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TRIARC COMPANIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
JANUARY 2, 2000
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 2, 2000.
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 10017
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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
------------------- -------------------
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 $280,444,663 as of
March 15, 2000. There were 19,840,981 shares of the registrant's Class A Common
Stock and 3,998,414 shares of the registrant's Class B Common Stock outstanding
as of March 15, 2000.
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 2, 2000.
________________________________________________________________________________
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Certain statements in this Annual Report on 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. For those
statements, we claim the protection of the safe-harbor for forward-looking
statements contained in the Reform Act. These forward-looking statements are
based on our expectations and are susceptible to a number of risks,
uncertainties and other factors, and our actual results, performance and
achievements may differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include 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 and demographic patterns; the
success of multi-branding; availability, location and terms of sites for
restaurant development by franchisees; the ability of franchisees to open new
restaurants in accordance with their development commitments, including the
ability of franchisees to finance restaurant development; 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, ingredients and supplies; the potential
impact on royalty revenues and franchisees' store level sales that could arise
from interruptions in the distribution of supplies of food and other products to
franchisees; 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 franchising
laws, accounting standards, environmental laws and taxation requirements; 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 in our other current and
periodic filings with the Securities and Exchange Commission, all of which are
difficult or impossible to predict accurately and many of which are beyond our
control. We will not undertake and specifically decline 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 our policy generally not to make any specific
projections as to future earnings, and we do not endorse any projections
regarding future performance that may be made by third parties.
ITEM 1. BUSINESS.
INTRODUCTION
We are predominantly a holding company and, through our subsidiaries, are 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, which consists of Snapple Beverage Corp., Mistic Brands,
Inc. and Stewart's Beverages, Inc. (formerly known as Cable Car Beverage
Corporation). Our restaurant franchising operations are conducted through
Arby's, Inc. (which does business as the Triarc Restaurant Group), the
franchisor of the Arby's'r' restaurant system. Our soft drink concentrate
business is conducted through Royal Crown Company, Inc. Snapple is a leading
marketer and distributor of premium beverages in the United States. Arby's is
the world's largest restaurant franchising 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 1998
domestic systemwide sales. Royal Crown is a leading supplier of concentrates to
private label carbonated soft drink producers in North America and owns the
Royal Crown 'r' carbonated soft drink brand, the largest national brand cola
available to the independent bottling system.
For information regarding the revenues, operating profit and identifiable
assets for our businesses for the fiscal year ended January 2, 2000, see 'Item
7. Management's Discussion and Analysis of Financial Condition
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and Results of Operations' and Note 24 to the Consolidated Financial Statements
of Triarc Companies, Inc. and Subsidiaries.
Our corporate predecessor was incorporated in Ohio in 1929. We
reincorporated in Delaware 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 restaurant franchising,
(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 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 or business
combination has been reached.
REPURCHASE OF CLASS B COMMON STOCK
On August 19, 1999, we announced that our Board of Directors had unanimously
approved a stock purchase agreement between the Company and two entities
controlled by Victor Posner, Victor Posner Trust No. 6 and Security Management
Corp., pursuant to which we will acquire from the Posner entities all of the
5,997,622 issued and outstanding shares of our non-voting Class B Common Stock
in three separate transactions. Pursuant to the agreement, on August 19, 1999,
we acquired one-third of the shares (1,999,208 shares) at a price of $20.44 per
share (which was the trading price of our Class A Common Stock at the time the
transaction was negotiated), for an aggregate cost of approximately $40.9
million. We will acquire one-half of the remaining shares (1,999,207 shares) on
or before the first anniversary of the date of the initial closing, subject to
extension in certain limited circumstances, at a price of $21.18 per share (an
aggregate cost of approximately $42.3 million) and the remaining shares
(1,999,207 shares) on or before the second anniversary of the date of the
initial closing, subject to extension in certain limited circumstances, at a
price of $21.93 per share (an aggregate cost of approximately $43.8 million).
The Posner entities have placed the shares to be acquired at the subsequent
closings in escrow pending their repurchase.
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, our Chairman and Chief Executive Officer and the President and
Chief Operating Officer, respectively, for the acquisition by an entity to be
formed by them of all of the outstanding shares of our common stock, 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. 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 our common
stock at a price of not less than $16.25 and not more than $18.25 per share,
pursuant to a 'Dutch Auction.' The tender offer commenced on March 12, 1999 and
expired at 12:00 midnight, New York City time on April 22, 1999. In accordance
with the terms of the tender offer, we purchased the 3,805,015 shares that were
validly tendered at a price of $18.25 per share for a total purchase price of
approximately $70 million. All shares validly tendered at $18.25 and below were
accepted.
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RECENT ACQUISITIONS
On February 26, 1999, Snapple acquired Millrose Distributors, Inc. 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 Stewart's'r' products in the United
States. Millrose's distribution territory, which includes parts of New Jersey,
is contiguous to that of Mr. Natural, Inc., our company-owned New York City and
Westchester County distributor. In 1998, Millrose had net sales of approximately
$39 million.
On January 2, 2000, Snapple acquired Snapple Distributors of Long Island,
Inc. for $16.8 million in cash, subject to certain post-closing adjustments.
Snapple also agreed to pay $2.0 million over a 10-year period in consideration
for a three-year non-compete agreement by certain of the sellers. Prior to the
acquisition, Long Island Snapple was the largest non-company owned distributor
of Snapple products and a major distributor of Stewart's products. Long Island
Snapple had net sales of approximately $30 million in 1999.
On March 31, 2000 we acquired certain of the assets of California Beverage
Company, including the distribution rights for Snapple, Mistic and Stewart's
products in the City and County of San Francisco, California, for $1.6 million,
subject to post-closing adjustment. The assets acquired by us were contributed
to our subsidiary Pacific Snapple Distributors, Inc.
REFINANCING OF SUBSIDIARY INDEBTEDNESS
On February 25, 1999 our beverage and restaurant franchising subsidiaries
completed the sale of $300 million principal amount of 10 1/4% senior
subordinated notes due 2009, pursuant to Rule 144A of the Securities Act of 1933
and concurrently entered into a $535 million senior secured credit facility.
In addition, on that 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 redemption occurred on March 30, 1999 at a
redemption price of 102.786% of the principal amount, plus accrued and unpaid
interest.
The net proceeds from the financings were used 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 plus $1.5 million
of accrued interest); (c) pay for the acquisition of Millrose (approximately
$17.5 million, including expenses); (d) pay customary fees and expenses
(approximately $30.5 million); and (e) fund a distribution to us with the
remaining proceeds. The distribution is being used by us for general corporate
purposes, including working capital, future acquisitions and investments,
repayment or refinancing of indebtedness or restructurings or repurchases of our
securities, including the repurchase of the Class B Common Stock and the Dutch
Auction tender offer described above.
The notes issued pursuant to the private placement have been registered
under the Securities Act of 1933. Our subsidiary that issued the notes was
obligated to cause the 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 or pay additional interest on the notes of 0.5%
per annum until the registration statement was declared effective and an
exchange offer was completed. The registration statement was declared effective
by the Securities and Exchange Commission on December 23, 1999 and the exchange
offer was completed on January 28, 2000.
SALE OF NATIONAL PROPANE PARTNERS, L.P.
On April 5, 1999, National Propane Partners, L.P., a master limited
partnership of which our subsidiary National Propane Corporation was managing
general partner, and Columbia Energy Group and certain of its affiliates signed
a definitive purchase agreement pursuant to which Columbia Propane, L.P., a
subsidiary of Columbia Energy Group, agreed to acquire all of the outstanding
common units of National Propane Partners for $12.00, in cash per common unit.
Pursuant to a tender offer followed by a merger, Columbia Propane acquired all
of the approximately 6.7 million outstanding common units of National Propane
Partners.
Simultaneously with the merger, Columbia Propane acquired general partner
interests and subordinated units of National Propane Partners from National
Propane Corporation and a subsidiary of National Propane Corporation. The
consideration paid to us consisted of (i) cash in the amount of approximately
$2.9 million, which included approximately $2.1 million of consideration for the
Company's interests plus approximately
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$1.0 million, representing reimbursement of interest paid on the note referred
to below, less approximately $0.3 million, representing interest on amounts
advanced by Columbia Propane in the tender offer, and (ii) the forgiveness of
approximately $15.8 million of a $30.7 million note owed by us to National
Propane, L.P. We concurrently repaid the remainder of such note, which was
approximately $14.9 million.
Pursuant to the Purchase Agreement, National Propane Corporation retained a
1% limited partnership interest in National Propane, L.P., which continues to
exist as a subsidiary partnership of Columbia Propane, and provided an indemnity
relating to certain of National Propane, L.P.'s debt.
FISCAL YEAR
Effective January 1, 1997, we adopted a 52/53 week fiscal convention for the
Company and our subsidiaries (other than National Propane Corporation) whereby
our fiscal year ends 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
PREMIUM BEVERAGES (SNAPPLE, MISTIC AND STEWART'S)
Through Snapple, Mistic and Stewart's, we are a leader in the U.S. wholesale
premium beverage market. According to A.C. Nielsen data, in 1999 our premium
beverage brands had the leading share (33%) of premium beverage sales volume in
convenience stores, grocery stores and mass merchandisers.
SNAPPLE
Snapple markets and distributes all-natural ready-to-drink teas, fruit
drinks and juices. During 1999, Snapple case sales represented approximately 80%
of our total premium beverage case sales. Since we acquired Snapple in May 1997,
Snapple has strengthened its 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 7.3% in 1999 compared to 1998 and 8.4% in 1998 compared to 1997. According to
A.C. Nielsen data, in 1999 Snapple had the leading share (28%) of U.S. premium
beverage sales volume in convenience stores, grocery stores and mass
merchandisers, compared to 10% for the next highest brand.
We have benefited from the continued growth of our core products as well as
the successful introduction of our innovative new beverages. New product
introductions contributed to the growth of our core products by maintaining a
sense of freshness and excitement for the overall product line and enhancing
brand imagery for consumers. Case sales of Snapple's top five products in 1999,
which represent 36% of its domestic case sales, have grown 8.8% since
December 31, 1997. In April 1999, Snapple introduced Snapple Elements'TM', a
line of juice drinks and teas enhanced with herbal ingredients to capitalize on,
in part, the growing consumer demand for all-natural, health-oriented products.
Snapple Elements is offered in eight flavors. We expect to introduce at least
two new flavors prior to this summer's selling season. In 1999, Snapple Elements
won Beverage World's Globe Design Gold Award for best overall product design. In
1999, Snapple also introduced several new fruit drink flavors, including Diet
Orange Carrot and Raspberry Peach. In 1998, Snapple introduced a successful new
line of products called WhipperSnapple'r', which is a smoothie-like beverage. In
1998, WhipperSnapple was named Convenience Store News' best new non- alcoholic
beverage product and won the American Marketing Association's Edison award for
best new beverage product.
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'r' and Mistic Fruit Blast'TM' brand names. In general, Mistic
complements Snapple by appealing to consumers who prefer a sweeter product with
stronger fruit flavors. According to A.C. Nielsen data, in 1999 Mistic had a 3%
share of U.S. premium beverage sales volume in convenience stores, grocery
stores and mass merchandisers. Since Mistic was acquired 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. In 1999, Mistic
introduced a line of 50% juice drinks, including Orange
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Carrot, which has become Mistic's best selling product, Mango Carrot, Tropical
Carrot and Orange Mango. Mistic also introduced Mistic Italian Ice
Smoothies'TM', a smoothie-like beverage, and Sun Valley Squeeze'TM', a fruit
drink packaged in a proprietary 20 ounce bottle with dramatic graphics. In 1999,
Mistic Italian Ice Smoothies was the runner-up to Snapple Elements and won
Beverage World's Globe Design Silver Award for package design. In March 2000
Mistic introduced Mistic Hip-Hop'TM', juice drinks aimed at younger consumers
which are packaged in 20 ounce bottles that feature graphics with top-selling
hip-hop artists. Mistic plans to introduce one additional new major product
platform in 2000.
STEWART'S
Stewart's markets and distributes Stewart's brand premium soft drinks,
including Root Beer, Orange N' Cream, Diet Root Beer, Cream Ale, Ginger Beer,
Creamy Style Draft Cola, Classic Key Lime, Lemon Meringue, Cherries N' Cream,
Classic Grape and Peach. In March 2000, Stewart's launched 'S'TM', a line of
super premium diet sodas in five flavors in a proprietary bottle. Stewart's
holds the exclusive perpetual worldwide license to manufacture, distribute and
sell Stewart's brand soft drinks and owns the Fountain Classics'r' trademark.
Through the fourth quarter of 1999, Stewart's has experienced 29 consecutive
quarters of double-digit percentage case sales increases compared to the prior
year's comparable quarter. Overall, Stewart's has grown its case sales by
approximately 13% in 1999 compared to 1998 and approximately 17% in 1998
compared to 1997, primarily by increasing penetration in existing markets,
entering new markets and continuing product innovation. According to A.C.
Nielsen data, in 1999 Stewart's had a 2% share of U.S. premium beverage sales
volume in convenience stores, grocery stores and mass merchandisers.
SALES AND MARKETING
Snapple and Mistic have a combined sales and marketing staff, while
Stewart's 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. As of
January 2, 2000, we employed a sales and marketing staff excluding that of
Snapple-owned distributors, of approximately 266 people.
After acquiring Snapple, we revived Snapple's tradition of quirky
advertising and promotional campaigns. In May 1997, we announced the return of
Wendy 'The Snapple Lady' and introduced a new flavor, Wendy's Tropical
Inspiration'TM', in a commercial featuring Wendy's return from a deserted island
to help 'save Snapple.' In the summer of 1998 Snapple launched its 'Win Nothing
Instantly' sweepstakes where consumers won prizes such as 'No Car Payments,'
awarding $100 per month for one year, and 'No Rent,'awarding $1,000 per month
for one year. This sweepstakes received a 'Brammy' award from Brandweek magazine
for 'Best Promotion' for all categories. Snapple's 'Good Fruit/Bad Fruit'
commercial was recognized by Ad Week as one of the best campaigns of 1999.
Mistic uses targeted advertising. The 1996-1997 'Show Your Colors' campaign,
reflecting the desires of young consumers to express their individuality, was
widely recognized in the advertising trade industry. Mistic won the Promotional
Marketing Association's Silver Reggie award in 1998 for its promotional
sweepstakes that offered consumers who matched the color under the cap of Mistic
products to the color of Dennis Rodman's hair one day of his salary as a Chicago
Bull.
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 employed a combination of network and cable advertising
complemented with local spot advertising in our larger markets. In most markets,
we have used television as the primary advertising medium and radio as the
secondary medium, although Mistic has used 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.
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
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distribution of some Snapple products in Florida and Georgia. We distribute our
products internationally primarily through one licensed distributor in each
country. 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 84% 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. The distributor may
generally terminate its agreement upon specified prior notice.
We believe that company-owned distributors place more focus on increasing
sales of our products and successfully launching our new products. At the
beginning of 1999, Snapple owned two of its largest distributors, Mr. Natural,
Inc., which distributes in the New York metropolitan area, and Pacific Snapple
Distributors, Inc., which distributes in parts of southern California. In
February 1999, Snapple acquired Millrose Distributors, Inc., which prior to the
transaction acquired certain assets of Mid-State Beverage, Inc., for
approximately $17.25 million. Millrose and Mid-State distributed Snapple and
Stewart's products in parts of New Jersey. Before the acquisition, Millrose was
the largest non-company owned Snapple distributor and Mid-State was the second
largest Stewart's distributor.
In January 2000, Snapple acquired Snapple Distributors of Long Island, Inc.,
which distributes in Nassau and Suffolk counties in New York, for a cash
purchase price of $16.8 million, subject to post-closing adjustments. Snapple
also agreed to pay $2.0 million over a ten-year period in consideration for a
three-year non-compete agreement by some of the sellers. Before the acquisition,
Long Island Snapple was the largest non-company-owned distributor of Snapple
products and a major distributor of Stewart's products.
On March 31, 2000 we acquired certain of the assets of California Beverage
Company, including the distribution rights for Snapple, Mistic and Stewart's
products in the City and County of San Francisco, California, for $1.6 million,
subject to post-closing adjustment. The assets acquired by us were contributed
to Pacific Snapple.
In the aggregate, our company-owned distributors were responsible for
approximately 24% of Snapple's 1999 domestic case sales and 9% of Stewart's
domestic case sales.
No non-company-owned distributor accounted for more than 10% of total
premium beverage case sales in 1997, 1998 or 1999. 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 1997, 1998 or 1999. Since we acquired Snapple, Royal Crown's
international group has been responsible for the sales and marketing of our
premium beverages outside North America.
CO-PACKING ARRANGEMENTS
We use more than 20 co-packers strategically located throughout the United
States to 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 supply most packaging and raw materials and arrange
for their shipment to our co-packers and bottlers. Our three largest co-packers
accounted for approximately 54% of our aggregate case production of premium
beverages in 1999.
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 specified amount of its
monthly production capacity to us. Snapple has committed to order guaranteed
minimum volumes under contracts covering the production of a majority of its
case volume. 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 2, 2000, Snapple had reserves of approximately $3.3 million for
future payments under its guaranteed volume co-packer agreements known as
take-or-pay agreements. We paid approximately $5.9 million under Snapple's
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 owner of Snapple, and $1.4 million in 1999. Mistic has committed to order
a guaranteed volume in two instances and a percentage of its
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products sold in a region in another instance. If the guaranteed volume or
percentage is not met, Mistic must make payments to compensate for the
difference. Stewart's has no take-or-pay agreements requiring it to make minimum
purchases.
We have generally been able to avoid significant capital expenditures or
investments for bottling facilities or equipment and our production-related
fixed costs have been minimal because of our co-packing arrangements. We are,
however, in the process of establishing a premium beverage packing line at one
of our company-operated distribution centers at a cost of approximately $5.0
million, because of significant expected freight and production savings and
availability of additional space in one of our facilities. We anticipate that we
will continue to use third-party co-packers for most of our production.
We believe we have arranged for sufficient production capacity to meet our
requirements for 2000 and that, in general, the industry has excess production
capacity that we could use. We also expect that in 2000 we will meet
substantially all of our guaranteed volume requirements under our co-packing
agreements.
RAW MATERIALS
We supply the raw materials used in the preparation and packaging of the
Triarc Beverage Group's premium beverage products to their co-packers. For
quality control and other purposes, we have chosen to obtain some raw materials,
including aspartame, on an exclusive basis from single suppliers and other raw
materials, such as glass bottles and flavors, from a relatively small number of
suppliers. In turn, we sell to our beverage businesses, at cost, the raw
materials that we purchase from our suppliers. 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, other than glass bottles, are available. However, as a result
of consolidation of the glass industry, it is uncertain whether all of the glass
bottles supplied by two suppliers, who supply approximately 88% of the premium
beverage segment's 1999 purchases of glass bottles, could be replaced by
alternate sources. We do not believe it reasonably possible that our largest
glass suppliers will be unable to achieve substantially all of their anticipated
volumes in the near term.
SOFT DRINK CONCENTRATES (ROYAL CROWN)
Through Royal Crown Company, Inc., we participate in the approximately $58
billion domestic retail carbonated soft drink market. Royal Crown produces and
sells concentrates used in the production of carbonated soft drinks. 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
a leading worldwide supplier of premium quality retailer brand soft drinks.
Royal Crown also sells these concentrates to independent, licensed bottlers who
manufacture and distribute finished beverage products domestically and
internationally. Royal Crown's products include: RC'r' Cola, Diet RC'r' Cola,
Cherry RC'r' Cola, RC Edge'TM', Diet Rite'r' Cola, Diet Rite'r' flavors,
Nehi'r', Upper 10'r', and Kick'r'. RC Cola is the largest national brand cola
available to the independent bottling system, which consists of bottlers who do
not bottle either Coca-Cola or Pepsi-Cola.
Royal Crown also sells its products internationally. Royal Crown's export
business has grown at an 18% compound annual growth rate over the five years
ended 1997, although growth slowed to 4% in 1998 and was down 2.5% in 1999 due
to adverse economic conditions in some of its markets, especially Russia and
Turkey, and competitive conditions in Mexico. During 1999, Royal Crown's soft
drink brands had approximately a 1.4% share of national supermarket volume
according to Beverage Digest/A.C. Nielsen data.
SALES AND MARKETING
Royal Crown uses radio, print and direct mail advertising. RC Cola's 'Great
Taste/Great Value' strategy has begun to utilize a money-back taste guarantee
and coupons included on its packaging. RC Cola is the official soft drink of
Little League Baseball and is beginning its third year as a title sponsor of the
#86 Dodge Truck in the Sears Craftsman Truck Series of the NASCAR circuit.
Royal Crown plans to enhance the 'Better For You' marketing of Diet Rite by
focusing on its formulation which has no sodium, no caffeine, no calories and a
new sweetener blend containing no aspartame. Diet Rite is the only major U.S.
diet soft drink without aspartame.
7
Royal Crown has entered into a media and promotional sponsorship for RC Edge
to be the exclusive branded cola marketing partner of the World Wrestling
Federation. The promotion was launched in late March 2000, and this summer it
will feature four of the World Wrestling Federation's most popular stars on RC
Edge's packaging.
PRIVATE LABEL
Royal Crown believes that private label sales through Cott represent an
opportunity to benefit from sales of retailer-branded beverages. Royal Crown's
sale of concentrates to Cott began in late 1990. For the five years ended 1999,
Royal Crown's sales to Cott increased by a compound annual growth rate of
approximately 7%. Royal Crown's revenues from sales to Cott were approximately
15.8% of its total revenues in 1997, 17.2% in 1998 and 22.3% in 1999.
Royal Crown sells concentrate to Cott under a 21-year concentrate supply
agreement which expires in 2015, subject to additional six year extensions.
Under the Cott agreement:
Royal Crown, with limited exceptions, is Cott's exclusive worldwide
supplier of cola concentrates for retailer-branded beverages in various
containers,
Cott must purchase from Royal Crown at least 75% of its total worldwide
requirements for carbonated soft drink concentrates for beverages sold in
the containers for which Royal Crown is the exclusive supplier of
concentrates, and
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.
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 the concentrates developed after the date of the
Cott agreement, except, in most cases, upon termination of the Cott agreement
because of breach or non-renewal by Royal Crown.
ROYAL CROWN DOMESTIC BOTTLER NETWORK
Royal Crown sells its concentrates to independent licensed bottlers in the
United States. 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.
During 1999, Royal Crown's ten largest bottler groups accounted for
approximately 80.5% of Royal Crown's domestic volume of concentrate for branded
products. Dr Pepper/Seven Up Bottling Group accounted for approximately 24.5% of
this volume during 1999 and RC Chicago Bottling Group accounted for
approximately 22.3% of this volume during 1999. Although we believe that Royal
Crown could find new bottlers for the RC Cola brand, Royal Crown's sales would
decline if these major bottlers stopped selling RC Cola brand products.
ROYAL CROWN INTERNATIONAL BOTTLER NETWORK
We sell concentrate to bottlers in 72 countries for use in Royal Crown and
other branded products. Royal Crown's sales outside the United States were
approximately 10.9% of its total revenues in 1997, 11.3% in 1998 and 10.4% in
1999. Sales outside the United States of concentrates were approximately 13.9%
of Royal Crown's total concentrate sales in 1997, 13.6% in 1998 and 9.7% in
1999. The decrease in percentages for 1998 and 1999 is mainly attributable to
economic conditions in Russia and Turkey and competitive conditions in Mexico.
As of January 2, 2000, 112 bottlers and 14 distributors sold Royal Crown branded
products outside the United States in 68 countries, with international export
sales in 1999 distributed among Canada (7.2%), Latin America and Mexico (30.6%),
Europe (19.4%), the Middle East/Africa (21.6%) and the Far East/Pacific Rim
(21.3%). 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. In 1999, new bottlers were added to the
following markets: Ireland, Zimbabwe, Algeria, Romania and Tadjikistan. For the
8
five years ended 1999, the compound annual growth rate of Royal Crown's sales
outside the United States was approximately 14%.
PRODUCT DEVELOPMENT
We believe that Royal Crown has a history as an industry leader in product
innovation. In 1961, Royal Crown introduced the first national brand diet cola.
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 1998,
Royal Crown introduced two new Diet Rite flavors, Iced Mocha and Lemon Sorbet,
and began to use sucralose in Diet RC Cola. In 1999, Royal Crown reformulated
Diet Rite to eliminate aspartame. In April 1999, Royal Crown introduced RC Edge,
a cola specially formulated with herbal enhancements.
RESTAURANT FRANCHISING SYSTEM (ARBY'S)
Through the Arby's restaurant franchising business, we participate in the
approximately $100 billion quick service restaurant segment of the domestic
restaurant industry. Arby's, which celebrated its 35th anniversary in 1999,
enjoys a high level of brand recognition. In 1998, Arby's had an estimated
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'r' products, which are primarily gourmet cinnamon rolls, gourmet
coffees and other related products. Arby's also offers franchisees the
opportunity to multi-brand with Pasta Connection'TM' products, which are pasta
dishes with a variety of different sauces. As of January 2, 2000, the Arby's
restaurant system consisted of 3,228 franchised restaurants, of which 3,069
operate within the United States and 159 operate outside the United States. Of
the domestic restaurants, approximately 340 are multi-branded locations that
sell T.J. Cinnamons products and 60 are multi-branded locations that sell Pasta
Connection products.
Currently all of the Arby's restaurants are owned and operated by
franchisees. Because Arby's owns no restaurants, it avoids the significant
capital costs and real estate and operating risks associated with restaurant
operations. As a franchisor Arby's receives franchise royalties from all Arby's
restaurants and up-front franchise fees from its restaurant operators for each
new unit opened. Arby's average franchise royalty rate in 1999 was approximately
3.3% of franchise revenues, which included royalties of 4% of franchise revenues
from most existing units and all new domestic units opened.
From 1996 to 1999, Arby's system-wide sales grew at a compound annual growth
rate of 5.4% to $2.3 billion. Through January 2, 2000, the Arby's system has
experienced twelve consecutive quarters of domestic same store sales growth
compared to the prior year's comparable quarter. During 1999, our franchisees
opened 159 new Arby's and closed 66 underperforming Arby's. In addition, Arby's
franchisees opened 53 multi-branded T.J. Cinnamons and 40 multi-branded Pasta
Connections in Arby's units in 1999. As of January 2, 2000, franchisees have
committed to open approximately 1,100 Arby's restaurants over the next
11 years. You should read the information contained in 'Risk Factors -- Arby's
is Dependent on Restaurant Revenues and Openings.'
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., the largest franchisee
in the Arby's system. Since that time, Arby's has derived its revenues from two
principal sources: (1) royalties from franchisees and (2) franchise fees. Before
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 2, 2000, franchisees operated Arby's restaurants in 49 states and 9
foreign countries. As of January 2, 2000, the six leading states by number of
operating units were: Ohio, with 249 restaurants; Texas, with 167 restaurants;
Michigan, with 166 restaurants; Indiana, with 163 restaurants; California, with
156 restaurants; and Georgia, with 155 restaurants. Canada is the country
outside the United States with the most operating units, with 123 restaurants.
9
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 1996 to 1999:
1996 1997 1998 1999
---- ---- ---- ----
Restaurants open at beginning of
period................................ 2,955 3,030 3,092 3,135
Restaurants opened during period........ 132 125 130 159
Restaurants closed during period........ 57 63 87 66
----- ----- ----- -----
Restaurants open at end of period....... 3,030 3,092 3,135 3,228
----- ----- ----- -----
----- ----- ----- -----
During the period from January 1, 1996 through January 2, 2000, 546 new
Arby's restaurants were opened and 273 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 2, 2000, 504 Arby's franchisees operated 3,228 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 11 new restaurants outside of the United States
during 1999. Arby's also has territorial agreements with international
franchisees in six countries as of January 2, 2000. 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.
In July 1999, Arby's signed the largest overseas development agreement in
its history. The agreement was entered into with Sybra Restaurants (UK) Ltd.
Under the agreement, 102 new Arby's restaurants are to be developed in southern
England over the next 10 years. The first three restaurants are expected to open
during the third quarter of 2000.
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. Because of
lower royalty rates still in effect under earlier agreements, the average
royalty rate paid by franchisees was approximately 3.2% during 1998 and
approximately 3.3% during 1999. Franchisees typically pay a $10,000 commitment
fee, credited against the franchise fee referred to above, during the
development process for a new restaurant.
Franchised restaurants are required to be operated under 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 .7% of net sales to
the Arby's Franchise Association, which produces advertising and promotional
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.
10
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
in May 1997, Arby's no longer has any 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 and uniformity. In addition, a laboratory at Arby's headquarters tests
samples of roast beef periodically 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 processors 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. Franchisees representing approximately 73% of the domestic
Arby's restaurants recently changed their distributor for food and other
supplies following a period of logistical problems by, and the subsequent
bankruptcy of, that distributor. You should read the information contained in
'Risk Factors -- Arby's is Dependent on Restaurant Revenues and Openings.'
GENERAL
TRADEMARKS
We own numerous trademarks that are considered material to our businesses,
including Snapple, Made From The Best Stuff On Earth'r', Snapple Elements,
WhipperSnapple, Snapple Farms'r', Snapple Refreshers'TM', Mistic, Mistic Sun
Valley Squeeze, Mistic Italian Ice Smoothies, RC Cola, Diet RC, Cherry RC Cola,
RC Edge, Royal Crown, Diet Rite, Nehi, Upper 10, Kick, Fountain Classics,
Arby's, T.J. Cinnamons and Pasta Connection. Mistic licenses the Fruit Blast
trademark. Stewart's 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 our material trademarks 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. There are no challenges pending to our right to
use any of our material trademarks in the United States.
11
COMPETITION
Beverages
Our premium beverage products and soft drink concentrate products compete
generally with all liquid refreshments and in particular with numerous
nationally-known carbonated soft drinks, including Coca-Cola and Pepsi-Cola. We
also compete with ready to drink brewed iced tea competitors, including Nestea
Iced Tea, which is produced under a long-term license granted by Nestle S.A. to
The Coca-Cola Company, and Lipton Original Iced Tea, which is distributed under
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 calendar marketing agreements, pricing, packaging and the development
of new products.
Until recently, the soft drink business experienced increased price
competition that resulted in significant price discounting throughout the
industry. Price competition had been especially intense with respect to sales of
soft drink products in supermarkets. This resulted in significant discounts and
allowances off wholesale prices by bottlers to maintain or increase market share
in the supermarket segment. If resumed, these practices 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, including colleges,
schools, convenience and grocery store chains and municipal locations, including
city parks and buildings.
Restaurant Franchising System
Arby's faces direct and indirect competition from numerous well-established
competitors, including national and regional fast food chains, for example,
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.
Many of our competitors have substantially greater financial, marketing,
personnel and other resources than we do.
GOVERNMENTAL REGULATIONS
The production and marketing of our beverages are governed by the rules and
regulations of various federal, state and local agencies, including the United
States Food and Drug Administration. The Food and Drug Administration also
regulates the labeling of our products. In addition, our dealings with our
bottlers and/or distributors may, in some jurisdictions, be governed by state
laws governing licensor-licensee or distributor relationships.
Various state laws and the Federal Trade Commission regulate Arby's
franchising activities. The Federal Trade Commission requires that franchisors
make extensive disclosure to prospective franchisees before 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. Furthermore,
12
the United States Congress has also considered, and there is currently pending,
legislation governing various aspects of the franchise relationship. 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 federal
requirements related to access and use by disabled persons, and various state
laws governing matters that include, for example, minimum wages, overtime and
other working conditions. We cannot predict the effect on our operations,
particularly on our relationship with franchisees, of any pending or future
legislation. We believe that the operations of our subsidiaries comply
substantially with all applicable governmental rules and regulations.
ENVIRONMENTAL MATTERS
We are governed by federal, state and local environmental laws and
regulations concerning the discharge, storage, handling and disposal of
hazardous or toxic substances. These laws and regulations provide for
significant fines, penalties and liabilities, sometimes without regard to
whether the owner or operator of the property knew of, or was responsible for,
the release or presence of the 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 to comply with any environmental laws or
regulations or to satisfy any claims relating to environmental laws or
regulations. We believe that our operations comply substantially with all
applicable environmental laws and regulations. Based on currently available
information and our 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. Please
refer to the section of this prospectus entitled 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.'
In May 1994 National Propane was informed of coal tar contamination which
was discovered at 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. As of July 19, 1999,
the environmental consultants' current range of estimated costs for remediation
was 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. As a result of the sale of our interest
in National Propane Partners in 1999, Columbia Propane has assumed
responsibility for this matter. You should read the information contained in
'Item 1. Business -- Sale of National Propane Partners, L.P.'
In 1987, Graniteville Company, the assets of which were sold to Avondale
Mills, Inc. in April 1996, was notified by the South Carolina Department of
Health and Environmental Control ('DHEC') that it had discovered certain
contamination of a pond near Graniteville, South Carolina and that Graniteville
may be one of the responsible parties. 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. We are unable to predict at
this time what further actions, if any, may be required with respect to the site
or what the cost thereof may be. In addition, Graniteville owned a nine acre
property in Aiken County, South Carolina, which was operated jointly by
Graniteville and Aiken County as a landfill from approximately 1950 through
1973. The United States Environmental Protection Agency conducted a site
investigation in 1991 and an Expanded Site Inspection in January 1994.
Graniteville
13
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 and restaurant franchising businesses are seasonal. In our
beverage businesses, the highest revenues occur during the spring and summer,
between April and September. Accordingly, our second and third quarters reflect
the highest revenues, and our first and fourth quarters have lower revenues,
from the beverage businesses. The royalty revenues of our restaurant franchising
business are somewhat higher in our fourth quarter and somewhat lower in our
first quarter. Accordingly, consolidated revenues will generally be highest
during the second and third fiscal quarters of each year. Our EBITDA and
operating profit are also highest during the second and third fiscal quarters of
each year and lowest in the first fiscal quarter. This principally results from
the higher beverage revenues in the second and third fiscal quarters while
general and administrative expenses and depreciation and amortization, excluding
amortization of deferred financing costs, are generally recorded ratably in
interim periods either as incurred or allocated to interim periods based on time
expired. Our first fiscal quarter EBITDA and operating profit has also been
lower due to advertising and production costs, which typically are higher in the
first quarter in anticipation of the peak spring and summer beverage selling
season and which are recorded the first time the related advertising takes
place.
