[LOGO]
TRIARC COMPANIES, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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, 1995.
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
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TRIARC COMPANIES, INC.
(Exact Name of Registrant as Specified in its Charter)
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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
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Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, $.10 par value New York 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 $224,100,000 as
of March 15, 1996. There were 23,918,202 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, 1996.
"ARBY'S," "RC COLA," "DIET RC," "ROYAL CROWN," "ROYAL CROWN
DRAFT COLA," "DIET RITE," "NEHI," "NEHI LOCKJAW," "UPPER
10," "KICK,"
"C&C," "THIRST THRASHER," "MISTIC," "ROYAL MISTIC" AND
"GRANITEVILLE"
ARE REGISTERED TRADEMARKS OF TRIARC COMPANIES, INC. OR ITS
SUBSIDIARIES.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K
(this "Form 10-K"), including statements under "Item 1.
Business" and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations,"
constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward looking statements involve
known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or
achievements of Triarc Companies, Inc. ("Triarc") and its
subsidiaries to be materially different from any future
results, performance or achievements express or implied by
such forward-looking statements. Such factors include, but
are not limited to, the following: general economic and
business conditions; competition; success of operating
initiatives; development and operating costs; advertising
and promotional efforts; brand awareness; the existence or
absence of adverse publicity; acceptance of new product
offerings; changing trends in customer tastes; the success
of multi-branding; availability, locations and terms of
sites for restaurant development; changes in business
strategy or development plans; quality of management;
availability, terms and deployment of capital; business
abilities and judgment of personnel; availability of
qualified personnel; labor and employee benefit costs;
availability and cost of raw materials and supplies; changes
in, or failure to comply with, government regulations;
regional weather conditions; fashion, apparel and other
textile industry trends; import protection and regulation;
construction schedules; the costs and other effects of legal
and administrative proceedings; and other factors referenced
in this Form 10-K. Triarc will not undertake and
specifically declines any obligation to publicly release the
result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
Item 1. Business.
INTRODUCTION
Triarc is a holding company which, through its
subsidiaries, is engaged in four businesses: beverages,
restaurants, textiles and liquefied petroleum gas. The
beverage operations are conducted through Royal Crown
Company, Inc. ("Royal Crown") and Mistic Brands, Inc.
("Mistic"); the restaurant operations are conducted through
Arby's, Inc. ("Arby's"); the textile operations are
conducted through Graniteville Company ("Graniteville") and
its dyes and specialty chemical subsidiary, C.H. Patrick &
Co., Inc. ("C.H. Patrick"); and the liquefied petroleum gas
operations are conducted through National Propane
Corporation ("National Propane") and, prior to its June 29,
1995 merger with National Propane, Public Gas Company
("Public Gas"). At the time of such merger, Public Gas was
an indirect wholly-owned subsidiary of Southeastern Public
Service Company ("SEPSCO"), which in turn is an indirect
wholly-owned subsidiary of Triarc (National Propane and
Public Gas are sometimes 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 year ended December 31,
1995, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 33
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.
BUSINESS STRATEGY
The key elements of Triarc's business strategy since
its April 1993 change of control (see "Item 1. Business --
New Ownership; Posner Settlement") have included (i)
focusing Triarc's resources on its four businesses --
beverages, restaurants, 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. 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.
See "Item 1. Business -- Strategic Alternatives."
The chief executive officers of Triarc's businesses
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. See e.g., "Item 1.
Business -- Mistic Acquisition" below. The implementation
of this business strategy may result in increases in
expenditures for, among other things, capital projects and
acquisitions and, over time, marketing and advertising. See
"Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
STRATEGIC ALTERNATIVES
Graniteville Sale
Triarc and Graniteville entered into an Asset Purchase
Agreement dated as of March 31, 1996 with Avondale Mills,
Inc. and Avondale Incorporated (collectively, "Avondale"),
pursuant to which Triarc and Graniteville have agreed to
sell (the "Graniteville Sale") to Avondale Graniteville's
textile business, other than the assets and operations of
C.H. Patrick and certain other excluded assets, for $255
million in cash, subject to certain post-closing
adjustments. Avondale will assume all liabilities relating
to the textile business, other than income taxes, long-term
debt (which will be repaid at closing) and certain other
specified liabilities. The Graniteville Sale is expected to
be consummated during the second quarter of 1996.
Consummation of the sale is subject to customary closing
conditions.
In connection with the Graniteville Sale, Avondale and
C.H. Patrick have entered into a 10-year supply agreement
(the "Supply Agreement") pursuant to which C.H. Patrick will
have the right to supply to the combined
Graniteville/Avondale textile operations certain of its dyes
and chemicals. The Supply Agreement will become effective
upon the closing of the Graniteville Sale. See "Item 1.
Business -- Business Segments -- Textiles."
National Propane Master Limited Partnership
On March 26, 1996 National Propane Partners, L.P., a
master limited partnership ("MLP") formed by National
Propane, filed a registration statement with the Securities
and Exchange Commission with respect to an initial public
offering of approximately 6.2 million common units. This
represents an approximate 52% interest in the MLP. National
Propane will be the general partner of the MLP and retain an
approximate 48% interest in the MLP. The partnership is
also expected to issue approximately $120 million of long-
term senior secured debt. The partnership intends to use a
substantial portion of the net proceeds from the equity and
debt issuances to repay existing debt and to make certain
payments and advances aggregating approximately $110 million
to Triarc.
The managing underwriters for the offering are Merrill
Lynch & Co. and Donaldson, Lufkin & Jenrette Securities
Corporation. When available, copies of the preliminary
prospectus may be obtained from Merrill Lynch & Co., 250
Vesey Street, New York, New York 10281. The offering of the
common units representing limited partner interests in the
MLP is expected to commence during the second quarter of
1996.
A registration statement with respect to the offering of
the MLP's common units has been filed with the Securities
and Exchange Commission, but has not yet become effective.
The offering of the MLP units will be made only by means of
a prospectus. The MLP common units may not be sold, nor may
offers to buy be accepted prior to the time the registration
statement becomes effective. This Form 10-K shall not
constitute an offer to sell or the solicitation of an offer
to buy, nor shall there by any sale of the MLP common units
in any State in which such an offer, solicitation or sale
would be unlawful prior to registration or qualification
under the securities laws of any such State.
The senior secured debt to be issued by the MLP will not
be registered under the Securities Act of 1933 and may not
be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.
See "Item 1. Business -- Business Segments -- Liquefied
Petroleum Gas."
MISTIC ACQUISITION
On August 9, 1995, Triarc, through its wholly-owned
subsidiary, Mistic, completed the acquisition of
substantially all of the non-alcoholic beverage assets,
subject to certain of the related liabilities, of Joseph
Victori Wines, Inc. and its affiliates for an aggregate
purchase price of approximately $97 million, including $4
million of deferred payments (the "Mistic Acquisition").
Mistic, a leader in the "new age" beverage segment, markets
fruit drinks, ready-to-drink brewed iced teas and naturally
flavored sparkling waters under the Mistic and Royal Mistic
trademarks. Financing for the acquisition was provided by a
loan to Mistic by The Chase Manhattan Bank, N.A., and by a
portion of a $36 million increase in the outstanding credit
facility of Graniteville and C.H. Patrick. See "Item 1.
Business -- Business Segments -- Beverages," "Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Notes 15 and 28 to the
Consolidated Financial Statements.
NEW OWNERSHIP; POSNER SETTLEMENT
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, the Posner Entities no
longer hold any shares of voting stock of Triarc or any of
its subsidiaries. Following the consummation of such
transactions, the Board of Directors of Triarc 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 Triarc.
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 and Posner received a
release of certain claims. Said amount was used by Triarc
to make certain payments to a party in an action in the
United States District Court for the Northern District of
Ohio and to former court-appointed directors of Triarc, and
to reimburse Triarc for certain legal expenses incurred
prior to December 1, 1994. (See "Item 3. --Legal
Proceedings" and "Executive Officers -- Compensation of
Directors" in Triarc's Proxy Statement for its 1995 Annual
Meeting of Stockholders (the "1995 Proxy Statement"). In
October 1995, Triarc commenced an action in the United
States District Court for the Southern District of New York
against Posner and a Posner Entity for breach by them of the
Settlement Agreement. 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 then have a December 31 fiscal
year end changed their fiscal year ends to December 31 of
each year. 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 3 to the Consolidated Financial
Statements.
ORGANIZATIONAL STRUCTURE
The following chart sets forth the current organizational
structure of Triarc. Triarc directly or indirectly owns
100% of all of its subsidiaries. As noted above, Triarc
intends to sell substantially all of the assets of
Graniteville (other than the stock of C.H. Patrick and
certain non-textile related assets) and has filed a
registration statement with respect to an underwritten
public offering of common units of National Propane
Partners, L.P., a master limited partnership recently formed
by National Propane. See "Item 1. Business -- Strategic
Alternatives" and "Item 1. Business -- Business Segments --
Textiles" and "-- Liquefied Petroleum Gas."
[The organizational chart shows the following: (i) Triarc
owns 100% of NPC Holdings, Inc., which owns 75.7% of
National Propane, the other 24.3% of which is owned by PGC
Holdings, Inc.; (ii) Triarc owns 94.6% of CFC Holdings
Corp., the other 5.4% of which is owned by SEPSCO; (iii)
Triarc owns 100% of Mistic Brands, Inc.; (iv) 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; (v) GVT Holdings, Inc. owns 100% of Graniteville,
which owns 100% of Graniteville Holdings, Inc., which owns
100% of C.H. Patrick; (vi) SEPSCO owns 100% of PGC Holdings,
Inc.; (vii) CFC Holdings Corp. owns 100% of Chesapeake
Insurance Company Ltd and 100% of RC/Arby's Corporation,
which owns 100% of Royal Crown Company, Inc., Arby's, Inc.,
Arby's Restaurant Development Corporation and Arby's
Restaurant Holding Company]
BUSINESS SEGMENTS
BEVERAGES (ROYAL CROWN AND MISTIC)
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 significant 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
introduced Royal Crown Draft Cola ("Draft Cola") in 1995
which was distributed to the Royal Crown bottling network in
finished product form. Further, 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. Draft Cola is the industry's
first draft cola, and it is packaged only in glass bottles
and uses pure cane sugar, rather than corn syrup (which is
generally used in other cola products), as a sweetener.
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 1995 according to Beverage Digest/Maxwell estimates.
Royal Crown's soft drink brands have approximately a 2.3%
share of national supermarket sales, as measured by
Information Resources, Inc. data.
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 has not been realized
and that there is an opportunity to increase sales and
earnings, through the following business strategy:
* Effective Focusing of Marketing Resources: Royal
Crown's management has decided to focus its
marketing expenditures and manpower on
opportunities that will yield results over a short
period of time at a low cost. Royal Crown has
focused most of its media investment on the Kick
brand in order to enhance consumer awareness of
that brand. RC Cola and Diet Rite Cola enjoy
better brand recognition than Kick, so management
has decided to promote those brands with value-
oriented, point of sale initiatives rather than
national advertising. Royal Crown has employed
trial and sampling programs primarily to promote
new products such as Draft Cola and the new
flavors added to the Diet Rite line. In 1994 and
1995, Royal Crown spent approximately $22.3
million and $25.5 million, respectively, on media
advertising and national promotions, including
$3.1 million in 1995 on media advertising and
national promotions with respect to the
introduction of Draft Cola.
* Increasing the Effectiveness of Bottler Network:
Royal Crown's management is working to enhance its
long term partnership with Royal Crown's bottlers.
Royal Crown believes that this can be accomplished
through (i) more effective marketing programs
that motivate the bottlers, retailers and
consumers, (ii) improved communication with
bottlers that enables Royal Crown to respond
better to their needs, (iii) better market
research and information from Royal Crown that
helps bottlers market its brands more effectively,
(iv) performance-related funding which rewards
bottlers who achieve volume growth for Royal
Crown's brands and allocates less funding for
bottlers performing poorly and (v) providing
assistance in transactions designed to strengthen
the bottling system so that weaker bottlers are
restructured or have their operations consolidated
with stronger, more efficient bottlers.
* New Bottlers and Distributors: Royal Crown has
focused on strengthening its distribution system.
In 1995, new bottlers replaced financially
distressed bottlers in North and South Carolina,
Philadelphia and New Orleans. Additionally, in
June 1995, Royal Crown entered into an agreement
with MetBev, Inc. ("MetBev") for the distribution
of Royal Crown products in the New York
metropolitan area. MetBev sold franchises to
approximately 75 former Coca Cola distributors.
Royal Crown owns 37.5% of MetBev and the Company
has helped to finance MetBev through a revolving
credit agreement. Additionally, Royal Crown has
worked to fill gaps in its distribution system for
product lines such as Nehi and Kick, and in
markets where Royal Crown's principal bottler does
not carry Nehi and Kick, Royal Crown has appointed
other distributors to sell those brands. Royal
Crown recently appointed a new distributor for
Nehi in California, where its Los Angeles
distributor underwent a financial restructuring
and will no longer carry that brand.
* Expansion of Private Label Business: The domestic
market share of premium private label soft drinks
had 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
units sold to Cott more than tripled from calendar
year 1992 to calendar year 1994. Sales to Cott in
1995 were down slightly from 1994, reflecting
inventory adjustments by Cott in the fourth
quarter and a slowing of the rapid growth that
Cott's business had experienced. 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: 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. Based on
data from Information Resources, Inc., Royal
Crown's volume in the mass merchandising channel
increased approximately 17% in 1995. Draft Cola
and Kick, both of which Royal Crown believes are
well suited to single drink channels of
distribution, are designed to improve Royal
Crown's presence in the profitable convenience
stores channel, where Royal Crown's volume dropped
approximately 11% in 1995. Draft Cola also has
created some opportunities in the bar and
restaurant channel. Additionally, Royal Crown
leased approximately 8,600 vending machines in
1994 and 2,500 vending machines in 1995 and
subleased such equipment to bottlers in order to
enhance sales in the vending channel.
* 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. In 1995 Royal Crown introduced
Draft Cola, Kiwi-Strawberry and Passion Plum Diet
Rite flavors, four flavors under the Nehi Lockjaw
trademark, two new regular Nehi flavors (Kiwi
Strawberry and Watermelon) and a diet version of
Kick. Recently, Royal Crown launched Diet Rite
Mango Melon and plans to continue to introduce new
flavors in the Diet Rite line.
* New and Improved Packaging: Royal Crown continues
to update and improve its packaging. In 1995,
Royal Crown redesigned both the cans and PET
(plastic) bottles for Diet Rite flavors and
introduced new graphics for Kick. Royal Crown
also introduced a 24-ounce wide mouth "thirst
thrasher" PET bottle. Royal Crown is also
continuing efforts to improve packaging for its
cola products.
* 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 significant
opportunities exist in international markets. In
those countries where Royal Crown brands are
currently distributed, Royal Crown traditionally
has provided limited advertising support due to
capital constraints. New bottlers were added in
1995 to the following international markets:
Brazil (5), Mexico (2), Peru (1), Hungary (1),
Slovak Republic (1), Israel (1), Pakistan (2), and
the Philippines (2). Growth in Mexico via the
relationship with Consorcio Aga was slower than
anticipated during 1995 due to the serious
recessionary economic factors affecting Mexico.
Incremental support will be provided during 1996
to reinforce selected key markets and to fund
expansion activities. Targeted growth markets for
1996 include Brazil, the C.I.S./Baltics (former
Soviet Union), China, the Philippines, Poland and
Sweden.
* Acquisitions: Royal Crown's management also seeks
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
subsidiary, TriBev Corporation ("TriBev"), which
is the sales and marketing arm for Royal Crown and
C&C products in the New York metropolitan area.
In addition, in April 1995, in connection with a
five year, $3.0 million revolving credit loan by
Triarc to Saratoga Beverage Group, Inc.,
("Saratoga") and the acquisition by Triarc of
warrants to purchase up to 51% of the outstanding
stock of Saratoga (on a fully diluted basis),
Royal Crown entered into a five year sales and
marketing agreement with Saratoga pursuant to
which Royal Crown will provide marketing and
purchasing assistance and support, sales
distribution, trade, promotional and retail
account assistance. In October 1995, Royal Crown
entered into a ten (10) year license agreement
with Celestial Seasonings, Inc. pursuant to which
Royal Crown will have the exclusive right to sell
Celestial Seasonings ready-to-drink herbal teas in
the United States and Canada. In addition to
responsibility for sales and marketing, Royal
Crown will be responsible for product development,
manufacturing and quality control under the
Celestial Seasonings agreement.
INDUSTRY
Soft drinks constitute one of the largest consumer food
and beverage categories in the United States, with retail
sales of approximately $52 billion in 1995. While aluminum
costs rose sharply in the first quarter of 1995, volume
responded with growth. Carbonated soft drink volume in food
stores and mass merchandisers increased 1.8% and 11%
respectively, but decreased approximately 20% in drug
stores, according to Information Resources, Inc. data.
Recent trends affecting the soft drink industry have
included the resurgence of sugar colas, a slight decline in
market share of private label soft drinks and the continued
growth of "new age" beverages. While 1995 market share of
cola drinks in food stores remained flat, cola volume
increased 2%, according to Information Resources, Inc. data.
This increase was attributable to volume gains of both
sugar-sweetened cola drinks, which grew by approximately 3%,
and diet cola drinks, which grew by approximately 1%.
Private label soft drink share in food stores and mass
merchandisers was 12.3% and 19.4%, respectively, in 1995,
according to Information Resources, Inc. data, down from
12.7% and 21.3%, respectively, in 1994. 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 Transition 1993, 1994 and 1995 were
approximately $54.0 million, $78.2 million and $86.2
million, respectively. Royal Crown believes that its
products continue to enjoy nationwide brand recognition.
Royal Crown's management intends to decrease its 1996
marketing budget. This decrease is primarily attributable
to a reduction in Draft Cola advertising and marketing costs
for initial launch expenditures incurred in 1995. In
addition, domestic direct marketing efforts in 1996 will be
more locally directed, specifically to bottler needs.
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. Royal Crown expects that continued consolidation of
its bottler network, with weaker bottlers being replaced or
acquired by stronger bottlers, will benefit its brands.
Royal Crown sells its flavoring concentrates for branded
products to independent licensed bottlers in the United
States and 61 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, 1995, Royal Crown products were packaged and distributed
domestically in 153 licensed territories, by 161 licensees,
covering 50 states. There were a total of 63 production
centers operating pursuant to 51 production and distribution
agreements and 110 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 153 licensed territories,
Royal Crown believes 65 carry Royal Crown as the lead brand,
41 carry Royal Crown with "Seven-Up" as the lead brand, 19
carry Royal Crown with "Dr. Pepper" as the lead brand, and
the remaining 28 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.
Royal Crown's ten largest bottler groups accounted for
74.1% and 63.6% of Royal Crown's domestic unit sales of
concentrate for branded products during 1994 and 1995,
respectively. The three largest bottler groups, Chicago
Bottling Group, Beverage America and All American Bottling
Group, accounted for 23.8%, 11.5% and 14.9%, respectively,
of Royal Crown's domestic unit sales of concentrate for
branded products during 1994 and 20.1%, 10.2% and 9.6%,
respectively, during 1995.
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 an opportunity to benefit from 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 expanded, more than tripled from
calendar year 1992 to calendar year 1994. However, for
1995, unit sales to Cott declined in relation to the
previous calendar year. The primary reason for this
disappointing result, according to Cott, was a significant
reduction in worldwide Cott system inventories, particularly
in the fourth quarter of 1995. Additionally, the rapid
growth Cott's business had experienced from 1991 through
1994 slowed. In Fiscal 1993, Transition 1993, 1994 and
1995, revenues from sales of private label concentrate to
Cott represented approximately 10.2%, 10.9%, 14.2% and
12.1%, 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, as
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 station 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. According to Information Resources, Inc. data,
the volume of Royal Crown products in food stores and drug
stores in 1995 was approximately flat as compared to 1994,
while the volume of Royal Crown products in mass
merchandisers was up approximately 17% in 1995.
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 bottlers with 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
and in 1995, the volume of Royal Crown products in the
convenience channel was down approximately 11% as compared
to 1994. Royal Crown believes that Draft Cola and Kick are
well suited to the single drink channel and believes that
those products will help to enhance Royal Crown's presence
in convenience stores. Additionally, single drink packages
such as the 24 ounce "Thirst Thrasher" are designed to
stimulate sales in convenience stores.
INTERNATIONAL
Sales outside the United States accounted for
approximately 12.8%, 9.9% and 9.6% of Royal Crown's sales in
Transition 1993, 1994 and 1995, respectively. Sales outside
the United States of branded concentrates accounted for
approximately 9.6%, 8.9% and 10.2% of branded concentrate
sales in Transition 1993, 1994 and 1995 respectively. As of
December 31, 1995, 90 bottlers and 12 distributors sold
Royal Crown brand products outside the United States in 61
countries, with international sales in 1995 distributed
among Canada 11.4%, Latin America and Mexico 29.8%, Europe
29.3%, the Middle East/Africa 21.5% and the Far East 8.0%.
While the financial and managerial resources of Royal Crown
have initially been focused on the United States and Canada,
Royal Crown's management believes significant opportunities
exist in international markets. In those countries where
Royal Crown brands are currently distributed, Royal Crown
traditionally has provided limited advertising support due
to capital constraints. New bottlers were added in 1995 to
the following international markets: Brazil (5), Mexico
(2), Peru (1), Hungary (1), Slovak Republic (1), Israel (1),
Pakistan (2), and the Philippines (2). See "Business
Strategy -- International Expansion." Incremental support
will be provided during 1996 to reinforce selected key
markets and to fund expansion activities. Targeted growth
markets for 1996 include Brazil, the C.I.S./Baltics (former
Soviet Union), China, the Philippines, Poland and Sweden.
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. In 1995
Royal Crown introduced Draft Cola in New York, Los Angeles
and parts of Florida.
From time to time, Royal Crown purchases as much as a
year's supply of certain raw materials to protect itself
against supply shortages, price increases and/or political
instabilities in the countries from which such raw materials
are sourced. 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.
MISTIC
In August 1995, Mistic completed the Mistic Acquisition.
See "Item 1. Business -- Mistic Acquisition." The Mistic
beverage business was founded in 1989 by Joseph Umbach, an
entrepreneur with over 20 years of experience in the
beverage industry. The Mistic beverage business had
expanded rapidly since its formation in late 1989 by
increasing market penetration in its original core markets
located in the Northeast and mid-Atlantic regions and, since
1991, by expanding distribution into other regional markets,
including the Midwest, South and West, and in selective
international markets.
Mistic develops, produces and markets a wide variety of
premium non-alcoholic beverages, including non-carbonated
and carbonated fruit drinks, ready-to-drink brewed iced teas
and naturally flavored sparkling waters under the Mistic and
Royal Mistic brand names. These beverages are prepared
primarily from natural ingredients, such as natural fruit
flavors, fruit juice and water, and are perceived by
consumers to be healthier and more flavorful than
traditional soft drinks. Mistic offers a total of 45
flavors in seven product categories. Mistic products are
sold in all 50 states in the United States and in Canada,
several Caribbean Islands, certain U.S. territories and
eight other foreign countries through a network of
approximately 225 beverage distributors. Mistic currently
has agreements with 14 independent bottlers (co-packers)
that prepare and bottle its products prior to shipment to
its distributors. Mistic's brands have approximately 5% of
the premium non-alcoholic beverage supermarket sales as
measured by Information Resources, Inc. data.
BUSINESS STRATEGY
Mistic's management has developed a business strategy that
addresses a number of internal and external issues that
arose under prior management. Internally, Mistic required a
professional focus on administrative, marketing, sales,
inventory management and regional customer management to
complement Mistic's existing strengths in product
development and packaging. Externally, Mistic seeks to
increase sales and distribution of its products by further
penetrating established markets, developing new geographic
markets, launching new products and expanding retail
channels of distribution. The key elements of this strategy
include:
* Strengthened senior management team. The critical
areas of Sales, Marketing and Operations have all
been strengthened since the Mistic Acquisition
with the addition of senior managers for each area
who have proven experience in the beverage
industry. Ten other senior positions have been
similarly staffed.
* Improved Distributor Relations. Mistic has
historically been product focused, not distributor
focused, and did not support its distribution
network with cohesive marketing strategies and
programs. Mistic's new senior management is
working closely to develop long-term partnerships
with its key distributors. An essential criteria
to the relationship is the distributor's
willingness to invest in the Mistic branded
products and to coordinate promotional activity
more closely with Mistic. Mistic's goal is to
enhance distributor goodwill and generate long-
term commitments necessary to support and build
the Mistic brand portfolio.
* Expanded Distribution. Mistic intends to
concentrate its efforts on providing greater
market coverage in established markets through
increased allocation of shelf space, adding new
outlets, and enhanced merchandising of Mistic
products. Mistic will also seek strong
distribution partners in new or undeveloped
markets. Mistic's approach will be to broaden its
distribution and shelf space in key "single serve"
channels (such as convenience stores and mini-
markets), through new products, alternative
packaging, expanded promotional activities and
through the deployment of Trade Development
Managers (TDM's) who will work directly with
distributors to gain new outlets and shelf space.
Concurrently, Mistic will also focus on broader
distribution in national "take home" channels
(such as food chains, mass merchandisers, chain
convenience stores and drug stores). Moreover,
Mistic's realigned sales organization should
permit its sales force to focus on opportunities
for expansion into selected international markets.
Mistic currently sells products in Canada, Puerto
Rico, the Caribbean Islands and in eight other
international markets.
* Enhanced Promotions. Mistic will utilize a
variety of promotional activities, including
increased emphasis on the placement of additional
"visi-coolers" (glass door refrigerator units) in
retail outlets, vending programs, distributor
retail incentives, consumer promotions to generate
purchase at point of sale and the distribution of
various point-of-sale display materials to
increase the visibility of Mistic products. At
December 31, 1995, Mistic had approximately 10,000
visi-coolers in the market and plans to place
approximately 4,000 additional visi-coolers in the
market in 1996.
* Improved Advertising. In December 1995, Mistic
advised its distributors that it no longer would
charge them separately for actual advertising
expenses but instead would institute in 1996, a
per case price increase to cover approximately 50%
of Mistic's advertising expenditures. This is
expected to provide Mistic with greater control
over its advertising and therefore a more
effective use of its advertising dollars. Mistic
also appointed a new advertising agency, Deutsch,
Inc., to develop creative strategies and
executions. In 1996, Mistic plans to increase its
advertising expenditures by approximately 25% over
1995 advertising expenditures.
Mistic intends to maintain a consistent
advertising campaign in its core and expansion
markets as an integral part of its strategy to
stimulate consumer demand and increase brand
loyalty. In 1996 Mistic plans to employ a
combination of network advertising complemented
with local television and radio spot advertising
in its larger markets.
* New Product Development. Mistic continually
develops and introduces new products to meet
changing consumer preferences, to provide
innovative new flavors/categories, and to
capitalize on existing successful flavors to
attract new consumers. Historically, new product
development has focused primarily on adding new
flavors, new labels and bottle sizes within
existing product lines, a practice that will be
continued. Product development and innovation, as
a response to changing consumer trends, is one of
Mistic's strengths, and is expected to be a source
of future growth.
During the third and fourth quarters of 1995,
senior management reviewed Mistic's entire product
line-up and categories and has (a) repositioned
all existing and new products into seven distinct
categories, (b) developed new flavors within each
category based on consumer preferences and
successful flavor introductions, (c) developed new
bottle shapes and (d) redesigned all existing
labels for improved consumer appeal and
distinction within each category and developed
attractive labels for all new flavors/categories.
The majority of the new products, bottle shapes
and labels were introduced in the market late in
the first quarter of 1996. Additional new
products and concepts are expected to be generated
on an on-going basis and evaluated in test
markets.
* Growth and Diversification Through Acquisitions.
Given Mistic's existing infrastructure, the
process of adding on new brands is relatively
simple and can significantly contribute to
Mistic's sales and profitability. Opportunities
to acquire companies and new products at
attractive prices will be carefully evaluated.
PRODUCTS
Mistic brand products compete in seven product categories,
including non-carbonated Tropical Fruit Flavors, Tropical
Coolers, teas/lemonades, Energy Boosters - Fruit Flavors and
Breeze-Fruit Flavors and carbonated Fruit Flavors and
Flavored seltzers. These products, described below, are
generally available in 16, 20, 24 and 32 ounce glass
bottles, 20 ounce PET (plastic) bottles and 12 and 24 ounce
cans.
* Tropical Fruit Flavors - all natural, non-
carbonated, fruit flavored beverages that
constituted approximately 65% of Mistic's 1995
sales.
* Tropical Coolers - naturally flavored, non-
carbonated fruit flavored beverages (4 flavors)
that will be packaged and promoted as fun drinks
similar to Mistic's successful 1995 introduction
of the Pina Colada flavor.
* Teas and Lemonades - all natural, non-carbonated
category of ready to drink brewed ice teas and
lemonades that constituted approximately 18% of
Mistic's 1995 sales.
* Energy Boosters - naturally flavored, non-
carbonated fruit flavored beverages with
preservatives that are caffeinated and contain
Vitamin C. These products are packaged in 20 oz.
PET bottles.
* Breeze - naturally flavored, non-carbonated fruit
flavored beverages with preservatives packaged in
20 oz. PET bottles.
* Carbonated Fruit Flavors - all natural, carbonated
fruit flavored beverages and flavored colas.
* Flavored Seltzers - all natural, carbonated clear
flavored sparkling water.
CO-PACKING ARRANGEMENTS
Mistic's products are produced by co-packers to meet
formulation requirements and quality control procedures
specified by Mistic. Mistic selects and monitors the co-
packers to ensure adherence to Mistic's production
procedures. Mistic's full time quality control supervisor,
together with the co-packers, regularly analyze samples of
Mistic products from production runs and conduct spot checks
of the production facilities. To further assure the quality
and consistency of its products, Mistic purchases most of
the raw materials and arranges for their shipment to its co-
packers.
Mistic currently maintains contractual arrangements with
14 independent co-packers for the preparation and bottling
of all Mistic's products prior to shipment to its
distributors. Mistic's three largest co-packers (Cartaret
Packaging, Spear Packaging and Brooks Pro Pak) produced 20%,
13% and 8%, respectively, of its case production during
1995.
Mistic's contractual arrangements with its co-packers vary
with its needs and the co-packers' capabilities; however,
they are typically for a one to three year term renewable at
Mistic's option. During the term of the agreement, the co-
packer generally commits a certain amount of its monthly
production capacity to Mistic. In two of these contracts,
Mistic is required to order a minimum volume of products
from the co-packer or to make payments in lieu thereof. In
accordance with Mistic's formulae, which remain
confidential, the co-packer bottles, packages and
temporarily stores the products until delivery to the
distributor. Mistic pays the co-packer a co-packing fee on
a per case basis, although the fee may vary by product and
size and in some cases may be adjusted due to production
volume, increases in utility costs or inflation. As a
result of its co-packing arrangements, Mistic's operations
have not required significant investments for bottling
facilities and equipment, and its production related fixed
costs have been minimal. Mistic's capital expenditures
consist primarily of certain bottling parts and labeling and
other equipment relating to packaging, which Mistic supplies
to the co-packers.
