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This document is a copy of the Form 10-K filed on March 31, 1997 pursuant to a
Rule 201 temporary hardship exemption.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For the fiscal year ended December 28, 1996, or
[ ] Transition report pursuant to Section 13 or l5(d) of the Securities
Exchange Act of 1934 (No fee required)
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)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.0001 PAR VALUE
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K
Aggregate market value of the registrant's voting stock held by
non-affiliates as of March 17, 1997: Class A Common Stock, $.0001 par value:
$64,339,241.
Number of shares outstanding of each of the registrant's classes of
common stock, as of March 17, 1997: Class A Common Stock, $.0001 par value:
10,092,430 shares, Class B Common Stock, $.0001 par value: 1,632,947 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
The registrant's definitive proxy statement for its Annual Meeting of
Stockholders, to be held on June 12, 1997, which will be filed with the
Commission on or before April 27, 1997, is incorporated by reference in response
to Part III, Items 10, 11, 12 and 13; and certain exhibits to the registrant's
Form S-1 Registration Statement (File No. 33-453219), Form S-l Registration
Statement (File No. 33-40153), annual reports on Form 10-K for the fiscal years
ended December 30, 1995 and December 28, 1996 and Form 8-K filed December 22,
1993, are incorporated by reference in response to Part IV, Item 14.
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PART I
ITEM 1. BUSINESS
GENERAL
Au Bon Pain Co., Inc. ("Au Bon Pain" or the "Company") was formed in
March 1981 with three Boston area bakeries and one cookie store serving
croissants, breads and cookies. As of December 28, 1996, the Company had grown
to 231 Company-operated and 58 franchised bakery cafes operating under two
concepts: Au Bon Pain, with 177 Company-operated and 48 franchise-operated
bakery cafes, and Saint Louis Bread Company ("SLB"), with 54 Company-operated
and 10 franchise-operated bakery cafes. Both concepts specialize in high quality
food for breakfast and lunch, including fresh baked goods, made-to-order
sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and
other cafe beverages. The Company's bakery cafes are principally located in
Boston, other New England cities, New York City, Philadelphia, Pittsburgh,
Washington, D.C., Columbus, Cleveland, Cincinnati, St. Louis, Atlanta, Chicago,
Minneapolis, Los Angeles and Santiago, Chile. Systemwide sales, which include
Company-operated and franchised restaurant sales, were approximately $259
million for the fiscal year ended December 28, 1996.
CONCEPT AND STRATEGY
Target customers of Au Bon Pain and SLB include urban office employees,
suburban dwellers, shoppers, travelers, students and other adults who are time
sensitive, yet desire a higher quality breakfast and lunch experience than is
typically found at quick service restaurants. The Company's menu is focused on
foods in the following categories: fresh baked goods, made-to-order sandwiches
on freshly baked breads, soups, salads, custom roasted coffees and cafe
beverages. The Company's strategy is to create distinctive food offerings at
reasonable prices within these categories which are fresher, of higher quality
and of greater variety than those offered by its competitors. In addition, the
Company believes its operational excellence, speed of service and convenient
locations further differentiate the Company from its competitors. Average
revenue per Company-operated bakery cafe open for the full fiscal year ended
December 28, 1996 was approximately $940,000 for the Au Bon Pain concept and
approximately $1,096,000 for the SLB concept.
The Company believes that excellence in execution is a key to success
in the restaurant industry. The distinctive nature of the Company's menu
offerings, the quality of its restaurant operations, the Company's high quality
cafe design and the prime locations of its cafes are integral to the Company's
success. The Company's
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operating strategy is to increase overall sales by offering new products that
will expand the current business and increase afternoon sales, and by continuing
to expand in opening new bakery cafes of both concepts in existing and new
markets on both Company-operated and franchise bases and to increase sales in
existing bakery cafes through the continued introduction and promotion of
distinctive, high quality menu items.
MENU
The menus of both concepts provide customers with popular food items
which the Company believes are fresher, of higher quality and in greater variety
than those offered by its competitors. The key menu groups are fresh baked
goods, made-to-order sandwiches, soups and cafe beverages. Included within these
menu groups are: a variety of freshly baked bagels, croissants, muffins, scones,
breads, rolls and sweet goods; sandwiches made-to-order with specialty cheeses,
smoked meats, roast beef, hot grilled chicken, albacore tuna and white meat
chicken salads; hearty soups; custom roasted coffees and cafe beverages such as
espresso and cappuccino. A primary difference in menu between the two concepts
is the significant emphasis within the SLB concept on sophisticated European and
sourdough breads.
The Company regularly reviews and revises its menu offerings to satisfy
changing customer preferences. New menu items are developed in corporate test
kitchens and then introduced in a limited number of the Company's bakery cafes
to determine customer response and verify that preparation and operating
procedures maintain consistency, high quality standards and profitability. If
successful, they are introduced in all Au Bon Pain and/or SLB bakery cafes.
Under the terms of an agreement with Peet's Coffees and Teas, Inc. of
Emeryville, CA, a gourmet coffee roaster, the Company offers fresh coffee beans
and prepared brews in substantially all of the Company's Au Bon Pain and Saint
Louis Bread locations.
MARKETING
The Company believes it competes on the basis of quality food and
service rather than price. Pricing is structured so that customers perceive good
value at both Au Bon Pain and Saint Louis Bread (high quality food at reasonable
prices). The average customer purchase is approximately $3.06 at Au Bon Pain and
$4.98 at SLB. Breakfast and lunch checks typically average $2.05 and $4.23,
respectively, at Au Bon Pain and $3.41 and $5.80, respectively, at SLB. The
Company attempts to increase its sales through menu
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development, promotions and by sponsorship of local community charitable events.
To date, the Company has not advertised extensively; rather, it relies
on word of mouth, customer satisfaction and promotional programs to encourage
trial by new customers and to make existing customers aware of new menu
offerings.
CATERING
Au Bon Pain operates a catering program which offers a select group of
delivered breakfast and luncheon food items appropriate for on-site consumption
at corporate functions. Customers place orders by toll-free telephone with
trained customer service representatives at the Company's Boston headquarters.
Orders are immediately routed utilizing a computerized delivery support system
to the most appropriate bakery cafe for preparation and delivery. In 1996,
catering sales represented approximately 5.7% of the Au Bon Pain
Company-operated restaurant sales. At present, SLB does not offer catering
services. With the predominance of SLB cafes in suburban locations, the Company
believes that the potential to develop significant catering business at SLB is
lower than at Au Bon Pain.
SITE SELECTION
For both concepts, the Company seeks convenient locations in
high-visibility, high-traffic, densely populated areas which are easily
accessible to their respective target customers. The Company also operates in
regional shopping malls, transportation centers, universities and hospitals.
Examples of bakery cafe locations include Copley Place, Brigham and Women's
Hospital, South Station and Harvard Business School in Boston; the Empire State
Building and World Financial Center in New York City; Commerce Square in
Philadelphia; the Pittsburgh Airport in Pittsburgh; 2000 Pennsylvania Avenue in
Washington, D.C.; the Merchandise Mart and 200 West Adams in Chicago; the
Galleria Mall in St. Louis; Lenox Mall in Atlanta and the Santiago Airport in
Santiago, Chile. The Company believes that its menu, history of quality retail
operations and bakery cafe designs enable the Company to access locations which
may not be available to traditional quick service restaurants.
The Company is able to cluster its Au Bon Pain bakery cafes within well
defined urban markets, with minimal cannibalization of existing restaurant sales
because each location typically draws the majority of its customers from within
a two block radius. Clustering bakery cafes increases name recognition and
provides significant operational and marketing efficiencies. In 1996, the
Company opened a total of 3 Au Bon Pain bakery cafes, all in its
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existing markets. The Company's Au Bon Pain franchisees also opened 12 new
bakery cafes domestically and in Chile, the Philippines and Indonesia.
During 1996, the Company expanded the number of Company-operated SLB
bakery cafes by two to 54 locations. The two SLB franchisees expanded from four
to five locations in the Springfield market and four to five locations in the
Kansas City, Missouri market. In addition, the Company began a broad-based
domestic franchising program in 1996 for the SLB concept. The first new
franchise operated cafe under the new program will open in 1997.
Both bakery cafe concepts rely on a substantial volume of repeat
business. In evaluating a potential location, the Company studies the
surrounding market, obtaining information and/or demographics within that area
on quick service breakfast or lunch competitors. Management evaluates the
Company's ability to establish a dominant presence within that area, in order to
create entry barriers to other bakery cafe competitors. Based on this
information, sales and return on investment are projected.
In the bakery cafe design for both concepts, the Company uses
sophisticated fixtures and materials. The design visually reinforces the
distinctive difference between the Company's bakery cafes and other quick
service restaurants serving breakfast and lunch. Many of the Company's
restaurants also feature outdoor cafe seating. The current estimated
construction and equipment costs for a typical Au Bon Pain bakery cafe outside
of New York City are approximately $425,000 before any landlord construction
allowance. The estimated construction and equipment cost for a typical Au Bon
Pain bakery cafe in New York City is approximately $830,000 before any landlord
construction allowance. The current estimated construction and equipment cost
for a typical SLB bakery cafe is approximately $550,000 before any landlord
allowance.
The average bakery cafe size ranges between 2,500 and 3,500 square
feet. Currently, all bakery cafes, including franchises, are in leased premises.
Lease terms are typically ten years with one or two five-year renewal options
periods thereafter. Leases typically have a minimum base occupancy charge,
charges for a proportionate share of building operating expenses and real estate
taxes, and contingent percentage rent based on sales above a stipulated sales
level.
PRODUCTION
During 1996, the Company completed construction of its $9 million state
of the art production facility in Mexico, MO. The new facility is 80,000 square
feet and increases capacity three-fold from the
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level at the production facility in South Boston. Frozen dough products are now
produced at both facilities and are then distributed to Company-operated bakery
cafes and franchised operations for baking. Baked goods prepared from the
plant's frozen dough products represent approximately 30% of the Au Bon Pain
business unit's total bakery cafe sales and approximately 20% of the SLB
business unit's total bakery cafe sales. There are currently 152 employees at
the plant in Mexico, MO.
The centralized frozen dough production process provides economies of
scale in both production and ingredients purchasing. This process enables the
bakery cafes to offer consistently high quality, fresh baked goods throughout
the day. Finally, centralized production allows the Company to expand its bakery
cafe operations without dependence on highly skilled bakers at each location. At
start-up, costs to bring the production facility on line decreased manufacturing
margins, but margins began to increase toward their historic levels at the end
of the year.
In order to maintain the high quality of its bakery products, the
Company maintains tight specifications for its ingredients. The Company is not
dependent on any one supplier for its ingredients. Product consistency is
ensured by inspection at critical flow points by quality assurance employees.
Product sampling occurs both on the factory floor and in a test laboratory to
ensure that products are consistent with the Company's high standards.
Of the Company's 50 Boston-area Au Bon Pain bakery cafes, 32 are
supported by a central commissary used for baking and for preparing meat and
other menu items which are then delivered to these bakery cafes. These bakery
cafes offer the same menu and customer experience as the Company's other Au Bon
Pain bakery cafes, but have limited on-site baking capabilities. Each of the
Company's SLB bakery cafes is supported by a regional commissary which daily
provides principally various unbaked sourdough products for baking and sale
within the SLB bakery cafes.
MANAGEMENT INFORMATION SYSTEMS
Each Company-operated bakery cafe has computerized cash registers to
collect point-of-sale transaction data which are used to generate pertinent
marketing information, including product mix and average check. All product
prices are programmed into the system from the Company's corporate office.
The Company's in-store personal computer-based management support
system is designed to assist in labor scheduling and food cost management, to
provide corporate and retail operations management quick access to retail data
and to reduce managers'
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administrative time. The system supplies sales, bank deposit and variance data
to the Company's accounting department in Boston on a daily basis, with which
the Company generates weekly consolidated reports regarding sales and other key
elements, as well as detailed profit and loss statements for each bakery cafe
every four weeks. Additionally, the Company monitors the average check, customer
count, product mix and other sales trends.
DISTRIBUTION
The Company currently utilizes an independent distributor to distribute
frozen dough products and other materials to Company-operated Au Bon Pain and
SLB bakery cafes. By contracting with an independent distributor, the Company
has been able to eliminate investment in distribution systems and to focus its
managerial and financial resources on its retail operations. The distributor
picks up frozen dough products throughout the week from the Company plants.
