Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 25, 2002 Commission file number 1-9606
AMERICAN RESTAURANT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 48-1037438
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
3020 North Cypress Road, Suite 100
Wichita, Kansas 67226
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code (316) 634-1190
555 North Woodlawn, Suite 3102
Wichita, Kansas 67208
(Former address of principal executive offices) (Zip-Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
AMERICAN RESTAURANT PARTNERS, L.P.
INDEX
Page
Number
------
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
June 25, 2002 and December 25, 2001 1
Consolidated Condensed Statements of Income
for the Three and Six Periods Ended
June 25, 2002 and June 26, 2001 2
Consolidated Condensed Statements of Cash
Flows for the Six Periods Ended
June 25, 2002 and June 26, 2001 3
Notes to Consolidated Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 6-10
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 25, December 25,
ASSETS 2002 2001
- --------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 1,981,225 $ 1,594,934
Accounts receivable 220,383 482,185
Due from affiliates 64,821 64,668
Notes receivable from
affiliates - current portion 15,249 16,173
Inventories 404,725 397,821
Prepaid expenses 280,336 359,592
---------- ----------
Total current assets 2,966,739 2,915,373
Net property and equipment 18,536,149 20,134,758
Other assets:
Franchise rights, net 4,850,581 4,969,167
Notes receivable from affiliates 46,665 53,409
Deposit with affiliate 485,000 485,000
Goodwill 1,967,627 1,967,627
Other 1,153,608 1,193,205
---------- ----------
8,503,481 8,668,408
---------- ----------
$30,006,369 $31,718,539
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
Current liabilities:
Accounts payable $ 2,070,209 $ 3,129,578
Due to affiliates 36,547 52,763
Accrued payroll and other taxes 1,032,987 981,542
Accrued liabilities 1,173,110 1,404,786
Current maturities of long-term debt 2,840,136 5,406,737
Current portion of capital lease obligations 555,648 596,356
---------- ----------
Total current liabilities 7,708,637 11,571,762
Long-term liabilities less current maturities:
Capital lease obligations 3,741,834 1,995,197
Long-term debt 22,470,762 23,667,180
Other noncurrent liabilities 1,166,401 817,104
---------- ----------
27,378,997 26,479,481
Minority interests in Operating Partnerships 157,076 140,406
Commitments and contingencies - -
Partners' capital (deficiency):
General Partners (7,082) (8,358)
Limited Partners:
Class A Income Preference 5,352,470 5,131,262
Classes B and C (8,091,200) (9,146,027)
Notes receivable employees - sale
of partnership units (633,886) (591,344)
Cost in excess of carrying value
of assets acquired (1,858,643) (1,858,643)
---------- ----------
Total partners' deficiency (5,238,341) (6,473,110)
---------- ----------
$30,006,369 $31,718,539
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Periods Ended Six Periods Ended
June 25, June 26, June 25, June 26,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales $17,033,867 $15,795,550 $34,552,563 $31,394,142
Operating costs and expenses:
Cost of sales 4,109,466 4,075,401 8,288,837 8,000,718
Restaurant labor and benefits 4,832,451 4,588,763 9,714,846 9,186,478
Advertising 983,037 912,754 2,091,622 1,911,910
Other restaurant operating
expenses exclusive of
depreciation and amortization 3,187,260 2,878,696 6,256,782 5,923,805
General and administrative:
Management fees - related party 1,057,553 976,566 2,144,040 1,938,113
Other 467,151 230,745 847,217 540,868
Depreciation and amortization 776,241 764,098 1,490,815 1,501,625
---------- ---------- ---------- ----------
Income from operations 1,620,708 1,368,527 3,718,404 2,390,625
Equity in loss of
unconsolidated affiliates (37,577) (32,499) (122,375) (111,458)
Interest income 6,932 7,332 12,859 15,016
Interest expense (686,250) (784,468) (1,435,209) (1,574,235)
---------- ---------- ---------- ----------
Income before minority interest 903,813 558,892 2,173,679 719,948
Minority interests in income of
Operating Partnerships (12,216) (7,770) (29,214) (10,852)
---------- ---------- ---------- ----------
Net income $ 891,597 $ 551,122 $ 2,144,465 $ 709,096
