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[Logo]
TRIARC COMPANIES, INC.
TRANSITION REPORT/FORM 10-K
FOR THE TRANSITION PERIOD FROM MAY 1, 1993 TO DECEMBER 31, 1993
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'ARBY'S,' 'RC COLA,' 'DIET RC,' 'ROYAL CROWN,' 'DIET RITE,' 'NEHI,'
'UPPER 10,' 'KICK,' 'NATIONAL PROPANE' AND 'GRANITEVILLE' ARE REGISTERED
TRADEMARKS OF TRIARC COMPANIES, INC. OR ITS SUBSIDIARIES.
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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED __________________________.
OR
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM MAY 1, 1993 TO DECEMBER 31, 1993
COMMISSION FILE NUMBER 1-2207
------------------------
TRIARC COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C>
OHIO 38-0471180
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
777 SOUTH FLAGLER DRIVE, SUITE 1000E 33401
WEST PALM BEACH, FLORIDA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 407/653-4000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - -------------------------------------------------------------- --------------------------------------------------------------
<S> <C>
Class A Common Stock, $.10 par value New York Stock Exchange
Pacific Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the outstanding shares of the registrant's
Class A Common Stock (the only class of the registrant's voting securities) held
by non-affiliates of the registrant was approximately $375,031,000 as of April
14, 1994. There were 24,056,732 shares of the registrant's Class A Common Stock
and no shares of the registrant's Class B Common Stock outstanding as of April
14, 1994.
________________________________________________________________________________
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Triarc Companies, Inc. ('Triarc') is engaged in four core businesses: soft
drink, fast food, textiles and liquefied petroleum gas. The soft drink
operations are conducted through Royal Crown Company, Inc. ('Royal Crown'),
formerly known as Royal Crown Cola Co., Inc.; the fast food operations are
conducted through Arby's, Inc. ('Arby's'); the textile operations are conducted
through Graniteville Company ('Graniteville'); and the liquefied petroleum gas
operations are conducted through National Propane Corporation ('National
Propane') and Public Gas Company ('Public Gas'), a subsidiary of Southeastern
Public Service Company ('SEPSCO') (National Propane and Public Gas are
collectively referred to herein as the 'LP Gas Companies'). For information
regarding the revenues and operating profit for Triarc's four core businesses
for the fiscal year ended April 30, 1993 ('Fiscal 1993') and during the eight
month transition period from May 1, 1993 through December 31, 1993 ('Transition
1993'), see 'Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations' and Note 26 to the Consolidated Financial Statements
of Triarc Companies, Inc. and Subsidiaries (the 'Consolidated Financial
Statements'). In addition, Triarc, through a number of direct and indirect
subsidiaries, is also currently engaged in a number of non-core businesses,
substantially all of which it intends to dispose of or liquidate as part of its
business strategy. See 'Item 1. Business -- General -- Discontinued and Other
Operations.'
Triarc was incorporated in Ohio in 1929. Triarc's principal executive
offices are located at 777 South Flagler Drive, Suite 1000E, West Palm Beach,
Florida 33401 and its telephone number is (407) 653-4000.
NEW OWNERSHIP AND EXECUTIVE MANAGEMENT
On April 23, 1993, DWG Acquisition Group, L.P. ('DWG Acquisition'), a
Delaware limited partnership the sole general partners of which are Nelson Peltz
and Peter W. May, acquired shares of Triarc common stock from Victor Posner
('Posner') and certain entities controlled by Posner (together with Posner, the
'Posner Entities'), representing approximately 28.6% of Triarc's then
outstanding common stock. As a result of such acquisition and a series of
related transactions which were also consummated on April 23, 1993
(collectively, the 'Equity Transactions'), the Posner Entities no longer hold
any shares of voting stock of Triarc or any of its subsidiaries. Concurrently
with the consummation of the Equity Transactions, Triarc refinanced a
significant portion of its high cost debt in order to reduce interest costs and
to provide additional funds for working capital and liquidity purposes (the
'Refinancing'). Following the consummation of the Equity Transactions and the
Refinancing, the Boards of Directors of each of Triarc and SEPSCO installed a
new corporate management team, headed by Nelson Peltz and Peter W. May, who were
elected Chairman and Chief Executive Officer and President and Chief Operating
Officer, respectively, of each of Triarc and SEPSCO. In addition, Leon Kalvaria
was elected Vice Chairman of each of Triarc and SEPSCO. The Triarc Board of
Directors also approved a plan to decentralize and restructure Triarc's
management (the 'Restructuring'). The Equity Transactions, the Refinancing and
the Restructuring are collectively referred to herein as the 'Reorganization.'
BUSINESS STRATEGY
New executive management has developed a business strategy intended to
address Triarc's past inability to attract strong operating management, lack of
focused advertising and marketing programs, and failure to make sufficient
investments in capital projects. The key elements of this business strategy
include (i) focusing Triarc's resources on the four core businesses -- soft
drink, fast food, textiles and liquefied petroleum gas, (ii) building strong
operating management teams for each of the core businesses, and permitting each
of these teams to operate in a newly decentralized environment, (iii) providing
strategic leadership and financial resources to enable the management teams to
develop
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and implement specific, growth-oriented business plans and (iv) rationalizing
Triarc's organizational structure by eliminating minority interests and settling
previously outstanding shareholder litigation.
The new chief executive officers of Triarc's four core businesses, three of
whom came from outside Triarc, have developed and begun to implement individual
plans focused on increasing revenues and improving operating efficiency. In
addition, Triarc expects to undertake, and is actively pursuing, acquisitions
and business combinations to augment the four core businesses and dispositions
of the non-core businesses. The implementation of Triarc's business strategy is
expected to result in significant increases in expenditures for, among other
things, capital projects and acquisitions and, over time, marketing and
advertising. To provide liquidity to finance these expenditures and to reduce
interest costs, Triarc refinanced a significant portion of its high cost debt
during calendar 1993. See 'Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
The first steps of this strategic program have already been taken,
including:
In late April 1993, new chief executive officers were appointed for
each of Triarc's four core businesses. Three of these officers came
from outside Triarc: John C. Carson (Royal Crown) who is the former
President of Cadbury Beverages, North America; Donald L. Pierce
(Arby's) who is the former President of Denny's and Kentucky Fried
Chicken -- International; and Ronald Paliughi (National Propane) who
is a former senior officer of AmeriGas. In addition, Harold D.
Kingsmore, who was previously chief operating officer of
Graniteville, was named chief executive officer of Graniteville.
As part of the Refinancing, Graniteville entered into a credit
facility (the 'Graniteville Credit Facility') which provided
Graniteville with an $80 million term loan and $100 million revolving
credit facility (of which $11.0 million was available at December 31,
1993). The Graniteville Credit Facility, together with Graniteville's
operating cash flow, provides liquidity to fund Graniteville's
working capital and capital expenditure requirements.
In August 1993, RC/Arby's Corporation ('RCAC'), which is the parent
of Royal Crown and Arby's and the name of which was formerly Royal
Crown Corporation, sold $275 million aggregate principal amount of
its 9 3/4% Senior Secured Notes Due 2000 (the '9 3/4% Notes'). A
portion of the proceeds from this financing was used to redeem $225
million aggregate principal amount of RCAC's Senior Secured Step-Up
Notes Due 2000 (the 'Step-Up Notes'). As of December 31, 1993, RCAC
had cash on hand of approximately $55.2 million to fund certain of
Royal Crown's and Arby's strategic programs.
Triarc reduced its corporate staff from more than 200 to less than
100 employees. At the same time, each of Royal Crown, Arby's and
National Propane strengthened its own management team.
In October 1993, SEPSCO's utility and municipal services business
segment was sold. After the payment of the outstanding balance of
$24.5 million of related capitalized leases on the closing date of
the sale, and setting aside amounts for taxes, transaction expenses
and related matters, the disposition of this business segment
increased Triarc's net cash available for investment in the four core
businesses by approximately $37.1 million.
In January 1994, Triarc disposed of its 58.6% interest in Wilson
Brothers ('Wilson'), a company engaged in the specialty decoration of
glass and ceramic items and the design, manufacture and servicing of
overhead industrial cranes. In February 1994, Triarc sold its lamp
manufacturing business to certain members of operating management for
$5.5 million in cash and a note in the principal amount of $0.5
million.
In April 1994, SEPSCO sold to Southwestern Ice, Inc. ('Southwestern
Ice') substantially all of the assets of the ice manufacturing and
distribution portion of SEPSCO's refrigeration services and products
businesses (the 'Ice Business') for $5.0 million in cash,
approximately $4.3 million principal amount of subordinated secured
notes due on the fifth anniversary of the sale and the assumption by
Southwestern Ice of certain current liabilities and certain
environmental liabilities.
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Triarc is proceeding with its plans to sell or discontinue
substantially all of its remaining non-core businesses, including the
cold storage business of SEPSCO and the ownership of certain
grapefruit groves.
Triarc's corporate headquarters and the headquarters of three of its
four core businesses have been relocated to more modern and efficient
office space.
The estimated costs associated with substantially all of these actions were
reflected in Triarc's results of operations for Fiscal 1993 or Transition 1993.
See 'Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations' and Note 25 to the Consolidated Financial Statements.
SEPSCO SETTLEMENT
On April 14, 1994, a newly-formed wholly-owned subsidiary of Triarc merged
into SEPSCO (the 'SEPSCO Merger'), and in the SEPSCO Merger, each share of
common stock of SEPSCO outstanding immediately prior to the time the SEPSCO
Merger became effective (other than shares which were held by Triarc or a
subsidiary of Triarc) was converted into the right to receive 0.8 of a share of
Class A Common Stock. As a result of the SEPSCO Merger, Triarc owns 100% of each
of its core businesses.
The SEPSCO Merger was structured to satisfy SEPSCO's obligations under an
agreement which settled a lawsuit brought derivatively on behalf of SEPSCO
against Triarc and certain other defendants which was pending before the United
States District Court for the District of Florida. That litigation was the only
stockholder litigation brought against Triarc and its former management which
was still pending. As a result of the SEPSCO Merger, the district court will
permanently bar and enjoin the institution and prosecution of all claims arising
out of or in any way relating to the SEPSCO litigation against Triarc and
certain of its affiliates.
CHANGE IN FISCAL YEAR
On October 27, 1993, Triarc announced that it was changing its fiscal year
end from April 30 of each year to December 31 of each year effective with the
transition period ended December 31, 1993 and that each of its subsidiaries that
did not currently have a December 31 fiscal year end would also change its
fiscal year end to December 31 effective for the transition period ended
December 31, 1993. Accordingly, this Form 10-K report relates to Transition
1993. References in this Form 10-K to a year preceded by the word 'Fiscal' refer
to the twelve months ended April 30 of such year. In addition, references herein
to financial information of Triarc's subsidiaries refer to such financial
information as reflected in the Consolidated Financial Statements. See Note 2 to
the Consolidated Financial Statements.
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ORGANIZATIONAL STRUCTURE
The following chart sets forth the organizational structure of Triarc,
excluding certain non-core businesses that are in the process of being disposed
of or discontinued. As a result of the SEPSCO Merger, Triarc directly or
indirectly owns 100% of each of its core businesses.
[ORGANIZATIONAL CHART]
BUSINESS SEGMENTS
SOFT DRINK (ROYAL CROWN)
Royal Crown produces concentrates used in the production of soft drinks
which are sold domestically and internationally to independent, licensed
bottlers who manufacture and distribute finished beverage products. Royal
Crown's major products have strong brand recognition and include: RC COLA, DIET
RC COLA, DIET RITE COLA, DIET RITE flavors, NEHI, UPPER 10 and KICK. In
addition, Royal Crown is the exclusive supplier of proprietary cola concentrate
to Cott Corporation ('Cott') which sells private label soft drinks to major
retailers such as Wal-Mart, A&P and Safeway.
Royal Crown is the third largest national brand cola and is the only
national brand cola available to non-Coca-Cola and non-Pepsi-Cola bottlers. DIET
RITE is available in a cola as well as various other flavors and formulations
and is sugar-free (sweetened with 100% aspartame, an artificial sweetener),
sodium-free and caffeine-free. It is the only national brand sodium-free soft
drink on the market. DIET RC COLA is the low-calorie version of RC COLA
containing aspartame as its sweetening agent. NEHI is a line of approximately 20
flavored soft drinks, UPPER 10 is a lemon-lime soft drink and KICK is a citrus
soft drink. Royal Crown's share of the overall domestic carbonated soft drink
market was approximately 2.2% in 1993 according to The Maxwell Consumer Report.
Royal Crown's soft drink brands have a share of national supermarket sales of
approximately 2.9%, as measured by Nielsen Marketing Research.
John C. Carson joined Royal Crown on May 10, 1993 as President and Chief
Executive Officer. Prior to joining Royal Crown, Mr. Carson was President of
Cadbury Beverages, North America, where
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he worked with a bottling network of approximately 900 bottlers, including many
existing Royal Crown bottlers. Mr. Carson has over 25 years of experience in the
beverage business, including positions in sales, marketing and administration.
Since joining Royal Crown, Mr. Carson has hired key senior finance, marketing
and operations executives to form the nucleus of Royal Crown's management team.
BUSINESS STRATEGY
Royal Crown's new management believes that Royal Crown's products continue
to enjoy significant brand recognition. Royal Crown's new management also
believes that the full potential of the Royal Crown franchise, however, has not
been realized due to unfocused spending on marketing and advertising,
inefficient product distribution, and generally poor relationships between Royal
Crown and its bottlers. Furthermore, Royal Crown's new management believes that
there is an opportunity for Royal Crown to address these issues, and increase
sales and earnings, through a newly formulated business strategy. The key
elements of this strategy include:
More Effective Advertising and Marketing: The principal determinant
of success in the industry is the ability to establish a recognized
brand name, the lack of which serves as the industry's primary
barrier to entry. Historically, the marketing expenditures of Royal
Crown and its bottlers have emphasized couponing and sponsorship of
local and regional sporting events rather than coordinated media
spending that reinforces the image of the brands across markets.
Royal Crown's management intends to increase its 1994 marketing
budget by approximately $4 million and to reallocate $14 million of
this increased budget to media advertising and regional promotions,
including a new advertising and marketing campaign developed by a
recently hired outside advertising agency.
Improved Bottler Relationships: Senior management of Triarc and Royal
Crown are working to develop a long-term partnership with Royal
Crown's bottlers. Royal Crown's management believes that the
implementation of the new advertising and marketing program described
above will encourage the bottlers to increase their own marketing
expenditures, as well as coordinate promotional activity more closely
with Royal Crown. Finally, Royal Crown is actively pursuing
arrangements with Cott that could lead to an increase in private
label bottling by the Royal Crown bottling network.
Expansion of Private Label Business: The domestic market share of
private label soft drinks has increased rapidly in the past several
years reflecting the emphasis of many retailers on the development
and marketing of quality store brand merchandise at competitive
prices. Private label sales to Cott represent the fastest growing
segment of Royal Crown's business, with unit sales to Cott more than
doubling from Fiscal 1992 to Fiscal 1993. Unit sales to Cott during
Transition 1993 exceeded such sales for Fiscal 1993. In January 1994,
Royal Crown and Cott agreed on terms of a new worldwide concentrate
supply contract ('Cott Worldwide Agreement'), which will supersede
the current supply contract with Cott. Under the Cott Worldwide
Agreement, Royal Crown will be Cott's exclusive worldwide supplier of
cola concentrates for retailer-branded beverages in various
containers. In addition, wherever possible, Royal Crown will also
supply Cott's requirements for non-cola carbonated soft drink
concentrates. Royal Crown's management believes that the Cott
Worldwide Agreement will benefit Royal Crown significantly by both
expanding the markets for which Royal Crown is Cott's exclusive
supplier of cola concentrates, and significantly increasing the
portion of Cott's requirements for non-cola carbonated soft drink
concentrates which are supplied by Royal Crown.
Improved Distribution in Key Channels: Based on independent market
research, Royal Crown's management believes that better distribution
of Royal Crown products in the key 'take home' channels (such as food
stores and drug stores) will increase the market share of Royal
Crown's brands. Royal Crown is beginning to provide bottlers with
timely and reliable market information to identify retailers that do
not distribute Royal Crown products and to monitor the inventory
positions of the various Royal Crown brands in stores where the
products are currently distributed to limit out-of-stock positions.
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New Channels of Distribution: Royal Crown's management believes that
distribution of Royal Crown brands through vending machines and
convenience outlets (such as convenience stores and retail gas
mini-markets) can be expanded significantly. This strategy has been
implemented by arranging for the leasing of approximately 9,300
vending machines and the subleasing of this equipment to bottlers to
encourage service of convenience outlets. In addition as part of this
strategy, Royal Crown is also considering a program for the leasing
of cold storage boxes and the subleasing of them to bottlers to
further encourage such service.
International Expansion: While the financial and managerial resources
of Royal Crown have initially been focused on the United States and
Canada, Royal Crown's management believes that there are significant
opportunities to increase the international penetration of Royal
Crown's brands. In those countries where Royal Crown brands are
currently distributed, Royal Crown has provided limited advertising
support due to capital constraints. Royal Crown's brands have not yet
been distributed in a number of major international markets,
including Chile and Brazil in Latin America, Hong Kong and China in
the Far East and Russia, Poland, Spain and Portugal in Europe. To
support expansion in these markets, new managers have been added for
Latin America and Europe, and outside consultants hired for the
countries of the former Soviet Union. These markets are currently
targeted for development during 1994.
Acquisitions: Royal Crown's management is actively seeking to expand
market share through the acquisition of additional soft drink product
lines. Royal Crown's management believes that providing additional
product lines and nationally recognized soft drink brands will assist
Royal Crown in strengthening its relationships with its bottlers and
allow Royal Crown to leverage its marketing and administrative
activities.
INDUSTRY
Soft drinks constitute one of the largest consumer food and beverage
categories in the United States, with retail sales of approximately $50 billion
in calendar 1993 as measured by Jesse Meyers' Beverage Digest. Trends affecting
the soft drink industry in recent years have included the growth of consumer
demand for diet soft drinks, the increased market share of private label soft
drinks, and the recent introduction of 'new age' beverages. In calendar 1993,
diet drinks represented approximately 29.1% of the soft drink market, compared
to approximately 19% in 1981. The share of the cola category of soft drink sales
in all food stores, as measured by Nielsen Marketing Research, declined from
61.3% in calendar 1989 to 59.2% in 1993. This decline is attributable in large
part to the decline in sales of sugar-sweetened cola drinks, whose share
declined from 41.0% in calendar 1989 to 38.6% in 1993, while the share of diet
cola drinks over the period remained stable at approximately 20.6%. Royal
Crown's management believes that the market share of private label soft drinks,
as measured by Nielsen Marketing Research, increased from approximately 7.2% in
calendar 1989 to approximately 11.1% in 1993, reflecting the expansion in sales
of private label products generally as retailers have placed increased emphasis
on the development and marketing of quality store brand merchandise at
competitive prices. Royal Crown's management believes that the share of 'new
age' beverages (such as carbonated fruit drinks, natural sodas and seltzers,
sports drinks and iced teas) in the soft drink market is currently approximately
7.5% in terms of volume and will continue to increase at the expense of
traditional soft drinks.
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PRODUCTS
The following chart sets forth Royal Crown's product mix of branded
products for Fiscal 1993 and Transition 1993:
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FISCAL 1993 TRANSITION 1993
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UNITS OF UNITS OF
BRANDED PRODUCT CONCENTRATE* PERCENTAGE CONCENTRATE* PERCENTAGE
- - ------------------------------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Royal Crown...................................... 689,952 55% 451,276 55%
Diet Rite Cola................................... 321,604 26 194,423 24
Nehi............................................. 100,448 8 73,143 9
Diet Rite Flavors................................ 88,304 7 52,772 7
Diet RC.......................................... 31,836 2 16,842 2
Others........................................... 23,836 2 26,387 3
------------ --- ------------ ---
Total.................................. 1,255,980 100% 814,843 100%
------------ --- ------------ ---
------------ --- ------------ ---
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- - ------------
* One domestic unit equals concentrate sufficient to produce an average of 144
cases, each consisting of 24 eight-ounce containers, of finished product.
ADVERTISING AND MARKETING
The principal determinant of success in the soft drink industry is the
ability to establish a recognized brand name, the lack of which serves as the
industry's primary barrier to entry. Advertising, promotions and marketing
expenditures in Fiscal 1992, Fiscal 1993 and Transition 1993 were $51.0 million,
$54.6 million and $54.0 million, respectively. However, Royal Crown historically
focused a large proportion of these expenditures on local and regional sporting
event sponsorship, couponing and in-store/point of sale promotions. In addition,
media spending was not well-coordinated across regions or with the timing of
bottler promotions. Royal Crown believes that, in spite of unfocused advertising
spending over the last several years, its products continue to enjoy nationwide
brand recognition.
Royal Crown's management intends to increase its 1994 marketing budget by
approximately $4 million and to reallocate $14 million of this increased budget
to media advertising and regional promotions. In August 1993, Royal Crown hired
GSD&M Advertising to produce and coordinate new media advertising campaigns for
both regional and national distribution and to coordinate these campaigns with
Royal Crown's bottlers, which campaigns will premiere during April 1994.
ROYAL CROWN'S BOTTLER NETWORK
In addition to highly recognized brands, a strong bottler network is a
critical determinant of the success of a soft drink producer. Analysis of market
share by distributor indicates that a strong bottler can substantially increase
the share of Royal Crown brand products in that bottler's local market.
Therefore, good relations with its bottlers, and a strong bottler network, are
critical factors for Royal Crown. As Royal Crown's relationships with its
bottlers improve, Royal Crown's management believes that its bottlers, the
majority of whom also provide bottling services to other brands, will tend to
focus more on Royal Crown products. This increase in focus on Royal Crown
products is expected to result in increased participation by the bottlers in
cooperative advertising, marketing and promotion activities, as well as added
emphasis on improving shelf space positions for Royal Crown brands with
retailers and closer monitoring of retailer inventory positions, thus reducing
out-of-stock positions.
Royal Crown sells its flavoring concentrates for branded products to
independent franchised bottlers in the United States and 53 foreign countries,
including Canada. Consistent with industry practice, each bottler is assigned an
exclusive territory within which no other bottler may distribute Royal Crown
brand soft drinks. This type of arrangement is designed to help ensure that
Royal Crown has a strong distributor in each market served. As of December 31,
1993, Royal Crown's products were packaged and distributed domestically in 158
franchised territories. There were a total of 61 production and distribution
agreements and 97 distribution only agreements, covering 50 states.
In most localities, licensed Royal Crown bottlers also hold one or more
franchises from other concentrate manufacturers, although Royal Crown bottlers
(like bottlers of Coca-Cola and Pepsi-Cola)
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are not permitted to distribute other colas. Of Royal Crown's 158 franchised
territories, Triarc believes 76 carry Royal Crown as the lead brand, 38 carry
Royal Crown with 'Seven-Up' as the lead brand, 17 carry Royal Crown with 'Dr.
Pepper' as the lead brand, and the remaining 27 are classified as mixed. The
existence of Royal Crown enables non-Coca-Cola and non-Pepsi-Cola bottlers to
offer a full line of branded cola products, better positioning them to compete
with bottlers of Coca-Cola and Pepsi-Cola.
The following table sets forth the percentage of domestic unit sales of
concentrate for branded product accounted for by each of Royal Crown's ten
largest bottler groups during Fiscal 1993 and Transition 1993:
<TABLE>
<CAPTION>
PERCENT OF UNIT SALES
------------------------------
BOTTLER GROUP FISCAL 1993 TRANSITION 1993
- - --------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Chicago Bottling Group..................................................... 22.3% 25.4%
All American Bottling...................................................... 16.1 16.9
Brooks Beverage Management Inc............................................. 7.2 8.3
7UP/RC Bottling of Southern California..................................... 7.0 8.0
RC Bottling Co. -- Evansville, IN.......................................... 3.7 4.0
Mid-Continent Bottlers..................................................... 2.9 3.5
Kalil Bottling-Arizona..................................................... 2.7 3.4
Dr. Pepper Bottling-Texas.................................................. 2.3 2.7
Beverage Properties Inc.................................................... 2.2 2.4
Bland Group................................................................ 1.9 2.3
----- -----
Total............................................................ 68.3% 76.9%
----- -----
----- -----
</TABLE>
Royal Crown enters into a license agreement with each of its bottlers which
it believes is comparable to those prevailing in the industry. Royal Crown
periodically sets a uniform price list for concentrate for all of its licensed
bottlers. The length of the license agreements vary, but Royal Crown may
terminate any such agreement in the event of a material breach of the terms
thereof by the bottler that is not cured within a specified period of time.
The license agreements require producing bottlers to manufacture Royal
Crown soft drinks in strict accordance with the standards, formulae and
procedures established by Royal Crown and to package the products in containers
specified by Royal Crown. Each bottler is obligated to operate within its
exclusive territory with adequate manufacturing, packaging and distribution
capability to produce and distribute sufficient quantities of Royal Crown
products to meet consumer demand in the territory and to maintain an inventory
of Royal Crown products sufficient to supply promptly the reasonably foreseeable
demand for such products. Bottlers that operate distribution facilities and do
not operate production facilities purchase Royal Crown products from producing
bottlers.
Total concentrate sales in the New York City region declined by
approximately 39,000 units (69%), from 4.1% to 1.5% of total domestic
concentrate sales, between 1989 and 1993. This decrease was attributable to the
bankruptcy of one of the two Royal Crown bottlers in the region and the
liquidation of the other. Royal Crown entered into license agreements with two
new bottlers in the New York City region in December 1991. Sales in the New York
City region were approximately 18,500 units during 1993, representing an
increase of approximately 4% from the 17,800 units sold during 1992. The market
share in the New York City region of the Royal Crown brands, as measured in a
survey of supermarket sales conducted by Nielsen Marketing Research, has
increased from 1.0% in 1992 to 1.2% in 1993. There can be no assurance, however,
that these agreements will continue to result in Royal Crown restoring lost
market share in the New York City region.
PRIVATE LABEL
Royal Crown believes that private label sales through Cott represent a
growth opportunity due to the increased emphasis by national retailers on the
development and marketing of quality store brand merchandise at competitive
prices. Royal Crown's private label sales began in late 1990 and grew, as Cott's
business has expanded, from approximately 309,000 units of concentrate in Fiscal
1992 to approximately 623,000 units in Fiscal 1993 and approximately 798,000
units in Transition 1993. Although unit volume of private label sales increased
significantly, the effect of the volume increase on revenues
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was substantially offset by Cott's decision to purchase a component (aspartame)
of Royal Crown's soft drink concentrate directly from the supplier during
Transition 1993 rather than from Royal Crown, thereby reducing the sales price
of concentrate to that customer. Thus, in Fiscal 1993 and Transition 1993,
revenues from sales of private label concentrate to Cott represented
approximately 10.6% and 10.9%, respectively, of Royal Crown's total revenues.
Royal Crown is currently providing concentrate to Cott pursuant to a five-year
contract (the 'Current Cott Agreement') under which Royal Crown is Cott's
exclusive supplier of cola concentrates for private label and Cott's proprietary
label soft drinks in the United States and Canada.
In January 1994, Royal Crown and Cott agreed on the terms of the Cott
Worldwide Agreement, which will supercede the Current Cott Agreement. Under the
Cott Worldwide Agreement, Royal Crown will be Cott's exclusive worldwide
supplier of cola concentrates for retailer-branded beverages in various
containers. In addition, wherever possible, Royal Crown will also supply Cott's
requirements for non-cola carbonated soft drink concentrates. The Cott Worldwide
Agreement requires that Cott purchase at least 75% of its total worldwide
requirements for carbonated soft drink concentrates from Royal Crown. The
initial term of the Cott Worldwide Agreement is 21 years, with multiple six-year
renewable terms.
Cott delivers the private label concentrate and packaging materials to
independent bottlers for bottling. The finished private label product is then
shipped to Cott's trade customers, including major retailers such as Wal-Mart,
A&P and Safeway. The Cott Worldwide Agreement provides that, so long as Cott
purchases a specified minimum number of units of private label concentrate in
each year of the Cott Worldwide Agreement, Royal Crown will not manufacture and
sell private label carbonated soft drink concentrates to parties other than Cott
anywhere in the world.
Through its private label program, Royal Crown develops new concentrates
specifically for Cott's private label accounts. The proprietary formulae Royal
Crown uses for its private label program are customer specific and differ from
those of Royal Crown's branded products. Royal Crown works with Cott to develop
a concentrate according to each trade customer's specifications. Royal Crown
retains ownership of the formulae for such concentrates.
Gross margins for private label sales are lower than those for branded
sales. However, since most advertising and marketing expenses and general and
administrative expenses are not attributable to private label sales, resulting
net operating margins for branded sales become lower than those for private
label sales, despite the fact that net operating profits for branded sales
remain higher than those for private label sales on a per-case basis.
PRODUCT DISTRIBUTION
Bottlers distribute finished product through four major distribution
channels: take home (consisting of food stores, drug stores, mass merchandisers,
warehouses and discount stores); convenience (consisting of convenience stores
and retail gas mini-markets); fountain/food service (consisting of fountain
syrup sales and restaurant single drink sales); and vending (consisting of
bottle and can sales through vending machines). The take home channel is the
principal channel of distribution for Royal Crown products.
In recent years, Royal Crown's products have experienced excessive
out-of-stock positions at retail outlets. Management believes that providing
timely and reliable market information to the bottlers on the inventory
positions of the retailers in their local markets will allow the bottlers to
anticipate out-of-stocks, and therefore more effectively distribute Royal
Crown's products.
Royal Crown brands are not currently broadly distributed through vending
machines or convenience outlets. In addition to stimulating trial purchases, the
presence of Royal Crown identified vending machines and cold storage boxes
reinforces consumer awareness of the brands. Royal Crown's management,
therefore, arranged for the leasing of approximately 9,300 vending machines and
for the subleasing of this equipment to bottlers to encourage service of
convenience outlets. In addition, as part of this effort to stimulate trial
purchases, Royal Crown is also considering a program for the leasing of cold
storage boxes and the subleasing of them to bottlers to further encourage such
service which will be offered to bottlers at subsidized prices to encourage
service.
9
<PAGE>
INTERNATIONAL
Sales outside the United States accounted for approximately 13.0% of Royal
Crown's sales in Transition 1993 and an average of 7.1% for the five fiscal
years from 1989 through 1993. As of December 31, 1993, 68 bottlers and 12
distributors sold Royal Crown brand products outside the United States in 53
countries, with international sales in Transition 1993 distributed among Canada
(47%), Latin America and Mexico (11.8%), Europe (21.1%), the Middle East/Africa
(15.0%) and the Far East (5.1%). Historically, Royal Crown has had limited
managerial or financial resources making it difficult for Royal Crown to support
its brands outside of the United States. Royal Crown brands have not yet been
distributed in a number of major international markets, including Chile and
Brazil in Latin America, Hong Kong and China in the Far East and Russia, Poland,
Spain and Portugal in Europe. To support expansion in these markets, new
managers have been added for Latin America and Europe, and outside consultants
hired for the countries of the former Soviet Union. These markets are currently
targeted for development during 1994.
PRODUCT DEVELOPMENT AND RAW MATERIALS
Royal Crown believes that it has a reputation as an industry leader in
product innovation. Royal Crown introduced the first national brand diet cola in
1961. The DIET RITE flavors line was introduced in 1988 to complement the cola
line and to target the non-cola segment of the market, which has been growing
faster than the cola segment due to a consumer trend toward lighter beverages.
Flavoring ingredients and sweeteners for sugar-sweetened soft drinks are
generally available on the open market from several sources. However, aspartame,
the sweetener currently preferred by consumers of diet soft drinks, was until
recently subject to a patent held by The NutraSweet Company, a division of
Monsanto Company. The NutraSweet Company was the only supply source for
aspartame in the United States until December 1992, when its patent for
aspartame expired. The price of aspartame declined in 1993. The reduced cost of
aspartame has improved Royal Crown's gross margin.
FAST FOOD (ARBY'S)
Arby's is the world's largest franchise restaurant system specializing in
roast beef sandwiches with an estimated market share in 1993 of 65.1% of the
roast beef sandwich segment of the quick service restaurant category. In
addition, the Company believes that Arby's is the 14th largest restaurant chain
in the United States, based on domestic system-wide sales. As of December 31,
1993, Arby's restaurant system consisted of 2,682 restaurants, of which 2,531
operated within the United States and 151 operated outside the United States. As
of December 31, 1993, Arby's owned and operated 259 units and the remaining
units were owned and operated by franchisees. At December 31, 1993, all
restaurants outside the United States were franchised. System-wide sales were
approximately $1.5 billion in Fiscal 1993 and approximately $1.1 billion in
Transition 1993.
In addition to its various roast beef sandwiches, Arby's restaurants offer
a broad menu of chicken, submarine and other sandwiches and salads. A breakfast
menu, which consists of croissants with a variety of fillings, is also available
at many Arby's restaurants. The typical Arby's restaurant, however, generates a
substantial amount of its revenues during the lunch hours.
Arby's revenues are derived from three principal sources: (i) sales at
company-owned restaurants; (ii) royalties from franchisees and (iii) one-time
franchise fees from new franchisees. During both Fiscal 1993 and Transition 1993
approximately 78% of Arby's revenues were derived from sales at company-owned
restaurants and approximately 22% were derived from royalties and franchise
fees.
Donald L. Pierce joined Arby's on May 17, 1993 as President and Chief
Executive Officer. Prior to joining Arby's, Mr. Pierce was President of PepsiCo,
Inc.'s Hot 'n Now hamburger chain. Mr. Pierce was President of Kentucky Fried
Chicken -- International from 1988 to 1990 and held a number of senior
management positions at Denny's from 1981 to 1988, including President of
Denny's, Inc. from 1987 to 1988. Mr. Pierce has assembled a management team with
substantial industry experience consisting of both existing Arby's employees and
key additions in marketing and finance from outside Triarc.
10
<PAGE>
BUSINESS STRATEGY
Despite the lack of a chief executive officer responsible solely for Arby's
business and unfocused advertising and marketing programs prior to the
Reorganization, Arby's has maintained consistently high rankings in consumer
awareness surveys and continues to attract new franchisees to its system. In
recent years, however, Arby's opened few company-owned restaurants. As a result,
the number of restaurants in the Arby's system has grown at a slower rate than
other leading fast food chains, which have expanded through both internal growth
and acquisitions. In addition, the lack of attention of prior management to the
operating standards of both company-owned and franchised restaurants, including
significantly reduced capital available for remodeling certain of the
company-owned restaurants, may have resulted in a market perception of declining
quality across the Arby's system.
The new operating management team is developing a business strategy
designed to increase the total number of restaurants in the Arby's system and to
improve the revenues and profitability of the restaurants. The key elements of
this business strategy include:
Accelerated Store Opening Program: Due to capital constraints, Arby's
opened only five company-owned restaurants during Transition 1993. Since
the Reorganization, Arby's has expanded its management team to support an
accelerated program of opening company-owned stores, including
professionals in charge of site analysis and selection, lease negotiation,
and personnel training. Arby's intends to open 20 to 30 new company-owned
restaurants in 1994, and 50 to 60 new restaurants in 1995. From time to
time, Arby's will consider increasing the number of company-owned
restaurants by acquiring restaurants from existing franchisees. For
example, in the first quarter of 1994, Arby's sold 20 company-owned
restaurants to a current franchisee and purchased from the same franchisee
an aggregate of 33 of its franchised restaurants, thereby increasing
Arby's overall number of company-owned restaurants by 13. Through new
store openings and the purchase of franchised restaurants, management
intends to increase the percentage of company-owned restaurants in the
system to 20% over a three to five year period.
Remodeling Program: At the time of the Reorganization, the average
company-owned restaurant had not been renovated or remodeled in
approximately 11 years. Based on the historical experience of Arby's
franchisees, restaurants generally record double-digit increases in sales
in the year after a remodeling. Arby's expects to renovate or remodel
approximately 70 to 80 of its company-owned restaurants per year for each
of the next three years. Certain of the restaurants to be renovated or
remodeled were acquired by Arby's from franchisees.
Expanding the Franchise Network: Arby's management believes that more
effective marketing and advertising, a stronger commitment by Arby's to
building the system through its accelerated store opening program, and the
improvement in the quality of the facilities of the company-owned
restaurants will increase the value of, and demand for, Arby's franchises.
As of December 31, 1993, Arby's had received prepaid commitments for the
opening of up to 402 new domestic franchised restaurants over the next
five years. Management believes that its efforts to improve the value of
the Arby's franchise should result in a significantly higher number of
openings during this time period.
Increasing Operating Efficiency: Arby's management believes that
significant additional operating efficiency can be achieved by (i)
rigorously evaluating the performance of company-owned restaurants and
closing those that do not meet selected profitability criteria, (ii)
requiring more uniformity across its restaurant system to increase
purchasing efficiencies and improve ease and speed of service, and (iii)
installing point-of-sale systems, certain new kitchen equipment and other
labor-saving processes in company-owned restaurants. Arby's closed six
company-owned restaurants during Transition 1993 and expects to close
three additional company-owned restaurants in 1994. In addition,
management anticipates that it will spend approximately $7 to $10 million
in 1994 on new equipment, including point-of-sale terminals, for the
company-owned restaurants.
More Focused Retail-Oriented Marketing: Arby's management believes that
focused advertising and marketing, combined with renewed emphasis on
customer service, will increase consumer awareness of Arby's, improve
customer satisfaction and stimulate repeat visits. Arby's
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<PAGE>
management believes that Arby's historically has over-emphasized the use
of coupons and other promotional efforts, rather than marketing programs
that reinforce consumer recognition of Arby's.
International Expansion: Although Arby's is initially focusing its
resources on expanding the domestic restaurant system, Arby's management
believes that the international network represents a significant long term
growth opportunity. Other than Canada (103 restaurants) and Mexico (15
restaurants), as of December 31, 1993 no foreign country had more than two
Arby's restaurants. Arby's intends to expand the system outside the United
States by opening its first foreign company-owned restaurants and granting
direct franchises in several new international markets. In addition,
management expects increases in the number of restaurants opened under
existing territorial agreements with international franchisees in 33
countries. As of December 31, 1993, Arby's had received prepaid
commitments for the opening of approximately 450 international restaurants
over the next seven years.
Acquisitions: In addition to purchasing franchised restaurants, Arby's
intends to increase the geographic coverage of its system by acquiring
small regional restaurant chains and converting the newly-acquired
locations into Arby's restaurants.
INDUSTRY
The U.S. restaurant industry is highly fragmented, with approximately
400,000 units nationwide. Industry surveys indicate that the 15 largest chains
accounted for approximately 17% of all units and 29% of all industry sales in
1993. According to data compiled by the National Restaurant Association, total
domestic restaurant industry sales were approximately $193 billion in 1993, of
which approximately $80 billion were in the quick service ('QSR') or fast food
segment. In recent years the industry has benefitted as spending in restaurants
has consistently increased as a percentage of total food-related spending.
According to a Standard & Poor's Corporation report dated November 1992 (its
most recent report on the subject), it was estimated that approximately 34% of
all domestic retail food sales in 1992 would be made in restaurants, compared
with approximately 25% in 1970. According to an industry survey, the QSR segment
has been the fastest growing segment of the restaurant industry over the past
five years, with a compounded annual sales growth rate from 1989 through 1993 of
4.5%. The recent recession, however, slowed the rate of growth in restaurant
spending.
ARBY'S RESTAURANTS
The first Arby's restaurant opened in Youngstown, Ohio in 1964. As of
December 31, 1993, Arby's restaurants operated in 49 states, Puerto Rico, the
U.S. Virgin Islands and 14 foreign countries. At December 31, 1993, the five
leading states by number of operating units were: Ohio, with 199 restaurants;
California, with 175 restaurants; Texas, with 158 restaurants; Michigan, with
141 restaurants; and Georgia, with 126 restaurants. Other than Canada (103
restaurants) and Mexico (15 restaurants), as of December 31, 1993 no foreign
country had more than two Arby's restaurants.
The typical company-owned Arby's restaurant in the United States is
approximately 2,570 square feet, including approximately 1,100 square feet
devoted to seating space, approximately 100 square feet to selling space and
approximately 1,370 square feet to kitchen operations and storage. Stores
typically have a manager, assistant manager and as many as 20 full and part-time
employees. Staffing levels, which vary during the day, tend to be heaviest
during the lunch hours.
The following table sets forth the number of company-owned and franchised
Arby's restaurants at December 31, 1991, 1992 and 1993.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1991 1992 1993
----- ----- -----
<S> <C> <C> <C>
Company-owned restaurants........................................ 260 268 259
Franchised restaurants........................................... 2,241 2,335 2,423
----- ----- -----
Total restaurants........................................... 2,501 2,603 2,682
----- ----- -----
----- ----- -----
</TABLE>
12
<PAGE>
Arby's opened only five company-owned restaurants in Transition 1993. Since
the Reorganization, Arby's has expanded its management team to support an
accelerated program of opening company-owned stores, including professionals in
charge of site analysis and selection, lease negotiation and personnel training.
Arby's intends to open 20 to 30 new company-owned restaurants in 1994, and 50 to
60 new restaurants in 1995.
Arby's has begun a program to upgrade the quality of the facilities of its
company-owned restaurants. At the time of the Reorganization, the average Arby's
company-owned restaurant had not been renovated or remodeled in approximately 11
years. The average cost of renovating a restaurant is $70,000, which includes
the cost of new signage, menu boards, seating areas, kitchens and point-of-sale
systems. In addition, Arby's management intends to add drive-through windows in
several of its company-owned restaurants. At December 31, 1993, approximately
200 company-owned restaurants had drive-through facilities. The average cost of
adding a drive-through window in a restaurant is $50,000.
In Fiscal 1991, Arby's purchased 22 poorly performing restaurants from a
franchisee, substantially all of which have been included in the Arby's
remodeling program. Arby's management believes that the acquisition and
remodeling of poorly performing franchised restaurants will enable Arby's to
improve the overall quality of the facilities in the Arby's system.
In the first quarter of 1994, Arby's sold 20 company-owned restaurants in
the Atlanta, Georgia and Portland, Oregon markets to a current franchisee and
purchased from the same franchisee an aggregate of 33 of its franchised
restaurants in the Jacksonville, Florida and Orlando, Florida markets. These
newly-acquired restaurants are in the process of being remodeled and renovated.
The acquisition of the Florida restaurants is part of a plan to increase Arby's
market presence in Florida, Arby's headquarter state, which, in turn, will allow
Arby's to test new products and concepts more effectively.
FRANCHISE NETWORK
At December 31, 1993, there were approximately 500 Arby's franchisees
operating 2,423 separate locations. The initial term of the typical franchise
agreement is 20 years with a 20-year renewal option by the franchisee, subject
to certain conditions. While Arby's management is currently considering
implementing a program to provide financing arrangements to its franchisees, as
of December 31, 1993, Arby's did not offer any financing arrangements to its
franchisees.
The Arby's franchise was ranked by a survey published in Entrepreneur
magazine in January 1994 as one of the top 20 franchises among 500 franchised
businesses, based on a variety of objective criteria of importance to
franchisees. As of December 31, 1993, Arby's had received prepaid commitments
for the opening of up to 402 new domestic franchised restaurants over the next
five years. Arby's has granted territorial agreements with international
franchisees in 33 countries, and at December 31, 1993 had received prepaid
commitments for the opening of approximately 450 international restaurants over
the next seven years. Under the terms of these territorial agreements, many of
the international franchisees have the exclusive right to open Arby's
restaurants in specific regions or countries, as well as to sub-franchise Arby's
restaurants. Management expects that future international franchise agreements
will more narrowly limit the geographic exclusivity of the franchisees and
prohibit sub-franchise arrangements.
Arby's offers franchises for the development of both single and multiple
restaurant locations. All franchisees are required to execute standard franchise
agreements. Arby's standard U.S. franchise agreement provides for, among other
things, an initial $37,500 franchise fee for the first franchised unit and
$25,000 for each subsequent unit and a monthly royalty payment based on 3.5% of
restaurant sales for the first two years from the date of opening of the
franchised unit and 4.0% during the remainder of the term of the franchise
agreement. Franchise agreements effective after February 1, 1994 provide for a
4.0% royalty payment for the entire term of the franchise agreement. As a result
of lower royalty rates still in effect under earlier agreements, the average
royalty rate paid by franchisees at December 31, 1993 was 2.6%. Franchisees
typically pay a $10,000 commitment fee, credited against the franchise fee
referred to above, during the development process for a new restaurant.
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<PAGE>
Franchised restaurants are operated in accordance with uniform operating
standards and specifications relating to the selection, quality and preparation
of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and
cleanliness of premises and customer service. Arby's continuously monitors
franchisee operations and inspects restaurants periodically to ensure that
company practices and procedures are being followed. Management believes that
expanding the number of the company-owned stores and up-grading the quality of
the facilities will enhance the value of an Arby's franchise.
ADVERTISING AND MARKETING
Arby's management believes that focused advertising and marketing can
increase consumer awareness of the system and the quality of its food, service
and facilities. As part of its business strategy, franchisees and Arby's
contribute 0.7% of gross sales to the Arby's Franchise Association ('AFA'),
which produces advertising and promotion materials for the system. Each
franchisee is also required to spend a reasonable amount, but not less than 3%
of its monthly gross sales, for local advertising including their contribution
to a cooperative area advertising program with other franchisees who are
operating Arby's restaurants in the same area. Arby's advertises primarily
through regional television, radio and newspapers. Payment for advertising time
and space is made by the local franchisee, Arby's or both on a shared basis. In
Fiscal 1992 and 1993 and Transition 1993, Arby's expenditures for advertising
and marketing in support of company-owned stores were $14.4 million, $16.2
million and $11.1 million, respectively. Management believes that Arby's has
historically over-emphasized the use of coupons and other promotional efforts,
rather than marketing programs that reinforce consumer recognition of Arby's.
PROVISIONS AND SUPPLIES
Arby's roast beef is provided by four independent meat processors, three of
which have been suppliers to Arby's and its franchisees for more than ten years.
One of such suppliers (Custom Food Products, Best Western Food Division)
provides approximately 40% of the roast beef requirements for Arby's and its
franchisees. Arby's other roast beef suppliers are Multi-Foods Corporation,
Prepared Foods Division (28%), Peck Foods Corporation (16%) and Cargill
Processed Meats, Enge Packing Company (16%). Franchise operators are required to
obtain roast beef from one of the four suppliers. Arby's, through a non-profit
purchasing cooperative ARCOP, Inc. ('ARCOP'), which negotiates contracts with
approved suppliers on behalf of Arby's and its franchisees, is currently
negotiating the renewal of its 'cost-plus' contracts with these suppliers that
expired in August, 1993. While the renewal contracts are being negotiated, the
suppliers continue to provide Arby's with roast beef pursuant to the terms of
the expired contracts. Arby's believes that satisfactory arrangements could be
made to replace any of its current roast beef suppliers, if necessary, on a
timely basis.
Franchisees may obtain other products, including food, beverage,
ingredients, paper goods, equipment and signs, from any source that meets Arby's
specifications. Food, proprietary paper and operating supplies are also made
available to Arby's franchisees through ARCOP.
QUALITY ASSURANCE AND CUSTOMER SERVICE
Arby's has developed a quality assurance program designed to (i) ensure
that each franchised unit adheres to Arby's policies, practices and procedures,
(ii) maintain uniformity among its franchised restaurants and (iii) ensure that
products it receives from its major suppliers meet its high standards for
quality.
Arby's believes that a high level of customer service results in improved
customer satisfaction and, therefore, repeat visits. Arby's has recently
up-graded its employee training programs for company-owned restaurants and
offers similar programs for franchisees, including refresher courses, training
videos and other materials. Management believes that improved customer service
has been an important contributing factor in the 9.2% increase in same store
sales experienced in the twelve months ended December 31, 1993.
