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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o No þ

The aggregate market value of the registrant’s voting Class A and Class B Common Stock held by non-affiliates as of July 12, 2002 was approximately $757,714,539. There is no public trading market for the registrant’s Class B Common Stock.

Number of shares outstanding of each of the registrant’s classes of common stock, as of March 14, 2003: Class A Common Stock, $.0001 par value: 27,714,263 shares, Class B Common Stock, $.0001 par value: 1,870,656 shares.

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

The Company intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 28, 2002. Portions of such proxy statement are incorporated by reference in response to Part III, Items 10, 11, 12, and 13.


1.	correct the operating profit for company bakery-cafe operations for 2002 in Note 16 to the consolidated financial statements, which should have been $43,628, and

2.	correct the operating profit for commissary operations for 2002 in Note 16 to the consolidated financial statements, which should have been $3,256.

Other than those amendments, all other information included in the initial filing is unchanged. To assist readers’ review, we have included the entire initial filing, incorporating the corrections noted above.

Panera Bread Company (including its majority owned subsidiaries) may be referred to as the “Company”, “Panera Bread” or in the first person notation of “we”, “us”, and “ours” in the following discussion. The term “company-owned bakery-cafes” refers to company-operated and joint venture operated bakery-cafes in the following discussion.

The Company was originally formed in March 1981 under the name Au Bon Pain Co., Inc. and consisted of three Au Bon Pain bakery-cafes and one cookie store. The Company continued to grow the Au Bon Pain concept domestically, primarily on the east coast, and internationally throughout the 1980’s and 1990’s. On December 22, 1993, the Company purchased the Saint Louis Bread Company. At the time, the Saint Louis Bread Company consisted of 19 company-owned and one franchised bakery-cafe primarily located in the Saint Louis, Missouri area. In August 1998, the Company entered into a Stock Purchase Agreement to sell the Au Bon Pain Division to ABP Corporation for $73.0 million in cash before contractual purchase price adjustments of $1.0 million. The sale was completed May 16, 1999. At that time, the Company changed its name to Panera Bread Company. Today the Company operates, directly and through area development agreements with 34 franchisee groups, bakery-cafes under the names Panera Bread and Saint Louis Bread Company.

As of December 28, 2002, the Company’s retail operations consist of 132 company-owned bakery-cafes and 346 franchise-operated bakery-cafes (including one specialty bakery-cafe). The Company specializes in meeting consumer dining needs by providing high quality food, including fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other cafe beverages, and targets suburban dwellers and workers by offering a premium specialty bakery and cafe experience with a neighborhood emphasis.

The Company’s bakery-cafes are principally located in suburban, strip mall, and regional mall locations. Its business currently operates in 32 states. The Company’s revenues were $277.8 million and system-wide sales, which include sales by franchisees, were $755.4 million for the fiscal year ended December 28, 2002.

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


(1)	In January 2002, the Company purchased the area development rights and three existing bakery-cafes in the Jacksonville, Florida market from its franchisee.

The Company’s concept focuses on the “Specialty Bread/ Bakery-Cafe” category. Its artisan breads, which are breads made with all natural ingredients and a craftsman’s attention to quality and detail, and overall award-winning bakery expertise are at the heart of the concept’s menu. The concept is designed to deliver against the key consumer trends of today, specifically the need for an efficient and more special dining experience than that offered by traditional fast food. The Company’s goal is to make Panera Bread a nationally dominant brand name. Its menu, prototype, operating systems, design and real estate strategy allow it to compete successfully in several sub-businesses: breakfast, lunch, day-time “chill out”, lunch in the evening, and take home bread. On a system-wide basis, average annualized unit volume per bakery-cafe increased 5.3% for the fifty-two weeks ended December 28, 2002, to $1,840,000 (excluding the specialty cafe) compared to $1,748,000 (excluding the three specialty bakery-cafes) for the fifty-two weeks ended December 29, 2001.

The distinctive nature of the Company’s menu offerings (centered around the fresh artisan bread products), the quality of its bakery-cafe operations, the Company’s signature cafe design and the prime locations of its cafes are integral to the Company’s success. The Company believes that its concept has significant growth potential, which it hopes to realize through a combination of Company, joint venture, and franchise efforts. Franchising is a key component of the Company’s success. Utilization of franchise operating partners has enabled the Company to grow more rapidly because of the added resources and capabilities they provide to implement the concepts and strategy developed by Panera. As of December 28, 2002, there were 346 franchised bakery-cafes opened and signed commitments to open an additional 491 bakery-cafes.

In 2001, the Company, through an indirect subsidiary, entered into a joint venture agreement with the Company’s former president and chief operating officer as joint venture partner and minority interest owner to develop and manage fifty bakery-cafes in the Northern Virginia and Central Pennsylvania markets. The agreement entitles the joint venture partner to a specified percentage of the cash flows from the bakery-cafes developed and operated. The joint venture partner was required to invest a specified interest and is prohibited from selling or transferring his interest to another party without the Company’s consent. After five years, the Company has the right to purchase the joint venture partner’s interest at a contractually determined value based on a multiple of cash flow and the joint venture partner has the right to sell his interest back to the Company at a lower contractually determined value based on a multiple of cash flow.

The Company believes that providing joint venture partners the opportunity to participate in the success of the bakery-cafe will enable the Company to attract and retain experienced and highly motivated operators which will result in a better customer experience. The Company expects to implement the joint venture

The menu is designed to provide the Company’s target customers with products which build on the strength of the Company’s bakery expertise and to meet customers’ new and ever-changing tastes. The key menu groups are fresh baked goods, made-to-order sandwiches, soups, and cafe beverages. Included within these menu groups are a variety of freshly baked bagels, breads, muffins, scones, rolls, and sweet goods; made-to-order sandwiches; hearty, unique soups; custom roasted coffees and cafe beverages such as hot or cold espresso and cappuccino drinks. The Company’s concept emphasizes the sophisticated specialty and artisan breads that support a take-home bread business.

The Company regularly reviews and revises its menu offerings to satisfy changing customer preferences and to maintain customer interest within its target customer groups, the “bread loving trend-setters”, and the “bread loving traditionalists”. Both of these target customer groups seek a quality experience that reflects their discriminating tastes. The major characteristic that sets these two groups apart is the more enthusiastic embrace of new and nutritional menu items by the “Trend-Setters”. New menu items are developed in corporate test kitchens and then introduced in a limited number of the Company’s bakery-cafes to determine customer response and verify that preparation and operating procedures maintain product consistency, high quality standards, and profitability. If successful, they are then introduced in the rest of the Company’s bakery-cafes and franchise bakery-cafes.

The Company believes it competes on the basis of providing an entire experience rather than price. Pricing is structured so customers perceive good value, with high quality food at reasonable prices to encourage frequent visits. The Company measures its average check per transaction. The total average check per transaction at the company-owned bakery-cafes opened eighteen months or longer at December 28, 2002 was $6.26. Breakfast average check per transaction was $4.49, lunch average check per transaction was $7.32, PM “chill out” average check per transaction was $6.30, and lunch in the evening average check per transaction was $7.02. The Company attempts to increase its per location sales through menu development, product merchandising and promotions at every day prices, and by sponsorship of local community charitable events. The Company may utilize external media when deemed appropriate and cost effective in specific markets.

The bakery-cafe concept relies on a substantial volume of repeat business. In evaluating a potential location, the Company studies the surrounding trade area, obtaining demographic information within that area and information on breakfast and lunch competitors. Based on analysis of this information including utilization of predictive modeling using proprietary software, the Company determines projected sales and return on investment. The Panera concept has proven successful in a number of different types of real estate (i.e., in-line strip centers, regional malls and free-standing).

The Company designs each bakery-cafe to provide a differentiated environment, using in many cases fixtures and materials complementary to the neighborhood location of the bakery-cafe. Many locations incorporate the warmth of a fireplace and cozy seating areas and groupings which facilitate utilization as a gathering spot. The design visually reinforces the distinctive difference between the Company’s bakery-cafes and other bakery-cafes serving breakfast and lunch. Many of the Company’s cafes also feature outdoor cafe seating. The average construction, equipment, furniture and fixture, and signage cost for the 23 bakery-cafes opened in 2002 was $737,000 per bakery-cafe after landlord allowances.

The average bakery-cafe size is 4,400 square feet. Currently all company-owned bakery-cafes are in leased premises. Lease terms are typically ten years with one or two five-year renewal option periods thereafter. Leases typically have a minimum base occupancy charge, charges for a proportionate share of building operating expenses and real estate taxes, and contingent percentage rent based on sales above a stipulated sales level.

Bakery-cafes in the system use fresh dough for their sourdough and artisan breads and bagels. Fresh dough is supplied daily by the Company’s commissary system for both company-owned and franchise-operated bakery-cafes. The following table sets forth the number of commissary facilities:


(1)	In September 2001, the Company purchased a franchise-operated commissary in Lenexa, Kansas for $1.0 million in cash.

