<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
Commission file number 1-7697
------------------------
I.C.H. CORPORATION
Exact name of Registrant as specified in its charter
<TABLE>
<S> <C>
DELAWARE 43-6069928
(State or other jurisdiction (IRS Employer
of Identification No.)
incorporation or organization)
9255 TOWNE CENTRE DRIVE 92121
SUITE 600 (Zip code)
SAN DIEGO, CALIFORNIA
(Address of principal
executive offices)
</TABLE>
Registrant's telephone number, including area code: (858) 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 /X/ No / /
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 September 30, 1999:
2,836,113.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets--December 31, 1998 and September
30, 1999.................................................... 3
Consolidated Statements of Operations for the Three Months
ended
September 30, 1998 and for the Three Months ended September
30, 1999.................................................... 4
Consolidated Statements of Operations for the Nine Months
ended September 30, 1998 and for the Nine Months ended
September 30, 1999.......................................... 5
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1998 and for the Nine Months ended
September 30, 1999.......................................... 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Part II.
Item 5. Other Information........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
Signatures.................................................. 17
</TABLE>
2
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 9,235 $ 7,542
Accounts receivable....................................... 1,293 883
Inventories............................................... 2,828 3,165
Deferred income taxes..................................... 1,137 1,137
Other current assets, net................................. 4,473 2,777
-------- --------
Total current assets...................................... 18,966 15,504
Property and equipment, net................................. 40,141 45,911
Intangible assets, net...................................... 47,462 46,600
Deferred income taxes....................................... 2,571 2,777
Other assets................................................ 4,326 6,699
-------- --------
Total liabilities............................. $113,466 $117,491
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 8,254 $ 8,226
Accrued liabilities....................................... 12,743 14,000
Current portion of long-term debt......................... 4,839 2,823
Current portion of capital lease obligations.............. 589 589
-------- --------
Total current liabilities................................. 26,425 25,638
Non-current liabilities:
Long-term debt............................................ 63,193 63,943
Long-term capital lease obligations....................... 2,484 1,987
Other liabilities......................................... 6,338 7,708
-------- --------
Total liabilities......................................... 98,440 99,276
-------- --------
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 authorized;
none issued and outstanding Common stock, $0.01 par
value; 19,000,000 authorized; 2,836,113 outstanding..... 28 29
Paid-in-capital........................................... 12,558 12,394
Retained earnings......................................... 2,440 5,792
-------- --------
Total stockholders' equity............................ 15,026 18,215
-------- --------
Total liabilities and stockholders' equity............ $113,466 $117,491
======== ========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS--UNAUDITED
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
SEPTEMBER 30
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenue and other income:
Restaurant sales.......................................... $ 33,190 $ 61,127
Other..................................................... (16) 166
--------- ---------
Total Revenues...................................... 33,174 61,293
Cost and expenses:
Restaurant costs and expenses............................. 27,649 52,259
General and administrative................................ 2,133 3,489
Depreciation and amortization............................. 1,157 1,386
Other..................................................... -- 62
--------- ---------
Operating income............................................ 2.235 4,097
Interest expense.......................................... 1,443 2,062
--------- ---------
Income from continuing operations before income taxes....... 792 2,035
Provision for income taxes................................ 316 824
--------- ---------
Income from continuing operations........................... 476 1,211
Gain from sale of discontinued operations................... 388 --
--------- ---------
Net income.................................................. $ 864 $ 1,211
========= =========
Income from continuing operations per share:
Basic..................................................... $ .18 $ .43
Diluted................................................... $ .16 $ .34
Gain from discontinued operations per share
Basic..................................................... $ .14 --
Diluted................................................... $ .13 --
Net income per share:
Basic..................................................... $ .32 $ .43
Diluted................................................... $ .30 $ .34
Weighted-average common shares outstanding (see Note 4)
Basic..................................................... 2,667,000 2,847,000
Diluted................................................... 2,904,000 3,603,000
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
4
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS--UNAUDITED
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenue and other income:
