August 15, 1994
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street N.W.
Washington, D.C. 20549
Gentlemen:
Transmitted herewith is the Triarc Companies, Inc. quarterly report on Form
10-Q for the quarter ended June 30, 1994.
Very truly yours,
TRIARC COMPANIES, INC.
Fred H. Schaefer
Vice President and
Chief Accounting Officer
FHS/mv
PAGE
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 120549
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 June 30, 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)
Delaware 38-0471180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Third Avenue, New York, New York 10022
(Address of principal executive offices) (zip code)
(212) 230-3000
(Registrant's telephone number, including area code)
777 South Flagler Drive, Suite 1000E,
West Palm Beach, FL. 33401
(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 ( )
There were 24,030,734 shares of the registrant's Class A Common Stock
($.10 par value) outstanding as of August 1, 1994.
PAGE
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION> December 31, June 30,
1993 1994
---------- --------
ASSETS (A) (Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $118,801 $ 61,378
Receivables, net 124,319 141,999
Inventories 108,206 104,174
Deferred income tax benefit 9,621 5,203
Prepaid expenses and other current assets 32,550 30,403
-------- ---------
Total current assets 393,497 343,157
-------- ---------
Properties, net 261,996 277,069
Unamortized costs in excess of net assets of
acquired companies 182,925 209,071
Net non-current assets of discontinued operations 15,223 5,995
Other assets 43,605 50,692
-------- ---------
$897,246 $ 885,984
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 40,280 $ 41,080
Accounts payable 61,194 44,159
Accrued facilities relocation and corporate
restructuring costs 30,396 21,321
Other accrued expenses 109,107 93,881
-------- ---------
Total current liabilities 240,977 200,441
-------- ---------
Long-term debt 575,161 571,639
Deferred income taxes 32,038 30,909
Other liabilities 26,076 25,653
Minority interests 27,181 --
Redeemable preferred stock 71,794 71,794
Stockholders' equity (deficit):
Common stock 2,798 2,798
Additional paid-in capital 50,654 79,415
Accumulated deficit (46,987) (42,705)
Treasury stock (75,150) (44,609)
Other (7,296) (9,351)
-------- ---------
Total stockholders' deficit (75,981) (14,452)
-------- ---------
$897,246 $ 885,984
======== =========
<FN>
(A) Derived from the audited consolidated financial statements as of
December 31, 1993.
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended Six months ended
------------------ ------------------
July 31, June 30, July 31, June 30,
1993 1994 1993 1994
---- ---- ---- ----
(In thousands except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net sales $251,313 $254,736 $497,950 $513,429
Royalties, franchise
fees and other revenues 12,761 12,693 24,420 24,059
-------- -------- -------- --------
264,074 267,429 522,370 537,488
-------- -------- -------- --------
Costs and expenses:
Cost of sales 186,400 191,831 363,846 378,227
Advertising, selling
and distribution 25,436 28,877 48,904 50,195
General and administrative
expenses 33,931 30,274 65,376 61,136
Facilities relocation
and corporate restructuring -- -- 43,000 --
Provision for doubtful
accounts from former
affiliates -- -- 5,623 --
-------- -------- -------- --------
245,767 250,982 526,749 489,558
-------- -------- -------- --------
Operating profit (loss) 18,307 16,447 (4,379) 47,930
Interest expense (15,784) (18,433) (39,578) (35,468)
Other income (expense), net (310) 1,211 (602) 3,865
-------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes
and minority interests 2,213 (775) (44,559) 16,327
Benefit from (provision for)
income taxes (1,843) (812) 2,234 (7,837)
-------- -------- -------- --------
Income (loss) from continuing
operations before minority
interests 370 (1,587) (42,325) 8,490
Minority interests in
(income) loss of
consolidated subsidiaries (367) -- 4,018 (1,292)
-------- -------- -------- --------
Income (loss) from
continuing operations 3 (1,587) (38,307) 7,198
Income (loss) from discontinued
operations, net of income
taxes and minority interests 631 -- (4,714) --
------- ------- -------- --------
Income (loss) before
extraordinary item 634 (1,587) (43,021) 7,198
Extraordinary item -- -- (6,611) --
-------- -------- -------- --------
Net income (loss) $ 634 $ (1,587) $(49,632) $ 7,198
======== ======== ======== ========
Preferred stock dividend
requirements $ (1,458) $ (1,458) $ (1,574) $ (2,916)
Net income (loss)
applicable to common
stockholders $ (824) $ (3,045) $(51,206) $ 4,282
Income (loss) per share:
Continuing operations $ (.07) $ (.13) $ (1.71) $ .19
Discontinued operations .03 -- (.20) --
Extraordinary item -- -- (.28) --
-------- -------- -------- --------
Net income (loss) $ (.04) $ (.13) $ (2.19) $ .19
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six months ended
-----------------------
July 31, June 30,
1993 1994
---- ----
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(49,632) $ 7,198
Adjustments to reconcile net income (loss)
to net cash and cash equivalents provided
by (used in) operating activities
Depreciation and amortization of
properties 15,602 16,759
Amortization of costs in excess of net
assets of acquired companies 4,460 3,303
Amortization of deferred debt discount,
deferred financing costs and unearned
compensation 4,123 5,645
Write-off of deferred financing costs 3,741 --
Provision for doubtful accounts 6,569 734
Provision for (payments of) facilities
relocation and corporate restructuring 43,000 (9,075)
Provision for (benefit from) deferred
income taxes (7,186) 3,289
Minority interests (4,018) 1,292
Loss from discontinued operations 4,714 --
Interest expense capitalized and not paid -- 1,610
Payments of insurance loss reserves (9,445) (136)
Other, net (2,751) (4,487)
Changes in operating assets and
liabilities:
Decrease (increase) in:
Receivables 35,465 (18,414)
Inventories (6,376) 4,032
Prepaid expenses and other current
assets 597 981
Decrease in:
Accounts payable and accrued expenses (34,887) (27,919)
-------- ---------
Net cash and cash equivalents provided
by (used in) operating activities 3,976 (15,188)
-------- ---------
Cash flows from investing activities:
Business acquisitions:
Properties, net -- (10,254)
Costs in excess of net assets acquired -- (5,058)
Other assets -- (1,407)
Debt issued and assumed, net -- 5,629
-------- ---------
-- (11,090)
Proceeds from sales of assets 1,389 1,580
Capital expenditures (13,998) (22,570)
Purchase of minority interests (17,200) --
Redemption of investment in affiliate 2,100 --
-------- ---------
Net cash and cash equivalents used in
investing activities (27,709) (32,080)
-------- ---------
Cash flows from financing activities:
Issuance of class A common stock 9,650 --
Proceeds from long-term debt 396,358 14,404
Repayments of long-term debt (296,517) (26,841)
Redemption of preferred stock -- (937)
Deferred financing costs (27,158) --
Net decrease in short-term debt (8,748) --
Payment of preferred dividends (4) (2,916)
-------- ---------
Net cash and cash equivalents provided by
(used in) financing activities 73,581 (16,290)
-------- ---------
Net cash provided by (used in) continuing
operations 49,848 (63,558)
Net cash provided by (used in) discontinued
operations (2,291) 6,135
-------- ---------
Net increase (decrease) in cash and cash equivalents 47,557 (57,423)
Cash and cash equivalents at beginning of period 31,947 118,801
-------- ---------
Cash and cash equivalents at end of period $ 79,504 $ 61,378
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1994
(Unaudited)
(1) Basis of Presentation
The principal directly or indirectly wholly-owned subsidiaries
(principally 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 six-month period ended July 31, 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 June 30, 1994, its results of operations for the
three-month and six-month periods ended July 31, 1993 and June 30, 1994
and its cash flows for the six-month periods ended July 31, 1993 and
June 30, 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. Accordingly, in the accompanying condensed
consolidated statements of operations for the three-month and six-month
periods ended July 31, 1993, Graniteville and SEPSCO are included for
their corresponding periods ended May 31, 1993, Arby's and Royal Crown
are included for their corresponding periods ended June 30, 1993 and
National Propane is included for its corresponding periods ended July
31, 1993.
