--------------------------------------------------------------------------------
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 1, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to_________________
Commission file number: 1-2207
------
TRIARC COMPANIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 38-0471180
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue, New York, New York 10017
----------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 451-3000
--------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(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 20,305,170 shares of the registrant's Class A Common
Stock and 1,999,207 shares of the registrant's Class B Common Stock outstanding
as of October 31, 2000.
--------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 2, October 1,
2000 (A) 2000
-------- ----
(In thousands)
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................$ 127,843 $ 112,184
Short-term investments................................................................ 151,634 97,364
Receivables........................................................................... 11,584 9,667
Deferred income tax benefit .......................................................... 6,070 8,871
Prepaid expenses ..................................................................... 646 583
Net current assets of discontinued operations......................................... 14,537 49,424
------------ ------------
Total current assets................................................................ 312,314 278,093
Investments............................................................................... 14,155 14,351
Properties................................................................................ 13,587 39,384
Unamortized costs in excess of net assets of acquired companies........................... 19,606 18,974
Trademarks................................................................................ 6,372 5,957
Deferred costs and other assets........................................................... 12,390 14,758
------------ ------------
$ 378,424 $ 371,517
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt.....................................................$ 2,554 $ 2,606
Accounts payable...................................................................... 3,284 3,054
Accrued expenses...................................................................... 66,077 55,600
----------- ------------
Total current liabilities........................................................... 71,915 61,260
Long-term debt............................................................................ 3,792 18,205
Net non-current liabilities of discontinued operations.................................... 337,794 338,619
Deferred income taxes..................................................................... 29,641 42,532
Deferred income and other liabilities..................................................... 15,822 20,496
Forward purchase obligation for common stock.............................................. 86,186 43,843
Stockholders' deficit:
Common stock.......................................................................... 3,555 3,555
Additional paid-in capital............................................................ 204,231 204,958
Accumulated deficit................................................................... (90,680) (80,002)
Treasury stock........................................................................ (202,625) (238,028)
Common stock to be acquired........................................................... (86,186) (43,843)
Accumulated other comprehensive income (deficit)...................................... 5,040 (78)
Unearned compensation................................................................. (61) --
------------ ------------
Total stockholders' deficit ........................................................ (166,726) (153,438)
------------ ------------
$ 378,424 $ 371,517
============ ============
(A) Derived from the audited consolidated financial statements as of January 2, 2000
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
------------------------- -------------------------
October 3, October 1, October 3, October 1,
1999 2000 1999 2000
---- ---- ---- ----
(In thousands except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Royalties, franchise fees and other revenues....................$ 20,891 $ 22,574 $ 59,092 $ 63,252
---------- ---------- ----------- ---------
Costs and expenses:
General and administrative.................................. 17,170 15,367 45,654 47,960
Depreciation and amortization............................... 1,341 1,352 3,782 4,066
---------- ---------- ----------- ----------
18,511 16,719 49,436 52,026
---------- ---------- ----------- ----------
Operating profit ......................................... 2,380 5,855 9,656 11,226
Interest expense................................................ (1,535) (521) (3,993) (1,764)
Investment income, net.......................................... 3,833 6,973 15,265 28,045
Gain on sale of business........................................ 1,009 -- 1,009 --
Other income, net............................................... 379 91 1,806 326
---------- ---------- ----------- ----------
Income from continuing operations before income
taxes.................................................. 6,066 12,398 23,743 37,833
Provision for income taxes...................................... (2,775) (4,749) (10,212) (15,383)
---------- ---------- ----------- ----------
Income from continuing operations......................... 3,291 7,649 13,531 22,450
Income (loss) from discontinued operations...................... 10,955 (4,281) 3,687 (11,772)
---------- ---------- ----------- ----------
Income before extraordinary charges....................... 14,246 3,368 17,218 10,678
Extraordinary charges........................................... -- -- (12,097) --
---------- ---------- ----------- ----------
Net income................................................$ 14,246 $ 3,368 $ 5,121 $ 10,678
========== ========== =========== ==========
Basic income (loss) per share:
Income from continuing operations.........................$ .13 $ .33 $ .51 $ .95
Income (loss) from discontinued operations................ .45 (.18) .13 (.50)
Extraordinary charges..................................... -- -- (.45) --
---------- ---------- ----------- ----------
Net income................................................$ .58 $ .15 $ .19 $ .45
========== ========== =========== ==========
Diluted income (loss) per share:
Income from continuing operations.........................$ .13 $ .31 $ .49 $ .90
Income (loss) from discontinued operations................ .42 (.17) .13 (.47)
Extraordinary charges..................................... -- -- (.44) --
---------- ---------- ----------- ----------
Net income................................................$ .55 $ .14 $ .18 $ .43
========== ========== =========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
-----------------------------
October 3, October 1,
1999 2000
---- ----
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from continuing operating activities:
Net income...............................................................................$ 5,121 $ 10,678
Adjustments to reconcile net income to net cash provided by (used in) continuing
operating activities:
Depreciation and amortization of properties......................................... 1,856 2,623
Amortization of costs in excess of net assets of acquired companies,
trademarks and certain other items ............................................... 1,926 1,443
Write-off of unamortized deferred financing costs and interest rate cap
agreement costs................................................................... 11,446 --
Deferred income tax provision....................................................... 6,705 15,383
Operating investing adjustments, net (see below).................................... 10,696 (10,129)
Capital structure reorganization related charges.................................... 1,997 293
(Income) loss from discontinued operations.......................................... (3,687) 11,772
Other, net.......................................................................... (1,087) 3,443
Changes in operating assets and liabilities:
Decrease in receivables........................................................... 150 1,654
Decrease in prepaid expenses...................................................... 733 63
Increase (decrease) in accounts payable and accrued expenses .................... (5.832) 2,516
------------ ---------
Net cash provided by continuing operating activities......................... 30,024 39,739
------------ ---------
Cash flows from continuing investing activities:
Investment activities, net (see below)................................................... (49,302) 45,614
Capital expenditures..................................................................... (7,432) (10,421)
Other.................................................................................... 329 1,400
------------ ---------
Net cash provided by (used in) continuing investing activities............... (56,405) 36,593
------------ ---------
Cash flows from continuing financing activities:
Repurchases of common stock for treasury................................................. (117,101) (42,373)
Repayments of long-term debt............................................................. (684) (3,535)
Proceeds from stock option exercises .................................................... 6,252 6,218
------------ ---------
Net cash used in continuing financing activities............................ (111,533) (39,690)
------------ ---------
Net cash provided by (used in) continuing operations......................................... (137,914) 36,642
Net cash provided by (used in) discontinued operations....................................... 152,544 (52,301)
------------ ---------
Net increase (decrease) in cash and cash equivalents......................................... 14,630 (15,659)
Cash and cash equivalents at beginning of period............................................. 118,997 127,843
------------ ---------
Cash and cash equivalents at end of period...................................................$ 133,627 $ 112,184
============ =========
Supplemental disclosures of cash flow information:
Operating investing adjustments, net:
Proceeds from sales of trading securities, net of purchases.........................$ 15,320 $ 10,521
Net recognized (gains) losses from trading securities............................... (7,330) 3,302
Net recognized (gains) losses from transactions in other than trading securities,
including equity in investment limited partnerships, and short positions........ 2,706 (23,952)
------------ ---------
$ 10,696 $ (10,129)
============ =========
Investment activities, net:
Net proceeds from sales (cost of purchases) of available-for-sale securities and
other investments...............................................................$ (31,658) $ 51,026
Net payments to cover short positions in securities................................. (17,644) (5,412)
------------ ---------
$ (49,302) $ 45,614
============ =========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
October 1, 2000
(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 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 2, 2000 and
October 1, 2000, its results of operations for the three-month and nine-month
periods ended October 3, 1999 and October 1, 2000 and its cash flows for the
nine-month periods ended October 3, 1999 and October 1, 2000 (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 2, 2000. 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 1999 commenced on January 4, 1999 and ended on
October 3, 1999, with its third quarter commencing on July 5, 1999, and the
Company's first nine months of 2000 commenced on January 3, 2000 and ended on
October 1, 2000, with its third quarter commencing on July 3, 2000. For purposes
of these condensed consolidated financial statements, the periods (1) 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, and (2) from January 3, 2000 to October 1, 2000 and July 3,
2000 to October 1, 2000 are referred to below as the nine-month and three-month
periods ended October 1, 2000, respectively.
As discussed in more detail in Note 2, on October 25, 2000 the Company
completed the sale of its premium beverage and soft drink concentrate
businesses. Accordingly, the accompanying condensed consolidated financial
statements (1) as of and for the three and nine-month periods ended October 1,
2000 report the premium beverage and soft drink concentrate businesses as
discontinued operations and (2) for the three and nine-month periods ended
October 3, 1999 have been reclassified to report the premium beverage and soft
drink concentrate businesses as discontinued operations.
(2) Discontinued Operations
On October 25, 2000, the Company completed the sale (the "Snapple
Beverage Sale") of Snapple Beverage Group, Inc. ("Snapple Beverage Group" - the
Company's former premium beverage business ), the parent company of Snapple
Beverage Corp. ("Snapple"), Mistic Brands, Inc. ("Mistic") and Stewart's
Beverages, Inc. ("Stewart's"), and Royal Crown Company, Inc. ("Royal Crown" -
the Company's former soft drink concentrate business) to affiliates of Cadbury
Schweppes plc (the "Purchaser") for $901,250,000 in cash, subject to
post-closing adjustment, and the assumption of $425,112,000 of debt and related
accrued interest. The assumed debt and accrued interest consists of (1)
$300,000,000 of 10 1/4% senior subordinated notes due 2009 (the "Senior Notes")
co-issued by Triarc Consumer Products Group, LLC ("TCPG"), the parent company of
Snapple Beverage Group and Royal Crown and a subsidiary of Triarc, and Snapple
Beverage Group, (2) $119,130,000, net of unamortized original issue discount of
$240,870,000, of Triarc's zero coupon convertible subordinated debentures due
2018 (the "Debentures") and (3) $5,982,000 of accrued interest. Of the cash
proceeds, $426,594,000 was utilized to repay outstanding obligations under a
senior bank credit facility (the "Beverage Credit Facility") maintained by
Snapple, Mistic, Stewart's, Royal Crown and RC/Arby's Corporation, the parent
company of Royal Crown and a subsidiary of TCPG.
The Company's former premium beverage and soft drink concentrate
businesses have been accounted for as discontinued operations as of and for the
three and nine-month periods ended October 1, 2000 and the accompanying
condensed consolidated financial statements as of January 2, 2000 and for the
three and nine-month periods ended October 3, 1999 have been reclassified
accordingly. The Company's former propane business has also been reported as
discontinued operations through the July 19, 1999 sale of 41.7% of its then
remaining 42.7% interest in the propane business.
