Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - PANERA BREAD CO | c98347exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - PANERA BREAD CO | c98347exv31w1.htm |
EX-32 - EXHIBIT 32 - PANERA BREAD CO | c98347exv32.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
(Mark one)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 30, 2010
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 | 04-2723701 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
6710 Clayton Road, Richmond Heights, MO | 63117 | |
(Address of Principal Executive Offices) | (Zip Code) |
(314) 633-7100
(Registrants Telephone Number, Including Area Code)
(Registrants 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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such
files). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As
of May 4, 2010, 30,619,864 shares and 1,392,107 shares of the registrants Class A Common Stock
and Class B Common Stock, respectively, par value $.0001 per share, were outstanding.
PANERA BREAD COMPANY
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PANERA BREAD COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
March 30, 2010 | December 29, 2009 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 305,059 | $ | 246,400 | ||||
Trade accounts receivable, net |
19,219 | 17,317 | ||||||
Other accounts receivable |
7,400 | 11,176 | ||||||
Inventories |
11,651 | 12,295 | ||||||
Prepaid expenses |
15,730 | 16,211 | ||||||
Deferred income taxes |
17,718 | 18,685 | ||||||
Total current assets |
376,777 | 322,084 | ||||||
Property and equipment, net |
396,882 | 403,784 | ||||||
Other assets: |
||||||||
Goodwill |
87,481 | 87,481 | ||||||
Other intangible assets, net |
18,902 | 19,195 | ||||||
Deposits and other |
5,431 | 4,621 | ||||||
Total other assets |
111,814 | 111,297 | ||||||
Total assets |
$ | 885,473 | $ | 837,165 | ||||
LIABILITIES |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 5,982 | $ | 6,417 | ||||
Accrued expenses |
145,420 | 135,842 | ||||||
Total current liabilities |
151,402 | 142,259 | ||||||
Deferred rent |
44,169 | 43,371 | ||||||
Deferred income taxes |
24,530 | 28,813 | ||||||
Other long-term liabilities |
26,700 | 25,686 | ||||||
Total liabilities |
246,801 | 240,129 | ||||||
Commitments and contingencies (Note 7) |
||||||||
EQUITY |
||||||||
Panera Bread Company stockholders equity: |
||||||||
Common stock, $.0001 par value per share: |
||||||||
Class A, 75,000,000 shares authorized; 30,659,488 issued and 30,490,162
outstanding in 2010; and 30,364,915 issued and 30,196,808 outstanding in 2009 |
3 | 3 | ||||||
Class B, 10,000,000 shares authorized; 1,392,107 issued and outstanding in
2010 and in 2009 |
| | ||||||
Treasury stock, carried at cost; 169,326 shares in 2010 and 168,107 shares in 2009 |
(4,022 | ) | (3,928 | ) | ||||
Additional paid-in capital |
184,135 | 168,288 | ||||||
Accumulated other comprehensive gain |
262 | 224 | ||||||
Retained earnings |
458,294 | 432,449 | ||||||
Total equity |
$ | 638,672 | $ | 597,036 | ||||
Total liabilities and equity |
$ | 885,473 | $ | 837,165 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
Table of Contents
PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share information)
For the 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Revenues: |
||||||||
Bakery-cafe sales |
$ | 312,500 | $ | 272,882 | ||||
Franchise royalties and fees |
20,863 | 18,627 | ||||||
Fresh dough sales to franchisees |
30,847 | 29,200 | ||||||
Total revenue |
364,210 | 320,709 | ||||||
Costs and expenses: |
||||||||
Bakery-cafe expenses: |
||||||||
Cost of food and paper products |
$ | 90,311 | $ | 80,991 | ||||
Labor |
100,682 | 89,541 | ||||||
Occupancy |
24,389 | 23,272 | ||||||
Other operating expenses |
39,535 | 36,180 | ||||||
Total bakery-cafe expenses |
254,917 | 229,984 | ||||||
Fresh dough cost of sales to franchisees |
24,835 | 24,779 | ||||||
Depreciation and amortization |
17,009 | 16,419 | ||||||
General and administrative expenses |
25,012 | 20,401 | ||||||
Pre-opening expenses |
276 | 340 | ||||||
Total costs and expenses |
322,049 | 291,923 | ||||||
Operating profit |
42,161 | 28,786 | ||||||
Interest expense |
168 | 166 | ||||||
Other (income) expense, net |
307 | (318 | ) | |||||
Income before income taxes |
41,686 | 28,938 | ||||||
Income taxes |
15,841 | 10,911 | ||||||
Net income |
25,845 | 18,027 | ||||||
Less: net income attributable to noncontrolling interest |
| 595 | ||||||
Net income attributable to Panera Bread Company |
$ | 25,845 | $ | 17,432 | ||||
Earnings per common share attributable to Panera Bread Company: |
||||||||
Basic |
$ | 0.83 | $ | 0.57 | ||||
Diluted |
$ | 0.82 | $ | 0.57 | ||||
Weighted average shares of common and common equivalent shares outstanding: |
||||||||
Basic |
31,170 | 30,388 | ||||||
Diluted |
31,521 | 30,737 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
Table of Contents
PANERA BREAD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For the 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Cash flows from operations: |
||||||||
Net income |
$ | 25,845 | $ | 18,027 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
17,009 | 16,419 | ||||||
Stock-based compensation expense |
2,484 | 2,176 | ||||||
Tax benefit from exercise of stock options |
(2,755 | ) | (900 | ) | ||||
Deferred income taxes |
(3,316 | ) | (899 | ) | ||||
Other |
173 | 72 | ||||||
Changes in operating assets and liabilities, excluding the effect of acquisitions: |
||||||||
Trade and other accounts receivable |
1,874 | 58 | ||||||
Inventories |
644 | 682 | ||||||
Prepaid expenses |
481 | 979 | ||||||
Accounts payable |
(435 | ) | 1,523 | |||||
Accrued expenses |
13,007 | 5,599 | ||||||
Decrease in deposits and other |
(875 | ) | (678 | ) | ||||
Deferred rent |
798 | 287 | ||||||
Other long-term liabilities |
921 | (1,735 | ) | |||||
Net cash provided by operating activities |
55,855 | 41,610 | ||||||
Cash flows from investing activities: |
||||||||
Additions to property and equipment |
(10,465 | ) | (8,103 | ) | ||||
Investment maturities proceeds |
| 1,504 | ||||||
Net cash used in investing activities |
(10,465 | ) | (6,599 | ) | ||||
Cash flows from financing activities: |
||||||||
Repurchase of common stock |
(94 | ) | (232 | ) | ||||
Exercise of employee stock options |
10,149 | 3,749 | ||||||
Tax benefit from exercise of stock options |
2,755 | 900 | ||||||
Proceeds from issuance of common stock under employee benefit plans |
459 | 426 | ||||||
Net cash provided by financing activities |
13,269 | 4,843 | ||||||
Net increase in cash and cash equivalents |
58,659 | 39,854 | ||||||
Cash and cash equivalents at beginning of period |
246,400 | 74,710 | ||||||
Cash and cash equivalents at end of period |
$ | 305,059 | $ | 114,564 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The unaudited consolidated financial statements of Panera Bread Company and its subsidiaries (the
Company) have been prepared in accordance with generally accepted accounting principles in the
U.S. (GAAP), under the rules and regulations of the U.S. Securities and Exchange Commission (the
SEC), and on a basis substantially consistent with the audited consolidated financial statements
of the Company as of and for the fiscal year ended December 29, 2009. These unaudited consolidated
financial statements should be read in conjunction with such audited consolidated financial
statements, which were included in the Companys Annual Report on Form 10-K for the fiscal year
ended December 29, 2009 and filed with the SEC on February 26, 2010.
The unaudited consolidated financial statements consist of the accounts of Panera Bread Company and
its wholly owned direct and indirect consolidated subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
The unaudited consolidated financial statements include all adjustments (consisting of normal
recurring adjustments and accruals) that management considers necessary for a fair statement of its
financial position and results of operations for the interim periods. Interim results are not
necessarily indicative of the results for any other interim period or for the entire year.
Subsequent Events
The Company has evaluated all events or transactions occurring between the balance sheet date and
the date of issuance of the financial statements that would require recognition or disclosure in
the financial statements. On March 30, 2010, PB Biscuit, ULC (PB Biscuit) was formed by Panera
Bread ULC and on March 31, 2010, subsequent to the Companys first quarter of fiscal 2010, PB
Biscuit acquired three bakery-cafes from Panera Bread ULCs franchisee, Millennium Bread Inc.
(Millennium), and Panera Bread ULC retained a majority ownership interest in PB Biscuit. Refer
to Note 7, Commitments and Contingencies, for further details on the transaction.
Reclassifications
The Company reclassified deposits and other cash flows from investing activities to cash flows from
operations in the Consolidated Statements of Cash Flows to more appropriately reflect the nature of
the activities in the account. The Company has reclassified prior periods in order to conform to
the current presentation.
Recent Accounting Pronouncements
On December 30, 2009, the Company adopted the updated guidance issued by the Financial Accounting
Standards Board (FASB) related to fair value measurements and disclosures, which requires a
reporting entity to disclose separately the amounts of significant transfers in and out of Level 1
and Level 2 fair value measurements and to describe the reasons for the transfers. The updated
guidance also requires that an entity should provide fair value measurement disclosures for each
class of assets and liabilities and disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and non-recurring fair value measurements for Level 2 and
Level 3 fair value measurements. The guidance was effective for interim or annual financial
reporting periods beginning after December 15, 2009. The adoption of this updated guidance did not
have an impact on the Companys consolidated results of operations or financial condition. In
addition, the updated guidance requires that in the reconciliation for fair value measurements
using significant unobservable inputs, or Level 3, a reporting entity should disclose separately
information about purchases, sales, issuances and settlements on a gross basis rather than as one
net number. This guidance is effective for fiscal years beginning after December 15, 2010 and for
interim periods therein. Therefore, the Company has not yet adopted the guidance with respect to
the roll forward activity in Level 3 fair value measurements. The Company does not expect the
adoption of this new guidance to have a material effect on its financial position or results of
operations.
