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 29, 1999 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 29, 1999 and December 29, 1998 1 Consolidated Condensed Statements of Operations for the Three and Six Periods Ended June 29, 1999 and June 30, 1998 2 Consolidated Condensed Statements of Cash Flows for the Six Periods Ended June 29, 1999 and June 30, 1998 3 Notes to Consolidated Condensed Financial Statements 4-5 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations 6-12 Part II. Other Information - --------------------------- Item 6. Exhibits and Reports on Form 8-K 13 AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) June 29, December 29, ASSETS 1999 1998 - -------------------------- -------- ------------ Current assets: Cash and cash equivalents $ 41,925 $ 329,946 Investments available for sale, at fair market value 46,135 68,635 Accounts receivable 139,433 264,754 Due from affiliates 254,976 90,146 Notes receivable from affiliates - current portion 46,486 62,511 Inventories 415,348 441,326 Prepaid expenses 300,940 287,046 ---------- ---------- Total current assets 1,245,243 1,544,364 Net property and equipment 20,548,489 20,843,450 Other assets: Franchise rights, net 5,645,160 5,780,163 Notes receivable from affiliates 47,534 50,201 Deposit with affiliate 450,000 450,000 Goodwill 706,822 714,469 Other 1,728,134 1,320,132 ---------- ---------- $30,371,382 $30,702,779 ========== ========== LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) - ---------------------------------------------- Current liabilities: Accounts payable $ 2,132,293 $ 2,390,582 Due to affiliates 117,599 226,322 Accrued payroll and other taxes 702,963 635,805 Accrued liabilities 1,253,440 1,272,957 Current portion of long-term debt 6,976,275 6,182,101 Current portion of obligations under capital leases 54,940 47,528 ---------- ---------- Total current liabilities 11,237,510 10,755,295 Other noncurrent liabilities 944,583 563,095 Long-term debt 22,531,654 23,447,773 Obligations under capital leases 1,467,268 1,495,486 Minority interests in Operating Partnerships 413,869 395,908 Partners' capital (deficiency): General Partners (7,955) (8,245) Limited Partners: Class A Income Preference 5,500,740 5,543,603 Classes B and C (10,261,665) (10,058,014) Cost in excess of carrying value of assets acquired (1,323,681) (1,323,681) Cumulative comprehensive loss (130,941) (108,441) ---------- ---------- Total partners' deficiency (6,223,502) (5,954,778) ---------- ---------- $30,371,382 $30,702,779 ========== ========== See accompanying notes. AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) June 29, June 30, June 29, June 30, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net sales $14,334,285 $ 9,461,329 $28,775,870 $18,687,975 Operating costs and expenses: Cost of sales 3,669,824 2,325,864 7,665,228 4,756,696 Restaurant labor and benefits 4,224,750 2,650,274 8,502,750 5,278,474 Advertising 952,075 621,964 1,888,921 1,232,765 Other restaurant operating expenses exclusive of depreciation and amortization 2,616,017 1,698,582 5,296,773 3,413,372 General and administrative: Management fees - related party 890,719 659,213 1,785,802 1,301,131 Other 214,863 146,452 362,729 258,997 Depreciation and amortization 645,828 514,898 1,202,648 960,168 Equity in (income) loss of affiliate - (10,947) - 14,376 ---------- ---------- ---------- ---------- Income from operations 1,120,209 855,029 2,071,019 1,471,996 Interest income (1,887) (2,768) (5,217) (5,763) Interest expense 780,516 660,197 1,545,184 1,213,385 Gain on life insurance settlement - (875,533) - (875,533) ---------- ---------- ---------- ---------- Income before minority interest 341,580 1,073,133 531,052 1,139,907 Minority interests in income of Operating Partnerships 24,031 10,731 24,859 11,399 ---------- ---------- ---------- ---------- Net income 317,549 1,062,402 506,193 1,128,508 ========== ========== ========== ========== Net income allocated to Partners: Class A Income Preference $ 75,875 $ 216,783 $ 120,616 $ 230,272 Class B 87,478 318,035 139,426 337,823 Class C 154,196 527,584 246,151 560,413 Weighted average number of Partnership units outstanding during period: Class A Income Preference 813,975 813,840 813,993 813,840 Class B 938,456 1,193,852 940,934 1,193,852 Class C 1,654,210 1,976,807 1,661,188 1,976,807 Basic and diluted