The income (loss) from discontinued operations consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- --------------------------
October 3, October 1, October 3, October 1,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) from operations of the
discontinued operations, net of
income taxes
Beverage businesses..................$ (107) $ (4,281) $ (6,891) $ (11,772)
Propane business..................... (203) -- (1,616) --
------------ ----------- ----------- ---------
(310) (4,281) (8,507) (11,772)
Gain on sale of propane business, net
of income taxes.......................... 11,265 -- 12,194 --
------------ ----------- ----------- ---------
$ 10,955 $ (4,281) $ 3,687 $ (11,772)
============ =========== =========== =========
</TABLE>
The income (loss) from operations of the discontinued operations consisted
of the following (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ---------------------------
October 3, October 1, October 3, October 1,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues...................................$ 229,820 $ 220,578 $ 620,636 $ 636,087
Operating profit........................... 28,415 20,867 55,797 55,936
Equity in losses of propane business....... (67) -- (2,559) --
Income (loss) before income taxes.......... 6,577 (534) (5,555) (9,724)
Provision for income taxes................. (6,887) (3,747) (2,952) (2,048)
Net loss................................... (310) (4,281) (8,507) (11,772)
</TABLE>
The Company's discontinued operations had a provision for income taxes
despite a loss before income taxes for the three months ended October 1, 2000
and for each of the nine months ended October 3, 1999 and October 1, 2000 and a
provision for income taxes in excess of the income before income taxes for the
three months ended October 3, 1999 principally due to (1) the amortization of
non-deductible unamortized costs in excess of net assets of acquired companies,
(2) the differing impact of the mix of pre-tax loss or income among the
consolidated entities since the Company files state income tax returns on an
individual company basis and (3) for the three-month periods ended October 3,
1999 and October 1, 2000 the effect thereon of catch-up adjustments of
year-to-date increases in the estimated full year effective tax rates due to
decreases in the then estimates of full year pre-tax income of the discontinued
operations.
Net current assets and net non-current liabilities of discontinued
operations consisted of the following (in thousands):
<TABLE>
<CAPTION>
January 2, October 1,
2000 2000
---- ----
<S> <C> <C>
Current assets (liabilities)
Cash......................................................................$ 34,040 $ 13,196
Receivables............................................................... 67,700 95,085
Inventories............................................................... 61,736 71,428
Other current assets...................................................... 18,795 19,624
Current portion of long-term debt......................................... (39,640) (32,032)
Accounts payable ......................................................... (55,183) (57,949)
Accrued expenses.......................................................... (69,748) (56,831)
Net current liabilities of previous discontinued operations............... (3,163) (3,097)
----------- -----------
$ 14,537 $ 49,424
=========== ===========
Non-current assets (liabilities):
Properties................................................................$ 22,811 $ 30,360
Unamortized costs in excess of net assets of acquired companies........... 242,060 233,808
Trademarks................................................................ 244,745 237,189
Other intangible assets................................................... 31,302 32,109
Deferred costs and other non-current assets............................... 39,059 35,027
Long-term debt............................................................ (847,067) (836,979)
Deferred income taxes..................................................... (61,670) (61,670)
Deferred income and other liabilities..................................... (9,034) (8,463)
----------- -----------
$ (337,794) $ (338,619)
=========== ===========
</TABLE>
As a result of the Snapple Beverage Sale, the Company expects to realize a
gain on the sale which will be recognized during the fiscal 2000 fourth quarter
ending December 31, 2000 ("fourth quarter of 2000") and included in "Income
(loss) from discontinued operations." Such gain is currently estimated to be
approximately $510,200,000, net of income tax provision of $271,400,000;
however, such estimate is preliminary, is subject to a purchase price
adjustment, if any, and is subject to finalization of estimates and account
balances as of the October 25, 2000 date of closing. In addition, the Company
will recognize an extraordinary charge during the fourth quarter of 2000 for the
early assumption or extinguishment, as applicable, of the Senior Notes, the
Debentures and the obligations under the Beverage Credit Facility. Such charge
is currently estimated to be approximately $20,940,000 consisting of (1) the
writeoff of previously unamortized deferred financing costs of $27,703,000 and
(2) the payment of prepayment penalties of $5,509,000, net of income tax benefit
of $12,272,000.
(3) Income Taxes
The Internal Revenue Service (the "IRS") has completed its examination of
the Company's Federal income tax returns for the fiscal year ended April 30,
1993 and transition period ended December 31, 1993. In connection therewith, the
Company's net operating loss carryforwards increased by $7,453,000 and the
Company was entitled to a refund of $2,753,000. The Company received $1,549,000
in July 2000 and offset the remaining $1,204,000 against amounts otherwise due
the IRS from audits of years ending prior to April 30, 1993. During 1999 the
Company had settled the final income tax liabilities resulting from the IRS
examination of the Company's income tax returns for the tax years from 1989
through 1992. However, the IRS has not yet finalized the computation of the
remaining interest due from the Company as a result of the audits of those
years. Management of the Company believes that adequate interest accruals have
been provided in prior periods for any further interest liabilities that may
result from the finalization of such computation.
(4) Stockholders' Equity
As a result of the Snapple Beverage Sale, and in addition to normal
recurring activity in the Company's stock option plans, the Company is no longer
responsible for all of the 149,284 outstanding Snapple Beverage Group stock
options. In addition, the Company cashed out 912,169 outstanding Triarc stock
options held by employees of Snapple Beverage Group and Royal Crown who chose to
surrender these options prior to the Snapple Beverage Sale in consideration for
an amount equal to the excess of $23.75 per option over the respective exercise
prices of the underlying stock option or an aggregate $6,159,000 of cash.
Further, Triarc agreed to pay cash compensation to certain of these individuals
in an amount per option surrendered by such individuals equal to the excess of
the average of the five highest closing prices of Triarc's common stock during
the 90-day period following the October 25, 2000 date of the Snapple Beverage
Sale over the $23.75 price used in the settlement.
(5) Comprehensive Income
The following is a summary of the components of comprehensive income, net
of income taxes (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------- --------------------------
October 3, October 1, October 3, October 1,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income .....................................................$ 14,246 $ 3,368 $ 5,121 $ 10,678
Unrealized appreciation (depreciation) of available-for-sale
securities.................................................. (4,979) 1,071 2,594 1,416
Reclassification adjustments for prior period
(appreciation) depreciation of securities sold during
the year...................................................... 99 (669) (434) (6,374)
Equity in the decrease in unrealized gain on retained
interest which is accounted for similarly to an
available-for-sale security................................... (10) (16) (23) (54)
Net change in currency translation adjustment.................... 88 3 (39) (106)
--------- ---------- ---------- ----------
Comprehensive income......................................$ 9,444 $ 3,757 $ 7,219 $ 5,560
========= ========== ========== ==========
</TABLE>
(6) Income Per Share
Basic income (loss) per share for the three and nine-month periods ended
October 3, 1999 and October 1, 2000 has been computed by dividing the income or
loss by the weighted average number of common shares outstanding of 24,588,000,
26,780,000, 22,867,000 and 23,542,000, respectively. For the three and
nine-month periods ended October 3, 1999 and October 1, 2000, diluted income
(loss) per share has been computed by dividing the income by an aggregate
25,662,000, 27,439,000, 24,292,000 and 24,841,000 shares, respectively. The
shares used for diluted income (loss) per share for the three and nine-month
periods ended October 3, 1999 and October 1, 2000 consist of the weighted
average number of common shares outstanding and potential common shares
reflecting (1) the 1,068,000, 657,000, 1,425,000 and 1,057,000 share effect for
the three and nine-month periods ended October 3, 1999 and October 1, 2000,
respectively, of dilutive stock options computed using the treasury stock method
and (2) the 6,000, 2,000 and 242,000 share effect for the three and nine-month
periods ended October 3, 1999 and the nine-month period ended October 1, 2000,
respectively, of a dilutive forward purchase obligation for common stock (the
"Forward Purchase Obligation") under which the Company repurchased 1,999,207
shares of its Class B common stock (the "Class B Shares") for $42,343,000 on
August 10, 2000 and must repurchase an additional 1,999,207 Class B Shares for
$43,843,000 on or before August 19, 2001. The shares for diluted income (loss)
per share exclude any effect of (1) the dilutive Forward Purchase Obligation for
the three-month period ended October 1, 2000 and (2) the assumed conversion of
the Company's convertible Debentures for all periods presented since the effect
of each of these on income from continuing operations would have been
antidilutive.
(7) Transactions with Related Parties
On January 19, 2000 the Company acquired 280 Holdings, LLC ("280
Holdings") for $27,210,000 consisting of cash of $9,210,000 and the assumption
of an $18,000,000 secured promissory note with a third-party commercial lender
payable over seven years. 280 Holdings was a subsidiary of Triangle Aircraft
Services Corporation ("TASCO"), a company owned by the Chairman and Chief
Executive Officer and President and Chief Operating Officer of the Company, that
at the time of such sale was the owner and lessor to the Company of an airplane
that had previously been leased from TASCO. The purchase price was based on
independent appraisals and was approved by the Audit Committee and the Board of
Directors. Prior thereto the Company leased the airplane and a helicopter from
TASCO or subsidiaries of TASCO under a dry lease for annual rent of $3,360,000
as of January 1, 1999. Pursuant to this dry lease, the Company paid the
operating expenses, including repairs and maintenance, of the aircraft directly
to third parties. In connection with such lease and the amortization over a
five-year period of a $2,500,000 payment made in 1997 to TASCO for (1) an option
to continue the lease for five years effective September 30, 1997 and (2) the
agreement by TASCO to replace the helicopter covered under the lease (the
"Option"), the Company had rent expense of $2,863,000 for the nine-month period
ended October 3, 1999. Effective October 1, 1999 the annual rent was increased
to $3,447,000, in connection with annual cost of living adjustments under the
lease, of which $3,078,000 was deemed to represent rent for the airplane and
$369,000 was deemed to represent rent for the helicopter. The Company continues
to lease the helicopter from a subsidiary of TASCO for the annual rent of
$369,000 as of January 19, 2000 increasing to $382,000 as of October 1, 2000 as
result of the annual cost of living adjustment and owns the airplane through its
ownership of 280 Holdings from whom Triarc continues to lease the airplane and
to whom it pays annual intercompany rent of $3,078,000 as of January 19, 2000
increasing to $3,186,000 as of October 1, 2000 as a result of the annual cost of
living adjustment. In connection with the lease of the airplane through January
19, 2000, the lease of the helicopter and amortization of the Option, the
Company had rent expense for the nine-month period ended October 1, 2000 of
$479,000 to TASCO and its subsidiaries. In addition, on January 19, 2000 TASCO
paid the Company $1,200,000 representing the portion of the $1,242,000
unamortized amount of the Option as of January 2, 2000 relating to the airplane
now owned by 280 Holdings.
