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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 2, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to_________________
Commission file number: 1-2207
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TRIARC COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-0471180
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
(212) 451-3000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
There were 19,921,188 shares of the registrant's Class A Common Stock
and 3,998,414 shares of the registrant's Class B Common Stock outstanding as of
April 28, 2000.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 2, April 2,
2000 (A) 2000
-------- ----
(In thousands)
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents..............................................$ 161,883 $ 129,080
Short-term investments................................................. 151,634 108,227
Receivable from sale of short-term investment.......................... -- 22,049
Trade and other receivables............................................ 79,284 101,449
Inventories............................................................ 61,736 66,815
Deferred income tax benefit ........................................... 18,773 21,393
Prepaid expenses and other current assets ............................. 4,333 5,379
---------- ----------
Total current assets................................................. 477,643 454,392
Investments............................................................... 14,155 16,179
Properties................................................................ 36,398 68,793
Unamortized costs in excess of net assets of acquired companies........... 261,666 258,890
Trademarks................................................................ 251,117 248,484
Other intangible assets................................................... 31,630 32,444
Deferred costs and other assets........................................... 51,123 48,739
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$1,123,732 $1,127,921
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt......................................$ 42,194 $ 41,949
Accounts payable....................................................... 58,469 68,103
Accrued expenses....................................................... 138,988 115,293
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Total current liabilities............................................ 239,651 225,345
Long-term debt............................................................ 850,859 867,663
Deferred income taxes..................................................... 91,311 91,420
Deferred income and other liabilities..................................... 22,451 23,694
Forward purchase obligation for common stock.............................. 86,186 86,186
Stockholders' deficit:
Common stock........................................................... 3,555 3,555
Additional paid-in capital............................................. 204,231 204,202
Accumulated deficit.................................................... (90,680) (87,960)
Treasury stock......................................................... (202,625) (200,362)
Common stock to be acquired............................................ (86,186) (86,186)
Accumulated other comprehensive income................................. 5,040 364
Unearned compensation.................................................. (61) --
---------- ----------
Total stockholders' deficit ......................................... (166,726) (166,387)
---------- ----------
$1,123,732 $1,127,921
========== ==========
(A) Derived from the audited consolidated financial statements as of January 2, 2000
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
--------------------------
April 4, April 2,
1999 2000
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(In thousands except per share amounts)
(Unaudited)
Revenues:
Net sales............................................................$ 159,888 $170,345
Royalties, franchise fees and other revenues......................... 18,303 19,673
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178,191 190,018
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Costs and expenses:
Cost of sales, excluding depreciation and amortization related
to sales of $449,000 and $499,000.................................. 82,140 89,273
Advertising, selling and distribution................................ 47,756 46,372
General and administrative .......................................... 27,199 32,432
Depreciation and amortization, excluding amortization of deferred
financing costs.................................................... 8,424 9,133
Capital structure reorganization related charges..................... 3,650 334
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169,169 177,544
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Operating profit .................................................. 9,022 12,474
Interest expense........................................................ (19,135) (23,123)
Investment income, net.................................................. 5,284 16,176
Other income, net....................................................... 658 516
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Income (loss) from continuing operations before income taxes....... (4,171) 6,043
(Provision for) benefit from income taxes............................... 2,422 (3,323)
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Income (loss) from continuing operations........................... (1,749) 2,720
Income from discontinued operations..................................... 501 --
--------- --------
Income (loss) before extraordinary charges......................... (1,248) 2,720
Extraordinary charges................................................... (12,097) --
--------- --------
Net income (loss)..................................................$ (13,345) $ 2,720
========= ========
Basic and diluted income (loss) per share:
Income (loss) from continuing operations...........................$ (.06) $ .11
Income from discontinued operations................................ .02 --
Extraordinary charges.............................................. (.42) --
--------- --------
Net income (loss)..................................................$ (.46) $ .11
========= ========
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
-----------------------
April 4, April 2,
1999 2000
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(In thousands)
(Unaudited)
Cash flows from operating activities:
Net income (loss)........................................................$ (13,345) $ 2,720
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Amortization of costs in excess of net assets of acquired companies,
trademarks and certain other items ................................ 5,911 6,608
Depreciation and amortization of properties.......................... 2,513 2,525
Amortization of original issue discount and deferred financing costs 3,074 2,795
Capital structure reorganization related charges..................... 3,650 334
Net recognized gains from trading securities......................... (5,790) (1,279)
Proceeds from sales of trading securities, less purchases............ 12,078 3,342
Net recognized (gains) losses from transactions in other than
trading investments, including equity in investment limited
partnerships, and short positions.................................. 4,810 (12,253)
Write-off of unamortized deferred financing costs and interest
rate cap agreement costs........................................... 11,446 --
Income from discontinued operations.................................. (501) --
Other, net........................................................... (58) 1,280
Changes in operating assets and liabilities:
Increase in trade and other receivables............................ (24,355) (22,791)
Increase in inventories............................................ (13,518) (5,079)
Increase in prepaid expenses and other current assets.............. (9,164) (1,046)
Increase (decrease) in accounts payable and accrued expenses ..... 1,014 (13,003)
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Net cash used in operating activities.......................... (22,235) (35,847)
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Cash flows from investing activities:
Net proceeds from sales (cost of purchases) of available-for-sale
securities and other investments....................................... (11,864) 23,486
Payments to cover short positions in securities, less proceeds of
securities sold short.................................................. (12,881) (1,805)
Capital expenditures..................................................... (1,604) (16,970)
Business acquisitions.................................................... (17,296) (1,643)
Other.................................................................... 66 1,262
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Net cash provided by (used in) investing activities............ (43,579) 4,330
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Cash flows from financing activities:
Repayments of long-term debt............................................. (560,470) (3,259)
Proceeds from long-term debt............................................. 775,000 --
Proceeds from stock option exercises .................................... 203 1,999
Deferred financing costs................................................. (27,821) --
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Net cash provided by (used in) financing activities........... 186,912 (1,260)
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Net cash provided by (used in) continuing operations........................ 121,098 (32,777)
Net cash used in discontinued operations.................................... (1,081) (26)
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Net increase (decrease) in cash and cash equivalents........................ 120,017 (32,803)
Cash and cash equivalents at beginning of period............................ 161,248 161,883
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Cash and cash equivalents at end of period..................................$ 281,265 $129,080
========== ========
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
April 2, 2000
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Triarc Companies, Inc. ("Triarc" and, together with its subsidiaries, the
"Company") have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of the Company,
however, the accompanying condensed consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of January 2, 2000 and April
2, 2000 and its results of operations and cash flows for the three-month periods
ended April 4, 1999 and April 2, 2000 (see below). This information should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
January 2, 2000. Certain statements in these notes to condensed consolidated
financial statements constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. See Part II - "Other Information."