The three-month and six-month periods ended July 31, 1993 (the
"Comparable Three Months" and "Comparable Six Months", respectively)
have been presented herein since they are the periods most nearly
comparable to the three-month and six-month periods ended June 30,
1994. Due to the different periods consolidated in the Comparable
Three Months and the Comparable Six Months and the fact that
consolidations were not prepared other than on a quarterly basis in
Fiscal 1993 and Transition 1993, it was not practicable for the Company
to recast its prior year results and present financial statements for
the three-month and six-month periods ended June 30, 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, June 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Raw materials $ 26,930 $ 24,305
Work in process 6,676 7,160
Finished goods 74,600 72,709
--------- ---------
$ 108,206 $ 104,174
========= =========
</TABLE>
(4) Properties
The following is a summary of the components of properties, net:
<TABLE>
<CAPTION>
December 31, June 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Properties, at cost $ 447,083 $ 470,965
Less accumulated depreciation
and amortization 185,087 193,896
--------- ---------
$ 261,996 $ 277,069
========= =========
</TABLE>
(5) Restricted Stock and Stock Options
In April 1994 the Company's Board of Directors (and subsequently the
Company's stockholders) approved amendments to the Company's 1993
Amended and Restated Equity Participation Plan (the "Equity Plan"),
including an increase in the authorized number of shares of Triarc's
Class A common stock (the "Class A Common Stock") that may be granted
as restricted stock or issued upon the exercise of stock options to
10,000,000 from 3,500,000.
In April 1994 Triarc granted an aggregate 3,850,000 stock options (the
"Performance Options") to the Chairman and Chief Executive Officer, the
President and Chief Operating Officer and the Vice Chairman of the
Company. All of the Performance Options have an exercise price of
$20.125 per share and one-third of the Performance Options will vest
upon attainment of each of the following three closing price levels for
the Class A Common Stock for 20 out of 30 consecutive trading days by
the indicated dates:
<TABLE>
<CAPTION>
On or Prior
to March 30, Price
<S> <C>
1999 $ 27.1875
2000 $ 36.25
2001 $ 45.3125
</TABLE>
Each option not previously vested if such price levels are not attained
no later than each indicated date, will vest subsequent to March 30,
2001 according to its terms.
During the six months ended June 30, 1994, Triarc issued from its
treasury stock 51,750 shares of restricted stock under the Equity Plan
at an aggregate market value at the dates of grant of $1,109,000. The
unamortized value of such grants was reflected as an addition to
unearned compensation (included in "Other stockholders' deficit" in the
accompanying condensed consolidated balance sheets) during the six
months ended June 30, 1994 and is being amortized to compensation
expense over the applicable vesting period through 1996. In addition
to the issuance of the aforementioned Performance Options, during the
six months ended June 30, 1994 Triarc also granted 652,000 stock
options under the Equity Plan at option prices ranging from $19.375 to
$24.125 representing the fair market value per share of Class A Common
Stock at the dates of grant. Subsequent to June 30, 1994 Triarc issued
from its treasury stock 15,000 shares of restricted stock at an
aggregate market value at the date of grant of $236,000 and also
granted 177,500 stock options at an option price of $15.75.
During the six months ended June 30, 1994, in exchange for 26,000
shares of restricted stock and 95,000 stock options held by employees
terminated during the period, the Company agreed to pay such employees
(the "Rights") an amount in cash equal to the difference between the
market value of Triarc's Class A Common Stock and the base value
thereof (see below). The Rights which resulted from the conversion of
stock options have base prices ranging from $18.00 to $30.75 per share
and the Rights which resulted from the conversion of restricted stock,
which fully vested upon termination of the employees, all have a base
price of zero. As a result of such accelerated vesting of restricted
stock, the Company incurred a charge of $331,000 during the three
months ended June 30, 1994 included in "General and administrative
expenses". After such exchange the Company has an aggregate 171,000
Rights currently exercisable which expire 50,000 in January 1995,
16,000 in July 1995, and 105,000 in January 1997. Upon issuance of the
Rights the Company recorded a liability equal to the excess of the
market value of the Class A Common Stock over the base price of the
stock options or restricted stock exchanged. Such liability is
adjusted to reflect material changes in the fair market value of Class
A Common Stock subject to a lower limit of the base price of the Rights
on each period-end date.
(6) Income (Loss) Per Share
The common shares used in the calculations of income (loss) per share
were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
July 31, June 30, July 31, June 30,
1993 1994 1993 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding 21,168 23,678 23,345 22,517
Dilutive stock options
utilizing the treasury
stock method -- -- -- 162
------- ------- ------- -------
Common and common
equivalent shares 21,168 23,678 23,345 22,679
======= ======= ======= =======
</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 (if any) shares noted above. Common stock
equivalents were not included in the computation of the weighted
average shares outstanding for the three-month and six-month periods
ended July 31, 1993 and the three-month period ended June 30, 1994
because such inclusion would have been antidilutive. Fully diluted
income (loss) per share was not applicable for any of the periods
presented since contingent issuances of common shares would have been
antidilutive.
(7) Income Taxes
The Company's (benefit from) provision for income taxes for each of the
periods presented varies from the United States Federal statutory
income tax rate of 35% principally due to the effects of state income
taxes, net of Federal benefit, and the amortization of costs in excess
of net assets of acquired companies which is not deductible for income
tax purposes. In addition, during the three-month period ended June
30, 1994, the Company revised its estimated full year 1994 effective
tax rate to 48% from approximately 41% in the first quarter of 1994
resulting in an adjustment of $1,184,000 relating to the pretax income
of the first quarter. The difference between the Company's benefit
from income taxes for the six-month period ended July 31, 1993,
representing an effective tax rate of 5%, and the Federal statutory
income tax rate is also attributable to costs related to a five-year
consulting agreement with the former Vice Chairman of the Company,
write-downs of certain investments which were not deductible for income
tax purposes and provisions for income tax contingencies and other
matters.
(8) Transactions with Related Parties
The Company continues to have related party transactions during the
six-month period ended June 30, 1994 of the nature and general
magnitude as those described in the Form 10-K. The most significant of
these transactions during the six months ended June 30, 1994 are
summarized below.
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. The Company incurred rental expense of $360,000 for the month of
January 1994. In addition, the Company is obligated to pay the base
rent for the remaining lease period through April 1997 which, net of a
related security deposit, aggregates approximately $12,000,000. Such
amount was previously accrued by the Company during the Comparable Six
Months (see Note 14) and was originally due January 31, 1994. The due
date for the base rent, together with interest since February 1, 1994
which is being accrued currently, has been extended to September 15,
1994.
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 six-month period ended June 30, 1994 of $1,100,000. Pursuant
to this arrangement, the Company pays the operating expenses of the
aircraft directly to third parties.
The Company subleases approximately 26,800 square feet of furnished
office space in New York, New York from a former affiliate of Messrs.
Peltz and May and 15,000 square feet of furnished office space in West
Palm Beach, Florida from an affiliate of Messrs. Peltz and May, both
which are owned by unaffiliated third parties. The New York sublease
expires in January 1996. The sublease for the 15,000 square feet in
West Palm Beach expires in September 1994 and will not be renewed. 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 $179,000, was
approximately $774,000 during the six-month period ended June 30, 1994,
which is less than the aggregate amounts the sublessors paid to the
unaffiliated landlords but represents amounts the Company believes it
would pay to an unaffiliated third party for similar improved office
space. In addition, Triarc leases 17,000 square feet of office space
in West Palm Beach under a lease assumed from a former affiliate of
Messrs. Peltz and May, which expires in February 2000. Messrs. Peltz
and May have guaranteed to the unaffiliated landlords the payment of
rent for the New York and the West Palm Beach office space. In June
1994 the Company decided to centralize its corporate offices in New
York City. The Company intends to sublease the 17,000 square feet in
West Palm Beach. Since the Company has not finalized any sublease
arrangements with respect to the West Palm Beach office space, the
Company has not determined if the sublease will result in any loss and,
accordingly, no provision for such loss, if any, is appropriate.
(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. In 1990 and 1991 Graniteville provided reports
to DHEC summarizing its required study and investigation of the alleged
pollution and its sources which 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 four 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.
Remediation is ongoing at six of such sites. Based on 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 June 30, 1994 of $1,894,000 and has a remaining accrual of
$1,767,000.