On December 30, 2009, the Company adopted changes issued by the FASB on accounting for variable
interest entities (VIE), which changes the process for how an enterprise determines which party
consolidates a VIE to a primarily qualitative analysis. The enterprise that consolidates the VIE
(the primary beneficiary) is defined as the enterprise with (1) the power to direct activities of
the VIE that most significantly affect the VIEs economic performance and (2) the obligation to
absorb losses of the VIE or the right to receive benefits from the VIE. Upon adoption, reporting
enterprises must reconsider their conclusions on whether an entity should be consolidated and,
should a change result, record the effect on net assets as a cumulative effect adjustment to
retained earnings. The adoption of this updated guidance did not have an impact on the Companys
consolidated results of operations or financial condition.
6
Table of Contents
Note 2. Noncontrolling Interest
The following tables illustrate the changes in equity for the thirteen weeks ended March 31, 2009
and March 30, 2010, respectively (in thousands):
Accumulated | ||||||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||
Compre- | Additional | Compre- | Noncon- | |||||||||||||||||||||||||||||||||
hensive | Common Stock | Treasury | Paid-in | Retained | hensive | trolling | ||||||||||||||||||||||||||||||
Total | Income | Class A | Class B | Stock | Capital | Earnings | Income (Loss) | Interest | ||||||||||||||||||||||||||||
Balance, December 30, 2008 |
$ | 498,686 | $ | 3 | $ | | $ | (2,204 | ) | $ | 151,358 | $ | 346,399 | $ | (394 | ) | $ | 3,524 | ||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||
Net income |
18,027 | $ | 18,027 | | | | | 17,432 | | 595 | ||||||||||||||||||||||||||
Other Comprehensive income (loss): |
||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
(60 | ) | (60 | ) | | | | | | (60 | ) | | ||||||||||||||||||||||||
Total other comprehensive income (loss) |
(60 | ) | (60 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income |
17,967 | $ | 17,967 | |||||||||||||||||||||||||||||||||
Issuance of common stock |
426 | | | | 426 | | | | ||||||||||||||||||||||||||||
Exercise of employee stock options |
3,749 | | | | 3,749 | | | | ||||||||||||||||||||||||||||
Stock-based compensation expense |
2,177 | | | | 2,177 | | | | ||||||||||||||||||||||||||||
Repurchase of common stock |
(232 | ) | | | (232 | ) | | | | | ||||||||||||||||||||||||||
Tax benefit from exercise of stock options |
900 | | | | 900 | | | | ||||||||||||||||||||||||||||
Balance, March 31, 2009 |
$ | 523,673 | $ | 3 | $ | | $ | (2,436 | ) | $ | 158,610 | $ | 363,831 | $ | (454 | ) | $ | 4,119 | ||||||||||||||||||
Balance, December 29, 2009 |
$ | 597,036 | $ | 3 | $ | | $ | (3,928 | ) | $ | 168,288 | $ | 432,449 | $ | 224 | $ | | |||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||
Net income |
25,845 | $ | 25,845 | | | | | 25,845 | | | ||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
38 | 38 | | | | | | 38 | | |||||||||||||||||||||||||||
Total other comprehensive income |
38 | 38 | ||||||||||||||||||||||||||||||||||
Comprehensive income |
25,883 | $ | 25,883 | |||||||||||||||||||||||||||||||||
Issuance of common stock |
459 | | | | 459 | | | | ||||||||||||||||||||||||||||
Exercise of employee stock options |
10,149 | | | | 10,149 | | | | ||||||||||||||||||||||||||||
Stock-based compensation expense |
2,484 | | | | 2,484 | | | | ||||||||||||||||||||||||||||
Repurchase of common stock |
(94 | ) | | | (94 | ) | | | | | ||||||||||||||||||||||||||
Tax benefit from exercise of stock options |
2,755 | | | | 2,755 | | | | ||||||||||||||||||||||||||||
Balance, March 30, 2010 |
$ | 638,672 | $ | 3 | $ | | $ | (4,022 | ) | $ | 184,135 | $ | 458,294 | $ | 262 | $ | | |||||||||||||||||||
Purchase of Noncontrolling Interest
On February 1, 2007, the Company purchased 51 percent of the outstanding stock of Paradise Bakery &
Café, Inc. (Paradise), then owner and operator of 22 bakery-cafes and one commissary and
franchisor of 22 bakery-cafes and one commissary, for a purchase price of $21.1 million plus $0.5
million in acquisition costs. As a result, Paradise became a majority-owned consolidated
subsidiary of the Company, with its operating results included in the Companys Consolidated
Statements of Operations and the 49 percent portion of equity attributable to Paradise presented as
minority interest, and subsequently as noncontrolling interest, in the Companys Consolidated
Balance Sheets.
On June 2, 2009, the Company purchased the remaining 49 percent of the outstanding stock of
Paradise, excluding certain agreed upon assets totaling $0.7 million, for a purchase price of $22.3
million, $0.1 million in transaction costs, and settlement of $3.4 million of debt owed to the
Company by the former shareholders of the remaining 49 percent of Paradise (the Prior
Shareholders). Approximately $20.0 million of the purchase price, as well as the transaction
costs, were paid on June 2, 2009, with $2.3 million retained by the Company for certain holdbacks.
The holdbacks are primarily for certain indemnifications and expire on June 2, 2011, with any
remaining holdback amounts reverting to the Prior Shareholders. The transaction was accounted for
as an equity transaction, by adjusting the carrying amount of the noncontrolling interest balance
to reflect the change in the Companys ownership interest in Paradise, with the difference between
fair value of the consideration paid and the amount by which the noncontrolling interest was
adjusted recognized in equity attributable to the Company.
Note 3. Fair Value Measurements
The Companys $181.9 million and $115.9 million in cash equivalents at March 30, 2010 and December
29, 2009, respectively, were recorded at fair value in the Consolidated Balance Sheets based on
quoted market prices for identical securities (Level 1 inputs).
7
Table of Contents
Note 4. Inventories
Inventories consisted of the following (in thousands):
March 30, 2010 | December 29, 2009 | |||||||
Food: |
||||||||
Fresh dough facilities: |
||||||||
Raw materials |
$ | 2,304 | $ | 2,573 | ||||
Finished goods |
372 | 275 | ||||||
Bakery-cafes: |
||||||||
Raw materials |
6,907 | 7,304 | ||||||
Paper goods |
2,068 | 2,143 | ||||||
$ | 11,651 | $ | 12,295 | |||||
Note 5. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
March 30, 2010 | December 29, 2009 | |||||||
Compensation and related employment taxes |
$ | 35,800 | $ | 33,416 | ||||
Unredeemed gift cards |
29,244 | 37,454 | ||||||
Insurance |
18,304 | 16,265 | ||||||
Income taxes |
13,166 | | ||||||
Taxes, other than income tax |
11,835 | 11,072 | ||||||
Advertising |
5,753 | 2,465 | ||||||
Capital expenditures |
5,434 | 6,108 | ||||||
Rent |
4,973 | 5,019 | ||||||
Fresh dough operations |
4,948 | 5,263 | ||||||
Utilities |
2,919 | 3,163 | ||||||
Deferred purchase price of noncontrolling interest (Note 2) |
2,269 | 2,264 | ||||||
Deferred revenue |
270 | 1,334 | ||||||
Other |
10,505 | 12,019 | ||||||
$ | 145,420 | $ | 135,842 | |||||
Note 6. Credit Facility
The Company and certain of its direct and indirect subsidiaries, as guarantors, are parties to an
amended and restated credit agreement (the Amended and Restated Credit Agreement) with Bank of
America, N.A. and other lenders party thereto, which provides for a secured revolving credit
facility of $250.0 million to be used for general corporate purposes, including working capital,
capital expenditures, and permitted acquisitions and share repurchases. The credit facility, which
is collateralized by the capital stock of the Companys present and future material subsidiaries,
will become due on March 7, 2013, subject to acceleration upon certain specified events of default.
As of March 30, 2010 and December 29, 2009, the Company had no balance outstanding under the
Amended and Restated Credit Agreement. The Company incurred $0.1 million of commitment fees for
each of the thirteen weeks ended March 30, 2010 and March 31, 2009, and accrued interest related to
the commitment fees was $0.1 million at both March 30, 2010 and December 29, 2009. As of March 30,
2010, the Company was in compliance with all covenants in the Amended and Restated Credit
Agreement.
Note 7. Commitments and Contingencies
Lease Obligations
As of March 30, 2010, the Company guaranteed operating leases of 26 franchisee locations and three
locations of its former Au Bon Pain division, or its franchisees, which the Company accounts for in
accordance with the accounting standard for guarantees. These leases have terms expiring on
various dates from August 31, 2010 to December 31, 2023 and have a potential amount of future
rental payments of approximately $29.1 million as of March 30, 2010. The obligation from these
leases will generally continue to decrease over time as
these operating leases expire. The Company has not recorded a liability for certain of these
guarantees as they arose prior to the implementation of this accounting standard for guarantees
and, unless modified, are exempt from its requirements. The Company did not record a liability for
those guarantees issued after the effective date of this accounting standard because the fair value
of each such lease guarantee was determined by the Company to be insignificant based on analysis of
the facts and circumstances of each such lease and each such franchisees performance, and the
Company did not believe it was probable it would be required to perform under any guarantees at the
time the guarantees were issued. The Company has not had to make any payments related to any of
these guaranteed leases. Au Bon Pain or the applicable franchisees continue to have primary
liability for these operating leases.