(8) Legal and Environmental Matters
The Company is involved in stockholder litigation, other litigation,
claims and environmental matters incidental to its businesses. The Company has
reserves for such legal and environmental matters aggregating $2,148,000 of
which $402,000 is classified as a component of "Net current assets of
discontinued operations," as of October 1, 2000. 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.
(9) Subsequent Events
On November 3, 2000 the Company announced that its restaurant franchising
subsidiary, Arby's, Inc. ("Arby's") intends to offer approximately $290,000,000
of fixed rate insured securitization notes (the "Notes"), through a special
purpose financing vehicle, pursuant to Rule 144A of the Securities Act of 1933,
as amended. The Notes will be secured by Arby's franchise royalty payments. The
Company expects to receive net proceeds of approximately $248,000,000, which is
net of approximately $30,000,000 of proceeds to be held in a reserve account and
approximately $12,000,000 of estimated transaction fees and expenses. The
financing is expected to close by the end of the fourth quarter of 2000.
However, there can be no assurance that the Company will be able to consummate
this financing.
<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 the accompanying
condensed consolidated financial statements and "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 2, 2000 of Triarc
Companies, Inc. The recent trends affecting our restaurant franchising business
are described in Item 7 of our Form 10-K.
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.
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 fiscal 1999 commenced on January 4, 1999
and ended on October 3, 1999, with our third quarter commencing on July 5, 1999,
and our first nine months of fiscal 2000 commenced on January 3, 2000 and ended
on October 1, 2000, with our third quarter commencing on July 3, 2000. When we
refer to the "nine months ended October 3, 1999," or the "first nine months of
1999," and the "three months 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, respectively; and when we refer to the "nine months
ended October 1, 2000," or the "first nine months of 2000," and the "three
months ended October 1, 2000," or the "2000 third quarter," we mean the periods
from January 3, 2000 to October 1, 2000 and July 3, 2000 to October 1, 2000,
respectively.
As discussed in more detail in Note 2 to the accompanying condensed
consolidated financial statements and in "Liquidity and Capital Resources"
below, on October 25, 2000 we completed the sale, which we refer to as the
Snapple Beverage Sale, of Snapple Beverage Group, Inc., the parent company of
Snapple Beverage Corp., Mistic Brands, Inc. and Stewart's Beverages, Inc., and
Royal Crown Company, Inc. to affiliates of Cadbury Schweppes plc, referred to
herein as the Purchaser. Our former premium beverage business consisted of
Snapple Beverage Group and our former soft drink concentrate business consisted
of Royal Crown Company. Accordingly, the accompanying condensed consolidated
financial statements (1) as of and for the three and nine-month periods ended
October 1, 2000 report the premium beverage and soft drink concentrate
businesses as discontinued operations and (2) for the three and nine-month
periods ended October 3, 1999 have been reclassified to report the premium
beverage and soft drink concentrate businesses as discontinued operations.
Results of Operations
Nine Months Ended October 1, 2000 Compared with Nine Months Ended October 3,
1999
Royalties, Franchise Fees and Other Revenues
Our royalties, franchise fees and other revenues, which are generated
entirely from our restaurant franchising business, increased $4.2 million, or
7.0%, to $63.3 million for the nine months ended October 1, 2000 from $59.1
million for the nine months ended October 3, 1999. This increase reflects an
increase in royalty revenue of $4.2 million, or 7.3%, resulting from an average
net increase of 90, or 2.8%, franchised restaurants, a 1.6% increase in
same-store sales of franchised restaurants and an increase of 0.03%, or 0.9%, in
the average domestic royalty rate.
Our royalties, franchise fees and other revenues have no associated cost
of sales.
General and Administrative
Our general and administrative expenses increased $2.3 million, or 5.1%,
to $48.0 million for the nine months ended October 1, 2000 from $45.7 million
for the nine months ended October 3, 1999. The increase in general and
administrative expenses reflects (1) higher expenses of $1.7 million from $5.2
million in the first nine months of 1999 to $6.9 million in the first nine
months of 2000 related to the full period effect in 2000 compared with the
period from May 3 to October 3 in 1999 of new executive salary arrangements and
an executive bonus plan effective May 3, 1999, (2) increases of $2.6 million in
other compensation and related benefit costs, (3) provisions of $1.2 million in
the first nine months of 2000 for costs to support a change in distributors for
a majority of franchisees in our restaurant franchising business for food and
other products, (4) higher insurance costs of $0.7 million and (5) other
inflationary increases. These increases were partially offset by (1)
non-recurring 1999 expenses of $2.2 million related to our lease of an airplane
from Triangle Aircraft Services Corporation, a company owned by our Chairman and
Chief Executive Officer and President and Chief Operating Officer, through
January 19, 2000 at which time we acquired 280 Holdings, LLC, the entity that at
the time of the acquisition owned the airplane, (2) a $1.7 million decrease to
$0.3 million for the nine months ended October 1, 2000 from $2.0 million for the
nine months ended October 3, 1999 in the capital structure reorganization
related charges recognized by Triarc in the first nine months of 2000 related to
equitable adjustments that were made in 1999 to the terms of then outstanding
options under the stock option plan of Snapple Beverage Group (see below) and
(3) the favorable settlement of insurance claims by the purchaser of an
insurance subsidiary that we sold in 1998 resulting in the collection in the
2000 second quarter of a $1.5 million note receivable that we received as a
portion of the sales proceeds which was fully reserved at the time of sale.
The Snapple Beverage Group stock option plan provides for an equitable
adjustment of options in the event of a recapitalization or similar event. The
exercise prices of then outstanding options under the Snapple Beverage Group
plan were equitably adjusted in 1999 to adjust for the effects of net
distributions of $91.3 million, principally consisting of transfers of cash and
deferred tax assets from Snapple Beverage Group to Triarc partially offset by
the effect of the contribution of Stewart's to Snapple Beverage Group effective
May 17, 1999. We have accounted for the equitable adjustment in accordance with
the intrinsic value method. In addition to reducing the exercise prices of the
Snapple Beverage Group stock options which did not result in the recognition of
any expense because those modifications to the options did not create a new
measurement date under the intrinsic value method, a cash payment of $51.34 per
share for the options granted in 1997 and $39.40 per share for the options
granted in 1998 was due from us to the option holder following the exercise of
the stock options and the occurrence of certain other events. The initial charge
relating to the cash payment portion of these equitable adjustments was recorded
in the 1999 first quarter and, therefore, the charge of $2.0 million recognized
by Triarc for the nine months ended October 3, 1999 includes the portion of the
aggregate cash to be paid to the extent of the vesting of the stock options
through October 3, 1999. The $0.3 million charge recognized by Triarc for the
nine months ended October 1, 2000 represents the portion of the cash to be paid
in connection with the exercise of the stock options to the extent of the
vesting of the options during that period, net of credits for forfeitures of
non-vested stock options of terminated employees. As a result of the Snapple
Beverage Sale on October 25, 2000, all outstanding Snapple Beverage Group stock
options are no longer our responsibility. We expect to recognize additional
pre-tax charges of less than $0.1 million relating to this equitable adjustment
through the October 25, 2000 sale date. The accrual for such cash payment
recognized by Triarc, which was $2.4 million as of October 1, 2000, will be
reversed in the 2000 fourth quarter as a component of the gain on sale of the
beverage businesses included in discontinued operations.
The $1.5 million note received in connection with the sale of a former
insurance subsidiary had not been previously recognized due to uncertainty
surrounding its collection which was dependent on the favorable settlement of
insurance claims. The gain from realization of the note was included as a
reduction of general and administrative expenses since the gain effectively
represents an adjustment of prior period insurance reserves.
Depreciation and Amortization
Our depreciation and amortization expense increased $0.3 million to $4.1
million, or 7.5%, for the nine months ended October 1, 2000 from $3.8 million
for the nine months ended October 3, 1999. This increase in depreciation and
amortization principally reflects the 2000 depreciation of $1.3 million on the
airplane since the acquisition of 280 Holdings on January 19, 2000, partially
offset by a decrease in amortization of $0.8 million reflecting (1) an increase
in the estimated useful lives on $8.6 million of airplane leasehold improvements
as a result of the acquisition of 280 Holdings on January 19, 2000 and (2) a
$2.5 million payment made in 1997 for the option to purchase the airplane which,
commencing in January 2000, was no longer amortized since the remaining
unamortized portion was repaid to us in connection with the acquisition of 280
Holdings.
Interest Expense
Interest expense decreased $2.2 million, or 55.8%, to $1.8 million for the
nine months ended October 1, 2000 from $4.0 million for the nine months ended
October 3, 1999. This decrease in interest expense is primarily attributable to
(1) $2.0 million of non-recurring 1999 interest accruals relating to income tax
matters for which interest accruals are no longer necessary due to the
finalization of our final income tax liabilities resulting from the Internal
Revenue Service examination of our income tax returns for the tax years from
1989 to 1992 during the third quarter of 1999 and (2) $0.9 million of 1999
interest expense on $300.0 million of 10 1/4% senior subordinated notes due 2009
issued by Triarc Consumer Products Group, LLC, a subsidiary of ours, which was
allocated to our restaurant franchising business in 1999 but which was no longer
allocated in 2000, both partially offset by interest of $1.1 million for the
first nine months of 2000 on an $18.0 million secured promissory note assumed in
connection with the acquisition of 280 Holdings.
Investment Income, Net
Investment income, net increased $12.7 million, or 83.7%, to $28.0 million
for the nine months ended October 1, 2000 from $15.3 million for the nine months
ended October 3, 1999. This increase reflects (1) $16.1 million of higher
recognized net gains from realized or unrealized, as applicable, gains or losses
on our investments, which gains may not recur in future periods and of which
$10.3 million represents our portion of the gain on the sale of an
available-for-sale security held by an investment limited liability company in
which we invested, and (2) a $1.0 million increase in equity in earnings of
investment limited partnerships and similar investment entities accounted for
under the equity method. Such increases were partially offset by (1) a $3.0
million decrease in interest income on cash equivalents and short term
investments and (2) a $1.6 million provision recognized in the 2000 first
quarter for unrealized losses on a short-term investment deemed to be other than
temporary due to declines in the underlying economics of such equity security,
which provision also may not recur in future periods. The decreased interest
income is due to lower average amounts of cash equivalents in the first nine
months of 2000 compared with the first nine months of 1999.
Gain on Sale of Business
Gain on sale of business for the nine months ended October 3, 1999
represents our $1.0 million equity in a gain recognized during the 1999 third
quarter from the sale of common stock issued by a subsidiary of a limited
partnership in which we have an investment.