The Company reports on a fiscal year basis consisting of 52 or 53 weeks
ending on the Sunday closest to December 31. In accordance therewith, the
Company's first quarter of 1999 commenced on January 4, 1999 and ended on April
4, 1999 and the Company's first quarter of 2000 commenced on January 3, 2000 and
ended on April 2, 2000. For purposes of these condensed consolidated financial
statements, such periods are referred to herein as the three-month periods ended
April 4, 1999 and April 2, 2000, respectively.
On July 19, 1999 the Company sold 41.7% of its remaining 42.7% interest in
its former propane business and, accordingly, the accompanying condensed
consolidated statements of operations and cash flows for the three-month period
ended April 4, 1999 have been reclassified to reflect the Company's equity in
the income of the propane business as discontinued operations.
(2) Inventories
The following is a summary of the components of inventories (in thousands):
January 2, April 2,
2000 2000
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Raw materials...........................$ 20,952 $ 24,127
Work in process......................... 397 545
Finished goods.......................... 40,387 42,143
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$ 61,736 $ 66,815
======== ========
(3) Capital Structure Reorganization Related Charges
The capital structure reorganization related charges of $3,650,000 and
$334,000 recognized during the three months ended April 4, 1999 and April 2,
2000, respectively, resulted from equitable adjustments made in 1999 to the
terms of outstanding options under the stock option plan (the "Triarc Beverage
Plan") of Triarc Beverage Holdings Corp. ("Triarc Beverage Holdings"), a
subsidiary of the Company, to adjust for the effects of net distributions of
$91,342,000, principally consisting of transfers of cash and deferred tax
assets, from Triarc Beverage Holdings to Triarc partially offset by the effect
of the contribution of Stewart's Beverages, Inc., a subsidiary of the Company,
to Triarc Beverage Holdings effective May 17, 1999.
The Triarc Beverage Plan provides for an equitable adjustment of options in
the event of a recapitalization or similar event. As a result of these net
distributions and the terms of the Triarc Beverage Plan, the exercise prices of
the Triarc Beverage Holdings options granted in 1997 and 1998 were equitably
adjusted in 1999 from $147.30 and $191.00 per share, respectively, to $107.05
and $138.83 per share, respectively, and a cash payment of $51.34 and $39.40 per
share, respectively, is due from the Company to the option holder following the
exercise of the stock options and either (1) the sale by the option holder to
the Company of shares of Triarc Beverage Holdings common stock received upon the
exercise of the stock options or (2) the consummation of an initial public
offering of Triarc Beverage Holdings common stock. The Company has accounted for
the equitable adjustment in accordance with the intrinsic value method.
Compensation expense is being recognized for the cash to be paid in connection
with the exercise of the stock options ratably over the vesting period of the
stock options. No compensation expense has been or will be recognized for the
changes in the exercise prices of the outstanding options because such
modifications to the options did not create a new measurement date under the
intrinsic value method.
(4) Income Taxes
The Internal Revenue Service (the "IRS") has tentatively completed its
examination of the Company's Federal income tax returns for the year ended April
30, 1993 and transition period ended December 31, 1993. In connection therewith
and subject to final processing and approval by the IRS, the Company's net
operating loss carryforwards would increase by $7,453,000 and the Company would
be due a refund of income taxes of $2,290,000 plus interest thereon. This refund
is expected to fully offset amounts otherwise payable to the IRS relating to
examinations for tax years prior to the year ended April 30, 1993.
(5) Comprehensive Loss
The following is a summary of the components of comprehensive loss, net of
income taxes (in thousands):
Three months ended
------------------------
April 4, April 2,
1999 2000
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Net income (loss) ...................................$(13,345) $ 2,720
Unrealized appreciation of available-for-sale
securities........................................ 4,668 1,013
Reclassification adjustments for prior period
decline (appreciation) of securities sold
during the year................................... 207 (5,667)
Equity in the decrease in unrealized gain on
retained interest which is accounted for
similarly to an available-for-sale security....... -- (12)
Net change in currency translation adjustment........ (78) (10)
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Comprehensive loss..............................$ (8,548) $ (1,956)
======== ========
(6) Income (Loss) Per Share
Basic income (loss) per share for the three-month periods ended April 4,
1999 and April 2, 2000 has been computed by dividing the income or loss by the
weighted average number of common shares outstanding of 29,316,000 and
23,806,000, respectively. For the three-month period ended April 4, 1999, the
diluted loss per share is the same as the basic loss per share since the assumed
exercise or conversion of each of the then existing potentially dilutive
securities, stock options and the Company's zero coupon convertible subordinated
debentures due 2018 (the "Debentures"), would have had an antidilutive effect
for such period. For the three-month period ended April 2, 2000, diluted income
per share has been computed by dividing the income by an aggregate 25,100,000
shares. The shares used for diluted income per share in the 2000 period consist
of the weighted average number of common shares outstanding and potential common
shares reflecting (1) the 744,000 share effect of dilutive stock options
computed using the treasury stock method and (2) the 550,000 share effect of a
dilutive forward purchase obligation for common stock under which the Company
must repurchase in August 2000 and 2001 an aggregate 3,998,414 shares of its
Class B common stock for a total of $86,186,000, but excludes any effect of the
assumed conversion of the Debentures since the effect thereof would have been
antidilutive. Basic and diluted income per share are the same in the 2000 period
since the dilutive securities had an effect of less than $.01 per share.
