PANERA BREAD CO, 10-Q, 2000-08-22

PANERA BREAD CO
10-Q, 2000-08-22
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

------------------------

FORM 10-Q

(MARK ONE)

<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE QUARTERLY PERIOD ENDED JULY 8, 2000
OR

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 0-19253

------------------------

PANERA BREAD COMPANY

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 04-2723701
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

7930 BIG BEND BLVD, WEBSTER GROVES, MO 63119
(Address of principal executive offices) (Zip code)
</TABLE>

(314) 918-7779
(Registrant's telephone number, including area code)

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

As of August 11, 2000, 10,958,843 shares and 1,525,271 shares of the
registrant's Class A and Class B Common Stock, respectively, $.0001 par value,
were outstanding.

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<PAGE>
PANERA BREAD COMPANY
INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS........................................ 3

Consolidated Balance Sheets as of
July 8, 2000 and December 25, 1999.......................... 3

Consolidated Statements of Operations
for the twelve and twenty-eight weeks ended
July 8, 2000 and July 10, 1999.............................. 4

Consolidated Statements of Cash Flows
for the twenty-eight weeks ended July 8,
2000 and July 10, 1999...................................... 5

Notes to Consolidated Financial Statements.................. 6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 9

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................... 14

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 15
</TABLE>

2
<PAGE>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PANERA BREAD COMPANY

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
JULY 8, 2000 DECEMBER 25, 1999
------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 224 $ 1,936
Accounts receivable, less allowance of $197 in 2000 and
1999.................................................... 2,316 2,686
Inventories............................................... 1,909 1,880
Prepaid expenses.......................................... 568 484
Refundable income taxes................................... 98 98
Deferred income taxes..................................... 6,727 5,473
------- -------
Total current assets.................................... 11,842 12,557
------- -------
Property and equipment, net................................. 53,156 47,191
Other assets:
Notes receivable.......................................... 20 35
Intangible assets, net of accumulated amortization of
$6,465 in 2000 and $5,932 in 1999....................... 18,246 18,779
Deposits and other........................................ 5,149 4,048
Deferred income taxes..................................... 5,231 8,419
------- -------
Total other assets...................................... 28,646 31,281
------- -------
Total assets............................................ $93,644 $91,029
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,125 $ 3,535
Accrued expenses.......................................... 10,945 12,237
Current portion of computer equipment financing........... 389 --
------- -------
Total current liabilities............................... 13,459 15,772

Deferred revenue............................................ 1,791 2,011
Long term portion of computer equipment financing........... 376 --
------- -------
Total liabilities....................................... 15,626 17,783

Stockholders' equity:
Common stock, $.0001 par value:
Class A shares authorized 50,000,000; issued and
outstanding 10,939,072 and 10,630,717 in 2000 and 1999,
respectively............................................ 1 1
Class B shares authorized 2,000,000; issued and
outstanding 1,530,274 and 1,535,821 in 2000 and 1999,
respectively............................................ -- --
Additional paid-in capital.................................. 71,905 70,581
Retained earnings........................................... 6,112 2,664
------- -------
Total stockholders' equity.............................. 78,018 73,246
------- -------
Total liabilities and stockholders' equity.............. $93,644 $91,029
======= =======
</TABLE>

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

3
<PAGE>
PANERA BREAD COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Costs and expenses:
Restaurant expenses:
Cost of food and paper products............ 9,020 11,300 20,320 35,661
Labor...................................... 8,019 9,814 18,031 31,792
Occupancy.................................. 1,983 3,231 4,536 12,032
Other operating expenses................... 3,458 4,239 7,789 13,026
------- ------- ------- --------
22,480 28,584 50,676 92,511

Commissary cost of sales................... 2,396 1,526 5,605 3,166
Depreciation and amortization.............. 1,828 1,418 4,174 3,218
General and administrative expenses........ 3,244 3,553 7,379 10,441
Non-recurring charge....................... -- -- -- 5,545
------- ------- ------- --------
Total costs and expenses................. 29,948 35,081 67,834 114,881
------- ------- ------- --------

Operating profit (loss)........................ 2,346 1,796 4,886 (79)
Interest expense, net.......................... 69 620 148 2,504
Other (income) expense, net.................... 8 57 (14) 460
Gain on sale of Au Bon Pain Division........... 900 -- 900 --
Minority interest.............................. -- (14) -- (25)
------- ------- ------- --------
Income (loss) before income taxes and
extraordinary item........................... 3,169 1,133 5,652 (3,018)
Income tax provision........................... 1,236 385 2,204 859
------- ------- ------- --------
Income (loss) before extraordinary item........ 1,933 748 3,448 (3,877)