Other Income, Net
Other income, net decreased $1.5 million, or 82.0%, to $0.3 million for the
nine months ended October 1, 2000 from $1.8 million for the nine months ended
October 3, 1999. This decrease was principally due to (1) a reduction of $2.0
million in the first nine months of 2000 in our equity in the income or loss of
investees other than investment limited partnerships and similar investment
entities from income of $0.5 million in the first nine months of 1999 to a loss
of $1.5 million in the first nine months of 2000, (2) a $0.4 million decrease in
our gains on lease terminations recognized by our restaurant franchising
business in the first nine months of 2000 which result from the settlement of
lease obligations related to the restaurants that were sold in 1997 which were
not assumed by the purchaser and (3) a non-recurring $0.3 million gain on the
sale of warrants received in connection with the 1997 sale of all of our
previously owned restaurants in the 1999 second quarter. The reduction in the
equity in the income or loss of investees was principally due to $1.6 million of
equity in the write-down of certain assets of an investee in the 2000 second
quarter. Such decreases were partially offset by the collection in the 2000
second quarter of $0.9 million of a receivable from a former affiliate which was
written off in years prior to 1999 due to such company filing for bankruptcy
protection.
Income Taxes
The provision for income taxes represented effective rates of 41% for the
nine months ended October 1, 2000 and 43% for the nine months ended October 3,
1999. The effective rate is lower in the first nine months of 2000 principally
due to the impact of the amortization of non-deductible costs in excess of net
assets of acquired companies, which we refer to as goodwill. Such effect is
lower in the first nine months of 2000 due to higher projected 2000 full-year
pre-tax income compared with the then projected 1999 full-year pre-tax income as
of the end of the first nine months of 1999.
Discontinued Operations
Income (loss) from discontinued operations was a loss of $11.8 million for
the nine months ended October 1, 2000 compared with income of $3.7 million for
the nine months ended October 3, 1999. This $15.5 million decline is principally
a result of (1) the absence in the 2000 period of a $12.2 million gain on sale
of our propane business, of which $11.0 million was from the July 1999 sale of
41.7% of our then remaining 42.7% interest in National Propane Partners, L.P.
and (2) a $4.9 million increase in the net loss from our discontinued beverage
businesses which were sold on October 25, 2000. The $4.9 million increase in the
net loss of our beverage businesses, despite an increase in operating profit of
$0.1 million discussed below, was principally due to the after-tax effect of
increased interest expense resulting from higher average interest rates in the
2000 period and higher average levels of debt due to the full nine month effect
in the 2000 period of a February 25, 1999 debt refinancing.
Revenues of the beverage businesses increased $15.5 million, or 2.5%, to
$636.1 million for the nine months ended October 1, 2000 from $620.6 million for
the nine months ended October 3, 1999. Premium beverage revenues increased $13.5
million, or 2.6%, principally due to increased sales volume resulting from our
newer product introductions such as Snapple Elements(R), a product platform of
herbally enhanced drinks introduced in April 1999, and Mistic Zotics(TM)
introduced in April 2000 and cases sold to retailers through two premium
beverage distributors principally reflecting the effect of an increased focus on
our products as a result of our ownership of these distributors since their
acquisitions on February 25, 1999 and January 2, 2000, respectively. These
increases were partially offset by decreased sales volume of Whipper Snapple(R)
and Mistic tropical fruit juices. Soft drink concentrate revenues increased $2.0
million, or 2.1%, principally due to (1) a shift primarily during the first half
of 2000 in private label sales to sales of higher priced flavor concentrates
from sales of lower priced cola concentrates and (2) an increase in
international branded concentrate volume. Domestic branded concentrate sales
declined slightly as the effect of higher average selling prices resulting from
domestic concentrate price increases effective November 1999 was more than
offset by a decline in domestic branded concentrate volume.
Operating profit of the beverage businesses increased $0.1 million, or 0.2%
to $55.9 million for the nine months ended October 1, 2000 from $55.8 million
for the nine months ended October 3, 1999. Premium beverage operating profit
declined $2.2 million, or 4.9%, despite the increase in revenues principally due
to (1) a slight decline in gross margins due to a shift in product mix to
lower-margin products in the 2000 period and increased freight and handling
costs as a result of beginning the use of warehousing for our finished products
during the second half of 1999 and (2) an increase in operating expenses,
including amortization of goodwill, trademarks and other intangibles, primarily
as a result of the 1999 and 2000 acquisitions of two of our premium beverage
distributors. These decreases were partially offset by a $2.7 million reduction
in the capital structure reorganization related charges which resulted from the
cash payment component of a 1999 equitable adjustment of stock option prices
under the Snapple Beverage Group stock option plan recognized by Snapple
Beverage Group as previously explained in more detail with respect to the charge
recognized by Triarc under "General and administrative" above. The reduction is
due to the initial charge in the 1999 period including the cumulative vesting of
the cash to be paid compared with the 2000 charge reflecting only the vesting
during that period. Soft drink concentrate operating profit increased $2.3
million principally due to (1) the effect of the increase in revenues and (2) an
increase in gross margins resulting from higher average selling prices from
domestic concentrate price increases and the conversion, commencing in December
1999, from the use of the raw material aspartame to the less costly
Ace-K/sucralose blend in its diet products.
Our discontinued beverage operations had a provision for income taxes
despite a loss before income taxes for both the nine months ended October 3,
1999 and October 1, 2000 principally due to the amortization of non-deductible
goodwill and the differing impact of the mix of pre-tax loss or income among the
consolidated entities since we file state income tax returns on an individual
company basis.
Extraordinary Charges
The extraordinary charges of $12.1 million in the first nine months of
1999 resulted from the early extinguishment of borrowings under the former
credit facility of Snapple Beverage Group and RC/Arby's Corporation $275.0
million of 9 3/4% senior secured notes due 2000 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 RC/Arby's 9 3/4% notes, both
less income tax benefit of $7.0 million.
Three Months Ended October 1, 2000 Compared with Three Months Ended October 3,
1999
Royalties, Franchise Fees and Other Revenues
Our royalties, franchise fees and other revenues, which are generated
entirely from our restaurant franchising business, increased $1.7 million, or
8.1%, to $22.6 million for the three months ended October 1, 2000 from $20.9
million for the three months ended October 3, 1999. This increase principally
reflects an increase in royalty revenue of $1.4 million, or 7.0%, resulting from
an average net increase of 89, or 2.8%, franchised restaurants, a 1.2% increase
in same-store sales of franchised restaurants and an increase of 0.03%, or 0.9%,
in the average domestic royalty rate.
Our royalties, franchise fees and other revenues have no associated cost
of sales.
General and Administrative
Our general and administrative expenses decreased $1.8 million, or 10.5%,
to $15.4 million for the three months ended October 1, 2000 from $17.2 million
for the three months ended October 3, 1999. The decrease primarily reflects (1)
lower expenses of $3.5 million from $4.8 million in the 1999 third quarter to
$1.3 million in the 2000 third quarter related to the new executive salary
arrangements and an executive bonus plan effective May 3, 1999 and (2)
non-recurring 1999 expenses of $0.8 million related to our airplane lease as
discussed in more detail in the comparison of the nine- month periods. Such
decreases were partially offset by (1) increases of $1.0 million in other
compensation and related benefit costs, (2) provisions of $0.7 million in the
2000 third quarter for costs to support a change in distributors for a majority
of franchisees in our restaurant franchising business for food and other
products, (3) higher insurance costs of $0.2 million and (4) other inflationary
increases, all as previously discussed in the comparison of the nine-month
periods. The new executive bonus plan was approved by our stockholders in
September 1999 and, 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 compared with only the three month period
from July 3, 2000 through October 1, 2000 in the 2000 third quarter. In
addition, executive bonuses were lower in the 2000 third quarter as a result of
the decline in operating profit of our premium beverage business included in
"Income (loss) from discontinued operations."
Depreciation and Amortization
Our depreciation and amortization expense remained unchanged at $1.3
million for each of the three months ended October 1, 2000 and October 3, 1999.
Interest Expense
Interest expense decreased $1.0 million, or 66.1%, to $0.5 million for the
three months ended October 1, 2000 from $1.5 million for the three months ended
October 3, 1999. This decrease in interest expense is primarily attributable to
(1) $0.8 million of non-recurring 1999 interest accruals relating to income tax
matters for which interest accruals are no longer necessary due to the
finalization of our income tax liabilities resulting from the Internal Revenue
Service examination of our income tax returns for the tax years from 1989 to
1992 during the third quarter of 1999 and (2) $0.5 million of 1999 interest on
TCPG's 10 1/4% Notes which was allocated to our restaurant franchising business
in 1999 but which was no longer allocated in 2000, partially offset by interest
of $0.4 million in the 2000 third quarter on an $18.0 million secured promissory
note assumed in connection with the acquisition of 280 Holdings, all as
previously discussed in the comparison of the nine-month periods.
Investment Income, Net
Investment income, net increased $3.2 million, or 81.9%, to $7.0 million
for the three months ended October 1, 2000 from $3.8 million for the three
months ended October 3, 1999 principally reflecting (1) $2.9 million of higher
recognized net gains in the 2000 third quarter from realized or unrealized, as
applicable, gains or losses on investments and (2) a $0.8 million increase in
equity in earnings of investment limited partnerships and similar investment
entities accounted for under the equity method, both partially offset by a
decrease in interest income of $0.6 million due to lower average amounts of cash
equivalents in the 2000 third quarter compared with the 1999 third quarter.
Gain on Sale of Business
Gain on sale of business for the three months ended October 3, 1999
represents 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.
Other Income, Net
Other income, net decreased $0.3 million, or 76.0%, to $0.1 million for
the three months ended October 1, 2000 from $0.4 million for the three months
ended October 3, 1999. This decrease was primarily due to (1) a reduction of
$0.2 million in the 2000 third quarter in our equity in the income or loss of
investees other than investment limited partnerships and similar investment
entities from income of $0.1 million in the 1999 third quarter to a loss of $0.1
million in the 2000 third quarter and (2) a $0.2 million decrease in our gains
on lease terminations recognized by our restaurant franchising business in the
2000 third quarter as previously discussed in the comparison of the nine-month
periods.
Income Taxes
The provision for income taxes represented effective rates of 38% for the
three months ended October 1, 2000 and 46% for the three months ended October 3,
1999. The effective rate is lower in the 2000 third quarter than in 1999
principally due to the differing effect of catch up adjustments to the
year-to-date effective rates as set forth in the comparison of the nine-month
periods and to a lesser extent the impact of the amortization of non-deductible
goodwill. The catch up effect of a year-to-date decrease in the 2000 estimated
full-year effective tax rate reflecting an increase in projected full-year
pre-tax income had the effect of lowering the 2000 third quarter tax rate while
the catch up effect of a year-to-date increase in the 1999 estimated full-year
effective tax rate reflecting a decrease in projected full-year pre-tax income
had the effect of increasing the 1999 third quarter tax rate. The effect of the
amortization of goodwill is lower in the 2000 third quarter due to higher
pre-tax income for the 2000 third quarter than the 1999 third quarter.
