Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K/A
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): February 26, 1999.
I.C.H. Corporation
------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-7697 43-6069928
- ---------------------------- ------------ ------------------
(state or other jurisdiction (Commission (I.R.S. Employer
incorporation) File Number) identification No.)
9255 Towne Centre Drive, Suite 600, San Diego, CA 92121-3039
- ------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 619-587-8533
<PAGE>
Item 5. Other Events
On December 14, 1998, ICH Corporation (the "Company") completed its
previously announced agreement of August 14, 1998 to acquire substantially all
of the assets of Lyon's Restaurants, Inc. The acquisition of Lyon's was
previously reported in the Company's Current Report on Form 8-K filed by the
Company on December 22, 1998 (the "Form 8-K"). 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. Such financial statements should be read in conjunction with the
description of the Lyon's acquisition contained in the Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
A) Financial Statements of Business Acquired
Report of Independent Accountants F - 1
Consolidated Balance Sheets F - 2
as of June 29, 1997 and
June 28, 1998
Consolidated Statements of Operations F - 3
for the 52 weeks ended
June 28, 1998 and
June 29, 1997
Consolidated Statements of Shareholders' F - 4
(Deficiency) for the 52 weeks ended
June 28, 1998 and
June 29, 1997
Consolidated Statements of Cash Flows F - 5
for the 52 weeks ended
June 28, 1998 and
June 29, 1997
LR Holdings, Inc. Notes to Consolidated F - 6
Financial Statements
B) Pro Forma Financial Information
The following unaudited Pro Forma Consolidated Financial Statements are
filed with the report:
ICH Corporation Notes to Pro Forma Financial Statements F - 19
Pro Forma Consolidated Balance Sheet
as of September 30, 1998 F - 20
Pro Forma Consolidated Statement of Operations
for the nine months ended
September 30, 1998 F - 21
Pro Forma Adjustments for the nine months ended
September 30, 1998 F - 22
Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1997 F - 23
Pro Forma Adjustments for the year ended
December 31, 1997 F - 24
<PAGE>
PricewaterhouseCoopers [LOGO]
LR Holdings, Inc.
Consolidated Financial Statements
For the Years Ended June 28, 1998
and June 29, 1997
<PAGE>
PricewaterhouseCoopers [LOGO]
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
555 California Street
San Francisco CA 94104
Telephone (415) 393 8500
Facsimile (415) 393 8644
Report of Independent Accountants
September 12, 1998
To the Board of Directors and Shareholders
of LR Holdings, Inc.
We were engaged to audit the accompanying consolidated balance sheets of LR
Holdings, Inc. and its wholly owned subsidiary, Lyon's Restaurants, Inc., as of
June 28, 1998 and June 29, 1997, and the related consolidated statements of
operations, of shareholders' (deficiency) and of cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management.
As discussed in Note 2 to the consolidated financial statements, the Company
filed for protection under Chapter 11 of the Bankruptcy Code on September 9,
1998. Prior to filing for bankruptcy, the Company entered into an agreement with
I.C.H. Corporation (ICH) and its newly formed subsidiary, Lyon's of California,
Inc. (LOCI), under which LOCI will purchase substantially all of the assets of
the Company out of bankruptcy at an amount that is anticipated to be
substantially less than the net book value of the related assets. In addition,
it is possible that other potential buyers may be interested and could make an
offer for the Company's assets that is different than LOCI's. LOCI's offer is
subject to numerous contingencies. Consequently, the amount the Company will
realize upon sale of the assets cannot be reasonably estimated at this time. The
Company is also unable to reasonably estimate at this time which of its existing
liabilities it may be able to repay or in what amounts. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
Since the Company is unable to determine the net realizable value of its assets
and liabilities and we are not able to apply auditing procedures to satisfy
ourselves as to those net realizable values, the scope of our work was not
sufficient to enable us to express, and we do not express, an opinion on these
financial statements.
/s/ PricewaterhouseCoopers LLP
F - 1
<PAGE>
LR Holdings, Inc.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 28, June 29,
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 910,000 $ 1,332,000
Restricted cash 147,000 -
Inventories 920,000 870,000
Receivables 244,000 387,000
Prepaid expenses 402,000 515,000
Deferred financing costs, net 750,000 1,051,000
Cash and receivable held as collateral for long-term debt 382,000 755,000
------------ ------------
Total current assets 3,755,000 4,910,000
Property and equipment, net 42,716,000 47,669,000
Intangible assets, net 15,702,000 16,218,000
Other assets, net 2,458,000 2,332,000
------------ ------------
Total assets $ 64,631,000 $ 71,129,000
============ ============
Current liabilities:
Accounts payable $ 8,854,000 $ 8,458,000
Accrued payroll and other liabilities 8,013,090 5,782,000
Current portion of long-term debt 22,337,000 22,737,000
Borrowings under revolving line of credit 3,500,000 3,500,000
Current portion of obligations under capital leases 1,311,000 1,440,000
------------ ------------
Total current liabilities 44,015,000 41,917,000
Obligations under capital leases, less current portion 26,930,000 30,469,000
Deferred income 3,067,000 3,278,000
------------ ------------
Total liabilities 74,012,000 75,664,000
------------ ------------
Shareholders' (deficiency):
Senior convertible preferred stock, $0.00 1 par value; 400,000
shares authorized; 377,000 issued and outstanding
(aggregate liquidation preference $377,000) 377 377
Preferred stock, $0.001 par value; 30,000 shares authorized;
15,000 issued and outstanding (aggregate liquidation
preference $15,000) 15 15
Class A voting common stock, $0.001 par value; 7,000,000
shares authorized; 2,956,000 issued and outstanding 3,000 3,000
Class B nonvoting common stock, $0.001 par value; 3,336,000
shares authorized; 3,036,900 issued and outstanding 3,000 3,000
Additional paid-in capital 38,188,608 38,188,608
------------ ------------
38,195,000 38,195,000
Reduction of additional paid-in capital attributable to predecessor
controlling shareholder carryover basis (1,184,000) (1,184,000)
Accumulated deficit (46,392,000) (41,546,000)
------------ ------------
Total shareholders' (deficiency) (9,381,000) (4,535,000)
------------ ------------
Commitments and contingencies (Notes 9 and 14)
Total liabilities and shareholders' (deficiency) $ 64,631,000 $ 71,129,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
LR Holdings, Inc.
