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 June 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, LaJolla, 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 April 30, 1997: 2,793,550*.
----------
*Assumes full conversion of all remaining outstanding eligible shares of common
stock and preferred stock of pre-reorganized I.C.H. Corporation. See Note 4 of
Notes to Consolidated Financial Statement.
<PAGE>
I.C.H. and Subsidiaries
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - December 28, 1996
February 19, 1997 and June 30, 1997 4
Consolidated Statements of Operations for the
Quarter and the six months ended June 30, 1997 5
Consolidated Statement of Cash Flows for the six
Months ended June 29, 1996, for the four months
ended April 30, 1997 and the period February 19,
1997 through June 30, 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Part II. Other Information 19
Signatures 20
Exhibit Index 21
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Predecessor Company
------------ ---------------------------
Dec 28, 1996 Feb 19, 1997 June 30, 1997
Unaudited
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $ 2,294 $ 500 $ 3,839
Accounts receivable 299 2,790 2,237
Inventories 1,499 1,329
Prepaid expenses and other 655 200 1,044
Deferred income taxes 1,225 1,176
Subsidiary held for sale 5,000
Real estate held for sale 3,700
-------- -------- --------
Total current assets 5,972 12,190 9,625
-------- -------- --------
Property, equipment, capitalized leases 81,822 87,168
and land held for future development
Less accumulated depreciation and amortization (28,240) (36,631)
-------- -------- --------
Net property, equipment, and capitalized leases 53,582 50,537
-------- -------- --------
Intangibles, net 15,848 31,935
Other assets 199 1,974
-------- -------- --------
Total other assets 16,047 33,909
-------- -------- --------
Total assets $ 75,601 $ 12,190 $ 94,071
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 13,530 $ 11,622
Current portion of long term debt and capital
lease obligations 897 2,416
-------- -------- --------
Total current liabilities 14,427 14,038
-------- -------- --------
Noncurrent liabilities:
Long-term debt and capital lease obligations 4,728 63,315
Loan payable to parent 20,000
Deferred income tax 4,822
Other liabilities 1,304 715
-------- -------- --------
Total noncurrent liabilities 26,032 68,852
-------- -------- --------
Total liabilities 40,459 82,890
-------- -------- --------
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
Paid-in-capital 21,398 12,190 12,078
Retained earnings(deficit) 13,716 (897)
-------- -------- --------
Total stockholders' equity 35,142 12,190 11,181
-------- -------- --------
Total liabilities and stockholders' equity $ 75,601 $ 12,190 $ 94,071
======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter
------------------------------------------------
Predecessor Company
------------------------------- -------------
For the For the For the
three months one month three months
ended ended ended
June 29, 1996 April 30, 1997 June 30,1997
------------- -------------- -------------
<S> <C> <C> <C>
Revenues and other income:
Restaurant sales $ 29,311 $ 10,041 $ 18,533
Real estate operations and other 41 12 401
-------- -------- --------
29,352 10,053 18,934
-------- -------- --------
Costs and expenses:
Restaurant costs and expenses 23,561 8,567 15,374
Depreciation and amortization 1,484 560 1,197
General and administrative 1,607 558 984
Real estate operations 328
Provision for store closings 300
Interest 600 170 1,051
Non-recurring and restructuring charges 1,256
-------- -------- --------
27,552 9,855 20,190
-------- -------- --------
Income (loss) before taxes 1,800 198 (1,256)
Provision(benefit) for income taxes 703 101 (461)
-------- -------- --------
Net income (loss) $ 1,097 $ 97 ($ 795)
======== ======== ========
Per share data:
Net income (loss) per share
($0.28)
Average common shares outstanding 2,793,550 Shares
</TABLE>
See notes to consolidated financial statements
<PAGE>
I.C.H. CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year-to-date
---------------------------------------------------
Predecessor Company
------------------------------ ---------------
For the For the For the period
six months four months Feb 19, 1997
ended ended through
June 29, 1996 April 30, 1997 June 30, 1997
------------- -------------- -------------
<S> <C> <C> <C>
Revenues and other income:
Restaurant sales $ 56,863 $ 37,868 $ 18,533
Real estate operations and other 75 48 442
-------- -------- --------
56,938 37,916 18,975
-------- -------- --------
Costs and expenses:
Restaurant costs and expenses 46,164 32,006 15,374
Depreciation and amortization 2,994 2,006 1,197
General and administrative 3,215 2,212 1,081
Real estate operations 428
Provision for store closings 600
Interest 1,232 638 1,051
Non-recurring and restructuring charges 1,256
-------- -------- --------
54,205 36,862 20,387
-------- -------- --------
Income (loss) before taxes 2,733 1,054 (1,412)
