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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. o

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 aggregate market value of the registrant’s voting Class A and Class B Common Stock held by non-affiliates as of July 11, 2003 was $1,184,551,642. 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 February 27, 2004: 28,412,233 shares of Class A Common Stock ($.0001 par value) and 1,701,521 shares of Class B Common Stock ($.0001 par value).

Portions of the proxy statement for the annual stockholders’ meeting to be held May 27, 2004 are incorporated by reference into Part III.

Panera Bread Company (including its wholly and 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 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. As of December 27, 2003, the Company operates, directly and through area development agreements with 32 franchisee groups, bakery-cafes under the names Panera Bread and Saint Louis Bread Company. See Note 16 of the Company’s Consolidated Financial Statements for segment information.

As of December 27, 2003, the Company’s retail operations consist of 173 Company-owned bakery-cafes and 429 franchise-operated bakery-cafes. 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.

Bakery-cafes are principally located in suburban, strip mall, and regional mall locations and currently operate in 35 states. The Company’s revenues were $355.9 million, consisting of $265.9 million of bakery-cafe sales, $36.2 million of franchise royalties and fees, and $53.7 million of fresh dough sales to franchisees, and franchisees’ bakery-cafe sales were $711.0 million for the fiscal year ended December 27, 2003.

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 operating bakery-cafes in the Jacksonville, Florida market from its franchisee. During fiscal 2003, the Company acquired 15 operating bakery-cafes and the area development rights in the Louisville/ Lexington, Kentucky; Dallas, Texas; Toledo, Ohio; and Ann Arbor, Michigan markets from franchisees.

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 a responsive 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, PM “chill out,” lunch in the evening, and take home bread. On a system-wide basis, annualized average unit volume increased 0.7% to $1,852,000 for the fifty-two weeks ended December 27, 2003 compared to $1,840,000 for the fifty-two weeks ended December 28, 2002.

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 its concept has significant growth potential, which it hopes to realize through a combination of Company 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 27, 2003, there were 429 franchised bakery-cafes operating and signed commitments to open an additional 409 bakery-cafes.

There were 173 wholly or majority-owned Company bakery-cafes operating at December 27, 2003. In order to benefit from the advantages of local market ownership interest in Company bakery-cafes, the Company entered into an agreement in 2001 with its former president as a minority interest owner to develop and manage up to 50 bakery-cafes in the Northern Virginia and Central Pennsylvania markets. Under this agreement, there were 27 bakery-cafes operating in these markets at December 27, 2003. After October 2006, the Company and the minority interest owner each have rights which could, if exercised, permit/require the Company to purchase the bakery-cafes at contractually determined values based on multiples of cash flows.

The Company believes that providing bakery-cafe operators the opportunity to participate in the success of the bakery-cafe will enable the Company to attract and retain experienced and highly motivated personnel, which will result in a better customer experience. The Company developed a program and began implementation in certain markets in 2003 to allow unit general managers and multi-unit managers to own a minority interest in a bakery-cafe. Prior to full implementation of the program, the Company modified the program from an ownership structure to a multi-year bonus structure, which will allow operators to participate in the success of a bakery-cafe. The Company expects to continue implementation of this bonus structure where appropriate as an alternative to its traditional Company-owned or franchised bakery-cafes to facilitate the development and operation of bakery-cafes.

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 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 only. 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 27, 2003 was $6.61. Breakfast average check per transaction was $4.86, lunch average check per transaction was $7.65, PM “chill out” average check per transaction was $6.67, and lunch in the evening average check per transaction was $7.42. 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.

Franchised bakery-cafes contribute to the Company 0.4% of sales to a national advertising fund and 0.4% of sales as a marketing administration fee and are required to spend 2.0% of sales in their local markets on advertising. The Company contributes similar amounts from Company-owned bakery-cafes towards the national advertising fund and marketing administration fee. The national advertising fund and marketing administration fee contributions received from franchised bakery-cafes are consolidated with Company amounts in the Company’s financial statements. Liabilities for unexpended funds are included in accrued expenses in the consolidated balance sheets. The Company’s contributions to the national advertising fund and marketing administration fee as well as its own media costs are recorded as part of other operating expenses in the consolidated statements of operations. 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

The average bakery-cafe size is 4,330 square feet. Currently all Company-owned bakery-cafes are in leased premises. Lease terms are typically ten years with one, two, or three five-year renewal option periods thereafter. Leases typically have charges for minimum base occupancy, a proportionate share of building and common area 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 fresh dough facility system for both Company-owned and franchise-operated bakery-cafes. The following table sets forth the number of fresh dough facilities:

The Company believes its fresh dough facility system provides a competitive advantage. The fresh dough facilities ensure 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 fresh dough facility 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 27, 2003, 98 trucks were leased by the Company. The optimal distribution limit is approximately 200 miles. An average distribution route delivers dough to 6 bakery-cafes.