income before minority interest per Partnership unit $ 0.10 $ 0.27 $ 0.16 $ 0.28 Basic and diluted minority interest per Partnership unit $ 0.01 $ - $ 0.01 $ - Basic and diluted net income per Partnership unit $ 0.09 $ 0.27 $ 0.15 $ 0.28 Distributions per Partnership interest $ 0.10 $ 0.05 $ 0.20 $ 0.10 <FN> See accompanying notes. </FN> AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (Unaudited) Six Periods Ended June 29, June 30, 1999 1998 -------- -------- Cash flows from operating activities: Net income $ 506,193 $1,128,508 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,202,648 960,168 Provision for deferred rent - 8,184 Equity in loss of affiliate - 14,376 Loss (gain) on disposition of assets 6,898 (5,331) Gain on insurance settlement - (875,533) Minority interests in income of Operating Partnerships 24,859 11,399 Net change in operating assets and liabilities: Accounts receivable 125,321 (1,809) Due from affiliates (164,830) (1,328) Inventories 25,978 48,350 Prepaid expenses (13,894) 77,940 Accounts payable (258,289) (1,512,222) Due to affiliates (108,723) 31,658 Accrued payroll and other taxes 67,158 98,708 Accrued liabilities (24,166) 21,272 Other, net 395,882 (165,245) ---------- ---------- Net cash provided by (used in) operating activities 1,785,035 (160,905) Cash flows from investing activities: Additions to property and equipment (704,542) (325,554) Proceeds from sale of property and equipment 470 16,452 Collections of notes receivable from affiliates 18,692 17,707 Other (35,610) - ---------- ---------- Net cash used in investing activities (720,990) (291,395) Cash flows from financing activities: Payments on long-term borrowings (1,051,945) (9,729,109) Proceeds from long-term borrowings 480,000 10,700,000 Payments on capital lease obligations (20,806) (17,748) Proceeds from insurance settlement - 1,039,747 Distributions to Partners (682,710) (398,493) Repurchase of units (69,707) - General Partners' distributions from Operating Partnerships (6,898) (4,025) Other, net - 37,766 ---------- ---------- Net cash (used in) provided by financing activities (1,352,066) 1,628,138 ---------- ---------- Net (decrease) increase in cash and cash equivalents (288,021) 1,175,838 Cash and cash equivalents at beginning of period 329,946 509,398 ---------- ---------- Cash and cash equivalents at end of period $ 41,925 $1,685,236 ========== ========== Supplemental disclosure of non-cash activity: During the first six periods of 1999, the Partnership signed a note payable for $450,000, payable over 15 years, to purchase a 25% interest in a Limited Liability Company that owns and operates an aircraft. See accompanying notes. AMERICAN RESTAURANT PARTNERS, L.P. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Six Periods Ended June 29, 1999 and June 30, 1998 (Unaudited) 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. and APP Concepts, LLC. Effective August 11, 1998, the interest of American Pizza Partners, L.P. in Oklahoma Magic, L.P. (Magic) increased from 45% to 60% in connection with Magic's purchase of a 25% interest from a former limited partner. Accordingly, the Partnership began consolidating the accounts of Magic from that date. American Restaurant Partners, L.P., American Pizza Partners, L.P., APP Concepts, LLC and Magic are hereinafter collectively referred to as the Partnership. All significant intercompany balances and transactions have been eliminated. The Partnership accounted for its investment in Magic using the equity method of accounting prior to the increase in their ownership from 45% to 60%. The consolidated condensed financial statements have been prepared without audit. The Balance Sheet at December 29, 1998 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 29, 1998. The results of operations for interim periods are not necessarily indicative of the results for the full year. The Partnership historically has realized approximately 40% of its operating profits in periods six through nine (18 weeks). 2. Subsequent Events ----------------- On June 30, 1999, the Partnership refinanced $1.6 million of notes payable to Intrust Bank with new notes to CNL Financial Services, Inc. which mature July 1, 2019. Accordingly, the current and non- current portion of long-term debt reflects the terms of the agreements. On July 1, 1999 the Partnership declared a distribution of $0.10 per unit to all unitholders of record as of July 12, 1999. The distribution is not reflected in the June 29, 1999 consolidated condensed financial statements. 