SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-Q

(Mark one)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 12, 2003
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [For the transition period from      to      ]

Commission file number 0-19253

Panera Bread Company

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction incorporation or organization)	04-2723701 (I.R.S. Employer of Identification No.)
6710 Clayton Road, Richmond Heights, MO (Address of principal executive offices)	63117 (Zip code)

(314) 633-7100
(Registrant’s telephone number, including area code)

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x  No o  

     As of August 18, 2003, 28,008,727 shares and 1,862,381 shares of the registrant’s Class A and Class B Common Stock, respectively, $.0001 par value, were outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT INDEX
EX-10.1 Non-Competition Agreement - Yanofsky
EX-10.2 Employee/Stock Option Agreement - Yanofsky
EX-10.3 Employee/Stock Option Agreement - Twohig
EX-31.1 Certification by Chief Executive Officer
EX-31.2 Certification by Chief Financial Officer
EX-32 Certification Pursuant to 18 USC Sec. 1350

PANERA BREAD COMPANY

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (unaudited)
	Consolidated Balance Sheets as of July 12, 2003 and December 28, 2002	3
	Consolidated Statements of Operations for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002	4
	Consolidated Statements of Cash Flows for the twenty-eight weeks ended July 12, 2003 and July 13, 2002	5
	Notes to Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
ITEM 4.	CONTROLS AND PROCEDURES	20
PART II	OTHER INFORMATION
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	21

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PANERA BREAD COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share information)

					July 12, 2003			December 28, 2002
				ASSETS
Current assets:
	Cash and cash equivalents				$	39,519		$	29,924
	Investments in government securities					4,040			4,102
	Trade accounts receivable, less allowance of $59 in 2003 and $33 in 2002					7,749			7,462
	Other accounts receivable					1,173			2,097
	Inventories					6,329			5,191
	Prepaid expenses					2,035			1,826
	Deferred income taxes					7,291			8,488
	Other					33			172
				Total current assets		68,169			59,262
Property and equipment, net						111,098			99,313
Other assets:
	Investments in government securities					5,032			5,047
	Goodwill					23,091			18,970
	Deposits and other					6,138			5,554
	Deferred income taxes					—			294
				Total other assets		34,261			29,865
				Total assets	$	213,528		$	188,440
			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	6,399		$	5,987
	Accrued expenses					26,043			24,935
	Current portion of deferred revenue					1,205			1,403
				Total current liabilities		33,647			32,325
Deferred income taxes						861			—
Other long-term liabilities						1,378			262
				Total liabilities		35,886			32,587
Minority interest						3,086			2,197
Stockholders’ equity:
	Common stock, $.0001 par value:
		Class A, 75,000,000 shares authorized; 28,090,077 issued and 27,977,129 outstanding in 2003; and 27,446,448 issued and 27,337,448 outstanding in 2002				3			3
		Class B, 10,000,000 shares authorized; 1,868,531 issued and outstanding in 2003 and 1,977,363 in 2002				—			—
	Treasury stock, carried at cost					(900	)		(900	)
	Additional paid-in capital					118,024			110,120
	Retained earnings					57,429			44,433
				Total stockholders’ equity		174,556			153,656
				Total liabilities and stockholders’ equity	$	213,528		$	188,440

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

3

PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)

					For the twelve weeks ended					For the twenty-eight weeks ended
					July 12, 2003		July 13, 2002			July 12, 2003			July 13, 2002
Revenues:
	Bakery-cafe sales				$	58,951	$	48,192		$	132,271		$	107,669
	Franchise royalties and fees					7,886		6,096			17,832			13,400
	Fresh dough sales to franchisees					11,713		7,986			27,078			18,210
			Total revenues			78,550		62,274			177,181			139,279
Costs and expenses:
	Bakery-cafe expenses:
		Cost of food and paper products				16,650		15,220			37,547			33,034
		Labor				18,297		14,427			40,507			32,183
		Occupancy				4,033		3,414			9,114			7,750
		Other operating expenses				8,357		6,733			18,629			14,584
			Total bakery-cafe expenses			47,337		39,794			105,797			87,551
	Fresh dough cost of sales to franchisees					10,167		7,329			24,066			16,774
	Depreciation and amortization					4,318		3,139			9,621			6,927
	General and administrative expenses					7,291		5,609			15,855			12,893
	Pre-opening expenses					227		268			528			532
			Total costs and expenses			69,340		59,139			155,867			124,677
Operating profit						9,210		6,135			21,314			14,602
Interest expense						10		6			29			14
Other expense, net						156		(10	)		323			191
Minority interest						82		40			121			70
Income before income taxes and cumulative effect of accounting change						8,962		6,099			20,841			14,327
Income taxes						3,271		2,226			7,607			5,229
Income before cumulative effect of accounting change						5,691		3,873			13,234			9,098
Cumulative effect to December 28, 2002 of accounting change, net of tax benefit						—		—			(239	)		—
			Net income		$	5,691	$	3,873		$	12,995		$	9,098
Per share data:
	Basic earnings per common share:
			Before cumulative effect of accounting change		$	.19	$	.13		$	.45		$	.32
			Cumulative effect of accounting change			—		—			(.01	)		—
				Net income	$	.19	$	.13		$	.44		$	.32
	Diluted earnings per common share:
			Before cumulative effect of accounting change		$	.19	$	.13		$	.44		$	.30
			Cumulative effect of accounting change			—		—			(.01	)		—
				Net income	$	.19	$	.13		$	.43		$	.30
Weighted average shares of common and common equivalent shares outstanding
		Basic				29,711		28,845			29,567			28,733
		Diluted				30,495		30,025			30,267			29,874

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

4

PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)

				For the twenty-eight weeks ended
				July 12, 2003			July 13, 2002
Cash flows from operations:
	Net income			$	12,995		$	9,098
	Adjustments to reconcile net income to net cash provided by operating activities:
			Cumulative effect of accounting change, net of tax		239			—
			Depreciation and amortization		9,621			6,927
			Tax benefit from exercise of stock options		4,866			4,030
			Deferred income taxes		2,489			1,306
			Minority Interest		121			70
			Other		77			48
	Changes in operating assets and liabilities:
		Trade and other accounts receivable			664			(1,275	)
		Inventories			(1,012	)		(1,083	)
		Prepaid expenses			(209	)		235
		Accounts payable			412			(609	)
		Accrued expenses			2,834			(689	)
		Deferred revenue			(236	)		164
		Other			310			(215	)
			Net cash provided by operating activities		33,171			18,007
Cash flows from investing activities:
	Additions to property and equipment				(20,014	)		(14,441	)
	Acquisitions				(6,779	)		(3,267	)
	Increase in deposits and other				(588	)		(160	)
		Net cash used in investing activities			(27,381	)		(17,868	)
Cash flows from financing activities:
	Exercise of employee stock options				2,651			1,907
	Proceeds from note receivable				—			248
	Proceeds from issuance of common stock				387			566
	Investments by minority interest owners				767			686
		Net cash provided by financing activities			3,805			3,407
Net increase in cash and cash equivalents					9,595			3,546
Cash and cash equivalents at beginning of period					29,924			18,052
Cash and cash equivalents at end of period				$	39,519		$	21,598

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

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A-BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements of Panera Bread Company and its subsidiaries (the “Company”) have been prepared in accordance with instructions to Form 10-Q, and therefore do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States. They should be read in conjunction with the consolidated financial statements included in the Company’s Form 10-K/A for the fiscal year ended December 28, 2002.

