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 March 29, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-20286
RC/ARBY'S CORPORATION
---------------------
(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) 351-5100
--------------
(Registrant's telephone number, including area code)
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(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 April 30, 1998, 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 28, March 29,
1997 (A) 1998
-------- --------
ASSETS (In thousands)
(Unaudited)
Current assets:
Cash and cash equivalents........................... $ 10,463 $ 5,687
Receivables, net.................................... 34,991 33,394
Note receivable from affiliate...................... 2,000 2,000
Inventories......................................... 12,444 9,055
Deferred income tax benefit......................... 21,537 21,537
Prepaid expenses and other current assets........... 3,583 4,588
---------- ---------
Total current assets.............................. 85,018 76,261
Properties, net ...................................... 8,805 12,442
Unamortized costs in excess of net assets
of acquired companies............................... 153,396 151,964
Deferred income tax benefit........................... 20,246 18,275
Deferred costs and other assets....................... 20,011 18,901
---------- ---------
$ 287,476 $ 277,843
========== =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt................... $ 1,556 $ 1,497
Notes payable to affiliates......................... 1,200 950
Accounts payable.................................... 13,584 10,063
Due to affiliates................................... 8,062 12,056
Accrued expenses.................................... 51,846 40,355
---------- ---------
Total current liabilities......................... 76,248 64,921
Long-term debt........................................ 279,606 278,995
Deferred income and other liabilities................. 18,482 18,183
Stockholder's equity (deficit):
Common stock........................................ 1 1
Additional paid-in capital.......................... 73,690 73,690
Accumulated deficit................................. (160,253) (157,647)
Currency translation adjustment..................... (298) (300)
---------- ---------
Total stockholder's deficit....................... (86,860) (84,256)
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$ 287,476 $ 277,843
========== =========
(A) Derived from the audited consolidated financial statements as of December
28, 1997.
See accompanying notes to condensed consolidated financial statements.
2
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
------------------
March 30, March 29,
1997 1998
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(In thousands)
(Unaudited)
Revenues:
Net sales.............................................. $ 89,473 $ 32,195
Royalties, franchise fees and other revenues........... 13,314 18,089
-------- --------
102,787 50,284
-------- --------
Costs and expenses:
Cost of sales.......................................... 50,242 8,104
Advertising, selling and distribution.................. 23,711 16,146
General and administrative............................. 17,562 14,155
Facilities relocation and corporate restructuring...... 1,876 -
-------- --------
93,391 38,405
-------- --------
Operating profit...................................... 9,396 11,879
Interest expense......................................... (10,391) (7,612)
Other income, net........................................ 806 896
-------- --------
Income (loss) before income taxes..................... (189) 5,163
Benefit from (provision for) income taxes................ 125 (2,557)
-------- --------
Net income (loss)..................................... $ (64) $ 2,606
======== ========
See accompanying notes to condensed consolidated financial statements.
3
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
--------------------
March 30, March 29,
1997 1998
-------- --------
(In thousands)
(Unaudited)
Cash flows from operating activities:
Net income (loss)..................................... $ (64) $ 2,606
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of costs in excess of net assets
of acquired companies and other intangibles....... 1,538 1,815
Depreciation and amortization of properties........ 561 1,136
Amortization of deferred financing costs........... 571 562
Provision for facilities relocation and
corporate restructuring1.......................... 1,876 -
Payments on facilities relocation and
corporate restructuring........................... (962) (833)
Provision for doubtful accounts.................... 242 564
Provision for (benefit from) deferred income taxes. (346) 1,971
Other, net......................................... (720) 142
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables..................................... (2,940) 1,033
Inventories..................................... 1,512 3,389
Prepaid expenses and other current assets....... 619 (1,005)
Increase (decrease) in:
Accounts payable and accrued expenses........... (4,901) (14,179)
Due to affiliates............................... 1,286 3,903
-------- --------
Net cash provided by (used in) operating activities..... (1,728) 1,104
-------- --------
Cash flows from investing activities:
Capital expenditures.................................. (568) (4,972)
Proceeds from sales of properties..................... 1,327 12
-------- --------
Net cash provided by (used in) investing activities..... 759 (4,960)
-------- --------
Cash flows from financing activities:
Repayments of long-term debt.......................... (1,348) (670)
Net borrowings from (repayments to) affiliates........ 11,785 (250)
-------- --------
Net cash provided by (used in) financing activities..... 10,437 (920)
-------- --------
Net increase (decrease) in cash......................... 9,468 (4,776)
Cash and cash equivalents at beginning of period........ 7,411 10,463
-------- --------
Cash and cash equivalents at end of period.............. $ 16,879 $ 5,687
======== ========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
(Unaudited)
(1) Basis of Presentation
RC/Arby's Corporation ("RCAC" or, collectively 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"). The Company's principal wholly-owned subsidiaries are Arby's, Inc.