(2)	Supplied fresh dough via a supply agreement.

The Company believes its commissary system provides a competitive advantage. The commissaries assure both consistent quality and supply of fresh dough products to both company-owned and franchised bakery-cafes. The Company focuses its growth in areas that allow it to continue to gain efficiencies through leveraging the fixed cost of its current commissary structure and to selectively enter new markets which require the construction of additional facilities when sufficient numbers of bakery-cafes may be opened that permit efficient distribution of the fresh dough. The fresh dough distribution system delivers product daily to the bakery-cafes. Distribution is accomplished through a leased fleet of temperature controlled trucks operated by Company personnel. At December 28, 2002, 79 trucks were leased by the Company. The optimal distribution limit is approximately 200 miles. An average distribution route delivers dough to 5 bakery-cafes.

The remaining baked goods served in the bakery-cafes are prepared with frozen dough. During 1996, the Company completed construction of a state of the art frozen dough production facility in Mexico, Missouri to supply frozen dough. On March 23, 1998, the Company sold the Mexico production facility and its wholesale frozen dough business to Bunge Food Corporation (“Bunge”) for approximately $13 million in cash. Concurrent with the sale, the Company entered into a five-year supply agreement with Bunge for the supply of substantially all of its frozen dough needs.

The Company’s pricing for years one through four of the contract was at Bunge’s cost plus 18.07%. In year five of the contract, beginning in March of 2002, pricing changed to cost plus 36.0%. The Company charges a transfer price of 22.1% of the retail price of the product to both company-owned and franchise-operated bakery-cafes. The cost differential (difference between the price charged to the Company by Bunge and the transfer price charged by the Company to company-owned and franchise-operated bakery-cafes) results in a profit or loss to the Company which is allocated to cost of food and paper products and commissary cost of sales to franchisees on the Company’s Consolidated Statement of Operations based on the number of company-owned or franchise-operated bakery-cafes to the total system.

The Company signed an agreement with Dawn Food Products, Inc., to provide sweet goods for the period 2003-2008. The agreement with Dawn is also structured as a cost plus agreement with cost as defined in the agreement plus 24%. The contract with Dawn defines cost differently than the Bunge agreement, and as a result the Company believes it will achieve savings that approximate a 10% increase in the cost differential. The transition from Bunge to Dawn is expected to be completed by April 15, 2003.

The Company experiences competition from numerous sources in its trade areas. The Company’s bakery-cafes compete based on customers’ needs for breakfast, lunch, daytime “chill-out”, lunch in the evening, and take home bread sales. The competitive factors include location, environment, customer service, price, and

quality of products. The Company competes for leased space in desirable locations. Certain of the Company’s competitors may have capital resources exceeding those available to the Company. Our primary competitors include specialty food and casual dining restaurant retailers including national, regional, and locally-owned concepts.

Each company-operated bakery-cafe has computerized cash registers to collect point-of-sale transaction data, which is used to generate pertinent marketing information, including product mix and average check. All product prices are programmed into the system from the Company’s corporate office.

The Company’s in-store information system is designed to assist in labor scheduling and food cost management, to provide corporate and retail operations management quick access to retail data, and to reduce managers’ administrative time. The system supplies sales, bank deposit, and variance data to the Company’s accounting department on a daily basis. The Company uses this data to generate weekly consolidated reports regarding sales and other key elements, as well as detailed profit and loss statements for each company-owned bakery-cafe every four weeks. Additionally, the Company monitors the average check, customer count, product mix, and other sales trends. The commissaries have computerized systems which allow the commissaries to accept electronic orders from the bakery-cafes and deliver the ordered product back to the bakery-cafe.

The Company has network/integration systems which are corporate office electronic systems and tools which link various information subsystems and databases, encompassing e-mail and all major financial systems, such as general ledger database systems and all major operational systems, such as store operating performance database systems.

The Company uses independent distributors to distribute sweet goods products and other materials to bakery-cafes. By contracting with independent distributors, the Company has been able to eliminate investment in distribution systems and to focus its managerial and financial resources on its retail operations. With the exception of fresh dough products supplied by the commissaries, virtually all other food products and supplies for retail operations, including paper goods, coffee, and smallwares, are contracted for by the Company and delivered by the vendors to the distributor for delivery to the bakery-cafes. The individual bakery-cafes order directly from a distributor two to three times per week.

Franchised bakery-cafes operate under individual contracts with either the Company’s distributor or other regional distributors. As of December 28, 2002, there were two primary distributors serving the Panera Bread system.

The Company began a broad-based franchising program in 1996. The Company is actively seeking to extend its franchise relationships beyond its current franchisees. The franchise agreement typically requires the payment of an up-front franchise fee of $35,000 (broken down into $5,000 at the signing of the area development agreement and $30,000 at or before the bakery-cafe opens) and continuing royalties of 5% on sales from each bakery-cafe. Franchise-operated bakery-cafes follow the same standards for product quality, menu, site selection and bakery-cafe construction as do company-owned bakery-cafes. The Company does not finance franchisee construction or area development agreement purchases. The franchisees are required to purchase all of their dough products from sources approved by the Company. The Company’s commissary system supplies fresh dough products to substantially all franchise-operated bakery-cafes.

The Company has entered into franchise area development agreements with 34 franchisee groups as of December 28, 2002. The following table sets forth franchise commitments to open additional bakery-cafes.

We expect these bakery-cafes to open over the next ten years according to the timetable established in the area development agreements (ADAs), with the majority opening in the next five to six years. The ADA requires a franchisee to develop a specified number of bakery-cafes on or before specific dates. If franchisees fail to develop bakery-cafes on schedule, the Company has the right to terminate the ADA and develop company-owned locations or develop locations through new area developers in that market. At the present time, the Company does not have any international franchise development agreements having decided to focus on domestic opportunities for expansion.

As of December 28, 2002, the Company had 3,230 full-time associates (defined as associates who average 25 hours or more per week), of whom 257 were employed in general or administrative functions principally at or from the Company’s Support Center (executive offices) in St. Louis, Missouri; 562 were employed in the Company’s commissary operations; and 2,411 were employed in the Company’s bakery-cafe operations as bakers, managers, and associates. The Company also had 3,023 part-time hourly associates at the bakery-cafes. There are no collective bargaining agreements. The Company considers its employee relations to be excellent. The Company places a priority on staffing its bakery-cafes, commissaries, and support center operations with skilled associates and invests in training programs to assure the quality of its operations.

The “Panera Bread” and “Saint Louis Bread Company” names are of material importance to the Company and are trademarks registered with the United States Patent and Trademark Office. In addition, other marks of lesser importance have been filed with the United States Patent and Trademark Office.

Our Internet address is www.panerabread.com. We make available at this address, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Each commissary, company-operated and franchised bakery-cafe is subject to regulation and licensing by federal agencies as well as to licensing and regulation by state and local health, sanitation, safety, fire, and other departments. Difficulties or failures in obtaining and retaining the required licensing or approval could result in delays or cancellations in the opening of commissaries and bakery-cafes as well as fines and possible closure relating to existing commissaries and bakery-cafes.

The Company is also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of the franchises and may also apply substantive standards to the relationship between franchisor and franchisee. The Company does not believe that current or potential future regulations of franchises have or will have any material impact on the Company’s operations. The Company is subject to the Fair Labor

The Company and its commissaries are subject to various federal, state, and local environmental regulations. Compliance with applicable environmental regulations is not believed to have any material effect on capital expenditures, earnings, or the competitive position of the Company. Estimated capital expenditures for environmental compliance matters are not material.

The Americans with Disabilities Act prohibits discrimination in employment and public accommodations on the basis of disability. Under the Americans with Disabilities Act, the Company could be required to expend funds to modify its company-owned bakery-cafes to provide service to, or make reasonable accommodations for the employment of, disabled persons. The Company believes that compliance with the requirements of the Americans with Disabilities Act will not have a material adverse effect on its financial condition, business or operations.

All company-owned bakery-cafes are located in leased premises with lease terms typically for ten years with one or two five-year renewal option periods thereafter. Leases typically have a minimum base occupancy charge, charges for a proportionate share of building operating expenses and real estate taxes, and a contingent percentage rent based on sales above a stipulated sales level.

Information with respect to the Company-operated leased commissaries as of December 28, 2002 is set forth below:

The Company leases approximately 34,000 square feet in Richmond Heights, MO for its corporate office. The annual rent is approximately $616,000. The lease expires October 31, 2010.

The Company plans to lease approximately 12,500 square feet of office space in Needham, MA in the first quarter of 2003 to house portions of its executive and support functions for annual rent of approximately $170,000.

Information with respect to the number of bakery-cafes operated by state at December 28, 2002 is set forth below:

The Company is not subject to any material litigation, but is subject to claims and legal action in the ordinary course of its business. The Company believes that all such claims and actions currently pending against it would not have a material adverse effect on the Company if decided in a manner unfavorable to the Company.