     The consolidated financial statements consist of the accounts of Panera Bread Company, its wholly owned subsidiaries Panera, LLC (formerly Panera, Inc.) and Pumpernickel Inc., its 75% interest in its subsidiary Pain Francais, Inc. (currently in the process of voluntary dissolution with the State of New York), and its indirect consolidated subsidiaries Pumpernickel Associates, LLC, Panera Enterprises, Inc., Artisan Bread, LLC, which has a majority interest in Cap City Bread, LLC operating 25 bakery-cafes, and Asiago Bread, LLC, which has a majority interest in 8 LLC’s operating 10 bakery-cafes. All intercompany balances and transactions have been eliminated in consolidation.

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

     Certain reclassifications have been made to conform previously reported data to the current presentation.

NOTE B-STOCK-BASED COMPENSATION

     In accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of SFAS 123,” the Company elected to follow the provisions of Accounting Principles Board Opinion No. 25 (APB 25), “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 in the Consolidated Statements of Operations for the stock option plans as the exercise price of stock options equals the market price of the underlying stock on the grant date. Had compensation costs for the Company’s stock option plans been determined under the fair value based method and recognition provisions of SFAS 123 at the grant date, the Company’s net income for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002 would have been as follows (in thousands, except per share amounts):

		For the twelve weeks ended						For the twenty-eight weeks ended
		July 12, 2003			July 13, 2002			July 12, 2003			July 13, 2002
Net income, as reported		$	5,691		$	3,873		$	12,995		$	9,098
Deduct:
	Compensation expense determined using Black-Scholes, net of tax		(580	)		(465	)		(1,217	)		(993	)
Pro forma net income		$	5,111		$	3,408		$	11,778		$	8,105
Net income per share:
	Basic, as reported	$	.19		$	.13		$	.44		$	.32
	Basic, pro forma	$	.17		$	.12		$	.40		$	.28
	Diluted, as reported	$	.19		$	.13		$	.43		$	.30
	Diluted, pro forma	$	.17		$	.11		$	.39		$	.27
Weighted average shares used in compensation:
	Basic		29,711			28,845			29,567			28,733
	Diluted		30,495			30,025			30,267			29,874

     The effects of applying SFAS 123 in this pro-forma disclosure may not be representative of the effects on reported net income for the full fiscal year or for future periods.

6

NOTE C-ADOPTION OF SFAS 143

     Effective December 29, 2002, the Company adopted the provisions of SFAS 143, “Accounting for Asset Retirement Obligations.” SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement requires the Company to record an estimate for costs of retirement obligations that may be incurred at the end of lease terms of existing bakery-cafes or other facilities.

     Beginning December 29, 2002, the Company recognizes the future cost to comply with lease obligations at the end of a lease as it relates to tangible long-lived assets in accordance with the provisions of SFAS 143. A liability for the fair value of an asset retirement obligation along with a corresponding increase to the carrying value of the related long-lived asset is recorded at the time a lease agreement is executed. The Company amortizes the amount added to property and equipment and recognizes accretion expense in connection with the discounted liability over the life of the respective lease. The estimated liability is based on experience in closing bakery-cafes and the related external cost associated with these activities. Revisions to the liability could occur due to changes in estimated costs to close bakery-cafes or changes in estimated lease term.

     Upon adoption of SFAS 143, the Company recorded a discounted liability of approximately $0.8 million, increased net property and equipment by approximately $0.4 million, and recognized a one-time cumulative effect charge of approximately $0.2 million (net of deferred tax benefit of approximately $0.1 million). The liability is included in other long-term liabilities in the Consolidated Balance Sheets. The effects on earnings from continuing operations before cumulative effect of accounting change for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002, assuming adoption of SFAS 143 as of December 30, 2001, were not material to net income or related per share amounts.

NOTE D-ACCRUED EXPENSES

     Accrued expenses consist of the following (in thousands):

	July 12, 2003		December 28, 2002
Compensation and employment related taxes	$	8,870	$	6,875
Capital expenditures		2,695		4,421
Rent		2,223		2,206
Advertising		1,764		2,037
Unredeemed gift certificates		936		1,857
Insurance		2,747		1,412
Taxes, other than income tax		2,122		1,393
Other		4,686		4,734
	$	26,043	$	24,935

NOTE E-COMMITMENTS AND CONTINGENT LIABILITIES

     The Company is a prime tenant or guarantor for certain operating leases of four franchisee locations and 86 locations of the former Au Bon Pain Division, or its franchisees. The leases have terms expiring on various dates from August 31, 2003 to February 1, 2014, and the guarantee has a potential amount of future rental payments of approximately $43.3 million. The obligation from leases or guarantees will continue to decrease over time as these operating leases expire or are not renewed. Currently, the Company has not recorded a liability for these leases or guarantees. Also, the Company has not had to make any payments related to the leases or guarantees. Au Bon Pain and the respective franchisees continue to have primary liability for these operating leases.

7

     The Company, pursuant to an agreement with its former president as a joint venture partner and minority interest owner, is developing and managing up to 50 bakery-cafes in the Northern Virginia and Central Pennsylvania markets. After October 2006, the Company and the joint venture partner each have rights which could, if exercised, permit/require the Company to purchase the bakery-cafes at contractually determined values based on multiples of cash flows. The Company has not recorded a liability for these purchase rights. Had the Company been required to repurchase the 25 bakery-cafes in operation at July 12, 2003 at the contractually determined value based on the joint venture partner’s right to sell, a payment of $2.8 million would have been required.

     The Company uses a joint venture minority interest ownership structure to facilitate operation of its bakery-cafes in certain markets. After 5 years from a joint venture bakery-cafe opening, the Company and each minority interest owner have rights, which could, if exercised, permit/require the Company to purchase the minority interest owner’s interest in their respective bakery-cafe or region at a stated multiple of cash flow. The Company has not recorded a liability for these purchase rights. Had the Company been required to repurchase the 10 joint venture bakery-cafes in operation at July 12, 2003 at the contractually determined value based on the minority interest owners’ right to sell, a payment of $0.5 million would have been required.

