement is signed and is recognized as revenue upon the commencement of franchise operations of the bakery-cafes. Royalties are paid weekly based on...

  • Page 27
    ... is structured as a cost plus agreement. In Ã'scal 2003, the Company executed ConÃ'dential and Proprietary Information and Non-Competition Agreements (Agreements) with certain employees. These Agreements contain a provision whereby employees would be due a certain number of weeks of their salary if...

  • Page 28
    ...government securities previously described. The Company has experienced no liquidity diÇculties and has historically been able to Ã'nance its operations through internally generated cash Ã-ow, cash from the exercise of employee stock options, and, when necessary, borrowings under its revolving line...

  • Page 29
    ... income have not been materially adverse. A majority of the Company's employees are paid hourly rates related to federal and state minimum wage laws. Although the Company has and will continue to attempt to pass along any increased labor costs through food price increases, there can be no assurance...

  • Page 30
    ..., butter, and coÃ...ee, for use in our business. These purchases are sometimes purchased under agreements of one to three year time frames usually at a Ã'xed price. As a result, we are subject to market risk that current market price may be below our contractual price. However, we do not use Ã'nancial...

  • Page 31
    ... ended December 27, 2003, December 28, 2002, and December 29, 2001 Notes to the Consolidated Financial Statements Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the Ã'nancial statements or notes thereto. 27

  • Page 32
    ... with accounting principles generally accepted in the United States of America. In addition, in our opinion, the Ã'nancial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related...

  • Page 33
    ..., except share and per share information) December 27, 2003 December 28, 2002 ASSETS Current Assets: Cash and cash equivalents Investments in government securities Trade accounts receivable, less allowance of $53 in 2003 and $33 in 2002ÏÏÏ Other accounts receivable Inventories Prepaid...

  • Page 34
    PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share information) For the Ã'scal years ended December 27, December 28, December 29, 2003 2002 2001 Revenues: Bakery-cafe sales Franchise royalties and fees Fresh dough sales to franchisees Total revenue Costs ...

  • Page 35
    ...ows from investing activities: Purchase of investments Investment maturities Additions to property and equipment Acquisitions Increase in deposits and other Other Net cash used in investing activities Cash Ã-ows from Ã'nancing activities: Exercise of employee stock options Proceeds from note...

  • Page 36
    PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Ã'scal years ended December 27, 2003, December 28, 2002, and December 29, 2001 (in thousands, except per share information) Common Stock $.0001 Par Value Class A Class B Shares Amount Shares Amount Balance December 30, 2000...

  • Page 37
    ... operations consist of 173 Company-owned bakery-cafes and 429 franchise-operated bakerycafes. The Company specializes in meeting consumer dining needs by providing high quality food, including fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coÃ...ees...

  • Page 38
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ÃŒ (Continued) Preparation of Financial Statements The preparation of Ã'nancial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and ...

  • Page 39
    ...eÃ...ective December 30, 2001, which established new accounting and reporting standards for purchase business combinations, intangible assets and goodwill. In compliance with SFAS 141 and SFAS 142, the Company did not amortize any of the goodwill related to acquisitions subsequent to June 30, 2001 and...

  • Page 40
    ... locations to third parties. The initial franchise fee is $35,000 per bakery-cafe to be developed under the Area Development Agreement (ADA). Of this fee, $5,000 is paid at the time of the signing of the ADA and is recognized as revenue when it is received, as it is non-refundable and the Company...

  • Page 41
    ...29, 2001, respectively. Pre-Opening Costs All pre-opening costs directly associated with the opening of new bakery-cafe locations, which consists primarily of labor and food costs incurred during in-store training and preparation for opening, exclusive of manager training costs which are included in...

  • Page 42
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued) and December 28, 2002, and December 29, 2001 would have been as follows (in thousands, except per share amounts): December 27, 2003 Fiscal year ended December 28, 2002 December 29, 2001 Net income, as reported ...

  • Page 43
    ... closed locations, and the area development rights for the Dallas market for a cash purchase price of $1.3 million with a commitment to purchase the furniture, Ã'xtures, and equipment of an additional bakery-cafe when it is closed for approximately $0.2 million. The acquisition price was paid with...

  • Page 44
    ...eÃ...ective December 30, 2001, which established new accounting and reporting standards for purchase business combinations, intangible assets and goodwill. In compliance with SFAS 141 and SFAS 142, the Company did not amortize any of the goodwill related to acquisitions subsequent to June 30, 2001 and...

  • Page 45
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued) December 30, 2001. A reconciliation of earnings and earnings per share following SFAS 142 adoption is as follows (in thousands, except per share amounts; per share amounts may not add due to rounding): December 27, ...

  • Page 46
    ... with renewal options at certain locations and generally require the Company to pay a proportionate share of real estate taxes, insurance, common area, and other operating costs. Many bakery-cafe leases provide for contingent rental (i.e., percentage rent) payments based on sales in excess of speci...

  • Page 47
    ... to attract and retain experienced and highly motivated personnel, which will result in a better customer experience. The Company developed a program and began implementation in certain markets in 2003 to allow unit general managers and multi-unit managers to own a minority interest in a bakery...

  • Page 48
    ..., the Company executed ConÃ'dential and Proprietary Information and Non-Competition Agreements (Agreements) with certain employees. These Agreements contain a provision whereby employees would be due a certain number of weeks of their salary if their employment was terminated by the Company as speci...