The Company has contracted externally for the supply of the remaining baked goods in the bakery-cafes, referred to as sweet goods. In March 1998, the Company entered into a multi-year supply agreement with Bunge Food Corporation (“Bunge”) for the supply of substantially all of its sweet goods. The Company’s pricing was structured as a cost plus arrangement. In November 2002, the Company signed an agreement with Dawn Food Products, Inc. (“Dawn”) to provide sweet goods for the period 2003-2007. The agreement with Dawn is also structured as a cost plus agreement. The transition from Bunge to Dawn was completed in the first quarter of fiscal 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 allows franchisees who elect to do so access to certain of its proprietary bakery-cafe systems and systems support.

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 fresh dough facilities have computerized systems which allow the fresh dough facilities to accept electronic orders from the bakery-cafes and deliver the ordered product back to the bakery-cafes.

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 fresh dough facilities, 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 27, 2003, there were three 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 and annually files an Uniform Franchise Offering Circular to facilitate sale of additional franchise development agreements. 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 4-5% 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 franchisees are required to purchase all of their dough products from sources approved by the Company. The Company’s fresh dough facility system supplies fresh dough products to substantially all franchise-operated bakery-cafes. The Company does not finance franchisee construction or area development agreement purchases. In addition, the Company does not hold an equity interest in any of the franchised bakery-cafes.

The Company has entered into franchise area development agreements with 32 franchisee groups as of December 27, 2003. Also, as of December 27, 2003, there were 429 franchised bakery-cafes open and commitments to open 409 additional franchised bakery-cafes. The Area Development Agreement (ADA) requires a franchisee to develop a specified number of bakery-cafes on or before specific dates. If a franchisee fails to develop bakery-cafes on schedule, the Company has the right to terminate the ADA and

As of December 27, 2003, the Company had 3,924 full-time associates (defined as associates who average 25 hours or more per week), of whom 344 were employed in general or administrative functions principally at or from the Company’s Support Centers (executive offices); 676 were employed in the Company’s fresh dough facility operations; and 2,904 were employed in the Company’s bakery-cafe operations as bakers, managers, and associates. The Company also had 4,078 part-time hourly associates at the bakery-cafes. There are no collective bargaining agreements. The Company considers its employee relations to be good. The Company places a priority on staffing its bakery-cafes, fresh dough facilities, and support center operations with skilled associates and invests in training programs to ensure 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 Securities Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).

Each fresh dough facility and 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 fresh dough facilities and bakery-cafes as well as fines and possible closure relating to existing fresh dough facilities 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 is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime, and other working conditions.

The Company and its fresh dough facilities 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 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, two, or three five-year renewal option periods thereafter. Leases typically have charges for minimum base occupancy, a proportionate share of building and common area 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 fresh dough facilities as of December 27, 2003 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 also leases approximately 17,600 square feet of office space in Needham, MA to house portions of its executive and support functions. The annual rent on this space is approximately $225,000. The lease expires October 31, 2008.

Information with respect to the number of bakery-cafes operated by state at December 27, 2003 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’s financial position, results of operations, or cash flows 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 27, 2003.

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

On February 27, 2004, the last sale price for the Class A Common Stock, as reported on the Nasdaq National Market System, was $38.76.

On February 27, 2004, the Company had 1,939 holders of record of its Class A Common Stock and 46 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 2004 as it intends to re-invest earnings in continued growth of its operations.

The Company discloses information about its securities authorized for issuance under equity compensation plans in Item 12 of this annual report.

The following selected financial data has 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 2003, 2002, 2001, and 1999 were comprised of 52 weeks.

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

(3)	In 1999, the Company recorded a $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)	Loss from extinguishment of debt was reclassified from an extraordinary item in accordance with the provisions of SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.”


(5)	Effective December 29, 2002, the Company adopted the provisions of SFAS 143, “Accounting for Asset Retirement Obligations.” This Statement requires the Company to record an estimate for costs of retirement obligations that may be incurred at the end of lease terms of existing bakery-cafes or other facilities. Upon adoption of SFAS 143, the Company recognized a one-time cumulative effect charge of approximately $0.2 million (net of deferred tax benefit of approximately $0.1 million), or $.01 per diluted share. For further information, see Note 2, “Summary of Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements.

(6)	Excludes Au Bon Pain stores.

(7)	Information not available.

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

The Company has included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” information on franchised and system-wide comparable bakery-cafe sales increases, annualized average unit volumes, and average weekly sales. Management believes inclusion of system-wide sales information, particularly annualized average unit volumes and average weekly sales, is useful in assessing consumer acceptance of the Company’s bakery-cafe concept as it measures the impact of both comparable sales and new stores. Franchised sales information also provides an understanding of the Company’s revenues as royalties from franchisees are based on their sales.

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

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 fresh dough facility sales to franchisees.

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. During fiscal 2003, the Company acquired 15 operating bakery-cafes and the area development rights in the Louisville/ Lexington, Kentucky; Dallas, Texas; Toledo, Ohio; and Ann Arbor, Michigan markets from franchisees.

