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 30, 1997 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 30, 1997 and December 31, 1996 1
Consolidated Statements of Operations
for the Three and Nine Periods Ended
September 30, 1997 and September 24, 1996 2
Consolidated Statements of Cash Flows for
the Nine Periods Ended September 30, 1997
and September 24, 1996 3
Notes to Consolidated Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 6-10
Part II. Other Information
- ---------------------------
Item 5. Other Information 11-15
Item 6. Exhibits and Reports on Form 8-K 16
Exhibit 99.1 Financial News Release Annoucing Application to
Withdraw from Listing on American Stock Exchange 17-19
Exhibit 99.2 Financial News Release Announcing Permanent
Suspension of Trading of Units on American
Stock Exchange 20
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 1997 1996
- --------------------------------- ------------ -----------
Current assets:
Cash and cash equivalents $ 44,359 $ 178,826
Certificate of deposit 4,000 157,635
Investments available for sale,
at fair market value 245,251 132,751
Accounts receivable 127,894 155,724
Due from affiliates 66,537 19,415
Notes receivable from
affiliates - current portion 76,508 84,631
Inventories 286,275 344,003
Prepaid expenses 243,958 212,008
----------- -----------
Total current assets 1,094,782 1,284,993
Net property and equipment 17,581,406 17,620,268
Other assets:
Franchise rights, net 1,044,832 1,084,080
Notes receivable from affiliates 93,672 113,410
Deposit with affiliate 350,000 350,000
Investment in Oklahoma Magic, L.P. 2,299,796 2,624,368
Other 687,999 667,964
----------- -----------
$ 23,152,487 $ 23,745,083
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 2,174,206 $ 2,115,502
Due to affiliates 37,941 88,654
Accrued payroll and other taxes 421,379 545,816
Accrued liabilities 877,196 1,008,937
Current portion of long-term debt 10,106,605 1,428,630
Current portion of obligations
under capital leases 36,015 32,760
----------- -----------
Total current liabilities 13,653,342 5,220,299
Other noncurrent liabilities 166,621 197,308
Long-term debt 9,751,400 17,430,692
Obligations under capital leases 1,615,479 1,632,284
General Partners' interest
in Operating Partnership 138,561 153,737
Partners' capital (deficiency):
General Partners (6,611) (4,634)
Limited Partners:
Class A Income Preference 5,988,235 6,294,520
Classes B and C (6,899,034) (5,811,117)
Cost in excess of carrying value
of assets acquired (1,323,681) (1,323,681)
Unrealized loss in investment securities 68,175 (44,325)
----------- -----------
Total partners' deficiency (2,172,916) (889,237)
----------- -----------
$ 23,152,487 $ 23,745,083
=========== ===========
See accompanying notes.
<TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Periods Ended Nine Periods Ended
September 30, September 24, September 30, September 24,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 9,929,607 $10,032,758 $29,552,450 $29,776,278
Operating costs and expenses:
Cost of sales 2,687,142 2,736,810 7,988,293 7,851,190
Restaurant labor and benefits 2,773,287 2,593,929 8,360,493 7,725,217
Advertising 636,154 732,905 1,873,950 2,054,180
Other restaurant operating
expenses exclusive of
depreciation and amortization 1,999,478 1,993,365 5,831,891 5,490,491
General and administrative:
Management fees 690,102 697,636 2,054,975 2,067,990
Other 109,309 207,381 414,392 628,654
Depreciation and amortization 510,518 439,865 1,494,784 1,206,534
Equity in loss of affiliate 154,566 270,069 324,571 321,928
---------- ----------
Income from operations 369,051 360,798 1,209,101 2,430,094
Interest income (4,776) (7,486) (17,658) (25,296)
Interest expense 556,070 439,774 1,656,051 1,181,761
Gain on fire settlement -- -- -- (157,867)
---------- ----------
Income (loss) before General Partners'
interest in income (loss) of
Operating Partnership (182,243) (71,490) (429,292) 1,431,496
General Partners' interest in
income (loss) of Operating Partnership (1,822) (715) (4,293) 14,315
