Accordingly, the selected historical financial data for the four months ended April 30, 1997 and as of and for the year ended December 31, 1996 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 the Predecessor Period as if the acquisition had occurred on January 1, 1996. 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 Predecessor Period. 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 Predecessor Period. Such costs include, but are not limited to, administrative services, tax compliance, treasury service, human resource administration and legal services.
On January 13, 2001, the Company sold its Lyon's restaurant subsidiary. As a result, Lyon's has been classified as a discontinued operation in the accompanying financial statements. The sale price for the transaction was $16.2 million, consisting principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of that assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. During the fourth quarter of 2000, the Company recognized a goodwill impairment charge (net of tax benefits) of approximately $6.2 million which is included in the loss from discontinued operations, and a loss on the sale (net of tax benefits) of approximately $4.5 million.
(a) Included in the results of operations for the eight months ending December 31, 1997 are sales and operating loss of $164 and $(188), respectively, of the Company for the period from February 19, 1997 to April 30, 1997.
The following discussion should be read in conjunction with the "Selected Historical Financial Data" and the financial statements of the Company and the accompanying notes thereto included elsewhere herein. Certain information discussed below may constitute forward-looking statements within the meaning of the federal securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from projected results. Among those risks, trends and uncertainties are the general economic climate, costs of food and labor, consumer demand, interest rate levels, the availability of financing and other risks associated with the acquisition, development and operation of new and existing restaurants. Unless otherwise indicated, all amounts are in thousands except share amounts.
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.. The aggregate purchase price was approximately $22.6 million, of which $16.5 million was financed by USRP (Finance) LLC.
The Company's revenues consist almost entirely of restaurant sales from Sybra, its principal operating subsidiary.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
RESTAURANT SALES--Restaurant sales for the year ended December 31, 2000 were $162.6 million, an increase of $18.0 million or 12.5% over the prior year comparable period. This increase is the result of sales from new store openings and store acquisitions, offset by a same store sales decrease of 1.7% and the disposition of 9 Arby's restaurants in the fourth quarter of 1999.
INTEREST EXPENSE--Interest expense was $8.5 million, or 5.2% of sales in 2000, as compared to $6.2 million, or 4.3% of sales in 1999, an increase of $2.3 million primarily as a result of debt incurred in connection with new store openings and store acquisitions.
RESTAURANT SALES--Restaurant sales for the year ended December 31, 1999 were $144.5 million, an increase of $13.2 million or 10.1% over the prior year comparable period. This increase is the result of a same store sales increase of 2.4% and 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 only 52 weeks of sales in 1999. Additionally, Sybra sold nine of its Arby's units early in the fourth quarter of 1999.
RESTAURANT COSTS AND EXPENSES--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 $4.5 million, or 3.1% of sales in 1999, as compared to $4.9 million, or 3.7% of sales in 1998, a decrease as a percentage of sales as a result of changes in the depreciation schedule of Sybra's assets related to the Company's acquisition of Sybra.
The Company's primary liquidity needs arise from debt service on indebtedness incurred in connection with the original acquisition of Sybra, debt service on built and acquired Arby's units, operating lease requirements and the funding of capital expenditures primarily for new store openings. As of December 31, 2000, the Company had total long-term debt of $87.2 million, which included $25.9 million under a term facility with Atherton Capital Incorporated (the "Atherton Loan"), $15.3 million under three term loans with FINOVA Capital Corporation (the "FINOVA Loans"), a $7.0 million line of credit borrowing with FINOVA and certain other indebtedness totaling $39.0 million. The Atherton Loan has a weighted-average maturity of 12.5 years (of which approximately 8.7 years remain), bears interest at 10.63%, requires monthly payments of principal and interest, is collateralized 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 FINOVA Loans have original maturities of 10 to 15 years, interest rates ranging from 10.10% to 10.88%, require monthly payments of principal and interest and are collateralized by certain restaurant assets as defined in the respective loan agreements. The $7.0 million line of credit with FINOVA requires monthly payments of interest only equal to the prime rate plus 2.0% through June, 2003, at which time any unpaid balance can be paid or converted to a term loan. If converted, the term loan requires monthly payments of principal and interest through June, 2010.
As previously noted, on January 13, 2001 the Company sold its Lyon's subsidiary. The sales price for that transaction was $16.2 million, which consisted principally of the assumption of existing Lyon's indebtedness. The Company will remain secondarily liable for a significant portion of that assumed indebtedness. However, the purchaser has agreed to indemnify the Company for up to $3.0 million (subject to certain reductions as set forth in the stock purchase agreement) in the event that the Company is required to make any payments on account of the assumed indebtedness. Should the Company be required to make payment on this assumed indebtedness, such payment could have a material adverse effect on the Company.
The Company's primary source of liquidity during the year was the operation of the restaurants owned by Sybra, its principal operating subsidiary and debt and lease financing.