NOTE F-EARNINGS PER SHARE

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

		For the twelve weeks ended				For the twenty-eight weeks ended
		July 12, 2003		July 13, 2002		July 12, 2003			July 13, 2002
Amounts used for basic and diluted per share calculations:
Income before cumulative effect of accounting change		$	5,691	$	3,873	$	13,234		$	9,098
Cumulative effect of accounting change, net of tax			—		—		(239	)		—
Net income		$	5,691	$	3,873	$	12,995		$	9,098
Weighted average number of shares outstanding — basic			29,711		28,845		29,567			28,733
Effect of dilutive securities:
	Employee stock options		784		1,180		700			1,141
Weighted average number of shares outstanding — diluted			30,495		30,025		30,267			29,874
Basic earnings per common share:
Before cumulative effect of accounting change		$	.19	$	.13	$	.45		$	.32
Cumulative effect of accounting change			—		—		(.01	)		—
Net income		$	.19	$	.13	$	.44		$	.32
Diluted earnings per common share:
Before cumulative effect of accounting change		$	.19	$	.13	$	.44		$	.30
Cumulative effect of accounting change			—		—		(.01	)		—
Net income		$	.19	$	.13	$	.43		$	.30

     For the twelve weeks ended July 12, 2003, options for 0.04 million shares were excluded in calculating diluted earnings per share as the exercise price exceeded fair market value and inclusion would have been antidilutive. There were no antidilutive shares for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003 and July 13, 2002, options for 0.5 million shares and 0.1 million shares, respectively, were excluded in calculating diluted earnings per share, as the exercise price exceeded fair market value and inclusion would have been antidilutive.

8

NOTE G-BUSINESS SEGMENT INFORMATION

     The Company operates three business segments. The Company Bakery-Cafe Operations segment is comprised of the operating activities of the bakery-cafes owned by the Company, which includes the joint venture bakery-cafes. The Company-owned bakery-cafes conduct business under the Panera Bread or Saint Louis Bread Company names. These bakery-cafes sell fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other complementary products through on-premise sales.

     The Franchise Operations segment is comprised of the operating activities of the franchise business unit which licenses qualified operators to conduct business under the Panera Bread Company name and also of the costs to monitor the operations of these bakery-cafes. Under the terms of the agreements, the licensed operators pay royalties and fees to the Company in return for the use of the Panera Bread or Saint Louis Bread Company names.

     The Fresh Dough Operations segment supplies fresh dough items and other proprietary frozen dough items to both company-owned and franchise-owned bakery-cafes. The fresh dough is sold to both company-owned and franchised bakery-cafes at a cost equal to 27% of the retail value of the product. The sales and related costs to the franchise bakery-cafes are separately stated line items in the Consolidated Statements of Operations. The operating profit related to the sales to company-owned bakery-cafes is classified as a reduction of the costs in the food and paper products line item on the Consolidated Statements of Operations.

     Segment information for total assets and capital expenditures is not presented as such information is not used in measuring segment performance or allocating resources among segments.

			For the twelve weeks ended						For the twenty-eight weeks ended
			July 12, 2003			July 13, 2002			July 12, 2003			July 13, 2002
						(in thousands)
Revenues:
	Company bakery-cafe operations		$	58,951		$	48,192		$	132,271		$	107,669
	Franchise operations			7,886			6,096			17,832			13,400
	Fresh dough operations			18,985			13,655			43,401			28,676
	Intercompany sales eliminations			(7,272	)		(5,669	)		(16,323	)		(10,466	)
		Total revenues	$	78,550		$	62,274		$	177,181		$	139,279
Segment operating profit before depreciation and amortization expense:
	Company bakery-cafe operations		$	11,614		$	8,397		$	26,474		$	20,118
	Franchise operations			6,865			5,273			15,556			11,509
	Fresh dough operations			1,547			657			3,011			1,436
		Segment operating profit before depreciation and amortization expense	$	20,026		$	14,327		$	45,041		$	33,063
Depreciation and amortization expense:
	Company bakery-cafe operations		$	2,855		$	2,057		$	6,428		$	4,574
	Fresh dough operations			843			547			1,783			1,140
	Corporate administration			620			535			1,410			1,213
		Total depreciation and amortization expense	$	4,318		$	3,139		$	9,621		$	6,927
Segment operating profit:
	Company bakery-cafe operations		$	8,759		$	6,340		$	20,046		$	15,544
	Franchise operations			6,865			5,273			15,556			11,509
	Fresh dough operations			704			110			1,228			296
		Total segment operating profit	$	16,328		$	11,723		$	36,830		$	27,349
Total segment operating profit			$	16,328		$	11,723		$	36,830		$	27,349
Corporate administration depreciation and amortization expense				(620	)		(535	)		(1,410	)		(1,213	)
Unallocated general and administrative expenses				(6,271	)		(4,785	)		(13,578	)		(11,002	)
Pre-opening expenses				(227	)		(268	)		(528	)		(532	)
	Operating profit		$	9,210		$	6,135		$	21,314		$	14,602

9

NOTE H-ACQUISITIONS

     On January 9, 2003, the Company purchased from a franchisee substantially all of the assets of four operating bakery-cafes as well as the area development rights for the Louisville and Lexington, Kentucky markets for a purchase price of $5.5 million. Of the purchase price, $5.0 million was paid in cash at the acquisition date and $0.5 million was paid, with interest, in cash six months from the acquisition date. The acquisition price was paid with cash on hand. The Consolidated Statements of Operations include the results of operations of the four operating bakery-cafes from the date of acquisition. The pro forma impact of the acquisition on prior periods is not presented, as the impact is not material to reported results. The Company allocated the purchase price to the assets acquired in the acquisition at their estimated fair values with the remainder allocated to goodwill as follows: $1.7 million to fixed assets, $0.1 million to inventories, and $3.7 million to goodwill.

     On February 1, 2003, the Company purchased from a franchisee substantially all of the assets of one operating bakery-cafe, the furniture, fixtures, and equipment of two closed locations, and the area development rights for the Dallas market for a cash purchase price of $1.3 million with a commitment to purchase the furniture, fixtures, and equipment of an additional bakery-cafe when it is closed for approximately $0.2 million. The acquisition price was paid with cash on hand. The Consolidated Statements of Operations include the results of operations of the one operating bakery-cafe from the date of acquisition. The pro forma impact of the acquisition on prior periods is not presented, as the impact is not material to reported results. The Company allocated the purchase price to the assets acquired in the acquisition at their estimated fair values with the remainder allocated to goodwill as follows: $0.9 million to fixed assets and $0.4 million to goodwill.

