-----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, EuRtZX/yqG7q6uaFQGrqDAumcsjxZnJhCT1bf/VIOoMdHsLgEUFDvb2rU3TwGltc /NnVIFNpP0sYMXnH3Qp0PQ== 0000950146-97-001066.txt : 19970717 0000950146-97-001066.hdr.sgml : 19970717 ACCESSION NUMBER: 0000950146-97-001066 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970430 ITEM INFORMATION: Other events FILED AS OF DATE: 19970716 SROS: NONE 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07697 FILM NUMBER: 97641394 BUSINESS ADDRESS: STREET 1: 9404 GEESEE AVE CITY: LA JOLLA STATE: CA ZIP: 92037 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 8-K/A 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): April 30, 1997 -------------- I.C.H. CORPORATION ------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-7697 43-6069928 - -------------------------------------------------------------------------------- (State or other jurisdiction of (Commission (I.R.S. Employer incorporation) File Number) Identification No.) 9404 Genesee Avenue, LaJolla, CA 92037 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (619) 587-8533 --------------- Item 5. Other Events. ------------- On April 30, 1997, I.C.H. Corporation (the "Company") completed its previously announced agreement of February 7, 1997 to acquire all of the outstanding capital stock of Sybra, Inc., a Michigan corporation ("Sybra"). The acquisition of Sybra was previously reported in the Company's Quarterly Report on Form 10-Q, for the quarter ended March 31, 1997, filed by the Company on May 15, 1997. Set forth below are the historical and pro forma financial statements of Businesses Acquired (Section 210.3-05 and Section 210.11 of Regulation S-X) as required by Item 7 of Form 8-K. SYBRA, INC. FINANCIAL STATEMENTS with REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS DECEMBER 28, 1996 SYBRA, INC. Index of Financial Statements December 28, 1996 Page ---- Report of Independent Public Accountants F-2 Financial Statements Balance Sheets F-3 Statement of Income F-4 Statements of Cash Flows F-5/F-6 Statements of Stockholder's Equity F-7 Notes to Financial Statements F-8/F-16 [LETTERHEAD OF COOPERS & LYBRAND L.L.P.] REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholder and Board of Directors of Sybra, Inc.: We have audited the accompanying balance sheets of Sybra, Inc. as of December 30, 1995 and December 28, 1996, and the related statements of income, stockholder's equity and cash flows for each of the three fiscal years in the period ended December 28, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sybra, Inc. as of December 30, 1995 and December 28, 1996, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 28, 1996 in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND, L.L.P. Atlanta, Georgia January 31, 1997, except as to the information presented in Note 10, for which the date is February 12, 1997. SYBRA, INC. BALANCE SHEETS (In thousands, except per share data)
Dec. 30, Dec. 28, 1995 1996 -------- -------- ASSETS Current assets: Cash $ 1,108 $ 2,294 Inventories 1,483 1,499 Prepaid expenses and other 995 954 Deferred income taxes 878 1,225 ------- ------- Total current assets 4,464 5,972 ------- ------- Other assets: Franchise fees 5,605 4,872 Equity in operating leases 6,667 5,980 Goodwill 5,162 4,996 Other 202 199 ------- ------- Total other assets 17,636 16,047 ------- ------- Property, equipment and capitalized leases 78,035 81,822 Less accumulated depreciation and amortization 25,762 28,240 ------- ------- Net property, equipment and capitalized leases 52,273 53,582 ------- ------- $74,373 $75,601 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current maturities of Long-term debt and capital lease obligations $ 839 $ 897 Accounts payable and accrued liabilities 10,242 12,977 Payable to affiliates 495 553 ------- ------- Total current liabilities 11,576 14,427 ------- ------- Noncurrent liabilities: Long-term debt and capital lease obligations 21,313 4,728 Loan payable to Valcor 9,000 20,000 Deferred income taxes 312 14 Other 1,192 1,290 ------- ------- Total noncurrent liabilities 31,817 26,032 ------- ------- Stockholder's equity: Common stock, $.50 par value; 200 shares authorized; 55 shares issued and outstanding 28 28 Additional paid-in capital 21,398 21,398 Retained earnings 9,554 13,716 ------- ------- Total stockholder's equity 30,980 35,142 ------- ------- $74,373 $75,601 ======= =======
Commitments and contingencies (Note 9) See accompanying notes to financial statements. F-3 SYBRA, INC. STATEMENTS OF INCOME (In thousands)
Fiscal years ended ------------------------------------- Dec. 31, Dec. 30, Dec. 28, 1994 1995 1996 -------- ------- -------- Revenues and other income: Restaurant sales $115,493 $115,370 $115,973 Other 158 161 151 -------- -------- -------- 115,651 115,531 116,124 -------- -------- -------- Costs and expenses: Cost of sales 31,360 30,957 31,082 Restaurant expenses 61,461 63,457 62,784 Depreciation and amortization 5,935 6,041 5,973 Estimated restaurant closing expenses 1,400 900 1,200 General and administrative 6,586 6,643 6,179 Interest 1,909 2,605 2,346 -------- -------- -------- 108,651 110,603 109,564 -------- -------- -------- Income before income taxes 7,000 4,928 6,560 Provision for income taxes 2,650 1,913 2,398 -------- -------- -------- Net income $ 4,350 $ 3,015 $ 4,162 ======== ======== ========