and Royal Crown Company, Inc.
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 28, 1997 and
March 29, 1998 and its results of operations and cash flows for the
three-month periods ended March 30, 1997 and March 29, 1998 (see below). 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 for the year ended December 28, 1997 (the "Form 10-K").
Effective January 1, 1997 the Company changed its fiscal year from a
calendar year to a year consisting of 52 or 53 weeks ending on the Sunday
closest to December 31. In accordance therewith, the Company's first quarter
of 1997 commenced on January 1, 1997 and ended on March 30, 1997 and the
Company's first quarter of 1998 commenced on December 29, 1997 and ended on
March 29, 1998. For the purposes of these consolidated financial statements,
such periods are referred to herein as the three-month periods ended March 30,
1997 and March 29, 1998, respectively.
Certain amounts included in the prior comparable period's condensed
consolidated financial statements have been reclassified to conform with the
current period's presentation.
(2) Significant 1997 Transactions
On May 5, 1997 certain subsidiaries of the Company sold to an affiliate of
RTM, Inc. ("RTM"), the largest franchisee in the Arby's system, all of the 355
then company-owned restaurants (the "RTM Sale") for cash and a promissory note
(discounted value) aggregating $3,471,000 and the assumption by RTM of an
aggregate $69,637,000 of mortgage and equipment notes payable and capitalized
lease obligations. On July 18, 1997, the Company completed the sale (the "C&C
Sale" and collectively with the RTM Sale, the "Sales") of its rights to the
C&C beverage line of mixers, colas and flavors, including the C&C trademark
and equipment related to the operation of the C&C beverage line, to Kelco
Sales & Marketing Inc., for $750,000 in cash and an $8,650,000 note with a
discounted value of $6,003,000 consisting of $3,623,000 relating to the C&C
Sale and $2,380,000 relating to future revenues. See Note 3 to the
consolidated financial statements in the Form 10-K for a more detailed
description of the Sales.
As a result of the Sales, the Company's results of operations for the
three months ended March 29, 1998 are not comparable to its results for the
three months ended March 30, 1997. The following unaudited supplemental pro
forma condensed summary operating data (the "Pro Forma Data") of the Company
for the three months ended March 29, 1997 have been prepared by adjusting the
historical data as set forth in the accompanying condensed consolidated
5
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 29, 1998
(Unaudited)
statement of operations for such period to give effect to the Sales as if the
Sales had been consummated on January 1, 1997. Such Pro Forma Data is
presented for comparative purposes only and does not purport to be indicative
of the Company's actual results of operations had the Sales actually been
consummated on January 1, 1997 or of the Company's future results of
operations and is as follows (in thousands):
Three months ended
March 30, 1997
------------------------
As Reported Pro Forma
----------- ---------
Revenues....................................... $ 102,787 $ 49,633
Operating profit............................... 9,396 10,045
Net income (loss).............................. (64) 2,118
(3) Comprehensive Income (Loss)
In June 1997 the Financial Accounting Standards Board issued SFAS No. 130
("SFAS 130") "Reporting Comprehensive Income". SFAS 130 requires the
disclosure of comprehensive income which is defined as the change in
stockholder's equity during a period exclusive of stockholder investments and
distributions to the stockholder. For the Company, in addition to net income
(loss), comprehensive income includes any changes in the currency translation
adjustment. The following is a summary of the components of comprehensive
income (loss) (in thousands):
Three months ended
------------------------
March 30, March 29,
1997 1998
---------- ---------
Net income (loss).............................. $ (64) $ 2,606
Net change in currency translation adjustment.. - (2)
--------- ----------
Comprehensive income (loss)................ $ (64) $ 2,604
========= ==========
(4) Inventories
The following is a summary of the components of inventories (in
thousands):
December 28, March 29,
1997 1998
-------- --------
Raw materials.................................. $ 5,904 $ 6,350
Work in process................................ 214 386
Finished goods................................. 6,326 2,319
--------- ---------
$ 12,444 $ 9,055
========= =========
6
<PAGE>
RC/ARBY'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 29, 1998
(Unaudited)
(5) Related Party Transactions
The Company continues to have certain related party transactions with
Triarc and its subsidiaries of the same nature and general magnitude as those
described in Note 13 to the consolidated financial statements contained in the
Form 10-K.
