SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 30, 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
March 30, 1999 and December 29, 1998 1
Consolidated Condensed Statements of
Operations for the Three Periods Ended
March 30, 1999 and March 31, 1998 2
Consolidated Condensed Statements of
Cash Flows for the Three Periods Ended
March 30, 1999 and March 31, 1998 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 5-10
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 30, December 29,
ASSETS 1999 1998
- ---------------------------- --------- -----------
Current assets:
Cash and cash equivalents $ 700,406 $ 329,946
Investments available for sale,
at fair market value 48,385 68,635
Accounts receivable 257,212 264,754
Due from affiliates 44,059 90,146
Notes receivable from
affiliates - current portion 54,587 62,511
Inventories 390,502 441,326
Prepaid expenses 342,396 287,046
---------- ----------
Total current assets 1,837,547 1,544,364
Net property and equipment 20,864,571 20,843,450
Other assets:
Franchise rights, net 5,712,661 5,780,163
Notes receivable from affiliates 48,884 50,201
Deposit with affiliate 450,000 450,000
Goodwill 713,035 714,469
Other 1,811,424 1,320,132
---------- ----------
$31,438,122 $30,702,779
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 2,994,235 $ 2,390,582
Due to affiliates 160,453 226,322
Accrued payroll and other taxes 540,840 635,805
Accrued liabilities 1,146,455 1,272,957
Current portion of long-term debt 6,436,595 6,182,101
Current portion of obligations
under capital leases 56,363 47,528
---------- ----------
Total current liabilities 11,334,941 10,755,295
Other noncurrent liabilities 1,005,129 563,095
Long-term debt 23,425,425 23,447,773
Obligations under capital leases 1,477,569 1,495,486
Minority interests in Operating
Partnerships 393,278 395,908
Partners' capital (deficiency):
General Partners (7,929) (8,245)
Limited Partners:
Class A Income Preference 5,506,565 5,543,603
Classes B and C (10,244,484) (10,058,014)
Cost in excess of carrying value
of assets acquired (1,323,681) (1,323,681)
Cumulative comprehensive loss (128,691) (108,441)
---------- ----------
Total partners' deficiency (6,198,220) (5,954,778)
---------- ----------
$31,438,122 $30,702,779
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
March 30, March 31,
1999 1998
---------- ---------
Net sales $14,441,585 $ 9,226,646
Operating costs and expenses:
Cost of sales 3,995,404 2,430,832
Restaurant labor and benefits 4,278,000 2,628,200
Advertising 936,846 610,801
Other restaurant operating
expenses exclusive of
depreciation and amortization 2,680,756 1,714,790
General and administrative:
Management fees - related party 895,083 641,918
Other 147,866 112,545
Depreciation and amortization 556,820 445,270
Equity in loss of affiliate - 25,323
--------- ---------
Income from operations 950,810 616,967
Interest income (3,330) (2,995)
Interest expense 764,668 553,188
--------- ---------
Income before minority interest 189,472 66,774
Minority interests in income of
Operating Partnerships 828 668
--------- ---------
Net income $ 188,644 $ 66,106
========= =========
Net income allocated to Partners:
Class A Income Preference $ 52,488 $ 13,489
Class B $ 60,832 $ 19,789
Class C $ 75,324 $ 32,828
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 814,010 814,010
Class B 943,411 1,193,952
Class C 1,668,167 1,980,647
Basic and diluted income
before minority interest
per Partnership unit $ 0.06 $ 0.02
Basic and diluted minority interest
per Partnership unit $ 0.00 $ 0.00
Basic and diluted net income
per Partnership unit $ 0.06 $ 0.02
Distributions per Partnership unit $ 0.10 $ 0.05
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Three Periods Ended
March 30, March 31,
1999 1998
---------- ----------
Cash flows from operating activities:
Net income $ 188,644 $ 66,105
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 556,820 445,270
Equity in loss of affiliate - 25,323
Loss (gain) on disposition of assets 1,653 (6,039)
Minority interests in income
of Operating Partnerships 828 668
Net change in operating assets and liabilities:
Accounts receivable 7,542 10,292
Due from affiliates 46,087 10,303
Inventories 50,824 36,300
Prepaid expenses (55,350) 21,344
Accounts payable 603,653 (708,726)
Due to affiliates (65,869) 76,398
Accrued payroll and other taxes (94,965) (2,536)
Accrued liabilities (126,502) (15,626)
Other, net 402,546 215,788
--------- ---------
Net cash provided by
operating activities 1,515,911 174,864
Cash flows from investing activities:
Additions to property and equipment (477,052) (98,467)
Proceeds from sale of property and equipment 200 9,996
Collections of notes receivable from affiliates 9,241 9,071
Other (35,610) -
--------- ---------
Net cash used in
investing activities (503,221) (79,400)
Cash flows from financing activities:
Payments on long-term borrowings (517,854) (405,811)
Proceeds from long-term borrowings 300,000 500,000
Payments on capital lease obligations (9,082) (8,754)
Distributions to Partners (342,437) (199,225)
Repurchase of units (69,399) (585)
General Partners' distributions
from Operating Partnerships (3,458) (2,012)
Other, net - 10,674
--------- ---------
Net cash used in
financing activities (642,230) (105,713)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 370,460 (10,249)
Cash and cash equivalents at beginning of period 329,946 509,398
--------- ---------
Cash and cash equivalents at end of period $ 700,406 $ 499,149
========= =========
Supplemental disclosure of non-cash activity: During the first quarter 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.
