-----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, DIIkZno4VpYB1g+z0xaHRF5uaujQIEufZEO2I+qyLbRUSiJ0/1nSgztHsFT98xAy TmGs0EFNJ4kKdixeIx5ggA== 0000950146-97-001707.txt : 19971119 0000950146-97-001707.hdr.sgml : 19971119 ACCESSION NUMBER: 0000950146-97-001707 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICH CORP /DE/ CENTRAL INDEX KEY: 0000049588 STANDARD INDUSTRIAL CLASSIFICATION: 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: 97718702 BUSINESS ADDRESS: STREET 1: 9404 GENESEE 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 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934 For the quarter ended September 30, 1997 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 incorporation or organization) Identification No.) 9404 Genesee Avenue, La Jolla, California 92037 ----------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (619) 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 ___ No _X_ 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 October 30, 1997: 2,793,550*. ----------- *Assumes full conversion of all remaining outstanding shares of common stock and preferred stock of pre-reorganized I.C.H. Corporation. See Note 4 of Notes to consolidated financial statements. I.C.H. Corporation and Subsidiaries Index Page Number ------ Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - December 28, 1996, February 19, 1997 and September 30, 1997 3 Consolidated Statements of Operations for the Quarter and nine months ended September 28, 1996, for the Quarter ended September 30, 1997, for the four months ended April 30, 1997 and for the period February 19, 1997 through September 30, 1997. 4 Consolidated Statement of Cash Flows for the nine months ended September 28, 1996, for the four months ended April 30, 1997 and for the period February 19, 1997 through September 30, 1997 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 11 and Results of Operations Part II. Other Information 16 Signatures 17 Exhibit Index 18 2 I.C.H. CORPORATION and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data) Predecessor Company - - ------------------------------------ ----------- ------- Dec 28, Feb 19, Sept 30, 1996 1997 1997 ---- ---- Unaudited ---------- ASSETS Current assets: Cash & cash equivalents $ 2,294 $ 500 $ 2,553 Accounts receivable 299 2,790 2,141 Inventories 1,499 1,275 Prepaid expenses and other 655 200 1,078 Deferred income taxes 1,225 1,188 Subsidiary held for sale 5,000 Real estate held for sale 3,700 ------- Total current assets 5,972 12,190 8,235 ------- ------- --------- Property, equipment, capitalized leases and land held for future development 81,822 88,169 Less accumulated depreciation and amortization (28,240) (37,742) ------- --------- Net property, equipment, and 53,582 50,427 capitalized leases ------- --------- Intangibles, net 15,848 33,267 Other assets 199 1,971 ------- --------- Total other assets 16,047 35,238 ------- --------- Total assets $75,601 $12,190 $93,900 ======= ======= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $13,530 $11,255 Current portion of long term debt and capital lease obligations 897 2,416 ------- --------- Total current liabilities 14,427 13,671 ------- --------- Noncurrent liabilities: Long-term debt and capital lease obligations 4,728 64,511 Loan payable to parent 20,000 Deferred income tax 4,391 Other liabilities 1,304 664 ------- --------- Total noncurrent liabilities 26,032 69,566 ------- --------- Total liabilities 40,459 83,237 Stockholders' equity: Predecessor common stock, $0.50 par value; 200 authorized, 55 issued and outstanding 28 Preferred stock, $0.01 par value; 1,000,000 authorized; none issued and outstanding -- -- Common stock $0.01 par value;9,000,000 authorized -- 2,793,550* Paid-in-capital 21,398 12,190 12,049 Retained earnings(deficit) 13,716 (1,386) ------- --------- Total stockholders' equity 35,142 12,190 10,663 ------- ------- --------- Total liabilities and stockholders' equity $75,601 $12,190 $93,900 ======= ======= =========