NOTE I-RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” The primary objective of the interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights; such entities are known as variable-interest entities (VIE’s). This interpretation applies immediately to VIE’s created after January 31, 2003 and in the first fiscal year or interim period beginning after June 15, 2003, to VIE’s in which an enterprise held an interest prior to February 1, 2003. The Company was not a party to any VIE’s created after January 31, 2003 and intends to adopt FIN 46 when required in fiscal 2003. The Company does not expect adoption of FIN 46 to have a significant impact on the Company’s financial statements.

     In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires an issuer classify a financial instrument within its scope as a liability, or an asset in some circumstances. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company did not enter into or modify any financial instruments within the scope of SFAS 150 after May 31, 2003 and intends to adopt SFAS 150 when required in fiscal 2003. The Company does not expect adoption of SFAS 150 to have a significant impact on the Company’s financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

     Panera Bread Company (including its wholly owned subsidiaries Panera, LLC and Pumpernickel, Inc., its 75% interest in its subsidiary Pain Francais, Inc., and its indirect subsidiaries) may be referred to as the “Company,” “Panera Bread,” or in the first person notation of “we,” “us,” and “ours” in the following discussion. The term “company-owned bakery-cafes” refers to company-operated and joint venture operated bakery-cafes in the following discussion.

     The Company’s fiscal year ends on the last Saturday in December. The Company’s fiscal year 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.

     The Company has included in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” information on franchised and system-wide comparable bakery-cafe sales increases and franchise and system-wide average weekly sales. Management believes inclusion of system-wide sales information, particularly average weekly sales, is useful in assessing consumer acceptance of the Company’s bakery-cafe concept as it measures the impact of both comparable sales and new stores. Franchised sales information also provides an understanding of the Company’s revenues as royalties from franchisees are based on their sales.

     The Company’s revenues are derived from Company-owned bakery-cafe sales, fresh dough sales to franchisees, and franchise royalties and fees. Fresh dough sales to franchisees are the sales of dough products to our franchisees. Franchise royalties and fees include royalty income and franchise fees. The cost of food and paper products, labor, occupancy, and other operating expenses relate primarily to company-owned bakery-cafe sales. The cost of fresh dough sales relates to the sale of fresh dough products and sweet goods to our franchisees. General and administrative, depreciation, and pre-opening expenses relate to all areas of revenue generation.

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     The following table sets forth the percentage relationship to total revenues, except where otherwise indicated, of certain items included in the Company’s Consolidated Statements of Operations for the periods indicated. Percentages may not add due to rounding:

				For the twelve weeks ended						For the twenty-eight weeks ended
				July 12, 2003			July 13, 2002			July 12, 2003			July 13, 2002
Revenues:
	Bakery-cafe sales				75.0	%		77.4	%		74.7	%		77.3	%
	Franchise royalties and fees				10.1			9.8			10.1			9.6
	Fresh dough sales to franchisees				14.9			12.8			15.3			13.1
			Total revenue		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
	Bakery-cafe expenses (1):
		Cost of food and paper products			28.2	%		31.6	%		28.4	%		30.7	%
		Labor			31.0			29.9			30.6			29.9
		Occupancy			6.8			7.1			6.9			7.2
		Other operating expenses			14.2			14.0			14.1			13.5
			Total bakery-cafe expenses		80.3			82.6			80.0			81.3
	Fresh dough cost of sales to franchisees (2)				86.8			91.8			88.9			92.1
	Depreciation and amortization				5.5			5.0			5.4			5.0
	General and administrative expenses				9.3			9.0			8.9			9.3
	Pre-opening expenses				0.3			0.4			0.3			0.4
Operating profit					11.7			9.9			12.0			10.5
Interest expense					—			—			—			—
Other expense, net					0.2			—			0.2			0.1
Minority interest					0.1			0.1			0.1			0.1
Income before income taxes and cumulative effect of accounting change					11.4			9.8			11.8			10.3
Income taxes					4.2			3.6			4.3			3.8
Income before cumulative effect of accounting change					7.2			6.2			7.5			6.5
Cumulative effect to December 28, 2002 of accounting change, net of tax					—			—			(0.1	)		—
			Net income		7.2	%		6.2	%		7.3	%		6.5	%

(1)	As a percentage of Company bakery-cafe sales.
(2)	As a percentage of fresh dough sales to franchisees.

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     The following table sets forth certain information and other data relating to company-owned and franchise operated bakery-cafes:

				For the twelve weeks ended						For the twenty-eight weeks ended
				July 12, 2003			July 13, 2002			July 12, 2003			July 13, 2002
Number of bakery-cafes:
	Company-owned (includes joint ventures):
		Beginning of period			140			117			132			110
		New bakery-cafes opened			4			6			10			13
		Acquired from franchisee (1)			—			—			5			3
		Bakery-cafes closed			—			—			(3	)		(3	)
			End of period		144			123			144			123
	Franchise operated:
		Beginning of period			365			273			346			259
		New bakery-cafes opened			23			19			47			36
		Sold to company (1)			—			—			(5	)		(3	)
		Bakery-cafes closed			(1	)		(1	)		(1	)		(1	)
			End of period		387			291			387			291
System-wide:
		Beginning of period			505			390			478			369
		New bakery-cafes opened			27			25			57			49
		Bakery-cafes closed			(1	)		(1	)		(4	)		(4	)
			End of period		531			414			531			414

(1) In January 2002, the Company purchased the area development rights and three existing bakery-cafes in the Jacksonville, Florida market from its franchisee. During the first quarter of fiscal 2003, the Company acquired five bakery-cafes and the development rights in the Louisville/Lexington, Kentucky and Dallas, Texas markets from franchisees.

     As of July 12, 2003, the total backlog of active additional franchise commitments in place was 450 bakery-cafes. We expect these bakery-cafes to open over the next ten years according to the timetable established in the ADA, with the majority opening in the next five to six years. The ADA requires a franchisee to develop a specified number of bakery-cafes on or before specific dates. If developers fail to develop bakery-cafes on schedule, the Company has the right to terminate the ADA and develop Company-owned locations or develop locations through new area developers in that market.

     Increases in comparable bakery-cafe sales for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002 were as follows:

	For the twelve weeks ended						For the twenty-eight weeks ended
	July 12, 2003			July 13, 2002			July 12, 2003			July 13, 2002
Company-owned		2.3	%		4.6	%		1.2	%		5.0	%
Franchised		(0.7	%)		7.8	%		(0.2	%)		6.6	%
System-wide		0.2	%		6.7	%		0.2	%		6.1	%

     Comparable bakery-cafe sales exclude the closed locations and are based on sales for bakery-cafes that have been in operation for at least 18 four-week periods in the reporting period.

