UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from -------------------- to-----------------
Commission file number: 1-2207
TRIARC COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-0471180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Third Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 230-3000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
There were 23,877,222 shares of the registrant's Class A Common Stock
and 5,997,622 shares of the registrant's Class B Common Stock outstanding as of
October 31, 1996.
- - ------------------------------------------------------------------------
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1995 (A) 1996
-------- ----
(In thousands)
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................... $ 64,205 $164,726
Restricted cash and cash equivalents........ 34,033 3,175
Marketable securities....................... 7,397 40,152
Receivables, net............................ 168,534 80,049
Inventories................................. 118,549 61,067
Deferred income tax benefit................. 8,848 10,715
Prepaid expenses and other current assets .. 11,262 11,470
-------- -------
Total current assets....................... 412,828 371,354
Properties, net.............................. 331,589 217,488
Unamortized costs in excess of net assets of
acquired companies.......................... 227,825 211,979
Unamortized trademarks....................... 57,146 54,254
Deferred costs and other assets.............. 56,578 54,754
---------- --------
$1,085,966 $909,829
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............ $ 83,531 $ 23,707
Accounts payable............................. 61,908 50,497
Accrued expenses ............................ 109,119 102,760
---------- --------
Total current liabilities................... 254,558 176,964
Long-term debt................................ 763,346 565,088
Deferred income taxes......................... 24,013 56,411
Deferred income and other liabilities......... 23,399 21,700
Minority interest ............................ -- 27,942
Stockholders' equity (deficit):
Common stock................................. 3,398 3,398
Additional paid-in capital................... 162,020 161,469
Accumulated deficit.......................... (97,923) (57,805)
Treasury stock............................... (45,931) (46,403)
Other ...................................... (914) 1,065
---------- ---------
Total stockholders' equity ................. 20,650 61,724
---------- ---------
$1,085,966 $ 909,829
========== =========
(A) Derived from the audited consolidated financial statements as of December
31, 1995.
2
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
(In thousands except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net sales......................... 277,362 $ 191,533 $ 829,080 $ 739,870
Royalties, franchise fees and other revenues........ 14,513 14,914 40,069 41,947
--------- --------- --------- ---------
291,875 206,447 869,149 781,817
--------- --------- --------- ---------
Costs and expenses:
Cost of sales...................................... 210,682 128,647 627,675 524,099
Advertising, selling and distribution.............. 36,067 35,226 95,035 107,326
General and administrative ........................ 32,413 31,189 96,706 95,877
--------- --------- --------- ---------
279,162 195,062 819,416 727,302
--------- --------- --------- ---------
Operating profit ................................. 12,713 11,385 49,733 54,515
Interest expense.................................... (21,266) (16,513) (60,397) (57,576)
Gain on sale of businesses, net .................... -- 77,123 -- 76,623
Other income (expense), net ........................ (959) 2,659 15,873 4,956
--------- --------- --------- ---------
Income (loss) before income taxes, minority
interest and extraordinary items................. (9,512) 74,654 5,209 78,518
Benefit from (provision for) income taxes........... 3,736 (29,091) (3,256) (34,753)
--------- --------- --------- ---------
Income (loss) before minority interest and
extraordinary items ............................ (5,776) 45,563 1,953 43,765
Minority interest in net loss ...................... -- 1,769 -- 1,769
--------- --------- --------- ---------
Income (loss) before extraordinary items.......... (5,776) 47,332 1,953 45,534
Extraordinary items ................................ -- 3,122 -- (5,416)
--------- --------- --------- ---------
Net income (loss)................................. $(5,776) $ 50,454 $ 1,953 $ 40,118
========= ========= ========= =========
Income (loss) per share:
Income (loss) before extraordinary items $(.19) $ 1.50 $ .07 $ 1.52
Extraordinary items .............................. -- .10 -- (.18)
--------- --------- --------- ---------
Net income (loss)................................. $ (.19) $ 1.60 $ .07 $ 1.34
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine months ended
September 30,
1995 1996
(In thousands)
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income .......................................... $1,953 $ 40,118
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Gain on sale of partnership units in the propane business.................. -- (83,447)
Loss on sale of textile business .......................................... -- 4,000
Depreciation and amortization of properties................................ 27,912 24,235
Amortization of costs in excess of net assets of acquired companies....... 6,116 6,778
Amortization of original issue discount and deferred financing costs ...... 5,428 4,592
Amortization of trademarks, unearned compensation and other................ 4,772 4,801
Write-off of deferred financing costs and original issue discount.......... -- 12,245
Deferred income tax provision (benefit) .................................... (913) 30,531
Provision for doubtful accounts ............................................ 1,515 2,757
Release of casualty insurance reserves credited against note payable....... (3,000) (3,000)
Minority interest .......................................................... -- (1,769)
Gain on sales of timberland................................................ (11,971) --
Interest expense capitalized and not paid ................................. 1,778 --
Other, net ................................................................ 2,464 (3,333)
Changes in operating assets and liabilities:
Decrease (increase) in:
Restricted cash and cash equivalents ................................... 1,814 30,858
Receivables ............................................................ (89) (5,407)
Inventories............................................................ (18,750) (18,794)
Prepaid expenses and other current assets ............................. 673 (1,654)
Increase (decrease) in accounts payable and accrued expenses ......... (24,256) 13,797
Net cash provided by (used in) operating activities........................... .(4,554) 57,308
Cash flows from investing activities:
Proceeds from sale of the textile business (net of post-closing adjustments and
expenses paid to date of $12,709,000) ....................................... -- 244,920
Capital expenditures...........................................................(55,976) (21,532)
Business acquisitions.........................................................(111,286) (4,726)
Purchase of marketable securities............................................. (9,425) (41,285)
Proceeds from sales of marketable securities.................................. 11,479 10,014
Proceeds from sales of non-core businesses and properties..................... 17,872 1,601
Investments in common stock of affiliates..................................... (5,340) --
Other ........................................................................ (164) (1,000)
Net cash provided by (used in) investing activities...................... (153,676) 188,828
Cash flows from financing activities:
Repayments of long-term debt (including $191,438,000 of long-term debt repaid
in connection with the sale of the textile business)......................... (28,753) (423,818)
Proceeds from long-term debt.................................................. 156,772 166,576
Proceeds from sale of partnership units in the propane business (net of expenses of
$14,400,000) ................................................................ -- 117,933
Payment of deferred financing costs........................................... (8,340) (7,470)
Other ...................................................................... (545) (538)
--------- ---------
Net cash provided by (used in) financing activities........................ 119,134 (147,317)
--------- ---------
Net cash provided by (used in) continuing operations........................... (39,096) 98,819
Net cash provided by (used in) discontinued operations........................ (1,922) 1,702
--------- ---------
Net increase (decrease) in cash and cash equivalents.......................... (41,018) 100,521
Cash and cash equivalents at beginning of period.............................. 80,064 64,205
--------- ---------
Cash and cash equivalents at end of period....................................$ 39,046 $ 164,726
========= =========
</TABLE>
4
See accompanying notes to condensed consolidated financial statements.
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(Unaudited)
(1)Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Triarc Companies, Inc. ("Triarc" and, together with its subsidiaries, the
"Company") have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of the Company,
however, the accompanying condensed consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of December 31, 1995 and
September 30, 1996 and its results of operations for the three-month and
nine-month periods ended September 30, 1995 and 1996 and its cash flows for the
nine-month periods ended September 30, 1995 and 1996. This information should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995 (the "Form 10-K").
The accompanying condensed consolidated financial statements include the
results of operations and financial position of (i) Mistic (see Note 10)
subsequent to its acquisition on August 9, 1995 and (ii) the Textile Business
(see Note 5) through its sale on April 29, 1996.
Certain amounts included in the prior periods' condensed consolidated
financial statements have been reclassified to conform with the current periods'
presentation.
(2) Inventories
The following is a summary of the components of inventories:
December 31, September 30,
1995 1996
(In thousands)
Raw materials....................................$40,195 $27,180
Work in process.................................. 6,976 498
Finished goods.................................. .71,378 33,389
------- ------
$118,549 $61,067
(3) Properties
The following is a summary of the components of properties, net:
December 31, September 30,
1995 1996
(In thousands)
Properties, at cost............................$556,390 $386,098
Less accumulated depreciation and amortization..224,801 168,610
------- -------
$331,589 $217,488
(4) Long-Term Debt
On May 16, 1996 C.H. Patrick & Co., Inc. ("C.H. Patrick"), a wholly-owned
subsidiary of TXL Corp. (formerly Graniteville Company ("Graniteville")), a
wholly-owned subsidiary of the Company, entered into a $50,000,000 revolving
credit and term loan facility (the "Patrick Facility"). The Patrick Facility
consists of revolving loans (the "Revolving Loans") under a $15,000,000
revolving credit facility and two term loans (the "Term Loans") in initial
amounts aggregating
5
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1996
(Unaudited)
$35,000,000 ($34,438,000 outstanding as of September 30, 1996). The Company
initially borrowed $36,000,000 under the Patrick Facility consisting of
$1,000,000 of Revolving Loans and $35,000,000 of the Term Loans (the proceeds of
the Term Loans were dividended to Triarc). Through July 29, 1996 borrowings
under the Patrick Facility bore interest at a base rate (the "Base Rate")
representing the higher of the prime rate or 1/2% over the Federal funds rate.
Subsequent thereto, borrowings bear interest at rates based either on the 30,
60, 90 or 180-day London Interbank Offered Rate ("LIBOR") or the Base Rate, at
the option of C.H. Patrick. Revolving Loans and one of the two Term Loans
(original amount of $15,000,000) bear interest at 2 3/4% over LIBOR or 1 3/4%
over the Base Rate at the option of C.H. Patrick and the Term Loan in the
original amount of $20,000,000 bears interest at 3 1/4% over LIBOR or 2 1/4%
over the Base Rate at the option of C.H. Patrick. Revolving Loans mature in full
in 2001 and the remaining $34,438,000 of Term Loans amortize in annual amounts
commencing at $562,500 in the remainder of 1996 increasing annually to
$10,437,500 in 2002 with a final payment of $3,062,500 due in 2003. The
borrowing base for revolving credit loans is the excess of (i) 85% of eligible
accounts receivable (excludes accounts receivable due from the buyer of the
Textile Business - see Note 5), (ii) 75% of accounts receivable due from the
buyer of the Textile Business, (iii) the lesser of (a) 50% of eligible inventory
and (b) $10,000,000 and (iv) any amounts deposited with the lenders in respect
of letter of credit liabilities, over $50,000. The Patrick Facility agreement
includes certain restrictive covenants including financial amount and ratio
tests and, except for the aforementioned $35,000,000 dividend paid to Triarc, a
restriction on the payment of dividends and advances. Borrowings under the
Patrick Facility are guaranteed by Triarc and are secured by the capital stock
and substantially all of the assets of C.H. Patrick. C.H. Patrick incurred fees
and costs of approximately $1,800,000 in connection with the Patrick Facility
which have been deferred and are being amortized using the interest rate method
over the term of the Patrick Facility borrowings.
