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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 3, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to_________________
Commission file number: 1-2207
TRIARC COMPANIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 38-0471180
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
(212) 451-3000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 ( )
There were 19,661,858 shares of the registrant's Class A Common
Stock and 3,998,414 shares of the registrant's Class B Common Stock outstanding
as of October 29, 1999.
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 3, October 3,
1999 (A) 1999
-------- ----
(In thousands)
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................$ 161,248 $ 160,612
Short-term investments............................................................... 99,729 130,880
Receivables.......................................................................... 67,724 106,921
Inventories.......................................................................... 46,761 67,326
Deferred income tax benefit ......................................................... 28,368 27,043
Prepaid expenses and other current assets ........................................... 5,667 3,229
------------- ------------
Total current assets............................................................... 409,497 496,011
Properties............................................................................... 31,203 36,812
Unamortized costs in excess of net assets of acquired companies.......................... 268,215 273,065
Trademarks............................................................................... 261,906 253,768
Deferred costs and other assets.......................................................... 48,781 64,317
------------- ------------
$ 1,019,602 $ 1,123,973
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt....................................................$ 9,978 $ 45,870
Accounts payable..................................................................... 58,290 68,710
Accrued expenses..................................................................... 129,610 128,119
Net current liabilities of discontinued operations................................... 34,603 3,204
------------- ------------
Total current liabilities.......................................................... 232,481 245,903
Long-term debt........................................................................... 668,281 846,739
Deferred income taxes.................................................................... 87,195 97,226
Deferred income and other liabilities.................................................... 20,373 25,254
Forward purchase obligation for common stock............................................. -- 86,186
Stockholders' equity (deficit):
Common stock......................................................................... 3,555 3,555
Additional paid-in capital........................................................... 204,539 204,276
Accumulated deficit.................................................................. (100,804) (95,683)
Treasury stock....................................................................... (94,963) (204,666)
Common stock to be acquired.......................................................... -- (86,186)
Accumulated other comprehensive income (deficit)..................................... (600) 1,498
Unearned compensation................................................................ (455) (129)
------------- ------------
Total stockholders' equity (deficit)............................................... 11,272 (177,335)
------------- ------------
$ 1,019,602 $ 1,123,973
============= ============
(A) Derived from the audited consolidated financial statements as of January 3,
1999
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
-------------------------- -------------------------
September 27, October 3, September 27, October 3,
1998 1999 1998 1999
---- ---- ---- ----
(In thousands except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net sales...................................................$ 227,052 $ 229,363 $ 594,439 $ 619,630
Royalties, franchise fees and other revenues................ 19,979 21,348 57,536 60,098
---------- ---------- ----------- ----------
247,031 250,711 651,975 679,728
---------- ---------- ----------- ----------
Costs and expenses:
Cost of sales, excluding depreciation and amortization
related to sales of $427,000, $568,000, $1,233,000
and $1,519,000............................................ 122,751 125,518 316,364 329,740
Advertising, selling and distribution....................... 56,536 52,055 166,811 164,772
General and administrative.................................. 30,243 33,402 80,499 88,758
Depreciation and amortization, excluding amortization
of deferred financing costs............................... 8,734 8,603 26,804 25,800
Capital structure reorganization related.................... -- 338 -- 5,205
---------- ---------- ----------- ----------
218,264 219,916 590,478 614,275
---------- ---------- ----------- ----------
Operating profit ......................................... 28,767 30,795 61,497 65,453
Interest expense................................................ (17,014) (22,702) (49,873) (64,030)
Investment income (loss), net................................... (4,019) 4,031 11,013 16,338
Gain on sale of businesses, net................................. 883 210 4,934 382
Other income, net............................................... 650 376 1,577 2,605
---------- ---------- ----------- ----------
Income from continuing operations before income
taxes.................................................. 9,267 12,710 29,148 20,748
Provision for income taxes...................................... (5,486) (9,526) (14,853) (14,108)
----------- ---------- ------------ ----------
Income from continuing operations......................... 3,781 3,184 14,295 6,640
Income (loss) from discontinued operations...................... (1,529) 11,062 221 10,578
----------- ---------- ----------- ----------
Income before extraordinary charges....................... 2,252 14,246 14,516 17,218
Extraordinary charges........................................... -- -- -- (12,097)
---------- ---------- ----------- ----------
Net income................................................$ 2,252 $ 14,246 $ 14,516 $ 5,121
========== ========== =========== ==========
Basic income per share:
Income from continuing operations.........................$ .12 $ .13 $ .46 $ .25
Income (loss) from discontinued operations................ (.05) .45 .01 .39
Extraordinary charges..................................... -- -- -- (.45)
---------- ---------- ----------- ----------
Net income................................................$ .07 $ .58 $ .47 $ .19
========== ========== =========== ==========
Diluted income per share:
Income from continuing operations.........................$ .12 $ .12 $ .44 $ .24
Income (loss) from discontinued operations................ (.05) .43 .01 .38
Extraordinary charges..................................... -- -- -- (.44)
---------- ---------- ----------- ----------
Net income................................................$ .07 $ .55 $ .45 $ .18
========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
------------------------------
September 27, October 3,
1998 1999
---- ----
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income..............................................................................$ 14,516 $ 5,121
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of costs in excess of net assets of acquired companies,
trademarks and certain other items .............................................. 18,501 18,032
Depreciation and amortization of properties........................................ 8,303 7,768
Amortization of original issue discount and deferred financing costs .............. 7,616 8,607
Write-off of unamortized deferred financing costs and interest rate cap
agreement costs ................................................................. -- 11,446
Deferred income tax provision...................................................... 12,786 10,552
Capital structure reorganization related charge.................................... -- 5,205
Provision for doubtful accounts.................................................... 2,399 2,112
Proceeds from trading securities................................................... -- 66,499
Cost of trading securities......................................................... -- (53,501)
Net recognized gains from transactions in investments and short positions.......... (2,282) (4,624)
Income from discontinued operations................................................ (221) (10,578)
Payments for acquisition related costs............................................. (5,943) (204)
Gain on sale of businesses, net.................................................... (4,934) (382)
Payment resulting from Federal income tax return examination....................... (8,460) --
Other, net......................................................................... 2,675 2,314
Changes in operating assets and liabilities:
Increase in receivables.......................................................... (21,268) (39,087)
Increase in inventories.......................................................... (13,946) (19,017)
Decrease in prepaid expenses and other current assets............................ 2,049 2,292
Increase in accounts payable and accrued expenses .............................. 6,871 10,417
---------- -----------
Net cash provided by operating activities................................... 18,662 22,972
---------- -----------
Cash flows from investing activities:
Cost of available-for-sale securities and limited partnerships ......................... (136,942) (90,046)
Proceeds from available-for-sale securities and limited partnerships.................... 86,764 60,710
Proceeds of securities sold short....................................................... 38,066 42,291
Payments to cover short positions in securities......................................... (14,434) (59,935)
Acquisition of Millrose Distributors, Inc............................................... -- (17,491)
Proceeds from sale of investment in Select Beverages, Inc............................... 28,342 --
Capital expenditures including in 1998 ownership interests in aircraft.................. (13,405) (12,926)
Other................................................................................... (1,769) 452
---------- -----------
Net cash used in investing activities....................................... (13,378) (76,945)
---------- -----------
Cash flows from financing activities:
Proceeds from long-term debt............................................................ 100,163 775,000
Repayments of long-term debt............................................................ (17,426) (565,941)
Repurchase of common stock for treasury................................................. (53,226) (117,101)
Deferred financing costs................................................................ (3,906) (29,600)
Proceeds from stock option exercises ................................................... 3,312 6,252
---------- -----------
Net cash provided by financing activities................................... 28,917 68,610
---------- -----------
Net cash provided by continuing operations.................................................. 34,201 14,637
Net cash provided by (used in) discontinued operations...................................... 360 (15,273)
---------- -----------
Net increase (decrease) in cash and cash equivalents........................................ 34,561 (636)
Cash and cash equivalents at beginning of period............................................ 129,480 161,248
---------- -----------
Cash and cash equivalents at end of period..................................................$ 164,041 $ 160,612
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
October 3, 1999
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Triarc Companies, Inc. ("Triarc" and, together with its subsidiaries, the
"Company") have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC") and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the opinion of the
Company, however, the accompanying condensed consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Company's financial position as of January 3,
1999 and October 3, 1999, its results of operations for the three-month and
nine-month periods ended September 27, 1998 and October 3, 1999 and its cash
flows for the nine-month periods ended September 27, 1998 and October 3, 1999
(see below). This information should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 3, 1999. Certain
statements in these notes to condensed consolidated financial statements
constitute "forward-looking statements" under the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. See Part II - "Other Information."
The Company reports on a fiscal year basis consisting of 52 or 53 weeks
ending on the Sunday closest to December 31. In accordance therewith, the
Company's first nine months of 1998 commenced on December 29, 1997 and ended on
September 27, 1998, with its third quarter commencing on June 29, 1998 and the
Company's first nine months of 1999 commenced on January 4, 1999 and ended on
October 3, 1999, with its third quarter commencing on July 5, 1999. For the
purposes of these condensed consolidated financial statements, the periods (1)
from December 29, 1997 to September 27, 1998 and June 29, 1998 to September 27,
1998 are referred to below as the nine-month and three-month periods ended
September 27, 1998, respectively, and (2) from January 4, 1999 to October 3,
1999 and July 5, 1999 to October 3, 1999 are referred to below as the nine-month
and three-month periods ended October 3, 1999, respectively.
As described in detail in Note 8, on July 19, 1999 the Company sold
substantially all of its remaining 42.7% interest in its former propane business
and, accordingly, the accompanying condensed consolidated financial statements
as of and for the three and nine-month periods ended October 3, 1999 reflect the
propane business as discontinued operations and the condensed consolidated
financial statements for the three and nine-month periods ended September 27,
1998 have been reclassified to reflect the propane business as discontinued
operations.
(2) Inventories
The following is a summary of the components of inventories (in thousands):
January 3, October 3,
1999 1999
---- ----
Raw materials.............................$ 20,268 $ 26,785
Work in process........................... 98 283
Finished goods............................ 26,395 40,258
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$ 46,761 $ 67,326
========== ==========
(3) Long-Term Debt
On January 15, 1999 Triarc Consumer Products Group, LLC ("TCPG"), a
wholly-owned subsidiary of Triarc, was formed. On February 23, 1999 TCPG
acquired all of the stock previously owned directly or indirectly by Triarc of
Triarc Beverage Holdings Corp. ("Triarc Beverage Holdings"), Stewart's
Beverages, Inc. ("Stewart's"), formerly Cable Car Beverage Corporation and
RC/Arby's Corporation ("RC/Arby's"). On February 25, 1999 TCPG and Triarc
Beverage Holdings issued $300,000,000 principal amount of 10 1/4% senior
subordinated notes due 2009 (the "Notes"), including an aggregate $20,000,000
issued to the Chairman and Chief Executive Officer and President and Chief
Operating Officer (the "Executives") of the Company. The Company has been
informed that, as of April 23, 1999, the Executives no longer hold any of the
Notes. Concurrently, Snapple Beverage Corp. ("Snapple"), a subsidiary of Triarc
Beverage Holdings, Mistic Brands, Inc. ("Mistic"), a subsidiary of Triarc
Beverage Holdings, Stewart's, RC/Arby's and Royal Crown Company, Inc. ("Royal
Crown"), a subsidiary of RC/Arby's, entered into an agreement (the "Credit
Agreement") for a new $535,000,000 senior bank credit facility (the "Credit
Facility") consisting of a $475,000,000 term facility, all of which was borrowed
as three classes of term loans (the "Term Loans") on February 25, 1999, and a
$60,000,000 revolving credit facility (the "Revolving Credit Facility") which
provides for revolving credit loans (the "Revolving Loans") by Snapple, Mistic,
Stewart's, RC/Arby's or Royal Crown. There have been no borrowings under the
Revolving Loans through October 3, 1999. The Company utilized a portion of the
aggregate net proceeds of these borrowings to (1) repay on February 25, 1999 the
$284,333,000 outstanding principal amount of the term loans under a former
$380,000,000 credit agreement, as amended (the "Former Beverage Credit
Agreement") entered into by Snapple, Mistic, Triarc Beverage Holdings and
Stewart's and $1,503,000 of related accrued interest, (2) redeem (the
"Redemption") on March 30, 1999 the $275,000,000 of borrowings under the
RC/Arby's 9 3/4% senior secured notes due 2000 (the "9 3/4% Senior Notes") and
pay $4,395,000 of related accrued interest and $7,662,000 of redemption premium,
(3) acquire Millrose Distributors, Inc. and the assets of Mid-State Beverage,
Inc. (collectively, "Millrose"), two New Jersey distributors of the Company's
premium beverages, for $17,491,000, including expenses of $241,000, and (4) pay
estimated fees and expenses of $29,600,000 relating to the issuance of the Notes
and the consummation of the Credit Facility (the "Refinancing Transactions").
The remaining net proceeds of the Refinancing Transactions are being used for
general corporate purposes, including working capital, investments, future
acquisitions, repayment or refinancing of indebtedness, restructurings or
repurchases of securities, including the Company's common stock (see Note 5).
See Note 9 for disclosure of the extraordinary charges related to the
aforementioned debt repayments and recorded during the first quarter of the year
ending January 2, 2000.
The Notes mature in 2009 and do not require any amortization of principal
prior to 2009. However, under the indenture (the "Indenture") pursuant to which
the Notes were issued, the Notes are redeemable at the option of the Company at
amounts commencing at 105.125% of principal beginning February 2004 decreasing
annually to 100% in February 2007 through February 2009. In addition, should the
Company consummate a permitted initial public equity offering of its consumer
products subsidiaries, the Company may at any time prior to February 2002 redeem
up to $105,000,000 of the Notes at 110.25% of principal amount with the net
proceeds of such public offering. On November 12, 1999, TCPG filed with the SEC
amendment No. 3 to a registration statement (the "Registration Statement")
covering resales by holders of the Notes. The Registration Statement was not
declared effective by the SEC by August 24, 1999 and, in accordance with the
Indenture, the annual interest rate on the Notes increased by 1/2% to 10 3/4%
and will remain at 10 3/4% until the Registration Statement is declared
effective.
