Back to GetFilings.com
[LOGO]
TRIARC COMPANIES, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994.
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
Registrant's Telephone Number, Including Area Code: (212) 230-3000
------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - - --------------------------------------- ---------------------------------
Class A Common Stock, $.10 par value New York Stock Exchange
Pacific Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the outstanding shares of the
registrant's Class A Common Stock (the only class of the
registrant's voting securities) held by non-affiliates of the
registrant was approximately $207,983,000 as of March 15, 1995.
There were 23,915,058 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 March 15, 1995.
"ARBY'S," "RC COLA," "DIET RC," "ROYAL CROWN," "DIET RITE," "NEHI,"
"UPPER 10," "KICK," "C&C," AND "GRANITEVILLE" ARE REGISTERED
TRADEMARKS OF TRIARC COMPANIES, INC. OR ITS SUBSIDIARIES.
PART I
Item 1. Business.
INTRODUCTION
Triarc Companies, Inc. ("Triarc") is a holding company which,
through its subsidiaries, is engaged in four businesses: soft
drink, restaurant, textiles and liquefied petroleum gas. The soft
drink operations are conducted through Royal Crown Company, Inc.
("Royal Crown"), formerly known as Royal Crown Cola Co., Inc.; the
restaurant operations are conducted through Arby's, Inc.
("Arby's"); the textile operations are conducted through
Graniteville Company ("Graniteville"); and the liquefied petroleum
gas operations are conducted through National Propane Corporation
("National Propane") and Public Gas Company ("Public Gas"), a
subsidiary of Southeastern Public Service Company ("SEPSCO"), which
in turn is an indirect wholly-owned subsidiary of Triarc (National
Propane and Public Gas are collectively referred to herein as the
"LP Gas Companies"). For information regarding the revenues,
operating profit and identifiable assets for Triarc's four
businesses for the fiscal year ended December 31, 1994 ("Fiscal
1994"), see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 32 to the
Consolidated Financial Statements of Triarc Companies, Inc. and
Subsidiaries (the "Consolidated Financial Statements"). See "Item
1. Business -- General -- Discontinued and Other Operations" for a
discussion of certain remaining ancillary businesses which Triarc
intends to dispose of or liquidate as part of its business
strategy.
Triarc was incorporated in Ohio in 1929. Triarc was
reincorporated in Delaware, by means of a merger, in June 1994.
Triarc's principal executive offices are located at 900 Third
Avenue, New York, New York 10022 and its telephone number is (212)
230-3000.
NEW OWNERSHIP AND EXECUTIVE MANAGEMENT
On April 23, 1993, DWG Acquisition Group, L.P. ("DWG
Acquisition"), a Delaware limited partnership the sole general
partners of which are Nelson Peltz and Peter W. May, acquired
shares of common stock of Triarc (then known as DWG Corporation
("DWG")) from Victor Posner ("Posner") and certain entities
controlled by Posner (together with Posner, the "Posner Entities"),
representing approximately 28.6% of Triarc's then outstanding
common stock. As a result of such acquisition and a series of
related transactions which were also consummated on April 23, 1993
(collectively, the "Equity Transactions"), the Posner Entities no
longer hold any shares of voting stock of Triarc or any of its
subsidiaries. Concurrently with the consummation of the Equity
Transactions, Triarc refinanced a significant portion of its high
cost debt in order to reduce interest costs and to provide
additional funds for working capital and liquidity purposes (the
"Refinancing"). Following the consummation of the Equity
Transactions and the Refinancing, the Boards of Directors of each
of Triarc and SEPSCO installed a new corporate management team,
headed by Nelson Peltz and Peter W. May, who were elected Chairman
and Chief Executive Officer and President and Chief Operating
Officer, respectively, of each of Triarc and SEPSCO. In addition,
Leon Kalvaria was elected Vice Chairman of each of Triarc and
SEPSCO. The Triarc Board of Directors also approved a plan to
decentralize and restructure Triarc's management (the
"Restructuring"). The Equity Transactions, the Refinancing and the
Restructuring are collectively referred to herein as the
"Reorganization."
BUSINESS STRATEGY
Triarc's current business strategy is intended to address
Triarc's past inability to attract strong operating management,
past lack of focused advertising and marketing programs, and past
failure to make sufficient investments in capital projects. From
April 1993 through March 1995, the key elements of this business
strategy have included (i) focusing Triarc's resources on the four
businesses -- soft drink, restaurant, textiles and liquefied
petroleum gas, (ii) building strong operating management teams for
each of the businesses, and permitting each of these teams to
operate in a decentralized environment, (iii) providing strategic
leadership and financial resources to enable the management teams
to develop and implement specific, growth-oriented business plans
and (iv) rationalizing Triarc's organizational structure by
settling previously outstanding shareholder litigation.
The chief executive officers of Triarc's four businesses, three
of whom came from outside Triarc in 1993, have implemented
individual plans focused on increasing revenues and improving
operating efficiency. In addition, Triarc continuously evaluates
acquisitions and business combinations to augment its businesses.
The implementation of this business strategy is expected to result
in increases in expenditures for, among other things, capital
projects and acquisitions and, over time, marketing and
advertising. To provide liquidity to finance these expenditures and
to reduce interest costs, in calendar 1993 and 1994 Triarc
refinanced a significant portion of its high cost debt. See "Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations." In addition, since April 1993, Triarc has
disposed of several ancillary businesses and intends to dispose of
or liquidate its remaining ancillary business assets. In March
1995, Triarc retained investment banking firms to review strategic
alternatives to maximize the value of its specialty chemicals,
textile and liquefied petroleum gas operations. Such alternatives
could include, among other things, a spinoff, joint venture,
partnership, acquisition or some form of business combination or a
sale. No decision has been made to pursue any particular strategic
alternative and there can be no assurance that any transaction will
result from this exploration process.
SEPSCO SETTLEMENT
Immediately prior to April 14, 1994, SEPSCO was a majority owned
subsidiary of Triarc. On April 14, 1994, a newly-formed
wholly-owned subsidiary of Triarc was merged into SEPSCO (the
"SEPSCO Merger") and SEPSCO became a wholly-owned subsidiary of
Triarc. In the SEPSCO Merger, each share of common stock of SEPSCO
outstanding immediately prior to the time the SEPSCO Merger became
effective (other than shares which were held by Triarc or a
subsidiary of Triarc) was converted into the right to receive 0.8
of a share of Triarc's Class A Common Stock. As a result of the
SEPSCO Merger, virtually all of Triarc's subsidiaries are wholly-
owned.
The SEPSCO Merger was structured to satisfy SEPSCO's obligations
under an agreement which settled a lawsuit brought derivatively on
behalf of SEPSCO against Triarc and certain other defendants before
the United States District Court for the District of Florida. That
litigation was the only stockholder litigation brought against
Triarc and its former management which was still pending at the
time of the Reorganization. As a result of the SEPSCO Merger, the
district court permanently barred and enjoined the institution and
prosecution of all claims arising out of or in any way relating to
the SEPSCO litigation against Triarc and certain of its affiliates.
POSNER SETTLEMENT
Pursuant to a Settlement Agreement dated as of January 9, 1995
(the "Settlement Agreement") among Triarc and Posner and certain
Posner Entities, a Posner Entity converted the $71.8 million stated
value of Triarc's 8-1/8% Redeemable Convertible Preferred Stock
("Redeemable Convertible Preferred Stock") (which paid an aggregate
dividend of approximately $5.8 million per annum) owned by it into
4,985,722 shares of Triarc's non-voting Class B Common Stock. In addition,
in consideration for, among other things, the settlement of amounts
due to another Posner Entity for the termination of the lease for
the former DWG headquarters and receipt by Triarc of an
indemnification by Posner and another Posner Entity of third-party
claims and expenses incurred after December 1, 1994 involving NVF
Company ("NVF"), APL Corporation ("APL") and Pennsylvania
Engineering Corporation ("PEC"), an additional 1,011,900 shares of
Triarc's Class B Common Stock were issued to Posner and a Posner
Entity. All of the newly issued shares of Triarc's Class B Common
Stock are identical to Triarc's Class A Common Stock except that
the shares of Class B Common Stock have no voting rights (other
than those required by applicable law), are convertible into shares
of Triarc's Class A Common Stock upon disposition to a non-Posner
Entity, and such shares can only be sold subject to a right of
refusal in favor of Triarc or its designee. In addition, pursuant
to the Settlement Agreement, Posner paid Triarc $6.0 million in
cash in exchange for a release of certain claims, which amount was
used by Triarc to make certain payments contemplated by the order
dated February 7, 1995 by Judge Thomas D. Lambros of the United
States District Court, Northern District of Ohio (see "Item 3. --
Legal Proceedings" and "Item 11.--Executive Compensation --
Compensation of Directors") and to reimburse Triarc for certain
expenses incurred prior to December 1, 1994 in connection with
claims in the NVF, APL and PEC litigations. See "Item 3. Legal
Proceedings."
CHANGE IN FISCAL YEAR
Effective with the eight-month transition period ending December
31, 1993 ("Transition 1993"), Triarc and each of its subsidiaries
that did not have a December 31 fiscal year end changed their
fiscal year ends to December 31 of each year. Except with respect
to Fiscal 1994, references in this Form 10-K to a year preceded by
the word "Fiscal" refer to the twelve months ended April 30 of such
year. In addition, references herein to financial information of
Triarc's subsidiaries refer to such financial information as
reflected in the Consolidated Financial Statements. See Note 2 to
the Consolidated Financial Statements.
ORGANIZATIONAL STRUCTURE
The following chart sets forth the organizational structure of
Triarc. As a result of the SEPSCO Merger, Triarc directly or
indirectly owns 100% of virtually all of its subsidiaries.
[The organizational chart shows the following: (i) Triarc owns 100% of NPC
Holdings, Inc., which owns 100% of National Propane, (ii) Triarc owns 94.6%
of CFC Holdings Corp., the other 5.4% of which is owned by SEPSCO; (iii)
Triarc owns 100% of GS Holdings, Inc., which owns 100% of SEPSCO and 50%
of GVT Holdings, Inc., the other 50% of which is owned by SEPSCO; (iv) GVT
Holdings, Inc. owns 100% of Graniteville, which owns 100% of C.H. Patrick
& Co., Inc.; (v) SEPSCO owns 100% of PGC Holdings, Inc. which owns 99.7%
of Public Gas; (vi) CFC Holdings Corp. owns 100% of RC/Arby's Corporation,
which owns 100% of Royal Crown Company, Inc. and Arby's Inc.]
BUSINESS SEGMENTS
SOFT DRINK (ROYAL CROWN)
Royal Crown produces concentrates used in the production of soft
drinks which are sold domestically and internationally to
independent, licensed bottlers who manufacture and distribute
finished beverage products. Royal Crown's major products have
strong brand recognition and include: RC COLA, DIET RC COLA, DIET
RITE COLA, DIET RITE flavors, NEHI, UPPER 10, KICK, and, as of
January 1995, C&C cola, mixers and flavor lines. In addition, Royal
Crown is the exclusive supplier of cola concentrate to Cott
Corporation ("Cott") which sells private label soft drinks to major
retailers in the United States, Canada, the United Kingdom,
Australia, Japan, Spain and South Africa.
Royal Crown is the third largest national brand cola and is the
only national brand cola available to non-Coca-Cola and
non-Pepsi-Cola bottlers. DIET RITE is available in a cola as well
as various other flavors and formulations and is the only national
brand that is sugar-free (sweetened with 100% aspartame, an
artificial sweetener), sodium-free and caffeine-free. DIET RC COLA
is the no-calorie version of RC COLA containing aspartame as its
sweetening agent. NEHI is a line of approximately 20 flavored soft
drinks, UPPER 10 is a lemon-lime soft drink and KICK is a citrus
soft drink. C&C is a line of mixers, colas and flavors. Royal
Crown's share of the overall domestic carbonated soft drink market
was approximately 2.0% in Fiscal 1994 according to The Maxwell
Consumer Report. Royal Crown's soft drink brands have approximately
a 2.4% share of national supermarket sales, as measured by
Information Resources, Inc.
BUSINESS STRATEGY
Royal Crown's management believes that Royal Crown's products
continue to enjoy significant brand recognition. Royal Crown's
management also believes that the full potential of Royal Crown's
brands, however, has not been realized due to prior management's
unfocused spending on marketing and advertising, inefficient
product distribution, and generally poor relationships with Royal
Crown's bottlers. Furthermore, Royal Crown's management believes
that Royal Crown has begun to address these issues, and there is an
opportunity to increase sales and earnings, through the following
business strategy. The key elements of this strategy include:
* More Effective Advertising and Marketing: The principal
determinant of success in the soft drink industry is the
ability to establish a recognized brand name, the lack of
which serves as the industry's primary barrier to entry.
Historically, the marketing expenditures of Royal Crown and
its bottlers have emphasized couponing and promotional
discounts rather than coordinated marketing and media
spending that reinforces the image of the brands across
markets. In 1994, Royal Crown spent approximately $22.3
million on media advertising and national promotions,
including a new advertising and marketing campaign
developed by its advertising agency, GSD&M of Texas.
* Improved Bottler Relationships: Senior management of Triarc
and Royal Crown are working to develop a long-term
partnership with Royal Crown's bottlers. Royal Crown's
management believes that the implementation of the new
advertising and marketing program described above will
encourage the bottlers to increase their own marketing
expenditures, as well as coordinate promotional activity
more closely with Royal Crown. Additionally, Royal Crown
has provided assistance in transactions designed to
strengthen its bottling system so that weaker bottlers are
restructured or have their operations consolidated with
stronger, more efficient bottlers, which enhances Royal
Crown's ability to execute its marketing programs more
effectively. Royal Crown also has improved its market
research and information systems and has made current
market information available to its bottlers to enhance
their ability to compete. Finally, in 1994, Royal Crown
entered into an agreement with Cott that could lead to an
increase in private label bottling by the Royal Crown
bottling network.
* Expansion of Private Label Business: The domestic market
share of private label soft drinks has increased rapidly in
the past several years reflecting the emphasis of many
retailers on the development and marketing of quality store
brand merchandise at competitive prices. Private label
sales to Cott represent a growing segment of Royal Crown's
business, with unit sales to Cott more than tripling from
calendar year 1992 to calendar year 1994. In January 1994,
Royal Crown and Cott entered into a worldwide concentrate
supply contract (the "Cott Worldwide Agreement"). Under
the Cott Worldwide Agreement, Royal Crown is Cott's
exclusive worldwide supplier of cola concentrates for
retailer-branded beverages. In addition, Royal Crown also
supplies Cott with non-cola carbonated soft drink
concentrates.
* Improved Distribution in Key Channels: Based on independent
market research, Royal Crown's management believes that
better distribution of Royal Crown products in the key
"take home" channels (such as food stores, mass
merchandisers and drug stores) will increase the market
share of Royal Crown's brands. Royal Crown is beginning to
provide bottlers with timely and reliable market
information to identify retailers that do not distribute
Royal Crown products and to monitor the inventory positions
of the various Royal Crown brands in stores where the
products are currently distributed to limit out-of-stock
positions.
* New Channels of Distribution: Royal Crown's management
believes that distribution of Royal Crown brands through
vending machines and convenience outlets (such as
convenience stores and retail gas mini-markets) can be
expanded significantly. This strategy has been implemented
by Royal Crown's leasing in 1994 of approximately 8,600
vending machines and the subleasing of this equipment to
bottlers to encourage service of convenience outlets. Royal
Crown expects to lease an additional 2,500 vending machines
in 1995, which will be subleased to bottlers.
* New Products: Royal Crown believes that it has a
reputation as an industry leader in product innovation and
plans to make new product introductions a key element of
its strategy for future growth. Royal Crown is introducing
a diet version of KICK. Royal Crown is also in the process
of developing entries in certain "new age" beverage
categories, as well as new carbonated soft drinks.
* International Expansion: While the financial and managerial
resources of Royal Crown have initially been focused on the
United States and Canada, Royal Crown's management believes
that there are significant opportunities to increase the
international distribution of Royal Crown brands. In those
countries where Royal Crown brands are currently
distributed, Royal Crown traditionally has provided limited
advertising support due to capital constraints. In
September 1994, Royal Crown announced that it had reached
a long-term agreement with one of the largest independent
bottlers in Mexico, Consorcio Aga. Four of Consorcio Aga's
plants began producing Royal Crown products in September
1994, and Royal Crown products have become available in
approximately 36,000 retail outlets in the vicinity of the
four plants. Consorcio Aga is supporting the new
arrangement with an ongoing marketing and advertising
campaign which includes broadcast and print advertising,
extensive signage and a sampling program reaching in excess
of 1,000,000 people. The agreement contemplates that
production of Royal Crown products at eleven additional
Consorcio Aga plants will be phased in over the next three
years. Because Mexico has the second largest per capita
cola consumption on the world, Royal Crown believes that
this arrangement is a significant step in its international
expansion. In 1994, Royal Crown has also entered into
agreements with independent bottlers in Argentina, Brazil,
Indonesia, Syria, Portugal, Qatar and Russia. To support
expansion in these markets, new managers have been added
for Latin America and the C.I.S./Baltic region. Royal
Crown has also announced plans to enter China in 1996 and
has targeted the Philippines, Ireland, Pakistan, Peru and
the C.I.S./Baltic region for future development by late 1995
or early 1996.
* Acquisitions: Royal Crown's management is actively seeking
to expand market share through the acquisition of
additional soft drink product lines. Royal Crown's
management believes that providing additional product lines
and nationally recognized soft drink brands will assist
Royal Crown in strengthening its relationships with its
bottlers and allow Royal Crown to leverage its marketing
and administrative activities. In January 1995, Royal
Crown reacquired the distribution rights for Royal Crown
products in the New York metropolitan area and acquired the
C&C trademark, which includes cola, mixer and flavor lines,
through its newly formed subsidiary, TriBev Corporation
("TriBev"), which will be the sales and marketing arm for
Royal Crown and C&C products in the New York metropolitan
area.
INDUSTRY
Soft drinks constitute one of the largest consumer food and
beverage categories in the United States, with retail sales of
approximately $50 billion in calendar 1994. Trends affecting the
soft drink industry in recent years have included the growth of
consumer demand for diet soft drinks, the increased market share of
private label soft drinks, and the introduction of "new age"
beverages. In calendar 1994, diet drinks represented approximately
31.0% of the soft drink market, compared to approximately 19.0% in
1981. While market share of cola drinks in food stores has
moderately declined in recent years, colas increased their market
share to approximately 60.2% in 1994 from approximately 59.1% a
year earlier, as measured by Information Resources, Inc. This
increase is attributable to strong 1994 volume gains of sugar-
sweetened cola drinks, which grew by approximately 10.5%, as
compared to approximately 6.2% growth for all carbonated soft
drinks. Diet cola volume was slightly behind the market but the
segment maintained approximately 21.3% of industry sales. Private
label soft drinks as measured by Information Resources, Inc.,
reached a market share level of approximately 12.4% in calendar
1994. This share compares with the estimated 7.2% these products
represented in calendar 1989 and 11.1% in calendar 1993. Sales of
private label products have expanded as retailers have placed
increased emphasis on the development and marketing of higher
quality store branded merchandise at lower prices than the national
brands. Royal Crown's management believes that the share of "new
age" beverages (such as carbonated fruit drinks, natural sodas and
seltzers, sports drinks and iced teas) in the soft drink market is
currently approximately 8.0% in terms of volume and will continue
to increase at the expense of traditional soft drinks.
ADVERTISING AND MARKETING
The principal determinant of success in the soft drink industry
is the ability to establish a recognized brand name, the lack of
which serves as the industry's primary barrier to entry.
Advertising, promotions and marketing expenditures in Fiscal 1993,
Transition 1993 and Fiscal 1994 were $54.6 million, $54.0 million
and $78.1 million, respectively. Prior to the Reorganization, Royal
Crown focused a large proportion of these expenditures on local and
regional sporting event sponsorship, couponing and in-store/point
of sale promotions. In addition, media spending was not
well-coordinated across regions or with the timing of bottler
promotions. Royal Crown believes that, in spite of unfocused
advertising spending prior to the Reorganization, its products
continue to enjoy nationwide brand recognition.
During 1994, Royal Crown took several steps to improve the
packaging of its products, including introducing new packaging for
Diet Rite flavors and KICK, multipacks for all of its brands and a
24 ounce "thirst thrasher" plastic bottle which has been introduced
in certain northeastern markets which should enable Royal Crown to
compete more effectively in convenience outlets and retail gas
mini-markets where a single-drink package is important.
Royal Crown's management intends to increase its 1995 marketing
budget by approximately $6 million to $84.1 million. In August
1993, Royal Crown hired GSD&M Advertising to produce and coordinate
new media advertising campaigns for both local and national
distribution and to coordinate these campaigns with Royal Crown's
bottlers. These campaigns premiered during April 1994.
ROYAL CROWN'S BOTTLER NETWORK
In addition to highly recognized brands, a strong bottler
network is a critical determinant of the success of a soft drink
producer. Analysis of market share by distributor indicates that a
strong bottler can substantially increase the share of Royal Crown
brand products in that bottler's local market. Therefore, good
relations with its bottlers, and a strong bottler network, are
critical factors for Royal Crown. As Royal Crown's relationships
with its bottlers improve, Royal Crown's management believes that
its bottlers, the majority of whom also provide bottling services
to other brands, will tend to focus more on Royal Crown products.
This increase in focus on Royal Crown products is expected to
result in increased participation by the bottlers in cooperative
advertising, marketing and promotional activities, as well as
added emphasis on improving shelf space positions for Royal Crown
brands with retailers and closer monitoring of retailer inventory
positions, thus reducing out-of-stock positions.
Royal Crown sells its flavoring concentrates for branded
products to independent licensed bottlers in the United States and
57 foreign countries, including Canada. Consistent with industry
practice, each bottler is assigned an exclusive territory within
which no other bottler may distribute Royal Crown brand soft
drinks. This type of arrangement is designed to help ensure that
Royal Crown has a strong distributor in each market served. As of
December 31, 1994, Royal Crown products were packaged and
distributed domestically in 152 licensed territories, covering 50
states. There were a total of 69 production centers operating
pursuant to 52 production and distribution agreements and 100
distribution only agreements.
In most localities, licensed Royal Crown bottlers also hold one
or more licenses from other concentrate manufacturers, although
Royal Crown bottlers (like bottlers of Coca-Cola and Pepsi-Cola)
are not permitted to distribute other colas. Of Royal Crown's 152
licensed territories, Royal Crown believes 67 carry Royal Crown as
the lead brand, 37 carry Royal Crown with "Seven-Up" as the lead
brand, 17 carry Royal Crown with "Dr. Pepper" as the lead brand,
and the remaining 31 are classified as mixed. The existence of
Royal Crown enables non-Coca-Cola and non-Pepsi-Cola bottlers to
offer a full line of branded cola products, better positioning them
to compete with bottlers of Coca-Cola and Pepsi-Cola.
The following table sets forth the percentage of domestic unit
sales of concentrate for branded product accounted for by each of
Royal Crown's ten largest bottler groups during Fiscal 1993,
Transition 1993 and Fiscal 1994:
PERCENT OF UNIT SALES
-----------------------------------------
BOTTLER GROUP FISCAL 1993 TRANSITION 1993 FISCAL 1994
- - - -------------------------------------------------------------------------------
Chicago Bottling Group................ 22.3% 25.4% 23.8%
All American Bottling................. 16.1 16.9 14.9
Brooks Beverage Management Inc........ 7.2 8.3 8.3
7UP/RC Bottling of Southern California 7.0 8.0 6.8
RC Bottling Co. -- Evansville, IN..... 3.7 4.0 4.2
Beverage Properties Inc............... 2.2 2.4 3.6
Bland Group........................... 1.9 2.3 3.4
Mid-Continent Bottlers................ 2.9 3.5 3.2
Kalil Bottling-Arizona................ 2.7 3.4 3.0
Dr. Pepper Bottling-Texas............. 2.3 2.7 2.9
----- ----- -------
Total....................... 68.3% 76.9% 74.1 %
----- ----- -------
Royal Crown enters into a license agreement with each of its
bottlers which it believes is comparable to those prevailing in the
industry. Royal Crown periodically sets a uniform price list for
concentrate for all of its licensed bottlers. The duration of the
license agreements vary, but Royal Crown may terminate any such
agreement in the event of a material breach of the terms thereof by
the bottler that is not cured within a specified period of time.
The license agreements require producing bottlers to
manufacture Royal Crown soft drinks in strict accordance with the
standards, formulae and procedures established by Royal Crown and
to package the products in containers specified by Royal Crown.
Each bottler is obligated to operate within its exclusive territory
with adequate manufacturing, packaging and distribution capability
to produce and distribute sufficient quantities of Royal Crown
products to meet consumer demand in the territory and to maintain
an inventory of Royal Crown products sufficient to supply promptly
the reasonably foreseeable demand for such products. Bottlers that
operate distribution facilities and do not operate production
facilities purchase Royal Crown products from producing bottlers.
PRIVATE LABEL
Royal Crown believes that private label sales through Cott
represent a growth opportunity due to the increased emphasis by
national retailers on the development and marketing of quality
store brand merchandise at competitive prices. Royal Crown's
private label sales began in late 1990 and, as Cott's business has
expanded, have more than tripled from calendar year 1992 to
calendar year 1994. Although unit volume of private label sales
increased significantly, the effect of the volume increase on
revenues was substantially offset by Cott's decision during
Transition 1993 to purchase a component (aspartame) of Royal
Crown's soft drink concentrate directly from the supplier rather
than from Royal Crown, thereby reducing the sales price of
concentrate to Cott. Thus, in Fiscal 1993, Transition 1993 and
Fiscal 1994, revenues from sales of private label concentrate to
Cott represented approximately 10.6%, 10.9% and 14.2%,
respectively, of Royal Crown's total revenues.
Royal Crown provides concentrate to Cott pursuant to the Cott
Worldwide Agreement. Under the Cott Worldwide Agreement, Royal
Crown is Cott's exclusive worldwide supplier of cola concentrates
for retailer-branded beverages in various containers. In addition,
Royal Crown also supplies Cott with non-cola carbonated soft drink
concentrates. The Cott Worldwide Agreement requires that, beginning
in 1995, Cott purchase at least 75% of its total worldwide
requirements for carbonated soft drink concentrates from Royal
Crown. The initial term of the Cott Worldwide Agreement is 21
years, with multiple six-year extensions.
Cott delivers the private label concentrate and packaging
materials to independent bottlers for bottling. The finished
private label product is then shipped to Cott's trade customers,
including major retailers such as Wal-Mart, A&P and Safeway. The
Cott Worldwide Agreement provides that, so long as Cott purchases
a specified minimum number of units of private label concentrate in
each year of the Cott Worldwide Agreement, Royal Crown will not
manufacture and sell private label carbonated soft drink
concentrates to parties other than Cott anywhere in the world.
Through its private label program, Royal Crown develops new
concentrates specifically for Cott's private label accounts. The
proprietary formulae Royal Crown uses for its private label program
are customer specific and differ from those of Royal Crown's
branded products. Royal Crown works with Cott to develop a
concentrate according to each trade customer's specifications.
Royal Crown retains ownership of the formulae for such concentrates
developed after the date of the Cott Worldwide Agreement, except
upon termination of the Cott Worldwide Agreement as a result of
breach or non-renewal by Royal Crown.
Gross margins for private label sales are lower than those for
branded sales. However, since most advertising and marketing
expenses and general and administrative expenses are not
attributable to private label sales, resulting net operating
margins for private label sales are higher than those for branded
sales. This is so despite the fact that, on a per case basis, net
operating profits for branded sales remain higher than those for
private label sales.
PRODUCT DISTRIBUTION
Bottlers distribute finished product through four major
distribution channels: take home (consisting of food stores, drug
stores, mass merchandisers, warehouses and discount stores);
convenience (consisting of convenience stores and retail gas
mini-markets); fountain/food service (consisting of fountain syrup
sales and restaurant single drink sales); and vending (consisting
of bottle and can sales through vending machines). The take home
channel is the principal channel of distribution for Royal Crown
products.
In recent years, Royal Crown products have lost distribution
and experienced excessive out-of-stock positions within retail
outlets. Royal Crown's management believes that providing to the
bottlers timely and reliable market information on the industry and
product status of the retailers in their local markets will allow
the bottlers to address out-of-stock positions, level of
merchandising and inventory, thereby more effectively distributing
Royal Crown's products.
Royal Crown brands historically have not been broadly
distributed through vending machines or convenience outlets. In
addition to stimulating trial purchases, the presence of Royal
Crown identified vending machines and cold storage boxes reinforces
consumer awareness of the brands. Thus, in 1994, Royal Crown's
management arranged for the leasing of approximately 8,600 vending
machines and for the subleasing of this equipment to bottlers to
encourage service of convenience outlets. In addition, Royal Crown
also expects to lease an additional 2,500 vending machines in 1995,
which will be subleased to bottlers.
INTERNATIONAL
Sales outside the United States accounted for approximately
13.0% and 9.8% of Royal Crown's sales in Transition 1993 and Fiscal
1994, respectively. As of December 31, 1994, 78 bottlers and 12
distributors sold Royal Crown brand products outside the United
States in 57 countries, with international sales in Fiscal 1994
distributed among Canada (30%), Latin America and Mexico (26%),
Europe (20%), the Middle East/Africa (17%) and the Far East (7%).
In September 1994, Royal Crown announced that it had reached a
long-term agreement with one of the largest independent bottlers in
Mexico, Consorcio Aga. Four of Consorcio Aga's plants began
producing Royal Crown products in September 1994, and Royal Crown
products have become available in approximately 36,000 retail
outlets in the vicinity of the four plants. Consorcio Aga is
supporting the new arrangement with an ongoing marketing and
advertising campaign which includes broadcast and print
advertising, extensive signage and a sampling program reaching in
excess of 1,000,000 people. The agreement contemplates that
production of Royal Crown products at eleven additional Consorcio
Aga plants will be phased in over the next three years. Because
Mexico has the second largest per capita cola consumption on the
world, Royal Crown believes that this arrangement is a significant
step in its international expansion. In 1994, Royal Crown has also
entered into agreements with independent bottlers in Argentina,
Brazil, Indonesia, Syria, Portugal, Qatar and Russia. To support
expansion in these markets, new managers have been added for Latin
America and the C.I.S./Baltic region. Royal Crown has also
announced plans to enter China in 1996 and has targeted the
Philippines, Ireland, Pakistan, Peru and the C.I.S./Baltic region
for future development by late 1995 or early 1996.
PRODUCT DEVELOPMENT AND RAW MATERIALS
Royal Crown believes that it has a reputation as an industry
leader in product innovation. Royal Crown introduced the first
national brand diet cola in 1961. The DIET RITE flavors line was
introduced in 1988 to complement the cola line and to target the
non-cola segment of the market, which has been growing faster than
the cola segment due to a consumer trend toward lighter beverages.
Flavoring ingredients and sweeteners for sugar-sweetened soft
drinks are generally available on the open market from several
sources. However, aspartame, the sweetener currently preferred by
consumers of diet soft drinks, was until December 1992 subject to
a patent held by The NutraSweet Company, a division of Monsanto
Company. Since the expiration of that patent the price of
aspartame has declined. The reduced cost of aspartame has improved
Royal Crown's gross margin.
RESTAURANT (ARBY'S)
Arby's is the world's largest franchise restaurant system
specializing in slow-roasted meat sandwiches with an estimated
market share in 1994 of approximately 66% of the roast beef sandwich
segment of the quick service restaurant category. In addition, Triarc
believes that Arby's is the 13th largest quick service restaurant
chain in the United States, based on domestic system-wide sales.
As of December 31, 1994, Arby's restaurant system consisted of 2,788
restaurants, of which 2,621 operated within the United States and 167
operated outside the United States. As of December 31, 1994, Arby's
owned and operated 288 units and the remaining 2,500 units were owned
and operated by franchisees. At December 31, 1994, all but two
restaurants outside the United States were franchised. System-wide
sales were approximately $1.5 billion in Fiscal 1993, approximately
$1.1 billion in Transition 1993 and approximately $1.8 billion in
Fiscal 1994.
In addition to its various slow-roasted meat sandwiches,
Arby's restaurants also offer a selected menu of chicken, submarine
and other deli sandwiches and salads. A breakfast menu, which
consists of croissants with a variety of fillings, is also
available at some Arby's restaurants. The typical Arby's restaurant
generates a substantial amount of its revenues during the lunch
hours.
Arby's revenues are derived from three principal sources: (i)
sales at company-owned restaurants; (ii) royalties from franchisees
and (iii) one-time franchise fees from new franchisees. During
Fiscal 1993, Transition 1993 and Fiscal 1994 approximately 78%, 78%
and 77%, respectively, of Arby's revenues were derived from sales
at company-owned restaurants and approximately 22%, 22% and 23%,
respectively, were derived from royalties and franchise fees.
BUSINESS STRATEGY
Arby's has maintained consistently high rankings in consumer
awareness surveys and continues to attract new franchisees to its
system. Prior to the Reorganization, however, Arby's opened few
company-owned restaurants. As a result, the number of restaurants
in the Arby's system has grown at a slower rate than other leading
fast food chains, which have expanded through both internal growth
and acquisitions. In addition, the lack of attention of prior
management to the operating standards of both company-owned and
franchised restaurants, including significantly reduced capital
available for remodeling certain of the company-owned restaurants,
may have had a negative effect on the market perception of the
Arby's system.
Arby's business strategy is designed to increase the total
number of restaurants in the Arby's system and to improve the
revenues and profitability of the restaurants. The key elements of
this strategy include:
* Accelerated Store Opening Program: In Fiscal 1994, Arby's
opened nine company-owned restaurants, as compared to
five company-owned restaurants during Transition 1993.
Since the Reorganization, Arby's has expanded its
management team to support an accelerated program of
opening company-owned stores, including professionals in
charge of site analysis and selection, lease negotiation,
and personnel training. Arby's currently expects to open
approximately 50 new company-owned restaurants in 1995.
From time to time, Arby's will consider increasing the
number of company-owned restaurants by acquiring
restaurants from existing franchisees. For example, in
the first quarter of 1994, Arby's sold 20 company-owned
restaurants to a current franchisee and purchased from
the same franchisee an aggregate of 33 of its franchised
restaurants located in Florida, thereby increasing Arby's
overall number of company-owned restaurants by 13. The
acquisition of the Florida restaurants is part of a plan
to increase Arby's market presence in Florida, Arby's
headquarter state, which, in turn, will allow Arby's to
test new products and concepts more effectively. In
addition, during the second half of 1994, Arby's
purchased an additional 11 restaurants from franchisees.
In February 1995, Arby's acquired 35 currently franchised
restaurants in the Los Angeles area and signed a letter
of intent to acquire 16 franchised restaurants in the
Toronto, Canada area.
* Remodeling Program: At the time of the Reorganization,
the average company-owned restaurant had not been
renovated or remodeled in approximately 11 years. Based
on the historical experience of Arby's franchisees,
restaurants generally record increases in sales in the
year after a remodeling. In 1994, Arby's remodeled 45 of
its company-owned restaurants. Arby's expects to
complete the renovation or remodeling of its
company-owned restaurants over the next three years.
Certain of the restaurants to be renovated or remodeled
were acquired by Arby's from franchisees.
* Expanding the Franchise Network: Arby's management
believes that more effective marketing and advertising,
a stronger commitment by Arby's to building the system
through its accelerated store opening program, and the
improvement in the quality of the facilities of the
company-owned restaurants will increase the value of, and
demand for, Arby's franchises. As of December 31, 1994,
Arby's had received prepaid commitments for the opening
of up to 395 new domestic franchised restaurants over the
next five years, including 175 new domestic franchised
restaurants in 1995, as compared to 125 that were opened
in 1994. Arby's also expects that 50 new franchised
restaurants outside of the United States will open in
1995. Arby's management believes that its efforts to
improve the value of the Arby's franchise should result
to a significantly higher number of openings during this
time period.
* Increasing Operating Efficiency: Arby's management
believes that significant additional operating efficiency
can be achieved by (i) rigorously evaluating the
performance of company-owned restaurants and closing
those that do not meet selected profitability criteria,
(ii) requiring more uniformity across its restaurant
system to increase purchasing efficiencies and improve
ease and speed of service, and (iii) installing
point-of-sale systems, certain new kitchen equipment and
other labor-saving processes in company-owned
restaurants. Arby's closed four company-owned restaurants
during Fiscal 1994. In addition, management anticipates
that it will spend approximately $5 million in 1995 on
new equipment, and will lease new point-of-sale
terminals, for company-owned restaurants.
* More Focused Retail-Oriented Marketing: Arby's management
believes that focused advertising and marketing, combined
with renewed emphasis on customer service, will increase
consumer awareness of Arby's, improve customer
satisfaction and stimulate repeat visits, capitalizing on
consumers' favorable perception of the quality of Arby's
food. Arby's management believes that Arby's historically
has over-emphasized the use of coupons and other
promotional efforts, rather than marketing programs
that reinforce consumer recognition of Arby's. In October
1994, Arby's launched a new "Go West", "its better out
here" advertising campaign to reemphasize its quality
roasted products with a wholesome Western image.
* International Expansion: Although Arby's is initially
focusing its resources on expanding the domestic
restaurant system, Arby's management believes that the
international network represents a significant long term
growth opportunity. During 1994, Arby's repurchased the
territorial rights in 4 countries, including the United
Kingdom. Management expects to increase the number of
restaurants under existing and new agreements with
international franchisees in 16 or more countries. With
the potential acquisition of 16 restaurants in Toronto,
Canada referred to above, Arby's has targeted such market
for future expansion of company-owned restaurants.
* Dual Branding: Arby's continues to broaden the testing
of its dual branding strategy, which allows a single
restaurant to offer the consumer two distinct, but
complementary, brands at the same restaurant. Lunchtime
customers account for the majority of sales at Arby's
restaurants, while its dual branding partners attract
higher dinner traffic. Collaborating to offer a broader
menu is intended to increase sales per square foot of
facility space, a key measure of return on investment in
retail operations. Since late 1993, 14 Arby's
restaurants in four different regions have offered the
menu items of another restaurant chain. Results to date
appear to validate this concept and Arby's continues to
seek other partners.
INDUSTRY
The U.S. restaurant industry is highly fragmented, with
approximately 378,000 units nationwide. Industry surveys indicate
that the 15 largest chains accounted for approximately 17% of all
units and 29% of all industry sales in 1994. According to data
compiled by the National Restaurant Association, total domestic
restaurant industry sales were approximately $176 billion in 1994,
of which approximately $93 billion were in the quick service
restaurant ("QSR") or fast food segment. In recent years the
industry has benefitted as spending in restaurants has consistently
increased as a percentage of total food-related spending. According
to an industry survey, the QSR segment (of which Arby's is a part)
has been the fastest growing segment of the restaurant industry
over the past five years, with a compounded annual sales growth
rate from 1989 through 1993 of 4.5%.
ARBY'S RESTAURANTS
The first Arby's restaurant opened in Youngstown, Ohio in
1964. As of December 31, 1994, Arby's restaurants were being
operated in 49 states, Puerto Rico, the U.S. Virgin Islands and 17
foreign countries. At December 31, 1994, the five leading states by
number of operating units were: Ohio, with 207 restaurants; Texas,
with 170 restaurants; California, with 163 restaurants; Michigan,
with 147 restaurants; and Georgia, with 131 restaurants. The
leading country internationally is Canada with 114 restaurants.
Arby's restaurants in the United States and Canada typically
range in size from 700 square feet to 4,000 square feet.
Restaurants in other countries typically are larger than U.S. and
Canadian restaurants. Restaurants typically have a manager,
assistant manager and as many as 20 full and part-time employees.
Staffing levels, which vary during the day, tend to be heaviest
during the lunch hours. In March 1995, Arby's opened a new concept
restaurant called "Roast Town" in Plantation, Florida, to test an
upscale facility of approximately 4,000 square feet with an
expanded product line. This concept is intended to reposition
Arby's to offer the food variety and quality of casual dining,
while providing fast food service and convenience.
The following table sets forth the number of company-owned and
franchised Arby's restaurants at December 31, 1992, 1993 and 1994.
DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
Company-owned restaurants......... 268 259 288
Franchised restaurants............ 2,335 2,423 2,500
------ ------- ------
Total restaurants............... 2,603 2,682 2,788
Arby's opened nine company-owned stores in 1994, as compared
to five company-owned restaurants in Transition 1993. Since the
Reorganization, Arby's has expanded its management team to support
an accelerated program of opening company-owned stores, including
professionals in charge of site analysis and selection, lease
negotiation and personnel training. Arby's currently expects to
open approximately 50 new company-owned restaurants in 1995.
Arby's has begun a program to upgrade the quality of the
facilities of its company-owned restaurants, including restaurants
recently acquired from franchisees, as described above. At the time
of the Reorganization, the average Arby's company-owned restaurant
had not been renovated or remodeled in approximately 11 years. The
average cost of renovating a restaurant is approximately $105,000,
which includes the cost of new signage, menu boards, seating areas,
kitchens and point-of-sale systems. In addition, Arby's management
intends to add drive-through windows in several of its
company-owned restaurants. At December 31, 1994, 218 company-owned
restaurants had drive-through facilities.
FRANCHISE NETWORK
At December 31, 1994, there were 543 Arby's franchisees
operating 2,500 separate locations. The initial term of the typical
franchise agreement is 20 years with a renewal option by the
franchisee, subject to certain conditions. As of December 31,
1994, Arby's did not offer any financing arrangements to its
franchisees.
The Arby's franchise was ranked by a national magazine survey
published in January 1995 as one of the top 15 franchises among 500
franchised businesses, based on a variety of objective criteria of
importance to franchisees. As of December 31, 1994, Arby's had
received prepaid commitments for the opening of up to 395 new
domestic franchised restaurants over the next five years, including
175 new domestic franchised restaurants in 1995. Arby's also
expects that 50 new franchised restaurants outside of the United
States will open in 1995. After the repurchase of territorial
rights referred to above, Arby's has remaining territorial agreements
with international franchisees in 10 countries at December 31, 1994.
Under the terms of these territorial agreements, many of the international
franchisees have the exclusive right to open Arby's restaurants in specific
regions or countries, and, in some cases, the right to sub-franchise Arby's
restaurants. Arby's management expects that future international franchise
agreements will more narrowly limit the geographic exclusivity of the
franchisees and prohibit sub-franchise arrangements.
Arby's offers franchises for the development of both single
and multiple "traditional" restaurant locations. All franchisees
are required to execute standard franchise agreements. Arby's
standard U.S. franchise agreement currently provides for, among
other things, an initial $37,500 franchise fee for the first
franchised unit and $25,000 for each subsequent unit and a monthly
royalty payment based on 4.0% of restaurant sales for the term of
the franchise agreement. As a result of lower royalty rates still
in effect under earlier agreements, the average royalty rate paid
by franchisees at December 31, 1994 was 2.9%. Franchisees typically
pay a $10,000 commitment fee, credited against the franchise fee
referred to above, during the development process for a new
traditional restaurant.
