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TRIARC COMPANIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
JANUARY 3, 1999
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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
FOR THE FISCAL YEAR ENDED JANUARY 3, 1999.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________.
COMMISSION FILE NUMBER 1-2207
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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.)
280 PARK AVENUE
NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 451-3000
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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 $288,807,069 as of March
15, 1999. There were 23,320,629 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, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this 10-K incorporates information by reference from an
amendment hereto or to the registrant's definitive proxy statement, in either
case which will be filed no later than 120 days after January 3, 1999.
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
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," that
are not historical facts, including most importantly, those statements preceded
by, followed by, or that include the words "may," "believes," "expects,"
"anticipates," or the negation thereof, or similar expressions, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Triarc Companies, Inc. ("Triarc"
or the "Company") and its subsidiaries to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
following: competition, including product and pricing pressures; success of
operating initiatives; the ability to attract and retain customers; development
and operating costs; advertising and promotional efforts; brand awareness; the
existence or absence of adverse publicity; market acceptance of new product
offerings; new product and concept development by competitors; changing trends
in customer tastes; the success of multi-branding; availability, location and
terms of sites of restaurant development by franchisees; the ability of
franchisees to open new restaurants in accordance with their development
commitments; the performance by material customers of their obligations under
their purchase agreements; 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;
the success of the Company in identifying systems and programs that are not Year
2000 compliant; unexpected costs associated with Year 2000 compliance or the
business risk associated with Year 2000 non-compliance by customers and/or
suppliers; general economic, business and political conditions in the countries
and territories in which the Company operates, including the ability to form
successful strategic business alliances with local participants; changes in, or
failure to comply with, government regulations (including accounting standards,
environmental laws and taxation requirements); regional weather conditions;
changes in wholesale propane prices; the costs and other effects of legal and
administrative proceedings; the impact of general economic conditions on
consumer spending; and other risks and uncertainties referred to in this Form
10-K and other current and periodic filings by Triarc and National Propane
Partners, L.P. with the Securities and Exchange Commission. 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. In addition, it is
Triarc's policy generally not to make any specific projections as to future
earnings, and Triarc does not endorse any projections regarding future
performance that may be made by third parties.
Item 1. Business.
INTRODUCTION
Triarc is predominantly a holding company which, through its subsidiaries,
is a leading premium beverage company, a restaurant franchisor and a soft drink
concentrates producer. Our premium beverage operations are conducted through the
Triarc Beverage Group ("TBG", which consists of Snapple Beverage Corp.
("Snapple"), Mistic Brands, Inc. ("Mistic") and Cable Car Beverage Corporation
("Cable Car"). The restaurant operations are conducted through Arby's, Inc.
(d/b/a Triarc Restaurant Group) ("Arby's"), the franchisor of the Arby's(R)
restaurant system. The soft drink concentrates business is conducted through
Royal Crown Company, Inc. ("Royal Crown"). Snapple is a leading marketer and
distributor of premium beverages in the United States. Arby's is the world's
largest restaurant system specializing in slow-roasted roast beef sandwiches and
according to Nation's Restaurant News, the tenth largest quick service
restaurant chain in the United States, based on 1997 domestic systemwide sales.
In addition, we have an equity interest in the liquefied petroleum gas
business through National Propane Corporation ("National Propane"), the managing
general partner of National Propane Partners, L.P. (the "Partnership") and its
operating subsidiary partnership, National Propane, L.P. (the "Operating
Partnership"). For information regarding the revenues, operating profit and
identifiable assets for our businesses for the fiscal year ended January 3,
1999, see "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 24 to the Consolidated Financial Statements
of Triarc Companies, Inc. and Subsidiaries (the "Consolidated Financial
Statements").
Our corporate predecessor was incorporated in Ohio in 1929. We
reincorporated in Delaware, by means of a merger, in June 1994. Our principal
executive offices are located at 280 Park Avenue, New York, New York 10017 and
our telephone number is (212) 451-3000. Our website address is: www.triarc.com.
BUSINESS STRATEGY
The key elements of our business strategy include (i) focusing our resources
on our consumer products businesses -- beverages and restaurants, (ii) building
strong operating management teams for each of the businesses and (iii) providing
strategic leadership and financial resources to enable the management teams to
develop and implement specific, growth-oriented business plans.
The senior operating officers of our businesses have implemented individual
plans focused on increasing revenues and improving operating efficiency. In
addition, we continuously evaluate and hold discussions with third parties
regarding various acquisitions and business combinations to augment our
businesses. The implementation of this business strategy may result in increases
in expenditures for, among other things, acquisitions and, over time, marketing
and advertising. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." It is our policy to publicly announce an
acquisition or business combination only after an agreement with respect to such
acquisition has been reached.
WITHDRAWAL OF GOING PRIVATE PROPOSAL; DUTCH AUCTION TENDER OFFER
On October 12, 1998, we announced that our Board of Directors had formed a
Special Committee to evaluate a proposal we had received from Nelson Peltz and
Peter W. May, the Chairman and Chief Executive Officer and the President and
Chief Operating Officer, respectively, of the Company for the acquisition by an
entity to be formed by them of all of the outstanding shares of common stock of
the Company (other than the approximately 6.0 million shares owned by an
affiliate of Messrs. Peltz and May) for $18.00 per share payable in cash and
securities (the "Proposed Going Private Transaction"). On March 10, 1999, we
announced that we had been advised by Messrs. Peltz and May that they had
withdrawn the Proposed Going Private Transaction effective immediately because
they did not believe that it was in the best interests of our stockholders at
that time. On that date we also announced that our Board of Directors
unanimously approved a tender offer for up to 5.5 million shares of the
Company's Common Stock at a price of not less than $16 1/4 and not more than $18
1/4 per share, pursuant to a "Dutch Auction."
The tender offer commenced on March 12, 1999. The tender offer, proration
period and withdrawal rights will expire at 12:00 midnight, New York City time
on April 13, 1999, unless the tender offer is extended.
The tender offer is subject to various terms and conditions described in
offering materials that were mailed on or about March 12, 1999 to our
shareholders of record as of March 10, 1999. The tender offer is conditioned on
3,500,000 shares of Common Stock being tendered, unless we waive this condition.
Wasserstein Perella & Co., Inc. is acting as Dealer Manager for the offer
and Georgeson & Company Inc. is serving as Information Agent.
RECENT ACQUISITIONS
On February 26, 1999, Snapple acquired Millrose Distributors, Inc.
("Millrose") for $17.25 million in cash, subject to adjustment. Prior to the
acquisition, Millrose was the largest non-company owned distributor of
Snapple(R) products and the second largest distributor of Stewarts(R) products
in the United States. Millrose's distribution territory, which includes parts of
New Jersey, is contiguous to that of Mr. Natural, Inc. ("Mr. Natural"), our
company-owned New York City and Westchester County distributor. In 1998,
Millrose had net sales of approximately $39 million.
REFINANCING OF SUBSIDIARY INDEBTEDNESS
On February 25, 1999 our subsidiaries completed the sale of $300 million
principal amount 10 1/4% senior subordinated notes due 2009, pursuant to Rule
144A of the Securities Act and concurrently entered into a new $535 million
senior secured credit facility.
In addition, on such date our subsidiary RC/Arby's Corporation delivered a
notice of redemption to holders of its $275 million principal amount 9 3/4%
senior secured notes due 2000 (the "RC/Arby's Notes"). The redemption occurred
on March 30, 1999 at a redemption price of 102.786% of the principal amount,
plus accrued and unpaid interest.
Both financings were issued through our new wholly-owned subsidiary, Triarc
Consumer Products Group, LLC ("Triarc Consumer Products Group") and its
subsidiaries. Triarc Consumer Products Group owns our premium beverage (Snapple,
Mistic(R) and Stewart's), restaurant franchising (Arby's, T.J. Cinnamons(R) and
Pasta Connection(TM)) and soft drink concentrates (Royal Crown(R), Diet Rite(R)
and Nehi(R)) businesses.
Triarc Consumer Products Group has used the net proceeds from the financings
to: (a) redeem the RC/Arby's Notes (approximately $287.1 million); (b) refinance
the Triarc Beverage Group's credit facility ($284.3 million principal amount
outstanding); (c) pay for the acquisition of Millrose (approximately $17.3
million); (d) pay customary fees and expenses (approximately $28 million); and
(e) fund a distribution to Triarc with the remaining proceeds. We will use the
distribution for general corporate purposes, which may include working capital,
future acquisitions and investments, repayment or refinancing of indebtedness or
restructurings or repurchases of our securities, including the Dutch Auction
tender offer described above.
The notes issued pursuant to the private placement have not been registered
under the Securities Act, and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
Triarc Consumer Products Group is obligated to cause a registration statement
with respect to a registered exchange offer or with respect to resales of the
notes to be declared effective no later than August 24, 1999. This Annual Report
on Form 10-K shall not constitute an offer to sell or the solicitation of an
offer to buy, nor shall there be any sale of the notes in any state or
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any state or
jurisdiction.
ISSUANCE OF ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES
On February 9, 1998 we sold $360 million principal amount at maturity of
Zero Coupon Convertible Subordinated Debentures due 2018 (the "Debentures") to
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), as the initial purchaser
for an offering to "qualified institutional buyers" (as defined under Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act")) in
compliance with Rule 144A. The Debentures were issued at a discount of 72.177%
from the principal amount thereof payable at maturity. The issue price
represented a yield to maturity of 6.5% per annum (computed on a semi-annual
bond equivalent basis). The net proceeds from the sale of the Debentures, after
deducting placement fees and expenses of approximately $4.0 million, were
approximately $96.2 million. The Debentures are convertible into shares of our
Class A Common Stock at a conversion rate of 9.465 shares per $1,000 principal
amount at maturity, which represents an initial conversion price of
approximately $29.40 per share of Common Stock. The conversion price will
increase over the life of the Debentures at 6.5% per annum computed on a
semi-annual bond equivalent basis. The conversion of all of the Debentures into
our Class A Common Stock would result in the issuance of approximately 3.4
million shares of Class A Common Stock. We may not redeem the Debentures prior
to February 9, 2003, but we may redeem the Debentures at any time thereafter. In
connection with the sale of the Debentures, we purchased from Morgan Stanley
1,000,000 shares of our Class A Common Stock for approximately $25.6 million.
SALE OF NATIONAL PROPANE PARTNERS, L.P.
On April 5, 1999, the Partnership and Columbia Propane Corporation
("Columbia"), a subsidiary of Columbia Energy Group, signed an agreement whereby
Columbia would acquire the outstanding general and limited partnership interests
in the Partnership. Consummation of the acquisition is subject to a number of
conditions. See "Item 1. -- Business -- Liquefied Petroleum Gas -- Recent
Developments."
FISCAL YEAR
Effective January 1, 1997, we adopted a 52/53 week fiscal convention for the
Company and each subsidiary (other than National Propane) whereby our fiscal
year will end each year on the Sunday that is closest to December 31 of such
year. Each fiscal year generally will be comprised of four 13 week fiscal
quarters, although in some years the fourth quarter will represent a 14 week
period.
BUSINESS SEGMENTS
Snapple, Mistic, and Cable Car conduct our premium beverage operations,
Royal Crown conducts our soft drink concentrate operations, and Arby's conducts
our franchise restaurant operations.
PREMIUM BEVERAGES (SNAPPLE, MISTIC AND STEWART'S)
Through Snapple, Mistic and Cable Car, we are a leader in the approximately
$3.0 billion wholesale premium beverage market. According to A.C. Nielsen data,
in 1998 our premium beverage brands had the leading share (34%) of premium
beverage sales volume in grocery stores, mass merchandisers and convenience
stores.
Snapple
Snapple markets and distributes all-natural ready-to-drink teas, juice
drinks and juices. During 1998, Snapple sales represented approximately 79% of
our total premium beverage case sales. According to A.C. Nielsen data, in 1998
Snapple had the leading share (26%) of premium beverage sales volume in grocery
stores, mass merchandisers and convenience stores. Snapple has a stable base of
core products that are consistently Snapple's top sellers. Snapple's current top
twenty products have contributed approximately 70% of Snapple's sales in each of
the last three years.
Since acquiring Snapple in May 1997, we have strengthened our distributor
relationships, improved promotional initiatives and significantly increased new
product introductions and packaging innovations. These activities contributed to
an increase in Snapple case sales of 8.4% in 1998 over 1997. The most
important product introduction in 1998 was WhipperSnapple(R), a smoothie-like
beverage which, in 1998, was named Convenience Store News Magazine beverage
product of the year and won the American Marketing Association's Edison Award
for best new beverage. WhipperSnapple is a shelf stable product containing dairy
ingredients and a blend of fruit juices and purees. Since 1997, we have
introduced various new products and flavors in addition to WhipperSnapple,
including several herbal and green teas and Snapple Farms(R), a line of 100%
fruit juices which is available in five flavors. In April 1999, Snapple expects
to introduce Snapple Elements(TM), a line of all natural juice drinks and teas
enhanced with herbal ingredients. In addition, Snapple expects to introduce
another major new product line during the Spring of 1999.
Mistic
Mistic markets and distributes a wide variety of premium beverages,
including fruit drinks, ready-to-drink teas, juices and flavored seltzers under
the Mistic, Mistic Rain Forest Nectars(R) and Mistic Fruit Blast(TM) brand
names. Since acquiring Mistic in August 1995, we have introduced more than 35
new flavors, a line of 100% fruit juices, various new bottle sizes and shapes
and numerous new package designs. During 1999, Mistic expects to introduce
several new products and packages, including a smoothie-like beverage using the
WhipperSnapple technology.
Stewart's
Cable Car, the exclusive soft drink licensee of the Stewart's trademark,
markets and distributes Stewart's brand premium soft drinks, including Root
Beer, Orange N' Cream, Cream Ale, Ginger Beer, Creamy Style Draft Cola, Classic
Key Lime, Lemon Meringue, Cherries N' Cream and Grape. Cable Car holds the
exclusive perpetual worldwide license to manufacture, distribute and sell
Stewart's brand beverages and owns the Fountain Classics(R) trademark. Through
the fourth quarter of 1998, Stewart's has experienced 25 consecutive quarters of
double-digit percentage case sales increases compared to the prior year's
comparable quarter. We acquired Cable Car in November 1997 and have grown
Stewart's case sales by 17% in 1998 over 1997 primarily by increasing
penetration in existing markets, entering new markets and continuing product
innovation.
Products
Our premium beverage products compete in a number of product categories,
including fruit flavored beverages, iced teas, lemonades, carbonated sodas,
100% fruit juices, smoothies, nectars and flavored seltzers. These products are
generally available in the United States in some combination of 16 oz., 12 oz.
or 10 oz. glass bottles, 32 oz. or 20 oz. PET (plastic) bottles and 11.5 oz.
cans.
Co-Packing Arrangements
More than 20 co-packers strategically located throughout the United States
produce our premium beverage products for us under formulation requirements and
quality control procedures that we specify. We select and monitor the producers
to ensure adherence to our production procedures. We regularly analyze samples
from production runs and conduct spot checks of production facilities. We
purchase most packaging and raw materials and arrange for their shipment to our
co-packers and bottlers. Our three largest co-packers accounted for
approximately 50% of our aggregate case production of premium beverages in 1998.
Our contractual arrangements with our co-packers are typically for a fixed
term that is automatically renewable for successive one year periods. During the
term of the agreement, the co-packer generally commits a certain amount of its
monthly production capacity to us. Snapple has committed to order certain
guaranteed volumes under substantially all of its contracts. If the volume
actually ordered is less than the guaranteed volume, Snapple is typically
required to pay the co-packer the product of (1) an amount per case specified in
the agreement and (2) the difference between the volume actually ordered and the
guaranteed volume. At January 3, 1999, Snapple had reserves of approximately
$4.6 million for payments through 2000 under its long-term production contracts
with co-packers. We paid approximately $5.9 million under such take-or-pay
agreements during the seven months in 1997 that we owned Snapple and $11.3
million in 1998, primarily related to obligations entered into by the prior
owners of Snapple. Mistic has committed to order a certain guaranteed volume
(in two instances) or percentage of its products sold in a region (in
another instance) or to make payments in lieu thereof. Cable Car has no
agreements requiring it to make minimum purchases. As a result of these co-
packing arrangements, we have generally avoided significant capital expenditures
or investments for bottling facilities or equipment, and accordingly our
production related fixed costs have been minimal.
We believe we have arranged for sufficient production capacity to meet our
1999 requirements and that, in general, the industry has excess production
capacity that we could use. We also expect that in 1999 we will meet
substantially all of our minimum production requirements under our co-packing
agreements.
Raw Materials
We purchase most raw materials used in the preparation and packaging of our
premium beverage products and supply them to our co-packers. We have chosen, for
quality control and other purposes, to purchase certain raw materials, such as
aspartame, on an exclusive basis from single suppliers although we believe that
adequate sources of such raw materials are available from multiple suppliers. We
purchase substantially all of our flavor requirements from six suppliers,
although we have designated one supplier as our preferred supplier of flavors.
We purchase all of our glass from three suppliers and all of plastic (PET)
bottles from four suppliers, although one glass supplier has the right to supply
up to 75% of our requirements for certain specified packaging, one glass
supplier has the right to supply up to 95% of certain packaging to Cable Car and
one supplier has the right, subject to certain conditions, to supply any new
plastic containers used by Snapple or Mistic. Since the acquisition of Snapple,
we have been negotiating and continue to negotiate, new supply and pricing
arrangements with our suppliers. We believe that, if required, alternate sources
of raw materials, flavors and glass bottles are available.
Distribution
We currently sell our premium beverages through a network of distributors
that include specialty beverage, carbonated soft drink and licensed
beer/wine/spirits distributors. In addition, Snapple uses brokers for
distribution of some Snapple products in Florida and Georgia. We distribute our
products internationally primarily through one distributor in each country,
other than in Canada, where Perrier Group of Canada Ltd. is Snapple's master
distributor and where we also use brokers and direct account selling. We
typically grant distributors exclusive rights to sell Snapple, Mistic and/or
Stewart's products within a defined territory. We have written agreements with
distributors who represent approximately 70% of our volume. The agreements are
typically either for a fixed term renewable upon mutual consent or are
perpetual, and are terminable by us for cause, upon certain defaults or failure
to perform under the agreement. The distributor, though, may generally terminate
its agreement upon specified prior notice. Snapple owns three of its largest
distributors, Mr. Natural (New York Metropolitan area), Pacific Snapple
Distributors, Inc. (parts of Southern California) and Millrose (parts of New
Jersey).
No non-company owned distributor accounted for more than 5% of total case
sales in 1996, 1997 or 1998. We believe that we could find alternative
distributors if our relationships with our largest distributors were terminated.
International sales accounted for less than 10% of our premium beverage
sales in each of 1996, 1997 and 1998. Since we acquired Snapple, Royal Crown's
international group has been responsible for the sales and marketing of our
premium beverages outside North America.
Sales And Marketing
Snapple and Mistic have a combined sales and marketing staff. Cable Car has
its own sales and marketing staff. The sales forces are responsible for
overseeing sales to distributors, monitoring retail account performance and
providing sales direction and trade spending support. Trade spending includes
price promotions, slotting fees and local consumer promotions. The sales force
handles most accounts on a regional basis with the exception of large national
accounts, which are handled by a national accounts group. We combined the
Snapple/Mistic sales forces by geographic zones. We organized Cable Car's sales
force into two divisions. We employed a sales and marketing staff, excluding
that of Snapple-owned distributors, of approximately 233 as of January 3, 1999.
We intend to maintain consistent advertising campaigns for our brands as an
integral part of our strategy to stimulate consumer demand and increase brand
loyalty. In 1999, we plan to employ a combination of network advertising
complemented with local spot advertising in our larger markets. We expect that
in most markets Snapple will use television as the primary advertising medium
and radio as the secondary medium. Mistic will use radio as its primary
advertising medium. We also employ outdoor, newspaper and other print media
advertising, as well as in-store point of sale promotions.
SOFT DRINK CONCENTRATES (ROYAL CROWN)
Through Royal Crown we participate in the retail carbonated soft drink
market. Royal Crown produces and sells concentrates used in the production of
carbonated soft drinks. Royal Crown sells these concentrates to independent,
licensed bottlers who manufacture and distribute finished beverage products
domestically and internationally. Royal Crown's products include: RC Cola(R),
Diet RC Cola(R), Cherry RC Cola(R), RC Edge(TM), Diet Rite Cola(R), Diet Rite
flavors, Nehi, Upper 10(R), and Kick(R). RC Cola is the largest national brand
cola available to the independent bottling system (bottlers who do not bottle
either Coca-Cola or Pepsi-Cola).
Royal Crown is the exclusive supplier of cola concentrate and a primary
supplier of flavor concentrates to Cott Corporation, which, based on public
disclosures by Cott, is the largest supplier of premium retailer branded
beverages in the United States, Canada and the United Kingdom. We also sell our
products internationally. Our international export business has grown at an 18%
compound annual growth rate over the five years ended 1997, although growth
slowed to 4% in 1998 due to adverse economic conditions in some of our markets,
especially Russia. Royal Crown's share of the overall domestic carbonated soft
drink market was approximately 1.7% in 1997 according to Beverage Digest/Maxwell
estimates. During 1998, Royal Crown's soft drink brands had approximately a 1.6%
share of national supermarket volume.
Royal Crown's Bottler Network
Royal Crown sells its flavoring concentrates for branded products to
independent licensed bottlers in the United States and 65 foreign countries,
including Canada. Consistent with industry practice, Royal Crown assigns each
bottler an exclusive territory for bottled and canned products within which no
other bottler may distribute Royal Crown branded soft drinks. As of January 3,
1999, Royal Crown products were packaged and/or distributed domestically by 150
licensees, covering 50 states and Puerto Rico. As of January 3, 1999, Royal
Crown's independent bottlers operated a total of 35 production centers pursuant
to 108 production and distribution agreements and operated under 42
distribution-only agreements.
Royal Crown enters into a license agreement with each of its bottlers which
it believes is comparable to those prevailing in the industry. The duration of
the license agreements varies, but Royal Crown may terminate any such agreement
in the event of a material breach of the terms thereof.
Royal Crown's ten largest bottler groups accounted for approximately 79% of
Royal Crown's domestic revenues from concentrate for branded products during
1997 and 79% during 1998. RC Chicago Bottling Group accounted for approximately
23% of Royal Crown's domestic revenues from concentrate for branded products
during 1998. American Bottling Company accounted for approximately 18%
of such revenues during 1998. Although we believe that Royal Crown could find
new bottlers to license the RC Cola brand to, in the short term Royal Crown's
sales would decline if these major bottlers stopped selling RC Cola brand
products.
Private Label
Royal Crown believes that private label sales through Cott represent an
opportunity to benefit from sales by retailers of store brands. Royal Crown's
private label sales began in late 1990. Unit sales of concentrate to Cott in
1998 decreased by 15% over sales in 1997 due primarily to inventory reduction
programs of Cott. Royal Crown's revenues from sales to Cott were approximately
12.6% of its total revenues in 1996, 15.8% in 1997 and 17.2% in 1998.
Royal Crown sells concentrate to Cott under a concentrate supply agreement
signed in 1994. Under the Cott agreement, (1) Royal Crown is Cott's exclusive
worldwide supplier of cola concentrates for retailer-branded beverages in
various containers; (2) Cott must purchase from Royal Crown at least 75% of its
total worldwide requirements for carbonated soft drink concentrates for
beverages sold in such containers; (3) the initial term is 21 years and there
are multiple six-year extensions; and (4) as long as Cott purchases a specified
minimum number of units of private label concentrate in each year of the
agreement, Royal Crown will not manufacture and sell private label carbonated
soft drink concentrates to parties other than Cott anywhere in the world.
In addition, Royal Crown supplies Cott with non-cola carbonated soft drink
concentrates. Through its private label program, Royal Crown develops new
concentrates specifically for Cott's private label accounts. The proprietary
formulae Royal Crown uses for this private label program are customer-specific
and differ from those of Royal Crown's branded products. Royal Crown works with
Cott to develop flavors according to each trade customer's specifications. Royal
Crown retains ownership of the formulae for such concentrates developed after
the date of the Cott agreement, except, in most cases, upon termination of the
Cott agreement as a result of breach or non-renewal by Royal Crown.
Distribution
Bottlers distribute finished soft drink products through the take home
channel -- comprised of supermarkets, the convenience channel -- comprised of
convenience stores and other small retailers; fountain/food service channel --
comprised of fountain syrup sales and restaurant single drink sales; and vending
channel -- consisting of bottle and can sales through vending machines. Royal
Crown's bottlers distribute their products primarily through the take-home
channel.
International
Royal Crown's sales outside the United States were approximately 8.7% of its
total revenues in 1996, 10.9% in 1997 and 11.3% in 1998. Sales outside the
United States of branded concentrates were approximately 12.3% of Royal Crown's
total branded concentrate sales in 1996, 13.9% in 1997 and 13.6% in 1998. The
decreases in percentages for 1998 are mainly attributable to economic conditions
in Russia. As of January 3, 1999, 105 bottlers and 14 distributors sold Royal
Crown branded products outside the United States in 65 countries, with
international export sales in 1998 distributed among Canada (7.4%), Latin
America and Mexico (33.4%), Europe (16.0%), the Middle East/Africa (23.6%) and
the Far East/Pacific Rim (19.6%). While the financial and managerial resources
of Royal Crown have been focused on the United States, we believe significant
opportunities exist for Royal Crown in international markets. New bottlers were
added in 1998 to the following markets: Russia, Ukraine, Croatia, Latvia,
Brazil, Spain, Syria and the Dominican Republic.
Product Development And Raw Materials
Royal Crown believes that it has a history 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 1997,
Royal Crown introduced a new version of Diet Rite Cola and in 1998 Royal Crown
introduced two new Diet Rite flavors, Iced Mocha and Lemon Sorbet and began to
use sucralose in Diet RC Cola.
Flavoring ingredients and sweeteners are generally available on the open
market from several sources, although as noted above, we have agreed to purchase
certain raw materials on an exclusive or preferred basis from single suppliers.
FRANCHISE RESTAURANT SYSTEM (ARBY'S)
Through the Arby's franchise business, we participate in the approximately
$100 billion quick service restaurant segment of the domestic restaurant
industry. Arby's, which will celebrate its 35th anniversary in 1999, enjoys a
high level of brand recognition. In 1998, Arby's had a market share of
approximately 73% of the roast beef sandwich segment of the quick service
restaurant category. In addition to various slow-roasted roast beef sandwiches,
Arby's also offers a selected menu of chicken, turkey, ham and submarine
sandwiches, side-dishes and salads. Arby's also currently offers franchisees the
opportunity to multi-brand at Arby's locations with T.J. Cinnamons products,
which are primarily gourmet cinnamon rolls, gourmet coffees and other related
products. Arby's expects to offer franchisees the opportunity to multi-brand
with Pasta Connection products, which are pasta dishes with a variety of
different sauces, after we complete the final stages of test marketing in 1999.
As of January 3, 1999, the Arby's restaurant system consisted of 3,135
franchised restaurants, of which 2,965 operated within the United States and 170
operated outside the United States. Of the domestic restaurants, approximately
300 were multi-branded locations that also sell T.J.
Cinnamons products.
Currently all of the Arby's restaurants are owned and operated by
franchisees. Because we own no restaurants, we avoid the significant capital
costs and real estate and operating risks associated with restaurant operations.
As a franchisor we receive franchise royalties from all Arby's restaurants and
upfront franchise fees from our restaurant operators for each new unit opened.
Our average franchise royalty rate in 1998 was 3.2% of franchise revenues, which
included royalties of 4% from most existing units and all new domestic units
opened.
From 1996 to 1998, Arby's system-wide sales grew at a compound annual growth
rate of 6.1% to $2.2 billion. Through January 3, 1999 the Arby's system has
experienced eight consecutive quarters of domestic same store sales growth
compared to the prior year's comparable quarter. During 1998, our franchisees
opened 130 new Arby's and closed 87 underperforming Arby's. In addition, our
franchisees opened 199 multi-branded T.J. Cinnamons in Arby's units in 1998. As
of January 3, 1999, franchisees have committed to open up to 1,011 Arby's
restaurants over the next 12 years.
In May 1997, Arby's sold all of the stock of the two corporations owning all
of the 355 company-owned Arby's restaurants to RTM, Inc. ("RTM"), the largest
franchisee in the Arby's system. Arby's now derives its revenues from two
principal sources: (1) royalties from franchisees and (2) franchise fees. Prior
to this sale, Arby's primarily derived its revenues from sales at company-owned
restaurants.
Arby's Restaurants
Arby's opened its first restaurant in Youngstown, Ohio in 1964. As of
January 3, 1999, franchisees operated Arby's restaurants in 48 states and 10
foreign countries. As of January 3, 1999, the six leading states by number of
operating units were: Ohio, with 242 restaurants; Texas, with 174 restaurants;
Michigan, with 161 restaurants; Indiana, with 157 restaurants; California, with
156 restaurants; and Florida with 151 restaurants. Canada is the country outside
the United States with the most operating units, with 118 restaurants.
Arby's restaurants in the United States and Canada typically range in size
from 2,500 square feet to 3,000 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 30 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 Arby's restaurants at the
beginning and end of each year from 1995 to 1998.
1995 1996 1997 1998
----- ----- ----- -----
Restaurants open at beginning of period........2,790 2,955 3,030 3,092
Restaurants opened during period............. ...222 132 125 130
Restaurants closed during period..................57 57 63 87
-- -- -- --
Restaurants open at end of period..............2,955 3,030 3,092 3,135
===== ===== ===== =====
Since January 1, 1995, 609 new Arby's were opened and 264 underperforming Arby's
restaurants have closed. We believe that this has contributed to the average
annual unit volume increase of the Arby's system, as well as to an improvement
of the overall brand image of Arby's.
Franchise Network
At January 3, 1999, 530 Arby's franchisees operated 3,135 separate
restaurants. The initial term of the typical "traditional" franchise agreement
is 20 years. Arby's does not offer any financing arrangements to its
franchisees.
Arby's franchisees opened 15 new restaurants outside of the United
States during 1998. Arby's also had territorial agreements with international
franchisees in five countries at January 3, 1999. 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. 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 requires an initial $37,500 franchise fee for the first franchised
unit and $25,000 for each subsequent unit and a monthly royalty payment equal to
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 was 3.2% in 1998. Franchisees typically pay a
$10,000 commitment fee, credited against the franchise fee referred to above,
during the development process for a new restaurant. At January 3, 1999, we had
commitments from franchisees to open 1,011 new Arby's restaurants over the next
twelve years.
Franchised restaurants are required to be operated in accordance with
uniform operating standards and specifications relating to the selection,
quality and preparation of menu items, signage, decor, equipment, uniforms,
suppliers, maintenance and cleanliness of premises and customer service. Arby's
continuously monitors franchisee operations and inspects restaurants
periodically to ensure that company practices and procedures are being followed.
Advertising And Marketing
The Arby's system through its franchisees advertises primarily through
regional television, radio and newspapers. Payment for advertising time and
space is made by local advertising cooperatives in which owners of local
franchised restaurants participate. Franchisees contribute approximately .7%
of net sales to the Arby's Franchise Association, 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 net 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 net sales. As a result of the sale of company-owned restaurants to
RTM, Arby's has no expenditures for advertising and marketing in support of
company-owned restaurants, as compared to approximately $9.0 million in 1997
and $25.8 million in 1996.
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. Arby's assigns a full-time quality assurance employee to each of
the five independent processing facilities that processes roast beef for Arby's
domestic restaurants. The quality assurance employee inspects the roast beef for
quality, uniformity and performance. In addition, on a quarterly basis, Arby's,
through an independent outside laboratory, tests samples of roast beef from
franchisees. Each year, Arby's representatives conduct unannounced inspections
of operations of a number of franchisees to ensure that Arby's policies,
practices and procedures are being followed. Arby's field representatives also
provide a variety of on-site consultative services to franchisees. Arby's has
the right to terminate franchise agreements if franchisees fail to comply with
quality standards.
Provisions And Supplies
Five independent meat processing facilities provide all of Arby's roast
beef in the United States. Franchise operators are required to obtain roast beef
from one of the five approved suppliers. ARCOP, Inc., a non-profit purchasing
cooperative, negotiates contracts with approved suppliers on behalf of Arby's
franchisees. Arby's believes that satisfactory arrangements could be made to
replace any of the 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. Through ARCOP, Arby's franchisees purchase food,
proprietary paper and operating supplies through national contracts employing
volume purchasing.
LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE)
National Propane, as managing general partner of the Partnership and the
Operating Partnership, is engaged primarily in (i) the retail marketing of
liquefied petroleum gas ("propane") to residential, commercial and industrial,
and agricultural customers and to dealers that resell propane to residential and
commercial customers and (ii) the retail marketing of propane related supplies
and equipment, including home and commercial appliances. We believe that the
Partnership is the seventh largest retail marketer of propane in terms of volume
in the United States. As of January 3, 1999, the Partnership had 155 full
service centers supplying markets in 24 states. The Partnership's operations are
located primarily in the Midwest, Northeast, Southeast, and West regions of the
United States.
Effective as of the close of business on December 28, 1997, Triarc's
interest in the Partnership is accounted for utilizing the equity method. See
the Consolidated Financial Statements.
Recent Developments
As has previously been announced, we have been considering various
strategic alternatives to maximize the value of the Partnership and we have been
in active discussions with several third parties concerning a sale or merger of
the Partnership. On April 5, 1999, the Partnership and Columbia signed a
definitive purchase agreement pursuant to which Columbia Propane, L.P. will
commence a tender offer to acquire (the "Partnership Sale") all of the out-
standing common units of the Partnership for $12.00, in cash per common unit,
which tender offer is the firststep of a two-step transaction. In the second
step, subject to the terms and conditions of the purchase agreement, Columbia
Propane, L.P. would acquire general partner interests and subordinated units
of the Partnership from National Propane and a subsidiary of National Propane
in consideration for $2.1 million in cash and the forgiveness of approximately
$15.8 million of a $30.7 million note owed by us to the Operating Partnership,
and the Partnership would merge into Columbia Propane, L.P. As part of the
second step, any remaining common unitholders of the Partnership would receive,
in cash, $12.00 per common unit and we would repay the remainder of such note
(approximately $14.9 million).
The Board of Directors of National Propane, acting on the recommendation
of its Special Committee (formed to evaluate and make a recommendation on behalf
of the Partnership's common unitholders with respect to the transaction) has
unanimously approved the transaction with Columbia and unanimously recommended
that the Partnership's unitholders tender their units pursuant to the offer.
The tender offer is expected to commence on April 9, 1999. The offer for
the common units will be subject to certain conditions, including there being
validly tendered by the expiration date, and not withdrawn, at least a majority
of the outstanding common units on a fully diluted basis. We cannot assure you
that the transaction with Columbia will be consummated.
At December 31, 1998 the Operating Partnership was not in compliance
with a covenant under its bank credit facility and is forecasting non-compliance
with the same covenant as of March 31, 1999 (the "Forecasted Non-Compliance").
The Operating Partnership has received an unconditional waiver of such
non-compliance from the lenders under its credit facility (the "Lenders"), with
respect to the non-compliance as of December 31, 1998, and a conditional waiver
with respect to future covenant non-compliance with such covenant through August
31, 1999. A number of the conditions to such waiver are directly related to the
Partnership Sale. Should the conditions not be met or the waiver expire, and the
Operating Partnership be in default of its bank facility, the Operating
Partnership would also be in default of its First Mortgage Notes by virtue of
cross-default provisions. As a result of the Forecasted Non-Compliance, the
conditions of the waiver and the cross-default provisions of the First Mortgage
Notes, we understand that the Partnership intends to classify all of its
indebtedness as a current liability as of December 31, 1998. In addition, we
understand that as a result of the Forecasted Non-Compliance, the conditional
nature of the waiver and its effectiveness only through August 31, 1999 with
respect to the Forecasted Non-Compliance and the fact that the Partnership Sale
may not be consummated, the Partnership's independent auditors intend to render
an opinion on the Partnership's financial statements for the year ended December
31, 1998 with an explanatory paragraph concerning doubt as to the Partnership's
ability to continue as a going concern for a reasonable period of time. If the
Partnership Sale is not consummated and the lenders are unwilling to extend the
waiver, (i) the Partnership could seek to otherwise refinance its indebtedness,
(ii) we might consider buying the banks' loans to the Operating Partnership
(approximately $16.0 million principal amount outstanding as of January 3, 1999)
or (iii) the Partnership could be forced to seek protection under the Federal
bankruptcy laws. In such latter event, National Propane may be required to honor
its guarantee of the Operating Partnership's indebtedness under its bank
facility and the First Mortgage Notes. As a result, we may be required to pay a
$30.0 million demand note payable to National Propane, and National Propane
would be required to surrender the note (if we have not yet paid it) or the
proceeds from the note, as well as its interests in the Partnership and the
Operating Partnership, to the Lenders.
Products, Services And Marketing
The Partnership distributes its propane through a nationwide
distribution network integrating 155 full service centers located in 23 states.
Typically, service centers are found in suburban and rural areas where
natural gas is not readily available. Generally, such locations consist of
an office and a warehouse and service facility, with one or more 18,000 to
30,000 gallon storage tanks on the premises. Each service center is managed by a
district manager and also typically employs a customer service representative, a
service technician and one or two bulk truck drivers.
Retail deliveries of propane are usually made to customers by means of
bulk and cylinder trucks. Propane is pumped from the bulk truck into a
stationary storage tank on the customer's premises. The Partnership also
delivers propane to certain other retail customers, primarily dealers and large
commercial accounts, in larger trucks. Propane is generally transported from
refineries, pipeline terminals and storage facilities (including the
Partnership's underground storage facilities in Hutchinson, Kansas and Loco
Hills, New Mexico) to the Partnership's bulk plants by a combination of common
carriers, owner-operators, railroad tank cars and, in certain circumstances, the
Partnership's own highway transport fleet.
In 1998 the Partnership served over 210,000 active customers. No single
customer accounted for 10% or more of the Partnership's revenues in 1997 or
1998. Year-to-year demand for propane is affected by the relative severity of
the winter and other climatic conditions.
A wholly-owned corporate subsidiary of the Operating Partnership also
sells, leases and services equipment related to the propane distribution
business, including household appliances and specialized equipment for the use
of propane as fuel. The sale of specialized equipment, service income and rental
income represented less than 10% of the Partnership's gross income during 1998.
Propane Supply And Storage
Contracts for the supply of 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.
There may be times when the Partnership will be unable to fully pass on the cost
increases to its customers. Consequently, the Partnership's profitability is
sensitive to changes in wholesale propane prices, and a substantial increase in
the wholesale cost of propane could adversely affect the Partnership's margins
and profitability. The Partnership utilizes a hedging program which is designed
to protect margins on fixed price retail sales and to mitigate the potential
impact of sudden wholesale price increases for propane.
The Partnership purchased propane from over 50 domestic and Canadian
suppliers during 1998, primarily major oil companies and independent producers
of both gas liquids and oil, and it also purchased propane on the spot market.
Approximately 95% of all propane purchases by the Partnership in 1998 were on a
contractual basis (generally, under one year agreements subject to annual
renewal), but the percentage of contract purchases may vary from year to year.
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. The Partnership is not currently a party to any supply contracts
containing "take or pay" provisions.
Dynegy Liquids Marketing and Trade ("Dynegy") and Conoco Inc. ("Conoco")
each supplied approximately 11% of the Partnership's propane in 1998 and Amoco
Oil Company ("Amoco") supplied approximately 10%. The Partnership believes that
if supplies from Dynegy, Conoco or Amoco were interrupted, it would be able to
secure adequate propane supplies from other sources without a material
disruption of its operations; however, the Partnership believes that the cost of
procuring replacement supplies might be materially higher, at least on a
short-term basis.
GENERAL
Trademarks
We and our affiliates (including the Partnership and the Operating
Partnership) own numerous trademarks that are considered material to our
businesses, including Snapple, Made From The Best Stuff On Earth(R),
WhipperSnapple, Snapple Farms, Snapple Refreshers(R), Mistic, Mistic Rain Forest
Nectars, Fountain Classics, RC Cola, Diet RC, Cherry RC Cola, RC Edge, Royal
Crown, Diet Rite, Nehi, Upper 10, Kick, Arby's, T.J. Cinnamons and National
Propane(TM). Mistic licenses the Fruit Blast trademark. Cable Car licenses the
Stewart's trademark on an exclusive perpetual basis for soft drinks and
considers it to be material to its business. In addition, we consider our
finished product and concentrate formulae, which are not the subject of any
patents, to be trade secrets.
Many of the material trademarks of Snapple, Mistic, Cable Car, Royal
Crown, and Arby's are registered trademarks in the U.S. Patent and Trademark
Office and various foreign jurisdictions. Registrations for such trademarks in
the United States will last indefinitely as long as the trademark owners
continue to use and police the trademarks and renew filings with the applicable
governmental offices. No challenges have arisen to Snapple's, Mistic's, Cable
Car's, Royal Crown's or Arby's right to use any of their material trademarks in
the United States.
Competition
Our businesses operate in highly competitive industries. Many of the
major competitors in these industries have substantially greater financial,
marketing, personnel and other resources than we do.
Our premium beverage products and soft drink concentrate products
compete generally with all liquid refreshments and in particular with numerous
nationally-known soft drinks such as Coca-Cola and Pepsi-Cola. We also compete
with ready to drink brewed iced tea competitors such as Nestea Iced Tea, which
is produced pursuant to a long-term license granted by Nestle S.A. to The
Coca-Cola Company, and Lipton Original Iced Tea, which is distributed by a joint
venture between PepsiCo, Inc. and Thomas J. Lipton Company, a subsidiary of
Unilever Plc. We compete with other beverage companies not only for consumer
acceptance but also for shelf space in retail outlets and for marketing focus by
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, marketing agreements
(including so-called calendar marketing agreements), pricing, packaging and the
development of new products.
In recent years, the soft drink and restaurant businesses have
experienced increased price competition resulting in significant price
discounting throughout these industries. Price competition has been especially
intense with respect to sales of soft drink products in supermarkets, with
bottlers, in particular, competitive cola bottlers, granting significant
discounts and allowances off wholesale prices in order to, among other things,
maintain or increase market share in the supermarket segment. While the net
impact of price discounting in the soft drink and restaurant industries cannot
be quantified, such practices, if continued, could have an adverse impact on us.
The Coca-Cola Company and PepsiCo, Inc. are also making increased use of
exclusionary marketing agreements which prevent or limit the marketing and sale
of competitive beverage products at various locations such as colleges, schools,
and convenience and grocery store chains.
Arby's faces direct and indirect competition from numerous
well-established competitors, including national and regional fast food chains,
such as McDonald's, Burger King and Wendy's. In addition, Arby's competes with
locally owned restaurants, drive-ins, diners and other similar establishments.
Key competitive factors in the quick service restaurant industry are price,
quality of products, quality and speed of service, advertising, name
identification, restaurant location and attractiveness of facilities.
Many of the leading restaurant chains have focused on new unit
development as one strategy to increase market share through increased consumer
awareness and convenience. This has led operators to employ other strategies,
including frequent use of price promotions and heavy advertising expenditures.
Additional competitive pressures for prepared food purchases have come
more recently from operators outside the restaurant industry. Several major
grocery chains have begun offering fully prepared food and meals to go as part
of their deli sections. Some of these chains also have added in-store cafes with
service counters and tables where consumers can order and consume a full menu of
items prepared especially for this portion of the operation.
Most of the Operating Partnership's service centers compete with several
marketers or distributors of propane and certain service centers compete with a
large number of marketers or distributors. The principal competitive factors
affecting this industry are reliability of service, responsiveness to customers
and the ability to maintain competitive prices. Propane competes primarily with
natural gas, electricity and fuel oil as an energy source, principally on the
basis of price, availability and portability. Propane serves as an alternative
to natural gas in rural and suburban areas where natural gas is unavailable or
portability of the product is required. Although the extension of natural gas
pipelines tends to displace propane distribution in the areas affected, National
Propane believes that new opportunities for propane sales arise as more
geographically remote areas are developed. In addition, the use of alternative
fuels, including propane, is mandated in certain specified areas of the United
States that do not meet federal air quality standards.
Governmental Regulations
Each of our businesses is subject to a variety of federal, state and
local laws, rules and regulations.
The production and marketing of our beverages are subject to the rules
and regulations of various federal, state and local agencies, including the
United States Food and Drug Administration (the "FDA"). The FDA also regulates
the labeling of our products. In addition, our dealings with our bottlers and/or
distributors may, in some jurisdictions, be subject to state laws governing
licensor-licensee or distributor relationships.
Various state laws and the Federal Trade Commission (the "FTC") regulate
Arby's franchising activities. The FTC requires that franchisors make extensive
disclosure to prospective franchisees prior to the execution of a franchise
agreement. Several states require registration and disclosure in connection with
franchise offers and sales and have "franchise relationship laws" that limit the
ability of franchisors to terminate franchise agreements or to withhold consent
to the renewal or transfer of these agreements. In addition, national, state and
local laws affect Arby's ability to provide financing to franchisees. In
addition, Arby's franchisees must comply with the Fair Labor Standards Act and
the Americans with Disabilities Act, which requires that all public
accommodations and commercial facilities meet certain federal requirements
related to access and use by disabled persons, and various state laws governing
such matters as minimum wages, overtime and other working conditions.
National Propane and the Operating Partnership are subject to various
federal, state and local laws and regulations governing the transportation,
storage and distribution of propane, and the health and safety of workers, the
latter of which are primarily governed by the Occupational Safety and Health Act
and the regulations promulgated thereunder. On August 18, 1997, the U.S.
