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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 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 333-78625-11
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TRIARC CONSUMER PRODUCTS GROUP, LLC
(Exact Name of Registrant as Specified in its Charter)
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Delaware 38-0471180
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
280 Park Avenue
New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 451-3000
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Securities Registered Pursuant to Section 12(b) of the Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
-------------------- -------------------
None
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. [x]
All of the membership interests in the registrant are held by the
registrant's parent, Triarc Companies, Inc.
The registrant meets the conditions set forth in General Instruction I
(1) (a) and (b) of Form 10-K and is therefore filing this report with the
reduced disclosure format.
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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, 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 a holding company wholly-owned by Triarc Companies, Inc. 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
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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 and Results of
Operations" and Note 20 to the Consolidated Financial Statements of Triarc
Consumer Products Group, LLC and Subsidiaries.
We were organized in Delaware on January 15, 1999. Our principal executive
offices are located at 280 Park Avenue, New York, New York 10017 and our
telephone number is (212) 451-3000.
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.
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 Triarc Companies 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 Triarc Companies were contributed to our subsidiary Pacific
Snapple Distributors, Inc.
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REFINANCING OF INDEBTEDNESS
On February 25, 1999 we and our 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 conjunction with such transactions,
on February 23, 1999 our parent, Triarc Companies contributed to us all of the
outstanding capital stock of Triarc Beverage Holdings Corp., RC/Arby's
Corporation and Stewart's Beverages, Inc. and on February 24, 1999 contributed
by merger all of the outstanding capital stock that it owned in two subsidiaries
of RC/Arby's.
In addition, on February 25, 1999 RC/Arby's 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 Triarc Companies
with the remaining proceeds.
The notes issued pursuant to the private placement have been registered
under the Securities Act of 1933. We were 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.
FISCAL YEAR
We have adopted a 52/53 week fiscal convention for the Company and our
subsidiaries 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.
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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 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, 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
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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
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.
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On March 31, 2000 Triarc Companies 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 Triarc Companies 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 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
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2000 we will meet substantially all of our guaranteed volume requirements under
our co-packing agreements.
Raw Materials
Triarc Companies purchases certain raw materials used in the
preparation and packaging of our premium beverage products and supplies them to
our co-packers. For quality control and other purposes, Triarc Companies has
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, Triarc Companies
sells to us, at cost, the raw materials that it purchases from suppliers. Since
the acquisition of Snapple, Triarc Companies has been negotiating and continues
to negotiate, new supply and pricing arrangements with its 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 our premium beverage segment's 1999 purchases of
glass bottles, could be replaced by alternate sources. We do not believe it
reasonably possible that these two 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 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.
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.
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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:
o Royal Crown, with limited exceptions, is Cott's exclusive
worldwide supplier of cola concentrates for retailer-branded
beverages in various containers,
o 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
o 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
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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 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."
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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 is the licensee of
the Fruit Blast trademark. Stewart's is the licensee of 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.
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,
<PAGE>
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,
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
<PAGE>
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 pending environmental matter 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."
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 have 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 1,120 employees, including
865 salaried employees and 255 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.
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.
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 $300.0 million, excluding
intercompany debt. In addition, at January 2, 2000 our total consolidated
indebtedness was $778.8 million.
<PAGE>
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. 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 are pledged as
collateral security. You should read the information included in "Item 1 --
Business -- Refinancing of Indebtedness."
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 5 to
the Consolidated Financial Statements.
Holding Company Structure
Because we are a holding company, our ability to service debt and pay
dividends, is dependent upon cash flows from our subsidiaries, including loans
and cash dividends. Under the terms of our indenture and credit agreement 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 $478.8 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 failure to develop new beverage products that gain market
acceptance would have an adverse impact on our growth and would materially
adversely affect us.
<PAGE>
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 a portion
of such indebtedness. You should read the information we have included in Notes
3 and 17 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.
<PAGE>
Bottlers
Royal Crown relies upon its relationships with certain key bottlers.
For example:
o 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;
o 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.
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 the corporate
headquarters of our beverage and restaurant franchising operations, as of
January 2, 2000:
<PAGE>
APPROXIMATE
SQ. FT. OF
ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- ----------------- --------------------- ----------- ----------------------
Beverages....... Concentrate Mfg:
Columbus, GA 1 owned 216,000
(including office)
Beverage Group
Headquarters
White Plains, NY 1 leased 71,970
Stewart's Headquarters
Denver, CO 1 leased 4,200
Office/Warehouse
Facilities 8 leased 807,395*
(various locations)
Restaurant
Franchising.... 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.
Substantially all of the properties used in our businesses are pledged
as collateral under secured debt arrangements.
ITEM 3. LEGAL PROCEEDINGS.
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.
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
<PAGE>
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.
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.
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
All of our membership interests are owned by Triarc Companies.
On February 25, 1999, we and Triarc Beverage Holdings sold $300 million
aggregate principal amount of 10 1/4 senior subordinated notes due 2009 to
Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Wasserstein Perella Securities, Inc., each of whom acted as a
placement agent in the offering, in reliance upon the exemption provided by
Section 4(2) of the Securities Act. The placement agents resold these notes
pursuant to Rule 144A and Section 4(2) under the Securities Act. A placement fee
of $9 million was paid in connection with these transactions. The net proceeds
from the financing, together with the net proceeds from the concurrent
refinancing of bank debt by our subsidiaries, 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 Triarc
Companies with the remaining proceeds. We filed a registration statement (SEC
file no. 333-78625 and 333-78625-01 through 333-78625-28) relating to $300
million aggregate principal amount of notes offered in exchange for the notes
issued in the private placement. The registration statement was declared
effective by the Securities Exchange Commission on December 23, 1999 and the
exchange offer for such notes was commenced on that date and completed on
January 28, 2000. We paid a $5,000 fee to the exchange agent in the exchange
offer. We made the exchange offer solely to satisfy our obligations under a
registration rights agreement and we did not receive any proceeds from the
exchange offer. You should read the information we have included in "Item 1.
Business--Refinancing of Indebtedness."
<TABLE>
<CAPTION>
Item 6. Selected Financial Data (1)
Year Ended December 31, Year Ended Year Ended Year Ended
------------------------------------ December 28, January 3, January 2,
1995 1996 1997 (2) 1999 (2) 2000 (2)
---- ---- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues................................$ 487,326 $ 597,435 $ 696,152 $ 815,036 $ 853,972
Operating profit (loss)................. (1,146) (3) (25,435) (4) 31,872 (5) 105,192 117,506
Income (loss) before extraordinary
charges............................... (33,349) (3) (51,368) (4) (18,986) (5) 29,987 (7) 25,478 (8)
Extraordinary charges................... -- -- (2,954) (5) -- (11,772) (8)
Net income (loss)....................... (33,349) (3) (51,368) (4) (21,940) (5) 29,987 (7) 13,706 (8)
Cash dividends.......................... -- -- -- (23,556) (204,746)
Total assets............................ 515,375 480,592 853,961 790,970 828,215
Long-term debt and note payable to
Triarc Companies, Inc................. 416,688 347,810 564,114 560,977 736,866
Redeemable preferred stock.............. -- -- 79,604 87,587 -- (9)
Member's deficit........................ (37,110) (86,978) (42,860) (6) (44,721) (173,885) (9)
</TABLE>
(1) Triarc Consumer Products Group was formed on January 15, 1999 and,
effective February 23, 1999 acquired all of the stock previously owned by
Triarc Companies, Inc., the Company's parent, of RC/Arby's Corporation,
Triarc Beverage Holdings Corp. and Stewart's Beverages, Inc. and their
subsidiaries. Selected Financial Data for each of the years presented
include RC/Arby's, Triarc Beverage Holdings and Stewart's and their
subsidiaries from their respective acquisition dates by Triarc Parent
since such entities were under common control and reflect Triarc Consumer
Products Group as if it had been formed as of January 1, 1995. You should
refer to Note 1 to the consolidated financial statements included
elsewhere herein for additional disclosures regarding this basis of
presentation.
(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 1998
fiscal year contained 53 weeks.
(3) Reflects certain significant charges recorded during 1995 as follows:
$15,309,000 charged to operating loss representing a $14,647,000
reduction in the carrying value of long-lived assets impaired or to be
disposed and $662,000 of accelerated vesting of Triarc Parent's
restricted stock granted to our employees; and $11,511,000 charged to
loss before extraordinary charges and net loss representing the
aforementioned $15,309,000 charged to operating loss and $1,000,000 of
write-off of an equity investment, less $5,898,000 of income tax benefit
relating to the aggregate of the above charges plus a $1,100,000
provision for income tax contingencies.
(4) Reflects certain significant charges recorded during 1996 as follows:
$66,700,000 charged to operating loss representing a $58,900,000 charge
for impairment of company-owned restaurants and related exit costs and
$7,800,000 of facilities relocation and corporate restructuring charges;
and $40,843,000 charged to loss before extraordinary charges and net loss
representing the aforementioned $66,700,000 charged to operating loss,
less $25,857,000 of income tax benefit relating to the aggregate of the
above charges.
(5) Reflects certain significant charges recorded during 1997 as follows:
$40,878,000 charged to operating profit representing $33,815,000 of
charges related to post-acquisition transition, integration and changes
to business strategies and $7,063,000 of facilities relocation and
corporate restructuring; $27,138,000 charged to loss before extraordinary
charges representing the aforementioned $40,878,000 charged to operating
profit, $3,513,000 of loss on sale of businesses, net, less $17,253,000
of income tax benefit relating to the aggregate of the above net charges;
and $30,092,000 charged to net loss representing the aforementioned
$27,138,000 charged to loss before extraordinary charges and a $2,954,000
extraordinary charge from the early extinguishment of debt.
(6) Reflects a decrease in member's deficit principally resulting from (1) a
$29,390,000 deferred gain on sale of subsidiaries' stock to Triarc Parent
and (2) the "push-down" of Triarc Parent's $40,847,000 (adjusted to
$40,596,000 in 1998) acquisition basis in Stewart's to Triarc Consumer
Products Group.
(7) Reflects a significant credit recorded during 1998 as follows: $3,067,000
credited to income before extraordinary charges and net income
representing $5,016,000 of gain on sale of businesses less $1,949,000 of
related income tax provision.
(8) Reflects certain significant charges recorded during 1999 as follows:
$3,348,000 charged to operating profit representing capital structure
reorganization related charges related to equitable adjustments made to
the terms of outstanding stock options; $2,042,000 charged to income
before extraordinary charges representing the aforementioned $3,348,000
less $1,306,000 of income tax benefit; and $13,814,000 charged to net
income representing the aforementioned $2,042,000 charged to income
before extraordinary charges and an $11,772,000 extraordinary charge from
the early extinguishment of debt.
(9) Reflects an increase in member's deficit principally resulting from (1)
cash dividends of $204,746,000 and (2) non-cash transfer of deferred
income tax benefits of $32,719,000 both partially offset by a capital
contribution by Triarc Parent of the Company's redeemable preferred stock
of $88,779,000, including accrued but unpaid dividends.
<PAGE>
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 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.
None of our businesses requires significant capital expenditures because
we own no restaurants or manufacturing facilities, other than a Royal Crown
concentrate manufacturing facility. The amortization of 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:
o Acquisition/consolidation of distributors
o The development of proprietary packaging
o Increased pressure by competitors to achieve account exclusivity
o The increased use of plastic packaging
o Growing consumer demand for all-natural, health-oriented products
o The proliferation of new products including premium beverages,
bottled water and beverages enhanced with herbal additives, for
example, ginseng and echinacea
o Increased placement of refrigerated coolers by bottlers in
customer locations
o Increased use of multi-packs and variety packs in certain trade
channels
In recent years our soft drink concentrate business has experienced the
following trends:
o Increased competition in the form of lower prices although there
has been some improvement commencing in late 1999
o Adverse economic conditions in some international markets,
especially Russia and Turkey
o Increased pressure by competitors to achieve account exclusivity
o Acquisition/consolidation of bottlers
o Increased placement of refrigerated coolers by bottlers in
customer locations
o Increased use of multi-packs in certain trade channels
o Increased market share of private label beverages
o Increased consumer preference for flavored soft-drink beverages
In recent years our restaurant franchising business has experienced the
following trends:
o Consistent growth of the restaurant industry as a percentage of
total food-related spending
o Increased competitive pressures from the emphasis by competitors
on new unit development to increase market share leading to the
frequent use of price promotions and heavy advertising
expenditures within the industry
o Increased price competition in the quick service restaurant
industry, particularly as evidenced by the value menu concept
which offers comparatively lower prices on 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
o 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
o The addition of selected higher-priced premium quality items to
menus, which appeal more to adult tastes and recover some of the
margins lost in the discounting of other menu items
Following the sale of all of the 355 company-owned Arby's restaurants on
May 5, 1997 we experience the effects of these trends only to the extent they
affect our franchise fees and royalties.
Presentation of Financial Information
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with our accompanying
consolidated financial statements. Triarc Consumer Products Group, LLC was
formed on January 15, 1999 and commenced operations on February 23, 1999 with
the acquisition through a capital contribution of all of the capital stock of
RC/Arby's Corporation, Triarc Beverage Holdings Corp. and Stewart's Beverages,
Inc., and their subsidiaries. These companies previously had been held directly
or indirectly by Triarc Companies, Inc., which we refer to as Triarc Parent.
Effective May 17, 1999 Triarc Consumer Products Group contributed the stock of
Stewart's, originally acquired by Triarc Parent on November 25, 1997, to Triarc
Beverage Holdings. RC/Arby's is the parent of Royal Crown Company, Inc. and
Arby's, Inc. Triarc Beverage Holdings, a 99.9% owned subsidiary of Triarc
Consumer Products Group, is the parent of Snapple Beverage Corp. and Mistic
Brands, Inc. and, effective May 17, 1999, Stewart's. Before the contribution of
Mistic to Triarc Beverage Holdings on May 22, 1997, Mistic was owned by Triarc
Parent from its acquisition before January 1, 1997. This "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
reflects the consolidated financial position, results of operations and cash
flows of Triarc Consumer Products Group as if it had been formed as of January
1, 1997. The consolidated financial position, results of operations and cash
flows of Triarc Consumer Products Group, together with each of RC/Arby's, Triarc
Beverage Holdings, Mistic before May 22, 1997 and Stewart's before May 17, 1999,
and their subsidiaries, are reflected from their respective dates of formation
or acquisition by Triarc Parent since such entities were under the common
control of Triarc Parent during such period and, accordingly, were accounted for
on an "as-if-pooling" basis. The aforementioned capital contributions of
subsidiaries by Triarc Parent to Triarc Consumer Products Group and to Triarc
Beverage Holdings have been recognized using carryover basis accounting since
all such entities were under common control.
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 1998 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%
----------- --------
EBITDA:
Premium beverages...............................$ 79,545 53.2%
Soft drink concentrates......................... 21,108 14.1
Restaurant franchising ......................... 48,998 32.8
General corporate............................... (85) (0.1)
----------- ---------
Total.......................................$ 149,566 100.0%
----------- ---------
Operating profit (loss):
Premium beverages...............................$ 56,638 48.2%
Soft drink concentrates......................... 14,123 12.0
Restaurant franchising.......................... 46,830 39.9
General corporate............................... (85) (0.1)
----------- ---------
Total.......................................$ 117,506 100.0%
----------- ---------
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
consolidated income before taxes and extraordinary charges for 1999, you should
refer to Note 20 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 -- 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., which we refer to
as Millrose, a New Jersey distributor of our premium beverages,
principally reflecting an increased focus on our products as a result of
our ownership of this distributor since February 26, 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 26, 1999 whereby we sell product at higher prices directly to
retailers compared with sales at lower prices to distributors such as
Millrose and (2) selective price increases.