See accompanying notes to financial statements. F-4 SYBRA, INC. STATEMENTS OF CASH FLOWS (In thousands)
Fiscal years ended ------------------------------------- Dec. 31, Dec. 30, Dec. 28, 1994 1995 1996 -------- ------- -------- Cash flows from operating activities: Net income $ 4,350 $ 3,015 $ 4,162 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 5,935 6,041 5,973 Deferred income taxes (1,076) (239) (645) Provision for estimated restaurant closing expenses 1,400 900 1,200 Other, net (160) 103 (135) -------- -------- ------- 10,449 9,820 10,555 Change in assets and liabilities: Inventories (101) 37 (16) Payable to affiliates (742) 290 64 Accounts payable and accrued liabilities 872 (1,109) 2,761 Other, net (276) (588) (462) -------- -------- ------- Net cash provided by operating activities 10,202 (8,450) 12,902 -------- -------- ------- Cash flows from investing activities: Capital expenditures (10,839) (11,976) (6,095) Other, net 268 190 (94) -------- -------- ------- Net cash used by investing activities (10,571) (11,786) (6,189)
See accompanying notes to financial statements. F-5 SYBRA, INC. STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands)
Fiscal years ended ------------------------------------- Dec. 31, Dec. 30, Dec. 28, 1994 1995 1996 -------- ------- -------- Cash flows from financing activities: Long-term debt and capital lease obligations: Additions $ 37,203 $ 43,677 $ 28,758 Principal payments (45,943) (33,346) (45,285) Loan from Valcor: Additions 16,500 - 11,000 Principal payments (2,500) (7,000) - Dividends (5,000) - - ------- ------- -------- Net cash provided (used) by financing activities 260 3,331 (5,527) ------- ------- -------- Net change in cash during the year (109) (5) 1,186 Balance at beginning of year 1,222 1,113 1,108 ------- ------- -------- Balance at end of year $ 1,113 $ 1,108 $ 2,294 ======= ======= ======== Supplemental disclosures--cash paid for: Interest $ 1,927 $ 2,578 $ 2,368 Income taxes 3,898 1,846 3,235
See accompanying notes to financial statements. F-6 SYBRA, INC. STATEMENTS OF STOCKHOLDER'S EQUITY (In thousands)
Additional Total Common paid-in Retained stockholder's stock capital earnings equity ------ --------- -------- ------------ Balance at December 25, 1993 $ 28 $21,398 $ 7,189 $28,615 Net income - - 4,350 4,350 Cash dividends - - (5,000) (5,000) ----- ------- ------- ------- Balance at December 31, 1994 28 21,398 6,539 27,965 Net income - - 3,015 3,015 ----- ------- ------- ------- Balance at December 30, 1995 28 21,398 9,554 30,980 Net income - - 4,162 4,162 ----- ------- ------- ------- Balance at December 28, 1996 $ 28 $21,398 $13,716 $35,142 ===== ======= ======= =======
See accompanying notes to financial statements. F-7 SYBRA, INC. NOTES TO FINANCIAL STATEMENTS Note 1 - Organization: The Company operates a chain of fast food restaurants (150 at December 28, 1996) clustered in four regions, principally Texas, Michigan, Pennsylvania and Florida, as a franchisee of Arby's, Inc. The Company is a wholly-owned subsidiary of Valcor, Inc. which is in turn a wholly-owned subsidiary of Valhi, Inc. (NYSE:VHI). Contran Corporation holds, directly or through subsidiaries, approximately 91% of Valhi's outstanding common stock. Substantially all of Contran's outstanding voting stock is held by trusts established for the benefit of the children and grandchildren of Harold C. Simmons, of which Mr. Simmons is sole trustee. Mr. Simmons, Chairman of the Board of each of Contran, Valhi and Valcor, may be deemed to control each of such companies and the Company. Note 2 - Summary of significant accounting policies: Fiscal year. The Company operates on a 52 or 53 week fiscal year. The fiscal years ended December 30, 1995 ("1995") and December 28, 1996 ("1996") each consisted of 52 weeks. The fiscal year ended December 31, 1994 ("1994") consisted of 53 weeks. Management estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Ultimate actual results may, in some instances, differ from previously estimated amounts. Restaurant sales. Sales are recorded at the time of the cash retail sale. Inventories and cost of sales. Inventories consist of food, beverages, supplies and promotional items and are stated at the lower of first-in, first-out cost or market. Property, equipment, capitalized leases, depreciation and amortization. Property and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful life of 20 to 33 years for buildings and three to 10 years for equipment. Leasehold improvements are amortized on the straight-line method over the lesser of the estimated useful life of the asset or the term of the lease. F-8 NOTES TO