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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 21, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-19253
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PANERA BREAD COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 04-2723701
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6710 CLAYTON ROAD, RICHMOND HEIGHTS, MO 63117
(Address of principal executive (Zip code)
offices)
(314) 633-7100
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of May 21, 2001, 12,520,780 shares and 1,423,642 shares of the
registrant's Class A and Class B Common Stock, respectively, $.0001 par value,
were outstanding.
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PANERA BREAD COMPANY
INDEX
PAGE
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS........................................ 3
Consolidated Balance Sheets as of April 21, 2001 and
December 30, 2000 (unaudited)............................. 3
Consolidated Statements of Operations for the sixteen weeks
ended April 21, 2001 and April 15, 2000 (unaudited)....... 4
Consolidated Statements of Cash Flows for the sixteen weeks
ended April 21, 2001 and April 15, 2000 (unaudited)....... 5
Notes to Consolidated Financial Statements (unaudited)...... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
ITEM 2. AND RESULTS OF OPERATIONS................................. 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.. 14
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION........................................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PANERA BREAD COMPANY CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
APRIL 21, 2001 DECEMBER 30, 2000
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,870 $ 9,011
Accounts receivable, less allowance of $86 in 2001 and $86
in 2000................................................. 2,840 3,105
Inventories............................................... 2,587 2,442
Prepaid expenses.......................................... 1,338 1,027
Refundable income taxes................................... 243 474
Deferred income taxes..................................... 5,269 5,193
-------- --------
Total current assets.................................... 22,147 21,252
-------- --------
Property and equipment, net................................. 63,833 59,857
Other assets:
Intangible assets, net of accumulated amortization of
$7,225 in 2001 and $6,921 in 2000....................... 17,486 17,790
Deferred financing costs.................................. 21 24
Deposits and other........................................ 6,271 4,731
Deferred income taxes..................................... 9,461 8,035
-------- --------
Total other assets...................................... 33,239 30,580
-------- --------
Total assets............................................ $119,219 $111,689
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,411 $ 5,396
Accrued expenses.......................................... 11,367 11,893
Current portion of computer equipment financing........... -- 374
Current portion of deferred revenue....................... 668 800
-------- --------
Total current liabilities............................... 15,446 18,463
Deferred revenue............................................ 1,557 1,638
-------- --------
Total liabilities....................................... 17,003 20,101
Stockholders' equity:
Common stock, $.0001 par value:
Class A shares authorized 50,000,000; issued and
outstanding 12,517,676 and 11,870,918 in 2001 and
2000, respectively.................................... 1 1
Class B shares authorized 2,000,000; issued and
outstanding 1,423,642 and 1,481,922 in 2001 and 2000,
respectively.......................................... -- --
Treasury stock, carried at cost........................... (900) (900)
Additional paid-in capital................................ 90,545 82,971
Retained earnings......................................... 12,570 9,516
-------- --------
Total stockholders' equity............................ 102,216 91,588
-------- --------
Total liabilities and stockholders' equity............ $119,219 $111,689
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE SIXTEEN WEEKS ENDED
-------------------------------
APRIL 21, 2001 APRIL 15, 2000
-------------- --------------
Revenues:
Restaurant sales.......................................... $42,114 $33,951
Franchise revenues........................................ 5,069 2,877
Commissary sales to franchisees........................... 6,092 3,598
------- -------
Total revenue........................................... 53,275 40,426
------- -------
Costs and expenses:
Restaurant expenses:
Cost of food and paper products......................... 13,191 11,300
Labor................................................... 12,420 10,012
Occupancy............................................... 3,057 2,553
Other operating expenses................................ 5,811 4,331
------- -------
34,479 28,196
Commissary cost of sales.................................. 5,567 3,209
Depreciation and amortization............................. 2,862 2,346
General and administrative expenses....................... 5,341 4,135
------- -------
Total costs and expenses................................ 48,249 37,886
------- -------
Operating profit............................................ 5,026 2,540
Interest expense, net....................................... 30 79
Other income................................................ (19) (22)
------- -------
Income before income taxes.................................. 5,015 2,483
Income tax provision........................................ 1,956 968
------- -------
Net income.............................................. $ 3,059 $ 1,515
======= =======
Net income per common share--basic.......................... $ 0.22 $ 0.12
Net income per common share--diluted........................ $ 0.21 $ 0.12
Weighted average shares of common and common equivalent
shares outstanding
Basic..................................................... 13,621 12,180
Diluted................................................... 14,259 12,298
The accompanying notes are an integral part of the consolidated financial
statements.