EMPLOYEES
As of January 2, 2000, we had approximately 1,194 employees, including 936
salaried employees and 258 hourly employees. We believe that employee relations
are satisfactory. As of January 2, 2000, approximately 52 of our employees were
covered by various collective bargaining agreements expiring from time to time
from the present through August 2002. This number includes 18 of our employees
whose collective bargaining agreement expired in January 2000 after their union
was placed in receivership. It is expected that the collective bargaining
agreement with these employees' new union will be renewed for one year.
OTHER TRANSACTIONS
On January 19, 2000, we acquired all of the outstanding membership interests
of 280 Holdings, LLC from Triangle Aircraft Services Corporation, a corporation
owned by our Chairman and Chief Executive Officer and President and Chief
Operating Officer, for $27.2 million, consisting of $9.2 million of cash and the
assumption of $18.0 million of debt. The price paid was approved by the Audit
Committee and Board of Directors of the Corporation and was based on independent
third party appraisals. 280 Holdings owns an airplane that had previously been
leased to us by Triangle Aircraft. In addition, Triangle Aircraft refunded to us
$1.2 million, representing the unamortized portion of the payment relating to
the airplane that we made to Triangle Aircraft in 1997 in connection with the
then five-year extension of the lease of the airplane.
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, or in the future could affect, our actual
results and could cause our actual consolidated results during 2000, and beyond,
to differ materially from those expressed in any forward-looking statements made
by, or on behalf of, us.
14
OUR SUBSTANTIAL LEVERAGE MAY ADVERSELY AFFECT US
We have a significant amount of indebtedness. On an unconsolidated basis,
our indebtedness at January 2, 2000 was $114.1 million, excluding intercompany
debt. In addition, at January 2, 2000 our total consolidated indebtedness was
$893.1 million.
In addition to the above indebtedness, our subsidiaries may borrow an
additional $60.0 million of revolving credit loans under the credit facility,
subject to certain limitations contained in the credit facility, the indenture
and instruments governing our other debt. You should read the information
included in '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. As of January 2, 2000, on a consolidated
basis we had approximately $161.9 million of cash and cash equivalents and
approximately $151.6 million of short-term investments.
Our subsidiaries' 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 credit facility
or the indenture, we would be in a default under the terms thereof which would
permit the lenders under the 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 Note 8 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 2, 2000, on an unconsolidated basis, our total
cash, cash equivalents and short-term investments were approximately
$212.6 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 2, 2000, our
subsidiaries had aggregate indebtedness of approximately $779.0 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 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, we cannot assure you that we will be able to continue to
develop, market and distribute future beverage products that will enjoy market
acceptance. The
15
failure to develop new beverage products that gain market acceptance would have
an adverse impact on our growth and would 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. In January 2000, the major supplier of food and other
products to Arby's franchisees filed for bankruptcy. That bankruptcy and the
subsequent change of distributors by franchisees has not had a significant
adverse effect on us as of the date of this Form 10-K. However, it is possible
that interruptions in the distribution of supplies to our franchisees could
adversely affect sales by our franchisees and cause a decline in the royalty
fees that we receive from them.
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 2, 2000 franchisees have signed commitments to open approximately 1,100
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 FRANCHISEES MAY ADVERSELY AFFECT US; WE REMAIN
CONTINGENTLY LIABLE ON CERTAIN OBLIGATIONS.
During 1999, Arby's received approximately 26.8% of its royalties from RTM
and its affiliates, which are franchisees of approximately 700 Arby's
restaurants, and received approximately 7% 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 long-term concentrate supply agreement
which continues until 2015, subject to additional six-year extensions. Royal
Crown's revenues from sales to Cott were approximately 15.8% of its total
revenues in 1997, 17.2% in 1998 and 22.3% in 1999. If Cott's business declines,
or if Royal Crown's supply agreement with Cott is terminated, Royal Crown's
sales would be adversely affected.
BOTTLERS
Royal Crown relies upon its relationships with certain key bottlers. For
example:
Dr Pepper/Seven Up Bottling Group accounted for approximately 24.5% of
Royal Crown's domestic volume of concentrate for branded products during
1999; RC Chicago Bottling Group accounted for approximately 22.3% of such
volume during 1999;
Royal Crown's ten largest bottler groups accounted for approximately 80.5%
of Royal Crown's domestic volume of concentrate for branded products during
1999.
16
Royal Crown's sales would decline from their present levels if any of these
major bottlers stopped selling RC Cola brand products. Although we believe that
we could find new bottlers for the RC Cola brand products, 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.'
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
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. Although we believe that our operations 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.
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 our properties.
The following table describes information about the major plants and
facilities of each of our business segments, as well as our corporate
headquarters, as of January 2, 2000:
Approximate
Sq. Ft. of
Active Facilities Facilities -- Location Land Title Floor Space
- ----------------- ---------------------- ---------- ------------
Triarc Corporate Headquarters...... New York, NY 1 leased 30,670
Beverages.......................... Concentrate Mfg:
Columbus, GA 1 owned 216,000
(including office)
Beverage Group Headquarters 1 leased 71,970
White Plains, NY
Stewart's Headquarters 1 leased 4,200
Denver, CO
Office/Warehouse Facilities 8 leased 807,395*
(various locations)
Restaurants........................ Headquarters 1 leased 47,300**
Ft. Lauderdale, FL
- ---------
* 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.
-------------------
Arby's also owns three and leases seven properties which are leased or
sublet principally to franchisees and has leases for four 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 under secured debt arrangements.
17
ITEM 3. LEGAL PROCEEDINGS.
We are 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, we 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 our favor.
In November 1995, we 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 our 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. On September 29, 1999, the three former directors filed a notice of
appeal from the dismissal of their claims against Mr. Peltz. On October 7, 1999,
the parties filed a stipulation and proposed order of voluntary dismissal of the
remaining claims without prejudice which was approved by the court on
October 12, 1999. On March 15, 2000 the Court entered an order dismissing the
former court appointed directors' appeal for failure to comply with the Court's
scheduling order. We have been advised that the former directors intend to ask
the court to reinstate their appeal.
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 for breach of contract alleging that a non-binding letter of intent
between the plaintiff and Arby's constituted a binding contract under 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 regarding this matter pursuant to the terms of the franchise and
development agreements. In September 1997, the arbitrator ruled that the letter
of intent was not a binding contract and the master development agreement was
properly terminated. The plaintiff challenged that decision and in March 1998,
the civil court of Mexico ruled that the 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
and had tortiously interfered with an alleged business opportunity that the
plaintiff had with a third party. Arby's moved to dismiss that action. In
October 1999, the parties entered into a settlement agreement dismissing all of
the proceedings with prejudice. Pursuant to the settlement, Arby's paid $1.65
million to the plaintiffs to avoid the expense of continuing litigation. In
addition, the plaintiff will continue to be an Arby's franchise and, among other
things, will be entitled to $150,000 in credits against future royalties and
other fees as well as the right to open four additional stores without paying
initial franchise fees.
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
18
contravene the representations 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.
On March 30, 2000, the parties entered into a memorandum of understanding
setting forth an agreement in principle pursuant to which, among other things,
(i) the Malekan case will be dismissed with prejudice; (ii) Messrs. Peltz and
May will deliver a three-year note payable to the Company in the amount of $5.0
million; and (iii) Messrs. Peltz and May will surrender an aggregate of 775,000
performance options awarded to them in 1994. The memorandum of understanding is
subject to a number of conditions, including the execution of definitive
settlement documents and approval of the settlement by the Court.
On August 13, 1997, Ruth LeWinter and Calvin Shapiro, both allegedly Company
stockholders, commenced a purported class and derivative action in the United
States District Court for the Southern District of New York that is
substantially identical to the Malekan action discussed above. 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. On
September 30, 1999, the court entered an order staying that case pending a
resolution of the Malekan action described above. The stay order remains in
effect on the date of this Form 10-K.
In October 1997, Mistic commenced an action against Universal Beverages
Inc., a former Mistic co-packer, Leesburg Bottling & Production, Inc., an
affiliate of Universal, and Jonathan O. Moore, an individual affiliated with the
defendants, in the Circuit Court for Duval County, Florida. The action, which
was subsequently amended to add additional defendants, sought, among other
things, damages relating to the unauthorized sale by the defendants of raw
materials, finished product and equipment that was owned by Mistic but in the
possession of the defendants. In their answer, counterclaim and third party
complaint, some defendants alleged various causes of action against Mistic,
Snapple and Triarc Beverage Holdings and sought damages of $6 million relating
to a purported breach by Snapple and Mistic of an alleged oral agreement to have
Universal and/or Leesburg manufacture Snapple and Mistic products. These
defendants also sought to recover various amounts totaling approximately
$500,000 allegedly owed to Universal for co-packing and other services rendered.
In July 1999, Mistic settled its claims against some defendants who had not
asserted any counterclaims. In August, 1999, Mistic and the remaining defendants
entered into a comprehensive settlement agreement which, among other things,
provided for a dismissal with prejudice of all claims against Mistic, Snapple
and Triarc Beverage Holdings. No payments by Mistic, Snapple or Triarc Beverage
Holdings are required under the settlement agreement.
In connection with the proposed going private transaction discussed in 'Item
1. Business -- Withdrawal of Going Private Proposal; Dutch Auction Tender Offer'
above, various class actions had been brought on behalf of our 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 our directors, that the proposed consideration to be paid for our
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 our stockholders by failing to disclose, in
connection with our Dutch Auction self-tender offer discussed in 'Item 1.
Business -- Withdrawal of Going Private Proposal; Dutch Auction Tender Offer'
above, 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 us to provide additional disclosure,
together with damages in an unspecified amount. Discovery has commenced in the
action.
On March 23, 1999, Norman Salsitz, allegedly a stockholder of Triarc, filed
a complaint in the United States District Court for the Southern District of New
York against us, 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
19
1934, as amended, on behalf of all persons who held our stock as of March 10,
1999. The complaint alleges that our 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 Triarc, which the
complaint alleges showed that the self-tender price was unfair to our
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. On June 28, 1999, the Company, Mr. Peltz and
Mr. May moved to dismiss the complaint or alternatively to stay the Salsitz
action pending the resolution of the Delaware action. On March 20, 2000, the
court denied the motion for a stay and granted in part and denied in part the
motion to dismiss. There has been no discovery in this action and no trial date
has been set.
On September 14, 1999, William Pallot filed a purported derivative action
against our directors and other defendants, and naming us as a nominal
defendant, in the Supreme Court of the State of New York, New York County. The
complaint alleges that the defendants breached their fiduciary duties and aided
and abetted breaches of fiduciary duties by causing us to enter into an
agreement to purchase shares of the Company's Class B common stock owned by
affiliates of Victor Posner. The complaint seeks, among other relief, damages in
an unspecified amount, a declaration that the stock purchase agreement is void,
rescission of our purchase of shares pursuant to the stock purchase agreement
and an injunction against consummating additional purchases under the agreement,
and removal of Messrs. Peltz and May as directors and officers of Triarc. On
November 15, 1999, we and the director defendants filed a motion to dismiss the
complaint. On February 2, 2000, the plaintiff filed an amended complaint. In
addition, to reiterating the allegations discussed above, the amended complaint
alleged that the defendants violated their fiduciary duties and wasted corporate
assets by approving the Company's lease and purchase of aircraft from Triangle
Aircraft Services Corporation. The amended complaint further alleges that
between 1994 and 1997, the directors have caused Triarc to award Messrs. Peltz
and May unauthorized compensation. In addition to the relief sought in the
original complaint, the amended complaint seeks an award of damages against the
defendants, purportedly on behalf of the Company, in an unspecified amount. On
February 17, 2000, before the defendants had responded to the amended complaint,
the plaintiffs filed a second amended complaint containing additional factual
allegations relating to the matters asserted in the original and first amended
complaint, and seeking additional equitable relief, including rescission of the
aircraft and helicopter lease and purchase transactions. On March 22, 2000 the
defendants moved to dismiss the second amended complaint. That motion is
pending.
It is our opinion that the outcome of any of the matters described above or
any of the other matters that have arisen in the ordinary course of our business
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 1999 Annual Meeting of Stockholders on September 23, 1999. The
matters acted upon by the stockholders at that meeting were reported in our
Quarterly Report on Form 10-Q for the quarter ended October 3, 1999.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market our class A common stock is the New York Stock Exchange
('NYSE') (symbol: TRY). The high and low market prices for our class A common
stock, as reported in the consolidated transaction reporting system, are set
forth below:
MARKET PRICE
----------------------------
FISCAL QUARTERS HIGH LOW
--------------- ---- ---
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
1999
First Quarter ended April 4........................ 17 7/16 14 3/4
Second Quarter ended July 4........................ 21 13/16 16 15/16
Third Quarter ended October 3...................... 22 1/8 19 7/8
Fourth Quarter ended January 2, 2000............... 21 7/16 17 1/4
We did not pay any dividends on our common stock in 1998, 1999 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, 2000, there were 3,998,414 shares of our Class B Common
Stock outstanding, all of which were owned by entities controlled by Victor
Posner. All of the 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 Victor Posner or such entities. As noted above in
'Item 1. Business -- Repurchase of Class B Common Stock,' in August 1999, we
entered into an agreement pursuant to which we are obligated to acquire all of
the outstanding shares of Class B Common Stock on or prior to August 19, 2001,
subject to extension in certain limited circumstances. 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. 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. You should read the information we have included in
'Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources' and Note 8 to our consolidated
financial statements.
On March 10, 1999 a previously announced $50 million stock repurchase
program was terminated in light of the then ongoing Dutch Auction tender offer.
Through that date, we had repurchased 1,391,350 shares of Class A Common Stock,
at an aggregate cost of approximately $21.8 million, under that stock repurchase
program. You should read the information included described in 'Item 1.
Business -- Withdrawal of Going Private Proposal; Dutch Auction Tender Offer.'
On April 29, 1999, we announced that our management was authorized, when and
if market conditions warranted, to purchase from time to time over the twelve
month period commencing on May 7, 1999, up to $30 million worth of our Class A
Common Stock. Through March 15, 2000, we repurchased 295,334 shares, at an
average cost of $20.96 per share (including commissions), for an aggregate cost
of approximately $6.2 million, pursuant to this stock repurchase program. We
cannot assure you that we will repurchase any additional shares pursuant to this
stock repurchase program. In addition to the shares repurchased pursuant to the
stock repurchase program, in August 1999 we repurchased 1,999,208 shares of our
Class B Common Stock for an aggregate purchase price of approximately $40.9
million and are obligated to repurchase the remaining 3,998,414 shares on or
before August 19, 2001, subject to extension in certain limited circumstances.
You should read the information we have included in Item 1.
'Business -- Repurchase of Class B Common Stock' and ' -- Withdrawal of Going
Private Proposal; Dutch Auction Tender Offer'.
As of March 15, 2000, there were approximately 3,832 holders of record of
our Class A Common Stock and two holders of record of our Class B Common Stock.
21
ITEM 6. SELECTED FINANCIAL DATA(1)
YEAR ENDED DECEMBER 31, YEAR ENDED YEAR ENDED YEAR ENDED
----------------------- DECEMBER 28, JANUARY 3, JANUARY 2,
1995 1996 1997(2) 1999(2) 2000(2)
---- ---- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues................... $1,008,554 $754,926 $ 696,152 $ 815,036 $ 853,972
Operating profit (loss).... 11,470 (5) (34,041)(6) 17,075 (7) 81,842 83,255 (10)
Income (loss) from
continuing operations.... (37,146)(5) (66,316)(6) (23,478)(7) 14,238(9) 8,735 (10)
Income from discontinued
operations............... 152 57,831 23,643 398 13,486
Extraordinary charges...... -- (5,416) (3,781) -- (12,097)
Net income (loss).......... (36,994)(5) (13,901)(6) (3,616)(7) 14,636(9) 10,124 (10)
Basic income (loss) per
share(3):
Continuing
operations........... (1.25) (2.22) (.78) .47 .34
Discontinued
operations........... .01 1.94 .79 .01 .52
Extraordinary
charges.............. -- (.18) (.13) -- (.47)
Net income (loss)...... (1.24) (.46) (.12) .48 .39
Diluted income (loss) per
share(3):
Continuing
operations........... (1.25) (2.22) (.78) .45 .32
Discontinued
operations........... .01 1.94 .79 .01 .50
Extraordinary
charges.............. -- (.18) (.13) -- (.45)
Net income (loss)...... (1.24) (.46) (.12) .46 .37
Total assets............... 938,148 659,451 1,004,565 1,019,602 1,123,732
Long-term debt............. 634,026 341,110 563,980 668,281 850,859
Stockholders' equity
(deficit)(4)............. 20,650 6,765 44,521 (8) 11,272 (166,726)(11)
Weighted-average common
shares outstanding....... 29,764 29,898 30,132 30,306 26,015 (11)
- ---------
(1) Selected Financial Data for the years prior to the fiscal year ended
January 2, 2000 have been retroactively reclassified to reflect the
discontinuance of the Company's propane business sold in July 1999. In
addition, Selected Financial Data for the fiscal years ended on or prior to
December 28, 1997 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. In accordance with this method, the
Company's 1997 and 1999 fiscal years contained 52 weeks and its fiscal year
1998 contained 53 weeks.
(3) Basic and diluted loss per share are the same for each of the years in the
three-year period ended December 28, 1997 since the only then existing
potentially dilutive securities, stock options, would have had an
antidilutive effect for all such years. The shares used in the calculation
of diluted income per share for the years ended January 3, 1999
(31,527,000) and January 2, 2000 (26,943,000) consist of the weighted
average common shares outstanding and potential common shares reflecting
the effect of dilutive stock options of 1,221,000 and 818,000,
respectively, and for the year ended January 2, 2000 the effect of a
dilutive forward purchase obligation for common stock of 110,000 shares.
(4) The Company has not paid any dividends on its common shares during any of
the years presented.
(5) Reflects certain significant charges and credits recorded during 1995 as
follows: $16,591,000 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 $3,280,000 of accelerated vesting of restricted stock, less $4,036,000
of other net credits; and $6,789,000 charged to loss from continuing
operations and net loss representing the aforementioned $16,591,000 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 $686,000 of
(footnotes continued on next page)
22
(footnotes continued from previous page)
income tax provision relating to the aggregate of the above net charges and
a $3,600,000 provision for income tax contingencies.
(6) 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 impairment of long-lived assets principally company-owned
restaurants and related exit costs and $8,800,000 of facilities relocation
and corporate restructuring; $53,291,000 charged to loss from continuing
operations representing the aforementioned $73,100,000 charged to operating
loss, $8,175,000 of losses on sale of businesses, less $27,984,000 of
income tax benefit relating to the aggregate of the above charges; and
$6,695,000 charged to net loss representing the aforementioned $53,291,000
charged to loss from continuing operations, less $52,012,000 of gain on
disposal of discontinued operations and plus a $5,416,000 extraordinary
charge from the early extinguishment of debt.
(7) Reflects certain significant charges and credits recorded during 1997 as
follows: $38,890,000 charged to operating profit representing $31,815,000
of charges for post-acquisition related transition, integration and changes
to business strategies and $7,075,000 of facilities relocation and
corporate restructuring; $25,864,000 charged to loss from continuing
operations representing the aforementioned $38,890,000 charged to operating
profit, $3,513,000 of loss on sale of businesses, net, less $16,539,000 of
income tax benefit relating to the aggregate of the above net charges; and
$4,716,000 charged to net loss representing the aforementioned $25,864,000
charged to loss from continuing operations, less $24,929,000 of gain on
disposal of discontinued operations and plus a $3,781,000 extraordinary
charge from the early extinguishment of debt.
(8) In connection with the acquisition of Stewart's Beverages, Inc., the
Company issued 1,566,858 shares of its common stock with a value of
$37,409,000 for all of the then outstanding stock of Stewart's and issued
154,931 stock options with a value of $2,788,000 in exchange for all of the
outstanding stock options of Stewart's resulting in an increase in
stockholders' equity, net of expenses, of $39,547,000.
(9) Reflects certain significant credits recorded during 1998 as follows:
$3,067,000 credited to income from continuing operations representing
$5,016,000 of gain on sale of businesses, less $1,949,000 of income tax
provision relating to the above credit; and $7,074,000 credited to net
income representing the aforementioned $3,067,000 credited to income from
continuing operations and a $4,007,000 gain on disposal of discontinued
operations.
(10) Reflects certain significant charges and credits recorded during 1999 as
follows: $5,474,000 charged to operating profit representing capital
structure reorganization charges related to equitable adjustments made to
the terms of outstanding stock options of a subsidiary; $892,000 credited
to income from continuing operations representing the aforementioned
$5,474,000 charged to operating profit more than offset by $2,641,000 of
reversal of excess interest expense accruals for IRS examinations,
$2,525,000 of release of excess reserves for IRS examinations, and
$1,200,000 of income tax benefit relating to the aggregate of the above net
charges; and $3,897,000 credited to net income representing the
aforementioned $892,000 credited to income from continuing operations and
$15,102,000 of gain on disposal of discontinued operations, less a
$12,097,000 extraordinary charge from the early extinguishment of debt.
(11) In 1999 the Company repurchased for treasury 3,805,015 shares of its Class
A common stock and 1,999,208 shares of Class B common stock and recorded a
forward purchase obligation for two future purchases of Class B common
stock, which resulted in an aggregate $203,346,000 reduction to
stockholders' equity resulting in a stockholders' deficit.
23
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 and a
soft drink concentrate producer. Since 1995 we have acquired the Mistic, Snapple
and Stewart's premium beverage brands 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 restaurant franchise businesses.
In our premium beverage business we derive our 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
a private label customer. To a much lesser extent, before 1999 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 3.3% in 1999. We incur selling, general
and administrative costs but no cost of goods sold in our franchising business.
On July 19, 1999 we consummated the sale of 41.7% of our remaining 42.7%
interest in National Propane Partners L.P. and a subpartnership, National
Propane, L.P., which operated the propane business, retaining a 1% limited
partner interest. Accordingly, the propane business, formerly reported as a
business segment, has been accounted for as a discontinued operation in the year
1999 through the date of sale and the consolidated financial statements included
elsewhere herein for the years 1997 and 1998 have been reclassifed accordingly.
None of our operating businesses requires significant capital expenditures
because we own no restaurants or manufacturing facilities, other than a Royal
Crown concentrate manufacturing facility. The amortization of costs in excess of
net assets of businesses acquired, which we refer to as goodwill, trademarks and
other items results in significant non-cash charges.
In recent years our premium beverage business has experienced the following
trends:
Acquisition/consolidation of distributors
The development of proprietary packaging
Increased pressure by competitors to achieve account exclusivity
The increased use of plastic packaging
Growing consumer demand for all-natural, health-oriented products
The proliferation of new products including premium beverages, bottled
water and beverages enhanced with herbal additives, for example,
ginseng and echinachea
Increased placement of refrigerated coolers by bottlers in customer
locations
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:
Increased competition in the form of lower prices although there has
been some improvement commencing in late 1999
Adverse economic conditions in some international markets, especially
Russia and Turkey
Increased pressure by competitors to achieve account exclusivity
Acquisition/consolidation of bottlers
Increased placement of refrigerated coolers by bottlers in customer
locations
24
Increased use of multi-packs in certain trade channels
Increased market share of private label beverages
Increased consumer preference for flavored soft-drink beverages
In recent years our restaurant franchising business has experienced the
following trends:
Consistent growth of the restaurant industry as a percentage of total
food-related spending
Increased competitive pressures from the emphasis by competitors on new
unit development to increase market share leading to frequent use of
price promotions and heavy advertising expenditures within the industry
Increased price competition in the quick service restaurant industry,
particularly as evidenced by the value menu concept which offers
comparatively lower prices on some 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
Additional competitive pressures for prepared food purchases from
operations outside the restaurant industry such as deli sections and
in-store cafes of several major grocery store chains
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.
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 Private Securities Litigation
Reform Act of 1995. 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,
our 1998 fiscal year commenced December 29, 1997 and ended on January 3, 1999
and our 1999 fiscal year commenced January 4, 1999 and ended on January 2, 2000.
As a result of our fiscal year convention, our 1997 and 1999 fiscal years
contained 52 weeks and our 1998 fiscal year contained 53 weeks. However, due to
the seasonality of our beverage businesses, the extra week in fiscal 1998
occurring in late December and early January has lower than average weekly
revenues. Accordingly, we do not believe the extra week in the 1998 fiscal year
has a material impact on the discussion below of our results of operations. When
we refer to '1999' we mean the period from January 4, 1999 to January 2, 2000;
when we refer to '1998' we mean the period from December 29, 1997 to January 3,
1999; and when we refer to '1997' we mean the period from January 1, 1997
through December 28, 1997.
The following table shows the relative significance of the contribution of
each of our segments to total revenues, gross profit, EBITDA (see definition
below) and operating profit for our most recent fiscal year which ended
January 2, 2000 (in thousands):
Revenues:
Premium beverages....................................... $651,076 76.2%
Soft drink concentrates................................. 121,110 14.2
Restaurant franchising.................................. 81,786 9.6
-------- -----
Total............................................... $853,972 100.0%
-------- -----
-------- -----
Gross profit:
Premium beverages....................................... $268,615 60.5%
Soft drink concentrates................................. 93,761 21.1
Restaurant franchising.................................. 81,786 18.4
-------- -----
Total............................................... $444,162 100.0%
-------- -----
-------- -----
25
EBITDA:
Premium beverages....................................... $ 79,545 67.1%
Soft drink concentrates................................. 21,108 17.8
Restaurant franchising.................................. 48,998 41.3
General corporate....................................... (31,081) (26.2)
-------- -----
Total............................................... $118,570 100.0%
-------- -----
-------- -----
Operating profit (loss):
Premium beverages....................................... $ 56,638 68.0%
Soft drink concentrates................................. 14,123 17.0
Restaurant franchising.................................. 46,830 56.2
General corporate....................................... (34,336) (41.2)
-------- -----
Total............................................... $ 83,255 100.0%
-------- -----
-------- -----
We calculate gross profit as total revenues less (1) cost of sales,
excluding depreciation and amortization and (2) depreciation and amortization
related to sales. 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, these 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 (1) operating, (2) investing
and (3) 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 (1) all non-cash charges or credits including, but not
limited to, depreciation and amortization and (2) 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, you should refer to our consolidated statements of cash
flows included elsewhere herein. For a reconciliation of consolidated EBITDA to
income (loss) from continuing operations before income taxes for 1999, you
should refer to Note 24 to our consolidated financial statements included
elsewhere herein.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
Revenues
Our revenues increased $38.9 million to $854.0 million in 1999 compared with
1998. A discussion of the changes in revenues by segment is as follows:
Premium Beverages -- Our premium beverage revenues increased $39.5
million (6.5%) in 1999 compared with 1998. The increase, which relates
entirely to sales of finished product, reflects higher volume and, to a
lesser extent, higher average selling prices in 1999. The increase in volume
principally reflects (1) 1999 sales of Snapple Elements'TM', a new product
platform of herbally enhanced drinks introduced in April 1999, (2) increased
cases sold to retailers through Millrose Distributors, Inc. principally
reflecting an increased focus on our products as a result of our ownership
of this New Jersey distributor, which we refer to as Millrose, since
February 25, 1999 (see further discussion of the Millrose acquisition below
under 'Liquidity and Capital Resources'), (3) higher sales of diet teas and
other diet beverages and juice drinks and (4) higher sales of Stewart's
products as a result of increased distribution in existing and new markets
and the December 1998 introduction of Stewart's grape soda. The higher
average selling prices principally reflect (1) the effect of the Millrose
acquisition since February 25, 1999 whereby we sell product at higher prices
directly to retailers compared with sales at lower prices to a distributor
such as Millrose and (2) selective price increases.
Soft Drink Concentrates -- Our soft drink concentrate revenues decreased
$3.8 million (3.0%) in 1999 compared with 1998. This decrease is
attributable to lower Royal Crown sales of (1) concentrate of $2.4
26
million, or 1.9%, and (2) finished goods of $1.4 million, or 100%, which the
soft drink concentrate segment no longer sells. The decrease in Royal Crown
sales of concentrate reflects a $7.8 million decline in branded sales,
primarily due to lower domestic volume reflecting continued competitive
pricing pressures (such pressures have lessened somewhat commencing in late
1999 and continuing into the first quarter of 2000) experienced by our
bottlers, and lower international volume primarily due to the continued
depressed economic conditions experienced in Russia which commenced in
August of 1998, partially offset by a $5.4 million volume increase in
private label sales reflecting a general business recovery being experienced
by our private label customer.
Restaurant Franchising -- Our restaurant franchising revenues increased
$3.2 million (4.0%) in 1999 compared with 1998. This increase reflects
higher royalty revenue and slightly higher franchise fee revenue. The
increase in royalty revenue resulted from an average net increase of 70, or
2.3%, franchised restaurants and a 2.0% increase in same-store sales of
franchised restaurants.
Gross Profit
Our gross profit increased $18.8 million to $444.2 million in 1999 compared
with 1998 principally due to the effect of higher sales volumes as discussed
above. Our gross margins, which we compute as gross profit divided by total
revenues, were unchanged at 52%. A discussion of gross margins by segment is as
follows:
Premium Beverages -- Our gross margins were unchanged in 1999 compared
with 1998 at 41%. The positive effect on gross margins from (1) the
selective price increases noted above, (2) the effect of the higher selling
prices resulting from the Millrose acquisition and (3) the effect of lower
freight costs was fully offset by (1) increased packaging and raw materials
costs and (2) increased warehousing fees and overhead.
Soft Drink Concentrates -- Our gross margins increased 1% to 77% in
1999. This increase was due to (1) lower costs of the raw materials
aspartame and [lemon oils] used as a component in the manufacturing of
concentrate and (2) the effects of changes in product mix whereby the
positive effect of our no longer selling the lowest-margin finished goods in
1999 was partially offset by a shift in sales to private label concentrate
in 1999 which has a somewhat lower margin than branded concentrate.
Restaurant Franchising -- Our gross margins during each period are 100%
because royalties and franchise fees constitute the total revenues of the
segment and these are with no associated cost of sales.
Advertising, Selling and Distribution Expenses
Advertising, selling and distribution expenses increased $3.6 million to
$201.5 million in 1999. This increase was principally due to (1) an overall
increase in promotional spending by the premium beverage segment principally
reflecting expenditures resulting from new product introductions and overall
higher sales volume and (2) higher employee compensation and related costs
reflecting an increase in the number of sales and distribution employees in the
premium beverage segment, both partially offset by a decrease in the expenses of
the soft drink concentrate segment reflecting lower bottler promotional
reimbursements and other promotional spending resulting from the decline in
branded concentrate sales volume.
General and Administrative Expenses
General and administrative expenses increased $9.7 million to $121.8 million
in 1999. This increase principally reflects (1) expenses of $6.7 million in 1999
related to new executive salary arrangements and an executive bonus plan
effective May 3, 1999 and (2) other increases in compensation and benefit costs,
all partially offset by non-recurring provisions in 1998 of (1) $0.8 million for
the settlement of a lawsuit with ZuZu, Inc., a former affiliate with which we
were developing dual-branding strategies, (2) $1.7 million for the then
anticipated settlement of a lawsuit with Arby's Mexican master franchise which
was ultimately settled in October 1999 and (3) $1.5 million for a severance
arrangement under the last of our 1993 employment agreements. Since the new
executive salary arrangements and bonus plan were only in effect for eight
months of 1999, we expect higher compensation costs in 2000 relating to these
salaries and bonuses, assuming there were no other changes in the bonus
determinants.
27
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Depreciation and amortization, excluding amortization of deferred financing
costs, increased $0.1 million to $35.3 million in 1999 principally reflecting an
increase in amortization of Goodwill and other intangibles as a result of the
Millrose acquisition, substantially offset by nonrecurring 1998 (1) depreciation
of $0.7 million of vending machines of the soft drink concentrate segment which
became fully depreciated in the third quarter of 1998 and (2) amortization of
$0.3 million of certain franchise rights and a non-compete agreement of the
restaurant franchising segment becoming fully amortized in 1998.
Capital Structure Reorganization Related Charge
The capital structure reorganization related charge of $5.5 million in 1999
reflects equitable adjustments that were made to the terms of outstanding
options under a stock option plan of Triarc Beverage Holdings Corp., a 99.9%
owned subsidiary of ours and the parent company of Snapple Beverage Corp.,
Mistic Brands, Inc. and Stewart's Beverages, Inc. The option plan provides for
an equitable adjustment of options in the event of a recapitalization or
simlilar event. The option prices were equitably adjusted in 1999 to adjust for
the effects of net distributions of $91.3 million, principally consisting of
transfers of cash and deferred tax assets from Triarc Beverage Holdings to
Triarc, partially offset by the effect of the contribution of Stewart's to
Triarc Beverage Holdings effective May 17, 1999. The exercise prices of the
options granted in 1997 and 1998 were equitably adjusted from $147.30 and
$191.00 per share, respectively, to $107.05 and $138.83 per share, respectively,
and a cash payment of $51.34 and $39.40 per share, respectively, is due from
us to the option holder following the exercise of the stock options and
either (1) the sale by the option holder of shares of Triarc Beverage
Holdings common stock received upon the exercise of the stock options or (2)
consummation of an initial public offering of Triarc Beverage Holdings. The
capital structure reorganization related charge of $5.5 million in 1999
represents the vested portion as of January 2, 2000 of the aggregate maximum
$6.7 million cash payments to be recognized over the full vesting period
assuming all remaining outstanding Triarc Beverage Holdings stock options either
have vested or will become vested, net of credits for forfeitures of non-vested
stock options of terminated employees. We expect to recognize additional pre-tax
charges relating to this equitable adjustment of $0.9 million in 2000 and $0.3
million in 2001 as the affected stock options continue to vest. There was no
similar charge in 1998. No compensation expense will be recognized for other
changes in the terms of the outstanding options because the modifications to the
options did not create a new measurement date under generally accepted
accounting principles.
Charges (Credit) Related to Post-Acquisition Transition, Integration and Changes
to Business Strategies
The 1999 credit related to post-acquisition transition, integration and
changes to business strategies of $0.5 million resulted from changes in the
estimated amount of the additional Snapple reserves for doubtful accounts
originally provided for as a component of this caption in 1997 as discussed
below in the comparison of 1998 with 1997.
Facilities Relocation and Corporate Restructuring Charges (Credits)
The 1999 facilities relocation and corporate restructuring credits of $0.5
million principally relate to severance and related termination costs associated
with the relocation of Royal Crown's corporate headquarters which were
centralized with Triarc Beverage Holdings offices in White Plains, New York and
the sale of all of our company-owned Arby's restaurants, both which took place
in 1997. Such credits resulted from relatively insignificant changes to the
original estimates used in determining the related provisions for such items in
1996 and 1997 which aggregated $7.6 million, including $5.6 million in 1997
which is discussed below in the comparison of 1998 with 1997.
