UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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: 1-2207
TRIARC COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Ohio 38-0471180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 South Flagler Drive, Suite 1000E, West Palm Beach, Florida 33401
(Address of principal executive offices) (zip code)
(407) 653-4000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if it 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
There were 24,066,732 shares of the registrant's Class A Common Stock
($.10 par value) outstanding as of May 2, 1994.
PAGE
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION> December 31, March 31,
1993 1994
(In thousands)
ASSETS (A) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 118,801 $ 49,099
Receivables, net 124,319 144,011
Inventories 108,206 109,267
Deferred income tax benefit 9,621 9,009
Prepaid expenses and other current assets 32,550 30,192
-------- --------
Total current assets 393,497 341,578
-------- --------
Properties, net 261,996 274,217
Unamortized costs in excess of net assets of
acquired companies 182,925 186,387
Net non-current assets of discontinued operations 15,223 14,884
Other assets 43,605 44,277
-------- --------
$897,246 $ 861,343
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 40,280 $ 39,945
Accounts payable 61,194 44,506
Accrued facilities relocation and corporate
restructuring costs 30,396 24,723
Other accrued expenses 109,107 91,744
-------- --------
Total current liabilities 240,977 200,918
-------- --------
Long-term debt 575,161 568,886
Insurance loss reserves 13,511 13,453
Deferred income taxes 32,038 34,602
Deposits and other liabilities 12,565 12,209
Minority interests 27,181 28,462
Redeemable preferred stock 71,794 71,794
Stockholders' equity (deficit):
Common stock 2,798 2,798
Additional paid-in capital 50,654 51,411
Accumulated deficit (46,987) (41,119)
Treasury stock (75,150) (74,567)
Other (7,296) (7,504)
-------- --------
Total stockholders' deficit (75,981) (68,981)
-------- --------
$ 897,246 $ 861,343
======== ========
<FN>
(A) Derived from the audited consolidated financial statements as of
December 31, 1993.
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended
-----------------------
April 30, March 31,
1993 1994
(In thousands except
per share amounts)
(Unaudited)
<S> <C> <C>
Revenues:
Net sales $ 246,637 $ 258,693
Royalties, franchise fees and other revenues 11,659 11,366
-------- --------
258,296 270,059
-------- --------
Costs and expenses:
Cost of sales 178,595 186,396
Advertising, selling and distribution 23,468 21,318
General and administrative expenses 30,296 30,862
Facilities relocation and corporate
restructuring 43,000 --
Provision for doubtful accounts from former
affiliates 5,623 --
-------- --------
280,982 238,576
-------- --------
Operating profit (loss) (22,686) 31,483
Interest expense (23,794) (17,035)
Other income (expense), net (292) 2,654
-------- --------
Income (loss) from continuing operations
before income taxes and minority interests (46,772) 17,102
Benefit from (provision for) income taxes 4,077 (7,025)
-------- --------
(42,695) 10,077
Minority interests in (income) loss of
consolidated subsidiaries 4,385 (1,292)
-------- --------
Income (loss) from continuing operations (38,310) 8,785
Discontinued operations, net of income taxes and
minority interests (5,345) --
------- -------
Income (loss) before extraordinary item (43,655) 8,785
Extraordinary item (6,611) --
-------- --------
Net income (loss) (50,266) 8,785
Preferred stock dividend requirements (116) (1,458)
-------- --------
Net income (loss) applicable to common
stockholders $(50,382) $ 7,327
======== ========
Primary income (loss) per share:
Continuing operations $ (1.50) $ .34
Discontinued operations (.21) --
Extraordinary item (.26) --
-------- --------
Net income (loss) $ (1.97) $ .34
======== ========
Fully diluted income (loss) per share:
Continuing operations $ (1.50) $ .33
Discontinued operations (.21) --
Extraordinary item (.26) --
-------- --------
Net income (loss) $ (1.97) $ .33
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three months ended
-----------------------
April 30, March 31,
1993 1994
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (50,266) $ 8,785
Adjustments to reconcile net income (loss)
to net cash and cash equivalents provided
by (used in) operating activities
Depreciation and amortization of
properties 7,701 8,406
Amortization of costs in excess of net
assets of acquired companies 2,713 1,456
Amortization of deferred debt discount,
deferred financing costs and unearned
compensation 1,632 2,641
Write-off of deferred financing costs 3,741 --
Provision for (reversal of) doubtful
accounts 6,569 (96)
Provision for (payments of) facilities
relocation and corporate restructuring 43,000 (5,673)
Deferred tax provision (benefit) (6,707) 3,176
Minority interests (4,385) 1,292
Loss from discontinued operations 5,345 --
Other, net (2,227) (2,318)
Changes in operating assets and
liabilities:
Decrease (increase) in:
Receivables 33,767 (19,596)
Inventories 2,545 (1,061)
Prepaid expenses and other current
assets (3,987) 2,321
Restricted cash of insurance
operations 5,719 --
Increase (decrease) in:
Accounts payable and accrued expenses (23,166) (33,078)
Insurance loss reserves (12,585) (58)
-------- --------
Net cash and cash equivalents provided
by (used in) operating activities 9,409 (33,803)
-------- --------
Cash flows from investing activities:
Acquisition of restaurants:
Properties, net -- (7,547)
Costs in excess of net assets acquired -- (4,037)
Other assets -- (882)
Capitalized leases and note payable -- 2,966
-------- --------
-- (9,500)
Proceeds from sales of assets 432 232
Capital expenditures (7,845) (11,260)
Purchase of minority interests (17,200) --
Redemption of investment in affiliate 2,100 --
-------- --------
Net cash and cash equivalents used in
investing activities (22,513) (20,528)
-------- --------
Cash flows from financing activities:
Issuance of class A common stock 9,650 --
Proceeds from long-term debt 396,595 8,630
Repayments of long-term debt (292,714) (21,460)
Deferred financing costs (25,820) --
Net decrease in short-term debt (8,748) --
Payment of preferred dividends (4) (2,917)
-------- --------
Net cash and cash equivalents provided by
(used in) financing activities 78,959 (15,747)
-------- --------
Net cash provided by (used in) continuing
operations 65,855 (70,078)
Net cash provided by (used in) discontinued
operations (1,167) 376
-------- --------
Net increase (decrease) in cash and cash equivalents 64,688 (69,702)
Cash and cash equivalents at beginning of period 31,947 118,801
-------- --------
Cash and cash equivalents at end of period $ 96,635 $ 49,099
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1994
(Unaudited)
(1) Basis of Presentation
The principal directly or indirectly wholly-owned subsidiaries
(majority-owned prior to April 14, 1994 - see Note 10) of Triarc
Companies, Inc. ("Triarc" or, collectively with its subsidiaries, the
"Company") are Graniteville Company ("Graniteville"), National Propane
Corporation ("National Propane"), Southeastern Public Service Company
("SEPSCO"), Arby's, Inc. ("Arby's") and Royal Crown Company, Inc.
("Royal Crown").
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
financial statements contain all adjustments, consisting of normal
recurring adjustments and, in the three-month period ended April 30,
1993, $48,698,000 of after tax significant charges described in Note 14
necessary to present fairly the Company's financial position as of
December 31, 1993 and March 31, 1994 and its results of operations and
cash flows for the three-month periods ended April 30, 1993 and March
31, 1994. This information should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Transition Report on Form 10-K ("Form 10-K") for the eight-
month transition period ended December 31, 1993.
In October 1993 the Board of Directors of Triarc approved a change in
Triarc's fiscal year from a fiscal year ending April 30 to a calendar
year ending December 31, effective for the eight-month transition
period ended December 31, 1993. The fiscal years of all of Triarc's
subsidiaries which did not end on December 31 were also so changed. As
used herein, "Fiscal 1993" refers to the year ended April 30, 1993 and
"Transition 1993" refers to the eight months ended December 31, 1993.
