<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 13, 1996
U.S. RESTAURANT PROPERTIES MASTER L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-9079 41-1541631
(STATE OF OTHER JURISDICTION OF (COMMISSION FILE (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) NUMBER) IDENTIFICATION NO.)
5310 Harvest Hill Rd.
Suite 270, LB 168
Dallas, Texas 75230
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
972-387-1487
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
Explanatory Note............................................... 3
Item 2. Acquisition or Disposition of Assets.................. 3
Item 7. Financial Statements, Proforma Information and
Exhibits.............................................. 4
Financial Statements of Grandy's Inc.................. 6
Statement of Revenues and Direct Operating Expenses of
Snowstate Restaurant Corporation and Affiliate....... 19
Proforma Financial Information........................ 22
Exhibit 23
(a) Consent of Arthur Andersen LLP
(b) Consent of KPMG Peat Marwick LLP
2
<PAGE>
EXPLANATORY NOTE
U.S. Restaurant Properties Master L.P., a Delaware Limited Partnership (the
"Partnership) hereby amends its Form 8-K dated December 13, 1996 as filed
with Securities and Exchange Commission on December 30, 1996 and previously
amended on January 21, 1997 as follows:
The Partnership hereby submits the financial statements required for the
properties acquired in the fourth quarter of 1996 as shown in Item 7 and as
further described in Item 2.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 13, 1996, pursuant to documents dated December 12, 1996, U.S.
Restaurant Properties Master L.P. (the "Registrant") acquired 30 parcels of
land on which Grandy's restaurants are located. The 30 Grandy's restaurants
are located in Texas, Oklahoma, and New Mexico. The acquisition was done
pursuant to one purchase and sales agreement. The purchase price equaled
$12,500,000 in cash and other capitalized costs equaled approximately
$266,000. The selling entity was Grandy's, Inc., a California Corporation.
Grandy's, Inc. is an operator of Grandy's restaurants. Funds for the
acquisition were drawn on a bank line of credit.
On December 26, 1996, the Registrant acquired six Chili's restaurant
properties located in Arkansas, Idaho, Nebraska, New Mexico, Utah, and
Wyoming. The acquisition was done pursuant to an Agreement Regarding Partial
Assignment and Assumption of Rights and Obligations under Real Estate
Purchase Agreement. The selling entities were Snowstate Restaurant
Corporation, a Texas Corporation, and Franklin Restaurant Corporation, an
Idaho Corporation. The purchase price equaled $9,000,000 in cash and other
capitalized costs equaled approximately $256,000. Funds for the acquisition
were drawn on the Registrant's bank line of credit.
In addition to the above acquisitions, 17 other properties (the "Other
Properties") were acquired in five different transactions during the quarter
ended December 31, 1996. The properties were purchased for an aggregate
total cash price of approximately $9,747,000. These properties consisted of
one Pizza Hut, one Carlos O'Kelly, four Schlotzsky's, seven Popeye's, two
Burger King's and two Miami Subs. Funds for these acquisitions were drawn on
a bank line of credit.
The Sellers of these Properties are not affiliated with the Company, any
director or officer of the Company or any associate of any such director or
officer.
The purchase prices, which were negotiated with the Sellers, were determined
through internal analysis by the Company of historical cash flows and fair
market values of the acquired Properties.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
The undersigned registrant hereby submits the financial statements for the
acquired properties referred to in item 2 except for "Other Properties" which
were not audited.
(a) (3) Financial Statements of Grandy's, Inc.
Report of Independent Public Accountants
Balance Sheets at December 27, 1994 and December 25, 1995
Statements of Operations for the years ended December 28, 1993,
December 27, 1994 and December 25, 1995
Statements of Common Stockholders' Equity for the years ended
December 28, 1993, December 27, 1994 and December 25, 1995
Statements of cash flows for the years ended December 28, 1993,
December 27, 1994 and December 25, 1995
Notes to financial statements
Condensed Statement of Revenues and Operating Expenses (Excluding
Depreciation and Amortization Expenses) for 30 properties sold
to U.S. Restaurant Properties Master L.P. for the year ended
December 25, 1995
Statement of Revenues and Direct Operating Expenses of Snowstate
Restaurant Corporation and Affiliate
Independent Auditors' Report
Statement of Revenues and Direct Operating Expenses Applicable to
the Six Chili's Restaurant Properties Acquired by U.S. Restaurant
Properties Master L.P.
Notes to Statement of Revenues and Direct Operating Expenses
(b) Proforma Financial Information
(c) Exhibits
23 (a) Consent of Arthur Andersen LLP
23 (b) Consent of KPMG Peat Marwick LLP
4
<PAGE>
SIGNATURE
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.
