UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-20286
RC/ARBY'S CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 59-2277791
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Corporate Drive, Fort Lauderdale, Florida 33334
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(Address of principal executive offices) (Zip Code)
(954) 351-5600
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(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
As of October 31, 1996, all of the voting stock of the registrant
(consisting of 1,000 shares of common stock, $1.00 par value) was held by the
registrant's parent, CFC Holdings Corp.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
RC/ARBY'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1995 (A) 1996
-------- --------
ASSETS (In thousands)
(Unaudited)
Current assets:
Cash ............................................... $ 9,744 $ 5,311
Receivables, net.................................... 30,030 39,816
Note receivable from affiliate...................... 5,500 1,650
Inventories......................................... 14,870 12,702
Deferred income tax benefit......................... 5,971 5,971
Prepaid expenses and other current assets........... 7,829 8,145
---------- ---------
Total current assets.............................. 73,944 73,595
Properties, net ...................................... 122,686 123,921
Unamortized costs in excess of net assets
of acquired companies............................... 170,693 166,072
Deferred costs and other assets....................... 26,897 28,038
---------- ---------
$ 394,220 $ 391,626
========== =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt................... $ 3,697 $ 5,266
Notes payable to affiliates......................... 13,925 17,265
Accounts payable.................................... 22,635 20,369
Accrued expenses.................................... 52,042 53,949
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Total current liabilities......................... 92,299 96,849
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Long-term debt........................................ 351,238 350,059
Note payable to affiliate............................. 6,700 6,700
Deferred income and other liabilities................. 7,393 7,434
Stockholder's equity (deficit):
Common stock, $1.00 par value; authorized 3,000
shares; issued and outstanding 1,000 shares....... 1 1
Additional paid-in capital.......................... 44,300 44,300
Accumulated deficit................................. (107,711) (113,717)
---------- ---------
Total stockholder's deficit....................... (63,410) (69,416)
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$ 394,220 $ 391,626
========== =========
(A) Derived from the audited consolidated financial statements as of December
31, 1995, as adjusted for the restatement of common stock and additional
paid-in capital described in Note 1.
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
September 30, September 30,
---------------- ----------------
1995 1996 1995 1996
------ ------ ------ ------
(In thousands)
(Unaudited)
Revenues:
Net sales......................... $102,569 $103,655 $294,731 $310,796
Royalties, franchise fees
and other revenues............... 14,512 14,896 40,051 41,873
-------- -------- -------- --------
Total revenues................. 117,081 118,551 334,782 352,669
-------- -------- -------- --------
Costs and expenses:
Cost of sales..................... 64,115 64,375 177,418 193,837
Advertising, selling
and distribution expenses........ 30,193 26,362 82,522 76,960
General and administrative expenses. 19,970 19,241 59,489 56,967
------- -------- -------- --------
Total costs and expenses....... 114,278 109,978 319,429 327,764
-------- -------- -------- --------
Operating profit.................. 2,803 8,573 15,353 24,905
Interest expense.................... (10,150) (10,823) (29,116) (32,453)
Other income (expense), net......... (1,047) 270 (1,092) 744
-------- -------- -------- --------
Loss before income taxes.......... (8,394) (1,980) (14,855) (6,804)
Benefit from income taxes........... 2,387 154 3,590 798
-------- -------- -------- --------
Net loss.......................... $ (6,007) $ (1,826) $(11,265) $ (6,006)
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
----------------
1995 1996
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(In thousands)
(Unaudited)
Cash flows from operating activities:
Net loss................................................. $(11,265) $(6,006)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of properties........... 9,392 10,519
Amortization of costs in excess of net assets
of acquired companies................................ 4,561 4,621
Amortization of deferred financing costs.............. 1,637 1,799
Other amortization.................................... 1,520 1,244
Provision for doubtful accounts....................... 750 702
Write-down of investment in preferred
stock of affiliate................................... 850 -
Other, net............................................ (246) (140)
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables........................................ (5,145) (10,488)
Inventories........................................ (1,121) 2,168
Prepaid expenses and other current assets.......... (55) (316)
Increase (decrease) in:
Accounts payable................................... (7,595) (2,266)
Accrued expenses................................... 1,133 1,675
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Net cash provided by (used in) operating activities........ (5,584) 3,512
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Cash flows from investing activities:
Capital expenditures..................................... (38,220) (12,557)
Business acquisitions.................................... (13,674) (3,697)
Proceeds from sales of properties........................ 719 910
Investment in affiliate.................................. (1,000) -
-------- -------
Net cash used in investing activities...................... (52,175) (15,344)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt................. 37,294 5,777
Borrowings, net of repayments, and
collections on notes with affiliates.................... 23,850 7,190
Repayments of long-term debt............................. (2,338) (5,387)
Payment of deferred financing costs...................... (2,528) (181)
Capital contribution from CFC Holdings Corp.............. 8,865 -
-------- -------
Net cash provided by financing activities.................. 65,143 7,399
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Net increase (decrease) in cash............................ 7,384 (4,433)
Cash at beginning of period................................ 1,885 9,744
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Cash at end of period...................................... $ 9,269 $ 5,311
======== =======
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
(1) Basis of Presentation
RC/Arby's Corporation ("RCAC" or, together with its subsidiaries, the
"Company") is a direct wholly-owned subsidiary of CFC Holdings Corp. ("CFC
Holdings"), and an indirect wholly-owned subsidiary of Triarc Companies, Inc.
