- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q10-Q/A
(Amendment No. 1)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to_________________
Commission file number: 1-2207
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 24,012,10724,026,654 shares of the registrant's Class A Common Stock and
5,997,622 shares of the registrant's Class B Common Stock outstanding as of
JulyAugust 31, 1997.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 29,
1996 (A) 1997
-------- ----
(IN THOUSANDS)
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents.............................................................$ 154,405 $ 71,349
Short-term investments................................................................ 51,711 59,724
Receivables, net...................................................................... 80,613 133,570
Inventories........................................................................... 55,340 87,669
Assets held for sale.................................................................. 71,116 --
Deferred income tax benefit .......................................................... 16,409 43,647
Prepaid expenses and other current assets ............................................ 16,068 12,039
------------ ------------
Total current assets................................................................ 445,662 407,998
Properties, net........................................................................... 107,272 121,926
Unamortized costs in excess of net assets of acquired companies........................... 203,914 290,593
Trademarks................................................................................ 57,257 264,633
Deferred costs, deposits and other assets................................................. 40,299 71,840
------------ ------------
$ 854,404 $ 1,156,990
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt.....................................................$ 93,567 $ 15,777
Accounts payable...................................................................... 52,437 60,905
Accrued expenses...................................................................... 104,483 177,879
----------- ------------
Total current liabilities........................................................... 250,487 254,561
Long-term debt............................................................................ 500,529 767,737
Deferred income taxes..................................................................... 34,455 78,834
Other liabilities......................................................................... 28,444 50,395
Minority interests........................................................................ 33,724 29,859
Stockholders' equity (deficit):
Common stock.......................................................................... 3,398 3,398
Additional paid-in capital............................................................ 161,170 163,752
Accumulated deficit................................................................... (111,824) (147,124)
Treasury stock........................................................................ (46,273) (45,000)
Other ............................................................................... 294 578
------------ ------------
Total stockholders' equity (deficit)................................................ 6,765 (24,396)
------------ ------------
$ 854,404 $ 1,156,990
============ ============
(A) Derived from the audited consolidated financial statements as of December 31, 1996
See accompanying notes to condensed consolidated financial statements
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1996 1997 (NOTE 1) 1996 1997 (NOTE 1)
---- ------------- ---- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Revenues:
Net sales................................................$ 231,896 $ 209,796 $ 548,337 $ 401,882
Royalties, franchise fees and other revenues............. 14,581 16,326 27,033 29,641
----------- ----------- ----------- -----------
246,477 226,122 575,370 431,523
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales............................................ 159,529 129,523 395,452 255,406
Advertising, selling and distribution.................... 39,592 51,447 72,100 80,792
General and administrative............................... 29,646 36,158 64,688 66,872
Facilities relocation and corporate restructuring ....... -- 5,467 -- 7,350
Acquisition related ..................................... -- 32,440 -- 32,440
----------- ----------- ----------- -----------
228,767 255,035 532,240 442,860
----------- ----------- ----------- -----------
Operating profit (loss)................................ 17,710 (28,913) 43,130 (11,337)
Interest expense............................................ (18,922) (18,261) (41,063) (33,963)
Other income, net........................................... 559 2,801 1,797 6,912
----------- ----------- ----------- -----------
Income (loss) before income taxes, minority interests
and extraordinary charges........................... (653) (44,373) 3,864 (38,388)
Benefit from (provision for) income taxes................... (2,930) 12,265 (5,662) 9,213
Minority interests in (income) loss of consolidated
subsidiary............................................... -- 939 -- (3,171)
----------- ----------- ----------- -----------
Loss before extraordinary charges...................... (3,583) (31,169) (1,798) (32,346)
Extraordinary charges....................................... (7,151) (2,954) (8,538) (2,954)
----------- ----------- ----------- ------------
Net loss...............................................$ (10,734) $ (34,123) $ (10,336) $ (35,300)
=========== =========== ============ ===========
Loss per share:
Loss before extraordinary charges......................$ (.12) $ (1.04) $ (.06) $ (1.08)
Extraordinary charges.................................. (.24) (.10) (.29) (.10)
----------- ----------- ----------- -----------
Net loss...............................................$ (.36) $ (1.14) $ (.35) $ (1.18)
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
---------------------------------
JUNE 30, JUNE 29,
1996 1997 (NOTE 1)
---- -------------
(IN THOUSANDS)
(UNAUDITED)
Cash flows from operating activities:
Net loss.................................................................................$ (10,336) $ (35,300)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of properties......................................... 17,668 7,955
Amortization of costs in excess of net assets of acquired companies and
trademarks and other amortization................................................. 8,290 8,680
Amortization of deferred financing costs and in 1996, original issue discount ..... 3,449 2,392
Write-off of deferred financing costs and in 1996, original issue discount.......... 8,119 4,839
Provision for acquisition related costs, net of payments............................ -- 29,621
Provision for facilities relocations and corporate restructuring, net of payments... (1,764) 3,060
Deferred income tax benefit......................................................... (2,074) (9,272)
Minority interests in income of consolidated subsidiary............................. -- 3,171
Provision for doubtful accounts..................................................... 2,154 1,647
Loss on sale of restaurants......................................................... -- 2,342
Other, net.......................................................................... (4,749) 1,883
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables.................................................................... (12,343) (11,925)
Inventories.................................................................... (16,659) 226
Prepaid expenses and other current assets...................................... 1,943 5,974
Increase (decrease) in accounts payable and accrued expenses .................... 21,384 (4,741)
--------- ---------
Net cash provided by operating activities.................................. 15,082 10,552
--------- ---------
Cash flows from investing activities:
Acquisition of Snapple Beverage Corp..................................................... -- (321,063)
Other business acquisitions.............................................................. (37) (5,159)
Capital expenditures..................................................................... (11,124) (6,692)
Cost of short-term investments purchased................................................. (2,984) (22,399)
Proceeds from short-term investments sold................................................ 10,014 18,408
Proceeds from sales of properties........................................................ 1,125 2,358
Proceeds from sale of the textile business (net of then estimated post-closing
adjustments and expenses paid of $9,882,000)........................................... 247,387 --
Other .................................................................................. (174) (105)
--------- ---------
Net cash provided by (used in) investing activities........................ 244,207 (334,652)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt............................................................. 37,427 332,788
Repayments of long-term debt (including $191,438,000 of long-term debt repaid in
1996 in connection with the sale of the textile business).............................. (254,326) (75,410)
Restricted cash used to repay long-term debt............................................. 30,000 --
Deferred financing costs................................................................. (1,745) (11,300)
Distributions paid on partnership common units of propane subsidiary..................... -- (7,036)
Other .................................................................................. (1,193) 1,245
--------- ---------
Net cash provided by (used in) financing activities........................ (189,837) 240,287
--------- ---------
Net cash provided by (used in) continuing operations......................................... 69,452 (83,813)
Net cash provided by (used in) discontinued operations....................................... (237) 757
--------- ---------
Net increase (decrease) in cash and cash equivalents......................................... 69,215 (83,056)
Cash and cash equivalents at beginning of period............................................. 64,205 154,405
--------- ---------
Cash and cash equivalents at end of period...................................................$ 133,420 $ 71,349
========== =========
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1997
(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 December 31,
1996 and June 29, 1997 (see below), its results of operations for the
three-month and six-month periods ended June 30, 1996 and June 29, 1997 (see
below) and its cash flows for the six-month periods ended June 30, 1996 and June
29, 1997 (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, as amended, for the year ended December 31, 1996
(the "Form 10-K").
Effective January 1, 1997 the Company changed its fiscal year from a
calendar year to a year consisting of 52 or 53 weeks ending on the Sunday
closest to December 31. In accordance therewith, the Company's first quarter of
1997 commenced on January 1, 1997 and ended on March 30, 1997 and its second
quarter of 1997 commenced on March 31, 1997 and ended on June 29, 1997. Each
subsequent quarter of 1997 will consist of 13 weeks. For the purposes of the
condensed consolidated financial statements, the period from March 31, 1997 to
June 29, 1997 and January 1, 1997 to June 29, 1997 are referred to herein as the
three-month and six-month periods ended June 29, 1997, respectively.
Certain amounts included in the prior comparable periods' condensed
consolidated financial statements have been reclassified to conform with the
current periods' presentation.
(2) SIGNIFICANT 1997 TRANSACTIONS
ACQUISITION OF SNAPPLE
On May 22, 1997 Triarc acquired (the "Acquisition") Snapple Beverage Corp.
("Snapple"), a producer and seller of premium beverages, from The Quaker Oats
Company ("Quaker") for $321,063,000 including cash of $308,000,000 (including
$8,000,000 of post-closing adjustments and subject to additional post-closing
adjustments), $10,300,000 of estimated fees and expenses and $2,763,000 of
deferred purchase price. The purchase price for the Acquisition was funded from
(i) $75,000,000 of cash and cash equivalents on hand and contributed by Triarc
to Triarc Beverage Holdings Corp. ("TBHC"), a wholly-owned subsidiary of the
Company and the parent of Snapple and Mistic Brands, Inc. ("Mistic"), a
wholly-owned subsidiary of the Company, and (ii) $250,000,000 of borrowings by
Snapple on May 22, 1997 under a $380,000,000 credit agreement as amended (the
"Credit Agreement" - see Note 6) entered into by Snapple, Mistic and TBHC
(collectively, the "Borrowers").
The Acquisition is being accounted for in accordance with the purchase
method of accounting. The allocation of the $321,063,000 purchase price of
Snapple to the unaudited Snapple balance sheet as of May 22, 1997, on a
preliminary basis subject to finalization, is as follows (in thousands):
PURCHASE ADJUSTED FOR
ACCOUNTING PURCHASE
SNAPPLE ADJUSTMENTS ACCOUNTING
------- ----------- ----------
ASSETS
Current assets:
Receivables, net...........................................................$ 40,279 $ -- $ 40,279
Inventories................................................................ 33,250 1,875 (a) 35,125
Deferred income tax benefit................................................ 11,746 7,524 (g) 19,270
Prepaid expenses and other current assets.................................. 14,019 -- 14,019
--------- ---------- -----------
Total current assets................................................... 99,294 9,399 108,693
Properties, net............................................................ 26,969 (7,966) (b) 19,003
Unamortized costs in excess of net assets of acquired companies............ -- 88,942 (i) 88,942
Trademarks ................................................................ 272,703 (62,703) (c) 210,000
Deferred costs, deposits and other assets.................................. 15,541 12,001 (d) 27,542
--------- ---------- -----------
$ 414,507 $ 39,673 $ 454,180
========= ========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt..........................................$ 53 $ -- $ 53
Accounts payable .......................................................... 11,880 -- 11,880
Accrued expenses........................................................... 35,209 20,157 (e) 55,366
--------- ---------- -----------
Total current liabilities.............................................. 47,142 20,157 67,299
Deferred income taxes...................................................... 73,458 (29,124) (g) 44,334
Other liabilities.......................................................... 1,160 20,324 (f) 21,484
Net assets of Snapple...................................................... 292,747 28,316 (h) 321,063
--------- ---------- -----------
$ 414,507 $ 39,673 $ 454,180
========= ========== ===========
DEBIT
(CREDIT)
--------
(a) Adjust "Inventories" to fair value ....................................................................$ 1,875
(b) Adjust "Properties, net" to (i) eliminate refrigerated display cases to conform
accounting to the Company's policy of expensing such display cases when
purchased and placed in service ($7,851) and (ii) write off other
acquired properties which the
Company plans to abandon ($115) .................................................................... (7,966)
(c) Adjust "Trademarks" to reduce the fair value of the trademarks and tradenames,
formulas and distribution network of Snapple in accordance with an independent
appraisal ......................................................................................... (62,703)
(d) Adjust "Deferred costs, deposits and other assets" to (i) write up Snapple's investments
in affiliates to fair value principally in accordance with an independent appraisal ($13,195)
and (ii) eliminate Snapple's investment in its own distribution routes ($1,194) .................... 12,001
(e) Adjust "Accrued expenses" to record (i) the fair value of the current portion of the
Company's long-term production contracts with copackers which the Company does
not anticipate utilizing based on the future volumes projected by the Company ($7,872),
(ii) the Company's obligations relating to employee severance, stay bonuses and
outplacement services for terminated Snapple employees notified at or shortly after the
Acquisition ($3,799), (iii) obligations related to contracts terminated by the Company for
advertising, marketing and product development programs committed to prior to the
Acquisition ($2,386), (iv) obligations related to packaging materials for product discontinued
by the Company ($200) and (v) an estimate of other liabilities to be identified by the
Company in the finalization of the purchase accounting allocation in connection with the
Acquisition ($5,900)................................................................................ (20,157)
(f) Adjust "Other liabilities" to record the fair value of the long-term
portion of the Company's long-term production contracts with copackers
which the Company does not anticipate utilizing based on future volumes
projected by the
Company ............................................................................................ (20,324)
(g) Adjust deferred income taxes relating to Snapple and establish the net deferred income tax
benefits relating to the purchase accounting adjustments herein consisting of an increase
to the current asset ($7,524) and a decrease to the noncurrent liability ($29,124).................. 36,648
(h) Eliminate the "Net assets of Snapple" ($292,747) and record the push-down of the Acquisition
purchase price ($321,063) to the equity of Snapple ................................................. (28,316)
(i) Record the excess of the Company's investment in Snapple over the adjusted net assets
of Snapple as "Unamortized costs in excess of net assets of acquired companies"
("Goodwill")......................................................................................... 88,942
------------
$ --
============
The results of operations of Snapple from the May 22, 1997 date of the
Acquisition through June 29, 1997 (the "Post-Acquisition Period") have been
included in the accompanying condensed consolidated statements of operations.
See below under "Sale of Restaurants" for the unaudited pro forma condensed
consolidated statements of operations of the Company for the year ended December
31, 1996 and the six-month period ended June 29, 1997 giving effect to, in
addition to the sale of restaurants (see below), the Acquisition and related
transactions.
SALE OF RESTAURANTS
On May 5, 1997 certain of the principal subsidiaries comprising the
Company's restaurant segment were sold to an affiliate of RTM, Inc. ("RTM"), the
largest franchisee in the Arby's system, all of the 355 company-owned
restaurants (the "RTM Sale"). The sales price consisted of cash and a promissory
note (discounted value) aggregating $1,379,000 and the assumption by RTM of an
aggregate $54,620,000 in mortgage and equipment notes payable and $14,955,000 in
capitalized lease obligations. RTM now operates the 355 restaurants as a
franchisee and pays royalties to the Company at a rate of 4% of those
restaurants' net sales effective May 5, 1997. In the fourth quarter of 1996 the
Company recorded a charge to reduce the carrying value of the long-lived assets
associated with the restaurants sold (reported as "Assets held for sale" in the
accompanying condensed consolidated balance sheet at December 31, 1996) to their
estimated fair values and, in the second quarter of 1997, recorded a $2,342,000
loss on the sale (included in "Other income, net"), which includes a $1,457,000
provision for the fair value of future lease commitments and debt repayments
assumed by RTM for which the Company remains contingently liable if the payments
are not made by RTM. The results of operations of the sold restaurants have been
included in the accompanying condensed consolidated statements of operations
through the May 5, 1997 date of sale. Following the sale of all of its
company-owned stores, the Company continues as the franchisor of the more than
3000 store Arby's system.
The following unaudited pro forma condensed consolidated statements of
operations of the Company for the year ended December 31, 1996 and the six-month
period ended June 29, 1997 have been prepared by adjusting such statements of
operations, as derived and condensed, as applicable, from (i) the consolidated
statement of operations in the Form 10-K and (ii) the condensed consolidated
statement of operations appearing herein, respectively, to give effect in a
first step to the RTM Sale and in a second step, the Acquisition and related
transactions, based on the effect of preliminary estimates of the allocation of
the purchase price of Snapple, as if such transactions had been consummated as
of January 1, 1996. The revenues and expenses of Snapple for the year ended
December 31, 1996 and for the period from January 1, 1997 to the May 22, 1997
Acquisition date (the "Preacquisition Period") have been derived and condensed,
as applicable, from (i) the combined statement of certain revenues and operating
expenses included in the Snapple audited combined financial statements for the
year ended December 31, 1996 included in the Company's Form 8-K/10-Q/A filed with the
SEC on August 5, 1997 (the "Form 8-K/A") and (ii) the combination (the
"Preacquisition Statement") of (a) the combined statement of certain revenues
and operating expenses included in the Snapple unaudited combined financial
statements for the three months ended March 31, 1997 included in the Form 8-K/A
and (b) the Snapple unaudited combined statement of certain revenues and
operating expenses for the period from April 1, 1997 to May 22, 1997 provided to
the Company by Quaker. Such Preacquisition Statement is preliminary and is
subject to adjustment upon completion of an audit currently in process. Such
unaudited pro forma condensed consolidated statements of operations do not
purport to be indicative of the Company's actual results of operations had such
transactions actually been consummated on January 1, 1996 or of the Company's
future results of operations and are as follows (in thousands except per share
amounts):
FOR THE YEAR ENDED DECEMBER 31, 1996
ADJUSTMENTS PRO FORMA ADJUSTMENTS
AS FOR THE FOR THE FOR THE
REPORTED RTM SALE RTM SALE SNAPPLE ACQUISITION PRO FORMA
-------- -------- -------- ------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Revenues:
Net sales........................$ 931,920 $ (228,031) (i) $ 703,889 $ 550,800 $ -- $ 1,254,689
Royalties, franchise fees
and other revenues............. 57,329 9,121 (ii) 66,450 -- -- 66,450
------------ ----------- ---------- -------------- ------------ -------------
989,249 (218,910) 770,339 550,800 -- 1,321,139
------------ ----------- ---------- -------------- ------------ -------------
Costs and expenses:
Cost of sales.................... 652,109 (187,535) (i) 464,574 352,900 -- 817,474
Advertising, selling and
distribution................... 139,662 (24,764) (i) 114,898 188,400 (6,826) (a) 296,472
General and administrative....... 131,357 (9,913) (i) 121,444 93,900 (45,322) (b) 170,022
Reduction in carrying value
of long-lived assets
impaired or to be
disposed of.................... 64,300 (58,900) (i) 5,400 -- -- 5,400
Facilities relocation and
corporate restructuring........ 8,800 (2,400) (i) 6,400 16,600 -- 23,000
------------ ----------- ---------- -------------- ------------ -------------
996,228 (283,512) 712,716 651,800 (52,148) 1,312,368
------------ ----------- ---------- -------------- ------------ -------------
Operating profit (loss)........ (6,979) 64,602 57,623 (101,000) 52,148 8,771
Interest expense..................... (73,379) 8,421 (iii) (64,958) -- (28,274) (d) (93,232)
Gain on sale of businesses, net...... 77,000 -- 77,000 -- -- 77,000
Other income, net.................... 7,996 -- 7,996 -- -- 7,996
------------ ----------- ---------- -------------- ------------ -------------
Income (loss) before income
taxes and minority
interests..................... 4,638 73,023 77,661 (101,000) 23,874 535
Provision for income taxes............ (11,294) (28,406) (v) (39,700) -- 28,957 (e) (10,743)
Minority interests in income
of consolidated subsidiary......... (1,829) -- (1,829) -- -- (1,829)
------------ ----------- ---------- -------------- ------------ -------------
Income (loss) before
extraordinary items.........$ (8,485) $ 44,617 $ 36,132 $ (101,000) $ 52,831 $ (12,037)
============ =========== ========== ============== ============ =============
Income (loss) before
extraordinary items
per share...................$ (.28) $ 1.21 $ (0.40)
============ ========== ===============
FOR THE SIX MONTHS ENDED JUNE 29, 1997
ADJUSTMENTS PRO FORMA PREACQUISITION ADJUSTMENTS
AS FOR THE FOR THE PERIOD OF FOR THE
REPORTED RTM SALE RTM SALE SNAPPLE ACQUISITION PRO FORMA
-------- -------- -------- ------- ----------- ---------
(IN THOUSAND EXCEPT PER SHARE DATA)
(UNAUDITED)
Revenues:
Net sales........................$ 401,882 $ (74,195) (i) $ 327,687 $ 172,400 $ -- $ 500,087
Royalties, franchise fees
and other revenues............. 29,641 2,968 (ii) 32,609 -- -- 32,609
------------ ----------- ---------- -------------- -------------- ------------
431,523 (71,227) 360,296 172,400 -- 532,696
------------ ----------- ---------- -------------- -------------- ------------
Costs and expenses:
Cost of sales.................... 255,406 (59,127) (i) 196,279 100,600 -- 296,879
Advertising, selling and
distribution................... 80,792 (8,145) (i) 72,647 58,700 (3,007)(a) 128,340
General and administrative....... 66,872 (3,319) (i) 63,553 28,200 (9,955)(b) 81,798
Facilities relocation and
corporate restructuring........ 7,350 (5,597) (i) 1,753 -- -- 1,753
Acquisition related.............. 32,440 -- 32,440 -- -- 32,440
Loss on assets held for sale..... -- -- -- 1,404,000 (1,404,000)(c) --
------------ ----------- ---------- -------------- -------------- -----------
442,860 (76,188) 366,672 1,591,500 (1,416,962) 541,210
------------ ----------- ---------- -------------- -------------- ------------
Operating profit (loss)........ (11,337) 4,961 (6,376) (1,419,100) 1,416,962 (8,514)
Interest expense..................... (33,963) 2,756 (iii) (31,207) -- (10,969)(d) (42,176)
Other income, net.................... 6,912 1,798 (iv) 8,710 -- -- 8,710
------------ ----------- ---------- -------------- -------------- ------------
Income (loss) before income
taxes and minority
interests................... (38,388) 9,515 (28,873) (1,419,100) 1,405,993 (41,980)
Benefit from income taxes............ 9,213 (3,701) (v) 5,512 -- 4,679 (e) 10,191
Minority interests in income
of consolidated subsidiary......... (3,171) -- (3,171) -- -- (3,171)
------------ ----------- ---------- -------------- -------------- ------------
Loss before
extraordinary items.........$ (32,346) $ 5,814 $ (26,532) $ (1,419,100) $ 1,410,672 $ (34,960)
============ =========== ========== ============== ============== ============
Loss before
extraordinary items
per share...................$ (1.08) $ (0.89) $ (1.17)
============ ========== ============
RTM Sale Pro Forma Adjustments
(i) To reflect the elimination of the sales, cost of sales, advertising,
selling and distribution expenses and allocated general and administrative
expenses, the reduction in carrying value of long-lived assets impaired or
to be disposed of for the year ended December 31, 1996 related to the sold
restaurants and the portion of the facilities relocation and corporate
restructuring charge associated with restructuring the restaurant segment
in connection with the RTM Sale. The allocated general and administrative
expenses reflect the portion of the Company's total general and
administrative expenses allocable to the operating results associated with
the restaurants sold as determined by management of the Company. Such
allocated amounts consist of (i) salaries, bonuses, travel and
entertainment expenses, supplies, training and other expenses related to
area managers who have responsibility for the day-to-day operation of the
sold restaurants and (ii) the portion of general corporate overhead (e.g.