Mistic's management believes it has sufficient production
capacity to meet its 1996 requirements and that, in general,
the industry has excess production capacity that it can
utilize if required.
RAW MATERIALS
Most of the raw materials used in the preparation and
packaging of Mistic's products (consisting primarily of
fruit juices, sweetener, natural extracts and flavorings,
tea, glass, caps, labels and cartons) are purchased by
Mistic and supplied to its co-packers. The co-packers
typically supply water and citric and ascorbic acid, which
are billed back to Mistic at cost. Mistic directly
purchases the raw materials it provides to the co-packers to
assure the quality and consistency of its products and, to
protect Mistic's proprietary flavor formulae. Mistic has
adequate sources of raw materials which are available from
multiple suppliers, although it has chosen to purchase
certain raw materials on an exclusive basis from single
suppliers. Mistic purchases substantially all of its
bottles from Anchor Glass Container Company pursuant to a
series of purchase orders and price commitments that expire
on December 31, 1997.
DISTRIBUTION
Mistic's beverages are currently sold in all 50 states
through a network of distributors, that include specialty
beverage, carbonated soft drink and licensed beer
distributors. Mistic's current distribution network
includes approximately 225 distributors, having increased
from approximately 60 distributors since the beginning of
1991. Mistic's policy is to grant its distributors
exclusive rights to sell Mistic products within a defined
territory. Although most of Mistic's distributors carry
other "new age" beverage products, a limited number of
Mistic's distributors have agreed not to sell competing
brands. Mistic has written agreements with approximately
75% of its distributors who represent over 80% of Mistic's
volume, including written agreements with nine of its ten
largest distributors for the year ended December 31, 1995.
The balance of Mistic's distribution agreements are oral.
Contracts vary, but are generally one-year agreements,
terminable by Mistic upon notice or for breach of contract
by a distributor, including its failure to achieve specified
levels of market penetration, and generally terminable by
the distributor upon specified prior notice.
Approximately 31% of Mistic's net sales in each of the
years ended December 31, 1994 and December 31, 1995, were
attributable to sales to Mistic's five largest distributors.
Net sales to two of these distributors, Big Geyser, Inc. and
Atlantic Beverages Company, Inc., represented approximately
11% and 9%, respectively, of Mistic's net sales during 1994
and approximately 11% and 7%, respectively, of Mistic's net
sales during 1995.
Although Mistic's products historically have been sold by
the distributors primarily to convenience stores,
convenience store chains and delicatessens as a "single-
serve, cold box" item, Mistic has significantly expanded its
distribution to include supermarkets and other channels of
distribution. Supermarket and national drug and convenience
store chain sales represent a growing portion of Mistic's
total sales. Supermarkets and national retail store chains
carrying Mistic products include 7-Eleven, Sam's Wholesale
Clubs and Walgreens. Mistic's management estimates that
sales to supermarkets accounted for approximately 15% to 20%
of total net sales at December 31, 1995.
When a distributor requires products, it places an order
at Mistic's headquarters. Mistic selects the co-packer with
available inventory closest to the distributor, and the
distributor arranges for the transport of the Mistic
products from the co-packer to the distributor. In limited
instances, Mistic arranges for the shipment of products from
the co-packer to the distributor. The distributor then
resells and delivers the product to its regular route
customers, at times directly stocking the retailers' shelves
which can improve Mistic's shelf space allocation and the
merchandising of its products. Mistic continuously seeks to
improve distribution by either working with its distributors
to increase market penetration or, where this is not
feasible, by replacing certain distributors which do not
satisfy Mistic's performance requirements. Mistic will
continue to review its distributor network on an ongoing
basis and make refinements as required.
SALES AND MARKETING
In order to support its expanded distribution, Mistic
increased its sales and marketing staff from approximately
35 people as of December 31, 1992 to approximately 95 as of
December 31, 1995. Mistic's sales force is organized by
zones under the direction of Zone Sales Vice Presidents,
Division Managers, Regional Sales Managers and Area Sales
Managers. Most of Mistic's sales personnel have had prior
beverage industry experience. Division Managers are
responsible for managing existing distributor relationships
and selecting new distributors as may be required. Mistic's
Vice President of National Accounts calls on national
accounts such as supermarkets, drug stores and convenience
store chains. Mistic's sales force is compensated by salary
and commissions based on the achievement of case sales
goals.
Mistic uses a mix of consumer and trade promotions as well
as radio and television advertising to market its products.
Advertising and promotions are generally designed to
encourage consumers to try Mistic products and to reinforce
brand loyalty among existing customers. Promotional
activities, including reimbursement to the distributors of a
portion of the purchase price of visi-coolers and vending
machines, utilization of point of sale display materials and
wearables and joint volume incentive promotions with
distributors to retailers have also proven to be successful
marketing tools. Mistic generally matches the distributors'
spending on promotional and advertising expenses. In
December 1995 Mistic advised its distributors that it no
longer would charge them separately for actual advertising
expenses but instead would institute in 1996, a per case
price increase to cover approximately 50% of Mistic's
advertising expenditures. This is expected to provide
Mistic greater control over its advertising and therefore a
more effective use of its advertising dollars. Mistic also
appointed a new advertising agency, Deutsch, Inc., to
develop creative strategies and executions.
Mistic intends to maintain a consistent advertising
campaign in its core and expansion markets as an integral
part of its strategy to stimulate consumer demand and
increase brand loyalty. In 1996 Mistic plans to employ a
combination of network advertising complemented with local
spot advertising in its larger markets; in most markets,
television will be the primary medium and radio secondary.
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 1995 of approximately 68% of the
roast beef sandwich segment of the quick service sandwich
restaurant category. In addition, Triarc believes that
Arby's is the 11th largest quick service restaurant chain in
the United States, based on domestic system-wide sales. As
of December 31, 1995, Arby's restaurant system consisted of
2,950 restaurants, of which 2,788 operated within the United
States and 162 operated outside the United States. As of
December 31, 1995, Arby's owned and operated 373 restaurants
and the remaining 2,577 restaurants were owned and operated
by franchisees. At December 31, 1995, all but 17 restaurants
outside the United States were franchised. System-wide sales
were approximately $1.1 billion in Transition 1993,
approximately $1.8 billion in 1994 and approximately $1.9
billion in 1995.
In addition to its various slow-roasted meat sandwiches,
Arby's restaurants also offer a selected menu of chicken,
submarine sandwiches, side-dishes and salads. A breakfast
menu, which consists of croissants with a variety of
fillings, is also available at some Arby's restaurants. In
addition, Arby's has entered into agreements with three
multi-branding partners and intends to expand its multi-
branding efforts which will add other brands' items to
Arby's menu items at such multi-branded restaurants. See
"Business Strategy -- Strategic Relationships" below.
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, 1994 and
1995, approximately 78%, 78%, 77% and 80%, respectively, of
Arby's revenues were derived from sales at company-owned
restaurants and approximately 22%, 22%, 23% and 20%,
respectively, were derived from royalties and franchise
fees.
BUSINESS STRATEGY
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:
* Multi-Branding: Arby's continues to broaden the
development of its multi-branding strategy, which
allows a single restaurant to offer the consumer
distinct, but complementary, brands at the same
restaurant. Lunchtime customers account for the
majority of sales at Arby's restaurants, while its
multi-branding partners attract higher breakfast
or 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, 25 Arby's restaurants have offered the
menu items of another restaurant chain. In 1995
Triarc acquired an interest in ZuZu Inc. ("ZuZu"),
a privately held corporation that owns and
operates a chain of quick service Mexican
restaurants, and Arby's obtained exclusive
worldwide rights to operate or grant franchises to
operate ZuZu restaurants at multi-brand locations.
In addition, in 1995 Arby's acquired P.T. Noodles,
a new restaurant concept developed jointly with
Perspectives/The Consulting Group, Inc., which
offers a variety of Asian, Italian and American
dishes based on serving corkscrew noodles with a
variety of different sauces. In 1995 Arby's
opened its first multi-branded restaurants with
the ZuZu and P.T. Noodles brands. Results to date
appear to validate the multi-branding concept and
Arby's continues to seek other multi-brand
partners. In January 1996 Arby's reached an
agreement in principle for the purchase of the
trademarks, service marks, recipes and secret
formulas of T.J. Cinnamons, Inc. ("T.J.
Cinnamons"), an operator and franchisor of retail
bakeries specializing in gourmet cinnamon rolls
and related products. See "--Strategic
Relationships" below.
* Roast Town: Arby's opened its first Arby's Roast
Town on February 27, 1995 in Plantation, Florida,
and has now expanded and refined the concept in
the Toledo and Toronto markets where seven and two
Roast Towns, respectively, are now open. Arby's
management believes that the new concept is the
natural next step and improvement path for many
existing Arby's restaurants and, to date, the
initial results appear to validate the Roast Town
concept. Roast Town offers Arby's with an
upgraded menu and facility. Roast Towns offer the
traditional Arby's menu as well as an expanded
list of sandwiches and side dishes. Most
sandwiches are served on freshly baked buns cooked
in the store each day. As part of a "Multi-Brand"
restaurant, franchisees will be required to
include the Roast Town products and appearance
elements in the Arby's restaurant operation.
* 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. Arby's
management expects to increase the number of
restaurants under existing and new agreements with
international franchisees in 14 or more countries.
With the acquisition of 15 restaurants in Toronto,
Canada in 1995, Arby's has targeted such market
for future expansion of company-owned restaurants.
* Increasing Operating Efficiency: Arby's management
believes that significant additional operating
efficiency can be achieved by (i) utilizing the
newly installed point of sale system ("POS"),
which provides better information flow, (ii)
installing back office software modules onto the
POS to help control inventory management and labor
scheduling, which should lead to improved food and
labor cost efficiencies, (iii) rigorously
evaluating the performance of company-owned
restaurants and closing those that do not meet
selected profitability criteria, and (iv)
requiring more uniformity across its restaurant
system to increase purchasing efficiencies and
improve ease and speed of service.
* 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. That
campaign continued and in 1995 evolved into a
focus on high quality food products.
INDUSTRY
The U.S. restaurant industry is highly fragmented, with
approximately 390,000 units nationwide. Industry surveys
indicate that the 15 largest chains accounted for
approximately 19% of all units and 32% of all industry sales
in 1995. According to data compiled by the National
Restaurant Association, total domestic restaurant industry
sales were estimated to be approximately $190 billion in
1995, of which approximately $94 billion was estimated to be
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 1991 through 1995 of 4.5%.
ARBY'S RESTAURANTS
The first Arby's restaurant opened in Youngstown, Ohio in
1964. As of December 31, 1995, Arby's restaurants were being
operated in 49 states and 14 foreign countries. At December
31, 1995, the five leading states by number of operating
units were: Ohio, with 219 restaurants; Texas, with 187
restaurants; California, with 165 restaurants; Michigan,
with 152 restaurants; and Georgia, with 134 restaurants. The
leading country internationally is Canada with 112
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.
The following table sets forth the number of company-owned
and franchised Arby's restaurants at December 31, 1993, 1994
and 1995.
DECEMBER 31,
-------------------------
1993 1994 1995
----- ----- -----
Company-owned restaurants........................ 259 288 373
Franchised restaurants........................... 2,423 2,500 2,577
------ ------- ------
Total restaurants........................... 2,682 2,788 2,950
------ ------ ------
Since April 1993, Arby's has expanded its management team
to support an accelerated program of opening company-owned
restaurants, including professionals in charge of site
analysis and selection, lease negotiation and personnel
training. Arby's opened 49 company-owned restaurants in
1995, as compared to nine company-owned restaurants in 1994
and five company-owned restaurants in Transition 1993. In
addition, Arby's acquired 50 Arby's restaurants from
franchisees and sold three restaurants to franchisees. In
order to facilitate new company-owned restaurant openings,
in 1995, RC/Arby's Corporation, the parent corporation of
Arby's ("RC/Arby's"), and two new wholly-owned subsidiaries
of RC/Arby's, Arby's Restaurant Development Corporation
("ARDC") and Arby's Restaurant Holding Company ("ARHC"),
entered into a series of transactions including loan
agreements with FFCA Acquisition Corp., a subsidiary of
Franchise Finance Corporation of America, pursuant to which
they may borrow, in the aggregate, up to $87.3 million. In
1996, new restaurant openings will slow down as management
focuses resources on converting existing restaurants to
multi-brand restaurants and Roast Towns.
FRANCHISE NETWORK
At December 31, 1995, there were 544 Arby's franchisees
operating 2,577 separate locations. The initial term of the
typical "traditional" franchise agreement is 20 years with a
renewal option by the franchisee, subject to certain
conditions. As of December 31,1995, Arby's did not offer
any financing arrangements to its franchisees.
As of December 31, 1995, Arby's had received
prepaid commitments for the opening of up to 258 new
domestic franchised restaurants over the next five years,
including 155 new domestic franchised restaurants in 1995.
Arby's also expects that 30 new franchised restaurants
outside of the United States will open in 1996. Arby's has
territorial agreements with international franchisees in
four countries at December 31, 1995. 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 during 1995 was 3.0%.
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. These
agreements require 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, 1995, there were 25
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.
STRATEGIC RELATIONSHIPS
In September 1995 Triarc acquired 12.5% of the outstanding
common stock of ZuZu (a privately held corporation that owns
and operates a chain of quick service Mexican restaurants),
for a purchase price of $5.34 million. At such time Triarc
also entered into two option agreements with ZuZu. Pursuant
to the first option agreement, Triarc acquired an option to
purchase an additional 12.5% of the outstanding common stock
of ZuZu for an aggregate purchase price of not more than
$5.99 million. This option is exercisable between the first
and second anniversary of the closing date. Pursuant to the
second option agreement, Triarc acquired an option to
purchase an additional 25% of the outstanding ZuZu common
stock. This option may be exercised during a 90-day period
commencing on the third anniversary of the closing, provided
that the first option has been exercised. The price of the
shares to be purchased pursuant to the second option
agreement will be based upon ZuZu's operating results and
will not be less than $14.1 million or more than $20.3
million, in the aggregate.
In connection with the transaction, Arby's and ZuZu
entered into a master franchise agreement pursuant to which
Arby's obtained exclusive worldwide rights to operate or
grant franchises to operate ZuZu restaurants at "multi-
brand" locations for an initial term of ten years (ZuZu may
continue to operate or grant franchises to operate ZuZu-only
restaurants). Under certain circumstances, Arby's may
extend its exclusive multi-branding rights under the master
franchise agreement for an additional three-year period.
In addition, in 1995 Arby's acquired P.T. Noodles, a new
restaurant concept developed jointly with Perspectives/The
Consulting Group, Inc., which offers a variety of Asian,
Italian and American dishes based on serving corkscrew
noodles with a variety of different sauces.
On January 22, 1996, Arby's and T.J. Cinnamons, an
operator and franchisor of retail bakeries specializing in
gourmet cinnamon rolls and related products, announced that
they had reached an agreement in principle through which
Arby's will purchase the trademarks, service marks, recipes
and secret formulas of T. J. Cinnamons. The purchase price
for the acquisition will be $3.5 million, of which $1.75
million is to be in the form of a note. In addition, T.J.
Cinnamons may also receive up to $5.5 million, over time, if
Arby's sells specified amounts of T.J. Cinnamons products.
Arby's will license back to T.J. Cinnamons the ability to
distribute T.J. Cinnamons products through retail grocery
outlets. Pursuant to the agreement in principle, Arby's
will manage T.J. Cinnamon's existing locations pursuant to a
management agreement and will receive the right grant
licenses for full concept T.J. Cinnamons bakeries. Arby's
will also enter into a consulting agreement with two
principals of the seller, who will receive, in the
aggregate, approximately $600,000 during the two year period
following the closing. Consummation of the transaction is
subject to (among other things) execution of a definitive
agreement, satisfactory completion by Arby's of its due
diligence review and other customary closing conditions.
ADVERTISING AND MARKETING
Arby's advertises primarily through regional television,
radio and newspapers. Payment for advertising time and
space is made by the local franchisee, Arby's or both on a
shared basis. 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 Transition 1993, 1994 and 1995,
Arby's expenditures for advertising and marketing in support
of company-owned stores were $11.1 million, $17.2 million
and $22.4 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 April 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, which products are available from numerous
suppliers. Food, proprietary paper and operating supplies
are also made available, through national contracts
employing volume purchasing, to Arby's franchisees through
ARCOP.
TEXTILES (GRANITEVILLE AND C.H. PATRICK)
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, 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. As of March 31, 1996, Triarc and Avondale
entered into an agreement to sell the textile business of
Graniteville to Avondale for a purchase price of $255
million in cash, subject to adjustment under certain
circumstances. C.H. Patrick and certain other non-textile
related assets are excluded from the transaction. It is
expected that the Graniteville Sale will be consummated
during the second quarter of 1996. Consummation of the
Graniteville Sale is subject to customary closing
conditions. See "Item 1. Business -- Business Strategy --
Strategic Alternatives."
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 $168
million over the nine year period ending December
31, 1995 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 6.2%
compound annual growth in revenues, and 4.1%
compound annual growth in operating income, over
the last five years. Graniteville's management
believes that C.H. Patrick is viewed as an
innovator in its field and it is expected that
C.H. Patrick will continue to emphasize the
development of its 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, 1994 and 1995 is set forth below:
PERCENT OF REVENUES
---------------------------------------
FISCAL TRANSITION
1993 1993 1994 1995
---------------------------------------
Utility wear......................... 36% 39% 43% 44%
Indigo-dyed fabrics for jeans,
sportswear and outerwear........... 21 22 19 25
Piece-dyed fabrics for sportswear,
casual wear and outerwear.......... 26 23 21 16
Dyes and specialty chemicals......... 8 8 8 8
Specialty products................... 8 7 8 7
Other................................ 1 1 1 0
---- ---- ---- ----
Total.................
100% 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, Westex Inc., Unifirst and Reed Manufacturing.
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 Stuffed Shirt, Michael
Caruso, The Gap Stores, Inc., Disenos De Alta Moda, Sears
Roebuck & Co., Border Apparel, Wilkins Industries, Levi
Strauss, Flynn Enterprises and Wrangler.
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, Farah, Disenos De
Alta Moda, Levi Strauss, Brittania, Wrangler, Oshkosh B'
Gosh Inc., Guess, Kellwood Company and Aalf's Manufacturing
Co.
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 Teledyne/Brown Engineering, The
Astrup Company, Kent Sporting Goods Co., Inc., Outdoor
Venture Corporation, Dakota Tribal Industries, Fun Tees,
Alpha Shirt Company, National Apparel Inc., Consumer
Products, Inc. and Wichita Ponca.
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 each of 1994 and 1995, 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 6.8% 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 connection with the Graniteville Sale, Avondale and
C.H. Patrick have entered into the Supply Agreement pursuant
to which C.H. Patrick will have the right to supply to the
combined Graniteville/Avondale textile operations certain of
its dyes and chemicals. The Supply Agreement will become
effective upon the closing of the Graniteville Sale. See
"Item 1, Business--Strategic Alternatives."
In August 1994, C.H. Patrick acquired a minority
interest in Taysung Enterprise Company, Ltd., ("Taysung") 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. In 1995 C.H. Patrick wrote off its investment
in Taysung. See Note 20 to the Consolidated Financial
Statements.
MARKETING AND SALES
Graniteville's fabrics are marketed and sold by its
woven apparel marketing group which is located at
Graniteville's headquarters in South Carolina. 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 Ontario, Canada also market
Graniteville's woven apparel products. Graniteville's
specialty products are marketed and sold by the specialty
products division. C.H. Patrick markets and sells its dyes
and chemicals through its own sales and marketing
department.
MANUFACTURING
Graniteville is a vertically integrated manufacturer,
with facilities capable of converting raw fiber into
finished fabrics. Generally, raw fibers are purchased and
spun into yarn, and yarns are either dyed and then woven
into fabrics (as in the case of indigo-dyed fabrics) or
woven into fabrics, which are then dyed according to
customer specifications (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 $168 million over
the nine year period ending December 31, 1995, including
approximately $13 million in 1995, 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 1996 Graniteville expects to spend
approximately $15 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 and 1995. World cotton crop production
increased in the 1995 crop reporting cycle after two
successive years of declines (periods ending July 31 of each
year). The declines in the 1994 and 1993 reporting cycles
were 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 17% in 1995 over the average
price paid in 1994 and 16% in 1994 over the average price
paid in 1993. In light of the foregoing, at December 31,
1995, 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.
In connection with the Graniteville Sale, C.H. Patrick and
Avondale have entered into the Supply Agreement pursuant to
which C.H. Patrick will have the right to supply to the
combined Graniteville/Avondale textile operations certain of
its dyes and chemicals. See "Item 1. Business -- Business
Segments -- Strategic Alternatives."
BACKLOG
Graniteville's backlog of unfulfilled customer orders
was approximately $244.3 million at December 31, 1995, as
compared to approximately $276.7 million at December 31,
1994. It is expected that substantially all of the orders
outstanding at December 31, 1995 will be filled during the
next 12 months. Order backlogs are usual to the business in
which Graniteville operates.
LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE)
National Propane is engaged primarily in the retail
marketing of liquefied petroleum gas ("LP gas") to
residential, commercial and industrial, agriculture
customers and to dealers that resell propane to residential
and commercial customers. National Propane also sells
related supplies and equipment, including home and
commercial appliances. Triarc believes that National Propane
is the fifth largest retail marketer of LP gas in terms of
retail volume in the United States. As of December 31, 1995,
National Propane had 164 service centers supplying markets
in 24 states in the Midwest, Northeast, Southeast, and
Southwest.
Prior to the April 1993 change of control of Triarc
(see "Item 1. Business -- New Ownership; Posner
Settlement"), the LP Gas Companies conducted operations
through nine regionally branded companies without central
management or coordinated pricing or distribution
strategies. Since April 1993, National Propane has, among
other things, consolidated its operations into a single
company with a national brand and logo. As part of such
consolidation, Public Gas was merged with and into National
Propane during the second quarter of 1995. Prior to such
merger, Public Gas (which had been owned 99.7% by SEPSCO)
became a wholly-owned subsidiary of SEPSCO. In connection
therewith, on February 22, 1996, SEPSCO redeemed all of its
outstanding 11-7/8% Senior Subordinated Debentures due
February 1, 1998 (the "SEPSCO 11-7/8% Debentures"). See
Note 15 to the Consolidated Financial Statements. Triarc
has announced that National Propane has formed an MLP which
intends to offer common units to the public pursuant to an
underwritten initial public offering. See "Item 1 --
Business -- Strategic Alternatives."
BUSINESS STRATEGY
Since April 1993, National Propane has been assembling
an experienced management team committed to implementing the
following business strategy intended to increase revenues
and improve operating margins:
* Improved Pricing Management: To better monitor
prices, in 1994 the LP Gas Companies installed a
centralized price monitoring system in
substantially all of their service centers. This
system provides management with current system-
wide supply, demand and competitive pricing
information. Based on that information, pricing
managers located at National Propane's
headquarters determine the prices to be charged to
National Propane's existing residential customers.
With respect to commercial and industrial
customers, agricultural customers and new
residential customers, National Propane's
management makes daily pricing recommendations to
its local managers who determine prices based on
such recommendations as well as on local
conditions. In addition, National Propane intends
to equip its delivery personnel with hand-held
computer terminals that simplify customer billing
and the collection of price and volume
information.
* Improved Marketing: National Propane intends to
differentiate itself from many smaller, local
competitors by strengthening its image as a
reliable, full service nationwide propane
supplier.
* Efficient Purchasing: National Propane intends to
further improve its propane purchasing and storage
strategies thereby making more efficient use of
its system-wide storage capacity. When conditions
are appropriate, National Propane intends to
purchase and store propane during the summer
months when prices are generally lower and sell
these supplies during periods of higher propane
prices. In addition, National Propane intends to
use its existing storage facilities or acquire
additional facilities to minimize transportation
costs by storing propane near large concentrations
of its customers.
* Consolidating Operations: National Propane will
continue to look for opportunities to consolidate
operations and reduce expenses. Since July 1993,
the LP Gas Companies' work force has been reduced
by approximately 16%.
* Acquisitions: To complement the strategies
outlined above, National Propane intends to
increase revenues by acquiring smaller,
independent competitors that operate within its
existing geographic base and incorporating them
into its existing distribution network and to
acquire propane businesses in areas of the United
States outside of its current geographic base
where it believes there is growth potential and
where an attractive return on its investment can
be achieved. Accordingly, in August, 1995, Triarc
acquired and contributed to National Propane the
stock of a propane company and an affiliate, that
sells LP gas and related merchandise in Colorado.
The purchase price was approximately $4.2 million.
National Propane also acquired the assets of three
smaller retail propane marketers for an aggregate
purchase price of approximately $375,000. In
addition, National Propane has also entered into a
letter of intent to acquire an additional propane
business for $800,000, however, consummation of
this acquisition is subject to customary closing
conditions and completion of definitive
documentation, and no assurance can be given that
this acquisition will be completed.
* Internal Growth: In addition to pursuing expansion
through acquisitions, National Propane intends to
pursue internal growth at its existing service
centers and to expand its business by opening new
service centers. National Propane believes that
it can attract new customers and expand its market
base by providing superior service, introducing
innovative marketing programs and focusing on
population growth areas.
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. Residential
customers use LP gas in LP gas appliances and heaters in a
manner similar to natural gas, primarily for heating, water
heating, cooking (indoor and outdoor) and clothes drying. In
the agricultural market, LP gas is used primarily for
tobacco curing, crop drying, poultry breeding and weed
control. Commercial and industrial customers use LP gas
primarily for fueling over-the-road vehicles, forklifts and
stationary engines, firing furnaces, as a cutting gas and in
other process applications.
During Fiscal 1993, Transition 1993, 1994 and 1995,
approximately 62%, 53%, 53% and 49%, respectively, of sales
by the LP Gas Companies were to residential customers and
approximately 38%, 47%, 47% and 51%, respectively, of such
sales were to commercial, agricultural and industrial
customers. In Fiscal 1993, Transition 1993, 1994 and 1995,
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 National Propane's volume, in terms of
dollars and gallons, is distributed in bulk, although almost
half of its 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.
Year-to-year demand for LP gas is affected by the
relative severity of the winter and other climatic
conditions. For example, while the frigid temperatures that
were experienced by the United States in January and
February of 1994 significantly increased the overall demand
for LP gas, the warm weather during the winter of 1994-1995
significantly decreased the overall demand for LP gas. The
winter of 1995-1996 has returned to near normal temperatures
and demand for LP gas has increased from prior year levels.
National Propane also provides specialized equipment
for the use of LP gas. In the residential market, National
Propane sells household appliances such as cooking ranges,
water heaters, space heaters, central furnaces and clothes
dryers. In the industrial market, National Propane sells or
leases 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 National Propane is dependent upon
the price and availability of propane as well as seasonal
and climatic factors. Contracts for propane are typically
made on a year-to-year basis, but the price of the propane
to be delivered depends upon market conditions at the time
of delivery. Worldwide availability of both gas liquids and
oil affects the supply of propane in domestic markets, and
from time to time the ability to obtain propane at
attractive prices may be limited as a result of market
conditions, thus affecting price levels to all distributors
of propane. National Propane purchased propane from over 35
domestic and Canadian suppliers during 1995, primarily major
oil companies and independent producers of both gas liquids
and oils, and it also purchased propane on the spot market.
In 1995, National Propane purchased approximately 81% and
19% of its propane supplies from domestic and Canadian
suppliers, respectively. Approximately 87% of propane
purchases by National Propane in 1995 were on a contractual
basis under one year agreements subject to annual renewal.
Supply contracts generally do not lock in prices but rather
provide for pricing in accordance with posted prices at the
time of delivery or the current prices established at major
storage points, such as Mont Belvieu, Texas and Conway,
Kansas. Some contracts include a pricing formula that
typically is based on such market prices. With the
exception of one contract for the purchase of 11 million
gallons, which expires in April 1996, National Propane is
not currently a party of any supply contracts containing
"take or pay" provisions. National Propane expects to
renegotiate such contract upon its expiration to remove the
"take or pay" provision. Except for occasional
opportunistic buying and storage of propane, National
Propane has not engaged in any significant hedging
activities with respect to propane supply requirements,
although it may do so from time to time in the future.
Warren Petroleum Company ("Warren"), a division of
Chevron U.S.A., and Conoco Gas Products ("Conoco") supplied
13.5% and 10.2%, respectively, of National Propane's propane
in 1995. National Propane believes that if supplies from
either Warren or Conoco were interrupted, it would be able
to secure adequate propane supplies from other sources
without a material disruption of its operations; however the
cost of procuring replacement supplies might be materially
higher at least on a short-term basis. No other single
supplier provided more than 10% of National Propane's total
propane supply in 1995.
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, ROYAL CROWN DRAFT
COLA, DIET RITE, NEHI, NEHI LOCKJAW, UPPER 10, KICK, C&C and
THIRST THRASHER 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.
Mistic is the owner of the MISTIC and ROYAL MISTIC
trademark and considers them to be 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.
National Propane utilizes a number of trademarks and
tradenames which it owns (including "National PropaneTM"),
some of which have a significant value in the marketing of
its products.
The material trademarks of Royal Crown, Mistic, Arby's
and Graniteville are registered in the U.S. Patent and
Trademark Office and various foreign jurisdictions. Royal
Crown's, Arby's, Mistic'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 have arisen to Royal Crown's, Mistic's, Arby's
and Graniteville's right to use the foregoing trademarks in
the United States.
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 and Mistic's New Age
beverage products compete generally with all liquid
refreshments and in particular with numerous
nationally-known soft drinks such as Coca-Cola and
Pepsi-Cola and New Age beverages such as Snapple and AriZona
iced teas. Royal Crown and Mistic compete 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 and Mistic's distributors, most of which also
distribute other beverage brands. The principal methods of
competition in the beverage 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
food service 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 beverage 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 beverage 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, an agreement reached on December 15, 1993 under
the General Agreement on Tariffs and Trade ("GATT") will
eliminate quantitative restrictions on imports of textiles
and apparel between GATT member countries after a ten year
transition period. The new GATT agreement became effective
on July 1, 1995. Any significant reduction in import
protection for domestic textile manufacturers could
adversely affect Graniteville's business.
Most of National Propane's service centers compete with
several marketers or distributors of LP gas and certain
service centers compete with a large number of marketers or
distributors. Each of National Propane's service centers
operate in its own competitive environment because retail
marketers tend to locate in close proximity to customers in
order to lower the cost of providing service. The principle
competitive factors affecting this industry are reliability
of service, responsiveness to customers and the ability to
maintain competitive prices. LP gas competes primarily with
natural gas, electricity and fuel oil as an energy source,
principally on the basis of price, availability and
portability. LP gas serves as an alternative to natural gas
in rural and suburban areas where natural gas is unavailable
or portability of the product is required. LP gas is
generally more expensive than natural gas in locations
served by natural gas, although LP gas is sold in such areas
as a standby fuel for use during peak demand periods or
during interruptions in natural gas service. Although the
extension of natural gas pipelines tends to displace LP gas
distribution in the areas affected, National Propane
believes that new opportunities for LP gas sales arise as
more geographically remote areas are developed. LP gas is
generally less expensive to use than electricity for space
heating, water heating, clothes drying and cooking.
