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 28, 1999 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 28, 1999 and December 29, 1998 1
Consolidated Condensed Statements of Income
for the Three and Nine Periods Ended
September 28, 1999 and September 29, 1998 2
Consolidated Condensed Statements of Cash
Flows for the Nine Periods Ended
September 28, 1999 and September 29, 1998 3
Notes to Consolidated Condensed Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 7-13
Part II. Other Information
- ---------------------------
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Exhibit 99.3 Letter to unitholders of 500 or less Class A Units
announcing tender offer 16-21
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September 28, December 29,
ASSETS 1999 1998
- -------------------------------- ------------- ------------
Current assets:
Cash and cash equivalents $ 644,274 $ 329,946
Investments available for sale,
at fair market value 2,961 68,635
Accounts receivable 248,608 264,754
Due from affiliates 247,168 90,146
Notes receivable from
affiliates - current portion 42,836 62,511
Inventories 457,824 441,326
Prepaid expenses 354,112 287,046
---------- ----------
Total current assets 1,997,783 1,544,364
Net property and equipment 20,056,565 20,843,450
Other assets:
Franchise rights, net 5,590,320 5,780,163
Notes receivable from affiliates 46,150 50,201
Deposit with affiliate 450,000 450,000
Goodwill 700,608 714,469
Other 1,805,695 1,320,132
---------- ----------
$30,647,121 $30,702,779
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 3,210,049 $ 2,390,582
Due to affiliates 86,365 226,322
Accrued payroll and other taxes 537,079 635,805
Accrued liabilities 1,289,320 1,272,957
Current portion of long-term debt 6,832,670 6,182,101
Current portion of obligations
under capital leases 56,459 47,528
---------- ----------
Total current liabilities 12,011,942 10,755,295
Other noncurrent liabilities 885,989 563,095
Long-term debt 22,215,452 23,447,773
Obligations under capital leases 1,452,573 1,495,486
Minority interests in Operating
Partnerships 410,262 395,908
Partners' capital (deficiency):
General Partners (8,303) (8,245)
Limited Partners:
Class A Income Preference 5,428,778 5,543,603
Classes B and C (9,821,161) (10,058,014)
Notes receivable employees - sale
of partnership units (592,772) -
Cost in excess of carrying value
of assets acquired (1,323,681) (1,323,681)
Cumulative comprehensive loss (11,958) (108,441)
---------- ----------
Total partners' deficiency (6,329,097) (5,954,778)
---------- ----------
$30,647,121 $30,702,779
========== ==========
See accompanying notes.
<TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Periods Ended Nine Periods Ended
September 28, September 29, September 28, September 29,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $14,602,367 $11,258,419 $43,378,237 $29,946,394
Operating costs and expenses:
Cost of sales 3,955,343 3,000,169 11,620,571 7,756,865
Restaurant labor and benefits 4,175,191 3,128,660 12,677,941 8,407,134
Advertising 920,733 732,676 2,809,654 1,965,441
Other restaurant operating
expenses exclusive of
depreciation and amortization 2,820,253 2,193,784 8,117,026 5,607,156
General and administrative:
Management fees - related party 907,148 746,555 2,692,950 2,047,686
Other 215,350 194,473 578,079 453,470
Depreciation and amortization 669,793 523,609 1,872,441 1,483,777
Equity in (income) loss of affiliate - (7,126) - 7,250
---------- ---------- ---------- ----------
Income from operations 938,556 745,619 3,009,575 2,217,615
Interest income (8,428) (11,912) (13,645) (17,675)
Interest expense 771,659 657,084 2,316,843 1,870,469
Loss on sale of investments held for sale 122,155 122,155 -
Gain on life insurance settlement - - - (875,533)
---------- ---------- ---------- ----------
Income before minority interest 53,170 100,447 584,222 1,240,354
Minority interests in income of
Operating Partnerships 100 1,004 24,959 12,404
---------- ---------- ---------- ----------
Net income $ 53,070 $ 99,443 $ 559,263 $ 1,227,950
========== ========== ========== ==========
Net income allocated to Partners:
Class A Income Preference $ 11,766 $ 20,301 $ 130,021 $ 250,604
Class B $ 15,000 $ 29,765 $ 155,454 $ 367,575
Class C $ 26,304 $ 49,377 $ 273,788 $ 609,771
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 813,907 813,840 813,964 813,840
Class B 1,037,666 1,193,214 973,178 1,193,706
Class C 1,819,561 1,979,418 1,713,979 1,980,237
Basic and diluted net income
per Partnership unit $ 0.01 $ 0.02 $ 0.16 $ 0.31
Distributions per Partnership unit $ 0.10 $ 0.10 $ 0.30 $ 0.20
<FN>
See accompanying notes.
