SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2003 Commission file number 1-9606
AMERICAN RESTAURANT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 48-1037438
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
3020 North Cypress Road, Suite 100
Wichita, Kansas 67226
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code (316) 634-1190
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
AMERICAN RESTAURANT PARTNERS, L.P.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
September 30, 2003 and December 31, 2002 1
Consolidated Condensed Statements of Income
for the Three and Nine Periods Ended
September 30, 2003 and September 24, 2002 2
Consolidated Condensed Statements of Cash
Flows for the Nine Periods Ended
Septmeber 30, 2003 and September 24, 2002 3
Notes to Consolidated Condensed Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 7-12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
Item 4. Controls and Procedures 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 2003 2002
- --------------------------------------------- ------------- -------------
Current assets:
Cash and cash equivalents $ 1,052,214 $ 522,098
Investment securities available-for-sale - 190,174
Accounts receivable 406,777 328,356
Due from affiliates 16,280 74,424
Notes receivable from
affiliates - current portion 10,220 11,628
Inventories 528,692 430,542
Prepaid expenses 892,241 626,448
---------- ----------
Total current assets 2,906,424 2,183,670
Net property and equipment 18,969,842 18,704,186
Other assets:
Franchise rights, net 8,498,054 4,748,392
Notes receivable from affiliates 84,029 91,780
Deposit with affiliate 570,000 535,000
Goodwill 2,540,864 2,540,864
Other 880,135 800,374
---------- ----------
12,573,082 8,716,410
---------- ----------
$34,449,348 $29,604,266
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 3,460,450 $ 2,383,477
Due to affiliates 4,428 12,434
Accrued payroll and other taxes 1,284,657 738,773
Accrued liabilities 1,436,984 1,244,191
Current maturities of long-term debt 2,988,413 3,062,704
Current portion of capital lease obligations 363,542 560,405
---------- ----------
Total current liabilities 9,538,474 8,001,984
Long-term liabilities less current maturities:
Capital lease obligations 3,259,862 3,454,437
Long-term debt 25,361,363 22,036,387
Other noncurrent liabilities 941,014 1,067,792
---------- ----------
Total long-term liabilities 29,562,239 26,558,616
Minority interests in Operating Partnerships 383,027 147,163
Commitments and contingencies - -
Partners' capital (deficiency):
General Partners (7,572) (7,620)
Limited Partners:
Class A Income Preference 5,201,976 5,212,980
Classes B and C (7,549,160) (7,654,589)
Notes receivable employees - sale
of partnership units (603,231) (576,740)
Cost in excess of carrying value
of assets acquired (2,076,405) (2,076,405)
Cumulative comprehensive loss - (1,123)
---------- ----------
Total partners' capital (deficiency) (5,034,392) (5,103,497)
---------- ----------
$34,449,348 $29,604,266
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Periods Ended Nine Periods Ended
September 30, September 24, September 30, September 24,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net sales $18,647,717 $16,911,097 $53,726,615 $51,463,660
Operating costs and expenses:
Cost of sales 4,745,910 4,105,334 13,257,915 12,394,171
Restaurant labor and benefits 5,448,561 4,935,463 15,555,923 14,650,309
Advertising 1,184,009 1,020,787 3,382,071 3,112,409
Other restaurant operating
expenses exclusive of
depreciation and amortization 4,260,912 3,499,517 11,159,679 9,756,299
General and administrative:
Management fees - related party 1,140,623 1,055,400 3,307,044 3,199,440
Other 325,912 311,771 1,076,521 1,158,988
Depreciation and amortization 822,383 787,232 2,430,847 2,278,047
---------- ---------- ---------- ----------
Income from operations 719,407 1,195,593 3,556,615 4,913,997
Equity in loss of
unconsolidated affiliates (30,808) (37,869) (155,731) (160,244)
Interest and other investment income 4,253 7,600 18,765 20,459
Interest expense (666,905) (704,151) (2,048,118) (2,139,360)
Gain on fire settlement 59,209 - 59,209 -
---------- ---------- ---------- ----------
Income before minority interest 85,156 461,173 1,430,740 2,634,852
Minority interests in (income) loss of
Operating Partnerships 15,025 (5,145) 5,619 (34,359)