Date: February 11, 1997 U.S. RESTAURANT PROPERTIES MASTER L.P.
By: U.S. RESTAURANT PROPERTIES, INC.
its Managing General Partner
By: /s/ Robert J. Stetson
------------------------------------
Robert J. Stetson
President, Chief Executive Officer
5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
Grandy's, Inc.:
We have audited the accompanying balance sheets of Grandy's, Inc. (a
California corporation and a wholly owned subsidiary of American Restaurant
Group, Inc.) as of December 27, 1994 and December 25, 1995, and the related
statements of operations, common stockholder's equity and cash flows for the
years ended December 28, 1993, December 27, 1994 and December 25, 1995.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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 about 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 financial statements referred to above present fairly, in
all material respects, the financial position of Grandy's, Inc. as of
December 27, 1994 and December 25, 1995, and the results of its operations
and its cash flows for the years ended December 28, 1993, December 27, 1994
and December 25, 1995, in conformity with generally accepted accounting
principles.
As explained in Note 2 of the financial statements, effective December 25,
1995, the Company changed its method of accounting for the impairment of
long-lived assets.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The condensed statement of revenues
and operating expenses (excluding depreciation and amortization expenses) for
30 properties sold to U.S. Restaurant Properties, Master L.P. for the period
ended December 25, 1995 is presented for purposes of additional analysis and
are not a required part of the basic financial statements. This information
has been subjected to the auditing procedures applied in our audits of the
basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Orange County, California
February 21, 1996, except certain matters
in Note 1.b. which date is May 9, 1996
and Note 8 which date is February 7, 1997
6
<PAGE>
GRANDY'S, INC.
BALANCE SHEETS
DECEMBER 27, 1994 AND DECEMBER 25, 1995
ASSETS
December 27, December 25,
1994 1995
CURRENT ASSETS: ---- ----
Cash $ 1,996,000 $ 1,396,000
Accounts receivable, net of reserve of
$544,000 and $751,000 at December 27,
1994 and December 25, 1995, respectively 2,723,000 3,013,000
Inventories 1,880,000 1,591,000
Prepaid expenses 720,000 466,000
----------- -----------
Total current assets 7,319,000 6,466,000
----------- -----------
PROPERTY AND EQUIPMENT:
Land and land improvements 20,130,000 19,143,000
Buildings and leasehold improvements 37,738,000 32,507,000
Fixtures and equipment 36,194,000 32,076,000
Property held under capital leases 3,297,000 3,121,000
Construction in progress 1,329,000 741,000
----------- -----------
98,688,000 87,588,000
Less - Accumulated depreciation 40,026,000 37,847,000
----------- -----------
58,662,000 49,741,000
----------- -----------
OTHER ASSETS:
Intangible assets 4,447,000 3,635,000
Leasehold interests 1,886,000 1,715,000
Franchise rights 10,400,000 8,798,000
Deferred costs and other 718,000 732,000
----------- -----------
17,451,000 14,880,000
Less - Accumulated amortization 3,966,000 3,835,000
----------- -----------
13,485,000 11,045,000
----------- -----------
Total assets $79,466,000 $67,252,000
----------- -----------
----------- -----------
7
<PAGE>
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
December 27, December 25,
1994 1995
CURRENT LIABILITIES: ---- ----
Accounts payable $ 5,404,000 $ 5,755,000
Accrued liabilities 4,927,000 3,651,000
Accrued insurance 2,332,000 2,026,000
Accrued payroll costs 1,332,000 186,000
Current portion of obligations under
capital leases 120,000 138,000
Current portion of long-term debt - 85,000
----------- -----------
Total current liabilities 14,115,000 11,841,000
----------- -----------
LONG-TERM LIABILITIES, net of current portion:
Obligations under capital leases 1,718,000 1,579,000
Long-term debt - 7,000
----------- -----------
Total long-term liabilities 1,718,000 1,586,000
----------- -----------
ADVANCES FROM PARENT COMPANY, net 57,532,000 47,691,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDER'S EQUITY:
Common stock, $1 par value:
Authorized - 10,000 shares
Issued and outstanding - 1,000 shares 1,000 1,000
Paid-in capital 15,048,000 26,115,000
Accumulated deficit (8,948,000) (19,982,000)
----------- -----------
Total common stockholder's equity 6,101,000 6,134,000
----------- -----------
Total liabilities and common
stockholder's equity $79,466,000 $67,252,000
----------- -----------
The accompanying notes are an integral part of these statements.
