<PAGE> 1
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 April 20, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-19253
Au Bon Pain Co., Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2723701
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
19 Fid Kennedy Avenue, Boston, MA 02210
(Address of principal executive offices) (Zip code)
(617) 423-2100
(Registrant's telephone number, including area code)
____________________________________________________________
(Former name, former address and former fiscal year,
if changed from last report)
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 X No
------ -------
As of May 30, 1996, 10,019,856 shares and 1,665,362 shares of the
registrant's Class A and Class B Common Stock, respectively, $.0001 par value,
were outstanding.
<PAGE> 2
AU BON PAIN CO., INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
- - ------- --------------------- ----
ITEM 1. FINANCIAL STATEMENTS........................ 3
Consolidated Balance Sheets as of
April 20, 1996 and December 30, 1995........ 3
Consolidated Statements of Operations
for the sixteen weeks ended
April 20, 1996 and April 22, 1995........... 4
Consolidated Statements of Cash Flows
for the sixteen weeks ended
April 20, 1996 and April 22, 1995........... 5
Notes to Consolidated Financial Statements.. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............ 12
2
<PAGE> 3
Item 1. Financial Statements
AU BON PAIN CO., INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 20, December 30,
1996 1995
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............ $ 3,422,642 $ 6,419,646
Accounts receivable .................. 5,809,772 6,595,708
Inventories .......................... 7,645,806 7,776,222
Prepaid expenses ..................... 4,819,810 2,696,591
Refundable income taxes .............. 616,515 694,053
Deferred income taxes ................ 2,936,095 2,936,095
------------ ------------
Total current assets ............ 25,250,640 27,118,315
------------ ------------
Property and equipment, less accumulated
depreciation and amortization ............... 122,545,065 121,155,401
------------ ------------
Other assets:
Notes receivable ..................... 2,299,188 2,253,578
Intangible assets, net of accumulated
amortization ....................... 34,678,448 35,109,939
Deferred financing costs ............. 460,102 479,247
Deposits and other ................... 5,290,615 4,789,101
Deferred income taxes ................ 2,112,682 2,112,682
Total other assets .............. 44,841,035 44,744,547
------------ ------------
Total assets .................... $192,636,740 $193,018,263
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................... $ 11,879,554 $ 10,320,830
Accrued expenses ..................... 10,783,094 11,617,889
Current maturities of long term debt . 8,399,000 4,333,000
------------ ------------
Total current liabilities ....... 31,061,648 26,271,719
Long term debt, less current maturities ....... 36,519,856 42,502,362
Convertible Subordinated Notes ................ 30,000,000 30,000,000
------------ ------------
Total liabilities ............... 97,581,504 98,774,081
------------ ------------
Minority interest ............................. 923,553 1,005,995
Stockholder's equity:
Common stock, $.0001 par value:
Preferred Stock, $.0001 par value:
Class B, shares authorized 2,000,000;
issued and outstanding none and 20,000
in 1996 and 1995, respectively ............. 0 2
Class A, shares authorized 50,000,000;
issued and outstanding 9,993,282 and
9,929,278 in 1996 and 1995, respectively ... 999 993
Class B, shares authorized 2,000,000;
issued and outstanding 1,681,282 and
1,706,878 in 1996 and 1995, respectively ... 168 171
Additional paid-in capital ................... 66,987,689 66,891,534
Retained earnings ............................ 27,142,827 26,345,487
------------ ------------
Total stockholders' equity ...... 94,131,683 93,238,187
------------ ------------
Total liabilities and
stockholders' equity ...... $192,636,740 $193,018,263
============ ============
</TABLE>
3
<PAGE> 4
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
for the sixteen weeks ended
------------------------------
April 20, April 22,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Restaurant sales ................... $66,729,410 $60,014,548
Franchise sales and other revenues . 2,711,374 2,970,897
----------- -----------
69,440,784 62,985,445
Costs and expenses:
Cost of food and paper products .... 24,286,080 21,274,256
Restaurant operating expenses:
Labor .......................... 17,978,928 16,739,549
Occupancy ...................... 7,392,950 5,684,160
Other .......................... 7,646,834 7,183,112
----------- -----------
33,018,712 29,606,821
Depreciation and amortization ...... 4,856,512 4,588,004
General and administrative expenses 4,439,512 3,988,204
----------- -----------
66,600,816 59,457,285
----------- -----------
Operating income ....................... 2,839,968 3,528,160