Borrowings under the Credit Facility bear interest, at the Company's
option, at rates based on either the 30, 60, 90 or 180-day London Interbank
Offered Rate ("LIBOR") (ranging from 5.40% to 6.08% at October 3, 1999) or an
alternate base rate (the "ABR"). The ABR (8 1/4% at October 3, 1999) represents
the higher of the prime rate or 1/2% over the Federal funds rate. The interest
rates on LIBOR-based loans are reset at the end of the period corresponding with
the duration of the LIBOR selected. The interest rates on ABR-based loans are
reset at the time of any change in the ABR. Revolving Loans and one class of the
Term Loans with $43,875,000 outstanding as of October 3, 1999 bear interest at
3% over LIBOR or 2% over ABR until such time as such margins may be subject to
downward adjustment by up to 3/4% based on the borrowers' leverage ratio, as
defined. It is not expected that such interest rate margins will be adjusted
during the remainder of 1999. The other two classes of Term Loans with
$124,375,000 and $303,475,000 outstanding as of October 3, 1999 (the "Term B
Loans" and "Term C Loans," respectively) bear interest at 3 1/2% and 3 3/4% over
LIBOR, respectively, and 2 1/2% and 2 3/4%, respectively, over ABR. The
borrowing base for Revolving Loans is the sum of 80% of eligible accounts
receivable and 50% of eligible inventories. At October 3, 1999 there was
$59,951,000 of borrowing availability under the Revolving Credit Facility in
accordance with limitations due to such borrowing base. Before consideration of
the effect of an excess cash flow prepayment discussed below, the Term Loans are
due $1,637,000 during the remainder of 1999, $8,238,000 in 2000, $10,488,000 in
2001, $12,738,000 in 2002, $14,987,000 in 2003, $15,550,000 in 2004, $94,299,000
in 2005, $242,875,000 in 2006 and $70,913,000 in 2007 and any Revolving Loans
would be due in full in March 2005. The borrowers must also make mandatory
annual prepayments in an amount, if any, initially equal to 75% of excess cash
flow, as defined in the Credit Agreement. The borrowers currently expect that a
prepayment will be required to be made in the second quarter of 2000 in respect
of the year ending January 2, 2000, the amount of which is currently estimated
at $34,000,000. Accordingly, the estimated $34,000,000 the borrowers will be
required to prepay is included in "Current portion of long-term debt" in the
accompanying condensed balance sheet as of October 3, 1999. After consideration
of the effect of this estimated prepayment, the Term Loans would be due
$1,637,000 during the remainder of 1999, $41,765,000 in 2000 including the
estimated excess cash flow prepayment, $9,737,000 in 2001, $11,826,000 in 2002,
$13,915,000 in 2003, $14,437,000 in 2004, $87,389,000 in 2005, $225,401,000 in
2006 and $65,618,000 in 2007. Pursuant to the Credit Agreement the Company can
make voluntary prepayments of the Term Loans. However, if the Company makes
voluntary prepayments of the Term B and Term C Loans through February 25, 2000,
it will incur prepayment penalties of 2.0% and 3.0% of the amounts prepaid,
respectively, and from February 26, 2000 through February 25, 2001 it will incur
prepayment penalties of 1.0% and 1.5% of the amounts prepaid, respectively.
Under the Credit Agreement substantially all of the assets, other than cash
and cash equivalents, of Snapple, Mistic, Stewart's, RC/Arby's, Royal Crown and
Arby's, Inc. ("Arby's"), a subsidiary of RC/Arby's, and their subsidiaries, are
pledged as security. The Company's obligations with respect to the Notes are
guaranteed by Snapple, Mistic, Stewart's and RC/Arby's and all of their domestic
subsidiaries, all of which effective February 25, 1999 are directly or
indirectly wholly-owned by TCPG or Triarc Beverage Holdings. Such guarantees are
full and unconditional, are on a joint and several basis and are unsecured. The
Company's obligations with respect to the Credit Facility are guaranteed (the
"Guaranty") by TCPG, Triarc Beverage Holdings and substantially all of the
domestic subsidiaries of Snapple, Mistic, Stewart's, RC/Arby's and Royal Crown.
As collateral for the Guaranty, all of the stock of Snapple, Mistic, Stewart's,
RC/Arby's and Royal Crown and all of their domestic subsidiaries and 65% of the
stock of each of their directly-owned foreign subsidiaries is pledged.
The Indenture, the Credit Agreement and the Guaranty contain various
covenants which (1) require meeting certain financial amount and ratio tests,
(2) limit, among other matters, (a) the incurrence of indebtedness, (b) the
retirement of certain debt prior to maturity, (c) investments, (d) asset
dispositions and (e) affiliate transactions other than in the normal course of
business, and (3) restrict the payment of dividends to Triarc. Under the most
restrictive of such covenants, the borrowers would not be able to pay any
dividends to Triarc other than permitted one-time distributions, including
dividends, paid to Triarc in connection with the Refinancing Transactions. Such
one-time permitted distributions consisted of $91,420,000 paid on February 25,
1999 and $124,108,000 paid on March 30, 1999 following the Redemption.
The following pro forma data of the Company for the nine months ended
October 3, 1999 have been prepared by adjusting the historical data reflected in
the accompanying condensed consolidated statement of operations for such period
to reflect the effects of the Refinancing Transactions, including the
acquisition of Millrose, (without any incremental interest income or any other
benefit of the excess proceeds of the Refinancing Transactions) as if such
transactions had been consummated on January 4, 1999. Such pro forma data is
presented for information purposes only and does not purport to be indicative of
the Company's actual results of operations had such transactions actually been
consummated on January 4, 1999 or of the Company's future results of operations
and are as follows (in thousands except per share amounts):
As Pro
Reported Forma
-------- -----
Revenues..............................................$ 679,728 $ 681,402
Operating profit...................................... 65,453 65,362
Interest expense...................................... (64,030) (66,924)
Income from continuing operations..................... 6,640 3,972
Diluted income from continuing operations per share... .24 .14
(4) Acquisition
The acquisition of Millrose described in Note 3 has been accounted for in
accordance with the purchase method of accounting. In accordance therewith, the
following table sets forth the preliminary allocation of the aggregate purchase
price (in thousands):
Current assets....................................................$ 3,770
Properties........................................................ 1,000
Unamortized costs in excess of net assets of acquired companies... 13,579
Current liabilities............................................... (858)
--------
$ 17,491
========
(5) Treasury Stock Repurchases
On April 27, 1999 the Company repurchased 3,805,015 shares of its Class A
common stock (the "Class A Repurchase") for $18.25 per share in connection with
a tender offer for an aggregate cost of $69,442,000, plus fees and expenses of
$606,000.
On August 19, 1999 Triarc entered into a contract to repurchase in three
separate transactions the 5,997,622 shares of Triarc's Class B common stock held
by affiliates of Victor Posner, the former Chairman and Chief Executive Officer
of the Company, for $127,050,000. On August 19, 1999 Triarc completed the
purchase of 1,999,208 shares of Class B common stock (the "Initial Class B
Repurchase") for $40,864,000 at a price of $20.44 per share, which was the fair
market value of the Class A common stock at the time the contract was
negotiated. Pursuant to the contract, the second and third purchases of
$42,343,000 and $43,843,000, respectively, for 1,999,207 shares each at
negotiated fixed prices of $21.18 and $21.93 per share, are expected to occur on
or before August 19, 2000 and 2001, respectively. The aggregate $86,186,000
obligation for the second and third purchases has been recorded by the Company
as "Forward purchase obligation for common stock" with an equal offsetting
reduction to stockholders' deficit classified as "Common stock to be acquired."
Assuming the Class A Repurchase and the Initial Class B Repurchase had
occurred on January 4, 1999, the Company's diluted per-share income from
continuing operations, income from discontinued operations, extraordinary
charges and net income for the nine-month period ended October 3, 1999 would
have been $.27, $.44, $(.50) and $.21, respectively.
(6) Capital Structure Reorganization Related Charge
The capital structure reorganization related charge of $5,205,000
recognized during the nine months ended October 3, 1999, including $338,000
recognized during the three months ended October 3, 1999, resulted from
equitable adjustments to the terms of outstanding options under the stock option
plan of Triarc Beverage Holdings, to adjust for the effects of net distributions
of $91,342,000, principally consisting of transfers of cash and deferred tax
assets, from Triarc Beverage Holdings to Triarc, partially offset by the effect
of the contribution of Stewart's to Triarc Beverage Holdings effective May 17,
1999.
(7) Income Taxes
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service (the "IRS") for the tax years from 1989 through 1992
(the "1989 through 1992 Examinations"). Prior to 1999 the Company resolved and
settled certain issues with the IRS regarding such audit and in July 1999 the
Company resolved all remaining issues. In connection therewith, the Company paid
$5,298,000 during 1997, of which $2,818,000 was the amount of tax due and
$2,480,000 was interest thereon, and paid an additional $8,460,000 during the
nine months ended September 27, 1998 of which $4,510,000 was the amount of tax
due and $3,950,000 was interest thereon. Such amounts were charged to reserves
principally provided in prior years. Further, the Company has agreed to make net
payments of approximately $1,200,000 in connection with the 1989 through 1992
Examinations in the fourth quarter of 1999, of which $250,000 is the amount of
tax due and $950,000 is interest thereon. The IRS is examining the Company's
Federal income tax returns for the year ended April 30, 1993 and transition
period ended December 31, 1993 (the "1993 Examinations"). In connection
therewith, the Company has received to date net favorable notices of proposed
adjustments in the amount of $7,453,000, which if finalized as proposed, would
increase the Company's net operating loss carryforwards. The Company expects to
receive additional proposed adjustments with respect to this audit during the
fourth quarter of 1999, the nature and amount of which are not presently known.
Management of the Company believes that adequate aggregate provisions have been
made principally in years prior to 1998 for the $1,200,000 of tax liabilities,
including interest, in connection with the 1989 through 1992 Examinations and
any tax liabilities, including interest, that may result from the resolution of
the 1993 Examinations.
(8) Propane Partnership Sale
On July 19, 1999 the Company sold (the "Propane Partnership Sale")
substantially all of its remaining 42.7% interests in National Propane Partners,
L.P. (the "Propane Partnership") and a subpartnership National Propane, L.P.
(the "Operating Partnership") to Columbia Propane, L.P. ("Columbia"). Prior to
the Propane Partnership Sale, the Company owned a 42.7% combined interest in the
Propane Partnership and the Operating Partnership; the remaining 57.3% interest
the Company did not own was represented by publicly traded common units (the
"Common Units") of the Propane Partnership. The consideration paid to Triarc
consisted of (1) the forgiveness of $15,816,000 of a note payable to the
Operating Partnership by Triarc (the "Partnership Note") with a remaining
principal balance of $30,700,000 immediately prior to the Propane Partnership
Sale and (2) cash of $2,866,000, consisting of $2,101,000 of consideration for
the Company's sold interests in the Propane Partnership and the Operating
Partnership and $1,033,000 representing the reimbursement of interest expense
incurred and paid by the Company on the Partnership Note, both partially offset
by $268,000 of amounts equivalent to interest on advances made by the purchaser
in a tender offer for the Common Units. The Propane Partnership Sale resulted in
a gain of $11,023,000, net of $3,130,000 of related fees and expenses and a
$6,310,000 income tax provision. In connection with the closing of the Propane
Partnership Sale, Triarc repaid the remaining principal balance of the
Partnership Note of $14,884,000 and the Propane Partnership merged into
Columbia.
As a result of the Propane Partnership Sale, the Company sold substantially
all of its remaining 42.7% interest in the propane business, retaining a 1%
limited partner interest. The equity in the losses (the "Equity in Losses") of
the Propane Partnership, the recognition of deferred gain (the "Deferred Gain")
from the 1996 sale of a 57.3% interest in the Propane Partnership through the
date of sale and the $11,023,000 gain on the Propane Partnership Sale for the
three and nine-month periods ended October 3, 1999 are reported as discontinued
operations and the Equity in Losses and Deferred Gain for the three and nine
months ended September 27, 1998 have been reclassified in the accompanying
condensed consolidated financial statements to reflect the propane business as
discontinued operations.
Income (loss) from discontinued operations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------- ---------------------------
September 27, October 3, September 27, October 3,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss from discontinued operations, net
of income taxes of $1,243, $136,
$1,976 and $943...............................$ (2,011) $ (203) $ (3,373) $ (1,616)
Gain on disposal of discontinued operations,
net of income taxes of $271, $6,446,
$1,959 and $6,969 (a)......................... 482 11,265 3,594 (b) 12,194
---------- ----------- ---------- ----------
$ (1,529) $ 11,062 $ 221 $ 10,578
========== =========== ========== ==========
----------------------------
</TABLE>
(a) Includes recognition of deferred gain, net of income taxes, of
$482,000, $242,000, $994,000 and $1,171,000 for the three months ended
September 27, 1998 and October 3, 1999 and the nine months ended
September 27, 1998 and October 3, 1999, respectively.
(b) Includes $2,600,000 recorded in the first quarter of 1998 representing
an after-tax adjustment to amounts provided in prior years as a result
of the collection of a note receivable not previously recognized for
the estimated loss on disposal of certain discontinued operations of
SEPSCO, LLC, a subsidiary of the Company.
