<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K/A
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AMENDMENT NO. 2 TO FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1999
COMMISSION FILE NUMBER 0-19253
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PANERA BREAD COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2723701
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(State or other (I.R.S. employer
jurisdiction identification No.)
of incorporation or
organization)
7930 BIG BEND BOULEVARD, ST. LOUIS, MISSOURI 63119
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(Address of principal executive offices) (Zip Code)
(314) 918-7779
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(Registrant's telephone number, including area code)
<PAGE>
AMENDMENT NO. 2
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The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report for the fiscal year
ended December 25, 1999 on Form 10-K as set forth in the pages attached hereto:
1. Part III: Item 10 - Directors and Executive Officers of the Registrant.
2. Part III: Item 11 - Executive Compensation.
3. Part III: Item 12 - Security Ownership of Certain Beneficial Owners
and Management.
4. Part III: Item 13 - Certain Relationships and Related Transactions.
5. Part IV: Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Panera Bread Company ("the Company") is the new name for what previously
was Au Bon Pain Co., Inc. Such name change occurred as a result of the sale of
the Au Bon Pain Division to private investors effective May 16, 1999. The
Company now consists of the Panera Bread/Saint Louis Bread Co. concept, with the
Company doing business as Saint Louis Bread Co. in the Saint Louis and Atlanta
areas, and as Panera Bread outside those areas. As of December 25, 1999, the
Company had 81 Company-operated bakery-cafes (including 2 specialty
bakery-cafes), and 100 franchise-operated bakery-cafes. The concept specializes
in high quality food for breakfast and lunch, including fresh baked goods,
made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted
coffees, and other cafe beverages, and targets suburban dwellers and workers by
offering a premium specialty bakery and cafe experience with a neighborhood
emphasis.
The Company's bakery-cafes are principally located in suburban, strip mall
and regional mall locations. The concept is currently operating in Florida,
Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts,
Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, North
Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas,
Virginia, and Wisconsin (see "Properties"). System wide sales for Panera Bread
were approximately $202.1 million for the fiscal year ended December 25, 1999.
The Company sold the Au Bon Pain Division to ABP Corporation for $73
million in cash before contractual purchase price adjustments of $1 million. The
sale was effective May 16, 1999. Results of operations for the fifty-two week
period ending December 25, 1999, includes the results of the divested Au Bon
Pain Division for the period December 27, 1998 through May 16, 1999. The Au Bon
Pain Division had $51.5 million of revenue and $3.2 million of operating
earnings through May 16, 1999. For the fifty-two week period ended December 25,
1999, the Company recorded a pre-tax loss of $5.5 million related to the
transaction, and a $0.6 million pre-tax ($0.4 million after tax) extraordinary
loss related to the early extinguishment of debt from the proceeds of the sale.
CONCEPT AND STRATEGY
The Company's concept focuses on the emerging "Specialty Bread/Bakery-Cafe"
category. Its artisan sourdough breads, which are breads made with a craftsman's
attention to quality and detail, and overall award-winning bakery expertise are
at the heart of the concept's menu. The concept is designed to deliver against
the key consumer trends of today, specifically the need for an efficient but
more esthetically pleasing experience than that offered by traditional fast
food. The concept aims to become a nationally recognized brand name, and in
doing so, hopes to reap the economic benefits that a strong brand name offers.
Its menu, prototype, operating systems, design and real estate strategy allow it
to compete successfully in four sub-businesses: breakfast, lunch, day-time
"chill out" (the time between breakfast and lunch and between lunch and dinner
when customers visit our bakery-cafes to take a break from their daily
activities), and take home specialty retailing. Average revenue per
Company-operated bakery-cafe open for the full fiscal year ended December 25,
1999, was approximately $1,296,000 (excluding the two specialty cafes) for the
Panera Bread/Saint Louis Bread Co. concept compared to average revenue per cafe
of approximately $1,249,000 for those cafes open for the full year ended
December 26, 1998.
The Company believes that excellence in execution is a key to success in
the restaurant industry. The distinctive nature of the Company's menu offerings,
the quality of its restaurant operations, the company's unique cafe design and
the prime locations of its cafes are integral to the Company's success. The
Company's concept has tremendous growth potential in the suburban markets which
will be realized through both Company and franchise efforts. Franchising is a
key component of the Company's success. At year end, there were 100 franchised
bakery-cafes opened and signed commitments to open an additional 543 bakery-
cafes. The average unit volume per franchised bakery-cafe open for the full
fiscal year ended December 25, 1999, was approximately $1,426,000 compared to
approximately $1,281,000 for those cafes open for the full year ended December
26, 1998.
<PAGE>
MENU
The menu seeks to provide the Company's target customers with products
which build on the strength of the Company's bakery expertise and meet
customers' new and ever-changing taste profiles. The key menu groups are fresh
baked goods, made-to-order sandwiches, soups, and cafe beverages. Included
within these menu groups are: a variety of freshly baked bagels, breads,
croissants, muffins, scones, rolls, and sweet goods; made-to-order sandwiches;
hearty, unique soups; custom roasted coffees and cafe beverages such as espresso
and cappuccino. The Company's concept emphasizes the sophisticated specialty and
sourdough breads which supports a significant take-home business.
The Company regularly reviews and revises its menu offerings to satisfy
changing customer preferences and to maintain customer interest amongst its
target customer groupsnthe "Trend-Setters" and the "Good Food Traditionalists".
Both of these target customers seek a quality experience that reflects their
discriminating tastes. The major characteristic that sets these two groups apart
is the more enthusiastic embrace of new and nutritional menu items by the
"Trend-Setters". New menu items are developed in corporate test kitchens and
then introduced in a limited number of the Company's bakery-cafes to determine
customer response and verify that preparation and operating procedures maintain
consistency, high quality standards and profitability. If successful, they are
then introduced in the Company's bakery-cafes.
MARKETING
The Company believes it competes on the basis of providing an entire
experience rather than price. Pricing is structured so customers perceive good
value, with high quality food at reasonable prices to encourage frequent visits.
The average customer purchase is approximately $5.44 at the Company's
bakery-cafes. Breakfast and lunch checks average $3.76 and $6.41, respectively.
Historically, the Company has not relied on external media to promote its
bakery-cafes. The Company attempts to increase its per location sales through
menu development, promotions, and by sponsorship of local community charitable
events.
SITE SELECTION
During 1999, the Company increased the number of Company-operated
bakery-cafes by 12 to 81 locations by expanding in both new and existing
markets. The franchise-operated locations increased by 56 to 100 locations.
The bakery-cafe concept relies on a substantial volume of repeat business.
In evaluating a potential location, the Company studies the surrounding trade
area, obtaining demographic information within that area and information on
quick service breakfast and lunch competitors. Management evaluates the
Company's ability to establish a dominant presence within that area in order to
create entry barriers to other competitors. Based on this information, sales and
return on investment are projected.
The Company uses sophisticated fixtures and materials in the bakery-cafe
design for its concept. The design visually reinforces the distinctive
difference between the Company's bakery-cafes and other quick services
restaurants serving breakfast and lunch. Many of the Company's cafes also
feature outdoor cafe seating. The average construction and equipment cost for
the 12 bakery-cafes opened in 1999 was approximately $656,000 after landlord
allowance.
The average bakery-cafe size ranges between 3,000 and 4,000 square feet.
Currently all company-owned bakery-cafes are in leased premises. Lease terms are
typically ten years with one or two five-year renewal option periods thereafter.
Leases typically have a minimum base occupancy charge, charges for a
proportionate share of building operating expenses and real estate taxes, and
contingent percentage rent based on sales above a stipulated sales level.
FRESH DOUGH PRODUCTION
The Company's bakery-cafes use fresh dough for their sourdough breads and
bagels. Fresh dough is supplied daily by the Company's commissary system for
both Company-owned and franchise-operated bakery-cafes. The Company operated 10
regional commissaries as of December 25, 1999.
The remaining baked goods are prepared with frozen dough. During 1996, the
Company completed construction of a state of the art frozen dough production
facility in Mexico, Missouri to supply frozen dough. On March 23, 1998, the
Company sold the Mexico production facility and its wholesale frozen dough
business to Bunge Food Corporation ("Bunge")
<PAGE>
for approximately $13 million in cash. Concurrent with the sale, the Company
entered into a five-year supply agreement with Bunge for the supply of
substantially all of its frozen dough needs, excluding bagels. The agreement
automatically renews on an annual basis unless either party provides written
cancellation notice to the other. Pricing is based on Bunge's cost plus a
specified mark-up calculated on each individual product that is purchased. The
agreement contains minimum volume commitments, and provides for financial
penalties if either party cancels the agreement before the initial term is
complete.
The sale of the frozen dough production facility provides economies of
scale in plant production which are reflected in the economics of the five-year
agreement and allow the Company to take advantage of Bunge's significant
purchasing power. The five-year supply agreement allows the bakery-cafes to
continue to offer the same high quality fresh baked goods, as the frozen dough
products purchased from Bunge are made on the same equipment, by the same
management team, using the same proprietary processes and specifications as
prior to the sale.
The net proceeds from the sale were used to reduce the Company's debt. The
Company recognized a pre-tax loss on the sale of the facility of approximately
$735,000 in the Company's 1998 results of operations.
COMPETITION
The Company experiences competition from numerous sources in its trade
areas. The Company's bakery-cafes compete with bread only stores, supermarkets,
and other bakeries that supply high quality breads and with other restaurants
that seek to use quality breads to define a breakfast, lunch, and light dinner
menu. The competitive factors are price, service, and quality of products. The
Company competes for leased space in desirable locations. Certain of the
Company's competitors may have capital resources exceeding those available to
the Company.
MANAGEMENT INFORMATION SYSTEMS
Each Company-operated bakery-cafe has computerized cash registers to
collect point-of-sale transaction data, which is used to generate pertinent
marketing information, including product mix and average check. All product
prices are programmed into the system from the Company's corporate office.
The Company's in-store personal computer-based management support 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 data to the Company's accounting department in St. Louis on a daily
basis. The Company uses this data to generate weekly consolidated reports
regarding sales and other key elements, as well as detailed profit and loss
statements for each bakery-cafe every four weeks. Additionally, the Company
monitors the average check, customer count, product mix, and other sales trends.
The commissaries have computerized systems which allow the commissaries to
accept electronic orders from the bakery-cafes and deliver the ordered product
back to the bakery-cafe.
The Company has network/integration systems which are corporate office
electronic systems and tools which link various information subsystems and
databases, encompassing e-mail and all major financial systems, such as general
ledger database systems and all major operational systems, such as store
operating performance database systems. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for information
pertaining to the "Year 2000" issue.
DISTRIBUTION
The Company currently utilizes independent distributors to distribute
frozen dough products and other materials to Company-operated bakery-cafes. By
contracting with independent distributors, the Company has been able to
eliminate investment in distribution systems and to focus its managerial and
financial resources on its retail operations. The distributor picks up frozen
dough products throughout the week from the plants and delivers to the cafes.
Virtually all other supplies for retail operations, including paper goods,
coffee, and small-wares, are contracted for by the Company and delivered by the
vendors to the distributor for delivery to the bakery-cafes. The individual
bakery-cafes order directly from a distributor two to three times per week.
Franchised bakery-cafes operate under individual contracts with either the
Company's distributor or other regional distributors.
<PAGE>
JOINT VENTURES
The Company is not currently operating under any joint venture agreements.
The divested Au Bon Pain Division operated 14 bakery-cafes in New York City
under a joint venture agreement with a private investor group. This joint
venture was part of the sale of the Au Bon Pain Division which was effective May
16, 1999. For the period December 27, 1998, through May 16, 1999, the joint
venture had sales of $7.8 million and a pre-tax loss of approximately $(81,000).
FRANCHISE OPERATIONS
The Company began a broad-based franchising program in 1996. The Company is
actively seeking to extend its franchise relationships beyond its current
franchisees. The franchise agreement typically requires the payment of an
up-front franchise fee of $35,000 and continuing royalties of 4% to 5% on sales
from each bakery-cafe. The franchisees are required to purchase all of their
dough products from sources approved by the Company. The Company's commissary
system supplies fresh dough products to substantially all franchise-operated
bakery-cafes.
The Company has entered into 34 separate franchise area development
agreements for a total of 643 bakery-cafes of which 100 have been opened as of
December 25, 1999. The Company's strategy is to execute growth in a controlled
and disciplined manner. Under the terms of the franchise development agreements,
a schedule is determined with respect to a set number of franchise openings as
to which the developer pays a non-refundable fee. In the event that the schedule
is not adhered to, the developer will lose development exclusivity in the
territory. At the present time, the Company does not have any international
franchise development agreements in force having decided to focus on domestic
opportunities for expansion. All former international franchise operations were
part of the Au Bon Pain Division, which has been divested.
EMPLOYEES
The Company has 599 full-time employees, of whom 134 are employed in
general or administrative functions principally at or from the Company's
executive offices in St. Louis, Missouri, or Waltham, Massachusetts; 242 are
employed in the Company's commissary operations; and 223 are employed in the
Company's bakery-cafe operations. The Company also has 2,337 hourly employees at
the bakery-cafes, including bakers and associates. There are no collective
bargaining agreements. The Company considers its employee relations to be
excellent.
TRADEMARKS
The "Panera Bread" and "Saint Louis Bread Company" names are of material
importance to the Company and are trademarks registered with the United States
Patent and Trademark Office. In addition, other marks of lesser importance have
been filed with the United States Patent and Trademark Office.
GOVERNMENT REGULATION
Each Company-operated and franchised bakery-cafe is subject to regulation
by federal agencies and to licensing and regulation by federal agencies as well
as to licensing and regulation by state and local health, sanitation, safety,
fire, alcoholic beverage control and other departments. Difficulties or
failures in obtaining and retaining the required licensing or approval could
result in delays or cancellations in the opening of restaurants.
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
and disclosure requirements on franchisors in the offer and sale of the
franchises and may also apply substantive standards to the relationship between
franchisor and franchisee. The Company does not believe that current or
potential future regulations of franchises have or will have any material impact
on the Company's operations. The Company 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's commissaries are subject to various federal, state, and local
environmental regulations. Compliance
<PAGE>
with applicable environmental regulations is not believed to have any material
effect on capital expenditures, earnings or the competitive position of the
Company. Estimated capital expenditures for environmental compliance matters are
not material.
The Americans with Disabilities Act prohibits discrimination in employment
and public accommodations on the basis of disability. Under the Americans with
Disabilities Act, the Company could be required to expend funds to modify its
bakery-cafes to provide service to, or make reasonable accommodations for the
employment of, disabled persons. The Company believes that compliance with the
requirements of the Americans with Disabilities Act will not have a material
adverse effect on its financial condition, business or operations.
ITEM 2. PROPERTIES
All Company-operated bakery-cafes are located in leased premises with lease
terms typically for ten years with one or two five-year renewal option periods
thereafter. Leases typically have a minimum base occupancy charge, charges for a
proportionate share of building operating expenses, and real estate taxes and a
contingent percentage rent based on sales above a stipulated sales level.
Information with respect to our leased commissaries as of December 25, 1999
is set forth below:
<TABLE>
<CAPTION>
FACILITY SQUARE FOOTAGE
<S> <C>
St. Louis, MO Commissary..................................... 12,100
Dallas, TX Commissary........................................ 1,000
Washington, DC Commissary.................................... 8,900
Atlanta, GA Commissary....................................... 4,100
Detroit, MI Commissary....................................... 5,200
Minneapolis, MN Commissary................................... 4,800
Cincinnati, OH Commissary.................................... 8,500
Warren, OH Commissary........................................ 11,300
Chicago, IL Commissary....................................... 12,100
Orlando, FL Commissary....................................... 5,900
</TABLE>
In 1998, the Company leased short-term office space in Waltham, MA, to
house its Legal and Development functions. The annual rent is approximately
$42,000 and the lease expires in October, 2000.
In 1997, the Company leased new office space in Webster Groves, MO, for its
corporate offices. The space occupies approximately 10,300 square feet. The
annual rent is approximately $150,000. The lease expires, assuming exercise of
renewal options, in 2007.
The Company leases additional space in St. Louis, MO, to house its
information systems staff and training functions. The annual rent is
approximately $46,000. The lease expires in November, 2001.
The Company considers its physical properties to be in good operating
condition and suitable for the purpose for which they are used.