Restaurant sales.......................................... $ 92,376 $ 181,863
Other..................................................... 736 338
--------- ---------
Total Revenues............................................ 93,112 182,201
Cost and expenses:
Restaurant costs and expenses............................. 76,408 155, 294
General and administrative................................ 5,989 10,904
Depreciation and amortization............................. 3,755 4,128
Other..................................................... 546 187
--------- ---------
Operating income............................................ 6,414 11,688
Interest expense.......................................... 4,248 6,053
--------- ---------
Income from continuing operations before income taxes....... 2,166 5,635
Provision for income taxes................................ 866 2,282
--------- ---------
Income from continuing operations........................... 1,300 3,353
Gain from sale of discontinued operations................... 388 --
--------- ---------
Net income.................................................. $ 1,688 $ 3,353
========= =========
Income from continuing operations per share:
Basic..................................................... $ .49 $ 1.20
Diluted................................................... $ .46 $ .96
Gain from discontinued operations per share:
Basic..................................................... $ .15 --
Diluted................................................... $ .14 $ --
Net income per share:
Basic..................................................... $ .64 $ 1.20
Diluted................................................... $ .59 $ .96
Weighted-average common shares outstanding (see Note 4)
Basic..................................................... 2,637,000 2,796,000
Diluted................................................... 2,839,000 3,503,000
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
5
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 1,688 $ 3,353
Gain from sale of subsidiary................................ (388) --
Adjustments to reconcile net income to cash from operating
activities:
Depreciation and amortization............................. 3,856 4,128
Deferred income taxes..................................... 147 (206)
Changes in current assets and liabilities:
Accounts receivable....................................... 30 (115)
Inventories............................................... (216) (337)
Accounts payable and accrued expenses..................... 2,805 1,229
Other, net................................................ (1,096) 394
--------- --------
Net cash provided by operating activities....... 6,826 8,446
--------- --------
Cash flows from investing activities:
Capital expenditures...................................... (8,089) (8,246)
Proceeds from disposition of property and equipment....... 758 --
Acquisition of restaurant properties...................... (5,970) (1,351)
Sale of subsidiary........................................ 2,955 --
Other, net................................................ (617) 1,458
--------- --------
Net cash used by investing activities........... (10,963) (8,139)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net............. 6,195 3,726
Repayment of long-term debt and capital lease
obligation.............................................. (1,937) (5,563)
Issuance of common stock.................................. -- 119
Repurchases of common stock............................... -- (282)
Other, net................................................ 26 --
--------- --------
Net cash provided (used) by financing
activities.................................... 4,284 (2,000)
--------- --------
Net changes in cash and cash equivalents.................... 147 (1,693)
Cash and cash equivalents at beginning of period............ 4,418 9,235
--------- --------
Cash and cash equivalents at end of period.................. $ 4,565 $ 7,542
========= ========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
6
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 1. BUSINESS
ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PREPARATION OF INTERIM FINANCIAL STATEMENTS
The Consolidated Financial Statements of I.C.H. Corporation (the "Company")
and Subsidiaries have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain amounts have been
reclassified from previous presentations. These Consolidated Financial
Statements include estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and the
amounts of revenues and expenses. Actual results could differ from those
estimates. In the opinion of the Company, these statements include all
adjustments necessary for a fair presentation of the results of all interim
periods reported herein. All adjustments are of a normal recurring nature unless
otherwise disclosed. Certain information and footnote disclosures prepared in
accordance with generally accepted accounting principles have been either
condensed or omitted pursuant to SEC rules and regulations. The Company
believes, however, that the disclosures made are adequate for a fair
presentation of results of operations, financial position and cash flows. These
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and accompanying notes included in the
Company's latest annual report on Form 10-K.
ORGANIZATION
I.C.H. Corporation is the post-reorganization successor to ICH Corporation
("Old ICH"). Old ICH, together with its subsidiaries, filed voluntary petitions
for relief under Chapter 11 on October 10, 1995. The Company's plan of
reorganization (the "Reorganization Plan") was confirmed February 7, 1997 and
became effective on February 19, 1997 (the "Effective Date"). Until its
acquisition of Sybra, Inc., the Company had no significant business operations.