---------- ----------
Net income (loss) $ (180,421) $ (70,775) $ (424,999) $ 1,417,181
========== ==========
Net income (loss) allocated to Partners:
Class A Income Preference $ (36,812) $ (14,489) $ (86,781) $ 290,150
Class B $ (54,011) $ (21,169) $ (127,202) $ 423,614
Class C $ (89,598) $ (35,117) $ (211,016) $ 703,417
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 815,309 815,309 815,309 815,309
Class B 1,196,202 1,191,167 1,195,071 1,190,339
Class C 1,984,397 1,976,002 1,982,512 1,976,576
Net income (loss) per Partnership interest:
Class A Income Preference $ (0.05) $ (0.02) $ (0.11) $ 0.36
Class B $ (0.05) $ (0.02) $ (0.11) $ 0.36
Class C $ (0.05) $ (0.02) $ (0.11) $ 0.36
Distributions per Partnership interest:
Class A Income Preference $ 0.05 $ 0.16 $ 0.27 $ 0.58
Class B $ 0.05 $ 0.16 $ 0.27 $ 0.58
Class C $ 0.05 $ 0.16 $ 0.27 $ 0.58
<FN>
See accompanying notes.
</FN>
</TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Periods Ended
September 30, September 24,
1997 1996
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (424,999) $ 1,417,181
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 1,494,784 1,206,534
Provision for deferred rent 7,550 10,960
Provision for deferred compensation -- 6,300
Unit compensation expense 11,737 15,900
Equity in loss of affiliate 324,572 321,928
Loss on disposal of assets 18,652 28,546
Gain on fire settlement -- (157,867)
General Partners' interest in net
income (loss) of Operating Partnership (4,293) 14,315
Net change in operating assets and liabilities:
Accounts receivable 27,830 (186,373)
Due from affiliates (47,122) 3,657
Inventories 57,728 (57,157)
Prepaid expenses (31,950) (84,455)
Accounts payable 58,704 703,252
Due to affiliates (50,713) (35,843)
Accrued payroll and other taxes (124,437) (35,633)
Accrued liabilities (131,741) 268,832
Other, net (106,382) (258,130)
---------- ----------
Net cash provided by
operating activities 1,079,920 3,181,947
Cash flows from investing activities:
Investment in affiliate -- (3,000,000)
Purchase of certificate of deposit (6,567) (156,491)
Redemption of certificate of deposit 160,202 50,000
Additions to property (1,372,917) (4,274,008)
Proceeds from sale of property 701 7,351
Purchase of franchise rights (15,000) --
Collections of notes receivable from affiliates 65,361 21,032
Net proceeds from fire settlement -- 180,437
---------- ----------
Net cash used in
investing activities (1,168,220) (7,171,679)
Cash flows from financing activities:
Payments on long-term borrowings (1,070,317) (7,485,137)
Proceeds from long-term borrowings 2,069,000 10,813,501
Proceeds from short-term borrowings -- 3,211,605
Payments on capital lease obligations (13,550) (46,439)
Distributions to Partners (1,077,417) (2,306,247)
Proceeds from issuance of Class B and C units 57,000 55,500
Repurchase of Class B and C units -- (44,208)
General Partners' distributions
from Operating Partnerships (10,883) (23,356)
---------- ----------
Net cash provided by
(used in) financing activities (46,167) 4,175,219
---------- ----------
Net increase (decrease) in
cash and cash equivalents (134,467) 185,487
Cash and cash equivalents at beginning of period 178,826 782,348
---------- ----------
Cash and cash equivalents at end of period $ 44,359 $ 967,835
========== ==========
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 subsidiaries, American Pizza Partners, L.P. and APP Concepts,
LLC, hereinafter collectively referred to as the Partnership, and
have been prepared without audit. The Balance Sheet at December 31,
1996 has been derived from financial statements which have been
audited by Ernst & Young LLP, 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 31, 1996.
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, 1997 the Partnership declared a distribution of $0.05
per unit to all unitholders of record as of October 13, 1997
payable on October 31, 1997. The distribution is not reflected in
the September 30, 1997 consolidated condensed financial statements.
