-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O694bm2Cxyi9Vj2SYLPJL3M4mzh/4oa+NInERwx+dEfVGoCX+Ni4fru/rcq5Alqs nxqqlpBlZ5rGM2pyBw0fyg== 0001029869-97-001334.txt : 19971119 0001029869-97-001334.hdr.sgml : 19971119 ACCESSION NUMBER: 0001029869-97-001334 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971004 FILED AS OF DATE: 19971118 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AU BON PAIN CO INC CENTRAL INDEX KEY: 0000724606 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 042723701 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19253 FILM NUMBER: 97723753 BUSINESS ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232100 MAIL ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 AU BON PAIN FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 - - - - - - - - - - - - - - FORM 10-Q (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended October 4, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 0-19253 --------- Au Bon Pain Co., Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 04-2723701 ---------------------------- ---------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 19 Fid Kennedy Avenue, Boston, MA 02210 --------------------------------- ----- (Address of principal executive offices) (Zip code) (617) 423-2100 ---------------------------------------------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed from last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of November 12, 1997, 10,180,874 shares and 1,615,415 shares of the registrant's Class A and Class B Common Stock, respectively, $.0001 par value, were outstanding. AU BON PAIN CO., INC. INDEX PART I. FINANCIAL INFORMATION PAGE - ----------------------------- ---- ITEM 1. FINANCIAL STATEMENTS............................... 3 Consolidated Balance Sheets as of October 4, 1997 and December 28, 1996.............. 3 Consolidated Statements of Operations for the twelve and forty weeks ended October 4, 1997 and October 5, 1996................ 4 Consolidated Statements of Cash Flows for the forty weeks ended October 4, 1997 and October 5, 1996................................ 5 Notes to Consolidated Financial Statements......... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 8 PART II. OTHER INFORMATION - -------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................... 12 2 Item 1. Financial Statements AU BON PAIN CO., INC. CONSOLIDATED BALANCE SHEETS October 4, December 28, 1997 1996 ------------ -------------- ASSETS (unaudited) - ------ Current assets: Cash and cash equivalents.................... $ 3,814,164 $ 2,578,830 Accounts receivable, net..................... 9,276,335 7,729,628 Inventories.................................. 9,296,236 8,997,077 Prepaid expenses............................. 3,535,373 2,353,415 Refundable income taxes...................... 2,872,033 4,539,947 Deferred income taxes........................ 2,258,990 1,675,003 ------------ ------------ Total current assets..................... 31,053,131 27,873,900 ------------ ------------ Property and equipment, less accumulated depreciation and amortization................ 117,729,692 121,732,876 ------------ ------------ Other assets: Notes receivable............................. 4,790,580 2,290,789 Intangible assets, net of accumulated amortization .............................. 31,644,566 32,657,137 Deferred financing costs..................... 1,194,295 1,382,219 Deposits and other........................... 9,339,053 9,109,566 Deferred income taxes........................ 547,067 547,067 ------------ ------------ Total other assets....................... 47,515,561 45,986,778 ------------ ------------ Total assets............................. $196,298,384 $195,593,554 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable............................. $ 12,156,008 $ 11,140,570 Accrued expenses............................. 11,268,902 13,334,901 Current maturities of long term debt......... 704,764 702,264 ------------ ------------ Total current liabilities................ 24,129,674 25,177,735 Long-term debt, less current maturities........ 50,230,275 49,735,887 Convertible Subordinated Notes................. 30,000,000 30,000,000 ------------ ------------ Total liabilities........................ 104,359,949 104,913,622 ------------ ------------ Minority interest.............................. 385,889 623,857 ------------ ------------ Stockholders' equity: Preferred Stock, $.0001 par value: Class B, shares authorized 2,000,000; issued and outstanding none and 20,000 in 1997 and 1996, respectively............ - 2 Common stock, $.0001 par value: Class A, shares authorized 50,000,000; issued and outstanding 10,144,840 and 10,066,671 in 1997 and 1996, respectively.. 1,014 1,006 Class B, shares authorized 2,000,000; issued and outstanding 1,626,020 and 1,647,354 in 1997 and 1996, respectively... 163 165 Additional paid-in capital.................... 68,260,348 68,074,384 Retained earnings............................. 23,291,021 21,980,518 ------------ ------------ Total stockholders' equity............... 91,552,546 90,056,075 ------------ ------------ Total liabilities and stockholders' equity.................... $196,298,384 $195,593,554 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 3 AU BON PAIN CO., INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