Soft Drink Concentrates -- 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 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 -- 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 -- 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 -- 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 -- 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
Our advertising, selling and distribution expenses increased $3.6 million
to $201.5 million in 1999. A discussion of the changes in advertising, selling
and distribution expenses by segment is as follows:
Premium Beverages -- Advertising, selling and distribution expenses
increased $8.8 million (6.5%) to $145.6 million in 1999 compared with
1998. This increase was principally due to (1) an overall increase in
promotional spending 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.
Soft Drink Concentrates -- Advertising, selling and distribution expenses
decreased $4.4 million (7.6%) to $55.4 million in 1999 compared with 1998
reflecting continued lower bottler promotional reimbursements and other
promotional spending resulting from the decline in branded concentrate
sales volume.
Restaurant Franchising -- Advertising, selling and distribution expenses
decreased $0.8 million (62.3%) to $0.5 million in 1999 compared with 1998
reflecting a decrease in the provision for doubtful accounts primarily due
to nonrecurring provisions in 1998 because of uncertainties regarding
collectibility of certain foreign royalty revenues relating to (1)
franchise operations in Mexico as a result of litigation with Arby's
Mexican master franchisee which was settled in October 1999 and (2)
franchise operations in Indonesia as a result of the political turmoil
occurring in that country in 1998 which abated in 1999.
General and Administrative Expenses
Our general and administrative expenses increased $1.7 million to $92.9
million in 1999. A discussion of the changes in general and administrative
expenses by segment, exclusive of a $0.1 million increase in general corporate
expenses to $0.1 million in 1999, is as follows:
Premium Beverages -- General and administrative expenses increased $4.5
million (11.7%) to $42.3 million in 1999 compared with 1998 reflecting
increases in compensation and benefit costs primarily due to an increased
number of employees.
Soft Drink Concentrates -- General and administrative expenses decreased
$1.3 million (6.2%) to $17.9 million in 1999 compared with 1998. This
decrease reflects lower compensation and benefit costs due to a
nonrecurring provision in 1998 of $1.5 million for a severance
arrangement under the last of our 1993 employment agreements.
Restaurant Franchising -- General and administrative expenses decreased
$1.6 million (4.6%) to $32.6 million in 1999 compared with 1998. This
decrease principally reflects a nonrecurring provision in 1998 of (1) $0.8
million for the settlement of a lawsuit with ZuZu, Inc., an entity in
which we had an investment and with whom we were developing dual-branding
strategies, and (2) $1.7 million for the then anticipated settlement of a
lawsuit with Arby's Mexican master franchisee which was ultimately settled
in October 1999, partially offset by an increase in compensation and
benefit costs due to higher incentive compensation payments and salary
increases.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, decreased $0.7 million to $32.1 million in 1999. A discussion
of the changes in depreciation and amortization, excluding amortization of
deferred financing costs, by segment is as follows:
Premium Beverages -- Depreciation and amortization, excluding amortization
of deferred financing costs, increased $1.2 million (5.7%) to $22.9
million in 1999 compared with 1998 principally reflecting an increase in
amortization of Goodwill and other intangibles, as a result of the
Millrose acquisition.
Soft Drink Concentrates -- Depreciation and amortization, excluding
amortization of deferred financing costs, decreased $1.6 million (19.2%)
to $7.0 million in 1999 primarily due to the effect of $4.6 million of
soft drink vending machines purchased by Royal Crown in January 1998
becoming fully depreciated over periods beginning in the third quarter of
1998 and continuing throughout 1999.
Restaurant Franchising -- Depreciation and amortization excluding
amortization of deferred financing costs, decreased $0.3 million (13.4%)
to $2.2 million in 1999 due entirely to the nonrecurring 1998 (1)
write-off of certain franchise rights and (2) amortization of a
non-compete agreement becoming fully amortized in 1998.
Capital Structure Reorganization Related Charge
The capital structure reorganization related charge of $3.3 million in 1999
reflects equitable adjustments that were made to the terms of outstanding
options under a stock option plan. The option plan provides for an equitable
adjustment of options in the event of a recapitalization or similar 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 Parent, 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 to the option holder
following the exercise of the stock options and either (1) the sale by the
option holder to us 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. Triarc Beverage Holdings is responsible
for the cash payment to its employees who are option holders and Triarc Parent
is responsible for the cash payment to its employees who are option holders
either directly or through reimbursement to Triarc Beverage Holdings. The
capital structure reorganization related charge of $3.3 million in 1999
represents the vested portion as of January 2, 2000 of the aggregate maximum
$4.1 million cash payments to be recognized over the full vesting period
assuming all remaining outstanding 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 $0.6 million in 2000 and $0.2 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 the intrinsic value method of accounting.
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 of 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 $14.9 million, including $7.1 million in 1997
which is discussed below in the comparison of 1998 with 1997.
Interest Expense
Interest expense increased $16.4 million to $76.6 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 million of RC/Arby's 9 3/4% senior secured notes due 2000.
Gain (Loss) on Sale of Businesses, Net
Gain (loss) on sale of businesses, net consists of a loss of $0.5 million
in 1999 compared with a gain of $5.0 million in 1998. This change of $5.5
million is primarily due to (1) a $4.7 million nonrecurring 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.
Other Income, Net
Other income, net increased $1.5 million to $6.8 million in 1999. This
increase was principally due to $1.6 million of higher interest income on cash
equivalents as a result of higher invested cash during the period February 25,
1999 to March 30, 1999 and the $1.2 million nonrecurring equity in the loss of
Select Beverages, Inc. in 1998. The higher investment in cash equivalents during
the period from February 25, 1999 to March 30, 1999 represented approximately
$380.0 million of proceeds from the February 25, 1999 debt refinancing which
were not utilized until March 30, 1999 when these proceeds, together with
substantially all of the Company's other cash and cash equivalents then on hand,
were used to repay $275.0 million of borrowings under the RC/Arby's 9 3/4%
senior notes, together with $12.1 million of related accrued interest and
redemption premium, and pay a $124.1 million distribution to Triarc Parent. Our
equity in the loss of Select Beverages reflected our 20% ownership through the
sale of such ownership in May 1998. These increases were partially offset by (1)
$0.8 million of lower rental income due to the effective termination of our
sublease in early 1999 for an office/warehouse facility and a decrease in
equipment leasing by Snapple and (2) a $0.7 million change in gains or losses on
sales of properties which aggregated a $0.2 million loss in 1999 compared with a
$0.5 million gain in 1998. We had subleased an office/warehouse facility
formerly used by our soft drink concentrate segment until early 1999 when the
sublessee assumed the underlying lease from us. Snapple, under its prior
ownership by The Quaker Oats Company, financed certain equipment purchases by
its co-packers, a program which is being phased-out under our ownership.
Provision for Income Taxes
The provision for income taxes represented an effective rate of 46% for
both 1999 and 1998. The 1999 effective tax rate reflected an increase due to the
greater impact of the amortization of non-deductible Goodwill resulting from
lower 1999 pre-tax income, entirely due to higher net non-operating expenses,
that was fully 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.
Extraordinary Charges
The extraordinary charges in 1999 aggregating $11.8 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 $10.8
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 $6.8 million. There were no extraordinary charges in 1998.
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.
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
with 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.
Soft Drink Concentrates -- 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 finished goods of the soft drink
concentrates segment 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, 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. The increased
provisions for obsolete inventory principally resulted from raw materials
and finished goods inventories that passed their shelf lives 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 -- 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, 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.
Advertising, Selling and Distribution Expenses
Our advertising, selling and distribution expenses increased $14.7 million
to $197.9 million in 1998. A discussion of the changes in advertising, selling
and distribution expenses by segment is as follows:
Premium Beverages -- Advertising, selling and distribution expenses
increased $35.7 million (35.3%) to $136.8 million in 1998 compared with
1997. This increase principally reflects the inclusion of Snapple and
Stewart's for the full 1998 year partially offset by a decrease in the
expenses of the premium beverage segment exclusive of the full period
effect of Snapple and Stewart's principally due to less costly promotional
programs.
Soft Drink Concentrates -- Advertising, selling and distribution expenses
decreased $13.2 million (18.1%) to $59.8 million in 1998 compared with
1997 principally due to lower bottler promotional reimbursements resulting
from the decline in branded concentrate sales volume.
Restaurants -- Advertising, selling and distribution expenses decreased
$7.8 million (86.5%) to $1.3 million principally due to local restaurant
advertising and marketing expenses no longer needed for the sold
restaurants which commenced in 1997 with the May 1997 sale of the
restaurants and increased to its full effect in 1998, partially offset by
the nonrecurring provisions in 1998 for doubtful accounts relating to
certain foreign royalty revenues as discussed above in the comparison of
1999 with 1998.
General and Administrative Expenses
Our general and administrative expenses increased $7.6 million to $91.2
million in 1998. A discussion of the changes in general and administrative
expenses by segment, exclusive of a $0.1 million decrease in general corporate
expenses, is as follows:
Premium Beverages -- General and administrative expenses increased $9.6
million (34.0%) to $37.8 million in 1998 compared with 1997. This increase
principally reflects the inclusion of Snapple and Stewart's operations
for all of 1998, partially offset by nonrecurring 1997 costs in
connection with the integration of the Snapple business following its
acquisition.
Soft Drink Concentrates -- General and administrative expenses decreased
$0.7 million (3.5%) to $19.2 million in 1998 compared with 1997. This
decrease principally reflects an overall cost savings resulting from the
centralization of Royal Crown's corporate headquarters with Triarc
Beverage Holdings offices, partially offset by a provision in 1998 of $1.5
million for a severance arrangement under the last of our 1993 executive
employment agreements.
Restaurants -- General and administrative expenses decreased $1.2 million
(3.2%) to $34.2 million in 1998 compared with 1997. This decrease
principally reflects reduced costs for administrative support, principally
payroll, no longer required for the sold restaurants and other cost
reduction measures as discussed above in the comparison of 1999 with 1998,
partially offset by provisions in 1998 of (1) $0.8 million for the
settlement of a lawsuit with ZuZu and (2) $1.7 million for the then
anticipated settlement of a lawsuit with Arby's Mexican master franchisee.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $7.5 million to $32.8 million in 1998. A discussion
of the changes in depreciation and amortization, excluding amortization of
deferred financing costs, by segment is as follows:
Premium Beverages -- Depreciation and amortization, excluding amortization
of deferred financing costs, increased $5.4 million (33.4%) to $21.7
million in 1998 compared with 1997 principally reflecting the inclusion of
Snapple and Stewart's for all of 1998.
Soft Drink Concentrates -- Depreciation and amortization, excluding
amortization of deferred financing costs, increased $2.3 million (36.3%)
to $8.6 million in 1998 compared with 1997 primarily due to depreciation
expense on $4.6 million of vending machines purchased by Royal Crown in
January 1998 which were depreciated over periods of up to two years.
Restaurants -- Depreciation and amortization, excluding amortization of
deferred financing costs, decreased $0.2 million (6.2%) to $2.5 million in
1998 compared with 1997. This decrease is principally due to nonrecurring
1997 amortization of $0.5 million of a non-compete agreement which became
fully amortized in February 1998, partially offset by the 1998 write-off
of certain franchise rights.
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 $33.8 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 Quaker Oats' 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,
(6) a $4.0 million provision for certain costs in connection with
the successful completion of the acquisition of Snapple and Mistic
refinancing in connection with entering into a credit facility at the
time of the Snapple acquisition, because we had paid a fee to Triarc
Parent in order to compensate Triarc Parent for its recurring indirect
costs incurred while providing assistance in consummating these
transactions,
(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 11 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 12 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 $2.2 million to $60.2 million for 1998. This
increase reflects the effect of higher average levels of debt due to 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. This increase was partially offset by (1)
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 and (2) to a lesser extent, the reduction of outstanding principal balances
aggregating $29.7 million under notes payable to Triarc Parent for all of 1998,
compared with the elimination for only a portion of 1997, forgiven or repaid in
connection with the sale of the restaurants.
Gain (Loss) on Sale of Businesses, Net
Gain (loss) on sale of businesses, net consists of a gain of $5.0 million
in 1998 compared with a loss of $3.5 million in 1997. This change of $8.5
million is 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 $0.2 million to $5.3 million in 1998
principally due to (1) a reduction of $2.1 million in our equity in the income
or losses of Select Beverages to a loss of $1.2 million in 1998 compared with
income of $0.9 million in 1997 and (2) a nonrecurring $0.9 million gain in 1997
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. These effects were partially offset
by $1.2 million of higher interest income on cash equivalents due to higher
average amounts of cash equivalents in 1998 reflecting 1998 cash flows from
operations and by $1.0 million of the full period effect of Snapple, other than
equity in the earnings or losses of investees, consisting principally of
increased interest income and rental income.
Income Taxes
The provision for income taxes in 1998 represented an effective rate of
46% and the benefit from income taxes in 1997 represented an effective rate of
21%. 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.
Extraordinary Charges
The 1997 nonrecurring extraordinary charges aggregating $3.0 million
resulted from the early assumption or extinguishment of (1) mortgage and
equipment notes payable assumed by the buyer in the restaurants sale and (2)
obligations under Mistic's former credit facility refinanced in connection with
the financing of the Snapple acquisition. These extraordinary charges were
comprised of the write-off of $4.9 million of previously unamortized deferred
financing costs less the related income tax benefit of $1.9 million.
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 $57.6 million during 1999
principally reflecting (1) net income of $13.7 million and (2) non-cash charges
of $70.9 million, principally depreciation and amortization of $36.5 million, a
provision for deferred income taxes of $17.8 million and the write-off of
unamortized deferred financing costs and interest rate cap agreement costs of
$10.9 million relating to the refinancing transactions described below both
partially offset by cash used by changes in operating assets and liabilities of
$26.9 million.
The cash used by changes in operating assets and liabilities of $26.9
million principally reflects increases in receivables of $12.8 million and
inventories of $12.1 million. 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 which decreased $1.6 million 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 $31.7 million at January 2, 2000, reflecting a current ratio, which equals
current assets divided by current liabilities, of 1.2:1. Our working capital
decreased $21.7 million from January 3, 1999 principally reflecting the net
effects of the February 25, 1999 refinancing and related transactions discussed
below, most significantly the $55.3 million of amounts, including dividends,
distributed to Triarc Parent which came from our cash and cash equivalents on
hand partially offset by (1) related reductions of amounts due to Triarc Parent
and accrued interest on the extinguished debt and (2) acquired working capital
of Millrose, all in connection with the refinancing and related transactions.
Cash and other working capital provided by operations during 1999 subsequent to
the refinancing and related transactions was offset by an increase in current
portion of long-term debt, principally as a result of the $28.3 million excess
cash flow prepayment required under the credit agreement, and a $15.9 million
net use of working capital for the acquisition of Snapple Distributors of Long
Island, Inc., both discussed below.
Our capitalization at January 2, 2000 aggregated $604.9 million consisting
of $778.8 million of long- term debt, including current portion, less $173.9
million of member's deficit. Our total capitalization decreased $8.7 million
from January 3, 1999 reflecting an increase in our member's deficit of $129.2
million, or $218.0 million before the capital contribution of the redeemable
preferred stock of Triarc Beverage Holdings to us by Triarc Parent with a
carrying value of $88.8 million as of the contribution date, both partially
offset by a $208.1 million increase in our long-term debt. The redeemable
preferred stock with a carrying value of $87.6 million as of January 3, 1999 was
included in our total capitalization as of that date but eliminated in
consolidation as of January 2, 2000 as a result of its contribution to us.
Accordingly, the reduction of our member's deficit as a result of the capital
contribution of the redeemable preferred stock discussed above is essentially
offset by the elimination of the redeemable preferred stock in consolidation in
1999. The increase in member's deficit before this capital contribution was
primarily due to (1) dividends of $209.7 million, including a non-cash dividend
of $5.0 million, in connection with the refinancing transactions discussed below
and (2) the non-cash transfer of $32.7 million of our deferred tax assets to
Triarc Parent also as discussed below. These factors were partially offset by
(1) $12.0 million of capital contributions other than the redeemable preferred
stock contributed to us by Triarc Parent consisting of (a) $7.8 million of
certain amounts otherwise due to Triarc Parent, (b) $2.4 million of Triarc
Parent's minority interests in two of our restaurant subsidiaries and (c) $1.8
million of financing costs Triarc Parent had incurred on our behalf in
connection with the refinancing transactions and (2) net income of $13.7
million. The increase in our long-term debt is discussed immediately below.