(6) Income Taxes
The Internal Revenue Service ("IRS") has completed its examination of the
Federal income tax returns of Triarc and its subsidiaries for the tax years
from 1989 through 1992 and, in connection therewith, the Company paid
$4,576,000, including interest, during 1997. The Company is contesting at the
appellate division of the IRS the remaining proposed adjustments of
approximately $3,000,000, the tax effect of which has not yet been determined.
The IRS has recently commenced its examination of the Federal income tax
returns of Triarc and its subsidiaries for the tax year ended April 30, 1993
and transition period ended December 31, 1993. The Company believes that
adequate aggregate provisions have been made principally in years prior to
1997 for any tax liabilities, including interest, that may result from the
resolution of these contested adjustments and the recently commenced
examination.
(7) Contingencies
The Company is involved in litigation, claims and environmental matters
incidental to its businesses. The Company has reserves for such legal and
environmental matters aggregating approximately $958,000 as of March 29, 1998.
Although the outcome of such matters cannot be predicted with certainty and
some of these matters may be disposed of unfavorably to the Company, based on
currently available information and given the Company's aforementioned
reserves, the Company does not believe that such legal and environmental
matters will have a material adverse effect on its consolidated results of
operations or financial position.
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 28,
1997 (the "Form 10-K") of RC/Arby's Corporation ("RCAC" or, collectively 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. (d/b/a Triarc
Restaurant Group - "TRG") and Royal Crown Company, Inc. ("Royal Crown").
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. Such
forward-looking statements involve risks, uncertainties and other factors
which may cause the 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. See "PART
II - OTHER INFORMATION."
Effective January 1, 1997 the Company changed its fiscal year from a
calendar year to a year consisting of 52 or 53 weeks ending on the Sunday
closest to December 31. In accordance therewith, the Company's first quarter
of 1997 commenced on January 1, 1997 and ended on March 30, 1997 and the
Company's first quarter of 1998 commenced on December 29, 1997 and ended on
March 29, 1998. For purposes of this management's discussion and analysis,
such periods are referred to herein as the three months ended March 30, 1997
and March 29, 1998, respectively, or the 1997 and 1998 first quarters,
respectively.
RESULTS OF OPERATIONS
Three Months Ended March 29, 1998 Compared with Three Months Ended March 30,
1997
Revenues decreased $52.5 million (51%) to $50.3 million in the three
months ended March 29, 1998. Restaurant revenues decreased $47.4 million to
$18.1 million, reflecting $52.1 million of nonrecurring sales in the 1997
first quarter for then company-owned restaurants, all 355 of which were sold
on May 5, 1997 (the "RTM Sale") to an affiliate of RTM, Inc. ("RTM"), the
largest franchisee in the Arby's system, partially offset by a $4.7 million
(36%) increase in royalties and franchise fees. The increase in royalties and
franchise fees is principally due to (i) incremental royalties of $2.3 million
during the 1998 first quarter from the 355 restaurants sold to RTM, (ii) a 4%
increase in same-store sales of franchised restaurants and (iii) an average
net increase of 68 (3%) franchised restaurants other than those sold to RTM in
the RTM Sale. Beverage revenues decreased $5.1 million (14%) to $32.2 million
due to decreases in sales of finished goods of $2.9 million and concentrate of
$2.2 million. The decrease in sales of finished goods is principally due to
the absence in the 1998 period of 1997 sales of the C&C beverage line, the
rights to which were sold in July 1997. The Company now sells concentrate to
the purchaser of the C&C beverage line rather than finished goods. The
decrease in sales of concentrate reflects a $3.7 million decrease in branded
sales principally due to domestic volume declines, despite the resulting shift
in sales of the C&C beverage line to concentrate from finished goods,
partially offset by a $1.5 million volume increase in private label sales.