On July 2, 1996 National Propane Corporation ("National Propane"), a
wholly-owned subsidiary of the Company, issued $125,000,000 of 8.54% first
mortgage notes due June 30, 2010 (the "First Mortgage Notes") which were assumed
by the Operating Partnership (see Note 5) and the Operating Partnership repaid
$128,469,000 of National Propane's long-term debt (including $123,188,000 of
outstanding borrowings under National Propane's then existing bank facility).
The First Mortgage Notes bear interest at 8.54% and are due in equal annual
installments of $15,625,000 commencing June 2003 through June 2010.
On July 2, 1996, the Operating Partnership entered into a $55,000,000 bank
credit facility (the "Propane Bank Credit Facility") with a group of banks. The
Propane Bank Credit Facility includes a $15,000,000 working capital facility
(the "Working Capital Facility") and a $40,000,000 acquisition facility (the
"Acquisition Facility"), the use of which is restricted to business acquisitions
and capital expenditures for growth. There were no outstanding borrowings under
the Working Capital Facility and $800,000 was outstanding under the Acquisition
Facility as of September 30, 1996. The Propane Bank Credit Facility bears
interest, at the Partnership's option, at either (i) LIBOR plus a margin
generally ranging from 1% to 1 3/4% or (ii) the higher of (a) the prime rate and
(b) the Federal funds rate plus 1/2 of 1%, in either case, plus a margin of up
to 1/4%. The Working Capital Facility matures in full in July 1999. However, the
Partnership must reduce the borrowings under the Working Capital Facility to $0
for a period of at least 30 consecutive days in each year between March 1 and
August 31. The Acquisition Facility converts to a term loan in July 1998 and
amortizes thereafter in equal quarterly installments through July 2001.
The Propane Bank Credit facility and the First Mortgage Notes contain various
covenants which, among other items, (i) require meeting certain financial amount
and ratio tests, (ii) limit (a) the incurrence of additional indebtedness and
(b) certain investments, asset dispositions and transactions with affiliates
other than in the normal course of business and (iii) restrict the payment of
distributions by the Operating Partnership (see Note 5). While there are no
restrictions applicable to the payment of dividends by National Propane or
distributions by the Partnership, they will be dependent upon distributions from
the Operating Partnership to pay dividends or distributions, respectively.
Obligations under the Propane Bank Credit Facility and the First Mortgage Notes
are secured on an equal and ratable basis by substantially all of the assets of
the Operating Partnership and are guaranteed by National Propane.
6
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1996
(Unaudited)
On July 1, 1996 Triarc paid $27,250,000 to National Union Fire Insurance
Company of Pittsburgh, PA ("National Union") in full satisfaction of a 9 1/2%
promissory note payable to National Union (the "National Union Note") with a
then outstanding balance of $36,487,000 (including accrued interest of
$1,790,000).
(5) Gain on Sales of Businesses, Net
The gain on sales of businesses, net includes (i) a pretax loss from the sale
of the Company's textile business (an estimated $500,000 in the second quarter
of 1996 and an additional $3,500,000 in the third quarter of 1996), (ii) a
pretax gain from the sale of units in a partnership formed by the Company's
propane business ($83,447,000 in the third quarter of 1996) and (iii) a pretax
loss associated with the write-down of MetBev, Inc. ("MetBev") of $2,825,000 in
the third quarter of 1996 (see Note 8).
Sale of Textile Business
On April 29, 1996, the Company completed the sale (the "Graniteville Sale")
of its textile business segment other than the specialty dyes and chemicals
business of C.H. Patrick and certain other excluded assets and liabilities (the
"Textile Business"), to Avondale Mills, Inc. ("Avondale"), for $245,261,000 in
cash, before expenses of $7,937,000 and net of $12,250,000 of certain
post-closing adjustments (of which $5,000,000 was paid in May 1996 and a final
payment of $7,250,000 was paid in October 1996). Avondale assumed all
liabilities relating to the Textile Business other than income taxes, long-term
debt of $191,438,000 which was repaid at the closing and certain other specified
liabilities. In connection with the Graniteville Sale, Avondale and C.H. Patrick
have entered into a 10-year supply agreement pursuant to which C.H. Patrick is
supplying certain textile dyes and chemicals to the combined
Graniteville/Avondale business. C.H. Patrick's right to supply Avondale is
conditioned upon certain bidding procedures which could result in Avondale
purchasing the products from another seller. As a result of the Graniteville
Sale, the Company recorded an estimated pre-tax loss of $4,000,000 ($500,000
(including an $8,367,000 write-off of unamortized goodwill which has no tax
benefit) and $3,500,000 in the second and third quarters of 1996, respectively)
and an income tax provision of $1,700,000 (a $3,000,000 provision and a
$1,300,000 benefit in the second and third quarters of 1996, respectively)
resulting in a loss of $5,700,000 ($3,500,000 and $2,200,000 in the second and
third quarters of 1996, respectively), exclusive of the extraordinary charge
included in Note 6. As previously set forth, the results of operations of the
Textile Business have been included in the accompanying condensed consolidated
statements of operations through April 29, 1996. See below for supplemental pro
forma information for the nine-month period ended September 30, 1996 giving
effect to the sale of the Textile Business.
The assets and liabilities of the Textile Business sold and a reconciliation
to the cash proceeds received to date from the sale of the Textile Business, net
of post-closing adjustments and expenses paid to date of $12,709,000, are as
follows (in thousands):
Receivables, net....................................... $ 91,135
Inventories............................................ 76,294
Prepaid expenses and other current assets.............. 1,421
Accounts payable and accrued expenses.................. (38,464)
Properties, net........................................ 111,039
Unamortized costs in excess of net assets of acquired
companies............................................. 8,367
Other non-current liabilities, net..................... (872)
Net assets of the Textile Business................ 248,920
Pre-tax loss on sale of Textile Business............... (4,000)
Net cash proceeds from sale of the Textile Business(a) $244,920
(a) Net of post-closing adjustments paid to date of $5,000,000 and expenses paid
to date of $7,709,000.
7
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1996
(Unaudited)
Sale of Propane Business
In July 1996 National Propane Partners, L.P. (the "Partnership"), a newly
formed limited partnership organized to acquire, own and operate the propane
business of National Propane, consummated an initial public offering of an
aggregate 6,301,550 of its common units representing limited partner interests
(the "Common Units"), representing an approximate 55.8% interest in the
Partnership, for an offering price of $21.00 per Common Unit aggregating
$117,933,000 net of $14,400,000 of underwriting discounts and commissions and
other estimated expenses related to the offering. The sale of the Common Units
resulted in a pretax gain to the Company in the third quarter of 1996 of
$83,447,000 before a provision for income taxes of $32,541,000.
The Partnership concurrently issued to National Propane 4,533,638
subordinated units, representing an approximate 40.2% subordinated general
partner interest in the Partnership. In addition, National Propane and a
subsidiary hold a combined aggregate 4.0% unsubordinated general partner
interest in the Partnership and a subpartnership, National Propane, L.P. (the
"Operating Partnership"). In connection therewith, National Propane transferred
substantially all of its propane- related assets and liabilities (principally
all assets and liabilities other than a receivable from Triarc, deferred
financing costs and net income tax liabilities of $81,392,000, $4,127,000 and
$21,615,000, respectively), aggregating net liabilities of $88,222,000, to the
Operating Partnership. The $29,711,000 excess of the net proceeds from the sale
of the Common Units of $117,933,000 over the $88,222,000 of aggregate net
liabilities contributed to the Operating Partnership was recorded as minority
interest liability. The minority interest in net loss of $1,769,000 presented on
the accompanying statements of operations for the three and nine-month periods
ended September 30, 1996 represents the limited partners' 55.8% interest in the
net loss of the Operating Partnership for the three months ended September 30,
1996 of $3,170,000.
The following unaudited supplemental pro forma condensed consolidated summary
operating data of the Company for the nine-month period ended September 30, 1996
gives effect to the sale of the Textile Business and the repayment of related
debt (see above) and, in a second step, the initial public offering of the
Partnership and related transactions discussed above, as if such transactions
had been consummated as of January 1, 1996. Such pro forma information does not
purport to be indicative of the Company's actual results of operations had such
transactions actually been consummated on January 1, 1996 or of the Company's
future results of operations and are as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Pro Forma for
the Sale of the
Pro Forma Textile Business and
for the Sale of the Partnership
the Textile Initial Public
Business Offering
<S> <C> <C>
Revenues.........................................$633,808 $633,808
Operating profit.................................48,470 47,720
Income before extraordinary items................47,439 46,149
Income before extraordinary items per share...... 1.59 1.54
</TABLE>
(6) Extraordinary Items, Net
In connection with the early extinguishment of (i) the Company's 11 7/8%
senior subordinated debentures due February 1, 1998 on February 22, 1996, (ii)
all of the debt of Graniteville, including Graniteville's credit facility, in
connection with the sale of the Textile Business (see Note 5) on April 29, 1996,
(iii) almost all of the long-term debt of National Propane including National
Propane's existing bank facility (see Note 4), on July 2, 1996 and (iv) the
National Union Note on July 1, 1996 (see Note 4) the Company recognized
extraordinary (charges) credits as set forth below.
8
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30, 1996
(In thousands)
<S> <C> <C>
Write-off of unamortized deferred financing costs. $(4,126) $(10,469)
Write-off of unamortized original issue discount. -- (1,776)
Prepayment penalties (including minimum commissions
through April 1999)........................... (225) (5,744)
Fees............................................ (250) (250)
Discount from principal on early extinguishment. 9,237 9,237
------- -------
4,636 (9,002)
Income tax (provision) benefit.................. (1,514) 3,586
------- -------
$ 3,122 $ (5,416)
======= ========
</TABLE>
(7)Income (Loss) Per Share
The shares for income (loss) per share purposes represent the weighted
average shares outstanding plus, with respect to the three months ended
September 30, 1996, 2,519,000 shares for the effect of dilutive stock options.