* Assumes full conversion of all remaining outstanding shares of common stock and preferred stock of pre-reorganized I.C.H. Corporation. See Note 4 of Notes to consolidated financial statements. See Notes to consolidated financial statements 3 I.C.H. CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited (In thousands, except per share data) Predecessor Company ----------- ------- For the For the three months three months ended ended Sept 28, 1996 Sept 30, 1997 Revenues and other income: Restaurant sales $29,061 $26,224 Real estate operations and other 35 464 ------- ------- 29,096 26,688 Costs and expenses: Restaurant costs and expenses 23,710 21,637 Depreciation and amortization 1,489 1,633 General and administrative 1,505 1,823 Real estate operations 316 Provision for store closings 300 Interest 593 1,701 Non-recurring and restructuring 414 charges ------- 27,597 27,524 ------- ------- Income (loss) before taxes 1,499 (836) Provision(benefit) for income taxes 581 (344) ------- ------- Net income (loss) $ 918 $ (492) ======= ======= Per share data: Net income (loss) per share $ (0.18) Average common shares outstanding 2,793,550* See Notes to consolidated financial statements * Assumes full conversion of all remaining outstanding shares of common stock and preferred stock of pre-reorganized I.C.H. Corporation. See Note 4 of Notes to consolidated financial statements. 4 I.C.H. CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited (In thousands, except per share data) Year-to-date -------------------------------------------- Predecessor Company ----------- ------- For the For the For the period nine months four months Feb 19, 1997 ended ended through Sept 28, 1996 April 30, 1997 Sept 30, 1997 Revenues and other income: Restaurant sales $ 85,924 $ 37,868 $ 44,757 Real estate operations and other 110 48 906 -------- -------- -------- 86,034 37,916 45,663 -------- -------- -------- Costs and expenses: Restaurant costs and expenses 69,874 32,006 36,913 Depreciation and amortization 4,483 2,006 2,830 General and administrative 4,720 2,212 2,999 Real estate operations 744 Provision for store closings 900 Interest 1,825 638 2,752 Non-recurring and restructuring charges 1,670 -------- 81,802 36,862 47,908 -------- -------- -------- Income (loss) before taxes 4,232 1,054 (2,245) Provision(benefit) for income taxes 1,631 434 (859) -------- -------- -------- Net income (loss) $ 2,601 $ 620 $ (1,386) ======== ======== ======== Per share data: Net income (loss) per share $ (0.50) Average common shares outstanding 2,793,550* See Notes to consolidated financial statements * Assumes full conversion of all remaining outstanding shares of co mmon stock and preferred stock of pre-reorganized I.C.H. Corporation. See Note 4 of Notes to consolidated financial statements. 5 I.C.H. CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (In thousands)
Predecessor Company ----------- ------- For the For the For the period nine months ended four months ended Feb 19, 1997 Sept 28, 1996 April 30, 1997 through Sept 30, 1997 Cash flows from operating activities: Net income (loss) $ 2,601 $ 620 $ (1,386) Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 4,483 2,006 2,830 Deferred income taxes(benefit) (503) 480 3,934 Provision for store closings 900 Changes in current assets and liabilities: Accounts receivable 948 Inventories 110 38 186 Accounts payable and accrued expenses (89) (142) (2,452) Other, net (579) (832) 622 Net cash provided by operating activities 6,923 2,170 4,682 Cash flows from investing activities: Capital expenditures (3,049) (1,763) (1,686) Proceeds from disposition of property and 61 44,655 222 equipment Investment in Sybra, Inc, net of $886 cash (13,614) acquired Sale of subsidiary 5,000 Net cash provided (used) by investing activities (2,988) 42,892 (10,078) -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt, net of expenses 33,984 Repayment of debt to former owner of Sybra, Inc (23,772) Repayment of long-term debt and capital lease (3,900) (391) (2,307) obligations Distribution to parent (46,079) Other, net (456) Net cash provided(used) by financing (3,900) (46,470) 7,449 activities Net change in cash 35 (1,408) 2,053 Balance at beginning of period 1,108 2,294 500 Balance at end of period $ 1,143 $ 886 $ 2,553 Supplemental cash flow information: Noncash investing and financing activities: Capital lease obligations $ 27,000 Liabilities assumed in acquisition of Sybra $ 35,000
