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 26, 2002 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)
3020 North Cypress Road, Suite 100
Wichita, Kansas 67226
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code (316) 634-1190
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
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
March 26, 2002 and December 25, 2001 1
Consolidated Condensed Statements of Income
for the Three Periods Ended March 26, 2002
and March 27, 2001 2
Consolidated Condensed Statements of Cash
Flows for the Three Periods Ended
March 26, 2002 and March 27, 2001 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 26, December 25,
ASSETS 2002 2001
- ------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 1,593,253 $ 1,594,934
Accounts receivable 457,677 482,185
Due from affiliates 87,039 64,668
Notes receivable from
affiliates - current portion 17,014 16,173
Inventories 439,056 397,821
Prepaid expenses 362,732 359,592
Total current assets 2,956,771 2,915,373
---------- ----------
Net property and equipment 18,966,555 20,134,758
Other assets:
Franchise rights, net 4,902,402 4,969,167
Notes receivable from affiliates 49,027 53,409
Deposit with affiliate 485,000 485,000
Goodwill 1,967,627 1,967,627
Other 1,157,771 1,193,205
---------- ----------
8,561,827 8,668,408
---------- ----------
$30,485,153 $31,718,539
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 2,324,714 $ 3,129,578
Due to affiliates 90,549 52,763
Accrued payroll and other taxes 765,115 981,542
Accrued liabilities 1,121,249 1,404,786
Current maturities of long-term debt 2,779,699 5,406,737
Current portion of capital lease obligations 578,801 596,356
---------- ----------
Total current liabilities 7,660,127 11,571,762
Long-term liabilities less current maturities:
Capital lease obligations 3,880,192 1,995,197
Long-term debt 23,201,028 23,667,180
Other noncurrent liabilities 1,215,345 817,104
---------- ----------
28,296,565 26,479,481
Minority interests in Operating Partnerships 152,193 140,406
Commitments and contingencies - -
Partners' capital (deficiency):
General Partners (7,410) (8,358)
Limited Partners:
Class A Income Preference 5,294,581 5,131,262
Classes B and C (8,504,066) (9,146,027)
Notes receivable employees - sale
of partnership units (548,194) (591,344)
Cost in excess of carrying value
of assets acquired (1,858,643) (1,858,643)
---------- ----------
Total partners' deficiency (5,623,732) (6,473,110)
---------- ----------
$30,485,153 $31,718,539
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Periods Ended
March 26, March 27,
2002 2001
---------- ----------
Net sales $17,518,696 $15,598,592
Operating costs and expenses:
Cost of sales 4,179,371 3,925,317
Restaurant labor and benefits 4,882,395 4,597,715
Advertising 1,108,585 999,156
Other restaurant operating
expenses exclusive of
depreciation and amortization 3,069,522 3,045,109
General and administrative:
Management fees - related party 1,086,487 961,547
Other 380,066 310,123
Depreciation and amortization 714,574 737,527
---------- ----------
Income from operations 2,097,696 1,022,098
Equity in loss of unconsolidated affiliates (84,798) (78,959)
Interest income 5,927 7,684
Interest expense (748,959) (789,767)
---------- ----------
(827,830) (861,042)
---------- ----------
Income before minority interest 1,269,866 161,056
Minority interests in income of
Operating Partnerships (16,998) (3,082)
---------- ----------
Net income $ 1,252,868 $ 157,974
========== ==========
Net income allocated to Partners:
Class A Income Preference $ 237,063 $ 29,953
Class B $ 369,422 $ 46,571
Class C $ 646,383 $ 81,450
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 696,346 704,279
Class B 1,085,138 1,095,018
Class C 1,898,682 1,915,148
Basic and diluted income
before minority interest per
Partnership unit $ 0.35 $ 0.04
Basic and diluted minority interest
per Partnership unit $ 0.00 $ 0.00
Basic and diluted net income
per Partnership unit $ 0.34 $ 0.04
Distributions per Partnership unit $ 0.10 $ 0.10
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Periods Ended
March 26, March 27,
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 1,252,868 $ 157,974
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 714,574 737,527
Equity in loss of unconsoliated affiliates 84,798 78,959
Loss on disposition of assets 121,535 4,379
