As of December 31, 1997, the Company operated 149 restaurants in the areas listed below. Of the 149 restaurants, the Company owned the land and building for two restaurants and held long-term leases covering land and/or buildings for the remainder. The Company's land and building leases are most commonly written for terms of twenty years with one or more five year renewal options. Certain leases require the payment of additional rent equal to a percentage (usually between 5% and 8%) of annual sales in excess of specified amounts.
The Company leases office space in Atlanta, Georgia; La Jolla, California; Flint, Michigan; Sinking Spring, Pennsylvania; Plano, Texas and Tampa, Florida for its Corporate, Executive, Northern, Eastern, Southwestern and Southeastern operations centers, respectively.
General and administrative expenses consist of corporate and regional office expenses, including executive and administrative compensation, office expenses, travel and professional fees.
Comparison of the Years Ended December 31, 1997 and December 28, 1996 - --------------------------------------------------------------------
Revenues - Revenues were $112.9 million for FY 1997 as compared to $116.1 million for FY 1996, a decrease of $3.2 million primarily as a result of same store sales being down 3% for the year due to a change in marketing strategy emphasizing brand quality and fewer price promotions begun in the third quarter of 1997.
Restaurant Costs & Expenses - Restaurant costs and expenses were $93.5 million, or 82.8% of sales, for FY 1997 as compared to $93.9 million, or 80.9% of sales for FY 1996. a decrease of $358,000 due to the sales decline explained above. As a percent of sales, costs increased as a result of increases in rent expense associated with the Company's sale/leaseback of 61 properties previously classified as owned.
Other - Other expenses were $1.0 million in FY 1997, as compared to $1.2 million in FY 1996. Other expenses in FY 1997 relate primarily to the cost of operations of Perry Park, and for FY 1996 relate primarily to store closings.
The Perry Park real estate consists of an approximately 2,600 acre planned development including an 18-hole golf course, club house, restaurant, salable lots, three lakes, additional platted but undeveloped lots and unimproved acreage which generates agriculturally based revenues. The platted undeveloped lots and unimproved acreage are estimated to be approximately 1,800 acres. The operations of the Perry Park development are seasonal in nature and are not material to the operations of the Company.
Based on a recent assessment, the Company has determined that it will not have to modify or replace any of its software and that its computer systems will properly utilize dates beyond December 31, 1999.
In the future, the Company's liquidity and capital resources will primarily depend on the operations of Sybra which, under the provisions of its loan agreement with Atherton, would permit, under certain conditions, distributions and dividends to the Company. 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 stores is either funded directly by Sybra from available cash or, in some instances, is financed through outside lenders. Construction or acquisition of new stores is generally, although not always, financed by outside lenders. The Company believes that it will continue to be able to secure adequate financing on acceptable terms for new store construction and acquisitions and that cash generated from operations will be adequate to meet its needs for the foreseeable future, although no assurances can be given.
The Company maintains, with a bank, a $150,000 letter of credit that automatically renews in November of each year.
Sybra's total capital expenditures were $12.1 million, $6.3 million and $5.2 million in 1995, 1996 and 1997, respectively, which include new store development, as well as store maintenance, store remodel and store renovation capital expenditures. The Company anticipates that Sybra's store maintenance, store remodel and store renovation capital expenditures for 1998 will approximate $2.5 million. The level of capital expenditures for new store development and acquisitions will be dependent upon several factors, including the number of stores constructed and/or acquired as well as the capital structure of any such transactions.
Certain of the Company's operating costs are subject to inflationary pressures, of which the most significant are food and labor costs. As of December 31, 1997, approximately 24% of the Company's employees were paid wages equal to or based on the federal minimum hourly wage rate. Recent changes in the federal minimum hourly wage rate will serve to increase labor costs in fiscal year 1998 and beyond. Economic growth that would reduce unemployment or make more jobs available in higher paying industries, would directly affect the Company's labor costs.