Panera Bread 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 Panera Bread annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 68

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68

Panera Bread Company
2004 Annual Report to Stockholders

Table of contents

  • Page 1
    Panera Bread Company 2004 Annual Report to Stockholders

  • Page 2

  • Page 3
    ... the existing menu that already contained a variety of healthy options, to which we added several new lower-carb products in response to their needs. As our customers ate fewer sandwiches and chose more soups and salads, we saw some effect on margin structure due to changes in internal mix; however...

  • Page 4
    ... year, Panera Bread rated highest overall among 117 other chains in the Sandelman & Associates annual survey of 67,600 consumers, which we consider to be the definitive measure of customer satisfaction within our industry. In fact, we scored 22 percentage points above the all-chain average. Panera...

  • Page 5
    .... To that end, we are also significantly bolstering our product development and marketing teams, including substantial investment in marketing research, and expect to see the results of that research in 2006. Recognizing that the Panera Bread culture is a distinctive asset, we focus on ensuring that...

  • Page 6
    ... of sufficient capital to the Company and the developers party to franchise development agreements with the Company; variations in the number and timing of bakery-cafe openings; the ability by the Company and franchisees to operate additional bakery-cafes profitably; public acceptance of new bakery...

  • Page 7
    ... file number 0-19253 _____ Panera Bread Company (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 6710 Clayton Rd., Richmond Heights, MO (Address of principal executive offices) 04-2723701 (I.R.S. Employer Identification...

  • Page 8
    ... 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 of December 25, 2004, the Company operates, directly and through area development...

  • Page 9
    ... is to make 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. The Company has achieved this...

  • Page 10
    ... the development and operation of bakery-cafes. MENU The menu is designed to provide the Company's target customers with products which build on the strength of the Company's bakery expertise. The key menu groups are fresh baked goods, made-to-order sandwiches and salads, soups, and cafe beverages...

  • Page 11
    ... Each Company-operated bakery-cafe has computerized cash registers to collect point-of-sale transaction data which is used to generate pertinent transactional information, including product mix and average check. All product prices are programmed into the system from the Company's corporate office...

  • Page 12
    ... 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 data to the Company's accounting department on a daily basis...

  • Page 13
    ... is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime, and other working conditions. The Company is also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration...

  • Page 14
    ...Massachusetts ...Maryland ...Maine...Michigan...Minnesota ...Missouri...North Carolina ...Nebraska...Nevada...New Hampshire ...New Jersey ...New York ...Ohio ...Oklahoma ...Pennsylvania...Rhode Island...South Carolina ...Tennessee ...Texas ...Virginia...West Virginia ...Wisconsin ...Totals ...ITEM...

  • Page 15
    ... to a vote of security holders during the fourth quarter of the fiscal year ended December 25, 2004. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Market Information. The Company's Class A Common Stock is traded...

  • Page 16
    ...2004 Revenues: Bakery-cafe sales...Franchise royalties and fees...Fresh dough sales to franchisees...Total Revenue ...Costs and expenses: Bakery-cafe expenses: Cost of food and paper products...Labor...Occupancy...Other operating expenses ...Total bakery-cafe expenses ...Fresh dough cost of sales to...

  • Page 17
    ... tax benefit of approximately $0.1 million), or $.01 per diluted share. For further information, see Note 2, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements. The Company restated its consolidated financial statements correcting the computation of straight-line...

  • Page 18
    ...sufficient capital to the Company and the developers party to franchise development agreements with the Company; variations in the number and timing of bakery-cafe openings; the ability by the Company and franchisees to operate additional bakery-cafes profitably; public acceptance of new bakerycafes...

  • Page 19
    ... key metrics: 143 new bakery-cafes opened in fiscal 2004, including 54 new Company-owned bakery-cafes (nearly double new Company-owned bakerycafes opened in fiscal 2003) and 89 new franchise bakery-cafes, comparable bakery-cafe sales growth of 2.7%, and average weekly sales of $36,008, and operating...

  • Page 20
    ... 28, 2004 2003 2002 Revenues: Bakery-cafe sales ...Franchise royalties and fees...Fresh dough sales 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 21
    ... "Via Panera" catering business which began in 2004, sales from strengthened new product development in 2004, the implementation of several Company initiatives by the franchised bakery-cafes in 2004 related to increased staffing, quality, and speed of customer service, and price increases. Sales in...

  • Page 22
    ... total net sales by operating weeks. Accordingly, year over year growth reflects all sales, whereas comp store sales reflects only sales for those bakery-cafes that have been open for more than 18 months. Bakery-cafe sales for the fifty-two weeks ended December 25, 2004 for the Company increased...

  • Page 23
    ... in other bakery-cafe operating expenses as a percentage of bakery-cafe sales for the fifty-two weeks ended December 25, 2004 is primarily due to increased organizational costs for field management, including recruiting, training, and advertising, associated with new markets that do not yet have...