The Company submitted no matters to a vote of security holders during the fourth quarter of the fiscal year ended December 28, 2002.

The Company’s Class A Common Stock is traded on The Nasdaq National Market tier of the Nasdaq Stock Market under the symbol “PNRA”. There is no established public trading market for the Company’s Class B Common Stock. The following table sets forth the high and low sale prices as reported by Nasdaq for the fiscal periods indicated, after giving effect to a two-for-one stock split which occurred June 24, 2002.

On March 14, 2003, the last sale price for the Class A Common Stock, as reported on the Nasdaq National Market System, was $27.85.

On March 14, 2003, the Company had 1,710 holders of record of its Class A Common Stock and 47 holders of its Class B Common Stock.

The Company has never paid cash dividends on its capital stock and does not intend to pay cash dividends in the foreseeable future as it intends to re-invest earnings in continued growth of its operations.

The following selected financial data have been derived from the consolidated financial statements of the Company. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s Consolidated Financial Statements and Notes thereto.


(1)	Fiscal year 2000 consists of 53 weeks. Fiscal years 2002, 2001, 1999, and 1998 were comprised of 52 weeks.

(2)	Includes the results of the Au Bon Pain Division until it was sold on May 16, 1999.

(3)	In 1998, the Company recorded a non-recurring, non-cash charge of $26.2 million primarily related to impairment of long-lived assets and costs associated with the pending sale of the former Au Bon Pain Division (“ABP”). In 1999, the Company recorded an additional $5.5 million impairment charge to reflect the May 1999 sale of ABP. In 2000, the Company received a payment of $0.9 million as consideration for amending the ABP sale agreement to permit a subsequent sale. This non-recurring gain was offset by a $0.9 non-recurring charge related to the sale and a $0.5 million charge for asset impairment relating to closure of four Panera Bread bakery-cafes.

(4)	Shares of common stock outstanding have been retroactively adjusted to give effect to the two-for-one stock split on June 24, 2002.

(5)	Consists of Panera Bread company-operated and franchise-operated stores only (excludes Au Bon Pain).


(6)	Includes the results of the Au Bon Pain Division.

(7)	Information not available.

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


(1)	As a percentage of bakery-cafe sales.

(2)	As a percentage of commissary sales to franchisees.

(3)	Fiscal year 2000 is comprised of 53 weeks. Fiscal years 2002 and 2001 are comprised of 52 weeks.

Matters discussed in this report, including any discussion, express or implied, of the Company’s anticipated growth, operating results, and future earnings per share, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of

1934. The statements, identified by the words “believe”, “positioned”, “estimate”, “project”, “target”, “continue”, “will”, “intend”, “expect”, “future”, “anticipates”, and similar expressions express management’s present belief, expectations or intentions regarding the Company’s future performance. The Company’s actual results could differ materially from those set forth in the forward-looking statements due to known and unknown risks and uncertainties and could be negatively impacted by a number of factors. These factors include but are not limited to the following: the availability of sufficient capital to the Company and the developers party to franchise development agreements within the Company; continued execution of development; obligations by franchisee groups; variations in the number and timing of bakery-cafe openings; public acceptance of new bakery-cafes; competition; availability of labor; national and regional weather conditions, including the impact on cost and availability of ingredients such as flour, butter, and protein products; changes in restaurant operating costs, particularly food and labor; and other factors that may affect retailers in general.

The Company’s revenues are derived from bakery-cafe sales, commissary sales to franchisees and franchise royalties and fees. Commissary sales to franchisees are the sales of dough products to our franchisees. Franchise royalties and fees include royalty income and franchise area development and opening 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 commissary sales relates to the sale of fresh dough products to our franchisees. General and administrative, depreciation, and pre-opening expenses relate to all areas of revenue generation.

The Company’s fiscal year ends on the last Saturday in December. The Company’s fiscal year consists of 13 four-week periods, with the first, second, and third quarters ending 16 weeks, 28 weeks, and 40 weeks, respectively, into the fiscal year. In the year 2000, the Company’s fiscal year was comprised of 53 weeks.

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


(1)	In January 2002, the Company purchased the area development rights and three existing bakery-cafes in the Jacksonville, Florida market from its franchisee.

Increases in comparable net bakery-cafe sales for the fifty-two weeks ended December 28, 2002 and December 29, 2001 were as follows:

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

The Company sold its Au Bon Pain Division on May 16, 1999. During the quarter ended July 8, 2000, the Company recorded a one-time gain of $0.9 million before taxes ($0.5 million after-tax) related to the sale, as consideration for agreeing to amend the sales agreement to allow the buyer to resell the Au Bon Pain Division. Additionally, during the quarter ended December 30, 2000, the Company recorded a $0.9 million pre-tax, non-recurring charge associated with the sale of the Au Bon Pain Division. Of that amount $0.4 million, before taxes, represented additional loss on the sale of the Au Bon Pain Division and $0.5 million was the write-off of a receivable from Au Bon Pain.

Total revenues for the fifty-two weeks ended December 28, 2002 increased 38.1% to $277.8 million compared to $201.1 million for the fifty-two weeks ended December 29, 2001. The growth in total revenues for the fifty-two weeks ended December 28, 2002, as compared to the prior year is primarily due to the impact of a full year’s operation of the 109 system-wide bakery-cafes opened in 2001, the opening of 115 new bakery-cafes in 2002, and the 5.5% increase in system-wide comparable bakery-cafe sales impact on bakery-cafe sales and royalties from franchisees.

Bakery-cafe sales for the fifty-two weeks ended December 28, 2002 for the Company increased 34.8% to $212.6 million from $157.7 million for the fifty-two weeks ended December 29, 2001. The increase in bakery-cafe sales is primarily due to the impact of a full year’s operations of the 21 bakery-cafes opened in 2001, the opening of 23 new company-owned bakery-cafes in 2002, and the 4.1% increase in comparable bakery-cafe sales for the fifty-two weeks ended December 28, 2002. The average weekly sales per company-owned bakery-cafe (excluding the specialty bakery-cafes and closed locations) increased 7.8% to $33,924 for the fifty-two weeks ended December 28, 2002, compared to $31,460 for the fifty-two weeks ended December 29, 2001. The number of operating weeks for company-owned bakery-cafes during the fifty-two weeks ended December 28, 2002 and December 29, 2001, was 6,265 and 4,984, respectively.

During the fifty-two weeks ended December 28, 2002, five Panera Bread franchise area development agreements were signed, representing a commitment to develop 75 bakery-cafes and there were amendments to three existing area development agreements to add 12 additional bakery-cafes. This brings the commitments to develop franchised bakery-cafes, in addition to those already open, to 491 bakery-cafes as of December 28, 2002. We expect these bakery-cafes to open over the next ten years according to the timetable established in the area development agreements (ADA), with the majority opening in the next five to six years. The ADA requires a franchisee to develop a specified number of bakery-cafes on or before specific

Franchise royalties and fees rose 42.3% for the fifty-two weeks ended December 28, 2002 to $27.9 million from $19.6 million for the fifty-two weeks ended December 29, 2001. The components of franchise royalties and fees are as follows:

The increase in royalty revenue can be attributed to the impact of a full year’s operations of the 88 franchised bakery-cafes opened in 2001, the addition of 92 franchised bakery-cafes in 2002, and a 6.1% increase in comparable franchised bakery-cafe sales (excluding the specialty bakery-cafe and closed locations) for the fifty-two weeks ended December 28, 2002. The average weekly sales per franchise-operated bakery-cafe (excluding the specialty bakery-cafe and closed locations) increased 4.0% to $35,997 for the fifty-two weeks ended December 28, 2002, compared to $34,607 for the fifty-two weeks ended December 29, 2001, respectively. The number of operating weeks for franchised bakery-cafes during the fifty-two weeks ended December 28, 2002 and December 29, 2001, was 15,068 and 10,735, respectively.

Commissary sales to franchisees increased 55.6% to $37.2 million for the fifty-two weeks ended December 28, 2002 from $23.9 million for the fifty-two weeks ended December 29, 2001. The increase was primarily driven by the growth in comparable franchise-operated bakery-cafe sales and the increased number of franchise-operated bakery-cafes discussed above.

The cost of food and paper products includes the costs associated with the commissary operations that sell fresh dough products to company-owned bakery-cafes as well as the cost of food and paper products supplied by third party vendors and distributors. The costs associated with the commissary operations that sell fresh dough products to the franchised bakery-cafes are excluded and are shown separately as commissary cost of sales to franchisees in the Consolidated Statements of Operations. The cost of food and paper products decreased to 29.7% of bakery-cafe sales for the fifty-two weeks ended December 28, 2002, compared to 30.6% of bakery-cafe sales for the fifty-two weeks ended December 29, 2001. For the fifty-two weeks ended December 28, 2002, there was an average of 27.3 bakery-cafes per commissary compared to an average of 22.6 for the fifty-two weeks ended December 29, 2001. This results in greater manufacturing and distribution efficiencies and a reduction of costs as a percentage of bakery-cafe sales. Additionally, food cost improvements resulted from better utilization of information provided by our information technology systems to manage food costs at the bakery-cafe. These efficiencies were offset in part by inefficiencies associated with the artisan bread roll out and the higher cost of flour.