</FN>
</TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Periods Ended
September 28, September 29,
1999 1998
------------- -------------
Cash flows from operating activities:
Net income $ 559,263 $ 1,227,950
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,872,441 1,483,777
Provision for deferred rent - 8,184
Equity in loss of affiliate - 7,250
Loss (gain) on disposition of assets 24,437 (11,961)
Loss on sale of investments held for sale 122,155 -
Gain on insurance settlement - (875,533)
Minority interests in income
of Operating Partnerships 24,957 12,404
Net change in operating assets and liabilities:
Accounts receivable 16,146 (11,735)
Due from affiliates (157,022) 4,852
Inventories (16,498) 38,890
Prepaid expenses (67,066) 163,468
Accounts payable 819,467 (1,559,326)
Due to affiliates (139,957) 12,290
Accrued payroll and other taxes (98,726) 111,919
Accrued liabilities 16,363 49,802
Other, net 224,255 (212,106)
---------- ----------
Net cash provided by
operating activities 3,200,215 450,125
Cash flows from investing activities:
Proceeds from sale of investments held for sale 40,002 -
Investment in affiliate - (390,000)
Additions to property and equipment (901,149) (1,664,520)
Proceeds from sale of property and equipment 108,559 17,408
Purchase of franchise rights (15,000) -
Collections of notes receivable from affiliates 23,726 26,539
Other (35,610) -
---------- ----------
Net cash used in
investing activities (779,472) (2,010,573)
Cash flows from financing activities:
Payments on long-term borrowings (3,303,752) (10,035,943)
Proceeds from long-term borrowings 2,272,000 12,094,950
Payments on capital lease obligations (33,982) (21,988)
Proceeds from insurance settlement - 1,039,747
Due from affiliate - (285,600)
Distributions to Partners (1,028,583) (796,963)
Proceeds from issuance of Class B and C units 68,213 -
Repurchase of units (69,708) (13,269)
General Partners' distributions
from Operating Partnerships (10,603) (8,050)
Other, net - 62,162
---------- ----------
Net cash provided by (used in)
financing activities (2,106,415) 2,035,046
---------- ----------
Net increase in
cash and cash equivalents 314,328 474,598
Cash and cash equivalents at beginning of period 329,946 509,398
---------- ----------
Cash and cash equivalents at end of period $ 644,274 $ 983,996
========== ==========
Supplemental disclosure of non-cash activity: During the first nine periods of
1999, the Partnership signed a note payable for $450,000 payable over 15
years, to purchase a 25% interest in a Limited Liability Company that owns
and operates an aircraft. In addition, the Partnership issued 267,500 Class
B and C units at $2.55 per unit to certain employees in exchange for $68,000
cash and notes receivable of $614,000.
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Nine Periods Ended September 28, 1999 and September 29, 1998
(Unaudited)
1. General
-------
The accompanying consolidated condensed 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.
Effective August 11, 1998, the interest of American Pizza Partners, L.P.
in Oklahoma Magic, L.P. (Magic) increased from 45% to 60% in connection
with Magic's purchase of a 25% interest from a former limited partner.
Accordingly, the Partnership began consolidating the accounts of Magic
from that date. American Restaurant Partners, L.P., American Pizza
Partners, L.P., APP Concepts, LLC and Magic are hereinafter collectively
referred to as the Partnership. All significant intercompany balances
and transactions have been eliminated. The Partnership accounted for its
investment in Magic using the equity method of accounting prior to the
increase in their ownership from 45% to 60%. The consolidated condensed
financial statements have been prepared without audit. The Balance Sheet
at December 29, 1998 has been derived from the Partnership's audited
financial statements. 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 consolidated financial statements and
notes contained in the Partnership's Annual Report filed on Form 10-K for
the fiscal year ended December 29, 1998.
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. Subsequent Events
-----------------
On October 1, 1999 the Partnership declared a distribution of $0.10 per
unit, and a special distribution of $0.05 per unit, to all unitholders of
record as of October 12, 1999. The distribution is not reflected in the
September 28, 1999 consolidated condensed financial statements.
On October 29, 1999 the Partnership announced that it is offering its
unitholders that own 500 or less Class A Income Preference Units of
limited partner interests (the "Units") to tender their units up to an
aggregate of 100,000 units, to the Partnership at a price of $3.25 per
Unit (the "Offer"). The Offer is scheduled to expire at 5:00 p.m.
Central Time on December 20, 1999, unless extended by the Partnership.
The Offer is not conditioned upon any minimum number of units being
tendered.
3. Comprehensive Income
--------------------
Comprehensive income is comprised of the following:
Three periods ended Nine periods ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1999 1998 1999 1998
--------- --------- --------- ---------
Net income $ 53,070 $ 99,443 $ 559,263 $1,227,950
Change in unrealized loss
in available for sale
securities 118,983 (34,866) 96,483 (118,116)
--------- -------- --------- ---------
$ 172,053 $ 64,577 $ 655,746 $1,109,834
========= ======== ========= =========
4. Long-term Debt - Covenant Noncompliance
---------------------------------------
The Partnership has made all scheduled debt payments; however, at
September 28, 1999 and December 29, 1998, Magic was not in compliance
with the fixed charge coverage ratio covenant required by the outstanding
notes payable to Franchise Mortgage Acceptance Company (FMAC).
Accordingly, the entire $3,856,000 of Magic's borrowings with FMAC is
reflected in the current portion of long-term debt.
