SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q

(Mark one)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 6, 2001

Or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO _____________

Commission file number 0-19253

Panera Bread Company
(Exact name of registrant as specified in its charter)

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

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

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

As of November 9, 2001, 12,804,306 shares and 1,331,563 shares of the registrant’s Class A and Class B Common Stock, respectively, $.0001 par value, were outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
	Notes to Consolidated Financial Statements (unaudited)
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
	ITEM 5. Other Information
	ITEM 6. Exhibits and Reports on Form 8-K
Signatures
Employment Letter Between Michael Nolan
Employment Letter Between Jon Jameson

PANERA BREAD COMPANY
INDEX

PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of October 6, 2001 and December 30, 2000 (unaudited)	3
	Consolidated Statements of Operations for the twelve and forty week periods ended October 6, 2001 and September 30, 2000 (unaudited)	4
	Consolidated Statements of Cash Flows for the forty week periods ended October 6, 2001 and September 30, 2000 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	15
PART II	OTHER INFORMATION
ITEM 5.	OTHER INFORMATION	16
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	17

2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

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

			October 6, 2001			December 30, 2000
ASSETS
Current assets:
	Cash and cash equivalents		$	11,869		$	9,011
	Accounts receivable, less allowance of $113 in 2001 and $86 in 2000			3,254			3,105
	Inventories			2,950			2,442
	Prepaid expenses			439			1,027
	Refundable income taxes			252			474
	Deferred income taxes			7,628			5,193
		Total current assets		26,392			21,252
Property and equipment, net				73,914			59,857
Other assets:
	Intangible assets, net of accumulated amortization of $7,681 in 2001 and $6,921 in 2000			17,758			17,790
	Deferred financing costs			21			24
	Deposits and other			5,106			4,731
	Deferred income taxes			5,120			8,035
		Total other assets		28,005			30,580
		Total assets	$	128,311		$	111,689
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	3,981		$	5,396
	Accrued expenses			11,711			11,893
	Current portion of computer equipment financing			—			374
	Current portion of deferred revenue			908			800
		Total current liabilities		16,600			18,463
Deferred revenue				1,222			1,638
		Total liabilities		17,822			20,101
Stockholders’ equity:
	Common stock, $.0001 par value:
		Class A shares authorized 50,000,000; issued and outstanding 12,757,984 and 11,870,918 in 2001 and 2000, respectively		1			1
		Class B shares authorized 2,000,000; issued and outstanding 1,331,563 and 1,481,922 in 2001 and 2000, respectively		—			—
	Treasury stock, carried at cost			(900	)		(900	)
	Additional paid-in capital			93,475			82,971
	Retained earnings			17,913			9,516
		Total stockholders’ equity		110,489			91,588
		Total liabilities and stockholders’ equity	$	128,311		$	111,689

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

3

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

			For the twelve weeks ended					For the forty weeks ended
			October 6,		September 30,			October 6,		September 30,
			2001		2000			2001		2000
Revenues:
	Restaurant sales		$	38,486	$	30,125		$	115,045	$	91,175
	Franchise revenues			4,481		2,782			13,817		8,103
	Commissary sales to franchisees			5,520		3,186			16,581		9,535
		Total revenue		48,487		36,093			145,443		108,813
Costs and expenses:
	Restaurant expenses:
		Cost of food and paper products		12,025		9,988			36,074		30,308
		Labor		11,104		8,709			33,774		26,740
		Occupancy		2,716		2,158			8,278		6,694
		Other operating expenses		5,107		4,186			15,580		11,975
				30,952		25,041			93,706		75,717
	Commissary cost of sales			5,209		2,829			15,447		8,434
	Depreciation and amortization			2,613		1,953			7,872		6,126
	General and administrative expenses			4,720		3,795			14,479		11,174
		Total costs and expenses		43,494		33,618			131,504		101,451
Operating profit				4,993		2,475			13,939		7,362
Interest expense, net				16		32			77		180
Other expense (income)				85		(252	)		107		(266	)
Gain on sale of Au Bon Pain Division				—		—			—		900
Income before income taxes				4,892		2,695			13,755		8,348
Income tax provision				1,908		1,051			5,358		3,256
		Net income	$	2,984	$	1,644		$	8,397	$	5,092
Net income per common share — basic			$	.21	$	.13		$	.61	$	.41
Net income per common share — diluted			$	.20	$	.12		$	.58	$	.40
Weighted average shares of common and common equivalent shares outstanding
	Basic			13,984		12,628			13,815		12,358
	Diluted			14,673		13,403			14,448		12,799