     The increase in comparable sales for the twelve weeks ended July 12, 2003 was less than the increase in comparable sales for the twelve weeks ended July 13, 2002 as a result of several factors. These factors include the negative impact of the shift in Easter which was in the Company's second quarter in 2003, but was in the Company's first quarter in 2002; the impact of ROI based real estate decisions relating to new stores that negatively impacted existing store performance in 2003 compared to 2002; and slower growth during our peak lunch hour periods that resulted from an increase in customer throughput times. During the second quarter of 2003, the Company began to implement increased staffing and other initiatives that focused on quality and speed of customer service in Company-owned bakery-cafes. The implementation of these initiatives will occur on a trailing basis at franchised bakery-cafes, as the Company initially tests changes in Company-owned bakery-cafes before recommending changes to its franchise partners.

     The increase in comparable sales for the twenty-eight weeks ended July 12, 2003 was less than the increase in comparable sales for the twenty-eight weeks ended July 13, 2002 as a result of the more difficult winter weather in the first quarter of 2003 compared to the first quarter of 2002 as well as the factors discussed above relating to the twelve weeks ended July 12, 2003 compared the twelve weeks ended July 13, 2002.

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Revenues

     Total revenues for the twelve weeks ended July 12, 2003 increased 26.1% to $78.6 million compared to $62.3 million for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, total revenues increased 27.2% to $177.2 million compared to $139.3 million for the twenty-eight weeks ended July 13, 2002. The growth in total revenues for the twelve and twenty-eight weeks ended July 12, 2003, as compared to the prior year, is primarily due to the opening of 123 new bakery-cafes since the end of the second quarter of 2002 as well as increases in system-wide average weekly sales (excluding closed locations) of 0.8% and 1.2% for the twelve and twenty-eight weeks, respectively.

     Bakery-cafe sales for the twelve weeks ended July 12, 2003 increased 22.3% to $59.0 million from $48.2 million for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, bakery-cafe sales increased 22.8% to $132.3 million from $107.7 million for the twenty-eight weeks ended July 13, 2002. The increase in bakery-cafe sales is primarily due to the opening of 20 new Company-owned bakery-cafes since the end of the second quarter of 2002 as well as the 2.3% and 1.2% increase in comparable Company-owned bakery-cafe sales for the twelve and twenty-eight weeks ended July 12, 2003, respectively. The average weekly sales per Company-owned bakery cafe (excluding closed locations) and the number of operating weeks for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002 are as follows:

	For the twelve weeks ended				For the twenty-eight weeks ended
	July 12, 2003		July 13, 2002		July 12, 2003		July 13, 2002
Company-owned average weekly sales	$	34,786	$	33,340	$	34,192	$	33,098
Company-owned number of operating weeks		1,695.8		1,446.3		3,867.7		3,247.5

     Franchise royalties and fees rose 29.4% for the twelve weeks ended July 12, 2003 to $7.9 million from $6.1 million for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, franchise royalties and fees rose 33.1% to $17.8 from $13.4 million for the twenty-eight weeks ended July 13, 2002. The components of franchise royalties and fees are as follows (in thousands):

		For the twelve weeks ended				For the twenty-eight weeks ended
		July 12, 2003		July 13, 2002		July 12, 2003		July 13, 2002
Franchise royalties		$	7,199	$	5,386	$	16,351	$	12,065
Franchise fees			687		710		1,481		1,335
	Total	$	7,886	$	6,096	$	17,832	$	13,400

     The increase in royalty revenue can be attributed primarily to the addition of 103 franchised bakery-cafes opened since July 13, 2002. Royalties are based on franchise sales. The average weekly sales per franchise operated bakery-cafe (excluding closed locations) and the number of operating weeks for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002 are as follows:

	For the twelve weeks ended				For the twenty-eight weeks ended
	July 12, 2003		July 13, 2002		July 12, 2003		July 13, 2002
Franchise average weekly sales	$	34,970	$	35,211	$	35,124	$	35,006
Franchise number of operating weeks		4,463.1		3,378.4		10,113.2		7,610.2

     Fresh dough sales to franchisees increased 46.7% to $11.7 million for the twelve weeks ended July 12, 2003 from $8.0 million for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, fresh dough sales to franchisees increased 48.7% to $27.1 million from $18.2 million for the twenty-eight weeks ended July 13, 2002. The increase was primarily driven by the increased number of franchise bakery-cafes opened described previously.

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Costs and Expenses

     The cost of food and paper products includes the costs associated with the fresh dough operations that sell fresh dough products to Company-owned bakery-cafes as well as the cost of food and paper products supplied by third party vendors and distributors. The costs associated with the fresh dough operations that sell fresh dough products to the franchised bakery-cafes are excluded and are shown separately as fresh dough cost of sales to franchisees in the Consolidated Statements of Operations. The cost of food and paper products decreased to 28.2% of bakery-cafe sales for the twelve weeks ended July 12, 2003, compared to 31.6% of bakery-cafe sales for the twelve weeks ended July 13, 2002. This decrease in the cost of food and paper products as a percentage of bakery-cafe sales is primarily due to the Company’s improved leveraging of its fresh dough manufacturing and distribution costs as it opens more bakery-cafes in fiscal 2003. For the twelve weeks ended July 12, 2003, there was an average of 32.5 bakery-cafes per fresh dough facility compared to an average of 28.9 for the twelve weeks ended July 13, 2002. The decrease in the cost of food and paper products as a percentage of bakery-cafe sales also benefited from comparison to the second quarter of fiscal 2002 as the second quarter of fiscal 2002 results included inefficiencies related to two new fresh dough facilities. The improved leverage was partially offset by increased ingredient costs in the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002. For the twenty-eight weeks ended July 12, 2003, the cost of food and paper products as a percentage of bakery-cafe sales decreased to 28.4% of bakery-cafe sales from 30.7% of bakery-cafe sales for the twenty-eight weeks ended July 13, 2002. The improvement in the cost of food and paper products as a percentage of bakery-cafe sales for the twenty-eight weeks ended July 12, 2003 is primarily due to the improved leveraging of our fresh dough operations in fiscal 2003 and the comparison to 2002 results that included inefficiencies related to two new fresh dough facilities opened in the second quarter of fiscal 2002. For the twenty-eight weeks ended July 12, 2003, there was an average of 31.8 bakery-cafes per fresh dough facility compared to an average of 27.3 for the twenty-eight weeks ended July 13, 2002.

     Labor expense was $18.3 million, or 31.0% of bakery-cafe sales, for the twelve weeks ended July 12, 2003 compared to $14.4 million, or 29.9%, for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, labor expense was $40.5 million, or 30.6% of bakery-cafe sales, compared to $32.2 million, or 29.9%, for the twenty-eight weeks ended July 13, 2002. The labor expense as a percentage of bakery-cafe sales increased between the twelve and twenty-eight weeks ended July 12, 2003 and the twelve and twenty-eight weeks ended July 13, 2002 as a result of our customer service initiatives in fiscal 2003 related to quality and speed of service as well as the expansion of our table delivery service testing and the continued commitment to training and staffing our bakery-cafes.

