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 25, 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
September 25, 2001 and December 26, 2000 1
Consolidated Condensed Statements of Income
for the Three and Nine Periods Ended
September 25, 2001 and September 26, 2000 2
Consolidated Condensed Statements of Cash
Flows for the Nine Periods Ended
September 25, 2001 and September 26, 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 6-10
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
September 25, December 26,
ASSETS 2001 2000
- ----------------------------- ------------- ------------
Current assets:
Cash and cash equivalents $ 859,322 $ 788,485
Accounts receivable 536,637 320,038
Due from affiliates 81,212 66,244
Notes receivable from
affiliates - current portion 29,792 15,221
Inventories 456,476 407,413
Prepaid expenses 373,085 307,894
---------- ----------
Total current assets 2,336,524 1,905,295
Net property and equipment 20,291,845 20,659,832
Other assets:
Franchise rights, net 5,035,932 5,236,276
Notes receivable from affiliates 42,896 66,111
Deposit with affiliate 485,000 485,000
Goodwill 1,988,849 2,052,515
Other 1,246,511 1,386,337
---------- ----------
$31,427,557 $31,791,366
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 4,431,941 $ 2,719,592
Due to affiliates 135,706 158,755
Accrued payroll and other taxes 637,105 899,140
Accrued liabilities 1,362,548 1,361,631
Current portion of long-term debt 4,318,580 2,763,409
Current portion of obligations
under capital leases 561,776 545,381
---------- ----------
Total current liabilities 11,447,656 8,447,908
Long-term liabilities less current maturities:
Obligations under capital leases 1,794,776 2,026,327
Long-term debt 24,186,844 27,121,884
Other noncurrent liabilities 860,749 992,674
---------- ----------
26,842,369 30,140,885
Minority interests in Operating
Partnerships 134,051 135,780
Partners' capital (deficiency):
General Partners (8,870) (8,727)
Limited Partners:
Class A Income Preference 5,041,627 5,099,355
Classes B and C (9,536,757) (9,415,842)
Notes receivable employees - sale
of partnership units (633,876) (749,350)
Cost in excess of carrying value
of assets acquired (1,858,643) (1,858,643)
---------- ----------
Total partners' deficiency (6,996,519) (6,933,207)
---------- ----------
$31,427,557 $31,791,366
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
September 25, September 26, September 25, September 26,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net sales $16,012,524 $15,088,559 $47,406,666 $44,578,612
Operating costs and expenses:
Cost of sales 4,251,867 3,780,232 12,252,585 10,965,307
Restaurant labor and benefits 4,645,017 4,312,478 13,831,495 12,869,371
Advertising 1,007,064 980,175 2,918,974 2,944,176
Other restaurant operating
expenses exclusive of
depreciation and amortization 3,074,711 2,960,974 8,998,516 8,430,594
General and administrative:
Management fees - related party 1,014,854 934,724 2,952,967 2,757,566
Other 287,117 239,522 827,985 785,810
Depreciation and amortization 799,795 729,563 2,301,420 2,056,545
---------- ---------- ---------- ----------
Income from operations 932,099 1,150,891 3,322,724 3,769,243
Equity in loss of
unconsolidated affiliates (32,935) (30,000) (144,393) (146,896)
Interest income 6,318 9,449 21,334 30,445
Interest expense (793,974) (790,643) (2,368,209) (2,242,862)
Gain on fire settlement 159,203 - 159,203 -
---------- ---------- ---------- ----------
Income before minority interest 270,711 339,697 990,659 1,409,930
Minority interests in income of
Operating Partnerships (3,153) (20,192) (14,005) (208,675)
---------- ---------- ---------- ----------
Net income $ 267,558 $ 319,505 $ 976,654 $ 1,201,255
========== ========== ========== ==========
Net income allocated to Partners:
Class A Income Preference $ 50,392 $ 61,382 $ 184,530 $ 239,693
Class B $ 78,996 $ 93,898 $ 288,148 $ 349,818
Class C $ 138,170 $ 164,225 $ 503,976 $ 611,744
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 697,560 715,772 700,793 752,249
Class B 1,093,518 1,094,936 1,094,304 1,097,861
Class C 1,912,648 1,915,010 1,913,958 1,919,887
Basic and diluted income
before minority interest
per Partnership unit $ 0.07 $ 0.09 $ 0.27 $ 0.37
Basic and diluted minority interest
per Partnership unit $ 0.00 $ 0.01 $ 0.00 $ 0.06
Basic and diluted net income
per Partnership unit $ 0.07 $ 0.09 $ 0.26 $ 0.32
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
Nine Periods Ended
September 25, September 26,
