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TRIARC COMPANIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 28, 1997
________________________________________________________________________________
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 DECEMBER 28, 1997.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________.
COMMISSION FILE NUMBER 1-2207
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TRIARC COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 38-0471180
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
280 PARK AVENUE
NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 451-3000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------------- ----------------------------
CLASS A COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the outstanding shares of the registrant's
Class A Common Stock (the only class of the registrant's voting securities) held
by non-affiliates of the registrant was approximately $494,750,000 as of March
15, 1998. There were 24,659,744 shares of the registrant's Class A Common Stock
and 5,997,622 shares of the registrant's Class B Common Stock outstanding as of
March 15, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this 10-K incorporates information by reference from an
amendment hereto or to the registrant's definitive proxy statement, in either
case which will be filed no later than 120 days after December 28, 1997.
________________________________________________________________________________
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Certain statements in this Annual Report on Form 10-K (this "Form 10-K"),
including statements under "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations," that
are not historical facts, including most importantly, those statements preceded
by, followed by, or that include the words "may," "believes," "expects,"
"anticipates," or the negation thereof, or similar expressions, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Triarc Companies, Inc. ("Triarc"
or the "Company") and its subsidiaries to be materially different from any
future results, performance or achievements express or implied by such
forward-looking statements. Such factors include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; development and operating costs; advertising and
promotional efforts; brand awareness; the existence or absence of adverse
publicity; market acceptance of new product offerings; new product and concept
development by competitors; changing trends in customer tastes; the success of
multi-branding; availability, location and terms of sites for restaurant
development; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel; labor and
employee benefit costs; availability and cost of raw materials and supplies;
changes in, or failure to comply with, government regulations; regional weather
conditions; changes in wholesale propane prices; the costs and other effects of
legal and administrative proceedings; pricing pressures from competitive
discounting; general economic, business and political conditions in countries
and territories where the Company operates; the impact of such conditions on
consumer spending; and other risks and uncertainties referred in this Form 10-K,
National Propane Partners, L.P.'s registration statement on Form S-1 and other
current and periodic filings by Triarc, RC/Arby's Corporation and National
Propane Partners, L.P. with the Securities and Exchange Commission. Triarc will
not undertake and specifically declines any obligation to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events. In addition, it is
Triarc's policy generally not to make any specific projections as to future
earnings, and Triarc does not endorse any projections regarding future
performance that may be made by third parties.
ITEM 1. BUSINESS.
INTRODUCTION
Triarc is predominantly a holding company which, through its subsidiaries,
is a consumer products company engaged in beverage and restaurant operations.
Triarc's beverage operations are conducted through the Triarc Beverage Group
("TBG"), which consists of Snapple Beverage Corp. ("Snapple"), which was
acquired by Triarc on May 22, 1997, Mistic Brands, Inc. ("Mistic"), Cable Car
Beverage Corporation ("Cable Car"), which was acquired by Triarc on November 25,
1997, and Royal Crown Company, Inc. ("Royal Crown"). The restaurant operations
are conducted through Arby's, Inc. (d/b/a Triarc Restaurant Group) ("TRG"). In
addition, Triarc has an equity interest in the liquefied petroleum gas business
through National Propane Corporation ("National Propane"), the managing general
partner of National Propane Partners, L.P. (the "Partnership") and its operating
subsidiary partnership, National Propane, L.P. (the "Operating Partnership").
Prior to December 23, 1997, Triarc also was engaged in the dyes and specialty
chemical business through C.H. Patrick & Co., Inc. ("C.H. Patrick"). On such
date, C.H. Patrick was sold. See "Item 1 -- Business -- Recent Dispositions."
For information regarding the revenues, operating profit and identifiable assets
for Triarc's businesses for the fiscal year ended December 28, 1997, see "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 23 to the Consolidated Financial Statements of Triarc
Companies, Inc. and Subsidiaries (the "Consolidated Financial Statements").
Triarc's corporate predecessor was incorporated in Ohio in 1929. Triarc
was reincorporated in Delaware, by means of a merger, in June 1994. Triarc's
principal executive offices are located at 280 Park Avenue, New York, New York
10017 and its telephone number is (212) 451-3000.
BUSINESS STRATEGY
The key elements of Triarc's business strategy include (i) focusing Triarc's
resources on its consumer products businesses -- beverages and restaurants, (ii)
building strong operating management teams for each of the businesses and (iii)
providing strategic leadership and financial resources to enable the management
teams to develop and implement specific, growth-oriented business plans.
The senior operating officers of Triarc's businesses have implemented
individual plans focused on increasing revenues and improving operating
efficiency. In addition, Triarc continuously evaluates and holds discussions
with third parties regarding various acquisitions and business combinations to
augment its businesses. The implementation of this business strategy may result
in increases in expenditures for, among other things, acquisitions and, over
time, marketing and advertising. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations." It is Triarc's
policy to publicly announce an acquisition only after an agreement with respect
to such acquisition has been reached.
RECENT ACQUISITIONS
Acquisition of Snapple Beverage Corp.
On May 22, 1997, Triarc acquired Snapple from The Quaker Oats Company
("Quaker") for approximately $300 million. Snapple, which markets ready-to-drink
teas, juice drinks and juices, is a market leader in the premium beverage
category. Snapple, together with Mistic, Royal Crown and Cable Car, operates as
part of TBG. In connection with the acquisition, Snapple and Mistic entered into
a bank financing, the proceeds of which were used to finance the Snapple
acquisition, to refinance existing indebtedness of Mistic and to pay certain
fees and expenses associated with the acquisition. See "Item 1.
Business -- Business Segments -- Beverages."
Stewart's Acquisition
On November 25, 1997, Triarc acquired Cable Car (the "Stewart's
Acquisition"), through a merger, for an aggregate of 1,566,858 shares of
Triarc's Class A Common Stock. Accordingly, following the merger, Cable Car
became a wholly-owned subsidiary of Triarc. Cable Car markets premium carbonated
soft drinks in the United States and Canada, primarily under the Stewart's(R)
brand ("Stewart's"). See "Item 1. Business -- Business Segments -- Beverages."
RECENT DISPOSITIONS
Sale of Company-Owned Restaurants
On May 5, 1997, subsidiaries of Triarc sold to an affiliate of RTM, Inc.
("RTM"), the largest franchisee in the Arby's system, all of the stock of two
corporations owning all of Triarc's 355 company-owned Arby's restaurants. The
purchase price was approximately $73 million (including approximately $2 million
of post-closing adjustments), consisting primarily of the assumption of
approximately $69 million in mortgage indebtedness and capitalized lease
obligations. In connection with the transaction, the Company received options to
purchase up to an aggregate of 20% of the common stock of the two corporations
owning such restaurants. RTM and certain affiliated entities have agreed to
indemnify and hold the Company harmless from, among other things, the assumed
debt and lease obligations. In addition, the two corporations that were sold
agreed to build an aggregate of 190 Arby's restaurants over 14 years pursuant to
a development agreement (in addition to a previous agreement by affiliates of
RTM to build 210 Arby's restaurants over a ten and one-half year period).
Sale of C.H. Patrick
On December 23, 1997, Triarc sold all of the outstanding capital stock of
C.H. Patrick (the "C.H. Patrick Sale"), its dyes and specialty chemicals
subsidiary, to The B.F. Goodrich Company for $72 million in cash resulting in
net proceeds of approximately $64.4 million, net of post-closing adjustments and
expenses. Triarc used approximately $32 million of the proceeds from the C.H.
Patrick Sale to repay certain borrowings of C.H. Patrick. With the sale of C.H.
Patrick, Triarc completed the sale of all of its wholly-owned non- consumer
businesses.
Sale of C&C Beverage Line
On July 18, 1997, Royal Crown and TriBev Corporation, subsidiaries of
Triarc, completed the sale of their rights to the C&C beverage line, including
the C&C trademark. In connection with the sale, Royal Crown also agreed to sell
concentrate for C&C products and to provide certain technical services to the
buyer for seven years. In consideration for the foregoing, Royal Crown and
TriBev Corporation will receive aggregate payments of approximately $9.4
million, payable over seven years.
ISSUANCE OF ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES
On February 9, 1998 Triarc sold $360 million principal amount at maturity of
its Zero Coupon Convertible Subordinated Debentures due 2018 (the "Debentures")
to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), as the initial
purchaser for an offering to "qualified institutional buyers" (as defined under
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"))
in compliance with Rule 144A. The Debentures were issued at a discount of
72.177% from the principal amount thereof payable at maturity. The issue price
represents a yield to maturity of 6.5% per annum (computed on a semi-annual bond
equivalent basis). The net proceeds from the sale of the Debentures, after
deducting placement fees of approximately $3.0 million, were approximately $97.2
million. The Debentures are convertible into shares of Triarc's Class A Common
Stock at a conversion rate of 9.465 shares per $1,000 principal amount at
maturity, which represents an initial conversion price of approximately $29.40
per share of Common Stock. The conversion price will increase over the life of
the Debentures at 6.5% per annum computed on a semi-annual bond equivalent
basis. The conversion of all of the Debentures into Triarc's Class A Common
Stock would result in the issuance of approximately 3.4 million shares of Class
A Common Stock. The Debentures are not redeemable by Triarc prior to February 9,
2003, but may be redeemed by Triarc at any time thereafter.
In connection with the sale of the Debentures, Triarc purchased from Morgan
Stanley 1,000,000 shares of Triarc's Class A Common Stock for approximately
$25.6 million. The balance of the net proceeds from the sale of Debentures will
be used by Triarc for general corporate purposes, which may include working
capital, repayment or refinancing of indebtedness, acquisitions and investments.
Neither the Debentures nor the Class A Common Stock issuable upon conversion
were initially registered under the Securities Act, and may not be offered or
sold within the United States, unless so registered, except pursuant to an
exemption from the Securities Act, or in a transaction not subject to the
registration requirements of the Securities Act. This Form 10-K shall not
constitute an offer to sell or a solicitation of an offer to buy the Debentures
or the Class A Common Stock.
CANCELLATION OF SPINOFF TRANSACTIONS
On October 29, 1996, Triarc announced that its Board of Directors approved a
plan to offer up to approximately 20% of the shares of its beverage and
restaurant businesses to the public through an initial public offering and to
spinoff the remainder of the shares of such businesses to Triarc's stockholders
(collectively, the "Spinoff Transactions"). In May 1997 Triarc announced it
would not proceed with the Spinoff Transactions as a result of the acquisition
of Snapple and other issues.
DECONSOLIDATION OF NATIONAL PROPANE MASTER LIMITED PARTNERSHIP
Upon completion of an initial public offering in July 1996 (the "Propane
IPO") and a subsequent private placement in November 1996, Triarc, through its
subsidiary National Propane, held an approximately 42.7% interest (on a combined
basis) in the Operating Partnership, and the public held the remaining interest.
National Propane and its subsidiary, National Propane SGP, Inc. ("SGP"),
contributed substantially all of their assets to the Operating Partnership as a
capital contribution and the Operating Partnership assumed substantially all of
the liabilities of National Propane and SGP (other than certain income tax
liabilities).
National Propane, as managing general partner, adopted certain amendments
to the partnership agreements of the Partnership and the Operating Partnership,
effective December 28, 1997. As a result, Triarc's 42.7% interest in the
Partnership as of the close of business on such date is accounted for utilizing
the equity method. The financial position, cash flows and results of operations
of the Partnership were included in Triarc's consolidated financial statements
for all prior periods. See "Item 1. Business -- Business Segments -- Liquefied
Petroleum Gas (National Propane)" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
CHANGE IN FISCAL YEAR
Effective January 1, 1997, Triarc adopted a 52/53 week fiscal convention for
itself and each subsidiary (other than National Propane) whereby its fiscal year
will end each year on the Sunday that is closest to December 31 of such year.
Each fiscal year generally will be comprised of four 13 week fiscal quarters,
although in some years the fourth quarter will represent a 14 week period.
BUSINESS SEGMENTS
BEVERAGES
TRIARC BEVERAGE GROUP
TBG oversees Triarc's premium beverage operations, conducted by Snapple,
Mistic, and Cable Car, and its carbonated soft drink operations, conducted by
Royal Crown. TBG is headquartered in White Plains, New York.
PREMIUM BEVERAGES (SNAPPLE, MISTIC AND STEWART'S)
Snapple, acquired in May 1997, develops, produces and markets ready-to-drink
teas, juice drinks and juices and is a market leader in the premium beverage
category. Since acquiring Snapple, the Company has introduced several new
products, including Orange Tropic--Wendy's Tropical Inspiration(TM), three
herbal or green teas and Snapple Farms(TM), a line of 100% fruit juices which is
available in five flavors. In addition, Snapple has recently announced the
Spring 1998 introduction of WhipperSnapple(TM), a smoothie like beverage in
six flavors which is a proprietary blend of fruit juices and purees, dairy and
other natural ingredients packaged in a swirl shaped 10 oz. bottle.
Mistic's premium beverage business, acquired in August 1995, develops,
produces and markets a wide variety of premium beverages, including fruit
drinks, ready-to-drink teas, juices and sweetened seltzers under the Mistic(R),
Royal Mistic(R), Mistic Rain Forest(TM) and Mistic Fruit Blast(TM) brand names.
Since 1995, Mistic has introduced 34 new flavors, a line of 100% fruit juices,
various new bottle sizes and shapes and numerous new package designs. In
addition, Mistic's product offerings are being further enhanced with the March
1998 introduction of Mistic Potions(TM) beverages. These beverages contain
herbal additives, such as ginseng, ginko bilboa and echinachea.
The Stewart's premium beverage business, acquired in November 1997, sells
Stewart's(R) brand premium soft drinks (Root Beer, Orange N' Cream, Cream Ale,
Ginger Beer, Classic Key Lime, Lemon Meringue and Cherries N' Cream) to beverage
distributors throughout the United States and Canada. Stewart's has also
announced the April 1998 introduction of "Creamy Style Draft Cola", an old-
fashioned soda fountain style cola. Cable Car holds the exclusive worldwide
license to manufacture, distribute and sell Stewart's brand beverages. Cable
Car sells both concentrate to regional soft drink bottlers and finished goods
to distributors.
BUSINESS STRATEGY
TBG's management has developed and is implementing business strategies for
its premium beverage business that focus on: (i) capitalizing on the strength of
its well known brand names in its marketing and advertising efforts to increase
brand awareness and loyalty; (ii) developing new products; (iii) developing
innovative new packaging concepts, including labels and bottle shapes; (iv)
employing innovative advertising and promotions; (v) developing strong long-term
relationships with distributors; (vi) expanding and diversifying product
offerings through acquisitions; (vii) expanding distribution in existing and new
geographic markets and channels of trade; and (viii) enhancing promotional and
equipment programs.
PRODUCTS
TBG's premium beverage products compete in a number of product categories,
including fruit flavored beverages, iced teas, lemonades, carbonated sodas, 100%
fruit juices, nectars and flavored seltzers. These products are generally
available in some combination of 32 oz., 16 oz. or 12 oz. glass bottles, 32 oz.,
and 20 oz. PET (plastic) bottles and 12 oz. and 11.5 oz. cans.
CO-PACKING ARRANGEMENTS
TBG's premium beverage products are produced by co-packers or bottlers under
formulation requirements and quality control procedures specified by TBG. TBG
selects and monitors the producers to ensure adherence to TBG's production
procedures. TBG regularly analyzes samples from production runs and conducts
spot checks of production facilities. TBG and Triarc also purchase most
packaging and raw materials and arrange for their shipment to TBG's co-packers
and bottlers. TBG's three largest co-packers accounted for approximately 50% of
TBG's aggregate case production of premium beverages during 1997.
TBG's contractual arrangements with its co-packers for its premium beverage
products are typically for a fixed term and are renewable at TBG's option.
During the term of the agreement, the co-packer generally commits a certain
amount of its monthly production capacity to TBG. Under substantially all of its
contracts Snapple has committed to order certain guaranteed volumes. Should the
volume actually ordered be less than the guaranteed volume, Snapple is required
to pay the co-packer the product of (i) an amount per case specified in the
agreement and (ii) the difference between the volume actually ordered and the
guaranteed volume. At December 28, 1997, Snapple had reserves of approximately
$22 million for payments through 2000 under its long-term production contracts
with co-packers. Mistic has committed to order a certain guaranteed volume (in
two instances) or percentage of its products sold in a region (in another
instance) or to make payments in lieu thereof. There are no agreements
containing minimum purchase requirements for Cable Car. As a result of its
co-packing arrangements, TBG's operations have not required significant capital
expenditures or investments for bottling facilities or equipment, and
accordingly its production related fixed costs have been minimal.
TBG's management believes it has sufficient production capacity to meet its
1998 requirements and that, in general, the industry has excess production
capacity that it can utilize if required.
RAW MATERIALS
Most raw materials used in the preparation and packaging of TBG's premium
beverage products are purchased by TBG and Triarc and supplied to TBG's
co-packers. Adequate sources of such raw materials are available to TBG and
Triarc from multiple suppliers, however, TBG and Triarc have chosen, for quality
control and other purposes, to purchase certain raw materials (such as
aspartame) on an exclusive basis from single suppliers. TBG and Triarc purchase
all of TBG's flavor requirements from nine suppliers, although one supplier has
been designated as TBG's preferred supplier of flavors, and all of TBG's glass
bottles are purchased from three suppliers, although one supplier has the right
to supply up to 75% of TBG's requirements for certain specified packages. In
connection with the acquisition of Snapple, Quaker agreed to supply certain of
Snapple's requirements for 20 oz. PET bottles. Since the acquisition of Snapple,
TBG has been negotiating and continues to negotiate, new supply and pricing
arrangements with its suppliers. TBG and Triarc believe that, if required,
alternate sources of raw materials, flavors and glass bottles are available to
them.
DISTRIBUTION
TBG's premium beverages are currently sold 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. International
distribution is primarily through one distributor in each country, other than in
Canada, where Perrier Group of Canada Ltd. is Snapple's master distributor and
where brokers and direct account selling are also used. Distributors are
typically granted exclusive rights to sell Snapple, Mistic and/or Stewart's
products within a defined territory. TBG has written agreements with
distributors who represent approximately 80% of TBG's volume. The agreements are
typically either for a fixed term renewable upon mutual consent or perpetual,
and are terminable by TBG for cause, upon certain defaults or failure to perform
under the agreement. The distributor, though, may generally terminate its
agreement upon specified prior notice. Snapple also owns two of its largest
distributors, Mr. Natural Inc. (New York) and Pacific Snapple Distributors, Inc.
(California).
Case sales to TBG's largest distributor (excluding Snapple-owned
distributors), represented approximately 4% of case sales in each of 1996 and
1997. TBG believes that, if required, there would be adequate alternative
distributors available if TBG's relationship with such distributor were to be
terminated.
Although TBG's products are sold primarily to convenience stores, small
retailers and delicatessens as a "single-serve, cold box" item, TBG has expanded
the distribution of its premium beverage products to include supermarkets and
other channels of distribution, such as mass merchandisers, national drug chains
and warehouse clubs.
International sales accounted for less than 10% of TBG's premium beverage
sales in each of 1995, 1996 and 1997. Since the acquisition of Snapple, Royal
Crown's international group has assumed responsibility for the sales and
marketing of TBG's premium beverages outside North America.
SALES AND MARKETING
Snapple, Mistic and Cable Car employ their own sales and marketing staffs
although there is some overlap of the Snapple and Mistic sales forces in certain
geographic areas where distributors sell both brands. 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.
Snapple's and Mistic's sales forces are organized by geographic zones under the
direction of Zone Sales Vice Presidents, Division Managers, Regional Sales
Managers and Trade Development Managers. Cable Car's sales force is organized
into two divisions and is managed by Division Vice Presidents, Regional Sales
Managers and District Sales Managers. TBG's sales and marketing staff (excluding
that of Snapple-owned distributors) was approximately 260 as of December 28,
1997.
TBG intends to maintain consistent advertising campaigns for its brands as
an integral part of its strategy to stimulate consumer demand and increase brand
loyalty. In 1998, TBG plans to employ a combination of network advertising
complemented with local spot advertising in its larger markets; in most markets,
television is expected to be the primary advertising medium and radio the
secondary medium. TBG also employs outdoor, newspaper and other print media
advertising, as well as in-store point of sale promotions.
CARBONATED SOFT DRINKS (ROYAL CROWN)
Royal Crown produces and sells concentrates used in the production of soft
drinks which are sold domestically and internationally to independent, licensed
bottlers who manufacture and distribute finished beverage products. Royal
Crown's major products have significant recognition and include: RC Cola(R),
Diet RC Cola(R), Diet Rite Cola(R), Diet Rite(R) flavors, Nehi(R), Upper 10(R),
and Kick(R). Further, Royal Crown is the exclusive supplier of cola concentrate
and a primary supplier of flavor concentrates to Cott Corporation ("Cott") which
sells private label soft drinks to major retailers in the United States, Canada,
the United Kingdom, Australia, Japan, Spain and South Africa.
RC Cola is the third largest national brand cola and is the only national
brand cola available to bottlers who do not bottle either Coca-Cola or
Pepsi-Cola. Diet Rite is available in a cola as well as various other flavors
and is the only national brand that is sugar-free (sweetened with 100%
aspartame, a non-nutritive sweetener), sodium-free and caffeine-free. Diet RC
Cola is the no-calorie version of RC Cola containing aspartame as its sweetening
agent. Nehi is a line of approximately 20 flavored soft drinks, Upper 10 is a
lemon-lime soft drink and Kick is a citrus soft drink. Royal Crown's share of
the overall domestic carbonated soft drink market was approximately 1.9% in 1997
according to Beverage Digest/Maxwell estimates. Royal Crown's soft drink brands
have approximately a 1.7% share of national supermarket volume, as measured by
data of Information Resources, Inc. ("IRI").
BUSINESS STRATEGY
TBG's management is pursuing business strategies designed to strengthen
Royal Crown's distribution system, make more effective use of its marketing
resources, continue the expansion of its international and private label
businesses, develop new packages and concentrate resources on its core brands.
As a result, in January 1997 Triarc sold its interest in Saratoga Beverage
Group, Inc. ("Saratoga") and Royal Crown terminated its relationship with
Saratoga. In addition, in July 1997 Royal Crown completed the sale of its rights
to the C&C beverage line, including the C&C trademark. Royal Crown's license
relationship with Celestial Seasonings Inc. for ready to drink iced teas
terminated as of December 31, 1997.
ADVERTISING AND MARKETING
A principal determinant of success in the soft drink industry is the ability
to establish a recognized brand name, the lack of which serves as a significant
barrier to entry to the industry. Advertising, promotions and marketing
expenditures in 1995, 1996 and 1997 were approximately $73.7 million, $61.7
million and $56.1 million, respectively. Royal Crown believes that its products
continue to enjoy nationwide brand recognition.
ROYAL CROWN'S BOTTLER NETWORK
Royal Crown sells its flavoring concentrates for branded products to
independent licensed bottlers in the United States and 61 foreign countries,
including Canada. Consistent with industry practice, each bottler is assigned an
exclusive territory for bottled and canned products within which no other
bottler may distribute Royal Crown branded soft drinks. As of December 28, 1997,
Royal Crown products were packaged and/or distributed domestically in 152
licensed territories, by 172 licensees, covering 50 states. There were a total
of 45 production centers operating pursuant to 48 production and distribution
agreements and 126 distribution only agreements.
Royal Crown enters into a license agreement with each of its bottlers which
it believes is comparable to those prevailing in the industry. The duration of
the license agreements varies, but Royal Crown may terminate any such agreement
in the event of a material breach of the terms thereof by the bottler that is
not cured within a specified period of time.
Royal Crown's ten largest bottler groups accounted for approximately 68%
and 74% of Royal Crown's domestic unit sales of concentrate for branded products
during 1996 and 1997, respectively. The two largest bottler groups, the RC
Chicago Bottling Group and Beverage America, accounted for approximately 22% and
9%, respectively, of Royal Crown's domestic unit sales of concentrate for
branded products during 1996 and 27% and 9%, respectively, during 1997. Royal
Crown believes that, if required, there would be adequate alternative bottlers
available if Royal Crown's relationships with the RC Chicago Bottling Group and
Beverage America were terminated.
PRIVATE LABEL
Royal Crown believes that private label sales through Cott, a leading
supplier of private label soft drinks, represent an opportunity to benefit from
sales by retailers of store brands. Royal Crown's private label sales began in
late 1990. Unit sales of concentrate to Cott in 1997 increased by 4.6% over
sales in 1996. In 1995, 1996 and 1997, revenues from sales to Cott represented
approximately 12.1%, 12.6% and 15.8%, respectively, of Royal Crown's total
revenues.
Royal Crown provides concentrate to Cott pursuant to a concentrate supply
agreement entered into in 1994 (the "Cott Worldwide Agreement"). Under the Cott
Worldwide Agreement, Royal Crown is Cott's exclusive worldwide supplier of cola
concentrates for retailer-branded beverages in various containers. In addition,
Royal Crown also supplies Cott with non-cola carbonated soft drink concentrates.
The Cott Worldwide Agreement requires that Cott purchase at least 75% of its
total worldwide requirements for carbonated soft drink concentrates from Royal
Crown. The initial term of the Cott Worldwide Agreement is 21 years, with
multiple six-year extensions.
The Cott Worldwide Agreement provides that, as long as Cott purchases a
specified minimum number of units of private label concentrate in each year of
the Cott Worldwide Agreement, Royal Crown will not manufacture and sell private
label carbonated soft drink concentrates to parties other than Cott anywhere in
the world.
Through its private label program, Royal Crown develops new concentrates
specifically for Cott's private label accounts. The proprietary formulae Royal
Crown uses for its private label program are customer specific and differ from
those of Royal Crown's branded products. Royal Crown works with Cott to develop
flavors according to each trade customer's specifications. Royal Crown retains
ownership of the formulae for such concentrates developed after the date of the
Cott Worldwide Agreement, except upon termination of the Cott Worldwide
Agreement as a result of breach or non-renewal by Royal Crown.
PRODUCT DISTRIBUTION
Bottlers distribute finished soft drink products through four major
distribution channels: take home (consisting of supermarkets, drug stores, mass
merchandisers, warehouses and discount stores); convenience (consisting of
convenience stores and retail gas station mini-markets); fountain/food service
(consisting of fountain syrup sales and restaurant single drink sales); and
vending (consisting of bottle and can sales through vending machines). The take
home channel is the principal channel of distribution for Royal Crown products.
According to IRI data, the volume of Royal Crown products in supermarkets and
drug stores in 1997 declined approximately 14.6% and 19.9%, respectively, as
compared to 1996, while the volume of Royal Crown products in mass merchandisers
increased approximately 28.2% in 1997. Royal Crown brands historically have not
been broadly distributed through vending machines or convenience outlets; in
1997, the volume of Royal Crown products in the convenience channel was
relatively unchanged, down approximately 0.2% as compared to 1996.
INTERNATIONAL
Sales outside the United States accounted for approximately 9.6%, 10.3% and
11.5% of Royal Crown's sales in 1995, 1996, and 1997, respectively. Sales
outside the United States of branded concentrates accounted for approximately
10.2%, 12.3% and 13.9% of branded concentrate sales in 1995, 1996 and 1997,
respectively. As of December 28, 1997, 92 bottlers and 13 distributors sold
Royal Crown branded products outside the United States in 64 countries, with
international sales in 1997 distributed among Canada (8.1%), Latin America and
Mexico (32.1%), Europe (22.4%), the Middle East/Africa (18.6%) and the Far East
(18.8%). While the financial and managerial resources of Royal Crown have been
focused on the United States, TBG's management believes significant
opportunities exist for Royal Crown in international markets. New bottlers were
added in 1997 to the following international markets: Russia, Ukraine, Croatia,
Latvia, Brazil and Bangladesh.
PRODUCT DEVELOPMENT AND RAW MATERIALS
Royal Crown believes that it has a reputation as an industry leader in
product innovation. Royal Crown introduced the first national brand diet cola in
1961. The Diet Rite flavors line was introduced in 1988 to complement the cola
line and to target the non-cola segment of the market, which has been growing
faster than the cola segment due to a consumer trend toward lighter beverages.
In 1997, Royal Crown introduced a new version of Diet Rite Cola.
From time to time, Royal Crown purchases as much as a year's supply of
certain raw materials to protect itself against supply shortages, price
increases and/or political instabilities in the countries from which such raw
materials are sourced. Flavoring ingredients and sweeteners are generally
available on the open market from several sources. As noted above, TBG and
Triarc have agreed to purchase certain raw materials on an exclusive or
preferred basis from single suppliers.
RESTAURANTS (TRIARC RESTAURANT GROUP)
SALE OF COMPANY-OWNED RESTAURANTS
On May 5, 1997, subsidiaries of Triarc sold (the "Restaurant Sale") their
355 company-owned Arby's restaurants to an affiliate of RTM, the largest
franchisee in the Arby's system. See "Item 1. -- Business -- Recent
Dispositions." Focused solely as a franchisor, TRG has reduced from recent
historical levels the operating costs of the restaurant segment and
substantially eliminated capital expenditure requirements, thereby improving its
cash flows. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." TRG's role in the Arby's(R) system as the
franchisor is to enhance the strength of the Arby's brand by increasing the
number of restaurants in the Arby's system and by establishing a "cut above"
positioning for the Arby's brand through upgraded menu items and facilities,
while continuing to bring new concepts to the system, such as T.J. Cinnamons(R)
and p.t. Noodles(R).
GENERAL
Arby's is the world's largest franchise restaurant system specializing in
slow-roasted meat sandwiches with an estimated market share in 1997 of
approximately 73% of the roast beef sandwich segment of the quick service
sandwich restaurant category. In addition, Triarc believes that Arby's is the
10th largest quick service restaurant chain in the United States, based on
domestic system-wide sales. As of December 28, 1997, the Arby's restaurant
system consisted of 3,091 franchised restaurants, of which 2,913 operated within
the United States and 178 operated outside the United States. System-wide sales
were approximately $1.9 billion in 1995, approximately $2.0 billion in 1996 and
approximately $2.1 billion in 1997.
In addition to its various slow-roasted meat sandwiches, Arby's restaurants
also offer a selected menu of chicken, submarine sandwiches, side-dishes and
salads. A breakfast menu is also available at some Arby's restaurants. In
addition, Arby's currently multi-brands with T.J. Cinnamons products, primarily
gourmet cinnamon rolls, premium coffees and related products, and p.t. Noodle's
products, which are pasta dishes based on serving corkscrew or fettucine pasta
with a variety of different sauces. TRG intends to expand its multi-branding
efforts which will add other brands' items to Arby's menu items at such multi-
branded restaurants. See " -- Multi-Branding" below.
As a result of the sale of the company-owned restaurants to RTM, TRG's
revenues are derived from two principal sources: (i) royalties from franchisees
and (ii) franchise fees. Prior to the Restaurant Sale, TRG's revenues were
principally derived from sales at company-owned restaurants. During 1995, 1996,
and 1997 approximately 80%, 80% and 53%, respectively, of TRG's revenues were
derived from sales at company-owned restaurants and approximately 20%, 20% and
47%, respectively, were derived from royalties and franchise fees.
INDUSTRY
According to data compiled by the National Restaurant Association, total
domestic restaurant industry sales were estimated to be approximately $207
billion in 1996, of which approximately $98 billion were estimated to be in the
Quick Service Restaurant ("QSR") or fast food segment. Large chains are
continuing to gain a greater share of industry sales. According to Technomic,
Inc., the 100 largest restaurant chains accounted for approximately 48.4% of
restaurant industry sales in 1995, up from approximately 39.7% in 1980. The QSR
segment accounts for approximately 70% of sales and 83% of restaurant units
within the top 100 restaurant chains, according to a study by Franchise Finance
Corporation of America.
ARBY'S RESTAURANTS
The first Arby's restaurant opened in Youngstown, Ohio in 1964. As of
December 28, 1997, Arby's restaurants were being operated in 48 states and 10
foreign countries. At December 28, 1997, the six leading states by number of
operating units were: Ohio, with 234 restaurants; Texas, with 181 restaurants;
California, with 161 restaurants; Michigan, with 154 restaurants; and Georgia
and Indiana, with 152 restaurants each. The country outside the United States
with the most operating units is Canada, with 119 restaurants.
Arby's restaurants in the United States and Canada typically range in size
from 700 square feet to 4,000 square feet. Restaurants in other countries
typically are larger than U.S. and Canadian restaurants. Restaurants typically
have a manager, assistant manager and as many as 30 full and part-time
employees. Staffing levels, which vary during the day, tend to be heaviest
during the lunch hours.
The following table sets forth the number of company-owned and franchised
Arby's restaurants at December 31, 1995 and 1996 and at December 28, 1997.
DECEMBER 31, DECEMBER 28,
-------------- ------------
1995 1996 1997
----- ----- -----
Company-owned restaurants........................ 373 355 0
Franchised restaurants.................... ......2,577 2,667 3,091
----- ----- -----
Total restaurants................... 2,950 3,022 3,091
===== ===== =====
FRANCHISE NETWORK
At December 28, 1997, there were 574 Arby's franchisees operating 3,091
separate locations. The initial term of the typical "traditional" franchise
agreement is 20 years. As of December 28, 1997, TRG did not offer any financing
arrangements to its franchisees, except that in certain development agreements
TRG has made available extended payment terms.
As of December 28, 1997, TRG had received prepaid commitments for the
opening of up to 592 new domestic franchised restaurants over the next ten
years. TRG also expects that 15 new franchised restaurants outside of the United
States will open in 1998. TRG also has territorial agreements with international
franchisees in four countries at December 28, 1997. Under the terms of these
territorial agreements, many of the international franchisees have the exclusive
right to open Arby's restaurants in specific regions or countries. TRG's
management expects that future international franchise agreements will more
narrowly limit the geographic exclusivity of the franchisees and prohibit
sub-franchise arrangements.
TRG offers franchises for the development of both single and multiple
"traditional" restaurant locations. All franchisees are required to execute
standard franchise agreements. TRG's standard U.S. franchise agreement currently
requires an initial $37,500 franchise fee for the first franchised unit and
$25,000 for each subsequent unit and a monthly royalty payment equal to 4.0% of
restaurant sales for the term of the franchise agreement. As a result of lower
royalty rates still in effect under earlier agreements, the average royalty rate
paid by franchisees during 1997 was 3.2%. Franchisees typically pay a $10,000
commitment fee, credited against the franchise fee referred to above, during the
development process for a new traditional restaurant.
Franchised restaurants are required to be operated in accordance with
uniform operating standards and specifications relating to the selection,
quality and preparation of menu items, signage, decor, equipment, uniforms,
suppliers, maintenance and cleanliness of premises and customer service. TRG
continuously monitors franchisee operations and inspects restaurants
periodically to ensure that company practices and procedures are being followed.
MULTI-BRANDING
TRG has developed a multi-branding strategy, which allows a single
restaurant to offer the consumer distinct, but complementary, brands at the same
restaurant. Collaborating to offer a broader menu is intended to increase sales
per square foot of facility space, a key measure of return on investment in
retail operations. Because lunchtime customers account for the majority of sales
at Arby's restaurants, TRG seeks multi-branding concepts that it expects will
attract higher breakfast or dinner traffic. TRG currently has two multi-brand
concepts: T.J. Cinnamons and p.t. Noodles. T.J. Cinnamons offers gourmet
cinnamon rolls, premium coffees and related products. p.t. Noodles offers a
variety of Italian and American dishes based on serving corkscrew or fettucine
pasta with a variety of different sauces. As of December 28, 1997, 127 Arby's
restaurants were multi-brand locations, including 119 that offered T.J.
Cinnamons' products and eight that offered p.t. Noodles' products.
ADVERTISING AND MARKETING
TRG advertises primarily through regional television, radio and
newspapers. Payment for advertising time and space is made by local advertising
cooperatives in which owners of local franchised restaurants participate.
Franchisees contribute 0.7% of gross sales to the Arby's Franchise Association
("AFA"), which produces advertising and promotion materials for the system. Each
franchisee is also required to spend a reasonable amount, but not less than 3%
of its monthly gross sales, for local advertising. This amount is divided
between the franchisee's individual local market advertising expense and the
expenses of a cooperative area advertising program with other franchisees who
are operating Arby's restaurants in that area. Contributions to the cooperative
area advertising program are determined by the participants in the program
and are generally in the range of 3% to 5% of monthly gross sales. As a
result of the Restaurant Sale in May 1997, TRG's expenditures for
advertising and marketing in support of what were then company-owned
restaurants, were approximately $9.0 million in 1997, as compared to
approximately $25.8 million and $22.7 million in 1996 and 1995, respectively.
QUALITY ASSURANCE
TRG has developed a quality assurance program designed to maintain
standards and uniformity of the menu selections at each of its franchised
restaurants. A full-time quality assurance employee is assigned to each of the
five independent processing facilities that process roast beef for Arby's
domestic restaurants. The quality assurance employee inspects the roast beef for
quality and uniformity. In addition, a laboratory at TRG's headquarters tests
samples of roast beef periodically from franchisees. Each year, representatives
of TRG conduct unannounced inspections of operations of a number of franchisees
to ensure that Arby's policies, practices and procedures are being followed.
TRG's field representatives also provide a variety of on-site consultative
services to franchisees.
PROVISIONS AND SUPPLIES
Arby's roast beef is provided by five independent meat processors.
Franchise operators are required to obtain roast beef from one of the five
approved suppliers. ARCOP, Inc. ("ARCOP"), a non-profit purchasing cooperative,
negotiates contracts with approved suppliers on behalf of Arby's franchisees,
and has entered into "cost-plus" contracts with these suppliers. TRG believes
that satisfactory arrangements could be made to replace any of the current roast
beef suppliers, if necessary, on a timely basis.
Franchisees may obtain other products, including food, beverage,
ingredients, paper goods, equipment and signs, from any source that meets TRG's
specifications and approval, which products are available from numerous
suppliers. Food, proprietary paper and operating supplies are also made
available, through national contracts employing volume purchasing, to Arby's
franchisees through ARCOP.
LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE)
National Propane, as managing general partner of the Partnership and the
Operating Partnership, is engaged primarily in (i) the retail marketing of
liquefied petroleum gas ("propane") to residential, commercial and industrial,
and agricultural customers and to dealers that resell propane to residential and
commercial customers and (ii) the retail marketing of propane related supplies
and equipment, including home and commercial appliances. Triarc believes that
the Partnership is the sixth largest retail marketer of propane in terms of
volume in the United States. As of December 28, 1997, the Partnership had 159
full service centers supplying markets in 24 states. The Partnership's
operations are located primarily in the Midwest, Northeast, Southeast, and West
regions of the United States.
As noted above, effective as of the close of business on December 28,
1997, Triarc's interest in the Partnership is accounted for utilizing the equity
method. See "Item 1. Business -- Deconsolidation of National Propane Master
Limited Partnership."
BUSINESS STRATEGY
The Partnership's operating strategy is to increase efficiency,
profitability and competitiveness, while better serving its customers, by
building on the efforts it has already undertaken to improve pricing management,
marketing and purchasing. In addition, the Partnership's strategies for growth
involve expanding its operations and increasing its market share through
internal growth and possibly through acquisitions. The Partnership also
intends to continue to expand its business by opening new service centers, known
as "scratch-starts," in areas where there is relatively little competition.
Scratch-starts typically involve minimal startup costs because the
infrastructure of the new service center is developed as the customer base
expands and the Partnership can, in many circumstances, transfer existing
assets, such as storage tanks and vehicles, to the new service center.
During 1997, the Partnership opened five new scratch-start service centers.
The Partnership intends to take two approaches to acquisitions: (i)
primarily to build on its broad geographic base by acquiring smaller,
independent competitors that operate within the Partnership's existing
geographic areas and (ii) to acquire propane businesses in areas in the United
States outside of its current geographic base where it believes there is
growth potential. In 1997 the Partnership acquired eight propane businesses
for an aggregate purchase price of approximately $9.2 million.
PRODUCTS, SERVICES AND MARKETING
The Partnership distributes its propane through a nationwide
distribution network integrating 159 full service centers located in 23 states.
Typically, service centers are found in suburban and rural areas where natural
gas is not readily available. Generally, such locations consist of an office and
a warehouse and service facility, with one or more 18,000 to 30,000 gallon
storage tanks on the premises. Each service center is managed by a district
manager and also typically employs a customer service representative, a service
technician and one or two bulk truck drivers. However, new "scratch-start"
service centers may not have offices, warehouses or service facilities and are
typically staffed initially by one or two employees.