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

4

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

				For the forty weeks ended
				October 6, 2001			September 30, 2000
Cash flows from operations:
	Net income			$	8,397		$	5,092
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			7,872			6,126
		Amortization of deferred financing costs			9			—
		Provision for losses on accounts receivable			27			61
		Tax benefit from exercise of stock options			5,007			1,497
		Deferred income taxes			480			436
	Changes in operating assets and liabilities:
		Accounts receivable			(176	)		470
		Inventories			(489	)		(66	)
		Prepaid expenses			588			183
		Refundable income taxes			222			—
		Accounts payable			(1,415	)		(1,616	)
		Accrued expenses			(182	)		(249	)
		Deferred revenue			(308	)		(311	)
			Net cash provided by operating activities	$	20,032		$	11,623
Cash flows from investing activities:
	Additions to property, plant and equipment				(21,168	)		(13,366	)
	Other				(749	)		—
	Increase in deposits and other				(375	)		(1,185	)
	Payments received on notes receivable				—			35
			Net cash used in investing activities	$	(22,292	)	$	(14,516	)
Cash flows from financing activities:
	Increase in deferred financing costs				(6	)		—
	Exercise of employee stock options				5,224			4,939
	Proceeds from issuance of debt				—			765
	Principal payments on debt and computer equipment financing				(374	)		(79	)
	Proceeds from issuance of common stock				274			114
	Purchase of treasury stock				—			(900	)
			Net cash provided by financing activities	$	5,118		$	4,839
Net increase in cash and cash equivalents					2,858			1,946
Cash and cash equivalents at beginning of period					9,011			1,936
Cash and cash equivalents at end of period				$	11,869		$	3,882

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

5

Notes to Consolidated Financial Statements (unaudited)

Note A—Basis of Presentation

The accompanying unaudited, consolidated financial statements of Panera Bread Company and its subsidiaries (the ''Company’’) have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States. They should be read in conjunction with the financial statements of the Company for the fiscal year ended December 30, 2000.

The accompanying unaudited financial statements include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair presentation of its financial position and results of operations for the interim periods, and are not necessarily indicative of the results that may be expected for the entire year. See Form 10-K for the year ended December 30, 2000 for a discussion of the Company’s significant accounting policies and principles.

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

Note B—Franchise and Development Fees

Franchise fees are the result of sales of area development rights and the sale of individual franchise locations to third parties. Fees from the sale of area development rights are fully recognized as revenue upon completion of all commitments related to the agreements. Fees from the sale of individual franchise locations are fully recognized as revenue upon the commencement of franchise operations. Royalty fees are fully recognized each period and are based on a percentage of sales for each franchise location.

Note C—Deferred Revenue

Deferred revenue includes unearned franchise fee revenue (which occurs when franchisees prepay opening fees for bakery-cafes that have not opened on schedule) and deferred revenue that resulted from a change in soft drink provider in 1999. As a result of this change, the Company received an upfront payment of approximately $2.5 million. These funds are available for both company-owned and franchised bakery-cafes to cover costs of conversion and transition. The upfront payments are being allocated at a rate of $3,000 per applicable company-owned and franchised bakery-cafe. The Company is then recognizing the $3,000 per company-owned bakery-cafe over the five-year life of the soft drink contract.

Note D – Gain on Sale of Asset

For the forty weeks ended September 30, 2000, the Company recorded a one time gain of $.9 million before taxes ($.5 million after tax) related to the sale of the Au Bon Pain Division. The original sales agreement dated August 12, 1998 and amended October 28, 1998 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 in connection with the Company agreeing to amend the original sales agreement to allow for the sale of the division by ABP Corporation.

Note E—Income Taxes

For the forty weeks ended October 6, 2001 and September 30, 2000, the Company realized tax benefits of approximately $5.0 million and $1.5 million, respectively, related to the exercise of employee stock options. Such tax benefits serve to reduce the Company’s income tax liability and increase additional paid-in capital. As of October 6, 2001, the Company has net operating losses of approximately $27.5 million, which can be carried forward up to 20 years to offset federal taxable income. As a result of utilizing the tax benefits related to the exercise of employee stock options, the Company’s net operating loss carryforward has increased during the forty weeks ended October 6, 2001.

