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 September 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)
(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 24,049,923 shares of the registrant's Class A Common Stock
($.10 par value) outstanding as of October 31, 1994.
PAGE
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION> December 31, September 30,
1993 1994
---------- --------
ASSETS (A) (Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 118,801 $ 46,836
Receivables, net 124,319 136,598
Inventories 108,206 105,381
Deferred income tax benefit 9,621 5,968
Prepaid expenses and other current assets 32,550 26,620
-------- --------
Total current assets 393,497 321,403
-------- --------
Properties, net 261,996 277,540
Unamortized costs in excess of net assets of
acquired companies 182,925 207,020
Net non-current assets of discontinued operations 15,223 5,946
Other assets 43,605 50,535
-------- --------
$897,246 $862,444
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 40,280 $ 34,237
Accounts payable 61,194 42,017
Accrued facilities relocation and corporate
restructuring costs 30,396 22,639
Other accrued expenses 109,107 76,531
-------- --------
Total current liabilities 240,977 175,424
-------- --------
Long-term debt 575,161 578,460
Deferred income taxes 32,038 31,430
Other liabilities 26,076 24,661
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 79,486
Accumulated deficit (46,987) (48,505)
Treasury stock (75,150) (44,431)
Other (7,296) (8,673)
-------- --------
Total stockholders' deficit (75,981) (19,325)
-------- --------
$ 897,246 $862,444
======== ========
<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 Nine months ended
------------------------- ------------------------
October 31, September 30, October 31, September 30,
1993 1994 1993 1994
----------- ------------- ----------- -------------
(In thousands except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 243,433 $ 242,821 $ 741,383 $ 756,250
Royalties, franchise
fees and other revenues 13,963 13,322 38,383 37,381
--------- -------- -------- --------
257,396 256,143 779,766 793,631
--------- -------- -------- --------
Costs and expenses:
Cost of sales 179,082 183,238 542,928 561,465
Advertising, selling
and distribution 34,401 32,120 83,305 82,315
General and administrative
expenses 39,967 29,330 105,343 89,166
Facilities relocation
and corporate
restructuring - 5,500 43,000 6,800
Provision for doubtful
accounts from former
affiliates - - 5,623 -
--------- -------- -------- --------
253,450 250,188 780,199 739,746
--------- -------- -------- --------
Operating profit (loss) 3,946 5,955 (433) 53,885
Interest expense (17,140) (18,280) (56,718) (53,748)
Other income (expense), net (1,946) 737 (2,548) 4,602
Gain on sale of natural
gas and oil business - 6,043 - 6,043
--------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes
and minority interests (15,140) (5,545) (59,699) 10,782
Benefit from (provision for)
income taxes (4,511) 2,662 (2,277) (5,175)
--------- -------- -------- --------
Income (loss) from
continuing operations
before minority
interests (19,651) (2,883) (61,976) 5,607
Minority interests in
(income) loss of
consolidated
subsidiaries 20 - 4,038 (1,292)
--------- -------- -------- --------
Income (loss) from
continuing operations (19,631) (2,883) (57,938) 4,315
Loss from discontinued
operations, net of
income taxes and
minority interests (7,799) - (12,513) -
--------- -------- -------- --------
Income (loss) before
extraordinary items (27,430) (2,883) (70,451) 4,315
Extraordinary items (448) - (7,059) -
--------- -------- -------- --------
Net income (loss) $ (27,878) $ (2,883) $ (77,510) $ 4,315
========= ======== ======== ========
Preferred stock dividend
requirements $ (1,458) $ (1,458) $ (3,032) $ (4,375)
Net loss applicable to
common stockholders $ (29,336) $ (4,341) $ (80,542) $ (60)
Loss per share:
Continuing operations $ (.99) $ (.18) $ (2.69) $ -
Discontinued operations (.37) - (.55) -
Extraordinary items (.02) - (.31) -
--------- -------- -------- --------
Net loss $ (1.38) $ (.18) $ (3.55) $ -
========= ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine months ended
--------------------------
October 31, September 30,
1993 1994
------------ -------------
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(77,510) $ 4,315
Adjustments to reconcile net income (loss)
to net cash and cash equivalents used in
operating activities
Depreciation and amortization of
properties 23,192 25,167
Amortization of costs in excess of net
assets of acquired companies 5,552 5,123
Amortization of deferred debt discount,
deferred financing costs and unearned
compensation 6,816 8,328
Write-off of deferred financing costs 5,955 -
Provision for facilities relocation and
corporate restructuring 43,000 6,800
Payments of facilities relocation and
corporate restructuring (3,030) (13,849)
Interest expense capitalized and not paid - 2,435
Provision for doubtful accounts 6,569 1,218
Provision for (benefit from) deferred
income taxes (2,561) 3,045
Gain on sale of natural gas and oil
business - (6,043)
Decrease in insurance loss reserves (3,071) (1,119)
Minority interests (4,038) 1,292
Loss from discontinued operations 12,513 -
Other, net (3,709) (6,577)
Changes in operating assets and
liabilities:
Decrease (increase) in:
Receivables 40,902 (13,497)
Inventories (13,846) 2,825
Prepaid expenses and other current
assets (13,587) 5,839
Decrease in:
Accounts payable and other accrued
expenses (44,744) (48,807)
-------- ---------
Net cash and cash equivalents used in
operating activities (21,597) (23,505)
-------- ---------
Cash flows from investing activities:
Business acquisitions:
Properties, net - (12,130)
Costs in excess of net assets of
businesses acquired - (7,287)
Other assets - (1,762)
Debt issued and assumed - 6,078
-------- ---------
- (15,101)
Proceeds from sale of natural gas and
oil business - 16,250
Capital expenditures (25,138) (34,395)
Proceeds from sales of properties 1,730 8,859
Investment in affiliate - (7,198)
Purchase of minority interests (17,200) -
Redemption of investment in affiliate 2,100 -
-------- ---------
Net cash and cash equivalents used in
investing activities (38,508) (31,585)
-------- ---------
Cash flows from financing activities:
Issuance of common stock 9,650 -
Proceeds from long-term debt 680,291 21,199
Repayments of long-term debt (533,883) (38,095)
Redemption of subsidiary preferred stock - (937)
Payment of deferred financing costs (29,791) -
Net decrease in short-term debt (8,748) -
Payment of preferred dividends (2,567) (5,833)
-------- ---------
Net cash and cash equivalents provided by
(used in) financing activities 114,952 (23,666)
-------- ---------
Net cash and cash equivalents provided by
(used in) continuing operations 54,847 (78,756)
Net cash and cash equivalents provided by
discontinued operations 384 6,791
-------- ---------
Net increase (decrease) in cash and cash equivalents 55,231 (71,965)
Cash and cash equivalents at beginning of period 31,947 118,801
-------- ---------
Cash and cash equivalents at end of period $ 87,178 $ 46,836
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 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 12) 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, such financial
statements contain all adjustments, consisting of normal recurring
adjustments and, in all periods presented, certain significant charges
described in Notes 16 and 17, necessary to present fairly the Company's
financial position as of December 31, 1993 and September 30, 1994, its
results of operations for the three-month and nine-month periods ended
October 31, 1993 and September 30, 1994 and its cash flows for the
nine-month periods ended October 31, 1993 and September 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 nine-
month periods ended October 31, 1993, Graniteville and SEPSCO are
included for their corresponding periods ended August 31, 1993, Arby's
and Royal Crown are included for their corresponding periods ended
September 30, 1993 and National Propane is included for its
corresponding periods ended October 31, 1993.
