-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JWpbIRjrz6YT/1AF5CCWrE6ZjNoE3wD/QMZup7HMqRrwvolfp9spd8mRShAYcEty P8AP7+3Em1di94sZ+AJLHA== /in/edgar/work/20000620/0000912057-00-029198/0000912057-00-029198.txt : 20000920 0000912057-00-029198.hdr.sgml : 20000920 ACCESSION NUMBER: 0000912057-00-029198 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANERA BREAD CO CENTRAL INDEX KEY: 0000724606 STANDARD INDUSTRIAL CLASSIFICATION: [5812 ] IRS NUMBER: 042723701 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-19253 FILM NUMBER: 657955 BUSINESS ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232100 MAIL ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: AU BON PAIN CO INC DATE OF NAME CHANGE: 19940201 10-K/A 1 a10-ka.txt FORM 10K/A - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 - -------------------------------------------------------------------------------- ------------- FORM 10-K/A ------------ 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 ------------ PANERA BREAD COMPANY -------------------- (Exact name of registrant as specified in its charter) DELAWARE 04-2723701 - -------- ---------- (State or other (I.R.S. employer jurisdiction identification No.) of incorporation or organization) 7930 BIG BEND BOULEVARD, ST. LOUIS, MISSOURI 63119 - -------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (314) 918-7779 -------------- (Registrant's telephone number, including area code) AMENDMENT NO. 2 --------------- 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. 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. 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") 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. 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 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:
FACILITY SQUARE FOOTAGE 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
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. PANERA BREAD/SAINT LOUIS BREAD CO. BAKERY-CAFES COMPANY-OPERATED: 81 TOTAL (INCLUDING SPECIALTY CAFES) AS OF DECEMBER 25, 1999 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
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
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
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
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:
DEC. 30, 1995 DEC. 28, 1996 DEC. 27, 1997 DEC. 26, 1998 DEC. 25, 1999 ------------- ------------- ------------- ------------- ------------- Company-operated............ 50 52 57 70 81 Franchise-operated.......... 8 10 19 45 100 Total....................... 58 62 76 115 181
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.
DEC. 30, 1995 DEC. 28, 1996 DEC. 27, 1997 DEC. 26, 1998 MAY 16, 1999 ------------- ------------- ------------- ------------- ------------ Company-operated.............. 192 177 160 151 147 Franchise-operated............ 29 48 96 114 120 Total......................... 221 225 256 265 267
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. 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.
1998 HIGH LOW 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
1999 HIGH LOW 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
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. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
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) 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% - -----------
(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.
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) 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 - -----------
(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:
FOR THE FISCAL YEARS ENDED -------------------------- DECEMBER 25 DECEMBER 26 DECEMBER 27 1999 1998 1997 ---- ---- ---- 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% - -----------
(1) As a percentage of Company restaurant sales. (2) As a percentage of commissary sales to franchisees. 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. 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 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 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 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. 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 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. 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. 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 PANERA BREAD COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share information)
DECEMBER 25, DECEMBER 26, 1999 1998 ----------- ------------ 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
The accompanying notes are an integral part of the consolidated financial statements. PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
FOR THE FISCAL YEAR ENDED DECEMBER 25, DECEMBER 26, DECEMBER 27, 1999 1998 1997 ----------- ----------- ------------ 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
The accompanying notes are an integral part of the consolidated financial statements. PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
FOR THE FISCAL YEARS ENDED DEC. 25, DEC. 26, DEC. 27, 1999 1998 1997 ------- -------- ------- 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
The accompanying notes are an integral part of the consolidated financial statements. 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)
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 -------- ------- 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
The accompanying notes are an integral part of the consolidated financial statements. 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. 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: Machinery and equipment............................ 3-10 years Furniture and fixtures............................. 3-10 years Leasehold improvements............................. 10-23 years Signs.............................................. 10 years
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. 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):
DECEMBER 25, 1999 DECEMBER 26, 1998 ----------------- ----------------- Commissaries.......... $178 $131 Bakery-cafes.......... 729 590 Paper goods........... 134 113 Smallwares............ 768 767 Other................. 71 61 $1,880 $1,662
4. PROPERTY AND EQUIPMENT Major classes of property and equipment consist of the following (in thousands):
DECEMBER 25, 1999 DECEMBER 26, 1998 ----------------- ----------------- 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
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. 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:
DECEMBER 26, 1998 (000'S) 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
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. 6. ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
DECEMBER 25, 1999 DECEMBER 26, 1998 ----------------- ------------------ 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
7. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
DECEMBER 26, 1998 ----------------- 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
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. 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):
2000........................................ $6,301 2001........................................ 6,004 2002........................................ 5,755 2003........................................ 5,412 2004........................................ 5,126 Thereafter.................................. 14,977 $43,575
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):
DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997 ----------------- ----------------- ----------------- 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)
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:
1999 1998 1997 ---- ---- ---- 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)%
The tax effects of the significant temporary differences which comprise the deferred tax assets (liabilities) are as follows (in thousands):
1999 1998 ---- ---- 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
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. 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. Activity under the Equity Plan and its predecessor is summarized below:
SHARES WEIGHTED AVERAGE ------ EXERCISE PRICE ---------------- 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
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:
1999 1997 1998 ---- ---- ---- NET LOSS NET LOSS NET LOSS NET LOSS NET INCOME (IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE (IN THOUSANDS) -------------- --------- -------------- --------- -------------- As reported... $(629) $(.05) $(20,494) $(1.72) $1,807 Pro forma..... $(1,941) $(.16) $(21,642) $(1.81) $953
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:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- --------------------- WEIGHTED AVERAGE RANGE OF NUMBER REMAINING WEIGHTED NUMBER WEIGHTED EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE AVERAGE PRICE EXERCISABLE AVERAGE PRICE -------------- ----------- ---------------- ------------- ----------- ------------- $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
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. 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):
FOR THE FISCAL YEARS ENDED -------------------------- DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997 ----------------- ----------------- ----------------- 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
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. 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.