accounting, human resources, marketing, etc.) estimated to be attributable
to the restaurants. Since the Company no longer owns any Arby's restaurants
following the RTM Sale but continues to operate as the Arby's franchisor,
it has undertaken a reorganization of its restaurant segment eliminating
approximately 60 positions in its corporate and field administrative
offices and significantly reducing leased office space. The effect of the
elimination of income and expenses of the sold restaurants is significantly
greater in the year ended December 31, 1996 as compared with the six months
ended June 29, 1997 principally due to two 1996 eliminations which did not
recur in the 1997 period for (i) the $58,900,000 reduction in carrying
value of long-lived assets associated with the restaurants sold and (ii)
depreciation and amortization on the long-lived restaurant assets sold,
which had been written down to their estimated fair values as of December
31, 1996 and were no longer depreciated or amortized while they were held
for sale.
(ii) To reflect royalties on the sales of the sold restaurants at the rate of
4%.
(iii)To reflect a reduction to interest expense relating to the debt assumed by
RTM.
(iv) To reflect the elimination of the $2,342,000 loss on sale of restaurants
and a $544,000 (only the portion related to the restaurant headquarters)
gain on termination of a portion of the Fort Lauderdale, Florida
headquarters lease for space no longer required by the restaurant segment
as a result of the RTM Sale recorded in the six months ended June 29, 1997.
(v) To reflect the income tax effects of the above at the incremental income
tax rate of 38.9%.
Snapple Acquisition Pro Forma Adjustments
(a) To reflect adjustments to "Advertising, selling and distribution" expenses
as follows (in thousands):
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 29, 1997
----------------- -------------
Record (reverse) net purchases (depreciation) of
refrigerated display cases expensed when
purchased and placed in service....................................$ 3,174 $ (879)
Reverse reported take-or-pay expense for obligations
associated with long-term production contracts
as a result of adjustment to fair value............................ (10,000) (2,128)
------------ -------------
$ (6,826) $ (3,007)
============ =============
(b) To reflect adjustments to "General and administrative" expenses as follows
(in thousands):
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 29, 1997
----------------- -------------
Record amortization of trademarks and tradenames of $210,000
over an estimated life of 35 years.................................$ 6,000 $ 2,334
Record amortization of Goodwill of $88,942 over an
estimated life of 35 years......................................... 2,541 989
Reverse reported amortization of intangibles for which no
amortization was recorded subsequent to March 31, 1997
when they were written down to the estimated fair values........... (54,200) (13,400)
Record amortization relating to the excess of fair value of an
equity investment over the underlying book value
over an estimated life of 35 years................................. 337 122
------------ -------------
$ (45,322) $ (9,955)
============ =============
(c) To reverse the historical loss on sale of assets for the six months ended
June 29, 1997 related to the reduction of the carrying value of Snapple in
connection with its sale to Triarc.
(d) To reflect adjustments to "Interest expense" as follows (in thousands):
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 29, 1997
----------------- -------------
Record interest expense at weighted average rate of
10.2% on the $330,000 of borrowings at the
Acquisition date under the Credit Agreement........................$ (33,424) $ (12,811)
Record amortization on $11,200 of deferred financing
costs associated with the Credit Agreement......................... (1,889) (713)
Reverse reported interest expense on Mistic's former
bank facility (see Note 6)......................................... 6,086 2,231
Reverse reported amortization of deferred financing costs
associated with Mistic's former bank facility...................... 953 324
------------- -------------
$ (28,274) $ (10,969)
============== =============
(e) To reflect adjustments to "Benefit from (provision for) income taxes" (in
thousands):
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 29, 1997
----------------- -------------
To reflect an income tax benefit on the adjusted historical
pretax loss at 39% (exclusive of nondeductible Goodwill
write-off and/or amortization) since no income tax benefit is
reflected in the reported historical results of
operations of Snapple .............................................$ 26,286 $ 64,506
To reflect the estimated income tax effect of the
above adjustments (exclusive of nondeductible
Goodwill write-off and/or amortization) at 39%..................... 2,671 (59,827)
------------- -------------
$ 28,957 $ 4,679
============= =============
(f) The accompanying pro forma condensed consolidated statements of operations
do not reflect cost savings that the Company believes it will achieve from
changes in operating strategies subsequent to the acquisition of Snapple
and operational synergies with Mistic. Such savings include cost reductions
in domestic advertising and marketing and general and administrative
expenses and more cost-efficient international operations. With respect to
domestic advertising, the Company plans to reduce such expenditures to
approximately $1.90 per case from the pre-Acquisition 1996 level of
approximately $2.65 per case through elimination of programs, such as
product giveaways, which it considers non-effective, and the reduction of
advertising development costs including talent, production and agency
costs. The Company believes it can achieve such levels since the 1996
advertising and marketing levels at Mistic were approximately $1.56 per
case. Domestic general and administrative expenses are being reduced
through space reductions and elimination of excess personnel. The corporate
office facilities related to Snapple have been reduced from approximately
50,000 square feet at Quaker's corporate facility to 12,500 square feet at
the TBHC facility in White Plains, New York. Further, the Company has
reduced administrative personnel, facilitated in part by the integration
with Mistic. With respect to international operations, Snapple incurred
significant losses in 1996. The Company intends to rationalize its
international advertising and marketing and general and administrative
expenses similar to its domestic operations in order to eliminate such
losses.
SPINOFF TRANSACTIONS
In October 1996 the Company had announced that its Board of Directors
approved a plan to offer up to approximately 20% of the shares of its beverage
and restaurant businesses (then operated through Mistic and RC/Arby's
Corporation, a wholly-owned subsidiary of the Company) to the public through an
initial public offering and to spin off the remainder of the shares of such
businesses to Triarc stockholders (collectively, the "Spinoff Transactions"). In
May 1997 the Company announced it would not proceed with the Spinoff
Transactions as a result of the Acquisition and other complex issues.
(3) SIGNIFICANT 1996 TRANSACTIONS
SALE OF TEXTILE BUSINESS
On April 29, 1996, the Company completed the sale (the "Graniteville
Sale") of its textile business segment other than the specialty dyes and
chemical business of C.H. Patrick & Co., Inc., a wholly-owned subsidiary of the
Company, and certain other excluded assets and liabilities (the "Textile
Business") to Avondale Mills, Inc. for $236,824,000 in cash, net of expenses and
post-closing adjustments. As a result of the Graniteville Sale, the Company
recorded a then estimated pre-tax loss of $500,000 included in "Other income,
net" (including an $8,367,000 write-off of unamortized Goodwill which has no tax
benefit) and an income tax provision of $3,500,000 (exclusive of an
extraordinary charge relating to the early extinguishment of debt included in
the charges described in Note 11). At the closing of the Graniteville Sale,
$191,438,000 of long-term debt of the textile segment was repaid. See Note 19 to
the consolidated financial statements in the Form 10-K for further discussion of
the Graniteville Sale.
The results of operations of the Textile Business have been included in
the accompanying condensed consolidated statements of operations through April
29, 1996. See below under "Sale of Propane Business" for supplemental pro forma
condensed consolidated summary operating data of the Company for the six-month
period ended June 30, 1996 giving effect to the Graniteville Sale and the
repayment of related debt.
SALE OF PROPANE BUSINESS
In July and November 1996 National Propane Partners L.P. (the
"Partnership") a limited partnership organized in 1996 to acquire, own and
operate the propane business (the "Propane Business") of National Propane
Corporation ("National Propane"), a wholly-owned subsidiary of the Company,
consummated offerings (the "Offerings") of units in the Partnership. The
Offerings comprised an aggregate 6,701,550 common units representing limited
partner interests (the "Common Units"), representing an approximate 57.3%
interest in the Partnership, for an offering price of $21.00 per Common Unit
aggregating $124,749,000 net of underwriting discounts and commissions and other
expenses related to the Offerings. In connection therewith, in July 1996
$125,000,000 of long-term debt associated with the Propane Business was issued
and $128,469,000 of existing debt of the Propane Business was repaid
(collectively with the formation of the Partnership, the Offerings and certain
related transactions, the "Propane Transactions"). See Notes 13 and 19 to the
consolidated financial statements in the Form 10-K for further discussion of the
Propane Transactions.
The following unaudited supplemental pro forma condensed consolidated
summary operating data of the Company for the six-month period ended June 30,
1996 gives effect to (i) the Graniteville Sale and the repayment of related debt
(see above) and the Propane Transactions, as if such transactions had been
consummated as of January 1, 1996. The pro forma effects of the Propane
Transactions include (i) the addition of the estimated stand-alone general and
administrative costs associated with the operation of the Propane Business as a
partnership, (ii) net decreases to interest expense principally reflecting the
elimination of interest expense on the $128,469,000 of refinanced debt of the
Propane Business partially offset by the interest expense associated with
$125,000,000 of new debt and (iii) the net benefit from income taxes and
increase in minority interests in income of consolidated subsidiaries resulting
from the effects of the above transactions and other related transactions which
do not affect consolidated pretax earnings. Such pro forma information does not
purport to be indicative of the Company's actual results of operations had such
transactions actually been consummated on January 1, 1996 or of the Company's
future results of operations and are as follows (in thousands except per share
amounts):
Revenues................................................$ 427,361
Operating profit........................................ 36,335
Loss before extraordinary charge........................ (1,666)
Loss before extraordinary charge per share.............. (.06)
(4) INVENTORIES
The following is a summary of the components of inventories (in
thousands):
DECEMBER 31, JUNE 29,
1996 1997
---- ----
Raw materials...................................................................$ 25,405 $ 33,167
Work in process................................................................. 467 459
Finished goods.................................................................. 29,468 54,043
---------- ----------
$ 55,340 $ 87,669
========== ==========
(5) PROPERTIES
The following is a summary of the components of properties, net (in
thousands):
DECEMBER 31, JUNE 29,
1996 1997
---- ----
Properties, at cost.............................................................$ 224,206 $ 235,230
Less accumulated depreciation and amortization.................................. 116,934 113,304
---------- ----------
$ 107,272 $ 121,926
========== ==========
(6) LONG-TERM DEBT
The Credit Agreement consists of $300,000,000 of term loans (the "Term
Loans") of which $225,000,000 and $75,000,000 were borrowed by Snapple and
Mistic, respectively, at the Acquisition date and are outstanding at June 29,
1997 and a revolving credit line which provides for up to $80,000,000 of
revolving credit loans (the "Revolving Loans") by Snapple, Mistic or TBHC of
which $25,000,000 and $5,000,000 were borrowed on the Acquisition date by
Snapple and Mistic, respectively, and $28,500,000 is outstanding at June 29,
1997. The aggregate proceeds of the $330,000,000 of borrowings on the
Acquisition date were principally utilized (i) for a portion of the purchase
price of Snapple (see Note 2), (ii) to repay all of the $70,850,000 then
outstanding borrowings under Mistic's former bank credit facility and (iii) to
pay fees and expenses related to the Credit Agreement of approximately
$11,200,000. Borrowings under the Credit Agreement bear interest, at the
Company's option, at rates based on either the 30, 60, 90 or 180-day London
Interbank Offered Rate ("LIBOR") (ranging from 5.69% to 5.91% at June 29, 1997)
or an alternate base rate (the "ABR"). The ABR (8 1/2% at June 29, 1997)
represents the higher of the prime rate or 1/2% over the Federal funds rate.
Revolving Loans and one of the Term Loans with an outstanding balance of
$100,000,000 at June 29, 1997 bear interest at 2 1/2% over LIBOR or 1 1/4% over
ABR until February 1998, at which time such margins are subject to downward
adjustment by up to 1% based on the respective borrowers' leverage ratio, as
defined. The other two term loans each with outstanding balances of $100,000,000
at June 29, 1997 bear interest at 3% and 3 1/4%, respectively, over LIBOR and 2
1/4% and 2 1/2%, respectively, over the ABR. At June 29, 1997 the outstanding
Revolving Loans bear interest at 9 3/4% and the outstanding Term Loans bear
interest at a weighted average rate of 10 1/2%. The borrowing base for Revolving
Loans is the sum of 80% of eligible accounts receivable and 50% of eligible
inventory. The Revolving Loans are due in full in June 2003 and the Term Loans
are due $3,500,000 during the remainder of 1997, $9,500,000 in 1998, $14,500,000
in 1999, $19,500,000 in 2000, $24,500,000 in 2001, $27,000,000 in 2002,
$61,000,000 in 2003, $94,000,000 in 2004 and $46,500,000 in 2005. The Borrowers
must also make mandatory prepayments in an amount equal to 75% of excess cash
flow, as defined. The Credit Agreement contains various covenants which, among
other matters, require meeting certain financial amount and ratio tests and
prohibit dividends. Substantially all of the domestic assets of Snapple and
Mistic and the common stock of Snapple, Mistic and TBHC are pledged as security
for obligations under the Credit Agreement.
(7) STOCKHOLDERS' EQUITY
On March 20, 1997 the Company granted 1,215,000 stock options at an option
price of $12.54 which was below the $14.75 fair market value of the Class A
common stock at such date representing an aggregate difference of $2,685,000.
Such amount was recorded as an addition to unearned compensation (included in
"Other stockholders' equity (deficit)" in the accompanying condensed
consolidated balance sheets) and is being amortized as compensation expense over
the vesting period of one to three years from the date of grant.
(8) FACILITIES RELOCATION AND CORPORATE RESTRUCTURING
The facilities relocation and corporate restructuring charges in the
three-month and six-month periods ended June 29, 1997 principally consist of
employee severance and related termination costs and employee relocation
associated with restructuring the restaurant segment in connection with the RTM
Sale and, to a lesser extent, costs associated with the relocation of the Fort
Lauderdale, Florida headquarters of Royal Crown Company, Inc. ("Royal Crown"), a
wholly-owned subsidiary of the Company, which is being centralized in the White
Plains, New York headquarters of TBHC.
(9) ACQUISITION RELATED COSTS
The Acquisition related costs in the three-month and six-month periods
ended June 29, 1997 consist of the following (in thousands):
Write down glass front vending machines based on the Company's change in estimate of their
value considering the Company's plans for their future use..........................................$ 13,826
Provide additional reserves for legal matters based on the Company's change in estimate of
the amounts required reflecting its plans and estimates of costs to resolve such matters............ 6,697
Provide for certain costs in connection with the successful consummation of the Acquisition
($3,000) and the Mistic refinancing in connection with entering into the Credit
Agreement ($1,000).................................................................................. 4,000
Provide for fees paid to Quaker pursuant to a transition services agreement............................. 2,819
Reflects the portion of promotional expenses relating to Pre-Acquisition Period as a result of
the Company's current operating expectations........................................................ 2,510
Provide for costs, principally for independent consultants, incurred in connection with the
conversion of Snapple to the Company's operating and financial information systems.................. 1,603
Provide additional reserve for doubtful accounts based on the Company's change in
estimate of the related write-off to be incurred.................................................... 985
----------
$ 32,440
==========
(10) INCOME TAXES
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service (the "IRS") for the tax years 1989 through 1992 and the
IRS had issued notices of proposed adjustments prior to 1997 increasing taxable
income by approximately $145,000,000. Triarc has resolved approximately
$102,000,000 of such proposed adjustments and, in connection therewith, the
Company expects to pay approximately $13,000,000, including interest, in the
fourth quarter of 1997, which amount had been fully reserved in prior years. The
Company intends to contest approximately $43,000,000 of the proposed
adjustments, the tax effect of which has not yet been determined, at the
appellate division of the IRS. The Company believes that adequate aggregate
provisions have been made principally in years prior to 1997 for any tax
liabilities, including interest, that may result from such examination and other
tax matters.
(11) EXTRAORDINARY CHARGES
In connection with the early extinguishment or assumption of the Company's
11 7/8% senior subordinated debentures due February 1, 1998, in February 1996,
all of the debt of the Textile Business, including its credit facility, in
connection with the sale of the Textile Business in April 1996 (see Note 3),
$54,620,000 of mortgage and equipment notes payable assumed by RTM in connection
with the RTM Sale in May 1997 (see Note 2) and the obligations under the former
Mistic credit facility in May 1997 (see Note 6), the Company recognized
extraordinary charges consisting of the following (in thousands):
THREE MONTHS SIX MONTHS THREE AND SIX
ENDED ENDED MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996 JUNE 29, 1997
------------- ------------- -------------
Write-off of unamortized deferred financing costs.....................$ 5,985 $ 6,343 $ 4,839
Write-off of unamortized original issue discount...................... -- 1,776 --
Prepayment penalties (including minimum commissions
through April 1999)................................................ 5,519 5,519 --
---------- --------- --------
11,504 13,638 4,839
Income tax benefit.................................................... 4,353 5,100 1,885
---------- --------- ---------
$ 7,151 $ 8,538 $ 2,954
========== ========= =========
(12) LOSS PER SHARE
The weighted average number of common shares used in the calculations of
loss per share were 29,916,000 for the three and six-month periods ended June
30, 1996 and 29,961,000 and 29,931,000 for the three and six-month periods ended
June 29, 1997, respectively. Common stock equivalents were not used in the
computation of loss per share for such periods since such inclusion would have
been antidilutive. Fully diluted loss per share is not applicable for such
periods since there were no contingent shares.
(13) TRANSACTIONS WITH RELATED PARTIES
The Company continues to lease aircraft owned by Triangle Aircraft
Services Corporation ("TASCO"), a company owned by the Chairman and Chief
Executive Officer and the President and Chief Operating Officer of the Company
(the "Executives") for annual rent as indexed for annual cost of living
adjustments which as of May 21, 1997 was increased to $3,258,000 from $2,008,000
in accordance with an amendment to the lease. Also in accordance with such
amendment, the Company paid TASCO $2,500,000 in the second quarter of 1997 for
(i) an option to continue the lease for an additional five years effective
September 30, 1997 and (ii) the agreement by TASCO to replace one of the
aircraft covered under the lease. Such $2,500,000 is being amortized to rental
expense over the five-year period. In connection with such lease the Company had
rent expense of $1,141,000 for the six-month period ended June 29, 1997.
Pursuant to this arrangement, the Company also pays the operating expenses of
the aircraft directly to third parties.
In June and August 1997, two purported class and shareholder derivative
actions were commenced against certain current and former directors of the
Company (and naming the Company as a nominal defendant). The complaints allege,
among other things, that the defendants breached their fiduciary duties in
allowing certain bonuses and stock options (collectively, the "Grants") to be
granted to the Executives in 1994 and subsequent years, that the Grants were
contrary to the Company's 1994 proxy statement and, in the case of one of the
two actions, that such proxy statement misrepresented or omitted material facts.