<PAGE>
PANERA BREAD/SAINT LOUIS BREAD CO. BAKERY-CAFES
COMPANY-OPERATED: 81 TOTAL (INCLUDING SPECIALTY CAFES) AS OF DECEMBER 25, 1999
<TABLE>
<S> <C>
GREATER ST. LOUIS MARKET AREA: 35
Ballas, Creve Coeur, MO Kirkwood, MO
Belleville, IL Main, St. Charles, MO
Baxter, Ballwin, MO Market, St. Louis, MO
Bogey Hills, St. Charles, MO Northwest Plaza, St. Ann, MO
Brentwood, St. Louis, MO Pine, St. Louis, MO
Cape Girardeau, MO Soulard, St. Louis, MO
Carondelet, Clayton, MO South 9th Street, Columbia, MO
Central West End, St. Louis, MO South Central, Clayton, MO
Chesterfield Mall, Chesterfield, MO St. Clair Square, Fairview Heights, IL
Columbia Mall, Columbia, MO Sunset Hills, Sunset Hills, MO
Crestwood Plaza, St. Louis, MO Surrey Plaza, Florissant, MO
Delmar, University City, MO Telegraph Road, St. Louis, MO
Esquire, Clayton, MO Tesson Ferry, St. Louis, MO
Four Seasons, Chesterfield, MO West County, Des Peres, MO
Galleria, Richmond Heights, MO Westport Plaza, Maryland Heights, MO
Gateway One, St. Louis, MO Wildwood Crossing, Wildwood, MO
Grand, St. Louis, MO Winchester, MO
Highway K, O'Fallon, MO
ATLANTA MARKET AREA: 9
Briarcliff, Atlanta, GA Lenox Square, Atlanta, GA
Dunwoody, GA Peachtree, Atlanta, GA
Emory Village, Atlanta, GA Sandy Springs, Atlanta, GA
Gwinnett Place, Duluth, GA Town Center, Kennesaw, GA
Haywood Mall, Greenville, SC
CHICAGO MARKET AREA: 20
Diversey, Chicago, IL Orland Square Mall, Orland Park, IL
Downer's Grove, IL Park Ridge, IL
Elmwood Park, Elmwood, IL Plaza del Grato, Arlington Heights, IL
Evanston, IL Scharrington Square, Schaumburg, IL
Four Flaggs, Niles, IL Stratford Square Mall, IL
Fox Valley, Aurora, IL Two Rivers Plaza, Bolingbrook, IL
Glen Ellyn Marketplace, Glen Ellyn, IL Vernon Hills, IL
Golf & Meacham, Schaumburg, IL Wheaton, IL
LaGrange Park, IL Wilmette, IL
Niles Amlings, Niles, IL Winnetka, IL
MASSACHUSETTS MARKET AREA: 2
Arlington Heights, Arlington, MA Vinnin Square, Swampscott, MA
MICHIGAN MARKET AREA: 12
Campus Corners, Rochester Hills, MI Newburgh Plaza, Livonia, MI
City Center, Novi, MI Orchard Mall, West Bloomfield, MI
Clocktower Place, Southfield, MI Oakland Plaza, Troy, MI
</TABLE>
<PAGE>
<TABLE>
<S> <C>
KT Plaza, Farmington, MI Troy Commons, Troy, MI
Lakeside Mall, Sterlington Heights, MI Twelve Mile &
Halsted, Farmington Hills, MILathrup Village, Bloomfield,
MITwelve Oaks Mall, Novi, MI
WASHINGTON DC MARKET AREA: 1
Hechinger Commons, Alexandria, VA
SPECIALTY STORES: 2 (INCLUDED IN TOTAL STORE COUNT)
City Museum, St. Louis, MO Rendezvous Cafe, Richmond Heights, MO
FRANCHISE-OPERATED: 100 TOTAL AS OF DECEMBER 25, 1999
THE BREADBOX, L.L.C.: 1
Baymeadows, Jacksonville, FL
BREADS OF THE WORLD, L.L.C.: 8
Blacklick Crossing, Columbus, OH Five Points, Columbus, OH
Crosswoods Commons, Columbus, OH Founder's Plaza, Gahanna, OH
Easton Town Center, Columbus, OH Olengtangy Plaza, Columbus, OH
Festival at Sawmill, Dublin, OH Tuttle Crossing Mall, Columbus, OH
BREADS OF THE WORLD, L.L.C.: 2
Festival Market, Cincinnati, OH Kenwood Pavilion, Cincinnati, OH
BREADWINNERS OF THE TRIANGLE, L.L.C.: 1
Crabtree Mall, Raleigh, NC
CADLE, L.L.C.: 4
East State Street, Hermitage, PA Keystone Drive, Erie, PA
Freeport Road, Pittsburgh, PA Murray Avenue, Pittsburgh, PA
CANDALL, INC.: 11
Beldon Village Road, Canton, OH Golden Gate Plaza, Mayfield Heights, OH
Boardman Poland Rd., Boardman, OH Hudson Plaza, Hudson, OH
Center Ridge Road, Rocky River, OH Medina Road, Akron, OH
Detroit Road, Westlake, OH 44145 Tower City, Cleveland, OH
Edgerton Road, Broadview Heights, OH Van Aken Blvd., Shaker Heights, OH
Elm Road, Warren, OH
CARLON CORPORATION, L.L.C.: 3
N. Calhoun Road, Brookfield, WI West Layton Avenue, Greenfield, WI
Westfield Way, Pewaukee, WI
CHICAGO BREAD, L.L.C.: 5
Northwest Highway, Crystal Lake, IL Waukegan Road, Glenview, IL
Randall Square, Geneva, IL West Dundee, Buffalo Grove, IL
Waukegan Road, Deerfield, IL
COVELLI FAMILY LIMITED PARTNERSHIP: 6
Altamonte Springs, FL North Eola Drive, Orlando, FL
International Parkway, Lake Mary, FL University Blvd, Orlando, FL
Michigan & Orange, Orlando, FL West Fairbanks, Winter Park, FL
COVELLI FAMILY LIMITED PARTNERSHIP: 1
Brandon Town Center, Brandon, FL
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CSC INVESTMENTS, L.L.C.: 2
Market Street, Chattanooga, TN Mercedes Place, Knoxville, TN
FENWICK GROUP, L.L.C.: 3
East Broad Street, Westfield, NJ Paramus Park Mall, Paramus, NJ
Essex Green Mall, West Orange, NJ
KNEAD BREAD, L.L.C.: 3
East 69th Street, Fishers, IN Rivertown Pkwy, Grandville, MI
Merchants Square, Carmel, IN
LEMEK, L.L.C.: 2
Mall of Columbia, Columbia, MD Towson Place Center, Towson, MD
OKLAHOMA CITY BAKERY, INC.: 2
Northwest Expressway, Oklahoma City, OK South Bryant Avenue, Edmond, OK
ORIGINAL BREAD, INC.: 9
Metcalf, Overland Park, KS Oak Park Mall, Overland Park, KS
Mill Street, Kansas City, MO West 23rd Street, Lawrence, KS
Mission Road, Prairie Village, KS West 75th, Overland Park, KS
Nall Ave., Leawood, KS West 119th Street, Olathe, KS
North Rock Road, Wichita, KS
OZARK BREADS, INC.: 2
Missouri, Jefferson City, MO North Bishop, Rolla, MO
PANEBRASKA, L.L.C.: 2
Beverly Plaza, Omaha, NE Oakview Plaza, Omaha, NE
PR RESTAURANTS, L.L.C.: 3
Colby Court, Bedford, NH Woodbury Avenue, Portsmouth, NH
Framingham Mall, Framingham, MA
SHOW ME BREAD, L.L.C.: 1
Penny Road, High Point, NC
SLB OF CENTRAL ILLINOIS, L.L.C.: 4
East John Street, Champaign, IL Old Farm Shops, Champaign, IL
North Green Briar Dr., Normal, IL West White Oaks Blvd., Springfield, IL
SLB OF IOWA, L.L.C.: 6
Coral Ridge Mall, Coralville, IA Elmore Crossing, Davenport, IA
Council Street, NE, Cedar Rapids, IA 38th Avenue, Moline, IL
85th Street, Urbandale, IA Westown Parkway, Des Moines, IA
SLB OF MINNESOTA, L.L.C.: 4
City Center East, Woodbury, MN Poppy Street, Coon Rapids, MN
Country Road 24, Plymouth, MN Promenade Ave., Eagan, MN
Hurstbourne, KYMall of St. Matthews, Louisville, KY
ST. LB, INC.: 2
TEXAS BREAD, L.L.C.: 2
Preston Road, Dallas, TX Vista Ridge Mall, Lewisville, TX
</TABLE>
<PAGE>
<TABLE>
<S> <C>
TRADITIONAL BAKERY, INC.: 5
East Battlefield, Springfield, MO South Campbell, Springfield, MO
East Sunshine, Springfield, MO South National, Springfield, MO
East 32nd Street, Joplin, MO
TRADITIONAL BAKERY, INC.: 5
East 15th Street, Tulsa, OK South Lewis Ave., Tulsa, OK
East 51st Street, Tulsa, OK Woodland Hills Mall, Tulsa, OK
East 41st Street, Tulsa, OK
WHOLESOME GROUP, L.L.C.: 1
West Dussel, Maumee, OH
</TABLE>
The following table sets forth the number of Company-operated and
franchise-operated Panera Bread and Saint Louis Bread bakery-cafes which were
open as of the dates indicated:
<TABLE>
<CAPTION>
DEC. 30, 1995 DEC. 28, 1996 DEC. 27, 1997 DEC. 26, 1998 DEC. 25, 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Company-operated............ 50 52 57 70 81
Franchise-operated.......... 8 10 19 45 100
Total....................... 58 62 76 115 181
</TABLE>
The following table sets forth the number of Company-operated and
franchise-operated bakery-cafes for the Au Bon Pain Division which were open as
of the dates indicated.
<TABLE>
<CAPTION>
DEC. 30, 1995 DEC. 28, 1996 DEC. 27, 1997 DEC. 26, 1998 MAY 16, 1999
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Company-operated.............. 192 177 160 151 147
Franchise-operated............ 29 48 96 114 120
Total......................... 221 225 256 265 267
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and legal action in the ordinary course of
its business. The Company believes that all such claims and actions currently
pending against it are either adequately covered by insurance or would not have
a material adverse effect on the Company if decided in a manner unfavorable to
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company submitted no matters to a vote of security holders during the
fourth quarter of the fiscal year ended December 25, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS.
(a) 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. The following table sets
forth the high and low sale prices as reported by Nasdaq for the fiscal periods
indicated.
<TABLE>
<CAPTION>
1998 HIGH LOW
<S> <C> <C>
First Quarter.............................................. 8 5/8 7 1/2
Second Quarter............................................. 11 5/8 8
Third Quarter.............................................. 11 5/8 5 1/4
Fourth Quarter............................................. 7 5/16 4 1/8
</TABLE>
<TABLE>
<CAPTION>
1999 HIGH LOW
<S> <C> <C>
First Quarter.............................................. 7 1/8 5
Second Quarter............................................. 9 5
Third Quarter.............................................. 7 5/8 6 3/16
Fourth Quarter............................................. 8 1/2 6 1/2
</TABLE>
On March 17, 2000, the last sale price for the Class A Common Stock, as
reported on the Nasdaq National Market System, was $6.750.
(b) Holders.
On March 17, 2000, the Company had 1,383 holders of record of its Class A
Common Stock and 80 holders of its Class B Common Stock.
(c) Dividends.
The Company has never paid cash dividends on its capital stock and has no
intention of paying cash dividends in the foreseeable future.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
DEC. 25, DEC. 26, DEC. 27, DEC. 28, DEC. 30,
1999(1) 1998 1997 1996 1995
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales............................................ $156,738 $237,102 $233,212 $225,625 $216,411
Franchise sales and other revenues.......................... 7,384 6,161 5,974 3,556 3,306
Commissary sales to franchisees............................. 7,237 6,397 11,704 7,753 6,749
171,359 249,660 250,890 236,934 226,466
Costs and expenses:
Cost of food and paper products............................. 52,445 81,140 82,578 77,330 74,610
Restaurant operating expenses............................... 79,677 123,060 119,537 115,364 112,161
Commissary cost of sales.................................... 6,490 6,100 7,807 8,301 2,640
Depreciation and amortization............................... 6,379 12,667 16,862 16,195 14,879
General and administrative.................................. 17,104 18,769 16,417 14,979 12,818
Non-recurring charges....................................... 5,545 26,236 -- 4,435 8,500
167,640 267,972 243,201 236,604 225,608
Operating profit (loss)....................................... 3,719 (18,312) 7,689 330 858
Interest expenses, net........................................ 2,745 6,396 7,204 5,140 3,363
Other (income) expense, net................................... 735 1,445 212 2,513 2,016
Minority interest/(income).................................... (25) (127) (42) (40) (94)
Income (loss) before provision (benefit) for income taxes and
extraordinary items......................................... 264 (26,026) 315 (7,283) (4,427)
Provision (benefit) for income taxes.......................... 511 (5,532) (1,492) (2,918) (2,813)
Income (loss) before extraordinary items...................... (247) $(20,494) $1,807 $(4,365) $(1,614)
Extraordinary loss on the early extinguishment of debt, net of
tax of $197................................................. 382 -- -- -- --
Net income (loss)............................................. $(629) $(20,494) $1,807 $(4,365) $(1,614)
Per common share:
Basic:
Income (loss) before extraordinary item..................... $(.02) $(1.72) $.15 $(.37) $(.14)
Net income (loss)........................................... $(.05) $(1.72) $.15 $(.37) $(.14)
Diluted:
Income (loss) before extraordinary item..................... $(.02) $(1.72) $.15 $(.37) $(.14)
Net income (loss)........................................... $(.05) $(1.72) $.15 $(.37) $(.14)
Weighted average shares of common stock outstanding:
Basic....................................................... 12,137 11,943 11,766 11,705 11,621
Diluted..................................................... 12,137 11,943 11,913 11,705 11,621
Comparable restaurant sales percentage increase for Company-
operated bakery-cafes....................................... 3.3%(2) 2.1% 3.6% 0.7% 0.5%
-----------
</TABLE>
(1) Includes the results of the Au Bon Pain Division until it was sold on May
16, 1999.
(2) 1999 comparable restaurant sales consist of Panera Bread Company
bakery-cafes only.
<PAGE>
<TABLE>
<CAPTION>
AS OF
-----
DEC. 25, DEC. 26, DEC. 27, DEC. 28, DEC. 30
1999 1998 1997 1996 1995
------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT COMPANY-OPERATED
BAKERY-CAFES OPEN)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital.............................................. $(3,215) $(8,239) $(58) $(1,748) $846
Total assets................................................. 91,029 153,618 186,516 196,428 193,018
Long-term debt, less current maturities...................... -- 34,089 42,527 49,736 42,502
Convertible subordinated notes............................... -- 30,000 30,000 30,000 30,000
Stockholders' equity......................................... 73,246 73,327 92,274 90,056 93,238
Company-operated bakery-cafes open........................... 81(3) 219 217 229 242
-----------
</TABLE>
(3) Consists of Panera Bread Company-owned stores only at the end of 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth the percentage relationship to total
revenue, except where otherwise indicated, of certain items included in the
Company's consolidated statements of operations for the periods indicated.
Percentages may not add due to rounding:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
--------------------------
DECEMBER 25 DECEMBER 26 DECEMBER 27
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Restaurant sales .................................................... 91.5% 95.0% 93.0%
Franchise and other revenues............................................... 4.3 2.5 2.4
Commissary sales to franchisees............................................ 4.2 2.5 4.6
Total Revenues...................................... 100.0% 100.0% 100.0%
Cost and Expenses:
Restaurant cost of sales (1)
Cost of food and paper products..................................... 33.4% 34.2% 35.4%
Labor ........................................................... 29.0 28.4 27.3
Occupancy........................................................... 9.9 11.8 12.2
Other ........................................................... 12.0 11.7 11.8
Total Restaurant Cost of Sales............................. 84.3% 86.1% 86.7%
Commissary cost of sales (2)................................................. 89.7% 95.4% 66.7%
Depreciation and amortization................................................ 3.7 5.1 6.7
General and administrative................................................... 10.0 7.5 6.5
Non-recurring charges .................................................... 3.2 10.5 n
Operating profit (loss) .................................................... 2.2 (7.3) 3.1
Interest expenses, net .................................................... 1.6 2.6 2.9
Other expense, net .................................................... 0.4 0.3 0.1
Loss on sale of assets .................................................... n 0.3 n
Minority interest .................................................... n (0.1) n
Income (loss) before income taxes and extraordinary item..................... 0.2 (10.4) 0.1
Income tax provision (benefit)............................................... 0.3 (2.2) (0.6)
Income (loss) before extraordinary item...................................... (0.1) (8.2) 0.7
Extraordinary loss from early extinguishment of debt, net of tax............. 0.2 n n
Net (loss)/income .................................................... (0.4)% (8.2)% 0.7%
-----------
</TABLE>
(1) As a percentage of Company restaurant sales.
(2) As a percentage of commissary sales to franchisees.
<PAGE>
INTRODUCTION
Panera Bread Company (referred to as "the Company", "Panera Bread", or in
the first person notation of "we", "us", and "our") began operations in October
1987 as the Saint Louis Bread Company with the opening of its first bakery-cafe
in Saint Louis, Missouri. On December 22, 1993, the Saint Louis Bread Company
was acquired by Au Bon Pain, Co., Inc. At the time of the acquisition the Saint
Louis Bread Company had 19 company-operated bakery-cafes and one franchised
unit. Through 1998, Saint Louis Bread Company continued to grow while owned by
Au Bon Pain, expanding the concept into other markets through the opening of 51
Company owned bakery-cafes and 44 franchise-operated bakery-cafes. In August,
1998, the Company entered into a Stock Purchase Agreement to sell the Au Bon
Pain Division to ABP Corporation (the "Buyer"). The transaction was consummated
on May 16, 1999 and is detailed more completely later in this document. The
Company now consists of the Panera Bread/Saint Louis Bread Company bakery-cafes
and its related franchise operations. At the end of fiscal year 1999, there were
81 company-owned (including two specialty bakery-cafes) and 100 franchised
bakery-cafes operating in 24 states.
The Company intends to continue to expand the number of company-owned and
franchised restaurants. Our expansion strategy is to develop markets that
complement our existing commissary operations enabling us to take advantage of
operational and distribution efficiencies. In addition, we will continue to
expand into new markets where an adequate return on capital can be obtained.
The Company's commissary system is a significant competitive advantage for
the Company. While requiring a major commitment of capital, the commissaries
assure both consistent quality and supply of fresh dough products to both
company-owned and franchised bakery-cafes. In order to develop a specific market
with our concept, a commissary must be available to service the market. A
commissary may begin operations by serving one bakery-cafe, however, as our
target markets are developed and built out over time, the commissary becomes
more efficient. In addition, the commissary system allows the company to control
product quality for both company-owned and franchised bakery-cafes thereby
increasing product consistency and enhancing brand identity. It is the intention
of the Company to focus its immediate growth in areas that allow it to continue
to gain efficiencies within its current commissary structure by focusing in
areas that geographically complement markets already served by an existing
commissary unit.
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 weeks, and 40 weeks,
respectively, into the fiscal year.
RESULTS OF OPERATIONS
As noted earlier, in August 1998, the Board of Directors of Au Bon Pain
entered into a Stock Purchase agreement whereby the Au Bon Pain Division was
sold to ABP Corporation (the "Buyer"). On May 16, 1999, the Company completed
its transaction to sell the Au Bon Pain Division. For the fiscal year ended
December 25, 1999, the Company has recorded a pre-tax loss of $5.5 million
related to the transaction and a $0.6 million pre-tax ($0.4 million after-tax)
extraordinary loss related to the early extinguishment of debt from the proceeds
of the sale. Results of operations in the third and fourth quarters of 1999
reflect the results of the Panera Bread Company as a stand alone entity while
results of operations for the fiscal year ended December 25, 1999, also include
the results of the divested Au Bon Pain Division for the period December 27,
1998, through May 16, 1999.