Interest Expense
Interest expense increased $16.4 million to $84.3 million in 1999 reflecting
higher average levels of debt during 1999 due to increases from a first quarter
1999 debt refinancing and, to a lesser extent, higher average interest rates in
the 1999 period. Such refinancing consisted of (1) the issuance of $300.0
million of 10 1/4% senior subordinated notes due 2000 and (2) $475.0 million
borrowed under a senior bank credit facility and the repayment of (1) $284.3
million under a former credit facility of Triarc Beverage Holdings and (2)
$275.0
28
million of 9 3/4% senior secured notes due 2000 of RC/Arby's Corporation, the
parent of Royal Crown and Arby's.
Investment Income, Net
Investment income, net increased $6.7 million to $18.5 million in 1999
reflecting (1) reduced provisions of $4.7 million recognized in 1999 compared
with 1998 for unrealized losses on short-term investments and other investments
deemed to be other than temporary due to global economic conditions and/or
volatility in capital and lending markets or declines in the underlying
economics of specific marketable equity and debt securities experienced in such
years, (2) a $2.4 million increase in 1999 in interest income on cash and cash
equivalents and short-term investments resulting from the investment of excess
proceeds from the first quarter 1999 debt refinancing and related transactions
and (3) a $1.6 million increase in equity in earnings of investment limited
partnerships and similar investment entities accounted for under the equity
method. Such increases were partially offset by $2.0 million of lower net
recognized gains to $6.8 million in 1999 from realized or unrealized, as
applicable, gains or losses on our investments. Such recognized gains may not
recur in future periods.
Gain (Loss) on Sale of Businesses, Net
Gain on sale of businesses, net decreased $4.3 million to $0.7 million in
1999 primarily due to (1) a $4.7 million non-recurring gain in 1998 from the May
1998 sale of our former 20% interest in Select Beverages, Inc. and (2) a $0.9
million reduction to the gain from the Select Beverages sale recognized during
1999 resulting from a post-closing adjustment to the sales price higher than the
adjustment originally estimated in determining the $4.7 million gain on the sale
recorded in 1998. The post-closing adjustment was determined as a result of an
arbitration hearing which commenced and concluded in 1999. These reductions were
partially offset by our $1.2 million gain recognized in 1999 from the reduction
in our ownership of MCM Capital Group, Inc., an investment accounted for under
the equity method, as a result of the sale of common stock issued by MCM Capital
Group, which is not expected to recur in future periods.
Other Income, Net
Other income, net increased $2.2 million to $3.6 million in 1999. This
increase was principally due to a $1.7 million net improvement in 1999 in our
equity in the income or loss of affiliates, other than investment limited
partnerships and similar investment entities, primarily reflecting the effects
of (a) the $1.3 million nonrecurring equity in the loss of Select Beverages in
1998 and (b) our $1.0 million equity in a gain recognized by a limited
partnership in which we have an investment, which may not recur in future
periods. We owned 20% of Select Beverages until May 1998 when we sold our 20%
interest.
Provision for Income Taxes
The provision for income taxes represented effective rates of 60% for 1999
and 56% for 1998. The effective rate is higher in the 1999 period principally
due to the greater impact of the non-deductible amortization of Goodwill in 1999
due to lower 1999 pre-tax income, entirely due to higher net non-operating
expenses. Such increase was partially offset by the 1999 release of excess
income tax reserves as a result of the settlement of Internal Revenue Service
examinations of our tax returns for the tax years from 1989 to 1993.
Discontinued Operations
Income from discontinued operations was $13.5 million in 1999 compared with
income of $0.4 million in 1998. The 1999 amount represents (1) an $11.2 million
after-tax gain on disposal of National Propane Partners, a partnership in which
we sold 41.7% of our remaining 42.7% interest in July 1999, (2) a $2.7 million
after-tax reduction in 1999 to previously recognized estimated disposal losses
related to certain discontinued operations of SEPSCO, LLC, a subsidiary of ours,
principally representing the receipt by SEPSCO of an income tax refund and the
release of income tax reserves no longer deemed required based upon the results
of Internal Revenue Service examinations of our tax returns for the tax years
from 1989 to 1993 and (3) recognition of $1.2 million of previously deferred
gains, after-tax, from the 1996 sale of 57.3% of our interest
29
in National Propane Partners, all partially offset by our $1.6 million after-tax
equity in the loss from discontinued operations of the propane business through
the July 19, 1999 date of sale. The 1998 amount represents (1) a $2.6 million
after-tax credit in 1998 to amounts provided in prior years as a result of the
collection of a note receivable not previously recognized for the estimated loss
on disposal of certain operations of SEPSCO and (2) recognition of $1.4 million
of previously deferred gains, after-tax, from the 1996 sale of 57.3% of our
interest in National Propane Partners, both partially offset by our $3.6 million
after-tax equity in the loss from discontinued operations of the propane
business.
Extraordinary Charges
The extraordinary charges in 1999 aggregating $12.1 million resulted from
the early extinguishment of borrowings under the former credit facility of
Triarc Beverage Holdings and the RC/Arby's 9 3/4% notes and consisted of (1) the
write-off of previously unamortized (a) deferred financing costs of $11.3
million and (b) interest rate cap agreement costs of $0.1 million and (2) the
payment of a $7.7 million redemption premium on the RC/Arby's 9 3/4% notes, less
income tax benefit of $7.0 million.
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 Stewart's.
Third, on May 5, 1997 we sold all of our company-owned Arby's restaurants. As a
result, our 1998 results reflect for the entire period the results of operations
of Snapple and Stewart's but no results of operations attributable to the
ownership of the sold restaurants. In contrast, 1997 results reflect the results
of operations of Snapple and Stewart's only from their dates of acquisition and
reflect the results of operations attributable to the ownership of the sold
restaurants through the date of sale. In addition, we sold C.H. Patrick & Co.,
Inc., our former dyes and specialty chemical operations, on December 23, 1997
which are reported in 1997 as discontinued operations. As previously discussed,
during 1999 we sold all but 1% of our remaining interest in the propane business
and the results of operations of the propane business or our equity in those
results for 1997 and 1998, as applicable, have been reclassified to discontinued
operations.
Because of the three significant transactions referred to above, 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 increased $118.9 million to $815.0 million in 1998 compared to
1997. This increase primarily results from the inclusion of Snapple and
Stewart's sales for all of 1998, compared with inclusion for only a portion of
1997, which resulted in $191.9 million of additional revenues. These increases
were partially offset by the absence during 1998 of sales attributable to the
ownership of the sold restaurants. These sales were $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 of $3.2 million. Without the effects
of the acquisitions of Snapple and Stewart's and the sale of the company-owned
restaurants, our 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 Stewart's 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 of $12.5
million partially offset by a decrease in sales of concentrate of $1.7
million, which the premium beverage segment sells to only one international
customer. The increase in sales of finished goods principally reflects net
higher volume of $18.9 million primarily due to new product introductions as
well as increases in sales of teas, diet teas and other diet beverages. This
increase was partially offset by the $6.4 million effect of lower average
selling prices. 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.
30
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 sales of concentrate of $15.5 million (11.2%) and
finished goods of $6.5 million (81.7%). The decrease in Royal Crown sales of
concentrate reflects (1) a $13.7 million decline in branded sales, primarily
due to lower domestic volume reflecting competitive pricing pressures
experienced by our bottlers and (2) a $1.8 million volume decrease in
private label sales due principally to inventory reduction programs of our
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 higher royalty revenue reflecting (1) a 4.6%
increase in average royalty rates due to the declining significance of older
franchise agreements with lower rates, (2) a 3.0% increase in same-store
sales of franchised restaurants and (3) a net increase of 47 (1.6%)
franchised restaurants, which generally experience higher than average
restaurant volumes.
Gross Profit
Our gross profit increased $61.6 million to $425.4 million in 1998 compared
with 1997. Gross profit increased $80.9 million due to the inclusion of gross
profit relating to Snapple and Stewart's 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 the $15.0 million in 1997 of gross profit attributable to
ownership of the sold restaurants less the incremental royalties from those sold
restaurants during that portion of the 1998 period of $3.2 million. Giving
effect to the adjustments described above relating to the acquisitions of
Snapple and Stewart's and the sale of the company-owned restaurants, our gross
profit decreased $7.5 million. This decrease occurred, despite the effect of
higher sales volumes discussed above, due to a slight decrease in our aggregate
gross margins, 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
relating to the Snapple and Stewart's 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 (1) changes in product mix,
(2) the aforementioned change in Snapple's Canadian distribution and (3)
$3.3 million of increased provisions for obsolete inventory during the
fourth quarter. The increased provisions for obsolete inventory principally
resulted from raw materials and finished goods inventories that passed their
shelf lives during the fourth quarter of 1998 and that were not timely used
due to (1) difficulties experienced as we transitioned to our new
manufacturing systems and (2) our overstocking some raw materials and
finished products in our attempt to minimize unfilled orders in order to
improve customer satisfaction. These decreases were 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 a 1997 nonrecurring $1.1 million reduction to cost of sales
resulting from the guarantee to us of certain minimum gross profit levels on
sales to our private label customer and lower private label gross margins.
We 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% because royalties and franchise fees, with no associated cost of sales,
now constitute the total revenues of the segment.
31
Advertising, Selling and Distribution Expenses
Advertising, selling and distribution expenses increased $14.7 million to
$197.9 million in 1998 reflecting the inclusion of Snapple and Stewart's for the
full 1998 year. This increase was partially offset by (1) a decrease in the
expenses of the premium beverage segment excluding Snapple and Stewart's
principally due to less costly promotional programs, (2) 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 and (3) 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 increased $13.6 million to $112.1
million in 1998. This increase principally reflects (1) the inclusion of Snapple
and Stewart's operations for all of 1998 and (2) provisions in 1998 of (a) $0.8
million for the settlement of a lawsuit with ZuZu, (b) $1.7 million for the then
anticipated settlement of a lawsuit with Arby's Mexican master franchisee and
(c) $1.5 million for a severance arrangement under the last of our 1993
executive employment agreements, all as discussed above in the comparison of
1999 with 1998. These increases were partially offset by (1) nonrecurring 1997
costs in connection with the integration of the Snapple business following its
acquisition and (2) reduced restaurant segment costs for administrative support,
principally payroll, no longer required for the sold restaurants and other cost
reduction measures. The 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.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Depreciation and amortization, excluding amortization of deferred financing
costs, increased $8.2 million to $35.2 million in 1998 principally reflecting
the inclusion of Snapple and Stewart's for all of 1998 and depreciation expense
on $4.6 million of vending machines purchased by Royal Crown in January 1998.
Charges (Credit) Related to Post-Acquisition Transition, Integration and Changes
to Business Strategies
The nonrecurring charges related to post-acquisition transition, integration
and changes to business strategies of $31.8 million in 1997 were associated with
the Snapple acquisition and, to a much lesser extent, the Stewart's acquisition.
Those charges consisted of:
(1) a $12.6 million write-down of glass front vending machines based on
the reduction in our estimate of their value to scrap value based on our
plans for their future use, resulting from our decision to no longer sell
the machines to our distributors but to allow them to use the machines at
locations chosen by them,
(2) a $6.7 million provision for additional reserves for legal matters
based on our change in The Quaker Oats Company's estimate of the amounts
required reflecting our plans and estimates of costs to resolve these
matters, because we had decided to attempt to quickly settle these matters
in order to improve relationships with customers,
(3) a $3.2 million provision for additional reserves for doubtful
accounts of Snapple and the effect of the Snapple acquisition on the
collectibility of a receivable from our affiliate, MetBev, Inc., based on
our change in estimate of the related write-off to be incurred, because we
had decided not to actively seek to collect certain balances in order to
improve relationships with customers,
(4) a $2.8 million provision for fees paid to Quaker Oats under a
transition services agreement whereby Quaker Oats provided certain operating
and accounting services for Snapple through the end of our 1997 second
quarter while we transitioned the records, operations and management to our
systems,
(5) the $2.5 million portion of the post-acquisition period promotional
expenses we estimated was related to the pre-acquisition period as a result
of our then current operating expectations, because we had decided not to
pursue many questionable claimed promotional credits in order to improve
relationships with customers,
32
(6) a $2.0 million provision for supplemental incentive compensation
payments to certain of our executives directly involved with the successful
completion of the acquisition of Snapple and the related refinancing,
(7) a $1.6 million provision for costs, principally for independent
consultants, incurred in connection with the data processing implementation
of the accounting systems for Snapple, including costs incurred relating to
an alternative system that was not implemented. Under Quaker Oats, Snapple
did not have its own independent data processing accounting systems, and
(8) a $0.4 million acquisition related sign-on bonus.
You should read Note 13 to the consolidated financial statements appearing
elsewhere herein where additional disclosures relating to the charges related to
post-acquisition transition, integration and changes to business strategies are
provided.
Facilities Relocation and Corporate Restructuring Charges (Credits)
The nonrecurring facilities relocation and corporate restructuring charges
of $7.1 million in 1997 principally consisted of (1) $5.6 million 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, (2) $1.2 million of costs associated with the
relocation of Royal Crown's corporate headquarters and (3) to a much lesser
extent, $0.3 million for the write-off of the remaining unamortized costs of
certain beverage distribution rights reacquired in prior years and no longer
being utilized by us.
By disposing of the company-owned restaurants and focusing on solely being a
franchisor of restaurants, we anticipated that we would realize operating profit
improvements. We anticipated that the relocation of Royal Crown would result in
(1) improved operating results through cost savings by combining certain
corporate functions with those of Triarc Beverage Holdings and (2) improved
operations by sharing the experienced senior management team of Triarc Beverage
Holdings.
You should read Note 14 to the consolidated financial statements appearing
elsewhere herein where additional disclosures relative to the 1997 facilities
relocation and corporate restructuring charges are provided.
Interest Expense
Interest expense increased $8.8 million to $67.9 million for 1998. This
increase reflects the effect of higher average levels of debt due to (1) 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 (2) the February 9, 1998 issuance by
Triarc of zero coupon convertible subordinated debentures due 2018 ($106.1
million net of unamortized original issue discount outstanding as of January 3,
1999). This increase was partially offset by the elimination of interest on
$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.
Investment Income, Net
Investment income, net decreased $0.9 million to $11.8 million in 1998
principally reflecting (1) a $9.3 million provision in 1998 for unrealized
losses on short-term investments and other investments deemed to be other than
temporary as previously discussed in the comparison of 1999 with 1998 and (2) a
$0.3 million increase in investment management and performance fees. Such
decreases were substantially offset by (1) a $3.9 million increase in net
recognized gains from realized and unrealized, as applicable, gains or losses on
our investments, (2) 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 zero coupon debentures, (3)
a $0.6 million increase in equity in earnings of investment limited partnerships
and (4) a $0.3 million increase in dividend income.
33
Gain (Loss) on Sale of Businesses, Net
Gain on sale of businesses, net increased $8.5 million to $5.0 million in
1998 primarily due to (1) a $4.7 million gain from the May 1998 sale of our 20%
interest in Select Beverages and (2) a $4.1 million nonrecurring loss in 1997
from the May 1997 sale of company-owned restaurants.
Other Income, Net
Other income, net decreased $1.3 million to $1.4 million in 1998 principally
due to (1) a reduction of $2.3 million in 1998 in our equity in the income or
loss of affiliates other than investment limited partnerships, (2) 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 and (3) $0.9 million of costs incurred in 1998 in connection with a
proposed going-private transaction not consummated as described below under
'Liquidity and Capital Resources.' These effects were partially offset by (1) 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
and (2) $0.6 million of the full period effect of Snapple, other than equity in
the earnings or losses of investees, consisting principally of interest income
and rental income.
Income Taxes
The provision for income taxes in 1998 represented an effective rate of 56%
and the benefit from income taxes in 1997 represented an effective rate of 22%.
The effective rate is higher in the 1998 period principally due to (1) the
differing impact on the respective effective income tax rates of the
amortization of non-deductible Goodwill in a period with pre-tax income (1998)
compared with a period with a pre-tax loss (1997) and (2) the differing impact
of the mix of pre-tax loss or income among the consolidated entities since we
file state tax returns on an individual company basis.
Discontinued Operations
Income from discontinued operations amounted to $0.4 million in 1998
compared with $23.6 million in 1997. The 1998 amount represents (1) a $2.6
million after-tax credit to amounts provided in prior years for the estimated
loss on disposal of certain operations of SEPSCO as discussed above in the
comparison of 1999 with 1998 and (2) recognition of $1.4 million of previously
deferred gains, after-tax, from the 1996 sale of 57.3% of our interest in
National Propane Partners, both partially offset by our $3.6 million after-tax
equity in the loss from discontinued operations of the propane business. The
1997 amount represents (1) the after-tax $19.5 million gain on the sale of C.H.
Patrick, (2) recognition of $5.4 million of previously deferred gains,
after-tax, from the 1996 sale of our interest in National Propane Partners and
(3) the 1997 net income of $1.2 million of C.H. Patrick through the
December 23, 1997 date of sale, all partially offset by a $2.5 million after-tax
loss from discontinued operations of the propane business.
Extraordinary Charges
The 1997 nonrecurring extraordinary charges aggregating $3.8 million
resulted from the early extinguishment or assumption of (1) mortgage and
equipment notes payable assumed by the buyer in the restaurants sale, (2)
obligations under Mistic's former credit facility refinanced in connection with
the financing of the Snapple acquisition and (3) borrowings under the credit
agreement of C.H. Patrick repaid in connection with its sale. These
extraordinary charges were comprised of the write-off of $6.2 million of
previously unamortized deferred financing costs less the related income tax
benefit of $2.4 million.
34
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operations
Our consolidated operating activities provided cash and cash equivalents,
which we refer to in this discussion as cash, of $52.2 million during 1999
principally reflecting (1) net income of $10.1 million, (2) net non-cash charges
of $62.2 million, principally depreciation and amortization of $46.9 million and
the write-off of unamortized deferred financing costs and interest rate cap
agreement costs of $11.4 million relating to the refinancing transactions
described below and (3) proceeds of $7.9 million from sales of trading
securities, net of purchases. These sources were partially offset by (1) cash
used by changes in operating assets and liabilities of $21.2 million, (2) net
reclassifications of components of investing activities, principally
discontinued operations and net recognized gains from sales of
available-for-sale marketable securities and securities sold short, to cash
flows from activities other than operating of $5.7 million and (3) other of $1.1
million.
The cash used by changes in operating assets and liabilities of $21.2
million reflects increases in receivables of $13.6 million and inventories of
$12.1 million. These effects were partially offset by a $1.2 million decrease in
prepaid expenses and other current assets and a $3.3 million increase in
accounts payable and accrued expenses. The increase in receivables was
principally due to increased premium beverage sales in December 1999 compared
with December 1998. The increase in inventories was primarily due to the recent
introduction of several new premium beverage product lines and the build-up of
our beverage inventories in late December 1999 to mitigate the effects of
temporary supply disruptions which might have occurred if some of our suppliers'
computer systems were not year 2000 compliant. Accounts payable and accrued
expenses did not increase in proportion with the late December 1999 inventory
buildup primarily due to accelerated payments to suppliers in December 1999
compared with December 1998.
We expect continued positive cash flows from operations during 2000.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$238.0 million at January 2, 2000, reflecting a current ratio, which equals
current assets divided by current liabilities, of 2.0:1. Our capitalization at
January 2, 2000 aggregated $812.5 million consisting of $893.0 million of
long-term debt, including current portion, and an $86.2 million forward purchase
obligation for common stock discussed below, partially offset by a stockholders'
deficit of $166.7 million. Our working capital and total capitalization
increased $61.5 million and $123.0 million, respectively, from January 3, 1999
principally due to the refinancing transactions, including the acquisition of
Millrose, and the propane partnership sale, both described below, and operating
activities, partially offset by the repurchase of treasury stock and the
acquisition of Snapple Distributors of Long Island, Inc., both also described
below.
The Propane Partnership Sale
On July 19, 1999 National Propane Corporation, a subsidiary of ours, sold
41.7% of our 42.7% remaining interest in National Propane Partners, L.P. and a
subpartnership, National Propane, L.P., to Columbia Propane, L.P., retaining a
1% limited partner interest. The consideration paid to us consisted of cash of
$2.9 million and the forgiveness of $15.8 million of the $30.7 million remaining
outstanding principal balance under a 13 1/2% note payable to National Propane,
L.P. In connection with the closing of the propane partnership sale on July 19,
1999, we repaid the remaining $14.9 million of the 13 1/2% note payable to
National Propane, L.P.
Refinancing Transactions
On February 25, 1999 Triarc Consumer Products Group, LLC, the parent of
Triarc Beverage Holdings and RC/Arby's, and Triarc Beverage Holdings issued
$300.0 million principal amount of 10 1/4% senior subordinated notes due 2009
and concurrently entered into a $535.0 million senior bank credit facility. The
credit facility consists of a $475.0 million term facility, all of which was
borrowed as three classes of term loans on February 25, 1999, and a $60.0
million revolving credit facility which provides for borrowings by Snapple,
Mistic, Stewart's, Royal Crown or RC/Arby's. They may make revolving loan
borrowings of up to 80% of
35
eligible accounts receivable plus 50% of eligible inventories. There were no
borrowings of revolving loans in 1999. At January 2, 2000 there was $51.1
million of borrowing availability under the revolving credit facility.
We used a portion of the proceeds of the borrowings under the 10 1/4% notes
and the credit facility to (1) repay on February 25, 1999 the $284.3 million
outstanding principal amount of term loans under a former beverage credit
facility entered into by Snapple, Mistic, Triarc Beverage Holdings and Stewart's
and $1.5 million of related accrued interest, (2) redeem on March 30, 1999 the
$275.0 million of borrowings under the RC/Arby's 9 3/4% senior secured notes due
2000 and pay $4.4 million of related accrued interest and $7.7 million of
redemption premium, (3) acquire Millrose, a New Jersey distributor of our
premium beverages which prior to the transaction acquired certain assets of
Mid-State Beverages, Inc., for $17.5 million, including expenses of $0.2
million, and (4) pay fees and expenses of $30.5 million relating to the issuance
of the 10 1/4% notes and the completion of the new credit facility. The
remaining net proceeds of this refinancing are being used or will be used for
general corporate purposes, which may include working capital, investments,
future business acquisitions, repayment or refinancing of indebtedness,
restructurings or repurchases of securities, including repurchases of our common
stock as described below under 'Treasury Stock Purchases.'
The 10 1/4% notes mature in 2009 and do not require any amortization of
principal prior to 2009. Any revolving loans will be due in full in 2005.
Scheduled maturities of the term loans in 2000 are $7.9 million and increase
annually through 2006 with a final payment in 2007. In addition to scheduled
maturities of the term loans, we are also required to make mandatory annual
prepayments in an amount, if any, currently equal to 75% of excess cash flow as
defined in the credit agreement. Such mandatory prepayments will be applied on a
pro rata basis to the remaining outstanding balances of each of the three
classes of the term loans except that any lender that has term B or term C loans
outstanding may elect not to have its pro rata share of such loans repaid. Any
amount prepaid and not applied to term B loans or term C loans as a result of
such election would be applied first to the outstanding balance of term A loans
and second to any outstanding balance of revolving loans, with any remaining
amount being returned to us. Accordingly, a $28.3 million prepayment will be
required in the second quarter of 2000 in respect of the year ending January 2,
2000. After considering the $28.3 million prepayment and assuming the lenders
under the term B and C loans accept their pro rata share of such prepayment, our
payments under the term loans in 2000 will aggregate $36.2 million, including
the $7.9 million scheduled maturities. Under the credit agreement, we can make
voluntary prepayments of the term loans. As of March 10, 2000, we have not made
any voluntary prepayments. However, if we make voluntary prepayments of term B
and term C loans, which have $124.1 million and $302.7 million outstanding as of
January 2, 2000, we will incur prepayment penalties of 1.0% and 1.5%,
respectively, of any future amounts of those term loans prepaid through February
25, 2001.
Other Debt Agreements
We have $360.0 million principal amount at maturity, or $113.1 million net
of unamortized discount as of January 2, 2000, of zero coupon convertible
subordinated debentures outstanding which mature in 2018 and do not require any
amortization of principal prior to 2018.
We have a note payable to a beverage co-packer in an outstanding principal
amount of $3.4 million as of January 2, 2000 due in 2000.
Our long-term debt repayments during 2000 are expected to be $43.6 million,
including $36.2 million under the term loans discussed above, $3.4 million under
the note payable to a beverage co-packer also discussed above and $1.4 million
under a secured promissory note assumed subsequent to January 2, 2000 in
connection with the acquisition of 280 Holdings, LLC described below under
'Capital Expenditures.'
Debt Agreement Restrictions and Guarantees
Under the credit facility substantially all of our assets, other than cash,
cash equivalents and short-term investments, are pledged as security. In
addition, our obligations relating to (1) the 10 1/4% notes are guaranteed by
Snapple, Mistic, Stewart's, Arby's, Royal Crown and RC/Arby's and all of their
domestic subsidiaries and (2) the credit facility are guaranteed by Triarc
Consumer Products Group, Triarc Beverage Holdings and substantially all of the
domestic subsidiaries of Snapple, Mistic, Stewart's, Arby's, Royal Crown and
RC/Arby's. As collateral for the guarantees under the new credit facility, all
of the stock of Snapple, Mistic, Stewart's, Arby's, Royal Crown and RC/Arby's
and all of their domestic subsidiaries and 65% of the stock of each of their
36
directly-owned foreign subsidiaries is pledged. The guarantees under the 10 1/4%
notes are full and unconditional, are on a joint and several basis and are
unsecured.
Our debt agreements contain various covenants which (1) require periodic
financial reporting, (2) require meeting financial amount and ratio tests, (3)
limit, among other matters, (a) the incurrence of indebtedness, (b) the
retirement of debt prior to maturity, with exceptions, (c) investments, (d)
asset dispositions and (e) affiliate transactions other than in the normal
course of business, and (4) restrict the payment of dividends, loans or advances
to Triarc. Under the most restrictive of these covenants, the borrowers can not
pay any dividends or make any loans or advances to Triarc other than permitted
one-time distributions, including dividends, paid to Triarc in connection with
the 1999 refinancing transactions. The one-time permitted distributions, which
were paid to Triarc from the net proceeds of the refinancing transactions as
well as 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. We were in
compliance with all of these covenants as of January 2, 2000.
In connection with the propane partnership sale discussed above, National
Propane Corporation, whose principal asset following the sale of the propane
business is a $30.0 million intercompany note receivable from Triarc, retained a
1% special limited partner interest in National Propane, L.P. and agreed that
while it remains a special limited partner, National Propane Corporation would
indemnify the purchaser for any payments the purchaser makes, only after
recourse to the assets of National Propane, L.P., related to the purchaser's
obligations under certain of the debt of National Propane, L.P., aggregating
approximately $138.0 million as of January 2, 2000, if National Propane, L.P. is
unable to repay or refinance such debt. Under the purchase agreement, both the
purchaser and National Propane Corporation may require National Propane L.P. to
repurchase the 1% special limited partner interest. We believe that it is
unlikely that we will be called upon to make any payments under this indemnity.
Arby's remains contingently responsible for operating and capitalized lease
payments assumed by the purchaser in connection with the restaurants sale of
approximately $117.0 million as of May 1997 when the Arby's restaurants were
sold and $89.0 million as of January 2, 2000, assuming the purchaser of the
Arby's restaurants has made all scheduled payments through that date, if the
purchaser does not make the required lease payments. Further, Triarc has
guaranteed mortgage notes and equipment notes payable to FFCA Mortgage
Corporation assumed by the purchaser in connection with the restaurants sale of
$54.7 million as of May 1997 and $49.0 million as of January 2, 2000, assuming
the purchaser of the Arby's restaurants has made all scheduled repayments
through that date. In addition, a subsidiary of ours is a co-obligor with the
purchaser of the Arby's restaurants under a loan, the repayments of which are
being made by the purchaser, with an aggregate principal amount of $0.6 million
as of May 5, 1997 and January 2, 2000. This loan has been guaranteed by Triarc.
On January 12, 2000 we entered into an agreement to guarantee $10.0 million
principal amount of senior notes issued by MCM Capital Group, an 8.4% equity
investee of ours, to a major financial institution in consideration for a fee of
$0.2 million and warrants to purchase 100,000 shares of MCM Capital Group common
stock at $.01 per share with an estimated fair value on the date of grant of
$0.3 million. The $10.0 million guaranteed amount will be reduced by (1) any
repayments of the notes, (2) any purchases of the notes by us and (3) the amount
of certain investment banking or financial advisory services fees paid to the
financial institution or its affiliates or, under certain circumstances, other
financial institutions by us, MCM Capital Group or another significant
stockholder of MCM Capital Group or any of their affiliates. Certain of our
officers, including entities controlled by them, collectively own approximately
15.7% of MCM Capital Group and are not parties to this note guaranty and could
indirectly benefit from it. In addition to the note guaranty, we and certain
other stockholders of MCM Capital Group, including our officers referred to
above, on a joint and several basis, have entered into agreements to guarantee
$15.0 million of revolving credit borrowings of a subsidiary of MCM Capital
Group, of which we would be responsible for approximately $1.8 million
assuming all of the parties other than us to the bank guaranties and certain
related agreements fully perform. We have agreed to purchase a $15.0 million
certificate of deposit from the financial institution which under the bank
guaranties is subject to set off under certain circumstances if the parties
to the bank guaranties and related agreements fail to perform their obligations
thereunder. MCM Capital Group has encountered cash flow and liquidity
difficulties. While it is not currently possible to determine if MCM Capital
Group may eventually default on any of the aforementioned obligations, we
currently believe that it is
37
possible, but not probable, that we will be required to make payments under the
note guaranty and/or the bank guaranties.
Capital Expenditures
Capital expenditures amounted to $16.0 million during 1999, including $7.3
million of capitalized improvements to an airplane leased through January 19,
2000 from Triangle Aircraft Services Corporation, a company owned by our
Chairman and Chief Executive Officer and President and Chief Operating Officer.
On January 19, 2000, we acquired 280 Holdings, LLC, the subsidiary of Triangle
Aircraft Services that owns the airplane that had previously been leased from
Triangle Aircraft Services, for $27.2 million consisting of (1) cash of $9.2
million and (2) the assumption of an $18.0 million secured promissory note with
a commercial lender payable over seven years. The purchase price was based on
independent appraisals and was approved by the Audit Committee and our Board of
Directors. As a result of the acquisition of 280 Holdings, the effect on our
estimated 2000 costs for the airplane will be lower depreciation and
amortization of $0.8 million, the elimination of rental expense under the
airplane lease with Triangle Aircraft Services of $3.0 million, the incurrence
of interest expense on the secured promissory note of $1.6 million and lower
investment income of approximately $0.4 million with a resulting increase in
income from continuing operations before income taxes of approximately $1.8
million. We expect that cash capital expenditures will approximate
$22.6 million for 2000 for which there were $1.5 million of outstanding
commitments as of January 2, 2000. Our planned capital expenditures include
the $9.2 million cash portion of the purchase price for 280 Holdings and
approximately $5.0 million for a premium beverage packing line at one of our
distributors.
Acquisitions
In February 1999 we acquired Millrose for $17.5 million as discussed above.
On January 2, 2000 we acquired Snapple Distributors of Long Island, Inc., a
distributor of Snapple and Stewart's products on Long Island, New York, for cash
of $16.8 million, including expenses, subject to post-closing adjustments. We
also entered into a three-year non-compete agreement with the sellers for $2.0
million payable ratably over a ten-year period. On March 31, 2000 we acquired
certain assets, principally distribution rights, of California Beverage Company,
a distributor of our premium beverage products in the City and County of San
Francisco, California, for cash of $1.6 million, plus expenses and subject to
post-closing adjustment. To further our growth strategy, we will consider
additional selective business acquisitions, as appropriate, to grow
strategically and explore other alternatives to the extent we have available
resources to do so.
Income Taxes
Our Federal income tax returns have been examined by the Internal Revenue
Service for the tax years from 1989 through 1992. We have resolved all issues
with the Internal Revenue Service regarding such audit. The Internal Revenue
Service has tentatively completed its examination of our Federal income tax
returns for the tax year ended April 30, 1993 and transition period ended
December 31, 1993. In connection with these 1993 examinations and subject to
final processing and approval by the Internal Revenue Service, our net operating
loss carryforwards would increase by $7.5 million. We do not expect to make any
net payment in 2000 in connection with all these examinations as the final
amount due from the 1989 through 1992 examinations is expected to be offset by a
net refund, including interest, as a result of the 1993 examinations.
Withdrawal of Going-Private Proposal
On October 12, 1998, we announced that our Board of Directors had formed a
Special Committee to evaluate a proposal we had received from our Chairman and
Chief Executive Officer and President and Chief Operating Officer for the
acquisition by an entity to be formed by them of all of the outstanding shares
of our common stock, other than 5,982,867 shares owned by an affiliate
controlled by them, for $18.00 per share payable in cash and securities. On
March 10, 1999, we announced that we had been advised by our Chairman and Chief
Executive Officer and President and Chief Operating Officer that they had
withdrawn the proposal.
38
Treasury Stock Purchases
On April 27, 1999, we repurchased 3,805,015 shares of our Class A common
stock for $18.25 per share in connection with a tender offer for a total cost of
$70.0 million, including fees and expenses of $0.6 million.
On April 29, 1999, we announced that our management has been authorized,
when and if market conditions warrant and to the extent legally permissible, to
repurchase up to $30.0 million of our Class A common stock. This authorization
will terminate in May 2000. Through January 2, 2000, we have repurchased 295,334
shares under this program at a total cost of $6.2 million resulting in remaining
availability of $23.8 million. We cannot assure you that we will make any or all
of the remaining $23.8 million of repurchases authorized under this program.
On August 19, 1999 we entered into a contract to repurchase in three
separate transactions the 5,997,622 shares of our Class B common stock held by
affiliates of Victor Posner, our former Chairman and Chief Executive Officer,
for $127.0 million. On August 19, 1999 we completed the purchase of 1,999,208
shares of Class B common stock for $40.9 million at a price of $20.44 per share,
which was the fair market value of our Class A common stock at the time the
transaction was negotiated. Under the contract, the second and third purchases
of $42.3 million and $43.8 million, respectively, each for 1,999,207 shares at
negotiated fixed prices of $21.18 and $21.93 per share, are to occur on or
before August 19, 2000 and 2001, respectively.