Although LP gas is similar to fuel oil in certain
applications, as well as in market demand and price, LP gas
and fuel oil have generally developed their own distinct
geographic markets, reducing competition between such fuels.
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 royalty fee receivables are due
within 10 days after each month end.
Mistic's working capital requirements are generally met
through cash flow from operations, supplemented by advances
under a credit facility entered into in connection with the
Mistic Acquisition (as subsequently amended, the "Mistic
Credit Agreement") which initially provided Mistic with a
$60 million term loan facility ($58.75 million at March 1,
1996) and a $20 million ($20 million at March 1, 1996)
revolving credit facility (of which $2.4 million was
available at March 1, 1996). Accounts receivable of Mistic
are generally due in 30 days.
Working capital requirements for the textile business
are generally fulfilled from operating cash flow
supplemented by advances under a credit facility (as
subsequently amended, the "Graniteville Credit Facility")
which initially provided Graniteville with an $80 million
term loan ($82.9 million at March 1, 1996) and a $100
million ($130 million at March 1, 1996) revolving credit
facility (of which approximately $9.9 million was available
at March 1, 1996). Trade receivables are generally due in
60 days, in accordance with industry practice. It is
expected that the Graniteville Credit Facility will be
repaid in full upon consummation of the Graniteville Sale.
See "Item 1. Business -- Strategic Alternatives" and
"Business Segments -- Textiles."
Working capital requirements for C.H. Patrick are
generally fulfilled from operating cash flow supplemented by
advances under the Graniteville Credit Facility. Following
completion of the Graniteville Sale, it is expected that
C.H. Patrick will enter into a new credit facility that will
supplement its operating cash flow in order to fulfill its
working capital requirements.
Working capital requirements for National Propane
fluctuate due to the seasonal nature of its business.
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 a credit facility
(as amended, the "National Propane Credit Facility") which
initially provided National Propane with a $90.0 million
term loan and commitment ($84.1 million at March 1, 1996)
and a $57.2 million ($43.2 million at March 1, 1996)
revolving credit facility (none of which was available at
March 1, 1996, including the $13.9 million acquisition sub
facility due to debt covenant limitations). Accounts
receivable are generally due within 30 days of delivery. It
is expected that the existing National Propane Credit
Facility will be repaid in full upon consummation of the
public offering by the National Propane MLP. See "Item 1.
Business -- Strategic Alternatives" and "Business Segments -
- - Liquefied Petroleum Gas."
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 and Mistic
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 and
Mistic products. In addition, Royal Crown's and Mistic's
dealings with its distributors may, in some jurisdictions,
be subject to state laws governing the offer and sale of
franchises and the substantive aspects of the franchisor-
franchisee relationship.
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.
National Propane is 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
("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. Subsequently, DHEC requested Graniteville to
submit a proposal by mid-April 1995 concerning periodic
monitoring of sediment deposition in the pond. Graniteville
submitted a proposed protocol for monitoring sediment
deposition in Langley Pond on April 26, 1995. DHEC
responded to this proposal on October 30, 1995 requesting
some additional information. This information was provided
to DHEC in February 1996. 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 apparent conclusion in March 1994
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. On April 7, 1995
Graniteville submitted a conceptual investigation approach
to DHEC. On August 22, 1995 DHEC requested that
Graniteville enter into a consent agreement to conduct an
investigation. Graniteville has responded to DHEC that a
consent agreement is inappropriate considering
Graniteville's demonstrated willingness to cooperate with
DHEC requests and asked DHEC to approve Graniteville's April
7, 1995 conceptual investigation approach. The cost of the
study proposed by Graniteville is estimated to be between
$125,000 and $150,000. Since an investigation has not yet
commenced, Graniteville is currently unable to estimate the
cost, if any, 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 ice and
cold storage operations of the refrigeration business and
has filed appropriate notifications with state environmental
authorities and in 1994 completed a study of remediation at
such sites. SEPSCO has removed certain underground storage
and other tanks at certain facilities of its refrigeration
operations and has engaged in certain remediation in
connection therewith. Such removal and environmental
remediation involved a variety of remediation actions at
various facilities of SEPSCO located in a number of
jurisdictions. Such remediation varied from site to site,
ranging from testing of soil and ground water for
contamination, development of remediation plans and removal
in certain instances of certain contaminated soils.
Remediation is required at thirteen sites which were sold to
or leased for the purchaser of the ice operations.
Remediation has been completed on two of these sites and is
ongoing at seven others. Remediation will commence on the
remaining four ice plants in 1996. Such remediation is
being made in conjunction with the purchaser who is
responsible for payments of up to $1,000,000 of such
remediation costs, consisting of the first and third
payments of $500,000. Remediation is also required at seven
cold storage sites which were sold to the purchaser of the
cold storage operations. Remediation has been completed at
one site, and is ongoing at three other sites. Remediation
is expected to commence on the remaining three sites in 1996
and 1997. Such remediation is being made in conjunction
with such purchaser who is responsible for the first
$1,250,000 of such costs. In addition, there are fifteen
additional inactive properties of the former refrigeration
business where remediation has been completed or is ongoing
and which have either been sold or are held for sale
separate from the sales of the ice and cold storage
operation. Of these, four were remediated in 1994, at an
aggregate cost of $484,000, and two were remediated in 1995
at an aggregate cost of $160,000. In addition, during the
environmental remediation efforts on idle properties, SEPSCO
became aware of two sites which may in the future require
demolition. Based on consultations with, and certain
reports of, environmental consultants and others, SEPSCO
presently estimates that its cost of all such remediation
and/or removal and demolition will approximate $5,350,000,
of which $1,500,000, $2,700,000 (including a 1994
reclassification of $500,000) and $1,150,000 were provided
prior to Fiscal 1993, in Fiscal 1993 and in 1994,
respectively. In connection therewith, SEPSCO has incurred
actual costs of $3,836,000 through December 31, 1995 and has
a remaining accrual of $1,514,000. Based on currently
available information and the current reserve levels, Triarc
does not believe that the ultimate outcome of the
remediation and/or removal and demolition will have a
material adverse effect on its consolidated financial
position or results of operations. See "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 order to assess
the extent of the problem, National Propane engaged
environmental consultants who began work in August 1994. In
December 1994, the environmental consultants issued a report
to National Propane which estimated the range of potential
remediation costs to 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.
In February 1996, based upon new information, National
Propane's environmental consultants issued a second report
which presented the two most likely remediation methods and
revised estimates of the costs of such methods. The range
of estimated costs for the first method, which involves
treatment of groundwater and excavation, treatment and
disposal of contaminated soil, is between $1,600,000 and
$3,300,000. The range for the second method, which involves
building a containment wall and treatment of ground water,
is between $432,000 and $750,000. Based on discussions with
National Propane's environmental consultants, both methods
are acceptable remediation plans. National Propane will
have to agree upon the final plan with the State of
Wisconsin. If National Propane is found liable for any of
such costs, it will attempt to recover such costs from the
Successor. 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, 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." National Propane's liability with
respect to this matter is expected to be assumed by the
National Propane MLP. See "Item 1. Business -- Strategic
Alternatives" and "Business Segments -- Liquefied Petroleum
Gas."
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 ("DERM") 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 (in excess of amounts
incurred through December 31, 1995) given by the
environmental consultant retained by Royal Crown is between
$150,000 and $230,000, depending on the actual extent of the
contamination. Royal Crown has submitted a remediation plan
to DERM. 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 (in excess of
amounts incurred through December 31, 1995), of which 60-70%
is expected to be reimbursed by the State of Texas Petroleum
Storage Tank Remediation Fund. Royal Crown has incurred
actual costs of $293,000, in the aggregate, through December
31, 1995 for these matters. 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. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SEASONALITY
Of Triarc's four businesses, the beverages and LP gas
businesses are seasonal. In the beverage businesses, the
highest sales occur during spring and summer (April through
September). 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 1994 and
1995 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, during the second quarter of
1995, National Propane and Public Gas merged. Prior to such
merger, Public Gas became a wholly-owned subsidiary of
SEPSCO. In connection therewith, on February 22, 1996
SEPSCO redeemed all of its outstanding 11-7/8% Debentures.
See Note 15 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. In December 1995, such
promissory note was amended and restated in order to reflect
the forgiveness of $3.0 million of such indebtedness in
April 1995. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." For information regarding
Triarc's insurance loss reserves relating to Chesapeake's
operations, See Note 1 to the Consolidated Financial
Statements.
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 1994, SEPSCO completed its
sale or discontinuance of substantially all of its ancillary
business assets. 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, which has been paid in
full. Since January 1995, SEPSCO has sold six idle
properties for an aggregate price of approximately $300,000.
In addition, in January, 1996, SEPSCO entered into an
agreement to sell a 42,000 square foot parcel of land
located in Miami, Florida to a real estate developer for a
purchase price of approximately $1.5 million. Consummation
of the sale is subject to a number of contingencies,
including satisfactory completion by the purchaser of title
and environmental due diligence regarding the property.
Consummation of the sale is expected to occur during the
third quarter of 1996. See Note 21 to the Consolidated
Financial Statements.
EMPLOYEES
As of December 31, 1995, Triarc and its four business
segments employed approximately 10,275 personnel, including
approximately 1,950 salaried personnel and approximately
8,325 hourly personnel. Triarc's management believes that
employee relations are satisfactory. At December 31, 1995,
approximately 166 of the total of Triarc's employees were
covered by various collective bargaining agreements expiring
from time to time from the present through 1998.
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, 1995 is set forth in the following table:
APPROXIMATE
SQ. FT. OF
ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- -------------------- -------------------- ---------- ------------
Corporate Headquarters New York, NY 1 leased 25,000
Beverages............. Concentrate Mfg:
Columbus, GA 1 owned 216,000
(including office)
Cincinnati, OH 1 leased 23,000
Royal Crown
Corporate Headquarters
Ft. Lauderdale, FL 1 leased 19,180*
Mistic Corporate
Headquarters
New Rochelle, NY 1 leased 11,250
Restaurant.......... 373 Restaurants 75 owned **
(all but 17 locations 298 leased
throughout the
United States)
Corporate Headquarters 1 leased 58,429*
Ft. Lauderdale, FL
Textiles............ Fabric Mfg.:
Graniteville, SC 6 owned 2,000,000
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 1 owned 17,000
163 Service Centers 193 owned 532,000
83 Storage Facilities 57 leased ****
(various locations
throughout the
United States)
2 Underground storage
terminals
2 Above ground
storage terminals
APPROXIMATE
SQ. FT. OF
INACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- -------------------- -------------------- ---------- ------------
Restaurant.......... Restaurants 2 owned **
6 leased
Textiles............ Fabric Mfg 4 owned 847,000
*****
<FN>
- ------------
* Royal Crown and Arby's also share 18,759 square feet of common space at the headquarters of
their parent corporation, RC/Arby's.
** 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 2,750 square
feet.
*** To be retained by C.H. Patrick after consummation of the Graniteville Sale. See "Business --
Strategic Alternatives" and "Business Segments -- Textiles."
**** The LP gas facilities have approximately 33 million gallons of storage capacity (including
approximately one million gallons of storage capacity currently leased to third parties). All
such properties are expected to be transferred to the National Propane MLP. See "Business --
Strategic Alternatives" and "Business Segments -- Liquefied Petroleum Gas."
***** Two of such facilities, comprising approximately 465,000 square feet, are contemplated to be
included in the Graniteville Sale. See "Business --Strategic Alternatives" and "Business
Segments --Textiles."
</FN>
Arby's also owns one and leases two land sites for
future restaurants and owns nine and leases eleven
restaurants which are sublet principally to franchisees.
Substantially all of the properties used in the
textiles and LP gas segments are pledged as collateral for
certain debt. In addition, substantially all of the
properties used by Mistic and 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, 1995 is set forth in the
following table:
APPROXIMATE
SQ. FT. OF
INACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- -------------------- -------------------- ---------- ------------
Refrigeration....... Ice mfg. and cold 4 owned 92,000
storage Ice mfg. 13 owned 173,000
National Propane.... 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. In June 1995, Graniteville
sold approximately 10,400 acres of land (predominantly
woodland) in and around Graniteville, South Carolina.
ITEM 3. LEGAL PROCEEDINGS.
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's predecessor, DWG, 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. ("Granada
Investments") 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. See
"Item 1. Business -- New Ownership; Posner Settlement" for
information regarding the Settlement Agreement, pursuant to
which certain claims between Triarc and certain of the
Posner Entities were settled. 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. On March
21, 1995, Triarc paid a final fee of $2.0 million to the
three court-appointed members of the Triarc Special
Committee and each of them delivered a release/agreement to
Triarc agreeing, among other things, not to seek additional
fees. See "Executive Officers -- Compensation of Directors"
in the 1995 Proxy Statement. In the fall of 1995, Granada
Investments, Victor Posner and the three former court-
appointed members of the Triarc Special Committee asserted
claims against Triarc for money damages and declaratory
relief, and, in the case of the former court-appointed
directors, additional fees. In September 1995 and January
1996 Triarc paid an aggregate of approximately $133,000 to
Granada Investments for additional counsel fees claimed.
Triarc believes these payments are subject to reimbursement
by Posner and a Posner Entity under the Settlement
Agreement. On January 30, 1996 the court held that it had
no jurisdiction and dismissed all proceedings in this
matter. Posner has filed a notice of appeal.
In October 1995 Triarc commenced an action against
Posner and a Posner Entity in the United States District
Court for the Southern District of New York in which it
asserted breaches by them of their reimbursement obligations
under the Settlement Agreement. The defendants have
asserted certain affirmative defenses and a counterclaim
seeking a declaratory judgement that $2.9 million of the
$6.0 million settlement payment paid by defendants to Triarc
pursuant to the Settlement Agreement should be credited
against defendants' obligations, if any, to reimburse
Triarc's fees and expenses under the Settlement Agreement.
See "Item 1. Business--New Ownership; Posner Settlement."
Cross-motions for summary judgment have been filed and are
pending.
In November, 1995, the Company commenced an action in
New York State court alleging that the three former court-
appointed directors violated the release/agreements they
executed in March 1995 by seeking additional fees of $3.0
million. The action has been removed to federal court in
New York, and Triarc has requested leave to move for summary
judgement.
On December 6, 1995 the three former court-appointed
members of the Triarc Special Committee commenced an action
in the United States District Court for the Northern
District of Ohio seeking (among other things), an
adjudication of certain parties' actual or potential claims
with respect to certain shares of Triarc's Class A Common
Stock held by the plaintiffs, an order restoring the
plaintiffs to Triarc's Board of Directors and additional
fees. On February 6, 1996, the court dismissed the action
without prejudice. The plaintiffs' have filed a notice of
appeal.
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 April 1993 were affiliates of Triarc and
which subsequent to April 1993 became debtors in bankruptcy
proceedings.
In August 1993 NVF, which was affiliated with Triarc
until April 1993, became a debtor in a case filed by certain
of its creditors under Chapter 11 of the Federal Bankruptcy
Code (the "NVF Proceeding"). 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 various causes of action. Triarc
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 opposed that motion. In October
1995, the parties to the NVF Litigation executed a
Stipulation and Agreement of Compromise and Settlement
pursuant to which all claims against Triarc were dismissed.
Under the settlement Triarc will bear no liability. The
settlement was approved by the bankruptcy court on November
22, 1995 and on December 15, 1995, the district court
dismissed the action with prejudice. Pursuant to the
Settlement Agreement, (described more fully in "Item 1.
Business -- New Ownership; 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 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 sought 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 denied the material allegations of NVF's complaint
and asserted defenses, counterclaims and set-offs against
NVF. Pursuant to an agreement effective June 30, 1995,
Chesapeake and NVF agreed to settle all claims,
counterclaims and proofs of claim for a net payment to NVF
of $200,000. On or about June 30, 1995 the Court having
jurisdiction over the NVF Proceeding approved the settlement
and such payment was made by Chesapeake Insurance in July
1995.
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 until April 1993, aggregating $38,120,000
as of April 30, 1992, against which a valuation allowance of
$34,713,000 was recorded. Thereafter APL experienced
recurring losses and other financial difficulties and in
July 1993 APL became a debtor in a proceeding under Chapter
11 of the Bankruptcy Code (the "APL Proceeding").
Accordingly, during Fiscal 1993, Triarc and its subsidiaries
provided an additional $9,863,000 for the unreserved portion
of the receivable at April 30, 1992 and additional net
billings in 1993 and wrote off the full balance of the APL
receivables and related allowance of $44,576,000. In
February 1994 the official committee of unsecured creditors
of APL 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 June 8,
1995, the United States Bankruptcy Court for the Southern
District of Florida (the "Bankruptcy Court") entered an
order confirming the Creditors' Committee's First Amended
Plan of Reorganization (the "Plan") in the APL Proceeding.
The Plan provides, among other things, that Security
Management Corporation ("SMC"), a company controlled by
Victor Posner, will own all of the common stock of APL and
that SMC, among other entities, is authorized to object to
claims made in the APL Proceeding. The Plan also provides
for the dismissal with prejudice of the APL Litigation. In
August, 1995, SMC filed an objection (the "Objection") to
the claims against APL filed by Triarc and Chesapeake. The
Objection, as it relates to Triarc's claim, is based upon a
settlement agreement entered into on January 9, 1995 (the
"Settlement Agreement") among Triarc, Victor Posner, SMC and
others (the "Posner Entities") under which Triarc agreed to
withdraw its claims against APL provided that Victor Posner
and SMC promptly reimburse Triarc for its costs and expenses
incurred on or after December 1, 1994 in the APL Litigation.
The Objection, as it relates to Chesapeake's claim, alleges
that (i) Chesapeake did not timely file its claim, (ii)
Chesapeake failed to substantiate that a portion of its
claim is entitled to priority, (iii) Chesapeake's claim is
not enforceable against APL, (iv) Chesapeake lacks standing
to prosecute the claim, (v) the claim is contingent and (vi)
Chesapeake failed to substantiate that its claim is secured.
On September 5, 1995, Triarc and Chesapeake filed responses
to the Objection denying the material allegations in the
Objection. In addition, Triarc and Chesapeake filed a
motion to dismiss the Objection on the basis that SMC is
barred from making the Objections because of the dismissal
with prejudice of the APL Litigation under the Plan. Triarc
also filed a motion for summary judgment against SMC on the
basis that the conditions precedent to Triarc's obligation
to withdraw its claims against APL under the Settlement
Agreement had not been met because Victor Posner and SMC had
not satisfied their reimbursement obligations. In response
to Triarc's motions, SMC filed pleadings in which it asserts
that the APL Litigation was not dismissed as to Triarc and
Chesapeake and attached as an exhibit to its pleadings an
order entered in the APL Litigation subsequent to
confirmation of the Plan purporting to drop Victor Posner as
a defendant in the APL Litigation and substitute APL as
plaintiff (the "Order Dropping Posner"). Following a
hearing on Triarc's motions on November 7, 1995, the
Bankruptcy Court (i) ordered that a final judgment of
dismissal of the APL Litigation be entered, (ii) dismissed
the Objection and (iii) vacated the Order Dropping Posner.
In December 1995, APL filed a motion for rehearing and
reconsideration of (i) the final judgment of dismissal of
the APL Litigation and (ii) the order vacating the Order
Dropping Posner, and SMC filed a motion for rehearing and
reconsideration of the order dismissing the Objection. On
February 1, 1996, the Bankruptcy Court conducted a hearing
on APL's and SMC's motions. On March 12, 1996, following
the submission of post-hearing memoranda of law, the
Bankruptcy Court denied APL's and SMC's motions for
rehearing. SMC and/or APL have filed a motion to extend
their time to file a notice of appeal and have indicated
that they intend to appeal.
On December 11, 1995, Triarc and Chesapeake commenced a
proceeding in the Bankruptcy Court under section 1144 of the
Bankruptcy Code, naming Victor Posner, SMC and APL as
defendants, and naming the official committee of unsecured
creditors of APL as a nominal defendant (the "1144
Proceeding"). Triarc commenced the 1144 proceeding because
of motions pending on December 11, 1995 (the final date on
which such a proceeding could be commenced under the
Bankruptcy Code), in which APL and SMC sought to continue
prosecuting the APL Litigation against Triarc and Chesapeake
notwithstanding that the Plan required the dismissal of the
APL Litigation with prejudice. In the event APL and SMC
were to prevail in such attempts, Triarc would seek to have
the confirmation order revoked or modified in certain
respects, including to prevent the prosecution of the APL
Litigation against Triarc and Chesapeake. On January 25,
1996, SMC and APL filed a motion to dismiss the 1144
Proceeding on the grounds that (i) the Bankruptcy Court is
unable to grant effective relief since the Plan has been
substantially consummated, (ii) Triarc and Chesapeake are
estopped from seeking relief under section 1144 and (iii)
the complaint in the 1144 Proceeding fails to state a claim
upon which relief can be granted. On February 12, 1996,
Triarc and Chesapeake filed a response to the motion to
dismiss and on February 16, 1996, SMC and APL filed a reply.
On February 26, 1996, the committee of unsecured creditors
of APL filed an answer and affirmative defenses to the
complaint in the 1144 Proceeding, denying that the Plan
required the dismissal of the APL Litigation and asserting
as an affirmative defense that the complaint in the 1144
Proceeding fails to state a claim upon which relief can be
granted. A hearing on SMC's motion to dismiss has been
scheduled for April 1, 1996.
Triarc and its subsidiaries had secured receivables
from PEC, a former affiliate of Triarc, 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. In June 1994, Triarc and certain of its
subsidiaries filed proofs of claim in the PEC Proceedings in
the aggregate amount of $44,231,267 based on the receivables
described above as well as other amounts owed to Triarc and
its subsidiaries by PEC and its subsidiaries for
unreimbursed advances, unpaid insurance premiums,
contribution under a construction performance bond and
certain promissory notes. In July 1995, the bankruptcy
trustee in the PEC Proceedings (the "Trustee") filed
objections to Triarc's and its subsidiaries' proofs of
claim. On July 27, 1995, Triarc and its subsidiaries, the
Trustee and other parties reached a settlement (the "PEC
Settlement") that was subsequently approved by the court
presiding over the PEC Proceeding. Under the PEC
Settlement, (a) Triarc and its subsidiaries that filed
claims in the PEC Proceedings were given an allowed claim
against PEC in the amount of $9,000,000, (b) Chesapeake,
which held a mortgage claim against a PEC subsidiary, is to
receive a share of the proceeds of the sale of the mortgaged
property and (c) the parties are to exchange mutual
releases. Pursuant to the PEC Settlement, in November 1995,
Triarc received payment from PEC's bankruptcy estate in the
amount of approximately $3.0 million in satisfaction of the
allowed claims of Triarc and its subsidiaries in the PEC
Proceedings. Pursuant to the Settlement Agreement, Posner
and a Posner Entity have agreed to indemnify Triarc for all
expenses incurred after December 1, 1994.
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 1995 Annual Meeting of Shareholders on
June 8, 1995. 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, 1995.
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. On June 29,
1995, at Triarc's request, the Class A Common Stock was
delisted from trading 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
- ---------------------------------------------------------------------------
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
1995
First Quarter ended March 31............ $13 1/4 $ 11 1/8
Second Quarter ended June 30........... 16 3/4 13 1/8
Third Quarter ended September 30....... 15 5/8 12 3/8
Fourth Quarter ended December 31....... 14 1/4 9 1/2
Triarc did not pay any dividends on its common stock in
Fiscal 1994, Fiscal 1995 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 April 1993 change of control of
Triarc (see "Item 1. Business -- New Ownership; Posner
Settlement"), 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 -- New Ownership; 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 15 to the
Consolidated Financial Statements.
On December 12, 1994, Triarc announced that its
management was authorized, when and if market conditions
warranted, 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. During such
period, Triarc repurchased 133,700 shares of Class A Common
Stock at an aggregate cost of $1,513,943.
As of March 15, 1996, there were approximately 5,950
holders of record of the Class A Common Stock and two
holders of record of the Class B Common Stock.
Item 6. Selected Financial Data (1)
Eight Months
Fiscal Year Ended April 30, Ended Year Ended December 31,
------------------------------------ December 31, ------------------------
1991 1992 1993 1993 (3) 1994 1995
----- ----- ----- --------- ----- -----
(In thousands except per share amounts)
Revenues $1,027,162 $1,074,703 $1,058,274 $ 703,541 $1,062,521 $1,184,221
Operating
profit 23,304 58,552 34,459(4) 29,969(5) 68,933(6) 33,989 (7)
Loss from
continuing
operations (17,501) (10,207) (44,549)(4) (30,439)(5) (2,093)(6) (36,994) (7)
Income (loss)
from
discontinued
operations,
net (55) 2,705 (2,430) (8,591) (3,900) --
Extraordinary
items 703 -- (6,611) (448) (2,116) --
Cumulative
effect of
changes in
accounting
principles,
net -- -- (6,388) -- -- --
Net loss (16,853) (7,502) (59,978)(4) (39,478)(5) (8,109)(6) (36,994) (7)
Preferred stock
dividend
requirements
(2) (11) (11) (121) (3,889) (5,833) --
Net loss
applicable to
common
stockholders(16,864) (7,513) (60,099) (43,367) (13,942) (36,994)
Loss per share:
Continuing
operations (.68) (.39) (1.73) (1.62) (.34) (1.24)
Discontinued
operations -- .10 (.09) (.40) (.17) --
Extraordinary
items .03 -- (.26) (.02) (.09) --
Cumulative
effect of
changes in
accounting
principles -- -- (.25) -- -- --
Net loss per
share (.65) (.29) (2.33) (2.04) (.60) (1.24)
Total assets 851,912 821,170 910,662 897,246 922,167 1,085,966
Long-term
debt 345,860 289,758 488,654 575,161 612,118 763,346
Redeemable
preferred
stock -- -- 71,794 71,794 71,794 -- (8)
Stockholders'
equity
(deficit) 92,529 86,482 (35,387) (75,981) (31,783) 20,650 (8)
Weighted-
average
common shares
outstanding 25,853 25,867 25,808 21,260 23,282 29,764
- -------------
<FN>
(1) Selected Financial Data for the fiscal years ended April 30, 1991 and 1992 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 32 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 32 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) Reflects certain significant charges recorded during 1995 (see Note 32 to the Consolidated Financial
Statements) as follows: $19,331,000 charged to operating profit and $15,199,000 charged to loss from
continuing operations and net loss.
(8) In 1995 all of the redeemable preferred stock was converted into common stock and an additional
1,011,900 common shares were issued (see Notes 18 and 19 to the Consolidated Financial Statements)
resulting in an $83,811,000 improvement in stockholders' equity (deficit).
</FN>
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").
Certain statements under this caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" under the Reform Act. See "Special Note
Regarding Forward-Looking Statements."
On October 27, 1993 Triarc's Board of Directors approved a change
in the fiscal year of Triarc from a fiscal year ending April 30 to a
calendar year ending December 31, effective for the transition period
ending December 31, 1993. As used herein, "1995" and "1994" refer to
the calendar years ended December 31, 1995 and 1994, respectively,
"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. Since it was not practicable for
the Company to recast prior period results and present results for
Comparable 1992 (aside from "revenues" and "operating profit"), the
results for Transition 1993 are discussed separately. The Company's
results of operations for Fiscal 1993 are compared below to Fiscal 1992.
The financial information set forth herein for Comparable 1992 and
Fiscal 1992 are unaudited; however, the Fiscal 1992 information was
derived from audited consolidated financial statements not included
herein.
Results of Operations
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. In addition, there has been
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, couponing and other
price discounting.
Trends affecting the beverage segment in recent years have included
the increased market share of private label beverages, increased price
competition throughout the industry, the development of proprietary
packaging and the proliferation of new products being introduced
including "new age" beverages.
Propane, 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 propane 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. U.S. cotton prices
escalated markedly during 1994 and 1995. World cotton crop production
increased in the 1995 crop reporting cycle (periods ending July 31 of
each year) after two successive years of declines. 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.
1995 Compared with 1994
Revenues increased $121.7 million (11.5%) to $1,184.2 million in 1995.
Restaurants - Revenues increased $49.6 million (22.2%) due
to (i) $50.1 million of net sales resulting from 85
additional company-owned stores (including acquired stores)
to a total of 373 at the end of 1995, partially offset by a
$5.3 million decrease in company-owned same-store sales due
primarily to increased competitive discounting and a decline
in the number of customer orders, (ii) a $3.5 million
increase in royalties resulting from a net increase of 77
franchised restaurants, a 3.3% increase in average royalty
rates due to the declining significance of older franchise
agreements with lower rates, and a 0.9% increase in
franchised same-store sales and (iii) a $1.3 million
increase in franchise fees and other revenues.
Beverages - Revenues increased $63.8 million (42.3%)
consisting principally of (i) $41.9 million of revenues from
Mistic Brands, Inc., ("Mistic"), the Company's new
age/premium beverage business acquired August 9, 1995 and
(ii) $20.8 million of finished beverage product sales (as
opposed to concentrate) arising from the Company's January
1995 acquisition of TriBev Corporation ("TriBev"). The
remaining increase reflected sales from the launch of Royal
Crown Draft Premium Cola ("Draft Cola") in the New York and
Los Angeles metropolitan areas during the second quarter of
1995.
Textiles - Revenues increased $11.0 million (2.0%)
principally reflecting higher sales of indigo-dyed
sportswear ($33.8 million) and utility wear ($8.9 million)
significantly offset by lower sales of piece-dyed sportswear
($27.6 million) and specialty products ($3.7 million).
Selling prices for the utility wear and sportswear product
lines rose reflecting the partial pass-through of higher
cotton and polyester costs and indigo-dyed sportswear was
positively impacted by higher volume amounting to $21.1
million due to improved market conditions reflecting the
continued turnaround (since late 1994) in the denim market.
The decrease in piece-dyed sportswear revenue was
attributable to a poor retail market.
Propane - Revenues decreased $2.7 million principally due to
reduced propane sales volume reflecting the exceptionally
warm weather in the first quarter of 1995 partially offset
by the impact of acquisitions.
Gross profit (total revenues less cost of sales) increased $11.7
million to $324.3 million in 1995 due to the operating results of (i)
Mistic ($16.5 million) and (ii) TriBev ($2.4 million) offset by lower
margins in the existing business.
Restaurants - Margins decreased to 33.0% from 37.3% due
primarily to (i) $3.0 million of costs associated with
replacing the point-of-sale register system in all domestic
company-owned restaurants and (ii) start-up costs associated
with the significantly higher number of new restaurant
openings (49 in 1995 versus 9 in 1994). Also affecting
margins was the lower percentage of royalties, franchise
fees and other revenues to total revenues. The company-
owned stores' contribution to revenues continues to expand.
This business development will continue to impact margin
comparisons in the future.
Beverages - Margins decreased to 61.5% from 76.5%
principally due to the inclusion in 1995 of the lower-margin
finished product sales associated with Mistic (39.3%) and
TriBev (11.4%) and lower margins associated with the
finished product sales of Draft Cola noted above.