("Triarc"). RCAC's principal wholly-owned subsidiaries are Arby's, Inc. and
Royal Crown Company, Inc. Additionally, RCAC has three wholly-owned
subsidiaries which own and/or operate Arby's restaurants: Arby's Restaurant
Development Corporation, Arby's Restaurant Holding Company and Arby's
Restaurant Operations Company.
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of the Company,
however, the accompanying condensed consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of December 31, 1995 and
September 30, 1996, its results of operations for the three-month and
nine-month periods ended September 30, 1995 and 1996 and its cash flows for
the nine-month periods ended September 30, 1995 and 1996. This information
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K (the "Form
10-K") for the year ended December 31, 1995.
Certain amounts included in the prior periods' condensed consolidated
financial statements have been reclassified to conform with the current
periods' presentation.
Common stock and additional paid-in capital in the accompanying condensed
consolidated balance sheet as of December 31, 1995 have been retroactively
restated to reflect the reincorporation of RCAC in the state of Delaware
effective March 21, 1994, whereby the 10,445,000 outstanding shares ($.01 par
value) of the predecessor Florida corporation were canceled and replaced by
the issuance of 1,000 common shares ($1.00 par value) of the successor
Delaware corporation. As a result, common stock and additional paid-in capital
were reduced and increased, respectively, by $103,000.
(2) Inventories
The following is a summary of the components of inventories:
December 31, September 30,
1995 1996
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(In thousands)
Raw materials.................................. $ 11,677 $ 9,614
Work in process................................ 479 498
Finished goods................................. 2,714 2,590
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$ 14,870 $ 12,702
========= =========
5
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS - (Continued)
September 30, 1996
(Unaudited)
(3) Properties
The following is a summary of the components of properties, net:
December 31, September 30,
1995 1996
--------- ---------
(In thousands)
Properties, at cost............................ $ 182,197 $ 192,119
Less accumulated depreciation and amortization. 59,511 68,198
--------- ---------
$ 122,686 $ 123,921
========= =========
(4) Related Party Transactions
The Company continues to have certain related party transactions with
Triarc and its subsidiaries of the nature and general magnitude (except for
borrowings from and advances to affiliates and related interest set forth
below) as those described in Note 12 to the consolidated financial statements
contained in the Form 10-K. Details of the Company's promissory notes payable
to Triarc and one of its subsidiaries, Chesapeake Insurance Company Limited
("Chesapeake Insurance"), and a note receivable from Triarc are as follows:
Interest December 31, September 30,
Affiliated Entity Rate Maturity 1995 1996
----------------- ---- -------- -------- --------
(In thousands)
Notes payable to:
Triarc 11 7/8% Demand $ 11,675 $ 15,265
Triarc 11 7/8% February 1998 6,700 6,700
Chesapeake Insurance 9 1/2% June 1997 2,250 2,000
-------- --------
Total notes payable
to affiliates 20,625 23,965
Less amounts payable
within one year 13,925 17,265
-------- --------
$ 6,700 $ 6,700
======== ========
Note receivable from:
Triarc 11 7/8% December 1996(a) $ 5,500 $ 1,650
======== ========
- -----------------
(a) The Company expects that this note will be canceled before maturity
and reissued on a demand basis.