Consolidated Statements of Operations
For the 52 weeks ended June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the 52 weeks ended
June 28, 1998 June 29, 1997
------------- -------------
<S> <C> <C>
Sales $ 124,246,000 $ 126,188,000
Cost of sales (86,136,000) (87,197,000)
------------- -------------
38,110,000 38,991,000
General operating costs (19,774,000) (19,033,000)
Administrative expenses (6,526,000) (6,997,000)
Marketing and advertising expenses (3,907,000) (3,433,000)
------------- -------------
Income before depreciation, amortization, interest
non-recurring expenses and other income 7,903,000 9,528,000
Interest expense (6,384,000) (6,899,000)
Depreciation and amortization (6,858,000) (7,495,000)
Amortization of debt issue costs (301,000) (301,000)
Gain on sale of property and equipment
and early termination of leases 606,000 61,000
Non-recurring expenses (Note 3):
Debt and equity financing costs -- (350,000)
Other income 188,000 187,000
------------- -------------
Net loss $ (4,846,000) $ (5,269,000)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LR Holdings, Inc.
Consolidated Statements of Shareholders' (Deficiency)
For the 52 weeks ended June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Senior convertible Class A
preferred stock Preferred stock common stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1996 377,000 $377 15,000 $15 2,956,000 $3,000
Net loss for the
52 weeks ended
June 29, 1997
------- ---- ------ --- --------- ------
Balance at
June 29, 1997 377,000 377 15,000 15 2,956,000 3,000
Net loss for the
52 weeks ended
June 28, 1998
------- ---- ------ --- --------- ------
Balance at
June 28, 1998 377,000 $377 15,000 $15 2,956,000 $3,000
======= ==== ====== === ========= ======
<CAPTION>
Class B Additional Reduction Total
common stock paid-in of paid-in Accumulated shareholders'
Shares Amount capital capital* deficit (deficiency)
------ ------ ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1996 3,036,900 $3,000 $38,188,608 $(1,184,000) $(36,277,000) $ 734,000
Net loss for the
52 weeks ended
June 29, 1997 (5,269,000) (5,269,000)
--------- ------ ----------- ----------- ------------ -----------
Balance at
June 29, 1997 3,036,900 3,000 38,188,608 (1,184,000) (41,546,000) (4,535,000)
Net loss for the
52 weeks ended
June 28, 1998 (4,846,000) (4,846,000)
--------- ------ ----------- ----------- ------------ -----------
Balance at
June 28, 1998 3,036,900 $3,000 $38,188,608 $(1,184,000) $(46,392,000) $(9,381,000)
========= ====== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LR Holdings, Inc.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the 52 weeks ended
June 28, June 29,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(4,846,000) $(5,269,000)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 6,858,000 7,495,000
Amortization of deferred gain (188,000) (187,000)
Amortization of debt issue costs 301,000 301,000
Gain on sale of property and equipment and early
termination of leases (606,000) (61,000)
Changes in other assets and liabilities:
Inventories (50,000) (48,000)
Receivables (8,000) 227,000
Prepaid expenses 113,000 173,000
Other assets -- 332,000
Accounts payable 396,000 739,000
Accrued payroll and other liabilities 2,332,000 700,000
Deferred income (23,000) --
----------- -----------
Net cash flows from operating activities 4,279,000 4,402,000
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (2,848,000) (1,827,000)
Proceeds from sale of other assets 52,000
Proceeds from sale of land and buildings -- 535,000
----------- -----------
Net cash flows from investing activities (2,796,000) (1,292,000)
----------- -----------
Cash flows from financing activities
Repayment of long-term debt -- (415,000)
Cash held as collateral for long-term debt (27,000) (400,000)
Disposition of capital lease obligations (428,000)
Principal payments under capital lease obligations (1,303,000) (1,488,000)
Restricted cash (147,000) --
----------- -----------
Net cash flows from financing activities (1,905,000) (2,303,000)
----------- -----------
Net change in cash and cash equivalents (422,000) 807,000
Cash and cash equivalents at beginning of year 1,332,000 525,000
----------- -----------
Cash and cash equivalents at end of year, excluding
cash held as collateral and restricted cash $ 910,000 $ 1,332,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
1. The Company
Organization
LR Holdings, Inc. (LR Holdings or Company) is a restaurant holding company
and the sole shareholder of Lyon's Restaurants, Inc. (Lyon's). LR Holdings
was organized through the following transactions:
a. Purchase from Sara Lee Corporation
On December 30, 1988, Lyon's acquired for $49,882,000, in a purchase
transaction, all of the outstanding stock of a wholly owned subsidiary
of Sara Lee Corporation (Sara Lee), which operated as Lyon's
Restaurants. To finance the acquisition, Lyon's obtained a bridge loan
of $49,200,000 and sold voting Class A and nonvoting Class B common
stock aggregating $6,000,000 to management and employees, Sara Lee and
Chase Manhattan Capital Corporation. Each share of Class B common
stock is convertible into a share of Class A common stock upon the
occurrence of certain events. The purchase price was allocated in the
opening balance sheet based on an independent appraisal of the
acquired tangible and intangible assets and liabilities.
Generally accepted accounting principles for privately held companies
in effect at the stock acquisition date required recognition of
predecessor ownership if there was less than an 80 percent change in
ownership of net assets. Accordingly, a (decrease) increase to
shareholders' equity (deficiency) and a reduction in asset values of
$1,184,000 was recorded to reflect the continuing investment in Lyon's
by the predecessor controlling shareholder, Sara Lee. This reduction
in asset values was based on pro rata calculations applied to the
historical carrying values of net assets sold and the appraised value
of net assets acquired.
b. Acquisition of Lyon's trademarks from Sara Lee
In connection with the acquisition of stock from Sara Lee, Lyon's
entered into a Trademark Purchase Agreement dated December 30, 1988,
to separately acquire all of the trademarks associated with the
acquired business (Agreement). As further described in Note 6, the
value assigned to the trademarks was recorded at the present value of
the stated payments under the Agreement.
c. Long-term debt financing and formation of LR Holdings
On September 1, 1989, the bridge loan used to finance the acquisition
was repaid with the proceeds from the issuance of long-term debt.