Extraordinary loss from early extinguishment of
debt, net of tax of $197 (Note F)............ -- 382 -- 382
------- ------- ------- --------
Net income (loss).............................. 1,933 366 3,448 (4,259)
------- ------- ------- --------
Basic earnings (loss) per common share:
Income (loss) before extraordinary loss...... $ 0.16 $ 0.06 $ 0.28 $ (0.32)
Extraordinary loss........................... -- $ (0.03) -- $ (0.03)
------- ------- ------- --------
Net Income (loss).......................... $ 0.16 $ 0.03 $ 0.28 $ (0.35)
------- ------- ------- --------
Diluted earnings (loss) per common share:
Income (loss) before extraordinary loss...... $ 0.15 $ 0.06 $ 0.27 $ (0.32)
Extraordinary loss........................... -- $ (0.03) -- $ (0.03)
------- ------- ------- --------
Net Income (loss).......................... $ 0.15 $ 0.03 $ 0.27 $ (0.35)
------- ------- ------- --------
Weighted average number of common and common
equivalent shares outstanding--basic......... 12,325 12,142 12,243 12,120
======= ======= ======= ========
Weighted average number of common and common
equivalent shares outstanding--diluted....... 12,879 12,165 12,548 12,120
======= ======= ======= ========
</TABLE>

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

4
<PAGE>
PANERA BREAD COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE TWENTY-EIGHT WEEKS ENDED
---------------------------------
JULY 8, 2000 JULY 10, 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operations:
Net income (loss)......................................... $ 3,448 $ (4,259)
Adjustments to reconcile net income (loss) to net cash
provided
by operating activities:
Depreciation and amortization............................. 4,174 3,490
Provision for losses on accounts receivable............... -- 21
Minority interest......................................... -- (25)
Deferred income taxes..................................... 1,934 --
Non-recurring charge...................................... -- 5,545
Extraordinary loss on early extinguishment of debt........ -- 382
Changes in operating assets and liabilities:
Accounts receivable....................................... 370 (323)
Inventories............................................... (29) 110
Prepaid expense........................................... (84) (3,958)
Accounts payable.......................................... (1,410) (2,276)
Accrued expenses.......................................... (1,292) 1,054
Deferred revenue.......................................... (220) 2,160
-------- ---------
Net cash provided by operating activities............... 6,891 1,921
-------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment................ (9,607) (10,108)
Change in cash included in net current liabilities held
for sale................................................ -- (466)
Proceeds from sale of assets.............................. -- 72,163
Payments received on notes receivable..................... 15 119
Decrease in intangible assets............................. -- (50)
Increase in deposits and other............................ (1,101) (90)
-------- ---------
Net cash provided by (used in) investing activities..... (10,693) 61,568
-------- ---------
Cash flow from financing activities:
Exercise of employee stock options........................ 1,256 11
Proceeds from issuance of debt............................ 11,115 41,043
Principal payments on debt................................ (10,350) (105,279)
Proceeds from issuance of common stock.................... 69 387
Increase in deferred financing costs...................... -- (95)
Decrease in minority interest............................. -- (120)
-------- ---------
Net cash provided by (used in) financing activities..... 2,090 (64,053)
-------- ---------
Net (decrease) in cash and cash equivalents................. (1,712) (564)
Cash and cash equivalents at beginning of period............ 1,936 1,860
-------- ---------
Cash and cash equivalents at end of period.................. $ 224 $ 1,296
-------- ---------
</TABLE>

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

5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited, consolidated financial statements of Panera
Bread Company and its subsidiaries (the "Company") have been prepared in
accordance with instructions to Form 10-Q and, therefore, do not include all
information and footnotes normally included in financial statements prepared in
conformity with generally accepted accounting principles. They should be read in
conjunction with the financial statements of the Company for the fiscal year
ended December 25, 1999.

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

See the Company's Form 10-K for the year ended December 25, 1999, for a
discussion of the Company's significant accounting policies and principles.

NOTE B--RECLASSIFICATIONS

Certain items in the prior year financial statements have been reclassified
to conform to the current year presentation.

NOTE C--FRANCHISE AND DEVELOPMENT FEES

Franchise fees are the result of sales of area development rights and the
sale of individual franchise locations to third parties, both domestically and
internationally. Fees from the sale of area development rights are fully
recognized as revenue upon completion of all commitments related to the
agreements. Fees from the sale of individual franchise locations are fully
recognized as revenue upon the commencement of franchise operations.