On the Effective Date, all of the outstanding equity securities ("Old ICH
Common Stock" and "Old ICH Preferred Stock", collectively the "Old ICH Stock")
of Old ICH were canceled. Holders of Old ICH Stock had two years from the
Effective Date in which to exchange their canceled shares for the Company's
common stock. Generally, holders of the canceled Old ICH shares were entitled to
receive 0.0269 shares of the Company's common stock for each share of Old ICH
Common Stock and 0.2 shares of the Company's common stock for each share of Old
ICH Preferred Stock. 2,599,281 shares of the Company's Common Stock were issued
in exchange for Old ICH Stock during the two year conversion period which ended
on February 19, 1999.
BUSINESS AND PRESENTATION
The accompanying Consolidated Financial Statements labeled "Company" include
the accounts of the Company and its wholly-owned subsidiaries, principally
Sybra, Inc. ("Sybra") and Lyon's of California, Inc. ("Lyon's"). All significant
inter-company accounts and transactions have been eliminated.
SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR. The Company operates on a calendar year basis. Sybra, however,
uses a 52/53 week fiscal year ending on the Saturday closest to December 31st
and Lyon's uses a 52/53 week fiscal year ending on the Sunday closest to
December 31st. Accordingly, the accompanying financial statements
7
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 1. BUSINESS (CONTINUED)
include Sybra's results for the periods ended September 26, 1998 and October 2,
1999 and Lyon's results for the period ended October 3, 1999.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents.
FOOD AND SUPPLIES INVENTORIES. Food and supplies inventories are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
(FIFO) method.
PROPERTY AND EQUIPMENT. Property and equipment is stated at cost less
accumulated depreciation and amortization. Normal repairs and maintenance costs
are expensed as incurred. Depreciation is being recorded on a straight-line
basis over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................... 40 years
Restaurant equipment........................................ 5-10 years
</TABLE>
Buildings under capitalized leases and leasehold improvements are amortized on a
straight-line basis over the lesser of the lease term or the estimated useful
lives of the assets.
INTANGIBLES. Franchise agreements with Arby's require the Company to pay a
franchise fee for each new restaurant developed and de minimis renewal fees for
franchises that have expired. Each franchise agreement provides the Company the
right to operate an Arby's restaurant for a period of 20 years and is renewable
by the Company, subject to certain conditions, for varying terms of up to 20
years. Franchise fees are capitalized and amortized using the straight-line
method over 40 years.
Acquired royalty rights, representing the fair value of royalty rates of
acquired franchises, are capitalized and amortized on a straight-line basis over
20 years or the remaining life of the franchise agreement, whichever is less.
Equity in operating leases, representing the estimated fair value of base
rental rates, less the actual rental obligation, is amortized on a straight-line
basis over 20 years or the remaining life of the lease including option periods,
whichever is less.
Goodwill is amortized using the straight-line method over 40 years. At each
balance sheet date, the Company evaluates the realizability of goodwill based
upon expectations of operating income for the restaurants as a group. The
Company believes that no material impairment of goodwill exists at
September 30, 1999.
INCOME TAXES. Deferred income taxes are computed using the liability
method, which provides that deferred tax assets and liabilities are recorded
based on the differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
ADVERTISING EXPENSES. All advertising costs are expensed as incurred.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses in the financial statements and in the
disclosure of contingent assets and liabilities. While actual results could
differ from those estimates, management
8
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 1. BUSINESS (CONTINUED)
believes that actual results will not be materially different from amounts
provided in the accompanying consolidated financial statements.
EARNINGS PER SHARE. In 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which requires presentation of both basic and diluted earnings per
share. Basic net income per share is computed based on the weighted-average
number of common shares outstanding during the year (see Note 4).
SEGMENT REPORTING. The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 131 Disclosures about Segments of an Enterprise and
Related Information during the year ended December 31, 1998. This Statement
supersedes substantially all the reporting requirements previously required
under SFAS No. 14 Financial Reporting for Business Segments of an Enterprise and
establishes standards for reporting information about operating segments and
requires certain disclosures about products and services, geographic areas and
major customers. Under SFAS No. 131, the determination of segments to be
reported in the financial statements is to be consistent with the manner in
which management organizes and evaluates the internal organization to make
operating decisions and assess performance. This statement also allows a company
to aggregate similar segments for reporting purposes. Management has determined
that its operating units can be aggregated into one segment. Additionally, as
the Company operates restaurants within the U.S. and no customer accounts for
more than 10% of sales, no segment disclosures have been included in the
accompanying notes to the consolidated financial statements.
