-------------------------------------------------------------------------------
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 July 2, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to_________________
Commission file number: 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 20,010,743 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 August 11, 2000.
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 2, July 2,
2000 (A) 2000
-------- ----
(In thousands)
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................$ 161,883 $ 153,294
Short-term investments................................................................ 151,634 94,552
Receivables........................................................................... 79,284 123,205
Inventories........................................................................... 61,736 85,011
Deferred income tax benefit .......................................................... 18,773 21,786
Prepaid expenses and other current assets ............................................ 4,333 5,864
------------ ------------
Total current assets................................................................ 477,643 483,712
Investments............................................................................... 14,155 14,256
Properties................................................................................ 36,398 69,341
Unamortized costs in excess of net assets of acquired companies........................... 261,666 256,067
Trademarks................................................................................ 251,117 245,817
Other intangible assets................................................................... 31,630 33,327
Deferred costs and other assets........................................................... 51,123 47,942
------------ ------------
$ 1,123,732 $ 1,150,462
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt.....................................................$ 42,194 $ 42,551
Accounts payable...................................................................... 58,469 75,942
Accrued expenses...................................................................... 138,988 128,406
----------- ------------
Total current liabilities........................................................... 239,651 246,899
Long-term debt............................................................................ 850,859 855,912
Deferred income taxes..................................................................... 91,311 98,740
Deferred income and other liabilities..................................................... 22,451 23,592
Forward purchase obligation for common stock.............................................. 86,186 86,186
Stockholders' deficit:
Common stock.......................................................................... 3,555 3,555
Additional paid-in capital............................................................ 204,231 204,336
Accumulated deficit................................................................... (90,680) (83,370)
Treasury stock........................................................................ (202,625) (198,735)
Common stock to be acquired........................................................... (86,186) (86,186)
Accumulated other comprehensive income (deficit)...................................... 5,040 (467)
Unearned compensation................................................................. (61) --
------------ ------------
Total stockholders' deficit ........................................................ (166,726) (160,867)
------------ ------------
$ 1,123,732 $ 1,150,462
============ ============
(A) Derived from the audited consolidated financial statements as of January 2, 2000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
--------------------------- ------------------------
July 4, July 2, July 4 July 2,
1999 2000 1999 2000
---- ---- ---- ----
(In thousands except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net sales...................................................$ 230,379 $ 244,522 $ 390,267 $ 414,867
Royalties, franchise fees and other revenues................ 20,447 21,647 38,750 41,320
---------- ---------- ----------- ----------
250,826 266,169 429,017 456,187
---------- ---------- ----------- ----------
Costs and expenses:
Cost of sales, excluding depreciation and amortization
related to sales of $501,000, $553,000, $951,000 and
$1,052,000................................................ 120,753 128,294 202,893 217,567
Advertising, selling and distribution....................... 66,290 68,246 114,046 114,618
General and administrative.................................. 28,157 32,015 55,356 64,447
Depreciation and amortization, excluding amortization
of deferred financing costs............................... 8,773 9,332 17,197 18,465
Capital structure reorganization related charges............ 1,217 315 4,867 649
---------- ---------- ----------- ----------
225,190 238,202 394,359 415,746
---------- ---------- ----------- ----------
Operating profit ......................................... 25,636 27,967 34,658 40,441
Interest expense................................................ (22,193) (23,495) (41,328) (46,618)
Investment income, net.......................................... 7,023 5,312 12,307 21,488
Other income, net............................................... 1,743 418 2,401 934
---------- ---------- ----------- ----------
Income from continuing operations before income
taxes.................................................. 12,209 10,202 8,038 16,245
Provision for income taxes...................................... (7,004) (5,612) (4,582) (8,935)
---------- ---------- ----------- ----------
Income from continuing operations......................... 5,205 4,590 3,456 7,310
Loss from discontinued operations............................... (985) -- (484) --
---------- ---------- ----------- ----------
Income before extraordinary charges....................... 4,220 4,590 2,972 7,310
Extraordinary charges........................................... -- -- (12,097) --
---------- ---------- ----------- ----------
Net income (loss).........................................$ 4,220 $ 4,590 $ (9,125) $ 7,310
========== ========== =========== ==========
Basic income (loss) per share:
Income from continuing operations.........................$ .20 $ .19 $ .12 $ .31
Loss from discontinued operations......................... (.04) -- (.02) --
Extraordinary charges..................................... -- -- (.43) --
---------- ---------- ----------- ----------
Net income (loss).........................................$ .16 $ .19 $ (.33) $ .31
========== ========== =========== ==========
Diluted income (loss) per share:
Income from continuing operations.........................$ .19 $ .18 $ .12 $ .29
Loss from discontinued operations......................... (.04) -- (.02) --
Extraordinary charges..................................... -- -- (.43) --
---------- ---------- ----------- ----------
Net income (loss).........................................$ .15 $ .18 $ (.33) $ .29
========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
------------------------------
July 4, July 2,
1999 2000
---- ----
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................$ (9,125) $ 7,310
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of costs in excess of net assets of acquired companies,
trademarks and certain other items ............................................... 11,998 13,167
Depreciation and amortization of properties......................................... 5,199 5,298
Amortization of original issue discount and deferred financing costs ............... 5,820 5,710
Write-off of unamortized deferred financing costs and interest rate cap
agreement costs................................................................... 11,446 --
Capital structure reorganization related charges.................................... 4,867 649
Net recognized (gains) losses from trading securities............................... (9,192) 4,036
Proceeds from sales of trading securities, net of purchases......................... 6,504 12,299
Net recognized (gains) losses from transactions in other than trading securities,
including equity in investment limited partnerships, and short positions.......... 5,795 (20,004)
Deferred income tax provision....................................................... 439 7,429
Loss from discontinued operations................................................... 484 --
Other, net.......................................................................... 471 3,381
Changes in operating assets and liabilities:
Increase in receivables........................................................... (49,739) (44,659)
Increase in inventories........................................................... (22,318) (23,085)
Increase in prepaid expenses and other current assets............................. (3,900) (1,448)
Increase in accounts payable and accrued expenses ............................... 39,313 18,906
------------ ---------
Net cash used in operating activities........................................ (1,938) (11,011)
------------ ---------
Cash flows from investing activities:
Net proceeds from sales (cost of purchases) of available-for-sale securities and other
investments............................................................................ (15,481) 46,826
Net payments to cover short positions in securities...................................... (10,761) (8,377)
Capital expenditures..................................................................... (6,338) (20,161)
Business acquisitions.................................................................... (17,376) (3,868)
Other.................................................................................... 428 1,071
------------ ---------
Net cash provided by (used in) investing activities.......................... (49,528) 15,491
------------ ---------
Cash flows from financing activities:
Repayments of long-term debt............................................................. (563,143) (44,257)
Proceeds from long-term debt............................................................. 775,000 28,000
Proceeds from stock option exercises .................................................... 4,137 3,234
Repurchases of common stock for treasury................................................. (75,958) --
Deferred financing costs................................................................. (29,600) --
------------ ---------
Net cash provided by (used in) financing activities......................... 110,436 (13,023)
------------ ---------
Net cash provided by (used in) continuing operations......................................... 58,970 (8,543)
Net cash used in discontinued operations..................................................... (2,060) (46)
------------ ---------
Net increase (decrease) in cash and cash equivalents......................................... 56,910 (8,589)
Cash and cash equivalents at beginning of period............................................. 161,248 161,883
------------ ---------
Cash and cash equivalents at end of period...................................................$ 218,158 $ 153,294
============ =========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
July 2, 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 (the "SEC") and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the opinion of the
Company, however, the accompanying condensed consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Company's financial position as of January 2,
2000 and July 2, 2000, its results of operations for the three-month and
six-month periods ended July 4, 1999 and July 2, 2000 and its cash flows for the
six-month periods ended July 4, 1999 and July 2, 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 half of 1999 commenced on January 4, 1999 and ended on July 4,
1999, with its second quarter commencing on April 5, 1999 and the Company's
first half of 2000 commenced on January 3, 2000 and ended on July 2, 2000, with
its second quarter commencing on April 3, 2000. For purposes of these condensed
consolidated financial statements, the periods (1) from January 4, 1999 to July
4, 1999 and April 5, 1999 to July 4, 1999 are referred to below as the six-month
and three-month periods ended July 4, 1999, respectively, and (2) from January
3, 2000 to July 2, 2000 and April 3, 2000 to July 2, 2000 are referred to below
as the six-month and three- month periods ended July 2, 2000, respectively.