6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D--EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except for per share data):

<TABLE>
<CAPTION>
FOR THE TWELVE WEEKS FOR THE TWENTY-EIGHT WEEKS
ENDED ENDED
---------------------------- ----------------------------
JULY 8, 2000 JULY 10, 1999 JULY 8, 2000 JULY 10, 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net income (loss) used in net income (loss)
per common share--basic................... $1,933 $ 366 $3,448 $(4,259)
Net income (loss) used in net income (loss)
per common share--diluted................. $1,933 $ 366 $3,448 $(4,259)
Weighted average number of shares
outstanding--basic........................ 12,325 12,142 12,243 12,120
Effect of dilutive securities:
Employee stock options.................. 544 2 261 --
Stock warrants.......................... 10 21 44 --
Weighted average number of shares
outstanding--diluted...................... 12,879 12,165 12,548 12,120

Per common share:
Basic:
Income before extraordinary loss.......... $ 0.16 $ 0.06 $ 0.28 $ (0.32)
Extraordinary loss........................ -- $(0.03) -- $ (0.03)
------ ------ ------ -------
Net income (loss)......................... $ 0.16 $ 0.03 $ 0.28 $ (0.35)

Diluted:
Income before extraordinary loss.......... $ 0.15 $ 0.06 $ 0.28 $ (0.32)
Extraordinary loss........................ -- $(0.03) -- $ (0.03)
------ ------ ------ -------
Net income (loss)......................... $ 0.15 $ 0.03 $ 0.27 $ (0.35)
</TABLE>

During the second quarter of 1999, options to purchase 1,176,000 shares of
common stock at $25.50 per share were outstanding in conjunction with the
issuance of $30 million of convertible subordinated notes. These shares were not
included in the computation of diluted earnings per share for the twelve weeks
and twenty-eight weeks ended July 10, 1999, because the deduction of interest
expense, after the effect of income taxes would have been antidilutive.

NOTE E--RECENT ACCOUNTING PRONOUNCEMENTS

None which will have a material impact on the Company's financial
statements.

NOTE F--SALE OF AU BON PAIN DIVISION AND NON-RECURRING CHARGES

On May 16, 1999, the Company sold its Au Bon Pain Division to ABP
Corporation for $73 million in cash before contractual purchase price
adjustments of $1 million. The results of operations for the twelve and
twenty-eight weeks ended July 10, 1999, include the results of the divested Au
Bon Pain Division. Revenues and net operating income (before the suspension of
depreciation and amortization) in the Au Bon Pain Division held for sale for the
twelve weeks ended July 10, 1999, were $12.7 million and $0.2 million
respectively, and for the twenty-eight weeks ended July 10, 1999 were
$61.2 million and

7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F--SALE OF AU BON PAIN DIVISION AND NON-RECURRING CHARGES (CONTINUED)
$1.5 million respectively. In conjunction with the sale, the Company recorded a
pre-tax loss of $5.5 million related to the transaction in the first quarter of
1999. Operating income for the twelve weeks and twenty-eight weeks ended
July 10, 1999, was favorably impacted by $0.9 million and $4.7 million,
respectively, due to the suspension of depreciation and amortization associated
with the Au Bon Pain Division assets held for sale after August 12, 1998.

NOTE G--ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
JULY 8, 2000 DECEMBER 25, 1999
------------ -----------------
<S> <C> <C>
Accrued insurance................................ $ 1,065 $ 881
Rent............................................. 805 780
Payroll and related taxes........................ 3,077 2,594
Taxes other than income taxes.................... 3,116 4,383
Other............................................ 2,882 3,599
------- -------
$10,945 $12,237
======= =======
</TABLE>

8
<PAGE>
ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to total
revenues, except where otherwise indicated, of certain items included in the
Company's consolidated statements of operations for the period indicated.
Percentages may not add due to rounding:

