SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 24, 1996 Commission file number 1-9606
AMERICAN RESTAURANT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 48-1037438
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
555 North Woodlawn, Suite 3102
Wichita, Kansas 67208
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code (316) 684-5119
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 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 [ ]
AMERICAN RESTAURANT PARTNERS, L.P.
INDEX
Page
Number
------
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
September 24, 1996 and December 26, 1995 1
Consolidated Statements of Income for
the Three and Nine Periods Ended
September 24, 1996 and September 26, 1995 2
Consolidated Statements of Cash Flows for
the Nine Periods Ended September 24, 1996
and September 26, 1995 3
Notes to Consolidated Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 6-9
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September 24, December 26,
ASSETS 1996 1995
------ ------------ ------------
Current assets:
Cash and cash equivalents $ 967,835 $ 782,348
Certificate of deposit 338,710 232,219
Accounts receivable 130,838 76,605
Due from affiliates 20,892 24,549
Notes receivable from
affiliates - current portion 34,508 30,872
Inventories 357,570 300,413
Prepaid expenses 228,491 144,036
---------- ----------
Total current assets 2,078,844 1,591,042
Net property and equipment 15,584,680 12,475,753
Other assets:
Franchise rights, net 1,075,153 1,099,470
Notes receivable from affiliates 132,415 157,083
Deposit with affiliate 330,000 330,000
Investment in affiliate 2,678,078 --
Other 663,519 480,998
---------- ----------
$ 22,542,689 $ 16,134,346
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Notes payable $ 3,211,605 $ --
Accounts payable 2,475,089 1,903,977
Due to affiliates 26,449 62,292
Accrued payroll and other taxes 284,269 319,902
Accrued liabilities 1,055,430 786,598
Current portion of long-term debt 1,038,013 997,814
Current portion of obligations
under capital leases 41,261 68,833
---------- ----------
Total current liabilities 8,132,116 4,139,416
Other noncurrent liabilities 97,268 86,308
Long-term debt 12,815,113 9,526,948
Obligations under capital leases 1,643,879 1,662,746
General Partners' interest
in Operating Partnership 158,489 167,530
Partners' capital:
General Partners (4,169) (3,290)
Limited Partners:
Class A Income Preference 6,390,898 6,572,923
Classes B and C (5,367,224) (4,688,254)
Cost in excess of carrying value
of assets acquired (1,323,681) (1,323,681)
Notes receivable from employees -- (6,300)
---------- ----------
Total partners' capital (304,176) 551,398
---------- ----------
$ 22,542,689 $ 16,134,346
========== ==========
See accompanying notes.
<TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Periods Ended Nine Periods Ended
Sept. 24, Sept. 26, Sept. 24, Sept. 26,
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $10,032,758 $10,274,920 $29,776,278 $30,338,263
Operating costs and expenses:
Cost of sales 2,736,810 2,688,469 7,851,190 8,002,238
Restaurant labor and benefits 2,593,929 2,657,742 7,725,217 7,932,631
Advertising 732,905 652,979 2,054,180 1,905,612
Other restaurant operating
expenses exclusive of
depreciation and amortization 1,993,365 1,924,947 5,490,491 5,548,228
General and administrative:
Management fees 697,636 713,492 2,067,990 2,105,836
Other 207,381 263,148 628,654 590,013
Depreciation and amortization 439,865 385,728 1,206,534 1,109,302
Equity in loss of affiliate 270,069 -- 321,928 --
---------- ---------- ---------- ----------
Income from operations 360,798 988,415 2,430,094 3,144,403
Interest income (7,486) (12,475) (25,296) (29,444)
Interest expense 439,774 321,929 1,181,761 990,814
Gain on fire settlement -- -- (157,867) --
---------- ---------- ---------- ----------
Income before General Partners'
interest in income of
Operating Partnership (71,490) 678,961 1,431,496 2,183,033
General Partners' interest in
income of Operating Partnership (715) 6,790 14,315 21,831
---------- ---------- ---------- ----------
Net income $ (70,775) $ 672,171 $ 1,417,181 $ 2,161,202
========== ========== ========== ==========
Net income allocated to Partners:
Class A Income Preference $ (14,489) $ 141,098 $ 290,150 $ 454,382
Class B $ (21,169) $ 199,784 $ 423,614 $ 642,091
Class C $ (35,117) $ 331,289 $ 703,417 $ 1,064,729
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 815,309 825,764 815,309 825,764
Class B 1,191,167 1,169,216 1,190,339 1,166,898
Class C 1,976,002 1,938,834 1,976,576 1,934,971
Net income per Partnership interest:
Class A Income Preference $ (0.02) $ 0.17 $ 0.36 $ 0.55
Class B $ (0.02) $ 0.17 $ 0.36 $ 0.55
Class C $ (0.02) $ 0.17 $ 0.36 $ 0.55
Distributions per Partnership interest:
Class A Income Preference $ 0.16 $ 0.16 $ 0.58 $ 0.48
Class B $ 0.16 $ 0.16 $ 0.58 $ 0.48
Class C $ 0.16 $ 0.16 $ 0.58 $ 0.48
<FN>
See accompanying notes.
