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 March 26, 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 No.)
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
March 26, 1996 and December 26, 1995 1
Consolidated Statements of Income for the
Three Periods Ended March 26, 1996
and March 28, 1995 2
Consolidated Statements of Cash Flows for
the Three Periods Ended March 26, 1996
and March 28, 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 6-8
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 9
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 26, December 26,
ASSETS 1996 1995
-------- --------- ---------
Current assets:
Cash and cash equivalents $ 1,326,561 $ 782,348
Certificate of deposit 382,715 232,219
Accounts receivable 145,258 76,605
Due from affiliates 69,920 24,549
Notes receivable from
affiliates - current portion 32,754 30,872
Inventories 366,948 300,413
Prepaid expenses 163,485 144,036
---------- ----------
Total current assets 2,487,641 1,591,042
Net property and equipment 12,952,862 12,475,753
Other assets:
Franchise rights, net 1,079,447 1,099,470
Notes receivable from affiliates 148,327 157,083
Deposit with affiliate 330,000 330,000
Investment with affiliate 2,988,498 --
Other 462,377 480,998
---------- ----------
$ 20,449,152 $ 16,134,346
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Note payable $ 3,000,000 $ --
Accounts payable 2,398,109 1,903,977
Due to affiliates 14,840 62,292
Accrued payroll and other taxes 354,882 319,902
Accrued liabilities 743,726 786,598
Current portion of long-term debt 1,457,239 997,814
Current portion of obligations
under capital leases 60,081 68,833
---------- ----------
Total current liabilities 8,028,877 4,139,416
Other noncurrent liabilities 92,534 86,308
Long-term debt 9,842,452 9,526,948
Obligations under capital leases 1,656,466 1,662,746
General Partners' interest
in Operating Partnership 168,128 167,530
Partners' capital:
General Partners (3,230) (3,290)
Limited Partners:
Class A Income Preference 6,585,392 6,572,923
Classes B and C (4,597,786) (4,688,254)
Cost in excess of carrying value
of assets acquired (1,323,681) (1,323,681)
Notes receivable from employees -- (6,300)
---------- ----------
660,695 551,398
---------- ----------
$ 20,449,152 $ 16,134,346
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Periods Ended
March 26, March 28,
1996 1995
---------- ----------
Net sales $ 9,855,670 $ 9,067,057
Operating costs and expenses:
Cost of sales 2,564,027 2,373,107
Restaurant labor and benefits 2,574,554 2,522,886
Advertising 652,570 566,708
Other restaurant operating
expenses exclusive of
depreciation and amortization 1,767,496 1,719,784
General and administrative:
Management fees 684,451 629,356
Other 192,475 130,553
Depreciation and amortization 382,009 354,048
Equity in loss of affiliate 11,502 --
---------- ----------
Income from operations 1,026,586 770,615
Interest income (6,995) (11,014)
Interest expense 328,835 325,470
---------- ----------
Income before General Partners'
interest in income of
Operating Partnership 704,746 456,159
General Partners' interest in
income of Operating Partnership 7,047 4,562
---------- ----------
Net income $ 697,699 $ 451,597
========== ==========
Net income allocated to Partners:
Class A Income Preference $ 142,859 $ 95,026
Class B $ 208,490 $ 134,140
Class C $ 346,350 $ 222,431
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 815,309 825,764
Class B 1,189,874 1,165,662
Class C 1,976,654 1,932,910
Net income per Partnership interest:
Class A Income Preference $ 0.18 $ 0.12
Class B $ 0.18 $ 0.12
Class C $ 0.18 $ 0.12
Distributions per Partnership interest:
Class A Income Preference $ 0.16 $ 0.16
Class B $ 0.16 $ 0.16
Class C $ 0.16 $ 0.16
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Periods Ended
March 26, March 28,
1996 1995
---------- ----------
Cash flows from operating activities:
Net income $ 697,699 $ 451,597
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 382,009 354,048
Provision for deferred rent 6,226 2,540
Provision for deferred compensation 6,300 6,300
Unit compensation expense 15,900 --
Equity in loss of affiliate 11,502 --
Loss on disposal of assets 1,949 13,859
General Partners' interest in net
income of Operating Partnersip 7,047 4,562
Accounts receivable (68,653) 22,043
Due from affiliates (45,371) 4,310
Inventories (66,535) 7,929
Prepaid expenses (19,449) (96,272)
Accounts payable 494,132 378,363
Due to affiliates (47,452) (53,551)
Accrued payroll and other taxes 34,980 11,319
Accrued liabilities (42,872) (126,271)
Other, net (9,537) (9,114)
---------- ----------
Net cash provided by
operating activities 1,357,875 971,662
Cash flows from investing activities:
Investment in affiliate (3,000,000) --
Purchase of certificate of deposit (150,496) --
Redemption of certificate of deposit -- 109,888
Additions to property (816,810) (280,441)
Proceeds from sale of property 3,924 1,400
Collections of notes receivable from affiliates 6,874 5,638
Funds advanced to affiliates -- (15,000)
---------- ----------
Net cash provided by
investing activities (3,956,508) (178,515)
Cash flows from financing activities:
Payments on long-term borrowings (1,918,563) (371,303)
Proceeds from long-term borrowings 2,693,492 400,000
Proceeds from short-term borrowings 3,000,000 --
Payments on capital lease obligations (15,032) (18,129)
Distributions to Partners (636,807) (627,960)
Proceeds from issuance of Class B and C units 30,750 18,750
Repurchase of Class B and C units (4,545) --
General Partners' distributions
from Operating Partnerships (6,449) (6,343)
---------- ----------
Net cash used in
financing activities 3,142,846 (604,985)
---------- ----------
Net increase (decrease) in
cash and cash equivalents 544,213 188,162
Cash and cash equivalents at beginning of period 782,348 843,902
---------- ----------
Cash and cash equivalents at end of period $ 1,326,561 $ 1,032,064
========== ==========
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 April 1, 1996 the Partnership declared a distribution of $0.16 per unit,
and an additional special cash distribution of $0.10 per unit, to all
unitholders of record as of April 12, 1996 payable on April 26, 1996. The
distribution is not reflected in the March 26, 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-three 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 is due July 11, 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-three Oklahoma
restaurants, and 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
three periods ended March 26, 1996 and March 28, 1995, assuming consummation
of the purchase and financing of the $3.0 million note payable as of
December 28, 1994 are as follows:
Three Periods Ended
March 26, March 28,
1996 1995
---------- ----------
Net sales $9,855,670 $9,067,057
Equity in earnings (loss) 10,978 (7,374)
Net income 647,478 372,101
Net income per partnership interest
Class A Income Preference $ 0.16 $ 0.09
Class B $ 0.16 $ 0.09
Class C $ 0.16 $ 0.09
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of March 26, 1996, the Partnership operated 54 Pizza Hut
restaurants and six Pizza Hut delivery/carryout facilities.