(7) Transactions with Related Parties
On January 19, 2000 the Company acquired 280 Holdings, LLC ("280 Holdings")
for $27,210,000 consisting of cash of $9,210,000 and the assumption of an
$18,000,000 secured promissory note with a commercial lender payable over seven
years. 280 Holdings was a subsidiary of Triangle Aircraft Services Corporation
("TASCO"), a company owned by the Chairman and Chief Executive Officer and
President and Chief Operating Officer of the Company, that at the time of such
sale was the owner and lessor to the Company of an airplane that had been
previously been leased from TASCO. The purchase price was based on independent
appraisals and was approved by the Audit Committee and the Board of Directors.
Prior thereto the Company leased the airplane and a helicopter from TASCO or
subsidiaries of TASCO under a dry lease for annual rent of $3,360,000 as of
January 1, 1999. Pursuant to this dry lease, the Company pays the operating
expenses, including repairs and maintenance, of the aircraft directly to third
parties. In connection with such lease and the amortization over a five-year
period of a $2,500,000 payment made in 1997 to TASCO for (1) an option to
continue the lease for five years effective September 30, 1997 and (2) the
agreement by TASCO to replace the helicopter covered under the lease (the
"Option"), the Company had rent expense of $935,000 for the three-month period
ended April 4, 1999. Effective October 1, 1999 the annual rent was increased to
$3,447,000, in connection with annual cost of living adjustments under the
lease, of which $3,078,000 was deemed to represent rent for the airplane and
$369,000 was deemed to represent rent for the helicopter. The Company continues
to lease the helicopter from a subsidiary of TASCO for the annual rent of
$369,000 and owns the airplane through its ownership of 280 Holdings from whom
Triarc continues to lease the airplane and to whom pays annual intercompany rent
of $3,078,000. In connection with the lease of the airplane through January 19,
2000, the lease of the helicopter and amortization of the Option, the Company
had rent expense for the three-month period ended April 2, 2000 of $294,000 to
TASCO and its subsidiaries. In addition, on January 19, 2000 TASCO paid the
Company $1,200,000 representing the portion of the $1,242,000 unamortized amount
of the Option as of January 2, 2000 relating to the airplane owned by 280
Holdings.
(8) Legal and Environmental Matters
The Company is involved in stockholder litigation, other litigation, claims
and environmental matters incidental to its businesses. The Company has reserves
for such legal and environmental matters aggregating $2,601,000 as of April 2,
2000. Although the outcome of such matters cannot be predicted with certainty
and some of these matters may be disposed of unfavorably to the Company, based
on currently available information and given the Company's aforementioned
reserves, the Company does not believe that such legal and environmental matters
will have a material adverse effect on its consolidated financial position or
results of operations.
(9) Business Segments
The following is a summary of the Company's segment information (in
thousands):
Three months ended
--------------------------
April 4, April 2,
1999 2000
---- ----
Revenues:
Premium beverages.............................................$ 129,162 $ 140,631
Soft drink concentrates....................................... 30,940 29,994
Restaurant franchising........................................ 18,089 19,393
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Consolidated revenues.......................................$ 178,191 $ 190,018
========= ==========
Earnings before interest, taxes, depreciation and amortization:
Premium beverages.............................................$ 8,906 (a) $ 13,851 (a)
Soft drink concentrates....................................... 5,215 5,401
Restaurant franchising........................................ 9,662 10,210
General corporate............................................. (6,337)(a) (7,855)(a)
--------- ----------
Consolidated earnings before interest, taxes, depreciation
and amortization........................................ 17,446 21,607
--------- ----------
Less depreciation and amortization:
Premium beverages............................................. 5,385 6,284
Soft drink concentrates....................................... 1,918 1,500
Restaurant franchising........................................ 549 539
General corporate............................................. 572 810
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Consolidated depreciation and amortization.................. 8,424 9,133
--------- ----------
Operating profit:
Premium beverages............................................. 3,521 (a) 7,567 (a)
Soft drink concentrates....................................... 3,297 3,901
Restaurant franchising........................................ 9,113 9,671
General corporate............................................. (6,909)(a) (8,665)(a)
--------- ----------
Consolidated operating profit............................... 9,022 12,474
Interest expense.................................................. (19,135) (23,123)
Investment income, net............................................ 5,284 16,176
Other income, net................................................. 658 516
--------- ----------
Consolidated income (loss) from continuing operations before
income taxes.............................................$ (4,171) $ 6,043
========= ==========
(a) Reflects the capital structure reorganization related charge discussed in
Note 3 as follows (in thousands):
Three months ended
-----------------------
April 4, April 2,
1999 2000
---- ----
Charged to:
Premium beverages ............................$ 2,250 $ 204
General corporate............................. 1,400 130
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$ 3,650 $ 334
======== ========
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the accompanying
condensed consolidated financial statements and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report on Form 10-K for the fiscal year ended January 2, 2000 of Triarc
Companies, Inc. The recent trends affecting our premium beverage, soft drink
concentrate and restaurant franchising segments are described in Item 7 of our
Form 10-K. Certain statements under this caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. Such forward- looking statements involve risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. For these statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Reform Act. See "Part II - Other Information."