Textiles - Margins decreased to 11.4% from 13.4% principally
due to the higher raw material cost of cotton (which reached
its highest levels this century) and polyester and other
manufacturing cost increases in 1995 which could not be
fully passed on to customers in the form of higher selling
prices.
Propane - Margins decreased to 26.8% from 27.7% due to
higher propane costs which could only be partially passed on
to customers in the form of higher selling prices because of
increased competition as a result of the continuing effects
of the substantially warmer weather in the first quarter of
1995.
Advertising, selling and distribution expenses increased $19.5
million to $129.2 million in 1995, of which $10.3 million relates to the
results of the acquired beverage operations. The remaining increase of
$9.2 million reflects (i) higher expenses in the beverage segment,
reflecting increased spending in connection with the introduction of
Draft Cola, and (ii) higher expenses in the restaurant segment primarily
attributable to the increased number of company-owned restaurants and
increased promotional food costs relating to competitive discounting.
General and administrative expenses increased $21.7 million to
$146.8 million in 1995 of which $7.5 million relates to the results of
the acquired beverage operations. Among the factors causing the
remaining increase of $14.2 million are (i) $7.0 million of increases in
the restaurant and beverage segments in employee compensation,
relocation and severance costs principally associated with building an
infrastructure to facilitate growth plans primarily in the restaurant
segment, (ii) a $2.7 million charge relating to the settlement of a
patent infringement lawsuit, (iii) a $2.2 million increase in
amortization of restricted stock reflecting $3.3 million of accelerated
vesting in 1995 of all grants of such stock, (iv) a $2.1 million
provision for the closing of certain unprofitable restaurants and (v)
other general inflationary increases.
The reduction in carrying value of long-lived assets impaired or to
be disposed of $14.6 million in 1995 results from the adoption of the
evaluation measurement requirements under Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
reflects a $12.0 million reduction in the net carrying value of certain
restaurants and other long-lived restaurant assets which were determined
to be impaired and a $2.6 million reduction in the net carrying value of
certain other restaurants and equipment to be disposed of.
The 1995 facilities relocation and corporate restructuring charge
of $2.7 million principally reflected severance costs for terminated
corporate employees, including the Company's Vice Chairman who resigned
effective January 1, 1996. The 1994 facilities relocation and corporate
restructuring charges of $8.8 million consisted of (i) costs associated
with the relocation of Triarc's corporate office from West Palm Beach,
Florida and (ii) severance costs related to terminated corporate
employees.
In Fiscal 1993 and prior thereto the Company had fully reserved for
secured receivables from Pennsylvania Engineering Corporation ("PEC"), a
former affiliate who had filed for protection under the bankruptcy code.
In 1995 the Company received $3.0 million with respect to amounts owed
to the Company by PEC representing the Company's allocated portion of
the bankruptcy settlement; such amount was classified as "Recovery of
doubtful accounts of affiliates and former affiliates" in the
accompanying consolidated statement of operations.
Interest expense increased $11.2 million to $84.2 million in 1995
due to higher average levels of debt reflecting the Mistic acquisition
and financing for higher capital spending at the restaurant segment and,
to a lesser extent, higher interest rates on certain of the Company's
floating rate debt.
Other income, net increased $8.6 million to $12.2 million in 1995.
The major components contained in other income, net in 1995 and 1994 are
presented in Note 20 to the accompanying consolidated financial
statements.
The Company recorded a benefit from income taxes of $1.0 million on
a pretax loss of $38.0 million in 1995 and a provision for income taxes
of $1.6 million on a pretax loss of $0.5 million in 1994. The 1995
effective rate differed from the statutory rate due to (i) a $6.1
million provision for income tax contingencies relating to the
examination of the Company's tax years 1989-1992, (ii) amortization of
nondeductible costs in excess of net assets of acquired companies and
(iii) the effect of the acceleration of vesting of grants of restricted
stock at lower prices than those at the time of grant. The 1994 rate
differed due to (i) the amortization of nondeductible costs in excess of
net assets of acquired companies, and (ii) state income taxes which
exceed pretax loss due to the effect of losses in certain states for
which no benefit is available, 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 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. Such loss
reflects increased estimates of $6.4 million from the nonrecognition of
notes received as partial proceeds on the sale of certain businesses and
operating losses of $2.0 million through their respective dates of
disposal, less minority interests and income tax benefit aggregating
$4.5 million. The additional operating loss reflects delays in
disposing of the businesses from the estimated disposal dates as of
December 31, 1993. As of December 31, 1995 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 (principally the notes referred to
above) 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 13 1/8% senior subordinated debentures due March 1, 1999 of
National Propane Corporation ("National Propane") 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 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 beverage 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 businesses were included in revenues 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. Beverage 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 beverage 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 beverage concentrate directly from the Company's
supplier in 1993 rather than from the Company, thereby reducing the
sales price of concentrate to that customer. Propane 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 propane usage
for crop drying.
Gross profit in Transition 1993 amounted to $206.9 million and
resulted in a gross margin of 29.4%. Such gross margin was favorably
impacted by (i) the reduction in the cost of aspartame in the beverage
segment reflecting the expiration of the underlying patent, (ii) the
elimination of the sale of aspartame at cost to a major customer (Cott)
and (iii) the absence in Transition 1993 of certain non-core operations
with lower margins previously sold or held for sale and no longer
consolidated.
Advertising, selling and distribution expenses of $75.0 million in
Transition 1993 were impacted by a significantly higher level of
expenditures in the beverage 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 beverage 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 beverage
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 $7.8 million in Transition 1993 reflects (i)
an additional provision of $5.0 million for settlement of a shareholder
derivative suit brought against the directors of Southeastern Public
Service Company ("SEPSCO") at that time and certain corporations,
including Triarc (the "SEPSCO Litigation") and (ii) a provision of $3.3
million for additional losses incurred in connection with the sale of
certain non-core businesses.
The Company recorded a provision for income taxes of $7.8 million
in Transition 1993 despite a pretax loss of $22.6 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 interests, 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
The following unaudited Fiscal 1992 consolidated statement of
operations is presented solely for comparison with Fiscal 1993:
(In thousands)
Revenues $1,074,703
------------
Costs and expenses:
Cost of sales 793,331
Advertising, selling and distribution 67,505
General and administrative 125,311
Facilities relocation and corporate restructuring 4,318
Provision for doubtful accounts from affiliates 25,686
------------
1,016,151
------------
Operating profit 58,552
Interest expense (71,832)
Other income, net 6,029
------------
Loss from continuing operations before income taxes (7,251)
Provision for income taxes 2,956
------------
Loss from continuing operations (10,207)
Income from discontinued operations, net of income taxes and minority interests2,705
------------
Net loss $ (7,502)
============
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 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. Beverage 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.
Propane 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.
Gross profit 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 expenses 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 beverage
and restaurant segments and a $1.5 million provision for estimated costs
to comply with current package labeling regulations affecting the
beverage 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 Inc. ("Arby's"), Royal Crown Company, Inc. ("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 and 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 Arby's, Royal Crown 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 then 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 PEC and APL Corporation ("APL"), former affiliates in bankruptcy
proceedings, for which Triarc had 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. Beverage 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
beverage corporate office) in Fiscal 1992. Propane 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
provisions 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, net decreased $3.6 million to $2.4 million in Fiscal
1993 compared with $6.0 million in Fiscal 1992. The major components of
other income, net in Fiscal 1993 include a credit of approximately $8.9
million in connection with the settlement of accrued rent as part of the
Change in Control, 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 and $3.4 million of minority interests in net loss
of subsidiaries reflecting the minority interest effect relating to the
facilities relocation, corporate restructuring and other significant
charges in Fiscal 1993 described above partially offset by $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. 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).
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 SFAS 109 and an after-tax charge, net of
minority interests, of $1.5 million from the adoption of SFAS 106. SFAS
109 requires an asset and liability approach for the accounting for
income taxes. As such, deferred income taxes are determined based on
the tax effect of the differences between the financial statement and
tax bases of assets and liabilities. The deferred income tax provision
or benefit for each year represents the increase or decrease,
respectively, in the deferred income tax liability during such year.
SFAS 109 allows the recognition, subject to a valuation allowance if
necessary, of a deferred tax asset for net temporary differences that
will result in net deductible amounts in future years. SFAS 106 requires
the Company to charge to expense the expected cost of other
postretirement benefits during the years the employees render services.
Net loss of $60.0 million in Fiscal 1993 increased from a net loss
of $7.5 million in Fiscal 1992 principally as a result of the Fiscal
1993 facilities relocation, corporate restructuring and other
significant charges, including an extraordinary charge and cumulative
effect of changes in accounting principles, previously discussed
aggregating approximately $67.1 million, net of tax benefit and minority
interest credits.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and cash equivalents (collectively, "cash")
decreased $15.9 million during 1995 to $64.2 million reflecting cash
used in (i) operating activities of $15.2 million, (ii) investing
activities of $165.6 million and (iii) discontinued operations of $1.5
million, all largely offset by cash provided by financing activities of
$166.4 million. The net cash used in operating activities primarily
reflects a net loss of $37.0 million and changes in operating assets and
liabilities of $52.7 million partially offset by non-cash charges for
(i) depreciation and amortization of $60.2 million and (ii) the
reduction in carrying value of long-lived assets of $14.6 million. The
change in operating assets and liabilities principally consists of
increases in restricted cash and cash equivalents of $27.2 million and
in receivables of $12.8 million and a decrease in accounts payable and
accrued expenses of $9.5 million. The increase in restricted cash and
cash equivalents was due to the proceeds of a $30.0 million borrowing
made by the Company in December 1995 which were restricted to the
redemption of certain debt (see further discussion below). The increase
in receivables was principally due to higher revenues in the last two
months of 1995 compared with the last two months of 1994. The decrease
in accounts payable and accrued expenses was due to the timing of
payments. The cash used in investing activities principally reflects
(i) $111.2 million of cash paid for business acquisitions including
$92.3 million (net of cash acquired and including related expenses) for
the August 1995 Mistic acquisition and (ii) capital expenditures of
$70.0 million. The cash provided by financing activities principally
reflects borrowings of long-term debt of $208.9 million partially offset
by debt repayments of $32.0 million and payments of deferred financing
costs of $9.2 million.
Total stockholders' equity improved by $52.4 million to $20.6
million at December 31, 1995 from a deficit of $31.8 million at December
31, 1994. Such improvement was due to (i) the $83.8 million effect of
the Company's issuances of its Class B Common Stock in connection with
the settlement agreement described in Notes 18 and 19 to the
accompanying consolidated financial statements and (ii) the recognition
of $6.0 million of previously unamortized deferred compensation
(including $3.3 million related to the acceleration of vesting of
restricted stock in 1995) partially offset by (i) net loss of $37.0
million and (ii) other net decreases of $0.4 million.
RCAC's $275.0 million aggregate principal amount of 9 3/4% senior
secured 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. ("C.H. Patrick")
have a senior secured credit facility with Graniteville's commercial
lender which, as amended in August 1995, provides for aggregate
borrowings of $216.0 million consisting of senior secured revolving
credit loans of up to $130.0 million (the "Revolving Loan") and an $86.0
million senior secured term loan (the "Term Loan") of which $85.2
million (net of a repayment of $0.8 million in 1995) is outstanding as
of December 31, 1995 and expires in 2000 (the "Graniteville Credit
Facility"). At December 31, 1995 Graniteville had approximately $15.0
million of unused availability under the Revolving Loan. The Revolving
Loan does not require any amortization of principal prior to its
expiration in 2000 (see further discussion below). The Term Loan is
repayable $11.6 million in 1996, $12.4 million per year from 1997
through 1999 and $36.4 million in 2000. However, should the sale of
substantially all of the textile assets of the Company be consummated in
1996 (see "Proposed Transactions" below), all outstanding obligations
under the Graniteville Credit Facility would be repaid concurrently with
any such sale.
National Propane maintains a $150.0 million revolving credit and
term loan facility entered into in October 1994 with a group of banks
which, as amended in March 1995, consists of a revolving credit facility
with a current maximum availability as of December 31, 1995 of $57.17
million (net of reductions of availability of $2.8 million as of
December 31, 1995) and outstanding borrowings of $43.23 million and
three tranches of term loans with an original availability of $90.0
million and outstanding amounts aggregating $84.1 million (net of
repayments through December 31, 1995 of $5.9 million) as of December 31,
1995 (the "Propane Bank Facility"). The approximate $13.94 million of
remaining availability under the revolving credit facility is restricted
for niche acquisitions by National Propane (the "Acquisition Sublimit");
however, National Propane is not currently able to borrow under the
Acquisition Sublimit due to debt covenant limitations and, accordingly,
effectively had no availability under the Propane Bank Facility as of
December 31, 1995. The outstanding amount of $43.23 million of
revolving loans is due $1.87 million in 1996, $3.09 million in 1997,
$3.96 million in 1998, $4.04 million in 1999 with the remaining balance
of $30.27 million maturing in 2000 (see further discussion below). The
$84.1 million outstanding amount of term loans at December 31, 1995
amortizes $6.3 million in 1996, $6.4 million in 1997, $8.2 million in
1998, $8.3 million in 1999, $10.3 million in 2000 and $44.6 million
thereafter (through 2003). However, should the offering to sell
approximately 52% of a partnership formed to acquire, own and operate
the Company's propane business and the placement of $120.0 million of
first mortgage notes be consummated in 1996 (see "Proposed Transactions"
below), all outstanding obligations under the Propane Bank Facility
would be repaid concurrently with any such offering and placement.
On August 9, 1995 Mistic, concurrent with the Mistic acquisition by
Triarc (see below), entered into an $80.0 million credit agreement (the
"Mistic Bank Facility") with a group of banks. The Mistic Bank Facility
consists of a $20.0 million revolving credit facility and a $60.0
million term facility. Borrowings under the revolving credit facility
are due in full in August 1999. However, Mistic must reduce the
borrowings under the revolving credit facility for a period of thirty
consecutive days between October 1 and March 31 of each year to less
than or equal to (a) $7.0 million between October 1, 1995 and March 31,
1996, (b) $5.0 million between October 1, 1996 and March 31, 1997 and
(c) $0 between October 1 and the following March 31 for each of the two
years thereafter (such requirement has been met as of December 31, 1995
for the period between October 1, 1995 and March 31, 1996). There were
$6.5 million of borrowings under the revolving credit facility as of
December 31, 1995. The $58.75 million outstanding amount of the term
facility amortizes $5.0 million in 1996, $6.25 million in 1997, $10.0
million in 1998, $11.25 million in 1999, $15.0 million in 2000 and
$11.25 million in 2001. As of December 31, 1995 Mistic effectively had
no availability under the Mistic Bank Facility due to covenant
limitations. Notwithstanding such limitations, such availability would
have been $10.4 million.
During 1995 two new subsidiaries of RCAC entered into loan and
financing agreements with FFCA Acquisition Corporation ("FFCA") which,
as amended, permit borrowings in the form of mortgage notes (the
"Mortgage Notes") and equipment notes (the "Equipment Notes")
aggregating $87.3 million (the "FFCA Loan Agreements"). The Mortgage
Notes and Equipment Notes are repayable in equal monthly installments,
including interest, over twenty years and seven years, respectively. As
of December 31, 1995, borrowings under the FFCA Loan Agreements
aggregated $58.7 million (net of repayments of $0.4 million) resulting
in remaining availability of $28.2 million through December 31, 1996 to
finance new company-owned restaurants whose sites are identified to the
lender by April 30, 1996 on terms similar to those of outstanding
borrowings. The assets of one of the new subsidiaries will not be
available to pay creditors of Triarc, RCAC or Arby's until all loans
under the FFCA Loan Agreements have been repaid in full.
Under the Company's various debt agreements substantially all of
Triarc's and its subsidiaries' assets are pledged as security. In
addition, obligations under (i) RCAC's 9 3/4% Senior Notes have been
guaranteed by RCAC's wholly-owned subsidiaries, Royal Crown and Arby's,
(ii) the Graniteville Credit Facility, the Propane Bank Facility, the
Mistic Bank Facility and (iii) $21.3 million of borrowings under the
FFCA Loan Agreements have been guaranteed by Triarc. As collateral for
such guarantees, all of the stock of Royal Crown, 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, Mistic and SEPSCO
is pledged.
The Company's debt instruments require aggregate principal payments
of $40.5 million during 1996, exclusive of the requirements of SEPSCO's
11 7/8% senior subordinated debentures due February 1, 1998 (the "11
7/8% Debentures") consisting of $11.6 million of payments of term loans
under the Graniteville Credit Facility, $8.1 million of payments under
the Propane Bank Facility, $6.5 million (including $1.5 million for the
aforementioned required paydown of borrowings under the revolving credit
facility to $5.0 million) of payments under the Mistic Bank Facility and
$14.3 million of payments of other debt. On February 22, 1996 the 11
7/8% Debentures were redeemed. The cash for such redemption came from
the proceeds of $30.0 million of borrowings, which were restricted to
the redemption of the 11 7/8% Debentures, under the Propane Bank
Facility, liquidation of marketable securities and existing cash
balances. The redemption prior to maturity of the 11 7/8% Debentures
will result in an extraordinary charge for the write-off of unamortized
deferred financing costs and original issue discount, net of income tax
benefit, of $1.4 million during the first quarter of 1996.
Consolidated capital expenditures, excluding business acquisitions
and including capital leases, amounted to $71.2 million for 1995. The
Company expects that capital expenditures during 1996 will approximate
$44.0 million. These anticipated expenditures are principally in the
restaurant segment in furtherance of its business strategies,
principally for construction of new company-owned restaurants and
remodeling of older restaurants, and in the textile segment. As of
December 31, 1995 there were approximately $4.4 million of outstanding
commitments for capital expenditures and an additional $4.8 million
required to be reinvested at RCAC (in accordance with the indenture
pursuant to which RCAC's 9 3/4% Senior Notes were issued) in "core
business assets" on or before May 31, 1996 as a result of the sale of
certain restaurants to new subsidiaries. The Company anticipates that
it will meet its capital expenditure requirements through existing cash,
cash flows from operations, if any, leasing arrangements and to the
extent such capital expenditures relate to the restaurant segment, also
through borrowings under the FFCA Loan Agreements discussed above. The
Company's actual capital expenditures will decrease if the proposed sale
of the textile operations of Graniteville (see below) is consummated
during 1996. The portion of the Company's 1996 estimated capital
expenditures which relate to the textile operations to be sold is $12.0
million.
Cash paid for business acquisitions, net of cash of business
acquired, amounted to $111.2 million during 1995. During such period
the Company completed (i) the Mistic acquisition (see below) for cash of
$92.3 million (net of cash acquired and including related expenses),
(ii) the acquisition of 51 previously franchised restaurants for cash of
$11.4 million, the assumption of approximately $2.7 million of
capitalized lease obligations and the assumption of a significant amount
of operating leases, (iii) propane acquisitions for aggregate cash of
$4.6 million and the assumption of approximately $0.5 million of
capitalized lease obligations and (iv) the Tribev acquisition for cash
of $2.9 million. In addition, in 1995 the Company acquired, for cash of
$5.3 million, approximately 12.5% of the common stock of ZuZu, Inc.
("ZuZu"), a Dallas-based Mexican food restaurant chain, as well as
options to purchase up to an additional 37.5% of ZuZu's common stock
within the next three years. The Company also made a $1.0 million
investment in a beverage distributor which distributes Royal Crown and
other beverages predominantly in New York City and Long Island, New
York. In furtherance of the Company's growth strategy, the Company will
consider additional selective acquisitions, as appropriate, to build and
strengthen its existing businesses to the extent it has available
resources to do so. In January 1996, Arby's and T.J. Cinnamons, an
operator and franchisor of retail bakeries specializing in gourmet
cinnamon rolls and related products, reached an agreement in principle
through which Arby's will purchase the trademarks, service marks,
recipes and secret formulas of T.J. Cinnamons.
On August 9, 1995 Mistic Brands, Inc., a wholly-owned subsidiary of
Triarc, acquired (the "Mistic Acquisition") substantially all of the
assets and operations, subject to related operating liabilities, as
defined, of certain companies (the "Acquired Business") which develop,
market and sell carbonated and non-carbonated fruit drinks, ready-to-
drink brewed iced teas and naturally flavored sparkling waters under
various trademarks and tradenames including "Mistic" and "Royal Mistic".
The purchase price for the Mistic Acquisition, aggregating $98.3 million
consisted of (i) $93.0 million in cash, (ii) $1.0 million to be paid in
eight equal quarterly installments which commenced in November 1995,
(iii) non-compete agreement payments aggregating $3.0 million payable
through December 1998 with payments commencing upon the later of August
1996 or a final settlement or judgement in certain distributor
litigation and (iv) $1.3 million of related expenses. The Mistic
acquisition was financed through (i) $71.5 million of borrowings under
the Mistic Bank Facility and (ii) $25.0 million of borrowings under the
Graniteville Credit Facility.
The Company's program, announced in late 1994, to repurchase up to
$20.0 million of its Class A Common Stock, expired in June 1995
following the repurchase of 133,700 shares for an aggregate cost of $1.5
million.
The Federal income tax returns of the Company have been examined by
the Internal Revenue Service ("IRS") for the tax years 1985 through
1988. The Company has resolved all but one issue related to such audit
which it is contesting at the Appellate Division of the IRS and expects
to resolve in 1996 for an amount not to exceed $5.0 million. The IRS is
currently finalizing its examination of the Company's Federal income tax
returns for the tax years from 1989 through 1992 and has issued notices
of proposed adjustments increasing taxable income by approximately
$145.0 million, the tax effect of which has not yet been determined.
The Company is contesting the majority of the proposed adjustments and,
accordingly, the amount and timing of any payments required as a result
thereof cannot presently be determined. However, management of the
Company does not believe the resolution of the 1989 through 1992
examination will be finalized in 1996 and, accordingly, no tax payments
will be required in 1996.
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, 1995, based on the 5.5%
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 $2.8 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 $0.6
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 obligations for less than the $2.8 million
determined using the PBGC rate should it choose to terminate the plans.
As of December 31, 1995 the Company's principal cash requirements
for 1996 consist principally of capital expenditures of approximately
$44.0 million and debt principal payments aggregating $83.5 million
(including the $45.0 million principal amount of repayments of the 11
7/8% Debentures). The Company anticipates meeting such requirements
through existing cash, restricted cash and marketable securities, cash
flows from operations, borrowings under the FFCA Loan Agreements
(restricted to financing new company-owned restaurants), borrowings
available under Graniteville's credit facility, and financing a portion
of its capital expenditures through capital leases and operating lease
arrangements. 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. (See "Proposed
Transactions" below).
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 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.
Under the terms of the various indentures and credit arrangements,
Triarc's principal subsidiaries are unable to pay any dividends or make
any loans or advances to Triarc in 1996, except that (i) SEPSCO
following the February 22, 1996 redemption of the 11 7/8% Debentures,
has no remaining restriction, and (ii) National Propane has $5,000,000
available for the payment of dividends; however, National Propane is
effectively prevented from paying dividends due to the restrictions of
its financial amount and ratio tests under its credit facility.
As of December 31, 1995 Triarc had outstanding external
indebtedness consisting of a $37.7 million 9 1/2% note. In addition,
Triarc owed subsidiaries an aggregate principal amount of $229.3
million, consisting of notes in the principal amounts of $112.4 million,
$30.0 million and $5.5 million to Graniteville, SEPSCO and a subsidiary
of RCAC, respectively (which bear interest at rates ranging from 9 1/2%
to 13%) and $81.4 million of non-interest bearing advances owed to
National Propane. Only $75.7 million of the notes payable to
Graniteville require the payment of any cash interest (currently 40% as
of the October 15, 1995 interest payment and thereafter). In connection
with all of such debt, the only principal payments required during 1996
are $5.3 million on the 9 1/2% note referred to above. As of December
31, 1995 Triarc had notes receivable from RCAC and its subsidiaries in
the aggregate amount of $18.4 million of which $11.7 million are due on
demand and $6.7 million are due in 1998 and which bear interest at a
rate of 11 7/8%.
Triarc expects its significant cash requirements for 1996 will be
limited to general corporate expenses including cash used in operations,
$5.3 million and $3.6 million of principal and interest payments,
respectively, on the 9 1/2% note referred to above, cash requirements
for its facilities relocation and corporate restructuring accruals of
$3.2 million, required interest payments of $2.1 million on its notes
payable to Graniteville (see above), up to $4.6 million of advances to
affiliates under loan agreements and loans to RCAC as necessary. Triarc
believes that its expected sources of cash, principally cash on hand of
$12.6 million as of December 31, 1995, dividends or advances from SEPSCO
subsequent to the repayment of the 11 7/8% Debentures, reimbursement of
general corporate expenses from subsidiaries in connection with
management services agreements to the extent such subsidiaries are able
to pay and 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, will be sufficient to enable it to meet
its short-term cash needs.
Subsequent to the consummation of the offering to sell
approximately 52% of a partnership formed to acquire, own and operate
the Company's propane business and the proposed sale of the textile
division of Graniteville (see "Proposed Transactions" below), payments
recieved under tax sharing agreements and the reimbursement of general
corporate expenses by National Propane and the partnership will be
limited and by the textile division will be eliminated. Triarc expects
to compensate for such lower cash availability through cash dividends
paid to Triarc from the proceeds of such proposed transactions,
reductions in corporate expenses, management fees and tax-sharing
payments from C.H. Patrick and other financing sources to the extent
obtainable.
RCAC
As of December 31, 1995, RCAC's cash requirements for 1996,
exclusive of operating cash flows, consist principally of capital
expenditures of approximately $25.0 million, funds for the pending
acquisition noted above, funding for additional acquisitions, if any,
and principal payments on debt. RCAC anticipates meeting such
requirements through existing cash and/or cash flows from operations and
financing a portion of its capital expenditures through additional
borrowings under the FFCA Loan Agreements, capital leases and operating
lease arrangements and borrowing from Triarc if necessary. The ability
of RCAC 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.
Mistic
As of December 31, 1995, Mistic's principal cash requirements for
1996, exclusive of operating cash flows, consist principally of $6.5
million of payments under the Mistic Bank Facility, a payment of
approximately $3.3 million in settlement of certain litigation (see
below) and $1.0 million of capital expenditures. Mistic anticipates
meeting such requirements through cash flows from operations and, if
necessary, borrowings under the Mistic Bank Facility to the extent
available.
In March 1996, Mistic reached a tentative settlement in connection
with certain distributor litigation which provides for Mistic to pay
approximately $3.3 million to the plaintiff; such amount had been
provided for in 1995. In accordance with the terms of the Mistic
agreement, Mistic will recover 50% of the amount of such payment through
reductions of amounts otherwise owed by Mistic to the owner of Joseph
Victori Wines, Inc., the seller.
National Propane
As of December 31, 1995, National Propane's principal cash
requirements for 1996, exclusive of operating cash flows, consist
principally of capital expenditures of approximately $3.5 million, debt
principal repayments of $10.6 million and funding for acquisitions, if
any. National Propane anticipates meeting such requirements through
cash flows from operations and available borrowings, if any, under the
Propane Bank Facility. Should National Propane's cash resources be
insufficient to meet its cash requirements, National Propane may need to
reduce its capital expenditures, negotiate relief under its bank
facility or arrange for alternative financing from Triarc. (See
"Proposed Transactions" below).
Graniteville
The Company expects that positive operating cash flows of
Graniteville and available borrowings, if required, under its credit
facility will be sufficient to enable Graniteville to meet its cash
requirements for 1996. (See "Proposed Transactions" below).
SEPSCO
As of December 31, 1995, SEPSCO's principal cash requirements for
1996 result from a $9.0 million sinking fund payment made on February 1,
1996 on the 11 7/8% Debentures and the previously discussed repayment of
the remaining outstanding $36.0 million principal amount of the 11 7/8%
Debentures on February 22, 1996.
Discontinued Operations
As of December 31, 1995, the Company has completed the sale of
substantially all of its discontinued operations but there remain
certain liabilities to be liquidated (the estimates of which have been
accrued) as well as certain contingent assets (principally two notes
from the sale of the refrigeration business) which may be collected, the
benefits of which, however, have not been recorded.
Proposed Transactions
On March 13, 1996 National Propane Partners, L.P. (the
"Partnership") was organized to acquire, own and operate the Company's
propane business which, prior thereto, was operated by National Propane,
an indirect wholly-owned subsidiary of the Company. On March 26, 1996
the Partnership filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission with respect to an initial public
offering of 6.2 million of its limited partner interest common units,
representing approximately 52% of the Partnership, for an aggregate
offering price, net of expenses, of $118.2 million (the "Offering").
The sale of such limited partner interests, if consummated, is expected
to result in a gain to the Company, the amount of which cannot presently
be determined. The Partnership will concurrently issue 5.5 million
subordinated units, representing approximately 46% of the Partnership,
as well as an aggregate 2% general partner interest in the Partnership
to a wholly-owned subsidiary of the Company. Assuming consummation of
the Offering, the Company will transfer substantially all of its
propane-related assets and liabilities (other than a receivable from
Triarc, deferred financing costs and net deferred income tax liabilities
of $81.4 million, $4.7 million and $21.6 million respectively, at
December 31, 1995) to the Partnership. In connection therewith the
Partnership will issue, $120.0 million of first mortgage notes to
institutional investors and repay all of the outstanding borrowings
($127.3 million as of December 31, 1995) under the Propane Bank
Facility. The early repayment of the Propane Bank Facility will result
in an extraordinary charge for the write-off of unamortized deferred
financing costs, net of income tax benefit, which as of December 31,
1995 would have amounted to approximately $2.8 million. There can be no
assurances, however, that the Company will be able to consummate these
transactions.
On March 31, 1996, the Company and Graniteville entered into an Asset
Purchase Agreement with Avondale Mills, Inc. and Avondale Incorporate
(collectively, "Avondale"), pursuant to which Triarc and Graniteville
have agreed to sell (the "Graniteville Sale") to Avondale Graniteville's
textile business, other than the assets and operations of C.H. Patrick
and certain other excluded assets, for $255.0 million in cash, subject
to certain post-closing adjustments. Avondale will assume all
liabilities relating to the textile business, other than income taxes,
long-term debt ($210.4 million as of December 31, 1995) which will be
repaid at closing and certain other specified liabilities. The
Graniteville Sale is expect to be consummated during the second quarter
of 1996. Consummation of the sale is subject to customary closing
conditions. In connection with the Graniteville Sale, Avondale and C.H.
Patrick have entered into a 10-year supply agreement pursuant to which
C.H. Patrick will sell textile dyes and chemicals to the combined
Graniteville/Avondale business. Based on current estimates, the impact
of this sale is expected to result from breakeven to a small loss, the
amount of which cannot presently be determined. The early prepayment of
Graniteville's long-term debt, including the Graniteville Credit
Facility, will result in an extraordinary charge for the writeoff of
unamortized deferred financing costs and payment of minimum commissions,
prepayment penalties and certain other costs, net of income tax benefit,
which as of December 31, 1995 would have aggregated approximately $6.7
million. There can be no assurances, however, that the Company will be
able to consummate these transactions.