Net income for income per share purposes for the three months ended September
30, 1996 has been increased by $1,335,000 from the assumed reduction in interest
expense, net of income taxes, resulting from the utilization of the proceeds
from the assumed exercise of certain stock options to repurchase debt and
eliminate the related interest expense. Fully diluted income (loss) per share is
not applicable for any period since contingent issuances of common shares would
have been antidilutive or had no effect on income (loss) per share.
(8)Transactions with Related Parties
The Company continues to have related party transactions of the same nature
and general magnitude (except for write-offs associated with MetBev set forth
below) as those described in Note 29 to the consolidated financial statements
contained in the Form 10-K ("Note 29").
As disclosed in Note 29, the Company has an investment in and a revolving
credit agreement with MetBev, an entity in which the Company has invested to
upgrade the Company's distribution capability in New York City and certain
surrounding counties. Under the revolving credit agreement the Company has
cumulative advances to MetBev aggregating $3,625,000 as of September 30, 1996 of
which $800,000 was written off in 1995. MetBev has continued to incur
significant losses in 1996 and has a stockholders' deficit as of September 30,
1996 of $7,209,000. Accordingly, during the third quarter of 1996 the Company
wrote off its remaining investment in MetBev consisting of the remaining
$2,825,000 of advances.
(9)Contingencies
Except as discussed in Note 11 (Subsequent Events), the Company continues to
have legal and environmental contingencies of the same nature and general
magnitude as those described in Note 26 to the consolidated financial statements
contained in the Form 10-K. After considering amounts provided in previous
periods, the Company does not believe that these contingencies, as well as
ordinary routine litigation, will have a material adverse effect on its
consolidated financial position or results of operations.
(10) Mistic Acquisition
On August 9, 1995 Mistic Brands, Inc. ("Mistic"), a wholly-owned subsidiary
of Triarc, acquired (the "Mistic Acquisition") substantially all of the assets
and operations, subject to related operating liabilities, as defined, of certain
companies (the "Acquired Business") which develop, market and sell carbonated
and non-carbonated fruit drinks, ready-to- drink brewed iced teas and naturally
flavored sparkling waters. The aggregate purchase price of the Mistic
Acquisition was $98,324,000, including $93,000,000 paid in cash (cash paid for
business acquisitions during the nine months ended September 30, 1995 aggregated
$111,286,000 including $18,286,000 principally for restaurant operations and
propane
9
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1996
(Unaudited)
businesses). The Mistic Acquisition was accounted for in accordance with the
purchase method of accounting and, accordingly, the purchase price was assigned
to current assets ($33,835,000), current liabilities ($24,506,000), trademarks
($55,600,000) and properties and other non-current assets ($3,962,000) with the
excess recorded as costs in excess of net assets of acquired companies
($29,433,000). See Note 28 to the consolidated financial statements contained in
the Form 10- K for a more complete discussion of the Mistic Acquisition.
The results of operations of the Acquired Business have been included in the
accompanying condensed consolidated statements of operations from the date of
acquisition. The following unaudited supplemental pro forma information of the
Company for the nine months ended September 30, 1995 gives effect to the Mistic
Acquisition and related financing as if the transactions had been consummated on
January 1, 1995. The unaudited supplemental pro forma condensed financial
information is presented for comparative purposes only and does not purport to
be indicative of the actual results of operations had the Mistic Acquisition
actually been consummated on January 1, 1995 or of the future results of
operations of the combined company and are as follows (in thousands except per
share amount):
Revenues................................................$952,683
Operating profit........................................46,560
Net loss................................................(3,711)
Net loss per share...................................... (.12)
(11) Subsequent Events
On October 29, 1996 the Company announced that its Board of Directors
approved a plan to offer up to approximately 20% of the shares of its beverage
and restaurant businesses to the public through an initial public offering and
to spinoff the remainder of the shares of such businesses to the Company's
stockholders. Consummation of the initial public offering and the spinoff will
be subject to, among other things, receipt of a favorable ruling from the
Internal Revenue Service (the "IRS") that the spinoff will be tax-free to the
Company and its stockholders. The request for ruling from the IRS will contain
several complex issues and there can be no assurance that the Company will
receive the ruling or that the Company will consummate the initial public
offering or the spinoff. The initial public offering and spinoff are not
expected to occur prior to the end of the second quarter of 1997.
On November 4, 1996 the bankruptcy trustee appointed in the case of Prime
Capital Corporation ("Prime" and formerly known as Intercapital Funding
Resources, Inc.) made a demand on Chesapeake Insurance Company Ltd.
("Chesapeake") and Southeastern Public Service Company ("SEPSCO"), both
wholly-owned subsidiaries of the Company, seeking the return of payments
aggregating $5,300,000 which Prime made to those entities during 1994 and
suggesting that litigation will be commenced against SEPSCO and Chesapeake if
these monies are not returned. Prime's trustee alleges such payments were
preferential or constituted fraudulent transfers. Chesapeake and SEPSCO had
entered into separate joint ventures with Prime and the payments at issue
represented the return of their capital contributions and profits thereon.
Similar demand letters have been received by other joint venture investors as
well (including certain current and former officers of Triarc or their spouses).
The Company believes, based on advice of counsel, that it has meritorious
defenses to these claims and intends to vigorously contest them and,
accordingly, does not believe the ultimate outcome of this matter will have a
material adverse effect on its consolidated financial position or results of
operations.
On November 6, 1996 the Partnership sold an additional 400,000 Common Units
through a private placement at a price of $21.00 per Common Unit aggregating
$8,400,000 before related fees of $588,000 resulting in net proceeds to the
Partnership of $7,812,000.
10
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
This "Management's Discussion and Analysis of Financial Condition and Results
of Operations" should be read in conjunction with "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report on Form 10-K for the year ended December 31, 1995 (the "Form
10-K") of Triarc Companies, Inc. ("Triarc" or, collectively with its
subsidiaries, the "Company"). The recent trends affecting the Company's business
segments are described therein. Certain statements under this caption constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. See "Part II Other Information".
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September 30, 1995
Revenues Operating Profit
Nine months ended Nine months ended
September 30, September 30,
1995 1996 1995 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Beverages ........................ $159,292 $249,612 $ 8,781 $ 22,044
Restaurants ..................... 198,362 213,208 10,588 11,948
Propane ....................... .102,461 116,018 7,164 7,817
Textiles ...................... .409,034 202,979 23,290 13,765
Unallocated general corporate
expenses ....................... -- -- (90)(a) (1,059)(b)
--------- -------- -------- --------
$ 869,149 $781,817 $ 49,733 $ 54,515
========= ======== ======== ========
(a) Reflects $2,407,000 of amortization of restricted stock (such stock was
fully amortized by the end of 1995).
(b) Reflects a $3,186,000 decrease in corporate expenses allocated to
subsidiaries principally due to businesses sold in the 1996 period.
</TABLE>
Revenues, excluding sales of $376.5 million and $157.5 million for the nine
months ended September 30, 1995 and 1996, respectively, associated with the
Textile Business sold on April 29, 1996 (see below), increased $131.7 millon to
$624.3 million in the nine months ended September 30, 1996.
Beverages - Revenues increased $90.3 million (56.7%) due to (i) $87.3
million of higher revenues from Mistic Brands, Inc. ("Mistic"), the
Company's new age/premium beverage business acquired August 9, 1995 and
(ii) a $4.8 million increase in finished beverage product sales (as
opposed to concentrate), both partially offset by a $1.5 million volume
decrease in private label concentrate sales.
Restaurants - Revenues increased $14.8 million (7.5%) due to (i) a $13.0
million increase in net sales principally resulting from an average net
increase of 34 (10.2%) company-owned restaurants and (ii) a $1.8 million
increase in royalties, franchise fees and other revenues primarily
resulting from an average net increase of 90 (3.6%) franchised
restaurants and a 1.8% increase in average royalty rates due to the
declining significance of older franchise agreements with lower rates.
Propane - Revenues increased $13.6 million (13.2%) due to higher volume
primarily resulting from the significantly colder winter in 1996
compared with 1995 in virtually all markets where the propane segment
has operations and higher selling prices resulting from higher propane
costs.
Textiles (including specialty dyes and chemicals) - As discussed further
below in "Liquidity and Capital Resources", on April 29, 1996 the
Company sold its textile business segment other than
11
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
its specialty dyes and chemical business and certain other excluded
assets and liabilities (the "Textile Business"). Principally as a result
of such sale, revenues of the Textile Business decreased $206.0 million
(50.4%). In addition, lower revenues ($16.2 million) of the Textile
Business in the four-month period ended April 1996 compared with the
comparable 1995 period contributed to the decrease principally
reflecting lower volume due to weak demand for utility wear fabrics
($15.9 million). Overall revenues of the specialty dyes and chemicals
business increased $0.3 million (0.6%) while revenues of this business
reported in consolidated "Net sales" in the accompanying condensed
consolidated statements of operations increased $12.9 million (39.6%) to
$45.5 million in the nine months ended September 30, 1996 as revenues
from sales of $12.9 million to the purchaser of the Textile Business
subsequent to the April 29, 1996 sale of the Textile Business were no
longer eliminated in consolidation as intercompany sales.
Gross profit (total revenues less cost of sales), excluding gross profit of
$36.9 million and $16.8 million for the nine months ended September 30, 1995 and
1996, respectively, associated with the Textile Business, increased $36.3
million to $240.9 million in the nine months ended September 30, 1996. Such
increase is principally due to $34.3 million of higher gross profit due to the
inclusion of a full nine months of Mistic in the 1996 period. In addition, gross
profit was positively impacted by overall higher revenues in the Company's other
businesses partially offset by lower overall gross margins in such businesses.
Beverages - Margins decreased to 53.2% from 62.6% due to the inclusion
in the 1996 period of lower-margin finished product sales principally
associated with the full nine-month effect of Mistic (39.2% gross margin
in 1996).
Restaurants - Margins decreased to 32.4% from 33.5% primarily due to
higher hardware lease and software amortization costs related to a new
point-of-sale register system installed in the latter half of 1995 and a
slightly lower percentage of royalties, franchise fees and other
revenues (with no associated cost of sales) to total revenues.
Propane - Margins decreased to 22.7% from 24.3% due to higher propane
costs that could not be fully passed through to customers, a shift in
customer mix toward lower-margin commercial accounts, slightly higher
operating expenses and lower margins on other revenue lines.
