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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 BEVERAGE HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 65-0748978
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
709 Westchester Avenue
White Plains, New York 10604
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (914) 397-9200
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Securities Registered Pursuant to Section 12(b) of the Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
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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]
The aggregate market value of the outstanding shares of the
registrant's Common Stock (the only class of the registrant's voting securities)
held by non-affiliates of the registrant was approximately $156,000 as of March
31, 2000. There were 850,500 shares of the registrant's Common Stock outstanding
as of March 31, 2000.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this 10-K incorporates information by reference from an
amendment hereto which will be filed no later than 120 days after January 2,
2000.
<PAGE>
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
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; general economic, business and political conditions in the countries
and territories in which the Company operates, including the ability to form
successful strategic business alliances with local participants; changes in, or
failure to comply with, government regulations, including accounting standards,
environmental laws and taxation requirements; 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 99.9% owned by Triarc Consumer Products Group,
LLC, a wholly-owned subsidiary of Triarc Companies Inc., and, through our
subsidiaries, are a leading premium beverage company. 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). Snapple is a leading
marketer and distributor of premium beverages in the United States.
For information regarding the revenues, operating profit and assets for our
business for the fiscal year ended January 2, 2000, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our Consolidated Financial Statements.
We were incorporated in Delaware on April 30, 1997. Our principal
executive offices are located at 709 Westchester Avenue, White Plains, New York
10604 and our telephone number is (914) 397-9200.
BUSINESS STRATEGY
The key elements of our business strategy include (i) focusing our
resources on our premium beverages business, (ii) building a strong operating
management team and (iii) providing strategic leadership and financial resources
to enable the management team to develop and implement a specific,
growth-oriented business plan.
Our senior operating officers have implemented a plan focused on increasing
revenues and improving operating efficiency. In addition, we continuously
evaluate various acquisitions and business combinations to augment our
business. 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.
REFINANCING OF INDEBTEDNESS
On February 25, 1999 we and Triarc Consumer Products Group 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 our
subsidiaries and subsidiaries of Triarc Consumer Products Group entered into a
$535 million senior secured credit facility. In conjunction with such
transactions, on February 23, 1999 Triarc Companies contributed to Triarc
Consumer Products Group all of our outstanding capital stock as well as all of
the outstanding capital stock of 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.
<PAGE>
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,
through Triarc Consumer Products Group, 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 SEGMENT
PREMIUM BEVERAGES (SNAPPLE, MISTIC AND STEWART'S)
Through Snapple, Mistic and Stewart's, we are a leader in the U.S.
wholesale premium beverage market. According to A.C. Nielsen data, in 1999 our
premium beverage brands had the leading share (33%) of premium beverage sales
volume in convenience stores, grocery stores and mass merchandisers.
Snapple
Snapple markets and distributes all-natural ready-to-drink teas, fruit
drinks and juices. During 1999, Snapple case sales represented approximately 80%
of our total premium beverage case sales. Since we acquired Snapple in May 1997,
Snapple has strengthened its distributor relationships, improved promotional
initiatives and significantly increased new product introductions and packaging
innovations. These activities contributed to an increase in Snapple case sales
of 7.3% in 1999 compared to 1998 and 8.4% in 1998 compared to 1997. According
to A.C. Nielsen data, in 1999 Snapple had the leading share (28%) of U.S.
premium beverage sales volume in convenience stores, grocery stores and mass
merchandisers, compared to 10% for the next highest brand.
We have benefited from the continued growth of our core products as
well as the successful introduction of our innovative new beverages. New
product introductions contributed to the growth of our core products by
maintaining a sense of freshness and excitement for the overall product line
and enhancing brand imagery for consumers. Case sales of Snapple's top five
products in 1999, which represent 36% of its domestic case sales, have grown
8.8% since December 31, 1997. In April 1999, Snapple introduced Snapple
Elements(TM), a line of juice drinks and teas enhanced with herbal ingredients
to capitalize on, in part, the growing consumer demand for all-natural,
health-oriented products. Snapple Elements is offered in eight flavors. We
expect to introduce at least two new flavors prior to this summer's selling
season. In 1999, Snapple Elements won Beverage World's Globe Design Gold Award
for best overall product design. In 1999, Snapple also introduced several new
fruit drink flavors, including Diet Orange Carrot and Raspberry Peach. In 1998,
Snapple introduced a successful new line of products called WhipperSnapple (R),
which is a smoothie-like beverage. In 1998, WhipperSnapple was named Convenience
Store News' best new non-alcoholic beverage product and won the American
Marketing Association's Edison award for best new beverage product.
Mistic
Mistic markets and distributes a wide variety of premium beverages,
including fruit drinks, ready-to-drink teas, juices and flavored seltzers under
the Mistic (R) and Mistic Fruit Blast(TM) brand names. In general, Mistic comple
ments 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 intro
duced 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 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.
<PAGE>
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.
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 Stewarts
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.
<PAGE>
International sales accounted for less than 10% of our premium beverage
sales in each of 1997, 1998 or 1999. Since we acquired Snapple, the
international group of our affiliate, Royal Crown Company, Inc., a subsidiary
of RC/Arby's, 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 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
<PAGE>
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.
GENERAL
Trademarks
We own numerous trademarks that are considered material to our
business, 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, and Fountain Classics.
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
Our premium beverage 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.
The Coca-Cola Company and PepsiCo, Inc. are also making increased use
of exclusionary marketing agreements which prevent or limit the marketing and
sale of competitive beverage products at various locations, including colleges,
schools, convenience and grocery store chains and municipal locations,
including city parks and buildings.
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. We cannot
predict the effect on our operations of any pending or future legislation.
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We believe that the operations of our subsidiaries comply substantially with all
applicable governmental rules and regulations.
Environmental Matters
We are governed by federal, state and local environmental laws and
regulations concerning the discharge, storage, handling and disposal of
hazardous or toxic substances. These laws and regulations provide for
significant fines, penalties and liabilities, sometimes without regard to
whether the owner or operator of the property knew of, or was responsible for,
the release or presence of the hazardous or toxic substances. In addition,
third parties may make claims against owners or operators of properties for
personal injuries and property damage associated with releases of hazardous or
toxic substances. We cannot predict what environmental legislation or
regulations will be enacted in the future or how existing or future laws or
regulations will be administered or interpreted. We similarly cannot predict
the amount of future expenditures which may be required to comply with any
environmental laws or regulations or to satisfy any claims relating to
environmental laws or regulations. We believe that our operations comply
substantially with all applicable environmental laws and regulations. Based on
currently available information and our current reserve levels, we do not
believe that the ultimate outcome of any 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 business is seasonal. 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. 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 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 832 employees, including
631 salaried employees and 201 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.
<PAGE>
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, as co-issuer of the 10 1/4% notes. In addition, at January
2, 2000 our total consolidated indebtedness was $678.3 million.
In addition to the above indebtedness, our subsidiaries may borrow an
additional $60.0 million of revolving credit loans under the credit facility,
subject to certain limitations contained in the credit facility, the indenture
and instruments governing our other debt. 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 $378.3 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.
<PAGE>
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.
Competition from Other Beverage Companies
Could Adversely Affect Us
The beverage industry is 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 our major facilities,
as well as our corporate headquarters, as of January 2, 2000:
APPROXIMATE
SQ. FT. OF
FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- ------------------------- -------------- ----------------------
Beverage Group Headquarters
White Plains, NY 1 leased 71,970
Stewart's Headquarters
Denver, CO 1 leased 4,200
Office/Warehouse Facilities 7 leased 627,395
(various locations)
- ------------
Substantially all of the properties used in our businesses are pledged
as collateral under secured debt arrangements.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
In October 1997, Mistic commenced an action against Universal Beverages
Inc., a former Mistic co-packer, Leesburg Bottling & Production, Inc., an
affiliate of Universal, and Jonathan O. Moore, an individual affiliated with
the defendants, in the Circuit Court for Duval County, Florida. The action,
which was subsequently amended to add additional defendants, sought, among other
things, damages relating to the unauthorized sale by the defendants of raw
materials, finished product and equipment that was owned by Mistic but in the
possession of the defendants. In their answer, counterclaim and third party
complaint, some defendants alleged various causes of action against Mistic,
Snapple and Triarc Beverage Holdings and sought damages of $6 million relating
to a purported breach by Snapple and Mistic of an alleged oral agreement to
have Universal and/or Leesburg manufacture Snapple and Mistic products. These
defendants also sought to recover various amounts totaling approximately
$500,000 allegedly owed to Universal for co-packing and other services rendered.
In July 1999, Mistic settled its claims against some defendants who had not
asserted any counterclaims. In August, 1999, Mistic and the remaining defendants
entered into a comprehensive settlement agreement which, among other things,
provided for a dismissal with prejudice of all claims against Mistic, Snapple
and Triarc Beverage Holdings. No payments by Mistic, Snapple or Triarc
Beverage Holdings are required under the settlement agreement.
It is our opinion that the outcome of the matter 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.
There is no public trading market for our common stock. Because we
are a holding company, our ability to meet our cash requirements, including
required interest and principal payments on our indebtedness, is primarily
dependent upon, in addition to our cash, cash equivalents and short term
investments on hand, cash flows from our subsidiaries. Under the terms of our
indenture and credit agreement, our principal subsidiaries are restricted in
their ability to pay dividends or make loans or advances to us. You should
read the information we have included in "Item 1. Business--Refinancing of
Indebtedness," "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
Note 5 to our consolidated financial statements.
As of March 15, 2000, there were three holders of record of our common
stock.
From January 3, 1999 to January 2, 2000, we granted options to
purchase an aggregate of 4,850 shares of our common stock to certain employees,
officers and directors of the Company and Triarc Companies in
reliance upon the exemption provided by Rule 701 of the Securities Act. The
exercise price of all of these options was $311.99 per share. In October, 1999,
we issued 500 shares upon the exercise of existing options. The exercise price
for these options was $107.05. The holders of these options will also be
entitled to a cash payment of $51.34 per share upon the occurrence of certain
events specified in our 1997 Stock Option Plan, as amended. No underwriting
discounts or commissions were paid, nor was any public offering, in any of
those transactions.
<PAGE>
On February 25, 1999, we and Triarc Consumer Products Group 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 Mill-
rose (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 $5,000 fee to the exchange agent in the exchange
offer. We made the exchange offer solely to satisfy our obligations under a
registration rights agreement and we did not receive any proceeds from the
exchange offer. You should read the information we have included in "Item 1.
Business--Refinancing of Indebtedness."
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data (1)
Year Ended December 31, Year Ended Year Ended Year Ended
------------------------------ December 28, January 3, January 2,
1995 1996 1997 (2) 1999 (2) 2000 (2)
---- ---- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues...................................$ 41,941 $ 131,083 $ 408,841 $ 611,546 $ 651,076
Operating profit (loss).................... 3,610 6,148 (3) (8,676) (4) 56,160 56,638 (6)
Income (loss) before extraordinary
charges.................................. 301 (810) (3) (18,803) (4) 19,158 (5) 8,453 (6)
Extraordinary charges...................... -- -- (1,154) (4) -- (4,876) (6)
Net income (loss).......................... 301 (810) (3) (19,957) (4) 19,158 (5) 3,577 (6)
Cash dividends............................. -- -- -- (23,556) (82,837)
Total assets............................... 111,276 110,137 586,731 536,570 570,905
Long-term debt............................. 58,750 60,000 284,507 282,951 646,009
Redeemable preferred stock................. -- -- 79,604 87,587 96,320
Stockholders' equity (deficit)............. 26,301 26,990 43,999 31,306 (383,782) (7)
</TABLE>
(1) Triarc Beverage Holdings commenced operations on May 22, 1997 with the
concurrent acquisition by Triarc Beverage Holdings of Snapple Beverage
Corp. and the concurrent contribution to Triarc Beverage Holdings by Triarc
Companies, Inc., the Company's indirect parent, of Mistic Brands, Inc.,
which had been acquired by Triarc Parent on August 9, 1995. Effective May
17, 1999, Triarc Consumer Products Group, LLC, a wholly-owned subsidiary of
Triarc Parent, contributed the stock of Stewart's Beverages, Inc., which
had been acquired by Triarc Parent on November 25, 1997, to Triarc Beverage
Holdings. Selected Financial Data for each of the years presented include
Mistic, Triarc Beverage Holdings and Stewart's and their subsidiaries from
their respective dates of formation or acquisition by Triarc Parent since
such entities were under the common control of Triarc Parent. 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 1996 as follows:
$1,450,000 charged to operating loss representing facilities relocation and
corporate restructuring charges; and $886,000 charged to loss before
extraordinary charges and net loss representing the aforementioned
$1,450,000 charged to operating loss less $564,000 of related income tax
benefit.