Discontinued Operations
Income (loss) from discontinued operations was a loss of $4.3 million for
the three months ended October 1, 2000 compared with income of $11.0 million for
the three months ended October 3, 1999. This $15.3 million decline is
principally a result of (1) the absence in the 2000 third quarter of an $11.3
million gain on sale of our propane business, of which $11.0 million was from
the July 1999 sale of the 41.7% of our then remaining 42.7% interest in National
Propane Partners, L.P. and (2) a $4.2 million increase in the net loss from our
discontinued beverage businesses principally due to the after-tax effect of a
decline in operating profit primarily attributable to a decrease in revenues,
both as discussed below.
Revenues of the beverage businesses decreased $9.2 million, or 4.0%, to
$220.6 million for the three months ended October 1, 2000 from $229.8 million
for the three months ended October 3, 1999. Premium beverage revenues decreased
$10.4 million, or 5.2%, principally due to decreased sales volume of Whipper
Snapple(R) and Mistic tropical fruit juices partially offset by increases in
sales volumes from our newer product introductions such as Snapple Elements(R)
and Mistic Zotics(TM) introduced in April 1999 and April 2000, respectively, and
cases sold to retailers through a premium beverage distributor principally
reflecting the effect of an increased focus on our products as a result of our
ownership of this distributor since its acquisition on January 2, 2000. The
rainy and cooler summer weather experienced in our major Northeast premium
beverage markets in the 2000 third quarter contributed significantly to the
overall decline in sales volume. Soft drink concentrate revenues increased $1.2
million, or 4.2%, principally due to increased volume of international branded
concentrate sales. Domestic branded concentrate sales increased only slightly as
the effect of higher average selling prices resulting from domestic concentrate
price increases effective November 1999 was substantially offset by a decline in
domestic branded concentrate volume.
Operating profit of the beverage businesses decreased $7.5 million, or
26.6%, to $20.9 million for the three months ended October 1, 2000 from $28.4
million for the three months ended October 3, 1999. Premium beverage operating
profit declined $8.6 million, or 34.4%, due principally to (1) the effect of the
decline in revenues, (2) a slight decline in gross margins due to a shift in
product mix to lower-margin products in the 2000 third quarter and increased
freight and handling costs as a result of increased use of warehousing for our
finished products and (3) increased operating expenses resulting principally
from our recent acquisition of one of our premium beverage distributors. Soft
drink concentrate operating profit increased $1.0 million, or 28.4%, due to (1)
the effect of the increase in revenues and (2) an increase in gross margins
resulting from higher average selling prices from domestic concentrate price
increases and the conversion, commencing in December 1999, from the use of the
raw material aspartame to the less costly Ace- K/sucralose blend in its diet
products.
Our discontinued beverage operations had a provision for income taxes
despite a loss before income taxes for the three months ended October 1, 2000
and a provision for income taxes in excess of the income before income taxes for
the three months ended October 3, 1999 principally due to (1) the amortization
of non-deductible goodwill, (2) the differing impact of the mix of pre-tax loss
or income among the consolidated entities since we file state income tax returns
on an individual company basis and (3) the effect on the quarters of catch-up
adjustments of year-to-date increases in the estimated full year effective tax
rates due to decreases in the then estimates of full year pre-tax income of the
discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Snapple Beverage Sale
On October 25, 2000, we completed the sale of Snapple Beverage Group, our
premium beverage business comprised of Snapple, Mistic and Stewart's, and Royal
Crown, our soft drink concentrate business, to affiliates of Cadbury Schweppes
plc for $901.2 million in cash, subject to post-closing adjustment, and the
assumption of $425.1 million of debt and related accrued interest. The assumed
debt and accrued interest consists of (1) $300.0 million of 10 1/4% senior
subordinated notes due 2009 co-issued by Triarc Consumer Products Group, LLC,
the parent company of Snapple Beverage Group and Royal Crown and a subsidiary of
Triarc, and Snapple Beverage Group, (2) $119.1 million, net of unamortized
original issue discount of $240.9 million, of Triarc's zero coupon convertible
subordinated debentures due 2018 and (3) $6.0 million of accrued interest. Of
the cash proceeds, $426.6 million was utilized to repay outstanding obligations
under a senior bank credit facility maintained by Snapple, Mistic, Stewart's,
Royal Crown and RC/Arby's Corporation, the parent company of Royal Crown and a
subsidiary of Triarc Consumer Products Group.
Following the Snapple Beverage Sale, we have in excess of $400.0 million
of cash and investments, net of current cash tax liabilities related to the
sale, and approximately $20.8 million of long-term debt. We are presently
evaluating our options for the use of our significant cash and investments
position, including business acquisitions, repurchases of Triarc common shares
(see "Treasury Stock Purchases" below) and investments.
This discussion of liquidity and capital resources reflects only our
continuing operations and excludes any effect of our premium beverage and soft
drink concentrate businesses sold on October 25, 2000 and the long-term debt
assumed by affiliates of Cadbury Schweppes plc or repaid in connection with the
sale of the two businesses.
Cash Flows From Continuing Operations
Our consolidated operating activities from continuing operations provided
cash and cash equivalents, which we refer to in this discussion as cash, of
$39.7 million during the nine months ended October 1, 2000 reflecting (1) income
from continuing operations of $22.4 million, (2) non-cash charges, principally
deferred income tax provision and depreciation and amortization of $23.2
million, and (3) cash provided by changes in operating assets and liabilities of
$4.2 million, all partially offset by operating investment adjustments of $10.1
million.
We expect continued positive cash flows from operations during the
remainder of 2000.
Working Capital and Capitalization
Working capital of our continuing operations, which equals current assets
less (1) net current assets of discontinued operations and (2) current
liabilities, was $167.4 million at October 1, 2000, reflecting a current ratio,
which equals current assets, excluding net current assets of discontinued
operations, divided by current liabilities, of 3.7:1. Working capital of our
continuing operations decreased $58.5 million from $225.9 million at January 2,
2000 principally due to (1) the repurchase of $42.3 million of our Class B
common stock discussed below under "Treasury Stock Purchases," (2) advances
aggregating $25.3 million to discontinued operations, which were contributed to
the capital of the discontinued operations in connection with the Snapple
Beverage Sale and are reflected in "Net cash used in discontinued operations" in
the accompanying condensed consolidated statement of cash flows for the nine
months ended October 1, 2000, and (3) cash capital expenditures of $10.4
million, all partially offset by working capital provided from continuing
operations.
Our total capitalization at October 1, 2000 was a net deficit of $88.8
million consisting of a stockholders' deficit of $153.4 million partially offset
by $20.8 million of long-term debt, including current portion, and a $43.8
million forward purchase obligation for common stock discussed below under
"Treasury Stock Purchases." Our total capitalization decreased $14.6 million
from a net deficit of $74.2 million at January 2, 2000 principally due to the
repurchase of $42.3 million of our Class B common stock discussed below
partially offset by (1) the assumption of $18.0 million of indebtedness in
connection with the acquisition of 280 Holdings also discussed below under
"Capital Expenditures," and (2) net income of $10.7 million.
Long-Term Debt
Our continuing operations have long-term debt of approximately $20.8
million as of October 1, 2000, of which $16.9 million is the outstanding
principal amount under an 8.95% secured promissory note payable over seven years
with $0.4 million due during the fourth quarter of 2000. This note was assumed
during the first quarter of 2000 in connection with the acquisition of 280
Holdings described below under "Capital Expenditures." Our total scheduled
long-term debt repayments during the fourth quarter of 2000 are $0.8 million
consisting principally of the $0.4 million due on the 8.95% secured promissory
note and a final installment of $0.4 million on an equipment note.
Guarantees
On July 19, 1999 we sold through our wholly-owned subsidiary, National
Propane Corporation, 41.7% of our remaining 42.7% interest in our former propane
business retaining a 1% special limited partner interest in National Propane,
L.P. National Propane Corporation, whose principal asset following the sale of
the propane business is a $30.0 million intercompany note receivable from
Triarc, agreed that while it remains a special limited partner of National
Propane, L.P., it would indemnify the purchaser of National Propane, L.P. for
any payments the purchaser makes related to the purchaser's obligations under
certain of the debt of National Propane, L.P., aggregating approximately $138.0
million as of October 1, 2000, if National Propane, L.P. is unable to repay or
refinance such debt, but only after recourse by the purchaser to the assets of
National Propane, L.P. Under the purchase agreement, either the purchaser or
National Propane Corporation may require National Propane L.P. to repurchase the
1% special limited partner interest. We believe that it is unlikely that we will
be called upon to make any payments under this indemnity.
Arby's, Inc., a subsidiary of RC/Arby's, sold all of its company-owned
restaurants in 1997. Arby's remains contingently responsible for operating and
capitalized lease payments, if the purchaser of the Arby's restaurants does not
make the required 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 $83.0 million as of October 1, 2000, assuming
the purchaser of the Arby's restaurants has made all scheduled payments through
that date. 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 $47.2 million as of
October 1, 2000, assuming the purchaser of the Arby's restaurants has made all
scheduled repayments through that date. In addition, a subsidiary of ours is a
co-obligor with the purchaser of the Arby's restaurants and Triarc is a
guarantor under a loan, the repayments of which are being made by the purchaser,
with an aggregate principal amount of $0.5 million as of October 1, 2000.
On January 12, 2000 we entered into an agreement to guarantee $10.0
million principal amount of senior notes issued by MCM Capital Group, Inc., an
8.4% equity investee of ours, to a major financial institution, which original
principal was outstanding as of October 1, 2000. Such guarantee was reduced to
$8.0 million as a result of our payment of $2.0 million of fees to the financial
institution referred to below in connection with the Snapple Beverage Sale. In
consideration for the guarantee, we received a fee of $0.2 million and warrants
to purchase 100,000 shares of MCM Capital Group common stock at $.01 per share
with an estimated fair value on the date of grant of $0.3 million. The $8.0
million guaranteed amount will be further reduced by (1) any repayments of the
notes, (2) any purchases of the notes by us and (3) the amount of certain
additional investment banking or financial advisory services fees paid to the
financial institution or its affiliates or, under certain circumstances, other
financial institutions by us, MCM Capital Group or another significant
stockholder of MCM Capital Group or any of their affiliates. Certain of our
officers, including entities controlled by them, collectively own approximately
15.7% of MCM Capital Group and are not parties to this note guaranty and could
indirectly benefit from it.
In addition to the note guaranty, we and certain other stockholders of MCM
Capital Group, including our officers referred to above, on a joint and several
basis, have entered into agreements to guarantee $15.0 million of revolving
credit borrowings of a subsidiary of MCM Capital Group, of which we would be
responsible for approximately $1.8 million assuming all of the parties to the
guaranties of the revolving credit borrowings and certain related agreements
fully perform. As of October 1, 2000 MCM Capital Group had $14.6 million of
outstanding revolving credit borrowings. On April 3, 2000 we purchased a $15.0
million certificate of deposit from the financial institution referred to above
which on November 17, 2000 was replaced by United States government agency
bonds. Such bonds under the guaranties of the revolving credit borrowings are
subject to set off under certain circumstances if the parties to these
guaranties of the revolving credit borrowings and related agreements fail to
perform their obligations thereunder. MCM Capital Group has encountered cash
flow and liquidity difficulties. We currently believe that it is possible, but
not probable, that we will be required to make payments under the note guaranty
and/or the bank guaranties.