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<PAGE>
TEXTILES (GRANITEVILLE)
Graniteville manufactures, dyes, and finishes cotton, synthetic and blended
(cotton and polyester) apparel fabrics. Graniteville produces fabrics for
utility wear including uniforms and other occupational apparel, piece-dyed
fabrics for sportswear, casual wear and outerwear, indigo-dyed fabrics for
jeans, sportswear and outerwear and specialty fabrics for recreational,
industrial and military end-uses. Through its wholly-owned subsidiary, C.H.
Patrick & Co., Inc. ('C.H. Patrick'), Graniteville also produces and markets
dyes and specialty chemicals primarily to the textile industry. Triarc believes
that Graniteville is a leading domestic manufacturer of fabrics for utility
wear, piece-dyed fabrics for sportswear, casual wear and outerwear and
indigo-dyed fabrics used in the production of high-end fashion apparel.
On April 24, 1993, Harold D. Kingsmore, who had been Executive Vice
President and Chief Operating Officer of Graniteville since 1986, became
President and Chief Executive Officer of Graniteville. Mr. Kingsmore has more
than 30 years of experience in the textile industry, and together with the other
members of Graniteville's management team, has been successfully managing
Graniteville's business for more than seven years.
BUSINESS STRATEGY
Graniteville believes that it has a reputation in the textile industry as
both a consistent producer of quality products and an innovator of new products
to meet the changing needs of its customers. The management of Graniteville
intends to continue to implement the following business strategy, focusing its
resources on products and markets where it believes it can obtain a significant
market share. The key elements of the strategy include:
Focus on Innovative, Value-Added Products: Graniteville's products are
high value-added fabrics that require sophisticated manufacturing, dyeing
and finishing techniques. Graniteville maintains its leadership position
in these products by creating new processes that result in special colors
or textures in the case of fashion-oriented fabrics or provide improved
performance characteristics in the case of utility wear.
Maintain Profitability in a Cyclical Industry: Graniteville consistently
purchases unfinished fabrics (known as 'greige goods') from third parties
for its finishing plants to supplement internally manufactured fabrics.
This strategy generally allows Graniteville to reduce purchases of greige
goods during periods of reduced demand while continuously operating its
manufacturing facilities. This strategy also allows Graniteville to
increase purchases during periods of peak demand. As a result of operating
its weaving facilities at consistently high utilization rates, cyclical
fluctuations in demand have less impact on Graniteville's operating
profits than on certain of its competitors. In addition, Graniteville
attempts to minimize its working capital investment through inventory
controls while still allowing efficient scheduling of its manufacturing
facilities and achieving on-time deliveries to customers.
Maintain Quick Response to Customers: Graniteville believes that a key
element of its success has been its ability quickly to develop and produce
innovative, finished fabrics for customers, giving it a competitive
advantage over certain other fabric producers. Quick response time is
particularly valued by customers engaged in fashion-sensitive segments of
the apparel industry. Graniteville's modern, flexible production
facilities enable it to provide this high value-added service in a cost-
effective manner.
Invest Capital in Modern Vertically-Integrated Operations: Graniteville
believes that vertical integration is an essential element of its ability
to produce customized fabrics in a quick and cost-effective manner.
Graniteville has spent $132 million over the seven year period ending
December 31, 1993 to modernize its facilities. Management will continue
its facilities and equipment modernization program to lower production
costs while simultaneously maintaining quality standards.
Expand Dyes and Specialty Chemicals Business: Graniteville's dyes and
specialty chemicals subsidiary, C.H. Patrick, has experienced 10.5%
compound annual growth in revenues over the
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<PAGE>
last five years and is viewed as an innovator in its field. Management
intends to continue to emphasize the development of C.H. Patrick's
products and markets.
PRODUCTS AND MARKETS
Graniteville's principal products are cotton and cotton blended fabrics,
including denim. Fabric styles are distinguished by weave, weight and finishing.
The production of fabric is organized into four product lines based on fabric
type and end-use -- utility wear, piece-dyed fabrics for sportswear, casual wear
and outerwear, indigo dyed fabrics for jeans, sportswear and outerwear and
specialty products. In addition, Graniteville manufactures dyes and specialty
chemicals through C.H. Patrick. Graniteville focuses its resources on products
and markets where it believes it can obtain a significant market share. In each
of its market segments, Graniteville focuses on developing relationships with
those customers with the greatest need for high value added products.
The contribution of each product line and service to Graniteville's total
revenues during Fiscal 1993 and Transition 1993 is set forth below:
<TABLE>
<CAPTION>
PERCENT OF REVENUES
------------------------------
FISCAL 1993 TRANSITION 1993
----------- ---------------
<S> <C> <C>
Utility wear............................................................. 36% 39%
Piece-dyed fabrics for sportswear, casual wear and outerwear............. 26 23
Indigo-dyed fabrics for jeans, sportswear and outerwear.................. 21 22
Specialty products....................................................... 8 7
Dyes and specialty chemicals............................................. 8 8
Other.................................................................... 1 1
--- ---
Total............................................................... 100% 100%
--- ---
--- ---
</TABLE>
Utility Wear: Graniteville believes it is a leading domestic manufacturer
of fabrics for sale to apparel manufacturers that supply utility wear to
industrial laundries for rental to their customers, as well as manufacturers
that sell utility wear on the retail market. In the utility wear market, fabrics
are generally piece-dyed, which means that the fabric is first woven and then
dyed. Utility wear customers require a durable fabric which complies with strict
standards for fitness of use and continuity and retention of color. Graniteville
works closely with its customers in order to develop fabrics with enhanced
performance characteristics. Graniteville's utility wear customers include Red
Kap, Williamson-Dickie, Cintas, Carhartt, Inc., American Uniform, Washable Inc.,
Walls Industries, Perfect Industrial Uniform, Reed Manufacturing and Unifirst.
Piece-dyed Fabrics for Sportswear, Casual Wear and Outerwear: Graniteville
believes it is a leading domestic manufacturer of woven cotton piece-dyed
fabrics that are sold primarily to domestic manufacturers and retailers of
men's, women's and children's sportswear, casual wear and outerwear. Fabrics are
produced for customers in a wide variety of styles, colors, textures and
weights, according to individual customer specifications. Graniteville works
directly with its customers to develop innovative fabric styles and finishes.
Graniteville's piece-dyed sportswear fabric customers include Wrangler, Polo
Ralph Lauren, The Gap, M&F Girbaud, Levi Strauss (Dockers), Liz Claiborne, Henry
I. Siegel Company, Inc. (H.I.S.), Farah, Sun Apparel and I.C. Isaac's.
Indigo-Dyed (Denim) Fabrics for Jeans, Sportswear and Outerwear:
Graniteville believes it is a leading domestic manufacturer of indigo-dyed
fabrics (primarily denim) in a wide range of styles for use in the production of
high-end men's, women's and children's fashion apparel. Graniteville also
produces other indigo-dyed fabrics for jeans, sportswear and outerwear. In the
manufacture of indigo-dyed fabrics, the yarn is dyed before it is woven. This
process results in the distinctive appearance of indigo-dyed apparel fabrics,
noted by variations in color. Graniteville is a leader in the development of new
and innovative colors and styles of weaves and finishes for indigo-dyed fabrics,
and works directly with its customers to produce indigo-dyed fabrics that meet
the changing styles of the contemporary fashion market. Graniteville's
indigo-dyed fabrics customers include The Gap, Guess, Flynn Enterprises, Wilkins
Industries, Stuffed Shirt, Wrangler, Sun Apparel, Levi Strauss, Cherokee Apparel
and Carhartt, Inc.
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Specialty Products: Graniteville produces a variety of fabrics for
recreational, industrial and military end-uses, including coated fabrics for
awnings, tents, boat covers and camper fabrics. The specialty products unit also
dyes customer-owned finished garments, enabling customers to order color
selections, while minimizing inventory risk and meeting short delivery
schedules.
C.H. PATRICK PRODUCTS AND MARKETS
C.H. Patrick develops, manufactures and markets dyes and specialty
chemicals, primarily to the textile industry. During both the twelve month
period ended February 28, 1993 and the eight month period from March 1, 1993
through October 31, 1993, approximately 57% of C.H. Patrick's sales were to
non-affiliated manufacturers, and 43% were to Graniteville. C.H. Patrick's sales
to third parties have increased at a compounded annual rate of 10.5% over the
last three calendar years. Graniteville's management believes that C.H. Patrick
has earned a reputation for producing high quality, innovative dyes and
specialty chemicals.
C.H. Patrick processes dye presscakes and other basic materials to produce
and sell indigo, vat, sulfur and disperse liquid dyes, as well as disperse,
direct and aluminum powder dyes. The majority of C.H. Patrick's dye products are
used in the continuous dyeing of cotton and polyester/cotton blends. C.H.
Patrick also manufactures various textile softeners, surfactants, dyeing
auxiliaries and permanent press resins, as well as several acrylic polymers used
in textile finishing as soil release agents. Most of C.H. Patrick's products
offer higher margins than other product lines of Graniteville.
MARKETING AND SALES
Graniteville's fabrics are marketed and sold by its woven apparel marketing
group which will be moved from its current headquarters in New York City to
Graniteville's headquarters in South Carolina before the end of 1994. The group
also maintains regional sales offices in Boston, Massachusetts; Greensboro,
North Carolina; Greenville, South Carolina; Dallas, Texas; and San Francisco,
California. Independent sales agents in Los Angeles, California and Canada also
market Graniteville's woven apparel products. Graniteville's specialty products
are marketed and sold by the specialty products division. C.H. Patrick markets
and sells its dyes and chemicals through its own sales and marketing department.
MANUFACTURING
Graniteville is a vertically integrated manufacturer, with facilities
capable of converting raw fiber into finished fabrics. Generally, raw fibers are
purchased and spun into yarn, and yarns are either dyed and then woven into
fabrics (as in the case of indigo-dyed fabrics) or woven into fabrics, which are
then dyed according to customer specifications. Graniteville currently operates
four weaving plants, two indigo-dyeing facilities, one piece-dyeing facility,
one coating facility and one garment-dyeing facility, all of which are located
within a fifteen mile radius of Graniteville's headquarters.
Graniteville's piece-dyed dyeing and finishing facilities utilize a wide
range of technologies, highlighted by the use of a sophisticated computer-based
monitoring and control system. This system, which Graniteville believes to be
unique in the industry, allows Graniteville to continuously monitor and control
each phase of the dyeing and finishing process in order to improve productivity,
efficiency, consistency and quality.
Graniteville invested approximately $132 million over the seven year period
ending December 31, 1993 to modernize its manufacturing operations.
Graniteville's yarn spinning and weaving operations were updated by the addition
of state-of-the-art computer-controlled spinning machinery and high speed
air-jet and rapier looms, capable of significantly increasing productivity while
allowing Graniteville to maintain its high quality manufacturing standards. In
1994 Graniteville expects to spend approximately $20 million in order to
maintain, expand and upgrade its facilities.
RAW MATERIALS
The principal raw materials used by Graniteville in the manufacture of its
textile products are cotton and man-made fibers (primarily polyester).
Graniteville seeks to enter into partnership-type
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arrangements with its suppliers. It purchases cotton from a number of domestic
suppliers at the time it receives orders from customers and generally maintains
a commitment position resulting in a four to six month supply of cotton.
Polyester is generally purchased from one principal supplier, although there are
numerous alternative domestic sources for polyester. Polyester is purchased
pursuant to periodic negotiations whereby Graniteville seeks to assure itself of
a consistent, cost-effective supply. In general, there is an adequate supply of
such raw materials to satisfy the needs of the industry. In addition,
Graniteville purchases greige goods from other manufacturers to supplement its
internal production. These fabrics have normally been available in adequate
supplies from a number of domestic sources. Graniteville also purchases bulk
dyes and specialty chemicals manufactured by various domestic producers,
including C.H. Patrick. While Graniteville believes that there is a competitive
advantage to purchasing these dyes and specialty chemicals from C.H. Patrick,
they are presently available in adequate supply in the open market.
BACKLOG
Graniteville's backlog of unfulfilled customer orders was approximately
$191.2 million at December 31, 1993, as compared to approximately $222.2 million
at December 31, 1992. It is expected that substantially all of the orders
outstanding at December 31, 1993 will be filled during the next 12 months. Order
backlogs are usual to the business in which Graniteville operates.
LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE AND PUBLIC GAS)
National Propane and Public Gas distribute liquefied petroleum gas ('LP
gas') for residential, agricultural, commercial and industrial uses, including
space heating, water heating, cooking and engine fuel. The LP Gas Companies also
sell related appliances and equipment. Triarc believes that the LP Gas Companies
are the fifth largest distributors of LP gas in terms of unit volume in the
United States. As of December 31, 1993, this business was conducted by
approximately 156 operating units located in 20 states in the Southeast,
Northeast, Midwest and Southwest, primarily in suburban and rural areas.
Ronald D. Paliughi joined the LP Gas Companies on April 24, 1993 as
National Propane's President and Chief Executive Officer. Previously, Mr.
Paliughi had been Senior Vice President-Western Operations of AP Propane
(AmeriGas), one of the largest LP gas companies in the United States, and
director of retail operations of CalGas Corporation, previously a division of
the fourth largest LP gas company in the United States. Mr. Paliughi has
assembled an experienced management team committed to implementing the strategy
outlined below.
BUSINESS STRATEGY
Prior to the Reorganization, the LP Gas Companies did not have a chief
executive officer solely responsible for their business, and were operating in
their numerous regions without coordinated pricing or distribution strategies.
Purchasing and other functions were decentralized, resulting in cost
duplications and purchasing inefficiencies.
The LP Gas Companies' new management has begun to implement the following
strategies intended to increase revenues and improve operating margins:
Centralization and Streamlining of Operations: Historically, Triarc's LP
gas business was comprised of seven regionally branded companies, each
with its own operating style and corporate staff. These seven regional
companies were restructured in July 1993 into a centralized headquarters
and two operating divisions. Since the Reorganization, the LP Gas
Companies' work force has been reduced by approximately ten percent and
further reductions are planned during calendar 1994. In addition, better
utilization of the vehicle fleet should permit a ten percent reduction in
the size of such fleet by the end of calendar 1994. As a result, operating
expenses are expected to decrease significantly in calendar 1994.
Improved Pricing Management: To better monitor prices, the LP Gas
Companies are in the process of installing a $2.4 million centralized
pricing and billing system in all of their offices which will enable
management to set and monitor prices from headquarters. This system, which
is expected to be fully operational in mid-1994, will permit the
monitoring of supply, demand and
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competitive pricing information on a system-wide basis. The LP Gas
Companies' management believes that the timely availability of this
information will lead to an increase in margins, thereby increasing gross
profits.
Improved Marketing: The LP Gas Companies intend to differentiate
themselves from many smaller, local competitors by establishing an image
as a large, reliable fuel supplier on which customers can depend. All of
the businesses will operate under the National Propane brand and operating
management will implement coordinated advertising and marketing campaigns.
Efficient Purchasing: Due to capital constraints and the lack of
centralized purchasing, the LP Gas Companies historically have not taken
advantage of existing storage capacity. When conditions are appropriate,
management intends to purchase and store LP gas supplies during the summer
months when market pricing is distressed, and sell these supplies during
times of higher gas prices. In addition, each LP Gas Company historically
purchased LP Gas independently. The LP Gas Companies' management recently
centralized purchasing and hired an experienced senior executive to manage
all LP gas purchasing activities.
Acquisitions: To complement the strategies outlined above, the LP Gas
Companies intend to increase revenues by acquiring smaller, less efficient
competitors and incorporating them into the LP Gas Companies, existing
network. Accordingly, in November 1993, National Propane acquired the
assets of Ark-La-Tex LP Gas, Inc. and affiliates with locations in
Texarkana, Arkansas and Karnack, Texas. National Propane paid
approximately $1.4 million for these assets, of which amount approximately
$0.7 million was financed by the seller. Prior to its acquisition,
Ark-La-Tex sold approximately 1.4 million gallons of LP gas per year. In
addition, in January 1994, National Propane acquired the assets of Ozark
Gas Company and affiliates, which sold LP gas and related merchandise in
West Plains, Thayer, and Willow Springs, Missouri. The purchase price for
these assets was approximately $3.8 million, of which approximately $2.7
million was financed by the seller. Prior to its acquisition, Ozark Gas
Company had annual sales of approximately 3.7 million gallons of LP gas.
INDUSTRY
LP gas is a clean burning fuel produced by extraction from natural gas by
pipeline and by separation from crude oil and crude oil products. In recent
years, industry sales of LP gas have not grown, primarily due to the economic
downturn and energy conservation trends, which have negatively impacted the
demand for energy by both residential and commercial customers. However, LP gas,
relative to other forms of energy, is gaining increased recognition as an
environmentally superior, safe, convenient, efficient and easy to use energy
source in many applications.
MARKETS; CUSTOMERS
LP gas is sold primarily in suburban and rural areas which do not have
access to natural gas. In the residential market, LP gas is used in LP gas
appliances and heaters in a manner similar to natural gas, primarily for home
heating, water heating and cooking (indoor and outdoor). In the agricultural
market, LP gas is used primarily for motor fuel, chicken brooders and crop
drying. In the commercial market, LP gas is used primarily by restaurants, fast
foods franchises, shopping centers and other retail or service establishments.
In the industrial market, LP gas is used primarily as a fuel for fork lift
trucks and delivery trucks, heat-treating and other industrial applications.
During Fiscal 1993 and Transition 1993, approximately 68% and 53%,
respectively, of sales by the LP Gas Companies were to residential customers and
approximately 32% and 47%, respectively, of such sales were to commercial,
agricultural and industrial customers. In Fiscal 1993 and Transition 1993, no
single customer accounted for more than 10% of the LP Gas Companies' combined
operating revenues.
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PRODUCTS AND SERVICES
LP gas is sold and distributed in bulk or in portable cylinders, through
company-owned retail outlets and distributors. Most of the LP Gas Companies'
volume, in terms of dollars and gallons, is distributed in bulk, although almost
half of their customers are served using interchangeable portable cylinders. For
customers served using cylinders, normally two LP gas cylinders of 100 pound
capacity (23.5 gallons each) are installed on the customer's premises along with
necessary regulating and protective equipment. Regular bulk deliveries of LP gas
are made to customers whose consumption is sufficiently high to warrant this
type of service. For such customers, tanks (usually having a capacity of 50 to
1,000 gallons) are installed at the customers' premises and the LP gas is stored
in the tanks under pressure and piped into the premises.
The LP Gas Companies' sales by cylinder and bulk service for the last three
fiscal years and Transition 1993 are as follows:
<TABLE>
<CAPTION>
CYLINDER TOTAL BULK TOTAL COMBINED TOTAL
-------------- ---------- --------------
(GALLONS IN THOUSANDS)
<S> <C> <C> <C>
Fiscal 1991............................................. 14,480 129,937 144,417
Fiscal 1992............................................. 13,634 132,074 145,708
Fiscal 1993............................................. 13,963 140,876 154,839
Transition 1993......................................... 9,687 80,493 90,180
</TABLE>
Year-to-year demand for LP gas is affected by the relative severity of the
winter and other climatic conditions. For example, while the severe flooding in
the mid-west United States during the summer of 1993 significantly reduced the
demand for LP gas for crop-drying applications in these agricultural regions,
the ice, snow and the frigid temperatures that were experienced by the United
States in January and February of 1994 significantly increased the overall
demand for LP gas.
The LP Gas Companies also provide specialized equipment for the use of LP
gas. In the residential market, the LP Gas Companies sell household appliances
such as cooking ranges, water heaters, space heaters, central furnaces and
clothes dryers. In the industrial market, the LP Gas Companies sell or lease
specialized equipment for the use of LP gas as fork lift truck fuel, in metal
cutting and atmospheric furnaces and for portable heating for construction. In
the agricultural market, specialized equipment is leased or sold for the use of
LP gas as engine fuel and for chicken brooding and crop drying.
SUPPLY
The profitability of the LP Gas Companies is dependent upon the price and
availability of LP gas as well as seasonal and climatic factors. Contracts for
LP gas are typically made on a year-to-year basis, but the price of the LP gas
to be delivered depends upon market conditions at the time of delivery. By
utilizing their ability to store LP gas, the LP Gas Companies should be able to
lower their annual cost of goods sold by maximizing supplies purchased during
the low season and minimizing purchases during times of seasonally high prices.
The LP Gas Companies are not party to any contracts to purchase LP gas
containing 'take or pay' provisions. Certain contracts do, however, specify
certain minimum and maximum amounts of LP gas to be purchased. The LP Gas
Companies purchase LP gas from numerous suppliers. The LP Gas Companies have
experienced conditions of limited supply availability from time to time but have
generally been able to secure sufficient LP gas to meet their customers' needs.
The primary sources of supply of LP gas are major oil companies and independent
producers of both gas liquids and oil. Worldwide availability of both gas
liquids and oil affects the supply of LP gas in domestic markets, and from time
to time the ability to obtain LP gas at attractive prices may be limited as a
result of market conditions, thus affecting price levels to all distributors of
LP gas.
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GENERAL
TRADEMARKS
Arby's is the sole owner of the ARBY'S trademark and considers it, and
certain other trademarks owned by Arby's, to be material to its business.
Pursuant to its standard franchise agreement, Arby's grants each of its
franchisees the right to use Arby's trademarks, service marks and trade names in
the manner specified therein.
Royal Crown considers its concentrate formulae, which are not the subject
of any patents, to be trade secrets. In addition, RC COLA, DIET RC, ROYAL CROWN,
DIET RITE, NEHI, UPPER 10 and KICK are registered as trademarks in the United
States, Canada and a number of other countries. Royal Crown believes that such
trademarks are material to its business.
The material trademarks of Royal Crown and Arby's are registered in the
U.S. Patent and Trademark Office and various foreign jurisdictions. Royal Crown
and Arby's rights to such trademarks in the United States will last indefinitely
so long as they continue to use and police the trademarks and to renew filings
with the applicable governmental offices. No challenges to Royal Crown and
Arby's right to use the ARBY'S, RC COLA, DIET RC, ROYAL CROWN, DIET RITE, NEHI,
UPPER 10 or KICK trademarks in the United States have arisen.
COMPETITION
Triarc's four core businesses operate in highly competitive industries.
Many of the major competitors in these industries have substantially greater
financial, marketing, personnel and other resources than does Triarc.
Arby's faces direct and indirect competition from numerous well established
competitors, including national and regional fast food chains. In addition,
Arby's competes with locally owned restaurants, drive-ins, diners and other
establishments. Key competitive factors in the fast food industry are price,
quality of products, quality and speed of service, advertising, name
identification, restaurant location and attractiveness of facilities.
Royal Crown's soft drink products compete generally with all liquid
refreshments and in particular with numerous nationally-known soft drinks such
as Coca-Cola and Pepsi-Cola. Royal Crown competes with other beverage companies
not only for consumer acceptance but also for shelf space in retail outlets and
for marketing focus by Royal Crown's distributors, most of which also distribute
other beverage brands. The principal methods of competition in the soft drink
industry include product quality and taste, brand advertising, trade and
consumer promotions, pricing, packaging and the development of new products.
In recent years, both the soft drink and fast food businesses have
experienced increased price competition resulting in significant price
discounting throughout these industries. Price competition has been especially
intense with respect to sales of soft drink products in food stores, with local
bottlers granting significant discounts and allowances off wholesale prices in
order to maintain or increase market share in the food store segment. When
instituting its own discount promotions, Arby's has experienced increases in
sales but, with respect to company-owned restaurant operations, lower gross
margins. While the net impact of price discounting in the soft drink and fast
food industries cannot be quantified, such practices could have an adverse
impact on Triarc.
Graniteville has many domestic competitors, including large integrated
textile companies and smaller concerns. No single manufacturer dominates the
industry or any particular line in which Graniteville's participates. The
principal elements of competition include quality, price and service.
Triarc's textile business has experienced significant competition from
manufacturers located outside of the Untied States that generally have access to
less expensive labor and, in certain cases, raw materials. Graniteville has
attempted to counteract the negative impact of competition from imports by
focusing on product lines (for example, denim) that are less vulnerable to
import penetration, and by emphasizing Graniteville's location in the United
States, its efficient production techniques and its high level of customer
service which allow it to provide more timely deliveries and to respond more
quickly to changes in its customers' fabric needs. The North American Free Trade
Agreement, which became
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effective on January 1, 1994, immediately eliminated quantitative restrictions
on qualified imports of textiles between the United States, Mexico and Canada
and will gradually eliminate tariffs on such imports over a ten year period. In
addition, a tentative agreement reach on December 15, 1993 under the General
Agreement on Trade and Tariffs ('GATT') would eliminate quantitative
restrictions on imports of textiles and apparel between GATT member countries
after a ten year transition period. Any significant reduction in import
protection for domestic textile manufacturers could materially adversely affect
Graniteville's business.
The LP Gas Companies compete in each LP gas marketing area with numerous
other LP gas distributors, none of which, including the LP Gas Companies, can be
considered dominant in any particular marketing area. The principal competitive
factors affecting this industry are price and service. In addition, LP gas is
sold in competition with all other commonly used fuels and energy sources,
including electricity, fuel oil and natural gas. The primary competing energy
source to LP gas is electricity, which is available in substantially all of the
market areas served by the LP Gas Companies. Currently, LP Gas is generally less
expensive than electricity based on equivalent energy value. Fuel oil is a major
competitor for home heating and other purposes and is sold by a diversified
group of companies throughout the marketing areas served by the LP Gas
Companies. Except for various industrial applications, no attempt has been made
to compete with natural gas which, with few exceptions, has been a less
expensive energy source than LP gas. Although competitive fuels may at times be
less costly for an equivalent energy value, historically LP gas has competed
successfully on the basis of cleanliness, convenience, safety, availability and
efficiency. In addition, the use of alternative fuels, including LP gas, is
mandated in certain specified areas of the United States that do not meet
federal air quality standards.
WORKING CAPITAL
Arby's and Royal Crown's working capital requirements are generally met
through cash flow from operations.
Working capital requirements for the textile business are generally
fulfilled from operating cash flow supplemented by advances under the
Graniteville Credit Facility. Trade receivables are generally due in 60 days, in
accordance with industry practice.
Working capital requirements for the LP Gas Companies fluctuate due to the
seasonal nature of their businesses. Typically, in late summer and fall,
inventories are built up in anticipation of the heating season and are depleted
over the winter months. During the spring and early summer, inventories are at
low levels due to lower demand. Accounts receivable reach their highest levels
in the middle of the winter and are gradually reduced as the volume of LP gas
sold declines during the spring and summer. Working capital requirements are
generally met through cash flow from operations. Accounts receivables of the LP
Gas Companies are generally due within 30 days of delivery.
GOVERNMENTAL REGULATIONS
Each of Triarc's core businesses is subject to a variety of federal, state
and local laws, rules and regulations.
Arby's is subject to regulation by the Federal Trade Commission and state
laws governing the offer and sale of franchises and the substantive aspects of
the franchisor-franchisee relationship. In addition, Arby's is subject to the
Fair Labor Standards Act and various state laws governing such matters as
minimum wages, overtime and other working conditions. Significant numbers of the
food service personnel at Arby's restaurants are paid at rates related to the
federal and state minimum wage, and increases in the minimum wage may therefore
materially increase the labor costs of Arby's and its franchisees. From time to
time, Arby's has received inquiries from federal, state and local regulatory
agencies or has been named as a party to administrative proceedings brought by
such regulatory agencies. Arby's does not believe that any such inquiries or
proceedings will have a material adverse effect on Arby's financial condition or
results of operations.
The production and marketing of Royal Crown beverages are subject to the
rules and regulations of various federal, state and local health agencies,
including the United States Food and Drug
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<PAGE>
Administration (the 'FDA'). The FDA also regulates the labeling of Royal Crown
products. New FDA labeling regulations will take effect in 1994. Royal Crown
estimates that the total costs of complying with the new regulations, primarily
for tooling new container labels, will be approximately $1.5 million.
Graniteville's operations are governed by laws and regulations relating to
workplace safety and worker health, primarily the Occupational Safety and Health
Act ('OSHA') and the regulations promulgated thereunder. Revised cotton dust
standards, which became effective in 1986, have required increased capital
expenditures, and may require additional capital expenditures presently expected
to range from $7 million to $9 million.
The LP Gas Companies are subject to various Federal, state and local laws
and regulations governing the transportation, storage and distribution of LP
gas, and the health and safety of workers, primarily OSHA and the regulations
promulgated thereunder.
Except as described above, Triarc is not aware of any pending legislation
that in its view is likely to affect significantly the operations of Triarc's
subsidiaries. Triarc believes that the operations of its subsidiaries comply
substantially with all applicable governmental rules and regulations.
ENVIRONMENTAL MATTERS
Certain of Triarc's operations are subject to federal, state and local
environmental laws and regulations concerning the discharge, storage, handling
and disposal of hazardous or toxic substances. Such laws and regulations provide
for significant fines, penalties and liabilities, in certain cases without
regard to whether the owner or operator of the property knew of, or was
responsible for, the release or presence of such hazardous or toxic substances.
In addition, third parties may make claims against owners or operators of
properties for personal injuries and property damage associated with releases of
hazardous or toxic substances. Triarc cannot predict what environmental
legislation or regulations will be enacted in the future or how existing or
future laws or regulations will be administered or interpreted. Triarc cannot
predict the amount of future expenditures which may be required in order to
comply with any environmental laws or regulations or to satisfy any such claims.
Triarc believes that its operations comply substantially with all applicable
environmental laws and regulations.
In 1987, Graniteville was notified by the South Carolina Department of
Health and Environmental Control (the 'DHEC') that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report, prepared by Graniteville's environmental consulting firm and filed with
DHEC on April 23, 1990, recommended that pond sediments be left undisturbed and
in place. DHEC responded by requesting that Graniteville submit additional
information concerning potential passive and active remedial alternatives, with
accompanying supportive information. In May 1991 Graniteville provided this
information to DHEC in a report of its environmental consulting firm. The 1990
and 1991 reports concluded that pond sediments should be left undisturbed and in
place and that other less passive remediation alternatives either provided no
significant additional benefits or themselves involved adverse effects on human
health, to existing recreational uses or to the existing biological communities.
Graniteville management 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 the passage of time since the submission of the two
reports by Graniteville's environmental consulting firm without any objection or
adverse comment on such reports by DHEC and the absence of desirable remediation
alternatives, other than continuing to leave the Langley Pond sediments in place
and undisturbed as described in the reports, management believes that the
ultimate outcome of this matter will not have any material adverse effect on
Triarc's consolidated financial condition or results of operations. See 'Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
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
refrigeration operations and has filed appropriate notifications with state
environmental authorities and has begun a study of remediation at such sites.
SEPSCO has removed certain underground storage and other tanks at certain
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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 two sites in
Miami, Florida, one site in Marathon, Florida, one site in Willard, Ohio, and
one site in Provo, Utah. In addition, remediation will be required at thirteen
sites which were sold or leased to Southwestern Ice as part of the Ice Sale, and
such remediation will be made in conjunction with Southwestern Ice. Based on
preliminary information and consultations with, and certain reports of,
environmental consultants and others, SEPSCO presently estimates SEPSCO's cost
of all such remediation and/or removal will approximate $3.7 million, in respect
of which charges of $1.3 million, $0.2 million and $2.2 million were made
against earnings in SEPSCO's fiscal years ending February 28, 1991, February 29,
1992 and February 28, 1993, respectively. In connection therewith, through
December 31, 1993 SEPSCO had incurred actual costs of approximately $1.2 million
and had a remaining accrual of approximately $2.5 million. In addition to the
environmental costs borne by SEPSCO, in connection with the Ice Sale
Southwestern Ice assumed liability for up to $1.0 million of remediation
expenses relating to the Ice Business assets that were sold, with SEPSCO
remaining liable for remediation expenses not so assumed. Triarc believes that
after such accrual and assumption of liability, the ultimate outcome of this
matter will not have a material adverse effect on Triarc's consolidated results
of operations or financial condition. See 'Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.'
SEASONALITY
Of Triarc's four core businesses, the soft drink and LP Gas businesses are
seasonal. In the soft drink business, the highest sales occur during spring and
summer. LP Gas operations are subject to the seasonal influences of weather
which vary by region. Generally, the demand for LP Gas during the winter months,
November through April, is substantially greater than during the summer months
at both the retail and wholesale levels, and is significantly affected by
climatic variations. Because of the different seasonal patterns of these two
businesses, Triarc's consolidated financial results are not materially affected
by seasonal factors.
DISCONTINUED AND OTHER OPERATIONS
Triarc continues to be engaged in a variety of non-core businesses.
Consistent with Triarc's strategy of focusing resources on the four core
businesses, during Transition 1993 Chesapeake Insurance Company Limited
('Chesapeake Insurance'), a direct wholly-owned subsidiary of CFC Holdings Corp.
('CFC Holdings'), ceased writing insurance or reinsurance coverage of any kind
for periods beginning on or after October 1, 1993. In addition, Triarc and
SEPSCO have agreed in principle to the sale by SEPSCO to Triarc of the stock of
the SEPSCO subsidiaries that hold SEPSCO's natural gas and oil working and
royalty interests. Also, it is expected that in the near future Triarc will (i)
cause SEPSCO to transfer the LP gas business of Public Gas to National Propane
and (ii) sell or liquidate substantially all of the remaining non-core
businesses. Given Triarc's focus on its four core businesses, Triarc may sell
the natural gas and oil businesses that Triarc has agreed in principle to
purchase from SEPSCO. No assurance can be given as to the time frame within
which such businesses may be sold. These sales or liquidations will not have a
material impact on Triarc's consolidated financial condition or results of
operations. The precise timetable for the sale or liquidation of the remaining
non-core businesses will depend upon Triarc's ability to identify appropriate
purchasers and to negotiate acceptable terms for the sale of such businesses.
Insurance Operations: Historically, Chesapeake Insurance (i) provided
certain property insurance coverage for Triarc and certain of its former
affiliates; (ii) reinsured a portion of certain insurance coverage which Triarc
and such former affiliates maintained with unaffiliated insurance companies
(principally workers' compensation, general liability, automobile liability and
group life); and (iii) reinsured insurance risks of unaffiliated third parties
through various group participations. During Fiscal 1993, Chesapeake Insurance
ceased writing reinsurance of risks of unaffiliated third parties, and during
24
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Transition 1993 Chesapeake Insurance ceased writing insurance or reinsurance of
any kind for periods beginning on or after October 1, 1993.
In March 1994, Chesapeake Insurance consummated an agreement (which
agreement was effective as of December 31, 1993) with AIG Risk Management, Inc.
('AIG') concerning the commutation to AIG of all insurance previously
underwritten by AIG on behalf of Triarc and its subsidiaries and affiliated
companies for the years 1977-1993, which insurance had been reinsured by
Chesapeake Insurance. In connection with such commutation, AIG received an
aggregate of approximately $63.5 million, consisting of approximately $29.3
million of commercial paper, common stock and other marketable securities of
unaffiliated third parties, and a promissory note of Triarc in the principal
amount of approximately $34.2 million. See 'Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.'
In September 1989, the Pennsylvania Insurance Commissioner as rehabilitator
of Mutual Fire, Marine and Inland Insurance Company ('Mutual Fire') commenced an
action against Chesapeake Insurance seeking, among other things, compensatory
and punitive damages in excess of $40.0 million. In March 1994, the Commonwealth
Court of Pennsylvania approved a Settlement and Commutation Agreement between
Chesapeake Insurance and Mutual Fire which provided for the full settlement of
all claims brought by Mutual Fire for $12.0 million. Triarc has previously
recorded charges to operations in order to fully provide for such settlement.
See 'Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources.'
Chesapeake Insurance is registered under the Bermuda Insurance Act of 1978
and related regulations which require compliance with various provisions
regarding the maintenance of statutory capital and surplus and liquidity.
Chesapeake Insurance was not in compliance with certain of such provisions as of
December 31, 1992 and 1993. However, since Chesapeake Insurance ceased writing
insurance or reinsurance of any kind for periods beginning on or after October
1, 1993, any such non-compliance will have no effect on Triarc. See 'Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
Discontinued Operations: In the Consolidated Financial Statements, Triarc
reports as 'discontinued operations' SEPSCO's utilities and municipal services
business segment and SEPSCO's refrigeration services and products business
segment. During Transition 1993, SEPSCO sold its utilities and municipal
services business segment in three separate transactions with unaffiliated third
parties for consideration negotiated on an arms'-length basis. In April 1994,
SEPSCO sold to Southwestern Ice substantially all of the Ice Business for $5.0
million in cash, approximately $4.3 million principal amount of subordinated
secured notes due on the fifth anniversary of the sale and the assumption by
Southwestern Ice of certain current liabilities and certain environmental
liabilities. Triarc is continuing its efforts to find an appropriate purchaser
for SEPSCO's cold storage business.
Other Operations: On January 10, 1994, Triarc disposed of its 58.6% of
interest in Wilson. In February 1994, Triarc disposed of the assets of its lamp
manufacturing and distribution business. Triarc expects in the near future to
purchase from SEPSCO of the stock of SEPSCO's subsidiaries that hold SEPSCO's
natural gas and oil working and royalty interests. Such purchase will be for a
net cash purchase price of $8.5 million and will be consummated on or before
July 22, 1994. Triarc also continues to own certain grapefruit groves.
EMPLOYEES
As of December 31, 1993, Triarc's four business segments employed
approximately 14,100 personnel, including approximately 2,200 salaried personnel
and approximately 11,900 hourly personnel. Triarc's management believes that
employee relations are satisfactory. At December 31, 1993, approximately 334 of
the total of Triarc's employees were covered by various collective bargaining
agreements expiring from time to time from the present through 1996.
ITEM 2. PROPERTIES.
Triarc maintains a large number of diverse properties. Management believes
that these properties, taken as a whole, are generally well maintained and are
adequate for current and foreseeable business
25
<PAGE>
needs. The majority of the properties are owned. Except as set forth below,
substantially all of Triarc's materially important physical properties are being
fully utilized.
Certain information about the major plants and facilities maintained by
each of Triarc's four business segments as of December 31, 1993 is set forth in
the following table:
<TABLE>
<CAPTION>
SQ. FT. OF
ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- - ------------------------------------ ------------------------------------ ---------- -----------
<S> <C> <C> <C>
Soft Drink.......................... Concentrate Mfg: 1 owned 216,000
Columbus, GA 1 leased 25,000
(including office) 1 leased 23,000
LaMirada, CA 1 leased 5,000
Cincinnati, OH 1 leased 18,759(1)
Toronto, Canada
Corporate Headquarters
Ft. Lauderdale FL
Fast Food........................... 259 Restaurants 56 owned *
various locations 203 leased 42,803(1)
throughout the 1 leased
United States
Corporate Headquarters
Ft. Lauderdale, FL
Textiles............................ Fabric Mfg.: 7 owned 1,877,000
Graniteville, SC 2 owned 518,000
Augusta, GA 2 owned 208,000
Warrenville, SC
Chemical and Dye Mfg.: 2 owned 103,000
Greenville, SC 1 owned 75,000
Williston, SC
LP Gas.............................. Office/Warehouse 16 owned 520,000
143 Bulk Plants 201 owned *
73 Storage Depots 49 leased
32 Retail Depots
various locations
throughout the
United States
2 Underground storage
<CAPTION>
INACTIVE FACILITIES
- - ------------------------------------
<S> <C> <C> <C>
Fast Food........................... Restaurants 1 owned *
4 leased
Textiles............................ Fabric Mfg. 3 owned 734,000
</TABLE>
- - ------------
* While the restaurants in the fast food segment range in size from
approximately 700 square feet to 14,000 square feet, the typical
company-owned Arby's restaurant in the United States is approximately 2,570
square feet. The LP gas facilities have approximately 34,237,000 gallons of
storage capacity.
(1) Royal Crown and Arby's also share 19,180 square feet of common space at
RCAC's headquarters.
- - ----------------------------------------------------------
The fast food segment also owns two and leases eleven land sites for future
restaurants and owns ten and leases nine restaurants which are sublet
principally to franchisees. The textiles segment also owns approximately 16,000
acres of land, predominantly woodland, in and around Graniteville, South
Carolina, on which it has planted pine seedlings and maintains forest
conservation practices designed to help protect general water supplies.
Substantially all of the properties used in the textiles segment are
pledged as collateral for certain debt. All other properties owned by Triarc are
without significant encumbrances.
26
<PAGE>
Certain information about the materially important physical properties of
Triarc's discontinued and other operations as of December 31, 1993 is set forth
in the following table:
<TABLE>
<CAPTION>
SQ. FT. OF
ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- - ------------------------------------ ------------------------------------ ---------- -----------
<S> <C> <C> <C>
Refrigeration....................... Cold storage: 1 owned 266,000
Topeka, KS 1 owned 919,000
Bonner Springs, KS 1 owned 202,000
Denver, CO 1 owned 131,000
San Martin, CA 1 owned 318,000
Santa Maria, CA 1 owned 200,000
Portland, OR 1 owned 169,000
American Falls, ID 3 owned 166,000
Other locations
throughout the
United States
Natural Gas and Oil................. Office/warehouse 2 leased 8,000
various locations 4 owned 6,000
throughout the 6 leased 10,000
United States
<CAPTION>
INACTIVE FACILITIES
<S> <C> <C> <C>
Refrigeration....................... Ice mfg. and cold storage 3 owned 189,000
Ice mfg. 11 owned 369,000
</TABLE>
The natural gas and oil operations have net working interests in
approximately 61,000 acres and net royalty interests in approximately 4,000
acres, located almost entirely in the states of Alabama, Kentucky, Louisiana,
Mississippi, North Dakota, Texas and West Virginia. Triarc's citrus operations
also own approximately 650 acres of grapefruit grove in Hidalgo County, Texas.
Triarc's lamp manufacturing and distribution operations, which were sold in
February 1994, consisted of one production facility with approximately 240,000
total square feet (including warehouse and showroom space). The Ice Business
operations, which were sold in April 1994, consisted of 12 facilities with
approximately 450,000 total square feet.
ITEM 3. LEGAL PROCEEDINGS.
In December 1990, a purported stockholder derivative suit was brought
against Triarc and other defendants on behalf of SEPSCO. For a description of
such legal proceedings, see 'Item 1. Business -- Introduction -- SEPSCO
Settlement.'
In April 1993, the United States District Court for the Northern District
of Ohio (the 'Ohio Court') entered a final order approving a Modification of a
Stipulation of Settlement (the 'Modification') which (i) modified the terms of a
previously approved stipulation of settlement (the 'Original Stipulation') in an
action captioned Granada Investments, Inc. v. DWG Corporation et al., an action
commenced in 1989 ('Granada'), and (ii) settled two additional lawsuits pending
before the Ohio Court captioned Brilliant et al. v. DWG Corporation, et al., an
action commenced in July 1992 ('Brilliant'), and DWG Corporation by and through
Irving Cameon et al. v. Victor Posner et al., an action commenced in June 1992
('Cameon'). Each of the Granada, Brilliant and Cameon cases were derivative
actions brought against Triarc and each of its then current directors (other
than Triarc's court-appointed directors, in the Brilliant and Cameon cases)
which alleged various instances of corporate abuse, waste and self-dealing by
Victor Posner, Triarc's then current Chairman of the Board and Chief Executive
Officer, and certain breaches of fiduciary duties and violations of proxy rules.
The Cameon case was also brought as a class action and included claims under the
Racketeer Influenced and Corrupt Organizations Act of 1970 and for violating
federal securities laws.
The Modification continued the requirement contained in the Original
Stipulation that the Triarc Board include three court appointed directors and
that such directors, along with two other directors who are neither Triarc
employees nor relatives of Victor Posner, form a special committee of the Triarc
Board (the 'Triarc Special Committee') with authority to review and approve any
newly undertaken transaction between Triarc and its subsidiaries, on the one
hand, and entities or persons affiliated with
27
<PAGE>
Victor Posner on the other hand, other than those transactions specifically
approved in the Modification. The Modification specifically permitted Triarc
and/or affiliated entities to make certain payments of rent, salary and expense
reimbursements to Victor Posner and/or persons or entities related to or
affiliated with him. The restrictions contained in the Modification will be
binding on Triarc until the earlier of (i) April 23, 1998, (ii) the date that
Victor Posner and certain affiliated entities certify to the Ohio Court (a) that
they ceased to be the beneficial owners of 5.0% or more of Triarc's common
stock, or securities convertible into such shares, and (b) that they will not,
directly or indirectly, exceed such 5.0% limit prior to April 23, 1998, and
(iii) the date that Triarc's common stock is no longer publicly held. See 'Item
10. Directors and Executive Officers of the Registrant -- Certain Arrangements
and Undertakings Relating to the Composition of Triarc's Board of Directors.'
In addition to the matters described immediately above and the matters
referred to or described under 'Item 1. Business -- General -- Environmental
Matters,' Triarc and its subsidiaries are involved in claims, litigation and
administrative proceedings and investigations of various types in several
jurisdictions. Certain of these matters relate to transactions involving
companies which, prior to the Reorganization, were affiliates of Triarc and
which subsequent to the Reorganization became debtors in bankruptcy proceedings.
See 'Item 13. Certain Relationships and Related Transactions -- Certain
Transactions with Former Management and Former Affiliates.' Other matters arise
in the ordinary course of Triarc's business, and it is the opinion of management
that the outcome of any such matter, or all of them combined, will not have a
material adverse effect on Triarc's consolidated financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Triarc held its 1993 Annual Meeting of Shareholders on October 27, 1993.
The matters acted upon by the shareholders at that meeting were reported in
Triarc's quarterly report on Form 10-Q for the quarter ended October 31, 1993.
28
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since November 17, 1993, the principal market for the Class A Common Stock
has been the New York Stock Exchange ('NYSE') (symbol: TRY). Prior to November
17, 1993, the date on which the Class A Common Stock began trading on the NYSE,
the American Stock Exchange ('ASE') was the principal market for the Class A
Common Stock. The Class A Common Stock is also listed on the Pacific Stock
Exchange ('PSE'). The high and low market prices for the Class A Common Stock,
as reported in the consolidated transaction reporting system, are set forth
below:
<TABLE>
<CAPTION>
MARKET PRICE
----------------------------
FISCAL QUARTERS HIGH LOW
- - --------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Fiscal 1992
First Quarter ended July 31....................................................... $ 3 5/8 $ 1 3/4
Second Quarter ended October 31................................................... 3 1/2 1 1/2
Third Quarter ended January 31.................................................... 4 7/8 2 3/4
Fourth Quarter ended April 30..................................................... 9 1/2 4
Fiscal 1993
First Quarter ended July 31....................................................... $ 10 1/4 $ 8
Second Quarter ended October 31................................................... 12 1/8 9
Third Quarter ended January 31.................................................... 15 3/4 11 1/4
Fourth Quarter ended April 30..................................................... 21 7/8 14 1/2
Transition 1993
First Quarter ended July 31, 1993................................................. $ 22 3/4 $ 16 1/8
Second Quarter ended October 31, 1993............................................. 33 21 3/4
November 1, 1993 through December 31, 1993........................................ 31 23 3/4
</TABLE>
Other than regular quarterly cash dividends on its outstanding preferred
stock, Triarc has not paid any dividends on its capital stock in the two most
recently completed fiscal years, in Transition 1993 or in the current year to
date and does not presently anticipate the declaration of cash dividends on its
common stock in the near future.
In connection with the Reorganization, Triarc issued to the Posner Entities
5,982,866 shares of Triarc's non-voting, cumulative convertible redeemable
preferred stock, par value $.10 per share ('Redeemable Convertible Preferred
Stock'), having an aggregate stated value of $71.8 million and a cumulative
annual dividend rate of 8 1/8%. Such shares of Redeemable Convertible Preferred
Stock are convertible into 4,985,722 shares of non-voting Triarc Class B Common
Stock at a conversion price of $14.40 per share. Such shares of Redeemable
Convertible Preferred Stock can also be converted without restriction into
shares of Class A Common Stock if they are sold to a third party unaffiliated
with the Posner Entities. Triarc has certain rights of first refusal if such
shares are sold to an unaffiliated third party. No dividend, other than a stock
dividend payable in common stock, may be paid on the Class A Common Stock if
Triarc is in arrears on the payment of dividends on the Redeemable Convertible
Preferred Stock. Triarc has no class of equity securities currently issued and
outstanding except for the Class A Common Stock and the Redeemable Convertible
Preferred Stock.