3. Comprehensive Income -------------------- Comprehensive income is comprised of the following: Three periods ended Six periods ended June 29, June 30, June 29, June 30, 1999 1998 1999 1998 --------- --------- --------- --------- Net income $ 317,549 $1,062,402 $ 506,193 $1,128,508 Change in unrealized loss in available for sale securities (2,250) (31,500) (22,500) (83,250) --------- --------- --------- --------- $ 315,299 $1,030,902 $ 483,693 $1,045,258 ========== ========= ========= ========= 4. Long-term Debt - Covenant Noncompliance --------------------------------------- The Partnership has made all scheduled debt payments; however, at June 29, 1999 and December 29, 1998, Magic was not in compliance with the fixed charge coverage ratio covenant required by the outstanding notes payable to Franchise Mortgage Acceptance Company (FMAC). Accordingly, the entire $3,966,000 of Magic's borrowings with FMAC is reflected in the current portion of long-term debt. 5. Recently Issued Accounting Standards ------------------------------------ In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement No. 133). Statement No. 133 defines derivative instruments and requires these items be recognized as assets or liabilities in the statements of financial position. This Statement is effective for fiscal years beginning after June 15, 2000. As of June 29, 1999, the Partnership does not have any derivative instruments. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- As of June 29, 1999, the Partnership operated 71 traditional Pizza Hut red roof restaurants, 15 delivery/carryout units and three dualbrand locations. As discussed in the notes to the accompanying consolidated condensed financial statements, the Partnership's interest in Magic increased from 45% to 60% effective August 11, 1998. The Partnership began consolidating the accounts of Magic from that date. The Partnership accounted for its investment in Magic using the equity method of accounting prior to the increase in ownership from 45% to 60%. Therefore, the consolidated results of operations include the accounts of Magic for the three and six periods ended June 29, 1999 but not for the three and six periods ended June 30, 1998. The tables below show the historical statements of operations as well as proforma results of operations for the three and six periods ended June 30, 1998 assuming the Partnership's interest in Magic increased to 60% as of December 31, 1997. The proforma results are shown in order to provide a more meaningful basis for a comparative discussion of the three and six periods ended June 29, 1999 and June 30, 1998. Three Periods Ended June 29, 1999 Compared to - --------------------------------------------- Proforma Three Periods Ended June 30, 1998 - ------------------------------------------ Three Periods Ended ------------------------------------ June 29, June 30, June 30, 1999 1998 1998 ----------------------- ------------ Historical Proforma (1) ----------------------- ------------ Net sales $14,334,285 $ 9,461,329 $13,345,388 Operating costs and expenses: Cost of sales 3,669,824 2,325,864 3,265,559 Restaurant labor and benefits 4,224,750 2,650,274 3,818,182 Advertising 952,075 621,964 929,992 Other restaurant operating expenses exclusive of depreciation and amortization 2,616,017 1,698,582 2,571,328 General and administrative: Management fees 890,719 659,213 833,995 Other 214,863 146,452 204,833 Depreciation and amortization 645,828 514,898 645,382 Equity in income of affiliate - (10,947) - ---------- ---------- ---------- Income from operations 1,120,209 855,029 1,076,117 Interest income (1,887) (2,768) (2,768) Interest expense 780,516 660,197 801,619 Gain on life insurance settlement - (875,533) (875,533) ---------- ---------- ---------- Income before minority interest 341,580 1,073,133 1,152,799 Minority interests in income of Operating Partnerships 24,031 10,731 9,730 ---------- ---------- ---------- Net income $ 317,549 $ 1,062,402 $ 1,143,069 ========== ========== ========== (1) The proforma statement of operations for the three periods ended June 30, 1998 includes the consolidation of Magic as if the Partnership's interest in Magic increased