SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 8-K
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
---------------
<PAGE>
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.
<PAGE>
SYBRA, INC.
FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
DECEMBER 28, 1996
<PAGE>
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
<PAGE>
[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.
<PAGE>
SYBRA, INC.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Dec. 30, Dec. 28,
1995 1996
-------- --------
ASSETS
<S> <C> <C>
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
======= =======
</TABLE>
Commitments and contingencies (Note 9)
See accompanying notes to financial statements.
F-3
<PAGE>
SYBRA, INC.
STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Fiscal years ended
-------------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
SYBRA, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal years ended
-------------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
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)
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
SYBRA, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Fiscal years ended
-------------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
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
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
SYBRA, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained stockholder's
stock capital earnings equity
------ --------- -------- ------------
<S> <C> <C> <C> <C>
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
===== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
I.C.H. CORPORATION
Pro Forma Balance Sheet
March 31, 1997
(In thousands)
ASSETS
<TABLE>
<CAPTION>
Historical
ICH Sybra Pro forma Adjustments
Corporation Inc. Debit Credit Pro forma
----------- ------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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 3,766 80,946 (6) 27,000 (6) (38,143)
and land held for future development (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
====== ====== ======== ======== ======
</TABLE>
See notes to pro forma financial statements
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Historical
ICH Sybra Pro forma Adjustments
Corporation Inc. Debit Credit Pro forma
----------- ------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ (893) (9) $ (456)
(9) (1,729) $ (3,078)
Accounts payable and accrued 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)
======== ======== ========= ========== =======
</TABLE>
See notes to pro forma financial statements
<PAGE>
I.C.H. CORPORATION
Pro Forma Statement of Operations
For the Year Ended December 28, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro forma Adjustments
Sybra, Inc. Debit Credit Pro forma
----------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
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 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 3,167 116,489
-------- ------ ------- --------
Income (loss) before income taxes 6,560 (10,092) 3,475 (57)
Income tax (provision) benefit ( 2,398) (F) 21
--------- -------
Net income (loss) $ 4,162 $ (36)
======== ========
Per share data:
Net income (loss) per share $ (0.01)
Average common shares outstanding 2,793,550 Shares
=========
</TABLE>
See notes to pro forma financial statements
<PAGE>
I.C.H. CORPORATION
Pro Forma Statement of Operations
For the Three Months Ended March 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical
ICH Sybra Pro forma Adjustments
Corporation Inc. Debit Credit Pro forma
----------- ----- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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 - 300 300
General and administrative - 1,608 (D) 146 1,462
Interest - 632 (A) 619 (C) 448
(C) 918 1,721
------- --- ------ ------ --------
26,653 2,502 872 28,283
------- ------ ------ --------
Income (loss) before taxes - 933 (2,502) 1,237 (332)
Income tax (provision) benefit - (347) (F) 123
-------- --------
Net income (loss) - $ 586 $ (209)
======== ========
Per share data:
Net income (loss) per share $ (0.07)
Average common shares outstanding 2,793,550 Shares
</TABLE>
See notes to pro forma financial statements
<PAGE>
I.C.H. CORPORATION
Pro Forma Statement of Operations
For the Three Months Ended March 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical
ICH Sybra Pro forma Adjustments
Corporation Inc. Debit Credit Pro forma
----------- ----- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
=========
</TABLE>
See notes to pro forma financial statements
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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, reflect purchase accounting
adjustments and 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 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%.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to the signed on its behalf by the
undersigned hereunto duly authorized.
I.C.H. CORPORATION
By: s/ James R. Arabia
----------------------
Name: James R. Arabia
Title: Chairman and
Chief Executive Officer
Date: July 9, 1997