Our fiscal year consists of 52 or 53 weeks ending on the Sunday closest to
December 31. Our first quarter of fiscal 1999 commenced on January 4, 1999 and
ended on April 4, 1999 and our first quarter of fiscal 2000 commenced on January
3, 2000 and ended on April 2, 2000. When we refer to the "three months ended
April 4, 1999" or the "1999 first quarter," we mean the period from January 4,
1999 to April 4, 1999; and when we refer to the "three months ended April 2,
2000" or the "2000 first quarter," we mean the period from January 3, 2000 to
April 2, 2000.
Results of Operations
Revenues
Our revenues increased $11.8 million to $190.0 million in the three months
ended April 2, 2000 compared with the three months ended April 4, 1999. A
discussion of the changes in revenues by segment is as follows:
Premium Beverages -- Premium beverage revenues increased $11.5 million
(8.9%) in the three months ended April 2, 2000 compared with the three
months ended April 4, 1999. The increase, which relates entirely to sales
of finished product, reflects higher volume and, to a lesser extent, higher
average selling prices in the first quarter of 2000. The increase in volume
principally reflects (1) sales in the 2000 first quarter of Snapple
Elements(TM), a new product platform of herbally enhanced drinks introduced
in April 1999, (2) higher sales of diet teas and other diet beverages and
juice drinks, (3) higher sales of Stewart's products as a result of
increased distribution in existing and new markets and (4) increased cases
sold to retailers through Millrose Distributors, Inc. and Snapple
Distributors of Long Island, Inc. principally reflecting the effect of an
increased focus on our products as a result of our ownership of these
distributors since their acquisitions on February 25, 1999 and January 2,
2000, respectively. The effect with respect to Millrose was for the full
first quarter in 2000 compared with only the period from February 26 to
April 4 in the 1999 first quarter. Such increases were partially offset by
lower sales of WhipperSnapple(TM) in the 2000 first quarter. The higher
average selling prices principally reflect (1) the effect of the Millrose
and Long Island Snapple acquisitions whereby we sell product at higher
prices directly to retailers subsequent to these acquisitions compared with
sales at lower prices to distributors such as Millrose and Long Island
Snapple and (2) selective price increases.
Soft Drink Concentrates -- Soft drink concentrate revenues decreased $1.0
million (3.1%) in the three months ended April 2, 2000 compared with the
three months ended April 4, 1999. This decrease is attributable to lower
Royal Crown sales of concentrate entirely reflecting a decline in branded
sales, primarily due to lower domestic volume reflecting continued
competitive pricing pressures experienced by our bottlers. Such pressures
began to lessen commencing in late 1999 and have continued that trend into
the second quarter of 2000.
Restaurant Franchising -- Restaurant franchising revenues increased $1.3
million (7.2%) in the three months ended April 2, 2000 compared with the
three months ended April 4, 1999. This increase reflects higher royalty
revenues and slightly higher franchise fee revenues. The increase in
royalty revenues resulted from an average net increase of 90, or 2.9%,
franchised restaurants and a 3.6% increase in same-store sales of
franchised restaurants.
Gross Profit
We calculate gross profit as total revenues less (1) costs of sales,
excluding depreciation and amortization and (2) that portion of depreciation and
amortization related to sales. Our gross profit increased $4.6 million to $100.2
million in the three months ended April 2, 2000 compared with the three months
ended April 4, 1999. This increase was due to the effect of the higher sales
volumes discussed above, partially offset by a slight decrease in our aggregate
gross margins, which we compute as gross profit divided by total revenues, to
53% from 54%. The decrease in gross margins reflects the higher concentration of
revenues in the premium beverage segment, which had a 1% decrease in gross
margins, despite a 1% increase in the soft drink concentrate segment. A
discussion of the changes in gross margins by segment is as follows:
Premium Beverages -- Gross margins decreased slightly to 41% during the
2000 first quarter from 42% during the 1999 first quarter. The decrease in
gross margins was principally due to the effects of (1) a shift in product
mix to lower-margin products in the 2000 first quarter, (2) $0.7 million of
increased provisions for obsolete inventory resulting from higher levels of
raw materials and finished goods inventories that passed their shelf lives
during the 2000 first quarter and that were not timely used and (3)
increased production costs in the 2000 first quarter resulting from higher
fees charged to us by our co-packers. Such decreases were substantially
offset by the positive effect on gross margins from (1) the selective price
increases and (2) the effect of the higher selling prices resulting from
the Millrose acquisition for the full 2000 first quarter compared with only
a portion of the 1999 first quarter and the Long Island Snapple
acquisition, both as referred to above.
Soft Drink Concentrates -- Gross margins increased 1% to 77% during the
2000 first quarter from 76% during the 1999 first quarter. This increase
was due to the conversion, commencing in December 1999, from our use of the
raw material aspartame to the less costly Ace-K sucralose blend in our diet
products.
Restaurant Franchising -- Gross margins during each period are 100% because
royalties and franchise fees constitute the total revenues of the segment
with no associated cost of sales.
Advertising, Selling and Distribution Expenses
Advertising, selling and distribution expenses decreased $1.4 million to
$46.4 million in the 2000 first quarter. This decrease was principally due to
(1) an overall decrease in promotional spending by the premium beverage segment
principally reflecting a decrease in discounts offered to distributors
participating in our cold drink equipment purchasing program and a shift to
shorter, less costly radio advertising, (2) a decrease in the expenses of the
soft drink concentrate segment reflecting continued lower bottler promotional
reimbursements and other promotional spending resulting from the decline in
branded concentrate sales volume and, to a lesser extent (3) a decrease in the
provision for doubtful accounts of the restaurant franchising segment. Such
decreases were partially offset by higher employee compensation and related
benefit costs reflecting an increase in the number of sales and distribution
employees in the premium beverage segment.