Provision(benefit) for income taxes 1,050 434 (515)
-------- -------- --------
Net income (loss) $ 1,683 $ 620 ($ 897)
======== ======== ========
Per share data:
Net income (loss) per share ($0.32)
Average common shares outstanding 2,793,550 Shares
</TABLE>
See notes to consolidated financial statements
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
<TABLE>
<CAPTION>
Year-to-date
----------------------------------------------
Predecessor Company
------------------------------- -------------
For the For the For the period
six months four months Feb 19,1997
ended ended through
June 29, 1996 April 30, 1997 June 30, 1997
------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,683 $ 620 ($ 897)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 2, 995 2, 006 1, 210
Deferred income taxes(benefit) (338) 480 660
Provision for store closings 600
Changes in current assets and liabilities:
Accounts receivable 1, 011
Inventories 150 38 132
Accounts payable and accrued expenses (107) (142) 1, 625
Other, net (475) (832) (619)
-------- -------- -------
Net cash provided by operating activities 4,508 2,170 3,122
-------- -------- -------
Cash flows from Investing activities:
Capital expenditures (2,183) (1,763) (401)
Proceeds from disposition of property and equipment 57 44,655
Investment in Sybra, Inc. net of $886 cash acquired (13,614)
Sale of subsidiary 5,000
-------- -------- -------
Net cash provided(used) by investing activities (2,126) 42,892 (9,015)
-------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of expenses 33,934
Repayment of debt to former owner of Sybra, Inc (23,772)
Repayment of long-term debt and capital lease obligations (391) (503)
Distribution to patent (46,079)
Other, net (427)
-------- -------- -------
Net cash provided(used) by financing activities 0 (46,470) 9,232
-------- -------- -------
Net change In cash 2,382 (1,408) 3,339
Balance at beginning of period 1,108 2,294 500
-------- -------- -------
Balance at end of period $ 3,490 $ 886 $ 3,839
======== ======== =======
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
<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 bankruptcy
on October 10, 1995. The Company's plan of reorganization 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
acqusition of Sybra, Inc. (See Note 2) and the evaluation and operation of the
Perry Park Real Estate.
As the holders of existing voting shares in Old I.C.H. immediately prior to
confirmation of the plan of reorganization received less than 50% of the voting
shares of the emerging entity, and as reorganization value was estimated to be
less than postpetition liabiltties 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 approximate 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 the management, the accompanying unaudited financial statements
reflect all adjustments (consisting of normal recurring accruals) that are
necessary to present fairly the consolidated fianancial 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 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 audited financial statements of
Sybra, Inc. (see Note 2) for the year ended December 28, 1996 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 $14.6 million, including
capitalized acquisition costs. The purchase agreement provides for an additional
$2 million contingent payment obligation due within two years if certain leasing
arrangements are finalized. Sybra operates a chain of 148 fast food restaurants
clustered in four regions, primarily 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
consolidated results of operations include the month of May and June only for
the quarter and year to date ended June 30, 1997. The Sybra quarter and year to
date ended June 28, 1997, as Sybra reports its financial results using the 52/53
week method.
The purchase price was allocated based on estimated fair values at the date of
acquisition. The fair value of identifiable assets acquired was approximately
$72 million and approximately $70.5 million of liabilities were assumed,
including $23.8 million in debt to Sybra's former parent. As a result, the
Company recorded Goodwill of $13 million which is being amortized on a
straight-line basis over 15 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."
1
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Long-Term Debt
Long-term debt consists of the following at June 30, 1997:
(Thousands)
- ---------------------------------------------------------
Term loan ..................................... $34,761
Obligation under capital leases ............... 30,970
- ---------------------------------------------------------
65,731
Less current portion .......................... 2,416
- ---------------------------------------------------------
$63,315
=========================================================
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 and is guaranteed by the Company. The
proceeds of the loan were used to fund the acquistion of Sybra and retire debt
payable to Sybra's former parent assumed in the acquistion.
