-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TmDONs+7ONzhgBkpmuwjdadmLHecL2+S1prujdc5rP9LQ+Z/bWq3yhA4BvdzXswU mDJNGOBikL6l0QzLobKBrw== 0000912057-01-515508.txt : 20010516 0000912057-01-515508.hdr.sgml : 20010516 ACCESSION NUMBER: 0000912057-01-515508 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICH CORP /DE/ CENTRAL INDEX KEY: 0000049588 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 436069928 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07697 FILM NUMBER: 1634396 BUSINESS ADDRESS: STREET 1: 9255 TOWNE CENTRE DRIVE STREET 2: SUITE 600 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 2149547111 MAIL ADDRESS: STREET 1: P.O. BOX 2699 STREET 2: SUITE 400 CITY: DALLAS STATE: TX ZIP: 75221 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHWESTERN LIFE CORP DATE OF NAME CHANGE: 19940808 FORMER COMPANY: FORMER CONFORMED NAME: ICH CORP DATE OF NAME CHANGE: 19930506 FORMER COMPANY: FORMER CONFORMED NAME: ICH CORP/CONSOL NAT/RTS/CFR/MOD AMER LIFE INS/SW LIFE INS/CF DATE OF NAME CHANGE: 19930505 10-Q 1 a2048422z10-q.txt 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2001 COMMISSION FILE NUMBER 1-7697 ------------------------ I.C.H. CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 43-6069928 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 9255 TOWNE CENTRE DRIVE SUITE 600 SAN DIEGO, CALIFORNIA 92121 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (858) 587-8533 ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /X/ No / / Number of shares of common stock outstanding on March 31, 2001: 2,820,386 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- I.C.H. CORPORATION AND SUBSIDIARIES INDEX
PAGE NUMBER -------- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000......................................... 3 Consolidated Statements of Operations for the Three Months ended March 31, 2001 and for the Three Months ended March 31, 2000............................................ 4 Consolidated Statements of Cash Flows for the Three Months ended March 31, 2001 and for the Three Months ended March 31, 2000............................................ 5 Notes to Consolidated Financial Statements.................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 8 Part II. Item 5. Other Information........................................... 10 Item 6. Exhibits and Reports on Form 8-K............................ 10 Signatures.................................................. 11
2 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
AS OF AS OF MARCH 31, 2001 DECEMBER 31, 2000 --------------- ------------------ (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents................................. $ 2,181 $ 6,172 Accounts receivable....................................... 176 158 Inventories............................................... 2,245 2,563 Deferred income taxes..................................... 3,413 3,413 Other current assets, net................................. 1,550 1,797 Total current assets.................................... 9,565 14,103 Property and equipment, net................................. 60,900 57,710 Intangible assets, net...................................... 40,422 40,815 Deferred income taxes....................................... 2,577 2,577 Other Assets................................................ 6,019 5,210 Total assets............................................ $119,483 $120,415 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 5,963 $ 7,080 Accrued liabilities....................................... 4,666 8,032 Accrued loss from sale of discontinued operation.......... 1,873 3,141 Current portion of long-term debt......................... 5,289 4,915 Current portion of capital lease obligations.............. 553 536 Total current liabilities............................... 18,344 23,704 Non-current liabilities: Long-term debt............................................ 82,902 82,258 Long-term capital lease obligations....................... 2,918 3,069 Deferred income........................................... 5,537 -- Other liabilities......................................... 5,508 5,975 Total liabilities....................................... 115,209 115,006 Stockholders' Equity: Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding............................. -- -- Common stock, $0.01 par value; 19,000,000 authorized; 2,780,386 outstanding..................................... 28 28 Paid-in-capital............................................. 12,139 12,290 Retained earnings........................................... (7,893) (6,909) Total stockholders' equity.............................. 4,274 5,409 Total liabilities and stockholders' equity.............. $119,483 $120,415
The accompanying Notes are an integral part of the Consolidated Financial Statements. 3 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS--UNAUDITED