Textiles - As noted above, the Textile Business was sold in April 1996.
As a result, for the nine-month period ended September 30, 1996, margins
for this segment increased to 14.5% from 12.3% reflecting the
higher-margin revenues of the remaining specialty dyes and chemicals
business. Margins for the specialty dyes and chemicals business
decreased to 22.8% from 24.4% due to weak pricing reflecting competitive
pressures currently being experienced in the textile industry.
Advertising, selling and distribution expenses increased $12.3 million to
$107.3 million in the nine months ended September 30, 1996 due to (i) $20.2
million of expenses associated with Mistic resulting from (a) the 1996 full
period effect of its August 1995 acquisition and, to a lesser extent, (b) the
nonrecurring effect of cooperative advertising reimbursements to Mistic by
distributors in the 1995 period which program was discontinued in 1996 and
replaced by increased selling prices and (ii) $2.8 million of higher advertising
costs in the restaurant segment primarily in response to competitive pressures,
a larger company-owned store base and multi-brand restaurant development, both
partially offset by $11.0 million of decreases reflecting (i) a net reduction in
media spending for branded beverage products, (ii) lower beverage couponing
costs reflecting reduced bottler utilization, (iii) reduced spending relating to
Royal Crown Premium Draft Cola ("Draft Cola"), for which there had been higher
costs in connection with its launch in mid-1995 and (iv) the sale of the Textile
Business in April 1996.
12
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
General and administrative expenses were relatively unchanged decreasing $0.8
million to $95.9 million in the nine months ended September 30, 1996 as $8.9
million of higher expenses resulting from the full period effect of Mistic in
the 1996 period were substantially offset by an $8.8 million decrease in the
expenses of the textile segment primarily reflecting the sale of the Textile
Business.
Interest expense decreased $2.8 million to $57.6 million in the nine months
ended September 30, 1996 due to lower average levels of debt reflecting
repayments prior to maturity of (i) $191.4 million of debt of the Textile
Business in connection with its sale on April 29, 1996, (ii) the $36.0 million
principal amount of the Company's 11 7/8% senior subordinated debentures due
February 1, 1998 (the "11 7/8% Debentures") on February 22, 1996 and (iii) $34.7
million principal amount of a 9 1/2% promissory note (the "9 1/2% Note") on July
1, 1996, partially offset by the full period effect in 1996 of borrowings
resulting from the Mistic acquisition ($67.8 million outstanding as of September
30, 1996) and financing for capital spending at the restaurant segment
principally during the second through fourth quarters of 1995 ($58.8 million
outstanding as of September 30, 1996).
Gain on sales of businesses, net of $76.6 million in the nine months ended
September 30, 1996 resulted from an $83.4 million pretax gain resulting from the
July 1996 sale of a 55.8% interest in National Propane Partners, L.P. (the
"Partnership"), a partnership formed by National Propane Corporation ("National
Propane"), a wholly-owned subsidiary of the Company, to acquire, own and operate
the propane business (see further discussion below under "Financial Condition
and Liquidity") partially offset by (i) a $4.0 million pretax loss on the sale
of the Textile Business and (ii) a $2.8 million pretax loss associated with the
write-down of an affiliate.
Other income, net decreased $10.9 million to $5.0 million in the nine months
ended September 30, 1996. Such decrease principally resulted from net
non-recurring income in the 1995 period including (i) a $12.0 million gain on
the sale of timberland, (ii) a $2.3 million gain related to a January 1995
settlement agreement with Victor Posner, the former chairman and chief executive
officer of the Company and (iii) a $1.9 million gain on an insurance recovery
relating to fire-damaged equipment. These increases were all partially offset by
(i) a $2.3 million increase in interest and dividend income in the 1996 period
attributable to the proceeds generated from the sales of businesses in 1996 and
(ii) nonrecurring losses in the 1995 period principally including (a) $1.7
million of equity in the net loss of a Taiwanese joint venture and (b) a $0.8
million writedown of a 1995 preferred stock investment in a beverage
distributor.
The provision for income taxes in the nine-month period ended September 30,
1996 of $34.8 million includes the tax effects of the $83.4 million pretax gain
on the sale of partnership units ($32.5 million tax provision or 39.0%) and the
$4.0 million pretax loss on the sale of the Textile Business ($1.7 million tax
provision) which are discussed above. Before the effect of these significant
unusual items, the effective tax rates are 61.0% and 62.5% for the nine months
ended September 30, 1996 and 1995, respectively. Such rates, which are
relatively unchanged between periods, are higher than the Federal income tax
statutory rate of 35% principally due to the effect of nondeductible
amortization of costs in excess of net assets of acquired companies
("Goodwill").
The minority interest in net loss of $1.8 million in the nine-month period
ended September 30, 1996 represents the limited partners' 55.8% interest in the
$3.2 million net loss of the Partnership since the sale of such 55.8% interest
in July 1996.
The extraordinary items aggregating a charge of $5.4 million in the 1996
period result from the early extinguishment of almost all of the long-term debt
of National Propane and the 9 1/2% Note in July 1996, all debt of the Textile
Business in April 1996 and the 11 7/8% Debentures in February 1996 and consist
of (i) the write-off of $10.4 million of unamortized deferred financing costs
and $1.8 million of unamortized original issue discount, (ii) the payment of
prepayment penalties and related costs of $5.7 million and (iii) fees of $0.3
million, partially offset by (i) discount from principal of $9.2 million on the
early extinguishment of the 9 1/2% Note and (ii) income tax benefit of $3.6
million.
13
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
<TABLE>
Three Months Ended September 30, 1996 Compared with Three Months Ended September 30, 1995
<CAPTION>
Revenues Operating Profit
Three months ended Three months ended
September 30, September 30,
1995 1996 1995 1996
(In thousands)
<S> <C> <C> <C> <C>
Beverages......................... $67,115 $87,278 $ 2,547 $ 9,697
Restaurants....................... 72,838 73,489 4,135 4,142
Propane........................... 25,736 27,720 (2,020) (2,464)
Textiles.......................... 126,186 17,960 6,602 2,720
Unallocated general corporate income
(expenses)....................... -- -- 1,449(a) (2,710)(b)
$ 291,875 $206,447 $12,713 $11,385
(a) Includes a $3,000,000 release of casualty insurance reserves.
(bReflects a $2,115,000 decrease in corporate expenses allocated to
subsidiaries principally due to businesses sold in 1996.
</TABLE>
Revenues, excluding sales of $115.3 million for the three months ended
September 30, 1995 associated with the Textile Business sold on April 29, 1996,
increased $29.9 million to $206.4 million in the three months ended September
30, 1996.
Beverages - Revenues increased $20.2 million (30.0%) reflecting (i)
$19.4 million of higher revenues from the full period effect of the
Mistic acquisition and (ii) a $0.8 million increase in other soft drink
revenues due principally to a net increase in volume sold.
Restaurants - Revenues increased $0.7 million (0.9%) due to higher
royalties and net sales resulting from more franchised and company-owned
restaurants, respectively, in operation.
Propane - Revenues increased $2.0 million (7.7%) due to higher selling
prices resulting from higher propane costs and, to a lesser extent,
higher volume, primarily as a result of niche business acquisitions.
Textiles - There were no revenues from the Textile Business in the three
months ended September 30, 1996 due to its sale in April 1996 compared
with $115.3 million in the three months ended September 30, 1995.
Overall revenues of the specialty dyes and chemicals business increased
$0.1 million (0.5%) while revenues of this business included in
consolidated "Net sales" in the accompanying condensed consolidated
statements of operations increased $7.1 million (65.4%) to $18.0 million
in the three months ended September 30, 1996 as revenues from $7.3
million of sales to the purchaser of the Textile Business subsequent to
the April 29, 1996 sale were no longer eliminated in consolidation as
intercompany sales.
Gross profit, excluding gross profit of $10.5 million for the three months
ended September 30, 1995 associated with the Textile Business, increased $7.1
million to $77.8 million in the three months ended September 30, 1996. Such
increase is principally due to $7.7 million of higher gross profit due to the
inclusion of a full three months of Mistic in the 1996 period. Gross profit in
the Company's other businesses was positively impacted by overall higher
revenues, the effect of which was almost fully offset by lower overall gross
margins in such businesses.
Beverages - Margins decreased to 53.1% from 58.0% principally due to the
inclusion in the 1996 period of the full period effect of the
lower-margin finished product sales associated with Mistic (39.5% gross
margin in 1996).
14
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Restaurants - Margins increased to 33.3% from 31.5% due primarily to the
adverse impact in the prior year period of reduced operating
efficiencies as a result of the start-up of new restaurants.
Propane - Margins decreased to 10.4% from 16.9% due to higher propane
costs that could not be fully passed through to customers, a shift in
customer mix toward lower-margin commercial accounts, higher operating
expenses and lower margins on other revenue lines.
Textiles - As noted above, the Textile Business was sold in April 1996.
As a result, for the quarter ended September 30, 1996, margins for this
segment increased to 22.7% from 11.9% reflecting the higher-margin
revenues of the remaining specialty dyes and chemicals business. Margins
for the specialty dyes and chemicals business decreased to 22.5% from
24.7% due to weak pricing reflecting competitive pressures currently
being experienced in the textile industry.
Advertising, selling and distribution expenses decreased $0.8 million to
$35.2 million in the three months ended September 30, 1996 principally due to
(i) a $5.3 million decrease in the expenses of the beverage segment (other than
Mistic) due to reduced spending related to Draft Cola and branded concentrate
products and (ii) $1.8 million of lower expenses of the textile segment
reflecting the April 1996 sale of the Textile Business, both partially offset by
(i) $5.0 million of higher expenses due to the inclusion of the 1996 full period
effect of the August 1995 Mistic acquisition and the nonrecurring effect of
cooperative advertising reimbursements to Mistic by distributors in the 1995
period, as discussed above and (ii) $1.5 million of higher expenses in the
restaurant segment in response to competitive pressures and multi-brand
restaurant development.
General and administrative expenses decreased $1.2 million to $31.2 million
in the three months ended September 30, 1996 due to a $5.2 million decrease in
the expenses of the textile segment primarily reflecting the sale of the Textile
Business partially offset by (i) a $3.0 million release of reserves for casualty
insurance in the 1995 period, (ii) $1.4 million increased expenses related to
the 1996 full period effect of the 1995 Mistic acquisition and (iii) other net
increases.