Assuming consummation of the above transactions as of December 31,
1995, the Company would realize net cash proceeds, after repayment of
debt, income taxes and transaction related expenses, of approximately
$130.0 million to $140.0 million. Accordingly, the Company would have
adequate cash resources to meet all of its 1996 cash requirements. The
excess over 1996 cash requirements will be available for general
corporate purposes, including acquisitions and/or investments in certain
of Triarc's subsidiaries.
Contingencies
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
$6.2 million, $0.7 million, $0.5 million and $.024 million (excluding
$0.85 million of fees reimbursed by Posner) in Fiscal 1993, Transition
1993, 1994 and 1995, respectively, included in "Other income (expense),
net" in the consolidated statements 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 Company Limited ("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
sought compensatory damages in an aggregate amount of approximately $2.0
million and punitive damages in the amount of $3.0 million. Pursuant to
an agreement effective June 30, 1995, the Chesapeake Litigation was
settled resulting in a July 1995 payment of $0.2 million by Chesapeake
Insurance to NVF as full and final settlement of all claims.
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
both June and October 1994 the official committee of NVF's unsecured
creditors filed amended complaints (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. During Transition 1993 the Company
provided approximately $2.3 million in "General and administrative
expenses" with respect to claims related to the NVF Proceeding. In
January 1995 Triarc received an indemnification pursuant to the Posner
Settlement (the "Indemnification") relating to, among other things, the
NVF Litigation and, as such, the Company reversed the remaining accrual
of $0.8 million relating to the NVF Proceeding at that time. In October
1995 the parties to the NVF Litigation entered into a settlement
agreement pursuant to which all claims against the Company were
dismissed. The settlement was approved by the bankruptcy court in
November 1995 and in December 1995, the district court dismissed the NVF
Litigation with prejudice. Accordingly, the NVF Proceeding will have no
impact on the Company's consolidated results of operations or financial
position.
In July 1993 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 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 June
1995 the bankruptcy court confirmed the plaintiffs' plan of
reorganization (the "APL Plan") in the APL Proceeding. The APL Plan
provides, among other things, that the Posner Entities will own all of
the common stock of APL and are authorized to object to claims made in
the APL Proceeding. The APL Plan also provides for the dismissal of the
APL Litigation. Previously, in January 1995 Triarc received the
Indemnification relating to, among other things, the APL Litigation.
The Posner Entities have filed motions asserting that the APL Plan does
not require the dismissal of the APL Litigation. In November 1995, the
bankruptcy court denied the motions, and in March 1996, the court denied
the Posner Entities' motion for reconsideration. The Posner Entities
have filed a motion to extend the time to file a notice of appeal and
have indicated that they intend to appeal. The outcome of the APL
Litigation can only have a favorable effect on the consolidated results
of operations or financial position of the Company.
On December 6, 1995 the three former court-appointed members of the
Special Committee of Triarc's Board of Directors commenced an action in
the Ohio Court seeking, among other things, additional fees of $3.0
million. On February 6, 1996 the court dismissed the action without
prejudice. The plaintiffs have appealed such dismissal. The Company
does not believe that the outcome of this action will have a material
adverse effect on the consolidated financial position or results of
operations of the Company.
In 1987 Graniteville was notified by the South Carolina Department
of Health and Environmental Control ("DHEC") that DHEC 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.
Subsequently, DHEC requested Graniteville to submit a proposal by mid-
April 1995 concerning periodic monitoring of sediment deposition in the
pond. Graniteville submitted its proposal in April 1995. In February
1996 Graniteville responded to the DHEC's request for additional
information on such proposal. 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
apparent conclusion in March 1994 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 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 as well as 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 groundwater
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 indicated its desire to have an
investigation of the Vaucluse Landfill. In April 1995 Graniteville
submitted a conceptual investigation approach to DHEC. Subsequently,
the Company responded to an August 1995 DHEC request that Graniteville
enter into a consent agreement to conduct an investigation indicating
that a consent agreement is inappropriate considering Graniteville's
demonstrated willingness to cooperate with DHEC requests and asked DHEC
to approve Graniteville's April 1995 conceptual investigation approach.
Since an investigation has not yet commenced, Graniteville is currently
unable to estimate the cost, if any, to remediate the landfill. Such
cost could vary based on the actual parameters of the study. The
Company believes that adequate provisions have been made in the current
and prior years for this matter. Accordingly, 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. Remediation has been completed on two
of these sites and is ongoing at seven others. Remediation will
commence on the remaining four ice plants in 1996. 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 is also
required at seven cold storage sites which were sold to the purchaser of
the cold storage operations. Remediation has been completed at one site
and is ongoing at three other sites. Remediation is expected to
commence on the remaining three sites in 1996 and 1997. Such
remediation is being made in conjunction with the purchaser who is
responsible for the first $1.25 million of such costs. In addition,
there are fifteen additional inactive properties of the former
refrigeration business where remediation has been completed or is
ongoing and which have either been sold or are held for sale separate
from the sales of the ice and cold storage operation. Of these, four
were remediated in 1994 at an aggregate cost of $0.5 million and two
were remediated in 1995 at an aggregate cost of $0.2 million. In
addition, during the environmental remediation efforts on idle
properties, SEPSCO became aware that plants on two of the fifteen sites
may require demolition in the future. 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 and demolition will approximate $5.3 million, of which $1.5
million, $2.7 million (including a 1994 reclassification of $0.5
million) and $1.1 million were provided prior to Fiscal 1993, in Fiscal
1993 and in 1994, respectively. In connection therewith, SEPSCO has
incurred actual costs of $3.8 million through December 31, 1995 and has
a remaining accrual of $1.5 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 and
demolition will have a material adverse effect on its consolidated
results of operations or financial position.
In May 1994 National Propane was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. National
Propane purchased the property from a company (the "Successor") which
had purchased the assets of a utility which had previously owned the
property. National Propane believes that the contamination occurred
during the use of the property as a coal gasification plant by such
utility. In order to assess the extent of the problem National Propane
engaged environmental consultants who began work in August 1994. In
December 1994 the environmental consultants provided a report to
National Propane which indicated the estimated range of potential
remediation costs to be between approximately $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
actually required to be implemented. Since no amount within this range
was determined to be a better estimate, National Propane provided a
charge in 1994 of $0.4 million, the minimum gross amount (with no
expected recovery) within the range. In February 1996 the Company's
environmental consultants provided a second report which presented
revised estimated costs, based on additional information obtained since
the prior report and the two most likely remediation methods. The range
of estimated costs for the first method, which involves treatment of
groundwater and excavation, treatment and disposal of contaminated soil,
is from $1.6 million to $3.3 million. The range for the second method,
which involves only treatment of groundwater and the building of a soil
containment wall, is from $0.4 million to $0.75 million. Based on
discussion with National Propane's environmental consultants both
methods are acceptable remediation plans. National Propane, however,
will have to agree on a final plan with the state of Wisconsin.
Accordingly, it is unknown which remediation method will be used. Since
no amount within the ranges can be determined to be a better estimate,
National Propane accrued an additional $.041 million in 1995 in order to
provide for the minimum costs estimated for the second remediation
method and legal fees and other professional costs. The provisions
through December 31, 1995 aggregate $0.456 million and payments through
December 31, 1995 amounted to $.024 million resulting in a remaining
accrual of $0.432 million at that date. National Propane, if found
liable for any of such costs, would attempt to recover such costs from
the Successor. 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 estimates 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 form the Successor, the Company does not believe that the outcome
of this matter will have a material adverse effect on the Company'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 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 $0.56
million to $0.64 million with approximately $0.125 million to $0.145
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 $0.3 million
through December 31, 1995 relating to these environmental matters and
has a remaining accrual of $0.2 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 results
of operations or financial position.
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 results of operations or financial position.
Inflation and Changing Prices
Management believes that inflation did not have a significant
effect on gross margins during the year ended April 30, 1993, the eight-
month period ended December 31, 1993, and the years ended December 31,
1994 and 1995, 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.
Recently Issued Accounting Pronouncements
Effective October 1, 1995 the Company adopted SFAS 121, "Accounting
for Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of". This standard requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of the
impairment measurement requirements under this standard resulted in a
charge of $14.6 million in 1995. (See "Results of Operations" above for
further discussion).
In October 1995 the Financial Accounting Standards Board issued
SFAS 123, "Accounting for Stock-Based Compensation" effective January 1,
1996. SFAS 123 defines a fair value based method of accounting for
employee stock-based compensation and encourages adoption of that method
of accounting but permits accounting under existing accounting
pronouncements. The Company will continue to measure compensation costs
for its employee stock compensation under the intrinsic value method
prescribed by existing accounting pronouncements and accordingly, the
adoption of SFAS 123 will not have any effect on the Company's
consolidated results of operations or financial position.
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report (in connection with the
audits of theconsolidated financialstatements
as of and for each of the twoyears ended
December 31, 1995)
Report of Independent Certified Public Accountants
(in connection with the audits of the
consolidated statements of operations,
additional capital and cashflows for
the year ended April 30,1993 and for
the eight months ended December 31, 1993)
Consolidated Balance Sheets as of December 31,
1994 and 1995
Consolidated Statements of Operations for the
year endedApril 30, 1993, the eight months
ended December 31,1993 and the years ended
December 31, 1994 and 1995
Consolidated Statements of Additional Capital
for the yearended April 30, 1993, the
eight months endedDecember 31, 1993
and the years ended December 31, 1994
and 1995
Consolidated Statements of Cash Flows for
the year endedApril 30, 1993, the
eight months ended December 31,1993
and the years ended December 31, 1994
and 1995
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
TRIARC COMPANIES, INC.:
We have audited the accompanying consolidated statements of
operations, additional capital and cash flows of Triarc Companies, Inc.
and subsidiaries for the year 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 results of operations and cash
flows of Triarc Companies, Inc. and subsidiaries for the year ended
April 30, 1993 and for the eight months ended December 31, 1993 in
conformity with generally accepted accounting principles.
As discussed in Note 23 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.
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 sheets of
Triarc Companies, Inc. and subsidiaries (the "Company") as of December
31, 1994 and 1995, and the related consolidated statements of
operations, additional capital, and cash flows for each of the two years
in the period ended December 31, 1995. 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 audits 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, such consolidated financial statements present
fairly, in all material respects, the financial position of the Company
as of December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the two years in the period ended
December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in
1995 the Company changed its method of accounting for impairment of
long-lived assets and for long-lived assets to be disposed of.
DELOITTE & TOUCHE LLP
New York, New York
March 31, 1996
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
1994 1995
----- -----
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents ($68,700,000 and $45,965,000) $ 80,064 $ 64,205
Restricted cash and cash equivalents (Note 6) 6,804 34,033
Marketable securities (Note 7) 9,453 7,397
Receivables, net (Note 8) 141,377 168,534
Inventories (Note 9) 105,662 118,549
Deferred income tax benefit (Note 17) 6,023 8,848
Prepaid expenses and other current assets 9,766 11,262
------------- -------------
Total current assets 359,149 412,828
Properties, net (Note 10) 306,293 331,589
Unamortized costs in excess of net assets of acquired companies
(Note 11) 202,797 227,825
Trademarks (Note 12) 463 57,146
Deferred costs and other assets (Note 13) 53,465 56,578
------------- -------------
$ 922,167 $ 1,085,966
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 15) $ 52,061 $ 83,531
Accounts payable 59,152 61,908
Accrued expenses (Note 14) 111,792 109,119
------------- -------------
Total current liabilities 223,005 254,558
Long-term debt (Note 15) 612,118 763,346
Insurance loss reserves (Note 30) 10,827 9,398
Deferred income taxes (Note 17) 22,701 24,013
Deferred income and other liabilities 13,505 14,001
Commitments and contingencies (Notes 17, 25 and 26)
Redeemable preferred stock, $12 stated value; designated 5,982,866
shares, issued 5,982,866 shares and none (Note 18) 71,794 --
Stockholders' equity (deficit) (Note 19):
Class A common stock, $.10 par value; authorized 100,000,000 shares,
issued 27,983,805 shares 2,798 2,798
Class B common stock, $.10 par value; authorized 25,000,000 shares,
issued none and 5,997,622 shares -- 600
Additional paid-in capital 79,497 162,020
Accumulated deficit (60,929) (97,923)
Less Class A common stock held in treasury at cost; 4,027,982 and
4,067,380 shares (45,473) (45,931)
Other (7,676) (914)
------------- -------------
Total stockholders' equity (deficit) (31,783) 20,650
------------- -------------
$ 922,167 $ 1,085,966
============= =============
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Eight Months
Year Ended Ended Year Ended December 31,
April 30, December 31, ------------------------------
1993 1993 1994 1995
---- ---- ---- ----
(In thousands except per share amounts)
Revenues:
Net sales $ 1,011,015 $ 668,773 $ 1,011,428 $ 1,128,390
Royalties, franchise fees and other
revenues 47,259 34,768 51,093 55,831
------------- ------------- ------------- -------------
1,058,274 703,541 1,062,521 1,184,221
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales (Note 9) 762,373 496,601 749,930 859,928
Advertising, selling and distribution
(Notes 1 and 32) 72,891 75,006 109,669 129,164
General and administrative (Note 32) 135,193 101,965 125,189 146,842
Reduction in carrying value of long-lived
assets impaired or to be disposed of
(Note 1) -- -- -- 14,647
Facilities relocation and corporate
restructuring (Note 31) 43,000 -- 8,800 2,700
Provision for(recovery of)doubtful
accounts from affiliates and former
affiliates (Notes 29 and 32) 10,358 -- -- (3,049)
------------- ------------- ------------- -------------
1,023,815 673,572 993,588 1,150,232
------------- ------------- ------------- -------------
Operating profit 34,459 29,969 68,933 33,989
Interest expense (Note 32) (72,830) (44,847) (72,980) (84,227)
Other income (expense), net (Notes 20 and 32) 2,430 (7,768) 3,566 12,214
------------- ------------- ------------- -------------
Loss from continuing operations before
income taxes (35,941) (22,646) (481) (38,024)
Provision for (benefit from) income taxes
(Note 17) 8,608 7,793 1,612 (1,030)
------------- ------------- ------------- -------------
Loss from continuing operations (44,549) (30,439) (2,093) (36,994)
Loss from discontinued operations,
net of income taxes and minority
interests (Note 21) (2,430) (8,591) (3,900) --
------------- ------------- ------------- -------------
Loss before extraordinary charges and
cumulative effect of changes in
accounting principles (46,979) (39,030) (5,993) (36,994)
Extraordinary charges (Note 22) (6,611) (448) (2,116) --
Cumulative effect of changes in accounting
principles, net (Note 23) (6,388) -- -- --
------------- ------------- ------------- -------------
Net loss (59,978) (39,478) (8,109) (36,994)
Preferred stock dividend requirements
(Notes 18 and 19) (121) (3,889) (5,833) --
------------- ------------- ------------- -------------
Net loss applicable to common stockholders$(60,099) $ (43,367) $ (13,942) $ (36,994)
============= ============= ============= =============
Loss per share (Note 5):
Continuing operations $ (1.73) $ (1.62) $ (.34) $ (1.24)
Discontinued operations (.09) (.40) (.17) --
Extraordinary charges (.26) (.02) (.09) --
Cumulative effect of changes in accounting
principles (.25) -- -- --
------------- ------------- ------------- -------------
Net loss $ (2.33) $ (2.04) $ (.60) $ (1.24)
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ADDITIONAL CAPITAL
Eight Months
Year Ended Ended Year Ended December 31,
April 30, December 31, ------------------------------
1993 1993 1994 1995
---- ---- ---- ----
(In thousands)
Additional paid-in capital:
Balance at beginning of period $ 37,968 $ 49,375 $ 50,654 $ 79,497
Common stock issued (Note 19):
Excess of book value of redeemable
preferred stock over par value of
common stock issued upon conversion
in connection with the Settlement
Agreement (Note 27) -- -- -- 71,296
Excess of fair value or proceeds over
par value from issuance of common
shares in connection with:
Settlement Agreement (Note 19) -- -- -- 11,915
Change in Control (Note 4) 9,567 -- -- --
Other issuances 53 -- 6 17
Excess (deficiency) of fair value of
shares issued from treasury stock
over average cost of treasury shares in
connection with:
SEPSCO Merger (Note 27) -- -- 25,492 --
Grants of restricted stock 1,800 2,048 601 (8)
Excess of fair value at date of grant of
common shares over the option price for
stock options granted (forfeited) (Note 19) -- 231 3,000 (588)
Costs related to common shares issued in the
SEPSCO Merger (Note 27) -- (1,000) -- --
Other (13) -- (256) (109)
------------- ------------- ------------- -------------
Balance at end of period $ 49,375 $ 50,654 $ 79,497 $ 162,020
============= ============= ============= =============
Retained earnings (accumulated deficit):
Balance at beginning of period $ 53,920 $ (6,067) $ (46,987) $ (60,929)
Net loss (59,978) (39,478) (8,109) (36,994)
Dividends on preferred stock (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 3) -- 1,115 -- --
------------- ------------- ------------- -------------
Balance at end of period $ (6,067) $ (46,987) $ (60,929) $ (97,923)
============= ============= ============= =============
Treasury stock (Note 19):
Balance at beginning of period $ (8,315) $ (77,085) $ (75,150) $ (45,473)
Shares issued for SEPSCO Merger (Note 27) -- -- 30,364 --
Grants of restricted stock 3,024 1,935 775 76
Purchases of common shares in open market
transactions -- -- (1,025) (489)
Common shares acquired in exchange for
redeemable preferred stock (Note 18) (71,794) -- -- --
Other -- -- (437) (45)
------------- ------------- ------------- -------------
Balance at end of period $ (77,085) $ (75,150) $ (45,473) $ (45,931)
============= ============= ============= =============
Other (Note 19):
Balance at beginning of period $ 177 $ (4,408) $ (7,296) $ (7,676)
Unearned compensation resulting from:
Grants of restricted stock (4,824) (3,983) (1,376) (68)
Amortization of restricted stock:
Scheduled amortization -- 1,503 3,357 1,950
Accelerated vesting -- -- -- 3,331
Forfeiture (grant) of below market
stock options -- -- (3,000) 319
Amortization of below market stock
options granted -- -- 907 761
Other -- -- -- 110
Net unrealized gains (losses) on
marketable securities(Note 7) 239 (408) (268) 359
------------- ------------- ------------- -------------
Balance at end of period $ (4,408) $ (7,296) $ (7,676) $ (914)
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Eight Months
Year Ended Ended Year Ended December 31,
April 30, December 31, ------------------------------
1993 1993 1994 1995
---- ---- ---- ----
(In thousands)
Cash flows from operating activities:
Net loss $ (59,978) $ (39,478) $ (8,109) $ (36,994)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization of properties 31,196 20,961 33,901 38,893
Amortization of costs in excess of net
assets of acquired companies 6,785 4,023 6,655 8,008
Amortization of original issue discount,
deferred financing costs and unearned
compensation 6,396 7,113 10,986 13,329
Reduction in carrying value of long lived-assets -- -- -- 14,647
Equity in losses and write-off of investments
in affiliates -- -- -- 7,794
Provision for doubtful accounts (including
amounts due from affiliates and former
affiliates) 14,141 1,659 1,021 4,067
Provision for facilities relocation and
corporate restructuring 43,000 -- 8,800 2,700
Payments on facilities relocation and
corporate restructuring (5,318) (8,074) (14,701) (4,545)
Gain on sales of assets, net (2,974) (1,006) (7,018) (11,164)
Deferred income tax benefit (4,867) (1,831) (5,093) (1,513)
Interest expense capitalized and not paid -- -- 3,247 3,271
Reduction in commuted insurance
liabilities credited against note payable -- -- -- (3,000)
Decrease in insurance loss reserves (7,459) (1,921) (2,684) (1,429)
Minority interests, net of dividends paid (3,607) (223) 1,292 --
Loss from discontinued operations 2,430 8,591 3,900 --
Cumulative effect of changes in accounting
principles 6,388 -- -- --
Write-off of deferred financing costs and
original issue discount, net of
redemption discount 3,741 689 3,498 --
Other, net 5,092 3,363 (572) 3,407
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash
and cash equivalents 2,611 (2,439) 548 (27,229)
Decrease (increase) in restricted cash
and short-term investments of
insurance operations 8,186 (5,774) -- --
Decrease (increase) in receivables 1,143 (14,707) (18,079) (12,812)
Decrease (increase) in inventories 12,862 (13,839) 2,544 (2,484)
Decrease (increase) in prepaid expenses
and other current assets (7,425) (7,820) 2,776 (677)
Increase (decrease) in accounts payable
and accrued expenses (15,936) 23,944 (29,196) (9,453)
------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 36,407 (26,769) (6,284) (15,184)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired
of $2,067,000 in 1995 -- (692) (18,790) (111,204)
Proceeds from sales of non-core businesses
and properties 39,464 45,081 39,077 19,599
Capital expenditures (23,758) (28,617) (61,639) (69,974)
Purchases of marketable securities -- -- (10,308) (27,490)
Proceeds from sales of marketable securities -- -- 11,033 29,805
Investments in affiliates -- -- (7,368) (6,340)
Purchase of minority interests (17,200) -- -- --
Other 2,100 -- (633) --
------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities 606 15,772 (48,628) (165,604)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt 396,595 290,902 121,232 208,871
Repayments of long-term debt (329,332) (246,903) (90,899) (31,953)
Deferred financing costs (25,820) (4,673) (5,573) (9,244)
Decrease in short-term debt (14,745) -- -- --
Issuance of class A common stock 9,650 -- -- --
Payment of preferred dividends (9) (2,557) (5,833) --
Other -- -- (1,281) (1,226)
------------- ------------- ------------- -------------
Net cash provided by financing
activities 36,339 36,769 17,646 166,448
------------- ------------- ------------- -------------
Net cash provided by (used in) continuing operations73,352 25,772 (37,266) (14,340)
Net cash provided by (used in) discontinued operations2,769 136 (1,471) (1,519)
Net cash of certain subsidiaries used during the
period reported as a direct credit to
accumulated deficit (see Note 3) -- (3,742) -- --
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents 76,121 22,166 (38,737) (15,859)
Cash and cash equivalents at beginning
of period 20,514 96,635 118,801 80,064
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ 96,635 $ 118,801 $ 80,064 $ 64,205
============= ============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense $ 61,475 $ 28,472 $ 64,634 $ 73,918
============= ============= ============= =============
Income taxes, net $ 17,156 $ 11,288 $ 5,925 $ 6,911
============= ============= ============= =============
Supplemental schedule of noncash investing and
financing activities:
Total capital expenditures $ 27,207 $ 33,339 $ 65,831 $ 71,220
Amounts representing capitalized leases
and other secured financing (3,449) (4,722) (4,192) (1,246)
------------- ------------- ------------- -------------
Capital expenditures paid in cash $ 23,758 $ 28,617 $ 61,639 $ 69,974
============= ============= ============= =============
<FN>
Due to their noncash nature, the following transactions are also not
reflected in the respective consolidated statements of cash flows:
Pursuant to a settlement agreement, in January 1995 Triarc issued
4,985,722 shares of its Class B Common Stock in exchange for all of its
then outstanding redeemable convertible preferred stock owned by an
affiliate of Victor Posner, the former Chairman and Chief Executive
Officer of Triarc ("Posner"), resulting in a decrease in redeemable
preferred stock of $71,794,000 and equal aggregate increases in Class B
Common Stock of $498,000 and additional paid-in capital of $71,296,000.
Further, an additional 1,011,900 shares of Class B Common Stock valued
at $12,016,000 were issued to entities controlled by Posner pursuant to
such agreement in settlement of, among other matters, a $12,326,000
previously accrued liability owed to an affiliate of Posner, resulting
in a gain of $310,000. See Note 29 to the consolidated financial
statements for further discussion.
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 27 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 30 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. 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.
</FN>
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(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, 1995, 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), Mistic Brands, Inc. ("Mistic" - acquired August 9,
1995) 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 principal wholly-
owned subsidiaries Arby's, Inc. ("Arby's") and Royal Crown Company, Inc.
("Royal Crown"). Additionally, RCAC has three wholly-owned subsidiaries
which own and/or operate Arby's restaurants, Arby's Restaurant
Development Corporation ("ARDC"), Arby's Restaurant Holding Company
("ARHC") and Arby's Restaurant Operations Company. All significant
intercompany balances and transactions have been eliminated in
consolidation. See Note 3 for periods included in the consolidated
financial statements prior to 1995, Note 28 for a discussion of the
Mistic acquisition and Note 27 for a discussion of the merger
consummated on April 14, 1994 pursuant to which Triarc acquired the
remaining 28.9% of SEPSCO that it did not already own.
Financial Statement Periods
As used herein Fiscal 1993 and Transition 1993 refer to the year
ended April 30, 1993 and the eight months ended December 31, 1993,
respectively (see Note 3), and 1994 and 1995 refer to the years ended
December 31, 1994 and 1995, respectively.
Cash Equivalents
All highly liquid investments with a maturity of three months or less
when acquired are considered cash equivalents. The Company typically
invests its excess cash in repurchase agreements with high credit-
quality financial institutions and commercial paper of high credit-
quality entities. 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 Financing 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' equity (deficit).
Prior to January 1, 1994 the Company accounted for its marketable
securities in accordance with SFAS 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 (51%
of inventories as of December 31, 1995) or the last-in, first-out
("LIFO") basis (49% of inventories) (see Note 9).
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 8 years for transportation
equipment; 3 to 30 years for machinery and equipment; and 14 to 60 years
for buildings and improvements. 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.
Amortization of Intangibles
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. 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.
Impairments
Intangible Assets
Trademarks are being amortized on the straight-line basis principally
over 15 years. The amount of impairment, if any, in unamortized
Goodwill and trademarks is measured based on projected future results of
operations. To the extent future results of operations of those
subsidiaries to which the Goodwill and trademarks relate through the
period such Goodwill and trademarks are being amortized are sufficient
to absorb the related amortization, the Company has deemed there to be
no impairment of Goodwill or trademarks.
Long-Lived Assets
Effective October 1, 1995 the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This
standard requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In connection with such
evaluation, the Company recognized a provision of $14,647,000 in its
restaurant segment consisting of a $12,019,000 reduction in the net
carrying value of certain restaurants and other restaurant-related long-
lived assets which were determined to be impaired and a $2,628,000
reduction to a net carrying value of $975,000 of certain restaurants and
related equipment to be disposed principally during 1996. Such
provision reduced the cost and accumulated depreciation and amortization
of properties by $20,908,000 and $8,483,000, respectively, unamortized
costs in excess of net assets acquired and accumulated amortization
thereof by $1,466,000 and $206,000, respectively, and deferred costs and
other assets by $962,000 to reflect the fair value of the respective
assets. The fair value was generally determined by applying a fair
market capitalization rate to the estimated expected future annual cash
flows. The results of operations of the restaurants to be disposed
resulted in a pre-tax loss of $806,000 for the year ended December 31,
1995.
Derivative Financial Instrument
The Company has an interest rate swap agreement entered into in order
to synthetically alter the interest rate of certain of the Company's
fixed-rate debt (see Note 15). The Company calculates the estimated
remaining amount to be paid or received under the interest rate swap
agreement for the period from the periodic settlement date immediately
prior to the financial statement date through the end of the agreement
based on the interest rate applicable at the financial statement date
and recognizes such amount which applies to the period from the last
periodic settlement date through the financial statement date as a
component of interest expense. The recognition of gain or loss from the
interest rate swap agreement is effectively correlated with the
underlying debt. The payment received at the inception of the
agreement, which was deemed to be a fee to induce the Company to enter
into the agreement, is being amortized over the full life of the
agreement since the Company was not at risk for any gain or loss on such
payment.
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 impacted the Company's accounting for advertising
production costs. 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 $58,313,000, $58,723,000, $86,091,000 and
$101,251,000 for Fiscal 1993, Transition 1993, 1994 and 1995,
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 $2,001,000, $1,338,000,
$1,632,000 and $3,197,000 for Fiscal 1993, Transition 1993, 1994 and
1995, respectively.
Income Taxes
The Company files a consolidated Federal income tax return with its
80% or greater owned subsidiaries, National Propane, CFC Holdings,
Mistic and, since April 14, 1994, Graniteville and SEPSCO. Graniteville
(prior to April 14, 1994), SEPSCO (prior to April 14, 1994) 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%,
7% and 6% of consolidated revenues for Fiscal 1993, Transition 1993,
1994 and 1995, 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.
Insurance Loss Reserves
Insurance loss reserves include reserves for incurred but not
reported claims of $2,834,000 and $2,056,000 as of December 31, 1994 and
1995, respectively. Such reserves for current and former affiliated
company business are based on either actuarial studies using historical
loss experience or the Company's calculations when historical loss
information is not available. 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 1, 1993 (see Note 30).
Reclassifications
Certain amounts included in the prior periods' consolidated financial
statements have been reclassified to conform with the current year's
presentation.
(2)Significant Risks and Uncertainties
Nature of Operations
The Company is a holding company which, is engaged in four lines of
business (each with the indicated percentage of the Company's
consolidated revenues): restaurants (23%), beverages (18%), textiles
(46%) and propane (13%).
The restaurant segment primarily operates and franchises Arby's quick
service restaurants representing the largest franchise restaurant system
specializing in roast beef sandwiches. The beverage segment produces
and sells a broad selection of carbonated beverages and concentrates
under the principal brand names RC COLA, DIET RC, ROYAL CROWN, ROYAL
CROWN DRAFT COLA, DIET RITE, NEHI, NEHI LOCKJAW, UPPER 10, KICK, C&C and
THIRST THRASHER and commencing August 9, 1995 (see Note 28) "new age"
beverages and ready-to-drink brewed iced teas under the principal brand
names MISTIC and ROYAL MISTIC. The textile segment manufactures, dyes
and finishes cotton, synthetic and blended (cotton and polyester)
apparel fabrics principally for (i) utility wear and (ii) sportswear,
casual wear and outerwear, as well as produces and markets dyes and
specialty chemicals primarily for the textile industry.The propane
segment distributes and sells propane for residential, agricultural,
commercial, industrial and wholesale uses which include space heating,
cooking and engine fuel. The Company's operations principally are
throughout the United States.
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Significant Estimates
The Company's significant estimates are for costs related to (i)
insurance loss reserves (see Notes 1 and 30), (ii) provisions for
examinations of its income tax returns by the Internal Revenue Service
(see Note 17), (iii) provisions for impairment of long-lived assets and
for long-lived assets to be disposed of (see Note 1) and (iv) provisions
for environmental and other legal contingencies (see Note 26).
Certain Risk Concentrations
The Company's vulnerability to risk concentrations related to
significant customers and vendors, products sold and sources of its raw
materials, are mitigated due to the diversification of the segments, of
which none account for more than 46% of consolidated revenues. Risk of
geographical concentration is also minimized since each of the segments
generally operates throughout the United States with minimal foreign
exposure.
(3)Change in Fiscal Year
For Fiscal 1993 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. The fiscal years
of Graniteville, National Propane and SEPSCO were also so changed.
Triarc's majority-owned subsidiaries are included in 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 statement of operations for Fiscal 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
(4)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.