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------- 2001 2000 ---------- ---------- Revenue and other income: Restaurant sales........................................ $ 41,310 $ 37,921 Other................................................... 255 156 Total Revenues.......................................... 41,565 38,077 Cost and expenses: Restaurant costs and expenses........................... 35,680 30,922 General and administrative.............................. 3,149 2,889 Depreciation and amortization........................... 1,736 1,279 Operating income............................................ 1,000 2,987 Interest expense............................................ 2,334 1,978 Income (loss) from continuing operations before income taxes..................................................... (1,334) 1,009 Provision for income taxes................................ (377) 461 Income (loss) from continuing operations.................... (957) 548 Loss from discontinued operations........................... -- (231) Net income (loss)........................................... $ (957) $ 317 Income (loss) from continuing operations per share: Basic..................................................... $ (.34) $ .19 Diluted................................................... $ (.34) $ .17 Loss from discontinued operations per share: Basic..................................................... $ -- $ (.08) Diluted................................................... $ -- $ (.07) Net income (loss) per share: Basic..................................................... $ (.34) $ .11 Diluted................................................... $ (.34) $ .10 Weighted-average common shares outstanding (see Note 3) Basic..................................................... 2,796,011 2,883,405 Diluted................................................... 2,796,011 3,319,125
The accompanying Notes are an integral part of the Consolidated Financial Statements. 4 I.C.H. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED (IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31, ------------------- 2001 2000 -------- -------- Cash flows from operating activities: Income (loss) from continuing operations.................. $ (957) $ 548 Adjustments to reconcile income (loss) from continuing operations to cash from operating activities: Depreciation and amortization........................... 1,736 1,279 Deferred income taxes................................... -- -- Changes in operating assets and liabilities: Accounts receivable..................................... (18) (63) Inventories............................................. 318 (243) Accounts payable and accrued expenses................... (3,736) (3,298) Deferred income......................................... 5,537 -- Other, net.............................................. 252 (48) Net cash provided (used) by operating activities........ 3,132 (1,825) Cash flows from investing activities: Capital expenditures...................................... (4,468) (4,339) Other, net................................................ (541) (888) Net cash used by investing activities................... (5,009) (5,227) Cash flows from financing activities: Proceeds from issuance of long-term debt and capital lease obligations, net........................................ 3,749 2,821 Repayment of long-term debt and capital lease obligations............................................. (1,365) (1,177) Other, net................................................ (183) 205 Net cash provided by financing activities............... 2,201 1,849 Net cash used by discontinued operations.................... (4,315) (2,377) Net changes in cash and cash equivalents.................... (3,991) (7,580) Cash and cash equivalents at beginning of period............ 6,172 15,085 Cash and cash equivalents at end of period.................. $ 2,181 $ 7,505
The accompanying Notes are an integral part of the Consolidated Financial Statements. 5 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARE AMOUNTS) NOTE 1. BUSINESS PREPARATION OF INTERIM FINANCIAL STATEMENTS The Consolidated Interim Financial Statements of I.C.H. Corporation (the "Company") and Subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). These Consolidated Interim Financial Statements include estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the amounts of revenues and expenses. Actual results could differ from those estimates. In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All adjustments are of a normal recurring nature unless otherwise disclosed. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to SEC rules and regulations. The Company believes, however, that the disclosures made are adequate for a fair presentation of results of operations, financial position and cash flows. These Consolidated Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company's latest annual report on Form 10-K. BUSINESS AND PRESENTATION The accompanying Consolidated Interim Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, principally Sybra, Inc. ("Sybra"). All significant intercompany accounts and transactions have been eliminated. Certain amounts from prior periods have been reclassified to conform to the current year presentation. NOTE 2. EQUITY AND EARNINGS PER COMMON SHARE Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted computations include dilutive common share equivalents.