2001 2000
------------- -------------
Cash flows from operating activities:
Net income $ 976,654 $1,201,255
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,301,420 2,056,545
Loss on disposition of assets 6,036 6,574
Equity in loss of unconsolidated affiliates 144,393 146,896
Minority interests in income
of Operating Partnerships 14,005 208,675
Unit compensation expense 36,796 41,056
Gain on fire settlement (159,203) -
Net change in operating assets and liabilities:
Accounts receivable (216,599) (98,985)
Due from affiliates (14,968) (13,444)
Inventories (49,063) 10,216
Prepaid expenses (65,191) (61,857)
Accounts payable 1,712,349 (784,183)
Due to affiliates (23,049) (3,145)
Accrued payroll and other taxes (262,035) (81,521)
Accrued liabilities 917 219,319
Other, net (146,850) 197,577
--------- ---------
Net cash provided by operating activities 4,255,612 3,044,978
Cash flows from investing activities:
Purchase of minority interest in Oklahoma Magic, L.P. - (2,500,000)
Additions to property and equipment (1,582,022) (1,677,812)
Proceeds from sale of property and equipment 46,100 2,720
Investment in unconsolidated affiliates (20,000) -
Collections of notes receivable from affiliates 8,644 10,960
Net proceeds from fire settlement 251,613 -
Other (84,622) (75,902)
--------- ---------
Net cash used in investing activities (1,380,287) (4,240,034)
Cash flows from financing activities:
Payments on long-term borrowings (1,817,619) (3,751,727)
Proceeds from long-term borrowings 523,356 6,148,792
Payments on capital lease obligations (417,729) (257,182)
Distributions to Partners (1,033,476) (1,042,962)
Repurchase of units (43,286) (288,310)
General Partners' distributions
from Operating Partnerships (11,234) (11,469)
Minority interests' distributions
from Operating Partnerships (4,500) (53,500)
--------- ---------
Net cash provided by (used in) financing activities (2,804,488) 743,642
--------- ---------
Net increase (decrease) in cash and cash equivalents 70,837 (451,414)
Cash and cash equivalents at beginning of period 788,485 742,452
--------- ---------
Cash and cash equivalents at end of period $ 859,322 $ 291,038
========= =========
<FN>
See accompanying notes.
</FN>
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Nine Periods Ended September 25, 2001 and September 26, 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 October 1, 2001 the Partnership declared a distribution of $0.10 per
unit to all unitholders of record as of October 12, 2001. The
distribution is not reflected in the September 25, 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. Fire Settlement
---------------
During the first quarter of 2001, the Partnership incurred a fire at one
of its restaurants. The property was insured for replacement cost and
the Partnership realized a third quarter gain of $159,203 upon final
settlement of the claim.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Nine Periods Ended September 25, 2001 and September 26, 2000
5. Supplemental Cash Flow Information
----------------------------------
Nine Periods Ended
9/25/01 9/26/00
------- -------
Cash paid for interest $2,335,820 $2,235,311
Noncash investing and
financing activity:
Distributions offset against
notes receivable 78,678 92,473
Reduction of notes
receivable recorded as
compensation expense 36,796 41,056
Equipment acquired through
capital lease 202,573 1,461,151
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of September 25, 2001, the Partnership operated 71 traditional Pizza
Hut red roof restaurants, 14 delivery/carryout units and 2 dualbrand
locations.
Comparison of the Three and Nine Periods Ended September 25, 2001
- -----------------------------------------------------------------
with the Three and Nine Periods Ended September 26, 2000
- --------------------------------------------------------
Net sales for the three periods ended September 25, 2001 were
$16,013,000, which was a $924,000, or 6.1%, increase over net sales of
$15,089,000 reported for the same three periods of 2000. For the year-
to-date, net sales increased $2,828,000, or 6.3% over the prior year.
Comparable restaurant sales increased 6.1% for the quarter and 7.9% for
the year-to-date. The third quarter sales increase was primarily
attributable to a more successful local marketing promotion. 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, as well as the successful introduction of a new product,
Twisted Crust Pizza in the second quarter of 2001.
