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 19, 1997
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
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Au Bon Pain Co., Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-2723701
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
19 Fid Kennedy Avenue, Boston, MA 02210
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(Address of principal executive offices) (Zip code)
(617) 423-2100
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(Registrant's telephone number, including area code)
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(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 28, 1997, 10,102,330 shares and 1,632,947 shares of the
registrant's Class A and Class B Common Stock, respectively, $.0001 par value,
were outstanding.
<PAGE>
AU BON PAIN CO., INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
ITEM 1. FINANCIAL STATEMENTS................................. 3
Consolidated Balance Sheets as of
April 19, 1997 and December 28, 1996........ 3
Consolidated Statements of Operations
for the sixteen weeks ended April 19, 1997
and April 20, 1996.......................... 4
Consolidated Statements of Cash Flows
for the sixteen weeks ended April 19, 1997
and April 20, 1996.......................... 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>
Item 1. Financial Statements
AU BON PAIN CO., INC.
CONSOLIDATED BALANCE SHEETS
April 19, December 28,
1997 1996
---------- ------------
ASSETS (unaudited)
- ------
Current assets:
Cash and cash equivalents.................... $ 2,963,789 $ 2,578,830
Accounts receivable, net..................... 7,482,767 7,729,628
Inventories.................................. 9,012,931 8,997,077
Prepaid expenses............................. 2,593,924 2,353,415
Refundable income taxes...................... 4,520,824 4,539,947
Deferred income taxes........................ 1,675,003 1,675,003
------------ ------------
Total current assets..................... 28,249,238 27,873,900
------------ ------------
Property and equipment, less
accumulated depreciation and amortization.... 121,407,688 121,732,876
------------ ------------
Other assets:
Notes receivable............................. 2,269,790 2,290,789
Intangible assets, net of accumulated
amortization............................... 32,243,793 32,657,137
Deferred financing costs..................... 1,262,298 1,382,219
Deposits and other........................... 6,813,006 9,109,566
Deferred income taxes........................ 547,067 547,067
------------ ------------
Total other assets....................... 43,135,954 45,986,778
------------ ------------
Total assets............................. $192,792,880 $195,593,554
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable............................. $ 8,633,922 $ 11,140,570
Accrued expenses............................. 11,223,172 13,334,901
Current maturities of long term debt......... 535,334 702,264
------------ ------------
Total current liabilities................ 20,392,428 25,177,735
Long term debt, less current maturities........ 51,769,105 49,735,887
Convertible Subordinated Notes................. 30,000,000 30,000,000
------------ ------------
Total liabilities........................ 102,161,533 104,913,622
------------ ------------
Minority interest.............................. 552,858 623,857
Stockholders' equity:
Preferred Stock, $.0001 par value:
Class B, shares authorized 2,000,000;
issued and outstanding 20,000
in 1997 and 1996............................ 2 2
Common stock, $.0001 par value:
Class A, shares authorized 50,000,000;
issued and outstanding 10,092,430 and
10,066,671 in 1997 and 1996, respectively... 1,009 1,006
Class B, shares authorized 2,000,000;
issued and outstanding 1,632,947 and
1,647,354 in 1997 and 1996, respectively.... 163 165
Additional paid-in capital.................... 68,084,874 68,074,384
Retained earnings............................. 21,992,441 21,980,518
------------ ------------
Total stockholders' equity.............. 90,078,489 90,056,075
------------ ------------
Total liabilities and stockholders'
equity................................ $192,792,880 $195,593,554
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
for the sixteen weeks ended
-------------------------------
April 19, April 20,
1997 1996
----------- ------------
Revenues:
Restaurant sales...................... $67,655,615 $66,729,410
Franchise sales and other revenues.... 3,854,202 2,711,374
----------- -----------
71,509,817 69,440,784
Costs and expenses:
Cost of food and paper products....... 25,742,750 24,286,080
Restaurant operating expenses:
Labor............................ 18,466,866 17,978,928
Occupancy........................ 7,225,966 7,392,950
Other............................ 7,561,351 7,646,834
----------- -----------
33,254,183 33,018,712
Depreciation and amortization......... 5,079,077 4,856,512
General and administrative expenses... 4,913,963 4,439,512
----------- -----------
68,989,973 66,600,816
----------- -----------
Operating income........................... 2,519,844 2,839,968
Interest expense, net...................... 2,135,164 1,300,083