Labor expense was $63.2 million or 29.7% of bakery-cafe sales for the fifty-two weeks ended December 28, 2002 compared to $45.8 million or 29.0% of bakery-cafe sales for the fifty-two weeks ended December 29, 2001. The labor expense as a percentage of bakery-cafe sales increased between the fifty-two weeks ended December 28, 2002 and the fifty-two weeks ended December 29, 2001 primarily as a result of increased average manager and crew staffing levels associated with our commitment to having fully staffed bakery-cafes. This also increased training costs associated with our centralized training programs. Additionally, health insurance costs increased on a year over year basis.

Occupancy costs were $14.6 million or 6.9% of bakery-cafe sales for the fifty-two weeks ended December 28, 2002 compared to $11.3 million or 7.2% of bakery-cafe sales for the fifty-two weeks ended

Other bakery-cafe operating expenses, which include advertising, retail field overhead, utilities, and other cafe expenses, were $28.0 million or 13.2% of bakery-cafe sales for the fifty-two weeks ended December 28, 2002 compared to $20.7 million or 13.1% of bakery-cafe sales for the fifty-two weeks ended December 29, 2001. The increase in other bakery-cafe operating expenses as a percentage of bakery-cafe sales for the fifty-two weeks ended December 28, 2002 is primarily due to an increase in advertising expenses.

For the fifty-two weeks ended December 28, 2002, commissary cost of sales to franchisees was $34.0 million or 91.3% of commissary sales to franchisees compared to $22.0 million or 92.1% of commissary sales to franchisees for the fifty-two weeks ended December 29, 2001. The decrease in the commissary cost of sales rate was primarily due to the lower cost of butter between 2002 and 2001. The average price of butter per pound decreased 23.7% to $1.32 per pound from $1.73 per pound for the fifty-two weeks ended December 28, 2002. This was offset in part by the increased cost of product purchased under the Bunge Foods frozen dough contract. The Company entered into a five-year supply agreement for frozen baked goods in 1998 with Bunge Foods Corporation (“Bunge”). The Company’s pricing for years one through four of the contract was at Bunge’s cost plus 18.07%. In year five of the contract, beginning in March of 2002, pricing changed to Bunge’s cost plus 36.0%. The Company charges a transfer price of 22.1% of retail price of the underlying product to both company-owned and franchise-operated bakery-cafes. The cost differential (difference between the price charged to the Company by Bunge and the transfer price charged by the Company to company-owned and franchise-operated bakery-cafes) results in a profit or loss to the Company which is allocated to cost of food and paper products and commissary cost of sales to franchisees on the Company’s Consolidated Statement of Operations based on the number of company-owned or franchise-operated bakery-cafes to the total system.

Depreciation and amortization was $14.0 million or 5.0% of total revenue for the fifty-two weeks ended December 28, 2002 compared to $10.8 million or 5.4% of total revenue for the fifty-two weeks ended December 29, 2001. The improvement in depreciation and amortization as a percentage of total revenue for the fifty-two weeks ended December 28, 2002 compared to the fifty-two weeks ended December 29, 2001, respectively, is primarily due to the leveraging of higher bakery-cafe sales volume and the Company’s adoption of SFAS No. 142. Amortization expense decreased $1.0 million for the fifty-two weeks ended December 28, 2002, compared to the fifty-two weeks ended December 29, 2001 as a result of the elimination of goodwill amortization following the adoption of SFAS No. 142.

General and administrative expenses were $25.0 million or 9.0% of total revenue, and $19.6 million or 9.7% of total revenue for the fifty-two weeks ended December 28, 2002 and December 29, 2001, respectively. The decrease in the general and administrative expense rate between 2002 and 2001 results primarily from higher revenues, which help leverage general and administrative expenses.

Pre-opening expenses, which consist primarily of labor costs and food costs, were $1.1 million or 0.4% of revenues in the fifty-two weeks ended December 28, 2002, compared to $0.9 million or 0.5% of sales in the fifty-two weeks ended December 29, 2001. There were 23 bakery-cafes opened during the fifty-two weeks ended December 28, 2002, compared to 21 bakery-cafe openings for the fifty-two weeks ended December 29, 2001.

Operating profit for the fifty-two weeks ended December 28, 2002 increased to $34.8 million or 12.5% of total revenue from $21.7 million or 10.8% of total revenue for the fifty-two weeks ended December 29, 2001. Operating profit for the fifty-two weeks ended December 28, 2002 rose as a result of the factors discussed above.

Minority interest represents the portion of the Company’s operating profit that is attributable to the ownership interest of our joint venture partner and minority interest owner in the Northern Virginia/ Central

The provision for income taxes increased to $12.5 million for the fifty-two weeks ended December 28, 2002 compared to $8.3 million for the fifty-two weeks ended December 29, 2001. The tax provisions for the fifty-two weeks ended December 28, 2002 and December 29, 2001, reflect a combined federal, state, and local effective tax rate of 36.5% and 38.6%, respectively. The reduction in the effective tax rate for the fifty-two weeks ended December 28, 2002 as compared to the fifty-two weeks ended December 29, 2001, results from the Company’s restructuring of its legal entities to better manage its intellectual property which has resulted in a lower effective state income tax rate.

Net income for the fifty-two weeks ended December 28, 2002 increased $8.6 million or 65.2% to $21.8 million or $0.73 per diluted share compared to net income of $13.2 million or $0.46 per diluted share for the fifty-two weeks ended December 29, 2001. The increase in net income in 2002 was primarily due to an increase in bakery-cafe sales, franchise royalties and fees, commissary sales to franchisees as well as the leveraging of general and administrative and depreciation and amortization expenses. For purposes of computing net income per diluted share, the number of common shares has been retroactively restated to reflect a stock split of one share of common stock for each share of common stock outstanding, payable on June 24, 2002 to stockholders of record as of June 10, 2002. Previously awarded stock options and other stock programs have been adjusted to reflect the stock split.

Total revenues for the fifty-two weeks ended December 29, 2001 increased 32.8% to $201.1 million compared to $151.4 million for the fifty-three weeks ended December 30, 2000. The growth in total revenues for the fifty-two weeks ended December 29, 2001, as compared to the prior year is primarily due to the impact of a full year’s operations of the 81 system-wide bakery-cafes opened in 2000, the addition of 109 new bakery-cafes in 2001, and increases in system-wide comparable sales of 5.8%.

Bakery-cafe sales for the fifty-two weeks ended December 29, 2001 increased 25.7% to $157.7 from $125.5 million for the fifty-three weeks ended December 30, 2000. The increase in bakery-cafe revenue is primarily due to the impact of a full year’s operations of the 11 company-owned bakery-cafes opened in 2000, the addition of 21 new bakery-cafes in 2001, and a 5.8% increase in comparable bakery-cafe sales for the fifty-two weeks ended December 29, 2001. The average weekly sales per company-owned bakery-cafe (excluding the two specialty bakery-cafes) increased 11.1% to $31,460 for the fifty-two weeks ended December 29, 2001 compared to $28,325 for the fifty-three weeks ended December 30, 2000. The number of operating weeks for company-owned bakery-cafes during fiscal years 2001 and 2000 was 4,984 and 4,289, respectively.

Franchise royalties and fees rose 62.0% for the fifty-two weeks ended December 29, 2001 to $19.6 million from $12.1 million for the fifty-three weeks ended December 30, 2000. The components of franchise royalties and fees are as follows (in thousands):

The increase in royalty revenue can be attributed to the full year impact of the 70 franchised bakery-cafes opened in 2000, the addition of 88 franchised bakery-cafes opened since December 30, 2000 and a 5.8% increase in comparable bakery-cafe sales (excluding the specialty bakery-cafe) for the fifty-two weeks ended December 29, 2001. The average weekly sales per franchise-operated bakery-cafe (excluding the specialty bakery-cafe) increased 5.4% to $34,607 for the fifty-two weeks ended December 29, 2001 compared to $32,832 for the fifty-three weeks ended December 30, 2000. The number of operating weeks for franchised bakery-cafes during the fifty-two weeks ended December 29, 2001, compared to the fifty-three weeks ended December 30, 2000, was 10,735 and 6,852, respectively.

Commissary sales to franchisees increased 73.2% to $23.9 million for the fifty-two weeks ended December 29, 2001 from $13.8 million for the fifty-three weeks ended December 30, 2000. The increase was primarily driven by the increased number of franchised units open and the higher average weekly sales per franchise-operated bakery-cafe as discussed previously.