6

Note F — Earnings Per Share

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

	For the twelve weeks ended						For the forty weeks ended
	October 6,			September 30,			October 6,			September 30,
	2001			2000			2001			2000
Net income used in net income per common share — basic	$	2,984		$	1,644		$	8,397		$	5,092
Net income used in net income per common share — diluted	$	2,984		$	1,644		$	8,397		$	5,092
Weighted average number of shares outstanding — basic		13,984			12,628			13,815			12,358
Effect of dilutive securities:
Employee stock options		1,169			1,292			1,080			658
Stock warrants		—			—			—			46
Assumed treasury shares purchased from tax benefit		(480	)		(517	)		(447	)		(263	)
Weighted average number of shares outstanding — diluted		14,673			13,403			14,448			12,799
Per common share:
Basic:
Net income	$	.21		$	.13		$	.61		$	.41
Diluted:
Net income	$	.20		$	.12		$	.58		$	.40

Note G — Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued FAS No. 141, “Business Combinations” and FAS No. 142 “Goodwill and Other Intangible Assets”. These statements address the accounting and reporting for business combinations and the acquired goodwill and other intangible assets and the requirement for purchase accounting for business combinations. FAS 141 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. In August 2001 the Financial Accounting Standards Board (FASB) issued FAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement retains many of the provisions of FAS 121 and also includes the accounting for a segment of a business accounted for as a discontinued operation under Opinion 30. It also addresses certain implementation issues related to FAS 121. None of these recently issued pronouncements will have a material impact on the Company’s financial statements.

Note H — Accrued Expenses

Accrued expenses consist of the following (in thousands):

	October 6, 2001		December 30, 2000
Accrued Insurance	$	1,029	$	796
Rent		1,438		1,168
Compensation and employment related taxes		4,506		3,119
Taxes, other than income tax		1,551		1,780
Other		3,187		5,030
	$	11,711	$	11,893

Note I — Business Segment Information

In June 1997, the FASB issued SFAS No. 131, ''Disclosures about Segments of an Enterprise and Related Information.’’ The Company has three reportable business segments. The Company Store Operations segment is comprised of the operating activities of the 103 bakery-cafes owned by the Company. These bakery-cafes sell fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other complementary products through on-premise sales. All of the fresh dough products used by Company bakery-cafe operations are purchased from the Commissary Operations segment.

7

The Franchise Operations segment is comprised of the operating activities of the franchise business unit which allows qualified operators to conduct business under the Panera Bread Company name and also monitors the operations of these stores. Under the terms of the agreements, the franchise operators pay royalties and fees to the Company in return for the use of the Panera Bread Company name.

The Commissary Operations segment supplies fresh dough items to both company-owned and franchise operated bakery-cafes at a cost equal to 27% of the retail value of the product. The sales and related costs to the franchise bakery-cafes are separately stated on the face of the Consolidated Statements of Operations. The operating profit related to the sales to company-owned bakery-cafes is classified as a reduction to the cost of food and paper products on the Consolidated Statements of Operations.

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

			For the twelve weeks ended						For the forty weeks ended
			October 6,			September 30,			October 6,			September 30,
			2001			2000			2001			2000
			(in thousands)						(in thousands)
Revenues:
Company Store Operations			$	38,486		$	30,125		$	115,045		$	91,175
Franchise Operations				4,481			2,782			13,817			8,103
Commissary Operations				8,574			5,689			25,735			17,183
Intercompany Sales Eliminations				(3,054	)		(2,503	)		(9,154	)		(7,648	)
		Total Revenues	$	48,487		$	36,093		$	145,443		$	108,813
Operating Profit:
Company Store Operations			$	6,758		$	4,627		$	18,742		$	13,898
Franchise Operations				3,852			2,251			11,746			6,504
Commissary Operations
	Franchise			310			356			1,133			1,102
	Company-owned			776			457			2,597			1,560
		Total Commissary Operations		1,086			813			3,730			2,662
Unallocated General and Administrative
	Expenses			(4,090	)		(3,263	)		(12,407	)		(9,576	)
Total Operating Profit Before Depreciation and Amortization Expense			$	7,606		$	4,428		$	21,811		$	13,488
Depreciation and Amortization Expense:
Company Store Operations			$	1,608		$	1,256		$	4,749		$	3,998
Commissary Operations				318			229			942			703
Corporate Administration				687			468			2,181			1,425
		Total Depreciation and Amortization Expense	$	2,613		$	1,953		$	7,872		$	6,126

Note:   Operating Profit for Company Store Operations has been reduced by the Operating Profit for Commissary Operations of company-owned bakery-cafes, which is separately stated.