Interest expense decreased $4.8 million to $16.5 million in the three months
ended September 30, 1996 due to lower average levels of debt reflecting
repayments prior to maturity of an aggregate $262.1 million of debt between
February 22, 1996 and July 1, 1996, as previously discussed, partially offset by
borrowings resulting from the Mistic acquisition and financing for capital
spending at the restaurant segment (together aggregating $126.6 million as of
September 30, 1996), as previously discussed.
Gain on sales of businesses, net of $77.1 million in the three months ended
September 30, 1996 resulted from an $83.4 million pretax gain resulting from the
July 1996 sale of a 55.8% interest in the Partnership partially offset by (i) a
$3.5 million pretax loss on the sale of the Textile Business and (ii) a $2.8
million pretax loss associated with the write-down of an affiliate.
Other income (expense), net improved $3.6 million to income of $2.7 million
in the three months ended September 30, 1996 from an expense of $0.9 million in
the 1995 period. Such improvement principally resulted from a $1.8 million
increase in interest and dividend income in the 1996 period attributable to
proceeds from the sale of businesses in 1996 and net non-recurring losses in the
1995 period including a $0.8 million writedown of a 1995 preferred stock
investment in a beverage distributor and $0.5 million of equity in the net loss
of a Taiwanese joint venture.
The provision for income taxes in the three-month period ended September 30,
1996 of $29.1 million includes the tax effects of the $83.4 million pretax gain
on the sale of partnership units ($32.5 million tax provision or 39.0%) and the
$3.5 million pretax loss on the sale of the Textile Business ($1.3 million tax
benefit or 37.1%) which are discussed above. Before the effect of these
significant unusual items, the effective tax rates are 61.0% and 39.3% for the
three months ended September 30, 1996 and 1995, respectively. Such tax rate in
the 1995 period was significantly lower than the 1996 rate due to the reduction
in the tax benefit in the third quarter of 1995 as a result of the catch-up
effect of a 1995 year-to-date increase
15
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
in the estimated full year 1995 effective tax rate from 47.5% to 62.5%. Since
such catch-up effect relating to pretax income of the first half of 1995 was
applied to a period with a pretax loss, the effective rate for such period was
lower than it otherwise would have been.
The minority interest in net loss of $1.8 million in the three-month period
ended September 30, 1996 represents the limited partners' 55.8% interest in the
$3.2 million net loss of the Partnership since the sale of such 55.8% interest
in July 1996.
The extraordinary items aggregating a gain of $3.1 million in the 1996 period
result from the early extinguishment of almost all of the long-term debt of
National Propane and the 9 1/2% Note in July 1996 and consists of the discount
from principal of $9.2 million on the early extinguishment of the 9 1/2% Note
less (i) the write-off of $4.1 million of unamortized deferred financing costs,
(ii) the payment of prepayment penalties of $0.2 million, (iii) fees of $0.3
million and (iv) taxes of $1.5 million.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and cash equivalents (collectively, "cash") increased
$100.5 million during the nine months ended September 30, 1996 to $164.7 million
primarily reflecting cash provided by (i) operating activities of $57.3 million
and (ii) investing activities of $188.8 million partially offset by cash used in
financing activities of $147.3 million. The net cash provided by operating
activities principally reflects (a) net income of $40.1 million, (b) non-cash
charges for (i) depreciation and amortization of $40.4 million and (ii) the
write-off of deferred financing costs and original issue discount of $12.2
million and (c) cash provided by changes in operating assets and liabilities of
$18.8 million, partially offset by (i) an aggregate $79.4 million pretax gain
from the pretax gain on the sale of partnership units in the propane business
less a pretax loss on the sale of the Textile Business (the proceeds of which
are reported below as financing and inventory activities, respectively, - see
further discussion below) less a deferred income tax provision of $30.5 million
relating to the sale of the businesses and (ii) other adjustments to reconcile
net income to net cash provided by operating activities of $5.3 million. The
cash provided by changes in operating assets and liabilities of $18.8 million
reflects a decrease in restricted cash and cash equivalents of $30.9 million
including $30.0 million previously restricted to the repayment of the 11 7/8%
Debentures (see below) and a $13.8 million increase in accounts payable and
accrued expenses partially offset by increases in inventories of $18.8 million
and receivables of $5.4 million. The increase in accounts payable and accrued
expenses was principally due to a $23.5 million increase in accounts payable
reflecting the $18.8 million increase in inventories. The increase in
inventories principally reflected higher textile segment inventories prior to
the April 29, 1996 sale of the Textile Business resulting from lower sales of
the Textile Business in the first quarter of 1996 compared with the last quarter
of 1995 and higher inventories at Mistic due to lower than expected third
quarter sales reflecting a relatively cool and rainy summer selling season. The
increase in receivables reflected increased consolidated revenues, exclusive of
those attributable to the Textile Business, in the third quarter of 1996
compared with the last quarter of 1995 and slower collections in the beverage
segment and the specialty dyes and chemicals business in the third quarter of
1996 versus the last quarter of 1995. The Company expects continued positive
cash flows from operations during the remainder of 1996. The net cash provided
by investing activities principally reflected net proceeds from the sale of the
Textile Business discussed below of $244.9 million partially offset by (i) net
purchases of marketable securities of $31.3 million, (ii) capital expenditures
of $21.5 million and (iii) business acquisitions of $4.7 million. The net cash
used in financing activities reflects long-term debt repayments of $423.8
million, including $191.4 million repaid in connection with the sale of the
Textile Business (see below) and $128.5 million repaid in connection with the
sale of partnership units and the refinancing of the propane business, partially
offset by (i) the $117.9 million net proceeds from the sale of units in the
Partnership (see below) in July 1996 and (ii) proceeds from long-term debt
borrowings of $166.6 million including $125.8 million associated with the
refinancing of the propane business.
Working capital (current assets less current liabilities) was $194.4 million
at September 30, 1996, reflecting a current ratio (current assets divided by
current liabilities) of 2.1:1. Such amount represents an increase in working
capital of $36.1
16
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
million over the working capital at December 31, 1995 of $158.3 million, which
represented a current ratio of 1.6:1. The increase in working capital
principally reflects an aggregate net increase in cash and cash equivalents,
restricted cash and marketable securities of $102.4 million attributed to net
proceeds from sales of businesses (see further discussion below). The decreases
in the components of working capital other than cash and cash equivalents,
restricted cash and marketable securities principally reflect the effect of the
April 1996 sale of the Textile Business and replacement of certain long-term
debt with current maturities as of December 31, 1996 with long-term debt. The
decrease in inventories of $57.5 million is proportionately greater than the
$11.4 million decrease in accounts payable reflecting the elimination of
inventories associated with the Textile Business sold. The Textile Business sold
was a manufacturing operation with comparatively slower inventory turnover
compared with the Company's principal remaining businesses of beverages, propane
distribution and restaurants.
On February 22, 1996 the Company repaid the 11 7/8% Debentures which had
outstanding principal at that date of $36.0 million (carrying value of $34.2
million net of original issue discount of $1.8 million). The cash for such
redemption came from (i) $30.0 million of borrowings in December 1995 under the
bank facility of National Propane, the proceeds of which had been classified as
restricted cash at December 31, 1995 as they were restricted to the redemption
of the 11 7/8% Debentures and (ii) liquidation of $6.0 million of marketable
securities.
On July 1, 1996 Triarc paid $27.3 million to National Union Fire Insurance
Company of Pittsburgh, PA ("National Union") in full satisfaction of the 9 1/2%
Note with an outstanding balance of $36.5 million (including accrued interest of
$1.8 million).
On May 16, 1996 C.H. Patrick & Co., Inc. ("C.H. Patrick"), a wholly-owned
subsidiary of TXL Corp. (formerly Graniteville Company), a wholly-owned
subsidiary of the Company, entered into a $50.0 million revolving credit and
term loan facility (the "Patrick Facility"). The Patrick Facility consists of
revolving loans (the "Revolving Loans") under a $15.0 million revolving credit
facility and two term loans (the "Term Loans") in initial amounts aggregating
$35.0 million ($34.4 million outstanding at September 30, 1996). The $36.0
million initial borrowing under the Patrick Facility consisted of $1.0 million
of Revolving Loans and $35.0 million of Term Loans, the $35.0 million proceeds
of which were dividended to Triarc. See Note 4 to the accompanying condensed
consolidated financial statements for further discussion of the Patrick
Facility.
In July 1996 the Partnership consummated an initial public offering of an
aggregate of approximately 6.3 million of its common units representing limited
partner interests (the "Common Units"), representing an approximate 55.8%
interest in the Partnership, for an offering price of $21.00 per Common Unit
aggregating $117.9 million net of $14.4 million of underwriting discounts and
commissions and other estimated expenses related to the offering. The sale of
the Common Units resulted in a pretax gain to the Company in the third quarter
of 1996 of $83.4 million before a provision for income taxes of $32.5 million.
The Partnership concurrently issued to National Propane approximately 4.5
million subordinated units (the "Subordinated Units"), representing an
approximate 40.2% subordinated general partner interest in the Partnership. In
addition, National Propane and a subsidiary hold a combined aggregate 4.0%
unsubordinated general partner interest (the "Unsubordinated General Partner
Interest") in the Partnership and a subpartnership, National Propane, L.P. (the
"Operating Partnership"). In connection therewith, National Propane transferred
substantially all of its propane-related assets and liabilities (principally all
assets and liabilities other than a receivable from Triarc, deferred financing
costs and net income tax liabilities of $81.4 million, $4.1 million and $21.6
million, respectively), aggregating net liabilities of $88.2 million, to the
Operating Partnership. On November 6, 1996 the Partnership sold an additional
400,000 Common Units through a private placement at a price of $21.00 per Common
Unit aggregating $8.4 million before related fees of $0.6 million resulting in
net proceeds to the Partnership of $7.8 million thereby reducing the
subordinated general partner interest to 38.7%. Further, on July 2, 1996
National Propane issued $125.0 million of 8.54% first mortgage notes due June
30, 2010 (the "First Mortgage Notes") which were assumed by the Operating
Partnership and the Operating Partnership repaid $128.5 million of National
Propane's long-term debt (including $123.2 million of outstanding borrowings
under National Propane's then existing bank facility). The First Mortgage Notes
bear interest at a fixed annual rate of 8.54% and are due in equal
17
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
annual amounts of $15.625 million commencing June 2003 through June 2010. On
July 2, 1996, the Operating Partnership entered into a $55.0 million bank credit
facility (the "Propane Bank Credit Facility") with a group of banks. The Propane
Bank Credit Facility includes a $15.0 million working capital facility (the
"Working Capital Facility") and a $40.0 million acquisition facility (the
"Acquisition Facility"), the use of which is restricted to business acquisitions
and capital expenditures for growth. There were no outstanding borrowings under
the Working Capital Facility and $0.8 million was outstanding under the
Acquisition Facility as of September 30, 1996. See Note 4 to the accompanying
condensed consolidated financial statements for further discussion of the First
Mortgage Notes and the Propane Bank Credit Facility.