In December 1994, Arby's began granting development agreements
which give developers rights to develop Arby's limited service
restaurants in conjunction with either an existing operating food
service or other business or non-traditional locations for a
specified term and which requires a $1,000 development deposit per
store which is then applied toward royalties which are to be paid
at a rate of 10% of sales (which includes the AFA contribution
referred to below). The developer/franchisee is required to sign
an individual franchise agreement for a term of five years. As of
December 31, 1994, there were only two franchised limited service
restaurants in operation.
Franchised restaurants are operated in accordance with uniform
operating standards and specifications relating to the selection,
quality and preparation of menu items, signage, decor, equipment,
uniforms, suppliers, maintenance and cleanliness of premises and
customer service. Arby's continuously monitors franchisee
operations and inspects restaurants periodically to ensure that
company practices and procedures are being followed.
ADVERTISING AND MARKETING
Arby's advertises primarily through regional television, radio
and newspapers. Payment for advertising time and space is made
both by the local franchisee, Arby's or both on a shared basis.
Franchisees and Arby's contribute 0.7% of gross sales to the Arby's
Franchise Association ("AFA"), which produces advertising and
promotion materials for the system. Each franchisee is also
required to spend a reasonable amount, but not less than 3% of its
monthly gross sales, for local advertising. This amount is divided
between the franchisee's individual local market advertising
expense and the expenses of a cooperative area advertising program
with other franchisees who are operating Arby's restaurants in that
area. Contributions to the cooperative area advertising program are
determined by the participants in the program and are generally in
the range of 3% to 5% of monthly gross sales. In Fiscal 1993,
Transition 1993 and Fiscal 1994, Arby's expenditures for
advertising and marketing in support of company-owned stores were
$16.2 million, $11.1 million and $17.2 million, respectively.
QUALITY ASSURANCE
Arby's has developed a quality assurance program designed to
maintain standards and uniformity of the menu selections at each of
its franchised restaurants. A full-time quality assurance employee
is assigned to each of the four independent processing facilities
that process roast beef for Arby's domestic restaurants. The
quality assurance employee inspects the roast beef for quality and
uniformity. In addition, a laboratory at Arby's headquarters tests
samples of roast beef periodically from each franchisee. Regional
franchise managers make annual inspections of each franchised unit,
as well as unannounced inspections, to ensure that Arby's policies,
practices and procedures are being followed.
CUSTOMER SERVICE
Customer service and employee training are top priorities of
Arby's in order to ensure repeat business and consumer loyalty.
Arby's attempts to instill this philosophy in its franchisees
through the initial franchisee training program and refresher
courses, interactive videos and company workbooks and issues a
variety of instructional and motivational programs. Regional
Arby's personnel provide assistance to franchisees in improving
customer service and employee training, and Arby's consumer affairs
department maintains a toll free consumer hotline number to
respond to customer questions and complaints.
PROVISIONS AND SUPPLIES
Arby's roast beef is provided by four independent meat
processors, supplying the following approximate annual percentages
of Arby's systemwide roast beef requirements: Emmbers Foods (50%),
Cargill Processed Meats (20%), International Beef Processors (17%)
and Custom Food Products (13%). Franchise operators are required
to obtain roast beef from one of the four approved suppliers.
Arby's, through the non-profit purchasing cooperative ARCOP, Inc.
("ARCOP"), which negotiates contracts with approved suppliers on
behalf of Arby's and its franchisees, has entered into "cost-plus"
contracts and purchases with these suppliers. These contracts have
a term of eighteen months and Arby's currently expects to renew
them in March 1996. Arby's believes that satisfactory arrangements
could be made to replace any of its current roast beef suppliers,
if necessary, on a timely basis.
Franchisees may obtain other products, including food,
beverage, ingredients, paper goods, equipment and signs, from any
source that meets Arby's specifications and approval. Food,
proprietary paper and operating supplies are also made available,
through national contracts employing volume purchasing, to Arby's
franchisees through ARCOP.
TEXTILES (GRANITEVILLE)
Graniteville manufactures, dyes, and finishes cotton,
synthetic and blended (cotton and polyester) apparel fabrics.
Graniteville produces fabrics for utility wear including uniforms
and other occupational apparel, piece-dyed fabrics for sportswear,
casual wear and outerwear, indigo-dyed fabrics for jeans,
sportswear and outerwear and specialty fabrics for recreational,
industrial and military end-uses. Through its wholly-owned
subsidiary C.H. Patrick & Co., Inc. ("C.H. Patrick"), Graniteville
also produces and markets dyes and specialty chemicals primarily to
the textile industry. Triarc believes that Graniteville is a
leading domestic manufacturer of fabrics for utility wear,
piece-dyed fabrics for sportswear, casual wear and outerwear and
indigo-dyed fabrics used in the production of both basic and
high-end fashion apparel.
BUSINESS STRATEGY
Graniteville believes that it has a reputation in the textile
industry as both a consistent producer of quality products and an
innovator of new products to meet the changing needs of its
customers. The management of Graniteville intends to continue to
implement the following business strategy, focusing its resources
on products and markets where it believes it can obtain a
significant market share. The key elements of this strategy
include:
* Focus on Innovative, Value-Added Products: Graniteville's
products are high value-added fabrics that require
sophisticated manufacturing, dyeing and finishing
techniques. Graniteville maintains its leadership
position in these products by creating new processes that
result in special colors or textures in the case of
fashion-oriented fabrics or provide improved performance
characteristics in the case of utility wear.
* Maintain Profitability in a Cyclical Industry:
Graniteville consistently purchases unfinished fabrics
(known as "greige goods") from third parties for its
finishing plants to supplement internally manufactured
fabrics. This strategy generally allows Graniteville to
reduce purchases of greige goods during periods of
reduced demand while continuously operating its
manufacturing facilities. As a result of operating its
weaving facilities at consistently high utilization
rates, cyclical fluctuations in demand have less impact
on Graniteville's operating profits than on certain of
its competitors. In addition, Graniteville attempts to
minimize its working capital investment through inventory
controls while still allowing efficient scheduling of its
manufacturing facilities and achieving on-time deliveries
to customers.
* Maintain Quick Response to Customers: Graniteville
believes that a key element of its success has been its
ability quickly to develop and produce innovative,
finished fabrics for customers, giving it a competitive
advantage over certain other fabric producers. Quick
response time is particularly valued by customers engaged
in fashion-sensitive segments of the apparel industry.
Graniteville's modern, flexible production facilities
enable it to provide this high value-added service in a
cost-effective manner.
* Invest Capital in Modern Vertically-Integrated
Operations: Graniteville believes that vertical
integration is an essential element of its ability to
produce customized fabrics in a quick and cost-effective
manner. Graniteville has spent $155 million over the
eight year period ending December 31, 1994 to modernize
its facilities. Graniteville's management will continue
its facilities and equipment modernization program to
lower production costs while simultaneously maintaining
quality standards.
* Expand Dyes and Specialty Chemicals Business:
Graniteville's dyes and specialty chemicals subsidiary,
C.H. Patrick, has experienced 6.4% compound annual growth
in revenues, and 15.4% compound annual growth in net
income, over the last five years. Graniteville's
management believes that C.H. Patrick is viewed as an
innovator in its field and intends to continue to
emphasize the development of C.H. Patrick's products and
markets.
PRODUCTS AND MARKETS
Graniteville's principal products are cotton and cotton
blended fabrics, including denim. Fabric styles are distinguished
by weave, weight and finishing. The production of fabric is
organized into four product lines based on fabric type and end-use
- - - -- utility wear, piece-dyed fabrics for sportswear, casual wear and
outerwear, indigo dyed fabrics for jeans, sportswear and outerwear
and specialty products. In addition, Graniteville manufactures dyes
and specialty chemicals through C.H. Patrick. Graniteville focuses
its resources on products and markets where it believes it can
obtain a significant market share. In each of its market segments,
Graniteville focuses on developing relationships with those
customers with the greatest need for high value added products.
The contribution of each product line and service to
Graniteville's total revenues during Fiscal 1993, Transition 1993
and Fiscal 1994 is set forth below:
PERCENT OF REVENUES
-------------------------------------------
FISCAL 1993 TRANSITION 1993 FISCAL 1994
-------------------------------------------
Utility wear....................... 36% 39% 43%
Piece-dyed fabrics for sportswear,
casual wear and outerwear........ 26 23 21
Indigo-dyed fabrics for jeans,
sportswear and outerwear......... 21 22 19
Specialty products................. 8 7 8
Dyes and specialty chemicals....... 8 8 8
Other.............................. 1 1 1
---- ---- ----
Total..................... 100% 100% 100%
Utility Wear: Graniteville believes it is a leading domestic
manufacturer of fabrics for sale to apparel manufacturers that
supply utility wear to industrial laundries for rental to their
customers, as well as manufacturers that sell utility wear on the
retail market. In the utility wear market, fabrics are generally
piece-dyed, which means that the fabric is first woven and then
dyed. Utility wear customers require a durable fabric which
complies with strict standards for fitness of use and continuity
and retention of color. Graniteville works closely with its
customers in order to develop fabrics with enhanced performance
characteristics. Graniteville's utility wear customers include Red
Kap, Williamson-Dickie, Carhartt, Inc., Cintas, American Uniform,
Washable Inc., Walls Industries, Unifirst, Perfect Industrial
Uniform and Reed Manufacturing.
Piece-dyed Fabrics for Sportswear, Casual Wear and Outerwear:
Graniteville believes it is a leading domestic manufacturer of
woven cotton piece-dyed fabrics that are sold primarily to domestic
manufacturers and retailers of men's, women's and children's
sportswear, casual wear and outerwear. Fabrics are produced for
customers in a wide variety of styles, colors, textures and
weights, according to individual customer specifications.
Graniteville works directly with its customers to develop
innovative fabric styles and finishes. Graniteville's piece-dyed
sportswear fabric customers include Liz Claiborne, Kellwood
Company, Levi Strauss (Dockers), Henry I. Siegel Company, Inc.
(H.I.S.), Polo Ralph Lauren, Farah, Stuffed Shirt, I.C. Isaac's
Co., Aalf's Mfg. Co. and Disenos De Alta Moda.
Indigo-Dyed (Denim) Fabrics for Jeans, Sportswear and
Outerwear: Graniteville believes it is a leading domestic
manufacturer of indigo-dyed fabrics (primarily denim) in a wide
range of styles for use in the production of high-end men's,
women's and children's fashion apparel. Graniteville also produces
other indigo-dyed fabrics for jeans, sportswear and outerwear. In
the manufacture of indigo-dyed fabrics, the yarn is dyed before it
is woven. This process results in the distinctive appearance of
indigo-dyed apparel fabrics, noted by variations in color.
Graniteville believes that it is a leader in the development of new
and innovative colors and styles of weaves and finishes for
indigo-dyed fabrics, and Graniteville works directly with its
customers to produce indigo-dyed fabrics that meet the changing
styles of the contemporary fashion market. Graniteville's
indigo-dyed fabrics customers include Guess, Wrangler, Stuffed
Shirt, Flynn Enterprises, Disenos De Alta Moda, Wilkins Industries,
Sun Apparel, Kellwood Company, Carhartt, Inc., Paris Blues and Levi
Strauss.
Specialty Products: Graniteville produces a variety of fabrics
for recreational, industrial and military end-uses, including
coated fabrics for awnings, tents, boat covers and camper fabrics.
The specialty products unit also dyes customer-owned finished
garments, enabling customers to order color selections, while
minimizing inventory risk and meeting short delivery schedules.
Graniteville's specialty products customers include The Astrup
Company, Teledyne/Brown Engineering, Outdoor Venture Corporation,
Wichita Ponca, Kent Sporting Goods Co., Inc., Camel Mfg., Fun Tees,
Georgia Tent and Awning, Dakota Tribal Industries and Seaboard
Textile Inc.
C.H. PATRICK'S PRODUCTS AND MARKETS
C.H. Patrick develops, manufactures and markets dyes and
specialty chemicals, primarily to the textile industry. During both
the twelve month period ended February 28, 1993 and the eight month
period from March 1, 1993 through October 31, 1993, approximately
57% of C.H. Patrick's sales were to non-affiliated manufacturers,
and 43% were to Graniteville. During Fiscal 1994, approximately
59% of C.H. Patrick's sales were to non-affiliated manufacturers
and 41% were to Graniteville. C.H. Patrick's sales to third
parties have increased at a compounded annual rate of 8.4% over the
last three calendar years. Graniteville's management believes that
C.H. Patrick has earned a reputation for producing high quality,
innovative dyes and specialty chemicals.
C.H. Patrick processes dye presscakes and other basic
materials to produce and sell indigo, vat, sulfur and disperse
liquid dyes, as well as disperse, direct and aluminum powder dyes.
The majority of C.H. Patrick's dye products are used in the
continuous dyeing of cotton and polyester/cotton blends. C.H.
Patrick also manufactures various textile softeners, surfactants,
dyeing auxiliaries and permanent press resins, as well as several
acrylic polymers used in textile finishing as soil release agents.
Most of C.H. Patrick's products offer higher margins than other
product lines of Graniteville.
In August 1994, C.H. Patrick acquired a minority interest in
Taysung Enterprise Company, Ltd., a Taiwanese manufacturer of dyes
and chemicals. C.H. Patrick also obtained exclusive distribution
rights in North, Central and South America for Taysung products for
a period of five years.
MARKETING AND SALES
Graniteville's fabrics are marketed and sold by its woven
apparel marketing group which moved from its headquarters in New
York City to Graniteville's headquarters in South Carolina during
1994. The group also maintains regional sales offices in New York,
New York; Boston, Massachusetts; Greensboro, North Carolina;
Greenville, South Carolina; Dallas, Texas; and San Francisco,
California. Independent sales agents in Los Angeles, California and
Canada also market Graniteville's woven apparel products.
Graniteville's specialty products are marketed and sold by the
specialty products division. C.H. Patrick markets and sells its
dyes and chemicals through its own sales and marketing department.
MANUFACTURING
Graniteville is a vertically integrated manufacturer,
with facilities capable of converting raw fiber into finished fabrics.
Generally, raw fibers are purchased and spun into yarn, and yarns
are either dyed and then woven into fabrics (as in the case of
piece-dyed fabrics) or woven into fabrics, which are then dyed
according to customer specifications (as in the case of piece-dyed
fabrics). Graniteville currently operates four weaving plants, two
indigo-dyeing facilities, one indigo-finishing facility, one
piece-dyeing facility, one coating facility and one garment-dyeing
facility, all of which are located within a fifteen mile radius of
Graniteville's headquarters.
Graniteville's piece-dyed dyeing and finishing facility
utilizes a wide range of technologies, highlighted by the use of a
sophisticated computer-based monitoring and control system. This
system, which Graniteville believes to be unique in the industry,
allows Graniteville to continuously monitor and control each phase
of the dyeing and finishing process in order to improve
productivity, efficiency, consistency and quality.
Graniteville invested approximately $155 million over the
eight year period ending December 31, 1994, including approximately
$23 million in Fiscal 1994, to modernize its manufacturing
operations. Graniteville's yarn spinning and weaving operations
were updated by the addition of state-of-the-art
computer-controlled spinning machinery and high speed air-jet and
rapier looms, capable of significantly increasing productivity
while allowing Graniteville to maintain its high quality
manufacturing standards. In 1995 Graniteville expects to spend
approximately $14 million in order to maintain, expand and upgrade
its facilities.
RAW MATERIALS
The principal raw materials used by Graniteville in the
manufacture of its textile products are cotton and man-made fibers
(primarily polyester). Graniteville seeks to enter into
partnership-type arrangements with its suppliers. It purchases
cotton from a number of domestic suppliers at the time it receives
orders from customers and generally maintains a commitment position
resulting in a four to six month supply of cotton. U.S. cotton
prices escalated markedly during 1994. World cotton crop
production declined in the 1993 and 1994 crop reporting cycles
(periods ending July 31 of each year) as a consequence of the
effects of disease, pest infestation and weather conditions in
certain foreign countries. This decline in world supply, coupled
with continued strong demand for cotton, resulted in rising prices
beginning in late 1993, through all of 1994 and continuing into
1995. The average price paid for cotton by the textile segment
escalated 14% in 1994 over the average price paid in 1993. In
light of the foregoing, at December 31, 1994, Graniteville had a
commitment position sufficient to cover forward sales. Polyester
is generally purchased from one principal supplier, although there
are numerous alternative domestic sources for polyester. Polyester
is purchased pursuant to periodic negotiations whereby Graniteville
seeks to assure itself of a consistent, cost-effective supply. In
general, there is an adequate supply of such raw materials to
satisfy the needs of the industry. In addition, Graniteville
purchases greige goods from other manufacturers to supplement its
internal production. These fabrics have normally been available in
adequate supplies from a number of domestic sources. Graniteville
also purchases bulk dyes and specialty chemicals manufactured by
various domestic producers, including C.H. Patrick. While
Graniteville believes that there is a competitive advantage to
purchasing these dyes and specialty chemicals from C.H. Patrick,
they are presently available in adequate supply in the open market.
BACKLOG
Graniteville's backlog of unfulfilled customer orders was
approximately $276.7 million at December 31, 1994, as compared to
approximately $191.2 million at December 31, 1993. It is expected
that substantially all of the orders outstanding at December 31,
1994 will be filled during the next 12 months. Order backlogs are
usual to the business in which Graniteville operates.
LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE AND PUBLIC GAS)
National Propane and Public Gas distribute liquefied petroleum
gas ("LP gas") for residential, agricultural, commercial and
industrial uses, including space heating, water heating, cooking
and engine fuel. The LP Gas Companies also sell related appliances
and equipment. Triarc believes that the LP Gas Companies are
(collectively) the fifth largest distributors of LP gas in terms of
unit volume in the United States. As of December 31, 1994, the LP
Gas Companies had 174 service centers supplying markets in 22
states in the Northeast, Southeast, Midwest and Southwest,
primarily in suburban and rural areas. Triarc has agreed with
National Propane's lenders to cause the merger of Public Gas and
National Propane during the second quarter of 1995. It is expected
that Public Gas would become a wholly-owned subsidiary of SEPSCO
prior to such merger. In connection therewith, Triarc presently
intends to cause SEPSCO to redeem its outstanding 11-7/8% Senior
Subordinated Debentures due February 1, 1998 (the "SEPSCO 11-7/8%
Debentures") during 1995. See Note 13 to the Consolidated Financial
Statements.
BUSINESS STRATEGY
Prior to the Reorganization, the LP Gas Companies did not have
a chief executive officer solely responsible for their business,
and were operating in their numerous regions without coordinated
pricing or distribution strategies. Purchasing and other functions
were decentralized, resulting in cost duplications and purchasing
inefficiencies.
In April 1993 Ronald D. Paliughi joined the LP Gas Companies
as National Propane's President and Chief Executive Officer. Mr.
Paliughi has since assembled an experienced management team
committed to implementing the following business strategy intended
to increase revenues and improve operating margins:
* Streamlining of Operations: Since the Reorganization,
the LP Gas Companies' work force has been reduced by
approximately 10% and further reductions are planned
during calendar 1995. In addition, better utilization of
the vehicle fleet resulted in a 10% reduction in the size
of such fleet in 1994. As a result, operating expenses
decreased significantly in calendar 1994.
* Improved Pricing Management: To better monitor prices, in
1994 the LP Gas Companies installed a centralized pricing
and billing system in all of their offices which enables
management to set and monitor prices from headquarters.
This system permits the monitoring of supply, demand and
competitive pricing information on a system-wide basis.
* Improved Marketing: The LP Gas Companies intend to
differentiate themselves from many smaller, local
competitors by establishing an image as a large, reliable
fuel supplier on which customers can depend. All of the
businesses operate under the National Propane brand and
operating management is implementing coordinated
advertising and marketing campaigns.
* Efficient Purchasing: Due to capital constraints and the
lack of centralized purchasing, the LP Gas Companies
historically have not taken advantage of existing storage
capacity. When conditions are appropriate, management
intends to purchase and store LP gas supplies during the
summer months when market pricing is distressed, and sell
these supplies during times of higher gas prices. In
addition, each LP Gas Company historically purchased LP
Gas independently. The LP Gas Companies' management
centralized purchasing and hired an experienced senior
executive to manage all LP gas purchasing activities.
* Acquisitions: To complement the strategies outlined
above, the LP Gas Companies intend to increase revenues
by acquiring smaller, less efficient competitors and
incorporating them into the LP Gas Companies' existing
network. Accordingly, in January 1994, National Propane
acquired the assets of Ozark Gas Company and affiliates,
which sold LP gas and related merchandise in West Plains,
Thayer, and Willow Springs, Missouri. The purchase price
for these assets was approximately $3.8 million, of which
approximately $2.7 million was financed by a promissory
note of National Propane. In September 1994, National
Propane acquired substantially all of the assets of
Garrett Propane Gas Service, Inc. and affiliates, which
sold LP gas in Springfield, Bolivar and Pleasant Hope,
Missouri. The aggregate purchase price for these assets
and for certain non-compete agreements by the sellers
was approximately $3.3 million, of which $950,000 was in
the form of a promissory note of National Propane.
The LP Gas Companies also acquired the assets of four
smaller retail propane marketers for an aggregate
purchase price of $1.6 million.
INDUSTRY
LP gas is a clean burning fuel produced by extraction from
natural gas or by separation from crude oil and crude oil products.
In recent years, industry sales of LP gas have not grown, primarily
due to the economic downturn and energy conservation trends, which
have negatively impacted the demand for energy by both residential
and commercial customers. However, LP gas, relative to other forms
of energy, is gaining increased recognition as an environmentally
superior, safe, convenient, efficient and easy to use energy source
in many applications.
MARKETS; CUSTOMERS
LP gas is sold primarily in suburban and rural areas which do
not have access to natural gas. In the residential market, LP gas
is used in LP gas appliances and heaters in a manner similar to
natural gas, primarily for home heating, water heating and cooking
(indoor and outdoor). In the agricultural market, LP gas is used
primarily for motor fuel, chicken brooders and crop drying. In the
commercial market, LP gas is used primarily by restaurants, fast
foods franchises, shopping centers and other retail or service
establishments. In the industrial market, LP gas is used primarily
as a fuel for fork lift trucks and delivery trucks, heat-treating
and other industrial applications.
During Fiscal 1993, Transition 1993 and Fiscal 1994,
approximately 68%, 53% and 51%, respectively, of sales by the LP
Gas Companies were to residential customers and approximately 32%,
47% and 49%, respectively, of such sales were to commercial,
agricultural and industrial customers. In Fiscal 1993, Transition
1993 and Fiscal 1994, no single customer accounted for more than
10% of the LP Gas Companies' combined operating revenues.
PRODUCTS AND SERVICES
LP gas is sold and distributed in bulk or in portable
cylinders, through company-owned retail outlets and distributors.
Most of the LP Gas Companies' volume, in terms of dollars and
gallons, is distributed in bulk, although almost half of their
customers are served using interchangeable portable cylinders. For
customers served using cylinders, normally two LP gas cylinders of
100 pound capacity (23.5 gallons each) are installed on the
customer's premises along with necessary regulating and protective
equipment. Regular bulk deliveries of LP gas are made to customers
whose consumption is sufficiently high to warrant this type of
service. For such customers, tanks (usually having a capacity of 50
to 1,000 gallons) are installed at the customers' premises and the
LP gas is stored in the tanks under pressure and piped into the
premises.
The LP Gas Companies' sales by cylinder and bulk service for
the last three fiscal years and Transition 1993 are as follows:
CYLINDER TOTAL BULK TOTAL COMBINED TOTAL
-------------- ---------- ---------------
(GALLONS IN THOUSANDS)
Fiscal 1992...........13,634 132,074 145,708
Fiscal 1993...........13,963 140,876 154,839
Transition 1993....... 9,687 80,493 90,180
Fiscal 1994...........10,520 141,815 152,335
Year-to-year demand for LP gas is affected by the relative
severity of the winter and other climatic conditions. For example,
while the severe flooding in the mid-west United States during the
summer of 1993 significantly reduced the demand for LP gas for
crop-drying applications in these agricultural regions, the ice, snow
and the frigid temperatures that were experienced by the
United States in January and February of 1994 significantly
increased the overall demand for LP gas. Similarly, the warm
weather during the winter of 1994-1995, one of the warmest winters
of the century, significantly decreased the overall demand for LP
gas.
The LP Gas Companies also provide specialized equipment for
the use of LP gas. In the residential market, the LP Gas Companies
sell household appliances such as cooking ranges, water heaters,
space heaters, central furnaces and clothes dryers. In the
industrial market, the LP Gas Companies sell or lease specialized
equipment for the use of LP gas as fork lift truck fuel, in metal
cutting and atmospheric furnaces and for portable heating for
construction. In the agricultural market, specialized equipment is
leased or sold for the use of LP gas as engine fuel and for chicken
brooding and crop drying.
SUPPLY
The profitability of the LP Gas Companies is dependent upon
the price and availability of LP gas as well as seasonal and
climatic factors. Contracts for LP gas are typically made on a
year-to-year basis, but the price of the LP gas to be delivered
depends upon market conditions at the time of delivery. By
utilizing their ability to store LP gas, management believes that
the LP Gas Companies should be able to lower their annual cost of
goods sold by maximizing supplies purchased during the low season
and minimizing purchases during times of seasonally high prices.
The LP Gas Companies are not party to any contracts to purchase LP
gas containing "take or pay" provisions. Certain contracts do,
however, specify certain minimum and maximum amounts of LP gas to
be purchased. The LP Gas Companies purchase LP gas from numerous
suppliers. The LP Gas Companies have experienced conditions of
limited supply availability from time to time but have generally
been able to secure sufficient LP gas to meet their customers'
needs. The primary sources of supply of LP gas are major oil
companies and independent producers of both gas liquids and oil.
Worldwide availability of both gas liquids and oil affects the
supply of LP gas in domestic markets, and from time to time the
ability to obtain LP gas at attractive prices may be limited as a
result of market conditions, thus affecting price levels to all
distributors of LP gas.
GENERAL
TRADEMARKS
Royal Crown considers its concentrate formulae, which are not
the subject of any patents, to be trade secrets. In addition, RC
COLA, DIET RC, ROYAL CROWN, DIET RITE, NEHI, UPPER 10, KICK and C&C
are registered as trademarks in the United States, Canada and a
number of other countries. Royal Crown believes that such
trademarks are material to its business.
Arby's is the sole owner of the ARBY'S trademark and considers
it, and certain other trademarks owned by Arby's, to be material to
its business. Pursuant to its standard franchise agreement, Arby's
grants each of its franchisees the right to use Arby's trademarks,
service marks and trade names in the manner specified therein.
Graniteville is the sole owner of the GRANITEVILLE trademark
and considers it to be material to its business.
The material trademarks of Royal Crown, Arby's and
Graniteville are registered in the U.S. Patent and Trademark Office
and various foreign jurisdictions. Royal Crown's, Arby's and
Graniteville's rights to such trademarks in the United States will
last indefinitely as long as they continue to use and police the
trademarks and renew filings with the applicable governmental
offices. No challenges to Royal Crown's, Arby's and Graniteville's
right to use the RC COLA, DIET RC, ROYAL CROWN, DIET RITE, NEHI,
UPPER 10, KICK, C&C, ARBY's or GRANITEVILLE trademarks in the
United States have arisen.
In November 1994, National Propane filed an application with
the U.S. Patent and Trademark Office for the trademarks NATIONAL
PROPANE and GREEN FUELS. At March 31, 1995, such application was
still pending.
COMPETITION
Triarc's four businesses operate in highly competitive
industries. Many of the major competitors in these industries have
substantially greater financial, marketing, personnel and other
resources than does Triarc.
Royal Crown's soft drink products compete generally with all
liquid refreshments and in particular with numerous
nationally-known soft drinks such as Coca-Cola and Pepsi-Cola.
Royal Crown competes with other beverage companies not only for
consumer acceptance but also for shelf space in retail outlets and
for marketing focus by Royal Crown's distributors, most of which
also distribute other beverage brands. The principal methods of
competition in the soft drink industry include product quality and
taste, brand advertising, trade and consumer promotions, pricing,
packaging and the development of new products.
Arby's faces direct and indirect competition from numerous
well established competitors, including national and regional fast
food chains. In addition, Arby's competes with locally owned
restaurants, drive-ins, diners and other establishments. Key
competitive factors in the QSR industry are price, quality of
products, quality and speed of service, advertising, name
identification, restaurant location and attractiveness of
facilities.
In recent years, both the soft drink and restaurant businesses
have experienced increased price competition resulting in
significant price discounting throughout these industries. Price
competition has been especially intense with respect to sales of
soft drink products in food stores, with local bottlers granting
significant discounts and allowances off wholesale prices in order
to maintain or increase market share in the food store segment.
When instituting its own discount promotions, Arby's has
experienced increases in sales but, with respect to company-owned
restaurant operations, lower gross margins. While the net impact of
price discounting in the soft drink and QSR industries cannot
be quantified, such practices could have an adverse impact on
Triarc.
Graniteville has many domestic competitors, including large
integrated textile companies and smaller concerns. No single
manufacturer dominates the industry or any particular line in which
Graniteville's participates. The principal elements of competition
include quality, price and service.
Triarc's textile business has experienced significant
competition from manufacturers located outside of the United States
that generally have access to less expensive labor and, in certain
cases, raw materials. Graniteville has attempted to counteract the
negative impact of competition from imports by focusing on product
lines (for example, workwear) that have experienced less
vulnerability to import penetration, and by emphasizing
Graniteville's location in the United States, its efficient
production techniques and its high level of customer service which
allow it to provide more timely deliveries and to respond more
quickly to changes in its customers' fabric needs. Exchange rate
fluctuations can also affect the level of demand for Graniteville's
products by changing the relative price of competing fabrics from
overseas producers. The North American Free Trade Agreement, which
became effective on January 1, 1994, immediately eliminated
quantitative restrictions on qualified imports of textiles between
the United States, Mexico and Canada and will gradually eliminate
tariffs on such imports over a ten year period. In addition, a
tentative agreement reached on December 15, 1993 under the General
Agreement on Tariffs and Trade ("GATT") would eliminate
quantitative restrictions on imports of textiles and apparel
between GATT member countries after a ten year transition period.
The new GATT agreement was signed and submitted to the United
States Congress for approval on April 15, 1994, with a tentative
effective date of July 1, 1995. Any significant reduction in
import protection for domestic textile manufacturers could
adversely affect Graniteville's business.
The LP Gas Companies compete in each LP gas marketing area
with numerous other LP gas distributors, none of which, including
the LP Gas Companies, can be considered dominant in any particular
marketing area. The principal competitive factors affecting this
industry are price and service. In addition, LP gas is sold in
competition with all other commonly used fuels and energy sources,
including electricity, fuel oil and natural gas. The primary
competing energy source to LP gas is electricity, which is
available in substantially all of the market areas served by the LP
Gas Companies. Currently, LP Gas is generally less expensive than
electricity based on equivalent energy value. Fuel oil is a major
competitor for home heating and other purposes and is sold by a
diversified group of companies throughout the marketing areas
served by the LP Gas Companies. Except for various industrial
applications, no attempt has been made to compete with natural gas
which, with few exceptions, has been a less expensive energy source
than LP gas. Although competitive fuels may at times be less costly
for an equivalent energy value, historically LP gas has competed
successfully on the basis of cleanliness, convenience, safety,
availability and efficiency. In addition, the use of alternative
fuels, including LP gas, is mandated in certain specified areas of
the United States that do not meet federal air quality standards.
WORKING CAPITAL
Royal Crown's and Arby's working capital requirements are
generally met through cash flow from operations. Accounts
receivable of Royal Crown are generally due in 30 days and Arby's
franchise fee receivables are due within 10 days after each month
end.
Working capital requirements for the textile business are
generally fulfilled from operating cash flow supplemented by
advances under a credit facility, entered into in connection with
the Refinancing (as subsequently amended, the "Graniteville Credit
Facility") which initially provided Graniteville with an $80
million term loan and a $100 million (currently $112 million)
revolving credit facility (of which $8.4 million was available at
December 31, 1994). Trade receivables are generally due in 60
days, in accordance with industry practice.
Working capital requirements for the LP Gas Companies
fluctuate due to the seasonal nature of their businesses.
Typically, in late summer and fall, inventories are built up in
anticipation of the heating season and are depleted over the winter
months. During the spring and early summer, inventories are at low
levels due to lower demand. Accounts receivable reach their highest
levels in the middle of the winter and are gradually reduced as the
volume of LP gas sold declines during the spring and summer.
Working capital requirements are generally met through cash flow
from operations supplemented by advances under the National Propane
Credit Facility. Accounts receivable of the LP Gas Companies are
generally due within 30 days of delivery.
GOVERNMENTAL REGULATIONS
Each of Triarc's businesses is subject to a variety of
federal, state and local laws, rules and regulations.
Arby's is subject to regulation by the Federal Trade
Commission and state laws governing the offer and sale of
franchises and the substantive aspects of the franchisor-franchisee
relationship. In addition, Arby's is subject to the Fair Labor
Standards Act and various state laws governing such matters as
minimum wages, overtime and other working conditions. President
Clinton has proposed raising the minimum wage of $4.25 per hour to
$5.15 per hour, phased over two years, with back-to-back $.45
increases. Significant numbers of the food service personnel at
Arby's restaurants are paid at rates related to the federal and
state minimum wage, and increases in the minimum wage may therefore
increase the labor costs of Arby's and its franchisees. Arby's is
also subject to the Americans with Disabilities Act (the "ADA"),
which requires that all public accommodations and commercial
facilities meet certain federal requirements related to access and
use by disabled persons. Compliance with the ADA requirements
could require removal of access barriers and non-compliance could
result in imposition of fines by the U.S. government or an award of
damages to private litigants. Although Arby's management believes
that its facilities are substantially in compliance with these
requirements, Arby's may incur additional costs to comply with the
ADA. However, Triarc does not believe that such costs will have a
material adverse effect on Triarc's consolidated financial position
or results of operations. From time to time, Arby's has received
inquiries from federal, state and local regulatory agencies or has
been named as a party to administrative proceedings brought by such
regulatory agencies. Triarc does not believe that any such
inquiries or proceedings will have a material adverse effect on
Triarc's consolidated financial position or results of operations.
The production and marketing of Royal Crown beverages are
subject to the rules and regulations of various federal, state and
local health agencies, including the United States Food and Drug
Administration (the "FDA"). The FDA also regulates the labeling of
Royal Crown products. New FDA labeling regulations took effect in
1994. The total costs of complying with the new regulations,
primarily for tooling new container labels, was approximately $1.5
million.
Graniteville's operations are governed by laws and regulations
relating to workplace safety and worker health, primarily the
Occupational Safety and Health Act ("OSHA") and the regulations
promulgated thereunder. Revised cotton dust standards, which became
effective in 1986, have required increased capital expenditures,
and may require additional capital expenditures presently expected
to range from $7 million to $9 million.
The LP Gas Companies are subject to various Federal, state and
local laws and regulations governing the transportation, storage
and distribution of LP gas, and the health and safety of workers,
primarily OSHA and the regulations promulgated thereunder.
Except as described herein, Triarc is not aware of any pending
legislation that in its view is likely to affect significantly the
operations of Triarc's subsidiaries. Triarc believes that the
operations of its subsidiaries comply substantially with all
applicable governmental rules and regulations.
ENVIRONMENTAL MATTERS
Certain of Triarc's operations are subject to federal, state
and local environmental laws and regulations concerning the
discharge, storage, handling and disposal of hazardous or toxic
substances. Such laws and regulations provide for significant
fines, penalties and liabilities, in certain cases without regard
to whether the owner or operator of the property knew of, or was
responsible for, the release or presence of such hazardous or toxic
substances. In addition, third parties may make claims against
owners or operators of properties for personal injuries and
property damage associated with releases of hazardous or toxic
substances. Triarc cannot predict what environmental legislation or
regulations will be enacted in the future or how existing or future
laws or regulations will be administered or interpreted. Triarc
cannot predict the amount of future expenditures which may be
required in order to comply with any environmental laws or
regulations or to satisfy any such claims. Triarc believes that its
operations comply substantially with all applicable environmental
laws and regulations.
In 1987, Graniteville was notified by the South Carolina
Department of Health and Environmental Control (the "DHEC") that it
discovered certain contamination of Langley Pond near Graniteville,
South Carolina and DHEC asserted that Graniteville may be one of
the parties responsible for such contamination. In 1990 and 1991,
Graniteville provided reports to DHEC summarizing its required
study and investigation of the alleged pollution and its sources
which concluded that pond sediments should be left undisturbed and
in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves
involved adverse effects (i) on human health, (ii) to existing
recreational uses or (iii) to the existing biological communities.
In March 1994 DHEC appeared to conclude that while environmental
monitoring at Langley Pond should be continued, based on currently
available information, the most reasonable alternative is to leave
the pond sediments undisturbed and in place. DHEC has requested
Graniteville to submit a proposal by mid-April 1995 concerning
periodic monitoring of sediment deposition in the pond.
Graniteville intends to comply with this request. Graniteville is
unable to predict at this time what further actions, if any, may be
required in connection with Langley Pond or what the cost thereof
may be. However, given DHEC's recent conclusion and the absence of
reasonable remediation alternatives, Triarc believes the ultimate
outcome of this matter will not have a material adverse effect on
Triarc's consolidated results of operations or financial position.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources."
Graniteville owns a nine acre property in Aiken County, South
Carolina (the "Vaucluse Landfill"), which was used as a landfill
from approximately 1950 to 1973. The Vaucluse Landfill was
operated jointly by Graniteville and Aiken County and may have
received municipal waste and possibly industrial waste from
Graniteville and sources other than Graniteville. In March 1990,
a "Site Screening Investigation" was conducted by DHEC.
Graniteville conducted an initial investigation in June 1992 which
included the installation and testing of two ground water
monitoring wells. The United States Environmental Protection
Agency conducted an Expanded Site Inspection (an "ESI") in January
1994 and Graniteville conducted a supplemental investigation in
February 1994. In response to the ESI, DHEC has indicated its
desire to have an investigation of the Vaucluse Landfill
and has verbally requested that Graniteville submit a proposal to
DHEC outlining the parameters of such an investigation. Since the
investigation has not yet commenced, Graniteville is currently
unable to estimate the cost to remediate the landfill. Such cost
could vary based on the actual parameters of the study. Based on
currently available information, Triarc does not believe that the
outcome of this matter will have a material adverse effect on Triarc's
consolidated results of operations or financial position. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
As a result of certain environmental audits in 1991, SEPSCO
became aware of possible contamination by hydrocarbons and metals
at certain sites of SEPSCO's manufacturing 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 groundwater for
contamination, development of remediation plans and removal in
certain instances of certain contaminated soils. Remediation is
required at 13 sites which were sold to or leased for the purchaser
of the Ice Business, including eight sites at which remediation has
recently been completed or is ongoing. Such remediation is being
made in conjunction with the purchaser who is responsible for
payments of up to $1.0 million of such remediation costs,
consisting of the first and third payments of $500,000.
Remediation will also be required at seven cold storage sites which
were sold to the purchaser of the cold storage operations. Such
remediation is expected to commence in 1995 and will be made in
conjunction with such purchaser who is responsible for the first
$1.25 million of such costs. Additionally, SEPSCO had various
inactive properties, of which four were remediated at an aggregate
cost of $484,000 and sold during 1994. In addition, there are nine
additional inactive properties of the ice and cold storage
businesses 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 businesses. Based on
consultations with, and certain reports of, environmental
consultants and others, SEPSCO presently estimates SEPSCO's cost of
all such remediation and/or removal will approximate $4.6 million,
in respect of which charges of $1.3 million, $0.2 million, $2.7
million and $0.4 million were made against earnings in SEPSCO's
fiscal years ending February 28, 1991, February 29, 1992, February
28, 1993 and Fiscal 1994, respectively. SEPSCO's total future
environmental expenditures are estimated by SEPSCO as of December
31, 1994 to be approximately $3.8 million, of which approximately
$2.0 million is expected to be reimbursed by the purchasers of the
ice and cold storage businesses and approximately $1.8 million is
expected to be paid by SEPSCO. Through December 31, 1994, SEPSCO
had incurred actual costs of approximately $2.8 million and had a
remaining accrual of approximately $1.8 million. Based on currently
available information and current reserve levels, Triarc does not
believe that the ultimate outcome of this matter will have a
material adverse effect on Triarc's consolidated results of
operations or financial position. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
In May 1994 National Propane was informed of coal tar
contamination which was discovered at its properties in Marshfield,
Wisconsin. National Propane purchased the property from a company
(the "Successor") which had purchased the assets of a utility which
had previously owned the property. National Propane believes that
the contamination occurred during the use of the property as a coal
gasification plant by such utility. In September 1994, National
Propane hired an environmental consulting firm to advise it on
possible remediation methods and to provide an estimate of the cost
of such remediation. Based on a preliminary report by the
environmental consulting firm, National Propane believes that the
cost to remediate the property will be between $415,000 and
$925,000, depending upon the actual extent of impacted soils, the
presence and extent, if any, of impacted ground water and the
remediation method actually required to be implemented. National
Propane, if found liable for any of such costs, would attempt to
recover such costs from the Successor or through government funds
which provide reimbursement for such expenditures under certain
circumstances. Based on currently available information and since
(i) the extent of the alleged contamination is not known, (ii) the
preferable remediation method is not known and the estimate of the
costs thereof are only preliminary and (iii) even if National
Propane were deemed liable for remediation costs, it could possibly
recover such costs from the Successor or through government
reimbursement, Triarc does not believe that the outcome of this
matter will have a material adverse effect on Triarc's consolidated
results of operations or financial position.
In 1993 Royal Crown became aware of possible contamination
from hydrocarbons in groundwater at two abandoned bottling
facilities. In 1994, as a result of tests necessitated by the
removal of four underground storage tanks at Royal Crown's no
longer used distribution site in Miami, Florida, hydrocarbons were
discovered in the groundwater. Assessment is proceeding under the
direction of the Dade County Department of Environmental Resources
Management to determine the extent of the contamination. The
necessary testing to determine the extent of the contamination is
still underway, but the early estimate of total remediation costs
given by the environmental consultant retained by Royal Crown is
between $200,000 and $400,000, depending on the actual extent of
the contamination. Additionally, in 1994 the Texas Natural
Resources Conservation Commission approved the remediation of
hydrocarbons in the groundwater by Royal Crown at its former
distribution site in San Antonio, Texas. Remediation has commenced
at this site. The environmental remediation firm retained by Royal
Crown estimates the total cost of remediation to be approximately
$210,000, of which 60-70% is expected to be reimbursed by the State
of Texas Petroleum Storage Tank Remediation Fund. Triarc does not
believe that the outcome of these matters will have a material
adverse effect on Triarc's consolidated results of operations or
financial position.
SEASONALITY
Of Triarc's four businesses, the soft drink and LP gas
businesses are seasonal. In the soft drink business, the highest
sales occur during spring and summer. LP gas operations are subject
to the seasonal influences of weather which vary by region.
Generally, the demand for LP gas during the winter months, November
through April, is substantially greater than during the summer
months at both the retail and wholesale levels, and is
significantly affected by climatic variations. As a result of the
foregoing, Triarc's revenues are highest during the first and
fourth calendar quarters of the year.
