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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 28, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _______ to _______
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 No.)
555 N. Woodlawn, Suite 3102
Wichita, Kansas 67208
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (316) 684-5119
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class
-------------------
Class A Income Preference Units of
Limited Partner Interests
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K. (X)
As of March 1, 2000 the aggregate market value of the income
preference units held by non-affiliates of the registrant was
$2,561,215.
PART I
Item 1. Business
- ------------------
General Development of Business
- -------------------------------
American Restaurant Partners, L.P., a Delaware limited
partnership (the "Partnership"), was formed on April 27, 1987 for
the purpose of acquiring and operating through American Pizza
Partners, L.P., a Delaware limited partnership ("APP"),
substantially all of the restaurant operations of RMC Partners,
L.P. ("RMC") in connection with a public offering of Class A
Income Preference units by the Partnership. The transfer of
assets from RMC was completed on August 21, 1987 and the
Partnership commenced operations on that date. Subsequently, the
Partnership completed its public offering of 800,000 Class A
Income Preference units and received net proceeds of $6,931,944.
The Partnership is a 99% limited partner in APP which conducts
substantially all of the business for the benefit of the
Partnership. RMC American Management, Inc. ("RAM") is the
managing general partner of both the Partnership and APP. RAM and
RMC own an aggregate 1% interest in APP.
On March 13, 1996, APP purchased a 45% interest in Oklahoma
Magic, L.P. (Magic), a newly formed limited partnership that owns
and operates Pizza Hut restaurants in Oklahoma. Effective August
11, 1998, APP's interest in Magic increased from 45% to 60% in
connection with Magic's purchase of a 25% interest from a former
limited partner. RAM, which owns a 1.0% interest in Magic, is
the managing general partner of Magic. The remaining 39.0%
interest is held by Restaurant Management Company of Wichita,
Inc. (the Management Company). APP and Magic are collectively
referred to as the "Operating Partnerships".
As of December 28, 1999, the Partnership owned and operated a
total of 87 restaurants (collectively, the "Restaurants"). APP
owned and operated 53 traditional "Pizza Hut" restaurants, 5
"Pizza Hut" delivery/carryout facilities and 3 dualbrand
locations. During 1999, APP sold one "Pizza Hut" restaurant.
Magic owned and operated 17 traditional "Pizza Hut" restaurants
and 9 "Pizza Hut" delivery/carryout facilities. Magic closed one
"Pizza Hut" delivery/carryout unit upon expiration of its lease
during 1999. The following table sets forth the states in which
the Partnership's Pizza Hut Restaurants are located:
Units Units Units Units
Open At Sold in Closed in Open At
12-29-98 1999 1999 12-28-99
-------- ------- --------- --------
Georgia 8 -- -- 8
Louisiana 1 -- -- 1
Montana 19 -- -- 19
Texas 26 1 -- 25
Wyoming 8 -- -- 8
Oklahoma 27 -- 1 26
--- --- --- ---
Total 89 1 1 87
=== === === ===
Financial Information About Industry Segments
- ---------------------------------------------
The restaurant industry is the only business segment in which
the Partnership operates.
Narrative Description of Business
- ---------------------------------
The Partnership operates the Restaurants under license from
Pizza Hut, Inc. ("PHI"), a subsidiary of Tricon Global
Restaurants, Inc. ("Tricon") which was created with the spin-off
of PepsiCo, Inc.'s restaurant division. Since it was founded in
1958, PHI has become the world's largest pizza restaurant chain
in terms of both sales and number of restaurants. As of year-end
1999, there were over 8,000 units in the United States and more
than 3,000 units located outside the United States in 87
countries. PHI owns and operates approximately 29% of the
restaurants in the United States and 20% of those in foreign
countries.
All Pizza Hut restaurants offer substantially the same menu
items, including several varieties of pizza as well as pasta,
salads and sandwiches. All food items are prepared from high
quality ingredients in accordance with PHI's proprietary recipes
and a special blend of spices available only from PHI. Pizza is
offered in several different sizes with a thin crust, hand tossed
traditional crust, or a thick crust, known as "Pan Pizza," as
well as with a wide variety of toppings. Food products not
prescribed by PHI may only be offered with the prior express
approval of PHI.
PHI maintains a research and development department which
develops new recipes and products, tests new procedures for food
preparation and approves suppliers for Pizza Hut restaurants.
Pizza Hut restaurants are constructed in accordance with
prescribed design specifications and most are similar in exterior
appearance and interior decor. The typical restaurant building
is a one-story brick building with 1,800 to 3,000 square feet,
including kitchen and storage areas, and features a distinctive
red roof. Seating capacity ranges from 75 to 140 persons and the
typical property site will accommodate parking for 30 to 70
automobiles. Building designs may be varied only upon request
and when required to comply with local regulations or for unique
marketing reasons.
Franchise Agreements
- --------------------
General. The relationships between PHI and its franchisees
are governed by franchise agreements (the "Franchise
Agreements"). Pursuant to the Franchise Agreements, PHI
franchisees are granted the right to establish and operate
restaurants under the Pizza Hut system within a designated
geographic area. The initial term of each Franchise Agreement is
20 years, but prior to expiration, the franchisee may renew the
agreement for an additional 15 years, if not then in default.
Renewals are subject to execution of the then current form of the
Franchise Agreement, including the current fee schedules. Unless
the franchisee fails to develop its assigned territory, PHI
agrees not to establish, and not to license others to establish,
restaurants within the franchisee's territory.
Standards of Operation. PHI provides management training for
employees of franchisees and each restaurant manager is required
to meet certain training requirements. Standards of quality,
cleanliness, service, food, beverages, decor, supplies, fixtures
and equipment for Pizza Hut restaurants are prescribed by PHI.
Although new standards and products may be prescribed from time
to time, any revision requiring substantial expenditures by
franchisees must be first proven successful through market
testing conducted in 5% of all Pizza Hut restaurants. Failure to
comply with the established standards is cause for termination of
a Franchise Agreement by PHI and PHI has the right to inspect
each restaurant to monitor compliance. Management of the
Partnership believes that the existing Restaurants meet or exceed
the applicable standards; neither the predecessors to RMC nor the
Partnership has ever had a Franchise Agreement terminated by PHI.
Advertising. All franchisees are required to join a
cooperative advertising association ("co-op") with other
franchisees within local marketing areas defined by PHI.
Contributions of 2% of each restaurant's monthly gross sales must
be made to such co-ops for the purchase of advertising through
local broadcast media. The term "gross sales" shall mean gross
revenues (excluding price discounts and allowances) received as
payment for the beverages, food, and other goods, services and
supplies sold in or from each restaurant, and gross revenues from
any other business operated on the premises, excluding sales and
other taxes required by law to be collected from guests. All
advertisements must be approved by PHI which contributes on the
same basis to the appropriate co-op for each restaurant operated
by PHI. Franchisees are also required to be members of
I.P.H.F.H.A., Inc. ("IPHFHA") an independent association of
franchisees which, together with representatives of PHI, develops
and directs national advertising and promotional programs.
Members of IPHFHA are required to pay national dues equal to
2% of each restaurant's monthly gross sales. Such dues are
primarily used to conduct the national advertising and
promotional programs. Although it is not a member of IPHFHA, PHI
contributes on the same basis as members for each restaurant that
PHI operates.
Effective January 1, 1996 through December 31, 1997, PHI and
the members of IPHFHA agreed to decrease their contribution to
the co-ops by 0.5% to 1.5% of gross sales and increase their
national dues by 0.5% to 2.5% of gross sales. Effective January
1, 1998, PHI and the members of IPHFHA agreed to change both the
contributions to the co-ops and national dues back to 2% of gross
sales.
Purchase of Equipment, Supplies and Other Products. The
Franchise Agreements require that all equipment, supplies and
other products and materials required for operation of Pizza Hut
restaurants be obtained from suppliers that meet certain
standards established and approved by PHI. Purchasing is
substantially provided by the Unified Foodservice Purchasing
Cooperative to all members who consist of Taco Bell, KFC, and
Pizza Hut franchisees and the restaurants operated by Tricon.
Prior to the PepsiCo, Inc. spin-off of its restaurant division,
substantially all distribution services were provided by PepsiCo
Food Systems, Inc., ("PFS") which was a wholly-owned subsidiary
of PepsiCo, Inc.
The Partnership entered into a five-year exclusive food and
supplies distribution agreement with AmeriServe Food
Distribution, Inc. ("AmeriServe") effective January 1, 1999. The
initial term of the agreement will expire December 31, 2003.
Thereafter, the agreement may be renewed for successive one-year
terms upon the written agreement of the parties. The terms of
the contract provide incentives for using more efficient
distribution practices and results in a reduction in the
distribution costs incurred by the Partnership. Ameriserve
acquired PFS in July 1997 and has been providing substantially
all of the distribution services to the Partnership through its
PFS relationship since the acquisition.
Franchise Fees. Franchisees must pay monthly service fees to
PHI based on each restaurant's gross sales. The monthly service
fee under each of the Partnership's Franchise Agreements is 4% of
gross sales, or, if payment of a percentage of gross sales of
alcoholic beverages is prohibited by state law, 4.5% of gross
sales of food products and nonalcoholic beverages. Fees are
payable monthly by the 30th day after the end of each month and
franchisees are required to submit monthly gross sales data for
each restaurant, as well as quarterly and annual profit and loss
data on each restaurant, to PHI. In addition to the monthly
service fees, an initial franchise fee of $15,000 is payable to
PHI prior to the opening of each new restaurant.
No Transfer or Assignment without Consent. No rights or
interests granted to franchisees under the Franchise Agreements
may be sold, transferred or assigned without the prior written
consent of PHI which may not be unreasonably withheld if certain
conditions are met. Additionally, PHI has a first right of
refusal to purchase all or any part of a franchisee's interests
if the franchisee proposes to accept a bona fide offer from a
third party to purchase such interests and the sale would result
in a change of control of the franchisee.
PHI requires that the principal management officials of a
franchisee retain a controlling interest in a franchisee that is
a corporation or partnership.
Default and Termination. Franchise Agreements automatically
terminate in the event of the franchisee's insolvency,
dissolution or bankruptcy. In addition, Franchise Agreements
automatically terminate if the franchisee attempts an
unauthorized transfer of a controlling interest of the franchise.
PHI, at its option, may also unilaterally terminate a Franchise
Agreement if the franchisee (i) is convicted of a felony, a crime
of moral turpitude or another offense that adversely affects the
Pizza Hut system, its trademarks or goodwill, (ii) discloses, in
violation of the Franchise Agreement, confidential or proprietary
information provided to it by PHI, (iii) knowingly or through
gross negligence maintains false books or records or submits
false reports to PHI, (iv) conducts the business so as to
constitute an imminent danger to the public health, or (v)
receives notices of default on three (3) or more occasions in
twelve (12) months, or five (5) or more occasions in thirty-six
(36) months even if each default had been cured. A termination
under item (v) will affect only the individual restaurants in
default, unless the defaults relate to the franchisee's entire
operation, or are part of a common pattern or scheme, in which
case all of the franchisee's rights will be terminated.