Retail deliveries of propane are usually made to customers by means of
bulk and cylinder trucks. Propane is pumped from the bulk truck into a
stationary storage tank on the customer's premises. Typically, service centers
deliver propane to most of their residential customers at regular intervals,
based on estimates of such customers' usage, thereby eliminating the customers'
need to make affirmative purchase decisions. The Partnership also delivers
propane to retail customers in portable cylinders. The Partnership also delivers
propane to certain other retail customers, primarily dealers and large
commercial accounts, in larger trucks. Propane is generally transported from
refineries, pipeline terminals and storage facilities (including the
Partnership's underground storage facilities in Hutchinson, Kansas and Loco
Hills, New Mexico) to the Partnership's bulk plants by a combination of common
carriers, owner-operators, railroad tank cars and, in certain circumstances, the
Partnership's own highway transport fleet.
In 1997 the Partnership served approximately 250,000 active customers.
No single customer accounted for 10% or more of the Partnership's revenues in
1996 or 1997. Year-to-year demand for propane is affected by the relative
severity of the winter and other climatic conditions.
The Partnership also sells, leases and services equipment related to its
propane distribution business. In the residential market, the Partnership sells
household appliances, such as cooking ranges, water heaters, space heaters,
central furnaces and clothes dryers, as well as barbecue equipment and gas logs.
In the industrial market, the Partnership sells or leases specialized equipment
for the use of propane as fork lift truck fuel, in metal cutting and atmospheric
furnaces and for portable heating for construction. In the agricultural market,
specialized equipment is leased or sold for the use of propane as engine fuel
and for chicken brooding and crop drying. The sale of specialized equipment,
service income and rental income represented less than 10% of the Partnership's
gross income during 1997. Parts and appliance sales, installation and service
activities are conducted through a wholly-owned corporate subsidiary of the
Operating Partnership.
PROPANE SUPPLY AND STORAGE
Contracts for the supply of propane are typically made on a year-to-year
basis, but the price of the propane to be delivered depends upon market
conditions at the time of delivery. Worldwide availability of both gas liquids
and oil affects the supply of propane in domestic markets, and from time to time
the ability to obtain propane at attractive prices may be limited as a result of
market conditions, thus affecting price levels to all distributors of propane.
There may be times when the Partnership will be unable to fully pass on cost
increases to its customers. Consequently, the Partnership's profitability will
be sensitive to changes in wholesale propane prices, and a substantial increase
in the wholesale cost of propane could adversely affect the Partnership's
margins and profitability. The Partnership utilizes a hedging program which is
designed to protect margins on fixed price retail sales and to mitigate the
potential impact of sudden wholesale price increases for propane.
The Partnership purchased propane from over 35 domestic and Canadian
suppliers during 1997, primarily major oil companies and independent producers
of both gas liquids and oil, and it also purchased propane on the spot market.
In 1997, the Partnership purchased approximately 90% and 10% of its propane
supplies from domestic and Canadian suppliers, respectively. Approximately 95%
of all propane purchases by the Partnership in 1997 were on a contractual basis
(generally, under one year agreements subject to annual renewal), but the
percentage of contract purchases may vary from year to year as determined by
National Propane. Supply contracts generally do not lock in prices but rather
provide for pricing in accordance with posted prices at the time of delivery or
the current prices established at major storage points, such as Mont Belvieu,
Texas and Conway, Kansas. The Partnership is not currently a party to any supply
contracts containing "take or pay" provisions.
Warren Petroleum Company ("Warren") supplied 16% of the Partnership's
propane in 1997 and Amoco and Conoco each supplied approximately 10%. The
Partnership believes that if supplies from Warren, Amoco or Conoco were
interrupted, it would be able to secure adequate propane supplies from other
sources without a material disruption of its operations; however, the
Partnership believes that the cost of procuring replacement supplies might be
materially higher, at least on a short-term basis.
The Partnership owns underground storage facilities in Hutchinson,
Kansas and Loco Hills, New Mexico, leases property for above ground storage
facilities in Crandon, Wisconsin and Orlando, Florida, and owns or leases
smaller storage facilities in other locations throughout the United States. As
of December 28, 1997, the Partnership's total storage capacity was approximately
33.1 million gallons (including approximately one million gallons of storage
capacity currently leased to third parties).
GENERAL
TRADEMARKS
Triarc and its affiliates (including the Partnership and the Operating
Partnership) own numerous trademarks that are considered material to their
business, including Snapple(R), Made From The Best Stuff On Earth(R), Mistic,
Royal Mistic, Mistic Rain Forest, Mistic Fruit Blast, Fountain Classics(R), RC
Cola, Diet RC, Royal Crown, Diet Rite, Nehi, Upper 10, Kick, Arby's, and
National PropaneTM. Cable Car licenses the Stewart's trademark on an exclusive
basis for soft drinks and considers it to be material to its business. In
addition, TBG considers its finished product and concentrate formulae, which are
not the subject of any patents, to be trade secrets. Pursuant to its standard
franchise agreement, TRG grants each of its franchisees the right to use Arby's
trademarks, service marks and trade names in the manner specified therein.
Many of the material trademarks of Snapple, Mistic, Royal Crown, Cable
Car, and TRG are registered trademarks in the U.S. Patent and Trademark Office
and various foreign jurisdictions. Registrations for such trademarks in the
United States will last indefinitely as long as the trademark owners continue to
use and police the trademarks and renew filings with the applicable governmental
offices. No challenges have arisen to Snapple's, Mistic's, Royal Crown's,
Cable Car's or TRG's right to use any of their material trademarks in the United
States.
COMPETITION
Triarc's businesses operate in highly competitive industries. Many of
the major competitors in these industries have substantially greater financial,
marketing, personnel and other resources than does Triarc.
TBG's premium beverage products and soft drink products compete
generally with all liquid refreshments and in particular with numerous
nationally-known soft drinks such as Coca-Cola and Pepsi-Cola and New Age
beverages. TBG also competes with ready to drink brewed iced tea competitors
such as Nestea Iced Tea (pursuant to a long-term license granted by Nestle S.A.
to The Coca-Cola Company) and Lipton Original Iced Tea (distributed by a joint
venture between PepsiCo, Inc. and Thomas J. Lipton Company, a subsidiary of
Unilever Plc). TBG competes with other beverage companies not only for consumer
acceptance but also for shelf space in retail outlets and for marketing focus by
distributors, most of which also distribute other beverage brands. The principal
methods of competition in the beverage industry include product quality and
taste, brand advertising, trade and consumer promotions, marketing agreements
(including so called calendar marketing agreements), pricing, packaging and the
development of new products.
TRG faces direct and indirect competition from numerous well established
competitors, including national and regional fast food chains, such as
McDonalds, Burger King and Wendy's. In addition, TRG competes with locally owned
restaurants, drive-ins, diners and other food service establishments. Key
competitive factors in the QSR industry are price, quality of products, quality
and speed of service, advertising, name identification, restaurant location and
attractiveness of facilities.
In recent years, both the soft drink and restaurant businesses have
experienced increased price competition resulting in significant price
discounting throughout these industries. Price competition has been especially
intense with respect to sales of soft drink products in supermarkets, with
bottlers (and, in particular, competitive cola bottlers) granting significant
discounts and allowances off wholesale prices in order to, among other things,
maintain or increase market share in the supermarket segment. While the net
impact of price discounting in the soft drink and restaurant industries cannot
be quantified, such practices, if continued, could have an adverse impact on
Triarc.
Most of the Operating Partnership's service centers compete with several
marketers or distributors of propane and certain service centers compete with a
large number of marketers or distributors. The principal competitive factors
affecting this industry are reliability of service, responsiveness to customers
and the ability to maintain competitive prices. Propane competes primarily with
natural gas, electricity and fuel oil as an energy source, principally on the
basis of price, availability and portability. Propane serves as an alternative
to natural gas in rural and suburban areas where natural gas is unavailable or
portability of the product is required. Although the extension of natural gas
pipelines tends to displace propane distribution in the areas affected, National
Propane believes that new opportunities for propane sales arise as more
geographically remote areas are developed. In addition, the use of alternative
fuels, including propane, is mandated in certain specified areas of the United
States that do not meet federal air quality standards.
WORKING CAPITAL
Cable Car's, Royal Crown's and TRG's working capital requirements are
generally met through cash flow from operations. Accounts receivable of Cable
Car and Royal Crown are generally due in 30 days and TRG's franchise royalty fee
receivables are due within 10 days after each month end.
Snapple's and Mistic's working capital requirements are generally met
through cash flow from operations, supplemented by advances under a credit
facility entered into in connection with the acquisition of Snapple which
initially provided Snapple and Mistic with a $300 million term loan facility
(approximately $296.5 million principal amount outstanding at March 1, 1998) and
an $80 million revolving credit facility (of which approximately $35.7 million
was available at March 1, 1998). Accounts receivable of Snapple and Mistic are
generally due in 30 days. In addition, TBG receives extended payment terms with
respect to purchases from one of its preferred suppliers.
Working capital requirements for the Operating Partnership are generally
met through cash flow from operations supplemented by advances under a revolving
working capital facility which provides the Operating Partnership with a $15
million line of credit (of which $9.8 million was available at March 1, 1998).
Accounts receivable are generally due in 30 days.
GOVERNMENTAL REGULATIONS
Each of Triarc's businesses is subject to a variety of federal, state
and local laws, rules and regulations.
The production and marketing of TBG's beverages are subject to the rules
and regulations of various federal, state and local health agencies, including
the United States Food and Drug Administration (the "FDA"). The FDA also
regulates the labeling of TBG's products. In addition, TBG's dealings with its
bottlers and/or distributors may, in some jurisdictions, be subject to state
laws governing licensor-licensee or distributor relationships.
TRG is subject to regulation by the Federal Trade Commission and state
laws governing the offer and sale of franchises and the substantive aspects of
the franchisor-franchisee relationship. In addition, TRG franchisees are subject
to the Fair Labor Standards Act and the Americans with Disabilities Act, which
requires that all public accommodations and commercial facilities meet certain
federal requirements related to access and use by disabled persons, and various
state laws governing such matters as minimum wages, overtime and other working
conditions.
National Propane and the Operating Partnership are subject to various
federal, state and local laws and regulations governing the transportation,
storage and distribution of propane, and the health and safety of workers, the
latter of which are primarily governed by the Occupational Safety and Health Act
and the regulations promulgated thereunder. On August 18, 1997, the U.S.
Department of Transportation (the "DOT") published its Final Rule for Continued
Operation of the Present Propane Trucks (the "Final Rule"). The Final Rule is
intended to address perceived risks during the transfer of propane. The Final
Rule required certain immediate changes in the Partnership's operating
procedures including retrofitting the Operating Partnership's cargo tanks. The
Partnership, as well as the National Propane Gas Association and the propane
industry in general, believe that the Final Rule cannot practicably be complied
with in its current form. Accordingly, on October 15, 1997, the Partnership
joined four other multi-state propane marketers in filing an action against the
DOT in the United States District Court for the Western District of Missouri
seeking to enjoin enforcement of the Final Rule. On February 13, 1998, the court
preliminary enjoined the DOT from enforcing the Final Rule pending the final
outcome of the litigation. At this time, the Partnership cannot determine the
likely outcome of the litigation or what the ultimate long-term cost of
compliance with the Final Rule will be.
Except as described herein, Triarc is not aware of any pending
legislation that in its view is likely to have a material adverse effect on the
operations of Triarc's subsidiaries. Triarc believes that the operations of its
subsidiaries comply substantially with all applicable governmental rules and
regulations.
ENVIRONMENTAL MATTERS
Certain of Triarc's operations are subject to federal, state and local
environmental laws and regulations concerning the discharge, storage, handling
and disposal of hazardous or toxic substances. Such laws and regulations provide
for significant fines, penalties and liabilities, in certain cases without
regard to whether the owner or operator of the property knew of, or was
responsible for, the release or presence of such hazardous or toxic substances.
In addition, third parties may make claims against owners or operators of
properties for personal injuries and property damage associated with releases of
hazardous or toxic substances. Triarc cannot predict what environmental
legislation or regulations will be enacted in the future or how existing or
future laws or regulations will be administered or interpreted. Triarc cannot
predict the amount of future expenditures which may be required in order to
comply with any environmental laws or regulations or to satisfy any such claims.
Triarc believes that its operations comply substantially with all applicable
environmental laws and regulations. Based on currently available information and
the current reserve levels, Triarc does not believe that the ultimate outcome of
any of the matters discussed below will have a material adverse effect on its
consolidated financial position or results of operations. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
As a result of certain environmental audits in 1991, Southeastern Public
Service Company, a subsidiary of Triarc ("SEPSCO"), became aware of possible
contamination by hydrocarbons and metals at certain sites used in the ice and
cold storage operations of SEPSCO's former refrigeration business. SEPSCO has
engaged in certain remediation in connection therewith. Such remediation varied
from site to site, ranging from testing of soil and ground water for
contamination, development of remediation plans and removal in certain instances
of certain contaminated soils. Remediation is required at thirteen sites which
were sold to or leased by the purchaser of the ice operations. Remediation has
been completed on ten of these sites and is ongoing at three others. The
purchaser of the ice operations has satisfied its obligation to pay up to
$1,000,000 of such remediation costs. Remediation is also required at seven cold
storage sites which were sold to the purchaser of the cold storage operations.
Remediation has been completed at one site, and is ongoing at four other sites.
Remediation is expected to commence on the remaining two sites in 1998 and 1999.
Such remediation is being made in conjunction with such purchaser who is
responsible for the first $1,250,000 of such costs. In addition, there were
fifteen additional inactive properties of the former refrigeration business
where remediation has been completed or is ongoing and which have either been
sold or are held for sale separate from the sales of the ice and cold storage
operations. Of these, twelve have been remediated at an aggregate cost of
$1,035,000 through December 28, 1997. In addition, during the environmental
remediation efforts on idle properties, SEPSCO became aware of one site which
may require demolition in the future.
In 1997 SEPSCO undertook an environmental assessment of a property
located in Fort Myers, Florida that had previously been used in connection with
SEPSCO's ice operations. As a result, SEPSCO became aware of certain
petroleum-type substances and metals in the soil and ground water of such
property. SEPSCO notified the State of Florida of its findings and the State of
Florida has requested that SEPSCO undertake further investigatory efforts to
define the nature and extent of its findings. SEPSCO believes that such
substances and metals may also be found on an adjacent property. SEPSCO believes
that the contamination may have occurred prior to its ownership of the property.
A former owner of the property (who also currently owns the adjacent property)
has agreed to undertake certain further investigation at its own expense,
thereby potentially minimizing the cost to SEPSCO. Based on their preliminary
findings, SEPSCO's environmental consultants believe that it may cost between
$200,000 and $250,000 to remediate the property. However, such findings are
preliminary and the amount required to remediate the property may vary depending
upon the nature and extent of the contamination and the method of remediation
that is actually required.
In May 1994 National Propane was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. National Propane
purchased the property from a company (the "Successor") which had purchased the
assets of a utility which had previously owned the property. National Propane
believes that the contamination occurred during the use of the property as a
coal gasification plant by such utility. To assess the extent of the problem,
National Propane engaged environmental consultants in 1994. Based upon the
information compiled to date, which is not yet complete, it appears that the
likely remedy will involve treatment of groundwater and treatment of the soil,
installation of a soil cap and, if necessary, excavation, treatment and disposal
of contaminated soil. As a result, the environmental consultants' current range
of estimated costs for remediation is from $0.7 million to $1.7 million.
National Propane will have to agree upon the final remediation plan with the
State of Wisconsin. Accordingly, the precise remediation method to be used is
unknown. Based on the preliminary results of the ongoing investigation, there is
a potential that the contaminants may extend to locations down gradient from the
original site. If it is ultimately confirmed that the contaminant plume extends
under such properties and if such plume is attributable to contaminants
emanating from the Wisconsin property, there is the potential for future
third-party claims. National Propane has engaged in discussions of a general
nature with the Successor, who has denied any liability for the costs of
remediation of the Wisconsin property or of satisfying any related claims.
However, National Propane, if found liable for any of such costs, would still
attempt to recover such costs from the Successor. National Propane has notified
its insurance carriers of the contamination and the possibility of related
claims. Pursuant to a lease related to the Wisconsin facility, the ownership of
which was not transferred by National Propane to the Operating Partnership at
the time of the closing of the Propane IPO, the Operating Partnership has agreed
to be liable for any costs of remediation in excess of amounts received from the
Successor and from insurance. Because the remediation method to be used is
unknown, no amount within the cost ranges provided by the environmental
consultants can be determined to be a better estimate.
In 1993 Royal Crown became aware of possible contamination from
hydrocarbons in groundwater at two closed facilities. In 1994, hydrocarbons were
discovered in the groundwater at a former Royal Crown distribution site in
Miami, Florida. Assessment is proceeding under the direction of the Dade County
Department of Environmental Resources Management to determine the extent of the
contamination. Remediation has commenced at this site, and management estimates
that total remediation costs (in excess of amounts incurred through December 28,
1997) will be approximately $59,000 depending on the actual extent of the
contamination. Additionally, in 1994 the Texas Natural Resources Conservation
Commission approved the remediation of hydrocarbons in the groundwater by Royal
Crown at its former distribution site in San Antonio, Texas. Remediation has
commenced at this site. Management estimates the total cost of remediation to be
approximately $60,000 (in excess of amounts incurred through December 28, 1997),
of which 60-70% is expected to be reimbursed by the State of Texas Petroleum
Storage Tank Remediation Fund. Royal Crown has incurred actual costs of
$714,000, in the aggregate, through December 28, 1997 for these matters.
In 1987, Graniteville Company ("Graniteville") (the assets of which were
sold to Avondale Mills, Inc. ("Avondale") in April 1996) was notified by the
South Carolina Department of Health and Environmental Control (the "DHEC") that
it discovered certain contamination of Langley Pond ("Langley Pond") near
Graniteville, South Carolina and that Graniteville may be one of the responsible
parties for such contamination. In 1990 and 1991, Graniteville provided reports
to DHEC summarizing its required study and investigation of the alleged
pollution and its sources which concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects. In 1995, Graniteville submitted a proposal regarding periodic
monitoring of the site, to which DHEC responded with a request for additional
information. Graniteville provided such information to DHEC in February 1996.
Triarc is unable to predict at this time what further actions, if any, may be
required in connection with Langley Pond or what the cost thereof may be. In
addition, Graniteville owned a nine acre property in Aiken County, South
Carolina (the "Vaucluse Landfill"), which was operated jointly by Graniteville
and Aiken County as a landfill from approximately 1950 to 1973. The United
States Environmental Protection Agency conducted an Expanded Site Inspection (an
"ESI") in January 1994 and Graniteville conducted a supplemental investigation
in February 1994. In response to the ESI, DHEC indicated its desire to have an
investigation of the Vaucluse Landfill performed. In August 1995, DHEC requested
that Graniteville enter into a consent agreement to conduct an investigation.
Graniteville responded that a consent agreement was inappropriate considering
Graniteville's demonstrated willingness to cooperate with DHEC requests and
asked DHEC to approve Graniteville's April, 1995 conceptual investigation
approach. Triarc believes that Graniteville and DHEC continue to negotiate
regarding the appropriate administrative agreement to govern performance of the
additional investigation requested. The cost of the study proposed by
Graniteville was estimated in 1995 to be between $125,000 and $150,000. Since
an investigation has not yet commenced, Triarc is currently unable to predict
what further actions, if any, will be necessary to remediate the landfill. In
connection with the sale of Graniteville to Avondale, the Company has agreed
to indemnify Avondale for certain costs incurred by it in connection with
the foregoing matters that are in excess of applicable reserves.
SEASONALITY
Triarc's beverage, restaurant and propane businesses are seasonal. In
the beverage and restaurant businesses, the highest sales occur during spring
and summer (April through September). Propane operations are subject to the
seasonal influences of weather which vary by region. Generally, the demand for
propane during the six-month peak heating season (October through March) is
substantially greater than during the summer months at both the retail and
wholesale levels, and is significantly affected by climatic variations. As a
result of the deconsolidation of National Propane (see "Item 1. Business --
Deconsolidation of National Propane Master Limited Partnership"), it is
expected that in the future Triarc's revenues will be highest during the second
and third fiscal quarters of each year.
INSURANCE OPERATIONS
Historically, Chesapeake Insurance Company Limited ("Chesapeake
Insurance"), an indirect wholly-owned subsidiary of Triarc, (i) provided certain
property insurance coverage for Triarc and certain of its former affiliates;
(ii) reinsured a portion of certain insurance coverage which Triarc and such
former affiliates maintained with unaffiliated insurance companies (principally
workers' compensation, general liability, automobile liability and group life);
and (iii) reinsured insurance risks of unaffiliated third parties through
various group participations. During the fiscal year ended April 30, 1993,
Chesapeake Insurance ceased writing reinsurance of risks of unaffiliated third
parties, and during the transition period from May 1, 1993 to December 31, 1993,
Chesapeake Insurance ceased writing insurance or reinsurance of any kind for
periods beginning on or after October 1, 1993. Chesapeake Insurance continues to
wind down its operations and settle the remaining existing insurance claims of
third parties. For information regarding Triarc's insurance loss reserves
relating to Chesapeake's operations, see Note 1 to the Consolidated Financial
Statements.
EMPLOYEES
As of December 28, 1997, Triarc and its subsidiaries employed
approximately 2,000 personnel, including approximately 1,100 salaried personnel
and approximately 900 hourly personnel. Triarc's management believes that
employee relations are satisfactory. At December 28, 1997, approximately 200 of
the total of Triarc's employees were covered by various collective bargaining
agreements expiring from time to time from the present through 1999.
ITEM 2. PROPERTIES.
Triarc maintains a large number of diverse properties. Management
believes that these properties, taken as a whole, are generally well maintained
and are adequate for current and foreseeable business needs. The majority of the
properties are owned. Except as set forth below, substantially all of Triarc's
materially important physical properties are being fully utilized.
Certain information about the major plants and facilities maintained by
each of Triarc's business segments, as well as Triarc's corporate headquarters,
as of December 28, 1997 is set forth in the following table:
APPROXIMATE
SQ. FT. OF
ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- ----------------- ------------------- ---------- -----------
Triarc Corporate
Headquarters..... New York, NY 1 leased 26,600
Beverages........ Concentrate Mfg:
Columbus, GA 1 owned 216,000
(including office)
TBG Headquarters
White Plains, NY 1 leased 53,600
Cable Car Headquarters
Denver, CO 1 leased 4,200
Office/Warehouse Facilities 6 leased 577,000*
(various locations)
Restaurants...... TRG Headquarters 1 leased 47,300**
Ft. Lauderdale, FL
Propane.......... Headquarters 1 leased 17,000
159 Full Service Centers 193 owned 550,000
105 Storage Facilities 71 leased ***
(various locations
throughout the
United States)
2 Underground storage
terminals
2 Above ground
storage terminals
- ------------
* Includes 180,000 square feet of warehouse space that is subleased to a
third party.
** Royal Crown subleases approximately 3,500 square feet of this space from
TRG.
*** The propane facilities have approximately 33.1 million gallons of
storage capacity (including approximately one million gallons of storage
capacity currently leased to third parties). See "Item 1. Business --
Recent Dispositions" and "-- Business Segments -- Liquefied Petroleum
Gas (National Propane)."
TRG also owns six and leases 24 properties which are leased or sublet
principally to franchisees and has leases for 11 inactive properties. Other
subsidiaries of the Company also own or lease a few inactive facilities and
undeveloped properties, none of which are material to the Company's financial
condition or results of operations.
Substantially all of the properties used in the beverage and propane
businesses are pledged as collateral for certain debt.
ITEM 3. LEGAL PROCEEDINGS.
In the fall of 1995, Granada Investments, Inc., Victor Posner ("Posner")
and the three former court-appointed members of a special committee of the
Triarc Board ("the Triarc Special Committee") asserted claims (the "Granada
Action") against Triarc for money damages and declaratory relief, and, in the
case of the former court-appointed directors, additional fees. On January 30,
1996, the court held that it had no jurisdiction and dismissed all proceedings
in this matter. In October 1995, Triarc commenced an action (the "Posner
Action") against Posner and a Posner affiliate in the United States District
Court for the Southern District of New York in which it asserted breaches by
them of their reimbursement obligations under a 1995 settlement agreement among
Triarc, Posner and certain affiliates of Posner (the "Settlement Agreement").
The defendants asserted certain affirmative defenses and a counterclaim for a
declaratory judgment. On December 11, 1995, Triarc and Chesapeake commenced a
proceeding in the Bankruptcy Court under section 1144 of the Bankruptcy Code,
naming Posner, Security Management Corporation and APL Corporation ("APL") as
defendants, and naming the official committee of unsecured creditors of APL as a
nominal defendant (the "1144 Proceeding"). In addition, Triarc and Chesapeake
Insurance asserted claims (the "APL Bankruptcy Claims") against the debtor in
the APL bankruptcy proceeding (the "APL Bankruptcy Proceeding"). On June 6,
1997, Triarc entered into a settlement agreement (the "1997 Settlement
Agreement") with Posner and two affiliated entities (including APL). Pursuant to
the 1997 Settlement Agreement, among other things, (1) Posner and an affiliated
entity paid a total of $2.5 million to Triarc and Chesapeake; (2) the parties
dismissed with prejudice each of the foregoing actions; (3) Triarc and
Chesapeake waived the APL Bankruptcy Claims; and (4) the parties entered into
releases with respect to the claims and counterclaims asserted in the Posner
Action, the Granada Action, the 1144 Proceeding and the APL Bankruptcy
Proceeding.
In November, 1995, the Company commenced an action in New York State
court alleging that the three former court-appointed directors violated the
release/agreements they executed in March 1995 by seeking additional fees of
$3.0 million. The action was removed to federal court in New York. The
defendants have filed a third-party complaint against Nelson Peltz, the
Company's Chairman and Chief Executive Officer, seeking judgment against him for
any amounts recovered by Triarc from them. On December 9, 1996, the court denied
Triarc's motion for summary judgment. Discovery in the action has commenced.
On June 27, 1996, the three former court-appointed directors commenced
an action against Nelson Peltz, Victor Posner and Steven Posner in the United
States District Court for the Northern District of Ohio seeking an order
returning the plaintiffs to Triarc's Board of Directors, a declaration that the
defendants bear continuing obligations to refrain from certain financial
transactions under a February 9, 1993 undertaking given by DWG Acquisition
Group, L.P., and a declaration that Mr. Peltz must honor all provisions of the
undertaking. On May 1, 1997, the court transferred the case to the Southern
District of New York as a related matter to a pending New York action brought by
the company against the three former court appointed directors (described
above). On May 20, 1997, plaintiffs filed a purported amended complaint
asserting additional claims against each of the defendants. The amended
complaint alleges, among other things, that the defendants conspired to mislead
the United States District Court for the Northern District of Ohio in connection
with the change of control of Triarc in 1993 and the termination of the consent
decree pursuant to which plaintiffs were initially named to Triarc's Board of
Directors. The amended complaint also alleges that Mr. Peltz and Steven Posner
conspired to frustrate collection of amounts owed by Steven Posner to the United
States. The amended complaint seeks, among other relief, damages against Mr.
Peltz and Steven Posner in an amount not less than $4.5 million; an order
stating that plaintiffs must be returned to Triarc's Board of Directors; and
rescission of the 1993 change of control transaction. Mr. Peltz's time to
respond to the amended complaint has not yet expired. In July 1997, plaintiffs
voluntarily dismissed their claims against Victor Posner without prejudice.
On February 19, 1996, Arby's Restaurants S.A. de C.V. ("AR"), the master
franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico
against Arby's for breach of contract. AR alleged that a non-binding letter of
intent dated November 9, 1994 between AR and Arby's constituted a binding
contract pursuant to which Arby's had obligated itself to repurchase the master
franchise rights from AR for $2.85 million and that Arby's had breached a
master development agreement between AR and Arby's. Arby's commenced an
arbitration proceeding since the franchise and development agreements
each provided that all disputes arising thereunder were to be resolved by
arbitration. In September 1997, the arbitrator ruled that (i) the November 9,
1994 letter of intent was not a binding contract and (ii) the master development
agreement was properly terminated. AR has challenged the arbitrator's
decision. In March 1998, the civil court of Mexico ruled that the November 9,
1994 letter of intent was a binding contract and ordered Arby's to pay AR
$2.85 million, plus interest and value added tax. Arby's has appealed the
civil court's decision. Arby's believes that it has a strong basis for an appeal
because, among other things, the civil court's decision ignored the arbitration
provisions of the franchise and development agreements and the language of the
November 9, 1994 letter. In May 1997, AR commenced an action against Arby's in
the United States District Court for the Southern District of Florida alleging
that (i) Arby's had engaged in fraudulent negotiations with AR in 1994- 1995, in
order to force AR to sell the master franchise rights for Mexico to Arby's
cheaply and (ii) Arby's had tortiously interfered with an alleged business
opportunity that AR had with a third party. Arby's has moved to dismiss that
action. Arby's is vigorously contesting AR's various claims and believes it has
meritorious defenses to such claims.
On November 4, 1996, the bankruptcy trustee appointed in the case of
Prime Capital Corporation ("Prime") (formerly known as Intercapital Funding
Resources, Inc.) made a demand on Chesapeake Insurance and SEPSCO, seeking the
return of payments aggregating $5.3 million which Prime allegedly made to those
entities during 1994 and suggesting that litigation would be commenced against
SEPSCO and Chesapeake Insurance if these monies were not returned. The trustee
commenced avoidance actions against SEPSCO and Chesapeake Insurance (as well as
actions against certain current and former officers of Triarc or their spouses
with respect to payments made directly to them) in January 1997, claiming the
payments to them were preferences or fraudulent transfers. (SEPSCO and
Chesapeake Insurance had entered into separate joint ventures with Prime, and
the payments at issue were made in connection with termination of the
investments in such joint ventures.) The bankruptcy trustee and each of the
defendants agreed to a settlement of the actions, which was approved by the
bankruptcy court on November 18, 1997. Pursuant to the settlement, on December
5, 1997 SEPSCO and Chesapeake Insurance collectively returned approximately
$3,550,000.
Snapple and Quaker were defendants in a breach of contract case filed on
April 16, 1997 (prior to Triarc's acquisition of Snapple) in Rhode Island
Superior Court by Rhode Island Beverage Packing Company, L.P. ("RIB"). RIB and
Snapple disagreed as to whether the co-packing agreement between them had been
amended to (a) change the end of the term from December 30, 1997 to December 30,
1999 and (b) more than double Snapple's take or pay obligations thereunder. RIB
set forth various causes of action in its complaint and sought reformation of
the contract, compliance with promises, consequential damages including lost
profits, attorney's fees and punitive damages. On February 11, 1998, Snapple,
RIB and certain affiliates of RIB executed a settlement agreement relating to
this action and certain other outstanding issues among the parties. Pursuant to
such settlement agreement, the foregoing action is to be dismissed with
prejudice, and Snapple is to be released from all claims and counterclaims that
could have been asserted in the action. Snapple will also be released from all
of its obligations with respect to RIB (including an alleged obligation to
acquire the other outstanding interests in RIB for $8 million) and will be
indemnified and held harmless for any liabilities of RIB (in each case, subject
to certain limited retained liabilities). In consideration of, among other
things, the foregoing, Snapple paid an aggregate of approximately $8.2 million
(which amount was fully reserved at the time of the Snapple acquisition) and
agreed to deliver to RIB and the general partner of RIB all of Snapple's
interests in RIB and such general partner.
On June 3, 1997, ZuZu, Inc. ("ZuZu") and its subsidiary, ZuZu Franchising
Corporation ("ZFC") commenced an action against Arby's, Inc. ("Arby's") and
Triarc in the District Court of Dallas County, Texas. Plaintiffs allege that
Arby's and Triarc conspired to steal the ZuZu Speedy Tortilla concept and
convert it to their own use. ZuZu seeks actual damages in excess of $70.0
million and punitive damages of not less than $200.0 million against Triarc for
its alleged appropriation of trade secrets, conversion and unfair competition.
Additionally, plaintiffs seek injunctive relief against Arby's and Triarc
enjoining them from disclosing or using ZuZu's trade secrets. ZFC also made a
demand for arbitration with the Dallas, Texas office of the American Arbitration
Association ("AAA") against Arby's alleging that Arby's had breached a Master
Franchise Agreement between ZFC and Arby's. Arby's and Triarc have moved to
dismiss or, in the alternative, abate the Texas court action on the ground that
a Stock Purchase Agreement between Triarc and ZuZu required that disputes be
subject to mediation in Wilmington, Delaware and that any litigation be brought
in the Delaware courts. On July 16, 1997, Arby's and Triarc commenced a
declaratory judgment action against ZuZu and ZFC in Delaware Chancery Court for
New Castle County seeking a declaration that the claims in both the litigation
and the arbitration must be subject to mediation in Wilmington, Delaware. In the
arbitration proceeding, Arby's has asserted counterclaims against ZuZu for
unjust enrichment, breach of contract and breach of the duty of good faith and
fair dealing and has successfully moved to transfer the proceeding to the
Atlanta, Georgia office of the AAA. An arbitrator has been chosen and discovery
is taking place. The arbitration is expected to commence in April 1998. Arby's
and Triarc are vigorously contesting plaintiffs' claims in both the litigation
and the arbitration and believe that plaintiffs' various claims are without
merit.
In a related case, on March 13, 1998 ZuZu franchisees Gregg Katz, Susan
Katz Zweig and ZuZu of Orlando, LLC commenced an action against Arby's, ZuZu,
ZFC and Triarc in the Superior Court of Fulton County Georgia. Plaintiffs
allege, in connection with the ZuZu handmade Mexican food concept and the ZuZu
Speedy Tortilla concept, that, among other things, the various defendants
breached the development and franchise agreements between the plaintiffs and
ZuZu, as well as other oral agreements, made false representations,
intentionally failed to disclose material information, and violated several
Florida and Texas business opportunity and similar statutes. The plaintiffs seek
actual damages of not less than $600,000, consequential damages, punitive
damages, treble damages and other fees, costs and expenses. While Triarc and
Arby's have not yet filed an answer in this action, they believe the claims are
without merit.
On June 25, 1997, Kamran Malekan and Daniel Mannion commenced a
purported class and derivative action against the directors and certain former
directors of the Company (and naming the Company as a nominal defendant) in the
Delaware Court of Chancery, New Castle County. The plaintiffs in that action and
one related action filed a consolidated amended complaint on December 15, 1997.
The amended complaint alleges that the defendants breached their fiduciary
duties and duties of good faith and fair dealing to the Company and its
shareholders in connection with the granting in 1996 of special bonuses to
Nelson Peltz and Peter May, and the granting of options to Messrs. Peltz and May
in March 1997. The amended complaint also alleges that the granting of such
compensation breached promises made to the Company's shareholders in its 1994
Proxy Statement with respect to the conditions of performance options granted to
Messrs. Peltz and May, and that defendants breached their fiduciary duties to
the Company's shareholders in connection with its 1994 Proxy Statement. The
amended complaint seeks, among other remedies, rescission of all option grants
to Messrs. Peltz and May which allegedly contravene the representations made in
the Company's 1994 Proxy Statement; an order directing Messrs. Peltz and May to
repay to the Company their 1996 special bonuses, and enjoining defendants from
awarding or paying compensation to Messrs. Peltz and May in contravention of the
promises and representations made in the 1994 Proxy Statement; and an order
directing the defendants to account to the Company for all damages sustained as
a result of the matters complained of. The Company's present directors, and
certain former directors, have filed answers generally denying the substantive
allegations of the amended complaint. On January 13, 1998, the three former
court-appointed directors filed a notice of removal of the action to the federal
district court. Plaintiffs subsequently dismissed the claims against those
defendants voluntarily and moved to remand the action to state court. Two former
directors (Messrs. Pallot and Prendergast ) have opposed the plaintiff's motion
and have moved to transfer the action to the Southern District of New York.
Those motions have not been decided.
On August 13, 1997, Ruth LeWinter and Calvin Shapiro commenced a
purported class and derivative action against certain current and former
directors of the Company (and naming the Company as a nominal defendant) in the
United States District Court for the Southern District of New York which is
substantially identical to the Maleken action discussed above. On October 2,
1997, five former directors of Triarc, who are named as defendants in the
LeWinter action (including the three former court-appointed directors), filed an
answer and cross-claims against Triarc and Nelson Peltz. The cross-claims allege
that (1) Mr. Peltz has violated an Undertaking and Agreement given by DWG
Acquisition Group, L.P. on February 9, 1993; (2) Mr. Peltz has conspired with
Steven Posner to violate a court order prohibiting Mr. Posner from serving as an
officer or director of Triarc; and (3) the cross-claimants are entitled to
indemnification from Triarc in the action. The cross-claims seek: specific
enforcement of an indemnification agreement between the cross-claimants and
Triarc; damages in an unspecified amount in excess of $75,000; and their costs
and expenses in the action, including attorney's fees. On November 3, 1997,
the Company and its current directors and certain of its former directors
moved to dismiss or stay the action pending the resolution of the Delaware
action discussed above. On November 26, 1997, Triarc and Mr. Peltz moved
to dismiss the cross-claims asserted by the former directors. On February
11, 1998, the five former directors moved for an order specifically enforcing
the alleged indemnification agreements with the Company. The Company has
opposed the motion. All of the foregoing motions are pending.
In October 1997, Mistic commenced an action (the "Action") against
Universal Beverages Inc. ("Universal"), a former Mistic co-packer, Leesburg
Bottling & Production, Inc. ("Leesburg"), an affiliate of Universal, and
Jonathan O. Moore ("Moore"), an individual affiliated with Universal and
Leesburg, in the Circuit Court for Duval County, Florida. The Action, which was
subsequently amended to add additional defendants, seeks, inter alia, damages
and injunctive relief arising out of the fraudulent disposition of certain raw
materials, finished product and equipment owned by Mistic. In their answer,
counterclaim and third party complaint, certain defendants have alleged various
causes of action against Mistic, Snapple and Triarc, and seek damages of $6
million relating to an alleged oral agreement by Snapple and Mistic to have
Universal and/or Leesburg contract manufacture Snapple and Mistic products,
including breach of contract, fraud in the inducement and negligent
misrepresentation. These defendants also seek to recover various amounts
totaling approximately $440,000 allegedly owed to Universal for co-packing and
other services rendered. Mistic, Snapple and Triarc vigorously deny and intend
to defend against the allegations contained in defendants counterclaim.
Other matters have arisen in the ordinary course of Triarc's business,
and it is the opinion of management that the outcome of any such matter will not
have a material adverse effect on Triarc's consolidated financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Triarc held its 1997 Annual Meeting of Shareholders on June 4, 1997. The
matters acted upon by the shareholders at that meeting were reported in Triarc's
quarterly report on Form 10-Q/A for the quarter ended June 29, 1997.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market for Triarc's Class A Common Stock is the New York
Stock Exchange ("NYSE") (symbol: TRY). The high and low market prices for
Triarc's Class A Common Stock, as reported in the consolidated transaction
reporting system, are set forth below:
MARKET PRICE
--------------------------
FISCAL QUARTERS HIGH LOW
- --------------------------------------------------------------------------------
1996
FIRST QUARTER ENDED MARCH 31................. $14 3/8 $10 7/8
SECOND QUARTER ENDED JUNE 30................. 13 3/8 11 1/2
THIRD QUARTER ENDED SEPTEMBER 30............. 12 7/8 10
FOURTH QUARTER ENDED DECEMBER 31............. 12 3/4 10 3/4
1997
FIRST QUARTER ENDED MARCH 30................. $11 $18
SECOND QUARTER ENDED JUNE 29................. 23 5/8 15 7/8
THIRD QUARTER ENDED SEPTEMBER 28............. 23 1/8 18
FOURTH QUARTER ENDED DECEMBER 28............. 25 1/4 17 5/8
Triarc did not pay any dividends on its common stock in 1996, fiscal 1997
or in the current year to date and does not presently anticipate the declaration
of cash dividends on its common stock in the near future.