========== ========== ========== ==========
Net income allocated to Partners:
Class A Income Preference $ 166,421 $ 104,094 $ 403,003 $ 134,190
Class B $ 263,855 $ 162,614 $ 633,478 $ 209,134
Class C $ 461,321 $ 284,414 $ 1,107,984 $ 365,772
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 695,516 700,540 695,931 702,410
Class B 1,102,719 1,094,375 1,093,928 1,094,697
Class C 1,927,986 1,914,077 1,913,334 1,914,612
Basic and diluted income
before minority interest
per Partnership unit $ 0.24 $ 0.15 $ 0.59 $ 0.19
Basic and diluted minority interest
per Partnership unit $ 0.00 $ 0.00 $ 0.01 $ 0.00
Basic and diluted net income
per Partnership unit $ 0.24 $ 0.15 $ 0.58 $ 0.19
Distributions per Partnership interest $ 0.155 $ 0.100 $ 0.255 $ 0.200
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Periods Ended
June 25, June 26,
2002 2001
----------- -----------
Cash flows from operating activities:
Net income $ 2,144,465 $ 709,096
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,490,815 1,501,625
Equity in loss of unconsoliated affiliates 122,375 111,458
Loss on disposition of assets 122,624 7,270
Minority interest in income of
Operating Partnerships 29,214 10,852
Unit compensation expense 33,426 26,656
Net change in operating assets and liabilities:
Accounts receivable 267,803 245,157
Due from affiliates (153) (21,888)
Inventories (6,904) (13,542)
Prepaid expenses 79,256 29,539
Accounts payable (1,059,369) 317,890
Due to affiliates (16,216) (37,020)
Accrued payroll and other taxes 51,445 76,302
Accrued liabilities (231,676) (145,936)
Other, net (804) (103,217)
---------- ----------
Net cash provided by operating activities 3,026,301 2,714,242
Investing activities:
Investment in unconsolidated affiliates (108,212) (91,072)
Additions to property and equipment (669,469) (1,064,038)
Proceeds from sale of property and equipment - 43,028
Proceeds from sale and leaseback of property
and equipment 3,188,044 -
Collections of notes receivable from affiliates 7,668 5,579
---------- ----------
Net cash provided by (used in) investing activities 2,418,031 (1,106,503)
Financing activities:
Payments on long-term borrowings (4,099,269) (1,203,173)
Proceeds from long-term borrowings 336,250 523,356
Payments on capital lease obligations (333,354) (268,119)
Distributions to Partners (879,636) (690,281)
Repurchase of units (79,185) (41,336)
Proceeds from issuance of Class B and C units 9,698 -
General Partners' distributions
from Operating Partnerships (9,545) (7,496)
Minority interests' distributions
from Operating Partnerships (3,000) (3,000)
---------- ----------
Net cash used in financing activities (5,058,041) (1,690,049)
---------- ----------
Net increase (decrease) in cash and cash equivalents 386,291 (82,310)
Cash and cash equivalents at beginning of period 1,594,934 788,485
---------- ----------
Cash and cash equivalents at end of period $ 1,981,225 $ 706,175
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Six Periods Ended June 25, 2002 and June 26, 2001
1. General
-------
The accompanying consolidated condensed financial statements include
the accounts of American Restaurant Partners, L.P. and its majority
owned subsidiaries, American Pizza Partners, L.P. (APP), APP
Concepts, LLC and Oklahoma Magic, L.P. (Magic). American Restaurant
Partners, L.P., APP, APP Concepts, LLC and Magic are hereinafter
collectively referred to as the Partnership. All significant
intercompany balances and transactions have been eliminated. The
consolidated condensed financial statements have been prepared
without audit. The Balance Sheet at December 25, 2001 has been
derived from the Partnership's audited financial statements. In the
opinion of management, all adjustments of a normal and recurring
nature which are necessary for a fair presentation of such financial
statements have been included. These statements should be read in
conjunction with the consolidated financial statements and notes
contained in the Partnership's Annual Report filed on Form 10-K for
the fiscal year ended December 25, 2001.
The results of operations for interim periods are not necessarily
indicative of the results for the full year. The Partnership does
not experience significant seasonality but sales continue to be
largely driven through advertising and promotion.