Virtually all other supplies for retail operations, including paper goods,
coffee and small-wares, are contracted for by the Company and delivered by the
vendors to the distributor for delivery to the bakery cafes. The individual
bakery cafes order directly from the distributor two to three times a week.
Franchised bakery cafes operate under individual contracts with either
the Company's distributors or other regional distributors.
The Company's main commodities are coffee, flour and butter. The
Company monitors current and future prices and availability of primary
commodities in order to minimize the impact of price increases and shortages of
supply. On a limited basis, when market conditions are advantageous, the Company
may contract to purchase its main commodities for future delivery. All essential
food and beverage products are available, or on short notice can be made
available, from alternative qualified suppliers.
JOINT VENTURES
The Company currently operates 15 Au Bon Pain bakery cafes in New York
City which are owned under a joint venture agreement between the Company and an
independent investor group. Under the terms of this agreement, the Company has
an obligation to offer the group up to 49% of the equity in each bakery cafe
opened in the metropolitan tri-state area of New York City (New York City, Long
Island, Westchester County (NY), Bergen County (NJ), and Fairfield County (CT)).
The equity participation percentage is based on the cost of the initial
construction upon opening of the bakery cafe. This equity percentage is fixed
prior to the date of the respective bakery cafe openings. The group has no
obligation to participate in
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any bakery cafe, and the percentage participation must be elected by the group
prior to the opening of the bakery cafe. Each joint venture bakery cafe must
purchase all of its frozen dough products from the Company and is operated by
the Company under a management agreement under which the Company receives a
management fee of 6% of sales of each joint venture bakery cafe. The Company has
agreed to provide a guaranty to one or more institutional lenders acceptable to
the Company to assist the group in financing its acquisition of up to 5% of the
equity in new bakery cafes opened after January 1, 1993. As of December 28,
1996, approximately $115,732 is outstanding under this arrangement.
The Company also has a 75% interest in Pain Francais, Inc., which owns
the bakery cafe located in the GE Building at Rockefeller Center, New York. The
other 25% is held by the same joint venture partner. This bakery cafe operates
under a management agreement similar to the agreement under which the joint
venture bakery cafes are operated.
ACQUISITIONS
ABP MIDWEST, INC.
On April 8, 1994, the Company acquired substantially all of the assets
of its Midwestern franchisee, ABP Midwest, Inc. ("ABP Midwest"), which operated
19 franchised Au Bon Pain bakery cafes in Chicago and Minneapolis/St. Paul. The
Company acquired approximately $4.8 million of ABP Midwest's assets and assumed
approximately $2.8 million of ABP Midwest's liabilities in consideration for the
issuance to ABP Midwest of 370,000 shares of the Company's Class A Common Stock,
20,000 shares of the Company's Class B Preferred Stock (Series 1) and $250,000
in cash, valued in total at $12.5 million. The shares of Class B Preferred Stock
(Series 1) have the same rights and preferences as the Company's Class A Common
Stock except that they are non-voting shares, and automatically converted to
Class A Common Stock on January 1, 1996. Immediately following the acquisition,
one of the acquired Chicago locations was closed by the Company.
SAINT LOUIS BREAD COMPANY
On December 22, 1993, the Company acquired substantially all of the
assets of SLB for $24 million and expenses of $751,000, plus assumption of
certain liabilities totaling $3.5 million. SLB owned and operated 19 suburban
bakery cafes in the greater St. Louis area. The Company has expanded the number
of SLB bakery cafes from the 19 locations existing at the date of acquisition to
54 Company-operated locations in principally the suburban St. Louis, Atlanta and
Chicago markets. The Company's growth strategy for SLB is to continue to
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expand SLB in suburban locations in existing markets and to explore
opportunities to enter new markets elsewhere in the United States through
Company owned units and a broad based domestic franchise program.
SLB bakery cafes open for the full 12 month period ended December 28,
1996, averaged approximately $1,096,000 in revenues per unit. The current
estimated average cost of construction and equipment for a new SLB bakery cafe
is approximately $550,000 for the typical store of approximately 3,200 square
feet.
The Company believes that the acquisition of SLB has created a number
of opportunities. The SLB suburban bakery cafe concept has proved to be
well-suited for suburban locations and offers the Company greater access to
these markets, thereby enhancing the Company's long-term growth prospects. In
addition, significant opportunities to achieve operating efficiencies have been
identified, particularly by providing SLB with frozen dough products produced at
the Company's production facility, as well as certain general and administrative
services.
In connection with the SLB acquisition, the Company assumed two area
development agreements pursuant to which SLB granted exclusive development
rights to two franchisees, Original Bread, Inc. and The Traditional Bakery, Inc.
The area development agreement for Original Bread, Inc. covers the cities of
Kansas City, St. Joseph and Topeka, Kansas and Kansas City, Missouri. In order
to maintain exclusivity, Original Bread, Inc. was required to open a minimum of
four bakery cafes within specified time periods beginning July 1994 and
continuing through July 1995. Original Bread, Inc. met the minimum opening
schedule and has five franchised bakery cafes open to-date.
The area development agreement for The Traditional Bakery, Inc. covers
various counties in Missouri and includes the City of Springfield. In order to
maintain exclusivity, The Traditional Bakery, Inc. must open a minimum of five
bakery cafes from July 1994 through July 1996. To date, the Traditional Bakery,
Inc. has opened five franchised bakery cafes.
The SLB unit franchise agreements require the payment of an up-front
franchise fee of $25,000 to $30,000 and continuing royalties of 4% on sales of
products from each bakery cafe. The franchisees are required to purchase all of
their frozen dough products from sources approved by the franchisor.
As a part of the Company's strategy for SLB, the Company is testing a
broad-scale domestic franchise program. To date, the Company has entered into
franchise development agreements under this program for a total of forty-eight
bakery cafes to be located in
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specific sections of the Tulsa, Oklahoma, Columbus, Ohio, Iowa and the
Louisville, Kentucky markets.
FRANCHISES
AU BON PAIN
DOMESTIC
The Company currently has domestic franchising agreements with eight
organizations: Northern Bakers, Inc., CA One, ABP Southern California, Wayne
ABP, Inc., R.C. Menzer, Romallso, Inc., The Lauren Group, Inc. and DoubleTree
Hotels. At present, the Northern Bakers, Inc. and CA One franchises are the most
substantial domestic franchising relationships, each with eight operating cafes.
Northern Bakers, Inc. has limited development rights in Maine, New Hampshire,
Vermont, Andover, MA, Amherst, MA and portions of northern New York and
currently operates bakery cafes in six regional shopping malls in the Northeast,
in the Dartmouth-Hitchcock Medical Center in Lebanon, NH and in a suburban
shopping center in Shrewsbury, MA. The Company has retained the right to develop
or franchise bakery cafes in these territories, subject to Northern Bakers,
Inc.'s right of first refusal. CA ONE became a franchisee of Au Bon Pain in
October 1986, for the purpose of operating Au Bon Pain bakery cafes in airport
terminals. CA One operates bakery cafes in eight airports. The Company may
itself or through other franchisees operate in any airport for which CA One does
not hold a franchise. CA One will be considered for new airport franchises on a
case by case basis. The Company must approve all franchise locations and bakery
cafe designs.
In general, the Company has three potential sources of revenue from its
domestic Au Bon Pain franchisees: fees for new locations, royalties on sales by
franchisees and revenue from the purchase of frozen dough products by
franchisees. New domestic locations, other than airport locations, to be
developed by franchisees typically require a $25,000 initial fee per location
and a 5% royalty. Airport franchise fees range between $10,000 and $50,000,
depending upon passenger traffic and the Company's assistance in obtaining the
concession. All domestic franchisees are obligated to use Company-approved
ingredients, including Au Bon Pain-produced frozen dough products.
The Company is not seeking to extend its domestic Au Bon Pain franchise
relationships beyond its current franchisees.
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INTERNATIONAL
The Company currently has international franchise development
agreements with developers in Chile, Argentina, Brazil and certain other South
American countries, Thailand, Indonesia, the Philippines and the Canary Islands.
Bakery cafes have been opened to-date in Chile, 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. The agreements generally require the payment of up front development
fees, which have ranged from $250,000 to $750,000, a franchise fee, typically
from $20,000 to $60,000 for each Au Bon Pain bakery cafe opened and royalties
from the sale of products from each bakery cafe of 5% of sales. 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. Currently, the Company
considers international franchising and licensing arrangements as a means of
business expansion for its Au Bon Pain concept and is actively pursuing
additional international franchising relationships.
SAINT LOUIS BREAD COMPANY
In 1996, the Company began a broad-based franchising program. Through
its acquisition of SLB, the Company assumed certain area development and unit
franchise agreements of SLB. The Company is actively seeking to extend its SLB
franchise relationships beyond its current franchisees; see "Acquisitions-Saint
Louis Bread Company".
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EMPLOYEES
The Company has approximately 1,656 full-time employees, of whom
approximately 199 are employed in general or administrative functions
principally at or from the Company's executive offices in Boston, Massachusetts;
approximately 119 are employed at the Boston frozen dough plant and the
commissary; approximately 152 are employed in the Missouri frozen dough plant;
approximately 51 are employed in the SLB corporate office in St. Louis,
Missouri; approximately 88 are employed in the SLB production facilities in St.
Louis, Missouri and Atlanta, Georgia; and approximately 796 and 251 are employed
in the Au Bon Pain and SLB retail operations, respectively. The Company also has
approximately 5,086 part-time employees, of whom 3,545 and 1,541 are employed in
the Au Bon Pain and SLB bakery cafes, respectively. These totals include
employees of Pain Francais, Inc. and at the joint venture locations in New York
City. There are no collective bargaining agreements. The Company considers its
employee relations to be excellent.
TRADEMARKS
The "Au Bon Pain" and "Au Bon Pain The Bakery Cafe" names are of
material importance to the Company and are trademarks registered with the United
States Patent and Trademark Office and in certain foreign countries. In
addition, the name "Saint Louis Bread Company" is of material importance to the
Company and applications to register as trademarks the name "Saint Louis Bread
Company" and "Saint Louis Bread Company and design" have been filed with the
United States Patent and Trademark Office.
GOVERNMENT REGULATION
Each Company-operated and franchised bakery cafe is subject to
regulation by federal agencies and to licensing and regulation by state and
local health, sanitation, safety, fire, alcoholic beverage control and other
departments. Difficulties or failures in obtaining the required licensing or
approval could result in delays or cancellations in the opening of restaurants.
The Company is also subject to federal and a substantial number of
state laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises and may also apply substantive standards to the relationship between
franchisor and franchisee. The Company does not believe that current or
potential future regulations of franchises have or will have any material impact
on the Company's operations. The Company is subject to the Fair Labor
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Standards Act and various state laws governing such matters as minimum wages,
overtime and other working conditions.
The Company's Boston frozen dough plant, commissary and SLB dough
plants are subject to various federal, state and local environmental
regulations. Compliance with applicable environmental regulations is not
believed to have any material effect on capital expenditures, earnings or
competitive position of the Company. Estimated capital expenditures for
environmental compliance matters are not material.
The Americans With Disabilities Act prohibits discrimination in
employment and public accommodations on the basis of disability. Under the
Americans With Disabilities Act, the Company could be required to expend funds
to modify its bakery cafes to provide service to, or make reasonable
accommodations for the employment of, disabled persons. The Company believes
that compliance with the requirements of the Americans With Disabilities Act
will not have a material adverse effect on its financial condition, business or
operations.
ITEM 2. PROPERTIES
All Company-operated bakery cafes are located in leased premises with
lease terms typically for ten years with one or two five-year renewal option
periods thereafter. Leases typically have a minimum base occupancy charge,
charges for a proportionate share of building operating expenses and real estate
taxes and contingent percentage rent based on sales above a stipulated sales
level. The joint venture bakery cafes operate in leased premises under similar
lease arrangements.
In 1983, Au Bon Pain built its plant and headquarters in South Boston,
Massachusetts. Manufacturing is now done at both production facilities. The
executive offices occupy approximately 24,000 square feet. The Company owns the
original building plus additions and leases land from the City of Boston. The
annual rent is approximately $150,000. The lease expires, assuming exercise of
renewal options, in 2017.
In 1994, the Company purchased an office building in Woburn, MA,
originally intended to become the Company's principal executive offices. The
building occupies approximately 55,000 square feet, of which approximately
20,000 square feet are leased to third parties for differing periods of up to 10
years, including renewal options periods. The Company has decided to put this
building up for sale and no longer intends to relocate the Company's
headquarters to this location.
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In 1996, the Company leased short term office space in Waltham, MA to
house its Accounting and Development functions.