Prior to the change by the Company to a calendar year, Graniteville and
SEPSCO were consolidated for their fiscal years ending on or about
February 28, National Propane was consolidated for its fiscal year
ending April 30 and Arby's and Royal Crown, each of which had a fiscal
year ending December 31, were consolidated for their twelve-month
periods ending March 31. The Company's principal subsidiaries are
included in the condensed consolidated results of operations for the
three-month period ended April 30, 1993 for each of their three-month
periods ended on the dates noted above. As such, Graniteville and
SEPSCO are included for their three-month periods ended on or about
February 28, 1993, Arby's and Royal Crown are included for their
three-month periods ended March 31, 1993 and National Propane is
included for its three-month period ended April 30, 1993.
The three-month period ended April 30, 1993 (the "Comparable Prior Year
Period") has been presented herein since it is the period most nearly
comparable to the three-month period ended March 31, 1994. Due to the
different periods consolidated in the Comparable Prior Year Period and
the fact that consolidations were not prepared other than on a
quarterly basis in Fiscal 1993, it was not practicable for the Company
to recast its prior year results and present financial statements for
the three-month period ended March 31, 1993.
(2) Change in Control
As previously reported, a change in control of the Company occurred on
April 23, 1993 (the "Change in Control") whereby the Board of Directors
of the Company was reconstituted and new senior executive officers were
elected.
(3) Inventories
The following is a summary of the components of inventories:
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Raw materials $ 26,930 $ 27,892
Work in process 6,676 6,984
Finished goods 74,600 74,391
--------- ---------
$ 108,206 $ 109,267
========= =========
</TABLE>
(4) Properties
The following is a summary of the components of properties, net:
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Properties, at cost $ 447,083 $ 461,527
Less accumulated depreciation
and amortization 185,087 187,310
--------- ---------
$ 261,996 $ 274,217
========= =========
</TABLE>
(5) Stockholders' Equity (Deficit)
During the three months ended March 31, 1994, Triarc granted from its
treasury stock 51,750 shares of restricted stock under the Amended and
Restated 1993 Equity Participation Plan (the "Equity Plan") at an
aggregate market value at the dates of grant of $1,109,000. The
unamortized value of such grants is reflected as an addition to
unearned compensation (included in "Other stockholders' deficit" in the
accompanying condensed consolidated balance sheets) during the three
months ended March 31, 1994 and is being amortized to compensation
expense over the applicable vesting period through 1996. In addition,
during the three months ended March 31, 1994, Triarc granted 502,000
non-qualified stock options under the Equity Plan at option prices
ranging from $21.00 to $24.125 representing the fair market value per
share of Triarc's class A common stock, par value $.10 per share (the
"Class A Common Stock"), at the dates of grant.
(6) Income (Loss) Per Share
The common shares used in the calculations of primary and fully diluted
income (loss) per share were as follows:
<TABLE>
<CAPTION>
Three months ended
------------------
April 30, March 31,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Weighted average number of common shares
outstanding 25,596 21,343
Dilutive stock options utilizing the
treasury stock method -- 324
------- -------
Common and common equivalent shares for
primary per share purposes 25,596 21,667
Common shares which would be issued upon
the assumed conversion of convertible
preferred stock -- 4,986
------- -------
Common, common equivalent and contingent
shares for fully diluted per share
purposes 25,596 26,653
======= =======
</TABLE>
The primary income (loss) per share has been computed by dividing the
net income (loss) applicable to common stockholders by the number of
common and common equivalent shares noted above. Common stock
equivalents were not included in the computation of the weighted
average shares outstanding for the three-month period ended April 30,
1993 because such inclusion would have been antidilutive. Fully
diluted income per share for the three-month period ended March 31,
1994 has been computed by dividing the net income applicable to common
stockholders adjusted to add back the preferred stock dividend
requirements by the number of common, common equivalent and contingent
shares noted above. Fully diluted loss per share was not applicable
for the three-month period ended April 30, 1993 since contingent
issuances of common shares would have been antidilutive.
(7) Income Taxes
The Company's provision for income taxes of $7,025,000 for the three-
month period ended March 31, 1994, which has been provided at the
estimated effective rate for the year ending December 31, 1994,
represents an effective tax rate of 41%. Such rate is higher than the
Federal statutory income tax rate of 35% principally due to the effect
of state income taxes, net of federal benefit, and amortization of
costs in excess of net assets of acquired companies which is not
deductible for income tax purposes, partially offset by a reduction in
the valuation allowance as a result of the utilization of net operating
loss carryforwards. The Company's income tax benefit of $4,077,000 for
the three-month period ended April 30, 1993 represents an effective tax
rate of 9% which is lower than the Federal statutory rate due to losses
of certain subsidiaries for which no tax benefit is available, costs
related to a five-year consulting agreement with the former Vice
Chairman of the Company and write-downs of certain investments which
were not deductible for tax purposes, amortization of costs in excess
of net assets of acquired companies and provisions for income tax
contingencies and other matters.
(8) Transactions with Related Parties
The Company had related party transactions including certain
transactions described below during the three-month period ended March
31, 1994. During the three-month period ended March 31, 1994 and the
Comparable Prior Year Period the Company had these and other related
party transactions which are described in the Form 10-K.
Triarc leased space on behalf of its subsidiaries and former affiliates
from a trust for the benefit of Victor Posner, the indirect owner of
the Company's redeemable preferred stock, and his children. In July
1993 Triarc gave notice to terminate the lease effective January 31,
1994. For January 1994 $360,000 was charged to the Company for the
cost of such leased space. The Company is obligated to pay the base
rent for the remaining lease period through April 1997 which, net of
security deposit, aggregates approximately $12,000,000. Such amount
was previously accrued by the Company.
The Company leases aircraft from Triangle Aircraft Services Corporation
("TASCO"), a company owned by Nelson Peltz (Chairman and Chief
Executive Officer of the Company) and Peter W. May (President and Chief
Operating Officer of the Company), for an aggregate annual rent of
$2,200,000. In connection with such lease the Company had rent expense
for the three-month period ended March 31, 1994 of $550,000. Pursuant
to this arrangement, the Company also pays the operating expenses of
the aircraft directly to third parties.
The Company subleases from an affiliate of Messrs. Peltz and May
approximately 26,800 square feet of furnished office space in New York,
New York, and 15,000 square feet of office space in West Palm Beach,
Florida, both of which are owned by unaffiliated third parties. The
aggregate amount incurred by the Company with respect to such
subleases, including operating expenses and net of amounts received by
the Company for sublease of a portion of such space of $89,000, was
approximately $222,000 during the three-month period ended March 31,
1994, which is less than the aggregate amounts such affiliates paid to
the unaffiliated landlords but represents amounts the Company believes
it would pay to an unaffiliated third party for similar improved office
space. Messrs. Peltz and May have guaranteed to the unaffiliated
landlords the payment of rent for the New York and West Palm Beach
office space.
(9) Contingencies
In 1987 Graniteville was notified by the South Carolina Department of
Health and Environmental Control ("DHEC") that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and
DHEC asserted that Graniteville may be one of the parties responsible
for such contamination. Graniteville entered into a consent decree
providing for the study and investigation of the alleged pollution and
its sources. The study report, prepared by Graniteville's
environmental consulting firm and filed with DHEC in April 1990,
recommended that pond sediments be left undisturbed and in place. DHEC
responded by requesting that Graniteville submit additional information
concerning potential passive and active remedial alternatives, with
accompanying supportive information. In May 1991 Graniteville provided
this information to DHEC in a report of Graniteville's environmental
consulting firm. The 1990 and 1991 reports concluded that pond
sediments should be left undisturbed and in place and that other less
passive remediation alternatives either provided no significant
additional benefits or themselves involved adverse effects on human
health, to existing recreational uses or to the existing biological
communities. In March 1994 DHEC concluded that while environmental
monitoring at Langley Pond should be continued, based on currently
available information, the most reasonable alternative is to leave the
pond sediments undisturbed and in place. The Company is unable to
predict at this time what further actions, if any, may be required in
connection with Langley Pond or what the cost thereof may be. However,
given DHEC's recent conclusion and the absence of reasonable
remediation alternatives, the Company believes the ultimate outcome of
this matter will not have a material adverse effect on the Company's
consolidated results of operations or financial position.