(4) Reflects certain significant charges recorded during 1997 as follows:
$32,840,000 charged to operating profit representing charges related to
post-acquisition transition, integration and changes to business
strategies; $20,037,000 charged to loss before extraordinary charges
representing the aforementioned $32,840,000 charged to operating profit
less $12,803,000 of related income tax benefit; and $21,191,000 charged to
net loss representing the aforementioned $20,037,000 charged to loss before
extraordinary charges and a $1,154,000 extraordinary charge from the early
extinguishment of debt.
(5) Reflects a significant credit recorded during 1998 as follows: $2,869,000
credited to income before extraordinary charges and net income representing
$4,702,000 of gain on sale of businesses less $1,833,000 of related income
tax provision.
(6) 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 $6,918,000 charged to net income
representing the aforementioned $2,042,000 charged to income before
extraordinary charges and a $4,876,000 extraordinary charge from the early
extinguishment of debt.
(7) Reflects a decrease in stockholders' equity principally resulting from (1)
a non-cash charge of $312,417,000 to receivable from parent related to the
issuance of and accrued interest on the $300,000,000 principal amount of 10
1/4% senior subordinated notes due 2009, see Note 5 to the consolidated
financial statements included elsewhere herein for additional disclosures
regarding this presentation, and (2) cash dividends of $82,837,000.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
We are a leading premium beverage company. Since 1995 we have acquired the
Mistic, Snapple and Stewart's premium beverage brands and are focused on
building the strength of our beverage businesses.
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.
Our business does not require significant capital expenditures because we
own no manufacturing facilities. 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
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 Beverage Holdings Corp., an indirect
99.9% owned subsidiary of Triarc Companies, Inc. which we refer to as Triarc
Parent, commenced operations on May 22, 1997 with the concurrent acquisition by
Triarc Beverage Holdings of Snapple Beverage Corp. and the concurrent
contribution to Triarc Beverage Holdings of Mistic Brands, Inc., acquired by
Triarc Parent prior to January 1, 1997. Effective February 23, 1999, Triarc
Consumer Products Group, LLC acquired through a capital contribution all of the
stock of Triarc Beverage Holdings that previously had been held by Triarc
Parent. Effective May 17, 1999 Triarc Consumer Products Group contributed the
stock of Stewart's Beverages, Inc., acquired by Triarc Parent on November 25,
1997, to Triarc Beverage Holdings. 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 Mistic from January
1, 1997 through May 22, 1997 and of Triarc Beverage Holdings and its
subsidiaries, Snapple, Mistic and effective November 25, 1997, Stewart's, from
May 22, 1997 to January 2, 2000. The consolidated financial position, results of
operations and cash flows of Triarc Beverage Holdings, Mistic before May 22,
1997 and Stewart's before May 17, 1999 and Snapple 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 business, 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.
Results of Operations
1999 Compared with 1998
Revenues
Our revenues increased $39.5 million (6.5%) to $651.1 million 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, principally reflecting an
increased focus on our products as a result of our ownership of this New Jersey
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.
Gross Profit
Our gross profit increased $17.5 million to $268.6 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 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.
Advertising, Selling and Distribution Expenses
Our 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.
General and Administrative Expenses
Our 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.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our 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.
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. We are responsible for the cash payment to
our 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 us. 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.
Interest Expense
Interest expense increased $7.4 million to $36.0 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 $378.7 million,
net of $96.3 million transferred to Royal Crown Company, Inc., an affiliate of
ours, borrowed under a senior bank credit facility and the repayment of $284.3
million under our former credit facility.
Gain (Loss) on Sale of Business
Gain (loss) on sale of business consists of a loss of $0.9 million in
1999 compared with a gain of $4.7 million in 1998. Such amounts represent (1) a
nonrecurring gain in 1998 from the May 1998 sale of our former 20% interest in
Select Beverages, Inc. and (2) a 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 decreased $0.1 million to $1.4 million in 1999. This
decrease was principally due to $0.9 million of lower interest income on cash
equivalents as a result of cash distributions paid to Triarc Parent in the first
quarter of 1999 and $0.4 million of lower rental income due to a decrease in
equipment leasing by Snapple. 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. These decreases were
substantially offset by the $1.2 million nonrecurring equity in the loss of
Select Beverages, Inc. in 1998. We owned 20% of Select Beverages until May 1998
when we sold our 20% interest.
Provision for Income Taxes
The provision for income taxes represented effective rates of 60% for
1999 and 43% for 1998. The effective rate is higher in the 1999 period
principally due to (1) a provision for income tax contingencies recorded in 1999
and (2) the greater impact of the amortization of non-deductible Goodwill in
1999 resulting from lower 1999 pre-tax income, entirely due to higher net
non-operating expenses.
Extraordinary Charges
The extraordinary charges in 1999 aggregating $4.9 million resulted from
the early extinguishment of borrowings under our former credit facility and
consisted of the write-off of previously unamortized (1) deferred financing
costs of $7.9 million and (2) interest rate cap agreement costs of $0.1 million,
less income tax benefit of $3.1 million. There were no extraordinary charges in
1998.
1998 Compared with 1997
We completed two significant transactions during 1997. First, on May 22,
1997 we acquired Snapple. Second, on November 25, 1997 we acquired Stewart's. As
a result, our 1998 results reflect for the entire period the results of
operations of Snapple and Stewart's and our 1997 results reflect the results of
operations of Snapple and Stewart's only from their dates of acquisition.
Because of the two 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
discussion below.
Revenues
Our revenues increased $202.7 million (49.6%) to $611.6 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. 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 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 we sell 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.
Gross Profit
Our gross profit increased $82.2 million to $251.1 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. Giving effect to the adjustments
described above relating to the acquisitions of Snapple and Stewart's, our gross
profit increased $1.3 million principally due to the effect of higher sales
volumes discussed above, and our gross margins decreased to 40% during 1998 from
41% during 1997. The decrease in gross margins was principally due to the
effects of (1) changes in product mix, (2) the aforementioned change in
Snapple's Canadian distribution and (3) $3.3 million of increased provisions for
obsolete inventory. 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.
Advertising, Selling and Distribution Expenses
Our 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 expenses, exclusive of the full period
effect of Snapple and Stewart's, principally due to less costly promotional
programs.
General and Administrative Expenses
Our 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.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our 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.
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 $32.8 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 $2.2 million provision for additional reserves for doubtful
accounts of Snapple 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.
Interest Expense
Interest expense increased $6.3 million to $28.6 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.
Gain (Loss) on Sale of Business
Gain (loss) on sale of business in 1998 consists of a $4.7 million gain
from the May 1998 sale of our 20% interest in Select Beverages. There was no
gain (loss) on sale of businesses in 1997.
Other Income, Net
Other income, net decreased $0.6 million to $1.5 million in 1998
principally due to 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. This effect was partially offset 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 and by $0.6 million of higher interest income on cash equivalents,
exclusive of the full period effect of Snapple, due to higher average amounts of
cash equivalents in 1998 reflecting 1998 cash flows from operations.
Income Taxes
The provision for income taxes in 1998 represented an effective rate of
43% and the benefit from income taxes in 1997 represented an effective rate of
35%. The effective rate is higher in the 1998 period principally due to (1) 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 and (2)
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).
Extraordinary Charges
The 1997 nonrecurring extraordinary charge of $1.2 million resulted from
the early extinguishment of obligations under Mistic's former credit facility
refinanced in connection with the financing of the Snapple acquisition. This
extraordinary charge was comprised of the write-off of $1.9 million of
previously unamortized deferred financing costs less the related income tax
benefit of $0.7 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 $29.3 million during 1999
principally reflecting (1) net income of $3.6 million, (2) non-cash charges of
$45.8 million, principally depreciation and amortization of $25.1 million, a
provision for deferred income taxes of $8.4 million and the write-off of
unamortized deferred financing costs and interest rate cap agreement costs of
$8.0 million relating to the refinancing transactions described below and (3)
other of $2.2 million all partially offset by cash used by changes in operating
assets and liabilities of $22.3 million.
The cash used by changes in operating assets and liabilities of $22.3
million principally reflects increases in receivables of $13.4 million and
inventories of $11.4 million and a decrease in accounts payable and accrued
expenses of $5.8 million. These effects were partially offset by an increase in
due to Triarc Parent and affiliates of $6.9 million and a decrease in prepaid
expenses and other current assets of $1.4 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 premium beverage inventories in late December 1999 to mitigate
the effects of temporary supply disruptions which might have occurred if some of
our suppliers' computer systems were not year 2000 compliant. Accounts payable
and accrued expenses did not increase in proportion with the late December 1999
inventory buildup primarily due to accelerated payments to suppliers in December
1999 compared with December 1998 and an increase in due to Triarc Parent and
affiliates, instead of accounts payable, for raw material purchases made through
Triarc Parent.
We expect continued positive cash flows from operations during 2000.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
a deficit of $2.8 million at January 2, 2000, reflecting a current ratio, which
equals current assets divided by current liabilities, of 1.0:1. Our working
capital decreased $40.3 million from January 3, 1999 principally reflecting the
net effects of the February 25, 1999 refinancing and related transactions
discussed below, most significantly the $23.5 million of amounts, including
dividends, distributed to Triarc Consumer Products Group which came from our
cash and cash equivalents on hand and $12.4 million of accrued interest as of
January 2, 2000 on the 10 1/4% notes discussed below which is paid by Triarc
Consumer Products Group but is also reflected in our accrued expenses, with an
offsetting amount reflected in the "Receivable from parent" component of our
stockholders' deficit, because we are a co-issuer of the 10 1/4% notes. 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 $22.6 million portion
of the excess cash flow prepayment under the credit agreement applicable to our
long-term debt, 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 $390.8 million consisting
of $678.3 million of long- term debt, including current portion, and $96.3
million of redeemable preferred stock less $383.8 million of stockholders'
deficit. Our total capitalization decreased $19.3 million from January 3, 1999
reflecting an increase in our stockholders' deficit of $415.0 million partially
offset by (1) a $387.0 million increase in our long-term debt and (2) an $8.7
million increase in our redeemable preferred stock held by Triarc Consumer
Products Group as of January 2, 2000 representing the accrued but unpaid
dividend requirement for 1999. The increase in stockholders' deficit was
primarily due to (1) a $312.4 million "Receivable from parent" reflected as a
component of stockholders' deficit as of January 2, 2000 described below, (2)
cash dividends of $82.8 million in connection with the refinancing transactions
discussed below, (3) the non-cash transfer of $14.7 million of our deferred tax
assets to Triarc Consumer Products Group also as discussed below and (4) the
$8.7 million dividend requirement on our redeemable preferred stock referred to
above. These factors were partially offset by net income of $3.6 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 and Stewart's, as well as
RC/Arby's Corporation, a wholly-owned subsidiary of Triarc Consumer Products
Group, and Royal Crown Company, Inc., a wholly-owned subsidiary of 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, RC/Arby's
or Royal Crown. They may make revolving loan borrowings of up to 80% of their
eligible accounts receivable plus 50% of their eligible inventories. There were
no borrowings of revolving loans in 1999. At January 2, 2000 there was $51.1
million of borrowing availability to the borrowers under the revolving credit
facility which would be available to us to the extent not already borrowed by
Royal Crown or RC/Arby's and as of January 2, 2000 Royal Crown and RC/Arby's did
not have any borrowings under the revolving credit facility.