General and Administrative Expenses
General and administrative expenses increased $5.2 million to $32.4 million
in the 2000 first quarter. This increase principally reflects (1) expenses of
$2.9 million related to the new executive salary arrangements and an executive
bonus plan effective May 3, 1999, (2) other increases in compensation and
related benefit costs and (3) increased expenses as a result of the full effect
in the 2000 first quarter of the Millrose acquisition and the effect of the Long
Island Snapple acquisition, all partially offset by a decrease in travel
expenses of the soft drink concentrate segment.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Depreciation and amortization, excluding amortization of deferred financing
costs, increased $0.7 million to $9.1 million in the 2000 first quarter. This
increase principally reflects an increase in amortization of costs in excess of
net assets acquired, which we refer to as Goodwill, trademarks and other
intangibles as a result of the full effect in the 2000 quarter of the Millrose
acquisition and the effect of the Long Island Snapple acquisition, partially
offset by the effect of nonrecurring 1999 depreciation on $3.7 million of soft
drink vending machines purchased by the soft drink concentrate segment in
January 1998 becoming fully depreciated over periods throughout 1999.
Capital Structure Reorganization Related Charges
The capital structure reorganization related charges of $0.3 million and
$3.7 million in the 2000 and 1999 first quarters, respectively, reflect
equitable adjustments that were made to the terms of outstanding options under
the stock option plan of Triarc Beverage Holdings Corp., a 99.9% owned
subsidiary of ours and the parent company of Snapple Beverage Corp., Mistic
Brands, Inc. and Stewart's Beverages, Inc. The Triarc Beverage Holdings plan
provides for an equitable adjustment of options in the event of a
recapitalization or similar event. The exercise prices of outstanding options
under the Triarc Beverage Holdings plan were equitably adjusted in 1999 to
adjust for the effects of net distributions of $91.3 million, principally
consisting of transfers of cash and deferred tax assets from Triarc Beverage
Holdings to Triarc, partially offset by the effect of the contribution of
Stewart's to Triarc Beverage Holdings effective May 17, 1999. The exercise
prices of the Triarc Beverage Holdings options granted in 1997 and 1998 were
equitably adjusted in 1999 from $147.30 and $191.00 per share, respectively, to
$107.05 and $138.83 per share, respectively, and a cash payment of $51.34 and
$39.40 per share, respectively, is due from us to the option holder following
the exercise of the stock options and either (1) the sale by the option holder
to us of shares of Triarc Beverage Holdings common stock received upon the
exercise of the stock options or (2) the consummation of an initial public
offering of Triarc Beverage Holdings common stock. Triarc Beverage Holdings is
responsible for the cash payment to its employees who are option holders and
Triarc is responsible for the cash payment to its employees who are option
holders either directly or through reimbursement to Triarc Beverage Holdings. We
have accounted for the equitable adjustment in accordance with the intrinsic
value method. Commencing with the first quarter of 1999 we are recognizing
compensation expense for the aggregate maximum $6.7 million of cash to be paid
in connection with the exercise of the stock options, net of credits for
forfeitures of non-vested stock options of terminated employees, assuming all
remaining Triarc Beverage Holdings stock options either have vested or will
become vested, ratably over the vesting period. The initial charge relating to
these equitable adjustments was recorded in the 1999 first quarter and,
therefore, the 1999 first quarter charge of $3.7 million includes the portion of
the aggregate cash to be paid to the extent of the vesting of the options
through April 4, 1999. The $0.3 million charge in the 2000 first quarter
represents the portion of the cash to be paid in connection with the exercise of
the stock options to the extent of the vesting of the options during that
quarter. We expect to recognize additional pre-tax charges relating to this
equitable adjustment of $0.6 million in the remainder of 2000 and $0.3 million
in 2001 as the affected stock options continue to vest. No compensation expense
has been or will be recognized for the changes in the exercise prices of the
outstanding options because those modifications to the options did not create a
new measurement date under the intrinsic value method.
Interest Expense
Interest expense increased $4.0 million to $23.1 million in the 2000 first
quarter reflecting higher average levels of debt during the 2000 first quarter
due to the full quarter effect of increases from a February 25, 1999 debt
refinancing and, to a lesser extent, higher average interest rates in the 2000
period. Such refinancing consisted of (1) the issuance of $300.0 million of 10
1/4% senior subordinated notes due 2009 and (2) $475.0 million borrowed under a
senior bank credit facility and the repayment of (1) $284.3 million under a
former credit facility of Triarc Beverage Holdings and (2) $275.0 million of 9
3/4% senior secured notes due 2000 of RC/Arby's Corporation, a subsidiary of
ours and the parent of Royal Crown Company, Inc. and Arby's, Inc.
Investment Income, Net
Investment income, net increased $10.9 million to $16.2 million in the 2000
first quarter principally reflecting $13.6 million of higher realized gains on
the sale of investments to $13.8 million in the 2000 first quarter, which gains
may not recur in future periods, partially offset by (1) a $1.7 million decrease
in interest income on cash equivalents and short- term investments and (2) a
$1.6 million provision recognized in the 2000 first quarter for unrealized
losses on a short- term investment deemed to be other than temporary due to
declines in the underlying economics of such equity security, which provision
also may not recur in future periods. The decreased interest income is due to
lower average amounts of cash equivalents in the 2000 first quarter compared
with the 1999 first quarter.
Other Income, Net
Other income, net was relatively unchanged decreasing $0.1 million to $0.5
million in the 2000 first quarter with no significance variations in any of its
components.
Income Taxes
The provision for and benefit from income taxes represented effective rates
of 55% in the 2000 first quarter and 58% in the 1999 first quarter. The
effective rate is lower in the 2000 quarter principally due to the impact of the
amortization of non-deductible Goodwill, the effect of which is lower in the
2000 first quarter due to higher projected 2000 full-year pre-tax income
compared with the then projected 1999 full-year pre-tax income as of the end of
the 1999 first quarter.