Other expense, net......................... 271,111 560,422
Minority interest.......................... 52,268 10,248
----------- -----------
Income before provision for income taxes... 61,301 969,215
Provision for income taxes................. 49,378 171,875
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Net income................................. $ 11,923 $ 797,340
=========== ===========
Net income per common share................ $ 0.00 $ 0.07
=========== ===========
Weighted average number of common and
common equivalent shares outstanding..... 11,805,126 11,831,325
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
for the sixteen weeks ended
---------------------------
April 19, April 20,
1997 1996
--------- ---------
Cash flows from operations:
Net income................................... $ 11,923 $ 797,340
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 5,079,077 4,856,512
Amortization of deferred financing costs.... 202,208 42,810
Provision for losses on accounts receivable. 14,329 21,280
Minority interest........................... 52,268 10,248
Expenditures towards closing of stores...... - (114,712)
Changes in operating assets and liabilities:
Accounts receivable.......................... 232,532 764,656
Inventories.................................. (15,854) 130,416
Prepaid expenses............................. (240,509) (2,123,219)
Refundable income taxes...................... 19,123 77,538
Accounts payable............................. (2,506,648) 1,558,724
Accrued expenses............................. (2,111,729) (720,083)
----------- -----------
Net cash provided by operating activities.. 736,720 5,301,510
----------- -----------
Cash flows from investing activities:
Additions to property and equipment.......... (4,317,461) (5,796,747)
Payments received on notes receivable........ 20,999 19,390
Decrease (increase) in intangible assets..... (23,084) (17,938)
Decrease (Increase) in deposits and other.... 2,296,560 (501,514)
Increase in notes receivable................. - (65,000)
----------- -----------
Net cash used in investing activities..... (2,022,986) (6,361,809)
----------- -----------
Cash flows from financing activities:
Exercise of employee stock options........... 10,491 96,156
Proceeds from draw down of revolving line of
credit...................................... 23,637,195 19,598,827
Principal payments on revolver and other
long term debt.............................. (21,770,907) (21,515,333)
Deferred financing costs..................... (82,287) (23,665)
Decrease in minority interest................ (123,267) (92,690)
----------- -----------
Net cash provided by (used in) financing
activities................................ 1,671,225 (1,936,705)
----------- -----------
Net (decrease) increase in cash and cash
equivalents............................... 384,959 (2,997,004)
----------- -----------
Cash and cash equivalents, at beginning of
period.................................... 2,578,830 6,419,646
----------- -----------
Cash and cash equivalents, at end of period. $ 2,963,789 $ 3,422,642
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
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 28, 1996.
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 Chile, certain other South American countries,
Thailand, Indonesia, The Philippines and The Canary Islands. 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
6
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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.
Note E - Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per
Share, and No. 129 ("SFAS 129"), Disclosure of Information About Capital
Structure, which are effective for financial statements issued for periods
ending after December 15, 1997. SFAS 128 addresses the computation, presentation
and disclosure requirements associated with earnings per share. SFAS 129
addresses specific disclosures about an entity's capital structure. SFAS 128 and
SFAS 129 will be adopted by the Company in the fourth quarter of 1997.
7
<PAGE>
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 periods indicated:
for the sixteen weeks ended
---------------------------
April 19, April 20,
1997 1996
-------- --------
Revenues:
Restaurant sales.................... 94.6% 96.1%
Franchise sales and other revenues.. 5.4 3.9
----- -----
100.0% 100.0%
Costs and expenses:
Cost of food and paper products..... 36.0% 35.0%
Restaurant operating expenses....... 46.5 47.5
Depreciation and amortization....... 7.1 7.0
General and administrative.......... 6.9 6.4
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96.5 95.9
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Operating margin...................... 3.5 4.1
Interest expense, net................. 3.0 1.9
Other expense, net.................... 0.3 0.8
Minority interest..................... 0.1 0.0
----- -----
Income before provision for income
taxes............................... 0.1 1.4
Provision for income taxes............ 0.1 0.2
----- -----
Net income............................ 0.0% 1.2%
----- -----
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.