The complaints seek, among other things, rescission of certain stock options
granted to the Executives and repayment to the Company by the Executives of
certain bonuses paid to them. The defendants have not yet responded to the
complaints.
(14) LEGAL AND ENVIRONMENTAL MATTERS
In July 1993 APL Corporation ("APL"), which was affiliated with the
Company until an April 1993 change in control, became a debtor in a proceeding
under Chapter 11 of the Federal Bankruptcy Code. In February 1994 the official
committee of unsecured creditors of APL filed a complaint (the "APL Litigation")
against the Company and certain companies formerly or presently affiliated with
Victor Posner, the former Chief Executive Officer of the Company ("Posner"), or
with the Company, alleging causes of action arising from various transactions
allegedly caused by the named former affiliates. The Chapter 11 trustee of APL
was subsequently added as a plaintiff. The complaint asserted various claims and
sought an undetermined amount of damages from the Company, as well as certain
other relief. In June 1997 Triarc entered into a settlement agreement (the
"Settlement Agreement") with Posner and two affiliated entities (including APL).
Pursuant to the Settlement Agreement, among other things, (i) Posner and an
affiliate paid $2.5 million to the Company and (ii) the APL Litigation was
dismissed.
In 1987 TXL Corp. ("TXL"), a wholly-owned subsidiary of the Company, was
notified by the South Carolina Department of Health and Environmental Control
("DHEC") that DHEC discovered certain contamination of Langley Pond ("Langley
Pond") near Graniteville, South Carolina and DHEC asserted that TXL may be one
of the parties responsible for such contamination. In 1990 and 1991 TXL provided
reports to DHEC summarizing its required study and investigation of the alleged
pollution and its sources which concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects. In March 1994 DHEC appeared to conclude that while
environmental monitoring at Langley Pond should be continued, based on currently
available information, the most reasonable alternative is to leave the pond
sediments undisturbed and in place. In April 1995 TXL, at the request of DHEC,
submitted a proposal concerning periodic monitoring of sediment dispositions in
the pond. In February 1996 TXL responded to a DHEC request for additional
information on such proposal. TXL is unable to predict at this time what further
actions, if any, may be required in connection with Langley Pond or what the
cost thereof may be. In addition, TXL owned a nine acre property in Aiken
County, South Carolina (the "Vaucluse Landfill"), which was used as a landfill
from approximately 1950 to 1973. The Vaucluse Landfill was operated jointly by
TXL and Aiken County and may have received municipal waste and possibly
industrial waste from TXL as well as sources other than TXL. The United States
Environmental Protection Agency conducted an Expanded Site Inspection in January
1994 and in response thereto the DHEC indicated its desire to have an
investigation of the Vaucluse Landfill. In April 1995 TXL submitted a conceptual
investigation approach to DHEC. Subsequently, the Company responded to an August
1995 DHEC request that TXL enter into a consent agreement to conduct an
investigation indicating that a consent agreement is inappropriate considering
TXL's demonstrated willingness to cooperate with DHEC requests and asked DHEC to
approve TXL's April 1995 conceptual investigation approach. The cost of the
study proposed by TXL was estimated to be between $125,000 and $150,000. Since
an investigation has not yet commenced, TXL is currently unable to estimate the
cost, if any, to remediate the landfill. Such cost could vary based on the
actual parameters of the study. In connection with the Graniteville Sale (see
Note 3), the Company agreed to indemnify the purchaser for certain costs, if
any, incurred in connection with the foregoing matters that are in excess of
specified reserves, subject to certain limitations.
As a result of certain environmental audits in 1991, Southeastern Public
Service Company ("SEPSCO"), a wholly-owned subsidiary of the Company, became
aware of possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's ice and cold storage operations of the refrigeration business and has
filed appropriate notifications with state environmental authorities and in 1994
completed a study of remediation at such sites. SEPSCO has removed certain
underground storage and other tanks at certain facilities of its refrigeration
operations and has engaged in certain remediation in connection therewith. Such
removal and environmental remediation involved a variety of remediation actions
at various facilities of SEPSCO located in a number of jurisdictions. Such
remediation varied from site to site, ranging from testing of soil and
groundwater for contamination, development of remediation plans and removal in
some instances of certain contaminated soils. Remediation is required at
thirteen sites which were sold to or leased by the purchaser of the ice
operations. Remediation has been completed on ten of these sites and is ongoing
at three others. Such remediation is being made in conjunction with the
purchaser who has satisfied its obligation to pay up to $1,000,000 of such
remediation costs. Remediation is also required at seven cold storage sites
which were sold to the purchaser of the cold storage operations. Remediation has
been completed at one site and is ongoing at four other sites. Remediation is
expected to commence on the remaining two sites in 1998 and 1999. Such
remediation is being made in conjunction with the purchaser who is responsible
for the first $1,250,000 of such costs. In addition, there are fifteen
additional inactive properties of the former refrigeration business where
remediation has been completed or is ongoing and which have either been sold or
are held for sale separate from the sales of the ice and cold storage
operations. Of these, eleven have been remediated through June 29, 1997 at an
aggregate cost of $1,000,000. In addition, SEPSCO is aware of one plant which
may require demolition in the future.
In May 1994 National (the entity representative of both the operations of
National Propane prior to the Propane Transactions and the Partnership
subsequent thereto - see Note 3) was informed of coal tar contamination which
was discovered at one of its properties in Wisconsin. National purchased the
property from a company (the "Successor") which had purchased the assets of a
utility which had previously owned the property. National believes that the
contamination occurred during the use of the property as a coal gasification
plant by such utility. In order to assess the extent of the problem, National
engaged environmental consultants in 1994. As of March 1, 1997, National's
environmental consultants have begun but not completed their testing. Based upon
the new information compiled to date which is not yet complete, it appears the
likely remedy will involve treatment of groundwater and treatment of the soil,
installation of a soil cap and, if necessary, excavation, treatment and disposal
of contaminated soil. As a result, the environmental consultants' current range
of estimated costs for remediation is from $764,000 to $1,559,000. National will
have to agree upon the final plan with the state of Wisconsin. Since receiving
notice of the contamination, National has engaged in discussions of a general
nature concerning remediation with the state of Wisconsin. These discussions are
ongoing and there is no indication as yet of the time frame for a decision by
the state of Wisconsin or the method of remediation. Accordingly, the precise
remediation method to be used is unknown. Based on the preliminary results of
the ongoing investigation, there is a potential that the contaminants may extend
to locations downgradient from the original site. If it is ultimately confirmed
that the contaminant plume extends under such properties and if such plume is
attributable to contaminants emanating from the Wisconsin property, there is the
potential for future third-party claims. National is also engaged in ongoing
discussions of a general nature with the Successor. The Successor has denied any
liability for the costs of remediation of the Wisconsin property or of
satisfying any related claims. However, National, if found liable for any of
such costs, would still attempt to recover such costs from the Successor.
National has notified its insurance carriers of the contamination, the likely
incurrence of costs to undertake remediation and the possibility of related
claims. Pursuant to a lease related to the Wisconsin facility, the ownership of
which was not transferred to a subpartnership at the closing of the
Partnership's July 1996 initial public offering (see Note 3), the Partnership
has agreed to be liable for any costs of remediation in excess of amounts
recovered from the Successor or from insurance. Since the remediation method to
be used is unknown, no amount within the cost ranges provided by the
environmental consultants can be determined to be a better estimate.
In 1993 Royal Crown became aware of possible contamination from
hydrocarbons in groundwater at two abandoned bottling facilities. Tests have
confirmed hydrocarbons in the groundwater at both of the sites and remediation
has commenced. Management estimates that total remediation costs will be
approximately $685,000, with approximately $225,000 to $260,000 expected to be
reimbursed by the State of Texas Petroleum Storage Tank Remediation Fund at one
of the two sites, of which approximately $575,000 has been expended to date.
In 1994 Chesapeake Insurance Company Limited ("Chesapeake Insurance"), a
wholly-owned subsidiary of the Company and SEPSCO invested approximately
$5,100,000 in a joint venture with Prime Capital Corporation ("Prime").
Subsequently in 1994, SEPSCO and Chesapeake Insurance terminated their
investments in such joint venture. In March 1995 three creditors of Prime filed
an involuntary bankruptcy petition under the Federal bankruptcy code against
Prime. In November 1996 the bankruptcy trustee appointed in the Prime bankruptcy
case made a demand on Chesapeake Insurance and SEPSCO for return of the
approximate $5,300,000. In January 1997 the bankruptcy trustee commenced
avoidance actions against Chesapeake Insurance and SEPSCO seeking the return of
the approximate $5,300,000 allegedly received by Chesapeake Insurance and SEPSCO
during 1994 and alleging such payments from Prime were preferential or
constituted fraudulent transfers. The Company believes, based on advice of
counsel, that it has meritorious defenses to these claims and that discovery may
reveal additional defenses and intends to vigorously contest the claims.
However, it is possible that the trustee will be successful in recovering the
payments. The maximum amount of SEPSCO's and Chesapeake Insurance's aggregate
liability is the approximate $5,300,000 plus interest; however, to the extent
SEPSCO or Chesapeake Insurance return to Prime any amount of the challenged
payments, they will be entitled to an unsecured claim for such amount. SEPSCO
and Chesapeake Insurance filed answers to the complaints on March 14, 1997.
Discovery is ongoing and the court has adjourned the trial date from July 28,
1997 to October 27, 1997.
On February 19, 1996, Arby's Restaurantes S.A. de C.V. ("AR"), the master
franchisee of Arby's Inc. ("Arby's"), a wholly-owned subsidiary of the Company,
in Mexico, commenced an action in the civil court of Mexico against Arby's for
breach of contract. AR alleged that a non-binding letter of intent dated
November 9, 1994 between AR and Arby's constituted a binding contract pursuant
to which Arby's had obligated itself to repurchase the master franchise rights
from AR for $2,850,000. AR also alleged that Arby's had breached a master
development agreement between AR and Arby's. Arby's promptly commenced an
arbitration proceeding since the franchise and development agreements each
provided that all disputes arising thereunder were to be resolved by
arbitration. Arby's is seeking a declaration in the arbitration to the effect
that the November 9, 1994 letter of intent was not a binding contract and,
therefore, AR has no valid breach of contract claim, as well as a declaration
that the master development agreement has been automatically terminated as a
result of AR's commencement of suspension of payments proceedings in February
1995. In the civil court proceeding in Mexico, the court denied Arby's motion to
suspend such proceedings pending the results of the arbitration, and Arby's has
appealed that ruling. In May 1997, AR commenced an action against Arby's in the
United States District Court for the Southern District of Florida alleging that
(i) Arby's had engaged in fraudulent negotiations with AR in 1994-1995, with the
purpose of weakening AR's financial condition in order to force AR to sell the
master franchise rights for Mexico to Arby's cheaply and (ii) Arby's had
tortiously interfered with an alleged business opportunity that AR had with a
third party. Arby's has moved to dismiss that action. Arby's believes that it
had good cause to terminate its master agreement and franchise agreement with
AR. Arby's is vigorously contesting AR's claims and believes it has meritorious
defenses to such claims.
On June 3, 1997, ZuZu, Inc. ("ZuZu") and its subsidiary, ZuZu Franchising
Corporation ("ZFC") commenced an action against Arby's and Triarc in the
District Court of Dallas County, Texas alleging that Arby's and Triarc conspired
to steal the ZuZu Speedy Tortilla concept and convert it to their own use. ZuZu
seeks actual damages in excess of $70,000,000 and punitive damages of not less
than $200,000,000 against Triarc for its alleged appropriation of trade secrets,
conversion and unfair competition. ZFC also made a demand for arbitration with
the Dallas, Texas office of the American Arbitration Association ("AAA") against
Arby's alleging that Arby's had breached a Master Franchise Agreement between
ZFC and Arby's. Arby's and Triarc have moved to dismiss or, in the alternative,
abate the Texas court action on the ground that a Stock Purchase Agreement
between Triarc and ZuZu required that disputes be subject to mediation in
Wilmington, Delaware and that any litigation be brought in the Delaware courts.
On July 16, 1997, Arby's and Triarc commenced a declaratory judgment action
against ZuZu and ZFC in Delaware Chancery Court for New Castle County seeking a
declaration that the claims in both the litigation and the arbitration must be
subject to mediation in Wilmington, Delaware. In the arbitration proceeding,
Arby's has asserted counterclaims against ZuZu for unjust enrichment, breach of
contract and breach of the duty of good faith and fair dealing and has
successfully moved to transfer the proceeding to the Atlanta, Georgia office of
the AAA. Arby's and Triarc are vigorously contesting plaintiffs' claims in both
the litigation and the arbitration and believe that plaintiffs' various claims
are without merit.
Snapple and Quaker are defendants in a breach of contract case filed on
April 16, 1997 in Rhode Island Superior Court by Rhode Island Beverage Packing
Company, L.P. ("RIB"), prior to the Acquisition. RIB and Snapple disagree as to
whether the co-packing agreement between them had been amended to a) change the
end of the term from December 30, 1997 to December 30, 1999 and b) more than
double Snapple's take-or-pay obligations thereunder. RIB sets forth various
causes of action in its complaint: (1) that Snapple materially breached the
agreement, (2) that the agreement was reformed, (3) that Snapple as 50% owner of
RIB had a fiduciary duty, which it breached, (4) that the alleged amendment was
relied upon and therefore should be enforced, (5) that Snapple breached a
partnership agreement with RIB, (6) that the defendants tortiously interfered
with RIB contractual relation with its lender and with other prospective
contractual relations and (7) that Quaker is liable for the actions of Snapple.
RIB seeks reformation of the contract, compliance with promises, consequential
damages including lost profits, attorney's fees and punitive damages. On June
16, 1997, Snapple and Quaker filed an answer to the complaint in which they
denied all liability to RIB, denied the material allegations of the complaint
and raised various affirmative defenses.
The Company has accruals for all of the above matters aggregating
approximately $9,400,000. Based on currently available information and given (i)
the DHEC's apparent conclusion in 1994 with respect to the Langley Pond matter,
(ii) the indemnification limitations with respect to the SEPSCO cold storage
operations, Langley Pond and the Vaucluse Landfill, (iii) potential
reimbursements by other parties as discussed above and (iv) the Company's
aggregate reserves for such legal and environmental matters, the Company
believes that the legal and environmental matters referred to above, as well as
ordinary routine litigation incidental to its businesses, will not have a
material adverse effect on its consolidated results of operations or financial
position.
(15) SUBSEQUENT EVENTS
C&C SALE
On July 18, 1997, the Company completed the sale (the "C&C Sale") of its
rights to the C&C beverage line of mixers, colas and flavors, including the C&C
trademark and equipment related to the operation of the C&C beverage line, to
Kelco Sales & Marketing Inc. ("Kelco") for the proceeds of $750,000 in cash and
an $8,650,000 note (the "Note") with a discounted value of $6,003,000 consisting
of $3,623,000 relating to the C&C Sale and $2,380,000 relating to future
revenues. The $2,380,000 of deferred revenues consists of (i) $2,096,000
relating to minimum take-or-pay commitments for sales of concentrate for C&C
products to Kelco and (ii) $284,000 relating to future technical services to be
performed for Kelco by the Company, both under a contract with Kelco. The excess
of the proceeds of $4,373,000 over the carrying value of the C&C trademark of
$1,575,000 and the related equipment of $2,000 resulted in a pre-tax gain of
$2,796,000 which will be recognized commencing in the third quarter of 1997 pro
rata between the gain on sale and the carrying value of the assets sold based on
the cash proceeds and collections under the Note since realization of the Note
is not yet fully assured.
The following unaudited supplemental pro forma consolidated summary
operating data of the Company for the six-month period ended June 29, 1997
adjusts the appropriate amounts from the unaudited pro forma condensed
consolidated statement of operations which gave effect to the RTM Sale and the
Acquisition (see Note 2) to give effect to the C&C Sale as if such sale had been
consummated as of January 1, 1997. The pro forma effects of such sale include
(i) realization of deferred revenues based on the portion of the minimum
take-or-pay commitment for sales of concentrate for C&C products to Kelco to be
fulfilled and fees related to the technical services to be performed, both under
the contract with Kelco, (ii) imputation of interest on the deferred revenue,
(iii) recognition of the estimated cost of the concentrate to be sold, (iv) the
elimination of the sales, cost of sales, advertising, selling and distribution
expenses, general and administrative expenses and other expenses related to the
C&C beverage line, (v) accretion of the discount on the Note and (vi) the
related income tax effects. Such pro forma information does not purport to be
indicative of the Company's actual results of operations had such sale actually
been consummated on January 1, 1997 or of the Company's future results of
operations and are as follows (in thousands):
Revenues..............................................$ 526,561
Operating loss........................................ (8,393)
Loss before extraordinary charge...................... (34,760)
Loss before extraordinary charge per share............ (1.16)
CABLE CAR ACQUISITION
On June 24, 1997 the Company entered into a definitive merger agreement
with Cable Car Beverage Corporation ("Cable Car"), a distributor of beverages,
principally Stewart's brand soft drinks, whereby Triarc will issue shares of its
Class A common stock for all of the outstanding stock of Cable Car (the "Cable
Car Acquisition") at a ratio of 0.1722 Triarc shares for each outstanding common
share of Cable Car. The acquisition will be accounted for under the purchase
method of accounting. The preliminary estimated cost of the acquisition is
$36,387,000 consisting of (i) the assumed value of $33,303,000 of approximately
1,540,000 Triarc common shares to be issued based on the closing market price on
August 14, 1997 of $21 5/8 for Triarc common stock (the "August 14, 1997 Market
Price"), (ii) the assumed value of $2,484,000 of 155,411 options to purchase an
equal number of shares of Triarc common stock with below market option prices
(as of the assumed issuance date of August 14, 1997) based upon the August 14,
1997 Market Price issued in exchange for all of the outstanding Cable Car
options and (iii) an estimated $600,000 of costs to be incurred related to the
acquisition. The acquisition is currently expected to close during the fourth
quarter of 1997 and is subject to certain customary closing conditions.
The Company has not presented pro forma financial information herein since
customary closing conditions required for the Cable Car Acquisition have not yet
been satisfied. The following table, however, sets forth summarized financial
information of Cable Car for the year ended December 31, 1996 and the six months
ended June 30, 1997 derived from its annual report on Form 10-K and its
quarterly report on Form 10-Q, respectively.
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(IN THOUSANDS)
Total revenues.................................................$ 18,873 $ 12,747
Operating income............................................... 2,011 1,240
Net income..................................................... 1,257 693
Total assets (as of period end)................................ 7,142 9,173
Shareholders' equity (as of period end)........................ 5,982 6,752
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with "Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report on Form 10-K, as amended, for the year ended
December 31, 1996 (the "Form 10-K") of Triarc Companies, Inc. ("Triarc" or,
collectively with its subsidiaries, the "Company"). The recent trends affecting
the Company's four business segments are described therein. However, following
the sale of all of the 355 company-owned restaurants on May 5, 1997 (the "RTM
Sale") to an affiliate of RTM, Inc. ("RTM"), the largest franchisee in the
Arby's system (see below under "Liquidity and Capital Resources"), the effects
of the trends on the restaurant segment are limited to their impact on franchise
fees and royalties. Certain statements under this caption constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995.
See "Part II - Other Information" preceding "Item 1".
Effective January 1, 1997 the Company changed its fiscal year from a
calendar year to a year consisting of 52 or 53 weeks ending on the Sunday
closest to December 31. In accordance therewith, the Company's first and second
quarters of 1997 ended on March 30 and June 29, 1997, respectively. For purposes
of this management's discussion and analysis, the period from January 1, 1997 to
June 29, 1997 is referred to below as the six months ended June 29, 1997 or the
1997 first half and the period from March 31, 1997 to June 29, 1997 is referred
to below as the three months ended June 29, 1997 or the 1997 second quarter.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 29, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
REVENUES OPERATING PROFIT (LOSS)
SIX MONTHS ENDED SIX MONTHS ENDED
---------------- ----------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1996 1997 1996 1997
---- ---- ---- ----
(IN THOUSANDS)
Beverages.....................................................$ 162,334 $ 204,918 $ 12,347 $ (23,942)
Restaurants................................................... 139,719 103,837 7,806 8,456
Propane ...................................................... 88,298 88,688 10,281 8,298
Textiles...................................................... 185,019 34,080 11,045 3,195
Unallocated general corporate income (expenses) .............. -- -- 1,651 (a) (7,344) (b)
---------- ---------- -------- -----------
$ 575,370 $ 431,523 $ 43,130 $ (11,337)
========== ========== ======== ===========
(a) Includes a $3.0 million release of casualty insurance reserves.