As of March 15, 1998, there were 5,997,622 shares of Triarc's Class B
Common Stock outstanding, all of which were owned by Posner and an entity
controlled by Posner (together with Posner, the "Posner Entities"). All such
shares of Class B Common Stock can be converted without restriction into shares
of Class A Common Stock if they are sold to a third party unaffiliated with the
Posner Entities. Triarc, or its designee, has certain rights of first refusal if
such shares are sold to an unaffiliated third party. There is no established
public trading market for the Class B Common Stock. Triarc has no class of
equity securities currently issued and outstanding except for the Class A Common
Stock and the Class B Common Stock.
Because Triarc is predominantly a holding company, its ability to meet its
cash requirements (including required interest and principal payments on its
indebtedness) is primarily dependent upon (in addition to its cash, cash
equivalents and short term investments on hand) cash flows from its
subsidiaries, including loans, cash dividends and reimbursement by subsidiaries
to Triarc in connection with its providing certain management services and
payments by subsidiaries under certain tax sharing agreements. Under the terms
of various indentures and credit arrangements, Triarc's principal subsidiaries
(other than Cable Car and National Propane) are currently unable to pay any
dividends or make any loans or advances to Triarc. In addition, National Propane
has agreed to forgo future distributions from the Partnership on its
subordinated units ("Subordinated Distributions") in order to facilitate the
Partnership's compliance with a covenant restriction in its bank facility
agreement. The Partnership will resume paying such Subordinated Distributions
when such payment will not impact compliance with such covenant. National
Propane's agreement will limit the funds that it will have available to dividend
or loan to Triarc. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 8 to the Consolidated Financial Statements.
On October 13, 1997, Triarc announced that its management was authorized,
when and if market conditions warranted, to purchase from time to time during
the twelve month period commencing on the business day following consummation of
the Stewart's Acquisition (i.e., November 26, 1997) up to $20 million of its
outstanding Class A Common Stock. In March 1998 such amount was increased to $30
million. As of March 15, 1998, Triarc had repurchased approximately 138,700
shares of Class A Common Stock at an aggregate cost of approximately $3.5
million under such repurchase program.
In connection with the issuance by Triarc of the Debentures, on February 9,
1998 Triarc purchased from Morgan Stanley 1,000,000 shares of Triarc's Class A
Common Stock for an aggregate price of approximately $25.6 million. See Item 1.
"Business--Issuance of Zero Coupon Convertible Subordinated Debentures."
As of March 15, 1998, there were approximately 6,550 holders of record of
Triarc's Class A Common Stock and two holders of record of Triarc's Class B
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA (1)
FISCAL EIGHT MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31, YEAR ENDED
APRIL 30, DECEMBER 31, ------------------------------------------ DECEMBER 28,
1993 1993 (3) 1994 1995 1996 1997 (3)
---- ---- ---- ---- ---- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................$1,023,249 $676,908 $1,022,671 $1,142,011 $ 928,185 $861,321
Operating profit (loss). 24,581 (5) 21,038 (6) 54,446 (7) 23,145 (8) (17,853)(10) 26,962 (11)
Loss from continuing
operations............. (50,690) (5) (35,935) (6) (10,612) (7) (39,433) (8) (13,698)(10) (20,553)(11)
Income (loss) from
discontinued operations 3,711 (3,095) 4,619 2,439 5,213 20,718
Extraordinary items .... (6,611) (448) (2,116) -- (5,416) (3,781)
Cumulative effect of
changes in accounting
principles, net........ (6,388) -- -- -- -- --
Net loss................ (59,978) (5) (39,478) (6) (8,109) (7) (36,994) (8) (13,901)(10) (3,616)(11)
Preferred stock dividend
requirements (2)....... (121) (3,889) (5,833) -- -- --
Net loss applicable to
common stockholders.... (60,099) (43,367) (13,942) (36,994) (13,901) (3,616)
Loss per share (4):
Continuing operations.. (1.97) (1.87) (.71) (1.32) (.46) (.68)
Discontinued operations .15 (.15) .20 .08 .18 .69
Extraordinary items.... (.26) (.02) (.09) -- (.18) (.13)
Cumulative effect of
changes in accounting
principles........... (.25) -- -- -- -- --
Net loss per share..... (2.33) (2.04) (.60) (1.24) (.46) (.12)
Total assets............ 907,333 887,380 911,236 1,077,173 831,785 1,004,873
Long-term debt.......... 488,654 571,350 606,374 758,292 469,154 604,830
Redeemable preferred
stock................. 71,794 71,794 71,794 -- (9) -- --
Stockholders' equity
(deficit)............ (35,387) (75,981) (31,783) 20,650 (9) 6,765 43,988 (12)
Weighted-average common
shares outstanding..... 25,808 21,260 23,282 29,764 29,898 30,132
</TABLE>
(1) Selected Financial Data for the periods prior to the fiscal year ended
December 28, 1997 have been retroactively restated to reflect the
discontinuance of the Company's dyes and specialty chemicals business sold
in December 1997.
(2) The Company has not paid any dividends on its common shares during any of
the periods presented.
(3) The Company changed its fiscal year from a fiscal year ending April 30 to
a calendar year ending December 31 effective for the eight-month
transition period ended December 31, 1993 ("Transition 1993"). The Company
changed its fiscal year to a calendar year consisting of 52 or 53 weeks
ending on the Sunday closest to December 31 effective for the 1997 fiscal
year which commenced January 1, 1997 and ended on December 28, 1997.
(4) Basic and diluted loss per share are the same for all periods presented
since all potentially dilutive securities would have had an antidilutive
effect for all such periods.
(5) Reflects certain significant charges recorded during the fiscal year ended
April 30, 1993 as follows: $51,689,000 charged to operating profit
representing $43,000,000 of facilities relocation and corporate
restructuring relating to a change in control of the Company and
$8,689,000 of other net charges; $48,698,000 charged to loss from
continuing operations representing the aforementioned $51,689,000 charged
to operating profit, $8,503,000 of other net charges, less $19,391,000 of
income tax benefit and minority interest effect relating to the aggregate
of the above charges, and plus $7,897,000 of provision for income tax
contingencies; and $67,060,000 charged to net loss representing the
aforementioned $48,698,000 charged to operating profit, a $5,363,000
write-down relating to the impairment of certain unprofitable operations
and accruals for environmental remediation and losses on certain contracts
in progress, net of income tax benefit and minority interests, a
$6,611,000 extraordinary charge from the early extinguishment of debt and
$6,388,000 cumulative effect of changes in accounting principles.
(6) Reflects certain significant charges recorded during Transition 1993 as
follows: $12,306,000 charged to operating profit principally representing
$10,006,000 of increased insurance reserves; $25,617,000 charged to loss
from continuing operations representing the aforementioned $12,306,000
charged to operating profit, $5,050,000 of certain litigation settlement
costs, $3,292,000 of reduction to net realizable value of certain assets
held for sale other than discontinued operations, less $2,231,000 of
income tax benefit and minority interest effect relating to the aggregate
of the above charges, and plus a $7,200,000 provision for income tax
contingencies; and $34,437,000 charged to net loss representing the
aforementioned $25,617,000 charged to loss from continuing operations and
an $8,820,000 loss on disposal of discontinued operations.
(7) Reflects certain significant charges recorded during 1994 as follows:
$9,972,000 charged to operating profit representing $8,800,000 of
facilities relocation and corporate restructuring and $1,172,000 of
advertising production costs that in prior periods were deferred;
$4,782,000 charged to loss from continuing operations representing the
aforementioned $9,972,000 charged to operating profit, $7,000,000 of costs
of a proposed acquisition not consummated less $6,043,000 of gain on sale
of natural gas and oil business, less income tax benefit relating to the
aggregate of the above charges of $6,147,000; and $10,798,000 charged to
net loss representing the aforementioned $4,782,000 charged to loss from
continuing operations, $3,900,000 loss on disposal of discontinued
operations and a $2,116,000 extraordinary charge from the early
extinguishment of debt.
(8) Reflects certain significant charges recorded during 1995 as follows:
$19,331,000 charged to operating profit representing a $14,647,000 charge
for a reduction in the carrying value of long-lived assets impaired or to
be disposed of, $2,700,000 of facilities relocation and corporate
restructuring and $3,331,000 of accelerated vesting of restricted stock,
less $1,347,000 of other net credits; and $11,004,000 charged to loss from
continuing operations representing the aforementioned $19,331,000 charged
to operating profit, $1,000,000 of equity in losses of an investee, less
$15,088,000 of net gains consisting of $11,945,000 of gain on sale of
excess timberland and $3,143,000 of other net gains, less $339,000 of
income tax benefit relating to the aggregate of the above charges and plus
a $6,100,000 provision for income tax contingencies; and $15,199,000
charged to net loss representing the aforementioned $11,004,000 charged to
loss from continuing operations and $6,794,000 of equity in losses and
write-down of an investment in an investee included in discontinued
operations less $2,599,000 of income tax benefit relating thereto.
(9) In 1995 all of the redeemable preferred stock was converted into class B
common stock and an additional 1,011,900 class B common shares were issued
resulting in an $83,811,000 improvement in stockholders' equity (deficit).
(10) Reflects certain significant charges and credits recorded during 1996 as
follows: $73,100,000 charged to operating loss representing a $64,300,000
charge for a reduction in the carrying value of long-lived assets impaired
or to be disposed of and $8,800,000 of facilities relocation and corporate
restructuring; $1,279,000 charged to loss from continuing operations
representing the aforementioned $73,100,000 charged to operating loss,
$77,000,000 of gains on sale of businesses, net and plus $5,179,000 of
income tax provision relating to the aggregate of the above net credits;
and $6,695,000 charged to net loss representing the aforementioned
$1,279,000 charged to loss from continuing operations and a $5,416,000
extraordinary charge from the early extinguishment of debt.
(11) Reflects certain significant charges and credits recorded during 1997 as
follows: $38,890,000 charged to operating profit representing a
$31,815,000 charge for acquisition related costs and $7,075,000 of
facilities relocation and corporate restructuring; $20,444,000 charged to
loss from continuing operations representing the aforementioned
$38,890,000 charged to operating profit, $4,955,000 of gain on sale of
businesses, net and less $13,491,000 of income tax benefit relating to the
aggregate of the above net charges; and $4,716,000 charged to net loss
representing the aforementioned $20,444,000 charged to loss from
continuing operations, $19,509,000 of gain on disposal of discontinued
operations and a $3,781,000 extraordinary charge from the early
extinguishment of debt.
(12) In 1997, in connection with the Stewart's acquisition, the Company issued
1,566,858 shares of its common stock with a value of $37,409,000 for all
of the outstanding stock of Cable Car and 154,931 stock options with a
value of $2,788,000 in exchange for all of the outstanding stock options
of Cable Car resulting in an increase in stockholders' equity of
$40,197,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the consolidated
financial statements included herein of Triarc Companies, Inc. ("Triarc" or,
collectively with its subsidiaries, the "Company"). Certain statements under
this caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" constitute "forward-looking statements" under the Reform
Act. See "Special Note Regarding Forward-Looking Statements and Projections" in
"Part I" preceding "Item 1".
Effective January 1, 1997 the Company changed its fiscal year from a
calendar year to a year consisting of 52 or 53 weeks ending on the Sunday
closest to December 31. In accordance therewith, the Company's 1997 fiscal year
commenced January 1, 1997 and ended on December 28, 1997. As used herein, "1997"
refers to the period January 1, 1997 through December 28, 1997 and "1996" and
"1995" refer to the calendar years ended December 31, 1996 and 1995,
respectively.
The discussion below reflects the operations of C.H. Patrick & Co.,
Inc. ("C.H. Patrick"), formerly included in the Company's textile segment, as
discontinued operations as the result of the sale (the "C.H. Patrick Sale") of
C.H. Patrick on December 23, 1997 (see below under "Liquidity and Capital
Resources" for further discussion).
RESULTS OF OPERATIONS
Trends affecting the beverage segment in recent years have included the
increased market share of private label beverages, increased price competition
throughout the industry, the development of proprietary packaging and the
proliferation of new products being introduced including "premium" beverages.
Trends affecting the restaurant segment in recent years include
consistent growth of the restaurant industry as a percentage of total
food-related spending, with the quick service restaurant ("QSR"), or fast food
segment, in which the Company operates (see below), being the fastest growing
segment of the restaurant industry. In addition, there has been increased price
competition in the QSR industry, particularly evidenced by the value menu
concept which offers comparatively lower prices on certain menu items, the
combination meals concept which offers a combination meal at an aggregate price
lower than the individual food and beverage items, couponing and other price
discounting. Some QSR's have been adding selected higher-priced premium quality
items to their menus, which appeal more to adult tastes and recover some of the
margins lost in the discounting of other menu items. However, following the sale
of all of the 355 company-owned Arby's restaurants on May 5, 1997 (the "RTM
Sale") to an affiliate of RTM, Inc. ("RTM"), the largest franchisee in the
Arby's system (see below under "Liquidity and Capital Resources"), the effects
of the trends on the restaurant segment are currently limited to their impact on
franchise fees and royalties.
Propane, relative to other forms of energy, is gaining recognition as
an environmentally superior, convenient, efficient and easy-to-use energy source
in many applications. The other significant trend affecting the propane segment
in recent years is the energy conservation trend, which from time to time has
negatively impacted the demand for energy by both residential and commercial
customers. However, following the December 28, 1997 adoption of certain
amendments to the partnership agreements of National Propane Partners, L.P. (the
"Partnership") and a subpartnership, National Propane, L.P. (the "Operating
Partnership"), although National Propane is the sole managing general partner,
the Company no longer has substantative control over the Partnership to the
point where it now exercises only significant influence and, accordingly,
accounts for its investment in the Partnership on the equity basis. As a result,
the trends affecting the propane segment in the future will continue to affect
consolidated results of operations through the Company's equity in earnings or
losses of the Partnership.
1997 COMPARED WITH 1996
Revenues decreased $66.9 million to $861.3 million for 1997 principally
reflecting a $157.5 million decrease due to the April 29, 1996 sale of the
Company's textile business segment other than its specialty dyes and chemicals
business (the "Textile Business") and a $154.4 million decrease due to the May
5, 1997 sale of the company-owned stores of the restaurant segment. The
reduction in revenues as a result of these business dispositions was partially
offset by sales in 1997 associated with (i) Snapple Beverage Corp. ("Snapple"),
a producer and seller of premium beverages acquired by the Company from The
Quaker Oats Company ("Quaker") on May 22, 1997 (the "Snapple Acquisition") of
$284.2 million and (ii) Cable Car Beverage Corporation ("Cable Car"), a marketer
of premium soft drinks acquired by the Company on November 25, 1997 (the
"Stewart's Acquisition") of $1.3 million (see further discussion below under
"Liquidity and Capital Resources"). Aside from the effects of these
transactions, revenues decreased $40.5 million. A discussion of such change in
revenues by segment is as follows:
Beverages - Aside from the effects of the Snapple Acquisition and the
Stewart's Acquisition in the 1997 period, revenues decreased $38.9
million (12.6%) due to decreases in sales of finished goods ($31.3
million) and concentrate ($7.6 million). The decrease in sales of
finished goods principally reflects (i) the absence in the 1997 period
of 1996 sales to MetBev, Inc. ("MetBev"), a former distributor of the
Company's beverage products in the New York City metropolitan area,
and a volume decrease in sales of branded finished products of Royal
Crown Company, Inc. ("Royal Crown"), a wholly-owned subsidiary of the
Company, in areas other than those serviced by MetBev (where in both
instances the Company now sells concentrate rather than finished
goods), (ii) lower sales of premium beverages exclusive of Snapple,
(iii) a volume decrease in sales of the C&C beverage line of mixers,
colas and flavors (where the Company now sells concentrate to the
purchaser of the C&C beverage line rather than finished goods), the
rights to which (including the C&C trademark) were sold in July 1997
(the "C&C Sale") as described below and (iv) a volume reduction in the
sales of finished Royal Crown Premium Draft Cola ("Draft Cola") which
the Company no longer sells. Sales of concentrate decreased, despite
the shift in sales to concentrate from finished goods noted above,
principally reflecting (i) a decrease in branded sales due to volume
declines, which were adversely affected by lower bottler case sales
and (ii) an overall lower average concentrate selling price.
Restaurants - Aside from the effect on sales of the RTM Sale, revenues
increased $6.5 million (4.8%) to $140.4 million due to a $9.0 million
(15.7%) increase in royalties and franchise fees partially offset by a
$2.5 million (3.2%) decrease in net sales of company-owned Arby's
restaurants through the date of the May 5, 1997 RTM Sale, compared
with the comparable 1996 period. The increase in royalties and
franchise fees is due to (i) incremental royalties of $6.2 million for
the period from May 5, 1997 through December 28, 1997 from the 355
restaurants sold to RTM, (ii) a net increase of 69 (2.6%) franchised
restaurants other than from the RTM Sale and (iii) a 1.7% increase in
same-store sales of franchised restaurants.
Propane - Revenues decreased $8.1 million (4.7%) due to (i) the effect
of lower propane volume reflecting warmer weather in the 1997 period
and customer energy conservation and customer turnover due to higher
propane selling prices, which factors were partially offset by
additional sales volume from acquisitions of propane distributorships
and the opening of new service centers, (ii) a decrease in average
selling prices due to a shift in customer mix toward lower-priced
non-residential accounts and (iii) a decrease in revenues from other
product lines.
Gross profit (total revenues less cost of sales) increased $68.1 million to
$389.4 million in 1997 reflecting in part gross profit in 1997 associated with
Snapple ($119.9 million) and Cable Car ($0.4 million), partially offset by the
nonrecurring 1996 gross profit associated with the Textile Business ($16.7
million) and the company-owned Arby's restaurants sold to RTM ($36.9 million).
Aside from the effects of these transactions, gross profit increased $1.4
million due to higher overall gross margins substantially offset by the lower
overall revenues discussed above. A discussion of the changes in gross margins
by segment, which increased in the aggregate to 46.7% from 43.4% aside from the
effects of the transactions noted above, is as follows:
Beverages - Aside from the effects of the Snapple Acquisition and
Stewart's Acquisition in 1997, margins increased to 56.8% from 54.0%
principally due to the shift in product mix to higher- margin
concentrate sales compared with finished product sales discussed
above.
Restaurants - Aside from the effect on sales of the RTM Sale, margins
increased to 57.8% from 44.9% primarily due to (i) the higher
percentage of royalties and franchise fees (with no associated cost of
sales) to total revenues in 1997 due to the RTM Sale discussed above
and (ii) the absence in 1997 of depreciation and amortization on all
long-lived restaurant assets which had been written down to their
estimated fair values as of December 31, 1996 and were no longer
depreciated or amortized through their May 5, 1997 date of sale.
Propane - Margins decreased to 20.9% from 23.4% due to (i) the shift
in customer mix to non-residential customers for whom margins are
lower and (ii) an increase in operating costs (other than propane)
which are not variable with revenues within a certain range.
Advertising, selling and distribution expenses increased $42.4 million to
$180.5 million in 1997 reflecting (a) the expenses of Snapple, (b) higher
promotional costs related to Mistic Rain Forest Nectars, a recently introduced
product line, and (c) other increased advertising and promotional costs for the
premium beverages line other than Snapple, all partially offset by (a) a
decrease in the expenses of the restaurant segment principally due to the
cessation of local restaurant advertising and marketing expenses resulting from
the RTM Sale, (b) a decrease in the expenses of the beverage segment exclusive
of Snapple principally due to (i) lower bottler promotional reimbursements
resulting from the decline in sales volume, (ii) the elimination of advertising
expenses for Draft Cola and (iii) planned reductions in connection with the
aforementioned decreases in sales of other Royal Crown and C&C branded finished
products, and (c) nonrecurring expenses from the 1996 period related to the
Textile Business sold in April 1996.
General and administrative expenses increased $15.1 million to $143.0
million in 1997 due to (i) the expenses of Snapple, (ii) a nonrecurring credit
in 1996 for the release of casualty insurance reserves and (iii) other
inflationary increases, all partially offset by (i) expenses in 1996 related to
the Textile Business, (ii) reduced spending levels related to administrative
support, principally payroll, no longer required for the sold restaurants as a
result of the RTM Sale and (iii) reduced travel activity in the restaurant
segment prior to the RTM Sale.
The 1997 facilities relocation and corporate restructuring charge of $7.1
million principally consists of employee severance and related termination costs
and employee relocation associated with restructuring the restaurant segment in
connection with the RTM Sale and, to a lesser extent, costs associated with the
relocation (the "Royal Crown Relocation") of the Fort Lauderdale, Florida
headquarters of Royal Crown, which has been centralized in the White Plains, New
York headquarters of the Triarc Beverage Group (consisting of Mistic Brands,
Inc. ("Mistic"), a wholly-owned subsidiary of the Company, and Snapple). The
1996 facilities relocation and corporate restructuring charge of $8.8 million
results from (i) estimated losses on planned subleases (principally for the
write-off of nonrecoverable unamortized leasehold improvements and furniture and
fixtures) of surplus office space as a result of the then planned sale of
company-owned restaurants and the Royal Crown Relocation, (ii) employee
severance costs associated with the Royal Crown Relocation, (iii) costs of
terminating a beverage distribution agreement, (iv) costs of the shutdown of the
beverage segment's Ohio production facility and other asset disposals, (v)
consultant fees paid associated with combining certain operations of Royal Crown
and Mistic and (vi) costs related to the then planned spinoff of the Company's
restaurant/beverage group (see below under "Liquidity and Capital Resources").
Acquisition related costs of $31.8 million in 1997 are attributed to the
Snapple Acquisition and the Stewart's Acquisition during 1997 and consist of (i)
a write-down of glass front vending machines based on the Company's change in
estimate of their value considering the Company's plans for their future use,
(ii) a provision for 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, (iii) a
provision for additional reserves for doubtful accounts of Snapple and the
effect of the Snapple Acquisition on MetBev based on the Company's change in
estimate of the related write-off to be incurred, (iv) a provision for fees paid
to Quaker pursuant to a transition services agreement whereby Quaker provided
certain operating and accounting services for Snapple through the end of the
Company's second quarter, (v) the portion of the post-acquisition period
promotional expenses the Company estimates is related to the pre-acquisition
period as a result of the Company's current operating expectations, (vi) a
provision for certain costs in connection with the successful consummation of
the acquisition of Snapple and the Mistic refinancing in connection with
entering into the Credit Agreement (see below under "Liquidity and Capital
Resources"), (vii) a provision for costs, principally for independent
consultants, incurred in connection with the data processing implementation of
the accounting systems for Snapple (under Quaker, Snapple did not have its own
independent data processing accounting systems), including costs incurred
relating to an alternative system that was not implemented and (viii) an
acquisition related sign-on bonus.
No provision for reduction in carrying value of long-lived assets impaired
or to be disposed of was required for 1997. The 1996 reduction in carrying value
of long-lived assets impaired or to be disposed of is discussed below under
"1996 Compared with 1995".
Interest expense was relatively unchanged in 1997, decreasing $0.6 million
to $71.6 million. Lower average levels of debt reflecting (a) the full year
effect of 1996 repayments prior to maturity of (i) $191.4 million of debt of the
Textile Business in connection with its sale on April 29, 1996, (ii) $34.7
million principal amount of a 9 1/2% promissory note (the "9 1/2% Note") on July
1, 1996 and (iii) $36.0 million principal amount of the Company's 11 7/8% senior
subordinated debentures due February 1, 1998 (the "11 7/8% Debentures") on
February 22, 1996 and (b) the 1997 assumption by RTM of an aggregate $69.6
million of mortgage and equipment notes payable and capitalized lease
obligations in connection with the RTM Sale on May 5, 1997, were substantially
offset by the effects of borrowings by Snapple (see below under "Liquidity and
Capital Resources") in connection with the May 22, 1997 Snapple Acquisition
($222.4 million outstanding as of December 28, 1997).
Gain on sale of businesses, net, of $5.0 million in 1997 consists of (i) a
gain from the receipt by Triarc of distributions from National Propane Partners,
L.P. (the "Partnership"), a limited partnership 42.7% owned by National Propane
Corporation ("National Propane"), a wholly-owned subsidiary of the Company, in
excess of its 42.7% equity in earnings of the Partnership (see further
discussion below under "Liquidity and Capital Resources") and (ii) a gain on the
C&C Sale, partially offset by a loss on the RTM Sale. Gain on sale of
businesses, net of $77.0 million in 1996 resulted from a pretax gain from the
July 1996 sale of a 55.8% interest in the Partnership (such percentage increased
to 57.3% as a result of the sale of an additional 0.4 million common units
representing limited partner interests (the "Common Units") in November 1996)
partially offset by (i) a pretax loss on the sale of the Textile Business and
(ii) a pretax loss associated with the write-down of MetBev.
Investment income, net increased $4.7 million to $12.8 million in 1997
principally reflecting an increase in realized gains on the sales of short-term
investments in 1997 which may not recur in future periods.
Other income (expense), net improved $4.0 million to income of $3.9 million
in 1997 principally due to (i) a reversal of legal fees incurred in prior years
as a result of a cash settlement received from Victor Posner ("Posner"), the
former Chairman and Chief Executive Officer of the Company, and an affiliate of
Posner during 1997, (ii) a gain on lease termination for a portion of the space
no longer required in the Fort Lauderdale facility due to staff reductions as a
result of the RTM Sale and the Royal Crown Relocation, (iii) other income, net
of Snapple since its acquisition in May 1997 consisting principally of equity in
the earnings of investees and rental income and (iv) increased gains on other
asset sales, all partially offset by a provision for a settlement during 1997 in
connection with the Company's investment in a joint venture with Prime Capital
Corporation.
The Company's benefit from income taxes for 1997 represented an effective
rate of 21% which differs from the Federal income tax statutory rate of 35%
principally due to the effect of the amortization of nondeductible costs in
excess of net assets of acquired companies ("Goodwill"). The Company had a
provision for income taxes in 1996 despite a pretax loss due to (i) a
nondeductible loss on the sale of the Textile Business associated with the
write-off of unamortized Goodwill, (ii) an additional provision for income tax
contingencies, (iii) the effect of the amortization of nondeductible Goodwill
and (iv) the effect of net operating losses for which no tax benefit was
available.
The minority interests in net income of a consolidated subsidiary (the
Partnership) increased $0.4 million to $2.2 million due to the full year effect
in 1997 of the limited partners' 57.3% interests (principally sold in July 1996)
in the net income of the Partnership partially offset by lower net income of the
Partnership (excluding an extraordinary charge in 1996 which was allocated
entirely to the Company with no minority interest). As discussed further below
under "Liquidity and Capital Resources", effective December 28, 1997 the Company
accounts for its interest in the Partnership using the equity method of
accounting.
Income from discontinued operations increased $15.5 million to $20.7
million in 1997 due to the gain, net of income taxes, on the C.H. Patrick Sale,
partially offset by lower income from the operations of C.H. Patrick. Such lower
income from operations principally reflected the effects of price competition
pressures and a cyclical downturn in the denim segment of the textile industry
in which C.H. Patrick's dyes are used.
The extraordinary charges in 1997 result from (i) the May 1997 assumption
by RTM of mortgage and equipment notes payable in connection with the RTM Sale,
(ii) the refinancing of the bank facility of Mistic and (iii) the repayment of
all borrowings under the credit agreement of C.H. Patrick in connection with its
sale (see "Liquidity and Capital Resources"). The extraordinary charges in the
1996 period result from the early extinguishment of (i) almost all of the
long-term debt of National Propane refinanced in connection with the formation
of the Partnership, (ii) the 9 1/2% Note, (iii) all debt of the Textile Business
and (iv) the 11 7/8% Debentures.
1996 COMPARED WITH 1995
Revenues decreased $213.8 million to $928.2 million in 1996 principally
reflecting a $348.2 million decrease due to the April 29, 1996 sale of the
Textile Business partially offset by $89.1 million of higher revenues from
Mistic reflecting the full year effect of the August 9, 1995 Mistic acquisition.
Aside from the effects of these transactions, revenues increased $45.3 million.
A discussion of such change by segment is as follows:
Beverages - Revenues increased $5.4 million (3.1%) to $178.1 million
due to (i) an increase in finished beverage product sales (as opposed
to concentrate) and (ii) a volume increase in private label concentrate
sales, both partially offset by a decrease in branded concentrate
sales.
Restaurants - Revenues increased $15.6 million (5.7%) to $288.3 million
due to (i) an increase in net sales principally resulting from the
inclusion in 1996 of a full year of net sales for the 85 company-owned
restaurants added in 1995 (net of closings) and an increase in
same-store sales and (ii) an increase in royalties and franchise fees
primarily resulting from a net increase of 90 (3.5%) franchised
restaurants, a 0.8% increase in same-store sales of franchised
restaurants and a 2.0% increase in average royalty rates due to the
declining significance of older franchise agreements with lower rates,
the effects of which were partially offset by a decrease in franchise
fees resulting from fewer franchise store openings in 1996.
Propane - Revenues increased $24.3 million (16.3%) to $173.3 million
due to the effect of higher selling prices resulting from passing on a
portion of higher propane costs to customers and higher volume
primarily resulting from an increase in gallons sold to non-residential
customers, both partially offset by a decrease in revenues from other
product lines.
Gross profit increased $14.6 million to $321.3 million in 1996 principally
reflecting a $33.9 million increase in gross profit from the full year effect in
1996 of Mistic partially offset by a $28.0 million decrease principally due to
the nonrecurring gross profit of the Textile Business for the period from April
29, 1995 through December 31, 1995 resulting from its sale. Aside from the
effects of these transactions, gross profit increased $8.7 million. A discussion
of gross margins by segment, which decreased in the aggregate to 39.7% from
41.3% aside from the effects of the transactions noted above, is as follows:
Beverages - Margins decreased to 65.4% from 66.9% due to the increased
sales of lower-margin finished product noted above and lower average
selling prices for branded concentrate.
Restaurants - Margins increased to 33.7% from 33.0% primarily due to
lower beef costs and health insurance costs and an improvement in labor
efficiencies due to fewer new store openings and related start-up
costs in 1996 versus 1995, the effects of which were partially offset
by a slightly lower percentage of royalties and franchise fees (with no
associated cost of sales) to total revenues.
Propane - Margins decreased to 23.4% from 26.8% due to higher propane
costs that could not be fully passed through to customers, a shift in
customer mix toward lower-margin commercial accounts, slightly higher
operating expenses attributable to the increased cost of fuel for
delivery vehicles and start-up costs of six new propane plants opened
in the last quarter of 1995 and the first half of 1996.
Advertising, selling and distribution expenses increased $10.1 million to
$138.1 million in 1996 due to (i) expenses associated with Mistic resulting from
(a) the 1996 full year effect of its August 1995 acquisition and, to a lesser
extent, (b) the nonrecurring effect of cooperative advertising reimbursements to
Mistic by distributors in 1995 which program was discontinued in 1996 and
replaced by increased selling prices and (ii) higher advertising costs in the
restaurant segment primarily in response to competitive pressures, a larger
company-owned store base and multi-brand restaurant development. Such increases
were partially offset by (i) decreases related to the beverage segment other
than Mistic reflecting (a) a net reduction in media spending for branded
concentrate products and Draft Cola for which there had been higher costs in
connection with its launch in mid-1995 and (b) lower beverage coupon costs
reflecting reduced bottler utilization and (ii) a decrease reflecting the sale
of the Textile Business in April 1996.
General and administrative expenses decreased $13.3 million to $127.9
million in 1996 resulting from lower expenses of the textile segment primarily
reflecting the sale of the Textile Business and net decreases in the remaining
operations of the Company principally reflecting the effect of cost reduction
efforts and non-recurring 1995 charges including (i) increased amortization of
restricted stock reflecting accelerated vesting in 1995 of all grants of such
stock and (ii) charges for the closing of certain unprofitable restaurants. Such
decreases were partially offset by higher expenses resulting from the full year
effect of Mistic in 1996.
The 1995 and 1996 reductions in carrying value of long-lived assets
impaired or to be disposed of result from the application of the evaluation
measurement requirements under Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which was adopted in 1995. The 1996
provision of $64.3 million was recorded principally to reduce the carrying value
of certain long-lived assets and certain identifiable intangibles to estimated
fair value principally relating to the estimated loss on the anticipated
disposal of long-lived assets in connection with the planned sale of all
company-owned restaurants. The reduction in carrying value of long-lived assets
impaired or to be disposed of in the amount of $14.6 million in 1995 reflects a
reduction in the net carrying value of certain restaurants and other long-lived
restaurant assets which were determined to be impaired and a reduction in the
net carrying value of certain other restaurants and equipment to be disposed of.
The 1996 facilities relocation and corporate restructuring charge of $8.8
million is discussed above. The 1995 charge of $2.7 million principally
reflected severance costs for terminated corporate employees.
Prior to 1995 the Company had fully reserved for secured receivables from
Pennsylvania Engineering Corporation ("PEC"), a former affiliate which had filed
for protection under the bankruptcy code. In 1995 the Company received $3.0
million with respect to amounts owed to the Company by PEC representing the
Company's allocated portion of the bankruptcy settlement; such amount was
classified as "Recovery of doubtful accounts of former affiliates" in the
accompanying consolidated statement of operations.
Interest expense decreased $13.1 million to $71.0 million in 1996 due to
lower average levels of debt reflecting repayments prior to maturity of (i)
$191.4 million of debt of the Textile Business in connection with its sale on
April 29, 1996, (ii) $36.0 million principal amount of the 11 7/8% Debentures on
February 22, 1996 and (iii) $34.7 million principal amount of the 9 1/2% Note on
July 1, 1996, partially offset by the full year effect in 1996 of (i) borrowings
resulting from the Mistic acquisition ($68.7 million outstanding as of December
31, 1996) and (ii) financing for capital spending at the restaurant segment
principally during the second through fourth quarters of 1995 ($58.4 million
outstanding as of December 31, 1996).
Gain on sale of businesses, net of $77.0 million in 1996 is discussed
above. Loss on sale of businesses, net in 1995 of $0.1 million reflects a
write-down of MetBev substantially offset by gains related to the sales of the
natural gas and oil businesses.
Investment income, net increased $5.7 million to $8.1 million in 1996
principally due to increased interest income from the Company's increased
portfolio of cash equivalents and debt securities as a result of proceeds in
connection with the sale of (i) the 57.3% interest in the Partnership and (ii)
the Textile Business.
Other income, net decreased $16.9 million to expense of $0.1 million in
1996 due to nonrecurring 1995 gains principally from the sale of excess
timberland.
The Company's provision for income taxes for 1996 is discussed above. The
Company's benefit from income taxes for 1995 represented an effective rate of 6%
which was significantly less than the statutory rate principally due to (i) a
provision for income tax contingencies relating to the examination of the
Company's income tax returns for the years 1989 through 1992, (ii) nondeductible
amortization of Goodwill and (iii) nondeductible amortization of restricted
stock.
Income from discontinued operations increased $2.8 million to $5.2 million
in 1996 reflecting nonrecurring 1995 charges of C.H. Patrick consisting of (i)
equity in losses and write-off of an equity investment and (ii) a charge
relating to the settlement of a patent infringement lawsuit, partially offset by
the effects of an increase in interest expense and weak pricing due to
competitive pressures.
The minority interests in net income of consolidated subsidiary of $1.8
million in 1996 represent the limited partners' interest in the net income of
the Partnership since the sale of such interest in July 1996 (see further
discussion below under "Liquidity and Capital Resources").
The extraordinary items aggregating a charge of $5.4 million in 1996 result
from the early extinguishment of the 11 7/8% Debentures on February 22, 1996,
all of the debt of the Textile Business, including its credit facility, in
connection with its sale on April 29, 1996, and substantially all of the
long-term debt of National Propane and the 9 1/2% Note in July 1996, and consist
of (i) the write-off of unamortized deferred financing costs and unamortized
original issue discount, (ii) the payment of prepayment penalties and related
costs and (iii) fees, partially offset by (i) discount from principal on the
early extinguishment of the 9 1/2% Note and (ii) income tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and cash equivalents (collectively "cash") and short-term
investments decreased $30.3 million during 1997 to $175.6 million of which cash
decreased $24.7 million to $129.5 million. Such decrease in cash reflects cash
used in (i) investing activities of $260.6 million and (ii) discontinued
operations of $23.7 million, and the effect of the deconsolidation of the
propane business (the "Deconsolidation") of $4.6 million, partially offset by
cash provided by (i) financing activities of $210.2 million and (ii) operating
activities of $54.0 million. The net cash used in investing activities reflects
(i) $311.9 million for the Snapple Acquisition (see below), (ii) other business
acquisitions of $6.7 million and (iii) capital expenditures of $13.9 million,
partially offset by (i) net proceeds from the C.H. Patrick Sale of $64.4
million, (ii) proceeds from sales of non-core businesses and properties of $4.4
million, (iii) net sales of investments of $2.5 million and (iv) other of $0.6
million. The cash used in discontinued and deconsolidated operations principally
reflects the repayment of $31.4 million of C.H. Patrick's long-term debt. The
net cash provided by financing activities reflects proceeds of $314.8 million
from issuances of long-term debt including $300.0 million of term loan
borrowings principally used to finance the Snapple Acquisition and to refinance
the debt of Mistic under a new $380.0 million credit agreement (see below),
partially offset by (i) long-term debt repayments of $79.0 million, including
$70.9 million of Mistic's debt refinanced (ii) payment of deferred financing
costs of $11.5 million, including $11.4 million in connection with the new
$380.0 million credit agreement and (iii) $14.1 million of distributions paid on
the common units in the Partnership. The net cash provided by operating
activities principally reflects non-cash charges of $59.2 million principally
for depreciation and amortization of $44.3 million and provision for acquisition
related costs, net of payments, of $24.9 million less the reclassification of
income from discontinued operations to "Net cash used in discontinued
operations" of $20.7 million, the net loss of $3.6 million and cash used by
changes in operating assets and liabilities of $1.6 million. The cash used by
changes in operating assets and liabilities of $1.6 million reflects a decrease
in accounts payable and accrued expenses of $31.4 million primarily due to the
paydown of payables and accruals subsequent to the RTM Sale and C&C Sale which
related to those sold operations and a decrease in the propane segment's
payables (exclusive of the effect of the Deconsolidation, as discussed below)
resulting from lower propane costs and timing of payments, partially offset by
(i) a decrease in receivables of $17.4 million mainly due to a decrease in the
propane segment's receivables due to the effect of lower selling prices and
improved collections and a decrease in receivables of Snapple since its
acquisition in May 1997 due to seasonally lower sales volume during the winter
months, (ii) a decrease in inventories of $5.8 million due to the seasonally
lower requirements of Snapple and reduced quantities and unit costs of propane
inventories at December 28, 1997 and (iii) a decrease in prepaid expenses and
other current assets of $6.6 million principally associated with the write-off
of promotional materials of the beverage segment, prepaid rent no longer
applicable as a result of the RTM Sale and the release of restricted cash. The
Company expects continued positive cash flows from operations during 1998.
Working capital (current assets less current liabilities) was $130.1
million at December 28, 1997, reflecting a current ratio (current assets divided
by current liabilities) of 1.6:1. Such amount represents a decrease in working
capital of $65.1 million from December 31, 1996 reflecting (i) the $30.3 million
decrease in cash and short-term investments discussed above, (ii) a $22.8
million net decrease in working capital associated with the provision for
acquisition related costs, net of payments, (iii) $7.2 million associated with
the Deconsolidation and (iv) other of $4.8 million which is net of $1.6 million
of net increases in working capital from changes in operating assets and
liabilities described above. The effects on working capital of business
acquisitions and dispositions were mostly offsetting.
In furtherance of the Company's growth strategy, the Company considers
selective business acquisitions, as appropriate, to grow strategically and
explores other alternatives to the extent it has available resources to do so.
As described below, during 1997 the Company acquired Snapple for $311.9 million
and Cable Car in exchange for Triarc class A common stock (the"Class A Common
Stock"). In addition, the propane segment acquired six propane distributors for
an aggregate of $9.2 million including cash of $8.5 million.
On May 22, 1997 the Company acquired Snapple, a producer and seller of
premium beverages, from Quaker for $311.9 million consisting of cash of $300.1
million, $9.3 million of fees and expenses and $2.5 million of deferred purchase
price. The purchase price for the Snapple Acquisition was funded from (i) $75.0
million of cash and cash equivalents on hand and contributed by Triarc to Triarc
Beverage Holdings Corp. ("TBHC"), a wholly-owned subsidiary of the Company and
the parent of Snapple and Mistic, and (ii) $250.0 million of borrowings by
Snapple on May 22, 1997 under a $380.0 million credit agreement, as amended (the
"Credit Agreement"), entered into by Snapple, Mistic and TBHC (collectively, the
"Borrowers").