Interest expense, net .................. 1,300,083 731,856
Other expense, net ..................... 560,422 450,209
Minority interest ...................... 10,248 17,396
----------- -----------
Income before provision for income taxes 969,215 2,328,699
Provision for income taxes ............. 171,875 728,800
----------- -----------
Net income ............................. $ 797,340 $ 1,599,899
=========== ===========
Net income per common share ............ $ 0.07 $ 0.14
=========== ===========
Weighted average number of common and
common equivalent shares outstanding . 11,831,325 11,731,083
=========== ===========
</TABLE>
4
<PAGE> 5
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
for the sixteen weeks ended
---------------------------------
April 20, April 22,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operations:
Net income ................................................ $ 797,340 $ 1,599,899
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............................. 4,856,512 4,588,004
Amortization of deferred financing
costs ................................................... 42,810 20,716
Provision for losses on accounts
receivable .............................................. 21,280 18,460
Minority interest ......................................... 10,248 17,396
Expenditures towards closing of stores .................... (114,712) --
Changes in operating assets and liabilities:
Accounts receivable ....................................... 764,656 (55,137)
Inventories ............................................... 130,416 (149,449)
Prepaid expenses .......................................... (2,123,219) (2,371,272)
Refundable income taxes ................................... 77,538 --
Accounts payable .......................................... 1,558,724 2,716,531
Accrued expenses .......................................... (720,083) (469,619)
------------ ------------
Net cash provided by operating
activities ............................................ 5,301,510 5,915,529
------------ ------------
Cash flows from investing activities:
Additions to property and equipment ....................... (5,796,747) (13,663,112)
Payments received on notes receivable ..................... 19,390 17,903
Increase in intangible assets ............................. (17,938) (1,283)
Increase in deposits and other ............................ (501,514) (6,698,728)
Increase in notes receivable .............................. (65,000) --
------------ ------------
Net cash used in investing
activities ............................................ (6,361,809) (20,345,220)
------------ ------------
Cash flows from financing activities:
Exercise of employee stock options ........................ 96,156 166,254
Proceeds from long term debt issuance
net of deferred financing costs ......................... 19,598,827 31,508,000
Principal payments on long term debt ...................... (21,515,333) (16,336,362)
Deferred financing costs .................................. (23,665) (11,870)
Decrease in minority interest ............................. (92,690) (132,633)
----------- ------------
Net cash (used) provided by
financing activities .................................. (1,936,705) 15,193,389
------------ ------------
Net (decrease) increase in cash and cash
equivalents .................................................. (2,997,004) 763,698
------------ ------------
Cash and cash equivalents, at beginning of
period ....................................................... 6,419,646 992,432
----------- ------------
Cash and cash equivalents, at end of period .................... $ 3,422,642 $ 1,756,130
=========== ============
Supplemental cash flow information: Cash paid in the period for:
Interest .................................................. $ 1,778,729 $ 1,034,349
Income taxes .............................................. $ 182,058 $ 773,792
</TABLE>
5
<PAGE> 6
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited, consolidated financial statements of Au Bon
Pain Co., Inc. and 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 generally accepted accounting principles. They should be read in
conjunction with the financial statements of the Company for the fiscal year
ended December 30, 1995.
The accompanying financial statements are unaudited and 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.
Note B - Franchise Fees
Fees from the sale of area development rights and individual franchises
are recognized as revenue upon the completion of all commitments related to the
agreements and, for the sale of individual franchises, upon the commencement of
franchise operations.
Note C - Earnings Per Share
Income per share is based on the weighted average number of shares
outstanding during the period after consideration of the dilutive effect, if
any, for stock options and convertible debt. Fully diluted net income per share
has not been presented as the amount would not differ significantly from that
presented.