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
certain of 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 (i) certain claims relating to
the insurance of certain of NVF's properties by Chesapeake Insurance
Company Limited ("Chesapeake"), 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 June 1994 the official
committee of NVF's unsecured creditors (the "NVF Committee") filed an
amended complaint (the "NVF Litigation") against the Company and
certain former affiliates alleging causes of action against the Company
for (a) aiding and abetting breach of fiduciary duty by Victor Posner,
(b) equitable subordination of, and objections to, claims which the
Company has asserted against NVF, (c) recovery of certain allegedly
fraudulent and preferential transfers allegedly made by NVF to the
Company and (d) violations of the Racketeering - Influenced and Corrupt
Organizations Act. The NVF Committee's complaint seeks an undetermined
amount of damages from the Company, as well as relief identified in the
previous sentence. The Company has responded to the NVF Committee's
complaint by filing an answer denying the material allegations in the
complaint, filing a motion to dismiss certain of the causes of action
and asserting counterclaims and set-offs against NVF. The parties to
the NVF Litigation are presently conducting pre-trial discovery and a
trial date has not been set. The Company intends to continue
contesting these claims. Nevertheless, during Transition 1993 the
Company provided approximately $2,300,000 with respect to claims
related to the NVF Proceeding. Based upon information currently
available to the Company and after considering the amounts provided,
the Company 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 June 1994 NVF commenced a lawsuit in federal court against
Chesapeake and another defendant alleging claims for (a) breach of
contract, (b) bad faith and (c) tortious breach of the implied covenant
of good faith and fair dealing in connection with insurance policies
issued by Chesapeake covering property of NVF (the "Chesapeake
Litigation"). NVF seeks compensatory damages in an aggregate amount of
approximately $2,000,000 and punitive damages in the amount of
$3,000,000. In July 1994 Chesapeake responded to NVF's allegations by
filing an answer and counterclaims in which Chesapeake denies the
material allegations of NVF's complaint and asserts defenses,
counterclaims and set-offs against NVF. Chesapeake intends to continue
contesting NVF's allegations in the Chesapeake Litigation. Based upon
information currently available to the Company, the Company does not
believe that the outcome of the Chesapeake Litigation 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 Code (the "APL Proceeding").
In February 1994 the official committee of unsecured creditors of APL
filed a complaint (the "APL Litigation") against the Company and
certain companies formerly or presently affiliated with Victor Posner
or with the Company, 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 Chapter 11 trustee of APL
was subsequently added as a party plaintiff. APL's complaint asserts
claims against the Company for (a) aiding and abetting breach of
fiduciary duty, (b) equitable subordination of certain claims which the
Company has asserted against APL, (c) declaratory relief as to whether
APL has any liability to the Company and (d) recovery of fraudulent
transfers allegedly made by APL to the Company prior to commencement of
the APL Proceeding. APL's complaint seeks an undetermined amount of
damages from the Company, as well as the other relief identified in the
preceding sentence. In April 1994 the Company responded to the
complaint by filing an Answer and Proposed Counterclaims and Set-Offs
(the "Answer"). In the Answer, the Company denies the material
allegations in the complaint and asserts counterclaims and set-offs
against APL. The parties to the APL Litigation are presently
conducting pre-trial discovery and a trial date has not been set. The
Company intends to continue contesting the claims in the APL
Litigation. Based upon the results of the Company's investigation of
these matters to date, the Company does not believe that the outcome of
the APL Litigation will have a material adverse effect on the financial
position or results of operations of the Company.
In May 1994 National Propane was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. National
Propane purchased the property from a company (the "Successor") which
had purchased the assets of a utility which had previously owned the
property. National Propane believes that the contamination occurred
during the use of the property as a coal gasification plant by such
utility. National Propane is in the process of hiring an environmental
consulting firm to advise it on possible remediation methods and to
estimate the cost of such remediation. Accordingly, National Propane
is currently unable to estimate the amount of such remediation costs,
if any. National Propane, if found liable for any of such costs, would
attempt to recover such costs from the Successor or through government
funds which provide reimbursement for such expenditures under certain
circumstances. Based on currently available information and since (i)
the extent of the alleged contamination is not known, (ii) the
preferable remediation method is not known and no estimate can
currently be made of the necessary costs thereof, and (iii) even if
National Propane were deemed liable for remediation costs, it could
possibly recover such costs from the Successor or through government
reimbursement, the Company does not believe that the outcome of this
matter 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 businesses. 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 2,691,824 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
Six Months. 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 the Comparable Six
Months 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 2,691,824 shares of Class A
Common Stock issued in the SEPSCO Merger, net of the portion of such
consideration representing the SEPSCO Stock Settlement Cost, aggregated
$52,105,000 (the "Merger Consideration"). The SEPSCO Merger is being
accounted for in accordance with the purchase method of accounting and
the Company's minority interest in SEPSCO has been eliminated. The
Company is in the process of determining the fair value of the
additional 28.9% interest in SEPSCO's assets acquired and liabilities
assumed. Until such valuations are completed, the Company is
temporarily reflecting the $23,801,000 of excess of cost of $52,105,000
over the acquired minority interest liability of $28,304,000 as "Costs
in excess of net assets of acquired companies" ("Goodwill"). Such
Goodwill is being amortized on a straight-line basis over 25 years
since it is assumed that a portion thereof will ultimately be allocated
to assets with depreciable lives of less than the Company's
amortization periods for Goodwill of 30 to 40 years. Pro forma
condensed summary operating results of the Company for the six-month
period ended June 30, 1994 giving effect to the SEPSCO Merger as if it
had been consummated on January 1, 1994, are set forth below.
<TABLE>
<CAPTION>
Six months ended
June 30, 1994
------------
(In thousands)
<S> <C>
Revenues $537,488
Operating profit 47,652
Income from continuing operations
before income taxes 16,049
Provision for income taxes (7,837)
Income from continuing operations 8,212
Income from continuing operations per share (a) .22
<FN>
-------------
(a) Income from continuing operations per share reflects the
assumed issuance as of January 1, 1994 of 2,691,824 additional
shares of Class A Common Stock that were actually 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 Six Months 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) Acquisitions
During the six months ended June 30, 1994 the Company consummated the
acquisition of certain restaurants and several smaller propane
operations. With respect to the restaurant acquisitions, in the
first quarter of 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 acquisition is being accounted for in
accordance with the purchase method of accounting. The Company is in
the process of determining the fair value of the assets acquired and
liabilities assumed. Until such valuations are completed, the
Company has tentatively reflected $4,037,000 of cost in excess of the
estimated fair value of the related net assets acquired as "Costs in
excess of net assets of acquired companies", 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. Accordingly, SEPSCO's utility and municipal services
business segment and its refrigeration business segment have been
accounted for as discontinued operations in the Company's condensed
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 $837,000. While the
amount of the loss resulting from the sale of the ice operations is
subject to final adjustment, the Company estimates it will
approximate $2,100,000, the estimated amount of which had previously
been accrued. 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. In June
1994 SEPSCO sold two of its cold storage plants with a net book value
of $1,888,000 for $475,000 of cash and $700,000 of notes, resulting
in a loss, including expenses of $50,000, of $763,000. In June 1994
SEPSCO entered into a letter of intent with a SEPSCO management-led
buyout group for the sale of substantially all of the remaining
assets of the cold storage operation for $6,500,000 in cash, a
$3,000,000 note (discounted value $2,486,000) and the assumption by
the buyer of certain liabilities of up to $2,500,000. Consummation
of the sale is subject to several conditions including, among others,
the buyers obtaining the necessary financing. Based on such purchase
price and excluding any proceeds from the $3,000,000 note until
collection is reasonably assured, the Company estimates that it will
incur a loss of approximately $2,500,000, the estimated amount of
which had previously been accrued, including the write-off of
approximately $700,000 of properties, principally land, with minimal
value not being sold to the buyers. The note would be secured by the
assets of the cold storage operation (subject to a security interest
by any lender to the buyers), would be due six years from the date of
closing and would be non-interest bearing for the first year and
would bear interest at 8% thereafter. SEPSCO currently anticipates
closing of such sale by October 1994.
After (i) consideration of (a) a $5,363,000 write-down (net of tax
benefit and minority interests aggregating $7,540,000) in the
Comparable Six Months and (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 consummated dispositions as well as the
anticipated disposition of the cold storage operations, 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.