(2) Inventories
The following is a summary of the components of inventories (in thousands):
January 2, July 2,
2000 2000
---- ----
Raw materials.............................$ 20,952 $ 27,647
Work in process........................... 397 426
Finished goods............................ 40,387 56,938
---------- ----------
$ 61,736 $ 85,011
========== ==========
(3) Capital Structure Reorganization Related Charges
The capital structure reorganization related charges of $1,217,000 and
$4,867,000 recognized during the three-month and six-month periods ended July 4,
1999, respectively, and $315,000 and $649,000 recognized during the three-month
and six-month periods ended July 2, 2000, respectively, resulted from equitable
adjustments made in 1999 to the terms of then outstanding options under the
stock option plan (the "Snapple Beverage Plan") of Snapple Beverage Group, Inc.
("Snapple Beverage Group"), formerly Triarc Beverage Holdings Corp., a
subsidiary of the Company, to adjust for the effects of net distributions of
$91,342,000, 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 Beverages, Inc., a subsidiary of the Company, to
Snapple Beverage Group effective May 17, 1999.
The Snapple Beverage Plan provides for an equitable adjustment of options
in the event of a recapitalization or similar event. As a result of these net
distributions and the terms of the Snapple Beverage Plan, the exercise prices of
the Snapple Beverage Group options granted in 1997 and 1998 were equitably
adjusted in 1999 from $147.30 and $191.00 per share, respectively, to $107.05
and $138.83 per share, respectively, and a cash payment of $51.34 and $39.40 per
share, respectively, is due from the Company to the option holder following the
exercise of the stock options and either (1) the sale by the option holder to
the Company of shares of Snapple Beverage Group common stock received upon the
exercise of the stock options or (2) the consummation of an initial public
offering of Snapple Beverage Group common stock (see Note 10). The Company has
accounted for the equitable adjustment in accordance with the intrinsic value
method. Compensation expense is being recognized for the cash to be paid in
connection with the exercise of the stock options ratably over the vesting
period of the stock options. No compensation expense has been or will be
recognized for the changes in the exercise prices of the outstanding options
because such modifications to the options did not create a new measurement date
under the intrinsic value method.
(4) 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 carrforwards 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 $1,204,000 against amounts otherwise due
the IRS from audits of years ending prior to April 30, 1993. During 1999 the
Company had settled the final income tax liabilities resulting from the IRS
examination of the Company's income tax returns for the tax years from 1989
through 1992. However, the IRS has not yet finalized the computation of the
remaining interest due from the Company as a result of the audits of those
years. Management of the Company believes that adequate interest accruals have
been provided in prior periods for any further interest liabilities that may
result from the finalization of such computation.
(5) Comprehensive Income (Loss)
The following is a summary of the components of comprehensive income
(loss), net of income taxes (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------- -----------------------
July 4, July 2, July 4, July 2,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) ..............................................$ 4,220 $ 4,590 $ (9,125) $ 7,310
Unrealized appreciation (depreciation) of available-for-sale
securities.................................................. 3,694 (486) 7,522 327
Reclassification adjustments for prior period
appreciation of securities sold during the year............... (1,529) (220) (482) (5,687)
Equity in the decrease in unrealized gain on retained
interest which is accounted for similarly to an
available-for-sale security................................... (13) (26) (13) (38)
Net change in currency translation adjustment.................... (49) (99) (127) (109)
-------- ---------- ---------- ----------
Comprehensive income (loss)...............................$ 6,323 $ 3,759 $ (2,225) $ 1,803
========== ========== ========== ==========
</TABLE>
(6) Income (Loss) Per Share
Basic income (loss) per share for the three and six-month periods ended
July 4, 1999 and July 2, 2000 has been computed by dividing the income or loss
by the weighted average number of common shares outstanding of 26,434,000,
27,875,000, 23,954,000 and 23,880,000, respectively. For the three and six-month
periods ended July 4, 1999 and July 2, 2000, diluted income (loss) per share has
been computed by dividing the income or loss by an aggregate 27,339,000,
28,328,000, 25,132,000 and 25,116,000 shares, respectively. The shares used for
diluted income (loss) per share for the three and six-month periods ended July
4, 1999 and July 2, 2000 consist of the weighted average number of common shares
outstanding and potential common shares reflecting (1) the 905,000, 453,000,
1,002,000 and 873,000 share effect for the three and six-month periods ended
July 4, 1999 and July 2, 2000, respectively, of dilutive stock options computed
using the treasury stock method and (2) the 176,000 and 363,000 share effect for
the three and six-month periods ended July 2, 2000, respectively, of a dilutive
forward purchase obligation for common stock 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 the assumed conversion of the
Company's zero coupon convertible subordinated debentures due 2018 since the
effect thereof would have been antidilutive. Basic and diluted loss per share
are the same for the six-month period ended July 4, 1999 since the dilutive
securities had an effect of less than $.01 per share.
(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 $1,898,000 for the six-month period
ended July 4, 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 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. 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 six-month period ended July 2, 2000 of $387,000
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 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 $2,284,000 as of
July 2, 2000. Although the outcome of such matters cannot be predicted with
certainty and some of these matters may be disposed of unfavorably to the
Company, based on currently available information and given the Company's
aforementioned reserves, the Company does not believe that such legal and
environmental matters will have a material adverse effect on its consolidated
financial position or results of operations.
(9) Business Segments
The following is a summary of the Company's segment information (in
thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------ --------------------------
July 4, July 2, July 4, July 2,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Premium beverages...................................$ 196,370 $ 208,780 $ 325,532 $ 349,411
Soft drink concentrates............................. 34,344 36,104 65,284 66,098
Restaurant franchising.............................. 20,112 21,285 38,201 40,678
----------- ----------- ----------- ----------
Consolidated revenues...........................$ 250,826 $ 266,169 $ 429,017 $ 456,187
=========== =========== =========== ==========
Earnings before interest, taxes, depreciation and
amortization:
Premium beverages (a)...............................$ 22,724 $ 25,792 $ 31,630 $ 39,643
Soft drink concentrates............................. 5,293 5,777 10,508 11,178
Restaurant franchising.............................. 12,012 12,537 21,674 22,747
General corporate (a)............................... (5,620) (6,807) (11,957) (14,662)
----------- ----------- ----------- ----------
Consolidated earnings before interest, taxes,
depreciation and amortization............... 34,409 37,299 51,855 58,906
----------- ----------- ----------- ----------
Less depreciation and amortization:
Premium beverages................................... 5,662 6,459 11,047 12,743
Soft drink concentrates............................. 1,791 1,508 3,709 3,008
Restaurant franchising.............................. 533 541 1,082 1,080
General corporate................................... 787 824 1,359 1,634
----------- ----------- ----------- ----------
Consolidated depreciation and amortization...... 8,773 9,332 17,197 18,465
----------- ----------- ----------- ----------
Operating profit:
Premium beverages (a)............................... 17,062 19,333 20,583 26,900
Soft drink concentrates............................. 3,502 4,269 6,799 8,170
Restaurant franchising.............................. 11,479 11,996 20,592 21,667
General corporate (a)............................... (6,407) (7,631) (13,316) (16,296)
----------- ----------- ----------- ----------
Consolidated operating profit................... 25,636 27,967 34,658 40,441
Interest expense........................................ (22,193) (23,495) (41,328) (46,618)
Investment income, net.................................. 7,023 5,312 12,307 21,488
Other income, net....................................... 1,743 418 2,401 934
----------- ----------- ----------- ----------
Consolidated income from continuing
operations before income taxes...............$ 12,209 $ 10,202 $ 8,038 $ 16,245
=========== =========== =========== ==========
------------
</TABLE>
(a) Reflects the capital structure reorganization related charge discussed in
Note 3 as follows (in thousands):
Three months ended Six months ended
-------------------- -------------------
July 4, July 2, July 4, July 2,
1999 2000 1999 2000
---- ---- ---- ----
Charged to:
Premium beverages...........$ 750 $ 204 $ 3,000 $ 408
General corporate........... 467 111 1,867 241
------- ------ ------- -------
$ 1,217 $ 315 $ 4,867 $ 649
======= ====== ======= =======
(10) Snapple Beverage Group Initial Public Offering
Snapple Beverage Group, as restructured (see below), currently intends to
issue an estimated $100,000,000 of its common stock in an initial public
offering (the "Offering"). These shares will be registered pursuant to a
registration statement on Form S-1 that has been filed with the SEC but which
has not yet been declared effective.
Assuming the successful completion of the Offering, Triarc Consumer
Products Group, LLC ("Triarc Consumer Products Group"), a subsidiary of the
Company and the parent of Snapple Beverage Group, will be restructured (the
"Restructuring"). In accordance with the restructuring transactions, Snapple
Beverage Group will be transferred to RC/Arby's Corporation ("RC/Arby's"),
currently a subsidiary of Triarc Consumer Products Group, RC/Arby's (parent
company) and the restaurant franchising business will then be effectively
distributed from Triarc Consumer Products Group to Triarc and, as a result of a
series of transactions, Triarc Consumer Products Group will then effectively
merge into Snapple Beverage Group.