Note D - Commitments
The Company currently has international franchise development
agreements with developers in Japan, Chile, certain other South American
countries, Thailand, Indonesia and The Philippines. Under these agreements, the
Company has granted exclusive development rights to franchise and operate Au Bon
Pain bakery cafes in the respective country or countries. These agreements
generally require the payment of up front development fees, a franchise fee for
each Au Bon Pain bakery cafe opened and royalties from the sale of products from
each bakery cafe. The developer is, in most instances, required to open bakery
cafes according to a specific minimum schedule. The Company may also agree to
provide advice, consultation and training for the development of a frozen dough
plant. The franchisee is required to purchase all of its croissants, muffins and
cookies from the Company until the opening of its own frozen dough plant,
subject to importation regulations and restrictions.
6
<PAGE> 7
Note E - Company-Owned Life Insurance
During fiscal year 1994, the Company established a company-owned life
insurance program covering a substantial portion of its employees. At April 20,
1996, the cash surrender value and prepaid premiums of $57.5 million and the
insurance policy loans of $56.1 million were netted and included in other assets
on the consolidated balance sheet. The loans are collateralized by the cash
values of the underlying life insurance policies and require interest payments
of 10.96%.
Note F - Non-Recurring Charge
During the third quarter of fiscal year 1995, the Company recorded a
non-recurring pre-tax charge of $8.5 million (of which $363,000 was accrued as
of April 20, 1996) principally to cover the expected costs of closing certain
under-performing restaurants. The components of the non-recurring charge include
cash costs of approximately $2.1 million for lease obligations, professional and
consulting services, employee relocation and termination costs and noncash
charges of approximately $6.4 million related to fixed asset disposals. This
amount has been reflected in the consolidated statements of operations as a
non-recurring charge. Amounts included in the non-recurring charge were based on
the Company's best business judgment under prevailing circumstances, and on
assumptions which may be revised over time as circumstances change. The store
closures are expected to be completed early in fiscal 1996. For the sixteen
weeks ended April 20, 1996 and April 22, 1995, the stores to be closed had sales
of $3,186,674 and $3,710,167, respectively, and pre-tax losses of $233,047 and
$478,909, respectively.
7
<PAGE> 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 of certain items included in the Company's consolidated statements of
operations for the period indicated:
<TABLE>
<CAPTION>
for the sixteen weeks ended
---------------------------
April 20, April 22,
1996 1995
------------ -----------
<S> <C> <C>
Revenues:
Restaurant sales .................... 96.1% 95.3%
Franchise sales and other revenues .. 3.9 4.7
----- -----
100.0% 100.0%
Costs and expenses:
Cost of food and paper products ..... 35.0% 33.8%
Restaurant operating expenses ....... 47.5 47.0
Depreciation and amortization ....... 7.0 7.3
General and administrative .......... 6.4 6.3
----- -----
95.9 94.4
----- -----
Operating margin ......................... 4.1 5.6
Interest expense, net .................... 1.9 1.2
Other expense, net ....................... 0.8 0.7
----- -----
Income before provision for income taxes . 1.4 3.7
Provision for income taxes ............... 0.2 1.2
----- -----
Net income ............................... 1.2% 2.5%
----- -----
</TABLE>
General
The Company's revenues are derived from restaurant sales and franchise
sales and other revenues. Franchise sales and other revenues include sales of
frozen dough products to franchisees and others, royalty income and franchise
fees. Certain expenses (cost of food and paper products, restaurant operating
expenses, and depreciation and amortization) relate primarily to restaurant
sales, while general and administrative 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.
Results of Operations
Total revenues for the sixteen weeks ended April 20, 1996 increased
10.2% to $69.4 million from $63.0 million for the comparable period of 1995. The
increase was due to an 11.2% increase in restaurant sales, stemming from the 35
new Company-operated Au Bon Pain and Saint Louis Bread bakery cafes opened
throughout 1995. The Saint Louis Bread business unit restaurant sales increased
59% to $15.7 million, while in the Au Bon Pain business unit total revenues
increased only nominally to $51.1 million. Comparable restaurant sales for the
full first quarter decreased by 2.9% in the Au Bon Pain business unit and
increased by .2%
8
<PAGE> 9
in the Saint Louis Bread business unit. Weather significantly affected
comparable restaurant sales in both concepts during the first three four-week
periods of the quarter. In the Au Bon Pain business unit, comparable restaurant
sales were negatively impacted by record levels of snow in the Northeast as well
as the government shutdown. However, with the start of the roll-out of a new hot
sandwich program late in the first quarter, comparable restaurant sales
rebounded positively. At Saint Louis Bread, comparable restaurant sales improved
significantly as the impact of unfavorable weather receded, reaching a 6.9%
increase in the fourth period of the first quarter of 1996 versus the comparable
period of 1995. The improvement in comparable restaurant sales at Saint Louis
Bread was driven largely through the successful introduction of a new sourdough
bagel statement and continued improvement in operational execution.