8
<PAGE>
GRANDY'S, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 28, 1993, DECEMBER 27, 1994
AND DECEMBER 25, 1995
<TABLE>
<CAPTION>
Year ended
--------------------------------------------------------------
December 28, December 27, December 25,
1993 1994 1995
------------- ------------- --------------
<S> <C> <C> <C>
REVENUES $ 111,166,000 $ 109,301,000 $ 101,839,000
------------- ------------- --------------
RESTAURANT COSTS:
Food and beverage 34,753,000 33,986,000 31,230,000
Payroll 29,597,000 30,619,000 29,807,000
Direct operating 28,324,000 25,872,000 24,409,000
Depreciation and amortization 6,676,000 7,184,000 5,365,000
GENERAL AND ADMINISTRATIVE
EXPENSES 8,224,000 8,582,000 8,563,000
NON-CASH CHARGE FOR IMPAIRMENT
OF LONG-LIVED ASSETS - - 7,436,000
------------- ------------- --------------
Operating profit (loss) 3,592,000 3,058,000 (4,971,000)
INTEREST EXPENSE, net 7,642,000 6,742,000 6,038,000
------------- ------------- --------------
Loss before provision for income taxes (4,050,000) (3,684,000) (11,009,000)
PROVISION FOR INCOME TAXES 287,000 21,000 25,000
------------- ------------- --------------
Net loss $ (4,337,000) $ (3,705,000) $ (11,034,000)
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
GRANDY'S, INC.
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 28, 1993, DECEMBER 27, 1994
AND DECEMBER 25, 1995
<TABLE>
<CAPTION>
Common Stock
-------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 29, 1992 1,000 $1,000 $ 5,000,000 $ (906,000) $ 4,095,000
Net loss - - - (4,337,000) (4,337,000)
Reduction of allocated debt
from parent - - 6,000,000 - 6,000,000
----- ------ ----------- ------------ ------------
BALANCE, December 28, 1993 1,000 1,000 11,000,000 (5,243,000) 5,758,000
Net loss - - - (3,705,000) (3,705,000)
Reduction of allocated debt
from parent - - 4,048,000 - 4,048,000
----- ------ ----------- ------------ ------------
BALANCE, December 27, 1994 1,000 1,000 15,048,000 (8,948,000) 6,101,000
Net loss - - - (11,034,000) (11,034,000)
Reduction of allocated debt
from parent - - 11,067,000 - 11,067,000
----- ------ ----------- ------------ ------------
BALANCE, December 25, 1995 1,000 $1,000 $26,115,000 $(19,982,000) $ 6,134,000
----- ------ ----------- ------------ ------------
----- ------ ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
GRANDY'S, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 28, 1993, DECEMBER 27, 1994
AND DECEMBER 25, 1995
<TABLE>
<CAPTION>
Year ended
------------------------------------------
December 28, December 27, December 25,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING CTIVITIES:
Cash received from customers $110,428,000 $109,445,000 $101,549,000
Cash paid to suppliers and employees (97,196,000) (99,686,000) (94,906,000)
Interest paid, net (7,558,000) (7,180,000) (6,021,000)
Income taxes paid (18,000) (21,000) (25,000)
------------ ------------ ------------
Net cash provided by operating
activities 5,656,000 2,558,000 597,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,891,000) (6,775,000) (2,144,000)
Net decrease in other assets (164,000) (21,000) (89,000)
Proceeds from disposition of assets 44,000 258,000 7,000
------------ ------------ ------------
Net cash used in investing activities (3,011,000) (6,538,000) (2,226,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings on indebtness 5,460,000 (160,000) 1,507,000
Payments on capital lease obligations (89,000) (103,000) (121,000)
(Increase) decrease in advances to parent
company (7,844,000) 5,187,000 (357,000)
------------ ------------ ------------
Net cash provided by (used in) financing
activities (2,473,000) 4,924,000 1,029,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 172,000 944,000 (600,000)
CASH, at beginning of period 880,000 1,052,000 1,996,000
------------ ------------ ------------
CASH, at end of period $1,052,000 $1,996,000 $1,396,000
------------ ------------ ------------
------------ ------------ ------------
11
<PAGE>
Year ended
------------------------------------------
December 28, December 27, December 25,
1993 1994 1995
------------ ------------ ------------
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $(4,337,000) $(3,705,000) $(11,034,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on impairment of long-lived assets - - 7,436,000
Depreciation and amortization 6,676,000 7,184,000 5,365,000
Loss on disposition of assets 2,218,000 382,000 568,000
Accretion on indebtness - 22,000 19,000
Gain on extinguishment of debt - (147,000) -
(Increase) decrease in current assets:
Accounts receivable, net (738,000) 144,000 (290,000)
Inventories (71,000) 137,000 289,000
Prepaid expenses 777,000 (33,000) 117,000
Increase (decrease) in current liabilities:
Accounts payable 642,000 (255,000) 351,000
Accrued liabilities 360,000 (1,130,000) (1,002,000)
Accrued insurance (40,000) 215,000 (74,000)
Accrued interest 84,000 (313,000) (2,000)
Accrued payroll costs 85,000 57,000 (1,146,000)
------------ ------------ ------------
Net cash provided by operating
activities: $ 5,656,000 $ 2,558,000 $ 597,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
GRANDY'S, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1993, DECEMBER 27, 1994 AND DECEMBER 25, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. COMPANY
Grandy's, Inc. (the "Company"), a California corporation, is a wholly owned
subsidiary of American Restaurant Group, Inc. ("ARG"), a Delaware
corporation. ARG is a wholly owned subsidiary of American Restaurant Group
Holdings, Inc. ("Holdings"), a Delaware corporation.