See Notes to consolidated financial statements 6 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Basis of Presentation I.C.H. Corporation (the "Company" or "I.C.H.") is the post-reorganization successor to I.C.H. Corporation ("Old I.C.H.") which together with its subsidiaries, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on October 10, 1995. The plan of reorganization for Old I.C.H. (the "Reorganization Plan") was confirmed on February 7, 1997 and became effective on February 19, 1997 (the "Effective Date"). The Company, as of the Effective Date, had no significant business operations and the activities subsequent to that date have been devoted to the acquisition and operation of Sybra, Inc. (See Note 2) and the operation of the Perry Park real estate (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Perry Park"). As holders of existing voting shares in Old I.C.H. immediately prior to confirmation of the Reorganization Plan received less than 50% of the voting shares of the emerging entity, and as reorganization value was estimated to be less than postpetition liabilities and allowed claims, the Company adopted "fresh-start" reporting in accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7. Accordingly, assets have been restated to reflect reorganization value, which approximates fair value at the Effective Date. The consolidated financial statements of I.C.H. Corporation and Subsidiaries include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments (consisting of normal recurring accruals) that are necessary to present fairly the consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations. These financial statements should be read in conjunction with the Company's audited opening balance sheet and related footnotes as of February 19, 1997 contained in a report on Form 8-K dated April 17, 1997. Reference should also be made to the financial statements of Sybra, Inc. (see Note 2) contained in a report on Form 8-K/A filed by the Company on July 16, 1997. Note 2. Acquisition of Sybra, Inc. On April 30, 1997, the Company acquired all of the common stock of Sybra, Inc. ("Sybra" or the "Predecessor") for approximately $38.4 million, including capitalized acquisition costs and the assumption of certain indebtedness of Sybra. The purchase agreement provided for an additional $2 million payment to be due within two years if certain leasing arrangements for one of the Sybra restaurant locations were finalized. The lease for that restaurant was executed in August, 1997 and the corresponding liability to the seller of Sybra was recorded after increasing goodwill resulting from the transaction. Sybra currently operates a chain of 149 Arby's restaurants clustered in four regions, primarily in Texas, Michigan, Pennsylvania and Florida, as a franchisee of Arby's Inc. The acquisition was recorded under the purchase method of accounting and, accordingly, the results of operations of Sybra for the period from May 1, 1997 are included in the accompanying consolidated financial statements. The Company's consolidated results of operations include the period of May 1 through September 30 for the year-to-date ended September 30, 1997. The Sybra quarter and year-to-date ended September 27, 1997, as Sybra reports its financial results using the 52/53 week method. 7 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The purchase price was allocated based on estimated fair values at the date of acquisition. The fair value of identifiable assets acquired, including the additional restaurant, was approximately $74 million and approximately $72.5 million of liabilities were assumed, including $23.8 million in debt to Sybra's former parent. As a result, Sybra recorded goodwill of $14 million which is being amortized on a straight-line basis over 40 years. As the acquisition of Sybra constituted more than 50% of the ongoing entity, Sybra is considered to be a predecessor company for financial reporting purposes. Accordingly, the historical financial statements of Sybra have been included in this filing on Form 10-Q labeled "Predecessor." Note 3. Long-Term Debt and Capital Lease Obligations Long-term debt and capital lease obligations consisted of the following at September 30, 1997: (In thousands) Term loan ............................................................ $ 34,373 Purchase agreement debt .............................................. 2,000 Obligation under capital leases ...................................... 30,554 -------- 66,927 Less current portion ................................................. (2,416) -------- $ 64,511 -------- Concurrently with the Company's acquisition of Sybra, The Company entered into an agreement with Atherton Capital, Incorporated ("Atherton") that provides, on an aggregate basis, a $35 million, 12 year, fixed-rate term loan bearing interest at a rate of 10.63% per annum. The loan is collateralized by substantially all of the restaurant equipment held by Sybra as of April 30, 1997 and is guaranteed by the Company. The proceeds of the loan were used to fund the acquisition of Sybra and retire intercompany debt payable to Sybra's former parent which