5. Class B and C Restricted Units Sold to Employees
------------------------------------------------
During the third quarter, the Partnership issued 267,500 Class B and C
Units at $2.55 per unit to certain employees in exchange for a 10%
percent down payment and notes receivable for the remaining 90% of the
purchase price. Notes receivable representing 40% of the purchase
price, together with interest thereon at a rate of 9%, will be repaid
by the cash distributions paid on the units. Notes receivable
representing the remaining 50% of the purchase price will be forgiven
by the Partnership over a four year period. The forgiveness of the
notes receivable will be recognized as compensation expense over the
four year period. The units are subject to a repurchase agreement
whereby the Partnership has agreed to repurchase the Units in the
event the employee is terminated for an amount not to exceed $2.55 per
unit.
6. Recently Issued Accounting Standards
------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement No. 133). Statement No. 133 defines derivative instruments
and requires these items be recognized as assets or liabilities in the
statements of financial position. This Statement is effective for fiscal
years beginning after June 15, 2000. As of September 28, 1999, the
Partnership does not have any derivative instruments.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of September 28, 1999, the Partnership operated 71 traditional Pizza
Hut red roof restaurants, 15 delivery/carryout units and three dualbrand
locations.
As discussed in the notes to the accompanying consolidated condensed
financial statements, the Partnership's interest in Magic increased from
45% to 60% effective August 11, 1998. The Partnership began
consolidating the accounts of Magic from that date. The Partnership
accounted for its investment in Magic using the equity method of
accounting prior to the increase in ownership from 45% to 60%.
Therefore, the consolidated results of operations include the accounts of
Magic for the entire three and nine periods ended September 28, 1999 but
include only one period of Magic for the three and nine periods ended
September 29, 1998. The tables below show the historical statements of
operations as well as proforma results of operations for the three and
nine periods ended September 29, 1998 assuming the Partnership's interest
in Magic increased to 60% as of December 31, 1997. The proforma results
are shown in order to provide a more meaningful basis for a comparative
discussion of the three and nine periods ended September 28, 1999 and
September 29, 1998.
Three Periods Ended September 28, 1999 Compared to
- --------------------------------------------------
Proforma Three Periods Ended September 29, 1998
- -----------------------------------------------
Three Periods Ended
-------------------------------------------
September 28, September 29, September 29,
1999 1998 1998
----------------------------
Historical Proforma (1)
------------------------------------------
Net sales $14,602,367 $11,258,419 $13,641,017
Operating costs and expenses:
Cost of sales 3,955,343 3,000,169 3,616,807
Restaurant labor and benefits 4,175,191 3,128,660 3,822,563
Advertising 920,733 732,676 924,973
Other restaurant operating expenses
exclusive of depreciation and
amortization 2,820,253 2,193,784 2,646,848
General and administrative:
Management fees 907,148 746,555 853,772
Other 215,350 194,473 239,095
Depreciation and amortization 669,793 523,609 655,113
Equity in income of affiliate - (7,126) -
---------------------------------------
Income from operations 938,556 745,619 881,846
Interest income (8,428) (11,912) (11,912)
Interest expense 771,659 657,084 784,603
Loss on sale of investments
held for sale 122,155 - -
---------------------------------------
Income before minority interest 53,170 100,447 109,155
Minority interests in income (loss)
of Operating Partnerships 100 1,004 (6,700)
---------------------------------------
Net income $ 53,070 $ 99,443 $ 115,855
=======================================
(1) The proforma statement of operations for the three periods ended
September 29, 1998 includes the consolidation of Magic as if the
Partnership's interest in Magic increased to 60% as of December 31, 1997.
NET SALES. Net sales for the three periods ended September 28, 1999
increased $961,000 from proforma net sales of $13,641,000 in 1998 to net
sales of $14,602,000 for 1999, a 7.0% increase. This increase was
attributable primarily to the continued success of The Big New Yorker
pizza, a 16 inch traditional style pizza introduced in early 1999.
INCOME FROM OPERATIONS. Income from operations for the three periods
ended September 28, 1999 increased $57,000 to $939,000, a 6.4% increase
over the proforma income from operations of $882,000 for the three
periods ended September 29, 1998. Income from operations represented
6.4% of net sales for the three periods ended September 28, 1999 compared
to proforma income from operations of 6.5% of proforma net sales for the
three periods ended September 29, 1998. Cost of sales as a percentage of
net sales increased from 26.5% of proforma net sales for the three
periods ended September 29, 1998 to 27.1% of net sales for the three
periods ended September 28, 1999 primarily due to increased commodity
costs. Labor and benefits expense was 28.0% of proforma net sales in
1998 compared to 28.6% of net sales in 1999. This increase is primarily
attributable to increased staffing of delivery drivers at higher, more
competitive wages. Advertising decreased slightly as a percentage of net
sales from 6.8% of proforma net sales in 1998 to 6.3% of net sales in
1999. Other restaurant operating expenses amounted to 19.3% of net sales
in 1999 compared to 19.4% of proforma net sales in 1998. General and
administrative expenses were 7.7% of net sales in 1999 compared to 8.0%
of proforma net sales in 1998. Depreciation and amortization expense
decreased from 4.8% of proforma net sales in 1998 to 4.6% of net sales in
1999.