Interest expense on notes payable to Triarc and its subsidiaries amounted
to $2,308,000 and $2,150,000 for the nine months ended September 30, 1995 and
1996, respectively. Interest income on notes receivable from Triarc amounted
to $207,000 and $212,000 for the nine months ended September 30, 1995 and
1996, respectively, and is included in "Other income (expense), net" in the
accompanying condensed consolidated statements of operations.
6
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS - (Continued)
September 30, 1996
(Unaudited)
(5) Contingencies
The Company continues to have (i) income tax contingencies as a result of
examinations of the Federal income returns of Triarc and its subsidiaries,
including the Company, by the Internal Revenue Service (the "IRS") for the tax
years 1989 through 1992 and (ii) an environmental contingency for possible
contamination from hydrocarbons in ground water at two abandoned bottling
facilities, both of the same nature and general magnitude as described in
Notes 11 and 18, respectively, to the consolidated financial statements
contained in the Form 10-K. In October 1996 the Company paid $405,000 in final
settlement of the remaining unresolved issue with respect to the Company which
was being contested as of December 31, 1995 in connection with the examination
of the Federal income tax returns of Triarc and its subsidiaries by the IRS
for the tax years 1985 though 1988. After considering amounts provided
principally in periods prior to December 31, 1995, the Company does not
believe that these contingencies, as well as ordinary routine litigation, will
have a material adverse effect on its consolidated financial position or
results of operations.
(6) Subsequent Event
On October 29, 1996 Triarc announced that its Board of Directors
approved a plan to offer up to approximately 20% of the shares of its beverage
and restaurant businesses (including those of the Company) to the public
through an initial public offering and to spinoff the remainder of the shares
of such businesses to Triarc's stockholders. Consummation of the initial
public offering and spinoff will be subject to, among other things, receipt of
a favorable ruling from the IRS that the spinoff will be tax-free to Triarc
and its stockholders. The request for ruling from the IRS will contain several
complex issues and there can be no assurance that Triarc will receive the
ruling or that Triarc will consummate the initial public offering or the
spinoff. The initial public offering and spinoff are not expected to occur
prior to the end of the second quarter of 1997.
7
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report on Form 10-K for the year ended December 31,
1995 (the "Form 10-K") of RC/Arby's Corporation ("RCAC" or, together with its
subsidiaries, the "Company"). The recent trends affecting the Company's two
business segments, restaurants and beverages, are described therein. RCAC is a
direct wholly-owned subsidiary of CFC Holdings Corp. ("CFC Holdings") and an
indirect wholly-owned subsidiary of Triarc Companies, Inc. ("Triarc"). RCAC's
principal wholly-owned subsidiaries are Arby's, Inc. ("Arby's") and Royal
Crown Company, Inc. ("Royal Crown"). Additionally, RCAC has three wholly-owned
subsidiaries which own and/or operate Arby's restaurants: Arby's Restaurant
Development Corporation ("ARDC"), Arby's Restaurant Holding Company ("ARHC")
and Arby's Restaurant Operations Company. Certain statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. See "PART II - OTHER INFORMATION."
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared with Nine Months Ended
September 30, 1995
Revenues increased $17.9 million (5.3%) to $352.7 million in the nine
months ended September 30, 1996. Restaurant revenues increased $14.8 million
(7.5%) to $213.2 million due to (i) a $13.0 million increase in net sales
principally resulting from an average net increase of 34 (10.2%) company-owned
restaurants and (ii) a $1.8 million increase in royalties, franchise fees and
other revenues resulting primarily from an average net increase of 90 (3.6%)
franchised restaurants and a 1.8% increase in average royalty rates due to the
declining significance of older franchise agreements with lower rates.
Beverage revenues increased $3.1 million (2.2%) to $139.5 million due to a
$4.8 million increase in finished product sales principally due to (a)
incremental sales in the 1996 period of C&C and Royal Crown's branded products
in the New York metropolitan area, following the acquisition (the
"Acquisition") of their distribution rights on January 12, 1995 and an initial
start-up period and (b) to a lesser extent, the licensing (the "Licensing") of
Celestial Seasonings herbal tea line distribution rights throughout the United
States for ten years commencing in October 1995, partially offset by a $1.5
million volume decrease in private label concentrate sales as the Company's
private label customer reduced its worldwide inventories in the first quarter
of 1996 and a $0.2 million decrease in sales of branded products.