In connection with the Propane Partnership Sale, National Propane
Corporation ("National Propane"), the former managing general partner of the
Propane Partnership and a subsidiary of the Company, retained a 1% special
limited partner interest in the Operating Partnership and agreed that while it
remains a special limited partner, National Propane would indemnify ("the
Indemnification") the purchaser for any payments the purchaser makes, only after
recourse to the assets of the Operating Partnership, related to the purchaser's
obligations under certain of the debt of the Operating Partnership, aggregating
approximately $138,000,000 as of October 3, 1999, if the Operating Partnership
is unable to repay or refinance such debt. Under the purchase agreement, both
the purchaser and National Propane may require the Operating Partnership to
repurchase the 1% special limited partner interest. The Company believes that it
is unlikely that it will be called upon to make any payments under the
Indemnification.
(9) Extraordinary Charges
The extraordinary charges in the nine months ended October 3, 1999 resulted
from the early extinguishment of borrowings under the Former Beverage Credit
Agreement and the 9 3/4% Senior Notes (see Note 3). Such extraordinary charges
consisted of (1) the write-off of previously unamortized (a) deferred financing
costs of $11,300,000 and (b) interest rate cap agreement costs of $146,000 and
(2) the payment of the $7,662,000 redemption premium (see Note 3), less income
tax benefit of $7,011,000.
(10) Comprehensive Income (Loss)
The following is a summary of the components of comprehensive income
(loss) (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------- ---------------------------
September 27, October 3, September 27, October 3,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income .......................................$ 2,252 $ 14,246 $ 14,516 $ 5,121
Unrealized losses on "available-for-sale"
investments................................... (3,517) (4,652) (4,221) (3,827)
Equity in the unrealized gains (losses) of
investment limited partnerships............... -- (238) -- 5,964
Net change in currency translation adjustment..... 31 88 19 (39)
---------- ----------- ---------- ----------
Comprehensive income (loss)...................$ (1,234) $ 9,444 $ 10,314 $ 7,219
=========== =========== ========== ==========
</TABLE>
(11) Income Per Share
The weighted average number of common shares outstanding used in the
calculations of basic income per share for the three and nine-month periods
ended (1) September 27, 1998 were 30,362,000 and 30,681,000, respectively, and
(2) October 3, 1999 were 24,588,000 and 26,780,000, respectively. The shares
used in the calculations of diluted income per share for the three and
nine-month periods ended (1) September 27, 1998 were 31,131,000 and 32,148,000,
respectively, and (2) October 3, 1999 were 25,662,000 and 27,439,000,
respectively. The shares used for diluted earnings per share reflect (1) the
effect of dilutive stock options of 769,000, 1,467,000, 1,068,000 and 657,000
for the three and nine-month periods ended September 27, 1998 and the three and
nine-month periods ended October 3, 1999, respectively and (2) the dilutive
effect of the forward purchase obligation for common stock discussed in Note 5
of 6,000 and 2,000 for the three and nine-month periods ended October 3, 1999,
respectively. The shares used in the calculations of diluted earnings per share
for all periods presented exclude the effect of the other potentially dilutive
security, the Company's zero coupon debentures due 2018, since the effect
thereof would have been antidilutive.
(12) Transactions with Related Parties
The Company leases an airplane and a helicopter owned by Triangle Aircraft
Services Corporation ("TASCO"), a company owned by the Executives, for annual
rent of $3,360,000 as of January 1, 1999, under a dry lease which, subject to
renewal, expires in 2002. In connection with such lease and the amortization
over a five-year period of a $2,500,000 payment made in 1997 by the Company to
TASCO for (1) an option (the "Option") to continue the lease for a then
additional five years effective September 30, 1997 and (2) the agreement by
TASCO to replace the helicopter covered under the lease, the Company had rent
expense of $2,863,000 for the nine-month period ended October 3, 1999. Pursuant
to this dry lease, the Company pays the operating expenses, including repairs
and maintenance, of the aircraft and the costs of certain capitalized
improvements to the aircraft directly to third parties. During the nine-month
period ended October 3, 1999 the Company incurred $1,793,000 of repairs and
maintenance for the aircraft, principally relating to the airplane for required
inspections and overhaul of the engines and landing gear in accordance with
Federal Aviation Administration standards, and $7,030,000 of capitalized
improvements to the airplane.
Subsequent to October 3, 1999, the Company agreed with TASCO to purchase
the airplane for $27,200,000. In connection with such purchase, TASCO has agreed
to refund to the Company $1,200,000 of the $1,500,000 unamortized portion of the
Option as of October 3, 1999 representing the portion of the Option relating to
the airplane. The purchase price was negotiated on behalf of the Company by the
Chairman of the Audit Committee of the Board of Directors and was approved by
the Audit Committee and the Board of Directors.
(13) 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 $1,832,000 as of October 3, 1999. Although the
outcome of such matters cannot be predicted with certainty and some of these
matters may be disposed of unfavorably to the Company, based on currently
available information and given the Company's aforementioned reserves, the
Company does not believe that such legal and environmental matters will have a
material adverse effect on its consolidated financial position or results of
operations.
(14) Business Segments
The following is a summary of the Company's segment information (in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------- --------------------------
September 27, October 3, September 27, October 3,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Premium beverages...................................$ 196,357 $ 200,170 $ 495,817 $ 525,702
Soft drink concentrates............................. 31,013 29,650 99,166 94,934
Restaurants......................................... 19,661 20,891 56,992 59,092
----------- ----------- ----------- -----------
Consolidated revenues...........................$ 247,031 $ 250,711 $ 651,975 $ 679,728
=========== =========== =========== ===========
Earnings before interest, taxes, depreciation and
amortization:
Premium beverages...................................$ 29,364 $ 30,429 (a) $ 57,472 $ 62,059 (a)
Soft drink concentrates............................. 3,089 5,248 13,232 15,756
Restaurants......................................... 8,956 12,708 29,356 34,382
General corporate................................... (3,908) (8,987) (a) (11,759) (20,944) (a)
----------- ----------- ----------- -----------
Consolidated earnings before interest, taxes,
depreciation and amortization............... 37,501 39,398 88,301 91,253
----------- ----------- ----------- -----------
Less depreciation and amortization:
Premium beverages................................... 5,336 5,565 16,385 16,612
Soft drink concentrates............................. 2,280 1,697 6,832 5,406
Restaurants......................................... 552 549 1,757 1,631
General corporate................................... 566 792 1,830 2,151
----------- ----------- ----------- -----------
Consolidated depreciation and amortization...... 8,734 8,603 26,804 25,800
----------- ----------- ----------- -----------
Operating profit:
Premium beverages................................... 24,028 24,864 (a) 41,087 45,447 (a)
Soft drink concentrates............................. 809 3,551 6,400 10,350
Restaurants......................................... 8,404 12,159 27,599 32,751
General corporate................................... (4,474) (9,779) (a) (13,589) (23,095) (a)
----------- ----------- ----------- -----------
Consolidated operating profit................... 28,767 30,795 61,497 65,453
Interest expense........................................ (17,014) (22,702) (49,873) (64,030)
Investment income (loss), net........................... (4,019) 4,031 11,013 16,338
Gain on sale of businesses.............................. 883 210 4,934 382
Other income, net....................................... 650 376 1,577 2,605
----------- ----------- ----------- -----------
Consolidated income from continuing
operations before income taxes...............$ 9,267 $ 12,710 $ 29,148 $ 20,748
=========== =========== =========== ===========
- ------------
</TABLE>
(a) Reflects the capital structure reorganization related charge discussed in
Note 6 as follows (in thousands):
Three months Nine months
ended ended
October 3, 1999 October 3, 1999
--------------- ---------------
Charged to:
Premium beverages......................$ 208 $ 3,208
General corporate...................... 130 1,997
---------- ----------
$ 338 $ 5,205
========== ==========
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. 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 "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report on Form 10-K for the fiscal year ended January 3, 1999 of Triarc
Companies, Inc. The recent trends affecting our premium beverage, soft drink
concentrate and restaurant segments are described therein. Certain statements
under this caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" constitute "forward-looking statements" under the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve risks, uncertainties and other factors which
may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. For these statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Reform Act. See "Part II - Other Information."
Our fiscal year consists of 52 or 53 weeks ending on the Sunday closest to
December 31. Our first nine months of 1998 commenced on December 29, 1997 and
ended on September 27, 1998, with our third quarter commencing on June 29, 1998
and our first nine months of 1999 commenced on January 4, 1999 and ended on
October 3, 1999, with our third quarter commencing on July 5, 1999. Therefore,
when we refer to the "nine-month period ended September 27, 1998" and the
"three-month period ended September 27, 1998," or the "1998 third quarter," we
mean the periods from December 29, 1997 to September 27, 1998 and June 29, 1998
to September 27, 1998; and when we refer to the "nine-month period ended October
3, 1999," or the "first nine months of 1999," and the "three-month period ended
October 3, 1999," or the "1999 third quarter," we mean the periods from January
4, 1999 to October 3, 1999 and July 5, 1999 to October 3, 1999.
Results of Operations
Nine Months Ended October 3, 1999 Compared with Nine Months Ended
September 27, 1998
Revenues
Our revenues increased $27.8 million to $679.7 million in the nine months
ended October 3, 1999 compared with the nine months ended September 27, 1998. A
discussion of the changes in revenues by segment is as follows:
Premium Beverages -- Our premium beverage revenues increased $29.9 million
(6.0%) in the nine months ended October 3, 1999 compared with the nine
months ended September 27, 1998. The increase reflects higher volume and,
to a lesser extent, higher average selling prices in the first nine months
of 1999. The increase in volume principally reflects (1) 1999 sales of
Snapple Elements(TM), a new product platform of herbally enhanced drinks
introduced in April 1999, (2) increased cases sold to retailers through
Millrose Distributors, Inc. principally reflecting an increased focus on
our products as a result of our ownership of this New Jersey distributor,
which we refer to as Millrose, since February 25, 1999 (see further
discussion of the Millrose acquisition below under "Liquidity and Capital
Resources"), (3) higher sales of diet teas and other diet beverages and
juice drinks and (4) higher sales of Stewart's products as a result of
increased distribution in existing and new markets and the December 1998
introduction of Stewart's grape soda. The higher average selling prices
principally reflect (1) the effect of the Millrose acquisition since
February 25, 1999 whereby we sell product at higher prices directly to
retailers compared with sales at lower prices to distributors such as
Millrose and (2) selective price increases.
Soft Drink Concentrates -- Our soft drink concentrate revenues decreased
$4.2 million (4.3%) in the nine months ended October 3, 1999 compared with
the nine months ended September 27, 1998. This decrease is attributable to
lower Royal Crown sales of (1) concentrate of $2.8 million, or 2.9%, and
(2) finished goods of $1.4 million, or 100%, which the soft drink
concentrate segment no longer sells. The decrease in Royal Crown sales
of concentrate reflects a $7.2 million decline in branded sales, primarily
due to lower domestic volume reflecting continued competitive pricing
pressures experienced by our bottlers, and lower international volume as
a result of the continued depressed economic conditions experienced in
Russia which commenced in August of 1998, partially offset by a $4.4
million volume increase in private label sales reflecting a general
business recovery being experienced by our private label customer.
Restaurants -- Our restaurant revenues increased $2.1 million (3.7%) in the
nine months ended October 3, 1999 compared with the nine months ended
September 27, 1998 as higher royalty revenue more than offset lower
franchise fee revenue. The increase in royalty revenue resulted from an
average net increase of 60, or 1.9%, franchised restaurants and a 2.2%
increase in same-store sales of franchised restaurants. The decrease in
franchise fee revenue, despite an increase in franchised restaurant
openings, was due to (1) a decrease in dual-branded T.J. Cinnamons openings
and (2) an increase in remodeling credits applied against franchise fees.
Gross Profit
We calculate gross profit as total revenues less (1) cost of sales,
excluding depreciation and amortization and (2) that portion of depreciation and
amortization related to sales. Our gross profit increased $14.1 million to
$348.5 million in the nine months ended October 3, 1999 compared with the nine
months ended September 27, 1998 principally due to the effect of higher sales
volumes as discussed above. Our aggregate gross margins, which we compute as
gross profit divided by total revenues, remained constant at 51.3%. A discussion
of the changes in gross margins by segment is as follows:
Premium Beverages -- Our gross margins increased to 41.2% during the first
nine months of 1999 from 40.8% during the first nine months of 1998. The
increase in gross margins was principally due to (1) the selective price
increases noted above, (2) the effect of the higher selling prices
resulting from the Millrose acquisition, (3) the effect of lower freight
costs and (4) to a lesser extent, the effect of the reduced costs of
certain raw materials, principally glass bottles and flavors, in the first
nine months of 1999, all partially offset by $3.8 million of higher
inventory obsolescence costs, principally recorded in the 1999 third
quarter.
Soft Drink Concentrates -- Our gross margins increased to 76.9% during the
first nine months of 1999 from 75.8% during the first nine months of 1998.
This increase was due to (1) lower costs of the raw material aspartame and
(2) the effects of changes in product mix whereby the positive effect of
our no longer selling the lowest-margin finished goods in 1999 was
partially offset by a shift in sales to private label concentrate in 1999
which has a somewhat lower margin than branded concentrate.
Restaurants -- Our gross margins during each period are 100% because
royalties and franchise fees constitute the total revenues of the segment
and these are with no associated cost of sales.
Advertising, Selling and Distribution Expenses
Advertising, selling and distribution expenses decreased $2.0 million to
$164.8 million in the first nine months of 1999. This decrease was principally
due to a decrease in the expenses of the soft drink concentrate segment
reflecting lower bottler promotional reimbursements and other promotional
spending resulting from the decline in branded concentrate sales volume,
partially offset by (1) higher employee compensation and related costs
reflecting an increase in the number of sales and marketing employees in the
premium beverage segment and (2) an overall increase in promotional spending by
the premium beverage segment principally reflecting new product introductions
and overall higher volume.