DISCONTINUED AND OTHER OPERATIONS
Triarc continues to own a few ancillary business assets.
Consistent with Triarc's strategy of focusing resources on its four
principal businesses, during Fiscal 1994 SEPSCO completed its sale
or discontinuance of substantially all of its ancillary business
assets. These sales or liquidations will not have a material
impact on Triarc's consolidated financial position or results of
operations. The precise timetable for the sale or liquidation of
Triarc's remaining ancillary business assets will depend upon
Triarc's ability to identify appropriate purchasers and to
negotiate acceptable terms for the sale of such businesses. In
addition, Triarc has agreed with the lenders under National
Propane's credit agreement to cause the merger of Public Gas and
National Propane during the second quarter of 1995. It is
expected that Public Gas would become a wholly-owned subsidiary of
SEPSCO prior to such merger. In connection therewith, Triarc presently
intends to cause SEPSCO to redeem the SEPSCO 11-7/8% Debentures
during 1995. See Note 13 to the Consolidated Financial Statements.
Insurance Operations: Historically, Chesapeake Insurance
Company Limited ("Chesapeake Insurance"), a direct wholly-owned
subsidiary of CFC Holdings Corp. ("CFC Holdings") (i) provided
certain property insurance coverage for Triarc and certain of its
former affiliates; (ii) reinsured a portion of certain insurance
coverage which Triarc and such former affiliates maintained with
unaffiliated insurance companies (principally workers'
compensation, general liability, automobile liability and group
life); and (iii) reinsured insurance risks of unaffiliated third
parties through various group participations. During Fiscal 1993,
Chesapeake Insurance ceased writing reinsurance of risks of
unaffiliated third parties, and during Transition 1993 Chesapeake
Insurance ceased writing insurance or reinsurance of any kind for
periods beginning on or after October 1, 1993.
In March 1994, Chesapeake Insurance consummated an agreement
(which agreement was effective as of December 31, 1993) with AIG
Risk Management, Inc. ("AIG") concerning the commutation to AIG of
all insurance previously underwritten by AIG on behalf of Triarc
and its subsidiaries and affiliated companies for the years
1977-1993, which insurance had been reinsured by Chesapeake
Insurance. In connection with such commutation, AIG received an
aggregate of approximately $63.5 million, consisting of
approximately $29.3 million of commercial paper, common stock and
other marketable securities of unaffiliated third parties, and a
promissory note of Triarc in the original principal amount of
approximately $34.2 million. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
In September 1989, the Pennsylvania Insurance Commissioner as
rehabilitator of Mutual Fire, Marine and Inland Insurance Company
("Mutual Fire") commenced an action against Chesapeake Insurance
seeking, among other things, compensatory and punitive damages in
excess of $40.0 million. In March 1994, the Commonwealth Court of
Pennsylvania approved a Settlement and Commutation Agreement
between Chesapeake Insurance and Mutual Fire which provided for the
full settlement of all claims brought by Mutual Fire for $12.0
million. The court's order became final in April 1994 and the
$12 million settlement was paid over to Mutual Fire shortly
thereafter. Triarc had previously recorded charges to operations
in order to fully provide for such settlement. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
In July 1994, National Union Fire Insurance Company of
Pittsburgh, Pennsylvania and American Home Assurance Company
commenced an action against Chesapeake Insurance seeking
approximately $1.465 million allegedly due under an Aggregate
Excess Liability Quota Share Treaty and an 80% Quota Share
Reinsurance Agreement. Shortly thereafter, the parties agreed to
settle the action and commute any and all present and future
liability under such contracts for a payment of $1.0 million by
Chesapeake Insurance. That settlement was memorialized in a
settlement agreement made effective as of August 25, 1994,
following which Chesapeake Insurance made the requisite payment and
the action was dismissed.
Chesapeake Insurance is registered under the Bermuda Insurance
Act of 1978 and related regulations which require compliance with
various provisions regarding the maintenance of statutory capital
and surplus and liquidity. Chesapeake Insurance was not in
compliance with certain of such provisions as of December 31, 1992
and 1993. However, since Chesapeake Insurance ceased writing
insurance or reinsurance of any kind for periods beginning on or
after October 1, 1993, any such non-compliance will have no effect
on Triarc. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Discontinued Operations: In the Consolidated Financial
Statements, Triarc reports as "discontinued operations" a few
ancillary business assets, including certain idle properties owned
by SEPSCO. In April 1994, SEPSCO sold to Southwestern Ice, Inc.
("Southwestern") substantially all of the operating assets of the
ice manufacturing and distribution portion of SEPSCO's
refrigeration services and products business segment, excluding
certain real estate assets associated therewith (the "Ice
Business"), for $5.0 million in cash, approximately $4.3 million in
the form of a subordinated secured note of the buyer due on the
fifth anniversary of the sale and the assumption by Southwestern of
certain current liabilities and of certain environmental
liabilities. In June 1994, SEPSCO sold to two unaffiliated parties
two of its cold storage plants with a net book value of
approximately $1.9 million for $475,000 in cash and $700,000 in the
form of a promissory note from the buyer. In addition, at various
dates throughout Fiscal 1994, SEPSCO sold to unaffiliated parties
an aggregate of 11 idle properties with an aggregate book value of
$236,000 for an aggregate cash purchase price of $535,000. In
August 1994, a SEPSCO subsidiary sold substantially all of the
operating assets of its natural gas and oil business for $16.25
million in cash, net of $750,000 held in escrow to cover certain
indemnities given to the buyer by this SEPSCO subsidiary. In
December 1994, SEPSCO sold substantially all of the remaining
assets of its cold storage operations of its refrigeration business
segment to National Cold Storage, Inc., a newly-formed corporation
controlled by two former SEPSCO officers, for $6.5 million in cash,
a $3 million note and the assumption by the buyer of up to $2.75
million of certain liabilities. In February 1995, SEPSCO sold to
a former member of its management team the stock of Houston Oil &
Gas Company, Inc., a subsidiary which was engaged in the natural gas
and oil business ("HOG"), for an aggregate purchase price of $800,000,
consisting of $729,500 in cash, a waiver of certain bonuses payable
by SEPSCO to such former management member and a six month promissory
note in the original principal amount of $48,000. The sale of the
stock of HOG substantially completed SEPSCO's plan to sell or
discontinue substantially all of its ancillary business assets,
other than its interest in Public Gas and certain subsidiaries of Triarc.
Other Operations: On January 10, 1994, Triarc disposed of its
58.6% of interest in Wilson Brothers. In February 1994, Triarc
disposed of the assets of its lamp manufacturing and distribution
business. In December 1994, Triarc disposed of all of the
approximately 700 acres of grapefruit groves located in Texas that
it owned.
EMPLOYEES
As of December 31, 1994, Triarc's four business segments
employed approximately 11,250 personnel, including approximately
2,025 salaried personnel and approximately 9,225 hourly personnel.
Triarc's management believes that employee relations are
satisfactory. At December 31, 1994, approximately 140 of the total
of Triarc's employees were covered by various collective bargaining
agreements expiring from time to time from the present through
1997.
ITEM 2. PROPERTIES.
Triarc maintains a large number of diverse properties.
Management believes that these properties, taken as a whole, are
generally well maintained and are adequate for current and
foreseeable business needs. The majority of the properties are
owned. Except as set forth below, substantially all of Triarc's
materially important physical properties are being fully utilized.
Certain information about the major plants and facilities
maintained by each of Triarc's four business segments, as well as
Triarc's corporate headquarters, as of December 31, 1994 is set
forth in the following table:
SQ. FT. OF
ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- - - ----------------- ------------------- ----------- -----------
Corporate
Headquarters New York, NY 1 leased 25,000
Soft Drink Concentrate Mfg:
Columbus, GA 1 owned 216,000
(including office)
LaMirada, CA 1 leased 25,000
Cincinnati, OH 1 leased 23,000
Toronto, Canada 1 leased 5,000
Corporate Headquarters 1 leased 18,759(1)
Ft. Lauderdale FL
Restaurant 288 Restaurants 47 owned *
(all but two locations 241 leased
throughout the
United States)
Corporate Headquarters 1 leased 42,803(1)
Ft. Lauderdale, FL
Textiles Fabric Mfg.:
Graniteville, SC 6 owned 2,000,392
Augusta, GA 2 owned 518,000
Warrenville, SC 2 owned 208,000
Chemical and Dye Mfg.:
Greenville, SC 2 owned 103,000
Williston, SC 1 owned 75,000
LP Gas Office/Warehouse 206 owned 532,000
144 Bulk Plants 57 leased **
79 Storage Depots
38 Retail Depots
(various locations
throughout the
United States)
2 Underground storage
SQ. FT. OF
INACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- - - ------------------- ------------------- ------------------ ------------
Restaurant Restaurants 1 owned *
4 leased
Textiles Fabric Mfg. 3 owned 734,000
- - - ------------
* While Arby's restaurants range in size from approximately 700
square feet to 4,000 square feet, the typical company-owned
Arby's restaurant in the United States is approximately 2,570
square feet.
** The LP gas facilities have approximately 34,552,000 gallons of
storage capacity.
(1) Royal Crown and Arby's also share 19,180 square feet of common
space at the headquarters of their parent corporation,
RC/Arby's Corporation ("RCAC").
----------------------------------------------------------
Arby's also owns ten and leases three land sites for future
restaurants and owns seven and leases six restaurants which are
sublet principally to franchisees. Graniteville also owns
approximately 15,000 acres of land, predominantly woodland, in and
around Graniteville, South Carolina, on which it has planted pine
seedlings and maintains forest conservation practices designed to
help protect general water supplies.
Substantially all of the properties used in the textiles and
LP gas segments are pledged as collateral for certain debt. In
addition, certain of the properties used in the restaurant segment
are pledged as collateral for certain debt. All other properties
owned by Triarc are without significant encumbrances.
Certain information about the materially important physical
properties of Triarc's discontinued and other operations as of
December 31, 1994 is set forth in the following table:
SQ. FT. OF
INACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- - - ------------------- ------------------- ---------- -----------
Refrigeration Ice mfg. and cold storage 6 owned 112,000
Ice mfg. 13 owned 173,000
Public Gas Undeveloped land 3 owned N/A
The natural gas and oil operations of SEPSCO, which were sold
in February 1995, had net working interests in approximately 61,000
acres and net royalty interests in approximately 4,000 acres,
located almost entirely in the states of Alabama, Kentucky,
Louisiana, Mississippi, North Dakota, Texas and West Virginia.
ITEM 3. LEGAL PROCEEDINGS.
In December 1990, a purported stockholder derivative suit was
brought against Triarc and other defendants on behalf of SEPSCO.
For a description of such legal proceedings, see "Item 1. Business
- - - -- Introduction -- SEPSCO Settlement."
In April 1993, the United States District Court for the
Northern District of Ohio (the "Ohio Court") entered a final order
approving a Modification of a Stipulation of Settlement (the
"Modification") which (i) modified the terms of a previously
approved stipulation of settlement (the "Original Stipulation") in
an action captioned Granada Investments, Inc. v. DWG Corporation et
al., an action commenced in 1989 ("Granada"), and (ii) settled two
additional lawsuits pending before the Ohio Court captioned
Brilliant et al. v. DWG Corporation, et al., an action commenced in
July 1992 ("Brilliant"), and DWG Corporation by and through Irving
Cameon et al. v. Victor Posner et al., an action commenced in June
1992 ("Cameon"). Each of the Granada, Brilliant and Cameon cases
were derivative actions brought against Triarc (then known as DWG,
Triarc's predecessor) and each of its then current directors (other
than Triarc's court-appointed directors, in the Brilliant and
Cameon cases) which alleged various instances of corporate abuse,
waste and self-dealing by Victor Posner, Triarc's then current
Chairman of the Board and Chief Executive Officer, and certain
breaches of fiduciary duties and violations of proxy rules. The
Cameon case was also brought as a class action and included claims
under the Racketeer Influenced and Corrupt Organizations Act of
1970 and for violating federal securities laws. On February 7,
1995, the Ohio Court issued an order which granted the motion of
Granada Investments, Inc. and their counsel, Squire, Sanders &
Dempsey, for an award of costs in the amount of $850,000. In
accordance with such order, Triarc paid such amount on February 7, 1995.
The Modification continued the requirement contained in the
Original Stipulation that the Triarc Board include three court
appointed directors and that such directors, along with two other
directors who are neither Triarc employees nor relatives of Posner,
form a special committee of the Triarc Board (the "Triarc Special
Committee") with authority to review and approve any newly
undertaken transaction between Triarc and its subsidiaries, on the
one hand, and entities or persons affiliated with Posner on the
other hand, other than those transactions specifically approved in
the Modification. The Modification specifically permitted Triarc
and/or affiliated entities to make certain payments of rent, salary
and expense reimbursements to Posner and/or persons or entities
related to or affiliated with him. Pursuant to the order of the
Ohio Court dated February 7, 1995, the effective period under the
Modification is deemed to have expired and, as of such date, the
Modification was terminated. As a result, the Triarc Special
Committee has been disbanded. See "Item 10. Directors and
Executive Officers of the Registrant -- Certain Arrangements and
Undertakings Relating to the Composition of Triarc's Board of
Directors." In addition, see "Item 1. Business -- Posner
Settlement" for information regarding the Settlement Agreement,
pursuant to which certain claims between Triarc and certain of the
Posner Entities were settled. On March 21, 1995, in accordance
with the terms of the February 7, 1995 order of the Ohio Court,
Triarc paid a fee to the court-appointed members of the Triarc
Special Committee for services rendered to Triarc. See "Item 11.
Executive Compensation -- Compensation of Directors."
In addition to the matters described immediately above and the
matters referred to or described under "Item 1. Business -- General
- - - -- Environmental Matters," Triarc and its subsidiaries are involved
in claims, litigation and administrative proceedings and
investigations of various types in several jurisdictions. As
discussed below, certain of these matters relate to transactions
involving companies which, prior to the Reorganization, were
affiliates of Triarc and which subsequent to the Reorganization
became debtors in bankruptcy proceedings.
In August 1993 NVF, which was affiliated with Triarc until the
Reorganization, became a debtor in a case filed by certain of its
creditors under Chapter 11 of the Federal Bankruptcy Code (the "NVF
Proceeding"). In November 1993 the Company received correspondence
from NVF's bankruptcy counsel claiming that Triarc and certain of
its subsidiaries owed to NVF an aggregate of approximately
$2,300,000 with respect to (i) certain claims relating to the
insurance of certain of NVF's properties by Chesapeake Insurance,
(ii) certain insurance premiums owed by Triarc to Insurance and Risk
Management, Inc. ("IRM"), and (iii) certain liabilities of IRM, 25% of which
NVF has alleged Triarc to be liable for. In addition, in June 1994 the
official committee of NVF's unsecured creditors (the "NVF Committee") filed an
amended complaint (the "NVF Litigation") against Triarc and certain former
affiliates alleging various causes of action against Triarc and
seeking, among other things, an undetermined amount of damages from
Triarc. On August 30, 1994 the district court issued an order
granting Triarc's motion to dismiss certain of the claims and
allowing the NVF Committee to file an amended complaint alleging
why certain other claims should not be barred by applicable
statutes of limitation. On October 17, 1994 the NVF Committee
filed a second amended complaint alleging causes of action for (a)
aiding and abetting breach of fiduciary duty, (b) equitable
subordination of, and objections to, claims which Triarc has
asserted against NVF, and (c) recovery of certain allegedly
fraudulent and preferential transfers allegedly made by NVF to
Triarc. Triarc has responded to the second amended complaint
alleging cause of action for (a) aiding and abetting breach of
fiduciary duty, (b) equitable subordination of, and objections to,
claims which Triarc has asserted against NVF, and (c) recovery of
certain allegedly fraudulent and preferential transfers allegedly
made by NVF to Triarc. Triarc has responded to the second amended
complaint by filing a motion to dismiss the complaint in its
entirety. On February 10, 1995 the NVF Committee moved for leave to
file a third amended complaint. Triarc has opposed that motion. A
trial date has been set for July 5, 1995. Triarc intends to continue
contesting these claims. Nevertheless, during Transition 1993 Triarc
provided approximately $2,300,000 with respect to claims relating to
the NVF Proceeding. Triarc has incurred actual costs through December
31, 1994 of $1,533,000 and has a remaining accrual of $767,000. Pursuant
to the Settlement Agreement, (described more fully in "Item 1. Business
-- Posner Settlement"), Triarc has been indemnified by Posner and a
Posner Entity for its expenses incurred after December 1, 1994 and for
any liability arising out of the NVF Litigation. In addition, pursuant
to the Settlement Agreement, Posner also paid Triarc in cash for
certain expenses relating to the NVF Litigation, the APL Proceeding
(as herein defined) and the PEC Proceedings (as herein defined).
Based upon information currently available to Triarc and after
considering the indemnification of Triarc by Posner and the Posner
Entity and Triarc's current reserve levels, Triarc does not believe
that the outcome of the NVF Litigation will have a material adverse
effect on Triarc's consolidated financial position or results of
operations.
In June 1994 NVF commenced a lawsuit in federal court against
Chesapeake Insurance and another defendant alleging claims for (a)
breach of contract, (b) bad faith and (c) tortious breach of the
implied covenant of good faith and fair dealing in connection with
insurance policies issued by Chesapeake Insurance covering property
of NVF (the "Chesapeake Litigation"). NVF seeks compensatory
damages in an aggregate amount of approximately $2,000,000 and
punitive damages in the amount of $3,000,000. In July 1994
Chesapeake Insurance responded to NVF's allegations by filing an
answer and counterclaims in which Chesapeake Insurance denies the
material allegations of NVF's complaint and asserts defenses,
counterclaims and set-offs against NVF. The trial has been scheduled
for October 10 and 11, 1995. Chesapeake Insurance intends to continue
contesting NVF's allegations in the Chesapeake Litigation. Based upon
information currently available to Triarc, Triarc does not believe
that the outcome of the Chesapeake Litigation will have a material
adverse effect on Triarc's consolidated financial position or results
of operations. Pursuant to the Settlement Agreement, Posner agreed
that if at any time NVF becomes an affiliate of Posner, Posner would
immediately cause NVF to dismiss the Chesapeake Litigation with prejudice
and release Chesapeake Insurance from all liability with respect to the
subject matter of the Chesapeake Litigation.
In connection with certain former cost sharing arrangements,
advances, insurance premiums, equipment leases and accrued
interest, Triarc had receivables due from APL, a former affiliate,
aggregating $38,120,000 as of April 30, 1992, against which a
valuation allowance of $34,713,000 was recorded. APL has
experienced recurring losses and other financial difficulties in
recent years and in July 1993 APL became a debtor in a proceeding
under Chapter 11 of the Bankruptcy Code (the "APL Proceeding").
Accordingly, during Fiscal 1993, Triarc and its subsidiaries
provided an additional $9,863,000 for the unreserved portion of the
receivable at April 30, 1992 and additional net billings in 1993
and wrote off the full balance of the APL receivables and related
allowance of $44,576,000. In July 1993 APL, which was affiliated
with Triarc until the Reorganization, became a debtor in a
proceeding under Chapter 11 of the Federal Bankruptcy Code (the
"APL Proceeding"). In February 1994 the official committee of
unsecured creditors of APL filed a complaint (the "APL Litigation")
against Triarc and certain companies formerly or presently
affiliated with Victor Posner or with Triarc, alleging causes of
action arising from various transactions allegedly caused by the
named former affiliates in breach of their fiduciary duties to APL
and resulting in corporate waste, fraudulent transfers allegedly
made by APL to Triarc and preferential transfers allegedly made by
APL to a defendant other than Triarc. The Chapter 11 trustee of
APL was subsequently added as a plaintiff. The complaint asserts
claims against Triarc for (a) aiding and abetting breach of
fiduciary duty, (b) equitable subordination of certain claims which
Triarc has asserted against APL, (c) declaratory relief as to
whether APL has any liability to Triarc and (d) recovery of
fraudulent transfers allegedly made by APL to Triarc prior to
commencement of the APL Proceeding. The complaint seeks an
undetermined amount of damages from Triarc as well as the other
relief identified in the preceding sentence. In April 1994 Triarc
responded to the complaint by filing an Answer and Proposed
Counterclaims and Set-Offs (the "Answer"). In the Answer, Triarc
denies the material allegations in the complaint and asserts
counterclaims and set-offs against APL. On February 17, 1995, all
proceedings in the APL Litigation were stayed until July 9, 1995.
Pursuant to the Settlement Agreement in order to promote
discussions looking towards an overall settlement of the APL
Litigation, (described more fully in "Item 1. Business -- Posner
Settlement"), Triarc has been indemnified by Posner and a Posner
Entity for its expenses incurred after December 1, 1994 and for any
liability arising out of the APL Litigation. Triarc agreed in the
Settlement Agreement to waive its claims in the APL Proceedings if
Triarc receives a general release from all claims by APL, APL's
subsidiaries and the plaintiffs in the APL Litigation. Triarc
intends to continue contesting the claims in the APL Litigation.
Based upon the results of Triarc's investigation of these matters
to date and the indemnification of Triarc by Posner and the Posner
Entity, Triarc does not believe that the outcome of the APL
Litigation will have a material adverse effect on Triarc's
consolidated financial position or results of operations.
Triarc and its subsidiaries had secured receivables from PEC,
a Former Affiliate, aggregating $6,664,000 as of April 30, 1992
against which a $3,664,000 valuation allowance was recorded. PEC
and certain of its subsidiaries had also filed for protection under
the Bankruptcy Code in February 1992 (the "PEC Proceedings"), and
accordingly, during Fiscal 1993, Triarc and its subsidiaries
recorded an additional $3,000,000 valuation allowance to provide
for the unreserved portion of the receivables and to take into
account Triarc's significant doubts as to the net realizability of
the underlying collateral. Pursuant to the Settlement Agreement,
Posner and a Posner Entity have indemnified Triarc for all expenses
incurred after December 1, 1994 and for any liability incurred by
Triarc in connection with the PEC Proceedings.
Other matters arise in the ordinary course of Triarc's
business, and it is the opinion of management that the outcome of
any such matter will not have a material adverse effect on Triarc's
consolidated financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Triarc held its 1994 Annual Meeting of Shareholders on June 9,
1994. The matters acted upon by the shareholders at that meeting
were reported in Triarc's quarterly report on Form 10-Q for the
quarter ended June 30, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Since November 17, 1993, the principal market for Triarc's
Class A Common Stock has been the New York Stock Exchange ("NYSE")
(symbol: TRY). Prior to November 17, 1993, the date on which the
Class A Common Stock began trading on the NYSE, the American Stock
Exchange ("ASE") was the principal market for the Class A Common
Stock. The Class A Common Stock is also listed on the Pacific Stock
Exchange ("PSE"). The high and low market prices for Triarc's Class
A Common Stock, as reported in the consolidated transaction
reporting system, are set forth below:
MARKET PRICE
---------------------------------------
FISCAL QUARTERS HIGH LOW
- - - -----------------------------------------------------------------------------
Fiscal 1993
First Quarter ended July 31, 1992 $10 1/4 $ 8
Second Quarter ended October 31, 1992 12 1/8 9
Third Quarter ended January 31, 1993 15 3/4 11 1/4
Fourth Quarter ended April 30, 1993 21 7/8 14 1/2
Transition 1993
First Quarter ended July 31, 1993 $22 3/4 $ 16 1/8
Second Quarter ended October 31, 1993 33 21 3/4
November 1, 1993 through December 31, 1993 31 23 3/4
Fiscal 1994
First Quarter ended March 31 $25 7/8 $ 18 1/8
Second Quarter ended June 30 22 16 1/4
Third Quarter ended September 30 17 1/4 13 1/4
Fourth Quarter ended December 31 13 5/8 10
Triarc has not paid any dividends on its common stock in
Fiscal 1993, Transition 1993, Fiscal 1994 or in the current year to
date and does not presently anticipate the declaration of cash
dividends on its common stock in the near future.
In connection with the Reorganization, Triarc issued to the
Posner Entities 5,982,866 shares of Triarc's non-voting, Redeemable
Convertible Preferred Stock, having an aggregate stated value of
$71.8 million and a cumulative annual dividend rate of 8 1/8% (an
aggregate dividend of approximately $5.8 million per annum).
Pursuant to the terms of the Settlement Agreement, all such shares
of Redeemable Convertible Stock were converted into 4,985,722
shares of Class B Common Stock on January 10, 1995. On such date
an aggregate of 1,011,900 additional shares of Class B Common Stock
were issued to the Posner Entities in consideration for the
settlement of certain claims between Triarc and Posner and a Posner
Entity. Such conversion and issuance of Class B Common Stock
resulted in an aggregate increase of approximately $83.8 million in
Triarc's common shareholders' equity. See "Item 1. Business --
Posner Settlement." All such shares of Class B Common Stock can be
converted without restriction into shares of Class A Common Stock
if they are sold to a third party unaffiliated with the Posner
Entities. Triarc, or its designee, has certain rights of first
refusal if such shares are sold to an unaffiliated third party.
There is no established public trading market for the Class B
Common Stock. Triarc has no class of equity securities currently
issued and outstanding except for the Class A Common Stock and the
Class B Common Stock.
Because Triarc is a holding company, holders of its debt and
equity securities, including holders of the Class A Common Stock,
are dependent primarily upon the cash flow from Triarc's
subsidiaries for payment of principal, interest and dividends.
Potential dividends and other advances and transfers from Triarc's
subsidiaries represent its most significant sources of cash flow.
Applicable state laws and the provisions of the debt instruments by
which Triarc's principal subsidiaries are bound limit the ability
of such companies to dividend or otherwise provide funds to Triarc.
The relevant restrictions of such debt instruments are described
under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources" and in Note 13 to the Consolidated Financial Statements.
On December 12, 1994, Triarc announced that its management has
been authorized, when and if market conditions warrant, to purchase
from time to time during the six month period commencing December
15, 1994, up to $20 million of its outstanding Class A Common
Stock. As of March 15, 1995, Triarc had repurchased 133,700 shares
of Class A Common Stock at an aggregate cost of $1,513,943.
As of March 15, 1995, there were approximately 6,200 holders
of record of the Class A Common Stock and two holders of record of
the Class B Common Stock.
PAGE
Item 6. Selected Financial Data. (1)
Eight Months Year
Fiscal Year Ended April 30, Ended Ended
----------------------------------------------- December 31, December 31,
1990 1991 1992 1993 1993 (3) 1994
---- ---- ---- ---- -------- ----
(In thousands except per share amounts)
Revenues $1,038,923 $1,027,162 $1,074,703 $1,058,274 $ 703,541 $1,062,521
Operating profit 61,130 23,304 58,552 34,459 (4) 29,969 (5) 68,933 (6)
Loss from continuing
operations (13,966) (17,501) (10,207) (44,549) (4) (30,439) (5) (2,093) (6)
Income (loss) from
discontinued
operations,
net 1,072 (55) 2,705 (2,430) (8,591) (3,900)
Extraordinary items, net 1,363 703 -- (6,611) (448) (2,116)
Cumulative effect of
changes in
accounting
principles, net -- -- -- (6,388) -- --
Net loss (11,531) (16,853) (7,502) (59,978)(4) (39,478) (5) (8,109) (6)
Preferred stock dividend
requirements (2) (14) (11) (11) (121) (3,889) (5,833)
Net loss applicable to
common stockholders (11,545) (16,864) (7,513) (60,099) (43,367) (13,942)
Loss per share:
Continuing
operations (.55) (.68) (.39) (1.73) (1.62) (.34) (7)
Discontinued
operations .04 -- .10 (.09) (.40) (.17) (7)
Extraordinary
items .06 .03 -- (.26) (.02) (.09) (7)
Cumulative effect
of changes in
accounting
principles -- -- -- (.25) -- --
Net loss per share (.45) (.65) (.29) (2.33) (2.04) (.60) (7)
Total assets 863,993 851,912 821,170 910,662 897,246 922,167
Long-term debt 407,353 345,860 289,758 488,654 575,161 624,115
Redeemable preferred stock -- -- -- 71,794 71,794 71,794 (8)
Stockholders' equity
(deficit) 109,052 92,529 86,482 (35,387) (75,981) (31,783) (8)
Weighted-average common
shares outstanding 25,428 25,853 25,867 25,808 21,260 23,282
- - - -------------
(1) Selected Financial Data have been retroactively restated to reflect the discontinuance of the
Company's utility and municipal services and refrigeration operations in 1993.
(2) The Company has not paid any dividends on its common shares during any of the periods presented.
(3) The Company changed its fiscal year from a fiscal year ending April 30 to a calendar year ending
December 31 effective for the eight-month transition period ended December 31, 1993 ("Transition
1993").
(4) Reflects certain significant charges recorded in the fourth quarter of Fiscal 1993 (see Note 31 to
the Consolidated Financial Statements) as follows: $51,689,000 charged to operating profit;
$48,698,000 charged to loss from continuing operations; and $67,060,000 charged to net loss.
(5) Reflects certain significant charges recorded during Transition 1993 (see Note 31 to the
Consolidated Financial Statements) as follows: $12,306,000 charged to operating profit; $25,617,000
charged to loss from continuing operations; and $34,437,000 charged to net loss.
(6) Reflects certain significant charges recorded during 1994 as follows: $9,972,000 charged to
operating profit representing $8,800,000 of facilities relocation and corporate restructuring and
$1,172,000 of advertising production costs that in prior periods were deferred; $4,782,000 charged
to loss from continuing operations representing the aforementioned $9,972,000 charged to operating
profit, $7,000,000 of costs of a proposed acquisition not consummated, less $6,043,000 of gain on
sale of natural gas and oil business, net of tax benefit of $6,147,000; and $10,798,000 charged to
net loss representing the aforementioned $4,782,000 loss from continuing operations, $3,900,000 loss
from discontinued operations and a $2,116,000 extraordinary charge.
(7) Supplementary loss per share (see Note 4 to the Consolidated Financial Statements) were: continuing
operations - $(.07), discontinued operations - $(.14); extraordinary charge - $(.08); and net loss -
$(.29).
(8) Subsequent to December 31, 1994 all of the redeemable preferred stock was converted into common
stock and an additional 1,011,900 common shares were issued (see Note 34 to the Consolidated
Financial Statements) resulting in an $83,811,000 improvement in stockholders' equity (deficit).
PAGE
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Introduction
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the consolidated
financial statements included herein of Triarc Companies, Inc. ("Triarc" or,
collectively with its subsidiaries, "the Company").
On October 27, 1993 Triarc's Board of Directors approved a change in the
fiscal year of Triarc from a fiscal year ending April 30 to a calendar year
ending December 31, effective for the transition period ended December 31,
1993. The fiscal years of all of Triarc's subsidiaries which did not end on
December 31 were also so changed. As used herein, "1994" refers to the
calendar year ended December 31, 1994, "Transition 1993" refers to the eight
months ended December 31, 1993, "Comparable 1992" refers to the eight months
ended December 31, 1992, and "Fiscal 1993" and "Fiscal 1992" refer to the
fiscal years ended April 30, 1993 and 1992, respectively. The Company's
results of operations for Transition 1993 and Fiscal 1993 are compared below
to Comparable 1992 and Fiscal 1992, respectively. Since it was not
practicable for the Company to recast prior period results and present
results for calendar 1993 ("1993") (aside from revenues), the results of
operations for 1994 are discussed separately. The segment information
presented in the tables below has been derived from unaudited financial
statements of the Company not appearing herein in the case of 1993 and
Comparable 1992. Such information for 1994, Transition 1993, Fiscal 1993 and
Fiscal 1992 has been derived from the audited consolidated financial
statements of the Company appearing elsewhere herein.
Results of Operations
The Company reported net losses from continuing operations for each
fiscal year from 1990 through 1993, for Transition 1993 and for 1994. The
losses in 1994 were principally due to certain restructuring and other
charges discussed below. The Company believes that the losses to varying
degrees in each such period prior to 1994 were in large part the result of
(i) limited managerial and financial resources devoted to certain of its
business units, prior to the hiring of new chief executive officers and new
senior management teams for Arby's, Inc. ("Arby's"), Royal Crown Company,
Inc. ("Royal Crown") and National Propane Corporation ("National Propane") in
connection with the April 23, 1993 change in control of the Company (the
"Change in Control") and resulting reorganization (the "Reorganization"),
(ii) certain restructuring and other charges in Fiscal 1993 and Transition
1993 discussed below, (iii) costs of stockholder and other litigation, (iv)
operating losses of certain non-core businesses, (v) a significant amount of
high cost debt and (vi) material provisions for doubtful accounts from former
affiliates (principally for (a) management services which, subsequent to
October 1993, Triarc no longer provides and (b) interest and principal of
notes from former affiliates for which there are no significant balances
subsequent to the Change in Control).
The diversity of the Company's business segments precludes any overall
generalization about trends for the Company.
Trends affecting the restaurant segment in recent years include
consistent growth of the restaurant industry as a percentage of total food-
related spending, with the quick service restaurant ("QSR"), or fast food
segment in which the Company operates being the fastest growing segment of
the restaurant industry and increased price competition in the QSR industry,
particularly evidenced by the value menu ("Value Menu") concept which offers
comparatively lower prices on certain menu items, the combination meals
("Combo Meals") concept which offers a combination meal at an aggregate price
lower than the individual food and beverage items and couponing.
Trends affecting the soft drink segment in recent years have included
the increased market share of private label soft drinks, increased price
competition throughout the industry and the introduction of "new age"
beverages.
Liquefied petroleum ("LP") gas, relative to other forms of energy, is
gaining recognition as an environmentally superior, safe, convenient,
efficient and easy-to-use energy source in many applications. The other
significant trend affecting the LP gas segment in recent years is the energy
conservation trend, which from time to time has negatively impacted the
demand for energy by both residential and commercial customers.
The textile segment is subject to cyclical economic trends and other
factors that affect the domestic textile industry. In recent years, these
factors have included significant foreign competition, a changing United
States trade policy and escalating raw material costs. The textile industry
has experienced significant competition from foreign manufacturers that
generally have access to less expensive labor and, in certain cases, raw
materials. However, certain fabrics which comprise the principal product
lines sold by the Company (e.g., workwear) have experienced foreign
competition to a lesser degree than the industry in general. Exchange rate
fluctuations can also affect the level of demand for the textile segment's
products by changing the relative price of competing fabrics for importers.
United States trade policy changed as a result of the North American Free
Trade Agreement ("NAFTA") which became effective on January 1, 1994. NAFTA
eliminated immediately or phases out all trade restrictions among Canada,
Mexico and the United States while maintaining such restrictions on products
imported from outside North America. The textile segment expects NAFTA to
promote apparel production in Mexico and to shift apparel production from
Asian countries where import restrictions will continue to apply. Mexican
apparel manufacturers are expected to source a significant portion of their
textile fabric requirements from the United States thereby benefiting the
domestic textile industry. Further changes in trade policy are expected as a
result of the expiration of the Multifiber Arrangement (the "MFA") on
December 31, 1994. The MFA will be replaced by the Uruguay Round Arrangement
on textiles and clothing which provides for a phase-out of import
restrictions over a ten-year transition period. The elimination of these
import restrictions could have an adverse affect on the domestic textile
industry. U.S. cotton prices escalated markedly during 1994. World cotton
crop production declined in the 1993 and 1994 crop reporting cycles (periods
ending July 31 of each year) as a consequence of the effects of disease, pest
infestation and weather conditions in certain foreign countries. This
decline in world supply coupled with continued strong demand for cotton
resulted in rising prices beginning in late 1993, through all of 1994 and
continuing into 1995.
1994
Revenues
---------
1993 1994
---- ----
(In thousands)
Textiles $ 540,121 $ 536,918
Restaurants 214,897 223,155
Soft Drink 146,085 150,750
Liquefied Petroleum Gas 152,396 151,698
Other 12,653 --
---------- ----------
$ 1,066,152 $ 1,062,521
========== ==========
Revenues from the Company's four segments increased $9.0 million to
$1,062.5 million in 1994 from $1,053.5 million in 1993. Higher revenues in
the Company's restaurant and soft drink segments were partially offset by
lower revenues in the textile and LP gas segments. Revenues of $12.7 million
from certain non-core operations sold and from the Company's insurance
operation which ceased writing new insurance effective October 1993 were
included in "Other" in the table above. Restaurant revenues increased $8.2
million (3.8%) due to a $4.7 million increase in royalties and franchise fees
resulting from a net increase of 77 franchised restaurants and an increase in
franchised same-store sales accompanied by a $3.5 million increase in net
sales resulting from a net increase of 29 company-owned restaurants to 288
slightly offset by lower prices resulting from the Value Menu and Combo Meals
concepts and couponing. Soft drink revenues increased $4.7 million (3.2%),
reflecting a $6.4 million volume increase in private label sales resulting
from continued international expansion and domestic growth partially offset
by a $1.7 million volume decrease in branded product sales due to declines in
domestic diet product sales resulting from soft bottler case sales partially
offset by increases in non-diet branded product sales. Textile revenues
decreased $3.2 million (0.6%) reflecting lower sales in sportswear ($27.6
million) and job finishing ($5.8 million) offset by higher sales in utility
wear ($20.9 million) and specialty products ($9.3 million). The decrease in
sportswear resulted from lower volume of $19.6 million due to weak demand
including the effect of the denim market downturn which continued until its
turnaround in late 1994 and lower average prices of $8.0 million. Utility
wear increased entirely due to higher volume resulting from stronger demand.
Specialty products increased ($8.6 million) principally due to a higher-
priced product mix. LP gas revenues decreased $0.7 million (0.5%) due
primarily to lower volume.
Cost of sales in 1994 amounted to $749.9 million resulting in a gross
margin of 29.4%. Gross profits and margins at restaurants, soft drink and LP
gas were strong while the gross profit and margins at the textile segment
were lower than recent levels. Improved gross profit in the restaurant
segment resulted from the $4.7 million increase in royalties and franchise
fees with no associated cost of sales as well as the increase in the number
of company-owned restaurants. The soft drink gross profit was favorably
impacted by the aforementioned sales increase. Gross profit at the LP gas
segment was favorably impacted by $1.3 million of increased tank and cylinder
rental volume without an offsetting increase in cost of sales and a decrease
in product costs. Textile gross profit was negatively impacted by the higher
cost of cotton which could not be fully passed on to textile customers.
Advertising, selling and distribution expenses amounted to $109.7
million in 1994 and principally relate to the Company's restaurant and soft
drink segments. The expenditures associated with the soft drink segment
reflect a reallocation to a new media advertising campaign and other
promotional programs aimed at the consumer and the discontinuation of certain
promotional allowances granted to bottlers. Such expenses also include a
charge of $1.2 million resulting from the adoption of Statement of Position
93-7 of the Accounting Standards Executive Committee requiring the write-off
of previously deferred advertising production costs.
General and administrative expenses amounted to $125.2 million in 1994
reflecting normal, recurring expenditures. Such amount was lower than recent
historical levels principally as a result of the phase-out of the Company's
insurance operation which ceased writing new insurance effective October
1993.
The 1994 facilities relocation and corporate restructuring charges of
$8.8 million consist of (i) a loss on the sublease of Triarc's former
corporate office in Florida, including the write-off of leasehold
improvements, (ii) relocation costs of employees formerly located in such
office during the third quarter of 1994 and (iii) severance costs related to
terminated corporate employees.
Interest expense amounted to $73.0 million in 1994. Such amount
reflects the lower interest rates of debt issued in the refinancings which
occurred in connection with the Change in Control, or subsequent thereto,
partially offset by the higher average levels of such debt. Interest expense
in 1994 also reflected significantly lower interest accruals related to
income tax matters.
Other income amounted to $5.8 million in 1994 and consisted of $4.7
million of interest income, a $1.0 million nonrecurring realized gain in
connection with the recovery of an investment in a former bottling subsidiary
previously written off and $0.1 million of other items, net.
The gain on sale of the natural gas and oil business in 1994 of $6.0
million resulted from the sale of such business.
Costs of a proposed acquisition not consummated of $7.0 million relate
to the proposed acquisition of Long John Silver's Restaurants, Inc. ("LJS").
In December 1994 the Company decided not to proceed with the acquisition of
LJS due to the higher interest rate environment and difficult capital markets
which would have resulted in significantly higher than anticipated costs and
unacceptable terms of financing. Accordingly, the Company expensed such
costs in 1994 representing commitment fees, legal, consulting and other
expenses related to the aborted acquisition.
The Company recorded a provision for income taxes of $1.6 million in
1994 on pretax income of $0.8 million. Such provision reflects an effective
rate in excess of the statutory rate due principally to the effects of
amortization of costs in excess of net assets of acquired companies which is
not deductible for income tax purposes and state income taxes which exceed
pretax income due to the effect of losses in certain states for which no
benefit is available, both partially offset by the release of valuation
allowances in connection with the utilization of operating loss, depletion
and tax credit carryforwards from prior periods.
The minority interests in net income of consolidated subsidiaries of
$1.3 million consists of minority interests in the earnings of Southeastern
Public Service Company ("SEPSCO"), a 71.1% owned subsidiary of Triarc until
the 28.9% minority ownership was acquired on April 14, 1994 (the "SEPSCO
Merger" - see Note 26 to the consolidated financial statements).
The loss from discontinued operations of $3.9 million in 1994 reflects
the revised estimate of the loss on disposal of the Company's utility and
municipal services and refrigeration businesses of $8.4 million less minority
interests of $2.4 million and income tax benefit of $2.1 million. Such loss
reflects increased estimates of $6.4 million resulting principally from the
nonrecognition of notes received as partial proceeds on the sale of certain
businesses and operating losses from discontinued operations through their
respective dates of disposal of $2.0 million principally reflecting delays in
disposing of the businesses from the estimated disposal dates as of December
31, 1993. As of December 31, 1994 the disposition of the businesses has been
substantially completed but there remain certain liabilities to be liquidated
(the estimates of which have been accrued) as well as certain contingent
assets that may be realized (the benefits of which have not been recorded).
The extraordinary charge in 1994 of $2.1 million represents a loss, net
of tax benefit, resulting from the early extinguishment in October 1994 of
the Company's 13 1/8% senior subordinated debentures due March 1, 1999 which
were refinanced with a revolving credit and term loan facility. Such charge
was comprised of the write-offs of unamortized deferred financing costs of
$0.9 million and of unamortized original issue discount of $2.6 million
offset by $1.4 million of income tax benefit.
