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 June 25, 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
June 25, 1996 and December 26, 1995 1
Consolidated Statements of Income for
the Three and Six Periods Ended
June 25, 1996 and June 27, 1995 2
Consolidated Statements of Cash Flows for
the Six Periods Ended June 25, 1996
and June 27, 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)
June 25, December 26,
ASSETS 1996 1995
------ -------- -----------
Current assets:
Cash and cash equivalents $ 669,248 $ 782,348
Certificate of deposit 387,651 232,219
Accounts receivable 93,201 76,605
Due from affiliates 14,619 24,549
Notes receivable from
affiliates - current portion 33,169 30,872
Inventories 344,806 300,413
Prepaid expenses 158,640 144,036
--------- ---------
Total current assets 1,701,334 1,591,042
Net property and equipment 14,628,464 12,475,753
Other assets:
Franchise rights, net 1,059,425 1,099,470
Notes receivable from affiliates 141,480 157,083
Deposit with affiliate 330,000 330,000
Investment in affiliate 2,948,147 --
Other 493,950 480,998
---------- ----------
$ 21,302,800 $ 16,134,346
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Notes payable $ 1,681,492 $ --
Accounts payable 2,519,771 1,903,977
Due to affiliates 23,070 62,292
Accrued payroll and other taxes 293,293 319,902
Accrued liabilities 896,958 786,598
Current portion of long-term debt 947,246 997,814
Current portion of obligations
under capital leases 50,683 68,833
--------- ---------
Total current liabilities 6,412,513 4,139,416
Other noncurrent liabilities 94,751 86,308
Long-term debt 12,602,653 9,526,948
Obligations under capital leases 1,650,388 1,662,746
General Partners' interest
in Operating Partnership 165,635 167,530
Partners' capital:
General Partners (3,471) (3,290)
Limited Partners:
Class A Income Preference 6,535,401 6,572,923
Classes B and C (4,831,389) (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 376,860 551,398
---------- ----------
$ 21,302,800 $ 16,134,346
========== ==========
See accompanying notes.
<TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Periods Ended Six Periods Ended
June 25, June 27, June 25, June 27,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 9,887,850 $10,996,286 $19,743,520 $20,063,343
Operating costs and expenses:
Cost of sales 2,550,353 2,940,362 5,114,380 5,313,469
Restaurant labor and benefits 2,556,734 2,752,003 5,131,288 5,274,889
Advertising 668,705 685,925 1,321,275 1,252,633
Other restaurant operating
expenses exclusive of
depreciation and amortization 1,729,630 1,903,797 3,497,126 3,623,581
General and administrative:
Management fees 685,903 762,988 1,370,354 1,392,344
Other 228,798 196,312 421,273 326,865
Depreciation and amortization 384,660 369,526 766,669 723,574
Equity in loss of affiliate 40,351 -- 51,853 --
--------- --------- --------- ---------
Income from operations 1,042,716 1,385,373 2,069,302 2,155,988
Interest income (10,815) (5,955) (17,810) (16,969)
Interest expense 413,152 343,415 741,987 668,885
Gain on fire settlement (157,867) -- (157,867) --
--------- --------- --------- ---------
Income before General Partners'
interest in income of
Operating Partnership 798,246 1,047,913 1,502,992 1,504,072
General Partners' interest in
income of Operating Partnership 7,982 10,479 15,030 15,041
--------- --------- --------- ---------
Net income $ 790,264 $ 1,037,434 $ 1,487,962 $ 1,489,031
========= ========= ========= =========
Net income allocated to Partners:
Class A Income Preference $ 161,791 $ 218,275 $ 304,651 $ 313,307
Class B $ 236,140 $ 308,162 $ 444,631 $ 442,299
Class C $ 392,333 $ 510,997 $ 738,680 $ 733,425
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 815,309 825,764 815,309 825,764
Class B 1,189,975 1,165,816 1,189,924 1,165,739
Class C 1,977,071 1,933,168 1,976,863 1,933,039
Net income per Partnership interest:
Class A Income Preference $ 0.20 $ 0.26 $ 0.37 $ 0.38
Class B $ 0.20 $ 0.26 $ 0.37 $ 0.38
Class C $ 0.20 $ 0.26 $ 0.37 $ 0.38
Distributions per Partnership interest:
Class A Income Preference $ 0.26 $ 0.16 $ 0.42 $ 0.32
Class B $ 0.26 $ 0.16 $ 0.42 $ 0.32
Class C $ 0.26 $ 0.16 $ 0.42 $ 0.32
<FN>
See accompanying notes.