On November 25, 1997 the Company acquired Cable Car, a marketer of premium
soft drinks in the United States and Canada, primarily under the Stewart's (R)
brand. The cost of the Stewart's Acquisition was $40.8 million consisting of (i)
the $37.4 million value as of November 25, 1997 of 1,566,858 shares of Class A
Common Stock issued in exchange for all of the outstanding stock of Cable Car,
(ii) the $2.8 million value as of November 25, 1997 of 154,931 stock options
issued in exchange for all of the outstanding stock options of Cable Car and
(iii) $0.6 million of expenses.
On July 18, 1997, the Company completed the C&C Sale consisting of its
rights to the C&C beverage line of mixers, colas and flavors, including the C&C
trademark and equipment related to the operation of the C&C beverage line, to
Kelco Sales & Marketing Inc., for consideration of $0.8 million in cash and an
$8.6 million note (the "Kelco Note") with a discounted value of $6.0 million
consisting of $3.6 million relating to the C&C Sale and $2.4 million relating to
future revenues for services to be performed over seven years. The Kelco Note is
due in monthly installments of varying amounts of approximately $0.1 million
through August 2004.
On May 5, 1997 certain subsidiaries of the Company sold to RTM all of the
355 company-owned Arby's restaurants. The sales price consisted of cash and a
promissory note (discounted value) aggregating $3.5 million (including $2.1
million of post-closing adjustments) and the assumption by RTM of mortgage and
equipment notes payable to FFCA Mortgage Corporation ("FFCA") of $54.7 million
(the "FFCA Borrowings") and capitalized lease obligations of $14.9 million. RTM
now operates the 355 restaurants as a franchisee and pays royalties to the
Company at a rate of 4% of those restaurants' net sales.
As a result of the RTM Sale, the Company's remaining restaurant operations
are exclusively franchising. The restaurant segment, without the operation of
the company-owned restaurants, has begun to experience and will continue to
benefit from improved cash flow as a result of (i) substantially reduced capital
expenditures, (ii) higher royalty fees as a result of the aforementioned
royalties relating to the restaurants sold to RTM and (iii) the reduction of
operating costs, a process begun in the second quarter and whose full year
effect should be realized in 1998.
On December 23, 1997 the Company sold the stock of C.H. Patrick, its dyes
and specialty chemicals subsidiary, to The B.F. Goodrich Company for $64.4
million in cash, net of estimated post-closing adjustments of $3.9 million and
expenses of $3.7 million. The Company used a portion of such proceeds to repay
all of the outstanding long-term debt of C.H. Patrick ($31.4 million) and
accrued interest thereon ($0.6 million).
The Credit Agreement consists of (i) a $300.0 million term facility of
which $225.0 million and $75.0 million of loans (the "Term Loans") were borrowed
by Snapple and Mistic, respectively, at the Snapple Acquisition date ($222.4
million and $74.1 million, respectively, outstanding at December 28, 1997) and
(ii) an $80.0 million revolving credit line (the "Revolving Credit Line") which
provides for revolving credit loans (the "Revolving Loans") by Snapple, Mistic
or TBHC of which $25.0 million and $5.0 million were borrowed on the Snapple
Acquisition date by Snapple and Mistic, respectively. The Revolving Loans were
repaid prior to December 28, 1997 and no Revolving Loans were outstanding at
December 28, 1997. The aggregate $250.0 million borrowed by Snapple was
principally used to fund a portion of the purchase price for Snapple. The
aggregate $80.0 million borrowed by Mistic was principally used to repay all of
the $70.9 million then outstanding borrowings under Mistic's former bank credit
facility plus accrued interest thereon. The borrowing base for Revolving Loans
is the sum of 80% of eligible accounts receivable and 50% of eligible inventory.
As of December 28, 1997, there was $32.5 million of borrowing availability under
the revolving credit line in accordance with limitations due to such borrowing
base. The Term Loans are due $9.5 million in 1998, $14.5 million in 1999, $19.5
million in 2000, $24.5 million in 2001, $27.0 million in 2002, $61.0 million in
2003, $94.0 million in 2004 and $46.5 million in 2005 and any Revolving Loans
would be due in full in June 2003. The Borrowers must also make mandatory
prepayments in an amount, if any, equal to 75% of excess cash flow, as defined.
Under the definition of excess cash flow as of December 28, 1997, the Borrowers
would have been obligated to make a mandatory prepayment in 1998 of $25.6
million plus an additional $15.9 million in 1998 attributable to those
acqusition related costs which affect the working capital component of the
excess cash flow calculation. However, on March 25, 1998 the Borrowers obtained
an amendment to the Credit Agreement dated March 23, 1998 revising the
definition of excess cash flow for the period May 22, 1997 through December 28,
1997 resulting in a reduction of the required prepayment to $2.8 million.
Accordingly, the $2.8 million the Company is required to pay has been classified
as current portion of long-term debt in the accompanying consolidated balance
sheet at December 28, 1997 and the remaining $38.7 million that would have been
required to be prepaid under the prior definition of excess cash flow has been
classified as non-current long-term debt.
The $275.0 million aggregate principal amount of 9 3/4% senior secured
notes due 2000 (the "9 3/4% Senior Notes") of RC/Arby's Corporation ("RCAC"), a
wholly-owned subsidiary of Triarc, mature on August 1, 2000 and do not require
any amortization of the principal amount thereof prior to such date.
The Company has $3.8 million and $0.5 million, respectively, as of December
28, 1997 of remaining FFCA mortgage notes and equipment notes after the
assumption of the FFCA Borrowings. Such mortgage and equipment notes are
repayable in equal monthly installments, including interest, over twenty years
and seven years, through 2016 and 2003, respectively. Amounts due under these
notes in 1998 aggregate $0.7 million consisting of $0.6 million to be assumed by
RTM (and offset against a receivable from RTM for an equal amount) and $0.1
million to be paid in cash.
The Company has a $40.7 million loan due to the Partnership (the
"Partnership Loan") which is due in annual installments of approximately $5.1
million commencing 2003 through 2010 and, accordingly, does not require any
principal payments in 1998. The Partnership Loan is included in the Company's
long-term debt as of December 28, 1997 as a result of the Deconsolidation.
Under the Company's various debt agreements, substantially all of Triarc's
and its subsidiaries' assets other than cash, short-term investments and the
assets of Cable Car are pledged as security. In addition, obligations under (i)
the 9 3/4% Senior Notes have been guaranteed by RCAC's wholly-owned
subsidiaries, Royal Crown and Arby's, Inc. (d/b/a Triarc Restaurant Group -
"TRG"), (ii) the $125.0 million of 8.54% first mortgage notes due June 30, 2010
of the Partnership and $20.5 million outstanding under a $55.0 million bank
credit facility (the "Propane Bank Credit Facility") maintained by National
Propane, L.P. (the "Operating Partnership"), a subpartnership of the
Partnership, have been guaranteed by National Propane, a general partner of the
Partnership and (iii) borrowings under loan agreements with FFCA (the "FFCA Loan
Agreements") including (a) the FFCA Borrowings (approximately $53.1 million
outstanding as of December 28, 1997) and (b) $4.3 million of debt retained by
the Company, have been guaranteed by Triarc. As collateral for the guarantees,
all of the stock of Royal Crown and TRG is pledged as well as National Propane's
2% unsubordinated general partner interest (see below). Although Triarc has not
guaranteed the obligations under the Credit Agreement, all of the stock of
Snapple, Mistic and TBHC is pledged as security for payment of such obligations.
Although the stock of National Propane is not pledged in connection with any
guarantee of debt obligations, the 75.7% of such stock owned by Triarc directly
is pledged as security for obligations under the Partnership Loan (see below).
Consolidated capital expenditures amounted to $13.9 million in 1997,
including $7.8 million attributable to the propane segment. The Company expects
that capital expenditures will approximate $8.8 million during 1998, exclusive
of those of the propane segment which will not be consolidated in 1998 (see
below) and $4.6 million RCAC was required to reinvest in core business assets
pursuant to the indenture pursuant to which the 9 3/4% Senior Notes were issued
(the "Senior Note Indenture") as a result of the C&C Sale and certain other
asset disposals. In addition to capital expenditures, the Company completed its
purchases of two ownership interests in corporate aircraft in the first quarter
of 1998 for $3.6 million. As of December 28, 1997 there were no outstanding
commitments for such estimated capital expenditures other than the $4.6 million
reinvestment requirement made in January 1998.
The Company, through its ownership of Snapple, owned 50% of Rhode Island
Beverage Packing Company, L.P. ("RIB"). Snapple and Quaker were defendants in a
breach of contract case filed in April 1997 by RIB, prior to the Snapple
Acquisition (the "RIB Matter"). The RIB Matter was settled in February 1998 and
in accordance therewith, among other things, Snapple paid RIB $8.2 million. Such
amount was fully provided for as of December 28, 1997.
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service (the "IRS") for the tax years 1989 through 1992 and the
IRS has issued notices of proposed adjustments increasing taxable income by
approximately $145.0 million. The Company has resolved approximately $102.0
million of such proposed adjustments and, in connection therewith, the Company
paid $5.3 million, including interest, during the fourth quarter of 1997 and
subsequent to December 28, 1997 paid an additional $8.1 million, including
interest. The Company intends to contest the unresolved adjustments of
approximately $43.0 million, the tax effect of which has not yet been
determined, at the appellate division of the IRS and accordingly, the amount of
any payments required as a result thereof cannot presently be determined.
On February 9, 1998 the Company sold zero coupon convertible subordinated
debentures (the "Debentures") with a principal amount at maturity of $360.0
million to Morgan Stanley & Co. Incorporated ("Morgan Stanley") as the initial
purchaser for an offering to "qualified institutional buyers", which are due
2018 without any amortization of the principal amount required prior thereto.
The Debentures were issued at a discount of 72.177% from principal and resulted
in proceeds to the Company of $100.2 million, before placement fees of $3.0
million and other related fees and expenses. The net proceeds from the sale of
Debentures were used to purchase 1,000,000 treasury shares (see below) and the
remainder will be used by Triarc for general corporate purposes, which may
include working capital requirements, repayment or refinancing of indebtedness,
acquisitions and investments. The Debentures are convertible into Class A Common
Stock at a conversion rate of 9.465 shares per $1,000 principal amount at
maturity, which represents an initial conversion price of approximately $29.40
per share of Class A Common Stock. The conversion of all of the Debentures into
Class A Common Stock would result in the issuance of 3,407,000 shares of Class A
Common Stock. The Company has agreed to file a registration statement with the
Securities and Exchange Commission no later than May 10, 1998 to register the
Debentures and the Class A Common Stock issuable upon any conversion of the
Debentures. Outstanding Debentures will not affect basic earnings per share but
will increase the number of shares utilized to calculate diluted earnings per
share in periods with net income.
Under a program originally announced in October 1997 and amended in March
1998, the Company is currently authorized, when and if market conditions
warrant, to repurchase until November 1998, up to $30.0 million of its Class A
Common Stock. During 1997 the Company had repurchased 67,200 shares of its Class
A Common Stock at an aggregate cost of $1.6 million and, subsequent to December
28, 1997, repurchased in January 1998 an additional 71,500 shares of its Class A
Common Stock at an aggregate cost of $1.9 million under this program. There can
be no assurance that the Company will repurchase the full $30.0 million of its
Class A Common Stock authorized under this program. In addition to this program,
subsequent to December 28, 1997 the Company used a portion of the proceeds from
the sale of the Debentures to purchase 1,000,000 shares of Class A Common Stock
for an aggregate price of $25.6 million from Morgan Stanley.
The Company received quarterly distributions on the Subordinated Units (the
"Subordinated Distributions") from the Partnership and quarterly distributions
on the Unsubordinated General Partners' Interests (the "General Partner
Distributions") of $9.5 million and $1.0 million, respectively, in 1997. The
Company also received Subordinated Distributions and General Partner
Distributions of $2.4 million and $0.2 million, respectively, in February 1998
with respect to the fourth quarter of 1997. However, the Company has agreed to
forego any additional Subordinated Distributions in order to facilitate the
Partnership's compliance with a covenant restriction contained in its bank
facility agreement. Accordingly, the Company does not expect to receive any
additional Subordinated Distributions for the remainder of 1998. Such
Subordinated Distributions will be resumed when their payment will not impact
compliance with such covenant. General Partner Distributions are expected to
continue and should amount to $0.7 million for the remainder of 1998.
Accordingly, aggregate Subordinated Distributions and General Partner
Distributions will be limited to $3.3 million in 1998, including the $2.6
million received in February 1998.
As of December 28, 1997, the Company's cash requirements, exclusive of
operating cash flow requirements, for 1998 consist principally of (i) the $25.6
million used to repurchase 1,000,000 shares of treasury stock from Morgan
Stanley, (ii) capital expenditures, including expenditures for ownership
interests in corporate aircraft, of approximately $17.0 million, (iii) debt
principal payments currently aggregating $13.6 million (including $9.5 million
of scheduled repayments under the Term Loans, the $2.8 million accelerated
payment discussed above and $0.1 million under the FFCA Loan Agreements), (iv)
the $8.2 million payment for the RIB settlement, (v) the Federal income tax
payment of $8.1 million made subsequent to December 28, 1997 resulting from the
IRS examination of the Company's 1989 through 1992 income tax returns and
additional payments, if any, related to the $43.0 million of proposed
adjustments from such examination being contested and (vi) the cost of business
acquisitions and additional treasury stock repurchases, if any. The Company
anticipates meeting all of such requirements through existing cash and cash
equivalents and short-term investments (aggregating $175.6 million as of
December 28, 1997), cash flows from operations, net proceeds from the February
1998 sale of Debentures and availability under the Revolving Credit Line.
TRIARC
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon its (i) cash and cash equivalents and short-term
investments (aggregating $114.7 million as of December 28, 1997), (ii)
investment income on its cash equivalents and short-term investments and (iii)
cash flows from its subsidiaries including loans, distributions and dividends
(see limitations below) and reimbursement by certain subsidiaries to Triarc in
connection with the (a) providing of certain management services and (b)
payments under tax-sharing agreements with certain subsidiaries.
Triarc's principal subsidiaries, other than Cable Car, CFC Holdings Corp.
("CFC Holdings"), the parent of RCAC, and National Propane, are unable to pay
any dividends or make any loans or advances to Triarc during 1998 under the
terms of the various indentures and credit arrangements. While there are no
restrictions applicable to National Propane, National Propane is dependent upon
cash flows from the Partnership principally quarterly Subordinated Distributions
and General Partner Distributions (aggregating $10.5 million for 1997) from the
Partnership (see above for restrictions on paying Subordinated Distributions in
1998). While there are no restrictions applicable to CFC Holdings, CFC Holdings
is dependent upon cash flows from RCAC to pay dividends and, as of December 28,
1997, RCAC was unable to pay any dividends or make any loans or advances to CFC
Holdings.
Triarc's operating activities provided $44.4 million of cash flows in 1997
principally due to $54.5 million of dividends from subsidiaries. Included in
those dividends are a nonrecurring $40.0 million dividend from C.H. Patrick and
$10.5 million representing dividends from subsidiaries provided by the
pass-through of Subordinated Distributions and General Partner Distributions. As
set forth above Triarc has received $2.4 million and $0.2 million of
Subordinated Distributions and General Partner Distributions, respectively, in
February 1998 but does not anticipate any additional Subordinated Distributions
for the remainder of 1998. However, Triarc anticipates higher investment income
in 1998 from its securities portfolio as a result of the investment of the net
proceeds from the sale of the Debentures less the $25.6 million utilized for the
repurchase of the 1,000,000 shares of treasury stock. As a result of the net
effect of the nonrecurring dividends from subsidiaries and the higher investment
income, Triarc does not expect its significant cash flows from operations to
recur in 1998 but anticipates operating cash flows to be approximately
break-even.
Triarc's indebtedness to subsidiaries as of December 28, 1997 decreased
$38.6 million to $33.8 million compared with $72.4 million as of December 31,
1996. Such decrease is a result of excluding the $40.7 million Partnership Loan
from indebtedness of subsidiaries as of December 28, 1997 as a result of the
Deconsolidation. Such indebtedness consists of a $30.0 million demand note
payable to National Propane bearing interest at 13 1/2% payable in cash (the
"$30 Million Note"), a $2.0 million demand note to a subsidiary of RCAC and a
$1.8 million note due to Chesapeake Insurance Company Limited ("Chesapeake
Insurance"), a wholly-owned subsidiary of the Company. While the $30 Million
Note requires the payment of interest in cash, Triarc currently expects to
receive dividends from National Propane equal to such cash interest. Triarc must
pay $0.5 million of principal on the note due to Chesapeake Insurance during
1998; Triarc's other intercompany indebtedness requires no principal payments
during 1998, assuming no demand is made under the $30 Million Note, and none is
anticipated, or the $2.0 million note payable to a subsidiary of RCAC.
Triarc's principal cash requirements for 1998 are (i) payments of general
corporate expenses, (ii) interest due on the Partnership Loan, (iii) the $25.6
million repurchase of 1,000,000 shares of treasury stock from Morgan Stanley,
(iv) the previously discussed Federal income tax payment of $8.1 million made
subsequent to December 28, 1997 resulting from the IRS examination of the
Company's 1989 through 1992 income tax returns and additional payments, if any,
related to the $43.0 million of proposed adjustments from such examination being
contested, (v) the $4.1 million of capital expenditures and expenditures for
ownership interests in corporate aircraft and (vi) the cost of business
acquisitions and additional treasury stock repurchases, if any. Triarc expects
to be able to meet all of its cash requirements as discussed above for 1998
through its cash and cash equivalents and short-term investments ($114.7 million
as of December 28, 1997) and the $97.2 million of net proceeds from the February
1998 sale of the Debentures.
LEGAL AND ENVIRONMENTAL MATTERS
The Company is involved in litigation, claims and environmental matters
incidental to its business. The Company has reserves for such legal and
environmental matters aggregating approximately $10.3 million as of December 28,
1997. Although the outcome of such matters cannot be predicted with certainty
and some of these may be disposed of unfavorably to the Company, based on
currently available information and given the Company's aforementioned reserves,
the Company does not believe that such legal and environmental matters will have
a material adverse effect on its consolidated results of operations or financial
position.
YEAR 2000
The Company has undertaken a study of its functional application systems to
determine their compliance with year 2000 issues and, to the extent of
noncompliance, the required remediation. An assessment of the readiness of third
party entities with which the Company has relationships, such as its suppliers,
customers and payroll processor and others, is ongoing. As a result of such
study, the Company believes the majority of its systems are year 2000 compliant.
However, certain systems, which are significant to the Company, require
remediation. The Company currently estimates it will complete the required
remediation by the end of the first half of 1999. The current estimated cost of
such remediation is approximately $2.0 million, including computer software
costs. Such costs, other than software, will be expensed as incurred.
INFLATION AND CHANGING PRICES
Management believes that inflation did not have a significant effect on
gross margins during 1995, 1996 and 1997, since inflation rates generally
remained at relatively low levels. Historically, the Company has been successful
in dealing with the impact of inflation to varying degrees within the
limitations of the competitive environment of each segment of its business.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130 ("SFAS 130") "Reporting Comprehensive Income". SFAS 130 requires
that all items which are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income is defined as the change in the stockholders' equity during a period
exclusive of stockholder investments and distributions to stockholders. For the
Company, in addition to net income (loss), comprehensive income includes changes
in net unrealized gains (losses) on "available-for-sale" marketable securities,
unearned compensation and currency translation adjustment. In June 1997 the FASB
also issued SFAS No. 131 ("SFAS 131") "Disclosures about Segments of an
Enterprise and Related Information" which supersedes SFAS No. 14 "Financial
Reporting for Segments of a Business Enterprise". SFAS 131 requires disclosure
in the Company's consolidated financial statements (including quarterly
condensed consolidated financial statements) of financial and descriptive
information by operating segment as used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS 130 and
SFAS 131 are effective for the Company's fiscal year beginning December 29, 1997
(exclusive of the quarterly segment data under SFAS 131 which is effective the
following fiscal year) and require comparative information for earlier periods
presented. The application of the provisions of both SFAS 130 and SFAS 131 will
require an additional financial statement and may result in changes to segment
disclosures but will not have any effect on the Company's reported consolidated
financial position and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report......................................
Consolidated Balance Sheets as of December 31, 1996
and December 28, 1997..........................................
Consolidated Statements of Operations for the years
ended December 31, 1995 and 1996 and the fiscal
year ended December 28, 1997...................................
Consolidated Statements of Additional Capital for
the years ended December 31, 1995 and 1996 and the
fiscal year ended December 28, 1997............................
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996 and the fiscal year ended
December 28, 1997...............................................
Notes to Consolidated Financial Statements........................
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
TRIARC COMPANIES, INC.:
New York, New York
We have audited the accompanying consolidated balance sheets of Triarc
Companies, Inc. and subsidiaries (the "Company") as of December 28, 1997 and
December 31, 1996, and the related consolidated statements of operations,
additional capital, and cash flows for each of the three fiscal years in the
period ended December 28, 1997. 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 December
28, 1997 and December 31, 1996, and the results of their operations and their
cash flows for each of the three fiscal years in the period ended December 28,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
March 10, 1998
(March 25, 1998 as to Note 8)
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 28,
1996 1997
---- ----
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ($139,573,000 and $122,131,000)................$ 154,190 $ 129,480
Short-term investments (Note 5)......................................... 51,711 46,165
Receivables, net (Note 6)................................................ 70,963 77,882
Inventories (Note 6)..................................................... 39,585 57,394
Assets held for sale (Note 3)............................................ 71,116 --
Deferred income tax benefit (Note 10).................................... 16,084 38,120
Prepaid expenses and other current assets................................ 16,068 6,718
Net current assets of discontinued operations (Note 17).................. 16,304 --
--------- ----------
Total current assets................................................ 436,021 355,759
Investments (Note 7)........................................................ 500 31,449
Properties, net (Note 6).................................................... 98,968 33,833
Unamortized costs in excess of net assets of acquired companies (Note 6).... 200,841 279,225
Trademarks (Note 6)......................................................... 57,257 269,201
Deferred costs and other assets (Note 6).................................... 38,198 35,406
--------- ----------
$ 831,785 $1,004,873
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Notes 8 and 9)........................$ 91,067 $ 14,182
Accounts payable ........................................................ 50,431 63,237
Accrued expenses (Note 6)................................................ 99,348 148,254
--------- ----------
Total current liabilities........................................... 240,846 225,673
Long-term debt (Notes 8 and 9).............................................. 469,154 604,830
Deferred income taxes (Note 10)............................................. 35,943 92,577
Deferred income and other liabilities....................................... 28,444 37,805
Minority interests (Note 3)................................................. 33,724 --
Net non-current liabilities of discontinued operations (Note 17)............ 16,909 --
Commitments and contingencies (Notes 10, 19, 20 and 21)
Stockholders' equity (Note 11):
Class A common stock, $.10 par value; authorized 100,000,000 shares,
issued 27,983,805 and 29,550,663 shares ........................... 2,798 2,955
Class B common stock, $.10 par value; authorized 25,000,000 shares,
issued 5,997,622 shares............................................ 600 600
Additional paid-in capital............................................... 161,170 204,291
Accumulated deficit...................................................... (111,824) (115,440)
Less Class A common stock held in treasury at cost; 4,097,606 and
3,951,265 shares................................................... (46,273) (45,456)
Other.................................................................... 294 (2,962)
--------- ----------
Total stockholders' equity ........................................ 6,765 43,988
--------- ----------
$ 831,785 $1,004,873
========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, Year Ended
------------------------ December 28,
1995 1996 1997
---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Net sales.......................................... $ 1,086,180 $ 870,856 $ 794,790
Royalties, franchise fees and other revenues....... 55,831 57,329 66,531
----------- ---------- -----------
1,142,011 928,185 861,321
----------- ---------- -----------
Costs and expenses:
Cost of sales (Note 6)............................. 835,367 606,913 471,937
Advertising, selling and distribution (Note 1)..... 127,954 138,088 180,529
General and administrative......................... 141,247 127,937 143,003
Reduction in carrying value of long-lived assets
impaired or to be disposed of (Note 3).......... 14,647 64,300 --
Facilities relocation and corporate restructuring
(Note 12)....................................... 2,700 8,800 7,075
Acquisition related (Note 13)...................... -- -- 31,815
Recovery of doubtful accounts from former
affiliates (Note 22)............................ (3,049) -- --
----------- ---------- -----------
1,118,866 946,038 834,359
----------- ---------- -----------
Operating profit (loss)...................... 23,145 (17,853) 26,962
Interest expense .................................... (84,126) (71,025) (71,648)
Gain (loss) on sale of businesses, net (Note 14)..... (100) 77,000 4,955
Investment income, net (Note 15)..................... 2,324 8,069 12,771
Other income (expense), net (Note 16)................ 16,781 (126) 3,870
----------- ---------- -----------
Loss from continuing operations before
income taxes and minority interests....... (41,976) (3,935) (23,090)
Benefit from (provision for) income taxes (Note 10).. 2,543 (7,934) 4,742
Minority interests in income of a consolidated
subsidiary (Note 3).............................. -- (1,829) (2,205)
----------- ---------- -----------
Loss from continuing operations.............. (39,433) (13,698) (20,553)
Income from discontinued operations (Note 17)........ 2,439 5,213 20,718
----------- ---------- -----------
Income (loss) before extraordinary items..... (36,994) (8,485) 165
Extraordinary items (Note 18)........................ -- (5,416) (3,781)
----------- ---------- -----------
Net loss..................................... $ (36,994) $ (13,901) $ (3,616)
=========== ========== ===========
Loss per share (Note 4):
Continuing operations........................ $ (1.32) $ (.46) $ (.68)
Discontinued operations...................... .08 .18 .69
Extraordinary items.......................... -- (.18) (.13)
----------- ---------- -----------
Net loss..................................... $ (1.24) $ (.46) $ (.12)
=========== ========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ADDITIONAL CAPITAL
YEAR ENDED DECEMBER 31, YEAR ENDED
---------------------- DECEMBER 28,
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Additional paid-in capital:
Balance at beginning of year....................................................$ 79,497 $ 162,020 $ 161,170
Common stock issued (Note 11):
Excess of fair value over par value, net of expenses, from issuance of
common shares in connection with the Posner Settlement (Note 11) in
1995 and the Stewart's acquisition in 1997 (Note 3)....................... 11,915 -- 36,602
Excess (deficiency) of exercise prices for options or fair value for
restricted stock of shares issued from treasury over average cost of
treasury shares in connection with:
Exercises of stock options ........................................... -- (5) 82
Grants of restricted stock............................................ (8) -- --
Excess of book value of redeemable preferred stock over par value of
common stock issued upon conversion in connection with the Posner
Settlement (Note 11)...................................................... 71,296 -- --
Other issuances............................................................. 17 7 41
Fair value of stock options issued in Cable Car acquisition (Note 3)............ -- -- 2,788
Excess of fair value at date of grant of common shares over the option
price for stock options granted (forfeited) (Note 11)....................... (588) (852) 2,413
Tax benefit from exercises of stock options (Note 11)........................... -- -- 613
Equity in excess of fair value at date of grant of partnership units of
propane subsidiary over the option price for unit options granted
(Note 11)................................................................... -- -- 582
Other........................................................................... (109) -- --
----------- ------------ -----------
Balance at end of year..........................................................$ 162,020 $ 161,170 $ 204,291
=========== ============ ===========
Accumulated deficit:
Balance at beginning of year....................................................$ (60,929) $ (97,923) $ (111,824)
Net loss........................................................................ (36,994) (13,901) (3,616)
----------- ------------ -----------
Balance at end of year..........................................................$ (97,923) $ (111,824) $ (115,440)
=========== ============ ===========
Treasury stock (Note 11):
Balance at beginning of year....................................................$ (45,473) $ (45,931) $ (46,273)
Purchases of common shares in open market transactions.......................... (489) (496) (1,594)
Issuance of shares from treasury at average cost in connection with:
Exercises of stock options.................................................. -- 113 2,351
Grants of restricted stock.................................................. 76 -- --
Other........................................................................... (45) 41 60
----------- ------------ -----------
Balance at end of year..........................................................$ (45,931) $ (46,273) $ (45,456)
=========== ============ ===========
Other (Note 11):
Unearned compensation:
Balance at beginning of year................................................$ (7,416) $ (1,013) $ (305)
Forfeiture (grant) of below market stock options including equity in
(grant) of units of propane subsidiary (Note 11).......................... 319 219 (3,270)
Amortization of below market stock options including equity in
amortization associated with options of propane subsidiary (Note 11) 761 489 1,592
Grants of restricted stock.................................................. (68) -- --
Amortization of restricted stock (Note 11).................................. 5,281 -- --
Other....................................................................... 110 -- --
----------- ------------ -----------
Balance at end of year...................................................... (1,013) (305) (1,983)
----------- ------------ -----------
Net unrealized gains (losses) on "available-for-sale" marketable securities
(Note 5):
Balance at beginning of year ............................................... (260) 99 599
Unrealized gains (losses) for the year...................................... 359 500 (1,336)
----------- ------------ -----------
Balance at end of year...................................................... 99 599 (737)
----------- ------------ -----------
Currency translation adjustment:
Balance at beginning of year................................................ -- -- --
Net change in currency translation adjustment............................... -- -- (242)
----------- ------------ -----------
Balance at end of year...................................................... -- -- (242)
----------- ------------ -----------
$ (914) $ 294 $ (2,962)
=========== ============ ===========
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------ DECEMBER 28,
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $ (36,994) $ (13,901) $ (3,616)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for acquisition related costs, net of payments............ -- -- 24,883
Amortization of costs in excess of net assets of acquired
companies, trademarks and other amortization...................... 17,100 16,237 21,661
Depreciation and amortization of properties......................... 37,884 29,587 17,658
Reduction in carrying value of long-lived assets.................... 14,647 64,300 --
Amortization of original issue discount and deferred
financing costs .................................................. 7,558 5,733 5,014
Write-off of deferred financing costs and in 1996 original
issue discount.................................................... -- 12,245 6,178
Discount from principal on early extinguishment of debt............. -- (9,237) --
Provision for doubtful accounts..................................... 4,659 5,680 5,003
Income from discontinued operations................................. (2,439) (5,213) (20,718)
(Gain) loss on sale of businesses................................... 100 (77,000) (4,955)
(Gain) loss on sale of assets, net.................................. (10,261) 36 (1,051)
Other, net.......................................................... (1,564) 2,792 5,499
Changes in operating assets and liabilities:
Decrease (increase) in receivables............................ (13,636) (6,290) 17,423
Decrease (increase) in inventories............................ 2,184 (17,562) 5,814
Decrease in prepaid expenses and other current assets......... 2,094 786 6,618
Increase (decrease) in accounts payable and accrued
expenses ................................................... (9,087) 22,022 (31,400)
------------ ------------- ---------------
Net cash provided by operating activities............... 12,245 30,215 54,011
------------ ------------- ---------------
Cash flows from investing activities:
Acquisition of Mistic Brands, Inc., net of cash acquired of
$2,067,000 in 1995 and Snapple Beverage Corp. in 1997................. (92,257) -- (311,915)
Other business acquisitions, net of cash acquired of $2,409,000
in 1997............................................................... (18,947) (4,018) (6,721)
Net proceeds from sale of the dyes and specialty chemicals
business.............................................................. -- -- 64,410
Net proceeds from the sale of the textile business ..................... -- 236,824 --
Proceeds from sales of non-core businesses and properties............... 19,596 2,183 4,370
Cost of short-term investments purchased ............................... (27,490) (64,409) (54,623)
Proceeds from short-term investments sold .............................. 29,805 21,598 62,919
Capital expenditures ................................................... (68,576) (29,340) (13,906)
Cost of non-current investments ........................................ (6,340) -- (5,750)
Other................................................................... -- (376) 592
------------ ------------- ---------------
Net cash provided by (used in) investing
activities........................................... (164,209) 162,462 (260,624)
------------ ------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt ........................................... 208,871 129,026 314,762
Repayments of long-term debt ........................................... (31,263) (412,051) (78,993)
Restricted cash (from the proceeds of) used to repay
long-term debt........................................................ (30,000) 30,000 --
Distributions paid on propane partnership common units.................. -- (3,309) (14,073)
Deferred financing costs................................................ (9,244) (7,299) (11,479)
Net proceeds from sale of partnership units in the propane
subsidiary ........................................................... -- 124,749 --
Other................................................................... (1,226) (438) (54)
-------------- -------------- --------------
Net cash provided by (used in) financing
activities........................................... 137,138 (139,322) 210,163
Net cash provided by (used in) continuing operations....................... (14,826) 53,355 3,550
Net cash provided by (used in) discontinued operations..................... (1,038) 36,788 (23,644)
Decrease in cash due to deconsolidation of propane business................ -- -- (4,616)
--------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents....................... (15,864) 90,143 (24,710)
Cash and cash equivalents at beginning of period........................... 79,911 64,047 154,190
--------------- -------------- --------------
Cash and cash equivalents at end of period ................................$ 64,047 $ 154,190 $ 129,480
=============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period or:
Interest...........................................................$ 73,286 $ 66,537 $ 63,823
=============== ============== ==============
Income taxes, net..................................................$ 6,911 $ 1,529 $ 5,688
=============== ============== ==============
Supplemental schedule of noncash investing and financing activities:
Total capital expenditures..........................................$ 69,822 $ 29,581 $ 13,906
Amounts representing capitalized leases and other
secured financing................................................. (1,246) (241) --
--------------- -------------- --------------
Capital expenditures paid in cash...................................$ 68,576 $ 29,340 $ 13,906
=============== ============== ==============
</TABLE>
Due to their noncash nature, the following transactions are also not
reflected in the respective consolidated statements of cash flows:
On November 25, 1997 Triarc issued 1,566,858 shares of Class A Common
Stock in exchange for all of the outstanding stock of Cable Car Beverage
Corporation ("Cable Car") and issued 154,931 stock options in exchange for all
of the outstanding stock options of Cable Car. See Note 3 to the consolidated
financial statements for further discussion of this acquisition.
Effective December 28, 1997 the Company adopted certain amendments to the
partnership agreements of National Propane Partners, L.P. (the "Partnership")
and its subpartnership such that the Company no longer has substantive control
over the Partnership (see Note 7 to the consolidated financial statements) and,
accordingly, deconsolidated the Partnership as of such date (the
"Deconsolidation"). The effect of the Deconsolidation is not reflected in the
statement of cash flows for the year ended December 28, 1997.
Pursuant to a settlement agreement, in January 1995 Triarc Companies, Inc.
("Triarc") issued 4,985,722 shares of its Class B Common Stock in exchange for
all of its then outstanding redeemable convertible preferred stock owned by an
affiliate of Victor Posner, the former Chairman and Chief Executive Officer of a
predecessor corporation to Triarc ("Posner"), resulting in a decrease in
redeemable preferred stock of $71,794,000 and equal aggregate increases in Class
B Common Stock of $498,000 and additional paid-in capital of $71,296,000.
Further, an additional 1,011,900 shares of Class B Common Stock valued at
$12,016,000 were issued to entities controlled by Posner pursuant to such
agreement in settlement of, among other matters, a $12,326,000 previously
accrued liability owed to an affiliate of Posner, resulting in a gain of
$310,000. See Note 11 to the consolidated financial statements for further
discussion.
See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Triarc
Companies, Inc. (referred to herein as "Triarc" and, collectively with its
subsidiaries, as the "Company") and its principal subsidiaries. The principal
subsidiaries of the Company, all wholly-owned as of December 28, 1997, are
Triarc Beverage Holdings Corp. ("TBHC" - newly-formed in 1997), CFC Holdings
Corp. ("CFC Holdings"), National Propane Corporation ("National Propane"), Cable
Car Beverage Corporation ("Cable Car" - acquired November 25, 1997), TXL Corp.
("TXL") and Southeastern Public Service Company ("SEPSCO"). TBHC has as its
wholly-owned subsidiaries Snapple Beverage Corp. ("Snapple" - acquired May 22,
1997) and Mistic Brands, Inc. ("Mistic" - acquired August 9, 1995). CFC Holdings
has as its wholly-owned subsidiaries Chesapeake Insurance Company Limited
("Chesapeake Insurance") and RC/Arby's Corporation ("RCAC"), and RCAC has as its
principal wholly-owned subsidiaries Royal Crown Company, Inc. ("Royal Crown")
and Arby's, Inc. (d/b/a Triarc Restaurant Group - "TRG"). Additionally, RCAC has
three wholly-owned subsidiaries which, prior to the May 1997 sale of all
company-owned restaurants, owned and/or operated Arby's restaurants, consisting
of Arby's Restaurant Development Corporation ("ARDC"), Arby's Restaurant Holding
Company ("ARHC") and Arby's Restaurant Operations Company. National Propane and
its subsidiary National Propane SGP Inc. ("SGP") own a combined 42.7% interest
in National Propane Partners, L.P. (the "Partnership"), a limited partnership
organized in 1996 to acquire, own and operate the propane business of National
Propane, and a subpartnership. National Propane and SGP are the general partners
of the Partnership. The entity representative of both the operations of (i)
National Propane prior to a July 2, 1996 conveyance of certain of its assets and
liabilities (see Note 3) to a subsidiary partnership of the Partnership and (ii)
the Partnership subsequent thereto, is referred to herein as "National". TXL
owned C.H. Patrick & Co., Inc. ("C.H. Patrick") prior to its sale on December
23, 1997 and operated the Textile Business (see Note 3) prior to the sale of
such business in April 1996. All significant intercompany balances and
transactions have been eliminated in consolidation. See Note 3 for a discussion
of the acquisitions and dispositions referred to above. See Note 7 for
discussion of the deconsolidation (the "Deconsolidation") of the Partnership
effective December 28, 1997.
CHANGE IN FISCAL YEAR
Effective January 1, 1997 the Company changed its fiscal year from a
calendar year to a year consisting of 52 or 53 weeks ending on the Sunday
closest to December 31. In accordance therewith, the Company's 1997 fiscal year
commenced January 1, 1997 and ended on December 28, 1997. Such period is
referred to herein as "the year ended December 28, 1997" or "1997". December 28,
1997 and December 31, 1996 are referred to herein as "Year-End 1997" and
"Year-End 1996", respectively.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less
when acquired are considered cash equivalents. The Company typically invests its
excess cash in commercial paper of high credit-quality entities and repurchase
agreements with high credit-quality financial institutions. Securities pledged
as collateral for repurchase agreements are segregated and held by the financial
institution until maturity of each repurchase agreement. While the market value
of the collateral is sufficient in the event of default, realization and/or
retention of the collateral may be subject to legal proceedings in the event of
default or bankruptcy by the other party to the agreement.
SHORT-TERM INVESTMENTS
Short-term investments include marketable securities with readily
determinable fair values and investments in equity securities which are not
readily marketable. The Company's marketable securities are classified and
accounted for as "available-for-sale" and, as such, are reported at fair market
value with resulting net unrealized gains or losses reported as a separate
component of stockholders' equity. Investments in equity securities which are
not readily marketable are accounted for at cost. The cost of securities sold
for all marketable securities is determined using the specific identification
method.
INVENTORIES
The Company's inventories are stated at the lower of cost or market. After
the April 1996 sale of the Textile Business and the December 1997 sale of C.H.
Patrick (see Note 3), for which the cost of certain inventories was determined
on the last-in, first-out ("LIFO") basis, and the Deconsolidation (effective
December 28, 1997) of the Partnership for which the cost of inventories is
determined on the average cost basis which approximated the first-in, first-out
("FIFO") basis, the cost of the inventories of the remaining businesses of the
Company is determined on the FIFO basis.
INVESTMENTS
The Company's non-current investments include investments in which it has
significant influence over the investee ("Equity Investments") and which are
accounted for in accordance with the equity method of accounting under which the
consolidated results include the Company's share of income or loss of such
investees. Investments in investees in which the Company does not have such
influence are accounted for at cost. The excess, if any, of the Company's
investment in Equity Investments over the underlying equity in net assets of
each investee is being amortized on a straight line basis over 35 years. See
Note 7 for further discussion of the Company's non-current investments.
PROPERTIES AND DEPRECIATION AND AMORTIZATION
Properties are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of properties is computed
principally on the straight-line basis using the estimated useful lives of the
related major classes of properties: 3 to 8 years for transportation equipment;
3 to 30 years for machinery and equipment; and 15 to 40 years for buildings.