was assumed in the acquisition. The terms of the loan agreement contain covenants which require, among other things, the maintenance of a minimum fixed charge coverage ratio, restrictions that limit the payment of dividends, and other provisions and restrictive covenants customary in lending transactions of these types. The obligations under capital leases relate to restaurant unit buildings and equipment and include units leased in a sale/lease-back transaction entered into between Sybra and U.S. Restaurant Properties Operating L.P. prior to the acquisition of Sybra by the Company. The proceeds of the sale/lease-back were distributed to the former parent of Sybra. The leases have a term of twenty years and provide for a 3% rent escalation of the base rent every four years for the term of the lease. 8 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The aggregate maturities of long-term debt and future minimum payments under capital lease obligations at September 30, 1997 are shown in the table below. Capital lease Long-term Purchase Years ended Obligations Debt Agreement Debt - - -------------------------------------------------------------------------------- 1997 $ 1,178 $ 628 1998 4,609 1,665 1999 3,919 1,851 $ 2,000 2000 3,787 2,057 2001 3,767 2,275 Thereafter 52,215 25,897 ------ ------ ------- $69,475 $34,373 $ 2,000 ======= ======= Less amount representing interest 38,921 ------- Present value of minimum lease payments $30,554 ======= The fair value of the Company's long-term debt approximates its carrying amount based on the current rates offered to the Company on similar debt. Note 4. Equity and Earnings Per Common Share On the Effective Date, all of the outstanding equity securities ("Old I.C.H. Common Stock" and "Old I.C.H. Preferred Stock" and collectively, the "Old I.C.H. Stock") of Old I.C.H. were canceled. The Company's Restated Certificate of Incorporation authorizes the issuance of 9,000,000 shares of common stock (the "Company's common stock") and 1,000,000 shares of preferred stock. Holders of Old I.C.H. Stock have two years from the Effective Date in which to exchange the canceled shares for the Company's common stock. With the exception of certain de minimis holders of Old I.C.H. Stock ("Nominal Shareholders"), holders of the canceled shares will receive 0.0269 shares of the Company's common stock for each share of Old I.C.H. Common Stock and 0.2 shares of the Company's common stock for each share of Old I.C.H. Preferred Stock held as of the Effective Date. In addition, for a period of 40 days from the Effective Date, holders could elect to exchange canceled shares for a single cash payment limited to a maximum of $250 per holder. Given the stock conversion provisions of the Reorganization Plan, management has not determined and cannot currently determine, the ultimate number of shares of the Company's common stock which will be issued upon completion of such stock conversion. However, based on the number of outstanding shares of Old I.C.H. Stock on the Effective Date, and after considering Nominal Shareholders of record and shares which were exchanged for cash under the provisions of the Reorganization Plan, the Company estimates that a maximum of approximately 2,793,550 shares of the Company's common stock could be issued, although the amount could be lower. As of October 30, 1997, the records of the transfer agent for the Company's common stock reflected that a total of 2,297,023 shares of the Company's common stock were issued and outstanding. For the reasons set out above, the Company has used 2,793,550 shares in computing earnings per share. Common stock equivalents are excluded from the computation because the effect is antidilutive. 9 I.C.H. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5. Non-recurring and Restructuring Charges During the quarter ending September 30, 1997, the Company recorded a $414,000 charge for restructuring Sybra's corporate office. The charge results from the buyout of an employment contract and related payroll costs. During the quarter ended June 30, 1997, the Company recorded a $700,000 charge for restructuring Sybra's operations in the Texas region and $556,000 for expenses relating to financing and status as an Arby's franchisee, bringing the total for non-recurring and restructuring charges for the current year to $1,670,000. Note 6. New Accounting Standards In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"). The new standard replaces primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS 128 is required to be adopted by the Company for periods ending after December 15, 1997. Had the Company been required to adopt SFAS 128 for the periods presented, the adoption would not have impacted diluted or primary earnings per share. 