FINANCIAL STATEMENTS (Continued) Assets held under capitalized leases are amortized on the straight-line method over the term of the lease. Capital lease obligations are recorded as liabilities and interest expense is recognized in proportion to the remaining lease obligation. Maintenance, repairs and minor improvements are expensed; major improvements are capitalized. Intangible assets and amortization. Franchise fees representing the cost to acquire restaurant franchises are stated net of accumulated amortization of $4,205,000 at December 30, 1995 and $4,557,000 at December 28, 1996. Amortization of franchise fees is computed by the straight-line method over periods ranging from 10 to 20 years. Equity in operating leases represents the excess of fair value of rental rates over the base rental rates at the date of a purchase business combination and is stated net of accumulated amortization of $3,982,000 at December 30, 1995 and $4,520,000 at December 28, 1996. Amortization of equity in operating leases is computed by the straight-line method over the life of the respective leases, generally approximately 20 years. Goodwill, representing the excess of cost over fair value of the individual net assets acquired in purchase transactions, is stated net of accumulated amortization of $1,346,000 at December 30, 1995 and $1,512,000 at December 28, 1996. Amortization of goodwill is computed by the straight-line method over 40 years. Other intangibles, included in other noncurrent assets, are amortized by the straight-line method over the periods expected to be benefitted. Income taxes. Sybra, Valcor and Valhi are members of Contran's consolidated United States federal income tax group (the "Contran Tax Group"). The policy for intercompany allocation of federal income taxes provides that subsidiaries included in the Contran Tax Group compute the provision for federal income taxes on a separate company basis. Subsidiaries of Valcor make payments to or receive payments from Valcor in the amounts they would have paid to or received from the Internal Revenue Service had they not been members of the Contran Tax Group. The separate company provisions and payments are computed using tax elections made by Contran. Deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amounts of assets and liabilities. Other. Advertising costs, expensed as incurred, were $8.8 million in 1994, $9.2 million in 1995 and $9.4 million in 1996. F-9 NOTES TO FINANCIAL STATEMENTS (Continued) Note 3 - Property, equipment and capitalized leases: Dec. 30, Dec. 28, 1995 1996 -------- -------- (In thousands) Property and equipment: Land $17,769 $17,830 Buildings 17,642 19,643 Leasehold improvements 18,261 19,013 Equipment 16,308 18,711 Construction in progress 1,838 660 ------- ------- 71,818 75,857 Less accumulated depreciation and amortization 21,443 23,586 ------- ------- 50,375 52,271 ------- ------- Capitalized leases: Buildings 1,941 1,988 Equipment 4,276 3,977 ------- ------- 6,217 5,965 Less accumulated amortization 4,319 4,654 ------- ------- 1,898 1,311 ------- ------- $52,273 $53,582 ======= ======= Note 4 - Accounts payable and accrued liabilities: Dec. 30, Dec. 28, 1995 1996 -------- -------- (In thousands) Accounts payable $ 3,778 $ 5,277 Accrued liabilities: Employee benefits 2,334 2,840 Property and other taxes 843 947 Other 3,287 3,913 ------- ------- $10,242 $12,977 ======= ======= F-10 NOTES TO FINANCIAL STATEMENTS (Continued) Note 5 - Long-term debt and capital lease obligations: Dec. 30, Dec. 28, 1995 1996 -------- -------- (In thousands) Bank reducing revolving credit agreements $16,770 $ 1,081 Capital lease obligations 5,365 4,540 Other 17 4 ------- ------- 22,152 5,625 Less current maturities 839 897 ------- ------- $21,313 $ 4,728 ======= ======= The Company has two unsecured revolving credit facilities aggregating $29 million which are due through July 1998, subject to renewal by the parties. The credit facilities provide for interest, at the Company's option, at a base rate or LIBOR plus 1.50%. At December 28, 1996, the weighted average interest rate on outstanding borrowings was approximately 6.9% (1995 - 7.5%) and amounts available for borrowing aggregated $27.9 million. Bank borrowings reprice with changes in market interest rates, and the book value of such indebtedness is deemed to approximate market value. The bank reducing revolving credit agreements contain covenants which require, among other things, the maintenance of net worth and cash flow ratios within specified levels, restrictions that limit the payment of dividends, and contain other provisions and restrictive covenants customary in lending transactions of these types. The aggregate maturities of long-term debt and future minimum payments under capital lease obligations at December 28, 1996 are shown in the table below. Capital lease Long-term Years ended obligations debt - ----------- ------------- ---------- (In thousands) 1997 $ 1,418 $ 1,085 1998 1,375 - 1999 685 - 2000 554 - 