<PAGE>
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
REVENUES
Total restaurant sales from company-operated bakery-cafes declined 33.9% to
$156.7 million in 1999 from $237.1 million in 1998. The reason for this decline
was the sale of the Au Bon Pain Division as of May 16, 1999. As a stand-alone
entity, Panera Bread's 1999 restaurant sales increased 25.7% to $97.4 million
from $77.5 million in 1998. Several factors contributed to the growth in Panera
Bread's restaurant sales including the opening of 12 new bakery-cafes in 1999,
and a 3.3% increase in comparable restaurant sales.
Franchise and other revenues rose to $7.4 million in 1999 from $6.2 million
in 1998, a 19.4% increase. For Panera Bread on a stand-alone basis, franchise
and other revenues rose to $6.4 million in 1999, from $3.5 million in 1998, an
increase of 82.9%. This increase was primarily driven by a 170.6% rise in
franchise royalties to $4.6 million in 1999 from $1.7 million in 1998. The
increase in royalty activity can be attributed to the addition of 56 franchised
bakery-cafes in 1999 and the higher sales volumes achieved in 1999. The average
annualized sales volume for all franchised bakery-cafes in 1999 was $1.5 million
compared to $1.3 million in 1998.
During 1999, 4 franchise area development agreements were signed
representing commitments for the development of 60 bakery-cafes. As of December
25, 1999, there were franchise commitments in place for the development of an
additional 543 bakery-cafes. In 1999, the Company opened 68 new bakery-cafes
including 12 company-owned and 56 franchised bakery-cafes representing a 57%
increase in the number of bakery-cafes opened as of the end of fiscal year 1999
compared to prior year-end.
Commissary sales to franchisees increased 12.5% in 1999 to $7.2 million
from $6.4 million in 1998. On a stand-alone basis, Panera Bread's commissary
sales to franchisees increased to $6.3 million in 1999, a 215.0% increase from
1998 sales of $2.0 million. The increase in sales to franchisees can be
attributed to the addition of 56 franchised bakery-cafes in 1999 and higher
bakery-cafe unit volumes achieved in 1999.
COSTS AND EXPENSES
The cost of food and paper products was $52.4 million, or 33.4% of Company
restaurant sales, in 1999 compared to $81.1 million, or 34.2% of Company
restaurant sales, in 1998. 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 primary reason for the decline
was that the Au Bon Pain units historically ran at a higher food cost percentage
than the Panera Bread units. With the sale of the Au Bon Pain Division in May,
1999, the full year results were more heavily weighted to the Panera Bread
units.
The costs associated with the sale of fresh dough products to franchises
are included in commissary cost of sales, and include the cost of sales,
salaries, benefits, and other operating expenses, excluding depreciation
associated with the sale of fresh dough products to our franchisees. In 1999,
commissary cost of sales as a percentage of commissary sales to franchisees
declined to 89.7% from 95.4% in 1998. The decline is due to the commissaries
becoming more efficient as they service more bakery-cafes. Only one new
commissary was opened in 1999 while Panera Bread added 68 new bakery-cafes on a
system-wide basis.
The cost of labor as a percentage of restaurant revenues increased to 29.0%
in 1999 from 28.4% in 1998. The overall increase in labor for the year is
primarily due to an increase in the average hourly wage rate driven by low
unemployment and a highly competitive labor market.
The cost of occupancy as a percentage of restaurant revenue decreased to
9.9% in 1999 from 11.8% in 1998. The decrease is due primarily to increased
sales volumes at company-operated bakery-cafes and the sale of the Au Bon Pain
Division, which had historically run higher occupancy costs due to their
locations in the downtown areas of larger cities.
Other restaurant operating expenses increased as a percentage of restaurant
revenues to 12.0% in 1999 from 11.7% in 1998. The increase is primarily due to
increases in the fixed costs associated with the opening of 12 new bakery-cafes
in
<PAGE>
1999 and a small increase in advertising at the Panera Bread bakery-cafes during
the year.
Depreciation and amortization decreased as a percentage of total revenue to
3.7% in 1999 from 5.1% in 1998. The decrease was primarily due to the sale of
the Au Bon Pain Division assets and to the suspension of depreciation and
amortization associated with those assets held for sale after August 12, 1998.
General and administrative expenses increased as a percentage of total
revenues to 10.0% in 1999 from 7.5% in 1998. The increase included a charge for
transitional overhead services provided to Panera Bread by the buyer of the Au
Bon Pain business unit through the end of the year at the same time that Panera
Bread was experiencing increased costs associated with building its accounting
and information systems infrastructure.
Operating income (loss) increased to $3.7 million in 1999 from $(18.3)
million in 1998. Operating income in 1999 was reduced by a $5.5 million
non-recurring charge related to the sale of the Au Bon Pain Division. Operating
income in 1999 was increased by $4.7 million due to the elimination of
depreciation and amortization expense associated with the Au Bon Pain Division
assets sold in 1999. The operating loss in 1998 included non-recurring charges
recorded by the Company of $26.2 million, including a charge of $24.2 million,
related principally to the write down of certain assets under Statement of
Financial Accounting Standards, 121 "Accounting for the Impairment of Long-Lived
Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121") related to
the planned sale of assets and the closing of eight underperforming Au Bon Pain
cafes and one Panera Bread bakery-cafe. Operating income in 1998 was favorably
impacted by approximately $4.5 million as a result of the suspension of
depreciation and amortization of the Au Bon Pain Division assets held for sale
as of August 12, 1998, the date of the agreement to sell that business. Before
the non-recurring charges and suspension of depreciation and amortization,
operating income increased by 32.4% in 1999 to $4.5 million in 1999 from $3.4
million in 1998.
Interest expense as a percentage of total revenue decreased to 1.6% in 1999
from 2.6% in 1998. This reduction is due primarily to the repayment of the
Company's outstanding debt with the proceeds of the sale of the Au Bon Pain
Division.
In connection with the early extinguishment of debt, the Company recorded a
$.4 million extraordinary loss net of $.2 million of taxes. The debt was repaid
with the proceeds from the sale of the Au Bon Pain Division.
INCOME TAXES
The income tax provision was $.5 million in 1999 compared to an income tax
benefit of $5.5 million in 1998. The 1999 effective tax rate was 194% primarily
due to State income taxes, the non-deductible meals and entertainment allowance
as well as non-deductible goodwill. The $5.5 million benefit in 1998 was
primarily due to a $24.2 million charge taken to write-down the value of the Au
Bon Pain Division assets in connection with the sale offset principally by a
valuation allowance related to state net operating loss carryforwards and
capital losses related to the sale.
As of December 25, 1999, the Company had federal net operating loss
carryforwards of approximately $24.8 million, as well as approximately $4.9
million of federal tax credit carryforwards available to reduce future income
taxes. The federal net operating loss carryforwards expire principally in the
year 2018. The tax credit carryforwards include approximately $3.7 million of
federal Alternative Minimum Tax Credits which have an indefinite life and $1.2
million of federal jobs tax credits which expire in the years beginning with
2009-2010. The Company provided a valuation allowance of $4.7 million to reduce
its deferred tax assets to a level which, more likely than not, will be
realized. The valuation allowance is primarily attributable to the potential for
the non-deductibility of capital losses related to the taxable loss on the Sale
of the Au Bon Pain Division and the expectation that certain deferred state tax
assets will be unrealizable following the Sale. The Company reevaluates the
positive and negative evidence impacting the realization of its deferred tax
assets on an annual basis.
NET LOSS
The net loss in 1999 was $.6 million compared to a net loss of $20.5
million in 1998. The net loss in 1999 included a $5.5 million non-recurring
charge related to the sale of the Au Bon Pain Division and a $.4 million after
tax extraordinary loss from the early extinguishment of debt from the proceeds
from the sale. 1998's results included a $26.2 million charge taken as a result
of the write-down of the value of the Au Bon Pain Division assets in connection
with the sale as well as
<PAGE>
closure of eight underperforming Au Bon Pain Cafes and one Panera Bread Bakery
Cafe.
Other than the non-recurring charges, net income in 1999 was higher than
1998 primarily due to higher operating earnings and lower interest expense.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
REVENUES
Total restaurant sales from Company-operated bakery-cafes increased 1.7% to
$237 million in 1998 from $233 million in 1997 and other revenue decreased 29%
to $12.6 million in 1998 from $17.7 million in 1997.
Total restaurant sales for Panera Bread as a stand-alone entity increased
to $77.5 million in 1998 from $67.2 million in 1997, an increase of 15.3%, and
other revenue associated with the Company increased to $5.5 million in 1998 from
$3.1 million in 1997, an increase of 77%. The growth in restaurant sales was due
to several factors, including incremental sales of $4.5 million generated from
the opening of 11 new Panera Bread-operated bakery-cafes opened during 1998 and
6 Panera Bread-operated bakery-cafes opened during 1997 and strong comparable
restaurant sales growth of 3.63%, on top of the 9.3% increase in 1997. Other
revenue growth was impacted by an increase in franchise fees and royalties to
$3.5 million in 1998 compared to $2.2 million in 1997, driven by the execution
of new franchise area development agreements, fees from opening new franchise
locations and higher royalty income. Commissary sales to franchises decreased to
$6.4 million in 1998 from $11.7 million in 1997. The decrease was primarily due
to the sale of the Mexico, Missouri plant to Bunge Foods in March, 1998. As a
result, a third party was selling product to franchisees instead of the Company.
Sales from Company-owned restaurants in the Au Bon Pain Division decreased
3.8% to $159.6 million compared to $166.0 million in 1997, and other revenue
associated with the Au Bon Pain Division decreased 51% to $7.1 million compared
to $14.6 million in 1997. An increase in comparable restaurant sales of 1.5% was
more than offset by the effect of the disposition throughout 1997 and 1998 of a
number of underperforming bakery-cafes and the franchising of 11 Company-owned
restaurants in the third quarter of 1997. The decrease in other revenue was
principally due to a decrease in wholesale sales to $3.1 million in 1998, down
from $8.5 million in 1997, due to the sale of the wholesale frozen dough
business included in the sale of the Mexico, Missouri manufacturing facility.
COSTS AND EXPENSES
The cost of food and paper products was $81.1 million, or 34.2% of Company
restaurant sales in 1998 compared to $82.6 million, or 35.4% of Company
restaurant sales in 1997. The cost of food and paper products does not include
costs that are associated with the commissary operations that sell fresh dough
products to franchisees. The costs associated with those sales are included in
commissary costs of sales. Commissary cost of sales increased from 66.7% in 1997
to 95.4% in 1998. The increase was due to sale of the Mexico, Missouri
production facility in the first quarter of 1998.
Labor costs as a percentage of restaurant sales increased to 28.4% in 1998
from 27.3% in 1997. The overall increase is due primarily to an increase in the
average hourly wage driven by a highly competitive labor market.
Occupancy costs as a percentage of restaurant sales decreased to 11.8% in
1998 from 12.2% in 1997. This decrease was primarily due to an increase in
restaurant sales and the closing of nine Au Bon Pain Division cafes in 1998.
Other operating expenses remained relatively stable at 11.8% of restaurant
sales in 1997 versus 11.7% in 1998.
During 1998, the Company recorded $2.0 million in non-recurring, non-cash
charges to write-down the book value of eight underperforming Au Bon Pain
Division cafes whose leases expired in 1998 and were not renewed, and to record
the closing of one Saint Louis Bread/Panera Bread location. The charge is
included as a separate component of operating expenses and includes a $1.6
million fixed asset write-down and a $0.4 million other asset write-down.
In the first quarter of 1998 the Company sold the Mexico, Missouri
production facility and its wholesale frozen dough business to Bunge Foods
Corporation ("Bunge") for approximately $13 million in cash. In conjunction with
the sale, the Au Bon Pain Division and the Saint Louis Bread Co. Division
entered into five-year supply agreements with Bunge for
<PAGE>
the supply of substantially all their frozen dough needs, excluding bagels, for
their domestic bakery-cafes. The Company recognized a pre-tax loss on the sale
of the facility of approximately $735,000 in the Company's results of
operations.
Operating income/(loss) decreased to $(18.3) million in 1998 from $7.7
million in 1997. Operating loss in 1998 included non-recurring charges recorded
by the Company of $26.2 million, including a charge of $24.2 million, related
principally to the write-down of certain assets under Statement of Financial
Accounting Standards, 121 "Accounting for the Impairment of Long-Lived Assets
and for the Long-Lived Assets to be Disposed of" ("SFAS 121"), related to the
planned sale of assets, and the closing of eight under-performing Au Bon Pain
Division cafes and one Saint Louis Bread/Panera Bread bakery-cafe. Operating
income in 1998 was favorably impacted by approximately $4.5 million due to the
suspension of depreciation and amortization of the Au Bon Pain Division assets
held for sale as of August 12, 1998, the date of the agreement to sell that
business. Before the non-recurring charges and suspension of depreciation and
amortization, operating income decreased 55% in 1998 to $4.3 million below 1997.
The decline in operating income (before non-recurring charges and
suspension of depreciation) was a result of lower contribution in the Au Bon
Pain Division of $4.3 million, as the Saint Louis Bread Co. Division
contribution was essentially the same in 1998 versus 1997. The lower
contribution in the Au Bon Pain Division was due to several factors. First, the
comparable restaurant sales of 1.5% produced a negative leverage against the
normal inflationary cost elements, reducing contribution. Second, results were
impacted by inefficiencies in the manufacturing facility prior to the sale at
the end of the first quarter of 1998. In addition, the level of franchise
contribution from the Au Bon Pain International & Trade Channels area was
reduced by 55% due both to the Asian economic crisis and to the pending sale of
the Au Bon Pain Division overall.
Before the non-recurring charge, operating profit in the Saint Louis Bread
Co. Division in 1998 was essentially the same at $6.5 million compared to 1997,
as increases in store profit from Company-owned cafes and greater franchise
income in 1998 were largely offset by higher overhead costs, particularly
related to the field organization which increased approximately $1.4 million
over 1997, and an increase in commissary infrastructure expenses, in
anticipation of the projected growth in both the Company-owned and franchise
operated cafes.
During 1998, 12 Saint Louis Bread Co. Division franchise area development
agreements were signed and 4 existing agreements were amended, representing
commitments for the development of 259 bakery-cafes and increasing the number of
franchise commitments to a total of 562 remaining bakery-cafes to be developed.
In addition, 37 Saint Louis Bread Co. Division bakery-cafes were opened in 1998,
including 11 company-owned cafes and 26 franchise-operated cafes. Within the Au
Bon Pain Division, 27 franchise-operated units were opened in 1998.
INCOME TAXES
The income tax benefit was $5.5 million in 1998 compared to $1.5 million in
1997. The 1998 effective income tax benefit of 21.3% was primarily due to the
$24.2 million charge taken to write down the value of the Au Bon Pain Division
assets in connection with the sale, offset principally by a valuation allowance
related to state net operating loss carryforwards and capital losses related to
the sale.
NET INCOME (LOSS)
Lower operating income in 1998 versus 1997, as well as a $26.2 million
charge taken as a result of the writedown of the value of the Au Bon Pain assets
in connection with the sale as well as closure of eight underperforming Au Bon
Pain Cafes and one Panera Bread Bakery-Cafe partially offset by deferred tax
benefits and lower interest costs incurred in 1998, produced a significant
decrease in net income for the year ended December 26, 1998. The net loss for
the year ended December 26, 1998 was $(20.5) million versus net income of $1.8
million for the year ended December 27, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were unchanged at $1.9 million at December 25,
1999, versus $1.9 million at December 26, 1998. 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, proceeds from the sale of equity and debt securities, and bank
borrowings.
<PAGE>
Effective May 16, 1999, the Company completed its transaction to sell the
Au Bon Pain Division. In the second quarter of 1999 the Company repaid all of
its outstanding debt with the proceeds from the Sale. In connection with the
early retirement of debt, in the second quarter of 1999, the Company recorded
an after tax extraordinary non-cash charge of approximately $.4 million.
Concurrently with the sale of the Au Bon Pain business unit effective May
16, 1999, the Company amended its existing credit facility to reduce the
unsecured revolving line of credit to $10.0 million, reflecting reduced needs
for debt financing. Amounts outstanding under the amended facility bear interest
at either LIBOR plus 2.25% or the commercial bank's prime rate plus .75%, at the
Company's option. As of December 25, 1999, the Company had $9.4 million
available to it under the $10.0 million revolving line of credit, reduced by a
$0.6 million outstanding standby letter of credit.
Excluding the non-recurring charges, operating income plus depreciation and
amortization was $16.0 million in 1999 versus $21.2 million in 1998. A total of
$6.7 million was provided by operating activities in 1999 compared to $20.5
million in 1998. In 1999, funds provided by operating activities decreased
primarily as a result of a decrease in depreciation, and an increase in accounts
receivable. This decrease was partially offset in an increase in deferred
revenue of $2.0 million related to an upfront payment received from a soft drink
provider.
The Company received $57.3 million and utilized $11.2 million for investing
activities in 1999 and 1998, respectively. The investing activities in 1999
consisted primarily of additions to property and equipment, and the sale of the
assets of the Au Bon Pain business unit. The Company used the proceeds of the
sale to repay its outstanding debt.
Total capital expenditures in 1999 of $15.3 million were related primarily
to the opening of 12 new company-operated bakery-cafes, the construction of 1
commissary, and to maintaining or remodeling the existing bakery-cafes. The
expenditures were mainly funded by net cash from operating activities of $6.7
million, and cash remaining from the sale of the Au Bon Pain business unit after
repayment of all outstanding debt.
The Company utilized $63.9 million and $8.3 million from financing
activities in 1999 and 1998, respectively. The financing activities in 1999
included repayment of all outstanding debt with the proceeds from the sale of Au
Bon Pain, proceeds from and payments on the revolving line of credit, and the
issuance of common stock under the Company's employee stock option and employee
stock purchase plan. The financing activities in 1998 included proceeds from and
principal payment on long term debt, and the issuance of common stock under the
Company's employee stock option and employee stock purchase plans.
