UNITED STATES
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 quarterly period ended June 30, 1996
Commission File Number: 0-20286
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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)
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 July 31, 1996, all of the voting stock of the registrant
(consisting of 10,445,000 shares of common stock, $0.01 par value) was held by
the registrant's parent, CFC Holdings Corp.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
RC/ARBY'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 (A) 1996
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ASSETS (In thousands)
(Unaudited)
Current assets:
Cash ................................................. $ 9,744 $ 9,043
Receivables, net...................................... 30,030 40,566
Note receivable from affiliate........................ 5,500 1,650
Inventories........................................... 14,870 12,441
Deferred income tax benefit........................... 5,971 5,971
Prepaid expenses and other current assets............. 7,829 7,504
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Total current assets................................ 73,944 77,175
Properties, net ........................................ 122,686 121,587
Unamortized costs in excess of net assets
of acquired companies................................. 170,693 167,615
Deferred costs and other assets......................... 26,897 24,937
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$ 394,220 $ 391,314
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt..................... $ 3,697 $ 3,765
Notes payable to affiliates........................... 13,925 12,400
Accounts payable...................................... 22,635 19,206
Accrued expenses...................................... 52,042 59,869
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Total current liabilities........................... 92,299 95,240
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Long-term debt.......................................... 351,238 349,075
Note payable to affiliate............................... 6,700 6,700
Deferred income and other liabilities................... 7,393 7,889
Stockholder's equity (deficit):
Common stock, $.01 par value; authorized 12,000,000
shares; issued and outstanding 10,445,000 shares.... 104 104
Additional paid-in capital............................ 44,197 44,197
Accumulated deficit................................... (107,711) (111,891)
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Total stockholder's deficit......................... (63,410) (67,590)
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$ 394,220 $ 391,314
========= =========
(A) Derived from the audited consolidated financial statements as of
December 31, 1995.
See accompanying notes to condensed consolidated financial statements.
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1995 1996 1995 1996
-------- -------- -------- --------
(In thousands)
(Unaudited)
Revenues:
Net sales......................... $101,704 $108,075 $192,162 $207,141
Royalties, franchise fees
and other revenues............... 13,367 14,544 25,539 26,977
-------- -------- -------- --------
Total revenues................. 115,071 122,619 217,701 234,118
-------- -------- -------- --------
Costs and expenses:
Cost of sales..................... 60,670 66,530 113,303 129,462
Advertising, selling
and distribution expenses........ 28,019 27,531 52,329 50,598
General and administrative expenses. 20,482 18,911 39,519 37,726
------- -------- -------- --------
Total costs and expenses....... 109,171 112,972 205,151 217,786
-------- -------- -------- --------
Operating profit.................. 5,900 9,647 12,550 16,332
Interest expense.................... (9,761) (10,962) (18,966) (21,630)
Other income (expense), net......... (150) 240 (45) 474
-------- -------- -------- --------
Loss before income taxes.......... (4,011) (1,075) (6,461) (4,824)
Benefit from (provision for)
income taxes...................... 848 (277) 1,203 644
-------- -------- -------- --------
Net loss.......................... $ (3,163) $ (1,352) $ (5,258) $ (4,180)
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30,
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1995 1996
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(In thousands)
(Unaudited)
Cash flows from operating activities:
Net loss................................................. $(5,258) $(4,180)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of properties........... 6,022 6,897
Amortization of costs in excess of net assets
of acquired companies................................ 3,036 3,079
Amortization of deferred financing costs.............. 1,077 1,214
Other amortization.................................... 1,181 797
Provision for doubtful accounts....................... 368 388
Other, net............................................ (351) 708
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables........................................ (7,801) (10,924)
Inventories........................................ 314 2,429
Prepaid expenses and other current assets.......... (1,163) 149
Increase (decrease) in:
Accounts payable................................... (810) (3,429)
Accrued expenses................................... 5,286 7,792
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Net cash provided by operating activities.................. 1,901 4,920
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Cash flows from investing activities:
Capital expenditures..................................... (26,289) (6,194)
Business acquisitions.................................... (9,782) -
Investment in affiliate.................................. (1,000) -
Proceeds from sales of properties........................ 164 447
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Net cash used in investing activities...................... (36,907) (5,747)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt................. 37,294 2,427
Collections in 1996 and borrowings in 1995, net of
repayments, on notes with affiliates.................... 3,250 2,325
Repayments of long-term debt............................. (1,262) (4,522)
Payment of deferred financing costs...................... (2,398) (104)
Capital contribution from CFC Holdings Corp.............. 8,865 -
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Net cash provided by financing activities.................. 45,749 126
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Net increase (decrease) in cash............................ 10,743 (701)
Cash at beginning of period................................ 1,885 9,744
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Cash at end of period...................................... $12,628 $ 9,043
======= =======
See accompanying notes to condensed consolidated financial statements.