Cash Requirements
As of January 2, 2000, our consolidated cash requirements for 2000,
exclusive of operating cash flow requirements but including the requirements
relating to the January 2000 purchase of 280 Holdings, consist principally of
(1) debt principal repayments aggregating $43.6 million, (2) a payment of $42.3
million for the repurchase of 1,997,207 shares of our Class B common stock from
affiliates of Victor Posner, (3) additional repurchases, if any, of our Class A
common stock for treasury under the repurchase program which terminates in May
2000, (4) capital expenditures of approximately $22.6 million and (5) $1.6
million for the March 2000 acquisition of California Beverage and the cost of
additional business acquisitions, if any. We anticipate meeting all of these
requirements through (1) existing cash and cash equivalents and short-term
investments, aggregating $292.4 million, net of $21.1 million of obligations for
short-term investments sold but not yet purchased included in 'Accrued expenses'
in our accompanying consolidated balance sheet as of January 2, 2000, (2) cash
flows from operations and/or (3) the $51.1 million of availability as of
January 2, 2000 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 (1) cash and cash equivalents and short-term
investments, aggregating $191.5 million, net of $21.1 million of obligations for
short-term investments sold but not yet purchased, as of January 2, 2000, (2)
investment income on its cash equivalents and short-term investments and (3)
cash flows from its subsidiaries including (a) loans, distributions and
dividends, (b) reimbursement by certain subsidiaries to Triarc in connection
with the providing of certain management services and (c) payments under
tax-sharing agreements with certain subsidiaries. However, Triarc's principal
subsidiaries are currently unable to pay any dividends or make any loans or
advances to Triarc under the terms of their debt agreements.
Triarc had indebtedness to consolidated subsidiaries of $30.0 million as of
January 2, 2000 under a demand note payable to National Propane Corporation
which, as amended, bears interest payable semi-annually in cash at the specified
minimum interest rate under the Internal Revenue Code, which was 5.8% at
January 2, 2000. While this note requires the payment of interest in cash,
Triarc currently expects to receive dividends from National Propane Corporation
equal to the cash interest. The note requires no principal payments during 2000,
assuming no demand is made thereunder, and none is anticipated. Triarc also has
other indebtedness principally under (1) the zero coupon convertible debentures
described above which require no amortization of principal during 2000 and (2)
the $18.0 million secured promissory note assumed in connection with the
acquisition of 280 Holdings in January 2000 which requires principal payments of
$1.4 million in 2000.
Triarc's principal cash requirements for 2000 are (1) a payment of $42.3
million for the repurchase of 1,997,207 shares of our Class B common stock from
affiliates of Victor Posner, (2) additional repurchases, if any, of our Class A
common stock for treasury under the repurchase program which terminates in May
2000,
39
(3) capital expenditures of approximately $12.6 million, including $9.2 million
for the acquisition of 280 Holdings, (4) debt principal repayments of $1.7
million primarily on the secured promissory note assumed in connection with the
purchase of 280 Holdings, (5) $1.6 million for the March 2000 acquisition of
California Beverage, which was acquired by Triarc and contributed to Triarc
Consumer Products Group, and the cost of additional business acquisitions, if
any, by Triarc and (6) payments of general corporate expenses. Triarc expects to
be able to meet all of these cash requirements through (1) existing cash and
cash equivalents and short-term investments, (2) investment income and (3)
receipts from its subsidiaries under management services and tax-sharing
agreements.
LEGAL AND ENVIRONMENTAL MATTERS
Subsequent to the receipt of the going-private proposal described above, a
series of purported class action lawsuits on behalf of stockholders have been
filed challenging the proposed going-private transaction. Each of the pending
lawsuits names us and the members of our 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 our shares of Class A common stock is unfair and
demand, in addition to damages and costs, that the proposed transaction be
enjoined. On March 26, 1999, some plaintiffs in the actions challenging the
proposed transaction filed an amended complaint alleging that the defendants
violated fiduciary duties by failing to disclose, in connection with the tender
offer discussed above, that a Special Committee of our Board of Directors formed
to evaluate the going-private proposal had allegedly determined that the
proposal was unfair. The amended complaint sought, among other items, damages in
an unspecified amount. Discovery has commenced in the action pursuant to the
amended complaint.
On March 23, 1999, an alleged stockholder filed a complaint on behalf of
persons who held our common stock as of March 10, 1999 which alleges that our
statement related to the tender offer described above filed with the Securities
and Exchange Commission was false and misleading and seeks damages in an
unspecified amount, together with prejudgment interest, the costs of suit,
including attorneys' fees, and unspecified other relief. The complaint names us
and our Chairman and Chief Executive Officer and President and Chief Operating
Officer as defendants. On June 28, 1999 we and those officers moved to dismiss
the complaint or alternatively stay the action. On March 20, 2000, the court
denied the motion for a day and granted in part and denied in part the motion
to dismiss. There has been no discovery in this action and no trial date has
been set.
In addition to the shareholder lawsuits described above, we are involved in
litigation, claims and environmental matters incidental to our businesses. We
have reserves for legal and environmental matters of approximately $3.3 million
as of January 2, 2000. Although the outcome of these matters cannot be predicted
with certainty and some of these matters may be disposed of unfavorably to us,
based on currently available information and given our reserves, we do not
believe that these legal and environmental matters will have a material adverse
effect on our consolidated financial position or results of operations.
YEAR 2000
We completed a study of our functional application systems to determine
their compliance with year 2000 issues and, to the extent of noncompliance, we
had performed the required remediation and testing before January 1, 2000. We
incurred an aggregate $1.4 million of costs primarily in 1998 and 1999 in order
to become year 2000 compliant, including computer software and hardware costs
and related consulting costs, of which $0.6 million was capitalized and $0.8
million was expensed.
An assessment of the readiness of year 2000 compliance of third party
entities with which we have relationships, such as our suppliers, banking
institutions, customers, payroll processors and others was also completed to the
extent possible prior to January 1, 2000, indicating no significant problems. We
have encountered no significant year 2000 compliance related problems either
internally or with third party entities since January 1, 2000.
INFLATION AND CHANGING PRICES
Management believes that inflation did not have a significant effect on
gross margins during 1997, 1998 and 1999, since inflation rates generally
remained at relatively low levels. Historically, we have been successful in
dealing with the impact of inflation to varying degrees within the limitations
of the competitive
40
environment of each segment of our business. In the restaurant franchising
segment in particular, the impact of any future inflation should be limited
since our restaurant operations are exclusively franchising following the 1997
sale of all company-owned restaurants.
SEASONALITY
Our beverage and restaurant franchising businesses are seasonal. In our
beverage businesses, the highest revenues occur during the spring and summer,
between April and September. Accordingly, our second and third quarters reflect
the highest revenues and our first and fourth quarters have lower revenues from
the beverage businesses. The royalty revenues of our restaurant franchising
business are somewhat higher in our fourth quarter and somewhat lower in our
first quarter. Accordingly, consolidated revenues will generally be highest
during the second and third fiscal quarters of each year. Our EBITDA and
operating profit are also highest during the second and third fiscal quarters of
each year and lowest in the first fiscal quarter. This principally results from
the higher beverage revenues in the second and third fiscal quarters while
general and administrative expenses and depreciation and amortization, excluding
amortization of deferred financing costs, are generally recorded ratably in each
quarter either as incurred or allocated to quarters based on time expired. Our
first fiscal quarter EBITDA and operating profit has also been lower due to
advertising production costs which typically are higher in the first quarter in
anticipation of the peak spring and summer beverage selling season and which are
recorded the first time the related advertising takes place.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 'Accounting for Derivative Instruments
and Hedging Activities.' Statement 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. Statement 133 is
effective for our fiscal year beginning January 1, 2001, as amended by Statement
of Financial Accounting Standards No. 137 which defers the effective date.
Although we have not yet completed the process of identifying all of our
derivative instruments that fall within the scope of Statement 133, we are not
currently aware of having any significant derivatives within such scope.
We historically have not had transactions to which hedge accounting applied and,
accordingly, the more restrictive criteria for hedge accounting in Statement 133
should have no effect on our consolidated financial position or results of
operations. However, the provisions of Statement 133 are complex and we are just
beginning our evaluation of the implementation requirements of Statement 133
and, accordingly, are unable to determine at this time the impact it will have
on our consolidated financial position and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes, changes in the market
value of our investments and foreign currency fluctuations.
Policies and procedures -- In the normal course of business, we employ
established policies and procedures to manage our exposure to changes in
interest rates, changes in the market value of our investments and fluctuations
in the value of foreign currencies using financial instruments we deem
appropriate.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to limit
the impact of interest rate changes on earnings and cash flows. To achieve our
objectives, we assess the relative proportions of our debt under fixed versus
variable rates. We generally use purchased interest rate caps on a portion of
our variable-rate debt to limit our exposure to increases in short-term interest
rates. These cap agreements usually are 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 of January 3, 1999 we
41
had one interest rate cap agreement relating to interest on one-half of our
variable-rate debt under a then existing $380.0 million credit facility which
provided for a cap which was approximately 3% higher than the prevailing
interest rate at that time. As of January 2, 2000 we had one interest rate cap
agreement relating to interest on one-half of our variable-rate debt under our
current $535.0 million senior bank credit facility which provides for a cap
which was approximately 2% higher than the current interest rate. In addition to
our variable and fixed-rate debt, our investment portfolio includes debt
securities that are subject to medium-term and long-term interest rate risk
reflecting the portfolio's maturities between one and nine years and up to
eighteeen years with respect to debt securities held by one of our investments
in an investment limited partnership. We are also invested in certain hedge
funds which invest primarily in short-term debt securities, option contracts on
government debt securities as well as interest rate swaps. The fair market value
of such investments in debt securities will decline in value if interest rates
increase. The fair market value of our investments in certain hedge funds should
not decline in value if interest rates increase assuming there is a perfect
hedge; however, if the hedge is other than perfect such investments may decline
in value if interest rates increase.
Equity Market Risk
Our objective in managing our exposure to changes in the market value of our
investments is also to balance the risk of the impact of such changes on
earnings and cash flows with our expectations for long-term investment returns.
Our primary exposure to equity price risk relates to our investments in equity
securities, equity derivatives, securities sold but not yet purchased and
investment limited partnerships. We have established policies and procedures
governing the type and relative magnitude of investments which we can make. We
have a management investment committee whose duty it is to oversee our
continuing compliance with the restrictions embodied in its policies.
Foreign Currency Risk
Our objective in managing our exposure to foreign currency fluctuations is
also to limit the impact of such fluctuations on earnings and cash flows. Our
primary exposure to foreign currency risk relates to our 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, we
have foreign currency exposure when our investment managers buy or sell foreign
currencies or financial instruments denominated in foreign currencies for our
account or the accounts of our investments in investment limited liability
partnerships and similar investment entities. We monitor these exposures and
periodically determine our need for use of strategies intended to lessen or
limit our exposure to these fluctuations. We also have a relatively limited
amount of exposure to (1) export sales revenues and related receivables
denominated in foreign currencies and (2) investments in foreign subsidiaries
which are subject to foreign currency fluctuations. Our primary export sales
exposures relates to sales in Canada, the Caribbean and Europe. However, foreign
export sales and foreign operations for the years ended January 3, 1999 and
January 2, 2000 represented only 5.7% and 4.7% of our revenues, respectively,
and an immediate 10% change in foreign currency exchange rates versus the U.S.
dollar from their levels at January 3, 1999 and January 2, 2000 would not have a
material effect on our consolidated financial position or results of operations.
Overall Market Risk
With regard to overall market risk, we attempt to mitigate our exposure to
such risks by assessing the relative proportion of our investments in cash and
cash equivalents and the relatively stable and risk-minimized returns available
on such investments. We periodically interview asset managers to ascertain the
investment objectives of such managers and invest amounts with selected managers
in order to avail ourselves of higher but more risk-inherent returns from the
selected investment strategies of these managers. We seek to identify
alternative investment strategies also seeking higher returns with attendant
increased risk profiles for a portion of our investment portfolio. We
periodically review the returns from each of our investments and may maintain,
liquidate or increase selected investments based on this review of past returns
and prospects for future returns.
42
We maintain investment portfolio holdings of various issuers, types and
maturities. As of January 3, 1999 and January 2, 2000, such investments
consisted of the following (in thousands):
YEAR-END
-------------------
1998 1999
---- ----
Cash equivalents included in 'Cash and cash equivalents' on
our consolidated balance sheet............................ $152,841 $149,227
Short-term investments...................................... 101,021 151,634
Non-current investments..................................... 9,083 14,155
-------- --------
$262,945 $315,016
-------- --------
-------- --------
At January 3, 1999 such investments are classified in the following general
types or categories:
INVESTMENTS AT
INVESTMENTS FAIR VALUE OR CARRYING
TYPE AT COST EQUITY VALUE PERCENTAGE
---- ------- ------ ----- ----------
(IN THOUSANDS)
Cash equivalents.................... $152,841 $152,841 $152,841 58.1%
Company-owned securities accounted
for as:
Trading securities.............. 24,585 27,260 27,260 10.4%
Available-for-sale securities... 52,347 51,211 51,211 19.5%
Investments in investment limited
partnerships and similar
investment entities accounted for
at:
Cost............................ 19,345 16,136 19,345 7.4%
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 equivalents and long
investment positions.............. $260,908 $259,736 $262,945 100.0%
-------- -------- -------- -----
-------- -------- -------- -----
Securities sold with an obligation
for the Company to purchase
accounted for as trading
securities........................ $(20,530) $(23,599) $(23,599) N/A
-------- -------- -------- -----
-------- -------- -------- -----
At January 2, 2000 such investments are classified in the following general
types or categories:
INVESTMENTS AT
INVESTMENTS FAIR VALUE OR CARRYING
TYPE AT COST EQUITY VALUE PERCENTAGE
---- ------- ------ ----- ----------
(IN THOUSANDS)
Cash equivalents.................... $149,227 $149,227 $149,227 47.4%
Company-owned securities accounted
for as:
Trading securities.............. 23,942 28,767 28,767 9.1%
Available-for-sale securities... 48,147 49,504 49,504 15.7%
Investments in investment limited
partnerships and similar
investment entities accounted for
at:
Cost............................ 47,211 51,864 47,211 15.0%
Equity.......................... 18,740 29,649 29,649 9.4%
Other non-current investments
accounted for at:
Cost............................ 4,550 4,550 4,550 1.5%
Equity.......................... 5,313 6,108 6,108 1.9%
-------- -------- -------- -----
Total cash equivalents and long
investment positions.............. $297,130 $319,669 $315,016 100.0%
-------- -------- -------- -----
-------- -------- -------- -----
Securities sold with an obligation
for the Company to purchase
accounted for as trading
securities........................ $(16,236) $(21,138) $(21,138) N/A
-------- -------- -------- -----
-------- -------- -------- -----
43
Our 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 other
comprehensive income (loss) (net of income taxes) updated as a component of
stockholders' equity or included as a component of net income, respectively.
Investment limited partnerships and other non-current investments in which
we do 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. We review such
investments carried at cost and in which we have unrealized losses for any
unrealized losses deemed to be other than temporary. We recognize an investment
loss currently for any such other than temporary losses. Investment limited
partnerships and similar investment entities and other non-current investments
in which we have significant influence over the investee are accounted for in
accordance with the equity method of accounting under which our results of
operations include our 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. Our measure of market
risk exposure represents an estimate of the potential change in fair value of
our financial instruments. Market risk exposure is presented for each class of
financial instruments held by us at January 3, 1999 and January 2, 2000 for
which an immediate adverse market movement represents a potential material
impact on our financial position or results of operations. We believe that the
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 our investment portfolio is
subject to change based on our 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
our financial instruments as of January 3, 1999 and January 2, 2000 based upon
assumed immediate adverse effects as noted below.
TRADING PORTFOLIO:
YEAR-END
----------------------------------------------
1998 1999
--------------------- ----------------------
CARRYING EQUITY CARRYING EQUITY
VALUE PRICE RISK VALUE PRICES RISK
----- ---------- ----- -----------
(IN THOUSANDS)
Equity securities........................ $ 25,436 $(2,544) $ 23,449 $(2,345)
Debt securities.......................... 1,824 (182) 5,318 (532)
Securities sold but not yet purchased.... (23,599) 2,360 (21,138) 2,114
The debt securities included in the trading portfolio 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, there is no
material interest rate risk since a change in interest rates of one percentage
point would not have a material impact on our financial position or results of
operations. The securities included in the trading portfolio do not include any
investments denominated in foreign currency and, accordingly, there is no
foreign currency risk.
The sensitivity analysis of financial instruments held for trading purposes
assumes an instantaneous 10% decrease in the equity markets in which we invest
from their levels at January 3, 1999 and January 2, 2000, with all other
variables held constant. For purposes of this analysis, our debt securities,
primarily convertible bonds, were assumed to primarily trade based upon the
conversion feature of the securities and be perfectly correlated with the
assumed equity index.
44
OTHER THAN TRADING PORTFOLIO:
YEAR-END 1998
---------------------------------------------------
CARRYING INTEREST EQUITY FOREIGN
VALUE RATE RISK PRICE RISK CURRENCY RISK
----- --------- ---------- -------------
(IN THOUSANDS)
Cash equivalents..................... $152,841 $ -- $-- $--
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....................... 678,259 (2,843) -- --
YEAR-END 1999
----------------------------------------------------
CARRYING INTEREST EQUITY FOREIGN
VALUE RATE RISK PRICE RISK CURRENCY RISK
----- --------- ---------- -------------
(IN THOUSANDS)
Cash equivalents..................... $149,227 $ -- $-- $--
Available-for-sale equity
securities......................... 31,041 -- (3,104) --
Available-for-sale debt securities... 18,463 (1,846) -- --
Other investments.................... 87,518 (1,040) (4,823) (1,132)
Long-term debt....................... 893,053 (4,701) -- --
The cash equivalents are short-term in nature with a maturity of three
months or less when acquired and, as such, a change in interest rates of one
percentage point would not have a material impact on our financial position or
results of operations.
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 January 2, 2000 and an
instantaneous 10% decrease in the equity markets in which we are invested from
their levels at January 3, 1999 and January 2, 2000, in all instances with all
other variables held constant. The increase of one percentage point with respect
to our 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 and January 2, 2000 approximated 10%. The change of one
percentage point with respect to our long-term debt (1) represents an assumed
average 11% decline as the weighted average interest rate of our variable-rate
debt at January 3, 1999 and January 2, 2000 approximated 9% and (2) relates to
only our variable-rate debt since a change in interest rates would not affect
interest expense on our fixed-rate debt. The interest rate risk presented with
respect to long-term debt represents the potential impact the indicated change
in interest rates would have on our results of operations and not our 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 and January 2, 2000, with all other variables held constant. For
purposes of this analysis, with respect to investments in investment limited
partnerships and similar investment entities 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 other
investments, other than investment limited partnerships and other investments
which trade in public equity markets.
On August 19, 1999 we entered into a contract to repurchase in three
separate transactions 5,997,622 shares of our Class B common stock at negotiated
fixed prices. On August 19, 1999 we completed the purchase of 1,999,208 shares
of the Class B common stock. Pursuant to the contract, the second and third
purchases are to occur on or before August 19, 2000 and 2001, respectively. At
January 2, 2000 the aggregate $86,186,000 obligation related to the second and
third purchases has been recorded as a long-term liability with an equal
offsetting reduction to stockholders' deficit. Although these purchases were
negotiated at fixed prices, any decrease in the equity market in which our stock
is traded would have a negative impact on the fair value of the recorded
liability. However, that same decrease would have a corresponding positive
impact on the fair value of the offsetting amount included in stockholders'
equity (deficit). Accordingly, since any change in the equity markets would have
an offsetting effect upon our financial position, no market risk has been
assumed for this financial instrument.
45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................ 47
Consolidated Balance Sheets as of January 3, 1999 and
January 2, 2000........................................... 48
Consolidated Statements of Operations for the fiscal years
ended December 28, 1997, January 3, 1999, and
January 2, 2000........................................... 49
Consolidated Statements of Stockholders' Equity for the
fiscal years ended December 28, 1997, January 3, 1999
and January 2, 2000....................................... 50
Consolidated Statements of Cash Flows for the fiscal years
ended December 28, 1997, January 3, 1999, and
January 2, 2000........................................... 53
Notes to Consolidated Financial Statements.................. 55
46
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 2, 2000 and
January 3, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three fiscal years in the
period ended January 2, 2000. 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 2,
2000 and January 3, 1999, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended January 2, 2000 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
March 10, 2000
47
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
JANUARY 3, JANUARY 2,
1999 2000
---- ----
ASSETS
Current assets:
Cash (including cash equivalents of $152,841 and
$149,227)............................................. $ 161,248 $ 161,883
Short-term investments (Note 5)......................... 101,021 151,634
Receivables (Note 6).................................... 65,906 79,284
Inventories (Note 6).................................... 46,761 61,736
Deferred income tax benefit (Note 10)................... 28,368 18,773
Prepaid expenses and other current assets............... 5,716 4,333
---------- ----------
Total current assets................................ 409,020 477,643
Investments (Note 7)........................................ 9,083 14,155
Properties (Note 6)......................................... 31,203 36,398
Unamortized costs in excess of net assets of acquired
companies (Note 6)........................................ 268,215 261,666
Trademarks (Note 6)......................................... 261,906 251,117
Other intangible assets (Note 6)............................ 959 31,630
Deferred costs and other assets (Note 6).................... 39,216 51,123
---------- ----------
$1,019,602 $1,123,732
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Notes 8 and 9)....... $ 9,978 $ 42,194
Accounts payable........................................ 58,290 58,469
Accrued expenses (Note 6)............................... 129,308 135,825
Net current liabilities of discontinued operations (Note
18)................................................... 34,905 3,163
---------- ----------
Total current liabilities........................... 232,481 239,651
Long-term debt (Notes 8 and 9).............................. 668,281 850,859
Deferred income taxes (Note 10)............................. 87,195 91,311
Deferred income and other liabilities....................... 20,373 22,451
Commitments and contingencies (Notes 3, 7, 10, 20, 21 and
23)
Forward purchase obligation for common stock (Note 11)...... -- 86,186
Stockholders' equity (deficit) (Note 11):
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.............................. 204,539 204,231
Accumulated deficit..................................... (100,804) (90,680)
Common stock held in treasury........................... (94,963) (202,625)
Common stock to be acquired............................. -- (86,186)
Accumulated other comprehensive income (deficit)........ (600) 5,040
Unearned compensation................................... (455) (61)
---------- ----------
Total stockholders' equity (deficit)................ 11,272 (166,726)
---------- ----------
$1,019,602 $1,123,732
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
48
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
------------------------------------------
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
---- ---- ----
Revenues:
Net sales.......................................... $629,621 $735,436 $770,943
Royalties, franchise fees and other revenues....... 66,531 79,600 83,029
-------- -------- --------
696,152 815,036 853,972
-------- -------- --------
Costs and expenses:
Cost of sales, excluding depreciation and
amortization related to sales of $1,032, $1,672
and $2,102....................................... 331,391 387,994 407,708
Advertising, selling and distribution (Note 1)..... 183,221 197,877 201,451
General and administrative......................... 98,536 112,102 121,779
Depreciation and amortization, excluding
amortization of deferred financing costs......... 27,039 35,221 35,315
Capital structure reorganization related charge
(Note 12)........................................ -- -- 5,474
Charges (credit) related to post-acquisition
transition, integration and changes to business
strategies (Note 13)............................. 31,815 -- (549)
Facilities relocation and corporate restructuring
charges (credits) (Note 14)...................... 7,075 -- (461)
-------- -------- --------
679,077 733,194 770,717
-------- -------- --------
Operating profit............................... 17,075 81,842 83,255
Interest expense....................................... (59,069) (67,914) (84,257)
Investment income, net (Note 15)....................... 12,737 11,823 18,468
Gain (loss) on sale of businesses, net (Note 16)....... (3,513) 5,016 655
Other income, net (Note 17)............................ 2,688 1,354 3,559
-------- -------- --------
Income (loss) from continuing operations before
income taxes................................. (30,082) 32,121 21,680
Benefit from (provision for) income taxes (Note 10).... 6,604 (17,883) (12,945)
-------- -------- --------
Income (loss) from continuing operations....... (23,478) 14,238 8,735
Income from discontinued operations (Note 18).......... 23,643 398 13,486
-------- -------- --------
Income before extraordinary charges............ 165 14,636 22,221
Extraordinary charges (Note 19)........................ (3,781) -- (12,097)
-------- -------- --------
Net income (loss).............................. $ (3,616) $ 14,636 $ 10,124
-------- -------- --------
-------- -------- --------
Basic income (loss) per share (Note 4):
Continuing operations.......................... $ (.78) $ .47 $ .34
Discontinued operations........................ .79 .01 .52
Extraordinary charges.......................... (.13) -- (.47)
-------- -------- --------
Net income (loss).............................. $ (.12) $ .48 $ .39
-------- -------- --------
-------- -------- --------
Diluted income (loss) per share (Note 4):
Continuing operations.......................... $ (.78) $ .45 $ .32
Discontinued operations........................ .79 .01 .50
Extraordinary charges.......................... (.13) -- (.45)
-------- -------- --------
Net income (loss).............................. $ (.12) $ .46 $ .37
-------- -------- --------
-------- -------- --------
See accompanying notes to consolidated financial statements.
49
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
-----------------
UNREALIZED
COMMON GAIN (LOSS) ON
ADDITIONAL STOCK AVAILABLE- CURRENCY
COMMON PAID-IN ACCUMULATED TREASURY TO BE UNEARNED FOR-SALE TRANSLATION
STOCK CAPITAL DEFICIT STOCK ACQUIRED COMPENSATION INVESTMENTS ADJUSTMENT
----- ------- ------- ----- -------- ------------ ----------- ----------
Balance at December 31,
1996.................... $3,398 $161,170 $(111,824) $ (46,273) $ -- $ (305) $ 599 $--
Comprehensive loss:
Net loss............ -- -- (3,616) -- -- -- -- --
Unrealized losses on
available-for-sale
investments
(Note 5).......... -- -- -- -- -- -- (1,336) --
Net change in
currency
translation
adjustment........ -- -- -- -- -- -- -- (242)
Comprehensive
loss.............. -- -- -- -- -- -- -- --
Issuance of Class A
Common Stock in
connection with the
Stewart's
acquisition
(Note 3)............ 157 36,602 -- -- -- -- -- --
Fair value of stock
options issued in
Stewart's
acquisition
(Note 3)............ -- 2,788 -- -- -- -- -- --
Grants, amortization
and forfeiture of
below market stock
options
(Note 11)........... -- 2,413 -- -- -- (1,145) -- --
Tax benefit from
exercises of stock
options
(Note 11)........... -- 613 -- -- -- -- -- --
Purchases of common
shares for treasury
(Note 11)........... -- -- -- (1,594) -- -- -- --
Issuances of common
shares from treasury
at average cost upon
exercise of stock
options
(Note 11)........... -- 82 -- 2,351 -- -- -- --
Other................. -- 623 -- 60 -- -- -- --
------ -------- --------- --------- -------- ------- ------- -----
Balance at December 28,
1997.................... $3,555 $204,291 $(115,440) $ (45,456) $ -- $(1,450) $ (737) $(242)
------ -------- --------- --------- -------- ------- ------- -----
TOTAL
-----
Balance at December 31,
1996.................... $ 6,765
Comprehensive loss:
Net loss............ (3,616)
Unrealized losses on
available-for-sale
investments
(Note 5).......... (1,336)
Net change in
currency
translation
adjustment........ (242)
---------
Comprehensive
loss.............. (5,194)
---------
Issuance of Class A
Common Stock in
connection with the
Stewart's
acquisition
(Note 3)............ 36,759
Fair value of stock
options issued in
Stewart's
acquisition
(Note 3)............ 2,788
Grants, amortization
and forfeiture of
below market stock
options
(Note 11)........... 1,268
Tax benefit from
exercises of stock
options
(Note 11)........... 613
Purchases of common
shares for treasury
(Note 11)........... (1,594)
Issuances of common
shares from treasury
at average cost upon
exercise of stock
options
(Note 11)........... 2,433
Other................. 683
---------
Balance at December 28,
1997.................... $ 44,521
---------
50
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- CONTINUED
(IN THOUSANDS)
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
-----------------
UNREALIZED
COMMON GAIN (LOSS) ON
ADDITIONAL STOCK AVAILABLE- CURRENCY
COMMON PAID-IN ACCUMULATED TREASURY TO BE UNEARNED FOR-SALE TRANSLATION
STOCK CAPITAL DEFICIT STOCK ACQUIRED COMPENSATION INVESTMENTS ADJUSTMENT
----- ------- ------- ----- -------- ------------ ----------- ----------
Balance at December 28,
1997.................... $3,555 $204,291 $(115,440) $ (45,456) $ -- $(1,450) $ (737) $(242)
Comprehensive income:
Net income.......... -- -- 14,636 -- -- -- -- --
Unrealized gains on
available-for-sale
investments
(Note 5).......... -- -- -- -- -- -- 401 --
Net change in
currency
translation
adjustment........ -- -- -- -- -- -- -- (22)
Comprehensive
income............ -- -- -- -- -- -- -- --
Amortization and
forfeiture of below
market stock options
(Note 11)........... -- (27) -- -- -- 995 -- --
Tax benefit from
exercises of stock
options
(Note 11)........... -- 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) -- -- -- --
Issuances of common
shares from treasury
at average cost upon
exercise of stock
options
(Note 11)........... -- (1,169) -- 5,108 -- -- -- --
Other................. -- 34 -- 65 -- -- -- --
------ -------- --------- --------- -------- ------- ------- -----
Balance at January 3,
1999.................... $3,555 $204,539 $(100,804) $ (94,963) $ -- $ (455) $ (336) $(264)
------ -------- --------- --------- -------- ------- ------- -----
TOTAL
-----
Balance at December 28,
1997.................... $ 44,521
Comprehensive income:
Net income.......... 14,636
Unrealized gains on
available-for-sale
investments
(Note 5).......... 401
Net change in
currency
translation
adjustment........ (22)
---------
Comprehensive
income............ 15,015
---------
Amortization and
forfeiture of below
market stock options
(Note 11)........... 968
Tax benefit from
exercises of stock
options
(Note 11)........... 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)
Issuances of common
shares from treasury
at average cost upon
exercise of stock
options
(Note 11)........... 3,939
Other................. 99
---------
Balance at January 3,
1999.................... $ 11,272
---------
51
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- CONTINUED
(IN THOUSANDS)
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
-----------------
UNREALIZED
COMMON GAIN (LOSS) ON
ADDITIONAL STOCK AVAILABLE- CURRENCY
COMMON PAID-IN ACCUMULATED TREASURY TO BE UNEARNED FOR-SALE TRANSLATION
STOCK CAPITAL DEFICIT STOCK ACQUIRED COMPENSATION INVESTMENTS ADJUSTMENT
----- ------- ------- ----- -------- ------------ ----------- ----------
Balance at January 3,
1999.................... $3,555 $204,539 $(100,804) $ (94,963) $ -- $ (455) $ (336) $(264)
Comprehensive income:
Net income.......... -- -- 10,124 -- -- -- -- --
Unrealized gains on
available-for-sale
investments
(Note 5).......... -- -- -- -- -- -- 5,734 --
Net change in
currency
translation
adjustment........ -- -- -- -- -- -- -- (94)
Comprehensive
income............ -- -- -- -- -- -- -- --
Amortization and
forfeiture of below
market stock options
(Note 11)........... -- (23) -- -- -- 394 -- --
Modification of stock
option terms
(Note 11)........... -- 410 -- -- -- -- -- --
Tax benefit from
exercises of stock
options
(Note 11)........... -- 1,538 -- -- -- -- -- --
Purchases of common
shares for treasury
(Note 11)........... -- -- -- (117,160) -- -- -- --
Common stock to be
acquired under
future purchase
obligation
(Note 11)........... -- -- -- -- (86,186) -- -- --
Issuance of common
shares from treasury
at average cost upon
exercise of stock
options
(Note 11)........... -- (1,974) -- 9,397 -- -- -- --
Other................. -- (259) -- 101 -- -- -- --
------ -------- --------- --------- -------- ------- ------- -----
Balance at January 2,
2000.................... $3,555 $204,231 $ (90,680) $(202,625) $(86,186) $ (61) $ 5,398 $(358)
------ -------- --------- --------- -------- ------- ------- -----
------ -------- --------- --------- -------- ------- ------- -----
TOTAL
-----
Balance at January 3,
1999.................... $ 11,272
Comprehensive income:
Net income.......... 10,124
Unrealized gains on
available-for-sale
investments
(Note 5).......... 5,734
Net change in
currency
translation
adjustment........ (94)
---------
Comprehensive
income............ 15,764
---------
Amortization and
forfeiture of below
market stock options
(Note 11)........... 371
Modification of stock
option terms
(Note 11)........... 410
Tax benefit from
exercises of stock
options
(Note 11)........... 1,538
Purchases of common
shares for treasury
(Note 11)........... (117,160)
Common stock to be
acquired under
future purchase
obligation
(Note 11)........... (86,186)
Issuance of common
shares from treasury
at average cost upon
exercise of stock
options
(Note 11)........... 7,423
Other................. (158)
---------
Balance at January 2,
2000.................... $(166,726)
---------
---------
See accompanying notes to consolidated financial statements.