The three-month and nine-month periods ended October 31, 1993 (the
"Comparable Three Months" and "Comparable Nine Months", respectively)
have been presented herein since they are the periods most nearly
comparable to the three-month and nine-month periods ended September
30, 1994. Due to the different periods consolidated in the Comparable
Three Months and the Comparable Nine 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 nine-month periods ended September 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, September 30,
1993 1994
------------ ------------
(In thousands)
<S> <C> <C>
Raw materials $ 26,930 $ 24,839
Work in process 6,676 7,634
Finished goods 74,600 72,908
--------- ---------
$ 108,206 $ 105,381
========= =========
</TABLE>
(4) Properties
The following is a summary of the components of properties, net:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
------------ ------------
(In thousands)
<S> <C> <C>
Properties, at cost $ 447,083 $ 479,664
Less accumulated depreciation
and amortization 185,087 202,124
--------- ---------
$ 261,996 $ 277,540
========= =========
</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
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 shares from
3,500,000 shares.
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 nine months ended September 30, 1994, Triarc issued from its
treasury stock 68,750 shares of restricted stock under the Equity Plan
at an aggregate market value at the dates of grant of $1,376,000. 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 nine
months ended September 30, 1994 and is being amortized to compensation
expense over the applicable vesting periods through 1997. In addition
to the issuance of the Performance Options, during the nine months
ended September 30, 1994 Triarc also granted 826,500 stock options
under the Equity Plan at option prices ranging from $14.375 to $24.125
representing the fair market value per share of Class A Common Stock at
the dates of grant.
During the nine months ended September 30, 1994, in exchange for 26,000
shares of restricted stock held by employees terminated during the
period and 111,000 stock options held by such employees and directors
who were not reelected during the period, the Company agreed to pay
such holders (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, all have a base price of zero. Such restricted stock
was fully vested upon termination of the employees. As a result of
such accelerated vesting the Company incurred a charge of $331,000
during the second quarter of 1994 included in "General and
administrative expenses". After such exchange the Company has an
aggregate 187,000 Rights exercisable which expire 16,000 in December
1994, 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 then 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.
As a result, the Company recorded a credit of $185,000 during the
quarter ended September 30, 1994 included as a reduction in "General
and administrative expenses".
(6) Loss Per Share
The common shares used in the calculations of loss per share were
21,310,000 and 24,042,000 for the three-month periods ended October 31,
1993 and September 30, 1994, respectively, and 22,659,000 and
23,014,000 for the nine-month periods ended October 31, 1993 and
September 30, 1994, respectively. The primary loss per share has been
computed by dividing the net loss applicable to common stockholders by
the number of common shares noted above. Common stock equivalents were
not included in the computation of the weighted average shares
outstanding because such inclusion would have been antidilutive. Fully
diluted 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 income taxes for the three-month period
ended September 30, 1994 represents an effective rate which is higher
than the Federal statutory income tax rate resulting from the reduction
of tax provisions recorded in the first half of 1994 on pre-tax income
which were higher than the Federal statutory income tax rate
principally due to the effects 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 ("Goodwill
Amortization Effect"). The Company's provision for income taxes for
the nine-month period ended September 30, 1994 represents an effective
tax rate which is higher than the Federal statutory income tax rate due
to the effect of state income taxes, net of Federal benefit, and the
Goodwill Amortization Effect. The Company recorded provisions for
income taxes for the three ended October 31, 1993 despite pre-tax
losses in such periods principally due to provisions for income tax
contingencies and other matters (Note 17), losses of certain
subsidiaries for which no tax benefit is available, the Goodwill
Amortization Effect and the increase in deferred income taxes resulting
from the increase in the Federal income tax rate from 34% to 35%
enacted in August 1993. The provision for the nine-month period ended
October 31, 1993 was also impacted by the cost related to a five-year
consulting agreement with the former Vice Chairman of the Company (Note
17) which is not deductible for income tax purposes.
(8) Long-term Debt
As of September 30, 1994 Graniteville was in default of certain
restrictive covenants of its $180,000,000 senior secured credit
facility (the "Graniteville Credit Facility"). In October 1994 the
Graniteville Credit Facility was amended (the "Amended Graniteville
Credit Facility") such that Graniteville was in compliance with the
restrictive covenants of the Amended Graniteville Credit Facility as of
September 30, 1994 and based on the amended covenants and current
projections, Graniteville anticipates remaining in compliance with the
covenants under the Amended Graniteville Credit Facility at least
through September 30, 1995. Borrowings under the Graniteville Credit
Facility aggregated $167,912,000 as of September 30, 1994.
(9) Transactions with Related Parties
The Company continues to have related party transactions during the
nine-month period ended September 30, 1994 of the nature and general
magnitude as those described in the Form 10-K. The most significant of
these transactions during the nine months ended September 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 Nine
Months (see Note 17) 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 December 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
$1,800,000 ($2,200,000 prior to October 1, 1994). In connection with
such leases the Company had rent expense for the nine-month period
ended September 30, 1994 of $1,650,000. Pursuant to this arrangement,
the Company pays the operating expenses of the aircraft directly to
third parties. The rent was reduced effective October 1, 1994
reflecting the termination of the lease for one of the aircraft.
The Company subleases through January 31, 1996 approximately 26,800
square feet of furnished office space in New York, New York owned by an
unaffiliated third party from a former affiliate of Messrs. Peltz and
May. In addition, until September 1994, the Company also subleased
approximately 15,000 square feet of furnished office space in West Palm
Beach, Florida (the "West Tower") owned by an unaffiliated third party
from an affiliate of Messrs. Peltz and May. 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 $268,000, was approximately
$1,221,000 during the nine-month period ended September 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 through February 2000 approximately
17,000 square feet of office space in West Palm Beach, Florida (the
"East Tower") owned by an unaffiliated third party under a lease
assumed from a former affiliate of Messrs. Peltz and May. Messrs.
Peltz and May have guaranteed to the unaffiliated landlords the payment
of rent for the New York and the East Tower office space. In June 1994
the Company decided to centralize its corporate offices in New York
City. In connection therewith, the Company subleased the East Tower to
an unaffiliated third party on August 22, 1994 (see Note 16).
(10) 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 (i) on human health, (ii) to
existing recreational uses or (iii) 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 15)
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 $4,175,000, all of which was provided in prior
years. In connection therewith, SEPSCO has incurred actual costs
through September 30, 1994 of $2,310,000 and has a remaining accrual of
$1,865,000.