2. Subsequent Events
-----------------
On July 2, 2002 the Partnership declared a quarterly distribution of
$0.10 per unit, and an additional cash distribution of $0.055 per
unit, for a total of $0.155 per unit to all unitholders of record as
of July 12, 2002. The distribution is not reflected in the June 25,
2002 consolidated condensed financial statements.
3. Supplemental Cash Flow Information
----------------------------------
Six Periods Ended
6/25/02 6/26/01
---------- ----------
Cash paid for interest $1,445,828 $1,567,549
Noncash investing and financing
activity:
Distributions offset against
notes receivable 65,309 51,865
Reduction of notes receivable
recorded as compensation expense 33,426 26,656
Capital leases entered into as part
of sale-leaseback transactions 2,039,283 -
Equipment acquired through capital
lease - 153,932
Issuance of units for notes receivable 147,277 -
4. Goodwill
--------
Statement of Financial Accounting Standards (SFAS) 142, Goodwill and
Intangible Assets, was issued in June 2001 and adopted by the
Partnership on December 26, 2001. SFAS 142 provides that goodwill
is no longer amortized effective December 26, 2001, but is instead
reviewed for impairment at least annually and whenever there is an
impairment indicator. The Partnership has completed its
transitional fair value based impairment test of goodwill, which
indicated the value of goodwill is not impaired at December 26,
2001, and as a result, no impairment loss was recognized. Goodwill
amortization for the six periods ended June 26, 2001 was
approximately $42,000. Net income for the six periods ended June
26, 2001, adjusted to exclude goodwill amortization, would have been
approximately $751,000.
5. Contingency
-----------
On July 26, 2000, APP purchased 39% of Magic from Restaurant
Management Company of Wichita, Inc. (RMC) for $2,500,000 cash and
contingent consideration of $700,000. The contingent consideration
will become due in the event that Magic's cash flow (determined on a
12 month trailing basis) exceeds $2.6 million at any time between
January 1, 2001 and December 31, 2005. Payment of the remaining
balance shall be made in Class B and Class C Units of the
Partnership. Based on current operating results of Magic, cash
flows may exceed $2.6 million at some point during 2002. In the
event that Magic's cash flow does not reach this cash flow goal on
or prior to December 31, 2005, APP shall owe no additional
consideration.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As of June 25, 2002, the Partnership operated 70 traditional Pizza
Hut red roof restaurants, 16 delivery/carryout units and 2 dualbrand
locations.
Comparison of the Three and Six Periods Ended June 25, 2002
- -----------------------------------------------------------
with the Three and Six Periods Ended June 26, 2001
- --------------------------------------------------
Net sales for the three periods ended June 25, 2002 were
$17,034,000, which was a $1,238,000, or 7.8%, increase over net
sales of $15,796,000 reported for the same three periods of 2001.
For the year-to-date, net sales increased $3,158,000, or 10.1% over
the prior year. Comparable restaurant sales increased 3.6% for the
quarter and 6.3% for the year-to-date. The sales increase was
primarily attributable to the successful introduction of a new
product, P'ZONE, in the first quarter of 2002. The sales increase
is also attributable to a price increase the Partnership implemented
at the end of the third quarter of 2001.
Results of Operations
as a Percentage of Sales:
Three Periods Six Periods
Ended Ended
6/25/02 6/26/01 6/25/02 6/26/01
------- ------- ------- -------
Cost of sales 24.1% 25.8% 24.0% 25.5%
Restaurant labor and benefits 28.4% 29.1% 28.1% 29.3%
Advertising 5.8% 5.8% 6.1% 6.1%
Other restaurant operating
expenses exclusive of
depreciation and amortization 18.7% 18.2% 18.1% 18.9%
General and administrative:
Management fees 6.2% 6.2% 6.2% 6.2%
Other 2.7% 1.4% 2.5% 1.6%
Depreciation and amortization 4.6% 4.8% 4.3% 4.8%
Income from operations 9.5% 8.7% 10.8% 7.6%
Income from operations for the three periods ended June 25, 2002
increased $252,000 from $1,369,000 to $1,621,000, a 18.4% increase
from the same three periods of 2001. Year-to-date income from
operations increased $1,327,000, or 55.5%, from $2,391,000 to
$3,718,000.