The cost of food and paper products declined to 30.6% of bakery-cafe sales for the fifty-two weeks ended December 29, 2001 as compared to 32.7% of bakery-cafe sales for the fifty-three weeks ended December 30, 2000. The improvement in 2001 is primarily due to the increased efficiency of our commissary operations due to higher sales volumes and the 109 additional system-wide bakery-cafes that have opened since December 30, 2000. For the fifty-two weeks ended December 29, 2001, there was an average of 22.6 bakery-cafes per commissary compared to an average of 16.3 for the fifty-three weeks ended December 30, 2000. This results in greater manufacturing and distribution efficiencies and a reduction of costs as a percentage of revenue. This cost reduction has been partially offset by significantly increased costs for butter throughout 2001.

Labor expense was $45.8 million or 29.0% of bakery-cafe sales for the fifty-two weeks ended December 29, 2001 compared to $36.3 million or 28.9% for the fifty-three weeks ended December 30, 2000. The labor percentage of bakery-cafe sales increased between the fifty-two weeks ended December 29, 2001 and the fifty-three weeks ended December 30, 2000, primarily due to a slight increase in the cost of benefits (insurance and bonuses) as a percent of bakery-cafe sales.

Occupancy costs were $11.3 million or 7.2% of bakery-cafe sales for the fifty-two weeks ended December 29, 2001 compared to $9.3 million or 7.4% of bakery-cafe sales for the fifty-three weeks ended December 30, 2000. The improvement in occupancy costs as a percentage of bakery-cafe sales for the fifty-two weeks ended December 29, 2001 compared to the fifty-three weeks ended December 30, 2000 is primarily due to the bakery-cafe higher average weekly sales volumes which help leverage occupancy costs that are primarily fixed expenses.

Other bakery-cafe operating expenses, which include advertising, retail overhead, utilities, and other cafe expenses, were $20.7 million or 13.1% of bakery-cafe sales for the fifty-two weeks ended December 29, 2001 compared to $16.1 million or 12.8% of bakery-cafe sales for the fifty-three weeks ended December 30, 2000. The increase in other bakery-cafe operating expenses as a percentage of bakery-cafe sales for the fifty-two weeks ended December 29, 2001 compared to the fifty-three weeks ended December 30, 2000 is due primarily to increased expenses associated with centralized training and development, a modest increase in expenses related to a new customer feedback system and a modest increase in utilities.

For the fifty-two weeks ended December 29, 2001, commissary cost of sales to franchisees was $22.0 million or 92.1% of commissary sales to franchisees compared to $12.3 million or 88.6% of commissary sales to franchisees for the fifty-three weeks ended December 30, 2000. The higher commissary cost of sales between years is primarily due to the addition of 88 franchised bakery-cafes since the end of 2000 and higher average weekly sales per bakery-cafe. The higher percentage cost of sales in 2001 compared to 2000 is primarily due to increased butter prices, which had the effect of a 3.5% increase in commissary cost of sales for the fifty-two weeks ended December 29, 2001. The average price of butter per pound increased 40.7% to $1.73 per pound for the fifty-two weeks ended December 29, 2001, from $1.23 per pound for the fifty-three weeks ended December 30, 2000.

Depreciation and amortization was $10.8 million or 5.4% of total revenue for the fifty-two weeks ended December 29, 2001 compared to $8.4 million or 5.6% of total revenue for the fifty-three weeks ended December 30, 2000. The improvement in depreciation and amortization as a percentage of total revenue for the fifty-two weeks ended December 29, 2001 as compared to the fifty-three weeks ended December 30, 2000 is primarily due to higher sales volumes which help leverage depreciation and amortization expense that are primarily fixed expenses.

General and administrative expenses were $19.6 million or 9.7% of total revenue and $16.4 million or 10.8% of total revenue for the fifty-two weeks ended December 29, 2001 and the fifty-three weeks ended December 30, 2000, respectively. The improvement in general and administrative expenses as a percentage of total revenue between 2001 and 2000 results primarily from higher revenues, which help leverage general and administrative expenses.

Pre-opening expenses which consist primarily of labor costs and food costs were $0.9 million or 0.5% of total revenue in the fifty-two weeks ended December 29, 2001, compared to $0.4 million or 0.3% of total revenue in the fifty-three weeks ended December 30, 2000. There were 21 bakery-cafes opened during the fifty-two weeks ended December 29, 2001 compared to 11 bakery-cafe openings for the fifty-three weeks ended December 30, 2000.

A non-recurring charge of $0.5 million was recorded in the fifty-three weeks ended December 30, 2000. This charge included three components. In the second quarter of 2000, the Company recorded a one-time gain of $0.9 million before taxes related to the sale of the Au Bon Pain Division. The original sales agreement included a provision prohibiting the sale of the Au Bon Pain Division by ABP Corporation to another party within 18 months of the date of the agreement. This payment was received as consideration for amending the original sales agreement to allow for a sale. The one-time gain of $0.9 million before taxes was substantially offset in the fourth quarter of 2000 by the recording of a $0.9 million pre-tax, non-recurring charge related to the sale. Of this amount, $0.4 million, before taxes, represents an additional loss on the sale of the Au Bon Pain Division and $0.5 million represents the write-off of a receivable from Au Bon Pain. In the fourth quarter of 2000, the Company also recorded a pre-tax, non-recurring charge to earnings of $0.5 million which included $0.3 million for the write-down of impaired assets of two bakery-cafes closed in the first quarter of 2001 and $0.2 million for the write-off of fixed assets of two bakery-cafes that closed in the fourth quarter of 2000.

Operating profit for the fifty-two weeks ended December 29, 2001 increased to $21.7 million or 10.8% of total revenue from $10.8 million or 7.1% of total revenue for the fifty-three weeks ended December 30, 2000. Operating income for the fifty-two weeks ended December 29, 2001 rose primarily due to increased revenues at company-owned bakery-cafes, franchise royalties, and commissary sales to franchisees as well as the margin improvement resulting from the lower cost of food and paper products, other than butter.

The provision for income taxes increased to $8.3 million for the fifty-two weeks ended December 29, 2001 compared to $4.2 million for the fifty-three weeks ended December 30, 2000. The tax provision for the fifty-two weeks ended December 29, 2001 and the fifty-three weeks ended December 30, 2000 reflects a combined federal, state, and local effective tax rate of 38.6% and 37.9%, respectively.

Net income for the fifty-two weeks ended December 29, 2001 was $13.2 million or $0.46 per diluted share compared to net income of $6.9 million or $0.26 per diluted share for the fifty-three weeks ended December 30, 2000. The increase in net income in 2001 was primarily due to an increase in bakery-cafe sales, franchise royalties and fees, commissary sales to franchisees as well as margin improvement resulting from the lower cost of food and paper products.

The Consolidated Financial Statements and Notes to the Consolidated Financial Statements contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. The Company believes the following critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions, and estimates necessary in determining the related asset and liability amounts.

The Company recognizes revenues upon the performance of services. Franchise fees are the result of sales of area development rights and the sale of individual franchise locations to third parties. The initial franchise fee is $35,000 per bakery-cafe to be developed under the Area Development Agreement (ADA). Of this fee, $5,000 is paid at the time of signing of the ADA and is recognized as revenue when it is received, as it is non-refundable and the Company has to perform no other service to earn this fee. The remaining $30,000 is paid at the time an individual franchise agreement is signed and is recognized as revenue upon the commencement of franchise operations of the bakery-cafes. Royalties are paid weekly based on a percentage of sales, ranging from 4.0% to 5.0%, as defined in the agreement. Royalties are recognized as revenue when they are earned.

The Company has recorded a valuation allowance to reduce its deferred tax assets, due principally to capital loss carry forwards on the sale of the Au Bon Pain Division, state net operating loss carryforwards where the Company no longer operates, and charitable contributions carryforwards arising from the Company’s donation of bakery products, that the Company may not be able to utilize prior to their respective expiration. The Company’s recorded net deferred tax assets are limited by the underlying tax benefits that it expects to ultimately realize. An adjustment to income could be required if the Company were to determine that it could realize tax benefits in amounts greater or less than the amounts previously recorded.

Intangible assets consist of goodwill arising from the excess of cost over the fair value of net assets acquired. Annually, and whenever an event or circumstances indicate that it is more likely than not that the Company’s goodwill has been impaired, management assesses the carrying value of its recorded goodwill. The Company performs its impairment assessment by comparing discounted cash flows from acquired businesses with the carrying value of the underlying net assets inclusive of goodwill. In performing this analysis, management considers such factors as current results, trends, future prospects and other economic factors. No event has been identified that would indicate an impairment in the value of the Company’s intangible assets.