Department of Transportation (the "DOT") published its Final Rule for Continued
Operation of the Present Propane Trucks (the "Final Rule"). The Final Rule is
intended to address perceived risks during the transfer of propane. As initially
proposed, the Final Rule required certain immediate changes in the Partnership's
operating procedures including retrofitting the Operating Partnership's cargo
tanks. The Partnership believes that, as a result of the substantially completed
negotiated rulemaking involving the DOT, the propane industry and other
interested parties, that it will not incur material increases to its cost of
operations in complying with the Final Rule.
Except as described above, we are not aware of any pending legislation
that in our view is likely to have a material adverse effect on the operations
of our subsidiaries. We believe that the operations of our subsidiaries comply
substantially with all applicable governmental rules and regulations.
Environmental Matters
We 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.
We 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. We similarly 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. We believe that our operations comply
substantially with all applicable environmental laws and regulations. Based on
currently available information and the current reserve levels, we do not
believe that the ultimate outcome of any of the matters discussed below will
have a material adverse effect on our 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 1991 our subsidiary Southeastern Public Service Company ("SEPSCO")
became aware of possible contamination by hydrocarbons and metals at certain
sites used in the ice and cold storage operations of SEPSCO's former
refrigeration business. Remediation has been completed on twelve of the sites
which were sold to or leased by the purchaser of the ice operations and is
ongoing at one other. The purchaser of the ice operations has satisfied its
obligation to pay up to $1,000,000 of such remediation costs. Remediation has
been completed at three cold storage sites which were sold to the purchaser of
the cold storage operations sites, and is ongoing at two other sites.
Remediation is expected to commence on the remaining two sites in 1999. 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 were 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
operations. Of these, twelve have been remediated at an aggregate cost of
approximately $1,235,000 through January 3, 1999. In addition, during the
environmental remediation efforts on idle properties, SEPSCO became aware of one
site which may require demolition in the future.
In 1997 SEPSCO undertook an environmental assessment of a property
located in Fort Myers, Florida that had previously been used in connection with
SEPSCO's ice operations. As a result, SEPSCO became aware of certain
petroleum-type substances and metals in the soil and ground water of such
property. SEPSCO notified the State of Florida of its findings and the State of
Florida has requested that SEPSCO undertake further investigatory efforts to
define the nature and extent of its findings. SEPSCO believes that such
substances and metals may also be found on an adjacent property. SEPSCO believes
that the contamination may have occurred prior to its ownership of the property.
A former owner of the property (who also currently owns the adjacent property)
has undertaken certain further investigation at its own expense. Based on
preliminary findings, SEPSCO's environmental consultants believe that it may
cost between $250,000 and $300,000 to remediate the property. However, such
findings are preliminary and the amount required to remediate the property may
vary depending upon the nature and extent of the contamination and the method of
remediation that is actually required. Application has been made for the site to
enter Florida's Petroleum Cleanup Participation Program. If accepted, funds from
this program may defer a portion of the cost of remediation.
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. To assess the extent of the problem, National Propane engaged
environmental consultants in 1994. Based upon the information compiled to date,
which is not yet complete, it appears that the likely remedy will involve
treatment of groundwater and treatment of the soil, installation of a soil cap
and, if necessary, excavation, treatment and disposal of contaminated soil. As a
result, the environmental consultants' current range of estimated costs for
remediation is from $0.7 million to $1.7 million. National Propane will have to
agree upon the final remediation plan with the State of Wisconsin. Accordingly,
the precise remediation method to be used is unknown. Based on the preliminary
results of the ongoing investigation, there is a potential that the contaminants
may extend to locations down gradient from the original site. If it is
ultimately confirmed that the contaminant plume extends under such properties
and if such plume is attributable to contaminants emanating from the Wisconsin
property, there is the potential for future third-party claims. National Propane
has engaged in discussions of a general nature with the Successor, who has
denied any liability for the costs of remediation of the Wisconsin property or
of satisfying any related claims. However, National Propane, if found liable for
any of such costs, would still attempt to recover such costs from the Successor.
National Propane has notified its insurance carriers of the contamination and
the possibility of related claims. Pursuant to a lease related to the Wisconsin
facility, the ownership of which was not transferred by National Propane to the
Operating Partnership at the time of the closing of the Propane IPO, the
Operating Partnership has agreed to be liable for any costs of remediation in
excess of amounts received from the Successor and from insurance. Because the
remediation method to be used is unknown, no amount within the cost ranges
provided by the environmental consultants can be determined to be a better
estimate.
In 1993 Royal Crown became aware of possible contamination from
hydrocarbons in groundwater at two closed facilities. In 1994, hydrocarbons were
discovered in the groundwater at a former Royal Crown distribution site in
Miami, Florida. Remediation has been continuing at this site, and management
estimates that total remediation costs in excess of amounts incurred through
January 3, 1999 will be approximately $28,600 depending on the actual extent of
the contamination. Additionally, in 1994 the Texas Natural Resources
Conservation Commission approved the remediation of hydrocarbons in the
groundwater by Royal Crown at its former distribution site in San Antonio,
Texas. Remediation has been continuing at this site. After 1998, ground water
sampling will proceed on a semi-annual basis and a formal report will be filed
with the state annually. When contaminants in the one remaining monitoring well
fall below detection limits, Royal Crown will proceed toward closure. Until that
occurs, Royal Crown expects that quarterly remediation costs will be
approximately $27,500. Royal Crown has incurred actual costs of $853,000, in the
aggregate, through January 3, 1999 for the foregoing matters.
In 1987, Graniteville Company ("Graniteville" (the assets of which were
sold to Avondale Mills, Inc. ("Avondale") in April 1996) was notified by the
South Carolina Department of Health and Environmental Control (the "DSHEC") that
it discovered certain contamination of Langley Pond ("Langley Pond") near
Graniteville, South Carolina and that Graniteville may be one of the responsible
parties 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 that other remediation alternatives either provided no
significant additional benefits or themselves involved adverse effects. In 1995,
Graniteville submitted a proposal regarding periodic monitoring of the site, to
which DHEC responded with a request for additional information. Graniteville
provided such information to DHEC in February 1996. Triarc 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. In addition, Graniteville owned a
nine acre property in Aiken County, South Carolina (the "Vaucluse Landfill"),
which was operated jointly by Graniteville and Aiken County as a landfill from
approximately 1950 to 1973. The United States Environmental Protection Agency
conducted a site investigation in 1991 and an Expanded Site Inspection (an
"ESI") in January 1994. Graniteville conducted a groundwater quality
investigation in 1992 and a supplemental site assessment in 1994. Based on these
investigations, DHEC requested that Graniteville enter into a
consent agreement providing for comprehensive assessment of the nature
and extent of soil and groundwater contamination at the site, if any, and an
evaluation of appropriate remedial alternatives. DHEC and Avondale entered
into a consent agreement in December 1997. In its public filings, Avondale
estimated the cost of the comprehensive assessment required by the consent
agreement to be between $200,000 and $400,000. Because Avondale's
public filings indicate that this investigation has not concluded, we are
currently unable to predict what further actions, if any, will be necessary to
address the landfill. In connection with the sale of Graniteville to Avondale,
we agreed to indemnify Avondale for certain costs incurred by it in connection
with the foregoing matters that are in excess of applicable reserves.
Seasonality
Our beverage, restaurant and propane businesses are seasonal. In our
beverage businesses, the highest revenues occur during spring and summer (April
through September). The royalty revenues of our restaurant business are somewhat
higher in our fourth quarter and somewhat lower in the first quarter. Propane
operations are subject to the seasonal influences of weather which vary by
region. Generally, the demand for propane during the six-month peak heating
season (October through March) is substantially greater than during the summer
months at both the retail and wholesale levels, and is significantly affected by
climatic variations.
Insurance Operations
Historically, our subsidiary Chesapeake Insurance Company Limited
("Chesapeake Insurance"), (i) provided certain property insurance coverage for
us and certain of our former affiliates; (ii) reinsured a portion of certain
insurance coverage which we 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
the fiscal year ended April 30, 1993, Chesapeake Insurance ceased writing
reinsurance of risks of unaffiliated third parties, and during the transition
period from May 1, 1993 to December 31, 1993, Chesapeake Insurance ceased
writing insurance or reinsurance of any kind for periods beginning on or after
October 1, 1993. On December 30, 1998 we sold all of our interest in Chesapeake
Insurance to International Advisory Services Ltd.
Employees
As of January 3, 1999, we had approximately 1,880 employees, including
1,055 salaried employees and 845 hourly employees. We believe that employee
relations are satisfactory. As of January 3, 1999, approximately 192 of our
employees were covered by various collective bargaining agreements expiring from
time to time from the present through 2001. A collective bargaining agreement
that expired March 15, 1999 is currently the subject of negotiations.
Risk Factors
We wish to caution readers that in addition to the important factors
described elsewhere in this Form 10-K, the following important factors, among
others, sometimes have affected, and in the future could affect, our actual
results and could cause our actual consolidated results during 1999, and beyond,
to differ materially from those expressed in any forward-looking statements made
by, or on behalf of, us.
Our Substantial Leverage May Adversely Affect Us
We have a significant amount of indebtedness. On an unconsolidated
basis, our indebtedness at January 3, 1999 was $138.0 million (excluding
intercompany debt other than a $30.7 million note owed to the Operating
Partnership). In addition, at January 3, 1999 our total consolidated
indebtedness was $709.0 million.
In addition to the above indebtedness, our subsidiaries may borrow an
additional $60.0 million of revolving credit loans under the new credit
facility, subject to certain limitations contained in the credit facility, the
indenture and instruments governing our other debt. (See "Item 1 -- Business --
Refinancing of Subsidiary Indebtedness.") If new debt is added to our current
debt levels, the related risks that we face could increase. In addition, under
our various debt agreements, substantially all of our assets, other than cash,
cash equivalents and short term investments, are pledged as collateral security.
Our subsidiaries' new credit facility contains financial covenants that,
among other things, require our subsidiaries to maintain certain financial
ratios and restrict our subsidiaries' ability to incur debt, enter into certain
fundamental transactions (including certain mergers and consolidations) and
create or permit liens. If our subsidiaries are unable to generate sufficient
cash flow or otherwise obtain the funds necessary to make required payments of
principal and interest under, or are unable to comply with covenants of, the new
credit facility or the new indenture, we would be in a default under the terms
thereof which would permit the lenders under the new credit facility and, by
reason of a cross default provision, the indenture, to accelerate the maturity
of the balance thereof. You should read the information we have included in
Notes 8 and 26 to the Consolidated Financial Statements.
Holding Company Structure
Because we are predominantly a holding company, our ability to service
debt and pay dividends, including dividends on our common stock, is primarily
dependent upon (in addition to our cash, cash equivalents and short term
investments on hand) cash flows from our subsidiaries, including loans, cash
dividends and reimbursement by subsidiaries to us in connection with providing
certain management services and payments by subsidiaries under certain tax
sharing agreements. At January 3, 1999, on an unconsolidated basis, our total
cash, cash equivalents and short-term investments were approximately $169.3
million.
Under the terms of various indentures and credit arrangements which
govern our principal subsidiaries, our subsidiaries are subject to certain
restrictions on their ability to pay dividends and/or make loans or advances to
us. The ability of any of our subsidiaries to pay cash dividends and/or make
loans or advances to us is also dependent upon the respective abilities of such
entities to achieve sufficient cash flows after satisfying their respective cash
requirements, including debt service, to enable the payment of such dividends or
the making of such loans or advances.
In addition, our equity interests in our subsidiaries rank junior to all
of the respective indebtedness, whenever incurred, of such entities in the event
of their respective liquidation or dissolution. As of January 3, 1999, our
subsidiaries had aggregate long-term indebtedness of approximately $571.0
million (excluding intercompany indebtedness).
Successful Completion and Integration of Acquisitions
One element of our business strategy is to continuously evaluate
acquisitions and business combinations to augment our businesses. We cannot
assure you that we will identify and complete suitable acquisitions or, if
completed, that such acquisitions will be successfully integrated into our
operations. Acquisitions involve numerous risks, including difficulties
assimilating new operations and products. We cannot assure you that we will have
access to the capital required to finance potential acquisitions on satisfactory
terms, that any acquisition would result in long-term benefits to us or that
management would be able to manage effectively the resulting business. Future
acquisitions may result in the incurrence of additional indebtedness or the
issuance of additional equity securities.
We May Not Be Able to Continue to Improve Snapple's Operations
On May 22, 1997, we acquired all of the outstanding capital stock of
Snapple for approximately $300 million. Snapple's performance deteriorated sig-
nificantly after the prior owners acquired it in December 1994 for approximately
$1.7 billion. Case sales declined from 72.0 million cases in 1994 to 49.6
million cases for the 12 months ended March 31, 1997, and revenues declined
from $675.8 million in 1994 to $550.8 million in 1996. However, Snapple's
case sales increased by approximately 8.4% in 1998 compared to 1997. We believe
that Snapple's improved results since we acquired it are largely attributable
to the following factors: (1) relationships with distributors have improved
significantly; (2) new product introductions have increased dramatically;
(3) Snapple's marketing campaigns; and (4) Snapple has been able to improve the
profitability of its international business. We cannot assure you that our
efforts to improve Snapple's business will continue to be successful.
We May Not Be Able to Develop Successful New Beverage Products
Part of our strategy is to increase our sales through the development of
new beverage products. Although we have successfully launched a number of new
beverage products in 1997 and 1998, we cannot assure you that we will be able to
develop, market and distribute future beverage products that will enjoy market
acceptance. The failure to develop new beverage products that gain market
acceptance would have an adverse impact on our growth and materially adversely
affect us.
Arby's is Dependent on Restaurant Revenues and Openings
Arby's principal source of revenues are royalty fees received from its
franchisees. Accordingly, Arby's future revenues will be highly dependent on the
gross revenues of Arby's franchisees and the number of Arby's restaurants that
its franchisees operate.
Gross Revenues of Arby's Restaurants
Competition among national brand franchisors and smaller chains in the
restaurant industry to grow their franchise systems is intense. Arby's
franchisees are generally in competition for customers with franchisees of other
national and regional fast food chains and locally owned restaurants. We cannot
assure you that the level of gross revenues of Arby's franchisees, upon which
our royalty fees are dependent, will continue.
Number of Arby's Restaurants
Numerous factors beyond our control affect restaurant openings. These
factors include the ability of a potential restaurant owner to obtain financing,
locate an appropriate site for a restaurant and obtain all necessary state and
local construction, occupancy or other permits and approvals. Although as of
January 3, 1999 franchisees have signed commitments to open approximately 1,011
Arby's restaurants and have made or are required to make non-refundable deposits
of $10,000 per restaurant, we cannot assure you that these commitments will
result in open restaurants.
Arby's Reliance on Certain Customers May Adversely Affect Us; We Remain
Contingently Liable on Certain Obligations.
During 1998, Arby's received approximately 27% of its royalties from RTM
and its affiliates, which are franchisees of over 700 Arby's restaurants, and
received approximately 5% of its royalties from each of two other franchisees.
Arby's franchise royalties could decline from their present levels if any of
these franchisees suffered significant declines in their businesses.
In addition, RTM has assumed certain lease obligations and indebtedness
in connection with the restaurants that it acquired from Arby's. We remain
contingently liable if RTM fails to make payments on those leases and
indebtedness. You should read the information we have included in Notes 3
and 21 to the Consolidated Financial Statements.
Royal Crown's Reliance on Certain Customers and Bottlers May Adversely
Affect Us
Private Label Sales
Royal Crown relies to a significant extent upon sales of beverage
concentrates to Cott Corporation under a concentrate supply agreement signed in
1994. Royal Crown's revenues from sales to Cott were approximately 12.6% of its
total revenues in 1996, 15.8% in 1997 and 17.2% in 1998. If Cott's business
declines, or if Royal Crown's supply agreement with Cott is terminated, Royal
Crown's sales could be adversely affected.
Bottlers
Royal Crown relies upon its relationships with certain key bottlers. For
example:
$ RC Chicago Bottling Group accounted for approximately 23% of
Royal Crown's domestic revenues from concentrate for branded
products during 1998; American Bottling Company accounted for
approximately 18% of such sales during 1998.
$ Royal Crown's ten largest bottler groups accounted for
approximately 79% of Royal Crown's domestic revenues from
concentrate for branded products during 1998.
Royal Crown's sales would decline from their present levels if any of these
major bottlers stopped selling RC Cola brand products unless and until Royal
Crown established a comparable relationship with one or more new bottlers. We
cannot assure you that new bottlers would provide Royal Crown with the level of
sales that these bottlers have.
Competition from Other Beverage and Restaurant Companies
Could Adversely Affect Us
The premium beverage, carbonated soft drink and restaurant industries
are highly competitive. Many of our competitors have substantially greater
financial, marketing, personnel and other resources that we do. You should read
the information we have included in "Item 1. Business -- Competition."
Weather Conditions Affect the Demand for Propane
Weather conditions, which can vary substantially from year to year, have
a significant impact on the demand for propane for both heating and agricultural
purposes. Many customers of the Operating Partnership rely heavily on propane as
a heating fuel. Accordingly, the volume of propane sold is at its highest during
the six-month peak heating season of October through March and is directly
affected by the severity of the winter weather. Actual weather conditions,
therefore, may significantly affect the Operating Partnership's financial
performance. Furthermore, despite the fact that overall weather conditions may
be normal, variations in weather in one or more regions in which the Operating
Partnership operates can significantly affect the total volume of propane sold
by the Operating Partnership, and consequently, the Operating Partnership's
results of operations.
Environmental Liabilities
Certain of our 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 re-
gard 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 re-
leases of hazardous or toxic substances. Although we believe that our opera-
tions comply in all material respects with all applicable environmental
laws and regulations, we 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. We 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.
Possible Disruption of Business Due to Year 2000 Problem
Many computer systems and software products will not function properly
in the year 2000 and beyond due to a once-common programming standard that
represents years using two digits. Alleviating this problem is often referred to
as becoming year 2000 compliant. We are undertaking a study of our computer
systems to determine whether they are year 2000 compliant and, if they are not
year 2000 compliant, what modifications are required. We believe that the
majority of our systems are currently year 2000 compliant, including all
significant systems in our restaurant business. However, certain significant
systems in our beverage business, primarily Royal Crown's order processing,
inventory control and production scheduling system, required remediation which
was completed in the first quarter of 1999. As a result, we have no reason to
believe that any of our mission critical systems are not year 2000 compliant.
However, if final testing and implementation steps reveal any year 2000
compliance problems which cannot be corrected prior to January 1, 2000, a
material impact on our operations could result. We have inquired as to the year
2000 compliance of significant third parties that we have relationships with,
such as our suppliers, banking institutions, customers, and payroll processors.
We are also subject to certain risks if these third parties are not year 2000
compliant. We have engaged consultants to review the compliance efforts of each
of our operating businesses. The consultants are assisting us to complete
inventory of critical applications and complete formal documentation of year
2000 compliance of hardware and software as well as mission critical customers,
vendors and service providers. We cannot determine the impact on our results of
operations in the event that these third parties are not year 2000 compliant. As
of January 3, 1999, we had incurred $0.7 million to be year 2000 compliant. The
current estimated additional cost to complete such remediation is $1.3 million.
You should read the information we have included under the caption "Item 7.
- --Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
ITEM 2. PROPERTIES.
We believe that our properties, taken as a whole, are generally well
maintained and are adequate for our current and foreseeable business needs. We
lease a majority of the properties.
We have set forth in the following table certain information about the
major plants and facilities of each of our business segments, as well as our
corporate headquarters, as of January 3, 1999:
APPROXIMATE
SQ. FT. OF
ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- ----------------- ------------------- ---------- -----------
Triarc Corporate
Headquarters........ New York, NY 1 leased 26,600
Beverages............Concentrate Mfg:
Columbus, GA 1 owned 216,000
(including office)
TBG Headquarters
White Plains, NY 1 leased 53,600
Cable Car Headquarters
Denver, CO 1 leased 4,200
Office/Warehouse Facilities 7 leased 656,000*
(various locations)
Restaurants..........Headquarters 1 leased 47,300**
Ft. Lauderdale, FL
Propane..............Headquarters 1 leased 17,000
155 Full Service Centers and 193 owned 550,000
100 Remote Storage Facilities 62 leased ***
(various locations
throughout the
United States)
2 Underground storage
terminals
2 Above ground
storage terminals
- ------------
* Includes 180,000 square feet of warehouse space that is subleased to a
third party.
** Royal Crown subleases approximately 3,500 square feet of this space from
Arby's.
*** The propane facilities have approximately 33.1 million gallons of
storage capacity (including approximately one million gallons of storage
capacity currently leased to third parties).
Arby's also owns four and leases eleven properties which are leased or
sublet principally to franchisees and has leases for nine inactive properties.
Our other subsidiaries also own or lease a few inactive facilities and
undeveloped properties, none of which are material to our financial condition or
results of operations.
Substantially all of the properties used in our businesses are pledged
as collateral for certain debt.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to two consolidated actions in the United States
District Court for the Southern District of New York involving three former
court appointed directors of the Company's Board. In March 1995, the Company
paid fees to the former directors for their services as court appointed
directors and, in connection with the payment of those fees, the former
directors executed release/agreements in favor of the Company.
In November 1995, the Company commenced the first of the consolidated
actions, in New York State court, alleging that the former court appointed
directors violated the release/agreements by initiating legal proceedings,
subsequently dismissed, for the purpose of obtaining additional fees of $3.0
million. The former directors filed a third-party complaint in that action
against Nelson Peltz for indemnification. On June 27, 1996, the former court
appointed directors commenced the second of the consolidated actions in the
United States District Court for the Northern District of Ohio, asserting claims
against Nelson Peltz and others. In an amended complaint, the former court
appointed directors alleged, among other things, that the defendants conspired
to mislead a federal court in connection with the change of control of Triarc in
April 1993 and in connection with the payment of the former court appointed
directors' fees. The former court appointed directors also alleged that Mr.
Peltz and Steven Posner conspired to frustrate collection of amounts owed by
Steven Posner to the United States. The amended complaint sought, among other
relief, damages in an amount not less than $4.5 million, an order returning the
former court appointed directors to the Company's Board and rescission of the
1993 change of control transaction. By order dated February 10, 1999, the court
granted Mr. Peltz's motion for summary judgment with respect to all the claims
against him in the consolidated actions. The court has granted the former
court appointed directors' permission to move for reconsideration as to certain
of their claims. No trial date has been set for the remaining claims.
On February 19, 1996, Arby's Restaurants S.A. de C.V., the master
franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico
against Arby's. The plaintiff alleged that a non-binding letter of intent dated
November 9, 1994 between the plaintiff and Arby's constituted a binding contract
pursuant to which Arby's had obligated itself to repurchase the master franchise
rights from the plaintiff for $2.85 million and that Arby's had breached a
master development agreement between the plaintiff and Arby's. Arby's commenced
an arbitration proceeding pursuant to the terms of the franchise and development
agreements. In September 1997, the arbitrator ruled that the November 9, 1994
letter of intent was not a binding contract and the master development agreement
was properly terminated. The plaintiff challenged the arbitrator's decision and
in March 1998, the civil court of Mexico ruled that the November 9, 1994 letter
of intent was a binding contract and ordered Arby's to pay the plaintiff $2.85
million, plus interest and value added tax. In May 1997, the plaintiff commenced
an action against Arby's in the United States District Court for the Southern
District of Florida alleging that Arby's had engaged in fraudulent negotiations
with the plaintiff in 1994-1995, in order to force the plaintiff to sell the
master franchise rights for Mexico to Arby's cheaply and Arby's had tortiously
interfered with an alleged business opportunity that the plaintiff had with a
third party. Arby's has moved to dismiss that action. The parties have agreed to
settle all the litigation including the Mexican court case and on December 4,
1998 entered into an escrow agreement pursuant to which Arby's deposited $1.65
million in escrow. Under the terms of the escrow agreement, as amended, the
funds will be released to the plaintiff if by July 1, 1999 a definitive
settlement agreement has been executed by the parties and, if necessary,
approved by a Mexican court presiding over the plaintiff's suspension of
payments proceeding. If the definitive settlement agreement has not been
executed by July 1, 1999, the escrowed funds will be returned to Arby's. During
the pendency of the escrow arrangement, the parties will stay all proceedings in
the United States and, to the extent possible, not pursue the proceedings in
Mexico.
On June 3, 1997, ZuZu, Inc. ("ZuZu") and its subsidiary, ZuZu
Franchising Corporation ("ZFC") commenced an action (the "ZuZu Action") against
Arby's, Inc. ("Arby's") and Triarc in the District Court of Dallas County,
Texas. ZuZu sought actual damages in excess of $70.0 million and punitive
damages of not less than $200.0 million against Triarc for its alleged
appropriation of trade secrets, conversion and unfair competition. Additionally,
plaintiffs sought injunctive relief against Arby's and Triarc enjoining them
from disclosing or using ZuZu's trade secrets. ZFC also made a demand for
arbitration in which it alleged that Arby's had breached a Master Franchise
Agreement between ZFC and Arby's. In the arbitration proceeding, Arby's asserted
counterclaims against ZuZu for unjust enrichment, breach of contract and breach
of the duty of good faith and fair dealing. In the arbitration proceeding, ZFC
was awarded damages of $765,000 on its claims and Arby's was awarded $75,000 on
a counterclaim, resulting in a net damages award of $690,000 for ZFC. In a
related case, on March 13, 1998 Gregg Katz, Susan Katz Zweig and ZuZu of
Orlando, LLC, a ZuZu franchisee and the owners/investors of the franchisee
corporation, commenced an action (the "Katz Action") against Arby's, ZuZu, ZFC
and Triarc in the Superior Court of Fulton County Georgia. Plaintiffs alleged
that, among other things, the various defendants breached the development and
franchise agreements between the plaintiffs and ZuZu, as well as other oral
agreements, made false representations, intentionally failed to disclose
material information, and violated several Florida and Texas business
opportunity and similar statutes. The plaintiffs sought actual damages of not
less than $600,000, consequential damages, punitive damages, treble damages and
other fees, costs and expenses. On November 30, 1998, both the ZuZu Action and
the Katz Action were settled for an aggregate payment of $820,000.
On June 25, 1997, Kamran Malekan and Daniel Mannion, allegedly
stockholders of the Company, commenced an action in the Delaware Court of
Chancery, New Castle County against the directors and certain former directors
of the Company, and naming the Company as a nominal defendant. The action
purports to assert claims on behalf of the Company and a class of all persons
who held stock of the Company on April 25, 1994. In an amended complaint, the
plaintiffs allege that the defendants violated their fiduciary duties and duties
of good faith to the Company and its stockholders and violated representations
in the Company's 1994 Proxy Statement by granting certain compensation to Nelson
Peltz and Peter May in 1994- 1997, including special bonuses to Messrs. Peltz
and May in 1996. The plaintiffs further allege that the 1994 Proxy Statement
contained false and misleading statements concerning the Company's compensation
plans. The amended complaint seeks, among other remedies, rescission of all
option grants to Messrs. Peltz and May that allegedly contravene the repre-
sentations in the 1994 Proxy Statement, an order directing Messrs. Peltz and
May to repay to the Company their 1996 special bonuses, an order enjoining
the defendants from awarding compensation to Messrs. Peltz and May in
violation of the representations in the 1994 Proxy Statement and damages. Dis-
covery has commencedin the action.
On August 13, 1997, Ruth LeWinter and Calvin Shapiro, both allegedly
Company stockholders, commenced a purported class and derivative action against
certain current and former directors of the Company, and naming the Company as a
nominal defendant, in the United States District Court for the Southern District
of New York. The complaint asserts substantially the same claims, and seeks
substantially the same relief, as the amended complaint in the Malekan action
discussed above. The Company, its current directors, and certain of its former
directors have moved to dismiss or stay the LeWinter action pending the
resolution of the Malekan action. That motion is pending. On October 2, 1997,
five former directors of the Company, including the three former court-appointed
directors, filed cross-claims in the LeWinter action against the Company and
Nelson Peltz. The cross-claims alleged that Mr. Peltz violated an undertaking
given to a federal court in February 1993 by failing to vote his shares to keep
the former directors on the Company's Board, and that he conspired with Steven
Posner to violate a court order prohibiting Mr. Posner from serving as an
officer or director of the Company. The former directors seek indemnification in
connection with the LeWinter action; damages in an unspecified amount in excess
of $75,000; and costs and attorney's fees. The Company and Mr. Peltz have moved
to dismiss the cross-claims, and the former directors have moved for specific
enforcement of their claim for indemnification. By order dated October 8, 1998,
the court denied the motion for specific enforcement as to the three former
court appointed directors, and granted the motion as to the other two former
directors. The Company's motion to dismiss the remaining cross-claims is
pending. There has been no discovery in the action to date.
In October 1997, Mistic commenced an action against Universal Beverages
Inc. ("Universal"), a former Mistic co-packer, Leesburg Bottling & Production,
Inc. ("Leesburg"), an affiliate of Universal, and Jonathan O. Moore ("Moore"),
an individual affiliated with Universal and Leesburg, in the Circuit Court for
Duval County, Florida. The action, which was subsequently amended to add
additional defendants, seeks, among other things, damages and injunctive relief
arising out of the fraudulent disposition of certain raw materials, finished
product and equipment owned by Mistic. In their answer, counterclaim and third
party complaint, certain defendants have alleged various causes of action
against Mistic, Snapple and Triarc, and seek damages of $6 million relating to
an alleged oral agreement by Snapple and Mistic to have Universal and/or
Leesburg contract manufacture Snapple and Mistic products, and also allege fraud
in the inducement and negligent misrepresentation. These defendants also seek to
recover various amounts totaling approximately $440,000 allegedly owed to
Universal for co-packing and other services rendered. Mistic, Snapple and Triarc
vigorously deny and intend to defend against the allegations contained in
defendants counterclaim.
In connection with the Proposed Going Private Transaction, various class
actions had been brought on behalf of Triarc's stockholders in the Court of
Chancery of the State of Delaware challenging the offer by Messrs. Peltz and
May. These class actions name Triarc, Messrs. Peltz and May and directors of
Triarc as defendants. The class actions allege that consummation of the offer by
Messrs. Peltz and May would constitute a breach of the fiduciary duties of
Triarc's directors, that the proposed consideration to be paid for the Triarc
common stock in the Proposed Going Private Transaction was unfair, and demand,
in addition to damages and costs, that consummation of the offer by Messrs.
Peltz and May be enjoined. On March 26, 1999, four of the plaintiffs in the
foregoing actions filed an amended complaint alleging that the defendants
violated fiduciary duties owed to the Company's stockholders by failing to
disclose, in connection with the Company's Dutch Auction self-tender offer, that
the Special Committee had allegedly determined that the Proposed Going Private
Transaction was unfair. The amended complaint seeks an injunction enjoining
consummation of the self-tender offer unless the alleged disclosure violations
are cured, and requiring the Company to provide additional disclosure, together
with damages in an unspecified amount.
On March 23, 1999, Norman Salsitz, allegedly a stockholder of the
Company, filed a complaint in the United States District Court for the Southern
District of New York against the Company, Nelson Peltz, and Peter May. The
complaint purports to assert a claim for alleged violation of Section 14(e) of
the Securities Exchange Act of 1934, as amended, on behalf of all persons who
held stock in the Company as of March 10, 1999. The complaint alleges that the
Company's tender offer statement filed with the Securities and Exchange
Commission in connection with the proposed Dutch Auction self-tender offer was
materially false and misleading in that, among other things, it failed to
disclose alleged recent valuations of the Company, which the complaint alleges
showed that the self-tender price was unfair to the Company's stockholders. The
complaint seeks damages in an amount to be determined, together with prejudgment
interest, the costs of suit, including attorneys' fees, and unspecified other
relief.
Other matters have arisen in the ordinary course of our business, and it
is the opinion of management that the outcome of any such matter will not have a
material adverse effect on our consolidated financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our 1998 Annual Meeting of Stockholders on May 6, 1998. The
matters acted upon by the stockholders at that meeting were reported in our
Quarterly Report on Form 10-Q for the quarter ended March 29, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The principal market for Class A Common Stock is the New York Stock
Exchange ("NYSE") (symbol: TRY). 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
- -----------------------------------------------------------------------------
1997
First Quarter ended March 30................ $18 $11
Second Quarter ended June 29................ 23 5/8 15 7/8
Third Quarter ended September 28............ 23 1/8 18
Fourth Quarter ended December 28............ 25 1/4 17 5/8
1998
First Quarter ended March 29................. 28 1/4 23
Second Quarter ended June 28................. 27 3/4 21 1/2
Third Quarter ended September 27............. 23 1/4 14 1/2
Fourth Quarter ended January 3, 1999......... 16 1/2 12 3/8
We did not pay any dividends on our common stock in 1997, 1998 or in the
current year to date and do not presently anticipate the declaration of cash
dividends on our common stock in the near future.
As of March 15, 1999, there were 5,997,622 shares of our Class B Common
Stock outstanding, all of which were owned by Victor Posner and an entity con-
trolled by Victor Posner (together, the "Posner Entities"). 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. We, or our designee, have 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. We have no class of equity
securities currently issued and outstanding except for the Class A Common Stock
and the Class B Common Stock.
Because we are predominantly a holding company, our ability to meet our
cash requirements (including required interest and principal payments on our
indebtedness) is primarily dependent upon (in addition to our cash, cash
equivalents and short term investments on hand) cash flows from our
subsidiaries, including loans, cash dividends and reimbursement by subsidiaries
to us in connection with our providing certain management services and payments
by subsidiaries under certain tax sharing agreements. Under the terms of various
indentures and credit arrangements, our principal subsidiaries are currently
unable to pay any dividends or make any loans or advances to us. In addition, in
connection with a waiver of the covenant default, in February 1999 the Operating
Partnership agreed that it will not make any distributions directly or through
the Partnership to the holders of common units of the Partnership until all of
its obligations under its bank facility agreement have been repaid in full and
the obligations of the lenders thereunder are terminated. National Propane has
also agreed to forego future distributions from the Partnership on its
subordinated units ("Subordinated Distributions") in order to facilitate the
Partnership's compliance with a covenant restriction in its bank facility
agreement. Under the partnership agreement of the Partnership, the Partnership
may not make Subordinated Distributions until all arrearages on its common units
have been paid in full. At January 3, 1999, the aggregate arrearage on the
common units was approximately $5.3 million. The foregoing will limit the funds
that National Propane will have available to dividend or loan to us. See "Item
1. Business -- Liquefied Petroleum Gas (National Propane)," "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 7 to the Consolidated
Financial Statements.
On October 13, 1997, we announced that our management was authorized,
when and if market conditions warranted, to purchase from time to time during
the twelve month period ending November 26, 1998 up to $20 million of our
outstanding Class A Common Stock. In March 1998 such amount was increased to $30
million. On July 28, 1998, we announced that the stock repurchase program had
been increased, bringing the then total availability under the stock repurchase
program to $50 million. In addition, the term of the stock repurchase program
was extended until July 27, 1999. As of July 28, 1998, we had repurchased
348,700 shares of Class A Common Stock at an aggregate cost of approximately
$8.9 million under the then existing stock repurchase program. In light of the
Proposed Going Private Transaction (described above), we suspended repurchasing
shares under the stock repurchase program and, in light of the Dutch Auction
tender offer described above, on March 10, 1999 the $50 million stock repurchase
program was terminated. Through such date, we repurchased 1,391,350 shares of
Class A Common Stock, at an aggregate cost of approximately $21.8 million, under
the $50 million stock repurchase program. In addition to the shares repurchased
pursuant to the stock repurchase program, in connection with the completion of
the sale by us in February 1998 of $360 million principal amount at maturity of
Debentures (described above), we repurchased from the purchaser of the
Debentures one million shares of our Class A Common Stock for an aggregate
purchase price of approximately $25.6 million. See Item 1. "Business--Withdrawal
of Going Private Proposal; Dutch Auction Tender Offer" and "--Issuance of Zero
Coupon Convertible Subordinated Debentures."
As of March 15, 1999, there were approximately 4,275 holders of record
of our Class A Common Stock and two holders of record of our Class B Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA (1)
YEAR ENDED DECEMBER 31, YEAR ENDED YEAR ENDED
----------------------------------------------- DECEMBER 28, JANUARY 3,
1994 1995 1996 1997 (2) 1999
---- ---- ---- -------- ----
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues...................................$ 1,022,671 $ 1,142,011 $ 928,185 $ 861,321 $ 815,036
Operating profit (loss).................... 54,446 (5) 23,145 (6) (17,853) (8) 26,962 (9) 81,842
Income (loss) from continuing operations... (10,612) (5) (39,433) (6) (13,698) (8) (20,553) (9) 12,036 (11)
Income from discontinued operations........ 4,619 2,439 5,213 20,718 2,600
Extraordinary items ....................... (2,116) -- (5,416) (3,781) --
Net income (loss).......................... (8,109) (5) (36,994) (6) (13,901) (8) (3,616) (9) 14,636 (11)
Preferred stock dividend requirements (3).. (5,833) -- -- -- --
Net income (loss) applicable to common
stockholders............................. (13,942) (36,994) (13,901) (3,616) 14,636
Basic income (loss) per share (4):
Continuing operations.................... (.71) (1.32) (.46) (.68) .40
Discontinued operations.................. .20 .08 .18 .69 .08
Extraordinary items...................... (.09) -- (.18) (.13) --
Net income (loss) per share.............. (.60) (1.24) (.46) (.12) .48
Diluted income (loss) per share (4):
Continuing operations.................... (.71) (1.32) (.46) (.68) .38
Discontinued operations.................. .20 .08 .18 .69 .08
Extraordinary items...................... (.09) -- (.18) (.13) --
Net income (loss) per share.............. (.60) (1.24) (.46) (.12) .46
Total assets............................... 911,236 1,077,173 831,785 1,004,873 1,019,892
Long-term debt............................. 606,374 758,292 469,154 604,680 698,981
Redeemable preferred stock................. 71,794 -- (7) -- -- --
Stockholders' equity (deficit)............. (31,783) 20,650 (7) 6,765 43,988 (10) 10,914
Weighted-average common shares
outstanding.............................. 23,282 29,764 29,898 30,132 30,306
(1) Selected Financial Data for the years prior to the fiscal year ended
December 28, 1997 have been retroactively restated to reflect the
discontinuance of the Company's dyes and specialty chemicals business sold
in December 1997.
(2) The Company changed its fiscal year from a calendar year to a year
consisting of 52 or 53 weeks ending on the Sunday closest to December 31
effective for the 1997 fiscal year.
(3) The Company has not paid any dividends on its common shares during any of
the years presented.
(4) Basic and diluted loss per share are the same for each of the years in the
four-year period ended December 28, 1997 since all potentially dilutive
securities would have had an antidilutive effect for all such years. The
shares used in the calculation of diluted income per share for the year
ended January 3, 1999 (31,439,000) reflect 1,133,000 shares for the effect
of dilutive stock options.
(5) Reflects certain significant charges and credits 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, less $6,147,000 of income tax benefit
relating to the aggregate of the above net charges; and $10,798,000 charged
to net loss representing the aforementioned $4,782,000 charged to loss from
continuing operations, $3,900,000 loss on disposal of discontinued
operations and a $2,116,000 extraordinary charge from the early
extinguishment of debt.
(6) Reflects certain significant charges and credits recorded during 1995 as
follows: $16,642,000 charged to operating profit representing a $14,647,000
reduction in the carrying value of long-lived assets impaired or to be
disposed, $2,700,000 of facilities relocation and corporate restructuring
and $3,331,000 of accelerated vesting of restricted stock, less $4,036,000
of other net credits; $9,344,000 charged to loss from continuing operations
representing the aforementioned $16,642,000 charged to operating profit,
$1,000,000 of equity in losses of an investee, less $15,088,000 of net
gains consisting of $11,945,000 of gain on sale of excess timberland and
$3,143,000 of other net gains, plus $690,000 of income tax provision
relating to the aggregate of the above net charges and a $6,100,000
provision for income tax contingencies; and $15,199,000 charged to net loss
representing the aforementioned $9,344,000 charged to loss from continuing
operations and $4,195,000 of equity in losses and write-down of an
investment in an investee and $1,660,000 of litigation settlement costs
both included in discontinued operations.
(7) In 1995 all of the redeemable preferred stock was converted into class B
common stock and an additional 1,011,900 class B common shares were issued
resulting in an $83,811,000 improvement in stockholders' equity (deficit).
(8) Reflects certain significant charges and credits recorded during 1996 as
follows: $73,100,000 charged to operating loss representing a $64,300,000
charge for a reduction in the carrying value of long-lived assets impaired
or to be disposed and $8,800,000 of facilities relocation and corporate
restructuring; $1,279,000 charged to loss from continuing operations
representing the aforementioned $73,100,000 charged to operating loss, less
$77,000,000 of gains on sale of businesses, net, plus $5,179,000 of income
tax provision relating to the aggregate of the above net credits; and
$6,695,000 charged to net loss representing the aforementioned $1,279,000
charged to loss from continuing operations and a $5,416,000 extraordinary
charge from the early extinguishment of debt.
(9) Reflects certain significant charges and credits recorded during 1997 as
follows: $38,890,000 charged to operating profit representing a $31,815,000
charge for acquisition related costs and $7,075,000 of facilities
relocation and corporate restructuring; $20,444,000 charged to loss from
continuing operations representing the aforementioned $38,890,000 charged
to operating profit, $4,955,000 of gain on sale of businesses, net, less
$13,491,000 of income tax benefit relating to the aggregate of the above
net charges; and $4,716,000 charged to net loss representing the
aforementioned $20,444,000 charged to loss from continuing operations, less
$19,509,000 of gain on disposal of discontinued operations and plus a
$3,781,000 extraordinary charge from the early extinguishment of debt.
(10) In 1997, in connection with the Stewart's acquisition, the Company issued
1,566,858 shares of its common stock with a value of $37,409,000 for all of
the outstanding stock of Cable Car and 154,931 stock options with a value
of $2,788,000 in exchange for all of the outstanding stock options of Cable
Car resulting in an increase in stockholders' equity of $40,197,000.
(11) Reflects certain charges and credits recorded during 1998 as follows:
$1,476,000 charged to income from continuing operations representing a
$9,298,000 charge for other than temporary unrealized losses on
investments, less $7,215,000 of gain on sale of businesses, net, less
$607,000 of income tax benefit relating to the aggregate of the above net
charges; and $1,124,000 credited to net income representing the
aforementioned $1,476,000 charged to income from continuing operations more
than offset by a $2,600,000 gain on disposal of discontinued operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
We are a leading premium beverage company, a restaurant franchisor, a soft
drink concentrate producer and have an equity investment in a propane
distributor. Since 1995 we have acquired the Mistic, Snapple and Stewart's
premium beverage brands, in 1996 we sold 57.3% of the propane business and in
1997 we sold all our company-owned restaurants to an existing franchisee and
focused on building the strength of our premium beverage and Arby's franchise
businesses.
In our premium beverage business we derive revenues from the sale of our
premium beverage products to distributors. All of our premium beverage products
are produced by third-party co-packers that we supply with raw materials and
packaging. We also derive revenues from the distribution of products in two of
our key markets. By acting as our own distributor in key markets we are able to
drive sales and improve focus on current and new products.
In our soft drink concentrate business (Royal Crown) we currently derive
our revenues from the sale of our carbonated soft drink concentrate to bottlers
and private label customers. To a much lesser extent, prior to 1998 we also
derived revenues from the sale of finished product. Gross margins on concentrate
sales are generally higher than on finished product sales.
In our restaurant franchising business we currently derive all our
revenues from franchise royalties and franchise fees. While over 75% of our
existing royalty agreements and all of our new domestic royalty agreements are
for 4% of franchise revenues, our average rate was 3.2% in 1998. We incur
selling, general and administrative costs but no cost of goods sold in our
franchising business.
In connection with our propane investment, we currently record our 42.7%
share of the income or loss of the partnership (the "Propane Partnership") which
operates the propane business. Following amendments to the Propane Partnership
agreements on December 28, 1997, we no longer have substantive control over the
Propane Partnership and, accordingly, as of that date no longer consolidate the
propane business.
None of our businesses requires significant capital expenditures because
we own no restaurants or manufacturing facilities, other than a Royal Crown
concentrate manufacturing facility. The amortization of goodwill and trademarks
results in significant non-cash charges.
In recent years our premium beverage business has experienced the
following trends:
o Acquisition/consolidation of distributors
o The development of proprietary packaging
o Increased pressure by competitors to achieve account exclusivity
o The increased use of plastic packaging
o The proliferation of new products including premium beverages,
bottled water and beverages enhanced with herbal additives
(e.g. ginseng and echinachea)
o Increased emphasis by distributors in placing refrigerated coolers
necessitating increased equipment purchases by such distributors
o Increased use of multi-packs and variety packs in certain trade
channels
In recent years our soft drink concentrate business has experienced the
following trends:
o Increased competition in the form of lower prices
o Increased pressure by competitors to achieve account exclusivity
o Acquisition/consolidation of bottlers
o Increased emphasis by bottlers in placing refrigerated coolers
necessitating increased equipment purchases by such bottlers
o Increased use of multi-packs in certain trade channels
o Increased market share of private label beverages
In recent years our restaurant business has experienced the following
trends:
o Consistent growth of the restaurant industry as a percentage of
total food-related spending, with the quick service restaurant, or
fast food segment, in which the Company operates, being the fastest
growing segment of the restaurant industry
o Increased price competition in the quick service restaurant
industry, particularly as evidenced by the value menu concept which
offers comparatively lower prices on certain menu items, the
combination meals concept which offers a combination meal at an
aggregate price lower than the individual food and beverage items,
couponing and other price discounting
o The addition of selected higher-priced premium quality items to
menus, which appeal more to adult tastes and recover some of the
margins lost in the discounting of other menu items
Following the sale of all of the 355 company-owned Arby's restaurants on
May 5, 1997 we experience the effects of these trends only to the extent they
affect our franchise fees and royalties.