We used the proceeds of the borrowings under the term loans together with
$23.5 million of available cash and cash equivalents to (1) repay on February
25, 1999 the $284.3 million outstanding principal amount of term loans under our
former beverage credit facility and $1.5 million of related accrued interest,
(2) transfer $92.5 million of proceeds in conjunction with the transfer of $96.3
million, including $3.8 million relating to the then estimated deferred
financing costs, of obligations under the term loans to Royal Crown, (3) acquire
Millrose, which prior to the transaction acquired certain assets of Mid-State
Beverage, Inc., for $17.5 million, including expenses of $0.2 million, (4) pay
allocated fees and expenses of $17.0 million, including $1.5 million of
post-closing fees and expenses paid principally through Triarc Parent, relating
to the completion of the new credit facility and (5) pay one-time distributions
to Triarc Parent through Triarc Consumer Products Group of $87.2 million,
including (a) cash dividends of $82.8 million, (b) the repayment of $3.6 million
of intercompany amounts due to Triarc Parent and (c) the reimbursement of $0.8
million of the fees and expenses paid through Triarc Parent.
Triarc Beverage Holdings and Triarc Consumer Products Group are co-issuers
of the 10 1/4% notes and both have recorded their obligations under the 10 1/4%
notes as of January 2, 2000 consisting of $300.0 million principal amount as
long-term debt and $12.4 million of related accrued but unpaid interest in
"Accrued expenses." Since it is intended that Triarc Consumer Products Group
will make all principal and interest payments under the 10 1/4% notes, we have
reported a corresponding charge of $312.4 million in "Receivable from parent"
included as a component of stockholders' deficit. These amounts are increased
for interest accrued and reduced to the extent that Triarc Consumer Products
Group makes interest and principal payments on the 10 1/4% notes.
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 our term loans in 2000 are $6.3 million and increase
annually through 2006 with a final payment in 2007. In addition to scheduled
maturities of the term loans, the borrowers 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 the 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, $34.5 million outstanding in our long-term debt 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 $22.6 million
prepayment will be required to be made by any borrower or borrowers in the
second quarter of 2000 in respect of the year ended January 2, 2000. Of the
required prepayment, $22.6 million represents the payment of our long-term debt.
To the extent that we pay more or less than $22.6 million of the excess cash
flow prepayment, that difference will be recorded as a receivable or payable to
Royal Crown. After considering the $22.6 million portion of the prepayment
included in our long-term debt and assuming the lenders under the term B and C
loans accept their pro rata share of such prepayment, the payments in 2000 under
the term loans in our long-term debt will aggregate $28.9 million, including the
$6.3 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
the term B and term C loans, which have $98.9 million and $241.3 million
outstanding in our long-term debt 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 $32.3 million,
including $28.9 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 along with those
of other subsidiaries of Triarc Consumer Products Group, 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, among other subsidiaries of Triarc
Consumer Products Group, Snapple, Mistic and Stewart's and all of their domestic
subsidiaries and (2) the credit facility are guaranteed by Triarc Consumer
Products Group and, among other of its subsidiaries, Triarc Beverage Holdings
and substantially all of the domestic subsidiaries of Snapple, Mistic and
Stewart's. As collateral for the guarantees under the new credit facility, all
of the stock of Snapple, Mistic and Stewart's, among other subsidiaries of
Triarc Consumer Products Group, 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 by the
subsidiaries of Triarc Beverage Holdings to Triarc Beverage Holdings. Under the
most restrictive of these covenants, Snapple, Mistic and Stewart's are unable to
pay any dividends or make any loans or advances to Triarc Beverage Holdings
other than (1) the one-time distributions, including dividends, paid by these
subsidiaries to Triarc Beverage Holdings and, in turn, to Triarc Consumer
Products Group in connection with the refinancing transactions, (2) dividends to
Triarc Beverage Holdings to the extent necessary to allow Triarc Beverage
Holdings or Triarc Consumer Products Group to make scheduled payments on the 10
1/4% notes and (3) dividends paid to Triarc Beverage Holdings and, in turn, to
Triarc Consumer Products Group in an amount not to exceed $0.2 million in any
fiscal year, less any amounts paid by Royal Crown or RC/Arby's, to the extent
necessary to allow Triarc Consumer Products Group to pay certain expenses. While
there are no restrictions applicable to Triarc Beverage Holdings to pay
dividends to Triarc Consumer Products Group, Triarc Beverage Holdings is
dependent upon cash flows from its subsidiaries to pay dividends. We were in
compliance with all of these covenants as of January 2, 2000.
Capital Expenditures
Capital expenditures amounted to $7.4 million during 1999. We expect that
cash capital expenditures will approximate $9.0 million for 2000 for which there
were $1.4 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 through Triarc Consumer Products Group. 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. Under a former tax- sharing agreement with Triarc Parent through January
3, 1999 and an informal arrangement with Triarc Consumer Products Group which,
in turn, has a revised tax-sharing agreement with Triarc Parent effective
January 4, 1999, we are required to pay Federal income taxes to Triarc Parent
through Triarc Consumer Products Group on the same basis as if separate
consolidated returns for Triarc Beverage Holdings were filed. In accordance with
the revised tax-sharing agreement, during 1999 we transferred our remaining
$14.7 million of deferred tax benefits associated with existing Federal net
operating loss carryforwards to Triarc Parent as if such transfer were a
distribution from us through Triarc Consumer Products Group. In accordance
therewith, we recorded a charge to "Accumulated deficit" and a credit to
"Deferred income taxes" of $14.7 million. Accordingly, we did not make any
tax-sharing payments to Triarc Parent or Triarc Consumer Products Group 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.
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 $32.3 million, (2) capital expenditures of approximately
$9.0 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 $22.1 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 the $60.0 million revolving credit facility to the extent not already
borrowed by Royal Crown or RC/Arby's.
Triarc Beverage Holdings
Triarc Beverage Holdings is a holding company which, other than its
investments in subsidiaries and intercompany receivables, has no significant
assets and whose primary liability consists of the $300.0 million principal
amount of 10 1/4% notes co-issued with Triarc Consumer Products Group, which is
the principal obligor. This liability is offset by an equal amount of receivable
from Triarc Consumer Products Group, which is classified in our stockholders'
deficit.
As discussed above, Triarc Beverage Holding's subsidiaries are currently
unable to pay any dividends or make any additional loans or advances to Triarc
Beverage Holdings under the terms of the credit facility described above except
to enable Triarc Consumer Products Group or Triarc Beverage Holdings to make
interest payments under the 10 1/4% notes and to enable Triarc Consumer Products
Group to pay up to $0.2 million of general corporate expenses per year. Triarc
Beverage Holdings does not anticipate any significant cash requirements for
2000.
Legal and Environmental Matters
We are involved in litigation and claims incidental to our businesses. We
have reserves for legal matters of $0.4 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 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 $0.2 million of costs in 1999 in order to become year 2000
compliant, including computer software and hardware costs and related consulting
costs, all of which was capitalized.
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 our business.
Seasonality
Our business is seasonal. The highest revenues occur during the spring and
summer, between April and September and, accordingly, our second and third
quarters reflect the highest revenues and our first and fourth quarters have
lower revenues. 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 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 the current $535.0 million senior
bank credit facility in which we participate with an affiliate 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% and 4% 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..........$ 32,997 $ -- $ 13,001 $ --
Long-term debt............ 291,289 (2,843) 678,310 (4,701)
The cash equivalents are short-term in nature with a maturity of three
months or less when acquired and, as such, a change in interest rates of one
percentage point would not have a material impact on our financial position or
results of operations.
The sensitivity analysis of 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 Stockholders' Equity
(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 Directors and Stockholders of
TRIARC BEVERAGE HOLDINGS CORP.:
White Plains, New York
We have audited the accompanying consolidated balance sheets of Triarc
Beverage Holdings Corp. and subsidiaries (the "Company") as of January 2, 2000
and January 3, 1999, and the related consolidated statements of operations,
stockholders' equity (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 BEVERAGE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
January 3, January 2,
1999 2000
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash (including cash equivalents of $32,997 and $13,001)................................$ 39,578 $ 22,108
Receivables (Note 4).................................................................... 35,892 50,579
Inventories (Note 4).................................................................... 41,563 55,848
Deferred income tax benefit (Note 7).................................................... 11,700 11,276
Prepaid expenses and other current assets............................................... 4,422 2,816
------------ ------------
Total current assets............................................................... 133,155 142,627
Properties (Note 4)......................................................................... 15,998 17,839
Unamortized costs in excess of net assets of acquired companies (Note 4).................... 120,145 119,356
Trademarks (Note 4)......................................................................... 254,340 244,181
Other intangible assets (Note 4)............................................................ 565 31,122
Deferred costs and other assets (Note 4).................................................... 12,367 15,780
------------ ------------
$ 536,570 $ 570,905
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Notes 5 and 6).......................................$ 8,338 $ 32,301
Accounts payable ....................................................................... 33,918 28,063
Accrued expenses (Note 4)............................................................... 35,260 54,978
Due to Triarc Companies, Inc. and affiliates (Notes 7 and 17)........................... 18,158 30,064
------------ ------------
Total current liabilities.......................................................... 95,674 145,406
Long-term debt (Notes 5 and 6).............................................................. 282,951 646,009
Deferred income taxes (Note 7).............................................................. 35,500 61,337
Other liabilities........................................................................... 3,552 5,615
Redeemable preferred stock (Note 8)......................................................... 87,587 96,320
Commitments and contingencies (Notes 3, 7, 15, 16 and 18)
Stockholders' equity (deficit) (Notes 5 and 9):
Common stock, $1.00 par value; authorized 2,000,000 shares, issued and
outstanding 850,000 and 850,500 shares.............................................. 850 850
Additional paid-in capital.............................................................. 35,761 --
Accumulated deficit..................................................................... (5,342) (72,197)
Receivable from parent.................................................................. -- (312,417)
Accumulated other comprehensive income (deficit)........................................ 37 (18)
------------ ------------
Total stockholders' equity (deficit).............................................. 31,306 (383,782)
------------ ------------
$ 536,570 $ 570,905
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIARC BEVERAGE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Year Ended
----------------------------------------------
December 28, January 3, January 2,
1997 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net revenues..........................................................$ 408,841 $ 611,546 $ 651,076
------------ ------------- -------------
Costs and expenses:
Cost of sales, excluding depreciation and amortization related
to sales of $790, $1,265 and $1,629.............................. 239,137 359,123 380,831
Advertising, selling and distribution (Note 1)..................... 101,052 136,772 145,634
General and administrative......................................... 28,252 37,826 42,267
Depreciation and amortization, excluding amortization of
deferred financing costs........................................ 16,236 21,665 22,907
Capital structure reorganization related charges (Note 10)......... -- -- 3,348
Charges (credit) related to post-acquisition transition,
integration and changes to business strategies (Note 11)......... 32,840 -- (549)
------------ ------------- -------------
417,517 555,386 594,438
------------ ------------- -------------
Operating profit (loss)...................................... (8,676) 56,160 56,638
Interest expense ..................................................... (22,270) (28,587) (36,030)
Gain (loss) on sale of business (Note 12)............................. -- 4,702 (889)
Other income, net (Note 13)........................................... 2,071 1,510 1,409
------------ ------------- -------------
Income (loss) before income taxes and
extraordinary charges..................................... (28,875) 33,785 21,128
Benefit from (provision for) income taxes (Note 7).................... 10,072 (14,627) (12,675)
------------ ------------- -------------
Income (loss) before extraordinary charges................... (18,803) 19,158 8,453
Extraordinary charges (Note 14)....................................... (1,154) -- (4,876)
------------ ------------- -------------
Net income (loss)............................................$ (19,957) $ 19,158 $ 3,577
============ ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIARC BEVERAGE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands except share data)
Cumulative Other
Comprehensive Income (Loss)
--------------------------
Unrealized
Common Stock Gain (Loss) on
------------------ Additional Receivable Available- Currency
Number Par Paid-in Accumulated from for-Sale Translation
Of Shares Value Capital Deficit Parent Investments Adjustment Total
--------- ----- ------- ------- ------ ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......... 873 $ 1 $ 27,499 $ (510) $ -- $ -- $ -- $ 26,990
----------
Comprehensive loss:
Net loss........................ -- -- -- (19,957) -- -- -- (19,957)
Unrealized gain on available-
for-sale investment.......... -- -- -- -- -- 42 -- 42
Net change in currency
translation adjustment....... -- -- -- -- -- -- 56 56
----------
Comprehensive loss.............. -- -- -- -- -- -- -- (19,859)
----------
Pushdown of Triarc Companies,
Inc.'s acquisition basis in
Stewart's Beverages, Inc.