Leased assets capitalized and leasehold improvements are amortized over the
shorter of their estimated useful lives or the terms of the respective leases.
AMORTIZATION OF INTANGIBLES
Costs in excess of net assets of acquired companies ("Goodwill") are being
amortized on the straight-line basis over 15 to 40 years. Trademarks are being
amortized on the straight-line basis over 15 to 35 years. Deferred financing
costs and original issue debt discount (in 1995) 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 results of operations. To the extent future results of
operations of those subsidiaries to which the Goodwill relates through the
period such Goodwill is being amortized are sufficient to absorb the related
amortization, the Company has deemed there to be no impairment of Goodwill.
Long-Lived Assets
Effective October 1, 1995 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". This standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable (see Note
3).
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate cap agreements ("Caps") 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. Such Caps as of December 28, 1997 are at least 2%
higher than the current interest rate on the related debt.
The Company had an interest rate swap agreement (see Note 8) entered into
in order to synthetically alter the interest rate of certain of the Company's
fixed-rate debt until the agreement's maturity in 1996. The Company calculated
the estimated remaining amount to be paid or received under the interest rate
swap agreement for the period from the periodic settlement date immediately
prior to the financial statement date through the end of the agreement based on
the interest rate applicable at the financial statement date and recognized such
amount which applied to the period from the last periodic settlement date
through the financial statement date as a component of interest expense. Thus
the recognition of gain or loss from the interest rate swap agreement was
effectively correlated with the underlying debt. A payment received at the
inception of the agreement, which was deemed to be a fee to induce the Company
to enter into the agreement, was amortized over the full life of the agreement
since the Company was not at risk for any gain or loss on such payment.
STOCK-BASED COMPENSATION
In 1996 the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of
accounting for employee stock-based compensation and encourages adoption of that
method of accounting but permits accounting under the intrinsic value method
prescribed by an accounting pronouncement prior to SFAS 123. The Company has
elected to continue to measure compensation costs for its employee stock-based
compensation under the intrinsic value method. Accordingly, compensation cost
for the Company's stock options and restricted stock is measured as the excess,
if any, of the market price of the Company's stock at the date of grant over the
amount, if any, an employee must pay to acquire the stock. Compensation cost for
stock appreciation rights is recognized currently based on the change in the
market price of the Company's common stock during each period.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign subsidiaries are prepared in their
respective local currencies and translated into United States dollars at the
current exchange rates for assets and liabilities and an average rate for the
year for revenues, costs and expenses. Net gains or losses resulting from the
translation of foreign financial statements are charged or credited directly to
the "Currency translation adjustment" component of "Stockholders' equity."
ADVERTISING COSTS
The Company accounts for advertising production costs by expensing such
production costs the first time the related advertising takes place. Advertising
costs amounted to $39,323,000, $39,386,000 and $41,740,000 for 1995, 1996 and
1997, respectively. In addition the Company supports its beverage bottlers and
distributors with promotional allowances, a portion of which is utilized for
indirect advertising by such bottlers and distributors. Promotional allowances
amounted to $61,928,000, $69,342,000 and $98,713,000 for 1995, 1996 and 1997,
respectively.
INCOME TAXES
The Company files a consolidated Federal income tax return with all of
its subsidiaries except Chesapeake Insurance, a foreign corporation. The income
of the Partnership, other than that of a corporate subsidiary, is taxable to its
partners and not the Partnership and, accordingly, income taxes are provided on
the income of the Partnership only to the extent of its ownership by the
Company. Deferred income taxes are provided to recognize the tax effect of
temporary differences between the bases of assets and liabilities for tax and
financial statement purposes.
REVENUE RECOGNITION
The Company records sales principally when inventory is shipped or
delivered. Prior to the 1996 sale of the Textile Business (see Note 3), the
Company also recorded sales to a lesser extent (6% and 2% of consolidated
revenues for 1995 and 1996, respectively) on a bill and hold basis. In
accordance with such policy, the goods are completed, packaged and ready for
shipment; such goods are effectively segregated from inventory which is
available for sale; the risks of ownership of the goods have passed to the
customer; and such underlying customer orders are supported by written
confirmation. Franchise fees are recognized as income when a franchised
restaurant is opened. Franchise fees for multiple area developments represent
the aggregate of the franchise fees for the number of restaurants in the area
development and are recognized as income when each restaurant is opened in the
same manner as franchise fees for individual restaurants. Royalties are based on
a percentage of restaurant sales of the franchised outlet and are accrued as
earned.
INSURANCE LOSS RESERVES
Insurance loss reserves (included within "Deferred income and other
liabilities") include reserves for incurred but not reported claims of
$2,469,000 and $2,839,000 as of December 31, 1996 and December 28, 1997,
respectively. Such reserves for current and former affiliated company business
are based on either actuarial studies using historical loss experience or the
Company's calculations when historical loss information is not available. The
balance of the reserves for non-affiliated company business were either reported
by unaffiliated reinsurers, calculated by the Company or based on claims
adjustors' evaluations. Management believes that the reserves are fairly stated.
Adjustments to estimates recorded resulting from subsequent actuarial
evaluations or ultimate payments are reflected in the operations of the periods
in which such adjustments become known. The Company has not insured or reinsured
any risks since October 1, 1993.
RECLASSIFICATIONS
Certain amounts included in the prior years' consolidated financial
statements have been reclassified to conform with the current year's
presentation.
(2) SIGNIFICANT RISKS AND UNCERTAINTIES
NATURE OF OPERATIONS
The Company is predominantly a holding company which is engaged in three
lines of business (each with the indicated percentage of the Company's
consolidated revenues for the year ended December 28, 1997): beverages (65%),
restaurants (16%), and propane (19%). Prior to the sales of C.H. Patrick and the
Textile Business (see next paragraph), the Company had operations in the textile
business.
The beverage segment produces and sells a broad selection of concentrates
and, to a much lesser extent, carbonated beverages under the principal brand
names RC Cola(R), Diet RC Cola(R), Diet Rite Cola(R), Diet Rite(R) flavors,
Nehi(R), Upper 10(R) and Kick(R) and premium beverages and/or ready-to-drink
iced teas under the principal brand names Snapple(R), Mistic(R), Royal
Mistic(R), Mistic Rain Forest(R), Mistic Fruit Blast(R) and Stewart's(R). The
restaurant segment franchises Arby's quick service restaurants representing the
largest franchise restaurant system specializing in roast beef sandwiches. Prior
to the May 1997 sale of all company-owned restaurants, the Company also operated
Arby's(R) restaurants (see Note 3). The propane segment is engaged primarily in
the retail marketing of propane to residential customers, commercial and
industrial customers, agricultural customers and resellers. The propane segment
also markets propane-related supplies and equipment including home and
commercial appliances. Effective December 28, 1997 the Company no longer
consolidates the Partnership (see Note 7). Prior to the December 1997 sale of
C.H. Patrick, the textile segment produced and marketed dyes and specialty
chemicals primarily for the textile industry and, prior to the 1996 sale of the
Textile Business (see Note 3), the textile segment also manufactured, dyed and
finished cotton, synthetic and blended (cotton and polyester) apparel fabrics
principally for (i) utility wear and (ii) sportswear, casual wear and outerwear.
The aforementioned sale of C.H. Patrick was accounted for as a discontinued
operation (see Note 17) and, as such, the revenues, costs and expenses of C.H.
Patrick are reported as "Income from discontinued operations" and the assets and
liabilities are reported as "Net current assets of discontinued operations" and
"Net non-current liabilities of discontinued operations" in the accompanying
consolidated financial statements. The Company's operations principally are
throughout the United States.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SIGNIFICANT ESTIMATES
The Company's significant estimates are for costs related to (i)
insurance loss reserves (see Note 1) and (ii) provisions for examinations of its
income tax returns by the Internal Revenue Service ("IRS") (see Note 10).
CERTAIN RISK CONCENTRATIONS
The Company believes that its vulnerability to risk concentrations
related to significant customers and vendors, products sold and sources of raw
materials is somewhat mitigated due to the diversification of its businesses.
Although beverages accounted for 65% of revenues in 1997, the Company believes
that the risks from concentrations within such segment are mitigated for several
reasons. No customer of the beverage segment accounted for more than 3% of
consolidated revenues in 1997. While the beverage segment has chosen to purchase
certain raw materials (such as aspartame) on an exclusive basis from single
suppliers, the Company believes that, if necessary, adequate raw materials can
be obtained from alternate sources. The beverage segment product offerings are
varied, including fruit flavored beverages, iced teas, lemonades, carbonated
sodas, 100% fruit juices, nectars and sweetened seltzers. Risk of geographical
concentration for all of the Company's businesses is also minimized since each
of such businesses generally operates throughout the United States with minimal
foreign exposure.
(3) BUSINESS ACQUISITIONS AND DISPOSITIONS
1997 TRANSACTIONS
Acquisition of Snapple
On May 22, 1997 Triarc acquired (the "Snapple Acquisition") Snapple, a
producer and seller of premium beverages, from The Quaker Oats Company
("Quaker") for $311,915,000 consisting of cash of $300,126,000 (including
$126,000 of post-closing adjustments), $9,260,000 of fees and expenses and
$2,529,000 of deferred purchase price. The purchase price for the Snapple
Acquisition was funded from (i) $75,000,000 of cash and cash equivalents on hand
which was contributed by Triarc to TBHC, and (ii) $250,000,000 of borrowings by
Snapple on May 22, 1997 under a $380,000,000 credit agreement, as amended (the
"Credit Agreement" - see Note 8), entered into by Snapple, Mistic and TBHC
(collectively, the "Borrowers").
The Snapple Acquisition was accounted for in accordance with the purchase
method of accounting. See below under "Purchase Price Allocations of
Acquisitions" for the allocation of the $311,915,000 purchase price of Snapple
to the Snapple balance sheet as of May 22, 1997.
The results of operations of Snapple from the May 22, 1997 date of the
Snapple Acquisition through December 28, 1997 have been included in the
accompanying consolidated statements of operations. See below under "Pro Forma
Operating Data" for the unaudited supplemental pro forma condensed consolidated
summary operating data of the Company (the "Pro Forma Data") (a) for the year
ended December 28, 1997 giving effect to (i) the Snapple Acquisition and related
transactions, (ii) the RTM Sale (see below) and (iii) the Stewart's Acquisition
(see below) and the C&C Sale (see below) combined and (b) for the year ended
December 31, 1996 giving effect to the Graniteville Sale (see below) and the
Propane Sale (see below) combined as well as the above transactions reflected in
the 1997 pro forma information.
Stewart's Acquisition
On November 25, 1997 the Company acquired (the "Stewart's Acquisition")
Cable Car, a marketer of premium soft drinks in the United States and Canada,
primarily under the Stewart's(R) brand. Pursuant to the Stewart's Acquisition,
Triarc issued 1,566,858 shares of its class A common stock (the "Class A Common
Stock") with a value of $37,409,000 as of November 25, 1997 based on the closing
price of the Class A Common Stock on such date of $23.875 per share, in exchange
for all of the outstanding stock of Cable Car. Triarc also issued 154,931 stock
options (see Note 11) with a value of $2,788,000 as of November 25, 1997, in
exchange for all of the outstanding stock options of Cable Car. Such issuances
represented 0.1722 shares of Class A Common Stock or Triarc stock options for
each outstanding Cable Car share or stock option as of November 25, 1997. The
Company incurred $1,300,000 of expenses related to the Stewart's Acquisition, of
which $650,000 was attributable to the registration of the 1,566,858 shares of
Class A Common Stock under the Securities Act of 1933 and, accordingly, was
charged to "Additional paid-in capital."
The Stewart's Acquisition was accounted for in accordance with the
purchase method of accounting. See below under "Purchase Price Allocations of
Acquisitions" for the allocation of the $40,847,000 purchase price of Cable Car
to the Cable Car balance sheet as of November 25, 1997. See below under "Pro
Forma Operating Data" for the Pro Forma Data giving effect to, among other
transactions, the Stewart's Acquisition.
Sale of Restaurants
On May 5, 1997 certain subsidiaries of the Company sold to an affiliate of
RTM, Inc. ("RTM"), the largest franchisee in the Arby's system, all of the 355
company-owned restaurants (the "RTM Sale"). The sales price consisted of cash
and a promissory note (discounted value) aggregating $3,471,000 (including
$2,092,000 of post-closing adjustments) and the assumption by RTM of an
aggregate $54,682,000 in mortgage and equipment notes payable and $14,955,000 in
capitalized lease obligations. RTM now operates the 355 restaurants as a
franchisee and pays royalties to the Company at a rate of 4% of those
restaurants' net sales effective May 5, 1997. In 1997 the Company recorded a
$4,089,000 loss on the sale included in "Gain (loss) on sale of businesses, net"
(see Note 14) (i) which includes a $1,457,000 provision for the fair value of
the Company's effective guarantee of future lease commitments and debt
repayments assumed by RTM for which it remains contingently liable if the
payments are not made by RTM and (ii) is exclusive of an extraordinary charge in
connection with the early extinguishment of debt (see Note 18). The results of
operations of the sold restaurants have been included in the accompanying
consolidated statements of operations until the May 5, 1997 date of sale.
Following the RTM sale the Company continues as the franchisor of the more than
3,000 store Arby's system. See below under "Pro Forma Operating Data" for the
Pro Forma Data giving effect to, among other transactions, the RTM Sale.
In 1996 the Company recorded a $58,900,000 charge included in "Reduction
in carrying value of long-lived assets impaired or to be disposed of" to (i)
reduce the carrying value of the long-lived assets to be sold (reported as
"Assets held for sale" in the accompanying consolidated balance sheet as of
December 31, 1996) by $46,000,000 to estimated fair value consisting of
adjustments to "Properties, net" of $36,343,000, "Unamortized costs in excess of
net assets of acquired companies" of $5,214,000 and "Deferred costs and other
assets" of $4,443,000 and (ii) provide for associated net liabilities of
approximately $12,900,000, principally reflecting the present value of certain
equipment operating lease obligations which would not be assumed by the
purchaser and estimated closing costs. The estimated fair value was determined
based on the terms of the February 1997 agreement for the RTM Sale including the
then anticipated sales price. During 1996 the operations of the restaurants to
be disposed of had net sales of $231,041,000 and a pretax loss of $3,897,000.
Such loss reflected $10,071,000 of allocated general and administrative expenses
and $8,692,000 of interest expense related to the mortgage and equipment notes
and capitalized lease obligations directly related to the operations of the
restaurants sold to RTM.
In 1995 the Company recorded a provision of $14,647,000 in its restaurant
segment consisting of a $12,019,000 reduction in the net carrying value of
certain restaurants and other restaurant-related long-lived assets which were
determined to be impaired and a $2,628,000 reduction to a net carrying value of
$975,000 of certain restaurants and related equipment to be disposed. Such
provision reduced "Properties, net" by $12,425,000, "Unamortized costs in excess
of net assets of acquired companies" by $1,260,000 and "Deferred costs and other
assets" by $962,000 to reflect the fair value of the respective assets. The fair
value was generally determined by applying a fair market capitalization rate to
the estimated expected future annual cash flows. The results of operations of
the restaurants to be disposed as of December 31, 1995 resulted in a pretax
loss of $806,000 for the year ended December 31, 1995.
C&C Sale
On July 18, 1997 the Company completed the sale (the "C&C Sale") of its
rights to the C&C beverage line of mixers, colas and flavors, including the C&C
trademark and equipment related to the operation of the C&C beverage line, to
Kelco Sales & Marketing Inc. ("Kelco") for $750,000 in cash and an $8,650,000
note (the "Kelco Note") with a discounted value of $6,003,000 consisting of
$3,623,000 relating to the C&C Sale and $2,380,000 relating to future revenues.
The $2,380,000 of deferred revenues consists of (i) $2,096,000 relating to
minimum take-or-pay commitments for sales of concentrate for C&C products to
Kelco and (ii) $284,000 relating to future technical services to be performed
for Kelco by the Company, both under the contract with Kelco. The excess of the
proceeds of $4,373,000 over the carrying value of the C&C trademark of
$1,575,000 and the related equipment of $2,000 resulted in a pretax gain of
$2,796,000 which, commencing in the third quarter of 1997, is being recognized
pro rata between the gain on sale and the carrying value of the assets sold
based on the cash proceeds and collections under the Kelco Note since
realization of the Kelco Note is not yet fully assured. Accordingly, a gain of
$576,000 was recognized in "Gain (loss) on sale of businesses, net" (see Note
14) in the accompanying consolidated statement of operations for the year ended
December 28, 1997. See below under "Pro Forma Operating Data" for the Pro Forma
Data giving effect to, among other transactions, the C&C Sale.
Sale of C.H. Patrick
On December 23, 1997 the Company sold (the "C.H. Patrick Sale") the stock
of C.H. Patrick to The B.F. Goodrich Company for $68,114,000 in cash, net of
$3,886,000 of estimated post-closing adjustments. As a result of the C.H.
Patrick Sale, the results of C.H. Patrick, which represent the remaining
operations of the Company's textile segment, have been reclassified in the
accompanying financial statements as discontinued operations (see further
discussion in Note 17). Accordingly, pro forma information reflecting the C.H.
Patrick Sale is not applicable. Included in "Income from discontinued
operations" for the year ended December 28, 1997 is a $19,509,000 gain on the
C.H. Patrick Sale, net of $3,703,000 of related fees and expenses and
$13,768,000 of provision for income taxes. Such gain is exclusive of an
extraordinary charge in connection with the early extinguishment of debt (see
Note 18) and reflects the write-off of $2,718,000 of Goodwill which has no tax
benefit. The Company used a portion of the proceeds of the C.H. Patrick Sale to
repay all of the outstanding long-term debt of C.H. Patrick and accrued interest
thereon, aggregating $32,025,000. See below under "Pro Forma Operating Data" for
the Pro Forma Data giving effect to, among other transactions, the C.H. Patrick
Sale.
Cancellation of Spinoff Transactions
In October 1996 the Company had announced that its Board of Directors
approved a plan to offer up to approximately 20% of the shares of its beverage
and restaurant businesses (then operated through Mistic and RCAC) to the public
through an initial public offering and to spin off the remainder of the shares
of such businesses to Triarc stockholders (collectively, the "Spinoff
Transactions"). In May 1997 the Company announced it would not proceed with the
Spinoff Transactions as a result of the Snapple Acquisition and other issues.
1996 TRANSACTIONS
Sale of Textile Business
On April 29, 1996 the Company completed the sale (the "Graniteville Sale")
of its textile business segment other than the specialty dyes and chemicals
business of C.H. Patrick (see Sale of C.H. Patrick above) and certain other
excluded assets and liabilities (the "Textile Business") to Avondale Mills, Inc.
("Avondale") for $236,824,000 in cash, net of expenses of $8,437,000 and
post-closing adjustments of $12,250,000. Avondale assumed all liabilities
relating to the Textile Business other than income taxes, long-term debt of
$191,438,000 which was repaid at the closing and certain other specified
liabilities. As a result of the Graniteville Sale, the Company recorded a
pretax loss in 1996 of $4,500,000 included in "Gain (loss) on sale of
businesses, net" (see Note 14) (including an $8,367,000 write-off of unamortized
Goodwill which has no tax benefit) and an income tax provision of $1,500,000
resulting in an after-tax loss of $6,000,000 exclusive of an extraordinary
charge in connection with the early extinguishment of debt (see Note 18). The
results of operations of the Textile Business have been included in the
accompanying consolidated statements of operations through April 29, 1996.
See below under "Pro Forma Operating Data" for Pro Forma Data for the year
ended December 31, 1996 giving effect to, among other transactions, the sale
of the Textile Business.
Sale of Propane Business
In July 1996 the Partnership consummated an initial public offering (the
"IPO") and in November 1996 a subsequent private placement (the "Private
Placement" and together with the IPO the "Offerings" or the "Propane Sale") of
units in the Partnership. The Offerings comprised an aggregate 6,701,550 common
units representing limited partner interests (the "Common Units"), representing
an approximate 57.3% interest in the Partnership, for an offering price of
$21.00 per Common Unit aggregating $124,749,000 net of $15,984,000 of
underwriting discounts and commissions and other expenses related to the
Offerings. The sales of the Common Units resulted in a pretax gain to the
Company in 1996 of $85,175,000 (see Note 14) and a provision for income taxes of
$33,163,000.
Concurrently with the IPO, the Partnership issued to National Propane
4,533,638 subordinated units (the "Subordinated Units"), representing an
approximate 38.7% subordinated general partner interest in the Partnership
(after giving effect to the Private Placement). In addition, National Propane
and a subsidiary (the "General Partners") hold a combined aggregate 4.0%
unsubordinated general partner interest (the "Unsubordinated General Partners'
Interest") in the Partnership and a subpartnership, National Propane, L.P. (the
"Operating Partnership" and, together with the Partnership, the "Partnerships").
In connection therewith, National Propane transferred (the "Operating
Partnership Transfer") substantially all of its propane-related assets and
liabilities (principally all assets and liabilities other than a receivable from
Triarc, deferred financing costs and net income tax liabilities amounting to
$81,392,000, $4,127,000 and $21,615,000, respectively), aggregating net
liabilities of $88,222,000, to the Operating Partnership. The $36,527,000 excess
of the aggregate net proceeds from the sales of the Common Units of $124,749,000
over the $88,222,000 of aggregate net liabilities contributed to the Operating
Partnership less (i) $1,323,000 of 1996 Partnership distributions to the General
Partners over the General Partners' interest in the net income of the
Partnership, included in the $85,175,000 pretax gain noted above and (ii)
$3,309,000 of 1996 distributions relating to the Common Units, plus the
$1,829,000 minority interest in 1996 (see below), was recorded as "Minority
interest" in the accompanying consolidated balance sheets at December 31, 1996.
In accordance with amendments to the partnership agreements of the Partnerships
effective December 28, 1997 (see further discussion in Note 7), the Company no
longer has substantive control over the Partnership to the point where it now
exercises only significant influence and, accordingly, no longer consolidates
the Partnership. As a result there is no minority interest liability at December
28, 1997. In 1997 the Company recognized $8,468,000 of deferred pretax gain on
the sale of the Common Units, reflecting the 1997 Partnership distributions to
the General Partners in excess of the General Partners' interest in the net
income of the Partnership and a provision for income taxes of $3,048,000. Such
gain is included in "Gain (loss) on sale of businesses, net" (see Note 14).
To the extent the Partnership has net positive cash flows, it must make
quarterly distributions of its cash balances in excess of reserve requirements,
as defined, to holders of the Common Units, the Subordinated Units and the
Unsubordinated General Partners' Interest within 45 days after the end of each
fiscal quarter. Commencing with the fourth quarter of 1996, the Partnership paid
quarterly distributions of $0.525 per Common and Subordinated Unit with a
proportionate amount for the Unsubordinated General Partners' Interest, or an
aggregate $5,924,000 and $24,572,000 in 1996 and 1997, respectively, including
$2,616,000 and $10,499,000 to the General Partners. See Note 7 for discussion of
restrictions on 1998 distributions by the Partnership on the Subordinated Units.
MINORITY INTEREST
The 1996 and 1997 minority interest in income of a consolidated subsidiary
of $1,829,000 and $2,205,000, respectively, represents the limited partners'
weighted average interest in the net income of the Operating Partnership since
it commenced operations in July 1996.
PRO FORMA OPERATING DATA (UNAUDITED)
The following Pro Forma Data of the Company for the years ended December
28, 1997 and December 31, 1996 have been prepared by adjusting the historical
data as set forth in the accompanying consolidated statements of operations to
give effect to the Snapple Acquisition and related transactions, the RTM Sale
(together with the Snapple Acquisition, "Snapple and RTM") and, on a combined
basis, the Stewart's Acquisition and the C&C Sale (collectively with Snapple and
RTM and the Stewart's Acquisition, the "1997 Transactions") and, for 1996, the
Graniteville Sale and the Propane Sale (collectively, the "1996 Transactions")
as if all of such transactions had been consummated on January 1, 1996. The
effects of each of the 1997 Transactions and the 1996 Transactions is set forth
in the notes to the Pro Forma Data. Such Pro Forma Data is presented for
comparative purposes only and does not purport to be indicative of the Company's
actual results of operations had such transactions actually been consummated on
January 1, 1996 or of the Company's future results of operations and are as
follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
FOR THE FOR FOR THE
AS SNAPPLE SNAPPLE AND 1997
REPORTED ACQUISITION (A) RTM (B) TRANSACTIONS (C)
-------- --------------- ------- ----------------
1997 (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.........................................$ 861,321 $ 1,033,821 $ 962,594 $ 980,254
Operating profit................................. 26,962 24,933 29,894 31,290
Loss from continuing operations.................. (20,553) (28,490) (21,609) (21,409)
Loss from continuing operations per share........ (.68) (.95) (.72) (.68)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
PRO FORMA FOR THE FOR THE FOR THE
FOR THE 1996 TRANSACTIONS 1996 TRANSACTIONS 1996 TRANSACTIONS (D)
AS 1996 AND THE SNAPPLE AND SNAPPLE AND THE
REPORTED TRANSACTIONS (D) ACQUISITION (A) AND RTM (B) 1997 TRANSACTIONS (C)
-------- ---------------- --------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
1996 (UNAUDITED)
Revenues..................$ 928,185 $ 780,176 $ 1,330,976 $ 1,112,066 $ 1,119,836
Operating loss............ (17,853) (24,648) (72,253) (7,651) (5,954)
Loss from continuing
operations.............. (13,698) (12,916) (60,198) (15,581) (14,618)
Loss from continuing
operations per share.... (.46) (.43) (2.01) (.52) (.46)
</TABLE>
(a) Reflects (i) the operations of Snapple for the year ended
December 31, 1996 and the pre-acquisition period from January
1 to May 22, 1997 (the "Pre-Acquisition Period"), (ii) the
income statement effects of the allocation of the purchase
price including the amortization of the adjusted intangible
assets, (iii) the recognition of interest expense and
amortization of deferred financing costs related to borrowings
under the Credit Agreement at the Snapple Acquisition date
less such amounts related to Mistic's former bank facility
which were repaid at the Snapple Acquisition date and (iv) the
income tax effects of the above.
(b) Reflects (i) the elimination of revenues and expenses
(including the reduction in carrying value of long-lived
assets impaired or to be disposed of for 1996 and the
elimination of loss on sale for 1997) related to the sold
Arby's restaurants, (ii) a decrease to interest expense
associated with the assumption of debt by RTM and (iii) the
income tax effects of the above. The effect of the elimination
of income and expenses of the sold restaurants is
significantly greater in 1996 as compared with 1997
principally due to two 1996 eliminations which did not recur
in 1997 for (i) a $58,900,000 reduction in carrying value of
long-lived assets associated with the restaurants sold and
(ii) depreciation and amortization on the long-lived
restaurant assets sold, which had been written down to their
estimated fair values as of December 31, 1996 and were no
longer depreciated or amortized while they were held for sale.
(c) Reflects in addition to (a) and (b) above, (i) the effects of
the Stewart's Acquisition consisting of (a) the operations of
Cable Car for the year ended December 31, 1996 and the
pre-acquisition period from January 1 to November 25, 1997,
(b) the income statement effects of the allocation of the
purchase price consisting of the amortization of the adjusted
intangible assets, (c) the income tax effects of the above and
(d) the effect on loss from continuing operations per share
from the issuance of 1,566,858 shares of Class A Common Stock
in the Stewart's Acquisition and (ii) the effects of the C&C
Sale consisting of (a) elimination of revenues and expenses
related to the C&C beverage line, (b) realization of deferred
revenues based on the portion of the minimum take-or-pay
commitment for sales of concentrate for C&C products to Kelco
and from fees related to technical services performed, both
under the contract with Kelco, (c) imputation of interest
expense on the deferred revenues, (d) recognition of the cost
of the concentrate to be sold, (e) elimination of the
aforementioned $576,000 gain on the sale of C&C recorded in
1997, (f) accretion of the discount on the portion of the
Kelco Note relating to the C&C Sale and (g) the income tax
effects of the above.
(d) Reflects (a) the elimination of the results of operations
related to the Textile Business and (b) the effects of the
Propane Sale including (i) the addition of the estimated
stand-alone general and administrative costs associated with
the operation of the propane business as a partnership in
connection with the Operating Partnership Transfer, (ii) net
decreases to interest expense reflecting (a) the elimination
of interest expense on the refinanced debt partially offset by
the interest expense associated with $125,000,000 of new
borrowings (see Note 8) and (b) the reduction in interest
expense resulting from the assumed repayment of other debt of
the Company with the net proceeds of the Offerings
($124,749,000) and the net proceeds from the issuance of the
$125,000,000 of new borrowings ($118,400,000), net of the
repayment of then existing debt ($128,469,000) and (iii) the
effects of income taxes and minority interest in income of a
consolidated subsidiary resulting from (a) the effects of the
above transactions and (b) additional related transactions
which eliminate in consolidation.
1995 TRANSACTIONS
Mistic Acquisition
On August 9, 1995 Mistic, a wholly-owned subsidiary of Triarc, acquired
(the "Mistic Acquisition") substantially all of the assets and operations,
subject to related operating liabilities, as defined, of certain companies which
developed, marketed and sold carbonated and non-carbonated fruit drinks,
ready-to-drink brewed iced teas and naturally flavored seltzers under various
trademarks and tradenames including MISTIC and ROYAL MISTIC. The purchase price
for the Mistic Acquisition, aggregating $98,324,000 (including $2,067,000 of
cash acquired) consisted of (i) $93,000,000 in cash, (ii) $1,000,000 paid in
eight equal quarterly installments from 1995 through 1997, (iii) non-compete
agreement payments to the seller aggregating $3,000,000 and (iv) $1,324,000 of
related expenses. The non-compete agreement payments were or are payable
$900,000 in August 1996, 1997 and 1998 and $300,000 in December 1998. In
accordance with the Mistic Acquisition agreement, the non-compete payment due in
1996 was offset against amounts due from the seller. The Mistic Acquisition was
financed through (i) $71,500,000 of borrowings under Mistic's former bank
facility (see Note 8) and (ii) $25,000,000 of borrowings under the former credit
facility of the Textile Business.
PURCHASE PRICE ALLOCATIONS OF ACQUISITIONS
In addition to the acquisitions discussed above, the Company consummated
several additional business acquisitions during 1995, 1996 and 1997, principally
restaurant operations and propane businesses, for cash of $18,947,000,
$4,018,000 and $8,480,000, respectively. All such acquisitions, as well as the
aforementioned Snapple Acquisition, Stewart's Acquisition and Mistic
Acquisition, have been accounted for in accordance with the purchase method of
accounting. In accordance therewith, the following table sets forth the
allocation of the aggregate purchase prices and a reconciliation to "Business
Acquisitions, net of cash acquired" in the accompanying consolidated statements
of cash flows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current assets..............................................................$ 31,560 $ 257 $ 114,460
Properties.................................................................. 12,641 838 25,366
Goodwill (a)................................................................ 34,438 162 106,160
Trademarks.................................................................. 58,100 3,950 221,300
Other assets................................................................ 6,501 1,107 28,612
Current liabilities ........................................................ (24,790) (358) (69,608)
Long-term debt assumed including current portion............................ (3,180) -- (686)
Other liabilities........................................................... (4,066) (188) (66,014)
------------- ------------- -----------
111,204 5,768 359,590
Less:
Long-term debt issued to sellers....................................... -- (1,750) (757)
Triarc Class A Common Stock issued to sellers and stock
options issued to employees, net of stock registration costs......... -- -- (40,197)
------------- ------------- -----------
$ 111,204 $ 4,018 $ 318,636
============= ============= ===========
(a) Amortized over 25 to 35 years.
</TABLE>
(4) LOSS PER SHARE
In the fourth quarter of 1997 the Company adopted SFAS No. 128 "Earnings
Per Share" ("SFAS 128"). This standard requires the presentation of "basic" and
"diluted" earnings per share, which replace the "primary" and "fully diluted"
earnings per share measures required under prior accounting pronouncements.
Basic and diluted loss per share are the same for 1995, 1996 and 1997 since all
potentially dilutive securities (principally stock options) would have had an
antidilutive effect for all such periods. The loss per share has been computed
by dividing the net loss by the weighted average number of outstanding shares of
common stock during the period. Such weighted averages were 29,764,000,
29,898,000 and 30,132,000 for 1995, 1996 and 1997, respectively. Although SFAS
128 requires restatement of all prior periods, the standard has had no effect on
the Company's reported net loss per share for 1995 and 1996 since all
potentially dilutive securities were antidilutive. At December 28, 1997 the
Company has outstanding stock options that, if exercised, could dilute basic
earnings per share in the future assuming the Company reports income from
continuing operations. In addition, subsequent to December 28, 1997 the Company
issued convertible debentures (see Note 25) that, if converted, could dilute
basic earnings per share in the future.
(5) SHORT-TERM INVESTMENTS
The Company's short-term investments are stated at fair value, except for
an investment in limited partnerships which is stated at cost. The cost
(amortized cost for corporate debt securities), gross unrealized gains and
losses, fair value and carrying value, as appropriate, of the Company's
short-term investments at December 31, 1996 and December 28, 1997 were as
follows (in thousands):
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Marketable securities:
Equity securities.......... $ 14,373 $ 982 $ (424) $ 14,931 $ 14,931
Corporate debt securities.. 16,113 24 (36) 16,101 16,101
Mutual fund................ 10,312 367 -- 10,679 10,679
-------- ------- --------- -------- --------
Total marketable
securities........ 40,798 $ 1,373 $ (460) 41,711 41,711
======= =========
Investment in limited
partnerships................ 10,000 11,391 10,000
------- -------- -------
$ 50,798 $ 53,102 $51,711
======== ======== =======
1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---- ----- ------ ----- -----
Marketable securities:
Equity securities.......... $ 19,434 $ 815 $ (1,971) $ 18,278 $18,278
Corporate debt securities.. 17,861 98 (72) 17,887 17,887
Mutual fund................ -- -- -- -- --
-------- ------ --------- --------- -------
Total marketable
securities........ 37,295 $ 913 $ (2,043) 36,165 36,165
====== =========
Investment in limited
partnerships................ 10,000 15,329 10,000
------- ---------- --------
$47,295 $ 51,494 $ 46,165
======= ========== ========
</TABLE>
Corporate debt securities at December 28, 1997 (all of which are
classified as available-for-sale) mature as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED FAIR
YEARS COST VALUE
----- ---- -----
<S> <C> <C>
1999 - 2002........................................................................... $ 10,499 $ 10,538
2003 - 2006........................................................................... 7,362 7,349
----------- ----------
$ 17,861 $ 17,887
=========== ==========
</TABLE>
Gross realized gains and gross realized losses on sales of marketable
securities are included in "Investment income, net" (see Note 15) in the
accompanying consolidated statements of operations and are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Gross realized gains.....................................................$ 314 $ 1,034 $ 5,187
Gross realized losses.................................................... (568) (333) (338)
--------- --------- ---------
$ (254) $ 701 $ 4,849
========= ========= =========
</TABLE>
The net unrealized gain (loss) on marketable securities (all of which are
classified as available-for-sale) consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR-END
-----------------------------------
1996 1997
---- ----
<S> <C> <C>
Net unrealized gain (loss)........................................................$ 913 $ (1,130)
Income tax (provision) benefit.................................................... (314) 393
------------- ------------
$ 599 $ (737)
============= ============
</TABLE>
(6) BALANCE SHEET DETAIL
RECEIVABLES, NET
The following is a summary of the components of receivables (in
thousands):
<TABLE>
<CAPTION>
YEAR-END
---------------------------------
1996 1997
---- ----
<S> <C> <C>
Receivables:
Trade.................................................................... $ 71,000 $ 75,460
Other.................................................................... 6,510 13,663
------------ ------------
77,510 89,123
Less allowance for doubtful accounts (trade)........................ .... 6,547 11,241
------------ ------------
$ 70,963 $ 77,882
============ ============
Substantially all receivables are pledged as collateral for certain debt
(see Note 8).
</TABLE>
INVENTORIES
The following is a summary of the components of inventories (in
thousands):
<TABLE>
<CAPTION>
YEAR-END
-----------------------------------
1996 1997
---- ----
<S> <C> <C>
Raw materials........................................................................$ 15,240 $ 22,573
Work in process...................................................................... 467 214
Finished goods....................................................................... 23,878 34,607
------------- ------------
$ 39,585 $ 57,394
============= ============
</TABLE>
Certain inventory quantities in 1995 were reduced, resulting in a
liquidation of LIFO inventory quantities carried at lower costs from prior years
the effect of which was to decrease cost of sales by $1,223,000. There was no
such liquidation in 1996 or 1997.
Substantially all inventories are pledged as collateral for certain debt
(see Note 8).
PROPERTIES, NET
The following is a summary of the components of properties, at
cost (in thousands):
<TABLE>
<CAPTION>
YEAR-END
----------------------------------
1996 1997
---- ----
<S> <C> <C>
Land ............................................................................$ 8,732 $ 2,421
Buildings and improvements and leasehold improvements................................ 27,631 16,591
Machinery and equipment.............................................................. 147,139 30,510
Transportation equipment ............................................................ 23,835 2,159
Leased assets capitalized............................................................ 888 788
-------------- ------------
208,225 52,469
Less accumulated depreciation and amortization....................................... 109,257 18,636
-------------- ------------
$ 98,968 $ 33,833
============== ============
</TABLE>
The decrease in properties from December 31, 1996 to December 28, 1997
principally resulted from the Deconsolidation and the C.H. Patrick Sale.
Substantially all properties are pledged as collateral for certain debt
(see Note 8).
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):
<TABLE>
<CAPTION>
YEAR-END
----------------------------------
1996 1997
---- ----
<S> <C> <C>
Costs in excess of net assets of acquired companies (Note 3)......................$ 270,733 $ 355,889
Less accumulated amortization..................................................... 69,892 76,664
-------------- ------------
$ 200,841 $ 279,225
============== ============
</TABLE>
TRADEMARKS
The following is a summary of the components of trademarks (in
thousands):
<TABLE>
<CAPTION>
YEAR-END
----------------------------------
1996 1997
---- ----
<S> <C> <C>
Trademarks (Note 3)....................................................................$ 63,348 $ 282,701
Less accumulated amortization.......................................................... 6,091 13,500
-------------- ------------
$ 57,257 $ 269,201
============== ============
</TABLE>
DEFERRED COSTS AND OTHER ASSETS
The following is a summary of the components of deferred costs and other
assets (in thousands):
<TABLE>
<CAPTION>
YEAR-END
----------------------------------
1996 1997
---- ----
<S> <C> <C>
Deferred financing costs..............................................................$ 32,272 $ 30,374
Other ............................................................................. 17,198 18,287
-------------- ------------
49,470 48,661
Less accumulated amortization of deferred financing costs............................. 11,272 13,255
-------------- ------------
$ 38,198 $ 35,406
============== ============
</TABLE>
ACCRUED EXPENSES
The following is a summary of the components of accrued expenses (in
thousands):
<TABLE>
<CAPTION>
YEAR-END
---------------------------------
1996 1997
---- ----
<S> <C> <C>
Accrued interest......................................................................$ 24,827 $ 27,680
Accrued compensation and related benefits............................................. 20,256 22,771
Accrued production contract losses.................................................... -- 13,022
Accrued advertising ................................................................. 12,504 12,671
Accrued promotions.................................................................... 874 12,183
Accrued legal settlements and environmental matters (Note 21)......................... 975 10,274
Net current liabilities of discontinued operations (Note 17).......................... -- 4,339
Other ............................................................................. 39,912 45,314
-------------- ------------
$ 99,348 $ 148,254
============== ============
</TABLE>
(7) INVESTMENTS
The following is a summary of the components of investments
(non-current)(in thousands):
<TABLE>
<CAPTION>
INVESTMENT
YEAR-END PERCENTAGE OWNED
----------------- YEAR-END
1996 1997 1997
---- ---- ----
<S> <C> <C> <C>
The Partnership...............................................................$ -- $ 5,748 42.7%
Deferred gain from sale of Partnership units (see below)...................... -- (5,748)
Select Beverages.............................................................. -- 24,926 20.0%
Rhode Island Beverages........................................................ -- 550 50.0%
Limited partnerships, at equity............................................... 500 3,723 18.0% to 37.4%
Limited partnerships, at cost................................................. -- 2,250
--------- ----------
$ 500 $ 31,449
========= ==========
</TABLE>
The Company's consolidated equity in the earnings (losses) of investees
accounted for under the equity method for 1997 (none for 1995 and 1996) and
included in "Other income (expense), net" (see Note 16) in the accompanying
consolidated statement of operations consisted of the following components (in
thousands):
Select Beverages...........................................$ 862
Limited partnerships, at equity............................ (277)
---------
$ 585
=========
The gross amount of the Company's investment in the Partnership equals
the underlying equity in the Partnership's net assets. The Company's investment
in Select Beverages, Inc. ("Select Beverages") exceeds the underlying equity in
Select Beverage's net assets by $14,609,000 as of December 28, 1997.