In recent years the propane business in which we have an equity investment
has experienced the following trends:
o Demand for propane during the peak winter heating season is heavily
dependent on weather conditions and has been negatively impacted by
a warming trend over the recent winter heating seasons
o Increased energy conservation has negatively impacted the demand
for energy by both residential and commercial customers
o Excess supply of propane from reduced demand has reduced the cost
of propane but similarly has reduced sales prices
Following the deconsolidation of the Propane Partnership effective
December 28, 1997, we experience the effects of these trends only on our 42.7%
equity in earnings or losses of the Propane Partnership included in other income
(expense), net in our consolidated statements of operations. Further, we are
currently in negotiations with several potential purchasers concerning the sale
of the Propane Partnership. No agreement has been reached and there can be no
assurance that we will be able to consummate the sale of the Propane
Partnership.
PRESENTATION OF FINANCIAL INFORMATION
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with our consolidated
financial statements included elsewhere herein. Certain statements we make
constitute "forward-looking statements" under the Reform Act. See "Special Note
Regarding Forward- Looking Statements and Projections" in "Part I" preceding
"Item 1".
Effective January 1, 1997 we changed our fiscal year from a calendar year
to a year consisting of 52 or 53 weeks ending on the Sunday closest to December
31. Our 1997 fiscal year commenced January 1, 1997 and ended on December 28,
1997 and our 1998 fiscal year commenced December 29, 1997 and ended on January
3, 1999. When we refer to "1998" we mean the period from December 29, 1997 to
January 3, 1999; when we refer to "1997" we mean the period January 1, 1997
through December 28, 1997; and when we refer to "1996", we mean the calendar
year ended December 31, 1996.
During 1998 premium beverages contributed $611.5 million (75%) of our
revenues and $77.8 million (66%) of our EBITDA, soft drink concentrates
contributed $124.9 million (15%) of our revenues and $17.0 million (15%) of our
EBITDA, restaurant franchising contributed $78.6 million (10%) of our revenues
and $43.2 million (37%) of our EBITDA and general corporate expenses represented
a $20.9 million (18%) reduction of our EBITDA. Included in our consolidated
results below EBITDA is the equity in the loss of the propane business of $2.8
million. See Note 24 to the Company's consolidated financial statements included
elsewhere herein for a reconciliation of consolidated EBITDA to pre-tax income
for 1998. We define EBITDA as operating profit plus depreciation and
amortization (excluding amortization of deferred financing costs). Since all
companies do not calculate EBITDA or similarly titled financial measures in the
same manner, such disclosures may not be comparable with EBITDA as we define it.
EBITDA should not be considered as an alternative to net income or loss (as an
indicator of our operating performance) or as an alternative to cash flow (as a
measure of liquidity or ability to repay our debt) and is not a measure of
performance or financial condition under generally accepted accounting
principles, but provides additional information for evaluating our ability to
meet our obligations. Cash flows in accordance with generally accepted
accounting principles consist of cash flows from (i) operating, (ii) investing
and (iii) financing activities. Cash flows from operating activities reflect net
income or loss (including charges for interest and income taxes not reflected in
EBITDA), adjusted for (i) all non-cash charges or credits (including, but not
limited to, depreciation and amortization) and (ii) changes in operating assets
and liabilities (not reflected in EBITDA). Further, cash flows from investing
and financing activities are not included in EBITDA. For information regarding
our historical cash flows, see the consolidated statements of cash flows
presented in our consolidated financial statements included elsewhere herein.
See below for a discussion of our historical results of operations.
The discussion below reflects the operations of our former producer of
dyes and specialty chemicals for the textile industry, formerly included in our
textile segment, as discontinued operations as the result of its sale on
December 23, 1997.
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
We completed three significant transactions during 1997. First, on May 22,
1997, we acquired Snapple. Second, on November 25, 1997, we acquired Cable Car.
Third, on May 5, 1997, we sold all of our company-owned Arby's restaurants. In
addition, we sold our dyes and specialty chemical operations on December 23,
1997 and we amended the Propane Partnership agreements effective December 28,
1997 such that the propane operations are no longer consolidated subsequent to
that date. As a result, our 1998 results reflect for the entire period the
results of operations of Snapple and Cable Car but no results of operations
attributable to the ownership of the sold restaurants, the sold dyes and
specialty chemical operations or, except for accounting for our 42.7% share of
the net loss of the Propane Partnership on the equity basis, the propane
business. In contrast, 1997 results reflect the results of operations of Snapple
and Cable Car only from their dates of acquisition, reflect the results of
operations attributable to the ownership of the sold restaurants through the
date of sale and reflect the consolidated results of the propane business for
the entire year. As indicated above, the 1997 results of the dyes and specialty
chemicals business are reported through the date of sale as discontinued
operations.
Because of these transactions, 1998 results and 1997 results are not
comparable. In order to create a more meaningful comparison of our results of
operations between the two years, where applicable we have adjusted for the
effects of these transactions in the segment discussions below.
Revenues
Our revenues decreased $46.3 million to $815.0 million in 1998 compared to
1997. This decrease primarily results from the absence during 1998 of sales
attributable to both the propane business which is no longer consolidated
($165.2 million in 1997) and the ownership of the sold restaurants ($74.2
million from January 1 to May 5, 1997) less the effect of royalties from those
restaurants during the same portion of the 1998 period ($3.2 million). Such
decreases were partially offset by the inclusion of Snapple and Cable Car sales
for all of 1998 (compared with inclusion for only a portion of 1997) which
resulted in $191.9 million of additional revenues. Without the effects of the
deconsolidation of the Propane Partnership, the sale of the company-owned
restaurants and the acquisitions of Snapple and Cable Car, the Company's
revenues declined in 1998 by $2.0 million from 1997. A discussion of the changes
in revenues by segment is as follows:
Premium Beverages -- We have adjusted our 1998 results by including the
results of Snapple and Cable Car only for the same calendar period they
were included during 1997. After giving effect to these adjustments, our
premium beverage revenues increased $10.8 million (2.6%) in 1998 compared
with 1997. The increase was due to an increase in sales of finished goods
($12.5 million) partially offset by a decrease in sales of concentrate
($1.7 million), which we sell to only one international customer. The
increase in sales of finished goods principally reflects net higher volume
($18.9 million) primarily due to new product introductions as well as
increases in sales of teas, diet teas and other diet beverages, partially
offset by lower average selling prices ($6.4 million). The lower average
selling prices were principally due to a change in Snapple's distribution
in Canada from a company-owned operation with higher selling prices to an
independent distributor with lower selling prices.
Soft Drink Concentrates -- Our soft drink concentrate revenues decreased
$22.0 million (15.0%) in 1998 compared with 1997. This decrease is
attributable to lower Royal Crown sales of concentrate ($15.5 million, or
11.2%) and finished goods ($6.5 million, or 81.7%). The decrease in Royal
Crown sales of concentrate reflects (i) a $13.7 million decline in branded
sales, primarily due to lower domestic volume reflecting competitive
pricing pressures experienced by our bottlers and (ii) a $1.8 million
volume decrease in private label sales due principally to inventory
reduction programs of the Company's private label customer. The domestic
volume decline in branded concentrate sales was partially offset by the
fact that as a result of the sale in July 1997 of the C&C beverage line,
we now sell concentrate to the purchaser of the C&C beverage line rather
than finished goods. The decrease in sales of Royal Crown's finished goods
was principally due to the sale of the C&C beverage line and therefore the
absence in 1998 of sales of C&C finished product.
Restaurants -- We have adjusted 1997 results to exclude net sales
attributable to the company-owned restaurants which were sold and results
for the same portion of 1998 to exclude royalties from those sold
restaurants. After giving effect to these adjustments, revenues increased
$9.2 million (13.8%) due to (i) a 4.6% increase in average royalty rates
due to the declining significance of older franchise agreements with lower
rates, (ii) a 3.0% increase in same-store sales of franchised restaurants
and (iii) a net increase of 47 (1.6%) franchised restaurants, which
generally experience higher than average restaurant volumes.
Gross Profit
We calculate gross profit as total revenues less cost of sales less
depreciation and amortization related to sales (which depreciation and
amortization amounted to $1.7 million in 1998 and $11.7 million in 1997,
including $10.6 million associated with the propane business in 1997 which was
no longer consolidated in 1998). Our gross profit increased $25.1 million to
$422.5 million in 1998 compared with 1997. Gross profit increased $78.9 million
due to the inclusion of gross profit relating to Snapple and Cable Car sales for
all of 1998 (compared with inclusion for only a portion of 1997). This increase
was partially offset by the absence during 1998 of gross profit attributable to
(i) the deconsolidation of the Propane Partnership ($34.5 million in 1997) and
(ii) ownership of the sold restaurants ($15.0 million in 1997) less the
incremental royalties from those sold restaurants during that portion of the
1998 period ($3.2 million). Giving effect to the adjustments described above
with respect to the acquisitions of Snapple and Cable Car, the deconsolidation
of the Propane Partnership and the sale of the company-owned restaurants, our
gross profit decreased $7.5 million, despite the effect of higher sales volumes
discussed above, due to a slight decrease in our aggregate gross margins (which
we compute as gross profit divided by total revenues) to 55% from 56%. This
decrease in gross margins is principally due to an overall shift in revenue mix
and lower gross margins of the premium beverage and soft drink concentrate
segments, both as discussed in more detail below. A discussion of the changes in
gross margins by segment, adjusted for the effects of the adjustments noted
above, is as follows:
Premium Beverages -- Giving effect to the adjustments described above with
respect to the Snapple and Stewart's (Cable Car) acquisitions, our gross
margins decreased to 40% during 1998 from 41% during 1997. The decrease in
gross margins was principally due to the effects of (i) changes in product
mix, (ii) the aforementioned change in Snapple's Canadian distribution and
(iii) provisions for obsolete inventory, all substantially offset by the
effects of the reduced costs of certain raw materials, principally glass
bottles and flavors, and lower freight costs in 1998.
Soft Drink Concentrates -- Our gross margins were unchanged at 77% during
1998 and 1997. The positive effect of the shift during 1998 to
higher-margin concentrate sales from lower-margin finished goods was fully
offset by inclusion in 1997 of a nonrecurring $1.1 million reduction to
cost of sales resulting from the guarantee to the Company of certain
minimum gross profit levels on sales to the Company's private label
customer and lower private label gross margins. The Company had no similar
guarantee of minimum gross profit levels in 1998.
Restaurants -- After giving effect to the adjustments described above with
respect to the restaurants sold, our gross margins during each year are
100% due to the fact that royalties and franchise fees (with no associated
cost of sales) now constitute the total revenues of the segment.
Advertising, Selling and Distribution Expenses
Advertising, selling and distribution expenses increased $8.6 million to
$197.1 million in 1998 reflecting the inclusion of Snapple and Cable Car for the
full 1998 year. Such increase was partially offset by (i) a decrease in the
expenses of the premium beverage segment excluding Snapple and Cable Car
principally due to less costly promotional programs, (ii) a decrease in expenses
of the soft drink concentrate segment principally due to lower bottler
promotional reimbursements resulting from the decline in branded concentrate
sales volume, (iii) the deconsolidation of the Propane Partnership and (iv) a
decrease in the expenses of the restaurant segment principally due to local
restaurant advertising and marketing expenses no longer needed for the sold
restaurants. This decrease in the expenses of the restaurant segment commenced
in 1997 with the May 1997 sale of the restaurants and increased to its full
effect in 1998.
General and Administrative Expenses
General and administrative expenses decreased $5.3 million to $110.0
million for 1998. This decrease principally reflects (i) the deconsolidation of
the Propane Partnership, (ii) nonrecurring costs in 1997 in connection with the
integration of the Snapple business following its acquisition and (iii) reduced
restaurant segment costs for administrative support, principally payroll, no
longer required for the sold restaurants and other cost reduction measures. This
decrease in the expenses of the restaurant segment commenced in 1997 with the
May 1997 sale of the restaurants and increased to its full effect in 1998. These
decreases were partially offset by (i) the inclusion of Snapple and Cable Car
operations for all of 1998 and (ii) nonrecurring provisions in 1998 for (a) the
anticipated settlement of lawsuits with Arby's Mexican master franchisee and
with ZuZu, Inc. and (b) a severance arrangement under the last of the Company's
1993 executive employment agreements.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Depreciation and amortization, excluding amortization of deferred
financing costs, decreased $4.1 million to $35.2 million for 1998 principally
reflecting the deconsolidation of the Propane Partnership partially offset by
the inclusion of Snapple and Cable Car for all of 1998 and depreciation expense
on $4.6 million of vending machines purchased by Royal Crown in January 1998.
Acquisition Related Costs
The nonrecurring acquisition related costs of $31.8 million in 1997 were
associated with the Snapple acquisition and, to a much lesser extent, the
Stewart's acquisition. Those costs consisted of (i) a write-down of glass front
vending machines based on the Company's change in estimate of their value based
on the Company's plans for their future use, (ii) a provision for additional
reserves for legal matters based on the Company's change in The Quaker Oats
Company's estimate of the amounts required reflecting the Company's plans and
estimates of costs to resolve such matters, (iii) a provision for additional
reserves for doubtful accounts of Snapple and the effect of the Snapple
acquisition on the collectibility of a receivable from the Company's affiliate,
MetBev, Inc., based on the Company's change in estimate of the related write-off
to be incurred, (iv) a provision for fees paid to Quaker pursuant to a
transition services agreement whereby Quaker provided certain operating and
accounting services for Snapple through the end of the Company's 1997 second
quarter, (v) the portion of the post-acquisition period promotional expenses the
Company estimated was related to the pre-acquisition period as a result of the
Company's then current operating expectations, (vi) a provision for certain
costs in connection with the successful consummation of the acquisition of
Snapple and the Mistic refinancing in connection with entering into a credit
facility concurrent with the Snapple acquisition, (vii) a provision for costs,
principally for independent consultants, incurred in connection with the data
processing implementation of the accounting systems for Snapple (under Quaker,
Snapple did not have its own independent data processing accounting systems),
including costs incurred relating to an alternative system that was not
implemented and (viii) an acquisition related sign-on bonus.
Facilities Relocation and Corporate Restructuring Charge
The nonrecurring facilities relocation and corporate restructuring charge
of $7.1 million in 1997 principally consisted of employee severance and related
termination costs and employee relocation costs associated with restructuring
the restaurant segment in connection with the sale of company-owned restaurants
and to a lesser extent, costs associated with the relocation of Royal Crown's
headquarters, which was centralized with the White Plains, New York headquarters
of Triarc Beverage Holdings, the parent of Snapple and Mistic.
Interest Expense
Interest expense was relatively unchanged, decreasing $0.8 million to
$70.8 million for 1998. This decrease principally reflects (i) a net decrease of
$12.6 million resulting from no longer consolidating the propane business and
(ii) the elimination of $69.6 million of mortgage and equipment notes payable
and capitalized lease obligations assumed by the purchaser of the sold
restaurants for all of 1998 (compared with the elimination for only a portion of
1997). This decrease was substantially offset by higher average levels of debt
due to increases from (i) the inclusion of borrowings by Snapple in connection
with its acquisition ($213.3 million outstanding as of January 3, 1999) for all
of 1998 (compared with inclusion for only a portion of 1997) and (ii) the
February 9, 1998 issuance by Triarc of zero coupon convertible subordinated
debentures due 2018 (the "Debentures") ($106.1 million net of unamortized
original issue discount outstanding as of January 3, 1999).
Gain on Sale of Businesses, Net
Gain on sale of businesses of $7.2 million in 1998 consists of (i) a
pre-tax $4.7 million gain from the May 1998 sale of our 20% interest in Select
Beverages, Inc., (ii) the recognition of $2.2 million of previously deferred
gain from the 1996 sale of 57.3% of the Propane Partnership representing our
receipt of distributions from the Propane Partnership in excess of our 42.7%
equity in the losses of the Propane Partnership ("Excess Distributions") for the
year and (iii) the recognition of $0.3 million of deferred gain from the sale of
C&C. Gain on sale of businesses, net, of $5.0 million in 1997 consisted of (i)
an $8.5 million gain from the receipt by Triarc of Excess Distributions from the
Propane Partnership and (ii) a $0.6 million gain recognized from the C&C sale,
both partially offset by a $4.1 million loss on the sale of restaurants.
Investment Income, Net
Investment income, net decreased $0.6 million to $12.2 million in 1998
principally reflecting a $9.3 million provision in 1998 for unrealized losses on
short-term and non-current investments deemed to be other than temporary due to
recent global economic conditions, volatility in capital and lending markets or
declines in the underlying economics of specific marketable equity securities
experienced principally during the third quarter of 1998. Such decrease was
substantially offset by (i) a $3.9 million increase in net recognized gains on
the sales of short-term investments and investment limited partnerships in 1998,
including unrealized gains on marketable securities classified as trading and
securities sold but not yet purchased, which may not recur in future periods,
(ii) a $3.9 million increase in interest income principally reflecting higher
levels of commercial paper from the investment therein of a portion of the net
proceeds from the issuance of the Debentures, (iii) a $0.6 million increase in
equity in earnings of investment limited partnerships and (iv) $0.3 million of
increased dividend income.
Other Income (Expense), Net
Other income (expense), net amounted to expense of $1.8 million in 1998
compared with income of $3.8 million in 1997. This change of $5.6 million was
principally due to (i) $4.5 million of equity in the losses of investees,
principally the Propane Partnership (recognized as a result of its
deconsolidation) and Select Beverages (acquired in connection with the Snapple
acquisition), recorded in 1998 compared with $0.6 million of equity in income in
1997, (ii) nonrecurring income in 1997, most significantly (a) a reversal of
$1.9 million of legal fees incurred prior to 1997 as a result of a cash
settlement received from Victor Posner, the former Chairman and Chief Executive
Officer of the Company, and an affiliate of Victor Posner and (b) a $0.9 million
gain on lease termination for a portion of the space no longer required in the
current headquarters of the restaurant group and former headquarters of Royal
Crown due to staff reductions as a result of the restaurants sale and the
relocation of the Royal Crown headquarters, (iii) $0.9 million of costs incurred
in 1998 in connection with a proposed going- private transaction not consummated
as described below under "Financial Condition and Liquidity" and (iv) $0.9
million of less gains from reduced other sales of assets in 1998. These effects
were partially offset by a nonrecurring 1997 charge of $3.7 million related to a
settlement in connection with the Company's investment in a joint venture with
Prime Capital Corporation.
Income Taxes
The (provision for) and benefit from income taxes represented effective
rates of 58% for 1998 and 21% for 1997. The effective rate is higher in the 1998
period principally due to (i) the differing impact on the respective effective
income tax rates of the amortization of non-deductible costs in excess of net
assets of acquired companies ("Goodwill") in a period with pretax income (1998)
compared with a period with a pretax loss (1997) and (ii) the differing impact
of the mix of pretax loss or income among the consolidated entities since the
Company files state tax returns on an individual company basis.
Minority Interests
The minority interests in net income of a consolidated subsidiary (the
Propane Partnership) of $2.2 million in 1997 represented the 57.3% interests of
investors other than the Company in the net income of the Propane Partnership.
As a result of no longer consolidating the Propane Partnership, effective in
1998 the minority interests of investors other than the Company are effectively
netted against the equity in the loss of the Propane Partnership included in
"Other income (expense), net".
Discontinued Operations
Income from discontinued operations amounted to $2.6 million in 1998
compared with $20.7 million in 1997. The 1998 amount represents an after tax
adjustment to amounts provided in prior years as a result of collection of a
note receivable not previously recognized for the estimated loss on disposal of
certain discontinued operations of Southeastern Public Service Company, a
subsidiary of the Company. The amount in 1997 represents the $19.5 million gain,
net of income taxes, on the sale of C.H. Patrick and the 1997 net income of $1.2
million of C.H. Patrick through the December 23, 1997 date of sale.
Extraordinary Items
The 1997 nonrecurring extraordinary items aggregating $3.8 million
resulted from the early extinguishment or assumption of (i) mortgage and
equipment notes payable assumed by the buyer in the restaurants sale, (ii)
obligations under Mistic's former credit facility refinanced in connection with
the financing of the Snapple acquisition and (iii) borrowings under the credit
agreement of C.H. Patrick repaid in connection with its sale.
1997 COMPARED WITH 1996
As discussed above, we completed three significant transactions during
1997. First, on May 22, 1997, we acquired Snapple. Second, on November 25, 1997,
we acquired Cable Car. Third, on May 5, 1997, we sold all of our company-owned
Arby's restaurants. In addition, on April 29, 1996 we sold our textile business
segment other than the dyes and specialty chemicals business. Further, we sold
our dyes and specialty chemical operations on December 23, 1997. The 1996
results of the dyes and specialty chemicals business and the 1997 results
through the date of sale are reported as discontinued operations. As a result,
our 1997 results reflect the results of operations for Snapple and Cable Car
from their dates of acquisition and do not reflect results of operations
attributable to the ownership of the sold restaurants or the textile business
subsequent to the date of their disposition. In contrast, our 1996 results do
not reflect results of operations of Snapple or Cable Car (because they were
acquired subsequent to 1996) and reflect results of operations attributable to
the ownership of the sold restaurants for the full year (because they were sold
subsequent to 1996) and the textile business (except for dyes and specialty
chemicals included in discontinued operations) through the April 29, 1996 date
of sale.
Because of these transactions, our 1997 results and 1996 results are not
comparable. In order to provide a more meaningful comparison of our results of
operations during the two years, we have adjusted for the effect of these
transactions in the segment discussions below.
Revenues
Our revenues decreased $66.9 million to $861.3 million for 1997. This
decrease principally reflects a $157.5 million decrease due to the April 29,
1996 sale of our textile business segment (other than the dyes and specialty
chemicals business) and a $154.4 million decrease due to the elimination during
a portion of 1997 of sales attributable to the sold restaurants less $6.2
million of franchise royalties from those restaurants for the period after the
restaurant sale. The decrease was partially offset by the inclusion in 1997 of
$285.5 million of Snapple and Cable Car sales. Aside from the effects of these
transactions, revenues decreased $46.7 million. A discussion of the change in
revenues by segment is as follows:
Premium Beverages - We have adjusted our 1997 results by excluding the
results of operations of Snapple and Cable Car. After giving effect to
these adjustments, revenues decreased $7.8 million (5.9%) in 1997 due to
decreases in sales of finished goods ($9.7 million) partially offset by an
increase in sales of concentrate ($1.9 million), which we sell to only one
international customer. The decrease in sales of finished goods
principally reflects lower sales volume exclusive of Snapple.
Soft Drink Concentrates - Revenues decreased $31.1 million (17.5%) in 1997
due to decreases in sales of finished goods ($21.6 million) and
concentrate ($9.5 million). The decrease in sales of finished goods
principally reflects (i) the absence in the 1997 period of sales to MetBev
and a volume decrease in sales of branded finished products of Royal Crown
in areas other than those serviced by MetBev (where in both instances we
now sell concentrate rather than finished goods), (ii) a volume decrease
in sales of the C&C beverage line (where we now sell concentrate to the
purchaser of the C&C beverage line rather than finished goods) as a result
of the C&C sale and (iii) a volume reduction in the sales of finished
Royal Crown Premium Draft Cola which we ceased selling in late 1996. Sales
of Royal Crown concentrate decreased, despite the shift in sales of C&C
and Royal Crown products to concentrate from finished goods noted above,
principally reflecting (i) a decrease in branded sales due to volume
declines, which were adversely affected by lower bottler case sales and
(ii) an overall lower average concentrate selling price.
Restaurants - We have adjusted for the sale of the restaurants by
including in 1996 results of restaurant operations for the same period
that was included in 1997 prior to the restaurant sale and excluding from
1997 results franchise royalties on the sold restaurants for the period
after the restaurant sale. After giving effect to these adjustments,
revenues increased $0.3 million (less than 1%) during 1997. This increase
was due to a $2.8 million (4.9%) increase in royalties and franchise fees
partially offset by a $2.5 million (3.2%) decrease in net sales of the
company-owned restaurants. The increase in royalties and franchise fees
is due to a net increase of 69 (2.6%) franchised restaurants and a
1.7% increase in same-store sales of franchised restaurants.
Propane - Revenues decreased $8.1 million (4.7%) due to (i) lower propane
volume reflecting warmer weather in 1997, customer energy conservation and
customer turnover due to higher propane selling prices, which factors were
partially offset by additional sales from acquisitions of propane
distributorships and the opening of new service centers, (ii) a decrease
in average selling prices due to a shift in customer mix toward
lower-priced non-residential accounts and (iii) a decrease in revenues
from other product lines.
Gross Profit
We calculate gross profit as total revenues less cost of sales less
depreciation and amortization related to sales (which depreciation and
amortization was $11.7 million in 1997 and $28.5 million in 1996, including
depreciation and amortization in 1996 but not in 1997 on all long-lived assets
of the sold restaurants which had been written down to their estimated fair
values as of December 31, 1996 and were no longer depreciated or amortized
through the date of their sale). Our gross profit increased $70.9 million to
$397.4 million in 1997. The increase is attributable in part to gross profit in
1997 associated with Snapple ($119.9 million) and Cable Car ($0.4 million)
partially offset by the gross profit associated with the textile business ($16.7
million) which was included in 1996 results but not in 1997, and the sold
restaurants which were included in 1996 results for the entire period but only a
portion of 1997 ($28.5 million) less the effect of royalties from those
restaurants during that same portion of 1997 ($6.2 million). Excluding the
effects of these transactions, gross profit decreased $10.4 million due to the
lower overall sales volumes discussed above partially offset by higher overall
gross margins of 47% in 1997 compared with 46% in 1996. A discussion of the
changes in gross margins by segment is as follows:
Premium Beverages - Giving effect to the adjustments described above with
respect to the Snapple and Stewart's acquisitions in 1997, margins
remained unchanged in 1997 at 39%.
Soft Drink Concentrates - Margins increased in 1997 to 77% from 68%
principally due to the shift discussed above in product mix to
higher-margin concentrate sales compared with finished product sales and
reduced cost of the raw material aspartame in 1997.
Restaurants - Giving effect to the adjustments described above with
respect to the sale of the restaurants, margins increased in 1997 to 56%
from 51% primarily due to (i) the absence in 1997 of depreciation and
amortization on all long-lived assets of the sold restaurants discussed
above and (ii) the higher percentage of royalties and franchise fees (with
no associated cost of sales) to total revenues in 1997.
Propane - Margins decreased to 21% in 1997 from 23% due to (i) the shift
in customer mix to non-residential customers discussed above for whom
margins are lower and (ii) an increase in operating costs (other than the
cost of propane) which are not variable with revenues within a certain
range.
Advertising, Selling and Distribution Expenses
Advertising, selling and distribution expenses increased $45.2 million to
$188.5 million in 1997. The increase reflects (i) the expenses of Snapple, (ii)
higher promotional costs related to Mistic Rain Forest Nectars, a then recently
introduced product line, and (iii) other increased advertising and promotional
costs for the premium beverage segment other than Snapple. These increases were
partially offset by (i) a decrease in the expenses of the restaurant segment
principally due to local restaurant advertising and marketing expenses no longer
required for the sold restaurants after their sale in May 1997, (ii) a decrease
in the expenses of the soft drink concentrate segment principally due to (a)
lower bottler promotional reimbursements resulting from the decline in sales
volume, (b) the elimination of advertising expenses for Draft Cola and (c)
planned reductions in connection with the aforementioned decreases in sales of
other Royal Crown and C&C branded finished products and (iii) nonrecurring
expenses in 1996 related to the textile business sold in April 1996.
General and Administrative Expenses
General and administrative expenses increased $5.0 million to $115.3
million in 1997 due to (i) the expenses of Snapple, (ii) a nonrecurring
reduction of 1996 expenses for the release of casualty insurance reserves and
(iii) other inflationary increases. These increases were partially offset by (i)
expenses in 1996 related to the textile business excluding dyes and specialty
chemicals sold in April 1996, (ii) reduced spending levels related to
administrative support, principally payroll, no longer required for the sold
restaurants and (iii) reduced travel activity in the restaurant segment prior to
the restaurants sale.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Depreciation and amortization, excluding amortization of deferred financing
costs, decreased $6.7 million to $39.3 million for 1997 principally due to
decreases in depreciation and amortization relating to the sold restaurants and
the sold textiles business excluding dyes and specialty chemicals partially
offset by the depreciation and amortization in 1997 of Snapple.
Acquisition Related Costs
Acquisition related costs of $31.8 million in 1997 are discussed above in
connection with the comparison of 1998 with 1997.
Facilities Relocation and Corporate Restructuring Charge
The facilities relocation and corporate restructuring charge of $7.1
million in 1997 is discussed above in connection with the comparison of 1998
with 1997. The facilities relocation and corporate restructuring charge of $8.8
million in 1996 resulted from (i) estimated losses on planned subleases
(principally for the write-off of nonrecoverable unamortized leasehold
improvements and furniture and fixtures) of surplus office space as a result of
the then planned sale of company-owned restaurants and the relocation of the
Royal Crown headquarters, (ii) employee severance costs associated with the
relocation of the Royal Crown headquarters, (iii) terminating a beverage
distribution agreement, (iv) the shutdown of the soft drink concentrate
segment's Ohio production facility and other asset disposals, (v) consultant
fees paid associated with combining certain operations of Royal Crown and Mistic
and (vi) costs related to the then planned spinoff of the Company's
restaurant/beverage group.
Reduction in Carrying Value
The reduction in carrying value of long-lived assets to be disposed in 1996
of $64.3 million principally reflects the estimated loss on the anticipated
disposal of long-lived assets in connection with the sale of all company-owned
restaurants as then planned. Such provision represents the reduction in the
carrying value of certain long-lived assets and certain identifiable intangibles
to estimated fair value and the accrual of certain equipment operating lease
obligations which would not be assumed by the purchaser. There was no provision
for reduction in carrying value of long-lived assets in 1997.
Interest Expense
Interest expense was relatively unchanged in 1997, increasing $0.6 million
to $71.6 million. The effect of borrowings by Snapple in connection with the
Snapple acquisition ($222.4 million outstanding as of December 28, 1997) was
substantially offset by lower average levels of debt reflecting (i) the full
year effect of 1996 repayments prior to maturity of (a) $191.4 million of debt
of the textile business, other than dyes and specialty chemicals, in connection
with its sale on April 29, 1996, (b) $34.7 million principal amount of a 9 1/2%
promissory note on July 1, 1996 and (c) $36.0 million principal amount of 11
7/8% debentures on February 22, 1996 and (ii) the 1997 assumption by the
purchaser of the sold restaurants of $69.6 million of mortgage and equipment
notes payable and capitalized lease obligations in connection with the sale of
such restaurants.
Gain on Sale of Businesses, Net
Gain on sale of businesses, net, of $5.0 million in 1997 is discussed above
in connection with the comparison of 1998 with 1997. Gain on sale of businesses,
net, of $77.0 million in 1996 resulted from an $85.2 million pretax gain from
the 1996 sales of a 55.8% interest in the Propane Partnership partially offset
by (i) a $4.5 million pretax loss on the sale of the textile business, other
than dyes and specialty chemicals, and (ii) a $3.7 million pretax loss
associated with the write-down of a receivable due from MetBev.
Investment Income, Net
Investment income, net increased $4.7 million to $12.8 million in 1997
principally reflecting an increase in realized gains on the sales of short-term
investments in 1997.
Other Income (Expense), Net
Other income (expense), net amounted to income of $3.8 million in 1997
compared with expense of $0.1 million in 1996. This change of $3.9 million was
principally due to (i) $2.1 million of other income, net of Snapple since its
acquisition in May 1997 consisting principally of equity in the earnings of
investees, rental income and interest income, (ii) the reversal of $1.9 million
of legal fees incurred prior to 1997 as a result of the cash settlement received
from Victor Posner and an affiliate of Victor Posner during 1997, (iii) $1.4
million of increased gains on other sales of assets and (iv) $0.9 million of
gain on the Florida lease termination, all partially offset by a $2.2 million
higher provision for a settlement during 1997 in connection with the Company's
investment in a joint venture with Prime Capital Corporation.
Income Tax Benefit
The benefit from income taxes for 1997 represented an effective rate of 21%
which was lower than the statutory rate of 35% principally due to the effect of
the amortization of non-deductible Goodwill. We had a provision for income taxes
in 1996 despite a pretax loss due to (i) a non-deductible loss on the sale of
the textile business other than dyes and specialty chemicals resulting from the
write-off of unamortized non-deductible Goodwill, (ii) an additional provision
for income tax contingencies, (iii) the effect of the amortization of
non-deductible Goodwill and (iv) the effect of net operating losses for which no
tax benefit was available.
Minority Interests
The minority interests in net income of a consolidated subsidiary (the
Propane Partnership) increased $0.4 million to $2.2 million in 1997 due to the
full year effect in 1997 (compared with the effect in 1996 only from the dates,
principally July 1996, of sale) of the 57.3% interest owned by investors other
than the Company in the net income of the Propane Partnership. This increase was
partially offset by lower net income of the Propane Partnership (excluding an
extraordinary charge in 1996 which was allocated entirely to the Company with no
minority interest).
Discontinued Operations
Income from discontinued operations amounted to $20.7 million in 1997
compared with $5.2 million in 1996. The amount in 1997 represents the $19.5
million gain, net of income taxes, on the sale of C.H. Patrick and the 1997 net
income of $1.2 million of C.H. Patrick through the December 23, 1997 date of
sale, whereas the amount in 1996 represents solely the 1996 net income of C.H.
Patrick. The lower net income from operations in 1997 compared with 1996
principally reflected the effects of competitive pricing pressures and a
cyclical downturn in the denim segment of the textile industry in which C.H.
Patrick's dyes are used.
Extraordinary Items
The 1997 extraordinary items are discussed above in connection with the
comparison of 1998 with 1997. The 1996 extraordinary charges aggregating $5.4
million resulted from the early extinguishment of (i) almost all of the existing
long-term debt of the propane business refinanced in connection with the
formation of the Propane Partnership, (ii) the 9 1/2% note referred to above,
(iii) all debt of the textile business exclusive of dyes and specialty chemicals
and (iv) the 11 7/8% debentures referred to above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operations
The Company's operating activities provided cash and cash equivalents
(collectively "cash") of $15.1 million during 1998 principally reflecting net
income of $14.6 million and net non-cash charges of $48.2 million, principally
depreciation and amortization of $45.8 million. Such sources were partially
offset by (i) cash used for net purchases of marketable securities classified as
trading of $25.0 million, (ii) the payment of previously accrued acquisition
related costs of $6.0 million associated with the Snapple acquisition, (iii)
reclassifications of components of net income, principally gain on sale of
businesses and income from discontinued operations, to cash flows from
activities other than operating of $9.6 million, (iv) cash used by changes in
operating assets and liabilities of $5.4 million and (v) other of $1.7 million.
The cash used by changes in operating assets and liabilities of $5.4 million
principally reflects a decrease in accounts payable and accrued expenses of
$24.7 million partially offset by a $10.6 million decrease in inventories and a
$7.6 million decrease in receivables. The decrease in accounts payable and
accrued expenses was principally due to (i) payments by Snapple of accrued
losses on pre-acquisition production contracts and legal settlements, (ii)
decreases at Royal Crown due to the reduced aspartame inventory levels described
below and the lower bottler promotional reimbursements discussed above and (iii)
payments of expenses accrued in 1997 in connection with the sale of C.H.
Patrick. The decrease in inventories was principally due to (i) a $7.2 million
decrease in Royal Crown inventories reflecting a reduction of higher than normal
1997 year-end inventory levels of aspartame reflecting purchases, and resulting
inventory build-ups, during the latter part of 1997 by Royal Crown in order to
take advantage of a 1997 promotional incentive and (ii) $3.4 million of reduced
inventory levels of premium beverages principally due to the provision for
obsolete inventories. The decrease in receivables was principally due to a $7.6
million decrease at Royal Crown reflecting the absence in 1998 of a 1997
promotional rebate receivable for aspartame purchases and lower fourth quarter
private label sales in 1998 compared with 1997. The Company expects continued
positive cash flows from operations during 1999.
Working Capital
Working capital (current assets less current liabilities) was $208.4
million at January 3, 1999, reflecting a current ratio (current assets divided
by current liabilities) of 2.0:1. Such amount represents an increase in working
capital of $78.3 million from December 28, 1997 principally reflecting proceeds
of (i) $100.2 million from the sale of the Debentures and (ii) $28.3 million
from the Company's sale of its 20% non-current investment in Select Beverages
less repurchases of common stock for treasury of $54.7 million, all as described
below.
1999 Refinancing Transactions
The Company's capitalization as of January 3, 1999 aggregated $719.9
million consisting of $709.0 million of long-term debt (including current
portion) and $10.9 million of stockholders' equity. On February 25, 1999 Triarc
Consumer Products Group, LLC (a newly-formed wholly-owned subsidiary of the
Company which, effective February 25, 1999, has as its principal subsidiaries
Triarc Beverage Holdings, Cable Car and RC/Arby's, the parent of Royal Crown and
Arby's) issued $300.0 million (including $20.0 million issued to affiliates of
the Company) principal amount of 10 1/4% senior subordinated notes due 2009 and
concurrently entered into a new $535.0 million senior bank credit facility. The
new credit facility consists of a new $475.0 million term facility, all of which
was borrowed as term loans on February 25, 1999, and a new $60.0 million
revolving credit facility which provides for revolving credit loans by Snapple,
Mistic or Cable Car effective February 25, 1999 and RCAC or Royal Crown
effective upon the redemption of the $275.0 million principal amount of the
RC/Arby's 9 3/4% senior notes (see below). The borrowing base for revolving
loans is the sum of 80% of eligible accounts receivable and 50% of eligible
inventories. At January 31, 1999 there would have been $51.9 million of
borrowing availability under the revolving credit facility, including
availability relating to RC/Arby's and Royal Crown, in accordance with
limitations due to such borrowing base. There were no borrowings of revolving
loans on February 25, 1999. The Company utilized a portion of the aggregate net
proceeds of these borrowings to (i) repay on February 25, 1999 the outstanding
principal amount ($284.3 million as of January 3, 1999 and February 25, 1999) of
the existing term loans under the existing beverage credit facility and related
accrued interest ($2.2 million and $1.5 million as of January 3, 1999 and
February 25, 1999, respectively), (ii) fund the redemption on March 30, 1999 of
the $275.0 million of borrowings under the RC/Arby's 9 3/4% senior notes
including related accrued interest ($11.5 million and $4.4 million as of January
3, 1999 and March 30, 1999, respectively) and redemption premium ($7.7 million
as of January 3, 1999 and March 30, 1999), (iii) acquire Millrose Distributors,
Inc. and the assets of Mid-State Beverage, Inc., two New Jersey distributors of
the Company's premium beverages, for $17.3 million and (iv) pay estimated fees
and expenses of $28.0 million relating to the issuance of the 10 1/4% notes and
the consummation of the new credit facility. The remaining net proceeds of this
refinancing will be used for general corporate purposes, which may include
working capital, future acquisitions and investments, repayment or refinancing
of indebtedness, restructurings or repurchases of the Company's securities,
including common stock in connection with an offer to purchase Triarc common
stock described below. As a result of the repayment prior to maturity of the
existing term loans under the existing beverage credit facility and the
redemption of RC/Arby's 9 3/4% senior notes, the Company expects to recognize an
extraordinary charge during the first quarter of 1999 of an estimated $12.1
million for (i) the write-off of previously unamortized (a) deferred financing
costs ($12.2 million and $11.3 million as of January 3, 1999 and March 30, 1999,
respectively) and (b) interest rate cap agreement costs ($0.2 million and $0.1
million as of January 3, 1999 and February 25, 1999, respectively) and (ii) the
payment of the aforementioned redemption premium ($7.7 million as of January 3,
1999 and March 30, 1999), net of income tax benefit ($7.4 million and $7.0
million as of January 3, 1999 and March 30, 1999, respectively).
The 10 1/4% notes mature in 2009 and do not require any amortization of
principal prior thereto. The Company has agreed to use its best efforts to have
a registration statement covering resales by holders of the 10 1/4% notes
declared effective by the Securities and Exchange Commission on or before August
24, 1999. In the event the 10 1/4% notes are not registered by such date, the
annual interest rate on the 10 1/4% notes will increase by 1/2% until such time
as a registration statement is declared effective.
Scheduled maturities of the new term loans under the new credit facility
are $4.9 million in 1999 (representing three quarterly installments commencing
June 1999) and thereafter in increasing annual amounts through 2006 with a final
payment in 2007. Any revolving loans will be due in full in 2005. Triarc
Consumer Products is also required, subject to certain exceptions, to make
mandatory prepayments in an amount, if any, initially equal to 75% of excess
cash flow as defined in the new credit agreement.
Under the bank credit facility agreement substantially all of the assets,
other than cash, cash equivalents and short-term investments, of Snapple, Mistic
and Cable Car (and RC/Arby's, Royal Crown and Arby's since the redemption of the
RC/Arby's 9 3/4% senior notes) and their subsidiaries are pledged as security.
The Company's obligations with respect to the 10 1/4% notes are guaranteed by
Snapple, Mistic and Cable Car and all of their domestic subsidiaries and since
the redemption of the RC/Arby's 9 3/4% senior notes, the 10 1/4% notes are
guaranteed by RC/Arby's and all of its domestic subsidiaries. Such guarantees
are full and unconditional, on a joint and several basis and are unsecured. The
Company's obligations with respect to the new credit facility are guaranteed by
substantially all of the domestic subsidiaries of Snapple, Mistic and Cable Car
(and those of RC/Arby's and Royal Crown since the redemption of the RC/Arby's 9
3/4% senior notes). As collateral for such guarantees under the new credit
facility, all of the stock of Snapple, Mistic and Cable Car and substantially
all of their domestic and 65% of their directly-owned foreign subsidiaries are
pledged and since the redemption of the RC/Arby's 9 3/4% senior notes, all of
the stock of RC/Arby's and Royal Crown and substantially all of their domestic
and 65% of their directly-owned foreign subsidiaries are pledged.
The indenture pursuant to which the 10 1/4% notes were issued and the new
credit agreement contain various covenants which (i) require meeting certain
financial amount and ratio tests; (ii) limit, among other matters (a) the
incurrence of indebtedness, (b) the retirement of certain debt prior to
maturity, (c) investments, (d) asset dispositions and (e) affiliate transactions
other than in the normal course of business; and (iii) restrict the payment of
dividends to Triarc. Under the most restrictive of such covenants, the borrowers
would not be able to pay any dividends to Triarc other than (i) permitted
one-time cash distributions, including dividends, paid to Triarc in connection
with the aforementioned refinancing transactions and (ii) certain defined
amounts in the event of consummation of a securitization of certain assets of
Arby's. Such one-time permitted distributions, which were paid to Triarc from
the net proceeds of the refinancing transactions as well from the borrowers'
existing cash and cash equivalents, consisted of $91.4 million paid on February
25, 1999 and $124.1 million paid on March 30, 1999 following the redemption of
the RC/Arby's 9 3/4% senior notes.
Other Debt Agreements
On February 9, 1998 the Company issued zero coupon convertible subordinated
debentures due 2018 with an aggregate principal amount at maturity of $360.0
million to Morgan Stanley & Co. Incorporated as the initial purchaser for an
offering to "qualified institutional buyers". The zero coupon debentures mature
in 2018 and do not require any amortization of principal prior thereto. The zero
coupon debentures were issued at a discount of 72.177% from principal resulting
in proceeds to the Company of $100.2 million before placement fees and expenses
aggregating $4.0 million. The Company utilized $25.6 million of the net proceeds
from the sale of the zero coupon debentures to purchase 1,000,000 shares of
Class A common stock for treasury and is using the balance of the net proceeds
for general corporate purposes. The zero coupon debentures are convertible into
Class A common stock at a conversion rate of 9.465 shares per $1,000 principal
amount at maturity, which represents an initial conversion price of
approximately $29.40 per share of Class A common stock. The conversion price
will increase over the life of the zero coupon debentures at an annual rate of
6.5% and the conversion of all of the currently outstanding zero coupon
debentures into Class A common stock would result in the issuance of
approximately 3,407,000 shares of Class A common stock. In June 1998 a shelf
registration statement covering resales by holders of the zero coupon debentures
(and the Class A common stock issuable upon any conversion of the zero coupon
debentures) was declared effective by the Securities and Exchange Commission.
The Company has a 13 1/2% note payable to the Propane Partnership with an
original principal amount of $40.7 million which was due in eight equal
installments commencing 2003 through 2010. Effective June 30, 1998 the
partnership note was amended to, among other things, permit the Company to
prepay up to $10.0 million of the principal of the partnership note through
February 14, 1999. During 1998, the Company prepaid such $10.0 million including
$7.0 million on August 7, 1998 in order to (i) retroactively cure the Propane
Partnership's noncompliance as of June 30, 1998 with restrictive covenants
contained in its bank facility agreement and (ii) permit the Propane Partnership
to pay its normal quarterly distribution with respect to the second quarter of
1998 on its common units representing limited partner interests with a
proportionate amount for the Company's general partners' interest (see below).
The remaining principal amount of the partnership note of $30.7 million is due
$0.2 million in 2004 and six equal annual installments of approximately $5.1
million commencing in 2005 through 2010.
The Company has a note payable to a beverage co-packer in an outstanding
principal amount of $6.8 million as of January 3, 1999, of which $3.4 million is
due in 1999.