(Notes 3 and 9)................. -- -- 40,847 -- -- -- -- 40,847
Capital contribution through
forgiveness of a liability to
Triarc Companies, Inc.
(Note 17)....................... -- -- 625 -- -- -- -- 625
Issuance of 1,000 shares of
Triarc Beverage Holdings
Corp. common stock
(Note 9)........................ 1,000 1 -- -- -- -- -- 1
Dividend requirement on
redeemable preferred stock
(Note 8)........................ -- -- (4,604) -- -- -- -- (4,604)
Contribution of 873 shares of
Mistic Brands, Inc. common
stock to Triarc Beverage
Holdings Corp................... (873) (1) -- -- -- -- -- (1)
Triarc Beverage Holdings Corp.
common stock split
(Note 9)........................ 849,000 849 (849) -- -- -- -- --
---------- ------ ---------- ---------- ----------- ------- -------- ----------
Balance at December 28, 1997.......... 850,000 850 63,518 (20,467) -- 42 56 43,999
----------
Comprehensive income:
Net income...................... -- -- -- 19,158 -- -- -- 19,158
Reclassification adjustment
for prior year appreciation
on available-for-sale
investment sold during
the year..................... -- -- -- -- -- (42) -- (42)
Net change in currency
translation adjustment....... -- -- -- -- -- -- (19) (19)
----------
Comprehensive income............ -- -- -- -- -- -- -- 19,097
----------
Adjustment to pushdown of
Triarc Companies, Inc.'s
acquisition basis in Stewart's
Beverages, Inc. (Note 3)........ -- -- (251) -- -- -- -- (251)
Cash dividends..................... -- -- (19,523) (4,033) -- -- -- (23,556)
Dividend requirement on
redeemable preferred stock
(Note 8)........................ -- -- (7,983) -- -- -- -- (7,983)
---------- ------ ---------- ---------- ----------- ------- -------- ----------
Balance at January 3, 1999............ 850,000 850 35,761 (5,342) -- -- 37 31,306
----------
Comprehensive income:
Net income...................... -- -- -- 3,577 -- -- -- 3,577
Net change in currency
translation adjustment....... -- -- -- -- -- -- (55) (55)
----------
Comprehensive income............ -- -- -- -- -- -- -- 3,522
----------
Dividend requirement on
redeemable preferred stock
(Note 8)........................ -- -- (1,192) (7,541) -- -- -- (8,733)
Cash dividends (Note 5)............ -- -- (34,569) (48,268) -- -- -- (82,837)
Receivable from parent
resulting from issuance of
10 1/4% senior subordinated
notes due 2009 (Note 5)......... -- -- -- -- (300,000) -- -- (300,000)
Increase to receivable from
parent for accrued interest
on the 10 1/4% senior
subordinated notes due 2009
(Note 5)........................ -- -- -- -- (12,417) -- -- (12,417)
Transfer of deferred income tax
benefits as if it were a
distribution (Note 7)........... -- -- -- (14,676) -- -- -- (14,676)
Issuance of Triarc Beverage
Holdings Corp. common
stock upon exercise of stock
options (Note 9)................ 500 -- -- 53 -- -- -- 53
---------- ------ ---------- ---------- ----------- ------- -------- ----------
Balance at January 2, 2000............ 850,500 $ 850 $ -- $ (72,197) $ (312,417) $ -- $ (18) $ (383,782)
========== ====== ========== ========== =========== ======= ======== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIARC BEVERAGE HOLDINGS CORP. 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)..................................................... $ (19,957) $ 19,158 $ 3,577
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.................. 11,674 16,169 17,047
Depreciation and amortization of properties....................... 4,562 5,496 5,860
Amortization of deferred financing costs ......................... 1,541 1,885 2,233
Write-off of unamortized deferred financing costs and, in
1999, interest rate cap agreement costs........................ 1,889 -- 7,990
Provision for (benefit from) deferred income taxes................ (10,855) 2,245 8,366
Provision for doubtful accounts................................... 1,878 1,029 929
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............................................ 21,509 (6,025) (549)
(Gain) loss on sale of business................................... -- (4,702) 889
Other, net........................................................ 2,305 (487) 1,898
Changes in operating assets and liabilities:
Decrease (increase) in receivables............................. 8,996 2,747 (13,418)
Decrease (increase) in inventories............................. 6,854 3,388 (11,409)
Decrease (increase) in prepaid expenses and other
current assets............................................. 1,915 (538) 1,379
Decrease in accounts payable and accrued expenses.............. (6,808) (14,197) (5,754)
Increase in due to Triarc Companies, Inc. and affiliates....... 13,903 2,404 6,948
---------- ----------- ------------
Net cash provided by operating activities............... 39,406 28,572 29,334
---------- ----------- ------------
Cash flows from investing activities:
Acquisition of Snapple Beverage Corp. .............................. (307,205) (43) --
Other business acquisitions (cash acquired in 1997)................. 2,409 -- (34,336)
Capital expenditures................................................ (2,724) (5,799) (7,388)
Proceeds from sale of investment in Select Beverages, Inc........... -- 28,342 --
Other............................................................... 354 542 (646)
---------- ----------- ------------
Net cash provided by (used in) investing activities..... (307,166) 23,042 (42,370)
---------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt ........................................ 303,400 -- 378,700
Repayments of long-term debt ........................................ (75,636) (12,259) (291,752)
Dividends............................................................ -- (23,556) (82,837)
Deferred financing costs............................................. (11,385) -- (16,991)
Reimbursement of estimated deferred financing costs from
affiliate......................................................... -- -- 3,800
Net advances from affiliate.......................................... -- -- 4,593
Proceeds from issuance of redeemable preferred stock................. 75,000 -- --
Proceeds from stock option exercises................................. -- -- 53
Proceeds from issuance of common stock............................... 1 -- --
---------- ----------- ------------
Net cash provided by (used in) financing activities..... 291,380 (35,815) (4,434)
---------- ----------- ------------
Net increase (decrease) in cash and cash equivalents.................... 23,620 15,799 (17,470)
Cash and cash equivalents at beginning of year.......................... 159 23,779 39,578
---------- ----------- ------------
Cash and cash equivalents at end of year ............................... $ 23,779 $ 39,578 $ 22,108
========== =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................................ $ 18,413 $ 24,552 $ 30,914
========== =========== ============
Income taxes, net of refunds.................................... $ 391 $ 2,784 $ (194)
========== =========== ============
</TABLE>
Due to their non-cash nature, the following transactions are not reflected
in the consolidated statements of cash flows (expressed in whole dollars):
On November 25, 1997 Triarc Companies, Inc.("Triarc Parent"), the direct
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 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.
During 1997 Triarc Parent made a capital contribution to the Company
through the assumption or forgiveness of liabilities of Mistic Brands, Inc.
of $625,000. See Note 17 to the consolidated financial statements for
further discussion of this transaction.
During 1997, 1998 and 1999 the Company recorded cumulative dividends
not declared or paid on its redeemable preferred stock of $4,604,000,
$7,983,000 and $8,733,000, respectively, as increases in "Redeemable
preferred stock" with offsetting charges to "Additional paid-in-capital" to
the extent such balance was positive, and thereafter to "Accumulated
deficit," since payment of the dividends is not solely in the control of
the Company.
During 1999 Triarc Consumer Products Group, LLC ("TCPG"), the parent of
the Company, and the Company issued $300,000,000 principal amount of 10
1/4% senior subordinated notes due 2009 (the "Notes"). TCPG and the Company
have both recorded their obligations under the Notes as of January 2, 2000
consisting of $300,000,000 principal amount as long-term debt and
$12,417,000 of related accrued but unpaid interest in "Accrued expenses."
The Company has reported a corresponding charge of $312,417,000 in
"Receivable from parent" included as a component of stockholders' deficit.
See Note 5 to the consolidated financial statements for further discussion
of this transaction.
During 1999 the Company transferred $14,676,000 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 BEVERAGE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 2, 2000
(1) Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
Triarc Beverage Holdings Corp. ("Triarc Beverage Holdings"), an indirect
99.9% owned subsidiary of Triarc Companies, Inc. ("Triarc Parent"), commenced
operations on May 22, 1997 with the concurrent acquisition by Triarc Beverage
Holdings of Snapple Beverage Corp. ("Snapple") and the concurrent contribution
to Triarc Beverage Holdings by Triarc Parent of Mistic Brands, Inc. ("Mistic" -
acquired by Triarc Parent prior to January 1, 1997). On February 23, 1999,
Triarc Consumer Products Group, LLC ("TCPG"), a wholly-owned subsidiary of
Triarc Parent, acquired all of the stock of Triarc Beverage Holdings which was
then wholly owned by Triarc Parent. Effective May 17, 1999 TCPG contributed the
stock of Stewart's Beverages, Inc. ("Stewart's," - acquired by Triarc Parent on
November 25, 1997), formerly Cable Car Beverage Corporation, to Triarc Beverage
Holdings. See Note 3 for a discussion of the 1997 Snapple and Stewart's
acquisitions.
The accompanying consolidated financial statements represent the
consolidated financial position, results of operations and cash flows of Mistic
from January 1, 1997 through May 22, 1997 and of Triarc Beverage Holdings and
its subsidiaries, Snapple, Mistic and, effective November 25, 1997, Stewart's,
from May 22, 1997 to January 2, 2000. The consolidated financial statements for
the period from January 1, 1997 through May 22, 1997 reflect the financial
position, results of operations and cash flows of Mistic since Mistic was under
the common control of Triarc Parent during such period and, accordingly, are
presented on an "as if pooling" basis. The consolidated financial statements
include the consolidated financial position, results of operations and cash
flows of Stewart's from its November 25, 1997 acquisition by Triarc Parent to
its May 17, 1999 contribution to the Company since Stewart's was under the
common control of Triarc Parent during such period and, accordingly, are
presented on an "as if pooling basis." The entity representative of Mistic from
January 1, 1997 to May 22, 1997 and Triarc Beverage Holdings and its
subsidiaries from May 22, 1997 through January 2, 2000, or any one or more of
such entities or their subsidiaries, is referred to herein as the "Company." The
aforementioned capital contributions of subsidiaries by Triarc Parent to Triarc
Beverage Holdings have been recognized using carryover basis accounting since
all such entities were under common control from their respective dates of
formation or acquisition by Triarc Parent.
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 and money market
mutual funds.
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 13). 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 machinery and equipment is
computed principally on the straight-line basis using the estimated useful lives
of 3 to 7 years. Leasehold improvements and leased assets capitalized 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") and
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 companies 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 income (deficit)" in "Stockholders' equity (deficit)."
Advertising Costs and Promotional Allowance
The Company accounts for advertising production costs by expensing such
production costs the first time the related advertising takes place. Advertising
costs amounted to $24,661,000, $33,205,000 and $31,652,000 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 $51,011,000, $65,960,000 and $73,388,000 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 among Triarc Parent, TCPG
and/or the Company, Federal income taxes are provided on the same basis as if
the Company 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.
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 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 SunValley Squeeze(TM), and
Stewart's(R). The Company manages and internally reports its operations as one
business segment in evaluating performance and in determining resource
allocation. The Company operates its businesses principally throughout the
United States.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 for several reasons. No customer accounted for more than
9% of consolidated revenues. While the Company 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 Company'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 Company's three largest co- packer facilities represented an
aggregate of 54% of the Company's total 1999 production. One co-packer held 18%
of the Company's finished goods inventory as of January 2, 2000. Management
believes, however, that sufficient replacement co-packer services could be
obtained if necessary. The Company's product offerings are varied, including
fruit flavored beverages, iced teas, lemonades, carbonated sodas, fruit juices
and flavored seltzers. Risk of geographical concentration is also minimized
since the Company generally operates throughout the United States with minimal
foreign exposure.
(3) Business Acquisitions
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 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."