4
PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE SIXTEEN WEEKS ENDED
-------------------------------
APRIL 21, 2001 APRIL 15, 2000
-------------- --------------
Cash flows from operations:
Net income................................................ $ 3,059 $ 1,515
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 2,862 2,346
Amortization of deferred financing costs................ 3 --
Tax benefit from exercise of options.................... 3,434 --
Deferred income taxes................................... (1,502) 899
Changes in operating assets and liabilities:
Accounts receivable..................................... 265 660
Inventories............................................. (145) (27)
Prepaid expenses........................................ (311) (165)
Refundable income taxes................................. 231 --
Accounts payable........................................ (1,985) (1,392)
Accrued expenses........................................ (526) (1,089)
Deferred revenue........................................ (213) (98)
------- -------
Net cash provided by operating activities............. 5,172 2,649
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment................ (6,536) (5,011)
Increase in deposits and other............................ (1,540) (1,484)
Payments received on notes receivable..................... -- 15
------- -------
Net cash used in investing activities................. (8,076) (6,480)
------- -------
Cash flows from financing activities:
Exercise of employee stock options........................ 4,137 198
Proceeds from issuance of debt............................ -- 3,801
Principal payments on computer equipment financing........ (374) (387)
Proceeds from issuance of common stock.................... -- 161
------- -------
Net cash provided by financing activities............. 3,763 3,773
------- -------
Net increase (decrease) in cash and cash equivalents........ 859 (58)
Cash and cash equivalents at beginning of period............ 9,011 1,936
------- -------
Cash and cash equivalents at end of period.................. $ 9,870 $ 1,878
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements of Panera
Bread Company and its subsidiaries (the "Company") have been prepared in
accordance with instructions to Form 10-Q and, therefore, do not include all
information and footnotes normally included in financial statements prepared in
conformity with accounting principles generally accepted in the United States.
They should be read in conjunction with the financial statements of the Company
for the fiscal year ended December 30, 2000.
The accompanying unaudited financial statements include all adjustments
(consisting of normal recurring adjustments and accruals) that management
considers necessary for a fair presentation of its financial position and
results of operations for the interim periods, and are not necessarily
indicative of the results that may be expected for the entire year. See Form
10-K for the year ended December 30, 2000 for a discussion of the Company's
significant accounting policies and principles.
Certain reclassifications have been made to conform previously reported data
to the current presentation.
NOTE B--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.
NOTE C--DEFERRED REVENUE
Deferred revenue includes unearned franchise fee revenue (which occurs when
franchisees prepay opening fees for bakery-cafes that have not opened on
schedule) and deferred revenue that resulted from a change in soft drink
provider in 1999. As a result of this change, the Company received an upfront
payment of $2.5 million. 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.
NOTE D--INCOME TAXES
For the sixteen weeks ended April 21, 2001 and April 15, 2000, the Company
realized tax benefits of $8.8 million ($3.4 million after tax) and $0,
respectively, related to the exercise of employee stock options. Such tax
benefits serve to reduce the Company's income tax liability and increase
additional paid-in capital. As of April 21, 2001, the Company has net operating
losses of approximately $24.9 million, which can be carried forward up to twenty
years to offset federal taxable income.