for the 12 weeks ended for the 40 weeks ended ------------------------ ------------------------- October 4, October 5, October 4, October 5, 1997 1996 1997 1996 ----------- ----------- ------------ ---------- Revenues: Restaurant sales.............. $56,153,956 $52,858,836 $177,930,040 $171,519,065 Franchise sales and other revenues.................... 4,014,229 2,110,855 12,567,752 7,320,082 ----------- ----------- ------------ ------------ 60,168,185 54,969,691 190,497,792 178,839,147 Costs and expenses: Cost of food and paper products..................... 21,288,633 21,364,946 67,865,101 64,801,970 Restaurant operating expenses: Labor..................... 15,339,169 14,116,940 48,885,248 45,941,849 Occupancy................. 7,177,517 7,050,983 21,571,163 21,418,755 Other..................... 6,762,642 6,280,673 20,902,095 20,241,002 ----------- ----------- ------------ ------------ 29,279,328 27,448,596 91,358,506 87,601,606 Depreciation and amortization. 3,973,962 3,869,810 12,972,301 12,383,414 General and administrative expenses.................... 3,903,652 3,710,231 12,571,269 11,304,511 Non-recurring charge.......... - 4,435,000 - 4,435,000 ----------- ----------- ------------ ------------ 58,445,575 60,828,583 184,767,177 180,526,501 ----------- ----------- ------------ ------------ Operating profit (loss)......... 1,722,610 (5,858,892) 5,730,615 (1,687,354) Interest expense, net........... 1,680,717 1,317,752 5,423,953 3,511,087 Other expense (income), net..... (354,803) 676,758 145,821 2,108,822 Minority interest............... (15,943) (24,618) 4,339 (20,683) ----------- ----------- ----------- ------------ Income (loss) before provision for income taxes.............. 412,639 (7,828,784) 156,502 (7,286,580) Benefit for income taxes........ (1,051,545) (1,813,815) (1,154,000) (2,682,366) ----------- ----------- ----------- ----------- Net income (loss)............... $ 1,464,184 $(6,014,969) $ 1,310,502 $(4,604,214) =========== =========== =========== =========== Net income (loss) per common share......................... $ $0.12 $ (0.51) $ $0.11 $ (0.39) =========== =========== =========== =========== Weighted average number of common and common equivalent shares outstanding............ 12,067,812 11,720,452 11,823,856 11,695,971 =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 AU BON PAIN CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
for the 40 weeks ended ---------------------------- October 4, October 5, 1997 1996 ------------ ------------- Cash flows from operations: Net income (loss)........................ $ 1,310,502 $(4,604,214) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 12,972,301 12,383,414 Amortization of deferred financing costs...... 375,950 137,930 Provision for losses on accounts receivable... 46,575 23,200 Minority interest............................. 4,339 (20,683) Deferred income taxes......................... (583,987) - Expenditures towards closing of stores........ 1,063,909 (649,083) Non-recurring charge.......................... - 4,435,000 Gain on sale of assets........................ (325,426) - Gain on sale of investment.................... (930,344) - Changes in operating assets and liabilities: Accounts receivable........................... (1,593,282) (1,200,503) Inventories................................... (473,380) (215,521) Prepaid expenses.............................. (1,181,958) 391,361 Refundable income taxes....................... 1,667,914 82,798 Accounts payable.............................. 1,015,438 1,193,381 Accrued expenses.............................. (2,065,999) (2,446,755) ----------- ----------- Net cash provided by operating activities... 11,302,552 9,510,325 ----------- ----------- Cash flows from investing activities: Additions to property and equipment........... (12,083,345) (11,069,546) Proceeds from sale of assets ................. 3,641,043 - Proceeds from sale of investment.............. 2,000,000 - Payments received on notes receivable......... 91,253 66,509 Increase in intangible assets................. (78,506) (45,371) Increase in deposits and other................ (1,299,143) (5,169,986) Increase in notes receivable.................. (2,591,044) (474,957) ----------- ----------- Net cash used in investing activities....... (10,319,742) (16,693,351) ----------- ----------- Cash flows from financing activities: Exercise of employee stock options............ 185,969 407,434 Proceeds from issuance of warrants............ - 678,537 Proceeds from long-term debt issuance net of deferred financing costs................. 