Transition 1993
Revenues
---------
Comparable Transition
1992 1993
---- ----
(In thousands)
Textiles $ 339,110 $ 365,276
Restaurants 133,640 147,460
Soft Drink 100,185 98,337
Liquefied Petroleum Gas 85,639 89,167
Other 57,278 3,301
---------- ----------
$ 715,852 $ 703,541
========== ==========
Revenues declined $12.3 million to $703.5 million in Transition 1993
from $715.8 million in Comparable 1992 reflecting increased revenues in each
of the Company's four core business segments except for the soft drink
segment, which were more than offset by the absence of revenues from certain
non-core operations principally sold during Comparable 1992 or held for sale
during Transition 1993. Revenues from all of such business were included in
"Other" in the table above for Comparable 1992 while in Transition 1993 the
net results of operations of such non-core businesses not yet sold but held
for sale were reflected in "Other income (expense), net" in the accompanying
consolidated statement of operations for Transition 1993 since they were not
material. Textile revenues increased $26.2 million (7.7%) due to increased
volume and prices, despite a denim market downturn which began in September
1993. The textile segment experienced increased revenues in all of its
product areas: utility wear, sportswear (piece-dyed and indigo-dyed
fabrics), specialty products and dyes and specialty chemicals. Restaurant
revenues increased $13.8 million (10.3%) principally due to an increase in
both company-owned and franchised same store sales and a net increase in the
number of franchised restaurants. Soft drink revenues declined $1.8 million
(1.8%) due principally to (i) a decline in domestic branded sales resulting
from ineffective marketing programs and (ii) the effect in the fourth quarter
of 1993 of management's decision to limit the quantity of concentrate the
Company would sell to bottlers to permanently reduce excessive inventory
within bottler production locations at year end. Although unit volume of
private label sales increased significantly in the soft drink segment, the
effect of such volume increase on revenues was offset by one major private
label customer, Cott Corporation ("Cott"), purchasing a component (aspartame)
of the Company's soft drink concentrate directly from the Company's supplier
in 1993 rather than from the Company, thereby reducing the sales price of
concentrate to that customer. LP gas revenues increased $3.5 million (4.1%)
principally as a result of higher average selling prices, including the pass
through of higher product costs, partially offset by lower volume due to
warmer weather and the flooding which took place in the Midwest in 1993 which
caused a decrease in LP gas usage for crop drying.
Cost of sales in Transition 1993 amounted to $496.6 million (resulting
in a gross margin of 29.4%) and reflects the absence of certain non-core
operations previously sold or held for sale and no longer consolidated, the
reduction in the cost of aspartame in the soft drink segment reflecting the
expiration of the underlying patent and the elimination of its sale at cost
to a major customer (Cott). Such cost of sales reductions were partially
offset by the effect of the increased overall sales volume in the Company's
core businesses.
Advertising, selling and distribution of $75.0 million in Transition
1993 was impacted by a significantly higher level of expenditures in the soft
drink segment resulting from (i) increased advertising and promotional
expenses related to domestic branded products intended to generate future
sales growth and programs, which were discontinued by the end of 1993, which
passed along a portion of the reduced cost of aspartame to the Company's
bottlers in the form of advertising allowances and (ii) an increase in
advertising and promotional allowances granted to soft drink bottlers, the
total amounts of which normally are dependent principally upon the
achievement of annual sales volume.
General and administrative expenses amounted to $102.0 million in
Transition 1993. Such amount includes normal recurring general and
administrative expenses as well as (i) a $10.0 million provision for
increased insurance loss reserves relating to the Company's coverage as well
as reinsurance of certain insurance coverage which the Company and certain
former affiliates maintained with unaffiliated insurance companies and (ii) a
$2.3 million increase in reserves for legal matters principally for a claim
by NVF Company ("NVF"), a former affiliate which is currently involved in
proceedings under the Federal Bankruptcy Code.
Consolidated operating profit declined $21.1 million to $30.0 million in
Transition 1993 from $51.1 million in Comparable 1992 principally due to the
significant charges in Transition 1993 as described above and increased
advertising expenses in the soft drink segment.
Interest expense of $44.9 million in Transition 1993 reflects the effect
of lower interest rates substantially offset by the effect of higher
borrowing levels resulting from the restructuring of the Company's
indebtedness.
Other expense, net of $8.0 million in Transition 1993 reflects (i) an
additional provision of $5.0 million for settlement of a shareholder
derivative suit brought against the directors of SEPSCO at that time and
certain corporations, including Triarc (the "SEPSCO Litigation") and (ii) a
provision of $3.3 million for additional losses incurred in connection with
the sale of certain non-core businesses.
The Company recorded a provision for income taxes of $7.8 million in
Transition 1993 despite a pretax loss of $22.9 million due principally to a
$7.2 million increase in reserves for income tax contingencies, losses of
certain subsidiaries not included in Triarc's consolidated income tax return
for which no tax benefit is available, the provision for settlement of the
SEPSCO Litigation which is not deductible for income tax purposes and
amortization of costs in excess of net assets of acquired companies which is
not deductible for income tax purposes.
Loss from discontinued operations of $8.6 million in Transition 1993
reflects the then estimated loss on disposal of the discontinued operations
of $8.8 million, net of minority interests, less the income from discontinued
operations of $0.2 million, net of income taxes and minority interest, prior
to July 22, 1993, the date SEPSCO's Board of Directors decided to dispose of
SEPSCO's utility and municipal services and refrigeration business segments.
The estimated loss on disposal reflects the Company's estimate as of December
31, 1993 of losses incurred on the sale of such discontinued operations,
including estimated operating results through the then anticipated disposal
dates.
The extraordinary charge in Transition 1993 represents a loss, net of
income tax benefit, resulting from the early extinguishment of debt in August
1993 comprised of the write-off of unamortized deferred financing costs of
$2.2 million offset by $1.5 million of discount resulting from the redemption
of debt and income tax benefit of $0.3 million.
Fiscal 1993 Compared with Fiscal 1992
Revenues Operating Profit (Loss)
--------------------- -----------------------
Fiscal Fiscal Fiscal Fiscal
1992 1993 1992 1993
---- ---- ----- ----
(In thousands except per share amounts)
Textiles $ 456,402 $ 499,060 $ 27,753 $ 47,203
Restaurants 186,921 198,915 14,271 7,852
Soft Drink 143,830 148,262 36,112 23,461
Liquefied Petroleum Gas 141,032 148,790 12,676 3,008
Other 146,518 63,247 (5,746) (15,942)
General corporate expenses -- -- (26,514) (31,123)
---------- ---------- --------- ----------
$ 1,074,703 $ 1,058,274 $ 58,552 $ 34,459
========== ========== ========= ==========
Revenues declined $16.4 million (1.5%) to $1.06 billion in Fiscal 1993
from $1.07 billion in Fiscal 1992 principally due to the absence of revenues
from certain non-core operations (included in "Other" in the table above)
which were sold during Fiscal 1993, offset in part by increased revenues in
each of the Company's major segments. Textile revenues increased
approximately $42.7 million (9.3%) to $499.1 million from $456.4 million due
to increased volume and prices. Restaurant revenues increased $12.0 million
(6.4%) to $198.9 million from $186.9 million due to additional company-owned
and franchised restaurants and an increase in same store sales of company-
owned restaurants. Soft drink revenues increased $4.5 million (3.1%) to
$148.3 million from $143.8 million due to an increase in private label and
international sales as a result of unit volume increases partially offset by
a decrease in domestic sales of Diet Rite flavor brands. LP gas revenues
increased $7.8 million (5.5%) to $148.8 million from $141.0 million due to an
increase in the number of gallons sold.
Cost of sales declined $30.9 million to $762.4 million in Fiscal 1993 from
$793.3 million in Fiscal 1992 due principally to the net decline in revenues
described above. Gross profit (total revenues less cost of sales) increased
$14.5 million to $295.9 million in Fiscal 1993 from $281.4 million in Fiscal
1992 and gross margin increased to 28.0% in Fiscal 1993 from 26.2% in Fiscal
1992 due principally to higher average selling prices and lower cost of
cotton in the textile segment.
Advertising, selling and distribution increased $5.4 million to $72.9
million in Fiscal 1993 from $67.5 million in Fiscal 1992 due principally to
increased advertising spending in the soft drink and restaurant segments and
a $1.5 million provision for estimated costs to comply with current package
labeling regulations affecting the soft drink segment.
General and administrative expenses increased $9.9 million to $135.2
million in Fiscal 1993 from $125.3 million in Fiscal 1992. Affecting general
and administrative expenses in Fiscal 1993 was a $4.9 million accrual of
compensation paid to a special committee of the pre-Change in Control Triarc
Board of Directors representing a success fee attributable to the Change in
Control and a $2.2 million provision for closing certain non-strategic
company-owned restaurants and abandoned bottling facilities which were more
than offset by a $7.3 million reversal of unpaid incentive plan accruals
provided in prior years. Affecting general and administrative expenses in
Fiscal 1992 was the reversal of unpaid incentive plan accruals aggregating
approximately $10.0 million provided in prior years.
In Fiscal 1993 results of operations were significantly impacted by
facilities relocation and corporate restructuring charges aggregating $43.0
million. Of such charges, $41.2 million related to the Change in Control of
the Company. As part of the Change in Control, the Board of Directors of the
Company was reconstituted. The first meeting of the reconstituted Board of
Directors was held on April 24, 1993. At that meeting, based on a report and
recommendations from a management consulting firm that had conducted an
extensive review of the Company's operations and management structure, the
Board of Directors approved a plan of decentralization and restructuring
which entailed, among other things, the following features: (a) the strategic
decision to manage the Company in the future on a decentralized, rather than
on a centralized basis; (b) the hiring of new executive officers for Triarc
and the hiring of new chief executive officers and new senior management
teams for each of Arby's, Royal Crown and National Propane to carry out the
decentralization strategy; (c) the termination of a significant number of
employees as a result of both the new management philosophy and the hiring of
an almost entirely new management team and (d) the relocation of the
corporate headquarters of Triarc and of all of its subsidiaries whose
headquarters were located in South Florida, including Arby's, Royal Crown,
National Propane. In connection with (b) above, in April 1993 the Company
entered into employment agreements with the then new president and chief
executive officers of Royal Crown, Arby's and National Propane. Accordingly,
the Company's cost to relocate its corporate headquarters and terminate the
lease on its existing corporate facilities of $14.9 million, and estimated
corporate restructuring charges of $20.3 million including costs associated
with hiring and relocating new senior management and other personnel
recruiting and relocation costs, employee severance costs and consulting
fees, all stemmed from the decentralization and restructuring plan formally
adopted at the April 24, 1993 meeting of the Company's reconstituted Board of
Directors. Also in connection with the Change in Control, Victor Posner and
Steven Posner, the Chairman and Chief Executive Officer and Vice Chairman,
respectively, resigned as officers and directors of the Company. In order to
induce Steven Posner to resign, the Company entered into a five-year, $6.0
million consulting agreement extending through April 1998 (the "Consulting
Agreement") with him. The cost related to the Consulting Agreement was
recorded as a charge in Fiscal 1993 because the Consulting Agreement does not
require any substantial services and the Company does not expect to receive
any services that will have substantial value.
Provision for doubtful accounts from affiliates was $10.4 million in
Fiscal 1993 compared to $25.7 million in Fiscal 1992. The provision in
Fiscal 1993 includes year-end charges of $5.1 million relating to the final
write-off of certain secured notes and accrued interest receivable from
Pennsylvania Engineering Corporation ("PEC") and APL Corporation ("APL"),
former affiliates that currently are in bankruptcy proceedings, for which
Triarc has significant doubts as to the net realizability of the underlying
collateral, offset by a recovery from Insurance and Risk Management, Inc.
("IRM"), also a former affiliate, of certain amounts offset in connection
with the minority share acquisitions in the Reorganization. The remainder of
such provision in Fiscal 1993 relates principally to unsecured receivables
from APL, including accrued interest, principally in connection with a former
management services agreement with Triarc. Triarc was obligated to provide
certain limited management services to several former non-subsidiary
affiliates through October 1993 and discontinued such services thereafter.
The provision in Fiscal 1992 reflected $16.2 million and $1.8 million of
reserves for amounts owed by APL and PEC, respectively, in connection with
the management services agreements referred to above and provisions of $2.2
million and $5.5 million for certain notes, accrued interest and insurance
premiums receivable from or attributable to APL and PEC, respectively.
Operating profit declined $24.1 million to $34.5 million in Fiscal 1993
from $58.6 million in Fiscal 1992 due primarily to the facilities relocation,
corporate restructuring and other significant charges aggregating $51.7
million in April 1993 described above. Such charges reduced the operating
profits reported by each of the Company's segments to the extent of charges
related directly to their operations and also to the extent of corporate
costs which were allocable to such segments under the management services
agreements between Triarc and its subsidiaries. Textile operating profit
increased to $47.2 million (inclusive of $5.4 million of restructuring and
other charges) in Fiscal 1993 from $27.8 million (inclusive of a divisional
restructuring charge of $2.5 million partially offset by a $2.0 million
incentive accrual reversal) in Fiscal 1992 due to increased sales volume and
improved margins. Restaurant operating profit was $7.9 million (inclusive of
$9.7 million of restructuring and other charges) in Fiscal 1993 compared with
$14.3 million (inclusive of $1.1 million of restructuring costs relating to
the closing of two regional fast food franchise offices partially offset by a
$0.5 million incentive accrual reversal) in Fiscal 1992. Soft drink
operating profit was $23.5 million (inclusive of $11.1 million of
restructuring and other charges) in Fiscal 1993 compared with $36.1 million
(inclusive of a $3.0 million incentive accrual reversal partially offset by a
$0.7 million charge for the relocation of the soft drink corporate office) in
Fiscal 1992. LP gas operating profit was $3.0 million (inclusive of
restructuring and other charges of $8.0 million) in Fiscal 1993 compared with
$12.7 million (inclusive of a $3.0 million incentive accrual reversal) in
Fiscal 1992. Operating loss of other operations was $15.9 million (inclusive
of $9.0 million of provision for write-off of notes receivable from former
affiliates and other charges) in Fiscal 1993 compared with an operating loss
of $5.7 million (inclusive of a $5.6 million provision for doubtful accounts
from affiliates) in Fiscal 1992. Other operations were negatively impacted
in Fiscal 1993 by the absence of operating profits for a portion of Fiscal
1993 of certain non-core businesses sold earlier in the year. General
corporate expenses were $31.1 million (inclusive of $8.5 million of
restructuring and other charges and a $3.3 million provision for doubtful
accounts from former affiliates) in Fiscal 1993 compared with $26.5 million
(inclusive of an $11.2 million provision for doubtful accounts from former
affiliates partially offset by a $1.5 million incentive accrual reversal) in
Fiscal 1992.
Interest expense increased $1.0 million due to a charge in Fiscal 1993 of
$8.5 million for interest accruals on income tax matters, partially offset by
interest savings resulting from lower average levels of debt and lower
interest rates.
Other income (expense), net, worsened by $7.4 million to an expense of
$0.9 million in Fiscal 1993 compared with income of $6.5 million in Fiscal
1992. The major components of other income (expense), net, in Fiscal 1993
include $3.2 million of costs for a proposed alternative financing which was
never consummated and expenses aggregating $9.3 million relating to
litigation, principally the shareholder litigation which resulted in the
Change in Control, and the SEPSCO Litigation offset by a credit of
approximately $8.9 million in connection with the settlement of accrued rent
as part of the Change in Control and a net gain of approximately $2.2 million
with respect to the sales of certain non-core businesses, net of write-downs
of $3.8 million to estimated net realizable value of certain assets of other
non-core businesses. The major components of other income (expense), net in
Fiscal 1992 included gains of $4.6 million on repurchases of debentures for
sinking funds and interest income of $3.5 million offset by provisions
aggregating approximately $3.4 million with respect to certain shareholder
and Arby's litigation.
The effective income tax rates differ from the statutory rate due
principally to losses of certain subsidiaries for which no income tax benefit
is available, certain expenses which are not deductible for tax purposes and,
in Fiscal 1993, an $11.8 million provision for income tax contingencies and
other matters (of which $7.9 million was recorded in the fourth quarter).
The effect of minority interests was a $3.4 million credit in Fiscal 1993
compared with a $0.5 million expense in Fiscal 1992 due principally to the
minority interest effect relating to the facilities relocation, corporate
restructuring and other significant charges in Fiscal 1993 described above.
Income (loss) from discontinued operations reflects the results, net of
income taxes and minority interests, of the Company's discontinued utility
and municipal services and refrigeration operations. Loss from discontinued
operations in Fiscal 1993 reflects a $12.9 million write-down ($5.4 million
net of tax benefit and minority interest credits) relating to the impairment
of certain unprofitable properties and accruals for environmental remediation
and losses on certain contracts in progress.
The Fiscal 1993 extraordinary charge resulted from the early
extinguishment of certain debt of RC/Arby's Corporation ("RCAC") in
connection with the Change in Control and was comprised of the write-off of
unamortized deferred financing costs of $3.7 million and the payment of
prepayment penalties of $6.7 million, net of tax benefit of $3.8 million.
The Fiscal 1993 cumulative effect of changes in accounting principles
resulted from a charge of $4.9 million, net of minority interests, from the
adoption of Statement of Financial Accounting Standards ("SFAS") 109 and an
after-tax charge, net of minority interests, of $1.5 million from the
adoption of SFAS 106. SFAS 109 requires an asset and liability approach for
the accounting for income taxes. As such, deferred income taxes are
determined based on the tax effect of the differences between the financial
statement and tax bases of assets and liabilities. The deferred income tax
provision or benefit for each year represents the increase or decease,
respectively, in the deferred income tax liability during such year. SFAS
109 allows the recognition, subject to a valuation allowance if necessary, of
a deferred tax asset for net temporary differences that will result in net
deductible amounts in future years. SFAS 106 requires the Company to charge
to expense the expected cost of other postretirement benefits during the
years the employees render services.
Net loss of $60.0 million in Fiscal 1993 increased from a net loss of $7.5
million in Fiscal 1992 principally as a result of the Fiscal 1993 facilities
relocation, corporate restructuring and other significant charges, including
an extraordinary charge and cumulative effect of changes in accounting
principles, previously discussed aggregating approximately $67.1 million, net
of tax benefit and minority interest credits.
Liquidity and Capital Resources
Consolidated cash and cash equivalents declined $38.7 million during
1994 to $80.1 million at December 31, 1994. Such decrease reflects (i) cash
used in operations of $6.3 million, (ii) cash used in investing activities of
$48.6 million and (iii) cash used by discontinued operations of $1.5 million;
all partially offset by (iv) $17.7 million of cash provided by financing
activities. The net cash used in operations reflects a net loss of $8.1
million after $1.8 million of adjustments to reconcile net loss to cash and
cash equivalents used in operating activities. Such adjustments consist of
(i) non-cash charges for depreciation and amortization of $51.5 million, (ii)
provision for facilities relocation and corporate restructuring of $8.8
million and (iii) other items, net of $4.6 million substantially offset by
(i) cash paid for facilities relocation and corporate restructuring of $14.7
million, (ii) gain on sale of assets of $7.0 million and, most significantly,
(iii) the change in operating assets and liabilities of $41.4 million. The
Company expects positive cash flows from operations in 1995 since it
anticipates an improvement in the results of operations and a reduction in
the negative effect of the $41.4 million change in operating assets and
liabilities. The change in operating assets and liabilities reflects a
decrease in accounts payable and accrued expenses of $29.2 million and an
increase in receivables of $18.1 million. The decrease in accounts payable
and accrued expenses is principally due to (i) a $12.0 million payment in
settlement of insurance litigation, (ii) liquidations of accruals in
connection with the SEPSCO and NVF litigations and (iii) other decreases
related to the timing of payments. The increase in receivables reflects an
increase in the number of days of sales outstanding in receivables
principally due to a change in sales mix toward operations with longer credit
terms. The cash used in investing activities reflects (i) capital
expenditures of $61.6 million, (ii) restaurant and LP gas business
acquisitions of $18.8 million, (iii) a $7.3 million investment in an
affiliate; all partially offset by (iv) $39.1 million of proceeds from the
sales of businesses and properties. The $17.7 million of cash provided by
financing activities reflects borrowings of long-term debt in excess of
repayments of $30.3 million partially offset by (i) cash dividends on
redeemable preferred stock of $5.8 million (ii) deferred financing costs of
$5.5 million and (iii) other uses of $1.3 million.
Total stockholders' deficit improved to a deficit of $31.8 million at
December 31, 1994 from a deficit of $76.0 million at December 31, 1993. Such
improvement was due to (i) the issuance of 2,691,824 shares of Triarc's Class
A Common Stock for an aggregate fair value of $55.9 million in connection
with the April 1994 merger of Triarc and SEPSCO and (ii) other net
transactions aggregating $2.2 million less (i) preferred stock dividends of
$5.8 million and (ii) the net loss of $8.1 million. Pursuant to a settlement
agreement (the "Settlement Agreement") entered into by the Company and Victor
Posner and certain entities controlled by him on January 9, 1995,
stockholders' equity (deficit) was improved further by $83.8 million. See
Note 34 to the accompanying consolidated financial statements for discussion
of this subsequent event.
RCAC's $275.0 million aggregate principal amount of 9 3/4% senior notes
due 2000 (the "9 3/4% Senior Notes") mature on August 1, 2000 and do not
require any amortization of the principal amount thereof prior to such date.
Graniteville Company ("Graniteville"), a wholly-owned subsidiary of the
Company and its subsidiary C.H. Patrick & Co., Inc. have a $180.0 million
senior secured credit facility (the "Graniteville Credit Facility") with
Graniteville's commercial lender. The Graniteville Credit Facility, as
amended in October 1994, provides for senior secured revolving credit loans
of up to $112.0 million through March 1995, $107.0 million through December
1995 and $100.0 million through April 1998 (the "Revolving Loan") and an
$80.0 million senior secured term loan (the "Term Loan") and expires in 1998.
In March 1995 the Graniteville Credit Facility was further amended to provide
for a maximum Revolving Loan of $116.0 million through March 1995, $124.0
million through June 1995, $120.0 million through September 1995 and $115.0
million thereafter. The Revolving Loan as amended in March 1995 does not
require any amortization of principal prior to its expiration in 1998. The
Term Loan is repayable $12.0 million per year from 1995 through 1997, with a
final payment of $25.0 million due in April 1998.
On October 7, 1994 National Propane entered into a $150.0 million
revolving credit and term loan agreement with a group of banks (the "Bank
Facility"). The Bank Facility consists of a $40.0 million revolving credit
facility and three tranches of term loans aggregating $110.0 million. An
aggregate $30.0 million, including $20.0 million of the term loans and, after
one year, $10.0 million of the revolving credit facility is conditioned upon
completion of the intended merger of Public Gas Company ("Public Gas"), a
subsidiary of SEPSCO engaged in the distribution of LP gas, and National
Propane and the redemption, in part, prior to October 7, 1995, of the $54.0
million outstanding principal amount of SEPSCO's 11 7/8% senior subordinated
debentures due February 1, 1998 (the "11 7/8% Debentures") as of December 31,
1994 ($45.0 million as of February 28, 1995). The Company would provide the
remaining funds for the redemption of the 11 7/8% Debentures principally from
SEPSCO's existing cash and marketable securities ($35.0 million as of
December 31, 1994 and $21.1 million at February 28, 1995 after a $9.0 million
annual sinking fund payment on the 11 7/8% Debentures). If the merger of
Public Gas with National Propane and the redemption of the 11 7/8% Debentures
do not occur by October 7, 1995, the availability of the $30.0 million noted
above will expire. Further, $15.0 million of the revolving credit facility
is restricted for niche acquisitions by National Propane (the "Acquisition
Sublimit") and any outstanding borrowings under the Acquisition Sublimit
convert to term loans in October 1997. Revolving credit loans, exclusive of
the $15.0 million Acquisition Sublimit, mature in March 2000. The $90.0
million outstanding amount of the term loans at December 31, 1994 amortizes
$8.75 million in 1995, $9.25 million in 1996, $9.5 million in 1997, $12.125
million in 1998, $12.375 million in 1999 and $38.0 million thereafter
(through 2002).
Under the Company's various debt agreements substantially all of the
Company's assets are pledged as security. In addition, the 9 3/4% Senior
Notes have been guaranteed by Royal Crown and Arby's and the Graniteville
Credit Facility and the Bank Facility have been guaranteed by Triarc. As
collateral for such guarantees, all of the stock of Royal Crown, Arby's,
Graniteville (50% of such stock is subject to a pre-existing pledge of such
stock in connection with a Triarc intercompany note payable to SEPSCO in the
principal amount of $26.5 million), National Propane and SEPSCO is pledged.
The Company's debt instruments require aggregate principal payments of
$26.2 million in 1995, exclusive of requirements for the 11 7/8% Debentures,
consisting of $12.0 million of payments of term loans under the Graniteville
Credit Facility, $8.75 million of payments of term loans under the Bank
Facility and $5.45 million of payments of other debt. In connection with the
merger of Public Gas and National Propane (in order to consolidate the
Company's two LP gas operations within one entity) expected to occur in the
second quarter of 1995, the Company presently intends to cause SEPSCO to
repay the 11 7/8% Debentures prior to maturity during 1995 with proceeds from
a $30.0 million revolving loan (due 2000) under the Bank Facility (as
previously discussed) and the remaining principal of $24.0 million from cash
balances.
Consolidated capital expenditures, excluding properties of business
acquisitions and including capital leases of $4.2 million, amounted to $65.8
million for 1994. The Company expects that capital expenditures during 1995
will approximate $86.0 million, subject to the availability of cash and other
financing sources. These actual and anticipated expenditures reflect
increased levels principally in the restaurant segment in furtherance of its
business strategies, principally for construction and acquisition of new
restaurants and remodeling of older restaurants. The Company anticipates it
will meet a portion of its capital expenditures through leasing arrangements;
however, additions to the capitalized leases of RCAC are limited to $15.0
million annually for the aggregate of business acquisitions and capital
expenditures, in accordance with the indenture pursuant to which the 9 3/4%
Senior Notes were issued (of which approximately $4.0 million has been used
in 1995 for business acquisitions - see below). Currently anticipated and
available sources of cash in 1995 may be insufficient to allow the Company to
meet its planned capital expenditures noted above (less the portion financed
through capitalized leases) and, accordingly, the Company may be required to
arrange for new financings, to the extent available, in order to fully
implement its capital expenditure plan. To the extent the Company cannot
arrange alternative financing, the capital expenditure plan will be
curtailed.
Cash paid for business acquisitions amounted to $18.8 million during
1994. In furtherance of the Company's growth strategy, the Company will
consider additional selective acquisitions, as appropriate, to build and
strengthen its existing businesses. In connection therewith, in February
1995 the Company's restaurant segment acquired an additional thirty-five
previously franchised restaurants for cash of $6.4 million and the assumption
of approximately $4.0 million of capitalized lease obligations and signed a
letter of intent to purchase sixteen franchised restaurants in Canada
(expected to be consummated in the second quarter of 1995) for cash of
approximately $3.8 million and the assumption of approximately $2.0 million
of capitalized leases. In addition, in January 1995 the Company's soft drink
segment reacquired the distribution rights for Royal Crown products in the
New York metropolitan area and acquired the C&C trademark, which includes
cola, mixer and flavor lines, and existing inventory for cash of $2.9
million.
In the fourth quarter of Fiscal 1993 the Company recorded a charge of
$43.0 million for facilities relocation and corporate restructuring costs in
connection with the Change in Control. In the second and third quarters of
1994 the Company recorded an aggregate $8.8 million in additional facilities
relocation and corporate restructuring costs. As of December 31, 1994 the
remaining accrual for facilities relocation and corporate restructuring was
$22.8 million. In the first quarter of 1995 the Company satisfied, through
the issuance of its Class A Common Stock, the $13.0 million accrual related
to a lease termination liability for the Company's former headquarters as a
result of the Settlement Agreement and expects that the remaining $9.8
million will be liquidated $4.1 million in 1995 and $5.7 million thereafter.
As of December 31, 1994, the Company has completed substantially all actions
in connection with the facilities relocation and corporate restructuring
charges. The benefits of such actions, including those related to
implementing new management organizations and strategies, began to be
realized in Transition 1993 and 1994 and further benefits thereof are
expected to be realized in future periods. No material changes to estimates
of the costs included in such charges were necessary.
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service ("IRS") for the tax years 1985 through 1988. The
Company has resolved all but two issues related to such audit and in
connection therewith paid $5.2 million in 1994, which amount had been fully
reserved. The Company is contesting the two open issues at the Appellate
Division of the IRS. The IRS is currently examining the Company's Federal
income tax returns for the tax years from 1989 through 1992 and has proposed
certain adjustments, some of which will be contested by the Company. The
amount and timing of any payments required as a result of (i) the remaining
open issues from the 1985 through 1988 examination and (ii) the 1989 through
1992 examination cannot presently be determined; however the Company does not
anticipate being required to make any payments in 1995 with respect to such
tax matters. In any event, management of the Company believes that adequate
aggregate provisions have been made in 1994 and prior periods for any tax
liabilities, including interest, that may result from all such examinations
and other tax matters.
The Company temporarily froze two of its defined benefit pension plans
in 1988 and permanently froze the plans in 1992. The Company has no current
plans to terminate the plans. However, should interest rates increase to a
level at which there would be an insignificant cash cost to the Company to
terminate the plans, the Company may decide to terminate the plans. As of
December 31, 1994, based on the 6% interest rate as currently recommended by
the Pension Benefit Guaranty Corporation (the "PBGC") for purposes of such
calculation, the Company would have incurred a cash outlay of $2.0 million.
Such liability upon plan termination is significantly dependent upon the
interest rate assumed for such calculation purposes and, within a reasonable
range, such contingent liability increases (decreases) by approximately $0.4
million for each 1/2% decrease (increase) in the assumed interest rate.
Based upon current interest rates, the Company believes it would be able to
liquidate the pension obligation for less than the $2.0 million determined
using the PBGC rate should it choose to terminate the plans.
As of December 31, 1994 the Company had cash and cash equivalents and
marketable securities of $89.5 million available to meet its cash
requirements. As of February 28, 1995 such amount had decreased to $50.8
million primarily reflecting (i) the $9.0 million scheduled principal payment
on the 11 7/8% Debentures, (ii) $16.6 million of interest payments on the 9
3/4% Senior Notes and the 11 7/8% Debentures and (iii) business acquisitions
and capital expenditures of the restaurant segment. As of December 31, 1994
the Company's principal 1995 cash requirements, exclusive of operating cash
flows, consist principally of capital expenditures of approximately $86.0
million to the extent not leased, contractual debt principal payments
aggregating $50.2 million (including the net cash requirement for the
intended repayment prior to maturity of the 11 7/8% Debentures), $13.1
million for the acquisitions noted above and funding for additional
acquisitions, if any. The Company anticipates meeting such requirements
through existing cash and cash equivalents and marketable securities, cash
flows from operations, borrowings available under the Graniteville Credit
Facility, as amended in March 1995, and the Bank Facility, and financing a
portion of its capital expenditures through capital leases, operating lease
arrangements and additional financing arrangements to finance the planned
capital expenditures of the restaurant segment. As discussed above, if the
Company cannot successfully arrange additional third party financing, it will
be necessary to reduce the capital expenditure program accordingly. The
ability of the Company to meet its long-term cash requirements is dependent
upon its ability to obtain and sustain sufficient cash flows from operations
supplemented as necessary by potential financings to the extent obtainable.
Triarc
Triarc is a holding company whose ability to meet its cash requirements
is primarily dependent upon cash flows from its subsidiaries including loans
and cash dividends to Triarc by subsidiaries and reimbursement by
subsidiaries to Triarc in connection with the providing of certain management
services and payments under certain tax sharing agreements with certain
subsidiaries.
Triarc's principal subsidiaries are subject to certain limitations on
their ability to pay dividends and/or make loans or advances to Triarc as of
December 31, 1994. The ability of each of Triarc's subsidiaries to pay cash
dividends and/or make loans or advances to Triarc is also dependent upon the
respective abilities of such entities to achieve sufficient cash flows after
satisfying their respective cash requirements, including debt service, to
enable the payment of such dividends or the making of such loans or advances.
Under the terms of the indenture relating to the 9 3/4% Senior Notes, RCAC is
only permitted to pay cash dividends on its common stock or make loans or
advances to its parent, CFC Holdings Corp. ("CFC Holdings"), or to Triarc, to
the extent the aggregate amount of such payments declared or made after
August 12, 1993 shall not exceed (a) the sum of (i) 50% of the cumulative net
income of RCAC after July 1, 1993, (ii) the aggregate net cash proceeds
received by RCAC from the issuance or sale of its capital stock or from
equity contributions, and (iii) $1.0 million (b) less 100% of the cumulative
net loss of RCAC after July 1, 1993. In accordance with such limitation,
RCAC could not pay any dividends, or make any loans or advances to CFC
Holdings as of December 31, 1994, and based on current estimates will be
unable to pay any dividends during 1995. CFC Holdings is not presently
subject to any agreement which limits its ability to pay cash dividends or
make loans or advances, although by reason of the restrictions to which RCAC
is subject, CFC Holdings is unable in the near term to obtain funds from its
subsidiaries.
Under the Graniteville Credit Facility, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including Triarc, in
an amount equal to 50% of the net income of Graniteville accumulated from the
beginning of the first fiscal year commencing on or after December 20, 1994,
provided that the outstanding principal balance of Graniteville's term loan
is less than $50.0 million at the time of the payments (the outstanding
principal balance was $61.0 million as of December 31, 1994), and certain
other conditions are met. Accordingly, Graniteville is unable to pay any
dividends or make any loans or advances to Triarc prior to December 31, 1995.
Under the terms of its Bank Facility entered into in October 1994,
National Propane is limited in its ability to pay dividends or make advances
to Triarc or its affiliates. In October 1994 National Propane paid a $40.0
million dividend to Triarc. As of December 31, 1994 National Propane has
$5.0 million available for the payment of dividends with an additional $30.0
million available which would be restricted to the redemption of SEPSCO's 11
7/8% Debentures which Triarc presently intends to cause SEPSCO to repay if
and when the merger of Public Gas and National Propane is consummated. Under
the indenture related to the 11 7/8% Debentures, SEPSCO was unable to pay any
cash dividends to Triarc as of December 31, 1994, but may make loans or
advances to Triarc and its subsidiaries. If and when the merger of Public
Gas with National Propane is consummated and the 11 7/8% Debentures are
repaid, the restriction on SEPSCO's ability to pay cash dividends to Triarc
would be removed.
As of December 31, 1994, Triarc had outstanding external indebtedness
consisting of a $37.4 million note (including interest capitalized as
additional principal of $3.2 million) issued in connection with the
commutation of certain insurance obligations. In addition, Triarc owed
subsidiaries an aggregate principal amount of $229.6 million, consisting of
notes in the principal amounts of $49.3 million and $72.4 million owed to CFC
Holdings and Graniteville, respectively (which bear interest at 9.5% per
annum), balances of $81.4 million of advances owed to National Propane (which
bear interest at 16.5% per annum) and $26.5 million remaining on a note
payable to SEPSCO (which bears interest at 13% per annum).
Under a program announced in late 1994, management of the Company has
been authorized, when and if market conditions warrant, to repurchase, until
June 1995, up to $20.0 million of its Class A Common Stock. Under this
program, the Company repurchased 91,500 shares of Class A Common Stock in
December 1994 for an aggregate cost of $1.0 million. Such repurchases may
continue from time to time based on market conditions and the availability of
funds for such purchases.
Triarc expects its significant cash requirements for 1995, exclusive of
any related to the stock repurchase program, will be limited to general
corporate expenses including cash used in operations, cash requirements for
its facilities relocation and corporate restructuring accruals of $3.2
million, required interest payments of $2.1 million on its note payable to
Graniteville (see above) and $3.15 million of payments in connection with the
Settlement Agreement discussed above (including a payment of $2.0 million to
the Special Committee of the Company's Board of Directors). Triarc believes
that its expected sources of cash, including (i) existing cash balances
($36.5 million at December 31, 1994 and $9.0 million at February 28, 1995),
(ii) reimbursement of general corporate expenses from subsidiaries in
connection with management services agreements and (iii) net payments
received under tax sharing agreements with certain subsidiaries which the
Company does not anticipate having to remit to the IRS due to the
availability of operating loss, depletion and tax credit carryforwards and
(iv) $6.0 million received from Posner in January 1995 in connection with the
Settlement Agreement will be sufficient to enable it to meet its short-term
cash needs.
RCAC
RCAC's cash requirements for 1995 consist of projected capital
expenditures of $65.0 million, debt and affiliated note principal payments of
$11.4 million, acquisitions already consummated in 1995 of $9.3 million and
other acquisitions, if any. The Company does not believe RCAC's cash sources
of operating cash flows, additional advances from Triarc and/or borrowings
from SEPSCO and financing a portion of its capital expenditures through
capital leases (up to an allowable $15.0 million) and operating leases will
be adequate to meet its cash requirements unless additional third party
financing can be arranged. As previously discussed, if the Company and RCAC
cannot successfully arrange additional third party financing, it will be
necessary to reduce the capital expenditure program accordingly. Despite
reporting negative operating cash flows in 1994, RCAC expects its operations
during 1995 to result in positive cash flows due to the fact that a
significant portion of the negative effect of the change in operating assets
and liabilities that ocurred during 1994 should not recur during 1995.
Graniteville and National Propane
The Company expects that the continuing positive operating cash flows of
Graniteville and National Propane and available borrowings, if required,
under the Graniteville Credit Facility and the Bank Facility will be
sufficient to enable those subsidiaries to meet their 1995 cash requirements.
SEPSCO
SEPSCO is required to pay interest on the 11 7/8% Debentures semi-annually
on February 1 and August 1 of each year. SEPSCO is also required to retire
annually through the operation of a mandatory sinking fund $9.0 million
principal amount of the 11 7/8% Debentures. SEPSCO satisfied its semi-annual
interest payment and the mandatory sinking fund requirement due February 1,
1995 through cash and cash equivalents on hand. Such payments are SEPSCO's
only significant 1995 cash requirement. The remaining requirements will be
met with its aforementioned existing cash and marketable securities.
Discontinued Operations
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's utility and municipal services, and refrigeration
businesses. In 1993 the Company sold the assets or stock of the entities
comprising the utility and municipal services business segment. On April 8,
1994 the Company sold substantially all of the operating assets of the ice
operations of SEPSCO's refrigeration business segment for $5.0 million in
cash, a $4.3 million note (discounted value $3.3 million - the benefit of
which has not been recorded) and the assumption by the buyer of certain
current liabilities of $1.2 million. The note, which bears no interest
during the first year and 5% thereafter, is payable in annual installments of
$120.0 thousand in 1995 through 1998 with the balance of $3.8 million due in
1999. On December 20, 1994 the Company sold either the stock or operating
assets of the companies comprising the cold storage operations of SEPSCO's
refrigeration business segment to National Cold Storage, Inc. ("National") a
company formed by two then officers of SEPSCO for cash of $6.5 million, a
$3.0 million note (discounted value $2.5 million - the benefit of which has
not been recorded) and the assumption by the buyer of certain liabilities of
$2.75 million. In addition, the Company sold certain cold storage properties
to several buyers for aggregate cash proceeds of $1.0 million and a note for
$0.7 million. The note from National bears no interest during the first year
and 8% thereafter payable at maturity, does not amortize and is due in full
in December 2000.
As of December 31, 1994 the Company has completed the sale of
substantially all of its discontinued operations but there remains certain
liabilities to be liquidated (the estimates of which have been accrued) as
well as certain contingent assets (principally the two notes from the sale of
the refrigeration business) which may be collected, the benefits of which,
however, have not been recorded. (See Note 20 to the accompanying
consolidated financial statements for further discussion).
Contingencies
In 1987 Graniteville was notified by the South Carolina Department of
Health and Environmental Control ("DHEC") that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. In 1990 and 1991 Graniteville provided reports to DHEC
summarizing its required study and investigation of the alleged pollution and
its sources which concluded that pond sediments should be left undisturbed
and in place and that other less passive remediation alternatives either
provided no significant additional benefits or themselves involved adverse
effects (i) on human health, (ii) to existing recreational uses or (iii) to
the existing biological communities. In March 1994 DHEC appeared to conclude
that while environmental monitoring at Langley Pond should be continued,
based on currently available information, the most reasonable alternative is
to leave the pond sediments undisturbed and in place. DHEC has requested the
Company to submit a proposal by mid-April 1995 concerning periodic monitoring
of sediment deposition in the pond and the Company intends to comply with
this request. The Company is unable to predict at this time what further
actions, if any, may be required in connection with Langley Pond or what the
cost thereof may be. However, given DHEC's recent conclusion and the absence
of reasonable remediation alternatives, the Company believes the ultimate
outcome of this matter will not have a material adverse effect on the
Company's consolidated results of operations or financial position.
Graniteville owns a nine acre property in Aiken County, South Carolina
(the "Vaucluse Landfill"), which was used as a landfill until 1973. The
Vaucluse Landfill was operated jointly by Graniteville and Aiken County and
may have received municipal waste and possibly industrial waste from
Graniteville as well as sources other than Graniteville. In March 1990, a
"Site Screening Investigation" was conducted by DHEC. In June 1992
Graniteville conducted its initial investigation. The United States
Environmental Protection Agency conducted an Expanded Site Inspection (an
"ESI") in January 1994 and Graniteville conducted a supplemental
investigation in February 1994. In response to the ESI, DHEC has indicated
its desire to have an investigation of the Vaucluse Landfill and has verbally
requested that Graniteville submit a proposal to DHEC outlining the
parameters of such an investigation. Since the investigation has not yet
commenced, Graniteville is currently unable to estimate the cost to remediate
the landfill. Such cost could vary based on the actual parameters of the
study. Based on currently available information, the Company does not
believe that the outcome of this matter will have a material adverse effect
on its consolidated results of operations or financial position.
As a result of certain environmental audits in 1991, SEPSCO became aware
of possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's ice and cold storage operations of the refrigeration business and
has filed appropriate notifications with state environmental authorities and
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 groundwater for contamination, development of remediation
plans and removal in some instances of certain contaminated soils.
Remediation is required at thirteen sites which were sold to or leased for
the purchaser of the ice operations (see Note 20) including eight sites at
which remediation has recently been completed or is ongoing. Such
remediation is being made in conjunction with the purchaser who is
responsible for payments of up to $1.0 million of such remediation costs,
consisting of the first and third payments of $0.5 million. Remediation will
also be required at seven cold storage sites which were sold in April 1994 to
the purchaser of the cold storage operations. Such remediation is expected
to commence in 1995 and will be made in conjunction with such purchaser who
is responsible for the first $1.25 million of such costs. In addition, there
are thirteen 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, four were remediated in 1994 at an
aggregate cost of $0.5 million. Based on consultations with, and certain
reports of, environmental consultants and others, SEPSCO presently estimates
that its cost of all of such remediation and/or removal will approximate $4.6
million, of which $1.3 million, $0.2 million, $2.7 million and $0.4 million
were provided prior to Fiscal 1992, in Fiscal 1992, in Fiscal 1993 and in
1994, respectively. In connection therewith, SEPSCO has incurred actual
costs of $2.8 million through December 31, 1994 and has a remaining accrual
of $1.8 million. Based on currently available information and the current
reserve levels, the Company does not believe that the ultimate outcome of the
remediation and/or removal will have a material adverse effect on its
consolidated financial position or results of operations.