4
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 June
30, 1996, its results of operations for the three-month and six-month periods
ended June 30, 1995 and 1996 and its cash flows for the six-month periods ended
June 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 ("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.
(2) Inventories
The following is a summary of the components of inventories:
December 31, June 30,
1995 1996
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(In thousands)
Raw materials.................................. $ 11,677 $ 8,794
Work in process................................ 479 523
Finished goods................................. 2,714 3,124
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$ 14,870 $ 12,441
========= =========
(3) Properties
The following is a summary of the components of properties, net:
December 31, June 30,
1995 1996
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(In thousands)
Properties, at cost............................ $ 182,197 $ 186,277
Less accumulated depreciation and amortization. 59,511 64,690
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$ 122,686 $ 121,587
========= =========
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS - (Continued)
June 30,1996
(Unaudited)
(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, June 30,
Affiliated Entity Rate Maturity 1995 1996
----------------- ---- -------- -------- --------
(In thousands)
Notes payable to:
Triarc 11 7/8% Demand $ 11,675 $ 10,150
Triarc 11 7/8% February 1998 6,700 6,700
Chesapeake Insurance 9 1/2% June 1997 2,250 2,250
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Total notes payable
to affiliates 20,625 19,100
Less amounts payable
within one year 13,925 12,400
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$ 6,700 $ 6,700
======== ========
Note receivable from:
Triarc 11 7/8% December 1996 $ 5,500 $ 1,650
======== ========
Interest expense on notes payable to Triarc and its subsidiaries amounted to
$1,495,000 and $1,478,000 for the six months ended June 30, 1995 and 1996,
respectively. Interest income from notes receivable from Triarc amounted to
$125,000 and $162,000 for the six months ended June 30, 1995 and 1996,
respectively, and is included in "Other income (expense), net" in the
accompanying condensed consolidated statement of operations.
(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 for the tax years 1985
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. 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.
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein 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 under this caption
"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 "Item 5 - Other Information."
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 1995
Revenues increased $16.4 million (7.5%) to $234.1 million in the six months
ended June 30, 1996. Restaurant revenues increased $14.2 million (11.3%) to
$139.7 million due to (i) a $12.8 million increase in net sales principally
resulting from an average net increase of 50 (15.7%) company-owned restaurants
and (ii) a $1.4 million increase in royalties, franchise fees and other revenues
resulting primarily from an average net increase of 77 (3.1%) franchised
restaurants and a 3.0% increase in average royalty rates due to the declining
significance of older franchise agreements with lower rates. Beverage revenues
increased $2.2 million (2.4%) to $94.4 million due to (i) a $2.5 million
increase in finished product sales principally due to (a) the inclusion of a
full six month's 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 and (ii) a $1.4 million increase
in finished product sales attributable to Royal Crown Premium Draft Cola ("Draft
Cola") which was launched during the second quarter of 1995, partially offset by
a $1.7 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.
