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 28, 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 September 28, 1999 and December 29, 1998 1 Consolidated Condensed Statements of Income for the Three and Nine Periods Ended September 28, 1999 and September 29, 1998 2 Consolidated Condensed Statements of Cash Flows for the Nine Periods Ended September 28, 1999 and September 29, 1998 3 Notes to Consolidated Condensed Financial Statements 4-6 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations 7-13 Part II. Other Information - --------------------------- Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Exhibit 99.3 Letter to unitholders of 500 or less Class A Units announcing tender offer 16-21 AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) September 28, December 29, ASSETS 1999 1998 - -------------------------------- ------------- ------------ Current assets: Cash and cash equivalents $ 644,274 $ 329,946 Investments available for sale, at fair market value 2,961 68,635 Accounts receivable 248,608 264,754 Due from affiliates 247,168 90,146 Notes receivable from affiliates - current portion 42,836 62,511 Inventories 457,824 441,326 Prepaid expenses 354,112 287,046 ---------- ---------- Total current assets 1,997,783 1,544,364 Net property and equipment 20,056,565 20,843,450 Other assets: Franchise rights, net 5,590,320 5,780,163 Notes receivable from affiliates 46,150 50,201 Deposit with affiliate 450,000 450,000 Goodwill 700,608 714,469 Other 1,805,695 1,320,132 ---------- ---------- $30,647,121 $30,702,779 ========== ========== LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) - ---------------------------------------------- Current liabilities: Accounts payable $ 3,210,049 $ 2,390,582 Due to affiliates 86,365 226,322 Accrued payroll and other taxes 537,079 635,805 Accrued liabilities 1,289,320 1,272,957 Current portion of long-term debt 6,832,670 6,182,101 Current portion of obligations under capital leases 56,459 47,528 ---------- ---------- Total current liabilities 12,011,942 10,755,295 Other noncurrent liabilities 885,989 563,095 Long-term debt 22,215,452 23,447,773 Obligations under capital leases 1,452,573 1,495,486 Minority interests in Operating Partnerships 410,262 395,908 Partners' capital (deficiency): General Partners (8,303) (8,245) Limited Partners: Class A Income Preference 5,428,778 5,543,603 Classes B and C (9,821,161) (10,058,014) Notes receivable employees - sale of partnership units (592,772) - Cost in excess of carrying value of assets acquired (1,323,681) (1,323,681) Cumulative comprehensive loss (11,958) (108,441) ---------- ---------- Total partners' deficiency (6,329,097) (5,954,778) ---------- ---------- $30,647,121 $30,702,779 ========== ========== See accompanying notes. AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) Three Periods Ended Nine Periods Ended September 28, September 29, September 28, September 29, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Net sales $14,602,367 $11,258,419 $43,378,237 $29,946,394 Operating costs and expenses: Cost of sales 3,955,343 3,000,169 11,620,571 7,756,865 Restaurant labor and benefits 4,175,191 3,128,660 12,677,941 8,407,134 Advertising 920,733 732,676 2,809,654 1,965,441 Other restaurant operating expenses exclusive of depreciation and amortization 2,820,253 2,193,784 8,117,026 5,607,156 General and administrative: Management fees - related party 907,148 746,555 2,692,950 2,047,686 Other 215,350 194,473 578,079 453,470 Depreciation and amortization 669,793 523,609 1,872,441 1,483,777 Equity in (income) loss of affiliate - (7,126) - 7,250 ---------- ---------- ---------- ---------- Income from operations 938,556 745,619 3,009,575 2,217,615 Interest income (8,428) (11,912) (13,645) (17,675) Interest expense 771,659 657,084 2,316,843 1,870,469 Loss on sale of investments held for sale 122,155 122,155 - Gain on life insurance settlement - - - (875,533) ---------- ---------- ---------- ---------- Income before minority interest 53,170 100,447 584,222 1,240,354 Minority interests in income of Operating Partnerships 100 1,004 24,959 12,404 ---------- ---------- ---------- ---------- Net income $ 53,070 $ 99,443 $ 559,263 $ 1,227,950 ========== ========== ========== ========== Net income allocated to Partners: Class A Income Preference $ 11,766 $ 20,301 $ 130,021 $ 250,604 Class B $ 15,000 $ 29,765 $ 155,454 $ 367,575 Class C $ 26,304 $ 49,377 $ 273,788 $ 609,771 Weighted average number of Partnership units outstanding during period: Class A Income Preference 813,907 813,840 813,964 813,840 Class B 1,037,666 1,193,214 973,178 1,193,706 Class C 1,819,561 1,979,418 1,713,979 1,980,237 Basic and diluted net income per Partnership unit $ 0.01 $ 0.02 $ 0.16 $ 0.31 Distributions per Partnership unit $ 0.10 $ 0.10 $ 0.30 $ 0.20 <FN> See accompanying notes. </FN> AMERICAN RESTAURANT PARTNERS, L.P. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (Unaudited) Nine Periods Ended September 28, September 29, 1999 1998 ------------- ------------- Cash flows from operating activities: Net income $ 559,263 $ 1,227,950 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,872,441 1,483,777 Provision for deferred rent - 8,184 Equity in loss of affiliate - 7,250 Loss (gain) on disposition of assets 24,437 (11,961) Loss on sale of investments held for sale 122,155 - Gain on insurance settlement - (875,533) Minority interests in income of Operating Partnerships 24,957 12,404 Net change in operating assets and liabilities: Accounts receivable 16,146 (11,735) Due from affiliates (157,022) 4,852 Inventories (16,498) 38,890 Prepaid expenses (67,066) 163,468 Accounts payable 819,467 (1,559,326) Due to affiliates (139,957) 12,290 Accrued payroll and other taxes (98,726) 111,919 Accrued liabilities 16,363 49,802 Other, net 224,255 (212,106) ---------- ---------- Net cash provided by operating activities 3,200,215 450,125 Cash flows from investing activities: Proceeds from sale of investments held for sale 40,002 - Investment in affiliate - (390,000) Additions to property and equipment (901,149) (1,664,520) Proceeds from sale of property and equipment 108,559 17,408 Purchase of franchise rights (15,000) - Collections of notes receivable from affiliates 23,726 26,539 Other (35,610) - ---------- ---------- Net cash used in investing activities (779,472) (2,010,573) Cash flows from financing activities: Payments on long-term borrowings (3,303,752) (10,035,943) Proceeds from long-term borrowings 2,272,000 12,094,950 Payments on capital lease obligations (33,982) (21,988) Proceeds from insurance settlement - 1,039,747 Due from affiliate - (285,600) Distributions to Partners (1,028,583) (796,963) Proceeds from issuance of Class B and C units 68,213 - Repurchase of units (69,708) (13,269) General Partners' distributions from Operating Partnerships (10,603) (8,050) Other, net - 62,162 ---------- ---------- Net cash provided by (used in) financing activities (2,106,415) 2,035,046 ---------- ---------- Net increase in cash and cash equivalents 314,328 474,598 Cash and cash equivalents at beginning of period 329,946 509,398 ---------- ---------- Cash and cash equivalents at end of period $ 644,274 $ 983,996 ========== ========== Supplemental disclosure of non-cash activity: During the first nine 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. In addition, the Partnership issued 267,500 Class B and C units at $2.55 per unit to certain employees in exchange for $68,000 cash and notes receivable of $614,000. See accompanying notes. AMERICAN RESTAURANT PARTNERS, L.P. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Nine Periods Ended September 28, 1999 and September 29, 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 October 1, 1999 the Partnership declared a distribution of $0.10 per unit, and a special distribution of $0.05 per unit, to all unitholders of record as of October 12, 1999. The distribution is not reflected in the September 28, 1999 consolidated condensed financial statements. On October 29, 1999 the Partnership announced that it is offering its unitholders that own 500 or less Class A Income Preference Units of limited partner interests (the "Units") to tender their units up to an aggregate of 100,000 units, to the Partnership at a price of $3.25 per Unit (the "Offer"). The Offer is scheduled to expire at 5:00 p.m. Central Time on December 20, 1999, unless extended by the Partnership. The Offer is not conditioned upon any minimum number of units being tendered. 3. Comprehensive Income -------------------- Comprehensive income is comprised of the following: Three periods ended Nine periods ended Sept. 28, Sept. 29, Sept. 28, Sept. 29, 1999 1998 1999 1998 --------- --------- --------- --------- Net income $ 53,070 $ 99,443 $ 559,263 $1,227,950 Change in unrealized loss in available for sale securities 118,983 (34,866) 96,483 (118,116) --------- -------- --------- --------- $ 172,053 $ 64,577 $ 655,746 $1,109,834 ========= ======== ========= ========= 4. Long-term Debt - Covenant Noncompliance --------------------------------------- The Partnership has made all scheduled debt payments; however, at September 28, 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 $3,856,000 of Magic's borrowings with FMAC is reflected in the current portion of long-term debt. 5. Class B and C Restricted Units Sold to Employees ------------------------------------------------ During the third quarter, the Partnership