NET EARNINGS. Net earnings decreased $63,000 to net income of $53,000
for the three periods ended September 28, 1999 compared to proforma net
income of $116,000 for the three periods ended September 29, 1998. The
increase in income from operations noted above was offset by a $122,000
loss on the sale of investments held for sale.
Nine Periods Ended September 28, 1999 Compared to
- -------------------------------------------------
Proforma Nine Periods Ended September 29, 1998
- ----------------------------------------------
Nine Periods Ended
------------------------------------------
September 28, September 29, September 29,
1999 1998 1998
----------------------------
Historical Proforma (2)
------------------------------------------
Net sales $43,378,237 $29,946,394 $40,034,215
Operating costs and expenses:
Cost of sales 11,620,571 7,756,865 10,335,730
Restaurant labor and benefits 12,677,941 8,407,134 11,426,603
Advertising 2,809,654 1,965,441 2,716,031
Other restaurant operating expenses
exclusive of depreciation and
amortization 8,117,026 5,607,156 7,810,214
General and administrative:
Management fees 2,692,950 2,047,686 2,501,637
Other 578,079 453,470 603,419
Depreciation and amortization 1,872,441 1,483,777 1,932,575
Equity in loss of affiliate - 7,250 -
---------------------------------------
Income from operations 3,009,575 2,217,615 2,708,006
Interest income (13,645) (17,675) (17,675)
Interest expense 2,316,843 1,870,469 2,303,434
Loss on sale of investments
held for sale 122,155 - -
Gain on life insurance settlement - (875,533) (875,533)
---------------------------------------
Income before minority interest 584,222 1,240,354 1,297,780
Minority interests in income (loss)
of Operating Partnerships 24,959 12,404 (7,962)
---------------------------------------
Net income $ 559,263 $ 1,227,950 $ 1,305,742
=======================================
(2) The proforma statement of operations for the nine periods ended
September 29, 1998 includes the consolidation of Magic as if the
Partnership's interest in Magic increased to 60% as of December 31, 1997.
NET SALES. Net sales for the nine periods ended September 28, 1999
increased $3,344,000 from proforma net sales of $40,034,000 in 1998 to
net sales of $43,378,000 for 1999, an 8.4% increase. This increase was
attributable primarily to the success of The Big New Yorker pizza, a 16
inch traditional style pizza introduced in early 1999.
INCOME FROM OPERATIONS. Income from operations for the nine periods
ended September 28, 1999 increased $302,000 to $3,010,000, an 11.1%
increase over the proforma income from operations of $2,708,000 for the
first nine periods of 1998. Income from operations represented 6.9% of
net sales for the nine periods ended September 28, 1999 compared to
proforma income from operations of 6.8% of proforma net sales for the
nine periods ended September 29, 1998. Cost of sales as a percentage of
net sales increased from 25.8% of proforma net sales for the nine periods
ended September 29, 1998 to 26.8% of net sales for the nine periods ended
September 28, 1999 primarily due to higher commodity costs. Labor and
benefits expense was 28.5% of proforma net sales in 1998 compared to
29.2% of net sales in 1999. This increase is primarily attributable to
increased delivery driver staffing at higher, more competitive wages.
Advertising decreased slightly as a percentage of net sales from 6.8% of
proforma net sales in 1998 to 6.5% of net sales in 1999. Other restaurant
operating expenses amounted to 18.7% of net sales in 1999 compared to
19.5% of proforma net sales in 1998. This decrease is primarily
attributable to lower occupancy costs in 1999 through the purchase of
previously leased properties and the buyout or expiration of leases on
closed restaurants during the last half of 1998. General and
administrative expenses decreased from 7.8% of proforma net sales in 1998
to 7.5% of net sales in 1999. Proforma depreciation and amortization
expense decreased from 4.8% of proforma net sales in 1998 to 4.3% of net
sales in 1999.
NET EARNINGS. Net earnings decreased $747,000 to net income of $559,000
for the nine periods ended September 28, 1999 compared to proforma net
income of $1,306,000 for the nine periods ended September 29, 1998. The
1998 period net income included a gain on life insurance settlement of
$876,000. Without the gain on life insurance settlement, the 1999
period net earnings increased $129,000 over 1998. The increase in income
from operations noted above was offset by a $122,000 loss on the sale of
investments held for sale, a $13,000 increase in interest expense and a
$33,000 increase in minority interest in earnings of affiliate.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 28, 1999 the Partnership had a working capital deficiency of
$10,014,000 compared to a working capital deficiency of $9,211,000 at
December 29, 1998. At September 28, 1999 and December 29, 1998, Magic
was not in compliance with the fixed charge coverage ratio covenant
required by the outstanding notes payable to Franchise Mortgage
Acceptance Company (FMAC). Accordingly, the entire $3,856,000 of Magic's
borrowings with FMAC is reflected in the current portion of long-term
debt. There have been no defaults in making scheduled payments of either
principal or interest. The remaining increase in working capital
deficiency is primarily due to a $651,000 increase in current portion of
long-term debt. 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 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.
NET CASH PROVIDED BY OPERATING ACTIVITIES. For the nine periods ended
September 28, 1999, net cash provided by operating activities amounted to
$3,200,000 compared to $450,000 for the nine periods ended September 29,
1998. This increase is primarily attributable to an $819,000 increase in
accounts payable in 1999 compared to a $1,559,000 decrease in accounts
payable in 1998.