46,136,488 73,160,975 Principal payments on long-term debt.......... (45,639,600) (67,133,666) Deferred financing costs...................... (188,026) (1,145,788) (Decrease) in minority interest............... (242,307) (279,085) ----------- ----------- Net cash provided by financing activities... 252,524 5,688,407 ----------- ----------- Net increase (decrease) in cash and cash equivalents..................................... 1,235,334 (1,494,619) ----------- ----------- Cash and cash equivalents, at beginning of period. 2,578,830 6,419,646 ----------- ----------- Cash and cash equivalents, at end of period....... $ 3,814,164 $ 4,925,027 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 Notes to Consolidated Financial Statements Note A - Basis of Presentation The accompanying unaudited, consolidated financial statements of Au Bon Pain Co., Inc. and Subsidiaries (the "Company") have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with generally accepted accounting principles. They should be read in conjunction with the audited financial statements of the Company for the fiscal year ended December 28, 1996. The accompanying financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair presentation of its financial position and results of operations for the interim periods, and are not necessarily indicative of the results that may be expected for the entire year. Note B - Franchise Fees Fees from the sale of area development rights and individual franchises are recognized as revenue upon the completion of all commitments related to the agreements and, for the sale of individual franchises, upon the commencement of franchise operations. Note C - Earnings Per Share Income per share is based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect, if any, for stock options and convertible debt. Fully diluted net income per share has not been presented as the amount would not differ significantly from that presented. Note D - Commitments The Company currently has international franchise development agreements with developers in Chile, certain other South American countries, Thailand, Indonesia, The Philippines, Malaysia/Singapore, the United Kingdom, the Caribbean Islands and the Canary Islands. Under these agreements, the Company has granted exclusive development rights to franchise and operate Au Bon Pain bakery cafes in the respective country or countries. These agreements generally require the payment of up front development fees, a franchise fee for each Au Bon Pain bakery cafe opened and royalties from the sale of products from each bakery cafe. The developer is, in most instances, required to open bakery cafes according to a specific minimum schedule. The Company may also agree to provide advice, consultation and training for the development of a frozen dough plant. The franchisee is required to purchase all of its croissants, muffins and cookies from the Company until the opening of its own frozen dough plant, subject to importation regulations and restrictions. 6 Note E - Sale of Assets In the third quarter of 1997, the Company sold back to the Company's coffee roaster, Peet's Coffee & Tea, Inc, its investment in Peet's preferred stock. As a result of the sale, the Company recognized a gain of $930,000. In addition, in connection with a Saint Louis Bread franchise development agreement in Champaign, Illinois and an Au Bon Pain franchise development agreement in Philadelphia, both signed during the third quarter, the Company sold a Saint Louis Bread bakery cafe for a gain of $325,000, and eleven Au Bon Pain bakery cafes in the Philadelphia area at net book value, respectively. No gain or loss was recognized on the Au Bon Pain franchise development agreement. Both the gain on the sale of the Peet's investment and the gain on the Saint Louis Bread franchise development agreement were recognized as a component of other expense (income), net. Note F - Litigation Settlement During the third quarter of 1997, the Company entered into a definitive agreement to settle a lawsuit filed by a former vendor of the Company. The Company recorded a charge of $675,000 in the third quarter of 1997 as a component of other expense (income), net, to cover the settlement and other expenses incurred in connection therewith. Note G - Provision (Benefit) for Income Taxes During the third quarter of 1997, the Company recognized a tax benefit of $1 million due to the Company's corporate-owned life insurance (COLI) plan. Note H - Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share, and No. 129 ("SFAS 129"), Disclosure of Information About Capital Structure, and in June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information, which are effective for financial statements issued for periods ending after December 15, 1997. SFAS 128 addresses the computation, presentation and disclosure requirements associated with earnings per share. SFAS 129 addresses specific disclosures about an entity's capital structure. SFAS 128 and SFAS 129 will be adopted by the Company in the fourth quarter of 1997. SFAS 131 specifies new guidelines for determining a company's operating segments and related requirements for disclosure. The Company is in the process of evaluating the impact of the new standards "SFAS 128 and SFAS 129" on the presentation of the financial statements and the disclosure therein. SFAS 131 will be adopted in the fiscal year 1998. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenues of certain items included in the Company's consolidated statements of operations for the period indicated: For the For the 12 weeks ended 40 weeks ended ----------------- ------------------ Oct. 4, Oct. 5, Oct. 4, Oct. 5, 1997 1996 1997 1996 ------ ------ ------ ------ Revenues: Restaurant sales........ 93.3% 96.2% 93.4% 95.9% Franchise sales and other revenues........ 6.7 3.8 6.6 4.1 ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% Costs and expenses: Cost of food and paper products........ 35.3% 38.9% 35.6% 36.2% Restaurant operating expenses.............. 48.7 49.9 48.0 49.0 Depreciation and amortization.......... 6.6 7.0 6.8 6.9 General and administrative........ 6.5 6.7 6.6 6.3 Non-recurring charge.... -- 8.1 -- 2.5 ----- ----- ----- ----- 97.1 110.6 97.0 100.9 ----- ----- ----- ----- Operating margin.......... 2.9 (10.6) 3.0 (0.9) Interest expense, net..... 2.8 2.4 2.8 2.0 Other expense, net........ (0.6) 1.2 0.1 1.2 Minority interest......... - - - - ----- ----- ----- ----- Income before provision for income taxes........ 0.7 (14.2) 0.1 (4.1) Provision for income taxes (1.7) (3.3) (0.6) (1.5) ----- ----- ----- ----- Net income................ 2.4% (10.9)% 0.7% (2.6)% ===== ===== ===== ===== General The Company's revenues are derived from restaurant sales and franchise sales and other revenues. Franchise sales and other revenues include sales of frozen dough products to franchisees and others, royalty income and franchise fees. Certain expenses (cost of food and paper products, restaurant operating expenses, and depreciation and amortization) relate primarily to restaurant sales, while general and administrative expenses relate to all areas of revenue generation. The Company's fiscal year ends on the last Saturday in December. The Company's fiscal year normally consists of 13 four-week periods, with the first, second and third quarters ending 16 weeks, 28 weeks and 40 weeks, respectively, into the fiscal year. 8 Results of Operations Total revenues increased 9% in the third quarter of 1997 to $60.2 million from $55.0 million in the third quarter of 1996. The increase reflects a 22% increase in total revenues to $16.7 million in the third quarter of 1997 in the Saint Louis Bread business, driven by a strong year-over-year comparable restaurant sales increase and strong sales at the new bakery cafes opened in both 1996 and 1997 to-date. In the Au Bon Pain business unit, total revenues increased modestly to $43.5 million for the third quarter of 1997 from $41.3 million in the third quarter of 1996. Saint Louis Bread comparable restaurant sales increased 7.2% in the third quarter of 1997 versus the comparable quarter of 1996, which was particularly notable on top of the 11.5% comparable restaurant sales increase recorded in the third quarter of 1996. Comparable restaurant sales for the Au Bon Pain business unit in the third quarter of 1997 increased by 2.9% versus the comparable quarter of 1996, representing the fourth consecutive quarter of sequentially improved same store sales versus the prior year. Improved execution and the roll-out of new products drove sales growth in both business units. Operating income increased in the third quarter of 1997 to $1.7 million versus a loss of $1.4 million in the comparable quarter of 1996 before the non-recurring charge taken in the third quarter of 1996. On this basis, operating margin was 2.9% in the third quarter of 1997 versus (2.6)% in the third quarter of 1996, principally reflecting the stabilization and improvement in operating margins at the frozen dough facility which had been brought on-line this time last year. The third quarter improvement also reflects continued operating margin improvement across all business units despite higher overhead spending on a percentage of revenue basis in preparation for greater Company and franchise unit growth in 1998. In the third quarter of 1997, three Saint Louis Bread franchise area development agreements were signed, representing commitments for the development of 43 bakery cafes. Saint Louis Bread now has franchise commitments for the development of a total of 221 bakery cafes. During the third quarter of 1997, Au Bon Pain International also completed an agreement for the development of 20 bakery cafes in South Florida and the Caribbean Islands, adding to its earlier 1997 commitments for development in Malaysia/Singapore and the United Kingdom. Finally, in the third