The Company had a working capital deficit of $3.2 million and $8.2 million
for the years ended December 25, 1999, and December 26, 1998, respectively. The
decrease in the deficit in 1999 was primarily due to an increase in deferred
income taxes, a decrease in assets held for sale in connection with the sale of
the Au Bon Pain Division partially offset by an increase in accrued expenses.
The Company has experienced no short term or long term liquidity difficulties
having been able to finance its operations through internally generated cash
flow and its revolving line of credit.
In 2000, the Company currently anticipates spending approximately $16-17
million principally for the opening of new bakery-cafes, the opening of one to
two additional commissaries, and for maintaining and remodeling existing cafes.
The Company expects to fund these expenditures principally through internally
generated cash flow.
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, we discussed our plans and progress to
be Year 2000 ready. We completed the installation, implementation, and testing
of our systems in late 1999, and made modifications as deemed necessary. As a
result of our planning and implementation efforts, we 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. In addressing the Year 2000 issue,
the Company incurred internal labor costs as
<PAGE>
well as consulting and other expenses. As of December 25, 1999, the Company
expended approximately $725,000 in external costs (consulting fees and related
costs). We are not aware of any material problems resulting from Year 2000
issues regarding our internal systems, the products and services of third
parties, or the businesses operated by our 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.
IMPACT OF INFLATION
In the past, the Company has been able to recover inflationary cost and
commodity price increases through increased menu prices. There have been and
there may be in the future, delays in implementing such menu price increases,
and competitive pressures may limit the Company's ability to recover such cost
increases in their entirety. Historically, the effects of inflation on the
Company's net 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 that all such increased labor costs can be reflected
in its prices or that increased prices will be absorbed by consumers without
diminishing to some degree consumer spending at the bakery-cafes. However, the
Company has not experienced to date a significant reduction in gross profit
margins as a result of changes in such laws, and management does not anticipate
any related future significant reductions in gross profit margins.
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, included but not limited to the lack of
availability of sufficient capital to it and the developers party 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.
RECENT ACCOUNTING PRONOUNCEMENTS
None which will have a material impact on the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company had no holdings of derivative financial or commodity
instruments at December 25, 1999. 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.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following described consolidated financial statements of the Company
are included in response to this item:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 25, 1999, and December 26, 1998.
Consolidated Statements of Operations for the fiscal years ended December
25, 1999, December 26, 1998, and December 27, 1997.
Consolidated Statements of Cash Flows for the fiscal years ended December
25, 1999, December 26, 1998, and December 27, 1997.
Consolidated Statements of Stockholders' Equity for the fiscal years ended
December 25, 1999, December 26, 1998, and December 27, 1997.
Notes to Consolidated Financial Statements.
Valuations and Qualifying Accounts.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PANERA BREAD COMPANY
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Panera Bread Company and its subsidiaries at December 25, 1999, and
December 26, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 25, 1999, in conformity
with accounting principles generally accepted in the United States. In addition,
in our opinion, the financial statement schedules listed in the accompanying
index present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
March 19, 2000
<PAGE>
PANERA BREAD COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share
information)
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................................. $1,936 $1,860
Accounts receivable, less allowance of $197 and $208 in 1999 and 1998, respectively....... 2,686 1,302
Inventories (Note 3)...................................................................... 1,880 1,662
Prepaid expenses.......................................................................... 484 1,781
Refundable income taxes................................................................... 98 115
Deferred income taxes (Note 10)........................................................... 5,473 1,500
Total current assets............................................................... 12,557 8,220
Property and equipment, net (Note 4)........................................................ 47,191 38,856
Other assets:
Assets held for sale, net, non-current (Note 5)........................................... -- 69,395
Notes receivable.......................................................................... 35 20
Intangible assets, net of accumulated amortization of $5,932 and $4,944 in 1999 and 1998
respectively.............................................................................. 18,779 19,787
Deferred financing costs.................................................................. 88 768
Deposits and other (Note 11).............................................................. 3,960 4,138
Deferred income taxes (Note 10)........................................................... 8,419 12,434
Total other assets................................................................. 31,281 106,542
Total assets....................................................................... $91,029 $153,618
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable.......................................................................... $3,535 $4,020
Liabilities held for sale, net (Note 5)................................................... -- 6,469
Accrued Expenses (Note 6)................................................................. 12,237 5,929
Current maturities of long term debt...................................................... -- 41
Total current liabilities.......................................................... 15,772 16,459
Deferred revenue (Note 17).................................................................. 2,011 --
Long term debt, less current maturities (Note 7)............................................ -- 34,089
Convertible subordinated notes (Note 8)..................................................... -- 30,000
Total liabilities.................................................................. 17,783 80,548
Minority interest........................................................................... -- (257)
Commitments and contingencies (Note 9)...................................................... -- --
Stockholders' equity (Note 12): Common stock, $.0001 par value:
Class A, shares authorized 50,000,000; issued and outstanding 10,630,717 and 10,518,213 in
1999 and 1998, respectively............................................................... 1 1
Class B, shares authorized 2,000,000; issued and outstanding 1,535,821 and 1,557,658 in 1999
and 1998, respectively.................................................................... -- --
Additional paid-in capital.................................................................. 70,581 70,033
Retained earnings........................................................................... 2,664 3,293
Total stockholders' equity......................................................... 73,246 73,327
Total liabilities and stockholders' equity......................................... $91,029 $153,618
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except
per share amounts)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Restaurant sales....................................................... $156,738 $237,102 $233,212
Franchise and other revenues........................................... 7,384 6,161 5,974
Commissary sales to franchisees........................................ 7,237 6,397 11,704
Total revenue................................................... 171,359 249,660 250,890
Costs and expenses:
Restaurant Expenses:
Cost of food and paper products.................................... 52,445 81,140 82,578
Labor.............................................................. 45,385 67,218 63,593
Occupancy.......................................................... 15,552 28,016 28,514
Other operating expenses........................................... 18,740 27,826 27,430
132,122 204,200 202,115
Commissary cost of sales............................................... 6,490 6,100 7,807
Depreciation and amortization.......................................... 6,379 12,667 16,861
General and administrative expenses.................................... 17,104 18,769 16,418
Non-recurring charge (Note 5).......................................... 5,545 26,236 --
Total costs and expenses........................................ 167,640 267,972 243,201
Operating profit (loss).................................................. 3,719 (18,312) 7,689
Interest expense, net.................................................... 2,745 6,396 7,204
Other expense, net....................................................... 735 710 212
Loss on sale of assets................................................... -- 735 --
Minority interest........................................................ (25) (127) (42)
Income (loss) before income taxes and extraordinary item................. 264 (26,026) 315
Income tax provision (benefit) (Note 10)................................. 511 (5,532) (1,492)
Income (loss) before extraordinary item.................................. (247) (20,494) 1,807
Extraordinary loss from early extinguishments of debt, net of tax of $197 382 -- --
Net Income (loss)........................................................ $(629) $(20,494) $1,807
Per common share:
Basic:
Income (loss) before extraordinary item................................ $(.02) $(1.72) $.15
Net income (loss)...................................................... $(.05) $(1.72) $.15
Diluted:
Income (loss) before extraordinary item................................ $(.02) $(1.72) $.15
Net income (loss)...................................................... $(.05) $(1.72) $.15
Weighted average shares of common stock outstanding
Basic.................................................................. 12,137 11,943 11,766
Diluted................................................................ 12,137 11,943 11,913
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
DEC. 25, DEC. 26, DEC. 27,
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss).................................................................... $(629) $(20,494) $1,807
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................ 6,379 12,667 16,861
Amortization of deferred financing costs............................................. 406 683 619
Provision for losses on accounts receivable.......................................... 93 56 49
Minority interest.................................................................... (25) (127) (42)
Deferred income taxes................................................................ 42 (6,589) (1,883)
Loss on early extinguishment of debt................................................. 382 -- --
Gain on sale of assets............................................................... -- -- (986)
Gain on sale of investment........................................................... -- -- (930)
Non-recurring charge................................................................. 5,545 26,236 --
Loss on disposal of assets........................................................... -- 735 308
Changes in operating assets and liabilities:
Accounts receivable.................................................................. (1,596) 15 (1,185)
Inventories.......................................................................... (65) 212 (294)
Prepaid expense...................................................................... (3,560) (535) 952
Refundable income taxes.............................................................. -- 480 1,521
Accounts payable..................................................................... (3,037) 4,069 (4,070)
Accrued expenses..................................................................... 769 3,104 769
Deferred revenue..................................................................... 2,011 -- --
Net cash provided by operating activities........................................ 6,715 20,512 13,496
Cash flows from investing activities:
Additions to property and equipment.................................................. (15,306) (21,706) (14,681)
Proceeds from sale of assets......................................................... 72,163 12,694 6,044
Proceeds from sale of investment..................................................... -- -- 2,000
Change in cash included in net current liabilities held for sale..................... (466) (1,305) --
Payments received on notes receivable................................................ 114 240 139
Increase in intangible assets........................................................ (50) (139) (122)
Increase in deposits and other....................................................... 855 (956) (1,058)
Increase in notes receivable......................................................... (30) (45) --
Net cash provided by (used in) investing activities.............................. 57,280 (11,217) (7,678)
Cash flow from financing activities:
Exercise of employee stock options................................................... 96 1,203 168
Proceeds from long-term debt issuance................................................ 41,837 75,418 57,530
Principal payments on long-term debt................................................. (106,073) (84,253) (65,003)
Proceeds from issuance of common stock............................................... 148 268 243
Common stock issued for employee stock bonus......................................... 304 -- --
Increase in deferred financing costs................................................. (110) (506) (189)
Increase (decrease) in minority interest............................................. (121) (418) (293)
Net cash used in financing activities............................................ (63,919) (8,288) (7,544)
Net increase (decrease) in cash and cash equivalents................................... 76 1,007 (1,726)
Cash and cash equivalents at beginning of year......................................... 1,860 853 2,579
Cash and cash equivalents at end of year............................................... $1,936 $1,860 $853
Supplemental cash flow information: Cash paid during the year for:
Interest......................................................................... $4,250 $5,544 $6,602
Income taxes..................................................................... $241 $268 $700
Note received from sale of property and equipment.................................... $-- $-- $2,591
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the
fiscal years ended December 25, 1999, December 26, 1998, and December 27, 1997
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
$.0001 PAR VALUE $.0001 PAR VALUE
---------------- ----------------
CLASS A CLASS B CLASS B
------- ------- -------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUN ADDITIONAL RETAINED
------ ------ ------ ------ ------ ----- PAID-IN EARNINGS
CAPITAL --------
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, Dec. 28, 1996............ 10,067 $1 1,647 $__ 20 $__ $68,075 $21,980
Exercise of employee stock options 23 152
Income tax benefit related to stock 16
option plan.....................
Issuance of common stock.......... 40 243
Conversions of Class B to Class A. 37 (37)
Conversions of preferred stock to 20 (20)
Class A common stock............
Net income........................ 1,807
Balance, Dec. 27, 1997............ 10,187 $1 1,610 $__ 0 $__ $68,486 $23,787
Exercise of employee stock options 178 1,204
Income tax benefit related to stock 75
option plan.....................
Exercise of Warrants.............. (323)
Issuance of common stock.......... 101 591
Conversions of Class B to Class A. 52 (52)
Net loss.......................... (20,494)
Balance, Dec. 26, 1998............ 10,518 $1 1,558 $__ __ $__ $70,033 $3,293
Exercise of employee stock options 14 96
Issuance of common stock.......... 29 148
Issuance of common stock for 48 304
employee bonus..................
Conversions of Class B to Class A. 22 (22)
Net loss.......................... (629)
Balance, Dec. 25, 1999............ 10,631 $1 1,536 $__ __ $__ $70,581 $2,664
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PANERA BREAD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Panera Bread Company operates a retail bakery-cafe business and franchising
business under the concept names "Panera Bread Company" and "Saint Louis Bread
Company". Up until the year ended December 26, 1998, the Company operated under
the name Au Bon Pain Co., Inc. and consisted of two retail bakery-cafe
businesses and two franchising businesses operating under the concept names "Au
Bon Pain" and "Saint Louis Bread Company". Included in franchise sales and other
revenues are sales of product to franchisees and others of $7.2 million, $6.4
million and $11.7 million for the fiscal years ended December 25, 1999, December
26, 1998 and December 27, 1997, respectively.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
For the year ended December 25, 1999, the consolidated financial statements
consist of the accounts of Panera Bread Company, Panera Bread Company, Inc., a
wholly owned subsidiary, and ABP Midwest Manufacturing Co, Inc., a wholly owned
subsidiary and Au Bon Pain Co., Inc. and ABP Holdings, Inc., which were both
wholly owned subsidiaries through the date of their sale on May 16, 1999 (See
Note 5). For the years ended December 26, 1998 and December 27, 1997, the
consolidated statements include the accounts of Au Bon Pain Co., Inc., ABP
Holdings, Inc., a wholly owned subsidiary, Saint Louis Bread Company, Inc.
("Saint Louis Bread"), a wholly owned subsidiary, ABP Midwest Manufacturing Co.,
Inc, a wholly owned subsidiary, and investments in joint ventures in which a
majority interest is held (the "Company"). All intercompany balances and
transactions have been eliminated. Due to the pending sale of the Au Bon Pain
Division (see Note 5), the assets and liabilities of that business were
presented on a net current and non-current basis in the December 26, 1998
balance sheet. The Company operates in one material business segment, the retail
bakery-cafe business.
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain items in the prior year financial statements have been reclassified
to conform to current year presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity at the
time of purchase of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Substantially all accounts receivable are due from franchisees for
purchases of food and paper products and for royalties from December sales. The
Company generally does not require collateral and maintains reserves for
potential uncollectable accounts, which in the aggregate have not exceeded
management's expectation.
INVENTORIES
Inventories, which consist of food products, paper goods and supplies,
smallwares and promotional items are valued at the lower of cost, or market,
determined under the first-in, first-out method.
<PAGE>
PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds are stated at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight-line method over
the shorter of their estimated useful lives or the remaining terms of the leases
(including available option periods).The estimated useful lives used for
financial statement purposes are:
<TABLE>
<S> <C>
Machinery and equipment............................ 3-10 years
Furniture and fixtures............................. 3-10 years
Leasehold improvements............................. 10-23 years
Signs.............................................. 10 years
</TABLE>
Interest is capitalized in connection with the construction of new
locations or facilities. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset's estimated useful
life. Capitalized interest amounted to $96,279, $114,928 and $70,780 in 1999,
1998 and 1997, respectively.
Upon retirement or sale, the cost of assets disposed of and their related
accumulated depreciation are removed from the accounts. Any resulting gain or
loss is credited or charged to operations. Maintenance and repairs are charged
to expense when incurred, while betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets consist of goodwill arising from the excess of cost over
the fair value of net assets acquired at the original acquisition of the
Company. Goodwill is amortized on a straight-line basis over twenty-five years.
Periodically management assesses, based on undiscounted cash flows, if there has
been a permanent impairment in the carrying value of its intangible assets and,
if so, the amount of any such impairment, by comparing anticipated discounted
future operating income from acquired businesses with the carrying value of the
related intangibles. In performing this analysis, management considers such
factors as current results, trends, future prospects and other economic factors.
INCOME TAXES
The provision for income taxes is determined in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted income tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled.
Any effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
DEFERRED FINANCING COSTS
Costs incurred in connection with obtaining debt financing are amortized
over the terms of the related debt.
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.
CAPITALIZATION OF CERTAIN DEVELOPMENT COSTS
The Company capitalizes certain expenses associated with the development
and construction of new store locations. Capitalized costs of $.8 million and
$2.2 million as of December 25, 1999 and December 26, 1998, respectively, are
recorded as part of the asset to which they relate and are amortized over the
asset's useful life.
<PAGE>
ADVERTISING COSTS
Advertising costs are expensed when incurred. The Company incurred
advertising costs in the amount of $1.8 million, $1.9 million and $2.0 million
for the years ended December 25, 1999, December 26, 1998 and December 27, 1997,
respectively.
PRE-OPENING COSTS
All pre-opening costs associated with the opening of new retail locations
are expensed when incurred.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday in December. Fiscal
years for the consolidated financial statements included herein include 52 weeks
for the fiscal years ended December 25, 1999, December 26, 1998 and December 27,
1997.
EARNINGS PER SHARE DATA
Earnings per share is based on the weighted average number of shares
outstanding during the period after consideration of the dilutive effect, if
any, for common stock equivalents, including stock options, warrants and
preferred stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's long term debt, including current
maturities, approximates fair value because the interest rates on these
instruments change with market interest rates. The carrying amounts for accounts
receivable and accounts payable approximate their fair values due to the short
maturity of these instruments.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, 1999 DECEMBER 26, 1998
----------------- -----------------
<S> <C> <C>
Commissaries.......... $178 $131
Bakery-cafes.......... 729 590
Paper goods........... 134 113
Smallwares............ 768 767
Other................. 71 61
$1,880 $1,662
</TABLE>
<PAGE>
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 25, 1999 DECEMBER 26, 1998
----------------- -----------------
<S> <C> <C>
Leasehold improvements.......... $33,080 $25,621
Machinery and equipment......... 21,995 15,366
Furniture and fixtures.......... 6,350 5,345
Construction in progress........ 2,701 3,603
Signage......................... 1,320 968
65,446 50,903
Less accumulated depreciation and amortization......... 18,255 12,047
Property and equipment, net............................ $47,191 $38,856
</TABLE>
The Company recorded depreciation expense related to these assets of $5.4
million and $5.0 million and $15.4 million in 1999, 1998 and 1997, respectively.
5. SALE OF AU BON PAIN DIVISION AND NON-RECURRING CHARGES
The Company, together with its wholly-owned subsidiary ABP Holdings, Inc.