INVESTING ACTIVITIES. Property and equipment expenditures represent the
largest investing activity by the Partnership. Capital expenditures for
the nine periods ended September 28, 1999 were $901,000 of which $615,000
was for replacement of equipment in existing restaurants and $286,000 was
for the purchase of land for future development.
FINANCING ACTIVITIES. Cash distributions declared during the nine
periods ended September 28, 1999 were $1,050,000 amounting to $0.30 per
unit. The Partnership's distribution objective, generally, is to
distribute all operating revenues less operating expenses (excluding
noncash items such as depreciation and amortization), capital
expenditures for existing restaurants, interest and principal payments on
Partnership debt, and such cash reserves as the managing General Partner
may deem appropriate.
During the nine periods ended September 28, 1999, the Partnership's
proceeds from borrowings amounted to $2,272,000 of which $1,605,000 was
used to refinance debt to obtain favorable terms and $300,000 was used to
purchase land for future development. The remainder was used primarily
for working capital. Management anticipates spending an additional
$180,000 during the remainder of 1999 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 equipment needs or
lower in the event of inadequate net cash flow from operating activities.
YEAR 2000 COMPLIANCE
- --------------------
The Partnership has instituted a Year 2000 project to prepare its
computer systems and communication systems for the Year 2000. The
project includes identification and assessment of all software, hardware
and equipment that could potentially be affected by the Year 2000 issue.
The Partnership uses external agents on nearly all critical applications
and systems. The external agents have assured the Partnership they
expect to be fully Year 2000 compatible before Year 2000 issues will
impact the Partnership. The Year 2000 compatible programs are currently
being tested by the Partnership. The Partnership also receives
representations and warranties from vendors of all new hardware and
software that such systems are Year 2000 compliant.
The Partnership does not believe costs related to Year 2000 compatibility
will be material to its financial position or results of operations.
However, the Partnership may be vulnerable to the failure of external
agents and critical suppliers to resolve their own Year 2000 issues.
Where practicable, the Partnership will assess and attempt to mitigate
its risks with respect to the failure of these entities to be Year 2000
ready. In the event external agents do not complete their Year 2000
readiness, the Partnership would be unable to process accounts payable
and payroll. The Partnership has contingency plans for critical
applications that include, among other actions, manual workarounds,
adjusting staffing strategies and outsourcing applications. The effect,
if any, on the Partnership's results of operations from the failure of
such parties to be Year 2000 ready is not reasonably estimable.
OTHER MATTERS
- -------------
The Partnership delisted from the American Stock Exchange effective
November 13, 1997 and limited trading of its units. As a result, the
Partnership will continue to be taxed as a partnership rather than being
taxed as a corporation. The Partnership does offer a Qualified Matching
Service, whereby the Partnership will match persons desiring to buy units
with persons desiring to sell units. On October 29, 1999 the Partnership
announced that it is offering its unitholders that own 500 or less Class
A Income Preference Units of limited partner interests to tender their
units up to an aggregate of 100,000 units, to the Partnership at a price
of $3.25 per unit. See Part II, Item 5 - Other Information.
The Partnership's earnings are affected by changes in interest rates
primarily from its long-term debt arrangements. Under its current
policies, the Partnership does not use interest rate derivative
instruments to manage exposure to interest rate changes. A hypothetical
100 basis point adverse move (increase) in interest rates along the
entire interest rate yield curve would increase the Partnership's
interest expense and decrease net income by $63,000 over the term of the
related debt. This amount was determined by considering the impact of
the hypothetical interest rates on the Partnership's borrowing cost.
These analyses do not consider the effects of the reduced level of
overall economic activity that could exist in such an environment.
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 5. Other Information
-----------------
The Partnership is offering its unitholders that own 500 or less Class A
Income Preference Units of limited partners interests (the "Units") to
tender their Units up to an aggregate of 100,000 Units, to the
Partnership at a price of $3.25 per Unit (the "Offer"). The Partnership
currently has 813,907 Class A Units outstanding. The Offer is scheduled
to expire at 5:00 p.m. Central Time on December 20, 1999, unless extended
by the Partnership. The Offer is not conditioned upon any minimum number
of units being tendered. All unitholders owning 500 or less Class A
Units were mailed details of the Offer, including how to tender their
Units. A copy of this letter is Exhibit 99.3 hereto.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
99.3 Letter to unitholders of 500 or less Class A Units
announcing tender offer
(b) Reports on Form 8-K
During the third quarter of 1999, the Partnership filed a
Form 8-K dated September 9, 1999 reporting a change in
certifying accounants.
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: 11/10/99 By: /s/ Hal W. McCoy
-------- ----------------
Hal W. McCoy
President and Chief Executive Officer
Date: 11/10/99 By: /s/ Terry Freund
-------- ----------------
Terry Freund
Chief Financial Officer
Exhibit 99.3
AMERICAN RESTAURANT PARTNERS, L.P.