</FN>
</TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Periods Ended
June 25, June 27,
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 1,487,962 $ 1,489,031
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 766,669 723,574
Provision for deferred rent 8,443 5,081
Provision for deferred compensation 6,300 12,600
Unit compensation expense 15,900 --
Equity in loss of affiliate 51,853 --
Loss on disposal of assets 14,441 14,923
Gain on fire settlement (157,867) --
General Partners' interest in net
income of Operating Partnership 15,030 15,041
Net change in operating assets and liabilities:
Accounts receivable (16,596) 14,692
Due from affiliates 9,930 4,042
Inventories (44,393) (6,508)
Prepaid expenses (14,604) (82,332)
Accounts payable 615,794 455,096
Due to affiliates (39,222) (61,379)
Accrued payroll and other taxes (26,609) 50,607
Accrued liabilities 110,360 (100,940)
Other, net (46,764) (44,772)
--------- ---------
Net cash provided by
operating activities 2,756,627 2,488,756
Cash flows from investing activities:
Investment in affiliate (3,000,000) --
Purchase of certificate of deposit (155,432) (50,000)
Redemption of certificate of deposit -- 109,888
Additions to property (2,889,895) (553,787)
Proceeds from sale of property 7,351 4,749
Collections of notes receivable from affiliates 13,306 12,726
Funds advanced to affiliates -- (15,000)
Net proceeds from fire settlement 180,437 --
--------- ---------
Net cash used in
investing activities (5,844,233) (491,424)
Cash flows from financing activities:
Payments on long-term borrowings (2,190,431) (745,652)
Proceeds from long-term borrowings 6,897,060 400,000
Payments on capital lease obligations (30,508) (36,577)
Distributions to Partners (1,671,232) (1,255,919)
Proceeds from issuance of Class B and C units 30,750 18,750
Repurchase of Class B and C units (44,208) --
General Partners' distributions
from Operating Partnerships (16,925) (12,686)
--------- ---------
Net cash provided by
(used in) financing activities 2,974,506 (1,632,084)
--------- ---------
Net increase in
cash and cash equivalents (113,100) 365,248
Cash and cash equivalents at beginning of period 782,348 843,902
--------- ---------
Cash and cash equivalents at end of period $ 669,248 $ 1,209,150
========= =========
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 July 1, 1996 the Partnership declared a distribution of $0.16
per unit to all unitholders of record as of July 12, 1996
payable on July 26, 1996. The distribution is not reflected in
the June 25, 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 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-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 six periods ended June
25, 1996 and June 27, 1995, assuming consummation of the purchase
and financing of the $3.0 million note payable as of December 28,
1994 are as follows:
Six Periods Ended
June 25, June 27,
1996 1995
----------- -----------
Net sales $19,743,520 $20,063,343
Equity in earnings (loss) (14,751) 102,383
Net income 1,413,856 1,447,586
Net income per partnership interest
Class A Income Preference $ 0.36 $ 0.37
Class B $ 0.36 $ 0.37
Class C $ 0.36 $ 0.37
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 June 25, 1996, the Partnership operated 55 Pizza
Hut restaurants and six Pizza Hut delivery/carryout
facilities.
Quarter Ended June 25, 1996 Compared to Quarter Ended
- -----------------------------------------------------
June 27, 1995
- -------------
NET SALES. Net sales for the quarter ended June 25, 1996
decreased $1,108,000 from $10,996,000 to $9,888,000, a 10.1%
decrease from the second quarter of 1995. Comparable restaurant
sales decreased 9.4%. This decrease was expected and was the
result of the success of the roll-out of Stuffed Crust pizza
last year during the second quarter.
INCOME FROM OPERATIONS. Income from operations decreased
$342,000 from $1,385,000 to $1,043,000, a 24.7% decrease from
the same quarter in 1995. As a percentage of net sales, income
from operations decreased to 10.5% for the quarter ended June
25, 1996 compared to 12.6% for the quarter ended June 27, 1995.
Cost of sales decreased as a percentage of net sales from 26.7%
for the quarter ended June 27, 1995 to 25.8% for the quarter
ended June 25, 1996. This decrease is attributable to the
higher food cost experienced during the introduction of Stuffed
Crust pizza which produced sales increases during the second
quarter last year. Labor and benefits expense increased as
a percentage of net sales from 25.0% in 1995 to 25.9% in 1996
due to the lower sales volumes attained this year. Advertising
increased as a percentage of net sales from 6.2% in 1995 to
6.8% in 1996 as a result of increased advertising in 1996 to
minimize the sales decreases experienced while climbing over
last year's successful introduction of Stuffed Crust pizza.
Operating expenses increased to 17.5% of net sales in 1996 from
17.3% of net sales in 1995 primarily attributable to the effects
of lower sales volumes on fixed operating costs. General and
administrative expenses increased from 8.7% of net sales in 1995
to 9.2% of net sales in 1996. Depreciation and amortization
expense increased from 3.4% of net sales in 1995 to 3.9% of net
sales in 1996 due to construction of new restaurants and
remodels of existing restaurants. Equity in loss of affiliate
amounted to 0.4% of net sales for the quarter ended June 25,
1996.
NET INCOME. Net income decreased $247,000 to $790,000 for the
quarter ended June 25, 1996 compared to $1,037,000 for the
quarter ended June 27, 1995. This 23.8% decrease is attributable
to the decrease in income from operations noted above combined
with an increase in interest expense of $70,000, which was
offset by a $158,000 gain on fire settlement.