(b) Reflects a $9.0 million deterioration from the 1996 period
principally reflecting fixed expenses which are no longer being
charged as management fees by Triarc to (i) the Textile
Business subsequent to its April 1996 sale (see below) and (ii)
the propane segment subsequent to its initial public offering
and operation as a partnership beginning in July 1996 (see
below) and the nonrecurring $3.0 million income in the 1996
period noted in (a) above.
Revenues decreased $143.8 million to $431.5 million in the six months ended
June 29, 1997 principally reflecting the $157.5 million of sales associated with
the Textile Business (see below) sold on April 29, 1996 and approximately $36.0
million of lower sales for the restaurant segment relative to the RTM Sale on
May 5, 1997 as compared with a full six months of sales in the 1996 period,
partially offset by $57.9 million of sales in the six months ended June 29, 1997
associated with Snapple Beverage Corp. ("Snapple"), a producer and seller of
premium beverages acquired by the Company from The Quaker Oats Company
("Quaker") on May 22, 1997 (see further discussion below under "Liquidity and
Capital Resources"). The changes in revenues by segment are as follows:
Beverages - Revenues increased $42.6 million (26.2%) due to $57.9
million of revenues in the 1997 period from Snapple partially offset by
decreases in sales of finished goods ($12.1 million) and concentrate
($3.2 million) in the Company's beverage businesses other than Snapple.
The decrease in sales of finished goods principally reflects (a) the
absence in the 1997 first half of $5.8 million of 1996 sales to MetBev,
Inc. ("MetBev"), a former distributor of the Company's beverage
products in the New York City metropolitan area, and a $1.5 million
decrease in sales of other branded finished products of Royal Crown
Company, Inc. ("Royal Crown"), a wholly-owned subsidiary of the
Company, in areas other than those serviced by MetBev (where the
Company now sells concentrate rather than finished goods), (b) $3.3
million of lower sales of Mistic Brands, Inc. ("Mistic"), a
wholly-owned subsidiary of the Company, and (c) a $1.5 million
reduction in the sales of finished Royal Crown Premium Draft Cola
("Draft Cola") which the Company no longer sells. Sales of concentrate
decreased, despite the shift in sales to concentrate from finished
goods noted above, reflecting (i) a $3.6 million decrease in branded
sales due to volume declines, which were adversely affected by soft
bottler case sales, partially offset by a higher average concentrate
selling price and (ii) a $0.4 million increase in private label sales
volume.
Restaurants - Restaurant revenues decreased $35.8 million (25.7%) to
$103.8 million due to a $38.5 million (34.2%) decrease in net sales of
company-owned restaurants, partially offset by a $2.7 million (9.9%)
increase in royalties and franchise fees. The $38.5 million decrease in
net sales of company-owned restaurants is almost entirely due to the
loss of approximately $36.0 million of sales from the restaurants sold
to RTM. The $2.7 million increase in royalties and franchise fees is
due to $1.4 million of incremental royalties for the period from May 5,
1997 through June 29, 1997 from the 355 restaurants sold to RTM, an
average net increase of 83 (3.2%) other franchised restaurants and a
1.9% increase in same-store sales of franchised restaurants.
Propane - Revenues increased $0.4 million (0.4%) due to the $7.4
million effect of higher selling prices from passing on to customers a
substantial portion of the increased product costs resulting from the
record high propane costs this past heating season substantially offset
by (i) the $5.7 million effect of lower propane volume reflecting
warmer weather in the 1997 period and customer energy conservation due
to the higher propane costs partially offset by higher volume from
acquisitions of propane distributorships and (ii) a $1.3 million
decrease in revenues from other product lines.
Textiles (including specialty dyes and chemicals) - As discussed
further in the Form 10-K, on April 29, 1996 the Company sold its
textile business segment other than its specialty dyes and chemicals
business and certain other excluded assets and liabilities (the
"Textile Business"). Principally as a result of such sale, revenues of
the textile segment decreased $150.9 million (81.6%) reflecting the
$157.5 million of revenues of the Textile Business in the first half of
1996 prior to its sale. Overall revenues of the specialty dyes and
chemicals business decreased $2.9 million (7.9%), reflecting price
competition pressures and a cyclical downturn in the denim segment of
the textile industry in which the Company's dyes are used, while
revenues of this business reported in consolidated "Net sales" in the
accompanying condensed consolidated statements of operations increased
$6.6 million (23.8%) to $34.1 million in the 1997 first half due to the
full period effect of revenues from sales to the purchaser of the
Textile Business subsequent to the April 29, 1996 sale of such business
($14.2 million in the 1997 period and $8.6 million in the 1996 period)
which were no longer eliminated in consolidation as intercompany sales.
Gross profit (total revenues less cost of sales) decreased $3.8 million to
$176.1 million in the six months ended June 29, 1997 reflecting in part the
gross profit of Snapple of $22.7 million offset by the nonrecurring 1996 gross
profit associated with the Textile Business of $16.8 million and the RTM Sale of
$6.0 million. Aside from the effects of these transactions, gross profit
decreased $3.7 million due to the lower revenues discussed above. The changes in
gross margins by segment, which increased in the aggregate, are as follows:
Beverages - Margins decreased to 51.5% from 53.3% due principally to
the inclusion in the 1997 period of lower-margin (39.3%) sales of
Snapple in the period from the May 22, 1997 acquisition date to June
29, 1997 ("the Post-Acquisition Period") substantially offset by higher
margins in the Company's other beverage businesses principally due to
(i) the recognition of $1.0 million included in the 1997 first quarter
resulting from the guarantee to the Company of certain minimum gross
profit levels on sales to the Company's private label customer,
recorded as a reduction to cost of sales, for which no similar amount
was recognized in the 1996 comparable period and (ii) the larger
proportion of higher-margin concentrate sales compared with finished
product sales reflecting the shift from sales of finished goods
discussed above. The Snapple margin was adversely impacted by the
one-time $2.8 million effect of the sales of all inventories which were
written up in the purchase price allocation to fair value to reflect
manufacturing profit at acquisition.
Restaurants - Margins increased to 42.9% from 31.9% primarily due to
(i) the higher percentage of royalties and franchise fees (with no
associated cost of sales) to total revenues in the 1997 first half
principally due to the RTM Sale discussed above and (ii) the absence in
the 1997 period of depreciation and amortization on all long-lived
restaurant assets which had been written down to their estimated fair
values as of December 31, 1996 and were no longer depreciated or
amortized through their May 5, 1997 date of sale.
Propane - Margins decreased to 22.4% from 26.5% due to the gross profit
per propane gallon remaining relatively unchanged while the average
sales price per gallon increased 9.5% due to passing on the higher
product costs to customers.
Textiles - As noted above, the Textile Business was sold in April 1996.
As a result, for the six months ended June 29, 1997, margins for the
textile segment increased to 18.0% from 13.7% reflecting the
higher-margin revenues of the remaining specialty dyes and chemicals
business which margins decreased to 18.0% from 23.1% due to the
aforementioned pricing pressures.
Advertising, selling and distribution expenses increased $8.7 million to
$80.8 million in the six months ended June 29, 1997 reflecting $18.4 million of
expenses of Snapple partially offset by (a) $3.8 million of nonrecurring
expenses of the 1996 period related to the Textile Business sold in April 1996,
(b) a $3.1 million decrease in the expenses of the beverage segment principally
due to (i) lower bottler promotional reimbursements resulting from the decline
in sales volume, (ii) the elimination of advertising expenses for Draft Cola and
(iii) planned reductions in connection with the aforementioned decrease in sales
of other Royal Crown branded finished products, all partially offset by higher
promotional costs related to Mistic Rain Forest Nectars and a major Mistic
advertising campaign and (c) a $3.1 million decrease in the expenses of the
restaurant segment principally due to the cessation of local restaurant
advertising and marketing expenses resulting from the RTM Sale.
General and administrative expenses increased $2.2 million to $66.9
million in the six months ended June 29, 1997 due to (i) $5.4 million of
expenses of Snapple, (ii) a $3.0 million nonrecurring credit in the 1996 period
for the release of casualty insurance reserves and (iii) other inflationary
increases, partially offset by (i) $7.6 million of expenses in the 1996 period
related to the Textile Business, (ii) reduced spending levels related to
administrative support no longer required for the sold restaurants as a result
of the RTM Sale, particularly payroll, (iii) reduced travel activity in the
restaurant segment prior to the RTM Sale and (iv) lower compensation expense
related to grants of below market stock options to employees who have since
terminated employment.
The facilities relocation and corporate restructuring charge of $7.4
million in the six months ended June 29, 1997 principally consists of employee
severance and related termination costs and employee relocation associated with
restructuring the restaurant segment in connection with the RTM Sale and, to a
lesser extent, costs associated with the relocation of the Fort Lauderdale,
Florida headquarters of Royal Crown, which has been centralized in the White
Plains, New York headquarters of Mistic and Snapple.
Acquisition related costs of $32.4 million in the six months ended June 29,
1997 associated with the acquisition of Snapple on May 22, 1997 consists of (i)
a write-down of glass front vending machines based on the Company's change in
estimate of their value considering the Company's plans for their future use
($13.8 million), (ii) a provision for additional reserves for legal matters
based on the Company's change in estimate of the amounts required reflecting its
plans and estimates of costs to resolve such matters ($6.7 million), (iii) a
provision for certain costs in connection with the successful consummation of
the acquisition of Snapple and the Mistic refinancing in connection with
entering into the Credit Agreement (see below under "Liquidity and Capital
Resources") (aggregating $4.0 million), (iv) a provision for fees paid to Quaker
pursuant to a transition services agreement whereby Quaker provided certain
operating and accounting services for Snapple through the end of the Company's
second quarter ($2.8 million), (v) the portion of the Post-Acquisition Period
promotional expenses the Company estimates is related to the pre-acquisition
period ($2.5 million), (vi) a provision for costs, principally for independent
consultants, incurred in connection with the data processing implementation of
the accounting systems for Snapple (under Quaker, Snapple did not have its own
independent data processing accounting systems), including costs incurred
relating to an aborted system ($1.6 million) and (vii) a provision for
additional reserves for doubtful accounts based on the Company's change in
estimate of the related write-off to be incurred ($1.0 million).
Interest expense decreased $7.1 million to $34.0 million in the six months
ended June 29, 1997 due to lower average levels of debt reflecting (a) the full
period effect of repayments prior to maturity of (i) $191.4 million of debt of
the Textile Business in connection with its sale on April 29, 1996 and (ii)
$36.0 million principal amount of the Company's 11 7/8% senior subordinated
debentures due February 1, 1998 (the "11 7/8% Debentures") on February 22, 1996,
(b) the repayment prior to maturity of $34.7 million principal amount of a 9
1/2% promissory note (the "9 1/2% Note") on July 1, 1996 and (c) the assumption
by RTM of an aggregate $69.6 million of mortgage and equipment notes payable and
capitalized lease obligations in connection with the RTM Sale on May 5, 1997,
all partially offset by the effects of (a) borrowings by Snapple (see below
under "Liquidity and Capital Resources") in connection with the May 22, 1997
Snapple acquisition ($248.5 million outstanding as of June 29, 1997) and (b)
higher average levels of borrowings at C.H. Patrick & Co., Inc. ("C.H.
Patrick"), a wholly-owned subsidiary of the Company, under the Patrick Facility
(see below under "Liquidity and Capital Resources") entered into in May 1996
($33.8 million outstanding as of June 29, 1997).
Other income, net increased $5.1 million to $6.9 million in the six months
ended June 29, 1997 principally due to (i) a $2.3 million increase in investment
income (principally interest) resulting from the Company's increased portfolio
of cash equivalents and short-term investments as a result of (a) proceeds in
connection with the sale of 57.3% of the Company's propane business in the
second half of 1996 and (b) the full period effect in the 1997 period of
proceeds in connection with the sale of the Textile Business in April 1996, (ii)
a $1.9 million reversal of legal fees incurred in prior years as a result of a
cash settlement received from Victor Posner ("Posner") the former Chairman and
Chief Executive Officer of the Company, and an affiliate of Posner during the
1997 second quarter, (iii) a $0.9 million gain on lease termination for a
portion of the space no longer required in the Fort Lauderdale facility due to
staff reductions as a result of the RTM Sale and the relocation of the Royal
Crown headquarters, (iv) $0.5 million of increased gains on other asset sales
and (v) a non-recurring then estimated $0.5 million pre-tax loss on the sale of
the Textile Business, all partially offset by a $2.3 million loss from the RTM
Sale.
The benefit from and (provision for) income taxes represent annual
effective tax rates of 24% and 147% estimated as of June 29, 1997 and June 30,
1996, respectively. Such rate is lower in the 1997 first half due principally to
the differing impact on the respective effective rates of the amortization of
nondeductible costs in excess of net assets of acquired companies ("Goodwill")
in a period with a pre-tax loss (1997) compared with a period with pre-tax
income. In the 1997 period, the effect of Goodwill amortization was partially
offset by the inclusion in pre-tax loss of non-taxable minority interests in the
net income of the propane business (see below). In the 1996 period, the effect
of Goodwill amortization was increased by a $3.0 million tax provision on a $0.5
million pre-tax loss on the sale of the Textile Business of which $8.4 million
represents the write-off of unamortized Goodwill.
The minority interests in net income of a consolidated subsidiary of $3.2
million in the 1997 first half represents the limited partners' 57.3% interests
(principally sold in the second half of 1996) in the net income of National
Propane Partners, L.P. (the "Partnership"), a partnership formed in 1996 to
acquire, own and operate the Company's propane business.
The extraordinary charges in the 1997 period result from (i) the May 1997
assumption by RTM of mortgage and equipment notes payable in connection with the
RTM Sale and (ii) the refinancing of the bank facility of Mistic (see "Liquidity
and Capital Resources") and are comprised of the write-off of $4.9 million of
unamortized deferred financing costs, net of the related income tax benefit of
$1.9 million. The extraordinary charges in the 1996 period result from the early
extinguishment of all debt of the Textile Business in April 1996 and the 11 7/8%
Debentures in February 1996 and are comprised of the write-off of $6.3 million
of unamortized deferred financing costs and $1.8 million of unamortized original
issue discount, and the payment of prepayment penalties and other costs of $5.5
million, both net of income tax benefit of $5.1 million.
THREE MONTHS ENDED JUNE 29, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
REVENUES OPERATING PROFIT (LOSS)
THREE MONTHS ENDED THREE MONTHS ENDED
------------------ ------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1996 1997 1996 1997
---- ---- ---- ----
(IN THOUSANDS)
Beverages...................................................$ 92,012 $ 140,396 $ 6,873 $ (29,690)
Restaurants................................................. 72,623 38,389 5,630 3,186
Propane .................................................... 28,317 29,503 (1,943) (195)
Textiles.................................................... 53,525 17,834 5,501 1,904
Unallocated general corporate expenses...................... -- -- 1,649 (a) (4,118) (b)
---------- ---------- -------- ----------
$ 246,477 $ 226,122 $17,710 $ (28,913)
=========== ============ ======= ==========
(a) Includes a $3.0 million release of casualty reserves.
(b) Reflects a $5.8 million deterioration from the 1996 period
principally reflecting fixed expenses which are no longer
being charged as management fees by Triarc (i) to the
propane segment subsequent to its initial public offering
and operation as a partnership beginning in July 1996 (see
below) and (ii) the Textile Business subsequent to its
April 1996 sale (see below) and the $3.0 million
nonrecurring income in the 1996 period noted in (a) above.
Revenues decreased $20.4 million to $226.1 million in the three months
ended June 29, 1997 principally reflecting the $36.5 million of sales associated
with the Textile Business sold on April 29, 1996 and approximately $36.0 million
of lower sales for the restaurant segment relative to the RTM Sale on May 5,
1997 as compared with a full six months of sales in the 1996 period, partially
offset by $57.9 million of sales in the three months ended June 29, 1997
associated with Snapple which was acquired by the Company on May 22, 1997 (see
further discussion below under "Liquidity and Capital Resources"). The changes
in revenues by segment are as follows:
Beverages - Revenues increased $48.4 million (52.6%) due to $57.9
million of revenues in the 1997 period from Snapple, which was
acquired on May 22, 1997, partially offset by decreases in sales
of finished goods ($7.9 million) and concentrate ($1.6 million) in
the Company's beverage businesses other than Snapple. The decrease
in sales of finished goods principally reflects (i) the absence in
the 1997 second quarter of $2.6 million of 1996 sales to MetBev
and a $1.2 million decrease in sales of other Royal Crown branded
finished products in areas other than those served by MetBev, (ii)
$3.4 million of lower Mistic sales and (iii) a $0.7 million
decrease in sales of Draft Cola. The decrease in concentrate sales
reflects a $2.7 million volume decline in branded sales which were
adversely affected by soft bottle case sales partially offset by a
$1.1 million volume increase in private label sales.
Restaurants - Revenues decreased $34.2 million (47.1%) due to a
$36.0 million (62.0%) decrease in net sales of company-owned
restaurants, partially offset by a $1.8 million (12.3%) increase
in royalties and franchise fees. The $36.0 million decrease in net
sales of company-owned restaurants is due to the RTM Sale. The
$1.8 million increase in royalties and franchise fees is due to
$1.4 million of incremental royalties from the restaurants sold to
RTM, an average net increase of 79 (3.0%) other franchised
restaurants and a 2.9% increase in same-store sales of franchised
restaurants.
Propane - Revenues increased $1.2 million (4.2%) due to (i) the
$1.4 million effect of higher volume principally resulting from
acquisitions of propane distributorships and (ii) the $0.4 million
effect of higher selling prices due to increased product costs,
both partially offset by a $0.6 million decrease in revenues from
other product lines.
Textiles (including specialty dyes and chemicals) - As noted
above, on April 29, 1996 the Company sold the Textile Business.
Principally as a result of such sale, revenues of the textile
segment decreased $35.7 million (66.7%) reflecting the $36.5
million of revenues of the Textile Business in the second quarter
of 1996 prior to its sale. Overall revenues of the specialty dyes
and chemicals business decreased $1.4 million (7.4%), reflecting
price competition pressures and a cyclical downturn in the denim
segment of the textile industry in which the Company's dyes are
used, while revenues of this business reported in consolidated
"Net sales" in the accompanying condensed consolidated statements
of operations increased $0.8 million (4.6%) to $17.8 million in
the 1997 second quarter due to the full period effect of revenues
from sales to the purchaser of the Textile Business subsequent to
the April 29, 1996 sale of such business ($7.2 million in the 1997
period and $5.6 million in the 1996 period) which were no longer
eliminated in consolidation as intercompany sales.
Gross profit increased $9.7 million to $96.6 million in the three months
ended June 29, 1997 principally reflecting $22.7 million of gross profit from
Snapple included in the three months ended June 29, 1997 partially offset by the
nonrecurring 1996 gross profit associated with the RTM Sale of $6.0 million and
the Textile Business of $4.9 million. Aside from the effects of these
transactions, gross profit decreased $2.1 million due to the lower revenues
discussed above. The changes in gross margins by segment, which increased in the
aggregate, are as follows:
Beverages - Margins decreased to 48.5% from 52.6% principally due
to the inclusion in the 1997 quarter of lower-margin (39.3%) sales
of Snapple substantially offset by higher margins in the Company's
existing beverage businesses principally due to the larger
proportion of higher-margin concentrate sales compared with
finished product sales reflecting the shift from sales of finished
goods discussed above. The Snapple margin was adversely impacted
by the aforementioned $2.8 million purchase price allocation
adjustment.
Restaurants - Margins increased to 52.4% from 33.3% primarily due
to the higher percentage of royalties and franchise fees to total
revenues primarily resulting from the RTM Sale.
Propane - Margins increased slightly to 17.0% from 16.3% due to a
decrease in non-product costs.
Textiles - As noted above, the Textile Business was sold in April
1996. As a result, for the three months ended June 29, 1997,
margins for the textile segment increased to 18.9% from 18.2%
reflecting the full quarter effect of higher-margin revenues of
the remaining specialty dyes and chemicals business which margins
decreased to 18.9% from 21.1% due to the aforementioned pricing
pressures.
Advertising, selling and distribution expenses increased $11.9 million to
$51.4 million in the three months ended June 29, 1997 principally reflecting the
$18.4 million of expenses of Snapple and $1.7 million of higher Mistic
promotional costs as noted above partially offset by (a) a $3.2 million decrease
in the expenses of the restaurant segment principally due to the cessation of
local restaurant advertising and marketing expenses resulting from the RTM Sale,
(b) a $4.0 million decrease in the expenses of Royal Crown principally due to
(i) lower bottler promotional reimbursements resulting from the decline in sales
volume, (ii) planned reductions in connection with the aforementioned decrease
in sales of other Royal Crown branded finished products and (iii) the
elimination of advertising expenses for Draft Cola and (c) $0.7 million of
expenses in the 1996 period related to the Textile Business sold in April 1996.