("ABPH") entered into a Stock Purchase Agreement dated August 12, 1998 and
amended October 28, 1998 with ABP Corporation (the "Buyer"), an affiliate of
Bruckmann, Rosser, Sherrill & Co., L.P., relative to the transfer of
substantially all of the assets and liabilities of the Company's Au Bon Pain
Division business (the "Au Bon Pain Division") and sale of all of the
outstanding capital stock of ABPH to the Buyer, whereby the Buyer would become
the owner of the Au Bon Pain Division (the "Sale"). The Sale was effective May
16, 1999 for $73 million in cash before contractual purchase price adjustments
of approximately $1 million. The Company, which now consists of the Panera
Bread/Saint Louis Bread Co. Business Unit only, has been renamed Panera Bread
Company. The proceeds from the sale were used to repay all outstanding debt and
provide cash for growth. In addition, the Company recorded an extraordinary loss
net of taxes of $0.4 million associated with the early extinguishment of debt
outstanding in the second quarter of 1999.
In conjunction with the sale, the Company recorded a non-cash,
non-recurring, pre-tax charge of $5.5 million in the first quarter of 1999 and
$24.2 million in 1998. This charge was to reflect a write-down under Statement
of Financial Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121"). The charge
is included as a separate component of operating expenses. The non-cash charge
was taken to record an impairment for long lived assets to be disposed of as a
result of the agreement entered into for the subsequent sale of the Au Bon Pain
Division. Operating income for the years ended December 25, 1999, and December
26, 1998, were favorably impacted by $4.7 million and $4.5 million due to the
suspension of depreciation and amortization associated with the Au Bon Division
assets held for sale after August 12, 1998.
<PAGE>
The assets and liabilities of the Au Bon Pain Division were presented in
the consolidated balance sheet as of December 26, 1998 as assets held for sale,
non-current, net, and as current liabilities, net, and included the following:
<TABLE>
<CAPTION>
DECEMBER 26, 1998
(000'S)
<S> <C>
Current assets:
Cash and cash equivalents............................ $1,305
Accounts receivable.................................. 5,584
Inventories.......................................... 5,011
Other current assets................................. (98)
Total current assets............................ 11,802
Current liabilities:
Accounts payable..................................... 7,120
Accrued expenses..................................... 11,151
Total liabilities............................... 18,271
Net current liabilities................................ $6,469
Non-current assets:
Property and equipment
Leasehold improvements.......................... $71,679
Machinery and equipment......................... 53,920
Furniture and fixtures.......................... 13,717
Other........................................... 3,506
Accumulated depreciation and amortization............ (83,281)
Property and equipment, net..................... 59,541
Other assets:
Notes receivable..................................... 4,097
Deposits and other................................... 5,757
Total other assets.............................. 9,854
Total non-current assets............................... $69,395
</TABLE>
Restaurant sales and net operating loss (before non-recurring charges and
the suspension of depreciation and amortization) in the Au Bon Pain Division
held for sale as of December 26, 1998 were $159.6 million and $3.0 million,
respectively. In fiscal year 1999, revenues and net operating income (before
non-recurring charges and the suspension of depreciation and amortization) in
the Au Bon Pain Division through the time of its sale on May 16, 1999, were
$51.5 million and $3.2 million respectively.
During 1998, the Company recorded $2.0 million in non-recurring, non-cash
charges in accordance with SFAS 121, to write-down the book value of eight
underperforming Au Bon Pain stores whose leases expired in 1998 and were not
renewed, and to record the closing of one Panera Bread location. The charge is
included as a separate component of operating expenses and includes a $1.6
million fixed asset write-down and a $0.4 million other asset write-down.
In the first quarter of 1998 the Company sold the Mexico, Missouri
production facility and its wholesale frozen dough business to Bunge Foods
Corporation ("Bunge") for approximately $13 million in cash. The Company
recognized a pre-tax loss on the sale of the facility of approximately $735,000
in the Company's results of operations.
<PAGE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, 1999 DECEMBER 26, 1998
----------------- ------------------
<S> <C> <C>
Accrued insurance................. $881 $501
Rent.............................. 780 751
Payroll and related taxes......... 2,594 851
Interest.......................... n 1,505
Taxes, other than income taxes.... 4,383 189
Other............................. 3,599 2,132
$12,237 $5,929
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, 1998
-----------------
<S> <C>
Revolving credit line at prime plus .25% (8.00% at December 26, 1998)............ $17,260
Loan with Cigna Insurance at prime less .75% (7.00% at December 26, 1998)........ 2,000
Term loan at 7.0% payable in annual installments of $50,000 including interest,
due January 2001............................................................... 131
Senior subordinated debenture (14.00% at December 26, 1998)...................... 14,739
Total debt....................................................................... 34,130
Less current maturities.......................................................... 41
Total long-term debt............................................................. $34,089
</TABLE>
In 1999, the Company repaid all of its outstanding debt with the proceeds
from the Sale.
The Company had a $10.0 million and $22.0 million unsecured revolving line
of credit at December 25, 1999 and December 26, 1998, respectively. The
revolving credit agreement contains restrictions relating to future
indebtedness, liens, investments, distributions, the merger, acquisition or sale
of assets and certain leasing transactions. The agreement also requires the
maintenance of certain financial ratios and covenants, the most restrictive
being a minimum consolidated EBITDA amount and debt to net worth ratio at
December 25, 1999 and December 26, 1998, respectively. The revolving credit
agreement also contains a commitment fee of 1'2% and 3'8% of the unused portion
of the revolving line of credit at December 25, 1999 and December 26, 1998,
respectively. Available unused borrowings totaled approximately $9.4 million at
December 25, 1999 and $3.6 million at December 26, 1998. At December 25, 1999
and December 26, 1998, the Company had outstanding letters of credit against the
revolving line of credit aggregating $.6 million and $1.1 million, respectively.
Interest-only payments are due under the revolving credit line monthly, in
arrears, with the principal balance payable at maturity on December 31, 2000.
There were no outstanding borrowings under the revolving credit agreement at
December 25, 1999.
On July 24, 1996, the Company issued $15 million senior subordinated
debentures maturing in July, 2000. The debentures accrued interest at varying
fixed rates over the four year term, ranging from 11.25% to 14.0%. In connection
with the private placement, warrants with an exercise price of $5.62 per share
were issued to purchase between 400,000 and 580,000 shares of the Company's
Class A Common Stock, depending on the term which the debentures remained
outstanding and certain future events. At December 25, 1999 and December 26,
1998, 392,500 and 210,000 warrants were issued and outstanding, respectively,
all of which were vested.
<PAGE>
8. CONVERTIBLE SUBORDINATED NOTES
In December 1993, the Company issued $30.0 million of its unsecured 4.75%
Convertible Subordinated Notes due 2001 ("1993 Notes"). The 1993 Notes were
convertible at the holders' option into shares of the Company's Class A Common
Stock at $25.50 per share. The note agreement required the Company to maintain
minimum permanent capital, as therein defined. The Company used the proceeds
from the Sale to redeem all the outstanding notes during the year ended December
25, 1999.
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is obligated under noncancelable operating leases for
commissaries and retail stores. Lease terms 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. Substantially all store leases provide for contingent rental
payments based on sales in excess of specified amounts. In addition, the Company
is contingently liable for certain of the operating leases of the Au Bon Pain
Division.
Aggregate minimum requirements under these leases are, as of December 25,
1999, approximately as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000........................................ $6,301
2001........................................ 6,004
2002........................................ 5,755
2003........................................ 5,412
2004........................................ 5,126
Thereafter.................................. 14,977
$43,575
</TABLE>
Rental expense under operating leases was approximately $14.0 million,
$19.7 million and $24.5 million in 1999, 1998 and 1997, respectively, which
included contingent rentals of approximately $1.1 million, $3.1 million and $3.0
million, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes in the consolidated statements of
operations is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal.................... $-- $-- $259
State...................... 469 1,057 132
469 1,057 391
Deferred:
Federal.................... (13) (8,220) (1,433)
State...................... 55 1,631 (450)
42 (6,589) (1,883)
Tax provision (benefit) before
extraordinary item......... $511 $(5,532) $(1,492)
</TABLE>
<PAGE>
A reconciliation of the statutory federal income tax rate and the effective
tax rate as a percentage of income (loss) before income taxes provision and
extraordinary item follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate provision (benefit)........................................ 34.0% (34.0)% 34.0%
State income taxes, net of federal tax benefit............................ 68.3 1.7 (432.8)
Charitable contributions.................................................. -- (0.7) (89.9)
Company-owned life insurance (See Note 12)................................ 32.8 (4.4) (451.0)
Non-deductible goodwill and meals and entertainment....................... 58.7 0.8 51.0
Other, net................................................................ (0.2) 2.1 (0.4)
Change in valuation allowance............................................. -- 13.2 415.4
193.6% (21.3)% (473.7)%
</TABLE>
The tax effects of the significant temporary differences which comprise the
deferred tax assets (liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current assets:
Receivables reserve.............................................................. $-- $--
Accrued expenses................................................................. 2,353
Net operating loss carryforward.................................................. 3,120 1,500
Total current............................................................... 5,473 1,500
Non-current assets/liabilities:
Property, plant and equipment.................................................... (333) (190)
Accrued expenses................................................................. 1,182 9,215
Goodwill......................................................................... (1,611) (1,868)
Tax credit carryforward.......................................................... 5,079 4,941
Net operating loss carryforward.................................................. 6,951 4,485
Charitable contribution carryforward............................................. 1,571 141
Other reserves................................................................... 322 452
Total non-current........................................................... 13,161 17,176
Total deferred tax asset.................................................... 18,634 18,676
Valuation allowance......................................................... (4,742) (4,742)
Total net deferred tax asset....................................................... $13,892 $13,934
</TABLE>
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The valuation allowance is
primarily attributable to the potential for the non-deductibility of capital
losses related to the taxable loss on sale of the Au Bon Pain Division, the
expectation that deferred state tax assets will be unrealizable in states where
the Company no longer operates and that the Company will be unable to utilize
certain charitable contribution carryforwards prior to their expiration. In the
current year, all of the charitable contribution carryforward has been
appropriately categorized as such; in 1998, certain charitable contribution
carryforwards were included within the net operating loss carryforward. As of
December 25, 1999 and December 26, 1998, the Company has net operating losses of
approximately $24.8 million and $13.6 million, respectively, which can be
carried forward twenty years to offset Federal taxable income. At December 25,
1999 and December 26, 1998, the Company had Federal jobs tax credit
carryforwards of approximately $1.2 million which expire in the years 2014-2015
and charitable contribution carryforwards of approximately $3.8 million which
expire in the years 2000-2003. In addition, the Company has Federal alternative
minimum tax credit carryforwards of approximately $3.7 million and $3.5 million
at December 25, 1999 and December 26, 1998, respectively, which are available to
reduce future regular Federal income taxes over an indefinite period. The
Company reevaluates the positive and negative evidence impacting the
realizability of its deferred income tax assets on an annual basis.
<PAGE>
11. DEPOSITS AND OTHER
During fiscal 1997, the Company established a $4.3 million deposit with its
distributor. This financial arrangement allows the Company to receive lower
distribution costs. The savings exceed the carrying value of the deposit. The
deposit is flexible and the Company may at times decrease the amount on deposit,
at its discretion. The deposit outstanding was $1.3 million at December 25, 1999
and December 26, 1998.
During fiscal year 1994, the Company established a company-owned life
insurance program ("COLI") covering a substantial portion of its employees. At
December 25, 1999 and December 26, 1998, the cash surrender value of $77.7
million and $75.4 million, respectively, and the insurance policy loans of $75.7
million and $73.2 million, respectively, were netted and included in other
assets on the consolidated balance sheet. The loans are collateralized by the
cash values of the underlying life insurance policies and require interest
payments at a rate of 9.07%. In 1996, tax law changes adopted as part of the
Health Insurance Portability and Accountability Act significantly reduced the
level of tax benefits recognized under the Company's COLI program. The Company
included $0.4 million and $0.3 million of expenses in other (income) expense,
net, relating to COLI in 1999 and 1998, respectively.
In the third quarter of 1997, the Company sold its interest in Peet's
Coffee and Teas, Incorporated back to Peet's for $2 million in cash, resulting
in a pre-tax gain of $930,000. The gain was recognized as a component of other
expense, net.
12. STOCKHOLDERS' EQUITY
COMMON STOCK
Each share of Class B Common Stock has the same dividend and liquidation
rights as each share of Class A Common Stock. The holders of Class B Common
Stock are entitled to three votes for each share owned. The holders of Class A
Common Stock are entitled to one vote for each share owned. Each share of Class
B Common Stock is convertible, at the shareholder's option, into Class A Common
Stock on a one-for-one basis. The Company had reserved at December 25, 1999 and
December 26, 1998, 7,389,041 and 7,589,719 shares, respectively, of its Class A
Common Stock for issuance upon conversion of Class B Common Stock and exercise
of awards granted under the Company's 1992 Equity Incentive Plan, Formula Stock
Option Plan for Independent Directors and conversion of the 1993 Notes (see Note
8).
REGISTRATION RIGHTS
Certain holders of Class A and Class B Common Stock, pursuant to stock
subscription agreements, can require the Company, under certain circumstances,
to register their shares under the Securities Act of 1933 or have included in
certain registrations all or part of such shares, at the Company's expense.
13. STOCK OPTIONS
1992 EQUITY INCENTIVE PLAN
In May 1992, the Company adopted its Equity Incentive Plan ("Equity Plan")
to replace its Non-Qualified Incentive Stock Option Plan. Under the Equity Plan,
a total of 950,000 shares of Class A Common Stock were initially reserved for
awards under the Equity Plan. The Equity Plan was subsequently amended by the
Board of Directors and the stockholders to increase the number of shares
available thereunder from 950,000 to 4,300,000. Awards under the Equity Plan can
be in the form of stock options (both qualified and non-qualified), stock
appreciation rights, performance shares, restricted stock or stock units.
<PAGE>
Activity under the Equity Plan and its predecessor is summarized below:
<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE
------ EXERCISE PRICE
----------------
<S> <C> <C>
Outstanding at December 28, 1996...... 1,932,034 $7.42
Granted............................. 1,226,169 $7.49
Exercised........................... (23,148) $6.56
Cancelled........................... (143,537) $8.05
Outstanding at December 27, 1997...... 2,991,518 $7.44
Granted............................. 841,583 $8.84
Exercised........................... (151,060) $6.69
Cancelled........................... (376,710) $9.17
Outstanding at December 26, 1998...... 3,305,331 $8.18
Granted............................. 200,678 $6.65
Exercised........................... (14,057) $6.85
Cancelled........................... (201,003) $7.52
Outstanding at December 25, 1999...... 3,290,949 $7.56
</TABLE>
FORMULA STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS
On January 27, 1994, the Company's Board of Directors authorized the
Formula Stock Option Plan for Independent Directors, as defined in the
agreement. This plan authorized a one-time grant of an option to purchase 10,000
shares of the Company's Class A Common Stock at its closing price on January 26,
1994.
Each independent director who is first elected as such after the effective
date of the Directors' Plan shall receive, as of the date he or she is so
elected, a one-time grant of an option to purchase 5,000 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, all independent directors serving in such capacity as of the
last day of each fiscal year commencing with the fiscal year ending December 31,
1994 receive an option to purchase 5,000 shares of Class A Common Stock at the
closing price for the prior day.
Each option granted is fully vested at the grant date, and is exercisable,
either in whole or in part, for 10 years following the grant date. The Company
had granted 123,606 and 113,248 options under this plan as of December 25, 1999
and December 26, 1998.
STOCK-BASED COMPENSATION
In accordance with SFAS 123, "Accounting for Stock-Based Compensation", the
Company has elected to follow the provisions of Accounting Principles Board
Opinion No. 25 ("APB25"), "Accounting for Stock Issued to Employees", and
provide the required pro-forma disclosure in the footnotes to the financial
statements as if the measurement provisions of SFAS 123 had been adopted.
Accordingly, no compensation costs have been recognized for the stock option
plans as the exercise price of stock options equals the market price of the
underlying stock on the date of grant. Had compensation costs for the Company's
stock option plans been determined based on the fair value at the grant date for
awards since 1995 consistent with the provisions of SFAS 123, the Company's net
income (loss) for the years ended December 25, 1999, December 26, 1998 and
December 27, 1997 would have been as follows:
<TABLE>
<CAPTION>
1999 1997 1998
---- ---- ----
NET LOSS NET LOSS NET LOSS NET LOSS NET INCOME
(IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE (IN THOUSANDS)
-------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
As reported... $(629) $(.05) $(20,494) $(1.72) $1,807
Pro forma..... $(1,941) $(.16) $(21,642) $(1.81) $953
</TABLE>
<PAGE>
The effects of applying SFAS 123 in this pro-forma disclosure are not
likely to be representative of the effects on reported net income for future
years. SFAS 123 does not apply to awards prior to 1995 and additional awards in
future years are anticipated.
The fair value of the options granted during 1999, 1998 and 1997 was $3.22
per share, $4.12 per share and $3.69 per share, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%, volatility of 40%, risk-free interest rate of
5.68% in 1999, 5.14% in 1998 and 6.38% in 1997, and an expected life of 6 years.
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- ---------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE AVERAGE PRICE EXERCISABLE AVERAGE PRICE
-------------- ----------- ---------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$6.00-6.87 672,646 8.39 $6.44 156,343 $6.35
$6.88-10.93 2,365,058 6.20 7.49 1,988,647 7.47
$10.94-13.44 252,069 8.31 11.07 179,279 11.08
$13.45-21.25 1,176 3.93 21.25 1,176 21.25
3,290,949 6.81 $7.56 2,325,445 $7.68
</TABLE>
Options vest over a five year period and must be exercised within ten years
from the date of the grant. Of the options at December 25, 1999, December 26,
1998 and December 27, 1997, 2,325,445, 1,418,994 and 1,168,134, respectively,
were vested and exercisable with a weighted average exercise price at December
25, 1999, December 26, 1998 and December 27, 1997 of $7.68, $7.34 and $7.20,
respectively.
1992 EMPLOYEE STOCK PURCHASE PLAN
In May 1992, the Company adopted its 1992 Employee Stock Purchase Plan
("1992 Purchase Plan") to replace its Employee Stock Purchase Plan. The 1992
Purchase Plan was subsequently amended by the Board of Directors and
Stockholders to increase the number of shares of Class A Common Stock reserved
for issuance from 150,000 to 350,000. 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 an employee's prior year compensation) at 85% of the fair
market value of the Class A Common Stock at the date of purchase. There were
28,492 and 36,474 shares purchased with a weighted average fair value of
purchase rights of $.92 and $1.25 as of December 25, 1999 and December 26, 1998,
respectively.