Operating income in the first quarter of 1996 decreased 20% to
$2,840,000 versus $3,528,000 in the 1995 first quarter, as operating margin was
4.1% in the first quarter of 1996 versus 5.6% in the first quarter of 1995. The
first quarter, 1996 operating margin of 4.1% was also lower than the 4.7%
operating margin reported in the immediately preceding fourth quarter of 1995.
Operating margin in the Au Bon Pain business unit in the first quarter
of 1996 was 2.6 points below that of the first quarter of 1995. The Au Bon Pain
business unit results were impacted by several factors. First, the comparable
restaurant sales decline unfavorably impacted occupancy costs on a percentage
basis, reflecting the relatively fixed nature of these costs. Second, the
continued poor performance in those stores in the process of being closed
contributed significantly to the operating margin decline. Finally, costs
associated with the initial stages of transitioning of the Company's frozen
dough manufacturing to a new facility currently under construction in Missouri
and changes in the mix of products sold in the Au Bon Pain stores along with
higher flour prices reduced the manufacturing contribution per dollar of retail
sales and raised percentage food cost. These structural impediments offset an .8
point improvement in percentage labor cost in the first quarter of 1996 versus
the comparable quarter of 1995. Operating margin in the Au Bon Pain business
unit in the first quarter of 1996 decreased by .4 points versus the first
quarter of 1995. Food and paper costs and restaurant operating expenses improved
by 1.3 points over the immediately preceding quarter due to new systems and
management focus. However, negative leverage of depreciation and amortization
and general and administrative expenses increased these expenses by 1.7 points
due to seasonality and weather and the resulting lower average unit sales.
At the Saint Louis Bread business unit, operating margin in the
first quarter of 1996 was 3.2 points higher than the first quarter of 1995. The
improvement was principally driven by a 2.5 point improvement in percentage
restaurant operating expenses and a 1.3 point improvement in general and
administrative expenses as a percentage of sales. The improvement in these
expenses more than offset somewhat higher percentage food and paper costs due
principally to higher cost within the local commissary production system
resulting from the new, relatively inefficient commissaries opened in 1995 and
changes in the mix associated with the new bagel program roll-out. Versus the
immediately preceding fourth quarter of 1995, operating margin decreased by 1.4
points due to negative leverage from seasonally lower average sales volumes in
the first quarter of 1996.
The significantly lower operating income in the first quarter of 1996
as compared with the comparable period of 1995, combined with
9
<PAGE> 10
higher interest expense of $1.3 million versus $731,000 in the first quarter of
1995, resulted in a decrease in net income to $797,000 in the first quarter of
1996 versus $1.6 million in the first quarter of 1995. The higher interest
expense was due primarily to greater average long-term debt outstanding. The
provision for income taxes decreased in the first quarter of 1996 to 17.7% of
pretax income, from 31.3% of pretax income in the first quarter of 1995 due to
fixed deductions associated with the company-owned life insurance program.
Liquidity and Capital Resources
The Company's principal requirements for cash are capital expenditures
for constructing and equipping new bakery cafes and maintaining or remodeling
existing bakery cafes, working capital and acquisitions. To date, the Company
has met its requirements for capital with cash from operations, proceeds from
the sale of equity and debt securities and bank borrowings.
Total capital expenditures for the sixteen weeks ended April 20, 1996
of $5.8 million were related primarily to the construction of a second frozen
dough production facility in Mexico, Missouri. The expenditures were funded by
net proceeds of an $8.6 million industrial revenue bond issued by the City of
Mexico, Missouri in connection with the construction of the new production
facility and by net cash from operating activities of $5.3 million.
