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 April 1, 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
April 1, 1997 and December 31, 1996 1
Consolidated Statements of Operations for
the Three Periods Ended April 1, 1997
and March 26, 1996 2
Consolidated Statements of Cash Flows for
the Three Periods Ended April 1, 1997
and March 26, 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 6-8
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 9
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
April 1, December 31,
ASSETS 1997 1996
- ------------------------------------ ----------- ------------
Current assets:
Cash and cash equivalents $ 49,212 $ 178,826
Certificate of deposit 164,202 157,635
Investments available for sale,
net of fair market value adjustment
of $62,326 and $44,325, respectively 114,750 132,751
Accounts receivable 233,480 155,724
Due from affiliates 55,096 19,415
Notes receivable from
affiliates - current portion 74,972 84,631
Inventories 341,435 344,003
Prepaid expenses 237,840 212,008
---------- ----------
Total current assets 1,270,987 1,284,993
Net property and equipment 17,760,380 17,620,268
Other assets:
Franchise rights, net 1,090,583 1,084,080
Notes receivable from affiliates 141,719 113,410
Deposit with affiliate 350,000 350,000
Investment in Oklahoma Magic, L.P. 2,550,054 2,624,368
Other 673,895 667,964
---------- ----------
$ 23,837,618 $ 23,745,083
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 2,026,446 $ 2,115,502
Due to affiliates 17,364 88,654
Accrued payroll and other taxes 292,382 545,816
Accrued liabilities 828,648 1,008,937
Current portion of long-term debt 5,238,777 1,428,630
Current portion of obligations
under capital leases 33,651 32,760
---------- ----------
Total current liabilities 8,437,268 5,220,299
Other noncurrent liabilities 187,078 197,308
Long-term debt 14,803,873 17,430,692
Obligations under capital leases 1,630,457 1,632,284
General Partners' interest
in Operating Partnership 148,036 153,737
Partners' capital (deficiency):
General Partners (5,192) (4,634)
Limited Partners:
Class A Income Preference 6,179,167 6,294,520
Classes B and C (6,157,062) (5,811,117)
Cost in excess of carrying value
of assets acquired (1,323,681) (1,323,681)
Unrealized loss in investment securities (62,326) (44,235)
---------- ----------
Total partners' deficiency (1,369,094) (889,147)
---------- ----------
$ 23,837,618 $ 23,745,173
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Periods Ended
April 1, March 26,
1997 1996
---------- ----------
Net sales $ 9,619,205 $ 9,855,670
Operating costs and expenses:
Cost of sales 2,551,292 2,564,027
Restaurant labor and benefits 2,787,839 2,574,554
Advertising 561,291 652,570
Other restaurant operating
expenses exclusive of
depreciation and amortization 1,875,165 1,767,496
General and administrative:
Management fees 669,449 684,451
Other 182,306 192,475
Depreciation and amortization 490,137 382,009
Equity in loss of affiliate 74,313 11,502
---------- ----------
Income from operations 427,413 1,026,586
Interest income (8,420) (6,995)
Interest expense 562,533 328,835
---------- ----------
Income (loss) before General Partners'
interest in income (loss) of
Operating Partnership (126,700) 704,746
General Partners' interest in
income (loss) of Operating Partnership (1,267) 7,047
---------- ----------
Net income (loss) $ (125,433) $ 697,699
========== ==========
Net income (loss) allocated to Partners:
Class A Income Preference $ (25,639) $ 142,859
Class B $ (37,532) $ 208,490
Class C $ (62,262) $ 346,350
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 815,309 815,309
Class B 1,193,512 1,189,874
Class C 1,979,913 1,976,654
Net income (loss) per Partnership interest:
Class A Income Preference $ (0.03) $ 0.18
Class B $ (0.03) $ 0.18
Class C $ (0.03) $ 0.18
Distributions per Partnership interest:
Class A Income Preference $ 0.11 $ 0.16
Class B $ 0.11 $ 0.16
Class C $ 0.11 $ 0.16
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Periods Ended
April 1, March 26,
1997 1996
------------ -----------