Also assuming the successful completion of the Offering, Snapple Beverage
Group will receive an estimated $178,000,000 capital contribution from
RC/Arby's, representing the net proceeds of a financing of its restaurant
business. Snapple Beverage Group is also expected to enter into a new credit
facility consisting of up to $195,000,000 of term loans and a $50,000,000
revolving credit facility. No borrowings under the new revolving credit facility
are expected to occur at the time of the completion of the Offering. The net
proceeds of the Offering and the term loan borrowings under the new credit
facility, together with all of the cash and cash equivalents of RC/Arby's and
the restaurant business and all but $2,000,000 of the cash and cash equivalents
of Snapple Beverage Group, as restructured, are expected to be used to (1) repay
prior to maturity all outstanding borrowings under the Company's existing credit
facility and accrued interest thereon and (2) pay (a) prepayment penalties
resulting from the prepayment of certain of the outstanding term loans and (b)
fees and expenses relating to the Offering and the consummation of the new
credit facility. The early extinguishment of the borrowings under the existing
credit facility will result in an extraordinary charge at the time the
borrowings under the existing credit facility are repaid prior to maturity for
the write-off of previously unamortized deferred financing costs and the payment
of the aforementioned prepayment penalties, less income tax benefit, which, as
of July 2, 2000, would have amounted to $11,567,000.
<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 premium beverage, soft drink
concentrate and restaurant franchising segments 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 half of fiscal 1999 commenced on January 4, 1999 and
ended on July 4, 1999, with our second quarter commencing on April 5, 1999 and
our first half of fiscal 2000 commenced on January 3, 2000 and ended on July 2,
2000, with our second quarter commencing on April 3, 2000. When we refer to the
"six months ended July 4, 1999," or the "1999 first half," and the "three months
ended July 4, 1999," or the "1999 second quarter," we mean the periods from
January 4, 1999 to July 4, 1999 and April 5, 1999 to July 4, 1999; and when we
refer to the "six months ended July 2, 2000," or the "2000 first half," and the
"three months ended July 2, 2000," or the "2000 second quarter," we mean the
periods from January 3, 2000 to July 2, 2000 and April 3, 2000 to July 2, 2000.
Results of Operations
Six Months Ended July 2, 2000 Compared with Six Months Ended July 4, 1999
Revenues
Our revenues increased $27.2 million, or 6.3% to $456.2 million for the
six months ended July 2, 2000 from $429.0 million for the six months ended July
4, 1999. A discussion of the changes in revenues by segment is as follows:
Premium Beverages -- Premium beverage revenues increased $23.9 million, or
7.3%, to $349.4 million for the six months ended July 2, 2000 from $325.5
million for the six months ended July 4, 1999. The increase, which relates
entirely to sales of finished product, reflects higher volume and, to a
lesser extent, higher average selling prices in the first half of 2000.
The increase in volume principally reflects (1) higher sales in the 2000
first half of Snapple Elements(TM), a new product platform of herbally
enhanced drinks introduced in April 1999, (2) 2000 sales of Mistic
Zotics(TM) and Stewart's "S"(TM) line of diet premium beverages introduced
in April 2000 and March 2000, respectively, (3) higher sales of diet teas
and other diet beverages and juice drinks, (4) higher sales of Stewart's
products as a result of increased distribution in existing and new markets
and (5) increased cases sold to retailers through Snapple Distributors of
Long Island, Inc. and Millrose Distributors, Inc. principally reflecting
the effect of an increased focus on our products as a result of our
ownership of these distributors since their acquisitions on January 2,
2000 and February 25, 1999, respectively. The effect with respect to
Millrose was for the full first half in 2000 compared with only the period
from February 26 to July 4 in the 1999 first half. Those increases were
partially offset by lower sales of WhipperSnapple(TM) in the 2000 first
half. The higher average selling prices principally reflect (1) the effect
of the Long Island Snapple and Millrose acquisitions whereby we sell
product at higher prices directly to retailers subsequent to these
acquisitions compared with sales at lower prices to distributors such as
Long Island Snapple and Millrose and, to a much lesser extent (2) the full
period effect in the 2000 first half of selective price increases in April
1999.
Soft Drink Concentrates -- Soft drink concentrate revenues increased $0.8
million, or 1.2%, to $66.1 million for the six months ended July 2, 2000
from $65.3 million for the six months ended July 4, 1999. The increase
reflects the $2.8 million effect of higher average selling prices,
partially offset by the $2.0 million effect of lower volume in the first
half of 2000. The higher average selling prices principally reflect (1)
price increases in most domestic concentrates effective November 1999 and
(2) a shift of our private label sales to sales of higher priced flavor
concentrates from sales of lower priced cola concentrates. The decrease in
volume principally reflects lower Royal Crown sales of concentrates
reflecting a decline in branded sales, primarily due to lower domestic
volume reflecting continued competitive pricing pressures experienced by
our bottlers. Those pressures began to lessen commencing in late 1999 and
have continued that trend into the third quarter of 2000.
Restaurant Franchising -- Restaurant franchising revenues increased $2.5
million, or 6.5%, to $40.7 million for the six months ended July 2, 2000
from $38.2 million for the six months ended July 4, 1999. This increase
principally reflects higher royalty revenues and slightly higher franchise
fee revenues. The increase in royalty revenues resulted from an average
net increase of 89, or 2.8%, franchised restaurants and a 1.9% increase in
same-store sales of franchised restaurants.
Gross Profit
We calculate gross profit as total revenues less (1) costs of sales,
excluding depreciation and amortization and (2) that portion of depreciation and
amortization related to sales. Our gross profit increased $12.4 million, or
5.5%, to $237.6 million for the six months ended July 2, 2000 from $225.2
million for the six months ended July 4, 1999. This increase was principally due
to the effect of the higher sales volumes discussed above. Our aggregate gross
margins, which we compute as gross profit divided by total revenues, were
unchanged at 52%. A discussion of the changes in gross margins by segment is as
follows:
Premium Beverages -- Gross margins were unchanged at 42% in both the six
months ended July 2, 2000 and the six months ended July 4, 1999. The
positive effect on gross margins from (1) the effect of the higher selling
prices resulting from the Millrose acquisition for the full 2000 first
half compared with only a portion of the 1999 first half and the Long
Island Snapple acquisition and (2) the selective price increases, both as
referred to above, were fully offset by the negative effects of (1) a
shift in product mix to lower-margin products in the 2000 first half, (2)
increased freight and handling costs in the 2000 first half principally as
a result of beginning the use of warehousing for our finished products
during the second half of 1999, (3) $1.1 million of increased provisions
for obsolete inventory resulting from higher levels of raw materials and
finished goods inventories that passed their shelf lives during the 2000
first half and that were not timely used and (4) increased production
costs in the 2000 first half resulting from higher fees charged to us by
our co-packers.
Soft Drink Concentrates -- Gross margins increased 1% to 77% for the six
months ended July 2, 2000 from 76% for the six months ended July 4, 1999.
This increase was due to the conversion, commencing in December 1999, from
our use of the raw material aspartame to the less costly Ace-K/sucralose
blend in our diet products.
Restaurant Franchising -- Gross margins for each period are 100% because
royalties and franchise fees constitute the total revenues of the segment
with no associated cost of sales.
Advertising, Selling and Distribution Expenses
Our advertising, selling and distribution expenses increased $0.5 million,
or 0.5%, to $114.6 million for the six months ended July 2, 2000 from $114.1
million for the six months ended July 4, 1999. The increase in advertising,
selling and distribution expenses is principally due to (1) a large scale coupon
promotional program introduced by our soft drink concentrate segment in March
2000, (2) higher employee compensation and related benefit costs reflecting an
increase in the number of sales and distribution employees of our premium
beverage segment and (3) higher costs resulting from our acquisition of certain
assets, principally distribution rights, of California Beverage Company in March
2000, a distributor of our premium beverage products in the city and county of
San Francisco, California. These increases were substantially offset by (1)
continued lower bottler promotional reimbursements of our soft drink concentrate
segment resulting from the decline in branded concentrate sales volume, (2)
an overall decrease in promotional spending by our premium beverage segment
principally reflecting a decrease in discounts offered to distributors
participating in the segment's cold drink equipment purchasing program and a
shift to shorter, less costly radio advertising as well as a shift from more
expensive network to less costly cable television advertising and (3) a decrease
in the provision for doubtful accounts of our restaurant franchising segment.