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 Insurance"), 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. On August 30, 1994 the district
court issued an order granting Triarc's motion to dismiss certain of
the claims including the claims under the Racketeering Influenced and
Corrupt Organizations Act and allowing the NVF Committee to file an
amended complaint alleging why certain other claims should not be
barred by applicable statutes of limitation. On October 17, 1994 the
NVF Committee filed a second amended complaint alleging causes of
action for (a) aiding and abetting breach of fiduciary duty, (b)
equitable subordination of, and objections to, claims which the Company
has asserted against NVF, and (c) recovery of certain allegedly
fraudulent and preferential transfers allegedly made by NVF to the
Company. The Company has responded to the second amended complaint by
filing a motion to dismiss the complaint in its entirety. 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. The Company has incurred actual costs
through September 30, 1994 of $484,000 and has a remaining accrual of
$1,816,000. Based upon information currently available to the Company
and after considering its current reserve levels, 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 Insurance 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 Insurance 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 Insurance responded
to NVF's allegations by filing an answer and counterclaims in which
Chesapeake Insurance denies the material allegations of NVF's complaint
and asserts defenses, counterclaims and set-offs against NVF.
Chesapeake Insurance 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 allegedly made by APL to the Company and
preferential transfers allegedly made by APL to a defendant other than
the Company. The Chapter 11 trustee of APL was subsequently added as a
plaintiff. The 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. The
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. In September 1994 National Propane hired an environmental
consulting firm to advise it on possible remediation methods and to
provide an estimate of the cost of such remediation. Since the
environmental consulting firm has not yet completed its report,
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 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.
(11) Acquisitions
During 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 cash purchase price of
$10,000,000. Since the combined transaction was accounted for as a
nonmonetary exchange, the Company did not recognize any gain or loss on
the combined transaction. During the third quarter of 1994 the Company
purchased an additional three restaurants from franchisees for cash
purchase prices and related costs aggregating $1,038,000. During the
nine months ended September 30, 1994, the Company purchased the assets
of several smaller liquefied petroleum ("LP") gas companies for
aggregate purchase prices of $7,675,000 consisting of cash of
$4,062,000 and notes aggregating $3,613,000. All such restaurant and
LP gas acquisitions have been accounted for in accordance with the
purchase method of accounting and accordingly, the Company has
reflected $7,287,000 of costs in excess of the fair value of the
related net assets acquired as "Costs in excess of net assets of
acquired companies", which is being amortized over periods of 12 to 15
years.
On September 20, 1994 the Company entered into a definitive merger
agreement (the "Merger Agreement") with Long John Silver's Restaurants,
Inc. ("LJS"), an owner, operator and franchisor of quick service fish
and seafood restaurants, whereby a subsidiary ("Mergerco") of Triarc
will acquire all of the outstanding stock of LJS (the "Acquisition")
for $0.52 per share or an aggregate of approximately $49,071,000, pay
an estimated $2,534,000 to settle all outstanding warrants to purchase
LJS common stock, and make an additional payment of $632,000 to a
minority shareholder for an aggregate purchase price of $52,237,000.
In addition, Mergerco will extinguish all existing LJS long-term debt,
excluding capital lease obligations, plus accrued interest (which
aggregated $438,801,000 and $8,133,000, respectively, as of September
30, 1994). The acquisition is subject to consummation of certain
financing arrangements and other customary closing conditions.
The Company has not presented pro forma financial information since the
financing has not been completed and other customary closing conditions
required for the Acquisition have not yet been consummated. The
following table, however, sets forth summarized financial information
of LJS for its most recent fiscal year and quarter derived from
amendment No. 4 to its Form S-1 registration statement filed by LJS
with the Securities and Exchange Commission on November 2, 1994:
<TABLE>
<CAPTION>
Year ended Three months ended
June 29, 1994 September 28, 1994
------------- ------------------
(In thousands)
<S> <C> <C>
Total revenues $ 642,696 $ 159,661
Operating earnings 29,947 11,404
Net loss (13,862) (2,464)
Total assets (as of period-end) 553,751 560,476
Shareholders' deficit (as of
period-end) (25,262) (27,726)
</TABLE>
On October 6, 1994 certain minority shareholders of LJS on their own
behalf and derivatively on behalf of LJS commenced an action in the
Supreme Court of New York against certain defendants including the
majority shareholder and certain current directors of LJS. On October
26, 1994 an amended complaint was filed to add the Company and LJS as
nominal defendants. The suit alleges breaches of fiduciary duty by
each of the defendants (other than LJS and the Company) and breach of
contract by the majority stockholder in respect of the adoption of the
Merger Agreement by the Board of Directors of LJS. The plaintiffs are
seeking a preliminary and permanent injunction (i) prohibiting the
consummation of the merger between the Company and LJS, (ii)
prohibiting LJS from prepaying or redeeming, or in any way facilitating
or agreeing to the prepayment or redemption, of LJS's subordinated debt
held by its majority shareholder and (iii) voiding any "no shop"
provision to which defendants and/or LJS have agreed and requiring the
defendants to negotiate in good faith with other prospective
purchasers, including a minority shareholder. The complaint, as
amended, also seeks other relief including compensatory and punitive
damages from the defendants, other than the Company and LJS. A hearing
on the plaintiffs' motion for a preliminary injunction has been
scheduled for early December 1994. The majority shareholder and
defendant directors of LJS have advised Triarc that they believe that
the suit is without merit and that they intend to defend the suit
vigorously. In the event that an injunction is issued prior to the
closing of the Acquisition, and while such injunction remains in
effect, the Acquisition will not be consummated. Since the action does
not seek any damages from the Company, Triarc does not believe that the
outcome of this action will have a material adverse effect on the
financial position or results of operations of the Company.
(12) 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. On April 14, 1994 SEPSCO's shareholders other than
the Company approved an agreement and plan of merger between Triarc and
SEPSCO (the "SEPSCO Merger") pursuant to which on that date a
subsidiary of Triarc was merged into SEPSCO in accordance with a
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, received 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. 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, was provided for in the Comparable Nine 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 Nine 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 has made a preliminary determination of the fair value of the
additional 28.9% interest in SEPSCO's assets acquired and liabilities
assumed. Until such valuations are completed, the Company has
reflected $21,433,000 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 nine-month period ended September 30, 1994 giving effect to the
SEPSCO Merger as if it had been consummated on January 1, 1994, are set
forth below.
<TABLE>
<CAPTION>
Nine months ended
September 30, 1994
------------------
(In thousands)
<S> <C>
Revenues 793,631
Operating profit 53,635
Income from continuing operations before
income taxes 10,532
Provision for income taxes 5,175
Income from continuing operations 5,357
Income from continuing operations per share (a) .04
<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>
(13) Extraordinary Items
In connection with early extinguishments of debt which were refinanced
in April and August 1993, the Company recognized extraordinary charges
of $7,059,000 during the Comparable Nine Months representing write-offs
of unamortized deferred financing costs of $5,955,000 and the payment
of prepayment penalties of $6,651,000, partially offset by $4,022,000
of income tax benefit and $1,525,000 of discount resulting from
redemption of debt.
(14) Sale of Natural Gas and Oil Business
On August 31, 1994 a subsidiary of SEPSCO sold substantially all of the
operating assets of its natural gas and oil business for cash of
$16,250,000 net of $750,000 held in escrow to cover certain indemnities
given to the buyer by a subsidiary of SEPSCO. Such sale resulted in a
pre-tax gain of $6,043,000 which the Company recorded during the three
months ended September 30, 1994.