  • Page 49
    ... eÃ...ective tax rate beginning in the year ended December 28, 2002 results from the Company's restructuring of legal entities to better manage its intellectual property, which resulted in a lower eÃ...ective state income tax rate. The tax eÃ...ects of the signiÃ'cant temporary diÃ...erences which comprise...

  • Page 50
    ... based on annual estimates of taxable income. 11. Deposits and Other During Ã'scal 1997, the Company established a deposit program with its food products and supplies distributor, which allows the Company to receive lower distribution costs. The savings exceed the carrying value of the deposit...

  • Page 51
    ..., and Management's Discussion and Analysis of Financial Condition and Results of Operations. All applicable references to the number of common shares and per share information have been restated to reÃ-ect the twofor-one split on a retroactive basis. Each share of Class B Common Stock has the...

  • Page 52
    ...an option to purchase 10,000 shares of Class A Common Stock at a price per share equal to the closing price of the Class A Common Stock as reported by the NASDAQ/National Market System for the trading day immediately preceding the date of the person's election to the board. In addition, annually all...

  • Page 53
    ...a year may not exceed 10% of an employee's current year compensation) at 85% of the fair market value of the Class A Common Stock at the end of each calendar quarter. There were 26,493 and 35,191 shares purchased with a weighted average fair value of purchase rights of $5.42 and $4.44 as of December...

  • Page 54
    ...-cafes conduct business under the Panera Bread or Saint Louis Bread Company names. These bakery-cafes sell fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coÃ...ees, and other complementary products through onpremise sales. The Franchise Operations...

  • Page 55
    ...-cafes (includes majority-owned): Company-owned: Beginning of period Bakery-cafes opened Acquired from franchisees(1 Bakery-cafes closed End of period Franchise operated: Beginning of period Bakery-cafes opened Sold to Company(1 Bakery-cafes closed End of period System-wide: Beginning...

  • Page 56
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ÃŒ (Continued) The accounting policies applicable to each segment are consistent with those described in Note 2, ""Summary of SigniÃ'cant Accounting Policies.'' Segment information related to the Company's three business segments ...

  • Page 57
    ...before cumulative eÃ...ect of accounting change Cumulative eÃ...ect of accounting change, net of taxÏÏÏÏ Net income Weighted average number of shares outstanding ÃŒ basic EÃ...ect of dilutive securities: Employee stock options Weighted average number of shares outstanding ÃŒ diluted Basic earnings...

  • Page 58
    PANERA BREAD COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued) earnings per share as the exercise price exceeded fair market value and inclusion would have been antidilutive. 18. Deferred Revenue During 1999, the Company changed soft drink providers. As a result of this change, ...

  • Page 59
    ... of Directors'', and ""Management ÃŒ Employment Arrangements with Executive OÇcers'' in the Proxy Statement is incorporated by reference in this Report. Item 12. Security Ownership of Certain BeneÃ'cial Owners and Management and Related Stockholder Matters We incorporate the information concerning...

  • Page 60
    ... and Related Transactions None. Item 14. Principal Accounting Fees and Services The information under the heading ""RatiÃ'cation of Choice of Independent Public Accountants'' in the Proxy Statement is incorporated by reference in this Report. PART IV Item 15. Exhibits, Financial Statement Schedules...

  • Page 61
    ... 2. Financial Statement Schedule The following Ã'nancial statement schedule for the Company is Ã'led herewith: Schedule II ÃŒ Valuation and Qualifying Accounts PANERA BREAD COMPANY VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance at beginning of period Additionscharged to expense Balance at...

  • Page 62
    ... 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 By: /s/ RONALD M. SHAICH Ronald M. Shaich Chairman and Chief Executive OÇcer Pursuant to the requirements of Section 13 or 15...

  • Page 63
    ... amended to date. * Revolving Credit Agreement dated as of December 19, 2003 by and between Panera, LLC, as Borrower, and Bank of America, N.A., as Lender. * Registrant's 1992 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the...

  • Page 64
    ... 31.2 32 Employment Letter between the Registrant and Paul Twohig, dated as of October 29, 2002. Incorporated by reference to Exhibit 10.6.18 to the Company's Annual Report on Form 10-K for the year ended December 28, 2002.‰ Employee and Consultant Non-QualiÃ'ed Stock Option Agreement between the...

  • Page 65
    ... Senior Vice President, Chief Development Officer Stephen A. Blum Vice President, Real Estate Mark Brownstein Vice President, Franchise Operations Mariel Clark Vice President, Human Resources and Chief People Officer Transfer Agent EquiServe Trust Company, N.A. PO Box 43023 Providence, RI 02940...

  • Page 66
    ... Bread Best Bread Chattanooga Times Free Press, Chattanooga, TN Cleveland Magazine, Cleveland, OH Colorado Springs Independent, Colorado Springs, CO Des Moines City View, Des Moines, IA Detroit News, Detroit, MI Illinois Times, Central IL Pasadena Observer, Houston, TX Squire Newspaper, Kansas City...

  • Page 67
    ... IL This Week, Columbus, OH Watertown Tab, Boston, MA Best Grab-and-Go Lunch State College, State College, PA Salad Best Salads Springfield Magazine, Springfield, MO Healthy Meal Best Healthy Restaurant Sarasota Magazine, Sarasota, FL The Daily Tar Heel, Chapel Hill, NC Best Place for a Healthy...

  • Page 68
    Panera Bread Company 6710 Clayton Road Richmond Heights, MO 63117 T 314-633-7100 F 314-633-7200 www.panerabread.com © 2004 Panera Bread. All rights reserved.