---------- ---------- ---------- ----------
Net income $ 100,181 $ 456,028 $ 1,436,359 $ 2,600,493
========== ========== ========== ==========
Net income allocated to Partners:
Class A Income Preference $ 17,090 $ 84,929 $ 246,314 $ 487,231
Class B $ 30,308 $ 135,027 $ 434,027 $ 768,792
Class C $ 52,783 $ 236,072 $ 756,018 $ 1,344,470
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 678,581 694,063 680,113 695,308
Class B 1,203,413 1,190,981 1,198,422 1,126,279
Class C 2,095,811 2,075,089 2,087,491 1,967,252
Basic and diluted income
before minority interest
per Partnership unit $ 0.02 $ 0.12 $ 0.36 $ 0.70
Basic and diluted minority interest
per Partnership unit $ 0.01 $ 0.00 $ 0.00 $ 0.01
Basic and diluted net income
per Partnership unit $ 0.03 $ 0.12 $ 0.36 $ 0.69
Distributions per Partnership unit $ 0.100 $ 0.155 $ 0.350 $ 0.410
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine Periods Ended
September 30, September 24,
2003 2002
------------- -------------
Cash flows from operating activities:
Net income $ 1,436,359 $ 2,600,493
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,430,847 2,278,047
Equity in loss of unconsolidated affiliates 155,731 160,244
Loss on disposition of assets 3,388 127,680
Gain on sale of investment securities (6,486) -
Minority interest in income (loss) of
Operating Partnerships (5,619) 34,359
Unit compensation expense 61,875 53,462
Gain on fire settlement (59,209) -
Net change in operating assets and liabilities,
net of acquisition:
Accounts receivable (33,646) 135,726
Due from affiliates 58,144 (19,871)
Inventories (37,537) (73,303)
Prepaid expenses (196,193) (193,797)
Deposit with affiliate (35,000) (50,000)
Accounts payable 579,419 (540,375)
Due to affiliates (8,006) (10,771)
Accrued payroll and other taxes 366,235 (235,216)
Accrued liabilities 51,951 (101,310)
Other, net (243,573) (49,748)
---------- ----------
Net cash provided by operating activities 4,518,680 4,115,620
Investing activities:
Cash acquired in acquisition of MVP 91,900 -
Investment in unconsolidated affiliates (117,640) (181,512)
Purchase of investment securities - (199,804)
Proceeds from sale of investment securities 197,783 -
Additions to property and equipment 1,032,023) (1,764,516)
Proceeds from sale of property and equipment 5,500 -
Proceeds from sale and leaseback of property
and equipment - 3,187,202
Purchase of franchise rights - (15,000)
Collections of notes receivable from affiliates 9,159 11,879
Net proceeds from fire settlement 193,888 -
---------- ----------
Net cash provided by (used in) investing
activities (651,433) 1,038,249
Financing activities:
Payments on long-term borrowings (4,122,030) (4,782,982)
Proceeds from long-term borrowings 2,649,346 847,750
Principal payments on capital lease obligations (415,678) (480,230)
Distributions to Partners (1,330,066) (1,419,229)
Proceeds from issuance of Class B and C units 16,500 9,698
Repurchase of units (116,686) (130,012)
General Partners' distributions
from Operating Partnerships (14,017) (15,378)
Minority interests' distributions
from Operating Partnerships (4,500) (4,500)
---------- ----------
Net cash used in financing activities (3,337,131) (5,974,883)
---------- ----------
Net increase (decrease) in cash and cash
equivalents 530,116 (821,014)
Cash and cash equivalents at beginning of period 522,098 1,594,934
---------- ----------
Cash and cash equivalents at end of period $ 1,052,214 $ 773,920
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Nine Periods Ended September 30, 2003 and September 24, 2002
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). Effective May 13,
2003, the Partnership purchased an 87% interest in Mountain View
Pizza, LLC (MVP). Accordingly, the Partnership began consolidating
the accounts of MVP from May 13, 2003. American Restaurant
Partners, L.P., APP, APP Concepts, LLC, Magic and MVP 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 31, 2002
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 31,
2002.
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 Event
----------------
On October 1, 2003, the Partnership declared a quarterly
distribution of $0.10 per unit to all unitholders of record as of
October 12, 2003. The distribution is not reflected in the
September 30, 2003 consolidated condensed financial statements.