Further, at its option, but only after thirty (30) days
written notice of default and the franchisee's failure to remedy
such default within the notice period, PHI may terminate a
Franchise Agreement if the franchisee (i) fails to make any
required payments or submit required financial or other data,
(ii) fails to maintain prescribed restaurant operating standards,
(iii) fails to obtain any required approval or consent, (iv)
misuses any of PHI's trademarks or otherwise materially impairs
its goodwill, (v) conducts any business under a name or trademark
that is confusingly similar to those of PHI, (vi) defaults under
any lease, sublease, mortgage or deed of trust covering a
restaurant, (vii) fails to procure or maintain required
insurance, or (viii) ceases operation without the prior consent
of PHI. Management believes that the Partnership is in
compliance in all material respects with its current Franchise
Agreements; neither the predecessors to RMC nor the Partnership
has ever had a Franchise Agreement terminated by PHI.
In addition to items (i) through (viii) noted in the preceding
paragraph, the Franchise Agreements allow PHI to also terminate a
Franchise Agreement after thirty (30) days written notice if the
franchisee attempts an unauthorized transfer of less than a
controlling interest. A termination under these items will
affect only the individual restaurants in default, unless the
defaults relate to the franchisee's entire operation, in which
case all of the franchisee's rights will be terminated.
Tradenames, Trademarks and Service Marks. "Pizza Hut" is a
registered trademark of PHI. The Franchise Agreements license
franchisees to use the "Pizza Hut" trademark and certain other
trademarks, service marks, symbols, slogans, emblems, logos,
designs and other indicia or origin in connection with their
Pizza Hut restaurants and all franchisees agree to limit their
use of such marks to identify their restaurants and products and
not to misuse or otherwise jeopardize such marks. The success of
the business of the Restaurants is significantly dependent on the
ability of the Partnership to operate using these marks and names
and on the continued protection of these marks and names by PHI.
Future Expansion. Under the terms of the Franchise
Agreements, the Partnership has the right to open additional
Pizza Hut restaurants within certain designated territories. The
Partnership is not obligated to open any new restaurants in 2000
or future years.
Seasonality
- -----------
Historically, due to the locations of many of the Restaurants
near summer tourist attractions and the severity of winter
weather in the areas in which many of the Restaurants are
located, the Partnership has realized approximately 40% of its
operating profits in periods six through nine (18 weeks).
However, due to the increased sales and profits of the
Partnership's restaurants in Texas and Oklahoma, the Partnership
no longer experiences significant seasonality. Sales do continue
to be largely driven through advertising and promotion.
Competition
- -----------
The retail restaurant business is highly competitive with
respect to trademark recognition, price, service, food quality
and location, and is often affected by changes in tastes, eating
habits, national and local economic conditions, population and
traffic patterns. The Restaurants compete with large regional
and national chains, including both fast food and full service
chains, as well as with independent restaurants offering
moderately priced food. Many of the Partnership's competitors
have more locations, greater financial resources, and longer
operating histories than the Partnership. The Restaurants
compete directly with other pizza restaurants for dine-in, carry-
out and delivery customers.
Government Regulation
- ---------------------
The Partnership and the Restaurants are subject to various
government regulations, including zoning, sanitation, health,
safety and alcoholic beverage controls. Restaurant employment
practices are also governed by minimum wage, overtime and other
working condition regulations which, to date, have not had a
material effect on the operation of the Restaurants. The
Partnership believes that it is in compliance with all laws and
regulations which govern its business. In order to comply with
the regulations governing alcoholic beverage sales in Montana,
Texas, Wyoming and Oklahoma, the licenses permitting beer sales
in certain Restaurants in those states are held in the name of
resident persons or domestic entities to whom they were
originally issued, and are utilized by the Partnership under
lease arrangements with such resident persons or entities.
Because of the varying requirements of various state agencies
regulating liquor and beer licenses, the Partnership Agreement
provides that all Unitholders and all other holders of limited
partner interests must furnish the Managing General Partner with
all information it reasonably requests in order to comply with
any requirements of these state agencies, and that the
Partnership has the right to purchase all Units held by any
person whose ownership of Units would adversely affect the
ability of the Partnership to obtain or retain licenses to sell
beer or wine in any Restaurant.
Employees
- ---------
As of March 1, 2000, the Partnership did not have any
employees. The Operating Partnerships had approximately 1,950
employees at the Restaurants. Each Restaurant is managed by one
restaurant manager and one or more assistant restaurant managers.
Many of the other employees are employed only part-time and, as
is customary in the restaurant business, turnover among the part-
time employees is high. Employees at one of the Restaurants were
covered by a collective bargaining agreement through July 7,
1997. The employees at this restaurant voted to decertify as of
that date. The Restaurants are managed by employees of the
Management Company which has its principal offices in Wichita,
Kansas. The Management Company has a total of 36 employees which
devote all or a significant part of their time to management of
the Restaurants. In addition, the Partnership may employ certain
management officials of the Management Company on a part-time
basis. Employee relations are believed to be satisfactory.
Financial Information About Foreign and Domestic Operations and
- ---------------------------------------------------------------
Export Sales
- ------------
The Partnership operates no restaurants in foreign countries.
Item 2. Properties
- ------------------
The following table lists the location by state of Restaurants
operated by APP as of December 28, 1999.
Leased From Leased From
Unrelated Third Affiliate of the
Parties General Partners Owned Total
------- ---------------- ----- -----
Georgia 1 - 7 8
Louisiana - - 1 1
Montana 9 - 10 19
Texas 15 - 10 25
Wyoming 1 1 6 8
-- -- -- --
Total APP 26 1 34 61
== == == ==
Six of the properties owned by APP are subject to ground
leases from unrelated third parties. The property leased from an
affiliate of the General Partners is subject to a mortgage or
deed of trust. Most of the properties, including that owned by
an affiliate of the General Partners are leased for a minimum
term of at least five years and are subject to one or more five
year renewal options. Two leases with initial terms of less
than five years contain renewal options extending through at
least 2001. Management believes leases with shorter terms can be
renewed for multiple-year periods, or the property can be
purchased, without significant difficulty or unreasonable
expense.
In addition to the operating restaurants above, APP has a
remaining lease obligation on one closed restaurant. This
location is subleased through its remaining lease term.
The following table lists the Restaurants operated by Magic as
of December 28, 1999.
Leased From
Unrelated Third Leased From
Parties Affiliate Total
------- --------- -----
Oklahoma 24 2 26
-- -- --
Total Magic 24 2 26
== == ==
Most of the properties including the two owned by an affiliate
are leased for a minimum term of at least five years and are
subject to one or more five year renewal options. One lease with
an initial term of less than five years contains renewal options
through 2002.
In addition to the operating restaurants above, Magic has
remaining lease obligations on two closed restaurants. Both of
these leases expire during 2000.
The amount of rent paid is either fixed or includes a fixed
rental plus a percentage of the Restaurant's sales, subject, in
some cases, to maximum amounts. The leases require the
Partnership to pay all real estate taxes, insurance premiums,
utilities, and to keep the property in general repair.
Pizza Hut restaurants are constructed in accordance with
prescribed design specifications and most are similar in exterior
appearance and interior decor. The typical restaurant building
is a one-story brick building with 1,800 to 3,000 square feet,
including kitchen and storage areas, and features a distinctive
red roof. Seating capacity ranges from 75 to 140 persons and the
typical property site will accommodate parking for 30 to 70
automobiles. Building designs may be varied only upon request
and when required to comply with local regulations or for unique
marketing reasons. Typical capital costs for a restaurant
facility are approximately $150,000 for land, $250,000 for the
building and $135,000 for equipment and furnishings. Land costs
can vary materially depending on the location of the site.
Delivery/carryout facilities vary in size and appearance. These
facilities are generally leased from unrelated third parties.
Item 3. Legal Proceedings
- --------------------------
As of December 28, 1999, the Partnership was not a party to
any pending legal proceedings material to its business.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
PART II
Item 5. Market for the Registrant's Class A Income Preference
- --------------------------------------------------------------
Units and Related Security Holder Matters
- -----------------------------------------
The Partnership's Class A Income Preference Units were traded
on the American Stock Exchange under the symbol "RMC" through
November 13, 1997. On that date, the Partnership delisted from
the American Stock Exchange and limited trading of its units.
The Class A Income Preference Units were traded on the Pink
Sheets from December 1, 1997 through January 2, 1998. Effective
January 1, 1998, the Partnership offered a Qualified Matching
Service, whereby the Partnership will match persons desiring to
buy units with persons desiring to sell units. Market prices for
units during 1999 and 1998 were:
Calendar Period High Low
- -----------------------------------------------------
1999
- ----
First Quarter $2.80 $2.55
Second Quarter 2.80 2.60
Third Quarter 2.80 2.75
Fourth Quarter 2.95 2.75
1998
- ----
First Quarter $2.75 $1.90
Second Quarter 2.60 2.25
Third Quarter 2.80 2.60
Fourth Quarter 2.80 2.70
As of December 28, 1999, approximately 1,100 unitholders owned
American Restaurant Partners, L.P. Class A Income Preference
Units of limited partner interest. Information regarding the
number of unitholders is based upon holders of record excluding
individual participants in security position listings.
Cash distributions to unitholders were:
Per
Record Date Payment Date Unit
- -------------------------------------------------------------
1999
- ----
January 15, 1999 January 29, 1999 $0.10
April 12, 1999 April 30, 1999 0.10
July 12, 1999 July 30, 1999 0.10
October 12, 1999 October 29, 1999 0.15
----
Cash distributed during 1999 $0.45
====
Per
Record Date Payment Date Unit
- -------------------------------------------------------------
1998
- ----
January 12, 1998 January 30, 1998 $0.05
April 13, 1998 May 1, 1998 0.05
July 13, 1998 July 31, 1998 0.10
October 12, 1998 October 30, 1998 0.10
----
Cash distributed during 1998 $0.30
====
The Partnership will make quarterly distributions of "Cash
Available for Distribution" with respect to the Income
Preference, Class B Units, and Class C Units. "Cash Available
for Distribution", consists, generally, of 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. Therefore, the Partnership may experience quarters
in which there is no Cash Available for Distribution. The
Partnership may retain cash during certain quarters and
distribute it in later quarters in order to make quarterly
distributions more consistent.
Item 6. Selected Financial Data
(in thousands, except per Unit data, number of Restaurants,
and average weekly sales per Restaurant)
American Restaurant Partners, L.P.
Year Ended
December 28, December 29, December 30, December 31, December 26,
1999 1998 (d) 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Income statement data:
Net sales $ 57,820 $ 43,544 $ 38,977 $ 40,425 $ 40,004
Income from operations 3,990 2,443 433 3,076 3,890
Net income (loss) 1,315 809 (1,993) 1,584 2,481
Net income (loss) per Partnership unit 0.37 0.20 (0.50) 0.40 0.63
Balance sheet data:
Total assets $ 29,625 $ 30,703 $ 22,226 $ 23,745 $ 16,134
Long-term debt 28,078 29,630 20,005 18,859 10,525
Obligations under capital
leases 1,495 1,543 1,645 1,665 1,732
Partners capital (deficiency):
General Partners (9) (8) (8) (5) (3)
Class A 5,395 5,543 5,624 6,295 6,573
Class B and C (9,252) (10,058) (8,322) (5,811) (4,688)
Notes receivable from employees (956) - - - (6)
Cost in excess of carrying
value of assets acquired (1,324) (1,324) (1,324) (1,324) (1,324)
Cumulative comprehensive (loss) income - (108) 19 (44) -
Cash dividends declared per unit 0.45 0.30 0.32 0.74 0.74
Statistical data:
Capital expenditures: (b)
Existing Restaurants $ 1,078 $ 2,465 $ 889 $ 2,612 $ 1,185
New Restaurants 300 162 935 4,136 -
Average weekly sales per
Restaurant: (c)
Red Roof 12,683 11,918 11,813 12,544 12,862
Delivery/carryout facility/C-store 11,657 10,508 8,160 10,547 12,463
Restaurants in operation
at end of period 87 89 63 67 60
NOTES TO SELECTED FINANCIAL DATA
(a) Net earnings are allocated to all partners in accordance with
their respective units in the Partnership with all outstanding
units being treated equally.
