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 26, 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
------
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
June 26, 2001 and December 26, 2000 1
Consolidated Condensed Statements of Income
for the Three and Six Periods Ended
June 26, 2001 and June 27, 2000 2
Consolidated Condensed Statements of Cash
Flows for the Six Periods Ended
June 26, 2001 and June 27, 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 6-11
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 12
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 26, December 26,
ASSETS 2001 2000
- ---------------------------- --------- -----------
Current assets:
Cash and cash equivalents $ 706,175 $ 788,485
Accounts receivable 74,881 320,038
Due from affiliates 88,132 66,244
Notes receivable from
affiliates - current portion 19,431 15,221
Inventories 420,955 407,413
Prepaid expenses 278,355 307,894
---------- ----------
Total current assets 1,587,929 1,905,295
Net property and equipment 20,498,168 20,659,832
Other assets:
Franchise rights, net 5,102,697 5,236,276
Notes receivable from affiliates 56,322 66,111
Deposit with affiliate 485,000 485,000
Goodwill 2,010,071 2,052,515
Other 1,299,014 1,386,337
---------- ----------
$31,039,201 $31,791,366
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 3,037,481 $ 2,719,592
Due to affiliates 121,735 158,755
Accrued payroll and other taxes 975,442 899,140
Accrued liabilities 1,215,695 1,361,631
Current portion of long-term debt 4,315,517 2,763,409
Current portion of obligations
under capital leases 577,782 545,381
---------- ----------
Total current liabilities 10,243,652 8,447,908
Long-term liabilities less current maturities:
Obligations under capital leases 1,879,739 2,026,327
Long-term debt 24,804,353 27,121,884
Other noncurrent liabilities 904,394 992,674
---------- ----------
27,588,486 30,140,885
Minority interests in Operating
Partnerships 136,135 135,780
Partners' capital (deficiency):
General Partners (8,762) (8,727)
Limited Partners:
Class A Income Preference 5,062,924 5,099,355
Classes B and C (9,453,762) (9,415,842)
Notes receivable employees - sale
of partnership units (670,829) (749,350)
Cost in excess of carrying value
of assets acquired (1,858,643) (1,858,643)
---------- ----------
Total partners' deficiency (6,929,072) (6,933,207)
---------- ----------
$31,039,201 $31,791,366
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
June 26, June 27, June 26, June 27,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net sales $15,795,550 $14,690,511 $31,394,142 $29,490,053
Operating costs and expenses:
Cost of sales 4,075,401 3,572,531 8,000,718 7,185,075
Restaurant labor and benefits 4,588,763 4,267,206 9,186,478 8,556,893
Advertising 912,754 991,698 1,911,910 1,964,001
Other restaurant operating
expenses exclusive of
depreciation and amortization 2,878,696 2,740,477 5,923,805 5,469,619
General and administrative:
Management fees - related party 976,566 911,250 1,938,113 1,822,842
Other 230,745 296,227 540,868 546,288
Depreciation and amortization 764,098 658,936 1,501,625 1,326,983
---------- ---------- ---------- ----------
Income from operations 1,368,527 1,252,186 2,390,625 2,618,352
Equity in loss of
unconsolidated affiliates (32,499) (30,000) (111,458) (116,896)
Interest income 7,332 10,580 15,016 20,996
Interest expense (784,468) (730,128) (1,574,235) (1,452,219)
---------- ---------- ---------- ----------
Income before minority interest 558,892 502,638 719,948 1,070,233
Minority interests in income of
Operating Partnerships (7,770) (57,379) (10,852) (188,483)
---------- ---------- ---------- ----------
Net income $ 551,122 $ 445,259 $ 709,096 $ 881,750
========== ========== ========== ==========
Net income allocated to Partners:
Class A Income Preference $ 104,094 $ 88,908 $ 134,190 $ 179,154
Class B $ 162,614 $ 129,635 $ 209,134 $ 255,615
Class C $ 284,414 $ 226,716 $ 365,772 $ 446,981
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 700,540 751,760 702,410 770,487
Class B 1,094,375 1,096,131 1,094,697 1,099,324
Class C 1,914,077 1,917,003 1,914,612 1,922,325
Basic and diluted income
before minority interest
per Partnership unit $ 0.15 $ 0.13 $ 0.19 $ 0.28
Basic and diluted minority interest
per Partnership unit $ 0.00 $ 0.02 $ 0.00 $ 0.05
Basic and diluted net income
per Partnership unit $ 0.15 $ 0.12 $ 0.19 $ 0.23
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
Six Periods Ended
June 26, June 27,
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 709,096 $ 881,750