3. Purchase of Mountain View Pizza, LLC (MVP)
------------------------------------------
Effective May 13, 2003, Restaurant Management Company of Wichita,
Inc. (the "Management Company"), an affiliate of the Partnership,
purchased the stock of Winny Enterprises, Inc. "Winny," a company
that owned and operated thirteen Pizza Hut restaurants in Colorado,
for $260,000. Winny was then merged into a newly formed limited
liability company, Mountain View Pizza, LLC (MVP), the surviving
entity resulting from the merger. The Partnership contributed
$1,740,000 to MVP, effectively acquiring an 87% ownership interest
in MVP. The remaining ownership interests are held by the
Management Company. A summary of the assets acquired and
liabilities assumed of Winny at the acquisition date is as follows:
Cash $ 91,900
Current assets 174,988
Property and equipment 1,525,000
Franchise rights 3,921,095
Other assets 113,356
Current liabilities (818,045)
Notes payable to bank (4,748,294)
----------
Cash paid by RMC $ 260,000
==========
4. Supplemental Cash Flow Information
----------------------------------
Nine Periods Ended
9/30/03 9/24/02
---------- ----------
Cash paid for interest $2,041,820 $2,139,531
Noncash investing and financing
activities:
Distributions offset against
notes receivable 57,758 103,206
Reduction of notes receivable
recorded as compensation expense 61,875 53,462
Capital leases entered into as part
of sale-leaseback transactions - 2,039,283
Issuance of units for notes receivable 172,500 147,277
Partnership units issued as contingent
consideration in purchase of Magic - 790,999
Acquisition of MVP, LLC:
Liabilities assumed 5,566,339 -
Minority ownership interest 260,000 -
5. FRANCHISE RIGHTS
----------------
The Partnership entered into a new franchise agreement effective
January 1, 2003 for a period of 30 years. The Partnership has
the option at the expiration of the initial or any subsequent
term of the franchise agreement to renew the franchise granted
thereunder for a renewable term of 20 years, subject to the
approval of the franchisor. Beginning January 1, 2003, the
remaining franchise rights are being amortized over the initial
term of the new franchise agreement of 30 years. Prior to
January 1, 2003, franchise rights were amortized over the 20 year
life of the original franchise agreement. Amortization expense
was $98,778 and $283,732 for the three and nine periods ended
September 30, 2003, respectively, and $106,052 and $315,464 for
the three and nine periods ended September 24, 2002,
respectively.
6. COMPREHENSIVE INCOME
--------------------
Comprehensive income is comprised of the following:
Three Periods Ended Nine Periods Ended
9/30/03 9/24/02 9/30/03 9/24/02
-------- -------- ---------- ----------
Net income $100,181 $456,028 $1,436,359 $2,600,493
Change in unrealized
loss on investments
held for sale - (12,044) 1,123 (12,044)
------- -------- --------- ---------
Comprehensive income $100,181 $443,984 $1,437,482 $2,588,449
======= ======= ========= =========
7. Fire Settlement
---------------
During the second quarter of 2003, the Partnership incurred a fire
at one of its restaurants. The property was insured for replacement
cost and the Partnership realized a third quarter gain of $59,209.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
As discussed in the notes to the accompanying consolidated financial
statements, the consolidated results of operations include the
results of American Restaurant Partners, L.P. and its majority owned
subsidiaries, American Pizza Partners, L.P. (APP), APP Concepts,
LLC, Oklahoma Magic, L.P. (Magic) and Mountain View Pizza, LLC
(MVP). The results of MVP have been included since the acquisition
date of May 13, 2003.
As of September 30, 2003, the Partnership operated 78 traditional
Pizza Hut red roof restaurants, 21 delivery/carryout units and 2
dualbrand locations.
Comparison of the Three and Nine Periods Ended September 30, 2003
- -----------------------------------------------------------------
with the Three and Nine Periods Ended September 24, 2002
- --------------------------------------------------------
The following discussion relates to the comparison of the results of
operations for the three and nine periods ended September 30, 2003
compared to the three and nine periods ended September 24, 2002,
excluding the effects of the consolidation of MVP. The table below
separates the effects of consolidating MVP from the consolidated
totals for the three and nine periods ended September 30, 2003 in
order to provide a more meaningful basis for a comparative
discussion of these results versus the three and nine periods ended
September 24, 2002.