General and Administrative Expenses
Our general and administrative expenses increased $9.0 million, or 16.4%,
to $64.4 million for the six months ended July 2, 2000 from $55.4 million for
the six months ended July 4, 1999. The increase in general and administrative
expenses reflects (1) higher expenses of $5.2 million from $0.5 million in the
1999 first half to $5.7 million in the first half related to the new executive
salary arrangements and an executive bonus plan effective May 3, 1999, (2) other
increases in compensation and related benefit costs, (3) increased expenses as a
result of the full effect in the 2000 first half of the Millrose acquisition and
the effect of the Long Island Snapple acquisition and (4) provisions in the 2000
first half for costs to support a change in distributors for a majority of
franchisees in our restaurant franchising segment for food and other products.
The new executive bonus plan was approved by our stockholders in September 1999
and, accordingly, bonuses relating to May and June 1999 were recognized in the
1999 third quarter. These increases were partially offset by (1) a decrease in
travel expenses of the soft drink concentrate segment and (2) the favorable
settlement of insurance claims by the purchaser of a former 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 note 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, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $1.3 million to $18.5 million, or 7.4%, for the six
months ended July 2, 2000 from $17.2 million for the six months ended July 4,
1999. The increase in depreciation and amortization principally reflects an
increase in amortization of costs in excess of net assets acquired, which we
refer to as goodwill, trademarks and other intangibles, as a result of the full
effect in the 2000 first half of the Millrose acquisition, the effect of the
Long Island Snapple acquisition and, to a much lesser extent, the California
Beverage acquisition. Such increase was partially offset by the effect of
nonrecurring 1999 depreciation on $3.7 million of soft drink vending machines
purchased by the soft drink concentrate segment in January 1998 becoming fully
depreciated over periods throughout 1999.
Capital Structure Reorganization Related Charges
The capital structure reorganization related charges of $0.6 million and
$4.9 million for the six months ended July 2, 2000 and July 4, 1999,
respectively, reflect equitable adjustments that were made to the terms of
outstanding options under the stock option plan of Snapple Beverage Group, Inc.,
a 99.9% owned subsidiary of ours and the parent company of Snapple Beverage
Corp., Mistic Brands, Inc. and Stewart's Beverages, Inc.
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.
The exercise prices of the Snapple Beverage Group options granted in 1997
were equitably adjusted in 1999 from $147.30 to $107.05 per share and the
exercise prices of the options granted in 1998 were equitably adjusted in 1999
from $191.00 to $138.83 per share. 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 is
due from us to the option holder following the exercise of the stock options
and either (1) the sale by the option holder to us of shares of Snapple Beverage
Group common stock received upon the exercise of the stock options or
(2) the consummation of an initial public offering of Snapple Beverage Group
common stock (see below under "Snapple Beverage Group Initial Public Offering").
We have accounted for the equitable adjustment in accordance with the
intrinsic value method. Beginning with the first quarter of 1999 we are
recognizing compensation expense for the aggregate maximum $6.6 million of cash
to be paid in connection with the exercise of the stock options, net of credits
for forfeitures of non-vested stock options of terminated employees, assuming
all remaining Snapple Beverage Group stock options either have vested or will
become vested, ratably over the vesting period.
The initial charge relating to these equitable adjustments was recorded in
the 1999 first quarter and, therefore, the charge of $4.9 million recognized for
the six months ended July 4, 1999 includes the portion of the aggregate cash to
be paid to the extent of the vesting of the options through July 4, 1999. The
$0.6 million charge recognized for the six months ended July 2, 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.
We expect to recognize additional pre-tax charges relating to this
equitable adjustment of $0.3 million during the second half of 2000 and $0.3
million in 2001 as the affected stock options continue to vest. No compensation
expense has been or will be recognized for the changes in the exercise prices of
the outstanding options because those modifications to the options did not
create a new measurement date under the intrinsic value method.
Interest Expense
Interest expense increased $5.3 million, or 12.8%, to $46.6 million for
the six months ended July 2, 2000 from $41.3 million for the six months ended
July 4, 1999. This increase reflects higher average interest rates in the 2000
period and, to a lesser extent, higher average levels of debt during the 2000
first half due to the full six month effect of increases from (1) a February 25,
1999 debt refinancing and (2) the interest in the 2000 first half on the $18.0
million secured promissory note assumed in connection with the acquisition of
280 Holdings, LLC, a subsidiary of Triangle Aircraft Services Corporation, a
company owned by our Chairman and Chief Executive Officer and President and
Chief Operating Officer. The February 25, 1999 refinancing consisted of (1) the
issuance of $300.0 million of 10 1/4% senior subordinated notes due 2009 and (2)
$475.0 million borrowed under a senior bank credit facility and the repayment of
(1) $284.3 million under a former credit facility of Snapple Beverage Group and
(2) $275.0 million of 9 3/4% senior secured notes due 2000 of RC/Arby's
Corporation.
Investment Income, Net
Investment income, net increased $9.2 million, or 74.6%, to $21.5 million
for the six months ended July 2, 2000 from $12.3 million for the six months
ended July 4, 1999. This increase principally reflects $13.2 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, partially
offset by (1) a $2.9 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 2000
first half compared with the 1999 first half.
Other Income, Net
Other income, net decreased $1.5 million, or 61.1%, to $0.9 million for
the six months ended July 2, 2000 from $2.4 million for the six months ended
July 4, 1999. This decrease was principally due to (1) a reduction of $1.8
million in the 2000 first half in our equity in the income or loss of investees
other than investment limited partnerships and similar investment entities from
income of $0.4 million in the 1999 first half to a loss of $1.4 million in the
2000 first half, (2) a $0.3 million decrease in our gains on lease terminations
recognized by the restaurant franchising segment in the 2000 first half 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 55% for the
six months ended July 2, 2000 and 57% for the six months ended July 4, 1999. The
effective tax rate is lower in the 2000 first half principally due to the impact
of the amortization of non-deductible goodwill, the effect of which is lower in
the 2000 first half 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 1999 first half.
Discontinued Operations
Loss from discontinued operations of $0.5 million in the 1999 first half
represents our after-tax equity in the loss from discontinued operations of
National Propane Partners, L.P. We consummated the sale of 41.7% of our
remaining 42.7% interest in National Propane Partners in July 1999.
Extraordinary Charges
The extraordinary charges of $12.1 million in the 1999 first half resulted
from the early extinguishment of borrowings under the former credit facility of
Snapple Beverage Group and the RC/Arby's 9 3/4% notes and consisted of (1) the
write-off of previously unamortized (a) deferred financing costs of $11.3
million and (b) interest rate cap agreement costs of $0.1 million and (2) the
payment of a $7.7 million redemption premium on the RC/Arby's 9 3/4% notes, less
income tax benefit of $7.0 million.
Three Months Ended July 2, 2000 Compared with Three Months Ended July 4, 1999
Revenues
Our revenues increased $15.4 million, or 6.1%, to $266.2 million in the
three months ended July 2, 2000 from $250.8 million in the three months ended
July 4, 1999. A discussion of the changes in revenues by segment is as follows:
Premium Beverages -- Premium beverage revenues increased $12.4 million, or
6.3%, to $208.8 million for the three months ended July 2, 2000 from $196.4
million for the three months ended July 4, 1999. The increase, which relates
entirely to sales of finished product, reflects higher volume and, to a
lesser extent, higher average selling prices in the second quarter of 2000.
The increase in volume principally reflects (1) higher sales of Snapple
Elements which was introduced in April 1999, (2) 2000 sales of Mistic Zotics
and Stewart's "S" line of diet premium beverages introduced in April and
March 2000, respectively, (3) higher sales of diet teas and other diet
beverages and juice drinks and (4) increased cases sold to retailers through
Long Island Snapple principally reflecting an increased focus on our
products as a result of our ownership of this distributor since January 2,
2000. Those increases were partially offset by lower sales of WhipperSnapple
in the 2000 second quarter. The higher average selling prices reflect the
effect of the higher selling prices in connection with the Long Island
Snapple acquisition whereby we now sell directly to retailers rather than to
Long Island Snapple as a distributor.
Soft Drink Concentrates -- Soft drink concentrate revenues increased $1.8
million, or 5.1%, to $36.1 million for the three months ended July 4, 2000
from $34.3 million for the three months ended July 4, 1999. This increase
reflects the $1.9 million effect of higher average selling prices, partially
offset by the $0.1 million effect of lower volume in the second quarter of
2000. The higher average selling prices reflect (1) price increases in most
domestic concentrates effective November 1999 and (2) a shift of our private
label sales to sales of higher priced flavor concentrates from sales of
lower priced cola concentrates. The decrease in volume principally reflects
a decrease in Royal Crown sales of concentrates reflecting a decline in
branded sales, primarily due to lower domestic volume as previously
discussed in the comparison of the six-month periods, partially offset by an
increase in private label sales.