NOTE 2. ACQUISITION
LYON'S
On December 14, 1998, the Company acquired substantially all of the assets
of Lyon's restaurants for $22,600. The Company incurred $16,500 in acquisition
indebtedness and paid the remainder of the purchase price with cash and a $600
note payable to the seller. The Company also issued 125,000 warrants to purchase
shares of the Company's common stock at $.01 per share to USRP (Finance), LLC as
part of the financing of the Lyon's acquisition. The acquisition was recorded
under the purchase method of accounting.
The purchase price was allocated to identifiable tangible and intangible
assets and liabilities based on their estimated fair values, with the excess of
the purchase price over the fair value of such net assets acquired reflected as
goodwill, as follows:
<TABLE>
<S> <C>
Current assets and liabilities, net......................... $ 1,409
Other intangibles, excluding goodwill....................... 2,057
Goodwill.................................................... 7,734
Tangible assets............................................. 11,400
-------
Purchase price.............................................. $22,600
=======
</TABLE>
9
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 3. LONG-TERM DEBT
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Term loan, 10.63%, payable monthly through 2012..... $32,319 $30,949
Loan, 14.40%........................................ 9,000 7,764
Acquisition indebtedness due in 1999................ 2,000 801
Term loan, 12.75% payable monthly through
February 1, 2011.................................. 16,500 16,084
Other............................................... 8,213 11,168
------- -------
68,032 66,766
Less: current portion............................... 4,839 2,823
------- -------
Total............................................... $63,193 $63,943
======= =======
</TABLE>
The term loan bearing interest at 10.63% has a weighted-average remaining
maturity of 10.0 years and is collateralized by substantially all of the
restaurant equipment owned by Sybra. The loan agreement contains 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. As of September 30, 1999, the Company was in
compliance with all such covenants.
As an element of certain sale/leaseback transactions completed by the
Company, Sybra received $9,000 as a loan. The loan element of the transaction
carries an interest rate of approximately 14.40% and may be repaid at any time
without penalty. If not repaid in full earlier than April 30, 2001, the loan
amortizes over 20 years. The Company currently intends on refinancing this loan
prior to that date, although no assurances can be given.
On December 14, 1998, the Company entered into a term loan agreement for the
acquisition of Lyon's Restaurants with USRP (Finance), LLC. The 12.75% term loan
matures in December 2010 and is collateralized by substantially all of the
assets of Lyon's. The agreement contains covenants which require, among other
things, the maintenance of a minimum fixed charge ratio and other provisions and
restrictive covenants. As of September 30, 1999, the Company was in compliance
with all such covenants.
The Company also has 26 separate notes for the financing of restaurants and
equipment used in restaurants with remaining principal balances ranging from
$270 to $2.2 million, interest rates ranging from 8.52% to 10.92% and with an
average remaining maturity of 12 years. These loans are collateralized by
leasehold mortgages and equipment.
At September 30, 1999, long-term debt had a fair value that approximates the
carrying value.
10
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 4. EQUITY AND EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted-average number of common shares outstanding
during each period. Diluted computations include dilutive common share
equivalents.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Income for computation of basic earnings per share and
diluted earnings per share................................ $1,688 $3,353
Weighted-average shares for computation of basic earnings
per share................................................. 2,637 2,796
Incremental shares on assumed exercise of stock options and
assumed repurchase of stock............................... 202 707
Weighted-average shares for computation of diluted earnings
per share................................................. 2,839 3,503
Basic earnings per share.................................... $ .64 $ 1.20
Diluted earnings per share.................................. $ .59 $ .96
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information discussed below may constitute forward-looking
statements within the meaning of the federal securities laws. Although the
Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. Forward-looking information is subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from projected results. Among those risks, trends and
uncertainties are the general economic climate, costs of food and labor,
consumer demand, interest rate levels, the availability of financing and other
risks associated with the acquisition, development and operation of new and
existing restaurants. Unless otherwise indicated all amounts are in thousands,
except share amounts.