Because Triarc is a holding company, holders of its debt and equity
securities, including holders of the Class A Common Stock, are dependent
primarily upon the cash flow from Triarc's subsidiaries for payment of
principal, interest and dividends. Potential dividends and other advances and
transfers from Triarc's subsidiaries represent its most significant sources of
cash flow. Applicable state laws and the provisions of the debt instruments by
which Triarc's principal subsidiaries are bound limit the ability of such
companies to dividend or otherwise provide funds to Triarc. The relevant
restrictions of such debt instruments are described under 'Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and in Note 15 to the
Consolidated Financial Statements.
As of April 14, 1994, immediately following the SEPSCO Merger there were
approximately 6,000 holders of record of the Class A Common Stock.
29
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA. (1)
<TABLE>
<CAPTION>
EIGHT MONTHS
FISCAL YEAR ENDED APRIL 30, ENDED
---------------------------------------------------------------- DECEMBER 31,
1989 1990 1991 1992 1993 1993(3)
-------- ---------- ---------- ---------- ---------- ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $987,730 $1,038,923 $1,027,162 $1,074,703 $1,058,274 $703,541
Operating profit................. 45,123 61,130 23,304 58,552 34,459(4) 29,969(5)
Loss from continuing
operations..................... (5,851) (13,966) (17,501) (10,207) (44,549)(4) (30,439)(5)
Income (loss) from discontinued
operations, net................ 3,250 1,072 (55) 2,705 (2,430) (8,591)
Extraordinary items, net......... 1,807 1,363 703 -- (6,611) (448)
Cumulative effect of changes in
accounting principles, net..... -- -- -- -- (6,388) --
Net loss......................... (794) (11,531) (16,853) (7,502) (59,978)(4) (39,478)(5)
Preferred stock dividend
requirements(2)................ (580) (14) (11) (11) (121) (3,889)
Net loss applicable to common
stockholders................... (1,374) (11,545) (16,864) (7,513) (60,099) (43,367)
Loss per share:
Continuing operations....... (.39) (.55) (.68) (.39) (1.73) (1.62)
Discontinued operations..... .20 .04 -- .10 (.09) (.40)
Extraordinary items......... .11 .06 .03 -- (.26) (.02)
Cumulative effect of changes
in accounting principles.. -- -- -- -- (.25) --
Net loss per share.......... (.08) (.45) (.65) (.29) (2.33) (2.04)
Total assets..................... 860,709 863,993 851,912 821,170 910,662 897,246
Long-term debt................... 409,418 407,353 345,860 289,758 488,654 575,161
Redeemable preferred stock....... -- -- -- -- 71,794 71,794
Stockholders' equity (deficit)... 117,646 109,052 92,529 86,482 (35,387) (75,981)
Weighted-average common shares
outstanding.................... 16,669 25,428 25,853 25,867 25,808 21,260
</TABLE>
- - ------------
(1) Selected Financial Data have been retroactively restated to reflect the
discontinuance of SEPSCO's utility and municipal services and refrigeration
operations in 1993.
(2) The Company has not paid any dividends on its common shares during any of
the periods presented.
(3) The Company changed its 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 ('Transition 1993').
(4) Reflects certain significant charges recorded in the fourth quarter of
Fiscal 1993 (see Note 25 to the Consolidated Financial Statements) as
follows: $51,689,000 charged to operating profit, $48,698,000 charged to
loss from continuing operations, net and $67,060,000 charged to net loss.
(5) Reflects certain significant charges recorded during Transition 1993 (see
Note 25 to the Consolidated Financial Statements) as follows: $12,306,000
charged to operating profit, $25,617,000 charged to loss from continuing
operations and $34,437,000 charged to net loss.
30
<PAGE>
ITEM 7. 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 the consolidated
financial statements included herein of Triarc Companies, Inc. (formerly DWG
Corporation, 'Triarc' or, collectively with its subsidiaries, 'the Company').
On October 27, 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 transition period ending 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, 'Transition 1993' refers to
the eight months ended December 31, 1993, 'Comparable 1992' refers to the eight
months ended December 31, 1992, and 'Fiscal 1993', 'Fiscal 1992' and 'Fiscal
1991' refer to the fiscal years ended April 30, 1993, 1992 and 1991,
respectively.
RESULTS OF OPERATIONS
The Company reported net losses from continuing operations for each fiscal
year from 1989 through 1993 and for Transition 1993. The Company believes that
these losses were in large part the result of limited managerial and financial
resources devoted to certain of its business units, a significant amount of high
cost debt, material provisions for doubtful accounts from former affiliates
(principally for (i) management services which, subsequent to October 1993,
Triarc no longer provides and (ii) interest and principal of notes from former
affiliates for which there are no significant balances subsequent to the April
23, 1993 change in control of the Company (the 'Change in Control') and
resulting reorganization (the 'Reorganization')), costs of stockholder and other
litigation, operating losses of certain non-core businesses and, with respect to
Fiscal 1993 and Transition 1993, certain restructuring and other charges
discussed below. The diversity of the Company's business segments precludes any
overall generalization about trends for the Company.
The textiles segment is subject to cyclical economic trends that affect the
domestic textile industry. In addition, the textile industry in general has
experienced significant competition from foreign manufacturers that generally
have access to less expensive labor and, in certain cases, raw materials.
However, certain fabrics which comprise the principal product lines sold by the
Company (e.g. workwear) have experienced foreign competition to a lesser degree
than the industry in general. 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 fastest growing segment of the restaurant
industry. The recent recession, however, slowed the rate of growth in restaurant
spending.
Trends affecting the soft drink segment in recent years have included the
growth of consumer demand for diet soft drinks, the increased market share of
private label soft drinks and the introduction of 'new age' beverages. In recent
years, both the soft drink and fast food industries have experienced increased
price competition resulting in significant price discounting throughout these
industries. While the net impact of price discounting cannot be quantified, a
continuation of this practice could have an adverse effect on the Company.
Trends affecting the LP gas segment in recent years include the economic
downturn and energy conservation trends, which have negatively impacted the
demand for energy by both residential and commercial customers. However, 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.
31
<PAGE>
TRANSITION 1993
The following table sets forth revenues by segment for Comparable 1992
(unaudited) and Transition 1993:
<TABLE>
<CAPTION>
REVENUES
------------------------
COMPARABLE TRANSITION
1992 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Textiles...................................................................... $339,110 $ 365,276
Fast Food..................................................................... 133,640 147,460
Soft Drink.................................................................... 100,185 98,337
Liquefied Petroleum Gas....................................................... 85,639 89,167
Other......................................................................... 57,278 3,301
---------- ----------
$715,852 $ 703,541
---------- ----------
---------- ----------
</TABLE>
Revenues declined $12.3 million to $703.5 million in Transition 1993 from
$715.8 million in Comparable 1992 reflecting increased revenues in each of the
Company's four core business segments except for the soft drink segment, which
were more than offset by the absence of revenues from certain non-core
operations sold during Comparable 1992 or held for sale during Transition 1993.
Revenues from all of such businesses were included in 'Other' in the table above
for Comparable 1992 while in Transition 1993 the net results of operations of
such non-core businesses not yet sold but held for sale were reflected in 'Other
income (expense), net' in the accompanying consolidated statement of operations
for Transition 1993 since they were not material. Textiles revenues increased
$26.2 million (7.7%) due to increased volume and prices, despite a denim market
downturn which began in September 1993. The textiles segment experienced
increased revenues in all four of its product areas: utility wear, piece-dyed
cotton fabrics for sportswear, indigo-dyed fabrics for jeans and dyes and
specialty chemicals for the textile industry. Fast food revenues increased $13.8
million (10.3%) principally due to an increase in both company-owned and
franchised same store sales and a net increase in the number of franchised
restaurants. Soft drink revenues declined $1.8 million (1.8%) due principally to
(i) a decline in domestic branded sales resulting from ineffective marketing
programs and (ii) management's decision to limit the quantity of concentrate the
Company would sell to bottlers in the fourth quarter of 1993 to reduce excessive
inventory within bottler production locations at year end. The Company believes
that this reduction, together with increased and redirected expenditures for
advertising and marketing programs, will enable it to realize sales volume
increases of branded products during 1994. Although unit volume of private label
sales increased significantly in the soft drink segment, the effect of such unit
volume increase on revenues was offset by one major private label customer, Cott
Corporation ('Cott'), purchasing a component (aspartame) of the Company's soft
drink concentrate directly from the Company's supplier in 1993 rather than from
the Company, thereby reducing the sales price of concentrate to that customer.
Liquefied petroleum ('LP') gas revenues increased $3.5 million (4.1%)
principally as a result of higher average selling prices, including the pass
through of higher product costs, partially offset by lower volume due to warmer
weather and the flooding which took place in the Mid-west in 1993.
Cost of sales in Transition 1993 amounted to $496.6 million (70.6% of
revenues) and reflects the absence of certain non-core operations previously
sold or held for sale and no longer consolidated, the reduction in the cost of
aspartame in the soft drink segment reflecting the expiration of the underlying
patent and the elimination of its sale at cost to a major customer (Cott). Such
cost of sales reductions were partially offset by the effect of the increased
overall sales volume in the Company's core businesses.
Advertising, selling and distribution of $75.0 million in Transition 1993
was impacted by a significantly higher level of expenditures in the soft drink
segment resulting from (i) increased advertising and promotional expenses
related to domestic branded products intended to generate future sales growth
and programs which pass along a portion of the reduced cost of aspartame to the
Company's bottlers in the form of advertising allowances and (ii) an increase in
advertising and promotional allowances granted to soft drink bottlers, the total
amounts of which normally are dependent principally upon the achievement of
annual sales volume.
32
<PAGE>
General and administrative expenses amounted to $102.0 million in
Transition 1993. Such amount includes normal recurring general and
administrative expenses as well as (i) a $10.0 million provision for increased
insurance loss reserves relating to the Company's coverage as well as
reinsurance of certain insurance coverage which the Company and certain former
affiliates maintained with unaffiliated insurance companies and (ii) a $2.3
million increase in reserves for legal matters principally for a claim by NVF
Company ('NVF'), a former affiliate which currently is involved in proceedings
under the Federal Bankruptcy Code.
Consolidated operating profit declined $21.1 million to $30.0 million in
Transition 1993 from $51.1 million in Comparable 1992 principally due to the
significant charges in Transition 1993 as described above and increased
advertising expenses in the soft drink segment, the benefits of which are
anticipated to be realized in future periods.
Interest expense of $44.9 million in Transition 1993 reflects the effect of
lower interest rates substantially offset by the effect of higher borrowing
levels resulting from the restructuring of the Company's indebtedness.
Other expense, net of $8.0 million in Transition 1993 reflects (i) an
additional provision of $5.0 million for settlement of a shareholder derivative
suit brought against the directors of Southeastern Public Service Company
('SEPSCO') at that time and certain corporations, including Triarc (the 'SEPSCO
Litigation') and (ii) a provision of $3.3 million for additional losses incurred
in connection with the sale of certain non-core businesses.
The Company recorded a provision for income taxes of $7.8 million in
Transition 1993 despite a pretax loss of $22.9 million due principally to a $7.2
million increase in reserves for income tax contingencies, losses of certain
subsidiaries not included in Triarc's consolidated income tax return for which
no tax benefit is available, the provision for settlement of the SEPSCO
Litigation which is not deductible for income purposes and amortization of costs
in excess of net assets of acquired companies which is not deductible for income
tax purposes.
Loss from discontinued operations of $8.6 million in Transition 1993
reflects the estimated loss on disposal of the discontinued operations of $8.8
million, net of minority interests, less the income from discontinued operations
of $0.2 million, net of income taxes and minority interest, prior to July 22,
1993, the date SEPSCO's Board of Directors decided to dispose of SEPSCO's
utility and municipal services and refrigeration business segments. As of April
8, 1994, SEPSCO has disposed of all such operations other than the cold storage
operations of the refrigeration segment. The Company currently anticipates
completion of such sale by July 22, 1994. The estimated loss on disposal
reflects the Company's current estimate of losses incurred on the sale of such
discontinued operations, including estimated operating results through the
disposal dates.
The extraordinary item in Transition 1993 represents a loss, net of income
tax benefit, resulting from the early extinguishment of debt in August 1993
comprised of the write-off of unamortized deferred financing costs of $2.2
million offset by $1.5 million of discount resulting from the redemption of debt
and income tax benefit of $0.3 million.
FISCAL 1993 COMPARED WITH FISCAL 1992
<TABLE>
<CAPTION>
OPERATING PROFIT
REVENUES (LOSS)
------------------------ --------------------
FISCAL FISCAL FISCAL FISCAL
1992 1993 1992 1993
---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Textiles................................................... $ 456,402 $ 499,060 $ 27,753 $ 47,203
Fast Food.................................................. 186,921 198,915 14,271 7,852
Soft Drink................................................. 143,830 148,262 36,112 23,461
Liquefied Petroleum Gas.................................... 141,032 148,790 12,676 3,008
Other...................................................... 146,518 63,247 (5,746) (15,942)
General corporate expenses................................. -- -- (26,514) (31,123)
---------- ---------- -------- --------
$1,074,703 $1,058,274 $ 58,552 $ 34,459
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
33
<PAGE>
Revenues declined $16.4 million (1.5%) to $1.06 billion in Fiscal 1993 from
$1.07 billion in Fiscal 1992 principally due to the absence of revenues from
certain non-core operations (included in 'Other' in the table above) which were
sold during Fiscal 1993, offset in part by increased revenues in each of the
Company's major segments. Textiles revenues increased approximately $42.7
million (9.3%) to $499.1 million from $456.4 million due to increased volume and
prices. Fast food revenues increased $12.0 million (6.4%) to $198.9 million from
$186.9 million due to additional company-owned and franchised restaurants and an
increase in same store sales of company-owned restaurants. Soft drink revenues
increased $4.5 million (3.1%) to $148.3 million from $143.8 million due to an
increase in private label and international sales as a result of unit volume
increases partially offset by a decrease in domestic sales of Diet Rite flavor
brands. LP gas revenues increased $7.8 million (5.5%) to $148.8 million from
$141.0 million due to an increase in the number of gallons sold.
Cost of sales declined $30.9 million to $762.4 million in Fiscal 1993 from
$793.3 million in Fiscal 1992 due principally to the net decline in revenues
described above. Gross profit (total revenues less cost of sales) increased
$14.5 million to $295.9 million in Fiscal 1993 from $281.4 million in Fiscal
1992 and gross margin increased to 28.0% in Fiscal 1993 from 26.2% in Fiscal
1992 due principally to higher average selling prices and lower cost of cotton
in the textiles segment.
Advertising, selling and distribution increased $5.4 million to $72.9
million in Fiscal 1993 from $67.5 million in Fiscal 1992 due principally to
increased advertising spending in the soft drink and fast food segments and a
$1.5 million provision for estimated costs to comply with recent package
labeling regulations affecting the soft drink segment.
General and administrative expenses increased $9.9 million to $135.2
million in Fiscal 1993 from $125.3 million in Fiscal 1992. Affecting general and
administrative expenses in Fiscal 1993 was a $4.9 million accrual of
compensation paid to a special committee of the pre-Change in Control Triarc
Board of Directors representing a success fee attributable to the Change in
Control, a $2.2 million provision for closing certain non-strategic
company-owned restaurants and abandoned bottling facilities and other provisions
aggregating $2.2 million offset by a $7.3 million reversal of unpaid incentive
plan accruals provided in prior years. Affecting general and administrative
expenses in Fiscal 1992 was the reversal of unpaid incentive plan accruals
aggregating approximately $10.0 million provided in prior years.
In Fiscal 1993, results of operations were significantly impacted by
facilities relocation and corporate restructuring charges aggregating $43.0
million consisting of: (i) estimated costs of $14.9 million to relocate the
Company's corporate headquarters and to terminate the lease on its existing
corporate facilities; (ii) estimated restructuring charges of $20.3 million
including costs associated with hiring and relocating certain new senior
management including chief executive officers of the soft drink, fast food and
LP gas segments and other personnel recruiting and relocation costs, severance
costs and consultant fees; (iii) total costs of $6.0 million relating to a
five-year consulting agreement extending through April 1998 (the 'Consulting
Agreement') between Triarc and Steven Posner, the former Vice Chairman of
Triarc, and (iv) costs of $1.8 million in connection with a strategic
restructuring within the textiles segment. The charges referred to in items (i)
through (iii) above related to the Change in Control of Triarc on April 23, 1993
that resulted from the Reorganization. In connection with the Reorganization,
Victor Posner and Steven Posner resigned as officers and directors of Triarc. In
order to induce Steven Posner to resign, Triarc entered into the Consulting
Agreement with him. The cost related to the Consulting Agreement was recorded as
a charge in Fiscal 1993 because the Consulting Agreement does not require any
substantial services and Triarc does not expect to receive any services that
will have substantial value to it. As a part of the Reorganization, the Board of
Directors of Triarc was reconstituted. The first meeting of the reconstituted
Board of Directors was held on April 24, 1993. At that meeting, based on a
report and recommendations from a management consulting firm that had conducted
an extensive review of the Company's operations and management structure, the
Board of Directors approved a restructuring (the 'Restructuring') which
entailed, among other things, the following features: (i) the strategic decision
to manage the Company in the future on a decentralized, rather than on a
centralized basis; (ii) the hiring of new executive officers for Triarc and the
hiring of new chief executive officers and new senior management teams for each
of Arby's Inc. ('Arby's'), Royal Crown Company, Inc. ('Royal Crown') and
National Propane Corporation ('National Propane') to carry out the
decentralization strategy; (iii) the termination of a significant number of
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employees as a result of both the new management philosophy and the hiring of an
almost entirely new management team; and (iv) the relocation of the corporate
headquarters of Triarc and of all of its subsidiaries whose headquarters were
located in South Florida, including Arby's, Royal Crown, National Propane, and
SEPSCO. Accordingly, the Company's cost to relocate its corporate headquarters
and terminate the lease on its existing corporate facilities ($14.9 million),
and estimated corporate restructuring charges of $20.3 million including costs
associated with hiring and relocating new senior management and other personnel
recruiting and relocation costs, employee severance costs and consulting fees,
all stemmed from the decentralization and restructuring plan formally adopted at
the April 24, 1993 meeting of Triarc's reconstituted Board of Directors. See
Note 25 to the Consolidated Financial Statements. The components of the $4.3
million restructuring and facilities relocation charge in Fiscal 1992 are
described below.
Provision for doubtful accounts from affiliates was $10.4 million in Fiscal
1993 compared to $25.7 million in Fiscal 1992. The provision in Fiscal 1993
includes year-end charges of $5.1 million relating to the final write-off of
certain secured notes and accrued interest receivable from Pennsylvania
Engineering Corporation ('PEC') and APL Corporation ('APL'), former affiliates
that currently are in bankruptcy proceedings, for which Triarc has significant
doubts as to the net realizability of the underlying collateral, offset by a
recovery from Insurance and Risk Management, Inc. ('IRM'), also a former
affiliate, of certain amounts offset in connection with the minority share
acquisitions in the Reorganization. The remainder of such provision in Fiscal
1993 relates principally to unsecured receivables from APL, including accrued
interest, principally in connection with a former management services agreement
with Triarc. Triarc was obligated to provide certain limited management services
to several former non-subsidiary affiliates through October 1993 and
discontinued such services thereafter. The components of such provision in
Fiscal 1992 are described below.
Operating profit declined $24.1 million to $34.5 million in Fiscal 1993
from $58.6 million in Fiscal 1992 due primarily to the facilities relocation,
corporate restructuring and other significant charges aggregating $51.7 million
in April 1993 described above. Such charges reduced the operating profits
reported by each of the Company's segments to the extent of charges related
directly to their operations and also to the extent of corporate costs which
were allocable to such segments under the management services agreements between
Triarc and its subsidiaries. Textiles operating profit increased to $47.2
million (inclusive of $5.4 million of restructuring and other charges) in Fiscal
1993, from $27.8 million (inclusive of a divisional restructuring charge of $2.5
million partially offset by a $2.0 million incentive accrual reversal) in Fiscal
1992 due to increased sales volume and improved margins. Fast food operating
profit was $7.9 million (inclusive of $9.7 million of restructuring and other
charges) in Fiscal 1993 compared to $14.3 million (inclusive of $1.1 million of
restructuring costs relating to the closing of two regional fast food franchise
offices partially offset by a $0.5 million incentive accrual reversal) in Fiscal
1992. Soft drink operating profit was $23.5 million (inclusive of $11.1 million
of restructuring and other charges) in Fiscal 1993 compared to $36.1 million
(inclusive of a $3.0 million incentive accrual reversal partially offset by a
$0.7 million charge for the relocation of the soft drink corporate office) in
Fiscal 1992. LP gas operating profit was $3.0 million (inclusive of
restructuring and other charges of $8.0 million) in Fiscal 1993 compared to
$12.7 million (inclusive of a $3.0 million incentive accrual reversal) in Fiscal
1992. Operating loss of other operations was $15.9 million (inclusive of $9.0
million of provision for write-off of notes receivable from former affiliates
and other charges) in Fiscal 1993 compared to an operating loss of $5.7 million
(inclusive of a $5.6 million provision for doubtful accounts from affiliates) in
Fiscal 1992. Other operations were negatively impacted in Fiscal 1993 by the
absence of operating profits for a portion of Fiscal 1993 of certain non-core
businesses sold earlier in the year. General corporate expenses were $31.1
million (inclusive of $8.5 million of restructuring and other charges and a $3.3
million provision for doubtful accounts from former affiliates) in Fiscal 1993
compared to $26.5 million (inclusive of an $11.2 million provision for doubtful
accounts from former affiliates partially offset by a $1.5 million incentive
accrual reversal) in Fiscal 1992.
Interest expense increased $1.0 million due to a charge in Fiscal 1993 of
$8.5 million for interest accruals on income tax matters, partially offset by
interest savings resulting from lower average levels of debt and lower interest
rates.
35
<PAGE>
Other income (expense), net, decreased $7.4 million to an expense of $0.9
million in Fiscal 1993 compared to income of $6.5 million in Fiscal 1992. The
major components of Other income (expense), net, in Fiscal 1993 include $3.2
million in costs for a proposed alternative financing which was never
consummated and expenses aggregating $9.3 million relating to certain
shareholder and other litigation (of which $5.9 million was recorded in the
fourth quarter) offset by a credit of approximately $8.9 million in connection
with the settlement of accrued rent as part of the Change in Control and a net
gain of approximately $2.2 million with respect to the sales of certain non-core
businesses, net of write-downs of $3.8 million to estimated net realizable value
of certain assets of other non-core businesses. The major components of Other
income (expense), net in Fiscal 1992 are described below.
The effective income tax rates differ from the statutory rate due
principally to losses of certain subsidiaries for which no income tax benefit is
available, certain expenses which are not deductible for tax purposes and, in
Fiscal 1993, an $11.8 million provision for income tax contingencies and other
matters (of which $7.9 million was recorded in the fourth quarter).
The effect of minority interests was a $3.4 million credit in Fiscal 1993
compared to a $0.5 million expense in Fiscal 1992 due principally to the
minority interest effect relating to the facilities relocation, corporate
restructuring and other significant charges in Fiscal 1993 described above.
Income (loss) from discontinued operations reflects the results, net of tax
and minority interests, of SEPSCO's utility and municipal services and
refrigeration operations of which SEPSCO has disposed or plans to dispose. Loss
from discontinued operations in Fiscal 1993 reflects a $12.9 million write-down
($5.4 million net of income tax and minority interest credits) relating to the
impairment of certain unprofitable properties and accruals for environmental
remediation and losses on certain contracts in progress.
The Fiscal 1993 extraordinary item resulted from the early extinguishment
of certain debt of RC/Arby's Corporation ('RCAC') in connection with the Change
in Control and was comprised of the write-off of unamortized deferred financing
costs of $3.7 million and the payment of prepayment penalties of $6.7 million,
net of tax benefit of $3.8 million.
The Fiscal 1993 cumulative effect of changes in accounting principles
resulted from a charge of $4.9 million, net of minority interests, from the
adoption of Statement of Financial Accounting Standards ('SFAS') 109 and an
after-tax charge, net of minority interests, of $1.5 million from the adoption
of SFAS 106. SFAS 109 requires an asset and liability approach for the
accounting for income taxes. As such, deferred income taxes are determined based
on the tax effect of the differences between the financial statement and tax
bases of assets and liabilities. The deferred income tax provision or benefit
for each year represents the increase or decrease, respectively, in the deferred
income tax liability during such year. SFAS 109 allows the recognition, subject
to a valuation allowance if necessary, of a deferred tax asset for net temporary
differences that will result in net deductible amounts in future years. SFAS 106
requires the Company to charge to expense the expected cost of other
postretirement benefits during the years the employees render services.
Net loss of $60.0 million in Fiscal 1993 increased from a net loss of $7.5
million in Fiscal 1992 principally as a result of the Fiscal 1993 facilities
relocation, corporate restructuring and other significant charges, including an
extraordinary charge and cumulative effect of changes in accounting principles,
previously discussed aggregating approximately $67.1 million, net of income tax
and minority interest credits.
36
<PAGE>
FISCAL 1992 COMPARED WITH FISCAL 1991
<TABLE>
<CAPTION>
OPERATING PROFIT
REVENUES (LOSS)
------------------------ --------------------
FISCAL FISCAL FISCAL FISCAL
1991 1992 1991 1992
---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Textiles................................................... $ 414,174 $ 456,402 $ 11,970 $ 27,753
Fast Food.................................................. 181,293 186,921 12,652 14,271
Soft Drink................................................. 138,082 143,830 30,597 36,112
Liquefied Petroleum Gas.................................... 150,348 141,032 13,628 12,676
Other...................................................... 143,265 146,518 (19,208) (5,746)
General corporate expenses................................. -- -- (26,335) (26,514)
---------- ---------- -------- --------
$1,027,162 $1,074,703 $ 23,304 $ 58,552
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
Revenues in Fiscal 1992 increased $47.5 million (4.6%) to $1.07 billion
from $1.03 billion in Fiscal 1991 principally due to higher selling prices and
volume in the Company's textiles segment. The soft drink and fast food segments
also experienced moderate increases in revenues partially offset by a decline in
revenues in the LP gas segment.
Cost of sales increased $31.0 million to $793.3 million in Fiscal 1992 from
$762.3 million in Fiscal 1991 due principally to the net increase in revenues
described above. Gross profit increased $16.5 million to $281.4 million in
Fiscal 1992 from $264.9 million in Fiscal 1991 and gross margin increased to
26.2% in Fiscal 1992 from 25.8% in Fiscal 1991, due principally to higher
selling prices in the textiles segment.
Advertising, selling and distribution increased $1.5 million to $67.5
million in Fiscal 1992 from $66.0 million in Fiscal 1991 due principally to
greater advertising support to bottlers in the soft drink segment.
General and administrative expenses decreased $28.5 million to $125.3
million in Fiscal 1992 from $153.8 million in Fiscal 1991 due primarily to a
$10.4 million decline in claims loss and other expenses of insurance operations
and the reversal in Fiscal 1992 of unpaid incentive accruals aggregating
approximately $10.0 million provided in prior years.
The Fiscal 1992 facilities relocation and corporate restructuring charge of
$4.3 million consisted of a $2.5 million provision relating to a strategic
restructuring within the textiles segment, a $1.1 million provision relating to
the closing of two regional fast food franchise offices and a $0.7 million
charge for the relocation of the soft drink corporate office. The Fiscal 1991
facilities relocation and corporate restructuring charge of $3.8 million related
to the relocation of the fast food corporate office.
Provision for doubtful accounts from affiliates was $25.7 million in Fiscal
1992 compared to $18.0 million in Fiscal 1991. The provision in Fiscal 1992
reflected $16.2 million and $1.8 million of reserves for amounts owed by APL and
PEC, respectively, in connection with the management services agreements
referred to above and provisions of $2.2 million and $5.5 million for certain
notes, accrued interest and insurance premiums receivable from or attributable
to APL and PEC, respectively. The provision for doubtful accounts from
affiliates in Fiscal 1991 reflected provisions of approximately $4.3 million and
$2.7 million of reserves for amounts owed by APL and PEC, respectively, in
connection with such management services agreements and provisions of $6.2
million and $2.3 million of reserves for certain notes, interest and equipment
lease receivables from APL and PEC, respectively. The provision in Fiscal 1991
also included a $1.0 million reserve related to the indemnification of certain
construction bonding arrangements on behalf of PEC and a $1.5 million reserve
for certain other unsecured amounts and insurance premiums attributable to APL.
Operating profit increased $35.3 million to $58.6 million in Fiscal 1992
from $23.3 million in Fiscal 1991, reflecting significant increases in each of
the Company's major segments, except for the LP gas and fast food segments,
which experienced moderate declines in operating profit. The largest increases
in operating profit occurred in the textiles segment as a result of the higher
selling prices and volume noted above and in the citrus operations (included in
'Other' in the table above) due to the absence in Fiscal 1992 of a significant
drop in the market price of frozen concentrate processed and held for sale in
Fiscal 1991. Operating results also improved in the insurance segment as a
result of a decline in claims loss and other expenses and in the soft drink
segment due primarily to higher selling prices. Also
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<PAGE>
contributing to the overall increase in operating profit was the reversal of
incentive accruals aggregating $10 million, partially offset by the $7.7 million
increase in provision for doubtful accounts from affiliates and the $0.5 million
increase in facilities relocation and corporate restructuring charges described
above.
Interest expense increased $5.1 million principally as a result of the July
1991 restructuring of indebtedness of RCAC and increased short-term borrowings
of Graniteville Company ('Graniteville').
Other income (expense), net, decreased $3.3 million to $6.5 million income
in Fiscal 1992 from $9.8 million in Fiscal 1991. Other income (expense), net in
Fiscal 1992 included gains of $4.6 million on repurchases of debentures for
sinking funds and interest income of $3.5 million offset by provisions
aggregating approximately $3.4 million with respect to certain shareholder and
Arby's litigation. Other income (expense), net in Fiscal 1991 included gains of
$3.5 million on repurchases of debentures for sinking funds, interest income of
$6.8 million, credits aggregating approximately $2.9 million with respect to a
reduction in previously accrued rent amounts and the allocation to affiliates of
a portion of previously accrued settlement costs with respect to certain
litigation, and proceeds aggregating $1.0 million from the realization of an
investment in a former bottling subsidiary offset in part by a $4.9 million
provision for a settlement of litigation relating to Graniteville's employee
benefit plan.
The effective income tax rates differ from the statutory rate due
principally to losses of certain subsidiaries for which no income tax benefit
was available and, in Fiscal 1991, a tax benefit for an employee benefit plan
settlement, a significant portion of the cost of which had been previously
accrued in the purchase accounting for Graniteville at which time no tax benefit
was recognizable.
The effect of minority interests increased to an expense of $0.5 million in
Fiscal 1992 compared to a credit of $0.6 million in Fiscal 1991 due principally
to improved results of CFC Holdings.
Income from discontinued operations increased due to improved operating
results of SEPSCO's utility and municipal services and refrigeration business
segments.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and cash equivalents amounted to $118.8 million as of
December 31, 1993 representing an increase of $22.2 million during the eight
months ended December 31, 1993. Such increase reflects (i) the $44.7 million of
proceeds from issuances of long-term debt in excess of repayments and (ii) the
$15.8 million excess of proceeds from the sales of assets ($45.1 million) over
capital expenditures ($29.3 million) less (i) net cash used by operations of
$27.4 million, (ii) payment of deferred financing costs of $4.7 million, (iii)
cash dividends on redeemable preferred stock of $2.5 million and (iv) net cash
of certain subsidiaries used during the period reported as a direct credit to
accumulated deficit of $3.7 million. The $44.7 million of excess proceeds from
the issuance of debt over debt repayments principally reflects the $51.5 million
of excess proceeds, before expenses, of the issuance by RCAC (a wholly owned
subsidiary of CFC Holdings, in turn a 94.6% owned subsidiary of Triarc and a
wholly-owned subsidiary of the Company), of $275.0 million of 9 3/4% senior
notes due 2000 (the '9 3/4% Senior Notes') less the $223.5 million of proceeds
therefrom utilized to repay the RCAC senior secured step-up rate notes (the
'Step-Up Notes'). The sale of assets principally reflected the $43.0 million of
proceeds available for continuing operations from the sale of SEPSCO's utility
and municipal services business segment. The cash used by operations of $27.4
million reflects the net loss of $39.5 million less $12.1 million of adjustments
to reconcile the net loss to cash and cash equivalents used in operating
activities principally (i) non-cash charges for depreciation and amortization of
$32.1 million, (ii) the $8.6 million loss from discontinued operations and (iii)
$2.2 million of other items less $30.8 million from changes in operating assets
and liabilities. The change in operating assets and liabilities principally
reflects higher receivables of $14.7 million due to (i) increased reinsurance
premiums, (ii) seasonally higher sales of liquefied petroleum gas, (iii) notes
due from the sale of fast food restaurants and (iv) higher inventories of $13.8
million reflecting an increase of $12.3 million of textiles inventories and a
regular seasonal buildup of $1.5 million in the liquefied petroleum gas segment.
The increase in textiles inventories is principally due to sales of certain
product lines below projections during Transition 1993. The Company is in the
process of reducing such inventories to more normal levels.
38
<PAGE>
The 9 3/4% Senior Notes mature on August 1, 2000 and do not provide for any
amortization of the principal amount thereof prior to such date. Interest at the
rate of 9 3/4% per annum is payable semi-annually on February 1 and August 1 of
each year. The 9 3/4% Senior Notes are secured by (i) all of the capital stock
and substantially all of the personal property of Royal Crown and Arby's, and
(ii) a pledge by CFC Holdings of all of the capital stock of RCAC. RCAC's
obligations with respect to the 9 3/4% Senior Notes are guaranteed by Royal
Crown and Arby's.
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 based
on the 180-day London Interbank Offered Rate ('LIBOR') (3.50% at December 31,
1993) and RCAC receives interest at a fixed rate of 4.72%. The LIBOR floating
rate was set as of September 24, 1993 at 3.375% through February 1, 1994.
Subsequent to February 1, 1994 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.
As of December 31, 1993 RCAC had outstanding $6.5 million principal amount
of the 16 7/8% Subordinated Debentures which are scheduled to be repaid in July
1994.
Graniteville, a 51% owned subsidiary of Triarc and 100% owned by the
Company and its subsidiary C.H. Patrick & Co., Inc. have $180.0 million senior
secured credit facility (the 'Graniteville Credit Facility') with Graniteville's
commercial lender. The Graniteville Credit Facility provides for senior secured
revolving credit loans of up to $100.0 million (the 'Revolving Loan') and an
$80.0 million senior secured term loan (the 'Term Loan') and expires in 1998. On
March 10, 1994 the Company amended the Graniteville Credit Facility to provide
for an increase in the maximum Revolving Loan to $107.0 million through
September 1, 1994. Borrowings under the Revolving Loan bear interest, at current
borrowing levels, at either the prime rate plus 1.25% per annum or the 90-day
LIBOR plus 3.00% per annum, at Graniteville's option. As of December 31, 1993
the Revolving Loan bore interest at a weighted average rate of 7.15%. The Term
Loan is repayable $11.5 million during calendar 1994 and $12.0 million per year
from 1995 through 1997, with a final payment of $25.0 million due in April 1998,
subject to mandatory prepayments of 50% of Excess Cash Flow, as defined. The
Term Loan bears interest, based on current borrowing levels, at the prime rate
plus 1.75% per annum or the 90-day LIBOR plus 3.5% per annum. As of December 31,
1993 the Term Loan bore interest at a weighted average rate of 7.39%. LIBOR
based borrowings are limited to approximately one-half of the aggregate
outstanding borrowings under the Graniteville Credit Facility. The borrowing
base for the Revolving Loan is the sum of 85% to 90% of eligible accounts
receivable, as defined, plus 65% of eligible inventory, as defined, provided
that advances against eligible inventory shall not exceed $35.0 million at any
time ($42.0 million through September 1, 1994). At December 31, 1993
Graniteville had $10.7 million of unused availability under the Revolving Loan.
The Graniteville Credit Facility is secured by all of the assets of Graniteville
and all obligations under the Graniteville Credit Facility are unconditionally
guaranteed by Triarc. As collateral for such guarantee, Triarc pledged (i) 51%
of the issued and outstanding stock of Graniteville (subject to an existing
pledge on such stock held by SEPSCO securing its note receivable from Triarc),
and (ii) the issued and outstanding common stock of SEPSCO owned by Triarc prior
to the SEPSCO Merger subsequently discussed.
Consolidated capital expenditures, inclusive of capitalized leases but
excluding the discontinued operations of SEPSCO, amounted to $34.0 million for
Transition 1993. The Company expects that capital expenditures during calendar
1994 will approximate $71.7 million. The anticipated 1994 expenditures reflect
increased levels of expenditures principally (i) in the fast food segment in
furtherance of its business strategies, principally for construction of new
restaurants, remodeling other older restauraunts (including the replacement of
equipment) and (ii) in the textile segment due to the completion of a dyeing
facility and open-end spinning equipment. The Company anticipates it will meet a
substantial portion of its capital expenditures through existing arrangements
rather than cash expenditures. At December 31, 1993 commitments for capital
expenditures aggregated approximately $23.4 million. Further, the pursuit of
potential acquisitions as part of the Company's growth strategy may also
contribute to its cash requirements.
39
<PAGE>
In the fourth quarter of Fiscal 1993 the Company recorded a charge of $43.0
million for facilities relocation and corporate restructuring costs in
connection with the Change in Control. As of December 31, 1993 the remaining
accrual for such costs was $30.4 million. Triarc expects cash requirements for
such accruals of $15.8 million for calendar 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 expects to pay between $7.0 and $8.0 million in the second
quarter of 1994, which amount has been fully reserved. The Company intends to
contest the two open issues at the Appellate Division of the IRS. The IRS has
recently commenced the examination of the Company's Federal income tax returns
for the tax years from 1989 to 1992. The amount and timing of any payments
required as a result of such examinations cannot presently be determined.
However, Triarc believes that adequate aggregate provisions have been made in
the current and prior years for any tax liabilities, including interest, that
may result from all such examinations.
The Company anticipates meeting its consolidated cash requirements for 1994
for debt repayments (see above and subsequent discussion), capital expenditures,
acquisitions, dividend payments aggregating approximately $5.8 million annually
on Triarc's redeemable preferred stock and any payments required as a result of
the examination of the Company's Federal income tax returns through existing
cash balances, future proceeds from the sale of remaining noncore businesses
(see subsequent discussion) and cash flows from operations (see prior
discussion). 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.
The ability of each of Triarc, RCAC, Graniteville, National Propane and
SEPSCO to meet its respective short-term cash requirements is discussed below.
TRIARC
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon cash flows from its subsidiaries, including repayments
by subsidiaries of outstanding loans from Triarc, loans to Triarc by
subsidiaries, and reimbursement by subsidiaries to Triarc in connection with the
providing of certain management services and payments under certain tax sharing
agreements with certain subsidiaries.
Triarc's principal subsidiaries are subject to certain limitations on their
ability to pay dividends and/or make loans or advances to Triarc. The ability of
any of Triarc's subsidiaries to pay cash dividends and/or make loans or advances
to Triarc is also dependent upon the respective abilities of such entities to
achieve sufficient cash flows after satisfying their respective cash
requirements, including debt service, to enable the payment of such dividends or
the making of such loans or advances. Under the terms of the indenture relating
to the 9 3/4% Senior Notes, RCAC is only permitted to pay cash dividends on its
common stock or make loans or advances to its parent, CFC Holdings, or to
Triarc, to the extent the aggregate amount of such payments declared or made
after August 12, 1993 shall not exceed (a) the sum of (i) 50% of the cumulative
net income of RCAC after July 1, 1993, (ii) the aggregate net cash proceeds
received by RCAC from the issuance or sale of its capital stock or from equity
contributions, and (iii) $1.0 million (b) less 100% of the cumulative net loss
of RCAC after July 1, 1993. In accordance with such limitation, as of December
31, 1993 RCAC could not pay any dividends, or make any loans or advances to CFC
Holdings. CFC Holdings is not presently subject to any agreement which limits
its ability to pay cash dividends or make loans or advances, although by reason
of the restrictions to which RCAC is subject, the ability of CFC Holdings in the
near term to obtain funds from its subsidiaries to do so is extremely limited.
Under the Graniteville Credit Facility, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including Triarc, in an
amount equal to 50% of the net income of Graniteville accumulated from the
beginning of the first fiscal year commencing on or after December 20, 1994,
provided that the outstanding principal balance of Graniteville's term loan is
less than $50.0 million at the time of the payments (the outstanding principal
balance was $72.5 million as of December
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<PAGE>
31, 1993), and certain other conditions are met. Accordingly, Graniteville is
unable to pay any dividends or make any loans or advances to Triarc prior to
December 31, 1995.
Under the indenture relating to National Propane's 13 1/8% senior
subordinated debentures due March 1, 1999 (the '13 1/8% Debentures') National
Propane was permitted as of December 31, 1993 to pay cash dividends of $16.9
million. However, it is unlikely National Propane's cash flows (see subsequent
discussion) will permit any cash dividends in the immediate future and, as a
result, Triarc currently anticipates that any dividends declared by National
Propane to Triarc as the holder of all of its outstanding common stock would be
used to offset indebtedness and interest accrued thereon owed by Triarc to
National Propane. Under the indenture relating to the 11 7/8% senior
subordinated debentures due February 1, 1998 (the '11 7/8% Debentures'), SEPSCO
was unable to pay any cash dividends to Triarc as of December 31, 1993. National
Propane and SEPSCO are not parties to any agreements restricting or limiting the
amount of loans or advances which they may make to Triarc.
As of December 31, 1993, Triarc had outstanding external indebtedness
consisting of a $34.2 million note issued in connection with the commutation of
certain insurance obligations. In addition, Triarc owed subsidiaries an
aggregate principal amount of $211.0 million, consisting of notes in the
principal amounts of $44.3 million and $69.0 million owed to CFC Holdings and
Graniteville, respectively (which bear interest at 9.5% per annum), and balances
of $71.2 million of advances owed to National Propane (which bear interest at
16.5% per annum) and $26.5 million remaining on a note payable to SEPSCO (which
bears interest at 13% per annum and is secured by the common shares of
Graniteville owned by Triarc).
In August 1993 NVF, a corporation which was affiliated with the Company
until the Change in Control, became a debtor in a case filed by its creditors
under Chapter 11 of the Federal Bankruptcy Code (the 'NVF Proceedings'). In
November 1993, the Company received correspondence from NVF's bankruptcy counsel
claiming that the Company and certain of its subsidiaries owed an aggregate of
$2.3 million to NVF relating to (i) certain claims with respect to insurance of
certain of NVF's properties by Chesapeake Insurance Company Limited ('Chesapeake
Insurance'), (ii) certain insurance premiums owed by the Company to IRM, a
subsidiary of NVF, and (iii) certain liabilities of IRM that NVF has alleged the
Company to be 25% responsible for. Triarc intends to vigorously contest such
claims. Nevertheless, Triarc has accrued $2.3 million with respect to claims
that might be made by NVF. Triarc believes that the outcome of the NVF
Proceedings, after considering the amounts provided, will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
In February 1994, the official committee of unsecured creditors of APL (the
'APL Committee') filed a complaint (the 'APL Complaint') against certain former
affiliates, Triarc and certain companies formerly or presently affiliated with
Victor Posner or with Triarc, alleging causes of action arising from various
transactions allegedly caused by the named former affiliates in breach of their
fiduciary duties to APL and resulting in corporate waste, fraudulent transfers
and preferences. In the APL Complaint, the APL Committee asserts claims against
Triarc for (a) aiding and abetting breach of fiduciary duty, (b) equitable
subordination of claims which Triarc may have against APL, (c) declaratory
relief as to whether APL has any liability to Triarc, and (d) recovery of
fraudulent transfers allegedly made by APL to Triarc prior to commencement of
APL's bancruptcy proceeding. The APL Complaint seeks an undetermined amount of
damages from Triarc, as well as the other relief identified in the preceding
sentence. Based upon the results of Triarc's investigation of these matters to
date, Triarc does not believe that the outcome of the APL Complaint will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Triarc expects its significant cash requirements for calendar 1994 will
include minimum required cash interest payments totaling approximately $8.0
million, consisting of $3.2 million of the note payable by third parties and
$4.8 million on its notes payable to SEPSCO and Graniteville, dividend payments
aggregating approximately $5.8 million on its redeemable preferred stock and
general corporate expenses including cash requirements for its facilities
relocation and corporate restructuring accruals of $15.8 million. Triarc
believes that its expected sources of cash, including existing cash balances,
reimbursement of general corporate expenses from subsidiaries in connection with
management services agreements, net payment received under tax sharing
agreements with certain subsidiaries and proceeds,
41
<PAGE>
if any, from the sale of certain subsidiary operations held for sale will be
sufficient to enable it to meet its short-term cash needs.
RCAC AND GRANITEVILLE
Triarc expects that funds generated from operations of RCAC and
Graniteville, plus existing cash balances remaining from the refinancing
completed in April 1993 and the issuance of the 9 3/4% Senior Notes in the case
of RCAC and borrowings under the Graniteville Credit Facility in the case of
Graniteville will be sufficient to enable those subsidiaries to meet their
respective short-term cash requirements.
NATIONAL PROPANE
The $56.0 million outstanding principal amount of the 13 1/8% Debentures at
December 31, 1993 requires semiannual interest payments by National Propane on
March 1 and September 1 of each year and also requires annual sinking fund
payments of $7.0 million on March 1 of each year. A final payment of principal
on the 13 1/8% Debentures of $21.0 million is due March 1, 1999.
The Company anticipates National Propane's cash requirements, excluding
cash flows from operations, for calendar 1994 will approximate $10.7 million.
Such amount consists of the $7.0 million general sinking fund payment, capital
expenditures of $2.6 million and an acquisition of a business in January 1994 of
$1.1 million. On March 1, 1994 National Propane utilized $7.1 million of
existing cash ($6.0 million as of December 31, 1993) together with $3.7 million
obtained from Triarc to make its sinking fund and interest payment on the
13 1/8% Debentures aggregating $10.7 million. In addition, the Company
anticipates National Propane's cash flows from operations will be reduced by
$3.4 million of payments related to the previously accrued facilities relocation
and corporate restructuring charges. National Propane believes its cash flows
from operations for calendar 1994, together with existing cash, should be
adequate to meet its cash requirements noted above. However, should such cash
flows not be adequate, Triarc may be required to supplement them with increased
cash payments of accrued interest and/or principal on National Propane's
advances to Triarc ($71.2 million as of December 31, 1993) to the extent Triarc
has cash available for payment or through restructuring of debt by National
Propane.
SEPSCO
SEPSCO is required to pay interest on the 11 7/8% Debentures semi-annually
on February 1 and August 1 of each year. SEPSCO is also required to retire
annually through the operation of a mandatory sinking fund $9.0 million
principal amount of the 11 7/8% Debentures. SEPSCO satisfied its semi-annual
interest payment and the mandatory sinking fund requirement due February 1, 1994
through cash received from the sale of the tree maintenance services operations.
The indenture relating to the 11 7/8% Debentures contains a provision which
limits to $100.0 million the aggregate amount of specified kinds of indebtedness
that SEPSCO and its consolidated subsidiaries can incur. Effective as of
December 31, 1993, such indebtedness was $63.0 million, resulting in additional
allowable indebtedness of $37.0 million.