Term as A NAME AGE POSITION WITH COMPANY DIRECTOR ENDS ---- --- --------------------- ------------- 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 --
- ----------- (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. 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
NAME AGE POSITION WITH COMPANY 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
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. 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. 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 $100,000 for fiscal year 1999 (hereinafter referred to as the "named executive officers"). SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------- ---------------- Securities Underlying Name and Principal Options/SARS Position Year Salary ($) Bonus ($) (#) -------- ---- ---------- --------- ---------------- Ronald M. Shaich............. 1999 325,000 - - Chairman and Chief 1998 250,000 - - Executive Officer 1997 250,000 - 400,000 Richard C. Postle............ 1999 310,500 - 108,178 President and Chief 1998 310,096 75,000 100,000 Operating Officer 1997 300,000 75,000 10,000 William W. Moreton (a)....... 1999 274,993 - - Senior Vice President 1998 52,885 - 150,000 and Chief Financial Officer Michael J. Kupstas........... 1999 160,231 - - Vice President, 1998 160,281 38,975 45,000 Franchising and Brand 1997 154,813 78,785 8,000 Communication Thomas R. Howley............. 1999 145,770 48,452 - Vice President, Construction 1998 117,261 22,659 12,000 and General Counsel 1997 113,295 16,380 5,000
(a) Mr. Moreton commenced his employment with the Company in November 1998. AGGREGATED OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS -------------------------------------------------------------- Potential Realizable Value at Assumed Annual Number of Percent of Total Rates of Stock Price Securities Options/SARS Appreciation For Option Underlying Granted To Exercise TERM ($)* Options/SARS Employees In Base Price Expiration ------------------------ Name Granted (#) Fiscal Year (%) ($/Share) Date 5% 10% ---- -------------- ------------------ ----------- ---------- -- --- Ronald M. Shaich - - - - - - Richard C. Postle (1) 108,178 47 6.63 06/03/09 451,056 1,143,064 William W. Moreton - - - - - - Michael J. Kupstas - - - - - - Thomas Howley - - - - - -
* The dollar amounts in this table are the result of calculations at stock appreciation rates specified by the Securities and Exchange Commission and are not intended to forecast actual future appreciation rates of the Company's stock price. (1) Options were awarded under the 1992 Equity Incentive Plan. The options are exercisable in four annual installments of 25% per year beginning June 3, 2001. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised Shares Underlying Unexercised In-The Money Options/SARS Acquired On Value Options/SARS At FY-End (#) At Fiscal Year End ($)(1) Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable - ---- ------------ ------------ ------------------------- ------------------------- 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
(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. 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. 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 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 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. 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
12/31/94 12/29/95 12/30/96 12/31/97 12/31/98 12/31/99 -------- -------- -------- -------- -------- -------- 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
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.
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) ------ ----------- ------ ----------- -------------- 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
* 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. (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 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. (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)
BALANCE AT BALANCE BEGINNING AT END OF DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD - ----------- ---------- --------- ---------- --------- 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
(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 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). 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. 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 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.+ 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). EX-23.1 2 ex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP* We consent to the incorporation by reference in the registration statements of Panera Bread Company and Au Bon Pain Co., Inc. on Form S-8 (File Nos. 33-41989, 33-41990, 33-46682, 33-46683, 33-96510, 33-96506, 333-01668, 333-31855, 333-31857) and Form S-3 (File Nos. 33-82292 and 333-80927) of our report dated March 19, 2000 on our audit of the consolidated financial statement and financial statement schedules of Panera Bread Company as of December 25, 1999 and December 26, 1998, and for each of the three years in the period ended December 25, 1999, which report is included in the Annual Report on Form 10-K, as amended by the filing of Form 10-K/A filed on or about June 19, 2000. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Saint Louis, Missouri June 19, 2000 -----END PRIVACY-ENHANCED MESSAGE-----