Under the Company's various debt agreements, substantially all of Triarc's
and its subsidiaries' assets other than cash, cash equivalents and short-term
investments are pledged as security. In addition, obligations under (i) $125.0
million of 8.54% first mortgage notes due June 30, 2010 of National Propane,
L.P. (the "Operating Partnership"), a subpartnership of the Propane Partnership,
and $13.0 million outstanding under a bank credit facility maintained by the
Operating Partnership have been guaranteed by National Propane Corporation, the
managing general partner of the Propane Partnership and a subsidiary of the
Company and (ii) $117.0 million of operating and capitalized lease payments
(approximately $98.0 million outstanding as of January 3, 1999 assuming the
purchaser of the Arby's restaurants has made all scheduled repayments through
such date) and $54.7 million of mortgage notes and equipment notes payable to
FFCA Mortgage Corporation (approximately $51.0 million outstanding as of January
3, 1999 assuming the purchaser of the Arby's restaurants has made all scheduled
repayments through such date) assumed by the purchaser in connection with the
restaurants sale have been guaranteed by Triarc. As collateral for the propane
guarantee, all of the stock of National Propane SGP, Inc., a subsidiary of
National Propane Corporation and the holder of a 2% unsubordinated general
partner interest in the Propane Partnership, is pledged as well as National
Propane Corporation's 2% unsubordinated general partner interest in the Propane
Partnership. Although the stock of National Propane Corporation is not pledged
in connection with any guarantee of debt obligations, the 75.7% of such stock
owned by Triarc directly is pledged as security for obligations under the
Partnership Note.
After giving effect for the 1999 refinancing transactions, the scheduled
maturities of the Company's long-term debt during fiscal 1999 are $10.0 million,
including $4.9 million under the new term loans.
Capital Expenditures
Consolidated capital expenditures amounted to $15.9 million in 1998,
including (i) $4.6 million which RC/Arby's was required to reinvest in core
business assets under the indenture pursuant to which the RC/Arby's 9 3/4%
senior notes were issued as a result of the sale of the C&C beverage line and
certain other asset disposals in 1997 and (ii) $3.7 million for the purchases of
two partial ownership interests in corporate aircraft. The Company expects that
capital expenditures will approximate $11.0 million during 1999 for which there
were approximately $0.7 million of outstanding commitments as of January 3,
1999.
Acquisitions and Dispositions
In furtherance of the Company's growth strategy, the Company considers
selective business acquisitions, as appropriate, to grow strategically and
explore other alternatives to the extent it has available resources to do so. In
that connection, on August 27, 1998 the Company completed its T.J. Cinnamons
acquisition by acquiring from Paramark Enterprises, Inc. (formerly known as T.J.
Cinnamons, Inc.) all of Paramark's franchise agreements for T.J. Cinnamons full
concept bakeries and Paramark's wholesale distribution rights for T.J. Cinnamons
products. In 1996 the Company had acquired the T.J. Cinnamons trademarks,
service marks, recipes and proprietary formulae. The 1998 acquisition also
included settlement of remaining contingent payments from the 1996 acquisition,
which were based upon achieving certain specific sales targets over a seven-year
period. The aggregate consideration in 1998 consisted of cash of $3.0 million
and a $1.0 million (discounted value of $0.9 million) non-interest bearing
obligation payable in equal monthly installments through August 2000.
On May 1, 1998 the Company sold its 20% non-current investment in Select
Beverages for cash of $28.3 million.
Effective December 30, 1998 the Company sold all of the stock of Chesapeake
Insurance Company Limited to International Advisory Services Ltd. for $0.3
million in cash and a $1.5 million note bearing interest at an annual rate of 6%
and due in 2003. Chesapeake Insurance (i) prior to October 1993 provided certain
property insurance coverage for the Company and reinsured a portion of casualty
and group life insurance coverage which the Company and certain former
affiliates maintained with an unaffiliated insurance company and (ii) prior to
April 1993 reinsured insurance risks of unaffiliated third parties. The
collectibility of the note from International Advisory Services is subject to
the favorable settlement of existing claims and there would be no realization if
such claims are settled for $8.2 million or more. Should the claims be settled
for less than $8.2 million, the note would be realized at $.75 per $1.00 of such
favorable settlement reaching full collection of $1.5 million if the claims are
settled for no more than the current estimate of $6.2 million. As a result of
the Chesapeake Insurance sale, notes payable of Triarc and Southeastern Public
Service Company, a subsidiary of Triarc, to Chesapeake Insurance aggregating
$1.5 million are included in the Company's long-term debt at January 3, 1999, of
which $0.3 million is due in 1999.
Income Taxes
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service for the tax years 1989 through 1992. The Company has
reached a tentative settlement with the IRS regarding all remaining issues in
such audit. In connection therewith, the Company paid $5.3 million and $8.5
million, each including interest, during 1997 and 1998, respectively, in partial
settlement of such audit. In addition, the Company has agreed to pay
approximately $5.0 million, including interest, to resolve all remaining issues.
The tentative settlement is subject to review by the Congressional Joint
Committee on Taxation. If the settlement is so approved, the Company anticipates
it would make payment later in 1999. The IRS is examining the Company's Federal
income tax returns for the year ended April 30, 1993 and eight-month transition
period ended December 31, 1993. In connection therewith, the Company has not
received any notices of proposed adjustments and does not expect to make any
related payments during 1999.
Triarc Stock Purchases
During 1998 the Company repurchased 1,672,850 shares of its Class A common
stock at an aggregate cost of $29.1 million pursuant to a stock repurchase
program, as amended, originally announced in October 1997 and subsequently
terminated in connection with the tender offer described below. In addition to
the stock repurchases pursuant to such program, in February 1998 the Company
used a portion of the proceeds from the sale of the zero coupon debentures to
purchase 1,000,000 shares of its Class A common stock from Morgan Stanley for an
aggregate cost of $25.6 million.
On October 12, 1998 the Company announced that its Board of Directors had
formed a Special Committee to evaluate a proposal it had received from the
Chairman and Chief Executive Officer and the President and Chief Operating
Officer of the Company (the "Executives") for the acquisition by an entity to be
formed by them of all of the outstanding shares of the Company's common stock
(other than approximately 6,000,000 shares owned by an affiliate of the
Executives) for $18.00 per share payable in cash and securities. On March 10,
1999 the Company announced that it had been advised by the Executives that they
had withdrawn such proposal.
Subsequent to the receipt of the proposal, a series of purported class
action lawsuits on behalf of stockholders have been filed challenging the
proposed transaction. Each of the pending lawsuits names the Company and the
members of its Board of Directors as defendants. The complaints allege, among
other things, that the proposed transaction would constitute a breach of the
directors' fiduciary duties and that the proposed consideration to be paid for
the shares of Class A common stock is unfair and demand, in addition to damages
and costs, that the proposed transaction be enjoined. To date, none of the
defendants has responded to the complaints. However, given that the proposal was
withdrawn, the Company does not believe that the outcome of these actions will
have a material adverse effect on its consolidated financial position or results
of operations. On March 26, 1999, four of the plaintiffs in the above actions
filed an amended complaint alleging that the defendants violated fiduciary
duties owed to the Company's stockholders by failing to disclose, in connection
with the Dutch Auction tender offer described below, that the Special Committee
had allegedly determined that the above proposal was unfair. The amended
complaint seeks an injunction enjoining consummation of the Dutch Auction tender
offer unless the alleged disclosure violations are cured, and requiring the
Company to provide additional disclosure, together with damages in an
unspecified amount.
On March 10, 1999 the Company also announced that its Board of Directors
approved a tender offer for up to 5,500,000 shares of the Company's common stock
at a price of not less than $16.25 per share and not more than $18.25 per share,
pursuant to a "Dutch Auction". Accordingly, the Company will pay only that
amount per share which is necessary, within the stated range, in order to secure
the required number of shares (see below) to complete the tender offer. Once the
price per share is determined, all tendering shareholders will be paid the same
amount for each share of stock sold. The tender offer commenced on March 12,
1999 and will expire at 12:00 midnight New York City time on April 13, 1999,
unless it is extended. The tender offer is subject to, among other terms and
conditions, at least 3,500,000 shares of common stock being tendered unless such
condition is waived by the Company. The effect of the consummation of the tender
offer on the Company's consolidated financial statements would be to reduce cash
and cash equivalents and stockholders' equity for the aggregate costs to
repurchase the required number of shares, including related estimated fees and
expenses of approximately $1.0 million. There can be no assurance, however, that
the transactions contemplated by the tender offer will be consummated.
Subsequent to the announcement of the tender offer, an alleged stockholder
filed a complaint on behalf of stockholders which alleges that the Company's
tender offer statement filed with the Securities and Exchange Commission in
connection with the tender offer was false and misleading and seeks damages and
unspecified other relief. The complaint names the Company and the Executives as
defendants. The Company does not believe that the outcome of this action will
have a material adverse effect on its consolidated financial position or results
of operations.
The Propane Partnership
The Company owns, through National Propane Corporation, 4.5 million
subordinated units representing an approximate 38.7% subordinated partnership
interest in the Propane Partnership. The Company also owns, through National
Propane Corporation and a subsidiary, an aggregate 4.0% unsubordinated general
partners' interest in the Propane Partnership and the Operating Partnership. The
Propane Partnership distributes to its partners on a quarterly basis all of its
available cash as defined in its partnership agreement, the main source of which
would be cash flows from its operations, as supplemented by any partnership note
prepayments. In connection therewith, the Company received quarterly
distributions on the subordinated units from the Propane Partnership and
quarterly distributions on the unsubordinated general partners' interest of $2.4
million (with respect to the fourth quarter of 1997) and $0.6 million,
respectively, in 1998. No subordinated distributions were paid with respect to
1998 since initially the Company agreed to forego subordinated distributions in
order to facilitate the Propane Partnership's compliance with debt covenant
restrictions in its bank facility agreement and subsequently the Propane
Partnership agreed not to pay any 1998 subordinated distributions in accordance
with amendments to its debt agreements effective June 30, 1998. The Propane
Partnership also agreed not to make any distributions on its publicly traded
common units until all amounts outstanding under its bank facility agreement
have been repaid in full. Thereafter, the Company will not receive any
distributions unless and until the Propane Partnership (i) is able to generate
sufficient available cash through operations and (ii) maintains compliance with
the restrictions embodied in the covenants in its amended debt agreements and,
with respect to subordinated distributions, (i) achieves compliance with the
original restrictions embodied in the covenants in its bank facility agreement
and (ii) pays any distribution arrearages on the Propane Partnership's publicly
traded common units in full, currently aggregating $5.3 million with respect to
the third and fourth quarters of 1998. Accordingly, it is unlikely the Company
will receive any distributions from the Propane Partnership in the foreseeable
future.
On April 5, 1999, the Propane Partnership and Columbia Propane Corporation,
a subsidiary of Columbia Energy Group, signed a definitive purchase agreement
pursuant to which Columbia Propane Corporation will commence a tender offer to
acquire all of the outstanding common units of the Propane Partnership for
$12.00 in cash per common unit, which tender offer is the first step of a
two-step transaction. In the second step, subject to the terms and conditions of
the purchase agreement, Columbia Propane, L.P. would acquire the Company's
interests in the propane business, except for a 1% limited partnership interest
in the Operating Partnership, in consideration of cash of $2.1 million and the
forgiveness of approximately $15.8 million of the note payable to the Propane
Partnership discussed above, and the Propane Partnership would merge into
Columbia Propane, L.P. As part of the second step, any remaining common unit
holders of the Propane Partnership would receive, in cash, $12.00 per common
unit and the Company would repay the remaining approximate $14.9 million of the
note payable to the Propane Partnership.
The Board of Directors of National Propane Corporation, acting on the
recommendation of its Special Committee (formed to evaluate and make a
recommendation on behalf of the Propane Partnership's common unit holders with
respect to the transaction) has unanimously approved this transaction and
unanimously recommended that the Propane Partnership's unitholders tender their
units pursuant to the offer.
The tender offer is expected to commence on April 9, 1999. The offer for
the common units will be subject to certain conditions, including there being
tendered by the expiration date and not withdrawn, at least a majority of the
outstanding common units on a fully diluted basis. There can be no assurance
that this sale will be consummated.
The Company presently anticipates this sale would result in a gain to the
Company. Under the sale, the Company would maintain financial interests in the
propane business, through retention of a 1% limited partnership interest in the
Operating Partnership and the Propane Guarantee. Accordingly, the results of
operations of the propane segment and any resulting gain or loss from
Partnership Sale will not be accounted for as a discontinued operation.
At December 31, 1998 the Operating Partnership was not in compliance with a
covenant under its bank facility and is forecasting non-compliance with the same
covenant as of March 31, 1999. The Operating Partnership has received an
unconditional waiver of such non-compliance from its bank facility lenders with
respect to the non-compliance as of December 31, 1998 and a conditional waiver
with respect to future covenant non-compliance with such covenant through August
31, 1999. A number of the conditions to such conditional waiver are directly
related to the sale of the Propane Partnership discussed above. Should the
conditions not be met, or the waiver expire and the Operating Partnership be in
default of its bank facility, the Operating Partnership would also be in default
of the first mortgage notes by virtue of cross-default provisions. As a result
of the forecasted non-compliance as of March 31, 1999, the conditions of the
waiver and the cross-default provisions of the first mortgage notes, the Company
understands the Propane Partnership intends to classify all of the outstanding
obligations under the bank facility and first mortgage notes as a current
liability as of December 31, 1998. In addition, the Company understands that as
a result of the forecasted non-compliance, the conditional nature of the waiver
and its effectiveness only through September 1, 1999 with respect to the
forecasted non-compliance and the fact that a definitive agreement for the sale
of the Propane Partnership may not have been executed and delivered by the time
the Propane Partnership's financial statements for the year ended December 31,
1998 are issued, the independent auditors may render an opinion on the Propane
Partnership's financial statements for the year ended December 31, 1998 which
emphasizes doubt as to the Propane Partnership's ability to continue as a going
concern for a reasonable period of time. If the sale of the Propane Partnership
is not consummated and the lenders are unwilling to extend the waiver, (i) the
Propane Partnership could seek to otherwise refinance its indebtedness, (ii)
Triarc might consider buying the banks' loans to the Operating Partnership
($16.0 million principal amount outstanding as of January 3, 1999) or (iii) the
Propane Partnership could be forced to seek protection under the Federal
bankruptcy laws. In such latter event, National Propane Corporation may be
required to honor its guarantee of the Operating Partnership's obligations under
the bank facility and the first mortgage notes. As a result, Triarc may be
required to pay a $30.0 million demand note payable to National Propane
Corporation, and National Propane Corporation would be required to surrender the
note (if the Company has not yet paid it) or the proceeds from such note, as
well as the Company's partnership interests, to the lenders.
Cash Requirements
As of January 3, 1999, the Company's cash requirements, exclusive of
operating cash flow requirements but giving effect for the 1999 refinancing
transactions and the tender offer, consist principally of (i) up to $101.4
million for treasury stock repurchases pursuant to the tender offer (including
an estimated $1.0 million of related fees and expenses) (ii) capital
expenditures of approximately $11.0 million, (iii) scheduled debt principal
repayments aggregating $10.0 million, (iv) a Federal income tax payment of $5.0
million assuming the tentative settlement of the remaining income tax audit
issues for the tax years 1989 through 1992 is approved by the Joint Committee
and (v) the cost of business acquisitions, if any, in addition to the $17.3
million acquisition of Millrose and Mid-State in connection with the 1999
refinancing transactions. The Company anticipates meeting all of such
requirements through existing cash and cash equivalents and short-term
investments (aggregating $237.4 million, net of $23.6 million of obligations for
short-term investments sold but not yet purchased included in "Accrued expenses"
in the accompanying consolidated balance sheet as of January 3, 1999), net
proceeds from the 1999 refinancing transactions, net of the concurrent uses
previously identified, of approximately $156.8 million, cash flows from
operations and/or availability under Triarc Consumer Products' $60.0 million
revolving credit facility.
TRIARC
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon its (i) cash and cash equivalents and short-term
investments (aggregating $145.7 million, net of $23.6 million of obligations for
short-term investments sold but not yet purchased as of January 3, 1999), (ii)
investment income on its cash equivalents and short-term investments and (iii)
cash flows from its subsidiaries including loans, distributions and dividends
(see limitations below) and reimbursement by certain subsidiaries to Triarc in
connection with the (a) providing of certain management services and (b)
payments under tax-sharing agreements with certain subsidiaries.
Triarc's principal subsidiaries, other than CFC Holdings Corp. (until its
merger into Triarc on February 23, 1999), the then parent of RC/Arby's, and
National Propane Corporation, were unable to pay any dividends or make any loans
or advances to Triarc during 1998 and as of January 3, 1999 under the terms of
the various indentures and credit arrangements then in effect, except as
follows. As permitted under the existing beverage credit agreement, a one-time
dividend of $21.3 million was paid to Triarc by Triarc Beverage Holdings during
1998. Additionally, a dividend of $2.3 million was paid to Triarc by Cable Car
prior to Cable Car becoming a borrower under such credit agreement. While there
are no restrictions applicable to National Propane Corporation, National Propane
Corporation is dependent upon cash flows from the Propane Partnership,
principally quarterly distributions from the Propane Partnership. As set forth
above, National Propane Corporation received $3.0 million of distributions in
1998, but it is unlikely National Propane Corporation will receive any
distributions in the foreseeable future. While there were no restrictions
applicable to CFC Holdings, CFC Holdings was dependent upon cash flows from
RC/Arby's to pay dividends and, as of January 3, 1999, RC/Arby's was unable to
pay any dividends or make any loans or advances to CFC Holdings. In connection
with the 1999 refinancing transactions as described above, Triarc Consumer
Products distributed, on a one-time basis, $215.5 million to Triarc during the
first quarter of 1999, but will not be permitted to pay any other dividends to
Triarc except for certain defined amounts in the event of consummation of a
securitization of certain assets of Arby's.
Triarc's indebtedness to consolidated subsidiaries of $30.0 million as of
January 3, 1999 represents the $30.0 million note payable to National Propane
Corporation bearing interest at 13 1/2% payable in cash. While such note
requires the payment of interest in cash, Triarc currently expects to receive
dividends from National Propane Corporation equal to such cash interest. The
note requires no principal payments during the remainder of 1998, assuming no
demand is made thereunder, and none is anticipated unless National Propane
Corporation is required to honor the guarantee of obligations under the bank
facility and the first mortgage notes and surrender the proceeds from such note
to the propane bank facility lenders. As described above, Triarc also has
indebtedness of $30.7 million under a note payable to the Propane Partnership
which requires no principal payments during 1999 and $1.2 million under a note
payable to Chesapeake Insurance which requires principal payments aggregating
$0.2 million during 1999.
During 1998, Triarc's operating activities used cash of $18.8 million which
was net of dividends from subsidiaries of $29.5 million, including the one-time
dividends of $23.6 million from Triarc Beverage Holdings and Cable Car and $3.0
million of dividends from subsidiaries provided by the pass-through of
distributions from the Propane Partnership. Triarc expects positive operating
cash flows for the year ended January 2, 2000 reflecting higher dividends and
any resulting investment income due to the one-time cash distributions of $215.5
million from Triarc Consumer Products in the first quarter of 1999 in connection
with the 1999 refinancing transactions and the investment of such cash to the
extent it is not used for other purposes.
Triarc's principal cash requirements for 1999 are (i) up to $101.4 million
for treasury stock repurchases pursuant to the tender offer (including an
estimated $1.0 million of related fees and expenses), (ii) payments of general
corporate expenses, (iii) interest due on the $30.7 million note payable to the
Propane Partnership, (iv) a Federal income tax payment of $5.0 million assuming
the tentative settlement of the remaining IRS audit issues for the tax years
1989 through 1992 is approved by the Congressional Joint Committee on Taxation
and (v) the cost of business acquisitions, if any. Triarc expects to be able to
meet all of such cash requirements through (i) existing cash and cash
equivalents and short-term investments and (ii) cash flows from operating
activities, including the one-time cash distributions received from Triarc
Consumer Products.
LEGAL AND ENVIRONMENTAL MATTERS
In addition to the shareholder lawsuits in connection with the proposal by
the Executives and the Dutch Auction tender offer discussed above, the Company
is involved in litigation, claims and environmental matters incidental to its
businesses. The Company has reserves for such legal and environmental matters
aggregating approximately $1.9 million as of January 3, 1999. Although the
outcome of such matters cannot be predicted with certainty and some of these
matters may be disposed of unfavorably to the Company, based on currently
available information and given the Company's aforementioned reserves, the
Company does not believe that such legal and environmental matters will have a
material adverse effect on its consolidated results of operations or financial
position.
YEAR 2000
The Company has undertaken a study of its functional application systems to
determine their compliance with year 2000 issues and, to the extent of
noncompliance, the required remediation. The Company's study consisted of an
eight-step methodology to: (1) obtain an awareness of the issues; (2) perform an
inventory of its software and hardware systems; (3) identify its systems and
computer programs with year 2000 exposure; (4) assess the impact on its
operations by each mission critical application; (5) consider solution
alternatives; (6) initiate remediation; (7) perform validation and confirmation
testing and (8) implement. Through the first quarter of 1999 to date, the
Company has completed steps one through six and expects to complete step seven
and the final implementation prior to January 1, 2000. Such study addressed both
information technology ("IT") and non-IT systems, including imbedded technology
such as micro controllers in telephone systems, production processes and
delivery systems. Certain significant systems in the Company's soft drink
concentrate segment, principally Royal Crown's order processing, inventory
control and production scheduling system, required remediation which was
completed in the first quarter of 1999. As a result of such study and subsequent
remediation, the Company has no reason to believe that any of its mission
critical systems are not year 2000 compliant. Accordingly, the Company does not
currently anticipate that internal systems failures will result in any material
adverse effect to its operations. However, should the final testing and
implementation steps reveal any year 2000 compliance problems which cannot be
corrected prior to January 1, 2000, the most reasonably likely worst-case
scenario is that the Company might experience a delay in production and/or
fulfilling and processing orders resulting in either lost sales or delayed cash
receipts, although the Company does not believe that such delay would be
material. In such case, the Company's contingency plan would be to revert to a
manual system in order to perform the required functions. Due to the limited
number of orders received by Royal Crown on a daily basis, such contingency plan
would not cause any significant disruption of business. As of January 3, 1999,
the Company had incurred $0.7 million of costs in order to become year 2000
compliant, including computer software and hardware costs, and the current
estimated cost to complete such remediation in 1999 is $1.3 million. Such costs
incurred through January 3, 1999 were expensed as incurred, except for the
direct purchase costs of software and hardware, which were capitalized. The
software-related costs incurred on or after January 4, 1999 will be capitalized
in accordance with the provisions of Statement of Position ("SOP") 98-1
described below.
An assessment of the readiness of year 2000 compliance of third party
entities with which the Company has relationships, such as its suppliers,
banking institutions, customers, payroll processors and others ("third party
entities") is ongoing. The Company has inquired, or is in the process of
inquiring, of the significant aforementioned third party entities as to their
readiness with respect to year 2000 compliance and to date has received
indications that many of them are in the process of remediation and/or will be
year 2000 compliant. The Company is, however, subject to certain risks with
respect to these third party entities' potential year 2000 non-compliance. The
Company believes that these risks are primarily associated with its banks and
major suppliers, including its beverage co-packers and bottlers and the food
suppliers and distributors to its restaurant franchisees. At present, the
Company cannot determine the impact on its results of operations in the event of
year 2000 non-compliance by these third party entities. In the most reasonably
likely worst-case scenario, such year 2000 non-compliance might result in a
disruption of business and loss of revenues, including the effects of any lost
customers, in any or all of the Company's business segments. The Company will
continue to monitor these third party entities to determine the impact on the
business of the Company and the actions the Company must take, if any, in the
event of non-compliance by any of these third party entities. The Company is in
the process of collecting additional information from third party entities which
disclosed that remediation is required and has begun detailed evaluations of
these third party entities, as well as those that could not satisfactorily
respond, in order to develop its contingency plans in conjunction therewith.
Such contingency plans might include the build-up of the Company's beverage
inventories just prior to the year 2000 in order to mitigate the effects of
temporary supply disruptions. The Company believes there are multiple vendors of
the goods and services it receives from its suppliers and thus the risk of
non-compliance with year 2000 by any of its suppliers is mitigated by this
factor. Also, no single customer accounts for more than 10% of the Company's
consolidated revenues, thus mitigating the adverse risk to the Company's
business if some customers are not year 2000 compliant.
We have engaged consultants to advise us regarding the compliance efforts
of each of our operating businesses. The consultants are assisting us in
completing inventories of critical applications and in completing formal
documentation of year 2000 compliance of hardware and software as well as
mission critical customers, vendors and service providers. The costs of the
project and the date on which the Company believes it will complete the year
2000 modifications are based on managements best estimates, which were derived
using numerous assumptions of future events. However, there can be no assurance
that these estimates will be achieved and actual results could differ materially
from those anticipated.
INFLATION AND CHANGING PRICES
Management believes that inflation did not have a significant effect on
gross margins during 1996, 1997 and 1998, 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. In
the restaurant segment in particular, the impact of any future inflation should
be limited since the Company's restaurant operations are exclusively franchising
following the 1997 sale of all company-owned restaurants.
SEASONALITY
Our beverage, restaurant and propane businesses are seasonal. In the
beverage businesses, the highest revenues occur during the spring and summer
(April through September) and, accordingly, our second and third quarters
reflect the highest revenues. Our first and fourth quarters have lower revenues
from the beverage businesses. The royalty revenues of our restaurant business
are somewhat higher in our fourth quarter and somewhat lower in our first
quarter. In the propane business the highest demand occurs during the peak
heating season from late fall to early spring (October through April).
Subsequent to the deconsolidation of the Propane Partnership, the seasonality
effect of the propane business is limited to our 42.7% equity in the income or
loss of the propane business and such seasonality has no effect on the Company's
consolidated revenues. Accordingly, consolidated revenues will generally be
highest during the second and third fiscal quarters of each year.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998 the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1,
which is effective no later than for the Company's fiscal year commencing
January 4, 1999, provides accounting guidance on a prospective basis for the
costs of computer software developed or obtained for internal use. The SOP
requires that once the computer software capitalization criteria have been met,
costs of developing, upgrading and enhancing computer software for internal use,
including (i) external direct costs of materials and services consumed in
developing or obtaining such software and (ii) payroll and payroll-related costs
for employees who are directly associated with such software project to the
extent of their time spent directly on the project, should be capitalized. The
Company presently capitalizes the direct purchase cost of internal-use computer
software but does not capitalize either the services consumed or the internal
payroll costs incurred in the implementation of such software. The Company has
adopted the provisions of SOP 98-1 in the first quarter of fiscal 1999. Since
(i) the Company does not develop its own internal-use software, (ii) the Company
does not anticipate obtaining significant internal use computer software, (iii)
the Company currently capitalizes the direct software purchase cost and (iv) SOP
98-1 is effective prospectively only, the adoption of SOP 98-1 did not have a
material impact on the Company's consolidated financial position or results of
operations.
In April 1998 the Accounting Standards Executive Committee issued SOP 98-5,
"Reporting on the Costs of Start-Up Activities". SOP 98-5 broadly defines
start-up activities and requires the costs of start-up activities and
organization costs to be expensed as incurred. Start-up activities include
one-time activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, initiating a new process in
an existing facility, or commencing some new operation. SOP 98-5, which is
effective no later than for the Company's fiscal year commencing January 4,
1999, requires any existing deferred start-up or organization costs as of the
effective date to be expensed as the cumulative effect of a change in accounting
principle. Since the Company does not have any significant deferred start-up or
organization costs as of January 3, 1999, the adoption of SOP 98-5 did not have
a material impact on the Company's consolidated financial position or results of
operations.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133 provides a comprehensive standard for the
recognition and measurement of derivatives and hedging activities. The standard
requires all derivatives be recorded on the balance sheet at fair value and
establishes special accounting for three types of hedges. The accounting
treatment for each of these three types of hedges is unique but results in
including the offsetting changes in fair values or cash flows of both the hedge
and hedged item in results of operations in the same period. Changes in fair
value of derivatives that do not meet the criteria of one of the aforementioned
categories of hedges are included in results of operations. SFAS 133 is
effective for the Company's fiscal year beginning January 3, 2000. The Company's
more significant derivatives are the conversion component of its short-term
investments in convertible bonds, securities sold and not yet purchased, put and
call options on stocks and bonds, and interest rate cap agreements on certain of
its long-term debt. The Company historically has not had transactions to which
hedge accounting applied and, accordingly, the more restrictive criteria for
hedge accounting in SFAS 133 should have no effect on the Company's consolidated
financial position or results of operations. However, the provisions of SFAS 133
are complex and the Company is just beginning its evaluation of the
implementation requirements of SFAS 133 and, accordingly, is unable to determine
at this time the impact it will have on the Company's consolidated financial
position and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes, changes in
the market value of its investments and foreign currency fluctuations.
Policies and procedures -- In the normal course of business, the Company
employs established policies and procedures to manage its exposure to changes in
interest rates, changes in the market value of its investments and fluctuations
in the value of foreign currencies using a variety of financial instruments it
deems appropriate.
Interest rate risk
The Company's objective in managing its exposure to interest rate changes
is to limit the impact of interest rate changes on earnings and cash flows. To
achieve its objectives, the Company assesses the relative proportions of its
debt under fixed versus variable rates. The Company generally uses purchased
interest rate caps on a portion of its variable-rate debt to limit its exposure
to increases in short-term interest rates. These cap agreements are usually at
significantly higher than market interest rates prevailing at the time the cap
agreements are entered into and are intended to protect against very significant
increases in short-term interest rates. As such, the only interest rate cap
agreement outstanding as of January 3, 1999 is approximately 3% higher than the
current interest rate on the related debt. In addition to its variable and
fixed-rate debt, the Company's investment portfolio includes debt securities
that are subject to medium term interest rate risk reflecting the portfolio's
maturities between one and seven years. The fair market value of such
investments will decline in value if interest rates increase.
Equity market risk
The Company's objective in managing its exposure to changes in the market
value of its investments is also to balance the risk of the impact of such
changes on earnings and cash flows with the Company's expectations for long-term
investment returns. The Company's primary exposure to equity price risk relates
to its investments in equity securities, equity derivatives, securities sold but
not yet purchased and investment limited partnerships. The Company has
established policies and procedures governing the type and relative magnitude of
investments which it can make. The Company has a Management Investment Committee
whose duty is to oversee the Company's continuing compliance with the
restrictions embodied in its policies.
Foreign currency risk
The Company's objective in managing its exposure to foreign currency
fluctuations is also to limit the impact of such fluctuations on earnings and
cash flows. The Company's primary exposure to foreign currency risk relates to
its investments in certain investment limited partnerships that hold foreign
securities, including those of entities based in emerging market countries and
other countries which experience volatility in their capital and lending
markets. To a more limited extent, the Company has foreign currency exposure
when its investment managers buy or sell foreign currencies or financial
instruments denominated in foreign currencies for the Company's account. The
Company monitors these exposures and periodically determines its need for use of
strategies intended to lessen or limit its exposure to these fluctuations. The
Company also has a relatively small amount of exposure to export sales revenues
and related receivables denominated in foreign currencies and also has a
relatively small investment in foreign subsidiaries which are subject to foreign
currency fluctuations.
Overall Market Risk
With regard to overall market risk, the Company attempts to mitigate its
exposure to such risks by assessing the relative proportion of its investments
in cash and cash equivalents and the relatively stable and risk minimized
returns available on such investments. The Company periodically interviews asset
managers to ascertain the investment objectives of such managers and invests
amounts with selected managers in order to avail itself of higher but more risk
inherent returns from the selected investment strategies of these managers. The
Company seeks to identify alternative investment strategies also seeking higher
returns with attendant increased risk profiles for a small portion of its
investment portfolio. The Company periodically reviews the returns from each of
its investments and may maintain, liquidate or increase selected investments
based on this review of past returns and prospects for future returns.
The Company maintains investment portfolio holdings of various issuers,
types and maturities. As of January 3, 1999, the Company had investments in the
following general types or categories:
INVESTMENT AT
INVESTMENT FAIR VALUE OR CARRYING
TYPE AT COST EQUITY VALUE PERCENTAGE
(IN THOUSANDS)
Cash (including cash equivalents of $152,841) .............$ 161,248 $ 161,248 $ 161,248 59.4%
Company-owned securities accounted for as:
Trading securities................................. 24,585 27,260 27,260 10.0%
Available-for-sale securities...................... 52,347 51,211 51,211 18.9%
Investments in investment limited partnerships accounted
for at:
Cost............................................... 19,345 16,136 19,345 7.1%
Equity............................................. 4,189 4,835 4,835 1.8%
Other non-current investments accounted for at:
Cost................................................ 2,650 2,650 2,650 1.0%
Equity.............................................. 4,951 4,803 4,803 1.8%
----------- ----------- ----------- ----------
Total cash and cash equivalents and long investment
positions ...........................................$ 269,315 $ 268,143 $ 271,352 100.0%
=========== =========== =========== ==========
Securities sold with an obligation for the Company
to purchase accounted for as trading securities.......$ (20,530) $ (23,599) $ (23,599) N/A
=========== =========== =========== ==========
The Company's marketable securities are classified and accounted for
either as "available-for-sale" or "trading" and are reported at fair market
value with the related net unrealized gains or losses reported as a component of
stockholders' equity (net of income taxes) or included as a component of net
income, respectively. Investment limited partnerships and other non-current
investments in which the Company does not have significant influence over the
investee are accounted for at cost. Realized gains and losses on investment
limited partnerships and other non-current investments recorded at cost are
reported as investment income or loss in the period in which the securities are
sold. The Company reviews such investments carried at cost and in which the
Company has unrealized losses for any unrealized losses deemed to be other than
temporary. The Company recognizes an investment loss currently for any such
other than temporary losses. Investment limited partnership and other
non-current investments in which the Company has significant influence over the
investee are accounted for in accordance with the equity method of accounting
under which the results of operations include the Company's share of the income
or loss of such investees.
SENSITIVITY ANALYSIS
For purposes of this disclosure, market risk sensitive instruments are
divided into two categories: instruments entered into for trading purposes and
instruments entered into for purposes other than trading. The Company's measure
of market risk exposure represents an estimate of the potential change in fair
market value of its financial instruments. Market risk exposure is presented for
each class of financial instruments held by the Company at January 3, 1999 for
which an immediate adverse market movement represents a potential material
impact on the financial position or earnings of the Company. The Company
believes that the various rates of adverse market movements described below
represent the hypothetical loss to future earnings and do not represent the
maximum possible loss nor any expected actual loss, even under adverse
conditions, because actual adverse fluctuations would likely differ. In
addition, since the Company's investment portfolio is subject to change based on
its portfolio management strategy as well as in response to changes in market
conditions, these estimates are not necessarily indicative of the actual results
which may occur.
The following tables reflect the estimated effects on the market value of
the Company's financial instruments based upon assumed immediate adverse effects
as noted below.
TRADING PORTFOLIO:
CARRYING INTEREST EQUITY FOREIGN
JANUARY 3, 1999 VALUE RATE RISK PRICE RISK CURRENCY RISK
--------------- ----- --------- ---------- -------------
(IN THOUSANDS)
Equity securities ..................................$ 25,436 $ -- $ (2,544) $ --
Debt securities..................................... 1,824 -- (a) (182) --
Securities sold but not yet purchased............... (23,599) -- 2,360 --
(a) These debt securities are predominately investments in convertible
bonds which primarily trade on the conversion feature of the
securities rather than the stated interest rate and as such a change
in interest rates of one percentage point would not have a material
impact on the Company's financial position or earnings.
The sensitivity analysis of financial instruments held for trading
purposes assumes an instantaneous 10% decrease in the equity markets in which
the Company is invested from their levels at January 3, 1999, with all other
variables held constant. For purposes of this analysis, the Company's debt
securities were assumed to primarily trade based upon the conversion feature of
the securities and be perfectly correlated with the assumed equity index. The
Company has no foreign investments within its trading portfolio.
OTHER THAN TRADING PORTFOLIO:
CARRYING INTEREST EQUITY FOREIGN
JANUARY 3, 1999 VALUE RATE RISK PRICE RISK CURRENCY RISK
--------------- ----- --------- ---------- -------------
(IN THOUSANDS)
Cash (including cash equivalents of $152,841) ......$ 161,248 $ -- (a) $ -- $ --
Available-for-sale equity securities ............... 28,419 -- (2,842) --
Available-for-sale debt securities.................. 22,792 (2,279) -- --
Other investments................................... 31,633 (854) (1,320) (970)
Long-term debt...................................... 708,959 (2,843) -- --
(a) Due to the short-term nature of the cash equivalents, a change in
interest rates of one percentage point would not have a material
impact on the Company's financial position or earnings.
The sensitivity analysis of financial instruments held for purposes other
than trading assumes an instantaneous increase in market interest rates of one
percentage point from their levels at January 3, 1999 and an instantaneous 10%
decrease in the equity markets in which the Company is invested from their
levels at January 3, 1999, both with all other variables held constant. The
increase of one percentage point with respect to the Company's
available-for-sale debt securities represents an assumed average 10% decline as
the weighted average interest rate of such debt securities at January 3, 1999
approximated 10%. The change of one percentage point with respect to the
Company's long-term debt represents an assumed average 11% decline as the
weighted average interest rate of the Company's variable-rate debt at January 3,
1999 approximated 9% and relates to only the Company's variable-rate debt since
a change in interest rates on fixed-rate debt would not affect the Company's
earnings. The interest rate risk presented with respect to long-term debt
represents the potential impact the indicated change in interest rates would
have on the Company's earnings and not its financial position. The analysis also
assumes an instantaneous 10% change in the foreign currency exchange rates
versus the U.S. dollar from their levels at January 3, 1999, with all other
variables held constant. For purposes of this analysis, with respect to
investments in investment limited partnerships accounted for at cost, the
decrease in the equity markets and the change in foreign currency were assumed
to be other than temporary. Further, this analysis assumed no market risk for
investments, other than investment limited partnerships, accounted for in
accordance with the equity method and included in "other investments" above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report........................................
Consolidated Balance Sheets as of December 28, 1997
and January 3, 1999...............................................
Consolidated Statements of Operations for the year
ended December 31, 1996 and the fiscal years ended
December 28, 1997 and January 3, 1999.............................
Consolidated Statements of Stockholders' Equity
for the year ended December 31, 1996 and the
fiscal years ended December 28, 1997 and January 3, 1999.........
Consolidated Statements of Cash Flows for the year ended
December 31, 1996 and the fiscal years ended December 28,
1997 and January 3, 1999.........................................
Notes to Consolidated Financial Statements..........................