Refinancing Transactions
On February 25, 1999 Triarc Consumer Products Group and Triarc Beverage
Holdings issued $300.0 million principal amount of 10 1/4% senior subordinated
notes due 2009 and concurrently Snapple, Mistic, Stewart's, Royal Crown and
RC/Arby's 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 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 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, which prior to the transaction acquired certain assets of
Mid-State Beverages, Inc., for $17.5 million, including expenses of $0.2
million, (4) pay fees and expenses of $28.7 million, including $4.3 million of
post-closing fees and expenses paid principally through Triarc Parent, relating
to the issuance of the 10 1/4% notes and the completion of the new credit
facility and (5) pay one-time distributions to Triarc Parent of $215.5 million
of the remaining net proceeds from the above borrowings and $55.3 million of our
cash and cash equivalents then on hand in excess of approximately $2.0 million,
which we retained for working capital purposes. The one-time distributions to
Triarc Parent included (1) cash dividends of $204.7 million, (2) the repayment
of $7.5 million of intercompany amounts due to Triarc Parent and (3) the
reimbursement of $3.3 million of the fees and expenses paid through Triarc
Parent. An additional $1.8 million of fees and expenses was paid by Triarc
Parent on our behalf and transferred to us as a capital contribution.
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,
$43.3 million outstanding as of January 2, 2000, and second to any outstanding
balance of revolving loans, with any remaining amount being returned to us. In
connection therewith, a $28.3 million prepayment will be required in the second
quarter of 2000 in respect of the year ended 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 although we have not made any voluntary
prepayments as of March 10, 2000. 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 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 $41.9 million,
including $36.2 million under the term loans discussed above and $3.4 million
under the note payable to a beverage co-packer also discussed above.
Debt Agreement Restrictions and Guarantees
Under the credit facility substantially all of our assets, other than cash
and cash equivalents, 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 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 Parent. Under the most restrictive of these covenants, we can not pay
any dividends or make any loans or advances to Triarc Parent other than the
one-time distributions, including dividends, paid to Triarc Parent in connection
with the refinancing transactions. We were in compliance with all of these
covenants as of January 2, 2000.
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 Parent 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
Parent.
Capital Expenditures
Capital expenditures amounted to $8.5 million during 1999. We expect that
cash capital expenditures will approximate $10.0 million for 2000 for which
there were $1.5 million of outstanding commitments as of January 2, 2000. Our
planned capital expenditures include approximately $5.0 million for a premium
beverage packing line at one of our company-owned 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 Triarc Parent
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. Triarc Parent in turn contributed those
assets of California Beverage to us. 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
We are included in the consolidated Federal income tax return of Triarc
Parent. Pursuant to former tax- sharing agreements between Triarc Parent and
each of Triarc Beverage Holdings (including Stewart's effective August 15,
1998), RC/Arby's and Stewart's (through August 15, 1998) through January 3, 1999
and a revised tax-sharing agreement between Triarc Parent and Triarc Consumer
Products Group effective January 4, 1999, the Company was required to pay to
Triarc Parent amounts relating to Federal income taxes based on its taxable
income and the taxable income of its subsidiaries on a stand-alone basis. The
revised tax-sharing agreement provides that we would continue to receive benefit
for deferred tax assets aggregating $39.5 million as of January 3, 1999
associated with then existing Federal net operating loss carryforwards and
excess Federal income tax payments made in accordance with the former
tax-sharing agreement. However, Triarc Parent has the right to cause the
effective transfer of any unutilized benefits from us to Triarc Parent, but only
to the extent any such transfer would not result in non-compliance with the
minimum net worth covenant of the credit agreement. During 1999 we generated an
additional $6.3 million of such benefits as a result of the extraordinary
charges from the early extinguishment of obligations under the former beverage
credit facility and the 9 3/4% senior notes as part of the refinancing
transactions previously discussed. In accordance with the revised tax-sharing
agreement, during 1999 we utilized $13.1 million of such benefits to offset
income taxes otherwise payable on our pre-tax income before extraordinary
charges and transferred the remaining $32.7 million of such deferred tax
benefits to Triarc Parent as if such transfer were a distribution from us to
Triarc Parent. In accordance therewith, we recorded a charge to "Accumulated
deficit" and a credit to "Deferred income taxes" of $32.7 million. Accordingly,
we did not make any tax-sharing payments to Triarc Parent during 1999. As of
January 2, 2000, we no longer have any net operating loss carryforward benefits
available to us under the revised tax-sharing agreement.
The Federal income tax returns of Triarc Parent and its subsidiaries,
including RC/Arby's, have been examined by the Internal Revenue Service for the
tax years from 1989 through 1992. Triarc Parent has resolved all issues with the
Internal Revenue Service regarding such audit. The Internal Revenue Service has
tentatively completed its examination of the Federal income tax returns of
Triarc Parent and its subsidiaries, including RC/Arby's, for the 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, Triarc Parent has received notices of proposed
adjustments, of which $0.7 million would increase the taxable income relating to
RC/Arby's, resulting in additional taxes and accrued interest payable of $0.4
million under our tax-sharing agreement with Triarc Parent.
Cash Requirements
As of January 2, 2000, our consolidated cash requirements for 2000,
exclusive of operating cash flow requirements which include tax-sharing payments
to Triarc Parent as discussed above, consist principally of (1) debt principal
repayments aggregating $41.9 million, (2) capital expenditures of approximately
$10.0 million and (3) the cost of additional business acquisitions, if any. We
anticipate meeting all of these requirements through (1) existing cash and cash
equivalents of $60.2 million 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 our $60.0 million revolving credit facility.
Triarc Consumer Products Group
Triarc Consumer Products Group is a holding company whose primary asset is
a $300.0 million unsecured promissory note receivable from its subsidiary,
RC/Arby's, and whose primary liability consists of the $300.0 million principal
amount of 10 1/4% notes. The RC/Arby's note has a stated interest rate of 10.33%
and is due in 2009.
Triarc Consumer Product Group's subsidiaries are currently unable to pay
any dividends or make any additional loans or advances to Triarc Consumer
Products Group under the terms of the credit facility described above except to
enable Triarc Consumer Products Group to make interest payments under the 10
1/4% notes and to pay up to $0.2 million of general corporate expenses per year.
Triarc Consumer Products Group's cash requirements for 2000 consist of interest
payments under the 10 1/4% notes and, to a much lesser extent, general corporate
expenses. The interest payments under the 10 1/4% notes are due semi-annually in
February and August. The February 2000 interest payment included additional
interest of 1/2% for the period from August 24, 1999 through January 28, 2000,
the date on which an exchange offer was completed which collectively with the
registration of the 10 1/4% notes with the Securities and Exchange Commission
allowed the 10 1/4% notes to be publicly traded. Triarc Consumer Products
expects to meet its cash requirements through interest received in February 2000
and to be received in August 2000 on the RC/Arby's note and a dividend received
from RC/Arby's in the amount of the additional 1/2% interest paid on the 10 1/4%
notes in February 2000.
Legal and Environmental Matters
We are involved in litigation, claims and environmental matters incidental
to our businesses. We have reserves for legal and environmental matters of $1.9
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 $1.0 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 $0.5 million was capitalized and $0.5
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 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 have 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.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes and to a much lesser
extent, 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 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 had one interest rate cap agreement
related to interest on one-half of our variable-rate term loans 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 term loans under our current $535.0 million senior
bank credit facility which provides for a cap which was approximately 2% higher
than the prevailing interest rate at that time.
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. We
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 relate to sales in Canada, the Caribbean and
Europe. We monitor these exposures and periodically determine our need for use
of strategies intended to lessen or limit our exposure to these fluctuations.
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 United States dollar from their levels at January 3, 1999 and January
2, 2000 would not have had a material effect on our consolidated financial
position or results of operations. At the present time, we do not hedge our
foreign currency exposures as we do not believe this exposure to be material.
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. At January 3, 1999 and January 2, 2000, our excess cash was
primarily invested in commercial paper with maturities of less than 90 days
and/or money market funds which, due to their short-term nature, minimizes our
overall market risk.
Sensitivity Analysis
All of our market risk sensitive instruments are 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.
The following table reflects 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 (in thousands):
January 3, 1999 January 2, 2000
------------------------ -----------------------
Carrying Interest Carrying Interest
Value Rate Risk Value Rate Risk
----- --------- ----- ---------
Cash equivalents.............$ 66,422 $ -- $ 49,520 $ --
Long-term debt............... 570,655 (2,843) 778,760 (3,748)
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 long-term debt assumes an instantaneous
increase in market interest rates of one percentage point from their levels at
January 3, 1999 and January 2, 2000, with all other variables held constant. The
increase of one percentage point with respect to our long-term debt (1)
represents an assumed average 11% decline in earnings as the weighted average
interest rate of our variable-rate debt at January 3, 1999 and January 2, 2000
approximated 9% and (2) relates only to 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report....................................
Consolidated Balance Sheets as of January 3, 1999
and January 2, 2000.........................................
Consolidated Statements of Operations for the fiscal
years ended December 28, 1997, January 3, 1999,
and January 2, 2000.........................................
Consolidated Statements of Member's Deficit for the
fiscal years ended December 28, 1997, January 3,
1999 and January 2, 2000....................................
Consolidated Statements of Cash Flows for the fiscal
years ended December 28, 1997, January 3, 1999, and
January 2, 2000.............................................
Notes to Consolidated Financial Statements......................
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Managers and Member of
TRIARC CONSUMER PRODUCTS GROUP, LLC:
New York, New York
We have audited the accompanying consolidated balance sheets of Triarc
Consumer Products Group, LLC and subsidiaries (the "Company") as of January 2,
2000 and January 3, 1999, and the related consolidated statements of operations,
member's deficit, 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
<PAGE>
<TABLE>
<CAPTION>
TRIARC CONSUMER PRODUCTS GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
January 3, January 2,
1999 2000
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash (including cash equivalents of $66,422 and $49,520)................................$ 72,792 $ 60,173
Receivables (Note 4).................................................................... 64,872 77,476
Inventories (Note 4).................................................................... 46,761 61,736
Deferred income tax benefit (Note 7).................................................... 18,934 16,422
Prepaid expenses and other current assets............................................... 7,307 6,362
------------ ------------
Total current assets............................................................... 210,666 222,169
Properties (Note 4)......................................................................... 25,320 25,261
Unamortized costs in excess of net assets of acquired companies (Note 4).................... 268,215 261,666
Trademarks (Note 4)......................................................................... 261,906 251,117
Other intangible assets (Note 4)............................................................ 959 31,511
Deferred costs and other assets (Note 4).................................................... 23,904 36,491
------------ ------------
$ 790,970 $ 828,215
============ ============
LIABILITIES AND MEMBER'S DEFICIT
Current liabilities:
Current portion of long-term debt (Notes 5 and 6).......................................$ 9,678 $ 41,894
Accounts payable ....................................................................... 36,993 35,397
Accrued expenses (Note 4)............................................................... 81,448 90,573
Due to Triarc Companies, Inc. (Note 18)................................................. 29,082 22,591
------------ ------------
Total current liabilities.......................................................... 157,201 190,455
Long-term debt (Notes 5 and 6).............................................................. 560,977 736,866
Deferred income taxes (Note 7).............................................................. 9,173 56,680
Deferred income and other liabilities....................................................... 20,753 18,099
Redeemable preferred stock (Note 8)......................................................... 87,587 --
Commitments and contingencies (Notes 3, 7, 16, 17 and 19)
Member's deficit (Note 9 ):
Contributed capital..................................................................... 106,269 --
Accumulated deficit..................................................................... (150,732) (173,533)
Accumulated other comprehensive deficit................................................. (258) (352)
------------ ------------
Total member's deficit............................................................ (44,721) (173,885)
------------ ------------
$ 790,970 $ 828,215
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIARC CONSUMER PRODUCTS GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Year Ended
------------------------------------------------
December 28, January 3, January 2,
1997 1999 2000
---- ---- ----
<S> <C> <C> <C>
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 $2,102........................... 331,391 387,994 407,708
Advertising, selling and distribution (Note 1)..................... 183,221 197,877 201,451
General and administrative......................................... 83,546 91,165 92,909
Depreciation and amortization, excluding amortization
of deferred financing costs..................................... 25,244 32,808 32,060
Capital structure reorganization related (Note 10)................. -- -- 3,348
Charges (credit) related to post-acquisition transition,
integration and changes to business strategies (Note 11)........ 33,815 -- (549)
Facilities relocation and corporate restructuring
charges (credits) (Note 12)..................................... 7,063 -- (461)
------------ ------------- -------------
664,280 709,844 736,466
------------ ------------- -------------
Operating profit............................................. 31,872 105,192 117,506
Interest expense ..................................................... (58,019) (60,235) (76,605)
Gain (loss) on sale of businesses, net (Note 13)...................... (3,513) 5,016 (533)
Other income, net (Note 14)........................................... 5,532 5,298 6,782
------------ ------------- -------------
Income (loss) before income taxes and
extraordinary charges..................................... (24,128) 55,271 47,150
Benefit from (provision for) income taxes (Note 7).................... 5,142 (25,284) (21,672)
------------ ------------- -------------
Income (loss) before extraordinary charges................... (18,986) 29,987 25,478
Extraordinary charges (Note 15)....................................... (2,954) -- (11,772)
------------ ------------- -------------
Net income (loss)............................................$ (21,940) $ 29,987 $ 13,706
============ ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIARC CONSUMER PRODUCTS GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBER'S DEFICIT
(In thousands)
Cumulative Other
Comprehensive Income (Loss)
----------------------------
Unrealized
Gain (Loss)on
Available- Currency
Contributed Accumulated for-Sale Translation
Capital Deficit Investments Adjustment Total
------- ------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996......................................$ 71,801 $ (158,779) $ -- $ -- $ (86,978)
---------
Comprehensive loss:
Net loss....................................................... -- (21,940) -- -- (21,940)
Unrealized gain on available-for-sale investment............... -- -- 42 -- 42
Net change in currency translation adjustment.................. -- -- -- (242) (242)
---------
Comprehensive loss............................................. -- -- -- -- (22,140)
---------
Pushdown of acquisition basis of Triarc Companies, Inc. in
Stewart's Beverages, Inc. (Note 3)............................. 40,847 -- -- -- 40,847
Deferred gain on sale of subsidiaries' stock to Triarc Companies,
Inc. (Note 18)................................................. 29,390 -- -- -- 29,390
Capital contribution through forgiveness of a liability to Triarc
Companies, Inc. (Note 18)...................................... 625 -- -- -- 625
Issuance of Triarc Beverage Holdings Corp. common stock........... 1 -- -- -- 1
Dividend requirement on redeemable preferred stock (Note 8)....... (4,604) -- -- -- (4,604)
Other............................................................. (1) -- -- -- (1)
--------- ---------- ------ ------- ---------
Balance at December 28, 1997...................................... 138,059 (180,719) 42 (242) (42,860)
---------
Comprehensive income:
Net income..................................................... -- 29,987 -- -- 29,987
Reclassification adjustment for prior year appreciation on
available-for-sale investment sold during the year.......... -- -- (42) -- (42)
Net change in currency translation adjustment.................. -- -- -- (16) (16)
---------
Comprehensive income........................................... -- -- -- -- 29,929
---------
Adjustment to pushdown of acquisition basis of Triarc
Companies, Inc. in Stewart's Beverages, Inc. (Note 3).......... (251) -- -- -- (251)