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 includes units leased in a sales/lease-back transaction entered
between Sybra and U.S. Restaurant Properties Operation L.P. prior to the
acquisition by the Company. The proceeds of the sale were distributed to the
former parent of Sybra. The leases have a term of twenty years and provide for a
3% rent escalation on the base rent every four year period for the term of the
lease.
The aggregate maturities of long-term debt and future minimum payments under
capital lease obligations at June 30, 1997 are shown in the table below.
Capital lease Long-term
Years ended obligations debt
- ----------------------------------------------------- ---------
1997 $3,577 $1,016
1998 4,609 1,665
1999 3,919 1,851
2000 3,787 2,057
2001 3,767 2,275
Therafter 52,215 25,897
------- -------
71,874 $34,761
Less amount representing interest 40,904 =======
-------
Present value of minimum lease payments $30,970
=======
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.
2
<PAGE>
I.C.H CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (this election expired March 30, 1997).
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.
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.
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Income Taxes
The components of the provision (benefit) for income taxes consisted of:
Predecessor Company
- --------------------------------------------------------------------------------
For the For the
(Thousands) one month ended three months ended
April 30, 1997 June 30, 1997
- --------------------------------------------------------------------------------
Current:
Federal ........................ ($296) ($462)
State .......................... 8 (36)
- --------------------------------------------------------------------------------
(288) (498)
- --------------------------------------------------------------------------------
Deferred:
Federal ........................ 389 37
- --------------------------------------------------------------------------------
$101 ($461)
================================================================================
Deferred taxes reflect the net tax effects of temporary differences between
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at June 30, 1997 are as follows:
(Thousands)
- --------------------------------------------------------------------------------
Property and equipment $3,591
Intangible assets (7,218)
Accrued liabilities and other 1,441
- --------------------------------------------------------------------------------
(2,186)
Valuation allowance (1,460)
- --------------------------------------------------------------------------------
($3,646)
================================================================================
Current deferred tax assets 1,176
Noncurrent deferred tax liabilities (4,822)
- --------------------------------------------------------------------------------
($3,646)
================================================================================
Note 6. Stock Option Plans
The Company has two fixed option plans, the I.C.H. Corporation 1997 Employee
Stock Option Plan (the "ESP") and the I.C.H. Corporation 1997 Director Stock
Option Plan (the "ESP"). Under the ESP, the Company may grant incentive stock
options and non-qualifying options to eligible officers and employees for the
purchase of up to an aggregate of 1,000,000 shares of common stock. Under the
DSP, the Company may grant non-qualifying options to eligible directors for the
purchase of up to an aggregate of 400,000 shares of common stock. Under both
plans, the exercise price of each option equals the estimated fair value of the
Company's stock on the date of grant and the option's maximum term is 10 years.
4
<PAGE>
I.C.H CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the quarter ended June 30, 1997, 391,200 options were granted, with such
options having an exercise price between $3.09 and $3.80. No options have been
exercised during the year. The Company cancelled 65,200 options which had an
exercise price of $2.17-$3.80. At June 30, 1997, the Company had 582,000
options, having an option price between $2.17 and $3.80, outstanding. 105,334
options were exercisable at June 30, 1997 between $2.17 and $3.80.
The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation", and
accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation costs for stock option awards under the Company's two
plans been determined based on the fair value at the grant date, the pro forma
impact on the Company's net earnings and earnings per share would have been
immaterial.
Note 7. Non-recurring and Restructuring Charges
During the quarter ending June 30, 1997, the Company recorded a $700,000 charge
for restructuring Sybra's operations in the Texas region. The charge includes
the cost of involuntary employee termination benefits (severance and other
benefits), discontinuation of an ongoing advertising program and other related
costs associated with restructuring actions.
In addition, the Company recorded one-time charges of approximately $556,000
relating to expenses incurred for unsuccessful attempts to obtain more favorable
financing and other nonrecurring costs associated with its status as an Arby's
franchisee.
Note 8. New Accounting Standards
In February 1997, the Financial Accounting Standard 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 have impacted
earnings per share.