Pursuant to certain arrangements related to the long-term financing,
LR Holdings was formed on June 30, 1990, to act as a holding company
for all of Lyon's outstanding common stock. The shareholders of Lyon's
exchanged their stock and options to purchase stock for stock and
options of LR Holdings in connection with its formation. At June 28,
1998, LR Holdings shares are held by management and employees (46%
Class A, 0% Class B), Sara Lee (22%, 77%, respectively) and a
consortium of banks and leasing companies (32%, 23%, respectively).
Operations
At the end of fiscal year 1998, LR Holdings operated 77 restaurants in
California and Oregon.
F-6
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29,1997
- --------------------------------------------------------------------------------
2. Liquidity and Capital Resources
Since the date the purchase transaction was completed in 1988, the Company
has expanded the number of restaurants in operation and has incurred net
operating losses. The new restaurant unit additions and net operating
losses were funded by cash flow from operations, proceeds from
sale/leaseback transactions of Company-owned units and funds obtained under
the Company's bank term loan and revolving line of credit agreement. As
discussed in Note 7, the extension, amendment agreement with the bank
related to this credit facility which was executed in November 1996 waived
compliance with certain financial covenants included in the credit facility
until June 30, 1997, deferred the payment of principal otherwise due in
fiscal 1997, eliminated the Company's ability to obtain additional
borrowings under the revolving line of credit after November 1996 and added
additional financial covenants. The most significant of these additional
financial covenants required management, on or before March 15, 1997, to
have entered into a binding agreement to refinance the Company on terms and
conditions deemed satisfactory to the bank. The refinancing could include
the sale of the Company by the existing shareholders or an infusion of
additional equity/debt financing from sources other than the existing
shareholders or the bank. A satisfactory refinancing transaction was not
obtained by March 15, 1997 and therefore the bank required the entire
amount outstanding under the credit facility be paid on July 18, 1997. As
the Company did not repay the amount outstanding, it is in default under
the credit agreement.
On August 14, 1998, the Company entered into an asset purchase agreement
(the Agreement) with I.C.H. Corporation (ICH) and its newly formed
subsidiary, Lyon's of California, lnc. (LOCI) to sell substantially all of
the assets of the Company. The purchase price will include cash plus the
assumption of liabilities of the Company accruing under certain real
property leases and other equipment leases and contracts. The terms of the
Agreement required the Company to voluntarily file a bankruptcy case under
Chapter 11 in the United States Bankruptcy Court and to file a motion with
the Bankruptcy Court to request a procedure order approving procedures for
sale of the assets of the Company to LOCI. The procedure order will include
provisions that the Bankruptcy Court set a date for a hearing at which
overbids for the assets of the Company may be made and at which the sale to
LOCI can be confirmed. LOCI's offer is subject to numerous contingencies.
The amount the Company will realize upon sale of the assets cannot be
reasonably estimated at this time. The Company is also unable to reasonably
estimate at this time which of its existing liabilities it may be able to
repay or in what amounts. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
3. Summary Of Significant Accounting Policies
Fiscal year
LR Holdings' fiscal year ends on the Sunday closest to June 30.
Accordingly, the results of operations reflect 52 weeks of activity for the
years ended June 28, 1998 and June 29, 1997, respectively.
Principles of consolidation
The consolidated financial statements include the accounts of LR Holdings
and its wholly owned subsidiary, Lyon's. All significant intercompany
accounts and transactions are eliminated in consolidation.
F-7
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions 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 amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and cash equivalents
Cash equivalents consist of short-term financial instruments which have
original maturities of three months or less at the time of purchase and are
readily convertible into cash.
Inventories
Inventories consist of food and bar items for resale and supplies and are
stated at the lower of cost or fair market value. Cost is determined using
the first-in, first-out method of inventory valuation.
Property and equipment
Property and equipment, including capital leases, are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization
are computed on a straight-line basis. The provision for depreciation is
based on the estimated useful lives of buildings (20-35 years), and
equipment, furniture and fixtures (3-10 years). Capital leases and
leasehold improvements are amortized over the lesser of 20 years or the
life of the lease.
Interest costs relating to the construction of new restaurants are
capitalized until opening and then amortized over the life of the asset;
capitalized interest was not significant for fiscal years 1998 and 1997.
Intangible assets
Intangible assets include trademarks and goodwill. Trademarks and goodwill
are amortized over 40 years on a straight-line basis.
Deferred financing costs and other assets
Other assets include liquor licenses and other deferred expenses. Liquor
licenses are valued at the lower of cost or fair market value and are not
amortized because their value is considered to be of a permanent nature.
Deferred debt issue costs are amortized on a straight-line basis over the
life of the related loan. Other deferred expenses are amortized on a
straight-line basis over 1-3 years.
Impairment of long-lived assets
The occurrence of certain events may trigger a review of affected assets
for possible impairment. An impairment is deemed to exist if the sum of
undiscounted, before-tax, expected future cash flows for the asset are less
than the asset's carrying value. If an impairment is indicated, the amount
of the impairment is measured as the difference between the asset's fair
market value and its net book value. Where a market value is not available,
it is approximated by the Company's best estimate of the sum of discounted
future, before-tax cash flows.
Deferred income
Deferred income primarily represents the net gain realized through the sale
and subsequent leaseback of certain property and equipment. The realized
gain which has been deferred is recognized on a straight-line basis
throughout the term of the related leases (generally 20 years). Deferred
income
F-8
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
also includes amounts received from gift certificate purchases which are
recognized as a credit to sales when the gift certificates are redeemed.
Advertising Costs
The company expenses advertising costs in the period the advertising is
run. Deferred advertising costs at June 28, 1998 and June 29, 1997 were $0
and $130,000, respectively.
Income taxes
The Company records income taxes using the liability method which requires
the recognition of deferred tax assets and liabilities for the expected tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, generally
all expected future events other than enactments or changes in tax law or
rates are considered.
Debt and equity financing costs
Debt and equity financing costs consist of legal and professional fees
incurred in connection with the revision, extension agreement executed on
November 26, 1996 with the Company's lenders (Note 7) which extended the
original debt agreement through and including June 30. 1997 as well as the
Company's efforts to enter into a binding agreement to refinance the
Company on terms and conditions satisfactory to the bank by March 15, 1997
as required by the revision, extension agreement, which did not occur.