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. Subsequently, SEPSCO identified significant
third party interest in the natural gas and oil business and on
August 5, 1994 entered into a contract for the sale of the principal
assets, excluding receivables, of the natural gas and oil business
for cash of $17,000,000 subject to certain post-closing adjustments.
The Company estimates that consummation of the sale at such price
would result in a gain. Such sale is scheduled to close no later
than August 31, 1994. Based on the intended sale to Triarc as of
December 31, 1993 and June 30, 1994, 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 June 30, 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 six months ended July
31, 1993 have not been reclassified to continuing operations since
the results of operations of such businesses were not material.
The income (loss) from discontinued operations for the three-month
and six-month periods ended May 31, 1993 (the periods included in the
Company's condensed consolidated statements of operations for the
Comparable Three Months and Comparable Six Months (see Note 1)) and
for the three-month and six-month periods ended June 30, 1994
subsequent to the measurement date, which have been previously
recognized, consisted of the following:
<TABLE>
<CAPTION>
Three Six Three Six
months months months months
ended ended ended ended
May 31, May 31, June 30, June 30,
1993 1993 1994 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Revenues 49,680 95,890 1,807 6,336
Operating profit (loss) 1,889 (11,136) (103) (656)
Income (loss) before
income taxes and
minority interests 1,426 (11,805) (198) (693)
Benefit from (provision
for) income taxes (539) 4,461 -- --
Minority interests (256) 2,630 -- 143
Net income (loss) 631 (4,714) (198) (550)
</TABLE>
<TABLE>
Net current assets and non-current assets of the discontinued operations
consisted of the following:
<CAPTION>
December 31, June 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Cash $ 307 $ 54
Receivables, net 1,528 597
Inventories 647 81
Other current assets 675 248
Current portion of long-term debt (6) --
Accounts payable (512) (167)
Other current liabilities (1,798) (206)
-------- --------
Net current assets of discontinued
operations included in "Prepaid
expenses and other current
assets" $ 841 $ 607
======== ========
Properties, net $ 17,681 $ 9,614
Other assets 149 93
Deposits and other liabilities (2,607) (3,712)
-------- --------
Net non-current assets of
discontinued operations $ 15,223 $ 5,995
======== ========
</TABLE>
(14) Significant Charges in the Comparable Six Months.
The accompanying condensed consolidated statement of operations for the
Comparable Six Months 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 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>
(15) Subsequent Events
The Company has entered into a letter agreement which is expected to
be completed by the end of 1994 whereby it will acquire up to 43
currently franchised restaurants for cash of up to $7,250,000 and the
assumption of up to approximately $5,000,000 of capitalized lease
obligations.
On August 10, 1994 National Propane signed a commitment letter for a
$120,000,000 senior secured credit facility with an option to increase
it to $150,000,000 with a group of banks (the "Bank Facility"). The
consummation of the Bank Facility is subject to customary terms and
conditions. The Bank Facility would consist of a $40,000,000
revolving credit facility and three tranches of term loans aggregating
$110,000,000. Approximately $49,000,000 of the term loans would be
restricted to redeeming the entire outstanding $49,000,000 principal
amount of National Propane's 13 1/8% senior subordinated debentures
due March 1, 1999 (the "13 1/8% Debentures"). In addition, an
aggregate $30,000,000, including $20,000,000 of the term loans and,
after one year, $10,000,000 of the revolving credit facility would be
restricted to the redemption, in part, of the $54,000,000 of SEPSCO's
11 7/8% senior subordinated debentures due February 1, 1998 (the "11
7/8% Debentures"), in connection with the intended transfer of Public
Gas Company, a subsidiary of SEPSCO engaged in the distribution of LP
gas, to National Propane (the precise nature and timing of such
transfer has not yet been determined). Further, $15,000,000 of the
revolving credit facility would be restricted for niche acquisitions
by National Propane (the "Acquisition Sublimit"). The remainder of
the proceeds would be utilized for general corporate purposes of
National Propane.
Borrowings under the Bank Facility would bear interest at rates based
either on the London Interbank Offered Rate ("LIBOR") or an alternate
base rate (the "ABR") at the option of National Propane. The ABR
would be the higher of the prime rate or 0.5% over the Federal funds
rate. Revolving credit loans would bear interest at 2.25% over LIBOR
or 1.00% over ABR, while the term loans would bear interest at rates
ranging from 2.50% to 3.50% over LIBOR or 1.25% to 2.25% over ABR,
respectively. Revolving credit loans would mature in five and one-
half years with amortization of the Acquisition Sublimit required
after three years. The term loans would amortize annually commencing
in 1995 at $8,750,000 increasing to $16,000,000 in 2003.
The Bank Facility agreement will include certain restrictive covenants
including limitations on advances or dividends to Triarc. National
Propane expects to incur fees of approximately $4,350,000 plus legal
fees and other costs in connection with the Bank Financing which will
be deferred and amortized using the interest rate method over the term
of the Bank Facility loans. The Company will also incur an
extraordinary charge upon the redemption of the 13 1/8% Debentures for
the write-off of unamortized debt discount and unamortized deferred
financing costs ($2,896,000 and $966,000, respectively, as of June 30,
1994) less tax benefits and would incur an additional extraordinary
charge when and if the 11 7/8% Debentures are redeemed prior to
maturity.
PAGE
<PAGE>
TRIARC COMPANIES, INC. 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 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 Triarc'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 six-month and three-month periods ended June 30, 1994 are compared
below with the six-month period ended July 31, 1993 (the "Comparable
Six Months") and to the three-month period ended July 31, 1993 (the
"Comparable Three Months"), respectively. It was not practicable for
the Company to recast its prior year results and, accordingly, the
Comparable Six Months and Comparable Three Months were used as the six-
month and three-month periods most nearly comparable to the six-month
and three-month periods ended June 30, 1994, respectively. See Note 1
to the accompanying condensed consolidated financial statements for a
discussion of the fiscal periods included in the Comparable Six Months
and Comparable Three Months.
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 Six Months,
therefore, reflect, in large part, 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 textiles
industry. In addition, the textiles industry 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. Exchange
rate fluctuations can also affect the level of demand for the textiles
segment's products by changing the relative price of competing fabrics
from overseas producers. Prices for cotton, one of the textiles
segment's principal raw materials, have escalated during the first half
of 1994 and further increases are expected for the balance of 1994.
Such increases, to the extent possible, are passed on to customers. 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. In the second quarter of 1994, however, demand has
improved over the first quarter.
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 and the recent economic downturn
which 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 recent
economic downturn and energy conservation trends, which from time to
time have negatively impacted the demand for energy by both residential
and commercial customers.
Six Months Ended June 30, 1994 Compared with Six Months Ended July 31,
1993
<TABLE>
<CAPTION> Revenues
Six months ended
-----------------
July 31, June 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Textiles $ 262,078 $ 273,673
Fast Food 102,285 104,038
Soft Drink 77,674 77,619
Liquefied Petroleum Gas 71,997 82,158
Other 8,336 --
--------- --------
$ 522,370 $ 537,488
========= ========
</TABLE>
Revenues increased $15.1 million to $537.5 million in the six months
ended June 30, 1994. Such increase principally reflects higher
revenues in the Company's textiles, LP gas and fast food segments
offset by the absence of revenues in 1994 from certain non-core
operations previously sold or which ceased doing business prior to 1994
($8.3 million) which are included in "Other" in the table above.
Textiles revenues increased $11.6 million (4.4%) to $273.7 million in
1994 principally due to higher volume in the utility wear product line,
partially offset by lower average selling prices in all of the woven
apparel product lines reflecting both a lower-priced product mix and
decreased selling prices, and higher average selling prices for
specialty products, reflecting a higher-priced product mix. LP gas
revenues increased $10.2 million (14.2%) to $82.2 million largely due
to an increase in the number of gallons sold. The volume increase was
almost entirely due to the inclusion of January in the 1994 period for
the larger of the two LP gas operations, while the Comparable Six
Months included July for such operation, historically a lower volume
month. January is ordinarily a high volume month, but January 1994 had
particularly high volume due to the unusually cold temperatures
throughout much of the country. Fast food revenues increased $1.7
million (1.7%) to $104.0 million due to higher royalties resulting from
an increase in the number, as well as the same store sales, of domestic
franchised restaurants and higher franchise fees principally resulting
from an increase in domestic franchised store openings in 1994. Such
increase was partially offset by a decrease in sales of Company-owned
restaurants resulting from the 1994 first quarter implementation of the
"value menu" concept, which offers competitively lower prices on
certain menu items and reduced emphasis on couponing, whereby the
coupon value is charged to advertising, selling and distribution
expenses. Soft drink (Royal Crown Company, Inc. - "Royal Crown")
revenues were essentially unchanged from the Comparable Six Months,
reflecting a $2.7 million increase in private label soft drink sales
resulting from continued gains in the domestic market and expansion
internationally offset by a $2.7 million decrease in domestic branded
diet product (due to soft bottler case sales) and Canadian branded
product sales (resulting from higher than anticipated bottler inventory
levels at the Transition 1993 year end).