3. Long-Term Debt - Covenant Noncompliance
---------------------------------------
The Partnership has met all scheduled debt payments; however, at
September 30, 1997, it was not in compliance with the fixed charge
ratio required by the loan covenants under the borrowing agreement
with Heller Financial, Inc. Accordingly, the Partnership has
classified the entire amount payable to Heller Financial, Inc. of
$2,096,000 as a current liability in the accompanying consolidated
balance sheet. As a result of the default, Heller Financial, Inc.
has the option to increase the interest rate two percent over the
rate the Partnership is currently paying.
4. Recently Issued Accounting Standards
------------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 128, "Earnings per Share"
("FAS 128"), which specifies the computation, presentation, and
disclosure requirements for earnings per share with the objective
to simplify the computation of earnings per share. FAS 128 is
effective for financial statements for periods ending after
December 15, 1997 and earlier application is not permitted. After
the effective date, all prior period earnings per share data shall
be restated to conform with the provisions of FAS 128. The
adoption of FAS 128 is not expected to have a material impact on
the Partnership's earnings per share data.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of September 30, 1997, the Partnership operated 54 traditional
Pizza Hut red roof restaurants, six delivery/carryout units, one
convenience store location and three dualbrand locations.
Quarter Ended September 30, 1997 Compared to Quarter Ended
- ----------------------------------------------------------
September 24, 1996
- ------------------
NET SALES. Net sales for the quarter ended September 30, 1997
decreased $103,000, or 1.0%, from $10,033,000 to $9,930,000.
Comparable restaurant sales decreased 4.7% primarily due to
increased competition in the Texas market.
INCOME FROM OPERATIONS. Income from operations increased $8,000
from $361,000 to $369,000, a 2.2% increase over the same quarter in
1996. As a percentage of net sales, income from operations
increased from 3.6% for the quarter ended September 24, 1996 to
3.7% for the quarter ended September 30, 1997. Cost of sales
decreased as a percentage of net sales from 27.3% for the quarter
ended September 24, 1996 to 27.1% for the quarter ended September
30, 1997 which is principally attributable to record high cheese
costs experienced last year during the third quarter. Labor and
benefits expense increased as a percentage of net sales from 25.9%
in 1996 to 27.9% in 1997 as a result of minimum wage increases
implemented October 1, 1996 and September 1, 1997 and lower same
store sales. Advertising decreased from 7.3% of net sales in 1996
to 6.4% of net sales in 1997. Operating expenses increased to 20.1%
of net sales in 1997 from 19.9% of net sales in 1996 due to the
effects of lower same store sales on fixed operating costs.
General and administrative expenses decreased from 9.0% of net
sales in 1996 to 8.1% of net sales in 1997 due to a decrease in
bonuses paid on operating results. Depreciation and amortization
expense increased from 4.4% of net sales in 1996 to 5.1% of net
sales in 1997 due to construction of new restaurants and remodels
of existing restaurants during 1996 and the first six periods of
1997. Equity in loss of affiliate amounted to 1.6% of net sales
for the quarter ended September 30, 1997 compared to 2.7% of net
sales for the same quarter last year.
NET EARNINGS. Net earnings decreased $109,000 to a net loss of
$180,000 for the quarter ended September 30, 1997 compared to a net
loss of $71,000 for the quarter ended September 24, 1996. This
decrease is attributable to an increase in interest expense of
$116,000 due to additional debt primarily used to fund the
acquisition of the Oklahoma affiliate and to develop new
restaurants.
Nine Periods Ended September 30, 1997 Compared to Nine Periods
- --------------------------------------------------------------
Ended September 24, 1996
- ------------------------
NET SALES. Net sales for the nine periods ended September 30, 1997
decreased $224,000 from $29,776,000 to $29,552,000, a 0.8% decrease
from the first nine periods of 1996. Comparable restaurant sales
decreased 6.1% primarily due to increased competition in the Texas
market.