THREE MONTHS ENDED MARCH 31, ----------------------- 2001 2000 ---------- ---------- Numerator: Income from continuing operations for computation of basic earnings per share and diluted earnings per share....... $ (957) $ 548 Denominator: Weighted-average shares for computation of basic earnings per share............................................... 2,796,011 2,883,405 Incremental shares on assumed issuance and repurchase of stock options............................................. 162,452 435,720 Weighted-average shares for computation of diluted earnings per share................................................. 2,958,463 3,319,125 Basic earnings (loss) from continuing operations per share..................................................... $ (.34) $ .19 Diluted earnings (loss) from continuing operations per share..................................................... $ (.34) $ .17
Basic income from continuing operations per share is computed based on the weighted-average number of common shares outstanding during the quarter. Because of the net loss for the quarter 6 ended March 31, 2001, basic and diluted loss per share are calculated based on the same weighted average number of shares outstanding. NOTE 3. CONTINGENCIES LEGAL PROCEEDINGS A former Lyon's restaurant manager has filed a lawsuit on behalf of himself and others allegedly similarly situated, in Superior Court for Sacramento County, California seeking, among other things, overtime compensation. The action, entitled WILLIAM SHIELDS V. LYON'S RESTAURANTS, INC. ET AL., was originally filed on April 27, 2000 and seeks certification of a class of plaintiffs consisting of current and former Lyon's restaurant managers employed by Lyon's or by the former owner of the Lyon's chain. The suit alleges that Lyon's required managers to spend more than 50% of their working time performing non-management tasks, thus entitling them to overtime compensation. The Company contends that Lyon's properly classifies its managers as salaried employees, who are thereby exempt from the payment of overtime compensation. The Company has thus far and will continue to defend this suit vigorously. While the ultimate legal and financial liability of the Company and/or its subsidiaries with respect to this action cannot be estimated with certainty at this time, the Company has recorded, as a liability, a provision for its estimate of a probable amount of loss related to this suit. Management believes it unlikely that the ultimate liability for this suit will materially exceed the recorded liability at March 31, 2001. Various legal proceedings are pending against the Company, all of which involve routine litigation incidental to the Company's businesses. The consequences of these matters are not presently determinable but, in the opinion of the management of the Company after consulting with legal counsel, the ultimate liability is not expected to have a material effect on the results of operations, financial position, liquidity or capital resources of the Company. GUARANTEE OF FORMER SUBSIDIARY TERM DEBT The Company sold its Lyon's subsidiary on January 13, 2001. That transaction requires the Company to remain contingently liable on certain Lyon's term debt assumed by the purchaser. The principal balance of that term debt as of March 31, 2001 was approximately $12,956. 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 purchaser 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 affect on the Company. NOTE 4. SUBSEQUENT EVENT On April 30, 2001, the Company's primary subsidiary, Sybra, Inc., acquired 21 Arby's restaurants located in and around Detroit, Michigan. The purchase price for the acquisition was $18.3 million, which was financed through a combination of leasehold mortgage financing and a note from the seller. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. GENERAL The Company conducts its restaurant operations principally through a wholly-owned subsidiary, Sybra, Inc. Restaurant costs and expenses include all direct costs, including direct labor, occupancy costs, advertising expenses, royalty payments, expenditures for repairs and maintenance, and workers' compensation, casualty and general liability insurance costs. Advertising fees paid by the Company's Sybra subsidiary to the AFA Service Corporation, a non-profit association of Arby's restaurant operators, to develop and prepare advertising materials and to undertake marketing research, are equal to 0.7% of restaurant sales. In addition, the Company operates its restaurants pursuant to licenses which require the Company to pay Arby's, Inc. a royalty based upon percentages of its restaurant sales (presently an aggregate of approximately 3.2% of the Company's restaurant sales). The royalty rate for new restaurants (currently 4.0%) will result in an increase in the Company's aggregate royalty rate as new Arby's restaurants are opened. General and administrative expenses consist of corporate and regional office expenses, including executive and administrative compensation, office expenses, travel and professional fees. RESULTS OF OPERATIONS The following table sets forth, with respect to the Company and for the periods indicated, the percentage of total revenues represented by certain expense and income items.