General and Administrative Expenses
General and administrative expenses increased $8.3 million to $88.8
million in the first nine months of 1999. This increase principally reflects
expenses related to new salary arrangements and an executive bonus plan
effective May 3, 1999, maintenance and repair expenses and higher salary and
benefit costs. The executive bonus plan was approved by our shareholders at our
1999 annual meeting held on September 23, 1999. Accordingly, we recognized
charges for executive bonuses during the 1999 third quarter for the five-month
period from the May 3, 1999 effective date through October 3, 1999 and, as a
result, assuming there were no other changes in the bonus determinants,
provisions in future quarters would be less than in the current quarter.
Compensation expense related to these salaries and executive bonuses aggregated
$5.1 million in the first nine months of 1999. Maintenance and repair expense
related to our leased aircraft increased $1.2 million in the first nine months
of 1999 entirely due to higher than anticipated costs related to required
inspections and overhaul of the engines and landing gear on one of the aircraft
in accordance with Federal Aviation Administration standards.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Depreciation and amortization, excluding amortization of deferred financing
costs, decreased $1.0 million to $25.8 million in 1999 principally reflecting
the effects of (1) vending machines of the soft drink concentrate segment, with
an aggregate cost of $4.6 million, becoming fully depreciated in November 1998
and (2) the cost of a three-year non-compete agreement, with the seller of the
Mistic business to us, becoming fully amortized in August 1998, both partially
offset by an increase in amortization of costs in excess of net assets of
businesses acquired, which we refer to as goodwill, as a result of the Millrose
acquisition.
Capital Structure Reorganization Related Charge
The capital structure reorganization related charge of $5.2 million in the
first nine months of 1999 reflects equitable adjustments that were made to the
terms of outstanding options under a stock option plan of Triarc Beverage
Holdings Corp., the parent company of Snapple Beverage Corp., Mistic Brands,
Inc. and, effective May 17, 1999, Stewart's Beverages, Inc. to adjust for the
effects of net distributions of $91.3 million made by Triarc Beverage Holdings
to Triarc. These distributions principally consisted of transfers of cash and
deferred tax assets, from Triarc Beverage Holdings to Triarc, partially offset
by the effect of the contribution of Stewart's to Triarc Beverage Holdings. The
option plan provides for an equitable adjustment of options in the event of a
recapitalization or similar event. As a result of these net distributions and
the terms of the option plan, the exercise prices of the options granted in 1997
and 1998 were equitably adjusted from $147.30 and $191.00 per share,
respectively, to $107.05 and $138.83 per share, respectively, and a cash payment
of $51.34 and $39.40 per share, respectively, is due from Triarc Beverage
Holdings to the option holder following the exercise of the stock options.
Compensation expense is being recognized for the cash to be paid upon the
exercise of stock options ratably over the vesting period of the stock options.
We expect to recognize additional pre-tax charges relating to this adjustment of
$1.6 million through fiscal 2001 as the affected stock options continue to vest,
of which $0.3 million relates to the fourth quarter of 1999. There was no
similar charge in the first nine months of 1998. No compensation expense will be
recognized for other changes in the terms of the outstanding options because the
modifications to the options did not create a new measurement date under
generally accepted accounting principles.
Interest Expense
Interest expense increased $14.2 million to $64.0 million in the first nine
months of 1999 reflecting higher average levels of debt during the first nine
months of 1999 due to increases from a first quarter 1999 debt refinancing and,
to a lesser extent, higher average interest rates in the 1999 period. Such
refinancing consisted of (1) the issuance of $300.0 million of 10 1/4% senior
subordinated notes due 2000 and (2) $475.0 million borrowed under a new senior
bank credit facility and the repayment of (1) $284.3 million under a former
credit facility and (2) $275.0 million of 9 3/4% senior secured notes due 2000.
Investment Income, Net
Investment income, net increased $5.3 million to $16.3 million in the first
nine months of 1999 reflecting (1) a non-recurring $8.7 million provision
recognized in the 1998 third quarter for unrealized losses on short-term
investments and other investments deemed to be other than temporary due to
global economic conditions and/or volatility in capital and lending markets
experienced in such quarter, (2) a $2.5 million increase in the first nine
months of 1999 in interest income on cash and cash equivalents and short-term
investments resulting from the investment of excess proceeds from the first
quarter 1999 debt refinancing and related transactions and (3) a $0.5 million
increase in equity in earnings of investment limited partnerships accounted for
under the equity method. Such increases were partially offset by $6.3 million of
lower recognized gains to $4.6 million in the first nine months of 1999 from (1)
the sales of short-term investments, (2) unrealized gains on marketable
securities classified as trading, (3) securities sold but not yet purchased and
(4) the sales of our interests in investment limited partnerships. Such
recognized gains may not recur in future periods.
Gain on Sale of Businesses, Net
Gain on sale of businesses, net decreased $4.6 million to $0.4 million in
the first nine months of 1999 primarily due to a $4.7 million non-recurring gain
in the first nine months of 1998 from the May 1998 sale of our former 20%
interest in Select Beverages, Inc. and a $0.9 million reduction to the gain from
the Select Beverages sale recognized during the 1999 third quarter resulting
from a post-closing adjustment to the sales price, partially offset by our $1.0
million equity in a gain recognized in the 1999 third quarter from the sale of
common stock issued by a subsidiary of a limited partnership in which we have an
investment, which is not expected to recur in future periods.
Other Income, Net
Other income, net increased $1.0 million to $2.6 million in the first nine
months of 1999. This increase was due to a $2.0 million net improvement in our
equity in the income or loss of affiliates to income in the first nine months of
1999, primarily reflecting the effects of (1) the $1.3 million non-recurring
equity in the loss of Select Beverages, Inc. for the first nine months of 1998
and (2) our $1.0 million equity in a gain recognized by a limited partnership in
which we have an investment, which may not recur in future periods, both
partially offset by nonrecurring other income in the 1998 period. We owned 20%
of Select Beverages until May 1998 when we sold our 20% interest.
Provision for Income Taxes
The provision for income taxes represented effective rates of 68% in the
first nine months of 1999 and 51% in the first nine months of 1998. The
effective rate is higher in the 1999 period principally due to the greater
impact of the amortization of non-deductible costs in excess of net assets of
acquired companies in 1999. Such effect is greater in the 1999 period due to
lower projected 1999 full-year pre-tax income, entirely due to higher projected
net non-operating expenses, compared with the then projected 1998 full-year
pre-tax income as of the end of the first nine months of 1998.
Discontinued Operations
Income from discontinued operations, on an after-tax basis, was $10.6
million in the first nine months of 1999 compared with income of $0.2 million in
the 1998 period. This increase of $10.4 million reflects (1) a gain on disposal
of National Propane Partners, a partnership in which we sold substantially all
of our remaining 42.7% interests in July 1999, of $11.0 million recognized in
the 1999 third quarter, (2) a decrease in the loss from discontinued operations
of the propane business of $1.8 million since the 1999 period results of
operations do not include results of operations subsequent to the July 19, 1999
sale date in the summer season during which the propane business normally
incurred losses and (3) a $0.2 million increase in the recognition of previously
deferred gains from the 1996 sale of 57.3% of our interest in National Propane
Partners. Such change was partially offset by a $2.6 million non-recurring gain
in the first nine months of 1998 representing an adjustment to amounts provided
in prior years, as a result of collection of a note receivable not previously
recognized, for the estimated loss on disposal of certain discontinued
operations of our subsidiary, SEPSCO, LLC.
Extraordinary Charges
The extraordinary charges in the first nine months of 1999 aggregating
$12.1 million resulted from the early extinguishment of borrowings under the
former credit facility of Triarc Beverage Holdings and the RC/Arby's 9 3/4%
notes and consisted of (1) the write-off of previously unamortized (a) deferred
financing costs of $11.3 million and (b) interest rate cap agreement costs of
$0.1 million and (2) the payment of a $7.7 million redemption premium on the
RC/Arby's 9 3/4% notes, less income tax benefit of $7.0 million.
Three Months Ended October 3, 1999 Compared with Three Months Ended
September 27, 1998
Revenues
Our revenues increased $3.7 million to $250.7 million in the three months
ended October 3, 1999 compared with the three months ended September 27, 1998. A
discussion of the changes in revenues by segment is as follows:
Premium Beverages -- Our premium beverage revenues increased $3.8 million
(1.9%) in the three months ended October 3, 1999 compared with the three
months ended September 27, 1998. The increase reflects higher average
selling prices and, to a lesser extent, higher volume in the 1999 third
quarter. The higher average selling prices reflect (1) selective price
increases and (2) the effect of the higher selling prices in connection
with the Millrose acquisition whereby we now sell directly to retailers
rather than to Millrose as a distributor.
Soft Drink Concentrates -- Our soft drink concentrate revenues decreased
$1.3 million (4.4%) in the three months ended October 3, 1999 compared with
the three months ended September 27, 1998. This decrease is attributable to
lower Royal Crown sales of concentrate reflecting a $1.8 million decline in
branded sales, primarily due to lower domestic volume reflecting continued
competitive pricing pressures experienced by our bottlers, and lower
international volume as a result of the full period effect in the 1999
third quarter of the continued depressed economic conditions experienced in
Russia which began in August of 1998, partially offset by a $0.5 million
volume increase in private label sales reflecting the general business
recovery being experienced by our private label customer.
Restaurants -- Our restaurant revenues increased $1.2 million (6.3%) in the
three months ended October 3, 1999 compared with the three months ended
September 27, 1998 as higher royalty revenue more than offset lower
franchise fee revenue. The increase in royalty revenue resulted from an
average net increase of 71, or 2.3%, franchised restaurants and a 2.2%
increase in same-store sales of franchised restaurants. The decrease in
franchise fee revenue, was due to (1) a decrease in the number of
franchised restaurant openings and (2) a decrease in dual-branded T.J.
Cinnamons openings.
Gross Profit
We calculate gross profit as total revenues less (1) cost of sales,
excluding depreciation and amortization and (2) that portion of depreciation and
amortization related to sales. Our gross profit increased $0.8 million to $124.6
million in the three months ended October 3, 1999 compared with the three months
ended September 27, 1998 due to the effect of higher sales volume discussed
above, partially offset by a decrease in our aggregate gross margins, which we
compute as gross profit divided by total revenues, to 49.7% from 50.1%. A
discussion of the changes in gross margins by segment is as follows:
Premium Beverages -- Our gross margins decreased to 40.3% during the 1999
third quarter from 40.9% during the 1998 third quarter. The decrease in
gross margins was principally due to higher inventory obsolescence costs of
$3.5 million partially offset by (1) the effect of the higher selling
prices resulting from the Millrose acquisition, (2) the selective price
increases noted above, and (3) the effect of the reduced costs of certain
raw materials, principally glass bottles and flavors.
Soft Drink Concentrates -- Our gross margins increased to 78.0% during the
1999 third quarter from 76.9% during the 1998 quarter. This increase was
due to (1) lower costs of the raw material aspartame and (2) the effects of
changes in product mix whereby the positive effect of our no longer selling
the lowest-margin finished goods in 1999 was partially offset by a shift in
sales to private label concentrate in 1999 which has a somewhat lower
margin than branded concentrate.
Restaurants -- Our gross margins during each period are 100% because
royalties and franchise fees constitute the total revenues of the segment
with no associated cost of sales.
Advertising, Selling and Distribution Expenses
Advertising, selling and distribution expenses decreased $4.5 million to
$52.1 million in the 1999 third quarter. This decrease was principally due to
(1) a decrease in the expenses of the premium beverage segment as a result of
higher promotional spending in the 1998 third quarter primarily reflecting new
product introductions in 1998 and (2) a decrease in the expenses of the soft
drink concentrate segment in the 1999 third quarter reflecting lower bottler
promotional reimbursements and other promotional spending resulting from the
decline in branded concentrate sales volume, partially offset by higher employee
compensation and related costs reflecting an increase in the number of sales and
marketing employees in the premium beverage segment.
General and Administrative Expenses
General and administrative expenses increased $3.2 million to $33.4 million
in the 1999 third quarter. This increase principally reflects $4.6 million of
expenses in the 1999 third quarter related to new salary arrangements and an
executive bonus plan effective May 3, 1999 as more fully discussed above in the
comparison of the nine-month periods. Such increase was partially offset by a
decrease in the expenses of the restaurant segment due to a non-recurring
provision for the anticipated settlement of a lawsuit with Arby's Mexican master
franchise in the third quarter of 1998.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Depreciation and amortization, excluding amortization of deferred financing
costs, decreased $0.1 million to $8.6 million in the 1999 third quarter
principally reflecting the effect of vending machines of the soft drink
concentrate segment becoming fully depreciated in November 1998 and the full
period effect in the 1999 third quarter of the cost of a three-year non-compete
agreement, with the seller of the Mistic business to us, becoming fully
amortized in August 1998, both substantially offset by increased amortization of
goodwill as a result of the Millrose acquisition.
Capital Structure Reorganization Related Charge
The capital structure reorganization related charge of $0.3 million in the
1999 third quarter reflects the vesting effect in that quarter of equitable
adjustments that were made to the terms of outstanding options under a stock
option plan of Triarc Beverage Holdings, as discussed above in the comparison of
the nine-month periods. There was no similar charge in the 1998 third quarter.
Interest Expense
Interest expense increased $5.7 million to $22.7 million in the 1999 third
quarter reflecting higher average levels of debt during the 1999 third quarter
due to increases from the first quarter 1999 debt refinancing as discussed above
in the comparison of the nine-month periods and, to a lesser extent, higher
average interest rates in the 1999 quarter.
Investment Income (Loss), Net
Investment income (loss), net improved $8.0 million to income of $4.0
million in the 1999 third quarter principally reflecting a non-recurring $8.7
million provision recognized in the 1998 third quarter for unrealized losses on
short-term investments and other investments deemed to be other than temporary
as described more fully above in the comparison of the nine-month periods,
partially offset by $0.4 million of lower recognized gains in the 1999 third
quarter from (1) the sales of short term investments, (2) unrealized gains on
marketable securities classified as trading, (3) securities sold but not yet
purchased and (4) the sales of our interests in investment limited partnerships.