In June 1994 NVF, which was affiliated with the Company until the Change
in Control, commenced a lawsuit in federal court against Chesapeake Insurance
and another defendant alleging claims for (a) breach of contract, (b) bad
faith and (c) tortious breach of the implied covenant of good faith and fair
dealing in connection with insurance policies issued by Chesapeake Insurance
covering property of NVF (the "Chesapeake Litigation"). NVF seeks
compensatory damages in an aggregate amount of approximately $2.0 million and
punitive damages in the amount of $3.0 million. In July 1994 Chesapeake
Insurance responded to NVF's allegations by filing an answer and
counterclaims in which Chesapeake Insurance denies the material allegations
of NVF's complaint and asserts defenses, counterclaims and set-offs against
NVF. The trial has been scheduled for October 10 and 11, 1995. Chesapeake
Insurance intends to continue contesting NVF's allegations in the Chesapeake
Litigation. Based upon the Indemnification available to the Company and
after considering its current reserve levels, the Company does not believe
that the outcome of the Chesapeake Litigation will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
In August 1993 NVF became a debtor in a case filed by certain of its
creditors under Chapter 11 of the Federal Bankruptcy Code (the "NVF
Proceeding"). In November 1993 the Company received correspondence from
NVF's bankruptcy counsel claiming that the Company and certain of its
subsidiaries owed to NVF an aggregate of approximately $2.3 million with
respect to (i) certain claims relating to the insurance of certain of NVF's
properties by Chesapeake Insurance, (ii) certain insurance premiums owed by
the Company to IRM, a subsidiary of NVF and a former affiliate of the Company
and (iii) certain liabilities of IRM, 25% of which NVF has alleged the
Company to be liable for. In addition, in June 1994 the official committee
of NVF's unsecured creditors (the "NVF Committee") filed an amended complaint
(the "NVF Litigation") against the Company and certain former affiliates
alleging various causes of action against the Company and seeking, among
other things, an undetermined amount of damages from the Company. In August
1994 the district court issued an order granting the Company's motion to
dismiss certain of the claims and allowing the NVF Committee to file an
amended complaint alleging why certain other claims should not be barred by
applicable statutes of limitation. In October 1994 the NVF Committee filed a
second amended complaint alleging causes of action for (a) aiding and
abetting breach of fiduciary duty by Victor Posner, (b) equitable
subordination of, and objections to, claims which the Company has asserted
against NVF, and (c) recovery of certain allegedly fraudulent and
preferential transfers allegedly made by NVF to the Company. The Company has
responded to the second amended complaint by filing a motion to dismiss the
complaint in its entirety. On February 10, 1995 the NVF Committee moved for
leave to file a third amended complaint. Triarc has opposed that motion. A
trial date has been set for July 5, 1995. The Company intends to continue
contesting these claims. Nevertheless, during Transition 1993 the Company
provided approximately $2.3 million with respect to claims related to the NVF
Proceeding. The Company has incurred actual costs through December 31, 1994
of $1.5 million and has a remaining accrual of $0.8 million. Subsequent to
December 31, 1994 Triarc received an indemnification from the Posner Entities
in connection with the Settlement Agreement previously discussed (the
"Indemnification") relating to, among other things, the NVF Litigation and,
as such, the Company does not believe that the outcome of the NVF Proceeding
will have a material adverse effect on the Company's consolidated financial
position or results of operations.
In July 1993 APL Corporation ("APL"), which was affiliated with the
Company until the Change in Control, became a debtor in a proceeding under
Chapter 11 of the Federal Bankruptcy Code (the "APL Proceeding"). In
February 1994 the official committee of unsecured creditors of APL filed a
complaint (the "APL Litigation") against the Company and certain companies
formerly or presently affiliated with Victor Posner or with the Company,
alleging causes of action arising from various transactions allegedly caused
by the named former affiliates in breach of their fiduciary duties to APL and
resulting in corporate waste, fraudulent transfers allegedly made by APL to
the Company and preferential transfers allegedly made by APL to a defendant
other than the Company. The Chapter 11 trustee of APL was subsequently added
as a plaintiff. The complaint asserts claims against the Company for (a)
aiding and abetting breach of fiduciary duty, (b) equitable subordination of
certain claims which the Company has asserted against APL, (c) declaratory
relief as to whether APL has any liability to the Company and (d) recovery of
fraudulent transfers allegedly made by APL to the Company prior to
commencement of the APL Proceeding. The complaint seeks an undetermined
amount of damages from the Company, as well as the other relief identified in
the preceding sentence. In April 1994 the Company responded to the complaint
by filing an Answer and Proposed Counterclaims and Set-Offs denying the
material allegations in the complaint and asserting counterclaims and set-
offs against APL. In February 1995 all proceedings in the APL Litigation
were stayed until July 9, 1995. The Company intends to continue contesting
the claims in the APL Litigation. Subsequent to December 31, 1994 the
Company received the Indemnification relating to, among other matters, the
APL Litigation and, as such, the Company does not believe that the outcome of
the APL Litigation will have a material adverse effect on the Company's
consolidated financial position or results of operations.
In May 1994 National Propane was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. National Propane
purchased the property from a company (the "Successor") which had purchased
the assets of a utility which had previously owned the property. National
Propane believes that the contamination occurred during the use of the
property as a coal gasification plant by such utility. During the fourth
quarter of 1994 National Propane's environmental consulting firm estimated
the cost to remediate the property to be between $0.4 million and $0.9
million, depending upon the actual extent of impacted soils, the presence and
extent, if any, of impacted groundwater and the remediation method used.
Accordingly, National Propane provided $0.4 million in 1994. National
Propane, if found liable for any of such costs, would attempt to recover such
costs from the Successor or through government funds which provide
reimbursement for such expenditures under certain circumstances. Based on
currently available information and the Company's current reserve or $0.4
million and since (i) the extent of the alleged contamination is not known,
(ii) the preferable remediation method is not known and the estimate of the
costs thereof are preliminary and (iii) even if National Propane were deemed
liable for remediation costs, it could possibly recover such costs from the
Successor or through government reimbursement, the Company does not believe
that the outcome of this matter will have a material adverse effect on the
consolidated financial position or results of operations of the Company.
In 1993 Royal Crown became aware of possible contamination from
hydrocarbons in groundwater at two abandoned bottling facilities. In 1994
tests confirmed hydrocarbons in the groundwater at one of the sites;
remediation has commenced at the other site. Remediation costs estimated by
Royal Crown's environmental consultants aggregate $0.4 million to $0.6
million with approximately $0.135 million expected to be reimbursed by the
State of Texas Petroleum Storage Tank Remediation Fund (the "Texas Fund") at
one of the two sites. In connection therewith the Company provided $0.5
million in Fiscal 1993 as part of a $2.2 million provision for closing these
and one other abandoned bottling facilities as well as certain company-owned
restaurants. The Company has incurred actual costs of $0.1 million through
December 31, 1994 relating to these environmental matters and has a remaining
accrual of $0.4 million at that date. After considering such accrual and
potential reimbursement by the Texas Fund, the Company does not believe that
the ultimate outcome of these environmental matters will have a material
adverse effect on its consolidated financial position or results of
operations.
The Company is also engaged in ordinary routine litigation incidental to
its business. The Company does not believe that the litigation and matters
referred to above, as well as such ordinary routine litigation, will have a
material adverse effect on its consolidated financial position or results of
operations.
On February 3, 1995 the Company's textile segment suffered fire damage
to equipment in the weaving department at one of its manufacturing
facilities. Production at the facility has resumed but approximately 35% of
the productive capacity of the affected department has been lost until
damaged equipment can be repaired or replaced. The textile segment is
currently taking steps to mitigate the effect of this loss of production and
believes that it has adequate property damage and business interruption
insurance coverage and does not expect this event to have a material adverse
effect on the Company's financial condition or results of operations.
Inflation and Changing Prices
Management believes that inflation did not have a significant effect on
gross margins during the two years ended April 30, 1993, the eight-month
period ended December 31, 1993, and the year ended December 31, 1994, since
inflation rates generally remained at relatively low levels. Historically,
the Company has been successful in dealing with the impact of inflation to
varying degrees within the limitations of the competitive environment of each
segment of its business.
PAGE
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of April 30, 1993 and December 31, 1993
and 1994
Consolidated Statements of Operations for the Years Ended April 30, 1992 and
1993, the Eight Months Ended December 31, 1993 and the Year Ended December 31,
1994
Consolidated Statements of Additional Capital For the Years Ended April 30,
1992 and 1993, the Eight Months Ended December 31, 1993 and the Year Ended
December 31, 1994
Consolidated Statements of Cash Flows for the Years Ended April 30, 1992 and
1993, the Eight Months Ended December 31, 1993 and the Year Ended December 31,
1994
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
TRIARC COMPANIES, INC.:
New York, New York
We have audited the accompanying consolidated balance sheet of Triarc
Companies, Inc. and subsidiaries (the "Company") as of December 31, 1994, and
the related consolidated statements of operations, additional capital, and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1994 and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
March 24, 1995
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
TRIARC COMPANIES, INC.:
We have audited the accompanying consolidated balance sheets of Triarc
Companies, Inc. and subsidiaries as of April 30, 1993 and December 31, 1993,
and the related consolidated statements of operations, additional capital and
cash flows for each of the two years in the period ended April 30, 1993 and
for the eight months ended December 31, 1993. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Triarc Companies, Inc.
and subsidiaries as of April 30, 1993 and December 31, 1993, and the results
of their operations and their cash flows for each of the two years in the
period ended April 30, 1993 and for the eight months ended December 31, 1993
in conformity with generally accepted accounting principles.
As discussed in Note 22 to the consolidated financial statements,
effective May 1, 1992, the Company changed its method of accounting for
income taxes and postretirement benefits other than pensions.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 14, 1994.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents ($86,982,000,
$98,971,000 and $68,700,000) $ 96,635 $ 118,801 $ 80,064
Restricted cash and cash equivalents
(Note 5) 5,589 8,029 6,804
Marketable securities (Note 6) -- 11,138 9,453
Receivables, net (Note 7) 116,257 124,319 141,377
Inventories (Note 8) 98,270 108,206 105,662
Deferred income tax benefit (Note 15) 21,365 9,621 6,023
Net current assets of discontinued
operations (Note 20) 6,823 841 --
Prepaid expenses and other current
assets 14,407 12,542 9,766
-------- -------- --------
Total current assets 359,346 393,497 359,149
Restricted cash and short-term
investments of insurance
operations (Note 5) 18,271 -- --
Properties, net (Note 9) 237,853 261,996 306,293
Unamortized costs in excess of net
assets of acquired companies (Note 10) 186,572 182,925 202,797
Net non-current assets of discontinued
operations (Note 20) 60,086 15,223 --
Deferred costs and other assets (Note 11) 48,534 43,605 53,928
-------- -------- --------
$910,662 $897,246 $922,167
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt
(Note 13) $ 43,100 $ 40,280 $ 52,061
Accounts payable (Notes 28 and 29) 71,729 61,194 59,152
Accrued expenses (Note 12) 111,011 139,503 111,792
-------- -------- --------
Total current liabilities 225,840 240,977 223,005
Long-term debt (Note 13) 488,654 575,161 612,118
Insurance loss reserves (Note 29) 76,763 13,511 10,827
Deferred income taxes (Note 15) 35,991 32,038 22,701
Deferred income and other liabilities 17,157 12,565 13,505
Commitments and contingencies
(Notes 15, 24 and 25)
Minority interests (Note 26) 29,850 27,181 --
Redeemable preferred stock, $12 stated
value; designated and issued
5,982,866 shares; aggregate
liquidation preference and
redemption amount $71,794,000
(Notes 16 and 34) 71,794 71,794 71,794
Stockholders' equity (deficit)
(Notes 17 and 34):
Class A common stock, $.10 par value;
authorized 100,000,000 shares,
issued 27,983,805 shares 2,798 2,798 2,798
Class B common stock, $.10 par value;
authorized 25,000,000 shares,
none issued -- -- --
Additional paid-in capital 49,375 50,654 79,497
Accumulated deficit (6,067) (46,987) (60,929)
Less class A common stock held in
treasury at cost; 6,832,145
6,660,645 and 4,027,982 shares (77,085) (75,150) (45,473)
Other (4,408) (7,296) (7,676)
-------- -------- --------
Total stockholders' deficit (35,387) (75,981) (31,783)
-------- -------- --------
$910,662 $897,246 $922,167
======== ======== ========
See accompanying notes to consolidated financial statements.
PAGE
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Eight
Months Year
Year Ended April 30, Ended Ended
------------------- December December
1992 1993 31, 1993 31, 1994
---- ---- -------- --------
(In thousands except per share amounts)
Revenues:
Net sales $ 1,029,613 $ 1,011,015 $ 668,773 $1,011,428
Royalties, franchise fees
and other revenues 45,090 47,259 34,768 51,093
---------- ---------- ---------- ----------
1,074,703 1,058,274 703,541 1,062,521
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales (Note 8) 793,331 762,373 496,601 749,930
Advertising, selling and
distribution (Notes 1 and 31) 67,505 72,891 75,006 109,669
General and administrative
(Note 31) 125,311 135,193 101,965 125,189
Facilities relocation and corporate
restructuring (Note 30) 4,318 43,000 -- 8,800
Provision for doubtful accounts
from affiliates (Notes 28 and 31) 25,686 10,358 -- --
---------- ---------- ---------- ----------
1,016,151 1,023,815 673,572 993,588
---------- ---------- ---------- ----------
Operating profit 58,552 34,459 29,969 68,933
Interest expense (Note 31) (71,832) (72,830) (44,847) (72,980)
Other income (expense), net (Notes 18
and 31) 6,542 (920) (7,991) 5,815
Gain on sale of natural gas and oil
business (Note 19) -- -- -- 6,043
Costs of a proposed acquisition not
consummated (Note 27) -- -- -- (7,000)
--------- ---------- ---------- ----------
Income (loss) from continuing
operations before income
taxes and minority interests (6,738) (39,291) (22,869) 811
Provision for income taxes (Note 15) 2,956 8,608 7,793 1,612
--------- ---------- ---------- ----------
(9,694) (47,899) (30,662) (801)
Minority interests in net loss
(income) (513) 3,350 223 (1,292)
--------- ---------- ---------- ----------
Loss from continuing operations (10,207) (44,549) (30,439) (2,093)
Income (loss) from discontinued
operations, net of income taxes
and minority interests (Note 20) 2,705 (2,430) (8,591) (3,900)
--------- ---------- ---------- ----------
Loss before extraordinary charges
and cumulative effect of changes
in accounting principles (7,502) (46,979) (39,030) (5,993)
Extraordinary charges (Note 21) -- (6,611) (448) (2,116)
Cumulative effect of changes in
accounting principles, net
(Note 22) -- (6,388) -- --
--------- ---------- ---------- ----------
Net loss (7,502) (59,978) (39,478) (8,109)
Preferred stock dividend requirements
(Notes 16, 17 and 34) (11) (121) (3,889) (5,833)
--------- ---------- ---------- ----------
Net loss applicable to common
stockholders $ (7,513) $ (60,099)$ (43,367) $ (13,942)
========== ========== ========== ==========
Loss per share (Note 4):
Continuing operations $ (.39) $ (1.73)$ (1.62) $ (.34)
Discontinued operations .10 (.09) (.40) (.17)
Extraordinary charges -- (.26) (.02) (.09)
Cumulative effect of changes
in accounting principles -- (.25) -- --
---------- ---------- ---------- ----------
Net loss $ (.29) $ (2.33)$ (2.04) $ (.60)
========== ========== ========== ==========
Supplementary loss per share (Note 4):
Continuing operations $ (.07)
Discontinued operations (.14)
Extraordinary charges (.08)
----------
Net loss $ (.29)
==========
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ADDITIONAL CAPITAL
Eight
Months Year
Year Ended April 30, Ended Ended
------------------- December December
1992 1993 31, 1993 31, 1994
---- ---- -------- --------
(In thousands)
Additional paid-in capital:
Balance at beginning of period $ 37,890 $ 37,968 $ 49,375 $ 50,654
Common stock issued (Note 17):
Excess of fair value of shares
issued from treasury stock
over average cost of treasury
shares in connection with:
SEPSCO Merger (Note 26) -- -- -- 25,492
Grants of restricted stock -- 1,800 2,048 601
Excess of proceeds over par value
from issuance of common shares
in connection with the Change
in Control (Note 3) -- 9,567 -- --
Other issuances 78 53 -- 6
Excess of fair value of common
shares over the option price
for stock options granted
(Note 17) -- -- 231 3,000
Costs related to common shares
to be issued (Note 26) -- -- (1,000) --
Other -- (13) -- (256)
---------- ---------- ---------- ----------
Balance at end of period $ 37,968 $ 49,375 $ 50,654 $ 79,497
========== ========== ========== ==========
Retained earnings (accumulated
deficit):
Balance at beginning of period $ 61,433 $ 53,920 $ (6,067) $ (46,987)
Net loss (7,502) (59,978) (39,478) (8,109)
Dividends on preferred stock (11) (9) (2,557) (5,833)
Net income of certain subsidiaries
to conform reporting periods of
such subsidiaries to that of
Triarc Companies, Inc. for
consolidation purposes (Note 2) -- -- 1,115 --
---------- ---------- ---------- ----------
Balance at end of period $ 53,920 $ (6,067)$ (46,987) $ (60,929)
========== ========== ========== ==========
Treasury stock (Note 17):
Balance at beginning of period $ (8,315) $ (8,315) $ (77,085) $ (75,150)
Shares issued for SEPSCO Merger
(Note 26) -- -- -- 30,364
Grants of restricted stock -- 3,024 1,935 775
Purchase of common shares in
open market transactions -- -- -- (1,025)
Common shares acquired in
exchange for redeemable
preferred stock (Note 16) -- (71,794) -- --
Other -- -- -- (437)
---------- ---------- ---------- ----------
Balance at end of period $ (8,315) $ (77,085)$ (75,150) $ (45,473)
========== ========== ========== ==========
Other (Note 17):
Balance at beginning of period $ (1,207) $ 177 $ (4,408) $ (7,296)
Unearned compensation resulting
from:
Grants of restricted stock -- (4,824) (3,983) (1,141)
Amortization of restricted
stock -- -- 1,503 3,122
Grant of below market stock
options -- -- -- (3,000)
Amortization of below market
stock options granted -- -- -- 907
Net unrealized gains (losses) on
marketable securities (Note 6) 1,384 239 (408) (268)
---------- ---------- ---------- ----------
Balance at end of period $ 177 $ (4,408)$ (7,296) $ (7,676)
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
PAGE
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Eight
Months Year
Year Ended April 30, Ended Ended
------------------- December December
1992 1993 31, 1993 31, 1994
---- ---- -------- --------
(In thousands)
Cash flows from operating
activities:
Net loss $ (7,502) $ (59,978) $ (39,478) $ (8,109)
Adjustments to reconcile
net loss to net cash
and cash equivalents
provided by (used in)
operating activities:
Depreciation and amortization
of properties 31,224 31,196 20,961 33,901
Amortization of costs in
excess of net assets of
acquired companies 5,314 6,785 4,023 6,655
Amortization of deferred
debt discount, deferred
financing costs and
unearned compensation 6,536 6,396 7,113 10,986
Write-off of deferred
financing costs and
original issue discount,
net of redemption discount -- 3,741 689 3,498
Provision for doubtful
accounts (including amounts
due from former affiliates) 28,740 14,141 1,659 1,021
Provision for facilities
relocation and corporate
restructuring 4,318 43,000 -- 8,800
Payments on facilities
relocation and corporate
restructuring -- (5,318) (8,074) (14,701)
Gain on sales of assets, net (388) (2,974) (1,006) (7,018)
Deferred income tax benefit (2,291) (4,867) (1,831) (5,093)
Minority interests, net of
dividends paid 501 (3,607) (223) 1,292
Loss (income) from
discontinued operations (2,705) 2,430 8,591 3,900
Interest expense capitalized
and not paid -- -- -- 3,247
Decrease in insurance loss
reserves (2,236) (7,459) (1,921) (2,684)
Cumulative effect of changes
in accounting principles -- 6,388 -- --
Gain on purchase of debentures
for sinking fund (4,650) (117) -- --
Other, net 1,544 5,209 3,363 (572)
Changes in operating assets
and liabilities:
Decrease (increase) in
restricted cash and cash
equivalents (2,715) 2,611 (2,439) 548
Decrease (increase) in
restricted cash and
short-term investments of
insurance operations (3,198) 8,186 (5,774) --
Decrease (increase) in
receivables (5,103) 1,143 (14,707) (18,079)
Decrease (increase) in
inventories (13,330) 12,862 (13,839) 2,544
Decrease (increase) in
prepaid expenses and
other current assets 13,002 (7,425) (7,820) 2,776
Increase (decrease) in
accounts payable and
accrued expenses 867 (15,936) 23,944 (29,196)
---------- ---------- ---------- ----------
Net cash and cash
equivalents provided
by (used in) operating
activities 47,928 36,407 (26,769) (6,284)
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Business acquisitions -- -- (692) (18,790)
Proceeds from sales of
non-core businesses
and properties 1,929 39,464 45,081 39,077
Capital expenditures (22,571) (23,758) (28,617) (61,639)
Purchase of marketable
securities -- -- -- (10,308)
Proceeds from sales of
marketable securities -- -- -- 11,033
Investment in affiliate -- -- -- (7,368)
Purchase of minority
interests -- (17,200) -- --
Other -- 2,100 -- (633)
---------- ---------- ---------- ----------
Net cash and cash
equivalents provided
by (used in) investing
activities (20,642) 606 15,772 (48,628)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Proceeds from long-term debt 5,800 396,595 290,902 121,232
Repayments of long-term debt (69,658) (329,332) (246,903) (90,899)
Deferred financing costs (6,900) (25,820) (4,673) (5,573)
Increase (decrease) in
short-term debt 13,386 (14,745) -- --
Issuance of class A common stock -- 9,650 -- --
Payment of preferred dividends (11) (9) (2,557) (5,833)
Other -- -- -- (1,281)
---------- ---------- ---------- ----------
Net cash and cash
equivalents provided
by (used in) financing
activities (57,383) 36,339 36,769 17,646
---------- ---------- ---------- ----------
Net cash provided by (used in)
continuing operations (30,097) 73,352 25,772 (37,266)
Net cash provided by (used in)
discontinued operations 4,772 2,769 136 (1,471)
Net cash of certain subsidiaries
used during the period reported
as a direct credit to accumulated
deficit (see Note 2) -- -- (3,742) --
---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents (25,325) 76,121 22,166 (38,737)
Cash and cash equivalents at
beginning of period 45,839 20,514 96,635 118,801
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of period $ 20,514 $ 96,635 $ 118,801 $ 80,064
========== ========== ========== ==========
Supplemental disclosures of
cash flow information:
Cash paid (received) during
the period for:
Interest expense $ 62,063 $ 61,475 $ 28,472 $ 64,634
========== ========== ========== ==========
Income taxes (refunds), net $ (6,718) $ 17,156 $ 11,288 $ 5,925
========== ========== ========== ==========
Supplemental schedule of noncash
investing and financing
activities:
Total capital expenditures $ 31,253 $ 27,207 $ 33,339 $ 65,831
Amounts representing
capitalized leases and
other secured financing (8,682) (3,449) (4,722) (4,192)
---------- ---------- ---------- ----------
Capital expenditures
paid in cash $ 22,571 $ 23,758 $ 28,617 $ 61,639
========== ========== ========== ==========
Due to their noncash nature, the following transactions are also not
reflected in the respective consolidated statements of cash flows:
In April 1994 Triarc acquired the 28.9% minority interest in its
subsidiary, Southeastern Public Service Company, that it did not already own
through the issuance of 2,691,824 shares of its Class A Common Stock. See
Note 26 to the consolidated financial statements for further discussion.
Effective December 31, 1993 Triarc's insurance subsidiary entered into an
agreement for the discharge of approximately $63,500,000 of insurance loss
reserves and the commutation of certain insurance in exchange for the
transfer of $29,321,000 of restricted cash and short-term investments of
insurance operations and a promissory note of the Company in the principal
amount of $34,179,000. See Note 29 to the consolidated financial statements
for further discussion.
In April 1993 Triarc issued 5,982,866 shares of its newly-created
redeemable convertible preferred stock in a one-for-one exchange for its
Class A common stock owned by an affiliate of Victor Posner, the former
Chairman and Chief Executive Officer of Triarc. Such transaction resulted in
a $71,794,000 increase in redeemable convertible preferred stock and an equal
increase in Class A common shares held in treasury at cost.
In July 1991 Triarc's subsidiary, RC/Arby's Corporation ("RCAC")
restructured a significant portion of its outstanding indebtedness. Due to
its noncash nature, the aspect of such restructuring representing the
exchange of one form of indebtedness for another on the part of RCAC is not
reflected in the consolidated statement of cash flows for the year ended
April 30, 1992. Also in connection with such restructuring, the shares of
preferred stock of RCAC held by Triarc were converted into common stock of
RCAC resulting in Triarc owning approximately 88.7% of RCAC's then
outstanding voting securities. Such conversion resulted in an increase of
approximately $12,788,000 in unamortized costs in excess of net assets of
acquired companies and a corresponding increase in minority interests
liability on a consolidated basis.
In December 1991 Triarc's subsidiary, National Propane Corporation
("National Propane"), acquired from a subsidiary of American Financial
Corporation $5,000,000 aggregate principal amount of National Propane's 13
1/8% senior subordinated debentures in exchange for a promissory note.
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Triarc
Companies, Inc. (referred to herein as "Triarc" and, collectively with its
subsidiaries, as the "Company") and its principal subsidiaries. The
principal subsidiaries of the Company, all wholly-owned as of December 31,
1994, are Graniteville Company ("Graniteville" - 85.8% owned prior to April
14, 1994), National Propane Corporation ("National Propane"), Southeastern
Public Service Company ("SEPSCO" - 71.1% owned prior to April 14, 1994) and
CFC Holdings Corp. ("CFC Holdings" - 98.4% owned prior to April 14, 1994).
CFC Holdings has as its wholly-owned subsidiaries Chesapeake Insurance
Company Limited ("Chesapeake Insurance") and RC/Arby's Corporation ("RCAC"),
and RCAC has as its wholly-owned subsidiaries Arby's, Inc. ("Arby's") and
Royal Crown Company, Inc. ("Royal Crown"). All significant intercompany
balances and transactions have been eliminated in consolidation. See Note 2
for periods included in the consolidated financial statements prior to 1994
and Note 26 for discussion of the merger consummated on April 14, 1994.
Cash Equivalents
All highly liquid investments with a maturity of three months or less
when acquired are considered cash equivalents except for cash and short-term
investments of the insurance operations, which were considered part of a
larger pool of restricted investments and were included in "Restricted cash
and short-term investments of insurance operations" in the accompanying
consolidated balance sheet at April 30, 1993. The Company typically invests
its excess cash in repurchase agreements with high credit-quality financial
institutions. Securities pledged as collateral for repurchase agreements are
segregated and held by the financial institution until maturity of each
repurchase agreement. While the market value of the collateral is
sufficient in the event of default, realization and/or retention of the
collateral may be subject to legal proceedings in the event of default or
bankruptcy by the other party to the agreement.
Marketable Securities
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities" effective January 1, 1994. The Company's marketable securities
are classified in accordance with SFAS 115 as "available for sale" and, as
such, net unrealized gains or losses are reported as a separate component of
stockholders' deficit. Prior to January 1, 1994 the Company accounted for
its marketable securities in accordance with SFAS No. 12, "Accounting for
Certain Marketable Securities".
Inventories
The Company's inventories are valued at the lower of cost or market.
Cost is determined on either the first-in, first-out ("FIFO") basis (22% of
inventories as of December 31, 1994) or the last-in, first-out ("LIFO") basis
(78% of inventories) (see Note 8).
Depreciation and Amortization
Depreciation and amortization of properties is computed principally on
the straight-line basis using the estimated useful lives of the related major
classes of properties: 3 to 9 years for transportation equipment; 3 to 30
years for machinery and equipment; and 15 to 60 years for buildings. Leased
assets capitalized and leasehold improvements are amortized over the shorter
of their estimated useful lives or the terms of the respective leases. Gains
and losses arising from disposals are included in current operations.
Unamortized Costs in Excess of Net Assets of Acquired Companies
Costs in excess of net assets of acquired companies ("Goodwill") arising
after November 1, 1970 are being amortized on the straight-line basis over 15
to 40 years; Goodwill arising prior to that date is not being amortized. The
amount of impairment, if any, in unamortized Goodwill is measured based on
projected future results of operations. To the extent future results of
operations of those subsidiaries to which the Goodwill relates through the
period such Goodwill is being amortized are sufficient to absorb the related
amortization, the Company has deemed there to be no impairment of Goodwill.
Amortization of Deferred Financing Costs and Debt Discount
Deferred financing costs and original issue debt discount are being
amortized as interest expense over the lives of the respective debt using the
interest rate method. Unamortized original issue debt discount is reported as a
reduction of related long-term debt in the accompanying consolidated balance
sheets.
Derivative Financial Instrument
The Company has an interest rate swap agreement entered into as a hedge
against the interest rate exposure of certain of the Company's fixed-rate debt
(see Note 13). The Company recognizes the pro rata portion of the estimated
remaining amounts to be received or paid under its interest rate swap agreement
currently in interest expense based upon current market interest rates over the
remaining life of the agreement. All other amounts paid or received will have
been recognized by the time of payment except for a payment fixed at the
inception of the agreement which is being amortized over the full life of the
agreement.
Advertising Costs
Effective in 1994 the Company adopted the guidance of Statement of
Position 93-7 ("SOP 93-7") of the Accounting Standards Executive Committee,
which impacts the Company's accounting for advertising production costs. SOP
93-7 requires adoption no later than the first quarter of 1995. Prior to
adoption of SOP 93-7 such costs were amortized over the period the advertising
took place. In accordance with SOP 93-7 the Company has adopted the policy of
expensing such production costs the first time the related advertising takes
place. Advertising costs amounted to $54,004,000, $58,313,000, $58,723,000 and
$86,091,000 for the years ended April 30, 1992 and 1993, the eight months ended
December 31, 1993 and the year ended December 31, 1994, respectively. Such
costs in 1994 reflect a charge of $1,172,000 in connection with the adoption of
SOP 93-7 as of the end of that year.
Research and Development
Research and development costs are expensed during the period in which the
costs are incurred and amounted to $2,132,000, $2,001,000, $1,338,000 and
$1,632,000 for the years ended April 30, 1992 and 1993, the eight months ended
December 31, 1993 and the year ended December 31, 1994, respectively.
Income Taxes
The Company files a consolidated Federal income tax return with its 80% or
greater owned subsidiaries, National Propane, CFC Holdings (since July 1991)
and, since April 14, 1994, Graniteville and SEPSCO. Graniteville (prior to
April 14, 1994), SEPSCO (prior to April 14, 1994), CFC Holdings (prior to July
1991) and Chesapeake Insurance filed separate or consolidated Federal income
tax returns with their respective subsidiaries, if any. Deferred income taxes
are provided to recognize the tax effect of temporary differences between the
bases of assets and liabilities for tax and financial statement purposes.
Revenue Recognition
The Company records sales principally when inventory is shipped or
delivered. The Company also records sales to a lesser extent (7%, 11% and 7%
of consolidated revenues for the year ended April 30, 1993, the eight months
ended December 31, 1993 and the year ended December 31, 1994, respectively) on
a bill and hold basis. In accordance with such policy, the goods are
completed, packaged and ready for shipment; such goods are effectively
segregated from inventory which is available for sale; the risks of ownership
of the goods have passed to the customer; and such underlying customer orders
are supported by written confirmation. Franchise fees are recognized as income
when a franchised restaurant is opened. Franchise fees for multiple area
developments represent the aggregate of the franchise fees for the number of
restaurants in the area development and are recognized as income when each
restaurant is opened in the same manner as franchise fees for individual
restaurants. Royalties are based on a percentage of restaurant sales of the
franchised outlet and are accrued as earned. Liquefied petroleum ("LP") gas
tank and cylinder rental fees are billed annually in advance and the related
income is principally recognized ratably over the rental period.
Insurance Loss Reserves
Insurance loss reserves include reserves for incurred but not reported
claims of $29,693,000, $3,436,000 and $2,834,000 at April 30, 1993 and December
31, 1993 and 1994, respectively. Such reserves for affiliated company business
are based on actuarial studies using historical loss experience. The balance
of the reserves for non-affiliated company business were either reported by
unaffiliated reinsurers, calculated by the Company or based on claims
adjustors' evaluations. Management believes that the reserves are fairly
stated. Adjustments to estimates recorded resulting from subsequent actuarial
evaluations or ultimate payments are reflected in the operations of the periods
in which such adjustments become known. The Company no longer insures or
reinsures any risks for periods commencing on or after October 31, 1993 (see
Note 29).
Reclassifications
Certain amounts included in the prior years' consolidated financial
statements have been reclassified to conform with the current year's
presentation.
(2) Change in Fiscal Year
For the years ended April 30, 1992 and 1993 ("Fiscal 1992" and "Fiscal
1993", respectively), Graniteville and SEPSCO were consolidated for their
fiscal years ended on or about February 28; CFC Holdings, which has a fiscal
year ending December 31, was consolidated for its twelve-month period ended
March 31; and National Propane was consolidated for its fiscal year ending
April 30. On October 27, 1993 Triarc's Board of Directors approved a change in
Triarc's fiscal year from a fiscal year ended April 30 to a calendar year
ending December 31, effective for the eight-month transition period ended
December 31, 1993 ("Transition 1993"). The fiscal years of Graniteville,
National Propane and SEPSCO were also so changed.
Triarc's majority-owned subsidiaries are included in (i) the accompanying
consolidated statements of operations for Transition 1993 for the eight-month
periods subsequent to the fiscal year or twelve-month periods included in the
consolidated financial statements for Fiscal 1993 and (ii) the accompanying
consolidated balance sheet for Transition 1993 as of December 31, 1993. As
such the consolidated statement of operations for Transition 1993 includes
Graniteville and SEPSCO for the eight months ended October 31, 1993 and CFC
Holdings for the eight months ended November 30, 1993. The results of
operations for Graniteville and SEPSCO for the two months ended December 31,
1993 and for CFC Holdings for the month of December 1993 (collectively referred
to herein as the "Lag Months") have been reported as a direct credit to the
Company's accumulated deficit.
The following sets forth condensed combined financial information for the
Lag Months (in thousands):
Revenues $ 120,708
Operating profit 9,390
Income before income taxes 3,610
Provision for income taxes (1,820)
Net income 1,115
The following sets forth unaudited condensed consolidated financial
information for the corresponding eight months ended December 31, 1992, the
comparable prior year period to Transition 1993 (in thousands, except per share
amounts):
Revenues $ 715,852
Operating profit 51,073
Income from continuing operations before
income taxes and minority interests 4,202
Provision for income taxes (10,402)
Loss from continuing operations (6,925)
Income from discontinued operations, net 3,030
Cumulative effect of changes in accounting
principles, net (6,388)
Net loss (10,283)
Loss per share:
Continuing operations (.27)
Discontinued operations .12
Cumulative effect of changes in accounting
principles (.25)
Net loss (.40)
(3) The Change in Control
On April 23, 1993, DWG Acquisition Group, L.P. ("DWG Acquisition"), a then
newly formed limited partnership controlled by Nelson Peltz and Peter W. May,
acquired control of Triarc from Victor Posner ("Posner"), the former Chairman
and Chief Executive Officer and certain entities controlled by him
(collectively, the "Posner Entities") through a series of related transactions
(the "Change in Control"). Immediately prior to the Change in Control, the
Posner Entities owned approximately 46% of the outstanding common stock of
Triarc. Messrs. Peltz and May are now Chairman and Chief Executive Officer and
President and Chief Operating Officer of Triarc, respectively.
(4) Loss Per Share
Loss per share has been computed by dividing the net loss applicable to
common stockholders (net loss plus dividend requirements on Triarc's then
outstanding preferred stocks) by the weighted average number of outstanding
shares of common stock during the period. Such weighted averages were
25,867,000, 25,808,000, 21,260,000 and 23,282,000 for Fiscal 1992, Fiscal 1993,
Transition 1993 and the year ended December 31, 1994, respectively. The
preferred stock dividend requirements deducted include cash dividends paid and
cumulative dividend requirements for each period not yet paid. Common stock
equivalents were not used in the computation of loss per share because such
inclusion would have been antidilutive.
Supplementary loss per share gives effect to the January 1995 conversion
(see Note 34) of all of the Company's redeemable convertible preferred stock
(the "Redeemable Preferred Stock") into 4,985,722 shares of the Company's Class
B Common Stock, par value $.10 per share, as if it had occurred on January 1,
1994. Supplementary loss per share was computed assuming that the shares of
Class B Common Stock noted above were outstanding from January 1, 1994 and that
the 1994 loss applicable to common stockholders had not been increased by the
$5,833,000 dividend requirement on the Redeemable Preferred Stock.
(5) Restricted Cash and Cash Equivalents
The following is a summary of restricted cash and cash equivalents (in
thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
Deposits securing letters of credit (a) $ 5,264 $ 7,686 $ 5,762
Indemnity escrow account relating to
sale of business (Note 19) -- -- 750
Collateral account for purchases of
equipment -- -- 292
Collateral account for advertising
promotions 325 343 --
------- -------- --------
$ 5,589 $ 8,029 $ 6,804
======= ======== ========
(a) Deposits secure outstanding letters of credit principally for the
purpose of securing certain performance and other bonds and at
December 31, 1993 and 1994 payments due under leases.
"Restricted cash and short-term investments of insurance operations"
represent amounts which were pledged as collateral under certain letters of
credit and reinsurance agreements to secure future payment of losses reflected
in the insurance loss reserves in the accompanying consolidated balance sheet
as of April 30, 1993 (see Note 29).
(6) Marketable Securities
The Company's marketable securities associated with insurance operations
(included in "Restricted cash and short-term investments of insurance
operations" prior to December 31, 1993) are stated at fair value; all other
marketable securities are stated at cost at December 31, 1993 and at fair value
at December 31, 1994. The cost and fair value of the Company's marketable
securities at December 31, 1993 and 1994, were as follows (in thousands):
1993 1994
------------------- ------------------
Cost Fair Value Cost Fair Value
-------- ---------- ------- ----------
Equity securities $ 1,368 $ 1,500 $ 352 $ 318
Corporate debt securities (a) 9,610 9,729 9,430 9,083
Debt securities issued by
foreign governments 160 160 53 52
-------- -------- ------- -------
$ 11,138 $ 11,389 $ 9,835 $ 9,453
======== ======== ======= =======
(a) Contractual maturity dates through 2006.
During 1994 the Company realized a net loss from the sales of marketable
securities of $135,000 which is included in "Other income (expense) net" in the
consolidated statement of operations. As of December 31, 1994 the Company had
a net unrealized loss of $260,000, net of tax benefit of $122,000.
(7) Receivables, net
The following is a summary of the components of receivables (in
thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
Receivables:
Trade $120,248 $ 123,405 $ 140,743
Other 3,372 7,883 6,024
-------- -------- ---------
123,620 131,288 146,767
Less allowance for doubtful accounts
(trade) 7,363 6,969 5,390
-------- -------- ---------
$116,257 $ 124,319 $ 141,377
======== ======== =========
(8) Inventories
The following is a summary of the components of inventories (in thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
Raw materials $ 24,655 $ 26,930 $ 26,490
Work in process 6,244 6,676 7,803
Finished goods 67,371 74,600 71,369
-------- -------- --------
$ 98,270 $ 108,206 $105,662
======== ======== ========
The current cost of LIFO inventories exceeded the carrying value thereof
by approximately $2,494,000, $2,535,000 and $4,653,000 at April 30, 1993 and
December 31, 1993 and 1994, respectively. In 1994 certain inventory quantities
were reduced, resulting in liquidations of LIFO inventory quantities carried at
lower costs from prior years. The effect of such liquidations was to decrease
cost of sales by $2,462,000. Liquidations of LIFO inventory quantities in
Fiscal 1992, Fiscal 1993 and Transition 1993, if any, were not significant.
(9) Properties
The following is a summary of the components of properties, at cost (in
thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
Land $ 21,903 $ 21,834 $ 29,714
Buildings and leasehold improvements 85,465 99,283 124,606
Machinery and equipment 283,442 289,045 316,264
Transportation equipment 13,163 14,344 18,024
Leased assets capitalized 26,770 22,577 26,501
-------- -------- --------
430,743 447,083 515,109
Less accumulated depreciation and
amortization 192,890 185,087 208,816
-------- -------- --------
$237,853 $ 261,996 $306,293
======== ======== ========
Substantially all properties are pledged as collateral for certain debt
(see Note 13).
(10) Unamortized Costs in Excess of Net Assets of Acquired Companies
The following is a summary of the components of the unamortized costs in
excess of net assets of acquired companies (in thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
Costs in excess of net assets of
acquired companies (Notes 26
and 27) $230,925 $ 231,609 $258,150
Less accumulated amortization 44,353 48,684 55,353
-------- -------- --------
$186,572 $ 182,925 $202,797
======== ======== ========
(11) Deferred Costs and Other Assets
The following is a summary of the components of deferred costs and other
assets (in thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
Deferred financing costs $ 35,333 $ 36,005 $ 36,612
Investment (22%) in Taysung Enterprise
Company, Ltd. ("Taysung") (a) -- -- 6,775
Other 19,506 16,762 20,548
-------- -------- --------
54,839 52,767 63,935
Less accumulated amortization of
deferred financing costs 6,305 9,162 10,007
-------- -------- --------
$ 48,534 $ 43,605 $ 53,928
======== ======== ========
(a) The Company recorded its equity in the losses of Taysung of
$573,000 in 1994 included in "Other income (expense), net"
(see Note 18).