As a result of certain environmental audits in 1991, SEPSCO became
aware of possible contamination by hydrocarbons and metals at certain
sites of SEPSCO's ice and cold storage operations of the refrigeration
business and has filed appropriate notifications with state
environmental authorities and is performing a study of remediation at
such sites. SEPSCO has removed certain underground storage and other
tanks at certain facilities of its refrigeration operations and has
engaged in certain remediation in connection therewith. Such removal
and environmental remediation involved a variety of remediation actions
at various facilities of SEPSCO located in a number of jurisdictions.
Such remediation varied from site to site, ranging from testing of soil
and groundwater for contamination, development of remediation plans and
removal in certain instances of certain contaminated soils.
Remediation has recently been completed or is ongoing at five sites.
In addition, remediation will be required at thirteen sites which were
sold to or leased by the purchaser of the ice operations (see Note 13)
and such remediation will be made in conjunction with the purchaser who
is responsible for payments of up to $1,000,000 of such remediation
costs, consisting of the first and third payments of $500,000. Based
on preliminary information and consultations with, and certain reports
of, environmental consultants and others, SEPSCO presently estimates
that its cost of such remediation and/or removal will approximate
$3,661,000, all of which was provided in prior years. In connection
therewith, SEPSCO has incurred actual costs through March 31, 1994 of
$1,469,000 and has a remaining accrual of $2,192,000.
In August 1993 NVF Company ("NVF"), which was affiliated with the
Company until the Change in Control, became a debtor in a case filed by
its creditors under Chapter 11 of the Federal Bankruptcy Code (the "NVF
Proceeding"). In November 1993 the Company received correspondence
from NVF's bankruptcy counsel claiming that the Company and certain of
its subsidiaries owed to NVF an aggregate of approximately $2,300,000
with respect to claims for (i) certain claims relating to the insurance
of certain NVF's properties by Chesapeake Insurance Company Limited, an
indirect subsidiary of Triarc, (ii) certain insurance premiums owed by
the Company to IRM, a subsidiary of NVF, and (iii) certain liabilities
of IRM, 25% of which NVF has alleged the Company to be liable for. In
addition, in April 1994 a committee of NVF's creditors (the "NVF
Committee") filed a motion in the NVF Proceeding seeking the court's
authorization to commence an adversary proceeding against the Company
and certain of its subsidiaries for (a) aiding and abetting breach of
fiduciary duty and the duty of care, (b) equitable subordination of
claims which the Company may have against NVF, and (c) recovery of
certain allegedly fraudulent transfers and conveyances allegedly made
by NVF to the Company. The bankruptcy court has not yet ruled with
respect to the NVF Committee's motion. The Company intends to
vigorously contest such claims. Nevertheless, during Transition 1993
Triarc provided approximately $2,300,000 with respect to claims related
to the NVF Proceeding. Because the NVF Committee's motion was filed on
April 25, 1994, the Company has not had an opportunity to fully
investigate the matters contained therein. However, based upon
information currently available to the Company and after considering
the amounts provided, Triarc does not believe that the outcome of the
NVF Proceeding will have a material adverse effect on the Company's
consolidated financial position or results of operations.
In July 1993, APL Corporation ("APL"), which was affiliated with the
Company until the Change in Control, became a debtor in a proceeding
under Chapter 11 of the Federal Bankruptcy Court (the "APL
Proceeding"). In February 1994 the official committee of unsecured
creditors of APL filed a complaint (the "APL Complaint") against
certain former affiliates, Triarc and certain companies formerly or
presently affiliated with Victor Posner or with Triarc, alleging causes
of action arising from various transactions allegedly caused by the
named former affiliates in breach of their fiduciary duties to APL and
resulting in corporate waste, fraudulent transfers and preferences.
The APL Complaint asserts claims against Triarc for (a) aiding and
abetting breach of fiduciary duty, (b) equitable subordination of
claims which Triarc may have against APL, (c) declaratory relief as to
whether APL has any liability to Triarc and (d) recovery of fraudulent
transfers allegedly made by APL to Triarc prior to commencement of the
APL Proceeding. The APL Complaint seeks an undetermined amount of
damages from Triarc, as well as the other relief identified in the
preceding sentence. Based upon the results of Triarc's investigation
of these matters to date, Triarc does not believe that the outcome of
the APL Complaint will have a material adverse effect on the financial
position or results of operations of the Company.
The Company is also engaged in ordinary, routine litigation incidental
to its business. The Company does not believe that the litigation and
matters referred to above, as well as such ordinary routine litigation,
will have a material adverse effect on its consolidated financial
position or results of operations.
(10) SEPSCO Merger and Litigation Settlement
In December 1990 a purported shareholder derivative suit (the "SEPSCO
Litigation") was brought against SEPSCO's directors at that time and
certain corporations, including Triarc, in the United States District
Court for the Southern District of Florida (the "District Court"). On
January 11, 1994 the District Court approved a settlement agreement
(the "SEPSCO Settlement") with the plaintiff (the "Plaintiff") in the
SEPSCO Litigation. The SEPSCO Settlement provided, among other things,
that SEPSCO would be merged into, or otherwise acquired by, Triarc or
an affiliate thereof, in a transaction in which each holder of shares
of SEPSCO's common stock (the "SEPSCO Common Stock") other than the
Company, aggregating a 28.9% minority interest in SEPSCO, would receive
in exchange for each share of SEPSCO Common Stock, 0.8 shares of
Triarc's Class A Common Stock or an aggregate 2,691,822 shares. On
April 14, 1994 SEPSCO's shareholders other than the Company approved an
agreement and plan of merger between Triarc and SEPSCO (the "SEPSCO
Merger") pursuant to which on that date a subsidiary of Triarc was
merged into SEPSCO in accordance with the SEPSCO Settlement. Following
the SEPSCO Merger, the Company owns 100% of the SEPSCO Common Stock.
The Company paid Plaintiff's counsel and financial advisor $1,250,000
and $50,000, respectively, in accordance with the Settlement Agreement.
An aggregate $1,700,000, including such costs together with estimated
Company legal costs of $400,000, were provided for in the Comparable
Prior Year Period. Triarc estimated that an aggregate $3,750,000 (the
"SEPSCO Stock Settlement Cost") of the value of its Class A Common
Stock issued in the SEPSCO Merger together with the $1,250,000 of
Plaintiff's counsel fees paid in cash and previously accrued in Fiscal
1993 represented settlement costs of the SEPSCO Litigation. The SEPSCO
Stock Settlement Cost was provided in Transition 1993 since it was
during such period that the Company determined that the litigation
settlement was more likely than not to be approved by the District
Court.
The fair value as of April 14, 1994 of the 2,691,822 shares of Class A
Common Stock issued in the SEPSCO Merger aggregated $52,105,000 (the
"Merger Consideration") net of the portion of such consideration
representing the SEPSCO Stock Settlement Cost. The SEPSCO Merger will
be accounted for in accordance with the purchase method of accounting
and, accordingly, the Company's additional 28.9% interest in SEPSCO's
assets and liabilities will be recorded at fair value and the Company's
minority interest in SEPSCO will be eliminated. The cost in excess of
the fair value of the additional interest in the net assets acquired
("Goodwill") will be amortized on a straight-line basis over 30 years.