Gross profit (total revenues less cost of sales) increased $1.5 million to
$158.8 million in the nine months ended September 30, 1996 while gross margins
(gross profit divided by total revenues) decreased to 45.0% compared with
47.0% for the comparable period of the prior year. Restaurant gross profit
increased $2.6 million to $69.1 million due primarily to the effect of the
increase in revenues described above partially offset by a decline in
restaurant gross margins to 32.4% from 33.5%. The decrease in restaurant gross
margins was primarily due to higher hardware lease and software amortization
costs related to a new point-of-sale register system installed in domestic
company-owned restaurants in the latter half of 1995, the full benefit of
which will not be realized until the related computer software programs become
fully utilized in the remainder 1996 and first half of 1997, and a slightly
lower percentage of royalties, franchise fees and other revenues (with no
associated cost of sales) to total revenues. Beverage gross profit declined
$1.1 million to $89.7 million as a result of a decline in beverage gross
margins to 64.3% from 66.6% due to increased sales of lower margin finished
product associated with the Acquisition and the Licensing noted above and
lower average selling prices for branded concentrate.
8
<PAGE>
Advertising, selling and distribution expenses declined $5.6 million to
$77.0 million in the nine months ended September 30, 1996. Advertising and
selling expenses in the beverage segment declined $8.4 million primarily due
to (i) a net reduction in media spending for (a) branded concentrate products
and (b) Royal Crown Premium Draft Cola ("Draft Cola"), for which there had
been higher costs in connection with its launch in mid-1995 and (ii) lower
couponing costs reflecting reduced bottler utilization. Advertising and
selling expenses in the restaurant segment increased $2.8 million primarily in
response to competitive pressures, a larger company-owned store base and
multi-brand restaurant development.
General and administrative expenses declined $2.5 million to $57.0 million
in the nine months ended September 30, 1996, principally reflecting the effect
of cost reduction efforts in both the restaurant and beverage segments.
Interest expense increased $3.3 million to $32.5 million in the nine
months ended September 30, 1996 due to an additional $39.2 million of average
outstanding borrowings in the 1996 period compared to 1995 principally as a
result of mortgage and equipment loans used to finance capital expenditures
and business acquisitions in the restaurant segment.
Other income (expense), net was income of $0.7 million in the nine months
ended September 30, 1996 compared with an expense of $1.1 million in the same
period of 1995. The favorable change between years was principally
attributable to nonrecurring 1995 losses on asset disposals and the write-down
of an investment in a soft drink distributor.
The benefit from income taxes in 1996 and 1995 reflects effective tax
rates of 11.7% and 24.2%, respectively. The effective tax rates vary from the
Federal statutory income tax rate of 35% principally due to the amortization
of nondeductible costs in excess of net assets of acquired companies, the
effect of which is greater in the 1996 period due to the lower loss before
income taxes.
Three Months Ended September 30, 1996 Compared with Three Months Ended
September 30, 1995
Revenues increased $1.5 million (1.2%) to $118.6 million in the three
months ended September 30, 1996. Restaurant revenues increased $0.7 million
(0.9%) to $73.5 million due to higher royalties and net sales resulting from
more franchised and company-owned restaurants, respectively, in operation.
Beverage revenues increased $0.8 million (1.8%) to $45.1 million due
principally to a net increase in volume sold.
Gross profit increased $1.2 million to $54.2 million in the three months
ended September 30, 1996 and gross margins increased to 45.7% compared with
45.2% for the comparable period of the prior year. Restaurant gross profit
increased $1.5 million to $24.5 million, reflecting an increase in restaurant
gross margins to 33.3% from 31.5% and the effect of the increase in revenues
noted above. The increase in restaurant gross margins was due primarily to the
adverse impact in the prior year period of reduced operating efficiencies as a
result of the start-up of new restaurants. Beverage gross profit declined $0.3
million to $29.7 million due to a decline in beverage gross margins to 65.9%
from 67.8% primarily as a result of lower average selling prices for branded
finished products.
Advertising, selling and distribution expenses declined $3.8 million to
$26.4 million in the three months ended September 30, 1996. Advertising and
selling expenses related to the beverage segment decreased $5.3 million due to
reduced spending related to Draft Cola and branded concentrate products.
Advertising and selling expenses in the restaurant segment increased $1.5
million in response to competitive pressures and multi-brand restaurant
development.