Minority interest in income of
Operating Partnerships 16,998 3,082
Unit compensation expense 15,113 13,328
Net change in operating assets and liabilities:
Accounts receivable 24,508 (35,380)
Due from affiliates (22,371) (8,940)
Inventories (41,235) (29,062)
Prepaid expenses (3,140) (10,102)
Accounts payable (804,864) 207,131
Due to affiliates 37,786 (51,719)
Accrued payroll and other taxes (216,427) (149,519)
Accrued liabilities (283,537) (186,474)
Other, net 51,662 (74,164)
--------- ---------
Net cash provided by operating activities 948,268 657,020
Investing activities:
Investment in unconsolidated affiliates (22,676) (285,169)
Additions to property and equipment (430,011) (41,484)
Proceeds from sale and leaseback of property
and equipment 3,188,044 -
Collections of notes receivable from affiliates 3,541 2,588
--------- ---------
Net cash provided by (used in) investing activities 2,738,898 (324,065)
Financing activities:
Payments on long-term borrowings (3,193,440) (601,081)
Proceeds from long-term borrowings 100,250 437,750
Payments on capital lease obligations (171,843) (130,727)
Distributions to Partners (339,418) (345,579)
Repurchase of units (79,185) (13,439)
General Partners' distributions
from Operating Partnerships (3,711) (3,750)
Minority interests' distributions
from Operating Partnerships (1,500) (1,500)
--------- ---------
Net cash used in financing activities (3,688,847) (658,326)
Net decrease in cash and cash equivalents (1,681) (325,371)
--------- ---------
Cash and cash equivalents at beginning of period 1,594,934 788,485
--------- ---------
Cash and cash equivalents at end of period $ 1,593,253 $ 463,114
========= =========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Periods Ended March 26, 2002 and March 27, 2001
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 25, 2001 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 25, 2001.
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 1, 2002 the Partnership declared a quarterly distribution
of $0.10 per unit, and an additional cash distribution of $0.055 per
unit, for a total of $0.155 per unit to all unitholders of record as
of April 12, 2002. The distribution is not reflected in the March
26, 2002 consolidated condensed financial statements.
3. Supplemental Cash Flow Information
----------------------------------
Three Periods Ended
3/26/02 3/27/01
--------- ---------
Cash paid for interest $ 781,451 $ 777,004
Noncash investing and financing
activity:
Distributions offset against
notes receivable 28,037 25,643
Reduction of notes receivable
recorded as compensation expense 15,113 13,328
Capital leases entered into as part
of sale-leaseback transactions 2,039,283 -
4. Goodwill
--------
Statement of Financial Accounting Standards (SFAS) 142, Goodwill and
Intangible Assets, was issued in June 2001 and adopted by the
Partnership on December 26, 2001. SFAS 142 provides that goodwill
is no longer amortized effective December 26, 2001, but is instead
reviewed for impairment at least annually and whenever there is an
impairment indicator. The Partnership has completed its
transitional fair value based impairment test of goodwill, which
indicated the value of goodwill is not impaired at December 26,
2001, and as a result, no impairment loss was recognized. Goodwill
amortization for the three periods ended March 27, 2001 was
approximately $22,000. Net income for the three periods ended March
27, 2001, adjusted to exclude goodwill amortization, would have been
approximately $180,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of March 26, 2002, the Partnership operated 69 traditional Pizza
Hut red roof restaurants, 16 delivery/carryout units and 3 dualbrand
locations.
Comparison of the Three Periods Ended March 26, 2002
- ----------------------------------------------------
with the Three Periods Ended March 27, 2001
- -------------------------------------------
Net sales for the first three periods of 2002 were $17,519,000,
which was a $1,920,000, or 12.3%, increase over net sales of
$15,599,000 reported for the first three periods of 2001.
Comparable restaurant sales increased 9.1%. The sales increase was
primarily attributable to the successful introduction of a new
product, P'ZONE in the first quarter of 2002. The sales increase is
also attributable to a price increase the Partnership implemented at
the end of the third quarter of 2001.