issued 267,500 Class B and C Units at $2.55 per unit to certain employees in exchange for a 10% percent down payment and notes receivable for the remaining 90% of the purchase price. Notes receivable representing 40% of the purchase price, together with interest thereon at a rate of 9%, will be repaid by the cash distributions paid on the units. Notes receivable representing the remaining 50% of the purchase price will be forgiven by the Partnership over a four year period. The forgiveness of the notes receivable will be recognized as compensation expense over the four year period. The units are subject to a repurchase agreement whereby the Partnership has agreed to repurchase the Units in the event the employee is terminated for an amount not to exceed $2.55 per unit. 6. 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 September 28, 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 September 28, 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 entire three and nine periods ended September 28, 1999 but include only one period of Magic for the three and nine periods ended September 29, 1998. The tables below show the historical statements of operations as well as proforma results of operations for the three and nine periods ended September 29, 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 nine periods ended September 28, 1999 and September 29, 1998. Three Periods Ended September 28, 1999 Compared to - -------------------------------------------------- Proforma Three Periods Ended September 29, 1998 - ----------------------------------------------- Three Periods Ended ------------------------------------------- September 28, September 29, September 29, 1999 1998 1998 ---------------------------- Historical Proforma (1) ------------------------------------------ Net sales $14,602,367 $11,258,419 $13,641,017 Operating costs and expenses: Cost of sales 3,955,343 3,000,169 3,616,807 Restaurant labor and benefits 4,175,191 3,128,660 3,822,563 Advertising 920,733 732,676 924,973 Other restaurant operating expenses exclusive of depreciation and amortization 2,820,253 2,193,784 2,646,848 General and administrative: Management fees 907,148 746,555 853,772 Other 215,350 194,473 239,095 Depreciation and amortization 669,793 523,609 655,113 Equity in income of affiliate - (7,126) - --------------------------------------- Income from operations 938,556 745,619 881,846 Interest income (8,428) (11,912) (11,912) Interest expense 771,659 657,084 784,603 Loss on sale of investments held for sale 122,155 - - --------------------------------------- Income before minority interest 53,170 100,447 109,155 Minority interests in income (loss) of Operating Partnerships 100 1,004 (6,700) --------------------------------------- Net income $ 53,070 $ 99,443 $ 115,855 ======================================= (1) The proforma statement of operations for the three periods ended September 29, 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 September 28, 1999 increased $961,000 from proforma net sales of $13,641,000 in 1998 to net sales of $14,602,000 for 1999, a 7.0% 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 September 28, 1999 increased $57,000 to $939,000, a 6.4% increase over the proforma income from operations of $882,000 for the three periods ended September 29, 1998. Income from operations represented 6.4% of net sales for the three periods ended September 28, 1999 compared to proforma income from operations of 6.5% of proforma net sales for the three periods ended September 29, 1998. Cost of sales as a percentage of net sales increased from 26.5% of proforma net sales for the three periods ended September 29, 1998 to 27.1% of net sales for the three periods ended September 28, 1999 primarily due to increased commodity costs. Labor and benefits expense was 28.0% of proforma net sales in 1998 compared to 28.6% 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 6.8% of proforma net sales in 1998 to 6.3% of net sales in 1999. Other restaurant operating expenses amounted to 19.3% of net sales in 1999 compared to 19.4% of proforma net sales in 1998. General and administrative expenses were 7.7% of net sales in 1999 compared to 8.0% of proforma net sales in 1998. Depreciation and amortization expense decreased from 4.8% of proforma net sales in 1998 to 4.6% of net sales in 1999. NET EARNINGS. Net earnings decreased $63,000 to net income of $53,000 for the three periods ended September 28, 1999 compared to proforma net income of $116,000 for the three periods ended September 29, 1998. The increase in income from operations noted above was offset by a $122,000 loss on the sale of investments held for sale. Nine Periods Ended September 28, 1999 