<TABLE>
<CAPTION>
FOR THE TWENTY-EIGHT WEEKS
FOR THE TWELVE WEEKS ENDED ENDED
---------------------------- ----------------------------
JULY 8, 2000 JULY 10, 1999 JULY 8, 2000 JULY 10, 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales............................. 83.9% 91.8% 84.0% 93.4%
Franchise and other revenues................. 7.6 3.8 7.3 3.2
Commissary sales to franchisees.............. 8.5 4.4 8.7 3.4
----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0
Costs and expenses:
Restaurant cost of sales(1)
Cost of food and paper products............ 33.3 33.4 33.3 33.2
Labor...................................... 29.6 29.0 29.5 29.6
Occupancy.................................. 7.3 9.5 7.4 11.2
Other...................................... 12.8 12.5 12.8 12.1
----- ----- ----- -----
Total restaurant cost of sales........... 83.0 84.4 83.0 86.3
Commissary cost of sales(2).................... 87.1 93.8 88.3 81.7
Depreciation and amortization.................. 5.7 3.8 5.7 2.8
General and administrative..................... 10.0 9.6 10.1 9.1
Non-recurring charges.......................... -- -- -- 4.8
Operating profit (loss)........................ 7.3 4.9 6.7 --
Interest expenses, net......................... 0.2 1.7 0.2 2.2
Other (income) expense, net.................... -- 0.2 -- 0.4
Gain on sale of Au Bon Pain Division........... 2.7 -- 1.1 --
Minority interest.............................. -- -- -- --
----- ----- ----- -----
Income (loss) before income taxes and
extraordinary items.......................... 9.8 3.0 7.8 (2.6)
Income tax provision........................... 3.8 1.0 3.0 0.7
----- ----- ----- -----
Income (loss) before extraordinary item........ 6.0 2.0 4.7 (3.3)
Extraordinary loss from early extinguishment of
debt......................................... -- 1.0 -- 0.3
----- ----- ----- -----
Net income (loss).............................. 6.0% 1.0% 4.7% (3.7)%
===== ===== ===== =====
</TABLE>

------------------------

(1) As a percentage of Company restaurant sales.

(2) As a percentage of commissary sales to franchisees.

GENERAL

The Company's revenues are derived from restaurant sales, commissary sales
to franchisees and franchise and other revenues. Commissary sales to franchisees
are the sales of commissary fresh dough products to our franchisees. Franchise
and other revenues include royalty income and franchise fees. The cost of food
and paper products, labor, occupancy, and other operating expenses relate
primarily to restaurant sales. The cost of commissary sales relates to the sale
of dough products to our franchisees. General and administrative and
depreciation expenses relate to all areas of revenue generation.

The Company's fiscal year ends on the last Saturday in December. The
Company's fiscal year normally consists of 13 four-week periods, with the first,
second, and third quarters ending 16 weeks, 28

9
<PAGE>
weeks, and 40 weeks, respectively, into the fiscal year. In the year 2000, the
Company's fiscal year will be comprised of 53 weeks.

RESULTS OF OPERATIONS

Effective May 16, 1999, the Company completed its transaction to sell the Au
Bon Pain Division. For the twelve and twenty-eight weeks ended July 8, 2000,
results of operations include only the results of the Panera Bread/Saint Louis
Bread Company business unit. Results of operations for the twelve and twenty-
eight weeks ended July 10, 1999 also include the results of the divested Au Bon
Pain Division through the date of the divestiture. For the twenty-eight weeks
ended July 10, 1999, the Company recorded a $5.5 million loss related to the
sale. For the twelve weeks ended July 10, 1999, the Company recorded a
$.4 million extraordinary loss net of tax related to the early extinguishment of
debt.

For the quarter ended July 8, 2000, the Company recorded a one time gain of
$.9 million before taxes ($.5 million after tax) related to the sale of the Au
Bon Pain Division. The original sales agreement dated August 12, 1998 and
amended October 28, 1998, included a provision prohibiting the sale of the Au
Bon Pain Division by ABP Corporation to another party within 18 months of the
date of the agreement. This payment was received in connection with amending the
original sales agreement to allow for a sale.

REVENUES

Total revenues for the second quarter declined to $32.3 million in 2000
compared to $36.9 million in 1999. Total revenues for the twenty-eight weeks
ended July 8, 2000, and July 10, 1999, were $72.7 million versus
$114.8 million, respectively. The decline was due to the sale of the Au Bon Pain
Division in May 1999. As a stand-alone entity, Panera Bread's total revenues
increased 33% to $32.3 million in the second quarter of 2000 versus
$24.2 million in the second quarter of 1999. For the twenty-eight week period
ended July 8, 2000, total revenue for Panera Bread as a stand-alone entity
increased 36% to $72.7 million versus $53.6 million for the comparable period in
1999.