Restaurant Franchising -- Restaurant franchising revenues increased $1.2
million, or 5.8%, to $21.3 million for the three months ended July 2, 2000
from $20.1 million for the three months ended July 4, 1999 entirely due to
an increase in royalty revenue resulting from an average net increase of 88,
or 2.8%, franchised restaurants and a 0.4% increase in same-store sales of
franchised restaurants.
Gross Profit
Our gross profit increased $7.7 million, or 6.0%, to $137.3 million for the
three months ended July 2, 2000 from $129.6 million for the three months ended
July 4, 1999 due to the effect of higher sales volumes discussed above. Our
aggregate gross margins were unchanged at 52%. A discussion of the changes in
gross margins by segment is as follows:
Premium Beverages -- Gross margins remained unchanged at 42% in both the
2000 second quarter and the 1999 second quarter. The positive effect on
gross margins from the effect of the higher selling prices resulting from
the Long Island Snapple acquisition, as referred to above, was fully offset
by the negative effects of (1) a shift in product mix to lower- margin
products in the 2000 second quarter, (2) increased freight and handling
costs in the 2000 second quarter, (3) $0.4 million of increased provisions
for obsolete inventory resulting from higher levels of raw materials and
finished goods inventories that passed their shelf lives during the 2000
second quarter and (4) increased production costs in the 2000 second quarter
resulting from higher fees charged to us by our co-packers.
Soft Drink Concentrates -- Gross margins increased 1% to 78% during the 2000
second quarter from 77% during the 1999 second quarter. This increase was
due to the conversion, commencing in December 1999, from our use of the raw
material aspartame to the less costly Ace-K/sucralose blend in our diet
products.
Restaurant Franchising -- Gross margins during each period are 100% because
royalties and franchise fees constitute the total revenues of the segment
with no associated cost of sales.
Advertising, Selling and Distribution Expenses
Our advertising, selling and distribution expenses increased $1.9 million,
or 3.0%, to $68.2 million for the three months ended July 2, 2000 from $66.3
million for the three months ended July 4, 1999. This increase is principally
due to (1) a large scale coupon promotional program introduced by our soft drink
concentrate segment in March 2000, (2) higher compensation and related benefit
costs reflecting an increase in the number of sales and distribution employees
of our premium beverage segment and (3) higher costs resulting from our
California Beverage acquisition in March 2000. These increases were partially
offset by (1) continued lower bottler promotional reimbursements of our soft
drink concentrate segment resulting from the decline in branded concentrate
sales volume, (2) an overall decrease in promotional spending by our premium
beverage segment and (3) a decrease in the provision for doubtful accounts of
our restaurant franchising segment, all as previously discussed in the
comparison of the six-month periods.
General and Administrative Expenses
Our general and administrative expenses increased $3.8 million, or 13.7%, to
$32.0 million for the three months ended July 2, 2000 from $28.2 for the three
months ended July 4, 1999. The increase in general and administrative expenses
reflects (1) higher expenses of $2.5 million from $0.5 million in the 1999
second quarter to $3.0 million in the 2000 second quarter related to the new
executive salary arrangements and an executive bonus plan effective May 3, 1999,
(2) increased expenses as a result of the effect of the Long Island Snapple
acquisition and (3) other increases in compensation and related benefit costs,
all as previously discussed in the comparison of the six-month periods. The
new executive bonus plan was approved by our stockholders in September 1999 and,
accordingly, bonuses relating to May and June 1999 were recognized in the 1999
third quarter. These increases were partially offset by (1) a decrease in
travel expenses of the soft drink concentrate segment and (2) the favorable
settlement of insurance claims resulting in the collection of a $1.5 million
note receivable and the related recognition of a $1.5 million reduction of
insurance expense, both as previously discussed in the comparison of the
six-month periods. 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, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $0.5 million, or 6.4%, to $9.3 million for the three
months ended July 2, 2000 from $8.8 million for the three months ended July 4,
1999. This increase principally reflects an increase in amortization of
goodwill, trademarks and other intangibles as a result of the effect of the Long
Island Snapple acquisition and, to a much lesser extent, the California Beverage
acquisition in March 2000. Such increases were partially offset by the effect of
nonrecurring 1999 depreciation on $3.7 million of soft drink vending machines
purchased by the soft drink concentrate segment in January 1998 becoming fully
depreciated over periods throughout 1999.
Capital Structure Reorganization Related Charges
The capital structure reorganization related charges of $0.3 million and
$1.2 million for the three months ended July 2, 2000 and July 4, 1999,
respectively, reflect the effect of equitable adjustments that were made to the
terms of outstanding options under the stock option plan of Snapple Beverage
Group, as previously discussed in the comparison of the six-month periods, as
the affected stock options continue to vest. The decrease in the capital
structure reorganization related charge is a result of a portion of the options
becoming fully vested in July 1999. We will continue to incur additional charges
through 2001, also as previously discussed.
Interest Expense
Interest expense increased $1.3 million, or 5.9%, to $23.5 million for the
three months ended July 2, 2000 from $22.2 million for the three months ended
July 4, 1999 primarily reflecting higher average interest rates in the 2000
second quarter and, to a lesser extent, interest in the 2000 second quarter on
the $18.0 million secured promissory note assumed with the acquisition of 280
Holdings.
Investment Income, Net
Investment income, net decreased $1.7 million, or 24.4%, to $5.3 million for
the three months ended July 2, 2000 from $7.0 million for the three months ended
July 4, 1999 principally reflecting (1) a $1.2 million decrease in interest
income on cash equivalents and short-term investments and (2) $0.4 million of
lower recognized gains in the 2000 second quarter from realized or unrealized,
as applicable, gains or losses on investments. The decreased interest income is
due to lower average amounts of cash equivalents in the 2000 second quarter
compared with the 1999 second quarter.
Other Income, Net
Other income, net decreased $1.3 million, or 76.0%, to $0.4 million for the
three months ended July 2, 2000 from $1.7 million for the three months ended
July 4, 1999. This decrease was primarily due to (1) a reduction of $2.1 million
in the 2000 second quarter in our equity in the income or loss of investees
other than investment limited partnerships and similar investment entities from
income of $0.8 million in the 1999 second quarter to a loss of $1.3 million in
the 2000 second quarter and (2) 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. These
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 55% for the
three months ended July 2, 2000 and 57% for the three months ended July 4, 1999.
The effective rate is lower in the 2000 second quarter principally due to the
impact of the amortization of non-deductible goodwill, the effect of which is
lower in the 2000 second quarter 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 1999 second quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operations
Our consolidated operating activities used cash and cash equivalents, which
we refer to in this discussion as cash, of $11.0 million during the six months
ended July 2, 2000 reflecting (1) cash used by changes in operating assets and
liabilities of $50.3 million and (2) the reclassification of net recognized
gains of $20.0 million resulting from transactions in other than trading
investments and securities sold short to cash flows from investing activities.
These uses were partially offset by (1) net income of $7.3 million, (2) non-cash
charges, principally depreciation and amortization and deferred income tax
provision, of $39.7 million and (3) proceeds of $12.3 million from sales of
trading securities, net of purchases.
The cash used by changes in operating assets and liabilities of $50.3
million reflects increases in receivables of $44.7 million, inventories of $23.1
million and prepaid expenses and other current assets of $1.4 million, all
partially offset by a decrease in accounts payable and accrued expenses of $18.9
million. The increase in receivables principally resulted from seasonally higher
sales in June 2000 compared with December 1999. The increase in inventories was
due to seasonal buildups in anticipation of the peak summer selling season in
our beverage businesses. The increase in accounts payable and accrued expenses
principally reflects (1) the increased inventory purchases and (2) $4.5 million
of seasonally higher accruals for advertising and promotions, both partially
offset by (1) a $12.6 million decrease in the obligation for short- term
investments sold but not yet purchased and (2) an $8.0 million reduction in
accrued compensation and related benefits principally due to the first quarter
payment of previously accrued incentive compensation.
Despite the $11.0 million of cash used in operating activities in the 2000
first half, we had $24.8 million of cash provided by operating activities in the
2000 second quarter and we expect positive cash flows from operations during the
remainder of 2000 due to (1) the expectation of profitable operations for the
remainder of the year due to the seasonality of the beverage business with the
summer months as the peak season and (2) the significant seasonal factors
impacting the cash used in the 2000 first half for operating assets which should
not recur during the remainder of 2000 and should substantially reverse.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$236.8 million at July 2, 2000, reflecting a current ratio, which equals current
assets divided by current liabilities, of 2.0:1. Our working capital decreased
$1.2 million from $238.0 million at January 2, 2000 principally due to our cash
capital expenditures and reclassifications of long-term debt to current
liabilities, both substantially offset by working capital provided by
operations.