Quarter Ended March 26, 1996 Compared to Quarter Ended
- ------------------------------------------------------
March 28, 1995
- --------------
NET SALES. Net sales for the quarter ended March 26, 1996 increased $789,000
to $9,856,000, an 8.7% increase over the first quarter of 1995. This increase is
is due to the successful introduction of TripleDecker pizza. TripleDecker is
a blend of six cheeses sealed between two thin crusts.
INCOME FROM OPERATIONS. Income from operations increased $256,000 from
$771,000 to $1,027,000, a 33.2% increase over the same quarter in 1995. As a
percentage of net sales, income from operations increased to 10.4% for the
quarter ended March 26, 1996 compared to 8.5% for the quarter ended March 28,
1995. Cost of sales decreased as a percentage of net sales from 26.2% for the
quarter ended March 28, 1995 to 26.0% for the quarter ended March 26, 1996.
Labor and benefits expense decreased as a percentage of net sales from 27.8%
in 1995 to 26.1% in 1996. These decreases from prior year are primarily due
to the inefficiencies experienced in 1995 during the implementation and follow-
up of new procedures designed to improve product quality and customer service,
and training for the Stuffed Crust Pizza rollout. Advertising increased as a
percentage of net sales from 6.3% in 1995 to 6.6% in 1996 related to the
introduction of TripleDecker. Operating expenses decreased to 17.9% of net
sales in 1996 from 19.0% of net sales in 1995. This decrease is primarily
the result of the effeciencies achieved at higher sales levels on fixed
operating costs. General and administrative expenses increased from 8.3% of
net sales in 1995 to 8.9% of net sales in 1996 attributable to an increase
in bonuses paid due to improved operating results. Depreciation and
amortization expense remained at 3.9% of net sales in both years.
NET INCOME. Net income increased $246,000 to $698,000 for the quarter ended
March 26, 1996 compared to $452,000 for the quarter ended March 28, 1995. This
54.5% increase is attributable to the increase in income from operations noted
above.
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 March 26, 1996 the Partnership had a working capital deficiency of
$5,541,000 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
the short-term borrowing of $3,000,000 borrowed in connection with the
acquisition of a 45% interest in a newly formed limited partnership that
owns and operates thirty-three Pizza Hut restaurants in Oklahoma. The
Partnership plans to refinance the note on a long-term basis this year.
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 three periods
ended March 26, 1996, net cash provided by operating activities amounted to
$1,358,000 compared to $972,000 for the three periods ended March 28, 1995.
This increase is primarily the result of the increase in net income noted
above along with an increase in accounts payable.
INVESTING ACTIVITIES. Property and equipment expenditures represent the
largest investing activity by the Partnership. Capital expenditures for the
three periods ended March 26, 1996 were $817,000, of which $374,000 was for
the replacement of equipment in existing restaurants and $113,000 was for
remodels of existing restaurants. The remaining $330,000 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 first quarter of
1996 were $637,000 amounting to $0.16 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 three periods ended March 26, 1996 the Partnership's proceeds from
borrowings amounted to $5,693,000. 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-three Pizza Hut restaurants in
Oklahoma, $1,665,000 to refinance debt to obtain a favorable interest rate,
$328,000 to develop new restaurants and $700,000 to increase working capital.
The Partnership plans to open four new restaurants in 1996 with the first
opening in the second quarter. Management estimates that approximately
$3,200,000 will be needed to finance the construction of the new restaurants.
In addition, management plans to finance $962,000 for remodels of existing
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 $458,000 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.
The successful implementation of TripleDecker lead to sales increases and
improved profits in the first quarter. Management anticipates sales decreases
and lower profits during the second quarter of 1996 as the Partnership is
climbing over the record second quarter of 1995 resulting from the introduction
of Stuffed Crust Pizza.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
The Partnership filed a Form 8-K, dated March 13, 1996,
reporting the acquisition of a 45% interest in Oklahoma
Magic, L.P., a newly formed limited partnership that
owns and operates thirty-three Pizza Hut restaurants in
Oklahoma.
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: 05/09/96 By: /s/Hal W. McCoy
-------- --------------------
Hal W. McCoy
President and Chief Executive Officer
Date: 05/09/96 By: /s/Terry Freund
-------- --------------------
Terry Freund
Chief Financial Officer
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed financial statements of American Restaurant Partners,
L.P. at March 26, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
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