4. Property and Equipment
Major classifications of property and equipment consist of the following:
<TABLE>
<CAPTION>
June 28, June 29,
1998 1997
------------- -------------
<S> <C> <C>
Property and equipment:
Land $ 77,000 $ 77,000
Buildings 9,110,000 8,772,000
Capital leases 45,990,000 49,893,000
Equipment, furniture and fixtures 32,720,000 32,778,000
Leasehold improvements 12,165,000 11,597,000
------------- -------------
100,062,000 103,117,000
Less: accumulated depreciation and amortization (57,346,000) (55,448,000)
------------- -------------
$ 42,716,000 $ 47,669,000
============= =============
</TABLE>
Amortization expense related to capital leases for fiscal years 1998 and
1997 was $2,593,000 and $2,880,000, respectively. Accumulated depreciation
and amortization includes $21,334,000 and $21,424,000 at June 28, 1998 and
June 29, 1997, respectively, related to capital leases and the provision
for under performing and closed units excluding the portion of the
provision relating to future closures.
F-9
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
5. Intangible Assets
Intangible assets consist of the following:
June 28, June 29,
1998 1997
------------ ------------
Trademarks $ 19,784,000 $ 19,784,000
Goodwill 778,000 778,000
------------ ------------
20,562,000 20,562,000
Less: accumulated amortization (4,860,000) (4,344,000)
------------ ------------
$ 15,702,000 $ 16,218,000
------------ ------------
6. Obligation Under Trademark Agreement
In connection with the acquisition of stock from Sara Lee, Lyon's entered
into a Trademark Purchase Agreement (Agreement) dated December 30, 1988, to
separately acquire all of the trademarks associated with the acquired
business. Under the Agreement, prior to June 30, 1996, the total amount to
be paid to Sara Lee for the trademarks was dependent upon future annual
sales and available cash flow, as defined. Each annual payment was based
upon a percentage of sales with an alternative fixed payment amount
specified should amounts payable under the sales based computation exceed
specified, annual amounts. The obligation under the Agreement was presented
in the balance sheet at the present value of the alternative fixed payment
amounts (initially recorded using a discount rate of 10%) which could have
been remitted to Sara Lee plus interest accrued thereon.
During fiscal year 1994, the Company and Sara Lee amended the Agreement,
effective June 28, 1993. The effects of this amendment included: 1) a
reduction of the interest rate from 10% to 4% per annum; 2) changes in the
timing, and amounts, of the alternative fixed payments; and 3) purchase of
Preferred Stock with an estimated fair value of $15,000,000 in exchange for
cancellation of a portion of the trademark obligation. No gain or loss
resulted from this refinancing transaction.
Annually, payments were due under the Agreement in an amount equal to the
lesser of the sales based computation or the alternative fixed payment
amount. If the sales based amount exceeded the alternative fixed payment
amount such excess was deferred (deferred amount) and may have been paid
prior to the end of the Agreement depending upon the existence of available
excess cash flow, as defined, during the term of the Agreement. The
deferred amount under the Agreement accrued interest at 10% per annum
through June 28, 1993 (4% per annum thereafter) and was approximately
$23,767,000 at June 30, 1996. The deferred amount was not recorded in the
financial statements due to the contingent nature of its payment.
Effective June 30, 1996, the Agreement was amended. The amendment included
eliminating the stated cash payment amounts through the term of the
Agreement, eliminating the Company's obligation to pay the deferred amount
at June 30, 1996 and requiring that future payments to Sara Lee be based
solely on future annual excess cash flow, as defined. As a result of this
amendment, Sara
F-10
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
Lee discharged the Company's recorded obligation under the Agreement at
June 30, 1996. The discharge of the obligation, including accrued interest,
at June 30, 1996 was recorded as an increase to additional paid-in capital.
7. Long-term Debt
Long-term debt obligations are as follows:
<TABLE>
<CAPTION>
June 28, June 29,
1998 1997
------------ ------------
<S> <C> <C>
Note payable to bank, with quarterly principal
payments payable through December 2000.
Interest payable monthly at prime plus 2.0%. $ 10,936,000 $ 11,132,000
Note payable to other lending companies, with
quarterly principal payments payable through
December 2000. Interest is payable monthly at
prime plus 2.0%. 11,401,000 11,605,000
------------ ------------
22,337,000 22,737,000
Less: current portion (22,337,000) (22,737,000)
------------ ------------
Long-term portion $ -- $ --
============ ============
</TABLE>
The credit agreement with the bank limits the ability of Lyon's to enter
into new leases and requires Lyon's to maintain certain financial ratios.
The agreement also provides a capital expenditure budget for existing
units' replacement and on-going renovation needs and it permits sufficient
capital expenditures, cash and lease, to open new restaurants annually. All
of the assets of Lyon's are pledged under the agreement. The agreement
requires that 50% of the net proceeds on the sale of certain assets be used
to prepay amounts due under the long-term credit facility. The Company was
in default of certain provisions of the agreement, including, among others,
non-payment of scheduled principal payments due in fiscal 1998 and fiscal
1997 of $9,379,000 and $5,070,000, respectively, and non-payment of
interest installments due in fiscal 1998 and fiscal 1997 of $3,342,000 and
$1,401,000, respectively.
On November 26, 1996, the Company executed a revision, extension agreement
with its lenders which extended the original credit agreement with the bank
through and including June 30, 1997 provided certain terms and conditions
were met. If the conditions were met, principal payments in the amount of
$6,136,000 scheduled for payment at June 30, 1996 and throughout fiscal
1997 were to be deferred until June 30, 1997 and compliance with financial
covenants in the credit agreement was to be waived throughout fiscal year
1997. On June 30, 1997, all original covenants under the credit agreement
were to be reinstated. Interest terms were amended and interest was to be
paid monthly at prime plus 2%.
The revision, extension agreement also required certain additional
covenants and agreements to be met. These included, among others, the
Company agreement to diligently market all the assets of the
F-11
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
Company and that a binding agreement, satisfactory to the bank, for the
sale or refinancing of the Company be obtained by March 15, 1997. This
refinancing transaction was not completed by that date and therefore, the
bank required that the entire amount outstanding be paid. Accordingly, the
amounts outstanding under the credit facility and related deferred
financing costs have been classified as a current liability and current
asset, respectively, at June 28, 1998 and June 29, 1997.