Cash dividends.................................................... (23,556) -- -- -- (23,556)
Dividend requirement on redeemable preferred stock (Note 8)....... (7,983) -- -- -- (7,983)
--------- ---------- ------ ------- ---------
Balance at January 3, 1999........................................ 106,269 (150,732) -- (258) (44,721)
---------
Comprehensive income:
Net income..................................................... -- 13,706 -- -- 13,706
Net change in currency translation adjustment.................. -- -- -- (94) (94)
---------
Comprehensive income........................................... -- -- -- -- 13,612
---------
Capital contribution of redeemable preferred stock (Note 8)....... 88,779 -- -- -- 88,779
Other non-cash capital contributions (Note 18).................... 12,056 -- -- -- 12,056
Dividend requirement on redeemable preferred stock (Note 8)....... (1,192) -- -- -- (1,192)
Dividend of receivable from Triarc Companies, Inc. (Note 18)...... (4,954) -- -- -- (4,954)
Cash dividends (Note 5)........................................... (200,958) (3,788) -- -- (204,746)
Transfer of deferred income tax benefits as if it were a
distribution (Note 7).......................................... -- (32,719) -- -- (32,719)
--------- ---------- ------ ------- ---------
Balance at January 2, 2000........................................$ -- $ (173,533) $ -- $ (352) $(173,885)
========= ========== ====== ======= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIARC CONSUMER PRODUCTS GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
----------------------------------------------
December 28, January 3, January 2,
1997 1999 2000
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ (21,940) $ 29,987 $ 13,706
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.............. 18,879 23,151 23,732
Depreciation and amortization of properties.................. 6,365 9,657 8,328
Amortization of deferred financing costs .................... 3,716 4,075 4,398
Write-off of unamortized deferred financing costs and,
in 1999, interest rate cap agreement costs................. 4,839 -- 10,938
Provision for (benefit from) deferred income taxes........... (10,644) 10,467 17,792
Provision for doubtful accounts.............................. 3,794 2,387 2,416
Capital structure reorganization related charge.............. -- -- 3,348
Net provision (reversal or payments) for charges related
to post-acquisition transition, integration and changes
to business strategies..................................... 22,483 (6,025) (549)
(Gain) loss on sale of businesses, net....................... 3,513 (5,016) 533
Other, net................................................... (4,727) (361) (91)
Changes in operating assets and liabilities:
Decrease (increase) in receivables..................... 9,807 7,294 (12,822)
Decrease (increase) in inventories..................... 3,993 10,607 (12,099)
Decrease (increase) in prepaid expenses and other
current assets....................................... 4,622 (1,051) 718
Increase (decrease) in accounts payable and
accrued expenses..................................... (21,779) (29,615) 1,064
Increase (decrease) in due to Triarc Companies, Inc.... 12,519 3,547 (3,768)
---------- ----------- ------------
Net cash provided by operating activities........ 35,440 59,104 57,644
---------- ----------- ------------
Cash flows from investing activities:
Acquisition of Snapple Beverage Corp............................ (307,205) (43) --
Other business acquisitions (cash acquired in 1997)............. 2,409 (3,000) (34,336)
Capital expenditures............................................ (4,204) (11,107) (8,525)
Proceeds from sale of investment in Select Beverages, Inc....... -- 28,342 --
Other........................................................... 3,371 1,579 (467)
---------- ----------- ------------
Net cash provided by (used in) investing
activities..................................... (305,629) 15,771 (43,328)
---------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt ................................... 303,400 -- 775,000
Repayments of long-term debt ................................... (79,901) (14,158) (568,532)
Dividends....................................................... -- (23,556) (204,746)
Deferred financing costs........................................ (11,385) -- (28,657)
Net borrowings from affiliates.................................. 3,535 1,389 --
Proceeds from issuance of redeemable preferred stock............ 75,000 -- --
Proceeds from issuance of common stock.......................... 1 -- --
Capital contribution............................................ 6,211 -- --
---------- ----------- -----------
Net cash provided by (used in) financing
activities.................................... 296,861 (36,325) (26,935)
---------- ------------ ------------
Net increase (decrease) in cash and cash equivalents............... 26,672 38,550 (12,619)
Cash and cash equivalents at beginning of year..................... 7,570 34,242 72,792
---------- ----------- ------------
Cash and cash equivalents at end of year .......................... $ 34,242 $ 72,792 $ 60,173
========== =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................... $ 55,047 $ 52,437 $ 70,126
========== =========== ============
Income taxes, net of refunds................................ $ 3,450 $ 4,205 $ 1,666
========== =========== ============
</TABLE>
<PAGE>
TRIARC CONSUMER PRODUCTS GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Due to their non-cash nature, the following transactions are not reflected
in the consolidated statements of cash flows (amounts in whole dollars):
On November 25, 1997 Triarc Companies, Inc. ("Triarc Parent"), the
parent of the Company (see Note 1 for definition), acquired Stewart's
Beverages, Inc. ("Stewart's") for 1,566,858 shares of Triarc Parent common
stock exchanged for all of the then outstanding stock of Stewart's and
154,931 stock options of Triarc Parent exchanged for all of the then
outstanding stock options of Stewart's. The Stewart's acquisition was
accounted for by Triarc Parent in accordance with the purchase method of
accounting. Triarc Parent's basis in Stewart's was "pushed down" to
Stewart's and the excess of the purchase price over the net assets
acquired was allocated to the Stewart's assets and liabilities as of
November 25, 1997. See Note 3 to the consolidated financial statements for
further discussion of this transaction.
On May 22, 1997 Triarc Beverage Holdings Corp., a subsidiary of the
Company, acquired Snapple Beverage Corp. The portion of the purchase price
that was not yet paid as of December 28, 1997, representing a portion of
the expenses related to the acquisition, was $2,181,000.
In May 1997 two subsidiaries of the Company issued common shares
representing approximately 49% of each of their common stock after such
issuances to Triarc Parent in consideration for, in addition to cash of
$6,211,000, forgiveness of the then outstanding principal and accrued
interest aggregating $25,788,000 under a note payable by the Company to
Triarc Parent. In February 1999 Triarc Parent contributed its 49%
interests in each of these subsidiaries to the Company at its carrying
value of $2,448,000. See Note 18 to the consolidated financial statements
for further discussion of these transactions.
During 1997 and 1999 Triarc Parent made capital contributions to the
Company through the forgiveness of liabilities of $625,000 and $9,608,000,
respectively, and in 1999 the Company made a non-cash dividend of a
$4,954,000 receivable from Triarc Parent. See Note 18 to the consolidated
financial statements for further discussion of these transactions.
During 1997, 1998 and 1999 the Company recorded cumulative dividends
not declared or paid on the redeemable preferred stock of a subsidiary of
$4,604,000, $7,983,000 and $1,192,000, respectively, as increases in
"Redeemable preferred stock" with offsetting charges to "Contributed
capital" since payment of the dividends was not solely in the control of
the Company. In February 1999 Triarc Parent contributed the redeemable
preferred stock which it held in that subsidiary to the Company with a
carrying value of $88,779,000, including the cumulative unpaid dividends
of $13,779,000. See Note 8 to the consolidated financial statements for
further discussion of these transactions.
During 1999 the Company transferred $32,719,000 of deferred income
tax benefits to Triarc Parent as if such transfer were a distribution from
the Company to Triarc Parent. See Note 7 to the consolidated financial
statements for further discussion of this transaction.
See accompanying notes to consolidated financial statements.
<PAGE>
TRIARC CONSUMER PRODUCTS GROUP, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 2, 2000
(1) Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
Triarc Consumer Products Group, LLC ("Triarc Consumer Products Group" and
together with its subsidiaries, the "Company"), a wholly-owned subsidiary of
Triarc Companies, Inc. ("Triarc Parent"), was formed on January 15, 1999 and
commenced operations on February 23, 1999 with the acquisition through a capital
contribution of all of the capital stock previously owned directly or indirectly
by Triarc Parent of RC/Arby's Corporation ("RC/Arby's"), Triarc Beverage
Holdings Corp. ("Triarc Beverage Holdings") and Stewart's Beverages, Inc.
("Stewart's" - acquired by Triarc Parent on November 25,1997), formerly Cable
Car Beverage Corporation, and their subsidiaires. Effective May 17, 1999 Triarc
Consumer Products Group contributed the stock of Stewart's to Triarc Beverage
Holdings. Triarc Beverage Holdings, 99.9%-owned, has as its wholly-owned
subsidiaries Snapple Beverage Corp. ("Snapple" - acquired by the Company on May
22, 1997), Mistic Brands, Inc. ("Mistic") and, effective May 17, 1999,
Stewart's. Prior to the contribution of Mistic to Triarc Beverage Holdings on
May 22, 1997, Mistic was owned by Triarc Parent from its acquisition prior to
January 1, 1997. RC/Arby's, wholly-owned, has as its principal wholly-owned
subsidiaries Royal Crown Company, Inc. ("Royal Crown") and Arby's, Inc.
("Arby's"). Additionally, RC/Arby's had three subsidiaries which, prior to the
May 1997 sale of all company-owned restaurants, owned and/or operated Arby's
restaurants, consisting of Arby's Restaurant Development Corporation, Arby's
Restaurant Holding Company ("ARHC") and Arby's Restaurant Operations Company
("AROC"), all of which in February 1999 were merged into ARHC, LLC, a newly-
formed wholly-owned subsidiary of RC/Arby's. See Note 3 for a discussion of the
1997 acquisitions and disposition referred to above.
The accompanying consolidated financial statements present the consolidated
financial position, results of operations and cash flows of Triarc Consumer
Products Group as if it had been formed as of January 1, 1997. The consolidated
financial position, results of operations and cash flows of each of RC/Arby's,
Triarc Beverage Holdings, Mistic prior to May 22, 1997 and Stewart's prior to
May 17, 1999, and their subsidiaries, have been consolidated with Triarc
Consumer Products Group from their respective dates of formation or acquisition
by Triarc Parent since such entities were under the common control of Triarc
Parent during such period and, accordingly, are presented on an "as-if pooling"
basis. The aforementioned capital contributions of subsidiaries by Triarc Parent
to Triarc Consumer Products Group and by Triarc Consumer Products Group to
Triarc Beverage Holdings have been recognized using carryover basis accounting
since all such entities were under common control.
All significant intercompany balances and transactions have been eliminated
in consolidation.
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, money market
mutual funds and United States Treasury bills.
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.
Non-Current Investments
The Company had non-current investments during 1997 and 1998 (see Notes 11
and 14). Such investments in which it had significant influence over the
investee ("Equity Investments") were accounted for in accordance with the equity
method of accounting under which the consolidated results included the Company's
share of income or loss of such investees. The excess, if any, of the carrying
value of the Company's Equity Investments over the underlying equity in net
assets of each investee was being amortized to equity in earnings (losses) of
investees included in "Other income, net" on a straight-line basis over 35
years.
Properties and Depreciation and Amortization
Properties are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of properties is computed
principally on the straight-line basis using the estimated useful lives of the
related major classes of properties: 3 to 15 years for machinery and equipment
and 15 to 40 years for buildings. Leased assets capitalized and leasehold
improvements are amortized over the shorter of their estimated useful lives or
the terms of the respective leases.
Amortization of Intangibles
Costs in excess of net assets of acquired companies ("Goodwill") are being
amortized on the straight-line basis over 15 to 40 years. Trademarks are being
amortized on the straight-line basis over 15 to 35 years. 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 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 fair
value of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock.
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 deficit" in "Member's deficit."
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 is included in the consolidated Federal income tax return of
Triarc Parent. Pursuant to tax-sharing agreements with Triarc Parent, the
Company provides for Federal income taxes on the same basis as if it filed a
separate consolidated return. 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 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 Company operates its
businesses principally throughout the United States.
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 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.
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 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 of $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."
1998 Transaction
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,
including $6,953,000 paid in 1997. The purchase price for the Snapple
Acquisition was funded from (1) $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 5), entered into by Snapple, Mistic, Triarc Beverage
Holdings and, as amended as of August 15, 1998, Stewart's and (2) $75,000,000
from the issuance of 75,000 shares of redeemable preferred stock (see Note 8) of
Triarc Beverage Holdings to Triarc Parent.
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 Triarc Parent 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 Parent common stock with a value of $37,409,000 as of November
25, 1997 (based on the closing price of such common stock on such date of
$23.875 per share), issued in exchange for all of the then outstanding stock of
Stewart's, (2) 154,931 options to acquire Triarc Parent common stock, 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).
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):
<TABLE>
<CAPTION>
Balance at Balance at Balance at Balance at
January 1, 1997 December 28, 1998 January 3, 1999 Reclassi- January 2,
-------------------- -------------------- --------------------
1997 (a) Payments Adjustments 1997 Payments Adjustments 1999 Payments Adjustments fications 2000
-------- -------- ----------- ---- -------- ----------- ---- -------- ----------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equipment
operating
lease
obligations... $ 9,650 $(2,313) $ (364)(b) $6,973 $(2,873) $ 150(b) $ 4,250 $(2,780) $ 94(b) $ (1,564)(c) $ -- (c)
Vacation and
personal or
medical
absence
entitlement
costs......... 1,059 (1,059) -- -- -- -- -- -- -- -- --
------- ------- ----- ------- ------- ----- ------- ------- ---- ------- -----
$10,709 $(3,372) $(364) $ 6,973 $(2,873) $ 150 $ 4,250 $(2,780) $ 94 $(1,564) $ --
======= ======= ===== ======= ======= ===== ======= ======= ==== ======= =====
---------------
</TABLE>
(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.
In 1997 the Company recorded a $4,089,000 loss on the sale included in
"Gain (loss) on sale of businesses, net" (see Note 13) representing (1) a
$1,457,000 provision for the fair value of Triarc Parent'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 15). 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 pre-tax 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 had 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 had made all scheduled repayments through such dates), have been
guaranteed by Triarc Parent. 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 Parent.
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 pre-tax gain of $2,796,000 which, commencing in the third
quarter of 1997, is being recognized pro rata between the gain on sale and the
carrying value of the assets sold based on the cash proceeds and collections
under the Kelco Note since realization of the Kelco Note was not at the date of
sale, and is not yet, fully assured. Accordingly, gains of $576,000, $314,000
and $356,000 were recognized in "Gain (loss) on sale of businesses, net" (see
Note 13) in the accompanying consolidated statements of operations for 1997,
1998 and 1999, respectively.
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):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
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 --
Purchase price (including estimated expenses of $650
adjusted by $251 in 1998) for Stewart's Acquisition
paid by Triarc Parent through the issuance of its
common stock and stock options and "pushed down"
to Stewart's................................................ 40,847 (251) --
---------- ----------- ---------
$ 304,796 $ 3,043 $ 34,336
========== =========== ==========
</TABLE>
(4) 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
Other....................................... 7,140 10,375
--------- --------
70,423 83,117
Less allowance for doubtful accounts........... 5,551 5,641
--------- --------
$ 64,872 $ 77,476
========= ========
Substantially all receivables are pledged as collateral for certain debt
(see Note 5).
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 5).
Properties
The following is a summary of the components of properties (in thousands):
Year-End
-------------------------
1998 1999
---- ----
Land.......................................$ 1,911 $ 1,461
Buildings and improvements................. 5,623 2,923
Leasehold improvements..................... 6,628 10,291
Machinery and equipment.................... 35,329 39,521
Leased assets capitalized.................. 431 384
--------- ----------
49,922 54,580
Less accumulated depreciation and
amortization............................ 24,602 29,319
--------- ----------
$ 25,320 $ 25,261
========= ==========
Substantially all properties are pledged as collateral for certain debt
(see Note 5).
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 5).
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 2,901
--------- ---------
6,442 38,589
Less accumulated amortization............. 5,483 7,078
--------- ---------
$ 959 $ 31,511
========= =========
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.....................$ 26,948 $ 30,640
Less accumulated amortization of
deferred financing costs................... 15,208 3,588
-------- --------
11,740 27,052
Other ..................................... 12,164 9,439
-------- --------
$ 23,904 $ 36,491
======== ========
Accrued Expenses
The following is a summary of the components of accrued expenses (in
thousands):
Year-End
------------------
1998 1999
---- ----
Accrued interest..............................$ 19,166 $ 20,965
Accrued promotions............................ 14,922 19,560
Accrued compensation and related benefits..... 13,328 18,896
Accrued production contract losses (a)........ 4,639 3,251
Other ...................................... 29,393 27,901
--------- --------
$ 81,448 $ 90,573
========= ========
-----------
(a) Represents obligations related to the portion of those long-term
production contracts with co-packers, 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.