(12) Accrued Expenses
The following is a summary of the components of accrued expenses (in
thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
Accrued interest $ 9,973 $ 21,882 $ 24,005
Facilities relocation and corporate
restructuring 42,000 30,396 22,773
Accrued compensation and related
benefits 20,199 23,891 23,351
Accrued marketing 8,108 16,878 12,483
Net current liabilities of discontinued
operations (Note 20) -- -- 3,577
Other 30,731 46,456 25,603
-------- -------- --------
$111,011 $ 139,503 $ 111,792
======== ======== ========
(13) Long-Term Debt
Long-term debt consisted of the following (in thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
9 3/4% senior notes due 2000 (a) $ -- $ 275,000 $ 275,000
Credit facility, bearing interest at prime
or LIBOR plus from 1 1/4% to 3 1/2%, due
through April 1998 (b):
Revolving loan (weighted average
interest rate of 9.56% at
December 31, 1994) 72,734 89,324 103,038
Term loan (weighted average interest rate
of 9.92% at December 31, 1994) 80,000 72,500 61,000
Bank facility, bearing interest at prime,
Federal funds rate or LIBOR plus from 1%
to 3 1/2%, due through 2002 (c):
Revolving loan (weighted average
interest rate of 8.85% at
December 31, 1994) -- -- 10,500
Term loan (weighted average interest rate
of 8.52% at December 31, 1994) -- -- 90,000
11 7/8% senior subordinated debentures due
February 1, 1998, payable $9,000 in 1995
through 1997 through a sinking fund with
the remaining $27,000 due February 1, 1998
(less unamortized deferred discount of
$5,282, $4,203 and $3,003) (d) 57,718 58,797 50,997
9 1/2% promissory note payable with interest
payable in a combination of additional
principal and cash and principal due in
varying maturities through 2000 with the
remaining balance of $25,198 due in 2003
(Note 29) -- 34,179 37,426
13 1/8% senior subordinated debentures due
March 1, 1999 (less unamortized deferred
discount of $3,815 and $3,278) redeemed
in October 1994 (c) 52,185 52,722 --
16 7/8% subordinated debentures due 1994 15,470 6,470 --
Senior secured step-up rate notes, refinanced
August 12, 1993 225,000 -- --
Notes payable, bearing interest at 7% to
12 1/2% due through 2002 secured by
equipment 37,807 11,456 13,285
Capitalized lease obligations 11,895 12,073 17,340
Other 5,143 2,920 5,593
-------- -------- --------
Total debt 557,952 615,441 664,179
Less:
Notes relating to equipment of
discontinued operations 26,198 -- --
Amounts payable within one year 43,100 40,280 52,061
-------- -------- --------
$ 488,654 $ 575,161 $ 612,118
======== ======== ========
Aggregate annual maturities of long-term debt, including required sinking
fund payments and capitalized lease obligations, are as follows as of December
31, 1994 (in thousands):
Year Ending December 31,
-----------------------
1995 $ 55,064
Less unamortized deferred discount (d) 3,003
----------
52,061
1996 32,236
1997 29,199
1998 142,946
1999 16,127
Thereafter 391,610
---------
$ 664,179
==========
(a) In September 1993 RCAC entered into a three-year interest rate swap
agreement (the "Swap Agreement") in the amount of $137,500,000. Under the Swap
Agreement, interest on $137,500,000 is paid by RCAC at a floating rate (the
"Floating Rate") based on the 180-day London Interbank Offered Rate ("LIBOR")
(7.0% at December 31, 1994) and RCAC receives interest at a fixed rate of
4.72%. The Floating Rate was set at the inception of the Swap Agreement
through January 31, 1994 and thereafter is retroactively reset at the end of
each six-month calculation period through July 31, 1996 and on September 24,
1996. The transaction effectively changes RCAC's interest rate on $137,500,000
of the 9 3/4% senior notes due 2000 (the "9 3/4% Senior Notes") from a fixed-
rate to a floating-rate basis. Under the Swap Agreement during 1994 RCAC
received $614,000 which was determined at the inception of the Swap Agreement
and paid $439,000 in connection with the six-month reset period ended July 31,
1994. RCAC paid $1,455,000 for the six-month period ended January 31, 1995
resulting from the Floating Rate in effect on such date of 6.69%. If such
Floating Rate remains fixed at 6.69% throughout the life of the Swap Agreement,
RCAC would pay an additional $4,643,000 for the period from February 1, 1995
through the end of the Swap Agreement on September 24, 1996. The counterparty
to the Swap Agreement is a major financial institution which, therefore, is
expected to be able to fully perform under the terms of the agreement, thereby
mitigating any credit risk of the transaction.
(b) Graniteville and its subsidiary, C.H. Patrick & Co., Inc., have a
$180,000,000 senior secured credit facility (the "Graniteville Credit Facility")
with Graniteville's commercial lender. The Graniteville Credit Facility, as
amended in October 1994, provided for senior secured revolving credit loans of
up to $112,000,000 through March 1995, $107,000,000 through December 1995 and
$100,000,000 through April 1998 (the "Revolving Loan") and an $80,000,000 senior
secured term loan (the "Term Loan") and expires in 1998. In March 1995 the
Graniteville Credit Facility was further amended to provide for a maximum
Revolving Loan of $116,000,000 through March 1995, $124,000,000 through June
1995, $120,000,000 through September 1995 and $115,000,000 thereafter. The
Revolving Loan up to $100,000,000 as of December 31, 1994 and $115,000,000 as
amended in March 1995 does not require any amortization of principal prior to
its expiration in 1998. Borrowings under the Revolving Loan bear interest, at
Graniteville's option, at either the prime rate (8 1/2% at December 31, 1994)
plus 1 1/4% per annum or the 90-day LIBOR (6 1/2% at December 31, 1994) plus 3%
per annum. If the unpaid principal balance of the Term Loan is less than
$55,000,000, the interest rate on the Revolving Loan will be reduced to the
prime rate plus 1% or the 90-day LIBOR rate plus 2 3/4%. The borrowing base
for the Revolving Loan is the sum of 90% of accounts receivable which are
credit-approved by the lender ("Credit Approved Receivables"), and 85% of all
other eligible accounts receivable, plus 65% of eligible inventory, provided
that advances against eligible inventory shall not exceed $35,000,000 at any one
time ($42,000,000 through December 31, 1995). Graniteville, in addition to the
aforementioned interest, pays a commission of 0.45% on all Credit Approved
Receivables, including a 0.20% bad debt reserve which will be shared equally by
Graniteville's commercial lender and Graniteville after deducting customer
credit losses. The Term Loan is repayable $12,000,000 per year from 1995
through 1997 with a final payment of $25,000,000 due in April 1998. Until the
unpaid principal of the Term Loan is equal to or less than $60,000,000 at the
end of any fiscal year, Graniteville must make mandatory prepayments in an
amount equal to 50% of Excess Cash Flow, as defined, for such fiscal year. In
accordance therewith, no prepayments were required in Transition 1993 or the
year ended December 31, 1994. The Term Loan bears interest, at Graniteville's
option, at the prime rate plus 1 3/4% per annum or the 90-day LIBOR plus 3 1/2%
per annum. When the unpaid principal balance of the Term Loan is less than
$55,000,000, the interest rate thereon will be reduced to the prime rate plus 1
3/8% or the 90-day LIBOR plus 3 1/8%. All LIBOR loans are limited to one-half
of the total Revolving Loan and Term Loan borrowings under the Graniteville
Credit Facility.
(c) On October 7, 1994 National Propane entered into a $150,000,000
revolving credit and term loan agreement with a group of banks (the "Bank
Facility"). The Bank Facility consists of a $40,000,000 revolving credit
facility and three tranches of term loans aggregating $110,000,000. An
aggregate of $30,000,000, including $20,000,000 of the term loans and, after one
year, $10,000,000 of the revolving credit facility is conditioned upon
completion of the intended merger of Public Gas Company ("Public Gas"), a
subsidiary of SEPSCO engaged in the distribution of LP Gas, and National Propane
and the redemption in part, prior to October 7, 1995, of the $54,000,000
outstanding principal amount of SEPSCO's 11 7/8% senior subordinated debentures
due February 1, 1998 (the "11 7/8% Debentures"). If the merger of Public Gas
with National Propane and the redemption of the 11 7/8% Debentures do not occur
by October 7, 1995, the availability of the $30,000,000 noted above will expire.
Further, $15,000,000 of the revolving credit facility is restricted for niche
acquisitions by National Propane (the "Acquisition Sublimit") and any
outstanding borrowings under the Acquisition Sublimit convert to term loans in
October 1997. Borrowings under the Bank Facility bear interest, at National
Propane's option, at rates based either on 30, 60, 90 or 180-day LIBOR (ranging
from 6.0% to 7.0% at December 31, 1994) or an alternate base rate (the "ABR").
The ABR represents the higher of the prime rate or 1/2% over the Federal funds
rate (6.0% at December 31, 1994). Revolving credit loans bear interest at 2
1/4% over LIBOR or 1% over ABR, and, exclusive of the $15,000,000 Acquisition
Sublimit, mature in March 2000. The term loans bear interest at rates ranging
from 2 1/2% to 3 1/2% over LIBOR or 1 1/4% to 2 1/4% over ABR, respectively,
and the $90,000,000 outstanding amount of such loans at December 31, 1994
amortizes $8,750,000 in 1995, $9,250,000 in 1996, $9,500,000 in 1997,
$12,125,000 in 1998, $12,375,000 in 1999 and $38,000,000 thereafter (through
2002). In connection with the closing of the Bank Facility, National Propane
redeemed prior to maturity the then entire outstanding $49,000,000 principal
amount of National Propane's 13 1/8% senior subordinated debentures due March 1,
1999 (the "13 1/8% Debentures") and paid a cash dividend to Triarc of
$40,000,000.
(d) The Company intends to merge Public Gas with National Propane during
the second quarter of 1995 (see discussion below) and, in connection therewith,
the Company presently intends to cause SEPSCO to repurchase the 11 7/8%
Debentures prior to maturity during 1995. The Company presently anticipates
financing such repurchase with a $30,000,000 revolving loan (due 2000) under the
Bank Facility (as discussed above) with the remainder from available cash
balances. Accordingly, the Company has classified $30,000,000 of the 11 7/8%
Debentures as long-term debt and the remaining $20,997,000 ($24,000,000 of
principal less $3,003,000 of debt discount) as current portion of long-term
debt.
Under the Company's various debt agreements substantially all of the
Company's assets are pledged as security. In addition, the 9 3/4% Senior Notes
have been guaranteed by Royal Crown and Arby's and the Graniteville Credit
Facility and the Bank Facility have been guaranteed by Triarc. As collateral
for such guarantees, all of the stock of Royal Crown, Arby's, Graniteville (50%
of such stock is subject to a pre-existing pledge of such stock in connection
with a Triarc intercompany note payable to SEPSCO in the principal amount of
$26,538,000), National Propane and SEPSCO is pledged.
The Company's debt agreements contain various covenants which (a) require
meeting certain financial amount and ratio tests; (b) limit, among other items,
(i) the incurrence of indebtedness, (ii) the retirement of certain debt prior to
maturity, (iii) investments, (iv) asset dispositions, (v) capital expenditures
and (vi) affiliate transactions other than in the normal course of business; and
(c) restrict the payment of dividends by Triarc's principal subsidiaries to
Triarc. As of December 31, 1994 the Company was in compliance with the
covenants of its various debt agreements. However, based on current
projections, during 1995 National Propane may not be in compliance with certain
of its financial ratio covenants in its Bank Facility agreement. The Company
has discussed this currently forecasted noncompliance with the administrative
agent for the Bank Facility and, based on these discussions, believes that the
Bank Facility will be amended such that the Company will be in compliance
therewith. In connection therewith, the Company may be required to amend other
provisions of the Bank Facility and has agreed to merge the Public Gas and
National Propane operations during the second quarter of 1995.
As of December 31, 1994 National Propane has $5,000,000 available for the
payment of dividends with an additional $30,000,000 the availability of which,
as discussed above, is conditioned upon Triarc causing SEPSCO to redeem the 11
7/8% Debentures. SEPSCO is unable to pay any dividends as of December 31, 1994
and Graniteville is unable to pay any dividends prior to December 31, 1995.
While there are no restrictions applicable to CFC Holdings, CFC Holdings would
be dependent upon cash flows from RCAC to pay dividends and as of December 31,
1994 RCAC was unable to pay any dividends or make any loans or advances to CFC
Holdings.
(14) Fair Value of Financial Instruments
The carrying amounts and fair values of the Company's financial
instruments for which such amounts differ are as follows (in thousands):
December 31,
---------------------------------------
April 30, 1993 1993 1994
------------------ ------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Marketable securities
(Note 6) $ -- $ -- $ 11,138 $ 11,389 $ 9,453 $ 9,453
======== ======== ======== ======== ======== ========
Long-term debt (Note 13):
9 3/4% Senior Notes $ -- $ -- $275,000 $282,000 $275,000 $245,000
Graniteville Credit
Facility 152,734 152,734 161,824 161,824 164,038 164,038
Bank Facility -- -- -- -- 100,500 100,500
11 7/8% Debentures 57,718 63,200 58,797 64,300 50,997 53,500
9 1/2% note payable -- -- 34,179 34,179 37,426 28,600
13 1/8% Debentures 52,185 56,800 52,722 56,200 -- --
Senior secured step-up
rate notes 225,000 225,000 -- -- -- --
Other long-term debt 70,315 70,315 32,919 32,919 36,218 36,218
-------- -------- -------- -------- -------- --------
$557,952 $568,049 $615,441 $631,422 $664,179 $627,856
======== ======== ======== ======== ======== ========
Swap Agreement (liability)
(Note 13) $ -- $ -- $ (558) $ (1,100) $ (1,566) $ (8,300)
======== ======== ======== ======== ======== ========
The fair values of marketable securities are based on quoted market prices
at the respective reporting dates. Similarly, the fair value of the 9 3/4%
Senior Notes are based on quoted market prices. The 11 7/8% Debentures and the
13 1/8% Debentures trade infrequently and their fair values are based on the
latest available quoted market prices. The fair value of the 9 1/2% note
payable as of December 31, 1994 was determined by using a discounted cash flow
analysis based on an estimate of the Company's current borrowing rate for a
similar security. The fair value of the 9 1/2% note payable was approximately
equal to its carrying value on December 31, 1993 due to its issuance effective
that day. The fair values of the revolving loans and the term loans under the
Graniteville Credit Facility at April 30, 1993, December 31, 1993 and 1994 and
the Bank Facility at December 31, 1994 approximated their carrying values due to
their floating interest rates. The fair value of the senior secured step-up
rate notes approximated their carrying value as of April 30, 1993 based on
their recent issuance on April 23, 1993. The fair values of all other long-
term debt were assumed to reasonably approximate their carrying amounts since
(i) for capitalized lease obligations, the weighted average implicit interest
rate approximates current levels and (ii) for equipment notes, the aggregate
borrowings are not significant and the remaining maturities are relatively
short-term.
The fair values of the Swap Agreement represent the estimated amounts RCAC
would pay to terminate the Swap Agreement, as quoted by the counterparty.
(15) Income Taxes
The income (loss) from continuing operations before income taxes and
minority interests consisted of the following components (in thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
----- ----- ----- ----
Domestic $ (4,717) $(39,145) $ (24,768) $(1,659)
Foreign (2,021) (146) 1,899 2,470
-------- -------- -------- --------
$ (6,738) $(39,291) $ (22,869) $ 811
======== ======== ======== ========
The provision (benefit) for income taxes from continuing operations
consists of the following components (in thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
----- ----- ----- ----
Current:
Federal $ 2,758 $ 9,994 $ 7,676 $ 2,167
State 2,489 3,232 761 2,310
Foreign -- 249 1,187 2,228
-------- -------- -------- --------
5,247 13,475 9,624 6,705
-------- -------- -------- --------
Deferred:
Federal (2,466) (3,094) (4,240) (4,985)
State 175 (1,773) 690 645
Foreign -- -- 1,719 (753)
-------- -------- -------- --------
(2,291) (4,867) (1,831) (5,093)
-------- -------- -------- --------
Total $ 2,956 $ 8,608 $ 7,793 $ 1,612
======== ======== ======== ========
The net current deferred income tax asset and the net non-current deferred
income tax (liability) resulted from the following components (in thousands):
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
Current deferred income tax assets
(liabilities):
Facilities relocation and corporate
restructuring $ 12,508 $ 5,041 $ 2,326
Accrued employee benefit costs 5,207 5,617 6,336
Allowance for doubtful accounts
including non-affiliates 13,547 4,558 1,940
Reserve for income tax contingencies -- (3,500) (970)
Other, net 2,195 267 (1,810)
-------- -------- --------
33,457 11,983 7,822
Less valuation allowance 12,092 2,362 1,799
-------- -------- --------
21,365 9,621 6,023
-------- -------- --------
Non-current deferred income tax assets
(liabilities):
Depreciation and other properties
basis differences (38,448) (41,291) (39,054)
Reserve for income tax contingencies
and other tax matters (15,192) (16,941) (16,395)
Insurance loss reserves 6,952 7,061 7,061
Net operating loss and alternative
minimum tax credit carryforward 10,042 37,506 38,810
Other, net 5,144 (295) 4,515
-------- -------- --------
(31,502) (13,960) (5,063)
Less valuation allowance 4,489 18,078 17,638
-------- -------- --------
(35,991) (32,038) (22,701)
Deferred income tax liabilities
associated with the discontinued
operations (8,477) -- --
-------- -------- --------
(44,468) (32,038) (22,701)
-------- -------- --------
$(23,103) $ (22,417) $(16,678)
======== ======== ========
The decrease in the net deferred tax liability from $23,103,000 at April
30, 1993 to $22,417,000 at December 31, 1993 or a benefit of $686,000 differs
from the benefit of $1,831,000 included in the provision for income taxes for
Transition 1993 as a result of a deferred tax provision of $1,145,000 included
in the $1,115,000 credit to "Accumulated deficit" for the Lag Months. The
decrease in the net deferred tax liability from $22,417,000 at December 31, 1993
to $16,678,000 at December 31, 1994 of $5,739,000 is $646,000 greater than the
benefit of $5,093,000 included in the provision for income taxes for 1994 as a
result of a deferred tax benefit of $2,075,000 associated with the provision for
discontinued operations (see Note 20) and $122,000 deferred income tax benefit
associated with the unrealized loss associated with "available for sale"
marketable securities (see Note 17) less deferred taxes of $1,551,000
established in purchase accounting for the SEPSCO Merger (see Note 26) recorded
as Goodwill. The deferred income tax liabilities associated with the
discontinued operations at April 30, 1993 principally resulted from accelerated
depreciation less net operating loss, depletion and alternative minimum tax
credit carryforwards.
As of December 31, 1994 Triarc had net operating loss carryforwards for
Federal income tax purposes of approximately $81,000,000, of which $37,000,000
is subject to annual limitations through 1998. Such carryforwards will expire
approximately $11,000,000 in the year 2006, approximately $25,000,000 in the
year 2007, approximately $37,000,000 in the year 2008 and approximately
$8,000,000 in the year 2009. In addition the Company has (i) a depletion
carryforward of approximately $2,800,000 and (ii) alternative minimum tax credit
carryforwards of approximately $4,700,000 both of which have an unlimited
carryforward period.
A "valuation allowance" is provided when it is more likely than not that
some portion of deferred tax assets will not be realized. The Company has
established valuation allowances principally for that portion of the net
operating loss carryforwards, depletion carryforwards, alternative minimum tax
credit carryforwards (prior to 1994) and other net deferred tax assets related
to SEPSCO until April 14, 1994 and Chesapeake Insurance which entities were not
included in Triarc's consolidated income tax return. The Company recognized
increases (decreases) in the valuation allowance of $1,497,000 and $(1,003,000)
during Transition 1993 and 1994, respectively.
Deferred income tax (benefit) provision result from timing differences in
recognition of income and expenses for tax and financial statement purposes.
The tax effects of the principal timing differences are as follows (such
disclosure is not presented for Transition 1993 and 1994 as it is not
required under SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109")) (in
thousands):
Fiscal Fiscal
1992 1993
---- ----
Provision for interest on income tax
contingencies and other tax matters $ -- $ (3,025)
Insurance loss reserves (872) 675
Facilities relocation and corporate
restructuring 917 (12,508)
Provision for income tax contingencies
and other tax matters -- 11,767
Excess of tax over book (book over tax)
depreciation, depletion and amortization
of properties 530 (2,921)
Alternative minimum tax (credit) (976) 2,684
Carryforward recognized as a reduction of
deferred credits (3,358) --
Expenses not deductible until paid (527) (1,503)
Tax on dividends from subsidiaries not
included in consolidated return 1,104 334
Amortization of debt discount (335) (317)
Benefit from unrealized losses on
marketable securities (960) (130)
Employee benefit plan payment 3,064 --
Pension benefit recognized for
tax purposes (530) --
Other, net (348) 77
-------- --------
$ (2,291) $ (4,867)
-------- --------
The difference between the reported income tax provision and a computed
tax provision (benefit) based on income (loss) from continuing operations
before income taxes and minority interests at the statutory rate of 34% for
Fiscal 1992, 34.3% for Fiscal 1993 and 35% for Transition 1993 and 1994, is
reconciled as follows (in thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
---- ---- ---- ----
Income tax provision
(benefit) computed
at Federal statutory
rate $ (2,291) $(13,477) $(8,004) $ 284
Increase (decrease) in
Federal taxes resulting from:
State taxes, net of Federal
income tax benefit 1,758 959 943 1,921
Foreign tax rate in excess of
United States Federal
statutory rate, provision
for foreign income tax
contingencies and foreign
withholding taxes, net of
Federal income tax benefit -- 251 1,909 479
Effect of net operating
losses for which no tax
carryback benefit is
available (utilization
of operating loss,
depletion and tax
credit carryforwards) 1,977 2,555 2,797 (3,643)
Amortization of non-
deductible Goodwill 531 3,012 1,329 2,171
Non-deductible litigation
settlement -- -- 1,576 --
Other non-deductible expenses 412 493 309 324
Provision for income tax
contingencies and other
tax matters -- 11,767 7,200 --
Tax on dividends from
subsidiaries not included
in consolidated returns 1,104 1,409 -- --
Consulting agreement (Note 30) -- 2,058 -- --
Other, net (535) (419) (266) 76
-------- -------- -------- --------
$ 2,956 $ 8,608 $ 7,793 $ 1,612
======== ======== ======== ========
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service ("IRS") for the tax years 1985 through 1988. The
Company has resolved all but two issues related to such audit and in
connection therewith paid $5,182,000 in 1994, which amount had been fully
reserved. The Company is contesting the two open issues at the Appellate
Division of the IRS. The IRS is currently examining the Company's Federal
income tax returns for the tax years from 1989 through 1992 and has proposed
certain adjustments, some of which will be contested by the Company. During
Fiscal 1993 and Transition 1993 the Company provided $11,767,000 and
$7,200,000, respectively, included in provision for income taxes from
continuing operations and during Fiscal 1993, Transition 1993 and 1994
provided $8,547,000, $1,322,000 and $1,400,000, respectively, included in
interest expense relating to such examinations and other tax matters. The
amount of any payments required as a result of (i) the remaining open issues
from the 1985 through 1988 examination and (ii) the 1989 through 1992
examination cannot presently be determined. However, management of the
Company believes that adequate aggregate provisions have been made in 1994
and prior periods for any tax liabilities, including interest, that may
result from such examinations and other tax matters.
(16) Redeemable Preferred Stock
The Company had 5,982,866 shares of its Redeemable Preferred Stock
outstanding at December 31, 1994, with a stated and liquidation value of
$12.00 per share plus accrued but unpaid dividends (aggregating $1,458,000 at
December 31, 1994), bearing a cumulative annual dividend of 8 1/8% payable
semi-annually, convertible into 4,985,722 shares of Class B Common Stock (see
Note 17) (or Class A Common Stock under certain circumstances) at $14.40 per
share and requiring mandatory redemption on April 23, 2005 at $12.00 per
share. All of such Redeemable Preferred Stock was owned by a Posner Entity.
In accordance with a settlement agreement all of the Redeemable Preferred
Stock was converted into 4,985,722 shares of Class B Common Stock in January
1995 (see Note 34).
(17) Stockholders' Deficit
The Company's Class A Common Stock and its Class B Common Stock are
identical, except that Class A Common Stock has one vote per share and Class
B Common Stock is non-voting. If held by a person(s) not affiliated with
Posner, each share of Class B Common Stock is convertible into one share of
Class A Common Stock. As of December 31, 1994 no shares of Class B Common
Stock had been issued. Subsequently, Triarc issued 5,997,622 shares of Class
B Common Stock to Posner, pursuant to a settlement agreement (see Note 34).
A summary of the changes in the number of issued shares of Class A
Common Stock is as follows (in thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
---- ---- ---- ----
Number of shares at beginning
of period 26,973 27,006 27,984 27,984
Common stock issued:
Issuance of 833,332 common
shares in connection with the
Change in Control and related
refinancings -- 833 -- --
Conversion of $.60 and $.35
preferred stock 2 130 -- --
Conversion of debentures 31 15 -- --
-------- -------- -------- --------
Number of shares at end
of period 27,006 27,984 27,984 27,984
======== ======== ======== ========
A summary of the changes in the number of shares of Class A Common Stock
held in treasury is as follows (in thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
---- ---- ---- ----
Number of shares at beginning
of period 1,117 1,117 6,832 6,661
Common shares issued in the
SEPSCO Merger (Note 26) -- -- -- (2,692)
Restricted stock grants
(see below) -- (268) (171) (69)
Restricted stock exchanged
(see below) or reacquired -- -- -- 40
Common shares issued to
directors -- -- -- (3)
Common shares acquired in
open market transactions -- -- -- 91
Common shares acquired upon
issuance of Redeemable
Preferred Stock (Note 16) -- 5,983 -- --
-------- -------- -------- --------
Number of shares at end of
period 1,117 6,832 6,661 4,028
======== ======== ======== ========
The Company has 25,000,000 authorized shares of preferred stock as of
December 31, 1994 including 5,982,866 designated as Redeemable Preferred
Stock. Prior to their conversion into common stock or redemption during
Fiscal 1993, Triarc had issued and outstanding $.60 preferred stock and $.35
preferred stock, each share of which was convertible into 7.789 and 4.439
shares of Class A Common Stock, respectively, and were redeemable at their
respective redemption prices of $20.00 and $5.50 per share.
A summary of the changes in the number of shares of issued and
outstanding preferred stock is as follows (in thousands):
Fiscal Fiscal
1992 1993
---- ----
Number of shares at beginning of year 31 31
Conversions into common stock -- (29)
Redemptions -- (2)
---- ----
Number of shares at end of year 31 --
==== ====
"Other stockholders' equity (deficit)" consisted of the following (in
thousands):
December 31,
April 30, ----------------------
1993 1993 1994
---- ---- ----
Unearned compensation (see below) $(4,824) $ (7,304) $ (7,416)
Net unrealized gains (losses) on
marketable securities (insurance
operations securities as of April
30 and December 31, 1993 and
"available for sale" securities,
net of income tax benefit of $122,
as of December 31, 1994) 416 8 (260)
-------- -------- --------
$(4,408) $ (7,296) $ (7,676)
======== ======== ========
The Company maintains an amended and restated 1993 Equity Participation
Plan (the "Equity Plan"), which provides for the grant of restricted stock
and stock options to certain officers, key employees, consultants and non-
employee directors. In addition, non-employee directors are eligible to
receive shares of Class A Common Stock in lieu of retainer or meeting
attendance fees. The Equity Plan provides for a maximum of 10,000,000
(increased from 3,500,000 during 1994) shares of Class A Common Stock to be
granted as restricted stock, issued on the exercise of options or issued to
non-employee directors in lieu of fees. The Company has an aggregate
7,569,900 shares of Class A Common Stock reserved for issuance upon exercise
of stock options as of December 31, 1994 and, net of outstanding shares of
restricted stock and shares of Class A Common Stock issued to non-employee
directors from the Company's treasury stock, has 1,958,261 shares available
for future grants under the Equity Plan.
Grantees of restricted stock are entitled to receive dividends and have
voting rights, but do not receive full beneficial ownership until the
required vesting period of three to four years has been completed and until
certain other requirements, if any, have been met. For Fiscal 1993,
Transition 1993 and the year ended December 31, 1994, respectively, 268,000,
171,500 (including 150,000 shares granted to certain of the members of a
special committee of Triarc's Board of Directors - see Note 31) and 68,750
shares of restricted Class A Common Stock were granted from the Company's
treasury stock. Such grants resulted in aggregate unearned compensation of
$4,824,000 for Fiscal 1993, $3,983,000 for Transition 1993 and $1,141,000
(net of $235,000 related to a portion of certain 1994 grants which were in
respect of employee service during Transition 1993, and, accordingly, charged
to operations during Transition 1993) for 1994 based upon the market value of
the Company's Class A Common Stock at the respective dates of grant which
ranged from $15.75 to $31.75. Such unearned compensation is being amortized
as compensation expense to "General and administrative expenses" over the
applicable vesting period. In Fiscal 1993 such compensation expense was not
significant. Such compensation expense in Transition 1993 was $1,738,000
(including the $235,000 related to 1994 grants noted above and $147,000 for
10,000 shares of restricted stock for which all of the previously unvested
portion was accelerated effective December 31, 1993) and in 1994 was
$3,122,000 (including $397,000 for 29,500 shares of restricted stock for
which all of the previously unvested portion was accelerated in 1994).
A summary of changes in outstanding stock options is as follows:
Options Option Price
------- -------------
Outstanding at April 30, 1992 --
Granted during Fiscal 1993 and
outstanding at April 30, 1993 1,736,500 $18.00
Granted 301,000 $20.00 - $30.75
Terminated (65,000) $18.00
---------
Outstanding at December 31, 1993 1,972,500 $18.00 - $30.75
Granted 5,753,400 $10.75 - $24.125
Terminated (156,000) $18.00 - $30.75
---------
Outstanding at December 31, 1994 7,569,900 $10.75 - $30.00
=========
Exercisable at December 31, 1994 657,732 $10.75 - $30.00
=========
The stock options under the Equity Plan generally vest ratably over
periods not exceeding five years from date of grant. However, an aggregate
3,850,000 performance stock options granted to the Chairman and Chief
Executive Officer, the President and Chief Operating Officer and the Vice
Chairman of the Company vest in one-third increments upon attainment of each
of the three closing price levels set forth below for the Class A Common
Stock for 20 out of 30 consecutive trading days by the indicated dates. Each
option not previously vested should such price levels not be attained no
later than each indicated date, will vest on October 21, 2003.
On or Prior
to April 21, Price
------------ -----
1999 $ 27.1875
2000 $ 36.25
2001 $ 45.3125
Stock options under the Equity Plan are generally granted at not less
than fair market value of the Class A Common Stock at the date of grant.
However, options granted, net of terminations, in Transition 1993 include
275,000 options issued at an option price of $20.00 which was below the
$31.75 fair market value of the Class A Common Stock at the date of grant
representing an aggregate difference of $3,231,000. Such amount is being
recorded as compensation expense over the applicable vesting period of one to
five years. In Transition 1993 $231,000 of the aggregate difference was
recognized as compensation expense and credited to "Additional paid-in-
capital". Effective January 1, 1994 the Company recorded the remaining
$3,000,000 of the aggregate difference as unearned compensation, $907,000 of
which was amortized to compensation expense and credited to "Other
stockholders' deficit" during 1994.
During Transition 1993 and 1994 the Company agreed to pay to employees
terminated during Transition 1993 and 1994 and directors who were not
reelected during 1994 who held restricted stock and/or stock options an
amount in cash equal to the difference between the market value of Triarc's
Class A Common Stock and the base value (see below) of such restricted stock
and stock options (the "Rights"). During Transition 1993 and 1994, 10,000
and 26,000 shares of restricted stock and 40,000 and 126,000 stock options,
respectively, were so exchanged. The Rights which resulted from the exchange
of stock options have base prices ranging from $18.00 to $30.75 per share and
the Rights which resulted from the exchange of restricted stock all have a
base price of zero. Such restricted stock was fully vested upon termination
of the employees. As a result of such accelerated vesting the Company
incurred charges of $147,000 and $331,000 during Transition 1993 and 1994,
respectively, included in "General and administrative expenses". During 1994
16,000 of such Rights relating to the exchange of stock options expired. As
of December 31, 1994 the Company had an aggregate 186,000 Rights outstanding
of which in January 1995 35,000 relating to restricted stock were exercised
and 40,000 relating to stock options expired. The remaining 111,000 Rights
expire 16,000 in July 1995, 15,000 in October 1996 and 80,000 in February
1997. Upon issuance of the Rights the Company recorded a liability equal to
the excess of the then market value of the Class A Common Stock over the base
price of the stock options or restricted stock exchanged. Such liability has
been adjusted to reflect changes in the fair market value of Class A Common
Stock subject to a lower limit of the base price of the Rights.
(18) Other Income (Expense), Net
Other income (expense), net consists of the following components (in
thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
---- ---- ---- ----
Interest income $ 3,543 $ 1,716 $ 1,619 $ 4,664
Gain on sales of assets, net 338 2,974 1,006 975
Charges related to litigation:
The Modification (Note 25) (2,004) (6,225) (674) (500)
SEPSCO Merger and Settlement
(Note 26) -- (1,700) (5,050) --
Other litigation (Notes 25
and 31) (1,407) (1,375) (350) --
Equity in losses of Taysung
(Note 11) -- -- -- (573)
Gains on repurchases of
Company debentures to meet
sinking fund requirements 4,650 117 -- --
Reduction to net realizable
value of certain assets
held for sale -- (3,800) (3,292) --
Settlement of accrued rent
balance (Note 28) -- 8,900 -- --
Commitment fees and other
compensation costs relating
to a proposed financing not
consummated (Note 31) -- (3,200) -- --
Other income (expense), net 1,422 1,673 (1,250) 1,249
------- ------- ------- -------
$ 6,542 $ (920) $(7,991) $ 5,815
======= ======= ======= =======
(19) Sale of Natural Gas and Oil Business
On August 31, 1994 the Company sold substantially all of the operating
assets of SEPSCO's natural gas and oil business for cash of $16,250,000 net
of $750,000 held in escrow to cover certain indemnities given to the buyer.
Such sale resulted in a pretax gain of $6,043,000. In February 1995 the
Company sold the remaining natural gas and oil assets for net proceeds of
$728,000 which resulted in an estimated pretax gain of $650,000 which will be
recorded in the first quarter of 1995.
(20) Discontinued Operations
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's utility and municipal services and refrigeration
business segments which have been accounted for as discontinued operations in
the Company's consolidated financial statements.
On October 15, 1993 the Company sold the assets of its tree maintenance
services operations previously included in its utility and municipal services
business segment for $69,600,000 in cash plus the assumption by the purchaser
of $5,000,000 in current liabilities resulting in a loss of approximately
$4,370,000. On October 7, 1993 the Company sold the stock of its two
construction related operations previously included in its utility and
municipal services business segment for a nominal amount subject to
adjustments described below. During October and November 1993 the Company
paid $2,000,000 to cover the buyer's short-term operating losses and working
capital requirements for the construction related operations and from October
1993 through March 1994 paid $1,094,000 to repay the outstanding lease
balances on equipment to be sold. As the related assets are sold or
liquidated the purchasers were to pay, as deferred purchase price, a portion
of the net proceeds received therefrom (cash of $2,941,000 had been received
as of December 31, 1994) plus, in the case of one of the entities, an amount
based on the adjusted book value of such entity as of October 5, 1995 (the
"Book Value Adjustment"). In March 1995 the Company agreed to settle any
further amounts due for assets sold or the Book Value Adjustment. Such
settlement provides for aggregate payments of $500,000 to be received in
quarterly installments of $100,000 each commencing June 1, 1995, together
with interest at 8 1/2% on the remaining outstanding balance, plus 75% of the
proceeds of one property held for sale or, if not sold by December 31, 1996,
$275,000 or the return of the property to the Company. The Company incurred
a loss of approximately $500,000 on the sales of the construction related
operations excluding consideration of any additional proceeds from the
aforementioned settlement agreement.
On April 8, 1994 the Company sold substantially all of the operating
assets of the ice operations of SEPSCO's refrigeration business segment for
$5,000,000 in cash, a $4,295,000 note (discounted value $3,327,000) and the
assumption by the buyer of certain current liabilities of $1,162,000. Such
sale resulted in a loss of approximately $5,500,000, excluding any
consideration of the $4,295,000 note from the buyer since its collection is
not reasonably assured. The note, which bears no interest during the first
year and 5% thereafter, is payable in annual installments of $120,000 in 1995
through 1998 with the balance of $3,815,000 due in 1999. On December 20,
1994 the Company sold either the stock or operating assets of the companies
comprising the cold storage operations of SEPSCO's refrigeration business
segment to National Cold Storage, Inc. ("National") a company formed by two
then officers of SEPSCO for cash of $6,500,000, a $3,000,000 note (discounted
value $2,486,000) and the assumption by the buyer of certain liabilities of
$2,750,000. In addition, the Company sold certain cold storage properties to
several buyers for aggregate cash proceeds of $990,000 and a note for
$700,000. The Company incurred an aggregate loss on the sale of the cold
storage operations and properties of approximately $4,500,000 excluding any
consideration of the $3,000,000 note from National since its collection is
not reasonably assured. The note from National bears no interest during the
first year and 8% thereafter payable at maturity, does not amortize and is
due in full in December 2000.
In connection with the dispositions referred to above, SEPSCO
reevaluated the estimated gain or loss from the sale of its discontinued
operations and the Company provided $12,400,000 ($8,820,000 net of minority
interests of $3,580,000) for the revised estimated loss on the sale of the
discontinued operations during Transition 1993 and $8,400,000 ($3,900,000 net
of minority interests of $2,425,000 and income tax benefit of $2,075,000) for
the revised estimated loss during 1994. As of April 30, 1993 the Company had
estimated it would break even on the disposition of the discontinued
operations. The revised estimate in Transition 1993 principally reflects (i)
approximately $4,600,000 of losses from the sales of the operations
comprising the utility and municipal services business segment previously
estimated to be approximately break-even and (ii) approximately $6,700,000 of
losses from the sale of operations comprising SEPSCO's refrigeration business
segment previously estimated to be a gain of $1,600,000 less $500,000 of
other items, net. The net loss from the sale of the utility and municipal
services business segment reflects (i) a reduction of $1,800,000 in the
estimated sales price for the construction related operations from previous
estimates, (ii) a $2,000,000 reduction in anticipated proceeds from asset
sales resulting in proceeds from the buyer of such businesses successfully
negotiating extensions of certain major contracts with respect to the larger
of such businesses and as a result no longer intending to immediately dispose
of the major portion of the assets and (iii) other adjustments in finalizing
the loss on the sale of the tree maintenance services operations. The
$8,300,000 charge in Transition 1993 relating to the sale of the
refrigeration business segment principally results from (i) a $4,000,000
reduction in the then estimated sales price for the ice operations and (ii) a
$4,000,000 reduction in the then estimated sales price of the cold storage
operations based on preliminary sales discussions and experience with respect
to negotiating the sale of the other operations. The revised estimate in
1994 results from additional unanticipated losses on disposal of the
businesses of $6,400,000 and operating losses from discontinued operations
through their respective dates of disposal of $2,000,000 principally
reflecting delays in disposing of the businesses from the estimated disposal
dates at December 31, 1993. The increased loss on disposal is principally
due to (i) $3,400,000 increased loss on the sale of the ice operations
reflecting the nonrecognition of the $4,295,000 note compared with the
previously anticipated full recognition of all proceeds, (ii) a $1,200,000
increased loss on the sale of the cold storage operations reflecting the
nonrecognition of the $3,000,000 note compared with the previously
anticipated full recognition of all proceeds less $1,690,000 of unanticipated
proceeds on the sale of cold storage properties and other adjustments of
$110,000, (iii) $1,300,000 increased losses on the sale of the construction
related operations reflecting reduced proceeds of $500,000 from continuing
deferral of asset sales and an $800,000 increased provision for a legal
contingency as a result of recent developments and (iv) $500,000 of other
adjustments in finalizing the losses on the sale of these and other
businesses.
After consideration of (a) $5,363,000 write-down (net of tax benefit and
minority interests of $7,540,000) in Fiscal 1993 relating to the impairment
of certain unprofitable properties and accruals for environmental remediation
and losses on certain contracts in progress reflected in operating profit
(loss) of discontinued operations set forth below and (b) the aforementioned
$8,820,000 and $3,900,000 adjustments to the estimated loss on the sale of
the discontinued operations in Transition 1993 and 1994, respectively, the
Company expects the liquidation of the remaining liabilities associated with
the discontinued operations will not have a material impact on its financial
position or results of operations.
The income (loss) from discontinued operations consisted of the
following (in thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
---- ---- ---- ----
Loss on disposal of
discontinued operations
without income tax benefit
but net of minority
interests of $3,580 in
Transition 1993 and net of
minority interests of
$2,425 and income tax
benefit of $2,075 in 1994 $ -- $ -- $(8,820) $(3,900)
Income (loss) from
discontinued operations
net of income taxes and
minority interests 2,705 (2,430) 229 --
------- ------- ------- -------
$ 2,705 $(2,430) $(8,591) $(3,900)
======= ======= ======= =======
The income (loss) from discontinued operations up to the July 22, 1993
measurement date and the loss from operations during the period July 23, 1993
to December 31, 1993 and 1994 subsequent to the measurement date, which has
been previously recognized, consisted of the following (in thousands):
Transition 1993
-----------------
May 1, July 23,
1993 1993
through through
Fiscal Fiscal July 22,December 31,
1992 1993 1993 1993 1994
---- ---- ---- ---- ----
Results of Operations
Revenues $200,353 $204,714 $ 83,462 $ 43,973 $ 11,432
Operating profit (loss) 9,012 (3,568) 2,298 (2,344) (80)
Income (loss) before income
taxes and minority interests 6,665 (6,016) 1,242 (3,338) (405)
Benefit from (provision for)
income taxes (2,500) 2,274 (920) 920 --
Minority interests (1,460) 1,312 (93) 698 --
Net income (loss) 2,705 (2,430) 229 (1,720) (405)
Net current and non-current assets (liabilities) of the discontinued
operations consisted of the following (in thousands):
December 31,
April 30, ----------------------
1993 1993 1994
---- ---- ----
Balance Sheets
Cash $ -- $ 307 $ --
Receivables, net 25,178 1,528 --
Inventories 2,845 647 --
Other current assets 1,774 675 --
Current portion of long-term debt (9,709) (6) --
Accounts payable (2,662) (512) --
Other current liabilities (10,603) (1,798) (3,577)
-------- -------- --------
Net current assets (liabilities)
of discontinued operations $ 6,823 $ 841 $ (3,577)
======== ======== ========
Properties, net $85,880 $ 17,681 $ --
Other assets 239 149 --
Long-term debt (16,992) (13) --
Deferred income taxes (8,477) -- --
Environmental and other liabilities (564) (2,594) (1,404)
-------- -------- --------
Net non-current assets
(liabilities) of
discontinued operations $60,086 $ 15,223 $ (1,404)
======== ======== ========
(21) Extraordinary Charges
In connection with the early extinguishment of debt, the Company
recognized extraordinary charges consisting of the following (in thousands):
Fiscal Transition
1993 1993 1994
---- ---- ----
Write-off of unamortized deferred
financing costs $ 3,741 $ 2,214 $ 875
Write-off of unamortized original
issue discount -- -- 2,623
Prepayment penalties 6,651 -- --
Discount from principal upon redemption -- (1,525) --
------- ------- -------
10,392 689 3,498
Income tax benefit (3,781) (241) (1,382)
------- ------- -------
$ 6,611 $ 448 $ 2,116
======= ======= =======
(22) Cumulative Effect of Changes in Accounting Principles
Effective May 1, 1992 the Company changed its accounting for income
taxes and postretirement benefits other than pensions in accordance with SFAS
109 and SFAS 106 "Accounting for Postretirement Benefits Other Than Pensions"
("SFAS 106"), respectively. The Company's adoption of such standards
resulted in a charge of $6,388,000 to the Company's results of operations for
Fiscal 1993. Such charge consisted of $4,852,000, net of applicable minority
interests, and $1,536,000, net of applicable income taxes and minority
interests, related to SFAS 109 and SFAS 106, respectively, and is reported as
the "Cumulative effect of changes in accounting principles" in the
accompanying consolidated statement of operations for Fiscal 1993.