(5)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 through 1994) by the weighted average
number of outstanding shares of common stock during the period. Such
weighted averages were 25,808,000, 21,260,000, 23,282,000 and 29,764,000
for Fiscal 1993, Transition 1993, 1994 and 1995, 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. Fully
diluted loss per share is not applicable since the inclusion of
contingent shares would also be antidilutive.
(6)Restricted Cash and Cash Equivalents
The following is a summary of the components of restricted cash and
cash equivalents (in thousands):
December 31,
-----------------------------
1994 1995
----- -----
Borrowings restricted to the February 22, 1996 redemption of
long-term debt (Note 15) $ -- $ 30,000
Deposits securing letters of credit (a) 5,762 3,533
Indemnity escrow account relating to sale of business (Note 20) 750 500
Collateral account for purchases of equipment 292 --
-------------- --------------
$ 6,804 $ 34,033
============== ==============
<FN>
(a) Deposits secure outstanding letters of credit principally for
the purpose of securing certain performance and other bonds and
payments due under leases.
</FN>
(7)Marketable Securities
The Company's marketable securities are stated at fair value. The
cost and fair value of the Company's marketable securities at
December 31, 1994 and 1995, are as follows (in thousands):
1994 1995
-------------------------- -----------------------
Cost Fair Value Cost Fair Value
----- ------------ ----- ------------
Equity securities $ 352 $ 318 $ 661 $ 701
Corporate debt securities (a) 9,430 9,083 5,732 5,808
Debt securities issued by
foreign governments 53 52 873 888
------------ ------------ ------------ ------------
$ 9,835 $ 9,453 $ 7,266 $ 7,397
============ ============ ============ ============
<FN>
(a) Contractual maturity dates through 2025.
</FN>
The Company realized a net loss from the sales of marketable
securities of $135,000 and $254,000 for the years ended December 31,
1994 and 1995, respectively, which is included in "Other income
(expense) net" in the consolidated statement of operations. The Company
had a net unrealized loss of $260,000 (net of income tax benefit of
$122,000) and a net unrealized gain of $99,000 (net of an income tax
provision of $32,000) as of December 31, 1994 and 1995, respectively.
(8)Receivables, net
The following is a summary of the components of receivables (in
thousands):
December 31,
------------------------------
1994 1995
----- -----
Receivables:
Trade $ 138,535 $ 160,920
Other 8,232 14,558
------------- -------------
146,767 175,478
Less allowance for doubtful accounts (trade) 5,390 6,944
------------- -------------
$ 141,377 $ 168,534
============= =============
<FN>
Substantially all receivables are pledged as collateral for certain debt (see Note 15).
</FN>
(9)Inventories
The following is a summary of the components of inventories (in
thousands):
December 31,
------------------------------
1994 1995
----- -----
Raw materials $ 26,490 $ 40,195
Work in process 7,803 6,976
Finished goods 71,369 71,378
------------- -------------
$ 105,662 $ 118,549
============= =============
The current cost of LIFO inventories exceeded the carrying value
thereof by approximately $4,653,000 and $8,739,000 at December 31, 1994
and 1995, respectively. In 1994 and 1995 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 and $1,206,000,
respectively. Liquidations of LIFO inventory quantities in Fiscal 1993
and Transition 1993, if any, were not significant.
Substantially all inventories are pledged as collateral for certain
debt (see Note 15).
(10) Properties
The following is a summary of the components of properties, at cost
(in thousands):
December 31,
------------------------------
1994 1995
----- -----
Land $ 29,714 $ 32,441
Buildings and improvements and leasehold improvements 124,606 147,505
Machinery and equipment 316,264 329,886
Transportation equipment 18,024 27,262
Leased assets capitalized 26,501 19,296
------------- -------------
515,109 556,390
Less accumulated depreciation and amortization 208,816 224,801
------------- -------------
$ 306,293 $ 331,589
============= =============
<FN>
Substantially all properties are pledged as collateral for certain debt (see Note 15).
</FN>
(11)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,
------------------------------
1994 1995
----- -----
Costs in excess of net assets of acquired companies (Notes 27
and 28) $ 258,150 $ 290,630
Less accumulated amortization 55,353 62,805
-------------- -------------
$ 202,797 $ 227,825
============== =============
(12) Trademarks
The following is a summary of the components of trademarks (in
thousands):
December 31,
------------------------------
1994 1995
----- ----
Trademarks (Note 28) $ 558 $ 59,021
Less accumulated amortization 95 1,875
-------------- --------------
$ 463 $ 57,146
============= =============
(13) Deferred Costs and Other Assets
The following is a summary of the components of deferred costs and
other assets (in thousands):
December 31,
------------------------------
1994 1995
----- ----
Deferred financing costs $ 36,558 $ 45,802
Other 26,914 27,259
------------- -------------
63,472 73,061
Less accumulated amortization of deferred financing costs 10,007 16,483
------------- -------------
$ 53,465 $ 56,578
============= =============
(14) Accrued Expenses
The following is a summary of the components of accrued expenses
(in thousands):
December 31,
------------------------------
1994 1995
----- -----
Accrued interest $ 24,428 $ 27,370
Accrued compensation and related benefits 23,351 23,181
Accrued advertising and marketing 12,483 12,901
Facilities relocation and corporate restructuring 22,773 8,249
Net current liabilities of discontinued operations (Note 21) 3,577 3,462
Other 25,180 33,956
------------- -------------
$ 111,792 $ 109,119
============= =============
(15) Long-Term Debt
Long-term debt consisted of the following (in thousands):
December 31,
------------------------------
1994 1995
----- ----
9 3/4% senior secured notes due 2000 (a) $ 275,000 $ 275,000
Graniteville Credit Facility, bearing interest at prime or
LIBOR based rates due through 2000 (b):
Revolving loan (weighted average interest rate of 8.95% at
December 31, 1995) 103,038 113,435
Term loan (weighted average interest rate of 9.20% at
December 31, 1995) 61,000 85,200
Propane Bank Facility, bearing interest at prime, Federal funds or
LIBOR based rates due through 2003 (c):
Revolving loan (weighted average interest rate of 8.09% at
December 31, 1995) 10,500 43,229
Term loan (weighted average interest rate of 8.81% at December
31, 1995) 90,000 84,083
11 7/8% senior subordinated debentures due February 1, 1998, repaid in
February 1996 (less unamortized original issue discount of $3,003
and $1,920) (d) 50,997 43,080
Mistic Bank Facility, bearing interest at prime, Federal funds or
LIBOR based rates due through 2001 (e)
Revolving loan (weighted average interest rate of 8.68% at
December 31, 1995) -- 6,500
Term loan (weighted average interest rate of 8.69% at
December 31, 1995) -- 58,750
Mortgage notes payable to FFCA Acquisition Corporation
("FFCA"), weighted average interest rate of 11.30% as
of December 31, 1995, due through 2015 (f) -- 51,685
Equipment notes payable to FFCA, weighted average interest
rate of 11.17% at December 31, 1995, due through 2002 (f) -- 6,545
9 1/2% promissory note, due through 2003 (g) 37,426 37,697
Notes, bearing interest at 6.9% to 13 1/2%, due through 2002
secured by equipment 10,018 13,651
Capitalized lease obligations 17,340 19,143
Other 8,860 8,879
------------- -------------
Total debt 664,179 846,877
Less amounts payable within one year 52,061 83,531
------------- -------------
$ 612,118 $ 763,346
============= =============
Aggregate annual maturities of long-term debt, including
capitalized lease obligations, are as follows as of December 31, 1995
(in thousands):
Year Ending December 31,
------------------------
1996 $ 85,451
Less unamortized original issue discount (d) 1,920
-------------
83,531
1997 44,059
1998 44,422
1999 45,064
2000 457,033
Thereafter 172,768
-------------
$ 846,877
=============
<FN>
(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") (5.53% at
December 31, 1995) 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
secured 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 and during 1995 paid
$2,271,000 in connection with such year's two six-month reset
periods. RCAC subsequently paid $505,000 for the six-month period
ended January 31, 1996 resulting from the Floating Rate in effect
on such date of 5.34%. If such Floating Rate remains fixed at
5.34% throughout the remaining life of the Swap Agreement, RCAC
would pay an additional $591,000 for the period from February 1,
1996 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 wholly-owned subsidiary, C.H. Patrick &
Co., Inc., have a senior secured credit facility with
Graniteville's commercial lender which, as amended in August 1995,
provides for aggregate borrowings of $216,000,000 consisting of
senior secured revolving credit loans of up to $130,000,000 (the
"Revolving Loan") and an $86,000,000 senior secured term loan (the
"Term Loan") of which $85,200,000 (net of a repayment of $800,000
in 1995) is outstanding as of December 31, 1995 and expires in 2000
(the "Graniteville Credit Facility"). The Revolving Loan does not
require any amortization of principal prior to its expiration in
2000 (see further discussion below). Borrowings under the
Revolving Loan bear interest, at Graniteville's option, at either
the prime rate (8 1/2% at December 31, 1995) plus 1% per annum or
the 90-day LIBOR rate (5.66% at December 31, 1995) plus 2 3/4% per
annum. The borrowing base for the Revolving Loan is the sum of 95%
(90% effective August 3, 1996) of accounts receivable ("Other
Receivables") which are credit-approved by the lender ("Credit
Approved Receivables"), and 90% (85% effective August 3, 1996) of
all other eligible accounts receivable provided that advances
against Other Receivables shall not exceed $18,000,000 at any one
time, plus 65% of eligible inventory, provided that advances
against eligible inventory shall not exceed $42,000,000 at any one
time. Graniteville, in addition to the aforementioned interest,
pays a commission of 0.35% (the "Commissions") 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 Company
is subject to minimum monthly Commissions of $100,000 (the "Minimum
Commissions") through April 1999. The Term Loan is repayable
$11,600,000 in 1996, $12,400,000 per year from 1997 through 1999
and $36,400,000 due in 2000. However, should the sale of
substantially all of the textile assets of the Company be
consummated in 1996 (see Note 35), all outstanding obligations
under the Graniteville Credit Facility would be required to be
repaid concurrently with any such sale. In the event Graniteville
prepays the Term Loan prior to August 3, 1998, Graniteville would
incur a prepayment penalty based on the amount prepaid of 2%
through August 3, 1996, reducing to 1% through August 3, 1997 and
to 1/2% through August 3, 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 years ended December 31, 1994 and 1995.
The Term Loan bears interest, at Graniteville's option, at the
prime rate plus 1 1/2% per annum or the 90-day LIBOR rate plus 3
1/4% per annum. When the unpaid principal balance of the Term Loan
is less than or equal to $72,000,000, the LIBOR option thereon will
be reduced to the 90-day LIBOR plus 3% and when the unpaid
principal balance of the Term Loan is less than or equal to
$57,000,000, the LIBOR option thereon will be reduced to LIBOR plus
2 3/4%. LIBOR loans are limited to 75% of the total Revolving Loan
borrowings and the entire Term Loan borrowings less the amount of
the next two quarterly payments.
(c) National Propane maintains a $150,000,000 revolving credit and
term loan facility entered into in October 1994 with a group of
banks which, as amended March 1995, consists of a revolving credit
facility with a current maximum availability as of December 31,
1995 of $57,167,000 (net of reductions of availability of
$2,833,000 as of December 31, 1995) and outstanding borrowings of
$43,229,000 and three tranches of term loans with an original
availability of $90,000,000 and outstanding amounts aggregating
$84,083,000 (net of repayments through December 31, 1995 of
$5,917,000) as of December 31, 1995 (the "Propane Bank Facility").
The approximate $13,900,000 of remaining availability under the
revolving credit facility is restricted for acquisitions by
National Propane (the "Acquisition Sublimit"); however, National
Propane is not currently able to borrow under the Acquisition
Sublimit due to debt covenant limitations. Any borrowings under
the Acquisition Sublimit would convert to term loans in October
1997 and be due in equal installments from December 1997 through
2000. Borrowings under the Propane Bank Facility bear interest, at
National Propane's option, at rates based either on 30, 60, 90 or
180-day LIBOR (ranging from 5.53% to 5.72% at December 31, 1995) 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, 1995). Revolving loans bear interest at 2 1/4% over
LIBOR or 1% over ABR. The aggregate availability of revolving
loans (assuming full availability under the Acquisition Sublimit)
reduces by $3,000,000 in 1996, $15,896,000 (including $12,813,000
of then remaining availability under the Acquisition Sublimit which
converts to term loans) in 1997, $3,958,000 in 1998, $4,042,000 in
1999 with the remaining availability of $30,271,000 maturing in
2000 (see further discussion below). 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 $84,083,000 outstanding amount
of such loans at December 31, 1995 amortizes $6,250,000 in 1996,
$6,417,000 in 1997, $8,167,000 in 1998, $8,333,000 in 1999,
$10,291,000 in 2000 and $44,625,000 thereafter (through 2003).
However, should the initial public offering of 51.8% of the equity
of a master limited partnership formed to acquire, own and operate
the Company's propane business and the placement of $120,000,000 of
first mortgage notes be consummated in 1996 (see Note 35), all
outstanding obligations under the Propane Bank Facility would be
repaid currently with any such offering and placement.
(d) On February 22, 1996 the 11 7/8% senior subordinated
debentures due February 1, 1998 (the "11 7/8% Debentures") were
redeemed. The cash for such redemption came from the proceeds of
$30,000,000 of borrowings, which were restricted to the redemption
of the 11 7/8% Debentures, under the Propane Bank Facility,
liquidation of marketable securities and existing cash balances.
The redemption prior to maturity of the 11 7/8% Debentures will
result in an extraordinary charge for the write-off of unamortized
deferred financing costs and original issue discount, net of income
tax benefit, of $1,387,000 during the first quarter of 1996.
(e) On August 9, 1995 Mistic entered into an $80,000,000 credit
agreement (the "Mistic Bank Facility") with a group of banks. The
Mistic Bank Facility consists of a $20,000,000 revolving credit
facility and a $60,000,000 term facility. Borrowings under the
Mistic Bank Facility bore interest at the prime rate through
October 16, 1995 and thereafter, at Mistic's option, at rates based
either on 30, 60, 90 or 180-day LIBOR plus 2 3/4% or a rate equal
to 1 1/2% plus the higher of the Federal funds rate plus 1/2% or
the prime rate. Borrowings under the revolving credit facility are
due in full in August 1999. However, Mistic must reduce the
borrowings under the revolving credit facility for a period of
thirty consecutive days between October 1 and March 31 of each year
to less than or equal to (a) $7,000,000 between October 1, 1995 and
March 31, 1996, (b) $5,000,000 between October 1, 1996 and March
31, 1997 and (c) $0 between October 1 and the following March 31
for each of the two years thereafter (such requirement has been met
as of December 31, 1995 for the period between October 1, 1995 and
March 31, 1996). Mistic must also make mandatory prepayments in an
amount equal to 75% (for the years ended December 31, 1996 and
1997) and 50% (thereafter) of excess cash flow, as defined. The
term facility amortizes $5,000,000 in 1996, $6,250,000 in 1997,
$10,000,000 in 1998, $11,250,000 in 1999, $15,000,000 in 2000 and
$11,250,000 in 2001. The borrowing base for the revolving credit
facility is the sum of 80% of eligible accounts receivable and 50%
of eligible inventory, both as defined.
(f) During 1995 ARDC and ARHC entered into loan and financing
agreements with FFCA Acquisition Corporation ("FFCA") which, as
amended, permit borrowings in the form of mortgage notes (the
"Mortgage Notes") and equipment notes (the "Equipment Notes")
aggregating $87,294,000 (the "FFCA Loan Agreements"). The Mortgage
Notes and Equipment Notes bear interest at rates in effect at the
time of the borrowings ranging from 10 1/2% to 11 1/2% plus, with
respect to the Mortgage Loans, participating interest to the extent
gross sales of the financed restaurants exceed certain defined
levels which are in excess of current levels. The Mortgage Loans
and Equipment Loans are repayable in equal monthly installments,
including interest, over twenty years and seven years,
respectively. As of December 31, 1995, aggregate borrowings under
the FFCA Loan Agreements aggregated $58,670,000 (including
repayments of $440,000) resulting in remaining availability of
$28,624,000 through December 31, 1996 to finance new company-owned
restaurants whose sites are identified to FFCA by April 30, 1996 on
terms similar to those of outstanding borrowings. The assets of
ARDC of approximately $50,000,000 will not be available to pay
creditors of Triarc, RCAC or Arby's until all loans under the FFCA
Loan Agreements have been repaid in full.
(g) Effective December 31, 1993 Triarc issued to National Union
Fire Insurance Company of Pittsburgh, PA ("National Union") a 9
1/2% promissory note payable in the original principal amount of
$34,179,000 (the "National Union Note"). Interest was payable in
additional principal through December 31, 1995 and accordingly
$3,247,000 and $3,269,000, was added to the principal of such note
in 1994 and 1995, respectively. Commencing in 1996, interest will
be substantially on a cash basis. If the settlement of certain
insurance liabilities commuted in connection with the issuance of
the National Union Note (see Note 30) did not exceed certain
predetermined levels, the amounts paid for such commutation would
be reduced by up to $3,000,000 in each of 1995 and 1996. In
accordance therewith, the Company received a $3,000,000 credit in
1995 in the form of a reduction in the principal of the National
Union Note and recorded such amount as a reduction of "General and
administrative". Before consideration of a similar reduction in
1996, if any, the National Union Note is due $5,274,000 in 1996,
$3,880,000 in 1997, $2,546,000 in 1998, $1,712,000 in 1999,
$702,000 in 2000 and $23,583,000 thereafter through 2003.
Under the Company's various debt agreements substantially all of
the Company's assets are pledged as security. In addition, obligations
under (i) the 9 3/4% Senior Notes have been guaranteed by Royal Crown
and Arby's, (ii) the Graniteville Credit Facility, the Propane Bank
Facility, the Mistic Bank Facility and (iii) $21,342,000 million of
borrowings under the FFCA Loan Agreements have been guaranteed by
Triarc. As collateral for such guarantees, all of the stock of Royal
Crown, 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, Mistic 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, 1995 Graniteville and Mistic were not in
compliance with certain of the covenants of their respective credit
facilities. In March 1996 both Graniteville and Mistic received waivers
and amendments to the Graniteville Credit Facility and Mistic Bank
Facility amending covenants such that both Graniteville and Mistic
expect to be in compliance through December 31, 1996.
As of December 31, 1995 National Propane had $5,000,000 available
for the payment of dividends; however, National Propane is effectively
prevented from paying dividends due to the restrictions of its financial
amount and ratio tests. At December 31, 1995, SEPSCO was unable to pay
any dividends; however following the February 22, 1996 redemption of the
11 7/8% Debentures, such restriction has been eliminated. As of
December 31, 1995 Mistic is unable to pay any dividends and
Graniteville, based on scheduled term loan repayments, is unable to pay
any dividends prior to December 31, 1998. 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, 1995
RCAC was unable to pay any dividends or make any loans or advances to
CFC Holdings.
</FN>
(16)Fair Value of Financial Instruments
The carrying amounts and fair values of the Company's financial
instruments for which such amounts differ in total are as follows (in
thousands):
December 31,
--------------------------------------------------------
1994 1995
-------------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- -------
Long-term debt (Note 15):
9 3/4% Senior Secured Notes $ 275,000 $ 245,000 $ 275,000 $ 226,000
Graniteville Credit Facility 164,038 164,038 198,635 198,635
Propane Bank Facility 100,500 100,500 127,312 127,312
11 7/8% Debentures 50,997 53,500 43,080 45,000
Mistic Bank Facility -- -- 65,250 65,250
FFCA Loan Agreements -- -- 58,230 61,264
National Union Note 37,426 28,600 37,697 36,128
Other long-term debt 36,218 36,218 41,673 41,673
------------- ------------- ------------- -------------
$ 664,179 $ 627,856 $ 846,877 $ 801,262
============= ============= ============= =============
Swap Agreement (liability) (Note 15) $ (1,566) $ (8,300) $ (684) $ (896)
============= ============= ============= =============
The fair values of the 9 3/4% Senior Notes are based on quoted
market prices at the respective reporting dates. Since all then
outstanding 11 7/8% Debentures were redeemed at par on February 22,
1996, the aggregate par value as of December 31, 1995 was assumed to
approximate fair value. The fair value of the 11 7/8% Debentures at
December 31, 1994 was based on a recently quoted market price as of that
date. The fair value of the Mortgage Notes and Equipment Notes under
the FFCA Loan Agreements at December 31, 1995 was determined by
discounting the future monthly payments using the rate of interest
available under such agreements at December 31, 1995. The fair values
of the National Union Note as of December 31, 1994 and 1995 were
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 values of the revolving loans and the term loans under the
Graniteville Credit Facility and the Propane Bank Facility at December
31, 1994 and 1995 and the Mistic Bank Facility at December 31, 1995
approximated their carrying values due to their floating interest rates.
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 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.
(17)Income Taxes
The loss from continuing operations before income taxes consisted
of the following components (in thousands):
Fiscal Transition
1993 1993 1994 1995
----- ----- ----- -----
Domestic $ (35,795) $ (24,545) $ (2,951) $ (36,076)
Foreign (146) 1,899 2,470 (1,948)
------------- ------------- ------------- -------------
$ (35,941) $ (22,646) $ (481) $ (38,024)
============= ============= ============= =============
The provision (benefit) for income taxes from continuing operations
consists of the following components (in thousands):
Fiscal Transition
1993 1993 1994 1995
----- ----- ----- -----
Current:
Federal $ 9,994 $ 7,676 $ 2,167 $ (965)
State 3,232 761 2,310 1,091
Foreign 249 1,187 2,228 357
------------- ------------- ------------- -------------
13,475 9,624 6,705 483
------------- ------------- ------------- -------------
Deferred:
Federal (3,094) (4,240) (4,985) (69)
State (1,773) 690 645 (1,444)
Foreign -- 1,719 (753) --
------------- ------------- ------------- -------------
(4,867) (1,831) (5,093) (1,513)
------------- ------------- ------------- -------------
Total $ 8,608 $ 7,793 $ 1,612 $ (1,030)
============= ============= ============= =============
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,
---------------------------
1994 1995
----- -----
Current deferred income tax assets (liabilities):
Accrued employee benefit costs $ 6,336 $ 4,799
Allowance for doubtful accounts 1,940 2,474
Facilities relocation and corporate restructuring 2,326 2,221
Reserve for income tax contingencies (970) (970)
Other, net (1,810) 2,123
------------- -------------
7,822 10,647
Less valuation allowance 1,799 1,799
------------- -------------
6,023 8,848
------------- -------------
Non-current deferred income tax assets (liabilities):
Depreciation and other properties basis differences (39,054) (36,328)
Reserve for income tax contingencies and other
tax matters (16,461) (26,065)
Net operating loss and alternative minimum tax credit carryforward 38,810 41,524
Insurance losses not deducted 7,061 7,061
Other, net 4,581 7,433
------------- -------------
(5,063) (6,375)
Less valuation allowance 17,638 17,638
------------- -------------
(22,701) (24,013)
------------- -------------
$ (16,678) $ (15,165)
============= =============
As of December 31, 1995 Triarc had net operating loss carryforwards
for Federal income tax purposes of approximately $89,000,000, of which
$37,000,000 is subject to annual limitations through 1998. Such
carryforwards will expire approximately $11,000,000, $26,000,000,
$37,000,000 and $15,000,000 in the years 2006, 2007, 2008 and 2009,
respectively. In addition the Company has (i) depletion carryforwards
of approximately $4,400,000 and (ii) alternative minimum tax credit
carryforwards of approximately $5,300,000, both of which have an
unlimited carryforward period.
A "valuation allowance" is provided when it is more likely than not
that some portion of deferred tax assets will not be realized. The
Company has established valuation allowances principally for that
portion of the net operating loss carryforwards and other net deferred
tax assets related to Chesapeake Insurance which entity is not included
in Triarc's consolidated income tax return.
Deferred income tax (benefit) provision results from timing
differences in the recognition of income and expenses for tax reporting
and financial statement purposes. The tax effects of the principal
timing differences for Fiscal 1993 are as follows (such disclosure is
not presented for Transition 1993, 1994 and 1995 as it is not required
under SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109")) (in
thousands):
Provision for interest on income tax contingencies and other tax matters$ (3,025)
Insurance loss reserves 675
Facilities relocation and corporate restructuring (12,508)
Provision for income tax contingencies and other tax matters 11,767
Excess of book over tax depreciation, depletion and amortization
of properties (2,921)
Alternative minimum tax 2,684
Expenses not deductible until paid (1,503)
Tax on dividends from subsidiaries not included in consolidated return 334
Amortization of debt discount (317)
Benefit from unrealized losses on marketable securities (130)
Other, net 77
------------
$ (4,867)
============
The difference between the reported income tax provision (benefit)
and a computed tax provision (benefit) based on income (loss) from
continuing operations before income taxes at the statutory rate of 34.3%
for Fiscal 1993 and 35% for Transition 1993, 1994 and 1995 is reconciled
as follows (in thousands):
Fiscal Transition
1993 1993 1994 1995
----- ----- ----- -----
Income tax benefit computed at Federal
statutory rate $ (12,328) $ (7,926) $ (168) $ (13,308)
Increase (decrease) in Federal taxes resulting
from:
State taxes (benefit), net of Federal
income tax benefit (provision) 959 943 1,921 (229)
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 1,909 479 307
Provision for income tax contingencies and other
tax matters 11,767 7,200 -- 6,100
Amortization of non-deductible Goodwill 3,012 1,329 2,171 2,286
Effect of net operating losses for which no tax
carryback benefit is available (utilization of
operating loss, depletion and tax credit
carryforwards) 2,555 2,797 (3,643) 986
Nondeductible amortization of restricted stock -- -- -- 1,440
Minority interests in net income (loss) (1,149) (78) 452 --
Other non-deductible expenses 493 309 324 1,340
Non-deductible litigation settlement -- 1,576 -- --
Tax on dividends from subsidiaries not included
in consolidated returns 1,409 -- -- --
Consulting agreement (Note 31) 2,058 -- -- --
Other, net (419) (266) 76 48
------------- ------------- ------------- -------------
$ 8,608 $ 7,793 $ 1,612 $ (1,030)
============= ============= ============= =============
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 one issue 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 one open issue at
the Appellate Division of the IRS which it expects to resolve in 1996.
The IRS is currently finalizing its examination of the Company's Federal
income tax returns for the tax years from 1989 through 1992 and has
issued notices of proposed adjustments increasing taxable income by
approximately $145,000,000, the tax effect of which has not yet been
determined. The Company is contesting the majority of the proposed
adjustments and, accordingly, the amount of any payments required as a
result thereof cannot presently be determined. During Fiscal 1993,
Transition 1993 and 1995 the Company provided $11,767,000, $7,200,000
and $6,100,000, respectively, included in "Provision for (benefit from)
income taxes" and during Fiscal 1993, Transition 1993, 1994 and 1995
provided $8,547,000, $1,322,000, $1,400,000 and $2,900,000,
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 issue 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 1995 and prior periods
for any tax liabilities, including interest, that may result from such
examinations and other tax matters.
(18)Redeemable Preferred Stock
The Company had 5,982,866 shares of its Redeemable Preferred Stock
outstanding at December 31, 1994, with a stated value of $12.00 per
share, bearing a cumulative annual dividend of 8 1/8% payable semi-
annually, convertible into 4,985,722 shares of class B common stock (the
"Class B Common Stock") (see Note 19) 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. Pursuant to a
settlement agreement entered into by the Company and the Posner Entities
on January 9, 1995, (the "Posner Settlement") all of the Redeemable
Preferred Stock was converted into 4,985,722 shares of Class B Common
Stock issued to a Posner Entity (the "Conversion" - see Note 19). In
connection therewith, the Company has no further obligation to declare
or pay dividends on the Redeemable Preferred Stock subsequent to the
last payment date of September 30, 1994.
(19)Stockholders' Equity (Deficit)
The Company's class A common stock (the "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. 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. 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. During Fiscal
1993 the Company issued 833,332 shares of Class A Common Stock in
connection with the Change in Control and related refinancings, 129,303
shares of Class A Common Stock in connection with the conversion of $.60
and $.35 preferred stock into common shares and 14,834 shares of Class A
Common Stock in connection with the conversion of debentures. As a
result, issued shares of Class A Common Stock increased from 27,006,336
to 27,983,805 during Fiscal 1993. There were no changes in the issued
shares of Class A Common Stock in Transition 1993, 1994 or 1995. Prior
to January 9, 1995 no shares of Class B Common Stock had been issued.
On January 9, 1995 pursuant to the Posner Settlement the Company issued
(i) the 4,985,722 shares of Class B Common Stock as a result of the
Conversion and (ii) an additional 1,011,900 shares of Class B Common
Stock to the Posner Entities with an aggregate fair value of $12,016,000
in consideration for, among other matters, (i) the settlement of all
amounts due to the Posner Entities in connection with the 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 certain
litigation relating to NVF Company and APL Corporation (see Note 26) and
any potential litigation relating to the bankruptcy filing of
Pennsylvania Engineering Corporation (see Note 29).
A summary of the changes in the number of shares of Class A Common
Stock held in treasury is as follows (in thousands):
Fiscal Transition
1993 1993 1994 1995
----- ----- ----- -----
Number of shares at beginning of period 1,117 6,832 6,661 4,028
Common shares issued in the SEPSCO Merger
(Note 27) -- -- (2,692) --
Restricted stock grants (see below) (268) (171) (69) (7)
Restricted stock exchanged (see below) or reacquired-- -- 40 11
Common shares issued to directors -- -- (3) (7)
Common shares acquired in open market transactions -- -- 91 42
Common shares acquired upon issuance of
Redeemable Preferred Stock (Note 18) 5,983 -- -- --
------------- ------------- ------------- -------------
Number of shares at end of period 6,832 6,661 4,028 4,067
============= ============= ============= =============
The Company has 25,000,000 authorized shares of preferred stock
including 5,982,866 designated as Redeemable Preferred Stock, none of
which are issued as of December 31, 1995. In addition, Triarc had an
aggregate 30,201 shares of 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, prior to their
conversion (28,115 shares) into common stock or redemption (2,086
shares) during Fiscal 1993.
"Other stockholders' equity (deficit)" consisted of the following
(in thousands):
December 31,
------------------------------
1994 1995
----- -----
Unearned compensation (see below) $ (7,416) $ (1,013)
Net unrealized gains (losses) on "available
for sale" marketable securities, net of
income tax provision (benefit) of $(122)
and $32 in 1994 and 1995) (260) 99
------------- -------------
$ (7,676) $ (914)
============= =============
The Company maintains a 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 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
and there remain 926,659 shares available for future grants under the
Equity Plan as of December 31, 1995.