Under the terms of the revision, extension agreement between the Company
and the bank, executed in November 1996, cash proceeds from the sale of one
or more of the restaurant locations is to be held in a cash collateral
account and at the discretion of the bank, be applied to the last principal
payments due under the debt agreement. Additionally, under the terms of the
revision, extension agreement, a Promissory Note in favor of the Company
received in the Sparks, Nevada restaurant sale was endorsed and assigned to
the bank to be held as additional collateral. During fiscal 1998, the bank
gave notice that the cash held as collateral at June 29, 1997 was applied
to the principal payments due under the debt agreement. Cash and the
Receivable held as collateral at June 28, 1998 and June 29, 1997 are
$27,000 and $355,000 and $400,000 and $355,000, respectively.
The Company had a $5,448,000 and $7,000,000 line of credit with its lenders
at June 28, 1998 and June 29, 1997, respectively, which expires in December
1998. Interest on the outstanding face amount is payable quarterly at prime
plus 2%. At June 28, 1998 and June 29, 1997, the Company had issued
$1,948,000 and $1,958,000 in letters of credit, respectively, and had
borrowed $3,500,000 under the line of credit, respectively. Under the terms
of the revision, extension agreement discussed above, the Company is
prevented from obtaining additional borrowings under the revolving line of
credit. The amount used for letters of credit carries an interest rate of
1.5% and the undrawn face amount of the line of credit carries an interest
rate of .5%.
8. Senior Convertible Preferred Stock and Preferred Stock
Voting rights
Each share of senior convertible preferred stock has voting rights equal to
Class A common stock on an if-converted basis. The preferred stock of LR
Holdings is nonvoting. The articles of incorporation of LR Holdings require
the affirmative vote of the holders of at least a majority of the
outstanding shares of preferred stock and senior convertible preferred
stock related to certain transactions affecting the capital structure of LR
Holdings.
Conversion of senior convertible preferred stock
Each share of senior convertible preferred stock is convertible at the
option of the holder at any time after issuance and prior to the earlier of
May 1, 2001 or on any Redemption Date (as defined, see below) into such
number of fully paid and nonassessable shares of Class A common stock as is
determined by dividing $1 by the conversion price (initially $1 but subject
to adjustment as provided in the articles of incorporation). The senior
convertible preferred stock provides for automatic conversion under certain
circumstances, such as a merger or a public offering of LR Holdings' common
stock.
Dividends
The holders of shares of preferred stock and senior convertible preferred
stock shall be entitled to receive, when and if declared by the Board of
Directors, dividends at the rate of $60 and $.0674 per annum per share,
respectively. Dividends declared by the Board of Directors are cumulative
and are
F-12
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
payable quarterly. All dividends paid after the date that obligations
payable under the Company's credit facility are repaid (Debt Retirement
Date, see Note 7) are payable in cash. Dividends paid on or prior to that
date may, at the election of the Board of Directors, be paid either in cash
or in additional shares of preferred stock and senior convertible preferred
stock on the basis of one share for each $1,000 and $1 of dividends payable
to each holder of preferred stock and senior convertible preferred stock,
respectively. Declared dividends not paid on the specified payment date
accrue interest at 6% and 6.74% for preferred stock and senior convertible
preferred stock, respectively. No dividends have been declared by the Board
of Directors related to preferred stock.
Liquidation preference
In the event of any liquidation, winding up and dissolution of the Company
the holders of senior convertible preferred stock are entitled to receive,
prior and in preference to any distribution to holders of preferred stock
and common stock, an amount equal to dividends accrued and unpaid, whether
or not declared, and $1 per share. After payment of the liquidation
preference of the senior convertible preferred stock, holders of preferred
stock are entitled to receive in preference to any distribution to holders
of common stock an amount equal to dividends accrued and unpaid, whether or
not declared, and $1,000 per share.
Redemption provisions
LR Holdings may redeem the senior convertible preferred stock at any time
after May 1, 2001 and the preferred stock at any time after May 1, 1994 at
$1 and $1,000 per share, respectively, plus an amount equal to all
dividends accrued and unpaid, whether or not declared (Redemption Price).
At any time after the Debt Retirement Date and subject to the availability
of excess cash flow, as defined, the holders of the senior convertible
preferred stock and the preferred stock can require the Company to redeem
the senior convertible preferred stock and the preferred stock at the
Redemption Price. The excess of the Redemption Price over excess cash flow,
as defined, shall accrue interest at 8% per year and is also payable to the
extent of excess cash flow, as defined.
9. Leases
Lyon's leases real property for most of its restaurant operations under
long-term, noncancelable leases which expire at various dates through 2017.
Certain leases provide for additional contingent rents based on sales
volume or other factors. In addition, the majority of the lease agreements
include provisions for multiple renewal options the longest of which, if
fully exercised, extends the lease term up to 30 years beyond its original
term. Certain leases are guaranteed by Sara Lee.
F-13
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
Minimum future lease payments for all leases in effect as of June 28, 1998
having noncancelable lease terms in excess of one year are as follows:
Capital Operating leases
<TABLE>
<CAPTION>
Capital Operating
leases leases
----------- -----------
Fiscal year ending
<S> <C> <C>
1999 $ 4,644,000 $ 1,770,000
2000 4,387,000 1,544,000
2001 4,318,000 1,353,000
2002 4,295,000 1,223,000
2003 4,204,000 994,000
Thereafter 35,524,000 2,055,000
----------- -----------
Total minimum lease payments 57,372,000 $ 8,939,000
===========
Less: amount representing interest (29,131,000)
-----------
Present value of minimum lease payments 28,241,000
Less: current portion of obligations under capital leases (1,311,000)
----------
Long-term portion of obligations under capital leases $26,930,000
===========
</TABLE>
Rental expense charged to operations for fiscal years 1998 and 1997 was
$2,979,000 and $2,604,000, respectively; such amounts include contingent
rents based on sales of $603,000 and $645,000, respectively.
At June 28, 1998, the Company held funds totaling $147,000 in a restricted
cash account in connection with negotiations to terminate a capital lease
obligation. Subsequent to year end, the Company entered into an agreement
to terminate the aforementioned lease obligation for a cash settlement of
$350,000 to be paid in installments through October 1,2001. The $147,000
restricted cash balance was released to the Company after it made the
initial required payment. Ultimate gain or loss on the lease termination is
contingent upon the Company satisfying certain provisions of the agreement.
10. Income Taxes
No provision for income taxes has been made in the consolidated financial
statements because the Company has incurred a net operating loss.