The Company acquires, develops, franchises and operates fast-food chicken
restaurants located primarily in Texas, Oklahoma and Florida. At year end
1993, 1994 and 1995, the Company owned and operated 111, 111, and 110
restaurants, respectively. Additionally, at year end 1993, 1994 and 1995,
there were 78, 59 and 55 franchised restaurants, respectively.
b. RISK FACTORS
As a result of failing to maintain the net worth required under the terms
of its senior secured notes, ARG is obligated by May 25, 1996 to make an
offer to purchase ten percent of the principle amount of its senior secured
notes ($17,000,000) plus accrued interest. The note holders have until
June 24, 1996 to accept such offer. If the note holders do not waive their
rights to such purchase and ARG is unable to meet the payment demand, the
note holders would have the right to accelerate the entire face amount of
the senior secured notes ($170,000,000). If the acceleration right is
exercised, the holders of ARG's and Holdings' other debt would have the
right to accelerate all other debt.
In addition, ARG is currently in default under a net worth covenant in its
senior credit agreement.
Management believes that such purchase of $17,000,000 of senior secured
notes will not be required because ARG intends to seek a waiver of this
purchase obligation, in conjunction with certain negotiations involving the
repayment of a portion of its debt, as well as potential extensions of
maturities for its remaining debt. ARG also intends to seek a waiver of
the net worth covenant in its senior credit agreement.
ARG's operations, and thus the Company's operations, are affected by local
and regional economic conditions, including competition in the restaurant
industry, and the effect that such conditions have on the markets it
serves. Due to a decline in ARG's restaurant revenues in 1995, ARG has
initiated plans in 1996 to assist it in meeting its obligations. These
initiatives include increased and focused advertising, restructuring
personnel and reducing administrative payroll, negotiating sale/leaseback
transactions on certain real estate assets and pursuing the negotiations
described above. In addition, Holdings contributed cash of $7,115,000 to
the paid-in capital of ARG in March 1996.
13
<PAGE>
There can be no assurance, however, that ARG will be able to complete any
of the above noted transactions or obtain any of the above noted waivers or
extensions on acceptable terms.
c. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses. Actual results could differ from those
estimates.
d. INVENTORIES AND PREPAID EXPENSES
Inventories consist of food, supplies and packaging and are valued at the
lower of cost (first-in, first-out method) or market value. When a
restaurant is opened, the initial purchase of expendable equipment is set
up as prepaid supplies and is not depreciated; however, all replacements
are expensed.
e. PREOPENING COSTS
Costs incurred in connection with opening a new restaurant, principally
occupancy and staff training, are accumulated as prepaid expenses and
amortized over the initial year of operations.
f. PROPERTY AND EQUIPMENT
The Company provides for depreciation and amortization based upon the
estimated useful lives of depreciable assets using the straight-line
method. Estimated useful lives are as follows:
Land improvements 20 years
Buildings 30 to 35 years
Leasehold improvements Life of lease
Fixtures and equipment 3 to 10 years
Property held under capital leases Life of lease
Property and equipment is recorded at the lower of cost or fair value if
impaired (see Note 2). Substantially all of the Company's assets, including
property and equipment, are pledged as collateral on senior debt of ARG.
g. INTEREST COSTS
Interest costs incurred during the construction period of restaurants are
capitalized. The Company capitalized approximately $34,000 for the year
ended 1994 and none for the years ended 1993 and 1995.
h. OTHER ASSETS
Other assets include intangible assets, leasehold interests, franchise
rights and deferred costs. These costs are amortized using the
straight-line method over the periods estimated to be benefited, not
greater than 40 years. Deferred debt costs are not allocated to the
Company by ARG.