(15) 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 $1,162,000. 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 and July 1994 SEPSCO sold two of its
cold storage plants and two idle properties with a net book value of
$1,915,000 for $582,000 of cash and $700,000 of notes, resulting in a
loss, including expenses of $50,000, of $683,000, the estimated amount
of which had previously been accrued. 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. Such letter of intent originally expired on August
15, 1994 but has been extended to November 30, 1994. 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 $4,500,000, 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 such sale on
substantially the same terms as set forth in the letter of intent by
the end of the fourth quarter of 1994.
After (i) consideration of (a) a $5,363,000 write-down (net of tax
benefit and minority interests aggregating $7,540,000) reflected in
operating profit (loss) of discontinued operations during the three-
month period ended April 30, 1993 prior to the decision by SEPSCO's
Board of Directors to sell SEPSCO's utility and municipal services and
refrigeration businesses, (b) a $10,400,000 provision ($7,397,000 net
of minority interests with no income tax benefit) for the estimated
loss on the sale of the discontinued operations recorded in the
Comparable Three Months and (c) a $2,000,000 provision ($1,423,000 net
of minority interests with no income tax benefit) for additional
estimated loss on the sale of the discontinued operations recorded in
the two-month period ended December 31, 1993 and (ii) 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.
The income (loss) from discontinued operations consisted of the
following:
<TABLE>
<CAPTION>
Three Nine
months ended months ended
October 31, October 31,
1993 1993
------------ ------------
(In thousands)
<S> <C> <C>
Loss from operations of businesses
to be disposed net of income
taxes and minority interests $ (402) $ (5,116)
Loss on disposal of discontinued
operations without income tax
benefit net of minority
interests (7,397) (7,397)
------- --------
$(7,799) $ (12,513)
======= ========
</TABLE>
(16) Facilities Relocation and Corporate Restructuring
The "Facilities relocation and corporate restructuring" in the 1994
periods consists of the following:
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1994 1994
------------- -------------
(In thousands)
<S> <C> <C>
Estimated loss on the sublease of
Triarc's former corporate office
in West Palm Beach, Florida,
including the write-off of
leasehold improvements (see Note 9) $ 3,300 $ 3,300
Estimated relocation costs of
employees formerly located in
the West Palm Beach office
relocated during the third
quarter of 1994 1,800 1,800
Severance costs related to
terminated corporate
employees 400 1,700
------- -------
$ 5,500 $ 6,800
======= =======
</TABLE>
(17) Significant Charges in the Comparable Three Months and Comparable Nine
Months
The accompanying condensed consolidated statements of operations for
the Comparable Three Months and the Comparable Nine Months include 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>
Three months Nine months
ended ended
October 31, October 31,
1993 1993
------------ ------------
(In thousands)
<S> <C> <C>
Estimated costs to relocate the
Company's corporate 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)
Increased reserves for Company and
third party insurance and
reinsurance losses 10,006 (b) 10,006 (b)
Payment to a special committee of the
Company's Board of Directors - 4,900 (b)
Provision for legal matters 2,300 (b) 2,300 (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)
Increased reserve for advertising
allowances to independent bottlers
and coupon redemption 7,772 (c) - (f)
Reversal of unpaid incentive plan
accruals provided in prior years - (7,297) (b)
Other - 2,246 (b)
-------- --------
Total net charges affecting
operating profit 20,078 63,995
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 (3,836) (16,240)
Provision for income tax contingencies
and other tax matters 6,000 13,897
Minority interest effect of above net
charges (230) (4,112)
------- -------
$ 22,012 $ 66,043
======= =======
<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"
(f) Not applicable to the nine-month period ended October 31, 1993
</TABLE>
(18) Subsequent Events
The Company has entered into a letter agreement for the acquisition of
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. Such acquisition is expected to be completed by the
end of 1994.
On October 7, 1994 National Propane entered into a $150,000,000
revolving credit and term loan agreement with a group of banks (the
"Bank Facility"). The Bank Facility consists of a $40,000,000
revolving credit facility and three tranches of term loans aggregating
$110,000,000. An aggregate of $30,000,000, including $20,000,000 of
the term loans and, after one year, $10,000,000 of the revolving credit
facility is restricted to the redemption, in part, of the $54,000,000
outstanding principle amount 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 is restricted for niche acquisitions by National Propane (the
"Acquisition Sublimit") and any outstanding borrowings under the
Acquisition Sublimit convert to term loans in October 1997. Borrowings
under the Bank Facility 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 represents the
higher of the prime rate or 0.5% over the Federal funds rate.
Revolving credit loans bear interest at 2.25% over LIBOR or 1.00% over
ABR, while the term loans 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, exclusive of the $15,000,000 Acquisition Sublimit, mature
in March 2000. The term loans amortize annually commencing in 1995 at
$8,750,000 increasing to $16,000,000 in 2003. The Bank Facility
agreement includes certain restrictive covenants including limitations
on advances or dividends to Triarc exclusive of permitted payments
which include, among others, $45,000,000 of cash dividends to Triarc,
of which $40,000,000 was paid in October 1994, and $30,000,000 to
provide a portion of the funds to repay the 11 7/8% Debentures.
National Propane incurred fees of approximately $5,000,000 plus legal
fees and other costs in connection with the Bank Facility which will be
deferred and amortized using the interest rate method over the term of
the Bank Facility loans.
In connection with the closing of the Bank Facility, National Propane
redeemed prior to maturity 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"). Such early extinguishment of
debt will result in an extraordinary charge of $1,819,000 during the
fourth quarter of 1994. Such charge represents the write-off of
unamortized deferred financing costs and unamortized original issue
discount of $875,000 and $2,623,000, respectively, less income tax
benefit of approximately $1,679,000. Should the Company utilize the
aforementioned portion of the Bank Facility which availability is
conditioned upon the early retirement of the 11 7/8% Debentures, the
Company would incur an additional extraordinary charge upon such
redemption.
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 nine-month and three-month periods ended September 30, 1994 are
compared below with the nine-month period ended October 31, 1993 (the
"Comparable Nine Months") and with the three-month period ended October
31, 1993 (the "Comparable Three Months"), respectively. It was not
practicable for the Company to recast its prior year results and,
accordingly, the Comparable Nine Months and Comparable Three Months
were used as the nine-month and three-month periods most nearly
comparable to the nine-month and three-month periods ended September
30, 1994, respectively. See Note 1 to the accompanying condensed
consolidated financial statements for a discussion of the fiscal
periods of Triarc's principal subsidiaries included in the Comparable
Nine 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 Nine 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 textile segment is
subject to cyclical economic trends that affect the domestic textile
industry. In addition, the textile 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 textile
segment's products by changing the relative price of competing fabrics
from overseas producers.
Trends affecting the fast food segment in recent years include
consistent growth of the restaurant industry as a percentage of total
food-related spending, with fast food being the most rapidly growing
segment of the restaurant industry, and increased price competition in
the fast food industry, particularly evidenced by the "value menu"
concept which offers comparatively lower prices on certain menu items,
the "combo meals" concept which offers a combination meal at an
aggregate price lower than the individual food and beverage items and
couponing.