Note J – Treasury Stock

The Company spent approximately $900,000 during the twelve weeks ended September 30, 2000 to repurchase 54,500 shares of Class A Common Stock at an average cost of $16.49 per share.

8

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

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

				For the twelve weeks ended						For the forty weeks ended
				October 6,			September 30,			October 6,			September 30,
				2001			2000			2001			2000
Revenues:
	Restaurant sales				79.4	%		83.5	%		79.1	%		83.8	%
	Franchise revenues				9.2			7.7			9.5			7.4
	Commissary sales to franchisees				11.4			8.8			11.4			8.8
			Total revenue		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
	Restaurant expenses(1):
		Cost of food and paper products			31.2			33.2			31.4			33.2
		Labor			28.9			28.9			29.4			29.3
		Occupancy			7.1			7.2			7.2			7.3
		Other operating expenses			13.3			13.8			13.5			13.2
			Total restaurant cost of sales		80.4			83.1			81.5			83.0
	Commissary cost of sales(2)				94.4			88.8			93.2			88.5
	Depreciation and amortization				5.4			5.4			5.4			5.6
	General and administrative expenses				9.7			10.5			10.0			10.3
Operating profit					10.3			6.9			9.6			6.8
Interest expense, net					—			.1			.1			.1
Other (income) expense					.2			(.7	)		.1			(.2	)
Gain on sale of Au Bon Pain Division					—			—			—			.8
Income before income taxes					10.1			7.5			9.5			7.7
Income tax provision					3.9			2.9			3.7			3.0
			Net income		6.2	%		4.6	%		5.8	%		4.7	%

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

9

General

The Company’s revenues are derived from restaurant sales, commissary sales to franchisees and franchise revenues. Commissary sales to franchisees are the sales of fresh dough products to our franchisees. Franchise revenues include royalty income and franchise fees. The cost of food and paper products, labor, occupancy, and other operating expenses relate primarily to restaurant sales. The cost of commissary sales relates to the sale of fresh dough products to our franchisees. General and administrative and depreciation expenses relate to all areas of revenue generation.

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

Results of Operations

For the forty weeks ended September 30, 2000, the Company recorded a one-time gain of $.9 million before taxes ($.5 million after tax) related to the sale of the Au Bon Pain Division. The original sales agreement dated August 12, 1998 and amended October 28, 1998 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 in connection with the Company agreeing to amend the original sales agreement to allow for the sale of the division by ABP Corporation.

Revenues

Total revenues for the twelve weeks ended October 6, 2001 increased 34.3% to $48.5 million compared to $36.1 million for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001 total revenue increased 33.6% to $145.4 million compared to $108.8 million for the forty weeks ended September 30, 2000. Several factors (as set forth below) contributed to the growth in total revenues including the opening of new bakery-cafes, increases in comparable restaurant sales, and increases in average weekly sales volumes.

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

			Twelve weeks ended				Forty weeks ended
			October 6, 2001		September 30, 2000		October 6, 2001			September 30, 2000
Number of bakery-cafes:
	Company-owned:
		Beginning of period		98		86		90			81
		New bakery-cafes opened		5		3		14			8
		Bakery-cafes closed		—		—		(1	)		—
		End of period		103		89		103			89
Franchise operated:
		Beginning of period		211		132		172			102
		New bakery-cafes opened		16		12		56			42
		Bakery-cafes closed		—		—		(1	)		—
		End of period		227		144		227			144
System-wide:
		Beginning of period		309		218		262			183
		New bakery-cafes opened		21		15		70			50
		Bakery-cafes closed		—		—		(2	)		—
		End of period		330		233		330			233

As of October 6, 2001 the Company has total commitments to develop 525 franchised bakery-cafes in addition to those already open.

10

Restaurant revenue for the twelve weeks ended October 6, 2001 for the Company increased 27.9% to $38.5 million from $30.1 million for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001 restaurant revenue for the Company increased 26.1% to $115.0 million from $91.2 million for the forty weeks ended September 30, 2000. The increase in restaurant revenue is primarily due to the opening of 17 new company-owned bakery-cafes since the end of the third quarter of 2000 and a 3.4% and 5.6% increase in comparable bakery-cafe sales for the twelve and forty weeks ended October 6, 2001, respectively. Additionally, the average weekly sales per company bakery-cafe (excluding the two specialty bakery-cafes) increased 9.1% to $32,178 for the twelve weeks ended October 6, 2001 and 11.6% to $30,565 for the forty weeks ended October 6, 2001.