We are self-insured for a significant portion of our worker’s compensation and general liability insurance. We utilize third party actuarial experts’ estimates of expected losses based on statistical analyses of historical industry data as well as our own estimates based on our actual historical data. These assumptions are closely reviewed, monitored, and adjusted when warranted by changing circumstances. Should a greater number of claims occur compared to what we estimated or the cost of those claims is higher than anticipated, reserves might not be sufficient and additional expense may be recorded or actual experience could be more favorable than estimated resulting in expense reduction.

The Company is obligated under non-cancelable operating leases for its administrative offices, commissaries and bakery-cafes. Lease terms are generally for ten years with renewal options at most locations and generally require the Company 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. In addition, the Company is prime tenant or a guarantor for the operating leases of four current franchise locations and 79 locations of the former Au Bon Pain Division including annual rental payments for Au Bon Pain company-owned store operating leases and annual rental payments for Au Bon Pain franchise store operating leases. The contingent liability will continue to decrease over time as these operating leases for Au Bon Pain expire or are not renewed. Currently, the Company has not had to make any payments related to the lease guarantees. Au Bon Pain and the respective franchisees continue to have primary liability for these operating leases.

The Company, pursuant to an agreement with its former president as a joint venture partner and minority interest owner, is developing and managing up to 50 bakery-cafes in Northern Virginia and Central Pennsylvania markets. The joint venture agreement entitles the joint venture partner to a specified percentage of the cash flows determined, as stated in the agreement, related to the amount he invests in each bakery-cafe from the bakery-cafes developed and operated. The joint venture partner is required to invest a minimum of $25,000 per bakery-cafe and is prohibited from selling or transferring his interest to another party without the Company’s consent.

After October 2006, the Company and the joint venture partner each have rights which could, if exercised, permit/require the Company to purchase the bakery-cafes at contractually determined values based on multiples of cash flows. Based upon bakery-cafes in operation at December 28, 2002, had the Company been required to repurchase the bakery-cafes at the contractually determined value based on the joint venture partner’s right to sell, a payment of $2.2 million would have been required.

The Company believes that providing the joint venture partner the opportunity to participate in the success of the bakery-cafe will enable the Company to attract and retain experienced and highly motivated operating partners, which will result in a better customer experience. The Company expects to implement the joint venture structure where appropriate as an alternative to company-owned or franchised bakery-cafes to facilitate the development and operation of bakery-cafes.

The Company has reached agreement with Dawn Food Products, Inc. to provide sweet goods for the period 2003-2008. The agreement with Dawn is structured as a cost plus agreement with cost as defined in the agreement plus 24%. The contract with Dawn defines cost differently than under our prior supply agreement with Bunge, as a result the Company will achieve savings that approximate a 10% increase in the cost differential. The transition from Bunge to Dawn is expected to be completed by April 15, 2003.

Cash and cash equivalents were $29.9 million at December 28, 2002 compared with $18.1 million at December 29, 2001. The Company’s principal requirements for cash are capital expenditures for the development of new bakery-cafes, for maintaining or remodeling existing bakery-cafes, for developing, remodeling, and maintaining commissaries and for enhancements of information systems. For the fifty-two weeks ended December 28, 2002, the Company met its requirements for capital with cash from operations and proceeds from the exercise of stock options. Proceeds from the exercise of stock options totaled $3.0 million for the fifty-two weeks ended December 28, 2002 and $6.7 million for the fifty-two weeks ended December 29, 2001.

Funds provided by operating activities for the fifty-two weeks ended December 28, 2002, were $46.3 million compared to $30.6 million for the fifty-two weeks ended December 29, 2001. For 2002, funds provided consisted primarily of net income of $21.8 million, $14.0 from depreciation, $8.1 million from the tax benefit from stock option exercises and $4.2 million from increased deferred taxes due principally to utilization of net operating loss carryforwards. For 2001, funds provided consisted primarily of net income of $13.2 million, $10.8 million from depreciation and amortization and $8.0 million from the tax benefit from stock option exercises.

As of December 28, 2002 and December 29, 2001, the Company has net operating loss carryforwards of $17.2 million and $23.9 million, respectively, which can be carried forward twenty years to offset federal

taxable income. At December 28, 2002 and December 29, 2001, the Company had federal jobs tax credit carryforwards of $1.2 million, which expire in the years 2014 — 2015 and charitable contribution carryforwards of $6.5 million and $5.0 million, respectively, which expire in the years 2003-2007. In addition, the Company has federal alternative minimum tax credit carryforwards of $3.5 million and $3.2 million at December 28, 2002 and December 29, 2001, respectively, which are available to reduce future regular Federal income taxes over an indefinite period. The Company reevaluates the positive and negative evidence impacting the realizability of its deferred income tax assets on an annual basis. In 2002, the Company expects to utilize $6.7 million of federal income tax net operating loss carryforwards. In fiscal year 2003, we expect to utilize the remaining balance of $17.2 million and become a modest cash federal income tax payer.

In August 2002, the Company invested $9.2 million in United States Treasury Notes and Mortgage Backed Government Notes. Investments are classified as short or long-term in the accompanying consolidated balance sheet based upon their stated maturity dates. As of December 28, 2002, all investments are classified as held-to-maturity as the Company has the intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums to maturity, which approximates fair value at December 28, 2002.

Total capital expenditures for the fifty-two weeks ended December 28, 2002, were $27.1 million and were primarily related to the opening of 23 new company-owned bakery-cafes, the opening of two commissaries, and for maintaining or remodeling existing bakery-cafes and commissaries. The expenditures were funded by cash from operating activities and the proceeds from the exercise of stock options. Additionally, the Company acquired for $3.3 million the assets of three operating bakery-cafes and one bakery-cafe under construction, as well as the area development rights for the Jacksonville, Florida market. Total capital expenditures were $27.5 million for the fifty-two weeks ended December 29, 2001, and were primarily related to the opening of 21 new company-owned bakery-cafes, the acquisition of one commissary, and for remodeling existing bakery-cafes and commissaries.

In December 2000, the Company entered into a three-year revolving credit agreement which allows borrowings up to $10.0 million at LIBOR plus 1.0%, (approximately 2.4% at December 28, 2002), which extends until December 31, 2003. As of December 28, 2002, the Company had $9.5 million available under the line of credit with $0.5 million utilized by outstanding standby letters of credit to collateralize premium and claim obligations for the worker’s compensation, general liability, and auto liability insurance programs. The Company was in compliance with all covenants associated with its borrowings as of December 28, 2002.

Financing activities provided $5.7 million for the fifty-two weeks ended December 28, 2002 and $7.0 million for the fifty-two weeks ended December 29, 2001. The financing activities in the fifty-two weeks ended December 28, 2002 included $3.0 million from the exercise of stock options, $0.9 million from the issuance of common stock under employee benefit plans, $1.5 million from capital investments by our joint venture partner, and $0.2 million in proceeds on payment of a note receivable from our joint venture partner. The financing activities for the fifty-two weeks ended December 29, 2001 included $6.7 million from the exercise of stock options.

The Company had a working capital surplus of $26.9 million at December 28, 2002 and $13.6 million at December 29, 2001. The $13.3 million increase in working capital for the fifty-two weeks ended December 28, 2002, is net of the $5.0 million long-term portion of cash invested in government securities previously discussed. The increase in the working capital surplus in 2002 was primarily due to an increase in cash and cash equivalents and short-term investments. The Company has experienced no liquidity difficulties and has historically been able to finance its operations through internally generated cash flow, cash from the exercise of employee stock options, and, when necessary, borrowings under its revolving line of credit.

The Company currently anticipates total capital expenditures for fiscal year 2003 of approximately $50 to $55 million, principally for the opening of 28 new company-owned bakery-cafes, the acquisition of five bakery-cafes in Kentucky and Texas, the opening of three additional commissaries, maintaining and remodeling existing bakery-cafes and remodeling and expansion of existing commissaries. The Company expects that future bakery-cafes will require, on average, an investment per bakery-cafe (excluding pre-opening expenses which are expensed as incurred) of approximately $800,000 which is net of landlord allowance. The Company

In October 2002, the Company reached an agreement to purchase from a franchisee four operating bakery-cafes as well as the area development rights for the Louisville and Lexington, Kentucky market. The purchase price was $5.4 million subject to normal closing costs and adjustments. This transaction was completed in January 2003. Additionally in November 2002, the Company reached an agreement to purchase from a franchisee one operating bakery-cafe as well as the area development rights for the Dallas and Fort Worth, Texas market. The purchase price was $1.3 million subject to normal closing costs and adjustments. This transaction was completed in February 2003.

In addition to our capital expenditure requirements, the Company has certain other contractual and committed cash obligations. Our contractual cash obligations consist of noncancelable operating leases for administrative offices, commissaries, and bakery-cafes. We expect cash expenditures under these lease obligations to be as follows:

Our commercial commitments consist of guarantees for certain of the operating leases of four franchise locations and 79 locations of the former Au Bon Pain Division and its franchisees. The leases have terms expiring on various dates from December 31, 2003 to February 1, 2014 and the guarantee has a maximum potential amount of future payments of approximately $49.0 million. The obligation from leases or guarantees will continue to decrease over time as these leases for the former Au Bon Pain Division expire or are not renewed. The Company has not recorded a liability for these guarantees and has not had to make any payments related to the leases or guarantees. Potential future commitments consist of:


(1)	Represents aggregate minimum requirement — see Note 9 to the Consolidated Financial Statements.