Increases in comparable bakery-cafe sales for the fifty-two weeks ended December 27, 2003, December 28, 2002, and December 29, 2001 were as follows:

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

Comparable sales increases were lower during the fifty-two weeks ended December 27, 2003 than during the fifty-two weeks ended December 28, 2002 and December 29, 2001 as a result of several factors. These factors include the more difficult winter weather in the first quarter of 2003, the negative impact of the east coast and midwest power outage and hurricane Isabel in 2003, and the impact of ROI based real estate decisions relating to new stores that negatively impacted existing store performance in 2003. In addition, during the second quarter of 2003, the Company began to implement increased staffing and other initiatives that focused on quality and speed of customer service in Company-owned bakery-cafes. The implementation

Total Company revenues for the fifty-two weeks ended December 27, 2003 increased 28.1% to $355.9 million compared to $277.8 million for the fifty-two weeks ended December 28, 2002. The growth in total revenues for the fifty-two weeks ended December 27, 2003, as compared to the prior year, is primarily due to the opening of 131 new bakery-cafes in 2003 as well as the increase in system-wide average weekly sales (excluding closed locations) of 0.7% for the fifty-two weeks ended December 27, 2003.

Bakery-cafe sales for the fifty-two weeks ended December 27, 2003 for the Company increased 25.1% to $265.9 million from $212.6 million for the fifty-two weeks ended December 28, 2002. The increase in bakery-cafe sales is primarily due to the impact of a full year’s operations of the 23 Company bakery-cafes opened in 2002, the opening of 29 Company-owned bakery-cafes in 2003, and the 1.7% increase in comparable bakery-cafe sales for the fifty-two weeks ended December 27, 2003. The average weekly sales per Company-owned bakery-cafe (excluding closed locations) and the related number of operating weeks for the fifty-two weeks ended December 27, 2003 and December 28, 2002 are as follows:

Franchise royalties and fees rose 29.7% to $36.2 million for the fifty-two weeks ended December 27, 2003 from $27.9 million for the fifty-two weeks ended December 28, 2002. The components of franchise royalties and fees are as follows (in thousands):

The increase in royalty revenue can be attributed to the impact of a full year’s operations of the 92 franchised bakery-cafes opened in 2002 and the addition of 102 franchised bakery-cafes in 2003. The average weekly sales per franchise-operated bakery-cafe (excluding closed locations) and the related number of operating weeks for the fifty-two weeks ended December 27, 2003 and December 28, 2002 are as follows:

As of December 27, 2003, there were 429 franchised bakery-cafes open and commitments to open 409 additional franchised bakery-cafes. 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 four to five years. The ADA requires a franchisee to develop a specified number of bakery-cafes on or before specific dates. If a franchisee fails to develop bakery-cafes on schedule, the Company has the right to

Fresh dough facility sales to franchisees increased 44.4% to $53.7 million for the fifty-two weeks ended December 27, 2003 from $37.2 million for the fifty-two weeks ended December 28, 2002. The increase was primarily driven by the increased number of franchise bakery-cafes opened, as well as a shift in certain product being distributed through the fresh dough facility system rather than a third party.

The cost of food and paper products includes the costs associated with the fresh dough operations that sell fresh dough products to Company-owned bakery-cafes as well as the cost of food and paper products supplied by third party vendors and distributors. The costs associated with the fresh dough operations that sell fresh dough products to the franchised bakery-cafes are excluded and are shown separately as fresh dough cost of sales to franchisees in the Consolidated Statements of Operations. The cost of food and paper products decreased to 27.7% of bakery-cafe sales for the fifty-two weeks ended December 27, 2003 compared to 29.7% of bakery-cafe sales for the fifty-two weeks ended December 28, 2002. This decrease in the cost of food and paper products as a percentage of bakery-cafe sales is primarily due to the Company’s improved leveraging of its fresh dough manufacturing and distribution costs as it opened more bakery-cafes in fiscal 2003. For the fifty-two weeks ended December 27, 2003, there was an average of 32.7 bakery-cafes per fresh dough facility compared to an average of 27.3 for the fifty-two weeks ended December 28, 2002. Additionally, lower ingredient costs, including the benefits of our new sweet goods contract that commenced during the first quarter of fiscal 2003, further benefited food cost.

Labor expense was $81.2 million, or 30.5% of bakery-cafe sales, for the fifty-two weeks ended December 27, 2003 compared to $63.2 million, or 29.7% of bakery-cafe sales, for the fifty-two weeks ended December 28, 2002. The labor expense as a percentage of bakery-cafe sales increased between the fifty-two weeks ended December 27, 2003 and the fifty-two weeks ended December 28, 2002 primarily as a result of our customer service initiatives in fiscal 2003 related to quality and speed of service as well as table delivery service testing and the continued commitment to training and staffing our bakery-cafes.

Occupancy costs were $18.0 million, or 6.8% of bakery-cafe sales, for the fifty-two weeks ended December 27, 2003 compared to $14.6 million, or 6.9% of bakery-cafe sales, for the fifty-two weeks ended December 28, 2002. The occupancy cost as a percentage of bakery-cafe sales declined for the fifty-two weeks ended December 27, 2003 due to the leveraging of these costs over higher sales volumes.