14. DEFINED CONTRIBUTION BENEFIT PLAN
The Au Bon Pain Employee 401(k) Plan ("Savings Plan") was adopted by the
Company in 1991 under Section 401(k) of the Internal Revenue Code of 1986, as
amended (Code). All employees of the Company, including executive officers, are
eligible to participate in the Savings Plan. A participating employee may elect
to defer on a pre-tax basis up to 15% of his or her salary, subject to the
limitations imposed by the Code. This amount is contributed to the Savings Plan.
All amounts vest immediately and are invested in various funds as directed by
the participant. The full amount in a participant's account will be distributed
to a participant upon termination of employment, retirement, disability or
death. The Company does not currently contribute to the Savings Plan.
The Saint Louis Bread Company Employee 401(k) Plan ("Saint Louis Bread
Savings Plan") was adopted by the former Saint Louis Bread Company in 1993 under
Section 401(k) of the Internal Revenue Code of 1986, as amended. In 1997 the
"Saint Louis Bread Savings Plan" was merged into the Au Bon Pain "Savings Plan".
Plan participants of the "Saint Louis Bread Savings Plan" retained the matching
contributions made through 1996 with a vesting schedule of seven years. There
has been no further matching in 1999 and 1998.
<PAGE>
15. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
normal course of business. In the opinion of management, the ultimate
liabilities with respect to these actions will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
During the third quarter of 1997, the Company entered into a definitive
agreement to settle a lawsuit filed by a former vendor of the Company. The
Company recognized a charge of $675,000 in the third quarter of 1997 as a
component of other expense (income), net, to cover the settlement and other
expenses incurred in connection therewith.
16. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
--------------------------
DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net income (loss) used in net income (loss) per common $(629) $(20,494) $1,807
sharenbasic........................................
Net income (loss) used in net income (loss) per common $(629) $(20,494) $1,807
sharendiluted......................................
Weighted average number of shares outstandingnbasic.. 12,137 11,943 11,766
Effect of dilutive securities:
Employee stock options......................... -- -- 42
Stock warrants................................. -- -- 105
Weighted average number of shares outstandingndiluted 12,137 11,943 11,913
Per common share:
Basic:
Income (loss) before extraordinary item............ $(.02) $(1.72) $.15
Net income (loss).................................. $(.05) $(1.72) $.15
Diluted:
Income (loss) before extraordinary item............ $(.02) $(1.72) $.15
Net income (loss).................................. $(.05) $(1.72) $.15
</TABLE>
During 1998 and 1997, 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 (see Note 8). These shares were not
included in the computation of diluted earnings per share for the fiscal years
ended December 26, 1998 or December 27, 1997 because the addition of interest
expense, after the effect of income taxes, of $855,000 to net income (loss)
would have been antidilutive. These options were no longer outstanding as of
December 25, 1999, as the convertible subordinated notes have been repaid.
Options to purchase 18,333 and 248,450 shares of common stock,
respectively, at an average price of $6.35 and $5.77 per share and warrants to
purchase 45,608 and 96,000 shares of common stock at $5.62 per share were
outstanding but were not included in the computation of diluted earnings per
share for the fiscal years ended December 25, 1999 or December 26, 1998 because
the effect would have been antidilutive.
<PAGE>
17. DEFERRED REVENUE
During 1999, the Company changed soft drink providers. As a result of this
change, the Company received an upfront payment of $2,530,000. These funds are
available for both company-owned and franchised bakery-cafes to cover costs of
conversion and transition. The upfront payments are being allocated at a rate of
$3,000 per applicable company-owned and franchised bakery-cafe. The Company is
then recognizing the $3,000 per company owned bakery-cafe over the five year
life of the soft drink contract. As of December 25, 1999, the Company had paid
$303,000 to franchisees and is recognizing $216,000 of income over the life of
the contract.
ITEM 9. CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
BACKGROUND INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
The following table and biographical descriptions set forth information
regarding the principal occupation, other affiliations, committee memberships
and age, for each Director in office and the executive officers of the Company,
based on information furnished to the Company by each director and officer. The
following information is as of May 15, 2000 unless otherwise noted.
<TABLE>
<CAPTION>
Term as A
NAME AGE POSITION WITH COMPANY DIRECTOR ENDS
---- --- --------------------- -------------
<S> <C> <C> <C>
Domenic Colasacco(3)........... 51 Director 2000
George E. Kane (1)(2)(3)....... 95 Director 2001
Henry J. Nasella (1)(2)(3)..... 53 Director 2001
Ronald M. Shaich(2)............ 45 Chairman, Director, 2002
Chief Executive Officer
Thomas R. Howley............... 50 Vice President, General
Counsel and Construction --
William W. Moreton............. 40 Senior Vice President,
Chief Financial Officer --
Richard C. Postle.............. 51 President, Chief Operating
Officer --
</TABLE>
-----------
(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Committee on Nominations.
(3) Member of the Audit Committee.
DOMENIC COLASACCO, Director since March 2000. Mr. Colasacco has been
President and Chief Executive Officer of United States Trust Company since 1992.
He joined USTC in 1974 after beginning his career in the research division of
Merrill Lynch & Co., in New York City. Mr. Colasacco is also a director of
Hometown Auto Retailers, Inc., a publicly traded chain of automobile
dealerships.
GEORGE E. KANE, Director since November 1988. Mr. Kane was a Director of
the Company from March 1981 to December 1985 and a Director Emeritus from
December 1985 to November 1988. Mr. Kane retired in 1970 as President of Garden
City Trust Company (now University Trust Company).
HENRY J. NASELLA, Director since June 1995. Since May 1999, Mr. Nasella has
been the Chairman and Chief Executive Officer of OnLine Retail Partners, an
e-commerce company. Prior to that he was the President, Chief Executive Officer
and Chairman of Star Markets Company, Inc. from September 1994. From January
1994 to September 1994, he was a principal of Phillips-Smith Specialty Venture
Capital. From 1988 to July 1993, Mr. Nasella served as the President and Chief
Operating Officer of Staples, Inc. Mr. Nasella served as President and Chief
Executive Officer of Staples USA (Domestic) from 1992 to July 1993. Mr. Nasella
currently is a member of the Board of Visitors of Northeastern University School
of Business and a member of the Board of Trustees of Northeastern University
Corporation. Mr.
<PAGE>
Nasella is also a director of Zany Brainy, Inc., a publicly traded specialty
retailer of children's toys and educational products.
RONALD M. SHAICH, Director since 1981, co-founder of the Company, Chairman
of the Board since May 1999, Co-Chairman of the Board from January 1988 to May
1999, Chief Executive Officer since May 1994 and Co-Chief Executive Officer from
January 1988 to May 1994. Mr. Shaich is Chairman of the Board of Trustees of
Clark University.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
<S> <C> <C>
Richard C. Postle....................... 51 President, Chief Operating Officer
William W. Moreton...................... 40 Senior Vice President, Chief Financial Officer
Thomas R. Howley........................ 50 Vice President of Construction and General Counsel
Anthony M. Coleman ..................... 57 Vice President, Design
Scott Davis............................. 37 Vice President, Customer Experience
Paul J. Evans........................... 46 Vice President, Franchise Development
Denis G. Fredrick....................... 56 Vice President, Information Technology
Richard A. Happel ...................... 48 Vice President and Controller
Larry G. House.......................... 53 Vice President, Real Estate
Michael J. Kupstas...................... 43 Vice President, Franchising and Brand Communications
John M. Maguire......................... 34 Vice President, Commissary Operations
Thom Pannullo........................... 47 Vice President, Company Operations
Lawrence A. Rusinko..................... 39 Vice President, Marketing
</TABLE>
RICHARD C. POSTLE, Chief Operating Officer and President since May 1999.
President of the Saint Louis Bread Co./Panera Bread business unit from August
1995 to May 1999. From August 1994 through August 1995, Mr. Postle was President
and Chief Operating Officer of Checkers Drive-In Restaurants, Inc. From January
1992 through August 1994, Mr. Postle was Senior Vice President, Operations of
KFC-USA. From 1988 through December 1991, Mr. Postle was Chief Operating
Executive of Brice Foods, Inc.
WILLIAM W. MORETON, Senior Vice President, Chief Financial Officer, and
Treasurer since May 1999. Senior Vice President and Chief Financial Officer of
the Saint Louis Bread Co./Panera Bread business unit since October 1998. Prior
to that time and since April 1997, Mr. Moreton served as Executive Vice
President and Chief Financial Officer of Quality Dining, Inc. Prior to that time
and since October 1992, Mr. Moreton served as Executive Vice President and Chief
Financial Officer of Houlihan's Restaurants, Inc.
THOMAS R. HOWLEY, Vice President, General Counsel and Assistant Secretary
of the Company since November 1992. Mr. Howley has also served as Vice
President, Construction since March 1999. He has been Assistant Secretary of
Panera, Inc. since March 1999. Prior to November 1992, Mr. Howley was an
attorney with the law firm of Rackemann, Sawyer & Brewster.
ANTHONY M. COLEMAN, Vice President, Design for Panera, Inc. since April
1995. Director of Design for Panera, Inc. between November 1994 and April 1995.
SCOTT DAVIS, Vice President, Customer Experience for Panera, Inc. since May
1996. Director of Concept Services and Customer Experience between June 1994 and
May 1996.
PAUL J. EVANS, Vice President, Franchise Development of Panera, Inc. since
June 1999. Between October 1994 and June 1999, Mr. Evans was Director of
International Franchise Development for Metromedia Restaurant Group, with
responsibilities for Bennigan's, Steak & Ale, Ponderosa and Bonanza franchising.
DENIS G. FREDRICK, Vice President, Information Technology of Panera, Inc.
since June 1999. Between 1988 and June 1999, Mr. Fredrick was Vice President of
Information Systems for Value City Department Stores, Inc.
RICHARD A. HAPPEL, Vice President and Controller for Panera, Inc. since
January 2000. Between January 1996 and October 1999, Mr. Happel was Vice
President and Chief Financial Officer of Seco Products Corporation. Prior to
joining Seco Products, Mr. Happel held a number of senior management positions
with retail and financial services companies including, Nationsmart Corporation,
Western Union Financial Services and Goldome Bank.
<PAGE>
LARRY G. HOUSE, Vice President, Real Estate for Panera, Inc. since January
1998. Between July 1993 and January 1998, Mr. House was Vice President of
Leasing for Eddie Bauer, Inc.
MICHAEL J. KUPSTAS, Vice President, Franchising and Brand Communications
since June 1999 for Panera, Inc. Between January 1996 and June 1999, Mr. Kupstas
was Vice President of Operations for Panera, Inc. Between April 1991 and January
1996, Mr. Kupstas was Senior Vice President/Division Vice President for Long
John Silver's, Inc.
JOHN M. MAGUIRE, Vice President, Commissary Operations for Panera, Inc.
since October 1998. Since October 1994, Mr. Maguire was successively Manager,
Director and Vice President of Commissary Operations for the Au Bon Pain and
Panera Bread/Saint Louis Bread divisions of the Company.
THOM PANNULLO, Vice President, Company Operations for Panera, Inc. since
March 2000. Mr. Pannullo has been in the restaurant business for over 25 years.
Between March 1998 and March 2000, Mr. Pannullo was Division President at Golden
Corral. From November 1996 to March 1998, Mr. Pannullo was Chief Operating
Officer with Boston Market in the New York area. Prior to that, Mr. Pannullo
spent 19 years with Red Lobster holding various positions in Operations, Human
Resources, and Purchasing, and finally serving as Senior Vice President of
Operations.
LAWRENCE A. RUSINKO, Vice President, Marketing for Panera, Inc. since
February 1997. Between May 1995 and January 1997, Mr. Rusinko was the Director
of Marketing for Panera, Inc. Between January 1994 and April 1995, Mr. Rusinko
was Manager of Creative Services for Taco Bell Corp.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and beneficial owners of more than 10% of the Company's
Common Stock to file reports of ownership and changes of ownership with the
Securities and Exchange Commission (the "Commission") on Forms 3, 4 and 5. The
Company believes that during the fiscal year ended December 25, 1999 its
directors, executive officers and beneficial owners of more than 10% of the
Company's Common Stock complied with all applicable filing requirements. In
making these disclosures, the Company has relied solely on information filed
with the Commission.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION TABLES
The following tables set forth information concerning the compensation paid
or accrued by the Company during the fiscal years ended December 27, 1997,
December 26, 1998, and December 25, 1999, to or for the Company's Chief
Executive Officer and its four other most highly compensated executive officers
whose salary and bonus combined exceeded $100,000 for fiscal year 1999
(hereinafter referred to as the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ----------------
Securities
Underlying
Name and Principal Options/SARS
Position Year Salary ($) Bonus ($) (#)
-------- ---- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Ronald M. Shaich............. 1999 325,000 - -
Chairman and Chief 1998 250,000 - -
Executive Officer 1997 250,000 - 400,000
Richard C. Postle............ 1999 310,500 - 108,178
President and Chief 1998 310,096 75,000 100,000
Operating Officer 1997 300,000 75,000 10,000
William W. Moreton (a)....... 1999 274,993 - -
Senior Vice President 1998 52,885 - 150,000
and Chief Financial Officer
Michael J. Kupstas........... 1999 160,231 - -
Vice President, 1998 160,281 38,975 45,000
Franchising and Brand 1997 154,813 78,785 8,000
Communication
Thomas R. Howley............. 1999 145,770 48,452 -
Vice President, Construction 1998 117,261 22,659 12,000
and General Counsel 1997 113,295 16,380 5,000
</TABLE>
(a) Mr. Moreton commenced his employment with the Company in November 1998.
AGGREGATED OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
Potential Realizable
Value at Assumed Annual
Number of Percent of Total Rates of Stock Price
Securities Options/SARS Appreciation For Option
Underlying Granted To Exercise TERM ($)*
Options/SARS Employees In Base Price Expiration ------------------------
Name Granted (#) Fiscal Year (%) ($/Share) Date 5% 10%
---- -------------- ------------------ ----------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Ronald M. Shaich - - - - - -
Richard C. Postle (1) 108,178 47 6.63 06/03/09 451,056 1,143,064
William W. Moreton - - - - - -
Michael J. Kupstas - - - - - -
Thomas Howley - - - - - -
</TABLE>
* The dollar amounts in this table are the result of calculations at stock
appreciation rates specified by the Securities and Exchange Commission and are
not intended to forecast actual future appreciation rates of the Company's stock
price.
(1) Options were awarded under the 1992 Equity Incentive Plan. The options are
exercisable in four annual installments of 25% per year beginning June 3, 2001.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The Money Options/SARS
Acquired On Value Options/SARS At FY-End (#) At Fiscal Year End ($)(1)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ronald M. Shaich - - 677,330/0 293,337/0
Richard C. Postle - - 53,867/246,133 45,407/304,283
William W. Moreton - - 0/150,000 0/214,950
Michael J. Kupstas - - 7,750/56,750 4,553/70,290
Thomas R. Howley - - 18,320/13,975 8,756/1,745
</TABLE>
(1) Based upon a fair market value of $7.81 per share of Class A Common Stock,
which was the closing price of a share of Class A Common Stock on the
Nasdaq National Market on December 25, 1999.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company's Board of Directors held eight meetings, including two actions
by written consent, during fiscal year 1999. The Board of Directors has
established an Audit Committee, a Compensation and Stock Option Committee and a
Committee on Nominations.
The Audit Committee, which held three meetings in fiscal year 1999, meets
with the Company's auditors and principal financial personnel to review the
results of the annual audit. The Audit Committee also reviews the scope of, and
establishes fees for, audit and non-audit services performed by the independent
accountants, reviews the independence of the independent accountants and the
adequacy and effectiveness of the Company's internal accounting controls. The
Audit Committee consists of three members, currently Messrs. George E. Kane,
Henry J. Nasella, and Domenic Colasacco, and is reconstituted annually.
The Compensation and Stock Option Committee (the "Compensation Committee"),
which held three meetings in fiscal year 1999, establishes the compensation,
including stock options and other incentive arrangements, of the Company's
Chairman and Chief Executive Officer. It also administers the Company's 1992
Equity Incentive Plan and 1992 Employee Stock Purchase Plan. The Compensation
Committee consists of two members, currently Messrs. George E. Kane and Henry J.
Nasella, and is reconstituted annually.
The Committee on Nominations was established in November 1995 and held one
meeting in fiscal year 1999. The Committee on Nominations selects nominees for
election as Directors and will consider written recommendations from any
stockholder of record with respect to nominees for Directors of the Company. A
stockholder's recommendation shall be made by written notice which must be
delivered to, or mailed to and received by, the Company, in a timely manner, at
its principal executive office and must set forth all of the information
required to be include therein by the Company's By-laws. The Committee on
Nominations consists of three members, currently Messrs. Ronald M. Shaich,
George E. Kane and Henry J. Nasella, and is reconstituted annually.
All Directors attended at least 75% of the meetings of the Board and of the
committees of which they were members in fiscal year 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has interlocking or other
relationships with other boards or with the Company.
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a quarterly fee
ranging from $3,000 to $3,500 for serving on the Board, plus reimbursement of
out-of-pocket expenses for attendance at each Board or committee meeting.
Under a formula-based stock option plan for independent directors (the
"Directors' Plan"), as amended by the stockholders at the 1995 Annual Meeting of
Stockholders, each current Director who is not an employee or principal
stockholder of the Company (an "Independent Director") and who is first elected
after the effective date of the Directors' Plan receives, upon his or her
election to the Board, a one-time grant of an option to purchase 5,000 shares of
Class A Common Stock. Each Independent Director who serves as such at the end of
each of the Company's fiscal years receives at the end of such fiscal year an
option to purchase an additional 5,000 shares of Class A Common Stock. All such
options have an exercise price per share equal to the closing price of a share
of Class A Common Stock as of the close of the market the trading day
immediately preceding the grant date, are fully vested when granted, and are
exercisable for a period of 10 years.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
This report is made by the Compensation and Stock Option Committee (the
"Compensation Committee") of the Board of Directors, the committee which is
responsible for establishing the compensation, including base salary and
incentive compensation, for the Company's Chairman of the Board and Chief
Executive Officer, Ronald M. Shaich.