8
Table of Contents
During the first quarter of fiscal 2008, the Company recorded a reserve of $1.2 million relating to
the termination of operating leases for specific sites, which the Company determined not to
develop. During the thirteen weeks ended March 30, 2010, the Company decreased this reserve by
approximately $0.3 million primarily due to the settlement of one lease and due to the decision to
construct and open one bakery-cafe. No other significant changes were made to the accrual during
the thirteen weeks ended March 30, 2010. During the thirteen weeks ended March 31, 2009, the
Company decreased the reserve by approximately $0.1 million primarily due to the settlement of one
lease. No other significant changes were made to the accrual during the thirteen weeks ended March
31, 2009. As of March 30, 2010 and December 29, 2009, the Company had approximately $0.1 million
and $0.4 million accrued in its Consolidated Balance Sheets relating to the termination of these
specific leases.
Related Party Credit Agreement
In order to facilitate the opening of the first Panera Bread bakery-cafes in Canada, on September
10, 2008, the Companys Canadian subsidiary, Panera Bread ULC, as lender, entered into a Cdn. $3.5
million secured revolving credit facility agreement with Millennium, as borrower, and certain of
Millenniums present and future subsidiaries, which the Company refers to as Franchisee Guarantors,
who entered into franchise agreements with Panera Bread ULC to operate three Panera Bread
bakery-cafes in Canada. Covenants under the credit agreement required Millennium to maintain a
certain level of cash equity contributions or subordinated loans from its shareholders in relation
to the principal outstanding under the credit agreement. The borrowings under the credit agreement
bore interest at the per annum rate of 7.58 percent, calculated daily and payable monthly in
arrears on the last business day of each of Panera Bread ULCs fiscal month. The credit facility
was subject to acceleration upon certain specified events of default, including breaches of
representations or covenants, failure to pay other material indebtedness or a change of control of
Millennium, as defined in the credit agreement. The proceeds from the credit facility were used by
Millennium to pay costs to develop and construct the Franchisee Guarantors bakery-cafes and for
their day-to-day operating requirements. The credit facility, which was collateralized by present
and future property and assets of Millennium and the Franchisee Guarantors, as well as the personal
guarantees of certain individuals, became due on September 9, 2009. On September 9, 2009 the
maturity date was extended to December 9, 2009, and the maturity date was subsequently further
extended to February 19, 2010 and then to March 30, 2010. On March 31, 2010, the credit facility
was terminated through a separate transaction with Millennium, as further discussed below.
As part of the franchise agreement between Millennium and Panera Bread ULC, Panera Bread ULC
developed and equipped three bakery-cafes as Panera Bread bakery-cafes in accordance with the
Companys then current design and construction standards and specifications as applied by Panera
Bread ULC, in its sole discretion. Millennium was required to pay Panera Bread ULC an amount equal
to the total cost of development of the bakery-cafes, which included any and all costs and expenses
incurred by Panera Bread ULC in connection with selection and development of the bakery-cafes,
excluding overhead expenses of Panera Bread ULC. On September 15, 2008, October 27, 2008, and
December 16, 2008, Panera Bread ULC delivered possession of the three bakery-cafes in Canada to
Millennium, which bakery-cafes subsequently opened on October 6, 2008, November 10, 2008, and
January 26, 2009, respectively. On April 7, 2009, Millennium requested a Cdn. $3.5 million advance
under the credit agreement for payment of the costs to develop the bakery-cafes, which was included
in other accounts receivable in the Consolidated Balance Sheets as of March 30, 2010 and December
29, 2009.
On March 30, 2010, PB Biscuit was formed by Panera Bread ULC through the contribution of its Cdn.
$3.5 million note receivable from Millennium and cash. On March 31, 2010, PB Biscuit acquired
certain assets and liabilities and the operations of Millenniums three bakery-cafes. The
transaction was accounted for as an acquisition under the business combination authoritative
guidance. In exchange for the bakery-cafe operations and certain assets and liabilities, PB
Biscuit assigned the Cdn. $3.5 million note receivable to and issued minority ownership interest to
Millennium, subject to certain closing adjustments. The acquisition will be recorded in the
Companys consolidated financial statements for the second quarter of fiscal 2010 and the purchase
price will be allocated to the tangible and intangible assets acquired and liabilities assumed in
the acquisition at their estimated fair values with any remainder allocated to goodwill.
Legal Proceedings
On January 25, 2008 and February 26, 2008, purported class action lawsuits were filed against the
Company and three of the Companys current or former executive officers by the Western Washington
Laborers-Employers Pension Trust and Sue Trachet, respectively, on behalf of investors who
purchased the Companys common stock during the period between November 1, 2005 and July 26, 2006.
Both lawsuits were filed in the United States District Court for the Eastern District of Missouri,
St. Louis Division. Each complaint alleges that the Company and the other defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act),
and Rule 10b-5 under the Exchange Act in connection with the
9
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Companys disclosure of system-wide sales and
earnings guidance during the period from November 1, 2005 through July 26, 2006. Each complaint
seeks, among other relief, class certification of the lawsuit, unspecified damages, costs and
expenses, including attorneys and experts fees, and such other relief as the Court might find
just and proper. On June 23, 2008, the lawsuits were consolidated and the Western Washington
Laborers-Employers Pension Trust was appointed lead plaintiff. On August 7, 2008, the plaintiff
filed an amended complaint, which extended the class period to November 1, 2005 through July 26,
2007. The Company believes that it and the other defendants have meritorious defenses to each of
the claims in this lawsuit and the Company is vigorously defending the lawsuit. On October 6,
2008, the Company filed a motion to dismiss all of the claims in this lawsuit. Following filings
by both parties on the Companys motion to dismiss, on June 25, 2009, the Court converted the
Companys motion to one for summary judgment and denied it without prejudice. The Court
simultaneously gave the Company until July 20, 2009 to file a new motion for summary judgment,
which deadline the Court subsequently extended until August 10, 2009. On August 10, 2009, the
Company filed a motion for summary judgment. On September 9, 2009, the plaintiff filed a request
to deny or continue the Companys motion for summary judgment to allow the plaintiff to conduct
discovery. Following a hearing and subsequent filings by both parties on the plaintiffs request
for discovery, on November 6, 2009, the Court denied the plaintiffs request. The plaintiff filed
an opposition to the Companys motion for summary judgment on December 12, 2009, and the Company
filed its reply in support of its motion on December 21, 2009. On March 16, 2010, the Court granted
in part and denied in part the Companys motion for summary judgment. On April 5, 2010, the Court
granted a joint motion by the parties to stay the case through July 6, 2010, at which time the
Company expects to file an answer to the complaint if mediation has not been successful. There can
be no assurance that the Company will be successful, and an adverse resolution of the lawsuit could
have a material adverse effect on the Companys consolidated financial position and results of
operations in the period in which the lawsuit is resolved. The Company is not presently able to
reasonably estimate potential losses, if any, related to the lawsuit and as such, has not recorded
a liability in its Consolidated Balance Sheets.
On February 22, 2008, a shareholder derivative lawsuit was filed against the Company as nominal
defendant and against certain of its current or former officers and certain current directors. The
lawsuit was filed by Paul Pashcetto in the Circuit Court of St. Louis, Missouri. The complaint
alleges, among other things, breach of fiduciary duty, abuse of control, waste of corporate assets
and unjust enrichment between November 5, 2006 and February 22, 2008. The complaint seeks, among
other relief, unspecified damages, costs and expenses, including attorneys fees, an order
requiring the Company to implement certain corporate governance reforms, restitution from the
defendants and such other relief as the Court might find just and proper. The Company believes
that it and the other defendants have meritorious defenses to each of the claims in this lawsuit
and the Company is vigorously defending the lawsuit. On July 18, 2008, the Company filed a motion
to dismiss all of the claims in this lawsuit. Following filings by both parties on the Companys
motion to dismiss, on December 14, 2009, the Court denied the Companys motion. The Company filed
an answer to the complaint on January 27, 2010. There can be no assurance that the Company will be
successful, and an adverse resolution of the lawsuit could have a material adverse effect on the
Companys consolidated financial position and results of operations in the period in which the
lawsuit is resolved. The Company is not presently able to reasonably estimate potential losses, if
any, related to the lawsuit and as such, has not recorded a liability in its Consolidated Balance
Sheets.
On December 9, 2009, a purported class action lawsuit was filed against the Company and one of its
subsidiaries by Nick Sotoudeh, a former employee of the Company. The lawsuit was filed in the
California Superior Court, County of Contra Costa. The complaint alleges, among other things,
violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest
periods and termination compensation and violations of Californias Unfair Competition Law. The
complaint seeks, among other relief, collective and class certification of the lawsuit, unspecified
damages, costs and expenses, including attorneys fees, and such other relief as the Court might
find just and proper. The Company believes it and the other defendant have meritorious defenses to
each of the claims in this lawsuit and the Company is prepared to vigorously defend the lawsuit.
There can be no assurance, however, that the Company will be successful, and an adverse resolution
of the lawsuit could have a material adverse effect on the Companys consolidated financial
position and results of operations in the period in which the lawsuit is resolved. The Company is
not presently able to reasonably estimate potential losses, if any, related to the lawsuit and as
such, has not recorded a liability in its accompanying Consolidated Balance Sheets.
In addition, the Company is subject to other routine legal proceedings, claims and litigation in
the ordinary course of its business. Defending lawsuits requires significant management attention
and financial resources and the outcome of any litigation, including the matters described above,
is inherently uncertain. The Company does not, however, currently expect that the costs to resolve
these routine matters will have a material adverse effect on its consolidated financial position,
results of operations or cash flows.
Other
The Company is subject to on-going federal and state income and sales tax audits, and any
unfavorable rulings could materially and adversely affect its financial condition or results of
operations. The Company believes reserves for these matters are adequately provided for in its
consolidated financial statements.
Note 8. 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 directly and indirectly by the
Company. The Company-owned bakery-cafes conduct business under the Panera Bread®, Saint Louis Bread
Co.® or Paradise Bakery & Café® names. These bakery-cafes offer some or all of the following: fresh
baked
goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and
other complementary products through on-premise sales, as well as catering.
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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® or Paradise
Bakery & Café® names and also monitors the operations of these bakery-cafes. Under the terms of
most of the agreements, the licensed operators pay royalties and fees to the Company in return for
the use of the Panera Bread® or Paradise Bakery & Café® names.
