SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 27, 2000 Commission file number 1-9606
AMERICAN RESTAURANT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 48-1037438
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
555 North Woodlawn, Suite 3102
Wichita, Kansas 67208
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code (316) 684-5119
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
AMERICAN RESTAURANT PARTNERS, L.P.
INDEX
Page
Number
------
Part I. Financial Information
-------------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
June 27, 2000 and December 28, 1999 1
Consolidated Condensed Statements of Income
for the Three and Six Periods Ended
June 27, 2000 and June 29, 1999 2
Consolidated Condensed Statements of Cash
Flows for the Six Periods Ended
June 27, 2000 and June 29, 1999 3
Notes to Consolidated Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 6-10
Part II. Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 27, December 28,
ASSETS 2000 1999
--------------------------- ------------ -----------
Current assets:
Cash and cash equivalents $ 461,079 $ 742,452
Accounts receivable 174,371 258,388
Due from affiliates 108,216 69,948
Notes receivable from
affiliates - current portion 20,040 19,531
Inventories 391,419 410,997
Prepaid expenses 257,271 270,300
---------- ----------
Total current assets 1,412,396 1,771,616
Net property and equipment 18,682,397 19,330,304
Other assets:
Franchise rights, net 5,375,212 5,510,611
Notes receivable from affiliates 69,337 75,952
Deposit with affiliate 485,000 485,000
Goodwill 681,962 694,391
Other 1,460,781 1,328,781
---------- ----------
$28,167,085 $29,196,655
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
----------------------------------------------
Current liabilities:
Accounts payable $ 1,852,033 $ 2,818,985
Due to affiliates 125,757 111,988
Accrued payroll and other taxes 810,987 750,474
Accrued liabilities 1,247,940 1,177,506
Current portion of long-term debt 2,420,884 2,396,678
Current portion of obligations
under capital leases 64,667 59,124
---------- ----------
Total current liabilities 6,522,268 7,314,755
Long-term liabilities less current maturities:
Obligations under capital leases 1,402,614 1,436,375
Long-term debt 24,643,568 25,252,712
Other noncurrent liabilities 1,078,024 787,208
---------- ----------
27,124,206 27,476,295
Minority interests in Operating
Partnerships 696,336 551,541
Partners' capital (deficiency):
General Partners (8,461) (8,585)
Limited Partners:
Class A Income Preference 5,196,332 5,394,796
Classes B and C (9,227,025) (9,252,030)
Notes receivable employees - sale
of partnership units (812,890) (956,436)
Cost in excess of carrying value
of assets acquired (1,323,681) (1,323,681)
---------- ----------
Total partners' deficiency (6,175,725) (6,145,936)
---------- ----------
$28,167,085 $29,196,655
========== ==========
See accompanying notes.
<TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
June 27, June 29, June 27, June 29,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $14,690,511 $14,334,285 $29,490,053 $28,775,870
Operating costs and expenses:
Cost of sales 3,572,531 3,669,824 7,185,075 7,665,228
Restaurant labor and benefits 4,267,206 4,224,750 8,556,893 8,502,750
Advertising 991,698 952,075 1,964,001 1,888,921
Other restaurant operating
expenses exclusive of
depreciation and amortization 2,793,824 2,616,017 5,576,313 5,296,773
General and administrative:
Management fees - related party 911,250 890,719 1,822,842 1,785,802
Other 296,227 214,863 546,288 362,729
Depreciation and amortization 616,874 645,828 1,242,859 1,202,648
---------- ---------- ---------- ----------
Income from operations 1,240,901 1,120,209 2,595,782 2,071,019
Equity in loss of investment
in unconsolidated affiliates 30,000 - 116,896 -
Interest income (10,580) (1,887) (20,996) (5,217)
Interest expense 718,843 780,516 1,429,649 1,545,184
---------- ---------- ---------- ----------
Income before minority interest 502,638 341,580 1,070,233 531,052
Minority interests in income of
Operating Partnerships 57,379 24,031 188,483 24,859
---------- ---------- ---------- ----------
Net income $ 445,259 $ 317,549 $ 881,750 $ 506,193
========== ========== ========== ==========
Net income allocated to Partners:
Class A Income Preference $ 88,908 $ 75,875 $ 179,154 $ 120,616
Class B $ 129,635 $ 87,478 $ 255,615 $ 139,426
Class C $ 226,716 $ 154,196 $ 446,981 $ 246,151
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 751,760 813,975 770,487 813,993
Class B 1,096,131 938,456 1,099,324 940,934
Class C 1,917,003 1,654,210 1,922,325 1,661,188
Basic and diluted income
before minority interest
per Partnership unit $ 0.13 $ 0.10 $ 0.28 $ 0.16
Basic and diluted minority interest
per Partnership unit $ 0.02 $ 0.01 $ 0.05 $ 0.01
Basic and diluted net income
per Partnership unit $ 0.12 $ 0.09 $ 0.23 $ 0.15
Distributions per Partnership interest $ 0.10 $ 0.10 $ 0.20 $ 0.20
<FN>
See accompanying notes.