PHILOSOPHY
The Compensation Committee seeks to set the compensation of the Company's
Chief Executive Officer and Chairman at a level which is competitive with
companies of similar size in the Company's industry. Mr. Shaich has the overall
responsibility of Chairman of the Board of Directors and Chief Executive
Officer. The Compensation Committee examined compensation structures for the
chief executive officer of companies in the restaurant industry using generally
available source material from business periodicals and other sources, and
sought to structure the Chairman and Chief Executive Officer's compensation at a
competitive level appropriate to the comparable companies' group. The companies
that were examined for purposes of evaluating and setting compensation of the
Chairman and Chief Executive Officer are not necessarily included in the
"Standard & Poor's 400 - MidCap Restaurant Index" used in the Stock Performance
Graph set forth under "Stock Performance" below.
COMPENSATION STRUCTURE
The compensation of the Chairman and Chief Executive Officer is structured
to be competitive within the Company's industry and is based upon the general
performance of the Company, and is reviewed annually by the Committee.
COMPONENTS OF COMPENSATION
SALARY. The salary shown in the Summary Compensation Table represents the
fixed portion of compensation for the Chairman and Chief Executive Officer for
the year. Changes in salary depend upon overall Company performance as well as
levels of base salary paid by companies of similar size in the Company's
industry.
BONUS. The cash bonus is the principal incentive-based compensation paid
annually to the Chairman and Chief Executive Officer. The Chairman and Chief
Executive Officer receives a bonus in a predetermined amount if the Company
achieves its financial and strategic objectives for the fiscal year. A higher
bonus is paid if the Company exceeds these objectives by a predetermined
percentage. In determining the bonus amount, the Compensation Committee seeks to
create an overall compensation package for the Chairman and Chief Executive
Officer which is at the mid-point for comparable companies in the restaurant
industry. For 1999, Mr. Shaich asked the Board not to award a bonus to him for
the current fiscal year as he believed the Company was in a transitional period.
<PAGE>
The Chairman and Chief Executive Officer may elect to take the bonus in the
form of 10-year, fully vested stock options for that number of shares of the
Company's Class A Common Stock that could be purchased with an amount equal to
two times the cash value of his bonus. The exercise price of the option would be
equal to the fair market value of the Company's Class A Common Stock on the date
of grant.
STOCK OPTIONS. Mr. Shaich does not participate in either the
Performance-Based Option Program under the Company's 1992 Equity Incentive Plan
or the 1992 Employee Stock Purchase Plan. In order to provide what the
Compensation Committee believes to be appropriate and continuing long-term
incentives to its Chairman and Chief Executive Officer, and in order to align
more fully the interests of the stockholders and the Chairman and Chief
Executive Officer, the Compensation Committee on June 12, 1997 granted to Mr.
Shaich a 10-year option, vesting in equal monthly installments over a five-year
period (subject to continued employment) or immediately in the event of the sale
of the Company, to purchase 400,000 shares of the Company's Class A Common Stock
at an exercise price per share equal to $7.50, which was the closing price of a
share of the Class A Common Stock immediately preceding the date of grant. On
November 17, 1998, the Board of Directors approved the recommendation of the
Compensation Committee to accelerate the vesting of Mr. Shaich's options to May
16, 1999, which was the date on which the sale of the Company's Au Bon Pain
Division was completed. As these options have exercise prices equal to the
market value of the Company's Class A Common Stock on the date immediately
preceding the grant date, they provide incentive for the creation of stockholder
value over the long term since their full benefit cannot be realized unless
there occurs over time an appreciation in the price of the Company's Class A
Common Stock. The Compensation Committee considers the number of shares to be an
appropriate incentive for the Chairman and Chief Executive Officer to continue
to focus on building stockholder value. The Compensation Committee has not
determined whether any ongoing program of long-term incentive compensation
should or will be adopted with respect to its Chairman and Chief Executive
Officer.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Compensation Committee has reviewed the potential consequences for the
Company of Section 162(m) of the Code, which imposes a limit on tax deductions
for annual compensation in excess of one million dollars paid to any of the five
most highly compensated executive officers. Based on such review, the
Compensation Committee believes that the limitation will have no effect on the
Company in 2000.
Respectfully submitted,
HENRY J. NASELLA, GEORGE E. KANE
Compensation Committee
<PAGE>
EXECUTIVE OFFICER COMPENSATION
The Company's Chief Executive Officer is responsible for establishing the
compensation, including salary, bonus and incentive compensation, for all of the
Company's executive officers other than the Chief Executive Officer and Chairman
of the Board.
PHILOSOPHY
In compensating the Company's executive officers, the Chief Executive
Officer seeks to structure a salary, bonus and incentive compensation package
that will help attract and retain talented individuals and align the interests
of the executive officers with the interests of the Company's stockholders.
COMPONENTS OF COMPENSATION
There are two components to the compensation of the Company's executive
officers: annual cash compensation (consisting of salary and bonus incentives)
and long-term incentive compensation.
CASH COMPENSATION. The Company participates annually in an
industry-specific survey of executive officers, which serves as the basis for
determining total target cash compensation packages, which are crafted
individually for each executive officer. The individual's compensation consists
of a base salary and contingent compensation based on actual performance against
agreed to expectations of performance. The individual compensation packages are
structured so that, if the executive officer attains the expected level of
achievement of each performance goal, the cash compensation of the executive
officer will be approximately at the 75th percentile of the compensation of
individuals occupying similar positions in the industry, using generally
available surveys of executive compensation within the retail industry for
companies with comparable revenues.
At the beginning of each fiscal year, the Chief Executive Officer and each
executive officer establish a series of individual performance goals which are
specific to the executive's responsibilities. These goals seek to measure
performance of each executive officer's job responsibilities: for executive
officers whose responsibilities are operational in nature, attainment of
operating group goals and objectives is stressed, and for corporate staff
officers, overall Company performance measured by earnings per share growth is
utilized. Currently, the maximum potential cash bonus for the Company's
executive officers, as a percentage of base salary, ranges from 20% to 60%.
Thus, the Company's cash compensation practices seek to motivate executives
by requiring excellent performance measured against both internal goals and
competitive performance.
LONG-TERM INCENTIVE COMPENSATION. The second element of executive
compensation is long-term incentive compensation, which currently takes the form
of stock options granted under the Company's 1992 Equity Incentive Plan.
Currently, stock options are granted under the Performance-Based Option program,
which consists of a series of guidelines which provide for the periodic granting
of specific amounts of stock options, denominated in dollars rather than in
numbers of shares, depending upon the executive's position within the Company.
Existing holdings of stock or stock options are not a factor in determining the
dollar value of an individual executive officer's award.
As often as seems appropriate, but at least annually, the Chief Executive
Officer reviews the Company's executive compensation program to judge its
consistency with the Company's compensation philosophy, whether it supports the
Company's strategic and financial objectives, and whether it is competitive
within the Company's industry.
EMPLOYMENT ARRANGEMENTS
The Company and Richard C. Postle are parties to an Executive Employment
Agreement dated September 1, 1995, which provides Mr. Postle with a base annual
salary of $300,000 for a two-year period. The Agreement automatically renews for
additional one-year periods unless either party gives notice of his or its
intent not to renew the Agreement at least 26 weeks prior to its expiration. In
the event that the Company gives notice of its intent not to renew the
Agreement, Mr. Postle will be entitled to his base salary, car allowance (if
any) and other benefits for 26 weeks, such payments to be
<PAGE>
reduced dollar for dollar by any compensation and benefits received by Mr.
Postle from other sources. In the event the Company chooses to terminate Mr.
Postle's employment without cause, it may do so by giving Mr. Postle 30 days'
written notice. In the event of a termination without cause, Mr. Postle would be
entitled to one year's severance.
The Company and William W. Moreton are parties to an Executive Employment
Letter Agreement dated September 29, 1998, which provides Mr. Moreton with a
base salary of $275,000, a bonus of $25,000 based on continued employment that
was paid in March 2000, 150,000 stock options vesting over five years and a
relocation assistance package. The Letter Agreement also provides that under the
terms of a separate severance agreement, in the event of an involuntary
termination of Mr. Moreton's employment without cause, Mr. Moreton will be
entitled to continue to receive his base salary, car allowance and medical
and/or dental benefits for a period of up to twelve months, such payments to be
reduced by any compensation received by Mr. Moreton in connection with any
future employment during such twelve month period.
The Company and Michael J. Kupstas are parties to an Executive Employment
Letter Agreement dated December 22, 1995, which provides Mr. Kupstas with a base
salary of $150,000, a right to participate in the Company's Incentive
Compensation Program with a guaranteed minimum bonus under the plan of 20% of
his fiscal 1996 annual salary, subject to continued employment, 11,500 stock
options subject to the discretion of the Company's Board of Directors,
reimbursement of one year of COBRA expenses and a relocation assistance package.
The Letter Agreement also provides that under the terms of a separate severance
agreement, in the event of an involuntary termination of Mr. Kupstas' employment
without cause, Mr. Kupstas will be entitled to continue to receive his base
salary, car allowance and medical and/or dental benefits for a period of up to
twelve months, such payments to be reduced by any compensation received by Mr.
Kupstas in connection with any future employment during such twelve month
period.
The Company and Thomas R. Howley are parties to an Executive Employment
Agreement dated December 13, 1996 and an Amendment thereto dated November 17,
1999. The Agreement, as amended, provides Mr. Howley with a base salary of
$150,000, the right to participate in the Company's performance compensation
program and a $5,000 per year car allowance. Under the Agreement, as amended,
all of Mr. Howley's nonqualified stock options held on May 15, 1999, the
effective date of the sale of the Company's Au Bon Pain Division, vested and
became immediately exercisable. The Company further agreed to make its best
efforts to replace in the future any options held by Mr. Howley, upon their
expiration, with new options at the same exercise price. The Agreement, as
amended, further provides that in the event of an involuntary termination of Mr.
Howley's employment without cause, Mr. Howley will be entitled to continue to
receive his base salary, car allowance and medical and/or dental benefits for a
period of up to one year, such payments to be reduced by any compensation
received by Mr. Howley in connection with any future employment during such one
year period.
<PAGE>
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON DECEMBER 31, 1994)
The following graph and chart compare the cumulative annual stockholder
return on the Company's Class A Common Stock over the period commencing December
31, 1994, and continuing through December 31, 1999, to that of the total return
index for The Nasdaq Stock Market (U.S. Companies) and the Standard & Poor's 400
- MidCap Restaurant Index, assuming the investment of $100 on December 31, 1994.
In calculating total annual stockholder return, reinvestment of dividends is
assumed. The stock performance graph and chart below are not necessarily
indicative of future price performance.
[INSERT GRAPHIC]
TOTAL RETURN ANALYSIS
<TABLE>
<CAPTION>
12/31/94 12/29/95 12/30/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Panera Bread Company...... $100.00 $51.56 $40.63 $47.27 $42.19 $48.44
S&P MidCap Restaurants.... $100.00 $98.22 $58.06 $66.14 $80.64 $63.40
Nasdaq Composite.......... $100.00 $139.92 $171.69 $208.83 $291.60 $541.16
</TABLE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF PANERA BREAD COMPANY COMMON STOCK
The following table sets forth certain information as of May 31, 2000, with
respect to the Company's Class A and Class B Common Stock owned by (1) each
director of the Company, (2) the named executive officers in the Summary
Compensation Table, (3) all directors and executive officers of the Company as a
group, and (4) each person who is known by the Company to beneficially own more
than five percent of the Company's capital stock. Unless otherwise indicated in
the footnotes to the table, all stock is owned of record and beneficially by the
persons listed in the table.
<TABLE>
<CAPTION>
Class A Common Class B Common
Name And, With Respect To Owner -------------- -------------- Combined Voting
Of More Than 5%, Address Number Percent (1) Number Percent (2) Percentage (3)
------ ----------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Ronald M. Shaich............................ 740,865(4) 6.5% 1,292,312 84.4% 28.8%
Chairman, Director and Chief Executive Officer
c/o Panera Bread Company
7930 Big Bend Boulevard
St. Louis, MO 63119
George E. Kane.............................. 28,542(5) * 20,000 1.3% *
Director
Domenic Colasacco........................... 5,000(6) * -- -- *
Director
Henry J. Nasella............................ 25,080(7) * -- -- *
Director
Richard C. Postle........................... 94,662(8) * -- -- *
William W. Moreton.......................... -- -- -- -- --
Michael J. Kupstas.......................... 15,999(9) * -- -- *
Thomas R. Howley............................ 24,773(10) * -- -- *
All Directors and executive officers as
a group (8 persons)......................... 934,921(11) 8.1% 1,312,312 85.7% 30.1%
Louis I. Kane............................... 678,580(12) 5.9% 35,800 2.3% 4.9%
19 Fid Kennedy Avenue
Boston, MA 02210
Brown Capital Management, Inc............... 1,957,750(13) 18.2% -- -- 12.8%
1201 N. Calvert Street
Baltimore, MD 21201
Merrill Lynch & Co., Inc.................... 1,131,100(14) 10.5% -- -- 7.4%
Merrill Lynch Asset Management Group
Merrill Lynch Special Value Fund, Inc.
800 Scudders Mill Road
Plainsboro, NJ 08536
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401...................... 804,000(15) 7.5% -- -- 5.2%
Cobalt Capital Management, Inc.............. 623,300(16) 5.4% -- -- 4.1%
237 Park Avenue, Suite 801
New York, NY 10012
</TABLE>
* Less than one percent.
(1) Percentage ownership of Class A Common Stock is based on 10,751,234 shares
issued and outstanding plus shares of Class A Common Stock subject to
options exercisable within 60 days of May 31, 2000 held by the stockholder
or group.
(2) Percentage ownership of Class B Common Stock is based on 1,530,524 shares
issued and outstanding.
<PAGE>
(3) This column represents voting power rather than percentage of equity
interest as each share of Class A Common Stock is entitled to one vote
while each share of Class B Common Stock is entitled to three votes.
(4) Includes options exercisable within 60 days of May 31, 2000 for 677,330
shares of Class A Common Stock.
(5) Consists of options for 28,542 shares of Class A Common Stock exercisable
within 60 days of May 31, 2000, issued pursuant to the Directors' Plan for
independent directors.
(6) Consists of options for 5,000 shares of Class A Common Stock exercisable
within 60 days of May 31, 2000, issued pursuant to the Directors' Plan for
independent directors.
(7) Includes options for 24,080 shares of Class A Common Stock exercisable
within 60 days of May 31, 2000, issued pursuant to the Directors' Plan for
independent directors.
(8) Includes options for 55,117 shares of Class A Common Stock exercisable
within 60 days of May 31, 2000.
(9) Includes options for 12,625 shares of Class A Common Stock exercisable
within 60 days of May 31, 2000.
(10) Includes options for 21,690 shares of Class A Common Stock exercisable
within 60 days of May 31, 2000.
(11) Includes options for 824,384 shares of Class A Common Stock exercisable
within 60 days of May 31, 2000.
(12) Includes (a) 1,200 shares owned by Mr. Kane's spouse and as to which Mr.
Kane disclaims beneficial ownership and (b) options for 677,330 shares of
Class A Common Stock exercisable within 60 days of May 31, 2000.
(13) All of the shares of Class A Common Stock are owned by various investment
advisory clients of Brown Capital Management, Inc. ("Brown"), which is
deemed to be a beneficial owner of those shares pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, due to Brown's discretionary
power to make investment decisions over such shares for its clients and
Brown's ability to vote such shares. In all cases, persons other than
Investment Counselors of Maryland, Inc. have the right to receive, or the
power to direct the receipt of, dividends from, or the proceeds from the
sale of the shares. No individual client holds more than five percent of
the class. Information regarding beneficial ownership of Brown's shares has
been obtained solely from the Schedule 13G, Amendment No. 1 filed with the
Commission on February 10, 2000.
(14) Merrill Lynch & Co., Inc. ("ML & Co.") is a parent holding company. The
Merrill Lynch Asset Management Group ("AMG") is an operating division of ML
& Co. consisting of ML & Co.'s indirectly-owned asset management
subsidiaries. The following asset management subsidiaries hold certain
shares of the Class A Common Stock of the Company: Merrill Lynch Asset
Management, L.P. and Fund Asset Management, L.P. AMG is comprised of the
following entities: Merrill Lynch Asset Management, L.P. doing business as
Merrill Lynch Asset Management ("MLAM"), QA Advisers, LLC ("QA"), Merrill
Lynch Quantitative Advisers, Inc. Hotchkis and Wiley divisions thereof;
Fund Asset Management, L.P., doing business as Fund Asset Management
("FAM"); Merrill Lynch Asset Management U.K. Limited ("MLAM UK"); Merrill
Lynch (Suisse) Investment Management Limited ("MLS"); Mercury Asset
Management International Limited ("MAMI"); Mercury Asset Management Ltd;
Mercury Asset Management, Ltd.; Mercury Asia Limited; Merrill Lynch Mercury
Kapitalanlagegesellschaft MBH; Munich London Investment Management, Ltd.;
Merrill Lynch Asset Management (Hong Kong) Limited; Merrill Lynch Mercury
Asset Management Japan Limited; Atlas Asset Management, Inc.; Merrill Lynch
Investment Management Canada, Inc.; DSP Merrill Lynch Asset Management
(India) Limited; PT Merrill Lynch Indonesia; Merrill Lynch Phatra
Securities Co., Ltd.; Merrill Lynch Global Asset Management, Limited;
Mercury Asset Management Channel Islands, Limited; Mercury Asset Management
International Channel Islands Limited ("MAMCI"); Grosvenor Venture
Managers, Limited; and Mercury Fund Managers, Limited. Each of MLAM, FAM,
MLAM UK, MAMCI, QA, MLS, and MAMI is an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, which acts as
investment adviser to various investment companies registered under Section
8 of the Investment Company Act of 1940. Each other firm constituting part
of AMG is an investment adviser operating under the laws of a jurisdiction
other than the
<PAGE>
United States. The investment advisers that comprise AMG exercise voting
and investment powers over portfolio securities independently from other
direct and indirect subsidiaries of ML & Co. Information regarding
beneficial ownership of ML & Co.'s shares of Class A Common Stock has been
obtained solely from the joint Schedule 13G, Amendment No. 3 filed with the
Commission on February 7, 2000.
