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 27, 2001 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
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Part I. Financial Information
- -------------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
March 27, 2001 and December 26, 2000 1
Consolidated Condensed Statements of
Income for the Three Periods Ended
March 27, 2001 and March 28, 2000 2
Consolidated Condensed Statements of Cash
Flows for the Three Periods Ended
March 27, 2001 and March 28, 2000 3
Notes to Consolidated Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 6-9
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
March 27, December 26,
ASSETS 2001 2000
- ------------------------------ ----------- ------------
Current assets:
Cash and cash equivalents $ 463,114 $ 788,485
Accounts receivable 355,418 320,038
Due from affiliates 75,184 66,244
Notes receivable from
affiliates - current portion 17,306 15,221
Inventories 436,475 407,413
Prepaid expenses 317,996 307,894
---------- ----------
Total current assets 1,665,493 1,905,295
Net property and equipment 20,339,899 20,659,832
Other assets:
Franchise rights, net 5,169,463 5,236,276
Notes receivable from affiliates 61,438 66,111
Deposit with affiliate 485,000 485,000
Goodwill 2,031,293 2,052,515
Other 1,330,592 1,386,337
---------- ----------
$31,083,178 $31,791,366
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 2,926,723 $ 2,719,592
Due to affiliates 107,036 158,755
Accrued payroll and other taxes 749,621 899,140
Accrued liabilities 1,175,157 1,361,631
Current portion of long-term debt 4,272,300 2,763,409
Current portion of obligations
under capital leases 545,050 545,381
---------- ----------
Total current liabilities 9,775,887 8,447,908
Long-term liabilities less current maturities:
Obligations under capital leases 1,895,931 2,026,327
Long-term debt 25,449,662 27,121,884
Other noncurrent liabilities 949,009 992,674
---------- ----------
28,294,602 30,140,885
Minority interests in Operating
Partnerships 133,612 135,780
Partners' capital (deficiency):
General Partners (8,953) (8,727)
Limited Partners:
Class A Income Preference 5,045,483 5,099,355
Classes B and C (9,588,431) (9,415,842)
Notes receivable employees - sale
of partnership units (710,379) (749,350)
Cost in excess of carrying value
of assets acquired (1,858,643) (1,858,643)
---------- ----------
Total partners' deficiency (7,120,923) (6,933,207)
---------- ----------
$31,083,178 $31,791,366
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
March 27, March 28,
2001 2000
----------- -----------
Net sales $15,598,592 $14,799,542
Operating costs and expenses:
Cost of sales 3,925,317 3,612,544
Restaurant labor and benefits 4,597,715 4,289,687
Advertising 999,156 972,303
Other restaurant operating
expenses exclusive of
depreciation and amortization 3,045,109 2,729,142
General and administrative:
Management fees - related party 961,547 911,592
Other 310,123 250,061
Depreciation and amortization 737,527 668,047
---------- ----------
Income from operations 1,022,098 1,366,166
Equity in loss of
unconsolidated affiliates (78,959) (86,896)
Interest income 7,684 10,416
Interest expense (789,767) (722,091)
---------- ----------
Income before minority interest 161,056 567,595
Minority interests in income of
Operating Partnerships (3,082) (131,104)
---------- ----------
Net income $ 157,974 $ 436,491
========== ==========
Net income allocated to Partners:
Class A Income Preference $ 29,953 $ 90,194
Class B $ 46,571 $ 126,000
Class C $ 81,450 $ 220,297
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 704,279 789,216
Class B 1,095,018 1,102,518
Class C 1,915,148 1,927,648
Basic and diluted income before
minority interest per Partnership unit $ 0.04 $ 0.15
Basic and diluted minority interest
per Partnership unit $ 0.00 $ 0.03
Basic and diluted net income
per Partnership unit $ 0.04 $ 0.11
Distributions per Partnership unit $ 0.10 $ 0.10
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
Three Periods Ended
March 27, March 28,
2001 2000
---------- ----------
Cash flows from operating activities:
Net income $ 157,974 $ 436,491
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 737,527 668,047
Loss on disposition of assets 4,379 422
Equity in loss of unconsolidated affiliates 78,959 86,896
Minority interests in income
of Operating Partnerships 3,082 131,104
Unit compensation expense 13,328 13,952
Net change in operating assets and liabilities:
Accounts receivable (35,380) (84,518)
Due from affiliates (8,940) (23,094)
Inventories (29,062) (38,522)
Prepaid expenses (10,102) 25,786
Accounts payable 207,131 267,659
Due to affiliates (51,719) 59,432
Accrued payroll and other taxes (149,519) (98,490)
Accrued liabilities (186,474) (61,290)
Other, net (74,164) (43,240)
--------- ---------
Net cash provided by operating activities 657,020 1,340,635
Cash flows from investing activities:
Additions to property and equipment (285,169) (152,263)
Investment in unconsolidated affiliates (41,484) (12,500)
Collections of notes receivable from affiliates 2,588 -
--------- ---------
Net cash used in investing activities (324,065) (164,763)
Cash flows from financing activities:
Payments on long-term borrowings (601,081) (1,017,990)
Proceeds from long-term borrowings 437,750 480,739
Payments on capital lease obligations (130,727) (86,795)
Distributions to Partners (345,579) (347,017)
Repurchase of units (13,439) (9,133)
General Partners' distributions
from Operating Partnerships (3,750) (3,854)
Minority interests' distributions
from Operating Partnerships (1,500) -
--------- ---------
Net cash used in financing activities (658,326) (984,050)
--------- ---------
Net increase (decrease) in cash
and cash equivalents (325,371) 191,822
Cash and cash equivalents at beginning of period 788,485 742,452
--------- ---------
Cash and cash equivalents at end of period $ 463,114 $ 934,274
========= =========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Periods Ended March 27, 2001 and March 28, 2000
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 26, 2000
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 26, 2000.