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,501,625 1,326,983
Loss on disposition of assets 7,270 7,346
Equity in loss of unconsolidated affiliates 111,458 116,896
Minority interests in income
of Operating Partnerships 10,852 188,483
Unit compensation expense 26,656 27,902
Net change in operating assets and liabilities:
Accounts receivable 245,157 84,017
Due from affiliates (21,888) (38,268)
Inventories (13,542) 19,578
Prepaid expenses 29,539 13,029
Accounts payable 317,890 (966,952)
Due to affiliates (37,020) 13,769
Accrued payroll and other taxes 76,302 60,513
Accrued liabilities (145,936) 70,434
Other, net (103,217) (2,217)
--------- ---------
Net cash provided by operating activities 2,714,242 1,803,263
Cash flows from investing activities:
Additions to property and equipment (1,064,038) (367,439)
Proceeds from sale of property and equipment 43,028 162
Investment in unconsolidated affiliates (91,072) (54,418)
Collections of notes receivable from affiliates 5,579 6,106
--------- ---------
Net cash used in investing activities (1,106,503) (415,589)
Cash flows from financing activities:
Payments on long-term borrowings (1,203,173) (3,208,730)
Proceeds from long-term borrowings 523,356 2,623,792
Payments on capital lease obligations (268,119) (100,963)
Distributions to Partners (690,281) (694,740)
Repurchase of units (41,336) (244,702)
General Partners' distributions
from Operating Partnerships (7,496) (7,704)
Minority interests' distributions
from Operating Partnerships (3,000) (36,000)
--------- ---------
Net cash used in financing activities (1,690,049) (1,669,047)
--------- ---------
Net decrease in cash and cash equivalents (82,310) (281,373)
Cash and cash equivalents at beginning of period 788,485 742,452
--------- ---------
Cash and cash equivalents at end of period $ 706,175 $ 461,079
========= =========
<FN>
See accompanying notes.
</FN>
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Six Periods Ended June 26, 2001 and June 27, 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 July 2, 2001 the Partnership declared a distribution of $0.10 per
unit to all unitholders of record as of July 12, 2001. The distribution
is not reflected in the June 26, 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.
4. Supplemental Cash Flow Information
----------------------------------
Six Periods Ended
6/26/01 6/27/00
------- -------
Cash paid for interest $1,567,549 $1,422,396
Noncash investing and
financing activity:
Distributions offset against
notes receivable 51,865 67,938
Reduction of notes
receivable recorded as
compensation expense 26,656 27,902
Equipment acquired through
capital lease 153,932 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of June 26, 2001, the Partnership operated 72 traditional Pizza Hut
red roof restaurants, 13 delivery/carryout units and two dualbrand
locations.
Comparison of the Three and Six Periods Ended June 26, 2001
- -----------------------------------------------------------
with the Three and Six Periods Ended June 27, 2000
- --------------------------------------------------
Net sales for the three periods ended June 26, 2001 were $15,796,000,
which was a $1,105,000, or 7.5%, increase over net sales of $14,691,000
reported for the same three periods of 2000. For the year-to-date, net
sales increased $1,904,000, or 6.5% over the prior year. Comparable
restaurant sales increased 10.3% for the quarter and 8.9% for the year-
to-date. The second quarter sales increase was primarily attributable
to the successful introduction of a new product, Twisted Crust Pizza.
Year-to-date comparable restaurant sales were also bolstered by a more
successful national marketing promotion during the first quarter of 2001
compared to the prior year.
Results of Operations
as a Percentage of Sales:
Three Periods Six Periods
Ended Ended
6/26/01 6/27/00 6/26/01 6/27/00
------- ------- ------- -------
Cost of sales 25.8% 24.3% 25.5% 24.4%
Restaurant labor
and benefits 29.1% 29.0% 29.3% 29.0%
Advertising 5.8% 6.8% 6.1% 6.7%
Other restaurant operating
expenses exclusive of
depreciation and amortization 18.2% 18.7% 18.9% 18.5%
General and administrative:
Management fees 6.2% 6.2% 6.2% 6.2%
Other 1.4% 2.0% 1.6% 1.8%
Depreciation and amortization 4.8% 4.5% 4.8% 4.5%
Income from operations 8.7% 8.5% 7.6% 8.9%
Income from operations for the three periods ended June 26, 2001
increased $116,000 from $1,252,000 to $1,368,000, a 9.3% increase from
the same three periods of 2000. Year-to-date income from operations
decreased $228,000, or 8.7%, from $2,618,000 to $2,391,000.