555 N. Woodlawn, Suite 3102
Wichita, KS 67208
316-684-5119
316-684-9780/Fax
October 26, 1999
TO OUR PARTNERS:
American Restaurant Partners, L.P., a Delaware limited partnership ("the
Partnership"), hereby invites its unitholders owning 500 or less Class A
Income Preference Units of limited partner interests (the "Units"),
to tender all, but not less than all of their Units up to an aggregate of
100,000 Units, to the Partnership at a price of $3.25 per Unit, less any
distributions paid after October 29, 1999, net to the seller in cash,
without interest thereon, as specified by tendering unitholders, upon the
terms and subject to the conditions set forth herein and in the related
Letter of Transmittal (which together constitute the "Offer").
Units will be accepted for purchase on a first-come, first-buy basis. This
offer is scheduled to expire at 5:00 p.m. Central Time on December 20, 1999,
unless the Offer is extended by the Partnership. The Offer is not
conditioned upon any minimum number of units being tendered. The Partnership
will not be obligated to purchase more than 100,000 Units pursuant to the
Offer.
The Board of Directors of the managing general partner, RMC American Management,
Inc. ("RAM"), has approved the Offer. However, none of RAM, the Board of
Directors of RAM, nor the Partnership makes any recommendation to unitholders
as to whether to tender or refrain from tendering their Units. Each
unitholder must make the decision whether to tender Units. Tenders of less
than all Units held by a unitholder will not be accepted.
The Offer provides unitholders who are considering a sale of their Units with
the opportunity to sell their Units at a price of $3.25 per Unit. Since
November, 1997, in order to remain taxed as a partnership, the
Partnership limited the number of Units traded in a taxable year. The
Partnership has maintained a Qualified Matching Service ("QMS") for investors
wanting to buy or sell Partnership Units. During 1998,the number of Units
matched through the QMS averaged over 5,100 Units each month, at sales prices
ranging from $1.90 per Unit to $2.80 per Unit. The average price for Units
matched in 1998 was $2.42. During 1999, to date, the number of Units matched
dropped to an average of 878 Units each month, at sales prices ranging from
$2.55 per Unit to $2.80 per Unit. The average price for Units matched in 1999
was $2.73.
The Partnership will continue to be subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended, following completion of the
Offer of the purchase of Units pursuant to the Offer.
Procedures for Tendering Units
- ------------------------------
For Units to be validly tendered pursuant to the Offer, the certificates for
such Units, together with a properly completed and duly executed Letter of
Transmittal, must be received prior to 5:00 p.m. Central Time on December 20,
1999, by the Partnership at the following address:
American Restaurant Partners, L.P.
Tender Offer
555 N. Woodlawn, Suite 3102
Wichita, KS 67208
You will need to sign the back of your certificate and have your signature
guaranteed, by a commercial bank or trust company, or by a member firm of
the NASDAQ. If you do not have your certificate because a brokerage firm
holds your Units, you will have to notify your stockbroker to have one
issued. It may take as long as four weeks for your stockbroker to issue
you the certificate.
After receiving your stock certificate, the Partnership will send you a
check. The amount paid to you will be calculated by multiplying the number
of Units you tender by the purchase price per Unit, then subtracting any
distributions paid by the Partnership after October 29, 1999. There will be
no fee charged by the Partnership.
Information Concerning the Partnership
- --------------------------------------
The Partnership owns and operates 89 Pizza Hut restaurants in its exclusive
franchise territory in the states of Georgia, Louisiana, Montana, Oklahoma,
Texas and Wyoming. The Partnership is a Delaware limited partnership and was
formed on April 27, 1987. Its executive offices are located at 555 North
Woodlawn, Suite 3102, Wichita, Kansas 67208, telephone (316) 684-5119.
Outlook for 2000
- ----------------
THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH
REFLECT MANAGEMENT'S EXPECTATIONS BASED ON CURRENTLY AVAILABLE DATA;
HOWEVER THERE CAN BE NO ASSURANCE THE FORWARD-LOOKING STATEMENTS INCLUDED
IN THE FOLLOWING DISCUSSION WILL PROVE TO BE ACCURATE. FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER INCLUDE, BUT ARE NOT LIMITED TO, CONSUMER
DEMAND AND MARKET ACCEPTANCE RISK, THE EFFECT OF ECONOMIC CONDITIONS, 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 FILINGS.
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
27 Pizza Hut restaurants in Oklahoma. The remaining partnership interests
were 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 Oklahoma restaurants, and RAM (0.75%), the
managing general partner of Magic. In August of 1998, Magic redeemed HGO's
interest in Magic, which resulted in the Partnership's interest in Magic
being increased from 45% to 60%. Therefore, beginning August 11, 1998,
Magic's financial statements were consolidated into the Partnership's
consolidated financial statements. Prior to August 11, 1998, the Partnership
accounted for its investment in Magic using the equity method of accounting.
The Partnership purchased its interest in Magic for $3,000,000 in cash. To
date the Partnership has not received any cash return on its investment in
Magic. Based on its current financial performance Magic may be able to
refinance its debt at the end of 1999 on more amenable terms, and thereby
lower its annual debt service by approximately $500,000 (unless interest
rates increase). A reduction of this magnitude would allow Magic to make
cash distributions. Based on its 60% ownership, the Partnership could
receive $300,000 in cash distributions from Magic in the first twelve months
after Magic refinances its debt, if $500,000 were available for distribution.