Cash flows from operating activities:
Net income (loss) $ (125,433) $ 697,699
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 490,137 382,009
Provision for deferred rent 2,516 6,226
Provision for deferred compensation -- 6,300
Unit compensation expense 11,737 15,900
Equity in loss of affiliate 74,313 11,502
Loss on disposition of assets 11,624 1,949
General Partners' interest in net
income (loss) of Operating Partnership (1,267) 7,047
Net change in operating assets and liabilities:
Accounts receivable (77,756) (68,653)
Due from affiliates (2,181) (45,371)
Inventories 2,568 (66,535)
Prepaid expenses (25,832) (19,449)
Accounts payable (89,056) 494,132
Due to affiliates (71,290) (47,452)
Accrued payroll and other taxes (253,434) 34,980
Accrued liabilities (180,289) (42,872)
Other, net (49,390) (9,537)
--------- ---------
Net cash provided by (used in)
operating activities (283,033) 1,357,875
Cash flows from investing activities:
Investment in affiliate -- (3,000,000)
Purchase of certificate of deposit (6,567) (150,496)
Additions to property and equipment (602,862) (816,810)
Proceeds from sale of property and equipment 200 3,924
Purchase of franchise rights (15,000) --
Collections of notes receivable from affiliates 18,850 6,874
--------- ---------
Net cash used in
investing activities (605,379) (3,956,508)
Cash flows from financing activities:
Payments on long-term borrowings (3,899,672) (1,918,563)
Proceeds from long-term borrowings 5,083,000 2,693,492
Proceeds from short-term borrowings -- 3,000,000
Payments on capital lease obligations (936) (15,032)
Distributions to Partners (438,910) (636,807)
Proceeds from issuance of Class B and C units 19,750 30,750
Repurchase of Class B and C units -- (4,545)
General Partners' distributions
from Operating Partnerships (4,434) (6,449)
--------- ---------
Net cash provided by
financing activities 758,798 3,142,846
--------- ---------
Net increase (decrease) in
cash and cash equivalents (129,614) 544,213
Cash and cash equivalents at beginning of period 178,826 782,348
--------- ---------
Cash and cash equivalents at end of period $ 49,212 $ 1,326,561
========= =========
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, 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 April 2, 1997 the Partnership declared a distribution of $0.11
per unit to all unitholders of record as of April 11, 1997 payable
on April 25, 1997. The distribution is not reflected in the April
1, 1997 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.
(HGO)(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 quarter ended March 26, 1996, assuming consummation of the
purchase and financing of the $3.0 million note payable as of
December 27, 1995 are as follows:
Quarter
ended
March 26,
1996
---------
Net sales $ 9,855,670
Equity in earnings 10,978
Net income 647,478
Net income per partnership interest
Class A Income Preference $ 0.16
Class B $ 0.16
Class C $ 0.16
In November 1996, Magic notified HGO that it is seeking to
terminate HGO's interest in Magic and to purchase such interest
pursuant to the Magic partnership agreement as a result of HGO's
alleged violations of certain matters pursuant to such agreement.
HGO has denied such violations and the parties are continuing to
seek to resolve such matters. In the event Magic ultimately
prevails, it is likely that the Partnership's interest in Magic
would be increased from 45% to 60%; however, the Partnership
would not likely be required to make any additional contributions
to Magic.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of April 1, 1997, the Partnership operated 55 traditional Pizza
Hut red roof restaurants, nine delivery/carryout units, one
convenience store location and two dualbrand locations.
Quarter Ended April 1, 1997 Compared to Quarter Ended
- -----------------------------------------------------
March 26, 1996
- --------------
NET SALES. Net sales for the quarter ended April 1, 1997 decreased
$236,000 from $9,856,000 to $9,619,000, a 2.4% decrease from the
first quarter of 1996. Comparable restaurant sales decreased 8.9%.