52
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
--------------------------------------
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
---- ---- ----
Cash flows from operating activities:
Net income (loss).................................. $ (3,616) $ 14,636 $ 10,124
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.................................. 19,975 24,585 24,773
Depreciation and amortization of properties.... 7,064 10,636 10,542
Amortization of original issue discount and
deferred financing costs..................... 4,160 10,562 11,608
Write-off of unamortized deferred financing
costs and, in 1999, interest rate cap
agreement costs.............................. 6,178 -- 11,446
Provision for deferred income taxes............ 2,159 4,450 8,885
Capital structure reorganization related
charge....................................... -- -- 5,474
Provision for doubtful accounts................ 3,856 2,387 2,416
Net proceeds from sales (cost of purchases) of
trading securities........................... -- (24,982) 7,897
Net recognized gains from trading securities... -- (2,236) (12,914)
Net recognized (gains) losses from transactions
in other than trading investments, including
equity in investment limited partnerships,
and short positions.......................... (4,871) 2,160 8,467
(Gain) loss on sale of businesses, net......... 3,513 (5,016) (655)
Net provision (reversal or payments) for
charges related to post-acquisition
transition, integration and changes to
business strategies.......................... 24,483 (8,697) (549)
Income from discontinued operations............ (23,643) (398) (13,486)
Other, net..................................... (5,390) (9,924) (594)
Changes in operating assets and liabilities:
Decrease (increase) in receivables......... 9,245 7,881 (13,596)
Decrease (increase) in inventories......... 3,992 10,607 (12,099)
Decrease in prepaid expenses and other
current assets........................... 6,295 1,044 1,156
Increase (decrease) in accounts payable and
accrued expenses......................... (22,122) (17,905) 3,322
-------- --------- ---------
Net cash provided by operating
activities........................... 31,278 19,790 52,217
-------- --------- ---------
Cash flows from investing activities:
Net proceeds from sales (cost of purchases) of
available-for-sale securities and other
investments...................................... 2,546 (28,845) (36,220)
Net proceeds of securities sold short (payments to
cover short positions in securities)............. -- 21,340 (15,332)
Acquisition of Snapple Beverage Corp............... (307,205) (43) --
Other business acquisitions (cash acquired in
1997)............................................ 1,759 (3,000) (34,336)
Proceeds from sale of investment in Select
Beverages, Inc................................... -- 28,342 --
Cash of Chesapeake Insurance Company Limited
sold............................................. -- (8,864) --
Capital expenditures including in 1998 ownership
interests in aircraft............................ (6,113) (15,931) (15,992)
Other.............................................. 3,377 (540) (599)
-------- --------- ---------
Net cash used in investing
activities........................... (305,636) (7,541) (102,479)
-------- --------- ---------
53
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
(IN THOUSANDS)
YEAR ENDED
---------------------------------------
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
---- ---- ----
Cash flows from financing activities:
Proceeds from long-term debt....................... 303,400 100,163 775,000
Repayments of long-term debt....................... (79,901) (14,158) (568,832)
Proceeds from stock option exercises............... 2,433 3,939 7,423
Repurchases of common stock for treasury........... (1,594) (54,680) (117,160)
Deferred financing costs........................... (11,479) (4,000) (30,500)
Other.............................................. (651) 35 --
-------- --------- ---------
Net cash provided by financing
activities........................... 212,208 31,299 65,931
-------- --------- ---------
Net cash provided by continuing operations............. (62,150) 43,548 15,669
Net cash used in discontinued operations............... 48,627 (11,780) (15,034)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents... (13,523) 31,768 635
Cash and cash equivalents at beginning of year......... 143,003 129,480 161,248
-------- --------- ---------
Cash and cash equivalents at end of year............... $129,480 $ 161,248 $ 161,883
-------- --------- ---------
-------- --------- ---------
Supplemental disclosures of cash flow information:
Detail of cash flows related to investments:
Proceeds from sales of trading securities.......... $ -- $ 30,412 $ 76,550
Cost of trading securities purchased............... -- (55,394) (68,653)
-------- --------- ---------
$ -- $ (24,982) $ 7,897
-------- --------- ---------
-------- --------- ---------
Cost of available-for-sale securities and other
investments purchased............................ $(60,373) $(107,093) $(109,681)
Proceeds from sales of available-for-sale
securities and other investments................. 62,919 78,248 73,461
-------- --------- ---------
$ 2,546 $ (28,845) $ (36,220)
-------- --------- ---------
-------- --------- ---------
Proceeds of securities sold short.................. $ -- $ 45,585 $ 53,281
Payments to cover short positions in securities.... -- (24,245) (68,613)
-------- --------- ---------
$ -- $ 21,340 $ (15,332)
-------- --------- ---------
-------- --------- ---------
Cash paid during the year for:
Interest....................................... $ 52,176 $ 60,112 $ 70,132
-------- --------- ---------
-------- --------- ---------
Income taxes, net.............................. $ 4,709 $ 13,695 $ 1,175
-------- --------- ---------
-------- --------- ---------
Due to their noncash nature, the following transactions are not reflected in
the 1997 and 1999 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 then outstanding stock of Stewart's Beverages, Inc.
('Stewart's') and issued 154,931 stock options in exchange for all of the then
outstanding stock options of Stewart's. See Note 3 to the consolidated financial
statements for further discussion of this acquisition.
As part of a contract Triarc entered into on August 19, 1999, Triarc agreed
to repurchase an aggregate 3,998,414 shares of Class B Common Stock for
$86,186,000, in two purchases that are to occur on or before August 19, 2000 and
2001. The aggregate $86,186,000 obligation for these purchases has been recorded
by the Company as 'Forward purchase obligation for common stock' with an equal
offsetting reduction to the 'Common stock to be acquired' component of
stockholders' equity (deficit). See Note 11 for further discussion of this
transaction.
See accompanying notes to consolidated financial statements.
54
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000
(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 subsidiaries. The principal subsidiary
of the Company, wholly-owned as of January 2, 2000, is Triarc Consumer Products
Group, LLC ('TCPG' -- formed in 1999). TCPG has as its subsidiaries Triarc
Beverage Holdings Corp. ('Triarc Beverage Holdings' -- formed in 1997),
99.9% -- owned, and RC/Arby's Corporation ('RC/Arby's'), wholly-owned. Triarc
Beverage Holdings has as its wholly-owned subsidiaries Snapple Beverage Corp.
('Snapple' -- acquired by the Company on May 22, 1997), Mistic Brands, Inc.
('Mistic') and Stewart's Beverages, Inc. ('Stewart's' -- acquired by the Company
on November 25, 1997), formerly Cable Car Beverage Corporation. RC/Arby's has as
its principal wholly-owned subsidiaries Royal Crown Company, Inc. ('Royal
Crown') and Arby's, Inc. ('Arby's'). The Company's wholly-owned subsidiaries at
January 2, 2000 also included National Propane Corporation ('National Propane'),
SEPSCO, LLC ('SEPSCO'), formerly Southeastern Public Service Company, and TXL
Corp. ('TXL'). National Propane and its subsidiary National Propane SGP Inc.,
wholly-owned by the Company, owned a combined 42.7% interest in National Propane
Partners, L.P. (the 'Propane Partnership') and a subpartnership prior to the
July 19, 1999 sale of substantially all of such interest (see Note 18). TXL
owned C.H. Patrick & Co., Inc. ('C.H. Patrick') prior to its sale on December
23, 1997. All significant intercompany balances and transactions have been
eliminated in consolidation. See Notes 3 and 18 for discussions 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
contained 52 weeks and commenced January 1, 1997 and ended on December 28, 1997,
its 1998 fiscal year contained 53 weeks and commenced December 29, 1997 and
ended on January 3, 1999 and its 1999 fiscal year contained 52 weeks and
commenced January 4, 1999 and ended on January 2, 2000. Such periods are
referred to herein as (1) 'the year ended December 28, 1997' or '1997,' (2) 'the
year ended January 3, 1999' or '1998' and (3) 'the year ended January 2, 2000'
or '1999,' respectively. January 3, 1999 and January 2, 2000 are referred to
herein as 'Year-End 1998' and 'Year-End 1999,' 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,
interest-bearing brokerage accounts, money market mutual funds and United States
Treasury bills.
INVESTMENTS
Short-Term Investments
Short-term investments include marketable debt and equity securities with
readily determinable fair values and other short-term investments, including
investments in limited partnerships, 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. Other short-term investments consist of investments in
which the Company has significant influence over the investees and investments
in which the Company does not have significant influence over the investees and
are not readily marketable. Other short-term investments in which the Company
has significant influence over the investees ('Equity Investments') are
accounted for in accordance with the equity method (the
55
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
'Equity Method') of accounting under which the consolidated results include the
Company's proportionate share of income or loss of such investees. The carrying
value of the Company's investment in each of its short-term Equity Investments
is equal to the underlying equity in net assets of each investee. Other
short-term investments in which the Company does not have significant influence
over the investees and are not readily marketable (the 'Cost Investments') are
accounted for at cost. 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 consist of Equity Investments which
are accounted for in accordance with the Equity Method and Cost Investments
which are accounted for at cost. The excess, if any, of the carrying value of
the Company's non-current 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, net' (see Note 17) 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 reviews Cost Investments 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 Note 7 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.
All Investments
The Company reviews all of its investments 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.
Gain on Issuance of Investee Stock
The Company recognizes a gain or loss upon an investee's sale of any
previously unissued stock to third parties to the extent of the decrease in the
Company's ownership of the investee.
INVENTORIES
The Company's inventories are stated at the lower of cost or market with
cost determined in accordance with the first-in, first-out 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 principally over 15 to 35
56
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
years. Distribution rights are being amortized on the straight-line basis
principally over 15 years. Other intangible assets are being amortized on the
straight-line basis over 2 to 7 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 enterprises 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 2, 2000
is approximately two percentage points higher than the interest rate on the
related debt as of such date.
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 is measured as the excess, if any, of the market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock. Such amounts are being amortized as compensation
expense over the vesting period of the related stock options. 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.
TREASURY STOCK
Treasury stock is stated at cost.
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 'Accumulated other
comprehensive income (deficit)' in 'Stockholders' equity (deficit).'
57
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
ADVERTISING COSTS AND PROMOTIONAL ALLOWANCES
The Company accounts for advertising production costs by expensing such
production costs the first time the related advertising takes place. Advertising
costs amounted to $40,730,000, $48,389,000 and $36,486,000 for 1997, 1998 and
1999, respectively. In addition the Company supports its beverage bottlers and
distributors with promotional allowances the most significant of which are for
(1) indirect advertising by such bottlers and distributors including in-store
displays and point-of-sale materials, (2) cold drink equipment and (3)
promotional merchandise. Promotional allowances are principally expensed when
the related promotion takes place. Estimates used to expense the costs of
certain promotions where the Company expects reporting delays by the bottlers or
distributors are adjusted quarterly based on actual amounts reported.
Promotional allowances amounted to $107,513,000, $103,750,000 and $115,677,000
for 1997, 1998 and 1999, respectively, and are included in 'Advertising, selling
and distribution' in the accompanying consolidated statements of operations.
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 through its
sale on July 19, 1999 (see Note 3), other than that of its corporate subsidiary,
was taxable to its partners and not the Propane Partnership and, accordingly,
income taxes for 1997 are provided on the income of the Propane Partnership only
to the extent of its ownership by the Company. Subsequently, income taxes were
credited on the Company's equity in the losses of the Propane Partnership
through its sale and are included in 'Income from discontinued operations' in
the accompanying consolidated statements of operations. 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 when inventory is shipped or delivered. Sales
terms generally do not allow a right of return. Franchise fees are recognized as
income when a franchised restaurant is opened since all material services and
conditions related to the franchise fee have been substantially performed by the
Company upon the restaurant opening. 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 store 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 three
lines of business: premium beverages, soft drink concentrates and restaurant
franchising (also operated restaurants through May 5, 1997 -- see Note 3). The
premium beverage segment represents approximately 76% of the Company's
consolidated revenues for the year ended January 2, 2000, the soft drink
concentrate segment represents approximately 14% of such revenues, and the
restaurant franchising segment represents approximately 10% of such revenues.
The premium beverage segment markets and distributes, principally to
distributors and, to a lesser extent, directly to retailers, premium beverages
including all-natural ready-to-drink iced teas, fruit drinks, juices and
carbonated sodas under the principal brand names Snapple'r', Snapple
Elements'TM', Whipper Snapple'r', Snapple Farms'r', Snapple Refreshers'TM',
Mistic'r', Mistic Fruit Blast'TM', Mistic Italian Ice Smoothies'TM', Mistic Sun
Valley Squeeze'TM' and Stewart's'r'. The soft drink concentrate segment produces
and sells, to bottlers and a private label
58
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
supplier, a broad selection of concentrates and, to a much lesser extent in 1997
(none in 1998 or 1999), carbonated beverages to distributors. These products are
sold principally under the brand names RC'r' Cola, Diet RC'r' Cola, Cherry RC'r'
Cola, RC Edge'TM', Diet Rite'r' Cola, Diet Rite'r' flavors, Nehi'r', Upper 10'r'
and Kick'r'. The restaurant franchising segment franchises Arby's'r' quick
service restaurants representing the largest restaurant franchising system
specializing in slow-roasted roast beef sandwiches. Some Arby's restaurants are
multi-branded with the segment's T.J. Cinnamons'r' and/or Pasta Connection'TM'
product lines. The Company operates its businesses principally throughout the
United States. Information concerning the number of Arby's restaurants is as
follows:
1997 1998 1999
---- ---- ----
Franchised restaurants opened.............................. 125 130 159
Franchised restaurants closed.............................. 63 87 66
Restaurants transferred to franchisees..................... 355 -- --
Franchised restaurants open at end of period............... 3,092 3,135 3,228
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.
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 76% of consolidated revenues in 1999, 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 7% of consolidated revenues in 1999. The premium
beverage segment has chosen to purchase certain raw materials (such as
aspartame) on an exclusive basis from single suppliers and other raw materials
(such as glass bottles) from a relatively small number of suppliers. The Company
believes that, if necessary, adequate raw materials, other than glass bottles,
can be obtained from alternate sources. It is uncertain whether all of the glass
bottles supplied by two suppliers, which supplied approximately 88% of the
premium beverage segment's 1999 purchases of glass bottles, could be replaced by
alternate sources. Management, however, does not believe that it is reasonably
possible that the Company's largest glass bottle suppliers will be unable to
supply substantially all of their anticipated volumes in the near term. The
premium beverage segment's three largest co-packer facilities represented an
aggregate of 54% of the segment's total 1999 production. One co-packer held 18%
of the segment's finished goods inventory as of January 2, 2000. Management
believes, however, that sufficient replacement co-packer services could be
obtained if necessary. The premium beverage segments' product offerings are
varied, including fruit flavored beverages, iced teas, lemonades, carbonated
sodas, fruit juices 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
1999 TRANSACTIONS
Millrose and Long Island Snapple Acquisitions
On February 26, 1999 the Company acquired (the 'Millrose Acquisition')
Millrose Distributors, Inc. ('Millrose'), a New Jersey distributor of the
Company's premium beverages which prior to the transaction
59
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
acquired certain assets of Mid-State Beverage, Inc., for cash of $17,491,000
(including expenses of $241,000), subject to certain post-closing adjustments.
On January 2, 2000 the Company acquired (the 'Long Island Snapple
Acquisition') Snapple Distributors of Long Island, Inc. ('Long Island Snapple'),
a distributor of Snapple and Stewart's products on Long Island, New York for
cash of $16,845,000 (including expenses of $45,000), subject to certain
post-closing adjustments. The Company also entered into a three-year non-compete
agreement with the sellers for $2,000,000 (discounted value $1,246,000) payable
ratably over a ten-year period.
The Millrose Acquisition and the Long Island Snapple Acquisition were
accounted for in accordance with the purchase method of accounting. The
allocation of the purchase price of Millrose and the preliminary allocation of
the purchase price of Long Island Snapple to the assets and liabilities assumed
is presented below under 'Purchase Price Allocations of Acquisitions.'
Sale of National Propane Partnership
On July 19, 1999 the Company sold (the 'Propane Partnership Sale'), 41.7% of
its remaining 42.7% interest in the Propane Partnership and a subpartnership
National Propane, L.P. (the 'Operating Partnership') to Columbia Propane, L.P.
('Columbia'), retaining a 1% limited partner interest. The consideration paid to
Triarc consisted of (1) cash of $2,866,000 and (2) the forgiveness of
$15,816,000 of a note payable to the Operating Partnership by Triarc (the
'Partnership Note') with a remaining principal balance of $30,700,000
immediately prior to the Propane Partnership Sale. The $2,866,000 of cash
consisted of $2,101,000 of consideration for the Company's sold interests in the
Propane Partnership and the Operating Partnership and $1,033,000 representing
the reimbursement of interest expense incurred and paid by the Company on the
Partnership Note, both partially offset by $268,000 of amounts equivalent to
interest on advances made by the purchaser in a tender offer for the then
publicly traded common units representing the 57.3% interest not owned by the
Company subsequent to the Propane Partnership IPO (see below). The Propane
Partnership Sale resulted in an after-tax gain in 1999, recorded in 'Income from
discontinued operations' in the accompanying consolidated statement of
operations (see Note 18), of $11,204,000, net of $3,477,000 of related fees and
expenses and $6,282,000 of income tax provision. In connection with the closing
of the Propane Partnership Sale, Triarc repaid the remaining principal balance
of the Partnership Note of $14,884,000 and the Propane Partnership merged into
Columbia.
Prior to the Propane Partnership Sale, the Company owned a 42.7% combined
interest in the Propane Partnership and the Operating Partnership; the remaining
57.3% interest the Company did not own was sold in an initial public offering
(the 'Propane Partnership IPO') consummated by the Propane Partnership in 1996.
The Propane Partnership IPO resulted in a 1996 pretax gain to the Company of
$83,852,000 with an additional $15,539,000 of gain deferred at the date of the
Propane Partnership IPO (see Note 18 for discussion of the subsequent
recognition of this deferred gain).
In connection with the Propane Partnership Sale, National Propane, whose
principal asset following the Propane Partnership Sale is a $30,000,000
intercompany note receivable from Triarc, retained a 1% special limited partner
interest in the Operating Partnership and agreed that while it remains a special
limited partner, National Propane would indemnify ('the Indemnification') the
purchaser for any payments the purchaser makes, only after recourse to the
assets of the Operating Partnership, related to the purchaser's obligations
under certain of the debt of the Operating Partnership, aggregating
approximately $138,000,000 as of January 2, 2000, if the Operating Partnership
is unable to repay or refinance such debt. Under the purchase agreement, both
the purchaser and National Propane may require the Operating Partnership to
repurchase the 1% special limited partner interest. The Company believes that it
is unlikely that it will be called upon to make any payments under the
Indemnification.
1998 TRANSACTIONS
Sale of Chesapeake Insurance
Effective December 30, 1998 the Company sold (the 'Chesapeake Sale') all of
the stock of Chesapeake Insurance Company Limited ('Chesapeake Insurance') to
International Advisory Services Ltd. for $250,000 in
60
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
cash and a $1,500,000 note (the 'IAS Note') bearing interest at an annual rate
of 6% and due in 2003. Chesapeake Insurance (1) 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 (2) prior to
April 1993 reinsured insurance risks of unaffiliated third parties. The
collectibility of the IAS Note is subject to the favorable settlement of claims
existing at December 30, 1998 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 $6,245,000. Based on current projections for settling the claims,
the Company expects to collect the $1,500,000 under the IAS Note, however, due
to the uncertainty surrounding such collection, the IAS Note was as of December
30, 1998, and continues to be, 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.
Acquisition of T.J. Cinnamons
On August 27, 1998 the Company acquired (the 'T.J. Cinnamons Acquisition')
from Paramark Enterprises, Inc. ('Paramark,' formerly known as T.J. Cinnamons,
Inc.) all of Paramark's franchise agreements for full concept bakeries of T.J.
Cinnamons, an operator and franchisor of retail bakeries specializing in
gourmet cinnamon rolls and related products, and Paramark's wholesale
distribution rights for T.J. Cinnamons products, as well as settling remaining
contingent payments from the 1996 acquisition of the trademarks, service marks,
recipes and proprietary formulae of T.J. Cinnamons. 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 is
presented below under 'Purchase Price Allocations of Acquisitions.'
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 $309,386,000 consisting of cash of $300,126,000 (including
$126,000 of post-closing adjustments) and $9,260,000 of fees and expenses. The
purchase price for the Snapple Acquisition was funded from (1) $75,000,000 of
cash and cash equivalents on hand which was contributed by Triarc to Triarc
Beverage Holdings and (2) $250,000,000 of borrowings by Snapple on May 22, 1997
under a $380,000,000 credit agreement (the 'Former Beverage Credit Agreement' --
see Note 8), entered into by Snapple, Mistic, Triarc Beverage Holdings and, as
amended as of August 15, 1998, Stewart's.
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.'
Stewart's Acquisition
On November 25, 1997 the Company acquired (the 'Stewart's Acquisition')
Stewart's, a marketer and distributor of premium beverages in the United States
and Canada, primarily under the Stewart's'r' brand name, for an aggregate
purchase price of $40,596,000. Such purchase price consisted of (1) 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
61
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
exchange for all of the then outstanding stock of Stewart's, (2) 154,931 stock
options (see Note 11), with a value of $2,788,000 (based on a calculation using
the Black-Scholes option pricing model) as of November 25, 1997, issued in
exchange for all of the then outstanding stock options of Stewart's and (3)
$399,000 of related expenses (originally estimated at $650,000). Such exchanges
represented 0.1722 shares of Class A Common Stock or Triarc stock options for
each outstanding Stewart's 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 Stewart's 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.'
Sale of Restaurants
On May 5, 1997 certain subsidiaries of the Company consummated the sale to
affiliates of RTM, Inc. ('RTM'), the largest franchisee in the Arby's system, of
all of the 355 company-owned restaurants (the 'RTM Sale'). The sales price
consisted of cash and promissory notes (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 notes (the 'Mortgage Notes') and equipment
notes (the 'Equipment Notes') payable to FFCA Mortgage Corporation 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 1996 the Company had recorded a
$58,900,000 impairment charge of which $46,000,000 was to reduce the restaurant
segment's long-lived assets to estimated net realizable value based on the
estimated sales price as of December 31, 1996. Such charge was recorded in 1996
since the Company made the decision to sell all of its company-owned restaurants
in the fourth quarter of 1996 and reached an agreement in principle for their
sale to RTM in December 1996. Also included in such charge were estimated exit
costs associated with selling the company-owned restaurants of $10,709,000. The
components of the accrued expenses and other non-current liabilities for such
exit costs and an analysis of related activity are as follows (in thousands):
BALANCE AT 1997 BALANCE AT 1998 BALANCE AT
JANUARY 1, ---------------------- DECEMBER 28, ---------------------- JANUARY 3,
1997 (a) PAYMENTS ADJUSTMENTS 1997 PAYMENTS ADJUSTMENTS 1999
-------- -------- ----------- ---- -------- ----------- ----
Equipment operating
lease obligations... $ 9,650 $(2,313) $(364)(b) $6,973 $(2,873) $150 (b) $4,250
Vacation and personal
or medical absence
entitlement costs... 1,059 (1,059) -- -- -- -- --
------- ------- ----- ------ ------- ---- ------
$10,709 $(3,372) $(364) $6,973 $(2,873) $150 $4,250
------- ------- ----- ------ ------- ---- ------
------- ------- ----- ------ ------- ---- ------
1999 BALANCE AT
----------------------- RECLASSI- JANUARY 2,
PAYMENTS ADJUSTMENTS FICATIONS 2000
-------- ------------ --------- ----
Equipment operating
lease obligations... $(2,780) $94 (b) $(1,564)(c) $-- (c)
Vacation and personal
or medical absence
entitlement costs... -- -- -- --
-------- --- ------- ----
$(2,780) $94 $(1,564) $--
-------- --- ------- ----
-------- --- ------- ----
- ---------
(a) The accrual for exit costs at January 1, 1997 resulted from a 1996 charge
for exit costs associated with selling the company-owned restaurants. The
$10,709,000 of liabilities for exit costs included $9,650,000 reflecting
the present value of certain equipment operating lease obligations which
would not be assumed by the purchaser and $1,059,000 relating to vacation
and personal or medical absence entitlement costs principally paid to RTM
for approximately 6,500 employees associated with the sold restaurants who
became employees of RTM as a result of the RTM Sale. Although RTM was not
assuming the operating lease obligations, RTM acquired the use of the
leased equipment.
(b) The adjustments represent changes in estimates of the remaining operating
lease obligations.
(c) The balance of equipment operating lease obligations as of December 31,
1999 was converted into a note payable due in December 2000 and,
accordingly, the note payable is classified in 'Current portion of long-
term debt' in the accompanying consolidated balance sheet as of January 2,
2000.
62
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
In 1997 the Company recorded a $4,089,000 loss on the sale included in 'Gain
(loss) on sale of businesses, net' (see Note 16) representing (1) a $1,457,000
provision for the fair value of Triarc's effective guarantee of future lease
commitments and then guarantee of debt repayments assumed by RTM (see below) and
(2) the adjustment of prior year estimates resulting from reconciling actual
amounts to prior estimates for (a) remaining costs of previously closed
restaurants, (b) transaction costs and (c) interpretative issues between the
Company and RTM regarding the measurement of cash flow. Such 1997 loss is
exclusive of an extraordinary charge in connection with the early extinguishment
of the Mortgage Notes and the Equipment Notes (see Note 19). 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 the more than
3,000 Arby's restaurants. During 1997 through the date of sale, the operations
of the restaurants to be disposed in the RTM Sale had net sales of $74,195,000,
cost of sales of $59,222,000, no depreciation and amortization related to sales
and pretax income of $848,000. Such income reflected $3,319,000 of allocated
general and administrative expenses and $2,756,000 of interest expense related
to the Mortgage Notes and Equipment Notes and capitalized lease obligations
directly related to the operations of the restaurants sold to RTM.
Arby's remains contingently responsible for approximately $117,000,000 of
operating and capitalized lease payments (approximately $98,000,000 and
$89,000,000 as of January 3, 1999 and January 2, 2000, respectively, assuming
RTM has made all scheduled payments through such dates under such lease
obligations) if RTM does not make the required lease payments. Obligations under
an aggregate $54,682,000 of Mortgage Notes and Equipment Notes which were
assumed by RTM in connection with the RTM Sale (approximately $51,000,000 and
$49,000,000 outstanding as of January 3, 1999 and January 2, 2000, respectively,
assuming RTM has made all scheduled repayments through such dates), have been
guaranteed by Triarc. In addition, a subsidiary of the Company is a co-obligor
with RTM under a loan, the repayments of which are being made by RTM, with an
aggregate principal amount of $626,000 as of May 5, 1997 ($586,000 and $556,000
as of January 3, 1999 and January 2, 2000, respectively, assuming RTM had made
all scheduled repayments through such dates). The principal amount of the loan
is included in the Company's long-term debt with an equal offsetting amount
recorded as a receivable from RTM. This loan has been guaranteed by Triarc.
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 of which
$3,623,000 was allocated to the C&C Sale resulting in aggregate proceeds
relating to the C&C Sale of $4,373,000. The Kelco Note included compensation
both for the C&C Sale and future sales of concentrate for C&C products to Kelco
subsequent to July 18, 1997 (the 'Minimum Sales Commitments') and technical
services to be performed for Kelco by the Company subsequent to July 18, 1997.
The principal of the Kelco Note was allocated first to the Minimum Sales
Commitments based on the minimum Kelco purchase commitments set forth in the C&C
Sale agreement resulting in a discounted value of $2,096,000, second to
technical services to be performed for Kelco, as requested by Kelco, for seven
years with a discounted value of $284,000 with the remainder allocated to the
C&C Sale. The Minimum Sales Commitments were valued at the contracted sales
price for any Kelco purchases in excess of the minimums since the C&C Sale
contract did not provide any price for the Minimum Sales Commitments. The
technical services to be performed were valued based on the Company's estimated
costs to provide such services based on an estimate of the services to be
requested by Kelco since the C&C Sale contract did not provide any price for
such technical services. 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
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
of $576,000, $314,000 and $356,000 were recognized in 'Gain (loss) on sale of
businesses, net' (see Note 16) in the accompanying consolidated statements of
operations for 1997, 1998 and 1999, respectively.
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 18). 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 19) and reflects the write-off of $2,718,000 of Goodwill which has no tax
benefit.
PURCHASE PRICE ALLOCATIONS OF ACQUISITIONS
The following table sets forth the allocation of the aggregate purchase
prices of the acquisitions discussed above and a reconciliation to business
acquisitions in the accompanying consolidated statements of cash flows (in
thousands):
1997 1998 1999
---- ---- ----
Current assets....................................... $113,767 $ -- $ 4,585
Properties........................................... 21,613 -- 566
Goodwill............................................. 102,271 160 4,619
Trademarks........................................... 221,300 3,389 --
Other intangible assets.............................. -- 110 31,524
Other assets......................................... 27,697 -- --
Current liabilities.................................. (73,898) 43 94
Long-term debt assumed including current portion..... (686) -- --
Deferred income tax liabilities...................... (52,513) -- (5,843)
Other liabilities.................................... (13,908) -- (1,209)
-------- ------ -------
345,643 3,702 34,336
Less (plus):
Long-term debt issued to sellers................. -- 910 --
Triarc Class A Common Stock issued to sellers,
stock options issued to employees, related
expenses (adjustment in 1998), net of stock
registration costs............................. 40,197 (251) --
-------- ------ -------
$305,446 $3,043 $34,336
-------- ------ -------
-------- ------ -------
(4) INCOME (LOSS) PER SHARE
Basic income (loss) per share for 1997, 1998 and 1999 has been computed by
dividing the income or loss by the weighted average number of common shares
outstanding of 30,132,000, 30,306,000 and 26,015,000, respectively. For 1997,
the diluted loss per share is the same as the basic loss per share since the
only then existing potentially dilutive securities, stock options, would have
had an antidilutive effect for such year. For 1998 and 1999, diluted income per
share has been computed by dividing the income by an aggregate 31,527,000 shares
and 26,943,000 shares, respectively. The shares used for diluted income per
share consist of the weighted average number of common shares outstanding and
potential common shares reflecting (1) the effect of dilutive stock options of
1,221,000 and 818,000 shares for 1998 and 1999, respectively, computed utilizing
the treasury stock method and (2) the effect of a dilutive forward purchase
obligation for common
64
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
stock (see Note 11) of 110,000 shares for 1999. The shares for diluted income
per share in 1998 and 1999 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
other short-term investments which are stated either at cost, as reduced by any
unrealized losses deemed to be other than temporary, or at equity. Cost, as set
forth in the table below, represents amortized cost as reduced by any unrealized
losses deemed other than temporary (see Note 15) for corporate debt securities
and cost as reduced by any unrealized losses deemed to be other than temporary
for other short term investments. The cost, gross unrealized gains and losses,
fair value and carrying value, as appropriate, of the Company's short-term
investments at January 3, 1999 and January 2, 2000 were as follows (in
thousands):
YEAR-END 1998 YEAR-END 1999
-------------------------------------------------- ------------------------------
GROSS UNREALIZED GROSS UNREALIZED
------------------- FAIR CARRYING -------------------
COST GAINS LOSSES VALUE VALUE COST GAINS LOSSES
---- ----- ------ ----- ----- ---- ----- ------
Marketable securities
Available-for-sale:
Equity securities...... $29,036 $4,389 $(5,006) $28,419 $ 28,419 $ 29,171 $4,105 $(2,235)
Corporate debt
securities........... 23,311 68 (587) 22,792 22,792 18,976 39 (552)
------- ------ ------- ------- -------- -------- ------ -------
Total available-for-
sale marketable
securities........ 52,347 $4,457 $(5,593) 51,211 51,211 48,147 $4,144 $(2,787)
------- ------ ------- ------- -------- -------- ------ -------
------ ------- ------ -------
Trading:
Equity securities...... 22,636 25,436 25,436 19,216
Corporate debt
securities........... 1,949 1,824 1,824 4,726
------- ------- -------- --------
Total trading
securities........ 24,585 27,260 27,260 23,942
------- ------- -------- --------
Other short-term
investments.............. 21,904 19,468 22,550 63,793
------- ------- -------- --------
$98,836 $97,939 $101,021 $135,882
------- ------- -------- --------
------- ------- -------- --------
YEAR-END 1999
-------------------
FAIR CARRYING
VALUE VALUE
----- -----
Marketable securities
Available-for-sale:
Equity securities...... $ 31,041 $ 31,041
Corporate debt
securities........... 18,463 18,463
-------- --------
Total available-for-
sale marketable
securities........ 49,504 49,504
-------- --------
Trading:
Equity securities...... 23,449 23,449
Corporate debt
securities........... 5,318 5,318
-------- --------
Total trading
securities........ 28,767 28,767
-------- --------
Other short-term
investments.............. 77,738 73,363
-------- --------
$156,009 $151,634
-------- --------
-------- --------
Corporate debt securities at January 2, 2000 which are classified as
available-for-sale mature as follows (in thousands):
FAIR
FISCAL YEARS COST VALUE
- ------------ ---- -----
2000........................................................ $ 1,119 $ 1,109
2001 - 2004................................................. 12,282 11,948
2005 - 2008................................................. 5,575 5,406
------- -------
$18,976 $18,463
------- -------
------- -------
Proceeds from sales of available-for-sale marketable securities were
approximately $62,919,000, $63,562,000 and $72,552,000 in 1997, 1998 and 1999,
respectively. Gross realized gains and gross realized losses on those sales are
included in 'Investment income, net' (see Note 15) in the accompanying
consolidated statements of operations and are as follows (in thousands):
65
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
1997 1998 1999
---- ---- ----
Gross realized gains.................................... $5,187 $5,139 $7,514
Gross realized losses................................... (338) (550) (865)
------ ------ ------
$4,849 $4,589 $6,649
------ ------ ------
------ ------ ------
The net change in the unrealized gain (loss) on available-for-sale
securities included in other comprehensive income (loss) consisted of the
following (in thousands):
1997 1998 1999
---- ---- ----
Net change in unrealized gains (losses) on
available-for-sale securities:
Unrealized appreciation (depreciation) of
available-for-sale securities..................... $ (903) $ 462 $ 9,843
Less reclassification adjustments for prior year
appreciation of securities sold during the year... (1,140) (468) (668)
------- ----- -------
(2,043) (6) 9,175
Equity in the increase (decrease) in unrealized gain
on retained interest.............................. -- 596 (234)
Income tax benefit (provision)...................... 707 (189) (3,207)
------- ----- -------
$(1,336) $ 401 $ 5,734
------- ----- -------
------- ----- -------
The net change in the net unrealized gain on trading securities included in
earnings for the years ended January 3, 1999 and January 2, 2000 was $2,675,000
and $2,144,000, respectively.
Other short-term investments represent investments in limited partnerships,
limited liability companies and similar investment entities 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. Certain of these investments are accounted for in
accordance with the equity method.
SECURITIES SOLD BUT NOT YET PURCHASED
The Company also enters into short sales of debt and equity securities as
part of its portfolio management strategy. The Company's short sales are
commitments to sell such debt and equity securities not owned at the time of
sale that require purchase of such debt and equity securities at a future date.
Such short sales resulted in proceeds of $45,585,000 and $53,281,000 for the
years ended January 3, 1999 and January 2, 2000, respectively. The net change in
the net unrealized gain on securities sold but not yet purchased charged to
results of operations for the years ended January 3, 1999 and January 2, 2000
was $(3,069,000) and $(1,834,000), respectively. The fair value and carrying
value of the liability for securities sold but not yet purchased was $23,599,000
and $21,138,000 at January 3, 1999 and January 2, 2000, respectively, and is
included in 'Accrued expenses' (see Note 6).