1997 Transactions
Acquisition of Snapple
On May 22, 1997 the Company acquired (the "Snapple Acquisition") Snapple, a
marketer and distributor of premium beverages, from The Quaker Oats Company
("Quaker") for $309,386,000 consisting of cash of $300,126,000 (including
$126,000 of post-closing adjustments) and $9,260,000 of fees and expenses. The
purchase price for the Snapple Acquisition was funded from (1) $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
Stewart's Acquisition (see below), 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
Snapple Acquisition, is presented below under "Purchase Price Allocations of
Acquisitions."
Purchase Price Allocations of Acquisitions
The following table sets forth the allocation of the aggregate purchase
prices of the acquisitions discussed above and a reconciliation to business
acquisitions in the accompanying consolidated statements of cash flows (in
thousands):
1997 1998 1999
---- ---- ----
Current assets............................ $113,767 $ -- $ 4,585
Properties................................ 21,613 -- 566
Goodwill.................................. 102,271 (251) 4,619
Trademarks................................ 221,300 -- --
Other intangible assets................... -- -- 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 (208) 34,336
Less (plus):
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 $ 43 $34,336
======== ======= =======
(4) Balance Sheet Detail
Receivables
The following is a summary of the components of receivables (in thousands):
Year-End
------------------
1998 1999
---- ----
Receivables:
Trade....................................$35,521 $46,104
Other.................................... 3,390 6,978
------- -------
38,911 53,082
Less allowance for doubtful accounts........ 3,019 2,503
------- -------
$35,892 $50,579
======= =======
The following is an analysis of the allowance for doubtful accounts (in
thousands):
1997 1998 1999
---- ---- ----
Trade:
Balance at beginning of year..............$ 450 $4,557 $3,019
Provision for doubtful accounts........... 4,132(a) 1,029 380(b)
Recoveries of accounts previously
written off........................... 595 -- --
Uncollectible accounts written off........ (620) (2,567) (896)
-------- ------ -------
Balance at end of year....................$ 4,557 $3,019 $ 2,503
======== ====== =======
------------
(a) Includes $2,254,000 charged to "Charges (credit) related to
post-acquisition transition, integration and changes to business
strategies" (see Note 5).
(b) Includes $549,000 credited to "Charges (credit) related to
post-acquisition transition, integration and changes to business
strategies" (see Note 5).
Substantially all receivables are pledged as collateral for certain debt
(see Note 5).
Inventories
The following is a summary of the components of inventories (in thousands):
Year-End
----------------------
1998 1999
---- ----
Raw materials...............................$ 16,662 $ 17,540
Finished goods.............................. 24,901 38,308
--------- ---------
$ 41,563 $ 55,848
========= =========
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
---- ----
Machinery and equipment.................................$21,648 $28,077
Leasehold improvements.................................. 4,166 4,727
Leased assets capitalized............................... 294 248
------- -------
26,108 33,052
Less accumulated depreciation and
amortization........................................ 10,110 15,213
------- -------
$15,998 $17,839
======= =======
Substantially all properties are pledged as collateral for certain debt
(see Note 5).
Unamortized Costs in Excess of Net Assets of Acquired Companies
The following is a summary of the components of unamortized costs in excess
of net assets of acquired companies (in thousands):
Year-End
------------------------
1998 1999
---- ----
Costs in excess of net assets of acquired
companies (Note 3)..........................$ 131,349 $ 135,968
Less accumulated amortization................... 11,204 16,612
---------- ----------
$ 120,145 $ 119,356
========== ==========
Trademarks
The following is a summary of the components of trademarks (in thousands):
Year-End
------------------------
1998 1999
---- ----
Trademarks.............................$ 276,900 $ 276,900
Less accumulated amortization.......... 22,560 32,719
---------- ---------
$ 254,340 $ 244,181
========== ==========
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.....................................$ 196 $27,916
Non-compete agreements.................................. 3,000 5,446
Other................................................... 804 2,651
------- -------
4,000 36,013
Less accumulated amortization........................... 3,435 4,891
------- -------
$ 565 $31,122
======= =======
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................................$11,246 $13,531
Less accumulated amortization of deferred
financing costs..................................... 3,101 1,930
------- -------
8,145 11,601
Other................................................... 4,222 4,179
------- -------
$12,367 $15,780
======= =======
Accrued Expenses
The following is a summary of the components of accrued expenses (in
thousands):
Year-End
--------------------
1998 1999
---- ----
Accrued interest (Note 5)..............................$ 2,599 $17,850
Accrued promotional allowances......................... 10,587 14,135
Accrued compensation and related benefits.............. 6,618 10,212
Accrued production contract losses (a)................. 4,639 3,251
Other.................................................. 10,817 9,530
-------- -------
$ 35,260 $54,978
======== =======
----------
(a)Represents obligations related to the portion of those long-term
production contracts with co-packers, assumed in connection with the
Snapple Acquisition, which the Company does not anticipate utilizing
based on projected future volumes. The decrease in this accrual during
1999 was due to obligations paid during such year.
(5) Long-Term Debt
Long-term debt consisted of the following (in thousands):
Year-End
-------------------
1998 1999
---- ----
Credit facility term loans bearing interest
at a weighted average rate of 9.03% at
January 2, 2000....................................$ -- $ 374,785
10 1/4% senior subordinated notes due 2009............. -- 300,000
Former Beverage Credit Agreement term loans
refinanced in 1999................................. 284,333 --
Other.................................................. 6,956 3,525
-------- ---------
Total debt....................................... 291,289 678,310
Less amounts payable within one year............. 8,338 32,301
-------- ---------
$282,951 $ 646,009
======== =========
Aggregate annual maturities of long-term debt, including capitalized lease
obligations, were as follows as of January 2, 2000 (in thousands):
2000........................................... $ 32,301
2001........................................... 7,912
2002........................................... 9,578
2003........................................... 11,267
2004........................................... 11,686
Thereafter..................................... 605,566
----------
$ 678,310
==========
On February 25, 1999 TCPG and Triarc Beverage Holdings issued $300,000,000
principal amount of 10 1/4% senior subordinated notes due 2009 (the "Notes") and
Snapple, Mistic and Stewart's, as well as RC/Arby's Corporation ("RC/Arby's"), a
wholly-owned subsidiary of TCPG, and Royal Crown Company, Inc. ("Royal Crown"),
a wholly-owned subsidiary of RC/Arby's, (collectively, the "Borrowers")
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 proceeds of the borrowings under the Term Loans together
with available cash and cash equivalents 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)
transfer $92,500,000 of proceeds in conjunction with the transfer of $96,300,000
(including $3,800,000 relating to then estimated deferred financing costs) of
obligations under the Term Loans to Royal Crown, (3) acquire Millrose (see Note
3) for $17,491,000, (4) pay allocated fees and expenses of $16,991,000,
including $3,460,000 of actual costs reimbursed by Royal Crown, relating to the
consummation of the Credit Facility (collectively, the "Refinancing
Transactions"), and (5) pay one-time distributions to Triarc Parent through TCPG
of $87,220,000, including dividends of $82,837,000. The allocated fees and
expenses of $16,991,000 relating to 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, $1,597,000 of legal, auditing and
accounting fees and $183,000 of other fees. As a result of the repayment prior
to maturity of the borrowings under the Former Beverage Credit Agreement, the
Company recognized an extraordinary charge during 1999 of $4,876,000 (see Note
14).
Triarc Beverage Holdings and TCPG are co-issuers of the Notes and both have
recorded their obligations under the Notes as of January 2, 2000 consisting of
$300,000,000 principal amount as long-term debt and $12,417,000 of related
accrued but unpaid interest in "Accrued expenses." Since it is intended that
TCPG will make all principal and interest payments under the Notes, the Company
has reported a corresponding charge of $312,417,000 in "Receivable from parent"
included as a component of stockholders' equity (deficit). Such amounts are
increased for interest accrued and reduced to the extent that TCPG makes
interest and principal payments on the Notes. 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
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 TCPG consummate a permitted public equity
offering or receive proceeds from a public equity offering by Triarc Parent,
TCPG and 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 Borrowers'
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 Company outstanding borrowings of $34,532,000 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 Company outstanding borrowings of
$98,911,000 and $241,342,000 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 of the Borrowers. At January 2, 2000 there was $51,099,000
of borrowing availability to the Borrowers under the Revolving Credit Facility
in accordance with limitations due to such borrowing base. Such amount would be
available to the Company to the extent not already borrowed by Royal Crown or
RC/Arby's and as of January 2, 2000 Royal Crown and RC/Arby's did not have any
borrowings thereunder.
The Borrowers 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 Borrowers. In connection therewith, a $28,349,000 prepayment will be
required to be made by any Borrower or Borrowers in the second quarter of 2000
in respect of the year ended January 2, 2000. Of the required prepayment,
$22,602,000 represents the payment of Company borrowings and accordingly, such
amount is included in "Current portion of long-term debt" in the accompanying
consolidated balance sheet as of January 2, 2000. To the extent the Company pays
more or less than $22,602,000 of the excess cash flow prepayment, such
difference will be recorded as a receivable from or payable to Royal Crown.
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 Company outstanding Term Loans would be due
$28,862,000 in 2000 including the estimated excess cash flow prepayment,
$7,873,000 in 2001, $9,563,000 in 2002, $11,255,000 in 2003, $11,676,000 in
2004, $70,580,000 in 2005, $181,973,000 in 2006 and $53,003,000 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 assets, other than
cash and cash equivalents, of the Company, along with those of other
subsidiaries of TCPG, are pledged as security. In addition, the Borrowers'
obligations with respect to (1) the Notes are guaranteed (the "Note Guarantees")
by, among other subsidiaries of TCPG, Snapple, Mistic and Stewart's, and all of
their domestic subsidiaries and (2) the Credit Facility are guaranteed (the
"Credit Facility Guaranty") by TCPG and, among other subsidiaries of TCPG,
Triarc Beverage Holdings and substantially all of the domestic subsidiaries of
Snapple, Mistic and Stewart's. As collateral for the Credit Facility Guaranty,
all of the stock of Snapple, Mistic and Stewart's, among other subsidiaries of
TCPG, 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 19 which depict, in separate columns, Triarc Beverage
Holdings as the parent company and co-issuer of the Notes, those subsidiaries
which are guarantors, those subsidiaries which are non-guarantors, elimination
adjustments and the consolidated total as if such guarantees were in effect as
of January 1, 1997. 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 by the subsidiaries of
Triarc Beverage Holdings to Triarc Beverage Holdings. Under the most restrictive
of such covenants, Snapple, Mistic and Stewart's are unable to pay any dividends
or make any loans or advances to Triarc Beverage Holdings other than (1)
distributions, including dividends, paid by such subsidiaries to Triarc Beverage
Holdings and then to TCPG in connection with the Refinancing Transactions, (2)
dividends to Triarc Beverage Holdings to the extent necessary to allow Triarc
Beverage Holdings or TCPG to make scheduled payments on the Notes and (3)
dividends paid to Triarc Beverage Holdings and, in turn, to TCPG in an amount
not to exceed $250,000 in any fiscal year, less any amounts paid by Royal Crown
or RC/Arby's, to the extent necessary to allow TCPG to pay certain expenses.
While there are no restrictions applicable to Triarc Beverage Holdings to pay
dividends to TCPG, Triarc Beverage Holdings is dependent upon cash flows from
its subsidiaries to pay dividends. As of January 2, 2000 the Company was in
compliance with all of such covenants.
(6) Fair Value of Financial Instruments
The Company has the following financial instruments for which the
disclosure of fair values is required: cash and cash equivalents, accounts
receivable and payable, accrued expenses, due to Triarc Parent and affiliates
and long-term debt. The carrying amounts of cash and cash equivalents, accounts
payable, accrued expenses, and due to Triarc Parent and affiliates approximated
fair value due to the short-term maturities of such assets and liabilities. The
carrying amount of accounts receivable approximated fair value due to the
related allowance for doubtful accounts. The carrying amounts and fair values of
long-term debt (see Note 5) were as follows (in thousands):
Year-End
------------------------------------
1998 1999
---------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Credit Facility term loans............$ -- $ -- $374,785 $ 374,785
Notes................................. -- -- 300,000 287,250
Former Beverage Credit Agreement...... 284,333 284,333 -- --
Other long-term debt ................. 6,956 6,956 3,525 3,525
-------- -------- -------- ---------
$291,289 $291,289 $678,310 $ 665,560
======== ======== ======== =========
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 value of
the Notes is based on quoted market prices. The fair values of all other
long-term debt were 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 a former tax-sharing agreement
with Triarc Parent through January 3, 1999 and an informal arrangement with TCPG
which, in turn, has a revised tax-sharing agreement with Triarc Parent effective
January 4, 1999, the Company provides for Federal income taxes on the same basis
as if separate consolidated returns for Triarc Beverage Holdings were filed. As
of January 3, 1999, the Company was in a net operating loss position and, as
such, there were no taxes currently payable to Triarc Parent. As of January 2,
2000, amounts currently payable for Federal income taxes are included in "Due to
Triarc Companies, Inc. and affiliates" in the accompanying consoldiated balance
sheets.