Trends affecting the soft drink segment in recent years have included
the increased market share of private label soft drinks and increased
price competition resulting in significant price discounting throughout
the industry and the introduction of "new age" beverages.
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. The
other significant trend affecting the LP gas segment in recent years is
the energy conservation trend, which from time to time has negatively
impacted the demand for energy by both residential and commercial
customers.
Nine Months Ended September 30, 1994 Compared with Nine Months Ended
October 31, 1993
<TABLE>
<CAPTION> Revenues
Nine months ended
--------------------------
October 31, September 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Textiles $ 391,257 $407,147
Fast Food 159,566 162,441
Soft Drink 116,807 115,735
Liquefied Petroleum Gas 102,290 108,308
Other 9,846 --
--------- --------
$ 779,766 $793,631
========= ========
</TABLE>
Revenues increased $13.9 million to $793.6 million in the nine months
ended September 30, 1994. Such increase principally reflects higher
revenues in the Company's textile, 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 ($9.8
million) which are included in "Other" in the table above and slightly
lower revenues in the Company's soft drink segment. Textile revenues
increased $15.9 million (4.1%) to $407.1 million in 1994 principally
due to higher volume in the utility wear product components of the
woven apparel 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 $6.0 million (5.9%) to
$108.3 million largely due to the effect in 1994 of niche acquisitions
consummated at the end of 1993 and, more significantly, an increase in
the number of gallons sold exclusive of acquisitions. The volume
increase was due to the inclusion of January in the 1994 period for the
larger of the two LP gas operations, while the Comparable Nine Months
included October 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 $2.9
million (1.8%) to $162.4 million due to an increase in royalties and
franchise fees resulting from a net increase of 84 franchised
restaurants and an increase in franchised same-store sales. Net sales
of Company-owned restaurants were relatively unchanged. Soft drink
revenues declined $1.1 million (0.9%) to $115.7 million reflecting an
aggregate $6.3 million decrease in (i) domestic branded diet product
due to soft bottler case sales and (ii) Canadian branded product sales
resulting from higher than anticipated bottler inventory levels at the
Transition 1993 year end partially offset by a $3.5 million increase in
private label sales, despite a one-time inventory adjustment by its
private label customer, resulting from continued gains in the domestic
market and expansion internationally and a $1.7 million increase in
other branded product sales due to improved volume.
Gross profit (total revenues less cost of sales) decreased $4.7 million
to $232.2 million in the nine months ended September 30, 1994 and gross
margins decreased to 29.3% from 30.4%. The decrease in gross profit
was due to (i) lower margins in the textile segment and (ii) the
nonrecurring gross profit in the Comparable Nine Months from the
Company's non-core insurance operation which ceased writing new
insurance effective October 1993. The lower margins in the textile
segment resulted from (i) higher cost of cotton which could not be
fully passed on to woven apparel customers through higher selling
prices, (ii) lower sales prices in indigo-dyed and piece-dyed
sportswear reflecting market conditions and (iii) a nonrecurring
decrease to cost of sales in the Comparable Nine Months resulting from
a Fiscal 1993 year-end adjustment to revise inventory costing estimates
made in the prior three quarters to actual. Such decreases were
partially offset by (i) the effect of the increase in sales volume
discussed above, (ii) higher margins in the LP gas segment due to
product costs decreasing more than selling prices, (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 fee revenues with no offsetting cost of sales.
Advertising, selling and distribution expenses decreased $1.0 million
to $82.3 million in the nine months ended September 30, 1994
principally due to the lack of any 1994 charges similar to $1.5 million
of 1993 charges in the soft drink segment for compliance with soft
drink package labeling regulations, which became effective in May 1994.
General and administrative expenses decreased $16.2 million to $89.2
million in the nine months ended September 30, 1994 reflecting expenses
in the Comparable Nine Months that did not recur in 1994 offset by net
increases in general and administrative expenses in 1994 exclusive of
the non-recurring expenses. Such non-recurring expenses consisted of
(a) significant charges which net to $14.3 million and consist of (i) a
$10.0 million provision for insurance loss reserves, (ii) a $4.9
million payment to a special committee of Triarc's Board of Directors
in connection with the Change in Control, (iii) a $2.3 million
provision for legal matters, (iv) a $2.2 million provision for closing
certain non-strategic Company-owned restaurants and abandoned bottling
facilities and (v) $2.2 million of other charges, less (vi) 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 and (b) $5.8 million of general and
administrative expenses in the Comparable Nine Months for certain non-
core operations previously sold or which ceased doing business prior to
1994. The net increases in other general and administrative expenses
in 1994 principally resulted from increases in employee compensation
costs primarily associated with the new management organizations in the
soft drink and fast food segments, including the respective chief
executive officer departments which were not present during much of the
Comparable Nine Months.
The 1994 facilities relocation and corporate restructuring charges of
$6.8 million consist of (i) a loss on the sublease of Triarc's former
corporate offices in West Palm Beach, Florida, including the write-off
of leasehold improvements, (ii) estimated relocation costs of employees
formerly located in the West Palm Beach office relocated during the
third quarter of 1994 and (iii) severance costs related to terminated
corporate employees. The facilities relocation and corporate
restructuring charges of $43.0 million in the Comparable Nine Months
consisted principally of (i) estimated costs to relocate the Company's
headquarters and terminate the lease on its then existing corporate
facilities, (ii) estimated corporate restructuring charges including
personnel recruiting and relocation costs, employee severance costs and
consultant fees and (iii) costs related to a five-year consulting
agreement (the "Consulting Agreement") extending through April 1998
between the Company and its former Vice Chairman. Such charges in the
Comparable Nine Months 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 Nine 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 $3.0 million to $53.7 million in the nine
months ended September 30, 1994 due to $6.1 million of interest
accruals related to income tax matters in the Comparable Nine 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 average levels of such debt.
Other income (expense), net improved $7.2 million in the nine months
ended September 30, 1994 principally due to (i) net significant charges
in the Comparable Nine Months that did not recur in 1994, (ii) other
nonrecurring charges in the Comparable Nine Months, (iii) $3.1 million
of interest income in 1994 and (iv) a $1.0 million nonrecurring
realized gain in 1994 in connection with the redemption of an
investment in a former bottling subsidiary previously written off.
Such net nonrecurring significant charges consisted of expenses in the
Comparable Nine Months which did not occur in the nine months ended
September 30, 1994 including (i) $5.9 million of costs of certain
shareholder and other litigation, (ii) $3.2 million of commitment fees
and other compensation costs relating to a proposed alternative
financing which was not consummated, (iii) $2.1 million of reductions
to estimated net realizable value of certain assets held for sale other
than discontinued operations less an $8.9 million credit from the
settlement of an accrued rent balance in connection with the Change in
Control. The other nonrecurring charges in the Comparable Nine Months
consisted of $1.2 million of legal fees relating to certain stockholder
litigation and a $1.0 million loss from the sale of a non-core
business.
The gain on sale of the natural gas and oil business of $6.0 million
resulted from the August 31, 1994 sale of such business for cash of
$16.2 million.