Other bakery-cafe operating expenses, which include advertising, retail field overhead, utilities, and other cafe expenses, were $36.8 million, or 13.8% of bakery-cafe sales, for the fifty-two weeks ended December 27, 2003 compared to $28.0 million, or 13.2% of bakery-cafe sales, for the fifty-two weeks ended December 28, 2002. The increase in other bakery-cafe operating expenses as a percentage of bakery-cafe sales for the fifty-two weeks ended December 27, 2003 is primarily due to increased organizational costs for field management, costs associated with new markets opened which do not yet have multi-unit leverage, and increased recruiting and training, repair and maintenance, and advertising costs.

For the fifty-two weeks ended December 27, 2003, fresh dough facility cost of sales to franchisees was $47.2 million, or 87.8% of fresh dough facility sales to franchisees, compared to $34.0 million, or 91.3% of fresh dough facility sales to franchisees, for the fifty-two weeks ended December 28, 2002. The decrease in the fresh dough cost of sales rate in fiscal 2003 was primarily due to favorable ingredient costs and the impact of the favorable change in our sweet goods supply agreement, which took effect during the first quarter of fiscal 2003.

Depreciation and amortization was $19.5 million, or 5.5% of total revenue, for the fifty-two weeks ended December 27, 2003 compared to $14.0 million, or 5.0% of total revenue, for the fifty-two weeks ended December 28, 2002. The increase in depreciation and amortization as a percentage of total revenue for the fifty-two weeks ended December 27, 2003 compared to the fifty-two weeks ended December 28, 2002 is

General and administrative expenses were $28.1 million, or 7.9% of total revenue, and $25.0 million, or 9.0% of total revenue, for the fifty-two weeks ended December 27, 2003 and December 28, 2002, respectively. The decrease in the general and administrative expense rate between 2003 and 2002 results primarily from higher revenues, which help leverage general and administrative expenses, and from decreased bonus costs.

Pre-opening expenses, which consist primarily of labor and food costs incurred during in-store training and preparation for opening, exclusive of manager training costs which are included in other operating expenses, of $1.5 million, or 0.4% of total revenue, for the fifty-two weeks ended December 27, 2003 were consistent with the $1.1 million, or 0.4% of total revenue, of pre-opening expenses for the fifty-two weeks ended December 28, 2002.

Operating profit for the fifty-two weeks ended December 27, 2003 increased to $49.9 million, or 14.0% of total revenue, from $34.8 million, or 12.5% of total revenue, for the fifty-two weeks ended December 28, 2002. Operating profit for the fifty-two weeks ended December 27, 2003 rose as a result of operating leverage that results from opening 29 Company bakery-cafes in 2003 as well as the factors described above.

Other expense for the fifty-two weeks ended December 27, 2003 increased to $1.2 million, or 0.3% of total revenue, from $0.3 million, or 0.1% of total revenue, for the fifty-two weeks ended December 28, 2002. The increase in other expense results primarily from increased operating fee payments to the minority interest owner. See Note 12 for additional information.

Minority interest represents the portion of the Company’s operating profit that is attributable to the ownership interest of our minority interest owner.

The provision for income taxes increased to $17.6 million for the fifty-two weeks ended December 27, 2003 compared to $12.5 million for the fifty-two weeks ended December 28, 2002. The tax provisions for the fifty-two weeks ended December 27, 2003 and December 28, 2002 reflects a consistent combined federal, state, and local effective tax rate of 36.5%.

Income before cumulative effect of accounting change for the fifty-two weeks ended December 27, 2003 increased $8.9 million, or 40.8%, to $30.6 million, or $1.01 per diluted share, compared to income before cumulative effect of accounting change of $21.8 million, or $0.73 per diluted share, for the fifty-two weeks ended December 28, 2002. The increase in income before cumulative effect of accounting change in 2003 was primarily due to the operating leverage from the opening of 23 bakery-cafes in 2002 that were open for a full year in 2003 and leverage from opening 29 bakery-cafes in 2003.

Effective December 29, 2002, the Company adopted the provisions of SFAS 143, “Accounting for Asset Retirement Obligations.” SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement requires the Company to record an estimate for costs of retirement obligations that may be incurred at the end of lease terms of existing bakery-cafes or other facilities. Upon adoption of SFAS 143, the Company recognized a one-time cumulative effect charge of approximately $0.2 million (net of deferred tax benefit of

Net income for the fifty-two weeks ended December 27, 2003 increased $8.6 million, or 39.7%, to $30.4 million, or $1.00 per diluted share, compared to net income of $21.8 million, or $0.73 per diluted share, for the fifty-two weeks ended December 28, 2002. The increase in net income in 2003 is consistent with the factors described above.

Total Company 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) and the related number of operating weeks for the fifty-two weeks ended December 28, 2002 and December 29, 2001 are as follows:

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 dates. If a franchisee fails 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.