On April 29, 1996, the Company completed the sale (the "Graniteville Sale")
of the Textile Business to Avondale Mills, Inc. ("Avondale") for $245.3 million
in cash, before expenses of $7.9 million and net of $12.3 million of certain
post-closing adjustments (of which $5.0 million was paid in May 1996 and a final
payment of $7.3 million was paid in October 1996). Avondale assumed all
liabilities relating to the Textile Business other than income taxes, long-term
debt of $191.4 million which was repaid at the closing and certain other
specified liabilities. The Graniteville Sale has resulted in net cash proceeds
of $53.5 million after post-closing adjustments and expenses paid to date and is
subject to the payment of remaining expenses, including income taxes to be paid
in cash and the $7.3 million post-closing adjustment paid to Avondale in October
1996, currently estimated to aggregate approximately $13.0 million. The
discussion below sets forth the liquidity and capital resources of the remaining
operations of the Company excluding the Textile Business.
Consolidated capital expenditures, including $0.3 million of capital leases,
amounted to $21.8 million for the first nine months of 1996. The Company expects
that capital expenditures during the remainder of 1996 will approximate $10
million. These anticipated expenditures include expenditures (i) in the
restaurant segment principally for replacement of restaurant equipment,
construction of new restaurants and the improvement of several existing
company-owned restaurants with upgraded facilities, expanded Arby's, Inc.
("Arby's") menus and/or multi-branding and (ii) for build-out of the Company's
new leased corporate headquarters scheduled for occupancy in the fourth quarter.
As of September 30, 1996 there were approximately $6 million of outstanding
commitments for such capital expenditures. The Company anticipates that it will
meet its capital expenditure requirements through existing cash, cash flows from
operations, leasing arrangements and, to the extent such capital expenditures
relate to the restaurant segment, also through borrowings under mortgage and
equipment note financing agreements (the "FFCA Loan Agreements") entered into by
Arby's Restaurant Development Corporation ("ARDC") and Arby's Restaurant Holding
Company ("ARHC"), wholly owned subsidiaries of RC/Arby's Corporation ("RCAC"), a
wholly-owned subsidiary of Triarc.
Under the Company's various credit arrangements (which are described in
detail in Note 15 to the consolidated financial statements contained in the Form
10-K as supplemented herein by the disclosure in Note 4 to the accompanying
condensed consolidated financial statements relating to the Patrick Facility and
the Propane Bank Credit Facility) the Company has availability as of September
30, 1996 as follows: $14.0 million available under the Patrick Facility and
$54.2 million available under the Propane Bank Credit Facility of which $39.2
million was limited to business acquisitions and capital expenditures for
growth. In addition, under the FFCA Loan Agreements RCAC has availability of
$24.6 million through December 31, 1997 to finance new or existing company-owned
restaurants whose sites are identified to FFCA Mortgage Corporation by September
30, 1997.
Under the Company's various debt agreements, substantially all of Triarc's
and its subsidiaries' assets other than cash and marketable securities are
pledged as security. In addition, obligations under RCAC's 9 3/4% senior secured
notes due 2000 have been guaranteed by RCAC's wholly-owned subsidiaries, Royal
Crown and Arby's, obligations under the First Mortgage Notes and the Propane
Bank Credit Facility have been guaranteed by National Propane and obligations
under the Patrick Facility, Mistic's bank facility and $24.9 million of
borrowings under the FFCA Loan Agreements have been guaranteed by Triarc. As
collateral for such guarantees, all of the stock of Royal Crown Company, Inc.
("Royal Crown"), a wholly-owned subsidiary of RCAC, Arby's and Mistic, is
pledged as well as approximately 2% of the Unsubordinated General Partner
Interest. (The stock of C.H. Patrick secures the Patrick Facility and the stock
of National Propane is pledged in connection with the Partnership Loan - see
below.)
18
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The Company's debt instruments require aggregate principal payments of $5.0
million (including $2.3 million of planned repayments of revolving credit loans
under Mistic's bank facility) during the remainder of 1996. Such amount does not
include $5.5 million of additional repayments required on Mistic's revolving
loans in order to comply with the requirement to pay down the revolving loans to
$5.0 million for thirty consecutive days by March 31, 1997. Mistic does not
currently intend to make such additional repayments during 1996.
In furtherance of the Company's growth strategy, the Company will consider
selective acquisitions, as appropriate, to grow strategically and explore other
alternatives to the extent it has available resources to do so. In connection
therewith, in August 1996 Arby's acquired the trademarks, service marks, recipes
and secret formulas of T.J. Cinnamons, Inc., an operator and franchisor of
retail bakeries specializing in gourmet cinnamon rolls and related products for
a cost of $3.7 million. During the third quarter of 1996 the Operating
Partnership acquired the assets of two propane businesses for cash of $1.0
million.
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 issues related to such audit and in connection
therewith paid approximately $1 million through October 1996 and expects to pay
approximately $2.5 million in the remainder of the fourth quarter of 1996 in
final settlement of such examination. The IRS is currently finalizing its
examination of the Company's Federal income tax returns for the tax years from
1989 through 1992 and has issued notices of proposed adjustments increasing
taxable income by approximately $123.6 million, the tax effect of which has not
yet been determined. The Company is contesting the majority of the proposed
adjustments and, accordingly, the amount and timing of any payments required as
a result thereof cannot presently be determined. However, management of the
Company does not believe the resolution of the 1989 through 1992 examination
will be finalized in 1996 and, accordingly, no tax payments will be required in
1996.
Under a program announced in July 1996, management of the Company has been
authorized, when and if market conditions warrant, to repurchase until July
1997, up to $20.0 million of its Class A Common Stock. During the third quarter
of 1996, the Company repurchased 44,300 shares of Class A Common Stock for an
aggregate cost of $0.5 million.
As of September 30, 1996 the Company's principal cash requirements,
exclusive of operations, for the remainder of 1996 consist principally of
capital expenditures of approximately $10.0 million, debt principal payments
aggregating $5.0 million, a $3.3 million distribution by the Partnership to
holders of the Common Units (see below), funding for acquisitions if any, and
treasury stock purchases. The Company anticipates meeting such requirements
through existing cash ($164.7 million at September 30, 1996), cash flows from
operations, availability under the Propane Bank Credit Facility and the Patrick
Facility, anticipated borrowings of less than $1.0 million under the FFCA Loan
Agreements to finance new or existing company-owned restaurants and financing a
portion of its capital expenditures through capital lease arrangements.
Triarc
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon its cash on hand and marketable securities ($180.4
million as of September 30, 1996) and cash flows from its subsidiaries including
loans and cash dividends 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.
In connection with the issuance of the First Mortgage Notes and the
Partnership's initial public offering discussed above, on July 2, 1996 Triarc
received an aggregate of $112.2 million. Such amount consisted of a dividend of
$59.3 million (from the proceeds of the First Mortgage Notes), a loan from the
Partnership of $40.7 million (the "Partnership Loan") and payment of previously
unpaid management fees, tax sharing payments and certain other intercompany
indebtedness aggregating $12.2 million. The Partnership Loan bears interest at
13 1/2% payable in cash and is due in equal annual amounts of approximately $5.1
million commencing 2003 through 2010. Concurrently with the above transactions,
an $81.4
19
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
million non-interest bearing advance payable to National Propane was reduced to
$30.0 million and converted to a demand note payable bearing interest at 13 1/2%
payable in cash (the "$30 Million Note"). Triarc does not anticipate it will be
required to make any principal payments on the $30 Million Note during the
remainder of 1996; however, if it should be required to do so, Triarc believes
it has adequate cash on hand to make such payments.
Triarc's principal subsidiaries are unable to pay any dividends or make any
loans or advances to Triarc during the remainder of 1996 under the terms of the
various indentures and credit arrangements. While there are no restrictions
applicable to National Propane, National Propane is dependent upon cash flows
from the Partnership to pay dividends. Such cash flows are principally quarterly
distributions ($2.6 million was paid to National Propane on November 14, 1996)
from the Partnership on the Subordinated Units and the Unsubordinated General
Partner Interest (see below).
Triarc's indebtedness to subsidiaries has been significantly reduced to $72.4
million as of September 30, 1996 compared with $229.3 million as of December 31,
1995 principally as a result of dividends or cancellations of such indebtedness
in connection with the Graniteville Sale and the Partnership's issuance of the
Common Units. Such $72.4 million of indebtedness consists of the $40.7 million
Partnership Loan, the $30 Million Note and a $1.7 million note to a subsidiary
of RCAC and requires principal payments of $1.7 million during the remainder of
1996 subject to additional amounts if demand is made under the $30 Million Note.
However, the Company anticipates the $1.7 million Note will be cancelled prior
to its December 1996 maturity and replaced with a demand note under which no
payments are anticipated during the remainder of 1996.
As a result of the Graniteville Sale and the Partnership's issuance of the
Common Units discussed above, payments received under tax sharing agreements and
the reimbursement of general corporate expenses by the Textile Business have
been eliminated and payments from National Propane and the Partnership will be
limited. Management fees and tax-sharing payments from C.H. Patrick (which prior
to April 29, 1996 were a component of the payments from the Textile Business)
and distributions, if any, from the Partnership will partially offset such
decreases. As a result, Triarc will probably experience negative cash flows from
operations for its general corporate expenses for the remainder of 1996.
Triarc's sources of cash consist principally of cash on hand and marketable
securities ($180.4 million as of September 30, 1996), reimbursement of general
corporate expenses from subsidiaries in connection with management services
agreements, distributions from the Partnership and net payments received under
tax sharing agreements with certain subsidiaries. Such sources will be
sufficient to enable it to meet its short-term cash needs including general
corporate expenses, any required advances to RCAC (see below), up to $3.3
million of remaining commitments for advances to affiliates under loan
agreements and capital expenditures estimated to be approximately $3.1 million.