Gross profit (total revenues less cost of sales) increased $0.8 million
to $159.3 million in the six months ended June 30, 1994 while gross
margins decreased to 29.6% from 30.3%. 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 decreased only slightly, (iii) higher margins in the fast
food segment resulting from the effect of management's programs to
reduce food and labor costs and (iv) higher royalty and franchise
revenue with no offsetting cost of sales in the fast food segment.
Such increases were offset in part by (i) lower margins in the textiles
segment and (ii) the nonrecurring gross profit in the Comparable Six
Months from the Company's non-core insurance operation which ceased
writing new insurance effective October 1993. The lower margins in the
textiles 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 and piece-dyed fabrics
reflecting market conditions and (iii) a nonrecurring decrease to cost
of sales in the Comparable Six Months resulting from a Fiscal 1993
year-end adjustment to revise inventory costing estimates made in the
prior three quarters to actual.
Advertising, selling and distribution expenses increased $1.3 million
to $50.2 million in the six months ended June 30, 1994. Such increase
was principally due to higher expenses in the soft drink segment
partially offset by lower expenses in the fast food segment. The
increased spending in the soft drink segment resulted from the
commencement of a new domestic media advertising campaign including
television commercials as well as new promotional programs geared
toward both bottlers and consumers, including contracts for Royal Crown
to become the exclusive supplier of carbonated soft drink beverages for
Yankee Stadium and Jones Beach in New York. The lower spending in the
fast food segment was principally due to a shift in the promotional
effort away from free food coupons, which are charged to advertising,
selling and distribution, toward lower-priced menu items.
General and administrative expenses decreased $4.3 million to $61.1
million in the six months ended June 30, 1994 principally reflecting
the $5.7 million of general and administrative expenses in the
Comparable Six Months for certain non-core operations previously sold
or which ceased doing business prior to 1994 partially offset by net
increases in other general and administrative expenses in 1994. The
Comparable Six Months also include significant charges which net to
$2.0 million and include (i) a $4.9 million payment to a 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, less (iv) a release 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 Six Months 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 (the "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 Six Months 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 $4.1 million to $35.5 million in the six
months ended June 30, 1994 due to $6.5 million of interest accruals
related to income tax matters in the Comparable Six Months 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 improved $4.5 million to income of $3.9
million in the six months ended June 30, 1994 principally due to income
in 1994 which did not occur in the Comparable Six Months including $2.2
million of interest income and a $1.0 million nonrecurring realized
gain in connection with the redemption of an investment in a former
bottling subsidiary previously written off.
The provision for income taxes for the six months ended June 30, 1994
represents an effective tax rate of 48% which is higher than the
Federal statutory income tax rate of 35% principally due to the effects
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. The income tax benefit in the
Comparable Six Months represents an effective tax rate of 5% which is
lower than the Federal statutory income tax rate due to (i) losses of
certain subsidiaries for which no tax benefit is available, (ii) costs
related to the Consulting Agreement, write-downs of certain investments
and amortization of costs in excess of net assets of acquired companies
which were not deductible for tax purposes and (iii) 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 six months ended June 30,
1994 compared with $4.0 million of income in the Comparable Six Months
resulting from losses of consolidated subsidiaries with minority
ownership. The change from such losses in the Comparable Six Months to
income in 1994 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
the 28.9% minority ownership was acquired on April 14, 1994 (the
"SEPSCO Merger" - see Note 10 to the accompanying condensed
consolidated financial statements) and (iii) the sale in January 1994
of a non-core subsidiary which had losses in the Comparable Six Months.
Discontinued operations of $4.7 million, net of income taxes and
minority interests, in the Comparable Six Months was due to a $5.4
million write-down (net of tax benefit and minority interests 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 Six
Months. There is no similar income or loss in 1994 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 Six Months resulted from the
early extinguishment of certain debt 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 income tax benefit of $3.8 million.
Net income of $7.2 million in the six months ended June 30, 1994
increased $56.8 million from a loss of $49.6 million in the Comparable
Six Months 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
$60.0 million, net of income tax benefit and minority interest credits.
Three Months Ended June 30, 1994 Compared with Three Months Ended July
31, 1993
<TABLE>
<CAPTION> Revenues
Three months ended
-----------------
July 31, June 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Textiles $ 141,057 $ 143,682
Fast Food 54,739 55,202
Soft Drink 40,500 42,367
Liquefied Petroleum Gas 26,456 26,178
Other 1,322 --
--------- --------
$ 264,074 $ 267,429
========= ========
</TABLE>
Revenues increased $3.3 million to $267.4 million in the three months
ended June 30, 1994. Such increase reflects higher revenues in the
Company's textiles, soft drink and fast food segments offset by
slightly lower revenues in the LP gas segment and the absence of
revenues in 1994 from the Company's non-core insurance operation ($1.3
million), which ceased writing new insurance effective October 1993,
which represent "Other" in the table above. Textiles revenues
increased $2.6 million (1.8%) to $143.7 million in 1994 principally due
to higher volume in the utility wear product line, partially offset by
lower average selling prices in all of the woven apparel product lines
reflecting both a lower-priced product mix and decreased selling
prices, and higher average selling prices for specialty products,
reflecting a higher-priced product mix. Soft drink revenues increased
$1.9 million (4.6%) to $42.4 million in 1994 due to (i) a $1.2 million
increase in international and non-diet domestic branded product sales
due to improved volume, (ii) a $0.9 million increase in domestic diet
branded product sales resulting from bottler purchases of diet
concentrates after the Company's announced price reduction effective
May 1, 1994 (prior to which bottlers were maintaining minimal inventory
levels) and (iii) a $0.8 million increase in private label soft drink
sales resulting from continued domestic and international growth all
partially offset by a $1.0 million decrease in Canadian branded product
sales as bottlers sold through the excess inventory referred to above.
Fast food revenues increased $0.4 million (0.8%) to $55.2 million in
1994 due to higher royalties from domestic franchisees reflecting an
increase in the number, as well as the same store sales, of domestic
franchised restaurants and higher franchise fees partially offset by a
decrease in sales of Company-owned restaurants resulting from the 1994
first quarter implementation of the "value menu" concept and reduced
emphasis on couponing described above. LP gas revenues decreased $0.3
million (1.1%) to $26.2 million in 1994 principally due to the
inclusion for the smaller of the two LP gas operations of June in the
1994 period, historically a low volume month, compared with the
inclusion in the Comparable Three Months of March, the last of the high
volume winter months which had particularly high volume in 1993 due to
a severe winter storm.
Gross profit decreased $2.1 million to $75.6 million in the three
months ended June 30, 1994 while gross margins decreased to 28.3% from
29.4%. A decrease in textiles gross profit and the nonrecurring gross
profit in the Comparable Three Months from the Company's non-core
insurance operation were partially offset by increases in the gross
profit of the LP gas, fast food and soft drink segments. The decrease
in textiles gross profit resulted from (i) the higher cost of cotton
which could not be passed on to woven apparel customers and (ii) lower
sales prices in indigo-dyed and piece-dyed fabrics reflecting market
conditions. The increase in LP gas gross profit was principally due to
lower cost of product which was only partially passed on to customers.
The increase in fast food gross profit resulted from management's
programs to reduce food and labor costs as well as the above mentioned
higher royalty and franchise revenues with no offsetting cost of sales.
The increase in soft drink gross profit was principally due to the net
volume improvement in branded products noted above partially offset by
lower gross margins.