In 1996, the Company completed construction of its central production
facility on a 20 acre tract of land in Mexico, MO to increase the Company's
production capacity. The new facility cost approximately $9 million and began
operation in mid-1996. The cost of the facility has been financed primarily by
an $8.6 million industrial development bond issued by the City of Mexico,
Missouri in July 1995, secured by an $8.7 million letter of credit with a
commercial bank through July, 2000, and by equipment lease financing.
Au Bon Pain operates its commissary in leased premises in Chelsea,
Massachusetts under a ten year lease expiring in 1998, with an option to extend
for an additional five years.
SLB leases office space in St. Louis, Missouri for its corporate
offices. The offices occupy approximately 5,000 square feet. The annual rent is
approximately $31,000. The lease expires, assuming exercise of renewal options,
in 2001.
The Company considers its physical properties to be in good operating
condition and suitable for the purposes for which they are used.
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BAKERY CAFE LOCATIONS
AU BON PAIN BAKERY CAFES:
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COMPANY-OPERATED: 177 total as of December 28, 1996
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BOSTON MARKET AREA: 50
Arlington Center Hynes Auditorium
Beacon Hill International Place
Bowdoin Square Kendall Square
431 Boylston Street Kenmore Square
745 Boylston Street Longwood Galleria
Brattle Street Longwood Medical Center Area
Brigham and Women's Hospital 684 Massachusetts Avenue
Burlington Mall 1100 Massachusetts Ave
Cambridgeside Galleria 101 Merrimac Street
Children's Hospital Milk Street
Church Park Natick Mall
Coolidge Corner New England Medical Center
Copley Place 360 Newbury Street
Davis Square One Newton Place
Davis Square Train Stop Northeastern University
Design Center North Shore Shopping Center
Faneuil Hall Marketplace Park Plaza, Statler Building
One Federal Street South Shore Plaza #1
75-101 Federal Street South Shore Plaza #2
176 Federal Street South Station
Filene's, Hawley Street Square One Mall
15 Harvard Street 53 State Street
Harvard Business School Winter Street
Harvard Coop at MIT Woburn Business Center
Harvard Square Wellesley Center
CALIFORNIA MARKET AREA: 1
353 Sacramento Street, San Francisco
PHILADELPHIA MARKET AREA: 11
841 Chestnut Street Mellon Independence Center
Commerce Square Montgomery Mall
The Court at King of Prussia 2 Penn Center
Graham Building 10 Penn Center
Liberty Place 30th Street Station
2 Logan Square
16
17
WASHINGTON D.C.-BALTIMORE MARKET AREA: 24
700 13th Street, N.W. L'Enfant Plaza
10 North Calvert 1850 M Street, N.W.
800 North Capital National Place
Commerce Place 1001 Pennsylvania Avenue, N.W.
Crystal City 1701 Pennsylvania Avenue, N.W.
1401 Eye Street, N.W. 2000 Pennsylvania Avenue, N.W.
Gallery at Harbor Place Pentagon City
601 Indiana Avenue, N.W. Springfield Mall
International Square Towson Town Center
1615 L Street, N.W. Union Station
1724 L Street, N.W. 1101 Vermont Avenue, N.W.
1801 L Street, N.W. Warner Building
GREATER NEW YORK AREA: 41
1251 Avenue of the Americas Manhattan Mall
60 Broad Street 600 Lexington Avenue
222 Broadway The Mall at Short Hills
684 Broadway Metrotech Plaza
Celanese Building Nanuet Mall
Chanin Building 80 Pine Street
Daily News Building Port Authority Bus Terminal
54 East 8th Street Riverside Square
16 East 44th Street Rutgers University
Empire State Building One State Street Plaza
73 Fifth Avenue 600 Third Avenue
420 Fifth Avenue 875 Third Avenue Up
GE Building at Rockefeller Center 875 Third Avenue Down
101 Hudson Street Time-Warner Communications
J.F. Kennedy Airport 10 East Union Square
J.F. Kennedy Airport/American Airlines 95 Wall Street
LaGuardia Airport Westchester Mall
425 Lexington Avenue World Financial Center
Long Island Jewish Medical Center World Financial Center/
Liberty St.
300 Madison Avenue World Trade Center
444 Madison Avenue
17
18
OTHER NEW ENGLAND: 14
1 Broadway, Pheasant Lane Mall,
New Haven, CT Nashua, NH
Avon Marketplace, Avon, CT Rockingham Mall, Salem, NH
Buckland Hills Mall, Manchester, CT Rhode Island Hospital,
Providence, RI
City Place, Hartford, CT Thayer Street, Providence, RI
Fleet Center, Providence, RI Warwick Mall, Warwick, RI
Hartford Civic Center, Hartford, CT Westfarms Malls,
West. Hartford, CT
Mall of New Hampshire, Worcester Commons,
Manchester, NH Worcester, MA
MIDWEST: 27
3rd & Broad, Columbus, OH 30 North LaSalle, Chicago, IL
Amoco Building, Chicago, IL 222 North LaSalle, Chicago, IL
BP Building, Cleveland, OH 123 North Wacker, Chicago, IL
Carew Tower, Cincinnati, OH 122 South Michigan, Chicago, IL
Columbus City Center, Columbus, OH 125 South Wacker, Chicago, IL
First Bank Tower, Minneapolis, MN 600 Superior Ave., Cleveland, OH
Grand Avenue, Milwaukee, WI Tower City, Cleveland, OH
IDS Center, Minneapolis, MN 200 West Adams, Chicago, IL
Illinois Center, Chicago, IL 180 West Jackson, Chicago, IL
Merchandise Mart, Chicago, IL 181 West Madison, Chicago, IL
Minnesota Center, Minneapolis, MN 500 West Monroe, Chicago, IL
161 North Clark, Chicago, IL Woodfield Mall, Schaumberg, IL
33 North Dearborn, Chicago, IL World Trade Center, St. Paul, MN
180 North Michigan, Chicago, IL
PITTSBURGH MARKET AREA: 9
Exton Square Mall Pittsburgh Airport-Airside
Fifth Avenue Place Pittsburgh Airport-Landside
Oliver Building Ross Park Mall
Oxford Centre USX Tower
2 PPG Place
18
19
FRANCHISE-OPERATED/DOMESTIC: 31 total as of December 28, 1996
- ---------------------------
NORTHERN BAKERS, INC.: 8
Big D Supermarket, Shrewsbury, MA Dartmouth-Hitchcock Medical
Center, Lebanon, NH
Cape Cod Mall, Hyannis, MA Fox Run Mall, Newington, NH
Carousel Mall, Syracuse, NY Maine Mall, South Portland, ME
Crossgates Mall, Albany, NY Silver City Galleria,
Taunton, MA
HOST MARRIOTT: 2
Hartsfield Airport, Concourse B, Atlanta, GA
Hartsfield Airport, Concourse D, Atlanta, GA
FORTUNOFF (WAYNE ABP, INC.): 1
Wayne Town Center, Wayne, NJ
R.C. MENZER: 2
South Hills Village, Pittsburgh, PA
Westmoreland Mall, Greensburg, PA
ROMALLSO, INC.: 1
Roosevelt Field Mall, Garden City, NY
THE LAUREN GROUP, INC.: 1
Crossing Factory Store, Tannersville, PA
DOUBLETREE HOTELS: 3
Jacksonville, FL
San Antonio, TX
Tyson's Corner, VA
19
20
ABP SOUTHERN CALIFORNIA, LLC: 5
Brea Mall, Brea, CA North County Fair, Escondido, CA
Laguna Hills Mall, Laguna Hills, CA South Lake Avenue, Pasadena, CA
Montclair Plaza, Montclair, CA
CA ONE SERVICES, INC. 8
Ft. Lauderdale Airport, Nashville Airport,
Ft Lauderdale, FL Nashville, TN
Greater Cincinnati Airport, Newark International Airport,
Hebron, KY Newark, NJ
Hancock International Airport, San Jose International Airport,
Syracuse, NY San Jose, CA
Logan International Airport, West Palm Beach International
Boston, MA Airport, West Palm Beach, FL
FRANCHISE-OPERATED/INTERNATIONAL: 17 total as of December 28, 1996
- --------------------------------
ABP CHILE: 12
Apoquindo/Hendaya New Providencia
Bandera Museum of Pre-Columbian Art
El Bosque Norte Santiago Airport, Counter
El Bosque Sur Santiago Airport, Cart
La Dehasa Santiago Airport, Duty Free
Providencia World Trade Center
ABP PHILIPPINES: 2
EDSA/Shangri-La Mall, Ortegas
Taipan Building, Ortegas
INDONESIA: 3
Landmark Building, Jakarta
Plaza Senayan, Jakarta
Setiabudi Atrium, Jakarta
20
21
SAINT LOUIS BREAD COMPANY BAKERY CAFES:
- --------------------------------------
Company-Operated: 54 total as of December 28, 1996
GREATER ST. LOUIS MARKET AREA: 31
Ballas, Creve Coeur, MO Grand, St. Louis, MO
Baxter, Ballwin, MO Kirkwood, MO
Bogey Hills, St. Charles, MO Main, St. Charles, MO
Brentwood, St. Louis, MO Market, St. Louis, MO
Capriccio, Richmond Heights, MO Pine, St. Louis, MO
Cape Girardeau, MO Rendezvous Cafe,
Richmond Heights, MO
Carondelot, Clayton, MO Soulard, St. Louis, MO
Central West End, St. Louis, MO South 9th Street, Columbia, MO
Chesterfield Mall, Chesterfield, MO South Central, Clayton, MO
Columbia Mall, Columbia, MO Surrey Plaza, Florissant, MO
Crestwood Plaza, St. Louis, MO Telegraph Road, St. Louis, MO
Delmar, University City, MO Tesson, St. Louis, MO
Esquire, Clayton, MO West County, Des Peres, MO
Four Seasons, Chesterfield, MO Westport Plaza,
Maryland Heights., MO
Galleria, Richmond Heights, MO Winchester, MO
Gateway One, St. Louis, MO
ATLANTA MARKET AREA: 9
Briarcliff, Atlanta, GA Lenox Square, Atlanta, GA
Dunwoody, GA Peachtree, Atlanta, GA
Emory Village, Atlanta, GA Sandy Springs, Atlanta, GA
Gwinnett Place, Deluth, GA Town Center, Kennesaw, GA
Haywood Mall, Greenville, SC
CHICAGO MARKET AREA: 14
Belleville, IL Orland Square Mall,
Orland Park, IL
Champaigne, IL St. Clair Square,
Fairview Heights, IL
Diversey, Chicago, IL Stratford Square Mall, IL
Evanston, IL Vernon Hills, IL
Fox Valley, Aurora, IL Wheaton, IL
Halsted, Chicago, IL Wilmette, IL
LaGrange Park, IL Winnetka, IL
21
22
FRANCHISE-OPERATED: 10
11319 West 95th St., 3265 Falls Parkway,
Overland Park, KS Branson, MO
Lawrence, KS East Sunshine, Springfield, MO
11022 Metcalf, Overland Park, KS 2401 East 32nd Street,
Joplin, MO
8300 Mission Road, 1570 East Battlefield,
Prairie Village, KS Springfield, MO
1605 North Rock Road, Wichita, KS 500 South National,
Springfield, MO
The following table sets forth Company-operated and franchise operated bakery
cafes open at the dates indicated:
Dec. 26, Dec. 25 Dec. 31, Dec. 30, Dec. 28,
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
Company-operated 121 156(1) 213(1) 244(1) 231(1)
Franchise-operated 34 40(2) 31(2) 37(2) 58(2)
(1)Includes 19, 31, 52 and 54 Company-operated SLB bakery cafes at December 25,
1993, December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
(2)Includes 1, 6, 8 and 10 franchise-operated SLB bakery cafes at December 25,
1993, December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
22
23
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of current litigation will
not have a material adverse effect upon the consolidated operations or financial
condition of the Company, and will not disrupt the normal operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
23
24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS.
(a) MARKET INFORMATION.
------------------
The Company's Class A Common Stock is traded on the Nasdaq National
Market tier of the Nasdaq Stock Market under the symbol ABPCA. The following
table sets forth the high and low sale prices as reported by NASDAQ for the
fiscal periods indicated.