(b) Capital expenditures include the cost of land, buildings, new
and replacement restaurant equipment and refurbishment of
leasehold improvements. Capital expenditures for existing
restaurants represent such capitalized costs for all restaurants
other than newly constructed restaurants.
(c) Average weekly sales were calculated by dividing net sales by
the weighted average number of restaurants open during the
period. The quotient was then divided by the number of days in
the period multiplied times seven days.
(d) The Partnership began consolidating the accounts of Magic on
August 11, 1998 when APP's interest in Magic increased from 45%
to 60%. The 1998 selected financial data reflects this
consolidation.
Item 7. Management's Discussion and Analysis of Consolidated
- -----------------------------------------------------------------
Financial Condition and Results of Operations
- ---------------------------------------------
Results of Operations
- ---------------------
The following discussion compares the Partnership's results for
the years ended December 28, 1999, December 29, 1998 and December
30, 1997. This discussion should be read in conjunction with the
Selected Financial Data and the Consolidated Financial Statements
included elsewhere herein.
The accompanying consolidated financial statements include the
accounts of the Partnership 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
Magic increased from 45% to 60% in connection with Magic's
purchase of a 25% interest from a former limited partner (see
Note 13 to the accompanying financial statements). Accordingly,
the Partnership began consolidating the accounts of Magic from
that date. All significant intercompany balances and
transactions have been eliminated. The table below shows the
historical Statements of Operations as well as proforma results
of operations assuming the Partnership's interest in Magic
increased to 60% as of January 1, 1997. The proforma results are
shown in order to provide a more meaningful basis for a
comparative discussion of the years ended December 28, 1999,
December 29, 1998 and December 30, 1997.
Historical Proforma (1)
------------------------------------ -----------------------
1999 1998 1997 1998 1997
------------------------------------ -----------------------
Net sales $ 57,820,215 $43,543,633 $38,977,341 $53,631,453 $54,689,655
Operating costs
and expenses:
Cost of sales 15,355,713 11,710,209 10,586,372 14,289,075 14,895,268
Restaurant labor
and benefits 16,899,475 12,500,842 11,043,688 15,522,283 15,939,414
Advertising 3,766,662 2,844,451 2,511,470 3,595,040 3,827,444
Other restaurant
operating expenses
exclusive of
depreciation and
amortization 10,834,915 8,337,961 7,691,831 10,656,012 11,382,741
General and
administrative:
Management fees 3,582,943 2,894,911 2,710,449 3,348,863 3,261,044
Other 787,305 631,999 371,443 761,827 601,017
Depreciation
and amortization 2,540,304 2,149,606 2,078,061 2,664,692 2,907,574
Loss (gain) on
restaurant closings 63,398 23,747 792,219 (93,220) 1,577,018
Equity in loss
of affiliate - 7,250 758,383 - -
----------------------------------------------------------
Income from
operations 3,989,500 2,442,657 433,425 2,886,881 298,135
Interest income 25,994 29,783 29,350 29,783 29,350
Interest expense (2,590,720) (2,662,061) (2,476,304) (3,115,146) (3,267,918)
Gain on life
insurance settlement - 875,533 - 875,533 -
Loss on sale of
investments held
for sale (134,766) - - - -
Gain on sale of
restaurant 196,608 - - - -
----------------------------------------------------------
(2,502,884) (1,756,745) (2,446,954) (2,209,830) (3,238,568)
Income (loss) before
minority interest 1,486,616 685,912 (2,013,529) 677,051 (2,940,433) 33)
Minority interest
in income (loss)
of Operating
Partnerships (172,062) 122,805 20,135 129,273 696,778
----------------------------------------------------------
Net income (loss) $ 1,314,554 $ 808,717 $(1,993,394)$ 806,324 $(2,243,655)
==========================================================
(1) The proforma statements of operations for 1998 and 1997 include
consolidation of Magic as if the Partnership's interest in
Magic increased to 60% as of January 1, 1997.
Net Sales
- ---------
Net sales for the year ended December 28, 1999 increased
$4,189,000 from proforma net sales of $53,631,000 in 1998 to
$57,820,000 in 1999, a 7.8% 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.
Proforma net sales for the year ended December 29, 1998 decreased
$1,059,000 or 1.9%, from $54,690,000 for the year ended December
30, 1997 to $53,631,000 for the year ended December 29, 1998.
This decrease was entirely attributable to restaurants closed in
1997 as comparable restaurants sales increased 4.4%.
Income From Operations
- ----------------------
Income from operations for the year ended December 28, 1999
increased $1,103,000 from $2,887,000 to $3,990,000, a 38.2%
increase over the year ended December 29, 1998. Income from
operations represented 6.9% of net sales for the year ended
December 28, 1999 compared to proforma income from operations of
5.4% of proforma net sales for the year ended December 29, 1998.
Cost of sales as a percentage of net sales was 26.6% of net sales
in both 1999 and 1998. Labor and benefits expense increased
slightly from 28.9% of net sales for the year ended December 29,
1998 to 29.2% of net sales for the year ended December 28, 1999
due to improved staffing of the restaurants. Advertising
decreased from 6.7% 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 19.9% 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 7.7% of proforma net sales
in 1998 to 7.6% of net sales in 1999. Depreciation and
amortization expense decreased from 5.0% of proforma net sales in
1998 to 4.4% of net sales in 1999.
Proforma income from operations for the year ended December 29,
1998 increased $2,589,000 from $298,000 to $2,887,000, an 868.8%
increase over the year ended December 30, 1997. As a percentage
of proforma net sales, proforma income from operations increased
from 0.5% in 1997 to 5.4% in 1998. Proforma cost of sales
decreased as a percentage of proforma net sales from 27.2% in
1997 to 26.6% of proforma net sales in 1998. Proforma labor and
benefits expense decreased from 29.1% of proforma net sales in
1997 to 28.9% of proforma net sales in 1998 despite the minimum
wage increase that took effect September 1, 1997. These margin
improvements are the result of continued diligent follow-up and
focus on efficiencies in the restaurants. Advertising decreased
as a percentage of proforma net sales from 7.0% in 1997 to 6.7%
in 1998. Other restaurant operating expenses decreased from
20.8% of proforma net sales in 1997 to 19.9% of proforma net
sales in 1998 primarily attributable to the reduction of fixed
costs through restaurant closings and consolidations during the
last half of 1997. General and administrative expenses increased
from 7.1% of proforma net sales in 1997 to 7.7% of proforma net
sales in 1998. This increase is due to an increase in Magic's
management fee from 3.5% of proforma net sales during 1997 to
4.5% of proforma net sales during 1998 and an increase in bonuses
paid on improved operating results. Depreciation and amortization
expense decreased from 5.3% of proforma net sales in 1997 to 5.0%
of proforma net sales in 1998 due to restaurant closings and
consolidations during the last half of 1997. Loss on restaurant
closings amounted to 2.9% of proforma net sales or $1,577,000 in
1997 compared to a gain on restaurant closings in 1998 of
$93,000. This gain is the result of favorable buyouts of two
long-term leases on restaurants closed in 1997.
Net Earnings
- ------------
Net earnings increased $509,000 to net income of $1,315,000 for
the year ended December 28, 1999 compared to proforma net income
of $806,000 for the year ended December 29, 1998. The 1998
period net income included a gain on life insurance settlement of
$876,000. The 1999 period net income includes a $135,000 loss on
sale of investments held for sale and a $197,000 gain on sale of
a restaurant. The increase in net earnings is primarily
attributable to the increase in income from operations noted
above and a decrease in interest expense of $524,000. The cure
of a default of certain loans within the Partnership's pooled
borrowings from Franchise Mortgage Acceptance Company accounted
for $424,000 of this decrease in interest expense (See Note 3 of
the accompanying financial statements). These were offset by a
$301,000 increase in minority interest in earnings of affiliate.
Proforma net earnings increased $3,050,000 to proforma net income
of $806,000 for the year ended December 29, 1998 compared to a
proforma net loss of $2,244,000 for the year ended December 30,
1997. A gain on life insurance settlement of $876,000 is
included in the 1998 proforma net income. This gain, the
increase in proforma income from operations noted above, and a
decrease in interest expense of $153,000 were offset by a
decrease in the minority interest in loss of affiliate of
$537,000.
Liquidity and Capital Resources
- -------------------------------
The Partnership generates its principal source of funds from net
cash provided by operating activities. Management believes that
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 for the next
twelve months.
At December 28, 1999, the Partnership had a working capital
deficiency of $5,465,000 compared to a deficiency of $9,211,000
at December 29, 1998. The decrease in working capital deficiency
at December 28, 1999 is primarily a result of a $3,767,000
decrease in current portion of long-term debt. At December 29,
1998, the entire amount of Magic's outstanding notes payable FMAC
were classified as a current liability because Magic was not in
compliance of the fixed charge coverage ratio covenant
requirement. There have been no defaults in making scheduled
payments of either principal or interest. Subsequent to December
28, 1999, Magic refinanced $1,099,000 of notes payable to Intrust
Bank and $479,000 of notes payable to a former limited partner
with new notes from Intrust Bank that mature in 2001 and beyond,
bringing Magic into compliance with the fixed charge coverage
ratio covenant. 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.
Net Cash Provided by Operating Activities
- -----------------------------------------
During 1999, net cash provided by operating activities amounted
to $4,125,000, an increase of $3,288,000 over 1998. This increase
is primarily attributable to the increase in net income and an
increase in accounts payable in 1999 of $379,000 compared to a
decrease in accounts payable in 1998 of $1,693,000.
Investing Activities
- --------------------
Property and equipment expenditures represent the largest
investing activity by the Partnership. Capital expenditures for
1999 were $1,378,000 of which $867,000 was for replacement of
equipment in existing restaurants, $286,000 was for the purchase
of land for future development, and $225,000 was for the purchase
of a previously leased restaurant.
Financing Activities
- --------------------
Cash distributions paid in 1999 totaled $1,549,000 and amounted
to $0.45 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 1999, the Partnership's proceeds from long term borrowings
amounted to $3,130,000 of which $1,605,000 was used to refinance
debt to obtain favorable terms, $525,000 was used to purchase
land and buildings, and the remainder was used primarily to
replenish operating capital. The Partnership does not plan to
open any new restaurants during 2000. Management anticipates
spending $698,000 in 2000 for recurring replacement of equipment
in existing restaurants which the Partnership expects to finance
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.
During 1998, the Partnership collected on a life insurance policy
purchased in 1993 on one of its original investors. This
investor owned approximately 438,600 Class B and C units. The
policy was purchased with the intent of providing the Partnership
a means of repurchasing his units upon his death if his heirs so
desired. The investor died in May of 1998. The Partnership
recognized a gain of $876,000 upon receipt of the insurance
proceeds. The units were repurchased on December 29, 1998 at
$2.55 per unit for a total purchase price of $1,118,430. In
addition, if the nine Pizza Hut restaurants located within the
Billings, Montana ADI, including the associated franchises, real
estate and operating assets, (the BM Restaurants) are sold to an
unrelated party in one or more transactions and the sale
transaction(s) are closed prior to January 1, 2001, then the
heirs will receive as additional consideration for the purchase
of the units, a contingent payment of $0.50 per unit, or
$219,300. If the BM Restaurants are not sold within that time,
the obligation to make the contingent payment will expire. The
Partnership is not required to market or sell the BM Restaurants
or to accept any offer by any party to purchase such BM
Restaurants.