Gain on Sale of Businesses, Net
Gain on sale of businesses, net decreased $0.7 million to $0.2 million in
the 1999 third quarter due to a $0.8 million non-recurring gain in the 1998
third quarter from the May 1998 sale of Select Beverages and a $0.9 million
reduction to the gain from the Select Beverages sale recognized in the 1999
third quarter resulting from a post-closing adjustment to the sales price,
partially offset by our $1.0 million equity in a gain from the sale of common
stock issued by a subsidiary of a limited partnership in which we have an
investment recognized in the 1999 third quarter.
Other Income, Net
Other income, net decreased $0.3 million to $0.4 million in the 1999 third
quarter. This decrease was principally due to $0.7 million of nonrecurring other
income in the 1998 quarter partially offset by a $0.5 million net improvement in
our equity in the income or loss of affiliates in the 1999 third quarter.
Provision for Income Taxes
The provision for income taxes represented effective rates of 75% in the
1999 quarter and 59% in the 1998 quarter. The effective rate is higher in the
1999 third quarter principally due to the greater impact of (1) the amortization
of non-deductible costs in excess of net assets of acquired companies in 1999,
the effect of which is greater in the 1999 third quarter due to lower projected
1999 full-year pre-tax income, entirely due to higher projected net
non-operating expenses, compared with the then projected 1998 full-year pre-tax
income as of the end of the 1998 third quarter and (2) the catch-up effect of
year-to-date increases in the estimated full-year effective tax rates which in
1999 increased 11% from 57% to 68% compared with an increase of 4% from 47% to
51% in 1998.
Discontinued Operations
Income (loss) from discontinued operations, on an after-tax basis,
increased $12.6 million to income of $11.1 million in the 1999 third quarter.
This increase reflects (1) a gain on disposal of National Propane Partners of
$11.0 million as discussed above in the comparison of the nine-month periods,
(2) a decrease in the loss from discontinued operations of the propane business
of $1.8 million since the 1999 third quarter results only include the 19 days
through the July 19, 1999 sale date during the summer season when the propane
business normally incurred operating losses, partially offset by a $0.2 million
decrease in the recognition of previously deferred gains from the 1996 sale of
57.3% of our interest in National Propane Partners.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operations
Our consolidated operating activities provided cash and cash equivalents,
which we refer to in this discussion as cash, of $23.0 million during the nine
months ended October 3, 1999 principally reflecting (1) net income of $5.1
million, (2) net non-cash charges of $63.7 million, principally depreciation and
amortization of $34.4 million, the write-off of unamortized deferred financing
costs and interest rate cap agreement costs of $11.4 million relating to the
refinancing transactions described below and a provision for deferred income
taxes of $10.6 million, (3) $13.0 million of proceeds from sales of trading
securities, net of purchases, and (4) other of $1.8 million. These sources were
partially offset by (1) cash used by changes in operating assets and liabilities
of $45.4 million and (2) net reclassifications to investing activities and
discontinued operations of $15.2 million.
The cash used by changes in operating assets and liabilities of $45.4
million reflects increases in receivables of $39.1 million and inventories of
$19.0 million. These effects were partially offset by a $10.4 million increase
in accounts payable and accrued expenses and a $2.3 million decrease in prepaid
expenses and other current assets. The increase in receivables principally
results from seasonally higher sales in August and September 1999 compared with
November and December 1998. The increase in inventories was principally due to
the residual effect of the seasonal buildup in our premium beverage business.
The increase in accounts payable and accrued expenses was principally due to the
increased inventory purchases and seasonally higher accruals for bottler and
distributor promotional allowances.
We expect continued positive cash flows from operations for the remainder
of 1999 which should reflect the reversal following the peak summer season of
seasonal increases in receivables and inventories, experienced during the first
nine months of 1999.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$250.1 million at October 3, 1999, reflecting a current ratio, which equals
current assets divided by current liabilities, of 2.0:1. Our capitalization at
October 3, 1999 aggregated $801.5 million consisting of $892.6 million of
long-term debt, including current portion, and an $86.2 million forward purchase
obligation for common stock discussed below, partially offset by a stockholders'
deficit of $177.3 million. Our working capital and total capitalization
increased $73.1 million and $111.9 million, respectively, from January 3, 1999
principally due to the refinancing transactions and the propane partnership
sale, both described below, and operating activities, partially offset by the
repurchase of treasury stock also described below.
The Propane Partnership Sale
On July 19, 1999 we sold substantially all of our 42.7% remaining interests
in National Propane Partners, L.P. and a subpartnership, National Propane, L.P.,
except for a 1% limited partnership interest which we retained in National
Propane, L.P., to Columbia Propane, L.P. for cash of $2.9 million and the
forgiveness of $15.8 million of the $30.7 million remaining outstanding
principal balance under a note payable bearing interest at 13 1/2% payable to
National Propane, L.P. The $2.9 million of cash consists of $2.1 million of
consideration for our sold interests in the propane business and $1.0 million
representing the reimbursement of interest expense incurred and paid by us on
the 13 1/2% note payable to National Propane, L.P. both partially offset by $0.2
million of amounts equivalent to interest on advances made by the purchaser in a
tender offer for the 57.3% interest in the propane business we did not own. In
connection with the closing of the sale of the propane business on July 19,
1999, we repaid the remaining $14.9 million of the 13 1/2% note payable to
National Propane, L.P.
Under the terms of the sale, we retained a 1% limited partnership interest
in National Propane, L.P., which continues to exist as a subsidiary partnership
of Columbia Propane, L.P., and indemnified approximately $138.0 million of
obligations of National Propane, L.P. discussed below.
Refinancing Transactions
On January 15, 1999 we formed Triarc Consumer Products Group, LLC and on
February 23, 1999 Triarc Consumer Products Group acquired all of the stock
previously owned directly or indirectly by Triarc of Triarc Beverage Holdings,
Stewart's and RC/Arby's Corporation, the parent of Royal Crown Company, Inc. and
Arby's, Inc. On February 25, 1999 Triarc Consumer Products Group and Triarc
Beverage Holdings issued $300.0 million principal amount of 10 1/4% senior
subordinated notes due 2009 and concurrently entered into a new $535.0 million
senior bank credit facility. An aggregate $20.0 million principal amount of the
10 1/4% notes were initially purchased by our Chairman and Chief Executive
Officer and President and Chief Operating Officer. We have been advised by these
executives that, as of April 23, 1999, they no longer hold any of the 10 1/4%
notes.
The new credit facility consists of a $475.0 million term facility, all of
which was borrowed as three classes of term loans on February 25, 1999, and a
$60.0 million revolving credit facility which provides for revolving credit
loans by Snapple, Mistic, Stewart's, RC/Arby's or Royal Crown. They may make
revolving loan borrowings of up to 80% of eligible accounts receivable plus 50%
of eligible inventories. There have been no borrowings of revolving loans
through October 3, 1999. At October 3, 1999 there was $59.9 million of borrowing
availability under the revolving credit facility.
We used a portion of the proceeds of the borrowings under the 10 1/4% notes
and the new credit facility to (1) repay on February 25, 1999 the $284.3 million
outstanding principal amount of term loans under a former beverage credit
facility entered into by Snapple, Mistic, Triarc Beverage Holdings and Stewart's
and $1.5 million of related accrued interest, (2) redeem on March 30, 1999 the
$275.0 million of borrowings under the RC/Arby's 9 3/4% senior secured notes due
2000 and pay $4.4 million of related accrued interest and $7.7 million of
redemption premium, (3) acquire Millrose Distributors, Inc. and the assets of
Mid-State Beverage, Inc., two New Jersey distributors of our premium beverages,
for $17.5 million, including expenses of $0.2 million, and (4) pay estimated
fees and expenses of $29.6 million relating to the issuance of the 10 1/4% notes
and the consummation of the new credit facility. The remaining net proceeds of
this refinancing are being used for general corporate purposes, including
working capital, investments, future acquisitions, repayment or refinancing of
indebtedness, restructurings or repurchases of securities, including repurchases
of our common stock as described below under "Treasury Stock Purchases".
The 10 1/4% notes mature in 2009 and do not require any amortization of
principal prior to 2009. On November 12, 1999, Triarc Consumer Products filed
with the Securities and Exchange Commission amendment No. 3 to a registration
statement covering resales by holders of the 10 1/4% notes. The registration
statement was not declared effective by the Securities and Exchange Commission
by August 24, 1999 and, in accordance with the indenture pursuant to which the
10 1/4% notes were issued, the annual interest rate on the 10 1/4% notes
increased by 1/2% to 10 3/4% and will remain at 10 3/4% until the registration
statement is declared effective.
Scheduled maturities of the term loans under the new credit facility are
$1.6 million during the remainder of 1999, representing one quarterly
installment, increasing annually through 2006 with a final payment in 2007. Any
revolving loans will be due in full in 2005. The borrowers are also required to
make mandatory annual prepayments in an amount, if any, initially equal to 75%
of excess cash flow as defined in the new credit agreement. The borrowers
currently expect that a prepayment will be required to be made in the second
quarter of 2000 in respect of the year ending January 2, 2000, the amount of
which is currently estimated at $34.0 million. The $1.6 million quarterly
installment referred to above would not be affected by the excess cash flow
prepayment, however, all subsequent quarterly installments would be reduced.
Pursuant to the new credit agreement, we can make voluntary prepayments of the
term loans. However, if we make such voluntary prepayments with respect to two
classes of the term loans, which have $124.4 million and $303.5 million
outstanding as of October 3, 1999, we will incur prepayment penalties of 2.0%
and 3.0% of the amounts prepaid through February 25, 2000, respectively, and
from February 26, 2000 through February 25, 2001 we will incur prepayment
penalties of 1.0% and 1.5% of the amounts prepaid, respectively.
Other Debt Agreements
We have $360.0 million principal amount, at maturity, of zero coupon
convertible subordinated debentures outstanding which mature in 2018 and do not
require any amortization of principal prior to 2018.
We have a note payable to a beverage co-packer in an outstanding principal
amount of $4.2 million as of October 3, 1999, of which $0.8 million is due
during the remainder of 1999.
Our scheduled maturities of long-term debt during the remainder of 1999 are
$2.8 million, including $1.6 million under the new term loans and $0.8 million
under the note payable to a beverage co-packer discussed above.
Debt Agreement Guarantees and Restrictions
Under our debt agreements substantially all of the assets, other than cash
and cash equivalents, of Snapple, Mistic, Stewart's, RC/Arby's, Royal Crown and
Arby's and their subsidiaries, are pledged as security. Our obligations relating
to the 10 1/4% notes are guaranteed by Snapple, Mistic, Stewart's and RC/Arby's
and all of their domestic subsidiaries, all of which effective February 25, 1999
are directly or indirectly wholly-owned by Triarc Consumer Products Group or
Triarc Beverage Holdings. These guarantees are full and unconditional, are on a
joint and several basis and are unsecured. Our obligations relating to the new
credit facility are guaranteed by Triarc Consumer Products Group, Triarc
Beverage Holdings and substantially all of the domestic subsidiaries of Snapple,
Mistic, Stewart's, RC/Arby's and Royal Crown. As collateral for the guarantees
under the new credit facility, all of the stock of Snapple, Mistic, Stewart's,
RC/Arby's and Royal Crown and all of their domestic subsidiaries and 65% of the
stock of each of their directly-owned foreign subsidiaries is pledged.
In connection with the propane partnership sale discussed above, National
Propane Corporation, the former managing general partner of National Propane
Partners and a subsidiary of ours, retained a 1% special limited partner
interest in National Propane, L.P. and agreed that while it remains a special
limited partner, National Propane Corporation would indemnify the purchaser of
substantially all of our 42.7% interest in the propane business for any payments
the purchaser makes, only after recourse to the assets of National Propane,
L.P., related to the purchaser's obligations under certain of the debt of
National Propane, L.P., aggregating approximately $138.0 million as of October
3, 1999, if National Propane, L.P. is unable to repay or refinance such debt.
Under the purchase agreement, both the purchaser and National Propane
Corporation may require National Propane L.P. to repurchase the 1% special
limited partner interest. We believe that it is unlikely that we will be called
upon to make any payments under this indemnity. In addition, Arby's remains
responsible for operating and capitalized lease payments assumed by the
purchaser in connection with the restaurants sale of approximately $117.0
million as of May 1997 when the Arby's restaurants were sold and $91.4 million
as of October 3, 1999, assuming the purchaser of the previously owned Arby's
restaurants has made all scheduled payments through such date. Further, Triarc
has guaranteed mortgage notes and equipment notes payable to FFCA Mortgage
Corporation assumed by the purchaser in connection with the restaurants sale of
$54.7 million as of May 1997 and $49.5 million as of October 3, 1999 assuming
the purchaser of the Arby's restaurants has made all scheduled repayments
through such date.
Our debt agreements contain various covenants which (1) require meeting
financial amount and ratio tests, (2) limit, among other matters, (a) the
incurrence of indebtedness, (b) the retirement of debt prior to maturity, with
exceptions, (c) investments, (d) asset dispositions and (e) affiliate
transactions other than in the normal course of business, and (3) restrict the
payment of dividends to Triarc. Under the most restrictive of these covenants,
the borrowers would not be able to pay any dividends to Triarc other than the
one-time distributions, including dividends, paid to Triarc in connection with
the 1999 refinancing transactions. The one-time permitted distributions, which
were paid to Triarc from the net proceeds of the refinancing transactions as
well as from the borrowers' existing cash and cash equivalents, consisted of
$91.4 million paid on February 25, 1999 and $124.1 million paid on March 30,
1999 following the redemption of the RC/Arby's 9 3/4% senior notes.