<FN>
</TABLE>
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Six Periods Ended
June 27, June 29,
2000 1999
----------- ----------
Cash flows from operating activities:
Net income $ 881,750 $ 506,193
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,242,859 1,202,648
Loss on disposition of assets 7,346 6,898
Equity in loss of investment in
unconsolidated affiliates 116,896 -
Minority interests in income
of Operating Partnerships 188,483 24,859
Compensation expense -
reduction of notes receivable 27,902 -
Net change in operating assets and liabilities:
Accounts receivable 84,017 125,321
Due from affiliates (38,268) (164,830)
Inventories 19,578 25,978
Prepaid expenses 13,029 (13,894)
Accounts payable (966,952) (258,289)
Due to affiliates 13,769 (108,723)
Accrued payroll and other taxes 60,513 67,158
Accrued liabilities 70,434 (24,166)
Other, net 9,162 395,882
--------- ---------
Net cash provided by operating activities 1,730,518 1,785,035
Cash flows from investing activities:
Additions to property and equipment (367,439) (704,542)
Proceeds from sale of property and equipment 162 470
Collections of notes receivable from affiliates 6,106 18,692
Other (54,418) (35,610)
--------- ---------
Net cash used in investing activities (415,589) (720,990)
Cash flows from financing activities:
Payments on long-term borrowings (3,208,730) (1,051,945)
Proceeds from long-term borrowings 2,623,792 480,000
Payments on capital lease obligations (28,218) (20,806)
Distributions to Partners (694,740) (682,710)
Repurchase of units (244,702) (69,707)
General Partners' distributions
from Operating Partnerships (7,704) (6,898)
Minority interests' distributions
from Operating Partnerships (36,000) -
--------- ---------
Net cash used in financing activities (1,596,302) (1,352,066)
--------- ---------
Net decrease in cash and cash equivalents (281,373) (288,021)
Cash and cash equivalents at beginning of period 742,452 329,946
--------- ---------
Cash and cash equivalents at end of period $ 461,079 $ 41,925
========= =========
Noncash investing and financing activities: During the first six periods of
2000, notes receivable from employees resulting from the issuance of stock
during 1999 were reduced by distributions of $67,938 paid on these units, and
by $27,902 charged to compensation expense. Notes receivable from employees
were also reduced by $47,706 as a result of the Partnership buying back the
units of employees who terminated their employment. The terminated employees'
stock proceeds were reduced by their notes receivable balance.
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Six Periods Ended June 27, 2000 and June 29, 1999
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. (APP),
APP Concepts, LLC and Oklahoma Magic, L.P. (Magic). American
Restaurant Partners, L.P., APP, APP Concepts, LLC and Magic are
hereinafter collectively referred to as the Partnership. All
significant intercompany balances and transactions have been
eliminated. The consolidated condensed financial statements have
been prepared without audit. The Balance Sheet at December 28, 1999
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
28, 1999.
The results of operations for interim periods are not necessarily
indicative of the results for the full year. The Partnership does
not experience significant seasonality but sales continue to be
largely driven through advertising and promotion.
2. Subsequent Events
-----------------
Distribution to Partners
------------------------
On June 30, 2000 the Partnership declared a distribution of $0.10
per unit to all unitholders of record as of July 12, 2000. The
distribution is not reflected in the June 27, 2000 consolidated
condensed financial statements.
Purchase of Partnership Interest
--------------------------------
On July 26, 2000, American Pizza Partners, L.P. purchased 39% of
Oklahoma Magic, L.P. from Restaurant Management Company of Wichita,
Inc. for $3,200,000 (Purchase Price). The Purchase Price includes
$2,500,000 cash financed by Intrust Bank over five years at 9.5%.
The remaining balance of the Purchase Price will become due in the
event that Magic's cash flow (determined on a 12 month trailing
basis) exceeds $2.6 million at any time between January 1, 2001 and
December 31, 2005. Payment of the remaining balance shall be
made in Class B and Class C Units of the Partnership. In the
event that Magic's cash flow does not reach this cash flow goal
on or prior to December 31, 2005, APP shall owe no additional
consideration and the Purchase Price will be reduced accordingly.
Upon completion of this purchase, the Partnership owns 99% of Magic.