Gross profit (total revenues less cost of sales) decreased $10.4 million
to $42.2 million in the three months ended March 29, 1998 and gross margins
(gross profit divided by total revenues) increased to 84% compared with 51%
for the same period of the prior year. Restaurant gross profit declined $6.4
million to $18.1 million due to an $11.1 million decrease in store gross
8
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profit due to the RTM Sale partially offset by the $4.7 million increase in
royalties and franchise fees (with no associated cost of sales) described
above. Restaurant gross margins increased to 100.0% from 37% due to the fact
that royalties and franchise fees now constitute the total revenues of this
segment. Beverage gross profit declined $4.0 million to $24.1 million
principally due to the declines in branded concentrate and finished product
sales volumes discussed above and the recognition of a nonrecurring 1997 first
quarter reduction to cost of sales of $1.5 million resulting from the
guarantee to the Company of certain minimum gross profit levels on sales to
the Company's private label customer. The Company has no similar contract
guaranteeing minimum gross profit levels in 1998. Beverage gross margins were
relatively unchanged at 75% as the shift in product mix to higher-margin
concentrate sales was offset by the recognition of the nonrecurring 1997 first
quarter reduction to cost of sales of $1.5 million described above.
Advertising, selling and distribution expenses decreased $7.6 million to
$16.1 million in the three months ended March 29, 1998. Restaurant advertising
expenses declined $5.4 million principally due to the cessation of local
restaurant advertising and marketing expenses resulting from the RTM Sale.
Beverage advertising expenses declined $2.2 million principally due to (i)
lower bottler promotional reimbursements resulting from the decline in branded
concentrate sales volume and (ii) planned reductions in connection with the
aforementioned decrease in sales of branded finished products.
General and administrative expenses decreased $3.4 million to $14.2
million in the three months ended March 29, 1998 principally due to reduced
spending levels related to administrative support, principally payroll, no
longer required for the sold restaurants as a result of the RTM Sale and other
cost reduction measures.
The nonrecurring facilities relocation and corporate restructuring charge
of $1.9 million in the 1997 first quarter principally consisted of employee
severance costs incurred through March 30, 1997 associated with restructuring
the restaurant segment in connection with the RTM Sale and, to a lesser
extent, costs associated with the relocation of the Fort Lauderdale, Florida
headquarters of Royal Crown, which was centralized in the White Plains, New
York headquarters of Triarc's other beverage subsidiaries.
Interest expense decreased $2.8 million to $7.6 million in the three
months ended March 29, 1998 principally due to the elimination of interest
expense on $69.6 million of mortgage and equipment notes payable and
capitalized lease obligations assumed by RTM in connection with the RTM Sale
and, to a lesser extent, the reduction of outstanding principal balances
aggregating $29.7 million under notes payable to Triarc forgiven or repaid in
connection with the RTM Sale on May 5, 1997.
Other income, net was relatively unchanged, increasing $0.1 million to
$0.9 million in the three months ended March 29, 1998.
The (provision for) and benefit from income taxes represent annual
effective tax rates of 50% and 66% based on the estimated annual tax rates as
of March 29, 1998 and March 30, 1997, respectively. Such rate is lower in the
1998 period due principally to the reduced impact on the 1998 rate of the
amortization of nondeductible costs in excess of net assets of acquired
companies since the projected pretax income for the respective full years upon
which such rates were based is higher for 1998 than 1997.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and cash equivalents (collectively "cash") decreased
$4.8 million during the three months ended March 29, 1998 to $5.7 million.
Such decrease reflects (i) cash used by investing activities (capital
expenditures) of $5.0 million and (ii) cash used by financing activities
(repayments of debt) of $0.9 million, partially offset by cash provided by
operating activities of $1.1 million. The net cash provided by operating
activities reflects (i) net income of $2.6 million and (ii) net non-cash
charges of $5.4 million, both partially offset by cash used by changes in
9
<PAGE>
operating assets and liabilities of $6.9 million principally due to the
semi-annual interest payment made during the 1998 first quarter on the
Company's $275.0 million of 9 3/4% senior secured notes due 2000 (the "Senior
Notes"). The Company expects to have continued positive cash flows from
operations during the remainder of 1998.