General and administrative expenses declined $0.7 million to $19.2 million
in the three months ended September 30, 1996, principally reflecting the
effect of cost reduction efforts.
9
<PAGE>
Interest expense increased $0.7 million to $10.8 million in the three
months ended September 30, 1996 due to an additional $19.1 million of average
outstanding borrowings in the 1996 period compared to 1995 principally as a
result of mortgage and equipment loans used to finance capital expenditures
and business acquisitions in the restaurant segment.
Other income (expense), net was income of $0.3 million in the three months
ended September 30, 1996 compared with expense of $1.0 million in the same
period of 1995. The favorable change between years was principally
attributable to nonrecurring 1995 losses on asset disposals and the write-down
of an investment in a soft drink distributor.
The benefit from income taxes in 1996 and 1995 reflects effective tax
rates of 7.8% and 28.4%, respectively. The effective tax rates vary from the
Federal statutory income tax rate of 35% principally due to (i) the
amortization of nondeductible costs in excess of net assets of acquired
companies, the effect of which is greater in the 1996 period due to the lower
loss before income taxes and (ii) in 1996 the catch-up effect of a decrease in
the effective tax rate on the pretax loss of the first six months.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash decreased $4.4 million during the nine months ended
September 30, 1996 to $5.3 million. The decrease reflects cash used in
investing activities (primarily capital expenditures and an acquisition
described below) of $15.3 million partially offset by (i) cash provided by
operating activities of $3.5 million and (ii) cash provided by financing
activities (primarily notes with Triarc) of $7.4 million. The net cash
provided by operating activities reflects a net loss of $6.0 million and cash
used for operating assets and liabilities of $9.2 million, which are more than
offset by non-cash charges of $18.7 million, principally for depreciation and
amortization. The Company expects continued positive cash flows from
operations during the remainder of 1996. The $9.2 million used for operating
assets and liabilities is primarily attributable to an increase in receivables
principally from beverage bottlers due to increased sales volume in the third
quarter of 1996 versus the fourth quarter of 1995 and, to a lesser extent,
slower collections.
During 1995 ARDC and ARHC entered into loan and financing agreements with
FFCA Acquisition Corporation ("FFCA Acquisition") and in September 1996 ARHC
entered into a related loan agreement with FFCA Mortgage Corporation
(collectively with FFCA Acquisition, "FFCA") which, as amended, permit
borrowings in the form of mortgage notes (the "Mortgage Notes") and equipment
notes (the "Equipment Notes") aggregating $87.3 million (the "FFCA Loan
Agreements"). The Mortgage Notes and Equipment Notes are repayable in equal
monthly installments, including interest, over twenty and seven years,
respectively. As of September 30, 1996, borrowings under the FFCA Loan
Agreements aggregated $58.8 million (net of repayments of $3.9 million)
resulting in remaining availability of $24.6 million through December 31, 1997
to finance new and existing company-owned restaurants whose sites are
identified to FFCA by September 30, 1997. The Company anticipates utilizing
less than $1.0 million of such availability during the remainder of 1996. The
assets of ARDC will not be available to pay creditors of RCAC, Arby's or
Triarc until all loans under the FFCA Loan Agreements have been repaid in
full.
During the nine months ended September 30, 1996, the Company increased its
net borrowings under promissory notes to and from Triarc and its subsidiaries
by $7.2 million. The outstanding principal amounts of such promissory notes,
aggregating $24.0 million of notes payable offset by a $1.6 million note
receivable at September 30, 1996, consist of $15.3 million payable on demand,
$0.3 million payable during the remainder of 1996, $8.4 million payable
thereafter and $1.6 million receivable in December 1996. The Company expects
that the $1.6 million note receivable will be canceled before maturity and
reissued on a demand basis.
Consolidated capital expenditures amounted to $12.6 million in the nine
months ended September 30, 1996. The Company expects that capital expenditures
during the remainder of 1996 will approximate $4.4 million, principally for
10
<PAGE>
replacement of restaurant equipment, construction of new restaurants and the
improvement of several existing company-owned restaurants with upgraded
facilities, expanded Arby's menus and/or multi-branding. As of September 30,
1996, there were approximately $4.0 million of outstanding commitments for
capital expenditures. The Company anticipates that it will meet its capital
expenditure requirements through existing cash balances, cash flows from
operations, leasing arrangements and borrowings under the FFCA Loan Agreements
discussed above.