Results of Operations
as a Percentage of Sales:
Three Periods Ended
3/26/02 3/27/01
------- -------
Cost of sales 23.9% 25.2%
Restaurant labor and benefits 27.9% 29.5%
Advertising 6.3% 6.4%
Other restaurant operating expenses
exclusive of depreciation and amortization 17.5% 19.5%
General and administrative:
Management fees 6.2% 6.2%
Other 2.2% 2.0%
Depreciation and amortization 4.1% 4.7%
Income from operations 12.0% 6.6%
Income from operations for the first three periods of 2002 increased
$1,076,000 from $1,022,000 to $2,098,000, a 105.3% increase from the
first three periods of 2001. Cost of sales as a percentage of net
sales decreased 130 basis points compared to the same periods of the
prior year primarily due to a decrease in the cost of meat toppings.
The decrease is also attributable to the effect of the price
increase the Partnership implemented at the end of the third quarter
of 2001. Labor and benefits expense for the quarter decreased 160
basis points primarily due to efficiencies gained at higher sales
levels. Other restaurant operating expenses decreased 200 basis
points compared to the first three periods of 2001. The decrease in
these costs was primarily attributable to a decrease in utilities as
well as a $150,000 vendor rebate received in the first quarter of
2002. Depreciation and amortization expense decreased 60 basis
points from the prior year as a result of no longer amortizing
goodwill in 2002 in accordance with Statement of Financial
Accounting Standards (SFAS) 142 (see Note 4 in Notes to
Consolidated Condensed Financial Statements).
For the quarter, the Partnership had net income of $1,253,000, a
$1,095,000 increase over the prior year's net income of $158,000.
This increase was primarily due to the increase in income from
operations noted above and a $41,000 decrease in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 26, 2002 the Partnership had a working capital deficiency
of $4,703,000 compared to a working capital deficiency of $8,656,000
at December 25, 2001. This decrease in working capital deficiency
is primarily attributable to a $2,627,000 decrease in the current
portion of long-term debt resulting from sale-leaseback transactions
on eight real estate properties in January 2002. The decrease in
working capital deficiency is also attributable to net income of
$1,253,000 for the three periods ended March 26, 2002. 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 26, 2002, net cash provided by operating activities
amounted to $948,000 compared to $657,000 for the three periods
ended March 27, 2001. This increase is primarily the result of an
increase in net income of $1,095,000 which was used to pay down
accounts payable and accrued liabilities, and an increase in loss on
disposition of assets of $117,000.
INVESTING ACTIVITIES. Capital expenditures for the three periods
ended March 26, 2002 were $430,000 of which $165,000 was for
construction of new restaurants. The remainder was for replacement
of equipment in existing restaurants. The Partnership completed
sale-leaseback transactions for the real estate of eight of its
properties which generated funds of $3,188,000.
FINANCING ACTIVITIES. Cash distributions paid during the three
periods ended March 26, 2002 were $339,000, net of a reduction in
employee notes receivable of $28,000. Distributions amounted to
$.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 26, 2002, the Partnership's
payments on long-term borrowings totaled $3,193,000, the majority of
which were funded through proceeds from sale-leaseback transactions.
Proceeds from borrowings amounted to $100,000 during the three
periods ended March 26, 2002. The Partnership opened one new
delivery/carryout restaurant in the Oklahoma City, Oklahoma area
during the first quarter of 2002. This unit is leased from an
unrelated third party. The Partnership plans to open three new
restaurants during 2002. The land for one of these new restaurants
has been purchased. Management anticipates spending approximately
$800,000 for the building and equipment at this location. The
remaining restaurants planned for development will be
delivery/carryout units leased from unrelated third parties.
Management anticipates the cost of developing the locations at
approximately $300,000 per restaurant. Development of the new
restaurants will be financed through existing lenders. Management
anticipates spending an additional $450,000 during the remainder of
2002 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.
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: 5/10/02 By: /s/Hal W. McCoy
------- -----------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Date: 5/10/02 By: /s/Terry Freund
------- ---------------
Terry Freund
Chief Financial and Accounting Officer