Increases in comparable net bakery-cafe sales for the twelve and forty weeks ended October 6, 2001 were as follows:

	Twelve weeks ended			Forty weeks ended
	October 6, 2001			October 6, 2001
Company-owned		3.4	%		5.6	%
Franchise operated		4.2	%		5.6	%
System-wide		3.9	%		5.6	%

The above comparable bakery-cafe sales exclude the three specialty bakery-cafes (two company-owned and one franchised) and are based on sales for bakery-cafes in operation for 18 months or longer.

Franchise revenues consist of franchise fees and royalties. The Company’s franchise revenues rose 60.7% for the twelve weeks ended October 6, 2001 to $4.5 million from $2.8 million for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, franchise revenue for the Company increased 70.4% to $13.8 million from $8.1 million for the forty weeks ended September 30, 2000. The growth was primarily driven by an increase in franchise royalties. The increase in royalty revenue can be attributed to the addition of 84 franchised bakery-cafes opened since the end of the third quarter of 2000 and a 4.2% and 5.6% increase in comparable bakery-cafe sales for the twelve and forty weeks ended October 6, 2001, respectively. Additionally, the average weekly sales per franchised bakery-cafe (excluding the specialty bakery-cafe) increased 3.0% to $34,668 for the twelve weeks ended October 6, 2001 and 5.1% to $34,038 for the forty weeks ended October 6, 2001. The increase in average weekly sales per franchised bakery-cafe (excluding the specialty bakery-cafe) compared to the average weekly sales per company-owned bakery-cafe is due to the greater number of new franchised bakery-cafe openings at higher weekly sales volumes than existing bakery-cafes.

Commissary sales to franchisees increased 71.9% to $5.5 million for the twelve weeks ended October 6, 2001 from $3.2 million for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001 commissary sales to franchisees increased 74.7% to $16.6 million from $9.5 million for the forty weeks ended September 30, 2000. The increase was primarily driven by the increased number of franchised units open and the higher average weekly sales per franchised bakery-cafe as discussed previously.

Costs and Expenses

The cost of food and paper products includes the costs associated with the commissary operations that sell fresh dough product to company-owned bakery-cafes. 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 on the Consolidated Statements of Operations. The cost of food and paper products declined to 31.2% of restaurant sales for the twelve weeks ended October 6, 2001 as compared to 33.2% of restaurant sales for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, the cost of food and paper products declined to 31.4% of restaurant sales from 33.2% of restaurant sales for the forty weeks ended September 30, 2000. The improvement in 2001 is primarily due to the increased efficiency of our commissary operations due to higher sales volumes and the 101 additional system-wide bakery-cafes that have opened since September 30, 2000. For the twelve weeks ended October 6, 2001, there was an average of 23.3 bakery-cafes per commissary compared to an average of 16.2 for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, there was an average of 22.3 bakery-cafes per commissary compared to an average of 15.4 for the forty weeks ended September 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 $11.1 million or 28.9% of restaurant sales for the twelve weeks ended October 6, 2001 compared to $8.7 million or 28.9% for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, labor expense was $33.8 million or 29.4% of restaurant sales compared to $26.7 million or 29.3% of restaurant sales for the forty weeks ended September 30, 2000. The labor percentage of restaurant sales was consistent between the twelve weeks ended October 6, 2001 and September 30, 2000, respectively, even though the average weekly sales per bakery-cafe increased. This was primarily due to the increase in the

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number of new company-owned bakery-cafes opened. Historically, new bakery-cafes have experienced increased training costs and inefficient labor as a percentage of restaurant sales until they reach an operational steady state. Labor cost percentages for new bakery-cafes usually normalize in approximately three periods. The effect on labor as a percentage of restaurant sales from new bakery-cafe openings was (.4%) of restaurant sales for the twelve weeks ended October 6, 2001 and (.5%) of restaurant sales for the forty weeks ended October 6, 2001. The decrease in labor cost percentage between the twelve weeks ending in 2001 and 2000, and the forty weeks ending in 2001 and 2000 is due primarily to increased average weekly sales volumes per bakery-cafe.