Discontinued Operations
Income from discontinued operations of $0.5 million in the 1999 first
quarter represents our after-tax equity in the income from discontinued
operations of National Propane Partners, L.P. We consummated the sale of 41.7%
of our remaining 42.7% interest in National Propane Partners in July 1999.
Extraordinary Charges
The 1999 first quarter extraordinary charges aggregating $12.1 million
resulted from the early extinguishment of borrowings under the former credit
facility of Triarc Beverage Holdings and the RC/Arby's 9 3/4% notes and
consisted of (1) the write-off of previously unamortized (a) deferred financing
costs of $11.3 million and (b) interest rate cap agreement costs of $0.1 million
and (2) the payment of a $7.7 million redemption premium on the RC/Arby's 9 3/4%
notes, less income tax benefit of $7.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operations
Our consolidated operating activities used cash and cash equivalents,
which we refer to in this discussion as cash, of $35.8 million during the three
months ended April 2, 2000 reflecting (1) cash used by changes in operating
assets and liabilities of $41.9 million and (2) the reclassification of a
component of investing activities, net recognized gains of $12.2 million
resulting from transactions in other than trading investments and securities
sold short, to cash flows from investing activities. These uses were partially
offset by (1) net income of $2.7 million, (2) net non-cash charges, principally
depreciation and amortization, of $11.0 million, (3) proceeds of $3.3 million
from sales of trading securities, net of purchases and (4) other of $1.3
million.
The cash used by changes in operating assets and liabilities of $41.9
million reflects increases in receivables of $22.8 million, inventories of $5.1
million and prepaid expenses and other current assets of $1.0 million, and a
decrease in accounts payable and accrued expenses of $13.0 million. The increase
in receivables principally results from seasonally higher sales in February and
March 2000 compared with November and December 1999. The increase in inventories
was due to seasonal buildups in anticipation of the peak spring and summer
selling season in our beverage businesses. The related increase in accounts
payable reflecting the increased inventory purchases was more than offset by a
decrease in accrued expenses principally relating to (1) a $15.0 million
reduction in accrued compensation and related benefits principally due to the
payment of previously accrued incentive compensation and (2) an $8.6 million
reduction in accrued interest principally due to the semi-annual interest
payment of $16.0 million made in February 2000 on the $300.0 million of 10 1/4%
senior notes.
Despite the $35.8 million of cash used in operating activities in the 2000
first quarter, we expect positive cash flows from operations during the
remainder of 2000 due to (1) the expectation of increasingly profitable
operations for the remainder of the year due to the seasonality of the beverage
business with the spring and summer months as the peak season and (2) the
significant seasonal factors impacting the cash used in the 2000 first quarter
for operating assets which should not recur during the remainder of 2000 and
should substantially reverse.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$229.0 million at April 2, 2000, reflecting a current ratio, which equals
current assets divided by current liabilities, of 2.0:1. Our working capital
decreased $9.0 million from January 2, 2000 principally due to the $17.0 million
of cash used for our capital expenditures discussed below under "Capital
Expenditures."
Our capitalization at April 2, 2000 aggregated $829.4 million consisting
of $909.6 million of long-term debt, including current portion, and an $86.2
million forward purchase obligation for common stock discussed below, partially
offset by a stockholders' deficit of $166.4 million. Our total capitalization
increased $16.9 million from January 2, 2000 principally due to the assumption
of $18.0 million of indebtedness in connection with the acquisition of 280
Holdings, LLC also discussed below under "Capital Expenditures."
Debt Agreements
We maintain a $535.0 million senior bank credit facility entered into by
Snapple, Mistic, Stewart's, Royal Crown and RC/Arby's which consists of a $475.0
million term facility under which there were $468.4 million of term loans
outstanding as of April 2, 2000 and a $60.0 million revolving credit facility
which provides for borrowings by Snapple, Mistic, Stewart's, Royal Crown or
RC/Arby's. They may make revolving loan borrowings of up to 80% of eligible
accounts receivable plus 50% of eligible inventories. There were no outstanding
revolving credit loans as of April 2, 2000. At April 2, 2000 there was $59.9
million of borrowing availability under the revolving credit facility. However,
$28.0 million of the revolving credit facility was subsequently utilized through
borrowings of revolving credit loans made on May 4, 2000 in order to fund the
excess cash flow prepayment discussed in the following paragraph.
Revolving loans will be due in full in 2005. Scheduled maturities of the
term loans for the remainder of 2000 are $6.6 million, increasing annually
through 2006 with a final payment in 2007. In addition to scheduled maturities
of the term loans, we are also required to make mandatory annual prepayments in
an amount, if any, currently equal to 75% of excess cash flow as defined in the
credit agreement. The mandatory prepayments will be applied on a pro rata basis
to the remaining outstanding balances of each of the three classes of the term
loans except that any lender that has term B or term C loans outstanding may
elect not to have its pro rata share of the loans repaid. Any amount prepaid and
not applied to term B loans or term C loans as a result of the election would be
applied first to the outstanding balance of term A loans and second to any
outstanding balance of revolving loans, with any remaining amount being returned
to us. In that connection, we made a $28.3 million prepayment on May 4, 2000 in
respect of the year ended January 2, 2000, of which $25.7 million was the pro
rata share applicable to the term B and term C loans. Certain lenders of term B
and term C loans elected not to accept an aggregate $8.8 million of the
prepayment and, accordingly, this amount was applied to term A loans. The
application of the excess cash flow prepayment had the effect of reducing the
scheduled maturities of the term loans during the remainder of 2000 by $1.0
million to $5.6 million. Accordingly, our payments under the term loans during
the last three quarters of 2000 will aggregate $33.9 million, consisting of the
$28.3 million excess cash flow prepayment and the $5.6 million of adjusted
scheduled maturities. Under the credit agreement, we can make voluntary
prepayments of the term loan, although as of April 2, 2000, we have not made any
voluntary prepayments. However, if we make voluntary prepayments of term B and
term C loans, which have $123.8 million and $301.9 million outstanding as of
April 2, 2000, we will incur prepayment penalties of 1.0% and 1.5%,
respectively, of any future amounts of those term loans prepaid through February
25, 2001.