Compared to - ------------------------------------------------- Proforma Nine Periods Ended September 29, 1998 - ---------------------------------------------- Nine Periods Ended ------------------------------------------ September 28, September 29, September 29, 1999 1998 1998 ---------------------------- Historical Proforma (2) ------------------------------------------ Net sales $43,378,237 $29,946,394 $40,034,215 Operating costs and expenses: Cost of sales 11,620,571 7,756,865 10,335,730 Restaurant labor and benefits 12,677,941 8,407,134 11,426,603 Advertising 2,809,654 1,965,441 2,716,031 Other restaurant operating expenses exclusive of depreciation and amortization 8,117,026 5,607,156 7,810,214 General and administrative: Management fees 2,692,950 2,047,686 2,501,637 Other 578,079 453,470 603,419 Depreciation and amortization 1,872,441 1,483,777 1,932,575 Equity in loss of affiliate - 7,250 - --------------------------------------- Income from operations 3,009,575 2,217,615 2,708,006 Interest income (13,645) (17,675) (17,675) Interest expense 2,316,843 1,870,469 2,303,434 Loss on sale of investments held for sale 122,155 - - Gain on life insurance settlement - (875,533) (875,533) --------------------------------------- Income before minority interest 584,222 1,240,354 1,297,780 Minority interests in income (loss) of Operating Partnerships 24,959 12,404 (7,962) --------------------------------------- Net income $ 559,263 $ 1,227,950 $ 1,305,742 ======================================= (2) The proforma statement of operations for the nine periods ended September 29, 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 nine periods ended September 28, 1999 increased $3,344,000 from proforma net sales of $40,034,000 in 1998 to net sales of $43,378,000 for 1999, an 8.4% 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 nine periods ended September 28, 1999 increased $302,000 to $3,010,000, an 11.1% increase over the proforma income from operations of $2,708,000 for the first nine periods of 1998. Income from operations represented 6.9% of net sales for the nine periods ended September 28, 1999 compared to proforma income from operations of 6.8% of proforma net sales for the nine periods ended September 29, 1998. Cost of sales as a percentage of net sales increased from 25.8% of proforma net sales for the nine periods ended September 29, 1998 to 26.8% of net sales for the nine periods ended September 28, 1999 primarily due to higher commodity costs. Labor and benefits expense was 28.5% of proforma net sales in 1998 compared to 29.2% 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 6.5% of net sales in 1999. Other restaurant operating expenses amounted to 18.7% of net sales in 1999 compared to 19.5% of proforma net sales in 1998. This decrease is primarily attributable to 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 7.8% 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 4.3% of net sales in 1999. NET EARNINGS. Net earnings decreased $747,000 to net income of $559,000 for the nine periods ended September 28, 1999 compared to proforma net income of $1,306,000 for the nine periods ended September 29, 1998. The 1998 period net income included a gain on life insurance settlement of $876,000. Without the gain on life insurance settlement, the 1999 period net earnings increased $129,000 over 1998. The increase in income from operations noted above was offset by a $122,000 loss on the sale of investments held for sale, a $13,000 increase in interest expense and a $33,000 increase in minority interest in earnings of affiliate. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At September 28, 1999 the Partnership had a working capital deficiency of $10,014,000 compared to a working capital deficiency of $9,211,000 at December 29, 1998. At September 28, 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 $3,856,000 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 $651,000 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 nine periods ended September 28, 1999, net cash provided by operating activities amounted to $3,200,000 compared to $450,000 for the nine periods ended September 29, 1998. This increase is primarily attributable to an $819,000 increase in accounts payable in 1999 compared to a $1,559,000 decrease in accounts payable in 1998. INVESTING ACTIVITIES. Property and equipment expenditures represent the largest investing activity by the Partnership. Capital expenditures for the nine periods ended September 28, 1999 were $901,000 of which $615,000 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 nine periods ended September 28, 1999 were $1,050,000 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 28, 1999, the Partnership's proceeds from borrowings amounted to $2,272,000 of which $1,605,000 was used to refinance debt to obtain favorable terms and $300,000 was used to purchase land for future development. The remainder was used primarily for working capital. Management anticipates spending an additional $180,000 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. 