Occupancy costs were $2.7 million or 7.1% of restaurant sales for the twelve weeks ended October 6, 2001 compared to $2.2 million or 7.2% of restaurant sales for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001 occupancy costs were $8.3 million or 7.2% of restaurant sales compared to $6.7 million or 7.3% of restaurant sales for the forty weeks ended September 30, 2000. Occupancy costs as a percentage of restaurant sales were consistent between years even though the average weekly sales per bakery-cafe increased. This was primarily due to increasing percentage rents due to higher sales volumes and an increase in the number of new bakery-cafes which typically have higher occupancy costs.

Other restaurant operating expenses were $5.1 million or 13.3% of restaurant sales for the twelve weeks ended October 6, 2001 compared to $4.2 million or 13.8% of restaurant sales for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, other restaurant operating expenses were $15.6 million or 13.5% of restaurant sales compared to $12.0 million or 13.2% of restaurant sales for the forty weeks ended September 30, 2000. The decrease in other restaurant operating expenses as a percentage of restaurant sales for the twelve weeks ended October 6, 2001 as compared to the twelve weeks ended September 30, 2000 is due primarily to a decrease in advertising expenses for incremental television advertising in the Chicago market of approximately $.6 million. The increase in other restaurant expenses as a percentage of restaurant sales for the forty weeks ended October 6, 2001 as compared to the forty weeks ended September 30, 2000 is primarily due to increased expenses associated with centralized training and development and a modest increase in expenses related to a new customer feedback system.

For the twelve weeks ended October 6, 2001, commissary cost of sales was $5.2 million or 94.4% of commissary sales to franchisees compared to $2.8 million or 88.8% of commissary sales to franchisees for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, commissary cost of sales was $15.4 million or 93.2% of commissary sales to franchisees, compared to $8.4 million or 88.5% of commissary sales to franchisees for the forty weeks ended September 30, 2000. The higher commissary cost of sales between years is primarily due to the addition of 84 franchised bakery-cafes since the end of the third quarter 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 6.1% increase in commissary cost of sales for the twelve weeks ended October 6, 2001 and 4.3% increase in commissary cost of sales for the forty weeks ended September 30, 2000. The average price of butter per pound increased 66.1% to $2.06 per pound from $1.24 per pound for the twelve weeks ended October 6, 2001 and September 30, 2000, respectively. For the forty weeks ended October 6, 2001, the average price of butter increased 56.5% to $1.80 per pound from $1.15 per pound for the forty weeks ended September 30, 2000.

Depreciation and amortization was $2.6 million, or 5.4% of total revenue for the twelve weeks ended October 6, 2001 compared to $2.0 million or 5.4% of total revenue for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, depreciation and amortization was $7.9 million or 5.4% of total revenue compared to $6.1 million or 5.6% of total revenue for the forty weeks ended September 30, 2000. The improvement in depreciation and amortization as a percentage of total revenue for the forty weeks ended October 6, 2001 as compared to the forty weeks ended September 30, 2000 is primarily due to higher sales volumes which help leverage depreciation and amortization expense which are primarily fixed expenses.

General and administrative expenses were $4.7 million or 9.7% of total revenue, and $3.8 million or 10.5% of total revenue for the twelve weeks ended October 6, 2001 and September 30, 2000, respectively. For the forty weeks ended October 6, 2001, general and administrative expenses were $14.5 million or 10.0% of total revenue compared to $11.2 million or 10.3% of total revenue for the forty weeks ended September 30, 2000. The improvement in general and administrative expenses as a percentage of total revenue between 2001 and 2000 results primarily from higher sales volumes which help leverage general and administrative expenses.

Operating Profit

Operating profit for the twelve weeks ended October 6, 2001 increased to $5.0 million or 10.3% of total revenue from $2.5 million or 6.9% of total revenue for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, operating profit increased to $13.9 million or 9.6% of total revenue from $7.4 million or 6.8% of total revenue for the forty weeks ended September 30, 2000. Operating income for the twelve weeks and forty weeks ended October 6, 2001 rose primarily due to increased revenues

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from 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.

Interest Expense

Interest expense was $.02 million or less than .1% of total revenue for the twelve weeks ended October 6, 2001 versus $.03 million or .1% of total revenue for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, interest expense was $.08 million or .1% of total revenue compared to $.2 million or .1% of total revenue for the forty weeks ended September 30, 2000. The decrease in interest expense is primarily due to repayment of computer equipment financing and lower interest rates.