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
TRIARC COMPANIES, INC.:
New York, New York
We have audited the accompanying consolidated balance sheets of Triarc
Companies, Inc. and subsidiaries (the "Company") as of January 3, 1999 and
December 28, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three fiscal years in the
period ended January 3, 1999. 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, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of January 3,
1999 and December 28, 1997, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended January 3, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
March 26, 1999
(April 5, 1999 as to Note 27)
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 28, JANUARY 3,
1997 1999
---- ----
ASSETS
Current assets:
Cash (including cash equivalents of $122,131 and $152,841)..............................$ 129,480 $ 161,248
Short-term investments (Note 5)......................................................... 46,165 99,729
Receivables (Note 6).................................................................... 77,882 67,724
Inventories (Note 6).................................................................... 57,394 46,761
Deferred income tax benefit (Note 10)................................................... 38,120 28,368
Prepaid expenses and other current assets............................................... 6,718 5,667
------------ ------------
Total current assets............................................................... 355,759 409,497
Investments (Notes 7 and 27)................................................................ 31,499 10,375
Properties (Note 6)......................................................................... 33,833 31,272
Unamortized costs in excess of net assets of acquired companies (Note 6).................... 279,225 268,436
Trademarks (Note 6)......................................................................... 269,201 261,906
Deferred costs and other assets (Note 6).................................................... 35,356 38,406
------------ ------------
$ 1,004,873 $ 1,019,892
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Notes 8, 9 and 26)...................................$ 13,932 $ 9,978
Accounts payable ....................................................................... 63,237 58,257
Accrued expenses (Note 6)............................................................... 148,504 132,904
------------ ------------
Total current liabilities.......................................................... 225,673 201,139
Long-term debt (Notes 8, 9 and 26).......................................................... 604,680 698,981
Deferred income taxes (Note 10)............................................................. 92,577 87,195
Deferred income and other liabilities....................................................... 37,955 21,663
Commitments and contingencies (Notes 3, 7, 10, 20, 21 and 23)
Stockholders' equity (Notes 11 and 26):
Class A common stock, $.10 par value; authorized 100,000,000 shares,
issued 29,550,663 shares ......................................................... 2,955 2,955
Class B common stock, $.10 par value; authorized 25,000,000 shares,
issued 5,997,622 shares........................................................... 600 600
Additional paid-in capital.............................................................. 204,291 204,539
Accumulated deficit..................................................................... (115,440) (100,804)
Less Class A common stock held in treasury at cost; 3,951,265 and
6,250,908 shares.................................................................. (45,456) (94,963)
Accumulated other comprehensive deficit................................................. (979) (600)
Unearned compensation................................................................... (1,983) (813)
------------ ------------
Total stockholders' equity ....................................................... 43,988 10,914
------------ ------------
$ 1,004,873 $ 1,019,892
============ ============
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
YEAR ENDED
------------------------------------------------
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
Revenues:
Net sales..........................................................$ 870,856 $ 794,790 $ 735,436
Royalties, franchise fees and other revenues....................... 57,329 66,531 79,600
------------ ------------- -------------
928,185 861,321 815,036
------------ ------------- -------------
Costs and expenses:
Cost of sales, excluding depreciation and amortization............. 573,241 452,312 390,883
Advertising, selling and distribution (Note 1)..................... 143,343 188,503 197,065
General and administrative......................................... 110,339 115,335 110,025
Depreciation and amortization, excluding amortization
of deferred financing costs...................................... 46,015 39,319 35,221
Acquisition related (Note 12)...................................... -- 31,815 --
Facilities relocation and corporate restructuring (Note 13)........ 8,800 7,075 --
Reduction in carrying value of long-lived assets
to be disposed (Note 3)......................................... 64,300 -- --
------------ ------------- ------------
946,038 834,359 733,194
------------ ------------- -------------
Operating profit (loss)...................................... (17,853) 26,962 81,842
Interest expense ..................................................... (71,025) (71,648) (70,806)
Investment income, net (Note 14)...................................... 8,069 12,793 12,178
Gain on sale of businesses, net (Note 15)............................. 77,000 4,955 7,215
Other income (expense), net (Note 16)................................. (126) 3,848 (1,786)
------------ ------------- -------------
Income (loss) from continuing operations before
income taxes and minority interests....................... (3,935) (23,090) 28,643
(Provision for) benefit from income taxes (Note 10)................... (7,934) 4,742 (16,607)
Minority interests in net income of a consolidated subsidiary
(Note 3)........................................................ (1,829) (2,205) --
---------- ----------- ----------
Income (loss) from continuing operations..................... (13,698) (20,553) 12,036
Income from discontinued operations (Note 17)......................... 5,213 20,718 2,600
------------ ------------- -------------
Income (loss) before extraordinary items..................... (8,485) 165 14,636
Extraordinary items (Note 18)......................................... (5,416) (3,781) --
------------- ------------- -------------
Net income (loss)............................................$ (13,901) $ (3,616) $ 14,636
============= ============= =============
Basic income (loss) per share (Note 4):
Continuing operations........................................$ (.46) $ (.68) $ .40
Discontinued operations...................................... .18 .69 .08
Extraordinary items.......................................... (.18) (.13) --
------------- ------------- ------------
Net income (loss)............................................$ (.46) $ (.12) $ .48
============= ============= =============
Diluted income (loss) per share (Note 4):
Continuing operations........................................$ (.46) $ (.68) $ .38
Discontinued operations...................................... .18 .69 .08
Extraordinary items.......................................... (.18) (.13) --
------------- ------------- ------------
Net income (loss)............................................$ (.46) $ (.12) $ .46
============= ============= =============
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
CUMULATIVE OTHER
COMPREHENSIVE INCOME (LOSS)
---------------------------
UNREALIZED
GAIN (LOSS) ON
"AVAILABLE-
ADDITIONAL FOR-SALE" CURRENCY
COMMON PAID-IN ACCUMULATED TREASURY UNEARNED MARKETABLE TRANSLATION
STOCK CAPITAL DEFICIT STOCK COMPENSATION SECURITIES ADJUSTMENT TOTAL
----- ------- ------- ----- ------------ ---------- ---------- -----
Balance at December 31, 1995..............$ 3,398 $ 162,020 $ (97,923) $ (45,931) $ (1,013) $ 99 $ -- $ 20,650
Comprehensive loss:
Net loss........................... -- -- (13,901) -- -- -- -- (13,901)
Unrealized gains on "available-for-
sale" investments (Note 5)...... -- -- -- -- -- 500 -- 500
---------
Comprehensive loss................. -- -- -- -- -- -- -- (13,401)
---------
Amortization of below market stock
options (Note 11)................. -- -- -- -- 489 -- -- 489
Forfeiture of below market stock
options (Note 11)................. -- (852) -- -- 219 -- -- (633)
Purchases of common shares for
treasury (Note 11)............... -- -- -- (496) -- -- -- (496)
Issuances of common shares from
treasury at average cost upon
exercise of stock options......... -- (5) -- 113 -- -- -- 108
Other................................. -- 7 -- 41 -- -- -- 48
------- -------- --------- --------- ---------- -------- ------ ---------
Balance at December 31, 1996............. 3,398 161,170 (111,824) (46,273) (305) 599 -- 6,765
Comprehensive loss:
Net loss.......................... -- -- (3,616) -- -- -- -- (3,616)
Unrealized losses on "available-for-
sale" investments (Note 5)..... -- -- -- -- -- (1,336) -- (1,336)
Net change in currency translation
adjustment....................... -- -- -- -- -- -- (242) (242)
---------
Comprehensive loss................ -- -- -- -- -- -- -- (5,194)
---------
Grant of below market stock
options including equity in
grant of unit options of
propane subsidiary
(Note 11).......................... -- 3,501 -- -- (3,383) -- -- 118
Amortization of below market stock
options including equity in
amortization associated with unit
options of propane subsidiary
(Note 11)........................ -- -- -- -- 1,592 -- -- 1,592
Forfeiture of below market stock
options (Note 11)................. -- (506) -- -- 113 -- -- (393)
Issuance of Class A Common Stock
in connection with the Stewart's
acquisition (Notes 3 and 11)...... 157 36,602 -- -- -- -- -- 36,759
Fair value of stock options issued in
Stewart's acquisition (Note 3)...... -- 2,788 -- -- -- -- -- 2,788
Tax benefit from exercises of stock
options (Note 11)................. -- 613 -- -- -- -- -- 613
Purchases of common shares for
treasury (Note 11)................ -- -- -- (1,594) -- -- -- (1,594)
Issuances of common shares from
treasury at average cost upon
exercise of stock options
(Note 11)......................... -- 82 -- 2,351 -- -- -- 2,433
Other................................. -- 41 -- 60 -- -- -- 101
------- ---------- ---------- --------- --------- -------- ------ ---------
Balance at December 28, 1997.............. 3,555 204,291 (115,440) (45,456) (1,983) (737) (242) 43,988
------- ---------- ---------- --------- --------- -------- ------ ---------
Comprehensive income:
Net income......................... -- -- 14,636 -- -- -- -- 14,636
Unrealized gains on "available-for-
sale" investments (Note 5)...... -- -- -- -- -- 401 -- 401
Net change in currency translation
adjustment...................... -- -- -- -- -- -- (22) (22)
---------
Comprehensive income............... -- -- -- -- -- -- -- 15,015
---------
Forfeiture of below market stock
options (Note 11)................. -- (27) -- -- 13 -- -- (14)
Amortization of below market stock
options including equity in
amortization associated with unit
options of propane subsidiary
(Note 11)......................... -- -- -- -- 1,157 -- -- 1,157
Tax benefit from exercises of stock
options (Note 11)................. -- 1,410 -- -- -- -- -- 1,410
Purchases of common shares for
treasury including 1,000 common
shares in connection with the
issuance of the Debentures
(Notes 8 and 11).................. -- -- -- (54,680) -- -- -- (54,680)
Issuances of common shares from
treasury at average cost upon
exercise of stock options
(Note 11)........................ -- (1,169) -- 5,108 -- -- -- 3,939
Other................................. -- 34 -- 65 -- -- -- 99
------- ---------- ----------- --------- ---------- -------- ------ ---------
Balance at January 3, 1999................$ 3,555 $ 204,539 $ (100,804) $ (94,963) $ (813) $ (336) $ (264) $ 10,914
======= ========== =========== ========= ========== ======== ====== =========
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss)............................................... $ (13,901) $ (3,616) $ 14,636
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of costs in excess of net assets of acquired
companies, trademarks and certain other items.............. 16,428 21,661 24,585
Depreciation and amortization of properties.................. 29,587 17,658 10,636
Amortization of original issue discount and deferred
financing costs ........................................... 5,733 5,014 10,562
Reduction in carrying value of long-lived assets............. 64,300 -- --
Provision for doubtful accounts.............................. 5,680 5,003 2,387
Cost of trading securities purchased ........................ -- -- (55,394)
Proceeds from sales of trading securities.................... -- -- 30,412
Net recognized (gains) losses from transactions in
investments and short positions............................ (700) (4,871) 193
Gain on sale of businesses, net.............................. (77,000) (4,955) (7,215)
Net provision (payments) for acquisition related costs....... -- 24,483 (6,025)
Write-off of unamortized deferred financing costs and,
in 1996, original issue discount........................... 12,245 6,178 --
Discount from principal on early extinguishment of debt...... (9,237) -- --
Income from discontinued operations.......................... (5,213) (20,718) (2,600)
Other, net................................................... 2,727 3,773 (1,690)
Changes in operating assets and liabilities:
Decrease (increase) in receivables..................... (6,290) 17,423 7,581
Decrease (increase) in inventories..................... (17,562) 5,814 10,607
Decrease in prepaid expenses and other current assets.. 786 6,618 1,051
Increase (decrease) in accounts payable and accrued
expenses ............................................ 22,696 (25,702) (24,657)
---------- ----------- ------------
Net cash provided by operating activities........ 30,279 53,763 15,069
---------- ----------- ------------
Cash flows from investing activities:
Cost of available-for-sale securities and limited partnerships . (64,409) (60,373) (107,093)
Proceeds from available-for-sale securities and limited
partnerships................................................. 21,598 62,919 78,248
Proceeds from securities sold short, net of payments to cover
short positions.............................................. -- -- 21,340
Proceeds from sale of investment in Select Beverages, Inc....... -- -- 28,342
Cash of Chesapeake Insurance Company Limited sold............... -- -- (8,864)
Net proceeds from sale of the textile business in 1996 and the
dyes and specialty chemicals business in 1997................ 236,824 64,410 --
Acquisition of Snapple Beverage Corp. .......................... -- (311,915) --
Capital expenditures including ownership interests in aircraft.. (29,340) (13,906) (15,931)
Other........................................................... (2,275) (1,753) (3,540)
---------- ----------- ------------
Net cash provided by (used in) investing
activities.................................... 162,398 (260,618) (7,498)
---------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt ................................... 129,026 316,012 100,163
Repayments of long-term debt ................................... (382,051) (80,243) (24,158)
Proceeds from stock option issuances............................ 108 2,433 3,939
Repurchases of common stock for treasury........................ (496) (1,594) (54,680)
Deferred financing costs........................................ (7,299) (11,479) (4,000)
Distributions paid on propane partnership common units.......... (3,309) (14,073) --
Net proceeds from sale of partnership units in the propane
subsidiary ................................................... 124,749 -- --
Other........................................................... (50) (651) 35
---------- ----------- ------------
Net cash provided by (used in) financing
activities.................................... (139,322) 210,405 21,299
---------- ----------- ------------
Net cash provided by continuing operations......................... 53,355 3,550 28,870
Net cash provided by (used in) discontinued operations............. 36,788 (23,644) 2,898
Decrease in cash due to deconsolidation of propane business........ -- (4,616) --
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents............... 90,143 (24,710) 31,768
Cash and cash equivalents at beginning of year..................... 64,047 154,190 129,480
---------- ----------- ------------
Cash and cash equivalents at end of year .......................... $ 154,190 $ 129,480 $ 161,248
========== =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................... $ 66,537 $ 63,823 $ 60,112
========== =========== ============
Income taxes, net........................................... $ 1,529 $ 5,688 $ 13,695
========== =========== ============
Due to their noncash nature, the following transactions are not reflected
in the 1997 consolidated statement of cash flows:
On November 25, 1997 Triarc issued 1,566,858 shares of Class A Common
Stock in exchange for all of the outstanding stock of Cable Car Beverage
Corporation ("Cable Car") and issued 154,931 stock options in exchange for all
of the outstanding stock options of Cable Car. See Note 3 to the consolidated
financial statements for further discussion of this acquisition.
Effective December 28, 1997 the Company adopted certain amendments to the
partnership agreements of National Propane Partners, L.P. (the "Propane
Partnership") and its subpartnership such that the Company no longer has
substantive control over the Propane Partnership (see Note 7 to the consolidated
financial statements) and, accordingly, deconsolidated the Propane Partnership
as of such date (the "Deconsolidation"). The effect of the Deconsolidation is
not reflected in the statement of cash flows for the year ended December 28,
1997.
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1999
(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 January 3, 1999, are Triarc
Beverage Holdings Corp. ("Triarc Beverage Holdings" formed in 1997), CFC
Holdings Corp. ("CFC Holdings"), National Propane Corporation ("National
Propane") and Cable Car Beverage Corporation ("Cable Car" - acquired November
25, 1997). The Company's wholly-owned subsidiaries at January 3, 1999 also
included TXL Corp. ("TXL") and Southeastern Public Service Company ("SEPSCO").
Triarc Beverage Holdings has as its wholly-owned subsidiaries Snapple Beverage
Corp. ("Snapple" - acquired May 22, 1997) and Mistic Brands, Inc. ("Mistic").
CFC Holdings has as its wholly-owned subsidiaries RC/Arby's Corporation
("RC/Arby's") and Chesapeake Insurance Company Limited ("Chesapeake Insurance")
prior to its sale on December 30, 1998 (see Note 3). RC/Arby's has as its
principal wholly-owned subsidiaries Royal Crown Company, Inc. ("Royal Crown")
and Arby's, Inc. ("Arby's"). Additionally, RC/Arby's has three wholly-owned
subsidiaries which, prior to the May 1997 sale of all company-owned restaurants,
owned and/or operated Arby's restaurants, consisting of Arby's Restaurant
Development Corporation, Arby's Restaurant Holding Company and Arby's Restaurant
Operations Company. National Propane and its subsidiary National Propane SGP
Inc. ("SGP") own a combined 42.7% interest in National Propane Partners, L.P.
(the "Propane Partnership"), a limited partnership organized in 1996 to acquire,
own and operate the propane business of National Propane, and a subpartnership.
National Propane and SGP are the general partners of the Propane Partnership.
The entity representative of both the operations of (i) National Propane prior
to a July 2, 1996 conveyance of certain of its assets and liabilities (see Note
3) to a subsidiary partnership of the Propane Partnership and (ii) the Propane
Partnership subsequent thereto, is referred to herein as "National". National
was consolidated through December 28, 1997 and subsequent thereto the Propane
Partnership is accounted for in accordance with the equity method (see Notes 3
and 7). TXL owned C.H. Patrick & Co., Inc. ("C.H. Patrick") prior to its sale on
December 23, 1997 and operated the Textile Business (see Note 3) prior to the
sale of such business in April 1996. All significant intercompany balances and
transactions have been eliminated in consolidation. See Note 3 for a discussion
of the acquisitions and dispositions referred to above.
CHANGE IN FISCAL YEAR
Effective January 1, 1997 the Company changed its fiscal year from a
calendar year to a year consisting of 52 or 53 weeks ending on the Sunday
closest to December 31. In accordance therewith, the Company's 1997 fiscal year
commenced January 1, 1997 and ended on December 28, 1997 and its 1998 fiscal
year commenced December 29, 1997 and ended on January 3, 1999. Such periods are
referred to herein as (i) "the year ended December 28, 1997" or "1997" and (ii)
"the year ended January 3, 1999" or "1998", respectively. December 28, 1997 and
January 3, 1999 are referred to herein as "Year-End 1997" and "Year-End 1998",
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 commercial paper of high credit-quality entities and repurchase
agreements with high credit-quality financial institutions. Securities pledged
as collateral for repurchase agreements are segregated and held by the financial
institution until maturity of each repurchase agreement. While the market value
of the collateral is sufficient in the event of default, realization and/or
retention of the collateral may be subject to legal proceedings in the event of
default or bankruptcy by the other party to the agreement.
INVESTMENTS
Short-Term Investments
Short-term investments include marketable securities with readily
determinable fair values and investments in equity securities which are not
readily marketable. The Company's marketable securities are classified and
accounted for either as "available-for-sale" or "trading" and are reported at
fair market value with the resulting net unrealized gains or losses reported as
a separate component of stockholders' equity (net of income taxes) or included
as a component of net income, respectively. Investments in short-term equity
securities which are not readily marketable are accounted for at cost. The
Company reviews such investments carried at cost, and in which the Company has
unrealized losses, for any such unrealized losses deemed to be other than
temporary. The Company recognizes an investment loss currently for any such
other than temporary losses. The cost of securities sold for all marketable
securities is determined using the specific identification method.
Non-Current Investments
The Company's non-current investments include investments in which it has
significant influence over the investee ("Equity Investments") and which are
accounted for in accordance with the equity method of accounting under which the
consolidated results include the Company's share of income or loss of such
investees. Investments in investees in which the Company does not have such
influence are accounted for at cost. The excess, if any, of the carrying value
of the Company's investments in Equity Investments over the underlying equity in
net assets of each investee is being amortized to equity in earnings (losses) of
investees included in "Other income (expense), net" (see Note 16) on a
straight-line basis over 15 (for an investment purchased in 1998) or 35 (for an
investment purchased in 1997 and sold in 1998) years. The Company's non-current
investments in which it does not have significant influence over the investee
are carried at cost. The Company reviews such investments carried at cost, and
in which the Company has unrealized losses, for any such unrealized losses
deemed to be other than temporary. The Company recognizes an investment loss
currently for any such other than temporary losses. See Notes 7 and 27 for
further discussion of the Company's non-current investments.
Securities Sold But Not Yet Purchased
Securities sold but not yet purchased are reported at fair market value
with the resulting net unrealized gains or losses included as a component of net
income.
INVENTORIES
The Company's inventories are stated at the lower of cost or market. After
the April 1996 sale of the Textile Business and the December 1997 sale of C.H.
Patrick (see Note 3), for which the cost of certain inventories was determined
on the last-in, first-out basis, and the Deconsolidation (effective December 28,
1997 - see Note 3) of the Propane Partnership (see Note 7) for which the cost of
inventories is determined on the average cost basis which approximated the
first-in, first-out ("FIFO") basis, the cost of the inventories of the remaining
businesses of the Company is determined on the FIFO basis.
PROPERTIES AND DEPRECIATION AND AMORTIZATION
Properties are stated at cost less accumulated 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 15 years for machinery and equipment
and 15 to 40 years for buildings. Leased assets capitalized and leasehold
improvements are amortized over the shorter of their estimated useful lives or
the terms of the respective leases.
AMORTIZATION OF INTANGIBLES
Costs in excess of net assets of acquired companies ("Goodwill") are being
amortized on the straight-line basis over 15 to 40 years. Trademarks are being
amortized on the straight-line basis over 15 to 35 years. 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.
IMPAIRMENTS
Intangible Assets
The amount of impairment, if any, in unamortized Goodwill is measured
based on projected future operating performance. To the extent future operating
performance of those subsidiaries to which the Goodwill relates through the
period such Goodwill is being amortized are sufficient to absorb the related
amortization, the Company has deemed there to be no impairment of Goodwill.
Long-Lived Assets
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If such review
indicates an asset may not be recoverable, the impairment loss is recognized for
the excess of the carrying value over the fair value of an asset to be held and
used or over the net realizable value of an asset to be disposed.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate cap agreements in order to protect
against significant interest rate increases on certain of its floating-rate
debt. The costs of such agreements are amortized over the lives of the
respective agreements. The only cap agreement outstanding as of January 3, 1999
is approximately 3% higher than the interest rate on the related debt as of such
date.
The Company had an interest rate swap agreement (see Note 8) entered into
in order to synthetically alter the interest rate of certain of the Company's
fixed-rate debt until the agreement's maturity in 1996. Losses or gains were
recognized as incurred or earned as a component of interest expense, effectively
correlated with the fair value of the underlying debt. In addition, a payment
received at the inception of the agreement, which was deemed to be a fee to
induce the Company to enter into the agreement, was amortized over the full life
of the agreement since the Company was not at risk for any gain or loss on such
payment.
STOCK-BASED COMPENSATION
The Company measures compensation costs for its employee stock-based
compensation under the intrinsic value method. Accordingly, compensation cost
for the Company's stock options and restricted stock is measured as the excess,
if any, of the market price of the Company's stock at the date of grant over the
amount, if any, an employee must pay to acquire the stock. Compensation cost for
stock appreciation rights is recognized currently based on the change in the
market price of the Company's common stock during each period.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign subsidiaries are prepared in their
respective local currencies and translated into United States dollars at the
current exchange rates for assets and liabilities and an average rate for the
year for revenues, costs and expenses. Net gains or losses resulting from the
translation of foreign financial statements are charged or credited directly to
the "Currency translation adjustment" component of "Stockholders' equity."
ADVERTISING COSTS
The Company accounts for advertising production costs by expensing such
production costs the first time the related advertising takes place. Advertising
costs amounted to $39,386,000, $41,740,000 and $48,389,000 for 1996, 1997 and
1998, respectively. In addition the Company supports its beverage bottlers and
distributors with promotional allowances, a portion of which is utilized for
indirect advertising by such bottlers and distributors. Promotional allowances
amounted to $74,597,000, $106,687,000 and $100,861,000 for 1996, 1997 and 1998,
respectively.
INCOME TAXES
The Company files a consolidated Federal income tax return with all of its
subsidiaries except Chesapeake Insurance (through its sale on December 30,
1998), a foreign corporation. The income of the Propane Partnership, other than
that of a corporate subsidiary, is taxable to its partners and not the Propane
Partnership and, accordingly, income taxes for 1996 and 1997 are provided on the
income of the Propane Partnership only to the extent of its ownership by the
Company. Subsequently, income taxes are provided (credited) on the Company's
equity in the earnings or losses of the Propane Partnership. 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. Franchise fees are recognized as income when a franchised restaurant
is opened. Franchise fees for multiple area development agreements 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.
RECLASSIFICATIONS
Certain amounts included in the prior years' 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 predominantly a holding company which is engaged in four
lines of business: premium beverages, soft drink concentrates, restaurants and
propane (see Note 27). The premium beverage segment represents approximately 75%
of the Company's consolidated revenues for the year ended January 3, 1999, the
soft drink concentrate segment represents approximately 15% of such revenues,
and the restaurant segment represents approximately 10% of such revenues. There
are no reported revenues in the propane segment since the Propane Partnership is
accounted for in accordance with the equity method effective December 28, 1997
(see Note 7). Prior to the sales of C.H. Patrick and the Textile Business (see
next paragraph), the Company had operations in the textile business.
The premium beverage segment markets and distributes, principally to
distributors and, to a lesser extent, directly to retailers, premium beverages
and/or ready-to-drink iced teas under the principal brand names Snapple(R),
Whipper Snapple(R), Snapple Farms(R), Mistic(R), Mistic Rain Forest Nectars(R),
Mistic Fruit Blast(TM) and Stewart's(R). The soft drink concentrate segment
produces and sells, to bottlers, a broad selection of concentrates and, to a
much lesser extent in 1996 and 1997 (none in 1998), carbonated beverages to
distributors. These products are sold principally under the brand names RC
Cola(R), Diet RC Cola(R), Cherry RC Cola(R), Diet Rite Cola(R), Diet Rite(R)
flavors, Nehi(R), Upper 10(R) and Kick(R). The restaurant segment franchises
Arby's quick service restaurants representing the largest franchise restaurant
system specializing in slow-roasted roast beef sandwiches. Prior to the May 1997
sale of all company-owned restaurants, the Company also operated Arby's
restaurants (see Note 3). The propane segment is engaged primarily in the retail
marketing of propane to residential customers, commercial and industrial
customers, agricultural customers and resellers. The propane segment also
markets propane-related supplies and equipment including home and commercial
appliances. Prior to the December 1997 sale of C.H. Patrick, the textile segment
produced and marketed dyes and specialty chemicals primarily for the textile
industry and, prior to the 1996 sale of the Textile Business (see Note 3), the
textile segment also manufactured, dyed and finished cotton, synthetic and
blended (cotton and polyester) apparel fabrics principally for (i) utility wear
and (ii) sportswear, casual wear and outerwear. The aforementioned sale of C.H.
Patrick was accounted for as a discontinued operation (see Note 17) and, as
such, the revenues, costs and expenses of C.H. Patrick are reported as "Income
from discontinued operations" in the accompanying consolidated statements of
operations. The Company operates its businesses principally 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 (i) costs related to
provisions for examinations of its income tax returns by the Internal Revenue
Service ("IRS") (see Note 10) and (ii) provisions for unrealized losses on
investments in limited partnerships deemed to be "other than temporary" (see
Note 14).
CERTAIN RISK CONCENTRATIONS
The Company believes that its vulnerability to risk concentrations related
to significant customers and vendors, products sold and sources of raw materials
is somewhat mitigated due to the diversification of its businesses. Although
premium beverages accounted for 75% of consolidated revenues in 1998, the
Company believes that the risks from concentrations within the premium beverage
segment are mitigated for several reasons. No customer of the premium beverage
segment accounted for more than 3% of consolidated revenues in 1998. While the
premium beverage segment has chosen to purchase certain raw materials (such as
aspartame) on an exclusive basis from single suppliers, the Company believes
that, if necessary, adequate raw materials can be obtained from alternate
sources. The beverage segments' product offerings are varied, including fruit
flavored beverages, iced teas, lemonades, carbonated sodas, 100% fruit juices,
nectars and flavored seltzers. Risk of geographical concentration for all of the
Company's businesses is also minimized since each of such businesses generally
operates throughout the United States with minimal foreign exposure.
(3) BUSINESS ACQUISITIONS AND DISPOSITIONS
1998 TRANSACTION
Sale of Chesapeake Insurance
Effective December 30, 1998 the Company sold (the "Chesapeake Sale") all
of the stock of Chesapeake Insurance to International Advisory Services Ltd. for
$250,000 in cash and a $1,500,000 note (the "IAS Note") bearing interest at an
annual rate of 6% and due in 2003. Chesapeake Insurance (i) prior to October
1993 provided certain property insurance coverage for the Company and reinsured
a portion of casualty and group life insurance coverage which the Company and
certain former affiliates maintained with an unaffiliated insurance company and
(ii) prior to April 1993 reinsured insurance risks of unaffiliated third
parties. The collectibility of the IAS Note is subject to the favorable
settlement of existing claims and there would be no realization if such claims
are settled for $8,245,000 or more. Should the claims be settled for less than
$8,245,000, the note would be realized at $.75 per $1.00 of such favorable
settlement reaching full collection of $1,500,000 if the claims are settled for
no more than the current estimate of $6,245,000. Due to this uncertainty
surrounding the collection of the IAS Note, it has been fully reserved. The
$1,086,000 excess of the book value of Chesapeake Insurance of $1,332,000 and
related expenses of $4,000 over the cash proceeds of $250,000 was recognized in
1998 as the pretax loss on the Chesapeake Sale. Such loss was included in
"General and administrative" expenses since the loss effectively represents an
adjustment of prior period insurance reserves. As a result of the Chesapeake
Sale, Triarc and SEPSCO notes payable to Chesapeake Insurance aggregating
$1,500,000 are included in the Company's long-term debt at January 3, 1999.
1997 TRANSACTIONS
Acquisition of Snapple
On May 22, 1997 the Company acquired (the "Snapple Acquisition") Snapple, a
marketer and distributor of premium beverages, from The Quaker Oats Company
("Quaker") for $311,915,000 consisting of cash of $300,126,000 (including
$126,000 of post-closing adjustments), $9,260,000 of fees and expenses and
$2,529,000 of deferred purchase price. The purchase price for the Snapple
Acquisition was funded from (i) $75,000,000 of cash and cash equivalents on hand
which was contributed by Triarc to Triarc Beverage Holdings and (ii)
$250,000,000 of borrowings by Snapple on May 22, 1997 under a $380,000,000
credit agreement, as amended (the "Existing Beverage Credit Agreement" - see
Note 8), entered into by Snapple, Mistic, Triarc Beverage Holdings and, as
amended as of August 15, 1998, Cable Car (collectively, the "Borrowers").
The Snapple Acquisition was accounted for in accordance with the purchase
method of accounting. The allocation of the purchase price of Snapple to the
assets acquired and liabilities assumed, along with allocations related to the
other 1997 acquisitions, is presented below under "Purchase Price Allocations of
Acquisitions".
The results of operations of Snapple have been included in the accompanying
consolidated statements of operations from the May 22, 1997 date of the Snapple
Acquisition. See Note 19 for the unaudited supplemental pro forma condensed
consolidated summary operating data of the Company (the "Pro Forma Data") (i)
for the year ended December 28, 1997 giving effect to, among other things, the
Snapple Acquisition and related transactions, the RTM Sale (see below), the
Stewart's Acquisition (see below) and the C&C Sale (see below) and (ii) for the
year ended December 31, 1996 giving effect to the Graniteville Sale (see below)
and the Propane Sale (see below) as well as the above transactions reflected in
the 1997 Pro Forma Data.
Stewart's Acquisition
On November 25, 1997 the Company acquired (the "Stewart's Acquisition")
Cable Car, a marketer and distributor of premium beverages in the United States
and Canada, primarily under the Stewart's(R) brand, for an aggregate estimated
purchase price of $40,847,000. Such purchase price consisted of (i) 1,566,858
shares of Triarc's class A common stock (the "Class A Common Stock"), with a
value of $37,409,000 as of November 25, 1997 (based on the closing price of the
Class A Common Stock on such date of $23.875 per share), issued in exchange for
all of the outstanding stock of Cable Car, (ii) 154,931 stock options (see Note
11), with a value of $2,788,000 as of November 25, 1997, issued in exchange for
all of the outstanding stock options of Cable Car and (iii) $650,000 of
estimated related expenses (subsequently reduced to the actual expenses of
$399,000 in 1998). Such exchanges represented 0.1722 shares of Class A Common
Stock or Triarc stock options for each outstanding Cable Car share or stock
option as of November 25, 1997. In addition, the Company incurred $650,000 of
expenses related to the registration of the 1,566,858 shares of Class A Common
Stock under the Securities Act of 1933 which was charged to "Additional paid-in
capital."
The Stewart's Acquisition was accounted for in accordance with the purchase
method of accounting. The allocation of the purchase price of Cable Car to the
assets acquired and liabilities assumed, along with allocations related to the
other 1997 acquisitions, is presented below under "Purchase Price Allocations of
Acquisitions". See Note 19 for the Pro Forma Data giving effect to, among other
things, the Stewart's Acquisition.
Sale of Restaurants
On May 5, 1997 certain subsidiaries of the Company sold to an affiliate of
RTM, Inc. ("RTM"), the largest franchisee in the Arby's system, all of the 355
company-owned restaurants (the "RTM Sale"). The sales price consisted of cash
and a promissory note (discounted value) aggregating $3,471,000 (including
$2,092,000 of post-closing adjustments) and the assumption by RTM of an
aggregate $54,682,000 in mortgage and equipment notes payable and $14,955,000 in
capitalized lease obligations. Effective May 5, 1997 RTM operates the 355
restaurants as a franchisee and pays royalties to the Company at a rate of 4% of
those restaurants' net sales. In 1997 the Company recorded a $4,089,000 loss on
the sale included in "Gain on sale of businesses, net" (see Note 15) which (i)
includes a $1,457,000 provision for the fair value of Triarc's guarantee of
future lease commitments and debt repayments assumed by RTM (see below) and (ii)
is exclusive of an extraordinary charge in connection with the early
extinguishment of debt (see Note 18). The results of operations of the sold
restaurants have been included in the accompanying consolidated statements of
operations until the May 5, 1997 date of sale. Following the RTM Sale the
Company continues as the franchisor of more than 3,000 Arby's restaurants. See
Note 19 for the Pro Forma Data giving effect to, among other things, the RTM
Sale.
Obligations under (i) approximately $117,000,000 of operating and
capitalized lease payments (approximately $98,000,000 as of January 3, 1999
assuming RTM has made all scheduled payments to date under such lease
obligations) (see Note 21) and (ii) an aggregate $54,682,000 of mortgage notes
(the "Mortgage Notes") and equipment notes (the "Equipment Notes") payable to
FFCA Mortgage Corporation which were assumed by RTM in connection with the RTM
Sale (approximately $51,000,000 outstanding as of January 3, 1999 assuming RTM
has made all scheduled repayments through such date), have been guaranteed by
Triarc.
In 1996 the Company recorded a charge reported as "Reduction in carrying
value of long-lived assets to be disposed" including $58,900,000 to (i) reduce
the carrying value of the long-lived assets to be sold by $46,000,000 to
estimated fair value consisting of adjustments to "Properties" of $36,343,000,
"Unamortized costs in excess of net assets of acquired companies" of $5,214,000
and "Deferred costs and other assets" of $4,443,000 and (ii) provide for
associated net liabilities of $12,900,000, principally reflecting the present
value of certain equipment operating lease obligations which would not be
assumed by the purchaser and estimated closing costs. The estimated fair value
was determined based on the terms of the February 1997 agreement for the RTM
Sale including the then anticipated sales price. During 1996 and 1997 the
operations of the restaurants to be disposed had net sales of $228,031,000 and
$74,195,000, respectively, and a pretax income (loss) of $(2,602,000) and
$848,000, respectively. Such loss during 1996 and income during 1997 reflected
$9,913,000 and $3,319,000, respectively, of allocated general and administrative
expenses and $8,421,000 and $2,756,000, respectively, of interest expense
related to the mortgage and equipment notes and capitalized lease obligations
directly related to the operations of the restaurants sold to RTM.
C&C Sale
On July 18, 1997 the Company completed the sale (the "C&C Sale") of its
rights to the C&C beverage line of mixers, colas and flavors, including the C&C
trademark and equipment related to the operation of the C&C beverage line, to
Kelco Sales & Marketing Inc. ("Kelco") for $750,000 in cash and an $8,650,000
note (the "Kelco Note") with a discounted value of $6,003,000 consisting of
$3,623,000 relating to the C&C Sale and $2,380,000 relating to future revenues.
The $2,380,000 of deferred revenues consists of (i) $2,096,000 relating to
minimum take-or-pay commitments for sales of concentrate for C&C products to
Kelco subsequent to July 18, 1997 and (ii) $284,000 relating to technical
services to be performed for Kelco by the Company subsequent to July 18, 1997,
both under the contract with Kelco. The excess of the proceeds of $4,373,000
over the carrying value of the C&C trademark of $1,575,000 and the related
equipment of $2,000 resulted in a pretax gain of $2,796,000 which, commencing in
the third quarter of 1997, is being recognized pro rata between the gain on sale
and the carrying value of the assets sold based on the cash proceeds and
collections under the Kelco Note since realization of the Kelco Note was not at
the date of sale, and is not yet, fully assured. Accordingly, gains of $576,000
and $314,000 were recognized in "Gain on sale of businesses, net" (see Note 15)
in the accompanying consolidated statements of operations for the years ended
December 28, 1997 and January 3, 1999, respectively. See Note 19 for the Pro
Forma Data giving effect to, among other things, the C&C Sale.
Sale of C.H. Patrick
On December 23, 1997 the Company sold (the "C.H. Patrick Sale") the stock
of C.H. Patrick to The B.F. Goodrich Company for $68,114,000 in cash, net of
$3,886,000 of estimated post-closing adjustments. As a result of the C.H.
Patrick Sale, the results of C.H. Patrick, which represent the remaining
operations of the Company's former textile segment, have been classified in the
accompanying financial statements as discontinued operations through the date of
sale (see further discussion in Note 17). Accordingly, pro forma information
reflecting the C.H. Patrick Sale is not applicable. Included in "Income from
discontinued operations" for the year ended December 28, 1997 is a $19,509,000
gain on the C.H. Patrick Sale, net of $3,703,000 of related fees and expenses
and $13,768,000 of provision for income taxes. Such gain is exclusive of an
extraordinary charge in connection with the early extinguishment of debt (see
Note 18) and reflects the write-off of $2,718,000 of Goodwill which has no tax
benefit. The Company used a portion of the proceeds of the C.H. Patrick Sale to
repay all of the outstanding long-term debt of C.H. Patrick and accrued interest
thereon, aggregating $32,025,000.
1996 AND 1998 TRANSACTIONS
Acquisition of T.J. Cinnamons
In August 1996 the Company acquired (the "1996 T.J. Cinnamons Acquisition")
from Paramark Enterprises, Inc. ("Paramark", formerly known as T.J. Cinnamons,
Inc.) the trademarks, service marks, recipes and proprietary formulae of T.J.
Cinnamons, an operator and franchisor of retail bakeries specializing in gourmet
cinnamon rolls and related products for cash of $1,972,000, interest-bearing
notes payable of $1,750,000 paid through September 1998, non-interest bearing
obligations of $600,000 (discounted value of $546,000) paid through July 1998
resulting from non-compete agreements and stock sale restrictions and a
contingent payment dependent upon achieving certain specified sales targets over
a seven-year period. Further on August 27, 1998 the Company acquired (together
with the 1996 T.J. Cinnamons Acquisition, the "T.J. Cinnamons Acquisition") from
Paramark all of Paramark's franchise agreements for T.J. Cinnamons full concept
bakeries and Paramark's wholesale distribution rights for T.J. Cinnamons
products, as well as settling remaining contingent payments for the 1996 T.J.
Cinnamons Acquisition. The aggregate consideration in 1998 of $3,910,000
consisted of cash of $3,000,000 and a $1,000,000 (discounted value of $910,000)
non-interest bearing obligation due in equal monthly installments through August
2000.
The T.J. Cinnamons Acquisition was accounted for in accordance with the
purchase method of accounting. The allocation of the purchase price of the T.J.
Cinnamons Acquisition to the assets acquired and liabilities assumed (along with
allocations related to the other acquisitions in 1996) is presented below under
"Purchase Price Allocations of Acquisitions".
1996 TRANSACTIONS
Sale of Textile Business
On April 29, 1996 the Company completed the sale (the "Graniteville Sale")
of its textile business segment other than the specialty dyes and chemicals
business of C.H. Patrick (see Sale of C.H. Patrick above) and certain other
excluded assets and liabilities (the "Textile Business") to Avondale Mills, Inc.
("Avondale") for $236,824,000 in cash, net of expenses of $8,437,000 and
post-closing adjustments of $12,250,000. Avondale assumed all liabilities
relating to the Textile Business other than income tax liabilities, long-term
debt of $191,438,000 which was repaid at the closing and certain other specified
liabilities. As a result of the Graniteville Sale, the Company recorded a pretax
loss in 1996 of $4,500,000 included in "Gain on sale of businesses, net" (see
Note 15) (including an $8,367,000 write-off of unamortized Goodwill which has no
tax benefit) and an income tax provision of $1,500,000 resulting in an after-tax
loss of $6,000,000 exclusive of an extraordinary charge in connection with the
early extinguishment of debt (see Note 18). The results of operations of the
Textile Business have been included in the accompanying consolidated statements
of operations through April 29, 1996. See Note 19 for the Pro Forma Data for the
year ended December 31, 1996 giving effect to, among other things, the sale of
the Textile Business.
Sale of Propane Business
In July 1996 the Propane Partnership consummated an initial public offering
(the "IPO") and in November 1996 a subsequent private placement (the "Private
Placement" and together with the IPO the "Propane Offerings" or the "Propane
Sale") of units in the Propane Partnership. The Propane Offerings comprised an
aggregate 6,701,550 common units representing limited partner interests (the
"Common Units"), representing an approximate 57.3% interest in the Propane
Partnership, for an offering price of $21.00 per Common Unit aggregating
$124,749,000 net of $15,984,000 of underwriting discounts and commissions and
other expenses related to the Propane Offerings. The sales of the Common Units
resulted in a pretax gain to the Company in 1996 of $85,175,000 (see Note 15)
and a provision for income taxes of $33,163,000. See Note 19 for the Pro Forma
Data for the year ended December 31, 1996 giving effect to, among other things,
the Propane Sale.
Concurrently with the IPO, the Propane Partnership issued to National
Propane 4,533,638 subordinated units (the "Subordinated Units"), representing an
approximate 38.7% subordinated general partner interest in the Propane
Partnership (after giving effect to the Private Placement). In addition,
National Propane and a subsidiary (the "General Partners") hold a combined
aggregate 4.0% unsubordinated general partner interest (the "Unsubordinated
General Partners' Interest" and, together with the Subordinated Units, the
"Company's Partnership Interests") in the Propane Partnership and a
subpartnership, National Propane, L.P. (the "Operating Partnership" and,
together with the Propane Partnership, the "Partnerships"). In connection
therewith, National Propane transferred substantially all of its propane-
related assets and liabilities (principally all assets and liabilities other
than a receivable from Triarc, deferred financing costs and income tax
liabilities, net, amounting to $81,392,000, $4,127,000 and $21,615,000,
respectively), aggregating net liabilities of $88,222,000, to the Operating
Partnership. In accordance with amendments to the partnership agreements of the
Partnerships effective December 28, 1997 (see further discussion in Note 7), the
Company no longer has substantive control over the Propane Partnership to the
point where it now exercises only significant influence and, accordingly, no
longer consolidates the Propane Partnership (the "Deconsolidation"). See Note 19
for the Pro Forma Data for the years ended December 31, 1996 and December 28,
1997 giving effect to, among other things, the Deconsolidation. In 1997 and 1998
the Company recognized $8,468,000 and $2,199,000, respectively, of deferred
pretax gains on the sale of the Common Units, principally reflecting the Propane
Partnership distributions to the General Partners in such years in excess of the
General Partners' interest in the net income or loss of the Propane Partnership.
Such gains are included in "Gain on sale of businesses, net" (see Note 15).
To the extent the Propane Partnership has net positive cash flows, it must
make quarterly distributions of its cash balances in excess of reserve
requirements, as defined, to holders of the Common Units, the Subordinated Units
and the Unsubordinated General Partners' Interest within 45 days after the end
of each fiscal quarter. Commencing with the fourth quarter of 1996, the Propane
Partnership paid quarterly distributions of $0.525 per Common and Subordinated
Unit with a proportionate amount for the Unsubordinated General Partners'
Interest, or an aggregate $5,924,000 and $24,572,000 in 1996 and 1997,
respectively, including $2,616,000 and $10,499,000 to the General Partners,
respectively. See Note 7 for discussion of 1998 distributions by the Propane
Partnership on the Company's Partnership Interests and related restrictions on
such distributions and also on distributions on the Common Units.
MINORITY INTERESTS
The 1996 and 1997 minority interests in net income of a consolidated
subsidiary of $1,829,000 and $2,205,000, respectively, represents the limited
partners' weighted average interest in the net income of the Propane Partnership
since it commenced operations in July 1996. There are no minority interests in
1998 or minority interest liability as of December 28, 1997 or January 3, 1999
due to the Deconsolidation.
PURCHASE PRICE ALLOCATIONS OF ACQUISITIONS
In addition to the Snapple Acquisition, the Stewart's Acquisition and the
T.J. Cinnamons Acquisition discussed above, the Company consummated several
propane business acquisitions during 1996 and 1997 for cash of $2,046,000 and
$8,480,000, respectively. All such acquisitions have been accounted for in
accordance with the purchase method of accounting. In accordance therewith, the
following table sets forth the allocation of the aggregate purchase prices and a
reconciliation to business acquisitions in the accompanying consolidated
statements of cash flows (in thousands):
1996 1997 1998
---- ---- ----
Current assets................................$ 257 $ 114,460 $ --
Properties.................................... 838 25,366 --
Goodwill (amortized over 15 to 35 years)...... 162 106,160 411
Trademarks.................................... 3,951 221,300 3,389
Other assets.................................. 1,106 28,612 110
Current liabilities .......................... (358) (69,608) --
Long-term debt assumed including
current portion........................... -- (686) --
Other liabilities............................. (188) (66,014) --
---------- ----------- ---------
5,768 359,590 3,910
Less:
Long-term debt issued to sellers.......... 1,750 757 910
Triarc Class A Common Stock issued
to sellers and stock options issued
to employees, net of stock
registration costs...................... -- 40,197 --
---------- ----------- ---------
$ 4,018 $ 318,636 $ 3,000
========== =========== =========
(4) INCOME (LOSS) PER SHARE
Basic income (loss) per share for 1996, 1997 and 1998 has been computed by
dividing the net income or loss by the weighted average number of common shares
outstanding of 29,898,000, 30,132,000 and 30,306,000, respectively. For 1996 and
1997, the diluted loss per share is the same as the basic loss per share since
all potentially dilutive securities (principally stock options) would have had
an antidilutive effect for both of such periods. For 1998 diluted income per
share has been computed by dividing the net income by an aggregate 31,527,000
shares consisting of the 30,306,000 weighted average common shares outstanding
and 1,221,000 shares from the dilutive effect of stock options computed
utilizing the treasury stock method. The shares for such diluted income per
share exclude any effect of the assumed conversion of the Debentures (see Note
8) since the effect thereof would have been antidilutive.
(5) SHORT-TERM INVESTMENTS AND SECURITIES SOLD BUT NOT YET PURCHASED
Short-Term Investments
The Company's short-term investments are stated at fair value, except for
certain investments in limited partnerships which are stated either at cost, as
reduced by unrealized losses deemed to be other than temporary, or at equity.
Cost, as set forth in the table below, represents amortized cost for corporate
debt securities and either cost or cost as reduced by unrealized losses deemed
to be other than temporary (see Note 14) for investments in limited
partnerships. The cost, gross unrealized gains and losses, fair value and
carrying value, as appropriate, of the Company's short-term investments at
December 28, 1997 and January 3, 1999 were as follows (in thousands):
YEAR-END 1997 YEAR-END 1998
----------------------------------------------- -------------------------------------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE COST GAINS LOSSES VALUE VALUE
---- ----- ------ ----- ---- ---- ----- ------ ----- -----
Marketable securities
Available-for-sale:
Equity securities........$ 19,434 $ 815 $(1,971) $ 18,278 $18,278 $29,036 $ 4,389 $ (5,006) $ 28,419 $ 28,419
Corporate debt securities 17,861 98 (72) 17,887 17,887 23,311 68 (587) 22,792 22,792
-------- ------ ------ -------- ------- ------- -------- -------- -------- --------
Total available-for-
sale marketable
securities..... 37,295 $ 913 $(2,043) 36,165 36,165 52,347 $ 4,457 $ (5,593) 51,211 51,211
====== ======= ======== ========
Trading:
Equity securities........ -- -- -- 22,636 25,436 25,436
Corporate debt securities -- -- -- 1,949 1,824 1,824
Investments in limited
partnerships........... 10,000 15,329 10,000 20,904 18,176 21,258
-------- --------- -------- --------- -------- --------
$ 47,295 $ 51,494 $46,165 $ 97,836 $ 96,647 $ 99,729
======== ======== ======= ======== ======== ========
Corporate debt securities at January 3, 1999 which are classified as
available-for-sale mature as follows (in thousands):
FAIR
FISCAL YEARS COST VALUE
---- -----
1999 - 2003......................... $ 11,773 $ 11,658
2004 - 2006......................... 11,538 11,134
-------- ---------
$ 23,311 $ 22,792
======== =========
Proceeds from sales of available-for-sale marketable securities were
approximately $21,598,000, $62,919,000 and $63,562,000 in 1996, 1997 and 1998,
respectively. Gross realized gains and gross realized losses on those sales are
included in "Investment income, net" (see Note 14) in the accompanying
consolidated statements of operations and are as follows (in thousands):
1996 1997 1998
---- ---- ----
Gross realized gains.............$ 1,034 $ 5,187 $ 5,139
Gross realized losses............ (334) (338) (550)
-------- --------- ----------
$ 700 $ 4,849 $ 4,589
======== ========= ==========
The net change in the unrealized gain (loss) on available-for-sale
securities included in other comprehensive income consisted of the following (in
thousands):
1996 1997 1998
---- ---- ----
Net change in unrealized gains (losses) on available-for-sale securities:
Unrealized appreciation (depreciation) of available-for-sale
securities...................................................$ 912 $ (903) $ 462
Less reclassification adjustments for prior year appreciation
of securities sold during the year........................... (130) (1,140) (468)
-------- --------- ----------
782 (2,043) (6)
Equity in unrealized gain on retained interest.................. -- -- 596
Income tax (provision) benefit.................................... (282) 707 (189)
-------- --------- ----------
$ 500 $ (1,336) $ 401
======== ========= ==========
At January 3, 1999 the net unrealized gain (loss) on marketable securities
reported in other comprehensive income included the after tax effect of the
change in the net unrealized loss on available-for-sale securities from 1997 to
1998 noted above as well as the Company's equity of $596,000 in an unrealized
gain related to a retained interest recorded by an investee accounted for under
the equity method. During the year ended January 3, 1999 such investee sold
securitization notes collateralized by credit card receivables with the
transaction accounted for as a sale. As a result of the securitization
transaction, such investee recorded a retained interest in the securitized
assets which are accounted for as available-for-sale securities.
The net change in the net unrealized gain on trading securities included
in earnings for the year ended January 3, 1999 was $2,675,000.
The Company has investments in limited partnerships which invest in
securities; primarily debt securities, common and preferred equity securities,
convertible securities, stock warrants and rights and stock options. These
investments are focused on both domestic and foreign securities, including those
of emerging market countries.
Securities Sold But Not Yet Purchased
The Company also enters into short sales as part of its portfolio
management strategy. Short sales are commitments to sell a financial instrument
not owned at the time of sale that require purchase of such financial instrument
at a future date. Such short sales resulted in proceeds of $45,585,000 for the
year ended January 3, 1999. The fair value of the liability for securities sold
but not yet purchased was $23,599,000 at January 3, 1999 and is included in
"Accrued expenses" (see Note 6).
(6) BALANCE SHEET DETAIL
RECEIVABLES
The following is a summary of the components of receivables (in
thousands):
YEAR-END
---------------------------
1997 1998
---- ----
Receivables:
Trade....................................$ 71,133 $ 63,283
Affiliates............................... 4,327 --
Other.................................... 13,663 9,992
----------- -----------
89,123 73,275
Less allowance for doubtful accounts (a).... 11,241 5,551
----------- -----------
$ 77,882 $ 67,724
=========== ===========
---------
(a) The reduction of the allowance for doubtful accounts during 1998
includes the write-off of $3,474,000 of a receivable from an
affiliate, which had been provided for in prior years.