SEPSCO anticipates its cash requirements for calendar 1994 will include
$3.9 million of capital expenditures to provide for business expansion in the
natural gas and oil and LP gas segments as well as $9.0 million of sinking fund
payments on the 11 7/8% Debentures (paid on February 1, 1994 as noted above).
SEPSCO should be able to meet such requirements during 1994 with cash and
marketable securities of $33.6 million.
DISCONTINUED OPERATIONS
On July 22, 1993, SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's utility and municipal services, and refrigeration
businesses. On July 22, 1993 SEPSCO's Board of Directors also authorized the
sale or liquidaiton of its natural gas and oil businesses. However on December
9, 1993 SEPSCO's Board of Directors decided to sell the natural gas and oil
businesses to Triarc following the merger of SEPSCO into a subsidiary of Triarc
(the 'SEPSCO Merger') and the
42
<PAGE>
resulting elimination of the minority interest in SEPSCO (see further discussion
under 'Contingencies' below) rather than selling such businesses to an
independent third party.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance services
operations previously included in its utility and municipal services business
segment for $69.6 million in cash plus the assumption by the purchaser of up to
$5.0 million in current liabilities resulting in a loss of $4.8 million. On
October 7, 1993 SEPSCO sold the stock of its two construction related operations
previously included in its utility and municipal services business segment for a
nominal amount subject to adjustments described below. As the related assets are
sold or liquidated the purchasers have agreed to pay, as deferred purchase
price, 75% of the net proceeds received therefrom (cash of $1.8 million had been
received as of December 31, 1993) plus, in the case of one of the entities, an
amount equal to 1.25 times the adjusted book value of such entity as of October
5, 1995 (the 'Book Value Adjustment'). As of October 7, 1993, the adjusted book
value of the assets of that entity aggregated approximately $1.6 million. In
addition, the Company paid an aggregate $2.0 million in October and November
1993 to cover the buyer's short-term operating losses and working capital
requirements for the construction related operations. The Company currently
expects to break even on the sales of the construction related operations
excluding any consideration of the potential Book Value Adjustment.
On April 8, 1994 SEPSCO sold substantially all of the operating assets of
the ice operations of its refrigeration business segment for $5.0 million in
cash, an approximate $4.3 million note (discounted value $3.3 million) and the
assumption by the buyer of certain current liabilities which as of December 31,
1993 approximated $1.0 million. The note, which bears no interest during the
first year and 5% thereafter, would be payable in installments of $0.12 million
in 1995 through 1998 with the balance of approximately $3.8 million due in 1999.
The only remaining discontinued operation is the cold storage operation of
SEPSCO's refrigeration business. The precise timetable for the sale and
liquidation of the cold storage operation will depend upon SEPSCO's ability to
identify appropriate potential purchasers and to negotiate acceptable terms for
the sale of such operation. SEPSCO currently anticipates completion of such sale
by July 22, 1994.
CONTINGENCIES
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 October 18, 1993, Triarc
entered into a settlement agreement (the 'SEPSCO Settlement') with the plaintiff
(the 'Plaintiff') in the SEPSCO Litigation. The SEPSCO Settlement provided,
among other things, that SEPSCO would be merged into, or otherwise acquired by,
Triarc or an affiliate thereof, in a transaction in which each holder of shares
of SEPSCO's common stock (the 'SEPSCO Common Stock') other than the Company will
receive in exchange for each share of SEPSCO Common Stock 0.8 shares of Triarc's
Class A Common Stock. On November 22, 1993 Triarc and SEPSCO entered into a
merger agreement (the 'SEPSCO Merger'). The SEPSCO Settlement was approved by
the District Court on January 11, 1994 and the SEPSCO Merger was approved on
April 14, 1994 by SEPSCO's stockholders other than the Company. The Merger was
consummated on April 14, 1994 pursuant to which a subsidiary of Triarc was
merged into SEPSCO in the manner described in the SEPSCO Settlement. Following
the SEPSCO Merger, the Company owns 100% of the SEPSCO Common Stock.
In September 1989 the Pennsylvania Insurance Commissioner as rehabilitator
of Mutual Fire, Marine and Inland Insurance Company ('Mutual Fire') commenced an
action in the Commonwealth Court of Pennsylvania against Chesapeake Insurance,
wholly-owned subsidiary of CFC Holdings. Such action, among other things, sought
recovery of $4.0 million allegedly owed by Chesapeake Insurance in connection
with certain reinsurance arrangements, specific performance by Chesapeake
Insurance of its alleged obligations under certain reinsurance arrangements by
requiring Chesapeake Insurance to provide a letter of credit in an amount in
excess of $12.0 million to secure certain alleged outstanding losses, and
compensatory and punitive damages in an amount in excess of $40.0 million
arising out of alleged bad faith in connection with such reinsurance
arrangements. In March 1994 Chesapeake Insurance paid Mutual Fire $12.0 million
in full settlement of all such claims.
43
<PAGE>
Chesapeake Insurance is registered under the Bermuda Insurance Act of 1978
and related regulations which require compliance with various provisions
regarding the maintenance of statutory capital and liquidity. Chesapeake
Insurance was not in compliance with the required solvency ratio as of December
31, 1993. However, since the Company no longer plans to write insurance or
reinsurance through Chesapeake Insurance, the non-compliance with the solvency
test will have no effect on the Company.
In March 1994 and effective December 31, 1993, Chesapeake Insurance entered
into an agreement with National Union Fire Insurance Company of Pittsburgh, PA.
('National Union'), an affiliate of AIG Risk Management, Inc. ('AIG'), for the
commutation (the 'Commutation') of all of the portion of the insurance
previously underwritten by AIG for the years 1977 to 1993, on behalf of the
Company and former affiliated companies which had been reinsured by Chesapeake
Insurance (representing approximately $63.5 million of the Company's insurance
loss reserves). In connection with the Commutation, the Company paid an
aggregate consideration of $63.5 million, consisting of $29.3 million of
restricted cash and short-term investments of insurance operations, and a
promissory note of Triarc payable to National Union in the principal amount of
$34.2 million. Following the Commutation Chesapeake Insurance had total assets
of $32.1 million and total liabilities of $29.3 million. The $32.1 million
principally consists of liquid assets and principally are cash, insurance
premiums receivable from affiliates and third parties, a $3.3 million note
receivable from an affiliate which matures in 1997 and funds held. Chesapeake
Insurance expects to be able to meet its cash requirements to liquidate its
remaining claims reserves with its cash balances and other assets.
In 1987 Graniteville was notified by the South Carolina Department of
Health and Environment Control ('DHEC') that it discovered certain contamination
of Langley Pond near Graniteville, South Carolina and DHEC asserted that
Graniteville may be one of the parties responsible for such contamination.
Graniteville entered into a consent decree providing for the study and
investigation of the alleged pollution and its sources. The study report
prepared by Graniteville's environmental consulting firm and filed with DHEC in
April 1990, recommended that pond sediments be left undisturbed and in place.
DHEC responded by requesting that Graniteville submit additional information
concerning potential passive and active remedial alternatives, with accompanying
supportive information. In May 1991 Graniteville provided this information to
DHEC in a report of Graniteville's environmental consulting firm. The 1990 and
1991 reports concluded that pond sediments should be left undisturbed and in
place and that other less passive remediation alternatives either provided no
significant additional benefits or themselves involved adverse effects on human
health, to existing recreational uses or to the existing biological communities.
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 the passage of time since the submission of the two reports by
Graniteville's environmental consulting firm without any objection or adverse
comment on such reports by DHEC and the absence of desirable remediation
alternatives, other than continuing to leave the Langley Pond sediments in place
and undisturbed as described in the reports, Triarc believes the ultimate
outcome of this matter will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
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 has begun a
study of remediation at such sites. SEPSCO has removed certain underground
storage and other tanks at certain facilities of its refrigeration operations
and has engaged in certain remediation in connection therewith. Such removal and
environmental remediation involved a variety of remediation actions at various
facilities of SEPSCO located in a number of jurisdictions. Such remediation
varied from site to site, ranging from testing of soil and groundwater for
contamination, development of remediation plans and removal in certain instances
of certain contaminated soils. Remediation has recently been completed or is
ongoing at five sites. In addition remediation will be required at thirteen
sites which were sold or leased to the purchaser of the ice operations discussed
above and such remediation will be made in conjunction with such purchaser.
Based on preliminary information and consultations with, and certain reports of,
environmental consultants and others, SEPSCO presently estimates SEPSCO's cost
of such remediation and/or removal will approximate $3.7
44
<PAGE>
million, all of which was provided for in prior years. In connection therewith,
SEPSCO has incurred actual costs through December 31, 1993 of $1.2 million and
has a remaining accrual of $2.5 million. The Company believes that after such
accrual the ultimate outcome of this matter will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
INFLATION AND CHANGING PRICES
Management believes that inflation did not have a significant effect on
gross margins during the three years ended April 30, 1993 and the eight-month
period ended December 31, 1993, since inflation rates generally remained at
relatively low levels. Historically, the Company has been successful in dealing
with the impact of inflation to varying degrees within the limitations of the
competitive environment of each segment of its business.
PENDING ACCOUNTING PRONOUNCEMENTS
In November 1992, the FASB issued SFAS No. 112, 'Employers' Accounting for
Postemployment Benefits' ('SFAS 112') which requires the accrual of certain
postemployment benefits under certain circumstances. The Company's accounting is
currently in accordance with SFAS 112 either because the Company does not
provide certain of such services contemplated, provides for certain of such
services but at no cost to the Company or does not meet the requirements for
accrual and such amounts are immaterial.
45
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants......................................................... 47
Consolidated Balance Sheets as of April 30, 1992 and 1993 and December 31, 1993............................ 48
Consolidated Statements of Operations for the Years Ended April 30, 1991, 1992 and 1993 and the Eight
Months Ended December 31, 1993........................................................................... 49
Consolidated Statements of Additional Capital For the Years Ended April 30, 1991, 1992 and 1993 and the
Eight Months Ended December 31, 1993..................................................................... 50
Consolidated Statements of Cash Flows for the Years Ended April 30, 1991, 1992 and 1993 and the Eight
Months Ended December 31, 1993........................................................................... 51
Notes to Consolidated Financial Statements................................................................. 53
</TABLE>
46
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
TRIARC COMPANIES, INC.:
We have audited the accompanying consolidated balance sheets of Triarc
Companies, Inc. (an Ohio corporation, formerly DWG Corporation) and subsidiaries
as of April 30, 1992 and 1993 and December 31, 1993, and the related
consolidated statements of operations, additional capital and cash flows for
each of the three years in the period ended April 30, 1993 and for the eight
months ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Triarc Companies, Inc. and
subsidiaries as of April 30, 1992 and 1993 and December 31, 1993 and the results
of their operations and their cash flows for each of the three years in the
period ended April 30, 1993 and for the eight months ended December 31, 1993 in
conformity with generally accepted accounting principles.
As discussed in Note 21 to the consolidated financial statements, effective
May 1, 1992, the Company changed its method of accounting for income taxes and
postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
Miami, Florida,
April 14, 1994.
47
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
-------------------- DECEMBER 31,
1992 1993 1993
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ($ -- , $86,982,000 and $98,971,000)....... $ 20,514 $ 96,635 $118,801
Restricted cash and cash equivalents (Note 5)........................ 8,200 5,589 8,029
Marketable securities (Note 6)....................................... -- -- 11,138
Receivables, net (Note 7)............................................ 75,030 116,257 124,319
Inventories (Note 8)................................................. 136,662 98,270 108,206
Deferred income tax benefit (Note 14)................................ -- 21,365 9,621
Net current assets of discontinued operations (Note 4)............... 10,474 6,823 841
Prepaid expenses and other current assets............................ 8,340 14,407 12,542
-------- -------- ------------
Total current assets............................................ 259,220 359,346 393,497
Restricted cash and short-term investments of insurance operations (Notes
5 and 13)............................................................... 26,457 18,271 --
Properties, net (Note 9).................................................. 256,180 237,853 261,996
Unamortized costs in excess of net assets of acquired companies (Note
10)..................................................................... 184,909 186,572 182,925
Net non-current assets of discontinued operations (Note 4)................ 56,225 60,086 15,223
Deferred costs and other assets (Note 11)................................. 38,179 48,534 43,605
-------- -------- ------------
$821,170 $910,662 $897,246
-------- -------- ------------
-------- -------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 15).......................... $109,849 $ 43,100 $ 40,280
Short-term debt...................................................... 19,464 -- --
Accounts payable (Notes 13 and 22)................................... 100,479 71,729 61,194
Accrued expenses (Note 12)........................................... 62,000 111,011 139,503
-------- -------- ------------
Total current liabilities....................................... 291,792 225,840 240,977
Long-term debt (Note 15).................................................. 289,758 488,654 575,161
Insurance loss reserves (Note 13)......................................... 84,222 76,763 13,511
Deferred income taxes (Note 14)........................................... 12,541 35,991 32,038
Deposits and other liabilities............................................ 15,165 17,157 12,565
Commitments and contingencies (Notes 13, 14, 23 and 24)
Minority interests........................................................ 41,210 29,850 27,181
Redeemable preferred stock, $12 stated value; authorized 6,000,000 shares
at April 30 and December 31, 1993, issued 5,982,866 shares; aggregate
liquidation preference and redemption amount $71,794,000 (Note 17)...... -- 71,794 71,794
Stockholders' equity (deficit) (Note 18):
Cumulative convertible preferred stock, $1 par value................. 31 -- --
Class A common stock, $.10 par value; authorized 40,000,000 shares at
April 30, 1992 and 75,000,000 shares at April 30 and December 31,
1993, issued 27,006,336, 27,983,805 and 27,983,805 shares.......... 2,701 2,798 2,798
Class B common stock, $.10 par value; authorized 12,000,000 shares at
April 30 and December 31, 1993, none issued........................ -- -- --
Additional paid-in capital........................................... 37,968 49,375 50,654
Retained earnings (accumulated deficit).............................. 53,920 (6,067) (46,987)
Less class A common stock held in treasury at cost; 1,117,274,
6,832,145 and 6,660,645 shares..................................... (8,315) (77,085) (75,150)
Other................................................................ 177 (4,408) (7,296)
-------- -------- ------------
Total stockholders' equity (deficit)............................ 86,482 (35,387) (75,981)
-------- -------- ------------
$821,170 $910,662 $897,246
-------- -------- ------------
-------- -------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED APRIL 30, ENDED
-------------------------------------- DECEMBER 31,
1991 1992 1993 1993
---------- ---------- ---------- ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Net sales.......................................... $ 977,145 $1,029,613 $1,011,015 $ 668,773
Royalties, franchise fees and other revenues....... 50,017 45,090 47,259 34,768
---------- ---------- ---------- ------------
1,027,162 1,074,703 1,058,274 703,541
---------- ---------- ---------- ------------
Costs and expenses:
Cost of sales...................................... 762,260 793,331 762,373 496,601
Advertising, selling and distribution (Note 25).... 66,030 67,505 72,891 75,006
General and administrative (Note 25)............... 153,824 125,311 135,193 101,965
Facilities relocation and corporate restructuring
(Note 25)........................................ 3,785 4,318 43,000 --
Provision for doubtful accounts from affiliates
(Notes 22 and 25)................................ 17,959 25,686 10,358 --
---------- ---------- ---------- ------------
1,003,858 1,016,151 1,023,815 673,572
---------- ---------- ---------- ------------
Operating profit................................. 23,304 58,552 34,459 29,969
Interest expense (Note 25).............................. (66,761) (71,832) (72,830) (44,847)
Other income (expense), net (Notes 20, 22 and 24)....... 9,776 6,542 (920) (7,991)
---------- ---------- ---------- ------------
Loss from continuing operations before income
taxes and minority interests.................. (33,681) (6,738) (39,291) (22,869)
Benefit from (provision for) income taxes (Note 14)..... 15,554 (2,956) (8,608) (7,793)
---------- ---------- ---------- ------------
(18,127) (9,694) (47,899) (30,662)
Minority interests in net loss (income)................. 626 (513) 3,350 223
---------- ---------- ---------- ------------
Loss from continuing operations.................... (17,501) (10,207) (44,549) (30,439)
Income (loss) from discontinued operations, net of
income taxes and minority interests (Note 4).......... (55) 2,705 (2,430) (8,591)
---------- ---------- ---------- ------------
Loss before extraordinary items and cumulative
effect of changes in accounting principles....... (17,556) (7,502) (46,979) (39,030)
Extraordinary items (Note 16)........................... 703 -- (6,611) (448)
Cumulative effect of changes in accounting principles,
net (Note 21)......................................... -- -- (6,388) --
---------- ---------- ---------- ------------
Net loss........................................... (16,853) (7,502) (59,978) (39,478)
Preferred stock dividend requirements (Notes 17 and
18)................................................... (11) (11) (121) (3,889)
---------- ---------- ---------- ------------
Net loss applicable to common stockholders......... $ (16,864) $ (7,513) $ (60,099) $ (43,367)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Loss per share (Note 1):
Continuing operations.............................. $ (.68) $ (.39) $ (1.73) $ (1.62)
Discontinued operations............................ -- .10 (.09) (.40)
Extraordinary items................................ .03 -- (.26) (.02)
Cumulative effect of changes in accounting
principles....................................... -- -- (.25) --
---------- ---------- ---------- ------------
Net loss...................................... $ (.65) $ (.29) $ (2.33) $ (2.04)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
49
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ADDITIONAL CAPITAL
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED APRIL 30, ENDED
-------------------------------- DECEMBER 31,
1991 1992 1993 1993
-------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Additional paid-in capital:
Balance at beginning of period........................... $ 37,880 $ 37,890 $ 37,968 $ 49,375
Common stock issued:
Excess of proceeds over par value from issuance of
833,332 common shares in connection with the
Change in Control (Note 3)........................ -- -- 9,567 --
Excess of fair value of 268,000 and 171,500 shares
issued as restricted stock from treasury shares
held over average cost of treasury shares (Note
18)............................................... -- -- 1,800 2,048
Conversion of preferred stock (Note 18)............. -- -- 15 --
Conversion of debentures (Note 18).................. 10 78 38 --
Excess of fair value of common stock over the option
price for stock options granted (Note 18).............. -- -- -- 231
Costs related to common shares to be issued (Note 24).... -- -- -- (1,000)
Redemption of preferred stock............................ -- -- (13) --
-------- -------- -------- ------------
Balance at end of period................................. $ 37,890 $ 37,968 $ 49,375 $ 50,654
-------- -------- -------- ------------
-------- -------- -------- ------------
Retained earnings (accumulated deficit):
Balance at beginning of period........................... $ 78,297 $ 61,433 $ 53,920 $ (6,067)
Net income of certain subsidiaries to conform reporting
periods of such subsidiaries to that of Triarc
Companies, Inc. for consolidation purposes (Note 2).... -- -- -- 1,115
Net loss................................................. (16,853) (7,502) (59,978) (39,478)
Dividends on preferred stock............................. (11) (11) (9) (2,557)
-------- -------- -------- ------------
Balance at end of period................................. $ 61,433 $ 53,920 $ (6,067) $(46,987)
-------- -------- -------- ------------
-------- -------- -------- ------------
Treasury stock:
Balance at beginning of period........................... $ (8,315) $ (8,315) $ (8,315) $(77,085)
Treasury stock acquired in exchange for redeemable
preferred stock (Note 17).............................. -- -- (71,794) --
Grant of restricted shares from treasury stock (Note
18).................................................... -- -- 3,024 1,935
-------- -------- -------- ------------
Balance at end of period................................. $ (8,315) $ (8,315) $(77,085) $(75,150)
-------- -------- -------- ------------
-------- -------- -------- ------------
Other (Note 18):
Balance at beginning of period........................... $ (1,538) $ (1,207) $ 177 $ (4,408)
Unearned compensation resulting from grant of restricted
shares, net of accumulated amortization (Note 18)...... -- -- (4,824) (2,480)
Net unrealized gains (losses) on marketable securities of
insurance operations, net of minority interests........ 331 1,384 239 (408)
-------- -------- -------- ------------
Balance at end of period................................. $ (1,207) $ 177 $ (4,408) $ (7,296)
-------- -------- -------- ------------
-------- -------- -------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
50
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED APRIL 30, ENDED
-------------------------------- DECEMBER 31,
1991 1992 1993 1993
-------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $(16,853) $ (7,502) $(59,978) $(39,478)
Adjustments to reconcile net loss
to net cash and cash equivalents
provided by (used in) operating
activities:
Depreciation and amortization
of properties............... 28,861 31,224 31,196 20,961
Amortization of costs in
excess of net assets of
acquired companies.......... 5,023 5,314 6,785 4,023
Amortization of deferred debt
discount, deferred financing
costs and unearned
compensation................ 5,287 6,536 6,396 7,113
Write-off of deferred
financing costs, net of
redemption discount......... -- -- 3,741 689
Provision for doubtful
accounts (including amounts
due from former
affiliates)................. 22,274 28,740 14,141 1,659
Provision for facilities
relocation and corporate
restructuring............... 3,785 4,318 43,000 --
Loss (gain) on sales of
assets, net................. 1,915 (388) (2,974) (1,006)
Gain on purchase of debentures
for sinking fund............ (3,510) (4,650) (117) --
Deferred income tax benefit... (8,466) (2,291) (4,867) (1,831)
Minority interests, net of
dividends paid.............. (356) 501 (3,607) (223)
Loss (income) from
discontinued operations..... 55 (2,705) 2,430 8,591
Cumulative effect of changes
in accounting principles.... -- -- 6,388 --
Other, net.................... (7,852) 1,544 5,209 2,889
Changes in operating assets
and liabilities:
Decrease (increase) in
restricted cash and
cash equivalents....... 172 (2,715) 2,611 (2,439)
Decrease (increase) in
restricted cash and
short-term investments
of insurance
operations............. 7,131 (3,198) 8,186 (5,774)
Decrease (increase) in
receivables............ 21,462 (5,103) 1,143 (14,707)
Decrease (increase) in
inventories............ (5,183) (13,330) 12,862 (13,839)
Decrease (increase) in
prepaid expenses and
other current assets... (5,761) 13,002 (7,425) (8,020)
Increase (decrease) in
accounts payable and
accrued expenses....... 2,156 867 (21,254) 15,870
Increase (decrease) in
insurance loss
reserves............... 1,672 (2,236) (7,459) (1,921)
Net cash and cash
equivalents
provided by (used
in) operating
activities........ 51,812 47,928 36,407 (27,443)
-------- -------- -------- ------------
Cash flows from investing activities:
Proceeds from sales of assets,
net............................... 2,068 1,929 39,464 45,081
Capital expenditures............... (32,233) (22,571) (23,758) (29,323)
Purchase of minority interests..... -- -- (17,200) --
Redemption of investment in
affiliate......................... -- -- 2,100 --
-------- -------- -------- ------------
Net cash and cash equivalents
provided by (used in)
investing activities........ (30,165) (20,642) 606 15,758
-------- -------- -------- ------------
Cash flows from financing activities:
Issuance of class A common stock... -- -- 9,650 --
Proceeds from long-term debt....... 21,096 5,800 396,595 291,590
Repayments of long-term debt....... (29,202) (69,658) (329,332) (246,903)
Deferred financing costs........... -- (6,900) (25,820) (4,673)
Increase (decrease) in short-term
debt.............................. 6,078 13,386 (14,745) --
Payment of preferred dividends..... (11) (11) (9) (2,557)
-------- -------- -------- ------------
Net cash and cash equivalents
provided by (used in)
financing activities........ (2,039) (57,383) 36,339 37,457
-------- -------- -------- ------------
Net cash provided by (used in)
continuing operations................. 19,608 (30,097) 73,352 25,772
Net cash provided by (used in)
discontinued operations............... (741) 4,772 2,769 136
Net cash of certain subsidiaries used
during the period reported as a direct
credit to accumulated deficit (see
Note 2)............................... -- -- -- (3,742)
-------- -------- -------- ------------
Net increase (decrease) in cash and cash
equivalents........................... 18,867 (25,325) 76,121 22,166
Cash and cash equivalents at beginning
of period............................. 26,972 45,839 20,514 96,635
-------- -------- -------- ------------
Cash and cash equivalents at end of
period................................ $ 45,839 $ 20,514 $ 96,635 $118,801
-------- -------- -------- ------------
-------- -------- -------- ------------
</TABLE>
(table continued on next page)
51
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(table continued from previous page)
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED APRIL 30, ENDED
-------------------------------- DECEMBER 31,
1991 1992 1993 1993
-------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid (received) during the
period for:
Interest expense.............. $ 60,329 $ 62,063 $ 61,475 $ 28,472
-------- -------- -------- ------------
-------- -------- -------- ------------
Income taxes (refunds), net... $(12,639) $ (6,718) $ 17,156 $ 11,288
-------- -------- -------- ------------
-------- -------- -------- ------------
Supplemental schedule of noncash
investing and financing activities:
Total capital expenditures......... $ 41,442 $ 31,253 $ 27,207 $ 34,045
Amounts representing capitalized
leases and other secured
financing......................... (9,209) (8,682) (3,449) (4,722)
-------- -------- -------- ------------
Capital expenditures paid in
cash.............................. $ 32,233 $ 22,571 $ 23,758 $ 29,323
-------- -------- -------- ------------
-------- -------- -------- ------------
</TABLE>
Effective December 31, 1993, the Company's insurance subsidiary entered
into an agreement with an unaffiliated insurance underwriter for the commutation
of all insurance previously underwritten by that underwriter and reinsured by
the Company's insurance subsidiary for the years 1977 to 1993 on behalf of the
Company and former affiliated companies. In connection with such commutation,
the Company transferred to such underwriter $29,321,000 of restricted cash and
short-term investments of insurance operations and a promissory note of the
Company in the principal amount of $34,179,000 in the discharge of approximately
$63,500,000 of insurance loss reserves previously reflected in the Company's
consolidated balance sheet. Due to its noncash nature, such transaction has not
been reflected in the consolidated statement of cash flows for the eight months
ended December 31, 1993.
In April 1993 Triarc issued 5,982,866 shares of its newly-created
redeemable convertible preferred stock in a one-for-one exchange for its Class A
common stock owned by an affiliate of Victor Posner, the former Chairman and
Chief Executive Officer of Triarc. Such transaction, which resulted in a
$71,794,000 increase in redeemable convertible preferred stock and an equal
increase in Class A common shares held in treasury at cost, is not reflected in
the consolidated statement of cash flows for the year ended April 30, 1993 due
to its noncash nature.
In July 1991 Triarc's subsidiary, RC/Arby's Corporation ('RCAC', formerly
Royal Crown Corporation), restructured a significant portion of its outstanding
indebtedness. Due to its noncash nature, the aspect of such restructuring
representing the exchange of one form of indebtedness for another on the part of
RCAC is not reflected in the consolidated statement of cash flows for the year
ended April 30, 1992. Also in connection with such restructuring, the shares of
preferred stock of RCAC held by Triarc were converted into common stock of RCAC
resulting in Triarc owning approximately 88.7% of RCAC's then outstanding voting
securities. Such conversion resulted in an increase of approximately $12,788,000
in unamortized costs in excess of net assets of acquired companies and a
corresponding increase in minority interests liability on a consolidated basis
which, due to its noncash nature, is not reflected in the consolidated statement
of cash flows for the year ended April 30, 1992.
In December 1991 Triarc's subsidiary, National Propane Corporation
('National Propane'), acquired from a subsidiary of American Financial
Corporation $5,000,000 aggregate principal amount of National Propane's 13 1/8%
senior subordinated debentures in exchange for a promissory note. Due to its
noncash nature, such exchange of debt is not reflected in the consolidated
statement of cash flows for the year ended April 30, 1992.
See accompanying notes to consolidated financial statements.
52
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Triarc
Companies, Inc. (formerly DWG Corporation and referred to herein as 'Triarc'
and, collectively with its subsidiaries, as the 'Company') and its principal
majority-owned subsidiaries. The principal majority-owned subsidiaries are
Graniteville Company ('Graniteville' -- a 51% owned subsidiary of Triarc and a
wholly-owned subsidiary of the Company as of April 14, 1994 and 85.8% owned
prior thereto), National Propane Corporation ('National Propane' -- a
wholly-owned subsidiary), Southeastern Public Service Company ('SEPSCO' -- a
wholly-owned subsidiary as of April 14, 1994 and 71.1% owned prior thereto) and
CFC Holdings Corp. ('CFC Holdings' -- a 94.6% owned subsidiary of Triarc and
wholly-owned by the Company as of April 14, 1994 and 98.4% owned prior thereto).
CFC Holdings has as its wholly-owned subsidiaries Chesapeake Insurance Company
Limited ('Chesapeake Insurance') and RC/Arby's Corporation ('RCAC', formerly
Royal Crown Corporation), and RCAC has as its wholly-owned subsidiaries Arby's,
Inc. ('Arby's') and Royal Crown Company, Inc. ('Royal Crown', formerly Royal
Crown Cola Co.). All significant intercompany balances and transactions have
been eliminated in consolidation. See Note 2 for periods included in the
consolidated financial statements and Note 24 for discussion of the merger
consummated on April 14, 1994.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
acquired are considered cash equivalents except for cash and short-term
investments of the insurance operations, which were considered part of a larger
pool of restricted investments and were included in 'Restricted cash and
short-term investments of insurance operations' in the accompanying consolidated
balance sheets.
MARKETABLE SECURITIES
Marketable securities are stated at the lower of cost or market.
INVENTORIES
The Company's inventories, consisting of materials, labor and overhead, are
valued at the lower of cost or market. Cost is determined on either the
first-in, first-out ('FIFO') basis (approximately 18% of inventories) or the
last-in, first-out ('LIFO') basis (approximately 82% of inventories) (see Note
8).
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of properties is computed principally on the
straight-line basis using the estimated useful lives of the related major
classes of properties: 3 to 9 years for transportation equipment; 3 to 30 years
for machinery and equipment; and 15 to 60 years for buildings. Leased assets
capitalized and leasehold improvements are amortized over the shorter of their
estimated useful lives or the terms of the respective leases. Gains and losses
arising from disposals are included in current operations.
UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
Costs in excess of net assets of acquired companies are generally being
amortized on the straight-line basis over 30 to 40 years. The amount of
impairment, if any, in 'Unamortized costs in excess of net assets of acquired
companies' ('Goodwill') is measured based on projected future results of
operations. To the extent future results of operations of those subsidiaries to
which the Goodwill relates
53
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
through the period such Goodwill is being amortized are sufficient to absorb the
related amortization, the Company has deemed there to be no impairment of
Goodwill.
AMORTIZATION OF DEFERRED FINANCING COSTS AND DEBT DISCOUNT
Deferred financing costs and original issue debt discount are being
amortized as interest expense over the lives of the respective debt using the
interest rate method. Unamortized original issue debt discount is reported as a
reduction of related long-term debt in the accompanying consolidated balance
sheets.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed during the year in which the
costs are incurred and amounted to $1,677,000, $2,132,000, $2,001,000 and
$1,338,000 for the years ended April 30, 1991, 1992 and 1993 and the eight
months ended December 31, 1993, respectively.
INCOME TAXES
The Company files a consolidated Federal income tax return with its 80% or
greater owned subsidiaries, which until April 14, 1994 (see Note 24) were
National Propane and CFC Holdings (since July 1991). Graniteville and SEPSCO
filed separate consolidated Federal income tax returns with their respective
subsidiaries through April 14, 1994 and subsequent thereto will be included in
the Company's consolidated federal income tax return. Deferred income taxes are
provided to recognize the tax effect of temporary differences between the
recognition of income and expenses for tax and financial statement purposes.
REVENUE RECOGNITION
The Company records sales principally when inventory is shipped or
delivered. The Company also records sales to a lesser extent (7% and 11% of
consolidated revenues for the year ended April 30, 1993 and the eight months
ended December 31, 1993, respectively) on a bill and hold basis under which the
goods are completed, packaged and ready for shipment; such goods are effectively
segregated from inventory which is available for sale; the risks of ownership of
the goods have passed to the customer; and such underlying customer orders are
supported by written confirmation. Franchise fees are recognized as income when
a franchised restaurant is opened. Franchise fees for multiple area developments
represent the aggregate of the franchise fees for the number of restaurants in
the area development and are recognized as income when each restaurant is opened
in the same manner as franchise fees for individual restaurants. Royalties are
based on a percentage of restaurant sales of the franchised outlet and are
accrued as earned.
INSURANCE LOSS RESERVES
Insurance loss reserves (see Note 13) include reserves for incurred but not
reported claims of $35,342,000, $29,693,000 and $3,436,000 at April 30, 1992 and
1993 and December 31, 1993, respectively. Such reserves for affiliated company
business are based on actuarial studies using historical loss experience. The
balance of the reserves for incurred but not reported claims were either
reported by unaffiliated reinsurers, calculated by the Company or based on
claims adjustors' evaluations. Management believes that the reserves are fairly
stated. Adjustments to estimates recorded resulting from subsequent actuarial
evaluations or ultimate payments are reflected in the operations of the periods
in which such adjustments become known.
54
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
LOSS PER SHARE
Loss per share has been computed by dividing the net loss applicable to
common stockholders (net loss plus dividend requirements on the Company's
preferred stocks) by the weighted average number of outstanding shares of common
stock during the period. Such weighted averages were 25,853,000, 25,867,000,
25,808,000 and 21,260,000 for the years ended April 30, 1991, 1992 and 1993, and
the eight months ended December 31, 1993, respectively. The preferred stock
dividend requirements deducted include cash dividends paid and cumulative
dividend requirements for each period not yet paid. Common stock equivalents
were not used in the computation of loss per share because such inclusion would
have been antidilutive.
RECLASSIFICATIONS
Certain amounts included in the prior years' consolidated financial
statements have been reclassified to conform with the current year's
presentation.
(2) CHANGE IN FISCAL YEAR
For the years ended April 30, 1991, 1992 and 1993, Graniteville and SEPSCO
were consolidated for their fiscal years ended on or about February 28 or 29;
CFC Holdings, which has a fiscal year-end of December 31, was consolidated for
its twelve-month period ended March 31; and National Propane was consolidated
for its fiscal year ending April 30. On October 27, 1993 Triarc's Board of
Directors approved a change in Triarc's fiscal year from a fiscal year ended
April 30 to a calendar year ending December 31, effective for the eight-month
transition period ended December 31, 1993. The fiscal years of Graniteville,
National Propane and SEPSCO were also so changed. As used herein, the years
ended April 30, 1991, 1992 and 1993 are referred to as 'Fiscal 1991', 'Fiscal
1992' and 'Fiscal 1993', respectively, and the eight-month period ended December
31, 1993 is referred to as 'Transition 1993'.
Triarc's majority-owned subsidiaries are included in (i) the accompanying
consolidated statements of operations for Transition 1993 for the eight-month
periods subsequent to the fiscal year or twelve-month periods included in the
consolidated financial statements for Fiscal 1993 and (ii) the accompanying
consolidated balance sheet for Transition 1993 as of December 31, 1993. As such
the consolidated statement of operations for Transition 1993 includes
Graniteville and SEPSCO for the eight months ended October 31, 1993 and CFC
Holdings for the eight months ended November 30, 1993. The results of operations
for Graniteville and SEPSCO for the two months ended December 31, 1993 and for
CFC Holdings for the month of December 1993 (collectively referred to herein as
the 'Lag Months') have been reported as a direct credit to the Company's
accumulated deficit.
55
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The following sets forth unaudited condensed consolidated financial
information for the eight months ended December 31, 1992, the comparable prior
year period to Transition 1993 (in thousands, except per share amounts):
<TABLE>
<S> <C>
Revenues.......................................................................... $715,852
Operating profit.................................................................. 51,073
Income from continuing operations before income taxes and minority interests...... 4,202
Provision for income taxes........................................................ (10,402)
Loss from continuing operations................................................... (6,925)
Income from discontinued operations, net.......................................... 3,030
Cumulative effect of changes in accounting principles, net........................ (6,388)
Net loss.......................................................................... (10,283)
Loss per share:
Continuing operations........................................................ (.27)
Discontinued operations...................................................... .12
Cumulative effect of changes in accounting principles........................ (.25)
Net loss..................................................................... (.40)
</TABLE>
The following sets forth condensed consolidated financial information for
the Lag Months (in thousands):
<TABLE>
<S> <C>
Revenues.......................................................................... $120,708
Operating profit.................................................................. 9,390
Income before income taxes........................................................ 3,610
Provision for income taxes........................................................ (1,820)
Net income........................................................................ 1,115
</TABLE>
(3) THE CHANGE IN CONTROL
On April 23, 1993, DWG Acquisition Group, L.P. ('DWG Acquisition'), a then
newly formed limited partnership controlled by Nelson Peltz and Peter W. May,
acquired control of Triarc from Victor Posner, the former Chairman and Chief
Executive Officer of the Company and certain entities controlled by him
(collectively, 'Posner') through a series of related transactions (the 'Change
in Control'). Immediately prior to the Change in Control, Posner owned
approximately 46% of the outstanding common stock of Triarc. Messrs. Peltz and
May are now Chairman and Chief Executive Officer and President and Chief
Operating Officer of the Company, respectively.
(4) DISCONTINUED OPERATIONS
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's utility and municipal services and refrigeration
businesses which have been accounted for as discontinued operations in the
Company's consolidated financial statements. On July 22, 1993 SEPSCO's Board of
Directors also authorized the sale or liquidation of its natural gas and oil
businesses. However on December 9, 1993 SEPSCO's Board of Directors decided to
sell the natural gas and oil businesses to Triarc following the merger of SEPSCO
into a subsidiary of Triarc (the 'SEPSCO Merger') and the resulting elimination
of the minority interest in SEPSCO (see Note 24) rather than selling such
businesses to an independent third party. Accordingly, the net assets of the
natural gas and oil businesses have been reclassified from the net current and
non-current assets of discontinued operations to 'Other assets' in the
accompanying balance sheet at December 31, 1993. Through October 31, 1993 the
natural gas and oil businesses were accounted for as discontinued operations in
the Company's consolidated financial statements. However, since Triarc does not
have a formal plan to sell
56
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
such businesses prior to July 22, 1994, the net assets of the natural gas and
oil businesses, are no longer accounted for as discontinued operations
subsequent to October 31, 1993. The consolidated statements of operations for
the six months ended October 31, 1993 have not been restated or reclassified to
continuing operations for periods prior thereto since the results of operations
of such businesses are not material. SEPSCO's utility and municipal services
business segment and its refrigeration business segment have been accounted for
as discontinued operations in the Company's consolidated financial statements.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance services
operations previously included in its utility and municipal services business
segment for $69,600,000 in cash plus the assumption by the purchaser of up to
$5,000,000 in current liabilities resulting in a loss of $4,571,000. On October
7, 1993 SEPSCO sold the stock of its two construction related operations
previously included in its utility and municipal services business segment for a
nominal amount subject to adjustments described below. As the related assets are
sold or liquidated the purchasers have agreed to pay, as deferred purchase
price, 75% of the net proceeds received therefrom (cash of $1,815,000 had been
received as of December 31, 1993) plus, in the case of one of the entities, an
amount equal to 1.25 times the adjusted book value of such entity as of October
5, 1995 (the 'Book Value Adjustment'). As of October 7, 1993, the adjusted book
value of the assets of that entity aggregated approximately $1,600,000. In
addition, the Company paid $2,000,000 during October and November, 1993 to cover
the buyer's short-term operating losses and working capital requirements for the
construction related operations. The Company currently expects to break even on
the sales of the construction related operations excluding any consideration of
the potential Book Value Adjustment, given its uncertainty.
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 which as of December 31, 1993 aggregated
approximately $1,000,000. While the amount of the loss has not been finalized,
the Company currently estimates it will approximate $2,500,000. The note, which
bears no interest during the first year and 5% thereafter, is payable in annual
installments of $120,000 in 1995 through 1998 with the balance of $3,815,000 due
in 1999. The only remaining discontinued operation is the cold storage operation
of SEPSCO's refrigeration business. The precise timetable for the sale and
liquidation of the cold storage operation will depend upon SEPSCO's ability to
identify appropriate potential purchasers and to negotiate acceptable terms for
the sale of such operation. SEPSCO currently anticipates completion of such sale
by July 22, 1994.
In connection with the dispositions referred to above, SEPSCO reevaluated
the estimated gain or loss from the sale of its discontinued operations and the
Company provided $12,400,000 ($8,820,000 net of minority interests of
$3,580,000) for the revised estimated loss on the sale of the discontinued
operations during Transition 1993. As of April 30, 1993 the Company had
estimated it would break even on the disposition of the discontinued operations.
The revised estimate principally reflects (a) $13,900,000 of losses consisting
of (i) approximately $4,600,000 of losses from the sales of the operations
comprising the utility and municipal services business segment previously
estimated to be approximately break-even, (ii) approximately $6,700,000 of
losses from the sale of operations comprising SEPSCO's refrigeration business
segment previously estimated to be a gain of $1,600,000 and (iii) $1,000,000 of
estimated losses from operations from July 22, 1993 to the actual or estimated
disposal dates of the discontinued operations previously estimated to breakeven
due to the previous reporting of SEPSCO's natural gas and oil business segment
as a discontinued operation less (b) previously estimated losses of $1,500,000
from the sale of SEPSCO's natural gas and oil business segment. The net loss
from the sale of the utility and municipal services business segment reflects a
reduction of $1,800,000 in the estimated sales price for the construction
related operations from previous estimates, a $2,000,000 reduction in
anticipated proceeds from asset sales by July 22, 1994, and other adjustments in
finalizing the loss on the sale of the tree maintenance services operations. The
reduction in proceeds from assets sales results
57
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
from the buyer of such businesses successfully negotiating extensions of certain
major contracts with respect to the larger of such businesses and as a result no
longer intending to immediately dispose of the major portion of the assets.
Should the buyer hold such assets through October 5, 1995, the $2,000,000
reduction in proceeds would be effectively realized through the Book Value
Adjustment. The $8,200,000 charge relating to the sale of the refrigeration
business segment principally results from (i) a $4,000,000 reduction in the
sales price for the ice operations and (ii) a $4,000,000 reduction in the
estimated sales prices of the cold storage operations based on preliminary sales
discussions and experience with respect to negotiating the sale of the other
operations.
After (i) consideration of (a) a $5,363,000 write-down (net of tax benefit
and minority interests of $7,540,000) in Fiscal 1993 relating to the impairment
of certain unprofitable properties and accruals for environmental remediation
and losses on certain contracts in progress reflected in operating profit (loss)
of discontinued operations set forth below, (b) the aforementioned $8,820,000
estimated loss on the sale of the discontinued operations and (ii) based on the
analysis performed to date with respect to the proposed sale of the cold storage
operations, the Company expects that all currently anticipated dispositions,
including the results of their operations through the actual or anticipated
disposal dates, will not have a material impact on the financial position or
results of operations of the Company.
The income (loss) from discontinued operations consisted of the following
(in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
------ ------ ------- ----------
<S> <C> <C> <C> <C>
Income (loss) from discontinued operations net of income taxes
and minority interests........................................ $(55) $2,705 $(2,430) $ 229
Loss on disposal of discontinued operations without income tax
benefit net of minority interests............................. -- -- -- (8,820)
------ ------ ------- ----------
$(55) $2,705 $(2,430) $ (8,591)
------ ------ ------- ----------
------ ------ ------- ----------
</TABLE>
The income (loss) from discontinued operations up to the July 22, 1993
measurement date and the loss from operations during the period July 23, 1993 to
December 31, 1993 subsequent to the measurement date, which has been previously
recognized, consisted of the following (in thousands):
<TABLE>
<CAPTION>
TRANSITION 1993
------------------------
MAY 1, JULY 23,
1993 1993
THROUGH THROUGH
FISCAL FISCAL FISCAL JULY 22, DECEMBER 31,
1991 1992 1993 1993 1993
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Results of Operations
Revenues............................ $188,161 $200,353 $204,714 $ 83,462 $ 43,973
Operating profit (loss)............. 3,030 9,012 (3,568) 2,298 (2,344)
Income (loss) before income taxes
and minority interests............ (134) 6,665 (6,016) 1,242 (3,338)
Benefit from (provision for) income
taxes............................. 50 (2,500) 2,274 (920) 920
Minority interests.................. 29 (1,460) 1,312 (93) 698
Net income (loss)................... (55) 2,705 (2,430) 229 (1,720)
</TABLE>
58
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Net current assets and non-current assets of the discontinued operations
consisted of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
------------------ DECEMBER 31,
1992 1993 1993
------- ------- ------------
<S> <C> <C> <C>
Balance Sheets
Cash.......................................................... $ -- $ -- $ 307
Receivables, net.............................................. 26,113 25,178 1,528
Inventories................................................... 3,524 2,845 647
Other current assets.......................................... 1,412 1,774 675
Current portion of long-term debt............................. (10,937) (9,709) (6)
Accounts payable.............................................. (1,813) (2,662) (512)
Other current liabilities..................................... (7,825) (10,603) (1,798)
------- ------- ------------
Net current assets of discontinued operations............ $10,474 $ 6,823 $ 841
------- ------- ------------
------- ------- ------------
Properties, net............................................... $93,977 $85,880 $ 17,681
Unamortized costs in excess of net assets of acquired
companies................................................... 228 202 --
Other assets.................................................. 72 37 149
Long-term debt................................................ (18,070) (16,992) (13)
Deferred income taxes......................................... (19,819) (8,477) --
Deposits and other liabilities................................ (163) (564) (2,594)
------- ------- ------------
Net non-current assets of discontinued operations........ $56,225 $60,086 $ 15,223
------- ------- ------------
------- ------- ------------
</TABLE>
(5) RESTRICTED CASH AND CASH EQUIVALENTS
The following is a summary of restricted cash and cash equivalents (in
thousands):
<TABLE>
<CAPTION>
APRIL 30,
---------------- DECEMBER 31,
1992 1993 1993
------ ------ ------------
<S> <C> <C> <C>
Deposits securing standby letters of credit(a)....................... $5,593 $5,264 $7,686
Litigation settlement escrow account(b).............................. 2,307 -- --
Collateral account for advertising promotions........................ 300 325 343
------ ------ ------------
$8,200 $5,589 $8,029
------ ------ ------------
------ ------ ------------
</TABLE>
- - ------------
(a) Deposits secure outstanding and standby letters of credit principally for
the purpose of securing certain performance and other bonds and payments
due under a lease.
(b) The escrow account was surrendered in September 1992 in payment of a
judgement in certain litigation. Such judgement costs were charged to
operations in Fiscal 1991 ($900,000) and in Fiscal 1992 ($1,407,000) and
are included in 'Other income (expense), net'.
- - ----------------------------------------------------------
'Restricted cash and short-term investments of insurance operations'
represent amounts which have been pledged as collateral under certain letters of
credit and reinsurance agreements to secure future payment of losses reflected
in the insurance loss reserves in the accompanying consolidated balance sheets
(see Note 13).
59
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(6) MARKETABLE SECURITIES
At December 31, 1993 marketable securities, which are stated at cost which
approximates fair market value, consisted of the following (in thousands):
<TABLE>
<S> <C>
Marketable equity securities............................................. $ 1,348
Marketable debt securities............................................... 9,790
-------
$11,138
-------
-------
</TABLE>
(7) RECEIVABLES, NET
The following is a summary of the components of receivables (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
-------------------- DECEMBER 31,
1992 1993 1993
-------- -------- ------------
<S> <C> <C> <C>
Receivables:
Trade...................................................... $ 76,381 $120,248 $123,405
Affiliated................................................. 34,730 134 --
Other...................................................... 3,025 3,238 7,883
-------- -------- ------------
114,136 123,620 131,288
-------- -------- ------------
Less allowance for doubtful accounts:
Trade...................................................... 6,890 7,363 6,969
Affiliated................................................. 32,216 -- --
-------- -------- ------------
39,106 7,363 6,969
-------- -------- ------------
$ 75,030 $116,257 $124,319
-------- -------- ------------
-------- -------- ------------
</TABLE>
Affiliated receivables and related allowances arose principally from the
providing of management services and equipment lease financing to certain former
affiliates of the Company in the ordinary course of business, as described in
Note 22.