Year 2000 Compliance
- --------------------
The Partnership did not incur any problems with Year 2000
compliance. Management is continuing to monitor Year 2000
issues. The Partnership does not anticipate any problems with
Year 2000 compliance in the future.
Other Matters
- -------------
On January 31, 2000, AmeriServe, the Partnership's primary
supplier of food ingredients and dry goods, filed for protection
under the U.S. Bankruptcy Code. Tricon, the Unified Foodservice
Purchasing Coop, and key representatives of the Tricon franchise
community are working together to ensure the availability of
supplies to Tricon's restaurant system during the bankruptcy
proceedings. To date, the Partnership has not experienced any
significant supply interruption. AmeriServe has advised Tricon
that it is actively seeking to arrange the financing necessary to
maintain AmeriServe operations. The Partnership, along with
Tricon, has commenced contingency planning and believes that it
can arrange with an alternative distributor or distributors to
meet the needs of the restaurants if AmeriServe is no longer able
to adequately service the restaurants.
In November, 1996 Magic notified Hospitality Group of Oklahoma,
Inc. (HGO), a 25% limited partner in Magic, that it was seeking
to terminate HGO's interest in Magic pursuant to the terms of the
related Partnership Agreement for alleged violations of the Pizza
Hut Franchise Agreement and the alleged occurrence of an Adverse
Terminating Event as defined in the Partnership Agreement. Magic
alleged that HGO contacted and offered employment to a
significant number of the management employees of Magic. Magic
also alleged that HGO made certain misrepresentations at the
formation of Magic. HGO denied that such franchise violations
occurred and that it made any misrepresentations at the formation
of Magic. HGO asserted that it was fraudulently induced to enter
into the Magic Partnership Agreement by Restaurant Management
Company of Wichita, Inc. and was further damaged by alleged
mismanagement of Magic's operations.
The matter was settled in August 1998 with Magic paying HGO a
section 736(a) guaranteed payment of $255,000 for the period
November 11, 1996 through the settlement date. In addition,
Magic purchased HGO's interest in Magic for $205,000 consisting
of $105,000 cash and a $100,000 note at 8% interest, payable
quarterly for five years. Magic also paid the two stockholders
of HGO $240,000 for a noncompete agreement prohibiting them from
engaging in the pizza business for the next 60 months in any
market Magic operated in as of May 11, 1998. Upon completion of
the settlement, the Partnership's interest in Magic increased
from 45% to 60%.
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 effect 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. 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 $3,500 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 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 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.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
See the consolidated financial statements and supplementary
data listed in the accompanying "Index to Consolidated Financial
Statements and Supplementary Data" on Page F-1 herein.
Information required for financial statement schedules under
Regulation S-X is either not applicable or is included in the
consolidated financial statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on
- -----------------------------------------------------------------
Accounting and Financial Disclosure
- -----------------------------------
The Partnership filed a Form 8-K to report a change in
certifying accountants with the firm of Ernst & Young LLP being
replaced by Grant Thornton LLP effective September 9, 1999.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
RAM, as the Managing General Partner, is responsible for the
management and administration of the Partnership under a
Management Services Agreement with the Operating Partnerships.
Partnership management services include, but are not limited to:
preparing and reviewing projections of cash flow, taxable income
or loss, and working capital requirements; conducting periodic
physical inspections, market surveys and continual Restaurant
reviews to determine when assets should be sold and, if so,
determining acceptable terms of sale; arranging any debt
financing for capital improvements or the purchase of assets;
supervising any litigation involving the Partnerships; preparing
and reviewing Partnership reports; communicating with
Unitholders; supervising and reviewing Partnership bookkeeping,
accounting and audits; supervising the presentation of and
reviewing Partnership state and federal tax returns; personnel
functions, and supervising professionals employed by the
Partnerships in connection with any of the foregoing, including
attorneys, accountants and appraisers.
The direct management of the Restaurants is performed by the
Management Company pursuant to a substantially identical
Management Services Agreement with RAM. As compensation for
management services, the Management Company will receive a
management fee equal to 7% of the gross sales of the Restaurants
in APP and 4.5% of gross sales of the Restaurants in Magic. In
addition, the Management Company will be reimbursed for the cost
of certain products purchased for use directly in the operation
of the Restaurants and for outside legal, accounting, tax,
auditing, advertising, and marketing services. Certain other
expenses incurred by the Management Company which relate directly
to the operation of the Restaurants, including insurance and
profit sharing and incentive bonuses and related payroll taxes
for supervisory personnel, shall be paid by the Operating
Partnerships through RAM.
Set forth below is certain information concerning the director
and executive officers of both RAM and the Management Company.
Present Position with the Management
Company and Business Experience for
Name Age Past 5 Years
- ---- --- ----------------------------------------
Hal W. McCoy 54 Chairman, Chief Executive Officer
and sole director. McCoy holds a Bachelor
of Arts degree from the University of
Oklahoma. From 1970 to 1974, he was at
different times Marketing Manager at PHI,
where he was responsible for consumer
research, market research, and market
planning, and Systems Manager, where he
was responsible for the design and
installation of PHI's first management
data processing system. In 1974, he
founded the predecessor to the Management
Company and today owns or has controlling
ownership in entities operating a combined
total of 112 franchised "Pizza Hut" and
"Long John Silver's" restaurants.
Hal W. McCoy II 32 President. McCoy holds a Bachelor of
Science degree in Business Administration
from the University of Kansas. In 1990, he
founded, owned and operated CenTex Pizza
Partners, L.P., which operated four Pizza
Huts in Texas. After improving the
operations and selling CenTex in 1992, he
joined the Management Company where he
currently oversees all operations for the
Pizza Huts and Long John Silver's managed
by the Management Company.
J. Leon Smith 57 Vice President. Smith holds a Bachelor of
Science degree in Hotel and Restaurant
Management from Oklahoma State University
and a Juris Doctorate from the University of
Oklahoma. He has been employed by McCoy
since 1974, first as Director of Operations
for the Long John Silver's division and then
as Director of Real Estate Development and
General Counsel.
Terry Freund 44 Chief Financial Officer. Freund holds a
Bachelor of Arts degree in Accounting
from Wichita State University. He has
been employed by McCoy since 1984.
He is responsible for virtually all of
the financial and administrative
functions in the company.
Item 11. Executive Compensation
- -------------------------------
The executive officers of the Management Company perform
services for all of the restaurants managed by the Management
Company, including the Restaurants. Cash compensation of
executive officers of the Management Company who are also
officers of affiliated companies is allocated for accounting
purposes among the various entities owning such restaurants on
the basis of the number of restaurants each entity owns. Only
the compensation of the Chief Executive Officer, President, and
Chief Financial Officer is shown below as the other officer's
total cash compensation does not exceed $100,000. Neither RAM
nor the Operating Partnerships compensate their officers,
directors or partners for services performed, and the salaries of
the executive officers of the Management Company are paid out of
its management fee and not directly by the Partnership.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Allocable to
Principal Position Year Salary Bonus Total Partnership
- ------------------ ---- ------ ----- ----- -----------
Hal W. McCoy 1999 $174,831 $47,969 $222,800 $176,389
Chief Executive Officer 1998 171,627 40,370 211,997 142,821
1997 127,322 36,451 163,773 79,716
Hal W. McCoy II 1999 97,765 32,899 130,664 98,725
President
Terry Freund 1999 96,227 30,078 126,305 96,739
Assistant Secretary and 1998 84,297 20,063 104,360 67,441
Chief Financial Officer 1997 83,049 13,275 93,324 48,343
Incentive Bonus Plan
- --------------------
The Management Company maintains a discretionary supervisory
incentive bonus plan (the "Incentive Bonus Plan") pursuant to
which approximately 20 employees in key management positions,
including Mr. McCoy are eligible to receive quarterly cash bonus
payments if certain management objectives are achieved.
Performance is measured each quarter and bonus payments are
awarded and paid at the discretion of Mr. McCoy. The amounts
paid under this plan for fiscal year 1999, 1998 and 1997 to Mr.
McCoy, Mr. McCoy II and Mr. Freund are included in the amounts
shown in the cash compensation amounts set forth above. The
total amount allocated to the Restaurants under the Incentive
Bonus Plan for the fiscal year ended December 28, 1999 was
$295,419 of which $73,305 was paid to all executive officers as a
group. Bonuses paid under the Incentive Bonus Plan are paid by
the Operating Partnerships.
The Incentive Bonus Plan in effect for the fiscal year ending
December 27, 2000 provides for payment of aggregate supervisory
bonuses in an amount equal to 15% of the amount by which the
Partnership's income from operations plus depreciation and
amortization expenses exceed a prescribed threshold. The
threshold generally represents capital expenditures, interest and
principal payments on Partnership debt, and cash distributions.
For the fiscal year ended December 28, 1999 the Partnership's
income from operations plus depreciation and amortization
expenses was $6,529,804.
Class A Unit Option Plan
- ------------------------
The Partnership, APP, RAM and the Management Company have
adopted a Class A Unit Option Plan (the "Plan") pursuant to which
75,000 Class A Units are reserved for issuance to employees,
including officers, of the Partnership, APP, RAM and the
Management Company. Participants will be entitled to purchase a
designated number of Units at an option price which shall be
equal to the fair market value of the Units on the date the
option is granted. Options granted under the Plan will be for a
term to be determined by the Managing General Partner at the time
of issuance (not to exceed ten years) and shall not be
transferable except in the event of the death of the optionee,
unless the Managing General Partner otherwise determines and so
specifies in the terms of the grant. The Plan is administered by
the Managing General Partner which, among other things,
designates the individuals to whom options are granted, the
number of Units for which such options are to be granted and
other terms of grant. The executive officers have no outstanding
options at December 28, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and
- -----------------------------------------------------------------
Management
- ----------
PRINCIPAL UNITHOLDERS
The following table sets forth, as of March 1, 2000,
information with respect to persons known to the Partnership to
be beneficial owners of more than five percent of the Class A
Income Preference Units, Class B or Class C Units of the
Partnership:
Name & Address Amount & Nature
Title of Beneficial of Beneficial Percent
of Class Owner Ownership of Class
- -------- -------------- --------------- --------
Class A Income
Preference Units None
Class B Hal W. McCoy 656,537 (1) 59.55%
555 N. Woodlawn
Suite 3102
Wichita, KS 67208
Class B John Hunter 116,564 10.57%
117 Lilac Lane
San Antonio, TX 78209
Class C Hal W. McCoy 1,271,876 (1) 66.11%
555 N. Woodlawn
Suite 3102
Wichita, KS 67208
Class C John Hunter 106,536 5.54%
117 Lilac Lane
San Antonio, TX 78209
(1) Hal W. McCoy beneficially owns 95.83% of RMC Partners, L.P.
which owns 686,164 Class B Units and 1,322,266 Class C
Units. Mr. McCoy owns 95.65% of RMC American Management,
Inc. which owns 3,680 Class C Units. Mr. McCoy has voting
authority over the units.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 1, 2000, the
number of Class A Income Preference Units, Class B Units, or
Class C Units beneficially owned by the director and by the
director and executive officers of both RAM and the Management
Company as a group.