66
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(6) BALANCE SHEET DETAIL
RECEIVABLES
The following is a summary of the components of receivables (in thousands):
YEAR-END
-----------------
1998 1999
---- ----
Receivables:
Trade................................................... $63,283 $72,742
Affiliates.............................................. 170 888
Other................................................... 8,004 11,295
------- -------
71,457 84,925
Less allowance for doubtful accounts........................ 5,551 5,641
------- -------
$65,906 $79,284
------- -------
------- -------
Substantially all receivables are pledged as collateral for certain debt
(see Note 8).
INVENTORIES
The following is a summary of the components of inventories (in thousands):
YEAR-END
-----------------
1998 1999
---- ----
Raw materials............................................... $20,268 $20,952
Work in process............................................. 98 397
Finished goods.............................................. 26,395 40,387
------- -------
$46,761 $61,736
------- -------
------- -------
Substantially all inventories are pledged as collateral for certain debt
(see Note 8).
PROPERTIES
The following is a summary of the components of properties (in thousands):
YEAR-END
-----------------
1998 1999
---- ----
Land........................................................ $ 1,967 $ 1,517
Buildings and improvements.................................. 5,623 2,923
Leasehold improvements...................................... 12,687 23,662
Machinery and equipment..................................... 38,378 42,724
Leased assets capitalized................................... 431 384
------- -------
59,086 71,210
Less accumulated depreciation and amortization.............. 27,883 34,812
------- -------
$31,203 $36,398
------- -------
------- -------
Substantially all properties are pledged as collateral for certain debt (see
Note 8).
67
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
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
-------------------
1998 1999
---- ----
Costs in excess of net assets of acquired companies
(Note 3)................................................. $355,482 $360,101
Less accumulated amortization.............................. 87,267 98,435
-------- --------
$268,215 $261,666
-------- --------
-------- --------
TRADEMARKS
The following is a summary of the components of trademarks (in thousands):
YEAR-END
-------------------
1998 1999
---- ----
Trademarks................................................. $286,231 $286,319
Less accumulated amortization.............................. 24,325 35,202
-------- --------
$261,906 $251,117
-------- --------
-------- --------
Substantially all trademarks are pledged as collateral for certain debt (see
Note 8).
OTHER INTANGIBLE ASSETS
The following is a summary of the components of other intangible assets (in
thousands):
YEAR-END
----------------
1998 1999
---- ----
Distribution rights......................................... $ 306 $28,027
Non-compete agreements...................................... 5,214 7,661
Other....................................................... 922 3,020
------ -------
6,442 38,708
Less accumulated amortization............................... 5,483 7,078
------ -------
$ 959 $31,630
------ -------
------ -------
DEFERRED COSTS AND OTHER ASSETS
The following is a summary of the components of deferred costs and other
assets (in thousands):
YEAR-END
-----------------
1998 1999
---- ----
Deferred financing costs.................................... $34,164 $34,640
Less accumulated amortization of deferred financing costs... 17,840 3,787
------- -------
16,324 30,853
Other....................................................... 22,892 20,270
------- -------
$39,216 $51,123
------- -------
------- -------
68
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
ACCRUED EXPENSES
The following is a summary of the components of accrued expenses (in
thousands):
YEAR-END
-------------------
1998 1999
---- ----
Accrued compensation and related benefits.................. $ 22,407 $ 29,261
Accrued interest........................................... 22,956 25,076
Securities sold but not yet purchased (Note 5)............. 23,599 21,138
Accrued promotions......................................... 14,922 19,560
Accrued production contract losses (a)..................... 4,639 3,251
Accrued advertising........................................ 2,582 2,813
Accrued legal settlements and environmental matters (Note
23)...................................................... 1,884 3,325
Other...................................................... 36,319 31,401
-------- --------
$129,308 $135,825
-------- --------
-------- --------
- ---------
(a) Represents obligations related to the portion of those long-term production
contracts with copackers, assumed in connection with the Snapple
Acquisition, which the Company does not anticipate utilizing based on
projected future volumes. The decrease in this accrual during 1999 was due
to obligations paid during such year.
(7) INVESTMENTS
The following is a summary of the components of investments (non-current)
(in thousands):
INVESTMENT INTEREST IN
---------------- UNDERLYING MARKET
YEAR-END % OWNED EQUITY VALUE
---------------- -------------- ----------- ------
1998 1999 YEAR-END 1999
---- ---- ------------------------------------
MCM Capital Group, Inc., at
equity..................... $3,382 $ 4,189 8.4% $2,787 $2,340
EBT Holding Company, LLC, at
equity..................... -- 372 18.6% 372
Clarion KPE Investors, LLC,
at equity.................. -- 694 38.6% 694
Limited partnerships, at
equity..................... 1,421 853 10.1% to 37.4% 853
Non-marketable preferred and
common stock, at cost...... 2,650 4,550
Other, at cost less (in 1998)
other than temporary
unrealized losses
(Notes 15)................. 1,630 3,497
------ -------
$9,083 $14,155
------ -------
------ -------
The Company's consolidated equity in the earnings (losses) of investees
accounted for under the equity method and classified as non-current (other than
the equity in the income of Clarion KPE Investors, LLC ('Clarion'), an
investment limited liability company, which is included in 'Investment income,
net') and included as a component of 'Other income, net' (see Note 17) in the
accompanying consolidated statements of operations consisted of the following
components (in thousands):
69
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
1997 1998 1999
---- ---- ----
MCM Capital Group, Inc., at equity....................... $-- $ 834 $(147)
Limited partnerships, at equity.......................... (299) (1,281) 157
Select Beverages......................................... 862 (1,222) --
----- ------- -----
$ 563 $(1,669) $ 10
----- ------- -----
----- ------- -----
The Company has an investment in MCM Capital Group, Inc. ('MCM'), an
investee accounted for in accordance with the equity method. MCM is a financial
services company specializing in the recovery, restructuring, resale and
securitization of charged-off, delinquent and non-performing receivable
portfolios acquired at deep discounts. On July 14, 1999 MCM consummated an
initial public offering (the 'MCM IPO') of 2,250,000 shares of its common stock
resulting in a decrease in the Company's percentage ownership interest to 8.4%
from 12.2%. The Company recorded a non-cash gain as a result of the MCM IPO of
$1,188,000 included in 'Gain (loss) on sale of businesses, net' (see Note 16).
Such gain represents, to the extent of the 3.8% percentage ownership decrease in
MCM, the excess of the $8.76 net per share proceeds to MCM in the MCM IPO over
the Company's $5.04 carrying value per share plus the 3.8% realized portion of
the Company's equity in MCM's unrealized gain on its retained interest. The
unrealized gain on MCM's retained interest in securitized assets represents the
fair value of the estimated receivables to be retained by MCM, as a result of
MCM's issuance of securitization notes collateralized by credit card
receivables, over the allocated carrying value of those receivables.
On January 12, 2000 the Company entered into an agreement (the 'Note
Guaranty') to guarantee $10,000,000 principal amount of senior notes (the 'MCM
Notes') issued by MCM to a major financial institution in consideration for a
fee of $200,000 and warrants to purchase 100,000 shares of MCM common stock at
$.01 per share with an estimated fair value on the date of grant of $305,000.
The $10,000,000 guaranteed amount will be reduced by (1) any repayments of the
MCM Notes, (2) any purchases of the MCM Notes by the Company and (3) the amount
of certain investment banking or financial advisory services fees paid to the
financial institution or its affiliates or, under certain circumstances, other
financial institutions by the Company, MCM or another significant stockholder of
MCM or any of their affiliates. Certain officers of the Company, including
entities controlled by them, collectively own approximately 15.7% of MCM and are
not parties to the Note Guaranty and could indirectly benefit therefrom. In
addition to the Note Guaranty, the Company and certain other stockholders of
MCM, including the officers of the Company referred to above, on a joint and
several basis, have entered into guaranties (the 'Bank Guaranties') and certain
related agreements to guarantee an aggregate of $15,000,000 of revolving credit
borrowings of a subsidiary of MCM, of which the Company would be responsible
for approximately $1,800,000 assuming all of the parties other than the Company
(the 'Other Parties') to the Bank Guaranties and the related agreements fully
perform. The Company has agreed to purchase a $15,000,000 certificate of
deposit from such financial institution which under the Bank Guaranties is
subject to set off under certain circumstances if the parties to the Bank
Guaranties and related agreements fail to perform their obligations thereunder.
MCM has encountered cash flow and liquidity difficulties. While it is not
currently possible to determine if MCM may eventually default on any of the
aforementioned obligations, management of the Company currently believes that
it is possible, but not probable, that the Company will be required to make
payments under the Note Guaranty and/or the Bank Guaranties.
The Company and certain of its officers and employees co-invested in EBT
Holding Company, LLC ('EBT') resulting in the Company owning 18.6% and the
officers and employees owning 56.4%. The Company advanced the funds for the
purchases by the officers and employees and transferred such ownership to the
officers and employees for cash aggregating $376,000 and notes due the Company
aggregating $752,000, of which one-half, or $376,000, are non-recourse notes.
Such notes bear interest at the prime rate adjusted annually (8.5% at
January 2, 2000). The Company accounts for its investment in EBT in accordance
with the equity method. However, the only operating asset of EBT is its
investment in the non-cumulative preferred stock of EBondTrade.com, Inc. which
is accounted for at cost and, accordingly, EBT had no earnings or losses in the
year 1999. The Company accounts for its investment in Clarion in accordance with
the equity method. The
70
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
principal asset of Clarion is its investment in the non-cumulative preferred
stock of KPE, Inc. ('KPE') which is accounted for at cost. Subsequent to
January 2, 2000 the Company and certain of its officers and employees co-
invested in 280 KPE Holdings LLC ('280 KPE'), a newly formed limited liability
company, resulting in the Company owning 25.3% and the officers and employees
owning 74.7% of 280 KPE which will own the Company's present 38.6% interest in
Clarion. The Company will advance the funds for the purchases by the officers
and employees aggregating $2,241,000 which the Company currently anticipates
will be reimbursed approximately one-third in cash and approximately one-third
each in recourse and non-recourse notes. The Company expects that such notes
will bear interest at the prime rate adjusted annually. The Company provides
such officers and employees opportunities to co-invest as part of its overall
retention efforts.
The Company owned 20% of Select Beverages, Inc. ('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 (loss) on sale of businesses, net' (see Note 16),
representing the excess of the net sales price over the Company's carrying value
of the investment in Select Beverages and related estimated post-closing
adjustments and expenses. During the year 1999 the Company recorded an $889,000
reduction to the gain from the sale of Select Beverages resulting from a
post-closing adjustment to the purchase price higher than the adjustment
originally estimated in determining the $4,702,000 gain recorded in the year
1998.
The Company's investments in MCM and Select Beverages exceeded the
underlying equity in their respective net assets. During 1998 and 1999
amortization of such excess of $104,000 and $113,000, respectively, related to
MCM and $341,000 related to Select Beverages through the May 1, 1998 sale of
Select Beverages was included in the equity in earnings or losses of the
respective investments.
The Company, through its ownership in Snapple, owned 50% of the stock of
Rhode Island Beverage Packing Company, L.P. ('Rhode Island Beverages') prior to
its disposition in February 1998. Snapple and Quaker were defendants in a breach
of contract case filed in April 1997 by Rhode Island Beverages, prior to the
Snapple Acquisition (the 'Rhode Island Beverages Matter'). The Rhode Island
Beverages Matter was settled in February 1998 and in accordance therewith the
Company surrendered (1) its 50% investment in Rhode Island Beverages ($550,000)
and (2) certain properties ($1,202,000) and paid Rhode Island Beverage
$8,230,000. The settlement amounts were fully provided for in a combination of
(1) $6,530,000 of legal reserves provided in 'Charges (credit) related to
post-acquisition transition, integration and changes to business strategies'
(see Note 13), (2) $3,321,000 of reserves for losses in long-term production
contracts established in the Snapple Acquisition purchase accounting and
(3) $131,000 of an accrual related to the Rhode Island Beverages long-term
production contract included in historical liabilities at the date of the
Snapple Acquisition (see Note 3). At the date of the Snapple Acquisition the
investment in Rhode Island Beverages was expected to be surrendered in
connection with the settlement of the Rhode Island Beverages Matter.
Accordingly, the Company did not recognize any equity in the earnings of Rhode
Island Beverages prior to such surrender in February 1998.
The Company's investments accounted for in accordance with the equity method
include MCM, a financial services company specializing in the recovery,
restructuring, resale and securitization of charged-off, delinquent and
non-performing receivable portfolios acquired at deep discounts, partnerships
that develop and operate golf courses and several investment limited
partnerships and limited liability companies which invest in diversified
portfolios of securities. As such, the summary balance sheet and income
statement information presented below combines assets, liabilities, revenues and
expenses which vary greatly in nature and are taken from balance sheets which do
not distinguish between current and long-term assets and liabilities. The
largest components of total assets and liabilities represent the short-term
investments and securities sold but not yet purchased of the investment
entities. Other assets primarily represent properties of the golf courses and
investments in receivable portfolios. Other liabilities primarily represent
long-term debt. Revenues relate to the operations of golf courses as well as
operating revenues of the financial services company. Investment income, net
relates to the investment entities.
71
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
Summary unaudited combined balance sheet and income statement information
for our investments accounted for in accordance with the equity method as of and
for the year ended December 31, 1999, the year end of such investments, is as
follows (in thousands):
Balance sheet information:
Short-term investments.................................. $683,629
Other assets............................................ 289,396
--------
$973,025
--------
--------
Securities sold but not yet purchased................... $540,081
Other liabilities....................................... 92,484
Partners' capital/Members' capital/Stockholders'
equity................................................ 340,460
--------
$973,025
--------
--------
Income statement information:
Revenues................................................ $ 37,185
Investment income, net.................................. 60,236
Operating profit........................................ 61,152
Net income.............................................. 63,065
(8) LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
YEAR-END
-------------------
1998 1999
---- ----
Credit facility term loans bearing interest at a weighted
average rate of 9.03% at January 2, 2000 (a).............. $ -- $470,088
10 1/4% senior subordinated notes due 2009 (a).............. -- 300,000
Zero coupon convertible subordinated debentures due 2018
(net of unamortized original issue discount of $246,908 at
January 2, 2000) (b)...................................... 106,103 113,092
9 3/4% senior secured notes refinanced in 1999 (a).......... 275,000 --
Former Beverage Credit Agreement term loans refinanced in
1999 (a).................................................. 284,333 --
Other....................................................... 12,823 9,873
-------- --------
Total debt.......................................... 678,259 893,053
Less amounts payable within one year................ 9,978 42,194
-------- --------
$668,281 $850,859
-------- --------
-------- --------
Aggregate annual maturities of long-term debt, including capitalized lease
obligations, were as follows as of January 2, 2000 (in thousands) (a):
2000.................................................... $ 42,194
2001.................................................... 10,363
2002.................................................... 12,175
2003.................................................... 14,547
2004.................................................... 15,056
Thereafter.............................................. 1,045,626
----------
1,139,961
Less unamortized original issue discount................ (246,908)
----------
$ 893,053
----------
----------
(footnotes on next page)
72
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(footnotes from previous page)
(a) On February 25, 1999 TCPG and Triarc Beverage Holdings issued $300,000,000
principal amount of 10 1/4% senior subordinated notes due 2009 (the
'Notes') and Snapple, Mistic, Stewart's, RC/Arby's and Royal Crown
concurrently entered into an agreement (the 'Credit Agreement') for a
$535,000,000 senior bank credit facility (the 'Credit Facility') consisting
of a $475,000,000 term facility, all of which was borrowed as three classes
of term loans (the 'Term Loans') on February 25, 1999, and a $60,000,000
revolving credit facility (the 'Revolving Credit Facility') which provides
for borrowings (the 'Revolving Loans') by Snapple, Mistic, Stewart's,
RC/Arby's or Royal Crown. There were no borrowings under the Revolving
Credit Facility in 1999. The Company utilized a portion of the aggregate
net proceeds of these borrowings to (1) repay on February 25, 1999 the
$284,333,000 outstanding principal amount of the term loans under the
Former Beverage Credit Agreement and $1,503,000 of related accrued
interest, (2) redeem (the 'Redemption') on March 30, 1999 the $275,000,000
of borrowings under the RC/Arby's 9 3/4% senior notes due 2000 (the '9 3/4%
Senior Notes') and pay $4,395,000 of related accrued interest and
$7,662,000 of redemption premium, (3) acquire Millrose (see Note 3) for
$17,491,000 and (4) pay fees and expenses of $30,500,000 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 are being or will be used for general corporate purposes,
which may include working capital, investments, future business
acquisitions, repayment or refinancing of indebtedness, restructurings or
repurchases of securities, including repurchases of the Company's common
stock (see Note 11). As a result of the repayment prior to maturity of the
borrowings under the Former Beverage Credit Agreement and the Redemption,
the Company recognized an extraordinary charge during 1999 of $12,097,000
(see Note 19).
The stated interest rate on the Notes is 10 1/4%. However, on August 25,
1999 a temporary increase in the interest rate by 1/2% to 10 3/4% became
effective because a registration statement (the 'Registration Statement')
covering resales by holders of the Notes had not been declared effective by
the Securities and Exchange Commission (the 'SEC') by August 24, 1999. The
Registration Statement was declared effective on December 23, 1999 and on
January 28, 2000 the Company completed an exchange offer (the 'Exchange
Offer') which, collectively, permitted the Notes to be publicly traded.
Upon the completion of the Exchange Offer, the annual interest rate on the
Notes reverted to the original 10 1/4%. The Notes mature in 2009 and do not
require any amortization of principal prior thereto. However, under 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 public equity offering of Triarc or its 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.
Borrowings under the Credit Facility bear interest, at the Company's
option, at rates based on either the 30, 60, 90 or 180-day London Interbank
Offered Rate ('LIBOR') (ranging from 5.82% to 6.13% at January 2, 2000) or
an alternate base rate (the 'ABR'). The ABR (8 1/2% at January 2, 2000)
represents the higher of the prime rate or 1/2% over the Federal funds
rate. 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.
Revolving Loans and one class of the Term Loans with $43,312,000
outstanding as of January 2, 2000 (the 'Term A Loans') currently bear
interest at 3% over LIBOR or 2% over ABR. The other two classes of Term
Loans with $124,063,000 and $302,713,000 outstanding as of January 2, 2000
(the 'Term B Loans' and 'Term C Loans,' respectively) 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 2, 2000 there was $51,099,000 of borrowing availability under the
Revolving Credit Facility in accordance with limitations due to such
borrowing base.
(footnotes continued on next page)
73
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(footnotes continued from previous page)
The Company must make mandatory annual prepayments in an amount, if any,
currently equal to 75% of excess cash flow, as defined in the Credit
Agreement. Such mandatory prepayments will be applied on a pro rata basis
to the remaining outstanding balances of each of the three classes of the
Term Loans except that any lender that has Term B Loans or Term C Loans
outstanding may elect not to have its pro rata share of such loans repaid.
Any amount prepaid and not applied to Term B Loans or Term C Loans as a
result of such election would be applied first to the outstanding balance
of the Term A Loans and second to any outstanding balance of Revolving
Loans, with any remaining amount being returned to the Company.
Accordingly, a $28,349,000 prepayment will be required in the second
quarter of 2000 in respect of the year ended January 2, 2000. Accordingly,
the $28,349,000 the Company will be required to prepay is included in
'Current portion of long-term debt' in the accompanying consolidated
balance sheet as of January 2, 2000. After consideration of the effect of
this excess cash flow prepayment and assuming lenders of Term B Loans and
Term C Loans elect to accept their pro rata share of such prepayment, the
Term Loans would be due $36,200,000 in 2000 including the estimated excess
cash flow prepayment, $9,875,000 in 2001, $11,995,000 in 2002, $14,117,000
in 2003, $14,645,000 in 2004, $88,528,000 in 2005, $228,249,000 in 2006 and
$66,479,000 in 2007 and any Revolving Loans would be due in full in
March 2005. Such maturities will change if the Company is required to make
any future excess cash flow payments. Pursuant to the Credit Agreement the
Company can make voluntary prepayments of the Term Loans. As of March 10,
2000 no such voluntary prepayments had been made. However, if the Company
makes voluntary prepayments of the Term B and Term C Loans, it will incur
prepayment penalties of 1.0% and 1.5%, respectively, of any future amount
of such Term Loans prepaid through February 25, 2001.
Under the Credit Agreement, substantially all of the Company's assets,
other than cash, cash equivalents and short-term investments, are pledged
as security. In addition, the Company's obligations with respect to (1) the
Notes are guaranteed (the 'Note Guarantees') by Snapple, Mistic, Stewart's,
Arby's, Royal Crown and RC/Arby's and all of their domestic subsidiaries
and (2) the Credit Facility is guaranteed (the 'Credit Facility Guaranty')
by TCPG, Triarc Beverage Holdings and substantially all of the domestic
subsidiaries of Snapple, Mistic, Stewart's, Royal Crown and RC/Arby's. As
collateral for the Credit Facility Guaranty, all of the stock of Snapple,
Mistic, Stewart's, Arby's, Royal Crown and RC/Arby's and all of their
domestic and 65% of the stock of each of their directly-owned foreign
subsidiaries is pledged. The Note Guarantees are full and unconditional,
are on a joint and several basis and are unsecured.
(b) On February 9, 1998 the Company issued zero coupon convertible subordinated
debentures due 2018 (the 'Debentures') with an aggregate principal amount
at maturity of $360,000,000. The Debentures were issued at a discount of
72.177% from principal and 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 a
conversion price as of January 2, 2000 of approximately $33.19 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.
-------------------
The Company's debt agreements contain various covenants which (1) require
periodic financial reporting, (2) require meeting financial amount and ratio
tests, (3) 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 (4) restrict the payment of dividends to
74
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
Triarc. Under the most restrictive of such covenants, the borrowers would not be
able to pay any dividends or make any loans or advances to Triarc other than
permitted one-time distributions, including dividends, paid to Triarc in
connection with the Refinancing Transactions. Such one-time permitted
distributions consisted of $91,420,000 paid on February 25, 1999 and
$124,108,000 paid on March 30, 1999 following the Redemption, and included
aggregate dividends of $204,746,000. As of January 2, 2000 the Company was in
compliance with all of such covenants.
(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, other non-current
investments, at cost, long-term debt and a forward purchase obligation for
common stock (see Note 11). In addition, the Company has non-marketable
preferred and common stock, at cost (see Note 7) for which it is not practicable
to estimate fair value because the investments are non-marketable and are in
start-up enterprises. 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 investees and are set forth in Note 5. The carrying amounts and fair values
of other non-current investments, at cost, long-term debt and a forward purchase
obligation for common stock were as follows (in thousands):
YEAR-END
-----------------------------------------
1998 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Other non-current investments, at cost
(Note 7).............................. $ 1,630 $ 1,504 $ 3,497 $ 3,775
-------- -------- -------- --------
-------- -------- -------- --------
Long-term debt (Note 8):
Credit Facility term loans.......... $ -- $ -- $470,088 $470,088
Notes............................... -- -- 300,000 287,250
Debentures.......................... 106,103 74,700 113,092 80,532
9 3/4% Senior Notes................. 275,000 278,000 -- --
Former Beverage Credit Agreement.... 284,333 284,333 -- --
Other long-term debt................ 12,823 13,265 9,873 9,955
-------- -------- -------- --------
$678,259 $650,298 $893,053 $847,825
-------- -------- -------- --------
-------- -------- -------- --------
Forward purchase obligation for common
stock (Note 11)....................... $ -- $ -- $ 86,186 $ 86,186
-------- -------- -------- --------
-------- -------- -------- --------
The fair values of the Company's other non-current investments, at cost are
based on quoted market prices, to the extent available, or statements of account
received from such investees. The fair values of the term loans under the Credit
Agreement and the Former Beverage Credit Agreement approximated their carrying
values due to the relatively frequent resets of their floating interest rates.
The fair values of the Notes, the Debentures and the 9 3/4% Senior Notes are
based on quoted market prices. The fair values of all other long-term debt were
either (1) 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 or (2) assumed to reasonably
approximate their carrying amounts since the remaining maturities are relatively
short-term or the carrying amounts of such debt are relatively insignificant.
The fair value of the Company's forward purchase obligation for common stock was
assumed to reasonably approximate its carrying amount since the related contract
was recently entered into (August 1999) and the contract is of a relatively
short duration with payments required in one or two years from origination.
75
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(10) INCOME TAXES
The income (loss) from continuing operations before income taxes consisted
of the following components (in thousands):
1997 1998 1999
---- ---- ----
Domestic............................................ $(30,761) $ 31,900 $21,440
Foreign............................................. 679 221 240
-------- -------- -------
$(30,082) $ 32,121 $21,680
-------- -------- -------
-------- -------- -------
The benefit from (provision for) income taxes from continuing operations
consisted of the following components (in thousands):
1997 1998 1999
---- ---- ----
Current:
Federal......................................... $ 6,903 $ (5,601) $ (55)
State........................................... 2,665 (7,375) (3,596)
Foreign......................................... (805) (457) (409)
------- -------- --------
8,763 (13,433) (4,060)
------- -------- --------
Deferred:
Federal......................................... 867 (5,466) (8,300)
State........................................... (3,026) 1,016 (585)
------- -------- --------
(2,159) (4,450) (8,885)
------- -------- --------
Total....................................... $ 6,604 $(17,883) $(12,945)
------- -------- --------
------- -------- --------
76
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
The net current deferred income tax benefit and the net non-current deferred
income tax (liability) resulted from the following components (in thousands):
YEAR-END
-------------------
1998 1999
---- ----
Current deferred income tax benefit (liability):
Accrued employee benefit costs.......................... $ 5,639 $ 8,710
Glass front vending machines previously written off by
Quaker................................................ 2,925 2,925
Investment write-downs for unrealized losses deemed
other than temporary.................................. 3,332 4,619
Allowance for doubtful accounts......................... 2,340 2,374
Accrued liabilities of discontinued operations (Note
18)................................................... 1,215 1,196
Inventory obsolescence reserves......................... 1,210 946
Accrued production contract losses...................... 1,320 778
Closed facilities reserves.............................. 1,371 630
Accrued lease payments for equipment transferred to
RTM................................................... 1,082 15
Investment limited partnerships basis differences....... 956 (3,325)
Unrealized (gains) losses, net, on available-for-sale
and trading marketable securities and securities sold
but not yet purchased (Note 5)........................ 345 (2,974)
Other, net.............................................. 6,633 2,879
-------- --------
28,368 18,773
-------- --------
Non-current deferred income tax benefit (liability):
Trademarks basis differences............................ (55,038) (55,565)
Recognized gain on 1996 sale of propane business........ (37,003) (37,003)
Depreciation and other properties basis differences..... (15,667) (12,198)
Other intangible assets basis differences............... (924) (6,812)
Net operating loss and alternative minimum tax credit
carryforwards, net.................................... 18,113 22,902
Other, net.............................................. 3,324 (2,635)
-------- --------
(87,195) (91,311)
-------- --------
$(58,827) $(72,538)
-------- --------
-------- --------
The increase in the net deferred income tax liability from $58,827,000 at
January 3, 1999 to $72,538,000 at January 2, 2000, or an increase of
$13,711,000, differs from the provision for deferred income taxes of $8,885,000
for 1999. Such difference is principally due to the recognition of deferred
income tax liabilities in connection with the Millrose Acquisition of $5,843,000
(see Note 3).
As of January 2, 2000 Triarc had net operating loss carryforwards for
Federal income tax purposes of approximately $83,000,000 expiring approximately
$1,000,000 in total in the years 2000 through 2003 and $1,000,000, $3,000,000,
$55,000,000 and $23,000,000 in 2008, 2009, 2012 and 2013, respectively. The
Company also has a capital loss carryforward of $11,000,000 expiring in the year
2003. In addition, the Company has (1) alternative minimum tax credit
carryforwards of approximately $5,700,000 and (2) depletion carryforwards of
approximately $4,400,000, both of which have an unlimited carryforward period.
77
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
The difference between the reported benefit from (provision for) income
taxes and the tax benefit (provision) that would result from applying the 35%
Federal statutory rate to the income or loss from continuing operations before
income taxes is reconciled as follows (in thousands):
1997 1998 1999
---- ---- ----
Income tax benefit (provision) computed at Federal
statutory rate................................... $ 10,529 $(11,242) $ (7,588)
(Increase) decrease in Federal tax provision
resulting from:
Amortization of non-deductible Goodwill........ (2,481) (3,144) (3,217)
State income taxes, net of Federal income tax
effect....................................... (235) (4,133) (2,718)
Foreign tax rate in excess of United States
Federal statutory rate and foreign
withholding taxes, net of Federal income tax
benefit...................................... (433) (247) (212)
Non-deductible compensation.................... -- -- (1,509)
Effect of net operating losses for which no tax
carryback benefit is available............... (273) (348) --
Reversal of provision for income tax
contingencies................................ -- -- 2,525
Basis differences in investments in
subsidiaries no longer permanently reinvested
principally due to the 1998 Chesapeake
Sale......................................... -- 1,500 --
Other non-deductible expenses.................. (664) (455) (440)
Other, net..................................... 161 186 214
-------- -------- --------
$ 6,604 $(17,883) $(12,945)
-------- -------- --------
-------- -------- --------
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service (the 'IRS') for the tax years from 1989 through 1992
(the '1989 through 1992 Examinations'). Prior to 1999 the Company resolved and
settled certain issues with the IRS regarding such audit and in July 1999 the
Company resolved all remaining issues. In connection therewith, the Company paid
$5,298,000 during 1997, of which $2,818,000 was the amount of tax due and
$2,480,000 was interest thereon, and paid an additional $8,460,000 during 1998,
of which $4,510,000 was the amount of tax due and $3,950,000 was interest
thereon. During 1999 the Company reached a final settlement with the IRS
resulting in its agreement to make a net payment of approximately $1,200,000, of
which $250,000 is the amount of tax due and $950,000 is interest thereon, and,
related thereto, the Company has received refunds in the amount of $1,693,000,
of which $351,000 represents taxes and $1,342,000 represents interest, as a
result of the partial processing of the final settlement by the IRS during 1999.
All such amounts were charged to reserves principally provided in prior years.
The IRS has tentatively completed its examination of the Company's Federal
income tax returns for the year ended April 30, 1993 and transition period ended
December 31, 1993 (the '1993 Examinations'). In connection therewith and subject
to final processing and approval by the IRS, the Company's net operating loss
carryforwards would increase by $7,453,000 and the Company would receive a
refund of taxes of $2,290,000 plus interest thereon. During 1997 and 1998 the
Company provided $3,000,000 and $2,000,000, respectively, included in 'Interest
expense' relating to such examinations and other tax matters. As a result of the
settlement of the 1989 through 1992 Examinations and the tentative completion
of the 1993 Examinations, the Company determined that it had excess income tax
reserves and interest accruals of $4,788,000 and $2,863,000, respectively, and,
accordingly, released such amounts in 1999. The adjustment to the income tax
reserves were reported as a reduction of the provision for income taxes of
$2,525,000 and additional gain on disposal of discontinued operations of
$2,263,000 (See Note 18). The adjustments to interest accruals were reported
as a reduction of 'Interest expense' of $2,641,000 and additional gain on
disposal of discontinued operations of $222,000.
78
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(11) STOCKHOLDERS' EQUITY (DEFICIT)
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 and that 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 (see below). All outstanding
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. There were 5,997,622 issued shares of Class B Common Stock throughout
1997, 1998 and 1999. A summary of the changes in the number of issued shares of
Class A Common Stock is as follows (in thousands):
1997 1998 1999
---- ---- ----
Number of shares at beginning of year................... 27,984 29,551 29,551
Common shares issued in connection with the Stewart's
Acquisition (Note 3).................................. 1,567 -- --
------ ------ ------
Number of shares at end of year......................... 29,551 29,551 29,551
------ ------ ------
------ ------ ------
A summary of the changes in the number of shares of Class A Common Stock
held in treasury and Class B Common Stock held in treasury subsequent to an
initial purchase of the Class B Common Stock on August 19, 1999 is as follows
(in thousands):
1997 1998 1999
----- ----- -------------------
CLASS A CLASS B
------- -------
Number of shares at beginning of year............. 4,098 3,951 6,251 --
Common shares acquired in connection with a tender
offer (see below)............................... -- -- 3,805 --
Common shares acquired in connection with the
issuance of the Debentures (Note 8)............. -- 1,000 -- --
Common shares acquired in open market
transactions.................................... 67 1,673 295 --
Common shares issued from treasury upon exercise
of stock options................................ (208) (369) (572) --
Common shares issued from treasury to directors... (6) (4) (6) --
Common shares acquired from Posner Entities (see
below).......................................... -- -- -- 1,999
----- ----- ----- -----
Number of shares at end of year................... 3,951 6,251 9,773 1,999
----- ----- ----- -----
----- ----- ----- -----
On April 27, 1999 the Company repurchased 3,805,015 shares of its Class A
Common Stock (the 'Class A Repurchase') for $18.25 per share in connection with
a tender offer (the 'Tender Offer') for an aggregate cost of $70,051,000,
including fees and expenses of $609,000.
On August 19, 1999 Triarc entered into a contract to repurchase in three
separate transactions the 5,997,622 shares of Triarc's Class B Common Stock held
by the Posner Entities for $127,050,000. On August 19, 1999 Triarc completed the
purchase of 1,999,208 shares of Class B Common Stock (the 'Initial Class B
Repurchase') for an aggregate of $40,864,000 at a price of $20.44 per share,
which was the fair market value of the Class A Common Stock at the time the
transaction was negotiated. Pursuant to the contract, the second and third
purchases of $42,343,000 and $43,843,000, respectively, each for 1,999,207
shares at negotiated fixed prices of $21.18 and $21.93 per share, are to occur
on or before August 19, 2000 and 2001, respectively. The aggregate $86,186,000
obligation for the second and third purchases has been recorded by the Company
as 'Forward purchase obligation for common stock' with an equal offsetting
reduction to the 'Common stock to be acquired' component of 'Stockholders'
equity (deficit).'
Assuming the Class A Repurchase and the Initial Class B Repurchase had
occurred on January 4, 1999, the Company's diluted per-share income from
continuing operations, income from discontinued operations,
79
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
extraordinary charges and net income for the year ended January 2, 2000 would
have been $.35, $.54, $(.48) and $.41, respectively.