(5) 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...............................$ -- $ 470,088
10 1/4% senior subordinated notes due 2009........ -- 300,000
9 3/4% senior secured notes refinanced in 1999.... 275,000 --
Former Beverage Credit Agreement term loans
refinanced in 1999............................ 284,333 --
Other............................................. 11,322 8,672
--------- ---------
Total debt................................. 570,655 778,760
Less amounts payable within one year....... 9,678 41,894
--------- ---------
$ 560,977 $ 736,866
========= =========
Aggregate annual maturities of long-term debt, including capitalized lease
obligations, were as follows as of January 2, 2000 (in thousands):
2000................................................... $ 41,894
2001................................................... 10,063
2002................................................... 12,175
2003................................................... 14,247
2004................................................... 14,756
Thereafter............................................. 685,625
---------
$ 778,760
=========
On February 25, 1999 Triarc Consumer Products Group 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 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, (4) pay fees and expenses of $28,657,000 relating to the issuance
of the Notes and the consummation of the Credit Facility (the "Refinancing
Transactions") and (5) pay one-time distributions, including dividends, to
Triarc Parent of the remaining net proceeds from the above borrowings and all
the Company's cash and cash equivalents then on hand in excess of approximately
$2,000,000, which was retained by the Company for working capital purposes. An
additional $1,843,000 of fees and expenses were paid by Triarc Parent on behalf
of the Company and contributed to the Company (see Note 18). The aggregate fees
and expenses of $30,500,000 relating to the issuance of the Notes and the
consummation of the Credit Facility consist of $15,211,000 of fees and expenses,
including commitment fees, paid to the lenders under the Credit Facility,
$9,720,000 of fees paid to the underwriters of the Notes, $4,185,000 of legal,
auditing and accounting fees, $809,000 of printing fees and $575,000 of other
fees. The one-time distributions paid to Triarc Parent 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 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 $11,772,000 (see Note 15).
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 or receive
proceeds from a public equity offering by Triarc Parent, 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.
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. In connection therewith, a $28,349,000 prepayment will be
required in the second quarter of 2000 in respect of the year ended January 2,
2000 and, accordingly, such amount 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 repaid through February 25, 2001.
Under the Credit Agreement, substantially all of the Company's assets,
other than cash and cash equivalents, 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 are
guaranteed (the "Credit Facility Guaranty") by Triarc Consumer Products Group,
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. As a result of such guarantees, condensed consolidating financial
statements of the Company are presented in Note 21 which depict, in separate
columns, the parent companies of each of the issuers of the Notes (Triarc
Consumer Products Group, which as previously indicated was formed January 15,
1999, and Triarc Beverage Holdings), those subsidiaries which are guarantors,
those subsidiaries which are non-guarantors, elimination adjustments and the
consolidated total. Separate financial statements of the guarantor subsidiaries
are not presented because the Company's management has determined that they
would not be material to investors.
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 Triarc Parent. Under the
most restrictive of such covenants, the Company would not be able to pay any
dividends or make any loans or advances to Triarc Parent other than the
aforementioned one-time distributions, including dividends, paid to Triarc
Parent in connection with the Refinancing Transactions. As of January 2, 2000
the Company was in compliance with all of such covenants.
(6) 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, due to Triarc Parent and long-term
debt. The carrying amounts of cash and cash equivalents, accounts payable,
accrued expenses and due to Triarc Parent 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 carrying amounts and fair values of long-term debt (see
Note 5) were as follows (in thousands):
<TABLE>
<CAPTION>
Year-End
----------------------------------------------------
1998 1999
-------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Credit Facility term loans..................................$ -- $ -- $ 470,088 $ 470,088
Notes .................................................... -- -- 300,000 287,250
9 3/4% Senior Notes......................................... 275,000 278,000 -- --
Former Beverage Credit Agreement............................ 284,333 284,333 -- --
Other long-term debt ....................................... 11,322 11,764 8,672 8,754
----------- ----------- ------------ ----------
$ 570,655 $ 574,097 $ 778,760 $ 766,092
=========== =========== ============ ==========
</TABLE>
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 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.
(7) Income Taxes
As discussed in Note 1, the Company is included in the consolidated Federal
income tax return of Triarc Parent. Pursuant to former tax-sharing agreements
(the "Former Tax-Sharing Agreements") between Triarc Parent and each of Triarc
Beverage Holdings (including Stewart's effective August 15, 1998), RC/Arby's and
Stewart's (through August 15, 1998) through January 3, 1999 and a revised tax
sharing agreement (the "Revised Tax-Sharing Agreement) between Triarc Parent and
the Company effective January 4, 1999, the Company provides for Federal income
taxes on the same basis as if separate consolidated returns for Triarc Beverage
Holdings, RC/Arby's and Cable Car were filed through January 3, 1999 and a
separate consolidated return for the Company was filed commencing January 4,
1999. As of January 3, 1999 and January 2, 2000, there were no taxes currently
payable since until January 2, 2000 the Company was in a net operating loss
carryforward position.
The income (loss) before income taxes and extraordinary charges consisted
of the following components (in thousands):
1997 1998 1999
---- ---- ----
Domestic..................$ (24,807) $ 55,050 $ 46,910
Foreign................... 679 221 240
--------- ----------- ----------
$ (24,128) $ 55,271 $ 47,150
========= =========== ==========
The benefit from (provision for) income taxes consisted of the following
components (in thousands):
1997 1998 1999
---- ---- ----
Current:
Federal.........................$ (3,646) $ (11,695) $ (55)
State........................... (1,051) (2,665) (3,416)
Foreign......................... (805) (457) (409)
--------- ----------- ---------
(5,502) (14,817) (3,880)
---------- ----------- ---------
Deferred:
Federal......................... 9,722 (8,407) (16,793)
State........................... 922 (2,060) (999)
--------- ----------- ---------
10,644 (10,467) (17,792)
--------- ----------- ---------
Total......................$ 5,142 $ (25,284) $ (21,672)
========= =========== =========
The current deferred income tax benefit and the net non-current deferred
income tax (liability) resulted from the following components (in thousands):
<TABLE>
<CAPTION>
Year-End
-----------------------
1998 1999
---- ----
<S> <C> <C>
Current deferred income tax benefit:
Accrued employee benefit costs............................................ $ 3,363 $ 5,843
Glass front vending machines written off by Quaker........................ 2,925 2,925
Allowance for doubtful accounts........................................... 2,340 2,374
Inventory obsolescence reserves........................................... 1,210 946
Accrued production contract losses........................................ 1,320 778
Closed facilities reserves................................................ 1,371 630
Accrued interest relating to income tax matters........................... 1,123 --
Accrued lease payments for equipment transferred to RTM................... 1,082 15
Other, net................................................................ 4,200 2,911
--------- ---------
18,934 16,422
--------- ---------
Non-current deferred income tax benefit (liability):
Trademarks basis differences.............................................. (55,038) (55,565)
Reserve for income tax contingencies and other tax matters, net........... (4,221) (2,573)
Federal net operating loss carryforwards and excess income tax
payments under tax-sharing agreements .................................. 39,518 --
Depreciation and other properties basis differences....................... 3,978 4,590
Other intangible assets basis differences................................. (924) (6,812)
Deferred franchise fees................................................... 2,108 2,376
Other, net................................................................ 5,406 1,304
--------- -----------
(9,173) (56,680)
--------- -----------
$ 9,761 $ (40,258)
========= ===========
</TABLE>
The increase in the net deferred income tax benefit (liability) from a net
benefit of $9,761,000 at January 3, 1999 to a net liability of $40,258,000 at
January 2, 2000, or a change of $50,019,000, differs from the provision for
deferred income taxes of $17,792,000 for 1999. Such difference is principally
due to the transfer of $32,719,000 of deferred income tax benefits to Triarc
Parent (see below).
The Revised Tax-Sharing Agreement provides that the Company would continue
to receive benefit for deferred tax assets aggregating $39,518,000 as of January
3, 1999 associated with then existing Federal net operating loss carryforwards
and excess Federal income tax payments made in accordance with the Former
Tax-Sharing Agreements. However, Triarc Parent had the right to cause the
effective transfer of any unutilized benefits from the Company to Triarc Parent,
but only to the extent any such transfer would not result in non-compliance with
the minimum net worth covenant of the Credit Agreement. During 1999, the Company
generated an additional $6,339,000 of such benefits as a result of the
extraordinary charges from the early extinguishment of debt (see Note 15). In
accordance with the Revised Tax-Sharing Agreement, during 1999 the Company
utilized $13,138,000 of such benefits to offset income taxes otherwise payable
on its pre-tax income before extraordinary charges and transferred the remaining
$32,719,000 of such deferred tax benefits to Triarc Parent as if such transfer
were a distribution from the Company to Triarc Parent. In accordance therewith,
the Company recorded a charge to "Accumulated deficit" and a credit to "Deferred
income taxes" of $32,719,000. As of January 2, 2000, the Company no longer has
any net operating loss carryforward benefits available to it under the Revised
Tax Sharing Agreement.
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 before income taxes and
extraordinary charges is reconciled as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Income tax benefit (provision) computed at Federal
statutory rate................................................... $ 8,445 $ (19,345) $ (16,502)
(Increase) decrease in Federal tax provision resulting from:
Amortization of non-deductible Goodwill ...................... (2,471) (3,138) (3,217)
State income taxes, net of Federal income tax effect ......... (84) (3,071) (2,870)
Foreign tax rate in excess of United States Federal
statutory rate and foreign withholding taxes, net
of Federal income tax benefit.............................. (433) (247) (212)
Reversal of provision for income tax contingencies............ -- -- 1,500
Other non-deductible, net..................................... (315) 517 (371)
---------- ---------- ----------
$ 5,142 $ (25,284) $ (21,672)
========== ========== ==========
</TABLE>
The Federal income tax returns of Triarc Parent and its subsidiaries,
including RC/Arby's, have been examined by the Internal Revenue Service (the
"IRS") for the tax years from 1989 through 1992 (the "1989 through 1992
Examination"). Prior to 1999 Triarc Parent resolved and settled certain issues
with the IRS regarding such audit and in July 1999 Triarc Parent resolved all
remaining issues. In connection therewith, the Company paid $4,576,000 during
1997, of which $2,426,000 was the amount of tax due and $2,150,000 was interest
thereon, and no further payments are required. Such amounts were charged to
reserves principally provided in prior years. The IRS has tentatively completed
its examination of the Federal income tax returns of Triarc Parent and its
subsidiaries, including RC/Arby's, for the year ended April 30, 1993 and
transition period ended December 31, 1993 (the "1993 Examination"). In
connection therewith and subject to final processing and approval by the IRS,
Triarc Parent has received notices of proposed adjustments, of which $722,000
would increase the taxable income relating to RC/Arby's, resulting in additional
taxes and accrued interest payable of $434,000 under the Company's tax sharing
agreement with Triarc Parent. Such additional taxes and accrued interest have
been provided for in connection with income tax and related interest contingency
reserves established in prior years. During each of 1997 and 1998 the Company
provided $1,000,000 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
$1,500,000 and $2,828,000, 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 $1,500,000 and the adjustments to interest
accruals were reported as a reduction of "Interest expense" of $2,828,000.
(8) Redeemable Preferred Stock
On May 22, 1997 Triarc Beverage Holdings issued 75,000 shares of its
redeemable cumulative convertible preferred stock, $1.00 par value (the
"Redeemable Preferred Stock") to Triarc Parent for $75,000,000. On August 21,
1997 each of the 75,000 outstanding shares of Redeemable Preferred Stock was
converted into 1/100 of a share as a result of a 1:100 reverse stock split,
resulting in 750 issued and outstanding shares of Redeemable Preferred Stock. On
February 23, 1999 Triarc Parent contributed the Redeemable Preferred Stock to
Triarc Consumer Products Group. The Redeemable Preferred Stock bore a cumulative
annual dividend of 10% on stated value compounded annually for any undeclared
dividends, payable in cash or additional shares of Redeemable Preferred Stock,
if declared by, and at the option of, the Company. The cumulative dividends not
declared or paid of $4,604,000, $7,983,000 and $1,192,000 for 1997, 1998 and
1999 (through February 23, 1999), respectively, were accounted for as increases
in "Redeemable preferred stock" with offsetting charges to "Contributed capital"
since payment of the dividends was not solely in the control of the Company. As
a result of the contribution of the Redeemable Preferred Stock to Triarc
Consumer Products Group the Company credited the $88,779,000 carrying value of
such stock, reflecting the cumulative unpaid dividends of $13,779,000 through
February 23, 1999, to member's deficit.
(9) Member's Deficit
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, Triarc Parent and their affiliates. 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:
<TABLE>
<CAPTION>
Weighted Average
Options Option Price Option Price
------- ------------ ------------
<S> <C> <C> <C>
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
==========
</TABLE>
Stock options 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 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:
Stock Options
Stock Options Outstanding 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
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 Parent, 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 (the "Cash Payment") of $51.34 and $39.40 per share,
respectively, is due to the option holder following the exercise of the stock
options and either (1) the sale by the option holder to the Company 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 is responsible for
the Cash Payment to its employees who are option holders and Triarc Parent is
responsible for the Cash Payment to its employees who are option holders either
directly or through reimbursement to the Company. As disclosed in Note 1, the
Company accounts for stock 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 10
for disclosure 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 the intrinsic value method.
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 price per share paid by Triarc Parent at the time of the
Mistic acquisition 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.
The Company has not recognized any compensation expense for the stock
options granted since it accounts for stock options in accordance with the
intrinsic value method. Had compensation cost for such option grants, including
those options granted to employees of Triarc Parent and affiliates, been
determined in accordance with the fair value method, the Company's pro forma net
income (loss) for 1997, 1998 and 1999 would have been $(22,264,000), $28,277,000
and $9,568,000, respectively. Such pro forma net income (loss) adjusts the net
income (loss) as set forth in the accompanying consolidated statements of
operations to reflect (1) compensation expense for all stock option grants,
including those options reissued in 1999 as a result of equitable adjustments of
option prices, based on the fair value method and (2) the income tax effects
thereof. The fair values of stock options granted on the date of grant were
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions: (1) risk-free interest rate of 6.22%, 5.54% and
5.69% for the 1997, 1998 and 1999 grants, respectively, (2) expected option life
of 7 years, 7 years and 5.7 years, respectively and (3) dividends would not be
paid. Since the Triarc Beverage Common Stock is not publicly traded, volatility
was not applicable. The weighted average expected option life of 5.7 years for
the 1999 grants has been adjusted to reflect the remaining expected life of the
144,675 reissued options for which the original vesting dates were not changed.
The above 1999 pro forma amounts may not be representative of the effects on net
income in 2000 because of the combined effect of there being no option grants
prior to 1997 when the plan was adopted and the approximate three-year vesting
period.
(10) Capital Structure Reorganization Related Charge
As disclosed in Note 9, the Company must make cash payments of $51.34 and
$39.40 per share for stock options granted in 1997 and 1998, respectively, upon
the Cash Payment Events. The capital structure reorganization related charge of
$3,348,000 in 1999 represents the vested portion as of January 2, 2000 of the
aggregate maximum $4,076,000 cash payments to be paid by the Company to its
employees who are option holders and recognized over the full vesting period
assuming all remaining outstanding stock options either have vested or will
become vested, net of credits for forfeitures of non-vested stock options of
terminated employees.
(11) 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):
<TABLE>
<CAPTION>
<S> <C>
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)...................................................................... 4,000
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
----------
$ 33,815
==========
</TABLE>
(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 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 described below, 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.