INCOME FROM OPERATIONS. Income from operations decreased
$1,221,000 from $2,430,000 to $1,209,000, a 50.2% decrease from the
first nine periods of 1996. As a percentage of net sales, income
from operations decreased from 8.2% for the nine periods ended
September 24, 1996 to 4.1% for the nine periods ended September 30,
1997. Cost of sales increased as a percentage of net sales from
26.4% for the nine periods ended September 24, 1996 to 27.0% for
the nine periods ended September 30, 1997 primarily due to the free
sampling program during the second quarter of 1997 introducing new
higher quality pizzas with better tasting, higher cost toppings.
Labor and benefits expense increased as a percentage of net sales
from 25.9% in 1996 to 28.3% in 1997 as a result of the minimum wage
increases and lower same store sales. Advertising decreased as a
percentage of net sales from 6.9% in 1996 to 6.3% in 1997.
Operating expenses increased from 18.4% of net sales in 1996 to
19.7% of net sales in 1997 attributable to the effects of lower
same store sales on fixed operating costs. General and
administrative expenses decreased from 9.1% of net sales in 1996 to
8.4% of net sales in 1997. Depreciation and amortization expense
increased from 4.1% of net sales in 1996 to 5.1% of net sales in
1997 due to the construction of new restaurants and remodels of
existing restaurants during 1996 and the first six periods of 1997.
Equity in loss of affiliate amounted to 1.1% of net sales in both
years.
NET EARNINGS. Net earnings decreased $1,842,000 to a net loss of
$425,000 for the nine periods ended September 30, 1997 compared to
net income of $1,417,000 for the nine periods ended September 24,
1996. This decrease is attributable to the decrease in income from
operations noted above combined with an increase in interest
expense of $474,000 due to additional debt primarily used to fund
the acquisition of a 45% interest in the Oklahoma affiliate and to
develop new restaurants. The 1996 net earnings include a $158,000
gain on fire settlement.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1997 the Partnership had a working capital
deficiency of $12,559,000 compared to a working capital deficiency
of $3,935,000 at December 31, 1996. Approximately $1,703,000 of
the working capital deficiency at September 30, 1997 results from
the classification of the entire amount of outstanding notes
payable to Heller Financial, Inc. as a current liability because
the Partnership was in default of the fixed charge ratio at
September 30, 1997. There have been no defaults in making
scheduled payments of either principal or interest. As a result of
the default, Heller Financial, Inc. has the option to increase the
interest rate two percent over the rate that the Partnership is
currently paying. The remaining increase in working capital
deficiency of $6,921,000 is a result of an increase in current
portion of long-term debt used primarily to acquire a 45% interest
in Oklahoma Magic, L.P. and for development of new restaurants.
The Partnership plans to refinance the notes on a long-term basis
during 1997. 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.
The Partnership generates its principal source of funds from net
cash provided by operating activities. Management believes that net
cash provided by operating activities and various other sources of
income will provide sufficient funds to meet planned capital
expenditures for recurring replacement of equipment in existing
restaurants and to service debt obligations.
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. See
Part II - Other Information.
NET CASH PROVIDED BY OPERATING ACTIVITIES. For the nine periods
ended September 30, 1997, net cash provided by operating activities
amounted to $1,080,000 compared to $3,182,000 for the nine periods
ended September 24, 1996. This decrease is primarily the result of
the decrease in net earnings.
INVESTING ACTIVITIES. Property and equipment expenditures
represent the largest investing activity by the Partnership.
Capital expenditures for the nine periods ended September 30, 1997
were $1,373,000, of which $725,000 was for the replacement of
equipment in existing restaurants and $648,000 was for the
development of new restaurants.
FINANCING ACTIVITIES. Cash distributions declared during the nine
periods ended September 30, 1997 were $1,077,000 amounting to $0.27
per unit as compared to $2,306,000, or $0.58 per unit, during the
first nine periods of 1996. 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. The
reduction in cash distributions from the prior year reflects the
decline in operating revenues.