General and administrative expenses increased $6.5 million to $36.2 million
in the three months ended June 29, 1997 due to (i) the $5.4 million of expenses
of Snapple and (ii) the $3.0 million nonrecurring credit in the 1996 quarter for
the release of casualty insurance reserves and (iii) other inflationary
increases, partially offset by (i) reduced spending levels related to
administrative support no longer required for the sold restaurants as a result
of the RTM Sale, principally payroll and (ii) $1.9 million of expenses in the
1996 quarter related to the Textile Business.
The facilities relocation and corporate restructuring charge of $5.5
million in the 1997 second quarter principally consists of additional employee
severance and related termination costs and employee relocation associated with
restructuring the restaurant segment in connection with the RTM Sale and, to a
lesser extent, additional costs associated with the relocation of the Fort
Lauderdale headquarters of Royal Crown.
Acquisition related costs of $32.4 million in the three months ended June
29, 1997 are associated with the May 22, 1997 acquisition of Snapple and are as
previously described in the six-month discussion.
Other income, net increased $2.2 million to $2.8 million in the three
months ended June 29, 1997 principally due to (i) a $1.9 million reversal of
legal fees incurred in prior years as a result of a cash settlement received
during the 1997 second quarter, (ii) a $0.9 million gain on lease termination
for a portion of the space no longer required in the Fort Lauderdale facility
due to staff reduction of the RTM Sale and the relocation of the Royal Crown
headquarters, (iii) a $0.5 million increase in investment income resulting from
the Company's increased portfolio of cash equivalents and short-term investments
and (iv) a nonrecurring then estimated $0.5 million pre-tax loss on the sale of
the Textile Business, all partially offset by the $2.3 million loss from the RTM
Sale, all as previously discussed in the six-month discussion.
Interest expense decreased $0.7 million to $18.3 million in the three
months ended June 29, 1997 as lower interest expense resulting from (a) the full
quarter effect of the repayment prior to maturity of $191.4 million of debt of
the Textile Business on April 29, 1996, (b) the repayment prior to maturity of
the 9 1/2% Note on July 1, 1996 and (c) the assumption by RTM of $69.6 million
of mortgage and equipment notes payable and capitalized lease obligations in
connection with the RTM Sale on May 5, 1997 was substantially offset by interest
on the borrowings by Snapple and the full-period effect of borrowings at C.H.
Patrick under its bank facility entered into in May 1996, both described above
in the six-month discussion.
The benefit from income taxes for the three-month period ended June 29,
1997 represents an effective tax rate of 28% while the Company recorded a
provision for income taxes of $2.9 million in the three months ended June 30,
1996 despite a loss before income taxes and extraordinary charges of $0.7
million. The lower effective tax benefit rate for the 1997 period compared with
the Federal statutory income tax rate of 35% and the provision for 1996 despite
a pre-tax loss are due to the effect of the amortization of Goodwill and (i) for
the 1997 period, partially offset by the catch-up effect of a year-to-date
decrease in the estimated full year 1997 effective tax rate from 51% to 24%
which related to the pre-tax income in the first quarter of 1997 compared with a
pre-tax loss for the year-to-date period and (ii) for the 1996 period, increased
by the aforementioned $3.0 million income tax provision on the $0.5 million
pre-tax loss on the sale of the Textile Business.
The minority interests in net loss of consolidated subsidiary of $0.9
million in the 1997 second quarter represent the limited partners' 57.3%
interests (sold in the second half of 1996) in the net loss of the Partnership.
The extraordinary charges in the 1997 quarter are described in the
six-month discussion above. The extraordinary charges in the 1996 period result
from the early extinguishment of all debt of the Textile Business in April 1996
comprised of the write-off of $6.0 million of unamortized deferred financing
costs and the payment of prepayment penalties and other costs of $5.5 million,
net of income tax benefit of $4.3 million.
LIQUIDITY AND CAPITAL RESOURCES
Aggregate cash and cash equivalents (collectively "cash") and short-term
investments decreased $75.0 million during the six months ended June 29, 1997 to
$131.1 million reflecting a decrease in cash of $83.1 million to $71.3 million.
Such decrease primarily reflects cash used by investing activities of $334.7
million partially offset by cash provided by (i) financing activities of $240.3
million, (ii) operating activities of $10.6 million and (iii) discontinued
operations of $0.7 million. The net cash used in investing activities
principally reflected (i) $321.1 million for the acquisition (the "Acquisition")
of Snapple (see below), (ii) other business acquisitions of $5.2 million, (iii)
capital expenditures of $6.7 million and (iv) net purchases of short-term
investments of $4.0 million, partially offset by $2.2 million of proceeds from
sales of properties net of other changes . The net cash used in financing
activities reflects (i) proceeds of $332.8 million from issuances of long-term
debt including $330.0 million of borrowings principally used to finance the
Acquisition and to refinance the debt of Mistic and pay related fees and
expenses and (ii) other of $1.2 million partially offset by (i) long-term debt
repayments of $75.4 million, including $70.9 million of Mistic debt refinanced,
(ii) payment of deferred financing costs of $11.3 million, including $11.2
million in connection with a new $380.0 million credit agreement (see below) and
(iii) $7.0 million of distributions paid on the Common Units in the Partnership
(see below). The net cash provided by operating activities principally reflects
non-cash charges for (i) depreciation and amortization of $19.0 million, (ii)
provision for acquisition related costs net of payments of $29.6 million, (iii)
minority interests in income of consolidated subsidiary of $3.2 million and (iv)
$4.6 million of other adjustments to reconcile net loss to net cash provided by
operating activities partially offset by the net loss of $35.3 million and cash
used in changes in operating assets and liabilities of $10.5 million. The cash
used in changes in operating assets and liabilities of $10.5 million principally
reflects an increase in receivables of $11.9 million and a decrease in accounts
payable and accrued expenses of $4.7 million. The increase in receivables
reflects (i) a seasonal increase in the beverage business and (ii) to a lesser
extent, slower collections at Royal Crown, both partially offset by a seasonal
decrease in the propane business. The decrease in accounts payable and accrued
expenses principally reflects (i) the paydown of restaurant-related payables and
accruals subsequent to the RTM Sale and (ii) a seasonal decrease in the propane
business partially offset by increases due to (i) the buildup of accounts
payable to normal levels relating to Snapple which had been reduced to unusually
low levels prior to the Acquisition and (ii) seasonal increase in inventories at
Mistic. The Company expects continued positive cash flows from operations for
the remainder of 1997.
Working capital (current assets less current liabilities) was $153.4
million at June 29, 1997, reflecting a current ratio (current assets divided by
current liabilities) of 1.6:1. Such amount represents a decrease in working
capital of $41.7 million from December 31, 1996 principally reflecting the $75.0
million decrease in cash and short-term investments discussed above partially
offset by $33.3 million of increases, principally Snapple's working capital of
$14.4 million as of June 29, 1997 and the $13.3 million net increase in changes
in operating assets and liabilities as described above. The effect on working
capital of the $71.1 million decrease in "Assets held for sale" was
substantially offset by a $69.6 million decrease in current portion of long-term
debt resulting from the RTM Sale described below.
On May 5, 1997 certain of the principal subsidiaries comprising the
Company's restaurant segment sold to RTM all of the 355 company-owned
restaurants. The sales price consisted of cash and a promissory note (discounted
value) aggregating $1.4 million and the assumption by RTM of mortgage and
equipment notes payable to FFCA Mortgage Corporation ("FFCA") of $54.7 million
(the "FFCA Borrowings") and capitalized lease obligations of $14.9 million. RTM
now operates the 355 restaurants as a franchisee and pays royalties to the
Company at a rate of 4% of those restaurants' net sales.
As a result of the RTM Sale, the Company's remaining restaurant operations
are exclusively franchising. Royalties and franchise fees should be higher in
the second half of 1997 as a result of the aforementioned royalties relating to
the restaurants sold to RTM. The Company believes that, without the restaurant
operations, it will be able to reduce the operating costs of the restaurant
segment, a process begun in the second quarter of 1997, and, together with
substantially reduced capital expenditure requirements, improve the restaurant
segment's cash flows.
On May 22, 1997 Triarc acquired Snapple, a producer and seller of premium
beverages, from Quaker for $321.1 million including cash of $308.0 million
(including $8.0 million of post-closing adjustments and subject to additional
post-closing adjustments), $10.3 million of estimated fees and expenses and $2.8
million of deferred purchase price. The purchase price for the Acquisition was
funded from (i) $75.0 million of cash and cash equivalents on hand and
contributed by Triarc to Triarc Beverage Holdings Corp. ("TBHC"), a wholly-owned
subsidiary of the Company and the parent of Snapple and Mistic and (ii) $250.0
million of borrowings by Snapple on May 22, 1997 under a $380.0 million credit
agreement, as amended (the "Credit Agreement") entered into by Snapple, Mistic
and TBHC (collectively, the "Borrowers").
The Credit Agreement consists of (i) $300.0 million of term loans (the
"Term Loans") of which $225.0 million and $75.0 million were borrowed by Snapple
and Mistic, respectively, at the Acquisition date and are outstanding at June
29, 1997 and (ii) a revolving credit line (the "Revolving Credit Line") which
provides for up to $80.0 million of revolving credit loans (the "Revolving
Loans") by Snapple, Mistic or TBHC of which $25.0 million and $5.0 million were
borrowed on the Acquisition date by Snapple and Mistic, respectively, and $28.5
million is outstanding at June 29, 1997. The aggregate proceeds of the $330.0
million of borrowings on the Acquisition date were principally utilized (i) for
a portion of the purchase price of Snapple (see above), (ii) to repay all of the
$70.9 million then outstanding borrowings under Mistic's former bank credit
facility and (iii) to pay fees and expenses related to the Credit Agreement of
approximately $11.2 million. The borrowing base for Revolving Loans is the sum
of 80% of eligible accounts receivable and 50% of eligible inventory. The
Revolving Loans are due in full in June 2003 and the Term Loans are due $3.5
million during the remainder of 1997, $9.5 million in 1998, $14.5 million in
1999, $19.5 million in 2000, $24.5 million in 2001, $27.0 million in 2002, $61.0
million in 2003, $94.0 million in 2004 and $46.5 million in 2005.
The Borrowers must also make mandatory prepayments in an amount equal to
75% of excess cash flow, as defined. The Credit Agreement contains various
covenants which, among other matters, require meeting certain financial amount
and ratio tests and prohibit dividends. Substantially all of the domestic assets
of Snapple and Mistic and the common stock of Snapple, Mistic and TBHC are
pledged as security for obligations under the Credit Agreement.
Under the Company's various credit arrangements (which are described in
detail above and in Note 13 to the consolidated financial statements contained
in the Form 10-K), the Company has availability as of June 29, 1997 as follows:
$13.5 million available under the $80.0 million Revolving Credit Line described
above in accordance with such agreement's borrowing base, $6.0 million (see
below) available under the $15.0 million (temporarily reduced to $7.0 million
until certain levels of profitability are achieved) revolving credit portion of
a $50.0 million revolving credit and term loan facility (the "Patrick Facility")
maintained by C.H. Patrick and $15.0 million available for working capital and
general business purposes of the propane business under a $55.0 million bank
credit facility (the "Propane Bank Credit Facility") maintained by National
Propane, L.P. (the "Operating Partnership"), a subpartnership of the
Partnership, exclusive of $31.0 million available for business acquisitions and
capital expenditures for growth.
Under the Company's various debt agreements, substantially all of Triarc's
and its subsidiaries' assets other than cash and short-term investments are
pledged as security. In addition, obligations under (i) the $275.0 million
aggregate principal amount of 9 3/4% senior secured notes due 2000 (the "Senior
Notes") of RC/Arby's Corporation ("RCAC"), a wholly-owned subsidiary of Triarc,
have been guaranteed by RCAC's wholly-owned subsidiaries, Royal Crown and
Arby's, Inc. ("Arby's"), (ii) the $125.0 million of 8.54% first mortgage notes
due June 30, 2010 of the Partnership and the propane business' bank credit
facility have been guaranteed by National Propane Corporation ("National
Propane"), a wholly-owned subsidiary of the Company and a general partner of the
Partnership and (iii) the Patrick Facility have been guaranteed by Triarc. All
of the obligations to FFCA, consisting of (i) the FFCA Borrowings assumed by RTM
and (ii) approximately $3.0 million of debt retained by a subsidiary of RCAC
following the sale of restaurants to RTM, have been guaranteed by Triarc. As
collateral for such guarantees, all of the stock of Royal Crown, Arby's, and
C.H. Patrick is pledged as well as approximately 2% of the Unsubordinated
General Partners' Interest (see below). Although Triarc has not guaranteed the
obligations under the Credit Agreement, all of the stock of Snapple, Mistic and
TBHC is pledged as security for payment of such obligations. Although the stock
of National Propane is not pledged in connection with any guarantee of debt
obligations, it is pledged in connection with the Partnership Loan (see below).
As of June 29, 1997 the Partnership is owned 57.3% by outside investors who
hold 6.7 million of its common units representing limited partner interests (the
"Common Units") and 42.7% by National Propane who holds 4.5 million subordinated
units (the "Subordinated Units") and, together with a subsidiary, a combined
aggregate 4.0% unsubordinated general partners' interest (the "Unsubordinated
General Partners' Interest") in the Partnership and the Operating Partnership.
As of June 29, 1997, the Partnership's principal cash requirements for the
remainder of 1997 consist of quarterly distributions (see below) to be paid on
the Common Units estimated to be $7.0 million, distributions to be paid on the
Subordinated Units and the Unsubordinated General Partners' Interest estimated
to be $5.2 million, capital expenditures of approximately $3.2 million
(including $2.4 million for maintenance and $0.8 million for growth) and funding
for acquisitions including cash of $2.4 million for a propane distributor
acquired in August 1997. The Partnership expects to meet such requirements
through a combination of cash and cash equivalents on hand ($5.2 million as of
June 29, 1997), cash flows from operations, including interest income on the
Partnership Loan (see below), and availability under the Propane Bank Credit
Facility. The Partnership must make quarterly distributions of its cash balances
in excess of reserve requirements, as defined, to holders of the Common Units,
the Subordinated Units and the Unsubordinated General Partners' Interest within
45 days after the end of each fiscal quarter. Accordingly, positive cash flows
will generally be used to make such distributions. On July 28, 1997 the
Partnership announced it would pay a quarterly distribution for its quarter
ended June 30, 1997 of $0.525 per Common and Subordinated Unit to unitholders of
record on August 7, 1997 with a proportionate amount for the Unsubordinated
General Partners' Interest, or an aggregate of $6.1 million, including $2.6
million payable to National Propane related to the Subordinated Units and the
Unsubordinated General Partners' Interest.
The Company's debt instruments require aggregate principal payments of $9.0
million during the remainder of 1997. Such repayments consist of $3.5 million
and $1.4 million of repayments under the Term Loans and the Patrick Facility,
respectively, and $4.1 million of other debt repayments.
Consolidated capital expenditures amounted to $6.7 million for the 1997
first half. The Company expects that capital expenditures during the remainder
of 1997, exclusive of those of the propane segment, will approximate $5.6
million. These planned expenditures include expenditures of (i) $3.8 million in
the beverage segment, (ii) $1.5 million in the specialty dyes and chemical
business and (iii) $0.3 million in the restaurant segment which is significantly
less than 1996 as a result of the cessation of restaurant-related spending first
in anticipation of and then as a result of the RTM Sale. In addition, capital
expenditures for the remainder of 1997 for the propane segment are anticipated
to be $3.2 million. As of June 29, 1997 there were approximately $2.0 million of
outstanding commitments for such capital expenditures. As a result of the RTM
Sale and certain other asset disposals, RCAC will be required to reinvest
approximately $2.7 million in core business assets through October 1997 (and up
to an additional $4.4 million through January 1998 in connection with the sale
of the C&C beverage line in July 1997 described below) through capital
expenditures (including certain of those planned above) and/or business
acquisitions, in accordance with the indenture pursuant to which the Senior
Notes were issued (the "Senior Note Indenture").
In furtherance of the Company's growth strategy, the Company considers
selective business acquisitions, as appropriate, to grow strategically and
explore other alternatives to the extent it has available resources to do so.
During the 1997 first half the Company acquired Snapple for $321.1 million, as
described above, and four propane distributors for $5.9 million including cash
of $5.2 million. Further, on June 24, 1997 the Company entered into a definitive
merger agreement with Cable Car Beverage Corporation ("Cable Car"), a
distributor of beverages, principally Stewart's brand soft drinks, whereby
Triarc will issue shares of its Class A common stock for all of the outstanding
stock of Cable Car at a ratio of 0.1722 Triarc shares for each outstanding
common share of Cable Car, subject to adjustment based on the market price of
Triarc common stock prior to the closing. The preliminary estimated cost of the
acquisition is $36.4 million consisting of (i) the assumed value of $33.3
million of approximately 1.5 million Triarc common shares to be issued based on
the closing market price on August 14, 1997 of $21 5/8, for Triarc common stock
(the "August 14, 1997 Market Price"), (ii) the assumed value of $2.5 million of
155,411 options to purchase an equal number of shares of Triarc common stock
with below market option prices (as of the assumed issuance date of August 14,
1997) based upon the August 14, 1997 Market Price issued in exchange for all of
the outstanding Cable Car stock options and (iii) an estimated $0.6 million of
costs to be incurred related to the acquisition (excluding $0.6 million
attributable to the issuance of the Triarc common shares to be exchanged which
will be charged to "Additional paid-in capital"). The acquisition is expected to
close during the fourth quarter of 1997 and is subject to certain customary
closing conditions.
The Federal income tax returns of the Company have been examined by the
Internal Revenue Service (the "IRS") for the tax years 1989 through 1992 and the
IRS had issued notices of proposed adjustments prior to 1997 increasing taxable
income by approximately $145.0 million. Triarc has resolved approximately $102.0
million of such proposed adjustments and, in connection therewith, the Company
expects to pay approximately $13.0 million, including interest, in the fourth
quarter of 1997. The Company intends to contest approximately $43.0 million of
the proposed adjustments, the tax effect of which has not yet been determined,
at the appellate division of the IRS and, accordingly, the amount of any
payments required as a result thereof cannot presently be determined.
On July 18, 1997, the Company completed the sale of its rights to the C&C
beverage line of mixers, colas and flavors, including the C&C trademark and
equipment related to the operation of the C&C beverage line (the "C&C Sale"), to
Kelco Sales & Marketing Inc., for the proceeds of $0.8 million in cash and an
$8.6 million note (the "Note") with a discounted value of $6.0 million
consisting of $3.6 million relating to the C&C Sale and $2.4 million relating to
future revenues for services to be performed over seven years. The Note is due
in monthly installments of varying amounts of approximately $0.1 million through
August 2004.
As of June 29, 1997, the Company's cash requirements, exclusive of those of
the propane segment and of operating cash flow requirements, for the remainder
of 1997 consist principally of (i) the previously discussed anticipated Federal
income tax payment of approximately $13.0 million resulting from the IRS
examination of the Company's 1989 through 1992 income tax returns and additional
payments, if any, related to the $43.0 million of proposed adjustments from such
examination being contested, (ii) debt principal payments currently aggregating
$9.0 million, (iii) capital expenditures of approximately $5.6 million,
including $0.9 million relating to RCAC, (iv) amounts required to be reinvested
under the Senior Note Indenture for additional capital expenditures and/or
business acquisitions through October 1997 of approximately $2.7 million less
any capital expenditures included in the $0.9 million of planned capital
expenditures above disbursed through October 1997 and (v) the $1.2 million of
costs associated with the acquisition of Cable Car and the cost of additional
acquisitions, if any. In addition, consolidated cash requirements with respect
to the propane segment for the remainder of 1997 consist principally of (i)
quarterly distributions by the Partnership to holders of the Common Units
estimated to be $7.0 million (see above), (ii) capital expenditures of $3.2
million and (iii) $2.4 million for a propane distributor acquired in August 1997
and additional acquisitions, if any. The Company anticipates meeting such
requirements through existing cash and cash equivalents and short-term
investments, cash flows from operations and availability under the Propane Bank
Credit Facility, the Patrick Facility and the Revolving Credit Line.
In October 1996 the Company had announced that its Board of Directors
approved a plan to offer up to approximately 20% of the shares of its beverage
and restaurant businesses (then operated through Mistic and RCAC) to the public
through an initial public offering and to spin off the remainder of the shares
of such businesses to Triarc stockholders (collectively, the "Spinoff
Transactions"). In May 1997 the Company announced that it would not proceed with
the Spinoff Transactions as a result of the Acquisition and other complex
issues.