Restaurant revenue for Panera Bread on a stand-alone basis increased 25% to
$27.1 million in the second quarter of 2000 from $21.6 million in the second
quarter of 1999. Restaurant revenue for Panera Bread as a stand-alone entity for
the twenty-eight weeks ended July 8, 2000, increased 28% to $61.1 million from
$47.9 million for the comparable period in 1999. This increase is due to a
number of factors including the opening of eight new company-owned bakery-cafes
since the second quarter of 1999 and a 7.9% and 8.5% increase in comparable
restaurant sales for the second quarter of 2000 and twenty-eight weeks ended
July 8, 2000, respectively. During the second quarter of 2000, two new company
owned bakery-cafes were opened. System-wide sales increased 69% to
$73.8 million in the second quarter of 2000 compared to 1999, and increased
76.3% to $162.6 million for the twenty-eight weeks ended July 8, 2000 compared
to the same period in 1999. System-wide annualized average unit volumes
increased to $1.5 million for the twenty-eight weeks ended July 8, 2000, versus
$1.3 million for the twenty-eight weeks ended July 10, 1999, an increase of 17%.
These annualized average unit volumes exclude the revenues of two company-owned
and two franchise operated specialty bakery-cafes.

Comparable restaurant sales for the second quarter of 2000 and for the
twenty-eight weeks ended July 8, 2000, were as follows:

<TABLE>
<CAPTION>
TWELVE WEEKS ENDED JULY 8, 2000 TWENTY-EIGHT WEEKS ENDED JULY 8, 2000
------------------------------- -------------------------------------
<S> <C> <C>
Company-owned........ 7.9% 8.5%
Franchise operated... 11.5% 12.1%
System-wide.......... 9.3% 9.8%
</TABLE>

Comparable restaurant sales exclude two company owned and two franchise
operated specialty bakery-cafes.

Franchise sales and other revenues consist of franchise fees and royalties.
On a stand-alone basis, Panera Bread's franchise sales and other revenues rose
100% in the second quarter of 2000 to $2.4 million from $1.2 million in the
second quarter of 1999. For the twenty-eight week period ended July 8, 2000,

10
<PAGE>
franchise sales and other revenues increased 96% to $5.3 million from
$2.7 million in the same period in 1999. The growth was primarily driven by an
increase in franchise royalties. For the second quarter ended July 8, 2000,
royalty revenue increased to $2.1 million from $1.0 million for the second
quarter of 1999, and for the twenty-eight weeks ending July 8, 2000, royalty
revenue increased to $4.5 million from $2.0 million for the comparable period in
1999. The increase in royalty revenue can be attributed to the addition of 60
franchised bakery-cafes opened since the second quarter of 1999 and higher sales
volumes being achieved by franchisees in 2000.

Commissary sales to franchisees increased to $2.8 million in the second
quarter of 2000 versus $1.6 million for the second quarter of 1999. On a
stand-alone basis, Panera Bread's commissary sales to franchisees increased 87%
to $2.8 million in the second quarter of 2000 from $1.5 million in the second
quarter of 1999. For the twenty-eight weeks ended July 8, 2000, commissary sales
to franchisees increased 110% to $6.3 million from $3.0 million for Panera Bread
as a stand-alone entity during the comparable period in 1999. The increase was
driven by the increased number of franchised units open and the higher average
annual sales volumes as discussed above.

The Company opened 16 Panera Bread bakery-cafes during the second quarter of
2000. Two of the locations were company owned bakery-cafes and 14 were
franchise-operated bakery-cafes. These openings brought the total number of
bakery-cafes open as of July 8, 2000 to 216, comprised of 86 company-owned
(including two specialty bakery-cafes) and 130 franchised bakery-cafes. As of
July 8, 2000 there were commitments to develop an additional 511 franchised
bakery-cafes.

COSTS AND EXPENSES

The cost of food and paper products was $9.0 million or 33.3% of restaurant
sales in the second quarter of 2000 compared to $11.3 million or 33.4% of
restaurant sales for the second quarter of 1999. For the twenty-eight weeks
ended July 8, 2000, the cost of food and paper products was $20.3 million or
33.3% of restaurant sales versus $35.7 million or 33.2% of restaurant sales for
the comparable period in 1999. The cost of food and paper products does not
include food costs that are associated with the commissary operations that sell
fresh dough products to franchised bakery-cafes. The decrease in the dollar
amount of food and paper costs was due to the sale of the Au Bon Pain Division.
On a stand-alone basis, Panera Bread's cost of food and paper products declined
to 33.3% of restaurant sales in the second quarter and the twenty-eight weeks,
ended July 8, 2000, versus 33.7% for the second quarter and 33.9% for the
twenty-eight weeks ended July 10, 1999. The decline was due to stable food costs
while sales volumes increased over the prior year resulting in improved
efficiencies and a lower food cost percentage.