Capital Expenditures
Cash capital expenditures amounted to $10.4 million during the nine months
ended October 1, 2000. On January 19, 2000, we acquired 280 Holdings, the entity
which owns the airplane that had previously been leased from Triangle Aircraft
Services through January 19, 2000, for $27.2 million. The purchase price
consisted of (1) cash of $9.2 million, included in the $10.4 million of cash
capital expenditures referred to above, and (2) the assumption of the $18.0
million 8.95% secured promissory note payable. The purchase price was based on
independent appraisals and was approved by our Audit Committee and Board of
Directors. As a result of the acquisition of 280 Holdings, the effect on our
estimated costs for the airplane for the remainder of 2000 compared with the
fourth quarter of 1999 will be lower depreciation and amortization of $0.2
million, the elimination of rental expense under the airplane lease with
Triangle Aircraft Services of $0.8 million, the incurrence of interest expense
on the 8.95% secured promissory note of $0.4 million and lower investment income
of approximately $0.1 million with a resulting increase in income from
continuing operations before income taxes of approximately $0.5 million.
We expect that cash capital expenditures will approximate $2.3 million for
the remainder of 2000 for which there were $0.9 million of outstanding
commitments as of October 1, 2000.
Income Taxes
The Internal Revenue Service has completed its examination of our Federal
income tax returns for the fiscal year ended April 30, 1993 and transition
period ended December 31, 1993. In connection with this examination, our net
operating loss carryforwards were increased by $7.5 million and we were entitled
to a refund of $2.7 million. The IRS paid $1.5 million to us in July 2000 and
offset the remaining $1.2 million against amounts otherwise due the IRS from
audits of years ending prior to April 30, 1993. We had settled the final income
tax liabilities resulting from the IRS examination of our income tax returns for
the tax years from 1989 to 1992 during 1999. However, the IRS has not yet
finalized the computation of the remaining interest due from us as a result of
the audits of those years. We expect to pay approximately $1.0 million of
interest accrued in prior years upon the finalization of the interest
computation by the IRS during the fourth quarter of 2000.
Treasury Stock Purchases
In May 2000, our management was 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 expire in May 2001. We have
not purchased any shares during the first nine months of 2000 under this program
or a similar one that expired on May 7, 2000. We cannot assure you that we will
make any or all of the $30.0 million of repurchases authorized under the current
program.
Pursuant to a contract entered into in August 1999, on August 10, 2000 we
repurchased an aggregate of 1,999,207 shares of our Class B common stock held by
affiliates of Victor Posner, our former Chairman and Chief Executive Officer,
for $42.3 million. Under the contract, the remaining purchase of 1,999,207
shares is to occur on or before August 19, 2001 for $43.8 million. The August
10, 2000 payment and the remaining payment are at negotiated fixed prices of
$21.18 and $21.93 per share, respectively, based on the fair market value of our
Class A common stock at the time the transaction was negotiated.
Cash Requirements
As of October 1, 2000, our consolidated cash requirements for the fourth
quarter of 2000, exclusive of operating cash flow requirements including the
payment of approximately $1.0 million of interest accrued in connection with
prior years IRS examinations, consist principally of (1) capital expenditures of
approximately $2.3 million, (2) scheduled debt principal repayments aggregating
$0.8 million, (3) the cost of business acquisitions, if any, and (4)
repurchases, if any, of our Class A common stock for treasury under the
repurchase program which expires in May 2001. We anticipate meeting all of these
requirements through (1) an aggregate $197.9 million of existing cash and cash
equivalents and short-term investments, net of $11.6 million of obligations for
short-term investments sold but not yet purchased included in "Accrued expenses"
in our accompanying condensed consolidated balance sheet as of October 1, 2000,
(2) additional cash and cash equivalents and short-term investments as a result
of the Snapple Beverage Sale and (3) cash flows from operations.
Planned Financing
On November 3, 2000 we announced that Arby's intends to offer
approximately $290.0 million of fixed rate insured securitization notes, through
a special purpose financing vehicle, pursuant to Rule 144A of the Securities Act
of 1933, as amended. The notes will be secured by Arby's franchise royalty
payments. We expect to receive net proceeds of approximately $248.0 million,
which is net of approximately $30.0 million of proceeds to be held in a reserve
account and approximately $12.0 million of estimated transaction fees and
expenses. The net proceeds would initially increase our position in cash
equivalents. The subsequent uses of such proceeds may include business
acquisitions, repurchases of Triarc common shares and investments. The financing
is expected to close by the end of the fourth quarter of 2000. However, there
can be no assurance that we will be able to consummate this financing. Assuming
this financing is completed, monthly royalties and franchise fee payments
received from Arby's domestic and Canadian franchisees will be used in priority
order to pay operating expenses of the special purpose financing entity,
servicer fees to cover Arby's costs of administering the franchise license
agreements, insurance premiums on the securitization notes and interest and
principal on the securitization notes. Any residual cash, subject to holdback in
the case that a debt service coverage ratio as defined in the securitization
covenants is not met, will be available monthly for distribution to Triarc.
Triarc
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon its (1) aggregate $151.7 million of cash and cash
equivalents and short-term investments, net of $11.6 million of obligations for
short-term investments sold but not yet purchased, as of October 1, 2000, (2)
additional cash and cash equivalents and short-term investments as a result of
the Snapple Beverage Sale, (3) investment income on its cash equivalents and
short-term investments and (4) cash flows from Arby's, including (a)
reimbursement in connection with the providing of certain management services
through October 31, 2000, (b) payments under a tax-sharing agreement and (c)
loans, distributions and dividends from Arby's prior to or in connection with
any consummation of the planned financing discussed above.
Triarc has indebtedness to third parties under the 8.95% secured
promissory note payable of $16.9 million as of October 1, 2000 assumed in
connection with the acquisition of 280 Holdings which requires principal
payments of $0.4 million during the fourth quarter of 2000. Triarc also has a
$30.0 million intercompany demand note payable to National Propane Corporation.
The note, as amended, bears interest payable semi-annually in cash at the
specified minimum interest rate under the Internal Revenue Code, which was 6.5%
at October 1, 2000. While this note requires the payment of interest in cash,
Triarc currently expects to receive dividends from National Propane Corporation
equal to the cash interest. The note requires no principal payments during 2000,
assuming no demand is made thereunder, and none is anticipated.
Triarc's principal cash requirements for the fourth quarter of 2000 are
(1) capital expenditures of approximately $2.1 million, (2) the payment of
approximately $1.0 million of interest accrued in connection with prior years
IRS examinations, (3) debt principal repayments of $0.4 million on the secured
promissory note, (4) the cost of business acquisitions by Triarc, if any, (5)
repurchases, if any, of our Class A common stock for treasury under the
repurchase program which expires in May 2001 and (6) payments of general
corporate expenses. Triarc expects to be able to meet all of these cash
requirements through (1) existing cash and cash equivalents and short-term
investments, (2) additional cash and cash equivalents and short-term investments
as a result of the Snapple Beverage Sale, (3) investment income, (4) receipts
from Arby's under management services and tax-sharing agreements and (5) loans,
distributions and dividends from Arby's prior to or in connection with any
consummation of the planned financing discussed above.
Legal and Environmental Matters
We are involved in litigation, claims and environmental matters incidental
to our businesses. We have reserves for legal and environmental matters of $1.7
million as of October 1, 2000. Although the outcome of these matters cannot be
predicted with certainty and some of these matters may be disposed of
unfavorably to us, based on currently available information and given our
reserves, we do not believe that these legal and environmental matters will have
a material adverse effect on our consolidated financial position or results of
operations.
In connection with a class action lawsuit commenced in the Delaware Court
of Chancery in June 1997 which asserted claims relating to certain awards of
compensation in 1994-1997 to Nelson Peltz, our Chairman and Chief Executive
Officer and a director, and Peter May, our President and Chief Operating Officer
and a director, in August 2000 the parties to the lawsuit entered into a
settlement agreement whereby, subject to the Court's approval: (1) the case will
be dismissed with prejudice; (2) Messrs. Peltz and May will deliver a three-year
note payable to us in the aggregate amount of $5.0 million; and (3) Messrs.
Peltz and May will surrender an aggregate of 775,000 performance options awarded
to them in 1994. On November 20, 2000 the Court held a final hearing to
determine, among other things, whether to approve the settlement. At that
hearing, the court took the issue under advisement. Should the settlement
ultimately be approved, we would record pre-tax income of $5.0 million at that
time for the payment due from Messrs. Peltz and May.
Seasonality
Our continuing operations are not significantly impacted by seasonality,
however our restaurant franchising royalty revenues are somewhat higher in our
fourth quarter and somewhat lower in our first quarter.
Recently Issued Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." Statement 133 provides a comprehensive standard for the
recognition and measurement of derivatives and hedging activities. The standard
requires derivatives be recorded on the balance sheet at fair value and
establishes more restrictive criteria for hedge accounting. Statement 133, as
amended by Statements of Financial Accounting Standards Nos. 137 and 138, is
effective for our fiscal year beginning January 1, 2001. Although we have not
yet completed the process of identifying all of our derivative instruments, the
only derivatives we believe we have are the conversion component of our
short-term investments in convertible bonds, put and call options on equity and
debt securities and a forward purchase obligation for our common stock. Since
the derivative in our common stock is excluded from the derivatives within the
scope of Statement 133 and since all of these derivatives are currently carried
at fair value, the accounting for them would not be impacted by Statement 133.
As such, the requirement to state the conversion component of our investments in
convertible bonds and the put and call options at fair value should have no
impact on our consolidated financial position or results of operations. We
historically have not had transactions to which hedge accounting applied and,
accordingly, the more restrictive criteria for hedge accounting in Statement 133
should have no effect on our consolidated financial position or results of
operations. However, the provisions of Statement 133 are complex and since we
have not yet completed the process of identifying all of our derivative
instruments, we are unable to determine at this time the impact it will have on
our consolidated financial position and results of operations.
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
which, as amended, would be required to be implemented no later than our fourth
quarter of fiscal 2000. However, in our continuing restaurant franchise
operations, we record revenues in accordance with Statement of Financial
Accounting Standards No. 45, "Accounting for Franchise Fee Revenue," which is
excluded from the guidance under Bulletin 101. Accordingly, Bulletin 101 will
not have any impact on our consolidated financial position or results of
operations.