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
throughout 1997, 1998 and 1999.
The Company maintains several equity plans (the 'Equity Plans') which
collectively provide or provided for the grant of stock options and restricted
stock to certain officers, key employees, consultants and non-employee directors
and shares of Class A Common Stock pursuant to automatic grants in lieu of
annual retainer or meeting attendance fees to non-employee directors. There
remain 3,045,728 shares available for future grants under the Equity Plans as of
January 2, 2000.
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, 1997........ 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
Stewart's employees (Note 3)........ 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 (b)........................... (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
Granted during 1999 (a)............... 2,221,000 $16.875 - $21.5625 $17.65
Exercised during 1999................. (571,750) $6.39 - $21.00 $12.98
Terminated during 1999................ (210,998) $10.125 - $27.00 $18.17
----------
Outstanding at January 2, 2000........ 10,611,565 $6.39 - $30.00 $17.78
----------
----------
Exercisable at January 2, 2000........ 4,220,877 $6.39 - $30.00 $15.96
----------
----------
- ---------
(a) The weighted average grant date fair values of stock options granted under
the Equity Plans during 1997, 1998 and 1999 were as follows (see discussion
of stock option valuation below):
1997 1998 1999
---- ---- ----
Options whose exercise price equals the market price of
the stock on the grant date............................ $12.17 $11.94 $ 7.92
Options whose exercise price is less than the market
price of the stock on the grant date................... $ 8.72 None None
(b) Includes 680,000 options issued to the former Vice Chairman of the Company
(the 'Former Vice Chairman') who resigned as of January 1, 1996 and entered
into a consulting agreement pursuant to which no substantial services were
expected to be provided. 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 1997.
80
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
The following table sets forth information relating to stock options
outstanding and exercisable at January 2, 2000 under the Equity Plans:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- -------------------------------------------------------------------------- -------------------------------
OUTSTANDING AT WEIGHTED WEIGHTED OUTSTANDING AT WEIGHTED
YEAR-END AVERAGE YEARS AVERAGE YEAR-END AVERAGE
OPTION PRICE 1999 REMAINING OPTION PRICE 1999 OPTION PRICE
------------ ---- --------- ------------ ---- ------------
$6.39 - $10.75............ 1,089,342 5.4 $10.43 1,089,342 $10.43
$11.61 - $16.25........... 1,317,306 6.8 $12.83 892,624 $12.94
$16.875 - $17.75.......... 2,004,000 9.7 $17.42 -- $--
$18.00 - $20.00........... 1,396,500 3.5 $18.20 1,396,500 $18.20
$20.125................... 3,500,000 4.3 $20.13 -- $--
$20.375 - $30.00.......... 1,304,417 7.3 $22.77 842,411 $22.62
---------- ---------
10,611,565 6.0 4,220,877
---------- ---------
---------- ---------
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 of the Company (the 'Executives') vest no later than
October 21, 2003 but may vest earlier in one-third increments based upon
attainment of certain closing price levels for the Class A Common Stock for 20
out of 30 consecutive trading days by certain dates. Such required price level
was not met for one-third of the options by April 21, 1999; the required
Class A Common Stock price levels and the required dates by which these levels
must be achieved for the other two one-third increments are as follows:
ON OR PRIOR TO APRIL 21, PRICE
- ------------------------ -----
2000................................................... $36.25
2001................................................... $45.3125
Stock options under the Equity Plans are generally granted at the fair
market value of the Class A Common Stock at the date of grant. However, there
were options granted prior to 1997 which have resulted in unearned compensation
of which $305,000 remained unamortized as of January 1, 1997. 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 (based on the
closing price on such dates), resulting in aggregate unearned compensation,
representing the initial intrinsic value, of $2,823,000 with an offsetting
credit to 'Additional paid-in-capital.' Such amounts are reported in the
'Unearned compensation' component of 'Other stockholders' equity (deficit).'
Such unearned compensation is being amortized as compensation expense over the
applicable vesting period of one to five years. During 1997, 1998 and 1999,
$1,543,000, $982,000 and $388,000, respectively, of 'Unearned compensation' was
amortized to compensation expense and credited to 'Unearned compensation.' In
1997, 20,000 options were vested upon grant resulting in $96,000 of compensation
expense recognized representing the excess of fair market value over the option
prices with an offsetting credit to 'Additional paid-in-capital.' During 1997,
1998 and 1999 certain below market options were forfeited. Such forfeitures
resulted in decreases to (1) 'Unearned compensation' of $135,000, $13,000 and
$6,000 in 1997, 1998 and 1999, respectively, representing the reversals of the
unamortized amounts at the dates of forfeiture, (2) 'Additional paid-in capital'
of $506,000, $27,000 and $23,000 in 1997, 1998 and 1999, respectively,
representing the reversal of the initial intrinsic value of the forfeited below
market stock options and (3) 'General and administrative' of $371,000, $14,000
and $17,000 in 1997, 1998 and 1999, respectively, representing the reversal of
previous amortization of unearned compensation relating to forfeited below
market stock options.
In 1999 $410,000 was credited to 'Additional paid-in-capital' representing
the effect of modifications to the terms of the stock options of certain
terminated employees of the Company of which $64,000 was charged to 'General and
administrative' and $346,000 to 'Income from discontinued operations.'
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
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. 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 2,050 shares
available for future grants under the Triarc Beverage Plan as of January 2,
2000. A summary of changes in outstanding stock options under the Triarc
Beverage Plan is as follows:
WEIGHTED AVERAGE
OPTIONS OPTION PRICE OPTION PRICE
------- ------------ ------------
Granted during 1997................ 76,250 $147.30 $147.30
--------
Outstanding at December 28, 1997... 76,250 $147.30 $147.30
Granted during 1998................ 72,175 $191.00 $191.00
Terminated during 1998............. (3,000) $147.30 $147.30
--------
Outstanding at January 3, 1999..... 145,425 $147.30 and $191.00 $168.99
Changes in options relating to
equitable adjustments of option
prices during 1999 discussed
below:
Cancellation................... (144,675) $147.30 and $191.00 $169.10
Reissuance..................... 144,675 $107.05 and $138.83 $122.90
Granted during 1999................ 4,850 $311.99 $311.99
Exercised during 1999.............. (500) $107.05 $107.05
Terminated during 1999............. (2,325) $107.05 - $311.99 $170.72
--------
Outstanding at January 2, 2000..... 147,450 $107.05 - $311.99 $128.55
--------
--------
Exercisable at January 2, 2000..... 47,723 $107.05 and $138.83 $123.07
--------
--------
Stock options under the Triarc Beverage Plan are granted at fair value at
the date of grant as determined by independent appraisals. The weighted average
grant date fair value of the options granted during 1997 and 1998 was $50.75 and
$60.01, respectively. The weighted average grant date fair value of the options
granted during 1999 was $222.69 for the 144,675 reissued options and $102.75 for
the 4,850 granted options. Stock options under the Triarc Beverage Plan have
maximum terms of ten years and generally vest ratably over periods approximating
three years. However, the options reissued (see below) in 1999 vest or vested
ratably on July 1 of 1999, 2000 and 2001.
The following table sets forth information relating to stock options
outstanding and exercisable at January 2, 2000 under the Triarc Beverage Plan:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS
- -------------------------------------------- EXERCISABLE AND
OUTSTANDING AT WEIGHTED OUTSTANDING AT
YEAR-END AVERAGE YEARS YEAR-END
OPTION PRICE 1999 REMAINING 1999
- ------------ ---- --------- ----
$107.05 71,000 7.6 23,667
$138.83 72,175 8.5 24,056
$311.99 4,275 9.4 --
------- ------
147,450 8.1 47,723
------- ------
------- ------
The Triarc Beverage Plan provides for an equitable adjustment of options in
the event of a recapitalization or similar event. The exercise prices of the
Triarc Beverage Holdings options granted in 1997 and 1998 were equitably
adjusted in 1999 to adjust for the effects of net distributions of $91,342,000,
principally consisting of transfers of cash and deferred tax assets from Triarc
Beverage Holdings to Triarc, partially offset by the effect
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
of the contribution of Stewart's to Triarc Beverage Holdings effective May 17,
1999. The exercise prices of the options granted in 1997 and 1998 were equitably
adjusted from $147.30 and $191.00 per share, respectively, to $107.05 and
$138.83 per share, respectively, and a cash payment of $51.34 and $39.40 per
share, respectively, is due from the Company to the option holder following the
exercise of the stock options and either (1) the sale by the option holder of
shares of Triarc Beverage Common Stock received upon the exercise of the stock
options or (2) the consummation of an initial public offering of Triarc Beverage
Common Stock (collectively, the 'Cash Payment Events'). The Company has
accounted for the equitable adjustment of the Triarc Beverage Holdings options
in accordance with the intrinsic value method. In accordance therewith, the
equitable adjustment, exclusive of the cash payment, is considered a
modification to the terms of existing options. For purposes of disclosure,
including the determination of the pro forma compensation expense set forth
below, the equitable adjustment is reflected in accordance with the fair value
method whereby it results in the deemed cancellation of existing options and the
reissuance of new options. See Note 12 for discussion of the compensation
expense being recognized ratably over the vesting period of the stock options
for such cash to be paid. No compensation expense will be recognized for the
changes in the exercise prices of the outstanding options because such
modifications to the options did not create a new measurement date under
generally accepted accounting principles.
In 1995 the Company granted the syndicated lending bank in connection with a
former bank facility of Mistic 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 to
the Company's consolidated results of operations in 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. Since the estimated per-share value of the Mistic common stock at
the time of such cancellation was lower than the base price of the Mistic
Rights, no income or expense was required to be recorded as a result of such
cancellation.
As disclosed in Note 1, 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 and the Triarc Beverage
Plan (1) compensation expense for all 1995 through 1999 stock option grants,
including those granted at below market option prices, and options reissued in
1999 as a result of equitable adjustments of option prices under the Triarc
Beverage Plan, based on the fair value method, (2) the reduction in compensation
expense recorded in accordance with the intrinsic value method by eliminating
the amortization of unearned
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
compensation associated with options granted at below market option prices and
(3) the income tax effects thereof (in thousands except per share data):
1997 1998 1999
------------------ ----------------- -----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- -----
Net income (loss)............ $(3,616) $(7,810) $14,636 $6,613 $10,124 $1,545
Basic income (loss) per
share...................... (.12) (.26) .48 .22 .39 .06
Diluted income (loss) per
share...................... (.12) (.26) .46 .21 .37 .06
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:
1997 1998 1999
---------------- ---------------- ---------------------
TRIARC TRIARC TRIARC
EQUITY BEVERAGE EQUITY BEVERAGE EQUITY BEVERAGE
PLANS PLAN PLANS PLAN PLANS PLAN
----- ----- ----- ----- ----- -----
Risk-free interest
rate................... 6.36% 6.22% 5.72% 5.54% 6.08% 5.69%
Expected option life..... 7 years 7 years 7 years 7 years 7 years 5.7 years (a)
Expected volatility...... 40.26% N/A 31.95% N/A 28.76% N/A
Dividend yield........... None None None None None None
- ---------
(a) Adjusted to reflect the remaining expected life of the 144,675 reissued
options for which the original vesting dates were not changed.
-------------------
Prior to 1997 the Company agreed to pay to an employee terminated prior to
1997 and who held 80,000 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 stock options (the 'Rights') in exchange for the
stock options. The Rights had base prices of $18.00 (50,000) and $21.00 (30,000)
per share. All 80,000 Rights were forfeited during 1997.
(12) CAPITAL STRUCTURE REORGANIZATION RELATED CHARGE
As disclosed in Note 11, the Company must make cash payments of $51.34 and
$39.40 per share for Triarc Beverage Holdings stock options granted in 1997 and
1998, respectively, upon the Cash Payment Events. The capital structure
reorganization related charge of $5,474,000 in 1999 represents the vested
portion as of January 2, 2000 of the aggregate maximum $6,669,000 cash payments
to be recognized over the full vesting period assuming all remaining outstanding
Triarc Beverage Holdings stock options either have vested or will become vested,
net of credits for forfeitures of non-vested stock options of terminated
employees.
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(13) CHARGES (CREDIT) RELATED TO POST-ACQUISITION TRANSITION, INTEGRATION AND
CHANGES TO BUSINESS STRATEGIES
The 1997 charges related to post-acquisition transition, integration and
changes to business strategies 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(a).............................................. $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., an affiliate based on
the Company's change in estimate of the related
write-off to be incurred(b)......................... 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(c)....... 6,697
Provide for certain costs in connection with the
successful consummation of the Snapple Acquisition and
the Mistic refinancing in connection with entering
into the Former Beverage Credit Agreement(d)........ 2,000
Provide for fees paid to Quaker pursuant to a transition
services agreement(e)............................... 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(f)..................................... 2,510
Provide for costs, principally for independent
consultants, incurred in connection with the
conversion of Snapple to the Company's operating and
financial information systems(g).................... 1,603
Sign-on bonus related to the Stewart's Acquisition...... 400
-------
$31,815
-------
-------
- ---------
(a) During Quaker's ownership of Snapple, the glass front vending machines were
held for sale to distributors and, accordingly, were carried at their
estimated net realizable value. During the business transition following
the Snapple Acquisition, the Company became aware that these machines were
frequently unreliable in the field. The Company made the decision to
correct the mechanical defects in the machines and to allow distributors to
use the machines at locations chosen by them, without the cost of
purchasing them. By deciding to no longer sell the glass front vending
machines, the Company will not recover from its customers the value of the
machines acquired in the Snapple Acquisition. Accordingly, because the
Company expects no specific identifiable future cash flows, in 1997 the
Company wrote off an amount representing the excess of the carrying value
of the machines over their estimated scrap value given the Company's
decision described above.
(b) In the transition following the Snapple Acquisition, the Company decided
that, in order to improve relationships with customers, it would not
actively seek to collect certain past due balances, disputed amounts or
amounts that were not sufficiently supportable, and provided additional
reserves for doubtful accounts of $2,254,000. The Company's soft drink
concentrate segment sold finished products through MetBev, Inc. ('MetBev'),
a distributor in the New York metropolitan area in which the Company owns a
44.7% voting interest. Prior to the Snapple Acquisition, the MetBev
business was sold to a competitor of Snapple. When the Company acquired
Snapple, it recognized that its efforts to rebuild Snapple would have a
severe competitive effect on the acquiror of the MetBev business. The
Company acquired Snapple with
(footnotes continued on next page)
85
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(footnotes continued from previous page)
the intent that Snapple would regain market share it had lost in the New York
metropolitan area. As a result of the Snapple Acquisition and the Company's
business strategy, the Company concluded that the remaining $975,000
receivable from MetBev would more likely than not become uncollectible.
(c) In the transition following the Snapple Acquisition, the Company decided
that, in order to improve relationships with customers and reverse
Snapple's sales decline, it would attempt to settle as many of the legal
matters pending at the time of the Snapple Acquisition, in particular the
Rhode Island Beverages Matter (see Note 7), as quickly as possible.
Accordingly, the Company provided $6,697,000 representing the excess of the
Company's estimate to settle such claims over the existing reserves
established by Quaker as of the date of the Snapple Acquisition.
(d) The Company paid $2,000,000 of supplemental incentive compensation payments
to certain of its executives directly involved with the Snapple Acquisition
and the related financing. Such payments were incremental and above
recurring incentive compensation payments to such executives and would not
have been paid without the Snapple Acquisition and related financing.
(e) During the transition following the Snapple Acquisition, the Company paid
$2,819,000 to Quaker in return for Quaker providing certain operating and
accounting services for Snapple for a six-week period in accordance with
the terms of a transition services agreement. Quaker performed these
services while the Company transitioned the records, operations and
management to the Company and its systems.
(f) In the transition following the Snapple Acquisition, the Company decided
that, in order to improve relationships with customers, the Company would
not pursue collection of the many questionable claimed promotional credits
and recognized within 'Charges (credit) related to post-acquisition
transition, integration and changes to business strategies' the $2,510,000
of promotional costs in June 1997 which were in excess of the high end of
the range of the Company's expectations for promotional costs.
(g) In the transition following the Snapple Acquisition, the Company recognized
$1,603,000 of costs incurred to engage various consultants to help the
Company plan for the related systems and business procedure modifications
necessary in order to be able to manage the Snapple business.
As of December 28, 1997 all cash obligations had been liquidated other than
(1) $6,697,000 of the additional reserves for legal matters and (2) the
$2,000,000 provided for certain costs in connection with the successful
consummation of the Snapple Acquisition and the Mistic refinancing, both of
which were liquidated during the year ended January 3, 1999.
The 1999 credit related to post-acquisition transition, integration and
changes to business strategies of $549,000 resulted from changes in the
estimated amount of the additional Snapple reserves for doubtful accounts
originally provided during 1997 (see (b) above). As of January 2, 2000, all of
the other additional reserves for doubtful accounts had been fully utilized to
write off related receivables.
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(14) FACILITIES RELOCATION AND CORPORATE RESTRUCTURING CHARGES (CREDITS)
The components of facilities relocation and corporate restructuring charges
(credits) in 1997 and 1999 and an analysis of related activity in the facilities
relocation and corporate restructuring accrual are as follows (in thousands):
1997
------------------------------------------------------------------------------------
BALANCE WRITE-OFF BALANCE
JANUARY 1, OF RELATED DECEMBER 28,
1997 (a) PROVISION (b) PAYMENTS ASSETS ADJUSTMENTS (b) 1997
-------- ------------- -------- ------ --------------- ----
Cash obligations:
Employee severance and
related termination
costs associated with
The sale of all
company-owned
restaurants.......... $-- $4,897 $(3,088) $-- $-- $1,809
The relocation of Royal
Crown's corporate
headquarters......... 2,028 500 (1,463) -- (1) 1,064
A Royal Crown plant
closing.............. 172 -- (173) -- 1 --
Other.................. -- 29 (29) -- -- --
Employee relocation
costs associated with
The sale of all
company-owned
restaurants.......... -- 700 (327) -- -- 373
The relocation of Royal
Crown's corporate
headquarters......... -- 637 (894) -- -- (257)
Estimated costs related
to the sublease of
excess office space
associated with
The sale of all
company-owned
restaurants.......... 382 -- (140) -- (87) 155
The relocation of Royal
Crown's corporate
headquarters......... 110 -- -- -- -- 110
Estimated costs other
than severance of a
Royal Crown plant
closing.................. 300 -- (128) -- (172) --
Estimated costs related
to the then planned
spin-off of the
Company's restaurant
and beverage
businesses............... 140 12 (152) -- -- --
Non-cash charges:
Estimated costs of a
Royal Crown plant
closing.................. 150 -- -- (143) (7) --
Write-off of certain
beverage distribution
rights................... -- 300 -- (300) -- --
------ ------ ------- ----- ----- ------
$3,282 $7,075 $(6,394) $(443) $(266) $3,254
------ ------ ------- ----- ----- ------
------ ------ ------- ----- ----- ------
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
1998
-------------------------------------------------------
BALANCE BALANCE
DECEMBER 29, JANUARY 3,
1997 PAYMENTS ADJUSTMENTS (c) 1999
---- -------- --------------- ----
Cash obligations:
Employee severance and related
termination costs associated with
The sale of all company-owned
restaurants........................ $1,809 $(1,236) $-- $ 573
The relocation of Royal Crown's
corporate headquarters............. 1,064 (601) -- 463
Employee relocation costs associated
with
The sale of all company-owned
restaurants........................ 373 (24) (65) 284
The relocation of Royal Crown's
corporate headquarters............. (257) -- -- (257)
Estimated costs related to the sublease
of excess office space associated
with
The sale of all company-owned
restaurants........................ 155 (53) (102) --
The relocation of Royal Crown's
corporate headquarters............. 110 -- -- 110
------ ------- ----- ------
$3,254 $(1,914) $(167) $1,173
------ ------- ----- ------
------ ------- ----- ------
1999
-------------------------------------------------------
BALANCE BALANCE
JANUARY 3, JANUARY 2,
1999 PAYMENTS CREDITS (d) 2000
---- -------- ----------- ----
Cash obligations:
Employee severance and related
termination costs associated with
The sale of all company-owned
restaurants........................ $ 573 $(457) $(116) $--
The relocation of Royal Crown's
corporate headquarters............. 463 (158) (305) --
Employee relocation costs associated
with
The sale of all company-owned
restaurants........................ 284 (97) (187) --
The relocation of Royal Crown's
corporate headquarters............. (257) -- 257 --
Estimated costs related to the sublease
of excess office space associated
with
The relocation of Royal Crown's
corporate headquarters............. 110 -- (110) --
------ ----- ----- ------
$1,173 $(712) $(461) $--
------ ----- ----- ------
------ ----- ----- ------
- ---------
(a) The facilities relocation and corporate restructuring accrual as of
January 1, 1997 resulted from the remaining balances from 1996 provisions
and consisted principally of (1) employee severance costs associated with
the 1997 termination of 35 headquarters employees, principally in finance
and accounting, legal, marketing and human resources, in connection with
the relocation (the 'Royal Crown Relocation') of Royal Crown's corporate
headquarters which were centralized with Triarc Beverage Holdings' offices
in White Plains, New York and 5 operations employees at Royal Crown's Ohio
production facility which was shut down, (2) estimated losses on planned
subleases of surplus office space principally for rent and common area
maintenance costs for the estimated period the surplus space would remain
unoccupied as a result of the then planned sale of company-owned
restaurants and the Royal Crown Relocation, (3) the
(footnotes continued on next page)
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(footnotes continued from previous page)
shutdown of Royal Crown's Ohio production facility (principally for (a) an
estimated $150,000 write-off of obsolete steel drums used to send
concentrate to bottlers and (b) estimated cash obligations principally for
an estimated $150,000 for refurbishing the plant and $50,000 for the
transfer of equipment to the Company's other soft drink concentrate plant)
and (4) legal fees incurred in connection with the then planned spin-off of
the Company's restaurant and beverage businesses.
(b) The 1997 facilities relocation and corporate restructuring charges
principally related to (1) employee severance and related termination costs
associated with restructuring the restaurant segment in connection with the
RTM Sale (see Note 3) and, to a much lesser extent, employee severance and
related termination costs of three additional Royal Crown headquarters
employees terminated in 1997, (2) employee relocation costs, which are
expensed as incurred, associated with the RTM Sale and the Royal Crown
Relocation and (3) 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. The severance and termination
costs in the restaurant segment were as a result of the termination in 1997
of 54 employees principally in finance and accounting, owned restaurant
operations, marketing and human resources as well as the president and
chief executive officer of Arby's. Adjustments to the accrual for estimated
costs related to the sublease of excess office space which were associated
with the sale of company-owned restaurants resulted from subsequent
favorable lease negotiations with the landlord for the divisional office
space. Adjustments to the accrual for estimated costs of the Royal Crown
plant closing resulted from lower than expected actual costs associated
with the plant closing, specifically estimated costs for refurbishing the
plant, compared with the costs originally estimated.
(c) The 1998 adjustments principally relate to the sublease of excess office
space associated with the RTM Sale which resulted from subsequent favorable
lease negotiations with the landlord.
(d) The 1999 facilities relocation and corporate restructuring credits
principally relate to severance and related termination costs associated
with the Royal Crown Relocation and the RTM Sale. Such adjustments
aggregated $461,000 and resulted from relatively insignificant changes to
the original estimates used in determining the related provisions for such
items in 1996 and 1997 which aggregated $7,626,000.
(15) INVESTMENT INCOME, NET
Investment income, net consisted of the following components (in thousands):
1997 1998 1999
---- ---- ----
Interest income...................................... $ 7,484 $11,387 $13,802
Realized gains on available-for-sale marketable
securities......................................... 4,849 4,589 6,649
Realized gains on sale of limited partnerships....... -- 4,186 91
Realized gains (losses) on securities sold and
subsequently purchased............................. -- 809 (11,039)
Realized gains (losses) on trading marketable
securities......................................... -- (439) 10,771
Unrealized gains on trading marketable securities.... -- 2,675 2,143
Unrealized losses on securities sold short........... -- (3,069) (1,834)
Dividend income...................................... 382 715 767
Other than temporary unrealized losses (a)........... -- (9,298) (4,560)
Equity in the earnings of investment limited
partnerships....................................... 22 623 2,226
Investment fees...................................... -- (355) (548)
------- ------- -------
$12,737 $11,823 $18,468
------- ------- -------
------- ------- -------
(footnote on next page)
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(footnote from previous page)
(a) The Company recorded charges in 1998 and 1999 for unrealized losses on
certain investments in limited partnerships and marketable securities
classified as available-for-sale. Such charges have reduced the cost basis
of those short-term investments (see Note 5) by $8,403,000 and $4,560,000
in 1998 and 1999, respectively, and such non-current investments (see Note
7) by $895,000 in 1998. 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 and debt securities experienced principally in the third quarter of
1998 and the fourth quarter of 1999.
(16) GAIN (LOSS) ON SALE OF BUSINESSES, NET
The 'Gain (loss) on sale of businesses, net' as reflected in the
accompanying consolidated statements of operations was $(3,513,000), $5,016,000
and $655,000 in 1997, 1998 and 1999, respectively. The loss in 1997 consisted of
$4,089,000 of loss from the RTM Sale (see Note 3) less $576,000 of recognized
gain on the C&C Sale (see Note 3). The gain in 1998 consisted of (1) $4,702,000
of gain from the sale of Select Beverages (see Note 7) and (2) $314,000 of
additional recognition of deferred gain from the C&C Sale. The gain in 1999
consisted of (1) $1,188,000 of gain from the sale of common stock issued by MCM
(see Note 7) and (2) $356,000 of additional recognition of deferred gain from
the C&C Sale, less an $889,000 reduction to the gain from the sale of Select
Beverages recorded in 1998 (see Note 7).
(17) OTHER INCOME, NET
Other income, net consisted of the following income (expense) components (in
thousands):
1997 1998 1999
---- ---- ----
Interest income......................................... $ 884 $1,224 $2,705
Gain on lease termination............................... 892 -- 651
Equity in earnings (losses) of investees (Note 7)....... 563 (1,669) 10
Cost of proposed going-private transaction in 1998 and
proposed acquisition in 1999 not consummated.......... -- (900)(a) (416)
Net gain (loss) on sales of properties.................. 700 465 (202)
Posner settlement....................................... 1,935(b) -- --
Joint venture investment settlement..................... (3,665)(c) -- --
Other, net.............................................. 1,379 2,234 811
------ ------ ------
$2,688 $1,354 $3,559
------ ------ ------
------ ------ ------
- ---------
(a) 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 5,982,867 shares owned by an affiliate controlled by the Executives)
for $18.00 per share payable in cash and securities (the 'Proposed
Transaction'). On March 10, 1999 the Company announced that it had been
advised by the Executives that they had withdrawn the Proposal. Since the
Proposed Transaction would not be consummated, the Company recorded a 1998
charge for the estimated fees and expenses incurred as of January 3, 1999
in connection with the Proposed Transaction aggregating $900,000.
(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 gain
of $2,144,000, of which $209,000 reduced
(footnotes continued on next page)
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(footnotes continued from previous page)
'General and administrative' as a recovery of legal expenses originally
reported therein and $1,935,000 was reported as 'Other income, net.'
(c) In 1994 SEPSCO and Chesapeake Insurance received an aggregate amount of
approximately $5,300,000 upon terminating their investments in a joint
venture with Prime Capital Corporation ('Prime') originally made earlier in
1994 for approximately $5,100,000. In 1995 Prime became subject to an
involuntary bankruptcy petition under the Federal bankruptcy code and in
January 1997 the bankruptcy trustee appointed in the Prime bankruptcy case
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. Prior to 1997 the Company had 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.
(18) DISCONTINUED OPERATIONS
On July 19, 1999, the Company consummated the Propane Partnership Sale (see
Note 3) which has been accounted for as a discontinued operation in the year
1999 through the date of sale and the accompanying consolidated financial
statements for the years 1997 and 1998 have been reclassified accordingly. The
assets, liabilities, revenues and expenses of the Propane Partnership had
previously been included in the consolidated financial statements of the Company
through 1997. 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 had substantive control over the
Propane Partnership to the point where commencing December 28, 1997 it exercised
only significant influence and, accordingly, no longer consolidated the Propane
Partnership. The Company's 42.7% interest in the Propane Partnership from
December 29, 1997 through July 18, 1999 was previously accounted for in
accordance with the equity method of accounting. In addition on December 23,
1997 the Company consummated the C.H. Patrick Sale (see Note 3) which has also
been accounted for as a discontinued operation in 1997 in the accompanying
consolidated financial statements. Further, prior to 1997 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 properties of the
refrigeration business to be sold.
The income from discontinued operations consisted of the following (in
thousands):
1997 1998 1999
---- ---- ----
Loss from discontinued operations net of income tax
benefit of $369, $2,068 and $943.................... $(1,286) $(3,609) $(1,616)
Gain on disposal of discontinued operations net of
income taxes of $16,816, $2,192 and $4,512.......... 24,929 4,007 15,102
------- ------- -------
$23,643 $ 398 $13,486
------- ------- -------
------- ------- -------
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
The after-tax gain on disposal of discontinued operations resulted from the
following (in thousands):
1997 1998 1999
---- ---- ----
Gain on the Propane Partnership Sale (Note 3)......... $ -- $ -- $11,204
Recognition of deferred gain from the 1996 Propane
Partnership IPO..................................... 5,420 1,407 1,171
Additional gain from SEPSCO Discontinued Operations... -- 2,600 2,727
Gain on the C.H. Patrick Sale (Note 3)................ 19,509 -- --
------- ------- -------
$24,929 $ 4,007 $15,102
------- ------- -------
------- ------- -------
The recognition of deferred gain (the 'Propane Deferred Gain') from the 1996
Propane Partnership IPO occurred as the Company received cash distributions from
the Propane Partnership despite the Company's equity in the losses of the
Propane Partnership operations. The Company's investment in the Propane
Partnership was fully offset by the Propane Deferred Gain from the 1996 Propane
Partnership IPO subsequent thereto through the 1999 Propane Partnership Sale.
Accordingly, as the Company received such cash distributions and the Propane
Partnership incurred losses, the Company recognized the aggregate amount of the
cash distributions plus the Company's equity in the losses of the Propane
Partnership such that the Company's investment remained fully offset by the
Propane Deferred Gain. The additional gain on disposal of the SEPSCO
Discontinued Operations represents reductions of previously recognized losses on
disposal of the SEPSCO Discontinued Operations recognized before 1997. 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 SEPSCO's 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
recognized a $4,000,000 reduction, before income taxes of $1,400,000, of its
previously recognized estimated disposal losses. During 1999, the Company
resolved all remaining tax issues relating to the IRS examination of its tax
returns for the tax years 1989 through 1993 (see Note 10). In connection
therewith, the Company recognized a $2,727,000 reduction of its previously
recognized estimated disposal losses principally representing the receipt by
SEPSCO of an income tax refund and the release by SEPSCO of income tax reserves
no longer deemed required based on the results of such IRS examination.
The loss from discontinued operations relating to C.H. Patrick and the
Propane Partnership through their dates of sale of December 23, 1997 and July
19, 1999, respectively, reflecting the Propane Partnership under the equity
method commencing December 28, 1997, consisted of the following (in thousands):
1997 1998 1999
---- ---- ----
Revenues.............................................. $135,797 $ -- $ --
Operating income...................................... 9,611 -- --
Equity in losses of the Propane Partnership........... -- (2,785) (618)
Income before income taxes............................ (1,655) (5,677) (2,559)
Provision for income taxes............................ 369 2,068 943
Net loss.............................................. (1,286) (3,609) (1,616)
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
The net current liabilities of discontinued operations consisted of the
following (in thousands):
YEAR END
------------------
1998 1999
---- ----
Assets (liabilities)
Properties, net......................................... $ 69 $ --
Unamortized costs in excess of net assets of acquired
companies............................................. 221 --
Accounts payable and accrued liabilities................ (326) --
Other liabilities....................................... (932) --
Long-term debt repaid or forgiven on July 19, 1999...... (30,700) --
Net current liabilities of SEPSCO Discontinued
Operations (net of assets held for sale of
$234,000)............................................. (3,237) (3,163)
-------- -------
$(34,905) $(3,163)
-------- -------
-------- -------
The discontinued operations did not have any non-current assets or
liabilities.
Losses associated with the SEPSCO Discontinued Operations were provided for
in their entirety in years prior to 1997. 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 2,
2000 will not have any material adverse impact on its financial position or
results of operations.
(19) EXTRAORDINARY CHARGES
The 1997 extraordinary charges resulted from the early extinguishment or
assumption of (1) the Mortgage Notes and Equipment Notes assumed by RTM in
connection with the RTM Sale (see Note 3), (2) obligations under a former bank
facility of Mistic refinanced in connection with entering into the Former
Beverage Credit Agreement (see Note 8) and (3) obligations under C.H. Patrick's
credit facility in December 1997 in connection with the C.H. Patrick Sale (see
Note 3). The 1999 extraordinary charges resulted from the early extinguishment
of (1) obligations under the Former Beverage Credit Agreement and (2) the 9 3/4%
Senior Notes (see Note 8). The components of such extraordinary charges were as
follows (in thousands):
1997 1999
---- ----
Write-off of previously unamortized deferred financing
costs..................................................... $6,178 $11,300
Payment of redemption premium............................... -- 7,662
Write-off of previously unamortized interest rate cap
agreement costs........................................... -- 146
------ -------
6,178 19,108
Income tax benefit.......................................... 2,397 7,011
------ -------
$3,781 $12,097
------ -------
------ -------
(20) RETIREMENT AND OTHER BENEFIT PLANS
On September 1, 1999 several of the Company's 401(k) defined contribution
plans (the 'Former Plans') merged into one existing 401(k) defined contribution
plan of the Company (the 'Plan' and, collectively with the Former Plans, the
'Plans'). The Plans cover or covered all of the Company's employees, upon the
addition of Stewart's employees on May 1, 1998, who meet certain minimum
requirements and elect to participate, 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. Effective September 1, 1999
the Plan provides for Company matching contributions at 50% of employee
contributions up to the first 6% thereof. Prior thereto, the Plans provided for
Company matching contributions at either (1) 50% of employee contributions up to
the first 5% thereof or (2) 100% of
93
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
employee contributions up to the first 3% thereof. In addition, the Plans
provide or provided for annual Company profit-sharing contributions of a
discretionary aggregate amount to be determined by the employer. In connection
with both of these employer contributions, the Company provided as compensation
expense $1,544,000, $1,692,000 and $1,990,000 in 1997, 1998 and 1999,
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 1997, 1998 and 1999, as well as the
accrued pension cost as of January 3, 1999 and January 2, 2000, were
insignificant.