The Fresh Dough Operations segment supplies fresh dough items and indirectly supplies proprietary
sweet goods items through a contract manufacturing arrangement to both Company-owned and
franchise-operated bakery-cafes. The fresh dough is sold to a number of both Company-owned and
franchise-operated bakery-cafes at a delivered cost generally not to exceed 27 percent of the
retail value of the end product. The sales and related costs to the franchise-operated 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
cost of food and paper products in the Consolidated Statements of Operations.
Information related to the Companys three business segments follows (in thousands):
For the 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Revenues: |
||||||||
Company bakery-cafe operations |
$ | 312,500 | $ | 272,882 | ||||
Franchise operations |
20,863 | 18,627 | ||||||
Fresh dough operations |
53,742 | 52,865 | ||||||
Intercompany sales eliminations |
(22,895 | ) | (23,665 | ) | ||||
Total revenues |
$ | 364,210 | $ | 320,709 | ||||
Segment profit: |
||||||||
Company bakery-cafe operations |
$ | 57,583 | $ | 42,898 | ||||
Franchise operations |
19,520 | 16,904 | ||||||
Fresh dough operations |
6,012 | 4,421 | ||||||
Total segment profit |
$ | 83,115 | $ | 64,223 | ||||
Depreciation and amortization |
17,009 | 16,419 | ||||||
Unallocated general and administrative expenses |
23,669 | 18,678 | ||||||
Pre-opening expenses |
276 | 340 | ||||||
Interest expense |
168 | 166 | ||||||
Other (income) expense, net |
307 | (318 | ) | |||||
Income before income taxes |
$ | 41,686 | $ | 28,938 | ||||
Depreciation and amortization: |
||||||||
Company bakery-cafe operations |
$ | 14,115 | $ | 13,569 | ||||
Fresh dough operations |
1,910 | 1,939 | ||||||
Corporate administration |
984 | 911 | ||||||
Total depreciation and amortization |
$ | 17,009 | $ | 16,419 | ||||
Capital expenditures: |
||||||||
Company bakery-cafe operations |
$ | 9,194 | $ | 7,055 | ||||
Fresh dough operations |
525 | 616 | ||||||
Corporate administration |
746 | 432 | ||||||
Total capital expenditures |
$ | 10,465 | $ | 8,103 | ||||
March 30, 2010 | December 29, 2009 | |||||||
Segment assets: |
||||||||
Company bakery-cafe operations |
$ | 486,763 | $ | 498,806 | ||||
Franchise operations |
9,805 | 3,850 | ||||||
Fresh dough operations |
46,499 | 48,616 | ||||||
Total segment assets |
$ | 543,067 | $ | 551,272 | ||||
Unallocated trade and other accounts receivable |
508 | 2,267 | ||||||
Unallocated property and equipment |
14,199 | 14,437 | ||||||
Unallocated deposits and other |
4,922 | 4,104 | ||||||
Other unallocated assets |
322,777 | 265,085 | ||||||
Total assets |
$ | 885,473 | $ | 837,165 | ||||
Unallocated trade and other accounts receivable relates primarily to rebates and interest
receivable, unallocated property and equipment relates primarily to corporate fixed assets,
unallocated deposits and other relates primarily to insurance deposits, and other unallocated
assets relates primarily to cash and cash equivalents and deferred taxes.
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Note 9. 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 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Amounts used for basic and diluted per share calculations: |
||||||||
Net income attributable to Panera Bread Company |
$ | 25,845 | $ | 17,432 | ||||
Weighted average number of shares outstanding basic |
31,170 | 30,388 | ||||||
Effect of dilutive stock-based employee compensation awards |
351 | 349 | ||||||
Weighted average number of shares outstanding diluted |
31,521 | 30,737 | ||||||
Earnings per common share attributable to Panera Bread Company: |
||||||||
Basic |
$ | 0.83 | $ | 0.57 | ||||
Diluted |
$ | 0.82 | $ | 0.57 | ||||
Approximately 0.1 million and 0.6 million weighted-average stock options, restricted stock and
stock-settled appreciation rights for the thirteen weeks ended March 30, 2010 and March 31, 2009,
respectively, were excluded in calculating diluted earnings per share as the exercise price
exceeded fair market value and inclusion would have been antidilutive.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Matters discussed in this report and in our public disclosures, whether written or oral, relating
to future events or our future performance, including any discussion express or implied, of our
anticipated growth, operating results, plans, objectives 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. These statements are often identified by the
words believe, positioned, estimate, project, target, continue, intend, expect,
future, anticipate, and similar expressions that are not statements of historical fact. These
statements are not guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Our actual results and timing of certain events could
differ materially from those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under Risk Factors and elsewhere in this
report and those discussed from time to time in our Securities and Exchange Commission reports,
including our Form 10-K for the year ended December 29, 2009 and our quarterly reports on Form
10-Q. All forward-looking statements and the internal projections and beliefs upon which we base
our expectations included in this report or other periodic reports are made only as of the date
made and may change. While we may elect to update forward-looking statements at some point in the
future, we expressly disclaim any obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.
General
Panera Bread Company and its subsidiaries may be referred to as the Company, Panera Bread, or
in the first person notation of we, us, and our in the following discussion.
Our 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 primarily the sales of fresh
dough products and sales of tuna and cream cheese to certain of 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 to franchisees relates primarily to the sale of fresh dough products
and tuna and cream cheese to franchisees. General and administrative, depreciation and
amortization, and pre-opening expenses relate to all areas of revenue generation.
Use of Non-GAAP Measurements
We include in this report information on Company-owned, franchise-operated and system-wide
comparable bakery-cafe sales percentages. In fiscal 2010, we modified the method by which we
determine bakery-cafes included in our comparable bakery-cafe sales percentages to include those
bakery-cafes with an open date prior to the first day of our prior fiscal year, which we refer to
as our base store bakery-cafes. Previously, comparable bakery-cafe sales percentages were based on
bakery-cafes that had been in operation for 18 months. Company-owned comparable bakery-cafe sales
percentages are based on sales from Company-owned bakery-cafes included in
our base store bakery-cafes. Franchise-operated comparable bakery-cafe sales percentages are based
on sales from franchised bakery-cafes, as reported by franchisees, that are included in our base
store bakery-cafes. System-wide comparable bakery-cafe sales percentages are based on sales at both
Company-owned and franchise-operated bakery-cafes that are included in our base store bakery-cafes.
Acquired Company-owned and franchise-operated bakery-cafes and other restaurant or bakery-cafe
concepts are included in our comparable bakery-cafe sales percentages after we have acquired a 100
percent ownership interest and such acquisition occurred prior to the first day of our prior fiscal
year. Comparable bakery-cafe sales exclude closed locations.
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Comparable bakery-cafe sales percentages are non-GAAP financial measures, which should not be
considered in isolation or as a substitute for other measures of performance prepared in accordance
with generally accepted accounting principles in the U.S., or GAAP, and may not be equivalent to
comparable bakery-cafe sales as defined or used by other companies. We do not record
franchise-operated bakery-cafe sales as revenues. However, royalty revenues are calculated based on
a percentage of franchise-operated bakery-cafe sales, as reported by franchisees. We use
franchise-operated and system-wide sales information internally in connection with store
development decisions, planning, and budgeting analyses. We believe franchise-operated and
system-wide sales information is useful in assessing consumer acceptance of our brand; facilitates
an understanding of our financial performance and the overall direction and trends of sales and
operating income; helps us appreciate the effectiveness of our advertising and marketing
initiatives, which our franchisees also contribute based on a percentage of their sales; and
provides information that is relevant for comparison within the industry.
We also include in this report information on Company-owned, franchise-operated and system-wide
average weekly sales. Average weekly sales are calculated by dividing total net sales by operating
weeks. Accordingly, year-over-year results reflect sales for all locations, whereas comparable
bakery-cafe sales exclude closed locations and are based on sales from bakery-cafes included in our
base store bakery-cafes. New stores typically experience an opening honeymoon period during
which they generate higher average weekly sales in the first 12 to 16 weeks they are open as
customers settle-in to normal usage patterns from initial trial of the location. On average, the
settle-in experienced is 5 percent to 10 percent less than the average weekly sales during the
honeymoon period. As a result, year-over-year results of average weekly sales are generally lower
than the results in comparable bakery-cafe sales. This results from the relationship of the number
of bakery-cafes in the honeymoon phase, the number of bakery-cafes in the settle-in phase, and
the number of bakery-cafes in the comparable bakery-cafe base.
Executive Summary of Results
For the thirteen weeks ended March 30, 2010, we earned $0.82 per diluted share with the following
performance on key metrics: system-wide comparable bakery-cafe sales grew 9.5 percent (10.0 percent
for Company-owned bakery-cafes and 9.2 percent for franchise-operated bakery-cafes); system-wide
average weekly sales increased 9.2 percent to $41,948 ($41,040 for Company-owned bakery-cafes and
$42,620 for franchise-operated bakery-cafes); and eight new bakery-cafes opened system-wide (three
Company-owned bakery-cafes and five franchise-operated bakery-cafes).
For the thirteen weeks ended March 31, 2009, we earned $0.57 per diluted share with the following
performance on key metrics: comparable bakery-cafe sales decreased 0.5 percent for Company-owned
bakery-cafes and increased 0.9 percent for franchise-operated bakery-cafes, resulting in
system-wide comparable bakery-cafe sales growth of 0.3 percent; system-wide average weekly sales
decreased 0.1 percent to $38,423 ($37,380 for Company-owned bakery-cafes and $39,190 for
franchise-operated bakery-cafes); 14 new bakery-cafes opened system-wide, including four
Company-owned bakery-cafes and ten franchise-operated bakery-cafes; and four bakery-cafes closed
system-wide, including two Company-owned bakery-cafes and two franchise-operated bakery-cafes.