TRIARC
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon its (i) cash on hand and short-term investments ($95.2
million as of June 29, 1997), (ii) investment income on its cash equivalents and
short-term investments and (iii) cash flows from its subsidiaries including
loans, distributions and dividends (see limitations below) and reimbursement by
certain subsidiaries to Triarc in connection with the (a) providing of certain
management services and (b) payments under certain tax-sharing agreements with
certain subsidiaries.
Triarc's principal subsidiaries, other than CFC Holdings Corp. ("CFC
Holdings"), the parent of RCAC, and National Propane, are unable to pay any
dividends or make any loans or advances to Triarc during the remainder of 1997
under the terms of the various indentures and credit arrangements. While there
are no restrictions applicable to National Propane, National Propane is
dependent upon cash flows from the Partnership to pay dividends. Such cash flows
are principally quarterly distributions from the Partnership on the Subordinated
Units and the Unsubordinated General Partners' Interest (see above). While there
are no restrictions applicable to CFC Holdings, CFC Holdings would be dependent
upon cash flows from RCAC to pay dividends and, as of June 29, 1997, RCAC was
unable to make any loans or advances to CFC Holdings.
Triarc's indebtedness to subsidiaries aggregated $74.7 million as of June
29, 1997. Such indebtedness consists of a loan payable to the Partnership of
$40.7 million ("the Partnership Loan"), a $30.0 million demand note payable to
National Propane bearing interest at 13 1/2% payable in cash (the "$30 Million
Note"), a $2.0 million demand note to a subsidiary of RCAC and a $2.0 million
note due to Chesapeake Insurance Company Limited ("Chesapeake Insurance"), a
wholly-owned subsidiary of the Company. The Partnership Loan bears interest at
13 1/2% and is due in equal annual amounts of approximately $5.1 million
commencing 2003 through 2010. While the $30 Million Note requires the payment of
interest in cash, Triarc currently expects to receive advances from National
Propane equal to such cash interest. Triarc must pay $0.25 million on the note
due to Chesapeake Insurance during the remainder of 1997; Triarc's other
intercompany indebtedness requires no principal payments during the remainder of
1997, assuming no demand is made under the $30 Million Note, and none is
anticipated, or the $2.0 million note payable to a subsidiary of RCAC.
Subsequent to June 29, 1997 Triarc purchased a $3.5 million participation
in a note receivable that resulted from the C&C Sale from TriBev Corporation, a
wholly-owned subsidiary, and Royal Crown.
Triarc's principal cash requirements for the remainder of 1997 are (i)
general corporate expenses payments, (ii) its $8.0 million portion of the $13.0
million anticipated Federal income tax payment resulting from the IRS
examination of the Company's 1989 through 1992 income tax returns and additional
payments, if any, related to the portion of proposed adjustments from such
examinations being contested, (iii) $3.5 million for the purchase of a
participation in the note receivable from the C&C Sale from MetBev and Royal
Crown and (iv) interest due on the Partnership Loan. Triarc expects to
experience negative cash flows from operations for its general corporate
expenses for the remainder of 1997 since its general corporate expenses will
exceed reimbursements by subsidiaries for management services provided, its
investment income and distributions from the Partnership. However, considering
its cash and cash equivalents and short-term investments, Triarc should be able
to meet all of its cash requirements discussed above for the remainder of 1997.
RCAC
RCAC's cash requirements for the remainder of 1997 exclusive of operating
cash flows (which include the anticipated income tax payment of its $5.0 million
portion of the $13.0 million anticipated Federal income tax payment resulting
from the 1989 through 1992 IRS examination and additional payments, if any,
related to the approximate $3.0 million of proposed adjustments relating to RCAC
being contested) consist principally of (i) capital expenditures and business
acquisitions of not less than the approximately $2.7 million required to be
reinvested under the Senior Note Indenture through October 1997 (and up to an
additional $4.4 million through January 1998 in connection with the sale of the
C&C beverage line in July 1997 described below) and (ii) debt principal
repayments of $1.6 million, including $0.5 million of intercompany debt. RCAC
anticipates meeting such requirements through existing cash ($13.1 million as of
June 29, 1997) and/or cash flows from operations.
TBHC
As of June 29, 1997, the principal cash requirements of TBHC's
subsidiaries, Mistic and Snapple, for the remainder of 1997, exclusive of
operating cash flows, consist principally of $3.5 million of term loan payments
and $3.2 million of capital expenditures. Mistic and Snapple anticipate meeting
such requirements through cash flows from operations. Should Mistic or Snapple
need to supplement their cash flows, they have availability under the Revolving
Credit Line of $13.5 million.
C.H. PATRICK
As of June 29, 1997, C.H. Patrick's principal cash requirements for the
remainder of 1997 consist primarily of principal payments under the term loan
portion of the Patrick Facility of $1.4 million and capital expenditures of $1.5
million. C.H. Patrick anticipates meeting such requirements through cash flows
from operations. Should C.H. Patrick need to supplement its cash flows, it has
availability under the revolving credit portion of the Patrick Facility of $6.0
million.
LEGAL AND ENVIRONMENTAL MATTERS
In July 1993 APL Corporation ("APL"), which was affiliated with the Company
until an April 1993 change in control, became a debtor in a proceeding under
Chapter 11 of the Federal Bankruptcy Code. In February 1994 the official
committee of unsecured creditors of APL filed a complaint (the "APL Litigation")
against the Company and certain companies formerly or presently affiliated with
Posner or with the Company, alleging causes of action arising from various
transactions allegedly caused by the named former affiliates. The Chapter 11
trustee of APL was subsequently added as a plaintiff. The complaint asserted
various claims and sought an undetermined amount of damages from the Company, as
well as certain other relief. In June 1997 Triarc entered into a settlement
agreement (the "Settlement Agreement") with Posner and two affiliated entities
(including APL). Pursuant to the Settlement Agreement, among other things, (i)
Posner and an affiliate paid $2.5 million to the Company and (ii) the APL
Litigation was dismissed.
In 1987 TXL Corp. ("TXL"), a wholly-owned subsidiary of the Company, was
notified by the South Carolina Department of Health and Environmental Control
("DHEC") that DHEC discovered certain contamination of Langley Pond ("Langley
Pond") near Graniteville, South Carolina and DHEC asserted that TXL may be one
of the parties responsible for such contamination. In 1990 and 1991 TXL provided
reports to DHEC summarizing its required study and investigation of the alleged
pollution and its sources which concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects. In March 1994 DHEC appeared to conclude that while
environmental monitoring at Langley Pond should be continued, based on currently
available information, the most reasonable alternative is to leave the pond
sediments undisturbed and in place. In April 1995 TXL, at the request of DHEC,
submitted a proposal concerning periodic monitoring of sediment dispositions in
the pond. In February 1996 TXL responded to a DHEC request for additional
information on such proposal. TXL is unable to predict at this time what further
actions, if any, may be required in connection with Langley Pond or what the
cost thereof may be. In addition, TXL owned a nine acre property in Aiken
County, South Carolina (the "Vaucluse Landfill"), which was used as a landfill
from approximately 1950 to 1973. The Vaucluse Landfill was operated jointly by
TXL and Aiken County and may have received municipal waste and possibly
industrial waste from TXL as well as sources other than TXL. The United States
Environmental Protection Agency conducted an Expanded Site Inspection in January
1994 and in response thereto DHEC indicated its desire to have an investigation
of the Vaucluse Landfill. In April 1995 TXL submitted a conceptual investigation
approach to DHEC. Subsequently, the Company responded to an August 1995 DHEC
request that TXL enter into a consent agreement to conduct an investigation
indicating that a consent agreement is inappropriate considering TXL's
demonstrated willingness to cooperate with DHEC requests and asked DHEC to
approve TXL's April 1995 conceptual investigation approach. The cost of the
study proposed by TXL was estimated to be between $125.0 thousand and $150.0
thousand. Since an investigation has not yet commenced, TXL is currently unable
to estimate the cost, if any, to remediate the landfill. Such cost could vary
based on the actual parameters of the study. In connection with the sale of the
Textile Business (see above), the Company agreed to indemnify the purchaser for
certain costs, if any, incurred in connection with the foregoing matters that
are in excess of specified reserves, subject to certain limitations.
As a result of certain environmental audits in 1991, Southeastern Public
Service Company ("SEPSCO"), a wholly-owned subsidiary of the Company, became
aware of possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's ice and cold storage operations of the refrigeration business and has
filed appropriate notifications with state environmental authorities and in 1994
completed a study of remediation at such sites. SEPSCO has removed certain
underground storage and other tanks at certain facilities of its refrigeration
operations and has engaged in certain remediation in connection therewith. Such
removal and environmental remediation involved a variety of remediation actions
at various facilities of SEPSCO located in a number of jurisdictions. Such
remediation varied from site to site, ranging from testing of soil and
groundwater for contamination, development of remediation plans and removal in
some instances of certain contaminated soils. Remediation is required at
thirteen sites which were sold to or leased by the purchaser of the ice
operations. Remediation has been completed on ten of these sites and is ongoing
at three others. Such remediation is being made in conjunction with the
purchaser who has satisfied its obligation to pay up to $1.0 million of such
remediation costs. Remediation is also required at seven cold storage sites
which were sold to the purchaser of the cold storage operations. Remediation has
been completed at one site and is ongoing at four other sites. Remediation is
expected to commence on the remaining two sites in 1998 and 1999. Such
remediation is being made in conjunction with the purchaser who is responsible
for the first $1.25 million of such costs. In addition, there are fifteen
additional inactive properties of the former refrigeration business where
remediation has been completed or is ongoing and which have either been sold or
are held for sale separate from the sales of the ice and cold storage
operations. Of these, eleven have been remediated through June 29, 1997 at an
aggregate cost of $1.0 million. In addition, SEPSCO is aware of one plant which
may require demolition in the future.
In May 1994 National (the entity representative of both the operations of
the National Propane and the Partnership) was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. National purchased
the property from a company (the "Successor") which had purchased the assets of
a utility which had previously owned the property. National believes that the
contamination occurred during the use of the property as a coal gasification
plant by such utility. In order to assess the extent of the problem, National
engaged environmental consultants in 1994. As of March 1, 1997, National's
environmental consultants have begun but not completed their testing. Based upon
the new information compiled to date which is not yet complete, it appears the
likely remedy will involve treatment of groundwater and treatment of the soil,
installation of a soil cap and, if necessary, excavation, treatment and disposal
of contaminated soil. As a result, the environmental consultants' current range
of estimated costs for remediation is from $0.8 million to $1.6 million.
National will have to agree upon the final plan with the state of Wisconsin.
Since receiving notice of the contamination, National has engaged in discussions
of a general nature concerning remediation with the state of Wisconsin. These
discussions are ongoing and there is no indication as yet of the time frame for
a decision by the state of Wisconsin or the method of remediation. Accordingly,
the precise remediation method to be used is unknown. Based on the preliminary
results of the ongoing investigation, there is a potential that the contaminants
may extend to locations downgradient from the original site. If it is ultimately
confirmed that the contaminant plume extends under such properties and if such
plume is attributable to contaminants emanating from the Wisconsin property,
there is the potential for future third-party claims. National is also engaged
in ongoing discussions of a general nature with the Successor. The Successor has
denied any liability for the costs of remediation of the Wisconsin property or
of satisfying any related claims. However, National, if found liable for any of
such costs, would still attempt to recover such costs from the Successor.
National has notified its insurance carriers of the contamination, the likely
incurrence of costs to undertake remediation and the possibility of related
claims. Pursuant to a lease related to the Wisconsin facility, the ownership of
which was not transferred to the Operating Partnership at the closing of the
Partnership's July 1996 initial public offering, the Partnership has agreed to
be liable for any costs of remediation in excess of amounts recovered from the
Successor or from insurance. Since the remediation method to be used is unknown,
no amount within the cost ranges provided by the environmental consultants can
be determined to be a better estimate.
In 1993 Royal Crown became aware of possible contamination from
hydrocarbons in groundwater at two abandoned bottling facilities. Tests have
confirmed hydrocarbons in the groundwater at both of the sites and remediation
has commenced. Management estimates that total remediation costs will be
approximately $0.7 million, with approximately $225 thousand to $260 thousand
expected to be reimbursed by the State of Texas Petroleum Storage Tank
Remediation Fund at one of the two sites, of which $0.6 million has been
expended to date.
In 1994 Chesapeake Insurance and SEPSCO invested approximately $5.1 million
in a joint venture with Prime Capital Corporation ("Prime"). Subsequently in
1994, SEPSCO and Chesapeake Insurance terminated their investments in such joint
venture. In March 1995 three creditors of Prime filed an involuntary bankruptcy
petition under the Federal bankruptcy code against Prime. In November 1996 the
bankruptcy trustee appointed in the Prime bankruptcy case made a demand on
Chesapeake Insurance and SEPSCO for return of the approximate $5.3 million. In
January 1997 the bankruptcy trustee commenced avoidance actions against
Chesapeake Insurance and SEPSCO seeking the return of the approximate $5.3
million allegedly received by Chesapeake Insurance and SEPSCO during 1994 and
alleging such payments from Prime were preferential or constituted fraudulent
transfers. The Company believes, based on advice of counsel, that it has
meritorious defenses to these claims and that discovery may reveal additional
defenses and intends to vigorously contest the claims. However, it is possible
that the trustee will be successful in recovering the payments. The maximum
amount of SEPSCO's and Chesapeake Insurance's aggregate liability is the
approximate $5.3 million plus interest; however, to the extent SEPSCO or
Chesapeake Insurance return to Prime any amount of the challenged payments, they
will be entitled to an unsecured claim for such amount. SEPSCO and Chesapeake
Insurance filed answers to the complaints on March 14, 1997. Discovery has
commenced and the court has adjourned the trial date from May 27, 1997 to July
28, 1997.
On February 19, 1996, Arby's Restaurantes S.A. de C.V. ("AR"), the master
franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico
against Arby's for breach of contract. AR alleged that a non-binding letter of
intent dated November 9, 1994 between AR and Arby's constituted a binding
contract pursuant to which Arby's had obligated itself to repurchase the master
franchise rights from AR for $2.85 million. AR also alleged that Arby's had
breached a master development agreement between AR and Arby's. Arby's promptly
commenced an arbitration proceeding since the franchise and development
agreements each provided that all disputes arising thereunder were to be
resolved by arbitration. Arby's is seeking a declaration in the arbitration to
the effect that the November 9, 1994 letter of intent was not a binding contract
and, therefore, AR has no valid breach of contract claim, as well as a
declaration that the master development agreement has been automatically
terminated as a result of AR's commencement of suspension of payments
proceedings in February 1995. In the civil court proceeding in Mexico, the court
denied Arby's motion to suspend such proceedings pending the results of the
arbitration, and Arby's has appealed that ruling. In May 1997, AR commenced an
action against Arby's in the United States District Court for the Southern
District of Florida alleging that (i) Arby's had engaged in fraudulent
negotiations with AR in 1994-1995, with the purpose of weakening AR's financial
condition in order to force AR to sell the master franchise rights for Mexico to
Arby's cheaply and (ii) Arby's had tortiously interfered with an alleged
business opportunity that AR had with a third party. Arby's has moved to dismiss
that action. Arby's believes that it had good cause to terminate its master
agreement and franchise agreement with AR. Arby's is vigorously contesting AR's
claims and believes it has meritorious defenses to such claims.
On June 3, 1997, ZuZu, Inc. ("ZuZu") and its subsidiary, ZuZu Franchising
Corporation ("ZFC") commenced an action against Arby's and Triarc in the
District Court of Dallas County, Texas alleging that Arby's and Triarc conspired
to steal the ZuZu Speedy Tortilla concept and convert it to their own use. ZuZu
seeks actual damages in excess of $70.0 million and punitive damages of not less
than $200.0 million against Triarc for its alleged appropriation of trade
secrets, conversion and unfair competition. ZFC also made a demand for
arbitration with the Dallas, Texas office of the American Arbitration
Association ("AAA") against Arby's alleging that Arby's had breached a Master
Franchise Agreement between ZFC and Arby's. Arby's and Triarc have moved to
dismiss or, in the alternative, abate the Texas court action on the ground that
a Stock Purchase Agreement between Triarc and ZuZu required that disputes be
subject to mediation in Wilmington, Delaware and that any litigation be brought
in the Delaware courts. On July 16, 1997, Arby's and Triarc commenced a
declaratory judgment action against ZuZu and ZFC in Delaware Chancery Court for
New Castle County seeking a declaration that the claims in both the litigation
and the arbitration must be subject to mediation in Wilmington, Delaware. In the
arbitration proceeding, Arby's has asserted counterclaims against ZuZu for
unjust enrichment, breach of contract and breach of the duty of good faith and
fair dealing and has successfully moved to transfer the proceeding to the
Atlanta, Georgia office of the AAA. Arby's and Triarc are vigorously contesting
plaintiffs' claims in both the litigation and the arbitration and believe that
plaintiffs' various claims are without merit.
Snapple and Quaker are defendants in a breach of contract case filed on
April 16, 1997 in Rhode Island Superior Court by Rhode Island Beverage Packing
Company, L.P. ("RIB") prior to the Acquisition. RIB and Snapple disagree as to
whether the co-packing agreement between them had been amended to a) change the
end of the term from December 30, 1997 to December 30, 1999 and b) more than
double Snapple's take-or-pay obligations thereunder. RIB set forth eight causes
of action in its complaint: (1) that Snapple materially breached the agreement,
(2) that the agreement was reformed and should be upheld as reformed, (3) that
Snapple as 50% owner of RIB had a fiduciary duty, which it breached, (4) that
the alleged amendment was relied upon and therefore should be enforced under
promissory estoppel, (5) that Snapple breached a partnership agreement with RIB,
(6) that the defendants tortiously interfered with RIB contractual relation with
its lender, (7) that the defendants tortiously interfered with other prospective
contractual relations of RIB and (8) that Quaker is liable for the actions of
Snapple. RIB seeks reformation of the contract, compliance with promises,
consequential damages including lost profits, attorney's fees and punitive
damages. On June 16, 1997, Snapple and Quaker filed an answer to the complaint
in which they denied all liability to RIB, denied the material allegations of
the complaint and raised various affirmative defenses.
The Company has accruals for all of the above matters aggregating
approximately $9.4 million. Based on currently available information and given
(i) DHEC's apparent conclusion in 1994 with respect to the Langley Pond matter,
(ii) the indemnification limitations with respect to the SEPSCO cold storage
operations, Langley Pond and the Vaucluse Landfill, (iii) potential
reimbursements by other parties as discussed above and (iv) the Company's
aggregate reserves for such legal and environmental matters, the Company
believes that the legal and environmental matters referred to above, as well as
ordinary routine litigation incidental to its businesses, will not have a
material adverse effect on its consolidated results of operations or financial
position.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 ("SFAS 128")
"Earnings Per Share". SFAS 128 replaces the presentation of primary earnings per
share ("EPS") with a presentation of basic EPS, which excludes dilution and is
computed by dividing income by the weighted average number of common shares
outstanding during the period. SFAS 128 also requires the presentation of
diluted EPS, which is computed similarly to fully diluted EPS pursuant to
existing accounting requirements. SFAS 128 is effective for the Company's fourth
quarter of 1997 and, once effective, requires restatement of all prior period
EPS data presented. The application of the provisions of SFAS 128 would have had
no effect on the reported loss per share for the three-month and six-month
periods ended June 29, 1997 and June 30, 1996 since the Company had a net loss
in each of those periods.
In June 1997 the FASB issued SFAS No. 130 ("SFAS 130") "Reporting
Comprehensive Income". SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income is defined as the change in the
stockholders' equity during a period exclusive of stockholder investments and
distributions to stockholders. As such for the Company, in addition to net
income (loss), comprehensive income includes changes in net unrealized gains
(losses) on "available for sale" marketable securities and unearned
compensation. In June 1997 the FASB also issued SFAS 131 ("SFAS 131")
"Disclosures about Segments of an Enterprise and Related Information" which
supersedes SFAS 14 "Financial Reporting for Segments of a Business Enterprise".