Gross profit (total revenues less cost of sales) increased $0.3 million to
$104.6 million in the six months ended June 30, 1996 while gross margins (gross
profit divided by total revenues) decreased to 44.7% compared with 48.0% for the
comparable period of the prior year. Restaurant gross profit increased $1.1
million to $44.6 million due primarily to the effect of the increase in revenues
described above partially offset by a decline in restaurant gross margins to
31.9% from 34.7%. The decrease in restaurant gross margins was primarily due to
(i) 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 latter half
of 1996, (ii) increased payroll costs as a percentage of net sales resulting
from (a) costs for training of personnel in connection with Roast Town and
multi-brand store conversions and (b) higher fringe benefit costs and (iii) a
slightly lower percentage of royalties, franchise fees and other revenues to
total revenues. Beverage gross profit declined $0.8 million to $60.0 million as
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a result of (i) the lower volume of private label concentrate sales noted above
and (ii) a decline in beverage gross margins to 63.6% from 66.0% due to (a)
increased sales of lower margin finished product associated with the Acquisition
and the Licensing noted above and (b) lower average selling prices for branded
concentrate in the first quarter of 1996.
Advertising, selling and distribution expenses declined $1.7 million to
$50.6 million in the six months ended June 30, 1996. Advertising and selling
expenses in the beverage segment declined $3.0 million due to a $4.7 million
decrease primarily attributable to (i) a net reduction in media spending for
branded products and (ii) lower couponing costs reflecting reduced bottler
utilization, partially offset by $1.7 million of incremental advertising
expenses of which $1.3 million related to Draft Cola which was launched in June
1995. Advertising and selling expenses in the restaurant segment increased $1.3
million primarily due to the increased number of company-owned restaurants.
General and administrative expenses declined $1.8 million to $37.7 million
in the six months ended June 30, 1996, principally reflecting the effect of cost
reductions in the restaurant segment.
Interest expense increased $2.7 million to $21.6 million in the six months
ended June 30, 1996 principally due to an additional $47.7 million of average
outstanding borrowings in the 1996 period compared to 1995 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 $0.5 million in the six months
ended June 30, 1996 compared to an insignificant expense in the same period of
1995. The favorable change between years was principally attributable to
nonrecurring 1995 losses on asset disposals.
The benefit from income taxes in 1996 and 1995 reflect effective tax rates
of 13.3% and 18.6%, respectively. The effective tax rate varies from the Federal
statutory income tax rate of 35% in both periods 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 June 30, 1996 Compared with Three Months Ended June 30, 1995
Revenues increased $7.5 million (6.6%) to $122.6 million in the three months
ended June 30, 1996. Restaurant revenues increased $4.2 million (6.2%) to $72.6
million due to (i) a $3.0 million increase in net sales resulting from an
average net increase of 28 (8.2%) company-owned restaurants, the effect of which
was partially offset by a 2.3% decline in company-owned same-store sales and
(ii) a $1.2 million increase in royalties, franchise fees and other revenues due
to an average net increase of 80 (3.2%) franchised restaurants and a 3.6%
increase in average royalty rates. Beverage revenues increased $3.3 million
(7.2%) to $50.0 million due to (i) a $1.2 million volume increase in branded
concentrate sales reflecting the nonrecurring effect on the 1995 second quarter
of domestic forward buying in advance of an announced April 1, 1995 price
increase, (ii) a $1.1 million volume increase in private label concentrate sales
and (iii) a $1.0 million volume increase in finished soft drink product sales
primarily due to the timing of the Draft Cola launch and the Licensing.
Gross profit increased $1.7 million to $56.1 million in the three months
ended June 30, 1996 while gross margins decreased to 45.7% compared with 47.3%
for the comparable period of the prior year. Restaurant gross profit remained
flat at $24.2 million, reflecting the effect of the increase in revenues
described above offset by a decline in restaurant gross margins to 33.3% from
35.3%. The decrease in restaurant gross margins was primarily due to higher
hardware lease and software amortization costs related to the new point-of-sale
register system and increased payroll costs as a percentage of net sales
resulting from (a) costs for training of personnel in connection with Roast Town
and multi-brand store conversions and (b) higher fringe benefit costs. Beverage
gross profit increased $1.7 million to $31.9 million due to the effect of the
increased sales volume described above partially offset by a decline in beverage
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gross margins to 63.9% from 64.8% as a result of the increased sales of lower
margin finished product.
Advertising, selling and distribution expenses declined $0.5 million to
$27.5 million in the three months ended June 30, 1996. Advertising and selling
expenses related to the beverage segment decreased $0.7 million due to a $1.2
million net reduction in media spending for branded products partially offset by
$0.5 million of incremental advertising expenses related to Draft Cola.