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
appropriate.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows. In
connection with the Snapple Beverage Sale on October 25, 2000, substantially all
of the our long-term debt was repaid or assumed by the Purchaser and as of
October 1, 2000 was included as a component of "Net non-current liabilities of
discontinued operations" or "Net current assets of discontinued operations" in
the accompanying condensed consolidated balance sheets. The remaining debt
aggregates $20.8 million and principally consists of a 8.95% secured promissory
note payable with a remaining principal balance of $16.9 million as of October
1, 2000. Prior to the Snapple Beverage Sale, we assessed the relative
proportions of our debt under fixed versus variable rates to achieve our
objectives. We generally used 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 were at significantly higher than market
interest rates prevailing at the time the cap agreements were entered into and
were intended to protect against very significant increases in short-term
interest rates. At October 1, 2000 we had one interest rate cap agreement
relating to interest on $232.0 million of our aggregate $436.4 million of
variable-rate term loans under our senior bank credit facility which provided
for a cap which was approximately 1% higher than the prevailing interest rate at
October 1, 2000. All of our variable rate debt consisting of $436.4 million of
our terms loans and $13.0 million of revolving loans under our senior bank
credit facility maintained by Snapple, Mistic, Stewart's, Royal Crown and
RC/Arby's was included in the debt repaid as a result of the Snapple Beverage
Sale. In addition to our variable and fixed-rate debt, our investment portfolio
includes debt securities that are subject to interest rate risk reflecting the
portfolio's maturities between one and eighteen years. The fair market value of
all of our investments in debt securities will 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 and similar investment entities. We have
established policies and procedures governing the type and relative magnitude of
investments which we can make. We have a management investment committee whose
duty it is to oversee our continuing compliance with the restrictions embodied
in its policies.
Foreign Currency Risk
Our objective in managing our exposure to foreign currency fluctuations is
also to limit the impact of such fluctuations on earnings and cash flows. Our
primary exposure to foreign currency risk relates to our investments in certain
investment limited partnerships and similar investment entities that hold
foreign securities, including those of entities based in emerging market
countries and other countries which experience volatility in their capital and
lending markets. To a more limited extent, we have foreign currency exposure
when our investment managers buy or sell foreign currencies or financial
instruments denominated in foreign currencies for our account or the accounts of
investment limited partnerships and similar investment entities in which we have
invested. 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) investments in foreign
subsidiaries and (2) export revenues and related receivables denominated in
foreign currencies which are subject to foreign currency fluctuations. Our
primary export revenue exposures relate to royalties in Canada and, prior to the
Snapple Beverage Sale, relate to sales in Canada, the Caribbean and Europe. As a
result of the Snapple Beverage Sale, a portion of such foreign operations and
such export sales are included as a component of "Income (loss) from
discontinued operations" in the accompanying condensed consolidated statements
of operations. Foreign operations and foreign export revenues of continuing
operations for our most recent full fiscal year ended January 2, 2000
represented only 4% of our revenues and an immediate 10% change in foreign
currency exchange rates versus the United States dollar from their levels at
January 2, 2000 would not have had a material effect on our consolidated
financial position or results of operations.
Overall Market Risk
With regard to overall market risk, we attempt to mitigate our exposure
to such risks by assessing the relative proportion of our investments in cash
and cash equivalents and the relatively stable and risk-minimized returns
available on such investments. We periodically interview asset managers to
ascertain the investment objectives of such managers and invest amounts with
selected managers in order to avail ourselves of higher but more risk inherent
returns from the selected investment strategies of these managers. We seek to
identify alternative investment strategies also seeking higher returns with
attendant increased risk profiles for a portion of our investment portfolio. We
periodically review the returns from each of our investments and may maintain,
liquidate or increase selected investments based on this review of past returns
and prospects for future returns.
We maintain investment portfolio holdings of various issuers, types and
maturities. As of October 1, 2000, such investments consist of the following (in
thousands):
Cash equivalents included in "Cash and cash equivalents"
on the accompanying condensed consolidated balance
sheets..................................................$ 109,118
Short-term investments...................................... 97,364
Non-current investments..................................... 14,351
------------
$ 220,833
============
Such investments are classified in the following general types or
categories:
<TABLE>
<CAPTION>
Investments at
Investments Fair Value or Carrying
Type at Cost Equity Value Percentage
---- ------- ------ ----- ----------
(In thousands)
<S> <C> <C> <C> <C>
Cash equivalents ..........................................$ 109,118 $ 109,118 $ 109,118 49.4%
Certificate of deposit, not highly liquid.................. 15,000 15,000 15,000 6.8%
Company-owned securities accounted for as:
Trading securities................................. 15,655 15,006 15,006 6.8%
Available-for-sale securities...................... 32,488 32,798 32,798 14.9%
Investments in investment limited partnerships and
similar investment entities accounted for at:
Cost............................................... 28,246 35,529 28,246 12.8%
Equity............................................. 5,340 11,081 11,081 5.0%
Other non-current investments accounted for at:
Cost............................................... 4,850 4,850 4,850 2.2%
Equity............................................. 5,357 4,734 4,734 2.1%
----------- ----------- ----------- ----------
Total cash equivalents and long investment positions ......$ 216,054 $ 228,116 $ 220,833 100.0%
=========== ========= =========== ==========
Securities sold with an obligation for us to
purchase accounted for as trading securities..........$ (12,635) $ (11,630) $ (11,630) 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 other
comprehensive income, net of income taxes, included in stockholders' deficit or
included as a component of net income, respectively. Investment limited
partnerships and similar investment entities 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
similar investment entities 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 as well as company-owned
"available-for-sale" marketable securities 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. The cost of
such investments as reflected in the table above represents original cost less
unrealized losses that were deemed to be other than temporary. Investment
limited partnerships and similar investment entities and other non-current
investments in which we have significant influence over the investee are
accounted for in accordance with the equity method of accounting under which our
results of operations include our share of the income or loss of such investees.
Sensitivity Analysis
For purposes of this disclosure, market risk sensitive instruments are
divided into two categories: instruments entered into for trading purposes and
instruments entered into for purposes other than trading. Our measure of market
risk exposure represents an estimate of the potential change in fair value of
our financial instruments. Market risk exposure is presented for each class of
financial instruments held by us at October 1, 2000 for which an immediate
adverse market movement represents a potential material impact on our financial
position or results of operations. We believe that the various 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 its 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 1, 2000 based upon assumed immediate
adverse effects as noted below.
Trading Portfolio:
Carrying Equity
Value Price Risk
----- ----------
(In thousands)
Equity securities .............................$ 11,965 $ (1,197)
Debt securities................................ 3,041 (304)
Securities sold but not yet purchased.......... (11,630) 1,163
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 consolidated 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 1, 2000, with all other variables held
constant. For purposes of this analysis, our debt securities, primarily
convertible bonds, were assumed to primarily trade based upon the conversion
feature of the securities and be perfectly correlated with the assumed equity
index.
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 ...................................$ 109,118 $ -- $ -- $ --
Certificate of deposit, not highly liquid........... 15,000 -- -- --
Available-for-sale equity securities ............... 28,347 -- (2,835) --
Available-for-sale debt securities.................. 4,451 (490) -- --
Other investments .................................. 48,911 (591) (3,100) (548)
Long-term debt...................................... 889,822 (4,494) -- --
</TABLE>
The cash equivalents are short-term in nature with a maturity of three
months or less when acquired and the certificate of deposit, not highly liquid,
is short term in nature with a maturity of seven months when renewed and, as
such, a change in interest rates of one percentage point would not have a
material impact on these investments or our consolidated financial position or
results of operations. Long-term debt includes all of our debt including that
which has been included as a component of "Net non-current liabilities of
discontinued operations" and "Net current assets of discontinued operations" in
the accompanying condensed consolidated balance sheets.
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 1, 2000 and an instantaneous 10%
decrease in the equity markets in which we are invested from their levels at
October 1, 2000, both with all other variables held constant. The increase of
one percentage point in market interest rates with respect to our
available-for-sale debt securities represents an assumed average 11% decline in
earnings as the weighted average interest rate of such debt securities at
October 1, 2000 approximated 9%. The increase of one percentage point with
respect to our long-term debt (1) represents an assumed average 10% increase in
the market interest rates as the weighted average interest rate of our
variable-rate debt at October 1, 2000 approximated 10% and (2) relates only to
our variable-rate debt since a change in interest rates would not affect
interest expense on our fixed-rate debt. The interest rate risk presented with
respect to long-term debt represents the potential impact the indicated change
in interest rates would have on our consolidated results of operations and not
our consolidated financial position. The analysis also assumes an instantaneous
10% change in the foreign currency exchange rates versus the United States
dollar from their levels at October 1, 2000, with all other variables held
constant. For purposes of this analysis, with respect to investments in
investment limited partnerships and similar investment entities accounted for at
cost, (1) the investment mix for each such investment between equity versus debt
securities and securities denominated in United States dollars versus foreign
currencies was assumed to be unchanged since January 2, 2000 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 other investments, other than
investment limited partnerships and similar investment entities and other
non-current investments which trade in public equity markets.
Pursuant to a contract entered into in 1999, as of October 1, 2000 we had
a remaining obligation to repurchase an aggregate of 1,999,207 shares of our
Class B common stock which are required to be purchased on or before August 19,
2001. At October 1, 2000 the aggregate $43,843,000 obligation related to this
remaining purchase has been reflected as a separate line item between the
liabilities and stockholders' equity sections in the accompanying condensed
consolidated balance sheets with an equal offsetting increase in 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 obligation. 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.
<PAGE>
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. These forward-looking statements are based
on our expectations and are susceptible to a number of risks, uncertainties and
other factors and our actual results, performance or achievements may differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Reform Act. Many important factors could affect our future results 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 franchisees;
development and operating costs; advertising and promotional efforts; brand
awareness; the existence or absence of positive or adverse publicity; market
acceptance of new product offerings; new product and concept development by
competitors; changing trends in consumer tastes and demographic patterns;
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 suppliers of their
obligations under their supply agreements with franchisees; changes in business
strategy or development plans; quality of the Company's and franchisees'
management; availability, terms and deployment of capital; business abilities
and judgment of the Company's and franchisees' personnel; availability of
qualified personnel to the Company and to franchisees; labor and employee
benefit costs; availability and cost of raw materials, ingredients and supplies
and the potential impact on franchise royalties and franchisees' restaurant
level sales that could arise from interruptions in the distribution of supplies
of food and other products to franchisees; general economic, business and
political conditions in the countries and territories where franchisees operate;
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 which are difficult or
impossible to predict accurately and many of which are beyond our control. We
will not undertake and specifically decline any obligation to publicly release
the results of any revisions which may be made to any forward-looking statements
to reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events. In addition, it
is our policy generally not to make any specific projections as to future
earnings, and we do not endorse any projections regarding future performance
that may be made by third parties.