10 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations The following discussion should be read in conjunction with the financial statements of the Company and the accompanying notes, and the financial statements of the Company contained in the Form 8-K filed April 17, 1997 and the Form 8-K/A filed July 16, 1997. 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. The Company's principal activities since February 19, 1997 have been devoted to (1) the acquisition and operation of Sybra, Inc., (2) the operation of its real estate property, Perry Park, located in Owen County, Kentucky and (3) the sale of Bankers Multiple Line Insurance Company ("BML"), a property and casualty insurer licensed in all fifty states. On April 25, 1997, BML was sold to the Lone Star Liquidating Trust for cash consideration of $5.0 million. On April 30, 1997, 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 aggregate purchase price was approximately $38.4 million (including the repayment of $23.8 million of Sybra indebtedness) with an additional $2 million obligation recorded in August 1997. Concurrently with such acquisition, Sybra entered into a sale/lease-back transaction on 61 of its restaurant sites with U.S. Restaurant Properties Operating, L.P. ("USRP") For the fiscal year ended December 28, 1996, Sybra had total revenues of approximately $116 million and at December 28, 1996, Sybra had total assets of approximately $76 million. See Note 2 of Notes to Financial Statements for a more complete description of the Sybra acquisition and related transactions. 11 Results of Operations Sybra, Inc. - - ----------- The Company's principal focus is the management and operation of its recent acquisition, Sybra. Sybra is the second largest Arby's franchisee in the United States and currently operates 149 restaurants clustered in four regions, as follows: (as of September 30, 1997) Southwestern (Dallas) 56 Northern (Michigan) 45 Eastern (Pennsylvania, Maryland and Virginia) 28 Southeastern (Florida) 20 --- 149 === The Company's consolidated results of operations include the period of May 1 through September 30 for the year-to-date ended September 30, 1997. The Sybra quarter and year-to-date ended September 27, 1997, as Sybra reports its financial results using the 52/53 week method. For purposes of this analysis, Sybra's income statement information after April 30, 1997 reflects the effects of purchase accounting resulting from the acquisition by the Company. These effects principally relate to acquisition related indebtedness and additional amortization of intangibles resulting from the acquisition. Income statement information, expressed in percentages of restaurant sales, is presented in the following tables: For the three For the three months ended months ended Sept. 28, 1996 Sept. 27, 1997 -------------- -------------- Restaurant sales and other income 100.0% 100.0% ----- ----- Costs and expenses Restaurant costs and expenses 81.5 82.4 Depreciation and amortization 5.1 6.2 General and administrative 5.2 6.3 Provision for store closings 1.0 Interest 2.0 6.5 Non-recurring and restructuring charges 1.6 ----- ----- 94.8 103.0 Income (loss) before taxes 5.2 (3.0) Provision (benefit) for income taxes 2.0 (1.2) ----- ----- Net income (loss) 3.2 (1.8) Average number of restaurants 150 148 12 For the nine For the nine months ended months ended Sept. 28,1996 Sept. 27, 1997 ------------- -------------- Restaurant sales and other income 100.0% 100.0% ----- ----- Costs and expenses Restaurant costs and expenses 81.2 83.3 Depreciation and amortization 5.2 5.8 General and administrative 5.5 5.8 Provision for store closings 1.1 Interest 2.1 4.1 Non-recurring and restructuring charges 2.0 ----- ----- 95.1 101.0 Income (loss) before taxes 4.9 (1.0) Provision (benefit) for income taxes 1.9 (.3) ----- ----- Net income (loss) 3.0 (.7) Average number of restaurants 152 148 The components of the change in restaurant sales are as follows: (In thousands) Quarter ended Nine Months ended September 27, 1997 September 27, 1997 ------------------ ------------------ Comparable units $25,544 97.4% $81,303 98.4% New units 680 2.6 1,159 1.4 Closed units -- -- 163 0.2 ------- ---------- ------- ----- $26,244 100.0% $56,401 100.0% Sales for the quarter decreased by 10% and decreased by 4% for the nine months ended September 27, 1997, due primarily to sales declines in the Southwestern and Southeastern regions. Restaurant costs and expenses decreased by 9% during the quarter and by 1% during the nine months ended September 27, 1997 due to decreased labor costs and a reduction in the level of discount promotion programs, which were offset somewhat by increases in rent associated with the sale/leaseback transaction with USRP and increases in food costs. General and administrative expenses have increased by 11% for the quarter and 1% for the nine months ended September 27, 1997. 