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. AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) June 27, June 29, June 27, June 29, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- 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> 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