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
For the fiscal year ended December 30, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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.)
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
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Class A Income Preference Units of None
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)
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No
----- -----
As of July 1, 2003 the aggregate market value of the income preference
units held by non-affiliates of the registrant was $2,380,126.
As of March 1, 2004, 665,285 shares of income preference units were
outstanding.
No documents are incorporated by reference.
PART I
Item 1. Business
- ------------------
General Development of Business
- -------------------------------
American Restaurant Partners, L.P. (ARP) was formed in connection
with a public offering of Class A Income Preference Units in 1987.
ARP owns and operates Pizza Hut restaurants through its three
subsidiaries, American Pizza Partners, L. P. (APP), Oklahoma Magic,
L.P. (Magic) and Mountain View Pizza LLC (MVP). ARP owns a 99%
limited partnership interest in APP. APP, in turn, owns a 99% limited
partnership interest in Magic and an 87% membership interest in MVP.
The remaining 13% membership interest in MVP is owned by Restaurant
Management Company of Wichita, Inc. (the Management Company). The
Management Company is related to ARP's managing general partner
through common ownership.
ARP's managing general partner is RMC American Management, Inc.
(RAM). RAM is also the managing general partner of APP and Magic. RAM
owns a 1% general partnership interest in ARP and Magic. RAM, along
with RMC Partners, L. P. (RMC), together own an aggregate 1% general
partnership interest in APP. RMC is related to RAM through common
ownership. The limited partners of ARP have the right to replace the
general managing partner of ARP with a vote of at least 75% of the
limited partners' units. By agreement the replacement of RAM as ARP's
managing general partner would also cause the replacement of RAM as
the managing general partner of APP and Magic. Therefore the limited
partners of ARP are considered to be in control of both ARP and each
of its subsidiaries.
Effective May 13, 2003, the Management Company 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. ARP, through APP, contributed $1,740,000 to MVP,
effectively acquiring an 87% ownership interest in MVP. As noted
above, the remaining ownership interests are held by the Management
Company.
APP, Magic and MVP are hereinafter collectively referred to as the
"Operating Partnerships".
As of December 30, 2003, the Partnership owned and operated a total
of 100 restaurants (collectively, the "Restaurants"). APP owned and
operated 53 traditional "Pizza Hut" restaurants, 6 "Pizza Hut"
delivery/carryout facilities and 2 dualbrand locations. Magic owned
and operated 17 traditional "Pizza Hut" restaurants and 9 "Pizza Hut"
delivery/carryout facilities. MVP owned and operated 8 traditional
"Pizza Hut" restaurants and 5 "Pizza Hut" delivery/carryout
facilities. During 2003, Magic closed one "Pizza Hut" traditional
restaurant. The following table sets forth the states in which the
Partnership's Pizza Hut Restaurants are located:
Units Units Units Units
Open At Purchased in Closed in Open At
12-31-02 2003 2003 12-30-03
-------- ---- ---- --------
Georgia 8 -- -- 8
Louisiana 1 -- -- 1
Montana 18 -- -- 18
Texas 26 -- -- 26
Wyoming 8 -- -- 8
Oklahoma 27 -- 1 26
Colorado - 13 -- 13
-- -- -- ---
Total 88 13 1 100
== == == ===
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 Yum! Brands, Inc. ("YUM"). Since
it was founded in 1958, Pizza Hut has become the world's largest pizza
restaurant chain in terms of both sales and number of restaurants. As
of year-end 2003, there were over 6,400 units in the United States and
more than 4,500 units located outside the United States (both
excluding licensed units). PHI owns and operates approximately 28% of
the Pizza Hut restaurants in the United States and 59% 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. Pizza Hut also serves the Big New Yorker Pizza, a 16"
traditional crust pizza. Food products not prescribed by PHI may only
be offered with the prior express approval of PHI.
PHI maintains a research and development department that 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 freestanding,
one-story building, with a wood, brick or stucco exterior. Most Pizza
Hut restaurants still feature the distinctive red roof. The
restaurants generally contain 1,800 to 3,000 square feet, including
kitchen and storage areas, and have seating capacity for 75 to 140
persons. The typical property site will accommodate parking for 30 to
70 vehicles. 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 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. 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 for all food, beverages, furnishings, interior
and exterior decor, supplies, fixtures and equipment for each Pizza
Hut restaurant is 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 in the United States. 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 1.75% 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 2.5% 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.
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 YUM.
Franchise Fees. An initial franchise fee of $15,000 is payable to
PHI prior to the opening of each new restaurant.
Service 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, the monthly service fee is 0.5% more than
the applicable service fee rate for the gross food and nonalcoholic
beverage sales. Fees are payable monthly 20 days 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.
The current franchise agreement, effective January 1, 2003,
requires an increase in the monthly service fees for delivery
restaurants from 4.0% to 4.5% of gross sales beginning January 1,
2010, 4.75% of gross sales as of January 1, 2020, and 5.0% of gross
sales as of January 1, 2030.
Upgrade Requirements. Under the terms of the Franchise
Agreements, the Partnership is required to upgrade seventy-nine of
their restaurants. Nine of the seventy-nine restaurants require a
"partial reimage" which consists of maintenance of the exterior and
interior of the restaurant and new signage. Twenty-five of the
seventy-nine restaurants require a "full reimage", which consists of
signage, paint, dining room finishes, dining room furniture and
counters and buffet (which may be new or refurbished), new smallwares,
a fresh parking lot and clean and fresh restrooms. The full and
partial reimages must be completed by September 30, 2008. The
remaining forty-five restaurants require a "major asset action" which
includes substantial renovation, a complete rebuilding of an existing
restaurant at the same location, or a relocation of an existing
restaurant to a new location. Six of the major asset actions must be
completed by December 31, 2005; a total of twenty must be completed by
December 31, 2008; a total of thirty-one must be completed by December
31, 2010; and all forty-five must be completed by December 31, 2012.
If the Partnership fails to upgrade five of the six major asset
actions required by December 31, 2005, such upgrade deficiency shall
constitute a "reversionary event," whereby the Franchise Agreements
expire March 1, 2010, with one fifteen year renewal available. If the
Partnership fails to upgrade all six of the major asset actions
required by December 31, 2005, the Partnership will incur a "monetary
penalty" of an additional one percent monthly service fee on the
restaurants for which they are not in compliance. If the Partnership
fails to meet the major asset actions required at December 31, 2008,
December 31, 2010 or December 31, 2012 the Partnership will incur the
monetary penalty of an additional one percent monthly service fee on
the restaurants for which they are not in compliance.
As of December 31, 2003, the Partnership had completed three of
the six major asset actions required by December 31, 2005. Management
anticipates the Partnership will be able to meet all of the upgrade
requirements prior to the dates required.
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 2004 or future years.
Seasonality
- -----------
The Partnership does not consider its operations to be seasonal to
any material degree.
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, 2004, the Partnership did not have any employees.
The Operating Partnerships had approximately 2,700 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.
The Partnership is not a party to any collective bargaining agreements
and believes its employee relations to be satisfactory. The
Restaurants' employees are supervised by employees of the Management
Company which has its principal offices in Wichita, Kansas. The
Management Company has a total of 49 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 as
of December 30, 2003.
Leased From Leased From
Unrelated Third Affiliate of the
Parties General Partners Owned Total
------- ---------------- ----- -----
Colorado 12 - 1 13
Georgia 2 - 6 8
Louisiana - - 1 1
Montana 9 - 9 18
Oklahoma 24 - 2 26
Texas 16 - 10 26
Wyoming 1 1 6 8
-- -- -- ---
Total 64 1 35 100
== == == ===
Six of the properties 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. Management believes
leases with initial or optional renewal periods expiring within the
next five years can be renewed for multiple-year periods, or the
property can be purchased, without significant difficulty or
unreasonable expense.
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
freestanding, one-story building, with a wood, brick or stucco
exterior. Most Pizza Hut restaurants still feature the distinctive
red roof. The restaurants generally contain 1,800 to 3,000 square
feet, including kitchen and storage areas, and have seating capacity
for 75 to 140 persons. The typical property site will accommodate
parking for 30 to 70 vehicles. 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 the Partnership's
existing restaurant facilities are approximately $150,000 for land,
$250,000 for the building and $135,000 for equipment and furnishings
for each unit.
The cost of land, building and equipment for a typical Pizza Hut
restaurant vary with location, size, construction costs and other
factors. The Partnership estimates the average cost to construct and
equip a new restaurant in its existing franchise territories is
approximately $600,000 to $900,000 including the cost of land
acquisition. Delivery/carryout facilities vary in size and
appearance. These facilities are generally leased from unrelated third
parties. The Partnership estimates that the capital investment
necessary for a new delivery/carryout unit is approximately $200,000
to $300,000 in equipment and leasehold improvements.