13 Interest expense has increased 187% and 86% for the quarter and nine months ended September 27, 1997, respectively due to the new financing of the acquisition of Sybra by the Company on April 30, 1997. Non-recurring and other restructuring charges incurred during the quarter and nine months ended September 27, 1997 are described in Note 5 of Notes to Consolidated Financial Statements. Excluding the charge for non-recurring and restructuring charges, Sybra's income (loss) before taxes for the quarter ended September 27, 1997 would have been $(357,000) and the income before taxes for the nine months ended September 27, 1997 would have been $830,000. A significant portion of Sybra's hourly restaurant employees work on a part-time basis and are paid at rates related to the minimum wage rate. Restaurant labor costs (hourly and salaried) currently approximate 29% of sales. The two-step, $0.90 increase in the minimum wage rate which became effective October 1, 1996 has increased and will continue to increase the Company's cost of labor. Sybra concurrently implemented certain price increases to offset the impact of the wage rate increase. There can be no assurance that Sybra will be able to further increase sales prices to offset future increases, if any, in these costs. Perry Park - - ---------- The Perry Park real estate consists of an approximately 2,600 acre planned development including an 18-hole golf course, club house, restaurant, salable lots, three lakes, additional platted but undeveloped lots and unimproved acreage. The platted undeveloped lots and unimproved acreage are estimated to be approximately 1,800 acres. The operations of the Perry Park development are seasonal in nature (golf and restaurant revenues are the highest from April to October) 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 also realizes some agriculturally-based revenues from the unimproved Perry Park acreage. Historically those revenues have not been material to the operation of Perry Park. While the Company has recently taken some steps intended to increase the level of such agriculturally-based revenues, at their current levels those revenues are not material to the operations of the Company. Liquidity and Capital Resources - - ------------------------------- Cash Flows Cash used in operations reflects the Company's operation of Sybra, the results of the Perry Park real estate operations, the sale of BML and limited interest income after available cash was reduced for costs incurred in connection with the Sybra acquisition. Cash flows generated by Sybra's current operations are sufficient to fund the operation and maintenance of Sybra's existing restaurants, as well as to fund required payments of interest and principal on its outstanding indebtedness, including the Atherton loan. (See Note 2 of Notes to Financial Statements for a complete description of the Atherton loan). 14 Liquidity The principal sources of liquidity during the period from February 19, 1997 through September 30, 1997 have been the Company's operation of the restaurant locations owned by Sybra and the proceeds of the sale of BML to the Lone Star Liquidating Trust. In the future, the Company's liquidity and capital resources will primarily depend on the operations of Sybra which, under the provisions of its loan agreement, would permit, under certain conditions, distributions and dividends to the Company. Sybra, like most restaurant businesses, is able to operate with nominal or deficit working capital because all sales are for cash, inventory turnover is rapid, and approximately 50% of the payments to trade suppliers for credit purchases are not due for 30 days. Renovation and remodeling of existing stores is either funded directly by Sybra from available cash or, in some instances, is financed through outside lenders. Construction or acquisition of new stores 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 store construction