The provision for income taxes for the nine months ended September 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 Company recorded an income tax
provision for the Comparable Nine Months despite a pre-tax loss due to
(i) provisions for income tax contingencies and other tax matters, (ii)
the impact of losses of certain subsidiaries for which no tax benefit
is available, (iii) the impact of costs related to the Consulting
Agreement and amortization of costs in excess of net assets of acquired
companies which were not deductible for tax purposes and (iv) the
increase in deferred income taxes resulting from the increase in the
Federal income tax rate from 34% to 35% enacted in August 1993.
Minority interests in (income) loss of consolidated subsidiaries was a
$1.3 million expense in the nine months ended September 30, 1994
compared with $4.0 million of income in the Comparable Nine Months.
Such change, reflecting an aggregate loss by the consolidated
subsidiaries with minority ownership in the Comparable Nine Months to
income in 1994, is principally due to (i) $3.1 million from 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 12 to the accompanying condensed consolidated
financial statements), (ii) $0.8 million from the facilities relocation
and corporate restructuring and other significant charges during the
Comparable Nine Months that were allocated to subsidiaries with
minority ownership and that did not recur in the 1994 period, (iii)
$0.7 million from the April 1993 acquisition in connection with the
Change in Control of the minority interest of a formerly partially-
owned subsidiary which had losses in the Comparable Nine Months during
a portion of which there was a minority interest and (iv) $0.7 million
from the January 1994 sale of a non-core partially-owned subsidiary
which had losses in the Comparable Nine Months.
The loss from discontinued operations of $12.5 million, net of income
taxes and minority interests, in the Comparable Nine Months consisted
of a loss from operations of the businesses to be disposed of $5.1
million and a charge for the estimated loss on disposal of such
operations of $7.4 million. The loss from operations of the businesses
to be disposed 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. The estimated loss on disposal
reflected the Company's estimate of losses to be incurred on the sale
or liquidation of the discontinued operations, including projected
operating results through the anticipated disposal dates. 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 and the estimated losses on disposal were
previously recorded.
The extraordinary items in the Comparable Nine Months resulted from the
early extinguishments of certain debt in April and August 1993 and was
comprised of the write-off of unamortized deferred financing costs of
$6.0 million and the payment of prepayment penalties of $6.6 million,
partially offset by $4.0 million of income tax benefit and $1.5 million
of discount resulting from redemption of debt.
Net income of $4.3 million in the nine months ended September 30, 1994
improved $81.8 million from a loss of $77.5 million in the Comparable
Nine Months as a result of the factors discussed above, most
significantly the prior period charges related to the facilities
relocation and corporate restructuring and other significant items
included in continuing operations which aggregate $66.0 million net of
the related tax benefit, and the loss from discontinued operations and
the extraordinary charges previously discussed.
Three Months Ended September 30, 1994 Compared with Three Months Ended
October 31, 1993
<TABLE>
<CAPTION> Revenues
Three months ended
------------------------
October 31, September 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Textiles $ 129,179 $ 133,474
Fast Food 57,281 58,404
Soft Drink 39,133 38,116
Liquefied Petroleum Gas 30,293 26,149
Other 1,510 -
--------- --------
$ 257,396 $ 256,143
========= ========
</TABLE>
Revenues decreased $1.3 million to $256.1 million in the three months
ended September 30, 1994. Such decrease reflects lower revenues in the
Company's LP gas and soft drink segments as well as the absence of
revenues in 1994 from the Company's non-core insurance operation
("Other" in the table above) which ceased writing new insurance
effective October 1993. Such decreases were partially offset by higher
revenues in the Company's textiles and fast food segments. LP gas
revenues decreased $4.1 million (13.7%) to $26.1 million in 1994
despite the effect in 1994 of niche acquisitions consummated at the end
of 1993, principally due to the inclusion of July, one of the lowest
volume months, in the 1994 period for the larger of the two LP gas
operations, while the Comparable Three Months included October for such
operation, historically a higher volume month. Soft drink revenues
decreased $1.0 million (2.6%) to $38.1 million due to a $2.7 million
decrease in domestic diet branded product sales resulting from soft
bottler case sales partially offset by a $1.0 million increase in
private label soft drink sales, despite a one-time inventory adjustment
by its private label customer, resulting from continued domestic and
international growth and a $0.7 million increase in other branded
product sales due to improved volume. Textile revenues increased $4.3
million (3.3%) to $133.5 million principally due to higher volume as
well as higher average selling prices for specialty products reflecting
a higher-priced product mix, and higher volume in the utility wear
product components of the woven apparel product line partially offset
by lower prices and volume in the indigo-dyed sportswear component of
the woven apparel product line. Fast food revenues increased $1.1
million (1.9%) to $58.4 million due principally to a $0.8 million
increase in royalties and franchise fees resulting from a net increase
of 84 franchised restaurants and an increase in franchised same-store
sales and a $0.3 million increase in net sales of Company-owned
restaurants primarily attributable to a net increase of 7 of such
restaurants partially offset by a slight decline in same-store customer
sales.
Gross profit decreased $5.4 million to $72.9 million in the three
months ended September 30, 1994 while gross margins decreased to 28.5%
from 30.4%. The decrease in gross profit was due to (i) the effect of
net lower sales volume discussed above, (ii) lower margins in the soft
drink segment resulting from an increased shift in sales mix toward
lower margin private label products, (iii) the nonrecurring gross
profit in the Comparable Three Months from the Company's non-core
insurance operation and (iv) lower margins in the textiles segment.
The decrease in the textile gross margins resulted from (i) higher cost
of cotton which could not be fully passed on to woven apparel customers
through higher selling prices and increases in other product costs and
(ii) lower sales prices for indigo-dyed sportswear reflecting lower
customer demand. Such decreases were partially offset by (i) higher
margins in the LP gas segment due to product costs decreasing more than
selling prices and (ii) higher royalty and franchise fees (with no
offsetting cost of sales).
Advertising, selling and distribution expenses decreased $2.3 million
to $32.1 million in 1994. Such decrease was principally due to the
lack of any 1994 charge similar to the 1993 charges in the soft drink
segment consisting of a $7.8 million provision for advertising
allowances to independent bottlers and coupon redemption and a
previously discussed $1.5 million provision for compliance with new
package labeling regulations partially offset by expenses incurred in
1994 by the soft drink segment principally attributable to its new
domestic media advertising campaign and promotional programs geared
toward both bottlers and consumers, and to a lesser extent, increases
in the advertising, selling and distribution expenses of the fast food
and textile segments.
General and administrative expenses decreased $10.6 million to $29.3
million in 1994 principally reflecting expenses in the Comparable Three
Months that did not recur in 1994 offset by net increases in general
and administrative expenses in 1994, exclusive of the nonrecurring
expenses. Such nonrecurring expenses consisted of a $10.0 million
provision for insurance loss reserves and a $2.3 million provision for
legal matters.
The 1994 facilities relocation and corporate restructuring charges of
$5.5 million consist of the previously discussed (i) loss on the
sublease of Triarc's former corporate offices in Florida, including the
write-off of leasehold improvements, (ii) estimated relocation costs
and (iii) severance costs related to terminated corporate employees.