Substantially all receivables are pledged as collateral for certain debt
(see Notes 8 and 26).
INVENTORIES
The following is a summary of the components of inventories (in
thousands):
YEAR-END
--------------------------
1997 1998
---- ----
Raw materials.............................$ 22,573 $ 20,268
Work in process........................... 214 98
Finished goods............................ 34,607 26,395
----------- -----------
$ 57,394 $ 46,761
=========== ===========
Substantially all inventories are pledged as collateral for certain debt
(see Notes 8 and 26).
PROPERTIES
The following is a summary of the components of properties (in thousands):
YEAR-END
----------------------------
1997 1998
---- ----
Land .....................................$ 2,421 $ 1,980
Buildings and improvements................... 6,038 5,700
Leasehold improvements....................... 10,553 12,687
Machinery and equipment...................... 32,669 38,378
Leased assets capitalized.................... 788 431
------------ -----------
52,469 59,176
Less accumulated depreciation and
amortization............................. 18,636 27,904
------------ -----------
$ 33,833 $ 31,272
============ ===========
Substantially all properties are pledged as collateral for certain debt
(see Notes 8 and 26).
UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The following is a summary of the components of unamortized costs in
excess of net assets of acquired companies (in thousands):
YEAR-END
-------------------------
1997 1998
---- ----
Costs in excess of net assets
of acquired companies.....................$ 355,889 $ 355,736
Less accumulated amortization................. 76,664 87,300
------------ -----------
$ 279,225 $ 268,436
============ ===========
TRADEMARKS
The following is a summary of the components of trademarks (in thousands):
YEAR-END
---------------------------
1997 1998
---- ----
Trademarks..................................$ 282,701 $ 286,231
Less accumulated amortization............... 13,500 24,325
------------ -----------
$ 269,201 $ 261,906
============ ===========
DEFERRED COSTS AND OTHER ASSETS
The following is a summary of the components of deferred costs and other
assets (in thousands):
YEAR-END
-----------------------------
1997 1998
---- ----
Deferred financing costs...................$ 30,374 $ 34,164
Other ................................... 18,237 22,082
------------ -----------
48,611 56,246
Less accumulated amortization of
deferred financing costs............... 13,255 17,840
------------ -----------
$ 35,356 $ 38,406
============ ===========
ACCRUED EXPENSES
The following is a summary of the components of accrued expenses (in
thousands):
YEAR-END
-----------------------------
1997 1998
---- ----
Securities sold but not yet purchased (Note 5)..................................$ -- $ 23,599
Accrued interest................................................................ 27,680 23,315
Accrued compensation and related benefits....................................... 22,771 22,407
Accrued promotions.............................................................. 21,022 14,922
Accrued production contract losses.............................................. 13,022 4,639
Net current liabilities of discontinued operations (Note 17).................... 4,339 3,237
Accrued advertising ........................................................... 3,832 2,582
Accrued legal settlements and environmental matters (Note 23)................... 10,274 1,884
Other ........................................................................ 45,564 36,319
------------ -----------
$ 148,504 $ 132,904
============ ===========
(7) INVESTMENTS
The following is a summary of the components of investments (non-current)
(in thousands):
INVESTMENT INTEREST IN
----------------------- UNDERLYING
YEAR-END % OWNED EQUITY
---------------------- ------- ---------
1997 1998 YEAR-END 1998
---- ---- ------------------------
The Propane Partnership, at equity......................$ -- $ (1,290) 42.7% $ (1,290)
Reclassification of negative investment in the
Propane Partnership to non-current liabilities
(see below).......................................... -- 1,290
Non-marketable common stock, at equity.................. -- 3,382 12.2% 1,701
Investment limited partnership, at equity............... 1,021 1,292 7.6% 1,292
Investment limited partnerships, at cost less (in
1998) other than temporary unrealized losses
(Notes 5 and 14) .................................... 2,250 1,630 Less than 1%
Other limited partnerships, at equity................... 2,702 1,421 10.1% to 37.4% 1,421
Non-marketable preferred and common stock, at
cost................................................. 50 2,650
Select Beverages, at equity............................. 24,926 --
Rhode Island Beverages, at equity....................... 550 --
----------- --------
$ 31,499 $ 10,375
=========== ========
The Company's consolidated equity in the earnings (losses) of investees
accounted for under the equity method (other than the equity in the income of an
investment limited partnership included in the table above which is included in
"Investment income, net") for 1997 and 1998 (none for 1996) and included in
"Other income (expense), net" (see Note 16) in the accompanying consolidated
statements of operations consisted of the following components (in thousands):
1997 1998
---- ----
The Propane Partnership....................$ -- $ (2,785)
Non-marketable common stock, at equity..... -- 834
Other limited partnerships, at equity...... (299) (1,281)
Select Beverages........................... 862 (1,222)
-------- ---------
$ 563 $ (4,454)
======== =========
The Company's investments in non-marketable common stock and in Select
Beverages exceeded the underlying equity in their respective net assets.
Amortization of such excess in 1998 of $104,000 related to the non-marketable
common stock and $341,000 related to Select Beverages (through the date of sale
of Select Beverages - see below) was included in the equity in earnings or
losses of the respective investments.
Since the commencement of the Propane Partnership's operations and IPO on
July 2, 1996 and through December 27, 1997, the assets, liabilities, revenues
and expenses of the Propane Partnership were included in the consolidated
financial statements of the Company. Effective December 28, 1997 the Company
adopted certain amendments to the partnership agreements of the Propane
Partnership and the Operating Partnership such that the Company no longer has
substantive control over the Propane Partnership to the point where it now
exercises only significant influence and, accordingly, no longer consolidates
the Propane Partnership. The Company's 42.7% interest in the Propane Partnership
as of and subsequent to December 28, 1997 is accounted for using the equity
method of accounting.
The Company has recorded its equity in the 1998 losses of the Propane
Partnership to the extent of $1,290,000 in excess of its investment since its
wholly-owned subsidiary National Propane has guaranteed certain of the Propane
Partnership's debt (see below). The resulting $1,290,000 credit balance, which
is net of $3,549,000 of deferred gain on the Propane Offerings ("Deferred
Gains"), is classified within "Deferred income and other liabilities" in the
accompanying consolidated balance sheet at January 3, 1999. The Company's gross
investment in the Propane Partnership of $5,748,000 at December 28, 1997 was
fully offset by an equal amount of Deferred Gains. The Deferred Gains have been
recognized as the Company receives quarterly distributions on the Subordinated
Units ("Subordinated Distributions") and the Unsubordinated General Partners'
Interest (collectively with the Subordinated Distributions, the "Distributions")
which were $9,521,000 and $978,000, respectively, for 1997, and $2,380,000 (with
respect to the fourth quarter of 1997) and $610,000, respectively, for 1998, in
excess of its 42.7% equity in the earnings or losses of the Propane Partnership.
No Subordinated Distributions were paid with respect to 1998 since initially the
Company agreed to forego Subordinated Distributions in order to facilitate the
Propane Partnership's compliance with debt covenant restrictions in its bank
facility agreement and subsequently the Propane Partnership agreed not to pay
any 1998 Subordinated Distributions in accordance with amendments to its debt
agreements effective June 30, 1998. The Propane Partnership also agreed not to
make any distributions on the publicly traded Common Units until all amounts
outstanding under the Propane Bank Facility (see below) have been repaid in
full. Thereafter, the Company will not receive any Distributions unless and
until the Propane Partnership (i) is able to generate sufficient available cash
through operations and (ii) maintains compliance with the restrictions embodied
in the covenants in its amended debt agreements and, with respect to
Subordinated Distributions, (i) achieves compliance with the original
restrictions embodied in the covenants in its bank facility agreement and (ii)
pays any distribution arrearages on the Propane Partnership's publicly traded
Common Units in full, currently aggregating $5,277,000 with respect to the third
and fourth quarters of 1998. Accordingly, it is unlikely the Company will
receive any Distributions in the foreseeable future.
Obligations under the Operating Partnership's $125,000,000 of 8.54% first
mortgage notes due June 30, 2010 (the "First Mortgage Notes") and $15,997,000
outstanding under the Operating Partnership's bank credit facility (the "Propane
Bank Facility" and, collectively with the First Mortgage Notes, the "Propane
Debt") have been guaranteed (the "Propane Guarantee") by National Propane. As
collateral for such guarantee all of the stock of SGP, a subsidiary of National
Propane and the holder of a 2% unsubordinated general partner interest in the
Propane Partnership, is pledged as well as National Propane's 2% unsubordinated
general partner interest in the Propane Partnership.
As of March 26, 1999 (see Note 27 for updated status), the Company has been
in active discussions with several potential purchasers concerning the sale of
the Propane Partnership (the "Proposed Partnership Sale") and is currently
negotiating with one such purchaser on an exclusive basis. The Company presently
anticipates that any such sale would result in a gain to the Company. Further,
since the Company anticipates maintaining financial interests in the propane
business, through maintenance of a nominal percentage of the Company's
Partnership Interests and the Propane Guarantee, the results of operations of
the propane segment and any resulting gain or loss on the sale of the Company's
Partnership Interests will not be accounted for as a discontinued operation.
However, no agreement has been reached and there can be no assurance that the
Partnership Sale will be consummated.
At December 31, 1998 the Operating Partnership was not in compliance with
a covenant under the Propane Bank Facility and is forecasting non-compliance
with the same covenant as of March 31, 1999 (the "Forecasted NonCompliance").
The Operating Partnership has received an unconditional waiver of such
non-compliance from the Propane Bank Facility lenders (the "Lenders") with
respect to the non-compliance as of December 31, 1998 and a conditional waiver
with respect to future covenant non-compliance with such covenant through August
31, 1999. A number of the conditions to such conditional waiver are directly
related to the Partnership Sale. Should the conditions not be met, or the waiver
expire and the Operating Partnership be in default of the Propane Bank Facility,
the Operating Partnership would also be in default of the First Mortgage Notes
by virtue of cross-default provisions. As a result of the Forecasted
Non-Compliance, the conditions of the waiver and the cross-default provisions of
the First Mortgage Notes, the Company understands the Propane Partnership
intends to classify all Propane Debt as a current liability as of December 31,
1998. In addition, the Company understands that as a result of the Forecasted
Non-Compliance, the conditional nature of the waiver and its effectiveness only
through September 1, 1999 with respect to the Forecasted Non-Compliance and the
fact that a definitive agreement for the Proposed Partnership Sale may not have
been executed and delivered by the time the Propane Partnership's financial
statements for the year ended December 31, 1998 are issued, the Propane
Partnership's independent auditors may render an opinion on the Propane
Partnership's financial statements for the year ended December 31, 1998 which
emphasizes doubt as to the Propane Partnership's ability to continue as a going
concern for a reasonable period of time. If the Proposed Partnership Sale is not
consummated and the Lenders are unwilling to extend the waiver, (i) the Propane
Partnership could seek to otherwise refinance its indebtedness, (ii) Triarc
might consider buying the banks' loans to the Operating Partnership ($15,997,000
principal amount outstanding as of January 3, 1999) or (iii) the Propane
Partnership could be forced to seek protection under the Federal bankruptcy
laws. In such latter event, National Propane may be required to honor the
Propane Guarantee. As a result, Triarc may be required to pay a $30,000,000
demand note payable to National Propane, and National Propane would be required
to surrender the note (if the Company has not yet paid it) or the proceeds from
such note, as well as the Company's Partnership Interests, to the Lenders.
The Company owned 20% of Select Beverages until its sale on May 1, 1998.
On May 1, 1998 the Company sold its interest in Select Beverages for
$28,342,000, subject to certain post-closing adjustments. The Company recognized
a pre-tax gain on the sale of Select Beverages during 1998 of $4,702,000,
included in "Gain on sale of businesses, net" (see Note 15), representing the
excess of the net sales price over the Company's carrying value of the
investment in Select Beverages and related post-closing adjustments and
expenses.
The Company, through its ownership of Snapple, owned 50% of the stock of
Rhode Island Beverage Packing Company, L.P. ("Rhode Island Beverages" or "RIB").
Snapple and Quaker were defendants in a breach of contract case filed in April
1997 by RIB, prior to the Snapple Acquisition (the "RIB Matter"). The RIB Matter
was settled in February 1998 and in accordance therewith Snapple surrendered (i)
its 50% investment in RIB ($550,000) and (ii) certain properties ($1,202,000)
and paid RIB $8,230,000. The settlement amounts were fully provided for in a
combination of (i) historical Snapple legal reserves as of the date of the
Snapple Acquisition and additional legal reserves provided in "Acquisition
related" costs (see Note 12) and (ii) reserves for losses in long-term
production contracts established in the Snapple Acquisition purchase accounting
(see Note 3). Since at the date of the Snapple Acquisition the investment in RIB
was expected to be surrendered in connection with the settlement of the RIB
Matter, the Company did not recognize any equity in the earnings of RIB prior to
such surrender in February 1998.
Summary unaudited consolidated balance sheet information for the Propane
Partnership at December 31, 1997 and 1998, the Propane Partnership's year ends,
is as follows (in thousands):
DECEMBER 31,
---------------------
1997 1998
---- ----
Current assets..................................$ 35,432 $ 28,892
Partnership Note (see Note 8)................... 40,700 30,700
Properties...................................... 80,346 77,653
Other assets.................................... 26,031 23,792
--------- ---------
$ 182,509 $ 161,037
========= =========
Current portion of long-term debt (see above)...$ 9,235 $ 141,687
Other current liabilities....................... 19,015 19,847
Long-term debt.................................. 138,131 177
Other liabilities............................... 2,674 2,344
Partners' capital (deficit)..................... 13,454 (3,018)
--------- ---------
$ 182,509 $ 161,037
========= =========
Summary consolidated income statement information for the Propane
Partnership is not presented through December 28, 1997 since the results of
operations of the Propane Partnership were consolidated. Summary unaudited
consolidated income statement information for the Propane Partnership for the
year ended December 31, 1998 is as follows (in thousands):
Revenues............................................$ 133,982
Operating profit.................................... 6,179
Loss from continuing operations and net loss........ (1,578)
(8) LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
YEAR-END
-----------------------------
1997 1998
---- ----
9 3/4% senior secured notes due 2000 (a)........................................$ 275,000 $ 275,000
Triarc Beverage Holdings Corp. Existing Beverage Credit Agreement (b)
Term loans bearing interest at a weighted average rate of 8.99% at
January 3, 1999............................................................. 296,500 284,333
Zero coupon convertible subordinated debentures due 2018 (net of
unamortized original issue discount of $253,897) (c)........................ -- 106,103
13 1/2% note payable to the Propane Partnership (d)............................. 40,700 30,700
Mortgage and equipment notes payable to FFCA Mortgage Corporation, bearing
interest at a weighted average rate of 10.39% as of January 3,
1999, due through 2016...................................................... 4,297 3,733
Capitalized lease obligations................................................... 719 158
Other........................................................................... 1,396 8,932
------------ -----------
Total debt............................................................. 618,612 708,959
Less amounts payable within one year................................... 13,932 9,978(e)
------------ -----------
$ 604,680 $ 698,981
============ ===========
Aggregate annual maturities of long-term debt, including capitalized lease
obligations, were as follows as of January 3, 1999 (in thousands) (e):
1999..............................................$ 9,978
2000.............................................. 12,094
2001.............................................. 10,962
2002.............................................. 12,929
2003.............................................. 15,426
Thereafter........................................ 901,467
------------
962,856
Less unamortized original issue discount........... 253,897
------------
$ 708,959
============
(a) On February 25, 1999 the 9 3/4% senior secured notes due 2000 (the "9 3/4%
Senior Notes") were called for redemption by the Company on March 30, 1999,
prior to their scheduled maturity of August 1, 2000, with the funding
thereof from a portion of the proceeds from the Refinancing Transactions
(see Note 26). Prior to 1996 the Company 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 was paid by the Company
at a floating rate (the "Floating Rate") based on the 180-day London
Interbank Offered Rate ("LIBOR") and the Company received 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 was retroactively reset
at the end of each six-month calculation period through July 31, 1996 and
at the maturity of the Swap Agreement on September 24, 1996. The
transaction effectively changed the Company's interest rate on $137,500,000
of the 9 3/4% Senior Notes from a fixed-rate to a floating-rate basis
through September 24, 1996. Under the Swap Agreement during 1994 the
Company received $614,000 which was determined at the inception of the Swap
Agreement. Subsequently, the Company paid (i) $2,271,000 during 1995 in
connection with such year's two six-month reset periods and (ii) $1,631,000
during 1996 in connection with such year's two six-month reset periods and
the reset period ending with the Swap Agreement's maturity on September 24,
1996.
(b) The $284,333,000 of outstanding term loans (there were no outstanding
revolving credit loans) under the Existing Beverage Credit Agreement as of
January 3, 1999 and February 25, 1999 was repaid on February 25, 1999 using
a portion of the proceeds from the Refinancing Transactions (see Note 26).
The Existing Beverage Credit Agreement consisted of a $300,000,000 term
facility of which $225,000,000 and $75,000,000 of loans (the "Existing Term
Loans") were borrowed by Snapple and Mistic, respectively, at the Snapple
Acquisition date ($213,250,000 and $71,083,000, respectively, outstanding
at January 3, 1999) and an $80,000,000 revolving credit facility which
provided for revolving credit loans (the "Existing Revolving Loans") by
Snapple, Mistic, Triarc Beverage Holdings and, as amended as of August 15,
1998, Cable Car of which $25,000,000 and $5,000,000 were borrowed on the
Snapple Acquisition date by Snapple and Mistic, respectively. The Existing
Revolving Loans were repaid prior to December 28, 1997 and no Existing
Revolving Loans were outstanding at December 28, 1997 or January 3, 1999.
The aggregate $250,000,000 originally borrowed by Snapple was principally
used to fund a portion of the purchase price for Snapple (see Note 3). The
aggregate $80,000,000 originally borrowed by Mistic was principally used to
repay all of the $70,850,000 then outstanding borrowings under Mistic's
former bank credit facility (the "Former Mistic Bank Facility") plus
accrued interest thereon.
(c) On February 9, 1998 the Company issued (the "Offering") zero coupon
convertible subordinated debentures due 2018 (the "Debentures") with an
aggregate principal amount at maturity of $360,000,000 to Morgan Stanley &
Co. Incorporated ("Morgan Stanley") as the initial purchaser for an
offering to "qualified institutional buyers". The Debentures were issued at
a discount of 72.177% from principal resulting in proceeds to the Company
of $100,163,000 before placement fees and expenses aggregating $4,000,000.
The issue price represents an annual yield to maturity of 6.5%. The
Debentures are convertible into Class A Common Stock at a conversion rate
of 9.465 shares per $1,000 principal amount at maturity, which represents
an initial conversion price of approximately $29.40 per share of Class A
Common Stock. The conversion price will increase over the life of the
Debentures at an annual rate of 6.5% and the conversion of all of the
currently outstanding Debentures into Class A Common Stock would result in
the issuance of approximately 3,407,000 shares of Class A Common Stock. The
Debentures are redeemable by the Company commencing February 9, 2003 at the
original issue price plus accrued original issue discount to the date of
any such redemption and the Debentures can be put to the Company on
February 9, 2003, 2008 and 2013 or at any time upon the occurrence of a
fundamental change, as defined, in the Company's Class A Common Stock at
not more than the original issue price plus accrued original issue discount
at the date of any such put. In June 1998 a shelf registration statement
covering resales by holders of the Debentures (and the Class A Common Stock
issuable upon any conversion of the Debentures) was declared effective by
the Securities and Exchange Commission ("SEC"). The Company used a portion
of the proceeds from the sale of the Debentures to purchase 1,000,000
shares of Class A Common Stock for treasury for $25,563,000 from Morgan
Stanley (the "Equity Repurchase"). The balance of the net proceeds from the
sales of the Debentures are being used by the Company for general corporate
purposes. Had such Offering and Equity Repurchase been consummated as of
December 29, 1997, rather than on February 9, 1998, the effect on income
from continuing operations and related per share amounts would not have
been significant.
(d) The Company has a 13 1/2% note payable to the Propane Partnership (the
"Partnership Note") with an original principal amount of $40,700,000 which
was due in eight equal installments commencing 2003 through 2010. Effective
June 30, 1998 the Partnership Note was amended to, among other things,
permit the Company to prepay up to $10,000,000 of the principal of the
Partnership Note through February 14, 1999. During 1998, the Company
prepaid such $10,000,000 including $7,000,000 on August 7, 1998 in order to
(i) retroactively cure the Propane Partnership's non-compliance as of June
30, 1998 with restrictive covenants contained in its bank facility
agreement and (ii) permit the Propane Partnership to pay its normal
quarterly distribution with respect to the second quarter of 1998 on its
Common Units with a proportionate amount for the Company's Unsubordinated
General Partners' Interest. The remaining principal amount of the
Partnership Note of $30,700,000 (see Note 27) is due $175,000 in 2004 and
six equal annual installments of $5,087,500 commencing in 2005 through
2010. However, certain matters relating to the current financial condition
of the Propane Partnership and/or the negotiations for a possible sale of
the Company's interest of the Propane Partnership may cause a portion or
all of the Partnership Note to become a current obligation.
(e) The current portion of long-term debt as of January 3, 1999 reflects a
reclassification to long term of the portion ($9,419,000) of the amount
originally due in 1999 under the Existing Beverage Credit Agreement which
has been refinanced to long term (see Note 26). The annual maturities of
long-term debt in each of the five years from 1999 through 2003 are lower
following such refinancing than under the Existing Beverage Credit
Agreement and the 9 3/4% Senior Notes. Accordingly, the annual maturities
of long-term debt set forth in the table above reflect such refinancing.
The Company's debt agreements contain various covenants which (a) require
meeting certain financial amount and ratio tests; (b) limit, among other
matters, (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 to Triarc (see below). As of
January 3, 1999 the Company was in compliance with all such covenants.
Triarc's principal subsidiaries, other than CFC Holdings (until its merger
into Triarc on February 23, 1999) and National Propane, were unable to pay any
dividends or make any loans or advances to Triarc as of January 3, 1999 under
the terms of the various indentures and credit arrangements then in effect.
While there were no restrictions applicable to CFC Holdings, CFC Holdings would
have been dependent upon cash flows from RC/Arby's to pay dividends and, as of
January 3, 1999, RC/Arby's was unable to pay any dividends or make any loans or
advances to CFC Holdings. While there are no restrictions applicable to National
Propane, National Propane is dependent upon cash flows from the Propane
Partnership, principally the distributions from the Propane Partnership, to pay
dividends and the Propane Partnership does not expect to be able to pay any
distributions for the foreseeable future (see Note 7 for further discussion).
See Note 26 for discussion of one-time distributions paid to Triarc by certain
of its subsidiaries in connection with the Refinancing Transactions.
Under the Company's various debt agreements, substantially all of Triarc's
and its subsidiaries' assets other than cash, cash equivalents and short-term
investments are pledged as security as of January 3, 1999. In addition, (i)
obligations under the 9 3/4% Senior Notes have been guaranteed by Royal Crown
and Arby's and (ii) obligations under the Existing Beverage Credit Agreement
were guaranteed by Snapple, Mistic, Triarc Beverage Holdings and Cable Car prior
to the repayment thereof. As collateral for such guarantees, all of the stock of
Royal Crown and Arby's was pledged and all of the stock of Snapple, Mistic,
Triarc Beverage Holdings and Cable Car was pledged. See Note 26 for the effect
of the February 25, 1999 refinancing on the pledging of assets and debt
guarantees and related collateral. Although the stock of National Propane is not
pledged in connection with any guarantee of debt obligations, the 75.7% of such
stock owned by Triarc directly is pledged as security for obligations under the
Partnership Note.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has the following financial instruments for which the
disclosure of fair values is required: cash and cash equivalents, accounts
receivable and payable, accrued expenses, short-term investments, investments in
limited partnerships, at cost and long-term debt. The carrying amounts of cash
and cash equivalents, accounts payable and accrued expenses approximated fair
value due to the short-term maturities of such assets and liabilities. The
carrying amount of accounts receivable approximated fair value due to the
related allowance for doubtful accounts. The fair values of short-term
investments are based on quoted market prices or statements of account received
from investment managers or from the partnerships and are set forth in Note 5.
The carrying amounts and fair values of investments in limited partnerships, at
cost (as reduced by unrealized losses deemed to be other than temporary) and
long-term debt were as follows (in thousands):
YEAR-END
---------------------------------------------------
1997 1998
--------------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ------ ------ -----
Investments in limited partnerships, at cost, as reduced
by unrealized losses deemed to be other than
temporary (Note 7).......................................$ 2,250 $ 1,901 $ 1,630 $ 1,504
=========== =========== ============ ==========
Long-term debt (Note 8):
9 3/4% Senior Notes......................................$ 275,000 $ 279,000 $ 275,000 $ 278,000
Existing Beverage Credit Agreement....................... 296,500 296,500 284,333 284,333
Debentures............................................... -- -- 106,103 74,700
Partnership Loan......................................... 40,700 43,321 30,700 34,065
Mortgage Notes and Equipment Notes....................... 4,297 4,612 3,733 4,175
Other long-term debt .................................... 2,115 2,115 9,090 9,090
----------- ----------- ------------ ----------
$ 618,612 $ 625,548 $ 708,959 $ 684,363
=========== =========== ============ ==========
The fair values of the Company's investments in limited partnerships, at
cost (as reduced by other than temporary losses) are based on quoted market
prices, if available, or statements of account received from such partnerships.
The fair values of the 9 3/4% Senior Notes and the Debentures are based on
quoted market prices. The fair values of the Existing Term Loans under the
Existing Beverage Credit Agreement approximated their carrying values due to the
relatively frequent resets of their floating interest rates. The fair values of
the Partnership Loan and the Mortgage and Equipment Notes were determined by
discounting the future scheduled payments using an interest rate assuming the
same original issuance spread over a current Treasury bond yield for securities
with similar durations. 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 all other debt, the remaining maturities are relatively
short-term or the carrying amounts of such debt are relatively insignificant.
(10) INCOME TAXES
The income (loss) from continuing operations before income taxes and
minority interests in income of a consolidated subsidiary consisted of the
following components (in thousands):
1996 1997 1998
---- ---- ----
Domestic......................$ (527) $ (23,769) $ 28,422
Foreign....................... (3,408) 679 221
----------- ---------- -----------
$ (3,935) $ (23,090) $ 28,643
========= ========== ===========
The benefit from (provision for) income taxes from continuing operations
consisted of the following components (in thousands):
1996 1997 1998
---- ---- ----
Current:
Federal............................$ (7) $ 5,225 $ (4,414)
State.............................. (5,292) 2,481 (7,286)
Foreign............................ (370) (805) (457)
---------- --------- -----------
(5,669) 6,901 (12,157)
---------- --------- -----------
Deferred:
Federal............................ (7,507) 867 (5,466)
State.............................. 5,242 (3,026) 1,016
--------- --------- -----------
(2,265) (2,159) (4,450)
--------- --------- -----------
Total........................$ (7,934) $ 4,742 $ (16,607)
========= ========= ===========
The net current deferred income tax asset and the net non-current
deferred income tax (liability) resulted from the following components (in
thousands):
YEAR-END
-----------------
1997 1998
---- ----
Current deferred income tax assets (liabilities):
Accrued employee benefit costs..........................$ 5,561 $ 5,639
Investment write-downs for unrealized losses deemed
other than temporary................................ -- 3,342
Glass front vending machines previously written off..... 2,925 2,925
Allowance for doubtful accounts ........................ 4,095 2,340
Closed facilities reserves.............................. 1,919 1,371
Accrued production contract losses...................... 4,588 1,320
Accrued liabilities of discontinued operations
(Note 17).......................................... 1,745 1,215
Inventory obsolescence reserves......................... 533 1,210
Accrued lease payments for equipment transferred
to RTM (see Note 21)............................... -- 1,082
Facilities relocation and corporate restructuring....... 2,049 716
Accrued advertising and promotions...................... 2,468 675
Accrued legal settlements and environmental matters..... 3,643 284
Other, net.............................................. 10,393 6,249
-------- ---------
39,919 28,368
Valuation allowance.................................... (1,799) --
-------- -------
38,120 28,368
Non-current deferred income tax assets
(liabilities):
Trademarks basis differences........................... (53,929) (55,962)
Gain (tax effect of $33,163) in 1996 on sale
of propane business (see Note 3) plus
Deferred Gain recognized (see Note 7).............. (36,211) (37,003)
Reserve for income tax contingencies and
other tax matters.................................. (27,596) (26,810)
Depreciation and other properties basis
differences ....................................... (12,710) (15,667)
Net operating loss and alternative minimum
tax credit carryforwards........................... 42,980 44,923
Insurance losses not deducted.......................... 7,061 --
Accrued production contract losses..................... 3,471 --
Other, net............................................. 1,995 3,324
--------- ---------
(74,939) (87,195)
Valuation allowance.................................... (17,638) --
--------- --------
(92,577) 87,195)
--------- --------
$ (54,457) $(58,827)
========= =========
The increase in the net deferred income tax liabilities from $54,457,000
at December 28, 1997 to $58,827,000 at January 3, 1999, or an increase of
$4,370,000 differs from the provision for deferred income taxes of $4,450,000
for 1998. Such difference is principally due to the deferred income tax
liabilities, net of deferred income tax assets and the valuation allowances (see
below), associated with Chesapeake Insurance which were eliminated following the
Chesapeake Sale.
As of January 3, 1999 Triarc had net operating loss carryforwards for
Federal income tax purposes of approximately $89,000,000 expiring approximately
$1,000,000 in total in the years 2000 through 2003 and $18,000,000, $3,000,000,
$55,000,000 and $12,000,000 in 2008, 2009, 2012 and 2013, respectively. In
addition, the Company has (i) alternative minimum tax credit carryforwards of
approximately $5,700,000 and (ii) depletion carryforwards of approximately
$4,400,000, both of which have an unlimited carryforward period.
A "valuation allowance" is provided when it is more likely than not that
some portion of deferred tax assets will not be realized. The 1997 year end
valuation allowances were for that portion of the net operating loss
carryforwards and other net deferred tax assets related to Chesapeake Insurance
which entity was not included in Triarc's consolidated income tax return. Such
valuation allowances are no longer applicable following the Chesapeake Sale.
The difference between the reported (provision for) benefit from income
taxes and the tax (provision) benefit that would result from applying the 35%
Federal statutory rate to the income or loss from continuing operations before
income taxes and minority interests is reconciled as follows (in thousands):
1996 1997 1998
---- ---- ----
Income tax (provision) benefit computed at Federal statutory
rate.................................................................$ 1,377 $ 8,082 $ (10,025)
Increase (decrease) in Federal tax benefit resulting from:
State income taxes, net of Federal income tax effect............... (33) (354) (4,075)
Amortization of non-deductible Goodwill ........................... (2,153) (2,481) (3,144)
Foreign tax rate in excess of United States Federal statutory rate
and foreign withholding taxes, net of Federal income
tax benefit..................................................... (241) (433) (247)
Effect of net operating losses for which no tax carryback
benefit is available............................................ (1,269) (273) (348)
Basis differences in investments in subsidiaries no longer
permanently reinvested principally due to the 1998
Chesapeake Sale.................................................. -- -- 1,500
Minority interests................................................. 640 772 --
Non-deductible loss on sale of Textile Business (see Note 3)....... (2,928) -- --
Provision for income tax contingencies and other tax matters (2,582) -- --
Other non-deductible expenses...................................... (745) (664) (455)
Other, net......................................................... -- 93 187
----------- ---------- ----------
$ (7,934) $ 4,742 $ (16,607)
=========== ========== ==========
The Federal income tax returns of the Company have been examined by the
IRS for the tax years 1989 through 1992. The Company has reached a tentative
settlement with the IRS regarding all remaining issues in such audit. In
connection therewith, the Company paid $5,298,000 and $8,460,000, each including
interest, during 1997 and 1998, respectively, in partial settlement of such
audit. In addition, the Company has agreed to pay approximately $5,000,000,
including interest, to resolve all remaining issues. The tentative settlement is
subject to review by the Congressional Joint Committee on Taxation. If the
settlement is so approved, the Company anticipates it would make payment later
in 1999. The IRS is examining the Company's Federal income tax returns for the
year ended April 30, 1993 and eight-month transition period ended December 31,
1993. In connection therewith, the Company has not received any notices of
proposed adjustments. During 1996 the Company provided $2,582,000 included in
"(Provision for) benefit from income taxes" and during 1996, 1997 and 1998
provided $2,000,000, $3,000,000 and $2,000,000, respectively, included in
"Interest expense", relating to such examinations and other tax matters.
Management of the Company believes that adequate aggregate provisions have been
made principally in periods prior to 1998 for any tax liabilities, including
interest, that may result from the resolution of these IRS examinations.
(11) STOCKHOLDERS' EQUITY
The Company's common stock consists of Class A Common Stock and class B
common stock (the "Class B Common Stock"), which are identical, except that
Class A Common Stock has one vote per share and Class B Common Stock is
non-voting. All shares of Class B Common Stock are held by affiliates (the
"Posner Entities") of Victor Posner ("Posner"), the former Chairman and Chief
Executive Officer of Triarc. Throughout 1996, 1997 and 1998 there were 5,997,622
shares of Class B Common stock issued and outstanding. If the Class B Common
Stock were to be held by a person(s) not affiliated with Posner, each share of
Class B Common Stock would be convertible into one share of Class A Common
Stock. A summary of the changes in the number of issued shares of Class A Common
Stock is as follows (in thousands):
1996 1997 1998
---- ---- ----
Number of shares at beginning of year......... 27,984 27,984 29,551
Common shares issued in connection with the
Stewart's Acquisition (Note 3)............. -- 1,567 --
-------- ------- ------
Number of shares at end of year............... 27,984 29,551 29,551
======== ======= =======
A summary of the changes in the number of shares of Class A Common Stock
held in treasury is as follows (in thousands):
1996 1997 1998
---- ---- ----
Number of shares at beginning of year........................................ 4,067 4,098 3,951
Common shares acquired in open market transactions........................... 45 67 1,673
Common shares acquired in connection with the issuance of the
Debentures (Note 8)...................................................... -- -- 1,000
Common shares issued from treasury upon exercise of stock options............ (10) (208) (369)
Common shares issued from treasury to directors.............................. (8) (6) (4)
Restricted stock reacquired.................................................. 4 -- --
-------- ------- -------
Number of shares at end of year.............................................. 4,098 3,951 6,251
======== ======= =======
The Company has 25,000,000 authorized shares of preferred stock including
5,982,866 designated as redeemable preferred stock, none of which were issued as
of December 28, 1997 and January 3, 1999.
Prior to 1996 the Company adopted the 1993 Equity Participation Plan (the
"1993 Equity Plan"), in 1997 the Company adopted the 1997 Equity Participation
Plan (the "1997 Equity Plan"), in 1997 the Company effectively adopted the Stock
Option Plan for Cable Car Employees (the "Cable Car Plan") in connection with
the consummation of the Stewart's Acquisition and in 1998 the Company adopted
the 1998 Equity Participation Plan (the "1998 Equity Plan" and collectively with
the aforementioned plans, the "Equity Plans"). There are no further grants
available under the 1993 Equity Plan and the Cable Car Plan subsequent to April
1998 and Year-End 1997, respectively. The Equity Plans collectively provide or
provided for the grant of stock options and restricted stock to certain
officers, key employees, consultants and non-employee directors. In addition,
under the 1993 and 1998 Equity Plans, non-employee directors are or were
eligible to receive shares of Class A Common Stock pursuant to automatic grants
and in lieu of annual retainer or meeting attendance fees. The Equity Plans
other than the 1993 Equity Plan provide for a maximum of 5,654,931 shares of
Class A Common Stock to be issued upon the exercise of options, granted as
restricted stock or issued to non-employee directors in lieu of fees and there
remain 5,165,636 shares available for future grants under the 1997 and 1998
Equity Plans as of January 3, 1999.
A summary of changes in outstanding stock options under the Equity Plans
is as follows:
WEIGHTED AVERAGE
OPTIONS OPTION PRICE OPTION PRICE
------- ------------ ------------
Outstanding at January 1, 1996.......................... 8,600,200 $10.125 - $30.00 $17.18
Granted during 1996 (a)................................. 136,000 $11.00 - $13.00 $12.16
Exercised during 1996................................... (9,999) $10.75 $10.75
Terminated during 1996.................................. (293,869) $10.125 - $30.00 $13.51
------------
Outstanding at December 31, 1996........................ 8,432,332 $10.125 - $30.00 $17.24
Granted during 1997: (a)
At market price...................................... 871,500 $20.4375 - $23.6875 $23.11
Below market price................................... 1,351,000 $12.375 - $21.00 $12.77
Replacement Options issued to Cable Car
employees (b)........................................ 154,931 $4.07 - $11.61 $7.20
Exercised during 1997................................... (208,159) $10.125 - $15.75 $11.69
Terminated during 1997.................................. (233,169) $10.125 - $24.125 $14.24
Stock options settled other than through
the issuance of stock................................ (727,000) $10.125 - $21.00 $17.37
------------
Outstanding at December 28, 1997........................ 9,641,435 $4.07 - $30.00 $17.16
Granted during 1998 (a)................................. 119,250 $21.75 - $27.00 $25.82
Exercised during 1998................................... (368,700) $4.07 - $21.00 $10.69
Terminated during 1998.................................. (218,672) $10.125 - $23.3125 $17.41
------------
Outstanding at January 3, 1999.......................... 9,173,313 $6.39 - $30.00 $17.53
============
Exercisable at January 3, 1999.......................... 4,096,377 $6.39 - $30.00 $15.39
============
(a) The weighted average grant date fair values of stock options granted
during 1996, 1997 and 1998 were as follows (see discussion of stock option
valuation below):
1996 1997 1998
---- ---- ----
Options whose exercise price equals the market price of
the stock on the grant date...........................................$ 6.81 $ 12.17 $ 11.94
Options whose exercise price is less than the market price
of the stock on the grant date........................................ None $ 8.72 None
(b) As set forth in Note 3, Triarc issued 154,931 stock options (the
"Replacement Options") to Cable Car employees in exchange for all of the then
outstanding Cable Car stock options in accordance with the Cable Car Plan.
The $2,788,000 fair value of the Replacement Options was accounted for as
additional purchase price for Cable Car and was credited to "Additional
paid-in-capital".
The following table sets forth information relating to stock options
outstanding and exercisable at January 3, 1999:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
----------------------------------------------------------------------------- --------------------------------
OUTSTANDING AT WEIGHTED WEIGHTED OUTSTANDING AT WEIGHTED
YEAR-END AVERAGE YEARS AVERAGE YEAR-END AVERAGE
OPTION PRICE 1998 REMAINING OPTION PRICE 1998 OPTION PRICE
------------ ---- --------- ------------ ---- ------------
$6.39 - $10.75...................... 1,369,537 6.3 $ 10.34 1,346,701 $ 10.33
$11.61 - $16.25..................... 1,496,693 7.8 $ 12.80 633,351 $ 13.07
$18.00 - $20.00..................... 1,541,500 4.5 $ 18.19 1,522,167 $ 18.18
$20.125............................. 3,500,000 5.3 $ 20.13 -- $ --
$20.4375 - $30.00 .................. 1,265,583 8.0 $ 22.90 594,158 $ 22.17
----------- -------------
9,173,313 6.1 4,096,377
=========== =============
Stock options under the Equity Plans generally have maximum terms of ten
years and vest ratably over periods not exceeding five years from date of grant.
However, an aggregate 3,500,000 performance stock options granted on April 21,
1994 to the Chairman and Chief Executive Officer and the President and Chief
Operating Officer vest in one-third increments upon attainment of each of the
three closing price levels for the Class A Common Stock for 20 out of 30
consecutive trading days by the indicated dates as follows:
ON OR PRIOR TO APRIL 21, PRICE
------------------------ -----
1999......................................... $ 27.1875
2000......................................... $ 36.25
2001......................................... $ 45.3125
Each option not previously vested, should such price levels not be attained
no later than each indicated date, will vest on October 21, 2003. In addition to
the 3,500,000 performance stock options discussed above, 350,000 of such stock
options were granted on April 21, 1994 to the former Vice Chairman of the
Company from April 1993 to December 31, 1995 (the "Former Vice Chairman"). In
December 1995, it was decided that the Former Vice Chairman's employment
contract would not be extended and as of January 1, 1996 the Former Vice
Chairman 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 of the aggregate 680,000 stock options
previously issued to the Former Vice Chairman (including 350,000 performance
stock options which were granted April 21, 1994) were vested in full. In January
1997 the Company paid the Former Vice Chairman $353,000 in consideration of the
cancellation of all 680,000 stock options previously granted to him. Such amount
had been estimated and previously provided prior to 1996.
Stock options under the Equity Plans 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, prior to 1996 included 275,000
options issued at an option price of $20.00 per share which was below the $31.75
fair market value of the Class A Common Stock on the date of grant resulting in
aggregate unearned compensation of $3,231,000. Additionally, options granted in
1997 included 1,331,000 options issued at a weighted average option price of
$12.70 which was below the $14.82 weighted average fair market value of the
Class A Common Stock on the respective dates of grant, resulting in aggregate
unearned compensation of $2,823,000. Such amounts are reported, net of
amortization, in the "Unearned compensation" component of "Other stockholders'
equity". Such unearned compensation is being amortized as compensation expense
over the applicable vesting period of one to five years. During 1996, 1997 and
1998, $489,000, $1,543,000 and $954,000, respectively, of "Unearned
compensation" was amortized to compensation expense and credited to "Unearned
compensation". In addition, in 1998 "Unearned compensation" was credited $28,000
due to the amortization effect of options held by employees of the Propane
Partnership of which $12,000 has been included in the Company's 1998 equity in
loss of the Propane Partnership. In addition, $96,000 of compensation expense
was recognized in 1997 representing the excess of fair market value over the
option prices for 20,000 options granted in 1997 which were vested upon grant.
During 1996, 1997 and 1998 certain below market options were forfeited. Such
forfeitures resulted in decreases to (i) "Unearned compensation" of $219,000,
$135,000 and $13,000 in 1996, 1997 and 1998, respectively, representing the
reversals of the unamortized amounts at the dates of forfeiture, (ii)
"Additional paid-in capital" of $852,000, $506,000 and $27,000 in 1996, 1997 and
1998, respectively, representing the reversal of the initial intrinsic value of
the forfeited below market stock options and (iii) "General and administrative"
of $633,000, $371,000 and $14,000 in 1996, 1997 and 1998, respectively,
representing the reversal of previous amortization of unearned compensation
relating to forfeited below market stock options. The remaining unamortized
balance relating to Triarc's below market stock options included in "Unearned
compensation" is $455,000 at January 3, 1999.
Triarc Beverage Holdings adopted the Triarc Beverage Holdings Corp. 1997
Stock Option Plan (the "Triarc Beverage Plan") in 1997 which provides for the
grant of options to purchase shares of Triarc Beverage Holdings' common stock
(the "Triarc Beverage Common Stock") to key employees, officers, directors and
consultants of Triarc Beverage Holdings and the Company. Stock options under the
Triarc Beverage Plan have maximum terms of ten years and vest ratably over
periods not exceeding four years from the date of grant. The Triarc Beverage
Plan provides for a maximum of 150,000 shares of Triarc Beverage Common Stock to
be issued upon the exercise of stock options and there remain 4,575 shares
available for future grants under the Triarc Beverage Plan as of January 3,
1999. A summary of changes in outstanding stock options under the Triarc
Beverage Plan is as follows:
OPTION
OPTIONS PRICE
------- -----
Granted during 1997........................ 76,250 $ 147.30
----------
Outstanding at December 28, 1997........... 76,250 $ 147.30
Granted during 1998........................ 72,175 $ 191.00
Terminated during 1998..................... (3,000) $ 147.30
----------
Outstanding at January 3, 1999............. 145,425
==========
The option prices of the grants during 1997 and 1998 were equal to fair
value at the respective dates of grant as determined by independent appraisals.
The weighted average grant date fair value of the grants during 1997 and 1998
was $50.75 and $60.01, respectively. The weighted average option price of the
outstanding options at January 3, 1999 was $168.99. Such options vest ratably on
July 1 of 1999, 2000 and 2001 and, accordingly, no options have been exercised
or are exercisable as of January 3, 1999 and have a remaining weighted average
term of 9.1 years at January 3, 1999.
National Propane adopted the National Propane Corporation 1996 Unit Option
Plan (the "Propane Plan") in 1996 which provides for the grant of options to
purchase Common Units and Subordinated Units of the Propane Partnership and
Common Unit appreciation rights to National Propane directors, officers and
employees. Such options have maximum terms of ten years. Any expenses recognized
resulting from grants under the Propane Plan are allocated to the Propane
Partnership. National Propane granted 315,000 unit options during 1997 at an
option price of $17.30 which was below the fair market value of the Common Units
of $21.625 at the date of grant. Such difference resulted in aggregate unearned
compensation to the Propane Partnership of $1,362,000, of which $582,000
represented the Company's 42.7% interest and was recognized in the "Unearned
compensation" component of "Other stockholders' equity" of the Company. Such
unearned compensation is being amortized over the applicable service period of
three to five years. During 1997, $115,000 was amortized to compensation expense
of the Propane Partnership, of which $49,000 related to the Company's 42.7%
interest, and, accordingly, was credited to "Unearned compensation." During
1998, the Company's 42.7% equity interest in the amortization of unearned
compensation of $175,000 was reflected as equity in loss of the Propane
Partnership as a result of the Deconsolidation and was credited to "Unearned
compensation". The Company's equity in the remaining unamortized balance
relating to National Propane's below market unit options included in "Unearned
compensation" is $358,000 at January 3, 1999.