6
NOTE E--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except for per share data):
FOR THE SIXTEEN WEEKS ENDED
-------------------------------
APRIL 21, 2001 APRIL 15, 2000
-------------- --------------
Net income used in net income per common share--basic....... $ 3,059 $ 1,515
Net income used in net income per common share--diluted..... $ 3,059 $ 1,515
Weighted average number of shares outstanding--basic........ 13,621 12,180
Effect of dilutive securities:
Employee stock options...................................... 638 66
Stock warrants.............................................. -- 52
Weighted average number of shares outstanding--diluted...... 14,259 12,298
Per common share:
Basic:
Net income.................................................. $ .22 $ .12
Diluted:
Net income.................................................. $ .21 $ .12
NOTE F--RECENT ACCOUNTING PRONOUNCEMENTS
There are no recent accounting pronouncements which will have a material
impact on the Company's financial statements.
NOTE G--ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
APRIL 21, 2001 DECEMBER 30, 2000
-------------- -----------------
Accrued insurance............................... $ 687 $ 796
Rent............................................ 1,135 1,168
Compensation and employment related taxes....... 5,151 3,119
Taxes, other than income tax.................... 1,702 1,780
Other........................................... 2,692 5,030
------- -------
$11,367 $11,893
======= =======
NOTE H--BUSINESS SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The Company has three reportable
business segments. The Company Store Operations segment is comprised of the
operating activities of the 94 bakery-cafes owned by the Company. These
bakery-cafes sell fresh baked goods, made-to-order sandwiches on freshly baked
breads, soups, salads, custom roasted coffees, and other complementary products
through on-premise sales. All of the fresh dough products used by Company
bakery-cafe operations are purchased from the Commissary Operations segment.
The Franchise Operations segment is comprised of the operating activities of
the franchise business unit which licenses qualified operators to conduct
business under the Panera Bread Company name and also monitors the operations of
these stores. Under the terms of the agreements, the licensed operators pay
royalties and fees to the Company in return for the use of the Panera Bread
Company name.
7
The Commissary Operations segment supplies fresh dough items to both
company-owned and franchise operated bakery-cafes. The fresh dough is sold to
both company-owned and franchised bakery-cafes at a cost equal to 27% of the
retail value of the product. The sales and related costs to the franchise
bakery-cafes are separately stated on the face of the Consolidated Statements of
Operations. The operating profit related to the sales to company-owned
bakery-cafes is classified as a reduction to the cost of food and paper products
on the Consolidated Statements of Operations.
Segment information for total assets and capital expenditures is not
presented as such information is not used in measuring segment performance or
allocating resources among segments.
FOR THE SIXTEEN WEEKS ENDED
-------------------------------
APRIL 21, 2001 APRIL 15, 2000
-------------- --------------
(IN THOUSANDS)
REVENUES
Company Store Operations.................................... $42,114 $33,951
Franchise Operations........................................ 5,069 2,877
Commissary Operations....................................... 9,505 6,398
Intercompany Sales Eliminations............................. (3,413) (2,800)
------- -------
Total Revenues.......................................... $53,275 $40,426
------- -------
OPERATING PROFIT
Company Store Operations.................................... $ 6,509 $ 5,104
Franchise Operations........................................ 4,252 2,291
Commissary Operations
Franchise................................................. 525 390
Company-owned............................................. 1,126 651
------- -------
Total Commissary Operations............................. 1,651 1,041
Unallocated General and Administrative Expenses............. (4,524) (3,550)
------- -------
Total Operating Profit Before Depreciation and
Amortization Expense.................................. $ 7,888 $ 4,886
------- -------
DEPRECIATION AND AMORTIZATION EXPENSES
Company Store Operations.................................... $ 1,700 $ 1,541
Franchise Operations........................................ -- --
Commissary Operations....................................... 343 259
Corporate Administration.................................... 819 546
------- -------
Total Depreciation and Amortization Expenses............ $ 2,862 $ 2,346
------- -------
Note: Operating Profit for Company Store Operations has been reduced by the
Operating Profit for Commissary Operations of company-owned bakery-cafes,
which is separately stated.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, except where otherwise indicated, of certain items included in the
Company's consolidated statements of operations for the periods indicated.