Other Expense (Income)

Other expense was $.09 million for the twelve weeks ended October 6, 2001 compared to other income of $.3 million for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, other expense was $.1 million compared to other income of $.3 million for the forty weeks ended September 30, 2000. Other expense (income) consists primarily of expenses associated with the Company’s corporate owned life insurance (COLI) program offset by interest income.

For the forty weeks ended September 30, 2000, the Company recorded a one time gain of $.9 million before taxes ($.5 million after tax) related to the sale of Au Bon Pain. This gain is reported as a separate line item in the Company’s consolidated statement of operations.

Income Taxes

The provision for income taxes increased to $1.9 million for the twelve weeks ended October 6, 2001 versus $1.1 million for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, the provision for income taxes increased to $5.4 million from $3.3 million for the forty weeks ended September 30, 2000. The tax provision for the twelve weeks ended October 6, 2001 and September 30, 2000 and the forty weeks ended October 6, 2001 and September 30, 2000 reflects a combined federal, state, and local effective tax rate of 39%.

Net Income

Net income for the twelve weeks ended October 6, 2001 was $3.0 million or $0.20 per diluted share compared to net income of $1.6 million or $0.12 per diluted share for the twelve weeks ended September 30, 2000. For the forty weeks ended October 6, 2001, net income was $8.4 million or $0.58 per diluted share compared to net income of $5.1 million or $0.40 per diluted share for the forty weeks ended September 30, 2000. Net income for the twelve weeks ended September 30, 2000 was favorably impacted by a one time $.5 million after tax gain related to the sale of Au Bon Pain. Excluding this one time gain, the Company’s net income was $4.5 million or $0.35 per diluted share for the forty weeks ended September 30, 2000. The increase in net income in 2001 was primarily due to an increase in restaurant sales and franchise revenues for company-owned bakery-cafes and commissary sales to franchisees as well as margin improvement resulting from the lower cost of food and paper products, other than butter.

Liquidity and Capital Resources

Cash and cash equivalents were $11.9 million at October 6, 2001 compared with $9.0 million at December 30, 2000. The Company’s principal requirements for cash are capital expenditures for constructing and equipping new bakery-cafes and maintaining or remodeling existing bakery-cafes and commissaries, and working capital. For the twelve and forty weeks ended October 6, 2001, 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 $5.2 million and $4.9 million for the forty weeks ended October 6, 2001 and September 30, 2000, respectively.

Funds provided by operating activities for the forty weeks ended October 6, 2001 were $20.0 million compared to $11.6 million for the forty weeks ended September 30, 2000. Funds provided by operating activities increased primarily as a result of increased net income and from the tax benefit from employee stock options exercised.

Total capital expenditures for the forty weeks ended October 6, 2001 were $21.2 million and were primarily related to the opening of 14 new company-owned bakery-cafes 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 employee stock options. Total capital expenditures were $13.4 million for the forty weeks ended September 30, 2000 and were primarily related to the opening of eight new company-owned bakery-cafes and for maintaining or remodeling existing bakery-cafes and commissaries.

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On December 26, 2000, the Company entered into a revolving credit agreement for $10.0 million at LIBOR plus 1.0%, approximately 3.6% at October 6, 2001, which extends until December 31, 2003. As of October 6, 2001, the Company had $9.7 million available under the line of credit with $.3 million utilized through the issuance of outstanding standby letters of credit. The Company was in compliance with all covenants associated with its borrowings as of October 6, 2001.

Financing activities provided $5.1 million for the forty weeks ended October 6, 2001 and $4.8 million for the forty weeks ended September 30, 2000. The financing activities in the forty weeks ended October 6, 2001 included proceeds from the exercise of stock options of $5.2 million. The financing activities for the forty weeks ended September 30, 2000 included $4.9 million from the exercise of stock options, $.8 million, in proceeds from the issuance of debt offset by payments on debt and computer equipment financing of $.08 million and $.9 million in treasury stock expenditures to purchase 54,500 shares of Class A Common Stock at an average cost of $16.49 per share.

The Company had a working capital surplus of $9.8 million at October 6, 2001 and $2.8 million at December 30, 2000. The working capital surplus in 2001 was primarily due to an increase in cash and cash equivalents. The Company has experienced no short term or long-term liquidity difficulties. It has been able to finance its operations through internally generated cash flow, its revolving line of credit and through the exercise of employee stock options.

