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 26, 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 September 26, 2000 and December 28, 1999 1 Consolidated Condensed Statements of Income for the Three and Nine Periods Ended September 26, 2000 and September 28, 1999 2 Consolidated Condensed Statements of Cash Flows for the Nine Periods Ended September 26, 2000 and September 28, 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) September 26, December 28, ASSETS 2000 1999 - ---------------------------- ------------- ------------ Current assets: Cash and cash equivalents $ 291,038 $ 742,452 Accounts receivable 358,768 258,388 Due from affiliates 83,392 69,948 Notes receivable from affiliates - current portion 20,450 19,531 Inventories 400,781 410,997 Prepaid expenses 332,157 270,300 ---------- ---------- Total current assets 1,486,586 1,771,616 Net property and equipment 20,751,411 19,330,304 Other assets: Franchise rights, net 5,302,988 5,510,611 Notes receivable from affiliates 64,073 75,952 Deposit with affiliate 485,000 485,000 Goodwill 2,083,743 694,391 Other 1,185,491 1,328,781 ---------- ---------- $31,359,292 $29,196,655 ========== ========== LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) - ---------------------------------------------- Current liabilities: Accounts payable $ 2,034,802 $ 2,818,985 Due to affiliates 108,843 111,988 Accrued payroll and other taxes 668,953 750,474 Accrued liabilities 1,396,825 1,177,506 Current portion of long-term debt 3,648,569 2,396,678 Current portion of obligations under capital leases 529,340 59,124 ---------- ---------- Total current liabilities 8,387,332 7,314,755 Long-term liabilities less current maturities: Obligations under capital leases 2,170,128 1,436,375 Long-term debt 26,397,886 25,252,712 Other noncurrent liabilities 1,034,188 787,208 ---------- ---------- 29,602,202 27,476,295 Minority interests in Operating Partnerships 138,222 551,541 Partners' capital (deficiency): General Partners (8,516) (8,585) Limited Partners: Class A Income Preference 5,141,664 5,394,796 Classes B and C (9,255,213) (9,252,030) Notes receivable employees - sale of partnership units (787,756) (956,436) Cost in excess of carrying value of assets acquired (1,858,643) (1,323,681) ---------- ---------- Total partners' deficiency (6,768,464) (6,145,936) ---------- ---------- $31,359,292 $29,196,655 ========== ========== See accompanying notes. AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) September 26, September 28, September 26, September 28, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net sales $15,088,559 $14,602,367 $44,578,612 $43,378,237 Operating costs and expenses: Cost of sales 3,780,232 3,955,343 10,965,307 11,620,571 Restaurant labor and benefits 4,312,478 4,175,191 12,869,371 12,677,941 Advertising 980,175 920,733 2,944,176 2,809,654 Other restaurant operating expenses exclusive of depreciation and amortization 2,960,974 2,820,253 8,430,594 8,117,026 General and administrative: Management fees - related party 934,724 907,148 2,757,566 2,692,950 Other 239,522 215,350 785,810 578,079 Depreciation and amortization 729,563 669,793 2,056,545 1,872,441 ---------- ---------- ---------- ---------- Income from operations 1,150,891 938,556 3,769,243 3,009,575 Equity in loss of investment in unconsolidated affiliates 30,000 - 146,896 - Interest income (9,449) (8,428) (30,445) (13,645) Interest expense 790,643 771,659 2,242,862 2,316,843 Loss on sale of investments held for sale - 122,155 - 122,155 ---------- ---------- ---------- ---------- Income before minority interest 339,697 53,170 1,409,930 584,222 Minority interests in income of Operating Partnerships 20,192 100 208,675 24,959 ---------- ---------- ---------- ---------- Net income $ 319,505 $ 53,070 $ 1,201,255 $ 559,263 ========== ========== ========== ========== Net income allocated to Partners: Class A Income Preference $ 61,382 $ 11,766 $ 239,693 $ 130,021 Class B 93,898 15,000 349,818 155,454 Class C 164,225 26,304 611,744 273,788 Weighted average number of Partnership units outstanding during period: Class A Income Preference 715,772 813,907 752,249 813,964 Class B 1,094,936 1,037,666 1,097,861 973,178 Class C 1,915,010 1,819,561 1,919,887 1,713,979 Basic and diluted income before minority interest per Partnership unit $ 0.09 $ 0.01 $ 0.37 $ 0.17 Basic and diluted minority interest per Partnership unit $ 0.01 $ 0.00 $ 0.06 $ 0.01 Basic and diluted net income per Partnership unit $ 0.09 $ 0.01 $ 0.32 $ 0.16 Distributions per Partnership interest $ 0.10 $ 0.10 $ 0.30 $ 0.30 <FN> See accompanying