3. Comprehensive Income
--------------------
Comprehensive income is comprised of the following:
Three periods ended Six periods ended
June 27, June 29, June 27, June 29,
2000 1999 2000 1999
--------- -------- -------- --------
Net income $ 445,259 $ 317,549 $ 881,750 $ 506,193
Change in unrealized
loss in investment
securities - (2,250) - (22,500)
-------- -------- -------- --------
$ 445,259 $ 315,299 $ 881,750 $ 483,693
======== ======== ======== ========
4. Reclassifications
-----------------
Certain amounts shown in the 1999 consolidated condensed financial
statements have been reclassified to conform with the 2000
presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
As of June 27, 2000, the Partnership operated 70 traditional Pizza
Hut red roof restaurants, 14 delivery/carryout units and three
dualbrand locations.
Three Periods Ended June 27, 2000 Compared to
---------------------------------------------
Three Periods Ended June 29, 1999
---------------------------------
NET SALES. Net sales for the three periods ended June 27, 2000
increased $356,000 from net sales of $14,334,000 in 1999 to net
sales of $14,690,000 for 2000, a 2.5% increase. Comparable
restaurant sales increased 4.1% over the second quarter of 1999
when the Partnership experienced a 7.2% increase in comparable
restaurant sales primarily due to the success of the Big New Yorker
Pizza which was introduced in early 1999. The stronger than
expected sales results in 2000 were achieved primarily through
continued improvement in restaurant operations.
INCOME FROM OPERATIONS. Income from operations for the three
periods ended June 27, 2000 increased $121,000 from $1,120,000 to
$1,241,000, a 10.8% increase over the same three periods of 1999.
As a percentage of net sales, income from operations increased from
7.8% for the three periods ended June 29, 1999 to 8.4% for the
three periods ended June 27, 2000. Cost of sales decreased as a
percentage of net sales from 25.6% for the three periods ended June
29, 1999 to 24.3% for the three periods ended June 27, 2000 due to
lower cheese costs. Labor and benefits expense decreased as a
percentage of net sales from 29.5% in 1999 to 29.0% in 2000.
Advertising increased slightly as a percentage of net sales from
6.6% of net sales in 1999 to 6.8% of net sales in 2000. Other
restaurant operating expenses amounted to 19.0% of net sales in
2000 compared to 18.3% of net sales in 1999. This increase is
primarily the result of increased reimbursements to delivery
drivers and an increase in equipment rental. Delivery driver
reimbursements have increased due to competition to hire drivers
and higher gas prices during second quarter. In addition, the
Partnership is leasing new point-of-sale terminals which are
currently being installed in all of its restaurants. The
installations are scheduled to be completed during the third
quarter. General and administrative expenses increased from 7.7%
of net sales in 1999 to 8.2% of net sales in 2000 reflecting
increased bonuses paid on improved operating results. Depreciation
and amortization expense decreased from 4.5% of net sales in 1999
to 4.2% of net sales in 2000.
NET EARNINGS. Net earnings increased $128,000 to net income of
$445,000 for the three periods ended June 27, 2000 compared to net
income of $318,000 for the three periods ended June 29, 1999. This
increase is attributable to the increase in income from operations
noted above and a $70,000 decrease in net interest expense. The
increase was partially offset by a $30,000 loss from investment in
unconsolidated affiliates and a $33,000 increase in minority
interest in income of Operating Partnerships.
Six Periods Ended June 27, 2000 Compared to
-------------------------------------------
Six Periods Ended June 29, 1999
-------------------------------
NET SALES. Net sales for the six periods ended June 27, 2000
increased $714,000 from net sales of $28,776,000 in 1999 to net
sales of $29,490,000 for 2000, a 2.5% increase. Comparable
restaurant sales increased 4.1% over the prior year when the
Partnership experienced a 7.7% increase in comparable restaurant
sales primarily due to the success of the Big New Yorker Pizza
which was introduced in early 1999. The stronger than expected
sales results in 2000 were achieved primarily through continued
improvement in restaurant operations.
INCOME FROM OPERATIONS. Income from operations for the six periods
ended June 27, 2000 increased $525,000 from $2,071,000 to
$2,596,000, a 25.3% increase over the same six periods of 1999. As
a percentage of net sales, income from operations increased from
7.2% for the six periods ended June 29, 1999 to 8.8% for the six
periods ended June 27, 2000. Cost of sales decreased as a
percentage of net sales from 26.6% for the six periods ended June
29, 1999 to 24.4% for the six periods ended June 27, 2000 due to
lower cheese costs. Labor and benefits expense decreased as a
percentage of net sales from 29.5% in 1999 to 29.0% in 2000.
Advertising increased slightly as a percentage of net sales from
6.6% of net sales in 1999 to 6.7% of net sales in 2000. Other
restaurant operating expenses amounted to 18.9% of net sales in
2000 compared to 18.4% of net sales in 1999. This increase is
primarily the result of an increase in equipment rental as the
Partnership is leasing new point-of-sale terminals which are
currently being installed in all of its restaurants. General and
administrative expenses increased from 7.5% of net sales in 1999 to
8.0% of net sales in 2000 reflecting increased bonuses paid on
improved operating results. Depreciation and amortization expense
remained at 4.2% of net sales for both years.