In 1995 the Company granted the syndicated lending bank in connection with
the Former Mistic Bank Facility and two senior officers of Mistic stock
appreciation rights (the "Mistic Rights") for the equivalent of 3% and 9.7%,
respectively, of Mistic's 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 vested over time and two-thirds vested depending on
Mistic's performance. The Mistic Rights provided for appreciation in the
per-share value of Mistic common stock above a base price of $28,637 per share,
which was equal to the Company's per-share capital contribution to Mistic in
connection with the acquisition of Mistic in 1995. The value of the Mistic
Rights granted to the syndicating lending bank was recorded as deferred
financing costs. The Company recognized periodically the estimated increase or
decrease in the value of the Mistic Rights; such amounts were not significant in
1996 or 1997. In connection with the refinancing of the Former Mistic Bank
Facility in May 1997, the Mistic Rights granted to the syndicating lending bank
were repurchased by the Company for $492,000; the $177,000 excess of such cost
over the then recorded value of such rights of $315,000 was recorded as
"Interest expense" during 1997. In addition, the Mistic Rights granted to the
two senior officers were canceled in 1997 in consideration for, among other
things, their participation in the Triarc Beverage Plan.
The Company accounts for stock options in accordance with the intrinsic
value method and, accordingly, has not recognized any compensation expense for
those stock options granted at option prices equal to the fair market value of
the Class A Common Stock at the respective dates of grant. The following pro
forma net income (loss) and basic and diluted income (loss) per share adjusts
such data as set forth in the accompanying consolidated statements of operations
to reflect for the Equity Plans, the Triarc Beverage Plan and the Propane Plan
(in 1997 only) (i) compensation expense for all 1995 through 1998 stock option
grants, including those granted at below market option prices, based on the fair
value method, (ii) the reduction in compensation expense recorded in accordance
with the intrinsic value method by eliminating the amortization of unearned
compensation associated with options granted at below market option prices and
(iii) the income tax effects thereof (in thousands except per share data):
1996 1997 1998
----------------------- ---------------------- -----------------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- ------
Net income (loss)..................... $ (13,901) $ (16,313) $ (3,616) $ (7,810) $ 14,636 $ 6,613
Basic income (loss) per share......... (.46) (.55) (.12) (.26) .48 .22
Diluted income (loss) per share....... (.46) (.55) (.12) (.26) .46 .21
The above pro forma disclosures are not likely to be representative of the
effects on net income and net income per common share in future years because
pro forma compensation expense for grants (i) prior to 1995 is not considered,
(ii) under the Triarc Beverage Plan did not occur prior its adoption in 1997 and
(iii) under the Propane Plan is not included in 1998 (and will not be included
in future years) as the Propane Partnership is accounted for under the equity
method of accounting commencing in 1998 (see Note 7).
The fair value of stock options granted on the date of grant was estimated
using the Black-Scholes option pricing model with the following weighted average
assumptions:
1996 1997 1998
---------- ---------------------------- ------------------
TRIARC TRIARC
EQUITY EQUITY BEVERAGE PROPANE EQUITY BEVERAGE
PLAN PLAN PLAN PLAN PLAN PLAN
---- ---- ---- ---- ---- ----
Risk-free interest rate............................. 6.66% 6.36% 6.22% 6.00% 5.72% 5.54%
Expected option life................................ 7 years 7 years 7 years 7 years 7 years 7 years
Expected volatility................................. 43.23% 40.26% N/A 19.40% 31.95% N/A
Dividend yield...................................... None None None 10.28% None None
Prior to 1996 the Company agreed to pay to employees terminated prior to
1996 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") in
exchange for such restricted stock or stock options. Such exchanges for
restricted stock were for 40,550 Rights prior to 1996 and for stock options were
263,700 and 12,500 Rights prior to 1996 and in 1996, respectively. All such
exchanges were for an equal number of shares of restricted stock or stock
options except that 4,550 Rights were in exchange for 11,250 shares of
restricted stock. The Rights which resulted from the exchange of stock options
had base prices ranging from $10.75 to $30.75 per share and the Rights which
resulted from the exchange of restricted stock all had a base price of zero. Of
the 316,750 Rights granted, (i) 36,000 and 4,550 relating to restricted stock
were exercised prior to 1996 and in 1996, respectively, (ii) 71,000, 108,700 and
80,000 relating to stock options expired prior to 1996 and in 1996 and 1997,
respectively and (iii) 16,500 relating to stock options were exercised in 1996.
Accordingly, as of December 28, 1997 all Rights have been exercised or expired.
Upon issuance of the Rights the Company recorded a liability equal to the excess
of the then market value of the Class A Common Stock over the base price of the
stock options or restricted stock exchanged with an offsetting charge to
compensation expense. Such liability was adjusted to reflect changes in the fair
market value of Class A Common Stock subject to a lower limit of the base price
of the Rights. Such expense for 1996 and 1997 was insignificant.
(12) ACQUISITION RELATED COSTS
Acquisition related costs are attributed to the Snapple Acquisition and
the Stewart's Acquisition during 1997 and consisted of the following (in
thousands):
Non-cash charges:
Write down glass front vending machines based on the Company's change in estimate
of their value considering the Company's plans for their future use...............................$ 12,557
Provide additional reserves for doubtful accounts related to Snapple ($2,254) and the effect
of the Snapple Acquisition ($975) on collectibility of a receivable from MetBev, Inc.
(see Note 22) based on the Company's change in estimate of the related write-off to
be incurred....................................................................................... 3,229
Cash obligations:
Provide additional reserves for legal matters based on the Company's change in Quaker's
estimate of the amounts required reflecting the Company's plans and estimates of costs to
resolve such matters.............................................................................. 6,697
Provide for fees paid to Quaker pursuant to a transition services agreement......................... 2,819
Provide for the portion of promotional expenses relating to the period of 1997 prior to the
Snapple Acquisition as a result of the Company's then current operating expectations.............. 2,510
Provide for certain costs in connection with the successful consummation of the Snapple
Acquisition and the Mistic refinancing in connection with entering into the Existing
Beverage Credit Agreement......................................................................... 2,000
Provide for costs, principally for independent consultants, incurred in connection with the
conversion of Snapple to the Company's operating and financial information systems................ 1,603
Sign-on bonus related to the Stewart's Acquisition.................................................. 400
----------
$ 31,815
===========
As of December 28, 1997 and January 3, 1999 all cash obligations had been
liquidated other than $6,697,000 and $672,000, respectively, of the additional
reserves for legal matters.
(13) FACILITIES RELOCATION AND CORPORATE RESTRUCTURING
Facilities relocation and corporate restructuring consisted of the
following (in thousands):
1996(A) 1997(B)
------- -------
Estimated restructuring charges associated with employee
severance and related termination costs.................................. $ 2,200 $ 5,426
Employee relocation costs................................................... -- 1,337
Write-off of certain beverage distribution rights........................... -- 300
Costs related to the then planned spinoff of the Company's
restaurant/beverage group................................................ 400 12
Estimated costs related to the sublease of excess office space ............. 3,700 --
Costs of terminating a Mistic distribution agreement........................ 1,300 --
Estimated costs of a Royal Crown plant closing and other asset
disposals................................................................ 600 --
Consulting fees paid associated with combining certain operations
of Royal Crown and Mistic ($500) and other costs ($100).................. 600 --
--------- ---------
$ 8,800 $ 7,075
========= =========
- -------------------
(a) The 1996 facilities relocation and corporate restructuring charge
principally related to (i) estimated losses on planned subleases
(principally for the write-off of nonrecoverable unamortized leasehold
improvements and furniture and fixtures) of surplus office space as a
result of the then planned sale of company-owned restaurants and the
relocation (the "Royal Crown Relocation") of Royal Crown's headquarters
which were centralized with Triarc Beverage Holdings' offices in White
Plains, New York, (ii) employee severance costs associated with the Royal
Crown Relocation, (iii) the termination of a Mistic distribution agreement,
(iv) the shutdown of Royal Crown's Ohio production facility and other asset
disposals, (v) consultant fees paid associated with combining certain
operations of Royal Crown and Mistic and (vi) a then planned spinoff of the
Company's restaurant/beverage group.
(b) The 1997 facilities relocation and corporate restructuring charge
principally related to (i) employee severance and related termination costs
and employee relocation costs associated with restructuring the restaurant
segment in connection with the RTM Sale (see Note 3), (ii) costs associated
with the Royal Crown Relocation and (iii) the write-off of the remaining
unamortized costs of certain beverage distribution rights reacquired in
prior years and no longer being utilized by the Company as a result of the
sale or liquidation of the assets and liabilities of MetBev, Inc., an
affiliate (see Note 22).
(14) INVESTMENT INCOME, NET
Investment income, net consisted of the following components (in
thousands):
1996 1997 1998
---- ---- ----
Interest income ............................................. $ 7,299 $ 7,540 $ 11,387
Realized gains on available-for-sale marketable securities... 700 4,849 4,589
Realized gains on sale of limited partnerships............... -- -- 4,186
Realized gains on securities sold and subsequently
purchased................................................. -- -- 809
Realized loss on trading marketable securities............... -- -- (439)
Unrealized gains on trading marketable securities............ -- -- 2,675
Dividend income.............................................. 70 382 715
Other than temporary unrealized losses (a)................... -- -- (9,298)
Unrealized losses on securities sold short................... -- -- (3,069)
Equity in the earnings of investment limited partnerships.... -- 22 623
---------- ----------- ----------
$ 8,069 $ 12,793 $ 12,178
========== =========== ==========
- -----------
(a) The Company recorded charges in 1998 for unrealized losses on certain
investments in limited partnerships and marketable equity securities
classified as available-for-sale. Such charges have reduced the cost basis
of those short-term investments (see Note 5) and non-current investments
(see Note 7) by $8,403,000 and $895,000, respectively. Such losses were
deemed to be other than temporary due to global economic conditions,
volatility in capital and lending markets or declines in the underlying
economics of specific marketable equity securities experienced principally
in the third quarter of 1998.
(15) GAIN ON SALE OF BUSINESSES, NET
The "Gain on sale of businesses, net" as reflected in the accompanying
consolidated statements of operations was $77,000,000, $4,955,000 and $7,215,000
in 1996, 1997 and 1998, respectively. The gain in 1996 resulted from a pretax
gain of $85,175,000 from the Propane Offerings in the Propane Partnership (see
Note 3) less (i) a pretax loss of $4,500,000 from the Graniteville Sale (see
Note 3) and (ii) a pretax loss of $3,675,000 associated with the write-down of a
receivable due from MetBev, Inc. (see Note 22). The gain in 1997 consisted of
(i) $8,468,000 of recognition of deferred gain from the Propane Offerings in the
Propane Partnership and (ii) $576,000 of recognized gain on the C&C Sale (see
Note 3), less $4,089,000 of loss from the RTM Sale (see Note 3). The gain in
1998 consisted of (i) $4,702,000 of gain from the sale of Select Beverages (see
Note 7), (ii) $2,199,000 of additional recognition of Deferred Gains from the
Propane Offerings in the Propane Partnership and (iii) $314,000 of additional
recognition of deferred gain from the C&C Sale.
(16) OTHER INCOME (EXPENSE), NET
Other income (expense), net consisted of the following components (in
thousands):
1996 1997 1998
---- ---- ----
Interest income ............................................. $ 1,264 $ 1,529 $ 1,224
Net gain (loss) on other sales of assets..................... (38) 1,344 465
Equity in earnings (losses) of investees (Notes 7 and 27).... -- 563 (4,454)
Cost of proposed going-private transaction not
consummated (Note 26)..................................... -- -- (900)
Joint venture investment settlement (a)...................... (1,500) (3,665) --
Posner settlement (b)........................................ -- 1,935 --
Gain on lease termination.................................... -- 892 --
Other, net .................................................. 148 1,250 1,879
---------- ----------- ----------
$ (126) $ 3,848 $ (1,786)
========== =========== ==========
- -------------------
(a) In 1994 Chesapeake Insurance and SEPSCO invested approximately $5,100,000
in a joint venture with Prime Capital Corporation ("Prime"). Subsequently
in 1994, SEPSCO and Chesapeake Insurance terminated their investments in
such joint venture and received in return an aggregate amount of
approximately $5,300,000. In March 1995 three creditors of Prime filed an
involuntary bankruptcy petition under the Federal bankruptcy code against
Prime. In November 1996 the bankruptcy trustee appointed in the Prime
bankruptcy case made a demand on Chesapeake Insurance and SEPSCO for return
of the approximate $5,300,000. In January 1997 the bankruptcy trustee
commenced adversary proceedings against Chesapeake Insurance and SEPSCO
seeking the return of the approximate $5,300,000 alleging such payments
from Prime were preferential or constituted fraudulent transfers. In
November 1997 Chesapeake Insurance, SEPSCO and the bankruptcy trustee
agreed to a settlement of the actions and, in conjunction therewith, in
December 1997 SEPSCO and Chesapeake Insurance collectively returned
$3,550,000 to Prime. In 1996 the Company recorded its then estimate of the
minimum costs to defend its position or settle the action of $1,500,000. In
1997 the Company recorded the remaining costs of $3,665,000, reflecting an
aggregate $1,615,000 of related legal and expert fees.
(b) In June 1997 the Company entered into a settlement agreement with the
Posner Entities pursuant to which the Posner Entities paid the Company
$2,500,000 in exchange for, among other things, dismissal of certain claims
against the Posner Entities. The $2,500,000, less $356,000 of related legal
expenses and reimbursement of previously incurred costs, resulted in a
pretax gain of $2,144,000, of which $209,000 reduced "General and
administrative" as a recovery of legal expenses originally reported therein
and $1,935,000 was reported as "Other income (expense), net".
(17) DISCONTINUED OPERATIONS
On December 23, 1997 the Company consummated the C.H. Patrick Sale (see
Note 3) which has been accounted for as a discontinued operation in 1996 and
1997 in the accompanying consolidated financial statements. In addition, prior
to 1996 the Company sold the stock or the principal assets of the companies
comprising SEPSCO's utility and municipal services and refrigeration business
segments (the "SEPSCO Discontinued Operations") which have been accounted for as
discontinued operations and of which there remain certain obligations not
transferred to the buyers of the discontinued businesses to be liquidated and
incidental plants and properties of the refrigeration business to be sold.
During 1998 the Company settled a $3,000,000 note receivable from National
Cold Storage, Inc., a company formed by two then officers of SEPSCO to purchase
one of the refrigeration businesses, for $2,600,000. The note, which had an
original due date of December 20, 2000, was not recognized prior to its
collection since at the time of sale, collection thereof was not reasonably
assured. In connection with such collection and a reevaluation of the remaining
obligations of the SEPSCO Discontinued Operations, during 1998 the Company
recorded a $4,000,000 reduction before income taxes of $1,400,000 of its
previously recognized estimated losses on disposal of the SEPSCO Discontinued
Operations recognized prior to 1996.
The income from discontinued operations consisted of the following (in
thousands):
1996 1997 1998
---- ---- ----
Income from discontinued operations net of
income taxes of $3,360 and $943 ............................... $ 5,213 $ 1,209 $ --
Gain on disposal of discontinued operations
net of income taxes of $13,768 and $1,400...................... -- 19,509 2,600
--------- --------- ---------
$ 5,213 $ 20,718 $ 2,600
========= ========= =========
The income from discontinued operations to the December 23, 1997 date of
the C.H. Patrick Sale consisted of the following (in thousands):
1996 1997
---- ----
Revenues.......................................$ 61,064 $ 65,227
Operating income............................... 10,874 5,405
Income before income taxes..................... 8,573 35,429
Provision for income taxes .................... (3,360) (14,711)
Net income .................................... 5,213 20,718
The only remaining assets or liabilities of the Company's discontinued
operations as of December 28, 1997 and January 3, 1999 are the net current
liabilities of the SEPSCO Discontinued Operations (included in "Accrued
expenses") of $4,339,000 and $3,237,000, respectively, which are net of assets
held for sale of $647,000 and $234,000, respectively.
Losses associated with the SEPSCO Discontinued Operations were provided
for in their entirety in years prior to 1996. After consideration of the amounts
provided in prior years, the Company expects the liquidation of the remaining
liabilities associated with the SEPSCO Discontinued Operations as of January 3,
1999 will not have any material adverse impact on its financial position or
results of operations.
(18) EXTRAORDINARY ITEMS
The 1996 extraordinary items resulted from the early extinguishment of (i)
the Company's 11 7/8% senior subordinated debentures due February 1, 1998, in
February 1996, (ii) all of the debt of the Textile Business in connection with
the Graniteville Sale (see Note 3) in April 1996, (iii) substantially all of the
long-term debt of National Propane on July 2, 1996 in connection with the
Propane Sale (see Note 3) and (iv) a 9 1/2% promissory note payable with an
outstanding balance of $36,487,000 (including accrued interest of $1,790,000)
for cash of $27,250,000 on July 1, 1996. The 1997 extraordinary items resulted
from the early extinguishment or assumption of (i) the Mortgage Notes and
Equipment Notes assumed by RTM in connection with the RTM Sale (see Note 3),
(ii) obligations under the Former Mistic Bank Facility in May 1997 refinanced in
connection with entering into the Existing Beverage Credit Agreement (see Note
8) and (iii) obligations under C.H. Patrick's credit facility in December 1997
in connection with the C.H. Patrick Sale (see Note 3). The components of such
extraordinary items were as follows (in thousands):
1996 1997
---- ----
Write-off of previously unamortized deferred
financing costs................................$ (10,469) $ (6,178)
Write-off of previously unamortized original
issue discount................................. (1,776) --
Prepayment penalties............................... (5,744) --
Fees............................................... (250) --
Discount from principal on early extinguishment.... 9,237 --
---------- --------
(9,002) (6,178)
Income tax benefit................................. 3,586 2,397
---------- --------
$ (5,416) $ (3,781)
========== ========
(19) PRO FORMA OPERATING DATA
As a result of significant transactions during the years ended December
31, 1996, December 28, 1997 and January 3, 1999, the results of operations for
such years are not comparable. Accordingly, the following Pro Forma Data of the
Company are set forth in order to present the results of operations of 1996 and
1997 on a more consistent basis with those of 1998. The Pro Forma Data for such
years have been prepared by adjusting the historical data as set forth in the
accompanying consolidated statements of operations for such years to give effect
to for 1996 and 1997 (i) the Snapple Acquisition and related transactions, the
RTM Sale, the Stewart's Acquisition and the C&C Sale on a combined basis
(collectively, the "1997 Transactions" - see Note 3), (ii) the Deconsolidation
(see Note 7) and (iii) the Offering and the Equity Repurchase, which occurred on
February 9, 1998 and, accordingly, was included in the 1998 results of
operations for substantially the full year (see Note 8) and additionally, for
1996 only, the Graniteville Sale and the Propane Sale (collectively, the "1996
Transactions"- see Note 3), as if all of such transactions had been consummated
on January 1, 1996. Such Pro Forma Data is presented for comparative purposes
only and does not purport to be indicative of the Company's actual results of
operations had such transactions actually been consummated on January 1, 1996 or
of the Company's future results of operations and are as follows (in thousands
except per share amounts):
PRO FORMA
PRO FORMA FOR THE
FOR THE PRO FORMA OFFERING AND
AS 1997 FOR THE THE EQUITY
REPORTED TRANSACTIONS DECONSOLIDATION REPURCHASE
-------- ------------ --------------- ----------
1997 (UNAUDITED)
Revenues...........................................$ 861,321 $ 980,254 $ 815,085 $ 815,085
Operating profit................................... 26,962 31,290 21,683 21,683
Loss from continuing operations.................... (20,553) (21,785) (21,785) (26,049)
Loss from continuing operations per share.......... (.68) (.69) (.69) (.85)
PRO FORMA
PRO FORMA PRO FORMA FOR THE
FOR THE FOR THE PRO FORMA OFFERING AND
AS 1996 1997 FOR THE THE EQUITY
REPORTED TRANSACTIONS TRANSACTIONS DECONSOLIDATION REPURCHASE
-------- ------------ ------------ --------------- -----------
1996 (UNAUDITED)
Revenues.........................$ 928,185 $ 780,176 $ 1,119,836 $ 946,576 $ 946,576
Operating loss................... (17,853) (24,648) (5,954) (21,540) (21,540)
Loss from continuing
operations..................... (13,698) (12,916) (14,618) (14,618) (18,882)
Loss from continuing
operations per share........... (.46) (.43) (.46) (.46) (.62)
(20) RETIREMENT AND OTHER BENEFIT PLANS
The Company maintains several 401(k) defined contribution plans (the
"Plans") covering all of the Company's employees who meet certain minimum
requirements and elect to participate including subsequent to (i) January 1,
1996 employees of Mistic, (ii) May 22, 1997 certain employees of Snapple and
(iii) May 1, 1998 employees of Cable Car and excluding those employees covered
by plans under certain union contracts. Under the provisions of the Plans,
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 at either (i) 25% (for the Propane Partnership - see Note
7 for discussion of the effect of the Deconsolidation in 1998) or 50% of
employee contributions up to the first 5% thereof or (ii) 100% of employee
contributions up to the first 3% thereof. In addition, the Plans also provide
for annual Company contributions either equal to 1/4 of 1% of employee's total
compensation (for the Propane Partnership) or a discretionary aggregate amount
to be determined by the employer. In connection with both of these employer
contributions, the Company provided as compensation expense $1,885,000,
$1,731,000 and $1,692,000 in 1996, 1997 and 1998, respectively.
The Company maintains defined benefit plans for eligible employees through
December 31, 1988 of certain subsidiaries, benefits under which were frozen in
1992. The net periodic pension cost for 1996, 1997 and 1998, as well as the
accrued pension cost as of December 28, 1997 and January 3, 1999, were
insignificant.
Under certain union contracts, the Propane Partnership 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 Propane Partnership
provided $669,000 in 1996 and $614,000 in 1997. Following the Deconsolidation
(see Note 7) the effect of such provisions is limited to the Company's equity in
the earnings or losses of the Propane Partnership.
The Company maintains unfunded postretirement medical and death benefit
plans for a limited number of retired employees who have provided certain
minimum years of service. The medical benefits are principally contributory
while death benefits are noncontributory. Prior to the April 1996 sale of the
Textile Business, a limited number of active employees, upon retirement, were
also covered. The net postretirement benefit cost for 1996, 1997 and 1998, as
well as the accumulated postretirement benefit obligation as of December 28,
1997 and January 3, 1999, were insignificant.
(21) LEASE COMMITMENTS
The Company leases buildings and improvements and machinery and equipment.
Prior to the RTM Sale, some leases provided for contingent rentals based upon
sales volume. In connection with the RTM Sale in May 1997, substantially all
operating and capitalized lease obligations associated with the sold restaurants
were assumed by RTM, although the Company remains contingently liable if the
future lease payments (which could potentially aggregate a maximum of
approximately $98,000,000 as of January 3, 1999 assuming RTM has made all
scheduled payments to date under such lease obligations) are not made by RTM.
The Company provided $9,677,000 in "Reduction in carrying value of long-lived
assets to be disposed" in 1996 representing the present value of future
operating lease payments relating to certain equipment transferred to RTM but
the obligations for which remain with the Company.
Rental expense under operating leases consisted of the following components
(in thousands):
1996 1997 1998
---- ---- ----
Minimum rentals............ $ 28,377 $ 20,934 $ 13,342
Contingent rentals......... 794 204 --
---------- ----------- ----------
29,171 21,138 13,342
Less sublease income....... 5,460 6,027 4,354
---------- ----------- ----------
$ 23,711 $ 15,111 $ 8,988
========== =========== ==========
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 January 3,
1999, excluding $4,586,000 as of January 3, 1999 of those remaining future
operating lease payments for which the Company has provided as set forth above,
are as follows (in thousands):
RENTAL PAYMENTS SUBLEASE
------------------------- INCOME-
CAPITALIZED OPERATING OPERATING
LEASES LEASES LEASES
------ ------ ------
1999.......................................................................$ 41 $ 11,657 $ 2,953
2000....................................................................... 35 11,070 2,909
2001....................................................................... 35 10,897 2,711
2002....................................................................... 35 8,733 636
2003....................................................................... 26 5,938 400
Thereafter................................................................. 39 29,934 1,665
-------- ----------- ----------
Total minimum payments................................................... 211 $ 78,229 $ 11,274
=========== ==========
Less interest.............................................................. 53
--------
Present value of minimum capitalized lease payments.......................$ 158
=========
The present value of minimum capitalized lease payments is included, as
applicable, with "Long-term debt" or "Current portion of long-term debt" in the
accompanying consolidated balance sheets (see Note 8).
(22) TRANSACTIONS WITH RELATED PARTIES
The Company leases aircraft owned by Triangle Aircraft Services
Corporation ("TASCO"), a company owned by the Chairman and Chief Executive
Officer and the President and Chief Operating Officer of the Company (the
"Executives"), for a base annual rent, commencing at $3,258,000 as of May 21,
1997, plus an October 1, 1997 cost of living adjustment and annual cost of
living adjustments thereafter. Prior thereto, the rental payments were based on
a base rental payment of $1,800,000 effective October 1, 1993, which was also
indexed for annual cost of living adjustments. In addition, in 1997 the Company
paid TASCO $2,500,000 for (i) an option to continue the lease for an additional
five years effective September 30, 1997 and (ii) the agreement by TASCO to
replace one of the aircraft covered under the lease. Such $2,500,000 is being
amortized to rental expense over the five-year period commencing October 1,
1997. In connection with such lease and the amortization of the option, the
Company had rent expense of $1,973,000, $2,876,000 and $3,885,000 for 1996, 1997
and 1998, respectively. Pursuant to this arrangement, the Company also pays the
operating and maintenance expenses of the aircraft directly to third parties.
The Company subleased through January 31, 1996 from an affiliate of the
Executives approximately 26,800 square feet of furnished office space in New
York, New York owned by an unaffiliated third party. Rental expense for January
1996 for such subleases, including operating expenses, net of a $106,000 deposit
applied to the rent and excluding $30,000 received by the Company for its
sublease of a portion of such space was $61,000. Such amount is less than the
rent such affiliates paid to the unaffiliated landlords but represents an amount
the Company believes it would have paid an unaffiliated third party for similar
improved office space.
Prior to 1996 the Company acquired preferred stock in MetBev, Inc.
("MetBev") representing a 37.5% voting interest and a warrant to acquire 37.5%
of the common stock of MetBev for $1,000,000 and a license for a five-year
period for the Royal Crown distribution rights for its products in New York City
and certain surrounding counties. Such investment was written off prior to 1996.
In December 1996 the distribution rights of MetBev were sold to a third party
(the "MetBev Purchaser") for minimum payments over a three-year period
aggregating $1,050,000 and MetBev commenced the liquidation of its remaining
assets and liabilities. In connection therewith, the Company's voting interest
in MetBev increased to 44.7% principally due to the cancellation of non-vested
stock owned by third parties. The Company has not received any payments on the
$1,050,000 from the MetBev Purchaser and, as of December 28, 1997, did not
expect to collect any payments due to financial difficulties of the MetBev
Purchaser which the Company believes were due to competitive pressures on the
MetBev Purchaser following the Snapple Acquisition and the Company's
revitalization of Snapple (see below). The MetBev Purchaser has remained in
business and during 1997 and 1998 continued to purchase Royal Crown product. The
Company has withheld a portion of promotional allowances otherwise due to the
MetBev Purchaser and offset such amounts against the $1,050,000 purchase price.
In 1996 the Company provided a reserve for $3,675,000, including $2,475,000
loaned in 1996, of outstanding loans to MetBev under a revolving credit
agreement between Triarc and MetBev since MetBev had incurred significant losses
from its inception and had a stockholders' deficit as of December 31, 1996 of
$8,943,000. Such provision was reported as a reduction of "Gain on sale of
businesses, net" (see Note 15). Further, the Company provided $2,000,000 in 1996
in "Advertising, selling and distribution" for uncollectible receivables from
sales (with minimal gross profit) of finished product to MetBev. In 1997 the
Company provided a reserve for its remaining receivables from MetBev, including
$539,000 advanced in 1997 for costs incurred to liquidate the remaining assets
and liabilities and related close-down costs, since MetBev's only source of
funds to pay the Company would be collection of the $1,050,000 purchase price.
Such provision after offsetting $384,000 principally reflecting amounts
otherwise payable to the MetBev Purchaser, amounted to $975,000 and is included
in "Acquisition related" costs (see Note 12). During the year ended January 3,
1999, the Company reversed $474,000 in "Advertising, selling and distribution"
of the reserve for uncollectible amounts due from the MetBev Purchaser
representing the offset of promotional allowances otherwise owed to the MetBev
Purchaser.
On October 12, 1998 the Company announced that its Board of Directors had
formed a Special Committee to evaluate a proposal (the "Proposal") it had
received from the Executives for the acquisition by an entity to be formed by
them of all of the outstanding shares of Triarc's common stock (other than
approximately 6,000,000 shares owned by an affiliate of the Executives) for
$18.00 per share payable in cash and securities (the "Proposed Transaction").
See Note 26 for discussion of the withdrawal of the Proposal by the Executives
during the first quarter of 1999.
Subsequent to the receipt of the Proposal, a series of purported class
action lawsuits on behalf of stockholders have been filed challenging the
Proposed Transaction. Each of the pending lawsuits names the Company and the
members of its Board of Directors as defendants. The complaints allege, among
other things, that the Proposed Transaction would constitute a breach of the
directors' fiduciary duties and that the proposed consideration to be paid for
the shares of Class A Common Stock is unfair and demand, in addition to damages
and costs, that the Proposed Transaction be enjoined. To date, none of the
defendants has responded to the complaints. The Company does not believe that
the outcome of these actions will have a material adverse effect on its
consolidated financial position or results of operations. See Note 26 for
discussion of an amendment to this complaint filed in March 1999.
See also Notes 7, 8 and 11 with respect to other transactions with related
parties.
(23) LEGAL AND ENVIRONMENTAL MATTERS
In addition to the shareholder lawsuits described in Notes 22 and 26, the
Company is involved in other litigation, claims and environmental matters
incidental to its businesses. The Company has reserves for such legal and
environmental matters aggregating approximately $1,884,000 (see Note 6) as of
January 3, 1999. Although the outcome of such matters cannot be predicted with
certainty and some of these may be disposed of unfavorably to the Company, based
on currently available information and given the Company's aforementioned
reserves, the Company does not believe that such legal and environmental matters
will have a material adverse effect on its consolidated results of operations or
financial position.
(24) BUSINESS SEGMENTS
Effective for the fourth quarter of 1998, the Company has adopted
Statement of Financial Accounting Standards ("SFAS") No. 131 ("SFAS 131")
"Disclosures about Segments of an Enterprise and Related Information" which
supersedes SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise". SFAS 131 establishes new standards for disclosure of financial and
descriptive information by operating segment in the Company's consolidated
financial statements. SFAS 131 utilizes a management approach to define
operating segments along the lines used by management internally for evaluating
segment performance and deciding resource allocations to segments. The Company
manages and internally reports its operations by business segments which, under
the criteria of SFAS 131, are: premium beverages, soft drink concentrates,
restaurants and propane (see Note 2 for a description of each segment). As
discussed in Note 3, the Propane Sale, principally in July 1996, reduced the
Company's ownership of the propane business from 100% to 42.3%. (See Notes 7 and
27 for discussion of the proposed sale of substantially all of the Company's
remaining ownership interests in the propane business). Revenues, EBITDA (see
definition below), depreciation and amortization and operating profit (loss) of
the propane segment for 1996 and 1997, however, reflect 100% of each such amount
with the minority interest in the income of the propane business reported as a
deduction from "Loss from continuing operations before income taxes and minority
interests". Further, as discussed in Notes 3 and 7, effective December 28, 1997
the Company's operations representing the propane segment are accounted for
using the equity method of accounting in accordance with the Deconsolidation. As
a result of the Deconsolidation and the recognition of Deferred Gains, there are
no (i) revenues, EBITDA (see definition below), depreciation and amortization or
operating profit (loss) for the year ended January 3, 1999 or (ii) identifiable
assets as of December 28, 1997 or January 3, 1999, of the propane segment. The
premium beverage segment consists of Mistic and the operations acquired in (i)
the Snapple Acquisition (see Note 3) commencing May 22, 1997 and (ii) the
Stewart's Acquisition (see Note 3) commencing November 25, 1997. The textile
segment represents only the Textile Business (see Note 3) until its sale on
April 29, 1996 since the C.H. Patrick Sale on December 23, 1997 was accounted
for as a discontinued operation (see Notes 3 and 17).
The Company evaluates segment performance and allocates resources based on
each segment's earnings before interest, taxes, depreciation and amortization
and reduction in carrying value of long-lived assets to be disposed ("EBITDA").
Information concerning the segments in which the Company operates is shown in
the table below. EBITDA has been computed as operating profit (loss) plus
depreciation and amortization. Operating profit (loss) has been computed as
revenues less operating expenses. In computing EBITDA and operating profit or
loss, interest expense and non-operating income and expenses have not been
considered. Operating loss for the restaurant segment for 1996 reflects a
provision of $64,300,000 for the reduction in the carrying value of long-lived
assets to be disposed (see Note 3). EBITDA and operating loss for 1996 reflect
$8,800,000 of facilities relocation and corporate restructuring charges (see
Note 13), of which $1,450,000 relates to the premium beverage segment,
$3,950,000 relates to the soft drink concentrate segment, $2,400,000 relates to
the restaurant segment and $1,000,000 relates to general corporate. EBITDA and
operating loss for 1997 reflect (i) $31,815,000 of acquisition related costs for
the premium beverage segment (see Note 12) and (ii) $7,075,000 of facilities
relocation and corporate restructuring charges (see Note 13), of which $29,000
relates to the premium beverage segment, $1,437,000 relates to the soft drink
concentrate segment, $5,597,000 relates to the restaurant segment and $12,000
relates to general corporate. Identifiable assets by segment are those assets
that are used in the Company's operations in each segment. General corporate
assets consist primarily of cash and cash equivalents, short-term and
non-current investments, properties and deferred financing costs.
The products and services in each of the Company's segments are relatively
homogeneous and, as such, revenues by product and service have not been
reported. The Company's operations are principally in the United States with
foreign operations representing less than 3% of revenues in 1996, 1997 and 1998.
Accordingly, revenues and assets by geographical area have not been presented
since they are insignificant. In addition, no customer accounted for more than
10% of consolidated revenues in 1996, 1997 or 1998.
The following is a summary of the Company's segment information for the
years ended December 31, 1996, December 28, 1997 and January 3, 1999 or, in the
case of identifiable assets, as of the end of such periods:
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
Revenues:
Premium beverages.......................................$ 131,083 $ 408,841 $ 611,545
Soft drink concentrates................................. 178,059 146,882 124,868
Restaurants............................................. 288,293 140,429 78,623
Propane................................................. 173,260 165,169 --
Textiles................................................ 157,490 -- --
------------- ------------ ------------
Consolidated revenues...............................$ 928,185 $ 861,321 $ 815,036
============= ============ =============
EBITDA:
Premium beverages.......................................$ 13,381 $ 5,561 $ 77,779
Soft drink concentrates................................. 17,518 18,504 17,006
Restaurants............................................. 31,819 31,200 43,180
Propane................................................. 26,710 21,910 --
Textiles................................................ 10,256 -- --
General corporate....................................... (7,222) (10,894) (20,902)
------------- ------------ -------------
Consolidated EBITDA................................. 92,462 66,281 117,063
------------- ------------ -------------
Less depreciation and amortization:
Premium beverages....................................... 7,233 16,236 21,665
Soft drink concentrates................................. 6,471 6,340 8,640
Restaurants............................................. 16,260 2,668 2,503
Propane................................................. 11,124 12,303 --
Textiles................................................ 4,940 -- --
General corporate....................................... (13) 1,772 2,413
------------- ------------ -------------
Consolidated depreciation and amortization.......... 46,015 39,319 35,221
------------- ------------ -------------
Less reduction in carrying value of long-lived assets
to be disposed:
Restaurants............................................. 64,300 -- --
------------- ------------ ------------
Operating profit (loss):
Premium beverages....................................... 6,148 (10,675) 56,114
Soft drink concentrates................................. 11,047 12,164 8,366
Restaurants............................................. (48,741) 28,532 40,677
Propane................................................. 15,586 9,607 --
Textiles................................................ 5,316 -- --
General corporate....................................... (7,209) (12,666) (23,315)
------------- ------------ -------------
Consolidated operating profit (loss)................ (17,853) 26,962 81,842
Equity in the loss of the propane segment.................... -- -- (2,785)
------------- ------------ -------------
(17,853) 26,962 79,057
Interest expense............................................. (71,025) (71,648) (70,806)
Gain on sale of businesses, net.............................. 77,000 4,955 7,215
Investment income, net....................................... 8,069 12,793 12,178
Other income (expense), net.................................. (126) 3,848 999
------------- ------------ -------------
Consolidated income (loss) from continuing
operations before income taxes and minority
interests........................................$ (3,935) $ (23,090) $ 28,643
============= ============ =============
Identifiable assets:
Premium beverages.......................................$ 109,967 $ 580,340 $ 535,565
Soft drink concentrates................................. 194,571 194,603 171,647
Restaurants............................................. 132,296 51,759 52,267
Propane................................................. 156,192 -- --
------------- ------------ ------------
Total identifiable assets........................... 593,026 826,702 759,479
General corporate assets................................ 222,455 178,171 260,413
Discontinued operations................................. 16,304 -- --
------------- ------------ ------------
Consolidated identifiable assets....................$ 831,785 $ 1,004,873 $ 1,019,892
============= ============ =============
(25) QUARTERLY INFORMATION (UNAUDITED)
THREE MONTHS ENDED
--------------------------------------------------------------
MARCH 30, JUNE 29, (A) SEPTEMBER 28, DECEMBER 28, (B)
--------- ------------ ------------- ----------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1997
Revenues.......................................$ 189,156 $ 208,287 $ 258,562 $ 205,316
Gross profit, excluding depreciation and
amortization (c)............................ 80,990 97,987 129,348 100,684
Operating profit (loss)........................ 15,984 (31,118) 23,534 18,562
Income (loss) from continuing operations ...... (1,638) (31,973) 10,301 2,757
Discontinued operations (Note 17).............. 461 804 639 18,814
Extraordinary charges (Note 18)................ -- (2,954) -- (827)
Net income (loss).............................. (1,177) (34,123) 10,940 20,744
Basic income (loss) per share (d):
Continuing operations....................... (.06) (1.07) .34 .09
Discontinued operations..................... .02 .03 .02 .62
Extraordinary charges ...................... -- (.10) -- (.03)
Net income (loss)........................... (.04) (1.14) .36 .68
Diluted income (loss) per share (d):
Continuing operations....................... (.06) (1.07) .33 .09
Discontinued operations..................... .02 .03 .02 .59
Extraordinary charges....................... -- (.10) -- (.03)
Net income (loss)........................... (.04) (1.14) .35 .65
THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 29, JUNE 28, (E) SEPTEMBER 27, (F) JANUARY 3, 1999
--------- ----------- ----------------- ---------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1998
Revenues........................................$ 172,053 $ 232,891 $ 247,031 $ 163,061
Gross profit, excluding depreciation and
amortization (c)............................ 92,693 118,638 124,280 88,542
Operating profit................................ 9,896 22,834 28,767 20,345
Income from continuing operations .............. 1,595 8,069 2,252 120
Discontinued operations (Note 17)............... 2,600 -- -- --
Net income ..................................... 4,195 8,069 2,252 120
Basic income per share (d):
Continuing operations....................... .05 .26 .07 --
Discontinued operations..................... .08 -- -- --
Net income.................................. .13 .26 .07 --
Diluted income per share (d):
Continuing operations....................... .05 .25 .07 --
Discontinued operations..................... .08 -- -- --
Net income.................................. .13 .25 .07 --
(a) The results for the three months ended June 29, 1997 were materially
affected by (i) acquisition related costs (see Note 12) of the then estimated
$32,440,000 or $19,789,000 net of $12,651,000 of income tax benefit and (ii)
facilities relocation and corporate restructuring charges (see Note 13) of
$5,467,000 or $3,362,000 net of $2,105,000 of income tax benefit.
(b) The results for the three months ended December 28, 1997 were
materially affected by a gain on disposal of discontinued operations relating to
the C.H. Patrick Sale of $33,277,000 (see Note 3) or $19,509,000 net of income
tax provision of $13,768,000.
(c) Commencing with the fourth quarter of 1998, the Company reports "Cost
of sales, excluding depreciation and amortization" and "Depreciation and
amortization, excluding amortization of deferred financing costs" in its
accompanying consolidated statements of operations. Accordingly, gross profit is
now reported excluding depreciation and amortization. In addition, commencing
with the first quarter of 1998, the purchase cost of the raw material aspartame
is reported in cost of sales net of any promotional or other discounts whereas
in 1997 such discounts had been reported as reductions to "Advertising, selling
and distribution "expenses. Accordingly, the amounts reported as gross profit in
this table have been reclassified from amounts previously reported or derivable
to report gross profit before depreciation and amortization and after credits
related to aspartame purchases for each of the four quarters of 1997 and before
depreciation and amortization for each of the first three quarters of 1998.
(d) Basic and diluted income (loss) per share are the same for the three
months ended March 30, 1997 and June 29, 1997 since potentially dilutive stock
options had an antidilutive effect. The weighted average shares for computing
diluted income per share for (i) the three months ended September 28, 1997 and
December 28, 1997 were increased by 933,000 and 1,293,000 shares, respectively,
and (ii) for the three months ended March 29, 1998, June 28, 1998, September 27,
1998 and January 3, 1999 were increased by 1,833,000, 1,778,000, 769,000 and
505,000, respectively, for the effect of dilutive stock options. The quarterly
income or loss per share amounts result from independent computations and the
total of the four quarters' income (loss) per share may not equal the income
(loss) per share for the full year since each quarter's calculation reflects
different weighted average shares and, where applicable, dilutive effect of
stock options.
(e) The results for the three months ended June 28, 1998 were materially
affected by the then estimated gain from the sale of Snapple's 20% interest in
Select Beverages of $3,899,000 (see Note 7) or $2,378,000 net of income tax
provision of $1,521,000.
(f) The results for the three months ended September 27, 1998 were
materially affected by a charge for other than temporary losses on securities of
$8,650,000 (see Note 14) or $5,536,000 net of income tax benefit of $3,114,000.
(26) SUBSEQUENT EVENTS
On January 15, 1999 Triarc Consumer Products Group, LLC ("TCPG"), a
wholly-owned subsidiary of Triarc, was formed to acquire all of the stock
previously owned directly or indirectly by Triarc of RC/Arby's, Triarc Beverage
Holdings and Cable Car. Effective February 25, 1999 TCPG owned such stock. On
February 25, 1999 TCPG issued $300,000,000 (including $20,000,000 issued to the
Executives) principal amount of 10 1/4% senior subordinated notes due 2009 (the
"Notes") and Snapple, Mistic, Cable Car, RC/Arby's and Royal Crown concurrently
entered into an agreement (the "Credit Agreement") for a new $535,000,000 senior
bank credit facility (the "Credit Facility") consisting of a $475,000,000 term
facility, all of which was borrowed as term loans (the "Term Loans") on February
25, 1999, and a $60,000,000 revolving credit facility (the "Revolving Credit
Facility") which provides for revolving credit loans (the "Revolving Loans") by
Snapple, Mistic or Cable Car effective February 25, 1999 and RC/Arby's or Royal
Crown effective upon the intended redemption of the 9 3/4% Senior Notes (see
below). There were no borrowings of Revolving Loans on February 25, 1999. The
Company utilized a portion of the aggregate net proceeds of these borrowings to
(i) repay on February 25, 1999 the outstanding principal amount ($284,333,000 as
of January 3, 1999 and February 25, 1999) of the Existing Term Loans under the
Existing Beverage Credit Agreement and related accrued interest ($2,231,000 and
$1,503,000 as of January 3, 1999 and February 25, 1999, respectively), (ii) fund
the intended redemption (the "Redemption") on March 30, 1999 of the $275,000,000
of borrowings under the 9 3/4% Senior Notes including related accrued interest
($11,460,000 and $4,395,000 as of January 3, 1999 and March 30, 1999,
respectively) and redemption premium ($7,662,000 as of January 3, 1999 and March
30, 1999), (iii) acquire Millrose Distributors, Inc. and the assets of Mid-State
Beverage, Inc., two New Jersey distributors of the Company's premium beverages,
for $17,250,000 and (iv) pay estimated fees and expenses of $28,000,000 relating
to the issuance of the Notes and the consummation of the Credit Facility (the
"Refinancing Transactions"). The remaining net proceeds of the Refinancing
Transactions will be used for general corporate purposes, which may include
working capital, future acquisitions and investments, repayment or refinancing
of indebtedness, restructurings or repurchases of securities, including common
stock in connection with the Offer (see below). As a result of the repayment
prior to maturity of the Existing Term Loans and the intended Redemption, the
Company expects to recognize an extraordinary charge during the first quarter of
the year ending January 2, 2000 of an estimated $12,097,000 for (i) the
write-off of previously unamortized (a) deferred financing costs ($12,238,000
and $11,300,000 as of January 3, 1999 and March 30, 1999, respectively) and (b)
interest rate cap agreement costs ($159,000 and $146,000 as of January 3, 1999
and February 25, 1999, respectively) and (ii) the payment of the aforementioned
redemption premium, net of income tax benefit ($7,358,000 and $7,011,000 as of
January 3, 1999 and March 30, 1999, respectively).
