The Company leases office space in San Diego, California and New York, New York for its corporate and executive offices and in Flint, Michigan; Sinking Spring, Pennsylvania; Plano, Texas and Tampa, Florida for its regional operations centers.
The following table sets forth the locations of the restaurants operated by the Company (by state) as of December 31, 1999:
On December 14, 1998, the Company acquired substantially all of the assets of the Lyon's restaurant chain, through a newly-formed wholly-owned subsidiary, Lyon's of California, Inc. ("Lyon's"). The aggregate purchase price was approximately $22.6 million, of which $16.5 million was financed by USRP (Finance) LLC. As of December 31, 1999, Lyon's owned and operated a chain of 73 full-service family dining restaurants located in northern California and Oregon.
Restaurant costs and expenses include all direct operating costs, including direct labor, occupancy costs, advertising expenses, royalty payments, expenditures for repairs and maintenance, and workers' compensation and casualty and general liability insurance costs. Advertising fees paid by the Company's Sybra subsidiary to the Arby's Franchise Association to develop and prepare advertising materials and to undertake marketing research are equal to 0.7% of restaurant sales. In addition, Sybra operates its restaurants pursuant to licenses which require Sybra to pay Arby's, Inc. a royalty based upon percentages of its restaurant sales (presently an aggregate of approximately 3.1% of Sybra's restaurant sales). The royalty rate for new Arby's restaurants (currently 4.0%) will result in an increase in the aggregate royalty rate for Sybra as new Arby's restaurants are opened.
For purposes of the discussion below, the results of operations for the year ended December 31, 1997 represent the mathematical addition of the historical amounts of Sybra for the Predecessor Period (December 29, 1996 to April 30, 1997) and the Successor Period (May 1, 1997 to December 31, 1997) and are not necessarily indicative of the results that would actually have been obtained if the Sybra acquisition had occurred on January 1, 1997. The Predecessor Period does not give effect to, among other items, corporate expenses necessary to operate on a stand-alone basis. Such expenses include, but are not limited to, certain administrative services, tax compliance, treasury service, human resource administration and legal services.
Revenues--Consolidated revenues were $244.9 million for 1999 as compared to $140.0 million for 1998, an increase of $104.9 million or 74.9%. This sales increase is due primarily to the acquisition of the Lyon's restaurants on December 14, 1998 which generated $99.9 million in sales for the year ended December 31, 1999. Lyon's sales from the date of acquisition (December 14, 1998) through December 31, 1998 were $7.0 million. Consolidated 1999 revenues also reflect Sybra's same store sales increase of 2.4% versus 1998, sales from new store openings and store acquisitions, offset by the fact that Sybra, which operates on a 52/53 week accounting cycle, had 53 weeks of sales in 1998 and had only 52 weeks in 1999. Additionally, Sybra sold 9 of its Arby's units early in the fourth quarter of 1999.
Revenues--Consolidated revenues were $140.0 million for 1998 as compared to $112.9 million for 1997, an increase of $27.1 million or 24.0%. Sybra's sales for the year ended December 31, 1998 were $131.3 million, an increase of $19.7 million or 17.6% over the prior year comparable period, as a result of the fact that Sybra, which operates on a 52/53 week accounting cycle, had 53 weeks of sales in 1998 and only 52 weeks of sales in 1997. Consolidated revenues were also impacted by Sybra's same store sales increases of 4.8% for the period, sales from new store openings and store acquisitions. Sales from the Company's Lyon's restaurants from the date of acquisition (December 14, 1998) to December 31, 1998, were $7.0 million.
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. These increased costs and expenses resulted from costs associated with operating the Company as a stand-alone public company, as well as 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 store acquisitions.
Restaurant Costs & Expenses--Sybra's restaurant costs and expenses were $117.1 million, or 81.0% of sales, for 1999 as compared to $108.1 million, or 82.3% of sales, for 1998, an increase of $9.0 million due to the sales increase explained above. As a percentage of sales, costs decreased primarily as a result of increased efficiencies and a decrease in the cost of certain food and related products.
Depreciation and Amortization--Depreciation and amortization expense was $4.9 million, or 3.7% of sales in 1998 as compared to $5.4 million, or 4.8% of sales in 1997, a decrease as a percentage of sales as a result of the impact of the sale/leasebacks explained above, net of goodwill amortization as a result of purchase accounting related to the Sybra acquisition.
Sybra's total capital expenditures were $17.0 million, $12.9 million and $5.1 million in 1999, 1998 and 1997, respectively, which include new store development, as well as store maintenance, store remodel and store renovation capital expenditures. Sybra anticipates that store maintenance, store remodel and store renovation capital expenditures for 2000 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 constructed and/or acquired, the availability of appropriate financing as well as the capital structure of any such transactions.
Restaurant Costs & Expenses--Lyon's restaurant costs and expenses were $89.7 million, or 89.8% of sales, for the year ended December 31, 1999 as compared to $5.8 million or 82.4% of sales for the period from the date of acquisition (December 14, 1998) through December 31, 1998. Restaurant costs and expenses increased as a percentage of sales in 1999 as a result of the fact that the Christmas shopping season and Christmas day (the period of time that Lyon's was owned by the Company in 1998) are generally higher sales volume periods. As a result, costs as a percentage of sales decrease during these higher sales volume periods. The restaurant costs and expenses for the year ended December 31, 1999 are likely more indicative of the recurring annual levels of these costs although no assurance can be given that this level of expense will continue. Restaurant costs and expenses are subject to price fluctuations of goods and services, restaurant level efficiencies and sales levels.
During 1999 and 1998 the Company assessed its internal and store-level systems and concluded that its hardware and software were Year 2000 compliant. Prior to January 1, 2000 the Company was also in communication with respect to Year 2000 issues with its suppliers to assess the likelihood that those suppliers might be affected by Year 2000 issues. The Company's internal and store-level systems were essentially unaffected by the calender change to the year 2000 and the Company has not experienced any known delays or shortages in receipt of product from any of its suppliers as a result of Year 2000 issues.
On December 22, 1999, the Company completed a $5.5 million financing with U.S. Restaurant Lending Group I, L.P., of which approximately $4.5 million of the proceeds was used to repay existing indebtedness. This loan bears interest at an annual rate of 10.53% and matures in 15 years. On
December 29, 1999, the Company completed an $8.5 million financing with Finova Capital Corporation and a $1.0 million financing with CNL APF Partners, L.P., substantially all of which proceeds were contributed to the Company's working capital. These loans bear interest at annual rates of 10.88% and 10.54%, and mature in 10 years and 15 years, respectively.
On January 31, 2000, AmeriServe Food Distributors and several affilliates filed for Chapter 11 protection. (See Item I--"Restaurant Operations--Raw Materials").
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, 1999, a significant percentage of the Company's employees were paid wages equal to or based on the federal 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.