SFAS 131 requires disclosure in the Company's consolidated financial statements
(including quarterly condensed consolidated financial statements) of financial
and descriptive information by operating segment as used internally for
evaluating segment performance and deciding how to allocate resources to
segments. SFAS 130 and 131 are effective for the Company's fiscal year beginning
December 29, 1997 (exclusive of the quarterly segment data under SFAS 131 which
is effective the following fiscal year) and requires comparative information for
earlier periods presented. The application of the provisions of both SFAS 130
and 131 will require an additional financial statement and segment disclosures
but will not have any effect on the Company's reported financial position and
results of operations
PART II. OTHER INFORMATION
Certain statements in this Quarterly Report on Form 10-Q that are not
historical facts constitute "forward-looking statements" within the meaning of
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 Triarc Companies, Inc. ("Triarc") and its subsidiariesconstitutes
Amendment No. 1 to be materially different from any future results,
performance or achievements express or implied by such forward-looking
statements. Such factors include, but are not limited to, the following: general
economic and business conditions; competition; success of operating initiatives;
development and operating costs; advertising and promotional efforts; brand
awareness; the existence or absence of adverse publicity; acceptance of new
product offerings; changing trends in consumer tastes; the success of
multi-branding; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; the success of
integrating the operations of the Triarc Beverage Group and achieving operating
strategies and costs savings; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and cost of raw materials and supplies; changes in, or failure to
comply with, government regulations; regional weather conditions; changes in
wholesale propane prices; trends in and strength of the textile industry; the
costs and other effects of legal and administrative proceedings; and other risks
and uncertainties detailed in Triarc's AnnualQuarterly Report on Form 10-K for the year
ended December 31, 1996 (the "10-K"), National Propane Partners, L.P.'s
registration statement on Form S-1 (Registration No. 333-19599) and Triarc's,
RC/Arby's Corporation's and National Propane Partners, L.P.'s other current and
periodic filings10-Q which was filed with
the Securities and Exchange Commission.Commission on August 13, 1997. This amendment
updates the information required to be filed pursuant to Item 1 of the Form,
furnishes the information required to be filed pursuant to Item 4 of the Form
and includes for filing certain agreements and documents relating to Triarc will not
undertake and
specifically declines any obligation to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.its subsidiaries.
ITEM 1. LEGAL PROCEEDINGS
As reported in the 10-K and in Triarc's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 30, 1997 (the "10-Q"), on June 27, 1996, three
former directors of Triarc commenced an action against Nelson Peltz, Victor
Posner and Steven Posner. On May 20, 1997, plaintiffs filed a purported amended
complaint asserting additional claims against each of the defendants. The
amended complaint alleges, among other things, that the defendants conspired to
mislead the United States District Court for the Northern District of Ohio in
connection with the change of control of Triarc in 1993 and the termination of
the consent decree pursuant to which plaintiffs were initially named to Triarc's
Board of Directors. The amended complaint also alleges that Mr. Peltz and Steven
Posner conspired to frustrate collection of amounts owed by Steven Posner to the
United States. The amended complaint seeks, among other relief, damages against
Mr. Peltz and Steven Posner in an amount not less than $4.5 million; an order
stating that plaintiffs must be returned to Triarc's Board of Directors; and
rescission of the 1993 change of control transaction. Mr. Peltz's time to
respond to the amended complaint has not yet expired. In July 1997, plaintiffs
voluntarily dismissed their claims against Victor Posner without prejudice.
As more fully described in the 10-K, as of December 31, 1996, Triarc was
a party to three litigation proceedings involving Victor Posner ("Posner") and
entities owned or controlled by Posner (collective, the "Posner Actions"): (1)
an action commenced by Triarc in October 1995 in the Southern District of New
York against Posner and a related entity (the "New York Action"); (2) an
adversary proceeding (the "APL Litigation") brought against Triarc and
Chesapeake in connection with the bankruptcy proceeding of APL Corporation (the
"APL Bankruptcy Proceeding"); and (3) an adversary proceeding brought by Triarc
and Chesapeake in the APL Bankruptcy Proceeding against Posner and two
affiliated entities under Section 1144 of the Bankruptcy Code (the "1144
Proceeding"). In addition, Triarc and Chesapeake asserted claims against the
debtor in the APL Bankruptcy Proceeding (the "APL Bankruptcy Claims"). Triarc
had previously been a party to an action (the "Granada Action") in which Posner
had asserted certain claims against it. On June 6, 1997, Triarc entered into a
settlement agreement (the "Settlement Agreement") with Posner and two affiliated
entities (including APL). Pursuant to the Settlement Agreement, among other
things, (1) Posner and an affiliated entity paid a total of $2.5 million to
Triarc and Chesapeake; (2) the parties dismissed with prejudice each of the
Posner Actions; (3) Triarc and Chesapeake waived the APL Bankruptcy Claims; and
(4) the parties entered into releases with respect to the claims asserted in the
Posner Actions, the Granada Action, and the APL Bankruptcy Proceeding.
As reported in the 10-K and the 10-Q, in January 1997 the bankruptcy
trustee appointed in the case of Prime Capital Corporation ("Prime") (formerly
known as Intercapital Funding
Resources, Inc.) commenced avoidance actions against SEPSCO and Chesapeake
Insurance Company Limited ("Chesapeake") (as well as actions against certain
current and former officers of Triarc or their spouses with respect to payments
made directly to them), claiming certain payments to them were preferences or
fraudulent transfers. Discovery is ongoing and the court has adjourned the trial
date from July 28, 1997 to October 27, 1997.
Snapple Beverage Corp. ("Snapple") and The Quaker Oats Company ("Quaker")
are defendants in a breach of contract case filed on April 16, 1997 in Rhode
Island Superior Court by Rhode Island Beverage Packing Company, L.P. ("RIB"),
prior to Triarc's acquisition of Snapple. RIB and Snapple disagree as to whether
the co-packing agreement between them had been amended to a) change the end of
the term from December 30, 1997 to December 30, 1999 and b) more than double
Snapple's take or pay obligations thereunder. RIB sets forth various causes of
action in its complaint: (1) that Snapple materially breached the agreement; (2)
that the agreement was reformed; (3) that Snapple as 50% owner of RIB had a
fiduciary duty, which it breached; (4) that the alleged amendment was relied
upon and therefore should be enforced; (5) that Snapple breached the RIB
Partnership Agreement; (6) that the defendants tortiously interfered with RIB's
contractual relation with its lender and with other prospective contractual
relations; and (7) that Quaker is liable for the actions of Snapple. RIB seeks
reformation of the contract, compliance with promises, consequential damages
including lost profits, attorney's fees and punitive damages. On June 16, 1997,
Snapple and Quaker filed an answer to the complaint in which they denied all
liability to RIB, denied the material allegations of the complaint, and raised
various affirmative defenses.
Snapple has established a reserve to cover future potential payments
relating to outstanding litigations and claims, including the RIB litigation
described above. The litigations and claims consist primarily of lawsuits filed
by distributors and co-packers and to a lesser extent, product liability,
commercial and labor related claims. It is the opinion of management of Triarc
and Snapple that the outcome of such matters will not have a material adverse
affect on Triarc's consolidated financial condition or results of operations.
On June 3, 1997, ZuZu, Inc. ("ZuZu") and its subsidiary, ZuZu Franchising
Corporation ("ZFC") commenced an action against Arby's, Inc. ("Arby's") and
Triarc in the District Court of Dallas County, Texas. Plaintiffs allege that
Arby's and Triarc conspired to steal the ZuZu Speedy Tortilla concept and
convert it to their own use. ZuZu seeks actual damages in excess of $70.0
million and punitive damages of not less than $200.0 million against Triarc for
its alleged appropriation of trade secrets, conversion and unfair competition.
Additionally, plaintiffs seek injunctive relief against Arby's and Triarc
enjoining them from disclosing or using ZuZu's trade secrets. ZFC also made a
demand for arbitration with the Dallas, Texas office of the American Arbitration
Association ("AAA") against Arby's alleging that Arby's had breached a Master
Franchise Agreement between ZFC and Arby's. Arby's and Triarc have moved to
dismiss or, in the alternative, abate the Texas court action on the ground that
a Stock Purchase Agreement between Triarc and ZuZu required that disputes be
subject to mediation in Wilmington, Delaware and that any litigation be brought
in the Delaware courts. On July 16, 1997, Arby's and Triarc commenced a
declaratory judgment action against ZuZu and ZFC in Delaware Chancery Court for
New Castle County seeking a declaration that the claims in both the litigation
and the
arbitration must be subject to mediation in Wilmington, Delaware. In the
arbitration proceeding, Arby's has asserted counterclaims against ZuZu for
unjust enrichment, breach of contract and breach of the duty of good faith and
fair dealing and has successfully moved to transfer the proceeding to the
Atlanta, Georgia office of the AAA. Arby's and Triarc are vigorously contesting
plaintiffs' claims in both the litigation and the arbitration and believe that
plaintiffs' various claims are without merit.
On June 25, 1997, Kamran Malekan and Daniel Mannion commenced a purported
class and derivative action against the directors of the Company (and naming the
Company as a nominal defendant) in the Delaware Court of Chancery, New Castle
County. The complaint alleges that the defendants breached their fiduciary
duties and duties of good faith and fair dealing to the Company and its
shareholders in connection with the granting in 1996 of special bonuses to
Nelson Peltz and Peter May, and the granting of options to Messrs. Peltz and May
in March 1997. The complaint also alleges that the granting of such compensation
breached promises made to the Company's shareholders in its 1994 Proxy Statement
with respect to the conditions of performance options granted to Messrs. Peltz
and May. The complaint seeks, among other remedies, rescission of all option
grants to Messrs. Peltz and May which allegedly contravene the representations
made in the Company's 1994 Proxy Statement; an order directing Messrs. Peltz and
May to repay to the Company their 1996 special bonuses, and enjoining defendants
from awarding or paying compensation to Messrs. Peltz and May in contravention
of the promises and representations made in the 1994 Proxy Statement; and an
order directing the defendants to account to the Company for all damages
sustained as a result of the matters complained of. The defendants have not yet
responded to the complaint.
On August 13, 1997, Ruth LeWinter and Calvin Shapiro commenced a
purported class and derivative action (the "Original LeWinter Action") against
certain current and former directors of the Company (and naming the Company as a
nominal defendant) in the United States District Court for the Southern District
of New York. The complaint alleges that the June 1994 award of stock options
(the "Performance Options") to Messrs. Peltz and May was invalid because the
shareholder approval of the awards was secured by a proxy statement which
misrepresented or omitted material facts, and that the terms of the 1994
compensation arrangements with Messrs. Peltz and May were violated by awarding
additional compensation of options and cash to Messrs. Peltz and May. The suit
also claims that members of the Board breached their duty of loyalty to Triarc
and its shareholders by acting fraudulently and/or in bad faith to deceive
Triarc shareholders into approving the 1994 grants through material
misrepresentations and omissions in the 1994 Proxy Statement and that the
directors breached their fiduciary duties by failing to disclose material facts
to the shareholders while seeking their approval. The suit further alleges that
the Board of Directors breached the fiduciary duty of care owed to the Company
and shareholders by approving the issuance of a materially false and misleading
proxy statement. In addition, the suit alleges that the Compensation Committee
of Triarc's Board of Directors (the "Compensation Committee") intentionally or
recklessly approved substantial awards of cash and options to Messrs. Peltz and
May contrary to the 1994 Proxy Statement and that the Compensation Committee had
a duty to either refrain from approving these awards or seek shareholder
approval of them, and that the failure to do so breached the duties of care,
loyalty, good faith, and fair dealing owed to the Company and its shareholders.
The complaint seeks, among other remedies, rescission of the 1994 option grants
and all grants of options made to Messrs. Peltz and May subsequent to June 9,
1994 and repayment by Messrs. Peltz and May of all cash bonuses they received
subsequent to June 9, 1994. On September 11, 1997, the plaintiffs amended their
complaint in the Original LeWinter Action to drop a current and a former
director as defendants. The amended complaint also alleges that defendants
fraudulently and in bad faith misrepresented the terms and the value of the
Performance Options, and that defendants acted improperly in awarding to Messrs.
Peltz and May certain other items of compensation. The amended complaint also
seeks additional relief, including repayment by Messrs. Peltz and May of all
compensation paid to them after June 9, 1994 and the amount by which the alleged
value of the Performance Options exceeded their value as set forth in the 1994
Proxy Statement. The defendants have not yet responded to the complaint or the
amended complaint.
Three other purported class and derivative actions have been filed in the
Delaware Court of Chancery, New Castle County, naming as defendants certain
current directors and certain former directors of the Company (and naming the
Company as a nominal defendant). The Delaware actions assert substantially
similar claims and seek substantially similar relief as the Original LeWinter
Action. Defendants have not yet responded to the Delaware complaints.
ITEM 5. OTHER INFORMATION
Acquisition of Snapple4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On May 22,June 4, 1997, Triarc completedheld its acquisition (the "Acquisition")Annual Meeting of allStockholders. At the
Annual Meeting,Nelson Peltz, Peter W. May, Hugh L. Carey, Clive Chajet, Stanley
R. Jaffe, Joseph A. Levato, David E. Schwab II, Raymond S. Troubh and Gerald
Tsai, Jr. were elected to serve as Directors. At the Annual Meeting, the
stockholders also approved proposal 2, amending Triarc's certificate of
incorporation to change the outstanding capital stockminimum number of Snapple from Quaker for $300 million in
cash (plus an $8.0 million post-closing adjustment paiddirectors to dateseven (7) and subjectthe
maximum number of directors to additional post-closing adjustments). Snapple, which marketsfifteen (15), and distributes
ready-to-drink teas and juice drinks, had sales for 1996proposal 3, ratifying the
appointment of approximately $550
million, and is considered the market leader in the juice drinks category.
Snapple, together withDeloitte & Touche, LLP as Triarc's Mistic Brands, Inc. ("Mistic") and Royal Crown
Company, Inc. ("Royal Crown"), operates as part of the Triarc Beverage Group. A
$380 million bank financing for the Snapple acquisition was initially provided
by affiliates of Donaldson Lufkin & Jenrette and Morgan Stanley, Inc. Proceeds
from the financing were used to finance the Snapple acquisition, to refinance
existing indebtedness of Mistic of approximately $70 million and to pay certain
fees and expenses associated with the Acquisition.independent certified public
accountants.
The original bank credit
agreement was amended and restated as of August 15, 1997 in connection with the
syndication of the bank financing. As of the closing date of the Acquisition,
neither Quaker nor Snapple had any material relationship with Triarc or any of
its affiliates, any director or any officer of Triarc or any associate of any
such director or officer. For additional information regarding Snapple, see the
"Snapple Business Description" below.
Cable Car Acquisition
On June 24, 1997, Triarc and Cable Car Beverage Corporation ("Cable
Car") entered into a definitive agreement (the "Merger Agreement") pursuant to
which Triarc will acquire Cable Car (the "Cable Car Acquisition") through the
merger of a wholly-owned subsidiary of Triarc into Cable Car, with Cable Car
being the surviving corporation. Accordingly, following the merger, Cable Car
will become a wholly-owned subsidiary of Triarc. Cable Car, which markets
premium soft drinks and waters in the United States and Canada, primarily under
the Stewart's(R) brand, had 1996 sales of approximately $18.8 million.
Pursuant to the Merger Agreement, holders of common stock of Cable Car
will receive 0.1722 shares (the "Conversion Price") of Triarc's Class A Common
Stock for each share of Cable Car common stock held by them (approximately 1.5
million Triarc shares will be issued, assuming approximately 9.0 million
outstanding shares of Cable Car common stock); provided, that (i) if the average
(without rounding) of the closing prices of Triarc's Class A Common Stockvoting on the New York Stock Exchange ("NYSE") on the NYSE Composite Tapeabove matters is set forth below:
NOMINEE VOTES FOR VOTES WITHHELD
Nelson Peltz 21,522,973 32,219
Peter W. May 21,522,973 32,219
Hugh L. Carey 21,518,033 37,159
Clive Chajet 21,523,107 32,085
Stanley R. Jaffe 21,523,107 32,085
Joseph A. Levato 21,523,107 32,085
David E. Schwab II 21,523,107 32,085
Raymond S. Troubh 21,520,407 34,785
Gerald Tsai, Jr. 21,521,607 33,585
Proposal 2 - There were 21,446,924 votes for, the 15
consecutive NYSE trading days ending on the NYSE trading day immediately
preceding the closing date (the "Average Triarc Share Price") shall be less than
$18.875, then the Conversion Price shall be adjusted so that it shall equal the
quotient obtained by dividing (A) $3.25 by (B) the Average Triarc Share Price,83,779 votes against and (ii) if the Average Triarc Share Price shall be greater than $24.50, then
the Conversion Price shall be adjusted so that it shall equal the quotient
obtained by dividing (x) $4.22 by (y) the Average Triarc Share Price. Based on
the closing market price of Triarc's Class A Common Stock on August 14, 1997,
Triarc would issue approximately 1.5 million shares having a value of
approximately $33.3 million. After giving effect to the transaction, Triarc will
have approximately 31 million shares of its Common Stock outstanding (including
its non-voting Class B Common Stock). Triarc may terminate the Merger Agreement
if the Average Triarc Share Price is less than $15.00. In such event, Triarc has
agreed to reimburse Cable Car24,489
abstentions.
Proposal 3 - There were 21,528,402 votes for, up to $225,000 of expenses incurred by it in
connection with the Merger Agreement14,745 votes against and the transactions contemplated thereby.
Consummation of the merger is also subject to customary closing conditions,
including the approval of the merger by the stockholders of Cable Car12,045
abstentions.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
10.1 -Amended and the
registration with the Securities and Exchange Commission of the Triarc shares to
be issued. The acquisition is currently expected to be consummated during the
early to mid-part of the fourth quarter of 1997.
In connection with the Cable Car Acquisition, Triarc also announced that it
has entered into an agreement (the "Stockholders' Agreement") with Cable Car's
two largest stockholders (and their spouses), who hold approximately 20% of
Cable Car's outstanding common stock, pursuant to which such stockholders have
agreed, among other things, to vote their shares in favor of the transaction and
not to sell such shares to any other party. In addition, Triarc has received an
option to purchase such shares, if certain events occur, at a price determined
by using the same formula as that used to determine the Conversion Price, except
that the relevant period for the calculation of such price is the 15 consecutive
NYSE trading days ending on the NYSE trading day immediately preceding the date
of the closing of the exercise of the option. Furthermore, upon consummation of
the transaction, Samuel M. Simpson, President of Cable Car, has agreed, and
Triarc has agreed to cause Cable Car, to terminate his existing employment
agreement and to enter into a new three-year employment agreement, which will
contain, among other provisions, non-compete provisions.
Sale of C & C Beverage Line
On July 18, 1997, Royal Crown and TriBev Corporation ("TriBev"),
indirect subsidiaries of Triarc, completed the sale of their rights to the C&C
beverage line, including the C&C trademark, to Kelco Sales & Marketing Inc.
("Kelco"), a beverage distribution business based in Cranford, New Jersey, which
will do business under the name of C&C Beverages, Inc. C&C is a line of mixers,
colas and flavors. In connection with the sale, Royal Crown agreed to sell to
Kelco concentrate for C&C products and to provide Kelco certain technical
services. In consideration therefor, Royal Crown and TriBev will receive an
aggregate of approximately $9.4 million, payable over seven years.
Sale of Company-Owned Arby's Restaurants
On May 5, 1997, Arby's Restaurant Development Corporation, Arby's
Restaurant Holding Company, and Arby's Restaurant Operations Company, each an
indirect wholly owned subsidiary of Triarc (collectively, "Sellers"), completed
the sale to RTM Partners, Inc. ("Holdco"), an affiliate of RTM, Inc. ("RTM"),
the largest franchisee in the Arby's system, of all of the stock of two
corporations ("Newco") owning all of the Sellers' 355 company-owned Arby's
restaurants. The purchase price was approximately $71 million, consisting
primarily of the assumption of approximately $69 million in mortgage
indebtedness and capitalized lease obligations. In connection with the
transaction, the Sellers received options to purchase from Holdco up to an
aggregate of 20% of the common stock of Newco. RTM, Holdco and certain
affiliated entities also entered into a guarantee in favor of the Sellers and
Triarc guaranteeing payment of, among other things, the assumed debt
obligations. In addition, Newco agreed to build an additional 190 Arby's
restaurants over the next 14 years pursuant to a development agreement.
Following the sale of all of its company-owned stores, Arby's continues as the
franchisor of the more than 3,000 store Arby's system.
Stock Repurchase Program
On July 8, 1996, Triarc announced that its management was authorized,
when and if market conditions warranted, to purchase from time to time during
the twelve month period commencing July 8, 1996, up to $20 million of its
outstanding Class A Common Stock. During such period, Triarc repurchased 44,300
shares of Class A Common Stock at an aggregate cost of approximately $496,500.
Spinoff Transactions
In October 1996 Triarc announced that its Board of Directors approved a
plan to offer up to approximately 20% of the shares of its beverage and
restaurant businesses (then operated through Mistic and RC/Arby's Corporation, a
wholly-owned subsidiary of Triarc) to the public through an initial public
offering and to spin off the remainder of the shares of such businesses to
Triarc stockholders (collectively, the "Spinoff Transactions"). In May 1997
Triarc announced it would not proceed with the Spinoff Transactions as a result
of the Acquisition and other complex issues.