Working capital (current assets less current liabilities) was $11.3
million at March 29, 1998, reflecting a current ratio (current assets divided
by current liabilities) of 1.2:1. Such amount represents an increase in
working capital of $2.6 million from December 28, 1997 principally due to the
net income for the period.
The Senior Notes mature on August 1, 2000 and do not require any
amortization of the principal amount thereof prior to such date. Interest at
the rate of 9 3/4% per annum is payable semi-annually on February 1 and August
1 of each year. The Senior Notes are, however, redeemable at the option of the
Company commencing on August 1, 1998. The Company and Triarc are currently
evaluating refinancing alternatives with respect to the Senior Notes. No
decision has been made to pursue any particular refinancing alternative and
there can be no assurance that any such refinancing will be effected.
The Company also has $3.8 million and $0.5 million, respectively, as of
March 29, 1998 of remaining mortgage notes and equipment notes not assumed by
RTM in connection with the RTM Sale. Such mortgage and equipment notes are
repayable in equal monthly installments, including interest, through 2016 and
2003, respectively. Amounts due under these notes during the remainder of 1998
aggregate $0.7 million consisting of $0.6 million to be assumed by RTM (and
offset against a receivable from RTM for an equal amount) and $0.1 million to
be paid in cash. In addition, the Company has notes payable to Triarc and one
of its subsidiaries aggregating $1.0 million payable during the remainder of
1998.
Consolidated capital expenditures amounted to $5.0 million in the three
months ended March 29, 1998, including $4.6 million which the Company was
required to reinvest in core business assets under the indenture pursuant to
which the Senior Notes were issued as a result of the sale of the C&C beverage
line and certain other asset disposals in the latter half of 1997 in lieu of
utilizing the net proceeds to purchase Senior Notes. The Company expects that
capital expenditures during the remainder of 1998 will be approximately $1.0
million. As of March 29, 1998, there were no outstanding commitments for such
estimated capital expenditures.
Although the Company made no business acquisitions during the 1998 first
quarter, the Company considers selective business acquisitions, as
appropriate, to grow strategically and explores other alternatives to the
extent it has available resources to do so.
The Company is a party to a tax sharing agreement with Triarc (the "Tax
Sharing Agreement") 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 had experienced additional
losses in 1994 through 1997 significantly in excess of the $5.2 million of
pretax income in the 1998 first quarter. As a result, no subsequent payment
has been required through March 29, 1998 and, considering the approximately
$29.7 million of remaining unutilized tax benefits from net operating loss
carryforwards under the Tax Sharing Agreement as of March 29, 1998, the
Company does not expect to be required to make any such payments during the
remainder of 1998.
The Internal Revenue Service ("IRS") has completed its examination of the
Federal income tax returns of Triarc and its subsidiaries, including the
Company, for the tax years from 1989 through 1992 and, in connection
therewith, the Company paid $4.6 million, including interest, in 1997. The
Company is contesting at the appellate division of the IRS the remaining
proposed adjustments of approximately $3.0 million, the tax effect of which
has not yet been determined, and accordingly, the amount of any payments
required as a result thereof cannot presently be determined.
10
<PAGE>
As of March 29, 1998, the Company had cash of $5.7 million available to
meet its cash requirements. The Company's cash requirements for the remainder
of 1998, exclusive of operating cash flows, consist principally of (i) debt
principal repayments of $1.6 million, including $1.0 million under affiliated
notes, $0.5 million under other notes and $0.1 million under the mortgage and
equipment notes (exclusive of the $0.6 million to be assumed by RTM), (ii)
capital expenditures of $1.0 million, (iii) payments, if any, to the IRS in
connection with the $3.0 million of proposed adjustments relating to the
Company from the examination of Triarc's income tax returns for the tax years
1989 through 1992 being contested and (iv) the cost of business acquisitions,
if any. The Company anticipates meeting all such requirements through existing
cash and/or cash flows from operations and borrowings from Triarc, to the
extent available.