THREE MONTHS ENDED MARCH 31, ----------------------- 2001 2000 -------- -------- Restaurant Sales........................................... 100.0 % 100.0% Other Revenue.............................................. .6 % .4% Revenues................................................... 100.6 % 100.4% Expenses: Restaurant costs & expenses.............................. 86.4 % 81.5% General & administrative................................. 7.6 % 7.6% Depreciation & amortization.............................. 4.2 % 3.4% Operating income........................................... 2.4 % 7.9% Interest expense........................................... 5.6 % 5.2% Income (loss) from continuing operations before taxes...... (3.2)% 2.7% Income tax expense......................................... (0.9)% 1.2% Income (loss) from continuing operations................... (2.3)% 1.5%
8 COMPARISON OF THE QUARTER ENDED MARCH 31, 2001 AND THE QUARTER ENDED MARCH 31, 2000. RESTAURANT SALES--Restaurant sales for the quarter ended March 31, 2001 were $41.3 million, an increase of $3.4 million, or 8.9%, 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 4.8%. RESTAURANT COSTS AND EXPENSES--Restaurant costs and expenses were $35.7 million, or 86.4% of sales for the quarter ended March 31, 2001, as compared to $30.9 million, or 81.5% of sales, for the first quarter of 2000, an increase of $4.8 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 inflation in the cost of food, labor, utilities and other restaurant operating costs. GENERAL AND ADMINISTRATIVE COSTS--General and administrative costs and expenses were $3.1 million, or 7.6% of sales for the quarter ended March 31, 2001, as compared to $2.9 million, or 7.6% of sales for the first quarter of 2000. The increase was primarily due to increases in regional staff levels to support the Company's newly opened Arby's units. DEPRECIATION AND AMORTIZATION--Depreciation and amortization expense was $1.7 million, or 4.2% of sales for the quarter ended March 31, 2001, as compared to $1.3 million, or 3.4% of sales in the first quarter of 2000. This increase was due to additional depreciation expense associated with the Company's newly opened and acquired Arby's units. INTEREST EXPENSE--Interest expense was $2.3 million, or 5.6% of sales for the quarter ended March 31, 2001, as compared to $2.0 million, or 5.2% of sales in the first quarter of 2000, an increase of $356,000 primarily as a result of debt incurred in connection with new store openings and store acquisitions. LIQUIDITY AND CAPITAL RESOURCES 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 March 31, 2001, the Company had total long-term debt of $88.2 million, which included $25.4 million under a term facility with Atherton Capital Incorporated (the "Atherton Loan"), $15.1 million under three term loans with FINOVA Capital Corporation (the "FINOVA Loans"), a $7.0 million line of credit with FINOVA and certain other indebtedness totaling $40.7 million. The Atherton Loan has a weighted-average maturity of 12.5 years (of which approximately 8.5 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. 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 9 make payment on this assumed indebtedness, such payment could have a material adverse effect on the Company. The Company's primary sources of liquidity have been the operation of the restaurants owned by its principal operating subsidiary, Sybra, and debt and lease financing. In the future, the Company's liquidity and capital resources will depend primarily 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 and in the first quarter of 2001, 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. ITEM 5. OTHER INFORMATION On January 13, 2001 the company completed the sale of its Lyon's of California, Inc. subsidiary. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: None (b) A Current Report on Form 8-K, dated January 26, 2001, was filed by the Company during the quarter ended March 31, 2001. Items 2 and 7 were reported thereon. A Current Report on Form 8-K/A, dated March 30, 2001, was filed by the Company during the quarter ended March 31, 2001. Items 2 and 7 were reported thereon. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, I.C.H. Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: May 14, 2001 I.C.H. CORPORATION By: ----------------------------------------- JOHN A. BICKS CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER By: ----------------------------------------- ROBERT H. DRECHSLER CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER By: ----------------------------------------- GLEN V. FRETER CHIEF FINANCIAL OFFICER
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