(15) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts (the investment
companies, trusts and accounts, collectively, the "Funds"). In its role as
investment adviser or manager, Dimensional possesses voting and/or
investment power over the securities of the Company that are owned by the
Funds. All of the shares of Class A Common Stock are owned by the Funds.
Dimensional disclaims beneficial ownership of such securities. Information
regarding beneficial ownership of Dimensional's shares has been obtained
solely from the Schedule 13G filed with the Commission on February 3, 2000.
(16) Information regarding beneficial ownership of the shares held by Cobalt
Capital Management, Inc. has been obtained solely from the Schedule 13G,
Amendment No. 1 filed with the Commission on February 15, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no certain relationships or related transactions to report that
exceeded $60,000 during the fiscal year ended December 25, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following described consolidated financial statements of the Company
are included in this report:
Report of Independent Accountants
Consolidated Balance Sheets as of December 25, 1999, and December 26, 1998.
Consolidated Statements of Operations for the fiscal years ended December
25, 1999, December 26, 1998, and December 27, 1997.
Consolidated Statements of Cash Flows for the fiscal years ended December
25, 1999, December 26, 1998, and December 27, 1997.
Consolidated Statements of Stockholders' Equity for the fiscal years ended
December 25, 1999, December 26, 1998, and December 27, 1997.
Notes to Consolidated Financial Statements.
<PAGE>
(a) 2. FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule for the Company is filed
herewith:
SCHEDULE II-Valuations and Qualifying Accounts
PANERA BREAD COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
----------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful accounts
Fiscal Year ended December 27, 1997................. $104 $49 $19 $134
Fiscal year ended December 26, 1998................. $134 $96 $22 $208
Fiscal Year ended December 25, 1999................. $208 $93 $104 $197
Deferred Tax Valuation Allowance
Fiscal Year ended December 27, 1997................. $-- $1,308 $-- $1,308
Fiscal Year ended December 26, 1998................. $1,308 $3,434 $-- $4,742
Fiscal Year ended December 25, 1999................. $4,742 $-- $-- $4,742
</TABLE>
(a) 3. EXHIBITS
Exhibit Description
Number -----------
-------
2.1 Asset Purchase Agreement by and among Au Bon Pain Co., Inc., ABP
Midwest Manufacturing Co., Inc. and Bunge Foods Corporation dated as of
February 11, 1998; Amendment to Asset Purchase Agreement, dated as of
March 23, 1998. Incorporated by reference to Exhibit 2.1 to the
Company's Annual Report on Form 10-K for the year ended December 27,
1997.
2.2. Stock Purchase Agreement dated August 12, 1998 by and between the
Company, ABP Holdings, Inc. ("ABPH") and ABP Corporation. Incorporated
by reference to the Company's Report on Form 8-K filed August 21, 1998.
2.3. Amendment to Stock Purchase Agreement dated October 28, 1998 by and
among the Company, ABPH and ABP Corporation. Incorporated by reference
to the Company's Report on Form 8-K filed November 6, 1998.
3.1 Certificate of Incorporation of Registrant, as amended to June 2,1991.
Incorporated by reference to Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
3.2 Certificate of Amendment to Certificate of Incorporation, dated and
filed June 3, 1991. Incorporated by reference to Exhibit 3.1.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
3.3 Certificate of Amendment to the Certificate of Incorporation filed on
June 2, 1994. Incorporated by reference to Exhibit 3.1.2 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
3.4 Certificate of Designations, Preferences and Rights of the Class B
Preferred Stock (Series 1), filed November 30, 1994. Incorporated by
reference to Exhibit 3.1.3 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
3.5 Bylaws of Registrant, as amended to date. Incorporated by reference to
Registrant's registration statement on Form S-1 (File No. 33-40153),
Exhibit 3.2.
4.1 Amended and Restated Revolving Credit Agreement dated as of February
13, 1998 among the Issuer, Saint Louis Bread Company, Inc., ABP Midwest
Manufacturing Co., Inc., BankBoston, N.A., USTrust and BankBoston N.A.
as Agent. Incorporated by reference to Exhibit 4.1.1 to the Company's
Annual Report on Form 10-K for the year ended December 27, 1997.
4.2 Amended and Restated Revolving Credit Note dated as of February 13,
1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest
Manufacturing Co., Inc. in favor of BankBoston, N.A. Incorporated by
reference to Exhibit 4.1.2 to the Company's Annual Report on Form 10-K
for the year ended December 27, 1997.
4.3 Amended and Restated Revolving Credit Note dated as of February 13,
1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest
Manufacturing Co., Inc. in favor of USTrust. Incorporated by reference
to Exhibit 4.1.3 to the
<PAGE>
Company's Annual Report on Form 10-K for the year ended December 27,
1997.
4.4 First Amendment to Amended and Restated Revolving Credit Agreement
dated as of June 30, 1998.
4.5 Second Amendment and Waiver to Amended and Restated Revolving Credit
Agreement dated as of October 14, 1998.
4.6 Third Amendment and Waiver to Amended and Restated Revolving Credit
Agreement dated as of January 20, 1999.
4.7 Fourth Amendment to Amended and Restated Revolving Credit Agreement
dated as of March 25, 1999.
4.8 Fifth Amendment to Amended and Restated Revolving Credit Agreement
dated as of May 14, 1999. *
4.9 Form of 4.75% Convertible Subordinated Note due 2001. Incorporated by
reference to Registrant's Form 8-K filed December 22, 1993, Exhibit 4.
10.1 Registrant's 1992 Employee Stock Purchase Plan. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for the year
ended December 30, 1995.
10.2 Registrant's Formula Stock Option Plan for Independent Directors and
form of option agreement thereunder, as amended. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for the year
ended December 30, 1995.
10.3 Amended and Restated Coffee Supply Agreement by and among Registrant
and Peet's Companies, Inc., Peet's Coffee and Tea, Inc., and Peet's
Trademark Company, dated as of the 26th day of October, 1994.
Incorporated by reference to Exhibit 10.8 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.4 Indenture of Trust dated as of July 1, 1995 by and between the
Industrial Development Authority of the City of Mexico, Missouri and
Mark Twain Bank, as Trustee. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 30,
1995.
10.5 Loan Agreement dated as of July 1, 1995 by and between the Industrial
Development Authority of the City of Mexico, Missouri and ABP Midwest
Manufacturing Co., Inc. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 30, 1995.
10.6 Promissory Note issued by ABP Midwest Manufacturing Co., Inc. in the
face amount of $8,741,370. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 30,
1995.
10.7 Employment Agreement between the Registrant and Richard Postle.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 30, 1995.+
10.8 Employment Agreement between the Registrant and Robert Taft.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 28, 1996.+
10.9 Employment Agreement between the Registrant and Maxwell Abbott.
Incorporated by reference to Exhibit 10.6.3 of the Registrant's Annual
Report on Form 10-K for the year ended December 28, 1996.+
10.10 Employment Letter between the Registrant and Samuel Yong. Incorporated
by reference to Exhibit 10.6.4 of the Registrant's Annual Report on
Form 10-K for the year ended December 28, 1996.+
10.11 Employment Letter between the Registrant and William Moreton.*+
10.12 Employment Letter between the Registrant and Michael Kupstas.*+
10.13 Employment Letter between the Registrant and Thomas Howley.*+
10.14 Executive Employment Agreement between the Registrant and Thomas R.
Howley.**+
10.15 Amendment to Executive Employment Agreement between the Registrant and
Thomas R. Howley.**+
10.16 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied
Capital Corporation, Allied Capital Corporation II, and Capital Trust
Investments, Ltd. Incorporated by reference to Exhibit 10.7.1 of the
Registrant's Annual Report on Form 10-K for the year ended December 28,
1996.
10.17 Form of Contingent Stock Purchase Warrant from Au Bon Pain Co., Inc. to
Allied Capital Corporation, Allied Capital Corporation II and Capital
Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.2 of
the Registrant's Annual Report on Form 10-K for the year ended December
28, 1996.
10.18 Form of Stock Purchase Warrant from Au Bon Pain Co, Inc. to Princes
Gate Investors, L.P., Acorn Partnership I L.P., PG Investments Limited,
PGI Sweden AB and Gregor Von Open.Incorporated by reference to Exhibit
10.7.3 of the Registrant's Annual Report on Form 10-K for the year
ended December 28, 1996.
10.19 Registration Rights Agreement dated as of July 24, 1996 among Allied
Capital Corporation, Allied Capital Corporation II, Capital Trust
Investments, Ltd., Princes Gate Investors, L.P., Acorn Partnership I,
L.P., PGI Investments Limited, PGI Sweden AB, Gregor Von Open and Au
Bon Pain Co., Inc., Incorporated by reference to Exhibit 10.7.4 of the
Registrant's Annual Report on Form 10-K for the year ended December 28,
1996.
10.20 Form of Rights Agreement, dated as of October 21, 1996 between the
Registrant and State Street Bank and Trust Company. Incorporated by
reference to the Registrant's Registration Statement on Form 8-A (File
No. 000-19253).
<PAGE>
10.21 Bakery Product Supply Agreement by and between Bunge Foods Corporation
and Saint Louis Bread Company, Inc. dated as of March 23, 1998.
Incorporated by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 27, 1997.
10.22 Bakery Product Supply Agreement by and between Bunge Foods Corporation
and Au Bon Pain Co., Inc. dated as of March 23, 1998. Incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the year ended December 27, 1997.
10.23 Executive Employment Agreement between the Company and Sam Yong dated
June 16, 1998. Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the period ended July 11, 1998.+
21 Registrant's Subsidiaries.*
23.1 Consent of PricewaterhouseCoopers LLP***
27 Financial Data Schedule.*
* Filed April 10, 2000, with the Commission on Form 10-K.
** Filed April 24, 2000, with the Commission on Form 10-K/A.
*** Filed herewith.
+ Management contract or compensatory plan required to be filed as an exhibit to
this Form 10-K pursuant to Item 14(c).
(b) Form 8-K
No reports on Form 8-K have been filed during the fourth quarter of the fiscal
year ended December 25, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
BY: /s/ Ronald M. Shaich
-------------------------------------------
Ronald M. Shaich
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Dated: June 20, 2000
<PAGE>
Exhibit
Number Description
------- -----------
2.1 Asset Purchase Agreement by and among Au Bon Pain Co., Inc., ABP
Midwest Manufacturing Co., Inc. and Bunge Foods Corporation dated as of
February 11, 1998; Amendment to Asset Purchase Agreement, dated as of
March 23, 1998. Incorporated by reference to Exhibit 2.1 to the
Company's Annual Report on Form 10-K for the year ended December 27,
1997.
2.2. Stock Purchase Agreement dated August 12, 1998 by and between the
Company, ABP Holdings, Inc. ("ABPH") and ABP Corporation. Incorporated
by reference to the Company's Report on Form 8-K filed August 21, 1998.
2.3. Amendment to Stock Purchase Agreement dated October 28, 1998 by and
among the Company, ABPH and ABP Corporation. Incorporated by reference
to the Company's Report on Form 8-K filed November 6, 1998.
3.1 Certificate of Incorporation of Registrant, as amended to June 2, 1991.
Incorporated by reference to Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
3.2 Certificate of Amendment to Certificate of Incorporation, dated and
filed June 3, 1991. Incorporated by reference to Exhibit 3.1.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
3.3 Certificate of Amendment to the Certificate of Incorporation filed on
June 2, 1994. Incorporated by reference to Exhibit 3.1.2 the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
3.4 Certificate of Designations, Preferences and Rights of the Class B
Preferred Stock (Series 1), filed November 30, 1994. Incorporated by
reference to Exhibit 3.1.3 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
3.5 Bylaws of Registrant, as amended to date. Incorporated by reference to
Registrant's registration statement on Form S-1 (File No. 33-40153),
Exhibit 3.2.
4.1 Amended and Restated Revolving Credit Agreement dated as of February
13, 1998 among the Issuer, Saint Louis Bread Company, Inc., ABP Midwest
Manufacturing Co., Inc., BankBoston, N.A., USTrust and BankBoston N.A.
as Agent. Incorporated by reference to Exhibit 4.1.1 to the Company's
Annual Report on Form 10-K for the year ended December 27, 1997.
4.2 Amended and Restated Revolving Credit Note dated as of February 13,
1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest
Manufacturing Co., Inc. in favor of BankBoston, N.A. Incorporated by
reference to Exhibit 4.1.2 to the Company's Annual Report on Form 10-K
for the year ended December 27, 1997.
4.3 Amended and Restated Revolving Credit Note dated as of February 13,
1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest
Manufacturing Co., Inc. in favor of USTrust. Incorporated by reference
to Exhibit 4.1.3 to the Company's Annual Report on Form 10-K for the
year ended December 27, 1997.
4.4 First Amendment to Amended and Restated Revolving Credit Agreement
dated as of June 30, 1998.
4.5 Second Amendment and Waiver to Amended and Restated Revolving Credit
Agreement dated as of October 14, 1998.
4.6 Third Amendment and Waiver to Amended and Restated Revolving Credit
Agreement dated as of January 20, 1999.
4.7 Fourth Amendment to Amended and Restated Revolving Credit Agreement
dated as of March 25, 1999.
4.8 Fifth Amendment to Amended and Restated Revolving Credit Agreement
dated as of May 14, 1999. *
4.9 Form of 4.75% Convertible Subordinated Note due 2001. Incorporated by
reference to Registrant's Form 8-K filed December 22, 1993, Exhibit 4.
10.1 Registrant's 1992 Employee Stock Purchase Plan. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for the year
ended December 30, 1995.
10.2 Registrant's Formula Stock Option Plan for Independent Directors and
form of option agreement thereunder, as amended. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for the year
ended December 30, 1995.
10.3 Amended and Restated Coffee Supply Agreement by and among Registrant
and Peet's Companies, Inc., Peet's Coffee and Tea, Inc., and Peet's
Trademark Company, dated as of the 26th day of October, 1994.
Incorporated by reference to Exhibit 10.8 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.4 Indenture of Trust dated as of July 1, 1995 by and between the
Industrial Development Authority of the City of Mexico, Missouri and
Mark Twain Bank, as Trustee. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 30,
1995.
10.5 Loan Agreement dated as of July 1, 1995 by and between the Industrial
Development Authority of the City of Mexico, Missouri and ABP Midwest
Manufacturing Co., Inc. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 30, 1995.
10.6 Promissory Note issued by ABP Midwest Manufacturing Co., Inc. in the
face amount of $8,741,370. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 30,
1995.
10.7 Employment Agreement between the Registrant and Richard Postle.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 30, 1995.+
10.8 Employment Agreement between the Registrant and Robert Taft.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 28, 1996.+
<PAGE>
10.9 Employment Agreement between the Registrant and Maxwell Abbott.
Incorporated by reference to Exhibit 10.6.3 of the Registrant's Annual
Report on Form 10-K for the year ended December 28, 1996.+
10.10 Employment Letter between the Registrant and Samuel Yong. Incorporated
by reference to Exhibit 10.6.4 of the Registrant's Annual Report on
Form 10-K for the year ended December 28, 1996.+
10.11 Employment Letter between the Registrant and William Moreton.*+
10.12 Employment Letter between the Registrant and Michael Kupstas.*+
10.13 Employment Letter between the Registrant and Thomas Howley.*+
10.14 Executive Employment Agreement between the Registrant and Thomas R.
Howley.**+
10.15 Amendment to Executive Employment Agreement between the Registrant and
Thomas R. Howley.**+
10.16 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied
Capital Corporation, Allied Capital Corporation II, and Capital Trust
Investments, Ltd. Incorporated by reference to Exhibit 10.7.1 of the
Registrant's Annual Report on Form 10-K for the year ended December 28,
1996.
10.17 Form of Contingent Stock Purchase Warrant from Au Bon Pain Co., Inc. to
Allied Capital Corporation, Allied Capital Corporation II and Capital
Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.2 of
the Registrant's Annual Report on Form 10-K for the year ended December
28, 1996.
10.18 Form of Stock Purchase Warrant from Au Bon Pain Co, Inc. to Princes
Gate Investors, L.P., Acorn Partnership I L.P., PG Investments Limited,
PGI Sweden AB and Gregor Von Open. Incorporated by reference to Exhibit
10.7.3 of the Registrant's Annual Report on Form 10-K for the year
ended December 28, 1996.
10.19 Registration Rights Agreement dated as of July 24, 1996 among Allied
Capital Corporation, Allied Capital Corporation II, Capital Trust
Investments, Ltd., Princes Gate Investors, L.P., Acorn Partnership I,
L.P., PGI Investments Limited, PGI Sweden AB, Gregor Von Open and Au
Bon Pain Co., Inc., Incorporated by reference to Exhibit 10.7.4 of the
Registrant's Annual Report on Form 10-K for the year ended December 28,
1996.
10.20 Form of Rights Agreement, dated as of October 21, 1996 between the
Registrant and State Street Bank and Trust Company. Incorporated by
reference to the Registrant's Registration Statement on Form 8-A (File
No. 000-19253).
10.21 Bakery Product Supply Agreement by and between Bunge Foods Corporation
and Saint Louis Bread Company, Inc. dated as of March 23, 1998.
Incorporated by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 27, 1997.
10.22 Bakery Product Supply Agreement by and between Bunge Foods Corporation
and Au Bon Pain Co., Inc. dated as of March 23, 1998. Incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the year ended December 27, 1997.
10.23 Executive Employment Agreement between the Company and Sam Yong dated
June 16, 1998. Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the period ended July 11, 1998.+
21 Registrant's Subsidiaries.*
23.1 Consent of PricewaterhouseCoopers LLP***
27 Financial Data Schedule.*
* Filed April 10, 2000, with the Commission on Form 10-K.
** Filed April 24, 2000, with the Commission on Form 10-K/A.
*** Filed herewith.
+ Management contract or compensatory plan required to be filed as an exhibit to
this Form 10-K pursuant to Item 14(c).