14
<PAGE>
i. INSURANCE
The Company self-insures the first $100,000 of its annual medical and
dental benefits per family. The Company also self-insures the first
$100,000 of property damage and the first $250,000 to $350,000 per incident
for general liability, automotive liability and workers' compensation risks
inherent in its operations. Reserves for losses are established currently
based upon estimated obligations.
j. INCOME TAXES
On January 1, 1993, the Company adopted, prospectively, FAS 109. The
adoption of this statement had no material effect on the Company's
financial statements.
The Company is included in the consolidated federal and state income tax
returns filed by ARG and Holdings. The Company's income tax provision is
calculated as if the Company filed separate income tax returns.
Provision is made in the financial statements for deferred income taxes
which result from items which are reflected in income for tax purposes in
different years than they are reflected in income for financial reporting
purposes. Income tax obligations are included in advances to parent
company.
k. FRANCHISE INCOME
The Company franchises restaurants both domestically and internationally.
Franchise fees are recognized as income as services are rendered. Initial
franchise fees upon entering international franchise agreements are
recorded as income when the franchise units are opened. Franchise
royalties based upon a percentage of the franchisees' gross sales are
accrued as earned. Revenues include franchise royalties and franchise fees
of $2,690,000, $2,483,000 and $2,176,000, respectively, for the years ended
1993, 1994 and 1995.
l. ACCOUNTING PERIOD
In 1993 and 1994, the Company's fiscal year ended on the Tuesday following
the last Monday in December. In 1995, the Company changed its fiscal year
end to the last Monday in December.
m. RECLASSIFICATIONS
Certain prior year accounts have been reclassified to conform to the
current year presentation.
2. IMPAIRMENT OF LONG-LIVED ASSETS
Effective December 25, 1995, the Company adopted the provisions of
Financial Accounting Standards Number 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS
121). The new statement changes the method of valuing long-lived assets,
including the Company's intangible assets, whereby long-lived assets are to
be carried at the lower of cost or, if impaired, fair value of the asset.
Various assumptions and estimates are used to determine fair value. The
calculation of the impairment loss is based on estimated future cash flows.
The estimates used to determine the impairment adjustment can change in the
near term as the economy and operations of specific restaurants change.
The adoption of FAS 121, together with the effects of continuing adverse
operations of certain restaurants, resulted in a pre-tax non-cash charge of
$7,436,000.
15
<PAGE>
3. LEASE OBLIGATIONS
The Company leases certain of its operating facilities under terms
generally ranging up to 20 years. These leases are classified as both
operating and capital leases. Certain of the leases contain provisions
calling for additional rentals based on sales or other provisions
obligating the Company to pay related property taxes and certain other
expenses.
The following is a summary of property held under leases that have been
capitalized and included in the accompanying balance sheets (in thousands):
December 27, December 25,
1994 1995
----------- ------------
Property $3,297 $3,121
Less-Accumulated depreciation 1,033 1,102
------ ------
$2,264 $2,019
------ ------
------ ------
The following represents the minimum lease payments remaining under
noncancelable operating leases and capitalized leases as of December 25,
1995 (in thousands):
Operating Capitalized
Fiscal years ending Leases Leases
--------- -----------
1996 $ 5,269 $ 372
1997 5,280 372
1998 4,557 372
1999 4,512 372
2000 4,388 372
Thereafter 19,637 1,000
------- ------
Total minimum lease payments $43,643 $2,860
-------
-------
Less - Imputed interest
(12.0 percent to 15.5 percent) 1,143
------
Present value of minimum lease payments 1,717
Less - Current portion 138
------
Long-term portion $1,579
------
------
Rental expense (including $127,000, 131,000 and $118,000, respectively,
for contingent rents under operating leases) was $6,919,000, $6,473,000
and $5,300,000 during 1993, 1994 and 1995, respectively.
16
<PAGE>
4. LONG-TERM DEBT
At December 25, 1995, ARG had long-term debt of $222,809,000 of which
$8,131,000 was classified as current. ARG allocates its debt to its
individual subsidiaries based on an intercompany allocation agreement.
Debt of $57,497,000 and $47,271,000 and related accrued interest of
$1,586,000 and $1,258,000 have been allocated to the Company at year end
1994 and 1995, respectively. These amounts have been offset against
advances made by the Company to ARG of $1,551,000 and $838,000 at year end
1994 and 1995, respectively. In prior years this debt was shown on a gross
basis and the advances to parent company were shown as a receivable.
The interest expense allocated to the Company by ARG was $7,095,000,
$6,213,000 and $5,551,000 in 1993, 1994 and 1995, respectively.
Under the terms of ARG's senior credit agreement providing for a letter of
credit facility, outstanding letters of credit are held in the name of
subsidiary entities. At year end 1994 and 1995, the Company had
outstanding letters of credit primarily related to self-insurance programs
for the Company of none and $3,172,000, respectively.