2001 533 - 2002 and thereafter 2,625 - ------- ------- 7,190 $ 1,085 ======= Less amount representing interest (ranging from 8.7% to 16.1%) 2,650 ------- $ 4,540 ======= F-11 NOTES TO FINANCIAL STATEMENTS (Continued) Note 6 - Income taxes: 1994 1995 1996 ------ ------- ------ (In thousands) Income taxes currently payable: Federal $3,304 $1,845 $2,928 State 422 307 115 ------ ------ ------ 3,726 2,152 3,043 Deferred income taxes (1,076) (239) (645) ------ ------ ------ $2,650 $1,913 $2,398 ====== ====== ====== Expected tax expense, at the federal statutory rate of 35% $2,450 $1,725 $2,296 State income taxes, net 218 192 39 Other, net (18) (4) 63 ------ ------ ------ $2,650 $1,913 $2,398 ====== ====== ====== Components of the net deferred tax assets (liabilities): Dec. 30, Dec. 28, 1995 1996 -------- -------- (In thousands) Temporary differences relating to: Property and equipment $ 1,855 $ 1,823 Capital lease assets and obligations, net 1,283 1,194 Intangible assets (3,928) (3,509) Accrued liabilities and other 1,356 1,703 ------- ------- $ 566 $ 1,211 ======= ======= Current deferred tax assets $ 878 $ 1,225 Noncurrent deferred tax liabilities (312) (14) ------- ------- $ 566 $ 1,211 ======= ======= F-12 NOTES TO FINANCIAL STATEMENTS (Continued) Note 7 - Other items: Incentive compensation plan. The Company has an incentive compensation plan in which assistant managers, district managers, directors of operations, vice presidents, certain general office personnel and senior management participate. Incentive bonus expense was $821,000 in 1994, $502,000 in 1995, and $993,000 in 1996. Retirement income plan. The Company maintains a defined contribution 401(k) plan known as the Sybra, Inc. Retirement Income Plan (the "Retirement Plan"). The Retirement Plan permits eligible employees to defer a portion of their compensation (1% to 15%, up to certain maximum limitations established by law) through payroll deductions. The Company may, at its discretion, contribute to the Retirement Plan on behalf of participating employees based on a matching formula or other method. Expense related to matching contributions to the Retirement Plan was $307,000 in 1994, $299,000 in 1995, and $333,000 in 1996. Note 8 - Related Party transactions: The Company may be deemed to be controlled by Harold C. Simmons. See Note 1. It is the policy of the Company to engage in transactions with related parties on terms, in the opinion of the Company, no less favorable to the Company than could be obtained from unrelated parties. Mr. Edward J. Hardin, who served as a director of the Company prior to April 1995, is a partner in the law firm of Rogers & Hardin, which serves as legal counsel to the Company. Rogers & Hardin has also provided and may in the future provide legal services to Valcor, Valhi, Contran and other entities that may be deemed to be controlled by Harold C. Simmons. Fees paid by the Company to Rogers & Hardin were less than $250,000 in each of the past three years. Amounts payable to affiliates are comprised of: Dec. 30, Dec. 28, 1995 1996 -------- -------- (In thousands) Current liabilities: Interest payable $ - $ 225 Income taxes 495 328 ------- ------- $ 495 $ 553 ======= ======= Noncurrent liabilities - Loan payable to Valcor $ 9,000 $20,000 ======= ======= Loans are made between the Company and affiliates pursuant to term and demand notes primarily for cash management purposes. Such loans generally bear interest at rates comparable to rates available for credit agreements F-13 NOTES TO FINANCIAL STATEMENTS (Continued) with unrelated parties. Related party interest expense was $769,000 in 1994, $809,000 in 1995, and $648,000 in 1996. The note agreement between the Company and Valcor contains covenants which require, among other things, the availability of funds pursuant to credit agreements and cash balances of at least the amount of the unpaid principal balance owed to Valcor. The loan from Valcor, due on demand, is classified as a noncurrent liability to the extent the Company has the ability to refinance such loan with borrowings under its long-term bank credit facilities. The indenture governing certain Valcor Senior Notes contains various restrictions and covenants which may, among other things, limit the Company's ability to incur indebtedness, make acquisitions or make investments in new businesses. Under the terms of an Intercorporate Services Agreement with Valhi, the Company receives certain management, financial and administrative services from Valhi on a fee basis. Fees pursuant to this agreement were $276,000 in 1994, $220,000 in 1995 and $240,000 in 1996. Charges from related parties for services provided in the ordinary course of business, principally charges for insuring property and other risks, aggregated $767,000 in 1994, $1,150,000 in 1995 and $985,000 in 1996. Certain employees of the Company have been awarded shares of restricted Valhi common stock and/or granted options to purchase Valhi common stock under the terms of