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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 Consolidated Statements of Operations for the
periods indicated. Percentages may not add due to rounding:
For the 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Revenues: |
||||||||
Bakery-cafe sales |
85.8 | % | 85.1 | % | ||||
Franchise royalties and fees |
5.7 | 5.8 | ||||||
Fresh dough sales to franchisees |
8.5 | 9.1 | ||||||
Total revenue |
100.0 | % | 100.0 | % | ||||
Costs and expenses: |
||||||||
Bakery-cafe expenses (1): |
||||||||
Cost of food and paper products |
28.9 | % | 29.7 | % | ||||
Labor |
32.2 | 32.8 | ||||||
Occupancy |
7.8 | 8.5 | ||||||
Other operating expenses |
12.7 | 13.3 | ||||||
Total bakery-cafe expenses |
81.6 | 84.3 | ||||||
Fresh dough cost of sales to franchisees (2) |
80.5 | 84.9 | ||||||
Depreciation and amortization |
4.7 | 5.1 | ||||||
General and administrative expenses |
6.9 | 6.4 | ||||||
Pre-opening expenses |
0.1 | 0.1 | ||||||
Total costs and expenses |
88.4 | 91.0 | ||||||
Operating profit |
11.6 | 9.0 | ||||||
Interest expense |
| 0.1 | ||||||
Other (income) expense, net |
0.1 | (0.1 | ) | |||||
Income before income taxes |
11.4 | 9.0 | ||||||
Income taxes |
4.3 | 3.4 | ||||||
Net income |
7.1 | 5.6 | ||||||
Less: net income attributable to noncontrolling interest |
| 0.2 | ||||||
Net income attributable to Panera Bread Company |
7.1 | % | 5.4 | % | ||||
(1) | As a percentage of bakery-cafe sales. |
|
(2) | As a percentage of fresh dough sales to franchisees. |
The following table sets forth certain information and other data relating to Company-owned
and franchise-operated bakery-cafes for the periods indicated:
For the 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Number of bakery-cafes: |
||||||||
Company-owned: |
||||||||
Beginning of period |
585 | 562 | ||||||
Bakery-cafes opened |
3 | 4 | ||||||
Bakery-cafes closed |
| (2 | ) | |||||
End of period |
588 | 564 | ||||||
Franchise-operated: |
||||||||
Beginning of period |
795 | 763 | ||||||
Bakery-cafes opened |
5 | 10 | ||||||
Bakery-cafes closed |
| (2 | ) | |||||
End of period |
800 | 771 | ||||||
System-wide: |
||||||||
Beginning of period |
1,380 | 1,325 | ||||||
Bakery-cafes opened |
8 | 14 | ||||||
Bakery-cafes closed |
| (4 | ) | |||||
End of period |
1,388 | 1,335 | ||||||
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Comparable Bakery-Cafe Sales
Fiscal comparable bakery-cafe sales growth (decline) for the periods indicated were as follows:
For the thirteen weeks ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Company-owned |
10.0 | % | -0.5 | % | ||||
Franchise-operated |
9.2 | % | 0.9 | % | ||||
System-wide |
9.5 | % | 0.3 | % |
In fiscal 2010, we modified the method by which we determine bakery-cafes included in our
comparable bakery-cafe sales percentages to include those bakery-cafes with an open date prior to
the first day of our prior fiscal year. Previously, comparable bakery-cafe sales percentages were
based on bakery-cafes that had been 100 percent owned and in operation for 18 months. For
informational purposes and calculated in accordance with the previous method for determining
bakery-cafe sales percentages, comparable bakery-cafe sales growth for the thirteen weeks ended
March 30, 2010 would have been 9.9 percent, 9.5 percent, and 9.6 percent for Company-owned,
franchise-operated, and system-wide bakery-cafes, respectively, as compared to 0.3 percent, 1.0
percent, and 0.7 percent for Company-owned, franchise-operated, and system-wide bakery-cafes for
the thirteen weeks ended March 31, 2009, respectively.
Results of Operations
Revenues
Total revenues for the thirteen weeks ended March 30, 2010 increased 13.6 percent to $364.2 million
compared to $320.7 million for the thirteen weeks ended March 31, 2009. The growth in total
revenues for the thirteen weeks ended March 30, 2010 compared to the same period in 2009 was
primarily due to the opening of 63 new bakery-cafes system-wide since March 31, 2009 and to the 9.5
percent increase in system-wide comparable bakery-cafe sales for the thirteen weeks ended March 30,
2010. The system-wide average weekly sales per bakery-cafe for the periods indicated were as
follows:
For the 13 Weeks Ended | Percentage | |||||||||||
March 30, 2010 | March 31, 2009 | Change | ||||||||||
System-wide average weekly sales |
$ | 41,948 | $ | 38,423 | 9.2 | % |
Bakery-cafe sales for the thirteen weeks ended March 30, 2010 increased 14.5 percent to $312.5
million compared to $272.9 million for the thirteen weeks ended March 31, 2009. The increase in
bakery-cafe sales for the thirteen weeks ended March 30, 2010 compared to the same period in 2009
was primarily due to the opening of 29 new Company-owned bakery-cafes since March 31, 2009 and to
the 10.0 percent increase in Company-owned comparable bakery-cafe sales for the thirteen weeks
ended March 30, 2010. This 10.0 percent growth in comparable bakery-cafe sales was driven by
approximately 3.5 percent of transaction growth and approximately 6.5 percent average check growth.
Average check growth, in turn, was comprised of retail price increases of approximately 2.0
percent and positive mix impact of approximately 4.5 percent in comparison to the same period in
the prior year. In total, Company-owned bakery-cafe sales as a percentage of total revenues
increased to 85.8 percent for the thirteen weeks ended March 30, 2010 as compared to 85.1 percent
for the same period in 2009. In addition, the increase in average weekly sales for Company-owned
bakery-cafes for the thirteen weeks ended March 30, 2010 compared to the same period in 2009 was
due to an increase in transactions and average check growth. The average weekly sales per
Company-owned bakery-cafe and the number of operating weeks for the periods indicated were as
follows:
For the 13 Weeks Ended | Percentage | |||||||||||
March 30, 2010 | March 31, 2009 | Change | ||||||||||
Company-owned average weekly sales |
$ | 41,040 | $ | 37,380 | 9.8 | % | ||||||
Company-owned number of operating weeks |
7,619 | 7,300 |
Franchise royalties and fees for the thirteen weeks ended March 30, 2010 increased 12.4 percent to
$20.9 million compared to $18.6 million for the thirteen weeks ended March 31, 2009. The
components of franchise royalties and fees for the periods indicated were as follows (in
thousands):
For the 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Franchise royalties |
$ | 20,675 | $ | 18,320 | ||||
Franchise fees |
188 | 307 | ||||||
Total |
$ | 20,863 | $ | 18,627 | ||||
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The increase in franchise royalty and fee revenues for the thirteen weeks ended March 30, 2010
compared to the same period in 2009 was primarily due to the opening of 34 franchise-operated
bakery-cafes since March 31, 2009 and the 9.2 percent increase in comparable franchise-operated
bakery-cafe sales for the thirteen weeks ended March 30, 2010. The average weekly sales per
franchise-operated bakery-cafe and the related number of operating weeks for the periods indicated
were as follows:
For the 13 Weeks Ended | Percentage | |||||||||||
March 30, 2010 | March 31, 2009 | Change | ||||||||||
Franchise-operated average weekly sales |
$ | 42,620 | $ | 39,190 | 8.8 | % | ||||||
Franchise-operated number of operating weeks |
10,306 | 9,931 |
As of March 30, 2010, we had 800 franchise-operated bakery-cafes open throughout the United States
and in Ontario, Canada and we have received commitments to open 241 additional franchise-operated
bakery-cafes. The timetables for opening these bakery-cafes are established in the various Area
Development Agreements, referred to as ADAs, with franchisees, which provide for the majority to
open in the next four to five years. An ADA requires a franchisee to develop a specified number of
bakery-cafes on or before specific dates. If a franchisee fails to develop bakery-cafes on
schedule, we have the right to terminate the ADA and develop Company-owned locations or develop
locations through new franchisees in that market. We may exercise one or more alternative remedies
to address defaults by franchisees, including not only development defaults, but also defaults in
complying with our operating and brand standards and other covenants under the ADAs and franchise
agreements. We may waive compliance with certain requirements under our ADAs and franchise
agreements if we determine such action is warranted under the particular circumstances.
Fresh dough sales to franchisees for the thirteen weeks ended March 30, 2010 increased 5.5 percent
to $30.8 million compared to $29.2 million for the thirteen weeks ended March 31, 2009. The
increase in fresh dough sales to franchisees was primarily driven by the previously described
increased number of franchise-operated bakery-cafes opened since March 31, 2009 and due to the 9.2
percent increase in franchise-operated comparable bakery-cafe sales for the thirteen weeks ended
March 30, 2010.
Costs and Expenses
The cost of food and paper products includes the costs associated with our 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 our fresh
dough operations that sell fresh dough products to the franchise-operated bakery-cafes are excluded
from the cost of food and paper products 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 was $90.3 million, or 28.9 percent of bakery-cafe sales, for
the thirteen weeks ended March 30, 2010 compared to $81.0 million, or 29.7 percent of bakery-cafe
sales, for the thirteen weeks ended March 31, 2009. This decrease in the cost of food and paper
products as a percentage of bakery-cafe sales was principally due to category management
initiatives; purchasing improvements; food cost deflation; improved leverage of our fresh dough
manufacturing costs due to additional bakery-cafe openings; and improved leverage overall from
higher comparable bakery-cafe sales. As of March 30, 2010, there was an average of 64.3
bakery-cafes per fresh dough facility compared to an average of 61.5 as of March 31, 2009.
Labor expense was $100.7 million, or 32.2 percent of bakery-cafe sales, for the thirteen weeks
ended March 30, 2010 compared to $89.5 million, or 32.8 percent of bakery-cafe sales, for the
thirteen weeks ended March 31, 2009. The decrease in labor expense as a percentage of bakery-cafe
sales was primarily a result of improved leverage from higher comparable bakery-cafe sales and
lower medical costs due to lower than normal self-insurance claims.