Our capitalization at July 2, 2000 aggregated $823.8 million consisting of
$898.5 million of long-term debt, including current portion, and an $86.2
million forward purchase obligation for common stock discussed below under
"Treasury Stock Purchases," partially offset by a stockholders' deficit of
$160.9 million. Our total capitalization increased $11.3 million from $812.5
million at January 2, 2000 principally due to (1) the assumption of $18.0
million of indebtedness in connection with the acquisition of 280 Holdings also
discussed below under "Capital Expenditures," (2) net income of $7.3 million and
(3) proceeds from stock option exercises of $3.2 million, all partially offset
by net repayments of long-term debt of $16.3 million.
Debt Agreements
We maintain a $535.0 million senior bank credit facility entered into by
Snapple, Mistic, Stewart's, Royal Crown and RC/Arby's which consists of a $475.0
million term facility under which there were $438.3 million of term loans
outstanding as of July 2, 2000 and a $60.0 million revolving credit facility
under which there were $20.0 million of revolving credit loans outstanding as of
July 2, 2000. At July 2, 2000 there was $39.9 million of borrowing availability
under the revolving credit facility.
Revolving loans will be due in full in 2005. Maturities of the term loans
are $3.7 million for the second half of 2000 representing two quarterly
installments, increasing annually through 2006 with a final payment in 2007. In
addition to scheduled maturities of the term loans, we are also required to make
mandatory annual prepayments in an amount, if any, currently equal to 75% of
excess cash flow as defined in the credit agreement. The mandatory prepayments
will be applied on a pro rata basis to the remaining outstanding balances of
each of the three classes of the term loans except that any lender that has term
B or term C loans outstanding may elect not to have its pro rata share of the
loans repaid. Any amount prepaid and not applied to term B loans or term C loans
as a result of the election would be applied first to the outstanding balance of
term A loans and second to any outstanding balance of revolving loans, with any
remaining amount being returned to us. In that connection, we made a $28.3
million prepayment on May 4, 2000 in respect of the year ended January 2, 2000,
of which $25.7 million was the pro rata share applicable to the term B and term
C loans. Certain lenders of term B and term C loans elected not to accept an
aggregate $8.8 million of the May 4, 2000 prepayment and, accordingly, this
amount was applied to term A loans. The application of the excess cash flow
prepayment had the effect of reducing the scheduled maturities of the term loans
during the second half of 2000 by $0.7 million to $3.7 million. We currently
expect that an additional prepayment will be required to be made in the second
quarter of 2001 in respect of the year ending December 31, 2000, the amount of
which we currently estimate at $10.0 million.
Under our credit agreement, we can make voluntary prepayments of the term
loans, although as of July 2, 2000, we have not made any voluntary prepayments.
However, if we make voluntary prepayments of term B and term C loans, which have
$118.7 million and $289.0 million outstanding as of July 2, 2000, we will incur
prepayment penalties of 1.0% and 1.5%, respectively, of any future amounts of
those term loans prepaid through February 25, 2001.
We have $300.0 million of 10 1/4% senior subordinated notes due 2009 which
do not require any amortization of principal prior to their maturity in 2009.
We have $360.0 million principal amount at maturity, or $116.8 million net
of unamortized discount as of July 2, 2000, of zero coupon convertible
subordinated debentures which do not require any amortization of principal prior
to their maturity in 2018.
We have a secured promissory note payable to a third-party commercial
lender with an outstanding principal amount of $17.3 million as of July 2, 2000,
which is payable over seven years with $0.7 million due during the second half
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."
We have a note payable to a beverage co-packer with $1.7 million
outstanding as of July 2, 2000 which is due during the second half of 2000.
Our scheduled long-term debt repayments during the second half of 2000 are
$7.0 million, including $3.7 million under the term loans, $1.7 million under
the note payable to a beverage co-packer and $0.7 million under the secured
promissory note payable, all as discussed above. In addition, we expect to repay
the $20.0 million of outstanding revolving loans during the second half of 2000;
however, any such payment would increase our borrowing availability under the
revolving credit facility.
Debt Agreement Restrictions and Guarantees
Substantially all of our assets, other than cash, cash equivalents and
short-term investments, are pledged as security under our debt agreements and
notes. In addition, our obligations relating to (1) the 10 1/4% notes are
guaranteed by Snapple, Mistic, Stewart's, Arby's, Royal Crown and RC/Arby's and
all of their domestic subsidiaries and (2) the credit facility are guaranteed by
Triarc Consumer Products Group, LLC, a subsidiary of Triarc and the parent of
Snapple Beverage Group, Snapple Beverage Group and substantially all of the
domestic subsidiaries of Snapple, Mistic, Stewart's, Arby's, Royal Crown and
RC/Arby's. As collateral for the guarantees under the credit facility, all of
the stock of Snapple, Mistic, Stewart's, Arby's, Royal Crown and RC/Arby's and
all of their domestic subsidiaries and 65% of the stock of each of their
directly-owned foreign subsidiaries is pledged. The guarantees under the 10 1/4%
notes are full and unconditional, are on a joint and several basis and are
unsecured.
Our debt agreements contain various covenants which (1) require periodic
financial reporting, (2) require meeting financial amount and ratio tests, (3)
limit, among other matters, (a) the incurrence of indebtedness, (b) the
retirement of debt prior to maturity, with exceptions, (c) investments, (d)
asset dispositions and (e) affiliate transactions other than on an arms-length
basis and (4) restrict the payment of dividends, loans or advances to Triarc.
Under the most restrictive of these covenants, as of July 2, 2000 the borrowers
cannot pay any dividends or make any loans or advances to Triarc. We were in
compliance with all of these covenants as of July 2, 2000.
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 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 July 2,
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 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 $85.0 million as of July 2, 2000, assuming the purchaser of the Arby's
restaurants has made all scheduled payments through that date.
Further, Triarc has guaranteed mortgage notes and equipment notes payable
to FFCA Mortgage Corporation assumed by the purchaser in connection with the
restaurants sale of $54.7 million as of May 1997 and $47.8 million as of July 2,
2000, assuming the purchaser of the Arby's restaurants has made all scheduled
repayments through that date.
In addition, a subsidiary of ours is a co-obligor with the purchaser of the
Arby's restaurants 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 July 2, 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, all of which was
outstanding as of July 2, 2000. 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 $10.0 million guaranteed amount will be reduced by
(1) any repayments of the notes, (2) any purchases of the notes by us and (3)
the amount of certain 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 July 2, 2000 MCM Capital Group had $14.0 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 under the guaranties of the revolving credit borrowings is 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 $20.2 million during the 2000 first
half. 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 $20.2 million of cash capital expenditures
referred to above, and (2) the assumption of the $18.0 million 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 second half of 1999 will be
lower depreciation and amortization of $0.4 million, the elimination of rental
expense under the airplane lease with Triangle Aircraft Services of $1.5
million, the incurrence of interest expense on the secured promissory note of
$0.8 million and lower investment income of approximately $0.2 million with a
resulting increase in income from continuing operations before income taxes of
approximately $0.9 million.
We expect that cash capital expenditures will approximate $7.4 million for
the remainder of 2000 for which there were $1.2 million of outstanding
commitments as of July 2, 2000. Our planned capital expenditures include amounts
for remaining expenditures for a premium beverage packing line at one of our
company-owned distributors and co-packing equipment.
Acquisitions
On March 31, 2000 Triarc acquired, and contributed to Triarc Consumer
Products Group, certain assets, principally distribution rights, of California
Beverage Company, a distributor of our premium beverage products in the City and
County of San Francisco, California, for cash of $1.6 million. On April 19, 2000
Triarc acquired, and contributed to Triarc Consumer Products Group, certain
inventories of California Beverage for cash of $0.1 million.
On May 16, 2000 Triarc acquired, and contributed to Triarc Consumer
Products Group, certain assets, principally distribution rights, of Northern
Glacier Ltd., a distributor of our Mistic premium beverage products in five
counties in New Jersey and who will continue as our sub-distributor in two of
those counties, for an aggregate purchase price of $2.2 million, subject to
post-closing adjustments. The purchase price principally consisted of $1.9
million paid through offset of accounts receivable and a note receivable
otherwise owed to Mistic by the seller, which were reimbursed to Mistic by
Triarc, and $0.3 million to be paid by us to the seller following the conclusion
of the seller's sub-distributorship arrangement.
To further our growth strategy, we will consider additional selective
business acquisitions, as appropriate, to grow strategically and explore other
alternatives to the extent we have available resources to do so.
Income Taxes
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, however, that the refund payment received
in July 2000 should fully offset the amount of additional interest.
Treasury Stock Purchases
In May 2000, we announced that our management had been authorized, when and
if market conditions warrant and to the extent legally permissible, to
repurchase up to $30.0 million of our Class A common stock. This authorization
will expire in May 2001. We have not purchased any shares during 2000 to date
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 this program.