Federal and California net operating losses, to the extent they become
realizable, will be available to offset future income tax liabilities
through the year 2013 and 2003, respectively. At June 28, 1998, the Company
has net operating loss carryforwards for federal income tax reporting
purposes of approximately $31,384,000. In addition, at June 28, 1998, the
Company has available net operating loss carryforwards of approximately
$14,940,000 and $2,633,000 which are available to offset future California
and Oregon state income tax liabilities, respectively, subject to statutory
limitations.
F-14
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
The significant components of deferred tax assets at June 28, 1998 and June
29, 1997, include the following:
June 28, June 29,
1998 1997
------------ ------------
Deferred tax assets
Loss carryforwards $ 12,047,000 $ 13,314,000
Depreciation 422,000 387,000
Capital leases 1,818,000 1,984,000
Employee benefits 238,000 257,000
Other 2,594,000 2,667,000
------------ ------------
17,119,000 18,609,000
------------ ------------
Deferred tax assets valuation allowance (17,119,000) (18,609,000)
------------ ------------
Net deferred tax asset (liability) $ -- $ --
============ ============
Under the Tax Reform Act of 1986, the amount of net operating loss
carryforwards available to reduce taxable income and general business
credit carryforwards could be impaired or limited in certain circumstances.
Events which cause such an impairment include, but are not limited to, a
cumulative change in the Company's stock ownership of more than 50% over a
three-year period.
Management does not believe such a change in ownership has occurred.
11. Employee Benefits
Lyon's established a single profit sharing and 401(k) plan for Lyon's
hourly employees not covered by a collective bargaining agreement, and its
salaried employees, effective October 1992. The Plan provides for
discretionary Company matching contributions. During fiscal 1998 and 1997,
the Company accrued a $0 and $25,000 matching contribution, respectively.
In connection with the establishment of this plan, accrued benefits under
the defined benefit plan described below were frozen and the
noncontributory defined contribution plan was also frozen. After receiving
IRS approval, the net assets of the noncontributory defined contribution
plan were transferred to this successor plan in late fiscal 1995. There was
no gain or loss related to the curtailment of retirement benefits under the
defined benefit pension plan.
Lyon's has a noncontributory defined benefit plan applicable to
substantially all hourly employees with one year of tenure as of June 30,
1992, and who are not covered by collective bargaining agreements. Benefits
under the Plan were based on hours of service beginning after an employee
had worked at least 1,000 hours in a twelve month period. At the end of
fiscal year 1989, as required by law, an amendment to the Plan was adopted
whereby employees vest over 5 years rather than 10 years. Prior service
cost is amortized over 21 years which represents the average estimated
future service of plan participants who are expected to receive benefits.
The Plan uses the flat-benefit actuarial formula to calculate the projected
value of benefit obligations, and is funded in conformity with the
requirements of applicable government regulations.
F-15
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
Net periodic pension cost is comprised of the following:
Year ended
June 28, June 29,
1998 1997
--------- ---------
Interest on projected benefit obligations $ 38,000 $ 42,100
Actual return on plan assets (158,000) (123,000)
Net amortization and deferral 116,000 80,000
--------- ---------
Net pension cost $ (4,000) $ (900)
========= =========
The funded status of the Plan is reconciled to the accrued (prepaid)
pension liability as follows:
<TABLE>
<CAPTION>
June 28, June 29,
1998 1997
--------- ---------
<S> <C> <C>
Present value of projected benefit obligation:
Vested benefits $ 360,000 $ 404,000
Nonvested benefits 27,000 43,000
--------- ---------
Total projected benefit obligation 387,000 447,000
Plan assets at fair value (549,000) 486,000
--------- ---------
Excess of projected benefit obligation (under) plan
assets at fair value (162,000) (39,000)
Unrecognized net transitional obligation -- --
Unrecognized prior service cost (18,000) (23,000)
Unrecognized actuarial gain, net 168,000 103,000
--------- ---------
Accrued (prepaid) pension liability $ (12,000) $ 41,000
========= =========
</TABLE>
The Plan's assets consist principally of marketable equity securities and
corporate and government debt securities with the expected long-term rate
of return projected at 8.5%. The weighted average discount rate used in
determining net pension cost and related obligations is 8.5%.
Five Lyon's employee groups are participants in collective bargaining
agreements. Pension expense paid to the unions on behalf of Lyon's
employees amounted to $77,000 and $78,409, respectively, for fiscal years
1998 and 1997.
12. Stock Options
The LR Holdings Stock Option Plan (Plan) is a successor to the Stock Option
Plan adopted by Lyon's. Under the Plan, up to 640,000 incentive stock
options (ISO's) and nonqualified stock options to purchase Class A shares
may be granted. Such options are granted at prices periodically
F-16
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29, 1997
- --------------------------------------------------------------------------------
determined by the Board of Directors. ISO's granted under the plan are
earned by achieving performance goals over a 5 1/4-year period and vest
over a 7-year period. At June 28, 1998, options to purchase 33,357 shares
have been earned based upon the achievement of the stipulated performance
goals and all such options were exercisable under the Plan.
During fiscal year 1994, Lyon's adapted the CEO Stock Option Plan (CEO
Plan). Under the CEO Plan, up to 528,000 incentive stock options (ISO's)
and nonqualified stock options to purchase Class A shares may be granted;
such options are granted at prices periodically determined by the Board of
Directors. ISO's and nonqualified stock options granted under the CEO Plan
are earned by achieving performance goals over a 7-year period.
Accordingly, at June 28, 1998 and June 29, 1997, there were no shares
exercisable under the CEO Plan.
The following summarizes stock option activity during fiscal years 1998 and
1997:
<TABLE>
<CAPTION>
CEO Stock Option Plan
ISO's Nonqualified
Outstanding Available Outstanding Available
Options for Grants Options for Grants
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 113,000 -- 415,000 --
Options canceled -- -- -- --
------- ---------- ------- ----------
Balance at June 29, 1997 113,000 -- 415,000 --
Options canceled -- -- -- --
------- ---------- ------- ----------
Balance at June 28, 1998 113,000 -- 415,000 --
======= ========== ======= ==========
<CAPTION>
Stock Option Plan
ISO's Nonqualified
Outstanding Available Outstanding Available
Options for Grants Options for Grants
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 189,000 408,000 30,000 --
Options canceled (35,000) 35,000 (30,000) 30,000
------- ---------- ------- ----------
Balance at June 29, 1997 154,000 443,000 -- 30,000
Options canceled (58,500) 58,500 -- --
------- ---------- ------- ----------
Balance at June 28, 1998 95,500 501,500 -- 30.000
======= ========== ======= ==========
</TABLE>
All options granted under the Company's plans had an exercise price of
$1.00; thus the weighted average exercise price of all options outstanding,
those exercisable and those canceled was $1.00. There were no options
granted, exercised, or expired under the Company's plans during the years
ended June 28, 1998 and June 29, 1997. Subsequent to year end, all of the
ISO's and nonqualified outstanding options under the CEO Stock Option Plan
were canceled.