During the nine periods ended September 30, 1997, the Partnership's
proceeds from borrowings amounted to $2,069,000. The proceeds were
used primarily to develop new restaurants and to replenish operating
capital. The Partnership has opened two new dualbrand locations in
1997 and converted a traditional red roof restaurant to a dualbrand
location. Management anticipates spending an additional $98,000 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 a
decision not to replace equipment due to inadequate net cash flow
from operating activities or other reasons.
OTHER MATTERS. The Partnership, through its minority owned
subsidiary, Oklahoma Magic, L.P. (Magic), is involved in a dispute
with Hospitality Group of Oklahoma, Inc. (HGO), the former owners
of the thirty-three Oklahoma restaurants that were purchased by
Magic in March 1996. In November, 1996 Magic notified HGO that it
is seeking to terminate HGO's interest in Magic pursuant to the
terms of the Partnership Agreement for alleged violations of the
Pizza Hut Franchise Agreement and the alleged occurrence of an
Adverse Terminating Event as defined in the Partnership Agreement.
Magic alleges that HGO contacted and offered employment to a
significant number of the management employees of Magic. Magic has
also alleged that HGO made certain misrepresentations in connection
with the formation of Magic. HGO has denied that such franchise
violations have occurred and that it made any misrepresentations at
the formation of Magic. The matter has been submitted to
arbitration. In the arbitration proceeding, HGO has asserted that
it was fraudulently induced to enter into the Magic Partnership
Agreement by Restaurant Management Company of Wichita, Inc. and was
further damaged by alleged mismanagement of the operations. HGO is
seeking recision of the purchase and contribution of the
restaurants or in the alternative compensatory and punitive
damages. The parties continue to seek to resolve the disagreement
through negotiation and mediation. If Magic prevails, the interest
of HGO in Magic will be purchased by Magic and the interest of the
Partnership in Magic will likely increase from 45% to 60%. The
amount of damages sought by HGO has not been enumerated.
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 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 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 5. Other Information
-----------------
The Class A Units (formerly Class A Income Preference Units)
of limited partnership interests ("Units") of American Restaurant
Partners, L.P., a Delaware limited partnership ("Registrant"), are
listed for trading on the American Stock Exchange.
Registrant has complied with Rule 18 of the American Stock
Exchange by filing with such Exchange a certified copy of preambles
and resolutions adopted by the two general partners of Registrant
authorizing the withdrawal of the Units from listing on the
American Stock Exchange and by setting forth in detail to such
Exchange the reasons for such proposed withdrawal, and the facts in
support thereof. In making the decision to withdraw its Units
from listing on the American Stock Exchange, the Registrant
considered the facts set forth below and determined that it was in
the best interests of the holders of the Units that such withdrawal
be effected.
Registrant's decision to delist the Units is based on a change
in the federal income tax laws that, for the first time effective
January 1, 1998, will, unless Registrant takes appropriate action,
subject Registrant to taxation as a corporation. Prior to the
adoption of the Revenue Act of 1987, all partnerships which met
certain tests were eligible to be taxed as partnerships. The
effect of that method of income taxation was that the partnership
paid no income tax on its income and the partners were taxed on
their proportionate share of the partnership's income allocable to
them. The new statute added Section 7704 to the Internal Revenue
Code.
Section 7704 of the Internal Revenue Code provides rules
applicable to taxation of publicly traded partnerships ("PTPs")
and, as a subset, publicly traded limited partnerships such as
Registrant ("PTLPs"). I.R.C. Section 7704, which governs the
taxation of PTPs, defines a PTP as any partnership in which
interests of the partnership are traded on "an established
securities market" or "readily traded on a secondary market (or the
substantial equivalent thereof)." Under the Internal Revenue Code,
Registrant is considered a publicly traded limited partnership
because it currently trades on the American Stock Exchange. I.R.C.
Section 7704 further provides that a PTP with securities trading on
an "established securities market" will be taxed as a corporation
with the effect that the partnership will pay income taxes and the
partners will then pay additional taxes on distributions received
by them thereby substantially increasing the total taxation of the
partnership's distributed income in the case of Registrant.
To date, Registrant is not subject to the provisions of I.R.C.