Interest expense increased $1.1 million to $18.3 million in 1994
principally due to higher average debt levels associated with (a) the
August 1993 refinancing of the RC/Arby's Corporation ("RCAC") $225.0
million senior secured step-up rate notes with $275.0 million 9 3/4%
senior notes due 2000 (the "9 3/4% Notes") and a $34.2 million note
payable issued effective December 31, 1993 in connection with the
commutation of obligations under certain insurance and reinsurance
partially offset by debt repayments.
Other income (expense), net improved $2.7 million to income of $0.7
million in 1994 principally due to expenses in the Comparable Three
Months which did not recur in the three months ended September 30, 1994
including $1.2 million for legal fees relating to certain stockholder
litigation, and a $1.0 million loss from the sale of a non-core
business, both as noted above. The other income in 1994 was due to
interest income of $0.9 million partially offset by other net expenses.
The gain on sale of the natural gas and oil business of $3.0 million
resulted from the August 31, 1994 sale of such business for cash of
$16.2 million.
The benefit from income taxes for the three months ended September 30,
1994 represents an effective tax rate of 48% which is higher than the
Federal statutory income tax rate of 35% resulting from the reduction
of tax provisions recorded in the first half of 1994 on pre-tax income
which were higher than the Federal statutory income tax rate
principally due to the effects of state income taxes, net of Federal
benefit, and nondeductible amortization of costs in excess of net
assets of acquired companies. The Company recorded an income tax
provision for the Comparable Three Months despite a pre-tax loss due to
(i) provisions for income tax contingencies and other tax matters, (ii)
the impact of losses of certain subsidiaries for which no tax benefit
is available and (iii) the impact of nondeductible amortization of
costs in excess of net assets of acquired companies.
The loss from discontinued operations of $7.8 million for the
Comparable Three Months, net of income taxes and minority interests,
represents the loss from operations of the businesses to be disposed
prior to the measurement date of July 22, 1993 of $0.4 million and a
previously discussed $7.4 million charge for the estimated loss on
disposal of such operations. There is no similar income or loss in the
1994 third quarter since the estimated operating losses of the
remaining discontinued operations through their actual or estimated
dates of disposal and the estimated losses on disposal had previously
been recognized.
The Company reported a net loss of $2.9 million in 1994 compared with a
net loss of $27.9 million in the Comparable Three Months due to the
reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and cash equivalents declined $72.0 million during
the nine months ended September 30, 1994 to $46.8 million at September
30, 1994. Such decrease reflects (i) net cash used in operations of
$23.5 million, (ii) capital expenditures of $34.4 million, (iii)
repayments of debt in excess of borrowings of $16.9 million, (iv) the
cash portion of the purchase price for restaurant and LP gas business
acquisitions of $15.1 million, (v) investment in affiliate of $7.2
million, (vi) cash dividends on redeemable preferred stock of $5.8
million and (vi) redemption of subsidiary preferred stock of $0.9
million partially offset by proceeds from the sale of natural gas and
oil business of $16.2 million, proceeds from the sale of properties of
$8.8 million and cash provided by discontinued operations of $6.8
million. The net cash used by operations reflects net income of $4.3
million less $27.8 million of adjustments to reconcile net income to
cash and cash equivalents used in operating activities. Such
adjustments consist of $53.6 million from changes in operating assets
and liabilities, $13.9 million of payments related to facilities
relocation and corporate restructuring and a gain of $6.0 million on
the sale of a business partially offset by $38.6 million of non-cash
charges for depreciation and amortization, $6.8 million of provision
for facilities relocation and corporate restructuring and $0.3 million
of other items, net. The change in operating assets and liabilities
principally reflects a $48.8 million decrease in accounts payable and
accrued expenses and an increase in receivables of $13.5 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 seasonality and
the timing of payments. The increase in receivables reflects an
increase in the number of days of sales outstanding in receivables
principally due to a change in sales mix toward operations with longer
credit terms as well as the selective extension of credit terms. 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 $19.3 million at
September 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 $4.3 million and (iii) transactions related to
restricted stock, below-market stock options and related rights
aggregating $2.7 million less preferred stock dividends of $5.8 million
and 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.
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 (5.50% at September 30, 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 October
1994, the Graniteville Credit Facility was amended (the "Amended
Graniteville Credit Facility") to provide for a maximum Revolving Loan
of $112.0 million through March 1995 and $107.0 million through
December 1995, after which time the maximum amount will revert to the
$100.0 million. At September 30, 1994 Graniteville had $8.1 million of
unused availability under the Revolving Loan. As of September 30,
1994, Graniteville was in default of certain restrictive covenants of
the Graniteville Credit Facility. However, the Amended Graniteville
Credit Facility amended such restrictive covenants through December
1995 such that Graniteville was in compliance with the restrictive
covenants of the Amended Graniteville Credit Facility as of September
30, 1994 and based on the amended covenants and current projections,
Graniteville anticipates remaining in compliance at least through
September 30, 1995.
Consolidated capital expenditures, excluding properties of business
acquisitions and including capital leases of $4.2 million, amounted to
$38.6 million for the nine-month period ended September 30, 1994. The
Company expects that capital expenditures during the remainder of
calendar 1994 will approximate $28.0 million, subject to the
availability of cash and other financing sources. These actual and
anticipated expenditures reflect increased levels principally in the
fast food segment in furtherance of its business strategies,
principally for construction and acquisition of new restaurants and
remodeling of older restaurants. The Company anticipates that it will
meet a portion of its capital expenditures through leasing arrangements
or other financing.
Cash paid for business acquisitions amounted to $15.1 million during
the first three quarters 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 respect, Arby's Inc., a subsidiary of RCAC,
acquired seven restaurants subsequent to September 30, 1994 and has
entered into a letter agreement (the "Letter Agreement") for the
acquisition of up to 43 currently franchised restaurants currently
expected to be consummated by the end of the year. Such acquisitions
will require cash of up to $9.5 million as well as the assumption of
capitalized lease obligations.
More significantly, on September 20, 1994 the Company entered into a
definitive merger agreement (the "Merger Agreement") with Long John
Silver's Restaurants, Inc. ("LJS"), an owner, operator and franchisor
of quick service fish and seafood restaurants, whereby a subsidiary
("Mergerco") of Triarc will acquire all of the outstanding stock of LJS
(the "Acquisition") for $0.52 per share or an aggregate of
approximately $49.1 million, pay an estimated $2.5 million to settle
all outstanding warrants to purchase LJS common stock, and make an
additional payment of $0.6 million to a minority shareholder for an
aggregate purchase price of $52.2 million. In addition, Mergerco will
extinguish all existing LJS long-term debt (excluding capital lease
obligations) and accrued interest thereon (which aggregated $438.8
million and $8.1 million, respectively, as of September 30, 1994). The
Acquisition is subject to consummation of certain financing
arrangements and other customary closing conditions. (See Note 11 to
the condensed consolidated financial statements regarding litigation
relating to the Acquisition).
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. In the second and
third quarters of 1994 the Company recorded an aggregate $6.8 million
in additional facilities relocation and corporate restructuring costs.