(23) Pension and Other Benefit Plans
The Company provides or provided defined benefit plans for employees of
certain subsidiaries. Prior to Fiscal 1992, all of the plans were
temporarily frozen pending review by management with respect to required
changes necessary to comply with the nondiscrimination rules promulgated by
the Tax Reform Act of 1986 and subsequent legislation. During 1991 the IRS
issued final regulations regarding such non-discrimination rules and as a
result of the unfavorable consequences of such regulations, management of the
Company decided in calendar 1992 to freeze the plans permanently and
terminate certain of the plans. In accordance therewith, the Company
recognized curtailment gains of $1,182,000 and $2,562,000 in Fiscal 1992 and
Fiscal 1993, respectively, and a termination gain of $431,000 in Fiscal 1993.
The components of the net periodic pension cost (benefit) are as follows
(in thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
---- ---- ---- ----
Current service cost $ 389 $ 281 $ 195 $ 177
Interest cost on projected
benefit obligation 1,419 568 465 466
Return on plan assets (gain)
loss (2,255) (908) (1,041) 138
Net amortization and
deferrals 21 213 564 (654)
------ ------ ------ ------
Net periodic pension cost
(benefit) $ (426) $ 154 $ 183 $ 127
====== ====== ====== ======
The following table sets forth the plans' funded status (in thousands):
PAGE
Aggregate of Plans Whose
--------------------------------------------------------
Assets Exceeded Accumulated Benefits
Accumulated Benefits Exceeded Assets
-------------------- ---------------
December 31, December 31,
April 30, ----------- April 30, ------------
1993 1993(a) 1994 1993 1993 1994
Actuarial present value of benefit
obligations
Vested benefit obligation $4,077 $2,638 $ 2,369 $ 4,056 $ 4,274 $ 4,137
Non-vested benefit
obligation 22 -- -- 68 78 51
------- ------- ------- ------- ------- -------
Accumulated and projected
benefit obligation 4,099 2,638 2,369 4,124 4,352 4,188
Plan assets at fair value (4,502) (2,821) (2,454) (3,538) (3,842) (3,641)
------- ------- ------- ------- ------- -------
Funded status (403) (183) (85) 586 510 547
Unrecognized prior service
costs (17) -- -- -- -- --
Unrecognized net gain from
plan experience 163 234 169 60 267 1
Unamortized net asset at
transition (a) 182 -- -- -- -- --
------- ------- ------- ------- ------- -------
Accrued (prepaid) pension
cost $ (75) $ 51 $ 84 $ 646 $ 777 $ 548
======= ======= ======= ======= ======= =======
PAGE
(a) The amounts at December 31, 1993 are lower than at April 30,
1993 since a portion of such amounts relate to a non-consolidated
subsidiary which was sold.
Significant assumptions used in measuring the net periodic pension cost
for the plans included the following: (i) the expected long-term rate of
return on plan assets was 9% for Fiscal 1992 and 1993 and 8% for Transition
1993 and 1994 and (ii) the discount rate was 9% (7% for plans terminated in
Fiscal 1992) for Fiscal 1992, 8% for Fiscal 1993, 7% for Transition 1993 and
1994. The discount rate used in determining the benefit obligations above
was 8%, 7% and 8% at April 30, 1993 and December 31, 1993 and 1994,
respectively. The effects of the Fiscal 1993 reduction in the discount rate
(for continuing plans) and the effect of the Transition 1993 reductions in
the discount rate and the expected long-term rate of return on plan assets
were not material.
Plan assets as of December 31, 1994 are invested in managed portfolios
consisting of government and government agency obligations (52%), common
stock (36%), and other investments (12%).
Under certain union contracts, the Company is required to make payments
to the unions' pension funds based upon hours worked by the eligible
employees. In connection with these union plans, the Company provided
$1,359,000 in Fiscal 1992, $1,290,000 in Fiscal 1993, $443,000 in Transition
1993 and $756,000 in 1994. Information from the administrators of the plans
is not available to permit the Company to determine its proportionate share
of unfunded vested benefits, if any.
The Company maintains unfunded medical and death benefit plans for
certain retired employees who have reached certain ages and have provided
certain minimum years of service. The medical benefits are contributory for
some employees and noncontributory for others, while death benefits are
noncontributory. Effective May 1, 1992 the Company adopted SFAS 106, and,
accordingly, provided the unfunded accumulated postretirement benefit
obligation as of that date (see Note 22). Prior to such date, the Company
accounted for postretirement obligation payments on a pay-as-you-go basis; in
Fiscal 1992 such payments were immaterial.
Net periodic postretirement benefit cost subsequent to the adoption of
SFAS 106 consisted of the following (in thousands):
Fiscal Transition
1993 1993 (a) 1994
---- -------- ----
Service cost - benefit earned during
the period $ 43 $ 6 $ 5
Interest cost on accumulated
postretirement benefit obligation 219 92 85
Net amortization of unrecognized gain -- -- (4)
-------- -------- --------
$ 262 $ 98 $ 86
======== ======== ========
The accumulated postretirement benefit obligation consists of the
following (in thousands):
Fiscal Transition
1993 1993 (a) 1994
---- -------- ----
Retirees and dependents $ 2,493 $ 1,260 $ 1,014
Active employees eligible to retire 88 96 50
Active employees not eligible to retire 305 131 61
-------- -------- --------
Accumulated postretirement benefit
obligation 2,886 1,487 1,125
Unrecognized net gain (loss) -- (112) 154
-------- -------- --------
Accrued postretirement benefit cost $ 2,886 $ 1,375 $ 1,279
======== ======== ========
(a) The Transition 1993 amounts are lower than Fiscal 1993 since a
significant portion of such postretirement benefits relate to a
non-consolidated subsidiary which was sold.
For measurement purposes, a 12% annual rate of increase in the per
capita cost of covered health care benefits was assumed for Fiscal 1993 and
Transition 1993. The rate was assumed to decrease one percentage point to
11% for 1994 and continue to decrease one percentage point annually to 6% for
1999 and remain at that level thereafter. The assumed health care cost trend
rate effects the amounts reported. Increasing such rate by one percentage
point in each year would not have a significant effect on the related cost or
obligation. The discount rate used in determining the net periodic
postretirement benefit cost was 8% in Fiscal 1993 and Transition 1993 and 7%
in 1994; the discount rate used in determining the accumulated postretirement
benefit obligation was 8%, 7% and 8% at April 30, 1993 and December 31, 1993
and 1994, respectively.
The Company maintains several 401(k) defined contribution plans covering
all employees, other than those covered by defined benefit plans or plans
under certain union contracts, who meet certain minimum requirements and
elect to participate. Employees may contribute various percentages of their
compensation ranging up to a maximum of 15%, subject to certain limitations.
The plans provide for Company matching contributions ranging from 25% to 75%
of employee contributions up to the first 4% or 5% of an employee's
contributions. The plans also provide for annual additional contributions
either equal to 1/4% of 1% of employee's total compensation or an arbitrary
aggregate amount to be allocated by employee. In connection with these
employer contributions, the Company provided $562,000, $707,000, $1,373,000
and $1,898,000 in Fiscal 1992 and Fiscal 1993, Transition 1993 and 1994,
respectively.
(24) Lease Commitments
The Company leases buildings and improvements and machinery and
equipment for periods that vary between one and 25 years. Some leases
provide for contingent rentals based upon sales volume, mileage or
production.
Rental expense consists of the following components (in thousands):
Fiscal Fiscal Transition
1992 1993 1993 1994
---- ---- ---- ----
Minimum rentals $15,329 $14,874 $12,305 $19,645
Contingent rentals 986 1,021 1,117 1,454
Lease termination charge
(Note 28) -- 13,000 -- --
------- ------- ------- -------
16,315 28,895 13,422 21,099
Less sublease income 634 593 894 1,365
------- ------- ------- -------
$15,681 $28,302 $12,528 $19,734
======= ======= ======= =======
The Company's future minimum rentals and sublease rental income for
leases having an initial lease term in excess of one year as of December 31,
1994 were as follows (in thousands):
Rental Payments Sublease Income
--------------- ---------------
Capitalized Operating Capitalized Operating
Leases Leases Leases Leases
------ ------ ------ ------
1995 $ 3,701 $ 15,582 $ 210 $ 5,031
1996 3,595 12,418 210 4,705
1997 2,971 11,150 168 4,643
1998 2,606 8,356 136 2,294
1999 2,222 5,934 136 509
Thereafter 15,973 47,734 243 167
------- -------- ------- -------
Total minimum payments 31,068 $101,174 $ 1,103 $ 17,349
======== ======= =======
Less interest 13,728
-------
Present value of minimum
capitalized lease
payments $17,340
=======
The present value of minimum capitalized lease payments is included, as
applicable, with long-term debt or the current portion of long-term debt in
the accompanying consolidated balance sheets (see Note 13).
In August 1994 the Company completed the sale and leaseback of the land
and buildings of fourteen of its restaurants. The net cash sale price of such
properties was $6,703,000. The Company has entered into individual twenty-
year land and building leases for such properties and has capitalized the
building portion of such leases while the land portion is being accounted for
as operating leases, reflected in the table above. Such sale resulted in a
gain of $605,000 which has been deferred and will be amortized to income over
the twenty-year lives of the leases.
(25) Legal Matters
Triarc and certain of its present and former directors were defendants
in certain litigation brought in the United States District Court for the
Northern District of Ohio (the "Ohio Court"). In April 1993 the Ohio Court
entered a final order approving a modification (the "Modification") which
modified the terms of a previously approved stipulation of settlement in
such litigation. The Modification resulted in the dismissal, with
prejudice, of all actions before the Ohio Court. The Company recorded
charges to operations for related legal fees of $2,004,000, $6,225,000,
$674,000 and $500,000 in Fiscal 1992 and 1993, Transition 1993 and 1994,
respectively, included in "Other income (expense), net" in the consolidated
statements of operations (see Note 34 for an additional payment of legal
fees awarded by the Ohio Court subsequent to December 31, 1994).
In 1987 Graniteville was notified by the South Carolina Department of
Health and Environmental Control ("DHEC") that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. In 1990 and 1991 Graniteville provided reports to DHEC
summarizing its required study and investigation of the alleged pollution
and its sources which concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation
alternatives either provided no significant additional benefits or
themselves involved adverse effects (i) on human health, (ii) to existing
recreational uses or (iii) to the existing biological communities. In March
1994 DHEC appeared to conclude that while environmental monitoring at
Langley Pond should be continued, based on currently available information,
the most reasonable alternative is to leave the pond sediments undisturbed
and in place. DHEC has requested the Company to submit a proposal by mid-
April 1995 concerning periodic monitoring of sediment deposition in the pond
and the Company intends to comply with this request. The Company is unable
to predict at this time what further actions, if any, may be required in
connection with Langley Pond or what the cost thereof may be. However,
given DHEC's recent conclusion and the absence of reasonable remediation
alternatives, the Company believes the ultimate outcome of this matter will
not have a material adverse effect on the Company's consolidated results of
operations or financial position.
Graniteville owns a nine acre property in Aiken County, South Carolina
(the "Vaucluse Landfill"), which was used as a landfill until 1973. The
Vaucluse Landfill was operated jointly by Graniteville and Aiken County and
may have received municipal waste and possibly industrial waste from
Graniteville as well as sources other than Graniteville. In March 1990, a
"Site Screening Investigation" was conducted by DHEC. In June 1992
Graniteville conducted its initial investigation. The United States
Environmental Protection Agency conducted an Expanded Site Inspection (an
"ESI") in January 1994 and Graniteville conducted a supplemental
investigation in February 1994. In response to the ESI, DHEC has indicated
its desire to have an investigation of the Vaucluse Landfill and has
verbally requested that Graniteville submit a proposal to DHEC outlining the
parameters of such an investigation. Since the investigation has not yet
commenced, Graniteville is currently unable to estimate the cost to
remediate the landfill. Such cost could vary based on the actual parameters
of the study. Based on currently available information, the Company does
not believe that the outcome of this matter will have a material adverse
effect on its consolidated results of operations or financial position.
As a result of certain environmental audits in 1991, SEPSCO became aware
of possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's ice and cold storage operations of the refrigeration business and
has filed appropriate notifications with state environmental authorities and
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 groundwater for contamination, development of
remediation plans and removal in some instances of certain contaminated
soils. Remediation is required at thirteen sites which were sold to or
leased for the purchaser of the ice operations (see Note 20) including eight
sites at which remediation has recently been completed or is ongoing. 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 will
also be required at seven cold storage sites which were sold to the
purchaser of the cold storage operations (see Note 20). Such remediation is
expected to commence in 1995 and will be made in conjunction with such
purchaser who is responsible for the first $1,250,000 of such costs. In
addition, there are thirteen 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, four were remediated in
1994 at an aggregate cost of $484,000. Based on consultations with, and
certain reports of, environmental consultants and others, SEPSCO presently
estimates that its cost of all of such remediation and/or removal will
approximate $4,600,000, of which $1,300,000, $200,000, $2,700,000 (including
a 1994 reclassification of $500,000) and $400,000 were provided prior to
Fiscal 1992, in Fiscal 1992, in Fiscal 1993 and in 1994, respectively. In
connection therewith, SEPSCO has incurred actual costs of $2,796,000 through
December 31, 1994 and has a remaining accrual of $1,804,000, of which
$1,404,000 is reported as "Environmental and other liabilities" and $400,000
is included in "Other current liabilities" in the net current and non-
current liabilities of the discontinued operations (see Note 20). Based on
currently available information and the current reserve levels, the Company
does not believe that the ultimate outcome of the remediation and/or removal
will have a material adverse effect on its consolidated financial position
or results of operations.
In June 1994 NVF Company ("NVF"), which was affiliated with the Company
until the Change in Control, commenced a lawsuit in federal court against
Chesapeake Insurance and another defendant alleging claims for (a) breach of
contract, (b) bad faith and (c) tortious breach of the implied covenant of
good faith and fair dealing in connection with insurance policies issued by
Chesapeake Insurance covering property of NVF (the "Chesapeake Litigation").
NVF seeks compensatory damages in an aggregate amount of approximately
$2,000,000 and punitive damages in the amount of $3,000,000. In July 1994
Chesapeake Insurance responded to NVF's allegations by filing an answer and
counterclaims in which Chesapeake Insurance denies the material allegations
of NVF's complaint and asserts defenses, counterclaims and set-offs against
NVF. The trial has been scheduled for October 10 and 11, 1995. Chesapeake
Insurance intends to continue contesting NVF's allegations in the Chesapeake
Litigation. Based upon information currently available to the Company and
after considering its current reserve levels, the Company does not believe
that the outcome of the Chesapeake Litigation will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
In August 1993 NVF became a debtor in a case filed by certain of its
creditors under Chapter 11 of the Federal Bankruptcy Code (the "NVF
Proceeding"). In November 1993 the Company received correspondence from
NVF's bankruptcy counsel claiming that the Company and certain of its
subsidiaries owed to NVF an aggregate of approximately $2,300,000 with
respect to (i) certain claims relating to the insurance of certain of NVF's
properties by Chesapeake Insurance, (ii) certain insurance premiums owed by
the Company to Insurance and Risk Management, Inc., a subsidiary of NVF and
a former affiliate of the Company ("IRM") and (iii) certain liabilities of
IRM, 25% of which NVF has alleged the Company to be liable for. In
addition, in June 1994 the official committee of NVF's unsecured creditors
(the "NVF Committee") filed an amended complaint (the "NVF Litigation")
against the Company and certain former affiliates alleging various causes of
action against the Company and seeking, among other things, an undetermined
amount of damages from the Company. In August 1994 the district court
issued an order granting the Company's motion to dismiss certain of the
claims and allowing the NVF Committee to file an amended complaint alleging
why certain other claims should not be barred by applicable statutes of
limitation. In October 1994 the NVF Committee filed a second amended
complaint alleging causes of action for (a) aiding and abetting breach of
fiduciary duty by Victor Posner, (b) equitable subordination of, and
objections to, claims which the Company has asserted against NVF, and (c)
recovery of certain allegedly fraudulent and preferential transfers
allegedly made by NVF to the Company. The Company has responded to the
second amended complaint by filing a motion to dismiss the complaint in its
entirety. On February 10, 1995 the NVF Committee moved for leave to file a
third amended complaint. Triarc has opposed that motion. A trial date has
been set for July 5, 1995. The Company intends to continue contesting these
claims. Nevertheless, during Transition 1993 the Company provided
approximately $2,300,000 in "General and administrative expenses" with
respect to claims related to the NVF Proceeding. The Company has incurred
actual costs through December 31, 1994 of $1,533,000 and has a remaining
accrual of $767,000. Subsequent to December 31, 1994 (see Note 34) the
Company received an indemnification (the "Indemnification") relating to,
among other matters, the NVF Litigation and, as such, the Company does not
believe that the outcome of the NVF Proceeding will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
In July 1993 APL Corporation ("APL"), which was affiliated with the
Company until the Change in Control, became a debtor in a proceeding under
Chapter 11 of the Federal Bankruptcy Code (the "APL Proceeding"). In
February 1994 the official committee of unsecured creditors of APL filed a
complaint (the "APL Litigation") against the Company and certain companies
formerly or presently affiliated with Victor Posner or with the Company,
alleging causes of action arising from various transactions allegedly caused
by the named former affiliates in breach of their fiduciary duties to APL
and resulting in corporate waste, fraudulent transfers allegedly made by APL
to the Company and preferential transfers allegedly made by APL to a
defendant other than the Company. The Chapter 11 trustee of APL was
subsequently added as a plaintiff. The complaint asserts claims against the
Company for (a) aiding and abetting breach of fiduciary duty, (b) equitable
subordination of certain claims which the Company has asserted against APL,
(c) declaratory relief as to whether APL has any liability to the Company
and (d) recovery of fraudulent transfers allegedly made by APL to the
Company prior to commencement of the APL Proceeding. The complaint seeks an
undetermined amount of damages from the Company, as well as the other relief
identified in the preceding sentence. In April 1994 the Company responded
to the complaint by filing an Answer and Proposed Counterclaims and Set-Offs
(the "Answer") denying the material allegations in the complaint and
asserting counterclaims and set-offs against APL. In February 1995 all
proceedings in the APL Litigation were stayed until July 9, 1995. The
Company intends to continue contesting the claims in the APL Litigation.
Subsequent to December 31, 1994 (see Note 34) the Company received the
Indemnification relating to, among other matters, the APL Litigation and, as
such, the Company does not believe that the outcome of the APL Litigation
will have a material adverse effect on the consolidated financial position
or results of operations of the Company.
In May 1994 National Propane was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. National
Propane purchased the property from a company (the "Successor") which had
purchased the assets of a utility which had previously owned the property.
National Propane believes that the contamination occurred during the use of
the property as a coal gasification plant by such utility. During the
fourth quarter of 1994 National Propane's environmental consulting firm
estimated the cost to remediate the property to be between $415,000 and
$925,000, depending upon the actual extent of impacted soils, the presence
and extent, if any, of impacted groundwater and the remediation method used.
Accordingly, National Propane provided $415,000 in 1994 included in "General
and administrative expenses" in the accompanying consolidated statement of
operations. National Propane, if found liable for any of such costs, would
attempt to recover such costs from the Successor or through government funds
which provide reimbursement for such expenditures under certain
circumstances. Based on currently available information and the Company's
current reserve of $415,000 and since (i) the extent of the alleged
contamination is not known, (ii) the preferable remediation method is not
known and the estimate of the costs thereof are preliminary and (iii) even
if National Propane were deemed liable for remediation costs, it could
possibly recover such costs from the Successor or through government
reimbursement, the Company does not believe that the outcome of this matter
will have a material adverse effect on the consolidated financial position
or results of operations of the Company.
In 1993 Royal Crown became aware of possible contamination from
hydrocarbons in groundwater at two abandoned bottling facilities. In 1994
tests confirmed hydrocarbons in the groundwater at one of the sites;
remediation has commenced at the other site. Remediation costs estimated by
Royal Crown's environmental consultants aggregate $410,000 to $600,000 with
approximately $125,000 to $145,000 expected to be reimbursed by the State of
Texas Petroleum Storage Tank Remediation Fund (the "Texas Fund") at one of
the two sites. In connection therewith the Company provided $440,000 in
Fiscal 1993 as part of a $2,200,000 provision for closing these and one
other abandoned bottling facilities as well as certain company-owned
restaurants (see Note 31). The Company has incurred actual costs of $74,000
through December 31, 1994 relating to these environmental matters and has a
remaining accrual of $366,000 at that date. After considering such accrual
and potential reimbursement by the Texas Fund, the Company does not believe
that the ultimate outcome of these environmental matters will have a
material adverse effect on its consolidated financial position or results of
operations.
The Company is also engaged in ordinary routine litigation incidental to
its business. The Company does not believe that the litigation and matters
referred to above, as well as such ordinary routine litigation, will have a
material adverse effect on its consolidated financial position or results of
operations.
(26) SEPSCO Merger and Litigation Settlement
In December 1990 a purported shareholder derivative suit (the "SEPSCO
Litigation") was brought against SEPSCO's directors at that time and certain
corporations, including Triarc, in the United States District Court for the
Southern District of Florida (the "District Court"). On January 11, 1994
the District Court approved a settlement agreement (the "SEPSCO Settlement")
with the plaintiff (the "Plaintiff") in the SEPSCO Litigation. On April 14,
1994 SEPSCO's shareholders other than the Company approved an agreement and
plan of merger between Triarc and SEPSCO (the "SEPSCO Merger") pursuant to
which on that date a subsidiary of Triarc was merged into SEPSCO in
accordance with a transaction in which each holder of shares of SEPSCO's
common stock (the "SEPSCO Common Stock") other than the Company, aggregating
a 28.9% minority interest in SEPSCO, received in exchange for each share of
SEPSCO Common Stock, 0.8 shares of Triarc's Class A Common Stock or an
aggregate 2,691,824 shares. Following the SEPSCO Merger, the Company owns
100% of SEPSCO's common stock. The Company paid Plaintiff's counsel and
financial advisor $1,250,000 and $50,000, respectively, in accordance with
the Settlement Agreement. An aggregate $1,700,000, including such costs
together with estimated Company legal costs of $400,000, was provided for in
Fiscal 1993 and included in "Other income (expense), net". Triarc estimated
that an aggregate $3,750,000 (the "SEPSCO Stock Settlement Cost") of the
value of its Class A Common Stock issued in the SEPSCO Merger together with
the $1,250,000 of Plaintiff's counsel fees paid in cash and previously
accrued in Fiscal 1993 represented settlement costs of the SEPSCO
Litigation. The $3,750,000 of SEPSCO Stock Settlement Cost, together with
$2,300,000 of additional expenses of the SEPSCO Settlement and the issuance
of Triarc's Class A Common Stock, were provided in Transition 1993 since it
was during such period that the Company determined that the litigation
settlement was more likely than not to be approved by the District Court.
Such provision in Transition 1993 was allocated $5,050,000 to "Other income
(expense), net" for the SEPSCO Settlement and $1,000,000 to "Additional
paid-in capital" for costs associated with the Class A Common Stock issued.
The fair value as of April 14, 1994 of the 2,691,824 shares of Class A
Common Stock issued in the SEPSCO Merger, net of the portion of such
consideration representing the SEPSCO Stock Settlement Cost, aggregated
$52,105,000 (the "Merger Consideration"). The SEPSCO Merger was accounted
for in accordance with the purchase method of accounting and the Company's
minority interest in SEPSCO of $28,217,000 was eliminated. In accordance
therewith, the excess of the Merger Consideration over the Company's
minority interest in SEPSCO of $23,888,000 was assigned to "Properties"
($8,684,000), investment in the natural gas and oil business sold in August
1994 (see Note 19) ($2,455,000), "Net noncurrent liabilities of discontinued
operations" (see Note 20) ($2,425,000) and "Deferred income taxes"
($2,485,000) with the excess of $17,659,000 recorded as Goodwill. Pro forma
unaudited condensed summary operating results of the Company giving effect
to the SEPSCO Merger as if it had been consummated on May 1, 1993, were as
follows (in thousands):
Transition
1993 1994
------------ ------------
Revenues $ 703,541 $ 1,062,521
Operating profit 29,295 68,638
Income (loss) from continuing operations
before income taxes (23,543) 516
Provision for income taxes (7,684) (1,564)
Loss from continuing operations (31,227) (1,048)
Loss from continuing operations per share (a) (1.47) (.29)
Supplementary loss from continuing
operations per share (a) (1.08) (.04)
(a) Loss from continuing operations per share and
supplementary loss from continuing operations per share (see
Note 4) reflect the assumed issuance as of May 1, 1993 of
2,691,824 additional shares of Class A Common Stock that were
actually issued on April 14, 1994 in connection with the
SEPSCO Merger.
(27) Acquisitions
During 1994 the Company consummated two related transactions whereby it
sold 20 Company-owned restaurants having a net book value of $2,326,000 and
acquired 33 previously franchised restaurants from the same party for a net
cash purchase price of $10,000,000. Since the combined transaction was
accounted for as a nonmonetary exchange, the Company did not recognize any
gain or loss on the combined transaction. The Company also purchased during
1994 an additional 11 restaurants from franchisees and the assets of several
smaller LP gas companies for aggregate purchase prices of $12,553,000
consisting of cash of $8,790,000 and notes aggregating $3,763,000. All such
restaurant and LP gas acquisitions have been accounted for in accordance
with the purchase method of accounting. In accordance therewith the excess
of cost over net fair value of assets acquired was assigned to "Properties"
($14,803,000), "Deferred costs and other assets" ($1,711,000) for favorable
lease rights and non-compete agreements, long-term debt, including current
portion ($2,726,000) for capitalized leases assumed and to various other
assets ($351,000) with the excess of $8,414,000 recorded as Goodwill.
In September 1994 the Company entered into a definitive merger agreement
with Long John Silver's Restaurants, Inc. ("LJS"), an owner, operator and
franchisor of quick service fish and seafood restaurants, whereby the
Company would acquire all of the outstanding stock of LJS. In December 1994
the Company decided not to proceed with the acquisition of LJS due to the
higher interest rate environment and difficult capital markets which would
have resulted in significantly higher than anticipated costs and
unacceptable terms of financing. Accordingly, the Company recorded a charge
of $7,000,000 in 1994 for the expenses relating to the acquisition of LJS
representing commitment fees, legal, consulting and other costs related to
the acquisition.
(28) Transactions with Related Parties
Triarc provided certain management services including, among others,
legal, accounting, income taxes, insurance and financial services to certain
former affiliates through October 1993 when such services to former
affiliates were discontinued. In Fiscal 1992 and 1993 and Transition 1993,
respectively, $8,084,000, $6,640,000 and $156,000, including interest on
past due balances but excluding charges relating to leased space, were
charged to former affiliates. Until January 31, 1994 Triarc also leased
space on behalf of its subsidiaries and former affiliates from one of the
Posner Entities. In Fiscal 1992 and 1993 and Transition 1993 respectively,
$8,575,000, $6,616,000 and $2,896,000 was charged to the Company for the
cost of such leased space and $1,124,000, $826,000 and $24,000 of such costs
was charged by the Company to former affiliates. Certain amounts due from
former affiliates under such cost sharing arrangements were reserved in
Fiscal 1992 and 1993 and Transition 1993 and reallocated among Triarc's
subsidiaries and the other participants in such cost sharing arrangements.
At April 30, 1992 Triarc owed rent and late charges aggregating $14,550,000,
which was included in "Accounts payable". In connection with the Change in
Control, all outstanding rent obligations for such leased space aggregating
approximately $20,638,000 were settled on April 23, 1993 for $11,738,000
resulting in a rent reduction credit of approximately $8,900,000 included in
"Other income (expense), net" in the accompanying consolidated statement of
operations for Fiscal 1993. In July 1993 Triarc gave notice to terminate
the lease effective January 31, 1994 and recorded a charge of approximately
$13,000,000 included in "Facilities relocation and corporate restructuring"
in Fiscal 1993 to provide for the remaining payments on the lease subsequent
to its cancellation. As discussed in Note 34, such obligation was settled
in January 1995 pursuant to a settlement agreement with the Posner Entities.
During Transition 1993 the Company sold certain nonbusiness assets
having a net book value of approximately $400,000 to an entity owned by
Victor Posner for cash sales prices aggregating approximately $310,000.
IRM acted as agent or broker through April 1993 in connection with
certain insurance coverage obtained by the Company and provided claims
processing services for the Company. Commissions and payments for such
services to IRM amounted to $1,778,000 in Fiscal 1992 and $1,591,000 in
Fiscal 1993.
The Company uses aircraft owned by Triangle Aircraft Services
Corporation ("TASCO"), a company owned by Messrs. Peltz and May. Prior to
October 1, 1993 the Company paid TASCO for such use at a rate equal to
TASCO's direct out-of-pocket expenses, with the cost of fuel, oil and
lubricants doubled. The Company incurred usage fees under this arrangement
of $754,000 and $681,000 during Fiscal 1993 and the first five months of
Transition 1993, respectively. On October 1, 1993 the Company began leasing
the aircraft from TASCO for an aggregate annual rent of $2,200,000. The
rent was reduced to $1,800,000 effective October 1, 1994 reflecting the
termination of the lease for one of the aircraft which was sold. In
connection with such sale the Company paid $130,000 of related costs on
behalf of TASCO. In connection with such lease the Company had rent expense
for the last three months of Transition 1993 of $550,000 and for 1994 of
$2,100,000. Pursuant to this arrangement, the Company also pays the
operating expenses of the aircraft directly to third parties.
The Company subleases through January 31, 1996 from an affiliate of
Messrs. Peltz and May approximately 26,800 square feet of furnished office
space in New York, New York owned by an unaffiliated third party. In
addition, until October 1993 the Company also sublet from another affiliate
of Messrs. Peltz and May approximately 32,000 square feet of office space in
West Palm Beach, Florida owned by an unaffiliated landlord. Subsequent to
October 1993, the Company assumed the lease for approximately 17,000 square
feet of the office space in West Palm Beach which expires in February 2000.
The sublease for the other approximate 15,000 square feet in West Palm Beach
expired in September 1994. The aggregate amounts paid by the Company during
Transition 1993 and 1994 with respect to affiliates of Messrs. Peltz and May
for such subleases, including operating expenses and net of amounts received
by the Company for sublease of a portion of such space ($238,000 and
$358,000, respectively) were $1,510,000 and $1,620,000 respectively, which
are less than the aggregate amounts such affiliates paid to the unaffiliated
landlords but represent amounts the Company believes it would pay to an
unaffiliated third party for similar improved office space. Messrs. Peltz
and May have guaranteed to the unaffiliated landlords the payment of rent
for the 17,000 square feet of office space in West Palm Beach and the New
York office space. In June 1994 the Company decided to centralize its
corporate offices in New York City. In connection therewith, the Company
subleased the remaining 17,000 square feet in West Palm Beach to an
unaffiliated third party in August 1994 (see Note 30).
Commencing June 1, 1993 and through January 1994 an affiliate of Messrs.
Peltz and May leased an apartment in New York City. Such apartment was used
by executives of the Company and, in connection therewith, the Company
reimbursed such affiliate for $193,000 and $28,000 of rent for the apartment
for the last seven months of Transition 1993 and for January 1994,
respectively.
Prior to Transition 1993, NPC Leasing Corp, a wholly owned subsidiary of
National Propane, leased vehicles and other equipment to former affiliates
under long-term lease obligations which were accounted for as direct
financing leases. The related lease billings during Fiscal 1992 and Fiscal
1993 were approximately $703,000 and $144,000, respectively.
In connection with certain cost sharing agreements, advances, insurance
premiums, equipment leases and accrued interest, the Company had receivables
due from APL, a former affiliate, aggregating $38,120,000 as of April 30,
1992, against which a valuation allowance of $34,713,000 was recorded.
During Fiscal 1993 the Company provided an additional $9,863,000, of which
$3,570,000 was provided during the fourth quarter, for the unreserved
portion of the receivable at April 30, 1992 and additional net billings in
1993. APL has experienced recurring losses and other financial difficulties
in recent years and in June 1993 APL became a debtor in a proceeding under
Chapter 11 of the Federal bankruptcy code. Accordingly, the Company wrote
off the full balance of the APL receivables and related allowance of
$44,576,000 during Fiscal 1993. See Note 25 for discussion of APL's claims
against the Company.
The Company also had secured receivables from Pennsylvania Engineering
Corporation ("PEC"), a former affiliate, aggregating $6,664,000 as of April
30, 1992 against which a $3,664,000 valuation allowance was recorded.
During the fourth quarter of Fiscal 1993, the Company provided an additional
$3,000,000 for the unreserved portion of the receivables. PEC had also
filed for protection under the bankruptcy code and, moreover, the Company
has significant doubts as to the net realizability of the underlying
collateral.
Pursuant to an October 1992 agreement entered into in connection with
the Change in Control, Triarc agreed to reimburse DWG Acquisition for
certain of the reasonable, out-of-pocket expenses incurred by DWG
Acquisition in connection with services rendered by it to Triarc without
charge relating to the refinancing and restructuring of Triarc and
subsidiaries and other transactions beneficial to Triarc and its
subsidiaries. Pursuant to such agreement, Triarc reimbursed DWG Acquisition
for $229,000 in expenses during Fiscal 1993, which amount related
principally to travel, photocopying and delivery expenses.
See also Notes 3, 16, 29, 31, and 34 with respect to certain other
transactions with related parties.
(29) Insurance Operations
Chesapeake Insurance (i) prior to October 1, 1993 provided certain
property insurance coverage for the Company and reinsured a portion of
workers' compensation, general liability, automobile liability and group
life insurance coverage which the Company and certain former affiliates
maintained principally with AIG Risk Management, Inc. ("AIG"), an
unaffiliated insurance company and (ii) prior to the Change in Control
reinsured insurance risks of unaffiliated third parties through various
group participation. Premiums charged to former affiliates, net of amounts
not collected, were approximately $4,400,000, $2,761,000 and $864,000 in
Fiscal 1992, Fiscal 1993 and Transition 1993, respectively. Chesapeake
Insurance no longer insures or reinsures any risks for periods commencing on
or after October 1, 1993.
Effective December 31, 1993 Chesapeake Insurance consummated an
agreement with National Union Fire Insurance Company of Pittsburgh, PA.
("National Union"), an affiliate of AIG, concerning the commutation of all
of the portion of the insurance previously underwritten by AIG for the years
1977 to 1993, on behalf of the Company and former affiliated companies which
had been reinsured by Chesapeake Insurance and which represented $63,500,000
of the Company's insurance loss reserves. In connection with such
commutation, the Company paid an aggregate consideration of $63,500,000,
consisting of $29,321,000 of restricted cash and short-term investments of
insurance operations, and a 9 1/2% promissory note payable to National Union
in the original principal amount of $34,179,000.
In March 1994 Chesapeake Insurance paid $12,000,000 to the Pennsylvania
Insurance Commissioner as rehabilitator of Mutual Fire, Marine and Inland
Insurance Company in full settlement of all claims in litigation relating to
certain reinsurance arrangements. Such settlement was fully provided for
prior to Fiscal 1992 and was included in "Accounts payable" in the
accompanying consolidated balance sheet as of December 31, 1993. In June
1993 Chesapeake Insurance paid $8,075,000 to a surety in full settlement of
an approximate $13,800,000 liability due June 30, 1996 in connection with
the indemnification by Chesapeake Insurance and RCAC of bonding arrangements
on behalf of a former affiliate. The Company had fully provided for such
settlement in Fiscal 1992 and 1993 and was included in "Accounts payable" as
of April 30, 1993.
(30) Facilities Relocation and Corporate Restructuring
The accompanying consolidated statements of operations for Fiscal 1993
and the year ended December 31, 1994 include the following charges for
facilities relocation and corporate restructuring (in thousands):
Fiscal
1993 (a) 1994 (b)
-------- --------
Estimated costs to relocate the Company's
headquarters and terminate leases on
existing corporate facilities $ 14,900 $ 3,300
Estimated restructuring charges associated
with personnel recruiting and relocation
costs, employee severance costs and
consultant fees 20,300 5,500
Costs related to a five-year consulting
agreement (the "Consulting Agreement")
extending through April 1998 between the
Company and its former Vice Chairman 6,000 --
Other restructuring costs 1,800 --
-------- --------
$ 43,000 $ 8,800
======== ========
(a) The charges in Fiscal 1993 exclusive of other restructuring costs
of $1,800,000 related to the Change in Control of the Company described in
Note 3. As part of the Change in Control, the Board of Directors of the
Company was reconstituted. The first meeting of the reconstituted Board of
Directors was held on April 24, 1993. At that meeting, based on a report
and recommendations from a management consulting firm that had conducted an
extensive review of the Company's operations and management structure, the
Board of Directors approved a plan of decentralization and restructuring
which entailed, among other things, the following features: (a) the
strategic decision to manage the Company in the future on a decentralized,
rather than on a centralized basis; (b) the hiring of new executive officers
for Triarc and the hiring of new chief executive officers and new senior
management teams for each of Arby's, Royal Crown and National Propane to
carry out the decentralization strategy; (c) the termination of a
significant number of employees as a result of both the new management
philosophy and the hiring of an almost entirely new management team and (iv)
the relocation of the corporate headquarters of Triarc and of all of its
subsidiaries whose headquarters were located in South Florida, including
Arby's, Royal Crown and SEPSCO as well as the relocation of the headquarters
of National Propane. In connection with (b) above, in April 1993 the
Company entered into employment agreements with the new president and chief
executive officers of Royal Crown, Arby's and National Propane.
Accordingly, the Company's cost to relocate its corporate headquarters and
terminate the lease on its existing corporate facilities of $14,900,000, and
estimated corporate restructuring charges of $20,300,000 including costs
associated with hiring and relocating new senior management and other
personnel recruiting and relocation costs, employee severance costs and
consulting fees, all stemmed from the decentralization and restructuring
plan formally adopted at the April 24, 1993 meeting of the Company's
reconstituted Board of Directors. Also in connection with the Change in
Control, Victor Posner and Steven Posner, the Chairman and Chief Executive
Officer and Vice Chairman, respectively, resigned as officers and directors
of the Company. In order to induce Steven Posner to resign, the Company
entered into the Consulting Agreement with him. The cost related to the
Consulting Agreement was recorded as a charge in Fiscal 1993 because the
Consulting Agreement does not require any substantial services and the
Company does not expect to receive any services that will have substantial
value.
(b) The 1994 facilities relocation and corporate restructuring charges
principally related to the 1994 closing of the Company's former corporate
office in West Palm Beach, Florida, including the estimated loss
($3,300,000) on the sublease of such office space in 1994 and the write-off
of unamortized leasehold improvements, severance costs related to corporate
employees terminated during 1994 and the relocation of certain employees
formerly located in that facility either to another South Florida location
or the New York City corporate offices.
(31) Significant Fiscal 1993 and Transition 1993 Charges
The accompanying Fiscal 1993 consolidated statement of operations
includes the following significant charges recorded in the fourth quarter
(in thousands):
Facilities relocation and corporate restructuring
charges (Note 30) $ 43,000
Write-off of uncollectible notes and other amounts of
$6,570 due from APL and PEC (see Note 28), less a
recovery of $1,430 5,140 (a)
Payment to a special committee of the Company's Board
of Directors (i) 4,900 (b)
Provision for closing certain non-strategic company-owned
restaurants and abandoned bottling facilities (ii) 2,200 (b)
Estimated costs to comply with revised package labeling
regulations (iii) 1,500 (c)
Reversal of unpaid incentive plan accruals provided in
prior years (iv) (7,297) (b)
Other 2,246 (b)
Total net charges affecting operating profit 51,689
Interest accruals relating to income tax matters
(see Note 15) 6,109 (d)
Costs of certain shareholder and other litigation (v) 5,947 (e)
Settlement of accrued rent balance in connection with the
Change in Control (see Note 28) (8,900) (e)
Commitment fees and other compensation costs relating to a
proposed financing which was not consummated (vi) 3,200 (e)
Reduction to estimated net realizable value of certain assets
held for sale other than discontinued operations 2,147 (e)
Income tax benefit relating to the above net charges (15,435)
Provision for income tax contingencies and other tax matters
(see Note 15) 7,897
Minority interest effect of above net charges (3,956)
Write-down relating to the impairment of certain unprofitable
operations and accruals for environmental remediation and
losses on certain contracts in progress of discontinued
operations, net of income tax benefit and minority interests
(see Note 20) 5,363
Extraordinary charge, net (see Note 21) 6,611
Cumulative effect of changes in accounting principles, net,
retroactively reflected in the first quarter (see Note 22) 6,388
--------
$ 67,060
========
- - - ---------------
(a) Included in "Provision for doubtful accounts from affiliates".
(b) Included in "General and administrative".
(c) Included in "Advertising, selling and distribution".
(d) Included in "Interest expense".
(e) Included in "Other income (expense), net".
---------------------------------------------
(i) In accordance with certain court proceedings and related
settlements, five directors, including three court-appointed directors,
were appointed in 1991 to serve on a special committee of the Company's
Board of Directors (the "Special Committee"). The Special Committee was
empowered to review and pass on transactions between Triarc and Victor
Posner, the then largest shareholder of the Company, and his affiliates.
A success fee was paid to the Special Committee attributable to the
Change in Control in the aggregate cash amount of $4,900,000.
(ii) The provision for closing certain non-strategic company-owned
restaurants and abandoned bottling facilities relates to the decision of
new management to close unprofitable facilities. Prior management was
of the opinion that over time it could dispose of these facilities at no
loss to the Company. Current management intended, however, to
significantly accelerate the disposal of the abandoned bottling
facilities and, as such, it was unlikely to be able to realize the net
book value of the facilities. In addition, the Company provided for
anticipated additional environmental clean-up costs it expected to incur
in connection with the acceleration of the disposal of the facilities.
(iii) The Company was required to change the labeling on all of its
Royal Crown products as a result of the Food and Drug Administration
Regulations (the "Regulations") issued pursuant to the Nutrition
Labeling and Education Act (the "Act") of 1990. The Regulations which
provided the necessary guidance to implement the requirements of the Act
were issued in January 1993. At that time the Company estimated the
cost of compliance and, accordingly, recorded a provision of $1,500,000.
(iv) The Company maintained a management incentive plan (the
"Incentive Plan") which provided discretionary awards requiring approval
of the Board of Directors. Additionally, awards to Victor and Steven
Posner required approval by the Special Committee. The Company made
provisions for such awards in years prior to Fiscal 1993 although no
payments were made under the Incentive Plan first in 1990 because of
cash flow constraints and subsequent thereto because of the Special
Committee's refusal to approve any awards to Victor and Steven Posner.
Nevertheless, the Company continued to make provisions because if
certain shareholder litigation involving the Company had been resolved
favorably to Victor Posner or if the term of the Special Committee had
expired during the period of Victor Posner's control of the Company, it
was likely that all or some of the incentive compensation would be paid.
In April 1993, in connection with the Change in Control of the Company,
the current management of the Company terminated the Incentive Plan.
Accordingly, the remaining accrual of $7,297,000 was reversed. The
Company believes that it would not have any liability if any claims were
made pursuant to the terminated Incentive Plan.
(v) Includes (a) legal fees and settlement costs aggregating
approximately $4,572,000 in connection with the Modification and SEPSCO
Litigation described in Notes 25 and 26, respectively, settled or
subsequently settled in connection with the Change in Control, (b)
settlement costs of approximately $750,000 for litigation involving a
former subsidiary settled in August 1993 and (c) settlement costs of
approximately $625,000 for litigation involving a former employee
settled in May 1993.