The income (loss) before income taxes and extraordinary charges consisted
of the following components (in thousands):
1997 1998 1999
---- ---- ----
Domestic................................. $(29,340) $ 33,641 $ 20,979
Foreign.................................. 465 144 149
-------- -------- ---------
$(28,875) $ 33,785 $ 21,128
======== ======== =========
The benefit from (provision for) income taxes consisted of the following
components (in thousands):
1997 1998 1999
---- ---- ----
Current:
Federal..................................$ (262) $(11,638) $ (3,484)
State.................................... (160) (699) (779)
Foreign.................................. (361) (45) (46)
------- -------- --------
(783) (12,382) (4,309)
------- -------- --------
Deferred:
Federal.................................. 9,518 (661) (7,563)
State.................................... 1,337 (1,584) (803)
------- -------- --------
10,855 (2,245) (8,366)
-------- -------- --------
Total....................................$10,072 $(14,627) $(12,675)
======= ======== ========
The current deferred income tax benefit and the net non-current deferred
income tax (liability) resulted from the following components (in thousands):
Year-End
-----------------
1998 1999
---- ----
Current deferred income tax benefit:
Accrued employee benefit costs................. $ 1,402 $ 3,063
Glass front vending machines written off....... 2,925 2,925
Allowance for doubtful accounts................ 1,382 1,194
Inventory obsolescence reserves................ 1,298 1,009
Accrued production contract losses............. 1,320 778
Other, net..................................... 3,373 2,307
------- -------
11,700 11,276
------- -------
Non-current deferred income tax benefit
(liabilities):
Trademarks basis differences................... (55,038) (55,565)
Other intangible assets basis differences...... (924) (6,812)
Reserve for income tax contingencies and
other tax matters, net..................... -- (1,727)
Depreciation and other properties basis
differences................................ 3,945 3,947
Net operating loss carryforwards and
excess income tax payments under
tax-sharing agreements, net ................ 13,193 --
Other, net..................................... 3,324 (1,180)
-------- --------
(35,500) (61,337)
-------- --------
$(23,800) $(50,061)
======== ========
The increase in the net deferred income tax (liability) of $26,261,000
differs from the provision for deferred income taxes of $8,366,000. Such
difference is principally due to the transfer of $14,676,000 of deferred income
tax benefits to TCPG as if such transfer were a distribution from the Company to
TCPG. In accordance therewith, the Company recorded a charge to "Accumulated
deficit" and a credit to "Deferred income taxes" of $14,676,000.
The difference between the reported benefit from (provision for) income
taxes and the tax benefit (provision) that would result from applying the 35%
Federal statutory rate to the income or loss before income taxes and
extraordinary charges is reconciled as follows (in thousands):
1997 1998 1999
---- ---- ----
Income tax benefit (provision) computed
at Federal statutory rate..................$ 10,106 $ (11,825) $ (7,395)
(Increase) decrease in Federal tax
provision resulting from:
Provision for income tax contingencies.. -- -- (2,862)
Amortization of non-deductible Goodwill (467) (1,134) (1,209)
State income taxes, net of Federal
income tax effect.................... 765 (1,484) (1,028)
Other, net.............................. (332) (184) (181)
-------- -------- --------
$ 10,072 $(14,627) $(12,675)
======== ======== ========
(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
TCPG. The Redeemable Preferred Stock (1) bears 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, (2) is convertible into 750 shares of Triarc
Beverage Holdings' common stock (the "Triarc Beverage Common Stock") at an
adjusted conversion price of $100,000 per share, (3) requires mandatory
redemption on May 22, 2009 at $100,000 per share plus accrued and unpaid
dividends and (4) has an aggregate liquidation value of $75,000,000 plus accrued
and unpaid dividends of $12,587,000 and $21,320,000 as of January 3, 1999 and
January 2, 2000, respectively. The cumulative dividends not declared or paid of
$4,604,000, $7,983,000 and $8,733,000 for 1997, 1998 and 1999, respectively,
have been accounted for as increases in "Redeemable preferred stock" with
offsetting charges to "Additional paid-in capital" to the extent such balance
was positive, and thereafter to "Accumulated deficit," since payment of the
dividends is not solely in the control of the Company.
(9) Stockholders' Equity (Deficit)
Through May 22, 1997 the common stock reflected in the accompanying
consolidated statements of stockholders' equity (deficit) was the 873 issued and
outstanding shares of Mistic common stock with a par value of $1.00 per share.
On May 22, 1997 the then outstanding 873 shares of Mistic common stock were
contributed to Triarc Beverage Holdings by Triarc Parent and Triarc Beverage
Holdings issued 1,000 shares of Triarc Beverage Common Stock to Triarc Parent
for $1,000. On August 21, 1997 each of the 1,000 issued and outstanding shares
of Triarc Beverage Common Stock was split into 850 shares, resulting in 850,000
issued and outstanding shares of Triarc Beverage Common Stock.
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 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:
Weighted Average
Options Option Price Option Price
------- ------------ ------------
Granted during 1997............... 76,250 $147.30 $147.30
-------
Outstanding at December 28, 1997.. 76,250 $147.30 $147.30
Granted during 1998............... 72,175 $191.00 $191.00
Terminated during 1998............ (3,000) $147.30 $147.30
-------
Outstanding at January 3, 1999....145,425 $147.30 and $191.00 $168.99
Changes in options relating to
equitable adjustments of
option prices during 1999
discussed below:
Cancellation.................(144,675) $147.30 and $191.00 $169.10
Reissuance ...................144,675 $107.05 and $138.83 $122.90
Granted during 1999............... 4,850 $311.99 $311.99
Exercised during 1999............. (500) $107.05 $107.05
Terminated during 1999............ (2,325) $107.05 - $311.99 $170.72
-------
Outstanding at January 2, 2000....147,450 $107.05 - $311.99 $128.55
=======
Exercisable at January 2, 2000.... 47,723 $107.05 and $138.83 $123.07
=======
Stock options 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 Outstanding Stock Options
--------------------------------------------------- Exercisable and
Outstanding at Weighted Outstanding at
Year-End Average Years Year-End
Option Price 1999 Remaining 1999
------------ ---- --------- ----
$ 107.05 71,000 7.6 23,667
$ 138.83 72,175 8.5 24,056
$ 311.99 4,275 9.4 --
------- -------
147,450 8.1 47,723
======= =======
The Triarc Beverage Plan provides for an equitable adjustment of options in
the event of a recapitalization or similar event. The exercise prices of the
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 a 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 options, 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 $(20,281,000), $17,448,000 and
$(561,000), 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):
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 based
on the Company's change in estimate of the related
write-off to be incurred (b)................................ 2,254
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
-----------
$ 32,840
===========
----------
(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, 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.
(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 disclosed 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) Gain (Loss) on Sale of Businesses
"Gain (loss) on sale of business" recognized by the Company in 1998 and
1999 relates to the Company's 20% interest in Select Beverages, Inc. ("Select
Beverages"). 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 recognized 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 $4,702,000 gain recorded in 1998.
(13) Other Income, Net
Other income, net consisted of the following income (expense) components
(in thousands):
1997 1998 1999
---- ---- ----
Interest income.....................................$ 564 $ 1,776 $ 1,165
Rental income....................................... 622 492 122
Gain (loss) on sales of properties.................. (43) 269 (110)
Equity in earnings (losses) of investees............ 862 (1,222) --
Other, net.......................................... 66 195 232
------ ------- -------
$2,071 $ 1,510 $ 1,409
====== ======= =======
The equity in earnings (losses) of investees consists of the Company's
equity in the earnings or losses of Select Beverages (see Note 12) 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
earnings 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).
(14) Extraordinary Charges
The 1997 extraordinary charge resulted from the early extinguishment of
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 charge resulted from the early extinguishment of obligations under
the Former Beverage Credit Agreement (see Note 5). The components of such
extraordinary charges were as follows (in thousands):
1997 1999
---- ----
Write-off of previously unamortized deferred
financing costs.................................... $ 1,889 $ 7,844
Write-off of previously unamortized interest
rate cap agreement costs........................... -- 146
------- -------
1,889 7,990
Income tax benefit..................................... 735 3,114
------- -------
$ 1,154 $ 4,876
======= =======
(15) 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
$302,000, $796,000 and $931,000 in 1997, 1998 and 1999, respectively.
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
147,000 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 $93,000, $77,000
(net of $4,000 of Forfeiture Adjustments) and $25,000 (net of $4,000 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 $5,000 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.
(16) Lease Commitments
The Company leases office space and equipment. Rental expense under
operating leases consisted of the following components (in thousands):
1997 1998 1999
---- ---- ----
Minimum rentals......................... $ 2,302 $ 4,018 $ 4,557
Less sublease income.................... 518 865 1,256
------- ------- -------
$ 1,784 $ 3,153 $ 3,301
======= ======= =======
The Company's future minimum rental payments and sublease rental income for
leases having an initial lease term in excess of one year as of January 2, 2000
are as follows (in thousands):
Rental Payments Sublease
--------------------- Income-
Capitalized Operating Operating
Leases Leases Leases
------ ------ ------
2000.......................................$ 53 $ 5,620 $ 1,560
2001....................................... 46 5,118 1,586
2002....................................... 19 4,982 1,614
2003....................................... 15 5,017 1,664
2004....................................... 12 4,236 1,709
Thereafter................................. 10 23,130 3,622
------ -------- -------
Total minimum payments.................. 155 $ 48,103 $11,755
======== =======
Less interest.............................. 27
------
Present value of minimum capitalized
lease payments..........................$ 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.
(17) 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>
Purchases of raw materials from Triarc Parent (a)..................... $13,023 $112,489 $139,698
Transfer of a portion of proceeds from borrowings under the
Term Loans to Royal Crown, net of reimbursement of
related estimated deferred financing costs (b)...................... -- -- 92,500
Cash dividends paid to Triarc Parent (Note 5)......................... -- 23,556 82,837
Transfer of deferred income tax benefits as if it were a
distribution (Note 7)............................................... -- -- 14,676
Advances from affiliate, net (b) ..................................... -- -- 4,593
Cumulative dividends on the Redeemable Preferred Stock
recorded but not declared or paid (Note 8).......................... 4,604 7,983 8,733
Costs allocated to the Company by Triarc Parent under
management services agreements (c).................................. 3,042 3,500 3,642
Net costs allocated to Royal Crown by the Company for
joint services (d).................................................. 547 1,654 951
Compensation costs charged to the Company by Triarc Parent
for below market stock options (Note 15)............................ 93 77 25
Issuance of Redeemable Preferred Stock (Note 8)....................... 75,000 -- --
Capital contributions from Triarc Parent (c).......................... 625 -- --
</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, $15,274,000 and $18,400,000,
respectively, of amounts owed for such purchases were included in "Due
to Triarc Companies, Inc. and affiliates" in the accompanying
consolidated balance sheets.
(b) In December 1999 Royal Crown transferred $10,000,000 to the Company in
order for the Company to invest such amount on Royal Crown's behalf in
commerical paper which matured in 2000. The amount of this investment
is included in the Company's cash equivalents at January 2, 2000, with
an offsetting liability to Royal Crown included in "Due to Triarc
Companies, Inc. and affiliates." The income from the investment was
credited to Royal Crown. The Company transferred $92,500,000, net of
$3,800,000 of reimbursement of related estimated deferred financing
costs, of borrowings under the Term Notes to Royal Crown (see Note 5).