Section 7704, which require that a PTP be taxed as a corporation.
However, the grandfather clause that shelters Registrant from
I.R.C. Section 7704's provisions expires on December 31, 1997. As
a result, Registrant will be subject to I.R.C. Section 7704 for all
tax years subsequent to December 31, 1997. Accordingly, Registrant
must delist from the American Stock Exchange by December 31, 1997,
in order to no longer be considered to be trading on "an
established securities market."
The general partners of Registrant have considered various
alternative ways to ameliorate the harsh effects of Section 7704,
including a tender offer for all of the Units, but, in the opinion
of the two general partners, the only feasible ameliorative effort
that now remains is to take the actions required to cause
Registrant not to trade on "an established securities market" and,
thereby be classified as a PTP.
The Internal Revenue Service has published its Notice 88-75
(1988-2 C.B. 386) in which it has established guidelines for
partnerships, such as Registrant, to continue being taxed as
partnerships. Notice 88-75 provides two safe harbors, to determine
if Registrant is trading on a secondary market (or the substantial
equivalent thereof), after Registrant delists. One safe harbor
provides that interests in a partnership are not treated as readily
tradable on a secondary market if less than 5% of the interests in
the partnership are sold or otherwise disposed of during the
taxable year. Registrant is able to meet this test because its
partnership agreement contains a provision permitting it to refuse
to recognize attempted transfers of Units that would cause
Registrant to be taxed as a corporation.
Accordingly, after investigating other alternatives, the
general partners of Registrant have decided that it is in the best
interests of the holders of Units, as well as the holders of the
other equity interests in Registrant, to cause Registrant to take
all such actions as are required in order to come within the "safe
harbor" set forth in Notice 88-75. The details of such procedure
have not been finally determined, but upon their completion, such
procedure will be described in a written notification to all Unit
holders and in a filing with the Securities and Exchange
Commission. It is not anticipated that there will be any
substantial delay in finalizing such procedures.
In addition to the 5% of transfers allowed pursuant to Notice
88-75, the Treasury Regulations also provide that a partnership can
establish a redemption and repurchase agreement and a qualified
matching service as additional ways for unitholders to exchange
their interests. Under the Regulations, exchanges made pursuant to
either a redemption and repurchase agreement or a qualified
matching service are disregarded in determining whether interests
in the partnership are readily tradable on a secondary market. In
other words, an exchange of units pursuant to either a redemption
and repurchase agreement or a qualified matching service are ways,
in addition to the 5% under Notice 88-75, for unitholders to trade
their units. Accordingly, Registrant intends to establish a
qualified matching service in accordance with the Treasury
Regulations and may later put in place a redemption and repurchase
agreement so as to provide other ways for unitholders to exchange
their units.
A REDEMPTION AND REPURCHASE AGREEMENT
At the present time, Registrant is not planning to institute a
redemption and repurchase agreement; however, a redemption and
repurchase agreement plan may be developed in the future. Any
redemption and repurchase agreement adopted by Registrant will
provide that the redemption or repurchase cannot occur until at
least 60 calendar days after the partner notifies the partnership
in writing of his intention to exercise the redemption or
repurchase right. The redemption or repurchase agreement will
require that the redemption or repurchase price cannot be
established until at least 60 calendar days after receipt of such
notification by the partnership or the partner. Alternatively, the
redemption or repurchase price cannot be established more than four
times during the partnership's taxable year. Additionally, the
redemption and repurchase agreement will provide that the sum of
the percentage interests in the partnership capital or profits
transferred during the taxable year of the partnership cannot
exceed 10% of the total interests in partnership capital and
profits.
QUALIFIED MATCHING SERVICE
Registrant's qualified matching service will be structured in
the following manner:
1. The matching service will consist of a computerized or
printed listing that will list the customer's bid and/or
ask quotes in order to match partners who want to sell
their interests in Registrant with a person who wants to
buy those interests.
2. The matching service will occur either by matching the
list of interested buyers with the list of interested
sellers or through a bid ask process that allows
interested buyers to bid on the listed interest.