Substantially all assets of ARG are pledged to its senior lenders. In
addition, the Company has guaranteed the indebtedness owed by ARG and such
guarantee is secured by substantially all of the assets of the Company. In
connection with such indebtedness, contingent and mandatory prepayments may
be required under certain specified conditions and events. There are no
compensating balance requirements.
5. ADVANCES FROM PARENT COMPANY, NET
As stated in Note 4, Long-Term Debt, ARG allocates its debt to its
individual subsidiaries and offsets this intercompany debt against
long-term advances made by the subsidiaries to ARG.
6. COMMITMENTS AND CONTINGENCIES
The Company is obligated under an employment agreement with a certain
executive. The obligation under this agreement is $300,000 in 1996, 1997
and 1998, provides for periodic increases and expires in 1998 unless
extended.
The Company has been named as a defendant in various lawsuits. It is the
opinion of management that the outcome of such litigation will not
materially affect the Company's financial position or results of
operations.
7. PAID-IN CAPITAL
On December 27, 1994 and December 25, 1995, the Company received capital
contributions from ARG of $4,048,000 and $11,067,000, respectively, through
the reduction of allocated indebtedness owed to ARG.
8. SUBSEQUENT EVENT
During 1996, the Company calculated an additional impairment loss of
approximately $9,000,000 on certain property and equipment and intangible
assets (see Note 2).
17
<PAGE>
CONDENSED STATEMENT OF REVENUES AND OPERATING EXPENSES
(EXCLUDING DEPRECIATION AND AMORTIZATION EXPENSES)
FOR 30 PROPERTIES SOLD TO U.S. RESTAURANT PROPERTIES, MASTER L.P.
FOR THE YEAR ENDED DECEMBER 25, 1995
REVENUES $33,176,000
RESTAURANT COSTS:
Food and beverage 10,378,000
Payroll 9,584,000
Other direct operating expenses 5,884,000
GENERAL AND ADMINISTRATIVE EXPENSES (1) 2,335,000
-----------
Excess of revenues over direct
operating expenses (2) $ 4,995,000
-----------
-----------
Footnote disclosure:
Subsequent to year end the Company adjusted the carrying value of two of the
property units downward by a total of $313,463 as required under Financial
Accounting Standards Number 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of."
(1) Allocated by management based on number of sites acquired to total sites.
(2) Excludes depreciation and amortization expenses of $1,346,000.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Snowstate Restaurant Corporation and Affiliate:
We have audited the accompanying Statement of Revenues and Direct Operating
Expenses Applicable to the Six Chili's Restaurant Properties Acquired by U.S.
Restaurant Properties Master L.P. for the year ended December 27, 1995. This
statement is the responsibility of Snowstate Restaurant Corporation and
Affiliate's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement of Revenues and
Direct Operating Expenses is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement of Revenues and Direct Operating Expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the Statement of Revenues and Direct Operating Expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenues and Direct Operating Expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and for inclusion in the current report on
Form 8-K of U.S. Restaurant Properties Master L.P. as discussed in Note 1.
This statement is not intended to be a complete presentation of revenues and
expenses of the six Chili's restaurant properties acquired by U.S. Restaurant
Properties Master L.P.
In our opinion, the Statement of Revenues and Direct Operating Expenses
referred to above presents fairly, in all material respects, the revenues and
direct operating expenses described in note 1 of the six Chili's restaurant
properties acquired by U.S. Restaurant Properties Master L.P. for the year
ended December 27, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1997
19
<PAGE>
SNOWSTATE RESTAURANT CORPORATION AND AFFILIATE
Statement of Revenues and Direct Operating Expenses
Applicable to the Six Chili's Restaurant Properties Acquired
by U.S. Restaurant Properties Master L.P.
Year ended December 27, 1995
Revenues $13,176,681
-----------
Direct operating expenses:
Cost of sales 3,653,132
Labor 2,780,359
Management salaries and other 1,283,891
Advertising and franchise royalties 681,570
Restaurant expense 531,050
Complimentary food and beverage 478,788
Insurance 297,000
Repairs and maintenance 248,801
Utilities 243,046
Other, net 306,580
-----------
Total direct operating expenses 10,504,217
-----------
Excess of revenues over direct
operating expenses $ 2,672,464
-----------
-----------
See accompanying notes to Statement of Revenues and Direct Operating Expenses.
20
<PAGE>
SNOWSTATE RESTAURANT CORPORATION AND AFFILIATE
Notes to Statement of Revenues and Direct Operating Expenses
Applicable to the Six Chili's Restaurant Properties Acquired
by U.S. Restaurant Properties Master L.P.