quarter, the Company entered into an area development agreement towards the development of 17 new bakery cafes in the metropolitan Philadelphia market. As part of the agreement, eleven existing Au Bon Pain bakery cafes owned by the Company were sold to the new franchisee group, ABP Delaware Valley LLC for an amount equal to the carrying net book value of the assets. Other Expense (Income), net In the third quarter of 1997, the Company sold back to the Company's coffee roaster, Peet's Coffee & Tea, Inc, its investment in Peet's preferred stock. As a result of the sale, the Company recognized a gain of $930,000. In addition, in connection with a Saint Louis Bread franchise development agreement in Champaign, Illinois and an Au Bon Pain franchise development agreement in Philadelphia, both signed during the third quarter, the Company sold a Saint Louis Bread bakery cafe for a gain of $325,000, and eleven Au Bon Pain bakery cafe's in the Philadelphia area at net book value, respectively. No gain or loss was recognized on the Au Bon Pain franchise development agreement. Both the gain on the sale of the Peet's investment and the gain on the Saint Louis Bread franchise development agreement were recognized as a component of other expense (income), net. Litigation Settlement During the third quarter of 1997, the Company entered into a definitive agreement to settle a lawsuit filed by a former vendor of the Company. The Company recorded a charge of $675,000 in the third quarter of 1997 as a component of other expense (income), net, to cover the settlement and other expenses incurred in connection therewith. 9 Liquidity and Capital Resources The Company's principal requirements for cash are capital expenditures for constructing and equipping new bakery cafes, maintaining or remodeling existing bakery cafes and working capital. To date, the Company has met its requirements for capital with cash from operations, proceeds from the sale of equity and debt securities and bank borrowings. Total capital expenditures for the forty weeks ended October 4, 1997 of $12.0 million were related primarily to the construction of new Saint Louis Bread bakery cafes and the remodeling of existing Au Bon Pain bakery cafes. The expenditures were funded principally by net cash from operating activities and by use of the Company's revolving line of credit. In December 1993, the Company issued the 1993 Notes. The 1993 Notes are convertible into shares of the Company's Class A Common Stock, at a conversion price per share of $25.50, subject to adjustment. Beginning in December 1997, the Company may, at its option, redeem all or any part of the 1993 Notes upon the payment of the principal amount together with a premium based upon a declining percentage of the principal amount. In July 1995, the Company obtained an $8.6 million industrial development bond to fund the construction of a second production facility in Mexico, Missouri. The bond was issued by the City of Mexico, Missouri, and secured by an $8.7 million letter of credit issued by a commercial bank. Interest accrues at a weekly floating rate, which was 3.90% on October 4, 1997. The Company has a $26 million unsecured revolving line of credit which bears interest at either the commercial bank's prime rate plus .5 basis points, or LIBOR plus an amount ranging between .75% and 3.0%, depending upon certain financial tests. At October 4, 1997 $23.0 million was outstanding under the line of credit and an additional $.9 million of the remaining availability was utilized by outstanding letters of credit issued by the bank on behalf of the Company. In addition, at October 4, 1997 the Company had a $3.4 million term loan outstanding, collateralized by an office building located in Woburn, MA. The term loan matures on March 15, 2000. The Company currently anticipates spending approximately $15 million in 1997 for capital expenditures, principally for the opening of new bakery cafes and the remodeling of existing Au Bon Pain bakery cafes. The Company expects to fund these expenditures principally through internally generated cash flow and the use of the Company's revolving line of credit. 10 On July 24, 1996, the Company issued $15 million senior subordinated debentures maturing in July, 2000. The debentures accrue interest at varying fixed rates over the four year term, ranging between 11.25% and 14.0%. In connection with the private placement, warrants 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. Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share, and No. 129 ("SFAS 129"), Disclosure of Information About Capital Structure, and in June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information, which are effective for financial statements issued for periods ending after December 15, 1997. SFAS 128 addresses the computation, presentation and disclosure requirements associated with earnings per share. SFAS 129 addresses specific disclosures about an entity's capital structure. SFAS 128 and SFAS 129 will be adopted by the Company in the fourth quarter of 1997. SFAS 131 specifies new guidelines for determining a company's operating segments and related requirements for disclosure. The Company is in the process of evaluating the impact of the new standards "SFAS 128 and SFAS 129" on the presentation of the financial statements and the disclosure therein. SFAS 131 will be adopted in the fiscal year 1998. Certain Factors Affecting Future Operating Results Statements made or incorporated in this Form 10-Q include a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation, statements containing the words "anticipates", "believes", "expects", "intends", "future", and words of similar import which express management's belief, expectations or intentions regarding the Company's future performance. The Company's actual results could differ materially from those set forth in the forward-looking statements. In particular, with respect to the statement regarding management's belief that the Company will grow later in 1997, the expected growth is dependent upon the successful execution of business plans by the Company's franchisees and the adequacy of capital available for expansion plans. 11 PART II. OTHER INFORMATION - -------------------------- ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit 10.1 Stock Repurchase Agreement among Au Bon Pain Co., Inc., Peet's Companies, Inc., Peet's Coffee & Tea, Inc., Peet's Trademark Company, and Cooley Godward, LLP dated September 26, 1997. (b) Au Bon Pain Co., Inc. did not file any reports on Form 8-K during the quarter ended October 4, 1997. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AU BON PAIN CO., INC. (Registrant) Dated: November 17, 1997 By: /S/ LOUIS I. KANE --------------------------------- Louis I. Kane Co-Chairman Dated: November 17, 1997 By: /S/ RONALD M. SHAICH --------------------------------- Ronald M. Shaich Co-Chairman and Chief Executive Officer Dated: November 17, 1997 By: /S/ ANTHONY J. CARROLL --------------------------------- Anthony J. Carroll Senior Vice President and Chief Financial Officer 13 EX-10.1 2 MATERIAL CONTRACTS STOCK REPURCHASE AGREEMENT This Stock Repurchase Agreement is made and entered into as of September 26, 1997 by and among Au Bon Pain Co., Inc. ("ABP"), Peet's Companies, Inc. ("Peet's"), Peet's Coffee and Tea, Inc. ("PCT"), Peet's Trademark Company ("PTC"), and Cooley Godward, LLP (solely in its capacity as "Escrow Agent"). Peet's, PCT and PTC are referred to herein collectively as the "Peet's Entities". 1. In connection with the sale of the "Preferred Stock" and the "Warrant" (as those terms hereinafter are defined) as provided herein, ABP and the Peet's Entities agree that the Amended and Restated Coffee Supply Agreement ("RCSA") shall be deemed amended and modified as herein provided. 2. The termination date for the RCSA shall be shortened to a period ending on August 31, 1998; provided, however, ABP will use reasonable commercial efforts to accelerate the termination to the earliest possible date, subject to the notice provisions of Section 3 hereof. 3. The Peet's Entities will continue to supply roasted coffee to ABP pursuant to the RCSA, as may be amended herein, until notified by ABP of the termination date. ABP will provide a minimum of 45 days advance notice of the termination date, and will use reasonable commercial efforts to provide as much notice as practicable, provided, however, in no event shall the termination date be later than, and in the absence of further notice such termination date shall be, August 31, 1998. 4. The Peet's Entities and ABP hereby agree and acknowledge that the attached Schedules A and B set forth the authorized inventory of unroasted green coffee beans purchased by the Peet's Entities on behalf of ABP and held by the Peet's Entities as of the date of execution of this Term Sheet ("Bean Inventory"), and authorized green coffee purchase commitments made by PCT on behalf of ABP (which coffee has not yet been received by the Peet's Entities) as of the date of execution of this Term Sheet ("Bean Commitments"). ABP agrees that upon the termination of the RCSA, it shall (a) purchase, at the Raw Green Bean Cost, as that term is defined in the RCSA, the remaining portion of the Bean Inventory not previously roasted and shipped to ABP and any other green coffee that ABP authorizes (in writing) the Peet's Entities to purchase on its behalf and (b) assume all of the Bean Commitments not yet received by the Peet's Entities and all other written purchase commitments for future delivery of green coffee made by the Peet's Entities on behalf of and at the written direction of ABP. The Peet's Entities will continue to maintain on hand commercially reasonable quantities of other supplies and equipment necessary to process the ABP business, and ABP shall purchase all such supplies remaining at the termination of the RCSA. To the extent