5
<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 Form 8-K/A filed
with the SEC on July 16, 1997 and included elsewhere.
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
$38.4 million (including the repayment of $23.8 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
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.
The Company's principal activities since the Reorganization Date of February 19,
1997 have been devoted to (1) the acquisition of Sybra, (2) a review of the
operations of its real estate property, Perry Park, located in Owen County,
Kentucky and (3) evaluation of the alternatives available with respect to 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 million.
Results of Operations
Sybra, Inc.
- -----------
The Company's principal focus, following its emergence from bankruptcy, will be
the management and operation of its recent acquisition, Sybra. Sybra is the
second largest Arby's franchisee in the United States and currently operates 148
restaurants clustered in four regions, as follows:
(as of June 30, 1997)
Southwestern (Dallas) 56
Northern (Michigan) 45
Eastern (Pennsylvania, Maryland
and Virginia) 27
Southeastern (Florida) 20
<PAGE>
For the purpose of this analysis, Sybra's income statement information reflects
push down accounting after April 30, 1997 for the effects of the acquisition by
the Company. These effects principally relate to acquisition related
indebtedness and additional amortization of intangibles relating to the
acquisition price.
Income statement information, expressed in percentages of restaurant sales, is
presented in the following tables:
Quarter
--------------------------------
For the three For the three
months ended months ended
June 29, 1996 June 30, 1997
--------------- --------------
Restaurant sales and other income 100.0% 100.0%
Costs and expenses
Restaurant costs and expenses 80.0 84.0
Depreciation and amortization 5.0 6.0
General and administrative 6.0 5.0
Provision for store closings 1.0 --
Interest 2.0 4.0
Non-recurring and restructuring charges -- 4.0
----- -----
94.0 103.0
Income (loss) before taxes 6.0 (3.0)
Provision (benefit) for income taxes 2.0 (1.0)
----- -----
Net income (loss) 4.0 (2.0)
----- -----
Average number of restaurants 153 148
<PAGE>
Year-to-date
----------------------------------
For the six For the six
months ended months ended
June 29, 1996 June 30, 1997
-------------- ---------------
Restaurant sales and other income 100.0% 100.0%
Costs and expenses
Restaurant costs and expenses 81.0 84.0
Depreciation and amortization 5.0 6.0
General and administrative 6.0 5.0
Provision for store closings 1.0 --
Interest 2.0 3.0
Non-recurring and restructuring charges -- 2.0
----- -----
95.0 100.0
Income (loss) before taxes 5.0 .0
Provision (benefit) for income taxes 2.0 .0
----- -----
Net income (loss) 3.0 .0
----- -----
Average number of restaurants 153 148
The components of the change in restaurant sales are as follows:
Quarter ended Six months ended
June 30, 1997 June 30, 1997
------------------- ------------------
(in 000's) (in 000's)
Comparable units $28,323 99.0% $55,759 99.0%
New units 251 1.0 479 1.0
Closed units 0 163
-------- ----- ------- -----
$28,574 100.0% $56,401 100.0%
Sales for the quarter decreased by 3% and decreased by 1% for the six months,
ended June 30, 1997. Although sales increased in the Northern and Eastern
regions, sales in the Southwestern region declined.
Restaurant costs and expenses increased by 2% during the quarter and by 3%
during the six months, ended June 30, 1997 due to increases in rent associated
with the sale/lease-back transaction with USRP, discount/price promotion
programs, and increases in food costs, primarily in beef agricultural factors.
General and administrative expenses have declined by 15% for the quarter and 6%
for the six
<PAGE>
months, ended June 30, 1997. The improvement is attributable to fewer management
salaries and other expense reduction measures initiated since the acquisition.
No provision for store closings has been provided. The reserve balance is
estimated to be adequate for stores closed in previous periods as well as future
store closings to the degree management is currently able to predict, although
no assurances can be given.
Interest expense has increased 104% and 37% for the quarter and six months ended
June 30, 1997, repectively due to the new financing associated with the
acquisition of Sybra by the Company on April 30, 1997.
Non-recurring and other restructuring charges incurred during the quarter ended
June 30, 1997 are described in Note 7 of Notes to Consolidated Financial
Statements.