3. The selling partner will not be able to enter into a
binding agreement to sell his interest until the 15th
calendar day after the date information regarding the
offering of his interest for sale is made available to
potential buyers.
4. The closing of the sale effected by virtue of the
matching service cannot occur prior to the 45th calendar
day after the date information regarding the offering of
the interest for sale is made available to potential
buyers.
5. The matching service will display only quotes that do not
commit any person to buy or sell a partnership interest
at the quoted price (nonfirm price quotes) or quotes that
express interest in partnership interest without an
accompanying price (nonbinding indications of interest)
and will not display quotes in which any person is
committed to buy or sell a partnership interest at the
quoted price (firm quotes).
6. The selling partner's information will be removed from
the matching service within 120 calendar days after the
date information regarding the offering of the interest
for sale is made available to potential buyers and,
following any removal of the selling partner's
information from the matching service, no offer to sell
an interest in the partnership can be entered into the
matching service by the selling partner for at least 60
calendar days.
7. The sum of the percentage interests in the partnership
capital or profits transferred during the taxable year
cannot exceed 10% of the total interests in the
partnership capital or profits.
So long as the Units are reported with the Securities and
Exchange Commission under its Securities Exchange Act of 1934, as
amended, Registrant will continue sending annual and quarterly
reports containing financial statements and other information to
Unit holders much as it has been doing. Registrant has
approximately 1200 record holders of Units and is not eligible to
terminate the registration of the Units with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
Pursuant to Rule 12g-2 of the Securities and Exchange Commission,
the Registrant shall continue to be obligated to file reports under
Section 13 of the Securities Exchange Act of 1934, as amended.
The American Stock Exchange has informed the Registrant that
it has no objection to the withdrawal of the Registrant's Units
from listing on the American Stock Exchange. The American Stock
Exchange has informed Registrant, in an amended letter, that
because of Registrant's application to delist pursuant to Rule 18,
it has permanently suspended trading of Registrant's Units.
Registrant issued a press release describing this Application
on Thursday, November 13, 1997. Registrant issued a second press
release on Friday, November 14, 1997, and will mail a copy of both
press releases to all Unit holders of record as soon as
practicable. A copy of both press releases are Exhibits 99.1 and
99.2 hereto.
By reason of the foregoing, Registrant applies to withdraw its
Units from listing and registration with the American Stock
Exchange as soon as practicable, but no later than December 31,
1997.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits Page
----
99.1 Financial News Release announcing application
to withdraw from listing on the American
Stock Exchange 17-19
99.2 Financial News Release announcing permanent
suspension of trading of units on American
Stock Exchange 20
(b) Reports on Form 8-K
During the fiscal period covered by this Form 10-Q,
no reports on Form 8-K were filed.
Exhibit 99.1
- ------------
FINANCIAL NEWS RELEASE
For Immediate Release Contact: Terry Freund
November 13, 1997 Chief Financial Officer
Wichita, Kansas (316) 684-5119
AMERICAN RESTAURANT PARTNERS, L.P. ANNOUNCES APPLICATION
TO WITHDRAW FROM LISTING ON AMERICAN STOCK EXCHANGE
- -------------------------------------------------------------------
American Restaurant Partners, L.P. (ASE: RMC), a Delaware limited
partnership that operates 64 Pizza Hut restaurants, today announced
that it has filed an application with the American Stock Exchange
("Exchange") and intends to file an application with the Securities
and Exchange Commission to withdraw from listing on the Exchange
the Class A Units ("Units") of American Restaurant Partners, L.P.
("ARP"). ARP expects the last day of trading on the American Stock
Exchange to be in late December and will be disclosed as soon as
possible.
Prior to the adoption of the Revenue Act of 1987, ARP paid no
income tax on its income and the partners were taxed on their
proportionate share of the partnership's income allocable to them.