notes. </FN> AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (Unaudited) September 26, September 28, 2000 1999 ------------- ------------- Cash flows from operating activities: Net income $ 1,201,255 $ 559,263 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,056,545 1,872,441 Loss on disposition of assets 6,574 24,437 Equity in loss of investment in unconsolidated affiliates 146,896 - Minority interests in income of Operating Partnerships 208,675 24,957 Compensation expense - reduction of notes receivable 41,056 - Loss on sale of investments held for sale - 122,155 Net change in operating assets and liabilities: Accounts receivable (98,985) 16,146 Due from affiliates (13,444) (157,022) Inventories 10,216 (16,498) Prepaid expenses (61,857) (67,066) Accounts payable (784,183) 819,467 Due to affiliates (3,145) (139,957) Accrued payroll and other taxes (81,521) (98,726) Accrued liabilities 219,319 16,363 Other, net 197,577 224,255 ---------- ---------- Net cash provided by operating activities 3,044,978 3,200,215 Cash flows from investing activities: Proceeds from sale of investments held for sale - 40,002 Purchase of minority interest in Oklahoma Magic, L.P. (2,500,000) - Additions to property and equipment (1,677,812) (901,149) Proceeds from sale of property and equipment 2,720 108,559 Purchase of franchise rights - (15,000) Collections of notes receivable from affiliates 10,960 23,726 Other (75,902) (35,610) ---------- ---------- Net cash used in investing activities (4,240,034) (779,472) Cash flows from financing activities: Payments on long-term borrowings (3,751,727) (3,303,752) Proceeds from long-term borrowings 6,148,792 2,272,000 Payments on capital lease obligations (257,182) (33,982) Distributions to Partners (1,042,962) (1,028,583) Proceeds from issuance of Class B and C units - 68,213 Repurchase of units (288,310) (69,708) General Partners' distributions from Operating Partnerships (11,469) (10,603) Minority interests' distributions from Operating Partnerships (53,500) - ---------- ---------- Net cash provided by (used in) financing activities 743,642 (2,106,415) ---------- ---------- Net (decrease) increase in cash and cash equivalents (451,414) 314,328 Cash and cash equivalents at beginning of period 742,452 329,946 ---------- ---------- Cash and cash equivalents at end of period $ 291,038 $ 644,274 ========== ========== Noncash investing and financing activities: During the first nine periods of 2000, notes receivable from employees resulting from the issuance of stock during 1999 were reduced by distributions of $92,473 paid on these units, and by $41,056 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. In addition, the Partnership entered into $1,461,151 in capital leases for point-of-sale terminals. <FN> See accompanying notes. </FN> AMERICAN RESTAURANT PARTNERS, L.P. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Nine Periods Ended September 26, 2000 and September 28, 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 ----------------- On October 2, 2000 the Partnership declared a distribution of $0.10 per unit to all unitholders of record as of October 12, 2000. The distribution is not reflected in the September 26, 2000 consolidated condensed financial statements. 3. 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. (RMC) for $2,500,000 cash and contingent consideration of $700,000. The $2,500,000 cash payment was financed by INTRUST Bank over five years at 9.5%. The contingent consideration 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 AMERICAN RESTAURANT PARTNERS, L.P. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) Nine Periods Ended September 26, 2000 and September 28, 1999 3. Purchase of Partnership Interest (continued) -------------------------------------------- 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. Upon completion of this purchase, the Partnership owns 99% of Magic. RMC is considered a related party in that one individual has controlling interest in both RMC and the Partnership's general partner. To the extent that the Partnership and RMC have common ownership, the transaction was recorded at RMC's historical cost. As a result of the transaction, the Partnership recorded goodwill of $1,407,997 and cost in excess of carrying value of assets acquired of $534,962. 4. Comprehensive Income -------------------- Comprehensive income is comprised of the following: Three periods ended Nine periods ended Sept. 26, Sept. 28, Sept. 26, Sept. 28, 2000 1999 2000 1999 --------- --------- --------- --------- Net income $ 319,505 $ 53,070 $1,201,255 $ 559,263 Change in unrealized loss in investment securities - 118,983 - 96,483 -------- -------- --------- -------- $ 319,505 $ 172,053 $1,201,255 $ 655,746 ======== ======== ========= ======== 5. 