NET EARNINGS. Net earnings increased $376,000 to net income of
$882,000 for the six periods ended June 27, 2000 compared to net
income of $506,000 for the six periods ended June 29, 1999. This
increase is attributable to the increase in income from operations
noted above and a $131,000 decrease in net interest expense. The
increase was partially offset by a $117,000 loss from investment in
unconsolidated affiliates and a $163,000 increase in minority
interest in income of Operating Partnerships.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At June 27, 2000 the Partnership had a working capital deficiency
of $5,110,000 compared to a working capital deficiency of
$5,543,000 at December 28, 1999. This decrease in working capital
deficiency is primarily a result of a $967,000 decrease in accounts
payable which was partially offset by a $281,000 decrease in cash.
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 six periods
ended June 27, 2000, net cash provided by operating activities
amounted to $1,731,000 compared to $1,785,000 for the six periods
ended June 29, 1999. This decrease from prior year is primarily
the result of a decrease in accounts payable of $967,000 in 2000
compared to a decrease of only $258,000 in 1999. This decrease in
accounts payable more than offsets the 2000 increases in net
income, equity in loss of investment in unconsolidated affiliates
and minority interests in income of Operating Partnerships.
INVESTING ACTIVITIES. Property and equipment expenditures
represent the largest investing activity by the Partnership.
Capital expenditures for the six periods ended June 27, 2000 were
$367,000 for replacement of equipment in existing restaurants.
FINANCING ACTIVITIES. Cash distributions declared during the six
periods ended June 27, 2000 were $695,000 amounting to $0.20 per
unit. The Partnership's distribution objective, generally, is to
distribute all operating revenues less operating expenses
(excluding noncash items such as depreciation and amortization),
capital expenditures for existing restaurants, interest and
principal payments on Partnership debt, and such cash reserves as
the managing General Partner may deem appropriate.
During the six periods ended June 27, 2000, the Partnership's
proceeds from borrowings amounted to $2,624,000 all of which was
used to refinance existing debt. The financing costs related to
this refinancing are being amortized over the terms of the loan
agreements. Management anticipates spending an additional $331,000
during the remainder of 2000 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.
YEAR 2000 COMPLIANCE
--------------------
The Partnership did not incur any problems with Year 2000
compliance. Management is continuing to monitor Year 2000 issues.
The Partnership does not anticipate any problems with Year 2000
compliance in the future.
OTHER MATTERS
-------------
On July 26, 2000, American Pizza Partners, L.P. purchased 39% of
Oklahoma Magic, L.P. from Restaurant Management Company of Wichita,
Inc. for $3,200,000 (Purchase Price). The Purchase Price includes
$2,500,000 cash financed by Intrust Bank over five years at 9.5%.
The remaining balance of the Purchase Price will become due in the
event that Magic's cash flow (determined on a 12 month trailing
basis) exceeds $2.6 million at any time between January 1, 2001 and
December 31, 2005. Payment of the remaining balance shall be made
in Class B and Class C Units of the Partnership. In the event that
Magic's cash flow does not reach this cash flow goal on or prior to
December 31, 2005, APP shall owe no additional consideration and
the Purchase Price will be reduced accordingly. Upon completion of
this purchase, the Partnership owns 99% of Magic.
The Partnership's major distributor, AmeriServe, has filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Tricon,
the Unified Foodservice Purchasing Coop, and key representatives of
the Tricon franchise community are working together to ensure the
availability of supplies to Tricon's restaurant system during the
bankruptcy proceedings. Although the Partnership believes that an
alternate distributor or distributors could be obtained to meet the
needs of its restaurants (should it become necessary), it cannot be
certain that the costs would be at the same rates that the
Partnership currently pays AmeriServe nor can it be certain that a
disruption of services will not occur during the process of
obtaining an alternate distributor or distributors. At this time,
management cannot reliably estimate the impact upon cost of sales,
if any, related to this situation.
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.
EFFECTS OF INFLATION AND FUTURE OUTLOOK
---------------------------------------
Inflationary factors such as increases in food and labor costs
directly affect the Partnership's operations. Because most of the
Partnership's employees are paid on an hourly basis, changes in
rates related to federal and state minimum wage and tip credit laws
will effect the Partnership's labor costs. The Partnership cannot
always effect immediate price increases to offset higher costs and
no assurance can be given the Partnership will be able to do so in
the future.
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 $3,500
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: 8/10/00 By: /s/Hal W. McCoy
-------- ---------------
Hal W. McCoy
Chairman and Chief Executive Officer
Date: 8/10/00 By: /s/Terry Freund
-------- ---------------
Terry Freund
Chief Financial Officer