In July 1995, the Company obtained an $8.6 million industrial
development bond to fund the construction of a second production facility in
Mexico, Missouri. The bond was issued by the City of Mexico, Missouri, and
secured by an $8.7 million letter of credit issued by a commercial bank.
Interest accrues at a weekly floating rate, which was 3.9% on April 20, 1996.
In December 1993, the Company issued the 1993 Notes. The 1993 Notes are
convertible into shares of the Company's Class A Common Stock, at a conversion
price per share of $25.50, subject to adjustment. Beginning in December 1997,
the Company may, at its option, redeem all or any part of the 1993 Notes upon
the payment of the principal amount together with a premium based upon a
declining percentage of the principal amount.
At April 20, 1996, the Company had a $35.5 million unsecured revolving
line of credit which bore interest at either the commercial bank's prime rate or
LIBOR plus an amount ranging between .75% and 2.0%, depending upon certain
financial tests. At April 20, 1996, $30.6 million was outstanding under the line
of credit and an additional $1.8 million of the remaining availability was
utilized by outstanding letters of credit issued by the bank on behalf of the
Company. Beginning January 1, 1996, availability under the line of credit began
to reduce from $38 million by $633,000 monthly through maturity on April 30,
1997. In addition, at April 20, 1996 the Company had a $3.6 million term loan
outstanding, collateralized by an office building located in Woburn, MA. The
term loan matures on March 15, 2000.
Management is currently in the process of arranging debt financing to
increase the Company's total debt capacity. Management believes that its current
financial position is sufficiently strong to enable it to be successful in
obtaining the additional financing. In the event the Company is unable to obtain
the additional financing, the Company will need to reduce its planned 1996
capital expenditures for new stores to
10
<PAGE> 11
utilize a portion of the cash flow from operations to reduce the unsecured line
of credit.
In 1996, the Company currently anticipates spending approximately $20
million for capital expenditures, principally for the opening new bakery cafes
and completion of the construction of the second frozen dough facility in
Mexico, Missouri. The Company expects to fund these expenditures principally
through internally generated cash flow and the remaining net proceeds of the
industrial revenue bond.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 6 Exhibits and reports on Form 8-K.
(a) 27. Financial Data Schedule
(b) Au Bon Pain Co., Inc. did not file any reports on Form 8-K during the
quarter ended April 20, 1996.
12
<PAGE> 13
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.
AU BON PAIN CO., INC.
(Registrant)
Dated: June 3, 1996 By: /S/ LOUIS I. KANE
------------------------------
Louis I. Kane
Co-Chairman
Dated: June 3, 1996 By: /S/ RONALD M. SHAICH
------------------------------
Ronald M. Shaich
Co-Chairman and
Chief Executive Officer
Dated: June 3, 1996 By: /S/ ANTHONY J. CARROLL
------------------------------
Anthony J. Carroll
Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AU BON PAIN CO., INC. FOR THE SIXTEEN WEEKS ENDED APRIL
20, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> APR-20-1996
<EXCHANGE-RATE> 1
<CASH> 3,422,642
<SECURITIES> 0
<RECEIVABLES> 8,186,594
<ALLOWANCES> 77,634
<INVENTORY> 7,645,806
<CURRENT-ASSETS> 25,250,640
<PP&E> 190,350,341
<DEPRECIATION> 67,805,275
<TOTAL-ASSETS> 192,636,740
<CURRENT-LIABILITIES> 31,061,648
<BONDS> 66,519,856
0
0
<COMMON> 1,167
<OTHER-SE> 94,130,516
<TOTAL-LIABILITY-AND-EQUITY> 192,636,740
<SALES> 66,729,410
<TOTAL-REVENUES> 69,440,784
<CGS> 24,286,080
<TOTAL-COSTS> 24,286,080
<OTHER-EXPENSES> 42,314,736
<LOSS-PROVISION> 21,280
<INTEREST-EXPENSE> 1,860,505
<INCOME-PRETAX> 969,215
<INCOME-TAX> 171,875
<INCOME-CONTINUING> 797,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 797,340
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