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, 1994 and 1995, respectively, 268,000, 171,500
(including 150,000 shares granted to the three court-appointed members
of a special committee of Triarc's Board of Directors - see Note 32),
68,750 and 6,700 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, $1,376,000 for 1994 and $68,000 for 1995 based upon the
market value of the Company's Class A Common Stock at the respective
dates of grant which ranged from $31.75 to $10.125. The vesting of the
restricted stock granted to the three court-appointed members of the
special committee was accelerated in connection with their decision not
to stand for re-election as directors of the Company at the 1995 annual
stockholders meeting resulting in a charge for amortization of unearned
compensation in 1995 of $1,691,000 (including $723,000 which would have
otherwise been amortized during the post-acceleration 1995 period). On
December 7, 1995 the Compensation Committee of Triarc's Board of
Directors authorized management of the Company to accelerate the vesting
of all of the then outstanding shares of restricted stock. On January
16, 1996 management of the Company accelerated the vesting and the
Company recorded the resulting additional amortization of unearned
compensation of $1,640,000 in its entirety in 1995. Prior to these
accelerated vestings of the restricted stock, the unearned compensation
was being amortized over the applicable vesting period and together with
the amortization of unearned compensation related to the accelerated
vesting, was recorded as "General and administrative". Such
compensation expense was insignificant in Fiscal 1993 and was $1,738,000
in Transition 1993 (including $235,000 related to 1994 grants which were
in respect of employee service during Transition 1993 and, accordingly,
charged to operations during Transition 1993 but not reflected in
unearned compensation (a component of "Stockholders' equity (deficit)")
until 1994), $3,122,000 in 1994 (excluding the aforementioned $235,000)
and $5,281,000 in 1995 (including the $1,691,000 and $1,640,000 relating
to the previously discussed accelerated vesting of restricted stock).
A summary of changes in outstanding stock options is as follows:
Options Option Price
------- -------------
Granted during Fiscal 1993 and outstanding at April 30, 19931,736,500 $18.00
Granted during Transition 1993 301,000 $ 20.00 - $30.75
Terminated during Transition 1993 (65,000) $18.00
----------
Outstanding at December 31, 1993 1,972,500 $ 18.00 - $ 30.75
Granted during 1994 5,753,400 $ 10.75 - $24.125
Terminated during 1994 (156,000) $ 18.00 - $ 30.75
----------
Outstanding at December 31, 1994 7,569,900 $ 10.75 - $ 30.00
Granted during 1995 1,239,500 $10.125 - $ 16.25
Terminated during 1995 (210,700) $ 10.75 - $ 30.00
----------
Outstanding at December 31, 1995 8,598,700 $10.125 - $ 30.00
==========
Exercisable at December 31, 1995 1,578,000 $10.125 - $ 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 on April 21, 1994
to the Chairman and Chief Executive Officer, the President and Chief
Operating Officer and the Vice Chairman of the Company (who resigned
effective January 1, 1996) 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 (subject to the paragraph after the table that follows).
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
Effective January 1, 1996 the Vice Chairman of the Company (the
"Vice Chairman") since April 23, 1993 resigned as a director, officer
and employee of the Company and entered into a consulting agreement
pursuant to which no substantial services are expected to be provided.
In accordance therewith, effective January 1, 1996 all of the 513,333
non-vested stock options previously issued to the Vice Chairman
(including 350,000 performance stock options which were granted April
21, 1994) were vested in full and all such stock options remain
exercisable through June 30, 1997.
Stock options under the Equity Plan are generally granted at not
less than the 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 previously unrecognized $3,000,000 of
the aggregate difference as unearned compensation. During 1994 and 1995,
$907,000 and $761,000, respectively, was amortized to compensation
expense and credited to "Other stockholders' equity (deficit)".
During Transition 1993, 1994 and 1995 the Company agreed to pay to
employees terminated during each such period and directors who were not
reelected during 1994 and 1995 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, 1994 and 1995, 10,000, 26,000 and 11,250 shares of
restricted stock and 40,000, 126,000 and 97,700 stock options,
respectively, were so exchanged. All such exchanges were for an equal
number of rights except that the 11,250 shares of restricted stock
exchanged in 1995 were for 4,550 Rights. The Rights which resulted from
the exchange of stock options have base prices ranging from $10.75 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 representing
unamortized unearned compensation of $147,000, $331,000 and $13,000
during Transition 1993, 1994 and 1995, respectively, included in
"General and administrative". Of the 304,250 Rights granted, 36,000
relating to restricted stock were exercised in 1995 and 16,000 and
55,000 relating to stock options expired in 1994 and 1995, respectively.
The remaining 197,250 Rights expire 117,250 in 1996 and 80,000 in 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.
(20)Other Income (Expense), Net
Other income (expense), net consists of the following components
(in thousands):
Fiscal Transition
1993 1993 1994 1995
----- ----- ----- -----
Interest income $ 1,716 $ 1,619 $ 4,664 $ 3,547
Gain on sale of excess timberland (a) -- -- -- 11,945
Gain on sale of natural gas and oil
business (b) -- -- 6,043 900
Gain (loss) on other sales of assets, net 2,974 1,006 975 (1,681)
Posner Settlement (c) -- -- -- 2,312
Insurance settlement for fire-damaged equipment -- -- -- 1,875
Columbia Gas settlement (d) -- -- -- 1,856
Equity in losses of affiliate -- -- (573) (2,170)
Write-down of investment in affiliates (e) -- -- -- (5,624)
Charges related to litigation:
The Modification (Note 26) (6,225) (674) (500) (24)
SEPSCO Merger and Settlement (Note 27) (1,700) (5,050) -- --
Other litigation (Notes 26 and 32) (1,375) (350) -- --
Costs of a proposed acquisition not
consummated (f) -- -- (7,000) --
Minority interests in net loss (income) 3,350 223 (1,292) --
Reduction to net realizable value of
certain assets held for sale (3,800) (3,292) -- --
Settlement of accrued rent balance (Note 29) 8,900 -- -- --
Commitment fees and other compensation costs
relating to a proposed financing not
consummated (Note 32) (3,200) -- -- --
Other income (expense), net 1,790 (1,250) 1,249 (722)
------------- ------------- ------------- -------------
$ 2,430 $ (7,768) $ 3,566 $ 12,214
============= ============= ============= =============
<FN>
(a) During 1995, the Company sold excess timberland for a cash
price of $15,739,000 resulting in a gain of $11,945,000, net
of expenses.
(b) During 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 initially held in escrow
to cover certain indemnities given to the buyer. Such sale
resulted in a pretax gain of $6,043,000. During 1995
$250,000 of such escrow was released. In 1995 the Company
sold the remaining natural gas and oil assets for net
proceeds of $728,000 which resulted in a pretax gain of
$650,000.
(c) Pursuant to the Posner Settlement, 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 a modification to certain
litigation against the Company and certain of the present and
former directors (see Note 26), (ii) fees payable to the
court-appointed members of a special committee of the
Company's Board of Directors (see Note 32) and (iii) legal
fees paid or payable with respect to matters referred to in
the Posner Settlement, subject to the satisfaction by the
Posner Entities of certain obligations under the Posner
Settlement. The Company used such funds to pay (i)
$2,000,000 to the court-appointed members of the special
committee for services rendered in connection with the
consummation of the Posner Settlement, (ii) attorney's fees
of $850,000 in connection with such modification, (iii)
$200,000 in connection with the settlement of certain
litigation and (iv) $100,000 of other expenses resulting in a
gain of $2,850,000, of which $538,000 reduced "General and
administrative" as a recovery of legal expenses originally
reported therein and $2,312,000 was reported as "Other income
(expense), net".
(d) The Company was a party to a class action lawsuit brought
against Columbia Gas System, Inc. ("Columbia Gas") in which
the claimants charged that Columbia Gas had over charged the
claimants for purchases of propane gas. During the fourth
quarter of 1995 the Company received $2,406,000 in full
settlement of the lawsuit which resulted in a gain of
$1,856,000 net of estimated expenses (the "Columbia Gas
Settlement").
(e) The investments in Taysung ($4,624,000) and another affiliate
($1,000,000) were written off in 1995 when the Company
determined the decline in value of such investments was other
than temporary.
(f) 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.
</FN>
(21) 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.
During Transition 1993 the Company sold the assets or stock of the
companies comprising SEPSCO's utility and municipal services business
segment resulting in aggregate losses of approximately $4,600,000
excluding remaining proceeds in connection with a settlement agreement
(the "SEPSCO Settlement Agreement"). The sale of one of the businesses
was subject to certain deferred purchase price adjustments which, in
accordance with the SEPSCO Settlement Agreement, were settled in March
1995 for aggregate payments of $500,000 to be received in quarterly
installments of $100,000 each, which commenced 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. As of December 31, 1995 the Company has collected $300,000 of
the quarterly installments with the remaining $200,000 due in 1996.
In 1994 the Company sold substantially all of the operating assets
or stock of the companies comprising SEPSCO's refrigeration business
segment resulting in aggregate losses of approximately $9,300,000,
excluding any consideration of the remaining $6,881,000 aggregate
principal payments due on notes (the "Notes") from the buyers of such
businesses, since their collection is not reasonably assured. The
Notes, with aggregate original principal of $7,295,000, bore no interest
during the first year and 5% and 8% thereafter. The Company has
collected $120,000 of scheduled principal payments and $294,000 of
principal payments in advance during 1995 and has remaining principal
payments due in annual installments of $120,000 in 1996 through 1998,
$3,521,000 in 1999 and $3,000,000 in 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 then
estimated 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 and $400,000 of
environmental costs, (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 net
adjustments in finalizing the losses on the sale of these and other
businesses including $750,000 of environmental costs.
After consideration of (a) a $5,363,000 write-down (net of tax
benefit and minority interests of $7,540,000) in Fiscal 1993 relating to
the impairment of certain unprofitable properties and accruals for
environmental remediation and losses on certain contracts in progress
reflected in operating profit (loss) of discontinued operations set
forth below 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 for Fiscal 1993,
Transition 1993 and 1994 consisted of the following (in thousands):
Fiscal Transition
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
interest 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 (2,430) 229 --
------------- ------------- -------------
$ (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 July 22, December 31,
1993 1993 1993 1994
------ ----- ----- -----
Revenues $ 204,714 $ 83,462 $ 43,973 $ 11,432
Operating profit (loss) (3,568) 2,298 (2,344) (80)
Income (loss) before income taxes (4,704) 1,149 (2,640) (405)
Benefit from (provision for) income taxes 2,274 (920) 920 --
Net income (loss) (2,430) 229 (1,720) (405)
The principal remaining accounts of the discontinued operations
relate to liquidating obligations not transferred to the buyers of the
discontinued businesses and are reflected in net current and non current
liabilities of the discontinued operations aggregating $4,981,000
($3,577,000 of which is reported as a current liability) and $3,461,000
(reported as a current liability) as of December 31, 1994 and 1995,
respectively.
(22)Extraordinary Charges
In connection with the early extinguishment of debt in Fiscal 1993,
Transition 1993 and 1994, 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
============= ============= =============
(23)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.
(24)Pension and Other Benefit Plans
The Company provides or provided defined benefit plans for employees
of certain subsidiaries. Prior to Fiscal 1993, 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 a curtailment gain of $2,562,000 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 Transition
1993 1993 1994 1995
----- ----- ----- -----
Current service cost $ 281 $ 195 $ 177 $ 151
Interest cost on projected benefit
obligation 568 465 466 503
Return on plan assets (gain) loss (908) (1,041) 138 (1,445)
Net amortization and deferrals 213 564 (654) 993
------------- ------------- ------------- -------------
Net periodic pension cost $ 154 $ 183 $ 127 $ 202
============= ============= ============= =============
The following table sets forth the plans' funded status (in thousands):
Aggregate of Plans Whose
-------------------------------------------------------
Assets Exceeded Accumulated Benefits
Accumulated Benefits Exceeded Assets
December 31, December 31,
------------------ --------------------
1994 1995 1994 1995
----- ----- ----- -----
Actuarial present value of benefit
obligations
Vested benefit obligation $ 2,369 $ 2,386 $ 4,137 $ 4,711
Non-vested benefit obligation -- -- 51 19
------------- ------------- ------------- -------------
Accumulated and projected benefit
obligation 2,369 2,386 4,188 4,730
Plan assets at fair value (2,454) (2,762) (3,641) (3,941)
------------- ------------- ------------- -------------
Funded status (85) (376) 547 789
Unrecognized net gain from plan
experience 169 488 1 72
------------- ------------- ------------- -------------
Accrued pension cost $ 84 $ 112 $ 548 $ 861
============= ============= ============= =============
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 1993 and 8% for
Transition 1993, 1994 and 1995 and (ii) the discount rate was 8% for
Fiscal 1993, 7% for Transition 1993 and 1994 and 8% for 1995. The
discount rate used in determining the benefit obligations above was 8%
and 7% at December 31, 1994 and 1995, respectively. The effects of the
Transition 1993 reduction and the 1994 increase in the discount rate and
the effect of the Transition 1993 reduction in the expected long-term
rate of return on plan assets did not materially affect the net periodic
pension cost. The 1995 decrease in the discount rate used in
determining the benefit obligation resulted in an increase in the
accumulated and projected benefit obligation of $527,000.
Plan assets as of December 31, 1995 are invested in managed
portfolios consisting of government and government agency obligations
(47%), common stock (37%), corporate debt securities (9%) and other
investments (7%).
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 $1,290,000 in Fiscal 1993, $443,000 in Transition 1993,
$756,000 in 1994 and $669,000 in 1995. Information from the
administrators of the plans is not available to permit the Company to
determine its proportionate share of unfunded vested benefits, if any.
The Company maintains unfunded medical and death benefit plans for a
limited number of employees who have reached certain ages and have
provided certain minimum years of service and (i) have retired or (ii)
retired early but have not reached normal retirement age. The medical
benefits are principally contributory, while death benefits are
noncontributory. Effective May 1, 1992 the Company adopted SFAS 106,
and, accordingly, provided the unfunded accumulated postretirement
benefit obligation as of that date (see Note 23). Prior to such date,
the Company accounted for postretirement obligation payments on a pay-
as-you-go basis.
Net periodic postretirement benefit cost consisted of the following
(in thousands):
Fiscal Transition
1993 1993 (a) 1994 1995
----- ----- ----- -----
Service cost - benefit earned during the period$ 43 $ 6 $ 5 $ 7
Interest cost on accumulated postretirement
benefit obligation 219 92 85 82
Net amortization of unrecognized gain -- -- (4) (14)
------------- ------------- ------------- -------------
$ 262 $ 98 $ 86 $ 75
============= ============= ============= =============
<FN>
(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.
</FN>
The accumulated postretirement benefit obligation consists of the
following (in thousands):
December 31,
-------------------------------
1994 1995
----- -----
Retirees and dependents $ 1,014 $ 890
Active employees eligible to retire 50 93
Active employees not eligible to retire 61 117
------------- -------------
Accumulated postretirement benefit obligation 1,125 1,100
Unrecognized net gain 154 84
------------- -------------
Accrued postretirement benefit cost $ 1,279 $ 1,184
============= =============
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 decreasing one percentage point to 11% for 1994 and
10% for 1995 and continuing to decrease one percentage point annually to
6% for 1999 and remain at that level thereafter. The assumed health
care cost trend rate affects the amounts reported; however, 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, 7% in 1994 and 8% in 1995; the
discount rate used in determining the accumulated postretirement benefit
obligation was 8% and 7% at December 31, 1994 and 1995, respectively.
The Company maintains several 401(k) defined contribution plans
covering all employees, other than employees of Mistic, prior to January
1, 1996, and those employees 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 determined by the
employer. In connection with these employer contributions, the Company
provided $707,000, $1,373,000, $2,200,000 and $3,024,000 in Fiscal
1993, Transition 1993, 1994 and 1995 respectively.
(25)Lease Commitments
The Company leases buildings and improvements and machinery and
equipment. Some leases provide for contingent rentals based upon sales
volume.
Rental expense under operating leases consists of the following
components (in thousands):
Fiscal Transition
1993 1993 1994 1995
----- ----- ----- -----
Minimum rentals $ 14,874 $ 12,305 $ 20,218 $ 25,898
Contingent rentals 1,021 1,117 1,454 987
Lease termination charge (Note 29) 13,000 -- -- --
------------- ------------- ------------- -------------
28,895 13,422 21,612 26,885
Less sublease income 593 894 3,459 5,358
------------- ------------- ------------- -------------
$ 28,302 $ 12,528 $ 18,213 $ 21,527
============= ============= ============= =============
The Company's future minimum rental payments and sublease rental
income for leases having an initial lease term in excess of one year as
of December 31, 1995 were as follows (in thousands):
Rental Payments Sublease Income
---------------- -----------------
Capitalized Operating Capitalized Operating
Leases Leases Leases Leases
------ ------ ------ ------
1996 $ 4,271 $ 26,076 $ 284 $ 5,607
1997 3,629 23,888 257 5,534
1998 3,260 19,313 221 3,240
1999 2,882 15,921 202 1,518
2000 2,747 13,208 186 120
Thereafter 17,683 78,959 1,040 310
------------- ------------- ------------- -------------
Total minimum payments 34,472 $ 177,365 $ 2,190 $ 16,329
============= ============= =============
Less interest 15,329
-------------
Present value of minimum
capitalized lease payments $ 19,143
=============
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 15).
In August 1994 the Company completed the sale and leaseback of the
land and buildings of fourteen company-owned 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 is being
amortized to income over the twenty-year lives of the leases.
(26)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
$6,225,000, $674,000, $500,000 and $24,000 (excluding $850,000 of fees
reimbursed by Posner) in Fiscal 1993, Transition 1993, 1994 and 1995,
respectively, included in "Other income (expense), net" in the
consolidated statements 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 sought compensatory damages in
an aggregate amount of approximately $2,000,000 and punitive damages in
the amount of $3,000,000. Pursuant to an agreement effective June 30,
1995, the Chesapeake Litigation was settled resulting in a July 1995
payment of $200,000 by Chesapeake Insurance to NVF as full and final
settlement of all claims.
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 both June and October 1994
the official committee of NVF's unsecured creditors filed amended
complaints (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. During Transition 1993 the Company provided approximately
$2,300,000 in "General and administrative expenses" with respect to
claims related to the NVF Proceeding. In January 1995 Triarc received
an indemnification pursuant to the Posner Settlement (see Notes 18 and
19) (the "Indemnification") relating to, among other things, the NVF
Litigation and, as such, the Company reversed the remaining accrual of
$767,000 relating to the NVF Proceeding at that time. In October 1995
the parties to the NVF Litigation entered into a settlement agreement
pursuant to which all claims against the Company were dismissed. The
settlement was approved by the bankruptcy court in November 1995 and in
December 1995, the district court dismissed the NVF Litigation with
prejudice. Accordingly, the NVF Proceeding will have no impact on the
Company's consolidated results of operations or financial position.
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 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 June
1995 the bankruptcy court confirmed the plaintiffs' plan of
reorganization (the "APL Plan") in the APL Proceeding. The APL Plan
provides, among other things, that the Posner Entities will own all of
the common stock of APL and are authorized to object to claims made in
the APL Proceeding. The APL Plan also provides for the dismissal of the
APL Litigation. Previously, in January 1995 Triarc received the
Indemnification relating to, among other things, the APL Litigation.
The Posner Entities have filed motions asserting that the APL Plan does
not require the dismissal of the APL Litigation. In November 1995 the
bankruptcy court denied the motions, and in March 1996 the court denied
the Posner Entities' motion for reconsideration. The Posner Entities
have filed a motion to extend the time to file a notice of appeal and
have indicated that they intend to appeal. The outcome of the APL
Litigation can only have a favorable effect on the consolidated results
of operations or financial position of the Company.
On December 6, 1995 the three former court-appointed members of the
Special Committee of Triarc's Board of Directors commenced an action in
the Ohio Court seeking, among other things, additional fees of
$3,000,000. On February 6, 1996 the court dismissed the action without
prejudice. The plaintiffs have appealed such dismissal. The Company
does not believe that the outcome of this action will have a material
adverse effect on the consolidated financial position or results of
operations of the Company.
In 1987 Graniteville was notified by the South Carolina Department of
Health and Environmental Control ("DHEC") that DHEC 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. Subsequently, DHEC
requested Graniteville to submit a proposal by mid-April 1995 concerning
periodic monitoring of sediment deposition in the pond. Graniteville
submitted its proposal in April 1995. In February 1996 Graniteville
responded to the DHEC's request for additional information on such
proposal. 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 apparent conclusion in
March 1994 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 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 as well as 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 groundwater
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 indicated its desire to have an
investigation of the Vaucluse Landfill. In April 1995 Graniteville
submitted a conceptual investigation approach to DHEC. Subsequently,
the Company responded to an August 1995 DHEC request that Graniteville
enter into a consent agreement to conduct an investigation indicating
that a consent agreement is inappropriate considering Graniteville's
demonstrated willingness to cooperate with DHEC requests and asked DHEC
to approve Graniteville's April 1995 conceptual investigation approach.
Since an investigation has not yet commenced, Graniteville is currently
unable to estimate the cost, if any, to remediate the landfill. Such
cost could vary based on the actual parameters of the study. The
Company believes that adequate provisions have been made in the current
and prior years for this matter. Accordingly, 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 21). Remediation has been
completed on two of these sites and is ongoing at seven others.
Remediation will commence on the remaining four ice plants in 1996.
Such remediation is being made in conjunction with the purchaser who is
responsible for payments of up to $1,000,000 of such remediation costs,
consisting of the first and third payments of $500,000. Remediation is
also required at seven cold storage sites which were sold to the
purchaser of the cold storage operations (see Note 21). Remediation has
been completed at one site and is ongoing at three other sites.
Remediation is expected to commence on the remaining three sites in 1996
and 1997. Such remediation is being made in conjunction with the
purchaser who is responsible for the first $1,250,000 of such costs. In
addition, there are fifteen additional inactive properties of the former
refrigeration business where remediation has been completed or is
ongoing and which have either been sold or are held for sale separate
from the sales of the ice and cold storage operation. Of these, four
were remediated in 1994 at an aggregate cost of $484,000 and two were
remediated in 1995 at an aggregate cost of $160,000. In addition,
during the environmental remediation efforts on idle properties, SEPSCO
became aware that plants on two of the fifteen sites may require
demolition in the future. 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 and
demolition will approximate $5,350,000, of which $1,500,000, $2,700,000
(including a 1994 reclassification of $500,000) and $1,150,000 were
provided prior to Fiscal 1993, in Fiscal 1993 and in 1994, respectively.
In connection therewith, SEPSCO has incurred actual costs of $3,836,000
through December 31, 1995 and has a remaining accrual of $1,514,000
included in "Net current liabilities of discontinued operations" within
"Accrued expenses" (see Note 14). 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 and
demolition will have a material adverse effect on its consolidated
results of operations or financial position.
In May 1994 National Propane was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. National
Propane purchased the property from a company (the "Successor") which
had purchased the assets of a utility which had previously owned the
property. National Propane believes that the contamination occurred
during the use of the property as a coal gasification plant by such
utility. In order to assess the extent of the problem National Propane
engaged environmental consultants who began work in August 1994. In
December 1994 the environmental consultants provided a report to
National Propane which indicated the estimated range of potential
remediation costs to be between approximately $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
actually required to be implemented. Since no amount within this range
was determined to be a better estimate, National Propane provided a
charge in 1994 of $415,000, the minimum gross amount (with no expected
recovery) within the range, included in "General and administrative" in
the accompanying 1994 consolidated statement of operations. In February
1996 National Propane's environmental consultants provided a second
report which presented revised estimated costs, based on additional
information obtained since the prior report and the two most likely
remediation methods. The range of estimated costs for the first method,
which involves treatment of groundwater and excavation, treatment and
disposal of contaminated soil, is from $1,600,000 to $3,300,000. The
range for the second method, which involves only treatment of
groundwater and the building of a soil containment wall, is from
$432,000 to $750,000. Based on discussion with National Propane's
environmental consultants both methods are acceptable remediation plans.
National Propane, however, will have to agree on a final plan with the
state of Wisconsin. Accordingly, it is unknown which remediation method
will be used. Since no amount within the ranges can be determined to be
a better estimate, National Propane accrued an additional $41,000 in
1995 in order to provide for the minimum costs estimated for the second
remediation method and legal fees and other professional costs. The
provisions through December 31, 1995 aggregate $456,000 and payments
through December 31, 1995 amounted to $24,000 resulting in a remaining
accrual of $432,000 at that date. National Propane, if found liable for
any of such costs, would attempt to recover such costs from the
Successor. 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 estimates 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, the Company does not believe that the outcome of this
matter will have a material adverse effect on the Company'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 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 $560,000
to $640,000 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,
Royal Crown 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 32). Royal Crown
has incurred actual costs of $293,000 through December 31, 1995 relating
to these environmental matters and has a remaining accrual of $200,000
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 results of operations or financial
position.
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 results of
operations or financial position.
(27)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. In conjunction therewith, 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 SEPSCO 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 20) ($2,455,000), "Net noncurrent
liabilities of discontinued operations" ($2,425,000 - see Note 21) and
"Deferred income taxes" ($2,485,000) with the excess of $17,659,000
recorded as Goodwill.
(28)Acquisitions
On August 9, 1995 Mistic, Inc. ("Mistic"), a wholly-owned subsidiary
of Triarc, acquired (the "Mistic Acquisition") substantially all of the
assets and operations, subject to related operating liabilities, as
defined, of certain companies (the "Acquired Business") which develop,
market and sell carbonated and non-carbonated fruit drinks, ready-to-
drink brewed iced teas and naturally flavored sparkling waters under
various trademarks and tradenames including "Mistic" and "Royal Mistic".
The purchase price for the Mistic Acquisition, aggregating $98,324,000
consisted of (i) $93,000,000 in cash, (ii) $1,000,000 to be paid in
eight equal quarterly installments which commenced in November 1995,
(iii) non-compete agreement payments aggregating $3,000,000 payable
through December 1998 with payments commencing upon the later of August
1996 or a final settlement or judgement in certain distributor
litigation and (iv) $1,324,000 of related expenses. The Mistic
Acquisition was financed through (i) $71,500,000 of borrowings under the
Mistic Bank Facility (see Note 15) and (ii) $25,000,000 of borrowings
under the Graniteville Credit Facility.
The Company granted the syndicating lending bank in connection with
the Mistic Bank Facility agreement and two senior officers of Mistic
stock appreciation rights (the "Mistic Rights") for the equivalent of 3%
and 9.7%, respectively, of Mistic' outstanding common stock plus the
equivalent shares represented by such stock appreciation rights. The
Mistic Rights granted to the syndicating lending bank were immediately
vested and of those granted to the senior officers, one-third vest over
time and two-thirds vest depending on the performance of Mistic. The
Mistic Rights provide for appreciation in the per-share value of Mistic
common stock above a base price of $28,637 per share, which is equal to
the Company's per share capital contribution to Mistic in connection
with the Mistic Acquisition. The Company recognizes periodically the
estimated increase in the value of the Mistic Rights; such amounts,
which are being charged to "Interest expense" and "General and
administrative" for the Mistic Rights granted to the syndicating lending
bank and the two senior officers, respectively, were not significant in
1995.
The Mistic Acquisition has been accounted for in accordance with the
purchase method of accounting. In accordance therewith, the purchase
price of the Mistic Acquisition was assigned to current assets
($33,835,000), current liabilities of ($24,506,000), trademarks
($55,600,000), properties and other non-current assets ($3,962,000) with
the excess recorded as costs in excess of net assets of acquired
companies ("Goodwill" - $29,433,000).
The results of operations of the Acquired Business have been included
in the accompanying consolidated statements of operations from the date
of acquisition. The following unaudited supplemental pro forma
information of the Company for 1994 and 1995 give effect to the Mistic
Acquisition and related financing as if they had been consummated on
January 1, 1994. The unaudited supplemental pro forma condensed
information is presented for comparative purposes only and does not
purport to be indicative of the actual results of operations had the
Mistic Acquisition actually been consummated on January 1, 1994 or of
the future results of operations of the combined company and are as
follows (in thousands except per share data):
1994 1995
----- -----
Revenues $ 1,191,307 $ 1,267,755
Operating profit 76,029 30,816
Loss from continuing operations (3,641) (42,613)
Loss from continuing operations
applicable to common stockholders (9,474) (42,613)
Loss from continuing operations per share (.41) (1.43)
During 1994 and 1995 the Company consummated several additional
business acquisitions principally restaurant operations and propane
businesses for cash of $18,790,000 and $18,947,000, respectively, and
the issuance of debt in 1994 of $3,763,000 (acquisitions in Transition
1993 were not significant). All such acquisitions have been accounted
for in accordance with the purchase method of accounting and in
accordance therewith the purchase price was assigned as follows (in
thousands):
December 31,
---------------------------
1994 1995
----- -----
Properties $ 14,803 $ 11,264
Long-term debt including current portion (2,726) (3,180)
Intangible assets 1,711 4,873
Goodwill 8,414 5,005
All other assets, net 351 985
------------- -------------
$ 22,553 $ 18,947
============= =============
(29) 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 1993 and Transition
1993, respectively, $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 both for its former corporate headquarters and on behalf of its
subsidiaries and former affiliates from one of the Posner Entities. In
Fiscal 1993 and Transition 1993, respectively, $6,616,000 and $2,896,000
were charged to the Company for the cost of such leased space and
$826,000 and $24,000 of such costs were charged by the Company to former
affiliates. Certain amounts due from former affiliates under such cost
sharing arrangements were reserved in Fiscal 1993 and Transition 1993
and reallocated among Triarc's subsidiaries and the other participants
in such cost sharing arrangements. 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.
Pursuant to the Posner Settlement, all payments due to the Posner
Entities in connection with the termination of such lease were settled
resulting in a reduction of "Facilities relocation and corporate
restructuring" of $310,000. Such gain represented 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 31) over the fair value
of the 1,011,900 shares of Class B Common Stock issued (see Note 19) of
$12,016,000. In addition, the Company reversed to "Interest expense" a
previous accrual for interest of $638,000 on the lease termination
obligation.
During Transition 1993 the Company sold certain non-business assets
having a net book value of approximately $400,000 to an entity owned by
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 $1,591,000 in Fiscal 1993.
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 1993
were approximately $144,000.
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.
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 annual rent of
$2,200,000 plus indexed cost of living adjustments. Effective October
1, 1994 the original rent was reduced $400,000 reflecting the
termination of the lease for one of the aircraft which was sold. In
connection with the sale of the aircraft the Company paid $130,000 of
related costs on behalf of TASCO. In connection with such lease the
Company had rent expense of $550,000, $2,100,000 and $1,910,000 for the
last three months of Transition 1993, and for 1994 and 1995,
respectively. Pursuant to this arrangement, the Company also pays the
operating expenses of the aircraft directly to third parties.
The Company subleased 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.
Subsequent thereto the Company is subleasing the same office facility
from an unrelated third party. In addition, commencing May 1993 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, 1994 and 1995 with
respect to affiliates of Messrs. Peltz and May for such subleases,
including operating expenses, but net of amounts received by the Company
for sublease of a portion of such space (see below - $238,000, $358,000
and $357,000, respectively) were $1,510,000, $1,620,000 and $1,350,000,
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 31).
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.
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.
("NCS"), a company formed by two then officers of SEPSCO, for cash of
$6,500,000, a $3,000,000 note and the assumption by the buyer of certain
liabilities of $2,750,000. Such sale, excluding any consideration of
the $3,000,000 note from NCS since its collection is not reasonably
assured, resulted in approximately $3,600,000 of the $9,300,000 of
losses on disposition of the refrigeration business segment set forth in
Note 21.