Advertising, selling and distribution expenses increased $3.5 million
to $28.9 million in 1994. Such increase was principally due to higher
expenses in the soft drink segment partially offset by lower expenses
in the fast food segment. The increased spending in the soft drink
segment resulted from the commencement of the new domestic media
advertising campaign and promotional programs previously discussed.
The lower spending in the fast food segment principally resulted from a
decrease in promotional food costs due to a shift in the promotional
effort away from couponing toward the "value menu" concept.
General and administrative expenses decreased $3.6 million to $30.3
million in 1994 principally due to the nonrecurring $2.9 million of
general and administrative expenses of the Company's insurance
operation in the Comparable Three Months.
Interest expense increased $2.6 million to $18.4 million in 1994
principally due to (i) higher borrowing levels associated with (a) the
August 1993 refinancing of the RC/Arby's Corporation ("RCAC") $225.0
million senior secured step-up rate notes (the "Step Up Notes") with
$275.0 million 9 3/4% senior notes due 2000 (the "9 3/4% Notes") in
addition to the fact that the Step-Up Notes were issued on April 23,
1993 and therefore were outstanding for only a portion of the
Comparable Three Months and (b) a $34.2 million note payable issued
effective December 31, 1993 in connection with the commutation of
obligations under certain insurance and reinsurance and (ii) higher
1994 interest accruals relating to certain income tax matters, all
partially offset by lower interest expense resulting from scheduled
sinking fund payments.
Other income (expense), net improved $1.5 million to income of $1.2
million in 1994 principally due to interest income in 1994 of $1.0
million.
The Company had a provision for income taxes despite a pre-tax loss in
the three-month period ended June 30, 1994 and a provision for taxes in
the Comparable Three Months which represented an effective tax rate
higher than the Federal statutory income tax rate. Such variances are
principally due to the effects of state income taxes, net of Federal
benefits, and the amortization of costs in excess of net assets of
acquired companies which is not deductible for tax purposes and, in the
1994 period, the effect of a year-to-date increase in the estimated
full year 1994 effective tax rate to 48% in the second quarter of 1994.
Minority interests in income of consolidated subsidiaries of $0.4
million in the Comparable Three Months was nonrecurring in the 1994
second quarter due to the April 1994 acquisition by Triarc of the 28.9%
minority interest in SEPSCO, now a wholly-owned subsidiary.
Income from discontinued operations for the Comparable Three Months,
net of income taxes and minority interests, represents the results of
operations of the businesses to be disposed prior to the measurement
date of July 22, 1993. There is no similar income or loss in the 1994
second quarter since the estimated operating losses of the remaining
discontinued operations through their actual or estimated dates of
disposal had previously been recognized.
The Company reported a net loss of $1.6 million in 1994 compared with
net income of $0.6 million in the Comparable Three Months due to the
reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and cash equivalents declined $57.4 million during
the six months ended June 30, 1994 to $61.4 million at June 30, 1994.
Such decrease reflects (i) net cash used in operations of $15.2
million, (ii) capital expenditures of $22.6 million, (iii) repayments
of debt in excess of borrowings of $12.4 million, (iv) the cash payment
portion of restaurant and LP gas business acquisitions of $11.1 million
and (v) cash dividends on redeemable preferred stock of $2.9 million
partially offset by cash provided by discontinued operations of $6.1
million and other net increases of $0.7 million. The net cash used by
operations reflects $22.4 million of adjustments to reconcile net
income to cash and cash equivalents used in operating activities
partially offset by net income of $7.2 million. Such adjustments
consist of $41.3 million from changes in operating assets and
liabilities and $9.1 million of payments related to the facilities
relocation and corporate restructuring accrual partially offset by
$25.7 million of non-cash charges for depreciation and amortization and
$2.3 million of other items, net. The change in operating assets and
liabilities principally reflects a $27.9 million decrease in accounts
payable and accrued expenses and an increase in receivables of $18.4
million. The decrease in accounts payable and accrued expenses is
principally due to (i) a $12.0 million payment in settlement of certain
litigation, (ii) the payment of certain non-recurring accruals provided
for in Transition 1993 and (iii) other decreases related to the timing
of payments. The increase in receivables reflects an increase in the
number of days of sales outstanding in receivables principally due to
slower paying customers and the selective extension of credit terms.
The net decrease in debt was due to scheduled repayments of debt other
than capital leases during the first half of 1994 of $25.5 million and
capital lease repayments of $1.3 million offset by a net increase in
revolving credit borrowings of $7.9 million and borrowings of long-term
debt other than capital leases of $6.5 million. The cash provided from
discontinued operations was principally due to the April 1994 sale of
substantially all of the operating assets of SEPSCO's ice operations.
Total stockholders' deficit improved to a deficit of $14.5 million at
June 30, 1994 from a deficit of $76.0 million at December 31, 1993.
Such improvement was due to (i) the issuance of 2,691,824 shares of
Triarc's class A common stock for an aggregate fair value of $55.9
million in connection with the April 1994 merger of Triarc and SEPSCO,
(ii) net income of $7.2 million and (iii) transactions related to
restricted stock, below-market stock options and related rights
aggregating $1.7 million less (a) preferred stock dividends of $2.9
million and (b) other decreases of $0.4 million.
RCAC's $275.0 million aggregate principal amount of 9 3/4% Notes mature
on August 1, 2000 and do not require any amortization of the principal
amount thereof prior to such date. As of June 30, 1994 RCAC had
outstanding $6.5 million principal amount of 16 7/8% Subordinated
Debentures which were repaid in July 1994.
On September 24, 1993 RCAC entered into a three-year interest rate swap
agreement (the "Swap Agreement") in the amount of $137.5 million.
Under the Swap Agreement, interest on $137.5 million is paid by RCAC at
a floating rate (the "Floating Rate") based on the 180-day London
Interbank Offered Rate (5.33% at July 28, 1994) and RCAC receives
interest at a fixed rate of 4.72%. The Floating Rate is retroactively
reset at the end of each six-month calculation period through July 31,
1996 and on September 24, 1996. The transaction effectively changes
RCAC's interest rate on $137.5 million of its debt from a fixed-rate to
a floating-rate basis. In February 1994 RCAC received $0.6 million and
in August 1994 paid $0.4 million under the Swap Agreement.
Graniteville Company, a wholly-owned subsidiary of 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. In June 1994
the Company amended the Graniteville Credit Facility to provide for a
maximum Revolving Loan of $112.0 million through September 1994 and
$107.0 million through December 1995, after which time the maximum
amount will be lowered back to $100.0 million. The increased Revolving
Loan availability was obtained in part to fund an equity investment
described below. The Term Loan is repayable $6.0 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 December
1995 and $35.0 million thereafter. At June 30, 1994 Graniteville had
$14.8 million of unused availability under the Revolving Loan.
Consolidated capital expenditures, excluding properties of business
acquisitions and including capital leases, amounted to $24.1 million
for the six-month period ended June 30, 1994. The Company expects that
capital expenditures during the remainder of calendar 1994 will
approximate $46.4 million, subject to the availability of cash and
other financing sources. The increased anticipated 1994 expenditures
reflect increased levels of expenditures principally in the fast food
segment in furtherance of its business strategies, principally for
construction and acquisition of new restaurants and remodeling older
restaurants. The Company anticipates that it will meet a portion of
its capital expenditures through leasing arrangements or other
financing rather than cash expenditures.
Cash paid for business acquisitions amounted to $11.1 million during
the first half of 1994. In furtherance of the Company's growth
strategy, the Company will consider additional selective acquisitions
as appropriate to build and strengthen its existing businesses. In
that regard, RCAC has entered into a letter agreement for the
acquisition of up to 43 currently franchised restaurants for cash of up
to $7.2 million and the assumption of up to approximately $5.0 million
of capitalized lease obligations. National Propane has signed a letter
of intent to acquire the assets of three related LP gas distributors
for cash of $2.4 million and a note payable to the seller for $1.0
million. In addition, Graniteville entered into an agreement for the
acquisition of a 22% equity interest in a dyes and specialty chemicals
manufacturer as well as the exclusive right to distribute the company's
products in North, Central and South America for five years for $7.0
million of cash, which would be funded in part by a $5.0 million
drawdown under the Graniteville Credit Facility. All of such
acquisitions are scheduled to close during the second half of 1994.