Year ended December 27, 1995
(1) BASIS OF PRESENTATION
Snowstate Restaurant Corporation is a Texas S Corporation formed in April
1989 to develop, own, and operate Chili's Grill and Bar Restaurants
(Chili's) under the terms of a development agreement with Brinker
International, Inc. (Brinker). Franklin Restaurant Corporation (Franklin)
is an Idaho S Corporation formed in January 1990 for the purpose of owning
and operating Chili's units located in Idaho, pursuant to Idaho state law.
Snowstate and Franklin are collectively referred to as Snowstate Restaurant
Corporation and Affiliate.
The accompanying Statement of Revenues and Direct Operating Expenses
Applicable to the Six Chili's Restaurant Properties Acquired by U.S.
Restaurant Master L.P. (U.S. Restaurant) includes only the six Chili's
restaurant properties acquired by U.S. Restaurant. The statement does not
include any revenues or expenses related to the remaining properties owned
by Snowstate Restaurant Corporation and Affiliate. The statement does not
include depreciation, interest, preopening amortization, accounting fees,
miscellaneous nonrecurring costs, royalties paid by Franklin to Snowstate,
income taxes, and allocated general and administrative expenses.
(2) FRANCHISE ROYALTIES
Royalties paid to Brinker are based on a percentage of sales revenues in
accordance with the franchise agreement.
(3) ADVERTISING EXPENSES
Snowstate expenses advertising costs as incurred. Advertising expense for
the six Chili's restaurant properties acquired was approximately $178,000
during the year ended December 27, 1995.
(4) USE OF ESTIMATES
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenues and direct operating expenses
during a reporting period. Actual results could differ from those
estimates.
21
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following September 30, 1996 unaudited Pro Forma Consolidated
Balance Sheet of U.S. Restaurant Properties, Master L.P. (the "Partnership")
consists of the Partnership's September 30, 1996 balance sheet adjusted on a
pro forma basis to reflect as of September 30, 1996 (a) the purchase of 53
properties for $31,769,000 acquired between October 1, and December 31, 1996;
(b) the additional borrowings required to purchase the properties acquired.
The unaudited Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position of the Partnership would
have been at September 30, 1996 had all of these transactions occurred as of
such date and it does not purport to represent the future financial position
of the Partnership.
The unaudited Pro Forma Consolidated Statements of Income for the year
ended December 31, 1995 and the nine months ended September 30, 1996 are
presented as if the following had occurred as of January 1, 1995. (a) the
purchase of 200 properties for $116,533,000 including the value of 439,003
Units valued at $8,897,000 completed since December 31, 1994 (b) the issuance
of 1,800,000 units in June 1996 with net proceeds of $40,203,000 (c) the
additional borrowings of $67,219,000 required to purchase the properties
acquired. The unaudited Pro Forma Consolidated Statements of Income are not
necessarily indicative of what the actual results of operations of the
Partnership would have been assuming the transactions described above had
been completed as of January 1, 1995 and 1996 respectively, nor do they
purport to represent the results of operations for future periods.
22
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Historical Acquisitions(a) Pro Forma
---------- --------------- ---------
<S> <C> <C> <C>
Cash $ 19 $ 19
Receivable, net 1,750 1,750
Purchase deposits 551 (199) 352
Prepaid expenses 799 799
Notes receivable 2,013 2,013
Net investment in direct financing leases 17,631 17,631
Land 41,435 20,280 61,715
Buildings and leasehold improvement, net 62,647 6,894 69,541
Machinery and equipment, net 3,021 3,021
Intangibles, net 13,992 4,596 18,588
-------- ---------- --------
$143,858 $31,571 $175,429
-------- ---------- --------
-------- ---------- --------
Accounts payable $ 1,622 $ 367 $ 1,989
Deferred gain 590 590
Line of credit 36,015 31,204 67,219
Capitalized lease obligations 411 411
General Partners' capital 1,197 1,197
Limited Partners' capital 104,023 104,023
-------- ---------- --------
$143,858 $31,571 $175,429
-------- ---------- --------
-------- ---------- --------
</TABLE>
- -----------
(a) Reflects pro forma adjustments for 1996 acquisitions completed since
September 30, 1996 which consist of the purchase for cash of 53 properties
as follows:
Purchase Price/
Number of Properties (carrying cost)
-------------------- ---------------
Pizza Hut 1 $ 260
Carlos O'Kelly's 1 1,265
Schlotzsky's 4 3,085
Popeye's 7 2,634
Grandy's 30 12,767
Burger King 2 1,229
Miami Subs 2 1,274
Chili's 6 9,256
-- -------
53 $31,770
-- -------
Total of land, buildings and leasehold
improvements, machinery and equipment,
and intangibles $31,770
Less purchase deposits paid from cash flow
from operations (199)
Less security deposit received (367)
-------
Increase in line of credit $31,204
-------
-------
The respective purchase price for the properties has been allocated between
land, building , machinery, and intangibles on a preliminary basis. Final
determination of the proper allocation between these accounts will be made
prior to finalizing the financial statements for the year ended December 31,
1996.