Percentages may not add due to rounding:
FOR THE SIXTEEN WEEKS ENDED
-------------------------------
APRIL 21, 2001 APRIL 15, 2000
-------------- --------------
Revenues:
Restaurant sales.......................................... 79.1% 84.0%
Franchise revenues........................................ 9.5 7.1
Commissary sales to franchisees........................... 11.4 8.9
----- -----
Total revenue........................................... 100.0% 100.0%
----- -----
Costs and expenses:
Restaurant expenses(1):
Cost of food and paper products......................... 31.3 33.3
Labor................................................... 29.5 29.5
Occupancy............................................... 7.3 7.5
Other operating expenses................................ 13.8 12.8
----- -----
Total restaurant cost of sales........................ 81.9 83.0
----- -----
Commissary cost of sales(2)............................... 91.4 89.2
Depreciation and amortization............................. 5.4 5.8
General and administrative expenses....................... 10.0 10.2
----- -----
Operating profit............................................ 9.4 6.3
Interest expense, net....................................... 0.1 0.2
Other income................................................ -- --
----- -----
Income before income taxes.................................. 9.4 6.1
Income tax provision........................................ 3.7 2.4
----- -----
Net income.............................................. 5.7% 3.7%
===== =====
(1) As a percentage of Company restaurant sales.
(2) As a percentage of commissary sales to franchisees.
GENERAL
The Company's revenues are derived from restaurant sales, commissary sales
to franchisees and franchise revenues. Commissary sales to franchisees are the
sales of fresh dough products to our franchisees. Franchise 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 fresh 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. In the year 2000, the Company's fiscal year
was comprised of 53 weeks.
9
REVENUES
Total revenues for the sixteen weeks ended April 21, 2001 increased 31.9% to
$53.3 million compared to $40.4 million for the sixteen weeks ended April 15,
2000. Several factors (as set forth below) contributed to the growth in total
revenues including the opening of new bakery-cafes, increases in comparable
restaurant sales and increased average unit sales volumes.
Restaurant revenue for the sixteen weeks ended April 21, 2001 for the
Company increased 23.8% to $42.1 million from $34.0 million for the sixteen
weeks ended April 15, 2000. The increase in restaurant revenue is primarily due
to the opening of 13 new company-owned bakery-cafes since the end of first
quarter 2000 and a 7.3% increase in comparable bakery-cafe sales for the sixteen
weeks ended April 21, 2001. Additionally, the average unit sales volume for the
company-owned bakery-cafes (excluding the two specialty bakery-cafes) increased
12.7% to $1,519,000 for the thirteen periods ended April 21, 2001 compared to
the thirteen periods ended April 15, 2000.
For Panera Bread, increases in comparable net bakery-cafe sales for the
sixteen weeks ended April 21, 2001 compared to the sixteen weeks ended
April 15, 2000 were as follows:
16 WEEKS ENDED
APRIL 21, 2001
--------------
Company owned............................................... 7.3%
Franchise operated.......................................... 7.3%
System-wide................................................. 7.3%
The above comparable bakery-cafe sales exclude the revenues of the three
specialty bakery-cafes (two company-owned and one franchised) and are based on
sales for bakery-cafes opened 18 months or longer.
The number of bakery-cafes as of April 21, 2001 were as follows:
COMPANY FRANCHISE
OWNED OPERATED TOTAL
-------- --------- --------
Number of bakery-cafes at December 30, 2000......... 90 172 262
New bakery-cafes opened............................. 5 20 25
Bakery-cafes closed................................. (1) (1) (2)
-- --- ---
Number of bakery-cafes at April 21, 2001............ 94 191 285
Note 1: For the sixteen weeks ended April 21, 2001, one company-owned
bakery-cafe was closed, expanded and re-opened. The closing and opening
of this bakery-cafe are not included in the above analysis.