to 60% as of December 31, 1997. NET SALES. Net sales for the three periods ended June 29, 1999 increased $989,000 from proforma net sales of $13,345,000 in 1998 to net sales of $14,334,000 for 1999, a 7.4% increase. This increase was attributable primarily to the continued success of The Big New Yorker pizza, a 16 inch traditional style pizza introduced in early 1999. INCOME FROM OPERATIONS. Income from operations for the three periods ended June 29, 1999 increased $44,000 to $1,120,000, a 4.1% increase over the proforma income from operations of $1,076,000 for the three periods ended June 30, 1998. Income from operations represented 7.8% of net sales for the three periods ended June 29, 1999 compared to proforma income from operations of 8.1% of proforma net sales for the three periods ended June 30, 1998. Cost of sales as a percentage of net sales increased from 24.5% of proforma net sales for the three periods ended June 30, 1998 to 25.6% of net sales for the three periods ended June 30, 1999 primarily due to costs associated with the Star Wars promotion. Labor and benefits expense was 28.6% of proforma net sales in 1998 compared to 29.5% of net sales in 1999. This increase is primarily attributable to increased staffing of delivery drivers at higher, more competitive wages. Advertising decreased slightly as a percentage of net sales from 7.0% of proforma net sales in 1998 to 6.6% of net sales in 1999. Other restaurant operating expenses amounted to 18.3% of net sales in 1999 compared to 19.3% of proforma net sales in 1998. This decrease is primarily attributable to two factors: 1) increased premium sales in 1999 related to the Star Wars promotion and 2) lower occupancy costs in 1999 through the purchase of previously leased properties and the buyout or expiration of leases on closed restaurants during the last half of 1998. General and administrative expenses were 7.9% of net sales in 1999 compared to 7.8% of proforma net sales in 1998. Depreciation and amortization expense decreased from 4.8% of proforma net sales in 1998 to 4.5% of net sales in 1999. NET EARNINGS. Net earnings decreased $825,000 to net income of $318,000 for the three periods ended June 29, 1999 compared to proforma net income of $1,143,000 for the three periods ended June 30, 1998. The 1998 period net income included a gain on life insurance settlement of $876,000. Net of the gain on life insurance settlement, net earnings increased $51,000 over the prior period primarily due to the increase in income from operations noted above. Six Periods Ended June 29, 1999 Compared to - ------------------------------------------- Proforma Six Periods Ended June 30, 1998 - ---------------------------------------- Six Periods Ended ------------------------------------ June 29, June 30, June 30, 1999 1998 1998 ----------------------- ------------ Historical Proforma (2) ----------------------- ------------ Net sales $28,775,870 $18,687,975 $26,393,198 Operating costs and expenses: Cost of sales 7,665,228 4,756,696 6,718,923 Restaurant labor and benefits 8,502,750 5,278,474 7,604,040 Advertising 1,888,921 1,232,765 1,791,058 Other restaurant operating expenses exclusive of depreciation and amortization 5,296,773 3,413,372 5,163,368 General and administrative: Management fees 1,785,802 1,301,131 1,647,865 Other 362,729 258,997 364,324 Depreciation and amortization 1,202,648 960,168 1,277,462 Equity in loss of affiliate - 14,376 - ---------- ---------- ---------- Income from operations 2,071,019 1,471,996 1,826,158 Interest income (5,217) (5,763) (5,763) Interest expense 1,545,184 1,213,385 1,518,831 Gain on life insurance settlement - (875,533) (875,533) ---------- ---------- ---------- Income before minority interest 531,052 1,139,907 1,188,623 Minority interests in income (loss) of Operating Partnerships 24,859 11,399 (12,778) ---------- ---------- ---------- Net income $ 506,193 $ 1,128,508 $ 1,201,401 ========== ========== ========== (2) The proforma statement of operations for the six periods ended June 30, 1998 includes the consolidation of Magic as if the Partnership's interest in Magic increased to 60% as of December 31, 1997. NET SALES. Net sales for the six periods ended June 29, 1999 increased $2,383,000 from proforma net sales of $26,393,000 in 1998 to net sales of $28,776,000 for 1999, a 9.0% increase. This increase was