Valhi's stock option plans. The Company will pay Valhi the aggregate difference between the option price and the market value of Valhi's common stock on the exercise date of such options. For financial reporting purposes, the Company accounts for the related expense (credit) of $110,000 in 1994, nil in 1995 and $15,000 in 1996 in a manner similar to accounting for stock appreciation rights. At December 28, 1996, employees of the Company held options to purchase 107,000 shares of Valhi common stock at prices ranging from $4.76 to $12.16 (85,000 shares at prices lower than the December 31, 1996 quoted market price of $6.375 per share). Restricted stock is forfeitable unless certain periods of employment are completed. The Company will pay Valhi the market value of the restricted shares on the dates the restrictions expire, and accrues the related expense over the restriction period. Expense related to restricted stock was $7,000 in 1994 and $1,000 in 1995. All of the outstanding restricted shares vested during 1995. Note 9 - Commitments and contingencies: Legal proceedings. The Company is a party to routine legal proceedings incidental to its normal business activities. The Company believes the disposition of all such proceedings, individually or in the aggregate, should not have a material adverse effect on the Company's financial position, results of operations or liquidity. F-14 NOTES TO FINANCIAL STATEMENTS (Continued) Operating leases. The Company leases offices, retail facilities and equipment under agreements expiring through 2009 with renewal options ranging from five to 30 years. Contingent rental payments on certain building leases are made based upon the percentage of gross sales of the individual units that exceed a predetermined level. The percentages of gross sales to be paid and related gross sales levels vary by unit. Net rent expense under operating leases: 1994 1995 1996 ------ ------ ------ (In thousands) Minimum rentals $4,648 $4,615 $4,241 Contingent rentals 491 429 437 ------ ------ ------ 5,139 5,044 4,678 Less sublease rentals 276 321 200 ------ ------ ------ $4,863 $4,723 $4,478 ====== ====== ====== At December 28, 1996, future minimum payments under noncancellable operating leases having an initial or remaining term in excess of one year were: Rental Sublease Years ended Payments rentals Net -------- -------- ------ (In thousands) 1997 $ 4,074 $ 181 $3,893 1998 3,381 124 3,257 1999 2,984 77 2,907 2000 2,615 53 2,562 2001 2,239 53 2,186 2002 and thereafter 7,370 158 7,212 ------- ------ ------- $22,663 $ 646 $22,017 ======= ====== ======= Royalties. Royalty expense was $3.2 million in 1994, $3.3 million in 1995 and $3.4 million in 1996. Royalties are paid to the franchisor based upon a percentage of gross sales, as specified in the franchise agreement related to each individual store. Development agreements. Sybra has a Market Development Agreement ("MDA") with Arby's, Inc. which provides Sybra with exclusive development rights within certain counties in Pennsylvania. The MDA requires Sybra to open an aggregate of 25 stores in its existing regional markets during the period 1997 through 2001 (4 stores in 1997; 6 stores in 1998; 5 stores in 1999; 5 stores in 2000; and 5 stores in 2001), with at least 10 of the stores in the Pennsylvania region. F-15 NOTES TO FINANCIAL STATEMENTS (Continued) Note 10 - Subsequant events: Special dividend. A special dividend consisting of real property with a carrying value of approximately $850,000 was declared and paid as of January 31, 1997 to Valcor. Disposal of fast food operations. In February 1997 Valcor executed definitive agreements involving the sale of its fast food operations conducted by Sybra. The proposed sale would be accomplished in simultaneous transactions that would include the sale of certain restaurant properties owned by Sybra to one party for $45 million cash consideration, and Valcor's sale of 100% of the stock of Sybra to another party for approximately $39.7 million cash consideration, of which approximately $23.7 million would be used to repay Sybra bank indebtedness. These transactions are subject to, among other things, completion of customary due diligence procedures, the second purchaser obtaining necessary financing for the transaction and certain consents from third parties. If completed, the transactions are expected to close in the second quarter of 1997. There can be no assurance that any such transactions will be completed. Note 11 - Quarterly results of operations (unaudited): Quarter ended ---------------------------------------- March June Sept. Dec. ----- ---- ----- ---- (In thousands) Year ended December 28, 1996: Restaurant sales $27,552 $29,311 $29,061 $30,049 Cost of sales 7,424 7,802 7,872 7,984 Net income 586 1,097 918 1,561 Year ended December 30, 1995: Restaurant sales $26,827 $28,755 $29,508 $30,280 Cost of sales 7,041 7,803 8,097 8,016 Net income 223 756 788 1,248 Year ended December 31, 1994: Restaurant sales $26,701 $27,625 $28,595 $32,572 Cost of sales 7,218 7,413 7,990 8,739 Net income 763 1,156 975 1,456 F-16 I.C.H. CORPORATION Pro Forma Balance Sheet March 31, 1997 Pro Forma Statement of Operations For the year ended December 28, 1996 For the three months ended March 31, 1996 and March 31, 1997 I.C.H. CORPORATION Pro Forma Balance Sheet March 31, 1997 (In thousands) ASSETS