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) and the related number of operating weeks for the fifty-two weeks ended December 28, 2002 and December 29, 2001 are as follows:

Fresh dough facility 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 described above.

The cost of food and paper products includes the costs associated with the fresh dough facility operations that sell fresh dough products to Company-owned bakery-cafes as well as the cost of food and paper products supplied by third party vendors and distributors. The costs associated with the fresh dough facility operations that sell fresh dough products to the franchised bakery-cafes are excluded and are shown separately as fresh dough facility 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 fresh dough facility 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 December 29, 2001. The occupancy cost as a percentage of bakery-cafe sales declined for the fifty-two weeks ended December 28, 2002, due to the leveraging of these costs over higher sales volumes.

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, fresh dough facility cost of sales to franchisees was $34.0 million or 91.3% of fresh dough facility sales to franchisees compared to $22.0 million or 92.1% of fresh dough facility sales to franchisees for the fifty-two weeks ended December 29, 2001. The decrease in the fresh

dough facility 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 sweet goods contract. The Company entered into a five-year supply agreement for sweet 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 fresh dough facility 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 described above.

Minority interest represents the portion of the Company’s operating profit that is attributable to the ownership interest of our minority interest owner in the Northern Virginia/ Central Pennsylvania area.

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, fresh dough facility sales to franchisees as well as the leveraging of general and administrative and depreciation and amortization expenses.

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 revenue upon delivery of product or performance of services as follows. Bakery-cafe sales are recorded upon delivery of food and other products to a customer. In addition, fresh dough sales to franchisees are recorded upon delivery of fresh dough to franchisees. Also, 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 asset arising from capital loss carryforwards on the sale of the Au Bon Pain Division and charitable contribution carryforwards which it may not be able to utilize prior to their expiration. The Company’s recorded net deferred tax asset is limited by the underlying tax benefit 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 circumstance indicates it is more likely than not 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 indicating an impairment in the value of the Company’s intangible assets.

We are self-insured for a significant portion of our workers’ compensation and general, auto, and property 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 to determine required insurance reserves. These assumptions are closely reviewed, monitored, and adjusted when warranted by changing circumstances. Actual experience related to number of claims and cost per claim could be more or less favorable than estimated resulting in expense reduction or increase.

The Company is obligated under non-cancelable operating leases for its administrative offices, fresh dough facilities, 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 a prime tenant or guarantor for certain operating leases of four franchisee locations and 74 locations of the former Au Bon Pain Division, or its franchisees. The leases have terms expiring on various dates from January 31, 2004 to February 1, 2014, and the guarantees have a potential amount of future rental payments of approximately $38.6 million. The obligation from leases or guarantees will continue to decrease over time as these operating leases expire or are not renewed. As these guarantees were initiated prior to December 31, 2002, the Company has not recorded a liability for these leases or guarantees. Also, the Company has not had to make any payments related to the leases or guarantees. Au Bon Pain and the respective franchisees continue to have primary liability for these operating leases.

In 2001, the Company, pursuant to an agreement with its former president as a minority interest owner, is developing and managing up to 50 bakery-cafes in the Northern Virginia and Central Pennsylvania markets. After October 2006, the Company and the minority interest owner each have rights which could, if exercised, permit/require the Company to purchase the bakery-cafes at contractually determined values based on multiples of cash flows. The Company has not recorded a liability for these purchase rights. Had the Company been required to repurchase the 27 bakery-cafes in operation under this agreement at December 27, 2003 at the contractually determined value based on the minority interest owner’s right to sell, a payment of $6.1 million would have been required.

The Company reached agreement with Dawn Food Products, Inc. in the first quarter of 2003 to provide sweet goods for the period 2003-2007. The agreement with Dawn is structured as a cost plus agreement.

In fiscal 2003, the Company executed Confidential and Proprietary Information and Non-Competition Agreements (Agreements) with certain employees. These Agreements contain a provision whereby employees would be due a certain number of weeks of their salary if their employment was terminated by the Company as specified in the Agreement. In accordance with SFAS 5, the Company has not recorded a liability for these amounts due employees. Rather, the Company will record a liability for these amounts when an amount becomes due to an employee. As of December 27, 2003, the total amount potentially owed employees under these Agreements was approximately $4.5 million.

Cash and cash equivalents were $42.4 million at December 27, 2003 compared with $29.9 million at December 28, 2002. The Company’s principal requirements for cash are capital expenditures for the development of new bakery-cafes, for maintaining or remodeling existing bakery-cafes, for developing, remodeling, and maintaining fresh dough facilities, and for enhancements of information systems. For the fifty-two weeks ended December 27, 2003, 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 $4.2 million for the fifty-two weeks ended December 27, 2003 and $3.0 million for the fifty-two weeks ended December 28, 2002.

Funds provided by operating activities for the fifty-two weeks ended December 27, 2003 were $68.5 million compared to $46.3 million for the fifty-two weeks ended December 28, 2002. For 2003, funds provided consisted primarily of $30.4 million from net income, $19.5 from depreciation, $6.8 million from the tax benefit from stock option exercises, and $8.8 million from decreased deferred taxes due principally to utilization of net operating loss carryforwards. For 2002, funds provided consisted primarily of $21.8 million from net income, $14.0 million from depreciation, $8.1 million from the tax benefit from stock option exercises, and $4.2 million from decreased deferred taxes due principally to utilization of net operating loss carryforwards.