that supplies on hand on the termination date of the RCSA exceed commercially reasonable quantities, and such excess is due to written forecasts or written direction received by the Peet's Entities from ABP, ABP shall purchase such excess from the Peet's Entities as well. ABP will also purchase the Fresco (Goglio) GL 18 dedicated to the ABP business. Purchase of the supplies and equipment will be at its book value. (The book value of the Page 2 of 3 GL 18 was $120,495 as of August 31, 1997, and monthly depreciation is $3,651. Packaging material and other supplies were approximately $45,000 as of May 31, 1997). The purchase price for the Fresco (Goglio) GL 18 and the excess coffee, supplies and equipment to be purchased by ABP pursuant to this Paragraph 4 shall be paid by ABP to whichever of the Peet's Entities is the owner thereof in cash F.O.B. within ten (10) days of the termination date of the RCSA. ABP shall arrange for the pick up of all such items from the Peet's Entities' roasting plant in Emeryville, CA and the delivery of the same to ABP, and shall pay all costs of such shipping. ABP may assign the termination date purchase obligation to a third party, but performance of that party shall be guaranteed to the Peet's Entities by ABP. 5. ABP agrees to sell and Peet's agrees to repurchase the 97,561 shares of Series B Convertible Preferred Stock of PCT (the "Preferred Stock") owned by ABP for a price of $15.00 per share or the sum of $1,463,415. 6. ABP agrees to sell and Peet's agrees to repurchase the Warrant owned by ABP to purchase 157,808 shares of Common Stock of PCT (the "Warrant") for the price of $3.40 for the right to purchase one share of Peet's Common Stock or the sum of $536,547.20. 7. Subject to the terms of Paragraph 8 hereof, within no more than 10 days after execution of this Agreement, ABP shall deliver to Cooley Godward, LLP, attention Brad MacMillen, Esq. ("Cooley"), as Escrow Agent, the following: (i) certificates representing the Preferred Stock, along with a duly executed stock power authorizing the transfer of title to the Preferred Stock to Peet's and (ii) the original executed Warrant, along with a duly executed power authorizing the transfer of title to the Warrant to Peet's (collectively, the "Transfer Documents"). Upon Cooley's receipt of the Transfer Documents, Cooley shall instruct Peet's to wire transfer to ABP's bank account pursuant to wire transfer instructions provided by ABP to Cooley, in immediately available federal funds, the sum of One Million Nine Hundred Ninety Nine Thousand Nine Hundred Sixty Two Dollars ($1,999,962.00) (the "Aggregate Purchase Price"), which sum shall satisfy in full Peet's obligation to purchase the Preferred Stock and Warrant from ABP pursuant to Paragraphs 5 and 6 above. Upon Cooley's receipt of confirmation from ABP that such wire transfer has been received by ABP, Cooley shall cause the transfer of ownership of the Preferred and the Warrant from ABP to PCT. If within three business days of the receipt by Cooley of the Preferred and the Warrant, ABP has not received a wire for the Aggregate Purchase Price, Cooley shall forthwith return to ABP the documents referred to in Section 7(i) and (ii) to ABP. Cooley's service as escrow agent will be governed by Exhibit 1 hereto. 8. The Peet's Entities represent and warrant to ABP that the terms of the Restated Shareholders Agreement dated October 28, 1994 ("RSA") have been modified by an amendment duly entered into and binding upon each of the parties thereto, providing that, among other things, ABP is not required to offer to sell its shares of Preferred Stock and the Warrant to the other parties to the RSA, pursuant to the terms of the RSA, prior to completing the transaction contemplated in this Agreement. 9. The Peet's Entities and ABP agree to execute such other reasonable documents and instruments as may be necessary to complete the transactions set forth in this Agreement. Page 3 of 3 Agreed this 26th day of September 1997. Au Bon Pain Co., Inc., by ____________________________________, its title:________________________________ Peet's Companies, Inc., by ____________________________________, its title:________________________________ Peet's Coffee and Tea, Inc., by ____________________________________, its title:________________________________ Peet's Trademark Company, by ____________________________________, its title:________________________________ Cooley Godward, LLP, as Escrow Agent, by - ----------------------------------- Thereunto duly authorized The exhibits and schedules referenced in this agreement will be provided to the Commission upon request. EX-27 3 FINANCIAL DATA SCHEDULE
5 1000 U.S. DOLLARS 10-MOS DEC-27-1997 DEC-29-1996 OCT-04-1997 1 3,814 0 9,426 150 9,296 31,053 191,082 73,352 196,298 24,130 0 0 0 1 91,552 196,298 186,179 190,498 67,865 184,767 150 0 5,424 157 (1,154) 1,311 0 0 0 1,311 0.11 0.11
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