attributable primarily to the success of The Big New Yorker pizza, a 16 inch traditional style pizza introduced in early 1999. INCOME FROM OPERATIONS. Income from operations for the six periods ended June 29, 1999 increased $245,000 to $2,071,000, a 13.4% increase over the proforma income from operations of $1,826,000 for the first six periods of 1998. Income from operations represented 7.2% of net sales for the six periods ended June 29, 1999 compared to proforma income from operations of 6.9% of proforma net sales for the six periods ended June 30, 1998. Cost of sales as a percentage of net sales increased from 25.5% of proforma net sales for the six periods ended June 30, 1998 to 26.6% of net sales for the six periods ended June 29, 1999 due to higher commodity costs and costs associated with the Star Wars promotion. Labor and benefits expense was 28.8% of proforma net sales in 1998 compared to 29.5% of net sales in 1999. This increase is primarily attributable to increased delivery driver staffing at higher, more competitive wages. Advertising decreased slightly as a percentage of net sales from 6.8% of proforma net sales in 1998 to 6.6% of net sales in 1999. Other restaurant operating expenses amounted to 18.4% of net sales in 1999 compared to 19.6% of proforma net sales in 1998. This decrease is primarily attributable to two factors: 1) increased premium sales in 1999 related to the Star Wars promotion and 2) lower occupancy costs in 1999 through the purchase of previously leased properties and the buyout or expiration of leases on closed restaurants during the last half of 1998. General and administrative expenses decreased from 7.6% of proforma net sales in 1998 to 7.5% of net sales in 1999. Proforma depreciation and amortization expense decreased from 4.8% of proforma net sales in 1998 to 4.2% of net sales in 1999. NET EARNINGS. Net earnings decreased $695,000 to net income of $506,000 for the six periods ended June 29, 1999 compared to proforma net income of $1,201,000 for the six periods ended June 30, 1998. The 1998 period net income included a gain on life insurance settlement of $876,000. Without the gain on life insurance settlement, net earnings increased $181,000 over the prior period due primarily to the increase in income from operations noted above net of a $26,000 increase in interest expense and a $38,000 increase in minority interest in earnings of affiliate. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At June 29, 1999 the Partnership had a working capital deficiency of $9,992,000 compared to a working capital deficiency of $9,211,000 at December 29, 1998. At June 29, 1999 and December 29, 1998, Magic was not in compliance with the fixed charge coverage ratio covenant required by the outstanding notes payable to Franchise Mortgage Acceptance Company (FMAC). Accordingly, the entire $3,966,000 of Magic's borrowings with FMAC is reflected in the current portion of long-term debt. There have been no defaults in making scheduled payments of either principal or interest. The remaining increase in working capital deficiency is primarily due to a $794,000 increase in current portion of long-term debt. 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 29, 1999, net cash provided by operating activities amounted to $1,785,000 compared to net cash used by operating activities of $161,000 for the six periods ended June 30, 1998. This increase is primarily attributable to a $1,512,000 decrease in accounts payable in 1998. INVESTING ACTIVITIES. Property and equipment expenditures represent the largest investing activity by the Partnership. Capital expenditures for the six periods ended June 29, 1999 were $705,000 of which $419,000 was for replacement of equipment in existing restaurants and $286,000 was for the purchase of land for future development. FINANCING ACTIVITIES. Cash distributions declared during the six periods ended June 29, 1999 were $683,000 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 six periods ended June 29, 1999, the Partnership's proceeds from borrowings amounted to $480,000 of which $300,000 was used to purchase land for future development. The remaining $180,000 was for a short-term loan to an affiliate from whom the Partnership leases a restaurant. The affiliate has a commitment to refinance debt related to the leased property and repay the