No compensation expense was recognized in fiscal years 1998 and 1997
related to these stock option plans. The Company will recognize
compensation expense relating to the issuance of the options at the time
the fair value of the Company's common stock is determined to have exceeded
the option price and it is determined probable that performance milestones
will be achieved.
13. Supplemental Cash Flow Disclosures
Interest paid
Interest paid in cash amounted to $385,000 and $6,169,000 during fiscal
years 1998 and 1997, respectively.
Noncash investing and financing activities
During 1998, the Company negotiated the termination of three capital leases
resulting in a net gain of $579,000. The transactions required cash
termination payments totaling $428,000, of which
F-17
<PAGE>
LR Holdings, Inc.
Notes to Consolidated Financial Statements
June 28, 1998 and June 29,1997
- --------------------------------------------------------------------------------
$101,000 and $327,000 was applied to accrued expenses and obligations under
capital leases, respectively, and a non-cash reduction of $1,459,000 and
$2,038,000 to property and equipment, net and obligations under capital
leases, respectively. The current portion of a note receivable totaling
$151,000 was reclassified from receivables to other assets. The bank
applied $400,000 of cash held as collateral at June 29, 1997 to principal
payments due under the Company's debt agreement, resulting in a non-cash
reduction of the cash and receivable held as collateral for long-term debt
and long-term debt.
The Company negotiated the termination of a capital lease during 1997
resulting in a non-cash reduction to obligations under capital lease and to
property and equipment of $96,000. The Company took back a note receivable
totaling $355,000 in conjunction with the sale of two Nevada restaurants in
1997, which was subsequently provided to the bank as collateral for
long-term debt. In 1997, the current portion of a note receivable totaling
$75,000 was reclassified from other assets to receivables.
14. Contingencies
Insurance
The Company has a guaranteed cost workers compensation program. The Company
records costs of the monthly premiums and then adjusts this cost if the
total amount of incurred losses exceeds the minimum premium paid during the
year. Lyon's is only liable in any given period for losses incurred above
the minimum premium. The amounts charged to expense for workers'
compensation were $2,092,000 and $2,066,000 in fiscal years 1998 and 1997,
respectively, and were based on payments and accruals on outstanding
claims. Outstanding workers' compensation claims payable were $166,000 and
$257,000 at June 28, 1998 and June 29, 1997, respectively, and are included
in accrued payroll and other liabilities.
Lyon's maintains a fully insured program for a portion of employee health
care costs. Under this program, employees may choose either a health
maintenance organization (HMO) or in some areas a preferred provider
organization (PPO) for their health care needs. Lyon's maximum annual
liability approximates $2,326 and $2,350 per employee or a total of
approximately $1,817,000 and $2,000,000 at June 28, 1998 and June 29, 1997,
respectively, for all employees covered under the program. Amounts charged
to expense for health care costs in fiscal years 1998 and 1997 aggregated
approximately $1,817,000 and $2,054,000, respectively, based on actual
claims incurred.
Litigation
A small number of claims, lawsuits and contingent liabilities are pending
against Lyon's. Sara Lee has indemnified Lyon's from and against any loss
regarding litigation arising from events occurring prior to December 30,
1988. In the opinion of the Company's legal counsel and management, the
ultimate disposition of all claims will not have a material adverse effect
on the Company's financial position or results of operations.
F-18
<PAGE>
ICH CORPORATION NOTES TO PROFORMA FINANCIAL STATEMENTS
General
On December 14, 1998 the Company closed its previously announced agreement to
acquire substantially all of the assets of Lyon's Restaurants, Inc. The
aggregate purchase price was approximately $22.6 million.
The Company funded the acquisition through the use of approximately $5.5 million
of its available cash resources, and a $16.5 million fixed-rate term loan from
USRP (Finance), LLC. That loan matures in approximately 12 years, bearing
interest at a rate of 12.75% per annum and is guaranteed by the Company. The
balance of the purchase price was paid with a $600,000 note from the Company to
the seller.
The unaudited pro forma balance sheet reflects allocation of the purchase price
to assets acquired and liabilities assumed as if the transaction occurred on
January 1, 1997. The unaudited pro forma results of operations for the nine
months ended September 30, 1998 and the year ended December 31, 1997 assume that
the acquisition occurred at the beginning of 1997 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 1997, nor do they purport to be indicative of
future operations under the ownership and management of the Company.
The pro forma combined financial statements reflect the preliminary allocation
of purchase price as the purchase price allocation has not been finalized.
The pro forma combined financial statements should be read in conjunction with
the consolidated historical financial statements of ICH Corporation and Lyon's
Restaurants, Inc., including the respective notes thereto, which are
incorporated by reference. The pro forma information is presented for
comparative purposes only and is not necessarily indicative of the combined
financial position or results of operations in the future. The pro forma
information is also not necessarily indicative of the combined financial
position or results of operations which would have been realized had the
acquisition been consummated during the period or as of the date for which the
pro forma financial statements are presented.
Lyon's Restaurants, Inc. and one affiliate (collectively, "Lyon's") filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code on September 9, 1998. Accordingly Lyon's maintained separate accounting
records for its pre-petition and post petition operations and liabilities. The
following unaudited pro forma financial data for Lyon's includes its financial
information as of and for the period ending September 8, 1998. The period from
September 9, 1998 to September 30, 1998 (during which Lyon's was not required to
pay its pre-petition liabilities) was excluded due to its immateriality.