Since the commencement of the Partnership's operations and IPO on July 2,
1996 and through December 27, 1997, the assets, liabilities, revenues and
expenses of the Partnership were included in the consolidated financial
statements of the Company. Effective December 28, 1997 the Company adopted
certain amendments to the partnership agreements of the Partnership and the
Operating Partnership such that the Company no longer has substantive control
over the Partnership to the point where it now exercises only significant
influence and, accordingly, no longer consolidates the Partnership. The
Company's 42.7% interest in the Partnership as of December 28, 1997 is accounted
for using the equity method of accounting in accordance with the
Deconsolidation.
The Company's investment in the Partnership of $5,748,000 at December 28,
1997 is fully offset by an equal amount of deferred gain on the Offerings. Such
deferred gain is recognized as the Company receives quarterly distributions on
the Subordinated Units ("Subordinated Distributions") and the Unsubordinated
General Partners' Interest (the "General Partner Distributions") which were
$9,521,000 and $978,000, respectively, for 1997, in excess of its 42.7% equity
in earnings of the Partnership. The Company also received Subordinated
Distributions and General Partner Distributions of $2,380,000 and $244,000,
respectively, in February 1998 with respect to the fourth quarter of 1997.
However, the Company has agreed to forego any additional Subordinated
Distributions in order to facilitate the Partnership's compliance with a
covenant restriction contained in its bank facility agreement. Accordingly, the
Company does not expect to receive any additional Subordinated Distributions for
the remainder of 1998. Such Subordinated Distributions will be resumed when
their payment will not impact compliance with such covenant.
The Company, through its ownership of Snapple, owned 50% of the stock of
Rhode Island Beverage Packing Company, L.P. ("Rhode Island Beverages" or "RIB").
Snapple and Quaker were defendants in a breach of contract case filed in April
1997 by RIB, prior to the Snapple Acquisition (the "RIB Matter"). The RIB Matter
was settled in February 1998 and in accordance therewith Snapple surrendered (i)
its 50% investment in RIB ($550,000) and (ii) certain properties ($1,202,000)
and paid RIB $8,230,000. The settlement amounts were fully provided for in a
combination of (i) historical Snapple legal reserves as of the Snapple
Acquisition and additional legal reserves provided in "Acquisition Related
Costs" (see Note 13) and (ii) reserves for losses in long-term production
contracts established in the Snapple Acquisition purchase accounting (see Note
3).
Summary unaudited consolidated balance sheet information for the
Partnership at December 31, 1997, the Partnership's year end, and for Select
Beverages as of January 3, 1998, Select Beverage's year end, is as follows (in
thousands):
<TABLE>
<CAPTION>
PARTNERSHIP SELECT
----------- ------
<S> <C> <C>
Current assets.......................................................................$ 30,160 $ 73,482
Partnership Loan (see Note 8)........................................................ 40,700 --
Properties, net...................................................................... 80,346 48,538
Other assets......................................................................... 26,031 77,449
-------------- ------------
$ 177,237 $ 199,469
============== ============
Current liabilities.................................................................$ 24,978 $ 46,721
Long-term debt...................................................................... 136,131 94,274
Other liabilities................................................................... 2,674 6,891
Partners' capital/stockholders' equity.............................................. 13,454 51,583
-------------- ------------
$ 177,237 $ 199,469
============== ============
</TABLE>
Summary consolidated income statement information for the Partnership is
not presented since the results of operations of the Partnership were
consolidated through December 28, 1997. Summary unaudited consolidated income
statement information for Select Beverages for the period from May 22, 1997 (the
Snapple Acquisition date) to January 3, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Revenues.............................................................................$ 215,242
Operating profit..................................................................... 14,574
Net income........................................................................... 4,311
</TABLE>
(8) LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR-END
---------------------------------
1996 1997
---- ----
<S> <C> <C>
9 3/4% senior secured notes due 2000 (a).................................................$ 275,000 $ 275,000
Triarc Beverage Holdings Corp. Credit Agreement (b)
Term loans bearing interest at a weighted average rate of 9.72% at
December 28, 1997................................................................ -- 296,500
Note payable to the Partnership, bearing interest at 13 1/2% (c)......................... -- 40,700
Mortgage notes payable to FFCA Mortgage Corporation, bearing interest at
a weighted average rate of 10.35% as of December 28,
1997, due through 2016 (d)............................................................. 52,136 3,818
Equipment notes payable to FFCA, bearing interest at 10 1/2% at
December 28, 1997, due through 2003 (d)................................................ 6,236 479
8.54% first mortgage notes due June 30, 2010 (e)......................................... 125,000 --
Mistic bank facility repaid in 1997 prior to maturity (b)
Term loan........................................................................... 53,750 --
Revolving loan...................................................................... 14,950 --
Propane Bank Credit Facility (f)......................................................... 7,885 --
Capitalized lease obligations (g)........................................................ 15,974 719
Other.................................................................................... 9,290 1,796
-------------- ------------
Total debt..................................................................... 560,221 619,012
Less amounts payable within one year........................................... 91,067 14,182
-------------- ------------
$ 469,154 $ 604,830
============== ============
</TABLE>
Aggregate annual maturities of long-term debt, including capitalized
lease obligations, were as follows as of December 28, 1997 (in thousands):
1998................................... $ 14,182
1999................................... 15,490
2000................................... 294,709
2001................................... 24,731
2002................................... 27,258
Thereafter............................. 242,642
-------------
$ 619,012
=============
(a) Prior to 1995 RCAC entered into a three-year interest rate swap
agreement (the "Swap Agreement") in the amount of $137,500,000. Under the
Swap Agreement, interest on $137,500,000 was paid by RCAC at a floating
rate (the "Floating Rate") based on the 180-day London Interbank Offered
Rate ("LIBOR") and RCAC received interest at a fixed rate of 4.72%. The
Floating Rate was set at the inception of the Swap Agreement through
January 31, 1994 and thereafter was retroactively reset at the end of each
six-month calculation period through July 31, 1996 and at the maturity of
the Swap Agreement on September 24, 1996. The transaction effectively
changed RCAC's interest rate on $137,500,000 of the 9 3/4% senior secured
notes due 2000 (the "9 3/4% Senior Notes") from a fixed-rate to a
floating-rate basis through September 24, 1996. Under the Swap Agreement
during 1994 RCAC received $614,000 which was determined at the inception
of the Swap Agreement. Subsequently, RCAC paid (i) $2,271,000 during 1995
in connection with such year's two six-month reset periods and (ii)
$1,631,000 during 1996 in connection with such year's two six-month reset
periods and the reset period ending with the agreement's maturity on
September 24, 1996.
(b) The Credit Agreement consists of a $300,000,000 term facility of which
$225,000,000 and $75,000,000 of loans (the "Term Loans") were borrowed by
Snapple and Mistic, respectively, at the Snapple Acquisition date
($222,375,000 and $74,125,000, respectively, outstanding at December 28,
1997) and an $80,000,000 revolving credit facility which provides for
revolving credit loans (the "Revolving Loans") by Snapple, Mistic or TBHC
of which $25,000,000 and $5,000,000 were borrowed on the Snapple
Acquisition date by Snapple and Mistic, respectively. The Revolving Loans
were repaid prior to December 28, 1997 and no Revolving Loans were
outstanding at December 28, 1997. The aggregate $250,000,000 borrowed by
Snapple was principally used to fund a portion of the purchase price for
Snapple (see Note 3). The aggregate $80,000,000 borrowed by Mistic was
principally used to repay all of the $70,850,000 then outstanding
borrowings under Mistic's former bank credit facility (the "Mistic Bank
Facility") plus accrued interest thereon. Borrowings under the Credit
Agreement bear interest, at the Company's option, at rates based on either
the 30, 60, 90 or 180-day LIBOR (ranging from 5.91% to 6% at December 28,
1997) or an alternate base rate (the "ABR"). The interest rates on
LIBOR-based loans are reset at the end of the period corresponding with
the duration of the LIBOR selected. The interest rates on ABR-based loans
are reset at the time of any change in the ABR. The ABR (8 1/2% at
December 28, 1997) represents the higher of the prime rate or 1/2% over
the Federal funds rate. Revolving Loans and one class of the Term Loans
with an outstanding balance of $97,500,000 at December 28, 1997 bear
interest at 2 1/2% over LIBOR or 1 1/4% over ABR until such time as such
margins may be subject to downward adjustment by up to 1% based on the
respective Borrowers' leverage ratio, as defined. The other two classes of
Term Loans each with outstanding balances of $99,500,000 at December 28,
1997 bear interest at 3% and 3 1/4%, respectively, over LIBOR or 2 1/4%
and 2 1/2%, respectively, over the ABR. The interest rates of all the term
loans outstanding at December 28, 1997 are based on LIBOR. The borrowing
base for Revolving Loans is the sum of 80% of eligible accounts receivable
and 50% of eligible inventory. At December 28, 1997 there was $32,511,000
of borrowing availability under the revolving credit facility in
accordance with limitations due to such borrowing base. The Term Loans are
due $9,500,000 in 1998, $14,500,000 in 1999, $19,500,000 in 2000,
$24,500,000 in 2001, $27,000,000 in 2002, $61,000,000 in 2003, $94,000,000
in 2004 and $46,500,000 in 2005 and any Revolving Loans would be due in
full in June 2003. The Borrowers must also make mandatory prepayments in
an amount, if any, equal to 75% of excess cash flow, as defined. Under
the definition of excess cash flow as of December 28, 1997, the Borrowers
would have been obligated to make a mandatory prepayment in 1998 of
$25,600,000 plus an additional $15,900,000 in 1998 attributable to those
acquisition related costs which affect the working capital component of
the excess cash flow calculation. However, on March 25, 1998 the
Borrowers obtained an amendment to the Credit Agreement dated March
23, 1998 revising the definition of excess cash flow for the period
May 22, 1997 through December 28, 1997 resulting in a reduction of the
required prepayment to $2,800,000. Accordingly, the $2,800,000 the Company
is required to pay has been classified as current portion of long-term
debt in the accompanying consolidated balance sheet at December 28,
1997 and the remaining $38,700,000 that would have been required to
be prepaid under the prior definition of excess cash flow has been
classified as non-current long-term debt.
(c) On July 2, 1996 the Operating Partnership made a $40.7 million loan
(the "Partnership Loan") to Triarc. The Partnership Loan bears interest
payable in cash semiannually and is due in eight equal annual installments
of approximately $5,087,000 commencing 2003 through 2010. The Partnership
Loan is included in the Company's long-term debt at December 28, 1997 as a
result of the Deconsolidation.
(d) ARDC and ARHC maintained loan and financing agreements with FFCA Mortgage
Corporation which permitted borrowings in the form of mortgage notes (the
"Mortgage Notes") and equipment notes (the "Equipment Notes" and,
collectively with the Mortgage Notes, the "FFCA Loan Agreements"). As
discussed in Note 3, in May 1997 RTM assumed an aggregate $54,682,000 of
Mortgage Notes and Equipment Notes in connection with the RTM Sale. The
remaining Mortgage Notes and Equipment Notes are repayable in equal
monthly installments, including interest, over twenty and seven years
through 2016 and 2003, respectively.
(e) On July 2, 1996 National issued $125,000,000 of 8.54% first mortgage
notes due June 30, 2010 (the "First Mortgage Notes") and repaid the
$123,188,000 of then outstanding borrowings under its former revolving
credit and term loan facility. The First Mortgage Notes amortize in equal
annual installments of $15,625,000 commencing June 2003 through June
2010. In accordance with the Deconsolidation, the $125,000,000
outstanding amount of the First Mortgage Notes is no longer included in
the Company's long-term debt at December 28, 1997.
(f) National maintains a bank credit facility (the "Propane Bank Credit
Facility") with a group of banks. In accordance with the Deconsolidation,
the outstanding borrowings under the Propane Bank Credit Facility of
$20,498,000 are no longer included in the Company's long-term debt at
December 28, 1997.
(g) As discussed in Note 3, in May 1997 RTM assumed $14,955,000 of
capitalized lease obligations associated with the restaurants sold.
Under the Company's various debt agreements, substantially all of Triarc's
and its subsidiaries' assets other than cash, short-term investments and the
assets of Cable Car are pledged as security. In addition, (i) obligations under
the 9 3/4% Senior Notes have been guaranteed by Royal Crown and TRG, (ii)
obligations under the First Mortgage Notes and the Propane Bank Credit Facility
have been guaranteed by National Propane and (iii) borrowings under the FFCA
Loan Agreements have been guaranteed by Triarc. Triarc remains contingently
liable under its guarantee for the borrowings under the FFCA Loan Agreements
which were assumed by RTM in connection with the RTM Sale upon the failure, if
any, of RTM to satisfy such obligations. As collateral for such guarantees, all
of the stock of Royal Crown and TRG is pledged as well as National Propane's 2%
unsubordinated general partner interest in the Partnership (see Note 3).
Although Triarc has not guaranteed the obligations under the Credit Agreement,
all of the stock of Snapple, Mistic and TBHC is pledged as security for payment
of such obligations. Although the stock of National Propane is not pledged in
connection with any guarantee of debt obligations, the 75.7% of such stock owned
by Triarc directly is pledged as security for obligations under the Partnership
Loan.
The Company's debt agreements contain various covenants which (a) require
meeting certain financial amount and ratio tests; (b) limit, among other
matters, (i) the incurrence of indebtedness, (ii) the retirement of certain debt
prior to maturity, (iii) investments, (iv) asset dispositions, (v) capital
expenditures and (vi) affiliate transactions other than in the normal course of
business; and (c) restrict the payment of dividends to Triarc. As of December
28, 1997 the Company was in compliance with all such covenants.
Triarc's principal subsidiaries, other than Cable Car, CFC Holdings and
National Propane, are unable to pay any dividends or make any loans or advances
to Triarc during 1998 under the terms of the various indentures and credit
arrangements. While there are no restrictions applicable to National Propane,
National Propane is dependent upon cash flows from the Partnership, principally
the distributions from the Partnership, to pay dividends. (See Note 7 for
restrictions on paying Subordinated Distributions in 1998). While there are no
restrictions applicable to CFC Holdings, CFC Holdings would be dependent upon
cash flows from RCAC to pay dividends and, as of December 28, 1997, RCAC was
unable to pay any dividends or make any loans or advances to CFC Holdings.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has the following financial instruments for which the
disclosure of fair values is required: cash and cash equivalents, accounts
receivable and payable, accrued expenses, short-term investments, investments in
limited partnerships, at cost and long-term debt. The carrying amounts of cash
and cash equivalents, accounts payable and accrued expenses approximated fair
value due to the short-term maturities of such assets and liabilities. The
carrying amount of accounts receivable approximated fair value due to the
related allowance for doubtful accounts. The fair values of short-term
investments are based on quoted market prices and statements of account received
from investment managers and are set forth in Note 5. The carrying amounts of
investments in limited partnerships, at cost and long-term debt were as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR-END
------------------------------------------------------------
1996 1997
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Investments in limited partnerships, at cost (Note 7).....$ -- $ -- $ 2,250 $ 1,901
============ ============= ============== ============
Long-term debt (Note 8):
9 3/4% Senior Notes..................................$ 275,000 $ 283,000 $ 275,000 $ 279,000
TBHC Credit Agreement................................ -- -- 296,500 296,500
Partnership Loan..................................... -- -- 40,700 43,321
FFCA Loan Agreements................................. 58,372 61,814 4,297 4,612
First Mortgage Notes ................................ 125,000 125,000 -- --
Mistic Bank Facility................................. 68,700 68,700 -- --
Propane Bank Credit Facility......................... 7,885 7,885 -- --
Other long-term debt ................................ 25,264 25,264 2,515 2,515
------------ ------------- -------------- ------------
$ 560,221 $ 571,663 $ 619,012 $ 625,948
============ ============= ============== ============
</TABLE>
The fair values of the Company's investments in limited partnerships,
at cost are based on statements of account received from such partnerships. The
fair values of the 9 3/4% Senior Notes are based on quoted market prices at the
respective reporting dates. The fair values of the Term Loans under the Credit
Agreement at December 28, 1997 approximated their carrying values due to their
floating interest rates. The fair value of the Partnership Loan as of December
28, 1997 was determined by using a discounted cash flow analysis based on an
estimate of the Company's then current borrowing rate for a similar security.
The fair values of the Mortgage Notes and Equipment Notes under the FFCA Loan
Agreements were determined by discounting the future monthly payments using the
then rate of interest available under such agreements at December 31, 1996 and a
rate assumed to be available given the same spread over a current Treasury bond
yield for securities with similar durations at December 28, 1997. The fair value
of the First Mortgage Notes was assumed to reasonably approximate their carrying
value as of December 31, 1996 due to their then recent issuance on July 2, 1996
and an insignificant change in borrowing rates from July 2, 1996 to December 31,
1996. The fair values of the revolving loans and the term loans under the Mistic
Bank Facility and the Propane Bank Credit Facility at December 31, 1996
approximated their carrying values due to their floating interest rates. The
fair values of all other long-term debt were assumed to reasonably approximate
their carrying amounts since (i) for capitalized lease obligations, the weighted
average implicit interest rate approximates current levels and (ii) for all
other debt, the remaining maturities are relatively short-term.
(10) INCOME TAXES
The income (loss) from continuing operations before income taxes and
minority interests in income of a consolidated subsidiary consisted of the
following components (in thousands):
1995 1996 1997
---- ---- ----
Domestic.............. $ (40,028) $ (527) $ (23,769)
Foreign............... (1,948) (3,408) 679
---------- ---------- ----------
$ (41,976) $ (3,935) $ (23,090)
========== ========== ==========
The benefit from (provision for) income taxes from continuing
operations consisted of the following components (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.............................................................$ 4,775 $ (7) $ 5,225
State............................................................... (518) (5,292) 2,481
Foreign............................................................. (357) (370) (805)
------------ ----------- ---------
3,900 (5,669) 6,901
------------ ----------- ---------
Deferred:
Federal............................................................. (2,426) (7,507) 867
State............................................................... 1,069 5,242 (3,026)
------------ ----------- ---------
(1,357) (2,265) (2,159)
------------ ----------- ---------
Total.........................................................$ 2,543 $ (7,934) $ 4,742
============ =========== =========
</TABLE>
The net current deferred income tax asset and the net non-current
deferred income tax (liability) resulted from the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR-END
---------------------------------
1996 1997
---- ----
<S> <C> <C>
Current deferred income tax assets (liabilities):
Accrued employee benefit costs...........................................$ 4,141 $ 5,561
Accrued production contract losses....................................... -- 4,588
Allowance for doubtful accounts ......................................... 1,886 4,095
Accrued legal settlements and environmental matters...................... 174 3,643
Glass front vending machines written off................................. -- 2,925
Accrued advertising and promotions....................................... 628 2,468
Facilities relocation and corporate restructuring........................ 2,366 2,049
Closed facilities reserves............................................... 892 1,919
Other, net............................................................... 7,796 12,671
------------ -----------
17,883 39,919
Valuation allowance...................................................... (1,799) (1,799)
------------ -----------
16,084 38,120
------------ -----------
Non-current deferred income tax assets (liabilities):
Trademarks basis differences............................................. -- (53,929)
Gain on sale of propane business (see Note 3)............................ (33,163) (36,211)
Reserve for income tax contingencies and other
tax matters........................................................... (29,005) (27,596)
Depreciation and other properties basis differences ..................... 11,073 (14,632)
Net operating loss and alternative minimum tax credit
carryforwards......................................................... 23,954 42,980
Insurance losses not deducted............................................ 7,061 7,061
Accrued production contract losses....................................... -- 3,471
Other, net............................................................... 1,775 3,917
------------ -----------
(18,305) (74,939)
Valuation allowance...................................................... (17,638) (17,638)
------------ -----------
(35,943) (92,577)
------------ -----------
$ (19,859) $ (54,457)
============ ===========
</TABLE>
The increase in the net deferred income tax liabilities from $19,859,000
at December 31, 1996 to $54,457,000 at December 28, 1997, or an increase of
$34,598,000, differs from the provision for deferred income taxes of $2,159,000
for 1997. Such difference is principally due to the recognition of net deferred
income tax liabilities in connection with the Snapple Acquisition of $31,452,000
(see Note 3).
As of December 28, 1997 Triarc had net operating loss carryforwards for
Federal income tax purposes of approximately $73,000,000, the utilization of
$18,000,000 of which is subject to annual limitations through 1998. Such
carryforwards will expire approximately $1,000,000 in the years 2000 through
2003 and $18,000,000, $3,000,000 and $51,000,000 in 2008, 2009 and 2012,
respectively. In addition, the Company has (i) alternative minimum tax credit
carryforwards of approximately $5,700,000 and (ii) depletion carryforwards of
approximately $4,400,000, both of which have an unlimited carryforward period.
A "valuation allowance" is provided when it is more likely than not that
some portion of deferred tax assets will not be realized. The Company has
established valuation allowances principally for that portion of the net
operating loss carryforwards and other net deferred tax assets related to
Chesapeake Insurance which entity as set forth in Note 1 is not included in
Triarc's consolidated income tax return.
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 loss from continuing operations before income
taxes and minority interests is reconciled as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income tax benefit computed at Federal statutory rate......................... $ 14,692 $ 1,377 $ 8,082
Increase (decrease) in Federal tax benefit resulting from:
Amortization of non-deductible Goodwill ................................. (2,286) (2,153) (2,481)
Foreign tax rate in excess of United States Federal statutory rate
and foreign withholding taxes, net of Federal income tax benefit...... (307) (241) (433)
State income (taxes) benefit, net of Federal income tax effect........... 358 (33) (354)
Effect of net operating losses for which no tax carryback
benefit is available.................................................. (986) (1,269) (273)
Minority interests....................................................... -- 640 772
Non-deductible loss on sale of Textile Business (see Note 3)............. -- (2,928) --
Provision for income tax contingencies and other tax matters............. (6,100) (2,582) --
Non-deductible amortization of restricted stock.......................... (1,440) -- --
Other non-deductible expenses............................................ (1,340) (745) (664)
Other, net............................................................... (48) -- 93
-------- --------- ----------
$ 2,543 $ (7,934) $ 4,742
======== ========= ==========
</TABLE>
The Federal income tax returns of the Company have been examined by the
IRS for the tax years 1985 through 1988. The Company has resolved all issues
related to such audit and in connection therewith paid $674,000 in 1996 in final
settlement of such examination. Such amount had been fully reserved in years
prior to 1995. The IRS has completed its examination of the Company's Federal
income tax returns for the tax years from 1989 through 1992 and has issued
notices of proposed adjustments increasing taxable income by approximately
$145,000,000. The Company has resolved approximately $102,000,000 of such
proposed adjustments and, in connection therewith, the Company paid $5,298,000
including interest, during the fourth quarter of 1997 and subsequent to December
28, 1997 paid an additional $8,136,000, including interest. The Company intends
to contest the unresolved adjustments of approximately $43,000,000, the tax
effect of which has not yet been determined, at the appellate division of the
IRS. During 1995 and 1996 the Company provided $6,100,000 and $2,582,000,
respectively, included in "Benefit from (provision for) income taxes" and during
1995, 1996 and 1997 provided $2,900,000, $2,000,000 and $3,000,000 respectively,
included in "Interest expense", relating to such examinations and other tax
matters. Management of the Company believes that adequate aggregate provisions
have been made in 1997 and prior periods for any tax liabilities, including
interest, that may result from the 1989 through 1992 examination and other tax
matters.
(11) STOCKHOLDERS' EQUITY
Throughout 1995 and 1996 the Company had 27,983,805 issued shares of its
Class A Common Stock and there were no changes therein in each of those years.
As discussed in Note 3, in 1997 Triarc issued 1,566,858 shares of Class A Common
Stock in connection with the Stewart's Acquisition, resulting in 29,550,663
issued shares as of December 28, 1997. Prior to January 9, 1995 no shares of the
Company's class B common stock ("Class B Common Stock") had been issued. On
January 9, 1995, pursuant to a settlement agreement (the "1995 Posner
Settlement") entered into by the Company and affiliates (the "Posner Entities")
of Victor Posner ("Posner"), the former Chairman and Chief Executive Officer of
a predecessor corporation to Triarc, the Company issued to the Posner Entities
(i) 4,985,722 shares of Class B Common Stock as a result of the conversion of
all of its then outstanding 5,982,866 shares of redeemable preferred stock all
of which had been owned by the Posner Entities at $14.40 per share and (ii)
1,011,900 shares of Class B Common Stock with an aggregate fair value of
$12,016,000 in consideration for, among other matters, (a) the settlement of
certain liabilities due to the Posner Entities and (b) an indemnification by
certain of the Posner Entities of any claims or expenses involving certain
litigation.
The Company's Class A Common Stock and Class B Common Stock are
identical, except that Class A Common Stock has one vote per share and Class B
Common Stock is non-voting. Class B Common Stock issued to the Posner Entities
can only be sold subject to a right of first refusal in favor of the Company or
its designee. If held by a person(s) not affiliated with Posner, each share of
Class B Common Stock is convertible into one share of Class A Common Stock.
A summary of the changes in the number of shares of Class A Common Stock
held in treasury is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Number of shares at beginning of year.......................................... 4,028 4,067 4,098
Common shares acquired in open market transactions............................. 42 45 67
Common shares issued from treasury upon exercise of stock options.............. -- (10) (208)
Common shares issued from treasury to directors................................ (7) (8) (6)
Restricted stock exchanged (see below) or reacquired........................... 11 4 --
Restricted stock grants from treasury (see below).............................. (7) -- --
--------- -------- ---------
Number of shares at end of year................................................ 4,067 4,098 3,951
========= ======== =========
</TABLE>
The Company has 25,000,000 authorized shares of preferred stock including
5,982,866 designated as redeemable preferred stock, none of which were issued as
of December 31, 1996 and December 28, 1997.
Prior to 1995 the Company adopted the 1993 Equity Participation Plan, in
1997 the Company adopted the 1997 Equity Participation Plan and in 1997 the
Company effectively adopted the Stock Option Plan for Cable Car Employees (the
"Cable Car Plan" and collectively with the 1993 and 1997 Equity Participation
Plans, the "Equity Plans") in connection with the consummation of the Stewart's
Acquisition. The Equity Plans collectively provide for the grant of stock
options and restricted stock to certain officers, key employees, consultants and
non-employee directors. In addition, non-employee directors are eligible to
receive shares of Class A Common Stock pursuant to automatic grants and in lieu
of annual retainer or meeting attendance fees. The Equity Plans provide for a
maximum of 10,654,931 shares of Class A Common Stock to be issued upon the
exercise of options, granted as restricted stock or issued to non-employee
directors in lieu of fees and there remain 285,689 shares available for future
grants under the Equity Plans as of December 28, 1997. Subsequent to December
28, 1997, the Company's Board of Directors approved, subject to shareholder
approval, the 1998 Equity Participation Plan providing for a maximum 5,000,000
shares of Class A Common Stock to be issued upon the exercise of options,
granted as restricted stock or issued to non-employee directors pursuant to
automatic grants and in lieu of fees.
A summary of changes in outstanding stock options under the Equity Plans
is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS OPTION PRICE OPTION PRICE
------- ------------ ------------
<S> <C> <C> <C>
Outstanding at January 1, 1995......................... 7,569,900 $ 10.75 - $ 30.00 $18.27
Granted during 1995.................................... 1,241,000 $10.125 - $ 16.25 $10.57
Terminated during 1995................................. (210,700) $ 10.75 - $ 30.00 $17.38
--------------
Outstanding at December 31, 1995....................... 8,600,200 $10.125 - $ 30.00 $17.18
Granted during 1996 (a)................................ 136,000 $11.00 - $13.00 $12.16
Exercised during 1996.................................. (9,999) $10.75 $10.75
Terminated during 1996................................. (293,869) $10.125 - $30.00 $13.51
--------------
Outstanding at December 31, 1996....................... 8,432,332 $10.125 - $30.00 $17.24
Granted during 1997: (a)
At market price.................................... 871,500 $20.4375 - $23.6875 $23.11
Below market price................................. 1,351,000 $12.375 - $21.00 $12.77
Replacement Options issued to Cable Car
employees (b)...................................... 154,931 $4.07 - $11.61 $7.20
Exercised during 1997.................................. (208,159) $10.125 - $15.75 $11.69
Terminated during 1997................................. (248,168) $10.125 - $24.125 $14.12
Stock options settled other than through
the issuance of stock.............................. (727,000) $10.125 - $21.00 $17.37
--------------
Outstanding at December 28, 1997....................... 9,626,436 $4.07 - $30.00 $17.17
==============
Exercisable at December 28, 1997....................... 3,380,904 $4.07 - $30.00 $14.95
==============
(a) The weighted average grant date fair values of stock options granted
during 1996 and 1997 were as follows (see discussion of stock option valuation
below):
</TABLE>
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Options whose exercise price equals the market price of
the stock on the grant date.............................................$ 6.81 $ 12.17
Options whose exercise price is less than the market price
of the stock on the grant date.......................................... None $ 8.72
</TABLE>
(b) As of the November 25, 1997 date of the Stewart's Acquisition, Triarc
issued 154,931 stock options (the "Replacement Options") to Cable Car employees
in exchange for all of the then outstanding Cable Car stock options in
accordance with the Cable Car Plan. The $2,788,000 fair value of the Replacement
Options was accounted for as additional purchase price for Cable Car and was
credited to "Additional paid-in-capital".
The following table sets forth information relating to stock options
outstanding and exercisable at December 28, 1997:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
----------------------------------------------------------------------------------- ----------------------------------
OUTSTANDING AT WEIGHTED WEIGHTED OUTSTANDING AT WEIGHTED
YEAR-END AVERAGE YEARS AVERAGE YEAR-END AVERAGE
OPTION PRICE 1997 REMAINING OPTION PRICE 1997 OPTION PRICE
------------ ---- --------- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
$4.07 - $10.75...................... 1,663,216 7.1 $10.12 1,357,520 $ 10.09
$11.61 - $16.25...................... 1,577,720 8.8 $12.78 195,053 $ 14.06
$18.00 - $20.00...................... 1,666,500 5.5 $18.21 1,540,832 $ 18.18
$20.125.......................... 3,500,000 6.3 $20.13 -- $ --
$20.4375 - $30.00 ..................... 1,219,000 8.9 $22.55 287,499 $ 21.20
------------- --------------
9,626,436 7.0 3,380,904
============= ==============
</TABLE>
Stock options under the Equity Plan generally have maximum terms of ten
years and vest ratably over periods not exceeding five years from date of grant.
However, an aggregate 3,500,000 performance stock options granted on April 21,
1994 to the Chairman and Chief Executive Officer and the President and Chief
Operating Officer vest in one-third increments upon attainment of each of the
three closing price levels for the Class A Common Stock for 20 out of 30
consecutive trading days by the indicated dates as follows:
ON OR PRIOR
TO APRIL 21, PRICE
----------- -----
1999........................................ $ 27.1875
2000........................................ $ 36.25
2001........................................ $ 45.3125
Each option not previously vested, should such price levels not be
attained no later than each indicated date, will vest on October 21, 2003. In
addition to the 3,500,000 performance stock options discussed above, 350,000 of
such stock options were granted on April 21, 1994 to the Vice Chairman of the
Company from April 1993 to December 31, 1995 (the "Vice Chairman"). In December
1995, it was decided that the Vice Chairman's employment contract would not be
extended and as of January 1, 1996 the Vice Chairman resigned as a director,
officer and employee of the Company and entered into a consulting agreement
pursuant to which no substantial services are expected to be provided. In
accordance therewith, effective January 1, 1996 all of the 513,333 non-vested
stock options of the aggregate 680,000 stock options previously issued to the
Vice Chairman (including 350,000 performance stock options which were granted
April 21, 1994) were vested in full. In January 1997 the Company paid the Vice
Chairman $353,000 in consideration of the cancellation of all 680,000 stock
options previously granted to him. Such amount had been estimated and previously
provided in 1995 "Facilities relocation and corporate restructuring" (see Note
12).
Stock options under the Equity Plan are generally granted at not less
than the fair market value of the Class A Common Stock at the date of grant.
However, options granted, net of terminations, prior to 1995 included 275,000
options issued at an option price of $20.00 per share which was below the $31.75
fair market value of the Class A Common Stock at the date of grant resulting in
aggregate unearned compensation of $3,231,000. Additionally, options granted in
1997 included 1,331,000 options issued at a weighted average option price of
$12.70; such option price was below the weighted average fair market value of
the Class A Common Stock on the respective dates of grant of $14.82, resulting
in aggregate unearned compensation of $2,823,000. Such amounts are reported in
the "Unearned compensation" component of "Other stockholders' equity." Such
unearned compensation is being amortized as compensation expense over the
applicable vesting period of one to five years. During 1995, 1996 and 1997,
$761,000, $489,000 and $1,543,000, respectively, of unearned compensation was
amortized to compensation expense and credited to "Unearned compensation". In
addition, $96,000 of compensation expense was recognized in 1997 representing
the excess of fair market value over the option prices for 20,000 options
granted in 1997 which were vested upon grant. During 1995, 1996 and 1997 certain
below market options were forfeited. Such forfeitures resulted in decreases to
(i) "Unearned compensation" of $319,000, $219,000 and $135,000 in 1995, 1996 and
1997, respectively, representing the reversals of the unamortized amounts at the
dates of forfeiture, (ii) "Additional paid-in capital" of $588,000, $852,000 and
$506,000 in 1995, 1996 and 1997, respectively, representing the reversal of the
initial value of the forfeited below market stock options and (iii) "General and
administrative" of $269,000, $633,000 and $371,000 in 1995, 1996 and 1997,
respectively, representing the reversal of previous amortization of unearned
compensation relating to forfeited below market stock options. The remaining
unamortized balance relating to Triarc's below market stock options included in
"Unearned compensation" is $1,450,000 at December 28, 1997.
TBHC adopted the Triarc Beverage Holdings Corp. 1997 Stock Option Plan
(the "TBHC Plan") in 1997 which provides for the grant of options to purchase
TBHC common shares to key employees, officers, directors and consultants of TBHC
and the Company and their affiliates. Stock options under the TBHC Plan have
maximum terms of ten years. The TBHC Plan provides for a maximum of 150,000 TBHC
common shares to be issued upon the exercise of stock options and there remain
73,750 shares available for future grants under the TBHC Plan as of December 28,
1997. During 1997, 76,250 stock options were granted under the TBHC Plan with an
exercise price equal to fair market value ($147.30) as determined by an
independent appraisal. The 74,250 stock options granted on August 19, 1997 vest
ratably on July 1 of 1999, 2000 and 2001. The 2,000 stock options granted later
in 1997 will vest ratably upon the second, third and fourth anniversaries of the
grant date. The weighted average grant date fair value of such 1997 grants was
$50.75. All such options are outstanding as of December 28, 1997 and none are
exercisable. The weighted average years remaining for the TBHC options is 9.6
years.
In addition, National Propane adopted the National Propane Corporation
1996 Unit Option Plan (the "Propane Plan") in 1996 which provides for the grant
of options to purchase Common Units and Subordinated Units of the Partnership
and Common Unit appreciation rights to National Propane directors, officers and
employees. Such options have maximum terms of ten years. Any expenses recognized
resulting from grants under the Propane Plan are allocated to the Partnership.
National Propane granted 315,000 unit options during 1997 at an option price of
$17.30 which was below the fair market value of the Common Units of $21.625 at
the date of grant. Such difference resulted in aggregate unearned compensation
to the Partnership of $1,362,000, of which $582,000 represented the Company's
42.7% interest and was recognized in the "Unearned compensation" component of
"Other stockholders' equity" of the Company. Such unearned compensation is being
amortized over the applicable service period of three to five years. During
1997, $115,000 was amortized to compensation expense of the Partnership, of
which $49,000 related to the Company's 42.7% interest, and, accordingly, was
credited to "Unearned compensation." The Company's portion of the remaining
unamortized balance relating to National Propane's below market unit options
included in "Unearned compensation" is $533,000 at December 28, 1997.
In 1995 the Company granted the syndicated lending bank in connection
with the Mistic Bank Facility (see Note 8) and two senior officers of Mistic
stock appreciation rights (the "Mistic Rights") for the equivalent of 3% and
9.7%, respectively, of Mistic's outstanding common stock plus the equivalent
shares represented by such stock appreciation rights. The Mistic Rights granted
to the syndicating lending bank were immediately vested and of those granted to
the senior officers, one-third vested over time and two-thirds vested depending
on Mistic's performance. The Mistic Rights provided for appreciation in the
per-share value of Mistic common stock above a base price of $28,637 per share,
which was equal to the Company's per-share capital contribution to Mistic in
connection with the Mistic Acquisition (see Note 3). The value of the Mistic
Rights granted to the syndicating lending bank was recorded as deferred
financing costs. The Company recognized periodically the estimated increase or
decrease in the value of the Mistic Rights; such amounts were not significant in
1995, 1996 or 1997. In connection with the refinancing of the 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 TBHC Plan.
Effective January 1, 1996 the Company adopted SFAS 123. In accordance
with the intrinsic value method of accounting for stock options, the Company has
not recognized any compensation expense for those stock options granted in 1995,
1996 and 1997 at option prices equal to the fair market value of the Class A
Common Stock at the respective dates of grant. The following pro forma net loss
and net loss per share adjusts such data as set forth in the accompanying
consolidated statements of operations to reflect for the Equity Plans, the TBHC
Plan and the Propane Plan (i) compensation expense for all 1995, 1996 and 1997
stock option grants, including those granted at below market option prices,
based on the fair value method as provided for in SFAS 123, (ii) the reduction
in compensation expense recorded in accordance with the intrinsic value method
by eliminating the amortization of unearned compensation associated with options
granted at below market option prices and (iii) the income tax effects thereof
(in thousands except per share data):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net loss...................................................... $ (37,280) $ (16,313) $ (7,810)
Loss per share................................................ (1.25) (.55) (.26)
</TABLE>
The above pro forma disclosures are not likely to be representative of
the effects on net income and net income per common share in future years
because pro forma compensation expense for grants (i) prior to 1995 is not
considered, (ii) under the TBHC Plan did not occur prior its adoption in 1997
and (iii) under the Propane Plan will not be included after 1997 as the
Partnership will be accounted for under the equity method of accounting
commencing in 1998 (see Note 7).
The fair value of stock options granted on the date of grant was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ------------ --------------------------------
EQUITY EQUITY EQUITY TBHC PROPANE
PLAN PLAN PLAN PLAN PLAN
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Risk-free interest rate............. 5.68% 6.66% 6.36% 6.22% 6.00%
Expected option life................ 7 years 7 years 7 years 7 years 7 years
Expected volatility................. 45.72% 43.23% 40.26% N/A 19.40%
Dividend yield...................... None None None None 10.28%
</TABLE>
A summary of the changes in the outstanding shares of restricted stock
granted by the Company from treasury stock is as follows:
Outstanding at January 1, 1995.......................... 468,750
Granted during 1995..................................... 6,700
Converted to Rights (see below) during 1995............. (4,550)
Forfeited during 1995................................... (6,700)
Vested during 1995 (see below).......................... (464,200)
----------
Outstanding at December 31, 1995, 1996 and 1997......... --
==========
Grants of restricted stock resulted in unearned compensation included in
the "Unearned compensation" component of "Other stockholders' equity" equal to
the number of shares granted multiplied by the market value of the Company's
Class A Common Stock on the grant date. The 1995 grant of 6,700 shares of
restricted stock resulted in additional unearned compensation of $68,000 based
upon the market value of the Company's Class A Common Stock at the date of grant
of $10.125. Restricted stock vested over three to four years, other than the
1995 addition which vested upon grant. The related unearned compensation was
amortized over the applicable vesting period, prior to the accelerated vestings
of restricted stock described below, and, together with the amortization of
unearned compensation related to the accelerated vesting, was recorded as
"General and administrative". The vesting of 150,000 shares of restricted stock
held by the three court-appointed members of a special committee of Triarc's
Board of Directors (the "Special Committee Members") was accelerated in
connection with their decision not to stand for re-election as directors of the
Company at the 1995 annual stockholders meeting resulting in a charge for
amortization of unearned compensation in 1995 of $1,691,000 (including $723,000
which would have otherwise been amortized during the post-acceleration 1995
period). On December 7, 1995 the Compensation Committee of Triarc's Board of
Directors authorized management of the Company to accelerate the vesting of the
remaining 307,500 shares of restricted stock. On January 16, 1996 management of
the Company accelerated the vesting and the Company recorded the resulting
additional amortization of unearned compensation of $1,640,000 in its entirety
in 1995 which together with the $1,691,000 related to the Special Committee
Members, resulted in aggregate amortization of unearned compensation in
connection with accelerated vesting of $3,331,000. Compensation expense for the
aggregate amortization of unearned compensation was $5,281,000 in 1995
(including the $3,331,000 relating to the previously discussed accelerated
vesting of restricted stock).