Occupancy cost was $24.4 million, or 7.8 percent of bakery-cafe sales, for the thirteen weeks ended
March 30, 2010 compared to $23.3 million, or 8.5 percent of bakery-cafe sales, for the thirteen
weeks ended March 31, 2009. The decrease in occupancy cost as a percentage of bakery-cafe sales was
primarily a result of common area maintenance credits, as landlords spent less on common area
maintenance in 2009 than anticipated, and improved leverage from higher comparable bakery-cafe
sales.
Other operating expenses were $39.5 million, or 12.7 percent of bakery-cafe sales, for the thirteen
weeks ended March 30, 2010 compared to $36.2 million, or 13.3 percent of bakery-cafe sales, for the
thirteen weeks ended March 31, 2009. The decrease in other operating expenses as a percentage of
bakery-cafe sales was primarily a result of improved leverage from higher comparable bakery-cafe
sales and timing of advertising and other controllable expenses, such as repairs and maintenance.
Fresh dough cost of sales to franchisees were $24.8 million, or 80.5 percent of fresh dough sales
to franchisees, for the thirteen weeks ended March 30, 2010, compared to $24.8 million, or 84.9
percent of fresh dough sales to franchisees, for the thirteen weeks ended March 31, 2009. The
decrease in the fresh dough cost of sales to franchisees as a percentage of fresh dough sales to
franchisees was primarily the result of the year-over-year decrease in ingredient costs and
improved leverage from new bakery-cafes and higher comparable bakery-cafe sales.
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General and administrative expenses were $25.0 million, or 6.9 percent of total revenues, for the
thirteen weeks ended March 30, 2010 compared to $20.4 million, or 6.4 percent of total revenues,
for the thirteen weeks ended March 31, 2009. The increase in general and administrative expenses as
a percent of total revenues was primarily due to investments made in our marketing infrastructure
and as a result of higher incentive compensation expense compared to the prior year driven by our
performance in 2010 exceeding original targets, partially offset by improved leverage of our
expenses from higher sales.
Interest Expense
Interest expense was $0.2 million, or zero percent of total revenues, for the thirteen weeks ended
March 30, 2010 compared to $0.2 million, or 0.1 percent of total revenues, for the thirteen weeks
ended March 31, 2009. The decrease in interest expense as a percent of total revenues was primarily
a result of improved leverage from higher sales.
Other Income and Expense, net
Other income and expense, net was $0.3 million of expense, or 0.1 percent of total revenues, for
the thirteen weeks ended March 30, 2010 compared to $0.3 million of income, or 0.1 percent of total
revenues, for the thirteen weeks ended March 31, 2009. Other income and expense, net for the
thirteen weeks ended March 30, 2010, was primarily comprised of a charge for certain state sales
tax audit exposures, interest income and other inconsequential factors. Other income and expense,
net for the thirteen weeks ended March 31, 2009, was primarily comprised of interest income and
other inconsequential factors.
Income Taxes
The provision for income taxes increased to $15.8 million for the thirteen weeks ended March 30,
2010 compared to $10.9 million for the thirteen weeks ended March 31, 2009. The tax provision for
the thirteen weeks ended March 30, 2010 and March 31, 2009 reflects a combined federal, state, and
local effective tax rate of 38.0 percent and 38.5 percent, respectively, which decrease was
primarily driven by permanent benefits being recognized relating to differences between financial
and tax reporting requirements and state tax laws.
Liquidity and Capital Resources
Cash and cash equivalents were $305.1 million at March 30, 2010, compared with $246.4 million at
December 29, 2009. This increase was primarily a result of $55.9 million of cash generated from
operations, $10.1 million received from the exercise of employee stock options, and $2.8 million
received from a tax benefit from the exercise of stock options, partially offset by the $10.5
million used on capital expenditures during the thirteen weeks ended March 30, 2010. Our primary
source of liquidity is cash provided by operations, although we have also borrowed under a credit
facility principally to finance repurchases of our common stock. Historically, our principal
requirements for cash have primarily resulted from our capital expenditures for the development of
new Company-owned bakery-cafes, for maintaining or remodeling existing Company-owned bakery-cafes,
for purchasing existing franchise-operated bakery-cafes or ownership interests in other restaurant
or bakery-cafe concepts, for developing, maintaining or remodeling fresh dough facilities, and for
other capital needs such as enhancements to information systems and other infrastructure.
We had working capital of $225.4 million at March 30, 2010 compared to $179.8 million at December
29, 2009. The increase in working capital from December 29, 2009 to March 30, 2010 resulted
primarily from the previously described increase in cash and cash equivalents of $58.7 million and
an increase in trade accounts receivable, net of $1.9 million, partially offset by an increase in
accrued expenses of $9.6 million, and a decrease in other accounts receivable of $3.8 million. We
believe that our cash flow from operations and available borrowings under our existing credit
facility will be sufficient to fund our cash requirements for the foreseeable future.
A summary of our cash flows, for the periods indicated, were as follows (in thousands):
For the 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
Cash provided by (used in): |
||||||||
Operating activities |
$ | 55,855 | $ | 41,610 | ||||
Investing activities |
(10,465 | ) | (6,599 | ) | ||||
Financing activities |
13,269 | 4,843 | ||||||
Total |
$ | 58,659 | $ | 39,854 | ||||
Operating Activities
Cash flows provided by operating activities for the thirteen weeks ended March 30, 2010 primarily
resulted from net income, adjusted for non-cash items such as depreciation and amortization,
stock-based compensation expense, deferred income taxes and the tax benefit from the exercise of
stock options, an increase in accrued expenses and a decrease in trade and other accounts
receivable, net. Cash flows provided by operating activities for the thirteen weeks ended March 31,
2009 primarily resulted from net income, adjusted for non-cash items such as depreciation and
amortization, stock-based compensation expense, the tax benefit from the exercise of stock options,
and deferred income taxes, an increase in accrued expenses and accounts payable, a decrease in
prepaid expenses, partially offset by a decrease in other long-term liabilities.
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Investing Activities
Capital Expenditures
Capital expenditures are the largest ongoing component of our investing activities and include
expenditures for new bakery-cafes and fresh dough facilities, improvements to existing bakery-cafes
and fresh dough facilities, and other capital needs. A summary of capital expenditures for the
periods indicated consisted of the following (in thousands):
For the 13 Weeks Ended | ||||||||
March 30, 2010 | March 31, 2009 | |||||||
New bakery-cafe and fresh dough facilities |
$ | 5,154 | $ | 1,948 | ||||
Bakery-cafe and fresh dough facility improvements |
4,096 | 4,432 | ||||||
Other capital needs |
1,215 | 1,723 | ||||||
Total |
$ | 10,465 | $ | 8,103 | ||||
Our capital requirements, including development costs related to the opening or acquisition of
additional bakery-cafes and fresh dough facilities and maintenance and remodel expenditures, have
been 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. We believe that our
cash flows from operations and available borrowings under our existing credit facility will be
sufficient to fund our capital requirements in both our short-term and long-term future. We
currently anticipate 80 to 90 system-wide bakery-cafe openings in fiscal 2010. We expect future
bakery-cafes will require, on average, an investment per bakery-cafe (excluding pre-opening
expenses which are expensed as incurred) of approximately $850,000, which is net of landlord
allowances and excludes capitalized development overhead.
Investments
Historically, we invested a portion of our cash balances on hand in a private placement of units of
beneficial interest in the Columbia Strategic Cash Portfolio, or Columbia Portfolio, which was an
enhanced cash fund previously sold as an alternative to traditional money-market funds. The
Columbia Portfolio included investments in certain asset backed securities and structured
investment vehicles that were collateralized by sub-prime mortgage securities or related to
mortgage securities, among other assets. As a result of adverse market conditions that unfavorably
affected the fair value and liquidity availability of collateral underlying the Columbia Portfolio,
it was overwhelmed with withdrawal requests from investors and the Columbia Portfolio was closed
with a restriction placed upon the cash redemption ability of its holders in the fourth quarter of
fiscal 2007.
During the fourth quarter of fiscal 2009, we received cash redemptions fully redeeming our
remaining units in the Columbia Portfolio. During the thirteen weeks ended March 31, 2009, we
received $1.5 million of cash redemptions at an average net asset value of $0.828 per unit, which
we classified as investment maturity proceeds provided by investing activities. We recognized an
offsetting $0.3 million unrealized loss and $0.3 million realized gain on the Columbia Portfolio
units during the thirteen weeks ended March 31, 2009 related to the fair value measurements and
redemptions received. As the Columbia Portfolio units were no longer trading and, therefore, had
little or no price transparency, we assessed the fair value of the underlying collateral for the
Columbia Portfolio through review of current investment ratings, as available, coupled with the
evaluation of the liquidation value of assets held by each investment and their subsequent
distribution of cash. We then utilized this assessment of the underlying collateral from multiple
indicators of fair value, which were then adjusted to reflect the expected timing of disposition
and market risks to arrive at an estimated fair value of the Columbia Portfolio units of $0.579 per
unit, or $2.6 million, as of March 31, 2009.
Financing Activities
Financing activities for the thirteen weeks ended March 30, 2010 included $10.1 million received
from the exercise of employee stock options, $2.8 million received from the tax benefit from the
exercise of stock options, $0.5 million received from the issuance of common stock under employee
benefit plans, and $0.1 million used to repurchase shares of our Class A common stock. Financing
activities for the thirteen weeks ended March 31, 2009 included $3.7 million received from the
exercise of employee stock options, $0.9 million received from the tax benefit from the exercise of
stock options, $0.4 million received from the issuance of common stock under employee benefit
plans, and $0.2 million used to repurchase shares of our Class A common stock.