Title Name of Amount & Nature Percent
of Class Beneficial Owner of Beneficial Ownership of Class
- -------- ---------------- ----------------------- --------
B Hal W. McCoy 656,537 (1) 59.55%
C Hal W. McCoy 1,271,876 (1) 66.11%
B Director & all 786,750 (1) 71.37%
officers as a group
(4 Persons)
C Director & all 1,502,817 (1) 78.12%
officers as a group
(4 Persons)
(1) See the table under "Principal Unitholders"
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
One of the Restaurants is located in a building owned by an
affiliate of the General Partners. The lease provides for
minimum annual rentals of $25,000 and is subject to additional
rentals based on a percentage of sales in excess of a specified
amount. The lease is a net lease, under which the lessee pays
the taxes, insurance and maintenance costs. The lease is for an
initial term of 15 years with options to renew for three
additional five-year periods. Although this lease was not
negotiated at arm's length, RMC believes that the terms and
conditions thereof, including the rental rate, is not less
favorable to the Partnership than would be available from
unrelated parties.
Pursuant to the Management Services Agreements (Agreements)
entered into June 26, 1987, the Restaurants of APP are managed by
the Management Company for a fee equal to 7% of the gross sales
of the Restaurants and reimbursement of certain costs incurred
for the direct benefit of the Restaurants. Neither the terms and
conditions of the Agreements, nor the amount of the fee were
negotiated at arm's length. Based on prior experience in
managing the Restaurants, however, the Managing General Partner
believes that the terms and conditions of the Management Services
Agreement, including the amount of the fee, are fair and
reasonable and not less favorable to the Partnership than those
generally prevailing with respect to similar transactions between
unrelated parties. The 7% fee approximated the actual
unreimbursed costs incurred by the Managing General Partner in
managing the Restaurants when the Agreements were entered into in
June of 1987. The 7% fee remains in effect for the life of the
Agreements which expire December 31, 2007.
Pursuant to separate Management Services Agreements entered into
March 13, 1996, the Restaurants of Magic are managed by the
Management Company for a fee equal to 4.5% of the gross sales of
the Restaurants and reimbursement of certain costs incurred for
the direct benefit of the Restaurants. The terms and conditions
of the Agreements were negotiated at arm's length with the former
owners of the Oklahoma restaurants who were originally 25%
partners in Magic. The Management Company agreed to a reduced
fee due its ownership interest in Magic. The 4.5% fee remains in
effect for the remaining life of the Agreements which expire
February 28, 2010.
PART IV
Item 14. Exhibits, Financial Statements and Reports
- ----------------------------------------------------
on Form 8-K
- -----------
(a) 1. Financial statements
--------------------
See "Index to Consolidated Financial Statements and
Supplementary Data" which appears on page F-1 herein.
3. Exhibits
--------
The exhibits filed as part of this annual report are
listed in the "Index to Exhibits" at page 33.
(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 accountants.
INDEX TO EXHIBITS
(Item 14(a))
Exhibit
No. Description of Exhibits Page/Notes
- --- ----------------------- ----------
3.1 Amended and Restated Certificate of Limited
Partnership of American Restaurant Partners, L.P. A
3.2 Amended and Restated Agreement of Limited
Partnership of American Restaurant Partners, L.P. A
3.3 Amended and Restated Certificate of Limited
Partnership of American Pizza Partners, L.P. A
3.4 Amended and Restated Agreement of Limited
Partnership of American Pizza Partners, L.P. A
4.1 Form of Class A Certificate A
4.2 Form of Application for Transfer of Class A Units A
10.1 Management Services Agreement dated
June 26, 1987 between American Pizza
Partners, L.P. and RMC American Management, Inc. A
10.2 Management Services Agreement dated
June 26, 1987 between RMC American
Management, Inc. and Restaurant Management
Company of Wichita, Inc. A
10.3 Form of Superseding Franchise Agreement
between the Partnership and Pizza Hut, Inc.
and schedule pursuant to Item 601 of
Regulation S-K. A
10.4 Form of Blanket Amendment to Franchise Agreements A
10.5 Incentive Bonus Plan A
10.6 Class A Unit Option Plan B
10.7 Revolving Term Credit Agreement dated
June 29, 1987 between American Pizza
Partners, L.P. and the First National Bank
in Wichita C
10.8 Form of 1990 Franchise Agreement between the
Partnership and Pizza Hut, Inc. and schedule
pursuant to Item 601 of Regulation S-K D
10.9 Contribution Agreement, dated as of February 1,
1996, relating to the closing date of March 13,
1996, by and among American Pizza Partners, L.P.,
Hospitality Group of Oklahoma, Inc., RMC American
Management, Inc., Restaurant Management Company
of Wichita, Inc. and Oklahoma Magic, L.P. E
10.10 Settlement Agreement between Oklahoma Magic, L.P.
and Hospitality Group of Oklahoma, Inc. F
23.1 Consent of Grant Thornton LLP F-26
23.2 Consent of Ernst & Young LLP F-27
27.1 Financial Data Schedule G
A. Included as exhibits in the Partnership's Registration
Statement on Form S-1 (Registration No.33-15243) dated August
20, 1987 and included herein by reference to exhibit of same
number.
B. Incorporated by reference to the Partnership's Registration
Statement on Form S-8 dated March 21, 1988.
C. Incorporated by reference to Exhibit 10.7 of the Partnership's
Form 10-K for the year ended December 31, 1987.
D. Incorporated by reference to Exhibit 10.8 of the Partnership's
Form 10-K for the year ended December 31, 1991.
E. Incorporated by reference to Exhibit 2 of the Partnership's
Form 8-K dated March 13, 1996.
F. Incorporated by reference to Exhibit 10.10 of the Partnership's
Form 10-K dated December 29, 1998.
G. Submitted electronically to the Securities and Exchange Commission
for information only and not filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: 3/24/00 By: /s/Hal W. McCoy
-------- ---------------
Hal W. McCoy
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
- ---- ----- ----
/s/Hal W. McCoy Chairman and Chief Executive Officer 3/24/00
- --------------- (Principal Executive Officer -------
Hal W. McCoy of RMC American Management, Inc.
/s/Terry Freund Chief Financial Officer 3/24/00
- --------------- -------
Terry Freund
Index to Consolidated Financial Statements
and Supplementary Data
The following financial statements are included in Item 8:
Page
----
Report of Independent Certified Public Accountants . . . . . F-2
Report of Independent Auditors . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of December 28, 1999
and December 29, 1998. . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Operations for the years ended
December 28, 1999, December 29, 1998,
and December 30, 1997 . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Partners' Capital (Deficiency)
for the years ended December 28, 1999,
December 29, 1998 and December 30, 1997 . . . . . . . . F-7
Consolidated Statements of Cash Flows for the
years ended December 28, 1999, December 29, 1998,
and December 30, 1997 . . . . . . . . . . . . . . . . . F-8
Notes to Consolidated Financial Statements . . . . . . . . . F-9
All financial statement schedules have been omitted since the
required information is not present.
Report of Independent Certified Public Accountants
The General Partners and Limited Partners
American Restaurant Partners, L.P.
We have audited the accompanying consolidated balance sheet of
American Restaurant Partners, L.P. (the Partnership) as of
December 28, 1999, and the related consolidated statements of
operations, partners' capital (deficiency), and cash flows for
the year then ended. These financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the consolidated
financial position of American Restaurant Partners, L.P. at
December 28, 1999 and the consolidated results of its operations
and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/Grant Thornton LLP
Wichita, Kansas
March 6, 2000
REPORT OF INDEPENDENT AUDITORS
The General Partners and Limited Partners
American Restaurant Partners, L.P.
We have audited the accompanying consolidated balance sheet of
American Restaurant Partners, L.P. (the Partnership) as of
December 29, 1998, and the related consolidated statements of
operations, partners' capital (deficiency), and cash flows for
each of the two years in the period ended December 29, 1998.
These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the consolidated
financial position of American Restaurant Partners, L.P. at
December 29, 1998, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended
December 29, 1998, in conformity with generally accepted
accounting principles.