However, the Company has not commenced its evaluation of purchase
accounting and accordingly, cannot presently determine the Goodwill
that will result from the SEPSCO Merger. Pro forma condensed summary
operating results of the Company for the three-month period ended March
31, 1994 giving effect to the SEPSCO Merger as if it had been
consummated on January 1, 1994, are set forth below. Since the Company
anticipates that a portion of the excess of the Merger Consideration
over the related minority interest liability will be allocated to net
assets acquired with amortization periods of less than 30 years, the
pro forma calculations assume an average amortization period of such
excess of only 25 years.
<TABLE>
<CAPTION>
(In thousands, except
per share amounts)
<S> <C>
Revenues $ 270,059
Operating profit 31,244
Income from continuing operations
before income taxes 16,863
Provision for income taxes 7,025
Income from continuing operations 9,838
Income from continuing operations
per share (a):
Primary .34
Fully diluted .34
<FN>
-------------
(a) Income from continuing operations per share reflects 2,691,822
additional shares of Class A Common Stock that were issued on
April 14, 1994 in connection with the SEPSCO Merger.
</TABLE>
(11) Extraordinary Item
In connection with the early extinguishment of debt which was
refinanced in April 1993, the Company recognized an extraordinary
charge of $6,611,000 during the Comparable Prior Year Period,
representing the write-off of unamortized deferred financing costs of
$3,741,000 and the payment of prepayment penalties of $6,651,000, less
$3,781,000 of income tax benefit.
(12) Acquisition of Restaurants
In February and March 1994 the Company consummated two related
transactions whereby it sold 20 Company-owned restaurants having a net
book value of $2,326,000 and acquired 33 previously franchised
restaurants from the same party for a net purchase price of $10,000,000
consisting of cash of $9,500,000 and a note for $500,000. Since the
combined transaction was accounted for as a nonmonetary exchange, the
Company did not recognize any gain or loss on the combined transaction.
The assets acquired and liabilities assumed will be stated at fair
value in accordance with the purchase method of accounting. The
Company has completed only a preliminary evaluation of the purchase
accounting for this combined transaction and has tentatively recorded
$4,037,000 of the cost as costs in excess of the estimated fair value
of the related net assets acquired, which is being amortized over 20
years.
(13) Discontinued Operations
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's utility and municipal services and
refrigeration businesses which have been accounted for as discontinued
operations in the Company's consolidated financial statements. On
July 22, 1993 SEPSCO's Board of Directors also authorized the sale or
liquidation of its natural gas and oil businesses. However on
December 9, 1993 SEPSCO's Board of Directors decided to sell the
natural gas and oil businesses to Triarc sometime following the SEPSCO
Merger and the resulting elimination of the minority interest in SEPSCO
(see Note 10) rather than selling such businesses to an independent
third party. Accordingly, the net assets of the natural gas and oil
businesses have been classified as "Other assets" in the accompanying
condensed consolidated balance sheets at December 31, 1993 and March
31, 1994. Through October 31, 1993 the natural gas and oil businesses
were accounted for as discontinued operations in the Company's
condensed consolidated financial statements. The results of operations
of the natural gas and oil businesses in the condensed consolidated
statement of operations for the three months ended April 30, 1993 have
not been reclassified to continuing operations since the results of
operations of such businesses were not material. SEPSCO's utility and
municipal services business segment and its refrigeration business
segment have been accounted for as discontinued operations in the
Company's consolidated financial statements.
In October 1993 SEPSCO sold the assets of its tree maintenance services
operations and the stock of its two construction-related operations
comprising all of the operations of the former utility and municipal
services business segment. On April 8, 1994 SEPSCO sold substantially
all of the operating assets of the ice operations of its refrigeration
business segment for $5,000,000 in cash, a $4,295,000 note (discounted
value $3,327,000) and the assumption by the buyer of certain current
liabilities of up to $1,000,000. While the amount of the loss
resulting from the sale of the ice operations has not been finalized,
the Company currently estimates it will approximate $2,100,000. The
note, which bears no interest during the first year and 5% thereafter,
is payable in annual installments of $120,000 in 1995 through 1998 with
the balance of $3,815,000 due in 1999. The only remaining discontinued
operation is the other operation (cold storage) which comprised
SEPSCO's refrigeration business. SEPSCO has identified certain
potential purchasers and is negotiating potential terms for the sale of
the cold storage operation. The precise timetable for the sale and
liquidation of such operation will depend upon SEPSCO's ability to
negotiate acceptable terms for the sale of such operation with
presently identified potential purchasers, or, failing to do so,
identifying other appropriate purchasers. SEPSCO currently anticipates
completion of such sale by July 22, 1994.
After (i) consideration of (a) a $5,363,000 write-down (net of tax
benefit and minority interests of $7,540,000) in the Comparable Prior
Year Period relating to the impairment of certain unprofitable
properties and accruals for environmental remediation and losses on
certain contracts in progress reflected in operating profit (loss) of
discontinued operations for the Comparable Prior Year Period set forth
below, (b) a $12,400,000 provision ($8,820,000 net of minority
interests with no income tax benefit) for the estimated loss on the
sale of the discontinued operations recorded in Transition 1993 and
(ii) based on the analysis performed to date with respect to the
proposed sale of the cold storage operations, the Company expects that
all currently anticipated dispositions, including the results of their
operations through the actual or anticipated disposal dates, will not
have a material adverse effect on the financial position or results of
operations of the Company.
The income (loss) from discontinued operations for the Comparable Prior
Year Period and the loss from operations during the three-month period
ended March 31, 1994 subsequent to the measurement date, which has been
previously recognized, consisted of the following:
<TABLE>
<CAPTION>
Three months ended
------------------
April 30, March 31,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Revenues 46,210 4,529
Operating loss (13,025) (553)
Loss before income taxes
and minority interests (13,231) (495)
Benefit from income taxes 5,000 --
Minority interests 2,886 143
Net loss (5,345) (352)
</TABLE>
Net current assets and non-current assets of the discontinued
operations consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Cash $ 307 $ 160
Receivables, net 1,528 1,379
Inventories 647 664
Other current assets 675 220
Current portion of long-term debt (6) --
Accounts payable (512) (484)
Other current liabilities (1,798) (1,135)
-------- --------
Net current assets of discontinued
operations included in "Prepaid
expenses and other current
assets" $ 841 804
======== ========
Properties, net $ 17,681 $ 17,379
Other assets 149 149
Long-term debt (13) --
Deposits and other liabilities (2,594) (2,644)
-------- --------
Net non-current assets of discontinued
operations $ 15,223 $ 14,884
======== ========
</TABLE>
(14) Significant Charges in the Comparable Prior Year Period
The accompanying condensed consolidated statement of operations for the
Comparable Prior Year Period includes the following significant charges
related principally to actions taken in connection with the Change in
Control and included in "Loss from continuing operations":
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C>
Estimated costs to relocate the Company's headquarters
and terminate the lease on its existing corporate
facilities $ 14,900
Estimated corporate restructuring charges including
personnel recruiting and relocation costs, employee
severance costs and consultant fees 20,300
Costs related to a five-year consulting agreement
extending through April 1998 between the Company
and its former Vice Chairman 6,000
Other restructuring costs 1,800
--------
Total facilities relocation and corporate
restructuring charges 43,000
Write-off of uncollectible notes and other amounts
due from former affiliates 5,140 (a)
Payment to a special committee of the Company's
Board of Directors 4,900 (b)
Provision for closing of certain non-strategic,
Company-owned restaurants and abandoned bottling
facilities 2,200 (b)
Estimated costs to comply with new package labeling
regulations 1,500 (c)
Reversal of unpaid incentive plan accruals provided
in prior years (7,297) (b)
Other 2,246 (b)
--------
Total net charges affecting operating profit 51,689
Interest accruals relating to income tax matters 6,109 (d)
Costs of certain shareholder and other litigation 5,947 (e)
Settlement of accrued rent balance in connection
with the Change in Control (8,900) (e)
Commitment fees and other compensation costs relating
to a proposed financing which was not consummated 3,200 (e)
Reduction to estimated net realizable value of
certain assets held for sale other than discontinued
operations 2,147 (e)
Income tax benefit relating to the above net charges (15,435)
Provision for income tax contingencies and other tax
matters 7,897
Minority interest effect of above net charges (3,956)
--------
$ 48,698
========
<FN>
----------
(a) Included in "Provision for doubtful accounts from former affiliates"
(b) Included in "General and administrative expenses"
(c) Included in "Advertising, selling and distribution"
(d) Included in "Interest expense"
(e) Included in "Other income (expense), net"
</TABLE>
PAGE
<PAGE>
TRIARC COMPANIES, INC. 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 Transition Report on Form
10-K for the eight-month period ended December 31, 1993 (the "Form 10-
K") of Triarc Companies, Inc. ("Triarc" or, collectively with its
subsidiaries, the "Company").