As of December 27, 2003 the Company had fully utilized all of its net operating loss carryforwards. At December 28, 2002, the Company had net operating loss carryforwards of $17.2 million. At December 27, 2003 and December 28, 2002, the Company had federal jobs tax credit carryforwards of $0.1 million and $1.2 million, respectively, which expire in the years 2014-2015, and charitable contribution carryforwards of

$8.6 million and $6.5 million, respectively, which expire in the years 2005-2008. In addition, the Company has federal alternative minimum tax credit carryforwards of $3.5 million at December 27, 2003 and December 28, 2002 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. A valuation allowance of $3.6 million and $3.8 million at December 27, 2003 and December 28, 2002, respectively, is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. As the Company utilized its $17.2 million of federal income tax net operating loss carryforwards in 2003, it will become a cash federal income tax payer in fiscal 2004.

As of December 27, 2003 and December 28, 2002, the Company had investments of $9.0 million and $9.1 million, respectively, 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 27, 2003, all investments are classified as held-to-maturity as the Company has the intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums to maturity, which approximates fair value at December 27, 2003.

Total capital expenditures for the fifty-two weeks ended December 27, 2003 were $41.2 million and were primarily related to the opening of 29 Company-owned bakery-cafes, the opening of 3 fresh dough facilities, and the maintaining or remodeling of existing bakery-cafes and fresh dough facilities. Additionally, the Company acquired 15 operating bakery-cafes, 2 closed bakery-cafes, and 2 bakery-cafes under construction from franchisees for $21.0 million. The Company recorded goodwill of $13.8 million related to these acquisitions. Total capital expenditures were $27.1 million for the fifty-two weeks ended December 28, 2002 and were primarily related to the opening of 23 Company-owned bakery-cafes, the opening of two fresh dough facilities, and the maintaining or remodeling of existing bakery-cafes and fresh dough facilities. Additionally, the Company acquired 4 operating bakery-cafes from a franchisee for $3.3 million. These expenditures were funded by cash from operating activities and the proceeds from the exercise of stock options.

On December 19, 2003, the Company entered into a $10.0 million unsecured revolving line of credit (revolver). The revolver extends to December 19, 2006 and has an interest rate of LIBOR plus 0.75% to 1.5% depending on the Company’s leverage ratio (approximately 1.79% to 2.5% at December 27, 2003). The revolver contains restrictions relating to future indebtedness, liens, investments, distributions, mergers, acquisition, or sale of assets and certain leasing transactions. The revolver also requires the maintenance of certain financial ratios and covenants. As of December 27, 2003, the Company was in compliance with all debt covenants. There were no outstanding borrowings under the revolver at December 27, 2003.

Financing activities provided $6.2 million for the fifty-two weeks ended December 27, 2003 and $5.7 million for the fifty-two weeks ended December 28, 2002. The financing activities in the fifty-two weeks ended December 27, 2003 included $4.2 million from the exercise of stock options, $0.8 million from the issuance of common stock under employee benefit plans, and $1.2 million from capital investments by our minority interest owner. The financing activities for 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 minority interest owner, and $0.2 million in proceeds on payment of a note receivable from our minority interest owner.

The Company had working capital of $26.1 million at December 27, 2003 and $26.9 million at December 28, 2002. The $0.8 million decrease and $13.3 million increase in working capital for the fifty-two weeks ended December 27, 2003 and December 28, 2002, respectively, is net of the $4.0 million and $5.0 million, respectively, of the long-term portion of cash invested in government securities previously described. 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 2004 of approximately $75 to $80 million, principally for the opening of 45 to 55 new Company-owned bakery-cafes and the maintaining and remodeling of existing bakery-cafes and remodeling and expansion of existing fresh dough facilities. The

Company expects future bakery-cafes will require, on average, an investment per bakery-cafe (excluding pre-opening expenses which are expensed as incurred) of approximately $870,000, which is net of landlord allowance. The Company expects to fund these expenditures principally through internally generated cash flow and cash from the exercise of employee stock options supplemented, where necessary, by borrowings on its revolving line of credit.

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 trucks, administrative offices, fresh dough facilities, and bakery-cafes. We expect cash expenditures under these lease obligations to be as follows:


(1)	See Note 9 to the Consolidated Financial Statements for further information.