8
<PAGE>
Results of Operations
Total revenues for the sixteen weeks ended April 19, 1997 increased 3%
to $71.5 million from $69.4 million for the comparable period of 1996. The
increase reflects an 18% increase in total revenues to $18.9 million in the
first quarter of 1997 in the Saint Louis Bread business unit driven principally
by increased comparable restaurant sales. In the Au Bon Pain business unit,
total revenues decreased slightly to $53.1 million for the first quarter of
1997, reflecting the disposal of certain restaurants throughout 1996. Comparable
restaurant sales at Saint Louis Bread continued at the double-digit pace
established in 1996, increasing 14% in the first quarter of 1997 versus the
comparable period of 1996, reflecting the impact of the sourdough bagel program
first introduced a year ago in the Saint Louis Bread business unit. Comparable
restaurant sales for the Au Bon Pain business unit in the first quarter of 1997
increased by a modest 0.7%. The initial rollout of a new hot sourdough bagel
program in the Au Bon Pain business unit in the quarter contributed to the
sequentially improving comparable restaurant sales trend.
Operating income in the first quarter of 1997 decreased 11% to
$2,520,000 versus $2,840,000 in the first quarter of 1996, as operating margin
was 3.5% in the first quarter of 1997 versus 4.1% in the comparable period of
1996. On a sequential basis, the first quarter, 1997 operating margin of 3.5%
was equivalent to that of the immediately preceding fourth quarter of 1996. The
0.6 point year-over-year decline in margin was principally a result of higher
costs in areas which, management believes, will be leveraged as the Company
begins to grow again later in 1997: the new layer of cost associated with the
frozen dough facility in Missouri, and additional general and administrative
expenses to effect the franchise and Company-operated growth coming later this
year. Despite the anticipated year-over-year higher fixed manufacturing overhead
costs, the efficiency of the new facility has continued to significantly improve
each quarter.
At the Saint Louis Bread business unit, operating margin in the first
quarter of 1997 was 4.7 points higher than the first quarter of 1996. The
improvement was principally driven by the leverage of 14% comparable restaurant
sales that more than offset the increase in overhead costs to accommodate growth
in both company-owned and franchise restaurants. Depreciation and amortization
costs were 0.5 points lower and commissary contribution turned positive, with
income of 1.5 points versus a loss in the first quarter of 1996 of 0.7 points.
Operating margin in the Au Bon Pain business unit in the first quarter
of 1997 was 2.6 points below that of the first quarter of 1996. The Au Bon Pain
business unit results were mainly impacted by higher manufacturing overhead
costs combined with lower sales volume, which produced an increase of 1.9 points
from the year ago quarter in manufacturing overhead costs. The flat sales in the
first quarter of 1997 versus the comparable quarter of 1996 contributed to
negative
9
<PAGE>
leverage against fixed costs as depreciation and amortization increased 0.2
points. Partially offsetting the higher costs was lower restaurant operating
costs of 0.5, driven by lower percentage occupancy costs, as poorly performing
stores were closed throughout 1996.
The significantly lower operating income in the first quarter of 1997
as compared with the comparable period of 1996, combined with higher interest
expense of $2.1 million versus $1.3 million in the first quarter of 1996,
resulted in a decrease in net income to $12,000 from $797,000 in the first
quarter of 1996. The higher interest expense was due to the higher costs
associated with the subordinated debt financing completed in the third quarter
of 1996, as well as greater average debt outstanding.
Liquidity and Capital Resources
The Company's principal requirements for cash are capital expenditures
for constructing and equipping new bakery cafes, maintaining or remodeling
existing bakery cafes and working capital. 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 19, 1997
of $4.4 million were related primarily to the construction of new Saint Louis
Bread bakery cafes and the remodeling of existing Au Bon Pain bakery cafes. The
expenditures were funded principally by net cash from operating activities and
by use of the Company's revolving line of credit.