In August 1994 RCAC completed the sale and leaseback of the land and
buildings of 14 of its restaurants, including 9 of the restaurants
which had been purchased by RCAC in March 1994. The net sale price of
such properties was approximately $6.7 million received in cash.
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 June 30, 1994
the remaining accrual for such costs was $21.3 million. Triarc expects
cash requirements for such accruals of $17.6 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
$6.0 million in August or September of 1994, which amount has been
fully reserved. The Company is contesting the two open issues at the
Appellate Division of the IRS. The IRS is currently examining 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 (i) the remaining open issues from the 1985 through 1988
examination and (ii) the 1989 through 1992 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 August 10, 1994 National Propane Corporation ("National Propane"), a
wholly-owned subsidiary of Triarc, signed a commitment letter for a
$120.0 million senior secured credit facility with an option to
increase it to $150.0 million with a group of banks (the "Bank
Facility"). The consummation of the Bank Facility is subject to
customary terms and conditions. The Bank Facility would consist of a
$40.0 million revolving credit facility and three tranches of term
loans aggregating $110.0 million. Approximately $49.0 million of the
term loans would be restricted to redeeming the entire outstanding
$49.0 million principal amount of National Propane's 13 1/8% senior
subordinated debentures due March 1, 1999 (the "13 1/8% Debentures").
In addition, an aggregate $30.0 million including $20.0 million of the
term loans and, after one year, $10.0 million of the revolving credit
facility would be restricted to the redemption, in part, of the $54.0
million of SEPSCO's 11 7/8% senior subordinated debentures due February
1, 1998 (the "11 7/8% Debentures") in connection with the intended
transfer of Public Gas Company ("Public Gas"), a subsidiary of SEPSCO
engaged in the distribution of LP gas, to National Propane (the precise
nature and timing of such transfer has not yet been determined). The
Company would provide the remaining funds for the redemption of the 11
7/8% Debentures principally from SEPSCO's existing cash and marketable
securities ($23.3 million as of June 30, 1994) and the $17.0 million of
cash proceeds to be received from the sale of SEPSCO's natural gas and
oil operations scheduled to close by August 31, 1994 (see subsequent
discussion of sale). Further, $15.0 million of the revolving credit
facility would be restricted for niche acquisitions by National Propane
(the "Acquisition Sublimit"). Assuming consummation of the Bank
Facility, National Propane intends to transfer approximately $45.0
million of the proceeds to Triarc or one of its affiliates as a loan or
dividend and utilize the remainder for general corporate purposes. A
significant portion of such $45.0 million is expected to be made
available by National Propane and/or Triarc, through advances or
investment, to RCAC to finance a portion of its capital expenditures.
Borrowings under the Bank Facility would bear interest at rates based
either on the London Interbank Offered Rate ("LIBOR") or an alternate
base rate (the "ABR") at the option of National Propane. The ABR would
be the higher of the prime rate or 0.5% over the Federal funds rate.
Revolving credit loans would bear interest at 2.25% over LIBOR or 1.00%
over ABR, while the term loans would bear interest at rates ranging
from 2.50% to 3.50% over LIBOR or 1.25% to 2.25% over ABR,
respectively. Revolving credit loans would mature in five and one-half
years with amortization of the Acquisition Sublimit required after
three years. The term loans would amortize annually commencing in 1995
at $8.75 million increasing to $16.0 million in 2003.
The Bank Facility agreement will include certain restrictive covenants
including limitations on advances or dividends to Triarc. National
Propane expects to incur fees of approximately $4.4 million plus legal
fees and other costs in connection with the Bank Financing which will
be deferred and amortized using the interest rate method over the term
of the Bank Facility loans. The Company will also incur an
extraordinary charge upon the redemption of the 13 1/8% Debentures for
the write-off of unamortized debt discount and unamortized deferred
financing costs ($2.9 million and $1.0 million respectively, as of June
30, 1994) less tax benefits and would incur an additional extraordinary
charge when and if the 11 7/8% Debentures are redeemed prior to
maturity.
The Company's principal cash requirements, exclusive of operating cash
flows, for the remainder of 1994 consist of debt principal payments of
$14.4 million (see above and subsequent discussion), capital
expenditures of $46.4 million to the extent not financed, $16.6 million
for committed acquisitions and funding for additional acquisitions, if
any, a semi-annual dividend payment aggregating $2.9 million on the
Company's redeemable preferred stock and an approximate $6.0 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 and cash equivalents which, as of June 30, 1994,
amounted to $61.4 million, net proceeds of National Propane's proposed
Bank Facility (see above discussion) assuming its consummation, future
proceeds from the sale of remaining SEPSCO discontinued operations (see
subsequent discussion), cash flows from operations and financing a
portion of its capital expenditures through capital leases (up to an
allowable additional $10.8 million at RCAC) and other lease
arrangements including sales/leasebacks. Should the Bank Facility not
be consummated or the above cash resources otherwise be insufficient to
meet the Company's cash requirements, the Company will need to arrange
other third party financing to supplement its cash resources or reduce
its planned capital expenditures and/or business acquisitions 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 six months ended June 30, 1994 the Company had net cash and
cash equivalents used in operations of $15.2 million; the principal
causes of which were previously discussed. However, during the three
months ended June 30, 1994 the Company had positive cash flows from
operations of $18.6 million. 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 during the first quarter of 1994
was mostly of a non-recurring nature. The Company expects its
operating cash flows during the remaining six months of 1994 will
continue to be positive although not necessarily of the same magnitude.
The ability of each of Triarc, RCAC, Graniteville, 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 pursuant to which
the 9 3/4% Notes were issued, as of June 30, 1994 RCAC could not pay
any dividends, or make any loans or advances to CFC Holdings Corp.
("CFC Holdings"), the parent company of RCAC, or to Triarc. 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 terms of the Graniteville Credit
Facility, Graniteville is unable to pay any dividends or make any
loans or advances to Triarc prior to December 31, 1995 and will be
limited thereafter.
Under the indenture pursuant to which National Propane's 13 1/8%
Debentures were issued, National Propane was permitted as of June 30,
1994 to pay cash dividends of up to approximately $20.7 million.
However, prior to consummation of the proposed Bank Facility 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. As noted above, in connection with the
consummation of the proposed Bank Facility, the 13 1/8% Debentures
would be repaid in full and National Propane would transfer
approximately $45.0 million to Triarc or its affiliates. The terms of
the Bank Facility would also contain restrictions on National Propane's
ability to make additional loans or pay dividends to Triarc. Under the
indenture pursuant to which its 11 7/8% Debentures were issued, SEPSCO
was unable to pay any cash dividends to Triarc as of June 30, 1994. If
and when the transfer of Public Gas to National Propane is consummated
and the Bank Facility is closed, SEPSCO's 11 7/8% Debentures will be
required to be repaid in full and therefore the restriction on SEPSCO's
ability to pay cash dividends to Triarc would be removed. National
Propane and SEPSCO are currently not parties to any agreements
restricting or limiting the amount of loans or advances which they may
make to Triarc.
As of June 30, 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 $222.8 million,
consisting of notes in the principal amounts of $47.0 million and $71.6
million owed to CFC Holdings and Graniteville, respectively (which bear
interest at 9.5% per annum), balances of $77.6 million of advances owed
to National Propane (which bear interest at 16.5% per annum) and $26.6
million remaining on a note payable to SEPSCO (which bears interest at
13% per annum).
Triarc expects its significant cash requirements for the remainder of
1994 will include 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 $15.1 million, including
approximately $12.0 million for rent payments on the Company's former
corporate headquarters for the remaining lease period through April
1997. Triarc expects to be reimbursed by its subsidiaries for all or a
significant portion of such rent settlement to the extent such
subsidiaries have available funds. Triarc believes that its expected
sources of cash, including existing cash balances ($7.8 million at June
30, 1994), a possible loan or dividend of approximately $45.0 million
from National Propane assuming consummation of its Bank Facility
(although the Company currently intends to invest a substantial portion
of any such loan or dividend in RCAC), reimbursement of general
corporate expenses from subsidiaries in connection with management
services agreements and net payments received under tax sharing
agreements with certain subsidiaries 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
six months of 1994 to result in positive cash flows. RCAC's principal
cash requirements, exclusive of operating cash flows during the second
half of 1994 consist of debt principal repayments of $6.8 million,
capital expenditures of $38.6 million and $14.8 million for the
acquisition of 43 restaurants and other acquisitions, if any, and the
approximate $6.0 million tax payment noted above. RCAC anticipates
meeting these requirements with existing cash which as of June 30, 1994
amounted to $27.1 million, $6.7 million of proceeds of the
sale/leaseback transaction described above, operating cash flows,
advances from National Propane or Triarc assuming the consummation of
the Bank Facility and financing a portion of its capital expenditures
through capital (up to an allowable additional $10.8 million) 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 Company expects National Propane's operations during the remaining
six months of 1994 will result in positive cash flows.