Capital Expenditures
Capital expenditures amounted to $12.9 million during the nine months ended
October 3, 1999, including $7.0 million of capitalized improvements to an
airplane leased from Triangle Aircraft Services Corporation, a company owned by
the our Chairman and Chief Executive Officer and President and Chief Operating
Officer, which capitalized improvements were made pursuant to such lease for the
airplane. We expect that capital expenditures will approximate $31.0 million
during the remainder of 1999 for which there were $1.0 million of outstanding
commitments as of October 3, 1999. Our planned capital expenditures are
principally for the purchase of the airplane we presently lease from Triangle
Aircraft Services for $27.2 million. In connection with such purchase, Triangle
Aircraft Services has agreed to refund to us $1.2 million representing the
unamortized portion of the payment made by us in 1997 relating to the airplane
in connection with an option for a five-year extension of such aircraft lease.
The purchase price was negotiated on our behalf by the Chairman of the Audit
Committee of the Board of Directors and approved by the Audit Committee and the
Board of Directors. In connection with the purchase of the airplane, annual
depreciation and amortization will increase by $0.5 million, annual rental
expense under the lease with Triangle Aircraft Services is expected to be
reduced by $3.0 million and investment income will decrease by approximately
$1.4 million with a resulting increase in income from continuing operations
before income taxes of $1.1 million.
Acquisitions
In February 1999 we acquired Millrose and Mid-State for $17.5 million as
discussed above. To further our growth strategy, we will consider additional
selective business acquisitions, as appropriate, to grow strategically and
explore other alternatives to the extent we have available resources to do so.
Income Taxes
Our Federal income tax returns have been examined by the Internal Revenue
Service for the tax years from 1989 through 1992. We have resolved all issues
with the Internal Revenue Service regarding such audit. In connection therewith,
we paid $5.3 million during 1997, $8.5 million during 1998 and have agreed to
make net payments of approximately $1.2 million in the fourth quarter of 1999,
each including interest. The Internal Revenue Service is examining our Federal
income tax returns for the tax year ended April 30, 1993 and transition period
ended December 31, 1993. In connection with this more recent examination, we
have received to date net favorable notices of proposed adjustments in the
amount of $7.5 million, which if finalized as proposed, would increase our net
operating loss carryforwards. We expect to receive additional proposed
adjustments with respect to this audit during the fourth quarter of 1999, the
nature and amount of which are not presently known. Accordingly, we do not
expect to make or receive any payments related to this more recent examination
during the remainder of 1999.
Withdrawal of Going-Private Proposal
On October 12, 1998, we announced that our Board of Directors had formed a
Special Committee to evaluate a proposal we had received from our Chairman and
Chief Executive Officer and President and Chief Operating Officer for the
acquisition by an entity to be formed by them of all of the outstanding shares
of our common stock, other than approximately 6,000,000 shares owned by an
affiliate of theirs, for $18.00 per share payable in cash and securities. On
March 10, 1999, we announced that we had been advised by our Chairman and Chief
Executive Officer and President and Chief Operating Officer that they had
withdrawn the proposal.
Treasury Stock Purchases
On April 27, 1999, we repurchased 3,805,015 shares of our Class A common
stock for $18.25 per share in connection with a tender offer for a total cost of
$69.4 million, plus fees and expenses of $0.6 million.
On April 29, 1999, we announced that our management has been authorized,
when and if market conditions warrant and to the extent legally permissible, to
repurchase up to $30.0 million of our Class A common stock. This authorization
will terminate in May 2000. Through October 3, 1999, we have repurchased 295,332
shares under this program at a cost of $6.2 million. We cannot assure you that
we will make any or all of the remaining $23.8 million of repurchases authorized
under this program.
On August 19, 1999 we entered into a contract to repurchase in three
separate transactions the 5,997,622 shares of our Class B common stock held by
affiliates of Victor Posner, our former Chairman and Chief Executive Officer,
for $127.0 million. On August 19, 1999 we completed the purchase of 1,999,208
shares of Class B common stock for $40.9 million at a price of $20.44 per share,
which was the fair market value of our Class A common stock at the time this
contract was negotiated. Pursuant to the contract, the second and third
purchases of $42.3 million and $43.8 million, respectively, for 1,999,207 shares
each at negotiated fixed prices of $21.18 and $21.93 per share, are expected to
occur on or before August 19, 2000 and 2001, respectively. We have recorded the
total $86.2 million obligation for the second and third purchases as "Forward
purchase obligation for common stock" with an equal offsetting reduction to
stockholders' deficit classified as "Common stock to be acquired" in the
accompanying condensed consolidated balance sheet as of October 3, 1999.
Cash Requirements
As of October 3, 1999, our consolidated cash requirements for the remainder
of 1999, exclusive of operating cash flow requirements, consist principally of
(1) capital expenditures of approximately $31.0 million, including $27.2 million
for the purchase of the airplane leased from an affiliate, (2) additional
repurchases, if any, of our Class A common stock for treasury of up to $23.8
million under the repurchase program announced April 29, 1999, (3) debt
principal repayments aggregating $2.8 million, (4) a net Federal income tax
payment, including interest, of approximately $1.2 million in connection with
finalizing the income tax audit for the tax years 1989 through 1992 and (5) the
cost of additional business acquisitions, if any. We anticipate meeting all of
these requirements through (1) existing cash and cash equivalents and short-term
investments, aggregating $278.5 million, net of $13.0 million of obligations for
short-term investments sold but not yet purchased included in "Accrued expenses"
in the accompanying condensed consolidated balance sheet as of October 3, 1999,
(2) cash flows from operations and/or (3) the $59.9 million of availability as
of October 3, 1999 under Triarc Consumer Products' $60.0 million revolving
credit facility.
Triarc
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon its (1) cash and cash equivalents and short-term
investments, aggregating $211.1 million, net of $13.0 million of obligations for
short-term investments sold but not yet purchased, as of October 3, 1999, (2)
investment income on its cash equivalents and short-term investments and (3)
cash flows from its subsidiaries including (a) loans, distributions and
dividends (see limitations below), (b) reimbursement by certain subsidiaries to
Triarc in connection with the providing of certain management services and (c)
payments under tax-sharing agreements with certain subsidiaries.
As of October 3, 1999 Triarc's principal subsidiaries are unable to pay any
dividends or make any loans or advances to Triarc under the terms of their
indentures and credit arrangements.
Triarc had indebtedness to consolidated subsidiaries of $30.0 million as of
October 3, 1999 under a demand note payable to National Propane Corporation
which, as amended July 20, 1999, bears interest payable in cash at 5 1/4% from
July 20, 1999 through December 31,1999 and at the specified minimum interest
rate under the Internal Revenue Code for each semi-annual interest period
thereafter. Prior to July 20, 1999 the interest rate on the demand note was 13
1/2%. While this note requires the payment of interest in cash, Triarc currently
expects to receive dividends from National Propane Corporation equal to the cash
interest. The note requires no principal payments during the remainder of 1999,
assuming no demand is made thereunder, and none is anticipated. Triarc also has
other indebtedness principally under the zero coupon convertible debentures
described above which requires no amortization of principal during the remainder
of 1999. As previously discussed, Triarc prepaid $14.9 million of the 13 1/2%
note payable to National Propane, L.P. and the remaining balance was forgiven in
connection with the sale of National Propane Partners on July 19, 1999.
Triarc's principal cash requirements for the remainder of 1999 are (1)
capital expenditures of approximately $28.2 million, including $27.2 million for
the purchase of the airplane currently leased from an affiliate, (2) additional
repurchases of our Class A common stock for treasury of up to $23.8 million
under the repurchase program announced April 29, 1999, (3) payments of general
corporate expenses, (4) a net Federal income tax payment, including interest, of
approximately $1.2 million in connection with finalizing the income tax audit
for the tax years 1989 through 1992 and (5) the cost of business acquisitions,
if any. Triarc expects to be able to meet all of these cash requirements through
(1) existing cash and cash equivalents and short-term investments, (2)
investment income and (3) receipts from its subsidiaries under management
services and tax sharing agreements.
Legal and Environmental Matters
We are involved in litigation, claims and environmental matters incidental
to our businesses. We have reserves for legal and environmental matters of
approximately $1.8 million as of October 3, 1999. Although the outcome of these
matters cannot be predicted with certainty and some of these matters may be
disposed of unfavorably to us, based on currently available information and
given our reserves, we do not believe that these legal and environmental matters
will have a material adverse effect on our consolidated financial position or
results of operations.
Year 2000
We have undertaken a study of our functional application systems to
determine their compliance with year 2000 issues and, to the extent of
noncompliance, the required remediation. Our study consisted of an eight-step
methodology to:
(1) obtain an awareness of the issues;
(2) perform an inventory of our software and hardware systems;
(3) identify our systems and computer programs with year 2000 exposure;
(4) assess the impact on our operations by each mission
critical application;
(5) consider solution alternatives;
(6) initiate remediation;
(7) perform validation and confirmation testing and
(8) implement.
Through October 3, 1999, we had completed all eight steps in our restaurant
segment and, in our beverage segments, we had completed steps one through six
and expect to complete step seven and the final implementation before January 1,
2000. Step seven requires that we develop testing and review methodology on a
risk prioritization basis and implement such protocols to test year 2000
compliance of both internal software and hardware systems. Step eight requires
that we implement needed corrections to existing and/or new hardware and
software applications to cause systems to become and remain year 2000 compliant.
This study addressed both information technology and non-information
technology systems, including imbedded technology such as micro controllers in
our telephone systems, production processes and delivery systems. Some
significant systems in our soft drink concentrate segment, principally Royal
Crown's order processing, inventory control and production scheduling system,
required remediation which was completed in the first quarter of 1999.
As a result of this study and subsequent remediation, we have no reason to
believe that any of our mission critical systems are not year 2000 compliant.
Accordingly, we do not currently anticipate that internal systems failures will
result in any material adverse effect to our operations. However, should the
final testing and implementation steps reveal any year 2000 compliance problems
which cannot be corrected before January 1, 2000, the most reasonably likely
worst-case scenario is that we might experience a delay in production and/or
fulfilling and processing orders resulting in either lost sales or delayed cash
receipts, although we do not believe that this delay would be material. In this
case, our contingency plan would be to revert to a manual system in order to
perform the required functions. Due to the limited number of orders received by
Royal Crown on a daily basis, this contingency plan would not cause any
significant disruption of business. As of October 3, 1999, we had incurred $1.3
million of costs in order to become year 2000 compliant, including computer
software and hardware costs, and the current estimated cost to complete this
remediation during the remainder of 1999 is not more than $0.7 million. These
costs incurred through January 3, 1999 were expensed as incurred, except for the
direct purchase costs of software and hardware, which were capitalized. The
software-related costs incurred on or after January 4, 1999 are being
capitalized in accordance with the provisions of Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", of the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, which we adopted in the first quarter
of 1999.
An assessment of the readiness of year 2000 compliance of third party
entities with which we have relationships, such as our suppliers, banking
institutions, customers, payroll processors and others is ongoing. We have
inquired, or are in the process of inquiring, of the significant aforementioned
third parties about their readiness relating to year 2000 compliance and to date
have received indications that many of them are in the process of remediation
and/or will be year 2000 compliant. We are, however, subject to risks relating
to these third parties' potential year 2000 non-compliance. We believe that
these risks are primarily associated with our banks and major suppliers,
including our beverage co-packers and bottlers and the food suppliers and
distributors to our restaurant franchisees. At present, we cannot determine the
impact on our results of operations in the event of year 2000 non-compliance by
these third parties. In the most reasonably likely worst-case scenario, the year
2000 non-compliance might result in a disruption of business and loss of
revenues, including the effects of any lost customers, in any or all of our
business segments. The most reasonably likely worst-case scenario from failure
of systems of our suppliers is an inability to order and receive delivery of
needed raw materials, packaging and/or other production supplies which would
result in an inability to meet orders causing lost sales. The most likely
worst-case scenario from failure of systems of our banks would be an inability
to transact normal banking business such as deposits of collections, clearing
cash disbursements and borrowing needed revolving loan funds or investing excess
funds.
We determined that the possible failure of these third party systems
represents the most significant risk to our ability to operate our businesses in
the normal course as we could not manufacture our products without the ability
to order and receive materials when and where we need them and as we could not
manage our monetary responsibilities without the ability to interact with the
banking system.
We will continue to monitor these third parties to determine the impact on
our businesses and the actions we must take, if any, in the event of
non-compliance by any of these third parties. Our contingency plans presently
include the build-up of our beverage inventories just before the year 2000 in
order to mitigate the effects of temporary supply disruptions. We believe there
are multiple vendors of the goods and services we receive from our suppliers and
thus the risk of non-compliance with year 2000 by any of our suppliers is
mitigated by this factor. Also, no single customer accounts for more than 3% of
our consolidated revenues, thus mitigating the adverse risk to our business if
some customers are not year 2000 compliant.
We have engaged consultants to advise us regarding the compliance efforts
of each of our operating businesses. The consultants are assisting us in
completing inventories of critical applications and in completing formal
documentation of year 2000 compliance of hardware and software as well as
mission critical customers, vendors and service providers. The costs of the
project and the date on which we believe we will complete the year 2000
modifications are based on management's best estimates, which were derived using
numerous assumptions of future events. However, we cannot assure you that these
estimates will be achieved and actual results could differ materially from those
anticipated.