  • Page 24
    ..., 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 general and administrative expenses, were $2.6 million, or 0.6% of total revenue, for the fifty-two weeks ended December 25, 2004...

  • Page 25
    ...Franchise fees ...Total... $ 32,903 3,342 $ 36,245 $ 24,692 3,200 $ 27,892 The increase in royalty revenue can be attributed to the impact of a full year's operations of the 92 franchised bakery-cafes opened in 2002 and the addition of 102 franchised bakery-cafes in 2003. The average weekly sales...

  • Page 26
    ... organizational costs for field management, costs associated with new markets opened which do not yet have multi-unit leverage, and increased recruiting and training, repair and maintenance, and advertising costs. For the fifty-two weeks ended December 27, 2003, fresh dough facility cost of sales to...

  • Page 27
    ...the Company recognized a one-time cumulative effect charge of approximately $0.2 million (net of deferred tax benefit of approximately $0.1 million), or $.01 per diluted share. For further information, see Note 2, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements...

  • Page 28
    ... critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions, and estimates necessary in determining the related asset and liability amounts. The Company recognizes revenue upon delivery of product or performance of services as follows...

  • Page 29
    ...the transfer of two operating bakery-cafes and one bakery-cafe under construction. See Note 4 to the Consolidated Financial Statements for further information on this transaction. Total capital expenditures were $45.8 million for the fifty-two weeks ended December 27, 2003 and were primarily related...

  • Page 30
    ... offices are generally for ten years with renewal options at most 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...

  • Page 31
    ... 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 that all such increased labor costs can be reflected...

  • Page 32
    ..., the FASB issued Staff Position No. FAS 109-1, "Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities provided by the American Jobs Creation Act of 2004" ("FSP 109-1"). FSP 109-1 states that qualified domestic production activities should...

  • Page 33
    ... changed its method of accounting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs to conform to Statement of Financial Accounting Standards No. 143. Internal control over financial reporting Also, in our opinion, management...

  • Page 34
    ... with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its...

  • Page 35
    ... 28,296,581 issued and 28,187,581 outstanding in 2003 ...Class B, 10,000,000 shares authorized; 1,451,647 issued and outstanding in 2004 and 1,847,221 in 2003 ...Treasury stock, carried at cost ...Additional paid-in capital ...Retained earnings ...Total stockholders' equity ...Total liabilities and...

  • Page 36
    ... Bakery-cafe sales ...Franchise royalties and fees...Fresh dough sales to franchisees...Total revenue...Costs and expenses: Bakery-cafe expenses: Cost of food and paper products ...Labor...Occupancy ...Other operating expenses ...Total bakery-cafe expenses ...Fresh dough cost of sales to franchisees...

  • Page 37
    ...: Additions to property and equipment ...Acquisitions ...Purchase of investments ...Investment maturities proceeds ...Decrease (increase) in deposits and other ...Net cash used in investing activities...Cash flows from financing activities: Exercise of employee stock options...Proceeds from note...

  • Page 38
    PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Fiscal Years Ended December 25, 2004, December 27, 2003, and December 28, 2002 (in thousands, except per share information) Common Stock $.0001 Par Value Class B Class A Amount Shares Amount Shares 26,018 $ 3 2,589 26,018 ...

  • Page 39
    ... Company-owned bakerycafes and 515 franchise-operated bakery-cafes. 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 coffees, and other cafe beverages...

  • Page 40
    ... of food products, paper goods and supplies, and promotional items, are valued at the lower of cost or market, determined under the first-in, first-out method. Property and Equipment Property, equipment, and leaseholds are stated at cost. Depreciation is provided using the straight-line method over...

  • Page 41
    .... The Company performs its impairment assessment by comparing discounted cash flows from acquired businesses with the carrying value of the underlying net assets inclusive of goodwill. The Company completed annual impairment tests as of the first day of the fourth quarter of fiscal years 2003 and...

  • Page 42
    ...-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 other operating expenses...

  • Page 43
    ... during the year. Shares of common stock outstanding have been retroactively adjusted to give effect to the two-for-one stock split on June 24, 2002. Fair Value of Financial Instruments The carrying amount of the Company's accounts receivable and accounts payable approximate their fair values due to...

  • Page 44
    ... No. 123, "Accounting for Stock-Based Compensation." SFAS 123R will require the Company to, among other things, measure employee stock-based compensation awards where applicable using a fair value method and record related expense in the Company's consolidated financial statements. The provisions of...

  • Page 45
    ...' equity...Consolidated Statement of Operations Cost of food and paper products ...Occupancy ...Total bakery-cafe expenses...Depreciation and amortization...Total costs and expenses...Operating profit ...Income before income taxes and cumulative effect of accounting change...Income taxes ...Income...

  • Page 46
    ... construction, as well as the area development rights for the Toledo, Ohio and Ann Arbor, Michigan markets for a net purchase price of approximately $14.2 million (includes $0.1 million paid in fiscal 2004). The acquisition price was paid with cash on hand. The Consolidated Statements of Operations...