F-19
<PAGE>
ICH CORPORATION
Pro Forma Consolidated Balance Sheet
As of
September 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------- -------------------------
Lyon's ICH Pro
Inc. Corporation Debit Credit forma
-------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $1,224 $ 4,565 (a) 3,352 $ 2,537
Accounts Receivable 213 432 (a) 30 615
Inventories 984 1,588 (a) 133 2,439
Deferred income taxes -- 1,137 1,137
Other current assets 1,381 2,561 (a) 268 4,210
-------- -------- --------- --------
Total current assets 3,802 10,283 10,938
Property and equipment, net 41,301 25,579 (a)30,826 36,054
Intangible assets, net 15,603 44,206 (a) 6,813 52,996
Deferred Taxes -- 865 865
Other assets 2,441 3,296 (a) 384 5,353
-------- -------- --------
Total assets $63,147 $ 84,229 $106,206
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $9,163 $3,506 (a) 4,063 $ 8,606
Accrued liabilities 4,236 10,223 (a) 3,859 10,600
Current portion of LTD 30,311 1,714 (a)30,311 1,714
Current portion of capital
lease obligation 1,259 948 (a) 1,259 948
-------- -------- --------
Total current liabilities 44,969 16,391 21,868
Noncurrent liabilities:
Long-term debt -- 49,112 (a)16,500 65,612
Long-term capital lease obligation 25,830 2,563 (a)25,830 2,563
Deferred income taxes -- 1,935 (a) 3,019 1,935
Other liabilities 3,019 1,329 1,329
-------- -------- --------
Total liabilities 73,818 71,330 93,307
-------- -------- --------
Total stockholder's equity (10,671) 12,899 -- (a)10,671 12,899
-------- -------- --------- --------- --------
$ 63,147 $ 84,229 $ 68,609 $ 68,609 $106,206
======== ======== ========= ========= ========
</TABLE>
See notes to pro forma financial statements
F-20
<PAGE>
ICH CORPORATION
Pro Forma Consolidated Statement of Operations
for the nine months ended September 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------ ----------------------
Lyon's, Inc. ICH Debit Credit Pro forma
------------ ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues and other income:
Restaurant sales $ 69,543 $92,376 $161,919
Real estate operations and
other -- 736 736
-------- ------- --------
69,543 93,112 162,655
Cost and expenses:
Restaurant costs and expenses 62,072 76,408 (b)3,494 (d)1,350 140,624
General and administrative 3,867 5,989 (d)2,025 7,831
Depreciation and Amortization 4,046 3,755 (b)1,313 (b)4,046 5,068
Other (-22) 546 524
-------- ------- --------
Operating income (420) 6,414 8,608
Interest expense 3,783 4,248 (c)1,578 (c)3,783 5,826
-------- ------- --------
Income(loss) from continuing
Operations and before taxes (4,203) 2,166 2,782
Provision for Taxes -- 866 (e) 247 1,113
-------- ------- ------- ------- --------
Income (loss) from continuing
operations $ (4,203) $ 1,300 $ 6,632 $11,204 $1,669
======== ======= ======= ======= ======
</TABLE>
See notes to pro forma financial statements
F-21
<PAGE>
ICH
Pro Forma Adjustments
for the nine months ended September 30, 1998
(000's)
Debit Credit
a) Adjustment to Lyon's balance sheet reflecting the
purchase price allocation:
Accounts Payable 4,063
Accrued Liabilities 3,859
Current Portion of LTD 30,311
Current Portion of Capital Lease
Obligation 1,259
Long Term Lease Obligations 25,830
Other Liabilities 3,019
Cash 3,252
Accounts Receivable 30
Inventories 133
Other Current Assets 268
Property and Equipment - net 30,826
Intangible Assets - net 6,813
Other Assets 384
Long-term Debt 16,500
Equity -- 10,671
-------- -------
$ 73,109 $73,109
======== =======
b) To remove Lyon's depreciation expense and
reflect ICH's purchase price of the acquisition
for the nine months on the new asset basis and
reflect leases classified as operating leases
Restaurant cost and Expenses 3,494
Depreciation Expense 1,313 4,046
c) To remove Lyon's interest expense and reflect
ICH's purchase price of the acquisition for
nine months on new long-term debt at 12.75 %
Interest Expense 1,578 3,783
d) To reduce direct labor benefit expenses and to
remove Lyon's administrative cost charges,
consulting fees, etc., that would not be
incurred by ICH
General and Administrative expenses 2,025
Restaurant costs and expenses 1,350
e) Record tax provision at a 40% effective rate
Provision for taxes 247
F-22
<PAGE>
ICH CORPORATION
Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------------ ------------------------
ICH
Lyon's Inc. Corporation(a) Debit Credit Pro forma
---------- ----------- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
Revenues and other income:
Restaurant Sales $125,903 $73,787 $199,690
Real estate operation and other -- 1,219 1,219
-------- ------- -------- -------- --------
125,903 75,006 200,909
Cost and Expenses:
Restaurant costs and expenses 109,923 61,503 (a)4,658 (d)1,800 174,284
General and administrative 7,117 5,087 (c)2,700 9,504
Depreciation and Amortization 6,877 3,398 (a)1,750 (a)6,877 5,148
Other (589) 977 388
-------- ------- --------
Operating Income 2,575 4,041 11,585
Interest expense 7,228 3,661 (b)2,104 (b)7,228 5,765
-------- ------- --------
Income (loss) before taxes (4,653) 380 5,820
Provision (benefit) for income taxes
-- 152 (d)2,176 -- 2,328
-------- ------- -------- -------- --------
Net income (loss) $ (4,653) $ 228 $10,688 $18,605 $3,492
======== ======= ======== ======== ========
</TABLE>
Note: (a) Before non-recurring and restructuring charge of $1,497.
See notes to pro forma financial statements
F-23
<PAGE>
ICH
Pro Forma Adjustments
for the year ended December 31, 1997
(000's)
Debit Credit
a) To remove Lyon's depreciation expense and
reflect ICH's purchase price of the acquisition
for the nine months on the new asset basis and
reflect leases classified as operating leases
Restaurant cost and expenses 4,658
Depreciation Expense 1,750 6,877
b) To remove Lyon's interest expense and reflect
ICH's purchase price of the acquisition for
nine months on new long-term debt at 12.75 %
Interest Expense 2,104 7,288
c) To remove direct labor benefit costs and to
remove Lyon's administrative cost charges,
consulting fees, etc., that would not be
incurred by ICH
General and Administrative expenses 2,700
Restaurant costs and expenses 1,800
d) Record tax provision for the year at 40%
effective rate
Income Tax provision 2,176
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: February 26, 1999
I.C.H. CORPORATION
By: /s/ James R. Arabia
----------------------
Name: James R. Arabia
Title: Chairman of the Board,
Chief Executive Officer
and President