</FN>
</TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Periods Ended
Sept. 24, Sept. 26,
1996 1995
---------- -----------
Cash flows from operating activities:
Net income $ 1,417,181 $ 2,161,202
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,206,534 1,109,302
Provision for deferred rent 10,960 7,322
Provision for deferred compensation 6,300 18,900
Unit compensation expense 15,900 --
Equity in loss of affiliate 321,928 --
Loss on disposal of assets 28,546 21,066
Gain on fire settlement (157,867) --
General Partners' interest in net
income of Operating Partnership 14,315 21,831
Net change in operating assets and liabilities:
Accounts receivable (186,373) 26,033
Due from affiliates 3,657 (1,308)
Inventories (57,157) (16,081)
Prepaid expenses (84,455) (90,010)
Accounts payable 703,252 382,518
Due to affiliates (35,843) (61,899)
Accrued payroll and other taxes (35,633) 10,892
Accrued liabilities 268,832 (11,712)
Other, net (258,130) (104,363)
---------- ----------
Net cash provided by
operating activities 3,181,947 3,473,693
Cash flows from investing activities:
Investment in affiliate (3,000,000) --
Purchase of certificate of deposit (156,491) --
Redemption of certificate of deposit 50,000 107,356
Additions to property (4,274,008) (810,294)
Proceeds from sale of property 7,351 4,975
Collections of notes receivable from affiliates 21,032 13,270
Funds advanced to affiliates -- (15,000)
Net proceeds from fire settlement 180,437 --
---------- ----------
Net cash used in
investing activities (7,171,679) (699,693)
Cash flows from financing activities:
Payments on long-term borrowings (7,485,137) (1,134,854)
Proceeds from long-term borrowings 10,813,501 400,000
Proceeds from short-term borrowings 3,211,605 --
Payments on capital lease obligations (46,439) (51,932)
Distributions to Partners (2,306,247) (1,885,378)
Proceeds from issuance of Class B and C units 55,500 37,500
Repurchase of Class B and C units (44,208) --
General Partners' distributions
from Operating Partnerships (23,356) (19,044)
---------- ----------
Net cash provided by
(used in) financing activities 4,175,219 (2,653,708)
---------- ----------
Net increase in
cash and cash equivalents 185,487 120,292
Cash and cash equivalents at beginning of period 782,348 843,902
---------- ----------
Cash and cash equivalents at end of period $ 967,835 $ 964,194
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. General
-------
The accompanying consolidated financial statements include the
accounts of American Restaurant Partners, L.P. and its majority
owned subsidiary, American Pizza Partners, L.P., hereinafter
collectively referred to as the Partnership, and have been prepared
without audit. The Balance Sheet at December 26, 1995 has been
derived from financial statements which have been audited by Ernst
& Young, independent auditors. In the opinion of management, all
adjustments of a normal and recurring nature which are necessary
for a fair presentation of such financial statements have been
included. These statements should be read in conjunction with the
financial statements and notes contained in the Partnership's
Annual Report filed on Form 10-K for the fiscal year ended December
26, 1995.
The results of operations for interim periods are not necessarily
indicative of the results for the full year. The Partnership
historically has realized approximately 40% of its operating
profits in periods six through nine (18 weeks).