Our commercial commitments consist of guarantees for certain of the operating leases of four franchise locations and 74 locations of the former Au Bon Pain Division, or its franchisees. The leases have terms expiring on various dates from January 31, 2004 to February 1, 2014, and the guarantees have a potential amount of future rental payments of approximately $38.5 million. The obligation from leases or guarantees will continue to decrease over time as these operating leases expire or are not renewed. As these guarantees were initiated prior to December 31, 2002, the Company has not recorded a liability for these leases or guarantees. Also, the Company has not had to make any payments related to the leases or guarantees. Au Bon Pain and the respective franchisees continue to have primary liability for these operating leases. Potential future commitments consist of:


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

Our capital requirements, including development costs related to the opening or acquisition of additional bakery-cafes and fresh dough facilities and maintenance and remodel expenditures, have 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 thereof on the part of our franchisees and minority interest owner 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 increases in their entirety. Historically, the effects of inflation on the Company’s net income have not been materially adverse.

A majority of the Company’s employees are paid hourly rates related to federal and state minimum wage laws. Although the Company has and will continue to attempt to pass along any increased labor costs through food price increases, there can be no assurance that all such increased labor costs can be reflected in its prices or that increased prices will be absorbed by consumers without diminishing to some degree consumer spending

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” The primary objective of this interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights; such entities are known as variable-interest entities (VIE’s). This interpretation applies immediately to VIE’s created after January 31, 2003 and in the first fiscal year or interim period beginning after June 15, 2003, to VIE’s in which an enterprise held an interest prior to February 1, 2003. In October 2003, the FASB issued FASB Staff Position (FSP) No. FIN 46-6, “Effective Date of FASB Interpretation 46.” This interpretation deferred the effective date for applying FIN 46 to an interest held in a VIE or potential VIE that was created before February 1, 2003 until the end of the first interim or annual period ending after December 15, 2003, except if the company had already issued statements reflecting a VIE in accordance with FIN 46. In December 2003, the FASB issued FASB Interpretation No. 46R (FIN 46R), “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51.” Special provisions apply to enterprises that have fully or partially applied FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46 and FIN 46R is required in financial statements for public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities for all other types of entities is required in financial statements for periods ending after March 15, 2004. Adoption of the required sections of FIN 46, as modified and interpreted, including the provisions of FIN 46R, did not have a material effect on the Company’s consolidated financial statements or disclosures. The Company intends to adopt the remaining sections of this guidance when required in fiscal 2004. The Company does not expect adoption of FIN 46, as modified and interpreted, including the provisions of FIN 46R, to have a significant impact on the Company’s financial statements or disclosures.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires an issuer classify a financial instrument within its scope as a liability, or an asset in some circumstances. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except that certain provisions have been deferred indefinitely pursuant to FSP No. FAS 150-3. There was no impact on the Company’s financial statements upon adoption in fiscal 2003.

As of December 27, 2003, the Company had no derivative financial interests or derivative commodity instruments. We do however 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. As a result, we are subject to market risk that current market price may be below our contractual price. However, we do not use financial instruments to hedge commodity prices.

The Company’s unsecured revolving line of credit bears an interest rate using 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 Auditors

	Consolidated Balance Sheets as of December 27, 2003 and December 28, 2002

	Consolidated Statements of Operations for the fiscal years ended December 27, 2003, December 28, 2002, and December 29, 2001

	Consolidated Statements of Cash Flows for the fiscal years ended December 27, 2003, December 28, 2002, and December 29, 2001

	Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 27, 2003, December 28, 2002, and December 29, 2001

	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 27, 2003 and December 28, 2002, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 27, 2003, 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 2 to the consolidated financial statements, in 2003 the Company changed its method of accounting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs to conform to Statement of Financial Accounting Standards No. 143.

As discussed in Note 2 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.


(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 27, 2003,

or

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

		For the transition period from to


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 AUDITORS
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
EXHIBIT INDEX
Bylaws of the Registrant, as amended to dated
Revolving Credit Agreement
Registrant's Subsidiaries
Consent of PricewaterhouseCoopers LLP
Certification by Chief Executive Officer
Certification by Chief Financial Officer
906 Certification by CEO and CFO



				For the fiscal year ended

				December 27,			December 28,			December 29,
				2003			2002			2001

Number of bakery-cafes (includes majority-owned):
	Company-owned:
		Beginning of period			132			110			90
		Bakery-cafes opened			29			23			21
		Acquired from franchisees(1)			15			3			—
		Bakery-cafes closed			(3	)		(4	)		(1	)

			End of period		173			132			110

	Franchise operated:
		Beginning of period			346			259			172
		Bakery-cafes opened			102			92			88
		Sold to Company(1)			(15	)		(3	)		—
		Bakery-cafes closed			(4	)		(2	)		(1	)

			End of period		429			346			259



			For the fiscal year ended

			December 27,			December 28,			December 29,
			2003			2002			2001

System-wide:
	Beginning of period			478			369			262
	Bakery-cafes opened			131			115			109
	Bakery-cafes closed			(7	)		(6	)		(2	)

		End of period		602			478			369

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Facility	Square Footage

Franklin, MA		40,300
Chicago, IL		30,900
Cincinnati, OH		14,000
Washington, DC (located in Beltsville, MD)		17,900
Warren, OH		16,300
St. Louis, MO		30,000
Orlando, FL		16,500
Atlanta, GA		18,000
Greensboro, NC		9,600
Kansas City, KS		17,000
Detroit, MI		13,500
Dallas, TX		7,800
Minneapolis, MN		8,900
Ontario, CA		13,900
Fairfield, NJ		20,200
Denver, CO		10,000