(2)	Standby letter of credit is used to collateralize premium and claim obligations for the worker’s compensation, general liability, and auto insurance programs.

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

In the past, the Company has been able to recover inflationary cost and commodity price increases through increased menu prices. There have been and there may be in the future, delays in implementing such menu price increases, and competitive pressures may limit the Company’s ability to recover such cost

A majority of the Company’s employees are paid hourly rates related to federal and state minimum wage laws. Although the Company has and will continue to attempt to pass along any increased labor costs through food price increases, there can be no assurance that all such increased labor costs can be reflected in its prices or that increased prices will be absorbed by consumers without diminishing to some degree consumer spending at the bakery-cafes. However, the Company has not experienced to date a significant reduction in bakery-cafe profit margins as a result of changes in such laws, and management does not anticipate any related future significant reductions in gross profit margins.

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial accounting Standard (“SFAS”) No. 143, Accounting for Asset Retirement Obligations (SFAS 143), effective for fiscal years beginning after June 15, 2002. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires the capitalization of any retirement costs as part of the total cost of the related long-lived asset and the subsequent allocation of the total expense to future periods using a systematic and rational method. The Company is required to implement SFAS 143 in fiscal 2003. The Company has not determined the impact that this statement will have on its consolidated financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets” which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and the accounting and reporting provisions of APB No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for the disposal of a segment of a business. SFAS No. 144 retains many of the provisions of SFAS No. 121, but addresses certain implementation issues associated with that Statement. The Company adopted SFAS No. 144 for fiscal year 2002. There was no impact on the Company’s financial statements upon adoption.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. The Company adopted the provisions of SFAS No. 145 in the second quarter of fiscal 2002, except for the provisions of SFAS No. 145 related to the recission of Statement No. 4, which the Company will adopt in fiscal 2003. There was no impact on the Company’s financial statements upon adoption in fiscal 2002 and the Company does not expect any material impact on its financial statements in fiscal 2003.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” which nullifies Emerging Issues Task Force (EITF) Issue No. 94-3. This Statement requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. The Company will adopt the provisions of SFAS No. 146 in the first quarter of fiscal 2003. Management believes the impact of the adoption of the provisions of SFAS No. 146 will not have a material impact on the Company’s financial statements.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which elaborates on existing disclosure of most guarantees, and clarifies when a company must recognize an initial liability for the fair value of obligations it assumes under guarantee agreements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of the interpretation were effective for the Company’s fiscal year 2002. As of December 28, 2002, the Company has complied with the disclosure requirements of FASB Interpretation No. 45.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting”, to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. As allowed by SFAS No. 123 and SFAS No. 148, the Company has elected to continue to utilize the accounting method prescribed by APB Opinion No. 25 and has adopted the disclosure requirements of SFAS No. 148 as of December 28, 2002.

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

As of December 28, 2002, the Company had no derivative financial interests or derivative commodity instruments in cash or cash equivalents. We purchase certain commodities such as flour, butter, and coffee for use in our business. These purchases are sometimes purchased under agreements of one to three year time frames usually at a fixed price. We are subject to market risk that current market price may be below our contractual price. We do not use financial instruments to hedge commodity prices.

The Company’s unsecured revolving line of credit bears an interest rate using the commercial bank’s prime rate or LIBOR as the basis, and therefore is subject to additional expense should there be an increase in prime or LIBOR interest rates. The Company has no foreign operations and accordingly, no foreign exchange rate fluctuation risk.

The following consolidated financial statements of the Company are included in response to this item:


	Report of Independent Accountants

	Consolidated Balance Sheets as of December 28, 2002 and December 29, 2001

	Consolidated Statements of Operations for the fiscal years ended December 28, 2002, December 29, 2001, and December 30, 2000

	Consolidated Statements of Cash Flows for the fiscal years ended December 28, 2002, December 29, 2001, and December 30, 2000

	Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 28, 2002, December 29, 2001, and December 30, 2000

	Notes to the Consolidated Financial Statements

	Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Panera Bread Company and its subsidiaries at December 28, 2002 and December 29, 2001, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 2002, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill to conform to Statement of Financial Accounting Standards No. 142.

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

Panera Bread Company operates a retail bakery-cafe business and franchising business under the concept names “Panera Bread Company” and “Saint Louis Bread Company”. Up until the year ended December 26, 1998, the Company operated under the name Au Bon Pain Co., Inc. and consisted of two retail bakery-cafe businesses and two franchising businesses operating under the concept names “Au Bon Pain” and “Saint Louis Bread Company”. As described in Note 6, effective on May 16, 1999, the Company sold the Au Bon Pain Division.

For the year ended December 28, 2002, the consolidated financial statements consist of the accounts of Panera Bread Company, its wholly owned subsidiaries Panera, LLC (formerly Panera, Inc.) and Pumpernickel Inc., its 75% interest in its subsidiary Pain Francais, Inc. (currently in the process of voluntary dissolution with the State of New York), and its indirect subsidiaries, Pumpernickel Associates, LLC, Panera Enterprises, Inc., and, through Artisan Bread, LLC, a majority investment in Cap City Bread, LLC (since its formation in October 2001). At December 28, 2002, the Company’s interest was 88%. For the year ended December 29, 2001, the consolidated financial statements consist of the accounts of Panera Bread Company, its wholly owned subsidiary Panera, Inc. (now Panera, LLC), its 75% interest in its subsidiary Pain Francais, Inc., and, through Artisan Bread, LLC, an indirect subsidiary, a 90% investment in Cap City Bread, LLC. For the year ended December 30, 2000, the consolidated financial statements consist of the accounts of Panera Bread Company and Panera, Inc. (now Panera, LLC), its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications, including separating pre-opening expenses from bakery-cafe expenses to increase transparency of such costs, have been made to conform previously reported data to the current presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company considers all highly liquid investments with a maturity at the time of purchase of three months or less to be cash equivalents.

Investments consist of United States Treasury notes and mortgage-backed government notes and are classified as short-term or long-term investments in the accompanying consolidated balance sheet based upon their stated maturity dates which range from November 2003 to September 2004.

Management designates the appropriate classification of its investments at the time of purchase based upon its intended holding period and reevaluates such designation at each ba


(Mark One)
þ		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the fiscal year ended December 28, 2002,

or

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the transition period from to


Delaware		04-2723701
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6710 Clayton Rd., Richmond Heights, MO (Address of principal executive offices)		63117 (Zip code)


PART I
PART II
REPORT OF INDEPENDENT ACCOUNTANTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
PART III
PART IV
VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
EX-10.6.18 Executive Employment Agreement-P Twohig
EX-10.13 Bakery Product Supply Agreement
EX-21 Registrant's Subsidiaries
EX-23.1 Consent of PricewaterhouseCoopers L.L.P.
EX-99.1 Chief Executive Officer Certification
EX-99.2 Chief Financial Officer Certification



			For the fiscal year ended

			December 28,			December 29,			December 30,
			2002			2001			2000

Company-owned:
	Beginning of year			110			90			81
	Acquired from franchisee(1)			3			—			—
	New bakery-cafes opened			23			21			11
	Bakery-cafes closed			(4	)		(1	)		(2	)

		End of year		132			110			90



			For the fiscal year ended

			December 28,			December 29,			December 30,
			2002			2001			2000

Franchise-operated:
	Beginning of year			259			172			102
	New bakery-cafes opened			92			88			70
	Bakery-cafes closed			(2	)		(1	)		—
	Sold to Company(1)			(3	)		—			—

		End of year		346			259			172

System-wide:
	Beginning of year			369			262			183
	New bakery-cafes opened			115			109			81
	Bakery-cafes closed			(6	)		(2	)		(2	)

		End of year		478			369			262

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Facility	Square Footage

Franklin, MA		25,000
Chicago, IL		20,600
Cincinnati, OH		18,000
Washington, DC (located in Beltsville, MD)		17,000
Warren, OH		12,500
St. Louis, MO		12,100
Orlando, FL		11,850
Atlanta, GA		10,000
Greensboro, NC		9,600
Kansas City, KS		9,500
Detroit, MI		9,300
Dallas, TX		7,800
Minneapolis, MN		6,200
Denver, CO		5,000


		Company/		Franchise-
		Joint Venture		operated		Total
State		bakery-cafes		bakery-cafes		bakery-cafes