Item 1. Legal Proceedings
As reported in the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 2000 (the "Form 10-K"), three former court-appointed
directors had asserted claims against Nelson Peltz, a director and the Chairman
and Chief Executive Officer of Triarc, seeking, among other things, an order
reinstating them to the Company's Board of Directors. As reported in the Form
10-K, by order dated February 10, 1999, the Federal District Court granted Mr.
Peltz's motion for summary judgment with respect to all the claims against him
asserted in the actions, and on September 29, 1999, the three former directors
filed a notice of appeal from the dismissal of their claims to the United States
Court of Appeals for the Second Circuit. On August 21, 2000, the Court of
Appeals affirmed the decision of the District Court. On September 26, 2000, the
Court of Appeals denied the plaintiffs' request for a rehearing.
As reported in the Form 10-K, Kamran Malekan and Daniel Mannion, two
stockholders of the Company, commenced an action in the Delaware Court of
Chancery asserting claims relating to certain awards of compensation to Nelson
Peltz and Peter W. May, a director and the President and Chief Operating Officer
of Triarc. As reported in the Form 10-K, on March 30, 2000 the parties entered
into a memorandum of understanding to settle the case, subject to the execution
of definitive settlement documents and approval by the Court. On August 17,
2000, the parties entered into a Stipulation and Agreement of Compromise,
Settlement and Release whereby (subject to the Court's approval): (i) the case
will be dismissed with prejudice; (ii) Messrs. Peltz and May will deliver a
three-year note payable to the Company in the aggregate amount of $5.0 million;
and (iii) Messrs. Peltz and May will surrender an aggregate of 775,000
performance options awarded to them in 1994. On November 20, 2000, the Chancery
Court held a final hearing to determine, among other things, whether to approve
the settlement. The Court took the issue under advisement.
As reported in the Form 10-K, William Pallot filed a purported derivative
action against the Company's directors and other defendants in the Supreme Court
of the State of New York, New York County, asserting claims relating to the
Company's purchase of certain of its shares from affiliates of Victor Posner and
the Company's purchase and lease of certain aircraft. On October 31, 2000, the
Court granted the defendants' motion to dismiss the action. On November 13,
2000, Pallot served a notice of appeal to the Appellate Division of the Supreme
Court of the State of New York.
Item 5. Other Information
Sale of the Snapple Beverage Group
On October 25, 2000, Triarc completed the sale of all the outstanding
capital stock of Snapple Beverage Group, Inc. and Royal Crown Company, Inc.
("Royal Crown") to affiliates of Cadbury Schweppes plc for approximately $901
million in cash, subject to post-closing adjustment, plus the assumption of
approximately $425 million of debt. Approximately $427 million of the cash
received was used to repay outstanding amounts under a senior bank credit
facility maintained by Snapple Beverage Corp., Mistic Brands, Inc., Stewart's
Beverages, Inc., Royal Crown and RC/Arby's Corporation. The transaction included
the sale of the Snapple Beverage Group's premium beverage business - Snapple(R),
Mistic(R) and Stewart's(R) - and soft drinks concentrates business - Royal
Crown(R), Diet Rite(R), RC Edge(R) and Nehi(R).
Prior to the sale of the Snapple Beverage Group, employees of the Snapple
Beverage Group agreed to surrender options to acquire an aggregate of 912,169
shares of Triarc Class A Common Stock for an aggregate payment of approximately
$6.2 million, representing the aggregate spread between $23.75 (the closing
price of the Class A Common Stock on October 13, 2000) and the exercise price of
such options. Triarc also agreed to pay cash compensation to certain of those
individuals equal to the product of (i) the excess of the average of the five
highest closing prices for Class A Common Stock during the 90-day period
following the closing of the sale of the Snapple Beverage Group over $23.75 and
(ii) the number of options surrendered by such individual.
Arby's Financing
On November 3, 2000, Triarc announced that its restaurant franchising
subsidiary, Arby's, Inc., intends to offer approximately $290 million of fixed
rate insured notes ("Notes"), through a special purpose financing vehicle,
pursuant to Rule 144A of the Securities Act of 1933, as amended (the "Securities
Act"). The Notes will be backed by Arby's franchise royalty payments. The
financing is expected to close by the end of the fourth quarter of 2000, and
Triarc expects to receive net cash available proceeds of approximately $250
million from the financing, which is net of approximately $30 million of
proceeds to be put into a reserve account, as well as transaction fees and
expenses. There can be no assurance, however, that the financing will be
consummated.
Taking into account the sale of the Snapple Beverage Group and assuming
the consummation of the Arby's financing, Triarc's cash and investment position,
net of current cash tax liabilities related to the sale of the Snapple Beverage
Group, will be in excess of $700 million and pro forma debt will be
approximately $310 million. Triarc is evaluating options for the use of its
cash, including acquisitions, share repurchases and investments.
The Notes will be offered only to certain qualified institutional buyers
in the United States and to certain non-U.S. persons in reliance on Regulation S
under the Securities Act. The Notes proposed to be issued will not be registered
under the Securities Act, and may not be offered or sold within the United
States except pursuant to an exemption from the Securities Act, or in a
transaction not subject to the registration requirements of the Securities Act.
This Quarterly Report on Form 10-Q shall not constitute an offer to sell or a
solicitation of an offer to buy such Notes, nor shall there be any sale of Notes
in any state or jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
such state or jurisdiction.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 - Agreement and Plan of Merger dated September 15, 2000, among Cadbury
Schweppes plc, CSN Acquisition Inc., CRC Acquisition Inc., Triarc Companies,
Inc., Snapple Beverage Group, Inc. and Royal Crown Company, Inc., incorporated
herein by reference to Exhibit 2.1 to Triarc's Current Report on Form 8-K dated
September 20, 2000 (SEC file no. 1-2207).
4.1 - Supplemental Indenture No. 1, dated as of October 25, 2000, by
and among Triarc Companies, Inc., SBG Holdings Inc. and The Bank of New
York, incorporated herein by reference to Exhibit 4.1 to Triarc's Current
Report on Form 8-K dated November 8, 2000 (SEC file no. 1-2207).
4.2 - Supplemental Indenture No. 5, dated as of October 25, 2000, by
and among Triarc Consumer Products Group LLC, Snapple Beverage Group, Inc.,
RCAC, LLC, Promociones Holdings, LLC and The Bank of New York, incorporated
herein by reference to Exhibit 4.2 to Triarc's Current Report on Form 8-K dated
November 8, 2000 (SEC file no. 1-2207).
4.3 - Supplemental Indenture No. 6, dated as of October 25, 2000, by and
among Triarc Consumer Products Group, LLC, Snapple Beverage Group, Inc., Arby's
Acquisition, LLC, RCAC, LLC and The Bank of New York, incorporated herein by
reference to Exhibit 4.3 to Triarc's Current Report on Form 8-K dated November
8, 2000 (SEC file no. 1-2207).
4.4 - Supplemental Indenture No. 7, dated as of October 25, 2000,
by and among Triarc Consumer Products Group, LLC, Snapple Beverage Group, Inc.,
SBG Holdings Inc., the Subsidiary Guarantors party thereto and The Bank of New
York, incorporated herein by reference to Exhibit 4.4 to Triarc's Current
Report on Form 8-K dated November 8, 2000 (SEC file no. 1-2207).
10.1 - Tax Agreement dated as of September 15, 2000, by and among Cadbury
Schweppes plc, SBG Holdings Inc., Triarc Companies, Inc. and Triarc Consumer
Products Group, LLC, incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated September 20, 2000 (SEC file no.
1-2207).
10.2 - Indemnity Agreement, dated as of October 25, 2000 between Cadbury
Schweppes plc and Triarc Companies, Inc., incorporated herein by reference to
Exhibit 10.1 to Triarc's Current Report on Form 8-K dated November 8, 2000 (SEC
file no. 1-2207).
27.1 - Financial Data Schedule for the nine month period ended October 1,
2000, submitted to the Securities and Exchange Commission in electronic format.
27.2 - Financial Data Schedule for the nine month period ended October 3,
1999, 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 September 20, 2000, 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 20, 2000 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
Senior Vice President and
Chief Accounting Officer
(Principal accounting officer)
<PAGE>
Exhibit Index
-------------
Exhibit
No. Description Page No.
-------- ---------------- ---------
2.1 - Agreement and Plan of Merger dated September 15, 2000,
among Cadbury Schweppes plc, CSN Acquisition Inc.,
CRC Acquisition Inc., Triarc Companies, Inc., Snapple
Beverage Group, Inc. and Royal Crown Company, Inc.,
incorporated herein by reference to Exhibit 2.1 to
Triarc's Current Report on Form 8-K dated September
20, 2000 (SEC file no. 1-2207).
4.1 - Supplemental Indenture No. 1, dated as of October 25, 2000,
by and among Triarc Companies, Inc., SBG Holdings Inc. and
The Bank of New York, incorporated herein by reference to
Exhibit 4.1 to Triarc's Current Report on Form 8-K dated
November 8, 2000 (SEC file no. 1-2207).
4.2 - Supplemental Indenture No. 5, dated as of October 25, 2000,
by and among Triarc Consumer Products Group LLC, Snapple
Beverage Group, Inc., RCAC, LLC, Promociones Holdings, LLC
and The Bank of New York, incorporated herein by reference
to Exhibit 4.2 to Triarc's Current Report on Form 8-K
dated November 8, 2000 (SEC file no. 1-2207).
4.3 - Supplemental Indenture No. 6, dated as of October 25, 2000,
by and among Triarc Consumer Products Group, LLC, Snapple
Beverage Group, Inc., Arby's Acquisition, LLC, RCAC, LLC
and The Bank of New York, incorporated herein by reference
to Exhibit 4.3 to Triarc's Current Report on Form 8-K
dated November 8, 2000 (SEC file no. 1-2207).
4.4 - Supplemental Indenture No. 7, dated as of October 25, 2000,
by and among Triarc Consumer Products Group, LLC, Snapple
Beverage Group, Inc., SBG Holdings Inc., the Subsidiary
Guarantors party thereto and The Bank of New York,
incorporated herein by reference to Exhibit 4.4 to
Triarc's Current Report on Form 8-K dated November 8,
2000 (SEC file no. 1-2207).
10.1 - Tax Agreement dated as of September 15, 2000, by and
among Cadbury Schweppes plc, SBG Holdings Inc., Triarc
Companies, Inc. and Triarc Consumer Products Group, LLC,
incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated September 20,
2000 (SEC file no. 1-2207).
10.2 - Indemnity Agreement, dated as of October 25, 2000 between
Cadbury Schweppes plc and Triarc Companies, Inc.,
incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated November 8,
2000 (SEC file no. 1-2207).
27.1 - Financial Data Schedule for the nine month period ended
October 1, 2000, submitted to the Securities and Exchange
Commission in electronic format.
27.2 - Financial Data Schedule for the nine month period ended
October 3, 1999, on a restated basis, submitted to the
Securities and Exchange Commission in electronic format.