Recently Issued Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." Statement of Financial Accounting Standards No. 133
provides a comprehensive standard for the recognition and measurement of
derivatives and hedging activities. The standard requires all derivatives be
recorded on the balance sheet at fair value and establishes special accounting
for three types of hedges. The accounting treatment for each of these three
types of hedges is unique but results in including the offsetting changes in
fair values or cash flows of both the hedge and hedged item in results of
operations in the same period. Changes in fair value of derivatives that do not
meet the criteria of one of the aforementioned categories of hedges are included
in results of operations. Statement of Financial Accounting Standards No. 133 is
effective for our fiscal year beginning January 1, 2001, as amended by Statement
of Financial Accounting Standards No. 137 which defers the effective date. We
believe our more significant derivatives are the conversion component of our
short-term investments in convertible bonds, securities sold and not yet
purchased, put and call options on stocks and bonds, and an interest rate cap
agreement on certain of our long-term debt. We historically have not had
transactions to which hedge accounting applied and, accordingly, the more
restrictive criteria for hedge accounting in Statement of Financial Accounting
Standards No. 133 should have no effect on our consolidated financial position
or results of operations. However, the provisions of Statement of Financial
Accounting Standards No. 133 are complex and we are just beginning our
evaluation of the implementation requirements of Statement of Financial
Accounting Standards No. 133 and, accordingly, are unable to determine at this
time the impact it will have on our consolidated financial position and results
of operations.
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes, changes in the
market value of our investments and foreign currency fluctuations.
Policies and procedures -- In the normal course of business, we employ
established policies and procedures to manage our exposure to changes in
interest rates, changes in the market value of our investments and fluctuations
in the value of foreign currencies using financial instruments we deem
applicable.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows. To achieve
our objectives, we assess the relative proportions of our debt under fixed
versus variable rates. We generally use purchased interest rate caps on a
portion of our variable-rate debt to limit our exposure to increases in
short-term interest rates. These cap agreements usually are at significantly
higher than market interest rates prevailing at the time the cap agreements are
entered into and are intended to protect against very significant increases in
short-term interest rates. As of October 3, 1999 we had one interest rate cap
agreement relating to interest on one-half of our variable-rate term loans under
our current $535.0 million senior bank credit facility which provides for a cap
which was approximately 2% higher than the interest rate at such date. In
addition to our variable and fixed-rate debt, our investment portfolio includes
debt securities that are subject to medium-term and long-term interest rate risk
reflecting the portfolio's maturities between one and nineteen years. We are
also invested in certain hedge funds which invest primarily in short-term debt
securities, option contracts on government debt securities as well as interest
rate swaps. The fair market value of such investments in debt securities will
decline in value if interest rates increase. With respect to our investments in
certain hedge funds, the fair market value of such investments should not
decline in value if interest rates increase assuming there is a perfect hedge;
however, if the hedge is other than perfect such investments may decline in
value if interest rates increase.
Equity Market Risk
Our objective in managing our exposure to changes in the market value of
our investments is also to balance the risk of the impact of such changes on
earnings and cash flows with our expectations for long-term investment returns.
Our primary exposure to equity price risk relates to our investments in equity
securities, equity derivatives, securities sold but not yet purchased and
investment limited partnerships. We have established policies and procedures
governing the type and relative magnitude of investments which we can make. We
have a management investment committee whose duty is to oversee our continuing
compliance with the restrictions embodied in its policies.
Foreign Currency Risk
Our objective in managing exposure to foreign currency fluctuations is
also to limit the impact of such fluctuations on earnings and cash flows. Our
primary exposure to foreign currency risk relates to our investments in certain
investment limited partnerships that hold foreign securities, including those of
entities based in emerging market countries and other countries which experience
volatility in their capital and lending markets. To a more limited extent, we
have foreign currency exposure when our investment managers purchase or sell
foreign currencies in the forward markets or financial instruments denominated
in foreign currencies for our account. We monitor these exposures and
periodically determine our need for use of strategies intended to lessen or
limit our exposure to these fluctuations. We also have a relatively limited
amount of exposure to (1) export sales revenues and related receivables
denominated in foreign currencies and (2) investments in foreign subsidiaries
which are subject to foreign currency fluctuations. Our primary export sales
exposures relate to sales in Canada, the Caribbean and Europe. However, foreign
export sales and foreign operations for our most recent full fiscal year ended
January 3, 1999 represented only 5.7% of our revenues and an immediate 10%
change in foreign currency exchange rates versus the U.S. dollar from their
levels at January 3, 1999 would not have a material effect on our financial
condition or results of operations.
Overall Market Risk
With regard to overall market risk, we attempt to mitigate our exposure
to such risks by assessing the relative proportion of our investments in cash
and cash equivalents and the relatively stable and risk-minimized returns
available on such investments. We periodically interview asset managers to
ascertain the investment objectives of such managers and invest amounts with
selected managers in order to avail ourselves of higher but more risk-inherent
returns from the selected investment strategies of these managers. We seek to
identify alternative investment strategies also seeking higher returns with
attendant increased risk profiles for a small portion of our investment
portfolio. We periodically review the returns from each of our investments and
may maintain, liquidate or increase selected investments based on this review of
past returns and prospects for future returns.
We maintain investment portfolio holdings of various issuers, types and
maturities. As of October 3, 1999, such investments consist of the following (in
thousands):
Cash equivalents included in "Cash and cash equivalents"
on the accompanying condensed consolidated balance
sheet....................................................$ 156,853
Short-term investments....................................... 130,880
Non-current investments included in "Deferred costs and
other assets" on the accompanying condensed
consolidated balance sheet............................... 12,497
-----------
$ 300,230
===========
Such investments are classified in the following general types or
categories:
<TABLE>
<CAPTION>
Investment at
Investment Fair Value or Carrying
Type at Cost Equity Value Percentage
---- ------- ------ ----- ----------
(In thousands)
<S> <C> <C> <C> <C>
Cash equivalents ..........................................$ 156,853 $ 156,853 $ 156,853 52.3%
Company-owned securities accounted for as:
Trading securities..................................... 19,639 19,360 19,360 6.5%
Available-for-sale securities.......................... 52,064 45,992 45,992 15.3%
Investments in investment limited partnerships accounted
for at:
Cost................................................... 42,130 42,287 42,130 14.0%
Equity................................................. 18,182 27,745 27,745 9.2%
Other non-current investments accounted for at:
Cost................................................... 2,650 2,650 2,650 0.9%
Equity................................................. 4,226 5,500 5,500 1.8%
----------- ----------- ----------- ----------
Total cash equivalents and long investment positions ......$ 295,744 $ 300,387 $ 300,230 100.0%
=========== =========== =========== ==========
Securities sold with an obligation for the Company
to purchase accounted for as trading securities.......$ (13,405) $ (13,008) $ (13,008) N/A
=========== =========== =========== ==========
</TABLE>
Our marketable securities are classified and accounted for either as
"available-for-sale" or "trading" and are reported at fair market value with the
related net unrealized gains or losses reported as a component of stockholders'
equity (net of income taxes) or included as a component of net income,
respectively. Investment limited partnerships and other non-current investments
in which we do not have significant influence over the investee are accounted
for at cost. Realized gains and losses on investment limited partnerships and
other non-current investments recorded at cost are reported as investment income
or loss in the period in which the securities are sold. We review such
investments carried at cost and in which we have unrealized losses for any
unrealized losses deemed to be other than temporary. We recognize an investment
loss currently for any such other than temporary losses. Investment limited
partnership and other non-current investments in which we have significant
influence over the investee are accounted for in accordance with the equity
method of accounting under which our results of operations include our share of
the income or loss of such investees and, with respect to investment limited
partnerships, our share of unrealized gains or losses on "available-for-sale"
investments.
Sensitivity Analysis
For purposes of this disclosure, market risk sensitive instruments are
divided into two categories: instruments entered into for trading purposes and
instruments entered into for purposes other than trading. Our measure of market
risk exposure represents an estimate of the potential change in fair value of
our financial instruments. Market risk exposure is presented for each class of
financial instruments held by us at October 3, 1999 for which an immediate
adverse market movement represents a potential material impact on our financial
position or results of operations. We believe that the rates of adverse market
movements described below represent the hypothetical loss to future earnings and
do not represent the maximum possible loss nor any expected actual loss, even
under adverse conditions, because actual adverse fluctuations would likely
differ. In addition, since our investment portfolio is subject to change based
on our portfolio management strategy as well as in response to changes in market
conditions, these estimates are not necessarily indicative of the actual results
which may occur.
The following tables reflect the estimated effects on the market value of
our financial instruments as of October 3, 1999 based upon assumed immediate
adverse effects as noted below.
Trading Portfolio:
Carrying Equity
Value Price Risk
----- ----------
(In thousands)
Equity securities ...............................$ 14,729 $ (1,473)
Debt securities.................................. 4,631 (463)
Securities sold but not yet purchased............ (13,008) 1,301
The debt securities included in the trading portfolio are predominately
investments in convertible bonds which primarily trade on the conversion feature
of the securities rather than the stated interest rate, and as such, there is no
material interest rate risk since a change in interest rates of one percentage
point would not have a material impact on our financial position or results of
operations. The securities included in the trading portfolio do not include any
investments denominated in foreign currency and, accordingly, there is no
foreign currency risk.
The sensitivity analysis of financial instruments held for trading
purposes assumes an instantaneous 10% decrease in the equity markets in which we
invest from their levels at October 3, 1999, with all other variables held
constant. For purposes of this analysis, our debt securities, primarily
convertible bonds, were assumed to primarily trade based upon the conversion
feature of the securities and be perfectly correlated with the assumed equity
index.
Other Than Trading Portfolio:
<TABLE>
<CAPTION>
Carrying Interest Equity Foreign
Value Rate Risk Price Risk Currency Risk
----- --------- ---------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Cash equivalents ...................................$ 156,853 $ -- (a) $ -- $ --
Available-for-sale equity securities ............... 22,466 -- (2,247) --
Available-for-sale debt securities.................. 23,527 (2,588) -- --
Other investments................................... 78,025 (3,139) (4,468) (1,583)
Long-term debt...................................... 892,609 (4,717) -- --
</TABLE>
(a) Due to the short-term nature of the cash equivalents, a change in
interest rates of one percentage point would not have a material
impact on our financial position or results of operations.
The sensitivity analysis of financial instruments held for purposes other
than trading assumes an instantaneous increase in market interest rates of one
percentage point from their levels at October 3, 1999 and an instantaneous 10%
decrease in the equity markets in which we are invested from their levels at
October 3, 1999, both with all other variables held constant. The increase of
one percentage point with respect to our available-for-sale debt securities
represents an assumed average 11% decline as the weighted average interest rate
of such debt securities at October 3, 1999 approximated 9%. The change of one
percentage point with respect to our long-term debt represents an assumed
average 11% decline as the weighted average interest rate of our variable-rate
debt at October 3, 1999 approximated 9% and relates to only our variable-rate
debt since a change in interest rates would not affect interest expense on our
fixed-rate debt. The interest rate risk presented with respect to long-term debt
represents the potential impact the indicated change in interest rates would
have on our results of operations and not our financial position. The analysis
also assumes an instantaneous 10% change in the foreign currency exchange rates
versus the U.S. dollar from their levels at October 3, 1999, with all other
variables held constant. For purposes of this analysis, with respect to
investments in investment limited partnerships accounted for at cost, (1) the
investment mix for each such investment between equity versus debt securities
and domestic versus foreign securities was assumed to be unchanged since January
3, 1999 since more current information was not available and (2) the decrease in
the equity markets and the change in foreign currency were assumed to be other
than temporary. Further, this analysis assumed no market risk for investments
classified as other investments in the table above, except for investment
limited partnerships and other investments which currently trade in equity
markets.
On August 19, 1999 we entered into a contract to repurchase in three
separate transactions 5,997,622 shares of our Class B common stock at negotiated
fixed prices. On August 19, 1999 we completed the purchase of 1,999,208 shares
of the Class B common stock. Pursuant to the contract, the remaining two
purchases are expected to occur on or before August 19, 2000 and 2001,
respectively. At October 3, 1999 the aggregate $86,186,000 obligation related to
the second and third purchases has been recorded as a long-term liability with
an equal offsetting reduction to stockholders' deficit. Although these purchases
were negotiated at fixed prices, any decrease in the equity market in which our
stock is traded would have a negative impact on the fair value of the recorded
liability. However, that same decrease would have a corresponding positive
impact on the fair value of the offsetting amount included in stockholders'
deficit. Accordingly, since any change in the equity markets would have an
offsetting effect upon our financial position, no market risk has been assumed
for this financial instrument.
Part II. Other Information
This Quarterly Report on Form 10-Q contains or incorporates by
reference certain statements that are not historical facts, including, most
importantly, information concerning possible or assumed future results of
operations of Triarc Companies, Inc. and its subsidiaries (collectively,
"Triarc" or "the Company") and statements preceded by, followed by or that
include the words "may," "believes," "expects," "anticipates," or the negation
thereof, or similar expressions, which constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). All statements which address operating performance, events or
developments that are expected or anticipated to occur in the future, including
statements relating to volume and revenue growth, earnings per share growth or
statements expressing general optimism about future operating results, are
forward-looking statements within the meaning of the Reform Act. Such
forward-looking statements involve risks, uncertainties and other factors which
may cause the actual performance or achievements of the Company and its
subsidiaries to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. For those
statements, the Company claims the protection of the safe harbor for forward-
looking statements contained in the Reform Act. Many important factors could
affect the future results of the Company and could cause those results to differ
materially from those expressed in the forward-looking statements contained
herein. Such factors include, but are not limited to, the following:
competition, including product and pricing pressures; success of operating
initiatives; the ability to attract and retain customers; development and
operating costs; advertising and promotional efforts; brand awareness; the
existence or absence of adverse publicity; market acceptance of new product
offerings; new product and concept development by competitors; changing trends
in consumer tastes and demographic patterns; the success of multi-branding;
availability, location and terms of sites for restaurant development by
franchisees; the ability of franchisees to open new restaurants in accordance
with their development commitments, including the ability of franchisees to
finance restaurant development; the performance by material customers of their
obligations under their purchase agreements; changes in business strategy or
development plans; quality of management; availability, terms and deployment of
capital; business abilities and judgment of personnel; availability of qualified
personnel; labor and employee benefit costs; availability and cost of raw
materials, ingredients and supplies; unexpected costs associated with Year 2000
compliance or the business risk associated with Year 2000 non-compliance by
customers and/or suppliers; general economic, business and political conditions
in the countries and territories where the Company operates, including the
ability to form successful strategic business alliances with local participants;
changes in, or failure to comply with, government regulations, including
franchising laws, accounting standards, environmental laws and taxation
requirements; the costs, uncertainties and other effects of legal and
administrative proceedings; the impact of general economic conditions on
consumer spending; and other risks and uncertainties affecting the Company and
its subsidiaries detailed in other current and periodic filings by Triarc with
the Securities and Exchange Commission, all of which are difficult or impossible
to predict accurately and many of which are beyond the control of the Company.