(8) INVENTORIES
The following is a summary of the components of inventories (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------- DECEMBER 31,
1992 1993 1993
---------- --------- ------------
<S> <C> <C> <C>
Raw materials..................................................... $ 36,210 $ 24,655 $ 26,930
Work in process................................................... 9,870 6,244 6,676
Finished goods.................................................... 90,582 67,371 74,600
---------- --------- ------------
$ 136,662 $ 98,270 $108,206
---------- --------- ------------
---------- --------- ------------
</TABLE>
The current cost of LIFO inventories exceeded the carrying value thereof by
approximately $3,825,000, $2,494,000 and $2,535,000 at April 30, 1992, April 30,
1993 and December 31, 1993, respectively.
60
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(9) PROPERTIES
The following is a summary of the components of properties, at cost (in
thousands):
<TABLE>
<CAPTION>
APRIL 30,
---------------------- DECEMBER 31,
1992 1993 1993
---------- ---------- ------------
<S> <C> <C> <C>
Land............................................................ $ 25,207 $ 21,903 $ 21,834
Buildings and leasehold improvements............................ 100,814 99,151 112,495
Machinery and equipment......................................... 297,940 285,656 290,024
Transportation equipment........................................ 25,061 24,033 22,730
---------- ---------- ------------
449,022 430,743 447,083
Less accumulated depreciation and amortization.................. 192,842 192,890 185,087
---------- ---------- ------------
$ 256,180 $ 237,853 $261,996
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
Substantially all properties are pledged as collateral for certain debt
(see Note 15).
(10) UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The following is a summary of the components of the unamortized costs in
excess of net assets of acquired companies:
<TABLE>
<CAPTION>
APRIL 30,
---------------------- DECEMBER 31,
1992 1993 1993
---------- ---------- ------------
<S> <C> <C> <C>
Costs in excess of net assets of acquired companies............. $ 223,154 $ 230,925 $231,609
Less accumulated amortization................................... 38,245 44,353 48,684
---------- ---------- ------------
$ 184,909 $ 186,572 $182,925
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
(11) DEFERRED COSTS AND OTHER ASSETS
The following is a summary of the components of deferred costs and other
assets (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
-------------------- DECEMBER 31,
1992 1993 1993
--------- --------- ------------
<S> <C> <C> <C>
Deferred financing costs........................................... $ 16,793 $ 35,333 $ 36,005
Other.............................................................. 28,250 19,506 16,762
--------- --------- ------------
45,043 54,839 52,767
Less accumulated amortization of deferred financing costs.......... 6,864 6,305 9,162
--------- --------- ------------
$ 38,179 $ 48,534 $ 43,605
--------- --------- ------------
--------- --------- ------------
</TABLE>
(12) ACCRUED EXPENSES
The following is a summary of the components of accrued expenses (in
thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------- DECEMBER 31,
1992 1993 1993
--------- ---------- ------------
<S> <C> <C> <C>
Facilities relocation and corporate restructuring................. $ 1,704 $ 42,000 $ 30,396
Accrued compensation and related benefits......................... 18,584 20,199 23,891
Accrued interest.................................................. 5,037 9,973 21,882
Accrued marketing................................................. 11,990 8,108 16,878
Other............................................................. 24,685 30,731 46,456
--------- ---------- ------------
$ 62,000 $ 111,011 $139,503
--------- ---------- ------------
--------- ---------- ------------
</TABLE>
61
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(13) INSURANCE OPERATIONS
Chesapeake Insurance Company Limited ('Chesapeake Insurance'), a
wholly-owned subsidiary of CFC Holdings, (i) prior to October 1, 1993 provided
certain property insurance coverage for the Company and reinsured a portion of
certain insurance coverage which the Company and certain former affiliates
maintained with unaffiliated insurance companies (principally workers'
compensation, general liability, automobile liability and group life) and (ii)
prior to the Change in Control reinsured insurance risks of unaffiliated third
parties through various group participation. Net premiums attributable to former
affiliates were approximately $8,063,000, $4,400,000, $2,875,000 and $1,432,000
in Fiscal 1991, 1992, 1993 and Transition 1993, respectively. Chesapeake
Insurance no longer insures or reinsures any risks for periods commencing on or
after October 1, 1993.
In March 1994 and effective December 31, 1993, Chesapeake Insurance
consummated an agreement with National Union Fire Insurance Company of
Pittsburgh, PA. ('National Union'), an affiliate of AIG Risk Management, Inc.
('AIG'), concerning the commutation of all of the portion of the insurance
previously underwritten by AIG for the years 1977 to 1993, on behalf of the
Company and former affiliated companies which had been reinsured by Chesapeake
Insurance (the 'Commutation', representing approximately $63,500,000 of the
Company's insurance loss reserves). In connection with the Commutation, the
Company paid an aggregate consideration of $63,500,000, consisting of
$29,321,000 of restricted cash and short-term investments of insurance
operations, and a promissory note of Triarc payable to National Union in the
principal amount of $34,179,000.
Chesapeake Insurance is registered under the Bermuda Insurance Act of 1978
and related regulations which require compliance with various provisions
regarding the maintenance of statutory capital and liquidity. Chesapeake
Insurance was not in compliance with the required solvency ratio as of December
31, 1993. However, since Chesapeake Insurance ceased writing insurance or
reinsurance of any kind, the non-compliance with the solvency test will have no
effect on the Company.
In September 1989 the Pennsylvania Insurance Commissioner as rehabilitator
of Mutual Fire, Marine and Inland Insurance Company ('Mutual Fire') commenced an
action in the Commonwealth Court of Pennsylvania against Chesapeake Insurance.
Such action, among other things, sought recovery of $4,000,000 allegedly owed by
Chesapeake Insurance in connection with certain reinsurance arrangements,
specific performance by Chesapeake Insurance of its alleged obligations under
certain reinsurance arrangements by requiring Chesapeake Insurance to provide a
letter of credit in an amount in excess of $12,000,000 to secure certain alleged
outstanding losses, and compensatory and punitive damages in an amount in excess
of $40,000,000 arising out of alleged bad faith in connection with such
reinsurance arrangements. In March 1994 Chesapeake paid $12,000,000 to Mutual
Fire in full settlement of all claims. Such settlement was fully provided for
prior to Fiscal 1991 and is included in 'Accounts payable' in the accompanying
consolidated balance sheet as of December 31, 1993.
In June 1993, Chesapeake Insurance paid $8,075,000 to a surety in full
settlement of an approximate $13,800,000 liability due June 30, 1996 in
connection with the indemnification by Chesapeake Insurance and RCAC of bonding
arrangements on behalf of a former affiliate. The Company had fully provided for
such settlement in Fiscal 1992 and 1993.
62
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(14) INCOME TAXES
The loss from continuing operations before income taxes and minority
interests consisted of the following components (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Domestic................................................. $ (33,681) $ (4,717) $ (39,145) $ (24,768)
Foreign.................................................. -- (2,021) (146) 1,899
---------- --------- ---------- ----------
$ (33,681) $ (6,738) $ (39,291) $ (22,869)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
The benefit from (provision for) income taxes from continuing operations
consists of the following components (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Federal............................................... $ 9,420 $ (2,758) $ (9,994) $ (7,676)
State................................................. (2,032) (2,489) (3,232) (761)
Foreign............................................... (300) -- (249) (1,187)
--------- --------- ---------- ----------
7,088 (5,247) (13,475) (9,624)
--------- --------- ---------- ----------
Deferred:
Federal............................................... 7,905 2,466 3,094 4,240
State................................................. 561 (175) 1,773 (690)
Foreign............................................... -- -- -- (1,719)
--------- --------- ---------- ----------
8,466 2,291 4,867 1,831
--------- --------- ---------- ----------
Total............................................ $ 15,554 $ (2,956) $ (8,608) $ (7,793)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
63
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The current deferred income tax benefit and the non-current deferred income
tax liabilities consisted of the following components (in thousands):
<TABLE>
<CAPTION>
APRIL
30, DECEMBER 31,
1993 1993
-------- ------------
<S> <C> <C>
Current deferred income tax benefit:
Facilities relocation and corporate restructuring....................... $ 12,508 $ 5,041
Accrued employee benefit costs.......................................... 5,207 5,617
Allowance for doubtful accounts including non-affiliates................ 13,547 4,558
Reserve for income tax contingencies.................................... -- (3,500)
Other, net.............................................................. 2,195 267
-------- ------------
33,457 11,983
Less valuation allowance................................................ 12,092 2,362
-------- ------------
21,365 9,621
-------- ------------
Non-current deferred income tax liabilities:
Accelerated depreciation................................................ (38,448) (41,291)
Reserve for income tax contingencies and other tax matters.............. (15,192) (16,941)
Insurance loss reserves................................................. 6,952 7,061
Net operating loss and alternative minimum tax credit carryforward...... 10,042 37,506
Other, net.............................................................. 5,144 (295)
-------- ------------
(31,502) (13,960)
Less valuation allowance................................................ 4,489 18,078
-------- ------------
(35,991) (32,038)
-------- ------------
Deferred income tax liabilities associated with the discontinued
operations............................................................ (8,477) --
-------- ------------
(44,468) (32,038)
-------- ------------
$(23,103) $(22,417)
-------- ------------
-------- ------------
</TABLE>
The decrease in the net deferred tax liabilities from $23,103,000 to
$22,417,000 or a benefit of $686,000 differs from the benefit of $1,831,000
included in the provision for income taxes for Transition 1993 as a result of a
deferred tax provision of $1,145,000 included in the $1,115,000 credit to
'Accumulated deficit' for the Lag Months. The deferred income tax liabilities
associated with the discontinued operations principally result from accelerated
depreciation less net operating loss, depletion and alternative minimum tax
credit carryforwards.
Deferred income tax benefit (provision) result from timing differences in
recognition of income and expenses for tax and financial statement purposes. The
tax effects of the principal timing differences are as follows (such disclosure
is not presented for Transition 1993 as it is not required under Statement of
64
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income Taxes'
('SFAS 109')) (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1991 1992 1993
--------- --------- ---------
<S> <C> <C> <C>
Provision for interest on income tax contingencies and other tax
matters................................................................. $ -- $ -- $ 3,025
Insurance loss reserves................................................... 705 872 (675)
Facilities relocation and corporate restructuring......................... 1,437 (917) 12,508
Provision for income tax contingencies and other tax matters.............. -- -- (11,767)
Excess of (tax over book) book over tax depreciation, depletion and
amortization of properties.............................................. (1,935) (530) 2,921
Alternative minimum (tax) credit.......................................... 2,376 976 (2,684)
Carryforward recognized as a reduction of deferred credits................ -- 3,358 --
Expenses not deductible until paid........................................ 2,032 527 1,503
Tax on dividends from subsidiaries not included in consolidated return.... (416) (1,104) (334)
Amortization of debt discount............................................. 259 335 317
Benefit from unrealized losses on marketable securities................... 498 960 130
Employee benefit plan payment............................................. 3,064 (3,064) --
Pension benefit recognized for tax purposes............................... -- 530 --
Other, net................................................................ 446 348 (77)
--------- --------- ---------
$ 8,466 $ 2,291 $ 4,867
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the reported income tax benefit (provision) and a
computed tax benefit based on loss from continuing operations before income
taxes and minority interests at the statutory rate of 34% for Fiscal 1991 and
Fiscal 1992, 34.3% for Fiscal 1993 and 35% for Transition 1993, is reconciled as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Income tax benefit computed at Federal statutory rate....... $ 11,452 $ 2,291 $ 13,477 $ 8,004
Decrease (increase) in Federal taxes resulting from:
Provision for income tax contingencies and other tax
matters.............................................. -- -- (11,767) (7,200)
Effect of net operating losses for which no tax
carryback benefit is available....................... (3,021) (1,977) (2,555) (2,797)
Non-deductible litigation settlement................... -- -- -- (1,576)
Amortization of nontaxable debits resulting from
purchase accounting adjustments...................... (408) (531) (3,012) (1,329)
Tax on dividends from subsidiaries not included in
consolidated returns................................. (416) (1,104) (1,409) --
Consulting agreement with Steven Posner (Note 25)...... -- -- (2,058) --
State taxes, net of Federal income tax benefit......... (971) (1,758) (959) (943)
Foreign tax rate in excess of United States Federal
statutory rate....................................... (300) -- (251) (1,909)
Defined benefit pension plan settlement previously
accrued in purchase accounting without tax benefit... 8,429 -- -- --
Other, net............................................. 789 123 (74) (43)
--------- --------- --------- ----------
$ 15,554 $ (2,956) $ (8,608) $ (7,793)
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
65
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
As of December 31, 1993, Triarc had net operating loss carryforwards for
Federal income tax purposes of approximately $69,000,000. Such carryforwards
will expire approximately $11,000,000 in the year 2006, approximately
$27,000,000 in the year 2007 and approximately $31,000,000 in the year 2008. In
addition the Company has alternative minimum tax credit carryforwards of
approximately $1,800,000 which have an unlimited carryforward period.
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service ('IRS') for the tax years 1985 through 1988. The
Company has resolved all but two issues related to such audit and in connection
therewith expects to pay between $7,000,000 and $8,000,000 in the second quarter
of 1994, which amount has been fully reserved. The Company intends to contest
the two open issues at the Appellate Division of the IRS. The IRS has recently
commenced the examination of the Company's Federal income tax returns for the
tax years from 1989 through 1992. During Fiscal 1993 and Transition 1993, the
Company provided estimated charges in the amount of approximately $11,767,000
and $7,200,000, respectively, to provision for income taxes from continuing
operations and $8,547,000 and $1,322,000, respectively, to interest expense
relating to such examinations and other tax matters. Management of the Company
believes that adequate aggregate provisions have been made in Transition 1993
and prior fiscal years for any tax liabilities including interest, that may
result from such examinations and other tax matters.
66
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(15) LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
---------------------- DECEMBER 31,
1992 1993 1993
---------- ---------- ------------
<S> <C> <C> <C>
9 3/4% senior notes due 2000 (a)................................ $ -- $ -- $275,000
Credit facility, bearing interest at prime or LIBOR plus from
1.25% to 3.5%, due through April 1998 (b):
Revolving loan (weighted-average rate of 7.15% at December
31, 1993)................................................ -- 72,734 89,324
Term loan (weighted-average rate of 7.39% at December 31,
1993).................................................... -- 80,000 72,500
11 7/8% senior subordinated debentures due February 1, 1998
(less unamortized deferred discount of $6,666, $5,282 and
$4,203) (c)................................................... 65,334 57,718 58,797
13 1/8% senior subordinated debentures due March 1, 1999 (less
unamortized deferred discount of $4,654, $3,815 and $3,278)
(d)........................................................... 58,346 52,185 52,722
9 1/2% note payable due $5,584 in 1996, $4,046 in 1997, $2,564
in 1998, $1,628 in 1999, $482 in 2000 and $19,875 in 2003..... -- -- 34,179
16 7/8% subordinated debentures due 1994........................ 18,092 15,470 6,470
Step-up rate notes, refinanced August 12, 1993 (a).............. -- 225,000 --
Equipment notes, bearing interest at 7% to 12% due through 1998
(e)........................................................... 34,394 32,570 7,097
American Financial Corporation ('AFC') Exchange Agreement, paid
in April 1993................................................. 103,352 -- --
AFC loans and secured note payable paid in April 1993 (less
unamortized deferred discount of $1,193)...................... 54,605 -- --
Notes payable to banks, paid in July 1992....................... 20,000 -- --
Term loan, paid in April 1993................................... 46,875 -- --
Other notes payable with interest ranging from 9% to 12.5%
secured by equipment.......................................... 6,112 5,237 4,359
Capitalized lease obligations................................... 13,374 11,895 12,073
Other........................................................... 8,006 5,143 2,920
---------- ---------- ------------
Total debt................................................. 428,490 557,952 615,441
Less:
Equipment notes relating to equipment of discontinued
operations............................................... 28,883 26,198 --
Amounts payable within one year............................ 109,849 43,100 40,280
---------- ---------- ------------
$ 289,758 $ 488,654 $575,161
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
67
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Aggregate annual maturities of long-term debt, including required sinking
fund payments and capitalized lease obligations, are as follows as of December
31, 1993 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- - --------------------------------------------------------------
<S> <C>
1994.......................................................... $ 40,280
1995.......................................................... 33,239
1996.......................................................... 37,060
1997.......................................................... 34,456
1998.......................................................... 152,608
Thereafter.................................................... 325,279
----------
622,922
Less unamortized deferred discount............................ 7,481
----------
$ 615,441
----------
----------
</TABLE>
(a) On August 12, 1993 the Company issued $275,000,000 of fixed rate senior
secured debt securities pursuant to a public offering by RCAC (the '9 3/4%
Senior Notes'). Approximately $223,475,000 of the net proceeds from the sale of
the 9 3/4% Senior Notes was used to redeem $225,000,000 principal amount of
RCAC's senior secured step-up rate notes (the 'Step-up Notes') at a discount of
$1,525,000 and $3,288,000 was used to pay related fees and expenses. The
remainder of the proceeds is being used for RCAC general corporate purposes,
including capital expenditures and potential business acquisitions. The 9 3/4%
Senior Notes bear interest at an annual rate of 9 3/4% and mature in 2000. The
9 3/4% Senior Notes are secured by (i) all of the capital stock and
substantially all of the personal property of Royal Crown and Arby's, and (ii) a
pledge by CFC Holdings of all of the capital stock of RCAC. RCAC's obligations
with respect to the 9 3/4% Senior Notes are guaranteed by Royal Crown and
Arby's. The 9 3/4% Senior Notes are redeemable at the option of the Company at
amounts commencing at 102.786% of principal commencing August 1998 decreasing to
101.393% in August 1999. In addition, should RCAC consummate an initial public
equity offering, RCAC may at any time prior to August 1, 1996 redeem up to
$91,667,000 of the 9 3/4% Senior Notes at 110% of principal with the net
proceeds of such public offering. RCAC incurred approximately $14,700,000 of
fees and expenses in connection with the issuance of the 9 3/4% Senior Notes
which are recorded as deferred financing costs.
On September 24, 1993 RCAC entered into a three-year interest rate swap
agreement (the 'Swap Agreement') in the amount of $137,500,000. Under the Swap
Agreement, interest on $137,500,000 is paid by RCAC at a floating rate which is
based on the 180-day London Interbank Offered Rate ('LIBOR') (3.50% at December
31, 1993) and RCAC receives interest at a fixed rate of 4.72%. The LIBOR
floating rate was set as of September 24, 1993 at 3.375% through February 1,
1994. Subsequent to February 1, 1994 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
$137,500,000 of its debt from a fixed rate to a floating rate basis. The
differential to be paid or received will be amortized to interest expense over
the three-year life of the Swap Agreement. As of December 31, 1993 the fair
value of the Swap Agreement was a liability of approximately $1,100,000 which is
the estimated amount RCAC would pay to terminate the Swap Agreement, as quoted
by the financial institution. The Swap Agreement has been entered into with a
major financial institution which, therefore, is expected to be able to fully
perform under the terms of the agreement, thereby mitigating any credit risk of
the transaction.
(b) Graniteville and its subsidiary, C.H. Patrick & Co., Inc. ('C.H.
Patrick'), have a $180,000,000 senior secured credit facility (the 'Graniteville
Credit Facility') with Graniteville's commercial lender. The Graniteville Credit
Facility provides for a senior secured revolving credit loans of up to
$100,000,000 (the 'Revolving Loan') with a $7,500,000 sublimit for letters of
credit and an $80,000,000
68
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
senior secured term loan (the 'Term Loan') and expires in 1998. As part of the
Graniteville Credit Facility, Graniteville's commercial lender factors
Graniteville's and C.H. Patrick's receivables, with credit balances assigned to
secure the Graniteville Credit Facility (the 'Factoring Arrangement').
Borrowings under the Revolving Loan bear interest, at Graniteville's
option, at either the prime rate plus 1.25% per annum or the 90-day LIBOR plus
3.00% per annum. If the unpaid principal balance of the Term Loan is less than
$55,000,000, the interest rate on the Revolving Loan will be reduced to the
prime rate plus 1.00% or the 90-day LIBOR rate plus 2.75%. All LIBOR loans will
have a 90-day interest period and will be limited to one-half of the total
borrowings under the Graniteville Credit Facility. The borrowing base for the
Revolving Loan will be the sum of 90% of accounts receivable which are
credit-approved by the factor ('Credit Approved Receivables'), plus 85% of all
other eligible accounts receivable, plus 65% of eligible inventory, provided
that advances against eligible inventory shall not exceed $35,000,000 at any one
time. Graniteville, in addition to the aforementioned interest, pays a
commission of 0.45% on all Credit-Approved Receivables, including a 0.20% bad
debt reserve which will be shared equally by Graniteville's commercial lender
and Graniteville after deducting customer credit losses.
The Term Loan is repayable $11,500,000 during calendar 1994 and $12,000,000
per year from 1995 through 1997, with a final payment of $25,000,000 due in
April 1998. Until the unpaid principal of the Term Loan is equal to or less than
$60,000,000 at the end of any fiscal year, Graniteville must make mandatory
prepayments in an amount equal to 50% of Excess Cash Flow, as defined, for such
fiscal year. The Term Loan bears interest at the prime rate plus 1.75% per annum
or the 90-day LIBOR plus 3.5% per annum. When the unpaid principal balance of
the Term Loan is less than $55,000,000, the interest rate thereon will be
reduced to the prime rate plus 1.375% or the 90-day LIBOR plus 3.125%. In each
case, LIBOR loans are limited to one-half of the total borrowings under the
Graniteville Credit Facility. In the event that Graniteville prepays the Term
Loan, in whole or in part, prior to April 23, 1996, then a prepayment fee shall
be payable as follows: 2% of the amount prepaid if the prepayment occurs prior
to April 23, 1994, 1% of the prepayment if prior to April 23, 1995 and 1/2 of 1%
if prior to April 23, 1996.
The Graniteville Credit Facility is secured by all of the assets of
Graniteville and the assets and stock of C.H. Patrick, including all accounts
receivable, notes (including a note receivable from Triarc of $66,600,000
excluding capitalized interest), inventory, machinery and equipment, trademarks,
patents and other intangible assets, and all real estate. Additionally, Triarc
has unconditionally guaranteed all obligations under the Graniteville Credit
Facility. As collateral for such guarantee, Triarc pledged (i) 51% of the issued
and outstanding stock of Graniteville (subject to pre-existing pledge of such
stock in connection with a Triarc intercompany note payable to SEPSCO in the
principal amount of $26,538,000), and (ii) the 71.1% of the issued and
outstanding common stock of SEPSCO owned by Triarc prior to the SEPSCO Merger
discussed in Note 24.
(c) SEPSCO is required to retire annually, through a mandatory sinking
fund, $9,000,000 principal amount of its 11 7/8% senior subordinated debentures
(the '11 7/8% Debentures') through 1997 with a final payment of $27,000,000 due
in 1998.
(d) National Propane is required to retire annually through a mandatory
sinking fund, $7,000,000 principal amount of its 13 1/8% senior subordinated
debentures (the '13 1/8% Debentures') through 1998 with a final payment of
$21,000,000 due in 1999.
(e) The equipment notes were issued by NPC Leasing Corp. ('NPC
Leasing' -- a wholly owned subsidiary of National Propane) and are secured by
vehicles and other equipment under lease to the Company, and in certain cases
are guaranteed by Triarc and/or National Propane. Upon the sale of certain of
the discontinued operations of SEPSCO as described in Note 4, $24,394,000 of
equipment notes were repaid prior to maturity during Transition 1993.
69
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The Company's debt agreements contain various covenants which (a) require
meeting certain financial amount and ratio tests; (b) limit, among other items,
(i) the incurrence of indebtedness, (ii) the retirement of certain debt prior to
maturity, (iii) investments, (iv) asset dispositions, (v) capital expenditures
and (vi) affiliate transactions other than in the normal course of business; and
(c) restrict the payment of dividends by Triarc's principal subsidiaries to
Triarc. As of December 31, 1993 National Propane had $16,897,000 available for
the payment of dividends and SEPSCO could not pay any dividends. Graniteville is
unable to pay any dividends prior to December 31, 1995. While there are no
restrictions applicable to CFC Holdings, CFC Holdings would be dependent upon
cash flows from RCAC to pay dividends and as of December 31, 1993 RCAC was
unable to pay any dividends or make any loans or advances to CFC Holdings.
The fair value of the 9 3/4% Senior Notes was approximately $7,000,000
higher than their carrying value as of December 31, 1993. The fair values of the
13 1/8% Debentures were approximately $4,700,000 and $3,300,000 higher than
their carrying values of $52,185,000 and $52,722,000 as of April 30, 1993 and
December 31, 1993, respectively. The fair values of the Senior Notes and the
13 1/8% Debentures were based on quoted market prices. The fair values of the
11 7/8% Debentures were approximately $5,400,000 and $5,500,000 higher than
their carrying values of $57,718,000 and $58,797,000 as of April 30, 1993 and
December 31, 1993. The 11 7/8% Debentures trade infrequently and the fair values
are based on the latest available list prices. The fair values of the Revolving
Loan and the Term Loan under the Graniteville Credit Facility approximated their
carrying values as of April 30, 1993 and December 31, 1993 due to their floating
interest rates. The fair value of the Step-up Notes approximated their carrying
value of $225,000,000 as of April 30, 1993 based on their intended refinancing
and redemption subsequent to April 30, 1993. The fair value of Triarc's 9 1/2%
note payable was approximately equal to its carrying value on December 31, 1993
due to its issuance effective that day. The carrying value of all other
long-term debt also approximated fair value based on then-current market rates
for similar securities as of April 30, 1993 and December 31, 1993.
(16) EXTRAORDINARY ITEMS
The Company recorded an extraordinary credit relating to the utilization of
net operating loss carryforwards of $703,000 in Fiscal 1991.
In connection with the early extinguishment of debt, the Company recognized
an extraordinary charge of $6,611,000 during Fiscal 1993, representing the
write-off of unamortized deferred financing costs of $3,741,000 and the payment
of prepayment penalties of $6,651,000, less $3,781,000 of income tax benefit.
In connection with the early extinguishment of the Step-up Notes and the
retirement of the 16 1/4% senior subordinated debentures and 16 7/8%
subordinated debentures (collectively, the 'RCAC Debentures') previously
reacquired, the Company recognized an extraordinary charge of $448,000, net of
$241,000 of income tax benefit during Transition 1993. Such pre-tax charge
consisted of the write-off of unamortized deferred financing costs of $1,632,000
on the Step-up Notes and $582,000 on the RCAC Debentures partially offset by
$1,525,000 of discount resulting from the redemption of the Step-up Notes.
(17) REDEEMABLE PREFERRED STOCK
The Company's redeemable convertible preferred stock (the 'Redeemable
Preferred Stock') has a stated and liquidation value of $12.00 per share and
bears a cumulative annual dividend of 8 1/8% payable semi-annually. The
Redeemable Preferred Stock is mandatorily redeemable on April 23, 2005 at $12.00
per share plus accrued but unpaid dividends and is redeemable at the option of
the Company commencing on April 23, 1998 at prices commencing at $12.84 in 1998
and decreasing annually thereafter by $0.12 to $12.00 in 2005.
70
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
If at any time during the period from April 23, 1996 to April 23, 1998, the
closing price per share of Triarc's Class A common stock, par value $.10 per
share (the 'Class A Common Stock'), is at least $18.50 per share for at least 20
of 30 consecutive trading days, Triarc can within 30 days thereafter require
conversion of all, but no less than all, of the Redeemable Preferred Stock into
Class A or Class B (see Note 18) Common Stock at a conversion price of $14.40
per share. If such conversion is required by Triarc, then, within 30 days after
such conversion, the holders of such common stock into which the Redeemable
Preferred Stock was converted shall have the unconditional right to require
Triarc to purchase all or part of such common stock at $21.00 per share. The
Redeemable Preferred Stock will be convertible, in whole or in part, by the
holder thereof at any time into shares of Triarc's Class B common stock, par
value $.10 per share (the 'Class B Common Stock'), at a conversion price of
$14.40 per share or a total of 4,985,722 shares (the 'Conversion Shares'),
which, if held by a person or persons not affiliated with Posner, are
convertible into the same number of shares of Class A Common Stock. Triarc has
reserved 4,985,722 shares of Class B Common Stock in accordance herewith. If
held by a person or persons not affiliated with Posner, the Redeemable Preferred
Stock is convertible directly into shares of Class A Common Stock at a
conversion price of $14.40 per share. However, Triarc has certain rights of
first refusal if shares of the Redeemable Preferred Stock are offered to a
person or person not affiliated with Posner.
(18) STOCKHOLDERS' EQUITY (DEFICIT)
The Company has 75,000,000 authorized shares of Class A Common Stock and
12,000,000 authorized shares of Class B Common Stock as of December 31, 1993.
The Class B Common Stock is identical to the Class A Common Stock, except that
Class A Common Stock has one vote per share and Class B Common Stock is
non-voting. Under certain circumstances, each share of Class B Common Stock is
convertible into one share of Class A Common Stock. No Class B Common Stock has
been issued. A summary of the changes in the number of issued shares of Class A
Common Stock is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Number of shares at beginning of period....................... 26,968 26,973 27,006 27,984
Common stock issued:
Issuance of 833,332 common shares to affiliates of
Donaldson, Lufkin and Jenrette Securities Corporation
and of Merrill Lynch & Co. in connection with the
Change in Control and related refinancings............. -- -- 833 --
Conversion of $.60 and $.35 preferred stock.............. 1 2 130 --
Conversion of debentures................................. 4 31 15 --
--------- --------- --------- ----------
Number of shares at end of period............................. 26,973 27,006 27,984 27,984
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
A summary of the changes in the number of shares of Class A Common Stock
held in treasury is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Number of shares at beginning of period............................ 1,117 1,117 1,117 6,832
Common shares acquired in exchange for Redeemable Preferred Stock
(Note 17)........................................................ -- -- 5,983 --
Restricted stock grants (see below)................................ -- -- (268) (171)
--------- --------- --------- ----------
Number of shares at end of period.................................. 1,117 1,117 6,832 6,661
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
71
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The Company has 7,000,000 authorized shares of preferred stock as of
December 31, 1993, excluding the 6,000,000 shares of Redeemable Preferred Stock.
Such preferred stock has been designated as Serial Preferred Stock, $.10 par
value (5,000,000 shares) and Junior Serial Preferred Stock, $.10 par value
(2,000,000 shares). No Serial Preferred Stock or Junior Serial Preferred Stock
has been issued. Prior to Transition 1993, Triarc had $.60 preferred stock and
$.35 preferred stock which were convertible into 7.789 and 4.439 shares of Class
A Common Stock, respectively, and were redeemable at their respective redemption
prices of $20.00 and $5.50 per share.
A summary of the changes in the number of shares of issued preferred stock
is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Number of shares at beginning of year........................................... 31 31 31
Conversions into common stock................................................... -- -- (29)
Redemptions..................................................................... -- -- (2)
-- --
------
Number of shares at end of year................................................. 31 31 --
-- --
-- --
------
------
</TABLE>
'Other stockholders' equity (deficit)' consisted of the following (in
thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------- DECEMBER 31,
1992 1993 1993
---- ------- ------------
<S> <C> <C> <C>
Unearned compensation................................................. $-- $(4,824) $ (7,304)
Net unrealized gains on marketable securities of insurance operations,
net of minority interests........................................... 177 416 8
---- ------- ------------
$177 $(4,408) $ (7,296)
---- ------- ------------
---- ------- ------------
</TABLE>
The Company has an amended and restated 1993 equity participation plan (the
'Equity Plan') under which certain directors, officers, key employees and
consultants are granted restricted stock and stock options. The Equity Plan
provides for a maximum of 3,500,000 shares of Class A Common Stock to be granted
as restricted stock or issued on the exercise of options.
Grantees of restricted stock are entitled to receive dividends and have
voting rights, but do not receive full beneficial ownership until the required
vesting period of three to four years has been completed and until certain other
requirements, if any, have been met. For Fiscal 1993 and Transition 1993,
respectively, 268,000 and 171,500 shares (including 150,000 shares granted to
certain of the members of a special committee of Triarc's Board of
Directors -- see Note 24) of restricted Class A Common Stock were granted. Such
restricted shares were granted from the Company's treasury stock. The market
value of the Company's Class A Common Stock ranged from $18.00 to $31.75
resulting in aggregate unearned compensation of $4,824,000 for Fiscal 1993 and
$3,983,000 for Transition 1993 which is being amortized to compensation expense
over the applicable vesting period. Compensation expense applicable thereto was
$1,503,000 in Transition 1993 (including $147,000 for 10,000 shares of
restricted stock whose vesting was accelerated effective December 31, 1993); in
Fiscal 1993 such expense was not significant. Subsequent to December 31, 1993 an
additional 51,750 additional shares of restricted stock were granted at an
aggregate market value at the date of grant of $1,109,000.
72
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
A summary of changes in outstanding stock options, none of which were
exercisable as of December 31, 1993, is as follows:
<TABLE>
<CAPTION>
FISCAL 1993 TRANSITION 1993
-------------------------- ---------------------------
NUMBER OF NUMBER OF
SHARES OPTION PRICE SHARES OPTION PRICE
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Balance at beginning of period............... -- 1,736,500 $ 18.00
Granted...................................... 1,736,500 $18.00 308,500 $20.00-$30.75
Terminated................................... -- (72,500 ) $18.00-$20.00
---------- ----------
Balance at end of period..................... 1,736,500 $18.00 1,972,500 $18.00-$30.75
---------- ----------
---------- ----------
</TABLE>
Options granted, net of terminations, in Transition 1993 included 275,000
options issued at an option price of $20.00 which was below the $31.75 fair
market value of the Class A Common Stock at the date of grant representing an
aggregate difference of $3,231,000. Such amount is being recorded as
compensation expense over the applicable vesting period of one to five years.
Compensation expense related thereto was $231,000 for Transition 1993.
Subsequent to December 31, 1993 an additional 502,000 stock options were
granted at option prices ranging from $21.00 to $24.125 representing the fair
market value per share of Class A Common Stock at the dates of grant.
The Company has an aggregate 8,046,222 shares of Class A Common Stock
reserved for issuance as of December 31, 1993 in connection with the Equity Plan
and the conversion, should it occur, of the Redeemable Preferred Stock.
(19) PENSION AND OTHER BENEFIT PLANS
The Company provides or provided defined benefit plans for employees of
certain subsidiaries. Prior to Fiscal 1991, all of the plans were temporarily
frozen pending review by management with respect to required changes necessary
to comply with the non-discrimination rules promulgated by the Tax Reform Act of
1986 and subsequent legislation. During 1991 the IRS issued final regulations
regarding such non-discrimination rules and as a result of the unfavorable
consequences of such regulations, management of the Company decided in calendar
1992 to freeze the plans permanently and terminate certain of the plans. In
accordance therewith, the Company recognized curtailment gains of $1,182,000 and
$2,562,000 in Fiscal 1992 and Fiscal 1993, respectively, and a termination gain
of $431,000 in Fiscal 1993.
The components of the net periodic pension cost (benefit) are as follows
(in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
------- ------- ------ ----------
<S> <C> <C> <C> <C>
Current service cost.......................................... $ 1,487 $ 389 $ 281 $ 195
Interest cost on projected benefit obligation................. 1,988 1,419 568 465
Return on plan assets......................................... (2,120) (2,255) (908) (1,041)
Net amortization and deferrals................................ (178) 21 213 564
------- ------- ------ ----------
Net periodic pension cost (benefit)...................... $ 1,177 $ (426) $ 154 $ 183
------- ------- ------ ----------
------- ------- ------ ----------
</TABLE>
73
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The following table sets forth the plans' funded status (in thousands):
<TABLE>
<CAPTION>
AGGREGATE OF PLANS WHOSE
--------------------------------------------------------------------------------
ASSETS EXCEEDED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEEDED ASSETS
-------------------------------------- --------------------------------------
APRIL 30, APRIL 30, DECEMBER 31, APRIL 30, APRIL 30, DECEMBER 31,
1992 1993 1993 1992 1993 1993
--------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefit obligations
Vested benefit
obligation............ $ 9,855 $ 4,077 $2,638 $ 3,917 $ 4,056 $4,274
Non-vested benefit
obligation............ 156 22 -- -- 68 78
--------- --------- ------------ --------- --------- ------------
Accumulated and
projected benefit
obligation............ 10,011 4,099 2,638 3,917 4,124 4,352
Plan assets at fair
value................. (11,641) (4,502) (2,821) (1,887) (3,538) (3,842)
--------- --------- ------------ --------- --------- ------------
Funded status........... (1,630) (403) (183) 2,030 586 510
Unrecognized prior
service costs......... (18) (17) -- (127) -- --
Unrecognized net gain
from plan
experience............ 1,961 163 234 90 60 267
Unamortized net asset
(obligation) at
transition............ (747) 182 -- (704) -- --
--------- --------- ------------ --------- --------- ------------
Accrued (prepaid) pension
cost....................... $ (434) $ (75) $ 51 $ 1,289 $ 646 $ 777
--------- --------- ------------ --------- --------- ------------
--------- --------- ------------ --------- --------- ------------
</TABLE>
Significant methods and assumptions used in measuring pension costs for the
plans included amortization of gains and losses and plan amendments over the
average remaining service lives of participants expected to receive benefits and
amortization of the transition asset or liability over 15 years. However,
subsequent to Fiscal 1992 the effects of plan amendments and the transition
asset or liability were eliminated as a result of the curtailments described
above. The expected long-term rate of return on plan assets was 9% for Fiscal
1991, 1992 and 1993 and 8% for Transition 1993. The discount rate was 9% and 7%
(for plans terminated in Fiscal 1992) for Fiscal 1991 and 1992, 8% for Fiscal
1993 and 7% for Transition 1993. The effect of the Fiscal 1993 reduction in the
discount rate for continuing plans and the aggregate effect of the Transition
1993 reductions in the expected long-term rate of return on plan assets and the
discount rate were not material.
Plan assets as of December 31, 1993 are invested in managed portfolios
consisting primarily of common stock (37%), government obligations (36%),
commercial paper and demand notes (19%) and other investments (8%).
Under certain union contracts, the Company is required to make payments to
the unions' pension funds based upon hours worked by the eligible employees. In
connection with these union plans, the Company provided $1,464,000 in Fiscal
1991, $1,359,000 in Fiscal 1992, $1,290,000 in Fiscal 1993 and $443,000 in
Transition 1993. Information from the administrators of the plans is not
available to permit the Company to determine its proportionate share of unfunded
vested benefits, if any.
The Company maintains unfunded medical and death benefit plans for certain
retired employees who have reached certain ages and have provided certain
minimum years of service. The medical benefits are contributory for some
employees and noncontributory for others, while death benefits are
noncontributory. Effective May 1, 1992 the Company adopted SFAS No. 106,
'Accounting for
74
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Postretirement Benefits Other than Pensions' ('SFAS 106') and, accordingly,
provided as 'Cumulative effect of changes in accounting principles, net' the
unfunded accumulated postretirement benefit obligation as of that date. Prior to
such date, the Company accounted for postretirement obligation payments on a
pay-as-you-go basis; in Fiscal 1991 and 1992 such payments were immaterial.
Net other postretirement benefit expense subsequent to the adoption of SFAS
106 consisted of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL TRANSITION
1993 1993(A)
------ ----------
<S> <C> <C>
Service cost -- benefit earned during the period..................................... $ 43 $ 6
Interest cost on accumulated postretirement benefit obligation....................... 219 92
------ ---
$ 262 $ 98
------ ---
------ ---
</TABLE>
The accumulated other postretirement benefit obligation consists of the
following (in thousands):
<TABLE>
<CAPTION>
FISCAL TRANSITION
1993 1993(A)
------ ----------
<S> <C> <C>
Retirees and dependents............................................................ $2,493 $1,260
Active employees eligible to retire................................................ 88 96
Active employees not eligible to retire............................................ 305 131
------ ----------
Accumulated other postretirement benefit obligation................................ 2,886 1,487
Unrecognized net loss.............................................................. -- (112)
------ ----------
Accrued other postretirement cost.................................................. $2,886 $1,375
------ ----------
------ ----------
</TABLE>
- - ------------
(a) The Transition 1993 amounts are lower than Fiscal 1993 since a significant
portion of such postretirement benefits relate to a non-consolidated
subsidiary which was sold.
- - ----------------------------------------------------------
For measurement purposes, a 12% annual rate of increase in the per capita
cost of covered health care benefits was assumed for Fiscal 1993 and Transition
1993. The rate was assumed to decrease one percentage point to 11% for 1994 and
continue to decrease one percentage point annually to 6% for 1999 and remain at
that level thereafter. The assumed health care cost trend rate effects the
amounts reported. To illustrate, increasing such rate by one percentage point in
each year would increase the accumulated other postretirement benefit obligation
as of December 31, 1993 by approximately $105,000 and the aggregate of the
service and interest cost components of the net other postretirement benefit
expense for Transition 1993 by approximately $9,500. The discount rate used in
determining the net other postretirement benefit expense was 8%; the discount
rate used in determining the accumulated other postretirement benefit obligation
was 8% and 7% for Fiscal 1993 and Transition 1993, respectively.
The Company maintains six 401(k) defined contribution plans covering all
employees, other than those covered by defined benefit plans or plans under
certain union contracts, who meet certain minimum requirements and elect to
participate. Employees may contribute various percentages of their compensation
ranging up to a maximum of 15%, subject to certain limitations. Certain of the
plans provide for Company matching contributions of 25% of employee
contributions up to the first 5% of an employee's contributions. The plans also
provide for annual contributions either equal to 1/4% of 1% of employee's total
compensation or an arbitrary aggregate amount to be allocated by employee. In
connection with these employer contributions, the Company provided $590,000,
$562,000, $707,000 and $1,373,000 in Fiscal 1991, Fiscal 1992 and Fiscal 1993
and Transition 1993, respectively. Effective in March 1994 the 401(k) plan of
one of the Company's subsidiaries was amended such that the subsidiary
75
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
will match up to 75% of employee contributions, dependent upon years of service
but limited to the first 4% of employee contributions.
(20) OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following components (in
thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
------ ------- ------- ----------
<S> <C> <C> <C> <C>
Interest income.............................................. $6,838 $ 3,543 $ 1,716 $ 1,619
Gains on repurchases of debentures for sinking funds (Note
15)........................................................ 3,510 4,650 117 --
Charges related to certain shareholder and other litigation
(Notes 24 and 25).......................................... (6,019) (3,411) (9,300) (6,074)
Gain (loss) on sales of assets, net.......................... (1,915) 338 2,974 1,006
Reduction to net realizable value of certain assets held for
sale....................................................... -- -- (3,800) (3,292)
Settlement of accrued rent balance (Note 22)................. -- -- 8,900 --
Commitment fees and other compensation costs relating to a
proposed financing not consummated (Note 25)............... -- -- (3,200) --
Reduction in previously accrued rent amounts and allocation
to affiliates of a portion of previously accrued settlement
costs...................................................... 2,900 -- -- --
Other expense, net (Notes 5 and 25).......................... 4,462 1,422 1,673 (1,250)
------ ------- ------- ----------
$9,776 $ 6,542 $ (920) $ (7,991)
------ ------- ------- ----------
------ ------- ------- ----------
</TABLE>
(21) CHANGES IN ACCOUNTING PRINCIPLES
Effective May 1, 1992 the Company changed its accounting for income taxes
and postretirement benefits other than pensions in accordance with SFAS 109 and
SFAS 106, respectively. The Company's adoption of such standards resulted in a
charge of $6,388,000 to the Company's results of operations for Fiscal 1993.
Such charge consisted of $4,852,000, net of applicable minority interests, and
$1,536,000, net of applicable income taxes and minority interests, related to
SFAS 109 and SFAS 106, respectively, and is reported as the 'Cumulative effect
of changes in accounting principles' in the accompanying consolidated statement
of operations for Fiscal 1993.
(22) TRANSACTIONS WITH RELATED PARTIES
Triarc provided certain management services including, among others, legal,
accounting, income taxes, insurance and financial services to certain former
affiliates through October 1993 when such services to former affiliates were
discontinued. In Fiscal 1991, 1992 and 1993 and Transition 1993, respectively,
$7,437,000, $8,084,000, $6,640,000 and $156,000, including interest on past due
balances but excluding charges relating to leased space, were charged to former
affiliates. Until January 31, 1994 Triarc also leased space on behalf of its
subsidiaries and former affiliates from a trust for the benefit of Victor Posner
and his children. In Fiscal 1991, 1992, 1993 and Transition 1993 respectively,
$9,245,000, $8,575,000, $6,616,000 and $2,896,000 was charged to the Company for
the cost of such leased space and $1,946,000, $1,124,000, $826,000 and $24,000
of such costs was charged by the Company to former affiliates. At April 30, 1992
Triarc owed rent and late charges aggregating $14,550,000, which was included in
'Accounts payable'. In connection with the Change in Control, all outstanding
rent obligations for such leased space aggregating approximately $20,638,000
were settled on April 23, 1993 for $11,738,000 resulting in a rent reduction
credit of approximately $8,900,000 included in 'Other
76
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
income (expense), net' in the accompanying consolidated statement of operations
for Fiscal 1993. In July 1993, Triarc gave notice to terminate the lease
effective January 31, 1994 and recorded a charge of approximately $13,000,000
included in 'Facilities relocation and corporate restructuring' in Fiscal 1993
to provide for the remaining payments on the lease subsequent to its
cancellation. As described below, certain amounts due from former affiliates
under such cost sharing arrangements were reserved and reallocated among
Triarc's subsidiaries and the other participants in such cost sharing
arrangements.
During Transition 1993, the Company sold a yacht and certain other assets
having a net book value of approximately $400,000 to an entity owned by Victor
Posner for cash sales prices aggregating approximately $310,000.
Insurance and Risk Management, Inc. ('IRM'), a former affiliate, acted as
agent or broker through April 1993 in connection with certain insurance coverage
obtained by the Company and provided claims processing services for the Company.
Commissions and payments for such services to IRM amounted to $1,727,000 in
Fiscal 1991, $1,778,000 in 1992 and $1,591,000 in 1993.
The Company uses two airplanes and a helicopter owned by Triangle Aircraft
Services Corporation ('TASCO'), a company owned by Messrs. Peltz and May. Prior
to October 1, 1993 the Company paid TASCO for such use at a rate equal to
TASCO's direct out-of-pocket expenses, excluding fuel, oil and lubricants, plus
two times the cost of fuel, oil and lubricants. The Company incurred usage fees
under this arrangement of $754,000 and $681,000 during Fiscal 1993 and the first
five months of Transition 1993, respectively. On October 1, 1993 the Company
began leasing the aircraft from TASCO for an aggregate annual rent of
$2,200,000. In connection with such lease the Company had rent expense for the
last three months of Transition 1993 of $550,000. Pursuant to this arrangement,
the Company also pays the operating expenses of the aircraft directly to third
parties.
The Company subleases from an affiliate of Messrs. Peltz and May
approximately 26,800 square feet of furnished office space in New York, New York
owned by an unaffiliated third party. In addition, until October 26, 1993, the
Company also sublet from another affiliate of Messrs. Peltz and May
approximately 32,000 square feet of office space in West Palm Beach, Florida
owned by an unaffiliated landlord. Subsequent to October 26, 1993, the Company
assumed the lease for approximately 17,000 square feet of the office space in
West Palm Beach. The sublease for the remaining approximate 15,000 square feet
in West Palm Beach expires in September 1994. The aggregate amount paid 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
$238,000, was $1,510,000 during Transition 1993, which is less than the
aggregate amount such affiliates paid to the unaffiliated landlords but
represents amounts the Company believes it would pay to an unaffiliated third
party for similar improved office space. Messrs. Peltz and May have guaranteed
to the unaffiliated landlords the payment of rent for the New York and West Palm
Beach office space.