General and administrative expenses declined $1.6 million to $18.9 million
in the three months ended June 30, 1996, principally reflecting the effect of
cost reductions in the restaurant segment.
Interest expense increased $1.2 million to $11.0 million in the three months
ended June 30, 1996 principally due to an additional $37.6 million of average
outstanding borrowings in the 1996 period compared to 1995 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 $0.2 million in the three months
ended June 30, 1996 compared with expense of $0.2 million in the same period of
1995. The favorable change between years was principally attributable to
nonrecurring 1995 losses on asset disposals.
The Company incurred a provision for income taxes despite a loss before
income taxes for the three months ended June 30, 1996 while the benefit from
income taxes in 1995 reflects an effective tax rate of 21.1%. The provision in
the 1996 period and the lower effective tax rate in the 1995 period compared
with the Federal statutory income tax rate of 35% are due to the amortization of
nondeductible costs in excess of net assets of acquired companies, the effect of
which results in a provision in the 1996 period due to the lower loss before
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash decreased $0.7 million during the six months ended June
30, 1996 to $9.0 million. The decrease reflects cash used in investing
activities (primarily capital expenditures) of $5.7 million partially offset by
(i) cash provided by operating activities of $4.9 million and (ii) cash provided
by financing activities of $0.1 million. The net cash provided by operating
activities reflects a net loss of $4.2 million and cash used for operating
assets and liabilities of $4.0 million, which are more than offset by non-cash
charges of $13.1 million principally for depreciation and amortization. The
Company expects continued positive cash flows from operations during the
remainder of 1996. The $4.0 million used for operating assets and liabilities
primarily reflects (i) a $10.9 million increase in receivables principally from
beverage bottlers due to increased sales volume and slower collections in the
second quarter of 1996 versus the last quarter of 1995 and (ii) a $3.4 million
decrease in accounts payable due primarily to a lower level of capital
expenditures in the restaurant segment in the second quarter of 1996 versus the
last quarter of 1995, partially offset by (iii) a $7.8 million increase in
accrued expenses primarily in the beverage segment relating to the seasonality
of marketing support payments to bottlers and (iv) a $2.4 million decrease in
inventories mainly due to the improvement of beverage raw material controls.
During 1995 ARDC and ARHC entered into loan and financing agreements with
FFCA Acquisition Corporation ("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 June 30,
1996, borrowings under the FFCA Loan Agreements aggregated $57.4 million (net of
repayments of $3.7 million) resulting in remaining availability of $26.2 million
through December 31, 1996 to finance new company-owned restaurants. The Company
anticipates utilizing $3.2 million of such availability for the remainder of
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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 six months ended June 30, 1996, the Company increased its net
borrowings under promissory notes to and from Triarc and its subsidiaries by
$2.3 million. The outstanding principal amounts of such promissory notes,
aggregating $19.1 million of notes payable offset by a $1.6 million note
receivable at June 30, 1996, consist of $10.2 million payable on demand, $0.5
million payable during the remainder of 1996, $8.4 million payable thereafter
and $1.6 million receivable in December 1996. Subsequent to June 30, 1996
through August 6, 1996, the Company increased its net borrowings under the
promissory note with Triarc by $6.8 million.
Consolidated capital expenditures amounted to $6.2 million in the six months
ended June 30, 1996. The Company expects that capital expenditures during the
remainder of 1996 will approximate $13.0 million, principally for the conversion
of existing company-owned restaurants to Roast Town and multi-brand concept
restaurants and, to a lesser extent, construction of new restaurants and
replacement of equipment. As of June 30, 1996, there were approximately $6.0
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,
borrowings under the FFCA Loan Agreements discussed above and borrowings from
Triarc to the extent available. In addition, the Company may seek additional
borrowings in the event that cash generated from the above sources is not
sufficient to fund its capital expenditure requirements. The Company believes
that it will be able to obtain such additional borrowings on satisfactory terms
when needed.