23
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For Year Ended December 31, 1995
(Unaudited)
(In thousands, except for per unit data)
Historical Acquisitions(a) Pro Forma
---------- --------------- ---------
Total revenues $9,780 $15,658 $25,438
Expenses:
Rent 1,405 808 2,213
Depreciation and amortization 1,541 4,330 (b) 5,871
Taxes, general and administrative 1,419 1,137 (c) 2,556
Interest expense (income), net 192 4,990 (d) 5,182
------ ------- -------
Total expenses 4,557 11,265 15,822
------ ------- -------
Net income $5,223 $ 4,393 $ 9,616
------ ------- -------
------ ------- -------
Net income allocable to unitholders $5,120 4,306 9,426
Average number of units outstanding 4,638 6,973
Net income per unit $ 1.10 $ 1.35
- --------------------
(a) Reflects pro forma adjustments to operations for the 1995 acquisitions,
comprised of 16 properties acquired on various dates from March 1995
through December 1995 plus 1996 acquisitions, comprised of 184 properties
acquired on various dates from January 1, 1996 through December 31, 1996.
(b) Reflects pro forma increase in depreciation expense related to the purchase
price of the respective properties.
(c) Reflects pro forma increase in general and administrative expense
attributable to the increase in fees due to the managing general partner.
Such increase is comprised of 1% of the contracted purchase price for the
respective properties and 25% of the cash flow received with respect to
such additional properties in excess of the cash flow representing a 12%
rate of return.
(d) Reflects the pro forma adjustment to interest expense as a result of the
purchase of the respective properties. Pro forma interest expense is based
on the increase in debt outstanding and borrowings for payment of the
distributions on units issued at a pro forma interest rate of 7.5%.
24
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1996
(Unaudited)
(In thousands, except for per unit data)
Historical Acquisitions(a) Pro Forma
---------- --------------- ---------
Total revenues $13,012 $6,353 $19,365
Expenses:
Rent 1,446 266 1,712
Depreciation and amortization 2,593 1,736 (b) 4,329
Taxes, general and administrative 1,607 476 (c) 2,083
Interest expense (income), net 1,592 1,978 (d) 3,570
------- ------ -------
Total expenses 7,238 4,456 11,694
------- ------ -------
Net income $ 5,774 $1,897 $ 7,671
------- ------ -------
------- ------ -------
Net income allocable to unitholders $ 5,660 1,859 7,519
Average number of units outstanding 5,830 6,973
Net income per unit $ 0.97 $ 1.07
- --------------------
(a) Reflects pro forma adjustments to operations for the 1995 acquisitions,
comprised of 16 properties acquired on various dates from March 1995
through December 1995 plus 1996 acquisitions, comprised of 184 properties
acquired on various dates from January 1, 1996 through December 31, 1996.
(b) Reflects pro forma increase in depreciation expense related to the purchase
price of the respective properties.
(c) Reflects pro forma increase in general and administrative expense
attributable to the increase in fees due to the managing general partner.
Such increase is comprised of 1% of the contracted purchase price for the
respective properties and 25% of the cash flow received with respect to such
additional properties in excess of the cash flow representing a 12% rate of
return.
(d) Reflects the pro forma adjustment to interest expense as a result of the
purchase of the respective properties. Pro forma interest expense is based
on the increase in debt outstanding and borrowings for payment of the
distributions on units issued at a pro forma interest rate of 7.2%.
25
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation in
this Form 8-K/A of our report dated February 21, 1996, except certain matters
in Note 1.b. which date is May 9, 1996 and Note 8 which date is February 7,
1997, included in Registration Statement File No. 1-9079. It should be noted
that we have not audited any financial statements of the Company subsequent
to December 25, 1995 or performed any audit procedures subsequent to the date
of our report.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Orange County, California
February 7, 1997
<PAGE>
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
Snowstate Restaurant Corporation and Affiliate:
We consent to the inclusion of our report dated February 7, 1997 with respect
to the Statement of Revenues and Direct Operating Expenses Applicable to the
Six Chili's Restaurant Properties Acquired by U.S. Restaurant Properties
Master L.P. for the year ended December 27, 1995, which report appears in the
Form 8-K of U.S. Restaurant Properties Master L.P. dated February 11, 1997.
/s/ KPMG PEAT MARWICK LLP
Dallas, Texas
February 11, 1997