In October 1993 the Company's Board of Directors approved a change in
the fiscal year of Triarc from a fiscal year ending April 30 to a
calendar year ending December 31, effective for the eight-month
transition period ended December 31, 1993. The fiscal years of all of
Triarc's subsidiaries which did not end on December 31 were also so
changed. As used herein, "Fiscal 1993" refers to the fiscal year ended
April 30, 1993 and "Transition 1993" refers to the eight months ending
December 31, 1993.
The three-month period ended March 31, 1994 (the "1994 Quarter") is
compared below to the three-month period ended April 30, 1993 (the
"Comparable Prior Year Period"). It was not practicable for the
Company to recast its prior year results and, accordingly, the
Comparable Prior Year Period was used as the three-month period most
nearly comparable to the 1994 Quarter.
As previously reported, a change in control of the Company occurred on
April 23, 1993 (the "Change in Control") whereby the Board of Directors
of the Company was reconstituted and new senior executive officers were
elected. The results of operations of the Comparable Prior Year
Period, therefore, reflect the business strategies of prior management.
RESULTS OF OPERATIONS
The diversity of the Company's business segments preclude any overall
generalization about trends for the Company. The textiles segment is
subject to cyclical economic trends that affect the domestic textile
industry. In addition, the textile industry in general has experienced
significant competition from foreign manufacturers that generally have
access to less expensive labor and, in certain cases, raw materials.
However, certain fabrics which comprise the principal product lines
sold by the Company (e.g., workwear) have experienced foreign
competition to a lesser degree than the industry in general. In the
last quarter of calendar year 1993 and first quarter of 1994, the
indigo-dyed sportswear business unit of the textiles segment has
experienced the effects of lessened demand and price deterioration in
its marketplace. Exchange rate fluctuations can also affect the level
of demand for the textile segment's products by changing the relative
price of competing fabrics from overseas producers.
Trends affecting the fast food segment in recent years include
consistent growth of the restaurant industry as a percentage of total
food-related spending, with fast food being the most rapidly growing
segment of the restaurant industry. The recent recession had
temporarily slowed the rate of growth in restaurant spending.
Trends affecting the soft drink segment in recent years have included
the increased market share of private label soft drinks and the
introduction of "new age" beverages. In recent years, both the soft
drink and fast food industries have experienced increased price
competition resulting in significant price discounting throughout these
industries. While the net impact of price discounting cannot be
quantified, a continuation of this practice could have an adverse
effect on the Company.
Liquefied petroleum ("LP") gas, relative to other forms of energy, is
gaining recognition as an environmentally superior, safe, convenient,
efficient and easy-to-use energy source in many applications. Trends
affecting the LP gas segment in recent years include the economic
downturn and energy conservation trends, which from time to time have
negatively impacted the demand for energy by both residential and
commercial customers.
Three Months Ended March 31, 1994 Compared with Three Months Ended
April 30, 1993
<TABLE>
<CAPTION> Revenues
Three months ended
-------------------
April 30, March 31,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Textiles $ 121,021 $ 129,991
Fast Food 47,546 48,836
Soft Drink 37,174 35,252
Liquefied Petroleum Gas 45,541 55,980
Other 7,014 --
--------- --------
$ 258,296 $ 270,059
========= ========
</TABLE>
Revenues increased $11.8 million to $270.1 million in the 1994 Quarter
from $258.3 million in the Comparable Prior Year Period. Such increase
reflects higher revenues in the Company's LP gas, textiles and fast
food segments offset by slightly lower revenues in the soft drink
segment and the absence of revenues in the 1994 Quarter from certain
non-core operations previously sold, held for sale or which ceased
doing business prior to the 1994 Quarter ($7.0 million) which are
included in "Other" in the table above. LP gas revenues increased
$10.5 million (23.1%) principally due to higher volume. The increase
in volume was principally due to the inclusion of January, historically
one of the highest volume months of the year, in the 1994 Quarter while
the Comparable Prior Year Period included April, historically a low
volume month. Textiles revenues increased $9.0 million (7.4%)
principally due to (i) significantly higher sales volume of utility
wear sales, (ii) higher sales volume of dyes and specialty chemicals
and (iii) higher prices and volume in the specialty product area,
offset in part by (i) lower prices and volume in indigo-dyed fabrics
(denim) for jeans, (ii) lower prices for piece-dyed cotton fabrics for
sportswear and (iii) sales of products in the Comparable Prior Year
Period no longer sold in 1994. Fast food revenues increased $1.3
million (2.7%) due to a $0.4 million increase in sales of Company-owned
restaurants due to an increase in same store sales and a $0.9 million
increase in franchise revenues due to increases in both franchised same
store sales and a net increase of 84 franchised restaurants. Soft
drink revenues decreased $1.9 million (5.2%) due to a $3.9 million
decline in domestic branded product sales to bottlers resulting from
bottlers (i) awaiting new packaging and advertising to be introduced in
the second quarter and (ii) minimizing purchases of diet concentrates
in anticipation of the segment's announced price reduction effective
May 1, 1994, as well as generally poor weather conditions in the 1994
Quarter. Such effects were partially offset by a $2.0 million increase
in private label soft drink sales in the domestic market and expansion
internationally.
Gross profit (total revenues less cost of sales) increased $4.0 million
to $83.7 million in the 1994 Quarter from $79.7 million in the
Comparable Prior Year Period. The gross margin was relatively
unchanged at 31.0% in the 1994 Quarter and 30.9% in the Comparable
Prior Year Period. The increase in gross profit was due to (i) the
increase in sales volume discussed above, (ii) higher margins in the LP
gas segment due to lower product costs while sales prices were
relatively unchanged, (iii) higher margins in the fast food segment
resulting from the effect of management's programs to reduce labor and
food costs and (iv) higher royalty revenue with no offsetting cost of
sales in the fast food segment resulting from higher same store sales
and a net increase in franchised restaurants. Such increases were
offset in part by (i) lower margins in the textiles segment and (ii)
the nonrecurring revenue in the Comparable Prior Year Period from the
Company's non-core insurance operation which ceased writing new
insurance effective October 1993. The lower margins in the textile
segment resulted from (i) higher cost of cotton which could not be
passed on to woven apparel customers through higher selling prices,
(ii) lower sales prices in indigo-dyed fabrics and (iii) a nonrecurring
decrease to cost of sales in the Comparable Prior Year Period resulting
from a year-end adjustment to revise interim inventory costing
estimates made in the prior three quarters of Fiscal 1993 to actual.
Advertising, selling and distribution expenses decreased $2.2 million
to $21.3 million in the 1994 Quarter from $23.5 million in the
Comparable Prior Year Period principally due to the fact that such
expenses in the Comparable Prior Year Period included a charge of $1.5
million representing an estimate of the costs to be incurred by the
soft drink segment in order to comply with package labeling regulations
which became effective in May 1994. Advertising, selling and
distribution expenses are expected to increase during the remainder of
1994 since the soft drink segment is preparing to introduce in the
second quarter of 1994 a national television advertising campaign and
associated bottler promotion activities geared to generate new consumer
trial and brand awareness.