This sales decrease was caused primarily by the successful
introduction of TripleDecker Pizza in the prior year which
contributed to comparable restaurant sales growth of 8.7% during
the first quarter of 1996.
INCOME FROM OPERATIONS. Income from operations decreased $599,000
from $1,026,000 to $427,000, a 58.4% decrease from the same quarter
in 1996. As a percentage of net sales, income from operations
decreased to 4.4% for the quarter ended April 1, 1997 compared to
10.4% for the quarter ended March 26, 1996. Cost of sales
increased as a percentage of net sales from 26.0% for the quarter
ended March 26, 1996 to 26.5% for the quarter ended April 1, 1997.
This increase is primarily attributable to the promotion of
products with higher food costs at reduced prices during the first
quarter of 1997. Labor and benefits expense increased as a
percentage of net sales from 26.1% in 1996 to 29.0% in 1997 due to
the minimum wage increase and lower same store sales. Advertising
decreased as a percentage of net sales from 6.6% in 1996 to 5.8% in
1997. Operating expenses increased to 19.5% of net sales in 1997
from 17.9% of net sales in 1996 primarily attributable to the
effects of lower same store sales volumes on fixed operating costs.
General and administrative expenses were 8.9% of net sales in both
1996 and 1997. Depreciation and amortization expense increased
from 3.9% 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 quarter of 1997. Equity in
loss of affiliate amounted to 0.8% of net sales in 1997 compared to
0.1% of net sales in 1996.
NET INCOME (LOSS). Net earnings decreased $823,000 to a net loss
of $125,000 for the quarter ended April 1, 1997 compared to net
income of $698,000 for the quarter ended March 26, 1996. This
decrease is attributable to the decrease in income from operations
noted above combined with an increase in interest expense of
$234,000 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.
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 April 1, 1997 the Partnership had a working capital deficiency
of $7,166,000 compared to a working capital deficiency of
$3,935,000 at December 31, 1996. The increase in working capital
deficiency is a result of a $3,810,000 increase in current portion
of long-term debt used primarily to acquire a 45% interest in
thirty-two Oklahoma restaurants and for development of new
restaurants. The Partnership plans to refinance the notes on a
long-term basis during 1997. This increase was partially offset by
a decrease in accounts payable, accrued payroll and other taxes,
and accrued liabilities of $523,000. 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 (USED IN) OPERATING ACTIVITIES. For the
quarter ended April 1, 1997, net cash used in operating activities
amounted to $283,000 compared to net cash provided by operating
activities of $1,358,000 for the quarter ended March 26, 1996.
This decrease is primarily the result of the decrease in net
earnings along with a decrease in accounts payable, accrued payroll
and other taxes, and accrued liabilities.
INVESTING ACTIVITIES. Property and equipment expenditures
represent the largest investing activity by the Partnership.
Capital expenditures for the quarter ended April 1, 1997 were
$603,000, of which $158,000 was for the replacement of equipment in
existing restaurants and $445,000 was for the development of new
restaurants.
FINANCING ACTIVITIES. Cash distributions declared during the
quarter ended April 1, 1997 were $439,000 amounting to $0.11 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 April 1, 1997, the Partnership's
proceeds from borrowings amounted to $5,083,000. The proceeds
were used primarily to refinance debt to obtain favorable terms,
to develop new restaurants and to replenish operating capital.
The Partnership opened one new delivery/carryout unit and one
new dualbrand location during the first quarter. The
Partnership plans to open one additional restaurant during 1997.
Management estimates that approximately $550,000 will be needed
to finance the development of the new restaurant. The
Partnership has obtained interim financing for the new
restaurant and believes that it can obtain the necessary long-
term financing. Management anticipates spending an additional
$472,000 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.
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: 5/15/97 By: \s\Hal W. McCoy
--------- -----------------------
Hal W. McCoy
President and Chief Executive Officer
Date: 5/15/97 By: \s\Terry Freund
--------- ----------------------
Terry Freund
Chief Financial Officer
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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 April 1, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
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