MVP had a net loss of $108,635 for the quarter and $148,609 year-to-
date. Comparable restaurant sales decreased 1.2% for the quarter
and 0.7% from the date of acquisition. Other factors that
contributed to MVP's net losses included relocation expense of
$20,000 for the quarter and $21,000 year-to-date, in addition to
legal and beer license fees related to transferring beer licenses
from Winny to MVP totaling $30,000 for the quarter and $42,000 year-
to-date. Labor expenses were also high due to increasing staffing
in anticipation of improving service and sales levels.
Three Periods Ended
---------------------------------------------------------
September 24,
September 30, 2003 2002
------------------------------------------ -------------
Consolidated MVP Comparable Consolidated
------------ ------------ ------------ ------------
Net sales $18,647,717 $ 2,135,553 $16,512,164 $16,911,097
Operating costs and expenses:
Cost of sales 4,745,910 557,075 4,188,835 4,105,334
Restaurant labor and benefits 5,448,561 660,526 4,788,035 4,935,463
Advertising 1,184,009 141,110 1,042,899 1,020,787
Other restaurant operating
expenses exclusive of
depreciation and amortization 4,260,912 601,718 3,659,194 3,499,517
General and administrative:
Management fees - related party 1,140,623 106,778 1,033,845 1,055,400
Other 325,912 64,409 261,503 311,771
Depreciation and amortization 822,383 98,446 723,937 787,232
---------- ---------- ---------- ----------
Income (loss) from operations 719,407 (94,509) 813,916 1,195,593
Equity in loss of
unconsolidated affiliates (30,808) - (30,808) (37,869)
Interest and other investment income 4,253 - 4,253 7,600
Interest expense (666,905) (30,359) (636,546) (704,151)
Gain on fire settlement 59,209 - 59,209 -
---------- ---------- ---------- ----------
Income (loss) before minority interest 85,156 (124,868) 210,024 461,173
Minority interests in (income) loss of
Operating Partnerships 15,025 16,233 (1,208) (5,145)
---------- ---------- ---------- ----------
Net income (loss) $ 100,181 $ (108,635) $ 208,816 $ 456,028
========== ========== ========== ==========
Nine Periods Ended
---------------------------------------------------------
September 24,
September 30, 2003 2002
------------------------------------------ -------------
Consolidated MVP Comparable Consolidated
------------ ------------ ------------ ------------
Net sales $53,726,615 $ 3,322,622 $50,403,993 $51,463,660
Operating costs and expenses:
Cost of sales 13,257,915 849,985 12,407,930 12,394,171
Restaurant labor and benefits 15,555,923 1,034,092 14,521,831 14,650,309
Advertising 3,382,071 217,304 3,164,767 3,112,409
Other restaurant operating
expenses exclusive of
depreciation and amortization 11,159,679 901,935 10,257,744 9,756,299
General and administrative:
Management fees - related party 3,307,044 166,146 3,140,898 3,199,440
Other 1,076,521 86,495 990,026 1,158,988
Depreciation and amortization 2,430,847 170,454 2,260,393 2,278,047
---------- ---------- ---------- ----------
Income (loss) from operations 3,556,615 (103,789) 3,660,404 4,913,997
Equity in loss of
unconsolidated affiliates (155,731) - (155,731) (160,244)
Interest and other investment income 18,765 - 18,765 20,459
Interest expense (2,048,118) (67,026) (1,981,092) (2,139,360)
Gain on fire settlement 59,209 - 59,209 -
---------- ---------- ---------- ----------
Income (loss) before minority interest 1,430,740 (170,815) 1,601,555 2,634,852
Minority interests in (income) loss of
Operating Partnerships 5,619 22,206 (16,587) (34,359)
---------- ---------- ---------- ----------
Net income (loss) $ 1,436,359 $ (148,609) $ 1,584,968 $ 2,600,493
========== ========== ========== ==========
Net sales for the three periods ended September 30, 2003 decreased
$399,000 from $16,911,000 to $16,512,000, a 2.4% decrease from the
same three periods of 2002. For the year-to-date, net sales
decreased $1,060,000, or 2.1% from the prior year. Comparable
restaurant sales decreased 1.9% for the quarter and year-to-date.
These decreases were not unexpected, as third quarter comparable
restaurant sales in 2002 were 3.7% higher than in the same three
periods of the prior year and year-to-date comparable restaurant
sales in 2002 were 5.4% higher than in the same nine periods of the
prior year. The sales increases in 2002 were primarily due to the
introduction of a new product, P'Zone, in the first quarter of 2002.
Results of Operations
as a Percentage of Sales:
Three Periods Nine Periods
Ended Ended
9/30/03 9/24/02 9/30/03 9/24/02
------- ------- ------- -------
Cost of sales 25.4% 24.3% 24.6% 24.1%
Restaurant labor and benefits 29.0% 29.2% 28.8% 28.5%
Advertising 6.3% 6.0% 6.3% 6.0%
Other restaurant operating
expenses exclusive of
depreciation and amortization 22.2% 20.7% 20.4% 19.0%
General and administrative:
Management fees 6.3% 6.2% 6.2% 6.2%
Other 1.6% 1.8% 2.0% 2.3%
Depreciation and amortization 4.4% 4.7% 4.5% 4.4%
Income from operations 4.9% 7.1% 7.3% 9.5%
Income from operations for the three periods ended September 30,
2003, decreased $382,000 from $1,196,000 to $814,000, a 31.9%
decrease from the three periods ended September 24, 2002. Year-to-
date income from operations decreased $1,254,000, or 25.5%, from
$4,914,000 to $3,660,000.
Cost of sales as a percentage of net sales increased 110 basis
points for the quarter and 50 basis points year-to-date. The
increase for the quarter is primarily due to promoting more high
cost products during the third quarter of 2003, as well as a 15%
increase in cheese costs during the third quarter. The year-to-date
increase is primarily due to promoting more high-cost products in
the first and third quarters of 2003, as well as offering free
Cinnamon Sticks with certain orders in the first quarter.
Labor and benefits expense for the quarter decreased 20 basis points
but increased 30 basis points year-to-date. The decrease for the
quarter is primarily due to a decrease in driver wages resulting
from a decrease in delivery sales as a percentage of total net
sales. The year-to-date increase is due to labor efficiencies
realized during 2002 resulting from significant sales increases.
Advertising expense increased 30 basis points for the quarter and
year-to-date. These increases were primarily due to a net increase
in advertising fees of .25% effective January 1, 2003, as required
by the new franchise agreement.
Other restaurant operating expenses increased 150 basis points for
the quarter and 140 basis points year-to-date. The increase for the
quarter was primarily due to a 10% increase in property and
liability insurance premiums and a 37% increase in workers
compensation insurance premiums for the policy year July 2003
through June 2004. The year-to-date increase was primarily due to
the increases noted above for the new policy year in addition to
premium increases of 40% in property and liability insurance
premiums and 60% in workers' compensation insurance premiums
experienced by the Partnership at last year's renewal for the policy
year July 2002 through June 2003. The year-to-date increase was
also due to an increase in utilities in 2003.
Other general and administrative expense decreased 20 and 30 basis
points for the quarter and year-to-date, respectively, due to a
decrease in management bonuses paid in 2003 from lower cash flow
results.
Depreciation and amortization expense decreased 30 basis points for
the quarter, primarily due to amortizing franchise rights over the
initial term of the new franchise agreement of 30 years beginning
January 1, 2003, as discussed in the accompanying financial
statement notes. Prior to 2003 franchise rights were amortized over
20 years. Depreciation and amortization expense increased 10 basis
points year-to-date.
For the quarter, the Partnership had net income of $209,000, a
$247,000 decrease over the prior year's net income of $456,000.
This decrease was primarily due to the decrease in income from
operations noted above which was offset by a $68,000 decrease in
interest expense and a gain on fire settlement of $59,000. The
Partnership had year-to-date net income of $1,585,000, a decrease of
$1,015,000 from the prior year net income of $2,600,000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 2003 the Partnership had a working capital
deficiency of $6,632,000 compared to a working capital deficiency of
$5,818,000 at December 31, 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 nine periods
ended September 30, 2003, net cash provided by operating activities
amounted to $4,519,000 compared to $4,116,000 for the nine periods
ended September 24, 2002. The decrease in net income of $1,164,000
in 2003 as compared to 2002 reduced cash flows by a like amount.
Operating cash flows were also significantly affected by an increase
in operating liabilities, including accounts payable and accrued
liabilities, of approximately $990,000 in the first nine periods of
2003 compared to a decrease of $888,000 in the same nine periods of
2002. The 2003 increase resulted from the deferred payment of
certain liabilities due to decreasing cash balances. The 2002
reduction resulted from the deferred payment of certain liabilities
in anticipation of sale-leaseback transactions that occurred in the
first quarter of 2002.
INVESTING ACTIVITIES. Capital expenditures for the nine periods
ended September 30, 2003 were $1,032,000, all of which was used for
replacement of equipment in existing restaurants, including $197,786
for replacement equipment at a restaurant that incurred a fire in
2003. The Partnership received insurance proceeds of $193,888 due
to this restaurant fire.
FINANCING ACTIVITIES. Cash distributions paid during the nine
periods ended September 30, 2003 were $1,330,000 net of a reduction
in employee notes receivable of $58,000. Distributions amounted to
$.35 per unit. The Partnership's distribution objective, generally,
is to distribute all operating revenues less operating expenses
(excluding noncash items such as depreciation and amortization),
capital expenditures for existing restaurants, interest and
principal payments on Partnership debt, and such cash reserves as
the managing General Partner may deem appropriate.
During the nine periods ended September 30, 2003, the Partnership's
payments on long-term borrowings totaled $4,122,000, which included
a pay-down of $1,000,000 on debt assumed in connection with the
purchase of an 87% interest in MVP. Proceeds from borrowings
amounted to $2,649,000 during the nine periods ended September 30,
2003. $1,740,000 of this amount was contributed to MVP for the
purchase of the 87% interest. Management does not plan to open any
new or replacement restaurants during the remainder of 2003.
Management anticipates spending an additional $200,000 during the
remainder of 2003 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, 2003, the Partnership's property and liability insurance
premiums increased 10% and its workers' compensation premiums
increased 37%. The Partnership continues to focus on risk
management in order to control claims costs and is exploring
insurance options for future policy renewals.
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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Item 4. CONTROLS AND PROCEDURES
Within the 90 day period prior to the filing date of this Quarterly
Report on Form 10-Q, the Partnership, under the supervision and with
the participation of its Management, including its Chief Executive
Officer and Chief Financial and Accounting Officer, performed an
evaluation of the Partnership's disclosure controls and procedures,
as contemplated by Rule 13a-15 under the Securities Exchange Act of
1934, as amended. Based on that evaluation, the Partnership's Chief
Executive Officer and Chief Financial and Accounting Officer
concluded that such disclosure controls and procedures are effective
to ensure that material information relating to the Partnership is
made known to them, particularly during the period for which the
periodic reports are being prepared.
No significant changes were made in the Partnership's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation performed pursuant
to Rule 13a-15 under the Securities Exchange Act of 1934, as
amended, referred to above.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the second quarter of 2003, the Partnership filed a
Form 8-K dated May 20, 2003, reporting an acquisition of
assets.
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: 11/13/03 By: /s/Hal W. McCoy
-------- --------------------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Date: 11/13/03 By: /s/Terry Freund
-------- --------------------------------------
Terry Freund
Chief Financial and Accounting Officer
CERTIFICATIONS
I, Hal W. McCoy, Chairman and Chief Executive Officer of American
Restaurant Partners, L.P., certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Restaurant Partners, L.P.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: 11/13/03 By: /s/Hal W. McCoy
-------- --------------------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
CERTIFICATIONS
I, Terry Freund, Chief Financial and Accounting Officer of American
Restaurant Partners, L.P., certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Restaurant Partners, L.P.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: 11/13/03 By: /s/Terry Freund
-------- --------------------------------------
Terry Freund
Chief Financial and Accounting Officer
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Hal W. McCoy, Chairman and Chief Executive 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 September 30, 2003 (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: 11/13/03 By: /s/Hal W. McCoy
-------- --------------------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, 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 September 30, 2003 (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: 11/13/03 By: /s/Terry Freund
-------- --------------------------------------
Terry Freund
Chief Financial and Accounting Officer