/s/Ernst & Young LLP
Kansas City, Missouri
March 12, 1999
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 28, December 29,
ASSETS 1999 1998
- --------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 742,452 $ 329,946
Investments available-for-sale,
at fair market value - 68,635
Accounts receivable 258,388 264,754
Due from affiliates 69,948 90,146
Notes receivable from
affiliates - current portion 19,531 62,511
Inventories 410,997 441,326
Prepaid expenses 270,300 287,046
---------- ----------
Total current assets 1,771,616 1,544,364
Property and equipment, at cost:
Land 4,312,468 4,082,418
Buildings 8,374,351 8,586,103
Restaurant equipment 12,808,308 12,823,544
Leasehold rights and improvements 8,164,307 8,006,852
Property under capital leases 2,077,751 2,077,751
---------- ----------
35,737,185 35,576,668
Less accumulated depreciation and amortization 16,406,881 14,733,218
---------- ----------
19,330,304 20,843,450
Other assets:
Franchise rights, net of accumulated
amortization of $1,686,489 ($1,416,937 in 1998) 5,510,611 5,780,163
Notes receivable from affiliates 75,952 50,201
Deposit with affiliate 485,000 450,000
Goodwill, net of accumulated
amortization of $130,110 ($109,402 in 1998) 694,391 714,469
Other 1,757,137 1,320,132
---------- ----------
$29,625,011 $30,702,779
========== ==========
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 28, December 29,
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) 1999 1998
- ---------------------------------------------- ------------ ------------
Current liabilities:
Accounts payable $ 2,818,985 $ 2,390,582
Due to affiliates 111,988 226,322
Accrued payroll and other taxes 750,474 635,805
Accrued liabilities 1,177,506 1,272,957
Current maturities of long-term debt,
including $4,186,311 of notes
payable in default in 1998 2,415,469 6,182,101
Current portion of obligations
under capital leases 59,124 47,528
---------- ----------
Total current liabilities 7,333,546 10,755,295
Long-term liabilities less current maturities:
Obligations under capital leases 1,436,375 1,495,486
Long-term debt 25,662,277 23,447,773
Other noncurrent liabilities 787,208 563,095
---------- ----------
27,885,860 25,506,354
Minority interests in Operating Partnerships 551,541 395,908
Commitments and contingencies - -
Partners' capital (deficiency):
General Partners (8,585) (8,245)
Limited Partners:
Class A Income Preference, authorized 875,000
units; issued 789,866 units (814,010 in 1998) 5,394,796 5,543,603
Classes B and C, issued 1,102,418 and
1,923,808 class B and C units, respectively
(948,039 and 1,663,820 units in 1998,
respectively) (9,252,030) (10,058,014)
Notes receivable employees - sale
of partnership units (956,436) -
Cost in excess of carrying value
of assets acquired (1,323,681) (1,323,681)
Cumulative comprehensive loss - (108,441)
---------- ----------
Total partners' capital (deficiency) (6,145,936) (5,954,778)
---------- ----------
$29,625,011 $30,702,779
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 28, 1999,
December 29, 1998 and December 30, 1997
1999 1998 1997
---------- ---------- ----------
Net sales $57,820,215 $43,543,633 $38,977,341
Operating costs and expenses:
Cost of sales 15,355,713 11,710,209 10,586,372
Restaurant labor and benefits 16,899,475 12,500,842 11,043,688
Advertising 3,766,662 2,844,451 2,511,470
Other restaurant operating
expenses exclusive of
depreciation and amortization 10,834,915 8,337,961 7,691,831
General and administrative:
Management fees - related party 3,582,943 2,894,911 2,710,449
Other 787,305 631,999 371,443
Depreciation and amortization 2,540,304 2,149,606 2,078,061
Loss on restaurant closings 63,398 23,747 792,219
Equity in loss of affiliate - 7,250 758,383
---------- ---------- ----------
Income from operations 3,989,500 2,442,657 433,425
Interest income 25,994 29,783 29,350
Interest expense (2,590,720) (2,662,061) (2,476,304)
Gain on life insurance settlement - 875,533 -
Loss on sale of investments held for sale (134,766) - -
Gain on sale of restaurants 196,608 - -
---------- ---------- ----------
(2,502,884) (1,756,745) (2,446,954)
---------- ---------- ----------
Income (loss) before minority interest 1,486,616 685,912 (2,013,529)
Minority interests in (income) loss
of Operating Partnerships (172,062) 122,805 20,135
---------- ---------- ----------
Net income (loss) $ 1,314,554 $ 808,717 $(1,993,394)
========== ========== ==========
Net income (loss) allocated to Partners:
Class A Income Preference $ 298,258 $ 165,210 $ (406,975)
Class B $ 368,528 $ 242,003 $ (596,643)
Class C $ 647,768 $ 401,504 $ (989,776)
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 813,642 814,145 815,305
Class B 1,005,338 1,192,579 1,195,273
Class C 1,767,105 1,978,589 1,982,849
Basic and diluted income (loss)
before minority interest per
Partnership unit $ 0.41 $ 0.17 $ (0.50)
Basic and diluted minority interest
per Partnership unit $ (0.05) $ 0.03 $ -
Basic and diluted net income (loss)
per Partnership unit $ 0.37 $ 0.20 $ (0.50)
Distributions per Partnership unit $ 0.45 $ 0.30 $ 0.32
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
Consolidated Statements of Partners' Capital (Deficiency)
Years ended December 28, 1999, December 29, 1998, and December 30, 1997
General Partners Limited Partners Cost in
---------------- ------------------------------------------ excess of
Classes B Class A Income Notes carrying Cumulative
and C Preference Classes B and C receivable value comprehensive
-------------- ------------------- --------------------- from of assets income
Units Amounts Units Amounts Units Amounts employees acquired (loss) Total
----- ------- ----- ------- ----- ------- -------- -------- ----------- -----
Balance at
January 1, 1997 3,940 $(4,634) 815,309 $6,294,520 3,129,409 $(5,811,117) $ - $(1,323,681) $ (44,325) $ (889,237)
Net Loss - (1,970) - (406,975) - (1,584,449) - - - (1,993,394)
Unrealized gain on
investments
available-for-sale - - - - - - - - 63,000 63,000
----------
Comprehensive loss (1,930,394)
Partnership distributions - (1,260) - (260,718) - (1,015,039) - - - (1,277,017)
Units sold to employees - - - - 47,250 106,233 - - - 106,233
Units purchased - - (995) (3,037) (6,000) (18,000) - - - (21,037)
----- ------ ------- --------- --------- ---------- -------- ---------- -------- ----------
Balance at
December 30, 1997 3,940 (7,864) 814,314 5,623,790 3,170,659 (8,322,372) - (1,323,681) 18,675 (4,011,452)
Net Income - 801 - 165,210 - 642,706 - - - 808,717
Unrealized loss on
investments
available-for-sale - - - - - - - - (127,116) (127,116)
----------
Comprehensive income 681,601
Partnership distributions - (1,182) - (244,128) - (949,721) - - - (1,195,031)
Units purchased - - (304) (1,269) (558,800) (1,428,627) - - - (1,429,896)
----- ------ ------- --------- --------- ---------- -------- ---------- -------- ----------
Balance at
December 29, 1998 3,940 (8,245) 814,010 5,543,603 2,611,859 (10,058,014) - (1,323,681) (108,441) (5,954,778)
Net Income - 1,446 - 298,258 - 1,014,850 - - - 1,314,554
Change in unrealized
loss on investments
available-for-sale - - - - - - - - 108,441 108,441
----------
Comprehensive income 1,422,995
Partnership distributions - (1,786) - (368,863) - (1,255,095) 77,024 - - (1,548,720)
Units purchased - - (24,144) (78,202) (23,133) (69,396) - - - (147,598)
Units sold to employees - - - - 437,500 1,115,625 (1,047,412) - - 68,213
Employee compensation -
reduction of notes
receivable - - - - - - 13,952 - - 13,952
----- ------ ------- --------- --------- ---------- --------- ---------- ------- ----------
Balance at
December 28, 1999 3,940 $(8,585) 789,866 $5,394,796 3,026,226 $(9,252,030)$ (956,436) $(1,323,681) $ - $(6,145,936)
===== ====== ======= ========= ========= ========== ========= ========== ======= ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 28, 1999, December 29, 1998 and December 30, 1997
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 1,314,554 $ 808,717 $(1,993,394)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,540,304 2,149,606 2,078,061
Provision for deferred rent - 9,554 10,067
Equity in loss of affiliate - 7,250 758,383
Loss on default in pooled loans - 67,963 269,761
Cure of default in pooled loans (423,900) - -
(Gain) loss on disposition of assets 20,150 (41,498) 4,876
Loss on sale of investments held for sale 134,766 - -
Gain on life insurance settlement - (875,533) -
Loss on restaurant closings 63,398 23,747 792,219
Minority interest in Operating Partnerships 172,062 (122,805) (20,135)
Gain on sale of restaurants (196,608) - -
Unit compensation expense 13,952 - -
Net change in operating assets and liabilities:
Accounts receivable 6,366 (121,199) 71,277
Due from affiliates 20,198 (16,525) (48,503)
Inventories 30,329 (26,398) 32,487
Prepaid expenses 16,746 204,523 (33,169)
Deposit with affiliate (35,000) - -
Accounts payable 378,601 (1,692,680) 857,340
Due to affiliates (114,334) 173,306 (38,115)
Accrued payroll and other taxes 114,669 248,360 (160,800)
Accrued liabilities (100,100) 35,092 (224,276)
Other, net 169,344 6,151 -
--------- --------- ---------
Net cash provided by operating activities 4,125,497 837,631 2,356,079
Investing activities:
Investment in affiliate prior to consolidation - (390,000) -
Net cash from consolidation of affiliate - 56,061 -
Purchases of certificates of deposit - - (6,567)
Redemption of certificates of deposit - - 164,202
Proceeds from sale of investments held for sale 42,310 - -
Additions to property and equipment (1,378,400) (2,626,566) (1,824,195)
Proceeds from sale of property and equipment 209,118 518,641 24,810
Proceeds from sale of restaurants 717,639 - -
Purchase of franchise rights (15,000) - (15,000)
Collections of notes receivable from affiliates 17,229 35,574 87,255
Other, net (35,610) - (69,856)
--------- --------- ---------
Net cash used in investing activities (442,714) (2,406,290) (1,639,351)
Financing activities:
Proceeds from long-term borrowings 3,129,500 13,394,950 2,369,000
Payments on long-term borrowings (4,707,728) (10,466,003) (1,492,740)
Payments on capital lease obligations (47,515) (36,689) (20,196)
Proceeds from life insurance settlement - 1,039,747 -
Distributions to Partners (1,548,720) (1,195,031) (1,277,017)
Contribution of capital in Magic
from minority partners - 94,200 -
Proceeds from issuance of Class B and C units 68,213 - 68,733
Repurchase of units (147,598) (1,429,896) (21,037)
General Partners' distributions
from Operating Partnerships (16,429) (12,071) (12,899)
--------- --------- ---------
Net cash (used in) provided by
financing activities (3,270,277) 1,389,207 (386,156)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 412,506 (179,452) 330,572
Cash and cash equivalents at beginning of period 329,946 509,398 178,826
--------- --------- ---------
Cash and cash equivalents at end of period $ 742,452 $ 329,946 509,398
========= =========
Noncash investing and financing activities: During 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 437,500 Class B and C units at $2.55 per unit to certain
employees in exchange for $68,000 cash and notes receivable of $1,047,000. Notes receivable from employees
were reduced by distributions of $77,024 and $13,952 recorded as compensation expense.
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
ORGANIZATION
American Restaurant Partners, L.P. was formed in connection with
a public offering of Class A Income Preference Units in 1987 and
owns a 99% limited partnership interest in American Pizza
Partners, L.P. (APP). The remaining 1% of American Pizza
Partners, L.P. is owned by RMC Partners, L.P. and RMC American
Management, Inc. (RAM) as the general partners.
On March 13, 1996, APP purchased a 45% interest in a newly formed
limited partnership, Oklahoma Magic, L.P. (Magic), that owns and
operates twenty-six Pizza Hut restaurants in Oklahoma. Effective
August 11, 1998, APP's interest in Magic increased from 45% to
60% in connection with Magic's purchase of a 25% interest from a
former limited partner. The remaining partnership interests are
held by Restaurant Management Company of Wichita, Inc. (39%) (the
Management Company) and RAM (1%), the managing general partner.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of American Restaurant Partners, L.P. and its majority
owned subsidiaries, American Pizza Partners, L.P. and APP
Concepts, L.C. The Partnership also began consolidating the
accounts of Magic effective August 11, 1998. American Restaurant
Partners, L.P., APP, APP Concepts, L.C. and Magic are hereinafter
collectively referred to as the Partnership. All significant
intercompany transactions and balances have been eliminated. The
Partnership accounted for its investment in Oklahoma Magic, L.P.
using the equity method of accounting prior to the increase in
their ownership from 45% to 60%.
FISCAL YEAR
The Partnership operates on a 52 or 53 week fiscal year ending on
the last Tuesday in December.
EARNINGS PER PARTNERSHIP UNIT
Basic earnings per Partnership unit are computed based on the
weighted average number of Partnership units outstanding. For
purposes of diluted computations, the number of Partnership units
that would be issued from the exercise of dilutive Partnership
unit options has been reduced by the number of Partnership units
which could have been purchased from the proceeds of the exercise
at the average market price of the Partnership's units or the
price of the Partnership's units on the exercise date.
OPERATIONS
All of the restaurants owned by the Partnership are operated
under a franchise agreement with Pizza Hut, Inc., the franchisor.
The agreement grants the Partnership exclusive rights to develop
and operate restaurants in certain franchise territories. The
Partnership operates restaurants in Georgia, Louisiana, Montana,
Texas, Wyoming and Oklahoma.
A schedule of restaurants in operation for the periods presented
in the accompanying consolidated financial statements is as
follows:
1999 1998 1997
---- ---- ----
American Pizza Partners, L.P.
- -----------------------------
Restaurants in operation at
beginning of period 62 63 67
Opened -- 1 1
Closed -- (2) (5)
Sold (1) -- --
--- --- ---
Restaurants in operation at end of period 61 62 63
=== === ===
Oklahoma Magic, L.P.
- --------------------
Restaurants in operation
at beginning of period 27 27
Opened -- --
Closed (1) --
--- ---
Restaurants in operation at end of period 26 27
=== ===
INVENTORIES
Inventories consist of food and supplies and are stated at the
lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the
life of the lease or improvement, whichever is shorter.