General and administrative expenses increased $0.6 million to $30.9
million in the 1994 Quarter from $30.3 million in the Comparable Prior
Year Period resulting from higher expenses in 1994 principally due to
an increase in costs associated with the new management organization in
the soft drink and fast food segments, including the respective chief
executive officer departments which were not present in the Comparable
Prior Year Period, partially offset by the effect of certain
significant charges in the Comparable Prior Year Period. Such charges
included (i) a $4.9 million payment to the special Committee of
Triarc's Board of Directors in connection with the Change in Control,
(ii) a $2.2 million provision for closing certain non-strategic
Company-owned restaurants and other facilities and (iii) $2.2 million
of other charges, partially offset by a reversal of $7.3 million of
incentive plan accruals provided in prior years which were no longer
required as a result of the termination of such incentive plans in
Fiscal 1993.
The facilities relocation and corporate restructuring charges of $43.0
million in the Comparable Prior Year Period consisted of (i) estimated
costs of $14.9 million to relocate the Company's headquarters and
terminate the lease on its existing corporate facilities, (ii)
estimated corporate restructuring charges of $20.3 million including
personnel recruiting and relocation costs, employee severance costs and
consultant fees, (iii) costs of $6.0 million related to a five-year
consulting agreement extending through April 1998 between the Company
and its former Vice Chairman and (iv) other restructuring costs of $1.8
million. These charges related to actions taken in connection with the
Change in Control.
The provision for doubtful accounts from former affiliates of $5.6
million in the Comparable Prior Year Period principally relates to the
write-off of certain secured notes and accrued interest receivable from
two former affiliates currently in bankruptcy proceedings for which
significant doubt exists with regard to the net realizability of the
underlying collateral, offset in part by a recovery of certain amounts
previously written off from another former affiliate through offset in
connection with minority share acquisitions in connection with the
Change in Control.
Interest expense decreased $6.8 million to $17.0 million in the 1994
Quarter from $23.8 million in the Comparable Prior Year Period due to
$6.1 million of interest accruals related to income tax matters in the
Comparable Prior Year Period and the lower interest rates of debt
issued in the refinancings which occurred in connection with the Change
in Control or subsequent thereto partially offset by the higher
balances of such debt.
Other income (expense), net increased $3.0 million to income of $2.7
million in the 1994 Quarter from expense of $0.3 million in the
Comparable Prior Year Period principally due to income in the 1994
Quarter which was largely nonrecurring including $1.3 million of
realized gains on investments including $1.0 million in connection with
the redemption of an investment in a former bottling subsidiary
previously written off, and $1.1 million of interest income.
The provision for income taxes in the 1994 Quarter represents an
effective tax rate of 41% which is higher than the Federal statutory
income tax rate of 35% principally due to the effect of state income
taxes, net of federal benefit, and amortization of costs in excess of
net assets of acquired companies which is not deductible for income tax
purposes, partially offset by a reduction in the valuation allowance as
a result of the utilization of net operating loss carryforwards. The
income tax benefit in the Comparable Prior Year Period represents an
effective tax rate of 9% which is lower than the Federal statutory rate
due to losses of certain subsidiaries for which no tax benefit is
available, costs related to a five-year consulting agreement with the
former Vice Chairman of the Company and write-downs of certain
investments which were not deductible for tax purposes, amortization of
costs in excess of net assets of acquired companies and provisions for
income tax contingencies and other matters.
Minority interests in income (loss) of consolidated subsidiaries
resulted in a $1.3 million expense in the 1994 Quarter compared to $4.4
million of income in the Comparable Prior Year Period resulting from
losses of consolidated subsidiaries with minority ownership. The
change from such losses of consolidated subsidiaries with minority
ownership in the Comparable Prior Year Period to income in the 1994
Quarter is principally due to (i) the portion of the facilities
relocation, corporate restructuring and other significant charges
discussed above allocated to subsidiaries with minority ownership, (ii)
higher earnings of the continuing operations of Southeastern Public
Service Company ("SEPSCO"), a 71.1% owned subsidiary of Triarc until
April 14, 1994, and (iii) the sale of a non-core subsidiary which had
losses in the Comparable Prior Year Period in January 1994.
Discontinued operations of $5.3 million, net of income taxes and
minority interests in the Comparable Prior Year Period, was due to a
$5.4 million write-down (net of tax benefit and minority interest of
$7.5 million) relating to the impairment of certain unprofitable
properties and accruals for environmental remediation and losses on
certain contracts in progress of the Company's discontinued operations
less the net income of the discontinued operations for the Comparable
Prior Year Period which is prior to the July 22, 1993 decision to
discontinue such businesses. There is no similar income or loss in the
1994 Quarter since the estimated operating losses of such remaining
discontinued operations through their actual or estimated dates of
disposal were previously recorded.
The extraordinary item in the Comparable Prior Year Period resulted
from the early extinguishment of certain debt of RC/Arby's Corporation
("RCAC") in connection with the Change in Control and was comprised of
the write-off of unamortized deferred financing costs of $3.7 million
and the payment of prepayment penalties of $6.7 million, net of tax
benefit of $3.8 million.
Net income of $8.8 million in the 1994 Quarter increased $59.1 million
from a loss of $50.3 million in the Comparable Prior Year Period as a
result of the factors discussed above, most significantly the
facilities relocation, corporate restructuring and other significant
charges, the discontinued operations and the extraordinary charge
previously discussed aggregating approximately $60.7 million, net of
income tax and minority interest credits.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and cash equivalents declined $69.7 million during
the 1994 Quarter to $49.1 million at March 31, 1994. Such decrease
reflects (i) net cash used by operations of $33.8 million, (ii)
repayments of debt in excess of borrowings of $12.8 million, (iii)
capital expenditures of $11.3 million, (iv) the acquisition of
restaurants by the Company's fast food segment which included a cash
payment of $9.5 million and (v) cash dividends on redeemable preferred
stock of $2.9 million partially offset by other increases of $0.6
million. The net cash used by operations reflects $42.6 million of
adjustments to reconcile net income to cash and cash equivalents used
in operating activities partially offset by net income of $8.8 million.
Such adjustments consist of $51.5 million from changes in operating
assets and liabilities and $5.7 million of payments related to the
facilities relocation and corporate restructuring accrual partially
offset by $12.5 million of non-cash charges principally for
depreciation and amortization and $2.1 million of other items, net.
The change in operating assets and liabilities principally reflects a
$33.1 million decrease in accounts payable and accrued expenses and an
increase in receivables of $19.6 million. The decrease in accounts
payable is principally due to (i) a $12.0 million payment in settlement
of certain litigation, (ii) an $8.8 million decrease in accrued
interest due to interest payments during the 1994 Quarter, (iii) $10.9
million of marketing allowances to soft drink bottlers and (iv) other
decreases related to the timing of payments of accounts payable and
accrued expenses. The increase in receivables is due to certain slower
paying customers, the extension of credit terms for certain customers
and seasonality of sales. The net decrease in debt was due to
scheduled repayments of debt other than capital leases made during the
1994 Quarter of $18.5 million and other repayments of $2.9 million
offset by higher revolving credit borrowings of $8.6 million.
RCAC's $275.0 million aggregate principal amount of 9 3/4% fixed rate
senior secured debt securities (the "9 3/4% Notes") mature on August 1,
2000 and do not require for any amortization of the principal amount
thereof prior to such date. As of March 31, 1994 RCAC had outstanding
$6.5 million principal amount of 16 7/8% Subordinated Debentures (the
"16 7/8% Debentures") which are scheduled to be repaid in July 1994.