1995 HIGH LOW
- ---- ---- ---
First quarter............................... 17 1/4 12 3/4
Second quarter.............................. 14 10 1/4
Third quarter............................... 11 7 1/4
Fourth quarter.............................. 10 3/8 5 7/8
1996
- ----
First quarter............................... 9 5/16 6 3/4
Second quarter.............................. 9 6 7/8
Third quarter............................... 7 1/4 6 1/8
Fourth quarter.............................. 8 1/4 5 1/2
On March 17, 1997, the last sale price for the Class A Common Stock, as
reported on the Nasdaq National Market System, was $6 3/8.
(b) HOLDERS.
-------
On March 17, 1997, the Company had approximately 1,527 holders of
record of its Class A Common Stock and approximately 97 holders of its Class B
Common Stock.
(c) DIVIDENDS.
---------
The Company has never paid cash dividends on its capital stock and has
no intention of paying cash dividends in the foreseeable future.
24
25
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
FOR THE FISCAL YEARS ENDED
-------------------------------------------------
Dec. 26, Dec. 25, Dec. 31, Dec. 30, Dec. 28,
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(in thousands, except per share data)
Revenues:
Restaurant sales $89,686 $113,980 $173,436 $216,411 $225,625
Franchise sales and
other revenues 7,230 8,935 9,450 10,055 11,309
------- -------- -------- -------- --------
96,916 122,915 182,886 226,466 236,934
Costs and expenses:
Cost of food and
paper products 31,684 39,695 60,535 77,250 85,631
Restaurant
operating expenses 44,584 56,697 85,139 112,161 115,364
Depreciation and
amortization 6,608 7,967 11,891 14,879 16,195
General and
administrative 5,244 6,757 10,098 12,818 14,979
Non-recurring
charge - - - 8,500 4,435
------- -------- -------- -------- --------
88,120 111,116 167,663 225,608 236,604
------- -------- -------- -------- --------
Operating income 8,796 11,799 15,223 858 330
Interest expense, net 34 57 1,727 3,363 5,140
Other (income)
expense, net (311) (28) 80 2,016 2,513
Minority interest 189 105 78 (94) (40)
Income(loss) before
provision for
income taxes 8,884 11,665 13,338 (4,427) (7,283)
Provision(benefit)
for income taxes 3,604 4,844 5,497 (2,813) (2,918)
------- -------- -------- -------- --------
Net income(loss) $ 5,280 $ 6,821 $ 7,841 $ (1,614) $ (4,365)
======= ======== ======== ======== ========
Net income(loss)
per common share $ .48 $ .60 $ .67 $ (.14) $ (.37)
======= ======== ======== ======== ========
Weighted average
number of common
and common
equivalent shares
outstanding 10,986 11,353 11,624 11,621 11,705
Comparable restaurant
sales percentage
increase for
Company-operated
bakery cafes 7.8% 6.7% 5.8%(1) 0.5%(1) 0.7%
- ------------
(1) Fiscal 1994 included 53 weeks. The 1994 restaurant sales used in this
computation have been adjusted downward to be comparable to fiscal 1993 and
fiscal 1995.
25
26
FOR THE FISCAL YEARS ENDED
FOR THE FISCAL YEARS ENDED
-------------------------------------------------
Dec. 26, Dec. 25, Dec. 31, Dec. 30, Dec. 28,
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(in thousands, except per share data)
Consolidated Balance
Sheet Data:
Working capital $ 6,619 $ 5,817 $ (3,439) $ 846 $ 2,696
Total assets 77,036 120,474 165,586 193,018 195,594
Long-term debt, less
current maturities 299 274 19,095 42,502 49,736
Convertible
Subordinated Notes 30,000 30,000 30,000 30,000
Stockholders' equity 68,296 76,098 94,164 93,238 90,056
Company-operated
bakery cafes open 121 156 213 244 231
26
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ITEM 7. 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 FISCAL YEARS ENDED
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- -------- -------
Revenues:
Restaurant sales 94.8% 95.6% 95.2%
Franchise sales and other revenues 5.2 4.4 4.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Costs and expenses:
Cost of food and paper products 33.1% 34.1% 36.1%
Restaurant operating expenses 46.6 49.5 48.7
Depreciation and amortization 6.5 6.6 6.8
General and administrative 5.5 5.7 6.3
Non-recurring charge -- 3.7 1.9
----- ----- -----
91.7 99.6 99.8
----- ----- -----
Operating margin 8.3 0.4 0.2
Interest expense, net 1.0 1.5 2.2
Other expense, net -- 0.9 1.0
Minority interest -- -- --
----- ----- -----
Income(loss) before provision
(benefit) for income taxes 7.3 (2.0) (3.0)
Provision(benefit) for income taxes 3.0 (1.3) (1.2)
----- ----- -----
Net income(loss) 4.3% (0.7)% (1.8)%
===== ===== =====
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
27
28
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
fiscal years from 1994 through 1996 ended on December 31, 1994, December 30,
1995 and December 28, 1996 and included 53, 52 and 52 weeks, respectively. 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
1996 COMPARED TO 1995
---------------------
Restaurant sales from Company-operated bakery cafes increased 4.2% to
$226 million in 1996 from $216 million in 1995, due principally to several
factors: incremental sales in 1996 over 1995 from the 15 Au Bon Pain and 20
Saint Louis Bread Company-operated bakery cafes opened throughout 1995, strong
comparable restaurant sales in the Saint Louis Bread business unit and sales
from the 3 Au Bon Pain and 2 Saint Louis Bread Company-operated bakery cafes
opened throughout 1996. Company-operated restaurant sales decreased 2.9% in the
Au Bon Pain business unit, as additional sales stemming from the new
Company-operated bakery cafes opened in 1995 and 1996 were more than offset by
the effect on sales of the disposition throughout 1996 of a series of
underperforming bakery cafes under an initiative begun in late 1995.
Company-operated restaurant sales increased 33.6% in the Saint Louis Bread
business unit in 1996 over 1995, due to sales stemming from the new
Company-operated bakery cafes opened in 1995 and 1996 and from strong comparable
restaurant sales. Comparable restaurant sales in 1996 decreased 1.3%, or $1.96
million, in the Au Bon Pain business unit. In the Saint Louis Bread business
unit comparable restaurant sales increased 10.2%, or $3.32 million, in 1996 over
the previous year driven by a highly successful bagel product line introduction.
Operating income declined to $330,000 in 1996 from $858,000 in 1995.
Operating income was significantly affected by separate non-recurring charges
recorded by the Company of $4.4 million ($3.7 million after-tax) in 1996 and of
$8.5 million ($5.3 million after-tax) in 1995. The non-recurring charge recorded
in 1996 related principally to the write-down of certain assets in accordance
with FAS #121. The non-recurring charge recorded in 1995 related principally to
the closure of certain under-performing bakery cafes. Before the non-recurring
charges, operating margin decreased in 1996 to 2.0% from 4.1% in 1995, as
operating margin improvements at the Saint Louis Bread business
28
29
unit were more than offset by lower operating margins in the Au Bon Pain
business unit, driven primarily by costs associated with the start-up of a new
frozen dough manufacturing facility opened during 1996 in Mexico, Missouri.
Operating margin in the Au Bon Pain business unit declined by 4.3
points in 1996 versus 1995, due principally to start-up costs and inefficiencies
related to the opening of the new manufacturing facility and significantly
higher commodity costs for butter and flour in 1996 versus the previous year. In
total, these manufacturing related costs constituted the majority of the 2.6
point increase to cost of food and paper costs as a percentage of revenues in
the Au Bon Pain business unit compared to the prior year. Restaurant operating
expenses increased by .4 points in 1996 versus 1995, as percentage increases in
occupancy costs due to negative leverage stemming from the slight comparable
restaurant sales decline more than offset percentage improvements in both labor
costs and controllable expenses at the retail store level. Depreciation and
amortization expense as a percentage of revenues increased by .4 points in 1996
due to incremental depreciation related to the new Missouri manufacturing
facility and the negative leverage associated with the comparable restaurant
sales decline. General and administrative expenses as a percentage of revenues
increased by .9 points in 1996 versus 1995 due primarily to greater investment
in infrastructure in the international franchise area, information systems and
other overhead areas.
At Saint Louis Bread, operating margin improved by 4.8 points in 1996
versus 1995, as the new management team established at the end of 1995 improved
operational focus and control throughout 1996 and the significantly positive
comparable restaurant sales increase in 1996 leveraged many of the largely fixed
costs within the operations. Percentage food and paper costs decreased by .4
points in 1996 compared to 1995, despite higher allocated costs associated with
frozen dough provided by the new manufacturing facility opened during the year.
Percentage restaurant operating expenses decreased by 4.2 points driven by
improved management controls surrounding labor costs and store-level
controllable expenses. Depreciation and amortization expense and general and
administrative expenses each decreased by .2 points versus the previous year due
to leverage from the significantly higher sales in 1996.
The lower operating income in 1996 versus 1995, combined with higher
interest expense and other expense, net, resulted in a net loss of $4.4 million
in 1996, as compared with a net loss of $1.6 million in 1995. The higher
interest expense was due primarily to higher average long-term debt outstanding,
as higher average interest rate due to the issuance of $15 million senior
29
30
subordinated debentures in July, 1996 which carry a significantly higher coupon
rate than the other outstanding long-term debt.
1995 COMPARED TO 1994
Restaurant sales from Company-operated bakery cafes increased 24.8% to
$216 million in 1995 from $173 million in 1994, due principally to sales from
the 15 Company-operated Au Bon Pain bakery cafes and 20 Company-operated Saint
Louis Bread bakery cafes opened throughout 1995, as well as incremental sales in
1995 over 1994 from the 31 Company-operated Au Bon Pain bakery cafes and 12
Saint Louis Bread bakery cafes opened throughout 1994. Company-operated
restaurant sales increased 15.9% in the Au Bon Pain business unit and 81.7% in
the Saint Louis Bread business unit, respectively, in 1995 over 1994. Comparable
restaurant sales increased 1.2%, or $1.6 million, in the Au Bon Pain business
unit in 1995. At Saint Louis Bread, comparable restaurant sales decreased 4.3%,
or $1.3 million, in 1995 due to cannibalization stemming from the 37% growth in
locations in the St. Louis market effected by the Company during 1994 and 1995.
Operating income decreased to $858,000 in 1995 from $15.2 million in
1994. Operating income was significantly reduced by a non-recurring charge of
$8.5 million ($5.3 million after-tax) recorded by the Company in 1995
principally related to the closure of certain under-performing bakery cafes.
Before the non-recurring charge, operating margin decreased in 1995 to 4.1% from
8.3% in 1994, due to lower operating margins in both the Au Bon Pain business
unit and at Saint Louis Bread.
Operating margin in the Au Bon Pain business unit decreased by 4 points
in 1995 versus 1994, due principally to higher corporate and field human
resource costs and to poor operating performance at those stores in the process
of being closed. Cost of food and paper products increased by .8 points,
reflecting higher percentage food cost in 1995 for coffee, lettuce and flour,
and also caused by slightly lower sales of baked goods as a percentage of retail
sales. Baked goods have a relatively lower percentage food cost due to the
internal production of the products by the Company. Restaurant operating
expenses increased by 2.6 points in 1995 over 1994, due to several factors.
First, restaurant operating expenses, particularly labor costs, in the
underperforming stores in the process of being closed were significantly higher
on a percentage basis than in the other Au Bon Pain units. Second, the Company
initiated a substantial management transition within the Au Bon Pain field
management, increasing human resource costs significantly. In addition, as part
of the transition to and introduction of Peet's coffee during 1995, a
substantial investment was made in the communication of
30
31
the product change. Depreciation and amortization increased .2 points in 1995
over 1994, reflecting the fixed nature of those costs in the underperforming
units with unusually low sales volumes. General and administrative expenses
increased .5 points in 1995, or 26.9 %, due to unusually high corporate human
resource costs, as the Company broadened the corporate management group
substantially during 1995, initiated new retail training programs during 1995
and increased expenditures in information systems.
At Saint Louis Bread, operating margin also decreased by 4.0 points in
1995 versus 1994, primarily due to preopening and new market entry costs
directly associated with the growth in Company-operated bakery cafes from 31
stores at the end of 1994 to 51 stores at the end of 1995, a 65% growth rate.
The high growth rate had significant indirect effects on operating margin
throughout 1995, as the earn-out management team in place at Saint Louis Bread
throughout 1994 and 1995 was unable to maintain store-level margins at historic
levels in the midst of the growth. With the earn-out period concluded at the end
of fiscal 1995, the Company has broadened the depth of the management team at
Saint Louis Bread. The increase in percentage costs in 1995, as affected by the
level of growth in new stores, was in percentage cost of food and paper products
and restaurant operating expenses, as both depreciation and amortization and
general and administrative expenses decreased in 1995 on a percentage basis
versus 1994. The decreases in these percentage costs reflect the fixed
components within these cost areas, spread across significantly greater sales.