Legal and Environmental Matters
The Company is involved in litigation, claims and environmental matters
incidental to its business. The Company has reserves for such legal and
environmental matters aggregating approximately $1.0 million as of March 29,
1998. Although the outcome of such matters cannot be predicted with certainty
and some of these matters may be disposed of unfavorably to the Company, based
on currently available information and given the Company's aforementioned
reserves, the Company does not believe that such legal and environmental
matters will have a material adverse effect on its consolidated results of
operations or financial position.
Year 2000
The Company has undertaken a study of its functional application systems
to determine their compliance with year 2000 issues and, to the extent of
noncompliance, the required remediation. An assessment of the readiness of
third party entities with which the Company has relationships, such as its
suppliers, customers and payroll processor and others, is ongoing. As a result
of such study, the Company believes the majority of its systems are year 2000
compliant. However, certain systems, which are significant to the Company,
require remediation. The Company currently estimates it will complete the
required remediation by the end of the first half of 1999. The current
estimated cost of such remediation is approximately $1.5 million, including
computer software costs. Such costs, other than software, will be expensed as
incurred.
11
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RC/ARBY'S CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
This Quarterly Report on Form 10-Q contains or incorporates by reference
certain statements that are not historical facts, including, most importantly,
information concerning possible or assumed future results of operations of the
Company and statements preceded by, followed by or that include the words
"may," "believes," "expects," "anticipates," or the negation thereof, or
similar expressions, which constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). All statements which address operating performance, events or
developments that are expected or anticipated to occur in the future,
including statements relating to volume and revenue growth, earnings per share
growth or statements expressing general optimism about future operating
results, are forward-looking statements within the meaning of the Reform Act.
Such forward-looking statements involve risks, uncertainties and other factors
which may cause the actual performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. For those statements,
the Company claims the protection of the safe harbor for forward-looking
statements contained in the Reform Act. Several important factors could affect
the future results of the Company and could cause those results to differ
materially from those expressed in the forward-looking statements contained
herein. Such factors include, but are not limited to, the following:
competition, including product and pricing pressures; success of operating
initiatives; development and operating costs; advertising and promotional
efforts; brand awareness; the existence or absence of adverse publicity;
market acceptance of new product offerings; new product and concept
development by competitors; changing trends in customer tastes; the success of
multi-branding; availability, location and terms of sites for restaurant
development by franchisees; the ability of franchisees to open new restaurants
in accordance with their development commitments; the performance by material
customers of their obligations under their purchase agreements; 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; general economic,
business and political conditions in the countries and territories where the
Company operates, including the ability to form successful strategic business
alliances with local participants; changes in, or failure to comply with,
government regulations, including accounting standards, environmental laws and
taxation requirements; the costs, uncertainties and other effects of legal and
administrative proceedings; the impact of general economic conditions on
consumer spending; and other risks and uncertainties affecting the Company and
its competitors detailed in the Company's other current and periodic filings
with the Securities and Exchange Commission, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company. The Company will not undertake and specifically declines any
obligation to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule for the three-month period ended March 29,
1998, submitted to the Securities and Exchange Commission in
electronic format.*
---------------
* Filed herewith
(b) Reports on Form 8-K:
The registrant did not file any reports on Form 8-K during the three
months ended March 29, 1998.
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: May 13, 1998 By: /s/ JOHN L. BARNES, JR.
-----------------------
John L. Barnes, Jr.
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
<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 three-month period ended March 29, 1998
and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 5,687
<SECURITIES> 0
<RECEIVABLES> 33,394
<ALLOWANCES> 0
<INVENTORY> 9,055
<CURRENT-ASSETS> 76,261
<PP&E> 12,442
<DEPRECIATION> 0
<TOTAL-ASSETS> 277,843
<CURRENT-LIABILITIES> 64,921
<BONDS> 278,995
0
0
<COMMON> 1
<OTHER-SE> (84,257)
<TOTAL-LIABILITY-AND-EQUITY> 277,843
<SALES> 32,195
<TOTAL-REVENUES> 50,284
<CGS> 8,104
<TOTAL-COSTS> 8,104
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,612
<INCOME-PRETAX> 5,163
<INCOME-TAX> 2,557
<INCOME-CONTINUING> 2,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,606
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