The Company 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. Legal Proceedings
As reported in Triarc's Annual Report on Form 10-K for the year ended
January 3, 1999 (the "Form 10-K"), the Company and Nelson Peltz were parties to
two consolidated actions in the United States District Court for the Southern
District of New York involving three former court-appointed directors of the
Company's Board. By order dated February 10, 1999, the court granted Mr. Peltz's
motion for summary judgment with respect to all the claims against him asserted
in the actions. On September 29, 1999, the three former directors filed a notice
of appeal from the dismissal of their claims against Mr. Peltz. The appeal is
pending. On October 7, 1999, the parties filed a stipulation and proposed order
of voluntary dismissal of the remaining claims without prejudice.
As reported in the Form 10-K, a purported class and derivative action
is pending in the United States District Court for the Southern District of New
York against certain current and former directors of the Company, and naming the
Company as a nominal defendant, and a second action involving substantially the
same claims is pending in the Delaware Court of Chancery, New Castle County.
Both actions arise out of payment of certain compensation to Nelson Peltz and
Peter May in 1994-1997. On September 30, 1999, the court in the New York action
entered an order staying that case pending a resolution of the Delaware case.
On September 14, 1999, William Pallot filed a purported derivative
action against the directors of the Company and other defendants, and naming the
Company as a nominal defendant, in the Supreme Court of the State of New York,
New York County. The complaint alleges that the defendants breached their
fiduciary duties to the Company and aided and abetted breaches of fiduciary
duties by causing the Company to enter into an agreement (the "Stock Purchase
Agreement") to purchase shares of the Company's Class B common stock owned by
affiliates of Victor Posner. The complaint seeks, among other relief, damages in
an unspecified amount, a declaration that the Stock Purchase Agreement is void,
rescission of the Company's purchase of shares pursuant to the Stock Purchase
Agreement and an injunction against consummating additional purchases
thereunder, and removal of Messrs. Peltz and May as directors and officers of
the Company. On November 15, 1999, the director defendants and the Company filed
a motion to dismiss the complaint. That motion is pending.
As reported in the Form 10-K and the Form 10-Q for the fiscal quarter
ended July 4, 1999 (the "Form 10-Q"), on February 19, 1996, Arby's Restaurants
S.A. de C.V., the master franchisee of Arby's, Inc. ("Arby's") in Mexico,
commenced an action in the civil court of Mexico against Arby's. In May 1997,
the plaintiff commenced an action against Arby's in the United States District
Court for the Southern District of Florida. The parties agreed to settle all the
litigation, including the Mexican court case, and on December 4, 1998 entered
into an escrow agreement pursuant to which Arby's deposited $1.65 million in
escrow. The escrowed funds were released to the plaintiffs on October 7, 1999
when the parties executed a settlement agreement pursuant to which all
proceedings were dismissed with prejudice. Pursuant to the settlement agreement,
plaintiff will continue to be an Arby's franchisee and, among other things, will
be entitled to $150,000 in credits against future royalties and other fees as
well as the right to open four additional stores without paying initial
franchise fees.
As reported in the Form 10-K and the Form 10-Q, in October 1997, Mistic
Brands, Inc.("Mistic") commenced an action against Universal Beverages Inc.
("Universal"), a former Mistic co-packer, Leesburg Bottling & Production, Inc.
("Leesburg"), an affiliate of Universal, and Jonathan O. Moore ("Moore"), an
individual affiliated with Universal and Leesburg, in the Circuit Court for
Duval County, Florida and subsequently amended the action to add additional
defendants. In their answer, counterclaim and third party complaint, certain
defendants alleged various causes of action against Mistic, Snapple Beverage
Corp. ("Snapple") and Triarc Beverage Holdings Corp. ("TBHC"). In July 1999,
Mistic settled its claims against some defendants who had not asserted any
counterclaims against Mistic. In August 1999, Mistic and the remaining
defendants entered into a comprehensive settlement agreement which, among other
things, provides for a dismissal with prejudice of all claims against Mistic.
No payments by Mistic, Snapple or TBHC are required under the settlement
agreement.
Item 4. Submission of Matters to a Vote of Security-Holders
On September 23, 1999, Triarc held its Annual Meeting of Stockholders.
At the Annual Meeting, Nelson Peltz, Peter W. May, Hugh L. Carey, Clive Chajet,
Joseph A. Levato, David E. Schwab II, Jeffrey S. Silverman, Raymond S. Troubh
and Gerald Tsai, Jr. were elected to serve as Directors. At the Annual Meeting,
the stockholders also approved proposal 2, approving Triarc's 1999 Executive
Bonus Plan, and proposal 3, ratifying the appointment of Deloitte & Touche LLP
as Triarc's independent certified public accountants, and defeated proposal 4,
a proposal brought by a stockholder recommending that the Directors of Triarc
engage a New York Stock Exchange brokerage firm for the purpose of investigating
the sale of individual business segments of Triarc and/or the entire company.
The voting on the above matters is set forth below:
Nominee Votes For Votes Withheld
Nelson Peltz 17,642,207 480,899
Peter W. May 17,642,679 480,427
Hugh L. Carey 17,636,209 486,897
Clive Chajet 17,653,446 469,660
Joseph A. Levato 17,647,950 475,156
David E. Schwab II 17,649,168 473,938
Jeffrey S. Silverman 17,654,875 468,235
Raymond S. Troubh 17,616,944 506,162
Gerald Tsai, Jr. 17,641,746 481,360
Proposal 2 - There were 11,307,005 votes for, 1,597,329 votes against,
536,730 abstentions and 4,682,042 broker non-votes.
Proposal 3 - There were 17,964,253 votes for, 122,839 votes against and 36,014
abstentions.
Proposal 4 - There were 1,720,268 votes for, 11,347,474 votes against,
373,323 abstentions and 4,682,041 broker non-votes.
Shortly before the Annual Meeting, Triarc became aware of certain
malfunctions by the telephone voting system set up by Triarc's transfer agent
for record holders in connection with the voting for directors and proposal 4 at
the Annual Meeting. As a result of such malfunctions, all of the shares that
were voted using the telephone voting system during the relevant periods
(approximately 50,000 shares with respect to the election of directors and
20,000 shares with respect to proposal 4) were deemed by the Company to have
been withheld from each of the nominees for the board of directors and voted for
proposal 4 and are reflected as such in the voting results set forth above.
Item 5. Other Information
Acquisition of Airplane
On November 18, 1999, the Company agreed to purchase from Triangle
Aircraft Services Corporation ("TASCO"), a corporation owned by the Chairman and
Chief Executive Officer and President and Chief Operating Officer of the
Corporation, the airplane that the Corporation currently leases from TASCO for
$27.2 million. In connection with such purchase, TASCO has agreed to refund to
the Company $1.2 million, representing the unamortized portion of the payment
relating to the airplane that the Company made to TASCO in 1997 in connection
with the extension of such lease. The purchase price was negotiated on behalf of
the Company by the Chairman of the Audit Committee of the Board of Directors and
was approved by the Audit Committee and the Board of Directors.
Stock Repurchase Program
On April 29, 1999, Triarc announced that its management has been
authorized, when and if market conditions warrant and to the extent legally
permissible, to purchase over the twelve month period commencing on May 7, 1999,
up to $30 million worth of Triarc's Class A Common Stock. Through November 9,
1999, Triarc repurchased 295,334 shares, at an average cost of $20.96 per share
(including commissions), pursuant to this stock repurchase program (for an
aggregate cost of approximately $6.2 million). There can be no assurance that
Triarc will repurchase any additional shares pursuant to this stock repurchase
program.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 - Supplemental Indenture, dated as of February 26, 1999, among
Triarc Consumer Products Group, LLC ("TCPG"), Triarc Beverage
Holdings Corp. ("TBHC"), Millrose Distributors, Inc. and The
Bank of New York, as trustee, incorporated herein by reference
to Exhibit 4.6 to TCPG's and THBC's Amendment No. 2 to
Registration Statement on Form S-4 dated October 1, 1999 (SEC
registration no. 333-78625).
4.2 - Supplemental Indenture No. 2, dated as of September 8, 1999
among TCPG, TBHC, the subsidiary guarantors party thereto and
The Bank of New York, as trustee, incorporated herein by
reference to Exhibit 4.7 to TCPG's and TBHC's Amendment No. 2
to Registration Statement on Form S-4 dated October 1, 1999
(SEC registration no. 333-78625).
10.1 - Amended and Restated Stock Purchase Agreement dated August 19,
1999 by and among Triarc, Victor Posner Trust No. 6 and
Security Management Corp., incorporated herein by reference
to Exhibit 10.1 to Triarc's Current Report on Form 8-K dated
August 19, 1999 (SEC file no. 1-2207).
10.2 - 1999 Executive Bonus Plan, incorporated herein by reference to
Exhibit A to Triarc's 1999 Proxy Statement
(SEC file no. 1-2207).
27.1 - Financial Data Schedule for the nine-month period ended
October 3, 1999 (and for the fiscal nine-month period ended
September 27, 1998 on a restated basis), submitted to the
Securities and Exchange Commission in electronic format.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on August 19, 1999 which
included information under Items 5 and 7 of such form.
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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)
Date: November 22, 1999 By: /S/ JOHN L. BARNES, JR.
----------------------------
John L. Barnes, Jr.
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
By: /S/ FRED H. SCHAEFER
---------------------------
Fred H. Schaefer
Vice President and
Chief Accounting Officer
(Principal accounting officer)
<PAGE>
Exhibit Index
Exhibit
No. Description Page No.
4.1 - Supplemental Indenture, dated as of February 26, 1999,
among Triarc Consumer Products Group, LLC ("TCPG"),
Triarc Beverage Holdings Corp. ("TBHC"), Millrose
Distributors, Inc. and The Bank of New York, as trustee,
incorporated herein by reference to Exhibit 4.6 to TCPG's
and THBC's Amendment No. 2 to Registration Statement on
Form S-4 dated October 1, 1999 (SEC registration no.
333-78625).
4.2 - Supplemental Indenture No. 2, dated as of September 8,
1999 among TCPG, TBHC, the subsidiary guarantors party
thereto and The Bank of New York, as trustee, incorporated
herein by reference to Exhibit 4.7 to TCPG's and TBHC's
Amendment No. 2 to Registration Statement on Form S-4
dated October 1, 1999 (SEC registration no. 333-78625).
10.1 - Amended and Restated Stock Purchase Agreement dated August
19, 1999 by and among Triarc, Victor Posner Trust No. 6
and Security Management Corp., incorporated herein by
reference to Exhibit 10.1 to Triarc's Current Report on
Form 8-K dated August 19, 1999 (SEC file no. 1-2207).
10.2 - 1999 Executive Bonus Plan, incorporated herein by reference
to Exhibit A to Triarc's 1999 Proxy Statement (SEC file no.
1-2207).
27.1 - Financial Data Schedule for the nine-month period ended
October 3, 1999 (and for the fiscal nine-month period ended
September 27, 1998 on a restated basis), submitted to the
Securities and Exchange Commission in electronic format.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE ACCOMPANYING FORM
10-Q OF TRIARC COMPANIES, INC. FOR THE NINE-MONTH PERIOD ENDED OCTOBER 3, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000030697
<NAME> TRIARC COMPANIES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> OCT-03-1999
<EXCHANGE-RATE> 1
<CASH> 160,612
<SECURITIES> 130,880
<RECEIVABLES> 106,921
<ALLOWANCES> 0
<INVENTORY> 67,326
<CURRENT-ASSETS> 496,011
<PP&E> 36,812
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,123,973
<CURRENT-LIABILITIES> 245,903
<BONDS> 846,739
0
0
<COMMON> 3,555
<OTHER-SE> (180,890)
<TOTAL-LIABILITY-AND-EQUITY> 1,123,973
<SALES> 619,630
<TOTAL-REVENUES> 679,728
<CGS> 329,740
<TOTAL-COSTS> 329,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,112
<INTEREST-EXPENSE> 64,030
<INCOME-PRETAX> 20,748
<INCOME-TAX> (14,108)
<INCOME-CONTINUING> 6,640
<DISCONTINUED> 10,578
<EXTRAORDINARY> (12,097)
<CHANGES> 0
<NET-INCOME> 5,121
<EPS-BASIC> .19
<EPS-DILUTED> .18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY INCOME STATEMENT INFORMATION FOR THE
NINE MONTHS ENDED SEPTEMBER 27, 1998 EXTRACTED FROM THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS INCLUDED IN THE ACCOMPANYING FORM 10-Q OF TRIARC COMPANIES,
INC. FOR THE NINE-MONTH PERIOD ENDED OCTOBER 3, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<CIK> 0000030697
<NAME> TRIARC COMPANIES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 594,439
<TOTAL-REVENUES> 651,975
<CGS> 316,364
<TOTAL-COSTS> 316,364
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,399
<INTEREST-EXPENSE> 49,873
<INCOME-PRETAX> 29,148
<INCOME-TAX> (14,853)
<INCOME-CONTINUING> 14,295
<DISCONTINUED> 221
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,516
<EPS-BASIC> .47
<EPS-DILUTED> .45
</TABLE>