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. On October 29, 1999 the Partnership announced that it is offering its unitholders that own 500 or less Class A Income Preference Units of limited partner interests to tender their units up to an aggregate of 100,000 units, to the Partnership at a price of $3.25 per unit. See Part II, Item 5 - Other Information. 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 5. Other Information ----------------- The Partnership is offering its unitholders that own 500 or less Class A Income Preference Units of limited partners interests (the "Units") to tender their Units up to an aggregate of 100,000 Units, to the Partnership at a price of $3.25 per Unit (the "Offer"). The Partnership currently has 813,907 Class A Units outstanding. The Offer is scheduled to expire at 5:00 p.m. Central Time on December 20, 1999, unless extended by the Partnership. The Offer is not conditioned upon any minimum number of units being tendered. All unitholders owning 500 or less Class A Units were mailed details of the Offer, including how to tender their Units. A copy of this letter is Exhibit 99.3 hereto. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 99.3 Letter to unitholders of 500 or less Class A Units announcing tender offer (b) Reports on Form 8-K During the third quarter of 1999, the Partnership filed a Form 8-K dated September 9, 1999 reporting a change in certifying accounants. 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: 11/10/99 By: /s/ Hal W. McCoy -------- ---------------- Hal W. McCoy President and Chief Executive Officer Date: 11/10/99 By: /s/ Terry Freund -------- ---------------- Terry Freund Chief Financial Officer Exhibit 99.3 AMERICAN RESTAURANT PARTNERS, L.P. 555 N. Woodlawn, Suite 3102 Wichita, KS 67208 316-684-5119 316-684-9780/Fax October 26, 1999 TO OUR PARTNERS: American Restaurant Partners, L.P., a Delaware limited partnership ("the Partnership"), hereby invites its unitholders owning 500 or less Class A Income Preference Units of limited partner interests (the "Units"), to tender all, but not less than all of their Units up to an aggregate of 100,000 Units, to the Partnership at a price of $3.25 per Unit, less any distributions paid after October 29, 1999, net to the seller in cash, without interest thereon, as specified by tendering unitholders, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal (which together constitute the "Offer"). Units will be accepted for purchase on a first-come, first-buy basis. This offer is scheduled to expire at 5:00 p.m. Central Time on December 20, 1999, unless the Offer is extended by the Partnership. The Offer is not conditioned upon any minimum number of units being tendered. The Partnership will not be obligated to purchase more than 100,000 Units pursuant to the Offer. The Board of Directors of the managing general partner, RMC American Management, Inc. ("RAM"), has approved the Offer. However, none of RAM, the Board of Directors of RAM, nor the Partnership makes any recommendation to unitholders as to whether to tender or refrain from tendering their Units. Each unitholder must make the decision whether to tender Units. Tenders of less than all Units held by a unitholder will not be accepted. The Offer provides unitholders who are considering a sale of their Units with the opportunity to sell their Units at a price of $3.25 per Unit. Since November, 1997, in order to remain taxed as a partnership, the Partnership limited the number of Units traded in a taxable year. The Partnership has maintained a Qualified Matching Service ("QMS") for investors wanting to buy or sell Partnership Units. During 1998,the number of Units matched through the QMS averaged over 5,100 Units each month, at sales prices ranging from $1.90 per Unit to $2.80 per Unit. The average price for Units matched in 1998 was $2.42. During 1999, to date, the number of Units matched dropped to an average of 878 Units each month, at sales prices ranging from $2.55 per Unit to $2.80 per Unit. The average price for Units matched in 1999 was $2.73. The Partnership will continue to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, following completion of the Offer of the purchase of Units pursuant to the Offer. Procedures for Tendering Units - ------------------------------ For Units to be validly tendered pursuant to