Alabama			1				1
Arkansas					2		2
Colorado					10		10
Connecticut					2		2
Florida			4		30		34
Georgia			8		3		11
Iowa					10		10
Illinois			32		24		56
Indiana			1		10		11
Kansas					13		13
Kentucky					5		5
Massachusetts			2		14		16
Maryland					13		13
Maine					2		2
Michigan			24		10		34
Minnesota					15		15
Missouri			38		15		53
North Carolina					13		13
Nebraska					6		6
New Hampshire					6		6
New Jersey					15		15
New York			2		1		3
Ohio					56		56
Oklahoma					15		15
Pennsylvania			5		25		30
Rhode Island					2		2
South Carolina			1				1
Tennessee					9		9
Texas					6		6
Virginia			14				14
West Virginia					2		2
Wisconsin					12		12

	Totals		132		346		478


ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED MATTERS


2001	High			Low

First Quarter	$	15	.055	$	7	.187
Second Quarter	$	19	.85	$	14	.00
Third Quarter	$	21	.835	$	15	.035
Fourth Quarter	$	27	.325	$	17	.275



				For the fiscal years ended(1)

				December 28,		December 29,		December 30,			December 25,			December 26,
				2002		2001		2000			1999(2)			1998


				(in thousands, except per share data)
Revenues:
	Bakery-cafe sales			$	212,645	$	157,684	$	125,486		$	156,738		$	237,102
	Franchise royalties and fees				27,892		19,577		12,059			7,384			6,161
	Commissary sales to franchisees				37,215		23,856		13,844			7,237			6,397

			Total Revenue		277,752		201,117		151,389			171,359			249,660

Costs and expenses:
	Bakery-cafe expenses:
		Cost of food and paper products			63,255		48,253		40,998			52,362			81,082
		Labor			63,172		45,768		36,281			45,167			66,977
		Occupancy			14,619		11,345		9,313			15,552			28,016
		Other operating expenses			27,971		20,729		16,050			18,740			27,826

			Total bakery-cafe expenses		169,017		126,095		102,642			131,821			203,901

Commissary cost of sales to franchisees					33,959		21,965		12,261			6,490			6,100
Depreciation and amortization					13,965		10,839		8,412			6,379			12,667
General and administrative expenses					24,986		19,589		16,381			17,104			18,769
Pre-opening expenses					1,051		912		414			301			299
Non-recurring charge(3)					—		—		494			5,545			26,236

			Total costs and expenses		242,978		179,400		140,604			167,640			267,972

Operating profit (loss)					34,774		21,717		10,785			3,719			(18,312	)
Interest expense					32		72		164			2,745			6,396
Other expense (income), net					287		213		(409	)		735			1,445
Minority interest					180		8		—			(25	)		(127	)

Income (loss) before income taxes and extraordinary item					34,275		21,424		11,030			264			(26,026	)
Provision (benefit) for income taxes					12,510		8,272		4,177			511			(5,532	)

Income (loss) before extraordinary item					21,765		13,152		6,853			(247	)		(20,494	)
Extraordinary loss from early extinguishment of debt, net of tax of $197					—		—		—			382			—

Net income (loss)				$	21,765	$	13,152	$	6,853		$	(629	)	$	(20,494	)


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



				For the fiscal years ended(3)

				December 28,			December 29,			December 30,
				2002			2001			2000

Revenues:
	Bakery-cafe sales				76.6	%		78.4	%		82.9	%
	Franchise royalties and fees				10.0			9.7			8.0
	Commissary sales to franchisees				13.4			11.9			9.1

		Total revenue			100.0	%		100.0	%		100.0	%

Cost and expenses:
	Bakery-cafe expenses(1)
		Cost of food and paper products			29.7	%		30.6	%		32.7	%
		Labor			29.7			29.0			28.9
		Occupancy			6.9			7.2			7.4
		Other operating expenses			13.2			13.1			12.8

			Total bakery-cafe expenses		79.5	%		80.0	%		81.8	%

Commissary cost of sales to franchisees(2)					91.3	%		92.1	%		88.6	%
Depreciation and amortization					5.0			5.4			5.6
General and administrative expenses					9.0			9.7			10.8
Pre-opening expenses					.4			.5			.3
Non-recurring charge					—			—			.3

Operating profit					12.5			10.8			7.1
Interest expense					—			—			.1
Other expense (income), net					.1			.1			(.3	)
Minority interest					.1			—			—

Income before income taxes					12.3			10.7			7.3
Income taxes					4.5			4.1			2.8

Net income					7.8	%		6.5	%		4.5	%



	Fifty-two weeks ended

	December 28,			December 29,
	2002			2001

Company-owned		4.1	%		5.8	%
Franchise-operated		6.1	%		5.8	%
System-wide		5.5	%		5.8	%


		Fifty-two		Fifty-two
		weeks ended		weeks ended
		December 28,		December 29,
		2002		2001

Franchise royalties		$	24,692	$	16,838
Franchise fees			3,200		2,739

	Total	$	27,892	$	19,577


ITEM 1.	BUSINESS


ITEM 2.	PROPERTIES


ITEM 3.	LEGAL PROCEEDINGS


(b)	Holders.



	Payments due by period as of December 28, 2002 (in thousands)

	Total		In 2003		2004 - 2005		2006 - 2007		After 2007

Operating Leases(1)	$	102,738	$	14,127	$	26,987	$	23,088	$	38,536



	Amounts Committed as of December 28, 2002 (in thousands)

	Total		In 2003		2004 - 2005		2006 - 2007		After 2007

Lease Guarantees(1)	$	34,390	$	8,638	$	12,338	$	8,334	$	5,080
Standby Letter of Credit(2)		500		500		—		—		—

Total Commercial Commitments	$	34,890	$	9,138	$	12,338	$	8,334	$	5,080


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



				For the fiscal years ended

				December 28,		December 29,		December 30,
				2002		2001		2000

Revenues:
	Bakery-cafe sales			$	212,645	$	157,684	$	125,486
	Franchise royalties and fees				27,892		19,577		12,059
	Commissary sales to franchisees				37,215		23,856		13,844

			Total revenue		277,752		201,117		151,389

Costs and expenses:
	Bakery-cafe expenses:
		Cost of food and paper products			63,255		48,253		40,998
		Labor			63,172		45,768		36,281
		Occupancy			14,619		11,345		9,313
		Other operating expenses			27,971		20,729		16,050

			Total bakery-cafe expenses		169,017		126,095		102,642

	Commissary cost of sales to franchisees				33,959		21,965		12,261
	Depreciation and amortization				13,965		10,839		8,412
	General and administrative expenses				24,986		19,589		16,381
	Pre-opening expenses				1,051		912		414
	Non-recurring charge (Note 6)				—		—		494

			Total costs and expenses		242,978		179,400		140,604

Operating profit					34,774		21,717		10,785
Interest expense					32		72		164
Other expense (income), net					287		213		(409	)
Minority interest					180		8		—

Income before income taxes					34,275		21,424		11,030
Income taxes (Note 10)					12,510		8,272		4,177

Net income				$	21,765	$	13,152	$	6,853

Earnings per common share:
Basic:
	Net income				$.75		$.47		$.27

Diluted:
	Net income				$.73		$.46		$.26

Weighted average shares of common stock outstanding:
	Basic				28,923		27,783		25,114
	Diluted				29,891		28,886		26,267



		Common Stock $.0001 Par Value


		Class A				Class B					Treasury Stock					Additional					Total
																Paid-In		Retained			Stockholders’
		Shares		Amount		Shares			Amount		Shares		Amount			Capital		Earnings			Equity

	Balance, Dec. 25, 1999		21,262	$	3		3,072		$	—		—	$	—		$	70,579	$	2,664		$	73,246
Exercise of employee stock options			2,177														8,206					8,206
Issuance of common stock			40														182					182
Issuance of common stock for employee bonus																	1		(1	)		—
Exercise of Warrants			264																			—
Conversions of Class B to Class A			108				(108	)														—
Repurchase of Class A common stock												109		(900	)							(900	)
Income tax benefit related to stock option plan																	4,001					4,001
Net income			—		—		—			—		—		—			—		6,853			6,853

	Balance, Dec. 30, 2000		23,851		3		2,964			—		109		(900	)		82,969		9,516			91,588
Exercise of employee stock options			1,760														6,714					6,714
Issuance of common stock			32														395					395
Conversions of Class B to Class A			375				(375	)														—
Income tax benefit related to stock option plan																	8,023					8,023
Net income			—		—		—			—		—		—			—		13,152			13,152

	Balance, Dec. 29, 2001		26,018		3		2,589			—		109		(900	)		98,101		22,668			119,872
Exercise of employee stock options			781														3,032					3,032
Issuance of common stock			35														923					923
Conversions of Class B to Class A			612				(612	)														—
Income tax benefit related to stock option plan																	8,064					8,064
Net income			—		—		—			—		—		—			—		21,765			21,765

	Balance, Dec. 28, 2002		27,446	$	3		1,977		$	—		109	$	(900	)	$	110,120	$	44,433		$	153,656