The Company borrowed the $96,300,000 on February 25, 1999 on behalf of
Royal Crown but was restricted from transferring the funds to Royal
Crown until March 30, 1999 when Royal Crown's parent repaid its 9 3/4%
senior notes. The Company accrued interest expense on the $96,300,000
of Term Loans and interest income on the $92,500,000 of proceeds all
on behalf of Royal Crown, aggregating $5,407,000 which is netted in
"Due to Triarc Companies, Inc. and affiliates." The interest expense
and interest income were charged and credited, respectively, to Royal
Crown.
(c) 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 aggregating $625,000 in 1997. Mistic was prohibited from
paying such amount to Triarc Parent under the terms of Mistic's former
bank facility prior to its repayment and, accordingly, such amount was
accounted for as a capital contribution from Triarc Parent. 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 together with Royal
Crown (collectively, "Triarc Beverage Group") entered into a new
management services agreement with Triarc Parent. The agreement
provides for an annual fixed fee for Triarc Beverage Group of
$6,700,000, a portion of which is to be allocated or charged to the
Company, plus, commencing January 1, 2000, annual cost of living
adjustments. During 1999 the Company was allocated $552,000 through
February 25, 1999 in accordance with the former management services
agreements and was charged $3,090,000 in accordance with the new
management services agreement for the period from February 26, 1999 to
January 2, 2000. 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.
(d) Commencing in July 1997 following the relocation of Royal Crown's
corporate headquarters which were centralized with Triarc Beverage
Holdings' offices in White Plains, New York, the Company commenced
performing certain services for Royal Crown as well as Royal Crown
performing certain services for the Company. The Company provides
certain finance, administrative, operational and, commencing in 1998,
legal services for Royal Crown. In 1997 Royal Crown provided legal
services to the Company and in 1998 and 1999 provided certain
operational services to the Company. The costs of all such services
have been allocated based on estimated time expended. The allocated
charges by the Company to Royal Crown net of the allocated charges to
the Company by Royal Crown were $547,000, $1,654,000 and $951,000 for
1997, 1998 and 1999, respectively. Management of the Company believes
that such allocation method is reasonable. Further, management of the
Company believes that such allocation approximates the net costs that
would have been incurred by Royal Crown on a stand alone basis.
Certain officers and directors and directors of the Company are also
officers and directors of Triarc Parent. See also Notes 1, 5, 8, 9, 11
and 15 with respect to other transactions with related parties.
(18)Legal Matters
The Company is involved in litigation and claims incidental to its
business. The Company has reserves for legal matters aggregating $405,000 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 matters will have a
material adverse effect on its consolidated financial position or results of
operations.
(19) Condensed Consolidating Financial Information
The following consolidating financial statements of the Company, depict, in
separate columns, Triarc Beverage Holdings as the parent company and a co-issuer
of the Notes, 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-
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
(In thousands)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 1 $ 39,046 $ 531 $ -- $ 39,578
Receivables....................................... -- 35,313 579 -- 35,892
Inventories....................................... -- 40,267 1,296 -- 41,563
Deferred income tax benefit....................... -- 11,700 -- -- 11,700
Prepaid expenses and other
current assets................................ -- 4,406 16 -- 4,422
---------- ----------- ---------- ----------- -------------
Total current assets........................ 1 130,732 2,422 -- 133,155
Investment in subsidiaries......................... 118,892 9,950 -- (128,842) --
Intercompany receivables........................... -- -- 6,067 (6,067) --
Properties......................................... -- 12,232 3,766 -- 15,998
Unamortized costs in excess of net
assets of acquired companies...................... -- 120,145 -- -- 120,145
Trademarks......................................... -- 254,340 -- -- 254,340
Other intangible assets............................ -- 565 -- -- 565
Deferred costs and other assets.................... -- 12,366 1 -- 12,367
---------- ---------- --------- ----------- -------------
$ 118,893 $ 540,330 $ 12,256 $ (134,909) $ 536,570
========== ========== ========= =========== =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................. $ -- $ 8,338 $ -- $ -- $ 8,338
Accounts payable.................................. -- 33,422 496 -- 33,918
Accrued expenses.................................. -- 33,450 1,810 -- 35,260
Due to Triarc Companies, Inc. and affiliates...... -- 18,158 -- -- 18,158
---------- ----------- ---------- ---------- -------------
Total current liabilities...................... -- 93,368 2,306 -- 95,674
Long-term debt..................................... -- 282,951 -- -- 282,951
Intercompany payables.............................. -- 6,067 -- (6,067) --
Deferred income taxes.............................. -- 35,500 -- -- 35,500
Other liabilities.................................. -- 3,552 -- -- 3,552
Redeemable preferred stock......................... 87,587 -- -- -- 87,587
Stockholder's equity:
Common stock...................................... 850 3 -- (3) 850
Additional paid-in capital........................ 35,761 124,195 7,911 (132,106) 35,761
Retained earnings (accumulated deficit)........... (5,342) (5,343) 2,002 3,341 (5,342)
Accumulated other comprehensive income............ 37 37 37 (74) 37
----------- ----------- ---------- ---------- ------------
Total stockholder's equity..................... 31,306 118,892 9,950 (128,842) 31,306
----------- ----------- ---------- ---------- ------------
$ 118,893 $ 540,330 $ 12,256 $ (134,909) $ 536,570
=========== =========== ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
January 2, 2000
-----------------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
(In thousands)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 92 $ 21,597 $ 419 $ -- $ 22,108
Receivables................................. -- 49,564 1,015 -- 50,579
Inventories................................. -- 54,169 1,679 -- 55,848
Deferred income tax benefit................. -- 11,276 -- -- 11,276
Prepaid expenses and other
current assets.......................... -- 2,806 10 -- 2,816
------------ ------------- ------------- ------------- -----------
Total current assets................ 92 139,412 3,123 -- 142,627
Investment in subsidiaries................... 24,900 10,973 -- (35,873) --
Intercompany receivables..................... 7,549 7,666 7,244 (22,459) --
Properties................................... -- 14,128 3,711 -- 17,839
Unamortized costs in excess of net
assets of acquired companies................ -- 119,356 -- -- 119,356
Trademarks................................... -- 244,181 -- -- 244,181
Other intangible assets...................... -- 31,122 -- -- 31,122
Deferred costs and other assets.............. -- 15,779 1 -- 15,780
------------ ------------- ------------- ------------- -----------
$ 32,541 $ 582,617 $ 14,079 $ (58,332) $ 570,905
============ ============= ============= ============= ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt........... $ -- $ 32,301 $ -- $ -- $ 32,301
Accounts payable............................ -- 27,541 522 -- 28,063
Accrued expenses............................ 12,417 40,057 2,504 -- 54,978
Due to Triarc Companies, Inc. and
affiliates.............................. -- 30,064 -- -- 30,064
------------ ------------- ------------- ------------- -----------
Total current liabilities........... 12,417 129,963 3,026 -- 145,406
Long-term debt............................... 300,000 346,009 -- -- 646,009
Intercompany payables........................ 7,586 14,793 80 (22,459) --
Deferred income taxes........................ -- 61,337 -- -- 61,337
Other liabilities............................ -- 5,615 -- -- 5,615
Redeemable preferred stock................... 96,320 -- -- -- 96,320
Stockholders' equity (deficit):
Common stock................................ 850 3 -- (3) 850
Additional paid-in capital.................. -- 43,744 7,911 (51,655) --
Retained earnings (accumulated deficit)..... (72,197) (18,829) 3,080 15,749 (72,197)
Receivable from parent...................... (312,417) -- -- -- (312,417)
Accumulated other comprehensive
deficit................................. (18) (18) (18) 36 (18)
------------- ------------- ------------- ------------- -----------
Total stockholders' equity (deficit).. (383,782) 24,900 10,973 (35,873) (383,782)
------------- ------------- ------------- ------------- -----------
$ 32,541 $ 582,617 $ 14,079 $ (58,332) $ 570,905
============= ============= ============= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 28, 1997
-----------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net revenues....................................... $ -- $ 396,192 $ 12,649 $ -- $ 408,841
--------- ----------- ------------- ----------- -----------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization related to sales............. -- 232,498 6,639 -- 239,137
Advertising, selling and distribution............. -- 96,829 4,223 -- 101,052
General and administrative........................ -- 26,949 1,303 -- 28,252
Depreciation and amortization, excluding
amortization of deferred financing
costs......................................... -- 16,214 22 -- 16,236
Charges related to post-acquisition
transition, integration and changes to
business strategies........................... -- 32,840 -- -- 32,840
---------- ----------- ------------- ----------- ------------
-- 405,330 12,187 -- 417,517
---------- ----------- ------------- ----------- ------------
Operating profit (loss)..................... -- (9,138) 462 -- (8,676)
Interest expense................................... -- (22,270) -- -- (22,270)
Other income, net.................................. -- 2,068 3 -- 2,071
Equity in net earnings (losses) of
subsidiaries before extraordinary charge.......... (18,803) 104 -- 18,699 --
---------- ----------- ------------- ------------ ------------
Income (loss) before income taxes
and extraordinary charge................ (18,803) (29,236) 465 18,699 (28,875)
Benefit from (provision for) income taxes -- 10,433 (361) -- 10,072
---------- ----------- ------------- ------------ -----------
Income (loss) before extraordinary charge... (18,803) (18,803) 104 18,699 (18,803)
Extraordinary charge............................... (1,154) (1,154) -- 1,154 (1,154)
---------- ----------- ------------- ------------- -----------
Net income (loss)........................... $ (19,957) $ (19,957) $ 104 $ 19,853 $ (19,957)
========== =========== ============= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 3, 1999
-----------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net revenues....................................... $ -- $ 595,268 $ 16,278 $ -- $ 611,546
---------- ----------- ----------- ----------- ------------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization related to sales............. -- 348,291 10,832 -- 359,123
Advertising, selling and distribution............. -- 134,735 2,037 -- 136,772
General and administrative........................ -- 37,526 300 -- 37,826
Depreciation and amortization, excluding
amortization of deferred financing
costs......................................... -- 21,628 37 -- 21,665
---------- ----------- ----------- ----------- ------------
-- 542,180 13,206 -- 555,386
---------- ----------- ----------- ----------- ------------
Operating profit ......................... -- 53,088 3,072 -- 56,160
Interest expense................................... -- (28,587) -- -- (28,587)
Gain on sale of business........................... -- 4,702 -- -- 4,702
Other income, net.................................. -- 1,489 21 -- 1,510
Equity in net earnings of subsidiaries............. 19,158 1,898 -- (21,056) --
---------- ----------- ----------- ----------- ------------
Income before income taxes................ 19,158 32,590 3,093 (21,056) 33,785
Provision for income taxes......................... -- (13,432) (1,195) -- (14,627)
---------- ----------- ----------- ----------- ------------
Net income................................ $ 19,158 $ 19,158 $ 1,898 $ (21,056) $ 19,158
========== =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 2, 2000
--------------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net revenues.................................... $ -- $ 638,572 $ 12,504 $ -- $ 651,076
---------- ------------- ------------- ------------- ----------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization related to sales.......... -- 372,398 8,433 -- 380,831
Advertising, selling and distribution.......... -- 143,970 1,664 -- 145,634
General and administrative..................... -- 41,902 365 -- 42,267
Depreciation and amortization, excluding
amortization of deferred financing
costs...................................... -- 22,871 36 -- 22,907
Capital structure reorganization related