the Offer, the certificates for such Units, together with a properly completed and duly executed Letter of Transmittal, must be received prior to 5:00 p.m. Central Time on December 20, 1999, by the Partnership at the following address: American Restaurant Partners, L.P. Tender Offer 555 N. Woodlawn, Suite 3102 Wichita, KS 67208 You will need to sign the back of your certificate and have your signature guaranteed, by a commercial bank or trust company, or by a member firm of the NASDAQ. If you do not have your certificate because a brokerage firm holds your Units, you will have to notify your stockbroker to have one issued. It may take as long as four weeks for your stockbroker to issue you the certificate. After receiving your stock certificate, the Partnership will send you a check. The amount paid to you will be calculated by multiplying the number of Units you tender by the purchase price per Unit, then subtracting any distributions paid by the Partnership after October 29, 1999. There will be no fee charged by the Partnership. Information Concerning the Partnership - -------------------------------------- The Partnership owns and operates 89 Pizza Hut restaurants in its exclusive franchise territory in the states of Georgia, Louisiana, Montana, Oklahoma, Texas and Wyoming. The Partnership is a Delaware limited partnership and was formed on April 27, 1987. Its executive offices are located at 555 North Woodlawn, Suite 3102, Wichita, Kansas 67208, telephone (316) 684-5119. Outlook for 2000 - ---------------- THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH REFLECT MANAGEMENT'S EXPECTATIONS BASED ON CURRENTLY AVAILABLE DATA; HOWEVER THERE CAN BE NO ASSURANCE THE FORWARD-LOOKING STATEMENTS INCLUDED IN THE FOLLOWING DISCUSSION WILL PROVE TO BE ACCURATE. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER INCLUDE, BUT ARE NOT LIMITED TO, CONSUMER DEMAND AND MARKET ACCEPTANCE RISK, THE EFFECT OF ECONOMIC CONDITIONS, 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 FILINGS. On March 13, 1996, the Partnership purchased a 45% interest in a newly formed limited partnership, Oklahoma Magic, L.P. ("Magic"), that owns and operates 27 Pizza Hut restaurants in Oklahoma. The remaining partnership interests were held by Restaurant Management Company of Wichita, Inc. (29.25%), an affiliate of the Partnership, Hospitality Group of Oklahoma, Inc. ("HGO") (25%), the former owners of the Oklahoma restaurants, and RAM (0.75%), the managing general partner of Magic. In August of 1998, Magic redeemed HGO's interest in Magic, which resulted in the Partnership's interest in Magic being increased from 45% to 60%. Therefore, beginning August 11, 1998, Magic's financial statements were consolidated into the Partnership's consolidated financial statements. Prior to August 11, 1998, the Partnership accounted for its investment in Magic using the equity method of accounting. The Partnership purchased its interest in Magic for $3,000,000 in cash. To date the Partnership has not received any cash return on its investment in Magic. Based on its current financial performance Magic may be able to refinance its debt at the end of 1999 on more amenable terms, and thereby lower its annual debt service by approximately $500,000 (unless interest rates increase). A reduction of this magnitude would allow Magic to make cash distributions. Based on its 60% ownership, the Partnership could receive $300,000 in cash distributions from Magic in the first twelve months after Magic refinances its debt, if $500,000 were available for distribution. For the first half of 1999, the Partnership, on a consolidated basis, experienced 9% same store sales growth over last year. This growth was the result of the successful introduction of The Big New Yorker pizza, a 16 inch traditional style pizza. This new product was especially successful in Oklahoma which had same store sales growth of 15 % for the first six periods of the year. Preliminary results for the third quarter of 1999 show same store sales growth of 6.4% for the Partnership. Management of the Partnership does not expect to continue these excellent same store sales growth amounts in 2000. The Big New Yorker was introduced in late January of 1999. It will be difficult to have positive sales growth during the same periods in 2000 due to having to compare to results achieved in 1999 from the most successful new product introduction in the history of Pizza Hut. Commodity costs are expected to negatively impact cost of sales by 0.5% of sales in 2000. The majority of this increase is expected to be in meat toppings. Pork prices have continued to rise since 1998, which was the lowest pork market in 20 years. Management is expecting a minimum