Graniteville Company, a 51% owned subsidiary of Triarc and as of April
14, 1994 100% owned by the Company ("Graniteville") and its subsidiary
C.H. Patrick & Co., Inc. have a $180.0 million senior secured credit
facility (the "Graniteville Credit Facility") with Graniteville's
commercial lender. The Graniteville Credit Facility provides for
senior secured revolving credit loans of up to $100.0 million (the
"Revolving Loan") and an $80.0 million senior secured term loan the
"Term Loan") and expires in 1998. On March 10, 1994 the Company
amended the Graniteville Credit Facility to provide for a temporary
increase in the maximum Revolving Loan to $107.0 million through
September 1, 1994. The Term Loan is repayable $9.0 million during the
remainder of calendar 1994 and $12.0 million per year from 1995 through
1997, with a final payment of $25.0 million due in April 1998, subject
to mandatory prepayments of 50% of Excess Cash Flow, as defined. The
borrowing base for the Revolving Loan is the sum of 85% to 90% of
eligible accounts receivable, as defined, plus 65% of eligible
inventory, as defined, provided that advances against eligible
inventory shall not exceed at any time $42.0 million through September
1, 1994 and $35.0 million thereafter. At March 31, 1994 Graniteville
had $9.0 million of unused availability under the Revolving Loan.
Consolidated capital expenditures amounted to $23.5 million for the
three-month period ended March 31, 1994. The Company expects that
capital expenditures during the remainder of calendar 1994 will
approximate $75.0 million, subject to the availability of cash and
other financing sources. The increased anticipated 1994 expenditures
reflect increased levels of expenditures principally (i) in the fast
food segment in furtherance of its business strategies, principally for
construction and acquisition of new restaurants and remodeling older
restaurants and (ii) in the textile segment for open-end spinning
equipment and the construction of a new dyeing facility. Further, the
pursuit of potential acquisitions as part of the Company's growth
strategy may also contribute to the Company's cash requirements. The
Company anticipates that it will meet a portion of its capital
expenditures through leasing arrangements or other financing rather
than cash expenditures.
In the fourth quarter of Fiscal 1993 the Company recorded a charge of
$43.0 million for facilities relocation and corporate restructuring
costs in connection with the Change in Control. As of March 31, 1994
the remaining accrual for such costs was $24.7 million. Triarc expects
cash requirements for such accruals of $20.7 million for the remainder
of 1994, including approximately $12.0 million in connection with the
termination of the lease on the Company's former headquarters. Such
payments are included as a component of cash flows from operations
previously discussed.
The Federal income tax returns of Triarc and its subsidiaries have been
examined by the Internal Revenue Service ("IRS") for the tax years 1985
through 1988. The Company has resolved all but two issues related to
such audit and in connection therewith expects to pay approximately
$6.5 million in May and June of 1994, which amount has been fully
reserved. The Company intends to contest the two open issues at the
Appellate Division of the IRS. In late 1993, the IRS commenced the
examination of the Company's Federal income tax returns for the tax
years from 1989 through 1992. The amount and timing of any payments
required as a result of such examination cannot presently be
determined. However, Triarc believes that adequate aggregate
provisions have been made in the current period and prior years for any
tax liabilities, including interest, that may result from all such
examinations.
On April 14, 1994 SEPSCO's shareholders other than the Company approved
an agreement and plan of merger between Triarc and SEPSCO (the "SEPSCO
Merger") pursuant to which on that date a subsidiary of Triarc was
merged into SEPSCO in accordance with a court approved settlement of a
purported shareholder derivative suit. Following the SEPSCO Merger,
the Company owns 100% of SEPSCO's common stock. The SEPSCO Merger
will be accounted for in accordance with the purchase method of
accounting and, accordingly, the Company's additional 28.9% interest in
SEPSCO's assets and liabilities will be recorded at fair value and the
Company's minority interest in SEPSCO will be eliminated. The cost in
excess of the fair value of the additional interest in the net assets
acquired ("Goodwill") will be amortized on a straight-line basis over
30 years. However, the Company has not commenced its evaluation of
purchase accounting and accordingly, cannot presently determine the
Goodwill that will result from the SEPSCO Merger. On a pro forma
basis, giving effect to the SEPSCO Merger as if it had been consummated
on January 1, 1994 and assuming that the amount by which the fair value
of the 2,691,822 shares of class A common stock of Triarc ($52.1
million) issued in the SEPSCO Merger, net of the amount previously
expensed as settlement cost, exceed the related minority interest
liability ($28.2 million) will be amortized over an average period of
25 years, pro forma income from continuing operations for the three
months ended March 31, 1994 would be approximately $1.1 million greater
than the amount actually reported. Such increase is due to the
elimination of minority interest expense partially offset by additional
depreciation and amortization.
The Company's principal cash requirements, exclusive of operating cash
flows, for the remainder of 1994 consist of debt principal payments of
$15.5 million (see above and subsequent discussion), capital
expenditures of $75.0 million to the extent not financed, acquisitions,
if any, a semi-annual dividend payment aggregating $2.9 million on the
Company's redeemable preferred stock and a $6.5 million payment as a
result of the examination of the Company's Federal income tax returns.
The Company anticipates meeting those requirements through existing
cash balances which, as of March 31, 1994, amounted to $49.1 million,
future proceeds from the sale of remaining SEPSCO discontinued
operations (see subsequent discussion), cash flows from operations and
financing a substantial portion of its capital expenditures through
capital lease (up to an allowable $10.8 million at RCAC) and operating
lease arrangements. The Company will be required to arrange third
party financing to supplement its cash resources to meet its cash
requirements for the remainder of 1994. 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.
During the three months ended March 31, 1994 the Company had net cash
and cash equivalents used in operations of $33.8 million; the principal
causes of which were previously discussed. The Company expects its
operating cash flows during the remaining nine months of 1994 will
result in positive cash flows. Such turnaround is due to the fact that
a significant portion of the negative effect of the changes in
operating assets and liabilities on cash flows from operations during
the first quarter of 1994 will not recur during the remainder of the
year.
The ability of each of Triarc, RCAC, Graniteville, National Propane
Corporation, a wholly-owned subsidiary of Triarc ("National Propane"),
and SEPSCO to meet its respective short-term cash requirements is
discussed below.
Triarc
Triarc is a holding company whose ability to meet its cash requirements
is primarily dependent upon cash flows from its subsidiaries including
repayments by subsidiaries of outstanding loans from Triarc, loans to
Triarc by subsidiaries, and reimbursement by subsidiaries to Triarc in
connection with the providing of certain management services and
payments under certain tax sharing agreements with certain
subsidiaries.
Triarc's principal subsidiaries are subject to certain limitations on
their ability to pay dividends and/or make loans or advances to Triarc.
The ability of any of Triarc's subsidiaries to pay cash dividends
and/or make loans or advances to Triarc is also dependent upon the
respective abilities of such entities to achieve sufficient cash flows
after satisfying their respective cash requirements, including debt
service, to enable the payment of such dividends or the making of such
loans or advances. Under the terms of the indenture relating to the 9
3/4% Notes, RCAC is only permitted to pay cash dividends on its common
stock or make loans or advances to CFC Holdings Corp. ("CFC Holdings"),
the parent company of RCAC, or to Triarc, to the extent the aggregate
amount of such payments declared or made shall not exceed (a) the sum
of (i) 50% of the cumulative net income of RCAC after July 1, 1993,
(ii) the aggregate net cash proceeds received by RCAC after August 1993
from the issuance or sale of its capital stock or from equity
contributions, and (iii) $1.0 million (b) less 100% of the cumulative
net loss of RCAC after July 1, 1993. In accordance with such
limitation, as of March 31, 1994 RCAC could not pay any dividends, or
make any loans or advances to CFC Holdings. CFC Holdings is not
presently subject to any agreement which limits its ability to pay cash
dividends or make loans or advances, although by reason of the
restrictions to which RCAC is subject, the ability of CFC Holdings in
the near term to obtain funds from its subsidiaries to do so is
extremely limited.