charges.................................... -- 3,348 -- -- 3,348
Credit related to post-acquisition
transition, integration and changes
to business strategies..................... -- (549) -- -- (549)
---------- ------------- ------------- ------------- ----------
-- 583,940 10,498 -- 594,438
---------- ------------- ------------- ------------- ----------
Operating profit ...................... -- 54,632 2,006 -- 56,638
Interest expense................................ -- (36,030) -- -- (36,030)
Loss on sale of business........................ -- (889) -- -- (889)
Other income (expense), net..................... -- 1,667 (258) -- 1,409
Equity in net earnings of subsidiaries
before extraordinary charges................ 8,453 1,078 -- (9,531) --
---------- ------------- ------------- ------------- ----------
Income before income taxes and
extraordinary charges.............. 8,453 20,458 1,748 (9,531) 21,128
Provision for income taxes...................... -- (12,005) (670) -- (12,675)
---------- ------------- ------------- ------------- ----------
Income before extraordinary charges.... 8,453 8,453 1,078 (9,531) 8,453
Extraordinary charges........................... (4,876) (4,876) -- 4,876 (4,876)
---------- ------------- ------------- ------------- ----------
Net income............................. $ 3,577 $ 3,577 $ 1,078 $ (4,655) $ 3,577
========== ============= ============= ============= ==========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 28, 1997
---------------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities.......... $ -- $ 39,130 $ 276 $ -- $ 39,406
------------ ------------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of Snapple Beverage Corp.............. (75,000) (232,205) -- -- (307,205)
Cash acquired in other business acquisition....... -- 2,409 -- -- 2,409
Capital expenditures.............................. -- (2,724) -- -- (2,724)
Other ............................................ -- 354 -- -- 354
------------ ------------- ---------- ---------- ----------
Net cash used in investing activities.............. (75,000) (232,166) -- -- (307,166)
------------ ------------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt...................... -- 303,400 -- -- 303,400
Repayments of long-term debt...................... -- (75,636) -- -- (75,636)
Proceeds from issuance of redeemable preferred
stock.......................................... 75,000 -- -- -- 75,000
Deferred financing costs.......................... -- (11,385) -- -- (11,385)
Proceeds from issuance of common stock............ 1 -- -- -- 1
------------- ------------- ---------- ----------- ----------
Net cash provided by financing activities.......... 75,001 216,379 -- -- 291,380
------------- ------------- ---------- ----------- ----------
Net increase in cash and cash equivalents 1 23,343 276 -- 23,620
Cash and cash equivalents at beginning
of year........................................... -- 159 -- -- 159
------------- ------------- ---------- ---------- ----------
Cash and cash equivalents at end of year.......... $ 1 $ 23,502 $ 276 $ -- $ 23,779
============= ============= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 3, 1999
-----------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities.......... $ -- $ 28,317 $ 255 $ -- $ 28,572
--------- ---------- --------- --------- -------------
Cash flows from investing activities:
Proceeds from sale of investment in Select
Beverages, Inc................................. -- 28,342 -- -- 28,342
Capital expenditures.............................. -- (5,799) -- -- (5,799)
Acquisition of Snapple Beverage Corp.............. -- (43) -- -- (43)
Other............................................. -- 542 -- -- 542
--------- ---------- --------- --------- -------------
Net cash provided by investing activities.......... -- 23,042 -- -- 23,042
--------- ---------- --------- --------- -------------
Cash flows from financing activities:
Dividends......................................... -- (23,556) -- -- (23,556)
Repayments of long-term debt...................... -- (12,259) -- -- (12,259)
--------- ---------- --------- --------- -------------
Net cash used in financing
activities........................................ -- (35,815) -- -- (35,815)
--------- ---------- --------- --------- -------------
Net increase in cash and cash equivalents.......... -- 15,544 255 -- 15,799
Cash and cash equivalents at beginning
of year........................................... 1 23,502 276 -- 23,779
--------- ---------- --------- --------- -------------
Cash and cash equivalents at end of year........... $ 1 $ 39,046 $ 531 $ -- $ 39,578
========= ========== ========= ========= =============
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 2, 2000
--------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities....................................... $ 91 $ 29,346 $ (103) $ -- $ 29,334
--------- ------------- --------- --------- ----------
Cash flows from investing activities:
Business acquisitions............................. -- (34,336) -- -- (34,336)
Capital expenditures.............................. -- (7,379) (9) -- (7,388)
Other............................................. -- (646) -- -- (646)
--------- ------------- --------- --------- ----------
Net cash used in investing activities.............. -- (42,361) (9) -- (42,370)
--------- ------------- --------- --------- ----------
Cash flows from financing activities:
Proceeds from long-term debt...................... -- 378,700 -- -- 378,700
Repayments of long-term debt...................... -- (291,752) -- -- (291,752)
Dividends......................................... -- (82,837) -- -- (82,837)
Deferred financing costs.......................... -- (16,991) -- -- (16,991)
Reimbursement of deferred financing costs
from affiliate................................. -- 3,800 -- -- 3,800
Net advances from affiliate....................... -- 4,593 -- -- 4,593
Proceeds from issuance of common stock............ -- 53 -- -- 53
--------- ------------- --------- --------- ----------
Net cash used in financing activities.............. -- (4,434) -- -- (4,434)
--------- ------------- --------- --------- ----------
Net increase (decrease) in cash and cash
equivalents....................................... 91 (17,449) (112) -- (17,470)
Cash and cash equivalents at beginning
of year........................................... 1 39,046 531 -- 39,578
--------- ------------- --------- ---------- ----------
Cash and cash equivalents at end of year........... $ 92 $ 21,597 $ 419 $ -- $ 22,108
========= ============= ========= ========== ==========
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10, 11, 12 AND 13
The information required by items 10, 11, 12 and 13 will be furnished
on or prior to May 1, 2000 (and is hereby incorporated by reference) by an
amendment hereto.
<PAGE>
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:
All financial statement schedules have been omitted since they are either
not applicable or the information is contained elsewhere in "Item 8. Financial
Statements and Supplementary Data."
3. Exhibits:
Copies of the following exhibits are available at a charge of $.25 per
page upon written request to the Secretary of Triarc Beverage Holdings Corp.,
c/o Triarc Companies, Inc., 280 Park Avenue, New York, New York 10017.
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------
3.1 -- Certificate of Incorporation of Triarc Beverage Holdings Corp.
("TBHC"), as currently in effect, incorporated herein by
reference to Exhibit 3.2 to Registration Statement on Form
S-4, filed by TBHC and Triarc Consumer Products Group, LLC
("TCPG"), dated May 17, 1999 (SEC Registration Nos. 333-78625
and 333-78625-01 through 333-78625-28).
3.2 -- By-laws of TBHC, incorporated herein by reference to Exhibit
3.31 to Registration Statement on Form S-4, filed by TBHC and
TCPG, dated May 17, 1999 (SEC Registration Nos. 333-78625,
and 333-78625-01 through 333-78625-28).
4.1 -- 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).
4.2 -- 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).
4.3 -- 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).
4.4 -- 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).
<PAGE>
4.5 -- 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).
4.6 -- 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 thorugh
333-78625-28).
4.7 -- Supplemental Indenture No. 3, dated as of December 16, 1999
among TCPG, TBHC, MPAS Holdings, Inc., Millrose, L.P. and The
Bank of New York,as Trustee, incorporated herein by reference
to Exhibit 4.1 to Triarc Companies' Current Report on Form
8-K dated March 30, 2000 (SEC file no. 1-2207).
4.8 -- 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 -- Form of Indemnification Agreement, between TBHC and certain
officers, directors, and employees of TBHC, incorporated
herein by reference to Exhibit 10.40 to Amendment No.
4 to Registration Statement on Form S-4, filed by TBHC and
TCPG, dated December 10, 1999 (SEC Registration Nos.
333-78625 and 333-78625-01 through 333-782625-28).
10.2 -- 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).
10.3 -- 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).
10.4 -- 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).
10.5 -- 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).
10.6 -- 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).
10.7 -- 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).
21.1 -- Subsidiaries of the Registrant.*
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 BEVERAGE HOLDINGS CORP.
(Registrant)
NELSON PELTZ
------------------------
NELSON PELTZ
CHAIRMAN
Dated: April 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on April 17, 2000 by the following persons on
behalf of the registrant in the capacities indicated.
SIGNATURE TITLES
- ------------------ --------------------------------------------
Nelson Peltz Chairman and Director
---------------------
Nelson Peltz
Peter W. May Vice Chairman and Director
---------------------
Peter W. May
Chief Executive Officer and Director
Michael Weinstein (Principal Executive Officer)
---------------------
Michael Weinstein
Senior Vice President and Chief Financial
Richard B. Allen Officer (Principal Financial Officer)
---------------------
Richard B. Allen
Vice President
Fred H. Schaefer (Principal Accounting Officer)
---------------------
Fred H. Schaefer
President and Chief Operating
Ernest J. Cavallo Officer and Director
----------------------
Ernest J. Cavallo
Director
Brian L. Schorr
-----------------------
Brian L. Schorr
<PAGE>
Exhibit 21.1
TRIARC BEVERAGE HOLDINGS CORP.
LIST OF SUBSIDIARIES AS OF
March 31, 2000
STATE OR JURISDICTION
UNDER WHICH ORGANIZED
---------------------
Mistic Brands, Inc. Delaware
Stewart's Beverages, Inc. (formerly Cable
Car Beverage Corporation) Delaware
Old San Francisco Seltzer, Inc. Colorado
Fountain Classics, Inc. Colorado
Snapple Beverage Corp. Delaware
Snapple International Corp. Delaware
Snapple Beverages de Mexico,
S.A. de C.V. (1) Mexico
Snapple Caribbean Corp. Delaware
Snapple Europe Limited United Kingdom
Snapple Canada, Ltd. Canada
Snapple Worldwide Corp. Delaware
Snapple Finance Corp. Delaware
Pacific Snapple Distributors, Inc. California
Mr. Natural, Inc. Delaware
Millrose Distributors, Inc. New Jersey
MPAS Holdings, Inc. Delaware
Millrose, L.P. (2) Delaware
Snapple Distributors of Long Island, Inc. New York
Kelrae, Inc. Delaware
_____________
(1) 99% owned by Snapple International Corp. and 1% owned by Snapple
Worldwide Corp.
(2) 99% owned by MPAS Holdings, Inc. (as limited partner) and 1% owned by
Millrose Distributors, Inc. (as general partner).
<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 BEVERAGE HOLDINGS CORP. FOR THE YEAR ENDED JANUARY 2, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<CIK> 0001086093
<NAME> TRIARC BEVERAGE HOLDINGS CORP.
<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> 22,108
<SECURITIES> 0
<RECEIVABLES> 53,082
<ALLOWANCES> 2,503
<INVENTORY> 55,848
<CURRENT-ASSETS> 142,627
<PP&E> 33,052
<DEPRECIATION> 15,213
<TOTAL-ASSETS> 570,905
<CURRENT-LIABILITIES> 145,406
<BONDS> 646,009
96,320
0
<COMMON> 850
<OTHER-SE> (384,632)
<TOTAL-LIABILITY-AND-EQUITY> 570,905
<SALES> 651,076
<TOTAL-REVENUES> 651,076
<CGS> 380,831
<TOTAL-COSTS> 380,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 929
<INTEREST-EXPENSE> 36,030
<INCOME-PRETAX> 21,128
<INCOME-TAX> (12,675)
<INCOME-CONTINUING> 8,453
<DISCONTINUED> 0
<EXTRAORDINARY> (4,876)
<CHANGES> 0
<NET-INCOME> 3,577
<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 BEVERAGE HOLDINGS CORP., INC. FOR THE
FISCAL YEAR ENDED JANUARY 2, 2000.
</LEGEND>
<RESTATED>
<CIK> 0001086093
<NAME> TRIARC BEVERAGE HOLDINGS CORP.
<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 39,578
<SECURITIES> 0 0
<RECEIVABLES> 0 38,911
<ALLOWANCES> 0 3,019
<INVENTORY> 0 41,563
<CURRENT-ASSETS> 0 133,155
<PP&E> 0 26,108
<DEPRECIATION> 0 10,110
<TOTAL-ASSETS> 0 536,570
<CURRENT-LIABILITIES> 0 95,674
<BONDS> 0 282,951
0 87,587
0 0
<COMMON> 0 850
<OTHER-SE> 0 30,456
<TOTAL-LIABILITY-AND-EQUITY> 0 536,570
<SALES> 408,841 611,546
<TOTAL-REVENUES> 408,841 611,546
<CGS> 239,137 359,123
<TOTAL-COSTS> 239,137 359,123
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,878 1,029
<INTEREST-EXPENSE> 22,270 28,587
<INCOME-PRETAX> (28,875) 33,785
<INCOME-TAX> 10,072 (14,627)
<INCOME-CONTINUING> (18,803) 19,158
<DISCONTINUED> 0 0
<EXTRAORDINARY> (1,154) 0
<CHANGES> 0 0
<NET-INCOME> (19,957) 19,158
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