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 April 2, 2001 the Partnership declared a distribution of $0.10 per
unit to all unitholders of record as of April 12, 2001. The
distribution is not reflected in the March 27, 2001 consolidated
condensed financial statements.
3. Reclassifications
-----------------
Certain amounts shown in the 2000 consolidated condensed financial
statements have been reclassified to conform with the 2001 presentation.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Periods Ended March 27, 2001 and March 28, 2000
4. Supplemental Cash Flow Information
----------------------------------
Three Periods Ended
3/27/01 3/28/00
------- -------
Cash paid for interest $777,004 $709,259
Noncash investing and
financing activity:
Distributions offset against
notes receivable 25,643 35,592
Reduction of notes
receivable recorded as
compensation expense 13,328 13,952
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of March 27, 2001, the Partnership operated 72 traditional Pizza Hut
red roof restaurants, 12 delivery/carryout units and two dualbrand
locations.
Comparison of the Three Periods Ended March 27, 2001
- ----------------------------------------------------
with the Three Periods Ended March 28, 2000
- -------------------------------------------
Net sales for the first three periods of 2001 were $15,599,000, which
was a $799,000, or 5.4%, increase over net sales of $14,800,000 reported
for the first three periods of 2000. Comparable restaurant sales
increased 7.4%. The sales increase was primarily attributable to a more
successful national marketing promotion during 2001 than 2000.
Results of Operations
as a Percentage of Sales:
Three Periods Ended
3/27/01 3/28/00
------- -------
Cost of sales 25.2% 24.4%
Restaurant labor and benefits 29.5% 29.0%
Advertising 6.4% 6.6%
Other restaurant operating expenses
exclusive of depreciation and amortization 19.5% 18.4%
General and administrative:
Management fees 6.2% 6.2%
Other 2.0% 1.7%
Depreciation and amortization 4.7% 4.5%
Income from operations 6.6% 9.2%
Income from operations for the first three periods of 2001 decreased
$344,000 from $1,366,000 to $1,022,000, a 25.0% decrease from the first
three periods of 2000. Cost of sales as a percentage of net sales
increased 80 basis points compared to the same periods of the prior
year primarily due to an increase in meat ingredient costs
and the higher cost of products that were advertised during the
first quarter of this year compared to last year. Labor and benefits
expense for the quarter increased 50 basis points over the prior year
primarily attributable to increasing wage rates that were not fully
offset by productivity gains. Other restaurant operating expenses
increased 110 basis points compared to the first three periods of 2000.
The increase in these costs was attributable to an increase in
utilities, primarily gas, and increased delivery driver reimbursements
as a result of higher gasoline prices and increased competition for
drivers. Depreciation and amortization expense increased 20 basis points
over the prior year primarily due to additional point-of-sale terminals
under capital leases.
For the quarter, the Partnership had net income of $158,000, a $278,000
decrease from the prior year's net income of $436,000. This decrease is
primarily attributable to the decrease in income from operations noted
above and a $68,000 increase in interest expense. The decrease was
partially offset by a $128,000 decrease in minority interests in income
of Operating Partnerships.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 27, 2001 the Partnership had a working capital deficiency of
$8,110,000 compared to a working capital deficiency of $6,543,000 at
December 26, 2000. This increase in working capital deficiency is
primarily a result of a $1,509,000 increase in current portion of long-
term debt primarily attributable to the short-term financing of the
purchase of previously leased restaurants. This short-term financing is
expected to be refinanced on a long-term basis later this year. 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 27, 2001, net cash provided by operating activities amounted to
$657,000 compared to $1,341,000 for the three periods ended March 28,
2000. This decrease is primarily a result of the decrease in net income
of $278,000, the decrease in minority interest in income of Operating
Partnerships of $128,000 and a decrease in accounts payable and other
accrued liabilities of $181,000 versus an increase in those accounts of
$167,000 in the prior year.
INVESTING ACTIVITIES. Capital expenditures for the three periods ended
March 27, 2001 were $285,000, all of which was for replacement of
equipment in existing restaurants.
FINANCING ACTIVITIES. Cash distributions declared during the three
periods ended March 27, 2001 were $346,000 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 27, 2001, the Partnership's
proceeds from borrowings amounted to $438,000. The Partnership plans to
open four to six new restaurants during 2001. The land for two of these
new restaurants has been purchased. Management anticipates spending
approximately $900,000 for the buildings and equipment at these two
locations. The remaining restaurants planned for development will be
delivery/carryout units leased from unrelated third parties. Leases
have been signed for two of the delivery/carryout locations and
construction has begun at one location. Management anticipates the cost
of developing these locations at approximately $200,000 per restaurant.
Development of the new restaurants will be financed through existing
lenders. Management anticipates spending an additional $545,000 during
the remainder of 2001 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.
OTHER MATTERS
- -------------
On July 26, 2000, APP purchased 39% of Magic 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 $1,407,991 and cost in
excess of carrying value of assets acquired of $534,962.
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. 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. Due to the
small amount of debt at variable interest rates, a hypothetical 100
basis point adverse move (increase) in interest rates along the entire
interest rate yield curve would not have a material effect on either the
Partnership's interest expense or net income over the term of the
related debt. This 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: 5/11/01 By: /s/Hal W. McCoy
------- --------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Date: 5/11/01 By: /s/Terry Freund
------- --------------------------
Terry Freund
Chief Financial Officer