Historical ICH Sybra Pro forma Adjustments Corporation Inc. Debit Credit Pro forma ----------- ------- ----- ------ ---------- Current assets: Cash $ 3,000 $ 1,532 (1a) $ 86,736 (1a) $(84,030) $ 7,238 Inventories 1,424 1,424 Prepaid expenses and other 45 883 (6) 175 1,103 Deferred income taxes/benefit 54 1,084 (8) (127) 1,011 Subsidiary held for sale 5,000 (3) (5,000) ------- ------- -------- ------- Total current assets 8,099 4,923 86,911 (89,157) 10,776 ------- ------- -------- ------- ------- Other assets: Franchise rights, net 4,657 (10) 12,889 (10) (3,367) 14,179 Equity in operating leases, net 5,762 (10) 5,797 (10) (5,762) 5,797 Goodwill, net 4,953 (10) 9,574 (10) (4,953) 9,574 Investment in Sybra (4) 6,900 (10) (6,900) Other 882 242 (10) 1,028 (10) 419 2,571 ------- ------- -------- ------- ------- Total other assets 882 15,614 36,607 (20,982) 32,121 ------- ------- -------- ------- ------- Property, equipment, capitalized leases and land held for future development 3,766 80,946 (6) 27,000 (6) (38,143) (6) 4,957 (10) (28,769) 49,757 Less accumulated depreciation and amortization (28,769) (10) 28,769 ------- -------- ------- ------- Net property, equipment and capitalized leases 3,766 52,177 60,726 (66,912) 49,757 ------- ------- --------- ------- ------- Total assets $12,747 $72,714 $ 184,244 $(177,051) $92,654 ======= ======= ========= ========= ======= See notes to pro forma financial statements
LIABILITIES AND STOCKHOLDER'S EQUITY
Historical ICH Sybra Pro forma Adjustments Corporation Inc. Debit Credit Pro forma ----------- ------- ----- ------ ---------- Current liabilities: Current maturities of long-term debt and capital lease obligations $ (893) (9) $ (456) (9) (1,729) $ (3,078) Accounts payable and accrue liabilities $ (659) (10,522) (8) $ 480 (10) (1,648) (8) 193 (10) (419) (8) (493) (13,068) Payable to affiliates (493) (8) 493 ------- -------- -------- Total current liabilities (659) (11,908) 1,166 (4,745) (16,146) ------- -------- -------- -------- -------- Noncurrent liabilities: Long-term debt and capital lease obligations (24,736) (8) 23,772 (5) (2,457) (9) 1,729 (6) (27,000) (9) 456 (7) (35,000) (63,236) Deferred income taxes 36 (8) (353) (317) Other (1,286) (8) 314 (10) 11,260 (6) (11,260) (972) -------- -------- --------- --------- -------- Total noncurrent liabilities (25,986) 37,531 (76,070) (64,525) -------- -------- --------- --------- -------- Total liabilities (659) (37,894) 38,697 (80,815) (80,671) -------- -------- --------- ---------- -------- Stockholder's equity: Common stock (28) (10) 28 (2) (28) (28) Additional paid-in capital (12,190) (21,398) (1c) 21,531 (12,057) Retained earnings(deficit) 102 (13,394) (1b) 53,865 (1b) (40,471) 102 -------- -------- --------- --------- --------- Total stockholder's equity (12,088) (34,820) 75,424 (40,499) (11,983) -------- -------- -------- --------- -------- $(12,747) $(72,714) $ 114,121 $ (121,314) (92,654) ======== ======= ========= ========== ======== See notes to pro forma financial statements
I.C.H. CORPORATION Pro Forma Statement of Operations For the Year Ended December 28, 1996 (In thousands, except per share data)
Historical Pro forma Adjustments Sybra, Inc. Debit Credit Pro forma ------------ ----- ------ --------- Revenues and other income: Restaurant sales $ 115,973 $ 115,973 Other 151 (E) $ 308 459 --------- ------- --------- 116,124 308 116,432 --------- ------- --------- Costs and expenses: Cost of sales 31,082 31,082 Restaurant expenses 62,784 (A) $ 1,796 64,580 Depreciation and amortization 5,973 (A) 1,350 (B) 1,114 (B) 795 7,004 Estimated restaurant closing expenses 1,200 (B) 1,200 General and administrative 6,179 (D) 321 5,858 Interest 2,346 (A) 2,477 (C) 1,732 (C) 3,674 6,765 --------- ------- ------- --------- 109,564 10,092 4,367 115,289 --------- ------- ------- --------- Income(loss) before income taxes 6,560 (10,092) 4,675 1,143 Income tax (provision) benefit (2,398) (F) (423) --------- --------- Net income (loss) $ 4,162 $ 720 ========= ========= Per share data: Net income (loss) per share $ 0.26 Average common shares outstanding 2,793,550 Shares See notes to pro forma financial statements
I.C.H. CORPORATION Pro Forma Statement of Operations For the Three Months Ended March 31, 1996 (In thousands, except per share data)
