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.
<PAGE>
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
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except per share data) Predecessor Company
- - ------------------------------------ ----------- -------
Dec 28, Feb 19, Sept 30,
1996 1997 1997
---- ---- Unaudited
----------
<S> <C> <C> <C>
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
======= ======= =========
</TABLE>
* 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
<PAGE>
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
<PAGE>
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
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
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
</TABLE>
See Notes to consolidated financial statements
6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
- - ------ -------------
27 Financial Data Schedule
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0000049588
<NAME> I.C.H. Corporation Financial Data Schedule
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,553
<SECURITIES> 0
<RECEIVABLES> 2,141
<ALLOWANCES> 0
<INVENTORY> 1,275
<CURRENT-ASSETS> 8,235
<PP&E> 88,169
<DEPRECIATION> (37,742)
<TOTAL-ASSETS> 93,900
<CURRENT-LIABILITIES> 13,671
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 10,635
<TOTAL-LIABILITY-AND-EQUITY> 93,900
<SALES> 26,224
<TOTAL-REVENUES> 26,688
<CGS> 7,128
<TOTAL-COSTS> 25,823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,701
<INCOME-PRETAX> (836)
<INCOME-TAX> (344)
<INCOME-CONTINUING> (492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (492)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>