			Franchise-
	Company		operated		Total
State	bakery-cafes		bakery-cafes		bakery-cafes

Alabama		4				4
Arkansas				2		2
California				5		5
Colorado				14		14
Connecticut		1		4		5
Delaware				1		1
Florida		5		43		48
Georgia		8		6		14
Iowa				13		13
Illinois		34		32		66


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


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES


2003	High		Low

First Quarter	$	37.64	$	24.55
Second Quarter	$	45.00	$	32.10
Third Quarter	$	47.79	$	37.36
Fourth Quarter	$	47.32	$	34.61



			For the fiscal years ended(1)

			December 27,		December 28,		December 29,		December 30,		December 25,
			2003		2002		2001		2000		1999(2)


			(in thousands, except per share data)
Revenues:
	Bakery-cafe sales		$	265,933	$	212,645	$	157,684	$	125,486	$	156,738
	Franchise royalties and fees			36,245		27,892		19,577		12,059		7,384
	Fresh dough sales to franchisees			53,708		37,215		23,856		13,844		7,237

		Total Revenue		355,886		277,752		201,117		151,389		171,359


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



				For the fiscal years ended

				December 27,			December 28,			December 29,
				2003			2002			2001

Revenues:
	Bakery-cafe sales				74.7	%		76.6	%		78.4	%
	Franchise royalties and fees				10.2			10.0			9.7
	Fresh dough sals to franchisees				15.1			13.4			11.9

			Total revenue		100.0	%		100.0	%		100.0	%
Costs and expenses:
	Bakery-cafe expenses(1):
		Cost of food and paper products			27.7	%		29.7	%		30.6	%
		Labor			30.5			29.7			29.0
		Occupancy			6.8			6.9			7.2
		Other operating expenses			13.8			13.2			13.1

			Total bakery-cafe expenses		78.8			79.5			80.0

	Fresh dough cost of sales to franchisees(2)				87.8			91.3			92.1
	Depreciation and amortization				5.5			5.0			5.4
	General and administrative expenses				7.9			9.0			9.7
	Pre-opening expenses				0.4			0.4			0.5

Operating profit					14.0			12.5			10.8
Interest expense					—			—			—
Other expense, net					0.3			0.1			0.1
Minority interest					0.1			0.1			—

Income before income taxes and cumulative effect of accounting change					13.6			12.3			10.7
Income taxes					4.9			4.5			4.1

Net income before cumulative effect of accounting change					8.6			7.8			6.5
Cumulative effect to December 28, 2002 of accounting change, net of tax					0.1			—			—

Net income					8.5	%		7.8	%		6.5	%



	Fifty-two weeks ended

	December 27,			December 28,			December 29,
	2003			2002			2001

Company-owned		1.7	%		4.1	%		5.8	%
Franchise-operated		-0.4	%		6.1	%		5.8	%
System-wide		0.2	%		5.5	%		5.8	%



	For the fifty-two weeks ended

	December 27,		December 28,
	2003		2002

Company-owned average weekly sales	$	35,208	$	33,924
Company-owned number of operating weeks		7,555		6,265


ITEM 1.	BUSINESS


				Franchise-
		Company		operated		Total
State		bakery-cafes		bakery-cafes		bakery-cafes

Indiana			3		15		18
Kansas					14		14
Kentucky			4		1		5
Massachusetts			2		18		20
Maryland					18		18
Maine					2		2
Michigan			32		8		40
Minnesota					20		20
Missouri			36		16		52
North Carolina			1		17		18
Nebraska					7		7
Nevada					2		2
New Hampshire					7		7
New Jersey					25		25
New York			5		3		8
Ohio			6		55		61
Oklahoma					15		15
Pennsylvania			7		27		34
Rhode Island					3		3
South Carolina			2				2
Tennessee			1		9		10
Texas			2		9		11
Virginia			20		1		21
West Virginia					2		2
Wisconsin					15		15

	Totals		173		429		602


ITEM 3.	LEGAL PROCEEDINGS


ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA



	Payments due by period as of December 27, 2003 (in thousands)

	In 2004		2005-2006		2007-2008		After 2008		Total

Operating Leases(1)	$	22,912	$	44,773	$	41,548	$	62,623	$	171,856



	Amounts committed as of December 27, 2003 (in thousands)

	In 2004		2005-2006		2007-2008		After 2008		Total

Lease Guarantees(1)	$	9,220	$	14,416	$	9,401	$	5,528	$	38,565


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



			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 December 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
Conversion 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 December 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
Conversion 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 December 28, 2002			27,446		3		1,977			—		109		(900	)		110,120		44,433		153,656
Exercise of employee stock options				694														4,211				4,211
Issuance of common stock				27														814				814
Conversion of Class B to Class A				130				(130	)													—
Income tax benefit related to stock option plan																		6,847				6,847
Net income		<