RCAC
As of September 30, 1996, RCAC's cash requirements for the remainder of 1996
consist principally of capital expenditures of approximately $4.4 million, an
October 1996 payment of $0.4 million related to RCAC's portion of the tax audit
payment noted above, and debt (including capitalized leases and affiliated
notes) principal payments of $16.8 million, subject to Triarc's requirement for
RCAC to repay any or all of the outstanding balance under a $15.3 million demand
promissory note (the "Demand Note") included in the $16.8 million. RCAC
anticipates meeting such requirements other than the Demand Note through
existing cash and/or cash flows from operations, borrowings under the FFCA Loan
Agreements, capital lease arrangements and, to the extent cash is required other
than for repayments to Triarc under the Demand Note, borrowings from Triarc to
the extent available. RCAC may be required to make repayments under the Demand
Note to the extent of its remaining cash balances in excess of its ongoing
requirements for working capital.
Mistic
As of September 30, 1996, Mistic's principal cash requirements for the
remainder of 1996 consist principally of $1.3 million of term loan payments and
$2.3 million of planned repayments of revolving credit loans under its bank
facility and $0.1 million of capital expenditures. Mistic anticipates meeting
such requirements through cash flows from operations. In
20
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
addition, Mistic must further reduce its revolving credit loans under its bank
facility ($12.8 million outstanding as of September 30, 1996) to $5.0 million
for thirty consecutive days prior to March 31, 1997. Mistic does not currently
intend to make the additional required repayments during 1996.
The Partnership
As of September 30, 1996, the Partnership's principal cash requirements for
the remainder of 1996 consist of capital expenditures of approximately $1.8
million and funding for acquisitions, if any. To the extent of such
acquisitions, the Partnership has $39.2 million of availability under its
Acquisition Facility as of September 30, 1996. The Partnership expects its cash
flows from operations will be more than sufficient to meet its replacement
capital expenditure requirements. To the extent the Partnership has net positive
cash flows, it must make quarterly distributions of its cash balances in excess
of reserve requirements, as defined, to holders of the Common Units, the
Subordinated Units and the Unsubordinated General Partner Interest within 45
days after the end of each fiscal quarter commencing in November 1996. On
November 14, 1996 the Partnership paid its initial quarterly distribution of
$.525 per Common and Subordinated Unit with an equivalent amount for the
Unsubordinated General Partner Interest, or an aggregate of $5.9 million, to
unitholders of record on November 1, 1996, including $2.6 million payable to
National Propane related to the Subordinated Units and the Unsubordinated
General Partner Interest.
21
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
C.H. Patrick
As of September 30, 1996, C.H. Patrick's principal cash requirements for the
remainder of 1996 consist principally of principal payments under its Term Loans
of $0.6 million and capital expenditures of $0.8 million. C.H. Patrick
anticipates meeting such requirements through cash flows from operations. Should
C.H. Patrick need to supplement its cash flows, it has $14.0 million of
availability under the revolving credit portion of the Patrick Facility.
Contingencies
The Company continues to have legal and environmental contingencies of the
same nature and general magnitude as those described in "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the Form 10-K. In addition, on November 6, 1996 two wholly-owned
subsidiaries of the Company became the subject of a demand by a bankruptcy
trustee seeking the return of alleged preferential payments. For a further
discussion of this matter, see the second paragraph in Note 11 to the
accompanying condensed consolidated financial statements. After considering
amounts provided in prior periods, the Company does not believe that such
contingencies, as well as ordinary routine litigation, will have a material
adverse effect on its consolidated financial position or results of operations.
Spinoff
On October 29, 1996 the Company announced that its Board of Directors
approved a plan to offer up to approximately 20% of the shares of its beverage
and restaurant businesses to the public through an initial public offering and
to spinoff the remainder of the shares of such businesses to the Company's
stockholders. Consummation of the initial public offering and the spinoff will
be subject to, among other things, receipt of a favorable ruling from the IRS
that the spinoff will be tax-free to the Company and its stockholders. The
request for ruling from the IRS will contain several complex issues and there
can be no assurance that the Company will receive the ruling or that the Company
will consummate the initial public offering or the spinoff. The initial public
offering and spinoff are not expected to occur prior to the end of the second
quarter of 1997.
22
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Part II. Other Information
The statements in this Quarterly Report on Form 10-Q (this "Form 10-Q") that
are not historical facts constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), that involve risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Triarc and its subsidiaries to be
materially different from any future results, performance or achievements
express or implied by such forward-looking statements. Such factors include, but
are not limited to, the following: general economic and business conditions;
competition; success of operating initiatives; development and operating costs;
advertising and promotional efforts; brand awareness; the existence or absence
of adverse publicity; acceptance of new product offerings; changing trends in
customer tastes; the success of multi-branding; availability, locations and
terms of sites for restaurant development; changes in business strategy or
development plans; quality of management; availability, terms and deployment of
capital; business abilities and judgment of personnel; availability of qualified
personnel; Triarc not receiving from the Internal Revenue Service a favorable
ruling that the spinoff referred to herein will be tax-free to Triarc and its
stockholders or the failure to satisfy other customary conditions to closing for
transactions of the type referred to herein; labor and employee benefit costs;
availability and cost of raw materials and supplies; changes in, or failure to
comply with, government regulations; regional weather conditions; construction
schedules; trends in and strength of the textile industry; the costs and other
effects of legal and administrative proceedings; and other risks and
uncertainties detailed in Triarc's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 Form 10-K"), RC/Arby's Corporation's Annual Report
on Form 10-K for the year ended December 31, 1995, National Propane Partners,
L.P.'s registration statement on Form S-1 and Triarc's, RC/Arby's Corporation's
and National Propane Partners, L.P.'s other current and periodic filings with
the Securities and Exchange Commission.
Item 1. Legal Proceedings
Legal Proceedings
As reported in Triarc's Form 10-Q for the quarterly period ended June 30,
1996 (the "June 1996 Form 10-Q"), in November, 1995, Triarc commenced an action
in New York State court alleging that three former court-appointed directors
violated the release/agreements they executed in March 1995 by seeking
additional fees of $3.0 million. The action has been removed to federal court in
New York, and Triarc has moved for summary judgement. The motion is pending. The
defendants have filed a third-party complaint against Nelson Peltz, a Director
and Chairman and Chief Executive Officer of Triarc, seeking judgement against
him for any amounts received by Triarc against them.
As reported in the June 1996 Form 10-Q, on June 27, 1996, the three former
court-appointed directors commenced an action against Nelson Peltz, Victor
Posner, and Steven Posner in the United States District Court for the Northern
District of Ohio seeking an order returning the plaintiffs to Triarc's Board of
Directors, a declaration that the defendants bear continuing obligations to
refrain from certain financial transactions under a February 9, 1993 undertaking
given by DWG Acquisition Group, L.P., and a declaration that Mr. Peltz must
honor all provisions of the undertaking. On October 10, 1996, Mr. Peltz moved
for judgment on the pleadings, or, in the alternative, for a stay of the
proceedings pending a resolution of the New York action described above. The
motion is pending.
As reported in the 1995 Form 10-K, in February 1994, the official committee
of unsecured creditors of APL filed a complaint (the "APL Litigation") against
Triarc and other defendants, asserting causes of action arising from various
transactions undertaken while Triarc was affiliated with Victor Posner. On
November 7, 1995, the United States
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<PAGE>
Bankruptcy Court for the Southern District of Florida (the "Bankruptcy Court")
entered an order that, among other things (i) directed that a final judgment
dismissing the APL Litigation be entered; and (ii) dismissed an objection by
Security Management Corporation ("SMC") to claims filed by Triarc and Chesapeake
Insurance Company Limited in APL's bankruptcy proceeding. On March 12, 1996, the
Bankruptcy Court denied APL's and SMC's motions for rehearing. On April 10,
1996, APL and SMC filed notices of appeal. The appeals are pending.
The bankruptcy trustee appointed in the case of Prime Capital Corporation
("Prime") (formerly known as Intercapital Funding Resources, Inc.) on November
4, 1996, made a demand on Chesapeake Insurance Company Ltd. ("Chesapeake") and
Southeastern Public Service Company ("SEPSCO"), subsidiaries of Triarc, seeking
the return of payments aggregating $5.3 million which Prime made to those
entities during 1994 and suggesting that litigation will be commenced against
SEPSCO and Chesapeake if these monies are not returned. Prime's trustee alleges
such payments were preferential or constituted fraudulent transfers. Chesapeake
and SEPSCO had entered into separate joint ventures with Prime, and the payments
at issue were made in connection with termination of the investments in such
joint ventures. Similar demand letters have been received by other joint venture
investors as well (including certain current and former officers of Triarc or
their spouses). Triarc believes, based on advice of counsel, that it has
meritorious defenses to these claims and intends to vigorously contest them.
Triarc believes, based on the information that it currently possesses, that the
ultimate outcome of this matter will not have a material adverse effect on its
consolidated financial position or results of operations.
Environmental Matters
- - -----------------------
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 in 1994
completed 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 ground
water for contamination, development of remediation plans and removal in certain
instances of certain contaminated soils. Remediation was required at thirteen
sites which were sold to or leased for the purchaser of the ice operations.
Remediation has been completed on five of these sites and is ongoing at the
others. Such remediation is being made in conjunction with the purchaser who is
responsible for payments of up to $1,000,000 of such remediation costs,
consisting of the first and third payments of $500,000. Remediation is also
required at seven cold storage sites which were sold to the purchaser of the
cold storage operations. Remediation has been completed at one site, and is
ongoing at three other sites. Remediation is expected to commence on the
remaining three sites in 1997. Such remediation is being made in conjunction
with such purchaser who is responsible for the first $1,250,000 of such costs.
In addition, there are fifteen additional inactive properties of the former
refrigeration business where remediation has been completed or is ongoing and
which have either been sold or are held for sale separate from the sales of the
ice and cold storage operation. Of these, ten have been remediated through
September 30, 1996 at an aggregate cost of approximately $955,000. Remediation
has not yet commenced at the remaining five sites. In addition, during the
environmental remediation efforts on idle properties, SEPSCO became aware of two
sites which may in the future require demolition. Based on consultations with,
and certain reports of, environmental consultants and others, SEPSCO presently
estimates that its cost of all such remediation and/or removal and demolition
will approximate $6,030,000, of which $1,500,000, $2,700,000 (including a 1994
reclassification of $500,000), $1,150,000 and $670,000 (a reclassification) were
provided prior to Fiscal 1993, in Fiscal 1993, in 1994 and 1996, respectively.