Six Periods Ended June 25, 1996 Compared to Six Periods
- -------------------------------------------------------
Ended June 27, 1995
- -------------------
NET SALES. Net sales for the six periods ended June 25, 1996
decreased $319,000 from $20,063,000 to $19,744,000, a 1.6%
decrease from the first six periods of 1995. Comparable
restaurant sales decreased 1.2%. This decrease was the result
of climbing over the successful roll-out of Stuffed Crust pizza
last year during the second quarter.
INCOME FROM OPERATIONS. Income from operations decreased
$87,000 from $2,156,000 to $2,069,000, a 4.0% decrease from the
first six periods of 1995. As a percentage of net sales, income
from operations decreased to 10.5% for the six periods ended
June 25, 1996 compared to 10.7% for the six periods ended
June 27, 1995. Cost of sales decreased as a percentage of net
sales from 26.5% for the six periods ended June 27, 1995 to
25.9% for the six periods ended June 25, 1996 primarily due to
the higher food cost experienced during the introduction of
Stuffed Crust pizza which produced sales increases last year.
Labor and benefits expense decreased as a percentage of net
sales from 26.3% in 1995 to 26.0% 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 6.2% in 1995 to 6.7% in 1996 due to increased advertising
for the introduction of TripleDecker and to minimize the sales
decreases experienced while climbing over last year's successful
introduction of Stuffed Crust pizza. Operating expenses
decreased from 18.1% of net sales in 1995 to 17.7% of net sales
in 1996 due to lower insurance and maintenance costs. General
and administrative expenses increased from 8.7% of net sales in
1995 to 9.0% of net sales in 1996. Depreciation and
amortization expense increased from 3.4% of net sales in 1995 to
3.9% of net sales in 1996 due to the construction of new
restaurants and remodels of existing restaurants.
NET INCOME. Net income decreased $1,000 to $1,488,000 for the
six periods ended June 25, 1996 compared to $1,489,000 for the
six periods ended June 27, 1995. The 1996 amount includes a gain
on fire settlement of $158,000. This gain was offset by the
decrease in income from operations noted above and a $73,000
increase in interest expense due to increased borrowings.
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 June 25, 1996 the Partnership had a working capital
deficiency of $4,711,000 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 remaining increase in
working capital deficiency is the result of an increase in
accounts payable of $616,000. 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 six periods
ended June 25, 1996, net cash provided by operating activities
amounted to $2,757,000 compared to $2,489,000 for the six periods
ended June 27, 1995. This increase is primarily the result of
the increase in accounts payable and accrued liabilities.
INVESTING ACTIVITIES. Property and equipment expenditures
represent the largest investing activity by the Partnership.
Capital expenditures for the six periods ended June 25, 1996
were $2,890,000, of which $978,000 was for the replacement of
equipment in existing restaurants and $406,000 was for remodels
of existing restaurants. The remaining $1,506,000 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
six periods ended June 25, 1996 were $1,671,000 amounting to
$0.42 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 six periods ended June 25, 1996 the Partnership's
proceeds from borrowings amounted to $6,897,000. 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 favorable terms,
$1,109,000 to develop new restaurants, $382,000 for remodels of
existing restaurants and $741,000 to increase operating capital.
The Partnership opened one new restaurant and relocated another
to a better location during the second quarter. The Partnership
plans to open two red roof restaurants, three delivery/carryout
facilities and two convenience store locations during the
remainder of 1996. Management estimates that approximately
$2,478,000 will be needed to finance the construction of the new
restaurants. In addition, management plans to finance an
additional $556,000 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
$296,000 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 anticipated that sales and profits would
be down for the second quarter of 1996 as the Partnership was
climbing over the successful introduction of Stuffed Crust pizza
in 1995. During the remainder of 1996, management will continue
to focus on increasing customer satisfaction and thereby
increasing sales and cash flow.
During the third quarter, the Partnership entered into a new loan
agreement. Proceeds of this loan were used to liquidate several
term notes with varying due dates. The effect of the new loan
agreement was to reclassify $4,665,000 of the previous term notes
in existence at June 25, 1996 from short-term to long-term and
such transaction has been given retroactive effect in the balance
sheet at June 25, 1996, in accordance with Financial Accounting
Standards Board Statement No. 6.
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 fluctations, 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, the
Partnership filed a Form 8-K/A related to the acquisition
of a 45% interest in Oklahoma Magic, L.P. reported on
Form 8-K dated March 13, 1996.
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: By:
--------- --------------------------
Hal W. McCoy
President and Chief Executive Officer
Date: By:
--------- -------------------------
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 June 25, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-25-1996
<CASH> 669248
<SECURITIES> 0
<RECEIVABLES> 612469
<ALLOWANCES> 0
<INVENTORY> 344806
<CURRENT-ASSETS> 1701334
<PP&E> 25396664
<DEPRECIATION> 10768200
<TOTAL-ASSETS> 21302800
<CURRENT-LIABILITIES> 6412513
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 376860
<TOTAL-LIABILITY-AND-EQUITY> 21302800
<SALES> 19743520
<TOTAL-REVENUES> 19743520
<CGS> 5114380
<TOTAL-COSTS> 17674218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 741987
<INCOME-PRETAX> 1487962
<INCOME-TAX> 0
<INCOME-CONTINUING> 1487962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1487962
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0
</TABLE>