GENERAL
The Company conducts its restaurant operations principally through two
wholly-owned subsidiaries, Sybra, Inc. and Lyon's of California, Inc.
Restaurant costs and expenses include all direct costs, including direct
labor, occupancy costs, advertising expenses, royalty payments, expenditures for
repairs and maintenance, and workers' compensation, casualty and general
liability insurance costs. Advertising fees paid by the Company's Sybra
subsidiary to the AFA Service Corporation, a non-profit association of Arby's
restaurant operators, to develop and prepare advertising materials and to
undertake marketing research, are equal to 0.7% of restaurant sales. In
addition, the Company operates its restaurants pursuant to licenses which
require the Company to pay Arby's, Inc. a royalty based upon percentages of its
restaurant sales (presently an aggregate of approximately 3.1% of the Company's
restaurant sales). The royalty rate for new restaurants (currently 4.0%) will
result in an increase in the Company's aggregate royalty rate as new Arby's
restaurants are opened.
General and administrative expenses consist of corporate and regional office
expenses, including executive and administrative compensation, office expenses,
travel and professional fees.
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, with respect to the Company and for the
periods indicated, the percentage of total revenues represented by certain
expense and income items.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1998 1999 1998 1999
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Revenues....................................... 100.0% 100% 100.0% 100%
Expenses
Restaurant costs & expenses.................. 83.3% 85.3% 82.1% 85.2%
General & administrative..................... 6.4% 5.7% 6.4% 6.0%
Depreciation & amortization.................. 3.5% 2.3% 4.0% 2.3%
Other........................................ -- -- 0.6% 0.1%
------ ----- ------ -----
Operating income............................... 6.7% 6.7% 6.9% 6.4%
Interest expense............................... 4.3% 3.4% 4.6% 3.3%
------ ----- ------ -----
Income before taxes............................ 2.4% 3.3% 2.3% 3.1%
Income tax expense............................. 1.0% 1.3% 0.9% 1.3%
------ ----- ------ -----
Income from continuing operations.............. 1.4% 2.0% 1.4% 1.8%
Gain from sale of discontinued operations 1.2% -- 0.4% --
------ ----- ------ -----
Net income..................................... 2.6% 2.0% 1.8% 1.8%
====== ===== ====== =====
</TABLE>
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1999 AND THE QUARTER ENDED
SEPTEMBER 30, 1998.
Revenues--Revenues were $61.3 million for the third quarter of FY 1999 as
compared to $33.2 million for the same period of FY 1998, an increase of $28.1
million or 85%. Sybra's sales for the three month period ended September 30,
1999 were $36.2 million, an increase of $3.0 million or 9.0% over the prior year
comparable period, primarily as a result of a same store sales increase of 2.0%
for the period, sales from new store openings and store acquisitions. Sales from
the Company's Lyon's restaurants for the three month period ended September 30,
1999 were $24.9 million.
Restaurant Costs & Expenses--Restaurant costs and expenses were $52.3
million, or 85.3% of sales, for the third quarter of FY 1999 as compared to
$27.6, or 83.3% of sales for the same period of FY 1998, an increase of $24.6
million. As a percent of sales, costs increased due to the mix of higher costs
as a result of the Lyon's restaurants acquisition. Restaurant costs and expenses
at Sybra were $29.7 million, or 82.1 % of sales for the three month period
ending September 30, 1999, as compared to $27.6 million, or 83.3% of sales for
the prior period. Restaurant costs and expenses at Lyon's were $22.5 million, or
90.4% of sales for the three months ending September 30, 1999.
General and Administrative--General and administrative costs and expenses
were $3.5 million, or 5.7% of sales, for the third quarter of FY 1999 as
compared to $2.1 million, or 6.4% of sales for the same period of FY 1998, an
increase of $1.4 million as a result of additional costs and expenses related to
Lyon's and increased expenses associated with business development and real
estate operations necessary to achieve new store development requirements.