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.
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 4.0% on April 19, 1997.
On July 24, 1996, the Company issued $15 million senior subordinated
debentures maturing in July, 2000. The debentures accrue interest at varying
fixed rates over the four year term, ranging between 11.25% and 14.0%. In
connection with the private placement,
10
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warrants with an exercise price of $5.62 per share were issued to purchase
between 400,000 and 500,000 shares of the Company's Class A common stock,
depending on the term which the debentures remain outstanding and certain future
events. The net proceeds of the financing were used to reduce the amount
outstanding under the Company's bank revolving line of credit. With the senior
subordinated financing and the Company's revolving line of credit, the Company's
management believes it has the capital resources necessary to meet its growth
goals through 1998.
At April 19, 1997, the Company had a $28.0 million unsecured revolving
line of credit which bore interest at either the commercial bank's prime rate
plus 0.5% or LIBOR plus an amount ranging between .75% and 3.0%, depending upon
certain financial tests. At April 19, 1997, $24.0 million was outstanding under
the line of credit and an additional $0.9 million of the remaining availability
was utilized by outstanding letters of credit issued by the bank on behalf of
the Company. In addition, at April 19, 1997 the Company had a $3.5 million term
loan outstanding, collateralized by an office building located in Woburn, MA.
The term loan matures on March 15, 2000.
In 1997, the Company currently anticipates spending approximately $15
million for capital expenditures, principally for the opening of new bakery
cafes and the remodeling of existing units. The Company expects to fund these
expenditures principally through internally generated cash flow.
Certain Factors Affecting Future Operating Results
Statements made or incorporated in this Form 10-Q include a number of
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. Forward-
looking statements include, without limitation, statements containing the words
"anticipates," "believes," "expects," "intends," "future," and words of similar
import which express management's 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. In
particular, with respect to the statement regarding management's belief that the
Company will grow later in 1997, the expected growth is dependent upon the
successful execution of business plans by the Company's franchisees and the
adequacy of capital available for expansion plans.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per
Share, and No. 129 ("SFAS 129"), Disclosure of Information About Capital
Structure, which are effective for financial statements issued for periods
ending after December 15, 1997. SFAS 128 addresses the computation, presentation
and disclosure requirements associated with earnings per share. SFAS 129
addresses specific disclosures about an entity's capital structure. SFAS 128 and
SFAS 129 will be adopted by the Company in the fourth quarter of 1997.
11
<PAGE>
PART II. OTHER INFORMATION
- -------- -----------------
Item 6 Exhibits and reports on Form 8-K.
(a) Not applicable.
(b) Au Bon Pain Co., Inc. did not file any reports on Form 8-K during the
quarter ended April 19, 1997.
12
<PAGE>
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, 1997 By: /S/ LOUIS I. KANE
------------------
Louis I. Kane
Co-Chairman
Dated: June 3, 1997 By: /S/ RONALD M. SHAICH
---------------------
Ronald M. Shaich
Co-Chairman and
Chief Executive Officer
Dated: June 3, 1997 By: /S/ ANTHONY J. CARROLL
-----------------------
Anthony J. Carroll
Senior Vice President and
Chief Financial Officer
13
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<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> APR-19-1997
<EXCHANGE-RATE> 1.00
<CASH> 2,964
<SECURITIES> 0
<RECEIVABLES> 7,601
<ALLOWANCES> 118
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<PP&E> 193,317
<DEPRECIATION> 71,909
<TOTAL-ASSETS> 192,793
<CURRENT-LIABILITIES> 20,392
<BONDS> 0
0
0
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<OTHER-SE> 90,078
<TOTAL-LIABILITY-AND-EQUITY> 192,793
<SALES> 71,510
<TOTAL-REVENUES> 71,510
<CGS> 25,742
<TOTAL-COSTS> 68,990
<OTHER-EXPENSES> 271
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