Prior to 1995 and during the year ended December 31, 1995, the Company
agreed to pay to employees terminated during each such period and directors who
were not reelected during 1994 and 1995 who held restricted stock and/or stock
options, an amount in cash equal to the difference between the market value of
Triarc's Class A Common Stock and the base value (see below) of such restricted
stock and stock options (the "Rights") in exchange for such restricted stock or
stock options. Such exchanges for restricted stock were for 36,000 and 4,550
Rights prior to 1995 and in 1995, respectively, and for stock options were
166,000, 97,700 and 12,500 Rights prior to 1995 and in 1995 and 1996,
respectively. All such exchanges were for an equal number of shares of
restricted stock or stock options except that the 4,550 Rights granted in 1995
were in exchange for 11,250 shares of restricted stock. The Rights which
resulted from the exchange of stock options had base prices ranging from $10.75
to $30.75 per share and the Rights which resulted from the exchange of
restricted stock all had a base price of zero. The restricted stock for which
Rights were granted was fully vested upon termination of the employees. As a
result of such accelerated vesting the Company incurred charges representing
unamortized unearned compensation of $13,000 during 1995 included in "General
and administrative". Of the 316,750 Rights granted, (i) 36,000 and 4,550
relating to restricted stock were exercised in 1995 and 1996, respectively, (ii)
71,000, 108,700 and 80,000 relating to stock options expired prior to 1995 and
in 1996 and 1997, respectively and (iii) 16,500 relating to stock options were
exercised in 1996. Upon issuance of the Rights the Company recorded a liability
equal to the excess of the then market value of the Class A Common Stock over
the base price of the stock options or restricted stock exchanged. Such
liability was adjusted to reflect changes in the fair market value of Class A
Common Stock subject to a lower limit of the base price of the Rights.
(12) FACILITIES RELOCATION AND CORPORATE RESTRUCTURING
Facilities relocation and corporate restructuring consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1995(A) 1996(B) 1997(C)
------- ------- -------
<S> <C> <C> <C>
Estimated restructuring charges associated with employee
severance and related termination costs.....................................$ 510 $ 2,200 $ 5,426
Employee relocation costs...................................................... -- -- 1,337
Write-off of certain beverage distribution rights.............................. -- -- 300
Costs related to the then planned spinoff of the Company's
restaurant/beverage group (Note 3).......................................... -- 400 12
Estimated costs related to sublease of excess office space .................... -- 3,700 --
Costs of terminating a beverage distribution agreement......................... -- 1,300 --
Estimated costs of beverage plant closing and other asset disposals............ -- 600 --
Consulting fees paid associated with combining certain operations
of Royal Crown and Mistic ($500) and other costs ($100)..................... -- 600 --
Costs related to a consulting agreement between the Company
and a former Vice Chairman ................................................. 2,500 -- --
Reduction to estimated costs provided prior to 1995 to relocate the
Company's headquarters...................................................... (310) -- --
---------- ---------- -----------
$ 2,700 $ 8,800 $ 7,075
========== ========== ===========
</TABLE>
(a) The 1995 facilities relocation and corporate restructuring charge
related to (i) a $310,000 reduction of the estimated costs,
provided prior to 1995, to terminate the lease on the Company's
then existing corporate facilities in Miami Beach with one of the
Posner Entities, resulting from the 1995 Posner Settlement (see
Note 11) and (ii) severance costs associated with the resignation
of the Vice Chairman of Triarc, who had served from April 23, 1993
to December 31, 1995 (see Note 11), and the 1995 termination of
other corporate employees in conjunction with a reduction in
corporate staffing.
(b) The 1996 facilities relocation and corporate restructuring charge
principally related to (i) estimated losses on planned subleases
(principally for the write-off of nonrecoverable unamortized
leasehold improvements and furniture and fixtures) of surplus office
space as a result of the then planned sale of company-owned
restaurants and the relocation (the "Royal Crown Relocation") of
Royal Crown's headquarters which were centralized with TBHC's
offices in White Plains, New York, (ii) employee severance costs
associated with the Royal Crown Relocation, (iii) terminating a
beverage distribution agreement, (iv) the shutdown of the beverage
segment's Ohio production facility and other asset disposals, (v)
consultant fees paid associated with combining certain operations of
Royal Crown and Mistic and (vi) the then planned spinoff of the
Company's restaurant/beverage group (see Note 3).
(c) The 1997 facilities relocation and corporate restructuring charge
principally related to (i) employee severance and related
termination costs and employee relocation associated with
restructuring the restaurant segment in connection with the RTM
Sale (see Note 3), (ii) costs associated with the Royal Crown
Relocation and (iii) the write-off of the remaining unamortized
costs of certain beverage distribution rights reacquired in prior
years and no longer being utilized by the Company as a result of
the sale or liquidation of the assets and liabilities of MetBev,
Inc., an affiliate (see Note 22).
(13) ACQUISITION RELATED COSTS
Acquisition related costs are attributed to the Snapple Acquisition and
the Stewart's Acquisition during 1997 and consisted of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Write down glass front vending machines based on the Company's change in estimate of their
value considering the Company's plans for their future use..................................................$ 12,557
Provide additional reserves for legal matters based on the Company's change in Quaker's estimate
of the amounts required reflecting the Company's plans and estimates of costs to resolve such matters....... 6,697
Provide additional reserves for doubtful accounts related to Snapple ($2,254) and the effect of the
Snapple Acquisition ($975) on MetBev, Inc. (see Note 22) based on the Company's change in
estimate of the related write-off to be incurred............................................................ 3,229
Provide for fees paid to Quaker pursuant to a transition services agreement.................................... 2,819
Reflects the portion of promotional expenses relating to the Pre-Acquisition Period as a
result of the Company's current operating expectations...................................................... 2,510
Provide for certain costs in connection with the successful consummation of the Snapple Acquisition
and the Mistic refinancing in connection with entering into the Credit Agreement............................ 2,000
Provide for costs, principally for independent consultants, incurred in connection with the
conversion of Snapple to the Company's operating and financial information systems.......................... 1,603
Sign-on bonus.................................................................................................. 400
-----------
$ 31,815
===========
</TABLE>
(14) GAIN (LOSS) ON SALE OF BUSINESSES, NET
The "Gain (loss) on sale of businesses, net" as reflected in the
accompanying consolidated statements of operations was $(100,000), $77,000,000
and $4,955,000 in 1995, 1996 and 1997, respectively. The loss in 1995 resulted
from the writeoff of the Company's then investment in MetBev (see Note 22), a
beverage distributor in the New York metropolitan area when the Company
determined the decline in value of such investment was other than temporary
which resulted in a pretax loss of $1,000,000 less $900,000 of gains relating to
sales of assets of the natural gas and oil businesses. The gain in 1996 resulted
from a pretax gain of $85,175,000 from the Offerings in the Partnership (see
Note 3) less (i) a pretax loss of $4,500,000 from the Graniteville Sale (see
Note 3), and (ii) a pretax loss of $3,675,000 associated with the write-down of
MetBev (see Note 22). The gain in 1997 consisted of (i) $8,468,000 of
recognition of deferred gain from the Offerings in the Partnership, and (ii)
$576,000 of recognized gain on the C&C Sale (see Note 3) less $4,089,000 of loss
from the RTM Sale (see Note 3).
(15) INVESTMENT INCOME, NET
Investment income consisted of the following components (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Interest income ........................................................ $ 2,578 $ 7,299 $ 7,540
Realized gain (loss) on marketable securities........................... (254) 700 4,849
Dividend income......................................................... -- 70 382
----------- ------------- ------------
$ 2,324 $ 8,069 $ 12,771
=========== ============= ============
</TABLE>
(16) OTHER INCOME (EXPENSE), NET
Other income (expense), net consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Interest income ........................................................ $ 988 $ 1,264 $ 1,529
Posner Settlements (a).................................................. 2,312 -- 1,935
Gain on sale of excess timberland ...................................... 11,945 -- --
Net gain (loss) on other sales of assets................................ (1,684) (38) 1,344
Gain on lease termination............................................... -- -- 892
Equity in earnings of investees (Note 7) ............................... -- -- 585
Joint venture investment settlement (b)................................. -- (1,500) (3,665)
Insurance settlement for fire-damaged equipment......................... 1,875 -- --
Columbia Gas Settlement (c)............................................. 1,856 -- --
Other, net ............................................................. (511) 148 1,250
----------- ------------- ------------
$ 16,781 $ (126) $ 3,870
=========== ============= ============
</TABLE>
(a) Pursuant to the 1995 Posner Settlement, Posner paid the Company
$6,000,000 in January 1995 in exchange for, among other things, the
release by the Company from certain claims that it may have with
respect to the Posner Entities, subject to the satisfaction by the
Posner Entities of certain obligations under the Posner Settlement.
The Company used a portion of such funds to pay (i) $2,000,000 to
the court-appointed members of a special committee of the Company's
Board of Directors for services rendered in connection with the
consummation of the Posner Settlement and (ii) $1,150,000 of other
expenses, including related attorney's fees of $850,000, resulting
in a pretax excess of $2,850,000, of which $538,000 reduced
"General and administrative" as a recovery of legal expenses
originally reported therein and $2,312,000 was credited to "Other
income (expense), net" as reimbursement to the Company for certain
legal fees incurred prior to 1995 in connection with matters
relating to the Posner Settlement.
In June 1997 the Company entered into another settlement agreement
with the Posner Entities pursuant to which the Posner Entities paid
the Company $2,500,000 in exchange for, among other things,
dismissal of claims against the Posner Entities. The $2,500,000,
less $356,000 of related legal expenses and reimbursement of
previously incurred costs, resulted in a pretax gain of $2,144,000,
of which $209,000 reduced "General and administrative" as a recovery
of legal expenses originally reported therein and $1,935,000 was
reported as "Other income (expense), net".
(b) In 1994 Chesapeake Insurance and SEPSCO invested approximately
$5,100,000 in a joint venture with Prime Capital Corporation
("Prime"). Subsequently in 1994, SEPSCO and Chesapeake Insurance
terminated their investments in such joint venture and received in
return an aggregate amount of approximately $5,300,000. In March
1995 three creditors of Prime filed an involuntary bankruptcy
petition under the Federal bankruptcy code against Prime. In
November 1996 the bankruptcy trustee appointed in the Prime
bankruptcy case made a demand on Chesapeake Insurance and SEPSCO for
return of the approximate $5,300,000. In January 1997 the bankruptcy
trustee commenced adversary proceedings against Chesapeake Insurance
and SEPSCO seeking the return of the approximate $5,300,000 alleging
such payments from Prime were preferential or constituted fraudulent
transfers. In November 1997 Chesapeake Insurance, SEPSCO and the
bankruptcy trustee agreed to a settlement of the actions and, in
conjunction therewith, in December 1997 SEPSCO and Chesapeake
Insurance collectively returned $3,550,000 to Prime. In 1996 the
Company recorded its then estimate of the minimum costs to defend
its position or settle the action of $1,500,000. In 1997 the Company
recorded the remaining costs of $3,665,000, reflecting an aggregate
$1,615,000 of related legal and expert fees.
(c) The Company was a party to a class action lawsuit brought against
Columbia Gas System, Inc. ("Columbia Gas") in which the claimants
charged that Columbia Gas had overcharged the claimants for
purchases of propane gas. During the fourth quarter of 1995 the
Company received $2,406,000 in full settlement of the lawsuit which
resulted in a gain of $1,856,000 net of estimated expenses.
(17) DISCONTINUED OPERATIONS
On December 23, 1997 the Company consummated the C.H. Patrick Sale (see
Note 3) and C.H. Patrick has been accounted for as a discontinued operation in
1997 and the accompanying 1995 and 1996 consolidated financial statements have
been reclassified accordingly. In addition, prior to 1995 the Company sold the
stock or the principal assets of the companies comprising SEPSCO's utility and
municipal services and refrigeration business segments (the "SEPSCO Discontinued
Operations") which have been accounted for as discounted operations and of which
there remain certain obligations not transferred to the buyers of the
discontinued businesses to be liquidated and incidental plants and properties of
the refrigeration business to be sold.
The income from discontinued operations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income from discontinued operations net of
income taxes of $1,513, $3,360 and $943 .................................. $ 2,439 $ 5,213 $ 1,209
Gain on disposal of discontinued operations
net of income taxes of $13,768............................................ -- -- 19,509
----------- ----------- ----------
$ 2,439 $ 5,213 $ 20,718
=========== =========== ==========
</TABLE>
The income from discontinued operations to the December 23, 1997 sale date
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues.................................................................. $ 42,210 $ 61,064 $ 65,227
Operating income.......................................................... 10,844 10,874 5,405
Income before income taxes................................................ 3,952 8,573 35,429
Provision for income taxes................................................ (1,513) (3,360) (14,711)
Net income................................................................ 2,439 5,213 20,718
</TABLE>
The net current assets (liabilities) of discontinued operations and net
non-current liabilities (none as of December 28, 1997) of discontinued
operations consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Current assets (liabilities)
Cash.................................................................................. $ 215 $ --
Receivables, net...................................................................... 9,650 --
Inventories........................................................................... 15,755 --
Other current assets.................................................................. 325 --
Current portion of long-term debt..................................................... (2,500) --
Accounts payable...................................................................... (2,006) --
Accrued expenses...................................................................... (1,546) --
Net current liabilities of SEPSCO Discontinued Operations (included
in "Accrued expenses" at December 28, 1997)......................................... (3,589) (a) (4,339) (a)
-------- --------
$ 16,304 $ (4,339)
======== ========
Non-current assets (liabilities)
Properties, net....................................................................... $ 8,304
Unamortized costs in excess of net assets of acquired companies....................... 3,073
Other non-current assets.............................................................. 3,089
Long-term debt........................................................................ (31,375)
--------
$(16,909)
========
</TABLE>
(a) Exclusive of a $3,000,000 note receivable due in full in 2000,
bearing interest at 8% and due from National Cold Storage,
Inc., a company formed by two then officers of SEPSCO to
purchase one of the refrigeration businesses, which has not
been recognized since at the time of sale collection thereof
was not reasonably assured.
Losses associated with the SEPSCO Discontinued Operations were
provided for in their entirety in years prior to 1995. After consideration of
the amounts provided in prior years, the Company expects the liquidation of the
remaining liabilities associated with the SEPSCO Discontinued Operations as of
December 28, 1997 will not have any material adverse impact on its financial
position or results of operations.
(18) EXTRAORDINARY ITEMS
The 1996 extraordinary items resulted from the early extinguishment of (i)
the Company's 11 7/8% senior subordinated debentures due February 1, 1998, in
February 1996, (ii) all of the debt of the Textile Business in connection with
the Graniteville Sale (see Note 3) in April 1996, (iii) substantially all of the
long-term debt of National Propane on July 2, 1996 in connection with the
Propane Sale (see Note 3) and (iv) a 9 1/2% promissory note payable with an
outstanding balance of $36,487,000 (including accrued interest of $1,790,000)
for cash of $27,250,000 on July 1, 1996. The 1997 extraordinary items resulted
from the early extinguishment or assumption of (i) mortgage and equipment notes
payable assumed by RTM in connection with the RTM Sale (see Note 3), (ii)
obligations under Mistic's former credit facility in May 1997 refinanced in
connection with entering into the Credit Agreement (see Note 8) and (iii)
obligations under C.H. Patrick's credit facility in December 1997 in connection
with the C.H. Patrick Sale (see Note 3). The components of such extraordinary
items were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Write-off of unamortized deferred financing costs............................. $ (10,469) $ (6,178)
Write-off of unamortized original issue discount.............................. (1,776) --
Prepayment penalties.......................................................... (5,744) --
Fees.......................................................................... (250) --
Discount from principal on early extinguishment............................... 9,237 --
----------- ---------
(9,002) (6,178)
Income tax benefit............................................................ 3,586 2,397
----------- ---------
$ (5,416) $ (3,781)
=========== =========
</TABLE>
(19) PENSION AND OTHER BENEFIT PLANS
The Company maintains several 401(k) defined contribution plans (the
"Plans") covering all employees who meet certain minimum requirements and elect
to participate including certain employees of Snapple subsequent to May 22, 1997
and Mistic subsequent to January 1, 1996 and excluding certain employees of
Cable Car (eligibility expected to commence in 1998) and those employees covered
by plans under certain union contracts. Under the provisions of the Plans,
employees may contribute various percentages of their compensation ranging up to
a maximum of 15%, subject to certain limitations. The Plans provide for Company
matching contributions at either 25% or 50% of employee contributions up to the
first 5% thereof or at 100% of employee contributions up to the first 3%
thereof. The Plans also provide for additional annual Company contributions
either equal to 1/4% of 1% of employee's total compensation or an arbitrary
aggregate amount to be determined by the employer. In connection with these
employer contributions, the Company provided $3,024,000, $1,885,000 and
$1,731,000 in 1995, 1996 and 1997, respectively. The decrease in contributions
subsequent to 1995 is principally due to the effect of the April 1996 sale of
the Textile Business.
The Company provides or provided defined benefit plans for employees of
certain subsidiaries. Prior to 1995 all of the plans were frozen.
The components of the net periodic pension cost were as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current service cost (represents plan expenses)......................... $ 151 $ 160 $ 151
Interest cost on projected benefit obligation........................... 503 481 467
Return on plan assets .................................................. (1,445) (762) (1,216)
Net amortization and deferrals.......................................... 993 240 658
--------- -------- --------
Net periodic pension cost ......................................... $ 202 $ 119 $ 60
========= ======== ========
</TABLE>
The following table sets forth the plans' funded status (in thousands):
<TABLE>
<CAPTION>
AGGREGATE OF PLANS WHOSE
--------------------------------------------------------
ASSETS EXCEEDED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEEDED ASSETS (A)
YEAR-END YEAR-END
1996 1997 1996
---- ---- ----
<S> <C> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation......................................$ 2,227 $ 6,755 $ 4,634
Non-vested benefit obligation.................................. -- 16 18
------------- ----------- ----------
Accumulated and projected benefit obligation.............. 2,227 6,771 4,652
Plan assets at fair value...................................... (2,751) (7,661) (4,351)
------------- ----------- ----------
Funded status.................................................. (524) (890) 301
Unrecognized net gain from plan experience..................... 629 1,383 230
------------- ----------- ----------
Accrued pension cost......................................$ 105 $ 493 $ 531
============= =========== ==========
(a) at December 28, 1997 the assets exceeded the accumulated benefits for all plans.
</TABLE>
Significant assumptions used in measuring the net periodic pension cost
for the plans included the following: (i) the expected long-term rate of return
on plan assets was 8% and (ii) the discount rate was 8% for 1995, 7% for 1996,
and 7 1/2% for 1997. The discount rate used in determining the benefit
obligations above was 7 1/2% at December 31, 1996 and 7% at December 28, 1997.
The effects of the 1996 decrease and the 1997 increase in the discount rate did
not materially affect the net periodic pension cost. The 1997 decrease in the
discount rate used in determining the benefit obligation resulted in an increase
in the accumulated and projected benefit obligation of $315,000.
Plan assets as of December 28, 1997 are invested in managed portfolios
consisting of government and government agency obligations (51%), common stock
(37%), corporate debt securities (10%) and other investments (2%).
Under certain union contracts, the Company is required to make payments
to the unions' pension funds based upon hours worked by the eligible employees.
In connection with these union plans, the Company provided $669,000 in each of
1995 and 1996, and $614,000 in 1997. Information from the administrators of the
plans is not available to permit the Company to determine its proportionate
share of unfunded vested benefits, if any.
The Company maintains unfunded postretirement medical and death benefit
plans for a limited number of employees who have retired and have provided
certain minimum years of service. The medical benefits are principally
contributory while death benefits are noncontributory. Prior to the April 1996
sale of the Textile Business, a limited number of active employees, upon
retirement, were also covered. The net postretirement benefit cost for 1995,
1996 and 1997, as well as the accumulated postretirement benefit obligation as
of December 28, 1997, were insignificant.
(20) LEASE COMMITMENTS
The Company leases buildings and improvements and machinery and equipment.
Prior to the RTM Sale, some leases provided for contingent rentals based upon
sales volume. In connection with the RTM Sale in May 1997, substantially all
operating and capitalized lease obligations associated with the sold restaurants
were assumed by RTM, although the Company remains contingently liable if the
future lease payments (which could potentially aggregate a maximum of
approximately $100,000,000 as of December 28, 1997) are not made by RTM. The
Company provided $9,677,000 in "Reduction in carrying value of long-lived assets
impaired or to be disposed of" in 1996 representing the present value of future
operating lease payments relating to certain equipment transferred to RTM but
the obligations for which remain with the Company.
Rental expense under operating leases consisted of the following
components (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Minimum rentals.................................................. $ 25,784 $ 28,377 $ 20,934
Contingent rentals............................................... 987 794 204
----------- ------------- ------------
26,771 29,171 21,138
Less sublease income............................................. 5,358 5,460 6,027
----------- ------------- ------------
$ 21,413 $ 23,711 $ 15,111
=========== ============= ============
</TABLE>
The Company's future minimum rental payments and sublease rental income
for leases having an initial lease term in excess of one year as of December 28,
1997, excluding $7,925,000 of those future operating lease payments for which
the Company has provided as set forth above, are as follows (in thousands):
<TABLE>
<CAPTION>
RENTAL PAYMENTS SUBLEASE INCOME
---------------------------- -------------------------
CAPITALIZED OPERATING CAPITALIZED OPERATING
LEASES LEASES LEASES LEASES
<S> <C> <C> <C> <C>
1998.......................................................$ 197 $ 13,935 $ 60 $ 4,566
1999....................................................... 140 11,042 60 2,404
2000....................................................... 122 9,738 55 1,639
2001....................................................... 122 9,379 41 1,464
2002....................................................... 122 8,501 44 616
Thereafter................................................. 393 35,948 160 1,337
-------------- ----------- ----------- -----------
Total minimum payments................................... 1,096 $ 88,543 $ 420 $ 12,026
=========== =========== ===========
Less interest.............................................. 377
--------------
Present value of minimum capitalized lease payments........$ 719
==============
</TABLE>
The present value of minimum capitalized lease payments is included, as
applicable, with "Long-term debt" or "Current portion of long-term debt" in the
accompanying consolidated balance sheets (see Note 8).
(21) LEGAL AND ENVIRONMENTAL MATTERS
The Company is involved in litigation, claims and environmental matters
incidental to its businesses. The Company has reserves for such legal and
environmental matters aggregating approximately $10,274,000 (see Note 6) as of
December 28, 1997. Although the outcome of such matters cannot be predicted with
certainty and some of these may be disposed of unfavorably to the Company, based
on currently available information and given the Company's aforementioned
reserves, the Company does not believe that such legal and environmental matters
will have a material adverse effect on its consolidated results of operations or
financial position.
(22) TRANSACTIONS WITH RELATED PARTIES
The Company leases aircraft owned by Triangle Aircraft Services
Corporation ("TASCO"), a company owned by the Chairman and Chief Executive
Officer and the President and Chief Operating Officer of the Company, for a base
annual rent, commencing at $1,800,000 in October 1993 which is indexed for
annual cost of living adjustments. In accordance with a May 1997 lease
amendment, the base rent was increased $1,250,000 and the Company paid TASCO
$2,500,000 for (i) an option to continue the lease for an additional five years
effective September 30, 1997 and (ii) the agreement by TASCO to replace one of
the aircraft covered under the lease. Such $2,500,000 is being amortized to
rental expense over the five-year period commencing October 1, 1997. In
connection with such lease the Company had rent expense of $1,910,000,
$1,973,000 and $2,876,000 for 1995, 1996 and 1997, respectively. Pursuant to
this arrangement, the Company also pays the operating expenses of the aircraft
directly to third parties.
The Company subleased through January 31, 1996 from an affiliate of
Messrs. Peltz and May approximately 26,800 square feet of furnished office space
in New York, New York owned by an unaffiliated third party. Rental expense
during 1995 and 1996 for such subleases, including operating expenses, but net
of amounts received by the Company for its sublease of a portion of such space
through January 1996 ($357,000 and $30,000, respectively) was $1,350,000 and
$1,100,000 respectively. Such amounts are less than the rents such affiliates
paid to the unaffiliated landlords but represent amounts the Company believes it
would have paid an unaffiliated third party for similar improved office space.
The Company had secured receivables from Pennsylvania Engineering
Corporation ("PEC"), a former affiliate, aggregating $6,664,000 which were fully
reserved prior to 1995. PEC had filed for protection under the bankruptcy code
and, moreover, the Company had significant doubts as to the net realizability of
the underlying collateral. During the fourth quarter of 1995, the Company
received $3,049,000 with respect to amounts owed from PEC representing the
Company's allocated portion of the bankruptcy settlement reported as "Recovery
of doubtful accounts from former affiliates" in the accompanying consolidated
statements of operations.
During 1995 the Company paid $1,000,000 and contributed a license for a
period of five years for the Royal Crown distribution rights for its products in
New York City and certain surrounding counties to MetBev, Inc. ("MetBev") in
exchange for preferred stock in MetBev representing a 37.5% voting interest and
a warrant to acquire 37.5% of the common stock of MetBev. The remaining 62.5%
was owned by other parties and was subject to certain vesting provisions. Upon
consummation of the sale of the MetBev distribution rights (see below), the
Company's voting interest in MetBev was 44.7% principally due to the
cancellation of nonvested stock. Additionally, pursuant to a revolving credit
agreement between Triarc and MetBev, Triarc loaned $2,000,000 and $2,475,000 to
MetBev in 1995 and 1996, respectively, which loans were secured by the
receivables and inventories of MetBev. In December 1996 the distribution rights
of MetBev were sold to a third party for minimum payments over a three-year
period aggregating $1,050,000 and MetBev commenced the liquidation of its
remaining assets and liabilities. During 1997 the Company advanced MetBev an
additional $539,000 for costs incurred in liquidating the remaining assets and
liabilities and related close-down costs of its facility. The Company has not
received any payments on the $1,050,000 from the purchaser of MetBev's
distributor rights and does not expect to collect due to financial difficulties
of the purchaser which the Company believes is due to competitive pressures on
the purchaser following the Snapple Acquisition and the Company's revitalization
of Snapple. In connection therewith, in 1995 the Company provided a reserve of
$800,000 (included in "General and administrative") relating to its loans to
MetBev and wrote off its $1,000,000 investment (see Note 14) and in 1996 wrote
down the remaining $3,675,000 (see Note 14) since MetBev had incurred
significant losses from its inception and had a stockholders' deficit as of
December 31, 1996 of $8,943,000. Further, the Company provided $1,745,000 and
$2,000,000 (included in "General and administrative" and "Advertising, selling
and distribution") in 1995 and 1996, respectively, for uncollectible receivables
from sales (with minimal gross profit) of finished product to MetBev (and in
1995 a guarantee of a MetBev third party accounts payable) resulting in
remaining accounts receivable of $997,000. In 1997 the Company wrote off its
remaining receivables from MetBev, after offsetting amounts otherwise payable to
the purchaser, amounting to $975,000 (included in "Acquisition related costs" -
see Note 13).
See also Notes 7, 8, 11 and 12 with respect to other transactions with related
parties.
(23) BUSINESS SEGMENTS
The Company currently has three major segments, beverages, restaurants
and propane (see Note 2 for a description of each segment) and prior to the
sales of C.H. Patrick and the Textile Business (see Note 3) the Company operated
in the textile business. The beverage segment includes the operations acquired
in (i) the Mistic Acquisition commencing August 9, 1995, (ii) the Snapple
Acquisition commencing May 22, 1997 and (iii) the Stewart's Acquisition
commencing November 25, 1997 (see Note 3). The textile segment represents only
the Textile Business until its sale on April 29, 1996 since the sale of C.H.
Patrick was accounted for as a discontinued operation (see Note 17).
Information concerning the various segments in which the Company
operates(d) is shown in the table below. Operating profit (loss) is total
revenues less operating expenses. In computing operating profit or loss,
interest expense, general corporate expenses and non-operating income and
expenses, including investment income, have not been considered. Operating loss
for the restaurant segment in 1995 and 1996 reflects provisions of $14,647,000
and $64,300,000, respectively, for reductions in carrying value of long-lived
assets impaired or to be disposed of (see Note 3). Operating profit for the
beverage segment in 1997 reflects $31,815,000 of acquisition related costs (see
Note 13). Identifiable assets by segment are those assets that are used in the
Company's operations in each segment; however, there are no identifiable assets
for the propane segment as of December 28, 1997 due to the Deconsolidation (see
Note 7). General corporate assets consist primarily of cash and cash
equivalents, short-term and non-current investments, properties and deferred
financing costs.
No customer accounted for more than 10% of consolidated revenues in 1995,
1996 or 1997.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Beverages...........................................$ 214,587 $ 309,142 $ 555,723
Restaurants......................................... 272,739 288,293 140,429
Propane............................................. 148,998 173,260 165,169
Textiles............................................ 505,687 157,490 --
--------------- -------------- --------------
Consolidated revenues..........................$ 1,142,011 $ 928,185 $ 861,321
=============== ============== ==============
Operating profit:
Beverages.......................................... $ 4,662 $ 17,195 $ 1,489
Restaurants......................................... (6,437) (48,741) 28,532
Propane............................................. 14,516 15,586 9,607
Textiles............................................ 13,720 5,316 --
--------------- -------------- --------------
Segment operating profit (loss)................ 26,461 (10,644) 39,628
Interest expense.................................... (84,126) (71,025) (71,648)
Non-operating income, net........................... 19,005 84,943 21,596
General corporate expenses.......................... (3,316) (7,209) (12,666)
--------------- -------------- --------------
Consolidated loss from continuing
operations before income taxes and
minority interests ........................ (41,976) $ (3,935) $ (23,090)
=============== ============== ==============
Identifiable assets:
Beverages .......................................... 306,349 $ 304,538 $ 774,943
Restaurants ........................................ 180,734 132,296 51,759
Propane............................................. 139,025 156,192 --
Textiles............................................ 295,345 -- --
------------ -------------- --------------
Total identifiable assets...................... 921,453 593,026 826,702
General corporate assets............................ 131,132 222,455 178,171
Discontinued operations............................. 24,588 16,304 --
------------ -------------- --------------
Consolidated assets............................ 1,077,173 $ 831,785 $ 1,004,873
============ ============== ==============
Capital expenditures:
Beverages.......................................... $ 1,656 $ 1,529 $ 3,241
Restaurants........................................ 47,444 15,584 963
Propane............................................ 8,966 6,973 7,793
Textiles........................................... 11,699 976 --
Corporate.......................................... 57 4,519 1,909
------------- -------------- --------------
Consolidated capital expenditures............. $ 69,822 $ 29,581 $ 13,906
============= ============== ==============
Depreciation and amortization of properties:
Beverages ......................................... $ 1,005 $ 1,480 $ 5,663
Restaurants........................................ 12,927 13,096 702
Propane............................................ 9,546 10,017 10,596
Textiles........................................... 14,073 4,855 --
Corporate.......................................... 333 139 697
------------- -------------- --------------
Consolidated depreciation and amortization.... $ 37,884 $ 29,587 $ 17,658
============= ============== ==============
</TABLE>
(24) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, (A) DECEMBER 31,(B)
--------- -------- ----------------- ---------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1996
<S> <C> <C> <C> <C>
Revenues.........................................$ 318,417 $ 229,424 $ 188,487 $ 191,857
Gross profit..................................... 89,228 82,100 73,719 76,225
Operating profit (loss).......................... 22,718 14,188 8,407 (63,166)
Income (loss) from continuing operations ........ 127 (5,437) 46,076 (54,464)
Discontinued operations.......................... 1,658 1,854 1,256 445
Extraordinary items (Note 18).................... (1,387) (7,151) 3,122 --
Net income (loss)................................ 398 (10,734) 50,454 (54,019)
Basic and diluted income (loss) per share (c):
Continuing operations........................ -- (.18) 1.54 (1.82)
Discontinued operations...................... .06 .06 .04 .01
Extraordinary items ......................... (.05) (.24) .11 --
Net income (loss)............................ .01 (.36) 1.69 (1.81)
THREE MONTHS ENDED
------------------------------------------------------------------
MARCH 30, JUNE 29, (D) SEPTEMBER 28, DECEMBER 28, (E)
--------- ------------ ------------- ---------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1997
Revenues.........................................$ 189,156 $ 208,287 $ 258,562 $ 205,316
Gross profit..................................... 76,755 93,216 124,582 94,831
Operating profit (loss).......................... 15,984 (31,118) 23,534 18,562
Income (loss) from continuing operations ........ (1,638) (31,973) 10,301 2,757
Discontinued operations.......................... 461 804 639 18,814
Extraordinary charge (Note 18)................... -- (2,954) -- (827)
Net income (loss)................................ (1,177) (34,123) 10,940 20,744
Basic income (loss) per share:
Continuing operations........................ (.06) (1.07) .34 .09
Discontinued operations...................... .02 .03 .02 .62
Extraordinary items ......................... -- (.10) -- (.03)
Net income (loss)............................ (.04) (1.14) .36 .68
Diluted income (loss) per share (c):
Continuing operations........................ (.06) (1.07) .33 .09
Discontinued operations...................... .02 .03 .02 .59
Extraordinary items (g)...................... -- (.10) -- (.03)
Net income (loss)............................ (.04) (1.14) .35 .65
</TABLE>
(a) The results for the three months ended September 30, 1996 were
materially affected by a net gain from the sale of businesses of $77,123,000 or
$46,899,000 net of income tax benefit of $30,224,000. Such net gains consisted
of an $83,447,000 gain on the IPO, partially offset by a $3,500,000 loss on the
sale of the Textile Business and a $2,825,000 loss associated with the
write-down of MetBev. See Notes 3 and 22.
(b) The results for the three months ended December 31, 1996 were
materially affected by (i) a provision for the reduction in carrying value of
long-lived assets to be disposed of amounting to $64,300,000 (see Note 3) or
$39,444,000 net of income tax benefit of $24,856,000 and (ii) facilities
relocation and corporate restructuring charges (see Note 12) of $7,500,000 or
$4,701,000 net of income tax benefit of $2,799,000.
(c) Basic and diluted earnings (loss) per share are the same for the 1996
quarters since potentially dilutive stock options had either insignificant
(three months ended March 31 and September 30) or antidilutive (three months
ended June 30 and December 31) effects. Basic and diluted loss per share are the
same for the three months ended March 30, 1997 and June 29, 1997 since
potentially dilutive stock options had an antidilutive effect. The weighted
average shares for diluted earnings per share for the three months ended
September 28, 1997 and December 28, 1997 were increased by 933,000 and 1,293,000
shares, respectively, for the effect of dilutive stock options.
(d) The results for the three months ended June 29, 1997 were materially
affected by (i) acquisition related charges (see Note 13) of $32,440,000 or
$19,789,000 net of $12,651,000 of income tax benefit and (ii) facilities
relocation and corporate restructuring charges (see Note 12) of $5,467,000 or
$3,362,000 net of $2,105,000 of income tax benefit.
(e) The results for the three months ended December 28, 1997 were
materially affected by a gain on disposal of discontinued operations relating to
the C.H. Patrick Sale of $33,277,000 (see Note 3) or $19,509,000 net of income
tax provision of $13,768,000.
(25) SUBSEQUENT EVENT
On February 9, 1998 the Company sold zero coupon convertible subordinated
debentures due 2018 (the "Debentures") with a principal amount at maturity of
$360,000,000 to Morgan Stanley & Co. Incorporated ("Morgan Stanley") as the
initial purchaser for an offering to "qualified institutional buyers". The
Debentures were issued at a discount of 72.177% from principal resulting in
proceeds to the Company of $100,163,000 before placement fees of $3,006,000 and
other related fees and expenses. The issue price represents an annual yield to
maturity of 6.5%. The Debentures are convertible into Class A Common Stock at a
conversion rate of 9.465 shares per $1,000 principal amount at maturity, which
represents an initial conversion price of approximately $29.40 per share of
Common Stock. The conversion price will increase over the life of the Debentures
at an annual rate of 6.5%. The conversion of all of the Debentures into Class A
Common Stock would result in the issuance of 3,407,000 shares of Class A Common
Stock. The Debentures are redeemable by the Company commencing February 9, 2003
at the original issue price plus accrued original issue discount to the date of
any such redemption. The Company has agreed to file a registration statement
with the Securities and Exchange Commission no later than May 10, 1998 to
register the Debentures and the Class A Common Stock issuable upon any
conversion of the Debentures. Outstanding Debentures will not affect basic
earnings per share but will increase the number of shares utilized to calculate
diluted earnings per share in periods with net income.
The Company used a portion of the proceeds from the sale of the
Debentures to purchase 1,000,000 shares of Class A Common Stock for treasury for
$25,563,000 from Morgan Stanley. The balance of the net proceeds from the sale
of Debentures will be used by Triarc for general corporate purposes, which may
include working capital requirements, repayment or refinancing of indebtedness,
acquisitions and investments.
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 April 27, 1998 (and is hereby incorporated by reference) by an
amendment hereto or pursuant to a definitive proxy statement involving the
election of directors pursuant to Regulation 14A which will contain such
information.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. Financial Statements:
See Index to Financial Statements (Item 8).
2. Financial Statement Schedules:
Independent Auditors' Report
Schedule I -- Condensed Balance Sheets (Parent Company Only) -- as of
December 31, 1996 and December 28, 1997; Condensed Statements
of Operations (Parent Company Only) -- for the fiscal years
ended December 31, 1995 and 1996 and December 28, 1997;
Condensed Statements of Cash Flows (Parent Company Only) --
for the fiscal years ended December 31, 1995 and 1996 and
December 28, 1997
Schedule II -- Valuation and Qualifying Accounts for the fiscal years ended
December 31, 1995 and 1996 and December 28, 1997
Schedule V -- Supplemental Information Concerning Property Casualty
Insurance Operations for the fiscal years ended December 31,
1995 and 1996 and December 28, 1997
All other schedules have been omitted since they are either not
applicable or the information is contained elsewhere in "Item 8. Financial
Statements and Supplementary Data."
3. Exhibits:
Copies of the following exhibits are available at a charge of $.25 per page
upon written request to the Secretary of Triarc at 280 Park Avenue, New York,
New York 10017.
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------
3.1 -- Certificate of Incorporation of Triarc, as currently in
effect, incorporated herein by reference to Exhibit 3.1 to
Triarc's Registration Statement on Form S-4 dated October 22,
1997 (SEC file No. 1-2207).
3.2 -- By-laws of Triarc, incorporated herein by reference to Exhibit
3.1 to Triarc's Current Report on Form 8-K dated March 31, 1997
(SEC file No. 1-2207).
4.1 -- Indenture dated as of August 1, 1993 among RCAC, Royal Crown,
Arby's, Inc. ("Arby's") and The Bank of New York, as Trustee,
relating to the 9 3/4% Senior Secured Notes Due 2000,
incorporated herein by reference to Exhibit 4.2 to Triarc's
Registration Statement on Form S-4 dated October 22, 1997 (SEC
file No. 1-2207).
4.2 -- Amended and Restated Credit Agreement dated as of August 15, 1997
among Mistic, Snapple and Triarc Beverage Holdings Corp., as the
Borrowers, Various Financial Institutions, as the Lenders,
Donaldson, Lufkin & Jenrette Securities Corporation, as the
arranger for the Lenders, Morgan Stanley Senior Funding, Inc. as
co-arranger and as the Documentation Agent for the Lenders, DLJ
Capital Funding, Inc., as the Syndication Agent for the Lenders,
and The Bank of New York, as Administrative Agent for the
Lenders, incorporated herein by reference to Exhibit 10.1 to
Triarc's Quarterly Report on Form 10-Q/A dated September 29, 1997
(SEC file No. 1-2207).