Triarc Consumer Products Group, LLC, the parent of Triarc Beverage
Holdings and RC/Arby's, and Triarc Beverage Holdings have $300.0 million
principal amount of 10 1/4% senior subordinated notes due 2009 which mature in
2009 and do not require any amortization of principal prior to 2009.
We have $360.0 million principal amount at maturity, or $114.9 million net
of unamortized discount as of April 2, 2000, of zero coupon convertible
subordinated debentures which mature in 2018 and do not require any amortization
of principal prior to 2018.
We have a secured promissory note payable to a commercial lender with an
outstanding principal amount of $17.7 million as of April 2, 2000, which is
payable over seven years with $1.1 million due during the last three quarters of
2000; this note is secured by an airplane. This note was assumed during the
three months ended April 2, 2000 in connection with the acquisition of 280
Holdings, LLC described below under "Capital Expenditures."
We have a note payable to a beverage co-packer in an outstanding principal
amount of $2.5 million as of April 2, 2000 which is due during the last three
quarters of 2000.
Our long-term debt repayments during the last three quarters of 2000 are
expected to be $39.1 million, including $33.9 million under the term loans, $2.5
million under the note payable to a beverage co-packer and $1.1 million under
the secured promissory note payable, all as discussed above.
Debt Agreement Restrictions and Guarantees
Under the credit facility substantially all of our assets, other than cash,
cash equivalents and short-term investments, are pledged as security. In
addition, our obligations relating to (1) the 10 1/4% notes are guaranteed by
Snapple, Mistic, Stewart's, Arby's, Royal Crown and RC/Arby's and all of their
domestic subsidiaries and (2) the credit facility are guaranteed by Triarc
Consumer Products Group, Triarc Beverage Holdings and substantially all of the
domestic subsidiaries of Snapple, Mistic, Stewart's, Arby's, Royal Crown and
RC/Arby's. As collateral for the guarantees under the credit facility, all of
the stock of Snapple, Mistic, Stewart's, Arby's, Royal Crown and RC/Arby's and
all of their domestic subsidiaries and 65% of the stock of each of their
directly-owned foreign subsidiaries is pledged. The guarantees under the 10 1/4%
notes are full and unconditional, are on a joint and several basis and are
unsecured.
Our debt agreements contain various covenants which (1) require periodic
financial reporting, (2) require meeting financial amount and ratio tests, (3)
limit, among other matters, (a) the incurrence of indebtedness, (b) the
retirement of debt prior to maturity, with exceptions, (c) investments, (d)
asset dispositions and (e) affiliate transactions other than on an arms-length
basis and (4) restrict the payment of dividends, loans or advances to Triarc.
Under the most restrictive of these covenants, the borrowers cannot pay any
dividends or make any loans or advances to Triarc other than permitted one-time
distributions, including dividends, paid to Triarc in 1999. We were in
compliance with all of these covenants as of April 2, 2000.
On July 19, 1999 the Company through its wholly-owned subsidiary, National
Propane Corporation, sold 41.7% of its remaining 42.7% interest in its former
propane business retaining a 1% special limited partner interest in National
Propane, L.P. National Propane Corporation, whose principal asset following the
sale of the propane business is a $30.0 million intercompany note receivable
from Triarc, agreed that while it remains a special limited partner of National
Propane, L.P., it would indemnify the purchaser for any payments the purchaser
makes related to the purchaser's obligations under certain of the debt of
National Propane, L.P., aggregating approximately $138.0 million as of April 2,
2000, if National Propane, L.P. is unable to repay or refinance such debt, but
only after recourse by the purchaser to the assets of National Propane, L.P.
Under the purchase agreement, either the purchaser or National Propane
Corporation may require National Propane L.P. to repurchase the 1% special
limited partner interest. We believe that it is unlikely that we will be called
upon to make any payments under this indemnity.
Arby's remains contingently responsible for operating and capitalized
lease payments, if the purchaser does not make such required lease payments,
assumed by the purchaser in connection with the restaurants sale of
approximately $117.0 million as of May 1997 when the Arby's restaurants were
sold and $89.0 million as of April 2, 2000, assuming the purchaser of the Arby's
restaurants has made all scheduled payments through that date. Further, Triarc
has guaranteed mortgage notes and equipment notes payable to FFCA Mortgage
Corporation assumed by the purchaser in connection with the restaurants sale of
$54.7 million as of May 1997 and $48.0 million as of April 2, 2000, assuming the
purchaser of the Arby's restaurants has made all scheduled repayments through
that date. In addition, a subsidiary of ours is a co-obligor with the purchaser
of the Arby's restaurants and Triarc is a guarantor under a loan, the repayments
of which are being made by the purchaser, with an aggregate principal amount of
$0.5 million as of April 2, 2000.