     Occupancy costs were $4.0 million, or 6.8% of bakery-cafe sales, for the twelve weeks ended July 12, 2003 compared to $3.4 million, or 7.1% of bakery-cafe sales, for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, occupancy costs were $9.1 million, or 6.9% of bakery-cafe sales, compared to $7.7 million, or 7.2% of bakery-cafe sales, for the twenty-eight weeks ended July 13, 2002. The occupancy cost as a percentage of bakery-cafe sales declined for the twelve and twenty-eight weeks ended July 12, 2003 due to the leveraging of these costs over higher sales volumes in fiscal 2003.

     Other bakery-cafe operating expenses were $8.4 million, or 14.2% of bakery-cafe sales, for the twelve weeks ended July 12, 2003 compared to $6.7 million, or 14.0% of bakery-cafe sales, for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, other bakery-cafe operating expenses were $18.6 million, or 14.1% of bakery-cafe sales, compared to $14.6 million, or 13.5% of bakery-cafe sales, for the twenty-eight weeks ended July 13, 2002. The increase in other bakery-cafe operating expenses for the twelve and twenty-eight weeks ended July 12, 2003 is primarily due to increased field management costs in fiscal 2003 to support new market entries as well as increased advertising costs.

     For the twelve weeks ended July 12, 2003, fresh dough cost of sales to franchisees was $10.2 million, or 86.8% of fresh dough sales to franchisees, compared to $7.3 million, or 91.8% of fresh dough sales to franchisees, for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, fresh dough cost of sales was $24.1 million, or 88.9% of fresh dough sales to franchisees, compared to $16.8 million, or 92.1% of fresh dough sales to franchisees, for the twenty-eight weeks ended July 13, 2002. The decrease in the fresh dough cost of sales rate for the first half of 2003 was primarily due to favorable ingredient costs and the impact of the favorable change in our sweet goods supply agreement, which was completed during the first quarter.

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     Depreciation and amortization was $4.3 million, or 5.5% of total revenue, for the twelve weeks ended July 12, 2003 compared to $3.1 million, or 5.0% of total revenue, for the twelve weeks ended July 13, 2002. The increase in depreciation and amortization as a percentage of total revenue for the twelve weeks ended July 12, 2003 compared to the twelve weeks ended July 13, 2002 is primarily due to increased capital expenditures. For the twenty-eight weeks ended July 12, 2003, depreciation and amortization was $9.6 million, or 5.4% of total revenue, compared to $6.9 million, or 5.0% of total revenue, for the twenty-eight weeks ended July 13, 2002. The increase in depreciation and amortization as a percentage of total revenue for the twenty-eight weeks ended July 12, 2003 compared to the twenty-eight weeks ended July 13, 2002 is primarily due to the increased capital expenditures and the acceleration of depreciation on three stores closed during the first quarter of fiscal 2003.

     General and administrative expenses were $7.3 million, or 9.3% of total revenue, and $5.6 million, or 9.0% of total revenue, for the twelve weeks ended July 12, 2003 and July 13, 2002, respectively. For the twenty-eight weeks ended July 12, 2003, general and administrative expenses were $15.9 million, or 8.9% of total revenue, compared to $12.9 million, or 9.3% of total revenue, for the twenty-eight weeks ended July 13, 2002. The increase in general and administrative expenses as a percentage of total revenue for the twelve weeks ended July 12, 2003 compared to the twelve weeks ended July 13, 2002 is primarily due to increased recruiting and relocation costs in fiscal 2003 associated with additions to our development and corporate staff. The decrease in the general and administrative expense rate between the first half of fiscal 2003 and the first half of fiscal 2002 primarily resulted from higher revenues in fiscal 2003, which help leverage general and administrative expenses.

     Pre-opening expenses, which consist primarily of labor costs and food costs, of $0.2 million, or 0.3% of total revenue, and $0.3 million, or 0.4% of total revenue, for the twelve and twenty-eight weeks ended July 12, 2003, respectively, were consistent with the $0.5 million, or 0.3% of total revenue, and $0.5 million, or 0.4% of total revenue, for the twelve and twenty-eight weeks ended July 13, 2002, respectively.

Operating Profit

     Operating profit for the twelve weeks ended July 12, 2003 increased to $9.2 million, or 11.7% of total revenue, from $6.1 million, or 9.9% of total revenue, for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, operating profit increased to $21.3 million, or 12.0% of total revenue, from $14.6 million, or 10.5% of total revenue, for the twenty-eight weeks ended July 13, 2002. Operating profit for the twelve and twenty-eight weeks ended July 12, 2003 rose as a result of operating leverage that results from opening 123 bakery-cafes since the end of the second quarter as well as the factors described above.

Minority Interest

     Minority interest represents the portion of the Company’s operating profit that is attributable to the ownership interest of our joint venture partners. The Company believes that providing a joint venture partner the opportunity to participate in the success of the bakery-cafe will enable the Company to attract and retain experienced and highly motivated joint venture partners, which will result in a better customer experience. The Company expects to use the joint venture structure where appropriate as an alternative to Company-owned or franchised bakery-cafes to facilitate the development and operation of bakery-cafes.

Income Taxes

     The provision for income taxes increased to $3.3 million for the twelve weeks ended July 12, 2003 compared to $2.2 million for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, the provision for income taxes increased to $7.6 million from $5.2 million for the twenty-eight weeks ended July 13, 2002. The tax provision for the twelve and twenty-eight weeks ended July 12, 2003 and July 13, 2002 reflects a consistent combined federal, state, and local effective tax rate of 36.5%.

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Income Before Cumulative Effect of Accounting Change

     Income before cumulative effect of accounting change for the twelve weeks ended July 12, 2003 increased $1.8 million, or 46.9%, to $5.7 million, or $0.19 per diluted share, compared to income before cumulative effect of accounting change of $3.9 million, or $0.13 per diluted share, for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, income before cumulative effect of accounting change increased $4.1 million, or 45.5%, to $13.2 million, or $0.44 per diluted share, compared to income before cumulative effect of accounting change of $9.1 million, or $0.30 per diluted share for the twenty-eight weeks ended on July 13, 2002. The increase in income before cumulative effect of accounting change in 2003 was primarily due to an increase in bakery-cafe sales, franchise royalties and fees, and fresh dough sales to franchisees as well as the leveraging of fresh dough facilities and occupancy costs.