wage increase in 2000. A 50 cent increase in the minimum wage would negatively impact cost of labor by approximately 0.5%. Except as disclosed in this letter, the Partnership currently has no plans or proposals which relate to or would result in: (a) an extraordinary partnership transaction, such as an acquisition, merger, reorganization or liquidation, involving the Partnership; (b) a sale or transfer of a material amount of assets of the Partnership; or (c) any material change in the distribution rate or policy, or indebtedness or capitalization of the Partnership. Price Range of Units; Distributions - ----------------------------------- The Units were traded on the American Stock Exchange ("AMEX") under the symbol "RMC" through November 13, 1997. On that date, the Partnership delisted from the AMEX and limited trading of its Units. The Units were traded on the Pink Sheets from December 1, 1997 through January 2, 1998. Effective January 1, 1998, the Partnership maintained a Qualified Matching Service, whereby the Partnership will match persons desiring to buy Units with persons desiring to sell Units. The following table sets forth, for the periods indicated, the high and low per Unit sales price and per Unit cash distributions: Calendar Period High Low Distributions - --------------- ---- --- ------------- 1999 - ---- 1st Quarter $ 2.80 $ 2.55 $ 0.10 2nd Quarter 2.80 2.60 0.10 3rd Quarter 2.80 2.75 0.10 1998 - ---- 1st Quarter 2.75 1.90 0.05 2nd Quarter 2.60 2.25 0.05 3rd Quarter 2.80 2.60 0.10 4th Quarter 2.80 2.70 0.10 1997 - ---- 1st Quarter 5.75 4.81 0.11 2nd Quarter 5.13 4.81 0.11 3rd Quarter 5.00 2.75 0.05 4th Quarter 4.38 1.50 0.05 Due to the lack of significant trading, the price at which sales occur are not necessarily indicative of the fair market value of the Units. On October 1, 1999 the Partnership announced its fourth 1999 cash distribution in the amount of $0.10 per Unit, and a special cash distribution of $0.05 per Unit, for a total of $0.15 per Unit, payable October 29 to unitholders of record as of October 12, 1999. The additional $0.05 distribution represents the proceeds from the sale of one the Partnership's Pizza Hut restaurants in Texas. Summary Historical Consolidated Financial Information - ----------------------------------------------------- Set forth below is certain summary historical consolidated financial information of the Partnership. (Unaudited) Nine Periods Ended Year Ended ------------------ ---------- September 28, September 29, December 29, December 30, 1999 1998 1998 1997 ----------------------------------------------------- Net sales $43,378,237 $29,946,394 $43,543,633 $38,977,341 Loss on restaurant closings - - 23,747 792,219 Equity in loss of affiliate - 7,250 7,250 758,383 Income from operations 3,009,575 2,217,615 2,442,657 433,425 Gain on life insurance settlement - 875,533 875,533 - Net income (loss) 559,263 1,227,950 808,717 (1,993,394) Average total units outstanding 3,501,121 3,987,783 3,985,313 3,993,427 Basic and diluted net income (loss) per Partnership interest 0.16 0.31 0.20 (0.50) Distributions per Partnership interest 0.30 0.20 0.30 0.32 Summary Proforma Consolidated Financial Information - --------------------------------------------------- Set forth below is certain summary proforma financial information of the Partnership, which gives effect to the consolidation of Oklahoma Magic, L.P. as if the Partnership's interest in Oklahoma Magic, L.P. increased from 45% to 60% as of January 1, 1997: (Unaudited) (Unaudited) Nine Periods Ended Year Ended ------------------ ---------- September 28, September 29, December 29, December 30, 1999 1998 1998 1997 ----------------------------------------------------- Net sales $43,378,237 $40,034,215 $53,631,453 $54,689,655 Loss (gain) on restaurant closings - - (93,220) 1,577,018 Income from operations 3,009,575 2,708,006 2,886,881 298,135 Gain on life insurance settlement - 875,533 875,533 - Net income (loss) 559,263 1,305,244 806,324 (2,243,655) Average total units outstanding 3,501,121 3,987,783 3,985,313 3,993,427 Basic and diluted net income (loss) per Partnership interest 0.16 0.33 0.20 (0.56) Distributions per Partnership interest 0.30 0.20 0.30 0.32 Instructions for Tendering Units - -------------------------------- For those desiring to accept the Offer, listed below are the steps to do so: 1. Complete and sign the accompanying Letter of Transmittal 2. Complete on the back of the Stock Certificates the following items: - Date - Signature of each person listed on the front of the certificate - Address - Taxpayer Identification No. - Signatures Guaranteed Your signatures must be guaranteed, by a commercial bank or trust company, or by a member firm of NASDAQ. If the seller is a corporation, you must also send a corporate resolution authorizing the signature of the signers. Attached is a "Sample" copy of the back of a certificate with "X"'s marking the items that must be filled out on the back of your certificates. 