Until February 1994, an affiliate of Messrs. Peltz and May leased an
apartment in New York City. Commencing June 1, 1993, such apartment was used by
executives of the Company and, in connection therewith, the Company reimbursed
such affiliate for $193,000 of rent for the apartment for the last seven months
of Transition 1993.
NPC Leasing leases vehicles and other equipment to subsidiaries and, prior
to Transition 1993, to former affiliates under long-term lease obligations which
are accounted for as direct financing leases. Lease billings by NPC Leasing to
former affiliates during Fiscal 1991, 1992 and 1993 were approximately
$1,182,000, $703,000 and $144,000, respectively. Subsequent to Fiscal 1993, NPC
Leasing has not provided any services to, nor is any material receivable due to
NPC Leasing from, any former affiliate.
In connection with certain cost sharing agreements, advances, insurance
premiums, equipment leases and accrued interest, the Company had receivables due
from APL Corporation ('APL'), a former affiliate, aggregating $38,120,000 as of
April 30, 1992, against which a valuation allowance of $34,713,000 was recorded.
During Fiscal 1993 the Company provided an additional $9,863,000, of which
77
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
$3,570,000 was provided during the fourth quarter, for the unreserved portion of
the receivable at April 30, 1992 and additional net billings in 1993. APL has
experienced recurring losses and other financial difficulties in recent years
and in June 1993 APL became a debtor in a proceeding under Chapter 11 of the
Federal bankruptcy code. Accordingly, the Company wrote off the full balance of
the APL receivables and related allowance of $44,576,000 during Fiscal 1993. See
Note 23 for discussion of APL's claims against the Company.
The Company also had secured receivables from Pennsylvania Engineering
Corporation ('PEC'), a former affiliate, aggregating $6,664,000 as of April 30,
1992 against which a $3,664,000 valuation allowance was recorded. During the
fourth quarter of Fiscal 1993, the Company provided an additional $3,000,000 for
the unreserved portion of the receivables. PEC had also filed for protection
under the bankruptcy code and, moreover, the Company has significant doubts as
to the net realizability of the underlying collateral.
Pursuant to an agreement dated as of October 1, 1992 entered into in
connection with the Change in Control, Triarc agreed to reimburse DWG
Acquisition for certain of the reasonable, out-of-pocket expenses incurred by
DWG Acquisition in connection with services rendered by it to Triarc without
charge relating to the refinancing and restructuring of Triarc and subsidiaries
and other transactions beneficial to Triarc and its subsidiaries. Pursuant to
such agreement, Triarc reimbursed DWG Acquisition for $229,000 in expenses
during Fiscal 1993, which amount related principally to travel, reproduction and
delivery expense.
During Fiscal 1993 and Transition 1993, Triarc and its subsidiaries paid
Rosen & Reade, a law firm, approximately $1,744,000 and approximately
$1,127,000, respectively, on account of legal services rendered to Triarc and
its subsidiaries. A director of Triarc is a partner of such firm.
See also Notes 3, 13, 17 and 25 with respect to certain other transactions
with related parties.
(23) LEASE COMMITMENTS
The Company leases buildings and improvements, machinery and equipment and
transportation equipment for periods that vary between one and twenty years.
Some leases provide for contingent rentals based upon sales volume, mileage or
production.
Rental expense consists of the following components (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Minimum rentals............................................ $14,150 $15,329 $14,874 $ 12,305
Contingent rentals......................................... 1,077 986 1,021 1,117
Lease termination charge (Note 21)......................... -- -- 13,000 --
------- ------- ------- ----------
15,227 16,315 28,895 13,422
Less sublease income....................................... 621 634 593 894
------- ------- ------- ----------
$14,606 $15,681 $28,302 $ 12,528
------- ------- ------- ----------
------- ------- ------- ----------
</TABLE>
78
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The Company's future minimum rentals for leases having an initial lease
term in excess of one year as of December 31, 1993 were as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITALIZED OPERATING SUBLEASE
LEASES LEASES INCOME
----------- --------- --------
<S> <C> <C> <C>
1994................................................................. $ 2,564 $12,772 $ 968
1995................................................................. 2,498 10,975 959
1996................................................................. 2,384 8,001 632
1997................................................................. 2,141 6,127 531
1998................................................................. 1,863 5,600 386
Thereafter........................................................... 9,841 33,659 278
----------- --------- --------
Total minimum payments............................................... 21,291 $77,134 $3,754
--------- --------
--------- --------
Less interest........................................................ 9,218
-----------
Present value of minimum capitalized lease payments.................. $12,073
-----------
-----------
</TABLE>
Present value of minimum capitalized lease payments is included, as
applicable, with long-term debt or the current portion of long-term debt in the
accompanying consolidated balance sheets (See Note 15).
Subsequent to December 31, 1993 RC Leasing, Inc., a wholly-owned subsidiary
of RCAC incorporated in January 1994, entered into a master lease agreement for
the lease of cold beverage vending machines with an aggregate cost not to exceed
$14,300,000 for a lease term of four years. RCAC will sublease such vending
machines to its bottlers at substantially the same rentals and lease terms as
its lease commitment.
(24) LEGAL MATTERS
Triarc and certain of its present and former directors were defendants in
certain litigation brought in the United States District Court for the Northern
District of Ohio (the 'Ohio Court'). In April 1993, the Ohio Court entered a
final order approving a modification (the 'Modification') which modified the
terms of a previously approved stipulation of settlement in such litigation. The
Modification resulted in the dismissal, with prejudice, of all actions before
the Ohio Court. The Company recorded charges to operations for related legal
fees of $219,000 and $2,004,000 in Fiscal 1991 and 1992, respectively, and
$6,225,000 in Fiscal 1993, included in 'Other income (expense), net' in the
accompanying consolidated statements of operations.
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 October 18, 1993, Triarc
entered into a settlement agreement (the 'SEPSCO Settlement') with the plaintiff
(the 'Plaintiff') in the SEPSCO Litigation. The SEPSCO Settlement provided,
among other things, that SEPSCO would be merged into, or otherwise acquired by,
Triarc or an affiliate thereof, in a transaction in which each holder of shares
of SEPSCO's common stock (the 'SEPSCO Common Stock') other than the Company will
receive in exchange for each share of SEPSCO Common Stock, 0.8 shares of
Triarc's Class A Common Stock. On November 22, 1993 Triarc and SEPSCO entered
into a merger agreement (the 'SEPSCO Merger'). The SEPSCO Settlement was
approved by the District Court on January 11, 1994 and the SEPSCO Merger was
approved on April 14, 1994 by SEPSCO's stockholders other than the Company. The
Merger was consummated on April 14, 1994 pursuant to which a subsidiary of
Triarc was merged into SEPSCO in the manner described in the SEPSCO Settlement.
Following the SEPSCO Merger, the Company owns 100% of the SEPSCO Common Stock.
The SEPSCO Settlement also provides that Plaintiff's counsel and financial
advisor will be paid, subject to court approval, cash not to exceed $1,250,000
and $50,000, respectively. An aggregate $1,700,000 including such costs together
with
79
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
estimated Company legal costs of $400,000 were provided for in Fiscal 1993 and
included in 'Other income (expense), net'. Triarc estimates that an aggregate
$5,000,000 of the value of its Class A Common Stock to be issued in the SEPSCO
Merger represents settlement costs of the SEPSCO Litigation including the
$1,250,000 of Plaintiff's counsel fees previously accrued in Fiscal 1993. The
remaining $3,750,000, together with $2,300,000 of additional estimated expenses
of the SEPSCO Settlement and the issuance of Triarc's Class A Common Stock, were
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. Such provision in Transition 1993 was allocated
$5,050,000 to 'Other income (expense), net' for the SEPSCO Settlement and
$1,000,000 to 'Additional paid-in capital' for costs associated with the Class A
Common Stock to be issued.
The SEPSCO Merger will be accounted for in accordance with the purchase
method of accounting. Accordingly, the Company's additional 28.87% interest in
SEPSCO's assets and liabilities will be recorded at their fair values and the
Company's minority interest in SEPSCO will be eliminated. The excess of purchase
price over the fair value of the additional interest in the net assets acquired
will be amortized on a straight-line basis over 30 years. The Company has not
yet performed a final evaluation of purchase accounting, and accordingly, cannot
presently determine the Goodwill that will result from the SEPSCO Merger.
However, assuming that the fair value of the additional interest acquired
approximates its book value and based on the market price per share of Triarc's
Class A Common Stock on April 14, 1994, the Company's Goodwill would increase by
approximately $25,000,000. Such increase in Goodwill is net of the portion of
the merger consideration which represents the settlement of the SEPSCO
Litigation (see above). Pro forma unaudited condensed summary operating results
of the Company for Transition 1993 giving effect to the SEPSCO Merger as if it
had been consummated on May 1, 1993, are as follows (in thousands, except per
share amount):
<TABLE>
<CAPTION>
<S> <C>
Revenues.................................................................................... $703,541
Operating profit............................................................................ 29,298
Loss from continuing operations before income taxes......................................... (23,540)
Provision for income taxes.................................................................. (7,793)
Loss from continuing operations............................................................. (31,333)
Loss from continuing operations per share(a)................................................ (1.47)
</TABLE>
- - ------------
(a) Loss from continuing operations per share reflects 2,691,822 additional
shares of Class A Common Stock that were issued on April 14, 1994 in
connection with the SEPSCO Merger.
- - ----------------------------------------------------------
In 1987 Graniteville was notified by the South Carolina Department of
Health and Environmental Control ('DHEC') that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report, prepared by Graniteville's environmental consulting firm and filed with
DHEC in April 1990, recommended that pond sediments be left undisturbed and in
place. DHEC responded by requesting that Graniteville submit additional
information concerning potential passive and active remedial alternatives, with
accompanying supportive information. In May 1991 Graniteville provided this
information to DHEC in a report of Graniteville's environmental consulting firm.
The 1990 and 1991 reports concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects on human health, to existing recreational uses or to the
existing biological communities. 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 the passage of time since the
submission of the two reports by
80
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Graniteville's environmental consulting firm without any objection or adverse
comment on such reports by DHEC and the absence of desirable remediation
alternatives, other than continuing to leave the Langley Pond sediments in place
and undisturbed as described in the reports, 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 has begun a
study of remediation at such sites. SEPSCO has removed certain underground
storage and other tanks at certain facilities of its refrigeration operations
and has engaged in certain remediation in connection therewith. Such removal and
environmental remediation involved a variety of remediation actions at various
facilities of SEPSCO located in a number of jurisdictions. Such remediation
varied from site to site, ranging from testing of soil and groundwater for
contamination, development of remediation plans and removal in certain instances
of certain contaminated soils. Remediation has recently been completed or is
ongoing at five sites. In addition remediation will be required at thirteen
sites which were sold or leased for the purchaser of the ice operations (see
Note 4) and such remediation will be made in conjunction with the purchaser.
Based on preliminary information and consultations with, and certain reports of,
environmental consultants and others, SEPSCO presently estimates that its cost
of such remediation and/or removal will approximate $3,661,000, of which
$1,300,000, $200,000 and $2,161,000 were provided in Fiscal 1991, Fiscal 1992
and Fiscal 1993, respectively. In connection therewith, SEPSCO has incurred
actual costs of $1,224,000 through December 31, 1993 and has a remaining accrual
of $2,437,000 included in 'Deposits and other liabilities', in Note 4.
In August 1993, NVF Company ('NVF'), which was affiliated with the Company
until the Change in Control, became a debtor in a case filed by its creditors
under Chapter 11 of the Federal Bankruptcy Code (the 'NVF Proceedings'). In
November 1993 the Company received correspondence from NVF's bankruptcy counsel
claiming that the Company and certain of its subsidiaries owed to NVF an
aggregate of approximately $2,300,000 with respect to claims for (i) certain
claims relating to the insurance of certain of NVF's properties by Chesapeake
Insurance, (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. The Company intends to vigorously contest
such claims. Nevertheless, during Transition 1993 Triarc provided approximately
$2,300,000 in 'General and administrative expenses' with respect to claims that
might be made by NVF. Triarc believes that the outcome of the NVF Proceedings,
after considering the amounts provided, will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
In February 1994, the official committee of unsecured creditors of APL (the
'APL Committee') filed a complaint (the 'APL Complaint') against certain former
affiliates, Triarc and certain companies formerly or presently affiliated with
Posner or with Triarc, alleging causes of action arising from various
transactions allegedly caused by the named former affiliates in breach of their
fiduciary duties to APL and resulting in corporate waste, fraudulent transfers
and preferences. In the APL Complaint, the APL Committee asserts claims against
Triarc for (a) aiding and abetting breach of fiduciary duty, (b) equitable
subordination of claims which Triarc may have against APL, (c) declaratory
relief as to whether APL has any liability to Triarc and (d) recovery of
fraudulent transfers allegedly made by APL to Triarc prior to commencement of
the APL proceedings. The APL Complaint seeks an undetermined amount of damages
from Triarc, as well as the other relief identified in the preceding sentence.
Based upon the results of Triarc's investigation of these matters to date,
Triarc does not believe that the outcome of the APL Complaint will have a
material adverse effect on the financial position or results of operations of
the Company.
81
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The Company is also engaged in ordinary routine litigation incidental to
its business. The Company does not believe that the litigation and matters
referred to above, as well as such ordinary routine litigation, will have a
material adverse effect on its consolidated financial position or results of
operations.
(25) SIGNIFICANT FISCAL 1993 AND TRANSITION 1993 CHARGES
The accompanying consolidated statement of operations for Fiscal 1993
includes the following significant charges recorded in the fourth quarter of
Fiscal 1993 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Estimated costs to relocate the Company's headquarters and terminate the lease on its
existing corporate facilities (see Note 22)................................................ $14,900
Estimated 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 estimated restructuring and facilities relocation charges (i)................ 43,000
Write-off of uncollectible notes and other amounts due from former affiliates (see Note 22),
net of a recovery of $1,430................................................................ 5,140(a)
Payment to the Special Committee of the Company's Board of Directors (ii).................... 4,900(b)
Provision for closing of certain non-strategic, Company-owned restaurants and abandoned
bottling facilities (iii).................................................................. 2,200(b)
Estimated costs to comply with new package labeling regulations (iv)......................... 1,500(c)
Reversal of unpaid incentive plan accruals provided in prior years (v)....................... (7,297)(b)
Other........................................................................................ 2,246(b)
-------
Total net charges affecting operating profit....................................... 51,689
Interest accruals relating to income tax matters (see Note 14)............................... 6,109(d)
Costs of certain shareholder and other litigation (vi)....................................... 5,947(e)
Settlement of accrued rent balance in connection with the Change in Control (see Note 22).... (8,900)(e)
Commitment fees and other compensation costs relating to a proposed financing which was not
consummated (vii).......................................................................... 3,200(e)
Reduction to estimated net realizable value of certain assets held for sale other than
discontinued operations.................................................................... 2,147(e)
Income tax benefit relating to the above net charges......................................... (15,435)
Provision for income tax contingencies and other tax matters (see Note 14)................... 7,897
Minority interest effect of above net charges................................................ (3,956)
Write-down relating to the impairment of certain unprofitable operations and accruals for
environmental remediation and losses on certain contracts in progress of discontinued
operations, net of income tax benefit and minority interests (see Note 4).................. 5,363
Extraordinary item, net (see Note 16)........................................................ 6,611
Cumulative effect of changes in accounting principles, net, retroactively reflected in the
first quarter (see Note 21)................................................................ 6,388
-------
$67,060
-------
-------
</TABLE>
- - ------------
(a) Included in 'Provision for doubtful accounts from affiliates'.
(b) Included in 'General and administrative expenses'.
(footnotes continued on next page)
82
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(footnotes continued from previous page)
(c) Included in 'Advertising, selling and distribution'.
(d) Included in 'Interest expense'.
(e) Included in 'Other income (expense), net'.
- - ----------------------------------------------------------
(i) In Fiscal 1993, results of operations were significantly impacted
by facilities relocation and corporate restructuring charges aggregating
$43,000,000 consisting of: (a) estimated costs of $14,900,000 to relocate
the Company's corporate headquarters and to terminate the lease on its
existing corporate facilities; (b) estimated restructuring charges of
$20,300,000 including costs associated with hiring and relocating certain
new senior management including chief executive officers of the fast food,
soft drink and liquefied petroleum gas segments and other personnel
recruiting and relocation costs, employee severance costs and consultant
fees; (c) total costs of $6,000,000 relating to a five-year consulting
agreement (the 'Consulting Agreement') extending through April 1998 between
the Company and Steven Posner, the former Vice Chairman of the Company and
(d) costs of $1,800,000 in connection with a strategic restructuring within
the textiles segment. The charges referred to in items (i) through (iii)
above related to the Change in Control of the Company described in Note 3.
In connection with the Change in Control, Victor Posner and Steven Posner
resigned as officers and directors of the Company. In order to induce
Steven Posner to resign, the Company entered into the Consulting Agreement
with him. The cost related to the Consulting Agreement was recorded as a
charge in Fiscal 1993 because the Consulting Agreement does not require any
substantial services and the Company does not expect to receive any
services that will have substantial value to it. As a part of the Change in
Control, the Board of Directors of the Company was reconstituted. The first
meeting of the reconstituted Board of Directors was held on April 24, 1993.
At that meeting, based on a report and recommendations from a management
consulting firm that had conducted an extensive review of the Company's
operations and management structure, the Board of Directors approved a plan
of decentralization and restructuring which entailed, among other things,
the following features: (a) the strategic decision to manage the Company in
the future on a decentralized, rather than on a centralized basis; (b) the
hiring of new executive officers for Triarc and the hiring of new chief
executive officers and new senior management teams for each of Arby's,
Royal Crown and National Propane to carry out the decentralization
strategy; (c) the termination of a significant number of employees as a
result of both the new management philosophy and the hiring of an almost
entirely new management team and (iv) the relocation of the corporate
headquarters of Triarc and of all of its subsidiaries whose headquarters
were located in South Florida, including Arby's, Royal Crown and SEPSCO as
well as the relocation of the headquarters of National Propane. In
connection with (b) above, in April 1993 the Company entered into
employment agreements with the new president and chief executive officers
of Royal Crown, Arby's and National Propane. Accordingly, the Company's
cost to relocate its corporate headquarters and terminate the lease on its
existing corporate facilities ($14,900,000), and estimated corporate
restructuring charges of $20,300,000 including costs associated with hiring
and relocating new senior management and other personnel recruiting and
relocation costs, employee severance costs and consulting fees, all stemmed
from the decentralization and restructuring plan formally adopted at the
April 24, 1993 meeting of the Company's reconstituted Board of Directors.
(ii) In accordance with certain court proceedings and related
settlements, five directors, including three court-appointed directors,
were appointed in 1991 to serve on the Special Committee of the Company's
Board of Directors. Such committee was empowered to review and pass on
transactions between Triarc and Victor Posner, the then largest shareholder
of the
83
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Company, and his affiliates. A success fee was paid to the Special
Committee attributable to the Change in Control in the aggregate cash
amount of $4,900,000.
(iii) The provision for closing of certain non-strategic company-owned
restaurants and abandoned bottling facilities relates to the decision of
new management to close unprofitable facilities. Prior management was of
the opinion that over time it could dispose of these facilities at no loss
to the Company. New management intends, however, to significantly
accelerate the disposal of the abandoned bottling facilities and, as such,
it is unlikely to be able to realize the net book value of the facilities.
In addition, the Company provided for anticipated additional environmental
clean-up costs it expects will be incurred in connection with the
acceleration of the disposal of the facilities.
(iv) The Company is required to change the labeling on all of its
Royal Crown products as a result of the Food and Drug Administration
Regulations (the 'Regulations') issued pursuant to the Nutrition Labeling
and Education Act (the 'Act') of 1990. The Regulations which provided the
necessary guidance to implement the requirements of the Act were issued in
January 1993. At that time the Company was able to estimate the cost of
compliance and accordingly recorded a provision of $1,500,000.
(v) The Company maintained a management incentive plan the ('Incentive
Plan') which provided discretionary awards requiring approval of the Board
of Directors. Additionally, awards to Victor and Steven Posner, the
Chairman and Chief Executive Officer and Vice Chairman, respectively, until
the April 23, 1993 Change in Control, required approval by the Special
Committee. The Company made provisions for such awards in years prior to
1993 although no payments were made under the Incentive Plan in 1990
because of cash flow constraints and subsequent thereto because of the
Special Committee's refusal to approve any awards to Victor and Steven
Posner. Nevertheless, the Company continued to make provisions because if
certain shareholder litigation involving the Company had been resolved
favorably to Victor Posner or if the term of the Special Committee had
expired during the period of Victor Posner's control of the Company, it was
likely that all or some of the incentive compensation would be paid. In
April 1993, in connection with the Change in Control of the Company, Victor
Posner and Steven Posner resigned as officers and directors of the Company
and its affiliates and the new management of the Company terminated the
Incentive Plan. Accordingly, the remaining accrual of $7,297,000 was
reversed. The Company believes that it would have no liability if any
claims were made pursuant to the terminated Incentive Plan.
(vi) Includes (a) legal fees and settlement costs aggregating
approximately $4,572,000 in connection with the Modification and SEPSCO
Litigation described in Note 24 settled or subsequently settled in
connection with the Change in Control, (b) settlement costs of
approximately $750,000 for litigation involving a former subsidiary settled
in August 1993 and (c) settlement costs of approximately $625,000 for
litigation involving a former employee settled in May 1993.
(vii) The Company incurred $3,200,000 of commitment fees and other
compensation costs relating to a proposed alternative financing to the
Step-up Notes with a syndicate of banks. Such alternative financing was
abandoned due to more favorable payment terms and covenants associated with
the Step-up Notes.
84
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The accompanying consolidated statement of operations for Transition 1993
includes the following significant charges (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Increased reserves for Company and third party insurance and reinsurance
losses (i)................................................................................. $10,006(a)
Provision for legal matters (ii)............................................................. 2,300(a)
-------
Total charges offsetting operating profit.......................................... 12,306
Charges related to the SEPSCO Settlement (See Note 24)....................................... 5,050(b)
Reduction to net realizable value of certain assets held for sale other than discontinued
operations................................................................................. 3,292(b)
Income tax benefit and minority interest effect relating to the above charges................ (2,231)
Increased reserve for income tax contingencies (iii)......................................... 7,200
Increased estimated loss on disposal of discontinued operations (See Note 4)................. 8,820
-------
$34,437
-------
-------
</TABLE>
- - ------------
(a) Included in 'General and administrative expenses'.
(b) Included in 'Other income (expense), net'.
- - ----------------------------------------------------------
(i) The Company increased the reserves at Chesapeake Insurance
relating to insurance coverage of the Company and former affiliates, as
well as reinsurance coverage which the Company and certain affiliates
maintained with unaffiliated insurance companies.
(ii) The Company increased its reserves for legal matters by
$2,300,000, principally for a recently asserted claim by NVF, a former
affiliate (see Note 24).
(iii) The Company increased its reserves for income tax contingencies
by $7,200,000 including provisions relating to certain issues being
addressed as part of the examinations of the Company's income tax returns
by the IRS for the tax years from 1989 through 1992 which commenced during
Transition 1993 (see Note 14).
(26) BUSINESS SEGMENTS
The Company operates in four major segments: textiles, fast food, soft
drink and liquefied petroleum gas. The textiles segment manufactures dyes and
finishes cotton, synthetic and blended (cotton and polyester) fabrics, primarily
for the apparel trade and mainly for two end uses: (1) utility wear and (2)
men's, women's and children's sportswear, casual wear and outerwear. The fast
food segment operates and franchises Arby's fast food restaurants, the largest
franchise restaurant system specializing in roast beef sandwiches. The soft
drink segment produces and sells soft drink concentrates under the principal
brand names RC COLA, DIET RC COLA, DIET RITE COLA, DIET RITE flavors, NEHI,
UPPER 10 and KICK. The liquefied petroleum gas segment distributes and sells
liquefied petroleum gas. The other segment includes, as applicable, (a) non-core
businesses including (i) insurance and reinsurance (ii) natural gas and oil
operations (iii) the operation of certain grapefruit groves and (b) certain
businesses sold in January or February 1994 consisting of (i) specialty
decorations of glass and ceramic items, (ii) the design, manufacture and
servicing of overhead industrial cranes and (iii) the manufacture and
distribution of lamps.
Information concerning the various segments in which the Company operates
is shown in the table below. Operating profit is total revenue less operating
expenses. In computing operating profit, none of the following items have been
included: interest expense, interest income, general corporate expenses, other
non-operating income and expenses, and income tax (provision) benefit. See Note
20 for the major components of other income (expense), net. Identifiable assets
by segment are those assets that
85
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
are used in the Company's operations in each segment. General corporate assets
consist primarily of cash and cash equivalents and deferred financing costs and,
in Fiscal 1991 and Fiscal 1992, notes receivable from affiliates.
No customer accounted for more than 10% of consolidated revenues in Fiscal
1991, 1992 or 1993 or Transition 1993.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL TRANSITION
1991 1992 1993 1993
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Textiles.............................................. $ 414,174 $ 456,402 $ 499,060 $ 365,276
Fast food............................................. 181,293 186,921 198,915 147,460
Soft drink............................................ 138,082 143,830 148,262 98,337
Liquefied petroleum gas............................... 150,348 141,032 148,790 89,167
Other................................................. 143,265 146,518 63,247 3,301
---------- ---------- ---------- ----------
Consolidated revenues............................ $1,027,162 $1,074,703 $1,058,274 $ 703,541
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Operating profit:
Textiles.............................................. $ 11,970 $ 27,753 $ 47,203 $ 27,595
Fast food............................................. 12,652 14,271 7,852 12,880
Soft drink............................................ 30,597 36,112 23,461 6,083
Liquefied petroleum gas............................... 13,628 12,676 3,008 2,014
Other................................................. (19,208) (5,746) (15,942) (7,098)
---------- ---------- ---------- ----------
Segment operating profit......................... 49,639 85,066 65,582 41,474
Interest expense...................................... (66,761) (71,832) (72,830) (44,847)
Non-operating income (expense), net................... 9,776 6,542 (920) (7,991)
General corporate expenses............................ (26,335) (26,514) (31,123) (11,505)
---------- ---------- ---------- ----------
Consolidated loss from continuing operations
before income taxes and minority interests..... $ (33,681) $ (6,738) $ (39,291) $ (22,869)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Identifiable assets:
Textiles.............................................. $ 223,450 $ 215,215 $ 281,544 $ 300,643
Fast food............................................. 90,231 88,236 99,455 104,605
Soft drink............................................ 161,789 183,942 184,364 186,353
Liquefied petroleum gas............................... 117,093 109,432 123,341 101,399
Other................................................. 129,886 122,035 62,715 26,075
---------- ---------- ---------- ----------
Total identifiable assets........................ 722,449 718,860 751,419 719,075
General corporate assets.............................. 62,157 35,611 92,334 162,107
Discontinued operations, net.......................... 67,306 66,699 66,909 16,064
---------- ---------- ---------- ----------
Consolidated assets.............................. $ 851,912 $ 821,170 $ 910,662 $ 897,246
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Capital expenditures:
Textiles.............................................. $ 16,337 $ 11,399 $ 10,075 $ 13,667
Fast food............................................. 13,854 9,079 6,231 7,106
Soft drink............................................ 602 558 870 554
Liquefied petroleum gas............................... 7,614 7,039 8,290 9,672
Corporate............................................. 303 205 42 3,046
Other................................................. 2,732 2,973 1,699 --
---------- ---------- ---------- ----------
Consolidated capital expenditures................ $ 41,442 $ 31,253 $ 27,207 $ 34,045
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(table continued on next page)
86
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(table continued from previous page)
<TABLE>
<S> <C> <C> <C> <C>
Depreciation and amortization:
Textiles.............................................. $ 8,364 $ 9,897 $ 10,380 $ 9,728
Fast food............................................. 8,639 9,866 10,891 6,190
Soft drink............................................ 4,763 5,125 5,460 3,566
Liquefied petroleum gas............................... 9,100 8,708 8,700 5,006
Corporate............................................. 1,761 3,047 3,063 4,704
Other................................................. 2,743 2,609 2,467 --
---------- ---------- ---------- ----------
Consolidated depreciation and amortization....... $ 35,370 $ 39,252 $ 40,961 $ 29,194
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(27) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,(A)
-------- ----------- ----------- ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Fiscal 1992
Revenues................................................ $250,900 $ 250,551 $ 288,469 $284,783
Gross profit............................................ 67,932 67,482 73,174 72,784
Operating profit........................................ 10,965 10,153 16,558 20,876
Income (loss) from continuing operations................ (4,516) (6,420) (1,860) 2,589
Income (loss) from discontinued operations.............. 1,394 1,767 485 (941)
Net income (loss)....................................... (3,122) (4,653) (1,375) 1,648
Income (loss) per share:
Continuing operations.............................. (.17) (.25) (.07) .10
Discontinued operations............................ .05 .07 .02 (.04)
Net income (loss).................................. (.12) (.18) (.05) .06
Fiscal 1993
Revenues................................................ $268,288 $ 254,083 $ 277,607 $258,296
Gross profit............................................ 70,802 68,471 75,778 80,850
Operating profit (loss)................................. 14,691 17,438 25,016 (22,686)
Loss from continuing operations......................... (1,843) (2,555) (1,841) (38,310)
Income (loss) from discontinued operations.............. 691 1,325 899 (5,345)
Extraordinary item...................................... -- -- -- (6,611)
Cumulative effect of changes in accounting principles... (6,388) -- -- --
Net loss................................................ (7,540) (1,230) (942) (50,266)
Income (loss) per share:
Continuing operations.............................. (.07) (.10) (.07) (1.50)
Discontinued operations............................ .03 .05 .03 (.21)
Extraordinary item................................. -- -- -- (.26)
Cumulative effect of changes in accounting
principles....................................... (.25) -- -- --
Net loss........................................... (.29) (.05) (.04) (1.97)
</TABLE>
87
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWO MONTHS
-------------------------- ENDED
JULY 31, OCTOBER 31,(B) DECEMBER 31,(C)
-------- -------------- ---------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Transition 1993
Revenues...................................................... $264,074 $257,396 $ 182,071
Gross profit.................................................. 77,674 78,314 50,952
Operating profit (loss)....................................... 18,307 3,946 7,716
Income (loss) from continuing operations...................... 3 (19,631) (10,811)
Income (loss) from discontinued operations.................... 631 (7,799) (1,423)
Extraordinary item............................................ -- (448) --
Net income (loss)............................................. 634 (27,878) (12,234)
Income (loss) per share:
Continuing operations.................................... (.07) (.99) (.56)
Discontinued operations.................................. .03 (.37) (.06)
Extraordinary item....................................... -- (.02) --
Net loss................................................. (.04) (1.38) (.62)
</TABLE>
- - ------------
(A) As described in Note 25, results for the three months ended April 30, 1993
were materially affected by facilities relocation, corporate restructuring
and other significant charges aggregating approximately $60,672,000, net of
income tax benefit and minority interests, and exclusive of the cumulative
effect of changes in accounting principles which was retroactively recorded
in the first quarter.
(B) The results for the three months ended October 31, 1993 were affected by
charges of $30,692,000, net of taxes and minority interests. Such charges
included (i) increased insurance reserves of $10,006,000, (ii) a revision
of a prior estimate for advertising allowances to independent bottlers and
coupon redemption by $7,772,000 principally relating to reserves recorded
earlier in Transition 1993, (iii) a $2,300,000 provision for legal matters,
(iv) a $1,737,000 reduction to net realizable value of certain assets held
for sale other than discontinued operations, (v) tax benefit and minority
interests on the charges in (i) through (iv) of $4,520,000, (vi) a
$6,000,000 increase in the reserve for income taxes and (vii) an increase
in the estimated loss on disposal of discontinued operations of $7,397,000.
See Note 25 for a further discussion of certain of these charges.
(C) The results of operations for the two months ended December 31, 1993 were
affected by charges of $8,412,000 net of tax benefit and minority
interests. Such charges consisted of (i) $5,050,000 of charges related to
the SEPSCO Settlement (see Note 24), (ii) a $1,200,000 increase in the
reserve for income taxes (see Note 25), (iii) an increase in the estimated
loss on disposal of discontinued operations of $1,423,000 (see Note 4),
(iv) a $1,555,000 reduction to net realizable value of certain assets held
for sale other than discontinued operations and (v) tax benefit of such
charges of $816,000.
(28) NONMONETARY EXCHANGE SUBSEQUENT TO YEAR END
In February and March 1994, the Company consummated two related
transactions whereby it sold 20 company-owned restaurants and acquired 33
previously franchised restaurants from the same party for a net purchase price
of $10,000,000 consisting of cash of $9,500,000 and a note for $500,000. Since
the combined transaction will be accounted for as a nonmonetary exchange, the
Company will not recognize any gain or loss on the combined transaction.
88
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of Triarc, all of whom are U.S. citizens.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- - ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Nelson Peltz........................ 51 Director; Chairman and Chief Executive Officer
Peter W. May........................ 51 Director; President and Chief Operating Officer
Leon Kalvaria....................... 35 Director; Vice Chairman
Irving Mitchell Felt................ 84 Director
Harold E. Kelley.................... 73 Director
Richard M. Kerger................... 48 Director
Harold D. Kingsmore................. 61 Director; President and Chief Executive Officer of Graniteville
Daniel R. McCarthy.................. 69 Director
William L. Pallot................... 81 Director
Thomas A. Prendergast............... 60 Director
Martin Rosen........................ 68 Director
Gerald Tsai, Jr..................... 65 Director
Stephen S. Weisglass................ 64 Director
John C. Carson...................... 48 President and Chief Executive Officer of Royal Crown
Ronald Paliughi..................... 50 President and Chief Executive Officer of National Propane
Donald L. Pierce.................... 49 President and Chief Executive Officer of Arby's
Anthony W. Graziano, Jr............. 52 Executive Vice President and General Counsel, and Assistant Secretary
Joseph A. Levato.................... 53 Executive Vice President and Chief Financial Officer
John L. Cohlan...................... 36 Senior Vice President -- Corporate Finance
Curtis S. Gimson.................... 38 Senior Vice President and Associate General Counsel, and Secretary
Jerry Hostetter..................... 49 Senior Vice President -- Corporate Communications
Francis T. McCarron................. 37 Senior Vice President -- Taxes
Fred H. Schaefer.................... 49 Vice President and Chief Accounting Officer
</TABLE>
Set forth below is certain additional information concerning the persons
listed above.
Nelson Peltz has been a director and Chairman of the Board and Chief
Executive Officer of Triarc since April 23, 1993. Since April 23, 1993 he has
also been a director and Chairman of the Board and Chief Executive Officer of
certain of Triarc's subsidiaries, including SEPSCO and RCAC. Mr. Peltz has also
been a director of National Propane, another Triarc subsidiary, since April 23,
1993, and from April 23, 1993 until January 1994 he was a director and Chairman
of the Board and Chief Executive Officer of Wilson. He is also a general partner
of DWG Acquisition, whose principal business is ownership of securities of
Triarc. From its formation in January 1989 until April 23, 1993, Mr. Peltz was
Chairman and Chief Executive Officer of Trian Group, Limited Partnership
('Trian'), which provided investment banking and management services for
entities controlled by Mr. Peltz and Mr. May. From 1983 to December 1988, he was
Chairman and Chief Executive Officer and a director of Triangle Industries, Inc.
('Triangle'), which, through wholly owned subsidiaries, was, at that time, a
manufacturer of packaging products, copper electrical wire and cable and steel
conduit and currency and coin handling products. He was Chairman and Chief
Executive Officer and a director of Avery, Inc. ('Avery') from prior to 1987
until October 1992. Until the October 1989 sale of Uniroyal Chemical
89
<PAGE>
Holding Company, Avery was primarily engaged in the manufacture and sale of
specialty chemicals. From November 1989 through May 1992, Mr. Peltz was a
director of Mountleigh Group plc, a British property trading and retailing
company for which administrative receivers were appointed in May 1992
('Mountleigh'). He served in various executive capacities, including Executive
Chairman, of Mountleigh from November 1989 until October 1991. He is a director
of Equitable Bag Co., Inc. ('Equitable Bag'), a designer, manufacturer and
distributor of customized plastic and paper merchandise bags.
Peter W. May has been a director and President and Chief Operating Officer
of Triarc since April 23, 1993. Since April 23, 1993 he has also been a director
and President and Chief Operating Officer of certain of Triarc's subsidiaries,
including SEPSCO and RCAC. Mr. May has also been a director of National Propane
since April 23, 1993, and from April 23, 1993 until January 1994 he was a
director and President and Chief Operating Officer of Wilson. He is also a
general partner of DWG Acquisition. From its formation in January 1989 until
April 23, 1993, Mr. May was President and Chief Operating Officer of Trian. He
was President and Chief Operating Officer and a director of Triangle from 1983
until December 1988. Mr. May was President and Chief Operating Officer and a
director of Avery from prior to 1987 until October 1992. From November 1989
through May 1992, Mr. May was a director of Mountleigh and he served as Joint
Managing Director of Mountleigh from November 1989 until October 1991. He is a
director of Equitable Bag. On April 29, 1993, Mr. May was also named a director
of The Leslie Fay Companies, Inc. following its filing on April 5, 1993 for
protection under Chapter 11 of the United States Bankruptcy Code.
Leon Kalvaria has been a director and Vice Chairman of Triarc since April
23, 1993. Since April 23, 1993, he has also been a director and Vice Chairman of
certain of Triarc's subsidiaries, including SEPSCO and RCAC. Mr. Kalvaria has
also been a director of National Propane since April 23, 1993, and from April
23, 1993 until January 1994 he was a director and Vice Chairman of Wilson. He
joined Trian in January 1991 and was Vice Chairman of Trian from April 1992
until April 23, 1993. He is also a director of Equitable Bag. Prior to joining
Trian, Mr. Kalvaria was employed by CS First Boston, an investment banking firm
('First Boston'), for more than 10 years. Mr. Kalvaria was Managing Director of
the Mergers and Acquisitions Department of First Boston from 1989 to 1991.
Irving Mitchell Felt is a private investor. He is a Chairman of the Felt
Foundation, a philanthropic organization. Since 1983, Mr. Felt has been the
Honorary Chairman of the Board of Directors of Madison Square Garden
Corporation, an entertainment company, New York, New York, and prior thereto he
served as President and Chairman of the Board of Madison Square Garden
Corporation. Mr. Felt has been a director of Triarc since April 23, 1993.
Harold E. Kelley is an Attorney-At-Law and a Certified Public Accountant.
Mr. Kelley has been a director of Triarc since March 1991.
Richard M. Kerger is a partner of Marshall & Melhorn, a law firm. He has
been a director of Triarc since March 1991.
Harold D. Kingsmore has been President and Chief Executive Officer of
Graniteville since April 24, 1993. For more than five years prior thereto, he
was Executive Vice President and Chief Operating Officer of Graniteville. He is
a director of Palfed, Inc., a thrift institution. Mr. Kingsmore has been a
director of Triarc since 1988.
Daniel R. McCarthy is a Senior Partner of McCarthy & Lebit, Co., LPA, a law
firm. Mr. McCarthy is also a director of American Ship Building Company, which
is engaged in ship building and ship repairs. On November 4, 1993, American Ship
Building Company filed for protection under Chapter 11 of the United States
Bankruptcy Code. Mr. McCarthy has been a director of Triarc since March 1991.
William L. Pallot is retired Chairman of the Board of Royal Trust Bank of
Miami, N.A., Miami, Florida (Chairman 1972 - 1984). Mr. Pallot was a director of
SEPSCO until March 1992. He was a director of Triarc from 1966 to December 27,
1991 and has been a director of Triarc from April 23, 1993 to date.
Thomas A. Prendergast is a private investor. From January 1983 until
December 1988, he was Chairman of the Board of Air Cargo Equipment Corporation,
a manufacturer of aircraft cargo containers. From April 1989 through October
1991, he was Chairman of the Board of Cliniteck, Inc., a
90
<PAGE>
manufacturer of disposable hospital products. Mr. Prendergast is also Chairman
of the Board of The Steel Corporation of Texas, a seller of steel mill products.
He was a director of Triarc from 1979 to December 27, 1991 and has been a
director of Triarc from April 23, 1993 to date.
Martin Rosen is senior partner of the law firm of Rosen & Reade, New York,
New York, which for many years has served as counsel to Triarc. He was director
of Triarc for more than five years prior to November 1986 and has been a
director of Triarc since April 23, 1993.
Gerald Tsai, Jr. is a private investor. Since February 1993, he has been
Chairman of the Board, President and Chief Executive Officer of Delta Life
Corporation, a life insurance and annuity company with which Mr. Tsai became
associated in 1992. From 1982 until December 1988, Mr. Tsai served Primerica
Corporation in various executive capacities, including as Chairman of the Board
and Chief Executive Officer from 1987 until December 1988. Mr. Tsai also serves
as a director of Palm Beach National Bank and Trust Company, Rite Aid
Corporation, Sequa Corporation, Zenith National Insurance Corporation and
Proffitt's Inc. He is a trustee of Meditrust, Boston University and New York
University Medical Center. Mr. Tsai has been a director of Triarc since October
1993.
Stephen S. Weisglass has been Chairman of Equity Research Associates, an
investment research firm, since 1991. During 1990, Mr. Weisglass was Vice
Chairman of Whale Securities, a broker-dealer firm. Prior thereto, Mr. Weisglass
was associated with Ladenburg, Thalmann, an investment banking firm, in various
capacities for more than 15 years, including President and Chief Executive
Officer from 1979 until 1990. He has been a director of Triarc since April 23,
1993.
John C. Carson has been President and Chief Executive Officer of Royal
Crown since April 24, 1993. Prior thereto, Mr. Carson was President of Cadbury
Beverages, North America, a subsidiary of Cadbury Schweppes, PLC, where he was
also a member of Cadbury Beverages Global Board. Mr. Carson was president of
Schweppes NA from 1984 to 1988, vice president of sales and marketing of
Schweppes Bottling U.K. and Cadbury U.K. from 1964 to 1981.
Ronald Paliughi has been President and Chief Executive Officer of National
Propane since April 24, 1993. He was engaged in private research and consulting
services from 1992 until April 1993. During 1991, he served as a United States
Army Officer in Operation Desert Storm. From 1987 to 1990, Mr. Paliughi was
Senior Vice President -- Western Operations of AP Propane (AmeriGas), one of
the largest LP gas companies in the United States and a subsidiary of UGI
Corporation. During 1986, Mr. Paliughi was director of retail operations of
CalGas Corporation, a division of Dillingham Corporation, the fourth largest LP
gas company in the United States, and for more than 14 years prior thereto, he
held various positions with Vangas, Inc., last serving as Senior Vice President
-- General Manager.
Donald L. Pierce has been President and Chief Executive Officer of Arby's
since April 24, 1993. Prior thereto, Mr. Pierce was President of Pepsico, Inc.'s
Hot 'n Now hamburger chain and President of Kentucky Fried Chicken --
International. From 1987 to 1988 Mr. Pierce was President and Chief Operating
Officer of Denny's, and from 1981 to 1987 he served Denny's in various executive
capacities, including Group Vice President, President of the El Pollo Loco
division, and Vice President, Finance. From 1969 to 1981 Mr. Pierce was with
American Hospital Supply, Inc. where he held positions in finance, sales and
operations.
Anthony W. Graziano, Jr. has been Executive Vice President and General
Counsel and Assistant Secretary of Triarc since April 24, 1993. He has also been
Executive Vice President and General Counsel and Assistant Secretary of certain
of Triarc's subsidiaries, including SEPSCO and RCAC, since April 24, 1993. Prior
thereto, he was Senior Vice President -- Legal Affairs of Trian from its
formation in January 1989 until April 24, 1993. He joined Triangle in September
1985 and served as Senior Vice President -- Legal Affairs of Triangle until
January 1989 and as Senior Vice President -- Legal Affairs of Avery from 1986
until 1992.
Joseph A. Levato has been Executive Vice President and Chief Financial
Officer of Triarc since April 24, 1993. He has also been Executive Vice
President and Chief Financial Officer of certain of Triarc's subsidiaries,
including SEPSCO and RCAC, since April 24, 1993. Prior thereto, he was Senior
Vice President and Chief Financial Officer of Trian from January 1992 until
April 24, 1993. From 1984 to January 1989, he served as Senior Vice President
and Chief Financial Officer of Triangle and served as Senior Vice President and
Chief Financial Officer of Avery from 1986 until 1989.
91
<PAGE>
John L. Cohlan has been Senior Vice President -- Corporate Finance of
Triarc since January 1994. He has also been Senior Vice President -- Corporate
Finance of certain of Triarc's subsidiaries, including SEPSCO and RCAC, since
January 1994. Prior thereto, he had served as Senior Vice President --
Corporate Development of Triarc and such subsidiaries since April 24, 1993.
Before joining Triarc, he was a Senior Vice President of Trian from July 1992
until April 24, 1993. From January 1992 until May 1992, Mr. Cohlan was
associated with Mountleigh. From 1989 until 1991, he was a principal of The
Palmer Group, Inc., a firm specializing in corporate restructurings,
particularly in the hotel industry. From 1987 until 1989, Mr. Cohlan was Vice
President -- New Business Development of VMS Realty Partners, a real estate
concern.
Curtis S. Gimson has been Senior Vice President and Associate General
Counsel and Secretary of Triarc since April 24, 1993. He has also been Senior
Vice President and Associate General Counsel and Secretary of certain of
Triarc's subsidiaries, including SEPSCO and RCAC, since April 24, 1993. Mr.
Gimson has also been Secretary of National Propane since April 24, 1993. Prior
thereto, he was Senior Vice President and Associate General Counsel of Trian
from its formation in January 1989 until April 24, 1993. He joined Triangle in
December 1984 and served as Vice President and Associate General Counsel of
Triangle until January 1989 and served as Senior Vice President and General
Counsel of Avery from 1986 until 1992.
Jerry Hostetter has been Senior Vice President -- Corporate Communications
of Triarc since September 28, 1993. He has also been Senior Vice President --
Corporate Communications of certain of Triarc's subsidiaries, including SEPSCO
and RCAC, since that date. Prior thereto, he was Vice President, Investor
Relations and Communications for Varity Corporation, a manufacturer of farm
equipment from June 1992 until September 1993. From March 1989 until May 1992,
Mr. Hostetter established and ran a public relations consulting firm. From prior
to 1989 until 1989, he was Vice President, Corporate Communications of Triangle.
He also served as Vice President, Corporate Communications of Avery from 1986
until 1989.
Francis T. McCarron has been Senior Vice President -- Taxes of Triarc
since April 24, 1993. He has also been Senior Vice President -- Taxes of
certain of Triarc's subsidiaries, including SEPSCO, RCAC and National Propane
since April 24, 1993. Prior thereto, he was Vice President -- Taxes of Trian
from its formation in January 1989 until April 24, 1993. He joined Triangle in
February 1987 and served as Director of Tax Planning & Research until January
1989. He also served as Vice President -- Taxes of Avery from 1989 until 1992.
Fred H. Schaefer has been Vice President and Chief Accounting Officer of
Triarc since April 24, 1993. He has also been Vice President and Chief
Accounting Officer of certain of Triarc's subsidiaries, including SEPSCO, RCAC
and National Propane since April 24, 1993. Prior thereto, he was Vice President
and Chief Accounting Officer of Trian from its formation in January 1989 until
April 24, 1993. Mr. Schaefer joined Triangle in 1980 and served in various
capacities in the accounting department, including Vice President -- Financial,
until January 1989 and served as Vice President -- Financial Reporting of Avery
from 1986 until 1992.