As of September 30, 1994 the remaining accrual for facilities
relocation and corporate restructuring was $22.6 million. The Company
expects cash requirements for such accruals of $2.2 million for the
remainder of 1994 with the remaining $20.4 million, including
approximately $12.0 million in connection with the termination of the
lease on the Company's former headquarters, representing amounts to be
paid or otherwise liquidated in 1995 (although the Company currently
only has an extension of the due date of such lease termination payment
to December 15, 1994). 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 paid $4.8 million in October
1994, which amount had 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 October 7, 1994 National Propane entered into a $150.0 million
revolving credit and term loan agreement with a group of banks (the
"Bank Facility"). The Bank Facility consists of a $40.0 million
revolving credit facility and three tranches of term loans aggregating
$110.0 million. 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 is restricted to the redemption, in part, of the $54.0
million outstanding principle amount 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). 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 ($31.6 million as of
September 30, 1994). Further, $15.0 million of the revolving credit
facility is restricted for niche acquisitions by National Propane (the
"Acquisition Sublimit") and any outstanding borrowings under the
Acquisition Sublimit convert to term loans in October 1997. Revolving
credit loans, exclusive of the $15.0 million Acquisition Sublimit,
mature in March 2000. The term loans amortize annually commencing in
1995 at $8.75 million increasing to $16.0 million in 2003. The Bank
Facility agreement includes certain restrictive covenants including
limitations on advances or dividends to Triarc exclusive of permitted
payments which include, among others, $45.0 million for cash dividends
to Triarc (of which $40.0 million was paid to Triarc in October 1994)
and $30.0 million to provide a portion of the funds to repay the 11
7/8% Debentures. In connection with the Bank Facility, National
Propane redeemed prior to maturity 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"). An
extraordinary charge of $1.8 million resulted from such redemption
which will be recorded during the fourth quarter of 1994. Should the
Company utilize the aforementioned portion of the Bank Facility which
availability is conditioned upon the early retirement of the 11 7/8%
Debentures, the Company 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 and the proposed Acquisition of LJS, for the fourth quarter of
1994 consist of debt principal payments of $53.2 million (including the
redemption prior to maturity of the $49.0 million principal amount of
the 13 1/8% Debentures), capital expenditures of $28.0 million to the
extent not leased or otherwise financed, up to $9.5 million for
consummated and committed acquisitions and funding for additional
acquisitions, if any, and a $4.8 million payment made in October 1994
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 September 30, 1994,
amounted to $46.8 million, borrowings available under the Bank
Facility, $6.5 million of estimated proceeds to be received from the
sale of the cold storage operation (the remaining unsold SEPSCO
discontinued operation), cash flows from operations and financing a
portion of its capital expenditures through capital leases (up to an
allowable additional $8.9 million at RCAC) and operating lease
arrangements. The Company believes such cash resources should be
sufficient to meet such cash requirements, without considering any
requirements for the Acquisition of LJS. 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 nine months ended September 30, 1994 the Company had net
cash and cash equivalents used in operations of $23.5 million; the
principal causes of which were previously discussed. The Company
anticipates positive cash flows from operations in the fourth quarter
of 1994. This results from the seasonality of the Company's LP gas
operations and the fact that a significant portion of the negative
effect of the changes in operating assets and liabilities on cash flows
during the first three quarters are not expected to recur in the fourth
quarter principally due to the timing of interest payments.
Triarc is a holding company whose ability to meet its cash requirements
is primarily dependent upon cash flows from its subsidiaries including
loans and cash dividends 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.
Under the terms of the various indentures, the subsidiaries were
prevented from paying dividends to Triarc except for the following.
Under the terms of its Bank Facility entered into effective October 7,
1994, National Propane was limited in its ability to pay dividends or
make advances to Triarc or its affiliates. After a permitted $40.0
million dividend to Triarc on October 7, 1994, as of that date National
Propane was permitted to pay cash dividends of up to $5.0 million.
SEPSCO may make loans or advances to Triarc and its subsidiaries. If
and when the transfer of Public Gas to National Propane is consummated,
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.
As of September 30, 1994, Triarc had outstanding external indebtedness
consisting of a $36.6 million note (including interest capitalized as
additional principal of $2.4 million) issued in connection with the
commutation of certain insurance obligations. In addition, Triarc owed
subsidiaries an aggregate principal amount of $218.9 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 $69.8 million of advances owed
to National Propane (which bear interest at 16.5% per annum) and $26.5
million remaining on a note payable to SEPSCO (which bears interest at
13% per annum) and $4.0 million under a credit arrangement with SEPSCO
(which bears interest at 1 1/4% over prime).
Triarc expects its significant cash requirements for the remainder of
1994 will be limited to general corporate expenses including cash
requirements for its facilities relocation and corporate restructuring
accruals of $1.1 million (with the remaining $20.6 million of such
accruals, including approximately $12.0 million for rent payments on
the Company's former corporate headquarters for the remaining lease
period through April 1997 representing amounts to be paid or liquidated
principally in 1995 (although the Company currently only has an
extension of the due date of such payment to December 15, 1994)).
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 ($1.6 million at
September 30, 1994), the October 7, 1994 $40.0 million dividend from
National Propane, 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.
Contingencies
The Company is contingently liable for claims alleged in bankruptcy
proceedings and certain environmental matters which are described in
detail in Note 10 to the condensed consolidated financial statements.
PAGE
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
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. The closing of this transaction is subject to
customary conditions and is scheduled to take place on or prior to
November 30, 1994, on substantially the same terms as set forth in
the Letter of Intent. In addition, on August 31, 1994 Southeastern
Gas Company, a wholly-owned subsidiary of SEPSCO, sold
substantially all of the assets of SEPSCO's oil and gas business to
Eastern States Oil & Gas, Inc. for $17.0 million in cash (subject
to certain post-closing adjustments).
On October 7, 1994 National Propane entered into a $150.0 million
revolving credit and term loan agreement with a group of banks (the
"Bank Facility"). The Bank Facility consists of a $40.0 million
revolving credit facility and three tranches of term loans
aggregating $110.0 million.
The registrant has been informed of an environmental action. See
Note 10 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 August 31,
1994 with respect to the closing on such date of the sale
of the operating assets of the registrant's natural gas and
oil business to Eastern States Oil & Gas, Inc.
The registrant filed a report on Form 8-K on September 20,
1994 with respect to the registrant's entering into a
merger agreement on such date with Long John Silver's
Restaurants, Inc. ("LJS") whereby a subsidiary of the
registrant will be merged with and into LJS.
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIARC COMPANIES, INC.
By: /S/ JOSEPH A. LEVATO
____________________________________
Joseph A. Levato
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
Date: November 14, 1994 By: /S/ FRED H. SCHAEFER
___________________________________
Fred H. Schaefer
Vice President and
Chief Accounting Officer
(Principal accounting officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included in the accompanying
Form 10-Q of Triarc Companies, Inc. for the nine-month period ended
September 30, 1994 and is qualified in its entirety by reference to such
Form 10-Q.
</LEGEND>
<CIK> 0000030697
<NAME> TRIARC COMPANIES, INC.
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