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 had 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, both of
$44,576,000, during Fiscal 1993. (See Note 26 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 had significant doubts as to the net
realizability of the underlying collateral. During the fourth quarter
of 1995, the Company received $3,049,000 with respect to amounts owed
from PEC representing the Company's allocated portion of the bankruptcy
settlement (the "PEC Settlement").
During 1995 the Company paid $1,000,000 and contributed a license for
a period of five years for the Royal Crown distribution rights for its
products in New York City and certain surrounding counties to MetBev,
Inc. ("MetBev") in exchange for preferred stock in MetBev representing a
37.5% voting interest and a warrant to acquire 37.5% of the common stock
of MetBev. Should such warrant be exercised the voting rights of the
preferred stock decrease proportionately with the voting rights of the
common stock received upon exercise of the warrant. Additionally,
pursuant to a revolving credit agreement between Triarc and MetBev,
Triarc has loaned $2,000,000 to MetBev as of December 31, 1995.
Effective February 1, 1996 such revolving credit agreement was increased
to provide for cash borrowings of up to $3,625,000. Such advances under
such credit agreement are secured by the receivables and inventories of
MetBev. Further, the Company has guaranteed $1,200,000 of MetBev third
party accounts payable and has a receivable from MetBev for sales, at
cost, of finished product to MetBev of $551,000. MetBev has incurred
significant losses from its inception and anticipates continuing losses
in 1996 and has a stockholders' deficit as of December 31, 1995 of
$2,524,000. Accordingly, the Company wrote off its investment in MetBev
of $1,000,000 (included in "Other income (expense), net" - see Note 20)
and provided an aggregate reserve of $2,551,000 (included in "General
and administrative") relating to its receivable from and loans to MetBev
and the $1,200,000 trade payable guarantee.
See also Notes 4, 18, 30 and 32 with respect to certain other
transactions with related parties.
(30)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 participations. Premiums charged to former affiliates, net of
amounts not collected, were approximately $2,761,000 and $864,000 in
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, 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
the National Union Note in the original principal amount of $34,179,000.
(31)Facilities Relocation and Corporate Restructuring
The accompanying consolidated statements of operations for Fiscal 1993,
1994 and 1995 include the following charges for facilities relocation and
corporate restructuring (in thousands):
Fiscal
1993(a) 1994(b) 1995(c)
------- ------- -------
Estimated costs (reductions) to relocate the Company's
headquarters and terminate leases on existing
corporate facilities $ 14,900 $ 3,300 $ (310)
Estimated restructuring charges associated with personnel
recruiting and relocation costs, employee severance
costs and consultant fees 20,300 5,500 510
Costs related to consulting agreements between the
Company and its former Vice Chairmen 6,000 -- 2,500
Other restructuring costs 1,800 -- --
------------- ------------- -------------
$ 43,000 $ 8,800 $ 2,700
============= ============= =============
(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 4. 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: (i) the strategic decision to
manage the Company in the future on a decentralized, rather than
on a centralized basis; (ii) the hiring of new executive
officers for Triarc and the hiring of new chief executive
officers and new senior management teams for each of Arby's,
Royal Crown and National Propane to carry out the
decentralization strategy; (iii) 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 (ii)
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
then 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 consulting agreement with him extending through
April 1998. 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 has not received nor did it 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 during 1994 of certain
employees formerly located in that facility either to another
South Florida location or the New York City corporate office.
(c) The 1995 facilities relocation and corporate restructuring
charge relates to (i) a $310,000 reduction of the estimated
costs provided in Fiscal 1993 to terminate the lease on the
Company's then existing corporate facilities resulting from the
Posner Settlement (see Note 29) and (ii) severance costs
associated with the resignation effective January 1, 1996 of the
Vice Chairman of Triarc, who had served from April 23, 1993 to
December 31, 1995 (see Note 19), and the 1995 termination of
other corporate employees in conjunction with a reduction in
corporate staffing.
(32)Significant Fiscal 1993, Transition 1993 and 1995 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 31) $ 43,000
Write-off of uncollectible notes and other amounts of $6,570 due from APL
and PEC (Note 29), 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 (Note 17) 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
(Note 29) (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 (Note 17) 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 (Note 21) 5,363
Extraordinary charge, net (Note 22) 6,611
Cumulative effect of changes in accounting principles, net, retroactively
reflected in the first quarter (Note 23) 6,388
-----------
$ 67,060
===========
<FN>
(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 26 and 27, 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 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.
</FN>
The accompanying Transition 1993 consolidated statement of operations
includes 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 (Note 27) 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 (Note 21) 8,820
----------
$ 34,437
==========
<FN>
(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 (see Note 26).
(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 17).
</FN>
The accompanying 1995 consolidated statement of operations includes
the following significant charges (in thousands):
Reduction in carrying value of long-lived assets impaired or to be
disposed of (Note 1) $ 14,647
Facilities relocation and corporate restructuring charges (Note 31) 2,700
Accelerated vesting of restricted stock (Note 19) 3,331 (a)
Sequa litigation settlement (i) 2,689 (a)
Provision for MetBev related losses (Note 29) 2,551
Reduction in insurance commutation costs (Note 30) (3,000) (a)
PEC Settlement (Note 29) (3,049) (a)
Posner Settlement (Note 20) (538)
-----------
Total net charges affecting operating profit 19,331
Interest accruals related to income tax contingencies (Note 17) 2,900 (b)
Equity in losses and write-down of investments in affiliates (Note 20) 7,794 (c)
Gain on sale of excess timberland (Note 20) (11,945) (c)
Insurance settlement for fire-damaged equipment (1,875) (c)
Posner Settlement (Note 20) (2,312) (c)
Columbia Gas Settlement (Note 20) (1,856) (c)
Income tax benefit relating to the above net charges (2,938)
Provision for income tax contingencies and other matters (Note 17) 6,100
------------
$ 15,199
============
<FN>
(a) Included in "General and administrative".
(b) Included in "Interest expense".
(c) Included in "Other income (expense), net".
(i) During 1995 the Company settled a patent infringement lawsuit
with Sequa Chemicals, Inc. (the "Sequa Settlement") resulting in
aggregate charges in 1995 of $2,689,000 relating to the settlement
and related legal expenses. The Company had previously provided
approximately $800,000 in the aggregate during Transition 1993 and
1994 with respect to this matter.
</FN>
(33)Business Segments
The Company operates in four major segments: textiles, restaurants,
beverages and propane (see Note 2 for a description of each segment).
The beverages segment includes the operations acquired in the Mistic
Acquisition commencing August 9, 1995 (see Note 28). The other segment
includes, as applicable, non-core businesses including (i) insurance and
reinsurance which ceased writing insurance or reinsurance on October 1,
1993 and (ii) certain businesses now sold through the date of sale
including (a) natural gas and oil operations sold in August 1994 and
February 1995, (b) the operation of certain grapefruit groves sold in
December 1994, (c) lamp manufacturing and distribution operations sold
in February 1994, (d) specialty decorations of glass and ceramic items
operations sold in January 1994 and (e) overhead industrial cranes
design, manufacturing and servicing operations sold in January 1994.
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, 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 other non-current investments and deferred
financing costs.
No customer accounted for more than 10% of consolidated revenues in
Fiscal 1993, Transition 1993, 1994 or 1995.
Fiscal Transition
1993 1993 1994 1995
---- ---- ---- ----
(In thousands)
Revenues:
Textiles $ 499,060 $ 365,276 $ 536,918 $ 547,897
Restaurants 198,915 147,460 223,155 272,739
Beverages 148,262 98,337 150,750 214,587
Propane 148,790 89,167 151,698 148,998
Other 63,247 3,301 -- --
------------- ------------- -------------- -------------
Consolidated revenues $ 1,058,274 $ 703,541 $ 1,062,521 $ 1,184,221
============= ============= ============= =============
Operating profit:
Textiles $ 47,203 $ 27,595 $ 33,955 $ 23,544
Restaurants 7,852 12,880 15,542 (6,437)
Beverages 23,461 6,083 14,607 4,662
Propane 3,008 2,014 20,378 14,516
Other (15,942) (7,098) -- --
------------- ------------- -------------- -------------
Segment operating profit 65,582 41,474 84,482 36,285
Interest expense (72,830) (44,847) (72,980) (84,227)
Non-operating income (expense), net 2,430 (7,768) 3,566 12,214
General corporate expenses (31,123) (11,505) (15,549) (2,296)
------------- ------------- -------------- -------------
Consolidated loss from
continuing operations before
income taxes $ (35,941) $ (22,646) $ (481) $ (38,024)
============= ============= ============= =============
Identifiable assets:
Textiles $ 276,062 $ 294,136 $ 327,793 $ 328,726
Restaurants 99,455 104,605 137,943 180,734
Beverages 184,364 186,353 190,568 306,349
Propane 124,613 115,849 133,321 139,025
Other 62,715 26,075 13,452 12,287
------------- ------------- -------------- -------------
Total identifiable assets 747,209 727,018 803,077 967,121
General corporate assets 96,544 154,164 119,090 118,845
Discontinued operations, net 66,909 16,064 -- --
------------- ------------- -------------- -------------
Consolidated assets $ 910,662 $ 897,246 $ 922,167 $ 1,085,966
============= ============= ============= =============
Capital expenditures:
Textiles $ 10,075 $ 13,667 $ 22,965 $ 13,097
Restaurants 6,231 7,106 34,875 47,444
Beverages 870 554 1,309 1,656
Propane 8,290 8,966 6,599 8,966
Corporate 42 3,046 83 57
Other 1,699 -- -- --
------------- ------------- -------------- -------------
Consolidated capital expenditures $ 27,207 $ 33,339 $ 65,831 $ 71,220
============= ============= ============= =============
Depreciation and amortization of properties:
Textiles $ 10,328 $ 9,058 $ 13,867 $ 15,082
Restaurants 9,899 5,472 9,335 12,927
Beverages 411 304 772 1,005
Propane 8,043 5,595 9,337 9,546
Corporate 563 532 590 333
Other 1,952 -- -- --
------------- ------------- -------------- -------------
Consolidated depreciation and
amortization $ 31,196 $ 20,961 $ 33,901 $ 38,893
============= ============= ============= =============
(34)Quarterly Information (Unaudited)
Three Months Ended
------------------------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- (A),(B)
-------------
(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)
Loss from discontinued operations -- -- -- (3,900)
Extraordinary charge (Note 22) -- -- -- (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 (C) (C) (C)
1995
Revenues $ 297,993 $ 279,281 $ 291,875 $ 315,072
Gross profit 85,046 75,556 81,193 82,498
Operating profit (loss) 24,741 12,279 12,713 (15,744)
Net income (loss) 6,719 1,010 (5,776) (38,947)
Primary income (loss) per share 0.23 0.03 (0.19) (1.30)
Fully diluted income per share 0.22 (C) (C) (C)
<FN>
(A) 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
20) and an increase in the estimated loss on disposal of discontinued
operations of $3,900,000 net of minority interest of $2,425,000 and
income tax benefit of $2,075,000 (see Note 21).
(B) The results for the three months ended December 31, 1995 were
materially affected by net charges of $17,347,000, net of income tax
benefit of $7,961,000. Such net charges included (i) a reduction in
carrying value of long-lived assets impaired or to be disposed of
amounting to $14,647,000 (see Note 1), (ii) an aggregate $7,798,000
consisting of equity in losses and writedown of investments in
affiliates of $5,247,000 and related provision for additional MetBev
related losses of $2,551,000 (see Note 29), (iii) facilities relocation
and corporate restructuring charges of $3,010,000 (see Note 31), (iv)
the Sequa Settlement of $1,718,000 (see Note 32), (v) accelerated
vesting of restricted stock of $1,640,000 (see Note 19) and (vi)
interest accruals related to income tax contingencies of $1,400,000 (see
Note 17) less the PEC Settlement (see Note 29) and the Columbia Gas
Settlement (see Note 20) aggregating $4,905,000. Additionally, the
results for the three months ended December 31, 1995 include a provision
for income tax contingencies of $6,100,000 (see Note 17).
(C) Fully diluted loss per share was not applicable subsequent to
the first quarter of each of 1994 and 1995 since contingent issuances of
common shares would have been antidilutive.
</FN>
(35) Subsequent Events
National Propane
On March 13, 1996 National Propane Partners, L.P. (the
"Partnership") was organized to acquire, own and operate the Company's
propane business. On March 26, 1996 the Partnership filed a
Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to an initial public offering of 6,190,476 of
its limited partner interest common units, representing 51.8% of the
Partnership, for an aggregate offering price, net of expenses, of
$118,200,000 (the "Offering"). The sale of such limited partner
interests, if consummated, is expected to result in a gain to the
Company, the amount of which cannot presently be determined. The
Partnership will concurrently issue 5,522,857 subordinated units,
representing 46.2% of the Partnership, as well as an aggregate 2%
general partner interest in the Partnership to a wholly-owned subsidiary
of the Company. Assuming consummation of the Offering, the Company will
transfer substantially all of its propane-related assets and liabilities
(other than a receivable from Triarc, deferred financing costs and net
deferred income tax liabilities of $81,392,000, $4,697,000 and
$21,562,000, respectively, at December 31, 1995) to the Partnership. In
connection therewith the Partnership will issue $120,000,000 of first
mortgage notes to institutional investors and repay all of its
outstanding borrowings under the Propane Bank Facility ($127,312,000 as
of December 31, 1995). The early prepayment of the Propane Bank
Facility will result in an extraordinary charge for the writeoff of
unamortized deferred financing costs, net of income tax benefit, which
as of December 31, 1995 would have amounted to approximately $2,800,000.
There can be no assurances, however, that the Company will be able to
consummate these transactions.
Graniteville
On March 31, 1996, the Company and Graniteville entered into an Asset
Purchase Agreement with Avondale Mills, Inc. and Avondale Incorporate
(collectively, "Avondale"), pursuant to which Triarc and Graniteville
have agreed to sell (the "Graniteville Sale") to Avondale Graniteville's
textile business, other than the assets and operations of C.H. Patrick
and certain other excluded assets, for $255,000,000 in cash, subject to
certain post-closing adjustments. Avondale will assume all liabilities
relating to the textile business, other than income taxes, long-term
debt ($210,371,000 as of December 31, 1995) which will be repaid at
closing and certain other specified liabilities. The Graniteville Sale
is expect to be consummated during the second quarter of 1996.
Consummation of the sale is subject to customary closing conditions. In
connection with the Graniteville Sale, Avondale and C.H. Patrick have
entered into a 10-year supply agreement pursuant to which C.H. Patrick
will sell textile dyes and chemicals to the combined
Graniteville/Avondale business. Based on current estimates, the impact
of this sale is expected to result from breakeven to a small loss, the
amount of which cannot presently be determined. The early prepayment of
Graniteville's long-term debt, including the Graniteville Credit
Facility, will result in an extraordinary charge for the writeoff of
unamortized deferred financing costs and payment of Minimum Commissions,
prepayment penalties and certain other costs, net of income tax benefit,
which as of December 31, 1995 would have aggregated approximately
$6,700,000. There can be no assurances, however, that the Company will
be able to consummate these transactions.
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, 1996 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--Condensed Balance Sheets (Parent Company Only) --
as of December 31, 1994 and 1995; Condensed
Statements of Operations (Parent Company Only) --
for the year ended April 30, 1993, the eight months
ended December 31, 1993 and the years ended
December 31, 1994 and 1995; Condensed Statements of
Cash Flows (Parent Company Only) -- for the year
ended April 30, 1993, the eight months ended
December 31, 1993 and the years ended December 31,
1994 and 1995
Schedule II--Valuation and Qualifying Accounts for the year
ended April 30, 1993, the eight months ended
December 31, 1993 and the years ended December 31,
1994 and 1995
Schedule V--Supplemental Information Concerning Property
Casualty Insurance Operations for the year ended
April 30, 1993, the eight months ended December 31,
1993 and the years ended December 31, 1994 and 1995
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).
2.6 - Letter of Intent dated January 25, 1996 between
the Registrant and Avondale Incorporated,
incorporated herein by reference to Exhibit 2.1
to the Triarc's Current Report on Form 8-K dated
January 31, 1996 (SEC file No. 1-2207).
2.7 - Asset Purchase Agreement dated as of August 9,
1995 among Mistic Brands, Inc., Joseph Victori
Wines, Inc., Best Flavors, Inc., Nature's Own
Beverage Company and Joseph Umbach, the
Companies, and Joseph Umbach, incorporated
herein by reference to Exhibit 2.1 to Triarc's
Quarterly Report on Form 8-K dated August 9,
1995 (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).
4.15 -- Third Amendment, dated as of March 31, 1995 to
the Revolving Credit and Term Loan Agreement,
dated as of October 7, 1994, among National
Propane Corporation, 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, incorporated herein by reference to
Exhibit 4.1 to Triarc's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995 (SEC
file No. 1-2207).
4.16 -- Loan Agreement dated as of May 1, 1995 by and
between FFCA Acquisition Corporation and Arby's
Restaurant Development Corporation, incorporated
herein by reference to Exhibit 4.1 to RC/Arby's
Corporation Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 (SEC file No.
0-20286).
4.17 -- Amendment No. 6, dated as of August 9, 1995, to
the Graniteville Credit Agreement, incorporated
herein by reference to Exhibit 10.1 to Triarc's
Current Report on Form 8-K dated August 9, 1995
(SEC file No. 1-2207).
4.18 -- Amendment No. 7, dated as of August 30, 1995, to
the Graniteville Credit Agreement, incorporated
herein by reference to Exhibit 10.2 to Triarc's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (SEC file No. 1-2207).
4.19 -- Amendment No. 8 dated as of December 26, 1995 to
the Graniteville Credit Agreement.*
4.20 -- Amended and Restated Loan Agreement dated as of
October 13, 1995 by and between FFCA Acquisition
Corporation and Arby's Restaurant Development
Corporation, incorporated herein by reference to
Exhibit 10.1 to RC/Arby's Corporation Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1995 (SEC file No. 0-20286).
4.21 -- Loan Agreement dated as of October 13, 1995 by
and between FFCA Acquisition Corporation and
Arby's Restaurant Holding Company, incorporated
herein by reference to Exhibit 10.2 to RC/Arby's
Corporation Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 (SEC file
No. 0-20286).
4.22 -- Fourth Amendment dated as of September 29, 1995
to the National Propane Credit Agreement,
incorporated herein by reference to Exhibit 10.5
to Triarc's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 (SEC file
No. 1-2207)
4.23 -- Credit Agreement dated as of August 9, 1995
among Mistic Brands, Inc., The Chase Manhattan
Bank (National Association) as agent, and the
other lenders party thereto (the "Mistic Credit
Agreement"), incorporated herein by reference to
Exhibit 10.1 to Triarc's Current Report on Form
8-K dated August 9, 1995 (SEC file No. 1-2207).
4.24 -- Fifth Amendment, dated as of December 26, 1995
to the National Propane Credit Agreement.*
4.25 -- Letter Agreement dated December 15, 1996 among
Arby's Restaurant Holding Company, Arby's
Restaurant Development Corporation and FFCA
Acquisition Corporation.*
4.26 -- Amendment Agreement dated as of October 6, 1995
among Mistic Brands, Inc., The Chase Manhattan
Bank, N.A., as agent, and the other lenders
party to the Mistic Credit Agreement.*
4.27 -- Second Amendment Agreement dated as of March 15,
1996 among Mistic Brands, Inc., The Chase
Manhattan Bank, N.A., as agent, and the other
lenders party to the Mistic Credit Agreement.*
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 -- 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)
10.6 -- 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).
10.7 -- Triarc's 1993 Equity Participation Plan,
incorporated herein by reference to Exhibit E to
the 1994 Proxy (SEC file No. 1-2207).
10.8 -- Form of Non-Incentive Stock Option Agreement
under Triarc's Amended and Restated 1993 Equity
Participation Plan, incorporated herein by
reference to Exhibit 12 to Triarc's Current
Report on Form 8-K dated April 23, 1993 (SEC
file No. 1-2207).
10.9 -- 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).
10.1 -- 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).
10.11 -- 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).
10.12 -- 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).
10.13 -- 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).
10.14 -- 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).
10.15 -- 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).
10.16 -- 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).
10.17 -- 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).
10.18 -- 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).
10.19 -- 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).
10.20 -- Amendment No. 2, dated as of March 27, 1995, to
the Paliughi Employment Agreement.*
10.21 -- Letter Agreement, dated as of January 1, 1996
between Triarc and Leon Kalvaria.*
10.22 -- Employment and SAR Agreement dated as of August
9, 1995 between Mistic Brands, Inc. and Michael
Weinstein.*
10.23 -- Employment and SAR Agreement dated as of August
9, 1995 between Mistic Brands, Inc. and Ernest
J. Cavallo.*
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*
23.1 -- Consent of Deloitte & Touche LLP*
23.2 -- Consent of Arthur Andersen LLP*
27.1 -- Financial Data Schedule for the year ended
December 31, 1995, 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).
- --------------------
* Filed herewith
(B) Reports on Form 8-K:
During the period from October 1, 1995 to December 31, 1995, the
Registrant filed the following report on Form 8-K:
The Registrant filed a report on Form 8-K on December 27, 1995
with respect to the delivery by SEPSCO to the indenture trustee for its
11 7/8% Senior Subordinated Debentures due February 1, 1998 (the
"Debentures") of a notice of redemption with respect to all of its
outstanding Debentures.
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: April 1, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on April 1, 1996 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)
JOSEPH A. LEVATO Executive Vice President and Chief Financial
............................Officer (Principal Financial Officer)
(JOSEPH A. LEVATO)
FRED H. SCHAEFER Vice President and Chief Accounting Officer
............................(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)
M.L. LOWENKRON Director
............................
(M. L. LOWENKRON)
DAVID E. SCHWAB II Director
..............................
(DAVID E. SCHWAB II)
RAYMOND S. TROUBH Director
..............................
(RAYMOND S. TROUBH)
GERALD TSAI, JR. Director
...............................
(GERALD TSAI, JR.)
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 1995, and for each of the two years in
the period ended December 31, 1995, and have issued our report
thereon dated March 29, 1996 (which report includes an
explanatory paragraph as to a change in the method of
accounting for impairment of long-lived assets and for long-
lived assets to be disposed of); such report is included
elsewhere in this Form 10-K. Our audits 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 audits.
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 31, 1996
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 statements of operations,
additional capital and cash flows of Triarc Companies, Inc. and
subsidiaries for the year 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 those 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 23 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)
CONDENSED BALANCE SHEETS
December 31,
--------------------------
1994 1995
----- -----
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 36,484 $ 12,550
Restricted cash 498 23,385
Receivables, net 649 4,564
Due from subsidiaries 26,981 29,763
Deferred income tax benefit 3,826 4,264
Prepaid expenses and other current assets 771 319
------------- -------------
Total current assets 69,209 74,845
------------- -------------
Note receivable from subsidiary -- 18,375
Investments in consolidated subsidiaries, at equity 272,448 208,043
Deferred income tax benefit 16,020 15,964
Investments and other assets 4,204 9,183
------------- -------------
$ 361,881 $ 326,410
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ -- $ 5,274
Accounts payable 4,074 1,456
Due to subsidiaries 21,308 14,515
Accrued expenses 29,441 21,955
Total current liabilities 54,823 43,200
Notes payable to subsidiaries 229,566 229,300
9 1/2% promissory note payable (a) 37,426 32,423
Other liabilities 55 837
Commitments and contingencies
Redeemable preferred stock, $12 stated value; designated 5,982,866 shares,
issued 5,982,866 shares and none 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
Class B common stock, $.10 par value; authorized 25,000,000 shares, issued none and
5,997,622 shares -- 600
Additional paid-in capital 79,497 162,020
Accumulated deficit (60,929) (97,923)
Less Class A common stock held in treasury at cost; 4,027,982 and 4,067,380 shares(45,473) (45,931)
Other (7,676) (914
------------ ------------
Total stockholders' equity (deficit) (31,783) 20,650
------------ ------------
$ 361,881 $ 326,410
============ ============
<FN>
(a) Matures in 1997 ($3,880,000), 1998 ($2,546,000), 1999
($1,712,000), 2000 ($702,000) and thereafter ($23,583,000).
</FN>
SCHEDULE I (Continued)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
Eight Months
Year Ended Ended Year Ended December 31,
April 30, December 31, ------------------------------
1993 1993 1994 1995
---- ---- ---- ----
(In thousands except per share amounts)
Income and (expenses):
Equity in net (losses) income of
continuing operations of
subsidiaries $ (15,634) $ 465 $ 29,610 $ (26,078)
Interest expense (24,858) (18,992) (28,807) (15,794)
General and administrative expense (4,050) (8,622) (6,660) (2,072)
Facilities relocation and corporate
restructuring (7,200) -- (8,800) (2,700)
Recovery of (provision for) doubtful
accounts from affiliates and
former affiliates (3,311) -- -- 3,049
Cost of a proposed acquisition not
consummated -- -- (5,480) --
Shareholder litigation and other
expenses (7,025) (6,424) (500) (24)
Settlements with former affiliates 8,900 -- -- --
Other income (expense) 517 (650) 508 3,102
------------- ------------- ------------- -------------
Loss from continuing operations
before income taxes (52,661) (34,223) (20,129) (40,517)
Benefit from income taxes 8,112 3,784 18,036 3,523
------------- ------------- ------------- -------------
Loss from continuing operations (44,549) (30,439) (2,093) (36,994)
Equity in losses of discontinued
operations of subsidiaries (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 (59,978) (39,478) (8,109) (36,994)
Preferred stock dividend requirements (121) (3,889) (5,833) --
------------- ------------- ------------- -------------
Net loss applicable to common stockholders$ (60,099) $ (43,367) $ (13,942) $ (36,994)
============= ============= ============= =============
Loss per share:
Continuing operations $ (1.73) $ (1.62) $ (.34) $ (1.24)
Discontinued operations (.09) (.40) (.17) --
Extraordinary charges (.26) (.02) (.09) --
Cumulative effect of changes in accounting
principles (.25) -- -- --
------------- ------------- ------------- -------------
Net loss $ (2.33) $ (2.04) $ (.60) $ (1.24)
============= ============= ============= =============
SCHEDULE I (Continued)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
Eight Months
Year Ended Ended Year Ended December 31,
April 30, December 31, ------------------------------
1993 1993 1994 1995
---- ---- ---- ----
(In thousands)
Cash flows from operating activities:
Net loss $ (59,978) $ (39,478) $ (8,109) $ (36,994)
Adjustments to reconcile net loss to net
cash provided by (used in)
operating activities:
Equity in net losses (income) of
subsidiaries 27,575 8,574 (23,594) 26,078
Dividends from subsidiaries 3,127 -- 40,000 22,721
Depreciation and amortization 1,248 1,371 2,573 3,626
Provision for facilities relocation
and corporate restructuring 7,200 -- 8,800 2,700
Payments of facilities relocation and
corporate restructuring (258) (2,970) (5,136) (3,278)
Provision for cost of a proposed
acquisition not consummated
in excess of payments -- -- 1,475 --
Interest capitalized and not paid -- -- 3,247 3,271
Reduction in commuted insurance
liabilities credited against
notes payable -- -- -- (3,000)
Change in due from/to subsidiaries and
other affiliates including
capitalized interest ($21,017 in
1994 and $9,569 in 1995) (15,214) 18,121 33,034 1,332
Deferred income tax provision (benefit) (2,199) 5,591 (2,899) (382)
Provision for doubtful accounts from
former affiliates 3,311 -- -- --
Cumulative effect of change in accounting
principle 3,488 -- -- --
Other, net 2,898 449 (1,968) 489
Increase in receivables -- -- (649) (4,715)
Increase in restricted cash -- -- (498) (22,887)
Decrease (increase) in prepaid expenses and
other current assets (1,156) (1,824) 2,399 (214)
Increase (decrease) in accounts payable
and accrued expenses 5,824 (376) (18,249) 4,522
Increase in other liabilities 3,950 -- -- --
------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities (20,184) (10,542) 30,426 (6,731)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Business acquisitions -- -- -- (29,240)
Loan to subsidiaries -- -- -- (18,375)
Investment in an affiliate -- -- -- (5,340)
Capital contributed to a subsidiary -- -- -- (8,865)
Capital expenditures (21) (3,047) (83) (57)
Purchase of minority interests (21,100) -- -- --
Redemption of investment in affiliate 2,100 -- -- --
------------- ------------- ------------- -------------
Net cash used in investing
activities (19,021) (3,047) (83) (61,877)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Issuance (repurchase) of Class A common stock 9,650 -- (344) (1,170)
Payment of preferred dividends (9) (2,557) (5,833) --
Repayment of long-term debt (20,907) -- -- --
Borrowings from subsidiaries 141,600 -- -- 45,900
Repayment of notes and loans payable to
subsidiaries (57,115) -- -- --
Other (4,620) (1,056) -- (56)
------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 68,599 (3,613) (6,177) 44,674
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents 29,394 (17,202) 24,166 (23,934)
Cash and cash equivalents at beginning
of period 126 29,520 12,318 36,484
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ 29,520 $ 12,318 $ 36,484 $ 12,550
============= ============= ============= =============
TRIARC COMPANIES, INC. AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Additions
------------------------
Balance atCharged 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, 1993:
Receivables - allowance for doubtful
accounts:
Trade $ 6,890 $ 3,783 $ -- $ (3,310) $ 7,363
Affiliate 32,216 3,321 161 (1) (35,698) --
---------- --------------------- ---------- ---------
Total $ 39,106 $ 7,104 $ 161 $(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
========== ===================== ========== =========
Year ended December 31, 1995:
Receivables - allowance for doubtful
accounts:
Trade $ 5,390 $ 3,267 $ 327 (3) $ (2,840)(4)$6,144
Affiliate -- 800 -- -- 800
---------- --------------------- ---------- ---------
Total $ 5,390 $ 4,067 $ 327 $ (2,840) $ 6,944
========== ===================== ========== =========
Insurance loss reserves $ 10,827 $ 110 $ -- $ (1,539)(5) $ 9,398
=============================== ========== =========
<FN>
(1) Charged to affiliates.
(2) Amount represents the charge for the Lag Months (see Note 3 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".
</FN>
SCHEDULE V
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY CASUALTY
INSURANCE OPERATIONS
Claims and Claim
Reserves Adjustment
for Unpaid Expenses incurred Paid
Claims and Related to Claims and
Claim Net -------------- Claim
Adjustment Earned Investment Current Prior AdjustmentPremiums
Affiliation with the RegistrantExpenses (1)Premiums Income Year Years Expenses Written
------------------------------ ------------ ------- ------- ----- ----- -------- -------
(In thousands)
Consolidated property-
casualty entities:
Fiscal year ended
April 30, 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
======== ======== ======== ======== ======== ======== ========
Year ended
December 31, 1995 $9,398 $ -- $ 486 $ 34 $ 530 $1,540 $ --
======== ======== ======== ======== ======== ======== ========
<FN>
(1) Does not include claims losses of $14,027,000, $12,899,000,
$1,610,000 and $1,343,000 at April 30, 1993 and December 31,
1993, 1994 and 1995, respectively, which have been classified as
"Accounts payable".
</FN>