Cost of sales as a percentage of net sales decreased 170 and 150
basis points for the quarter and year-to-date, respectively. This
decrease was primarily due to a 17% decrease in cheese costs during
the second quarter. The year-to-date decrease is also due to a
decrease in the cost of meat toppings as well as the effect of the
price increase the Partnership implemented at the end of the third
quarter of 2001.
Labor and benefits expense for the quarter and year-to-date
decreased 70 and 120 basis points, respectively, primarily due to
efficiencies gained at higher sales levels.
Other restaurant operating expenses increased 50 basis points for
the quarter but decreased 80 basis points year-to-date. The
increase for the quarter was primarily due to business interruption
insurance proceeds which were offset against other restaurant
operating expenses in 2001. The year-to-date decrease was primarily
attributable to a decrease in utility expense.
Other general and administrative expense for the quarter and year-
to-date increased 130 and 90 basis points, respectively, primarily
due to increased management bonuses paid in 2002 resulting from
increased cash flow results.
Depreciation and amortization expense decreased 20 and 50 basis
points for the quarter and year-to-date, respectively, as a result
of no longer amortizing goodwill in 2002 in accordance with
Statement of Financial Accounting Standards (SFAS) 142 (see Note 4
in Notes to Consolidated Condensed Financial Statements).
For the quarter, the Partnership had net income of $892,000, a
$341,000 increase over the prior year's net income of $551,000.
This increase was primarily due to the increase in income from
operations noted above and a $98,000 decrease in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 25, 2002 the Partnership had a working capital deficiency of
$4,742,000 compared to a working capital deficiency of $8,656,000 at
December 25, 2001. This decrease in working capital deficiency is
primarily attributable to a $2,567,000 decrease in the current
portion of long-term debt resulting from sale-leaseback transactions
on eight real estate properties in January 2002. The decrease in
working capital deficiency is also attributable to net income of
$2,144,000 for the six periods ended June 25, 2002. The Partnership
routinely operates with a negative working capital position which is
common in the restaurant industry and which results from the cash
sales nature of the restaurant business and payment terms with
vendors.
The Partnership generates its principal source of funds from net
cash provided by operating activities. Management believes net cash
provided by operating activities and various other sources of income
will provide sufficient funds to meet planned capital expenditures
for recurring replacement of equipment in existing restaurants and
to service debt obligations.
NET CASH PROVIDED BY OPERATING ACTIVITIES. For the six periods
ended June 25, 2002, net cash provided by operating activities
amounted to $3,026,000 compared to $2,714,000 for the six periods
ended June 26, 2001. This increase is primarily the result of an
increase in net income of $1,435,000 which was used to pay down
accounts payable and accrued liabilities, and an increase in loss on
disposition of assets of $115,000.
INVESTING ACTIVITIES. Capital expenditures for the six periods
ended June 25, 2002 were $669,000 of which $275,000 was for
construction of new restaurants. The remainder was for replacement
of equipment in existing restaurants. The Partnership completed
sale-leaseback transactions for the real estate of eight of its
properties which generated funds of $3,188,000.
FINANCING ACTIVITIES. Cash distributions paid during the six
periods ended June 25, 2002 were $880,000 net of a reduction in
employee notes receivable of $65,000. Distributions amounted to
$.255 per unit. The Partnership's distribution objective,
generally, is to distribute all operating revenues less operating
expenses (excluding noncash items such as depreciation and
amortization), capital expenditures for existing restaurants,
interest and principal payments on Partnership debt, and such cash
reserves as the managing General Partner may deem appropriate.
During the six periods ended June 25, 2002, the Partnership's
payments on long-term borrowings totaled $4,099,000, the majority of
which were funded through proceeds from sale-leaseback transactions.