The significantly lower operating income in 1995 versus 1994, combined
with higher interest expense and other expense, net, resulted in a net loss of
$1.6 million in 1995, as compared with net income of $7.8 million in 1994. The
higher interest expense was due primarily to greater long-term debt outstanding,
as the amount outstanding under the Company's revolving line of credit increased
to $34.0 million at the end of 1995 from $18.0 million at the end of 1994. Other
expense, net increased to $2.0 million in 1995 from $80,000 in 1994, primarily
due to costs associated with a company-owned life insurance program initiated at
the end of 1994. The provision for income taxes decreased in 1995 to a benefit
of $2.8 million, versus a charge of $5.5 million in 1994. In addition to
substantially lower pre-tax income in 1995, the provision for income taxes was
reduced by fixed deductions associated with the company-owned life insurance
program.
31
32
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 in 1996 of $17.0 million were related
primarily to the opening of three ABP and two SLB new Company-operated bakery
cafes and to the construction of a second frozen dough production facility in
Mexico, Missouri. The expenditures were funded by net cash from operating
activities of $14.8 million, 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 borrowings under the Company's existing lines
of credit, described below.
In April 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 4.3% on December 28, 1996.
In December 1993, the Company acquired substantially all of the assets
of the Saint Louis Bread Company of St. Louis, MO for cash of $24.0 million and
expenses of $751,000 plus assumed liabilities of $3.5 million. The acquisition
was financed through the sale and issuance by the Company of the 1993 Notes.
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 April 1994, the Company acquired substantially all of the assets of
ABP Midwest which operated 19 franchised bakery cafes in Chicago and
Minneapolis/St. Paul. See Item 1, "Business - Acquisitions".
At December 28, 1996, the Company had a $28.0 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 December 28, 1996, $22.0 million was
outstanding under the line of credit and an additional $879,000 of the
remaining availability was utilized by outstanding letters of credit issued by
the bank on behalf of the Company. In addition, the Company had a $3.6 million
term loan outstanding, collateralized by certain real estate written down in
the third quarter of 1996. See Footnote 6. The term loan matures on March 15,
2000.
On July 24, 1996, the Company issued $15 million senior sbordinated
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, warrants with an exercise price of $5.62
per share were issued to purchase between 400,000 and 580,000 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 existing revolving line of credit, the Company's management believes
it has the capital resources necessary to meet its growth goals through 1998.
In 1997, the Company expects to spend approximately $19 million for
capital expenditures, principally for the opening of new bakery cafes. The
Company expects to fund these expenditures principally through internally
generated cash flow and remaining net proceeds of the industrial revenue bond.
32
33
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
Statements made or incorporated in this Form 10-K 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
intentionss regarding the Company's future performance. The Company's actual
results could differ materially from those set forth in the forward-looking
statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which is effective for fiscal years that end after December 15, 1997,
including interim periods. Earlier application is not permitted. However, an
entity is permitted to disclose pro forma earnings per share amounts computed
using SFAS 128 in the notes to financial statements in periods prior to
adoption. The Statement requires restatement of all prior-period earnings per
share data presented after the effective date. SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
and is
33
34
substantially similar to the standard recently issued by the International
Accounting Standards Committee entitled International Accounting Standards,
EARNINGS PER SHARE (IAS 33). The Company plans to adopt SFAS 128 in 1997 and has
not yet determined the impact.
34
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following described consolidated financial statements of the
Company are included in response to this item:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 30, 1995 and December 28,
1996.
Consolidated Statements of Operations for the fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996.
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996.
Consolidated Statements of Stockholders' Equity for the fiscal years
ended December 31, 1994, December 30, 1995 and December 28, 1996.
Notes to Consolidated Financial Statements.
35
36
QUARTERLY RESULTS OF OPERATIONS
- -------------------------------
The following is a summary of the unaudited quarterly results of
operations for the fiscal years ended December 30, 1995 and December 28, 1996:
Net income
Operating Net (loss) per
income income common
For the years ended Revenues (loss) (loss) share
- ------------------- -------- --------- ------ ----------
(Dollars in thousands, except per share data)
December 30, 1995:
First quarter $ 62,985 $ 3,528 $ 1,600 $ .14
Second quarter 51,489 1,409 330 .03
Third quarter 54,920 (6,780) (4,562) (.39)*
Fourth quarter 57,072 2,701 1,018 .09
-------- ------- ------- -----
$226,466 $ 858 $(1,614) $(.14)**
======== ======= ======= =====
December 28, 1996:
First quarter $ 69,441 $ 2,840 $ 797 $ .07
Second quarter 54,429 1,331 614 .05
Third quarter 54,969 (5,859) (6,015) (.51)***
Fourth quarter 58,095 2,018 239 .02
-------- ------- ------- -----
$236,934 $ 330 $(4,365) $(.37)
======== ======= ======= =====
- ---------------
* Includes a $5.3 million after-tax charge related principally to the closing of
certain underperforming restaurants.
** Due to rounding of quarterly earnings per share and the calculation of full
year EPS independently from the quarterly calculation, the sum of the four
quarters does not equal the full year.
*** Includes a $3.8 million after-tax charge related principally to the
write-down of certain assets.
The Company reports its quarterly results of operations on the basis 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.
36
37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Au Bon Pain Co., Inc.:
We have audited the accompanying consolidated balance sheets of Au Bon Pain Co.,
Inc. as of December 30, 1995 and December 28, 1996, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three fiscal years in the period ended December 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Au Bon
Pain Co., Inc. as of December 30, 1995 and December 28, 1996, and the
consolidated results of its operations and cash flows for each of the three
fiscal years in the period ended December 28, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 14, 1997
37
38
AU BON PAIN CO., INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
Dec. 30, Dec. 28,
1995 1996
-------- --------
ASSETS
- ------
Current assets:
Cash and cash equivalents........................... $ 6,420 $ 2,579
Accounts receivable, less allowance of $60 and $104
in 1995 and 1996, respectively..................... 6,596 7,730
Inventories (Note 3)................................ 7,776 8,997
Prepaid expenses.................................... 2,696 2,353
Refundable income taxes............................. 694 4,540
Deferred income taxes (Note 12)..................... 2,936 1,675
-------- --------
Total current assets........................... 27,118 27,874
-------- --------
Property and equipment, net (Note 4)................. 121,155 121,733
-------- --------
Other assets:
Notes receivable (Note 5)........................... 2,254 2,291
Intangible assets, net of accumulated amortization
of $3,765 and $5,223 in 1995 and 1996, respectively 35,110 32,657
Deferred financing costs............................ 479 1,382
Deposits and other (Note 13)........................ 4,789 9,110
Deferred income taxes (Note 12)..................... 2,113 547
-------- --------
Total other assets............................. 44,745 45,987
-------- --------
Total assets................................... $193,018 $195,594
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable.................................... $ 10,321 $ 11,141
Accrued expenses (Note 8)........................... 11,618 13,335
Current maturities of long-term debt (Note 9)....... 4,333 702
-------- --------
Total current liabilities...................... 26,272 25,178
Long-term debt, less current maturities (Note 9)..... 42,502 49,736
Convertible subordinated notes (Note 10)............. 30,000 30,000
-------- --------
Total liabilities.............................. 98,774 104,914
Commitments and contingencies (Notes 9 and 11)
Minority interest.................................... 1,006 624
Stockholders' equity (Note 14):
Preferred stock, $.0001 par value:
Class B, shares authorized 2,000,000; issued and
outstanding - 20,000 in 1995 and 1996............. - -
Common stock, $.0001 par value:
Class A, shares authorized 50,000,000; issued
and outstanding 9,929,278 and 10,066,671 in 1995
and 1996, respectively............................ 1 1
Class B, shares authorized 2,000,000; issued and
outstanding 1,706,878 and 1,647,354 convertible
to Class A, in 1995 and 1996, respectively........ - -
Additional paid-in capital.......................... 66,892 68,075
Retained earnings................................... 26,345 21,980
-------- --------
Total stockholders' equity..................... 93,238 90,056
-------- --------
Total liabilities and stockholders' equity..... $193,018 $195,594
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
38
39
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
FOR THE FISCAL YEARS ENDED
---------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
------- -------- -------
Revenues:
Restaurant sales.................$173,436 $216,411 $225,625
Franchise sales and other
revenues....................... 9,450 10,055 11,309
-------- -------- --------
182,886 226,466 236,934
Costs and expenses:
Cost of food and paper products.. 60,535 77,250 85,631
Restaurant operating expenses:
Labor.......................... 44,818 57,860 60,266
Occupancy...................... 21,045 26,709 28,529
Other.......................... 19,276 27,592 26,569
-------- -------- --------
85,139 112,161 115,364
Depreciation and amortization.... 11,891 14,879 16,195
General and administrative....... 10,098 12,818 14,979
Non-recurring charge (Note 6).... - 8,500 4,435
-------- -------- --------
167,663 225,608 236,604
-------- -------- --------
Operating income................... 15,223 858 330
Interest expense, net.............. 1,727 3,363 5,140
Other expense, net
(Note 13)........................ 80 2,016 2,513
Minority interest (income) expense. 78 (94) (40)
-------- -------- --------
Income (loss) before
provision(benefit) for income
taxes............................ 13,338 (4,427) (7,283)
Provision(benefit) for income
taxes (Note 12).................. 5,497 (2,813) (2,918)
-------- -------- --------
Net income (loss) .................$ 7,841 $ (1,614) $ (4,365)
======== ======== ========
Net income (loss) per common share.$ .67 $ (.14) $ (.37)
======== ======== ========
Weighted number of common and
common equivalent shares
outstanding...................... 11,624 11,621 11,705
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
39
40
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE FISCAL YEARS ENDED
---------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- -------- -------
Cash flows from operations:
Net income (loss)................$ 7,841 $ (1,614) $ (4,365)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.. 11,891 14,879 16,195
Amortization of deferred
financing costs.............. 67 77 308
Provision for losses on
accounts receivable.......... 90 73 44
Gain on sale of asset.......... - 31 -
Minority interest.............. 78 (94) (40)
Deferred income taxes.......... 22 (4,234) 2,827
Non-recurring charge........... - 7,770 4,435
Changes in operating assets and
liabilities:
Accounts receivable............ (1,225) 119 (1,178)
Inventories.................... (1,166) (1,779) (1,221)
Prepaid expenses............... (45) (355) 343
Refundable income taxes........ (248) 289 (3,846)
Accounts payable............... 4,952 (154) 820
Accrued expenses............... 683 771 453
-------- -------- --------
Net cash provided by
operating activities....... 22,940 15,779 14,775
-------- -------- --------
Cash flows from investing activities:
Additions to property and
equipment.................... (39,396) (38,650) (17,062)
Acquisition, net of cash
acquired..................... (57) - -
Payments received on notes
receivable................... 56 59 82
Increase in intangible assets.. (1,302) (50) (73)
Decrease (increase) in
deposits and other........... (4,380) 1,450 (4,321)
Funding of notes receivable.... - (951) (475)
-------- -------- --------
Net cash used in investing
activities................. (45,079) (38,142) (21,849)
-------- -------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
40
41
for the fiscal years ended
---------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- -------- -------
Cash flows from financing activities:
Exercise of employee stock
options..................... 522 241 504
Issuance of warrants.......... - - 679
Proceeds from long-term debt
issuance.................... 46,937 115,418 87,561
Principal payments on
long-term debt.............. (28,763) (87,713) (83,958)
Proceeds from issuance of
common stock................ 294 346 -
Increase in deferred
financing costs............. (442) (152) (1,211)
Decrease in minority interest. (322) (349) (342)
-------- -------- --------
Net cash provided by
financing activities...... 18,226 27,791 3,233
Net increase (decrease) in cash
and cash equivalents............ (3,913) 5,428 (3,841)
Cash and cash equivalents, at
beginning of period............. 4,905 992 6,420
-------- -------- --------
Cash and cash equivalents, at
end of period................... $ 992 $ 6,420 $ 2,579
======== ======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest...................... $ 1,059 $ 4,097 $ 4,637
Income taxes.................. $ 6,056 $ 1,543 $ 370
Satisfaction of Note Receivable
in exchange for PP&E......... - - $ 356
Reconciliation of assets acquired
and liabilities assumed:
Fair Value of assets acquired. $ 12,505 - -
Stock Issued.................. $ 8,775 - -
Cash paid for acquisition..... $ 250 - -
Liabilities assumed........... $ 3,480 - -
The accompanying notes are an integral part of the consolidated financial
statements.