In the second quarter of 2000, commissary cost of sales was $2.4 million in
the second quarter of 2000 compared to $1.5 million in the second quarter of
1999. For the twenty-eight weeks ended July 8, 2000, commissary cost of sales
was $5.6 million compared to $3.2 million for the comparable period in 1999. On
a stand-alone basis Panera Bread's commissary cost of sales was $2.4 million in
the second quarter of 2000 compared to $1.6 million in the second quarter of
1999 and $5.6 million for the twenty-eight weeks ended July 8, 2000 versus $3.2
million for the twenty-eight weeks ended July 10, 1999. The increase in
commissary cost of sales was due to the larger sales volumes generated by the
greater number of bakery-cafes operating in 2000.

Labor expense was $8.0 million or 29.6% of restaurant sales in the second
quarter of 2000 compared to $9.8 million or 29.0% in the second quarter of 1999.
For the twenty-eight week period ended July 8, 2000 labor expense was
$18.0 million or 29.5% of restaurant sales versus $31.8 million or 29.6% of
restaurant sales for the same period in 1999. The decrease in labor cost dollars
was due to the sale of the Au Bon Pain Division. On a stand alone basis Panera
Bread's labor cost percentage of 29.6% in the second quarter of 2000 was higher
than the 28.8% of restaurant sales or $6.2 million for the second quarter of
1999. For the twenty-eight weeks ended July 8, 2000, Panera Bread's labor
percentage on a stand-alone basis was 29.5% versus 29.1% of restaurant sales or
$13.9 million in the comparable period for 1999. The increase in labor cost
percentage was due to an increase in the average hourly wage because of the
highly

11
<PAGE>
competitive labor market, an increase in management staffing, and increased
management bonuses due to better operating performance.

Occupancy costs were $2.0 million or 7.3% of restaurant sales in the second
quarter of 2000 compared to $3.2 million or 9.5% of restaurant sales in the
second quarter of 1999. For the twenty-eight weeks ended July 8, 2000, occupancy
costs were $4.5 million or 7.4% of restaurant sales versus $12.0 million or
11.2% of restaurant sales for the same period in 1999. The decrease in dollars
and as a percentage of restaurant sales was due to the sale of the Au Bon Pain
division, which had historically run higher occupancy costs due to their
location in downtown areas of larger cities. On a stand-alone basis, Panera
Bead's occupancy costs of 7.3% in the second quarter of 2000 were consistent
with the occupancy costs of $1.6 million or 7.3% of restaurant sales in the
second quarter of 1999. For the twenty-eight weeks ended July 8, 2000, Panera
Bread's occupancy costs decreased to 7.4% of restaurant sales from 7.7% of
restaurant sales for the comparable period in 1999. The decrease was due to the
fact that occupancy costs are largely fixed and sales volumes have increased in
2000 as compared to 1999.

Other restaurant operating expenses were $3.5 million or 12.8% of restaurant
sales in the second quarter of 2000 compared to $4.2 million or 12.5% of
restaurant sales in the second quarter of 1999. For the twenty-eight week period
ending July 8, 2000, other restaurant operating expenses were $7.8 million or
12.8% of restaurant sales versus $13.0 million or 12.1% of restaurant sales for
the comparable period in 1999. The decrease in dollars is due to the sale of the
Au Bon Pain Division. On a stand alone basis, Panera Bread's other restaurant
operating expenses percentage of 12.8% in the second quarter of 2000 decreased
as compared to the $2.8 million or 13.1% of restaurant sales for the same period
in 1999. The Company's other restaurant operating expenses percentage of 12.8%
for the twenty-eight weeks ended July 8, 2000, is consistent with the 12.8% or
$6.1 million for the same period in 1999.

Depreciation and amortization increased as a percentage of total revenue to
5.7% in the second quarter of 2000 compared to 3.8% of total revenues in the
second quarter of 1999. For the twenty-eight weeks ended July 8, 2000,
depreciation and amortization increased as a percentage of total revenue to 5.7%
versus 2.8% of total revenue for the comparable period in 1999. The increase was
due to the fact that the second quarter and twenty-eight weeks ended July 10,
1999 figures included revenues from the Au Bon Pain Division while excluding any
depreciation expenses for the Au Bon Pain Division which was classified as an
asset for sale. On a stand-alone basis, Panera Bread's second quarter of 2000
depreciation was 5.7% of total revenue compared to 5.8% for the comparable
period in 1999. For the twenty-eight weeks ended July 8, 2000, the Company's
depreciation expense was 5.7% of total revenue compared with 6.0% of total
revenue for the comparable period in 1999. The decrease for Panera Bread as a
stand-alone entity was driven by higher sales volumes and franchise revenues in
2000.