Note 2: All costs related to company-owned bakery-cafe closings in the sixteen
weeks ended April 21, 2001 were provided for in fiscal year 2000.
During the sixteen weeks ended April 21, 2001, one additional Panera Bread
franchise area development agreement was signed, representing a commitment to
develop 20 additional bakery-cafes. This agreement brings the total commitments
to develop franchised bakery-cafes in addition to those already open to 551
bakery-cafes as of April 21, 2001.
Franchise revenues consist of franchise fees and royalties. The Company's
franchise revenues rose 75.9% in the sixteen weeks ended April 21, 2001 to $5.1
million from $2.9 million in the sixteen weeks ended April 15, 2000. The growth
was primarily driven by an increase in franchise royalties. The increase in
royalty revenue can be attributed to the addition of 74 franchised bakery-cafes
opened since the end of the first quarter of 2000 and higher average unit sales
volumes. The average unit sales
10
volume of franchised bakery-cafes (excluding the specialty bakery-cafe)
increased 9.2% to $1,749,000 for the thirteen periods ended April 21, 2001
compared to the thirteen periods ended April 15, 2000.
Commissary sales to franchisees increased 69.4% to $6.1 million for the
sixteen weeks ended April 21, 2001 versus $3.6 million for the sixteen weeks
ended April 15, 2000. The increase was driven by the increased number of
franchised units open and the higher average unit sales volumes as discussed
previously.
COSTS AND EXPENSES
The cost of food and paper products includes the costs associated with the
commissary operations that sell fresh dough product to company-owned
bakery-cafes. The costs associated with the commissary operations that sell
fresh dough products to the franchised bakery-cafes are excluded. These costs
are shown separately as Commissary Cost of Sales on the Consolidated Statements
of Operations. The cost of food and paper products declined to 31.3% of
restaurant sales for the sixteen weeks ended April 21, 2001. This compares to
33.3% of restaurant sales for the sixteen weeks ended April 15, 2000. The
improvement in 2001 is primarily due to the increased efficiency of our
commissary operations due to higher sales volumes and the 87 additional
bakery-cafes that have opened since the first quarter of 2000. As of April 21,
2001, there was an average of 20.4 bakery-cafes per commissary compared to an
average of 15.4 as of April 15, 2000. This results in greater manufacturing and
distribution efficiency and a reduction of costs as a percentage of revenue.
This cost reduction has been partially offset by significantly increased costs
for butter.
Labor expense was $12.4 million or 29.5% of restaurant sales for the sixteen
weeks ended April 21, 2001 compared to $10.0 million or 29.5% for the sixteen
weeks ended April 15, 2000. The labor percentage of sales was consistent between
years even though the average unit sales volume increased. This was primarily
due to an increase in the average hourly wage rate and the effect of the
performance based management bonus program put in place in the second quarter of
2000.
Occupancy costs were $3.1 million or 7.3% of restaurant sales for the
sixteen weeks ended April 21, 2001 compared to $2.6 million or 7.5% of
restaurant sales for the sixteen weeks ended April 15, 2000. The improvement in
occupancy costs as a percentage of restaurant sales in 2001 compared to 2000 is
primarily due to higher sales volumes which help leverage occupancy costs which
are primarily fixed expenses.
Other restaurant operating expenses were $5.8 million or 13.8% of restaurant
sales for the sixteen weeks ended April 21, 2001 compared to $4.3 million or
12.8% of restaurant sales for the sixteen weeks ended April 15, 2000. The
increase in other restaurant operating expenses as a percentage of restaurant
sales is primarily due to increased expenses associated with centralized
training and development, a slight increase in utilities and a slight increase
in credit card processing due to the higher volume of credit card transactions.