The Company, through its ownership of 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 Beverages $8,230,000. The settlement amounts were fully
provided for in a combination of (1) $6,530,000 of the $6,697,000 of
legal reserves described above, (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).
(d) In connection with the Snapple Acquisition and the related refinancing
of the debt of Mistic, Snapple and Mistic paid a $4,000,000 fee to Triarc Parent
on May 22, 1997 in order to compensate Triarc Parent for its recurring indirect
costs incurred while providing assistance in consummating these transactions.
(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
$6,697,000 of the additional reserves for legal matters, 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 $549,000 resulted from changes in the
estimated amount of the additional Snapple reserves for doubtful accounts
originally provided during 1997 (see (b) above). As of January 2, 2000, all of
the other additional reserves for doubtful accounts had been fully utilized to
write off related receivables.
(12) Facilities Relocation and Corporate Restructuring Charges (Credits)
The components of facilities relocation and corporate restructuring charges
(credits) in 1997 and 1999 and an analysis of related activity in the facilities
relocation and corporate restructuring accrual are as follows (in thousands):
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
Balance Write-off Balance
January 1, of Related Adjust- December 28,
1997 (a) Provision(b) Payments Assets ments (b) 1997
------- ------------ -------- ------ --------- ----
<S> <C> <C> <C> <C> <C> <C>
Cash obligations:
Employee severance and related
termination costs associated with
The sale of all company-owned
restaurants...........................$ -- $ 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) --
Non-cash charges:
Estimated write-off of equipment in
connection with a Royal Crown plant
closing..................................... 150 -- -- (143) (7) --
Write-off of certain beverage distribution
rights...................................... -- 300 -- (300) -- --
---------- -------- -------- -------- --------- --------
$ 3,142 $ 7,063 $ (6,242) $ (443) $ (266) $ 3,254
========== ======== ======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------
Balance Balance
December 29, Adjust- January 3,
1997 Payments ments (c) 1999
---- -------- --------- ----
<S> <C> <C> <C> <C>
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
========= ========= ====== ========
</TABLE>
<TABLE>
<CAPTION>
1999
-------------------------------------------
Balance Balance
January 3, January 2,
1999 Payments Credits (d) 2000
---- -------- ---------- ----
<S> <C> <C> <C> <C>
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) $ --
========= ========= ====== =======
-----------
</TABLE>
(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 subsidiary headquarters and divisional 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 and (3) the 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).
(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 facilities relocation and corporate
restructuring in 1996 and 1997 which aggregated $14,863,000.
(13) 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 $(533,000) 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 the $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, Inc. ("Select Beverages")
(see below) and (2) $314,000 of additional recognition of deferred gain from the
C&C Sale. The loss in 1999 consisted of an $889,000 reduction to the gain from
the sale of Select Beverages recorded in 1998 (see below) less $356,000 of
additional recognition of deferred gain from the C&C Sale.
The Company owned 20% of Select Beverages until its sale on May 1, 1998. On
May 1, 1998 the Company sold its interest in Select Beverages for $28,342,000,
subject to certain post-closing adjustments. The Company recognized a pre-tax
gain on the sale of Select Beverages during 1998 of $4,702,000, 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 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 $4,702,000 gain recorded in 1998.
(14) Other Income, Net
Other income, net consisted of the following income (expense) components
(in thousands):
1997 1998 1999
---- ---- ----
Interest income..........................$ 1,671 $ 3,754 $ 5,340
Gain on lease termination................ 892 -- 651
Rental income............................ 894 916 129
Gain (loss) on sales of properties....... 1,008 502 (202)
Equity in income (loss) of investees..... 862 (1,222) --
Other, net............................... 205 1,348 864
--------- --------- ----------
$ 5,532 $ 5,298 $ 6,782
========= ========= ==========
The equity in income (loss) of investees consists of the Company's equity in
the income or loss of Select Beverages (see Note 13) and amortization of the
excess of the Company's investment in Select Beverages over the underlying
equity in its net assets in 1998 of $341,000 through the May 1998 sale of Select
Beverages. The Company did not recognize any equity in the income of Rhode
Island Beverages prior to the Company's surrendering such investment in February
1998 since at the date of the Snapple Acquisition the investment in Rhode Island
Beverages, which was owned by Snapple, was expected to be surrendered in
connection with the settlement of the Rhode Island Beverages Matter (see Note
11).
(15) Extraordinary Charges
The 1997 extraordinary charges resulted from the early extinguishment or
assumption of (1) the Mortgage Notes and Equipment Notes assumed by RTM in
connection with the RTM Sale (see Note 3) and (2) obligations under a former
bank facility of Mistic refinanced in connection with entering into the Former
Beverage Credit Agreement (see Note 5). The 1999 extraordinary charges resulted
from the early extinguishment of (1) obligations under the Former Beverage
Credit Agreement and (2) the 9 3/4% Senior Notes (see Note 5). The components of
such extraordinary charges were as follows (in thousands):
1997 1999
---- ----
Write-off of previously unamortized deferred
financing costs.................................$ 4,839 $ 10,792
Payment of redemption premium...................... -- 7,662
Write-off of previously unamortized
interest rate cap agreement costs .............. -- 146
---------- ----------
4,839 18,600
Income tax benefit................................. 1,885 6,828
---------- ----------
$ 2,954 $ 11,772
========== ==========
(16) 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 Triarc Parent (the "Plan" and, collectively with the Former Plans, the
"Plans") in which the Company was also participating. 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 a limited number of employees working 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 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
$1,181,000, $1,470,000 and $1,756,000 in 1997, 1998 and 1999, respectively.
The Company maintains a defined benefit plan 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.
Triarc Parent has granted stock options to purchase Class A common stock of
Triarc Parent (the "Triarc Parent Common Stock") to certain key employees of the
Company under several equity plans of Triarc Parent. Such options include
610,000 granted at exercise prices below the fair market values of the Triarc
Parent Common Stock at the dates of grant. Compensation expense for the excess
of the fair market values at the date of grant over the exercise prices is being
recognized over the applicable vesting period. Reversals of prior charges
resulting from forfeitures of certain of these options in connection with
employee terminations (the "Forfeiture Adjustments") reduce compensation
expense. Such compensation expense, which is charged to the Company rather than
Triarc Parent since the key employees who were granted the options provide
services to the Company and not to Triarc Parent, aggregated $144,000 (net of
$325,000 of Forfeiture Adjustments), $287,000 (net of $14,000 of Forfeiture
Adjustments) and $88,000 (net of $17,000 of Forfeiture Adjustments) for 1997,
1998 and 1999, respectively, and is included in "General and administrative" in
the accompanying consolidated statements of operations. As of January 2, 2000
there remains $18,000 to be recognized as compensation expense, before any
Forfeiture Adjustments, in the first quarter of 2000 when the remaining
outstanding below market options will become fully vested.
(17) 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........... $ 14,952 $ 7,463 $ 6,729
Contingent rentals........ 204 -- --
---------- ----------- ---------
15,156 7,463 6,729
Less sublease income...... 6,027 4,354 2,986
---------- ----------- ----------
$ 9,129 $ 3,109 $ 3,743
========== =========== ==========
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 $ 7,832 $ 3,168
2001..................................... 46 7,763 2,809
2002..................................... 19 6,504 2,052
2003..................................... 15 6,489 1,804
2004..................................... 12 5,262 1,781
Thereafter............................... 10 24,167 3,781
------ --------- --------
Total minimum payments................. 155 $ 58,017 $ 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.
(18) Transactions with Related Parties
The following is a summary of transactions between the Company and its
related parties (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash dividends paid to Triarc Parent (Note 5).......................... $ -- $ 23,556 $ 204,746
Purchases of raw materials from Triarc Parent (a)...................... 17,159 123,014 153,930
Costs allocated to the Company by Triarc Parent under
management services agreements (b).................................. 9,417 10,500 10,656
Capital contribution of Redeemable Preferred Stock (Note 8)............ -- -- 88,779
Other capital contributions (c)........................................ 30,015 -- 12,056
Transfer of deferred income tax benefits to Triarc Parent as if it
were a distribution (Note 7)........................................ -- -- 32,719
Dividend of receivable from Triarc Parent (d).......................... -- -- 4,954
Sale of promissory notes to Triarc Parent (e).......................... -- -- 2,000
Cumulative dividends on the Redeemable Preferred Stock
recorded but not declared or paid (Note 8).......................... 4,604 7,983 1,192
Compensation costs charged to the Company by Triarc Parent
for below market stock options (Note 16)............................ 144 287 88
Interest income on notes receivable from Triarc Parent (f)............. 230 118 --
Interest expense on notes payable to:
Chesapeake Insurance Company Limited (g)............................ 130 27 --
Triarc Parent (g)................................................... 1,278 12 --
Issuance of Redeemable Preferred Stock (Note 8)........................ 75,000 -- --
Repurchase of $720 principal amount of promissory notes due
from franchisees from SEPSCO, LLC, a subsidiary of
Triarc Parent, at fair value........................................ 690 -- --
Payments to Triarc Parent for usage of aircraft........................ 32 -- --
-------------
</TABLE>
(a) The Company purchases certain raw materials from Triarc Parent at
Triarc Parent's purchase cost from unaffiliated third-party suppliers.
At January 3, 1999 and January 2, 2000, $18,618,000 and $21,543,000,
respectively, for amounts owed for such purchases were included in
"Due to Triarc Companies, Inc." in the accompanying consolidated
balance sheets.
(b) The Company receives from Triarc Parent certain management services,
including legal, accounting, tax, insurance, financial and other
management services, under management services agreements. Until
February 25, 1999 such costs were allocated to the Company by Triarc
Parent based upon the pro rata share of the sum of the greater of
income before income taxes, depreciation and amortization and 10% of
revenues for each of the Company's principal operating subsidiaries to
the aggregate for all of Triarc Parent's principal operating
subsidiaries, except that such costs paid by Mistic through May 22,
1997 were limited to amounts permitted under a former Mistic bank
facility and such costs paid by Mistic and Snapple commencing May 22,
1997 and Stewart's commencing August 15, 1998 were limited to amounts
permitted under the Former Beverage Credit Agreement. In connection
with the Refinancing Transactions, on February 25, 1999 the Company
entered into two (one each with respect to the combined beverage
businesses of Triarc Consumer Products Group (the "Triarc Beverage
Group") and Arby's) amended management services agreements with Triarc
Parent. The agreements provide for annual fixed fees of $6,700,000 for
Triarc Beverage Group and $3,800,000 for Arby's plus, commencing
January 1, 2000, annual cost of living adjustments. Management of the
Company believes that such allocation method through February 25, 1999
was reasonable. Further, management of the Company believes that such
allocations or charges, as applicable, approximate the costs that
would have been incurred by the Company on a stand alone basis.
(c) In 1997 Mistic was prohibited from paying $625,000 of management
services fees described in (b) above under the terms of its former
bank facility and, accordingly, such amount was accounted for as a
capital contribution from Triarc Parent in 1997. In May 1997, in
connection with the RTM Sale, ARHC and AROC issued 950 of each of
their common shares (approximately 49% of the common stock after such
issuances) to Triarc Parent in exchange for aggregate consideration of
$31,999,000 consisting of cash of $6,211,000 and forgiveness of the
then outstanding principal amount of $23,150,000, plus related accrued
interest of $2,638,000, under a note payable by the Company to Triarc
Parent as of May 5, 1997. Triarc Parent's 49% minority interest in the
equity of ARHC and AROC, amounting to $2,472,000 as of January 3,
1999, is included in "Deferred income and other liabilities" in the
accompanying consolidated balance sheet as of that date. The excess of
$29,390,000 of the consideration for the stock issued to Triarc Parent
of $31,999,000 over such minority interest of $2,609,000 as of May 5,
1997 was credited to "Contributed capital". The 49% minority interest
in the losses of ARHC and AROC for the period from May 5, 1997 through
December 28, 1997, the year ended January 3, 1999 and the period from
January 4 through February 24, 1999 aggregated $38,000, $99,000 and
$24,000, respectively, and is included as income in "Other income,
net" in the accompanying consolidated statements of operations. On
February 24, 1999 the Company received each of the 49% interests in
ARHC and AROC previously owned by Triarc Parent as a capital
contribution. Such contribution was valued at Triarc Parent's carrying
value of such investments at the date of the contribution of
$2,448,000. Also on February 24, 1999 a payable to Triarc Parent of
$7,765,000 was forgiven as a capital contribution to the Company. Also
during 1999 financing costs of $1,843,000 paid by Triarc Parent on
behalf of the Company in connection with the Refinancing Transactions
were transferred to the Company as a capital contribution from Triarc
Parent.
(d) On March 30, 1999 the Company paid a non-cash dividend to Triarc
Parent representing $4,954,000 of amounts due from Triarc Parent.
(e) In February 1999 the Company sold to Triarc Parent for cash of
$2,000,000 (1) an aggregate $1,950,000 principal amount (original
discounted value of $1,329,000) of promissory notes receivable and (2)
options to acquire up to 20% of the common stock of the companies
which purchased the restaurants, both of which the Company had
received as a portion of the proceeds of the RTM Sale. The options
were not assigned any value when they were acquired. Subsequently,
Triarc Parent sold the promissory notes and options to an affiliate of
the purchasers of the company-owned restaurants for the same
$2,000,000 amount it had paid the Company. Accordingly, the $307,000
excess of the $2,000,000 of proceeds over the $1,693,000 carrying
value of the promissory notes was recorded as "Other income, net."
(f) The Company earned interest income at 11 7/8% on cash advances made to
Triarc Parent under a promissory note receivable.
(g) The Company incurred interest expense at 9 1/2% and 11 7/8% under
promissory notes payable to Chesapeake Insurance Company Limited
("Chesapeake Insurance"), a subsidiary of Triarc Parent until its sale
in December 1998, and Triarc Parent, respectively.
Certain officers and directors of the Company are also officers
and directors of Triarc Parent. See also Notes 3, 5, 8, 9, 11 and
16 with respect to other transactions with related parties.
(19) Legal and Environmental Matters
The Company is involved in litigation, claims and environmental matters
incidental to its businesses. The Company has reserves for legal and
environmental matters aggregating $1,947,000 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.
(20) 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). 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) $33,815,000 of
charges related to post-acquisition transition, integration and changes to
business strategies for the premium beverage segment (see Note 11) and (2)
$7,063,000 of facilities relocation and corporate restructuring charges (see
Note 12), of which $29,000 relates to the premium beverage segment, $1,437,000
relates to the soft drink concentrate segment and $5,597,000 relates to the
restaurant franchising segment. Identifiable assets by segment are those assets
that are used in the Company's operations in each segment. General corporate
assets consist primarily of cash and cash equivalents, deferred financing costs
and, in 1997, deferred income tax benefit (principally resulting from net
operating loss carryforwards of RC/Arby's parent company).
The products and services in each of the Company's segments are relatively
homogeneous and, as such, revenues by product and service have not been
reported. The Company's operations are principally in the United States with
foreign operations representing less than 3% of revenues in 1997, 1998 and 1999.
Accordingly, revenues and assets by geographical area have not been presented
since they are insignificant. In addition, no customer accounted for more than
7% of consolidated revenues in 1997, 1998 or 1999.