General and administrative expenses increased to 10.0% of total revenues in
the second quarter of 2000 compared to 9.6% of total revenues in the second
quarter of 1999. For the twenty-eight weeks ended July 8, 2000, general and
administrative expenses were 10.1% of total revenues versus 9.1% of total
revenues for the same period in 1999. The increase was primarily due to general
and administrative costs being spread over a larger revenue base in 1999 which
included the results of the Au Bon Pain Division as compared to 2000. On a
stand-alone basis, Panera Bread's general and administrative expenses were 10.0%
and 10.1% for the second quarter and year to date respectively versus 11.9% and
11.0% for the comparable periods in 1999. The decrease in general and
administrative costs for Panera Bread on a stand-alone basis is due to the
elimination of the duplicative general and administrative expenses that were
incurred last year as Panera built its accounting and information systems
infrastructures at the same time it was paying for transitional service from Au
Bon Pain.

Operating income for the second quarter of 2000 increased to $2.3 million
from $1.8 million in the second quarter of 1999. For the twenty-eight weeks
ended July 8, 2000, operating income increased to $4.9 million from a $(.08)
million loss in 1999. Operating income rose due to increased revenues from
company-owned bakery-cafes, franchise royalties, and commissary sales to
franchisees, and due to the lack of the $5.5 million non-recurring charge
related to the sale of Au Bon Pain that was recorded in 1999. Operating income
for the second quarter of 1999 and the twenty-eight weeks ended July 10, 1999,
was

12
<PAGE>
favorably impacted by $.9 million and $4.7 million, respectively, in reduced
depreciation and amortization expenses associated with the Au Bon Pain Division
assets held for sale after August 12, 1998.

Interest expense was $.06 million or .2% of total revenue in the second
quarter of 2000 versus $.6 million or 1.7% of total revenues in the second
quarter of 1999. For the twenty-eight week period ended July 8, 2000, interest
expenses was $.2 million and as a percentage of total revenue decreased to .2%
from $2.5 million or 2.2% for the same period in 1999. The decrease in interest
expense is primarily due to the repayment of the Company's outstanding debt with
the proceeds from the sale of the Au Bon Pain Division in May 1999.

Other (income) expense was $.01 million of expense for the quarter ended
July 8, 2000, compared with .06 million of expense for the comparable period in
1999. For the twenty-eight weeks ended July 8, 2000, other (income) expense was
($.01) million of income versus $.5 million of expense for the same period in
1999.

For the quarter ended July 8, 2000, the Company recorded a one time gain of
$.9 million before taxes ($.5 million after tax) related to the sale of Au Bon
Pain. This gain is reported as a separate line item in the Company's
consolidated statement of operations.

INCOME TAXES

The provision for income taxes increased to $1.2 million for the second
quarter of 2000 versus $.4 million in the second quarter of 1999. For the
twenty-eight week period ended July 8, 2000, the provision for income taxes
increased to $2.2 million from $.9 million for the same period in 1999. The tax
provision for the second quarter and the twenty-eight weeks ended July 8, 2000,
reflects a combined federal, state, and local effective tax rate of 39%.

NET INCOME

Net income for the second quarter of 2000 was $1.9 million or $.15 per
diluted share compared to net income of $.4 milion or $.03 per diluted share for
the second quarter of 1999. For the twenty-eight weeks ended July 8, 2000, net
income was $3.4 million or $.27 per diluted share versus a net loss of $(4.3)
million or $(.35) per share for the same period in 1999. The increase in net
income was due to an increase in restaurant sales and franchise revenues for
Panera Bread bakery-cafes and the absence of any charges related to the sale of
the Au Bon Pain Division in 1999. Net income for the twelve and twenty-eight
weeks ended July 10, 1999, was negatively impacted by a $.4 million
extraordinary loss, net of tax, that was taken due to the early extinguishment
of debt. Net income for the twelve and twenty-eight weeks ended July 8, 2000,
was favorably impacted by a $.5 million after tax gain related to the sale of Au
Bon Pain. Excluding this one time gain, Panera Bread's net income on a stand
alone basis for the second quarter of 2000 was $1.4 million or $.11 per diluted
share versus $.2 million or $.02 cents per diluted share for the second quarter
of 1999. For the twenty-eight weeks ended July 8, 2000, Panera Bread's net
income on a stand-alone basis was $2.9 million or $.23 per diluted share versus
$.8 million or $.07 per diluted share for the comparable period in 1999.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $.2 million at July 8, 2000 compared with
$1.9 million at December 25, 1999. The Company's principal requirements for cash
are capital expenditures for constructing and equipping new bakery-cafes and
maintaining or remodeling existing bakery-cafes and working capital. To date,
the Company has met its requirements for capital with cash from operations and
bank borrowings.