(vi) The Company incurred $3,200,000 of commitment fees and other
compensation costs relating to a proposed alternative financing with a
syndicate of banks to the senior secured step-up rate notes (the "Step-
up Notes") issued in April 1993. Such alternative financing was
abandoned due to more favorable payment terms and covenants associated
with the Step-up Notes.
The accompanying Transition 1993 consolidated statement of operations
included the following significant charges (in thousands):
Increased reserves for Company and third party insurance
and reinsurance losses (i) $10,006 (a)
Provision for legal matters (ii) 2,300 (a)
--------
Total charges affecting operating profit 12,306
Charges related to the SEPSCO Settlement (See Note 26) 5,050 (b)
Reduction to net realizable value of certain assets held
for sale other than discontinued operations 3,292 (b)
Income tax benefit and minority interest effect relating
to the above charges (2,231)
Increased reserve for income tax contingencies (iii) 7,200
Increased estimated loss on disposal of discontinued
operations (See Note 20) 8,820
--------
$34,437
========
- - - ------------
(a) Included in "General and administrative".
(b) Included in "Other income (expense), net".
---------------------------------------------
(i) The Company increased the reserves at Chesapeake Insurance
relating to insurance coverage of the Company and former affiliates,
as well as reinsurance coverage, which the Company and certain
affiliates maintained with unaffiliated insurance companies.
(ii) The Company increased its reserves for legal matters by
$2,300,000, principally for a claim asserted in Transition 1993 by
NVF, a former affiliate (see Note 25).
(iii) The Company increased its reserves for income tax contingencies
by $7,200,000 including provisions relating to certain issues being
addressed as part of the examinations of the Company's income tax returns
by the IRS for the tax years from 1989 through 1992 which commenced
during Transition 1993 (see Note 15).
(32) Business Segments
The Company operates in four major segments: textiles, restaurants,
soft drink and liquefied petroleum gas. The textile segment manufactures
dyes and finishes cotton, synthetic and blended (cotton and polyester)
fabrics, primarily for the apparel trade and mainly for two end uses: (1)
utility wear and (2) men's, women's and children's sportswear, casual wear
and outerwear. The restaurant segment operates and franchises Arby's fast
food restaurants, the largest franchise restaurant system specializing in
roast beef sandwiches. The soft drink segment produces and sells soft drink
concentrates under the principal brand names RC COLA, DIET RC COLA, DIET
RITE COLA, DIET RITE flavors, NEHI, UPPER 10 and KICK. The liquefied
petroleum gas segment distributes and sells liquefied petroleum gas. The
other segment includes, as applicable, (a) non-core businesses including (i)
insurance and reinsurance until fully terminated in October 1993, (ii)
natural gas and oil operations sold in August 1994 and February 1995, (iii)
the operation of certain grapefruit groves sold in December 1994 and (b)
certain businesses sold in January or February 1994 consisting of (i)
specialty decorations of glass and ceramic items, (ii) the design,
manufacture and servicing of overhead industrial cranes and (iii) the
manufacture and distribution of lamps.
Information concerning the various segments in which the Company
operates is shown in the table below. Operating profit is total revenue
less operating expenses. In computing operating profit, interest expense,
general corporate expenses and non-operating income and expenses, including
interest income, gain on sale of natural gas and oil business and costs of a
proposed acquisition not consummated have not been considered. Identifiable
assets by segment are those assets that are used in the Company's operations
in each segment. General corporate assets consist primarily of cash and
cash equivalents (including restricted cash), marketable securities and
deferred financing costs and, in Fiscal 1992, notes receivable from
affiliates.
No customer accounted for more than 10% of consolidated revenues in
Fiscal 1992, Fiscal 1993, Transition 1993 or 1994.
Fiscal Fiscal Transition
1992 1993 1993 1994
---- ---- ---- ----
(In thousands)
Revenues:
Textiles $ 456,402 $ 499,060 $ 365,276 $ 536,918
Restaurants 186,921 198,915 147,460 223,155
Soft drink 143,830 148,262 98,337 150,750
Liquefied petroleum gas 141,032 148,790 89,167 151,698
Other 146,518 63,247 3,301 --
---------- ---------- ---------- ----------
Consolidated revenues $ 1,074,703 $1,058,274 $ 703,541 $1,062,521
========== ========== ========== ==========
Operating profit:
Textiles $ 27,753 $ 47,203 $ 27,595 $ 33,955
Restaurants 14,271 7,852 12,880 15,542
Soft drink 36,112 23,461 6,083 14,607
Liquefied petroleum
gas 12,676 3,008 2,014 20,378
Other (5,746) (15,942) (7,098) --
---------- ---------- ---------- ----------
Segment operating
profit 85,066 65,582 41,474 84,482
Interest expense (71,832) (72,830) (44,847) (72,980)
Non-operating income
(expense), net 6,542 (920) (7,991) 4,858
General corporate
expenses (26,514) (31,123) (11,505) (15,549)
---------- ---------- ---------- ----------
Consolidated income
(loss) from
continuing
operations
before income
taxes and
minority
interests $ (6,738) $ (39,291) $ (22,869) $ 811
========== ========== ========== ==========
Identifiable assets:
Textiles $ 215,215 $ 276,062 $ 294,136 $ 327,793
Restaurants 88,236 99,455 104,605 137,943
Soft drink 183,942 184,364 186,353 190,568
Liquefied petroleum gas 111,208 124,613 115,849 133,321
Other 122,035 62,715 26,075 13,452
---------- ---------- ---------- ----------
Total identifiable
assets 720,636 747,209 727,018 803,077
General corporate
assets 33,835 96,544 154,164 119,090
Discontinued operations,
net 66,699 66,909 16,064 --
---------- ---------- ---------- ----------
Consolidated assets $ 821,170 $ 910,662 $ 897,246 $ 922,167
========== ========== ========== ==========
Capital expenditures:
Textiles $ 11,399 $ 10,075 $ 13,667 $ 22,965
Restaurants 9,079 6,231 7,106 34,875
Soft drink 558 870 554 1,309
Liquefied petroleum gas 7,039 8,290 8,966 6,599
Corporate 205 42 3,046 83
Other 2,973 1,699 -- --
---------- ---------- ---------- ----------
Consolidated capital
expenditures $ 31,253 $ 27,207 $ 33,339 $ 65,831
========== ========== ========== ==========
Depreciation and
amortization:
Textiles $ 9,807 $ 10,328 $ 9,058 $ 13,867
Restaurants 9,383 9,899 5,472 9,335
Soft drink 566 411 304 772
Liquefied petroleum
gas 8,317 8,043 5,595 9,337
Corporate 556 563 532 590
Other 2,595 1,952 -- --
---------- ---------- ---------- ----------
Consolidated
depreciation and
amortization $ 31,224 $ 31,196 $ 20,961 $ 33,901
========== ========== ========== ==========
(33) Quarterly Information (Unaudited)
Three Months Ended
-----------------------------------------------
July 31, October 31, January 31, April 30, (A)
-------- ---------- ---------- -------------
(In thousands except per share amounts)
Fiscal 1993
Revenues $ 268,288 $ 254,083 $ 277,607 $ 258,296
Gross profit 70,802 68,471 75,778 80,850
Operating profit (loss) 14,691 17,438 25,016 (22,686)
Loss from continuing
operations (1,843) (2,555) (1,841) (38,310)
Income (loss) from
discontinued
operations 691 1,325 899 (5,345)
Extraordinary charge
(Note 21) -- -- -- (6,611)
Cumulative effect of
changes in accounting
principles (Note 22) (6,388) -- -- --
Net loss (7,540) (1,230) (942) (50,266)
Income (loss) per share:
Continuing operations (.07) (.10) (.07) (1.50)
Discontinued operations .03 .05 .03 (.21)
Extraordinary charge -- -- -- (.26)
Cumulative effect of
changes in accounting
principles (.25) -- -- --
Net loss (.29) (.05) (.04) (1.97)
Three months ended Two Months
------------------- Ended
July 31, October 31,(B) December 31,(C)
------- ------------- ------------
(In thousands except per share amounts)
Transition 1993
Revenues $264,074 $ 257,396 $ 182,071
Gross profit 77,674 78,314 50,952
Operating profit 18,307 3,946 7,716
Income (loss) from continuing
operations 3 (19,631) (10,811)
Income (loss) from discontinued
operations 631 (7,799) (1,423)
Extraordinary charge (Note 21) -- (448) --
Net income (loss) 634 (27,878) (12,234)
Income (loss) per share:
Continuing operations (.07) (.99) (.56)
Discontinued operations .03 (.37) (.06)
Extraordinary charge -- (.02) --
Net loss (.04) (1.38) (.62)
Three Months Ended
-----------------------------------------------
March 31, June 30, September 30, December 31,(D)
-------- ------- ------------ --------------
(In thousands except per share amounts)
1994
Revenues $270,059 $ 267,429 $ 256,143 $ 268,890
Gross profit 83,663 75,598 72,905 80,425
Operating profit 31,483 16,447 5,955 15,048
Income (loss) from
continuing
operations 8,785 (1,587) (2,883) (6,408)
Income (loss) from
discontinued
operations -- -- -- (3,900)
Extraordinary charge
(Note 21) -- -- -- (2,116)
Net income (loss) 8,785 (1,587) (2,883) (12,424)
Primary income (loss)
per share:
Continuing operations .34 (.13) (.18) (.33)
Discontinued operations -- -- -- (.16)
Extraordinary charge -- -- -- (.09)
Net income (loss) .34 (.13) (.18) (.58)
Fully diluted income per
share:
Continuing operations and
net income .33 (E) (E) (E)
(A) As described in Notes 30 and 31 results for the three months ended
April 30, 1993 were materially affected by facilities relocation,
corporate restructuring and other significant charges aggregating
approximately $60,672,000, net of income tax benefit and minority
interests, and exclusive of the cumulative effect of changes in
accounting principles which was retroactively recorded in the first
quarter.
(B) The results for the three months ended October 31, 1993 were
affected by charges of $30,692,000, net of income tax benefit and
minority interests. Such charges included (i) increased insurance
reserves of $10,006,000, (ii) a revision of a prior estimate for
advertising allowances to independent bottlers and coupon
redemptions by $7,772,000 principally relating to reserves recorded
earlier in Transition 1993, (iii) a $2,300,000 provision for legal
matters, (iv) a $1,737,000 reduction to net realizable value of
certain assets held for sale other than discontinued operations,
(v) tax benefit and minority interests on the charges in (i)
through (iv) of $4,520,000, (vi) a $6,000,000 increase in the
reserve for income taxes and (vii) an increase in the estimated
loss on disposal of discontinued operations of $7,397,000. See
Note 31 for a further discussion of certain of these charges.
(C) The results of operations for the two months ended December 31,
1993 were affected by charges of $8,412,000, net of income tax
benefit and minority interests. Such charges consisted of (i)
$5,050,000 of charges related to the SEPSCO Settlement (see Note
26), (ii) a $1,555,000 reduction to net realizable value of certain
assets held for sale other than discontinued operations, (iii) a
tax benefit on the charges in (i) and (ii) of $816,000, (iv) a
$1,200,000 increase in the reserve for income taxes (see Note 30)
and (v) an increase in the estimated loss on disposal of
discontinued operations of $1,423,000, net of minority interests
(see Note 20).
(D) The results for the three months ended December 31, 1994 were
affected by a charge of $4,450,000, net of tax benefit of
$2,550,000, related to the costs of a proposed acquisition not
consummated (see Note 27) and an increase in the estimated loss on
disposal of discontinued operations of $3,900,000 net of income tax
benefit of $2,075,000 (see Note 20).
(E) Fully diluted loss per share was not applicable subsequent to the
first quarter of 1994 since contingent issuances of common shares
would have been antidilutive.
(34) Subsequent Events
Pursuant to a settlement agreement (the "Settlement Agreement") entered
into by the Company and the Posner Entities on January 9, 1995 the 5,982,866
shares of Redeemable Preferred Stock owned by a Posner Entity were converted
into 4,985,722 shares of the Company's Class B Common Stock (the
"Conversion"). In connection therewith the Company has no further obligation
to declare or pay dividends on the Redeemable Preferred Stock subsequent to
the last dividend payment date of September 30, 1994. Further, an additional
1,011,900 shares of Class B Common Stock were issued to the Posner Entities
(the "Issuance") in consideration for, among other matters, (i) the
settlement of all amounts due to the Posner Entities in connection with
termination of the lease for the Company's former headquarters effective
February 1, 1994 and (ii) an indemnification by certain of the Posner
Entities of any claims or expenses incurred after December 1, 1994 involving
the NVF Litigation, the APL Litigation and any potential litigation relating
to the bankruptcy filing of PEC (see Note 28). Such Class B Common Stock
issued to the Posner Entities can only be sold subject to a right of refusal
in favor of the Company or its designee. Further, the Company has agreed to
waive its claims in the APL Proceeding if APL gives the Company a general
release from the APL Litigation and any other claims of APL. As a result of
the Conversion and the Issuance stockholders' equity (deficit) improved by
$83,811,000 in January 1995.
The settlement of the lease termination resulted in a pretax gain to the
Company of $310,000 representing the excess of the net accrued liability for
the lease termination of $12,326,000 ($13,000,000 less a security deposit of
$674,000) (see Note 28) over the fair value of the 1,011,900 shares of Class
B Common Stock issued of $12,016,000. In addition, the Company will be able
to reverse an accrual for interest of $638,000 on the lease termination
obligation. Further, pursuant to the Settlement Agreement, Posner paid the
Company $6,000,000 in January 1995 in exchange for, among other things, the
release by the Company of the Posner Entities from certain claims that it may
have with respect to (i) legal fees in connection with the Modification (see
Note 25), (ii) fees payable to the court-appointed members of the Special
Committee of the Company's Board of Directors and (iii) legal fees paid or
payable with respect to matters referred to in the Settlement Agreement,
subject to the satisfaction by the Posner Entities of certain obligations
under the Settlement Agreement. The Company used such funds to pay (i)
$2,000,000 to the court-appointed members of the Special Committee of the
Company's Board of Directors for services rendered in connection with the
consummation of the Settlement Agreement, (ii) attorney's fees of $850,000 in
connection with the Modification, (iii) $200,000 in connection with the
settlement of certain litigation and (iv) $100,000 of other expenses. As a
result of all of the above, the Company will record pretax income of
approximately $3,800,000 during the first quarter of 1995. Supplementary
loss per share (see Note 4) sets forth the pro forma effect of the conversion
of Redeemable Preferred Stock as if it had occurred as of January 1, 1994.
Had the additional 1,011,900 common shares noted above been issued to the
Posner Entities as of January 1, 1994, supplementary net loss per share from
continuing operations would have been reduced from $(.29) to $(.28).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10, 11, 12 AND 13.
Items 10, 11, 12 and 13 to be furnished by amendment hereto on
or prior to April 30, 1995 or Triarc will otherwise have filed a
definitive proxy statement involving the election of directors
pursuant to Regulation 14A which will contain such information.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(A) 1. Financial Statements:
See Index to Financial Statements (Item 8)
2. Financial Statement Schedules:
INDEPENDENT AUDITORS' REPORT
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Schedule I -- Balance Sheets (Parent Company
Only) -- as of April 30, 1993 and
December 31, 1993 and 1994;
Statements of Operations (Parent
Company Only) -- for the years
ended April 30, 1992 and 1993, the
eight months ended December 31,
1993 and the year ended December
31, 1994; Statements of Cash Flows
(Parent Company Only) -- for the
years ended April 30, 1992 and
1993, the eight months ended
December 31, 1993 and the year
ended December 31, 1994
Schedule II -- Valuation and Qualifying Accounts
for the years ended April 30, 1992
and 1993, the eight months ended
December 31, 1993 and the year
ended December 31, 1994
Schedule V -- Supplemental Information Concerning
Property Casualty Insurance
Operations for the years ended
April 30, 1992 and 1993, the eight
months ended December 31, 1993 and
the year ended December 31, 1994
All other schedules have been omitted since they are either
not applicable or the information is contained elsewhere in "Item 8.
Financial Statements and Supplementary Data."
3. Exhibits:
Copies of the following exhibits are available at a charge of
$.25 per page upon written request to the Secretary of Triarc at
900 Third Avenue, New York, New York 10022.
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------
2.1 -- Stock Purchase Agreement dated as of October 1,
1992 among DWG Acquisition, Victor Posner, Security
Management Corp. and Victor Posner Trust No. 20,
incorporated herein by reference to Exhibit 10 to
Amendment No. 4 to Triarc's Current Report on Form
8-K dated October 5, 1992 (SEC file No. 1-2207).
2.2 -- Amendment dated as of October 1, 1992 between
Triarc and DWG Acquisition, incorporated herein by
reference to Exhibit 11 to Amendment No. 4 to
Triarc's Current Report on Form 8-K dated October
5, 1992 (SEC file No. 1-2207).
2.3 -- Exchange Agreement dated as of October 1, 1992
between Triarc and Security Management Corp.,
incorporated herein by reference to Exhibit 12 to
Amendment No. 4 to Triarc's Current Report on Form
8-K dated October 5, 1992 (SEC file No. 1-2207).
2.4 -- Agreement and Plan of Merger dated as of November
22, 1993 among SEPSCO, SEPSCO Merger Corporation
and Triarc, incorporated hereby by reference to
Exhibit 2.1 to Amendment No. 1 to Triarc's
Registration Statement on Form S-4 dated March
11, 1994 (SEC file No. 1-2207).
2.5 -- Agreement and Plan of Merger, dated as of May 11,
1994, by and between Triarc and Triarc Merger
Corporation, incorporated herein by reference to
Exhibit A to Triarc's Definitive Proxy Statement
(the "1994 Proxy") relating to Triarc's annual
meeting of stockholders held on June 9, 1994 (SEC
file No. 1-2207).
3.1 -- Certificate of Incorporation of Triarc, as
currently in effect, incorporated herein by
reference to Exhibit B to the 1994 Proxy (SEC file
No. 1-2207).
3.2 -- By-laws of Triarc, as currently in effect,
incorporated herein by reference to Exhibit C to
the 1994 Proxy (SEC file No. 1-2207).
4.1 -- Southeastern Public Service Company Indenture dated
as of February 1, 1983, incorporated herein by
reference to Exhibit 4(a) to SEPSCO's Registration
Statement on Form S-2 dated January 18, 1983 (SEC
file No. 2-81393).
4.2 -- Note Purchase Agreement dated as of April 23, 1993
among RCAC, Triarc, RCRB Funding, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated,
incorporated herein by reference to Exhibit 4 to
Triarc's Current Report on Form 8-K dated April 23,
1993 (SEC file No. 1-2207).
4.3 -- Indenture dated as of April 23, 1993 among RCAC,
Royal Crown, Arby's and The Bank of New York,
incorporated herein by reference to Exhibit 5 to
Triarc's Current Report on Form 8-K dated April
23, 1993 (SEC file No. 1-2207).
4.4 -- Form of Indenture among RCAC, Royal Crown, Arby's
and The Bank of New York, as Trustee, relating to
the 9 3/4% Senior Secured Notes Due 2000,
incorporated herein by reference to Exhibit 4.1 to
RCAC's Registration Statement on Form S-1 dated May
13, 1993 (SEC file No. 33-62778).
4.5 -- Revolving Credit, Term Loan and Security Agreement
dated April 23, 1993 among Graniteville, C.H.
Patrick and The CIT Group/Commercial Services, Inc.
(the "Graniteville Credit Agreement"), incorporated
herein by reference to Exhibit 6 to Triarc's
Current Report on Form 8-K dated April 23, 1993
(SEC file No. 1-2207).
4.6 -- First Amendment, dated as of June 15, 1993, to the
Graniteville Credit Agreement, incorporated herein
by reference to Exhibit 4.1 to Triarc's Current
Report on Form 8-K dated March 29, 1995 (SEC file
No. 1-2207).
4.7 -- Amendment No. 2, dated as of March 10, 1994, to the
Graniteville Credit Agreement, incorporated herein
by reference to Exhibit 4.2 to Triarc's Current
Report on Form 8-K dated March 29, 1995 (SEC file
No. 1-2207).
4.8 -- Amendment No. 3, dated as of June 24, 1994, to the
Graniteville Credit Agreement, incorporated herein
by reference to Exhibit 4.3 to Triarc's Current
Report on Form 8-K dated March 29, 1995 (SEC file
No. 1-2207).
4.9 -- Letter Agreement, dated April 13, 1994, amending
the Graniteville Credit Agreement, incorporated
herein by reference to Exhibit 4.4 to Triarc's
Current Report on Form 8-K dated March 29, 1995
(SEC file No. 1-2207).
4.10 -- Amendment No. 4, dated as of October 31, 1994, to
the Graniteville Credit Agreement, incorporated
herein by reference to Exhibit 4.5 to Triarc's
Current Report on Form 8-K dated March 29, 1995
(SEC file No. 1-2207).
4.11 -- Revolving Credit and Term Loan Agreement, dated as
of October 7, 1994, among National Propane, The
Bank of New York, as agent, The First National Bank
of Boston and Internationale Nederlanden (U.S.)
Capital Corporation, as co-agents, and the lenders
party thereto (the "National Propane Credit
Agreement"), incorporated herein by reference to
Exhibit 4.6 to Triarc's Current Report on Form 8-K
dated March 29, 1995 (SEC file No. 1-2207).
4.12 -- First Amendment, dated as of November 22, 1994, to
the National Propane Credit Agreement, incorporated
herein by reference to Exhibit 4.7 to Triarc's
Current Report on Form 8-K dated March 29, 1995
(SEC file No. 1-2207).
4.13 -- Second Amendment, dated as of December 29, 1994, to
the National Propane Credit Agreement, incorporated
herein by reference to Exhibit 4.8 to Triarc's
Current Report on Form 8-K dated March 29, 1995
(SEC file No. 1-2207).
4.14 Amendment No. 5, dated as of March 1, 1995, to the
Graniteville Credit Agreement, incorporated herein
by reference to Exhibit 4.9 to Triarc's Current
Report on Form 8-K dated March 29, 1995 (SEC file
No. 1-2207).
10.1 -- Employment Agreement dated as of April 24, 1993
between Donald L. Pierce and Arby's, incorporated
herein by reference to Exhibit 7 to Triarc's
Current Report on Form 8-K dated April 23, 1993
(SEC file No. 1-2207).
10.2 -- Employment Agreement dated as of April 24, 1993
among John C. Carson, Royal Crown and Triarc,
incorporated herein by reference to Exhibit 8 to
Triarc's Current Report on Form 8-K dated April 23,
1993 (SEC file No. 1-2207).
10.3 -- Employment Agreement dated as of April 24, 1993
between Ronald D. Paliughi and National Propane
Corporation (the "Paliughi Employment Agreement"),
incorporated herein by reference to Exhibit 9 to
Triarc's Current Report on Form 8-K dated April 23,
1993 (SEC file No. 1-2207)
10.4 -- Employment Agreement dated as of April 24, 1993
between H. Douglas Kingsmore and Graniteville
Company, incorporated herein by reference to
Exhibit 10 to Triarc's Current Report on Form 8-K
dated April 23, 1993 (SEC file No. 1-2207).
10.5 -- Employment Agreement effective as of November 1,
1993 between Leon Kalvaria and Triarc, incorporated
herein by reference to Exhibit 10.01 to Triarc's
Quarterly Report on Form 10-Q dated October 31,
1993 (SEC file No. 1-2207).
10.6 -- Memorandum of Understanding dated September 13,
1993 between Triarc and William Ehrman,
individually and derivatively on behalf of SEPSCO,
incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated September
13, 1993 (SEC file No. 1-2207)
10.7 -- Stipulation of Settlement of Ehrman Litigation
dated as of October 18, 1993, incorporated herein
by reference to Exhibit 1 to Triarc's Current
Report on Form 8-K dated October 15, 1993 (SEC file
No. 1-2207).
10.8 -- Triarc's 1993 Equity Participation Plan,
incorporated herein by reference to Exhibit E to
the 1994 Proxy (SEC file No. 1-2207).
10.9 -- Form of Non-Incentive Stock Option Agreement under
Triarc's Amended and Restated 93 Equity
Participation Plan, incorporated herein by
reference to Exhibit 12 to Triarc's Current Report
on Form 8-K dated April 23, 1993 (SEC file No.
1-2207).
10.10 -- Form of Restricted Stock Agreement under
Triarc's Amended and Restated 1993 Equity
Participation Plan, incorporated herein by
reference to Exhibit 13 to Triarc's Current
Report on Form 8-K dated April 23, 1993
(SEC file No. 1-2207).
10.11 -- Consulting Agreement dated as of April 23,
1993 between Triarc and Steven Posner,
incorporated herein by reference to Exhibit
10.8 to Triarc's Annual Report on Form 10-K
for the fiscal year ended April 30, 1993
(SEC file No. 1-2207).
10.12 -- Lease Agreement dated as of April 1, 1993
between Victor Posner Trust No. 6 and
Triarc, incorporated herein by reference to
Exhibit 10.9 to Triarc's Annual Report on
Form 10-K for the fiscal year ended April
30, 1993 (SEC file No. 1-2207).
10.13 -- Form of Former Management Services
Agreement between Triarc and certain other
corporations, incorporated herein by
reference to Exhibit 10.10 to Triarc's
Annual Report on Form 10-K for the fiscal
year ended April 30, 1993 (SEC file No.
1-2207).
10.14 -- Form of New Management Services Agreement
dated as of April 23, 1993 between Triarc
and certain of its subsidiaries,
incorporated herein by reference to Exhibit
10.11 to Triarc's Annual Report on Form
10-K for the fiscal year ended April 30,
1993 (SEC file No. 1-2207).
10.15 -- Concentrate Sales Agreement dated April 4,
1991 between Royal Crown and Cott,
incorporated herein by reference to Exhibit
10.7 to RCAC's Registration Statement on
Form S-1 dated May 13, 1993 (SEC file No.
33-62778).
10.16 -- Concentrate Sales Agreement dated as of
January 28, 1994 between Royal Crown and
Cott, incorporated herein by reference to
Exhibit 10.12 to Amendment No. 1 to
Triarc's Registration Statement on Form S-4
dated March 11, 1994 (SEC file No. 1-2207).
10.17 -- Supply Agreement dated January 8, 1992
between Royal Crown and NutraSweet Company,
incorporated herein by reference to Exhibit
10.9 to RCAC's Registration Statement on
Form S-1 dated May 13, 1993 (SEC file No.
33-62778).
10.18 -- Form of Indemnification Agreement, between
Triarc and certain officers, directors, and
employees of Triarc, incorporated herein by
reference to Exhibit F to the 1994 Proxy
(SEC file No. 1-2207).
10.19 -- Amendment No. 1, dated December 7, 1994 to
the Paliughi Employment Agreement,
incorporated herein by reference to Exhibit
10.1 to Triarc's Current Report on Form 8-K
dated March 29, 1995 (SEC file No. 1-2207).
10.20 -- Settlement Agreement, dated as of January
9, 1995, among Triarc, Security Management
Corp., Victor Posner Trust No. 6 and Victor
Posner, incorporated herein by reference to
Exhibit 99.1 to Triarc's Current Report on
Form 8-K dated January 11, 1995 (SEC file
No. 1-2207).
10.21 -- Employment Agreement, dated as June 29,
1994, between Brian L. Schorr and Triarc,
incorporated herein by reference to Exhibit
10.2 to Triarc's Current Report on Form 8-K
dated March 29, 1995 (SEC file No. 1-2207).
16.1 -- Letter regarding change in certifying accountant
received from Arthur Andersen & Co., incorporated
herein by reference to Exhibit 16 to Triarc's
Current Report on Form 8-K/A dated June 9, 1994
(SEC File No. 1-2207).
21.1 -- Subsidiaries of the Registrant*
27.1 -- Financial Data Schedule for the year ended December
31, 1994, submitted to the Securities and Exchange
Commission in electronic format.
99.1 -- Order of the United States District Court for the
Northern District of Ohio, dated February 7, 1995,
incorporated herein by reference to Exhibit 99.1 to
Triarc's Current Report on Form 8-K dated March 29,
1995 (SEC file No. 1-2207).
_________
*being filed herewith
(B) Reports on Form 8-K:
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRIARC COMPANIES, INC.
(Registrant)
NELSON PELTZ
....................................
NELSON PELTZ
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Dated: March 31, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 31, 1995 by the
following persons on behalf of the registrant in the capacities
indicated.
SIGNATURE TITLES
- - - ------------------------ --------------------------
NELSON PELTZ Chairman and Chief Executive Officer
........................ and Director (Principal Executive Officer)
(NELSON PELTZ)
PETER W. MAY President and Chief Operating Officer, and
........................ Director (Principal Operating Officer)
(PETER W. MAY)
LEON KALVARIA Vice Chairman and Director
........................
(LEON KALVARIA)
JOSEPH A. LEVATO Executive Vice President and Chief Financial
........................ Officer (Principal Financial Officer)
(JOSEPH A. LEVATO)
FRED H. SCHAEFER Vice President and Chief Accounting Office
........................ (Principal Accounting Officer)
(FRED H. SCHAEFER)
HUGH L. CAREY Director
........................
(HUGH L. CAREY)
CLIVE CHAJET Director
........................
(CLIVE CHAJET)
STANLEY R. JAFFE Director
........................
(STANLEY R. JAFFE)
HAROLD E. KELLEY Director
........................
(HAROLD E. KELLEY)
RICHARD M. KERGER Director
........................
(RICHARD M. KERGER)
M.L. LOWENKRON Director
........................
(M. L. LOWENKRON)
DANIEL R. McCARTHY Director
........................
(DANIEL R. MCCARTHY)
DAVID E. SCHWAB II Director
........................
(DAVID E. SCHWAB II)
RAYMOND S. TROUBH Director
........................
(RAYMOND S. TROUBH)
GERALD TSAI, JR. Director
...............................
(GERALD TSAI, JR.)
PAGE
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
TRIARC COMPANIES, INC.:
New York, New York
We have audited the consolidated financial statements of Triarc Companies,
Inc. and subsidiaries (the "Company") as of December 31, 1994 and for the
year ended then, and have issued our report thereon dated March 24, 1995;
such report is included elsewhere in this Form 10-K. Our audit also included
the consolidated financial statement schedules of the Company, listed in Item
14(A) 2. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audit. In our opinion, such consolidated financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE LLP
New York, New York
March 24, 1995
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
To the Board of Directors and Stockholders,
Triarc Companies, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated balance sheets of Triarc Companies, Inc. and
subsidiaries as of April 30, 1993 and December 31, 1993, and the related
consolidated statements of operations, additional capital and cash flows for
each of the two years in the period ended April 30, 1993 and for the eight
months ended December 31, 1993, included elsewhere herein and have issued our
report thereon dated April 14, 1994. Our report on the consolidated
financial statements includes an explanatory paragraph with respect to the
Company's change in its method of accounting for income taxes and
postretirement benefits other than pensions, effective May 1, 1992, as
discussed in Note 22 to the consolidated financial statements. Our audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in Item 14(A) 2. are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 14, 1994.
SCHEDULE I
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
BALANCE SHEETS
December 31
April 30, ---------------------
1993 1993 1994
-------- -------- --------
(In thousands)
ASSETS
Current assets:
Cash and equivalents $29,520 $ 12,318 $ 36,484
Due from subsidiaries 22,219 17,325 26,981
Deferred income tax benefit 9,600 3,543 3,826
Prepaid expenses and other
current assets 1,230 3,170 1,918
-------- -------- --------
Total current assets 62,569 36,356 69,209
-------- -------- --------
Note receivable from subsidiary 1,500 -- --
Investments in consolidated
subsidiaries, at equity 242,762 231,920 264,845
Deferred income tax benefit 563 1,029 3,467
Properties, net 103 2,691 463
Other assets 4,940 11,369 11,344
-------- -------- --------
$312,437 $ 283,365 $349,328
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 4,678 $ 3,078 $ 4,074
Due to subsidiaries 15,712 22,934 21,308
Accrued expenses 33,066 36,320 16,888
-------- -------- --------
Total current liabilities 53,456 62,332 42,270
-------- -------- --------
Notes and loans payable to subsidiaries,
net of discount 218,462 189,822 229,566
9 1/2% promissory note payable (a) -- 34,179 37,426
Other liabilities 4,112 1,219 55
Commitments and contingencies
Redeemable preferred stock, $12 stated
value; designated and issued 5,982,866
shares; aggregate liquidation preference
and redemption amount $71,794,000 71,794 71,794 71,794
Stockholders' equity (deficit):
Class A common stock, $.10 par value;
authorized 100,000,000 shares,
issued 27,983,805 shares 2,798 2,798 2,798
Class B common stock, $.10 par value;
authorized 25,000,000 shares, none
issued -- -- --
Additional paid-in capital 49,375 50,654 79,497
Accumulated deficit (6,067) (46,987) (60,929)
Less Class A common stock held in
treasury at cost; 6,832,145,
6,660,645 and 4,027,982 shares (77,085) (75,150) (45,473)
Other (4,408) (7,296) (7,676)
-------- -------- --------
Total stockholders' deficit (35,387) (75,981) (31,783)
-------- -------- --------
$312,437 $ 283,365 $349,328
======== ======== ========
(a) Matures in 1996 ($4,963), 1997 ($3,538), 1998 ($2,172), 1999 ($1,302)
and thereafter ($25,451).
/TABLE
Schedule I
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
Eight
Months Year
Year Ended April 30, Ended Ended
-------------------- December December
1992 1993 31, 1993 31, 1994
------ ------ ---------- ----------
(In thousands except per share amounts)
Income and (expenses):
Equity in net (losses)
income of continuing
operations of
subsidiaries $ 12,196 $(15,634) $ 1,002 $ 30,425
Interest expense (22,751) (24,858) (19,529) (29,612)
General and administrative
expense (2,961) (4,050) (8,622) (6,660)
Facilities relocation and
corporate restructuring -- (7,200) -- (8,800)
Cost of a proposed
acquisition not
consummated -- -- -- (5,480)
Shareholder litigation
and other expenses (2,004) (7,025) (6,424) (500)
Provision for doubtful
accounts from former
affiliates (9,221) (3,311) -- --
Settlements with former
affiliates -- 8,900 -- --
Other income (expense) 813 517 (650) 498
-------- -------- -------- --------
Loss from continuing
operations before income
taxes (23,928) (52,661) (34,223) (20,129)
Benefit from income taxes 13,721 8,112 3,784 18,036
-------- -------- -------- --------
Loss from continuing
operations (10,207) (44,549) (30,439) (2,093)
Equity in income (losses) of
discontinued operations of
subsidiaries 2,705 (2,430) (8,591) (3,900)
Equity in extraordinary charges
of subsidiaries -- (6,611) (448) (2,116)
Cumulative effect of changes in
accounting principles from:
Triarc Companies, Inc. -- (3,488) -- --
Equity in subsidiaries -- (2,900) -- --
-------- -------- -------- --------
-- (6,388) -- --
-------- -------- -------- --------
Net loss (7,502) (59,978) (39,478) (8,109)
Preferred stock dividend
requirements (11) (121) (3,889) (5,833)
-------- -------- -------- --------
Net loss applicable to
common stockholders $ (7,513) $(60,099) $(43,367) $(13,942)
======== ======== ======== ========
Loss per share:
Continuing operations $ (.39) $ (1.73) $ (1.62) $ (.34)
Discontinued operations .10 (.09) (.40) (.17)
Extraordinary charges -- (.26) (.02) (.09)
Cumulative effect of changes
in accounting principles -- (.25) -- --
-------- -------- -------- --------
Net loss $ (.29) $ (2.33) $ (2.04) $ (.60)
======== ======== ======== ========
Supplementary loss per share(1):
Continuing operations $ (.07)
Discontinued operations (.14)
Extraordinary charges (.08)
--------
Net loss $ (.29)
========
(1) Supplementary loss per share gives effect to a conversion of the
Company's redeemable preferred stock in January 1995 (see Notes 4 and 34
to the accompanying Consolidated Financial Statements for further
discussion).
/TABLE
Schedule I
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
(In thousands)
Eight
Months Year
Year Ended April 30, Ended Ended
-------------------- December December
1992 1993 31, 1993 31, 1994
------ ------ ---------- ----------
(In thousands)
Cash flows from operating
activities:
Net loss $ (7,502) $(59,978) $(39,478) $ (8,109)
Adjustments to reconcile
net loss to net cash and
equivalents used in
operating activities:
Equity in net losses (income)
of subsidiaries (14,901) 27,575 8,037 (24,409)
Dividends from subsidiaries 1,080 3,127 -- 40,000
Depreciation and amortization 1,248 1,248 1,908 3,388
Provision for facilities
relocation and corporate
restructuring -- 7,200 -- 8,800
Payments of facilities
relocation and corporate
restructuring -- (258) (2,970) (5,136)
Provision for cost of a
proposed acquisition not
consummated -- -- -- 5,480
Payments of cost of a
proposed acquisition
not consummated -- -- -- (4,005)
Interest capitalized and
not paid -- -- -- 3,247
Change in due from/to
subsidiaries and other
affiliates including
capitalized interest
($21,017 in 1994) 3,674 (15,214) 18,121 33,034
Provision for doubtful
accounts from former
affiliates 9,221 3,311 -- --
Cumulative effect of
change in accounting
principle -- 3,488 -- --
Deferred income tax
provision (benefit) (5,130) (2,199) 5,591 (1,265)
Other -- -- -- (417)
Decrease (increase) in
prepaid expenses and
other current assets 9,197 (1,156) (1,824) 1,252
Increase (decrease) in
accounts payable and
accrued expenses 2,182 5,824 (376) (19,883)
Increase (decrease) in
other liabilities (62) 3,950 -- --
Other, net 486 2,898 449 (1,551)
-------- -------- -------- --------
Net cash and equivalents
used in operating
activities (507) (20,184) (10,542) 30,426
-------- -------- -------- --------
Cash flows from investing
activities:
Capital expenditures (4) (21) (3,047) (83)
Purchase of minority
interests -- (21,100) -- --
Redemption of investment
in affiliate -- 2,100 -- --
-------- -------- -------- --------
Net cash and equivalents
used in investing
activities (4) (19,021) (3,047) (83)
-------- -------- -------- --------
Cash flows from financing
activities:
Payment of preferred
dividends (11) (9) (2,557) (5,833)
Repayment of long-term debt (52) (20,907) -- --
Issuance of Class A
common stock -- 9,650 -- --
Borrowings from subsidiaries -- 141,600 -- --
Repayment of notes and loans
payable to subsidiaries -- (57,115) -- --
Other -- (4,620) (1,056) (344)
-------- -------- -------- --------
Net cash and equivalents
used in financing
activities (63) 68,599 (3,613) (6,177)
-------- -------- -------- --------
Net increase (decrease) in cash
and equivalents (574) 29,394 (17,202) 24,166
Cash and equivalents at
beginning of period 700 126 29,520 12,318
-------- -------- -------- --------
Cash and equivalents at end of
period $ 126 $ 29,520 $ 12,318 $ 36,484
======== ======== ======== ========
/TABLE
SCHEDULE II
TRIARC COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
---------------------
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other from End of
Description of Period Expenses Accounts Reserves Period
----------- --------- -------- -------- -------- ------
(In thousands)
Fiscal year ended April 30, 1992:
Receivables - allowance for doubtful
accounts:
Trade $ 6,958 $ 3,054 $ -- $ (3,122) $ 6,890
Affiliate 26,111 19,953 1,545 (15,393) 32,216
-------- -------- -------- --------- --------
Total $ 33,069 $ 23,007 $ 1,545 (1)$ (18,515)(4)$ 39,106
======== ======== ======== ========= ========
Other assets - notes receivable from
affiliates $ 23,375 $ 5,733 $ (433) $ (18,285)(4) $ 10,390
======== ======== ======== ========= ========
Insurance loss reserves $ 88,353 $ 21,469 $ -- $ (25,600)(5) $ 84,222
======== ======== ======== ========= ========
Fiscal year ended April 30, 1993:
Receivables - allowance for
doubtful accounts:
Trade $ 6,890 $ 3,783 $ -- $ (3,310) $ 7,363
Affiliate 32,216 3,321 161 (35,698) --
-------- -------- -------- --------- --------
Total $ 39,106 $ 7,104 $ 161 (1)$ (39,008)(4) $ 7,363
======== ======== ======== ========= ========
Other assets - notes receivable
from affiliates $ 10,390 $ 7,037 $ -- $ (17,427)(4) $ --
======== ======== ======== ========= ========
Insurance loss reserves $ 84,222 $ 23,950 $ -- $ (31,409)(5) $ 76,763
======== ======== ======== ========= ========
Eight months ended December 31, 1993:
Receivables - allowance for
doubtful accounts:
Trade $ 7,363 $ 1,659 $ 576 (2)$ (2,629)(4) $ 6,969
======== ======== ======== ========= ========
Insurance loss reserves $ 76,763 $ 20,380 $ (27) $ (83,605)(5) $ 13,511
======== ======== ======== ========= ========
Year ended December 31, 1994:
Receivables - allowance for
doubtful accounts:
Trade $ 6,969 $ 1,021 $ 111 (3)$ (2,711)(4) $ 5,390
======== ======== ======== ========= ========
Insurance loss reserves $ 13,511 $ -- $ -- $ (2,684)(5) $ 10,827
======== ======== ======== ========= ========
- - - -------------
(1) Charged to affiliates
(2) Amount represents the charge for the Lag Months (see Note 2 to the accompanying Consolidated
Financial Statements).
(3) Recoveries of accounts previously determined to be uncollectible.
(4) Accounts determined to be uncollectible.
(5) Payment of claims and/or reclassification to "Accounts payable".
/TABLE
SCHEDULE V
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY CASUALTY
INSURANCE OPERATIONS
Claims and Claim
Reserves Adjustments
for Unpaid Expenses Incurred Paid
Claims and Net Related to Claims and
Claim Investment ---------------- Claim
Affiliation with Adjustments Earned Income Current Prior Adjustment Premiums
Registrant Expenses (1) Premiums (Loss) Year Years Expenses Written
- - - ---------------- ----------- -------- -------- ------- ------- --------- -------
(In thousands)
Consolidated property-
casualty entities:
Fiscal year ended
April 30:
1992 $84,222 $ 4,400 $ (695) $ 14,830 $ 6,639 $ 25,872 $ 4,400
------- ------- ------ ------- ------ ------- ------
1993 $76,763 $ 2,875 $ 705 $ 10,484 $ 13,466 $ 24,773 $ 2,875
------- ------- ------ ------- ------ ------- ------
Eight months ended
December 31, 1993 $13,511 $ 1,432 $ 1,869 $ 13,524 $ 6,856 $ 83,605 $ 1,432
------- ------- ------ ------- ------ ------- ------
Year ended
December 31, 1994 $10,827 $ 120 $ 529 $ 48 $ 386 $ 2,880 $ 120
------- ------- ------ ------- ------ ------- ------
- - - -----------
(1) Does not include claims losses of $7,391 and $14,027 at April 30, 1992 and 1993, respectively,
and $12,899 and $1,610 at December 31, 1993 and 1994, respectively, which have been classified
as "Accounts payable".