41
42
AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996
(in thousands)
Common Stock Preferred Stock
$.0001 Par Value $.0001 Par Value
CLASS A CLASS B CLASS B Additional Total
------- ------- ------- Paid-In Retained Stockholders'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------ ------ ------ ------ ------- -------- ------------
Balance, Dec.
26, 1993 9,155 $1 1,916 $- - $- $55,979 $20,118 $76,098
Exercise of
employee
stock options 95 522 522
Income tax
benefit related
to stock
option plan 634 634
Issuance of
common stock 24 294 294
Stock issued for
acquisition of
ABP Midwest 370 20 8,775 8,775
Conversions of
Class B to
Class A 184 (184)
Net income 7,841 7,841
Balance, Dec.
31, 1994 9,828 $1 1,732 $- 20 $- $66,204 $27,959 $94,164
===== == ===== == == == ======= ======= =======
Exercise of
employee
stock options 45 241 241
Income tax
benefit related
to stock option
plan 101 101
Issuance of
common stock 31 346 346
Conversions of
Class B to
Class A 25 (25)
Net loss (1,614) (1,614)
Balance, Dec.
30, 1995 9,929 $1 1,707 $- 20 $- $66,892 $26,345 $93,238
===== == ===== == == == ======= ======= =======
Exercise of
employee
stock options 30 147 147
Income tax
benefit related
to stock option
plan 37 37
Issuance of
common stock 48 320 320
Warrants issued
for debt
financing 679 679
Conversions of
Class B to
Class A 60 (60)
Net loss (4,365) (4,365)
Balance, Dec.
28, 1996 10,067 $1 1,647 $- 20 $- $68,075 $21,980 $90,056
====== == ===== == == == ======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
42
43
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Au Bon Pain Co., Inc. and its subsidiaries operate two retail bakery
cafe businesses and two franchising businesses under the concept names "Au Bon
Pain" and "Saint Louis Bread Company". Included in franchise sales and other
revenues are sales of product to franchisees and others of $7.3 million, $7.4
million and $8.3 million for the fiscal years ended December 31, 1994, December
30, 1995 and December 28, 1996, respectively. Included in costs and expenses are
charges related to franchise sales of approximately $1.8 million, $1.3 million
and $1.9 million for the fiscal years ended December 31, 1994, December 30, 1995
and December 28, 1996, respectively.
2. Summary of Accounting Policies
Principles of Consolidation
The consolidated statements include the accounts of Au Bon Pain Co.,
Inc., ABP Holdings, Inc., a wholly owned subsidiary, Saint Louis Bread Company,
Inc. ("SLB"), a wholly owned subsidiary, and investments in joint ventures in
which a majority interest is held (the "Company"). All intercompany balances and
transactions have been eliminated.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity at
the time of purchase of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
43
44
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Property, Equipment and Depreciation
Property and equipment are stated at cost. Upon retirement or sale, the
cost of assets disposed of and their related accumulated depreciation are
removed from the accounts. Any resulting gain or loss is credited or charged to
operations. Maintenance and repairs are charged to expense when incurred, while
betterments are capitalized. Depreciation is computed over the estimated useful
lives of the assets using the straight-line method. Leasehold improvements are
amortized over the terms of the leases (including available option periods) or
over their useful lives, whichever is shorter. The estimated useful lives used
for financial statement purposes are:
Machinery and equipment................. 3-10 years
Furniture and fixtures.................. 3-10 years
Leasehold improvements.................. 10-23 years
Signs................................... 10 years
Interest is capitalized in connection with the construction of new
locations or facilities. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset's estimated useful
life. Capitalized interest amounted to $272,000, $792,000 and $581,000 in 1994,
1995 and 1996 respectively.
Intangible Assets
Intangible assets consist of goodwill arising from the excess cost over
the value of net assets of joint ventures, businesses and stores acquired, as
well as the original acquisition of the Company. Goodwill is amortized on a
straight-line basis over periods ranging from twenty-five to forty years.
Periodically management assesses, based on undiscounted cash flows, if there has
been a permanent impairment in the carrying value of its intangible assets and,
if so, the amount of any such impairment, by comparing anticipated discounted
future operating cash flows from acquired businesses with the carrying value of
the related intangibles. In performing this analysis, management considers such
factors as current results, trends and future prospects, in addition to other
economic factors.
Income Taxes
The provision for income taxes is determined in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under this method, deferred taxes are determined based on the
difference between the financial statements and the tax bases of assets and
liabilities using enacted income tax rates in effect in the years in which the
44
45
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
differences are expected to reverse. Tax credits are recorded as a reduction in
income taxes when utilized. The Company's temporary differences consist
primarily of depreciation and amortization and valuation reserves.
Deferred Financing Costs
Costs incurred in connection with obtaining debt financing are
amortized over the terms of the related debt.
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, both domestically
and internationally. Fees from the sale of area development rights are 100%
recognized as revenue upon completion of all commitments related to the
agreements. Fees from the sale of individual franchise locations are 100%
recognized as revenue upon the commencement of franchise operations.
Capitalization of Certain Development Costs
The Company capitalizes certain expenses associated with the
development and construction of new store locations. Capitalized costs of $4.3
million and $2.4 million as of December 30, 1995 and December 28, 1996,
respectively, are recorded as part of the asset to which they relate and are
amortized over the asset's useful life.
Advertising Costs
Advertising costs are expensed when incurred.
Pre-Opening Costs
All pre-opening costs associated with the opening of new retail
locations are expensed when incurred.
Fiscal Year
The Company's fiscal year ends on the last Saturday in December. Fiscal
years for the consolidated financial statements included herein include 53 weeks
for the fiscal year ended December 31, 1994, 52 weeks for the fiscal years ended
December 30, 1995 and December 28, 1996.
45
46
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Income Per Share Data
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 those
presented.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, and accounts payable approximated fair value
as of December 30, 1995 and December 28, 1996, because of the relatively short
maturity of these instruments. The carrying value of long-term debt, including
the current portion, approximated fair value as of December 30, 1995 and
December 28, 1996, based upon quoted market prices for the same or similar
issues.
3. Inventories
Inventories consist of the following (in thousands):
December 30, December 28,
1995 1996
----------- -----------
Production....................... $ 1,878 $ 3,071
Retail stores.................... 1,983 1,762
Paper goods...................... 475 456
Other............................ 3,440 3,708
-------- --------
$ 7,776 $ 8,997
======== ========
4. Property and Equipment
Major classes of property and equipment consist of the following (in
thousands):
December 30, December 28,
1995 1996
----------- -----------
Leasehold improvements........... $ 81,897 $ 91,161
Machinery and equipment.......... 56,745 59,414
Furniture and fixtures........... 18,972 19,063
Construction in progress......... 16,351 19,585
Signage.......................... 3,577 3,634
-------- --------
177,542 192,857
Less accumulated depreciation
and amortization............... 56,387 71,124
-------- --------
Property and equipment, net...... $121,155 $121,733
======== ========
The Company recorded depreciation expense related to these assets of
$10.6 million, $13.4 million and $14.7 million in 1994, 1995 and 1996,
respectively.
46
47
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. Notes Receivable
Notes receivable relate to the sale of certain retail locations and to
the funding for the opening of new locations of a franchisee. These notes bear
interest of 8% payable in monthly installments of $16,800 including interest,
with a final principal payment due on March 31, 2004.
6. Non-recurring Charges
During the third quarter of fiscal 1996, the Company recorded a
non-recurring charge of $4.4 million principally to reflect a write-down under
Statement of Financial Standards, 121, "Accounting for the Impairment of
Long-Lived Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS 121, adopted at the beginning of fiscal year 1996, establishes accounting
standards for recognizing and measuring the impairment of long-lived assets and
requires reducing the carrying amount of any impaired asset to fair value. The
charge was taken as a result of continued less than expected performance results
at certain Au Bon Pain restaurants. The $4.4 million non-cash charge included a
$1.4 million goodwill write-down, a $0.6 million fixed asset write-down and a
$1.4 million write-down of an office building held for resale. At December 28,
1996, the residual value of the office building held for resale was $4.2
million.. The charge represented a reduction of the carrying amounts of the
assets to their estimated fair values as determined by using discounted
estimated future cash flows. In addition, the $4.4 million charge included a
$1.0 million charge to write-down the book value of six restaurants whose leases
expire in 1997 and which will not be renewed. For the fifty-two weeks ended
December 30, 1995 and December 28, 1996 the restaurants included in the reserve
had sales of $3,662,000 and $3,096,000, respectively and a pre-tax loss of
$322,000 and $578,000, respectively.
During the third quarter of fiscal 1995, the Company recorded a
non-recurring pre-tax charge of $8.5 million principally to cover the expected
costs of closing certain under-performing restaurants. The components of the
non-recurring charge included cash costs of approximately $2.1 million for lease
obligations, professional and consulting services, employee relocation and
termination costs and non-cash charges of approximately $6.4 million related to
fixed asset disposals. The store closures were completed in fiscal 1996 for a
total cost of approximately $221,000. As of December 28, 1996, $257,000 was in
accrued expenses. The Company anticipates that this amount is adequate to cover
any remaining expenses to be incurred in connection with
47
48
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
this charge in fiscal 1997. For the fifty-two weeks ended December 30, 1995 and
December 28, 1996 the stores included in the reserve had sales of $5,673,000 and
$4,247,000, respectively and a pre-tax loss of $946,000 and $1,077,000,
respectively.
7. Acquisitions
In April, 1994, the Company purchased the assets of ABP Midwest, Inc.
for 20,000 shares of the Company's Class B Preferred Stock (Series 1), 370,000
shares of the Company's Class A Common Stock, cash of $250,000, incurred
expenses of $650,000 and assumed liabilities of $2.8 million; the total purchase
price was $12.5 million. Goodwill arising from the transaction totaled $7.7
million and is being amortized over a twenty-five year period, which
approximates the average remaining lives of the leases acquired, including
option or renewal periods. The acquisition was accounted for as a purchase and
the results of operations of the acquired entity are included in the
consolidated statements of operations from the acquisition date.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of ABP Midwest, Inc. had occurred at
the beginning of the fiscal year presented, after including the impact of
certain adjustments, such as amortization of intangibles, increased interest
expense on the acquisition debt and related income tax effects. These results do
not purport to be indicative of what would have occurred had the acquisition
been made as of those dates or of results which may occur in the future.
1994
---------------------
(in thousands, except
per share amounts)
Revenues.................................. $179,274
Operating income.......................... 15,051
Income before provision for income taxes.. 13,089
Net income................................ 7,581
Net income per common share............... .65
48
49
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Accrued Expenses
Accrued expenses consist of the following (in thousands):
December 30, December 28,
1995 1996
----------- -----------
Accrued insurance.................... $ 1,148 $ 1,310
Rent................................. 2,687 3,503
Payroll and related taxes............ 2,507 2,554
Other taxes.......................... 524 433
Other................................ 4,752 5,535
------- -------
$11,618 $13,335
9. Long-term Debt
Long-term debt consists of the following (in thousands):
December 30, December 28,
1995 1996
----------- -----------
Revolving credit line at prime
(8.25% at December 28, 1996)......... $34,197 $22,000
Term loan - variable rate (8.0% at
December 28, 1996)..................... 3,800 3,533
Industrial development bond for
Mexico, Missouri plant at weekly
floating rate (4.3% at
December 28, 1996)................... 8,600 8,300
Loan with Cigna Insurance at prime less
.75% (7.5% at December 28, 1996)..... - 2,000
Term loan at 7.0% payable in
annual installments of $50,000
including interest, due January
2001................................. 238 205
Senior Subordinated Debenture (11.25%
at December 28, 1996)................ - 14,400
------- -------
Total debt............................. 46,835 50,438
Less current maturities................ 4,333 702
------- -------
Total long-term debt................... $42,502 $49,736
======= =======
As of December 30, 1995 and December 28, 1996, the Company had a $38
million and a $28 million unsecured revolving line of credit, respectively. The
revolving credit agreement contains restrictions relating to future
indebtedness, liens, investments, distributions, the merger, acquisition or sale
of assets and certain leasing transactions. The agreement also requires the
maintenance of certain financial ratios and covenants, the most restrictive
being a debt to net worth ratio. There is a fee of 3/8% of the unused portion of
the revolving line of credit. Available unused borrowings totaled approximately
$4.0 million at
49
50
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 30, 1995 and $5.1 million at December 28, 1996. At December 30, 1995
and December 28, 1996 the Company had outstanding letters of credit against the
revolving line of credit aggregating $1.7 million and $0.9 million,
respectively. Interest is calculated on the $3.5 million term loan at the lower
of prime plus .5% or LIBOR plus an amount ranging from 1.25% to 3.0% depending
on certain financial test. Interest-only payments are due under the revolving
credit line and $3.5 million term loan monthly, in arrears, with principal
balance payable at maturity, May 31, 1998 under the revolving credit agreement
and March 15, 2000 under the $3.5 million term loan.