In August 1996, Arby's acquired the trademarks, service marks, recipes
and secret formulas of T.J. Cinnamons, Inc., an operator and franchisor of
retail bakeries specializing in gourmet cinnamon rolls and related products
for a cost of $3.7 million. In furtherance of the Company's growth strategy,
the Company will consider additional selective acquisitions as appropriate, to
build and strengthen its existing businesses to the extent it has available
resources to do so.
The Company is a party to a tax sharing agreement with Triarc whereby the
Company is required to pay amounts relating to taxes based on the taxable
income of the Company and its eligible subsidiaries on a stand alone basis.
The Company had overpaid its 1993 tax obligation due to losses during the
fourth quarter of 1993, and has experienced additional losses subsequent
thereto. As a result, no subsequent payment has been required through
September 30, 1996. Based on its current forecast, the Company does not expect
to be required to make any such payments during the remainder of 1996.
The Company receives from Triarc certain management services, including
legal, accounting, tax, insurance, financial and other management services
under a management services agreement as more fully disclosed in the Form
10-K. As of September 30, 1996, Arby's has a $7.0 million payable to Triarc
for its portion of such charges, of which $4.1 million relates to 1995 and
$2.9 million to 1996. Such amounts will be paid to Triarc to the extent of
available cash.
The Federal income tax returns of Triarc and its subsidiaries, including
the Company, have been examined by the Internal Revenue Service ("IRS") for
the tax years 1985 through 1988. Triarc has resolved all issues related to
such audit and in connection therewith the Company paid $0.4 million in
October 1996. The IRS is currently finalizing its examination of the Federal
income tax returns of Triarc and its subsidiaries for the tax years from 1989
through 1992 and has issued notices of proposed adjustments increasing the
Company's taxable income by approximately $13.0 million, the tax effect of
which has not yet been determined. Triarc is contesting the majority of the
proposed adjustments and, accordingly, the amount and timing of any payments
required as a result thereof cannot presently be determined. However,
management of the Company does not believe the resolution of the 1989 through
1992 examination will be finalized in 1996 and, accordingly, no tax payments
will be required in 1996.
The Company continues to have environmental contingencies of the same
nature and general magnitude as those described in "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the Form 10-K.
On October 29, 1996 Triarc announced that its Board of Directors approved
a plan to offer up to approximately 20% of the shares of its beverage and
restaurant businesses (including those of the Company) to the public through
an initial public offering and to spinoff the remainder of the shares of such
businesses to Triarc's stockholders. Consummation of the initial public
offering and spinoff will be subject to, among other things, receipt of a
favorable ruling from the IRS that the spinoff will be tax-free to Triarc and
its stockholders. The request for ruling from the IRS will contain several
complex issues and there can be no assurance that Triarc will receive the
ruling or that Triarc will consummate the initial public offering or the
spinoff. The initial public offering and spinoff are not expected to occur
prior to the end of the second quarter of 1997.
11
<PAGE>
As of September 30, 1996, the Company had cash of $5.3 million available
to meet its cash requirements. The Company's cash requirements for the
remainder of 1996, exclusive of operating cash flows, consist principally of
capital expenditures of approximately $4.4 million, the October 1996 payment
of $0.4 million related to the tax audit described above, and debt (including
capitalized leases and affiliated notes) principal repayments of $16.8
million, subject to Triarc's requirement for the Company to repay any or all
of the $15.3 million outstanding balance under the demand promissory note (the
"Demand Note") included in the $16.8 million. The Company anticipates meeting
such requirements, other than the Demand Note, through existing cash, cash
flows from operations, financing a portion of its capital expenditures through
additional borrowings under the FFCA Loan Agreements, capital lease
arrangements and, to the extent cash is required other than for repayments to
Triarc under the Demand Note, borrowings from Triarc to the extent available.
The Company believes it will be required to make repayments under the Demand
Note only up to its remaining cash balances in excess of its ongoing
requirements for working capital. The ability of the Company to meet its
long-term cash requirements is dependent upon its ability to obtain and
sustain sufficient cash flows from operations supplemented as necessary by
potential financings to the extent obtainable.