SNAPPLE BUSINESS DESCRIPTION
On October 29, 1996, Triarc announced the establishment of the Triarc
Beverage Group, which oversees the operations of the Company's two premium
beverage subsidiaries, Snapple (which was acquired by Triarc on May 22, 1997)
and Mistic, as well as the beverage operations of Royal Crown. Michael
Weinstein, the chief executive officer of each of Mistic, Snapple and Royal
Crown is the chief executive officer of Triarc Beverage Group and has direct
operating responsibility for such companies. The Triarc Beverage Group is in the
process of consolidating its headquarters operations in White Plains, New York.
Snapple, Mistic and Royal Crown continue to operate independent sales and
marketing operations to serve their different distribution systems and
marketplace needs, although some degree of consolidation has occurred. The
finance, administrative and operational functions of the companies are being
consolidated to maximize efficiencies.
GENERAL
Snapple develops, produces and markets a wide variety of premium
non-alcoholic beverages, including fruit juice drinks, ready-to-drink brewed
iced teas, lemonades, carbonated sodas and 100% fruit juices under the Snapple
brand name. Snapple's products are manufactured by independent bottlers or
co-packers and are sold in all 50 states in the United States, Puerto Rico and
in Canada, as well as in a number of foreign countries through a network of
beverage distributors. Snapple's products are distributed through various
channels including channels in which sales are not measured by industry surveys.
Triarc believes that, based on sales, Snapple is the leader in the premium
segment of the alternative beverage market.
BUSINESS STRATEGY
Under the direction of the Triarc Beverage Group, Snapple's management has
developed and is implementing business strategies that focus on: (i)
capitalizing on the strength of the well known Snapple brand name in its
marketing and advertising efforts to increase brand awareness and loyalty; (ii)
increasing development of new products; (iii) developing innovative new
packaging concepts, including both labels and bottle shapes; (iv) employing
innovative advertising and promotions; (v) developing strong relationships with
distributors; and (vi) expanding and diversifying through acquisitions.
PRODUCTS
Snapple's products compete in a number of premium beverage product
categories, including fruit juice drinks, iced teas, lemonades, carbonated sodas
and 100% fruit juices. These products are generally available in some
combination of 16 oz. and 10 oz. glass bottles, 32 oz. PET (plastic) bottles and
11.5 oz. cans. Snapple's sports bottle product line consists of fruit juice
drinks packaged in 20 oz. PET bottles. Approximately 43% of Snapple's 1996 sales
consisted of fruit juice drinks, 41% consisted of iced tea and 16% consisted of
lemonade and other drinks.
CO-PACKING ARRANGEMENTS
Snapple's products are produced by co-packers or bottlers under
formulation requirements and quality control procedures specified by Snapple.
Snapple selects and monitors the producers to ensure adherence to Snapple's
production procedures and periodically analyzes samples from production runs and
conducts spot checks of the production facilities. Snapple also purchases
substantially all the raw materials used in the preparation and packaging of its
products and supplies them to the co-packers. Snapple's two largest co-packers
accounted for approximately 19.2% and 9.6%, respectively, of its aggregate case
production during 1996. In addition, the prior owner of Snapple produced 17% of
Snapple's 1996 case sales in several of its facilities; however, Snapple plans
to use only one such facility in the future to produce its products, and has
been assigned by the prior owner certain of its rights with respect to its
agreements with the third party operator of the facility.
Snapple's contractual arrangements with its co-packers are typically for
a fixed term and are renewable at Snapple's option. During the term of the
agreement, the co-packer generally commits a certain amount of its monthly
production capacity to Snapple. Under substantially all of its contracts Snapple
has committed to order certain guaranteed volumes. Should the volume actually
ordered be less than the guaranteed volume, then Snapple pays the co-packer the
product of the amount per case specified in the agreement and the difference
between the volume actually ordered and the guaranteed volume. At June 29, 1997,
Snapple had reserves of approximately $36 million for payments through 2000
under its long-term production contracts with co-packers. As a result of its
co-packing arrangements, Snapple's operations have not required significant
capital expenditures or investments for bottling facilities or equipment, and
its production related fixed costs have been minimal.
Snapple's management believes it has sufficient production capacity to
meet its 1997 requirements and that, in general, the industry has excess
production capacity that it can utilize if required.
RAW MATERIALS
Most raw materials used in the preparation and packaging of Snapple's
products are purchased by Snapple and supplied to its co-packers. Snapple has
available adequate sources of such raw materials, which are available from
multiple suppliers, although Snapple has chosen, for quality control purposes,
to purchase certain raw materials on an exclusive basis from single suppliers.
Snapple purchases its glass bottles from three suppliers. In addition, in
connection with the acquisition of Snapple, Quaker agreed to supply certain of
Snapple's requirements for 20 oz. PET bottles.
DISTRIBUTION
Snapple's beverages are currently sold through a network of distributors
that include specialty beverage, carbonated soft drink and licensed beer
distributors. In addition, Snapple uses brokers for distribution of some Snapple
products in Florida and Georgia. International distribution is primarily through
one distributor in each country, other than in Canada, where brokers and direct
account selling are also used. In addition, Snapple products are currently
distributed jointly with Gatorade in Canada. Distributors are typically granted
exclusive rights to sell Snapple's products within a defined territory. Snapple
has written agreements with distributors who represent approximately 80% of
Snapple's volume. The agreements are typically either for a fixed term renewable
upon mutual consent or perpetual. Both types are terminable by Snapple upon
certain violations of the agreement. The distributor, though, may generally
terminate its agreement upon specified prior notice. Snapple also owns two of
its largest distributors, Mr. Natural Inc. (New York) and Pacific Snapple
(California).
Case sales to Snapple's largest distributor represented approximately
12.6% and 13.2% of Snapple's case sales during each of 1995 and 1996,
respectively.
Although Snapple's products historically have been sold primarily to
convenience stores, convenience store chains and delicatessens as a
"single-serve, cold box" item, Snapple has expanded its distribution to include
supermarkets and other channels of distribution, such as mass merchandisers and
national drug and convenience store chains (e.g., Sam's Wholesale Clubs,
Walgreens and 7-Eleven).
International sales accounted for less than 10% of Snapple's sales in
each of 1994, 1995 and 1996.
SALES AND MARKETING
Snapple's sales and marketing staff (excluding those of Snapple-owned
distributors) was approximately 201 as of June 29, 1997. Snapple's sales
department is responsible for overseeing sales through distributors to retail
accounts. Snapple's sales force maintains direct contact with the distributors
and supports them with shared trade spending. Trade spending includes price
promotions, slotting fees and local advertising. The sales force handles most
accounts on a regional basis with the exception of large national accounts,
which are handled by a national accounts sales force.
Snapple intends to maintain a consistent advertising campaign in its core
and expansion markets as an integral part of its strategy to stimulate consumer
demand and increase brand loyalty. In 1997, Snapple plans to employ a
combination of network advertising complemented with local spot advertising in
its larger markets; in most markets, television will be the primary advertising
medium and radio secondary.
TRADEMARKS
Snapple considers its finished product and concentrate formulae, which
are not the subject of any patents, to be trade secrets. In addition, SNAPPLE,
SNAP-UP, MADE FROM THE BEST STUFF ON EARTH, BALI, MANGO MADNESS and MELONBERRY
are registered trademarks in the United States, Canada and a number of other
countries. Snapple believes that its trademarks are material to its business,
and its material trademarks are registered in the U.S. Patent and Trademark
Office and various foreign jurisdictions. Snapple's rights to such trademarks in
the United States will last indefinitely as long as it continues to use and
police the trademarks and renew filings with the applicable governmental
offices. No challenges have arisen to Snapple's right to use the foregoing
trademarks in the United States.
COMPETITION
Snapple operates in a highly competitive industry. Many of the major
competitors in the beverage industry have substantially greater financial,
marketing, personnel and other resources than does Snapple.
Snapple's beverage products compete generally with all liquid
refreshments and in particular with numerous nationally-known soft drinks such
as Coca-Cola and Pepsi-Cola and other premium beverages such as AriZona iced
teas. In addition, Snapple also competes with ready to drink brewed iced tea
competitors such as Nestea Iced Tea (pursuant to a long term license granted by
Nestle to Coca-Cola), Celestial Seasonings and Lipton Original Iced Tea
(distributed by a joint venture between PepsiCo, Inc. and Thomas J. Lipton
Company). Snapple competes with other beverage companies not only for consumer
acceptance but also for shelf space in retail outlets and for marketing focus by
Snapple's distributors, most of which also distribute other beverage brands. The
principal methods of competition in the beverage industry include product
quality and taste, brand advertising, trade and consumer promotions, pricing,
packaging and the development of new products.
In recent years, the beverage business has experienced increased price
competition resulting in significant price discounting. Price competition has
been especially intense with respect to sales of beverage products in
supermarkets, mass merchandisers, and drugstore chains, with local bottlers
granting significant discounts and allowances off wholesale prices in order to
maintain or increase market share in such segment. While the net impact of price
discounting in the beverage industry cannot be quantified, such practices could
have an adverse impact on Snapple.
WORKING CAPITAL
Snapple's working capital requirements are generally met through cash
flow from operations, supplemented by advances under a credit facility entered
into in connection with the acquisition of Snapple (the "Credit Agreement")
which initially provided Snapple and Mistic with a $300 million term loan
facility (all of which was outstanding at June 29, 1997) and an $80 million
revolving credit facility (of which $28.5 million was outstanding and
approximately $13.5 million was available for borrowing at June 29, 1997 under
the borrowing base). Accounts receivable are generally due in 30 days.
GOVERNMENTAL REGULATIONS
The production and marketing of Snapple beverages are subject to the
rules and regulations of various federal, state and local health agencies,
including the United States Food and Drug Administration (the "FDA"). The FDA
also regulates the labeling of Snapple products. In addition, Snapple's dealings
with their licensees and/or distributors may, in some jurisdictions, be subject
to state laws governing licensor-licensee or distributor relationships. Snapple
is not aware of any pending legislation that in its view is likely to affect
significantly the operations of Snapple. Triarc believes that the operations of
Snapple and its subsidiaries comply substantially with all applicable
governmental rules and regulations.
ENVIRONMENTAL MATTERS
Snapple believes that Snapple's operations comply substantially with all
applicable environmental laws and regulations.
SEASONALITY
As a producer of premium beverages, Snapple's business is seasonal.
Snapple's highest sales occur during spring and summer (April through
September). As a result of the foregoing, Snapple's revenues are highest during
the second and third calendar quarters of the year.
EMPLOYEES
As of June 29, 1997, Snapple employed 468 direct personnel in the areas
of sales, marketing, field operations, Pacific Snapple and Mr. Natural Inc.,
representing 353 salaried personnel and 115 hourly personnel. As of June 29,
1997, 54 of Mr. Natural's employees were covered by various collective
bargaining agreements expiring from time to time from the present through
January 2000. Snapple's management believes that employee relations are
satisfactory. Support functions in the corporate office, including finance,
human resources, legal and operations, have been consolidated with Mistic and
Royal Crown to maximize efficiencies.
PROPERTIES
Snapple's management believes that its properties, taken as a whole, are
generally well maintained and are adequate for current and foreseeable business
needs. Snapple shares space for its corporate headquarters in White Plains, New
York with Mistic and Royal Crown under a long-term agreement which expires in
April 2004. Snapple also leases three warehouses for Mr. Natural in New York,
one warehouse for Pacific Snapple in California, and some satellite offices
across the United States. Snapple, jointly with its distributors, owns thousands
of visicoolers which are located in numerous retail outlets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 - Stock Purchase Agreement dated as of March 27, 1997 between The
Quaker Oats Company and Triarc, incorporated herein by reference
to Exhibit 2.1 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC File No.
1-2207).
2.2 - Agreement and Plan of Merger dated as of June 24, 1997 between
Cable Car Beverage Corporation, Triarc and CCB Merger
Corporation, incorporated herein by reference to Exhibit 2.1 to
Triarc's Current Report on Form 8-K dated June 24, 1997 (SEC File
No. 1-2207).
3.1 - By-laws of Triarc, as currently in effect, incorporated herein by
reference to Exhibit 3.1 to Triarc's Current Report on Form 8-K
dated March 31, 1997 (SEC File No. 1-2207).
4.1 - Consent, Waiver and Amendment dated November 5, 1996 among
National Propane, L.P. and each of the Purchasers under the Note
Purchase Agreement, dated as of June 26, 1996 (the "Note Purchase
Agreement") among National Propane, L.P. and each of the
Purchasers thereunder, incorporated herein by reference to
Exhibit 4.1 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC File No. 1-2207).
4.2 - Second Consent, Waiver and Amendment dated January 14, 1997
among National Propane, L.P. and each of the Purchasers under the
Note Purchase Agreement, incorporated herein by reference to
Exhibit 4.2 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC File No. 1-2207).
4.3 -Restated Credit Agreement dated as of May 16,1996 between: C. H. Patrick &
Co., Inc., the Registrant, each of the lenders party thereto,
Internationale Nederlanden (U.S.) Capital Corporation, as agent,
and The First National Bank of Boston, as co-agent, incorporated
herein by reference to Exhibit 4.3 to Triarc's Current Report
on Form 8-K dated March 31, 1997 (SEC File No. 1-2207).
4.4 - Third Amendment Agreement dated as of December 30, 1996 among
Mistic Brands, Inc., The Chase Manhattan Bank, N.A., as agent,
and the other lenders party thereto, incorporated herein by
reference to Exhibit 4.4 to Triarc's Current Report on Form 8-K
dated March 31, 1997 (SEC File No.
1-2207).
9.1 - Stockholders Agreement dated June 24, 1997 by and among Triarc
and each of the parties signatory thereto, incorporated herein by
reference to Exhibit 9.2 to Triarc's Current Report on Form 8-K
dated June 24, 1997 (SEC File No. 1-2207).
10.1 - Triarc's 1993 Equity Participation Plan, as currently in
effect, incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC
File No. 1-2207).
10.2 - Form of Non-Incentive Stock Option Agreement under Triarc's
1993 Equity Participation Plan, incorporated herein by reference
to Exhibit 10.2 to Triarc's Current Report on Form 8-K dated
March 31, 1997 (SEC File No.
1-2207).
10.3 - Employment Agreement dated as of April 29, 1996 between Triarc
and John L. Barnes, Jr., incorporated herein by reference to
Exhibit 10.3 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC File No. 1-2207).
10.4 - Credit Agreement dated as of May 22,August 15, 1997
among Mistic Brands, Inc., Snapple Beverage Corp. and Triarc
Beverage Holdings Corp., as the Borrowers, Various Financial
Institutions, as the Lenders, Donaldson, Lufkin & Jenrette
Securities Corporation, as the arranger for the Lenders, Morgan
Stanley Senior Funding, Inc. as co-arranger and as the
Documentation Agent for the Lenders, DLJ Capital Funding, Inc.,
as the Syndication Agent for the Lenders, and Morgan Stanley Senior Funding, Inc.The Bank of New
York, as the
DocumentationAdministrative Agent for the Lenders, incorporated hereinLenders.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by reference to Exhibit 10.1 to Triarc's Current Report on Form 8-K
dated May 22, 1997 (SEC File No. 1-2207).
10.5 - Settlement Agreement dated as of June 6, 1997 between Triarc,
Victor Posner, Security Management Corporation and APL
Corporation.
27.1 - Financial Data Schedule for the fiscal quarter ended Juneundersigned hereunto
duly authorized.
Date: September 29, 1997 submitted to the SecuritiesTRIARC COMPANIES, INC.
By: __________________________
John L. Barnes, Jr.
Senior Vice President
and Exchange Commission in
electronic format.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on March 31, 1997 with
respect to the Registrant entering into a definitive agreement to
acquire Snapple from Quaker for $300 million in cash, subject to certain
post-closing adjustments. Such report also included certain agreements
and documents entered into by or otherwise relating to the Registrant
and its subsidiaries.
The Registrant filed a report on Form 8-K on May 20, 1997 with
respect to certain subsidiaries of the Registrant completing the sale of
all of their 355 company-owned Arby's restaurants to RTM Restaurant
Group.
The Registrant filed a report on Form 8-K on June 6, 1997 with
respect to the Registrant having completed its acquisition of all of the
outstanding capital stock of Snapple from Quaker for $300 million in
cash (subject to certain post-closing adjustments).
The Registrant filed a report on Form 8-K on June 26, 1997 with
respect to the Registrant entering into a definitive agreement to
acquire Cable Car in a merger pursuant to which a wholly owned
subsidiary of Triarc will merge into Cable Car, with Cable Car being the
surviving corporation and becoming a wholly owned subsidiary of the
Registrant.Chief Financial Officer
Exhibit Index
Exhibit
No. DescripDescription Page No.
2.110.1 - Stock Purchase Agreement dated as of March 27, 1997
between The Quaker Oats CompanyAmended and Triarc,
incorporated herein by reference to Exhibit 2.1 to Triarc's
Current Report on Form 8-K dated March 31, 1997 (SEC
File No. 1-2207).
2.2 - Agreement and Plan of Merger dated as of June 24, 1997
between Cable Car Beverage Corporation, Triarc and CCB
Merger Corporation, incorporated herein by reference to
Exhibit 2.1 to Triarc's Current Report on Form 8-K dated
June 24, 1997 (SEC File No. 1-2207).
3.1 - By-laws of Triarc, as currently in effect, incorporated herein
by reference to Exhibit 3.1 to Triarc's Current Report on Form
8-K dated March 31, 1997 (SEC File No. 1-2207).
4.1 - Consent, Waiver and Amendment dated November 5,
1996 among National Propane, L.P. and each of the
Purchasers under the Note Purchase Agreement, dated as
of June 26, 1996 (the "Note Purchase Agreement") among
National Propane, L.P. and each of the Purchasers
thereunder, incorporated herein by reference to Exhibit 4.1
to Triarc's Current Report on Form 8-K dated March 31,
1997 (SEC File No. 1-2207).
4.2 - Second Consent, Waiver and Amendment dated January
14, 1997 among National Propane, L.P. and each of the
Purchasers under the Note Purchase Agreement,
incorporated herein by reference to Exhibit 4.2 to Triarc's
Current Report on Form 8-K dated March 31, 1997 (SEC
File No. 1-2207).
4.3 -Restated Credit Agreement dated as of May 16,1996 between: C. H.
Patrick & Co., Inc., the Registrant, each of the lenders
party thereto, Internationale Nederlanden (U.S.) Capital
Corporation, as agent, and The First National Bank of
Boston, as co-agent, incorporated herein by reference to
Exhibit 4.3 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC File No. 1-2207).
4.4 - Third Amendment Agreement dated as of December 30,
1996 among Mistic Brands, Inc., The Chase Manhattan
Bank, N.A., as agent, and the other lenders party thereto,
incorporated herein by reference to Exhibit 4.4 to Triarc's
Current Report on Form 8-K dated March 31, 1997 (SEC
File No. 1-2207).
9.1 - Stockholders Agreement dated June 24, 1997 by and
among Triarc and each of the parties signatory thereto,
incorporated herein by reference to Exhibit 9.2 to Triarc's
Current Report on Form 8-K dated June 24, 1997 (SEC
File No. 1-2207).
10.1 - Triarc's 1993 Equity Participation Plan, as currently in
effect, incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC
File No. 1-2207).
10.2 - Form of Non-Incentive Stock Option Agreement under Triarc's
1993 Equity Participation Plan, incorporated herein by reference
to Exhibit 10.2 to Triarc's Current Report on Form 8-K dated
March 31, 1997 (SEC File No. 1-2207).
10.3 - Employment Agreement dated as of April 29, 1996 between Triarc
and John L. Barnes, Jr., incorporated herein by reference to
Exhibit 10.3 to Triarc's Current Report on Form 8-K dated March
31, 1997 (SEC File No. 1-2207).
10.4 - Credit Agreement dated as of May 22,August
15, 1997 among Mistic Brands, Inc., Snapple Beverage Corp.
and Triarc Beverage Holdings Corp., as the Borrowers,
Various Financial Institutions, as the Lenders, Donaldson,
Lufkin & Jenrette Securities Corporation, as the arranger for
the Lenders, Morgan Stanley Senior Funding, Inc. as co-
arranger and as the Documentation Agent for the Lenders, DLJ
Capital Funding, Inc., as the Syndication Agent for the
Lenders, and Morgan Stanley Senior Funding, Inc.The Bank of New York, as the
DocumentationAdministrative Agent
for the Lenders, incorporated herein by
reference to Exhibit 10.1 to Triarc's Current Report on Form 8-K
dated May 22, 1997 (SEC File No. 1-2207).
10.5 - Settlement Agreement dated as of June 6, 1997 between
Triarc, Victor Posner, Security Management Corporation
and APL Corporation.
27.1 - Financial Data Schedule for the fiscal quarter ended June 29,
1997, submitted to the Securities and Exchange Commission in
electronic format.
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 18, 1997 By: /S/ JOHN L. BARNES, JR.
---------------------------
John L. Barnes, Jr.
Senior 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)