and acquisitions in the future, although no assurances can be given. On August 7, 1997, Sybra executed a loan commitment letter with Franchise Finance Corporation of America ("FFCA") to finance the construction of up to 12 new Arby's restaurants during the next two years. Under the terms of the commitment letter, FFCA has agreed to finance mortgage and equipment loans for up to 12 new Arby's restaurants to be built by Sybra, to a maximum of $1 million per location. Sybra operated 149 restaurants at September 30, 1997. Sybra opened one restaurant during the third quarter of 1997 and at least one additional restaurant is expected to open in the fourth quarter of 1997. Sybra has closed 3 under-performing stores thus far in 1997. Sybra is currently evaluating its growth strategy for 1997 and beyond, which is expected to include efforts to further penetrate its existing markets and to expand into new markets. Sybra may also close one or more under-performing stores, whose leases are expiring, before year-end. The Company also plans to continue to remodel or upgrade its existing stores. The Company is also considering certain strategic alternatives with respect to Sybra's operations which could result in an increase in the Company's relative leverage and/or the acquisition of new restaurants in one or more additional regions of the country. No assurance can be given that any such transactions will be consummated. Recent Accounting Pronouncements - - -------------------------------- In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". This Statement defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value base method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees". The Company applies the intrinsic value method permitted by SFAS No. 123 in accounting for the plans and accordingly, no compensation expense has been recognized. If the compensation costs for stock option awards under the ESP and DSP had been determined based on the fair value at the grant date, the effect on the Company's earnings would not be material. 15 I.C.H. CORPORATION Part II. Other Information Item 5. Other Information On July 23, 1997 shares of the Company's common stock began trading on the American Stock Exchange under the trading symbol "IH". Prior to July 23, 1997, the Company's common stock traded on the Over-the-Counter Bulletin Board under the trading symbol "ICHC". On September 18, 1997, the Company terminated the employment of Charles Hyslop, the former President of Sybra, Inc., pursuant to the terms of Mr. Hyslop's employment contract. Mr. Hyslop was the President of Sybra at the time Sybra was acquired by the Company. Mr. Hyslop had also served as a director of the Company since the completion of that acquisition. Mr. Hyslop resigned from the Company's board of directors on September 18, 1997. Following Mr. Hyslop's departure, James R. Arabia, Chief Executive Officer of the Company, was appointed President of Sybra. On September 22, 1997 the board of directors of the Company elected John A. Bicks to fill the vacant board seat created by Mr. Hyslop's resignation from the board. Mr. Bicks is an attorney with the firm of Pryor, Cashman, Sherman & Flynn, legal counsel to the Company. Item 6. Exhibits and Reports on From 8-K -------------------------------- (a) The following exhibits are filed herewith: Exhibit No. Exhibit Title ----------- ------------- 27 Financial Data Schedule (b) Reports on Form 8-K On July 14, 1997, the Company filed a Current Report on Form 8-K and on July 16, 1997 the Company filed an amended Current Report on Form 8-K/A, both regarding the historical and unaudited pro forma financial statements of Sybra, Inc. and the Company. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, I.C.H. Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: November 13, 1997 I.C.H. Corporation By: /s/ James R. Arabia ------------------- James R. Arabia Chairman and Chief Executive Officer By: /s/ Kenneth E. Giddens ---------------------- Kenneth E. Giddens Chief Accounting Officer 17 EXHIBIT INDEX Exhibit Number Exhibit Title - - ------ ------------- 27 Financial Data Schedule 18 EX-27 2 I.C.H. CORPORATION FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 0000049588 I.C.H. Corporation Financial Data Schedule $US 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 1 2,553 0 2,141 0 1,275 8,235 88,169 (37,742) 93,900 13,671 0 0 0 28 10,635 93,900 26,224 26,688 7,128 25,823 0 0 1,701 (836) (344) (492) 0 0 0 (492) 0 0
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