The following is a summary of the Company's segment information for 1997,
1998 and 1999 or, in the case of identifiable assets, as of the end of such
years:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues:
Premium beverages.......................................$ 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.......................................$ 7,561 $ 77,825 $ 79,545
Soft drink concentrates................................. 18,504 17,006 21,108
Restaurant franchising.................................. 31,200 43,180 48,998
General corporate....................................... (149) (11) (85)
------------- ------------ ------------
Consolidated EBITDA................................. 57,116 138,000 149,566
------------- ------------ ------------
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
------------- ------------ ------------
Consolidated depreciation and amortization.......... 25,244 32,808 32,060
------------- ------------ ------------
Operating profit (loss):
Premium beverages....................................... (8,675) 56,160 56,638
Soft drink concentrates................................. 12,164 8,366 14,123
Restaurant franchising.................................. 28,532 40,677 46,830
General corporate....................................... (149) (11) (85)
------------- ------------ ------------
Consolidated operating profit....................... 31,872 105,192 117,506
Interest expense........................................... (58,019) (60,235) (76,605)
Gain (loss) on sale of businesses, net..................... (3,513) 5,016 (533)
Other income, net.......................................... 5,532 5,298 6,782
------------- ------------ ------------
Consolidated income (loss) before income taxes
and extraordinary charges........................$ (24,128) $ 55,271 $ 47,150
============= ============ ============
Identifiable assets:
Premium beverages.......................................$ 586,731 $ 535,565 $ 570,813
Soft drink concentrates................................. 194,603 171,647 175,175
Restaurant franchising.................................. 53,759 52,267 46,116
------------- ------------ ------------
Total identifiable assets........................... 835,093 759,479 792,104
General corporate assets................................ 18,868 31,491 36,111
------------- ------------ ------------
Consolidated identifiable assets....................$ 853,961 $ 790,970 $ 828,215
============= ============ ============
</TABLE>
(21) Condensed Consolidating Financial Information
The following consolidating financial statements of the Company depict, in
separate columns, the parent companies of each of the issuers of the Notes
(Triarc Consumer Products Group and Triarc Beverage Holdings - collectively, the
"Parent Companies") on a consolidated basis, those subsidiaries which are
guarantors, those subsidiaries which are non-guarantors, elimination adjustments
and the consolidated total.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEETS
January 3, 1999
---------------------------------------------------------------------
Parent Non-
Companies Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 1 $ 71,335 $ 1,456 $ -- $ 72,792
Receivables................................ -- 64,260 612 -- 64,872
Inventories................................ -- 45,446 1,315 -- 46,761
Deferred income tax benefit................ -- 18,934 -- -- 18,934
Prepaid expenses and other
current assets.......................... -- 7,281 26 -- 7,307
----------- ----------- ---------- ----------- -----------
Total current assets.................. 1 207,256 3,409 -- 210,666
Investment in subsidiaries.................. 42,865 9,901 -- (52,766) --
Intercompany receivables.................... -- 1,077 6,067 (7,144) --
Properties.................................. -- 21,543 3,777 -- 25,320
Unamortized costs in excess of net
assets of acquired companies............... -- 268,215 -- -- 268,215
Trademarks.................................. -- 261,906 -- -- 261,906
Other intangible assets..................... -- 959 -- -- 959
Deferred costs and other assets............. -- 23,892 12 -- 23,904
----------- ----------- ---------- ----------- -----------
$ 42,866 $ 794,749 $ 13,265 $ (59,910) $ 790,970
=========== =========== ========== =========== ===========
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt.......... $ -- $ 9,678 $ -- $ -- $ 9,678
Accounts payable........................... -- 36,463 530 -- 36,993
Accrued expenses........................... -- 79,724 1,724 -- 81,448
Due to Triarc Companies, Inc............... -- 29,082 -- -- 29,082
----------- ----------- ---------- ----------- -----------
Total current liabilities.............. -- 154,947 2,254 -- 157,201
Long-term debt.............................. -- 560,977 -- -- 560,977
Intercompany payables....................... -- 6,067 1,077 (7,144) --
Deferred income taxes....................... -- 9,140 33 -- 9,173
Deferred income and other liabilities....... -- 20,753 -- -- 20,753
Redeemable preferred stock.................. 87,587 -- -- -- 87,587
Member's equity (deficit):
Common stock............................... -- 4 526 (530) --
Contributed capital........................ 106,269 197,886 9,533 (207,419) 106,269
Accumulated deficit........................ (150,732) (154,767) 168 154,599 (150,732)
Accumulated other comprehensive deficit.... (258) (258) (326) 584 (258)
----------- ---------- ----------- ----------- -----------
Total member's equity (deficit)........ (44,721) 42,865 9,901 (52,766) (44,721)
----------- ---------- ----------- ----------- -----------
$ 42,866 $ 794,749 $ 13,265 $ (59,910) $ 790,970
=========== ========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
January 2, 2000
-----------------------------------------------------------------------
Parent Non-
Companies Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 104 $ 58,779 $ 1,290 $ -- $ 60,173
Receivables................................ -- 76,415 1,061 -- 77,476
Inventories................................ -- 60,033 1,703 -- 61,736
Deferred income tax benefit................ -- 16,422 -- -- 16,422
Prepaid expenses and other
current assets.......................... -- 6,344 18 -- 6,362
----------- ----------- ---------- ----------- -----------
Total current assets................ 104 217,993 4,072 -- 222,169
Investment in subsidiaries.................. -- 11,032 -- (11,032) --
Intercompany receivables.................... 7,549 5,033 7,244 (19,826) --
Properties.................................. -- 21,540 3,721 -- 25,261
Note receivable from RC/Arby's.............. 300,000 (300,000) -- -- --
Unamortized costs in excess of net
assets of acquired companies............... -- 261,666 -- -- 261,666
Trademarks.................................. -- 251,117 -- -- 251,117
Other intangible assets..................... -- 31,511 -- -- 31,511
Deferred costs and other assets............. 12,368 24,110 13 36,491
----------- ----------- ---------- ----------- -----------
$ 320,021 $ 524,002 $ 15,050 $ (30,858) $ 828,215
=========== =========== ========== =========== ===========
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt.......... $ -- $ 41,894 $ -- $ -- $ 41,894
Accounts payable........................... 45 34,779 573 -- 35,397
Accrued expenses........................... 12,368 75,473 2,732 -- 90,573
Due to Triarc Companies, Inc............... 72 22,519 -- -- 22,591
----------- ----------- ---------- ----------- -----------
Total current liabilities........... 12,485 174,665 3,305 -- 190,455
Long-term debt.............................. 300,000 436,866 -- -- 736,866
Intercompany payables....................... 4,357 14,793 676 (19,826) --
Accumulated reductions in stockholders'
equity of subsidiaries in excess of
investments................................ 177,010 -- -- (177,010) --
Deferred income taxes....................... -- 56,643 37 -- 56,680
Deferred income and other liabilities....... 54 18,045 -- -- 18,099
Member's equity (deficit):
Common stock............................... -- 4 526 (530) --
Contributed capital........................ -- 43,744 9,533 (53,277) --
Accumulated deficit........................ (173,533) (220,406) 1,315 219,091 (173,533)
Accumulated other comprehensive
deficit................................. (352) (352) (342) 694 (352)
----------- ----------- ---------- ----------- -----------
Total member's equity (deficit)..... (173,885) (177,010) 11,032 165,978 (173,885)
----------- ----------- ---------- ----------- -----------
$ 320,021 $ 524,002 $ 15,050 $ (30,858) $ 828,215
=========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 28, 1997
---------------------------------------------------------------------
Parent Non-
Companies Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales.................................. $ -- $ 614,516 $ 15,105 $ -- $ 629,621
Royalties, franchise fees and
other revenues.......................... -- 66,556 (25) -- 66,531
----------- ----------- ---------- ----------- -----------
-- 681,072 15,080 -- 696,152
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization........................ -- 322,597 8,794 -- 331,391
Advertising, selling and distribution...... -- 178,882 4,339 -- 183,221
General and administrative................. -- 81,060 2,486 -- 83,546
Depreciation and amortization, excluding
amortization of deferred financing
costs................................... -- 25,219 25 -- 25,244
Charges related to post-acquisition
transition, integration and changes to
business strategies..................... -- 33,815 -- -- 33,815
Facilities relocation and corporate
restructuring charges................... -- 7,063 -- -- 7,063
----------- ----------- ---------- ----------- -----------
-- 648,636 15,644 -- 664,280
----------- ----------- ---------- ----------- -----------
Operating profit (loss)................. -- 32,436 (564) -- 31,872
Interest expense............................ -- (58,019) -- -- (58,019)
Loss on sale of businesses, net............. -- (3,493) (20) -- (3,513)
Other income, net........................... -- 4,244 1,288 -- 5,532
Equity in income (losses) of subsidiaries
before extraordinary charge.............. (18,986) 292 -- 18,694 --
----------- ----------- ---------- ----------- -----------
Income (loss) before income taxes and
extraordinary charge................ (18,986) (24,540) 704 18,694 (24,128)
Benefit from (provision for) income taxes -- 5,554 (412) -- 5,142
----------- ----------- ---------- ----------- -----------
Income (loss) before extraordinary
charge.............................. (18,986) (18,986) 292 18,694 (18,986)
Extraordinary charge........................ (2,954) (2,954) -- 2,954 (2,954)
----------- ----------- ---------- ----------- -----------
Net income (loss)........................ $ (21,940) $ (21,940) $ 292 $ 21,648 $ (21,940)
=========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 3, 1999
--------------------------------------------------------------------
Parent Non-
Companies Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales.................................. $ -- $ 719,116 $ 16,320 $ -- $ 735,436
Royalties, franchise fees and
other revenues.......................... -- 79,599 1 -- 79,600
----------- ----------- ---------- ----------- -----------
-- 798,715 16,321 -- 815,036
----------- ----------- ---------- ----------- -----------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization........................ -- 377,136 10,858 -- 387,994
Advertising, selling and distribution...... -- 195,840 2,037 -- 197,877
General and administrative................. -- 89,953 1,212 -- 91,165
Depreciation and amortization, excluding
amortization of deferred financing
costs................................... -- 32,765 43 -- 32,808
----------- ----------- ---------- ----------- -----------
-- 695,694 14,150 -- 709,844
----------- ----------- ---------- ----------- -----------
Operating profit ....................... -- 103,021 2,171 -- 105,192
Interest expense............................ -- (60,235) -- -- (60,235)
Gain on sale of businesses.................. -- 5,016 -- -- 5,016
Other income, net........................... -- 4,244 1,054 -- 5,298
Equity in net income of subsidiaries........ 29,987 1,988 -- (31,975) --
----------- ----------- ---------- ----------- -----------
Income before income taxes.............. 29,987 54,034 3,225 (31,975) 55,271
Provision for income taxes.................. -- (24,047) (1,237) -- (25,284)
----------- ----------- ---------- ----------- -----------
Net income.............................. $ 29,987 $ 29,987 $ 1,988 $ (31,975) $ 29,987
=========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 2, 2000
---------------------------------------------------------------------
Parent Non-
Companies Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales.................................. $ -- $ 758,335 $ 12,608 $ -- $ 770,943
Royalties, franchise fees and
other revenues.......................... -- 83,029 -- -- 83,029
----------- ----------- ---------- ----------- -----------
-- 841,364 12,608 -- 853,972
----------- ----------- ---------- ----------- -----------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization........................ -- 399,205 8,503 -- 407,708
Advertising, selling and distribution...... -- 199,787 1,664 -- 201,451
General and administrative................. 111 91,434 1,364 -- 92,909
Depreciation and amortization, excluding
amortization of deferred financing
costs................................... -- 32,022 38 -- 32,060
Capital structure reorganization related... -- 3,348 -- -- 3,348
Credit related to post-acquisition
transition, integration and changes
to business strategies.................. -- (549) -- -- (549)
Facilities relocation and corporate
restructuring credits................... -- (461) -- -- (461)
----------- ----------- ---------- ----------- -----------
111 724,786 11,569 -- 736,466
----------- ----------- ---------- ----------- -----------
Operating profit (loss) ................ (111) 116,578 1,039 -- 117,506
Interest expense............................ (28,079) (48,523) (3) -- (76,605)
Loss on sale of businesses, net............. -- (533) -- -- (533)
Interest income from RC/Arby's
Corporation................................ 23,592 (23,592) -- -- --
Other income (expense), net................. 1,122 4,824 836 -- 6,782
Equity in net income of subsidiaries before
extraordinary charges...................... 27,705 1,151 -- (28,856) --
----------- ----------- ---------- ----------- -----------
Income before income taxes and
extraordinary charges................. 24,229 49,905 1,872 (28,856) 47,150
Benefit from (provision for) income taxes 1,249 (22,200) (721) -- (21,672)
----------- ----------- ---------- ----------- -----------
Income before extraordinary charges..... 25,478 27,705 1,151 (28,856) 25,478
Extraordinary charges....................... (11,772) (11,772) -- 11,772 (11,772)
----------- ----------- ---------- ----------- -----------
Net income.............................. $ 13,706 $ 15,933 $ 1,151 $ (17,084) $ 13,706
=========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 28, 1997
----------------------------------------------------------------------
Parent Non-
Companies Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities................................. $ -- $ 35,466 $ (26) $ -- $ 35,440
----------- ----------- ---------- ----------- -----------
Cash flows from investing activities:
Acquisition of Snapple Beverage Corp....... (75,000) (232,205) -- -- (307,205)
Cash acquired in other business
acquisitions............................ -- 2,409 -- -- 2,409
Capital expenditures....................... -- (4,204) -- -- (4,204)
Other...................................... -- 3,371 -- -- 3,371
----------- ----------- ---------- ----------- -----------
Net cash used in investing activities....... (75,000) (230,629) -- -- (305,629)
----------- ----------- ---------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt............... -- 303,400 -- -- 303,400
Repayments of long-term debt............... -- (79,901) -- -- (79,901)
Proceeds from issuance of redeemable
preferred stock......................... 75,000 -- -- -- 75,000
Proceeds from issuance of common stock..... 1 -- -- -- 1
Capital contribution....................... -- 6,211 -- -- 6,211
Net borrowings from (repayments to)
affiliates.............................. -- 3,909 (374) -- 3,535
Deferred financing costs................... -- (11,385) -- -- (11,385)
----------- ----------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities................................. 75,001 222,234 (374) -- 296,861
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................ 1 27,071 (400) -- 26,672
Cash and cash equivalents at beginning
of year.................................... -- 6,223 1,347 -- 7,570
----------- ----------- ---------- ----------- -----------
Cash and cash equivalents at end of year.... $ 1 $ 33,294 $ 947 $ -- $ 34,242
=========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 3, 1999
---------------------------------------------------------------------
Parent Non-
Companies Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities... $ -- $ 58,723 $ 381 $ -- $ 59,104
----------- ----------- ---------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of investment
in Select Beverages.................... -- 28,342 -- -- 28,342
Capital expenditures....................... -- (11,107) -- -- (11,107)
Business acquisitions ..................... -- (3,043) -- -- (3,043)
Other...................................... -- 1,579 -- -- 1,579
----------- ----------- ---------- ----------- -----------
Net cash provided by investing activities... -- 15,771 -- -- 15,771
----------- ----------- ---------- ----------- -----------
Cash flows from financing activities:
Dividends.................................. -- (23,556) -- -- (23,556)
Repayments of long-term debt............... -- (14,158) -- -- (14,158)
Net borrowings from affiliates............. -- 1,261 128 -- 1,389
----------- ----------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities................................. -- (36,453) 128 -- (36,325)
----------- ----------- ---------- ----------- -----------
Net increase in cash and cash equivalents -- 38,041 509 -- 38,550
Cash and cash equivalents at beginning
of year.................................... 1 33,294 947 -- 34,242
----------- ----------- --------- ------------ -----------
Cash and cash equivalents at end of year $ 1 $ 71,335 $ 1,456 $ -- $ 72,792
=========== =========== ========= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 2, 2000
---------------------------------------------------------------------
Parent Non-
Companies Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities................................ $ 14,165 $ 59,569 $ (157) $ (15,933) $ 57,644
----------- ----------- ---------- ----------- -----------
Cash flows from investing activities:
Business acquisitions...................... -- (34,336) -- -- (34,336)
Capital expenditures....................... -- (8,516) (9) -- (8,525)
Loan to RC/Arby's.......................... (300,000) -- -- 300,000 --
Dividends from subsidiaries in excess
of equity in net income of subsidiaries.. 202,350 -- -- (202,350) --
Other...................................... -- (467) -- -- (467)
----------- ----------- ---------- ----------- ------------
Net cash used in investing activities....... (97,650) (43,319) (9) 97,650 (43,328)
------------ ----------- ---------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt............... 300,000 475,000 -- -- 775,000
Repayments of long-term debt............... -- (568,532) -- -- (568,532)
Dividends.................................. (204,746) (218,283) -- 218,283 (204,746)
Deferred financing costs................... (11,666) (16,991) -- -- (28,657)
Loan from Triarc Consumer Products Group... -- 300,000 -- (300,000) --
----------- ----------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities................................ 83,588 (28,806) -- (81,717) (26,935)
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................ 103 (12,556) (166) -- (12,619)
Cash and cash equivalents at beginning
of year.................................... 1 71,335 1,456 -- 72,792
----------- ----------- ---------- ----------- -----------
Cash and cash equivalents at end of year... $ 104 $ 58,779 $ 1,290 $ -- $ 60,173
=========== =========== ========== =========== ===========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10, 11, 12 AND 13
Not applicable.