3. Return the Letter of Transmittal and the Stock Certificates in the enclosed pre-addressed envelope to: American Restaurant Partners, L.P. Tender Offer 555 N. Woodlawn, Suite 3102 Wichita, KS 67208 We appreciate your consideration of the Offer. If you have any questions, feel free to call Investor Relations at (316) 684-5119. Sincerely, RMC American Management, Inc. /s/ Hal W. McCoy Hal W. McCoy President and Chief Executive Officer of Managing General Partner LETTER OF TRANSMITTAL To Tender Class A Income Preference Units of Limited Partner Interests in AMERICAN RESTAURANT PARTNERS, L.P. Pursuant to the Offer to Purchase Dated October 26, 1999 - ----------------------------------------------------------------------------- THE OFFER EXPIRES AT 5:00 P.M. CENTRAL TIME, ON MONDAY, DECEMBER 20, 1999, UNLESS THE OFFER IS EXTENDED. - ----------------------------------------------------------------------------- The names and addresses of the registered holders should be printed below, exactly as they appear on the certificates, representing Class A Units tendered hereby. The Unit certificate numbers and the number of Class A Units represented by such certificates should be indicated in the appropriate boxes on the Letter of Transmittal. CLASS A UNITS TENDERED ---------------------- Attach Additional Signed List, if Necessary -------------------------------------------- NAME(S) AND ADDRESS(ES) OF - -------------------------- REGISTERED HOLDER(S) -------------------- Total Number of (Please fill in exactly as Class A Units name(s) appear(s) on Unit Unit Certificate Represented by Unit certificate(s) Number Certificate(s) - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Total Units - ----------------------------------------------------------------------------- Ladies and Gentlemen: The undersigned hereby tenders to American Restaurant Partners, L.P., a Delaware limited partnership ("the Partnership"), the above-described Class A Income Preference Units of limited partner interests (the "Units") at a price of $3.25 per Unit, less any distributions paid after October 29, 1999, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 26, 1999, receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together constitute the "Offer"). Subject to, and effective upon, acceptance for payment of and payment for the Units tendered herewith in accordance with the terms and subject to the conditions of the Offer, the undersigned hereby sells, assigns and transfers to or upon the order of the Partnership all right, title and interest in and to all Units that are being tendered hereby. The undersigned hereby represents and warrants to the Partnership that the undersigned has full power and authority to tender, sell, assign and transfer the Units tendered hereby and that, when and to the extent the same are accepted for payment by the Partnership, the Partnership will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Partnership to be necessary or desirable to complete the sale, assignment and transfer of the Units tendered hereby. The undersigned represents and warrants to the Partnership that the undersigned has read and agrees to all of the terms of the Offer. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned, and any obligation of the representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. Please issue the check for the Purchase price of the Units purchased, in the name (s) of the undersigned. Similarly, please mail the check for the Purchase Price of any Units purchased to the undersigned at the address shown below the undersigned's signature (s). The undersigned understands that acceptance of Units by the Partnership for payment will constitute a binding agreement between the undersigned and the Partnership upon the terms and subject to the conditions of the Offer. PLEASE SIGN HERE (to be completed by all unitholders) Signature(s) of Owner(s) Dated: _______________________ Name(s) ______________________________________________ ______________________________________________ (Please Print) Name(s) ______________________________________________ ______________________________________________ Address ______________________________________________ ______________________________________________ (Include Zip Code) Area Code and Telephone Number ______________________________________________________ (Must be signed by registered unitholder(s) exactly as name(s) appear(s) on Unit certificate).