Item 3. Legal Proceedings
- --------------------------
As of December 30, 2003, 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 Partnership
offers a Qualified Matching Service, whereby the Partnership will
match persons desiring to buy units with persons desiring to sell
units. No units were matched during 2003 and 2002. Market prices for
units during 2003 and 2002 were:
Calendar Period High Low
----- -----
2003
All Quarters $3.50 $3.50
2002
First Quarter $3.25 $3.25
Second Quarter $3.25 $3.25
Third Quarter $3.25 $3.25
Fourth Quarter $3.50 $3.25
As of December 30, 2003, approximately 790 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
- ------------------ ---------------- -----
2003
January 13, 2003 January 24, 2003 $.125
April 12, 2003 April 25, 2003 .125
July 12, 2003 July 25, 2003 .100
October 12, 2003 October 31, 2003 .100
----
Cash distributed during 2003 $.450
====
2002
January 11, 2002 January 25, 2002 $.100
April 12, 2002 April 26, 2002 .155
July 12, 2002 July 26, 2002 .155
October 12, 2002 October 25, 2002 .150
----
Cash distributed during 2002 $.560
====
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
(d) (d) (d) (d)
December 31, December 25, December 26, December 28,
December 30, 2002 2001 2000 1999
2003 (restated) (restated) (restated) (restated)
---------- ---------- ---------- ---------- ----------
Income statement data:
Net sales $ 71,967 $ 69,392 $ 63,284 $ 59,964 $ 57,311
Income from operations 5,115 5,863 4,804 5,034 3,817
Income from continuing operations 2,299 2,571 1,701 1,230 1,164
Income from continuing operations
per Partnership unit 0.58 0.67 0.46 0.33 0.32
Net income 2,699 2,545 1,679 1,233 1,198
Net income per Partnership unit (a) 0.68 0.66 0.45 0.33 0.33
Balance sheet data:
Total assets $ 33,541 $ 29,604 $ 31,719 $ 31,791 $ 29,197
Long-term debt 28,329 25,099 29,074 29,885 27,649
Obligations under capital
leases 3,533 4,015 2,592 2,572 1,495
Partners capital (deficiency):
General Partners (7) (8) (8) (9) (9)
Class A 5,267 5,213 5,131 5,099 5,395
Class B and C (6,905) (7,655) (9,146) (9,416) (9,252)
Notes receivable from employees (704) (577) (591) (749) (956)
Cost in excess of carrying
value of assets acquired (2,076) (2,076) (1,859) (1,859) (1,324)
Cumulative comprehensive loss - (1) - - -
Cash dividends declared per unit 0.45 0.56 0.40 0.40 0.45
Statistical data:
Capital expenditures: (b)
Existing Restaurants $ 1,528 $ 947 $ 1,132 $ 2,092 $ 1,078
New or Replacement Restaurants - 1,476 924 147 300
Average weekly sales per
Restaurant: (c)
Red Roof 14,678 15,136 14,374 13,573 12,683
Delivery/carryout facility 13,528 14,529 13,724 12,591 11,657
Restaurants in operation
at end of period 100 88 87 86 87
NOTES TO SELECTED FINANCIAL DATA
(a) Net income is 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 income statement data for the years ended December 31, 2002,
December 25, 2001, December 26, 2000 and December 28, 1999 are
restated to show the effect of the fair value adjustment to the
variable unit plan (as described in Note 3 of the accompanying
Consolidated Financial Statements), as well as the effect of
reclassifying the operations of a restaurant closed in 2003 to
discontinued operations for each of those years (as described in Note
18 of the accompanying Consolidated Financial Statements).
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 30, 2003, December 31, 2002 and December 25,
2001, excluding the effects of the consolidation of MVP. The
following table separates the effects of consolidating MVP's loss from
operations from the consolidated totals for the year ended December
30, 2003, in order to provide a more meaningful basis for a
comparative discussion of these results versus the years ended
December 31, 2002 and December 25, 2001. Comparisons of 2003 to 2002
and 2001 are also affected by an additional week of results in the
2002 reporting period. Because the Partnership's fiscal year ends on
the last Tuesday in December, a fifty-third week is added every five
or six years. This discussion should be read in conjunction with the
Selected Financial Data and the Consolidated Financial Statements
included elsewhere herein.
MVP had a net loss of $155,914 for the period from the acquisition
date, May 13, 2003, through December 30, 2003. Comparable restaurant
sales decreased 1.1% from the date of acquisition. Other factors that
contributed to MVP's net losses included relocation expense of
$35,000, in addition to legal and beer license fees related to
transferring beer licenses from Winny to MVP totaling $42,000. Labor
expenses were also high due to increasing staffing in anticipation of
improving service and sales levels.
Year Ended
----------------------------------------------------------------------------
December 31, December 25,
2002 2001
December 30, 2003 (restated) (restated)
-------------------------------------------- ------------ ------------
Consolidated MVP Comparable Consolidated Consolidated
-------------------------------------------- ------------ ------------
Net sales $71,967,301 $ 5,437,371 $66,529,930 $69,392,193 $63,284,057
Operating costs and expenses:
Cost of sales 17,427,985 1,398,390 16,029,595 16,441,678 15,659,095
Restaurant labor and benefits 20,781,939 1,687,832 19,094,107 19,860,559 18,302,400
Advertising 4,617,649 373,756 4,243,893 4,177,953 3,869,801
Other restaurant operating
expenses exclusive of
depreciation and amortization 15,443,928 1,398,998 14,044,930 13,749,341 12,350,070
General and administrative:
Management fees - related party 4,425,917 271,881 4,154,036 4,318,294 3,946,989
Fair value adjustment to variable
unit plan (272,251) - (272,251) 277,371 150,193
Other 1,238,910 121,039 1,117,871 1,435,707 1,107,414
Depreciation and amortization 3,188,193 262,401 2,925,792 3,106,056 3,093,898
Loss on restaurant closings - - - 161,787 -
---------- ---------- ---------- ---------- ----------
Income (loss) from operations $ 5,115,031 $ (76,926) $ 5,191,957 $ 5,863,447 $ 4,804,197
========== ========== ========== ========== ==========
Net Sales
- ---------
Net sales from continuing operations for the year ended December 30,
2003 decreased $2,862,000 from net sales from continuing operations of
$69,392,000 in 2002 to net sales from continuing operations of
$66,530,000 in 2003, a 4.1% decrease. The additional week in 2002
accounted for approximately 2 percentage points of the lower sales in
2003. Comparable restaurant sales in 2003 decreased 2.2% from 2002.
These decreases were not unexpected, as comparable restaurant sales in
2002 were 5.1% higher than in 2001. The sales increases in 2002 were
primarily attributable to the successful introduction of a new
product, P'ZONE in the first quarter of 2002.
Net sales from continuing operations for the year ended December 31,
2002 increased $6,108,000 from net sales from continuing operations of
$63,284,000 in 2001 to net sales from continuing operations of
$69,392,000 in 2002, a 9.7% increase. The additional week in 2002
accounted for approximately 2 percentage points of the increase.
Comparable restaurant sales increased 5.1% over the prior year. The
2002 sales increase was primarily attributable to the successful
introduction of a new product, P'ZONE in the first quarter of 2002.
The sales increase was also attributable to a price increase the
Partnership implemented at the end of the third quarter of 2001.
Income From Operations
- ----------------------
Income from continuing operations for the year ended December 30, 2003
decreased $671,000 from $5,863,000 in 2002 (restated as discussed in
Note 3 of the accompanying Consolidated Financial Statements) to
$5,192,000, a 11.4% decrease. As a percentage of net sales, income
from continuing operations decreased from 8.5% of net sales for the
year ended December 31, 2002 to 7.8% of net sales for the year ended
December 30, 2003. Cost of sales from continuing operations increased
as a percentage of net sales from 23.7% in 2002 to 24.1% in 2003
primarily due to promoting more high-cost products in 2003, as well as
offering free Cinnamon Sticks with certain orders in the first quarter
of 2003. Labor and benefits from continuing operations increased
slightly as a percentage of net sales from 28.6% in 2002 to 28.7% in
2003. Advertising from continuing operations increased as a
percentage of net sales from 6.0% in 2002 to 6.4% in 2003. This
increase was primarily due to a net increase in advertising fees of
..25% effective January 1, 2003, as required by the new franchise
agreement. Other restaurant expenses from continuing operations
increased from 19.8% of net sales in 2002 to 21.1% of net sales in
2003, primarily due to a 10% increase in property and liability
insurance premiums and a 37% increase in workers compensation
insurance premiums experienced in the last two quarters of 2003. This
increase is in addition to premium increases of 40% in property and
liability insurance premiums and 60% in workers' compensation
insurance premiums experienced by the Partnership for the policy year
July 2002 through June 2003. General and administrative expenses from
continuing operations decreased as a percentage of net sales from 8.7%
in 2002 to 7.5% in 2003, primarily due to a $272,000 credit for the
fair value adjustment to the variable unit plan in 2003, compared to a
$277,000 charge in 2002 for the same adjustment. The decrease in
general and administrative expenses was also due to a decrease in
management bonuses paid in 2003 from lower cash flow results.
Depreciation and amortization expense from continuing operations
decreased slightly to 4.4% of net sales in 2003 compared to 4.5% of
net sales in 2002. The 2002 income from operations included a loss on
restaurant closings of $162,000 for two stores closed and replaced in
2002.
Income from continuing operations (restated for both 2002 and 2001 as
discussed in Note 3 of the accompanying Consolidated Financial
Statements) for the year ended December 31, 2002 increased $1,059,000
from $4,804,000 to $5,863,000, a 22.0% increase from the year ended
December 25, 2001. As a percentage of net sales, income from
continuing operations increased from 7.6% of net sales for the year
ended December 25, 2001 to 8.4% of net sales for the year ended
December 31, 2002. Cost of sales decreased as a percentage of net
sales from 24.7% in 2001 to 23.7% in 2002 primarily due to
significantly lower cheese costs. The decrease was 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 decreased as a percentage of net
sales from 28.9% in 2001 to 28.6% in 2002, primarily due to
efficiencies gained at higher sales levels. Advertising decreased
slightly as a percentage of net sales from 6.1% in 2001 to 6.0% in
2002. Other restaurant expenses increased from 19.5% of net sales in
2001 to 19.8% of net sales in 2002, primarily due to a 40% increase in
property and liability insurance premiums and a 60% increase in
workers compensation insurance premiums experienced in the last two
quarters of 2002. General and administrative expenses increased as a
percentage of net sales from 8.2% in 2001 to 8.7% in 2002, reflecting
increased bonuses paid on improved operating results. Depreciation
and amortization expense decreased to 4.5% of net sales in 2002
compared to 4.9% of net sales in 2001, primarily as a result of no
longer amortizing goodwill in 2002 in accordance with Statement of
Financial Accounting Standards (SFAS) 142 (see Note 4 of the
accompanying Consolidated Financial Statements).
Net Income
- ----------
Net income increased $154,000 to $2,699,000 for the year ended
December 30, 2003 compared to net income of $2,545,000 for the year
ended December 31, 2002. The 2002 net income is restated as discussed
in Note 3 of the accompanying Consolidated Financial Statements. The
2003 net income included a gain on casualty settlements of $123,000
(see Note 17 of the accompanying Consolidated Financial Statements).
The 2003 net income also included income from discontinued operations,
net of minority interest, of $400,000. This amount included a gain on
buy-out of lease of $409,000, as discussed in Note 18 of the
accompanying Consolidated Financial Statements. The 2003 net income
also included a net loss of $156,000 recorded on MVP. The 2002 period
net income included a loss on sale of investment in unconsolidated
affiliate of $234,000. Net income is net of minority interest in
income of operating partnerships of $8,000 and 34,000 in 2003 and
2002, respectively.
Net income, restated as discussed in Note 3 in Notes to Consolidated
Financial Statements, increased $866,000 to $2,545,000 for the year
ended December 31, 2002 compared to net income of $1,679,000 for the
year ended December 25, 2001. The 2002 period net income included a
loss on sale of investment in unconsolidated affiliate of $234,000.
The 2001 period net income included a gain on casualty settlement of
$159,000 (see Note 3 of the accompanying financial statements). Net
income is net of minority interest in income of operating partnerships
of $34,000 and $26,000 in 2002 and 2001, respectively.
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 30, 2003, the Partnership had a working capital deficiency
of $6,168,000 compared to a 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.
Net Cash Provided by Operating Activities
- -----------------------------------------
During 2003, net cash provided by operating activities amounted to
$4,586,000 compared to $5,269,000 during 2002, a decrease of $683,000.
This decrease is primarily attributable to the decrease in income from
operations of $671,000.
Investing Activities
- --------------------
Capital expenditures for 2003 were $1,528,000, all of which was for
replacement of equipment in existing restaurants, including $241,000
for replacement equipment at restaurants that incurred casualty
losses. The Partnership received proceeds totaling $254,000 upon
final settlement of the casualty claims. The Partnership also
received proceeds of $465,000 related to the buyout of the lease on
the restaurant the Partnership closed in 2003.
Financing Activities
- --------------------
Cash distributions paid in 2003 totaled $1,712,000 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 2003, the Partnership's proceeds from long-term borrowings
amounted to $3,450,000 of which $400,000 was to purchase land for a
replacement restaurant to be built in 2004 and $900,000 was to
refinance an existing loan as well as to purchase the land of an
existing restaurant. Additionally, $1,740,000 was contributed during
the Partnership's acquisition of MVP, of which $1,000,000 was used to
pay down long-term debt and the remainder was used to replenish
operating capital and pay down operating liabilities. The remaining
proceeds from long-term borrowings were used to replenish operating
capital. The Partnership plans to open one new restaurant and three
replacement restaurants during 2004. Development of these restaurants
will be financed through existing lenders. Management anticipates
spending approximately $850,000 in 2004 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.
Other Matters
- -------------
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 Pizza Hut restaurants in Oklahoma. In August 1998,
Magic purchased a 25% interest in Magic from a former limited partner
which effectively increased the Partnership's interest in Magic 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. In connection with the consolidation, the Partnership
recorded goodwill of $728,000 which represented the excess purchase
price of the original equity investment in the net assets acquired,
net of subsequent amortization.
On July 26, 2000, APP purchased 39% of Magic from the Management
Company for $2,500,000 cash and contingent consideration of 233,333
Class B and Class C Partnership Units. The $2,500,000 cash payment
was financed by INTRUST Bank over five years at 9.5%. Upon completion
of this purchase, the Partnership owned 99% of Magic. The Management
Company is considered a related party in that one individual has
controlling interest in both the Management Company and the
Partnership's general partner. To the extent that the Partnership and
the Management Company have common ownership, the transaction was
recorded at the Management Company's historical cost. As a result of
the transaction, the Partnership recorded goodwill of $1,407,991 and
cost in excess of carrying value of assets acquired of $534,962.
The contingent consideration involved in the purchase of the
additional 39% of Magic was to become due in the event that Magic's
cash flow (determined on a 12 month trailing basis) exceeded $2.6
million at any time between January 1, 2001 and December 31, 2005.
Magic's cash flow exceeded $2.6 million for the twelve months ended
September 24, 2002. As a result, on October 10, 2002, the Partnership
issued RMC a total of 233,333 Class B and Class C Units as payment of
the remaining balance. The 233,333 units were valued at $3.39 per
unit, which was the unit value at September 24, 2002. The contingent
consideration was recorded in a manner consistent with the original
transaction. The Partnership recorded an increase in limited partners
capital of $790,999, which represented the value of the units issued,
goodwill of $573,237 and cost in excess of carrying value of assets
acquired of $217,762.
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 offers 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
affect immediate price increases to offset higher costs and no
assurance can be given the Partnership will be able to do so in the
future. Management believes there is some likelihood of an increase
in the minimum wage during 2004. While an increase in the minimum
wage would increase the Partnership's labor costs, due to the
uncertainty regarding legislation on the matter, management cannot
reliably estimate the potential impact on labor costs at this time.
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.
Off-Balance Sheet Arrangements and Contractual Obligations
- ----------------------------------------------------------
The Partnership has borrowings with Franchise Mortgage Acceptance
Company (FMAC) that are part of loans "pooled" together with other
franchisees in good standing and approved restaurant concepts, and
sold to the secondary market. Under the agreements with FMAC, the
Partnership has provided a limited, contingent guarantee equal to a
portion of the original loan balance. As of December 30, 2003, the
Partnership's remaining guarantee totaled $772,701, for which the
Partnership has recorded a liability of $295,914, which management
believes is sufficient to cover the potential remaining liability.
(See also Note 7 in the accompanying Consolidated Financial
Statements.) The Partnership has not provided any other guarantees.
The following table shows the Partnership's contractual obligations,
including payments due by period:
Payments due by period
---------------------------------------------------------------
More than
Total 2004 2005-2006 2007-2008 5 years
----------- ----------- ----------- ----------- -----------
Long-term debt $28,328,609 $ 3,363,685 $ 6,076,727 $11,305,224 $ 7,582,973
Capital lease
obligations 6,517,880 641,672 1,139,471 878,423 3,858,314
Operating lease
obligations 10,014,079 1,657,955 2,440,590 1,591,201 4,324,333
Purchase
commitments - - - - -
---------- ---------- ---------- ---------- ----------
Total
contractual
obligations $44,860,568 $ 5,663,312 $ 9,656,788 $13,774,848 $15,765,620
========== ========== ========== ========== ==========
Item 7A. 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 the Partnership's interest expense and net income 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.
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 9A. Controls and Procedures
- ---------------------------------
As of December 30, 2003, 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, except as discussed in the
following paragraph, 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.
Certain changes were made to the Partnership's controls and procedures
that improved our internal controls over financial reporting during
the year ended December 30, 2003. During our review of the
applicability of certain new accounting principles, we determined that
we were incorrectly accounting for our variable unit plan. We
implemented additional administrative controls and procedures to
correctly account for our employee variable unit plan to ensure that
units subject to repurchase are adjusted for changes in their fair
value by increasing or decreasing operations with an offsetting entry
to partners' capital. This correction resulted in a restatement of
our income statements for 2002 and 2001 as discussed in Note 3 to the
consolidated financial statements.
Except for the corrective measures referred to above, there have been
no other changes 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 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, 4.5% of gross sales of the
Restaurants in Magic and 5.0% of gross sales of the Restaurants in
MVP. 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, profit sharing, 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 58 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 132 franchised "Pizza Hut" and
"Long John Silver's" restaurants.
Hal W. McCoy II 36 President. McCoy II 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. McCoy II is the
son of Hal W. McCoy.
Terry Freund 48 Chief Financial and Accounting 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.
The Partnership has not adopted a Code of Ethics. Management
anticipates reviewing the necessity of a Code of Ethics in 2004.
The Partnership does not have an audit committee financial expert
serving on its audit committee due to the expense associated with
attaining a financial expert relative to the size of the Partnership.
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. 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 2003 $153,462 $ 93,817 $247,279 $176,951
Chief Executive Officer 2002 166,566 101,451 268,017 218,734
2001 159,181 60,700 219,881 171,850
Hal W. McCoy II 2003 140,192 68,876 209,068 152,756
President 2002 135,501 92,262 227,763 176,471
2001 128,574 62,252 190,826 139,246
Terry Freund 2003 121,065 62,188 183,253 134,034
Assistant Secretary 2002 115,807 85,917 201,724 148,338
and Chief Financial 2001 109,523 61,009 170,532 126,128
and Accounting Officer
Incentive Bonus Plan
- --------------------
The Management Company maintains a discretionary supervisory
incentive bonus plan (the "Incentive Bonus Plan") pursuant to which
approximately 28 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 2003,
2002 and 2001 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 30, 2003 was $563,214 of
which $146,870 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 30, 2003 provides for payment of aggregate supervisory
bonuses in an amount equal to 15% of the amount by which the
Partnership's income from restaurant 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 30, 2003 the Partnership's income from operations
plus depreciation and amortization expenses was $8,303,224.
Variable Unit Plan
- ------------------
The Management Company maintains a variable unit plan whereby the
Partnership issues Class B and C Units 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, are
repaid by the cash distributions paid on the units. Non-interest
bearing notes receivable representing the remaining 50% of the
purchase price are reduced over a 4 1/2 year period through annual
charges to compensation expense, as long as the employee remains
employed by the Company (see also Note 12 of the accompanying
Consolidated Financial Statements.) The amounts recorded as
compensation expense under this plan for fiscal years 2003, 2002 and
2001 related to Mr. McCoy II and Mr. Freund are included in the bonus
amounts set forth in the preceding summary compensation table. There
were no amounts recorded as compensation expense related to Mr. McCoy
for the fiscal years 2003, 2002 and 2001.
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 of the Partnership 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
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 30, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and
- ------------------------------------------------------------
Management
- ----------
PRINCIPAL UNITHOLDERS
The following table sets forth, as of March 1, 2004, 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 716,849 (1) 58.83%
3020 N. Cypress Rd.
Suite 100
Wichita, KS 67226
Class B Hal W. McCoy II 90,855 7.46%
3020 N. Cypress Rd.
Suite 100
Wichita, KS 67226
Class B John Hunter 116,564 9.57%
117 Lilac Lane
San Antonio, TX 78209
Class C Hal W. McCoy 1,372,397 (1) 64.82%
3020 N. Cypress Rd.
Suite 100
Wichita, KS 67226
Class C Hal W. McCoy II 152,379 7.20%
3020 N. Cypress Rd.
Suite 100
Wichita, KS 67226
Class C John Hunter 106,536 5.03%
117 Lilac Lane
San Antonio, TX 78209
(1) Hal W. McCoy beneficially owns 95.75% of RMC Partners, L.P. which owns
671,165 Class B Units and 1,297,265 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, 2004, 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 716,849 (1) 58.83%
C Hal W. McCoy 1,372,397 (1) 64.82%
B Director & all 848,706 (1) 69.66%
officers as a group
(3 Persons)
C Director & all 1,597,311 (1) 75.45%
officers as a group
(3 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 $33,275 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 a separate Management Services Agreement 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 to its ownership interest in
Magic. The 4.5% fee remains in effect for the remaining life of the
Agreements which continues for a period ending with the expiration or
termination of the Franchise Agreements.
Pursuant to a separate Management Services Agreement entered into
May 13, 2003, the Restaurants of MVP are managed by the Management
Company for a fee equal to 5.0% 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 Agreement,
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 5% fee remains in effect for the life
of the Agreement which continues for a period ending with the
expiration or termination of the Franchise Agreements.
Item 14. Principal Accountant Fees and Services
- ------------------------------------------------
Audit Fees
The aggregate fees billed to the Partnership by the independent
auditors, Grant Thornton, LLP, for the audit of the Partnership's
annual financial statements and review of the Partnership's financial
statements included with the 10-Q filings were $51,790 and $49,050 for
the years ended December 30, 2003 and December 31, 2002, respectively.
All Other Fees
The aggregate fees billed to the Partnership by Grant Thornton, LLP,
for other services including cost classification studies, review of
the annual report to shareholders, discussion of the effects of
Sarbanes Oxley, and review of the acquisition of MVP, were $16,100 for
the year ended December 30, 2003. There were no fees for other
services billed for the year ended December 31, 2002.
PART IV
Item 15. 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 37.
(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.
INDEX TO EXHIBITS
(Item 15(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
a. Settlement Agreement between Oklahoma Magic, L.P.
and Hospitality Group of Oklahoma, Inc. F
10.10 Form of 2003 Franchise Agreement between the
Partnership and Pizza Hut, Inc. and schedule
pursuant to Item 601 of Regulation S-K F-39
23.1 Consent of Grant Thornton LLP F-32
31.1 Rule 13a-14(a)/15d-14(a) Certification of CEO F-33
31.2 Rule 13a-14(a)/15d-14(a) Certification of CFO and CAO F-35
32.1 Section 1350 Certification of CEO F-37
32.2 Section 1350 Certification of CFO and CAO F-38
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.
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: 3/26/04 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 3/26/04
- ------------------ (Principal Executive Officer) -------
Hal W. McCoy of RMC American Management, Inc.
/s/Terry Freund Chief Financial and Accounting 3/26/04
- ------------------ Officer -------
Terry Freund
Index to Consolidated Financial Statements
and Supplementary Data
The following financial statements are included in Item 8:
Page
Reports of Independent Certified Public Accountants . . . . F-2
Consolidated Balance Sheets as of December 30, 2003
and December 31, 2002 . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Income for the years ended
December 30, 2003, December 31, 2002,
and December 25, 2001 . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Partners' Capital (Deficiency)
for the years ended December 30, 2003,
December 31, 2002 and December 25, 2001 . . . . . . . . F-8
Consolidated Statements of Cash Flows for the
years ended December 30, 2003, December 31, 2002,
and December 25, 2001 . . . . . . . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements . . . . . . . . . F-10
Report of Independent Certified Public Accountants
The General Partners and Limited Partners
American Restaurant Partners, L.P.
We have audited the accompanying consolidated balance sheets of
American Restaurant Partners, L.P. (the Partnership) as of December
30, 2003 and December 31, 2002, and the related consolidated
statements of income, partners' capital (deficiency), and cash flows
for each of the three years in the period ended December 30, 2003.
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 did not audit the 2003
financial statements of Oklahoma Magic, L.P., a majority-owned
subsidiary whose statements reflect total assets constituting 31
percent and total revenues constituting 27 percent of the related
consolidated totals. Those statements were audited by Regier, Carr &
Monroe, L.L.P., whose report thereon is following, and our opinion,
insofar as it relates to the amounts included for Oklahoma Magic,
L.P., is based solely on the report of Regier, Carr & Monroe, L.L.P.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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
and the report of Regier, Carr & Monroe, L.L.P. provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of Regier, Carr &
Monroe, L.L.P., 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
30, 2003 and December 31, 2002 and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 30, 2003, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 3 to the consolidated financial statements, the
Partnership has been incorrectly accounting for its employee unit
ownership plan. The error resulted in reported net income being
overstated $277,371 and $150,193 in the years ended December 31, 2002
and December 25, 2001, respectively. The error had no effect on
partners' capital (deficiency) at year-end, however it did affect the
changes in partners' capital during the years ended December 31, 2002
and December 25, 2001. Accordingly, adjustments have been made for
these amounts to the statements of income and partners' capital
(deficiency) for the years ended December 31, 2002 and December 25,
2001.
As discussed in Note 4 to the consolidated financial statements, the
Partnership adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" on December 26, 2001.
/s/Grant Thornton LLP
Wichita, Kansas
February 27, 2004
INDEPENDENT AUDITOR'S REPORT
To the Partners
Oklahoma Magic, L.P.
We have audited the balance sheet of Oklahoma Magic, L.P., a limited
partnership, as of December 30, 2003, and the related statements of
income, partners' capital, 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 auditing standards generally
accepted in the United States of America. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Oklahoma
Magic, L.P. as of December 30, 2003, and the results of its operations
and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
/s/Regier Carr & Monroe, L.L.P.
March 2, 2004
Wichita, Kansas
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 30, December 31,
ASSETS 2003 2002
- -------------------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 559,316 $ 522,098
Investment securities available-for-sale - 190,174
Accounts receivable 381,265 328,356
Due from affiliates 5,020 74,424
Notes receivable from
affiliates - current portion 10,452 11,628
Inventories 542,278 430,542
Prepaid expenses 791,775 626,448
---------- ----------
Total current assets 2,290,106 2,183,670
Property and equipment, at cost:
Land 4,306,729 3,885,266
Buildings 8,364,748 8,267,195
Restaurant equipment 16,179,993 14,702,081
Leasehold rights and improvements 9,582,277 8,941,888
Property under capital leases 5,756,676 5,673,584
---------- ----------
44,190,423 41,470,014
Less accumulated depreciation and
amortization 25,391,010 22,765,828
---------- ----------
18,799,413 18,704,186
Other assets:
Franchise rights, net of accumulated
amortization of $2,731,596
($2,484,708 in 2002) 8,488,877 4,748,392
Notes receivable from affiliates 81,328 91,780
Deposit with affiliate 570,000 535,000
Goodwill 2,540,864 2,540,864
Other 770,811 800,374
---------- ----------
12,451,880 8,716,410
---------- ----------
$33,541,399 $29,604,266
========== ==========
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 30, December 31,
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) 2003 2002
- -------------------------------------------------- ------------ ------------
Current liabilities:
Accounts payable $ 2,623,744 $ 2,383,477
Due to affiliates 66,426 12,434
Accrued payroll and other taxes 791,686 738,773
Accrued liabilities 1,325,120 1,244,191
Current maturities of long-term debt 3,363,685 3,062,704
Current portion of capital lease obligations 287,559 560,405
---------- ----------
Total current liabilities 8,458,220 8,001,984
Long-term liabilities less current maturities:
Capital lease obligations 3,245,618 3,454,437
Long-term debt 24,964,924 22,036,387
Other noncurrent liabilities 905,315 1,067,792
---------- ----------
Total long-term liabilities 29,115,857 26,558,616
Minority interests in Operating Partnerships 393,031 147,163
Commitments and contingencies - -
Partners' capital (deficiency):
General Partners (7,207) (7,814)
Limited Partners:
Class A Income Preference, authorized 875,000
units; issued 666,985 units (682,857 in 2002) 5,267,262 5,213,890
Classes B and C, issued 1,218,316 and
2,113,463 class B and C units, respectively
(1,196,942 and 2,077,837 units in 2002,
respectively) (6,905,460) (7,655,305)
Notes receivable employees - sale
of partnership units (703,899) (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) (4,425,709) (5,103,497)
---------- ----------
$33,541,399 $29,604,266
========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 30, 2003,
December 31, 2002 and December 25, 2001
2002 2001
2003 (restated) (restated)
---------- ---------- ----------
Net sales $71,967,301 $69,392,193 $63,284,057
Operating costs and expenses:
Cost of sales 17,427,985 16,441,678 15,659,095
Restaurant labor and benefits 20,781,939 19,860,559 18,302,400
Advertising 4,617,649 4,177,953 3,869,801
Other restaurant operating
expenses exclusive of
depreciation and amortization 15,443,928 13,749,341 12,350,070
General and administrative:
Management fees - related party 4,425,917 4,318,294 3,946,989
Fair value adjustment to variable unit plan (272,251) 277,371 150,193
Other 1,238,910 1,435,707 1,107,414
Depreciation and amortization 3,188,193 3,106,056 3,093,898
Loss on restaurant closings - 161,787 -
---------- ---------- ----------
Income from operations 5,115,031 5,863,447 4,804,197
Equity in loss of unconsolidated affiliates (186,538) (198,113) (176,456)
Interest and other investment income 23,853 17,063 27,680
Interest expense (2,771,432) (2,843,212) (3,087,641)
Loss on sale of investment in unconsolidated affiliate - (234,000) -
Gain on casualty settlements 122,882 - 159,203
---------- ---------- ----------
(2,811,235) (3,258,262) (3,077,214)
---------- ---------- ----------
Income from continuing operations before
minority interests 2,303,796 2,605,185 1,726,983
Minority interests in income of Operating
Partnerships (4,398) (34,398) (25,824)
---------- ---------- ----------
Income from continuing operations 2,299,398 2,570,787 1,701,159
Income (loss) from discontinued operations, net
of minority interest 400,077 (25,690) (22,444)
---------- ---------- ----------
Net income $ 2,699,475 $ 2,545,097 $ 1,678,715
========== ========== ==========
Net income allocated to Partners:
Class A Income Preference $ 460,796 $ 467,991 $ 317,213
Class B $ 817,481 $ 756,994 $ 495,870
Class C $ 1,421,198 $ 1,320,112 $ 865,632
Weighted average number of Partnership
units outstanding during period:
Class A Income Preference 678,276 692,113 699,849
Class B 1,203,304 1,144,756 1,094,007
Class C 2,091,955 1,994,374 1,909,790
Basic and diluted income from continuing
operations per Partnership unit $ 0.58 $ 0.67 $ 0.46
Basic and diluted income from discontinued
operations per Partnership unit $ 0.10 $ (0.01) $ (0.01)
Basic and diluted net income
per Partnership unit $ 0.68 $ 0.66 $ 0.45
Distributions per Partnership unit $ 0.45 $ 0.56 $ 0.40
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
Consolidated Statements of Partners' Capital (Deficiency)
Years ended December 30, 2003, December 31, 2002, and December 25, 2001
General Limited
Partners Partners Cost in
------------- ------------------ excess of Cumula-
Classes B Class A Income Notes carrying tive
and C Preference Classes B and C receivable value of Compre-
------------- ------------------ --------------------- from assets hensive
Units Amounts Units Amounts Units Amounts employees acquired loss Total
----- ------- ------- ---------- --------- ----------- ---------- ----------- -------- -----------
Balance at
December 27, 2000 3,780 $(8,727) 707,138 $5,099,355 3,002,446 $(9,415,842) $(749,350) $(1,858,643) $ - $(6,933,207)
Net Income
(restated) - 1,714 - 317,213 - 1,359,788 - - - 1,678,715
Fair value adjust-
ment to variable
unit plan (re-
stated) - 153 - 28,381 - 121,659 - - - 150,193
Partnership
distributions - (1,575) - (279,764) - (1,200,762) 106,097 - - (1,376,004)
Units purchased - - (10,325) (33,556) (4,000) (11,160) - - - (44,716)
Employee compen-
sation-reduction
of notes
receivable - - - - - - 51,909 - - 51,909
----- ------ ------- --------- --------- ---------- -------- ---------- ------ ----------
Balance at
December 25, 2001 3,780 (8,435) 696,813 5,131,629 2,998,446 (9,146,317) (591,344) (1,858,643) - (6,473,110)
Net Income
(restated) - 2,556 - 467,991 - 2,074,550 - - - 2,545,097
Change in unreal-
ized loss on
investments held-
for-sale - - - - - - - - (1,123) (1,123)
----------
Comprehensive
income (restated) 2,543,974
Fair value adjust-
ment to variable
unit plan (re-
stated) - 278 - 51,003 - 226,090 - - - 277,371
Partnership
distributions - (2,213) - (388,811) - (1,725,682) 128,027 - - (1,988,679)
Units purchased - - (13,956) (47,922) (29,500) (91,920) 8,530 - - (131,312)
Units sold to
employees - - - - 72,500 216,975 (195,277) - - 21,698
Employee compen-
sation-reduction
of notes
receivable - - - - - - 73,324 - - 73,324
Units issued in
connection with
the purchase of
Oklahoma Magic,
L.P.'s minority
interest - - - - 233,333 790,999 - (217,762) - 573,237
----- ------ ------- --------- --------- ---------- -------- ---------- ------ ----------
Balance at
December 31, 2002 3,780 (7,814) 682,857 5,213,890 3,274,779 (7,655,305) (576,740) (2,076,405) (1,123) (5,103,497)
Net Income - 2,568 - 460,796 - 2,236,111 - - - 2,699,475
Change in unreal-
ized loss on
investments held-
for-sale - - - - - - - - 1,123 1,123
----------
Comprehensive
income 2,700,598
Fair value adjust-
ment to variable
unit plan - (259) - (46,473) - (225,519) - - - (272,251)
Partnership
distributions - (1,702) - (305,399) - (1,482,012) 77,468 - - (1,711,645)
Units purchased - - (15,872) (55,552) (36,500) (123,735) 26,376 - - (152,911)
Units sold to
employees - - - - 93,500 345,000 (312,900) - - 32,100
Employee compen-
sation-reduction
of notes
receivable - - - - - - 81,897 - - 81,897
----- ------ ------- --------- --------- ---------- -------- ---------- ------ ----------
Balance at
December 30, 2003 3,780 $(7,207) 666,985 $5,267,262 3,331,779 $(6,905,460) $(703,899) $(2,076,405) $ - $(4,425,709)
===== ====== ======= ========= ========= ========== ======== ========== ====== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 30, 2003, December 31, 2002, and December 25, 2001
2002 2001
2003 (restated) (restated)
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,699,475 $ 2,545,097 $ 1,678,715
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,198,502 3,120,554 3,107,114
Equity in loss of unconsolidated affiliates 186,538 198,113 176,456
Loss on disposition of assets 6,897 121,262 39,266
(Gain) loss on sale of investment securities (6,486) 8,601 -
(Gain) loss on restaurant closings (408,703) 161,787 -
Loss on sale of investment in unconsolidated
affiliate - 234,000 -
Minority interest in income of
Operating Partnerships 8,439 34,138 25,597
Unit compensation expense 81,897 73,324 51,909
Gain on casualty settlements (122,882) - (159,203)
Fair value adjustment to variable unit plan (272,251) 277,371 150,193
Net change in operating assets and liabilities,
net of acquisition:
Accounts receivable (8,134) 153,829 (162,147)
Due from affiliates 70,604 (9,756) 1,576
Inventories (51,123) (32,721) 9,592
Prepaid expenses (95,727) (266,856) (51,698)
Deposit with affiliate (35,000) (50,000) -
Accounts payable (258,212) (763,068) 409,986
Due to affiliates 53,992 (40,329) (105,992)
Accrued payroll and other taxes (126,736) (242,769) 82,402
Accrued liabilities (59,913) (160,595) 43,155
Other, net (275,035) (93,165) (165,641)
---------- ---------- ----------
Net cash provided by operating activities 4,586,142 5,268,817 5,131,280
Investing activities:
Cash acquired in acquisition of MVP 91,900 - -
Investment in unconsolidated affiliates (133,915) (160,172) (127,298)
Proceeds from restaurant closing 465,200 - -
Proceeds from sale of investement in
unconsolidated affiliate - 26,000 -
Purchase of investment securities - (391,171) -
Proceeds from sale of investment securities 197,783 191,273 -
Additions to property and equipment (1,528,120) (2,423,246) (2,055,634)
Proceeds from sale of property and equipment 6,247 23,781 349,278
Proceeds from sale and leaseback of property
and equipment - 3,187,202 -
Purchase of franchise rights - (45,000) -
Collections of notes receivable from affiliates 11,628 16,174 11,750
Advances on notes receivable from affiliate - (50,000) -
Net proceeds from casualty settlements 253,988 - 251,613
---------- ---------- ----------
Net cash provided by (used in) investing activities (635,289) 374,841 (1,570,291)
Financing activities:
Payments on long-term borrowings (4,943,448) (5,492,446) (2,449,626)
Proceeds from long-term borrowings 3,449,597 1,517,620 1,723,856
Principal payments on capital lease obligations (564,757) (615,994) (587,079)
Distributions to Partners (1,711,645) (1,988,679) (1,376,004)
Proceeds from issuance of Class B and C units 32,100 21,698 -
Repurchase of units (152,911) (131,312) (44,716)
General Partners' distributions
from Operating Partnerships (18,071) (21,381) (14,971)
Minority interests' distributions
from Operating Partnerships (4,500) (6,000) (6,000)
---------- ---------- ----------
Net cash used in financing activities (3,913,635) (6,716,494) (2,754,540)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 37,218 (1,072,836) 806,449
Cash and cash equivalents at beginning of period 522,098 1,594,934 788,485
---------- ---------- ----------
Cash and cash equivalents at end of period $ 559,316 $ 522,098 $ 1,594,934
========== ========== ==========
See accompanying notes.
AMERICAN RESTAURANT PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------
ORGANIZATION
American Restaurant Partners, L.P. (ARP) was formed in connection with
a public offering of Class A Income Preference Units in 1987. ARP
owns and operates Pizza Hut restaurants through its three
subsidiaries, American Pizza Partners, L. P. (APP), Oklahoma Magic,
L.P. (Magic) and Mountain View Pizza LLC (MVP). ARP owns a 99%
limited partnership interest in APP. APP, in turn, owns a 99% limited
partnership interest in Magic and an 87% membership interest in MVP.
The remaining 13% membership interest in MVP is owned by Restaurant
Management Company of Wichita, Inc. (the Management Company). The
Management Company is related to ARP's managing general partner
through common ownership.
ARP's managing general partner is RMC American Management, Inc. (RAM).
RAM is also the managing general partner of APP and Magic. RAM owns a
1% general partnership interest in ARP and Magic. RAM, along with RMC
Partners, L. P. (RMC), together own an aggregate 1% general
partnership interest in APP. RMC is related to RAM through common
ownership. The limited partners of ARP have the right to replace the
general managing partner of ARP with a vote of at least 75% of the
limited partners' units. By agreement the replacement of RAM as ARP's
managing general partner would also cause the replacement of RAM as
the managing general partner of APP and Magic. Therefore the limited
partners of ARP are considered to be in control of both ARP and each
of its subsidiaries.
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., APP Concepts, L.C.,
Oklahoma Magic, L.P. and Mountain View Pizza, L.L.C., which are
hereinafter collectively referred to as the Partnership. All
significant intercompany transactions and balances have been
eliminated.
FISCAL YEAR
The Partnership operates on a 52 or 53 week fiscal year ending on the
last Tuesday in December. The Partnership's operating results
reflected in the accompanying consolidated statements of operations
include 52 weeks for the period ended December 30, 2003, 53 weeks for
the period ended December 31, 2002, and 52 weeks for the period ended
December 25, 2001.
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.
For earnings per Partnership unit calculations, the contingent units
issued on October 10, 2002, as discussed in Note 14, were considered
outstanding beginning June 26, 2002, which is the beginning of the
quarter in which the contingency was met.
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 Colorado, Georgia, Louisiana, Montana,
Oklahoma, Texas and Wyoming.
A schedule of restaurants in operation for the periods presented in
the accompanying consolidated financial statements is as follows:
2003 2002 2001
---- ---- ----
Restaurants in operation at beginning of year 88 87 86
Opened -- 1 2
Acquired 13 -- --
Closed (1) -- (1)
---- ---- ----
Restaurants in operation at end of year 100 88 87
==== ==== ====
The Partnership closed one restaurant in Oklahoma during 2003. The
operations and gain on restaurant closing associated with this
restaurant have been reflected in the statements of operations as
discontinued operations (see also Note 18). The Partnership replaced
two existing restaurants with two new restaurants in 2002. In
conjunction with the restaurant replacements in 2002, the Partnership
recorded the write-off of leasehold improvements and restaurant
equipment of $161,787 as loss on restaurant closings. In 2001, the
Partnership replaced one existing restaurant with one new restaurant.
ACCOUNTS RECEIVABLE
Accounts receivable represent amounts due from schools and various
businesses and are generally not collateralized. Past due accounts
determined not to be collectible by the Partnership are charged off to
other restaurant operating expenses. Total charge offs were not
significant in 2003, 2002 and 2001. Accounts receivable at December
30, 2003 and December 31, 2002 are considered to be fully collectible.
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 $2,815,038, $2,700,746, and
$2,621,072 for the years ended December 30, 2003, December 31, 2002
and December 25, 2001, respectively.
GOODWILL
Effective December 26, 2001, as discussed in Note 4, goodwill and
other intangible assets with indefinite lives are no longer amortized,
but instead tested for impairment at least annually. Prior to
December 26, 2001 goodwill resulting from APP's investment in Magic
was amortized over 29 years using the straight-line method.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain intangibles are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Partnership reviews
applicable intangible assets and long-lived assets related to each
restaurant on a periodic basis. When events or changes in
circumstances indicate an asset may not be recoverable, the
Partnership estimates the future cash flows expected to result from
the use of the asset. If the sum of the expected undiscounted cash
flows is less than the carrying value of the asset, an impairment loss
is recognized. The impairment loss is recognized by measuring the
difference between the carrying value of the asset and the fair value
of the asset. The Partnership's estimates of fair values are based on
the best information available and require the use of estimates,
judgments and projections as considered necessary. The actual results
may vary significantly. The Partnership recorded no impairment losses
for 2003, 2002 or 2001.
INVESTMENTS IN AFFILIATES
Investments in affiliated entities owned less than 50% are accounted
for on the equity method. Accordingly, consolidated net income
includes the Partnership's share of their net income or loss.
FRANCHISE RIGHTS AND FEES
Agreements with the franchisor provide franchise rights for an initial
term 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. Noncompliance with the
franchise agreement can subject the Partnership to changes in term,
renewal or monetary penalties as outlined in the franchise agreement.
Initial franchise fees are capitalized at cost and amortized by the
straight-line method over the life of the franchise agreement.
Periodic franchise royalty and advertising fees, which are based on a
percent of sales, 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 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 30, 2003, 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 $3,114,000. The differences
between net income in conformance with accounting principles generally
accepted in the United States of America (US GAAP) and taxable income
are as follows:
2002 2001
2003 (restated) (restated)
---------- ---------- ----------
US GAAP net income $2,699,475 $2,545,097 $1,678,715
Depreciation and amortization 117,136 (618,465) 366,691
Capitalized leases 8,912 19,987 (67,041)
Equity in loss of affiliate (370,770) (655,608) (131,580)
Gain (loss) on disposition
of assets (15,567) 582,624 95,723
Fair value adjustment to
variable unit plan (272,251) 277,371 150,193
Other 140,004 31,090 (49,180)
--------- --------- ---------
Taxable income $2,306,939 $2,182,096 $2,043,521
========= ========= =========
The Omnibus Budget Reconciliation Act of 1987 required 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
In preparing the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Partnership
considers all highly liquid investments, purchased with a maturity of
three months or less, to be cash equivalents.
ACCOUNTING FOR UNIT BASED COMPENSATION
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 have not been presented as there are no
unvested options and no options were granted in 2003, 2002 or 2001.
VARIABLE UNIT PLAN
Partnership units subject to repurchase by the Partnership, where the
employee does not have the risks of ownership, are accounted for as a
variable award plan and are adjusted for changes in their fair value
by increasing or decreasing operations with an offsetting entry to
partners' capital.
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
Investment securities available-for-sale are reported at fair value,
with unrealized gains and losses excluded from earnings and reported
as the sole component of cumulative comprehensive income or loss
within Partners' capital. Interest and dividends as well as realized
gains and losses and declines in value judged to be other-than-
temporary on available-for-sale investment securities are included in
interest and other investment income. The cost of investments sold is
based on the specific identification method.
RECLASSIFICATIONS
Certain amounts shown in the 2002 and 2001 financial statements have
been reclassified to conform with the 2003 presentation.
2. FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------------
VARIABLE INTEREST ENTITIES
In January 2003, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable
Interest Entities. FIN 46 addresses when a company should consolidate
in its financial statements the assets, liabilities and activities of
a variable interest entity (VIE). It defines VIEs as entities with a
business purpose that either do not have any equity investors with
voting rights, or have equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN 46
also requires disclosures about variable interest entities that a
company is not required to consolidate, but in which it has a
significant variable interest. The consolidation requirements of FIN
46 applied immediately to variable interest entities created or
obtained after January 31, 2003. The Partnership has not obtained an
interest in a VIE subsequent to that date. A modification to FIN 46
(FIN 46R) was released in December 2003. FIN 46R delayed the
effective date for VIEs created before February 1, 2003, with the
exception of special-purpose entities, until the first fiscal year or
interim period ending after March 15, 2004. FIN 46R delayed the
effective date for special-purpose entities until the first fiscal
year or interim period after December 15, 2003. The Partnership is
not the primary beneficiary of any SPEs at December 30, 2003. The
Partnership will adopt FIN 46R for non-SPE entities as of March 30,
2004. The adoption of FIN 46 did not result in the consolidation of
any VIE's, nor is the adoption of FIN 46R expected to result in the
consolidation of any VIE's. The Partnership is continuing to evaluate
the impact FIN 46R will have on its financial statements.
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY
In May 2003, the FASB issued Statement 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity. This Statement establishes standards for classifying and
measuring certain financial instruments that have characteristics of
both liabilities and equity. The guidance in Statement 150 became
effective June 1, 2003, for all financial instruments created or
modified after May 31, 2003, and otherwise became effective as of July
1, 2003. In December 2003, the FASB deferred for an indefinite period
the application of the guidance in Statement 150 to noncontrolling
interests that are classified as equity in the financial statements of
a subsidiary but would be classified as a liability in the parent's
financial statements under Statement 150. The deferral is limited to
mandatorily redeemable noncontrolling interests associated with
finite-lived subsidiaries. Management does not believe any such
applicable entities exist as of December 30, 2003, but will continue
to evaluate the applicability of this deferral to entities which may
be consolidated as a result of FASB Interpretation No. 46 (revised
2003), Consolidation of Variable Interest Entities.
3) FINANCIAL STATEMENT RESTATEMENTS
- ------------------------------------
The Partnership has issued Class B and Class C units to certain
employees that are subject to a repurchase agreement whereby the
Partnership has agreed to repurchase the Units, in the event the
employee terminates his or her employment, for an amount equal to the
greater of issue price or fair value (as defined) at the time of
termination. Because the agreement ensures the employee will not
incur a loss on the units, full risk of ownership does not pass to the
employee. Because full risk of ownership does not pass to the
employee, US GAAP requires the units be accounted for as a variable
award plan. Under variable accounting, the units subject to the
repurchase agreement are adjusted for changes in their fair value by a
charge to operations with an offsetting entry to partners' capital.
Prior to 2003, the Partnership did not use the required variable plan
accounting and did not adjust for changes in the value of units
subject to the repurchase agreement.
The income statements for 2002 and 2001 have been restated to reflect
the change in the fair value of the outstanding units subject to the
repurchase agreement as a charge to other general and administrative
expense. The restatements resulted in a decrease in net income of
$277,371 in 2002, which was a decrease in basic and diluted net income
per Partnership unit of $.07, and a decrease in net income of $150,193
in 2001, which was a decrease in basic and diluted net income per
Partnership unit of $.04. The restatements had no effect on partners'
capital at any year-end.
4. GOODWILL
- ------------
In contrast to accounting standards in effect during 2001, SFAS 142,
Goodwill and Other Intangible Assets, which became effective beginning
in 2002, provides that goodwill, as well as identifiable intangible
assets with indefinite lives, should not be amortized. Accordingly,
with the adoption of SFAS 142 in 2002, the Partnership discontinued
the amortization of goodwill. The information presented below
reflects adjustments to information reported in 2001 as if SFAS 142
had been applied in that year. The adjustments reflect the effects of
not amortizing goodwill.
2002 2001
2003 (restated) (restated)
---------- ---------- ----------
Reported net income $2,699,475 $2,545,097 $1,678,715
Add back: Goodwill
amortization - - 84,888
--------- --------- ---------
Adjusted net income $2,699,475 $2,545,097 $1,763,603
========= ========= =========
Basic and diluted net income
per Partnership Unit $ 0.68 $ 0.66 $ 0.45
Goodwill amortization - - 0.02
--------- --------- ---------
Adjusted basic and diluted net
income per Partnership Unit $ 0.68 $ 0.66 $ 0.47
========= ========= =========
5. ACQUIRED INTANGIBLE ASSETS
- ------------------------------
The Partnership's acquired intangible assets subject to amortization
consisted primarily of franchise rights at December 30, 2003 and
December 31, 2002. The weighted average amortization period for
intangible assets subject to amortization was approximately 20 years
at December 31, 2002. As discussed in Note 19, 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 have been amortized over the
initial term of the new franchise agreement of 30 years. Amortization
expense was $246,888, $265,775 and $267,109 in 2003, 2002 and 2001,
respectively. The estimated amortization expense is $291,000 in 2004
and for each of the subsequent four years through 2008. During 2003,
the Partnership acquired franchise rights totaling $3,921,095 related
to the acquisition of MVP as discussed in Note 15. The acquired
franchise rights are being amortized over 30 years, the initial term
of the franchise agreement.
6. RELATED PARTY TRANSACTIONS
- ------------------------------
The Management Company, RAM and RMC are related to the Partnership
through common ownership in that the majority unit holder of the
Partnership also controls each of these entities. 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, 4.5% for Magic and 5.0% for MVP, of the gross receipts of the
restaurants, as defined. RAM has entered into a management services
agreement containing substantially identical terms and conditions with
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 2003, 2002 or 2001.
The Partnership maintains a deposit with the Management Company equal
to approximately one and one-half month's management fee. Such
deposit, $570,000 and $535,000 at December 30, 2003 and December 31,
2002, 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.
The Partnership owns a 25% interest in a limited liability company
(LLC) which owns an airplane. The Management Company leases the
airplane from the LLC on an hourly basis. The Partnership recorded a
loss on the LLC of $138,199, $172,961, and $154,166 in 2003, 2002 and
2001, respectively. The Partnership also owned a 4.34% interest in
Seaside Pizza, LLC (Seaside), a company formed to acquire eleven Pizza
Hut restaurants in New Jersey in December 2000. The Partnership sold
this investment in 2002, recognizing a $234,000 loss on sale of
investment in unconsolidated affiliate. Certain Partnership principal
unitholders are also owners of Seaside. The Partnership's share of
Seaside's income was not significant for the years ended December 31,
2002 and December 25, 2001.
Transactions with related parties included in the accompanying
consolidated financial statements and notes are summarized as follows:
2003 2002 2001
---------- ---------- ----------
Management fees $4,444,167 $4,345,434 $3,970,991
Management Company bonuses 535,063 744,005 539,382
Advertising commissions 82,517 78,946 92,477
Accommodation fee (See Note 7) 81,262 86,467 90,911
Acquisition/divestiture fee
on sale of assets - - 5,000
Development fees - 37,500 25,000
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: 2004
- - $10,452; 2005 - $61,434; 2006 - $10,058; 2007 - $2,714; 2008
- - $2,867; Thereafter - $4,255. 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.
7. LONG-TERM DEBT
- ------------------
Long-term debt consists of the following at December 30, 2003 and
December 31, 2002:
2003 2002
----------- -----------
Note payable to INTRUST Bank in Wichita,
paid in full in 2003 $ - $ 300,000
Note payable to INTRUST Bank in Wichita,
due in full plus interest at a fixed
rate of 5.0% in May 2004 400,000 -
Notes payable to INTRUST Bank in
Wichita, payable in monthly install-
ments aggregating $46,182 including
interest at fixed rates from 6.0%
to 9.00%, due at various dates
through August 2007 1,101,332 1,924,189
Notes payable to INTRUST Bank in Wichita,
payable in monthly installments totaling
$67,157 including interest at a fixed
rate of 7.50%, due August 2007 with
balloon payments totaling $2,313,799 4,283,864 4,827,524
Note payable to INTRUST Bank in Wichita,
payable in monthly installments of
$4,963 including interest at a fixed
rate of 6.75%, due October 2007 with a
balloon payment of $115,968 285,651 324,213
Note payable to INTRUST Bank in Wichita,
payable in monthly installments of
$15,539 including interest at a fixed
rate of 6.5%, due May 2008 with a
balloon payment of $1,346,977 1,705,025 -
Note payable to Fleet Business Credit, LLC,
payable in escalating monthly principal
installments ranging from $19,661 to
$20,394 in 2004 plus interest at a variable
rate (3.875% at December 30, 2003), due
December 2007 with a balloon payment
of $2,278,659 3,586,906 -
Notes payable to Franchise Mortgage
Acceptance Company (FMAC) payable in
monthly installments aggregating
$240,974 including interest at fixed
rates from 8.81% to 10.95%, due at
various dates through May 2013 13,311,185 14,854,172
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 1,629,108 1,672,242
Notes payable to Peachtree Franchise
Finance, LLC payable in monthly
installments of $11,854 including
interest at a fixed rate of 10.05%,
due June 2015 967,681 1,010,324
Note payable to Stillwater National Bank
and Trust Company, payable in monthly
installments of $8,079 including
interest at a fixed rate of 6.875%,
due July 2008 with a balloon payment
of $700,581 885,749 -
Notes payable to various banks, payable
in monthly installments aggregating
$2,690, including interest at rates
from 8.95% to 10.00%, due at various
dates through January 2010. One note
requires a balloon payment of $115,013
upon its maturity in January 2010 172,108 186,427
---------- ----------
28,328,609 25,099,091
Less current portion 3,363,685 3,062,704
---------- ----------
$24,964,924 $22,036,387
========== ==========
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.
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% (APP) and 15% (Magic) of the original loan balance through May
of 2013 (a total of $1,089,679 based on current loans outstanding with
FMAC), referred to as the "Performance Guarantee Amount" (PGA). The
Partnership promises to pay FMAC up to the total of the PGA to the
extent required to cover delinquent loans or defaults in the "pooled"
loans. Each month, the Partnership pays to FMAC a "Periodic Guarantee
Charge Amount" (PGCA) which is the monthly amortization of the PGA.
If none of the other loans in the "pool" are delinquent in respect of
any payment due or in default during a monthly period, the Partnership
is entitled to a rebate of the PGCA. To the extent that the other
loans in the "pool" are delinquent or in default, the amount of the
PGCA rebate will be reduced proportionately. During 2003 and 2002,
certain loans within the Partnership's "pool" were in default. As a
result, the Partnership made monthly PGCA's totaling $56,255 and
$52,454 in 2003 and 2002, respectively, which were recorded as
additional interest expense. From the inception of the pooled loan
agreement, the Partnership has paid $328,863 of the PGA. As a result,
the Partnership's remaining PGA balance at December 30, 2003 is
$772,701, for which the Partnership has recorded a liability of
$295,914, which management believes is sufficient to cover the
potential remaining liability.
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: 2004 -
$3,363,685; 2005 - $2,885,433; 2006 - $3,191,294; 2007 - $7,816,550
and 2008 - $3,488,674.
8. 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.
During 2002, the Partnership sold the land and buildings of 8
restaurants for $3,187,202. The sale resulted in gains of $664,618
and losses of $120,079. Gains were deferred and losses were
recognized in other restaurant operating expenses. The assets were
then leased back from the purchaser for a 20-year term. The land
leases are recorded as operating leases with deferred gains amortized
over the term of the leases. The building leases are recorded as
capital leases with deferred gains recorded as a reduction in the cost
of the corresponding building.
Minimum and contingent rent payments for land and buildings leased
from affiliates were $33,275, $32,771 and $30,250 for the years ended
December 30, 2003, December 31, 2002 and December 25, 2001,
respectively.
The Partnership also leases point-of-sale terminals as well as credit
card terminals and telephone equipment for certain restaurants under
capital lease arrangements. The leases contain initial lease terms
ranging from 3 to 4 years. The leases for point-of-sale terminals are
guaranteed by the majority owner of the Partnership.
Total minimum and contingent rent expense under all operating lease
agreements was as follows:
2003 2002 2001
---------- ---------- ----------
Minimum rentals $1,637,500 $1,360,940 $1,191,257
Contingent rentals 219,016 265,345 264,565
Future minimum payments under capital leases and noncancelable
operating leases with an initial term of one year or more at December
30, 2003, are as follows:
Operating
Leases With Operating
Capital Unrelated Leases With
Leases Parties Affiliates
---------- ---------- -----------
2004 $ 641,672 $1,624,680 $ 33,275
2005 578,303 1,274,105 33,275
2006 561,168 1,099,935 33,275
2007 438,087 878,038 8,319
2008 440,336 704,844 -
Thereafter 3,858,314 4,324,333 -
--------- --------- ---------
Total minimum payments 6,517,880 $9,905,935 $ 108,144
Less interest 2,984,703 ========= =========
---------
3,533,177
Less current portion 287,559
---------
$3,245,618
=========
Amortization of property under capital leases, determined on the
straight-line basis over the lease terms totaled $583,501, $654,103
and $485,188 for the years ended December 30, 2003, December 31, 2002,
and December 25, 2001, respectively. The amortization is included in
depreciation and amortization expense in the accompanying consolidated
statements of income. Property under capital lease obligations was as
follows:
2003 2002
---------- ----------
Buildings $3,676,779 $3,676,779
Restaurant equipment 2,079,897 1,996,805
--------- ---------
5,756,676 5,673,584
Accumulated depreciation 3,199,091 2,615,590
--------- ---------
$2,557,585 $3,057,994
========= =========
9. 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.
10. DISTRIBUTIONS TO PARTNERS
- ------------------------------
On January 2, 2004, the Partnership declared a distribution of $.10
per Unit to all Unitholders of record as of January 12, 2004. The
distribution is not reflected in the December 30, 2003 consolidated
financial statements.
11. 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 25, 2001,
and December 31, 2002 625 $8.50
Balance at December 30, 2003 - -
At December 30, 2003, there were no exercisable options. Unit options
available for future grants totaled 49,236 at December 30, 2003 and
48,611 at December 31, 2002.
12. CLASS B AND C RESTRICTED UNITS SOLD TO EMPLOYEES
- -----------------------------------------------------
During 2003, the Partnership issued 87,500 Class B and C Units (22,500
at $3.00 per unit and 65,000 at $3.90 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. During 2002, the Partnership issued 72,500
Class B and C Units (2,500 at $2.79 per unit and 70,000 at $3.00 per
unit) to certain employees under this same arrangement. Notes
receivable representing 40% or 50%, respectively, of the purchase
price, together with interest thereon at a rate from 7.5% to 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
income, as long as the employee remains employed by the Company. The
Partnership has a right of first refusal should the employee desire to
sell their units to an outside third party prior to termination. 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 equal to the greater of issue price or fair
market value at the time of termination. At December 30, 2003, there
were 556,490 Units held by employees that were subject to repurchase
agreements. The repurchase price at December 30, 2003 was $3.34 per
Unit. See also Note 3.
13. PARTNERS' CAPITAL
- ----------------------
During 2003, 2002 and 2001, the Partnership purchased 15,872, 13,956,
and 10,325 Class A Income Preference Units for $55,552, $47,922, and
$33,556, respectively. These Units were retired by the Partnership.
14. INVESTMENT IN MAGIC
- ------------------------
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 Pizza Hut restaurants in Oklahoma. In August 1998,
Magic purchased a 25% interest in Magic from a former limited partner
which effectively increased the Partnership's interest in Magic 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. In connection with the consolidation, the Partnership
recorded goodwill of $728,000 which represented the excess purchase
price of the original equity investment in the net assets acquired,
net of subsequent amortization.
On July 26, 2000, APP purchased 39% of Magic from the Management
Company for $2,500,000 cash and contingent consideration of 233,333
Class B and Class C Partnership Units. The $2,500,000 cash payment
was financed by INTRUST Bank over five years at 9.5%. Upon completion
of this purchase, the Partnership owns 99% of Magic. The Management
Company is considered a related party in that one individual has
controlling interest in both the Management Company and the
Partnership's general partner. To the extent that the Partnership and
the Management Company have common ownership, the transaction was
recorded at the Management Company's historical cost. As a result of
the transaction, the Partnership recorded goodwill of $1,407,991 and
cost in excess of carrying value of assets acquired of $534,962.
The contingent consideration involved in the purchase of the
additional 39% of Magic was to become due in the event that Magic's
cash flow (determined on a 12 month trailing basis) exceeded $2.6
million at any time between January 1, 2001 and December 31, 2005.
Magic's cash flow exceeded $2.6 million for the twelve months ended
September 24, 2002. As a result, on October 10, 2002, the Partnership
issued RMC a total of 233,333 Class B and C Units as payment of the
remaining balance. The 233,333 units were valued at $3.39 per unit,
which was the unit value at September 24, 2002. The contingent
consideration was recorded in a manner consistent with the original
transaction. The Partnership recorded an increase in limited partners
capital of $790,999, which represented the value of the units issued,
goodwill of $573,237 and cost in excess of carrying value of assets
acquired of $217,762.
15. 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
==========
16. INVESTMENT SECURITIES
- --------------------------
The Partnership purchased common stock of publicly traded companies
for investment purposes in the year ended December 31, 2002 for a cost
of $391,171. Stock with a cost of $191,297 was sold in 2003,
resulting in a gain on sale of investment securities of $6,486. Stock
with a cost of $199,874 was sold during 2002, resulting in a loss on
sale of investment securities of $8,601. The Partnership held no
investment securities available-for-sale at December 30, 2003.
17. CASUALTY SETTLEMENTS
- -------------------------
The Partnership insures its properties for replacement cost. The
Partnership incurred damage from a hail storm at one of its
restaurants in 2002, for which a gain of $39,800 was recognized upon
final settlement of the claim in 2003. The Partnership also incurred
damage from a tornado at one of its restaurants during the second
quarter of 2003, and a gain of $17,828 was recognized upon final
settlement of the claim. A fire at one of its restaurants in the
second quarter of 2003 also resulted in the Partnership recognizing a
gain of $65,254 upon final settlement of the claim. In the first
quarter of 2001, the Partnership recognized a gain of $159,203 upon
final settlement of a claim related to a fire at one of its
restaurants.
18. DISCONTINUED OPERATIONS
- ----------------------------
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS 144 develops a
single accounting method under which long-lived assets that are to be
disposed of by sale are measured at the lower of book value or fair
value less cost to sell. Additionally, SFAS 144 expands the scope of
discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity,
and (2) will be eliminated from the ongoing operations of the entity
in a disposal transaction. SFAS 144 was effective for the fiscal year
2002 and its provisions are to be applied prospectively.
The Partnership closed one restaurant during 2003. Pursuant to SFAS
144, each restaurant is a component of the Partnership and the
operations of the closed restaurant can be distinguished from the rest
of the Partnership and will be eliminated from the ongoing operations
of the Partnership. Closed restaurants that are replaced with a new
restaurant in the same general market area are not considered to be
discontinued operations. SFAS 144 requires that discontinued
operations be reflected in the statements of income after results of
continuing operations as a net amount. SFAS 144 also requires that
the operations of closed restaurants, including any gain or loss on
restaurant closings, be reclassified to discontinued operations for
all years presented. Therefore, operations and gain on restaurant
closings associated with the restaurant closed in 2003, where no
replacement restaurant is planned, have been reflected in the
statements of income as discontinued operations. Also, in accordance
with SFAS 144, the two restaurants closed in 2002 have not been
reclassified to discontinued operations because two new restaurants
were opened in the same general market area as replacement restaurants
in 2002.
A summary of discontinued operations is as follows:
2003 2002 2001
--------- --------- ---------
Revenue $ 405,564 $ 603,108 $ 533,373
Operating Expenses (410,149) (629,058) (556,044)
Gain on buy-out of lease 408,703 - -
Minority interest (4,041) 260 227
-------- -------- --------
Income (loss) from
discontinued operations $ 400,077 $ (25,690) $ (22,444)
======== ======== ========
19. FRANCHISE RIGHTS
- ---------------------
The Partnership entered into a new franchise agreement with Pizza Hut,
Inc. 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. Under the new franchise agreement, the
Partnership is obligated to complete six "major asset actions" which
include substantial renovation, a complete rebuilding of an existing
restaurant at the same location, or a relocation of an existing
restaurant to a new location, by December 31, 2005. As of December
30, 2003, the Partnership had completed three of the six major asset
actions required. The new franchise agreement also requires, among
other things, an increase in the royalty fees (included in other
restaurant operating expenses) for delivery restaurants from 4.0% to
4.5% of net sales beginning January 1, 2010, 4.75% of net sales as of
January 1, 2020, and 5.0% of net sales as of January 1, 2030; an
increase in national advertising fees from 2.0% to 2.5% of net sales;
and a decrease in local advertising fees from 2.0% to 1.75% of net
sales. In addition, the new franchise agreement requires
approximately 68 of the Partnership's restaurants to be remodeled,
rebuilt, relocated or reimaged and refurnished by December 31, 2012.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
- ----------------------------------------
The carrying amount reported on the balance sheets for financial
instruments including cash and cash equivalents, investment securities
available-for-sale and notes receivable approximates their fair value.
The fair value of long-term debt is estimated at $30,272,826 and
$29,399,573 at December 30, 2003 and December 31, 2002, respectively,
compared to its carrying value of $28,328,609 and $25,099,091 at the
same respective dates. Fair values are considered equal to carrying
values for variable rate debt. The estimated fair value of fixed rate
debt is based on discounted cash flow analysis using interest rates
currently offered for debt with similar terms.
21. QUARTERLY FINANCIAL DATA (unaudited)
- -----------------------------------------
Unaudited quarterly consolidated statement of income information for
the years ended December 30, 2003 and December 31, 2002 is summarized
as follows:
First Second Third Fourth
2003 Quarter Quarter Quarter Quarter
- ---- ----------- ----------- ----------- -----------
Net sales $17,290,015 $17,788,883 $18,647,717 $18,646,250
Income from rest-
aurant operations 1,549,353 1,287,855 719,407 1,962,534
Net income 775,699 560,479 100,181 1,263,116
Basic and diluted
net income per
Partnership unit 0.20 0.14 0.03 0.31
2002
- ----
Net sales $17,518,696 $17,033,867 $16,911,097 $18,531,641
Income from
restaurant oper-
ations (restated) 2,097,696 1,620,708 1,195,593 923,500
Net income (loss)
(restated) 1,252,868 891,597 456,028 (55,396)
Basic and diluted
net income (loss)
per Partnership
unit (restated) 0.34 0.24 0.12 (0.01)
Fourth quarter 2003 income from restaurant operations includes a gain
on restaurant closings of $408,703, which is classified in
discontinued operations in the consolidated statements of income for
the year ended December 30, 2003 (see Note 18). Fourth quarter 2003
also includes a decrease in other general and administrative expenses
of $272,251 related to the fair value adjustment of the variable unit
plan (see Note 3.)
Fourth quarter 2002 data includes results from 14 weeks of operations
due to the fiscal year of 2002 including 53 weeks (see Note 1).
Fourth quarter 2002 net income includes loss on sale of investment in
unconsolidated affiliate of $234,000 (see Note 6). The same quarter's
income from restaurant operations is restated to show the $277,371
charge to other general and administrative expenses due to the effect
of the fair value adjustment of the variable unit plan (see Note 3).
The Partnership adjusted its variable unit plan in the fourth quarters
of 2003 and 2002. Going forward, the Partnership plans to make this
adjustment in the second and fourth quarters of each year.
21. SUPPLEMENTAL CASH FLOW INFORMATION
- ---------------------------------------
2003 2002 2001
---------- ---------- ----------
Cash paid during the year for
interest $3,218,388 $2,873,969 $3,086,014
Noncash investing and financing
activity:
Issuance of units for notes
receivable 312,900 195,277 -
Distributions offset against
notes receivable 77,468 128,027 106,097
Unit repurchases offset
against notes receivable 26,376 8,530 -
Capital leases entered into 83,092 2,039,283 606,924
Reduction of notes receivable
recorded as compensation expense 81,897 73,324 51,909
Units issued in connection with
the purchase of Oklahoma
Magic, L.P.'s minority interest - 790,999 -
Acquisition of MVP, LLC:
Liabilities assumed 5,566,339 - -
Minority ownership interest 260,000 - -
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 27, 2004, 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 30, 2003. 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 L.L.P.
Wichita, Kansas
February 27, 2004
Exhibit 31.1
CERTIFICATIONS
I, Hal W. McCoy, Chairman and Chief Executive Officer of American
Restaurant Partners, L.P., certify that:
(1) I have reviewed this annual report on Form 10-K of American
Restaurant Partners, L.P.;
(2) Based on my knowledge, this annual 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 annual
report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual report;
(4) The registrant's other certifying officer 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 annual 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 annual report (the "Evaluation
Date"); and
c. presented in this annual 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 officer 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 officer and I have indicated in
this annual 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: 3/26/04 By: /s/Hal W. McCoy
------- ------------------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Terry Freund, Chief Financial and Accounting Officer of American
Restaurant Partners, L.P., certify that:
(1) I have reviewed this annual report on Form 10-K of American
Restaurant Partners, L.P.;
(2) Based on my knowledge, this annual 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 annual
report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual report;
(4) The registrant's other certifying officer 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 annual 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 annual report (the "Evaluation
Date"); and
c. presented in this annual 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 officer 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 officer and I have indicated in
this annual 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: 3/26/04 By: /s/Terry Freund
------- ------------------------------------
Terry Freund
Chief Financial and Accounting Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Hal W. McCoy, Chairman and Chief Executive Officer of American
Restaurant Partners, L.P. (the "Partnership"), certify to the best of
my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350 that:
(1) the Annual Report on Form 10-K of the Partnership for the
annual period ended December 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: 3/26/04 By: /s/Hal W. McCoy
------- ------------------------------------
Hal W. McCoy
Chairman and Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Terry Freund, Chief Financial and Accounting Officer of American
Restaurant Partners, L.P. (the "Partnership"), certify to the best of
my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350 that:
(1) the Annual Report on Form 10-K of the Partnership for the
annual period ended December 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: 3/26/04 By: /s/Terry Freund
------- ------------------------------------
Terry Freund
Chief Financial and Accounting Officer