Purchase of Noncontrolling Interest
On June 2, 2009, we purchased the remaining 49 percent of the outstanding stock of Paradise,
excluding certain agreed upon assets totaling $0.7 million, for a purchase price of $22.3 million,
$0.1 million in transaction costs, and settlement of $3.4 million of debt owed to us by the former
shareholders of the remaining 49 percent of Paradise, which we refer to as the Prior Shareholders.
Approximately $20.0 million of the purchase price, as well as the transaction costs, were paid on
June 2, 2009, with $2.3 million retained by us for certain holdbacks. The holdbacks are primarily
for certain indemnifications and expire on June 2, 2011, with any remaining holdback amounts
reverting to the Prior Shareholders. The transaction was accounted for as an equity transaction,
by adjusting the carrying amount of the noncontrolling interest balance to reflect the change in
our ownership interest in Paradise, with the difference between fair value of the consideration
paid and the amount by which the noncontrolling interest was adjusted recognized in equity
attributable to us.
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Share Repurchases
On November 17, 2009, our Board of Directors approved a three year share repurchase program of up
to $600 million of our Class A common stock. Such share repurchases will be effected from time to
time on the open market or in privately negotiated transactions and we may make such repurchases
under a Rule 10b5-1 Plan. Repurchased shares will be retired immediately and will resume the
status of authorized but unissued shares. The repurchase program may be modified, suspended, or
discontinued by our Board of Directors at any time. No shares were repurchased under the share
repurchase program during the thirteen weeks ended March 30, 2010.
We have historically repurchased shares of our Class A common stock through a share repurchase
program approved by our Board of Directors from participants of the Panera Bread 1992 Stock
Incentive Plan and the Panera Bread 2006 Stock Incentive Plan, or collectively, the Plans, which
are netted and surrendered as payment for applicable tax withholding on the vesting of their
restricted stock. During the thirteen weeks ended March 30, 2010, we repurchased 1,219 shares of
Class A common stock surrendered by participants of the Plans at a weighted-average price of $77.13
per share for an aggregate purchase price of $0.1 million pursuant to the terms of the Plans and
the applicable award agreements. During the thirteen weeks ended March 31, 2009, we repurchased
4,218 shares of Class A common stock surrendered by participants of the Plans at a weighted-average
price of $55.10 per share for an aggregate purchase price of $0.2 million pursuant to the terms of
the Plans and the applicable award agreements. These share repurchases were not made pursuant to
publicly announced share repurchase programs.
Credit Facility
On March 7, 2008, we, and certain of our direct and indirect subsidiaries, as guarantors, entered
into an amended and restated credit agreement, referred to as the Amended and Restated Credit
Agreement, with Bank of America, N.A., and other lenders party thereto to amend and restate in its
entirety our Credit Agreement, dated as of November 27, 2007, by and among us, Bank of America,
N.A., and the lenders party thereto, referred to as the Original Credit Agreement. Pursuant to our
request under the terms of the Original Credit Agreement, the Amended and Restated Credit Agreement
increased the size of our secured revolving credit facility from $75.0 million to $250.0 million.
We may select interest rates equal to (a) the Base Rate (which is defined as the higher of Bank of
America prime rate and the Federal Funds Rate plus 0.50 percent), or (b) LIBOR plus an Applicable
Rate, ranging from 0.75 percent to 1.50 percent, based on our Consolidated Leverage Ratio, as each
term is defined in the Amended and Restated Credit Agreement. The Amended and Restated Credit
Agreement allows us from time to time to request that the credit facility be further increased by
an amount not to exceed, in the aggregate, $150.0 million, subject to receipt of lender commitments
and other conditions precedent. The Amended and Restated Credit Agreement contains financial
covenants that, among other things, require the maintenance of certain leverage and fixed charges
coverage ratios. The credit facility, which is secured by the capital stock of our present and
future material subsidiaries, will become due on March 7, 2013, subject to acceleration upon
certain specified events of defaults, including breaches of representations or covenants, failure
to pay other material indebtedness or a change of control of our Company, as defined in the Amended
and Restated Credit Agreement. The proceeds from the credit facility will be used for general
corporate purposes, including working capital, capital expenditures, and permitted acquisitions and
share repurchases. As of March 30, 2010 and December 29, 2009, we had no balance outstanding under
the Amended and Restated Credit Agreement.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon the
consolidated financial statements and notes to the consolidated financial statements, which have
been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial
statements requires us to make estimates, judgments and assumptions, which we believe to be
reasonable, based on the information available. These estimates and assumptions affect the
reported amounts of assets, liabilities, revenues and expenses and
related disclosures of contingent assets and liabilities. Variances in the estimates or
assumptions used could yield materially different accounting results. On an ongoing basis, we
evaluate the continued appropriateness of our accounting policies and resulting estimates to make
adjustments we consider appropriate under the facts and circumstances.
We have chosen accounting policies we believe are appropriate to report accurately and fairly our
operating results and financial position, and we apply those accounting policies in a consistent
manner. As described in Item 7., Managements Discussion and Analysis of Financial Condition and
Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 29,
2009, we consider our policies on accounting for revenue recognition, valuation of goodwill,
self-insurance, income taxes, lease obligations, and stock-based compensation to be the most
critical in the preparation of the consolidated financial statements because they involve the most
difficult, subjective, or complex judgments about the effect of matters that are inherently
uncertain. There have been no material changes to our application of critical accounting policies
and significant judgments and estimates since December 29, 2009.
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Contractual Obligations and Other Commitments
We currently anticipate 80 to 90 system-wide bakery-cafe openings in fiscal 2010. We expect to
fund our capital expenditures principally through internally generated cash flow and available
borrowings under our existing credit facility, if needed.
In addition to our planned capital expenditure requirements, we have certain other contractual and
committed cash obligations. Our contractual cash obligations consist of noncancelable operating
leases for our bakery-cafes, fresh dough facilities and trucks, and support centers; purchase
obligations primarily for certain commodities; and uncertain tax positions. Lease terms for our
trucks are generally for six to eight years. Lease terms for our bakery-cafes, fresh dough
facilities, and support centers are generally for ten years with renewal options at most locations
and generally require us to pay a proportionate share of real estate taxes, insurance, common area,
and other operating costs. Many bakery-cafe leases provide for contingent rental (i.e. percentage
rent) payments based on sales in excess of specified amounts. Certain of our lease agreements
provide for scheduled rent increases during the lease terms or for rental payments commencing at a
date other than the date of initial occupancy.
Off-Balance Sheet Arrangements
As of March 30, 2010, we guaranteed operating leases of 26 franchisee locations and three locations
of our former Au Bon Pain division, or its franchisees, which we account for in accordance with the
accounting requirements for guarantees. These leases have terms expiring on various dates from
August 31, 2010 to December 31, 2023 and have a potential amount of future rental payments of
approximately $29.1 million as of March 30, 2010. The obligation from these leases will generally
continue to decrease over time as these operating leases expire. We have not recorded a liability
for certain of these guarantees as they arose prior to the implementation of the accounting
requirements for guarantees and, unless modified, are exempt from its requirements. We have not
recorded a liability for those guarantees issued after the effective date of the accounting
requirements because the fair value of each such lease guarantee was determined by us to be
insignificant based on analysis of the facts and circumstances of each such lease and each such
franchisees performance, and we did not believe it was probable we would be required to perform
under any guarantees at the time the guarantees were issued. We have not had to make any payments
related to any of these guaranteed leases. Au Bon Pain or the applicable franchisees continue to
have primary liability for these operating leases.
Related Party Credit Agreement
In order to facilitate the opening of the first Panera Bread bakery-cafes in Canada, on September
10, 2008, our Canadian subsidiary, Panera Bread ULC, as lender, entered into a Cdn. $3.5 million
secured revolving credit facility agreement with Millennium Bread Inc., or Millennium, as borrower,
and certain of Millenniums present and future subsidiaries, which we refer to as Franchisee
Guarantors, who entered into franchise agreements with Panera Bread ULC to operate three Panera
Bread bakery-cafes in Canada. Covenants under the credit agreement required Millennium to maintain
a certain level of cash equity contributions or subordinated loans from its shareholders in
relation to the principal outstanding under the credit agreement. The borrowings under the credit
agreement bore interest at the per annum rate of 7.58 percent, calculated daily and payable monthly
in arrears on the last business day of each of Panera Bread ULCs fiscal month. The credit
facility was subject to acceleration upon certain specified events of default, including breaches
of representations or covenants, failure to pay other material indebtedness or a change of control
of Millennium, as defined in the credit agreement. The proceeds from the credit facility were used
by Millennium to pay costs to develop and construct the Franchisee Guarantors bakery-cafes and for
their day-to-day operating requirements. The credit facility, which was collateralized by present
and future property and assets of Millennium and the Franchisee Guarantors, as well as the personal
guarantees of certain individuals, became due on September 9, 2009. On September 9, 2009 the
maturity date was extended to December 9, 2009, and the maturity date was subsequently extended to
February 19, 2010 and then to March 30, 2010. On March 31, 2010, the credit facility was
terminated through a separate transaction with Millennium, as further discussed below.
As part of the franchise agreement between Millennium and Panera Bread ULC, Panera Bread ULC
developed and equipped three bakery-cafes as Panera Bread bakery-cafes in accordance with our then
current design and construction standards and specifications as applied by Panera Bread ULC, in its
sole discretion. Millennium was required to pay Panera Bread ULC an amount equal to the total cost
of development of the bakery-cafes, which included any and all costs and expenses incurred by
Panera Bread ULC in connection with selection and development of the bakery-cafes, excluding
overhead expenses of Panera Bread ULC. On September 15, 2008, October 27, 2008, and December 16,
2008, Panera Bread ULC delivered possession of the three bakery-cafes in Canada to Millennium,
which bakery-cafes subsequently opened on October 6, 2008, November 10, 2008, and January 26, 2009,
respectively. On April 7, 2009, Millennium requested a Cdn. $3.5 million advance under the credit
agreement for payment of the costs to develop the bakery-cafes, which was included in other
accounts receivable in the Consolidated Balance Sheets as of March 30, 2010 and December 29, 2009.