In furtherance of the Company's growth strategy, the Company will consider
selective acquisitions as appropriate, to build and strengthen its existing
businesses to the extent it has available resources to do so. In January 1996,
Arby's and T.J. Cinnamons, Inc., an operator and franchisor of retail bakeries
specializing in gourmet cinnamon rolls and related products, reached an
agreement in principle through which Arby's will purchase the trademarks,
service marks, recipes and secret formulas of T.J. Cinnamons for a purchase
price of $3.5 million, consisting of an initial cash outlay of approximately
$1.8 million and the balance in the form of a note. The closing is expected to
occur during the third quarter of 1996, subject to the satisfaction of customary
closing conditions. There can be no assurance, however, that the closing will be
consummated.
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 June 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 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 expects in 1996 to pay approximately $3.5 million,
of which approximately $0.5 million will be payable by the Company. 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.
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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.
As of June 30, 1996, the Company had cash of $9.0 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 $13.0 million, $1.8 million for the acquisition of
certain assets of T.J. Cinnamons noted above, funding for additional
acquisitions, if any, the payment of approximately $0.5 million related to the
tax audit described above, and debt (including capitalized leases and affiliated
notes) principal repayments of $12.5 million, subject to Triarc's requirement
for the Company to repay any or all of the outstanding balance under the $10.2
million demand promissory note (the "Demand Note") included in the $12.5
million. The Company anticipates meeting such requirements through existing cash
and/or cash flows from operations, financing a portion of its capital
expenditures through additional borrowings under the FFCA Loan Agreements,
capital leases and operating 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. As described above, the Company may seek
additional borrowings in the event that cash generated from the above sources is
not sufficient to fund its capital expenditure requirements. 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.
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In 1993 Royal Crown Company, Inc. ("Royal Crown") became aware of possible
contamination from hydrocarbons in groundwater at two abandoned bottling
facilities. In 1994, as a result of tests necessitated by the removal of four
underground storage tanks at Royal Crown's no longer used distribution site in
Miami, Florida, hydrocarbons were discovered in the groundwater. Assessment is
proceeding under the direction of the Dade County Department of Environmental
Resources Management ("DERM") to determine the extent of the contamination. The
necessary testing to determine the extent of the contamination is still
underway, but the early estimate of total remediation costs (in excess of
amounts incurred through December 31, 1995) given by the environmental
consultant retained by Royal Crown is between $150,000 and $230,000, depending
on the actual extent of the contamination. In June 1996 DERM approved a
remediation plan submitted by Royal Crown and remediation has commenced at the
site. Additionally, in 1994 the Texas Natural Resources Conservation Commission
approved the remediation of hydrocarbons in the groundwater by Royal Crown at
its former distribution site in San Antonio, Texas. Remediation has commenced at
this site. The environmental remediation firm retained by Royal Crown estimates
the total cost of remediation to be approximately $210,000 (in excess of amounts
incurred through December 31, 1995), of which 60-70% is expected to be
reimbursed by the State of Texas Petroleum Storage Tank Remediation Fund. Royal
Crown has incurred actual costs of $293,000, in the aggregate, through December
31, 1995 for these matters. The Company does not believe that the outcome of
these matters will have a material adverse effect on the Company's consolidated
results of operations or financial position.
Item 5. 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 facts which may cause actual results, performance or achievements of 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; 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.
No other items to report.
12
<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: August 14, 1996 By: /S/ JOSEPH A. LEVATO
--------------------
Joseph A. Levato
Executive 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)
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<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 six-month period ended June 30, 1996 and
is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,043
<SECURITIES> 0
<RECEIVABLES> 40,566
<ALLOWANCES> 0
<INVENTORY> 12,441
<CURRENT-ASSETS> 77,175
<PP&E> 186,277
<DEPRECIATION> 64,690
<TOTAL-ASSETS> 391,314
<CURRENT-LIABILITIES> 95,240
<BONDS> 349,075
0
0
<COMMON> 104
<OTHER-SE> (67,694)
<TOTAL-LIABILITY-AND-EQUITY> 391,314
<SALES> 207,141
<TOTAL-REVENUES> 234,118
<CGS> 129,462
<TOTAL-COSTS> 129,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,630
<INCOME-PRETAX> (4,824)
<INCOME-TAX> (644)
<INCOME-CONTINUING> (4,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,180)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