Historical ICH Sybra Pro forma Adjustments Corporation Inc. Debit Credit Pro forma ----------- ------- ----- ------ --------- Revenues and other income: Restaurant sales - $ 27,552 $ 27,552 Other - 34 (E) $ 365 399 -------- ------ ---------- 27,586 365 27,951 -------- ------ ---------- Costs & Expenses: Cost of sales - 7,424 7,424 Restaurant expenses - 15,179 (A) $ 428 15,607 Depreciation and Amortization - 1,510 (A) 338 (B) 278 (B) 199 1,769 Estimated restaurant closing expenses - 300 (B) 300 General and administrative - 1,608 (D) 146 1,462 Interest - 632 (A) 619 (C) 448 (C) 918 1,721 -------- ------- ------ ----------- 26,653 2,502 1,172 27,983 -------- ------- ------ ----------- Income (loss) before taxes - 933 (2,502) 1,537 (32) Income tax (provision) benefit - (347) (F) 12 -------- ----------- Net income (loss) - $ 586 $ (20) ========= ============ Per share data: Net income (loss) per share $ (0.01) Average common shares outstanding 2,793,550 Shares ------------ See notes to pro forma financial statements
I.C.H. CORPORATION Pro Forma Statement of Operations For the Three Months Ended March 31, 1997 (In thousands, except per share data)
Historical Historical ICH Sybra Pro forma Adjustments Corporation Inc. Debit Credit Pro Forma ----------- ---- ----- ------ --------- Revenues and other income: Restaurant sales $ 27,827 $ 27,827 Other $ 41 36 (E) $ 289 366 -------- -------- ------ --------- 41 27,863 289 28,193 -------- -------- ------ --------- Costs and expenses: Cost of sales 7,822 7,822 Restaurant expenses 15,617 (A) $ 428 16,045 Depreciation and amortization 1 1,446 (A) 338 (B) 399 (B) 441 1,827 Estimated restaurant closing expenses General and administrative 196 1,654 (D) 278 1,572 Interest 468 (A) 619 (C) 448 (C) 918 1,557 -------- -------- ------- ------ --------- 197 27,007 2,744 1,125 28,823 -------- -------- ------- ------ --------- Income (loss) before income taxes (156) 856 (2,744) 1,414 (630) Income tax (provision) benefit 54 (333) (F) 233 -------- -------- --------- Net income (loss) $ (102) $ 523 $ (397) ======== ======== ========= Per share data: Net income (loss) per share $ (0.14) Average common shares outstanding 2,793,550 Shares --------- See notes to pro forma financial statements
I.C.H CORPORATION NOTES TO PROFORMA FINANCIAL STATEMENTS General I.C.H. Corporation, referred to as Reorganized I.C.H. Corporation (the "Company"), is the successor to I.C.H. Corporation (the "Predecessor Company") who together with three of its wholly-owned subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") on October 10, 1995. The Company's Joint Plan of Reorganization was confirmed on February 7, 1997 and became effective on February 19, 1997, the Reorganization Date. The Company adopted "fresh start" reporting at the Reorganization Date since the holders of existing voting shares immediately before filing and confirmation of the Reorganization Plan received less than 50% of the voting shares of the emerging entity and the reorganization value was estimated to be less than postpetition liabilities and allowed claims. As the Company had no significant business operations, management did not anticipate future earnings in determining reorganization value. The Company's principal activities since the Reorganization Date have been devoted to (1) the acquisition of Sybra, Inc., (2) a review of the operations of its real estate property, Perry Park, located in Owen County, Kentucky and (3) an evaluation of the alternatives available with respect to BML, a property and casualty insurer licensed in all fifty states. BML was sold to Lone Star Liquidating Trust (the "Trust") which was created as a vehicle to liquidate and distribute assets owned by the Predecessor Company to the claimants. The operations of the real estate development are seasonal in nature (April to October when golf and restaurant revenues are the highest) and are expected to approximate break-even for 1997. These operations are not expected to be material to the Company's future operations. The Company's principal focus, after emerging from bankruptcy, will be the management and the operation of its recent acquisition, Sybra, Inc. Sybra is the second largest Arby's franchisee in the United States and currently operates 148 restaurants clustered in four regions. On April 30, 1997 the Company closed its previously announced agreement of February 7, 1997 to acquire all of the outstanding capital stock of Sybra, Inc., a Michigan corporation ("Sybra"). The aggregate purchase price was approximately $37.7 million (including the repayment of $23.7 million of Sybra indebtedness) with an additional $2 million contingent payment obligation due within two years if certain leasing arrangements are finalized. Concurrently with such acquisition, Sybra entered into a sale/lease-back transaction on 61 of its restaurants sites with U.S. Restaurant Properties Operating L.P. See Notes to Pro Forma Financial Statements -Balance sheet and Statement of Operations for a more complete description of the Sybra acquisition and related transactions. The Company funded the acquisition through the use of approximately $2.0 million of its available cash resources, $5.0 million of the proceeds received from the sale of BML to the Trust, and a $35 million fixed-rate term loan from Atherton Capital, Incorporated. The loan matures in