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 September 26, 2000, the Partnership operated 70 traditional Pizza Hut red roof restaurants, 13 delivery/carryout units and three dualbrand locations. Three Periods Ended September 26, 2000 Compared to - -------------------------------------------------- Three Periods Ended September 28, 1999 - -------------------------------------- NET SALES. Net sales for the three periods ended September 26, 2000 increased $487,000 from net sales of $14,602,000 in 1999 to net sales of $15,089,000 for 2000, a 3.3% increase. Comparable restaurant sales increased 5.0%. 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 September 26, 2000 increased $212,000 from $939,000 to $1,151,000, a 22.6% increase over the same three periods of 1999. As a percentage of net sales, income from operations increased from 6.4% for the three periods ended September 28, 1999 to 7.6% for the three periods ended September 26, 2000. Cost of sales decreased from 27.1% of net sales for the three periods ended September 28, 1999 to 25.1% of net sales for the three periods ended September 26, 2000 primarily due to a 27% reduction in cheese costs. This decrease was partially offset by increases in meat ingredient costs. Labor and benefits expense amounted to 28.6% of net sales in 1999 and 2000. Advertising increased slightly as a percentage of net sales from 6.3% of net sales in 1999 to 6.5% of net sales in 2000. Other restaurant operating expenses increased from 19.3% of net sales in 1999 to 19.6% of net sales in 2000 primarily due to increased delivery driver reimbursements as a result of higher gas prices and increased competition for drivers. General and administrative expenses increased slightly from 7.7% of net sales in 1999 to 7.8% of net sales in 2000. Depreciation and amortization expense increased from 4.6% of net sales in 1999 to 4.8% of net sales in 2000 primarily due to the addition of point-of-sale terminals under capital leases. NET INCOME. Net income increased $267,000 to $320,000 for the three periods ended September 26, 2000 compared to $53,000 for the three periods ended September 28, 1999. This increase is primarily attributable to the increase in income from operations noted above. The increase was partially offset by a $30,000 loss from investment in unconsolidated affiliates and an $18,000 increase in net interest expense primarily due to the addition of point-of-sale terminals under capital leases. The 1999 net income included a $122,000 loss on the sale of investments held for sale. Nine Periods Ended September 26, 2000 Compared to - ------------------------------------------------- Nine Periods Ended September 28, 1999 - ------------------------------------- NET SALES. Net sales for the nine periods ended September 26, 2000 increased $1,201,000 from net sales of $43,378,000 in 1999 to net sales of $44,579,000 for 2000, a 2.8% increase. Comparable restaurant sales increased 4.4% over the prior year. During 1999, the Partnership experienced an 8.1% 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 nine periods ended September 26, 2000 increased $759,000 from $3,010,000 to $3,769,000, a 25.2% increase over the same nine periods of 1999. As a percentage of net sales, income from operations increased from 6.9% for the nine periods ended September 28, 1999 to 8.5% for the nine periods ended September 26, 2000. Cost of sales decreased as a percentage of net sales from 26.8% for the nine periods ended September 28, 1999 to 24.6% for the nine periods ended June 26, 2000 due to significantly lower cheese costs. Labor and benefits expense decreased as a percentage of net sales from 29.2% in 1999 to 28.9% in 2000. Advertising increased slightly as a percentage of net sales from 6.5% of net sales in 1999 to 6.6% of net sales in 2000. Other restaurant operating expenses amounted to 18.9% of net sales in 2000 compared to 18.7% of net sales in 1999. General and administrative expenses increased from 7.5% of net sales in 1999 to 7.9% of net sales in 2000 reflecting increased bonuses paid on improved operating results. Depreciation and amortization expense increased from 4.3% of net sales in 1999 compared to 4.6% of net sales primarily due to the addition of point-of-sale terminals under capital leases. NET INCOME. Net income increased $642,000 to $1,201,000 for the nine periods ended September 26, 2000 compared to $559,000 for the nine periods ended September 28, 1999. This increase is primarily attributable to the increase in income from operations noted above and a $91,000 decrease in net interest expense due to an overall reduction of debt. The increase was partially offset by a $147,000 loss from investment in unconsolidated affiliates and a $184,000 increase in minority interest in income of Operating Partnerships. The 1999 amount includes a $122,000 loss on sale of investments held for sale. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At September 26, 2000 the Partnership had a working capital deficiency of $6,901,000 compared to a working capital deficiency of $5,543,000 at December 28, 1999. This increase in working capital deficiency is primarily a result of a $1,252,000 increase in current portion of long- term debt due to the short-term financing of the purchase of previously leased restaurants and a $470,000 increase in current portion of obligations under capital leases related to point-of-sale terminals. 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 26, 2000, net cash provided by operating activities amounted to $3,045,000 compared to $3,200,000 for the nine periods ended September 28, 1999. The 2000 increases in net income, depreciation and amortization, equity in loss of investment in unconsolidated affiliates and minority interests in income of Operating Partnerships were partially offset by a $784,000 decrease in accounts payable. INVESTING ACTIVITIES. Capital expenditures for the nine periods ended September 26, 2000 were $1,678,000 of which $608,000 was for replacement of equipment in existing restaurants and $1,070,000 was for the purchase of previously leased restaurants. The Partnership also entered into capital leases of $1,461,000 for point-of-sale terminals. In addition, the Partnership purchased a minority interest in Oklahoma Magic, L.P. for $2,500,000. FINANCING ACTIVITIES. Cash distributions declared during the nine periods ended September 26, 2000 were $1,043,000 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 26, 2000, the Partnership's proceeds from borrowings amounted to $6,149,000 of which $2,500,000 was used to purchase a 39% interest in Magic from an affiliate and $1,025,000 was used to purchase previously leased restaurants. The remainder 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 $200,000 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. (RMC) for $2,500,000 cash and contingent consideration of $700,000. The $2,500,000 cash payment was financed by INTRUST Bank over five years at 9.5%. The contingent consideration 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. Upon completion of this purchase, the Partnership owns 99% of Magic. RMC is considered a related party in that one individual has controlling interest in both RMC and the Partnership's general partner. To the extent that the Partnership and RMC have common ownership, the transaction was recorded at RMC's historical cost. As a result of the transaction, the Partnership recorded goodwill of $1,407,997 and cost in excess of carrying value of assets acquired of $534,962. The Partnership's major distributor, AmeriServe, has reached an agreement to sell its U.S. distribution business to McLane Company, Inc., a subsidiary of Wal-Mart Stores, Inc. As part of the sale, the Partnership agreed to a two-year contract extension and will incur a 5% increase in distribution fees along with a reduction of payable terms for supplies from 30 to 15 days. The overall impact of the increased distribution fees on cost of sales will be approximately 0.1%. The sale is anticipated to be completed during the fourth quarter, however, no assurances can be given that this sale will be completed. 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 affect 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. Congress is currently considering legislation which could increase the minimum wage by up to as much as $1 per hour over a two-year period. The effective date of such legislation could be as early as January 1, 2001. While an increase in the minimum wage would increase the Partnership's labor costs, due to the uncertainty regarding legislation on the matter, management cannot reliably estimate the potential impact on labor costs at this time. 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: 11/16/00 By: /s/Hal W. McCoy -------- --------------- Hal W. McCoy Chairman and Chief Executive Officer Date: 11/16/00 By: /s/Terry Freund -------- --------------- Terry Freund Chief Financial Officer