For the sixteen weeks ended April 21, 2001, commissary cost of sales was
$5.6 million or 91.4% of commissary sales to franchisees, compared to $3.2
million or 89.2% of commissary sales to franchisees for the sixteen weeks ended
April 15, 2000. The higher commissary cost of sales for the sixteen weeks ended
April 21, 2001 compared to the sixteen weeks ended April 15, 2000 is primarily
due to the 74 franchised bakery-cafes added since the end of the first quarter
of 2000 and higher average unit volumes. The higher percentage cost of sales in
2001 compared to 2000 is primarily due to increased butter prices, which had the
effect of a 1.5% increase in commissary cost of sales for the sixteen weeks
ended April 21, 2001.
Depreciation and amortization was $2.9 million, or 5.4% of total revenue for
the sixteen weeks ended April 21, 2001 compared to $2.3 million or 5.8% of total
revenue for the sixteen weeks ended April 15, 2000. The improvement in
depreciation and amortization as a percentage of total revenue is
11
primarily due to higher sales volumes which help leverage depreciation and
amortization expense which are primarily fixed expenses.
General and administrative expenses were $5.3 million or 10.0% of total
revenue, and $4.1 million or 10.2% of total revenue for the sixteen weeks ended
April 21, 2001 and April 15, 2000, respectively. The increase in general and
administrative expenses for the sixteen weeks ended April 21, 2001 as compared
to the sixteen weeks ended April 15, 2000 results primarily from additional
overhead expenses incurred to support the increased number of bakery-cafes. The
improvement as a percentage of total revenue results from leveraging the general
and administrative expenses over a larger revenue base.
OPERATING PROFIT
Operating profit for the sixteen weeks ended April 21, 2001 increased to
$5.0 million or 9.4% of total revenue from $2.5 million or 6.3% of total revenue
for the sixteen weeks ended April 15, 2000. Operating income for the sixteen
weeks ended April 21, 2001 rose primarily due to increased revenues from
company-owned bakery-cafes, franchise royalties, and commissary sales to
franchisees as well as the margin improvement resulting from the lower cost of
food and paper products.
INTEREST EXPENSE
Interest expense was $.03 million or .1% of total revenue for the sixteen
weeks ended April 21, 2001 versus $.08 million or .2% of total revenue for the
sixteen weeks ended April 15, 2000. The decrease in interest expense is
primarily due to repayment of outstanding borrowings under the Company's
revolving credit facility during fiscal 2000.
OTHER INCOME
Other income was $.02 million for the sixteen weeks ended April 21, 2001 and
for the sixteen weeks ended April 15, 2000. Other income consists primarily of
interest income partially offset by expenses associated with the Company's
corporate owned life insurance (COLI) program.
INCOME TAXES
The provision for income taxes increased to $2.0 million for the sixteen
weeks ended April 21, 2001 versus $1.0 million for the sixteen weeks ended
April 15, 2000. The tax provision for the sixteen weeks ended April 21, 2001 and
April 15, 2000, reflects a combined federal, state, and local effective tax rate
of 39%.
NET INCOME
Net income for the sixteen weeks ended April 21, 2001 was $3.1 million or
$0.21 per diluted share compared to net income of $1.5 million or $0.12 per
diluted share for the sixteen weeks ended April 15, 2000. The increase in net
income in 2001 was due to an increase in restaurant sales and franchise revenues
for Panera Bread bakery-cafes and commissary sales to franchisees.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $9.9 million at April 21, 2001 compared with
$1.9 million at April 15, 2000. 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 commissaries and working
capital. For the sixteen weeks ended April 21, 2001, the Company met its
requirements for capital with cash from operations and proceeds from the
exercise of stock options.
12
Funds provided by operating activities for the sixteen weeks ended
April 21, 2001 were $5.2 million compared to $2.6 million for the sixteen weeks
ended April 15, 2000. Funds provided by operating activities increased primarily
as a result of increased net income.