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Periods Ended March 30, 1999 and March 31, 1998
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 Event - Distribution to Partners
-------------------------------------------
On April 1, 1999 the Partnership declared a distribution of $0.10
per unit to all unitholders of record as of April 12, 1999. The
distribution is not reflected in the March 30, 1999 consolidated
condensed financial statements.
3. Comprehensive Income
--------------------
Comprehensive income is comprised of the following:
For the three periods ended
---------------------------
March 30, 1999 March 31, 1998
-------------- --------------
Net income $ 188,644 $ 66,106
Change in unrealized loss
in investment securities (20,250) (51,750)
------- -------
$ 168,394 $ 14,356
======= =======
4. Long-term Debt - Covenant Noncompliance
----------------------------------------
The Partnership has made all scheduled debt payments; however, at
March 30, 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 $4,077,000 of Magic's
borrowings with FMAC is reflected in the current portion of long-
term debt.
5. Recently Issued Accounting Standards
------------------------------------
In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
defines derivative instruments and requires that 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, 1999. As of March 30, 1998, 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 March 30, 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. Therefore, the consolidated first quarter results of
operations include the accounts of Magic for 1999 but not for 1998.
The table below shows the historical statements of operations as
well as proforma results of operations for the first three periods
of 1998 assuming the Partnership's interest in Magic increased to
60% as of January 1, 1998. The proforma results are shown in order
to provide a more meaningful basis for a comparative discussion of
the three periods ended March 30, 1999 and March 31, 1998.
Three Periods Ended
------------------------------------
March 30, March 31, March 31,
1999 1998 1998
----------------------
Historical Proforma (1)
-------------------------------------
Net sales $14,441,585 $ 9,226,646 $13,047,810
Operating costs and expenses:
Cost of sales 3,995,404 2,430,832 3,453,364
Restaurant labor and benefits 4,278,000 2,628,200 3,785,858
Advertising 936,846 610,801 861,066
Other restaurant operating
expense exclusive of
depreciation and amortization 2,680,756 1,714,790 2,592,040
General and administrative:
Management fees 895,083 641,918 813,870
Other 147,866 112,545 159,491
Depreciation and amortization 556,820 445,270 632,080
Equity in loss of affiliate - 25,323 -
---------- ---------- ----------
Income from operations 950,810 616,967 750,041
Interest income (3,330) (2,995) (2,995)
Interest expense 764,668 553,188 717,212
---------- ---------- ----------
Income before minority interest 189,472 66,774 35,824
Minority interests in income
(loss) of Operating
Partnerships 828 668 (21,925)
---------- ---------- ----------
Net income $ 188,644 $ 66,106 $ 57,749
========== ========== ==========
(1) The proforma statement of operations for the three periods ended
March 31, 1998 includes the consolidation of Magic as if the
Partnership's interest in Magic increased to 60% as of
January 1, 1998.