During fiscal 2001, the Company currently anticipates spending a total of approximately $25 to $27 million, principally for the opening of approximately 17 new company-owned bakery-cafes and for maintaining and remodeling existing bakery-cafes and commissaries. The Company expects to fund these expenditures principally through internally generated cash flow supplemented, where necessary, by borrowings on its revolving line of credit and through the exercise of employee stock options.

Impact of Inflation

In the past, the Company has been able to recover inflationary cost and commodity price increases through increased menu prices. There have been and there may be in the future, delays in implementing such menu price increases, and competitive pressures may limit the Company’s ability to recover such cost increases in their entirety. Historically, the effects of inflation on the Company’s net income have not been materially adverse.

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

Forward-Looking Statements

Matters discussed in this report which relate to events or developments that are expected to occur in the future, including any discussion of growth or anticipated operating results are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (identified by the words ''estimate’’, ''project’’, ''target’’, ''anticipates’’, ''expects’’, ''intends’’, ''believes’’, ''future’’, and similar expressions). These are statements which express management’s present belief, expectations or intentions regarding the Company’s future performance. Moreover, a number of factors could cause the Company’s actual results to differ materially from those set forth in the forward-looking statements due to known and unknown risks and uncertainties. The Company’s operating results may be negatively affected by many factors, including but not limited to the lack of availability of sufficient capital to it and the developers party to franchise development agreements with the Company, variations in the number and timing of bakery-cafe openings, public acceptance of new bakery-cafes, consumer preferences, competition, commodity costs, and other factors that may affect retailers in general. The foregoing list of important factors is not exclusive.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued FAS No. 141, “Business Combinations” and FAS No. 142 “Goodwill and Other Intangible Assets”. These statements address the accounting and reporting for business combinations and the acquired goodwill and other intangible assets and the requirement for purchase accounting for business combinations. FAS 141 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. In August 2001 the Financial Accounting Standards Board (FASB) issued FAS 144, “Accounting for the Impairment or

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Disposal of Long-Lived Assets”. This statement retains many of the provisions of FAS 121 and also includes the accounting for a segment of a business accounted for as a discontinued operation under Opinion 30. It also addresses certain implementation issues related to FAS 121. None of these recently issued pronouncements will have a material impact on the Company’s financial statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Company had no holdings of derivative financial or commodity instruments at October 6, 2001. 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.

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PART II. OTHER INFORMATION

ITEM 5. Other Information

On October 7, 2001, Richard C. Postle, resigned from his posts as President and Chief Operating Officer of the Company in order to enter into a joint venture agreement with the Company to develop 40 bakery-cafes in the Northern Virginia and Central Pennsylvania markets. During the year prior to his resignation, Mr. Postle’s duties were primarily focused on the Company’s real estate development efforts. On August 27, 2001, the Company appointed Michael J. Nolan as its Senior Vice President and Chief Development Officer to perform the development duties previously assigned to Mr. Postle. Mr. Nolan formerly served as the Executive Vice President and as a member of the Board of Directors of John Harvard’s Brew House, LLC and Senior Vice President, Development of American Hospitality Concepts, Inc. Following his resignation, Mr. Postle has agreed to assist in the transition of his development responsibilities to Mr. Nolan and to serve as a consultant through June, 2002 to advise on development issues on an as needed basis.

In addition, on August 27, 2001, the Company appointed Jonathan R. Jameson as its Senior Vice President and Chief Brand Officer. Mr. Jameson formerly served as the Executive Vice President, Chief Strategy Officer of Advantica Restaurant Group, Inc.

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ITEM 6. Exhibits and Reports on Form 8-K

        (a)  Exhibits.

Exhibit No.	Description
10.6.13	Employment Letter between the Registrant and Michael Nolan, dated as of July 26, 2001.*
10.6.14	Employment Letter between the Registrant and Jon Jameson, dated as of July 26, 2001.*

*Filed herewith.

        (b)  Reports on Form 8-K.

        The Company did not file any reports on Form 8-K during the twelve weeks ended October 6, 2001.

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Signatures

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

	PANERA BREAD COMPANY (REGISTRANT)
Dated: November 19, 2001	By:	/s/ RONALD M. SHAICH Ronald M. Shaich Chairman and Chief Executive Officer
Dated: November 19, 2001	By:	/s/ WILLIAM W. MORETON William W. Moreton Chief Financial and Administration Officer

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