2. Distribution to Partners
------------------------
On October 1, 1996 the Partnership declared a distribution of $0.16
per unit to all unitholders of record as of October 12, 1996
payable on October 25, 1996. The distribution is not reflected in
the September 24, 1996 consolidated condensed financial statements.
3. Investment in Affiliate
-----------------------
On March 13, 1996, the Partnership purchased a 45% interest in a
newly formed limited partnership, Oklahoma Magic, L.P. ("Magic"),
that owns and operates thirty-two Pizza Hut restaurants in Oklahoma
for $3.0 million in cash. The purchase was financed by the
Partnership from a short-term note payable entered into with
Intrust Bank which was refinanced on a long-term basis on July 30,
1996. The remaining partnership interests in Magic are held by
Restaurant Management Company of Wichita, Inc. (29.25%), an
affiliate of the Partnership, Hospitality Group of Oklahoma, Inc.
(25%), the former owners of the thirty-two Oklahoma restaurants,
and RMC American Management, Inc. (RAM) (.75%), the managing general
partner of the Partnership. RAM is also the managing general partner
of Magic. The Partnership accounts for its investment in the
unconsolidated affiliate using the equity method of accounting.
The proforma unaudited results of operations for the nine periods
ended September 24, 1996 and September 26, 1995, assuming
consummation of the purchase and financing of the $3.0 million
note payable as of December 28, 1994 are as follows:
Nine Periods Ended
Sept. 24, Sept. 26,
1996 1995
----------- -----------
Net sales $29,776,278 $30,338,263
Equity in earnings (loss) (273,322) 101,529
Net income (400,866) 1,303,731
Net income per partnership interest
Class A Income Preference $ (0.10) $ 0.33
Class B $ (0.10) $ 0.33
Class C $ (0.10) $ 0.33
4. Fire Settlement
---------------
During the quarter ended June 25, 1996, the Partnership incurred a
fire at one of its restaurants. The property was insured for
replacement cost and the Partnership realized a gain of $157,867.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of September 24, 1996, the Partnership operated 55 Pizza Hut
restaurants and seven Pizza Hut delivery/carryout facilities.
Quarter Ended September 24, 1996 Compared to Quarter Ended
- ----------------------------------------------------------
September 26, 1995
- ------------------
NET SALES. Net sales for the quarter ended September 24, 1996
decreased $242,000 from $10,275,000 to $10,033,000, a 2.4% decrease
from the third quarter of 1995. Comparable restaurant sales
decreased 4.0%. This decrease can be attributed to two factors:
1) the continuing impact of sales increases in 1995 due to Stuffed
Crust pizza and 2) increased competition in the Texas market.
INCOME FROM OPERATIONS. Income from operations decreased $627,000
from $988,000 to $361,000, a 63.5% decrease from the same quarter
in 1995. As a percentage of net sales, income from operations
decreased to 3.6% for the quarter ended September 24, 1996 compared
to 9.6% for the quarter ended September 26, 1995. Cost of sales
increased as a percentage of net sales from 26.2% for the quarter
ended September 26, 1995 to 27.3% for the quarter ended September
24, 1996 due to record high cheese costs. Labor and benefits
expense remained at 25.9% of net sales for both years. Advertising
increased as a percentage of net sales from 6.4% in 1995 to 7.3% in
1996 as a result of increased advertising in 1996 due to increased
competition and grand openings for new and remodeled restaurants.
Operating expenses increased to 19.9% of net sales in 1996 from
18.7% of net sales in 1995 attributable to the effects of lower
sales volumes on fixed operating costs and an increase in insurance
expense due to a $40,000 charge related to workers'compensation.
General and administrative expenses decreased from 9.5% of net
sales in 1995 to 9.0% of net sales in 1996. Depreciation and
amortization expense increased from 3.8% of net sales in 1995 to
4.4% of net sales in 1996 due to construction of new restaurants
and remodels of existing restaurants. Equity in loss of affiliate
amounted to 2.7% of net sales for the quarter ended September 24,
1996.
NET INCOME. Net income decreased $743,000 to a net loss of
$71,000 for the quarter ended September 24, 1996 compared to net
income of $672,000 for the quarter ended September 26, 1995.