In July, 1995 the Company obtained an industrial development bond
issued by the City of Mexico, Missouri, secured by a $8.7 million letter of
credit with a commercial bank. The bond matures in July, 2000 and interest is
payable monthly at a weekly floating rate, which was 4.3% on December 28, 1996.
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 from 11.25% to 14.0%. In connection
with the private placement, warrants with an exercise price of $5.62 per share
were issued to purchase between 400,000 and 580,000 shares of the Company's
Class A Common Stock, depending on the term which the debentures remain
outstanding and certain future events. At December 28, 1996, 400,000 warrants
were issued and outstanding, all of which were vested.
The Company has recognized interest expense of $1.7 million, $3.4
million and $5.1 million as of December 31, 1994, December 30, 1995 and December
28, 1996, respectively.
Maturities of debt outstanding at December 28, 1996 are as follows (in
thousands):
1997........................... $ 702
1998........................... 22,704
1999........................... 2,806
2000........................... 15,110
2001........................... 713
Thereafter..................... 8,403
-------
$50,438
=======
10. Convertible Subordinated Notes
In December 1993, the Company issued $30.0 million of its unsecured
4.75% Convertible Subordinated Notes due 2001 ("1993 Notes"). The 1993 Notes are
convertible at the holders' option into shares of the Company's Class A Common
Stock at $25.50 per
50
51
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
share. In December 1997, the Company may, at its option, redeem all or a part of
the outstanding 1993 Notes upon payment of a premium. The note agreement
requires the Company to maintain minimum permanent capital, as therein defined.
11. Commitments
The Company is obligated under noncancelable operating leases for two
production facilities, a commissary and retail stores. Lease terms are generally
for ten years with renewal options at certain locations and generally require
the Company to pay a proportionate share of real estate taxes, insurance, common
area and other operating costs. Substantially all store leases provide for
contingent rental payments based on sales in excess of specified amounts.
Aggregate minimum requirements under these leases are, as of December
28, 1996, approximately as follows (in thousands):
1997........................... $ 20,076
1998........................... 19,095
1999........................... 18,031
2000........................... 16,494
2001........................... 14,822
Thereafter..................... 52,204
--------
$140,722
========
Rental expense under long-term leases was approximately $17.7 million,
$22.3 million and $29.3 million in 1994, 1995 and 1996, respectively, which
included contingent rentals of approximately $2.2 million, $2.9 million and $3.0
million, respectively.
The Company currently has international franchise development
agreements with developers in Japan, Chile, Brazil, Argentina and 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 frozen dough products from the Company until the opening of its own
frozen dough plant, subject to importation regulations and restrictions.
51
52
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Income Taxes Payable
Provisions(benefit) for income taxes in the consolidated statements of
operations is comprised of the following (in thousands):
December 31, December 30, December 28,
1994 1995 1996
----------- ----------- -----------
Current:
Federal............... $3,645 $1,202 $(4,281)
State................. 1,830 219 (281)
------ ------ --------
5,475 1,421 (4,562)
------ ------ --------
Deferred:
Federal............... 15 (3,597) 1,397
State................. 7 (637) 247
------ ------- -------
22 (4,234) 1,644
------ ------- -------
Total provision(benefit)
for income taxes...... $5,497 $(2,813) $(2,918)
====== ======= =======
A reconciliation of the statutory federal income tax rate and the
effective tax rate as a percentage of pretax income is as follows:
1994 1995 1996
---- ---- ----
Statutory rate (benefit)........... 34.0% (34.0)% (34.0)%
State income taxes, net of
federal tax benefit.............. 9.1 (4.0) 2.2
Utilization of tax credits......... (1.2) (2.8) -
Charitable contributions........... (1.3) (4.0) (3.7)
Company-owned Life Insurance
(See Note 13)...................... - (28.8) (15.4)
Non-deductible goodwill and meals
and entertainment................ - 5.7 9.1
Other, net......................... .6 4.3 1.8
---- ----- -----
41.2% (63.6)% (40.0)%
==== ===== =====
52
53
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The tax effects of the significant temporary differences which comprise
the deferred tax assets are as follows (in thousands):
1994 1995 1996
---- ---- ----
Current assets:
Pre-opening expenses............ $ 19 $ - $ -
Receivables reserve............. 41 24 42
Accrued expenses................ 379 402 368
Tax credit carried forward...... - 1,095 822
Net operating loss carried
forward........................ - 1,070 161
Charitable contribution
carried forward................ - 219 219
Other reserves................... - 126 63
----- ------ ------
439 2,936 1,675
----- ------ ------
Non-current assets/liabilities:
Property, plant and equipment... 285 1,964 799
Accrued expenses................ 634 1,080 1,073
Goodwill........................ (543) (931) (1,325)
----- ------ ------
376 2,113 547
----- ------ ------
Total deferred tax asset $ 815 $5,049 $2,222
===== ====== ======
At December 28, 1996, the Company has net operating losses of
$12,590,952 which can be carried back three years or carried forward for fifteen
years to offset Federal taxable income. In addition, the Company has alternative
minimum tax credit carryforwards of approximately $656,000 which are available
to reduce future regular Federal income taxes over an indefinite period.
13. Deposits and Other
During fiscal 1996, the Company established a $4.5 million deposit with
its distributor. This financial arrangement allows the Company to receive lower
distribution costs. The savings exceed the carrying value of the deposit. The
deposit is flexible and the Company may at times decrease the amount on deposit,
at its discretion.
During fiscal year 1994, the Company established a company-owned life
insurance program ("COLI") covering a substantial portion of its employees. At
December 28, 1996, the cash surrender value and prepaid premiums of $69.3
million and the insurance policy loans of $69.0 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 at a rate of 10.02%. Tax law changes adopted as part of the
Health Insurance Portability and Accountability Act significantly reduced the
level of tax
53
54
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
benefits recognized under the Company's COLI program in the third quarter of
1996. The Company included $2.1 million of expenses in other (income) expense,
net, relating to COLI in 1996.
14. Stockholders' Equity
Class B Preferred Stock
In April 1994, the Company issued 20,000 shares of Class B Preferred
Stock (Series 1) as part of the ABP Midwest acquisition. Holders of these shares
of Class B Preferred Stock (Series 1) are entitled to the same rights and
preferences as the holders of Class A Common Stock, except that the preferred
shares are non-voting.
Common Stock
Each share of Class B Common Stock has the same dividend and
liquidation rights as each share of Class A Common Stock. The holders of Class B
Common Stock are entitled to three votes for each share owned. The holders of
Class A Common Stock are entitled to one vote for each share owned. Each share
of Class B Common Stock is convertible, at the shareholder's option, into Class
A Common Stock on a one-for-one basis. The Company had reserved at December 28,
1996, 5,434,277 shares of its Class A Common Stock for issuance upon conversion
of Class B Common Stock and Class B Preferred Stock (Series 1) and exercise of
awards granted under the Company's 1992 Equity Incentive Plan, Formula Stock
Option Plan for Independent Directors and conversion of the 1993 Notes (see Note
10).
Registration Rights
Certain holders of Class A and Class B Common Stock, pursuant to stock
subscription agreements, can require the Company, under certain circumstances,
to register their shares under the Securities Act of 1933 or have included in
certain registrations all or part of such shares, at the Company's expense.
1992 Equity Incentive Plan
In May 1992, the Company adopted its Equity Incentive Plan ("Equity
Plan") to replace its Non-Qualified Incentive Stock Option Plan. Under the
Equity Plan, a total of 950,000 shares of Class A Common Stock was initially
reserved for awards under the Equity Plan. The Equity Plan was amended by the
Board of Directors and the stockholders in May 1994 to increase the number of
shares available thereunder from 950,000 to 2,500,000. Awards under the Equity
Plan can be in the form of stock options (both
54
55
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
qualified and non-qualified), stock appreciation rights, performance shares,
restricted stock or stock units.
Activity under the Equity Plan and its predecessor is summarized below:
Wtd. Avg.
Option Exercise
SHARES* PRICE* PRICE*
--------- ------------ ------
Outstanding at December 25, 1993. 862,091 $ 3.33-25.88 $14.78
Granted........................ 699,037 $15.38-26.00 $20.79
Exercised...................... (94,307) $ 3.33-18.25 $ 5.56
Canceled....................... (59,508) $ 4.50-25.25 $14.70
--------- ------------ ------
Outstanding at December 31, 1994. 1,407,313 $ 4.17-26.00 $18.50
Granted........................ 1,543,052 $ 6.00-16.00 $ 7.47
Exercised...................... (45,425) $ 4.17- 6.25 $ 5.30
Canceled....................... (1,473,503) $ 4.50-26.00 $17.88
--------- ------------ ------
Outstanding at December 30, 1995. 1,431,437 $ 4.50-21.25 $ 7.32
Granted........................ 742,345 $ 6.00- 8.88 $ 7.67
Exercised...................... (30,200) $ 4.50- 6.25 $ 4.87
Canceled....................... (211,548) $ 5.67-20.00 $ 7.92
--------- ------------ ------
Outstanding at December 28, 1996. 1,932,034 $ 4.50-21.25 $ 7.42
========= ============ ======
* Adjusted to reflect repricing.
Options vest over a five year period and must be exercised within ten
years from the date of the grant. Of the options at December 28, 1996, 927,325
were vested and exercisable.
Formula Stock Option Plan for Independent Directors
On January 27, 1994, the Company's Board of Directors authorized the
Formula Stock Option Plan for Independent Directors, as defined in the
agreement. This plan authorized a one-time grant of an option to purchase 10,000
shares of the Company's Class A Common Stock at its closing price on January 26,
1994. The plan also allows for independent directors elected after that time to
receive a similar option at the closing price for the day immediately preceding
the individual's election to the board.
Each independent director who is first elected as such after the
effective date of the Directors' Plan shall receive, as of the date he or she is
so elected, a one-time grant of an option to purchase 5,000 shares of Class A
Common Stock at a price per share equal to the closing price of the Class A
Common Stock as reported by the Nasdaq/National Market System for the trading
day immediately preceding the date of the person's election to the board.
55
56
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In addition, all independent directors serving in such capacity as of
the last day of each fiscal year commencing with the fiscal year ending December
31, 1994 receive an option to purchase 5,000 shares of Class A Common Stock at
the closing price for the prior day.
Each option granted is fully vested at the grant date, and is
exercisable, either in whole or in part, for 10 years following the grant date.
The Company has granted 88,248 options under this plan as of December 28, 1996.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation, which is effective for the Company's financial
statements for fiscal years beginning after December 15, 1995. SFAS 123 allows
companies to either account for stock-based compensation under the new
provisions of SFAS 123 or under the provisions of Accounting Principles Board
Opinion No. 25 ("APB25"), Accounting for Stock Issued to Employees, but requires
pro-forma disclosure in the footnotes to the financial statements as if the
measurement provisions of SFAS 123 had been adopted. The Company has elected the
disclosure-only alternative and, accordingly, no compensation costs have been
recognized for the stock option plans. Had compensation costs for the Company's
stock option plans been determined based on the fair value at the grant date for
awards in 1995 and 1996 consistent with the provisions of SFAS 123, the
Company's net loss for the years ended December 30, 1995 and December 28, 1996
would have been increased to the pro forma amounts indicated below:
1995 1996
------------------------ ------------------------
Net Loss Net Loss Net Loss Net Loss
(in thousands) Per Share (in thousands) Per Share
As
Reported $(1,614) $(.14) $(4,365) $(.37)
Pro
Forma $(1,819) $(.16) $(4,965) $(.42)
The effects of applying SFAS 123 in this pro-forma disclosure are not likely to
be representative of the effects on reported net income for future years. SFAS
123 does not apply to awards prior to 1995 and additional awards in future years
are anticipated.
The fair value of the options granted during 1995 and 1996 is estimated
at $341,000 and $1.0 million, respectively, on the date
56
57
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%, volatility of 35%, risk-free interest rate of
6.0%, assumed forfeiture of 10% and an expected life of 6 years.