For the first half of 1999, the Partnership, on a consolidated basis,
experienced 9% same store sales growth over last year. This growth was the
result of the successful introduction of The Big New Yorker pizza, a 16 inch
traditional style pizza. This new product was especially successful in
Oklahoma which had same store sales growth of 15 % for the first six periods
of the year. Preliminary results for the third quarter of 1999 show same
store sales growth of 6.4% for the Partnership. Management of the
Partnership does not expect to continue these excellent same store sales
growth amounts in 2000. The Big New Yorker was introduced in late January
of 1999. It will be difficult to have positive sales growth during the same
periods in 2000 due to having to compare to results achieved in 1999 from the
most successful new product introduction in the history of Pizza Hut.
Commodity costs are expected to negatively impact cost of sales by 0.5% of sales
in 2000. The majority of this increase is expected to be in meat toppings.
Pork prices have continued to rise since 1998, which was the lowest pork
market in 20 years.
Management is expecting a minimum wage increase in 2000. A 50 cent increase
in the minimum wage would negatively impact cost of labor by approximately
0.5%.
Except as disclosed in this letter, the Partnership currently has no plans or
proposals which relate to or would result in: (a) an extraordinary
partnership transaction, such as an acquisition, merger, reorganization or
liquidation, involving the Partnership; (b) a sale or transfer of a material
amount of assets of the Partnership; or (c) any material change in the
distribution rate or policy, or indebtedness or capitalization of the
Partnership.
Price Range of Units; Distributions
- -----------------------------------
The Units were traded on the American Stock Exchange ("AMEX") under the
symbol "RMC" through November 13, 1997. On that date, the Partnership
delisted from the AMEX and limited trading of its Units. The Units were
traded on the Pink Sheets from December 1, 1997 through January 2, 1998.
Effective January 1, 1998, the Partnership maintained a Qualified Matching
Service, whereby the Partnership will match persons desiring to buy Units
with persons desiring to sell Units. The following table sets forth, for
the periods indicated, the high and low per Unit sales price and per Unit
cash distributions:
Calendar Period High Low Distributions
- --------------- ---- --- -------------
1999
- ----
1st Quarter $ 2.80 $ 2.55 $ 0.10
2nd Quarter 2.80 2.60 0.10
3rd Quarter 2.80 2.75 0.10
1998
- ----
1st Quarter 2.75 1.90 0.05
2nd Quarter 2.60 2.25 0.05
3rd Quarter 2.80 2.60 0.10
4th Quarter 2.80 2.70 0.10
1997
- ----
1st Quarter 5.75 4.81 0.11
2nd Quarter 5.13 4.81 0.11
3rd Quarter 5.00 2.75 0.05
4th Quarter 4.38 1.50 0.05
Due to the lack of significant trading, the price at which sales occur are not
necessarily indicative of the fair market value of the Units.
On October 1, 1999 the Partnership announced its fourth 1999 cash distribution
in the amount of $0.10 per Unit, and a special cash distribution of $0.05 per
Unit, for a total of $0.15 per Unit, payable October 29 to unitholders of
record as of October 12, 1999. The additional $0.05 distribution represents
the proceeds from the sale of one the Partnership's Pizza Hut restaurants in
Texas.
Summary Historical Consolidated Financial Information
- -----------------------------------------------------
Set forth below is certain summary historical consolidated financial information
of the Partnership.
(Unaudited)
Nine Periods Ended Year Ended
------------------ ----------
September 28, September 29, December 29, December 30,
1999 1998 1998 1997
-----------------------------------------------------
Net sales $43,378,237 $29,946,394 $43,543,633 $38,977,341
Loss on restaurant
closings - - 23,747 792,219
Equity in loss
of affiliate - 7,250 7,250 758,383
Income from operations 3,009,575 2,217,615 2,442,657 433,425
Gain on life insurance
settlement - 875,533 875,533 -
Net income (loss) 559,263 1,227,950 808,717 (1,993,394)
Average total units
outstanding 3,501,121 3,987,783 3,985,313 3,993,427
Basic and diluted net
income (loss) per
Partnership interest 0.16 0.31 0.20 (0.50)
Distributions per
Partnership interest 0.30 0.20 0.30 0.32
Summary Proforma Consolidated Financial Information
- ---------------------------------------------------
Set forth below is certain summary proforma financial information of the
Partnership, which gives effect to the consolidation of Oklahoma Magic, L.P.
as if the Partnership's interest in Oklahoma Magic, L.P. increased from 45%
to 60% as of January 1, 1997:
(Unaudited) (Unaudited)
Nine Periods Ended Year Ended
------------------ ----------
September 28, September 29, December 29, December 30,
1999 1998 1998 1997
-----------------------------------------------------
Net sales $43,378,237 $40,034,215 $53,631,453 $54,689,655
Loss (gain) on
restaurant closings - - (93,220) 1,577,018
Income from operations 3,009,575 2,708,006 2,886,881 298,135
Gain on life insurance
settlement - 875,533 875,533 -
Net income (loss) 559,263 1,305,244 806,324 (2,243,655)
Average total units
outstanding 3,501,121 3,987,783 3,985,313 3,993,427
Basic and diluted net
income (loss) per
Partnership interest 0.16 0.33 0.20 (0.56)
Distributions per
Partnership interest 0.30 0.20 0.30 0.32
Instructions for Tendering Units
- --------------------------------
For those desiring to accept the Offer, listed below are the steps to do so:
1. Complete and sign the accompanying Letter of Transmittal
2. Complete on the back of the Stock Certificates the following items:
- Date
- Signature of each person listed on the front of the certificate
- Address
- Taxpayer Identification No.