This decrease is attributable to the decrease in income from
operations noted above combined with an increase in interest
expense of $118,000 due to additional debt primarily use to fund
the acquisition of a 45% interest in the thirty-two Oklahoma
restaurants and to develop new restaurants.
Nine Periods Ended September 24, 1996 Compared to Nine
- ------------------------------------------------------
Periods Ended September 26, 1995
- --------------------------------
NET SALES. Net sales for the nine periods ended September 24, 1996
decreased $562,000 from $30,338,000 to $29,776,000, a 1.9% decrease
from the first nine periods of 1995. Comparable restaurant sales
decreased 2.2%. This decrease reflects the impact of sales increases
last year due to the successful introduction of Stuffed Crust Pizza.
INCOME FROM OPERATIONS. Income from operations decreased $714,000,
or 22.7%, from $3,144,000 for the first nine periods of 1995 to
$2,430,000 for the first nine periods of 1996. As a percentage of
net sales, income from operations decreased to 8.2% for the nine
periods ended September 24, 1996 compared to 10.4% for the nine
periods ended September 26, 1995. Cost of sales remained at 26.4%
of net sales for both years. Labor and benefits expense decreased
as a percentage of net sales from 26.1% in 1995 to 25.9% in 1996.
This decrease is attributable to the inefficiencies experienced
during the first quarter of 1995 during the implementation and
follow-up of new procedures designed to improve product quality and
customer service. Advertising increased as a percentage of net
sales from 6.3% in 1995 to 6.9% in 1996 due to increased
competition and efforts to minimize sales decreases experienced
while climbing over last year's successful introduction of Stuffed
Crust pizza. Operating expenses increased from 18.3% of net sales
in 1995 to 18.4% of net sales in 1996. General and administrative
expenses increased from 8.9% of net sales in 1995 to 9.1% of net
sales in 1996. Depreciation and amortization expense increased
from 3.7% of net sales in 1995 to 4.1% of net sales in 1996 due to
the construction of new restaurants and remodels of existing
restaurants. Equity in loss of affiliate amounted to 1.1% of net
sales in 1996.
NET INCOME. Net income decreased $744,000 to $1,417,000 for the
nine periods ended September 24, 1996 compared to $2,161,000 for
the nine periods ended September 26, 1995. This decrease is a
result of the decrease in operating income noted above and a
$191,000 increase in interest expense due to additional debt
primarily used to fund the acquisition of a 45% interest in the
thirty-two Oklahoma restaurants and to develop new restaurants.
A gain on fire settlement of $158,000 offset the decrease.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership generates its principal source of funds from net
cash provided by operating activities. Net cash provided by
operating activities is expected to provide sufficient funds to
meet planned capital expenditures for recurring replacement of
equipment in existing restaurants, to service debt obligations and
to make quarterly cash distributions.
At September 24, 1996 the Partnership had a working capital
deficiency of $6,053,000 compared to a working capital deficiency
of $2,548,000 at December 26, 1995. The increase in working
capital deficiency is primarily a result of short-term borrowings
for the construction of new restaurants. The Partnership plans to
refinance the notes on a long-term basis upon completion of the
restaurants. The Partnership routinely operates with a negative
working capital position which is common in the restaurant industry
and which results from the cash sales nature of the restaurant
business and payment terms with vendors.
Master Limited Partnerships (MLPs) are not currently subject to
federal or state income taxes. However, under the Omnibus Budget
Reconciliation Act of 1987, certain MLPs, including the
Partnership, will be taxed as corporations beginning in 1998.
NET CASH PROVIDED BY OPERATING ACTIVITIES. For the nine periods
ended September 24, 1996, net cash provided by operating activities
amounted to $3,182,000 compared to $3,474,000 for the nine periods
ended September 26, 1995. This $292,000 decrease is primarily the
result of the decrease in net income noted above which was offset
by an increase in accounts payable.
INVESTING ACTIVITIES. Property and equipment expenditures
represent the largest investing activity by the Partnership.