In connection therewith, SEPSCO has incurred actual costs of approximately
$4,530,000 through September 30, 1996 and has a remaining accrual of
approximately $1,490,000. Based on currently available information and the
current reserve levels, Triarc does not believe that the ultimate outcome of the
remediation and/or removal and demolition will have a material adverse effect on
its consolidated financial position or results of operations. See "Part I, Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Item 5. Other Information
Initial Public Offering/Spinoff of Beverage and Restaurant Businesses
24
<PAGE>
On October 29, 1996, Triarc announced that its Board of Directors has
approved a plan to offer up to approximately 20% of the shares of its beverage
and restaurant businesses to the public through an initial public offering (the
"IPO") and to spinoff the remainder of the shares of such businesses to Triarc's
stockholders. Consummation of the IPO and spinoff will be subject to, among
other things, receipt of a favorable ruling from the Internal Revenue Service
(the "IRS") that the spinoff will be tax-free to Triarc and its stockholders.
The request for the ruling from the IRS will contain several complex issues and
there can be no assurance that Triarc will receive the ruling or that Triarc
will consummate the IPO or the spinoff. The IPO and spinoff are not expected to
occur prior to the end of the second quarter of 1997.
Triarc Beverage Group
On October 29, 1996, Triarc also announced the establishment of the Triarc
Beverage Group, which will oversee the operations of Triarc's two beverage
subsidiaries, Royal Crown Company, Inc. ("Royal Crown") and Mistic Brands, Inc.
("Mistic").
National Propane Partners Private Placement
On November 7, 1996, National Propane Partners, L.P. ("National Propane
Partners") sold 400,000 of its common units (representing approximately 6% of
the partnership's common units) to an institutional accredited investor through
a private placement pursuant to Section 4(2) of the Securities Act of 1933, as
amended. The units were sold at a price of $21.00 each, before deducting fees,
resulting in net proceeds to the partnership of $7,812,000. National Propane
Partners completed its initial public offering on July 2, 1996. As a result of
the initial public offering and after taking into account the shares issued in
the private placement, Triarc, through its subsidiary National Propane
Corporation, the partnership's managing general partner, holds approximately 43%
of the partnership.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1.1 Purchase Agreement among National Propane Partners, L.P. (the
"Partnership"), Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Janney
Montgomery Scott Inc., Rauscher Pierce Refsnes, Inc. and the Robinson- Humphrey
Company, Inc., incorporated herein by reference to Exhibit 1.1 to the
Partnership's report on Form 8-K dated August 13, 1996 (SEC No. 1- 11867).
10.1 Contribution and Assumption Agreement among the Partnership, National
Propane Corporation, National Propane SGP, Inc. and National Sales & Service,
Inc., incorporated herein by reference to Exhibit 10.4 to the Partnership's
report on Form 8-K dated August 13, 1996 (SEC No. 1-11867).
10.2 Conveyance, Contribution and Assumption Agreement among the
Partnership, National Propane Corporation and National Propane SGP, Inc. is
incorporated herein by reference to Exhibit 10.3 to the Partnership's report on
Form 8-K dated August 13, 1996 (SEC No. 1-11867).
10.3 Credit Agreement, dated as of June 26, 1996, among National Propane,
L.P., The First National Bank of Boston, as administrative agent and a lender,
Bank of America NT & SA, as a lender, and BA Securities, Inc., as syndication
agent, incorporated herein by reference to Exhibit 10.1 to the Partnership's
report on Form 8-K dated August 13, 1996 (SEC File No. 1-11867).
25
<PAGE>
10.4 Note Purchase Agreement, dated as of June 26, 1996, among National
Propane, L.P. and each of the Purchasers listed in Schedule A
thereto relating to $125 million aggregate principal amount of
8.54% First Mortgage Notes due June 30, 2010, incorporated herein
by reference to Exhibit 10.2 to the Partnership's report on Form
8-K dated August 13, 1996 (SEC File No. 1-11867).
10.5 Note dated July 2, 1996 of Triarc, payable to the order of National
Propane, L.P., incorporated herein by reference to Exhibit 10.5 to
the Partnership's report on Form 8-K dated August 13, 1996 (SEC
File No. 1-11867).
10.6 Amendment to Employment Agreement of Ronald D. Paliughi dated as of
June 10, 1996, incorporated herein by reference to Exhibit 10.7 to
the Partnership's report on Form 8-K dated August 13, 1996 (SEC
File No. 1-11867).
10.7 Purchase Agreement dated November 7, 1996 between the Partnership
and the buyer named therein (the "Buyer"), incorporated herein by
reference to Exhibit 10.1 to the Partnership's report on Form 8-K
dated November 14, 1996 (SEC File No. 1-11867).
10.8 Registration Agreement dated November 7, 1996 between the
Partnership and the Buyer, incorporated herein by reference to
Exhibit 10.2 to the Partnership's report on Form 8-K dated November
14, 1996 (SEC File No. 1-11867).
10.9 Loan Agreement dated as of September 5, 1996 by and between FFCA
Mortgage Corporation and Arby's Restaurant Holding Company,
incorporated herein by reference to Exhibit 4.1 to RC/Arby's
Corporation report on Form 8- K dated November 14, 1996 (SEC File
No. 0-20286).
10.10 Supplement to Loan Agreement as of June 26, 1996 among FFCA
Acquisition Corporation, Arby's Restaurant Holding Company, Arby's
Restaurant Development Corporation and Triarc Companies, Inc.,
incorporated herein by reference to Exhibit 4.2 to RC/Arby's
Corporation report on Form 8-K dated
November 14, 1996 (SEC File No. 0-20286).
10.11 Agreement Regarding Cross-Collateralization and Cross-Default
Provisions as of June 26, 1996 by and among FFCA Acquisition
Corporation, Arby's Restaurant Development Corporation, Arby's
Restaurant Holding Company and Arby's, Inc., incorporated herein by
reference to Exhibit 4.3 to RC/Arby's Corporation's report on Form
8-K dated November 14, 1996 (SEC File No. 0- 20286).
11.1 Statements re computation of net income (loss) per share.
27.1 Financial Data Schedule for the fiscal quarter ended September 30,
1996, submitted to the Securities and Exchange Commission in
electronic format.
99.1 Press Release, dated as of October 29, 1996, incorporated herein by
reference to Exhibit 99.1 to Triarc's report on Form 8-K dated
October 29, 1996 (SEC File No. 1-2207).
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on July 11, 1996 with
respect to the Registrant's stock repurchase program and the
repayment by the Registrant of certain indebtedness owed to
National Union Fire Insurance Company.
26
<PAGE>
The Registrant filed a report on Form 8-K/A on July 18, 1996 in the
form of Amendment No. 1 to Triarc's Form 8-K dated July 2, 1996
with respect to the completion by National Propane Partners, L.P.
of its initial public offering of common units representing limited
partner interests and the private placement of $125 million
aggregate principal amount of 8.54% First Mortgage Notes due 2010.
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Statement re Computation of Net Income (Loss) per Share
September 30, 1996
Three months ended Nine months ended
September 30, September 30,
1995 1996 1995 1996
(In thousands except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Earnings for earnings per share purposes:
Income (loss) before extraordinary items................................$(5,776) $ 47,332 $ 1,953 $ 45,534
Addback of interest expense, net of income
taxes, on debt assumed to be repaid from
proceeds of certain stock options assumed
exercised ..................................................... -- 1,335 -- --
----------- ----------- ----------- ----------
(5,776) 48,667 1,953 45,534
Extraordinary items ............................................. -- 3,122 -- (5,416)
----------- ----------- ----------- ----------
$ (5,776) $ 51,789 $ 1,953 $ 40,118
=========== =========== =========== ==========
Shares:
Weighted average common shares outstanding............................ 29,906 29,886 29,715 29,906
Adjustments for dilutive effect of stock options:
Shares assumed to be repurchased (5,974,000)
from proceeds from assumed exercise of stock
options, net of shares assumed issued (3,865,000)
(limited to the repurchase of
20% of the Company's outstanding shares)...............................-- (2,109) -- --
Shares assumed to be issued from exercise
of stock options, the proceeds of which
are assumed to repay existing Company
debt ........................................................ -- 4,628 -- --
----------- ----------- ----------- ----------
29,906 32,405 29,715 29,906
=========== =========== =========== ==========
Earnings (loss) per share:
Income (loss) before extraordinary items
per share.....................$ ............................... (.19) $ 1.50 $ .07 $ 1.52
Extraordinary items per share ................................... -- .10 -- (.18)
----------- ----------- ----------- ----------
Net income (loss) per share.....$ ............................... (.19) $ 1.60 $ .07 $ 1.34
=========== =========== =========== ==========
The effect of stock options was antidilutive for the three and nine-month
periods ended September 30, 1995 and for the nine- month period ended September
30, 1996. Fully diluted income (loss) per share is not applicable for any period
since contingent issuances of common shares would have been antidilutive or had
no effect on income (loss) per share.
28
</TABLE>
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIARC COMPANIES, INC.
Date: November 14, 1996 By: /S/ JOHN L. BARNES, JR.
---------------------------
John L. Barnes, Jr.
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
By: /S/ FRED H. SCHAEFER
Fred H. Schaefer
Vice President and
Chief Accounting Officer
(Principal accounting officer)
29
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the condensed consolidated financial statements included in the accompanying
Form 10-Q of Triarc Companies, Inc. for the nine-month period ended
September 30, 1996 and is qualified in its entirety by reference to such
Form 10-Q.
</LEGEND>
<CIK> 0000030697
<NAME> Triarc Companies, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 164,726
<SECURITIES> 40,152
<RECEIVABLES> 80,049
<ALLOWANCES> 0
<INVENTORY> 61,067
<CURRENT-ASSETS> 371,354
<PP&E> 386,098
<DEPRECIATION> 168,610
<TOTAL-ASSETS> 909,829
<CURRENT-LIABILITIES> 176,964
<BONDS> 565,088
0
0
<COMMON> 3,398
<OTHER-SE> 58,326
<TOTAL-LIABILITY-AND-EQUITY> 909,829
<SALES> 739,870
<TOTAL-REVENUES> 781,817
<CGS> 524,099
<TOTAL-COSTS> 524,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,576
<INCOME-PRETAX> 78,518
<INCOME-TAX> (34,753)
<INCOME-CONTINUING> 45,534
<DISCONTINUED> 0
<EXTRAORDINARY> (5,416)
<CHANGES> 0
<NET-INCOME> 40,118
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 0
</TABLE>