Depreciation and Amortization--Depreciation and amortization expense was
$1.4 million, or 2.3% of sales in the third quarter of FY 1999 as compared to
$1.2 million, or 3.5% of sales in the same period of FY 1998.
Interest Expense--Interest expense was $2.1 million in the third quarter of
FY 1999 as compared to $1.4 million in the same period of FY 1998, an increase
of $700 primarily related to interest expense associated with debt incurred for
the Lyon's acquisition.
13
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1998.
Revenues--Revenues were $182.2 million for the nine months ended September
30, 1999 as compared to $93.1 million for the same period of FY 1998, an
increase of $89.1 million or 96%. Sybra's sales for the nine months ended
September 30, 1999 were $106.5 million, an increase of $14.1 million or 15% over
the prior year comparable period, primarily as a result of a same store sales
increase of 3.5% for the period, sales from new store openings and store
acquisitions. Sales from the Company's Lyon's restaurants for the nine months
ended September 30, 1999 were $75.4 million.
Restaurant Costs & Expenses--Restaurant costs and expenses were $155.3
million, or 85.2% of sales, for the nine months ended September 30, 1999 as
compared to $76.4 million, or 82.1% of sales for the same period of FY 1998, an
increase of $78.9 million. As a percent of sales, costs increased due to the mix
of higher costs as a result of the Lyon's restaurants acquisition. Restaurant
costs and expenses at Sybra were $87.0 million, or 81.8% of sales for the nine
months ended September 30, 1999, as compared to $76.4 million, or 82.7% of sales
for the prior period. Restaurant costs and expenses at Lyon's were $68.3
million, or 90.5%, of sales for the nine months ended September 30, 1999.
General and Administrative--General and administrative costs and expenses
were $10.9 million, or 6.0% of sales, for the nine months ended September 30,
1999 as compared to $6.0 million, or 6.4% of sales for the same period of FY
1998, an increase of $4.9 million as a result of additional costs and expenses
related to Lyon's and increased expenses associated with business development
and real estate operations necessary to achieve new store development
requirements.
Depreciation and Amortization--Depreciation and amortization expense was
$4.1 million, or 2.3% of sales for the nine months ended September 30, 1999 as
compared to $3.8 million, or 4.0% of sales in the same period of FY 1998.
Interest Expense--Interest expense was $6.1 million for the nine months
ended September 30, 1999 as compared to $4.2 million in the same period of FY
1998, an increase of $1.9 million primarily related to interest expense
associated with debt incurred for the Lyon's acquisition.
IMPACT OF THE YEAR 2000 ISSUES
The Company has completed its assessment of internal systems and has
concluded that its hardware and software are Year 2000 compliant. The Company
has concluded that it will not be necessary to replace retail point of sale
hardware in its Arby's or Lyon's restaurants in order to ensure Year 2000
compliance. Based on information available at this time, management believes
that the remaining costs of implementing the Company's Year 2000 readiness
program will not be material.
Communication with respect to Year 2000 issues with the Company's customers
and suppliers is ongoing. While not expected, the Company may experience delays
in receipt of product, which could adversely affect sales and earnings. The
Company cannot currently estimate to what extent future operating results might
be adversely affected by the possible failure of these third parties to
successfully address their Year 2000 issues. However, the Company's program
includes actions designed to identify and minimize, where possible, any third
party exposures.
Costs to implement the program are based on management's estimates, which
were derived utilizing numerous assumptions related to future events. There can
be no guarantee that additional costs will not be incurred, or that the
objective of the program will be achieved. However, the Company continues to
monitor activities related to the program designed to ensure Year 2000
readiness. The need for contingency plans will be reviewed throughout 1999.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs arise from debt service on
indebtedness incurred in connection with the Sybra acquisition, the Lyon's
acquisition and the funding of capital expenditures primarily for new store
openings. As of September 30, 1999, the Company had outstanding indebtedness for
borrowed money of $31.0 million under a term facility with Atherton Capital
Incorporated (the "Atherton Loan") and $16.1 million under a term facility with
USRP (Finance) LLC (the "USRP Loan"). The Atherton Loan has a weighted-average
remaining maturity of 10.0 years, bears interest at 10.63%, requires monthly
payments of principal and interest, is collateralized by substantially all of
the restaurant equipment owned by Sybra and imposes certain financial
restrictions and covenants. The USRP Loan matures in December 2010, has a
weighted average interest rate of 12.75%, requires monthly payments of principal
and interest, is collateralized by substantially all of the assets owned by
Lyon's and imposes certain financial restrictions and covenants.