Capital expenditures for the nine periods ended September 24, 1996
were $4,274,000, of which $1,377,000 was for the replacement of
equipment in existing restaurants and $812,000 was for remodels of
existing restaurants. The remaining $2,085,000 was for the
development of new restaurants. In addition, the Partnership
invested $3,000,000 in connection with its acquisition of a 45%
interest in Oklahoma Magic, L.P.
FINANCING ACTIVITIES. Cash distributions declared during the nine
periods ended September 24, 1996 were $2,306,000 amounting to $0.58
per unit. The Partnership's distribution objective, generally, is
to distribute all operating revenues less operating expenses
(excluding noncash items such as depreciation and amortization),
capital expenditures for existing restaurants, interest and
principal payments on Partnership debt, and such cash reserves as
the managing General Partner may deem appropriate.
During the nine periods ended September 24, 1996 the Partnership's
proceeds from borrowings amounted to $14,025,000. These proceeds
were used as follows: $3,000,000 to fund the acquisition of a 45%
interest in a newly formed limited partnership that owns and
operates thirty-two Pizza Hut restaurants in Oklahoma, $2,138,000
to develop new restaurants, $619,000 for remodels of existing
restaurants, $1,734,000 to replenish operating capital and
$6,534,000 to refinance debt to obtain favorable terms. The
Partnership opened two new restaurants and relocated another to a
better location during the first nine periods of 1996. The
Partnership plans to open two red roof restaurants, two
delivery/carryout facilities and two convenience store locations
during the fourth quarter of 1996. Management estimates that
approximately $725,000 will be needed to finance the construction
of the new restaurants. The Partnership has obtained interim
financing for the planned development of new restaurants and
remodels of existing restaurants, and believes that it can obtain
the necessary long-term financing. Management anticipates spending
an additional $159,000 for recurring replacement of equipment in
existing restaurants which will be financed from net cash provided
by operating activities. The actual level of capital expenditures
may be higher in the event of unforeseen breakdowns of equipment or
lower in the event of inadequate net cash flow from operating
activities. Management's entire focus during the fourth quarter is
on increasing sales and cash flow. Rather than waiting for new
products and creative marketing from the franchisor, the
Partnership is concentrating on improving operations in existing
restaurants and experimenting with new areas of opportunity such as
dualbranding.
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of
the Exchange Act which are intended to be covered by the safe
harbors created thereby. Although the Partnership believes that
the assumptions underlying the forward-looking statements contained
herein are reasonable, any of the assumptions could be inaccurate,
and therefore, there can be no assurance that the forward-looking
statements included in this report will prove to be accurate.
Factors that could cause actual results to differ from the results
discussed in the forward-looking statements include, but are not
limited to, consumer demand and market acceptance risk, the effect
of economic conditions, including interest rate fluctuations, the
impact of competing restaurants and concepts, the cost of
commodities and other food products, labor shortages and costs and
other risks detailed in the Partnership's Securities and Exchange
Commission filings.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
During the fiscal period covered by this Form 10-Q, no
reports on Form 8-K were filed.
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.
AMERICAN RESTAURANT PARTNERS, L.P.
(Registrant)
By: RMC AMERICAN MANAGEMENT, INC.
Managing General Partner
Date: 11/7/96 By: \s\ Hal W. McCoy
---------- ------------------------
Hal W. McCoy
President and Chief Executive Officer
Date: 11/7/96 By: \s\ Terry Freund
---------- -----------------------
Terry Freund
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed financial statements of American Restaurant Partners,
L.P. at September 24, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-24-1996
<CASH> 967835
<SECURITIES> 0
<RECEIVABLES> 648653
<ALLOWANCES> 0
<INVENTORY> 357570
<CURRENT-ASSETS> 2078844
<PP&E> 26701840
<DEPRECIATION> 11117160
<TOTAL-ASSETS> 22542689
<CURRENT-LIABILITIES> 8132116
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 304176
<TOTAL-LIABILITY-AND-EQUITY> 22542689
<SALES> 29776278
<TOTAL-REVENUES> 29776278
<CGS> 7851190
<TOTAL-COSTS> 27346184
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1181761
<INCOME-PRETAX> 1417181
<INCOME-TAX> 0
<INCOME-CONTINUING> 1417181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1417181
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0
</TABLE>