Pursuant to a contract entered into in August 1999, as of July 2, 2000 we
had a remaining obligation to repurchase an aggregate of 3,998,414 shares of our
Class B common stock held by affiliates of Victor Posner, our former Chairman
and Chief Executive Officer, of which 1,999,207 shares were purchased on August
10, 2000 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 July 2, 2000, our consolidated cash requirements for the second half
of 2000, exclusive of operating cash flow requirements, consist principally of
(1) a payment of $42.3 million made in August 2000 for the repurchase of
1,997,207 shares of our Class B common stock from affiliates of Victor Posner,
(2) capital expenditures of approximately $7.4 million, (3) scheduled debt
principal repayments aggregating $7.0 million, (4) the cost of additional
business acquisitions, if any, and (5) 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
$239.3 million of existing cash and cash equivalents and short-term investments,
net of $8.5 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 July 2, 2000, (2) cash flows from operations
and (3) the $39.9 million of availability as of July 2, 2000 under Triarc
Consumer Products Group's $60.0 million revolving credit facility. We expect to
repay the $20.0 million of outstanding revolving credit loans during the second
half of 2000; however, any such payment would increase our borrowing
availability under the revolving credit facility.
Triarc
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon its (1) aggregate $178.1 million of cash and cash
equivalents and short-term investments, net of $8.5 million of obligations for
short-term investments sold but not yet purchased, as of July 2, 2000, (2)
investment income on its cash equivalents and short-term investments and (3)
cash flows from its subsidiaries, including (a) reimbursement by its principal
subsidiaries to Triarc in connection with the providing of certain management
services, (b) payments under tax-sharing agreements with its principal
subsidiaries and (c) loans, distributions and dividends. However, as of July 2,
2000 Triarc's principal subsidiaries cannot pay any dividends or make any loans
or advances to Triarc under the terms of their debt agreements.
Triarc has indebtedness to third parties under (1) the zero coupon
convertible debentures described above which require no amortization of
principal during 2000 and (2) the $18.0 million secured promissory note assumed
in connection with the acquisition of 280 Holdings which requires principal
payments of $0.7 million during the second half of 2000. Triarc also has
indebtedness to consolidated subsidiaries which was $30.0 million as of July 2,
2000 under a 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 is 6.5% effective July 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 second half of 2000 are (1) a
payment of $42.3 million made in August 2000 for the repurchase of 1,997,207
shares of our Class B common stock from affiliates of Victor Posner, (2) capital
expenditures of approximately $2.6 million, (3) debt principal repayments of
$0.7 million on the secured promissory note, (4) the cost of additional 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) investment income and (3) receipts from its
subsidiaries under management services and tax-sharing agreements.
Snapple Beverage Group Initial Public Offering
Snapple Beverage Group, as restructured (see below), currently intends to
issue an estimated $100.0 million of its common stock in an initial public
offering. These shares will be registered pursuant to a registration statement
on Form S-1 that has been filed with the Securities and Exchange Commission but
which has not yet been declared effective.
Assuming the successful completion of this initial public offering, Triarc
Consumer Products Group will be restructured. In accordance with the
restructuring transactions, Snapple Beverage Group will be transferred to
RC/Arby's, RC/Arby's (parent company) and the restaurant franchising business
will then effectively be distributed from Triarc Consumer Products Group to
Triarc and, as a result of a series of transactions, Triarc Consumer Products
Group will then effectively merge into Snapple Beverage Group.
Also assuming the successful completion of the initial public offering,
Snapple Beverage Group will receive an estimated $178.0 million capital
contribution from RC/Arby's, representing the net proceeds of a financing of its
restaurant business. Snapple Beverage Group is also expected to enter into a new
credit facility consisting of up to $195.0 million of term loans and a $50.0
million revolving credit facility. No borrowings under the new revolving credit
facility are expected to occur at the time of the completion of the initial
public offering.
The net proceeds of the initial public offering and the term loan
borrowings under the new credit facility, together with all of the cash and cash
equivalents of RC/Arby's and the restaurant business and all but $2.0 million of
the cash and cash equivalents of Snapple Beverage Group, as restructured, are
expected to be used to (1) repay prior to maturity all outstanding borrowings
under our existing credit facility and accrued interest thereon and (2) pay (a)
prepayment penalties resulting from the prepayment of certain of the outstanding
term loans and (b) fees and expenses relating to the initial public offering and
the consummation of the new credit facility.
The early extinguishment of the borrowings under the existing credit
facility will result in an extraordinary charge at the time the borrowings under
our existing credit facility are repaid prior to maturity for the write-off of
previously unamortized deferred financing costs and the payment of the
aforementioned prepayment penalties, less income tax benefit, which, as of July
2, 2000, would have amounted to $11.6 million.
Legal and Environmental Matters
We are involved in stockholder litigation, other litigation, claims and
environmental matters incidental to our businesses. We have reserves for legal
and environmental matters of $2.3 million as of July 2, 2000. Although the
outcome of these matters cannot be predicted with certainty and some of these
matters may be disposed of unfavorably to us, based on currently available
information and given our reserves, we do not believe that these legal and
environmental matters will have a material adverse effect on our consolidated
financial position or results of operations.
Seasonality
Our beverage and restaurant franchising businesses are seasonal. In our
beverage businesses, the highest revenues occur during the spring and summer,
between April and September. Accordingly, our second and third quarters reflect
the highest revenues and our first and fourth quarters have lower revenues from
the beverage businesses. The royalty revenues of our restaurant franchising
business are somewhat higher in our fourth quarter and somewhat lower in our
first quarter. Accordingly, consolidated revenues will generally be highest
during the second and third fiscal quarters of each year.
Our earnings before interest, taxes, depreciation and amortization and
operating profit are also highest during the second and third fiscal quarters of
each year and lowest in the first fiscal quarter. This principally results from
the higher beverage revenues in the second and third fiscal quarters while
general and administrative expenses and depreciation and amortization, excluding
amortization of deferred financing costs, are generally recorded ratably in each
quarter either as incurred or allocated to quarters based on time expired.
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 have currently identified are the conversion component of
our short-term investments in convertible bonds, put and call options on equity
and debt securities and an interest rate cap agreement on some of our long-term
debt. Since these derivatives, other than the interest rate cap agreement, are
currently carried at fair value, the accounting for them would not be impacted
by Statement 133 and, as such, the requirement to state them 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,
accordingly, 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."
Bulletin 101 states that revenues generally are realized when (1) persuasive
evidence of an arrangement exists, (2) delivery has occurred or services have
been rendered, (3) the seller's price to the buyer is fixed or determinable, and
(4) collectibility is reasonably assured. Bulletin 101, as amended, must be
implemented no later than our fourth fiscal quarter of 2000. We believe that, in
our beverage businesses, we have historically recognized revenues in accordance
with the criteria set forth in Bulletin 101. As disclosed in the notes to
consolidated financial statements included in our Form 10-K, we record sales
when inventory is shipped or delivered and sales terms generally do not allow a
right of return. In our restaurant franchise business, 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, we do not expect that the implementation of Bulletin 101 will
have a material impact on our consolidated financial position or results of
operations.
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes, changes in the
market value of our investments and foreign currency fluctuations.
Policies and procedures -- In the normal course of business, we employ
established policies and procedures to manage our exposure to changes in
interest rates, changes in the market value of our investments and fluctuations
in the value of foreign currencies using financial instruments we deem
appropriate.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows. To achieve
our objectives, we assess the relative proportions of our debt under fixed
versus variable rates. We generally use purchased interest rate caps on a
portion of our variable-rate debt to limit our exposure to increases in
short-term interest rates. These cap agreements usually are at significantly
higher than market interest rates prevailing at the time the cap agreements are
entered into and are intended to protect against very significant increases in
short-term interest rates. We currently have one interest rate cap agreement
relating to interest on $233.1 million of our aggregate $438.3 million of
variable-rate term loans under our senior bank credit facility which provides
for a cap which was approximately 1% higher than the prevailing interest rate at
July 2, 2000. 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
our investments in investment limited partnerships and similar investment
entities. We monitor these exposures and periodically determine our need for use
of strategies intended to lessen or limit our exposure to these fluctuations. We
also have a relatively limited amount of exposure to (1) export sales revenues
and related receivables denominated in foreign currencies and (2) investments in
foreign subsidiaries which are subject to foreign currency fluctuations. Our
primary export sales exposures relate to sales in Canada, the Caribbean and
Europe. However, foreign export sales and foreign operations for our most recent
full fiscal year ended January 2, 2000 represented only 5% 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 July 2, 2000, such investments consist of the following (in
thousands):
Cash equivalents included in "Cash and cash
equivalents" on the accompanying
condensed consolidated balance sheet..............$ 144,411
Short-term investments................................ 94,552
Non-current investments............................... 14,256
------------
$ 253,219
============
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 ..........................................$ 144,411 $ 144,411 $ 144,411 57.0%
Certificate of deposit, not highly liquid.................. 15,000 15,000 15,000 6.0%
Company-owned securities accounted for as:
Trading securities................................. 13,891 12,469 12,469 4.9%
Available-for-sale securities...................... 30,615 30,298 30,298 12.0%
Investments in investment limited partnerships and
similar investment entities accounted for at:
Cost............................................... 30,659 36,083 30,659 12.1%
Equity............................................. 5,702 10,970 10,970 4.3%
Other non-current investments accounted for at:
Cost................................................ 4,550 4,550 4,550 1.8%
Equity.............................................. 5,357 4,862 4,862 1.9%
----------- ----------- ----------- ----------
Total cash equivalents and long investment positions ......$ 250,185 $ 258,643 $ 253,219 100.0%
=========== =========== =========== ==========
Securities sold with an obligation for us to
purchase accounted for as trading securities..........$ (9,957) $ (8,519) $ (8,519) 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 July 2, 2000 for which an immediate adverse
market movement represents a potential material impact on our financial position
or results of operations. We believe that the 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 July 2, 2000 based upon assumed immediate
adverse effects as noted below.