  • Page 47
    ... and one bakery-cafe under construction as well as the area development rights for the Jacksonville, Florida market for a net purchase price of $3.3 million. The acquisition price was paid with cash on hand. The Consolidated Statements of Operations include the results of operations of the three...

  • Page 48
    ...replaced the Company's previous $10.0 million unsecured revolving line of credit (old revolver). The old revolver had an interest rate of LIBOR plus 1%. The old revolver contained restrictions relating to future indebtedness, liens, investments, distributions, mergers, acquisition, or sale of assets...

  • Page 49
    ...offices are generally for ten years 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...

  • Page 50
    ... adverse effect on the Company's financial position, results of operations, or cash flow. 11. Income Taxes The provision for income taxes attributable to income before income taxes and cumulative effect of accounting change in the consolidated statements of operations is comprised of the following...

  • Page 51
    ... ("COLI") program covering a substantial portion of its employees to help manage long-term employee benefit cost and to obtain tax deductions on interest payments on insurance policy loans. However, in 1996, tax law changes adopted as part of the Health Insurance Portability and Accountability Act...

  • Page 52
    ... Statements, 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 reflect the two-for-one split on a retroactive basis. Each share of Class B Common Stock...

  • Page 53
    ... amended by the Board of Directors and stockholders to increase the number of shares of Class A Common Stock reserved for issuance from 300,000 to 700,000. The 1992 Purchase Plan gives eligible employees the option to purchase Class A Common Stock (total purchases in a year may not exceed 10% of...

  • Page 54
    ... by the Company. The Company-owned bakery-cafes conduct business under the Panera Bread(R) and Saint Louis Bread Co.(R) names. These bakery-cafes sell fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other complementary products through...

  • Page 55
    ...In October 2004, the Company transferred two operating bakery-cafes and one bakery-cafe under construction to a new franchisee in the acquisition of the minority interest. See Note 4 to the Consolidated Financial Statements for further information. The accounting policies applicable to each segment...

  • Page 56
    ...) Segment assets: Company bakery-cafe operations ...Franchise operations ...Fresh dough operations...Total segment assets ...Total segment assets ...Unallocated trade and other accounts receivable...Unallocated inventories ...Unallocated property and equipment ...Unallocated deposits and other...

  • Page 57
    ...Financial Statements, the Company restated its consolidated statements of operations correcting the computation of straight-line rent expense and related leasehold improvement depreciation expense and the classification of landlord allowances. The effect of the restatement increased operating profit...

  • Page 58
    ...within the time periods specified in the SEC's rules and forms. In coming to the conclusion that our internal control over financial reporting was effective as of December 25, 2004, our management considered, among other things, the control deficiency related to periodic review of the application of...

  • Page 59
    ... 813,992 - 813,992 (1) Number of shares is subject to adjustment for changes in capitalization such as stock splits, stock dividends and similar events. (2) Consists of the 2001 Employee, Director, and Consultant Stock Option Plan, 1992 Employee Stock Purchase Plan, 1992 Equity Incentive Plan, and...

  • Page 60
    PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements The following described consolidated financial statements of the Company are included in this report: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 25, 2004 ...

  • Page 61
    ... RICHARD R. ISAAK Richard R. Isaak Chairman and Chief Executive Officer Director Director Director Director Executive Vice President, Chief Administrative Officer Senior Vice President, Chief Financial Officer Vice President, Controller, Chief Accounting Officer March 17, 2005 March 17, 2005 March...

  • Page 62
    ... December 29, 2001.†Registrant's 2001 Employee, Director and Consultant Stock Option Plan. Incorporated by reference to Appendix B to the Registrant's Proxy Statement on Schedule 14A for the 2001 Annual Meeting of Shareholders.†Operating Agreement for Cap City Bread, LLC dated October 7, 2001...

  • Page 63
    ...to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 28, 2002. Registrant's Subsidiaries.* Consent of Independent Registered Public Accounting Firm.* Certification by Chief Executive Officer.* Certification by Chief Financial Officer.* Certification Pursuant to 18...

  • Page 64
    ... Financial Officer Senior Vice President, Chief Information Officer Senior Vice President, Chief Franchise Officer Senior Vice President, Chief Company and JV Operations Officer Senior Vice President, Chief Development Officer Vice President, Real Estate Vice President, Franchise Operations Vice...

  • Page 65
    Board of Directors: Ronald M. Shaich (Chairman) Domenic Colasacco Larry J. Franklin Fred K. Foulkes Thomas E. Lynch Transfer Agent: EquiServe Trust Company, N.A. P.O. Box 219045 Kansas City, MO 64121-9045 www.equiserve.com Stockholder Inquiries: 877-282-1169 Panera Bread Investor Relations: 314-...

  • Page 66

  • Page 67

  • Page 68