Cumulative Effect of Accounting Change

     Effective December 29, 2002, the Company adopted the provisions of SFAS 143, “Accounting for Asset Retirement Obligations.” SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement requires the Company to record an estimate for costs of retirement obligations that may be incurred at the end of lease terms of existing bakery-cafes or other facilities. Upon adoption of SFAS 143, the Company recognized a one-time cumulative effect charge of approximately $0.2 million (net of deferred tax benefit of approximately $0.1 million), or $.01 per diluted share. For further information, see “Note C — Adoption of SFAS 143” in the notes to consolidated financial statements above.

Net Income

     Net income for the twelve weeks ended July 12, 2003 increased to $5.7 million, or $0.19 per diluted share, compared to net income of $3.9 million, or $0.13 per diluted share, for the twelve weeks ended July 13, 2002. For the twenty-eight weeks ended July 12, 2003, net income increased $3.9 million, or 42.8%, to $13.0 million, or $0.43 per diluted share, compared to net income of $9.1 million, or $0.30 per diluted share, for the twenty-eight weeks ended on July 13, 2002. The increase in net income for the twelve and twenty-eight weeks ended July 12, 2003 is consistent with the factors described above.

Liquidity and Capital Resources

     Cash and cash equivalents were $39.5 million at July 12, 2003 compared to $29.9 million at December 28, 2002. The Company’s principal requirements for cash are capital expenditures for the development of new bakery-cafes, for maintaining or remodeling existing bakery-cafes, for purchasing existing franchise bakery-cafes, for developing, remodeling and maintaining fresh dough facilities and for enhancements of information systems. For the twenty-eight weeks ended July 12, 2003, the Company met its requirements for capital with cash from operating activities.

     Funds provided by operating activities for the twenty-eight weeks ended July 12, 2003 were $33.2 million compared to $18.0 million for the twenty-eight weeks ended July 13, 2002. Funds provided by operating activities increased primarily as a result of increases in net income, depreciation and amortization, and accrued expenses and a decrease in trade and other accounts receivable.

     The Company has invested $9.1 million in United States Treasury Notes and Mortgage Backed Government Notes. Investments are classified as short-term or long-term in the accompanying consolidated balance sheets based upon their stated maturity dates. As of July 12, 2003, all investments are classified as held-to-maturity as the Company has the intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums to maturity, which approximates fair value at July 12, 2003.

     Total capital expenditures for the twenty-eight weeks ended July 12, 2003 were $26.8 million, of which approximately $6.8 million related to the purchase of five bakery-cafes and the development rights from our franchisees in the Louisville/Lexington, Kentucky and Dallas, Texas markets and the remainder related primarily to the opening of ten Company-owned bakery-cafes, the opening of two fresh dough facilities, and the maintaining or remodeling of existing bakery-cafes and fresh dough facilities. Capital expenditures for the twenty-eight weeks ended July 12, 2003 were primarily funded from cash

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generated by operating activities. Total capital expenditures were $17.7 million for the twenty-eight weeks ended July 13, 2002, and were primarily related to the acquisition of three operating bakery-cafes, one bakery-cafe under construction, and the area development rights for the Jacksonville, Florida market, the opening of thirteen company-owned bakery-cafes and two fresh dough facilities, and the maintenance and remodeling of existing bakery-cafes and fresh dough facilities.

     In December 2000, the Company entered into a three-year revolving credit agreement that allows borrowings up to $10.0 million at LIBOR plus 1.0% (approximately 2.1% at July 12, 2003). As of July 12, 2003, the Company had $9.7 million available under the line of credit with $0.3 million used for standby letters of credit to collateralize premium and claim obligations for the workers’ compensation program. The Company was in compliance with all covenants associated with its borrowings as of July 12, 2003.

     Financing activities provided $3.8 million for the twenty-eight weeks ended July 12, 2003, which included $2.7 million from the exercise of stock options, $0.4 million from the issuance of common stock under employee benefit plans, and $0.8 million resulting from capital investments by our joint venture partners. The financing activities for the twenty-eight weeks ended July 13, 2002 provided $3.4 million, which included $1.9 million from the exercise of stock options, $0.6 million from the issuance of common stock under employee benefit plans, $0.2 million in proceeds on payment of a note receivable from a joint venture partner, and $0.7 million resulting from capital investments by our joint venture partners.

     The Company had working capital of $34.4 million at July 12, 2003 and $26.9 million at December 28, 2002. The Company has experienced no liquidity difficulties and has historically been able to finance its operations through internally generated cash flow, cash from the exercise of employee stock options, and, when necessary, borrowings under its revolving line of credit.

     The Company anticipates total capital expenditures for fiscal year 2003 of approximately $50 to $55 million principally for the opening of approximately 28 new company-owned bakery-cafes, the acquisition from franchisees of five bakery-cafes in the Louisville/Lexington, Kentucky and Dallas, Texas markets, the construction of three fresh dough facilities, the maintaining and remodeling of existing bakery-cafes, and the remodeling and expansion of existing fresh dough facilities. The Company expects 2003 new bakery-cafes will require, on average, an investment per bakery-cafe (excluding pre-opening expenses which are expensed as incurred) of approximately $0.8 million, which is net of estimated landlord allowance. The Company expects to fund these expenditures principally through internally generated cash flow and cash from the exercise of employee stock options, supplemented, where necessary, by borrowings on its revolving line of credit.

     Our capital requirements, including development costs related to the opening or acquisition of additional bakery-cafes and fresh dough facilities and remodeling expenditures, have and will continue to be significant. Our future capital requirements and the adequacy of available funds will depend on many factors, including the pace of expansion, real estate markets, site locations and the nature of the arrangements negotiated with landlords. The financial success or lack of success on the part of our franchisees and joint venture partners could also affect our ability to fund our capital requirements. We believe that our cash flow from operations supplemented, where necessary, by borrowings on our revolving line of credit, and the exercise of employee stock options, will be sufficient to fund our capital requirements for the foreseeable future.

Forward Looking Statements

     Matters discussed in this report, including any discussion, express or implied, of the Company’s anticipated growth, operating results, and future earnings per share, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The statements, identified by the words “believe”, “positioned”, “estimate”, “project”, “target”, “continue”, “will”, “intend”, “expect”, “future”, “anticipates”, and similar expressions, express management’s present belief, expectations or intentions regarding the Company’s future performance. The Company’s actual results could differ materially from those set forth in the forward-looking statements due to known and unknown risks and uncertainties and could be negatively impacted by a number of factors. These factors include but are not limited to the following: the availability of sufficient capital to the Company and the developers party to franchise development agreements with the Company; variations in the number and timing of bakery-cafe openings; public acceptance of new bakery-cafes;

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competition; national and regional weather conditions; changes in restaurant operating costs, particularly food and labor; and other factors that may affect retailers in general. These and other risks are discussed from time to time in the Company’s SEC reports, including its Form 10-K/A for the year ended December 28, 2002.