The estimated useful lives used in computing depreciation and
amortization are as follows:
Buildings 10 to 30 years
Restaurant equipment 3 to 7 years
Leasehold rights and improvements 5 to 20 years
Expenditures for maintenance and repairs are charged to
operations as incurred. Expenditures for renewals and
betterments, which materially extend the useful lives for assets
or increase their productivity, are capitalized. Depreciation
expense was $2,036,396, $1,795,783 and $1,856,547 for the years
ended December 28, 1999, December 29, 1998 and December 30, 1997,
respectively.
AMORTIZATION OF GOODWILL
Goodwill resulting from APP's original investment in Magic is
being amortized over 29 years using the straight-line method.
FRANCHISE RIGHTS AND FEES
Agreements with the franchisor provide franchise rights for a
period of 20 years and are renewable at the option of the
Partnership for an additional 15 years, subject to the approval
of the franchisor. Initial franchise fees are capitalized and
amortized by the straight-line method over periods not in excess
of 30 years. Periodic franchise royalty and advertising fees,
which are based on a percent of sales, are charged to operations
as incurred.
PREOPENING COSTS
Costs incurred before a restaurant is opened, which represent the
cost of staffing, advertising, and similar preopening costs, are
charged to operations as incurred.
CONCENTRATION OF CREDIT RISKS
The Partnership's financial instruments that are exposed to
concentration of credit risks consist primarily of cash,
certificates of deposit and accounts receivable. The Partnership
places its funds into high credit quality financial institutions
and, at times, such funds may be in excess of the Federal
Depository insurance limit. The Partnership generally does not
require collateral against accounts receivable. Credit risks
associated with the majority of customer sales are minimal as
such sales are primarily for cash. All notes receivable from
affiliates are supported by the guarantee of the majority owner
of the Partnership.
INCOME TAXES
The Partnership is not subject to federal or state income taxes
and, accordingly, no provision for income taxes has been
reflected in the accompanying consolidated financial
statements. Such taxes are the responsibility of the partners
based on their proportionate share of the Partnership's taxable
earnings.
Due to differences in the rules related to reporting income for
financial statement purposes and for purposes of income tax
returns by individual limited partners, the tax information sent
to individual limited partners differs from the information
contained herein. At December 28, 1999, the Partnership's
reported amount of its net assets for financial statement
purposes were more than the income tax bases of such net assets
by approximately $681,000. The differences between generally
accepted accounting principles net income and taxable income
(loss) are as follows:
1999 1998 1997
---- ---- ----
Generally accepted accounting
net income $ 1,314,554 $ 808,717 $(1,993,394)
Depreciation and amortization 36,348 (133,606) (205,737)
Capitalized leases (59,601) 163,641 128,791
Equity in loss of affiliate (274,257) (751,845) (655,814)
Loss on restaurant closings (42,149) (190,972) 784,297
Gain (loss) on disposition
of assets 437,316 (36,642) (216,534)
Unicap adjustment 4,731 (70,985) (76)
Non-taxable life
insurance proceeds - (866,778) -
Other 147,371 32,295 (12,946)
--------- ---------- ----------
Taxable income (loss) $ 1,564,313 $(1,046,175) $(2,171,413)
========= ========== ==========
The Omnibus Budget Reconciliation Act of 1987 requires public
limited partnerships to become taxable entities beginning in
1998. After considering various alternatives, the Partnership
delisted from the American Stock Exchange effective November 13,
1997 and now limits trading of its units. As a result, the
Partnership continues to be taxed as a partnership rather than
being taxed as a corporation.
ADVERTISING COSTS
Advertising production and media costs are expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments, purchased with a
maturity of three months or less, to be cash equivalents.
ACCOUNTING FOR UNIT BASED COMPENSATION
In accordance with Accounting Principles Board Opinion (APBO) No.
25, the Partnership uses the intrinsic value-based method for
measuring unit-based compensation cost which measures
compensation cost as the excess, if any, of the quoted market
price of Partnership units at the grant date over the amount the
employee must pay for the units. Required pro forma disclosures
of compensation expense determined under the fair value method of
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation have not been presented
as there are no material unvested options and no options have
been granted in 1999, 1998 or 1997.
INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale are carried at fair value, with
the unrealized gains and losses reported as comprehensive income.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are
included in other income. The cost of securities sold is based
on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in other
income.
EFFECT OF NEW 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 December 28, 1999, the
Partnership does not have any derivative instruments.
2. RELATED PARTY TRANSACTIONS
--------------------------
The Partnership has entered into a management services agreement
with RAM whereby RAM is responsible for management of the
restaurants for a fee equal to 7% for APP, and 4.5% for Magic, of
the gross receipts of the restaurants, as defined. RAM has
entered into a management services agreement containing
substantially identical terms and conditions with Restaurant
Management Company of Wichita, Inc. (the Management Company).
Affiliates of the Management Company provide various other
services for the Partnership including promotional advertising.
In addition to participating in advertising provided by the
franchisor, an affiliated company engages in promotional
activities to further enhance restaurant sales. The
affiliate's fees for such services are based on the actual costs
incurred and principally relate to the reimbursement of print and
media costs. In exchange for advertising services provided
directly by the affiliate, the Partnership pays a commission
based upon 15% of the advertising costs incurred. Such costs
were not significant in 1999, 1998 or 1997.
The Partnership maintains a deposit with the Management Company
equal to approximately one and one-half month's management fee.
Such deposit, $485,000 and $450,000 at December 28, 1999 and
December 29, 1998, respectively, may be increased or decreased at
the discretion of RAM.
The Management Company maintains an incentive bonus plan whereby
certain employees are eligible to receive bonus payments if
specified
management objectives are achieved. Such bonuses are not greater
than 15% of the amount by which the Partnership's cash flow
exceeds threshold amounts as determined by management. Bonuses
paid under the plan are reimbursed to the Management Company by
the Partnership.
Transactions with related parties included in the accompanying
consolidated financial statements and notes are summarized as
follows:
1999 1998 1997
---- ---- ----
Management fees $3,582,943 $2,894,911 $2,710,448
Management Company bonuses 322,308 226,522 155,637
Advertising commissions 77,702 75,745 73,062
Divestiture fee on sale
of restaurant 35,850 - -
The Partnership has made advances to various affiliates under
notes receivable which bear interest at market rates. The
advances are to be received in varying installments with
maturities as follows: 2000 - $19,531; 2001 - $21,113; 2002 -
$22,828; 2003 - $7,375; 2004 - $8,148; Thereafter - $16,488. All
such notes are guaranteed by the majority owner of the
Partnership. In addition, the Partnership has certain other
amounts due from and to affiliates which are on a noninterest
bearing basis.
3. LONG-TERM DEBT
--------------
Long-term debt consists of the following at December 28, 1999 and
December 29, 1998:
1999 1998
---- ----
Notes payable to Intrust Bank in Wichita,
payable in monthly installments
aggregating $171,403, including interest
at variable rates from 8.5% to 9.50%,
due at various dates through 2004 $ 5,933,513 $ 8,045,758
Notes payable to Franchise Mortgage
Acceptance Company (FMAC) payable
in monthly installments aggregating
$257,742, including interest at fixed
rates from 8.81% to 10.95%, due
at various dates through May 2013 19,167,158 20,815,919
Notes payable to CNL Financial
Services, Inc. payable in monthly
installments aggregating
$16,844, including interest at
a fixed rate of 9.62%,
through July 2019 1,779,406 -
Notes payable to Hospitality Group
Of Oklahoma, Inc., payable
in quarterly installments of
$41,397 including interest at
a fixed rate of 8.00%, due at
various dates through August 2003 478,963 600,115
Note payable to Sierra Bravo
Aviation, LLC payable in quarterly
installments of $12,441 including
interest at a fixed rate of 7.35%,
with remaining balance due August 2003 428,356 -
Notes payable to various banks,
payable in monthly installments
aggregating $5,374, including interest
at a fixed rate of 10.00% at
December 28, 1999, due at various
dates through January 2010 290,350 168,082
---------- ----------
28,077,746 29,629,874
Less current portion 2,415,469 6,182,101
---------- ----------
$25,662,277 $23,447,773
========== ==========
Magic was not in compliance with the fixed charge coverage ratio
required by the FMAC loan covenants during and subsequent to the
year ended December 29, 1998. Accordingly, the entire amount of
Magic's borrowings with FMAC was reflected in the current portion
of long-term debt at December 29, 1998.
Certain refinancing with FMAC required the Management Company to
act as Accommodation Maker and execute the promissory notes and
security agreements as borrower, enabling APP to obtain a lower
interest rate and favorable borrowing terms. In return, APP must
pay the Management Company an annual fee equal to 1% of the
outstanding loan balance, determined as of the first day of each
calendar quarter, payable in advance. The accommodation fee
amounted to $98,710 and $70,775 for the years ended December 28,
1999 and December 29, 1998, respectively.
Certain borrowings through FMAC are part of loans "pooled"
together with other franchisees in good standing and approved
restaurant concepts, as defined, and sold to the secondary
market. The Partnership has provided to FMAC a limited,
contingent guarantee equal to 13% of the original loan balance
for APP and 15% of the original loan balance for Magic
($1,078,751 at December 28, 1999), referred to as the
"Performance Guarantee Amount" (PGA). At December 29, 1998 and
December 30, 1997, certain loans within the Partnership's
"pool" were in default. This resulted in the Partnership
recording interest expense of $67,963 and $280,062, during 1998
and 1997 respectively, representing the Partnership's total
liability for these defaulted loans under the PGA. During the
year ended December 28, 1999 the loans within the Partnership's
"pool" that had been in default were cured. This resulted in the
Partnership writing off the remaining $423,900 of its liability
for these formerly defaulted loans under the PGA. The write-off
of $423,900 is included as a reduction of interest expense in the
accompanying statement of operations. The PGA remains in effect
until the loans are discharged, prepaid, accelerated, or mature,
as defined in the secured promissory note.
Subsequent to December 28, 1999, Magic refinanced $1,099,463 of
notes payable to Intrust Bank and $478,963 of notes payable to a
former partner with new notes from Intrust Bank dated February
15, 2000 and March 1, 2000 that mature in 2001 and beyond.
Accordingly, the current and non-current portion of long-term
debt reflects the terms of the agreements.
All borrowings are secured by substantially all land, buildings,
and equipment of the Partnership. In addition, all borrowings,
except for the FMAC loans are supported by the guarantee of the
majority owner of the Partnership.
Future annual long-term debt maturities, exclusive of capital
lease commitments over the next five years are as follows: 2000 -
$2,415,469; 2001 - $2,712,251; 2002 - $2,365,465; 2003 -
$4,169,084 and 2004 - $2,021,473.
Cash paid for interest was $2,734,143, $2,194,670, and $1,943,870
for the years ended December 28, 1999, December 29, 1998, and
December 30, 1997, respectively.
4. LEASES
------
The Partnership leases land and buildings for various restaurants
under both operating and capital lease arrangements. Initial
lease terms normally range from 5 to 20 years with renewal
options generally available. The leases are net leases under
which the Partnership pays the taxes, insurance, and maintenance
costs, and they generally provide for both minimum rent payments
and contingent rentals based on a percentage of sales in excess
of specified amounts.
Minimum and contingent rent payments for land and buildings
leased from affiliates were $30,250, $30,250 and $27,500 for the
years ended December 28, 1999, December 29, 1998 and December 30,
1997.