loan to the Partnership by August 31, 1999. Management anticipates spending an additional $320,000 during the remainder of 1999 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 equipment needs or lower in the event of inadequate net cash flow from operating activities. Sales growth in the second quarter was primarily attributable to the continued success of the Big New Yorker pizza. The expected increase in sales from the promotional tie-in with Star Wars never materialized. Since the beginning of July, cheese prices have significantly increased and will have a negative impact on margins. This increase was unexpected, as it is a demand driven increase and not a milk supply issue. Cheese prices are expected to remain at this high level for third quarter and possibly most of fourth quarter. Cheese prices increased last July and reached record levels in December and January before decreasing to below normal levels in February. YEAR 2000 COMPLIANCE - -------------------- The Partnership has instituted a Year 2000 project to prepare its computer systems and communication systems for the Year 2000. The project includes identification and assessment of all software, hardware and equipment that could potentially be affected by the Year 2000 issue. The Partnership uses external agents on nearly all critical applications and systems. The external agents have assured the Partnership they expect to be fully Year 2000 compatible before Year 2000 issues will impact the Partnership. The Year 2000 compatible programs are currently being tested by the Partnership. The Partnership also receives representations and warranties from vendors of all new hardware and software that such systems are Year 2000 compliant. The Partnership does not believe costs related to Year 2000 compatibility will be material to its financial position or results of operations. However, the Partnership may be vulnerable to the failure of external agents and critical suppliers to resolve their own Year 2000 issues. Where practicable, the Partnership will assess and attempt to mitigate its risks with respect to the failure of these entities to be Year 2000 ready. In the event external agents do not complete their Year 2000 readiness, the Partnership would be unable to process accounts payable and payroll. The Partnership has contingency plans for critical applications that include, among other actions, manual workarounds, adjusting staffing strategies and outsourcing applications. The effect, if any, on the Partnership's results of operations from the failure of such parties to be Year 2000 ready is not reasonably estimable. OTHER MATTERS - ------------- 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. The Partnership's earnings are affected by changes in interest rates primarily from its long-term debt arrangements. Under its current policies, the Partnership does not use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point adverse move (increase) in interest rates along the entire interest rate yield curve would increase the Partnership's interest expense and decrease net income by $63,000 over the term of the related debt. This amount was determined by considering the impact of the hypothetical interest rates on the Partnership's borrowing cost. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act which are intended to be covered by the safe harbors created thereby. Although the Partnership believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to, consumer demand and market acceptance risk, the effect of economic conditions, including interest rate fluctuations, the impact of competing restaurants and concepts, the cost of commodities and other food products, labor shortages and costs and other risks detailed in the Partnership's Securities and Exchange Commission filings. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits None (b) Reports on Form 8-K During the fiscal period covered by this Form 10-Q, no reports on Form 8-K were filed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN RESTAURANT PARTNERS, L.P. (Registrant) By: RMC AMERICAN MANAGEMENT, INC. Managing General Partner Date: 8/12/99 By: /s/Hal W. McCoy ------- ---------------------------- Hal W. McCoy President and Chief Executive Officer Date: 8/12/99 By: /s/Terry Freund ------- ----------------------- Terry Freund Chief Financial Officer