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 Sheet (Parent Company Only) --
as of January 2, 2000; Condensed Statement of
Operations (Parent Company Only) -- for the period
from inception, January 15, 1999, through January 2,
2000; Condensed Statement of Cash Flows (Parent
Company Only) -- for the period from inception,
January 15, 1999, through 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 not applicable.
3. Exhibits:
Copies of the following exhibits are available at a charge of $.25 per page
upon written request to the
<PAGE>
Secretary of Triarc Consumer Products Group at 280 Park Avenue, New York, New
York 10017.
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------
3.1 -- Certificate of Formation of Triarc Consumer Products Group,
LLC ("TCPG"), as currently in effect, incorporated herein by
reference to Exhibit 3.1 to Registration Statement on Form
S-4, filed by TCPG and Triarc Beverage Holdings Corp.
("TBHC"), dated May 17, 1999 (SEC Registration Nos. 333-78625
and 333-78625-01 through 333-78625-28).
3.2 -- Limited Liability Company Agreement of TCPG, incorporated
herein by reference to Exhibit 3.30 to Registration Statement
on Form S-4, filed by TCPG and TBHC, dated May 17, 1999 (SEC
Registration Nos. 333-78625, and 333-78625-01 through
333-78625-28).
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
Companies, Inc.'s Registration Statement on Form S-4 dated
October 22, 1997 (SEC file no. 1-2207).
4.2 -- 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 Companies Current Report on Form 8-K
dated March 11, 1999 (SEC file no. 1-2207).
4.3 -- Indenture dated of February 25, 1999 among TCPG and 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 Companies' Current Report on Form 8-K
dated March 11, 1999 (SEC file no. 1-2207).
4.4 -- 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
Companies' Current Report on Form 8-K dated March 11, 1999
(SEC file no. 1-2207).
4.5 -- 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 Companies' Current Report on Form 8-K
dated April 1, 1999 (SEC file no. 1-2207).
4.6 -- 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).
4.7 -- 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).
4.8 -- 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
<PAGE>
by reference to Exhibit 4.1 to Triarc Companies' Current
Report on Form 8-K dated March 30, 2000 (SEC file no. 1-2207).
4.9 -- 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 Companies' Current Report
on Form 8-K dated March 30, 2000 (SEC file no. 1-2207).
10.1 -- 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 Companies' Registration Statement on Form S-4 dated
March 11, 1994 (SEC file no. 1-2207).
10.2 -- Form of Indemnification Agreement, between TCPG and certain
officers, directors, and employees of TCPG, incorporated
herein by reference to Exhibit 10.39 to Amendment No. 4 to
Registration Statement on Form S-4, filed by TCPG and TBHC,
dated December 10, 1999 (SEC Registration Nos. 333-78625 and
333-78625-01 through 333-782625-28).
10.3 -- 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
Companies' Current Report on Form 8-K/A dated March 16, 1998
(SEC file no. 1-2207).
10.4 -- 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
Companies' Current Report on Form 8-K/A dated March 16, 1998
(SEC file no. 1-2207).
10.5 -- 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
Companies, incorporated herein by reference to Exhibit 10.31
to Triarc Companies' Registration Statement on Form S-4 dated
October 22, 1997 (SEC file no. 1-2207).
10.6 -- Triarc Beverage Holdings Corp. 1997 Stock Option Plan (the
"TBHC Option Plan"), incorporated herein by reference to
Exhibit 10.1 to Triarc Companies' Current Report on Form 8-K
dated March 16, 1998 (SEC file no. 1-2207).
10.7 -- Form of Non-Qualified Stock Option Agreement under the TBHC
Option Plan, incorporated herein by reference to Exhibit 10.2
to Triarc Companies' Current Report on Form 8-K dated March
16, 1998 (SEC file no. 1-2207).
10.8 -- 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).
10.9 -- 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).
10.10-- Amendment No. 1 to Triarc Beverage Holdings Corp. 1997 Stock
Option Plan, incorporated herein by reference to Exhibit
10.36 to Amendment No. 1 to Registration Statement on
Form S-4, filed by TCPG and TBHC, dated August 3, 1999 (SEC
registration nos. 333-78625 and 333-78625-01 through
333-78625-28).
10.11-- 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 Companies' Current Report
on Form 8-K dated January 21, 2000 (SEC file no. 1-2207).
27.1 -- Financial Data Schedule for the fiscal year ended January 2,
2000, submitted to the Securities and Exchange Commission in
electronic format.*
<PAGE>
27.2 -- Financial Data Schedule for the fiscal years ended December
28, 1997 and January 3, 1999, submitted to the Securities and
Exchange Commission in electronic format.*
- -----------------------
* Filed herewith
(B) Reports on Form 8-K:
None
<PAGE>
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 CONSUMER PRODUCTS GROUP, LLC
(Registrant)
NELSON PELTZ
------------
NELSON PELTZ
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Dated: April 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on April 13, 2000 by the following persons on
behalf of the registrant in the capacities indicated.
SIGNATURE TITLES
- ------------------ --------------------------------------
Chairman and Chief Executive Officer
Nelson Peltz and Manager (Principal Executive Officer)
- ----------------------------
Nelson Peltz
President and Chief Operating Officer, and
Peter W. May Manager (Principal Operating Officer)
- ----------------------------
Peter W. May
Executive Vice President and Chief Financial
John L. Barnes, Jr. Officer, and Manager (Principal Financial
- ---------------------------- Officer)
John L. Barnes, Jr.
Vice President and Chief Accounting Officer
Fred H. Schaefer (Principal Accounting Officer)
- ----------------------------
Fred H. Schaefer
<PAGE>
SIGNATURE TITLES
- ------------------ --------------------------------------
Eric D. Kogan Manager
- ----------------------------
Eric D. Kogan
Brian L. Schorr Manager
- ----------------------------
Brian L. Schorr
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
Independent Auditors' Report
Schedule 1 -- Condensed Balance Sheet (Parent Company
Only) -- as of January 2, 2000; Condensed
Statement of Operations (Parent Company
Only) -- for the period from inception,
January 15, 1999, through January 2,
2000; Condensed Statement of Cash Flows
(Parent Company Only) -- for the period from
inception, January 15, 1999, through
January 2, 2000 (1)
Schedule II -- Qualifying Accounts for
the fiscal years ended December 28, 1997,
January 3, 1999 and January 2, 2000
All other financial statement schedules have been omitted since they are not
applicable.
(1) Triarc Consumer Products Group, LLC (Parent Company) was formed on
January 15, 1999 and commenced operations on February 23, 1999 with the
acquisition through a capital contribution of all of the capital stock
previously owned directly or indirectly by Triarc Companies, Inc. of
RC/Arby's Corporation, Triarc Beverage Holdings Corp. and Stewart's
Beverages, Inc. and their subsidiaries. See Note 1 to the consolidated
financial statements included elsewhere herein for additional
disclosures regarding the basis of presentation of the financial
statements. As a result, the Parent Company had no operations prior to
February 23, 1999 and no prior years' comparative financial statements
are applicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES
To the Board of Managers and Member of
TRIARC CONSUMER PRODUCTS GROUP, LLC:
New York, New York
We have audited the consolidated financial statements of Triarc Consumer
Products Group, LLC 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
accompanying index to financial statement schedules 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
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
TRIARC CONSUMER PRODUCTS GROUP, LLC (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
(In thousands)
January 2,
2000
----------
ASSETS
<S> <C>
Current assets:
Cash ............................................................................................$ 12
Due from subsidiary ............................................................................. 3,373
--------------
Total current assets....................................................................... 3,385
10.33% note receivable from RC/Arby's Corporation due 2009.......................................... 300,000
Deferred financing costs ........................................................................... 12,368
--------------
$ 315,753
==============
LIABILITIES AND MEMBER'S DEFICIT
Current liabilities:
Accounts payable.................................................................................$ 45
Due to subsidiary and other affiliate............................................................ 215
Accrued expenses................................................................................. 12,368
--------------
Total current liabilities.................................................................. 12,628
--------------
10 1/4% senior subordinated notes due 2009 (a)...................................................... 300,000
Accumulated reductions in stockholders' equity of subsidiaries in excess of investments (b)......... 177,010
Commitments and contingencies
Member's deficit:
Accumulated deficit.............................................................................. (173,533)
Accumulated other comprehensive deficit.......................................................... (352)
--------------
Total member's deficit .................................................................... (173,885)
--------------
$ 315,753
==============
</TABLE>
(a) These notes mature in 2009 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 the direct and indirect owned
subsidiaries of Triarc Consumer Products Group, LLC. 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.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I (Continued)
TRIARC CONSUMER PRODUCTS GROUP, LLC (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF OPERATIONS
(In thousands)
For the Period
from Inception,
January 15, 1999,
through
January 2, 2000
---------------
<S> <C>
Revenues and income:
Equity in income of subsidiaries before extraordinary charges....................................... $ 27,705
Interest income from RC/Arby's Corporation.......................................................... 23,592
Interest income other than from subsidiaries........................................................ 1,122
----------
52,419
----------
Costs and expenses:
General and administrative......................................................................... 111
Interest expense................................................................................... 28,079
----------
28,190
----------
Income before income taxes and extraordinary charges............................................ 24,229
Benefit from income taxes ............................................................................. 1,249
----------
Income before extraordinary charges............................................................. 25,478
Equity in extraordinary charges of subsidiaries........................................................ (11,772)
----------
Net income...................................................................................... $ 13,706
==========
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE I (Continued)
TRIARC CONSUMER PRODUCTS GROUP, LLC (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
For the Period
from Inception,
January 15, 1999,
through
January 2, 2000
---------------
<S> <C>
Cash flows from operating activities:
Net income.........................................................................................$ 13,706
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs........................................................ 1,141
Change in due from/to subsidiaries and other affiliate ......................................... (13,186)
Increase in accounts payable and accrued expenses............................................... 12,413
----------
Net cash provided by operating activities.................................................. 14,074
----------
Cash flows from investing activities:
Loan to RC/Arby's Corporation...................................................................... (300,000)
Dividends from subsidiaries in excess of equity in net income of subsidiaries...................... 202,350
----------
Net cash used in investing activities........................................................ (97,650)
----------
Cash flows from financing activities:
Proceeds from long-term debt....................................................................... 300,000
Dividends paid to Triarc Companies, Inc............................................................ (204,746)
Deferred financing costs........................................................................... (11,666)
----------
Net cash provided by financing activities.................................................... 83,588
----------
Net increase in cash and cash at end of period..........................................................$ 12
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
TRIARC CONSUMER PRODUCTS GROUP, LLC 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 28, 1997:
Receivables - allowance for
doubtful accounts:
Trade $ 2,559 $ 6,048 (1) $ 725 (2) $ (1,361) (3) $ 7,971
Affiliate 2,551 975 (1) -- (256) (3) 3,270
---------- ---------- ------- ----------- -----------
Total $ 5,110 $ 7,023 $ 725 $ (1,617) $ 11,241
========== ========== ======= =========== ===========
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) (4) -- (2,796) (3) --
---------- ---------- ------- ----------- -----------
Total $ 11,241 $ 2,387 $ 32 $ (8,109) $ 5,551
========== ========== ======= =========== ===========
Year ended January 2, 2000:
Receivables - allowance for
doubtful accounts:
Trade $ 5,551 $ 2,132 (5) $ 105 (2) $ (2,147) (3) $ 5,641
Affiliate -- (265) (4) -- 265 (4) --
---------- ---------- ------- ----------- -----------
Total $ 5,551 $ 1,867 $ 105 $ (1,882) $ 5,641
========== ========== ======= =========== ===========
</TABLE>
(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) Reversal of provision for doubtful accounts due to recoveries of accounts
previously fully reserved.
(5) Net of $549,000 credited to "Charges (credit) related to post-acquisition
transition, integration and changes to business strategies."
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE ACCOMPANYING FORM 10-K
OF TRIARC CONSUMER PRODUCTS GROUP, LLC FOR THE YEAR ENDED JANUARY 2, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<CIK> 0001086090
<NAME> TRIARC CONSUMER PRODUCTS GROUP, LLC
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JAN-02-2000
<EXCHANGE-RATE> 1
<CASH> 60,173
<SECURITIES> 0
<RECEIVABLES> 83,117
<ALLOWANCES> 5,641
<INVENTORY> 61,736
<CURRENT-ASSETS> 222,169
<PP&E> 54,580
<DEPRECIATION> 29,319
<TOTAL-ASSETS> 828,215
<CURRENT-LIABILITIES> 190,455
<BONDS> 736,866
0
0
<COMMON> 0
<OTHER-SE> (173,885)
<TOTAL-LIABILITY-AND-EQUITY> 828,215
<SALES> 770,943
<TOTAL-REVENUES> 853,972
<CGS> 407,708
<TOTAL-COSTS> 407,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,416
<INTEREST-EXPENSE> 76,605
<INCOME-PRETAX> 47,150
<INCOME-TAX> (21,672)
<INCOME-CONTINUING> 25,478
<DISCONTINUED> 0
<EXTRAORDINARY> (11,772)
<CHANGES> 0
<NET-INCOME> 13,706
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FOR THE YEARS
ENDED JANUARY 3, 1999 AND DECEMBER 28, 1997 AND THE 1998 QUARTERS ENDED
MARCH 29, JUNE 28 AND SEPTEMBER 27 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FORM 10-K OF TRIARC CONSUMER PRODUCTS GROUP, LLC FOR THE FISCAL
YEAR ENDED JANUARY 2, 2000.
</LEGEND>
<RESTATED>
<CIK> 0001086090
<NAME> TRIARC CONSUMER PRODUCTS GROUP, LLC
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-Mos
<FISCAL-YEAR-END> DEC-28-1997 JAN-03-1999
<PERIOD-START> JAN-01-1997 DEC-29-1997
<PERIOD-END> DEC-28-1997 JAN-03-1999
<EXCHANGE-RATE> 1 1
<CASH> 0 72,792
<SECURITIES> 0 0
<RECEIVABLES> 0 70,423
<ALLOWANCES> 0 5,551
<INVENTORY> 0 46,761
<CURRENT-ASSETS> 0 210,666
<PP&E> 0 49,922
<DEPRECIATION> 0 24,602
<TOTAL-ASSETS> 0 790,970
<CURRENT-LIABILITIES> 0 157,201
<BONDS> 0 560,977
0 87,587
0 0
<COMMON> 0 0
<OTHER-SE> 0 (44,721)
<TOTAL-LIABILITY-AND-EQUITY> 0 790,970
<SALES> 629,621 735,436
<TOTAL-REVENUES> 696,152 815,036
<CGS> 331,391 387,994
<TOTAL-COSTS> 331,391 387,994
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 3,794 2,387
<INTEREST-EXPENSE> 58,019 60,235
<INCOME-PRETAX> (24,128) 55,271
<INCOME-TAX> 5,142 (25,284)
<INCOME-CONTINUING> (18,986) 29,987
<DISCONTINUED> 0 0
<EXTRAORDINARY> (2,954) 0
<CHANGES> 0 0
<NET-INCOME> (21,940) 29,987
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