4.3 -- Credit Agreement, dated as of June 26, 1996, among National
Propane, L.P., The First National Bank of Boston, as
administrative agent and a lender, Bank of America NT & SA, as a
lender, and BA Securities, Inc., as syndication agent,
incorporated herein by reference to Exhibit 10.1 to Current
Report of National Propane Partners, L.P. (the "Partnership") on
Form 8-K dated August 13, 1996 (SEC file No. 1-11867).
4.4 -- Note Purchase Agreement, dated as of June 26, 1996 ("Note
Purchase Agreement"), among National Propane, L.P. and each of
the Purchasers listed in Schedule A thereto relating to $125
million aggregate principal amount of 8.54% First Mortgage Notes
due June 30, 2010, incorporated herein by reference to Exhibit
10.2 to the Partnership's Current Report on Form 8-K dated August
13, 1996 (SEC file No. 1-11867).
4.5 -- Consent, Waiver and Amendment dated November 5, 1996 among
National Propane, L.P. and each of the Purchasers under the Note
Purchase Agreement, incorporated herein by reference to Exhibit
4.1 to Triarc's Current Report on Form 8-K dated March 31, 1997
(SEC file No. 1-2207).
4.6 -- Second Consent, Waiver and Amendment dated January 14, 1997 among
National Propane, L.P. and each of the Purchasers under the Note
Purchase Agreement, incorporated herein by reference to Exhibit
4.2 to Triarc's Current Report on Form 8-K dated March 31, 1997
(SEC file No. 1-2207).
4.7 -- Note dated July 2, 1996 of Triarc, payable to the order of
National Propane, L.P., incorporated herein by reference to
Exhibit 10.5 to the Partnership's Current Report on Form 8-K
dated August 13, 1996 (SEC file No. 1-11867).
4.8 -- Master Agreement dated as of May 5, 1997, among Franchise Finance
Corporation of America, FFCA Acquisition Corporation, FFCA
Mortgage Corporation, Triarc, Arby's Restaurant Development
Corporation ("ARDC"), Arby's Restaurant Holding Company ("ARHC"),
Arby's Restaurant Operations Company ("AROC"), Arby's, RTM
Operating Company, RTM Development Company, RTM Partners, Inc.
("Holdco"), RTM Holding Company, Inc., RTM Management Company,
LLC and RTM, Inc.("RTM"), incorporated herein by reference to
Exhibit 4.16 to Triarc's Registration Statement on Form S-4 dated
October 22, 1997 (SEC file No. 1-2207).
4.9 -- First Amendment dated as of March 27, 1997, to the Credit
Agreement dated as of June 26, 1996 (the "National Propane Credit
Agreement"), among National Propane, L.P., The First National
Bank of Boston, as administrative agent and a lender, Bank of
America NT & SA, as a lender, and BA Securities, Inc., as
syndication agent, incorporated herein by reference to Exhibit
10.3 to National Propane Partners, L.P.'s Current Report on Form
8-K dated March 31, 1997 (SEC file No. 1-11867).
4.10 -- Indenture dated as of February 9, 1998 between Triarc Companies,
Inc. and The Bank of New York, as Trustee, incorporated herein by
reference to Exhibit 4.1 to Triarc's Current Report on Form
8-K/A dated March 6, 1998 (SEC File No. 1-2207).
4.11 -- Registration Rights Agreement dated as of February 4, 1998 by
and among Triarc and Morgan Stanley & Co. Incorporated,
incorporated herein by reference to Exhibit 4.2 to Triarc's
Current Report on Form 8-K/A dated March 6, 1998 (SEC File No.
1-2207).
4.12 -- Second Amendment dated as of April 22, 1997 to the National
Propane Credit Agreement among National Propane, L.P., the
Lenders (as defined therein), The First National Bank of Boston,
as Administrative Agent and a Lender, Bank of America NT&SA, as a
Lender, and BA Securities, Inc. as Syndication Agent,
incorporated herein by reference to Exhibit 10.1 to National
Propane Partners, L.P.'s Current Report on Form 8-K dated May 15,
1997 (SEC file No. 1-11867).
4.13 -- Third Amendment dated as of March 23, 1998 to the National
Propane Credit Agreement among National Propane, L.P., the
Lenders (as defined therein), BankBoston, N.A., as Administrative
Agent and a Lender, and BancAmerica Robertson Stephens, as
Syndication Agent, incorporated herein by reference to Exhibit
10.1 to National Propane Partners, L.P.'s Current Report on Form
8-K dated March 25, 1998 (SEC file No. 1-11867).
4.14 -- First Amendment to Credit Agreement dated as of March 23, 1998
among Mistic, Snapple, Triarc Beverage Holdings Corp., the
Lenders (as defined therein), DLJ Capital Funding, Inc., as
syndication agent, Morgan Stanley Senior Funding, Inc., as
documentation agent, and The Bank of New York, as
administrative agent, incorporated herein by reference to Exhibit
4.1 to Triarc's Current Report on Form 8-K dated March 26, 1998
(SEC file No. 1-2207).
9.1 -- Stockholders Agreement dated June 24, 1997 by and among Triarc
and each of the parties signatory thereto, incorporated herein by
reference to Appendix B-2 to the Proxy Statement/Prospectus filed
as part of Triarc's Registration Statement on Form S-4 dated
October 22, 1997 (SEC file No. 1-2207).
9.2 -- Amendment No. 1 to Stockholders Agreement date as of July 9, 1997
by and among Triarc and each of the parties signatory thereto,
incorporated herein by reference to Appendix B-2 to the Proxy
Statement/Prospectus filed as part of Triarc's Registration
Statement on Form S-4 dated October 22, 1997 (SEC file No.
1-2207).
10.1 -- Employment Agreement dated as of April 24, 1993 among John C.
Carson, Royal Crown and Triarc, incorporated herein by reference
to Exhibit 8 to Triarc's Current Report on Form 8-K dated April
23, 1993 (SEC file No. 1-2207).
10.2 -- Triarc's 1993 Equity Participation Plan, as amended,
incorporated herein by reference to Exhibit 10.1 to Triarc's
Current Report on Form 8-K dated March 31, 1997 (SEC file No.
1-2207).
10.3 -- Form of Non-Incentive Stock Option Agreement under Triarc's
Amended and Restated 1993 Equity Participation Plan, incorporated
herein by reference to Exhibit 10.2 to Triarc's Current Report on
Form 8-K dated March 31, 1997 (SEC file No. 1-2207).
10.4 -- Form of Restricted Stock Agreement under Triarc's Amended and
Restated 1993 Equity Participation Plan, incorporated herein by
reference to Exhibit 13 to Triarc's Current Report on Form 8-K
dated April 23, 1993 (SEC file No. 1-2207).
10.5 -- Consulting Agreement dated as of April 23, 1993 between Triarc
and Steven Posner, incorporated herein by reference to Exhibit
10.8 to Triarc's Annual Report on Form 10-K for the fiscal year
ended April 30, 1993 (SEC file No. 1-2207).
10.6 -- Concentrate Sales Agreement dated as of January 28, 1994 between
Royal Crown and Cott -- Confidential treatment has been granted
for portions of the agreement -- incorporated herein by reference
to Exhibit 10.12 to Amendment No. 1 to Triarc's Registration
Statement on Form S-4 dated March 11, 1994 (SEC file No. 1-2207).
10.7 -- Form of Indemnification Agreement, between Triarc and certain
officers, directors, and employees of Triarc, incorporated herein
by reference to Exhibit F to the 1994 Proxy (SEC file No.
1-2207).
10.8 -- Settlement Agreement, dated as of January 9, 1995, among Triarc,
Security Management Corp., Victor Posner Trust No. 6 and Victor
Posner, incorporated herein by reference to Exhibit 99.1 to
Triarc's Current Report on Form 8-K dated January 11, 1995 (SEC
file No. 1-2207).
10.9 -- Employment Agreement, dated as June 29, 1994, between Brian L.
Schorr and Triarc, incorporated herein by reference to Exhibit
10.2 to Triarc's Current Report on Form 8-K dated March 29, 1995
(SEC file No. 1-2207).
10.10-- Letter Agreement, dated as of January 1, 1996 between Triarc and
Leon Kalvaria incorporated herein by reference to Exhibit 10.21
to Triarc's Annual Report on Form 10-K for the year ended
December 31, 1995 (SEC file No. 1-2207).
10.11-- Amended and Restated Employment Agreement dated as of June 1,
1997 by and between Snapple, Mistic and Michael Weinstein,
incorporated herein by reference to Exhibit 10.3 to Triarc's
Current Report on Form 8-K/A dated March 16, 1998 (SEC file No.
1-2207).
10.12-- Amended and Restated Employment Agreement dated as of June 1,
1997 by and between Snapple, Mistic and Ernest J. Cavallo,
incorporated herein by reference to Exhibit 10.4 to Triarc's
Current Report on Form 8-K/A dated March 16, 1998 (SEC file No.
1-2207).
10.13-- Stock Purchase Agreement dated February 13, 1997 by and among
Arby's Inc., ARDC, ARHC, AROC, Holdco and RTM, incorporated
herein by reference to Exhibit 10.1 to RCAC's Current Report on
Form 8-K dated February 20, 1997 (SEC file No. 0-20286).
10.14-- Employment Agreement dated as of April 29, 1996 between Triarc
and John L. Barnes, Jr., incorporated herein by reference to
Exhibit 10.3 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC file No. 1-2207).
10.15-- Stock Purchase Agreement dated as of October 1, 1992 among DWG
Acquisition, Victor Posner, Security Management Corp. and Victor
Posner Trust No. 20, incorporated herein by reference to Exhibit
10 to Amendment No. 4 to Triarc's Current Report on Form 8-K
dated October 5, 1992 (SEC file No. 1-2207).
10.16-- Amendment dated as of October 1, 1992 between Triarc and DWG
Acquisition, incorporated herein by reference to Exhibit 11 to
Amendment No. 4 to Triarc's Current Report on Form 8-K dated
October 5, 1992 (SEC file No. 1-2207).
10.17-- Exchange Agreement dated as of October 1, 1992 between Triarc and
Security Management Corp., incorporated herein by reference to
Exhibit 12 to Amendment No. 4 to Triarc's Current Report on Form
8-K dated October 5, 1992 (SEC file No. 1-2207).
10.18-- Asset Purchase Agreement dated as of March 31, 1996 by and among
Avondale Mills Inc., Avondale Incorporated, Graniteville Company
and Triarc, incorporated herein by reference to Exhibit 2.1 to
the Triarc's Current Report on Form 8-K dated April 18, 1996 (SEC
file No. 1-2207).
10.19-- Stock Purchase Agreement dated as of March 27, 1997 between The
Quaker Oats Company and Triarc, incorporated herein by reference
to Exhibit 2.1 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC file No. 1-2207).
10.20-- Agreement and Plan of Merger dated as of June 24, 1997 between
Cable Car Beverage Corporation ("Cable Car"), Triarc and CCB
Merger Corporation ("CCB"), incorporated herein by reference to
Exhibit 2.1 to Triarc's Current Report on Form 8-K dated June 24,
1997 (SEC file No. 1-2207).
10.21-- Amendment No. 1 to Agreement and Plan of Merger, dated as of
September 30, 1997, between Cable Car, Triarc and CCB,
incorporated herein by reference to Appendix B-1 to the Proxy
Statement/Prospectus filed pursuant to Triarc's Registration
Statement on Form S-4 dated October 22, 1997 (SEC file No.
1-2207).
10.22-- Option granted by Holdco in favor of ARHC, together with a
schedule identifying other documents omitted and the material
details in which such documents differ, incorporated herein by
reference to Exhibit 10.30 to Triarc's Registration Statement on
Form S-4 dated October 22, 1997 (SEC file No. 1-2207).
10.23-- Guaranty dated as of May 5, 1997 by RTM, RTM Parent, Holdco, RTMM
and RTMOC in favor of Arby's, ARDC, ARHC, AROC and Triarc,
incorporated herein by reference to Exhibit 10.31 to Triarc's
Registration Statement on Form S-4 dated October 22, 1997 (SEC
file No. 1-2207).
10.24-- Settlement Agreement dated as of June 6, 1997 between Triarc,
Victor Posner, Security Management Corporation and APL
Corporation, incorporated herein by reference to Exhibit 10.5 to
Triarc's Quarterly report on Form 10-Q for the quarter ended June
29, 1997 (SEC file No. 1-2207).
10.25-- Triarc Companies, Inc. 1997 Equity Participation Plan (the "1997
Equity Plan"), incorporated herein by reference to Exhibit 10.5
to Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC
file No. 1-2207).
10.26-- Form of Non-Incentive Stock Option Agreement under the 1997
Equity Plan, incorporated herein by reference to Exhibit 10.6 to
Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC
File No. 1-2207).
10.27-- Triarc Companies, Inc. Stock Option Plan for Cable Car Employees,
incorporated herein by reference to Exhibit 4.3 to Triarc's
Registration Statement on Form S-8 dated January 22, 1998
(Registration No. 333-44711).
10.28-- Triarc Beverage Holdings Corp. 1997 Stock Option Plan (the "TBHC
Option Plan"), incorporated herein by reference to Exhibit 10.1
to Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC
file No. 1-2207).
10.29-- Form of Non-Qualified Stock Option Agreement under the TBHC
Option Plan, incorporated herein by reference to Exhibit 10.2 to
Triarc's Current Report on Form 8-K dated March 16, 1998 SEC file
No. 1-2207).
10.30-- Agreement dated as of March 23, 1998 by and among National
Propane Partners, L.P., National Propane Corporation, Triarc,
the Lenders (as defined therein), BankBoston, N.A., as
Administrative Agent, and BancAmerica Robertson Stephens, as
Syndication Agent, incorporated herein by reference to Exhibit
10.2 to National Propane Partners, L.P.'s Current Report on
Form 8-K dated March 25, 1998 (SEC file No. 1-11867).
21.1 -- Subsidiaries of the Registrant*
23.1 -- Consent of Deloitte & Touche LLP*
27.1 -- Financial Data Schedule for the fiscal year ended December 28,
1997, submitted to the Securities and Exchange Commission in
electronic format.*
27.2 -- Financial Data Schedule for the years ended December 31, 1995 and
1996 and the quarters ended March 31, June 30 and September 30,
1996, submitted to the Securities and Exchange Commission in
electronic format.*
27.3 -- Financial Data Schedule for the fiscal quarters ended March 30,
June 29 and September 28, 1997, submitted to the Securities and
Exchange Commission in electronic format.*
99.1 -- Order of the United States District Court for the Northern
District of Ohio, dated February 7, 1995, incorporated herein
by reference to Exhibit 99.1 to Triarc's Current Report on
Form 8-K dated March 29, 1995 (SEC file No. 1-2207).
- -----------------------
* Filed herewith
(B) Reports on Form 8-K:
On October 27, 1997, Triarc filed a Current Report on Form 8-K, which
included information under Item 5 and exhibits under Item 7 of such form.
On December 10, 1997 Triarc filed a Current Report on Form 8-K, which
included information under Items 2 and 5 and exhibits under Item 7 of such
form.
On December 24, 1997 Triarc filed a Current Report on Form 8-K, which
included information under Item 2 and exhibits under Item 7 of such form.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRIARC COMPANIES, INC.
(Registrant)
NELSON PELTZ
--------------------------------
NELSON PELTZ
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Dated: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 26, 1998 by the following persons on
behalf of the registrant in the capacities indicated.
SIGNATURE TITLES
- ------------------ ---------- -----------------------------------
NELSON PELTZ
----------------------------- Chairman and Chief Executive Officer
Nelson Peltz and Director (Principal Executive Officer)
President and Chief Operating Officer, and
PETER W. MAY Director (Principal Operating Officer)
----------------------------
Peter W. May
Senior Vice President and Chief Financial
JOHN L. BARNES, JR. Officer (Principal Financial Officer)
----------------------------
John L. Barnes, Jr.
Vice President and Chief Accounting Officer
FRED H. SCHAEFER (Principal Accounting Officer)
---------------------------
Fred H. Schaefer
Director
HUGH L. CAREY
---------------------------
Hugh L. Carey
Director
CLIVE CHAJET
--------------------------
Clive Chajet
Director
STANLEY R. JAFFE
---------------------------
Stanley R. Jaffe
Director
JOSEPH A. LEVATO
---------------------------
Joseph A. Levato
Director
DAVID E. SCHWAB II
---------------------------
David E. Schwab II
Director
RAYMOND S. TROUBH
--------------------------
Raymond S. Troubh
Director
GERALD TSAI, JR.
---------------------------
Gerald Tsai, Jr.
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES
To the Board of Directors and Stockholders of
TRIARC COMPANIES, INC.:
New York, New York
We have audited the consolidated financial statements of Triarc Companies, Inc.
and subsidiaries (the "Company") as of December 28, 1997 and December 31, 1996,
and for each of the three fiscal years in the period ended December 28, 1997,
and our report thereon appears in Item 8 in this Form 10-K. Our audits were
conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules listed in the table of
contents are presented for the purpose of additional analysis and are not a
required part of the basic financial statements. These schedules are the
responsibility of the Company's management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
DELOITTE & TOUCHE LLP
New York, New York
March 10, 1998
(March 25, 1998 as to Note 8 to
the consolidated financial statements)
<TABLE>
<CAPTION>
SCHEDULE I
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
December 31, December 28,
1996 1997
---- ---
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................................................$ 123,535 $ 86,821
Short-term investments........................................................................ 51,629 27,887
Due from subsidiaries ........................................................................ 32,148 71,259
Deferred income tax benefit................................................................... 3,483 3,936
Prepaid expenses and other current assets..................................................... 4,456 1,515
------------ -------------
Total current assets..................................................................... 215,251 191,418
Note receivable from subsidiary ................................................................... 18,715 200
Investments in consolidated subsidiaries, at equity................................................ -- 20,399
Properties, net.................................................................................... 4,558 5,794
Other assets ...................................................................................... 4,144 5,831
------------ -------------
$ 242,668 $ 223,642
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand notes and current portion of notes payable to subsidiaries.............................$ 31,650 $ 32,625
Note payable.................................................................................. 3,000 --
Accounts payable.............................................................................. 2,598 16,272
Due to subsidiaries........................................................................... 15,596 18,528
Accrued expenses.............................................................................. 19,865 42,569
------------ -------------
Total current liabilities................................................................ 72,709 109,994
------------ -------------
Note payable to National Propane, L.P.............................................................. 40,700 40,700
Notes payable to subsidiaries...................................................................... -- 1,125
Accumulated reductions in stockholders' equity of subsidiaries in excess of investment (a)......... 78,487 --
Deferred income taxes.............................................................................. 43,370 27,398
Other liabilities.................................................................................. 637 437
Commitments and contingencies
Stockholders' equity:
Class A common stock, $.10 par value; authorized 100,000,000 shares, issued
27,983,805 and 29,550,663................................................................... 2,798 2,955
Class B common stock, $.10 par value; authorized 25,000,000 shares, issued
5,997,622 shares............................................................................ 600 600
Additional paid-in capital.................................................................... 161,170 204,291
Accumulated deficit........................................................................... (111,824) (115,440)
Less Class A common stock held in treasury at cost; 4,097,606 and 3,951,265 shares............ (46,273) (45,456)
Other......................................................................................... 294 (2,962)
------------ -------------
Total stockholders' equity .............................................................. 6,765 43,988
------------ -------------
$ 242,668 $ 223,642
============ =============
</TABLE>
- ----------------
(a) The "Accumulated reductions in stockholders' equity of subsidiaries in
excess of investment" includes all of Triarc's direct and indirect owned
subsidiaries. The investment in subsidiaries has a negative balance as of
December 31, 1996 due to aggregate distributions from subsidiaries and
forgiveness of Triarc debt to subsidiaries in excess of the investment in
the subsidiaries.
<TABLE>
<CAPTION>
SCHEDULE I (Continued)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, Year Ended
----------------------- December 28,
1995 1996 1997
---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Income and (expenses):
Equity in net losses of continuing operations of subsidiaries............. $ (28,517) $ (55,403) $ (19,329)
Investment income......................................................... 698 6,506 10,747
Gain on sale of businesses, net........................................... -- 81,500 8,468
Merger and acquisition fee from subsidiary................................ -- -- 4,000
General and administrative expenses ...................................... (2,072) (4,449) (14,939)
Interest expense on debt to subsidiaries ................................. (12,160) (4,529) (8,582)
Other interest expense.................................................... (3,634) (3,706) (2,015)
Acquisition related costs................................................. -- -- (2,000)
Facilities relocation and corporate restructuring......................... (2,700) (1,000) (12)
Reduction in carrying value of long-lived assets impaired or to be
disposed of ............................................................ -- (5,400) --
Recovery of doubtful accounts from former affiliate....................... 3,049 -- --
Other income ............................................................. 2,380 14 2,599
------------ ------------ ------------
Income (loss) from continuing operations before income taxes........... (42,956) 13,533 (21,063)
Benefit (provision) from income taxes ......................................... 3,523 (27,231) 510
------------ ------------ ------------
Loss from continuing operations........................................ (39,433) (13,698) (20,553)
Equity in income from discontinued operations of subsidiaries ................. 2,439 5,213 20,718
Equity in extraordinary charges of subsidiaries................................ -- (11,168) (3,781)
Extraordinary items............................................................ -- 5,752 --
------------ ------------ ------------
Net loss............................................................... $ (36,994) $ (13,901) $ (3,616)
============ ============ ============
Loss per share:
Continuing operations..................................................... $ (1.32) $ (.46) $ (.68)
Discontinued operations................................................... .08 .18 .69
Extraordinary charges..................................................... -- (.18) (.13)
------------ ------------ ------------
Net loss............................................................... $ (1.24) $ (.46) $ (.12)
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE I (Continued)
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, Year Ended
----------------------- December 28,
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................... $ (36,994) $ (13,901) $ (3,616)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Dividends from subsidiaries............................................. 22,721 126,059 54,506
Equity in net losses of subsidiaries.................................... 26,078 61,358 2,392
Gain on sale of businesses, net......................................... -- (81,500) (8,468)
Deferred income tax provision (benefit)................................. (382) 36,558 (15,351)
Realized gains on marketable securities................................. -- (586) (4,795)
Change in due from/to subsidiaries and other affiliates ................ 1,332 2,203 (4,676)
Discount from principal on early extinguishment of debt................. -- (9,237) --
Other, net.............................................................. 3,808 (1,904) (5,074)
Decrease (increase) in prepaid expenses and other current
assets................................................................ (5,095) 398 231
Increase (decrease) in accounts payable and accrued
expenses.............................................................. 4,522 20,901 29,286
------------- ------------ -----------
Net cash provided by operating activities.......................... 15,990 140,349 44,435
------------- ------------ -----------
Cash flows from investing activities:
Acquisition of Mistic Brands, Inc. in 1995 and Snapple Beverage
Corp. in 1997........................................................... (25,000) -- (75,000)
Other business acquisitions................................................ (4,240) -- (650)
Cost of short-term investments purchased................................... -- (61,381) (54,623)
Proceeds from short-term investments sold.................................. -- 11,244 62,833
Capital contributed to subsidiaries........................................ (8,865) -- (6,204)
Loans to subsidiaries, net of repayments................................... (18,375) (340) (4,635)
Investments................................................................ (5,340) -- (3,250)
Capital expenditures....................................................... (57) (4,519) (1,909)
------------- ------------ -----------
Net cash used in investing activities.............................. (61,877) (54,996) (83,438)
------------- ------------ -----------
Cash flows from financing activities:
Proceeds from exercises of stock options................................... -- 108 2,433
Borrowings from subsidiaries, net of repayments............................ 45,900 30,600 2,100
Purchases of common shares in open market transactions..................... (1,170) (496) (1,594)
Repayments of long-term debt .............................................. -- (27,250) --
Cash restricted for debt repayment paid by subsidiary in 1996.............. (22,721) 22,721 --
Other...................................................................... (56) (51) (650)
------------- ------------ -----------
Net cash provided by financing activities......................... 21,953 25,632 2,289
------------- ------------ -----------
Net increase (decrease) in cash and cash equivalents ........................... (23,934) 110,985 (36,714)
Cash at beginning of period..................................................... 36,484 12,550 123,535
------------- ------------ -----------
Cash at end of period........................................................... $ 12,550 $ 123,535 $ 86,821
============= ============ ===========
NOTE: Cash as used herein includes cash and cash equivalents
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE II
TRIARC COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
-----------------------------
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other from End of
Description of Year Expenses Accounts Reserves Year
----------- --------- ----------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Receivables - allowance for doubtful
accounts:
Trade............................. $ 5,249 $ 3,308 $ 327 (1) $ (2,840)(2) $ 6,044
Affiliate......................... -- 1,351 -- -- 1,351
----------- ----------- ----------- ------------ ----------
Total.......................... $ 5,249 $ 4,659 $ 327 $ (2,840) $ 7,395
=========== =========== =========== ============ ==========
Insurance loss reserves.................. $ 10,827 $ 110 $ -- $ (1,539)(3) $ 9,398
=========== =========== =========== ============ ==========
Year ended December 31, 1996:
Receivables - allowance for doubtful
accounts:
Trade ............................ $ 6,044 $ 3,680 $ 205 (1) $ (5,933)(4) $ 3,996
Affiliate......................... 1,351 5,675 -- (4,475)(2) 2,551
----------- ----------- ----------- ------------ ----------
Total.......................... $ 7,395 $ 9,355 $ 205 $ (10,408) $ 6,547
=========== =========== =========== ============ ==========
Insurance loss reserves.................. $ 9,398 $ 763 $ -- $ (333)(3) $ 9,828
=========== =========== =========== ============ ==========
Year ended December 28, 1997:
Receivables - allowance for doubtful
accounts:
Trade ............................ $ 3,996 $ 7,257 $ 725 (1) $ (4,007)(5) $ 7,971
Affiliate......................... 2,551 975 -- (256)(2) 3,270
----------- ----------- ----------- ------------ ----------
Total.......................... $ 6,547 $ 8,232 $ 725 $ (4,263) $ 11,241
=========== =========== =========== ============ ==========
Insurance loss reserves.................. $ 9,828 $ 39 $ -- $ (1,446)(3) $ 8,421
=========== =========== =========== ============ ==========
</TABLE>
(1) Recoveries of accounts previously determined to be uncollectible.
(2) Accounts determined to be uncollectible.
(3) Payment of claims and/or reclassification to "Accounts payable".
(4) Consists of $4,125,000 attributable to the sale of the Textile Business
(see Note 3 to the consolidated financial statements included elsewhere
herein) and $1,808,000 of accounts determined to be uncollectible.
(5) Consists of $1,179,000 attributable to the deconsolidation of National
Propane (see Note 7 to the consolidated financial statements included
elsewhere herein) and $2,828,000 of accounts determined to be
uncollectible.
<TABLE>
<CAPTION>
SCHEDULE V
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
RESERVES CLAIMS AND CLAIM
FOR UNPAID ADJUSTMENT PAID
CLAIMS AND EXPENSES INCURRED CLAIMS AND
CLAIM NET RELATED TO CLAIM
ADJUSTMENT INVESTMENT PRIOR ADJUSTMENT
AFFILIATION WITH REGISTRANT EXPENSES (1) INCOME YEARS EXPENSES
--------------------------- ------------ ------ ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated property-casualty entities:
Year ended
December 31, 1995........................................ $ 9,398 $ 486 $ 564 $ 1,539
=========== ========== =========== ==========
Year ended
December 31, 1996........................................ $ 9,828 $ 505 $ 763 $ 333
=========== ========== =========== ==========
Year ended
December 28, 1997........................................ $ 8,421 $ 666 $ 39 $ 1,446
=========== ========== =========== ==========
(1) Does not include claims losses of $1,343,000, $835,000 and $699,000 at December 31, 1995, and 1996 and December 28,
1997, respectively, which have been classified as "Accounts payable".
</TABLE>
Exhibit 21.1
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
MARCH 15, 1998
STATE OR JURISDICTION
UNDER WHICH ORGANIZED
Triarc Beverage Holdings Corp............................. Delaware
Mistic Brands, Inc.................................... Delaware
Snapple Beverage Corp................................. Delaware
Snapple International Corp........................ Delaware
Snapple Beverages de Mexico, S.A. de C.V.(1)... Mexico
Snapple Beverage (UK) Holdings Limited......... United Kingdom
Snapple Beverage (Europe) Limited.......... United Kingdom
Snapple Europe Limited............................ United Kingdom
Snapple Canada, Ltd............................... Canada
Snapple Worldwide Corp............................ Delaware
Southwest Snapple Corp............................ Delaware
Southwest Snapple Holdings Corp................... Delaware
Snapple Finance Corp.............................. Delaware
Pacific Snapple Distributors, Inc................. Delaware
Mr. Natural, Inc.................................. Delaware
Snapple Caribbean Corp............................ Delaware
CFC Holdings Corp.(2)..................................... Florida
Chesapeake Insurance Company Limited(3)............... Bermuda
RC/Arby's Corporation (formerly Royal Crown
Corporation).......................................... Delaware
RCAC Asset Management, Inc........................ Delaware
Arby's, Inc....................................... Delaware
Arby's Building and Construction Co............ Georgia
Arby's of Canada Inc........................... Canada
Daddy-O's Express, Inc......................... Georgia
Arby's (Hong Kong) Limited..................... Hong Kong
Arby's De Mexico S.A. de CV.................... Mexico
Arby's Immobiliara......................... Mexico
Arby's Servicios........................... Mexico
TJ Holding Company, Inc........................ Delaware
Arby's Restaurants, Limited....................... United Kingdom
Arby's Limited.................................... United Kingdom
Arby's Restaurant Construction Company............ Delaware
Arby's Restaurant Development Corporation......... Delaware
Arby's Restaurant Holding Company................. Delaware
Arby's Restaurants, Inc........................... Delaware
Arby's Restaurant Operations Company.............. Delaware
RC-8, Inc. (formerly Tyndale, Inc.)............... Indiana
RC-11, Inc. (formerly National Picture &
Frame Co.)...................................... Mississippi
Promociones Corona Real, S.A. de C.V.............. Mexico
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
MARCH 15, 1998
STATE OR JURISDICTION
UNDER WHICH ORGANIZED
RC Leasing, Inc................................... Delaware
Royal Crown Nederland B.V......................... Netherland
RC Cola Canada Limited (formerly Nehi Canada
Limited)........................................ Canada
Royal Crown Bottling Company of Texas (formerly
Royal Crown Bottlers of Texas, Inc.).............. Delaware
Royal Crown Company, Inc. (formerly Royal Crown
Cola Co.)....................................... Delaware
RC Services Limited(4)......................... Ireland
Retailer Concentrate Products, Inc............. Florida
TriBev Corporation............................. Delaware
Madison West Associates Corp.............................. Delaware
Cable Car Beverage Corporation............................ Delaware
Old San Francisco Seltzer, Inc........................ Colorado
Fountain Classics, Inc................................ Colorado
National Propane Corporation (5).......................... Delaware
National Propane SGP, Inc............................. Delaware
National Propane Partners, L.P. (6)............... Delaware
National Propane, L.P.(7)...................... Delaware
National Sales & Service, Inc.............. Delaware
Carib Gas Corporation of St. Croix (formerly
LP Gas Corporation of St. Croix)......... Delaware
Carib Gas Corporation of St. Thomas (formerly
LP Gas Corporation of St.Thomas)......... Delaware
NPC Leasing Corp.......................................... New York
Citrus Acquisition Corporation............................ Florida
Adams Packing Association, Inc. (formerly New
Adams, Inc.)...................................... Delaware
Groves Company, Inc. (formerly New Texsun, Inc.)...... Delaware
Home Furnishing Acquisition Corporation................... Delaware
1725 Contra Costa Property, Inc. (formerly Couroc
of Monterey, Inc.)................................ Delaware
Hoyne Industries, Inc. (formerly New Hoyne, Inc.)..... Delaware
Hoyne International (U.K.), Inc....................... Delaware
GS Holdings I, Inc........................................ Delaware
GVT Holdings, Inc. (8)................................ Delaware
TXL Corp.(formerly Graniteville Company) ......... South Carolina
TXL International Sales, Inc................... South Carolina
GTXL, Inc...................................... Delaware
TXL Holdings, Inc.............................. Delaware
Southeastern Public Service Company................... Delaware
Crystal Ice & Cold Storage, Inc................ Delaware
Southeastern Gas Company....................... Delaware
Geotec Engineers, Inc...................... West Virginia
Triarc Holdings 1, Inc.................................... Delaware
Triarc Holdings 2, Inc.................................... Delaware
Triarc Development Corporation............................ Delaware
Triarc Acquisition Corporation............................ Delaware
- -------------
(1) 99% owned by Snapple International Corp. and 1% owned by Snapple Worldwide
Corp.
(2) 94.6% owned by Triarc Companies, Inc. and 5.4% owned by Southeastern Public
Service Company.
(3) Common Stock 100% owned by CFC Holdings; Preferred Stock is owned 38.5% by
RC/Arby's Corporation, 23% by Southeastern Public Service Company and 38.5%
by TXL Corp.
(4) 99% owned by Royal Crown Company, Inc. and 1% owned by RC/Arby's
Corporation.
(5) 24.3% owned by Southeastern Public Service Company and 75.7% owned by
Triarc Companies, Inc.
(6) National Propane Corporation is the managing general partner of both
partnerships and holds a combined 2% unsubordinated general partner
interest therein and a 38.7% subordinated general partner interest in
National Propane Partners, L.P. National Propane SGP, Inc. is the special
general partner of both partnerships and holds a combined 2% unsubordinated
general partner interest therein. The public owns a 57.3% limited partner
interest in National Propane Partners, L.P. National Propane Partners,
L.P. is the sole limited partner of National Propane, L.P.
(7) 50% owned by GS Holdings I, Inc. and 50% owned by Southeastern Public
Service Company.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-60551 and 333-44711 on Form S-8 of our report dated March 10, 1998 (March 25,
1998 as to Note 8), appearing in the Annual Report on Form 10-K of Triarc
Companies, Inc. for the year ended December 28, 1997.
DELOITTE & TOUCHE LLP
New York, New York
March 26, 1998
<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 COMPANIES, INC. FOR THE YEAR ENDED DECEMBER 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<CIK> 0000030697
<NAME> TRIARC COMPANIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-28-1997
<CASH> 129,480
<SECURITIES> 46,165
<RECEIVABLES> 77,882
<ALLOWANCES> 0
<INVENTORY> 57,394
<CURRENT-ASSETS> 355,759
<PP&E> 52,469
<DEPRECIATION> 18,636
<TOTAL-ASSETS> 1,004,873
<CURRENT-LIABILITIES> 225,673
<BONDS> 604,830
0
0
<COMMON> 3,555
<OTHER-SE> 40,433
<TOTAL-LIABILITY-AND-EQUITY> 1,004,873
<SALES> 794,790
<TOTAL-REVENUES> 861,321
<CGS> 471,937
<TOTAL-COSTS> 471,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,003
<INTEREST-EXPENSE> 71,648
<INCOME-PRETAX> (23,090)
<INCOME-TAX> 4,742
<INCOME-CONTINUING> (20,553)
<DISCONTINUED> 20,718
<EXTRAORDINARY> (3,781)
<CHANGES> 0
<NET-INCOME> (3,616)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FOR THE YEARS
ENDED DECEMBER 1996 AND 1995 AND THE 1996 QUARTERS ENDED MARCH 31, JUNE 30 AND
SEPTEMBER 30 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FORM 10-K
OF TRIARC COMPANIES, INC. FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997.
</LEGEND>
<RESTATED>
<CIK> 0000030697
<NAME> TRIARC COMPANIES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996
<EXCHANGE-RATE> 1 1 1 1 1
<CASH> 64,205 154,405 41,000 133,420 164,726
<SECURITIES> 7,397 51,711 444 437 40,152
<RECEIVABLES> 168,534 80,613 184,740 87,588 80,049
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 118,549 55,340 125,737 58,914 61,067
<CURRENT-ASSETS> 412,828 445,662 375,111 302,920 371,354
<PP&E> 556,390 224,206 560,135 375,779 386,098
<DEPRECIATION> 224,801 116,934 233,565 162,215 168,610
<TOTAL-ASSETS> 1,085,966 854,404 1,037,192 836,473 909,829
<CURRENT-LIABILITIES> 254,558 250,487 211,380 215,014 176,964
<BONDS> 763,346 500,529 757,387 564,566 565,088
0 0 0 0 0
0 0 0 0 0
<COMMON> 3,398 3,398 3,398 3,398 3,398
<OTHER-SE> 17,252 3,367 17,400 6,799 58,326
<TOTAL-LIABILITY-AND-EQUITY> 1,085,966 854,404 1,037,192 836,473 909,829
<SALES> 1,086,180 870,856 305,965 520,808 694,381
<TOTAL-REVENUES> 1,142,011 928,185 318,417 547,841 736,328
<CGS> 835,367 606,913 229,189 376,513 491,281
<TOTAL-COSTS> 835,367 606,913 229,189 376,513 491,281
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 4,659 5,680 1,392 2,154 2,757
<INTEREST-EXPENSE> 84,126 71,025 22,122 40,526 56,080
<INCOME-PRETAX> (41,976) (3,935) 1,830 (1,833) 70,795
<INCOME-TAX> 2,543 (7,934) (1,703) (3,477) (31,798)
<INCOME-CONTINUING> (39,433) (13,698) 127 (5,310) 40,766
<DISCONTINUED> 2,439 5,213 1,658 3,512 4,768
<EXTRAORDINARY> 0 (5,416) (1,387) (8,538) (5,416)
<CHANGES> 0 0 0 0 0
<NET-INCOME> (36,994) (13,901) 398 (10,336) 40,118
<EPS-PRIMARY> (1.24) (0.46) 0.01 (0.35) 1.34
<EPS-DILUTED> (1.24) (0.46) 0.01 (0.35) 1.34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FOR THE 1997
FISCAL QUARTERS ENDED MARCH 30, JUNE 29 AND SEPTEMBER 28 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FORM 10-K OF TRIARC COMPANIES, INC. FOR THE FISCAL
YEAR ENDED DECEMBER 28, 1997.
</LEGEND>
<RESTATED>
<CIK> 0000030697
<NAME> TRIARC COMPANIES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-28-1997 DEC-28-1997 DEC-28-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-30-1997 JUN-29-1997 SEP-28-1997
<EXCHANGE-RATE> 1 1 1
<CASH> 120,516 71,349 69,149
<SECURITIES> 58,460 59,724 57,246
<RECEIVABLES> 85,088 133,570 117,063
<ALLOWANCES> 0 0 0
<INVENTORY> 55,914 87,669 93,570
<CURRENT-ASSETS> 422,194 407,998 391,048
<PP&E> 215,444 235,230 232,527
<DEPRECIATION> 109,449 113,304 112,535
<TOTAL-ASSETS> 844,557 1,156,990 1,136,359
<CURRENT-LIABILITIES> 254,117 254,561 264,429
<BONDS> 487,612 767,737 737,273
0 0 0
0 0 0
<COMMON> 3,398 3,398 3,398
<OTHER-SE> 2,370 (27,794) (18,538)
<TOTAL-LIABILITY-AND-EQUITY> 844,557 1,156,990 1,136,359
<SALES> 175,841 367,802 608,423
<TOTAL-REVENUES> 189,156 397,443 656,005
<CGS> 112,401 227,472 361,452
<TOTAL-COSTS> 112,401 227,472 361,452
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 666 1,647 2,940
<INTEREST-EXPENSE> 14,838 32,231 52,220
<INCOME-PRETAX> 5,238 (40,492) (29,060)
<INCOME-TAX> (2,766) 10,052 6,973
<INCOME-CONTINUING> (1,638) (33,611) (23,310)
<DISCONTINUED> 461 1,265 1,904
<EXTRAORDINARY> 0 (2,954) (2,954)
<CHANGES> 0 0 0
<NET-INCOME> (1,177) (35,300) (24,360)
<EPS-PRIMARY> (0.04) (1.18) (0.81)
<EPS-DILUTED> (0.04) (1.18) (0.81)
</TABLE>