Total minimum and contingent rent expense under all operating
lease agreements were as follows:
1999 1998 1997
---- ---- ----
Minimum rentals $1,263,873 $904,665 $780,143
Contingent rentals 231,070 147,673 101,657
Future minimum payments under capital leases and noncancelable
operating leases with an initial term of one year or more at
December 28, 1999, are as follows:
Operating
Leases With Operating
Capital Unrelated Leases With
Leases Parties Affiliates
------ ------- ----------
2000 $ 226,829 $1,200,012 $30,250
2001 230,077 1,089,149 30,250
2002 230,077 926,384 7,563
2003 230,077 723,350 -
2004 239,825 562,474 -
Thereafter 1,594,776 2,077,683 -
--------- --------- ------
Total minimum payments 2,751,661 $6,579,052 $68,063
Less interest 1,256,162 ========= ======
---------
1,495,499
Less current portion 59,124
---------
$1,436,375
=========
Amortization of property under capital leases, determined on the
straight-line basis over the lease terms totaled $82,149,
$106,677, and $150,288 for the years ended December 28, 1999,
December 29, 1998 and December 30, 1997, respectively. Capital
lease interest was $172,098, $290,374 and $212,890, respectively,
over the same years ended. The amortization is included in
depreciation and amortization expense and the interest is
included in interest expense in the accompanying consolidated
statements of operations. The cost of property under capital
leases was $2,077,751 at December 28, 1999 and December 29, 1998,
respectively, and accumulated amortization on such property under
capital leases was $1,176,069 and $1,188,156 at December 28, 1999
and December 29, 1998, respectively.
5. LIMITED PARTNERSHIP UNITS
-------------------------
The Partnership has three classes of Partnership Units
outstanding, consisting of Class A Income Preference, Class B,
and Class C Units. The Units are in the nature of equity
securities entitled to participate in cash distributions of the
Partnership on a quarterly basis at the discretion of RAM, the
General Partner. In the event the Partnership is terminated, the
Unitholders will receive the remaining assets of the Partnership
after satisfaction of Partnership liability and capital account
requirements.
6. DISTRIBUTIONS TO PARTNERS
-------------------------
On January 5, 2000, the Partnership declared a distribution of
$.10 per Unit to all Unitholders of record as of January 14,
2000. The total distribution is not reflected in the December
28, 1999 consolidated financial statements.
7. UNIT OPTION PLAN
----------------
The Partnership, RAM, and the Management Company adopted a Class
A Unit Option Plan (the Plan) pursuant to which 75,000 Class A
Units are reserved for issuance to employees, including officers
of the Partnership, RAM, and the Management Company. The Plan is
administered by the Managing General Partner which will, among
other things, designate the number of Units and individuals to
whom options will be granted. Participants in the Plan are
entitled to purchase a designated number of Units at an option
price equal to the fair market value of the Unit on the date
the option is granted. Units under option are exercisable
over a three-year period with 50% exercisable on the date of
grant and 25% exercisable on each of the following two
anniversary dates. The term of options granted under the Plan
will be determined by the Managing General Partner at the time of
issuance (not to exceed ten years) and will not be transferable
except in the event of the death of the optionee, unless the
Managing General Partner otherwise determines and so specifies in
the terms of the grant. Units covered by options which expire or
are terminated will again be available for option grants.
A summary of Units under options in the Plan is as follows:
Units Option Price
----- ------------
Balance at December 30, 1997,
December 29, 1998 and
December 28, 1999 625 $8.50
At December 28, 1999, options on 625 Units were exercisable.
Unit options available for future grants totaled 48,611 at
December 28, 1999 and December 29, 1998.
8. SALE OF RESTAURANT
------------------
In December 1999, the Partnership sold substantially all the
assets, including land and building, of one restaurant. The
Partnership recognized a gain of $196,608 on the sale.
9. LIFE INSURANCE SETTLEMENT
-------------------------
During 1998, the Partnership collected on a life insurance policy
purchased in 1993 on one of its original investors. This
investor owned approximately 438,600 Class B and C units. The
policy was purchased with the intent of providing the Partnership
a means of repurchasing his units upon his death if his heirs so
desired. The investor died in May of 1998. The Partnership
recognized a gain of $875,533 upon receipt of the insurance
proceeds. The units were repurchased on December 29, 1998 at
$2.55 per unit for a total purchase price of $1,118,430. In
addition, if the nine Pizza Hut restaurants located within the
Billings, Montana ADI, including the associated franchises, real
estate and operating assets, (the BM Restaurants) are sold to an
unrelated party in one or more transactions and the sale
transaction(s) are closed prior to
January 1, 2001, then the heirs will receive as additional
consideration for the purchase of the units a contingent payment
of $0.50 per unit, or $219,300. If the BM Restaurants are not
sold within that time, the obligation to make the contingent
payment will expire. The Partnership is not required to market or
sell the BM Restaurants or to accept any offer by any party to
purchase such BM Restaurants.
10. CLASS B AND C RESTRICTED UNITS SOLD TO EMPLOYEES
------------------------------------------------
On July 1, 1994, the Partnership entered into a Unit Purchase
Agreement with certain employees whereby the employees may
purchase Class B and C Units every six months beginning July 1,
1994, and continuing until January 1, 1998. The purchase price
per unit was $2.00 with a total of 75,000 units to be purchased
over three and one-half years. During 1997, the Partnership
issued 47,250 Class B and C units for $94,500.
During 1999, the Partnership issued 437,500 Class B and C Units at
$2.55 per unit to certain employees in exchange for either a 10%
down payment and notes receivable for the remaining 90% of the
purchase price or for notes receivable for 100% of the purchase
price. Notes receivable representing 40% or 50%, respectively, of
the purchase price, together with interest thereon at a rate of
9%, will be repaid by the cash distributions paid on the units.
Non-interest bearing notes receivable representing the remaining
50% of the purchase price will be reduced over a 4 1/2 year period
through annual charges to compensation expense, included under the
caption of "General and administrative - other" in the
accompanying statements of operations, as long as the employee
remains employed by the Company. 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.
11. PARTNERS' CAPITAL
-----------------
During 1999, 1998 and 1997, the Partnership purchased 24,070, 304
and 995 Class A Income Preference Units for $78,202, $1,269 and
$3,037, respectively. These Units were retired by the
Partnership.
12. INVESTMENTS
-----------
The Partnership purchased common stock of a publicly traded
company for investment purposes. This stock was sold in 1999
resulting in a loss on sale of investments held for sale of
$134,766. The following is a summary of available-for-sale
securities:
Cumulative Estimated
Unrealized Fair
Cost Gains/(Losses) Value
---- -------------- -----
December 28, 1999 $ - $ - $ -
======= ======== =======
December 29, 1998 $177,076 $(108,441) $ 68,635
======= ======== =======
December 30, 1997 $177,076 $ 18,675 $195,751
======= ======== =======
The net adjustment to unrealized gain/(loss) on securities
available-for-sale is included in comprehensive income.
13. INVESTMENT IN AFFILIATE
-----------------------
On March 13, 1996, the Partnership purchased a 45% interest in
Magic, a newly formed limited partnership, for $3.0 million in
cash. Magic owns and operates twenty-six Pizza Hut restaurants
in Oklahoma. In November 1996 Magic notified Hospitality Group
of Oklahoma, Inc. (HGO), the former owners of the Oklahoma
restaurants, that it was seeking to terminate HGO's interest in
Magic pursuant to the terms of the Partnership Agreement for
alleged violations of the Pizza Hut Franchise Agreement and
the alleged occurrence of an Adverse Terminating Event as
defined in the Partnership Agreement. Magic alleged HGO
contacted and offered employment to a significant number of the
management employees of Magic. Magic also alleged HGO made
certain misrepresentations at the formation of Magic. HGO denied
such franchise violations occurred and that it had made any
misrepresentations at the formation of Magic. HGO asserted it
was fraudulently induced to enter into the Magic Partnership
Agreement by Restaurant Management Company of Wichita, Inc. and
was further damaged by alleged mismanagement of Magic's
operations.
The matter was settled in August 1998 with Magic paying HGO a
Section 736(a) guaranteed payment of $255,000 for the period
November 11, 1996 through the settlement date. In addition,
Magic purchased HGO's interest in Magic for $205,000 consisting
of $105,000 cash and a $100,000 note at 8% interest for five
years, payable quarterly. Magic also paid the two stockholders
of HGO $240,000 for a noncompete agreement prohibiting them from
engaging in the pizza business for the next 60 months in any
market Magic operated in as of May 11, 1998. Upon completion of
the settlement, the Partnership's interest in Magic 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. As of December 28, 1999, the
Partnership has goodwill, net of accumulated amortization, of
$694,391 representing the excess purchase price of the original
equity investment in the net assets acquired. The goodwill is
being amortized over 29 years. Condensed financial information
for Magic accounted for under the equity method of accounting
through August 10, 1998 is as follows:
(Unaudited)
For the 32 For the
weeks ended Year ended
August 10, December 30,
1998 1997
---------- ------------
Statement of Operations:
Revenues $10,087,820 $15,712,313
Cost of sales 2,578,865 4,308,896
Operating expenses 7,071,979 12,297,095
---------- ----------
Operating income (loss) 436,976 (893,678)
Other expense
(principally interest) 453,087 791,610
---------- ----------
Net loss $ (16,111) $(1,685,288)
========== ==========
The proforma unaudited results of operations for the years ended
December 29, 1998 and December 30, 1997, assuming the increase in
the Partnership,s interest in Magic from 45% to 60% occurred as
of January 1, 1997, are as follows:
(Unaudited)
December 29, December 30,
1998 1997
------------ ------------
Net sales $53,631,453 $54,689,655
Net income (loss) 806,324 (2,243,655)
Net income (loss) per
per Partnership unit $ 0.20 $ (0.56)
14. MAJOR SUPPLIER
--------------
On January 31, 2000, AmeriServe, the Partnership's primary
supplier of food ingredients and dry goods, filed for protection
under the U.S. Bankruptcy Code. Tricon, the Unified Foodservice
Purchasing Coop, and key representatives of the Tricon franchise
community are working together to ensure the availability of
supplies to Tricon's restaurant system during the bankruptcy
proceedings. To date, the Partnership has not experienced any
significant supply interruption. AmeriServe has advised Tricon
that it is actively seeking to arrange the financing necessary to
maintain AmeriServe operations. The Partnership, along with
Tricon, has commenced contingency planning and believes that it
can arrange with an alternative distributor or distributors to
meet the needs of the restaurants if AmeriServe is no longer able
to adequately service the restaurants.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amount reported on the balance sheets for all
financial instruments including cash and cash equivalents, notes
receivable, and debt instruments approximates their fair value.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 6, 2000, accompanying
the consolidated financial statements included in the Annual
Report of American Restaurant Partners, L.P. on Form 10-K
for the year ended December 28, 1999. We hereby consent to
the incorporation by reference of said report in the
Registration Statement of American Restaurant Partners, L.P.
on Form S-8 (No. 33-20784).
/s/Grant Thornton LLP
Wichita, Kansas
March 23, 2000
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-20784) pertaining to
the Class A Unit Option Plan of American Restaurant
Partners, L.P. of our report dated March 12, 1999, with
respect to the consolidated financial statements of American
Restaurant Partners, L.P., as of December 29, 1998, and for
the two years then ended, included in the Annual Report
(Form 10-K) for the year ended December 28, 1999.
/s/Ernst & Young LLP
Kansas City, Missouri
March 24, 2000