Total capital expenditures for the sixteen weeks ended April 21, 2001, were
$6.5 million and were primarily related to the opening of five new company-owned
bakery-cafes and for maintaining or remodeling existing bakery-cafes. The
expenditures were funded by cash from operating activities and the proceeds from
the exercise of employee stock options. Total capital expenditures were $5.0
million for the sixteen weeks ended April 15, 2000, and were primarily related
to the opening of three new company-owned bakery-cafes and for maintaining or
remodeling existing bakery-cafes.
On December 26, 2000, the Company entered into a revolving credit agreement
for $10.0 million at LIBOR plus 1.0%, approximately 5.44% at April 21, 2001,
which extends until December 31, 2003. As of April 21, 2001, the Company had
$9.4 million available under the line of credit with $0.6 million utilized
through the issuance of outstanding standby letters of credit. The Company was
in compliance with all covenants associated with its borrowings as of April 21,
2001.
As of April 15, 2000, the Company had a $10.0 million unsecured revolving
line of credit bearing interest at the Company's option of either the LIBOR rate
plus 2.25% or the commercial bank's prime rate plus .75%. As of April 15, 2000,
$2.7 million was outstanding under the line of credit and an additional $0.6
million of the remaining availability was utilized by outstanding standby
letters of credit. The Company was in compliance with all covenants associated
with its borrowings as of April 15, 2000.
Financing activities provided $3.8 million for both the sixteen weeks ended
April 21, 2001 and April 15, 2000. The financing activities in the sixteen weeks
ended April 21, 2001 included proceeds from the exercise of stock options of
$4.1 million. The financing activities for the sixteen weeks ended April 15,
2000 included $.2 million from the exercise of stock options and $3.4 million in
proceeds from the issuance of debt offset by the final payment on computer
equipment financing of $0.4 million.
The Company had a working capital surplus of $6.7 million at April 21, 2001
and a working capital deficit of $2.0 million at April 15, 2000. The working
capital surplus in 2001 was primarily due to an increase in cash and cash
equivalents. The Company has experienced no short term or long-term liquidity
difficulties. It has been able to finance its operations through internally
generated cash flow, its revolving line of credit and through the exercise of
employee stock options.
During 2001, the Company currently anticipates spending a total of
approximately $22 to $24 million, principally for the opening of approximately
14 new company-owned bakery-cafes, the opening of one additional commissary, and
for maintaining and remodeling approximately 10 existing bakery-cafes. The
Company expects to fund these expenditures principally through internally
generated cash flow supplemented, where necessary, by borrowings on its
revolving line of credit.
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
13
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",
"target", "anticipates", "expects", "intends", "believes", "future", and similar
expressions). These are statements which express management's belief,
expectations or intentions regarding the Company's future performance. Moreover,
a number of factors could cause the Company's actual results to differ
materially from those set forth in the forward-looking statements due to known
and unknown risks and uncertainties. The Company's operating results may be
negatively affected by many factors, including but not limited to the lack of
availability of sufficient capital to it and 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
There are no recent accounting pronouncements that would have a material
impact on the Company's financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company had no holdings of derivative financial or commodity instruments
at April 21, 2001. 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. The company has no foreign operations and accordingly,
no foreign exchange rate fluctuation risk.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
10.6.11 Employment Letter between the Registrant and Diane
Parsons-Salem, dated as of February 16, 2001.*
- ------------------------
* Filed herewith.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the sixteen weeks
ended April 21, 2001.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PANERA BREAD COMPANY
(REGISTRANT)
By: /s/ RONALD M. SHAICH
-----------------------------------------
Ronald M. Shaich
DATED: JUNE 4, 2001 CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By: /s/ WILLIAM W. MORETON
-----------------------------------------
William W. Moreton
Dated: June 4, 2001 CHIEF FINANCIAL OFFICER