The Company's primary source of liquidity during the year was the operation
of the restaurants owned by its principal operating subsidiaries, Sybra and
Lyon's and debt and lease financing.
In the future, the Company's liquidity and capital resources will primarily
depend on the operations of Sybra and Lyon's which, under the provisions of the
Company's loan agreements would permit, under certain conditions, distributions
and dividends to the Company. Sybra and Lyon's, like most restaurant businesses,
are able to operate with nominal or deficit working capital because all sales
are for cash and inventory turnover is rapid. Renovation and/or remodeling of
existing stores is either funded directly from available cash or, in some
instances, is financed through outside lenders. Construction or acquisition of
new stores is generally, although not always, financed by outside lenders. The
Company believes that it will continue to be able to secure adequate financing
on acceptable terms for new store construction and acquisitions and that cash
generated from operations will be adequate to meet its needs for the foreseeable
future, although no assurances can be given.
RECENT DEVELOPMENTS
Effective as of October 29, 1999, the Company completed the sale of its nine
under-performing Arby's units located in Sacramento, California. Also in
October, 1999, the Company acquired two operating Arby's restaurants located
within the Company's existing markets in Texas and Michigan.
On November 1, 1999, the Company's board of directors authorized, subject to
capital availability, the repurchase, from time to time, of up to 250,000 shares
of the Company's common stock or stock equivalents, through open market
purchases and/or privately-negotiated transactions.
CAPITAL LOSS CARRY FORWARD
On April 25, 1997, the Company sold its interest in the stock of Bankers
Multiple Line Insurance Company, which generated a significant tax loss. Due to
limitations pursuant to the Internal Revenue Code and Treasury regulations
thereunder, no deferred tax asset has been recorded for the capital loss carry
forward due to the uncertainty of its existence and realizability.
CAPITAL EXPENDITURES
The Company's capital expenditures were $8.3 million for the nine months
ended September 30, 1999 which includes new store development as well as store
maintenance, store remodel and store renovation capital expenditures. The
Company anticipates that Sybra and Lyon's store maintenance, store remodel and
store renovation capital expenditures in 1999 (which excludes new store
development capital expenditures) will approximate $2.5 million and $2.0
million, respectively. The level of capital expenditures for Sybra's new store
development and acquisitions will be dependent upon several factors, including
the number of stores constructed and/or acquired as well as the capital
structure of any such transactions.
15
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT TITLE
- --------------------- -------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, I.C.H.
Corporation has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 15, 1999
<TABLE>
<S> <C> <C>
I.C.H. CORPORATION
By: /s/ JAMES R. ARABIA
-----------------------------------------
James R. Arabia
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
By: /s/ GLEN V. FRETER
-----------------------------------------
Glen V. Freter
CHIEF FINANCIAL OFFICER
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1999 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> SUS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,542
<SECURITIES> 0
<RECEIVABLES> 883
<ALLOWANCES> 0
<INVENTORY> 3,165
<CURRENT-ASSETS> 15,504
<PP&E> 45,911
<DEPRECIATION> (7,493)
<TOTAL-ASSETS> 117,491
<CURRENT-LIABILITIES> 25,638
<BONDS> 0
0
0
<COMMON> 29
<OTHER-SE> 18,186
<TOTAL-LIABILITY-AND-EQUITY> 117,491
<SALES> 61,127
<TOTAL-REVENUES> 61,293
<CGS> 52,259
<TOTAL-COSTS> 57,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,062
<INCOME-PRETAX> 2,035
<INCOME-TAX> 824
<INCOME-CONTINUING> 1,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,211
<EPS-BASIC> .43
<EPS-DILUTED> .34
</TABLE>