The 1994 annual sinking fund payment on the 13 1/8% Debentures of $7.0
million was made in the first half of 1994. The Company anticipates
National Propane's cash requirements, excluding cash flows from
operations, for the remainder of 1994 will include approximately $0.7
million of capital expenditures, $1.6 million of scheduled debt
repayments, $2.4 million for committed acquisitions and funding for
other niche acquisitions, if any. National Propane believes its cash
flows from operations for the remainder of 1994, together with existing
cash ($2.8 million at June 30, 1994) and, if necessary, proceeds from
the revolving credit facility, assuming the Bank Financing is
consummated, to meet its aforementioned cash requirements. However,
should the Bank Facility not be consummated or such cash flows not
otherwise 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 to the extent Triarc has cash
available for payment.
SEPSCO
It is expected that existing cash and marketable securities ($23.3
million at June 30, 1994) together with anticipated proceeds of $17.0
million by August 31, 1994 from the sale of the natural gas and oil
business will be more than sufficient to enable SEPSCO to meet it
short-term cash requirements.
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. 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 $0.8 million.
While the amount of the loss resulting from the sale of the ice
operations is subject to final adjustment, the Company currently
estimates it will approximate $2.1 million, the estimated amount of
which had previously been accrued. 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. The only remaining discontinued operation is
the other operation (cold storage) comprising SEPSCO's refrigeration
business. In June 1994 SEPSCO sold two of its cold storage plants with
a net book value of $1.9 million for $0.5 million of cash and $0.7
million of notes, resulting in a loss, including expenses, of $0.8
million. In June 1994 SEPSCO entered into a letter of intent with a
SEPSCO management-led buyout group for the sale of substantially all of
the remaining assets of the cold storage operation for $6.5 million in
cash, a $3.0 million note (discounted value $2.5 million) and the
assumption by the buyer of certain liabilities of up to $2.5 million.
Consummation of the sale is subject to several conditions including,
among others, the buyers obtaining the necessary financing. Based on
such purchase price and excluding any proceeds from the $3.0 million
note until collection is reasonably assured, the Company estimates that
it will incur a loss of approximately $2.5 million, the estimated
amount of which had previously been accrued, including the write-off of
approximately $0.7 million of properties, principally land, with
minimal value not being sold to the buyers. The note would be secured
by the assets of the cold storage operation (subject to a security
interest by any lender to the buyers), would be due six years from the
date of closing and would be non-interest bearing for the first year
and would bear interest at 8% thereafter. SEPSCO currently anticipates
closing of such sale by October 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 adverse effect on the financial position or results of
operations of the Company.
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
rather than selling such businesses to an independent third party.
Subsequently, SEPSCO identified significant third party interest in the
natural gas and oil business and on August 5, 1994 entered into a
contract for the sale of the principal assets, excluding receivables,
of the natural gas and oil business for cash of $17.0 million subject
to certain post-closing adjustments. The Company estimates that
consummation of the sale at such price would result in a gain. Such
sale is scheduled to close no later than August 31, 1994.
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
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
On June 9, 1994, the Company held its Annual Meeting of
Shareholders. At the Annual Meeting, Nelson Peltz, Peter W. May,
Leon Kalvaria, Hugh L. Carey, Clive Chajet, Irving Mitchell Felt,
Stanley R. Jaffe, Harold E. Kelley, Richard M. Kerger, M.L.
Lowenkron, Daniel R. McCarthy, Raymond S. Troubh and Gerald Tsai,
Jr. were elected to serve as Directors. At the Annual Meeting,
the shareholders also approved proposal 2, a reincorporation of
the Company in Delaware by means of a merger and that also
increased authorized capital of the Company and the adoption of
certain "fair price" and anti-takeover measures. The
shareholders also approved proposal 3, amending certain
provisions of the Company's Amended and Restated 1993 Equity
Participation Plan, and proposal 4, authorizing the Company to
enter into Indemnification Agreements with each of its directors,
officers and certain key employees.
The voting on the above matters is set forth below:
Election of Directors
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
<S> <C> <C>
Nelson Peltz 21,397,402 771,345
Peter W. May 21,397,460 771,286
Hugh L. Carey 21,370,490 798,257
Clive Chajet 21,397,964 770,783
Irving Mitchell Felt 21,370,087 798,660
Leon Kalvaria 21,397,286 771,460
Stanley R. Jaffe 21,370,907 797,840
M.L. Lowenkron 21,370,907 797,840
Harold E. Kelley 21,396,174 772,573
Richard M. Kerger 21,397,144 771,603
Daniel R. McCarthy 21,397,274 771,473
Raymond S. Troubh 21,397,964 770,783
Gerald Tsai, Jr. 21,397,870 770,877
</TABLE>
Proposal 2 - There were 16,453,932 votes for, 1,888,848 votes
against and 229,536 abstentions.
Proposal 3 - There were 14,933,131 votes for, 3,403,347 votes
against and 235,837 abstentions.
Proposal 4 - There were 20,747,533 votes for, 1,322,060 votes
against and 99,153 abstentions.
Item 5. Other Information
As part of the Company's plans to sell or discontinue
substantially all of its remaining non-core businesses, on June
10, 1994, Southeastern Public Service Company, a wholly-owned
subsidiary of the Company ("SEPSCO"), entered into a Letter of
Intent with certain members of its management, providing for such
management's purchase of substantially all of SEPSCO's assets
which relate to SEPSCO's cold storage and refrigeration business
for $9.5 million ($6.5 million in cash and a $3.0 million note)
plus the assumption by the purchaser of certain liabilities not
to exceed $2.5 million in the aggregate. In addition, on August
5, 1994 Southeastern Gas Company, a wholly-owned subsidiary of
SEPSCO, entered into a definitive agreement to sell substantially
all of the assets of SEPSCO's oil and gas business to Eastern
States Oil & Gas, Inc. for $17 million in cash (subject to
certain post-closing adjustments). The closing of this
transaction is subject to customary conditions (but is not
subject to receipt of financing) and is scheduled to take place
on or prior to August 31, 1994.
On August 10, 1994, the registrant signed a commitment letter with the
Bank of New York for $75,000,000 of a proposed $150,000,000 senior
secured credit facility and the Bank of New York has arranged
commitments from other lenders to provide the remaining $75,000,000,
all subject to normal condition of closing. See Note 15 to the
attached condensed consolidated financial statements.
The registrant has been informed of an environmental action. See Note
9 to the attached condensed consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger, dated as of May 11, 1994, by and
between Triarc Companies, Inc. and Triarc Merger Corporation,
incorporated herein by reference to Exhibit A to the registrant's
Definitive Proxy Statement (the "Proxy") relating to the
registrant's annual meeting of shareholders held on June 9, 1994
(SEC file No. 1-2207).
10.1 Form of Indemnification Agreement, between the registrant and
certain officers, directors, and employees of the registrant,
incorporated herein by reference to Exhibit F to the Proxy (SEC
file No. 1-2207).
10.2 Equity Participation Plan of the registrant, incorporated herein
by reference to Exhibit E to the Proxy (SEC file No. 1-2207).
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on June 15, 1994 as
amended by a report on Form 8-K/A filed on July 30, 1994, with
respect to the dismissal on June 9, 1994, of the registrant's
independent accountants, Arthur Andersen & Co., and the
engagement of Deloitte & Touche as the registrant's new
independent accountants.
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: August 15, 1994 By: /S/ FRED H. SCHAEFER
___________________________________
Fred H. Schaefer
Vice President and
Chief Accounting Officer
(Principal accounting officer)
<PAGE>
