As of December 31, 1998, the Company operated 254 restaurants in the areas listed below. The Company's land and building leases generally are for terms of 20 years with one or more five-year renewal options. Certain leases require the payment of additional rent equal to a percentage of annual sales in excess of specified amounts.
The Company leases office space in San Diego, California and New York, New York for its corporate and executive offices and in Foster City, California; Flint, Michigan; Sinking Spring, Pennsylvania; Plano, Texas and Tampa, Florida for its regional operations centers.
Set forth below are selected historical financial data of the Company, which is the post-reorganization successor to Old ICH. Until the Company's acquisition of Sybra, Inc. (see Note 2 to Notes To Consolidated Financial Statements), 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 (see Note 1 to Notes To Consolidated Financial Statements). For purposes of presentation, Sybra is considered to be a Predecessor of the Company.
Accordingly, the selected historical financial data as of and for the year ended December 28, 1996, and the four months ended April 30, 1997, were derived from the financial statements of the Predecessor. Due to required purchase accounting adjustments relating to the acquisition and certain corporate administrative expenses that are necessary to operate on a stand-alone basis, the consolidated financial and other data for the period subsequent to the acquisition (the "Successor Period") is not comparable to such data for the periods prior to the acquisition (the "Predecessor Period"). Pro forma net income (loss) was derived by retroactively adjusting all prior years as if the acquisition had occurred on January 1, 1994. As such, the effects of purchase accounting, including the impact of the different capital structure of the Predecessor, has been reflected in arriving at pro forma net income (loss) for the prior periods.
In addition, adjustments reflecting the costs of operating a stand-alone company have been retroactively included in arriving at pro forma net income (loss) for the prior periods. Such costs include, but are not limited to, administrative services, tax compliance, treasury service, human resource administration and legal services. 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.
Comparison of the Years Ended December 31, 1998 and December 31, 1997 - ----------------------------------------------------------------------
Restaurant Costs & Expenses - Restaurant costs and expenses were $113.8 million, or 81.3% of sales, for 1998 as compared to $93.5 million, or 82.8% of sales, for 1997, an increase of $20.3 million due to the sales increase explained above. As a percent of sales, costs decreased as a result of lower labor costs due to improved efficiency, net of increases in rent expense associated with the Company's sale/leaseback of 61 properties previously classified as owned.
General and Administrative - General and administrative costs and expenses were $9.5 million, or 6.8% of sales, for 1998 as compared to $7.3 million, or 6.5% of sales, for 1997, an increase as a percent of sales as a result of expenses associated with operating the Company as a stand-alone public company as explained above and increased expenses associated with business development and real estate operations necessary to achieve new store development requirements.
Interest Expense - Interest expense was $6.0 million, or 4.3% of sales, in 1998 as compared to $4.3 million, or 3.8% of sales, in 1997, an increase of $1.7 million as a result of debt incurred in connection with the Company's acquisition of Sybra, new store openings and acquisitions.
Comparison of the Years Ended December 31, 1997 and December 28, 1996 - ----------------------------------------------------------------------
Non-recurring and Restructuring Charges - Non-recurring and restructuring charges were $1.5 million in 1997 as a result of the restructuring of Sybra's operations, buy-out of an employment contract and non-recurring expenses related to obtaining financing and maintaining Sybra's status as an Arby's franchisee.
Other - Other expenses were $1.0 million in 1997, as compared to $1.2 million in 1996. Other expenses in 1997 relate primarily to the cost of operations of Perry Park, and for 1996 relate primarily to store closings.
Interest Expense - Interest expense was $4.3 million in 1997 as compared to $2.3 million in 1996, an increase of $2.0 million as a result of debt incurred in connection with the Company's acquisition of Sybra.
The Company has completed its assessment of internal systems and has concluded that its hardware and software are Year 2000 compliant. The Company has concluded that it will not be necessary to replace its retail point of sale hardware and that, based on information available at this time, the remaining costs to implement the Year 2000 readiness program will not be material.
Costs to implement the Year 2000 readiness program are based on management's estimates, which were derived utilizing numerous assumptions related to future events. There can be no assurance that additional costs will not be incurred, or that the objective of the program will be achieved. However, the Company continues to monitor activities related to the program designed to ensure Year 2000 readiness.
The Company's primary liquidity needs arise from debt service on indebtedness incurred in connection with the Sybra acquisition, the Lyon's acquisition, operating lease requirement and the funding of capital expenditures primarily for new store openings. As of December 31, 1998, the Company had outstanding indebtedness for borrowed money of $33.2 million under a term facility with Atherton Capital Incorporated (the "Atherton Loan") and $16.5 million under a term facility with USRP (Finance) LLC (The "USRP Loan"). The Atheron Loan has a weighted-average maturity of 12.5 years (of which approximately 10.5 years remain), bears interest at 10.63%, requires monthly payments of principal and interest, is collatoralized by substantially all of the assets owned by Sybra at the time it was acquired by the Company and imposes certain financial restrictions and covenants. The USRP Loan has a weighted average maturity of 12 years, a weighted average interest rate of 12.75%, requires monthly payments of principal and interest, is collateralized by substantially all of the assets owned by Lyon's and imposes certain financial restrictions and covenants.
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. The Company believes that it will continue to be able to secure adequate financing on acceptable terms for new restaurants 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.