approximately 12 years, bearing interest at a rate of 10.63% per annum and is guaranteed by the Company. The loan agreement contains certain affirmative, negative and financial covenants, including without limitation, (1) a fixed charge coverage ratio of 1.30: 1.00, as defined, (2) a restriction on borrower distributions or dividends unless the fixed charge coverage ratio is at least 1.30: 1.00 after giving account of such dividend or distribution, and (3) a prohibition against additional debt being incurred by Sybra in excess of $1 million per year, during the first two (2) years without lender approval, except for capital leases and debt secured by purchase money security interests, without the lenders prior written consent. The unaudited pro forma balance sheet reflects allocation of the purchase price to assets acquired and liabilities assumed as if the transaction occurred on March 31, 1997. In management's opinion, the unaudited pro forma results of operations for the year ended December 28, 1996 and the three months ended March 31, 1996 and 1997 assume that the acquisition occurred at the beginning of 1996 and recognize the effects directly attributable to the acquisition transaction and expected to have continuing impact. However, such pro forma results of operations do not purport to represent what actual results would have been had the acquisition actually occurred at the beginning of 1996, nor do they purport to be indicative of future operations under the ownership and management of the Company. The pro forma financial statements reflect the preliminary allocation of purchase price as the purchase price allocation has not been finalized. The pro forma results of operations exclude certain restructuring and other charges of a nonrecurring nature aggregating $2,486,000 which will be included in income for 1997. Principal items include realignment and severance costs for the Company's workforce, financing costs of unsuccessful attempts to achieve a more favorable debt structure and other nonrecurring costs with respect to the acquisition and restructuring. Balance Sheet (dollars in thousands) 1. The details of the pro forma adjustments are as follows: a) Cash Debit Credit ---- Repurchase shares (2) $ 105 Sale of BML (3) $ 5,000 Investment in Sybra (4) 6,900 Additional borrowing (5) 2,457 Sale and leaseback (6) 44,279 8 Atherton borrowing (7) 35,000 838 Payments to previous (8) 75,151 owner of Sybra Purchase accounting adjustments (10) 1,028 ------- ------- $86,736 $84,030 b) Retained earnings ----------------- Atherton borrowing (7) $ 838 Payments to previous (8) 51,379 507 owner of Sybra Purchase accounting adjustments (10) 1,648 39,964 and restructuring charges ------- ------- $53,865 $40,471 c) Paid in Capital --------------- Repurchase and issuance (2) $ 133 $ of I.C.H. stock Purchase accounting adjustment, (10) Eliminate I.C.H. investment 21,398 ------ ------- $21,531 $ 2. To reflect the repurchase of Preferred and Common stock of Predecessor by I.C.H. Corporation for $105 and the issuance of 2,793,550 shares of the Company's common stock. 3. Record the sale of BML for $5,000. 4. Record I.C.H.'s cash payment in connection with the acquisition of Sybra, Inc. 5. Additional Sybra borrowings pursuant to its stock purchase agreement. 6. Sale and leaseback of 61 properties from U.S.R.P. for $44,279 cash and recording of capital lease assets and obligation, and deferred gain of $11,260. 7. Record Atherton borrowing. 8. To record Sybra's settlement of its intercompany accounts of $23,772 and its payment of $51,379 (excluding $6,900) to the previous owner of Sybra, Inc. 9. Reflect current maturities of capital leases and Atherton borrowing. 10. Eliminate I.C.H. investment in Sybra and reflect purchase accounting adjustments, record financing costs. Statement of Operations (dollars in thousands) A. To record rental payments, amortization and interest expense in connection with lease of 61 restaurant sites with U. S. Restaurant Properties Operating L.P. Amortization is computed on a straight line basis over twenty years. B. To eliminate historical depreciation and amortization associated with 61 restaurant sites sold and leased back and estimated non recurring restaurant closing expenses, and to record amortization of franchise fees, financing costs and goodwill relating to the purchase of Sybra, Inc. by I.C.H. Corporation. Franchise fees are amortized over twenty years, financing costs over the term of the loan using a method that approximates the interest method and goodwill on a straight line basis over fifteen years. C. To reflect interest expense on the Atherton term loan agreement (See notes to Pro Forma Financial statements - General) and elimination of interest expense on previous intercompany debt. D. To eliminate intercompany fee and stock option adjustment. E. To eliminate prior deferred gain. F. The provision/benefit for taxes is computed at an estimated effective rate of 37%. -----END PRIVACY-ENHANCED MESSAGE-----