Each director was elected or reelected, as the case may be, at the most
recent annual meeting of shareholders of Triarc, which was held on October 27,
1993. Each director has been elected to serve until the next annual meeting of
Triarc shareholders and until his successor is duly elected and qualified or
until his prior death, resignation or removal.
The term of office of each executive officer is until the organizational
meeting of the Triarc Board following the next annual meeting of Triarc
shareholders and until his successor is elected and qualified or until his prior
death, resignation or removal.
CERTAIN ARRANGEMENTS AND UNDERTAKINGS RELATING TO THE COMPOSITION OF TRIARC'S
BOARD OF DIRECTORS
The Stock Purchase Agreement entered into by DWG Acquisition and the Posner
Entities (the 'Stock Purchase Agreement') in connection with the Reorganization
provides that as long as the Posner Entities and entities controlled by them, in
the aggregate, are beneficial owners of equity securities of Triarc representing
or convertible into more than one-half of one percent of the issued and
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<PAGE>
outstanding Triarc common stock, DWG Acquisition (a) will not vote its shares in
favor of a director (other than Daniel R. McCarthy, Richard M. Kerger and Harold
E. Kelley (the 'Court Appointed Directors'), who were designated as directors by
the Ohio Court in 1991) who knowingly causes Triarc to breach or vote in favor
of any action that would constitute a breach of Triarc's obligations under
certain transactions entered into between the Posner Entities and their
affiliates, on the one hand, and Triarc and its affiliates, on the other hand,
(b) will, in the event either Steven Posner (who no longer serves as a director)
or Martin Rosen ceases to be a director of Triarc, vote its shares in favor of
any appropriate person nominated by Steven Posner (other than Victor Posner or
certain of his family members) to fill such vacancy and (c) until the earlier of
(x) April 23, 1998 and (y) the date on which Posner Entities cease to own
beneficially more than 50% of the shares of Triarc's Redeemable Convertible
Preferred Stock issued to one of the Posner Entities in the Reorganization (or
shares of Triarc common stock into which such Redeemable Convertible Preferred
Stock may be converted), will, in the event that Russell Boyle (who no longer
serves as a director), H. Douglas Kingsmore, William Pallot or Thomas
Prendergast or their successors cease to be a director of Triarc, vote its
shares to fill such vacancy in favor of any person (other than Victor Posner or
certain of his family members) acceptable to both DWG Acquisition and Steven
Posner.
In addition, in connection with the Modification entered into on February
17, 1993 in connection with the settlement of the Granada, Brilliant and Cameon
cases, DWG Acquisition and Messrs. Peltz and May entered into an Undertaking and
Agreement, dated February 9, 1993 (the 'Undertaking'), pursuant to which DWG
Acquisition and Messrs. Peltz and May agreed to be bound by certain provisions
of the Modification, including (a) never to vote any shares of Triarc stock
owned or controlled by DWG Acquisition for the election of Victor Posner as a
director of Triarc, (b) causing any slate of directors of Triarc directly or
indirectly proposed or recommended by DWG Acquisition during the period (the
'Effective Period') terminating on the earliest of (i) April 23, 1998, (ii) the
date on which Victor Posner (and his affiliates) ceases to own shares of Triarc
common stock or Triarc convertible securities equal in the aggregate to more
than 5.0% of the issued and outstanding Triarc common stock and (iii) the date
on which the shares of Triarc common stock cease to be publicly held, to include
the Court Appointed Directors and (c) during the Effective Period, subject to
DWG Acquisition's absolute right to vote the minimum number of shares necessary
to accomplish the election of Messrs. Peltz, May and Kalvaria and Mr. Irving
Mitchell Felt, or their successors, to cast any other votes available to it for
the election of the Court Appointed Directors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Triarc's directors, executive officers, and persons who own more than ten
percent of Triarc's common stock, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the
'SEC'), the NYSE and the PSE. Directors, executive officers and greater than ten
percent shareowners are required by the SEC regulations to furnish Triarc with
copies of all Forms 3, 4 and 5 they file.
Based solely on Triarc's review of the copies of such forms it has
received, or written representations from certain reporting persons that no Form
5s were required for these persons, Triarc believes that all its directors,
executive officers, and greater than ten percent beneficial owners complied with
all filing requirements applicable to them with respect to Transition 1993
except for the following inadvertent omissions: each of Messrs. Hostetter,
Paliughi and Peltz did not file a report with respect to one transaction for
each such person on a timely basis. When these inadvertent omissions were
discovered, all such individuals promptly filed the appropriate reports.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF NEW EXECUTIVE OFFICERS
Just prior to the end of Fiscal 1993, a new chief executive officer as well
as other new executive officers of Triarc were elected in connection with the
Reorganization which was consummated on
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April 23, 1993. At the same time, Triarc's former chief executive officer and
all other executive officers of Triarc, except Harold D. Kingsmore and Jack
Coppersmith, ceased to be executive officers of Triarc. Accordingly, during
Fiscal 1993 neither Triarc's new chief executive officer nor any of its other
new executive officers received any material amount of salary from Triarc.
Therefore, the only information with respect to annual salaries for Fiscal 1993
set forth in the Summary Compensation Table is presented with respect to Messrs.
Kingsmore and Coppersmith. The Summary Compensation Table does set forth cash
bonuses awarded during Fiscal 1993 to certain of the new executive officers at
the time they accepted employment with Triarc and in respect of performance
during 1993, as well as non-cash awards during Fiscal 1993 under Triarc's
Amended and Restated 1993 Equity Participation Plan (the 'Equity Participation
Plan') to Triarc's new chief executive officer and to four of the other new
executive officers of Triarc who constituted Triarc's most highly compensated
executive officers during Transition 1993. The individuals whose names appear in
the Summary Compensation Table are sometimes referred to collectively as the
'Named Officers.' Additional information with respect to the compensation
arrangements for the new chief executive officer and the Named Officers is set
forth below under ' -- Employment Arrangements with Executive Officers.'
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- -------------------------- PAYOUTS
OTHER RESTRICTED SECURITIES ------- ALL
NAME AND ANNUAL STOCK UNDERLYING LTIP OTHER
PRINCIPAL COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
POSITION PERIOD(1) SALARY($) BONUS($) ($)(2) (#)(6) (#)(6) ($) ($)
- - --------------------- --------- --------- --------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nelson Peltz(3) ..... TP 1 -- -- -- 75,000 -- --
Chairman and Chief 1993 -- -- -- -- 600,000 -- --
Executive Officer
of Triarc
Peter W. May(3) ..... TP 1 -- -- -- 50,000 -- --
President and Chief 1993 -- -- -- -- 400,000 -- --
Operating Officer
of Triarc
Leon Kalvaria ....... TP 333,336 550,000 520,181(10) 12,500 40,000 -- --
Vice Chairman of 1993 -- 800,000(4) -- 30,000 150,000 -- --
Triarc
John C. Carson ...... TP 322,436 250,000 123,626(11) 7,500 30,000 -- --
President and Chief 1993 -- 1,000,000(5) -- 37,500 120,000 -- --
Executive Officer
of Royal Crown
Company, Inc.
Harold D. Kingsmore . TP 266,666 450,000 -- -- 10,000 -- --
President and Chief 1993 300,000 1,300,000 (7) 50,000 50,000 -- --
Executive Officer 1992 300,000 700,000 (7) -- -- -- 11,903(8)
of Graniteville 1991 300,000 750,000 (7) -- -- -- --
Company
Donald L. Pierce .... TP 218,750 175,000 346,797(12) 6,250 35,000 -- --
President and Chief 1993 -- 500,000(5) -- 55,000 65,000 -- --
Executive Officer
of Arby's, Inc.
Jack TP 61,151 -- -- -- -- -- --
Coppersmith(9) .... 1993 236,715 350,000 (7) -- 25,000 -- --
Executive Vice 1992 241,360 120,000 (7) -- -- -- --
President -- 1991 248,000 -- (7) -- -- -- --
Operations of
SEPSCO
</TABLE>
- - ------------
(1) Information set forth opposite the letter 'TP' relates to Transition 1993,
while information set forth opposite 1993, 1992 or 1991 relates to Fiscal
1993, Fiscal 1992 or Fiscal 1991, respectively.
(2) Information in this column is set forth in accordance with the regulations
of the Securities and Exchange Commission only for Transition 1993, Fiscal
1993 and Fiscal 1992.
(3) Did not receive any amount of compensation during Fiscal 1993, except as
set forth under 'Long Term Compensation -- Awards.'
(footnotes continued on next page)
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<PAGE>
(footnotes continued from previous page)
(4) Discretionary bonus awarded April 24, 1993 in respect of services rendered
in connection with the Refinancing and Reorganization. See ' -- Employment
Arrangements with Executive Officers,' below.
(5) One-time bonus pursuant to employment agreements entered into effective
April 24, 1993. See ' -- Employment Arrangements with Executive Officers,'
below.
(6) All restricted stock awards and stock option grants were made pursuant to
the Equity Participation Plan. The restricted stock awards are described
under ' -- Employment Arrangements with Executive Officers' below. Based
upon the closing price of Class A Common Stock on the NYSE on December 31,
1993 of $25, the number and value of the aggregate restricted stock
holdings of the Named Officers are as follows: Mr. Kalvaria -- 42,500
shares with a value of $1,062,500; Mr. Carson -- 45,000 shares with a value
of $1,125,000; Mr. Kingsmore -- 50,000 shares with a value of $1,250,000;
and Mr. Pierce -- 61,250 shares with a value of $1,531,250. The option
grants are described below under ' -- Options Granted In Respect of Fiscal
1993 and Transition 1993.' Prior to adoption of the Equity Participation
Plan in April 1993, the Company's executive compensation program did not
include grants of restricted stock awards.
(7) Perquisites and other personal benefits did not exceed the lesser of either
$50,000 or 10% of the total annual salary and bonus reported under the
headings of 'Salary' and 'Bonus.'
(8) Represents distributions under the Graniteville Company Retirement Savings
Plan.
(9) Mr. Coppersmith resigned as an officer and employee effective August 10,
1993.
(10) Includes $519,323 relating to Mr. Kalvaria's relocation to South Florida.
(11) Includes $121,422 relating to Mr. Carson's relocation to South Florida.
(12) Includes $345,289 relating to Mr. Pierce's relocation to South Florida.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
NELSON PELTZ AND PETER W. MAY
Since the Reorganization, Nelson Peltz and Peter W. May have been serving
Triarc as its Chairman and Chief Executive Officer and its President and Chief
Operating Officer, respectively, and each of them currently is receiving an
annual base salary of $1.00. In addition, Messrs. Peltz and May participate in
the incentive compensation and welfare and benefit plans made available to
Triarc's corporate officers, including the Equity Participation Plan described
below.
LEON KALVARIA
Since the Reorganization, Leon Kalvaria has been serving Triarc as its Vice
Chairman and is currently receiving an annual base salary of $500,000. Effective
November 1, 1993, Mr. Kalvaria entered into an employment agreement with Triarc
(the 'Kalvaria Employment Agreement') having an initial term which expires on
December 31, 1996 but which automatically extends for successive three year
periods on January 1 of each year, commencing January 1, 1995, unless, not later
than one year preceding the date of any such extension, either party notifies
the other that it does not wish to have the term so extended. The Kalvaria
Employment Agreement provides for an annual salary of $500,000. In addition, the
Kalvaria Employment Agreement provides that Mr. Kalvaria will be entitled to
receive a bonus payment of in each full calendar year of the agreement,
commencing in 1994, in an amount not less than the amount by which the salary
and other cash payments made to him during such year pursuant to any long or
short-term management incentive plan is less than $800,000. The Kalvaria
Employment Agreement also provides that if Mr. Kalvaria dies during the term of
the agreement, his legal representative will be entitled to receive from Triarc
an amount calculated at an annual rate of $800,000 for the remaining term of the
agreement if Triarc had been able to procure, at a reasonable rate, term
insurance on Mr. Kalvaria's life to pay such obligation, or, if Triarc had not
been able to procure such insurance, an amount calculated at the annual rate of
$800,000 for the three-month period
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<PAGE>
following Mr. Kalvaria's death. Triarc has obtained such insurance to fund this
obligation for the next seven years at an annual premium of approximately
$3,000. The Kalvaria Employment Agreement also provides that if Triarc
terminates the agreement as a result of Mr. Kalvaria becoming disabled, Triarc
will continue to pay Mr. Kalvaria at the annual rate of $800,000 for an eighteen
month period following such termination.
Triarc and Mr. Kalvaria are parties to an agreement (the 'Relocation
Agreement') pursuant to which Mr. Kalvaria relocated to Florida in order to work
in the West Palm Beach office. Mr. Kalvaria owns a cooperative apartment (the
'Apartment'), and because relocation companies, including the relocation company
retained by Triarc, typically do not handle the sale of cooperative apartments,
the Relocation Agreement is designed to place Mr. Kalvaria in the same position
he would have occupied if he had sold the Apartment through a relocation company
at an appraised value of $3.5 million. Accordingly, in addition to providing
certain standard relocation benefits, pursuant to the Relocation Agreement,
Triarc guaranteed a $3 million bank loan (the 'Bank Loan') secured by a first
mortgage on Mr. Kalvaria's new Florida residence (the 'Florida Property'), and
Triarc made loans aggregating $500,000 to Mr. Kalvaria in connection with his
purchase of the Florida Property. The Bank Loan bears interest at 6 1/2% per
annum, has a 15-year amortization schedule, and matures in 5 years. The
Relocation Agreement provides that when Mr. Kalvaria sells the Apartment, the
net proceeds will be used to reduce the principal on the Bank Loan to $1
million, at which time Triarc's guarantee will be released. Additionally, any
excess net proceeds from the sale of the Apartment will be used to reduce the
principal of the Triarc loans. To the extent that the net proceeds of the sale
of the Apartment are insufficient to reduce the principal on the Bank Loan to $1
million, Triarc will make additional loans to Mr. Kalvaria which will be used to
reduce the principal on the Bank Loan to $1 million. The Triarc loans bear
interest at the higher of 6 1/2% per annum or the applicable federal rate for
medium term loans with interest payable annually and mature on December 31,
1996.
JOHN C. CARSON
On April 24, 1993, Triarc and Royal Crown entered into an employment
agreement with John C. Carson (the 'Carson Employment Agreement') providing for
the employment of Mr. Carson as President and Chief Executive Officer of Royal
Crown. Mr. Carson's term of full-time employment began on May 10, 1993 and will
continue (unless otherwise terminated as provided in the Carson Employment
Agreement) until December 31, 1996, subject to automatic renewal for successive
two-year periods unless either Royal Crown or Mr. Carson elects, upon 180 days'
notice, not to renew.
Pursuant to the Carson Employment Agreement, Mr. Carson will receive an
annual base salary of $500,000. Mr. Carson also will be eligible to receive an
annual cash incentive bonus under Royal Crown's proposed annual cash incentive
plan (described below), cash compensation under Royal Crown's proposed mid-term
cash incentive plan (described below) and additional compensation under the
Equity Participation Plan. For 1994, the sum of Mr. Carson's salary and annual
cash incentive bonus will be at least $800,000. Mr. Carson's annual base salary
will be reviewed annually for possible increase, but not decrease, by the Board
of Directors of Royal Crown.
Should Royal Crown elect to terminate Mr. Carson's employment without good
cause, the Carson Employment Agreement provides that he will receive a special
payment of $800,000 in addition to base salary through the end of the month in
which the termination occurs and accrued bonuses and compensation under Royal
Crown's proposed mid-term cash incentive plan. The Carson Employment Agreement
provides that, in the event of a change in control of Royal Crown or any parent
of Royal Crown, Mr. Carson would be obligated to continue in employment under
the Carson Employment Agreement until the first anniversary of such change in
control, after which he would have the right to resign as an officer and
employee of Royal Crown and to receive the same payments that he would have been
entitled to receive had his employment been terminated by Royal Crown without
good cause.
HAROLD D. KINGSMORE
On April 24, 1993, Graniteville and Harold D. Kingsmore entered into an
employment agreement (the 'Kingsmore Employment Agreement') providing for Mr.
Kingsmore's employment as President
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<PAGE>
and Chief Executive Officer of Graniteville. The term of the agreement commenced
May 1, 1993 and will continue (unless otherwise terminated as provided in the
Kingsmore Employment Agreement) until December 31, 1996, subject to renewal for
an additional three years unless either party notifies the other that it does
not wish to renew.
Pursuant to the Kingsmore Employment Agreement, Mr. Kingsmore will receive
an annual base salary of $400,000. Mr. Kingsmore also will be eligible to
receive an annual cash incentive bonus under Graniteville's proposed annual cash
incentive plan (described below), cash compensation under Graniteville's
proposed mid-term cash incentive plan (described below) and additional
compensation under the Equity Participation Plan. To compensate for the fact
that no distribution will be made under the mid-term plan until completion of
the first three year performance cycle, Mr. Kingsmore will receive cash
compensation of at least $850,000 with respect to his services during 1994 and
1995, exclusive of any accrual with respect to such years under the mid-term
plan. Mr. Kingsmore's annual base salary will be reviewed annually for possible
increase, but not decrease, by Graniteville's Board of Directors.
DONALD L. PIERCE
On April 24, 1993, Arby's entered into an employment agreement with Donald
L. Pierce (the 'Pierce Employment Agreement,' and collectively with the Kalvaria
Employment Agreement, the Carson Employment Agreement and the Kingsmore
Employment Agreement, the 'Employment Agreements') providing for Mr. Pierce's
employment as President and Chief Executive Officer of Arby's. The term of Mr.
Pierce's employment commenced in May 1993 and will continue (unless otherwise
terminated as provided in the Pierce Employment Agreement) until December 31,
1996, subject to renewal for an additional three years unless either party
notifies the other that it does not wish to renew.
Pursuant to the Pierce Employment Agreement, Mr. Pierce will receive an
annual base salary of $350,000. Mr. Pierce also will be eligible to receive an
annual cash incentive bonus under Arby's proposed annual cash incentive plan
(described below), cash additional compensation under Arby's proposed mid-term
cash incentive plan (described below) and additional compensation under the
Equity Participation Plan. Mr. Pierce's annual base salary will be reviewed
annually for possible increase, but not decrease, by Arby's Board of Directors.
CASH INCENTIVE PLANS
Triarc intends to develop annual cash incentive plans and mid-term cash
incentive plans (each, a 'Mid-Term Plan') for executive officers of each of
Triarc's four principal business units.
Pursuant to their Employment Agreements, the proposed annual cash incentive
plans of Royal Crown, Graniteville and Arby's will enable Messrs. Carson,
Kingsmore and Pierce, respectively, to earn up to 75% of their then-current base
salaries based on achievement of certain individual and company performance
goals to be determined by Mr. Carson and Triarc representatives, in the case of
Royal Crown's plan, Mr. Kingsmore and Triarc representatives, in the case of
Graniteville's plan, and Mr. Pierce and Triarc representatives, in the case of
Arby's plan. Officers and key employees of each of Royal Crown, Graniteville and
Arby's will also be eligible to participate in the relevant company's plan,
which will be administered by such company's board of directors.
From time to time, the Compensation Committee of the Triarc Board may award
discretionary bonuses based on performance to certain executive officers. The
amounts of such bonuses will be based on the Compensation Committee's evaluation
of each such individual's contribution.
Pursuant to the terms of their Employment Agreements, Messrs. Carson,
Kingsmore and Pierce also will be entitled to additional compensation pursuant
to a proposed Mid-Term Plan of Royal Crown, Graniteville and Arby's,
respectively. Each Mid-Term Plan will be developed jointly by the chief
executive officer of the subsidiary and representatives of Triarc. Each Mid-Term
Plan will be designed to yield to Messrs. Carson, Kingsmore and Pierce a target
award in cash at least equal to 75% of the participant's then-current base
salary if Royal Crown, Graniteville or Arby's, as the case may be, achieves an
agreed-upon profit over a three-year performance cycle. During each plan year,
an amount will be accrued based upon the amount by which the relevant company's
profit for such year exceeds a
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minimum return to be determined. A new three-year performance cycle will begin
each year, such that after the third year the annual cash amount paid to Messrs.
Carson, Kingsmore and Pierce pursuant to the relevant Mid-Term Plan should equal
the target award if their respective company's profit goals have been achieved.
For Mr. Carson, amounts accrued with respect to 1993 and 1994 will be guaranteed
at a minimum of 100% of the annualized target award for the portion of 1993 that
Mr. Carson was employed by Royal Crown (i.e., at least $72,917 based on a May
31, 1993 commencement date) and a minimum of 100% of the target award for 1994
(i.e., at least $125,000). For Mr. Pierce, amounts accrued for 1993 will be
guaranteed at a minimum of 80% of the annualized target for the portion of 1993
that he was employed by Arby's (i.e., at least $40,833 based on a May 31, 1993
commencement date).
1993 EQUITY PARTICIPATION PLAN
The Equity Participation Plan was adopted on April 24, 1993, amended and
restated on July 22, 1993, and, as amended and restated, was approved by
Triarc's shareholders on October 27, 1993. It expires by its terms on April 24,
1998. The plan provides for the grant of options to purchase Class A Common
Stock, tandem stock appreciation rights ('SARs') and restricted shares of Class
A Common Stock. Selected officers and key employees of, and key consultants to,
Triarc and its subsidiaries are eligible to participate in the plan. The plan is
being administered by the Compensation Committee of the Triarc Board, which will
determine from time to time to grant options, SARs and restricted stock.
On April 24, 1993, each of Messrs. Kalvaria, Carson, Kingsmore and Pierce
were granted restricted shares of Class A Common Stock under the Equity
Participation Plan (each, a 'Fiscal 1993 RSA'). Each Fiscal 1993 RSA is set
forth in the Summary Compensation Table above. In addition, on March 1, 1994,
each of Messrs. Kalvaria, Carson and Pierce also received additional restricted
shares of Class A Common Stock, which shares were granted in respect of their
respective performance during Transition 1993 and to incentivize their future
performance (each, a 'Transition 1993 RSA'). Each Transition 1993 RSA is set
forth in the Summary Compensation Table above. All of the Fiscal 1993 RSAs
granted to Mr. Carson will vest on May 10, 1996, and all of the Fiscal 1993 RSAs
granted to Messrs. Kalvaria, Kingsmore and Pierce will vest on December 31,
1996. All of the Transition 1993 RSAs will vest on January 1, 1997.
MISCELLANEOUS
Messrs. Carson, Kingsmore, Pierce and Kalvaria are entitled pursuant to
their respective Employment Agreements to participate in other long-term
compensation and life insurance, disability and medical plans made generally
available to senior officers of Royal Crown, Graniteville, Arby's and Triarc,
respectively. Messrs. Carson, Kingsmore and Pierce also will be provided the use
of a car and other customary benefits during the terms of their respective
agreements. Pursuant to Triarc's standard employment-related relocation policy,
which is applicable to each of the Named Officers and other senior officers of
Triarc, an officer's compensation will be increased to the extent necessary to
cause all employment-related relocation expenses to be fully reimbursed on a
'after tax' basis.
Mr. Coppersmith resigned as an officer and employee of SEPSCO effective
August 10, 1993 and entered into a consulting agreement with SEPSCO pursuant to
which he will render consulting services on a part-time basis for a fee of
$30,000 per month until May 1, 1995. At the end of the consulting period, Mr.
Coppersmith may receive a discretionary bonus based upon the value of the
services rendered by him.
OPTIONS GRANTED IN RESPECT OF FISCAL 1993 AND TRANSITION 1993
The following table sets forth certain information with respect to options
to purchase shares of Class A Common Stock granted to the Named Officers in
respect of Fiscal 1993 and Transition 1993 performance. No tandem or
freestanding SARs were granted to any of the Named Officers, and no stock
options were exercised by any Named Officer during Fiscal 1993 or Transition
1993. As noted in such table, certain of such options were granted on March 1,
1994, subsequent to the end of Transition 1993, but in respect of Transition
1993 performance.
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<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- - -----------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS GRANT DATE
SECURITIES GRANTED TO VALUE
UNDERLYING EMPLOYEES IN EXERCISE -------------
OPTIONS RESPECT OF OR BASE GRANT DATE
GRANTED FISCAL 1993 AND PRICE EXPIRATION PRESENT VALUE
NAME (#) TRANSITION 1993 ($/SH) DATE ($)(1)
- - -------------------------------- ------------ ------------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Nelson Peltz.................... 600,000(2)(4) 27% 18.00 4/24/03 6,145,200
75,000(3)(4) 21.00 3/1/04 896,175
Peter W. May.................... 400,000(2)(4) 18 18.00 4/24/03 4,096,800
50,000(3)(4) 21.00 3/1/04 597,450
Leon Kalvaria................... 150,000(2)(4) 8 18.00 4/24/03 1,536,300
40,000(3)(4) 21.00 3/1/04 477,960
John C. Carson.................. 120,000(2)(5) 6 18.00 4/24/03 1,157,760
30,000(3)(5) 21.00 3/1/04 337,680
Harold D. Kingsmore............. 50,000(2)(5) 2 18.00 4/24/03 482,400
10,000(3)(5) 21.00 3/1/04 112,560
Donald L. Pierce................ 65,000(2)(5) 4 18.00 4/24/03 627,120
35,000(3)(5) 21.00 3/1/04 393,960
Jack Coppersmith(6)............. 25,000(2) 1 18.00 4/24/03 241,200
</TABLE>
(1) These values were calculated using a Black-Scholes option pricing model. The
actual value, if any, that an executive may realize will depend on the
excess, if any, of the stock price over the exercise price on the date the
options are exercised, and no assurance exists that the value realized by an
executive will be at or near the value estimated by the Black-Scholes model.
The following assumptions were used in the calculations:
(a) assumed option term of 7.5 years;
(b) stock price volatility factor of 0.4758;
(c) 6.5% annual discount rate;
(d) no dividend payment; and
(e) 3% discount to Black-Scholes ratio for each year an option remains
unvested.
(2) These options were granted on April 24, 1993 and have an exercise price
equal to the closing price of the Class A Common Stock on the ASE on April
27, 1993, the first day of trading after the options were granted.
(3) These options were granted on March 1, 1994 in respect of performance during
Transition 1993 and have an exercise price equal to the closing price of the
Class A Common Stock on the NYSE on March 1, 1994.
(4) One-third of the options granted will vest on each of the first, second and
third anniversaries of the date of grant and the options will be exercisable
at any time between the date of vesting and the tenth anniversary of the
date of grant.
(5) One-third of the options granted will vest on each of the third, fourth and
fifth anniversaries of the date of grant and the options will be exercisable
at any time between the date of vesting and the tenth anniversary of the
date of grant.
(6) Mr. Coppersmith resigned as an officer and employee effective August 10,
1993 and as a result, he has forfeited his options.
OPTION VALUES AT END OF FISCAL 1993 AND TRANSITION 1993
The following table sets forth certain information concerning the value at
the end of Fiscal 1993 and Transition 1993 of unexercised in-the-money options
to purchase shares of Class A Common Stock granted to the Named Officers
outstanding as of the end of Fiscal 1993 and Transition 1993. No SARs have been
granted to any of the Named Officers. This table does not include the options to
purchase shares of Class A Common Stock which were granted on March 1, 1994
because such options had not
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<PAGE>
been granted until subsequent to the end of Transition 1993 and therefore were
not outstanding as of the end of Fiscal 1993 or Transition 1993.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED
UNEXERCISED IN-THE-MONEY IN-THE-MONEY
OPTIONS OPTIONS OPTIONS
AT FISCAL AT FISCAL AT TRANSITION
SHARES 1993 1993 1993 END
ACQUIRED END(#)(1) END($)(2) ($)(3)
ON VALUE EXERCISABLE/ EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE
- - --------------------------------------------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Nelson Peltz................................. -0- -0- -0-/600,000 -0-/525,000 -0-/4,200,000
Peter W. May................................. -0- -0- -0-/400,000 -0-/350,000 -0-/2,800,000
Leon Kalvaria................................ -0- -0- -0-/150,000 -0-/131,250 -0-/1,050,000
John C. Carson............................... -0- -0- -0-/120,000 -0-/105,000 -0-/ 840,000
Harold D. Kingsmore.......................... -0- -0- -0-/ 50,000 -0-/ 43,750 -0-/ 350,000
Donald L. Pierce............................. -0- -0- -0-/ 65,000 -0-/ 56,875 -0-/ 455,000
</TABLE>
(1) At the end of Transition 1993, there was no change in the number of
securities underlying unexercised Options granted to the identified persons
or in the number of such Options that were exercisable at such date.
(2) On April 30, 1993, the last day of Fiscal 1993, the closing price of the
Class A Common Stock on the ASE was $18 7/8.
(3) On December 31, 1993, the last day of Transition 1993, the closing price of
the Class A Common Stock on the NYSE was $25.00.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Martin Rosen, who served as a member of the Compensation Committee of
Triarc's Board of Directors (the 'Board of Directors') until October 1993, is a
member of the law firm of Rosen & Reade. During Fiscal 1993 and Transition 1993,
the Company paid Rosen & Reade approximately $1,744,000 and approximately
$1,127,000, respectively on account of legal services rendered to Triarc.
COMPENSATION OF DIRECTORS
Since the Reorganization, each non-management director of Triarc receives
an annual retainer of $25,000 for serving on the Board of Directors. In
addition, non-management directors of Triarc receive $1,000 for each meeting of
the Board of Directors or of a Committee of the Board of Directors attended. See
'Item 11. Executive Compensation -- Compensation of New Executive Officers' for
certain information relating to compensation of Triarc management directors.
In addition, pursuant to the Equity Participation Plan, each director of
Triarc who is not also an employee of Triarc or any subsidiary receives, on the
later of (i) the date of his initial election or appointment to the Board of
Directors and (ii) April 24, 1993, options to purchase 3,000 shares of Class A
Common Stock and, in connection therewith, tandem SARs for the same number of
shares. On the date of each subsequent annual meeting of shareholders of Triarc
at which a director is reelected, such director will receive options to purchase
1,000 shares of Class A Common Stock and, in connection therewith, SARs for the
same number of shares. Each such option has a term of ten years, subject to
certain exceptions provided in the Equity Participation Plan. Each such option
becomes exercisable to the extent of one-half thereof on each of the two
immediately succeeding anniversaries of the date of grant. The price per share
to be paid by the holder of such an option is equal to the fair market value of
one share of Class A Common Stock on the date the option is granted. The
purchase price of the shares of Class A Common Stock as to which such an option
is exercised shall be paid only in cash, and such SARs shall be exercisable only
for shares of Class A Common Stock.
Subsequent to the Reorganization, the Board of Directors approved and
Triarc paid a cash payment to each of the members of the Triarc Special
Committee in respect to their services to Triarc (principally in relationship to
the settled litigation which had been pending in the Ohio Court) through
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April 23, 1993 as follows: $2,200,000 to Mr. Kelley, $1,300,000 to Mr. McCarthy,
$1,000,000 to Mr. Kerger and $200,000 to each of Messrs. Pallot and Prendergast.
In addition, the Compensation Committee of the Board of Directors, on the
recommendation of the Board of Directors, granted restricted stock awards to
Messrs. Kelley, McCarthy and Kerger with respect to 60,000, 60,000 and 30,000
shares of Class A Common Stock, respectively. The grant of restricted stock
awards was pursuant to the Equity Participation Plan and such awards will vest
in full and all restrictions on transferability shall terminate on the earlier
of December 31, 1996 or the date the individual ceases to be a director of
Triarc, unless the individual ceases to be a director as a result of his
voluntary resignation or his decision not to stand for reelection or as a result
of his directorship being terminated for cause in accordance with the Ohio
General Corporation Law.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership as of April 14,
1994 by each person known by Triarc to be the beneficial owner of more than 5%
of the outstanding shares of Class A Common Stock (constituting the only class
of voting capital stock of Triarc), each director of Triarc who has such
ownership, each of the Named Officers who was an executive officer of Triarc on
April 14, 1994, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NAME AND ADDRESS OF NATURE OF
BENEFICIAL OWNER OF OWNERSHIP(1) CLASS
- - ----------------------------------------------------------------------- ---------------- -------
<S> <C> <C>
DWG Acquisition ....................................................... 5,982,867 shares(4) 24.9%
1201 North Market Street
Wilmington, DE 19801
Nelson Peltz .......................................................... 6,182,967 shares(2)(3)(4)(6) 25.5%
777 South Flagler Drive, Suite 1000E
West Palm Beach, FL 33401
Peter W. May .......................................................... 6,116,200 shares(2)(4)(7) 25.3%
900 Third Avenue
New York, NY 10022
Leon Kalvaria ......................................................... 92,500 shares(5) *
777 South Flagler Drive, Suite 1000E
West Palm Beach, FL 33401
Irving Mitchell Felt .................................................. 1,500 shares(8) *
The Mirabella
10430 Wilshire Blvd.
Suite 202
Los Angeles, CA 90024
Harold E. Kelley ...................................................... 61,500 shares(9) *
777 South Flagler Drive, Suite 1000E
West Palm Beach, FL 33401
Richard M. Kerger ..................................................... 31,700 shares(10) *
777 South Flagler Drive, Suite 1000E
West Palm Beach, FL 33401
Daniel R. McCarthy .................................................... 61,500 shares(9) *
777 South Flagler Drive, Suite 1000E
West Palm Beach, FL 33401
William L. Pallot ..................................................... 1,931 shares(11) *
400 Pickle Road
Shelbyville, TN 37160
Thomas A. Prendergast ................................................. 1,500 shares(8) *
501 Executive Center Blvd.
Suite 210
El Paso, TX 79902
Martin Rosen .......................................................... 7,500 shares(11) *
757 Third Avenue, 6th Fl.
New York, NY 10017
</TABLE>
(table continued on next page)
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(table continued from previous page)
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NAME AND ADDRESS OF NATURE OF
BENEFICIAL OWNER OF OWNERSHIP(1) CLASS
- - ----------------------------------------------------------------------- ---------------- -------
<S> <C> <C>
Gerald Tsai, Jr. ..................................................... 1,000 shares *
200 Park Avenue, 37th Fl.
Suite 3709
New York, NY 10166
Stephen S. Weisglass .................................................. 11,500 shares(11) *
950 Third Avenue, 26th Fl.
New York, NY 10022
John C. Carson ........................................................ 45,000 shares(12) *
1000 Corporate Drive
Ft. Lauderdale, FL 33334
Harold D. Kingsmore ................................................... 50,000 shares(12) *
133 Marshall Street
Graniteville, SC 29829
Donald L. Pierce ...................................................... 66,250 shares(13) *
1000 Corporate Drive
Ft. Lauderdale, FL 33334
Directors and Executive Officers as a group (23 persons) .............. 6,902,848 shares 28.2%
</TABLE>
- - ------------
* Less than 1%.
(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such shares.
(2) Includes 5,982,867 shares held by DWG Acquisition, of which Mr. Peltz and
Mr. May are the sole general partners.
(3) Includes 100 shares owned by Mr. Peltz's minor son, as to which Mr. Peltz
disclaims beneficial ownership.
(4) On April 23, 1993, DWG Acquisition acquired 5,982,867 shares of Class A
Common Stock from the Posner Entities, for an aggregate purchase price of
$71,794,404 (the 'Purchase Price'). In addition, as part of the
Reorganization on April 23, 1993, Triarc exchanged the remaining 5,982,866
shares of Triarc common stock owned by the Posner Entities for an equal
number of shares of Triarc's Redeemable Convertible Preferred Stock having
a stated value of $12.00 per share or an aggregate stated value of
$71,794,392.
Triarc is informed that DWG Acquisition has pledged an aggregate of
4,040,000 shares of Class A Common Stock (the 'Pledged Shares') to two
financial institutions on behalf of Messrs. Peltz and May to secure certain
loans made to them by such financial institutions in connection with the
Equity Transactions; the loan documentation in connection with such loans
contains customary provisions concerning the maturity of the loans and
other provisions with respect thereto and with respect to the Pledged
Shares.
(5) Represents 42,500 restricted shares granted under the Equity Participation
Plan and options to purchase 50,000 shares of Class A Common Stock which
vest within 60 days of April 14, 1994.
(6) Includes options to purchase 200,000 shares of Class A Common Stock which
vest within 60 days of April 14, 1994.
(7) Includes options to purchase 133,333 shares of Class A Common Stock which
vest within 60 days of April 14, 1994.
(8) Represents options to purchase 1,500 shares of Class A Common Stock which
vest within 60 days of April 14, 1994.
(9) Represents 60,000 restricted shares granted under the Equity Participation
Plan and options to purchase 1,500 shares of Class A Common Stock which
vest within 60 days of April 14, 1994.
(footnotes continued on next page)
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(footnotes continued from previous page)
(10) Represents 30,000 restricted shares granted under the Equity Participation
Plan, 200 shares of Class A Common Stock purchased by Mr. Kerger and
options to purchase 1,500 shares of Class A Common Stock which vest within
60 days of April 14, 1994.
(11) Includes options to purchase 1,500 shares of Class A Common Stock which
vest within 60 days of April 14, 1994.
(12) Represents restricted shares granted under the Equity Participation Plan.
(13) Represents 61,250 restricted shares granted under the Equity Participation
Plan and 5,000 shares purchased by Mr. Pierce.
The foregoing table does not include the 5,982,866 shares of Redeemable
Convertible Preferred Stock owned by a Posner Entity, which are convertible by
it into 4,985,722 shares of Triarc's Class B Common Stock at a conversion price
of $14.40 per share, subject to certain adjustments. The shares of Redeemable
Convertible Preferred Stock can be converted without restriction into an equal
number of shares of Class A Common Stock following a transfer to a non-affiliate
of Posner. Triarc has certain rights of first refusal if such shares are sold to
an unaffiliated third party. If the 5,982,866 currently outstanding shares of
the Redeemable Convertible Preferred Stock were converted into shares of Class A
Common Stock, such shares would constitute approximately 17.2% of the then
outstanding shares of Class A Common Stock after giving effect to the issuance
of shares of Class A Common Stock in the SEPSCO Merger, or 18.9% of the then
outstanding shares of Class A Common Stock in the event that the SEPSCO Merger
is not consummated. Except for the arrangements relating to the Pledged Shares
described in note (4) to the foregoing table, there are no arrangements known to
Triarc the operation of which may at a subsequent date result in a change in
control of Triarc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS IN CONNECTION WITH THE REORGANIZATION
Triarc and its subsidiaries completed certain transactions in connection
with the Reorganization, including transactions involving certain Posner
Entities. Such transactions included:
(a) The exchange by the Posner Entities and Triarc of 5,982,866 shares
of Triarc common stock for an equal number of shares of Triarc's Redeemable
Convertible Preferred Stock;
(b) The resignation of Victor Posner and his son, Steven Posner, as
officers and employees of Triarc and all of its subsidiaries and the
entering into a five year consulting agreement with Steven Posner (not
requiring the provision of any substantial services) which provided for an
initial payment of $1,000,000 on April 23, 1993 and an annual consulting
fee of $1,000,000 thereafter;
(c) The entering into of a modification of the lease with respect to
the corporate headquarters of Triarc and certain subsidiaries described
below under ' -- Certain Transactions with Former Management and Former
Affiliates'; and
(d) The purchase of certain minority interests in CFC Holdings, SEPSCO
and Wilson from the Posner Entities described below (the 'Minority Share
Acquisitions').
In connection with the Reorganization, Triarc acquired from the Posner
Entities shares of certain Triarc subsidiaries for an aggregate purchase price
of $17.2 million. After giving effect to the offsets of certain amounts owed to
Triarc, the Posner Entities received net proceeds from such transactions
aggregating approximately $9.7 million. The prices paid for such minority
interests were determined by negotiations among Triarc, DWG Acquisition and the
sellers in the context of the Reorganization, and no separate determination was
made that the respective purchase prices represented the fair value of the
shares purchased.
In accordance with certain agreements (the 'CFC Holdings Agreements')
between Triarc and certain holders of shares of common stock (the 'Holdings
Common Stock') of CFC Holdings, the indirect parent of Royal Crown and Arby's,
which agreements are described in the following two
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paragraphs, Triarc purchased on April 23, 1993 an additional 4.5% of the shares
of Holdings Common Stock.
Pursuant to the CFC Holdings Agreements, Triarc purchased from NVF Company
('NVF') on April 23, 1993 141,000 shares of Holdings Common Stock representing
1.4% of the then issued and outstanding capital stock of CFC Holdings for $3.6
million. At December 31, 1992, the aggregate net book value of the 141,000
shares of Holdings Common Stock being sold by NVF was approximately $212,000.
Triarc made payment of the purchase price to NVF first by offset against amounts
(aggregating approximately $2.5 million) owed to Triarc and subsidiaries by NVF
on account of the cost sharing arrangements described under ' -- Certain
Transactions with Former Management and Former Affiliates' (the 'Former Cost
Sharing Arrangements') and $1.1 million was paid by Triarc to NVF in cash. At
April 23, 1993, Posner Entities beneficially owned approximately 38.2% of the
outstanding voting securities of NVF (approximately 36.4% of NVF's common stock
actually outstanding on such date), and NVF may be deemed to be controlled by
Victor Posner. In August 1993, NVF became a debtor in a case filed by its
creditors under Chapter 11 of the Federal Bankruptcy Code. For information
concerning claims made against Triarc by NVF's bankruptcy counsel and reserves
taken by Triarc in respect of contingent liabilities relating to such NVF
bankruptcy proceedings, see 'Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations.'
Pursuant to the CFC Holdings Agreements, Triarc purchased from Insurance
Risk Management, Inc. ('IRM') on April 23, 1993, 324,300 shares of Holdings
Common Stock, representing 3.1% of the then issued and outstanding capital stock
of CFC Holdings, for an aggregate of $8.4 million. At December 31, 1992, the
aggregate net book value of the 324,300 shares of Holdings Common Stock being
sold by IRM was approximately $488,000. Triarc made payment of the purchase
price to IRM first, by offset of the $2.1 million owed to Triarc by IRM on
account of the stock repurchase described below, second, by offset against
amounts owed to Triarc and subsidiaries by IRM on account of the Former Cost
Sharing Arrangements described under ' -- Certain Transactions with Former
Management and Former Affiliates' (aggregating approximately $1.7 million),
third, by offset against amounts owed by IRM to Chesapeake Insurance
(representing insurance premiums payable, aggregating approximately $1.2
million) and fourth, by the payment by Triarc to IRM in cash of the remaining
$3.4 million. At April 23, 1993, 25% of the stock of IRM was owned by Triarc,
40% was owned by NVF and 35% was owned by Salem Corporation ('Salem'), which at
that time was, in turn, 49% owned by Victor Posner and which at that time might
have been deemed to be controlled by Victor Posner. Since each of NVF and Salem
may be deemed to be controlled by Victor Posner, IRM may, in turn, be deemed to
be controlled by Victor Posner.
IRM also purchased from Triarc on April 23, 1993 the 250 shares of IRM's
common stock owned by Triarc for $2.1 million. At December 31, 1992, the
aggregate net book value of the shares of IRM being sold by Triarc was
approximately $1.2 million, after giving pro forma effect to the proposed sale
by IRM of the shares of the Holdings Common Stock described above. The payment
for such purchase of shares of IRM owned by Triarc was made by offset against
amounts owed by Triarc and subsidiaries under the agreement for the sale of the
Holdings Common Stock, as described above.
In addition, on April 23, 1993, Triarc purchased from Posner Entities,
721,931 shares of SEPSCO common stock, representing 6.2% of the then issued and
outstanding voting securities of SEPSCO, at a purchase price of approximately
$6.93 per share or an aggregate of $5 million. Such price approximated the
market price for such stock on the date that a letter of intent was entered into
with respect to the Equity Transactions ($6.875 on September 1, 1992). At April
23, 1993, the closing sale price for SEPSCO's common stock on the PSE was
$15.50, and the aggregate market value of the 721,931 shares of SEPSCO common
stock being purchased by Triarc was approximately $11.2 million. Triarc also
purchased from Posner Entities 161,800 shares of common stock of Wilson,
representing approximately 4.9% of the issued and outstanding voting securities
of Wilson, at a purchase price of approximately $1.24 per share or an aggregate
of $200,000. Such price approximated the net book value for such stock on the
date that a letter of intent was entered into with respect to the Equity
Transactions ($1.21 as of June 30, 1992). At April 23, 1993, the closing sale
price for Wilson's common stock on the PSE was $.5625 and the aggregate market
value of the 161,800 shares of Wilson common stock being purchased
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by Triarc was approximately $91,000. The payment for the purchases of SEPSCO and
Wilson stock, described above, was made by Triarc in cash.
CERTAIN TRANSACTIONS WITH FORMER MANAGEMENT AND FORMER AFFILIATES
During Fiscal 1993, Triarc and its subsidiaries engaged in transactions
with certain corporations which at that time might have been deemed to be
controlled by Victor Posner and to have been affiliates of Triarc and its
subsidiaries until the Reorganization. Such former affiliates (the 'Former
Affiliates') were NVF, NVF's 68% owned subsidiary, APL Corporation ('APL'), IRM,
Salem and until its filing for protection under Chapter 7 of the Federal
Bankruptcy Court in February 1992, Pennsylvania Engineering Corporation ('PEC').
(1) Pursuant to a management services agreement (the 'Former Management
Services Agreement') and the Former Cost Sharing Arrangements, in Fiscal 1993
Triarc provided to its subsidiaries and the Former Affiliates certain management
services, including legal, accounting, internal auditing, insurance, financial
and other management services. Under the Former Management Services Agreement,
the Company charged the Former Affiliates $6,640,000 (including interest on past
due balances) for such services in Fiscal 1993, excluding the charges described
in paragraph (2) below. Certain Former Affiliates were unable to pay
approximately $5,096,000 of the amounts charged to them during such period, and
such costs were reserved and reallocated among Triarc and its subsidiaries and
other participants under the Former Management Services Agreement, of which
approximately $4,991,000 was borne by Triarc and its subsidiaries in Fiscal
1993, and the remaining $105,000 was borne by the other participants.
The agreements entered into in connection with the Equity Transactions
provide for the termination of providing management services and space pursuant
to the Former Cost Sharing Arrangements to the Former Affiliates within six
months after the closing of the Equity Transactions as well as for the
reimbursement for any space or services provided to the Former Affiliates during
the period between the date of the closing of the Equity Transactions and the
date of such termination at commercially reasonable rates no less than the rates
Triarc would charge an unaffiliated third party. Pursuant to these arrangements,
Triarc provided certain limited services to the Former Affiliates through
October 23, 1993, and discontinued such services thereafter. Charges to the
Former Affiliates for such services, including certain reinsurance and equipment
lease billings, aggregated approximately $156,000 during Transition 1993.
(2) Until January 31, 1994, Triarc leased approximately 297,000 square feet
at 6917 Collins Avenue, Miami Beach, Florida (the 'Leased Space') from Victor
Posner Trust No. 6, a trust created for the benefit of Victor Posner and his
children (the 'Landlord'), pursuant to a master commercial lease agreement dated
as of April 1, 1983 (the 'Lease'). In Fiscal 1993, the Leased Space, which
constituted approximately 98% of the space in such building, was used primarily
for the corporate offices of Triarc, certain of its subsidiaries and certain of
the Former Affiliates. Also included in the Leased Space were apartments which
were used from time to time on an 'as needed' basis by Triarc, its subsidiaries,
and the Former Affiliates for accommodations for persons visiting such corporate
offices. In Fiscal 1993, $5,790,000 of the cost of the Leased Space was borne by
Triarc and its subsidiaries, and $826,000 was charged to the Former Affiliates.
Approximately $436,000 of the amounts charged to certain of the Former
Affiliates during Fiscal 1993 which such Former Affiliates were unable to pay
was reserved and reallocated among Triarc and its subsidiaries and the other
participants under the Former Management Services Agreements, of which
approximately $380,000 was borne by Triarc and its subsidiaries.