Excluding the charge for non-recurring and restructuring charges, the income
before taxes for the quarter ended June 30, 1997 would have been $331,000, and
the income before taxes for the six months ended June 30, 1997 would have been
$1,187,000.
A significant portion of Sybra's restaurant employees work on a part-time basis
and are paid at rates related to the minimum wage rate. Restaurant labor costs
currently approximate 29% of sales. The two-step, $0.90 increase in the
minimum wage rate which became effective October 1, 1996 will increase the
Company's labor costs. Sybra concurrently implemented certain price increases to
offset the impact of the wage rate increase. Although Sybra's competitors have
experienced similar increases, there can be no assurance that Sybra will be able
to further increase sales prices to offset future increases, if any, in these
costs.
The results through June 30, 1997 reflect sales decline in the southwestern
region, increased interest expense and depreciation and amortization (from the
acquisition related debt) and the non-recurring and restructuring charges.
Perry Park Resorts, Inc.
- ------------------------
The Perry Park Real Estate consists of an approximately 2,600 acre planned
development including and 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 Perry Park development is held in a wholly owned
subsidiary of the Company, Perry Park Resorts, Inc., a Kentucky corporation.
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.
<PAGE>
Liquidity and Capital Resourses
- -------------------------------
Cash Flows
Cash used in operations reflect the Company's initial operations after emerging
from Bankruptcy and results of the real estate operations which were offset by
limited interest income after available cash was reduced for costs incurred in
connection with the Sybra acquisition. The BML investment generated no revenue
for the Company.
Liquidity and Capital Resources
- -------------------------------
The principal source of liquidity during the period ending June 30, 1997 has
been attributable to the receipt of cash from the Lone Star Liquidity Trust in
payment of a receivable of $2.5 million, $.5 million from a settlement claim
with Tenneco, Inc. and receipt of $5 million from the sale of a subsidiary held
for sale.
In the future, the Company's liquidity and capital resources will primarily
depend on the operations of Sybra which, under the term of its loan agreement,
would permit, under certain conditions, distributions and dividends to the
Company. If necessary, the Company believes that it would be able to secure
addition credit facilities, or issue additional debt or equity securities, on
acceptable terms to meet its future cash requirements, although no assurances
can be given.
The Company, 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 generally not due for 30 days.
Sybra operated 148 restaurants at June 30, 1997. The Company has one store under
construction which is expected to open in the third quarter, 1997 and three
stores expected to open in the fourth quarter, 1997. Sybra closed 3
under-performing stores thus far in 1997. The Company is currently evaluating
its growth strategy for 1997 and beyond, and may close one or more
under-performing stores, whose leases are expiring, before year-end. The Company
plans to continue to remodel or upgrade existing stores. Planned capital
expenditures (including expenditures necessary for new store openings) for the
remainder of 1997 would require approximately $5 million of additional capital.
The Company is considering certain strategic alternatives with respect to the
Company which could result in an increase in the Company's relative leverage
and/or the acquisition of 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.
<PAGE>
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 but if
the compensation costs for stock option awards under the Plan had been
determined based on the fair value at the grant date, the effect on the
Company's earnings would not be material.
<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 common stock traded on the Over-the-Counter Bulletin Board
under the trading symbol "ICHC".
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are filed herewith:
Exhibit
Number 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 audited historical and unaudited pro forma financial statements of
Sybra, Inc. and the Company.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
I.C.H. Corporation has duly cause this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 14, 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
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit Title
- ------- -------------
27 Financial Data Schedule.
<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 MARCH 31, 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> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,839
<SECURITIES> 0
<RECEIVABLES> 2,237
<ALLOWANCES> 0
<INVENTORY> 1,329
<CURRENT-ASSETS> 9,625
<PP&E> 87,168
<DEPRECIATION> (36,631)
<TOTAL-ASSETS> 94,011
<CURRENT-LIABILITIES> 14,038
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 11,153
<TOTAL-LIABILITY-AND-EQUITY> 94,071
<SALES> 18,533
<TOTAL-REVENUES> 18,934
<CGS> 5,264
<TOTAL-COSTS> 19,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,051
<INCOME-PRETAX> (1,256)
<INCOME-TAX> (461)
<INCOME-CONTINUING> (795)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (795)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