Trading Portfolio:
Carrying Equity
Value Price Risk
----- ----------
(In thousands)
Equity securities ............................$ 10,211 $ (1,021)
Debt securities............................... 2,258 (226)
Securities sold but not yet purchased......... (8,519) 852
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 July 2, 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 ..................................$ 144,411 $ -- $ -- $ --
Certificate of deposit, not highly liquid.......... 15,000 -- -- --
Available-for-sale equity securities .............. 24,923 -- (2,492) --
Available-for-sale debt securities................. 5,375 (591) -- --
Other investments.................................. 63,510 (612) (3,416) (834)
Long-term debt..................................... 898,463 (4,583) -- --
</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 six months when acquired 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.
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 July 2, 2000 and an instantaneous 10%
decrease in the equity markets in which we are invested from their levels at
July 2, 2000, both with all other variables held constant. The increase of one
percentage point with respect to our available-for-sale debt securities
represents an assumed average 11% decline in earnings as the weighted average
interest rate of such debt securities at July 2, 2000 approximated 9%. The
increase of one percentage point with respect to our long-term debt (1)
represents an assumed average 10% decline in earnings as the weighted average
interest rate of our variable-rate debt at July 2, 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. Our variable rate debt
consists of $438.3 million of our term loans and $20.0 million of revolving
loans. 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 July 2, 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 investments which trade in public equity
markets.
Pursuant to a contract entered into in 1999, as of July 2, 2000 we had a
remaining obligation to repurchase an aggregate of 3,998,414 shares of our Class
B common stock of which 1,999,207 shares were purchased on August 10, 2000 and
the remaining 1,999,207 shares are required to be purchased on or before August
19, 2001. At July 2, 2000 the aggregate $86,186,000 obligation related to these
remaining purchases has been recorded as a long-term liability 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
liability. However, that same decrease would have a corresponding positive
impact on the fair value of the offsetting amount included in stockholders'
deficit. Accordingly, since any change in the equity markets would have an
offsetting effect upon our financial position, no market risk has been assumed
for this financial instrument.
<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 customers;
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; the
success of multi-branding; availability, location and terms of sites for
restaurant development by franchisees; the ability of franchisees to open new
restaurants in accordance with their development commitments, including the
ability of franchisees to finance restaurant development; the performance by
material customers of their obligations under their purchase agreements; changes
in business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and cost of raw materials, ingredients and supplies; the potential
impact on franchisees' store level sales and resulting royalty revenues 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 the Company operates, including the ability
to form successful strategic business alliances with local participants; changes
in, or failure to comply with, government regulations, including franchising
laws, accounting standards, environmental laws and taxation requirements; the
costs, uncertainties and other effects of legal and administrative proceedings;
the impact of general economic conditions on consumer spending; and other risks
and uncertainties affecting the Company and its subsidiaries detailed in our
other current and periodic reports filed with the Securities and Exchange
Commission, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. We will not undertake and specifically
decline any obligation to publicly release the 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 year ended
January 2, 2000 (the "Form 10-K"), three former court-appointed directors have
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 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. The appeal was argued on August 8, 2000 and has not yet been
decided.
As reported in the Form 10-K, various class actions have been brought
purportedly on behalf of the Company's stockholders in the Court of Chancery of
the State of Delaware challenging the Dutch Auction Tender Offer made by the
Company on March 12, 1999. Since the filing of the Form 10-K, the plaintiffs
have voluntarily dismissed their claims as moot. Plaintiffs' counsel have
advised us that they intend to apply to the Court for an award of attorneys'
fees in an undisclosed amount.
Item 5. Other Information
Snapple Beverage Group Initial Public Offering
On June 27, 2000 the Company's subsidiary, Snapple Beverage Group, Inc.,
filed with the Securities and Exchange Commission a registration statement for
an initial public offering ("IPO") of its common stock. Snapple Beverage Group
will own the Company's premium beverage business (Snapple(R), Mistic(R), and
Stewart's(R)) and its soft drink concentrates business (Royal Crown(R), Diet
Rite(R), RC Edge(TM), and Nehi(R)). Snapple Beverage Group plans to list its
shares on the New York Stock Exchange under the symbol "SNP" and expects to
complete the offering during the third quarter of 2000, subject to market
conditions and other factors. Net proceeds from the offering are expected to be
used to repay debt under an existing credit facility.
The offering which will be made only by a prospectus, will be underwritten
by a syndicate to be lead-managed by Morgan Stanley Dean Witter and co-managed
by Donaldson, Lufkin & Jenrette, ING Barings and Lehman Brothers.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission, but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Quarterly Report on Form 10-Q
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
There can be no assurance that the Securities and Exchange Commission will
declare the registration statement effective or that the proposed IPO will be
consummated.
Stock Repurchase Program
On May 25, 2000, our Board of Directors authorized management, when and
if market conditions warrant and to the extent legally permissible, to purchase
over the twelve-month period commencing on May 25, 2000, up to $30 million worth
of Triarc's Class A Common Stock. To date, we have not repurchased any shares
pursuant to the stock repurchase program.
Repurchase of Class B Common Stock
On August 10, 2000, the Company purchased 1,999,207 non-voting Triarc
Class B common shares held by affiliates of Victor Posner at a per share price
of $21.18, for a total purchase price of approximately $42.3 million, pursuant
to a definitive purchase agreement approved by the Company's Board of Directors
in August 1999. As previously announced, under such agreement the Company agreed
to purchase for cash all of the 5,997,622 non-voting Class B common shares held
by Victor Posner affiliates in three separate transactions, at prices ranging
from $20.44 to $21.93. The Company previously purchased approximately 2.0
million Class B common shares at $20.44 per share in August 1999. The remaining
approximate 2.0 million shares are to be purchased at $21.93 per share on or
before August 19, 2001, subject to extension in certain limited circumstances.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Amendment No. 2 to Triarc Beverage Holdings Corp. 1997 Stock
Option Plan, incorporated herein by reference to Exhibit 10.1 to
Triarc Consumer Products Group, LLC's Quarterly Report on Form
10-Q for the fiscal quarter ended July 2, 2000 (SEC file no.
333-78625-11).
27.1 - Financial Data Schedule for the six-month period ended July 2,
2000, submitted to the Securities and Exchange Commission in
electronic format.
27.2 - Financial Data Schedule for the six-month period ended July 4,
1999, on a restated basis, submitted to the Securities and
Exchange Commission in electronic format.
99.1 - Press Release dated August 10, 2000.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on June 22, 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: August 16, 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
Vice President and
Chief Accounting Officer
(Principal accounting officer)
<PAGE>
Exhibit Index
Exhibit
No. Description Page No.
--- ----------- --------
10.1 - Amendment No. 2 to Triarc Beverage Holdings
Corp. 1997 Stock Option Plan, incorporated
herein by reference to Exhibit 10.1 to Triarc
Consumer Products Group, LLC's Quarterly Report
on Form 10-Q for the fiscal quarter ended
July 2, 2000 (SEC file no. 333-78625-11).
27.1 - Financial Data Schedule for the six-month
period ended July 2, 2000, submitted to the
Securities and Exchange Commission in electronic
format.
27.2 - Financial Data Schedule for the six-month period
ended July 4, 1999, on a restated basis, submitted
to the Securities and Exchange Commission in
electronic format.
99.1 - Press release dated August 20, 2000.