The Company maintains unfunded postretirement medical and death benefit
plans for a limited number of retired employees of certain subsidiaries who have
provided certain minimum years of service. The medical benefits are principally
contributory while death benefits are noncontributory. The net postretirement
benefit cost for 1997, 1998 and 1999, as well as the accumulated postretirement
benefit obligation as of January 3, 1999 and January 2, 2000, were
insignificant.
(21) LEASE COMMITMENTS
The Company leases buildings 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 (see Note 3), although the Company remains contingently liable if the
future lease payments (which could potentially aggregate a maximum of
approximately $89,000,000 as of January 2, 2000 assuming RTM has made all
scheduled payments to date under such lease obligations) are not made by RTM.
Rental expense under operating leases consisted of the following components
(in thousands):
1997 1998 1999
---- ---- ----
Minimum rentals.......................................... $19,926 $13,342 $12,553
Contingent rentals....................................... 204 -- --
------- ------- -------
20,130 13,342 12,553
Less sublease income..................................... 6,027 4,354 2,986
------- ------- -------
$14,103 $ 8,988 $ 9,567
------- ------- -------
------- ------- -------
The Company's future minimum rental payments, excluding the aforementioned
lease obligations assumed by RTM, and sublease rental income for leases having
an initial lease term in excess of one year as of January 2, 2000 are as follows
(in thousands):
RENTAL PAYMENTS SUBLEASE
----------------------- INCOME-
CAPITALIZED OPERATING OPERATING
LEASES LEASES LEASES
------ ------ ------
2000............................................... $ 53 $ 9,840 $ 3,168
2001............................................... 46 9,696 2,809
2002............................................... 19 8,338 2,052
2003............................................... 15 8,286 1,804
2004............................................... 12 7,052 1,781
Thereafter......................................... 10 32,683 3,781
---- ------- -------
Total minimum payments......................... 155 $75,895 $15,395
------- -------
------- -------
Less interest...................................... 27
----
Present value of minimum capitalized lease
payments......................................... $128
----
----
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.
94
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(22) TRANSACTIONS WITH RELATED PARTIES
During 1997, 1998 and 1999 the Company leased an airplane and a helicopter
that were owned by Triangle Aircraft Services Corporation ('TASCO'), a company
owned by the Executives, or subsidiaries of TASCO, for a base annual rent,
adjusted to $3,258,000 as of May 21, 1997, plus annual cost of living
adjustments commencing October 1, 1997, under a dry lease which, subject to
renewal, would have expired in 2002. Effective October 1, 1999 the annual rent
was $3,447,000 of which $3,078,000 was deemed to represent rent for the airplane
and $369,000 was deemed to represent rent for the helicopter. Prior to May 21,
1997, the then annual rental payments were $2,008,000. In addition, in 1997 the
Company paid TASCO $2,500,000 for (1) an option (the 'Option') to continue the
lease for an additional five years effective September 30, 1997 and (2) the
agreement by TASCO to replace the helicopter covered under the lease. Such
$2,500,000 was 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 $2,876,000, $3,885,000 and
$3,850,000 for 1997, 1998 and 1999, respectively. Pursuant to this dry lease,
during 1997, 1998 and 1999 the Company also paid the operating expenses,
including repairs and maintenance, of the aircraft and the costs of certain
capitalized improvements to the aircraft directly to third parties. During 1999
the Company incurred $2,207,000 of repairs and maintenance for the aircraft,
principally relating to the airplane for required inspections and overhaul of
the engines and landing gear in accordance with Federal Aviation Administration
standards, and $7,278,000 of capitalized improvements to the airplane.
On January 19, 2000, the Company acquired 280 Holdings, LLC ('280
Holdings'), the TASCO subsidiary that at the time of such sale was the owner and
lessor to the Company of the airplane that had previously been leased from
TASCO, for $27,210,000 consisting of cash of $9,210,000 and the assumption of an
$18,000,000 secured promissory note with a commercial lender payable over seven
years. The purchase price was based on independent appraisals and was approved
by the Audit Committee and the Board of Directors. In addition, TASCO paid the
Company $1,200,000 representing the portion of the $1,242,000 unamortized amount
of the Option as of January 2, 2000 relating to the airplane owned by 280
Holdings. The Company continues to lease the helicopter from a subsidiary of
TASCO for the annual rent of $369,000 and owns the airplane through its
ownership of 280 Holdings from whom Triarc continues to lease the airplane and
pay intercompany annual rent of $3,078,000.
See also Notes 7, 11 and 17 with respect to other transactions with related
parties.
(23) LEGAL AND ENVIRONMENTAL MATTERS
Subsequent to the receipt of the Proposal (see Note 17), a series of
purported class action lawsuits on behalf of stockholders were 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. On March 26, 1999, certain
plaintiffs in the actions challenging the Proposed Transaction filed an amended
complaint alleging that the defendants violated fiduciary duties by failing to
disclose, in connection with the Tender Offer discussed in Note 11, that the
Special Committee had allegedly determined that the Proposal was unfair. The
amended complaint sought, among other items, damages in an unspecified amount.
Discovery has commenced in the action pursuant to the amended complaint.
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 statement related to the Tender Offer (see Note 11) filed
with the SEC was false and misleading and seeks damages in an unspecified
amount, 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. On June 28, 1999 the Company and the
Executives moved to dismiss the complaint or alternatively stay the action. On
March 20, 2000, the court denied the motion for a stay and granted in part and
denied in part the motion to dismiss. There has been no discovery in this action
and no trial date has been set.
95
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
In addition to the shareholder lawsuits described above, the Company is
involved in other litigation, claims and environmental matters incidental to its
businesses. The Company has reserves for all of such legal and environmental
matters aggregating $3,325,000 (see Note 6) as of January 2, 2000. 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 financial position or results of operations.
(24) BUSINESS SEGMENTS
The Company manages and internally reports its operations by business
segments which are: premium beverages, soft drink concentrates and restaurant
franchising (see Note 2 for a description of each segment). As discussed in Note
18, the propane business, formerly reported as a business segment, is reported
as a discontinued operation as a result of the Propane Partnership Sale. The
premium beverage segment consists of Mistic and the operations acquired in (1)
the Snapple Acquisition (see Note 3) commencing May 22, 1997 and (2) the
Stewart's Acquisition (see Note 3) commencing November 25, 1997.
The Company evaluates segment performance and allocates resources based on
each segment's earnings before interest, taxes, depreciation and amortization
('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. EBITDA and operating loss for 1997 reflect (1) $31,815,000 of
charges related to post-acquisition transition, integration and changes to
business strategies for the premium beverage segment (see Note 13) and (2)
$7,075,000 of facilities relocation and corporate restructuring charges (see
Note 14), 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 franchising 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 1997, 1998 and 1999.
Accordingly, revenues and assets by geographical area have not been presented
since they are insignificant. In addition, no customer accounted for more than
7% of consolidated revenues in 1997, 1998 or 1999.
96
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
The following is a summary of the Company's segment information for 1997,
1998 and 1999 or, in the case of identifiable assets, as of the end of such
years:
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
Revenues:
Premium beverages......................... $ 408,841 $ 611,545 $ 651,076
Soft drink concentrates................... 146,882 124,868 121,110
Restaurant franchising.................... 140,429 78,623 81,786
---------- ---------- ----------
Consolidated revenues................. $ 696,152 $ 815,036 $ 853,972
---------- ---------- ----------
---------- ---------- ----------
EBITDA:
Premium beverages......................... $ 5,561 $ 77,779 $ 79,545
Soft drink concentrates................... 18,504 17,006 21,108
Restaurant franchising.................... 31,200 43,180 48,998
General corporate......................... (11,151) (20,902) (31,081)
---------- ---------- ----------
Consolidated EBITDA................... 44,114 117,063 118,570
---------- ---------- ----------
Less depreciation and amortization:
Premium beverages......................... 16,236 21,665 22,907
Soft drink concentrates................... 6,340 8,640 6,985
Restaurant franchising.................... 2,668 2,503 2,168
General corporate......................... 1,795 2,413 3,255
---------- ---------- ----------
Consolidated depreciation and
amortization........................ 27,039 35,221 35,315
---------- ---------- ----------
Operating profit (loss):
Premium beverages......................... (10,675) 56,114 56,638
Soft drink concentrates................... 12,164 8,366 14,123
Restaurant franchising.................... 28,532 40,677 46,830
General corporate......................... (12,946) (23,315) (34,336)
---------- ---------- ----------
Consolidated operating profit......... 17,075 81,842 83,255
Interest expense.............................. (59,069) (67,914) (84,257)
Investment income, net........................ 12,737 11,823 18,468
Gain (loss) on sale of businesses, net........ (3,513) 5,016 655
Other income, net............................. 2,688 1,354 3,559
---------- ---------- ----------
Consolidated income (loss) from continuing
operations before income taxes.......... $ (30,082) $ 32,121 $ 21,680
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
Premium beverages......................... $ 580,340 $ 535,565 $ 570,813
Soft drink concentrates................... 194,603 171,647 175,175
Restaurant franchising.................... 51,759 52,267 46,116
---------- ---------- ----------
Total identifiable assets............. 826,702 759,479 792,104
General corporate assets.................. 177,863 260,123 331,628
---------- ---------- ----------
Consolidated identifiable assets...... $1,004,565 $1,019,602 $1,123,732
---------- ---------- ----------
---------- ---------- ----------
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(25) QUARTERLY INFORMATION (UNAUDITED)
QUARTER ENDED
------------------------------------------------------------------
MARCH 29, JUNE 28, (d) SEPTEMBER 27, (e) JANUARY 3, 1999 (e)
--------- ------------ ----------------- -------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1998
Revenues................. $172,053 $232,891 $247,031 $163,061
Gross profit, excluding
depreciation and
amortization (a)....... 93,532 119,499 125,183 88,828
Operating profit......... 9,896 22,834 28,767 20,345
Income (loss) from
continuing
operations............. 1,032 9,482 3,781 (57)
Income (loss) from
discontinued operations
(b).................... 3,163 (1,413) (1,529) 177
Net income............... 4,195 8,069 2,252 120
Basic income per share
(c):
Income from
continuing
operations......... .03 .31 .12 --
Income (loss) from
discontinued
operations......... .10 (.05) (.05) --
Net income........... .13 .26 .07 --
Diluted income per share
(c):
Income from
continuing
operations......... .03 .29 .12 --
Income (loss) from
discontinued
operations......... .10 (.04) (.05) --
Net income........... .13 .25 .07 --
98
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
QUARTER ENDED
-----------------------------------------------------------
APRIL 4, (f) JULY 4, OCTOBER 3, JANUARY 2, 2000 (g)
------------ ------- ---------- -------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1999
Revenues...................... $178,191 $250,826 $250,711 $174,244
Gross profit, excluding
depreciation and
amortization (a)............ 96,051 130,073 125,395 94,745
Operating profit.............. 9,022 25,636 30,795 17,802
Income (loss) from continuing
operations.................. (1,749) 5,205 3,184 2,095
Income (loss) from
discontinued operations
(b)......................... 501 (985) 11,062 2,908
Extraordinary charges (Note
19)......................... (12,097) -- -- --
Net income (loss)............. (13,345) 4,220 14,246 5,003
Basic income (loss) per share
(c):
Income (loss) from
continuing operations... (.06) .20 .13 .09
Income (loss) from
discontinued
operations.............. .02 (.04) .45 .12
Extraordinary charges..... (.42) -- -- --
Net income (loss)......... (.46) .16 .58 .21
Diluted income (loss) per
share (c):
Income (loss) from
continuing operations... (.06) .19 .12 .08
Income (loss) from
discontinued
operations.............. .02 (.04) .43 .12
Extraordinary charges..... (.42) -- -- --
Net income (loss)......... (.46) .15 .55 .20
- ---------
(a) Commencing with the fourth quarter of 1999, the Company classifies expenses
related to artwork used in the packaging of premium beverages within
'Advertising, selling and distribution' expenses whereas in 1998 and the
first three quarters of 1999, such expenses had been included in 'Cost of
sales.' Accordingly, the amounts reported as gross profit in this table
have been reclassified from amounts previously reported or derivable to
report gross profit before artwork expenses for each of the four quarters
of 1998 and for each of the first three quarters of 1999.
(b) On July 19, 1999, the Company consummated the Propane Partnership Sale. The
Propane Partnership had been accounted for in accordance with the equity
method for all 1998 quarters and for the 1999 quarters through the date of
sale. The equity in earnings (loss) of the Propane Partnership was
accounted for as a discontinued operation in the quarter ended July 4, 1999
and the quarterly data for each of the four quarters of 1998 and the first
quarter of 1999 has been reclassified accordingly. See Note 18 for
additional information regarding the Propane Partnership Sale, including
the gain on the Propane Partnership Sale and the recognition of Propane
Deferred Gain, and SEPSCO Discontinued Operations.
(c) Basic diluted income (loss) per share have been computed consistently with
the annual calculation explained in Note 4. Basic and dilutive income
(loss) per share are the same for the quarters ended March 29, 1998 and
September 27, 1998 since the effect of potentially dilutive stock options
was less than $.01 per share. Basic and diluted income (loss) per share are
the same for the quarters ended January 3, 1999 and April 4, 1999 since
potentially dilutive stock options had an antidilutive effect.
(footnotes continued on next page)
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TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JANUARY 2, 2000
(footnotes continued from previous page)
(d) The income from continuing operations for the quarter ended June 28, 1998
was materially affected by the then estimated gain from the sale of
Snapple's 20% interest in Select Beverages (see Note 7) of $3,899,000, or
$2,378,000 net of income tax provision of $1,521,000.
(e) As set forth in Note 1 the Company's fiscal year consists of the 52 or 53
weeks ending on the Sunday closest to December 31. In accordance with this
fiscal year convention, the 1998 fourth quarter consists of fourteen weeks
whereas all other quarters in the above quarterly data consist of thirteen
weeks.
(f) The income from continuing operations for the quarter ended April 4, 1999
was materially affected by a corporate restructuring related charge (see
Note 12) of $3,650,000, or $2,269,000 after income tax benefit of
$1,381,000, resulting from the equitable adjustments to the terms of
outstanding Triarc Beverage Holdings stock options. The Company recognized
additional charges relating to this adjustment in the following three
quarters of 1999 for less significant amounts.
(g) The income from continuing operations for the quarter ended January 2, 2000
was materially affected by (1) a reversal of excess interest expense
accruals for IRS examinations (see Note 10) of $2,641,000, or $1,770,000
net of income tax provision of $871,000 and (2) a release of excess
reserves for IRS examinations of $2,525,000 (see Note 10).
100
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 1, 2000 (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
January 3, 1999 and January 2, 2000; Condensed Statements of
Operations (Parent Company Only) -- for the fiscal years
ended December 28, 1997, January 3, 1999 and January 2,
2000; Condensed Statements of Cash Flows (Parent Company
Only) -- for the fiscal years ended December 28, 1997,
January 3, 1999 and January 2, 2000
Schedule II -- Valuation and Qualifying Accounts for the fiscal years ended
December 28, 1997, January 3, 1999 and January 2, 2000
All other schedules have been omitted since they are either not applicable
or the information is contained elsewhere in 'Item 8. Financial Statements and
Supplementary Data.'
3. Exhibits:
Copies of the following exhibits are available at a charge of $.25 per page
upon written request to the Secretary of Triarc at 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 -- Master Agreement dated as of May 5, 1997, among Franchise Finance Corporation of America, FFCA Acquisition
Corporation, FFCA Mortgage Corporation, Triarc, Arby's Restaurant Development Corporation ('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).
4.2 -- 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).
4.3 -- Credit Agreement dated as of February 25, 1999, among Snapple, Mistic, Stewart's, 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 herein by reference to Exhibit 4.1 to
Triarc's Current Report on Form 8-K dated March 11, 1999 (SEC file no. 1-2207).
101
EXHIBIT
NO. DESCRIPTION
--- -----------
4.4 --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).
4.5 --Registration Rights Agreement dated February 18, 1999
among TCPG, TBHC, the Guarantors party thereto and Morgan
Stanley & Co. Incorporated, 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).
4.6 --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).
4.7 --Supplemental Indenture, dated as of February 26, 1999,
among TCPG, TBHC, Millrose Distributors, Inc., and The
Bank of New York as Trustee, incorporated herein by
reference to Exhibit 4.6 to Amendment No. 2 to
Registration Statement on Form S-4 filed by TCPG and TBHC,
dated October 1, 1999 (Registration Nos. 333-78625;
333-78625-01 through 333-78625-28).
4.8 --Supplemental Indenture No. 2, dated as of September 8,
1999, among TCPG, TBHC, the subsidiary guarantors party
thereto and The Bank of New York, as Trustee, incorporated
herein by reference to Exhibit 4.7 to Amendment No. 2 to
Registration Statement on Form S-4 filed by TCPG and TBHC,
dated October 1, 1999 (Registration Nos. 333-78625;
333-78625-01 through 333-78625-28).
4.9 --Supplemental Indenture No. 3, dated as of December 16,
1999 among TCPG, TBHC, MPAS Holdings, Inc., Millrose,
L.P., 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 dated March 30, 2000 (SEC file no.
1-2207).
4.10 --Supplemental Indenture No. 4, dated as of January 2, 2000
among TCPG, TBHC, Snapple Distributors of Long Island,
Inc. 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 30, 2000 (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 --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).
10.7 --Amended and Restated Employment Agreement dated as of
June 1, 1997 by and between Snapple, Mistic and Ernest J.
Cavallo, incorporated 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).
10.8 --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, incorporated 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).
10.9 --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).
10.10 --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).
102
EXHIBIT
NO. DESCRIPTION
--- -----------
10.11 --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).
10.12 --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).
10.13 --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).
10.14 --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).
10.15 --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).
10.16 --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).
10.17 --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).
10.18 --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).
10.19 --Form of Guaranty Agreement dated as of March 23, 1999
among National Propane Corporation, Triarc Companies, Inc.
and Nelson Peltz and Peter W. May, incorporated herein by
reference to Exhibit 10.30 to Triarc's Annual Report on
Form 10-K for the fiscal year ended January 3, 1999 (SEC
file no. 1-2207).
10.20 --Amendment No. 1 to Triarc Beverage Holdings Corp. 1997
Stock Option Plan, incorporated herein by reference to
Exhibit 10.36 to Triarc Consumer Products Group, LLC's and
Triarc Beverage Holding Corp.'s Amendment No. 1 to
Registration Statement on Form S-4 dated August 3, 1999
(SEC registration no. 333-78625).
10.21 --Amended and Restated Stock Purchase Agreement dated
August 19, 1999 by and among Triarc, Victor Posner Trust
No. 6 and Security Management Corp., incorporated herein
by reference to Exhibit 10.1 to Triarc's Current Report on
Form 8-K dated August 19, 1999 (SEC file no. 1-2207).
10.22 --Stock Purchase Agreement, dated January 2, 2000, by and
among Snapple Beverage Corp. and the shareholders of
Snapple Distributors of Long Island, Inc., incorporated
herein by reference to Exhibit 10.1 to Triarc's Current
Report on Form 8-K dated January 21, 2000 (SEC file no.
1-2207).
10.23 --Purchase Agreement dated January 19, 2000 by and among
Triarc, Triangle Aircraft Services Corporation, Nelson
Peltz and Peter W. May, incorporated herein by reference
to Exhibit 10.2 to Triarc's Current Report on Form 8-K
dated January 21, 2000 (SEC file no. 1-2207).
10.24 --1999 Executive Bonus Plan, incorporated herein by
reference to Exhibit A to Triarc's 1999 Proxy Statement
(SEC file no. 1-2207).
10.25 --Employment Agreement dated as of May 1, 1999 between
Triarc and Nelson Peltz, incorporated herein by reference
to Exhibit 10.1 to Triarc's Current Report on Form 8-K
dated March 30, 2000 (SEC file no. 1-2207).
10.26 --Employment Agreement dated as of May 1, 1999 between
Triarc and Peter W. May, incorporated herein by reference
to Exhibit 10.2 to Triarc's Current Report on Form 8-K
dated March 30, 2000 (SEC file no. 1-2207).
10.27 --Employment Agreement dated as of February 24, 2000
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 30, 2000 (SEC file no.
1-2207).
10.28 --Employment Agreement dated as of February 24, 2000
between Triarc and Eric D. Kogan, incorporated herein by
reference to Exhibit 4.4 to Triarc's Current Report on
Form 8-K dated March 30, 2000 (SEC file no. 1-2207).
103
EXHIBIT
NO. DESCRIPTION
--- -----------
10.29 --Employment Agreement dated as of February 24, 2000
between Triarc and Brian L. Schorr, incorporated herein by
reference to Exhibit 10.5 to Triarc's Current Report on
Form 8-K dated March 30, 2000 (SEC file no. 1-2207).
21.1 --Subsidiaries of the Registrant*
23.1 --Consent of Deloitte & Touche LLP*
27.1 --Financial Data Schedule for the fiscal year ended January
2, 2000, submitted to the Securities and Exchange
Commission in electronic format.*
27.2 --Financial Data Schedule for the fiscal years ended
December 28, 1997, and January 3, 1999 and the fiscal
quarters ended March 29, June 28 and September 27, 1998,
submitted to the Securities and Exchange Commission in
electronic format.*
27.3 --Financial Data Schedule for the fiscal quarters ended
April 4, July 4 and October 3, 1999, submitted to the
Securities and Exchange Commission in electronic format.*
- -------------------
* Filed herewith
(B)Reports on Form 8-K:
On December 14, 1999, Triarc filed a Current Report on Form 8-K, which
included information under Item 5 and exhibits under Item 7 of such form.
On December 23, 1999, Triarc filed a Current Report on Form 8-K, which
included information under Item 5 and an exhibit under Item 7 of such form.
104
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 3, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on April 3, 2000 by the following persons on behalf
of the registrant in the capacities indicated.
SIGNATURE TITLE
--------- -----
NELSON PELTZ Chairman and Chief Executive Officer and Director (Principal
.......................................... Executive Officer)
(NELSON PELTZ)
PETER W. MAY President and Chief Operating Officer, and Director
......................................... (Principal Operating Officer)
(PETER W. MAY)
JOHN L. BARNES, JR. Executive Vice President and Chief Financial Officer
......................................... (Principal Financial Officer)
(JOHN L. BARNES, JR.)
FRED H. SCHAEFER Vice President and Chief Accounting Officer (Principal
......................................... Accounting Officer)
(FRED H. SCHAEFER)
HUGH L. CAREY Director
.........................................
(HUGH L. CAREY)
CLIVE CHAJET Director
.........................................
(CLIVE CHAJET)
JOSEPH A. LEVATO Director
.........................................
(JOSEPH A. LEVATO)
DAVID E. SCHWAB II Director
.........................................
(DAVID E. SCHWAB II)
JEFFREY S. SILVERMAN Director
.........................................
(JEFFREY S. SILVERMAN)
RAYMOND S. TROUBH Director
.........................................
(RAYMOND S. TROUBH)
GERALD TSAI, JR. Director
.........................................
(GERALD TSAI, JR.)
105
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 2, 2000 and January 3, 1999
and for each of the three fiscal years in the period ended January 2, 2000 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 10, 2000
106
SCHEDULE I
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
JANUARY 3, JANUARY 2,
1999 2000
---- ----
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................... $ 88,245 $ 101,306
Short-term investments.................................. 81,072 111,322
Due from subsidiaries................................... 80,904 109,872
Deferred income tax benefit, other receivables and other
current assets........................................ 8,825 3,356
--------- ---------
Total current assets................................ 259,046 325,856
Investments in consolidated subsidiaries, at equity......... 29,324 --
Properties, net............................................. 5,829 11,082
Deferred costs and other assets............................. 14,769 14,903
--------- ---------
$ 308,968 $ 351,841
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand note payable to National Propane Corporation..... $ 30,000 $ 30,000
Current portion of note payable to Chesapeake Insurance
Company Limited....................................... 240 240
Accounts payable........................................ 20,840 23,127
Due to subsidiaries..................................... 23,220 18,908
Accrued expenses........................................ 68,110 39,594
Note payable to National Propane, L.P. ................. 30,700 --
--------- ---------
Total current liabilities........................... 173,110 111,869
--------- ---------
Zero coupon convertible subordinated debentures due 2018
(net of unamortized original issue discount of
$246,908,000 at January 2, 2000)(a)....................... 106,103 113,092
Note payable to Chesapeake Insurance Company Limited........ 960 720
Accumulated reductions in stockholders' equity of
subsidiaries in excess of investments(b).................. -- 183,459
Deferred income taxes....................................... 17,286 20,739
Other liabilities........................................... 237 2,502
Commitments and contingencies
Forward purchase obligation for common stock................ -- 86,186
Stockholders' equity (deficit):
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.............................. 204,539 204,231
Accumulated deficit..................................... (100,804) (90,680)
Common stock held in treasury........................... (94,963) (202,625)
Common stock to be acquired............................. -- (86,186)
Accumulated other comprehensive income (deficit)........ (600) 5,040
Unearned compensation................................... (455) (61)
--------- ---------
Total stockholders' equity (deficit)................ 11,272 (166,726)
--------- ---------
$ 308,968 $ 351,841
--------- ---------
--------- ---------
- ---------
(a) These debentures mature in 2018 and do not require any amortization of
principal prior thereto.
(b) The 'Accumulated reductions in stockholders' equity of subsidiaries in
excess of investments' include all of Triarc's direct and indirect owned
subsidiaries. The investments in subsidiaries aggregate to a negative
balance as a result of aggregate dividends from subsidiaries in excess of
the investments in the subsidiaries.
107
SCHEDULE I (CONTINUED)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED
-----------------------------------------
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues and income:
Net sales to subsidiaries........................... $ 17,159 $123,014 $153,930
Equity in net income (losses) of continuing
operations of subsidiaries........................ (20,323) 32,405 31,071
Investment income................................... 10,747 5,374 10,737
Merger and acquisition fee from subsidiary.......... 4,000 -- --
-------- -------- --------
11,583 160,793 195,738
-------- -------- --------
Costs and expenses:
Cost of sales, excluding depreciation and
amortization related to sales..................... 17,159 123,014 153,930
General and administrative.......................... 13,247 19,118 29,350
Depreciation and amortization, excluding
amortization of deferred financing costs.......... 1,748 2,377 3,242
Interest expense on debt, other than to
subsidiaries...................................... 2,015 7,147 5,855
Interest expense on debt to subsidiaries, net....... 3,087 4,390 2,907
Capital structure reorganization related charges.... -- -- 2,126
Charges related to post-acquisition transition,
integration and changes to business strategies.... 2,000 -- --
Other (income) expense.............................. (2,599) 971 (47)
-------- -------- --------
36,657 157,017 197,363
-------- -------- --------
Income (loss) from continuing operations before
income taxes.................................. (25,074) 3,776 (1,625)
Benefit from income taxes............................... 1,596 10,462 10,360
-------- -------- --------
Income (loss) from continuing operations........ (23,478) 14,238 8,735
-------- -------- --------
Income (loss) from discontinued operations of
subsidiaries:
Equity in subsidiaries.............................. 21,712 2,193 2,486
Triarc Companies, Inc. ............................. 1,931 (1,795) 11,000
-------- -------- --------
23,643 398 13,486
-------- -------- --------
Income before extraordinary charges..................... 165 14,636 22,221
Equity in extraordinary charges of subsidiaries......... (3,781) -- (12,097)
-------- -------- --------
Net income (loss)............................... $ (3,616) $ 14,636 $ 10,124
-------- -------- --------
-------- -------- --------
Basic income (loss) per share:
Continuing operations........................... $ (.78) $ .47 $ .34
Discontinued operations......................... .79 .01 .52
Extraordinary items............................. (.13) -- (.47)
-------- -------- --------
Net income (loss)............................... $ (.12) $ .48 $ .39
-------- -------- --------
-------- -------- --------
Diluted income (loss) per share:
Continuing operations........................... $ (.78) $ .45 $ .32
Discontinued operations......................... .79 .01 .50
Extraordinary items............................. (.13) -- (.45)
-------- -------- --------
Net income (loss)............................... $ (.12) $ .46 $ .37
-------- -------- --------
-------- -------- --------
108
SCHEDULE I (CONTINUED)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED
--------------------------------------
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
---- ---- ----
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss)................................... $ (3,616) $ 14,636 $ 10,124
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Dividends from subsidiaries..................... 4,039 26,510 206,754
Equity in net (income) loss of subsidiaries..... 2,392 (34,598) (21,460)
(Income) loss from discontinued operations
recognized by Triarc Companies, Inc. ......... (1,931) 1,795 (11,000)
Deferred income tax provision (benefit)......... (15,351) (11,976) 1,663
Amortization of original issue discount and
deferred financing costs...................... -- 6,031 7,102
Net proceeds from sales (cost of purchases) of
trading securities............................ -- (24,982) 7,897
Net recognized gains from trading securities.... -- (2,236) (12,914)
Net recognized (gains) losses from transactions
in other than trading investments, including
equity in investment limited partnerships, and
short positions............................... (4,795) 5,342 12,545
Change in due from/to subsidiaries and other
affiliates.................................... (5,011) (6,888) 7,506
Other, net...................................... (5,155) 4,147 2,339
Decrease (increase) in other receivables and
other current assets.......................... 231 1,401 (979)
Increase (decrease) in accounts payable and
accrued expenses.............................. 25,431 2,411 (11,332)
-------- -------- ---------
Net cash provided by (used in) operating
activities................................ (3,766) (18,407) 198,245
-------- -------- ---------
Cash flows from investing activities:
Net proceeds from sales (cost of purchases) of
available-for-sale securities and other
investments....................................... 4,960 (19,582) (17,352)
Net proceeds of securities sold short (payments to
cover short positions in securities).............. -- 21,340 (15,332)
Capital expenditures including in 1998 ownership
interests in aircraft............................. (1,909) (4,824) (6,776)
Loans to subsidiaries, net of repayments............ (4,635) (9,430) (19,503)
Capital contributed to subsidiaries................. (6,204) -- (1,843)
Acquisition of Snapple Beverage Corp. .............. (75,000) -- --
Other............................................... (644) (2,182) (761)
-------- -------- ---------
Net cash used in investing activities....... (83,432) (14,678) (61,567)
-------- -------- ---------
Cash flows from financing activities:
Repurchases of common stock for treasury............ (1,594) (54,680) (117,160)
Proceeds from stock option issuances................ 2,433 3,939 7,423
Proceeds from (payment of) long-term debt........... -- 100,163 (240)
Deferred financing costs............................ -- (4,000) --
Net borrowings from (repayments to) subsidiaries.... 2,100 (550) --
Other............................................... (650) 35 --
-------- -------- ---------
Net cash provided by (used in) financing
activities................................ 2,289 44,907 (109,977)
-------- -------- ---------
Net cash provided by (used in) continuing operations.... (84,909) 11,822 26,701
Net cash provided by (used in) discontinued
operations............................................ 48,195 (10,398) (13,640)
-------- -------- ---------
Net increase (decrease) in cash......................... (36,714) 1,424 13,061
Cash at beginning of year............................... 123,535 86,821 88,245
-------- -------- ---------
Cash at end of year..................................... $ 86,821 $ 88,245 $ 101,306
-------- -------- ---------
-------- -------- ---------
NOTE: Cash as used herein includes cash and cash equivalents
109
SCHEDULE I (CONTINUED)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED
--------------------------------------
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
---- ---- ----
(IN THOUSANDS)
Supplemental disclosures of cash flow information:
Detail of cash flows related to investments:
Proceeds from sales of trading securities........ $ -- $ 30,412 $ 76,550
Cost of trading securities purchased............. -- (55,394) (68,653)
-------- -------- --------
$ -- $(24,982) $ 7,897
-------- -------- --------
-------- -------- --------
Cost of available-for-sale securities and other
investments purchased.......................... $(57,873) $(71,930) $(48,495)
Proceeds from sales of available-for-sale
securities and other investments............... 62,833 52,348 31,143
-------- -------- --------
$ 4,960 $(19,582) $(17,352)
-------- -------- --------
-------- -------- --------
Proceeds of securities sold short................ $ -- $ 45,585 $ 53,281
Payments to cover short positions in
securities..................................... -- (24,245) (68,613)
-------- -------- --------
$ -- $ 21,340 $(15,332)
-------- -------- --------
-------- -------- --------
110
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 28, 1997:
Receivables -- allowance
for doubtful accounts:
Trade................. $ 2,559 $6,110 (1) $725(2) $(1,423)(3) $ 7,971
Affiliate............. 2,551 975 (1) -- (256)(3) 3,270
------- ------ ---- ------- -------
Total............. $ 5,110 $7,085 $725 $(1,679) $11,241
------- ------ ---- ------- -------
------- ------ ---- ------- -------
Insurance loss reserves... $ 9,828 $ 39 $-- $(1,446)(4) $ 8,421
------- ------ ---- ------- -------
------- ------ ---- ------- -------
Year ended January 3, 1999:
Receivables -- allowance
for doubtful accounts:
Trade................. $ 7,971 $2,861 $ 32(2) $(5,313)(3) $ 5,551
Affiliate............. 3,270 (474)(5) -- (2,796)(3) --
------- ------ ---- ------- -------
Total............. $11,241 $2,387 $ 32 $(8,109) $ 5,551
------- ------ ---- ------- -------
------- ------ ---- ------- -------
Insurance loss reserves... $ 8,421 $-- $-- $(8,421)(6) $ --
------- ------ ---- ------- -------
------- ------ ---- ------- -------
Year ended January 2, 2000:
Receivables -- allowance
for doubtful accounts:
Trade................. $ 5,551 $2,132 (7) $105(2) $(2,147) $ 5,641
Affiliate............. -- (265)(5) -- 265 (5) --
------- ------ ---- ------- -------
Total............. $ 5,551 $1,867 $105 $(1,882) $ 5,641
------- ------ ---- ------- -------
------- ------ ---- ------- -------
- ---------
(1) Includes $2,254,000 of trade and $975,000 of affiliate provisions charged to
'Charges (credit) related to post-acquisition transition, integration and
changes to business strategies.'
(2) Recoveries of accounts previously determined to be uncollectible.
(3) Accounts determined to be uncollectible.
(4) Payment of claims and/or reclassification to 'Accounts payable.'
(5) Reversal of provision for doubtful accounts due to recoveries of accounts
previously fully reserved.
(6) 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.'
(7) Net of $549,000 credited to 'Charges (credit) related to post-acquisition
transition, integration and changes to business strategies.'
111