Under the Graniteville Credit Facility, Graniteville is permitted to
pay dividends or make loans or advances to its stockholders, including
Triarc, in an amount equal to 50% of the net income of Graniteville
accumulated from the beginning of the first fiscal year commencing on
or after December 20, 1994, provided that the outstanding principal
balance of Graniteville's Term Loan is less than $50.0 million at the
time of the payments (the outstanding principal balance was $70.0
million as of March 31, 1994), and certain other conditions are met.
Accordingly, Graniteville is unable to pay any dividends or make any
loans or advances to Triarc prior to December 31, 1995.
Under the indenture relating to National Propane's 13 1/8% senior
subordinated debentures due March 1, 1999 (the "13 1/8% Debentures"),
National Propane was permitted as of March 31, 1994 to pay cash
dividends of up to approximately $21.5 million. However, it is
unlikely National Propane's cash flows (see subsequent discussion) will
permit any cash dividends in the immediate future and, as a result,
Triarc currently anticipates that any dividends declared by National
Propane to Triarc as the holder of all of its outstanding common stock
would be used to offset indebtedness and interest accrued thereon owed
by Triarc to National Propane. Under the indenture relating to its 11
7/8% senior subordinated debentures due February 1, 1998 (the "11 7/8%
Debentures"), SEPSCO was unable to pay any cash dividends to Triarc as
of March 31, 1994. National Propane and SEPSCO are not parties to any
agreements restricting or limiting the amount of loans or advances
which they may make to Triarc.
As of March 31, 1994, Triarc had outstanding external indebtedness
consisting of a $34.2 million note issued in connection with the
commutation of certain insurance obligations. In addition, Triarc owed
subsidiaries an aggregate principal amount of $211.5 million,
consisting of notes in the principal amounts of $44.3 million and $69.0
million owed to CFC and Graniteville, respectively (which bear interest
at 9.5% per annum), balances of $71.7 million of advances owed to
National Propane (which bear interest at 16.5% per annum) and $26.5
million remaining on a note payable to SEPSCO (which bears interest at
13% per annum and is secured by the common shares of Graniteville owned
by Triarc).
Triarc expects its significant cash requirements for the remainder of
1994 will include minimum required cash interest payments totaling
approximately $3.1 million on its notes payable to SEPSCO and
Graniteville, dividend payments aggregating approximately $2.9 million
on its redeemable preferred stock and general corporate expenses
including cash requirements for its facilities relocation and corporate
restructuring accruals of $15.0 million. Triarc believes that its
expected sources of cash, including existing cash balances,
reimbursement of general corporate expenses from subsidiaries in
connection with management services agreements, net payments received
under tax sharing agreements with certain subsidiaries and proceeds, if
any, from the sale of certain subsidiary operations held for sale will
be sufficient to enable it to meet its short-term cash needs.
Graniteville
It is expected that funds generated from operations of Graniteville,
and borrowings under the Graniteville Credit Facility will be
sufficient to enable Graniteville to meet its short-term cash
requirements.
RCAC
The Company expects RCAC's operating cash flows during the remaining
nine months of 1994 to result in positive cash flows. RCAC's principal
cash requirements, exclusive of operating cash flows, during the
remainder of 1994 consist of debt principal repayments of $9.5 million
(including a $3.0 million intercompany note repayment) capital
expenditures of $60.0 million and acquisitions, if any. RCAC
anticipates meeting these requirements with existing cash which as of
March 31, 1994 amounted to $18.5 million, operating cash flows, and
financing a substantial portion of its capital expenditures through
capital (up to an allowable additional $11.3 million under the
indenture for the 9 3/4% Notes) and operating leasing arrangements.
Should RCAC's cash resources not be adequate to meet its cash
requirements for the remainder of 1994, RCAC will be required either to
arrange third party financings or reduce its capital expenditures
and/or business acquisitions.
National Propane
The 1994 annual sinking fund payment on the 13 1/8% Debentures of $7.0
million was made in the first quarter. The Company anticipates
National Propane's only cash requirements, exclusive of operating
activities, for the remainder of 1994 will consist of approximately
$1.3 million for capital expenditures. National Propane believes its
cash flows from operations for the remainder of 1994, together with
existing cash ($4.9 million at March 31, 1994), should be adequate to
meet its cash requirements noted above. However, should such cash
flows not be adequate, Triarc may be required to supplement them with
increased cash payments of accrued interest and/or principal on
National Propane's advances to Triarc ($71.7 million as of March 31,
1994) to the extent Triarc has cash available for payment or through
restructuring of debt of National Propane.
SEPSCO
SEPSCO utilized $0.8 million of cash in operating activities during the
first quarter of 1994 and expects similar amounts for the remainder of
1994. The 1994 annual sinking fund requirement on SEPSCO's 11 7/8%
Debentures of $9.0 million was made in the first quarter of 1994.
SEPSCO anticipates its cash requirements for the remainder of 1994,
excluding operating activities, will only be $0.3 million of capital
expenditures to provide for business expansion in the natural gas and
oil and LP gas segments. SEPSCO will be able to meet such requirements
during 1994 with existing cash and marketable securities of $21.2
million at March 31, 1994.
DISCONTINUED OPERATIONS
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's utility and municipal services and
refrigeration businesses. On July 22, 1993 SEPSCO's Board of Directors
also authorized the sale or liquidation of its natural gas and oil
businesses. However, on December 9, 1993 SEPSCO's Board of Directors
decided to sell the natural gas and oil businesses to Triarc following
the SEPSCO Merger and the resulting elimination of the minority
interest in SEPSCO rather than selling such businesses to an
independent third party.
In October 1993 SEPSCO sold the assets of its tree maintenance services
operations and the stock of its two construction-related operations
comprising all of the operations of the former utility and municipal
services business segment. On April 8, 1994 SEPSCO sold substantially
all of the operating assets of the ice operations of its refrigeration
business segment for $5.0 million in cash, a $4.3 million note
(discounted value $3.3 million) and the assumption by the buyer of
certain current liabilities of up to $1.0 million. The note, which
bears no interest during the first year and 5% thereafter, is payable
in annual installments of $0.12 million in 1995 through 1998 with the
balance of $3.8 million due in 1999. While the amount of the loss
resulting from the sale of the ice operations has not been finalized,
the Company currently estimates it will approximate $2.1 million. The
only remaining discontinued operation is the other operation (cold
storage) comprising SEPSCO's refrigeration business. SEPSCO has
identified certain potential customers and is negotiating potential
terms for the sale of the cold storage operation. The precise
timetable for the sale and liquidation of such operation will depend
upon SEPSCO's ability to negotiate acceptable terms for the sale of
such operation with presently identified potential customers, or,
failing to do so, identifying other appropriate purchasers. SEPSCO
currently anticipates completion of such sale by July 22, 1994. Triarc
expects that all currently anticipated dispositions, including the
results of their operations through the actual or anticipated disposal
dates, will not have a material impact on the financial position or
results of operations of the Company.
Contingencies
The Company is contingently liable for claims alleged in bankruptcy
proceedings and certain environmental matters which are described in
detail in Note 9 to the condensed consolidated financial statements.
In addition, a purported shareholder derivative suit was settled with
the SEPSCO Merger, which was approved by SEPSCO's shareholders other
than the Company on April 14, 1994, all as described in detail in Note
10 to the condensed consolidated financial statements. The Company is
also engaged in ordinary, routine litigation incidental to its
business. The Company does not believe that such claims alleged in
bankruptcy proceedings, environmental matters and ordinary routine
litigation will have a material adverse effect on its consolidated
financial position or results of operations.
PAGE
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on April 1, 1994 with
respect to the Registrant's estimated operating results for the
eight-month transition period ended December 31, 1993.
PAGE
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SIGNATURE
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.
TRIARC COMPANIES, INC.
By: /S/ Joseph A. Levato
____________________________________
Joseph A. Levato
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
Date: May 16, 1994 By: /S/ Fred H. Schaefer
___________________________________
Fred H. Schaefer
Vice President and
Chief Accounting Officer
(Principal accounting officer)
<PAGE>