12
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
The statements in this Quarterly Report on Form 10-Q that are not
historical facts constitute "forward-looking statements", within the meaning
of the Private Securities Litigation Reform Act of 1995, that involve risks,
uncertainties and other factors which may cause actual results, performance or
achievements of RC/Arby's Corporation ("RCAC") and its subsidiaries
(collectively with RCAC, "the Company") to be materially different from any
future results, performance or achievements express or implied by such
forward-looking statements. Such factors include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; development and operating costs; advertising and
promotional efforts; brand awareness; the existence or absence of adverse
publicity; acceptance of new product offerings; changing trends in customer
tastes; the success of multi-branding; availability, locations and terms of
sites for restaurant development; changes in business strategy or development
plans; quality of management; availability, terms and deployment of capital;
business abilities and judgment of personnel; availability of qualified
personnel; the Company's indirect parent, Triarc Companies, Inc. ("Triarc"),
not receiving from the Internal Revenue Service a favorable ruling that the
spin-off referred to herein will be tax-free to Triarc and its subsidiaries
and stockholders or the failure to satisfy other customary conditions to
closing for transactions of the type referred to herein; labor and employee
benefit costs; availability and cost of raw materials and supplies;
construction schedules; changes in, or failure to comply with, government
regulations; the costs and other effects of legal and administrative
proceedings and other risks and uncertainties detailed in RCAC's Annual Report
on Form 10-K for the year ended December 31, 1995.
Item 5. Other Information.
On October 29, 1996 Triarc announced that its Board of Directors approved
a plan to offer up to approximately 20% of the shares of its beverage and
restaurant businesses (including those of the Company) to the public through
an initial public offering and to spinoff the remainder of the shares of such
businesses to Triarc's stockholders. Consummation of the initial public
offering and spinoff will be subject to, among other things, receipt of a
favorable ruling from the IRS that the spinoff will be tax-free to Triarc and
its stockholders. The request for ruling from the IRS will contain several
complex issues and there can be no assurance that Triarc will receive the
ruling or that Triarc will consummate the initial public offering or the
spinoff. The initial public offering and spinoff are not expected to occur
prior to the end of the second quarter of 1997. Triarc further announced the
establishment of the Triarc Beverage Group, which will oversee the operations
of Triarc's two beverage subsidiaries, Royal Crown Company, Inc., a subsidiary
of RCAC, and Mistic Brands, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation of RC/Arby's Corporation,
incorporated herein by reference to RCAC's Current Report on Form
8-K dated November 14, 1996.
3.2 By-Laws of RC/Arby's Corporation, incorporated herein by reference
to RCAC's Current Report on Form 8-K dated November 14, 1996.
4.1 Loan Agreement dated as of September 5, 1996 by and between FFCA
Mortgage Corporation and Arby's Restaurant Holding Company,
incorporated herein by reference to RCAC's Current Report on Form
8-K dated November 14, 1996.
13
<PAGE>
4.2 Supplement to Loan Agreements as of June 26, 1996 among FFCA
Acquisition Corporation, Arby's Restaurant Holding Company, Arby's
Restaurant Development Corporation and Triarc Companies, Inc.,
incorporated herein by reference to RCAC's Current Report on Form
8-K dated November 14, 1996.
4.3 Agreement Regarding Cross-Collateralization and Cross-Default
Provisions as of June 26, 1996 by and among FFCA Acquisition
Corporation, Arby's Restaurant Development Corporation, Arby's
Restaurant Holding Company and Arby's, Inc., incorporated herein
by reference to RCAC's Current Report on Form 8-K dated November
14, 1996.
27.1 Financial Data Schedule for the nine-month period ended September
30, 1996, submitted to the Securities and Exchange Commission in
electronic format.*
99.1 Triarc press release dated October 29, 1996, incorporated herein
by reference to RCAC's Current Report on Form 8-K dated October 29,
1996.
--------------------
* Filed herewith
(b) Reports on Form 8-K:
The registrant did not file any reports on Form 8-K during the three
months ended September 30, 1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RC/ARBY'S CORPORATION
(Registrant)
Date: November 14, 1996 By: /s/ JOHN L. BARNES, JR.
-----------------------
John L. Barnes, Jr.
Senior Vice President
and Chief Financial Officer
(On behalf of the Company)
By: /s/ FRED H. SCHAEFER
-----------------------
Fred H. Schaefer
Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
15
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included in the accompanying Form
10-Q of RC/Arby's Corporation for the nine-month period ended September 30,
1996 and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
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