On March 30, 2010, PB Biscuit, ULC, or PB Biscuit, was formed by Panera Bread ULC through the
contribution of its Cdn. $3.5 million note receivable from Millennium and cash. On March 31, 2010,
PB Biscuit acquired certain assets and liabilities and the operations of Millenniums three
bakery-cafes. The transaction was accounted for as an acquisition under the business combination
authoritative guidance. In exchange for the bakery-cafe operations and certain assets and
liabilities, PB Biscuit assigned the Cdn. $3.5 million note receivable to and issued minority
ownership interest to Millennium, subject to certain closing adjustments. The acquisition will be
recorded for our second quarter consolidated financial statements and the purchase price will be
allocated to the tangible and intangible assets acquired and liabilities assumed in the acquisition
at their estimated fair values with any remainder allocated to goodwill.
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Accounting Standards Issued Not Yet Adopted
On December 30, 2009, we adopted the updated guidance issued by the Financial Accounting Standards
Board, or FASB, related to fair value measurements and disclosures, which requires a reporting
entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and to describe the reasons for the transfers. The updated guidance also
requires that an entity should provide fair value measurement disclosures for each class of assets
and liabilities and disclosures about the valuation techniques and inputs used to measure fair
value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair
value measurements. The guidance was effective for interim or annual financial reporting periods
beginning after December 15, 2009. The adoption of this updated guidance did not have an impact on
our consolidated results of operations or financial condition. In addition, the updated guidance
requires that in the reconciliation for fair value measurements using significant unobservable
inputs, or Level 3, a reporting entity should disclose separately information about purchases,
sales, issuances and settlements on a gross basis rather than as one net number. This guidance is
effective for fiscal years beginning after December 15, 2010 and for interim periods therein.
Therefore, we have not yet adopted the guidance with respect to the roll forward activity in Level
3 fair value measurements. We expect that the adoption of this new guidance will not have a
material effect on our financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the quantitative and qualitative information about market risk
since the end of our most recent fiscal year. For further information, see Item 7A. of our Annual
Report on Form 10-K for the fiscal year ended December 29, 2009.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of March 30, 2010. The
term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act are recorded, processed, summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act are accumulated and communicated to the
companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on the
evaluation of our disclosure controls and procedures as of March 30, 2010, our Chief Executive
Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the first fiscal quarter ended March 30, 2010
that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On January 25, 2008 and February 26, 2008, purported class action lawsuits were filed against us
and three of our current or former executive officers by the Western Washington Laborers-Employers
Pension Trust and Sue Trachet, respectively, on behalf of investors who purchased our common stock
during the period between November 1, 2005 and July 26, 2006. Both lawsuits were filed in the
United States District Court for the Eastern District of Missouri, St. Louis Division. Each
complaint alleges that we and the other defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10b-5 under the Exchange
Act in connection with our disclosure of system-wide sales and earnings guidance during the period
from November 1, 2005 through July 26, 2006. Each complaint seeks, among other relief, class
certification of the lawsuit, unspecified damages, costs and expenses, including attorneys and
experts fees, and such other relief as the Court might find just and proper. On June 23, 2008,
the lawsuits were consolidated and the Western Washington Laborers-Employers Pension Trust was
appointed lead plaintiff. On August 7, 2008, the plaintiff filed an amended complaint, which
extended the class period to November 1, 2005 through July 26, 2007. We believe that we and the
other defendants have meritorious defenses to each of the claims in this lawsuit and we are
vigorously defending the lawsuit. On October 6, 2008, we filed a motion to dismiss all of the
claims in this lawsuit. Following filings by both parties on our motion to dismiss, on June 25,
2009, the Court converted our motion to one for summary judgment and denied it without prejudice.
The Court simultaneously gave us until July 20, 2009 to file a new motion for summary judgment,
which deadline the Court subsequently extended until August 10, 2009. On August 10, 2009, we filed
a motion for summary judgment. On September 9, 2009, the plaintiff filed a
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request to deny or
continue our motion for summary judgment to allow the plaintiff to conduct discovery.
Following a hearing and subsequent filings by both parties on the plaintiffs request for
discovery, on November 6, 2009, the Court denied the plaintiffs request. The plaintiff filed an
opposition to our motion for summary judgment on December 12, 2009, and we filed our reply in
support of our motion on December 21, 2009. On March 16, 2010, the Court granted in part and
denied in part our motion for summary judgment. On April 5, 2010, the Court granted a joint
motion by the parties staying the case through July 6, 2010, at which time we expect to file an
answer to the complaint if mediation has not been successful. There can be no assurance that we
will be successful, and an adverse resolution of the lawsuit could have a material adverse effect
on our consolidated financial position and results of operations in the period in which the lawsuit
is resolved. We are not presently able to reasonably estimate potential losses, if any, related to
the lawsuit and as such, have not recorded a liability in our Consolidated Balance Sheets.
On February 22, 2008, a shareholder derivative lawsuit was filed against us as nominal defendant
and against certain of our current or former officers and certain current directors. The lawsuit
was filed by Paul Pashcetto in the Circuit Court of St. Louis, Missouri. The complaint alleges,
among other things, breach of fiduciary duty, abuse of control, waste of corporate assets and
unjust enrichment between November 5, 2006 and February 22, 2008. The complaint seeks, among other
relief, unspecified damages, costs and expenses, including attorneys fees, an order requiring us
to implement certain corporate governance reforms, restitution from the defendants and such other
relief as the Court might find just and proper. We believe that we and the other defendants have
meritorious defenses to each of the claims in this lawsuit and we are vigorously defending the
lawsuit. On July 18, 2008, we filed a motion to dismiss all of the claims in this lawsuit.
Following filings by both parties on our motion to dismiss, on December 14, 2009, the Court denied
our motion. We filed an answer to the complaint on January 27, 2010. There can be no assurance
that we will be successful, and an adverse resolution of the lawsuit could have a material adverse
effect on our consolidated financial position and results of operations in the period in which the
lawsuit is resolved. We are not presently able to reasonably estimate potential losses, if any,
related to the lawsuit and as such, have not recorded a liability in our Consolidated Balance
Sheets.
On December 9, 2009, a purported class action lawsuit was filed against us and one of our
subsidiaries by Nick Sotoudeh, a former employee of ours. The lawsuit was filed in the California
Superior Court, County of Contra Costa. The complaint alleges, among other things, violations of
the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and
termination compensation and violations of Californias Unfair Competition Law. The complaint
seeks, among other relief, collective and class certification of the lawsuit, unspecified damages,
costs and expenses, including attorneys fees, and such other relief as the Court might find just
and proper. We believe we and the other defendant have meritorious defenses to each of the claims
in this lawsuit and we are prepared to vigorously defend the lawsuit. There can be no assurance,
however, that we will be successful, and an adverse resolution of the lawsuit could have a material
adverse effect on our consolidated financial position and results of operations in the period in
which the lawsuit is resolved. We are not presently able to reasonably estimate potential losses,
if any, related to the lawsuit and as such, have not recorded a liability in our Consolidated
Balance Sheets.
In addition, we are subject to other routine legal proceedings, claims and litigation in the
ordinary course of its business. Defending lawsuits requires significant management attention and
financial resources and the outcome of any litigation, including the matters described above, is
inherently uncertain. We do not, however, currently expect that the costs to resolve these routine
matters will have a material adverse effect on our consolidated financial position, results of
operations or cash flows.
Item 1A. Risk Factors
Our business is subject to a number of risks, including those identified in Item 1A. Risk
Factors of our 2009 Annual Report on Form 10-K, that could have a material effect on our business,
results of operations, financial condition and/or liquidity and that could cause our operating
results to vary significantly from period to period. As of March 30, 2010, there have been no
material changes to the risk factors disclosed in our most recent Annual Report on Form 10-K,
although we may disclose changes to such factors or disclose additional factors from time to time
in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the first quarter of fiscal 2010, we repurchased Class A common stock as follows:
Approximate Dollar | ||||||||||||||||
Total Number of Shares | Value of Shares That | |||||||||||||||
Purchased as Part of | May Yet Be Purchased | |||||||||||||||
Total Number of | Average Price Paid | Publicly Announced | Under the Announced | |||||||||||||
Period | Shares Purchased (1) | per Share | Program | Program | ||||||||||||
December 30, 2009 January 26, 2010 |
| $ | | | $ | 598,272,419 | ||||||||||
January 27, 2010 March 2, 2010 |
276 | 72.15 | | $ | 598,272,419 | |||||||||||
March 3, 2010 March 30, 2010 |
943 | 78.59 | | $ | 598,272,419 | |||||||||||
Total |
1,219 | $ | 77.13 | | $ | 598,272,419 | ||||||||||
(1) | Represents Class A common stock surrendered by participants under the Panera Bread 1992 Stock
Incentive Plan and the Panera Bread 2006 Stock Incentive Plan as payment of applicable tax
withholding on the vesting of restricted stock. Shares so surrendered by the participants are
repurchased by us pursuant to the terms of those plans and the applicable award agreements and
not pursuant to publicly announced share repurchase programs. |
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Item 6. Exhibits
Exhibit | ||||
Number | Description | |||
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. |
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Table of Contents
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: May 7, 2010 | By: | /s/ Ronald M. Shaich | ||
Ronald M. Shaich | ||||
Chairman and Chief Executive Officer (on behalf of registrant and as principal executive officer) |
||||
Dated: May 7, 2010 | By: | /s/ Jeffrey W. Kip | ||
Jeffrey W. Kip | ||||
Senior Vice President, Chief Financial Officer (principal financial officer) |
||||
Dated: May 7, 2010 | By: | /s/ Amy L. Kuzdowicz | ||
Amy L. Kuzdowicz | ||||
Vice President, Controller | ||||
Dated: May 7, 2010 | By: | /s/ Mark D. Wooldridge | ||
Mark D. Wooldridge | ||||
Assistant Controller and Chief Accounting Officer |
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Table of Contents
EXHIBIT INDEX
Exhibit | ||||
Number | Description | |||
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. |
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