Cost of sales as a percentage of net sales increased 150 and 110 basis
points for the quarter and year-to-date, respectively. This increase
was primarily attributable to a 30% increase in cheese costs during the
second quarter.
Labor and benefits expense for the quarter and year-to-date increased 10
and 30 basis points, respectively, primarily due to increasing wage
rates that were not offset by productivity gains.
Advertising expense decreased 100 basis points for the quarter and 60
basis points year-to-date compared to the same periods of the prior
year. These decreases were achieved by successfully negotiating lower
rates and reducing local marketing spending levels.
Other restaurant operating expenses decreased 50 basis points for the
quarter but increased 40 basis points year-to-date. The decrease for
the quarter was primarily a result of the accrual of business
interruption insurance proceeds for a restaurant destroyed by a
fire. The year-to-date increase was primarily due to increases in
utilities, primarily gas, and increased delivery driver reimbursements
early in the year as a result of higher gasoline prices and increased
competition for drivers.
Depreciation and amortization expense increased 30 basis points over the
prior year for both the quarter and year-to-date primarily due to
additional point-of-sale terminals under capital leases.
For the quarter, the Partnership had net income of $551,000, a $106,000
increase over the prior year's net income of $445,000. This increase
was primarily due to the increase in income from operations noted above.
The Partnership had year-to-date net income of $709,000, a decrease of
$173,000 from the prior year net income of $882,000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 26, 2001 the Partnership had a working capital deficiency of
$8,656,000 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 $1,552,000 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 six periods ended
June 26, 2001, net cash provided by operating activities amounted to
$2,714,000 compared to $1,803,000 for the six periods ended June 27,
2000. This increase is primarily the result of a $318,000 increase in
accounts payable during 2001 versus a $967,000 decrease in accounts
payable in 2000.
INVESTING ACTIVITIES. Capital expenditures for the six periods ended
June 26, 2001 were $1,064,000 of which $196,000 was for the purchase of
the land and building of a previously leased restaurant and $273,000 was
for construction of new restaurants. The remainder was for replacement
of equipment in existing restaurants.
FINANCING ACTIVITIES. Cash distributions declared during the six
periods ended June 26, 2001 were $690,000 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 26, 2001, the Partnership's proceeds
from borrowings amounted to $523,000. The Partnership opened a new
delivery/carryout restaurant in the growing North Austin, Texas area
during the second quarter. This unit replaced a unit destroyed by a
fire earlier in the year. Another delivery/carryout restaurant is
scheduled to open during the third quarter in this area. Both units are
leased from unrelated third parties. Management anticipates the cost of
developing the delivery/carryout location at approximately $200,000.
The Partnership also plans to open two additional restaurants during
2001. The land for these new restaurants has been purchased.
Management anticipates spending approximately $900,000 for the buildings
and equipment at these two locations. Development of the new
restaurants will be financed through existing lenders. Management
anticipates spending an additional $325,000 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.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business
Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
effective for all business combinations completed after June 30, 2001.
SFAS 142 is effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of
SFAS 142. Major provisions of these Statements and their effective dates
for the Partnership are as follows:
- - All business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before
July 1, 2001.
- - Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other
legal rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability.
- - Goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001 will not be amortized. Effective December 26, 2001
all previously recognized goodwill and intangible assets with indefinite
lives will no longer be subject to amortization.
- - Effective December 26, 2001, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator.
- - All acquired goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting.
The Partnership will continue to amortize goodwill recognized prior to
July 1, 2001, under its current method until December 26, 2001, at which
time annual and quarterly goodwill amortization of $84,888 and $21,222
will no longer be recognized. By December 31, 2002 the Partnership will
have completed a transitional fair value based impairment test of goodwill
as of December 26, 2001. By March 26, 2002 the Partnership will have
completed a transitional impairment test of all other intangible assets
with indefinite lives. Impairment losses, if any, resulting from the
transitional testing will be recognized in the quarter ended March 26, 2002,
as a cumulative effect of a change in accounting principle.
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. A bill is
scheduled to be introduced in Congress which could increase the minimum
wage by up to as much as $1.50 per hour over the next seventeen months.
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: 08/10/01 By: /s/Hal W. McCoy
-------- ---------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Date: 08/10/01 By: /s/Terry Freund
-------- ---------------------------
Terry Freund
Chief Financial Officer