In connection with the Reorganization, the Landlord and Triarc entered into
a Lease Modification and Extension Agreement (the 'Lease Modification'). The
Lease Modification provided, among other things, for an extension of the lease
for a period of four years commencing on April 1, 1993 and ending on March 31,
1997 and for a reduction in the annual amount of base rent retroactive to
October 1, 1992 to the lesser of $14.00 per rentable square foot or an aggregate
of $4 million per annum. In addition, the Lease Modification provided for a
reduction in the amount charged for inside and outside parking associated with
the building, the elimination of any charges or fees on account of furniture and
fixtures used in the apartments described above and the elimination of any
obligation to restore the premises at the end of the term of the extended Lease.
The Lease Modification also provided that the Landlord
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may, on nine months' notice to Triarc, terminate the Lease, and that Triarc may,
on six months' notice to the Landlord, terminate the Lease upon payment to the
Landlord of a single payment (the 'Early Termination Payment') equal to all of
the base rent which would otherwise be payable for the balance of the extended
term, without discount, plus additional rent due through the date of such early
termination, less any amounts then owed by Landlord to Triarc, and, that
thereafter Triarc and subsidiaries shall be released from any further
obligations under the Lease Modification. Pursuant to the Lease Modification,
all outstanding rent obligations for the Leased Space, aggregating approximately
$20,638,000, were settled on April 23, 1993 for $11,738,000, resulting in a rent
reduction credit of approximately $8,900,000. Aggregate rent payments of
approximately $2.9 million were made by Triarc in respect of the Leased Space
during Transition 1993. In July 1993, Triarc gave notice of termination of the
Lease effective January 31, 1994. Because Landlord and Triarc have not been able
to agree upon the precise amount of the Early Termination Payment, the parties
have agreed to extend the time for payment of the Early Termination Payment to
May 16, 1994. In connection with such extension, the parties have agreed that
the amount to be paid in respect of the Early Termination Payment will bear
interest from February 1, 1994 until paid at the prime or base reference rate of
Citibank. In Fiscal 1993, Triarc recorded a charge of approximately $13,000,000
to provide for the remaining payments on the lease subsequent to its
cancellation.
(3) In Fiscal 1993, NPC Leasing Corp. ('NPC Leasing'), an indirect
wholly-owned subsidiary of Triarc, leased vehicles and other equipment to the
Former Affiliates under long-term lease obligations which are accounted for as
direct financing leases. Lease billings by NPC Leasing to the Former Affiliates
during Fiscal 1993 were approximately $144,000. Since May 1, 1993, NPC Leasing
has not been providing any services to, nor are any material credits due to NPC
Leasing from, any Former Affiliate.
(4) Until October 1993, Chesapeake Insurance provided certain insurance
coverage and the reinsurance of certain risks primarily for Triarc and its
subsidiaries and the Former Affiliates. During Fiscal 1993, net premiums
attributable to such insurance coverage and reinsurance for the Former
Affiliates approximated $2,875,000. Chesapeake Insurance no longer insures or
reinsures any risks for any periods commencing on or after October 1, 1993.
(5) During Fiscal 1993, Triarc and its subsidiaries secured the major
portion of their property and liability insurance coverage through IRM, an
insurance agency which acted as agent or broker and provided claims processing
services. Commissions and payments for such services to IRM by Triarc and
subsidiaries amounted to approximately $1,591,000 for Fiscal 1993. Such services
from IRM were discontinued subsequent to April 1993.
(6) In connection with the Former Cost Sharing Arrangements, advances,
insurance premiums, equipment leases and accrued interest, Triarc had
receivables due from APL, a Former Affiliate, aggregating $38,120,000 as of
April 30, 1992, against which a valuation allowance of $34,713,000 was recorded.
APL has experienced recurring losses and other financial difficulties in recent
years and in July 1993 APL became a debtor in a proceeding under Chapter 11 of
the Bankruptcy Code (the 'APL Proceeding'). Accordingly, during Fiscal 1993,
Triarc and its subsidiaries provided an additional $9,863,000 for the unreserved
portion of the receivable at April 30, 1992 and additional net billings in 1993
and wrote off the full balance of the APL receivables and related allowance of
$44,576,000. In February 1994, the official committee of Unsecured Creditors of
APL Corporation (the 'APL Committee') filed a complaint (the 'APL Complaint')
against certain Posner Entities, Triarc and certain companies formerly or
presently affiliated with Mr. Posner or with Triarc, alleging causes of action
arising from various transactions allegedly caused by the named Posner Entities
in breach of their fiduciary duties to APL and resulting in corporate waste,
fraudulent transfers and preferences. In the APL Complaint, the APL Committee
asserts claims against Triarc for (a) aiding and abetting breach of fiduciary
duty, (b) equitable subordination of claims which Triarc may have against APL,
(c) declaratory relief as to whether APL has any liability to Triarc, and (d)
recovery of fraudulent transfers allegedly made by APL to Triarc prior to
commencement of the APL Proceeding. The APL Complaint seeks an undetermined
amount of damages from Triarc, as well as the other relief identified in the
preceding sentence. Based upon the results of Triarc's investigation of these
matters to date, Triarc's management
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does not believe that the outcome of the APL Proceeding will have a material
adverse effect on the financial condition or results of operations of Triarc or
its subsidiaries.
(7) Triarc and its subsidiaries had secured receivables from PEC, a Former
Affiliate, aggregating $6,664,000 as of April 30, 1992 against which a
$3,664,000 valuation allowance was recorded. PEC had also filed for protection
under the bankruptcy code in February 1992, and accordingly, during Fiscal 1993,
Triarc and its subsidiaries recorded an additional $3,000,000 valuation
allowance to provide for the unreserved portion of the receivables and to take
into account Triarc's significant doubts as to the net realizability of the
underlying collateral.
In addition, during Transition 1993, Triarc sold a yacht and certain other
assets having a net book value of approximately $400,000 to an entity owned by
Victor Posner for cash sales prices aggregating approximately $310,000.
CERTAIN OTHER TRANSACTIONS
Triarc subleases from an affiliate of Messrs. Peltz and May approximately
26,800 square feet of furnished office space in New York, New York owned by an
unaffiliated third party. In addition, until October 26, 1993, Triarc also
subleased from another affiliate of Messrs. Peltz and May approximately 32,000
square feet of office space in West Palm Beach, Florida owned by an unaffiliated
third party. Subsequent to October 26, 1993, Triarc assumed the lease for
approximately 17,000 square feet of the office space in West Palm Beach. The
aggregate amount paid by Triarc with respect to such subleases was approximately
$1.8 million during Transition 1993, which is less than the aggregate amount
such affiliates paid to the unaffiliated third party owners. Messrs. Peltz and
May have guaranteed to the unaffiliated landlords payment of rent for the New
York and West Palm Beach office space.
Pursuant to an agreement dated as of October 1, 1992 entered into in
connection with the Reorganization, Triarc agreed to reimburse DWG Acquisition
for certain of the reasonable, out-of-pocket expenses incurred by DWG
Acquisition in connection with services rendered by it to Triarc without charge
relating to the refinancing and restructuring of Triarc and subsidiaries and
other transactions beneficial to Triarc and its subsidiaries. Pursuant to such
agreement, Triarc reimbursed DWG Acquisition for $229,000 in expenses, which
amount related principally to travel, reproduction and delivery expense.
Triangle Aircraft Service Corporation ('TASCO'), a company owned by Messrs.
Peltz and May, owns three aircraft. From August 1992 until September 30, 1993,
TASCO operated such aircraft and made them available for use by Triarc and its
subsidiaries for a fee (the 'TASCO Fee'), and Triarc and its subsidiaries made
extensive use of these aircraft. The TASCO Fee was an amount equal to TASCO's
direct out-of-pocket expenses, excluding fuel, oil and lubricants, plus two
times the cost of fuel, oil and lubricants. The TASCO Fee was in accordance with
Federal Aviation Administration regulations applicable to non-charter carriers.
During Fiscal 1993 and the five month period commencing on May 1, 1993 and
ending on September 30, 1993, Triarc and its subsidiaries were charged $754,000
and $681,000, respectively, in respect of such TASCO Fees. On October 1, 1993,
Triarc and TASCO entered into an agreement pursuant to which Triarc is leasing
TASCO's three aircraft on a 'dry lease' basis (i.e., Triarc pays an aggregate
annual rent of $2,200,000 to TASCO and pays the operating expenses of the
aircraft directly to unaffiliated third parties). During the three month period
commencing on October 1, 1993 and ending on December 31, 1993, Triarc and its
subsidiaries paid $550,000 to TASCO pursuant to this agreement.
Until February 1994, an affiliate of Messrs. Peltz and May leased an
apartment in New York City. Commencing June 1, 1993, such apartment was used by
executives of Triarc and in connection therewith, Triarc reimbursed such
affiliate approximately $193,000 of rent for the apartment for the seven months
ended December 31, 1993.
Triarc and SEPSCO have agreed in principle to the sale by SEPSCO to Triarc
of the stock of the SEPSCO subsidiaries that hold SEPSCO's natural gas and oil
working and royalty interests. The sale of SEPSCO's natural gas and oil
interests will be for a net cash purchase price of $8.5 million, which Triarc
and SEPSCO believe is equal to their estimated fair value and which is
approximately $4.5 million higher than their net book value. This transaction
was approved by both the Board of Directors and the
107
<PAGE>
Board of Directors of SEPSCO, with both David E. Schwab II and Sir Ian
MacGregor, the only members of the Board of Directors of SEPSCO who are not also
members of the Board of Directors, voting to approve the transaction. Triarc
expects in the near future to begin this sale process, which will be completed
prior to July 22, 1994.
During Fiscal 1993 and Transition 1993, Triarc and its subsidiaries paid
Rosen & Reade, a law firm, approximately $1,744,000 and approximately
$1,127,000, respectively, on account of legal services rendered to Triarc and
its subsidiaries. Martin Rosen, a director of Triarc, is a partner of such firm.
For certain transactions involving Mr. Kalvaria, See 'Item 11. Executive
Compensation -- Employment Arrangements with Executive Officers -- Leon
Kalvaria.'
108
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. Financial Statements:
See Index to Financial Statements (Item 8)
2. Financial Statement Schedules:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<S> <C>
Schedule II -- Amounts Receivable from Related Parties for the years ended April 30, 1991, 1992 and
1993 and the eight months ended December 31, 1993
Schedule III -- Balance Sheets (Parent Company Only) -- as of April 30, 1992 and 1993 and December 31,
1993; Statements of Operations (Parent Company Only) -- for the years ended April 30,
1991, 1992 and 1993 and the Eight Months Ended December 31, 1993; Statements of Cash
Flows (Parent Company Only) -- for the years ended April 1992 and 30, 1991, 1992 and
1993 and the eight months ended December 31, 1993
Schedule V -- Properties for the years ended April 30, 1991, 1992 and 1993 and as of December 31,
1993
Schedule VI -- Accumulated Depreciation of Properties for the years ended April 30, 1991, 1992 and
1993 and as of December 31, 1993
Schedule VIII -- Valuation and Qualifying Accounts for the years ended April 30, 1991, 1992 and 1993
and the eight months ended December 31, 1993
Schedule IX -- Short-Term Borrowings for the years ended April 30, 1991, 1992 and 1993 and as of
December 31, 1993
Schedule X -- Supplementary Statement of Operations Information for the years ended April 30, 1991,
1992 and 1993 and the eight months ended December 31, 1993
Schedule XIV -- Supplemental Information Concerning Property Casualty Insurance Operations for the
years ended April 30, 1991, 1992 and 1993 and the eight months ended December 31, 1993.
</TABLE>
All other schedules have been omitted since they are either not applicable
or the information is contained elsewhere in 'Item 8. Financial Statements and
Supplementary Data.'
3. Exhibits:
Copies of the following exhibits are available at a charge of $.25 per
page upon written request to the Secretary of Triarc at 777 South Flagler
Drive, Suite 1000E, West Palm Beach, Florida 33401.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Stock Purchase Agreement dated as of October 1, 1992 among DWG Acquisition, Victor Posner,
Security Management Corp. and Victor Posner Trust No. 20, incorporated herein by reference to
Exhibit 10 to Amendment No. 4 to Triarc's Current Report on Form 8-K dated October 5, 1992 (SEC
file No. 1-2207).
2.2 -- Amendment dated as of October 1, 1992 between Triarc and DWG Acquisition, incorporated herein
by reference to Exhibit 11 to Amendment No. 4 to Triarc's Current Report on Form 8-K dated
October 5, 1992 (SEC file No. 1-2207).
2.3 -- Exchange Agreement dated as of October 1, 1992 between Triarc and Security Management Corp.,
incorporated herein by reference to Exhibit 12 to Amendment No. 4 to Triarc's Current Report on
Form 8-K dated October 5, 1992 (SEC file No. 1-2207).
2.4 -- Agreement and Plan of Merger dated as of November 22, 1993 among SEPSCO, SEPSCO Merger
Corporation and Triarc, incorporated hereby by reference to Exhibit 2.1 to Amendment No. 1 to
Triarc's Registration Statement on Form S-4 dated March 11, 1994 (SEC file No. 1-2207).
3.1 -- Articles of Incorporation of Triarc as currently in effect including all amendments thereto,
incorporated herein by reference to Exhibit 3.1 to Triarc's Current Report on Form 8-K dated
October 27, 1993 (SEC file No. 1-2207).
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------------------------
<S> <C>
3.2 -- Amended Code of Regulations of Triarc, incorporated herein by reference to Exhibit 2 to
Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file No. 1-2207).
4.1 -- Southeastern Public Service Company Indenture dated as of February 1, 1983, incorporated herein
by reference to Exhibit 4(a) to SEPSCO's Registration Statement on Form S-2 dated January 18,
1983 (SEC file No. 2-81393).
4.2 -- National Propane Corporation Indenture dated as of March 1, 1984, incorporated herein by
reference to Exhibit 4(a) to National Propane Corporation's Registration Statement on Form S-1
dated March 2, 1984 (SEC file No. 2-88162).
4.3 -- Note Purchase Agreement dated as of April 23, 1993 among RCAC, Triarc, RCRB Funding, Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, incorporated herein by reference to Exhibit
4 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file No. 1-2207).
4.4 -- Indenture dated as of April 23, 1993 among RCAC, Royal Crown, Arby's and The Bank of New York,
incorporated herein by reference to Exhibit 5 to Triarc's Current Report on Form 8-K dated April
23, 1993 (SEC file No. 1-2207).
4.5 -- Revolving Credit, Term Loan and Security Agreement dated April 23, 1993 among Graniteville,
C.H. Patrick and The CIT Group/Commercial Services, Inc., incorporated herein by reference to
Exhibit 6 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file No. 1-2207).
4.6 -- Form of Indenture among RCAC, Royal Crown, Arby's and The Bank of New York, as Trustee,
relating to the 9 3/4% Senior Secured Notes Due 2000, incorporated herein by reference to
Exhibit 4.1 to RCAC's Registration Statement on Form S-1 dated May 13, 1993 (SEC file No.
33-62778).
10.1 -- Employment Agreement dated as of April 24, 1993 between Donald L. Pierce and Arby's,
incorporated herein by reference to Exhibit 7 to Triarc's Current Report on Form 8-K dated April
23, 1993 (SEC file No. 1-2207).
10.2 -- Employment Agreement dated as of April 24, 1993 among John C. Carson, Royal Crown and Triarc,
incorporated herein by reference to Exhibit 8 to Triarc's Current Report on Form 8-K dated April
23, 1993 (SEC file No. 1-2207).
10.3 -- Employment Agreement dated as of April 24, 1993 between Ronald D. Paliughi and National Propane
Corporation, incorporated herein by reference to Exhibit 9 to Triarc's Current Report on Form
8-K dated April 23, 1993 (SEC file No. 1-2207).
10.4 -- Employment Agreement dated as of April 24, 1993 between H. Douglas Kingsmore and Graniteville
Company, incorporated herein by reference to Exhibit 10 to Triarc's Current Report on Form 8-K
dated April 23, 1993 (SEC file No. 1-2207).
10.5 -- Employment Agreement effective as of November 1, 1993 between Leon Kalvaria and Triarc,
incorporated herein by reference to Exhibit 10.01 to Triarc's Quarterly Report on Form 10-Q
dated October 31, 1993 (SEC file No. 1-2207).
10.6 -- Memorandum of Understanding dated September 13, 1993 between Triarc and William Ehrman,
individually and derivatively on behalf of SEPSCO, incorporated herein by reference to Exhibit
10.1 to Triarc's Current Report on Form 8-K dated September 13, 1993 (SEC file No. 1-2207).
10.7 -- Stipulation of Settlement of Ehrman Litigation dated as of October 18, 1993, incorporated
herein by reference to Exhibit 1 to Triarc's Current Report on Form 8-K dated October 15, 1993
(SEC file No. 1-2207).
10.8 -- Triarc's Amended and Restated 1993 Equity Participation Plan, incorporated herein by reference
to Exhibit 10.5 to Triarc's Annual Report on Form 10-K for the fiscal year ended April 30, 1993
(SEC file No. 1-2207).
10.9 -- Form of Non-Incentive Stock Option Agreement under Triarc's Amended and Restated 1993 Equity
Participation Plan, incorporated herein by reference to Exhibit 12 to Triarc's Current Report on
Form 8-K dated April 23, 1993 (SEC file No. 1-2207).
10.10 -- Form of Restricted Stock Agreement under Triarc's Amended and Restated 1993 Equity
Participation Plan, incorporated herein by reference to Exhibit 13 to Triarc's Current Report on
Form 8-K dated April 23, 1993 (SEC file No. 1-2207).
10.11 -- Consulting Agreement dated as of April 23, 1993 between Triarc and Steven Posner, incorporated
herein by reference to Exhibit 10.8 to Triarc's Annual Report on Form 10-K for the fiscal year
ended April 30, 1993 (SEC file No. 1-2207).
</TABLE>
110
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------------------------
<S> <C>
10.12 -- Lease Agreement dated as of April 1, 1993 between Victor Posner Trust No. 6 and Triarc,
incorporated herein by reference to Exhibit 10.9 to Triarc's Annual Report on Form 10-K for the
fiscal year ended April 30, 1993 (SEC file No. 1-2207).
10.13 -- Form of Former Management Services Agreement between Triarc and certain other corporations,
incorporated herein by reference to Exhibit 10.10 to Triarc's Annual Report on Form 10-K for the
fiscal year ended April 30, 1993 (SEC file No. 1-2207).
10.14 -- Form of New Management Services Agreement dated as of April 23, 1993 between Triarc and certain
of its subsidiaries, incorporated herein by reference to Exhibit 10.11 to Triarc's Annual Report
on Form 10-K for the fiscal year ended April 30, 1993 (SEC file No. 1-2207).
10.15 -- Concentrate Sales Agreement dated April 4, 1991 between Royal Crown and Cott, incorporated
herein by reference to Exhibit 10.7 to RCAC's Registration Statement on Form S-1 dated May 13,
1993 (SEC file No. 33-62778).
10.16 -- Concentrate Sales Agreement dated as of January 28, 1994 between Royal Crown and Cott,
incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to Triarc's Registration
Statement on Form S-4 dated March 11, 1994 (SEC file No. 1-2207).
10.17 -- Supply Agreement dated January 8, 1992 between Royal Crown and NutraSweet Company, incorporated
herein by reference to Exhibit 10.9 to RCAC's Registration Statement on Form S-1 dated May 13,
1993 (SEC file No. 33-62778).
21.1 -- Subsidiaries of the Registrant*
</TABLE>
- - ------------
* being filed herewith
(B) Reports on Form 8-K:
During the period from September 1, 1993 to December 31, 1993, the
registrant filed reports on Form 8-K on the following dates with respect to the
following matters:
<TABLE>
<CAPTION>
Date Subject Matter of Filing
- - ---------------------------------- --------------------------------------------------------------------
<S> <C>
October 15, 1993.................. Completion of previously announced sale of SEPSCO's tree maintenance
business to Asplundh Tree Expert Co. and the execution of
Stipulation of Settlement providing for settlement of stockholder
derivative suit brought by Mr. Ehrman on behalf of Southeastern
Public Service Company against Triarc.
October 27, 1993.................. Change of registrant's name to Triarc Companies, Inc., approval of
Triarc's Amended and Restated Equity Participation Plan and the
beginning of Triarc's Class A Common Stock trading under ticker
symbol 'TRY'.
November 22, 1993................. Triarc's entering into a merger agreement with SEPSCO.
</TABLE>
111
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /S/ NELSON PELTZ
...................................
NELSON PELTZ
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Dated: April 15, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on April 15, 1994 by the following persons on
behalf of the registrant in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLES
- - ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
/s/ NELSON PELTZ Chairman and Chief Executive Officer, and Director (Principal
......................................... Executive Officer)
(NELSON PELTZ)
/s/ PETER W. MAY President and Chief Operating Officer, and Director (Principal
......................................... Operating Officer)
(PETER W. MAY)
/s/ LEON KALVARIA Vice Chairman and Director
.........................................
(LEON KALVARIA)
/s/ JOSEPH A. LEVATO Executive Vice President and Chief Financial Officer (Principal
......................................... Financial Officer)
(JOSEPH A. LEVATO)
/s/ FRED H. SCHAEFER Vice President and Chief Accounting Officer (Principal Accounting
......................................... Officer)
(FRED H. SCHAEFER)
/s/ IRVING MITCHELL FELT Director
.........................................
(IRVING MITCHELL FELT)
/s/ HAROLD E. KELLEY Director
.........................................
(HAROLD E. KELLEY)
/s/ RICHARD M. KERGER Director
.........................................
(RICHARD M. KERGER)
/s/ H. DOUGLAS KINGSMORE Director
.........................................
(H. DOUGLAS KINGSMORE)
/s/ DANIEL R. MCCARTHY Director
.........................................
(DANIEL R. MCCARTHY)
/s/ WILLIAM L. PALLOT Director
.........................................
(WILLIAM L. PALLOT)
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLES
- - ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
/s/ THOMAS A. PRENDERGAST Director
.........................................
(THOMAS A. PRENDERGAST)
/s/ MARTIN ROSEN Director
.........................................
(MARTIN ROSEN)
/s/ GERALD TSAI, JR. Director
.........................................
(GERALD TSAI, JR.)
/s/ STEPHEN S. WEISGLASS Director
.........................................
(STEPHEN S. WEISGLASS)
</TABLE>
113
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
To the Board of Directors and Stockholders,
TRIARC COMPANIES, INC.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Triarc Companies, Inc. (an Ohio
corporation, formerly DWG Corporation) and subsidiaries included elsewhere
herein and have issued our report thereon dated April 14, 1994. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedules listed in Item 14(A) 2. are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Miami, Florida,
April 14, 1994.
114
<PAGE>
SCHEDULE II
TRIARC COMPANIES, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT END
DEDUCTIONS OF PERIOD
BALANCE AT ------------------------ ------------------
BEGINNING AMOUNTS AMOUNTS NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF CURRENT CURRENT
- - ---------------------------------------------- ---------- --------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fiscal years ended April 30, 1991
and 1992:
Not applicable
Fiscal year ended April 30, 1993:
Loan receivable from officer: Leon
Kalvaria............................... -$- $ 320 $-- $-- $-- $ 320
---------- --------- --------- ----------- ------- -------
---------- --------- --------- ----------- ------- -------
Eight months ended December 31, 1993:
Loan receivable from officer:
Leon Kalvaria.......................... $320 $ 240 $-- $-- $-- $ 560
---------- --------- --------- ----------- ------- -------
---------- --------- --------- ----------- ------- -------
</TABLE>
115
<PAGE>
SCHEDULE III
PAGE 1 OF 3
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
-------------------- DECEMBER 31,
1992 1993 1993
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (includes restricted cash)................. $ 126 $ 29,520 $ 14,740
Due from subsidiaries................................................ 24,793 22,219 17,325
Deferred income tax benefit.......................................... -- 9,600 4,572
Prepaid expenses and other current assets............................ 74 1,230 748
-------- -------- ------------
Total current assets............................................ 24,993 62,569 37,385
-------- -------- ------------
Note receivable from subsidiary........................................... 1,500 1,500 --
Investments in consolidated subsidiaries, at equity....................... 257,969 242,762 231,920
Properties, net........................................................... 371 103 2,691
Other assets.............................................................. 1,716 5,503 11,369
-------- -------- ------------
$286,549 $312,437 $283,365
-------- -------- ------------
-------- -------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term debt.................................... $ 19,753 $ -- $ --
Accounts payable..................................................... 20,299 4,678 3,078
Due to subsidiaries.................................................. 13,123 15,712 22,934
Accrued expenses..................................................... 4,679 33,066 36,320
-------- -------- ------------
Total current liabilities....................................... 57,854 53,456 62,332
-------- -------- ------------
Notes and loans payable to subsidiaries, net of discount.................. 137,195 218,462 189,822
Long-term debt............................................................ -- -- 34,179
Deferred income taxes..................................................... 4,856 -- --
Other liabilities......................................................... 162 4,112 1,219
Redeemable preferred stock, $12 stated value; authorized 6,000,000 shares
at April 30 and December 31, 1993, issued 5,982,866 shares; aggregate
liquidation preference and redemption amount $71,794,000................ -- 71,794 71,794
Stockholders' equity (deficit):
Cumulative convertible preferred stock, $1 par value................. 31 -- --
Class A common stock, $.10 par value; authorized 40,000,000 shares at
April 30, 1992 and 75,000,000 shares at April 30 and December 31,
1993, issued 27,006,336, 27,983,805 and 27,983,805 shares.......... 2,701 2,798 2,798
Class B common stock, $.10 par value; authorized 12,000,000 shares at
April 30 and December 31, none issued.............................. -- -- --
Additional paid-in capital........................................... 37,968 49,375 50,654
Retained earnings (accumulated deficit).............................. 53,920 (6,067) (46,987)
Less Class A common stock held in treasury at cost; 1,117,274,
6,832,145 and 6,660,645............................................ (8,315) (77,085) (75,150)
Other................................................................ 177 (4,408) (7,296)
-------- -------- ------------
Total stockholders' equity (deficit)............................ 86,482 (35,387) (75,981)
-------- -------- ------------
$286,549 $312,437 $283,365
-------- -------- ------------
-------- -------- ------------
</TABLE>
116
<PAGE>
SCHEDULE III
PAGE 2 OF 3
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED APRIL 30, ENDED
-------------------------------- DECEMBER 31,
1991 1992 1993 1993
-------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income and (expenses):
Equity in net (losses) income of continuing operations of
subsidiaries............................................ $ (129) $ 12,196 $(15,634) $ 1,002
Interest expense.......................................... (22,973) (22,751) (24,858) (19,589)
General and administrative expense........................ (2,540) (2,961) (4,050) (9,531)
Facilities relocation and corporate restructuring......... -- -- (7,200) --
Provision for doubtful accounts from former affiliates.... (9,554) (9,221) (3,311) --
Shareholder litigation and other (expenses) recovery...... 2,165 (2,004) (7,025) (6,424)
Settlements with former affiliates........................ 2,871 -- 8,900 --
Interest income........................................... 1,248 813 517 319
-------- -------- -------- ------------
Loss from continuing operations before income
taxes.............................................. (28,912) (23,928) (52,661) (34,223)
Benefit from income taxes...................................... 11,411 13,721 8,112 3,784
-------- -------- -------- ------------
Loss from continuing operations...................... (17,501) (10,207) (44,549) (30,439)
Equity in income (losses) of discontinued operations of
subsidiaries................................................. (55) 2,705 (2,430) (8,591)
Equity in extraordinary items of subsidiaries.................. 703 -- (6,611) (448)
Cumulative effect of changes in accounting principles from:
Triarc Companies, Inc. ................................... -- -- (3,488) --
Equity in subsidiaries.................................... -- -- (2,900) --
-------- -------- -------- ------------
-- -- (6,388) --
-------- -------- -------- ------------
Net loss............................................. (16,853) (7,502) (59,978) (39,478)
Preferred stock dividend requirements.......................... (11) (11) (121) (3,889)
-------- -------- -------- ------------
Net loss applicable to common stockholders........... $(16,864) $ (7,513) $(60,099) $(43,367)
-------- -------- -------- ------------
-------- -------- -------- ------------
Loss per share:
Continuing operations..................................... $ (.68) $ (.39) $ (1.73) $ (1.62)
Discontinued operations................................... -- .10 (.09) (.40)
Extraordinary items....................................... .03 -- (.26) (.02)
Cumulative effect of changes in accounting principles..... -- -- (.25) --
-------- -------- -------- ------------
Net loss............................................. $ (.65) $ (.29) $ (2.33) $ (2.04)
-------- -------- -------- ------------
-------- -------- -------- ------------
</TABLE>
117
<PAGE>
SCHEDULE III
PAGE 3 OF 3
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED APRIL 30, ENDED
-------------------------------- DECEMBER 31,
1991 1992 1993 1993
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(16,853) $ (7,502) $(59,978) $(39,478)
Adjustments to reconcile net loss to net cash and cash
equivalents provided (used) by operating activities:
Equity in net losses (income) of subsidiaries....... (519) (14,901) 27,575 8,037
Dividends from subsidiaries......................... 4,763 1,080 3,127 --
Depreciation and amortization....................... 1,246 1,248 1,248 1,908
Provision for facilities relocation and corporate
restructuring..................................... -- -- 7,200 --
Provision for doubtful accounts from former
affiliates........................................ 9,554 9,221 3,311 --
Cumulative effect of change in accounting
principle......................................... -- -- 3,488 --
Change in due from/to subsidiaries and other
affiliates........................................ 4,157 3,674 (15,214) 18,121
Change in net deferred income taxes................. 603 (5,130) (2,199) 5,591
Decrease (increase) in prepaid expenses and other
current assets.................................... (1,288) 9,197 (1,156) 598
Increase (decrease) in accounts payable and accrued
expenses.......................................... (1,909) 2,182 5,566 (3,346)
Increase (decrease) in deposits and other
liabilities....................................... (53) (62) 3,950 --
Other, net.......................................... 790 486 2,898 449
-------- -------- -------- ------------
Net cash and cash equivalents provided (used)
by operating activities...................... 491 (507) (20,184) (8,120)
-------- -------- -------- ------------
Cash flows from investing activities:
Purchase of minority interests........................... -- -- (21,100) --
Redemption of investment in affiliate.................... -- -- 2,100 --
Capital expenditures, net................................ (18) (4) (21) (3,047)
-------- -------- -------- ------------
Net cash and cash equivalents used by investing
activities................................... (18) (4) (19,021) (3,047)
-------- -------- -------- ------------
Cash flows from financing activities:
Issuance of Class A common stock......................... -- -- 9,650 --
Repayment of long-term debt.............................. -- (52) (20,907) --
Borrowings from subsidiaries............................. -- -- 141,600 --
Repayment of notes and loans payable to subsidiaries..... -- -- (57,115) --
Other.................................................... -- -- (4,620) (1,056)
Payment of preferred dividends........................... (11) (11) (9) (2,557)
-------- -------- -------- ------------
Net cash and cash equivalents provided (used)
by financing activities...................... (11) (63) 68,599 (3,613)
-------- -------- -------- ------------
Net increase (decrease) in cash and cash equivalents.......... 462 (574) 29,394 (14,780)
Cash and cash equivalents at beginning of period.............. 238 700 126 29,520
-------- -------- -------- ------------
Cash and cash equivalents at end of period.................... $ 700 $ 126 $ 29,520 $ 14,740
-------- -------- -------- ------------
-------- -------- -------- ------------
</TABLE>
118
<PAGE>
SCHEDULE V
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PROPERTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHANGES -- BALANCE
BEGINNING ADDITIONS RETIREMENTS ADDITIONS AT END OF
CLASSIFICATION(1) OF PERIOD AT COST OR SALES (DEDUCTIONS) PERIOD
- - ---------------------------------------------- ---------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Fiscal year ended April 30, 1991:
Land..................................... $ 24,942 $ 464 $ (239) $ -- $ 25,167
Buildings and leasehold improvements..... 85,375 12,221 (1,623) (260) 95,713
Machinery and equipment.................. 271,276 25,188 (6,134) (369) 289,961
Transportation equipment................. 27,312 3,569 (5,186) 361 26,056
---------- --------- ----------- ------------ ---------
$408,905 $41,442 $ (13,182) $ (268) $ 436,897
---------- --------- ----------- ------------ ---------
---------- --------- ----------- ------------ ---------
Fiscal year ended April 30, 1992:
Land..................................... $ 25,167 $ 121 $ (81) $ -- $ 25,207
Buildings and leasehold improvements..... 95,713 7,748 (1,285) (1,362) 100,814
Machinery and equipment.................. 289,961 20,061 (5,952) (6,130) 297,940
Transportation equipment................. 26,056 3,323 (4,292) (26) 25,061
---------- --------- ----------- ------------ ---------
$436,897 $31,253 $ (11,610) $ (7,518)(2) $ 449,022
---------- --------- ----------- ------------ ---------
---------- --------- ----------- ------------ ---------
Fiscal year ended April 30, 1993:
Land..................................... $ 25,207 $ 576 $ (2,979) $ (901) $ 21,903
Buildings and leasehold improvements..... 100,814 4,112 (6,812) 1,037 99,151
Machinery and equipment.................. 297,940 19,051 (33,958) 2,623 285,656
Transportation equipment................. 25,061 3,468 (4,414) (82) 24,033
---------- --------- ----------- ------------ ---------
$449,022 $27,207 $ (48,163) $ 2,677(3) $ 430,743
---------- --------- ----------- ------------ ---------
---------- --------- ----------- ------------ ---------
Eight months ended December 31, 1993:
Land..................................... $ 21,903 $ 13 $ (12) $ (70) $ 21,834
Buildings and leasehold improvements..... 99,151 11,622 (9,024) 10,746 112,495
Machinery and equipment.................. 285,656 18,038 (13,138) (532) 290,024
Transportation equipment................. 24,033 4,372 (4,323) (1,352) 22,730
---------- --------- ----------- ------------ ---------
$430,743 $34,045 $ (26,497) $ 8,792(4) $ 447,083
---------- --------- ----------- ------------ ---------
---------- --------- ----------- ------------ ---------
</TABLE>
- - ------------
(1) Amounts are restated for discontinued operations.
(2) Includes $7,474 of assets held for sale reclassified to 'Prepaid expenses
and other current assets'.
(3) Includes $10,700 purchase accounting effect of adopting Statement of
Financial Accounting Standards No. 109 partially offset by reclassification
of $8,806 of assets held for sale to 'Prepaid expenses and other current
assets'.
(4) Includes $18,911 additions at cost and $9,730 retirements or sales during
the Lag Months (see accompanying notes to Consolidated Financial
Statements).
119
<PAGE>
SCHEDULE VI
TRIARC COMPANIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHANGES -- BALANCE AT
BEGINNING ADDITIONS RETIREMENTS ADDITIONS END OF
DESCRIPTION(1) OF PERIOD AT COST OR SALES (DEDUCTIONS) PERIOD
- - ----------------------------------------------- ---------- --------- ----------- ------------ ---
<S> <C> <C> <C> <C> <C>
Fiscal year ended April 30, 1991............... $157,448 $28,861 $ (9,214) $ (21) $177,074
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
Fiscal year ended April 30, 1992............... $177,074 $31,224 $ (10,034) $ (5,422)(2) $192,842
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
Fiscal year ended April 30, 1993............... $192,842 $31,196 $ (33,199) $ 2,051(3) $192,890
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
Eight months ended December 31, 1993........... $192,890 $20,961 $ (23,409) $ (5,355)(4) $185,087
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
</TABLE>
- - ------------
(1) It is not practical to present accumulated depreciation by category on the
related assets. Amounts are restated for discontinued operations.
(2) Includes accumulated depreciation of $5,483 of assets held for sale
reclassified to 'Prepaid expenses and other current assets'.
(3) Includes $6,819 purchase accounting effect of adopting Statement of
Financial Accounting Standards No. 109 partially offset by reclassification
of $5,040 of assets held for sale to 'Prepaid expenses and other current
assets'.
(4) Includes $2,875 of additions at cost and $7,663 of retirements or sales
during the Lag Months (See accompanying notes to Consolidated Financial
Statements).
120
<PAGE>
SCHEDULE VIII
TRIARC COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION(1) OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
- - ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended April 30, 1991:
Receivables -- allowance for doubtful
accounts:
Trade(1)............................... $ 7,368 $ 4,315 $-- $ (4,725) $ 6,958
Affiliate.............................. 26,915 8,037 412 (9,253) 26,111
---------- ---------- ---------- ---------- ----------
Total............................. $ 34,283 $ 12,352 $ 412(2) $(13,978)(4) $ 33,069
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Other assets -- notes receivable from
affiliates................................ $ 18,041 $ 9,922 $-- $ (4,588)(4) $ 23,375
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Insurance loss reserves..................... $ 87,149 $ 31,029 $-- $(29,825)(5) $ 88,353
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Fiscal year ended April 30, 1992:
Receivables -- allowance for doubtful
accounts:
Trade(1)............................... $ 6,958 $ 3,054 $-- $ (3,122) $ 6,890
Affiliate.............................. 26,111 19,953 1,545 (15,393) 32,216
---------- ---------- ---------- ---------- ----------
Total............................. $ 33,069 $ 23,007 $1,545(2) $(18,515)(4) $ 39,106
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Other assets -- notes receivable from
affiliates................................ $ 23,375 $ 5,733 $ (433) $(18,285)(4) $ 10,390
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Insurance loss reserves..................... $ 88,353 $ 21,469 $-- $(25,600)(5) $ 84,222
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Fiscal year ended April 30, 1993:
Receivables -- allowance for doubtful
accounts:
Trade(1)............................... $ 6,890 $ 3,783 $-- $ (3,310) $ 7,363
Affiliate.............................. 32,216 3,321 161 (35,698) --
---------- ---------- ---------- ---------- ----------
Total............................. $ 39,106 $ 7,104 $ 161(2) $(39,008)(4) $ 7,363
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Other assets -- notes receivable from
affiliates................................ $ 10,390 $ 7,037 $-- $(17,427)(4) $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Insurance loss reserves..................... $ 84,222 $ 23,950 $-- $(31,409)(5) $ 76,763
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Eight months ended December 31, 1993:
Receivables -- allowance for doubtful
accounts:
Trade(1)............................... $ 7,363 $ 1,659 $ 576 $ (2,629) $ 6,969
Affiliate.............................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total............................. $ 7,363 $ 1,659 $ 576(3) $ (2,629)(4) $ 6,969
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Insurance loss reserves..................... $ 76,763 $ 20,380 $ (27) $(83,605)(5) $ 13,511
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
- - ------------
(1) Amounts are restated for discontinued operations.
(2) Charged to affiliates.
(3) Amount represents the charge for the Lag Months (see accompanying
Consolidated Financial Statements).
(4) Accounts determined to be uncollectible.
(5) Payment of claims and/or reclassification to 'Accounts payable'.
121
<PAGE>
SCHEDULE IX
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(DOLLAR IN THOUSANDS)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
MAXIMUM AVERAGE INTEREST
WEIGHTED AMOUNT AMOUNT RATE
BALANCE AVERAGE OUTSTANDING OUTSTANDING DURING
CATEGORY OF AGGREGATE AT END INTEREST DURING THE DURING THE THE
YEAR SHORT-TERM BORROWINGS OF PERIOD RATE PERIOD PERIOD(1) PERIOD(1)
- - -------------------------------- -------------------------- --------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended
April 30, 1991................ Factors and other
financial institutions $ 6,078 23.8% $ 9,016 $ 7,235 24.2%
--------- -------- ----------- ----------- --------
--------- -------- ----------- ----------- --------
Fiscal year ended
April 30, 1992................ Factors and other
financial institutions $19,464 16.3% $29,845 $15,919 18.4%
--------- -------- ----------- ----------- --------
--------- -------- ----------- ----------- --------
Fiscal year ended
April 30, 1993................ Factors and other
financial institutions $ -- -- % $14,549 $ 9,346 24.5%
--------- -------- ----------- ----------- --------
--------- -------- ----------- ----------- --------
Eight months ended December 31,
1993
Not applicable
</TABLE>
- - ------------
(1) The average amount outstanding during the year was computed on a daily or
month-end weighted average basis. The weighted average interest rate was
computed by expressing interest and commissions expense applicable to these
borrowings as a percentage of the weighted average outstanding borrowings.
122
<PAGE>
SCHEDULE X
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
---------------------------------------------------
EIGHT MONTHS
YEAR ENDED APRIL 30, ENDED
------------------------------- DECEMBER 31,
ITEM 1991 1992 1993 1993
- - ------------------------------------------------------------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C>
Maintenance and repairs...................................... $ 18,520 $ 17,187 $ 22,272 $13,927
--------- --------- --------- -----------------
--------- --------- --------- -----------------
Advertising costs............................................ $ 52,824 $ 54,004 $ 58,313 $58,723
--------- --------- --------- -----------------
--------- --------- --------- -----------------
</TABLE>
- - ------------
Note: Other supplementary items are individually less than 1% of consolidated
revenues in each year. Information presented above has been restated for
discontinued operations.
123
<PAGE>
SCHEDULE XIV
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY CASUALTY
INSURANCE OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLAIMS AND CLAIM
RESERVES ADJUSTMENTS
FOR UNPAID EXPENSES INCURRED PAID
CLAIMS AND RELATED TO CLAIMS AND
CLAIM NET ------------------- CLAIM
ADJUSTMENTS EARNED INVESTMENT CURRENT PRIOR ADJUSTMENT PREMIUMS
AFFILIATION WITH REGISTRANT EXPENSES(1) PREMIUMS INCOME YEAR YEARS EXPENSES WRITTEN
- - -------------------------------- ----------- -------- ---------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated property --
casualty entities:
Fiscal year ended April 30:
1991....................... $88,353 $8,063 $1,439 $14,874 $16,155 $ 29,133 $8,063
----------- -------- ---------- ------- ------- ---------- --------
----------- -------- ---------- ------- ------- ---------- --------
1992....................... $84,222 $4,400 $ (695) $14,830 $ 6,639 $ 25,872 $4,400
----------- -------- ---------- ------- ------- ---------- --------
----------- -------- ---------- ------- ------- ---------- --------
1993....................... $76,763 $2,875 $ 705 $10,484 $13,466 $ 24,773 $2,875
----------- -------- ---------- ------- ------- ---------- --------
----------- -------- ---------- ------- ------- ---------- --------
Eight months ended December
31, 1993................... $13,511 $1,432 $1,869 $13,524 $ 6,856 $ 83,605 $1,432
----------- -------- ---------- ------- ------- ---------- --------
----------- -------- ---------- ------- ------- ---------- --------
</TABLE>
- - ------------
(1) Does not include claims losses of $7,663, $7,391 and $14,027 at April 30,
1991, 1992 and 1993, respectively, and $12,899 at December 31, 1993 which
have been classified as 'Accounts payable'.
124
APPENDIX
Graphic and Image Information:
Graphic description of organizational chart on page 4 of the 10-K.
<PAGE>
EXHIBIT 21.1
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
APRIL 15, 1994
The subsidiaries of Triarc Companies, Inc., their respective states or
jurisdictions of organization and the names under which such subsidiaries do
business are as follows:
<TABLE>
<CAPTION>
STATE OR JURISDICTION
UNDER WHICH ORGANIZED
---------------------
<S> <C>
National Propane Corporation(1)................................................ Delaware
Adirondack Bottled Gas Corporation of New York............................ New York
Adirondack Bottled Gas Corporation of Vermont............................. Vermont
Carib Gas Corporation of St. Croix (formerly LP Gas Corporation of St.
Croix).................................................................. Delaware
Carib Gas Corporation of St. Thomas (formerly LP Gas Corporation of St.
Thomas)................................................................. Delaware
Equipment Maintenance, Inc................................................ New York
NPC Leasing Corp.......................................................... New York
The Home Gas Corporation of Great Barrington.............................. Massachusetts
The Home Gas Corporation of Massachusetts................................. Massachusetts
The Home Gas Corporation of New Hampshire, Inc............................ New Hampshire
The Home Gas Corporation of Pittsfield.................................... Maine
The Home Gas Corporation of Plainville.................................... Connecticut
Citrus Acquisition Corporation(1).............................................. Florida
Adams Packing Association, Inc. (formerly New Adams, Inc.)................ Delaware
Groves Company, Inc. (formerly New Texsun, Inc.).......................... Delaware
Home Furnishing Acquisition Corporation(1)..................................... Delaware
1725 Contra Costa Property, Inc. (formerly Couroc of Monterey, Inc.)...... Delaware
Lamp Holdings 1, Inc. (formerly Frederick Cooper Lamps Co., Inc.)......... Delaware
Lamp Holdings 3, Inc. (formerly Kent Wood Products, Inc.)............ Delaware
Hoyne Industries, Inc. (formerly New Hoyne, Inc.)......................... Delaware
Hoyne Industries of Canada Limited................................... Canada
Hoyne International (U.K.), Inc...................................... Delaware
HFAC-1 (formerly National Picture & Frame Co.)............................ Delaware
Lamp Holdings 2, Inc. (formerly Tyndale, Inc.)............................ Delaware
Graniteville Company(1)*....................................................... South Carolina
C.H. Patrick & Co., Inc................................................... South Carolina
Graniteville International Sales, Inc..................................... South Carolina
G.M.W. Industries, Inc.***................................................ Delaware
Graniteville Holdings, Inc................................................ Delaware
Southeastern Public Service Company(1)......................................... Delaware
Crystal Ice & Cold Storage, Inc........................................... Delaware
Houston Oil & Gas Company, Inc............................................ Delaware
Northwestern Ice & Cold Storage Company................................... Oregon
Public Gas Company (formerly Southeastern Propane Gas Company)............ Florida
Royal Palm Ice Company.................................................... Florida
SEPSCO Merger Corporation................................................. Delaware
Southeastern Gas Company.................................................. Delaware
Geotec Engineers, Inc. .............................................. West Virginia
Western Refrigeration & Cold Storage Company.............................. California
</TABLE>
125
<PAGE>
EXHIBIT 21.1 (CONTINUED)
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT -- (CONTINUED)
APRIL 15, 1994
<TABLE>
<CAPTION>
STATE OR JURISDICTION
UNDER WHICH ORGANIZED
---------------------
<S> <C>
CFC Holdings Corp.(1)**........................................................ Florida
Chesapeake Insurance Company Limited...................................... Bermuda
RC/Arby's Corporation (formerly Royal Crown Corporation).................. Delaware
Arby's, Inc.......................................................... Delaware
Arby's Building and Construction Co............................. Georgia
Beef Corral Restaurants, Inc.................................... Ohio
Arby's Canada Inc............................................... Canada
Daddy-O's Express, Inc.......................................... Georgia
Arby's (Hong Kong) Limited...................................... Hong Kong
Royal Crown Company, Inc. (formerly Royal Crown Cola Co.)............ Delaware
RC Cola Canada Limited (formerly Nehi Canada Limited)................ Canada
Royal Crown Bottling Company of Texas (formerly Royal Crown Bottlers
of Texas, Inc.).................................................... Delaware
RC-8, Inc. (formerly Tyndale, Inc.).................................. Indiana
RC-11, Inc. (formerly National Picture & Frame Co.).................. Mississippi
Promociones Corona Real, S.A. de C.V................................. Mexico
RC Leasing, Inc...................................................... Delaware
Royal Crown Nederland B.V............................................ Netherlands
GS Holdings, Inc............................................................... Delaware
Triarc Holdings 1, Inc......................................................... Delaware
Triarc Holdings 2, Inc......................................................... Delaware
</TABLE>
- - ------------
(1) Included in the consolidated financial statements of Triarc Companies, Inc.
as a fully-consolidated subsidiary.
* 51% owned by GS Holdings, Inc. and 49% owned by Southeastern Public Service
Company.
** 94.6% owned by Triarc Companies, Inc. and 5.4% owned by Southeastern Public
Service Company.
*** 50% owned by Graniteville Company and 50% owned by Wilson Brothers.
126