Three Periods Ended March 30, 1999 Compared to
- ----------------------------------------------
Proforma Three Periods Ended March 31, 1998
- -------------------------------------------
NET SALES. Net sales for the three periods ended March 30, 1999
increased $1,394,000 from proforma net sales of $13,048,000 in 1998
to net sales of $14,442,000 for 1999, a 10.7% increase. This
increase was attributable primarily to the successful introduction
of The Big New Yorker pizza, a 16 inch traditional style pizza, in
early 1999.
INCOME FROM OPERATIONS. Income from operations for the three
periods ended March 30, 1999 increased $201,000 to $951,000, a
26.8% increase over the proforma income from operations of $750,000
for the first three periods of 1998. Income from operations
represented 6.6% of net sales for the three periods ended March 30,
1999 compared to proforma income from operations of 5.7% of
proforma net sales for the three periods ended March 31, 1998.
Cost of sales as a percentage of net sales increased from 26.5% of
proforma net sales for the three periods ended March 31, 1998 to
27.7% of net sales for the three periods ended March 30, 1999 due
to higher commodity costs and additional school lunch contracts
which tend to have lower margins than direct customer sales. Labor
and benefits expense was 29.0% of proforma net sales in 1998
compared to 29.6% of net sales in 1999 attributable to inceased
staffing in preparation for the sales increases resulting from the
introduction of The Big New Yorker Pizza. Advertising decreased
slightly as a percentage of net sales from 6.6% of proforma net
sales in 1998 to 6.5% of net sales in 1999. Other restaurant
operating expenses amounted to 18.6% of net sales in 1999 compared
to 19.9% of proforma net sales in 1998. This decrease is primarily
due to lower occupancy costs through the purchase of previously
leased properties and the buyout or expiration of leases on closed
restaurants. General and administrative expenses decreased from
7.5% of proforma net sales in 1998 to 7.2% of net sales in 1999.
Proforma depreciation and amortization expense decreased from 4.8%
of proforma net sales in 1998 to 3.9% of net sales in 1999.
NET EARNINGS. Net earnings increased $131,000 to a net income of
$187,000 for the three periods ended March 30, 1999 compared to
proforma net income of $58,000 for the three periods ended March
31, 1998. This increase is attributable to the increase in income
from operations noted above net of a $47,000 increase in interest
expense and a $23,000 increase in minority interest in earnings of
affiliates.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 30, 1999 the Partnership had a working capital deficiency
of $9,497,000 compared to a working capital deficiency of
$9,211,000 at December 29, 1998. At March 30, 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 $4,077,000 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
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 three periods
ended March 30, 1999, net cash provided by operating activities
amounted to $1,516,000 compared to $175,000 for the three periods
ended March 31, 1998. This increase is primarily the result of an
increase in accounts payable.
INVESTING ACTIVITIES. Property and equipment expenditures
represent the largest investing activity by the Partnership.
Capital expenditures for the quarter ended March 30, 1999 were
$477,000 of which $191,000 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
quarter ended March 30, 1999 were $342,000 amounting to $0.10 per
unit. The Partnership's distribution objective, generally, is to
distribute all operating revenues less operating expenses
(excluding noncash items such as depreciation and amortization),
capital expenditures for existing restaurants, interest and
principal payments on Partnership debt, and such cash reserves as
the managing General Partner may deem appropriate.
During the three periods ended March 30, 1999, the Partnership's
proceeds from borrowings amounted to $300,000 used to purchase land
for future development. Management anticipates spending an
additional $530,000 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 breakdowns of equipment or lower in the event of
inadequate net cash flow from operating activities.
Historically during a new product introduction, sales are strongest
during the first five weeks of the product being promoted
nationally on television. For this reason, the Partnership does
not expect same store sales to continue at the double-digit rate it
experienced during the first quarter. However, Pizza Hut, along
with Taco Bell and KFC, is a restaurant partner for Star Wars
Episode 1, The Phantom Menace. This promotion will begin May 12
and is the first joint promotion for the three restaurant brands
owned by Tricon Global Restaurants, Inc.
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 compliant
before Year 2000 issues will impact the Partnership. Testing is
expected to be completed during the second quarter of 1999. 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
compliance 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.
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 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: 5/12/99 By: /s/ Hal W. McCoy
------- -----------------------
Hal W. McCoy
President and Chief Executive Officer
Date: 5/12/99 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 March 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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