Under the indenture (the "Indenture") pursuant to which the Notes were
issued, the Notes are redeemable at the option of the Company at amounts
commencing at 105.125% of principal beginning February 2004 decreasing annually
to 100% in February 2007 through February 2009. In addition, should the Company
consummate a permitted initial public equity offering of its consumer products
subsidiaries, the Company may at any time prior to February 2002 redeem up to
$105,000,000 of the Notes at 110.25% of principal amount with the net proceeds
of such public offering. The Company has agreed to use its best efforts to have
a registration statement (the "Registration Statement") covering resales by
holders of the Notes declared effective by the SEC on or before August 24, 1999.
In the event the Notes are not registered for resale by such date, the annual
interest rate on the Notes will increase by 1/2% until such time as the
Registration Statement is declared effective.
Borrowings under the Credit Facility bear interest, at the Company's
option, at rates based on either the 30, 60, 90 or 180-day LIBOR (ranging from
5.06% to 5.07% at January 3, 1999) or an alternate base rate (the "ABR"). The
interest rates on LIBOR-based loans are reset at the end of the period
corresponding with the duration of the LIBOR selected. The interest rates on
ABR-based loans are reset at the time of any change in the ABR. The ABR (7 3/4%
at January 3, 1999) represents the higher of the prime rate or 1/2% over the
Federal funds rate. Revolving Loans and one class of the Term Loans with an
initial borrowing of $45,000,000 bear interest at 3% over LIBOR or 2% over ABR
until such time as such margins may be subject to downward adjustment by up to
3/4% based on the borrowers' leverage ratio, as defined. The other two classes
of Term Loans with initial borrowings of $125,000,000 and $305,000,000 bear
interest at 3 1/2% and 3 3/4% over LIBOR, respectively, and 2 1/2% and 2 3/4%,
respectively, over ABR. The borrowing base for Revolving Loans is the sum of 80%
of eligible accounts receivable and 50% of eligible inventories. At January 31,
1999 there would have been $39,423,000 (unaudited) (excluding $12,433,000
(unaudited) of availability relating to RC/Arby's and Royal Crown which will not
be available until the Redemption) of borrowing availability under the Revolving
Credit Facility in accordance with limitations due to such borrowing base. The
Term Loans are due $4,912,000 in 1999, $8,238,000 in 2000, $10,488,000 in 2001,
$12,738,000 in 2002, $14,987,000 in 2003, $15,550,000 in 2004, $94,299,000 in
2005, $242,875,000 in 2006 and $70,913,000 in 2007 and any Revolving Loans would
be due in full in March 2005. The borrowers must also make mandatory prepayments
in an amount, if any, initially equal to 75% of excess cash flow, as defined in
the Credit Agreement.
Under the Credit Agreement substantially all of the assets, other than
cash, cash equivalents and short-term investments, of Snapple, Mistic and Cable
Car (and of RC/Arby's, Royal Crown and Arby's upon the Redemption) and their
subsidiaries, are pledged as security. The Company's obligations with respect to
the Notes are guaranteed by Snapple, Mistic and Cable Car and all of their
domestic subsidiaries and upon the Redemption, the Notes will be guaranteed by
RC/Arby's and all of its domestic subsidiaries. Such guarantees are or will be
full and unconditional and on a joint and several basis and are or will be
unsecured. The Company's obligations with respect to the Credit Facility are
guaranteed by substantially all of the domestic subsidiaries of Snapple, Mistic
and Cable Car (and those of RC/Arby's and Royal Crown upon the Redemption). As
collateral for such guarantees under the Credit Facility, all of the stock of
Snapple, Mistic and Cable Car and substantially all of their domestic and 65% of
their directly-owned foreign subsidiaries are pledged and upon the Redemption,
and of the stock of RC/Arby's and Royal Crown and substantially all of their
domestic and 65% of their directly-owned foreign subsidiaries, will be pledged.
The Indenture and the Credit Agreement contain various covenants which (i)
require meeting certain financial amount and ratio tests; (ii) limit, among
other matters (a) the incurrence of indebtedness, (b) the retirement of certain
debt prior to maturity, (c) investments, (d) asset dispositions and (e)
affiliate transactions other than in the normal course of business; and (iii)
restrict the payment of dividends to Triarc. Under the most restrictive of such
covenants, the borrowers would not be able to pay any dividends to Triarc other
than (i) permitted one-time distributions, including dividends, paid to Triarc
in connection with the Refinancing Transactions and (ii) certain defined amounts
in the event of consummation of a securitization of certain assets of Arby's.
Such one-time permitted distributions consisted of $91,420,000 paid on February
25, 1999 and approximately $124,000,000 expected to be paid on March 30, 1999
following the Redemption.
The following pro forma data of the Company for 1998 has been prepared by
adjusting the historical data reflected in the accompanying statement of
operations for such year to reflect the effects of the Refinancing Transactions
(without any incremental interest income or any other benefit of the excess
proceeds of the Refinancing Transactions) as if such transactions had been
consummated on December 29, 1997. Such pro forma data is presented for
information purposes only and does not purport to be indicative of the Company's
actual results of operations had such transaction actually been consummated on
December 29, 1997 or of the Company's future results of operations and are as
follows (in thousands except per share amounts):
AS PRO
REPORTED FORMA
-------- ------
Revenues........................................$ 815,036 $ 827,589
Operating profit................................ 81,842 82,805
Interest expense................................ (70,806) (88,552)
Income (loss) from continuing operations........ 12,036 (6)
Diluted income (loss) from continuing
operations per share........................ .38 --
On March 10, 1999 the Company announced that it had been advised by the
Executives that they have withdrawn the Proposal (see Note 22). Since the
Proposed Transaction will not be consummated, the Company recorded a 1998 charge
included in "Other income (expense), net" (see Note 16) for the estimated fees
and expenses incurred as of January 3, 1999 in connection with the Proposed
Transaction aggregating $900,000.
On March 26, 1999, four of the plaintiffs in the actions discussed in Note
22 relating to the Proposal filed an amended complaint alleging that the
defendants violated fiduciary duties owed to the Company's stockholders by
failing to disclose, in connection with the Offer, that the Special Committee
had allegedly determined that the Proposal was unfair. The amended complaint
seeks an injunction enjoining consummation of the Offer (see below) unless the
alleged disclosure violations are cured, and requiring the Company to provide
additional disclosure, together with damages in an unspecified amount.
On March 10, 1999 the Company also announced that its Board of Directors
approved a tender offer (the "Offer") for up to 5,500,000 shares of the
Company's common stock at a price of not less than $16.25 per share and not more
than $18.25 per share, pursuant to a "Dutch Auction". Accordingly, the Company
will pay only that amount per share which is necessary, within the stated range,
in order to secure the required number of shares (see below) to complete the
Offer. Once the price per share is determined, all tendering stockholders will
be paid the same amount for each share of stock sold. The Offer commenced on
March 12, 1999 and will expire on April 13, 1999, unless it is extended. The
Offer is subject to, among other terms and conditions, at least 3,500,000 shares
of common stock being tendered unless such condition is waived by the Company.
The effect of the consummation of the Offer on the Company's consolidated
financial statements would be to reduce cash and cash equivalents and
stockholders' equity for the aggregate costs to repurchase the required number
of shares, including related estimated fees and expenses of approximately
$1,000,000. There can be no assurance, however, that the transactions
contemplated by the Offer will be consummated.
On March 23, 1999, an alleged stockholder filed a complaint on behalf of
persons who held common stock in the Company as of March 10, 1999 which alleges
that the Company's tender offer statement filed with the SEC in connection with
the Offer was false and misleading and seeks damages in an amount to be
determined, together with prejudgment interest, the costs of suit, including
attorneys' fees and unspecified other relief. The complaint names the Company
and the Executives as defendants. The Company does not believe that the outcome
of this action will have a material adverse effect on its consolidated financial
position or results of operations.
(27) EVENTS SUBSEQUENT TO MARCH 26, 1999
Redemption of 9 3/4% Senior Notes
The intended Redemption of the $275,000,000 of borrowings under the 9 3/4%
Senior Notes discussed in Note 26 took place on March 30, 1999 as expected.
Sale of the Propane Partnership
On April 5, 1999, the Propane Partnership and Columbia Propane Corporation,
a subsidiary of Columbia Energy Group, signed a definitive purchase agreement
pursuant to which Columbia will commence a tender offer to acquire (the
"Partnership Sale") all of the outstanding Common Units of the Propane
Partnership for $12.00 in cash per Common Unit, which tender offer is the first
step of a two-step transaction. In the second step, subject to the terms and
conditions of the purchase agreement, Columbia Propane, L.P. would acquire the
Company's Partnership Interests, except for a 1% limited partnership interest in
the Operating Partnership, in consideration of cash of $2,100,000 and the
forgiveness of approximately $15,800,000 of the Partnership Note, and the
Propane Partnership would merge into Columbia Propane, L.P. As part of the
second step, any remaining Common Unit holders of the Propane Partnership would
receive, in cash, $12.00 per Common Unit and the Company would repay the
remaining approximate $14,900,000 of the Partnership Note.
The Board of Directors of National Propane, acting on the recommendation
of its Special Committee (formed to evaluate and make a recommendation on behalf
of the Propane Partnership's Common Unit holders with respect to the
transaction) has unanimously approved the transaction with Columbia and
unanimously recommended that the Propane Partnership's unitholders tender their
units pursuant to the offer.
The tender offer is expected to commence on April 9, 1999. The offer for
the Common Units will be subject to certain conditions, including there being
tendered by the expiration date and not withdrawn, at least a majority of the
outstanding Common Units on a fully diluted basis. There can be no assurance
that the Partnership Sale will be consummated.
The Company presently anticipates the Partnership Sale would result in a
gain to the Company. Under the Partnership Sale, the Company would maintain
financial interests in the propane business, through retention of a 1% limited
partnership interest in the Operating Partnership and the Propane Guarantee.
Accordingly, the results of operations of the propane segment and any resulting
gain or loss from Partnership Sale will not be accounted for as a discontinued
operation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10, 11, 12 AND 13.
The information required by items 10, 11, 12 and 13 will be furnished on
or prior to May 3, 1999 (and is hereby incorporated by reference) by an
amendment hereto or pursuant to 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
Schedule I -- Condensed Balance Sheets (Parent Company Only) -- as of
December 28, 1997 and January 3, 1999; Condensed Statements
of Operations (Parent Company Only) -- for the fiscal years
ended December 31, 1996, December 28, 1997 and January 3,
1999; Condensed Statements of Cash Flows (Parent Company
Only) -- for the fiscal years ended December 31, 1996,
December 28, 1997 and January 3, 1999
Schedule II -- Valuation and Qualifying Accounts for the fiscal years
ended December 31, 1996, December 28, 1997 and January 3,
1999
All other schedules have been omitted since they are either not ap-
plicable or the information is contained elsewhere in "Item 8. Financial State-
ments 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 280 Park Avenue, New York,
New York 10017.
EXHIBIT
NO. DESCRIPTION
------- ---------------------------------------------------------------
3.1 -- Certificate of Incorporation of Triarc, as currently in effect,
incorporated herein by reference to Exhibit 3.1 to Triarc's
Registration Statement on Form S-4 dated October 22, 1997 (SEC
file no. 1-2207).
3.2 -- By-laws of Triarc, incorporated herein by reference to
Exhibit 3.1 to Triarc's Current Report on Form 8-K dated November
5, 1998 (SEC file no. 1-2207).
4.1 -- Credit Agreement, dated as of June 26, 1996, among National
Propane, L.P., The First National Bank of Boston, as adminis-
trative agent and a lender, Bank of America NT & SA, as a lender,
and BA Securities, Inc., as syndication agent, incorporated here-
in by reference to Exhibit 10.1 to Current Report of National
Propane Partners, L.P. (the "Partnership") on Form 8-K dated
August 13, 1996 (SEC file no. 1-11867).
4.2 -- Note Purchase Agreement, dated as of June 26, 1996 ("Note Pur-
chase Agreement"), among National Propane, L.P. and each of the
Purchasers listed in Schedule A thereto relating to $125 million
aggregate principal amount of 8.54% First Mortgage Notes due June
30, 2010, incorporated herein by reference to Exhibit 10.2 to the
Partnership's Current Report on Form 8-K dated August 13, 1996
(SEC file no. 1-11867).
4.3 -- Consent, Waiver and Amendment dated November 5, 1996 among
National Propane, L.P.and each of the Purchasers under the Note
Purchase Agreement, incorporated herein by reference to Exhibit
4.1 to Triarc's Current Report on Form 8-K dated March 31, 1997
(SEC file no. 1-2207).
4.4 -- Second Consent, Waiver and Amendment dated January 14, 1997 among
National Propane, L.P. and each of the Purchasers under the Note
Purchase Agreement, incorporated herein by reference to Exhibit
4.2 to Triarc's Current Report on Form 8-K dated March 31, 1997
(SEC file no. 1-2207).
4.5 -- Note dated July 2, 1996 of Triarc, payable to the order of
National Propane, L.P., incorporated herein by reference to
Exhibit 10.5 to the Partnership's Current Report on Form 8-K
dated August 13, 1996 (SEC file no. 1-11867).
4.6 -- Master Agreement dated as of May 5, 1997, among Franchise Finance
Corporation of America, FFCA Acquisition Corporation, FFCA Mort-
gage Corporation, Triarc, Arby's Restaurant Development Corpora-
tion ("ARDC"), Arby's Restaurant Holding Company ("ARHC"), Arby's
Restaurant Operations Company ("AROC"), Arby's, RTM Operating
Company, RTM Development Company, RTM Partners, Inc. ("Holdco"),
RTM Holding Company, Inc., RTM Management Company, LLC and RTM,
Inc. ("RTM"), incorporated herein by reference to Exhibit 4.16 to
Triarc's Registration Statement on Form S-4 dated October 22,
1997 (SEC file no. 1-2207).
4.7 -- First Amendment dated as of March 27, 1997, to the Credit Agree-
ment dated as of June 26, 1996 (the "National Propane Credit
Agreement"), among National Propane, L.P., The First National
Bank of Boston, as administrative agent and a lender, Bank of
America NT & SA, as a lender, and BA Securities, Inc., as
syndication agent, incorporated herein by reference to Exhibit
10.3 to National Propane Partners, L.P.'s Current Report on Form
8-K dated March 31, 1997 (SEC file no. 1-11867).
4.8 -- Indenture dated as of February 9, 1998 between Triarc Companies,
Inc. and The Bank of New York, as Trustee, incorporated herein by
reference to Exhibit 4.1 to Triarc's Current Report on
Form 8-K/A dated March 6, 1998 (SEC file no. 1-2207).
4.9 -- Registration Rights Agreement dated as of February 4, 1998 by
and among Triarc and Morgan Stanley & Co. Incorporated,
incorporated herein by reference to Exhibit 4.2 to Triarc's
Current Report on Form 8-K/A dated March 6, 1998 (SEC file no.
1-2207).
4.10 -- Second Amendment dated as of April 22, 1997 to the National
Propane Credit Agreement among National Propane, L.P., the
Lenders (as defined therein), The First National Bank of Boston,
as Administrative Agent and a Lender, Bank of America NT&SA, as a
Lender, and BA Securities, Inc. as Syndication Agent, incor-
porated herein by reference to Exhibit 10.1 to National Propane
Partners, L.P.'s Current Report on Form 8-K dated May 15, 1997
(SEC file no. 1-11867).
4.11 -- Third Amendment dated as of March 23, 1998 to the National
Propane Credit Agreement among National Propane, L.P., the
Lenders (as defined therein), BankBoston, N.A., as Administrative
Agent and a Lender, and BancAmerica Robertson Stephens, as Syn-
dication Agent, incorporated herein by reference to Exhibit 10.1
to National Propane Partners, L.P.'s Current Report on Form 8-K
dated March 25, 1998 (SEC file no. 1-11867).
4.12 -- Fourth Amendment dated as of March 30, 1998 to the National
Propane Credit Agreement, among National Propane, L.P.,
BankBoston, N.A., as administrative agent and a Lender, and
BancAmerica Robertson Stephens, as syndication agent, incor-
porated herein by reference to Exhibit 10.27 to National Propane
Partners, L.P.'s Annual Report on Form 10-K for the year ended
December 31, 1997 (SEC file no. 1-11867).
4.13 -- Amendment No. 1 to Note Agreement and Limited Consent, dated as
of June 30, 1998 among National Propane Corporation, National
Propane SGP, Inc., National Propane, L.P. and the holders of
National Propane L.P.'s 8.54% First Mortgage Notes, incorporated
herein by reference to Exhibit 10.1 to National Propane Partners,
L.P.'s Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1998 (SEC file no. 1-11867).
4.14 -- Allonge Amendment dated as of June 30, 1998, attached to 13.5%
Senior Secured Note, dated July 2, 1996, issued by Triarc, pay-
able to the order of National Propane, L.P., incorporated herein
by reference to Exhibit 10.4 to National Propane Partners, L.P.'s
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998 (SEC file No. 1-11867).
4.15 -- Fifth Amendment dated as of June 30, 1998 to the National Propane
Credit Agreement, among National Propane, L.P., the Lenders (as
defined therein) and BankBoston, N.A., as Administrative Agent,
incorporated herein by reference to Exhibit 10.3 to National
Propane Partners, L.P.'s Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998 (SEC file no. 1-11867).
4.16 -- Credit Agreement dated as of February 25, 1999, among Snapple,
Mistic, Cable Car, RC/Arby's Corporation and Royal Crown Company,
Inc., as Borrowers, various financial institutions party thereto,
as Lenders, DLJ Capital Funding, Inc., as syndication agent,
Morgan Stanley Senior Funding, Inc., as Documentation Agent, and
The Bank of New York, as Administrative Agent, incorporated here-
in by reference to Exhibit 4.1 to Triarc's Current Report on
Form 8-K dated March 11, 1999 (SEC file no. 1-2207).
4.17 -- Indenture dated of February 25, 1999 among Triarc Consumer
Products Group, LLC ("TCPG"), Triarc Beverage Holdings Corp.
("TBHC"), as Issuers, the subsidiary guarantors party thereto and
The Bank of New York, as Trustee, incorporated herein by
reference to Exhibit 4.2 to Triarc's Current Report on Form 8-K
dated March 11, 1999 (SEC file no. 1-2207).
4.18 -- Registration Rights Agreement dated February 18, 1999 among TCPG,
TBHC, the Guarantors party thereto and Morgan Stanley & Co. In-
corporated, Donaldson, Lufkin & Jenrette Securities Corporation
and Wasserstein Perrella Securities, Inc., incorporated herein
by reference to Exhibit 4.3 to Triarc's Current Report on Form
8-K dated March 11, 1999 (SEC file no. 1-2207).
4.19 -- Registration Rights Agreement dated as of February 25, 1999 among
TCPG, TBHC, the Guarantors party thereto and Nelson Peltz and
Peter W. May, incorporated herein by reference to Exhibit 4.1 to
Triarc's Current Report on Form 8-K dated April 1, 1999 (SEC
file no. 1-2207).
9.1 -- Stockholders Agreement dated June 24, 1997 by and among Triarc
and each of the parties signatory thereto, incorporated herein by
reference to Appendix B-2 to the Proxy Statement/Prospectus filed
as part of Triarc's Registration Statement on Form S-4 dated
October 22, 1997 (SEC file no. 1-2207).
9.2 -- Amendment No. 1 to Stockholders Agreement date as of July 9, 1997
by and among Triarc and each of the parties signatory thereto,
incorporated herein by reference to Appendix B-2 to the Proxy
Statement/Prospectus filed as part of Triarc's Registration
Statement on Form S-4 dated October 22, 1997 (SEC file no.
1-2207).
10.1 -- Triarc's 1993 Equity Participation Plan, as amended,
incorporated herein by reference to Exhibit 10.1 to Triarc's
Current Report on Form 8-K dated March 31, 1997 (SEC file no.
1-2207).
10.2 -- Form of Non-Incentive Stock Option Agreement under Triarc's
Amended and Restated 1993 Equity Participation Plan, incorporated
herein by reference to Exhibit 10.2 to Triarc's Current Report on
Form 8-K dated March 31, 1997 (SEC file no. 1-2207).
10.3 -- 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).
10.4 -- Concentrate Sales Agreement dated as of January 28, 1994 between
Royal Crown and Cott -- Confidential treatment has been granted
for portions of the agreement -- 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).
10.5 -- 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).
10.6 -- 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).
10.7 -- 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).
10.8 -- Amended and Restated Employment Agreement dated as of June 1,
1997 by and between Snapple, Mistic and Michael Weinstein,
incorporated herein by reference to Exhibit 10.3 to Triarc's
Current Report on Form 8-K/A dated March 16, 1998 (SEC file no.
1-2207).
10.9 -- Amended and Restated Employment Agreement dated as of June 1,
1997 by and between Snapple, Mistic and Ernest J. Cavallo, in-
corporated herein by reference to Exhibit 10.4 to Triarc's
Current Report on Form 8-K/A dated March 16, 1998 (SEC file no.
1-2207).
10.10-- Employment Agreement dated as of April 29, 1996 between Triarc
and John L. Barnes, Jr., incorporated herein by reference to
Exhibit 10.3 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC file no. 1-2207).
10.11-- Stock Purchase Agreement dated as of March 27, 1997 between The
Quaker Oats Company and Triarc, incorporated herein by reference
to Exhibit 2.1 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC file no. 1-2207).
10.12-- Agreement and Plan of Merger dated as of June 24, 1997 between
Cable Car, Triarc and CCB Merger Corporation ("CCB"),
incorporated herein by reference to Exhibit 2.1 to Triarc's
Current Report on Form 8-K dated June 24, 1997 (SEC file no.
1-2207).
10.13 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of
September 30, 1997, between Cable Car, Triarc and CCB, in-
corporated herein by reference to Appendix B-1 to the Proxy
Statement/Prospectus filed pursuant to Triarc's Registration
Statement on Form S-4 dated October 22, 1997 (SEC file no.
1-2207).
10.14 -- Option granted by Holdco in favor of ARHC, together with a
schedule identifying other documents omitted and the material
details in which such documents differ, incorporated herein by
reference to Exhibit 10.30 to Triarc's Registration Statement on
Form S-4 dated October 22, 1997 (SEC file no. 1-2207).
10.15 -- Guaranty dated as of May 5, 1997 by RTM, RTM Parent, Holdco, RTMM
and RTMOC in favor of Arby's, ARDC, ARHC, AROC and Triarc, in-
corporated herein by reference to Exhibit 10.31 to Triarc's
Registration Statement on Form S-4 dated October 22, 1997 (SEC
file no. 1-2207).
10.16 -- Settlement Agreement dated as of June 6, 1997 between Triarc,
Victor Posner, Security Management Corporation and APL
Corporation, incorporated herein by reference to Exhibit 10.5 to
Triarc's Quarterly report on Form 10-Q for the quarter ended June
29, 1997 (SEC file no. 1-2207).
10.17 -- Triarc Companies, Inc. 1997 Equity Participation Plan (the "1997
Equity Plan"), incorporated herein by reference to Exhibit 10.5
to Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC
file no. 1-2207).
10.18-- Form of Non-Incentive Stock Option Agreement under the 1997
Equity Plan, incorporated herein by reference to Exhibit 10.6 to
Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC
file no. 1-2207).
10.19-- Triarc Companies, Inc. Stock Option Plan for Cable Car
Employees, incorporated herein by reference to Exhibit 4.3 to
Triarc's Registration Statement on Form S-8 dated January 22,
1998 (Registration No. 333-44711).
10.20-- Triarc Beverage Holdings Corp. 1997 Stock Option Plan (the "TBHC
Option Plan"), incorporated herein by reference to Exhibit 10.1
to Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC
file no. 1-2207).
10.21-- Form of Non-Qualified Stock Option Agreement under the TBHC
Option Plan, incorporated herein by reference to Exhibit 10.2 to
Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC
file no. 1-2207).
10.22-- Agreement dated as of March 23, 1998 by and among The National
Propane Partners, L.P., National Propane Corporation, Triarc, the
Lenders (as defined therein) BankBoston, N.A., as Administration
Agent, and BancAmerica Robertson Stephens, as Syndication Agent,
incorporated herein by reference to Exhibit 10.2 to National
Propane Partners, L.P. Current Report on Form 8-K dated March 25,
1998 (SEC file no. 1-11867).
10.23-- Triarc's 1998 Equity Participation Plan, as currently in effect,
incorporated herein by reference to Exhibit 10.1 to Triarc's
Current Report on Form 8-K dated May 13, 1998 (SEC file no.
1-2207).
10.24-- Form of Non-Incentive Stock Option Agreement under Triarc's
1998 Equity Participation Plan, incorporated herein by reference
to Exhibit 10.2 to Triarc's Current Report on Form 8-K dated May
13, 1998 (SEC file no. 1-2207).
10.25-- Letter agreement, dated as of March 10, 1998, between Triarc
and John L. Barnes, Jr., incorporated herein by reference to
Exhibit 10.3 to Triarc's Current Report on Form 8-K dated May 13,
1998 (SEC file no. 1-2207).
10.26-- Letter Agreement dated July 23, 1998 between John L. Belsito
and Royal Crown Company, Inc., incorporated herein by reference
to Exhibit 10.1 to RC/Arby's Corporation's Current Report on Form
8-K dated November 5, 1998 (SEC file no. 33-62778).
10.27-- Letter Agreement dated August 27, 1998 among John C. Carson,
Triarc and Royal Crown Company, Inc., incorporated herein by
reference to Exhibit 10.2 to RC/Arby's Corporation's Current
Report on Form 8-K dated November 5, 1998 (SEC file no.
33-62778).
10.28-- Letter Agreement dated October 12, 1998 between Triarc and
Nelson Peltz and Peter W. May, incorporated herein by reference
to Exhibit 99.2 to Triarc's Current Report on Form 8-K dated
October 12, 1998 (SEC file no. 1-2207).
10.29-- Letter Agreement dated as of February 13, 1997 between Arby's
and Roland Smith, incorporated herein by reference to Triarc's
Current Report on Form 8-K dated April 1, 1999 (SEC file no.
1-2207).
10.30-- Form of Guaranty Agreement dated as of March 23, 1999 among
National Propane Corporation, Triarc Companies, Inc. and Nelson
Peltz and Peter W. May.*
21.1 -- Subsidiaries of the Registrant* 23.1 -- Consent of Deloitte &
Touche LLP*
27.1 -- Financial Data Schedule for the fiscal year ended January 3,
1999, submitted to the Securities and Exchange Commission in
electronic format.*
27.2 -- Financial Data Schedule for the year ended December 31, 1996,
the fiscal year ended December 28, 1997 and the fiscal quarters
ended March 30, June 29 and September 28, 1997, submitted to the
Securities and Exchange Commission in electronic format.*
27.3 -- Financial Data Schedule for the fiscal quarters ended March 29,
June 28 and September 27, 1998, submitted to the Securities and
Exchange Commission in electronic format.*
- -----------------------
* Filed herewith
(B) Reports on Form 8-K:
On October 12, 1998, Triarc filed a Current Report on Form 8-K, which
included information under Item 5 and exhibits under Item 7 of such form.
On October 20, 1998 Triarc filed a Current Report on Form 8-K, which
included information under Item 5 of such form.
On November 5, 1998 Triarc filed a Current Report on Form 8-K, which
included an exhibit under Item 7 of such form.
On November 12, 1998, Triarc filed a Current Report on Form 8-K, which
included an exhibit under Item 7 of such form.
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 5, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on April 5, 1999 by the following persons on
behalf of the registrant in the capacities indicated.
SIGNATURE TITLES
- --------- -----------------------------------------------------
Chairman and Chief Executive Officer
NELSON PELTZ and Director (Principal Executive Officer)
Nelson Peltz
President and Chief Operating Officer, and
PETER W. MAY Director (Principal Operating Officer)
Peter W. May
Executive Vice President and Chief Financial
JOHN L. BARNES, JR. Officer (Principal Financial Officer)
John L. Barnes, Jr.
Vice President and Chief Accounting Officer
FRED H. SCHAEFER (Principal Accounting Officer)
Fred H. Schaefer
Director
HUGH L. CAREY
Hugh L. Carey
Director
CLIVE CHAJET
Clive Chajet
Director
STANLEY R. JAFFE
Stanley R. Jaffe
SIGNATURE TITLES
- --------- ----------------------------------------------------
Director
JOSEPH A. LEVATO
Joseph A. Levato
Director
DAVID E. SCHWAB II
David E. Schwab II
Director
RAYMOND S. TROUBH
Raymond S. Troubh
Director
GERALD TSAI, JR.
Gerald Tsai, Jr.
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES
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 January 3, 1999 and
December 28, 1997 for each of the three fiscal years in the period ended January
3, 1999 and our report thereon appears in Item 8 in this Form 10-K. Our audits
were conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules listed in the table of
contents are presented for the purpose of additional analysis and are not a
required part of the basic financial statements. These schedules are the
responsibility of the Company's management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
DELOITTE & TOUCHE LLP
New York, New York
March 26, 1999
(April 5, 1999 as to Note 27 to the consolidated financial statements)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
December 28, January 3,
1997 1999
---- ----
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents ...................................................................$ 86,821 $ 88,245
Short-term investments....................................................................... 27,887 81,072
Due from subsidiaries ....................................................................... 71,259 80,653
Deferred income tax benefit.................................................................. 3,936 7,750
Prepaid expenses and other current assets.................................................... 1,515 1,075
----------- -----------
Total current assets..................................................................... 191,418 258,795
Note receivable from subsidiary ................................................................. 200 --
Investments in consolidated subsidiaries, at equity.............................................. 20,399 29,217
Properties, net.................................................................................. 5,794 5,829
Deferred costs and other assets ................................................................. 5,831 14,769
----------- -----------
$ 223,642 $ 308,610
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand note and current portion of note payable to subsidiaries..............................$ 32,000 $ 30,000
Current portion of note payable to Chesapeake Insurance Company Limited...................... 625 240
Accounts payable............................................................................. 16,272 21,190
Due to subsidiaries.......................................................................... 18,528 23,220
Accrued expenses............................................................................. 42,569 67,760
----------- -----------
Total current liabilities................................................................ 109,994 142,410
----------- -----------
Zero coupon convertible subordinated debentures due 2018 (net of unamortized original issue
discount of $253,897,000) (a)................................................................ -- 106,103
Note payable to National Propane, L.P............................................................ 40,700 30,700
Note payable to Chesapeake Insurance Company Limited............................................. 1,125 960
Deferred income taxes............................................................................ 27,398 17,286
Other liabilities................................................................................ 437 237
Commitments and contingencies
Stockholders' equity:
Class A common stock, $.10 par value; authorized 100,000,000 shares, issued 29,550,663....... 2,955 2,955
Class B common stock, $.10 par value; authorized 25,000,000 shares, issued
5,997,622 shares........................................................................... 600 600
Additional paid-in capital................................................................... 204,291 204,539
Accumulated deficit.......................................................................... (115,440) (100,804)
Less Class A common stock held in treasury at cost; 3,951,265 and 6,250,908 shares........... (45,456) (94,963)
Other........................................................................................ (2,962) (1,413)
----------- -----------
Total stockholders' equity .............................................................. 43,988 10,914
----------- -----------
$ 223,642 $ 308,610
=========== ===========
(a) These debentures mature in 2018 and do not require any amortization of
principal prior thereto.
SCHEDULE I (CONTINUED)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
Year Ended
--------------------------------------
December 31, December 28, January 3,
1996 1997 1999
----- ---- ----
(In thousands except per share amounts)
Income and (expenses):
Equity in net income (losses) of continuing operations of subsidiaries.......... $ (55,403) $ (19,329) $ 31,998
Investment income............................................................... 6,506 10,747 5,729
Gain on sale of businesses, net................................................. 81,500 8,468 2,199
Merger and acquisition fee from subsidiary...................................... -- 4,000 --
General and administrative expenses, excluding depreciation and amortization (4,391) (13,191) (19,073)
Depreciation and amortization, excluding amortization of deferred financing
costs........................................................................ (58) (1,748) (2,377)
Interest expense on debt, other than to subsidiaries............................ (3,706) (2,015) (12,195)
Interest expense on debt to subsidiaries ....................................... (4,529) (8,582) (4,390)
Acquisition related costs....................................................... -- (2,000) --
Facilities relocation and corporate restructuring............................... (1,000) (12) --
Reduction in carrying value of long-lived assets impaired or to be disposed .... (5,400) -- --
Other income (expense) ......................................................... 14 2,599 (1,326)
----------- ---------- -----------
Income (loss) from continuing operations before income taxes................. 13,533 (21,063) 565
Benefit from (provision for) income taxes .......................................... (27,231) 510 11,471
----------- ---------- -----------
Income (loss) from continuing operations..................................... (13,698) (20,553) 12,036
Equity in income from discontinued operations of subsidiaries ...................... 5,213 20,718 2,600
Equity in extraordinary charges of subsidiaries..................................... (11,168) (3,781) --
Extraordinary items................................................................. 5,752 -- --
----------- ---------- ----------
Net income (loss)............................................................ $ (13,901) $ (3,616) $ 14,636
=========== ========== ===========
Basic income (loss) per share:
Continuing operations........................................................ $ (.46) $ (.68) $ .40
Discontinued operations...................................................... .18 .69 .08
Extraordinary items.......................................................... (.18) (.13) --
------------ ---------- ----------
Net income (loss)............................................................ $ (.46) $ (.12) $ .48
============ ========== ===========
Diluted income (loss) per share:
Continuing operations....................................................... $ (.46) $ (.68) $ .38
Discontinued operations..................................................... .18 .69 .08
Extraordinary items......................................................... (.18) (.13) --
------------ ---------- ----------
Net income (loss)........................................................... $ (.46) $ (.12) $ .46
============ ========== ===========
SCHEDULE I (CONTINUED)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended
--------------------------------------
December 31, December 28, January 3,
1996 1997 1999
---- ---- ----
(In thousands)
Cash flows from operating activities:
Net income (loss)...................................................... $ (13,901) $ (3,616) $ 14,636
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Dividends from subsidiaries......................................... 126,059 54,506 29,499
Equity in net (income) loss of subsidiaries......................... 61,358 2,392 (34,598)
Deferred income tax provision (benefit)............................. 36,558 (15,351) (11,976)
Gain on sale of businesses, net..................................... (81,500) (8,468) (2,199)
Amortization of original issue discount and deferred financing
costs............................................................. -- -- 6,031
Cost of trading securities purchased................................ -- -- (55,394)
Proceeds from sales of trading securities........................... -- -- 30,412
Net recognized (gains) losses from transactions in investments
and short positions............................................... (586) (4,795) 3,106
Change in due from/to subsidiaries and other affiliates ............ 2,203 (4,676) (2,608)
Discount from principal on early extinguishment of debt............. (9,237) -- --
Other, net.......................................................... (1,840) (5,080) 4,224
Decrease in prepaid expenses and other current assets............... 398 231 1,401
Increase (decrease) in accounts payable and accrued expenses........ 20,901 29,286 (1,339)
---------- --------- ---------
Net cash provided by (used in) operating activities............ 140,413 44,429 (18,805)
---------- --------- ---------
Cash flows from investing activities:
Cost of available-for-sale securities and limited partnerships......... (61,381) (57,873) (71,930)
Proceeds from sales of available-for-sale securities and limited
partnerships........................................................ 11,244 62,833 52,348
Proceeds from securities sold short, net of payments to cover short
positions........................................................... -- -- 21,340
Capital expenditures including ownership interests in aircraft......... (4,519) (1,909) (4,824)
Acquisition of Snapple Beverage Corp................................... -- (75,000) --
Other business acquisitions............................................ -- (650) --
Capital contributed to subsidiaries.................................... -- (6,204) --
Loans to subsidiaries, net of repayments............................... (340) (4,635) (9,430)
Other.................................................................. (64) 6 (2,182)
---------- --------- ---------
Net cash used in investing activities.......................... (55,060) (83,432) (14,678)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt........................................... -- -- 100,163
Repayments of long-term debt .......................................... (4,529) -- (10,000)
Repurchases of common stock for treasury............................... (496) (1,594) (54,680)
Net borrowings (repayments) from subsidiaries.......................... 30,600 2,100 (550)
Proceeds from stock option issuances................................... 108 2,433 3,939
Deferred financing costs............................................... -- -- (4,000)
Other.................................................................. (51) (650) 35
---------- --------- ---------
Net cash provided by financing activities..................... 25,632 2,289 34,907
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...................... 110,985 (36,714) 1,424
Cash at beginning of year.................................................. 12,550 123,535 86,821
---------- --------- ---------
Cash at end of year........................................................ $ 123,535 $ 86,821 $ 88,245
========== ========= =========
NOTE: Cash as used herein includes cash and cash equivalents
SCHEDULE II
TRIARC COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
---------------------------------
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other from End of
Description of Year Expenses Accounts Reserves Year
------------ ------- -------- -------- -------- -----
(IN THOUSANDS)
Year ended December 31, 1996:
Receivables - allowance for doubtful
accounts:
Trade $ 6,044 $ 3,680 $ 205 (1) $(5,933)(2) $ 3,996
Affiliate 1,351 5,675(3) -- (4,475)(4) 2,551
--------- ---------- ----------- ------- ---------
Total $ 7,395 $ 9,355 $ 205 $(10,408) $ 6,547
========= ========== =========== ======== =========
Insurance loss reserves $ 9,398 $ 763 $ -- $ (333)(5) $ 9,828
========= ========== =========== ======== =========
Year ended December 28, 1997:
Receivables - allowance for doubtful
accounts:
Trade $ 3,996 $ 7,257(6) $ 725 (1) $ (4,007)(7) $ 7,971
Affiliate 2,551 975 -- (256)(4) 3,270
--------- ---------- ----------- -------- ---------
Total $ 6,547 $ 8,232 $ 725 $ (4,263) $ 11,241
========= ========== =========== ======== =========
Insurance loss reserves $ 9,828 $ 39 $ -- $ (1,446)(5) $ 8,421
========= ========== =========== ======== =========
Year ended January 3, 1999:
Receivables - allowance for doubtful
accounts:
Trade $ 7,971 $ 2,861 $ 32 (1) $ (5,313)(4) $ 5,551
Affiliate 3,270 (474)(8) -- (2,796)(4) --
--------- --------- ----------- ------- ---------
Total $ 11,241 $ 2,387 $ 32 $ (8,109) $ 5,551
========= ========== =========== ======== =========
Insurance loss reserves $ 8,421 $ -- $ -- $ (8,421)(9) $ --
========= ========== =========== ======== =========
(1) Recoveries of accounts previously determined to be uncollectible.
(2) Consists of $4,125,000 attributable to the sale of the Textile Business
(see Note 3 to the consolidated financial statements included elsewhere
herein) and $1,808,000 of accounts determined to be uncollectible.
(3) Includes $3,675,000 reported in "Gain on sale of businesses, net".
(4) Accounts determined to be uncollectible.
(5) Payment of claims and/or reclassification to "Accounts payable".
(6) Includes $3,229,000 charged to "Acquisition related" costs.
(7) Consists of $1,179,000 attributable to the deconsolidation of National
Propane (see Note 7 to the consolidated financial statements included
elsewhere herein) and $2,828,000 of accounts determined to be
uncollectible.
(8) Reversal of provision for doubtful accounts due to recoveries of
accounts previously fully reserved.
(9) Consists of $8,224,000 attributable to the sale of Chesapeake Insurance
(see Note 3 to the consolidated financial statements included elsewhere
herein) and $197,000 of payment of claims and/or reclassification to
"Accounts payable".
Exhibit 10.30
GUARANTY AGREEMENT
This GUARANTY AGREEMENT is made and entered into as of the 23rd
day of March, 1999 (this "Agreement") among National Propane Corporation (the
"Managing General Partner"), Triarc Companies, Inc. ("Triarc") and Nelson Peltz
(the "Director").
WHEREAS, the Managing General Partner and the Director have
entered into an Indemnification Agreement effective April 24, 1993 (the
"Indemnification Agreement") which provides for indemnification of the Director
and Triarc wishes to guarantee the Managing General Partner's obligation to the
Director under the Indemnification Agreement;
NOW, THEREFORE, in consideration of the foregoing, the parties
hereto do hereby agree as follows:
1. Guaranty. Triarc hereby irrevocably and unconditionally
guarantees to the Director timely and complete performance by the Managing
General Partner of all of the Managing General Partner's undertakings,
covenants, obligations and indemnities provided for in the Indemnification
Agreement. This guaranty is a guaranty of payment and of performance.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
TRIARC COMPANIES, INC.
By: BRIAN L. SCHORR
Name: Brian L. Schorr
Title: Executive Vice President
NELSON PELTZ
Nelson Peltz
Exhibit 21.1
TRIARC COMPANIES, INC.
LIST OF SUBSIDIARIES AS OF
March 15, 1999
STATE OR JURISDICTION
UNDER WHICH ORGANIZED
Triarc Consumer Products Group, LLC Delaware
Triarc Beverage Holdings Corp. Delaware
Mistic Brands, Inc. Delaware
Snapple Beverage Corp. Delaware
Snapple International Corp. Delaware
Snapple Beverages de Mexico, S.A. de C.V.(1) Mexico
Snapple Caribbean Corp. Delaware
Snapple Europe Limited United Kingdom
Snapple Canada, Ltd. Canada
Snapple Worldwide Corp. Delaware
Snapple Finance Corp. Delaware
Pacific Snapple Distributors, Inc. California
Mr. Natural, Inc. Delaware
Kelrae, Inc. Delaware
Millrose Distributors, Inc. New Jersey
RC/Arby's Corporation (formerly Royal Crown
Corporation) Delaware
ARHC, LLC Delaware
RCAC Asset Management, Inc. Delaware
Arby's, Inc. Delaware
Arby's Building and Construction Co. Georgia
Arby's of Canada Inc. Ontario
Arby's (Hong Kong) Limited Hong Kong
Arby's De Mexico S.A. de CV Mexico
Arby's Immobiliara Mexico
Arby's Servicios Mexico
TJ Holding Company, Inc. Delaware
Arby's Restaurants, Limited United Kingdom
Arby's Limited United Kingdom
Arby's Restaurant Construction Company Delaware
Arby's Restaurants, Inc. Delaware
RC-11, Inc. (formerly National Picture &
Frame Co.) Mississippi
Promociones Corona Real, S.A. de C.V. Mexico
RC Leasing, Inc. Delaware
Royal Crown Nederland B.V. Netherland
RC Cola Canada Limited (formerly Nehi Canada
Limited) Canada
Royal Crown Bottling Company of Texas (formerly
Royal Crown Bottlers of Texas, Inc.) Delaware
Royal Crown Company, Inc. (formerly Royal Crown
Cola Co.) Delaware
RC Services Limited(2) Ireland
Retailer Concentrate Products, Inc. Florida
TriBev Corporation Delaware
Cable Car Beverage Corporation Delaware
Old San Francisco Seltzer, Inc. Colorado
Fountain Classics, In . Colorado
Madison West Associates Corp. Delaware
National Propane Corporation (3) Delaware
National Propane SGP, Inc. Delaware
National Propane Partners, L.P. (4) Delaware
National Propane, L.P.(4) Delaware
National Sales & Service, Inc. Delaware
Carib Gas Corporation of St. Croix (formerly
LP Gas Corporation of St. Croix) Delaware
Carib Gas Corporation of St. Thomas (formerly
LP Gas Corporation of St.Thomas) Delaware
NPC Leasing Corp. New York
Citrus Acquisition Corporation Florida
Adams Packing Association, Inc. (formerly New
Adams, Inc.) Delaware
Groves Company, Inc. (formerly New Texsun, Inc.) Delaware
Home Furnishing Acquisition Corporation Delaware
1725 Contra Costa Property, Inc. (formerly Couroc
of Monterey, Inc.) Delaware
Hoyne Industries, Inc. (formerly New Hoyne, Inc.) Delaware
Hoyne International (U.K.), Inc. Delaware
GVT Holdings, Inc. (5) Delaware
TXL Corp.(formerly Graniteville Company) South Carolina
TXL International Sales, Inc. South Carolina
GTXL, Inc.. Delaware
TXL Holdings, Inc. Delaware
SEPSCO, LLC Delaware
Crystal Ice & Cold Storage, Inc. Delaware
Southeastern Gas Company Delaware
Geotec Engineers, Inc. West Virginia
Triarc Holdings 1, Inc. Delaware
Triarc Holdings 2, Inc. Delaware
Triarc Development Corporation Delaware
Triarc Acquisition Corp Delaware
- -------------
(1) 99% owned by Snapple International Corp. and 1% owned by Snapple World-
wide Corp.
(2) 99% owned by Royal Crown Company, Inc. and 1% owned by RC/Arby's
Corporation.
(3) 24.3% owned by SEPSCO, LLC and 75.7% owned by Triarc Companies, Inc.
(4) National Propane Corporation is the managing general partner of both
partnerships and holds a combined 2% unsubordinated general partner
interest therein and a 38.7% subordinated general partner interest in
National Propane Partners, L.P. National Propane SGP, Inc. is the
special general partner of both partnerships and holds a combined 2%
unsubordinated general partner interest therein. The public owns a 57.3%
limited partner interest in National Propane Partners, L.P. National
Propane Partners, L.P. is the sole limited partner of National Propane,
L.P.
(5) 50% owned by Triarc Companies, Inc. and 50% owned by SEPSCO, LLC.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-60551 and 333-44711 of Triarc Companies, Inc. on Form S-8 of our reports
dated March 26, 1999 (April 5, 1999 as to Note 27 to the consolidated financial
statements), appearing in the Annual Report on Form 10-K of Triarc Companies,
Inc. for the year ended January 3, 1999.
DELOITTE & TOUCHE LLP
New York, New York
April 5, 1999