Results of Operations
as a Percentage of Sales:
Three Periods Nine Periods
Ended Ended
9/25/01 9/26/00 9/25/01 9/26/00
------- ------- ------- -------
Cost of sales 26.6% 25.1% 25.8% 24.6%
Restaurant labor
and benefits 29.0% 28.6% 29.2% 28.9%
Advertising 6.3% 6.5% 6.2% 6.6%
Other restaurant operating
expenses exclusive of
depreciation and amortization 19.2% 19.6% 19.0% 18.9%
General and administrative:
Management fees 6.3% 6.2% 6.2% 6.2%
Other 1.8% 1.6% 1.7% 1.8%
Depreciation and amortization 5.0% 4.8% 4.9% 4.6%
Income from operations 5.8% 7.6% 7.0% 8.5%
Income from operations for the three periods ended September 25, 2001
decreased $219,000 from $1,151,000 to $932,000, a 19.0% decrease from the
same three periods of 2000. Year-to-date income from operations
decreased $446,000, or 11.8%, from $3,769,000 to $3,323,000.
Cost of sales as a percentage of net sales increased 150 and 120 basis
points for the quarter and year-to-date, respectively. This increase was
primarily attributable to a 25% increase in cheese costs during the third
quarter, and a 20% increase in cheese costs year-to-date.
Labor and benefits expense for the quarter and year-to-date increased 40
and 30 basis points, respectively, primarily due to increasing wage rates
that were not offset by productivity gains.
Advertising expense decreased 20 basis points for the quarter and 40
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 40 basis points for the
quarter but increased 10 basis points year-to-date. The decrease for the
quarter was primarily a result of a $125,000 vendor credit received in
third quarter of 2001. 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 20 basis points for the
quarter and 30 basis points year-to-date primarily due to additional
point-of-sale terminals under capital leases.
For the quarter, the Partnership had net income of $268,000, a $52,000
decrease over the prior year's net income of $320,000. This decrease was
primarily due to the decrease in income from operations noted above,
which was partially offset by the gain on fire settlement of $159,000.
The Partnership had year-to-date net income of $977,000, a decrease of
$224,000 from the prior year net income of $1,201,000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 25, 2001 the Partnership had a working capital deficiency of
$9,111,000 compared to a working capital deficiency of $6,543,000 at
December 26, 2000. This increase in working capital deficiency is
primarily attributable to a $1,555,000 increase in the current portion of
long-term debt which includes $523,000 of short-term financing obtained
during the current year for the purchase of previously leased
restaurants. The remaining increase in the current portion of long-term
debt is a result of the maturation of debt acquired in the prior year for
the purchase of previously leased restaurants. The increase in working
capital deficiency is also attributable to a $1,712,000 increase in
accounts payable. The Partnership anticipates completing a sale and
leaseback transaction on seven real estate properties it currently owns
in January of 2002. The proceeds from this transaction will result
in the retirement of $1,300,000 of current debt and an increase in
working capital of $1,400,000. 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 25, 2001, net cash provided by operating activities amounted to
$4,223,000 compared to $3,045,000 for the nine periods ended September
26, 2000. This increase is primarily the result of a $1,712,000 increase
in accounts payable during 2001 versus a $784,000 decrease in accounts
payable in 2000.
INVESTING ACTIVITIES. Capital expenditures for the nine periods ended
September 25, 2001 were $1,582,000 of which $196,000 was for the purchase
of the land and building of a previously leased restaurant and $596,000
was for construction of new restaurants. The remainder was for
replacement of equipment in existing restaurants.
FINANCING ACTIVITIES. Cash distributions declared during the nine
periods ended September 25, 2001 were $1,033,000 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 25, 2001, the Partnership's
proceeds from borrowings amounted to $523,000. The Partnership opened
two new delivery/carryout restaurants in the growing North Austin, Texas
area during the second and third quarters. One unit replaced a unit
destroyed by a fire earlier in the year. Both units are leased from
unrelated third parties. The Partnership also plans to open one
restaurant to replace an existing older restaurant during 2001. The land
for this restaurant has been purchased. Additionally, the Partnership
plans to open one delivery/carryout unit in January 2002, which will be
leased from an unrelated third party. Management anticipates spending
approximately $725,000 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 $100,000
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.
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.
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.
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: 11/08/01 By: /s/Hal W. McCoy
-------- ------------------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Date: 11/08/01 By: /s/Terry Freund
-------- ------------------------------------
Terry Freund
Chief Financial Officer