Proceeds from borrowings amounted to $336,000 during the six periods
ended June 25, 2002. The Partnership opened one new
delivery/carryout restaurant in the Oklahoma City, Oklahoma area
during the first quarter of 2002. This unit is leased from an
unrelated third party. The Partnership plans to open one new
restaurant and one replacement restaurant during 2002. The land for
the new restaurant has been purchased. Management anticipates
spending approximately $800,000 for the building and equipment at
this location. The remaining restaurant planned for development
will be leased from an unrelated third party. Management
anticipates the cost of developing this location at approximately
$400,000. Development of the restaurants will be financed through
existing lenders. Management anticipates spending an additional
$425,000 during the remainder of 2002 for recurring replacement of
equipment in existing restaurants which will be financed from net
cash provided by operating activities. The actual level of capital
expenditures may be higher in the event of unforeseen breakdowns of
equipment or lower in the event of inadequate net cash flow from
operating activities.
OTHER MATTERS
- -------------
The Partnership delisted from the American Stock Exchange effective
November 13, 1997 and limited trading of its units. As a result,
the Partnership will continue to be taxed as a partnership rather
than being taxed as a corporation. The Partnership does offer a
Qualified Matching Service, whereby the Partnership will match
persons desiring to buy units with persons desiring to sell units.
EFFECTS OF INFLATION AND FUTURE OUTLOOK
- ---------------------------------------
Inflationary factors such as increases in food and labor costs
directly affect the Partnership's operations. Because most of the
Partnership's employees are paid on an hourly basis, changes in
rates related to federal and state minimum wage and tip credit laws
will affect the Partnership's labor costs. The Partnership cannot
always effect immediate price increases to offset higher costs and
no assurance can be given the Partnership will be able to do so in
the future.
The Partnership's property and liability insurance and workers'
compensation insurance policies renew annually on July 1. Effective
July 1, 2002, the Partnership's property and liability insurance
premiums increased 40% and its workers' compensation premiums
increased 60%. The Partnership has implemented a renewed focus on
risk management in order to mitigate these premium increases.
The Partnership's earnings are affected by changes in interest rates
primarily from its long-term debt arrangements. Under its current
policies, the Partnership does not use interest rate derivative
instruments to manage exposure to interest rate changes. Due to the
small amount of debt at variable interest rates, a hypothetical 100
basis point adverse move (increase) in interest rates along the
entire interest rate yield curve would not have a material effect on
either the Partnership's interest expense or net income over the
term of the related debt. This was determined by considering the
impact of the hypothetical interest rates on the Partnership's
borrowing cost. These analyses do not consider the effects of the
reduced level of overall economic activity that could exist in such
an environment.
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the
Exchange Act which are intended to be covered by the safe harbors
created thereby. Although the Partnership believes that the
assumptions underlying the forward-looking statements contained
herein are reasonable, any of the assumptions could be inaccurate,
and therefore, there can be no assurance that the forward-looking
statements included in this report will prove to be accurate.
Factors that could cause actual results to differ from the results
discussed in the forward-looking statements include, but are not
limited to, consumer demand and market acceptance risk, the effect
of economic conditions, including interest rate fluctuations, the
impact of competing restaurants and concepts, the cost of
commodities and other food products, labor shortages and costs and
other risks detailed in the Partnership's Securities and Exchange
Commission filings.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
During the fiscal period covered by this Form 10-Q, no
reports on Form 8-K were filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN RESTAURANT PARTNERS, L.P.
(Registrant)
By: RMC AMERICAN MANAGEMENT, INC.
Managing General Partner
Date: 08/08/02 By: /s/Hal W. McCoy
-------- ----------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Date: 08/08/02 By: /s/Terry Freund
-------- ----------------------------
Terry Freund
Chief Financial and Accounting Officer
CERTIFICATION OF PERIODIC REPORT
I, Hal W. McCoy, Chairman and Chief Executive Officer and Terry
Freund, Chief Financial and Accounting Officer of American Restaurant
Parnters, L.P. (the "Partnership"), certify, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that:
(1) the Quarterly Report on Form 10-Q of the Partnership for the
quarterly period ended June 25, 2002 (the "Report") fully
complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and
(2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
the operations of the Partnership.
AMERICAN RESTAURANT PARTNERS, L.P.
(Registrant)
By: RMC AMERICAN MANAGEMENT, INC.
Managing General Partner
Date: 08/08/02 By: /s/Hal W. McCoy
-------- ----------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Date: 08/08/02 By: /s/Terry Freund
-------- ----------------------------
Terry Freund
Chief Financial and Accounting Officer