Critical Accounting Policies & Estimates

     There were no material changes in the Company’s critical accounting policies since the end of the most recent fiscal year. For further information, see the “Critical Accounting Policies & Estimates” section of Item 7 of the Company’s Annual Report on Form 10-K/A for the year ended December 28, 2002.

Other Commitments

     The Company is a prime tenant or guarantor for certain operating leases of four franchisee locations and 86 locations of the former Au Bon Pain Division, and its franchisees. The leases have terms expiring on various dates from August 31, 2003 to February 1, 2014, and the guarantee has a potential amount of future rental payments of approximately $43.3 million. The obligation from leases or guarantees will continue to decrease over time as these operating leases expire or are not renewed. Currently, the Company has not recorded a liability for these leases or guarantees. Also, the Company has not had to make any payments related to the leases or guarantees. Au Bon Pain and the respective franchisees continue to have primary liability for these operating leases.

     The Company, pursuant to an agreement with its former president as a joint venture partner and minority interest owner, is developing and managing up to 50 bakery-cafes in the Northern Virginia and Central Pennsylvania markets. After October 2006, the Company and the joint venture partner each have rights which could, if exercised, permit/require the Company to purchase the bakery-cafes at contractually determined values based on multiples of cash flows. The Company has not recorded a liability for these purchase rights. Had the Company been required to repurchase the 25 bakery-cafes in operation at July 12, 2003 at the contractually determined value based on the joint venture partner’s right to sell, a payment of $2.8 million would have been required.

     The Company uses a joint venture minority interest ownership structure to facilitate operation of its bakery-cafes in certain markets. After 5 years from a joint venture bakery-cafe opening, the Company and each minority interest owner have rights, which could, if exercised, permit/require the Company to purchase the minority interest owner’s interest in their respective bakery-cafe or region at a stated multiple of cash flow. The Company has not recorded a liability for these purchase rights. Had the Company been required to repurchase the 10 joint venture bakery-cafes in operation at July 12, 2003 at the contractually determined value based on the minority interest owners’ right to sell, a payment of $0.5 million would have been required.

Recent Accounting Pronouncements

     In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” The primary objective of the interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights; such entities are known as variable-interest entities (VIE’s). This interpretation applies immediately to VIE’s created after January 31, 2003 and in the first fiscal year or interim period beginning after June 15, 2003, to VIE’s in which an enterprise held an interest prior to February 1, 2003. The Company intends to adopt FIN 46 when required in fiscal 2003. The Company does not expect adoption of FIN 46 to have a significant impact on the Company’s financial statements.

     In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires an issuer classify a financial instrument within its scope as a liability, or an asset in some circumstances. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company is evaluating the applicability of this Statement on its financial statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

     No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. For further information, see Item 7A of the Company’s Annual Report on Form 10-K/A for the year ended December 28, 2002.

Item 4. Controls and Procedures

     Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-14(c) and 15d-14(d) under the Securities and Exchange Act of 1934) as of July 12, 2003. Based on that review, they have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that material information relating to us would be made known to them.

     Changes in internal controls. There were no significant changes in our internal controls or, to the knowledge of our chief executive officer and chief financial officer, in other factors that could significantly affect our internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses, during our most recent fiscal quarter.

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

     The company held its Annual Meeting of Stockholders on June 6, 2003 to consider and vote upon the following matters:

1.	To elect three (3) Directors to the Board of Directors, two (2) Directors to serve for terms ending in 2006, and one (1) Director to serve for a term ending in 2005, or until their respective successors are duly elected and qualified; and
2.	To consider and act upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent public accountants for the fiscal year ending December 27, 2003.

     With respect to the Director’s Proposal:

     The following votes were cast in favor of, and were withheld from, the nomination of Domenic Colasacco, Thomas E. Lynch, and Fred K. Foulkes, the director nominees:

Director		For		Withheld
Domenic Colasacco	Class A		24,116,096		1,343,741
	Class B		5,305,362		0
	Total		29,421,458		1,343,741
Thomas E. Lynch	Class A		24,708,350		751,487
	Class B		5,305,362		0
	Total		30,013,712		751,487
Fred K. Foulkes	Class A		24,714,031		745,806
	Class B		5,305,362		0
	Total		30,019,393		745,806

     With respect to the Auditor’s proposal:

	For		Against		Abstain
Class A		24,368,836		1,069,441		21,560
Class B		5,305,362		0		0
Total		29,674,198		1,069,441		21,560

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No.	Description
10.1	Confidential and Propriety Information and Non-Competition Agreement between the Registrant and Neal Yanofsky
10.2	Employee and Consultant Non-Qualified Stock Option Agreement between the Registrant and Neal Yanofsky
10.3	Employee and Consultant Non-Qualified Stock Option Agreement between the Registrant and Paul Twohig
31.1	Certification by Chief Executive Officer
31.2	Certification by Chief Financial Officer
32	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer

(b)	Reports on Form 8-K (all of the following reports were “furnished” under Item 9 of Form 8-K, other than the Form 8-K filed on June 26, 2003, which was filed under Items 7 and 9):
	Form 8-K filed on May 5, 2003, announcing its first quarter earnings release date.
	Form 8-K filed on May 8, 2003, with respect to comparable store sales and average weekly sales.
	Form 8-K filed on May 15, 2003, announcing its first quarter earnings.
	Form 8-K filed on May 29, 2003, with respect to comparable store sales and average weekly sales.
	Form 8-K filed on June 12, 2003, announcing the webcast of the presentation at the Thomas Weisel Partners Growth Forum 5.0.
	Form 8-K filed on June 26, 2003, with respect to comparable store sales and average weekly sales.
	Form 8-K filed on July 3, 2003, announcing the webcast of the presentation at the CIBC World Markets Third Annual Consumer Growth Conference.

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PANERA BREAD COMPANY (REGISTRANT)
Dated: August 21, 2003	By:	/s/  Ronald M. Shaich
	Ronald M. Shaich Chairman and Chief Executive Officer
Dated: August 21, 2003	By:	/s/  Mark E. Hood
	Mark E. Hood Senior Vice President, Chief Financial Officer (Chief Accounting Officer)

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EXHIBIT INDEX

EXHIBIT
NUMBER	DESCRIPTION
10.1	Confidential and Propriety Information and Non-Competition Agreement between the Registrant and Neal Yanofsky
10.2	Employee and Consultant Non-Qualified Stock Option Agreement between the Registrant and Neal Yanofsky
10.3	Employee and Consultant Non-Qualified Stock Option Agreement between the Registrant and Paul Twohig
31.1	Certification by Chief Executive Officer
31.2	Certification by Chief Financial Officer
32	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer