The following table sets forth the locations of the restaurants operated by the Company (by state) as of December 31, 2000:
Set forth below are selected historical financial data of the Company. The Company is the post-reorganization successor to ICH Corporation ("Old ICH") which emerged from chapter 11 effective February 19, 1997. Until the Company's acquisition of Sybra, Inc. on April 30, 1997, the Company had no significant business operations. Old ICH financial data is not presented as its assets, liabilities and operations were dissolved or sold as part of Old ICH's reorganization plan. For purposes of presentation, Sybra is considered to be a Predecessor of the Company.
STATEMENT OF EARNINGS DATA (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The information contained in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and accompanying notes thereto included herein.
(b) Pro forma net income (loss) reflects (1) the effects of purchase accounting for Sybra as if the purchase was effective on January 1, 1996; (2) increased interest expense for the Predecessor Period as a result of a difference in capital structure; and (3) increased general and administrative expenses reflecting the costs of operating as a stand-alone public company; and has been tax effected using a combined federal and state income tax rate of 40%.
(c) EBITDA on a pro forma basis gives effect to the adjustments discussed in Note (b) above. Management believes that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity.
On April 30, 1997, the Company acquired all of the outstanding capital stock of Sybra, Inc., the second largest franchisee of Arby's restaurants. The aggregate purchase price was approximately $39.8 million which included the repayment of $23.7 million of Sybra indebtedness and an additional $2 million of acquisition indebtedness due to the seller. Concurrently with the Company's acquisition of Sybra, Sybra entered into a sale/leaseback transaction on 61 of its restaurant sites with U.S. Restaurant Properties, Inc. ("USRP"). As of December 31, 2000, Sybra owned and operated 214 Arby's restaurants located primarily in Michigan, Texas, Pennsylvania, New Jersey, Florida and Connecticut.
The Company operates entirely in the food service industry with substantially all revenues resulting from the sale of menu products at its restaurants. At December 31, 2000, Sybra, the Company's principal operating subsidiary, owned and operated 214 Arby's restaurants.
RESTAURANT COSTS AND EXPENSES--Restaurant costs and expenses were $133.3 million, or 82.0% of sales for 2000, as compared to $117.1 million, or 81.0% of sales, for 1999, an increase of $16.2 million due to the sales increase explained above. As a percentage of sales, costs increased primarily as a result of lower same store sales volumes and moderate inflation in the cost of food, labor, utilities and other restaurant operating costs.
GENERAL AND ADMINISTRATIVE--General and administrative costs and expenses were $11.8 million, or 7.2% of sales for 2000 as compared to $11.4 million, or 7.9% of sales, for 1999. The increase was primarily due to increases in regional staff levels to support the Company's newly opened Arby's units. As a percentage of sales, general and administrative costs decreased due to efficiencies created by the opening and purchasing of additional Arby's units.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization expense was $5.8 million, or 3.6% of sales in 2000, as compared to $4.5 million, or 3.1% of sales in 1999. This increase is due to additional depreciation expense associated with the Company's newly opened and acquired Arby's units.
INTEREST EXPENSE--Interest expense was $6.2 million, or 4.3% of sales in 1999, as compared to $5.9 million, or 4.5% of sales in 1998, an increase of $250,000 primarily as a result of debt incurred in connection with new store openings and store acquisitions.
Capital expenditures were $19.5 million, $17.0 million and $12.9 million in 2000, 1999 and 1998, respectively, which include new store development, as well as store maintenance, store remodel and store renovation capital expenditures. The Company anticipates that store maintenance, store remodel and store renovation capital expenditures for 2001 will approximate $3.4 million. The level of capital expenditures for new store development and acquisitions will be dependent upon several factors, including the number of stores remodeled, constructed and/or acquired, the availability of appropriate financing as well as the capital structure of any such transactions.
In the future, the Company's liquidity and capital resources will primarily depend on the operations and cash flow of Sybra. Sybra, like most restaurant businesses, is able to operate with nominal or deficit working capital because all sales are for cash and inventory turnover is rapid. Renovation and/or remodeling of existing restaurants is either funded directly from available cash or, in some instances, is financed through outside lenders. Construction or acquisition of new restaurants is generally, although not always, financed by outside lenders.
During 2000, the restaurant industry encountered generally tightening credit markets, including those markets which have historically financed new restaurant development. The condition of those credit markets could adversely affect the Company's ability to secure adequate financing on acceptable terms for new restaurant construction and/or acquisition, and could in turn impact the Company's ability to meet its obligations under the Development Agreement. The Company also incurred significant cash charges as a result of payments required to be made in connection with (1) the departure of the former CEO in June, 2000, and (2) the disposition of the Lyon's subsidiary in January, 2001. Despite these charges, and although no assurances can be given, the Company believes that cash generated from operations will be adequate to meet its needs for the foreseeable future.
Effective January 2, 2001, Sybra entered into a 10-year beverage supply agreement with Coca-Cola North America Fountain, a division of the Coca-Cola company. The agreement provides that, with certain very limited exceptions, Coca-Cola will be the exclusive supplier of fountain beverages to Sybra's Arby's restaurants.
Effective February 13, 2001, Ronald W. Cegnar and Bruce M. Kallins were appointed to the Company's board of directors to fill vacancies created by the resignation of two outside directors in July, 2000. Mr. Cegnar has 24 years experience in the food-service industry and is currently a partner of CEO Partners, Inc., a restaurant industry consulting firm. Mr. Kallins is a CPA and president of Yakira Partners, L.P., a $40 million hedge fund.
Certain of the Company's operating costs are subject to inflationary pressures, of which the most significant are food, labor and utility costs. As of December 31, 2000, a significant percentage of the Company's employees were paid wages equal to or based on the federal or applicable state minimum hourly wage rate. An increase in the minimum wage and/or economic growth that would reduce unemployment or make more jobs available in higher paying industries would directly affect the Company's labor costs.
The response to this item is submitted as a separate section of this Form 10-K. See Item 14.