- Signatures Guaranteed
Your signatures must be guaranteed, by a commercial bank or trust company,
or by a member firm of NASDAQ. If the seller is a corporation, you must
also send a corporate resolution authorizing the signature of the signers.
Attached is a "Sample" copy of the back of a certificate with "X"'s
marking the items that must be filled out on the back of your certificates.
3. Return the Letter of Transmittal and the Stock Certificates in the enclosed
pre-addressed envelope to:
American Restaurant Partners, L.P.
Tender Offer
555 N. Woodlawn, Suite 3102
Wichita, KS 67208
We appreciate your consideration of the Offer. If you have any questions, feel
free to call Investor Relations at (316) 684-5119.
Sincerely,
RMC American Management, Inc.
/s/ Hal W. McCoy
Hal W. McCoy
President and Chief Executive Officer
of Managing General Partner
LETTER OF TRANSMITTAL
To Tender Class A Income Preference Units
of Limited Partner Interests
in
AMERICAN RESTAURANT PARTNERS, L.P.
Pursuant to the Offer to Purchase Dated October 26, 1999
- -----------------------------------------------------------------------------
THE OFFER EXPIRES AT 5:00 P.M. CENTRAL TIME, ON MONDAY,
DECEMBER 20, 1999, UNLESS THE OFFER IS EXTENDED.
- -----------------------------------------------------------------------------
The names and addresses of the registered holders should be printed below,
exactly as they appear on the certificates, representing Class A Units
tendered hereby. The Unit certificate numbers and the number of Class A
Units represented by such certificates should be indicated in the appropriate
boxes on the Letter of Transmittal.
CLASS A UNITS TENDERED
----------------------
Attach Additional Signed List, if Necessary
--------------------------------------------
NAME(S) AND ADDRESS(ES) OF
- --------------------------
REGISTERED HOLDER(S)
-------------------- Total Number of
(Please fill in exactly as Class A Units
name(s) appear(s) on Unit Unit Certificate Represented by Unit
certificate(s) Number Certificate(s)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Total Units
- -----------------------------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby tenders to American Restaurant Partners, L.P., a Delaware
limited partnership ("the Partnership"), the above-described Class A Income
Preference Units of limited partner interests (the "Units") at a price of
$3.25 per Unit, less any distributions paid after October 29, 1999, net to
the seller in cash, without interest thereon, upon the terms and subject to
the conditions set forth in the Offer to Purchase dated October 26, 1999,
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which, together constitute the "Offer").
Subject to, and effective upon, acceptance for payment of and payment for the
Units tendered herewith in accordance with the terms and subject to the
conditions of the Offer, the undersigned hereby sells, assigns and transfers
to or upon the order of the Partnership all right, title and interest in and
to all Units that are being tendered hereby.
The undersigned hereby represents and warrants to the Partnership that the
undersigned has full power and authority to tender, sell, assign and transfer
the Units tendered hereby and that, when and to the extent the same are
accepted for payment by the Partnership, the Partnership will acquire good,
marketable and unencumbered title thereto, free and clear of all liens,
restrictions, charges, encumbrances, conditional sales agreements or other
obligations relating to the sale or transfer thereof, and the same will not
be subject to any adverse claims. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Partnership to be
necessary or desirable to complete the sale, assignment and transfer of the
Units tendered hereby.
The undersigned represents and warrants to the Partnership that the undersigned
has read and agrees to all of the terms of the Offer. All authority herein
conferred or agreed to be conferred shall not be affected by and shall
survive the death or incapacity of the undersigned, and any obligation of the
representatives, successors and assigns of the undersigned. Except as stated
in the Offer, this tender is irrevocable.
Please issue the check for the Purchase price of the Units purchased, in the
name (s) of the undersigned. Similarly, please mail the check for the
Purchase Price of any Units purchased to the undersigned at the address shown
below the undersigned's signature (s).
The undersigned understands that acceptance of Units by the Partnership for
payment will constitute a binding agreement between the undersigned and the
Partnership upon the terms and subject to the conditions of the Offer.
PLEASE SIGN HERE
(to be completed by all unitholders)
Signature(s) of Owner(s)
Dated: _______________________
Name(s) ______________________________________________
______________________________________________
(Please Print)
Name(s) ______________________________________________
______________________________________________
Address ______________________________________________
______________________________________________
(Include Zip Code)
Area Code and Telephone Number
______________________________________________________
(Must be signed by registered unitholder(s) exactly as name(s) appear(s)
on Unit certificate).
<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 28, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
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<PERIOD-END> SEP-28-1999
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