As the Partnership has previously reported, the Revenue Act of 1987
added Section 7704 to the Internal Revenue Code which requires
publicly traded limited partnerships ("PTLPs"), including ARP, to
be taxed as corporations commencing with tax years beginning after
December 31, 1997. As a result, by remaining a PTLP, beginning
January 1, 1998, ARP would pay income tax on its income and the
partners would then pay additional taxes on distributions received
by them, thereby, substantially increasing the total taxation of
the partnership's distributed income.
I.R.C. Section 7704 defines PTLPs as any limited partnership in
which interests of the partnership are traded on "an established
securities market" or "readily traded on a secondary market (or the
equivalent thereof)." ARP is considered a PTLP because it
currently trades on the American Stock Exchange. Accordingly, ARP
must delist from the American Stock Exchange before January 1,
1998, in order to no longer be considered to be trading on "an
established securities market." To determine if ARP is trading on
a secondary market (or the equivalent thereof), after ARP delists,
less than 5% of the interests in the partnership (approximately
40,765 Units) can be sold or otherwise disposed of during the
taxable year. ARP will establish a procedure for limiting
transfers of Units in order to comply with this 5% rule by invoking
a provision in its partnership agreement permitting it to refuse to
recognize attempted transfers of Units that would cause ARP to be
taxed as a corporation.
On January 2, 1998, ARP intends to establish a "qualified matching
service" as provided in the Treasury Regulations as an additional
means for Unitholders to exchange their Units. This would permit
ARP to match requests by Unitholders to sell Units with requests by
Unitholders to purchase Units. The "qualified matching service"
must meet the time and volume parameters provided for in the
Treasury Regulations. Unitholders will be able to participate in
this matching service by calling ARP's corporate office.
Management has requested from the Internal Revenue Service a
private letter ruling to the effect that ARP will not be a
"publicly traded limited partnership" for purposes of Section 7704
of the Internal Revenue Code and therefore will continue to be
taxed as a partnership.
ARP will continue to furnish to the Unitholders annual reports
containing audited financial statements and quarterly reports
containing unaudited financial statements for each of the first
three quarters of each fiscal year for as long as the Partnership
remains a reporting company under the Securities Exchange Act of
1934. ARP will also continue to file Forms 10-Q and 10-K with the
Securities and Exchange Commission as required under the Securities
Exchange Act of 1934.
Hal W. McCoy, Chairman of the managing general partner, commented,
"We have considered various alternative ways to avoid the harsh
effects of Section 7704. Based on ARP's current operating results
we have decided that by delisting and limiting transfers of the
Units is in the best interests of the holders of the Units. This
will allow the holders of the Units to avoid double taxation."
Exhibit 99.2
- ------------
FINANCIAL NEWS RELEASE
For Immediate Release Contact: Terry Freund
November 14, 1997 Chief Financial Officer
Wichita, Kansas (316) 684-5119
AMERICAN RESTAURANT PARTNERS, L.P. ANNOUNCES
PERMANENT SUSPENSION OF TRADING OF UNITS ON AMERICAN STOCK EXCHANGE
- -------------------------------------------------------------------
American Restaurant Partners, L.P. (ASE: RMC), a Delaware limited
partnership that operates 64 Pizza Hut restaurants, today announced
that the American Stock Exchange ("Exchange") has informed ARP that
because of ARP's application to delist from the Exchange, the
Exchange has permanently suspended trading of ARP's Units. ARP's
management is contacting secondary market makers for the purpose of
establishing an over-the-counter market of the Units through
December 31, 1997.
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: 11/17/97 By: /s/Hal W. McCoy
-------- ----------------
Hal W. McCoy
President and Chief Executive Officer
Date: 11/17/97 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 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 44359
<SECURITIES> 245251
<RECEIVABLES> 714611
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<INVENTORY> 286275
<CURRENT-ASSETS> 1094782
<PP&E> 30338576
<DEPRECIATION> 12757170
<TOTAL-ASSETS> 23152487
<CURRENT-LIABILITIES> 13653342
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0
0
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<OTHER-SE> (2172916)
<TOTAL-LIABILITY-AND-EQUITY> 23152487
<SALES> 29552450
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<CGS> 7988293
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1656051
<INCOME-PRETAX> (424999)
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</TABLE>