The following table summarizes information concerning currently
outstanding and exercisable options:
Options Options
OUTSTANDING EXERCISABLE
-------------------- --------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------ ----------- ----------- -------- ----------- --------
$ 4.50- 6.75 269,328 6.13 $ 6.16 168,482 $ 6.06
$ 6.75-10.13 1,631,653 8.20 $ 7.51 758,255 $ 7.25
$10.13-15.19 29,877 8.36 $12.97 - -
$15.19-21.25 1,176 6.92 $21.25 588 $21.25
--------- ---- ------ ------- ------
1,932,034 7.93 $ 7.42 927,325 $ 7.04
1992 Employee Stock Purchase Plan
In May 1992, the Company adopted its 1992 Employee Stock Purchase Plan
("1992 Purchase Plan") to replace its Employee Stock Purchase Plan. Under the
1992 Purchase Plan, a total of 150,000 shares of Class A Common Stock is
reserved for issuance. The 1992 Purchase Plan gives eligible employees the
option to purchase Class A Common Stock (total purchases in a year may not
exceed 10% of an employee's prior year compensation) at 85% of the fair market
value of the Class A Common Stock at the time the option is exercised.
57
58
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Activity under the 1992 Purchase Plan and its predecessor is summarized below:
Option
Shares Price
------- ------------
Outstanding at December 25, 1993.. 3,747 $ 19.34
Granted......................... 20,325 $13.60-17.21
Exercised....................... (18,137) $14.19-19.34
Canceled........................ (366) $14.19-19.34
------- ------------
Outstanding at December 31, 1994.. 5,569 $ 13.60
Granted......................... 41,154 $ 6.59-11.58
Exercised....................... (35,715) $ 6.59-13.60
Canceled........................ - $ -
------- ------------
Outstanding at December 30, 1995.. 11,008 $ 7.01
Granted......................... 42,478 $ 5.53- 7.22
Exercised....................... (47,671) $ 6.07- 7.22
Canceled........................ - $ -
------- ------------
Outstanding at December 28, 1996.. 5,815 $ 5.53
======= ============
15. Employee Benefit Plans
Employee Savings Plan
The Au Bon Pain Employee 401(k) Plan ("Savings Plan") was adopted by
the Company in 1991 under Section 401(k) of the Internal Revenue Code of 1986,
as amended. All employees of the Company, including executive officers, are
eligible to participate in the Savings Plan. A participating employee may elect
to defer on a pre-tax basis up to 15% of his or her salary. This amount is
contributed to the Savings Plan. All amounts vest immediately and are invested
in various funds as directed by the participant. The full amount in a
participant's account will be distributed to a participant upon termination of
employment, retirement, disability or death. The Company does not currently
contribute to the Savings Plan.
The Saint Louis Bread Company Employee 401(k) Plan ("SLB Savings Plan")
was adopted by the former Saint Louis Bread Company in 1993 under Section 401(k)
of the Internal Revenue Code of 1986, as amended. All employees of SLB,
including executive officers, are eligible to participate in the SLB Savings
Plan. A participating employee may elect to defer on a pre-tax basis up to 15%
of his or her salary. This amount is contributed to the SLB Savings Plan. All
participant contributions vest immediately and are invested in various funds as
directed by the participant. SLB currently matches 25% of the first 5% of
savings contribution. SLB has reserved the right to change the match percent
from year to year at its discretion. Matching contributions vest over seven
years. The full vested amount in a participant's account will be distributed to
a participant upon termination of employment, retirement, disability or death.
58
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf on March 20, 1997 by the undersigned, thereunto duly authorized.
AU BON PAIN CO., INC.
By: /s/ Louis I. Kane
-------------------------------
Louis I. Kane
Co-Chairman
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the date indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Louis I. Kane Co-Chairman March 20, 1997
- ---------------------------
Louis I. Kane
/s/ Ronald M. Shaich Co-Chairman and Principal March 20, 1997
- --------------------------- Executive Officer
Ronald M. Shaich
/s/ Francis W. Hatch Director March 20, 1997
- ---------------------------
Francis W. Hatch
/s/ George E. Kane Director March 20, 1997
- ---------------------------
George E. Kane
/s/ James R. McManus Director March 20, 1997
- ---------------------------
James R. McManus
/s/ Henry J. Nasella Director March 20, 1997
- ---------------------------
Henry J. Nasella
/s/ Joseph P. Shaich Director March 20, 1997
- ---------------------------
Joseph P. Shaich
/s/ Anthony J. Carroll Vice President, Treasurer March 20, 1997
- --------------------------- and Principal Financial
Anthony J. Carroll and Accounting Officer
60
60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) 1. FINANCIAL STATEMENTS.
--------------------
The following described consolidated financial statements of the Company
are included in this report:
Report of Independent Accountants.
Consolidated Balance Sheets at December 30, 1995 and December 28,
1996.
Consolidated Statements of Operations for the years ended December
31, 1994, December 30, 1995 and December 28, 1996.
Consolidated Statements of Cash Flows for the years ended December
31, 1994, December 30, 1995 and December 28, 1996.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULE.
----------------------------
The following financial statement schedule for the Company is filed
herewith:
Schedule II - Valuations and Qualifying Accounts.
All other schedules are omitted because not applicable or not required by
Regulation S-X.
61
3. EXHIBITS.
--------
Exhibit
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of Registrant, as amended to June 2,
1991. Incorporated by reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
3.1.1 Certificate of Amendment to Certificate of Incorporation, dated and
filed June 3, 1991. Incorporated by reference to Exhibit 3.1.1 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
3.1.2 Certificate of Amendment to the Certificate of Incorporation filed
on June 2, 1994. Incorporated by reference to Exhibit 3.1.2 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.
3.1.3 Certificate of Designations, Preferences and Rights of the Class B
Preferred Stock (Series 1), filed November 30, 1994. Incorporated by
reference to Exhibit 3.1.3 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
3.2 Bylaws of Registrant, as amended to date. Incorporated by
reference to Registrant's registration statement on Form S-1
(File No. 33-40153), Exhibit 3.2.
4.1 Amended and Restated Revolving Credit and Term Loan Agreement, dated
as of March 17, 1995, among the Registrant, USTrust, the First
National Bank of Boston, Citizens Bank of Massachusetts and USTrust,
as agent. Incorporated by reference to Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.
4.1.2 First Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated as of September 6, 1995, among the Registrant,
Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co.,
Inc., USTrust, the First National Bank of Boston, Citizens Bank of
Massachusetts and USTrust, as agent. Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year ended
December 30, 1995.
4.1.3 Second Amendment to Amended and Restated Revolving Credit, and Term
Loan Agreement, dated as of July 24, 1996, among the Registrant,
Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co.,
Inc.,
62
USTrust, The First National Bank of Boston, Citizens Bank of
Massachusetts and USTrust, as agent.*
4.1.4 Third Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated as of September 6, 1996, among the Registrant,
Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co.,
Inc., USTrust, The First National Bank of Boston, Citizens Bank of
Massachusetts and USTrust, as agent*
4.1.5 Fourth Amendment and Waiver to Amended and Restated Revolving Credit
and Term Loan Agreement, dated as of November 22, 1996, among the
Registrant, Saint Louis Bread Company, Inc., ABP Midwest
Manufacturing Co., Inc., USTrust, The First National Bank of Boston,
Citizens Bank of Massachusetts and USTrust, as agent*
4.2 Form of 4.75% Convertible Subordinated Note due 2001.
Incorporated by reference to Registrant's Form 8-K filed
December 22, 1993, Exhibit 4.
4.3.1 Investment Agreement dated as of July 24, 1996 by and between Au Bon
Pain Co., Inc., Saint Louis Bread Company, Inc., ABP Midwest
Manufacturing Co., Inc., Allied Capital Corporation, Allied Capital
Corporation II, Capital Trust Investments, Ltd.*
4.3.2 Senior Subordinated Debenture dated as of July 24, 1996 in
the amount of $3,600,000 from Au Bon Pain Co., Inc., Saint
Louis Bread Company, Inc., and ABP Midwest Manufacturing Co.,
Inc. payable to Allied Capital Corporation.*
4.3.3 Senior Subordinated Debenture dated as of July 24, 1996 in
the amount of $7,500,000 from Au Bon Pain Co., Inc., Saint
Louis Bread Company, Inc., and ABP Midwest Manufacturing Co.,
Inc. payable to Capital Trust Investments, Ltd.*
4.3.4 Senior Subordinated Debenture dated as of July 24, 1996 in
the amount of $3,900,000 from Au Bon Pain Co., Inc., Saint
Louis Bread Company, Inc., and ABP Midwest Manufacturing Co.,
Inc. payable to Allied Capital Corporation II.*
10.1 Distribution Service Agreement between the Registrant and the SYGMA
Network, Inc., dated December 2, 1994. Incorporated by reference to
Exhibit 10.1.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.
63
10.2 Lease from Economic Development and Industrial Corporation to the
Registrant, dated December 14, 1982, as amended August 1, 1984 and
July 1, 1985. Incorporated by reference to Registrant's registration
statement on Form S-1 (File No. 33-40153), Exhibit 10.8.
10.3.1 Registrant's Non-Qualified Stock Option Plan For Employees
and forms of option agreements thereunder. Incorporated by
reference to Registrant's registration statement on Form S-1
(File No. 33-40153), Exhibit 10.10.
10.3.2 Registrant's 1992 Equity Incentive Plan and form of
non-qualified option agreement thereunder. Incorporated by
reference to Registrant's registration statement on Form S-1
(File No. 33-40153), Exhibit 10.13.
10.3.3 Registrant's 1992 Employee Stock Purchase Plan. Incorporated
by reference to Registrant's registration statement on Form
S-1 (File No. 33-453219), Exhibit 10.14.
10.3.4 Registrant's Formula Stock Option Plan for Independent Directors and
form of option agreement thereunder, as amended. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
year ended December 30, 1995.
10.4 Amended and Restated Coffee Supply Agreement by and among Registrant
and Peet's Companies, Inc., Peet's Coffee and Tea, Inc., and Peet's
Trademark Company, dated as of the 26th day of October, 1994.
Incorporated by reference to Exhibit 10.8 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.5 Indenture of Trust dated as of July 1, 1995 by and between the
Industrial Development Authority of the City of Mexico, Missouri and
Mark Twain Bank, as Trustee. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
30, 1995.
10.5.1 Loan Agreement dated as of July 1, 1995 by and between the
Industrial Development Authority of the City of Mexico, Missouri and
ABP Midwest Manufactuing Co., Inc. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
30, 1995.
10.5.2 Promissory Note issued by ABP Midwest Manufacturing Co., Inc.
in the face amount of $8,741,370.
64
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 30, 1995.
10.6.1 Employment Agreement between the Registrant and Richard
Postle. Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 30, 1995.+
10.6.2 Employment Agreement between the Registrant and Robert Taft.*+
10.6.3 Employment Letter between the Registrant and Maxwell Abbott.*+
10.6.4 Employment Memorandum between the Registrant and Samuel Yong.*+
10.7.1 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to
Allied Capital Corporation, Allied Capital Corporation II,
and Capital Trust Investments, Ltd.*
10.7.2 Form of Contingent Stock Purchase Warrant from Au Bon Pain
Co., Inc. to Allied Capital Corporation, Allied Capital
Corporation II and Capital Trust Investments, Ltd.*
10.7.3 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to
Princes Gate Investors, L.P., Acorn Partnership I L.P., PG
Investments Limited, PGI Sweden AB and Gregor Von Opel.*
10.7.4 Registration Rights Agreement dated as of July 24, 1996 among Allied
Capital Corporation, Allied Capital Corporation II, Capital Trust
Investments, Ltd., Princes Gate Investors, L.P., Acorn Partnership
I, L.P., PGI Investments Limited, PGI Sweden AB, Gregor Von Opel and
Au Bon Pain Co., Inc.*
10.8.4 Form of Rights Agreement, dated as of October 21, 1996 between the
Registrant and State Street Bank and Trust Company. Incorporated by
reference to the Registrant's registration statement on Form 8-A
(File No. 000-19253).
11.1 Computation of Earnings per Share.*
21 Registrant's Subsidiaries.*
27 Financial Data Schedule.*
- ------------------
* Filed herewith.
+ Management contract or compensatory plan required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c).
(b) Reports on Form 8-K.
During the last quarter of the fiscal year covered by this report, the
Company filed no report on Form 8-K.