Funds provided by operating activities for the twenty-eight weeks ended
July 8, 2000, were $6.9 million compared to $1.9 million for the same period in
1999. Funds provided by operating activities increased primarily as a result of
an increase in net income and deferred income taxes.

Total capital expenditures for the twenty-eight weeks ended July 8, 2000,
were $9.6 million and were primarily related to the opening of five new
company-owned bakery-cafes and to maintaining or remodeling existing
bakery-cafes. The expenditures were mainly funded by cash from operating
activities and the

13
<PAGE>
Company's revolving line of credit. Total capital expenditures were
$10.1 million for the twenty-eight weeks ended July 10, 1999, which included
$2.1 million in capital expenditures for the divested Au Bon Pain Division.

As of July 8, 2000, the Company had a $10.0 million unsecured revolving line
of credit bearing interest at either the LIBOR rate plus 2.25% or the commercial
bank's prime rate plus .75%, at the Company's option. As of July 8, 2000, the
Company had $9.4 million available to it under the line of credit with
$0.6 million being utilized by outstanding standby letters of credit. The
Company was in compliance with all covenants associated with its borrowing as of
July 8, 2000.

In 2000, the Company currently anticipates spending a total of approximately
$16 to $17 million principally, for the opening of approximately 10 to 11 new
bakery-cafes, the opening of one additional commissary, and for maintaining and
remodeling approximately 10 existing cafes. The Company expects to fund these
expenditures principally through internally generated cash flow supplemented by
borrowings on its line of credit.

FORWARD-LOOKING STATEMENTS

Matters discussed in this report which relate to events or developments that
are expected to occur in the future, including any discussion of growth or
anticipated operating results are forward-looking statements within the meaning
of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (identified by the words "estimate", "project",
"anticipates", "expects", "intends", "believes", "future", and similar
expressions). These are statements which express management's belief,
expectations or intentions regarding the Company's future performance. Moreover,
a number of factors could cause the Company's actual results to differ
materially from those set forth in the forward-looking statements due to known
and unknown risks and uncertainties. The Company's operating results may be
negatively affected by many factors, including but not limited to the lack of
availability of sufficient capital to it and to the developers that are parties
to franchise development agreements with the Company, variations in the number
and timing of bakery-cafe openings, public acceptance of new bakery-cafes,
consumer preferences, competition, commodity costs, and other factors that may
affect retailers in general. The foregoing list of important factors is not
exclusive.

YEAR 2000 ISSUE

The Year 2000 issue relates to how dates are stored and used in computer
systems, applications, and embedded systems. As the century date change
occurred, certain date-sensitive systems had to recognize the year as 2000, not
as 1900. This inability to recognize and properly treat the year as 2000 could
have caused these systems to process critical financial and operational
information incorrectly. In prior years, the Company discussed its plans and
progress to be Year 2000 ready. The Company completed the installation,
implementation, and testing of its systems in late 1999, and made modifications
as deemed necessary. As a result of the planning and implementation efforts, the
Company experienced no significant disruptions in business critical information
technology and non-information technology systems, and the Company believes
these systems responded successfully to the Year 2000 date change. The Company
is not aware of any material problems resulting from Year 2000 issues regarding
its internal systems, the products and services of third parties, or the
businesses operated by its franchisees. The Company will continue to monitor
date-sensitive systems as certain key dates occur throughout the year to ensure
that any Year 2000 matters that may arise are addressed promptly.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company had no holdings of derivative financial or commodity instruments
at July 8, 2000. The Company's unsecured revolving line of credit bears an
interest rate using the commercial bank's prime rate or LIBOR as the basis, and
therefore is subject to additional expense should there be an increase in prime
or LIBOR interest rates. Panera Bread has no foreign operations and accordingly,
no foreign exchange rate fluctuation risk. The Au Bon Pain Division did have
foreign operations; however, these were sold with the Au Bon Pain Division on
May 16, 1999.

14
<PAGE>
PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------
<C> <S>
27.1 Financial Data Schedule.
</TABLE>

(b) Reports on Form 8-K.

The Company did not file any reports on Form 8-K during the twelve weeks
ended July 8, 2000.

15
<PAGE>
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.

<TABLE>
<S> <C> <C>
PANERA BREAD COMPANY
(Registrant)

Dated: August 22, 2000 By: /s/ RONALD M. SHAICH
-----------------------------------------
Ronald M. Shaich
CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Dated: August 22, 2000 By: /s/ WILLIAM W. MORETON
-----------------------------------------
William W. Moreton
CHIEF FINANCIAL OFFICER
</TABLE>

16
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
27.1 Financial Data Schedule.
</TABLE>