On January 12, 2000 we entered into an agreement to guarantee $10.0
million principal amount of senior notes issued by MCM Capital Group, Inc., an
8.4% equity investee of ours, to a major financial institution in consideration
for a fee of $0.2 million and warrants to purchase 100,000 shares of MCM Capital
Group common stock at $.01 per share with an estimated fair value on the date of
grant of $0.3 million. The $10.0 million guaranteed amount will be reduced by
(1) any repayments of the notes, (2) any purchases of the notes by us and (3)
the amount of certain investment banking or financial advisory services fees
paid to the financial institution or its affiliates or, under certain
circumstances, other financial institutions by us, MCM Capital Group or another
significant stockholder of MCM Capital Group or any of their affiliates. Certain
of our officers, including entities controlled by them, collectively own
approximately 15.7% of MCM Capital Group and are not parties to this note
guaranty and could indirectly benefit from it. In addition to the note guaranty,
we and certain other stockholders of MCM Capital Group, including our officers
referred to above, on a joint and several basis, have entered into agreements to
guarantee $15.0 million of revolving credit borrowings of a subsidiary of MCM
Capital Group, of which we would be responsible for approximately $1.8 million
assuming all of the parties to the bank guaranties and certain related
agreements fully perform. On April 3, 2000 we purchased a $15.0 million
certificate of deposit from the financial institution referred to above which
under the bank guaranties is subject to set off under certain circumstances if
the parties to these bank guaranties and related agreements fail to perform
their obligations thereunder. MCM Capital Group has encountered cash flow and
liquidity difficulties. We currently believe that it is possible, but not
probable, that we will be required to make payments under the note guaranty
and/or the bank guaranties.
Capital Expenditures
Cash capital expenditures amounted to $17.0 million during the 2000 first
quarter. On January 19, 2000, we acquired 280 Holdings, LLC, the subsidiary of
Triangle Aircraft Services Corporation, a company owned by our Chairman and
Chief Executive Officer and President and Chief Operating Officer that owns the
airplane that had previously been leased from Triangle Aircraft Services through
January 19, 2000, for $27.2 million. The purchase price consisted of (1) cash of
$9.2 million, included in the $17.0 million of cash capital expenditures
referred to above, and (2) the assumption of the $18.0 million secured
promissory note payable. The purchase price was based on independent appraisals
and was approved by our Audit Committee and Board of Directors. As a result of
the acquisition of 280 Holdings, the effect on our estimated costs for the
airplane for the remainder of 2000 compared with the last three quarters of 1999
will be lower depreciation and amortization of $0.6 million, the elimination of
rental expense under the airplane lease with Triangle Aircraft Services of $2.3
million, the incurrence of interest expense on the secured promissory note of
$1.2 million and lower investment income of approximately $0.3 million with a
resulting increase in income from continuing operations before income taxes of
approximately $1.4 million. We expect that cash capital expenditures will
approximate $11.3 million for the remainder of 2000 for which there were $3.3
million of outstanding commitments as of April 2, 2000. Our planned capital
expenditures include amounts for cold drink equipment, co- packing equipment and
remaining expenditures for a premium beverage packing line at one of our
company-owned distributors.
Acquisitions
On March 31, 2000 Triarc acquired, and contributed to Triarc Consumer
Products Group, certain assets, principally distribution rights, of California
Beverage Company, a distributor of our premium beverage products in the City and
County of San Francisco, California, for cash of $1.6 million, subject to
post-closing adjustment. On May 16, 2000 Triarc acquired, and contributed to
Triarc Consumer Products Group, certain assets, principally distribution rights,
of Northern Glacier Ltd. d/b/a Taormina Lighthouse, a distributor of our Mistic
premium beverage products in five counties in New Jersey and who will continue
as our sub-distributor in two of those counties, for an aggregate purchase price
of $2.2 million, subject to post-closing adjustment. Of the purchase price, $1.9
million was paid through offset of accounts receivable and a note receivable
otherwise owed to Mistic by the seller, which are to be reimbursed to Mistic by
Triarc, and $0.3 million is to be paid by Triarc to the seller following the
conclusion of the seller's sub-distributorship. To further our growth strategy,
we will consider additional selective business acquisitions, as appropriate, to
grow strategically and explore other alternatives to the extent we have
available resources to do so.
Income Taxes
The Internal Revenue Service has tentatively completed its examination of
our Federal income tax returns for the year ended April 30, 1993 and transition
period ended December 31, 1993. In connection with these 1993 examinations and
subject to final processing and approval by the Internal Revenue Service, our
net operating loss carryforwards would increase by $7.5 million and we would be
due a refund of income taxes of $2.3 million plus interest thereon. This refund
is expected to fully offset amounts otherwise payable to the Internal Revenue
Service relating to examinations for tax years prior to the tax year ended April
30, 1993.
Treasury Stock Purchases
In April 1999, we announced that our management had been authorized, when
and if market conditions warrant and to the extent legally permissible, to
repurchase up to $30.0 million of our Class A common stock. This authorization
expired on May 7, 2000. Prior to January 2, 2000, we had repurchased 295,334
shares under this program at a total cost of $6.2 million and did not purchase
any shares during 2000 prior to the expiration of the authorization. We may,
upon the authorization of our Board of Directors, purchase further shares of our
Class A common stock when and if market conditions warrant and to the extent
legally permissable. We cannot assure you, however, that we will receive this
authorization or make any further purchases of our shares.
Pursuant to a contract entered into in August 1999, we have a remaining
obligation to repurchase an aggregate of 3,998,416 shares of our Class B common
stock held by affiliates of Victor Posner, our former Chairman and Chief
Executive Officer, of which 1,999,208 shares are required to be purchased on or
before each of August 19, 2000 and August 19, 2001. Under the contract, the two
remaining purchases to occur on or before August 19, 2000 and 2001 aggregate
$42.3 million and $43.8 million, respectively, and are at negotiated fixed
prices of $21.18 and $21.93 per share based on the fair market value of our
Class A common stock at the time the transaction was negotiated.
Cash Requirements
As of April 2, 2000, our consolidated cash requirements for the remainder
of 2000, exclusive of operating cash flow requirements, consist principally of
(1) debt principal repayments aggregating $39.1 million, (2) a payment of $42.3
million for the repurchase of 1,997,207 shares of our Class B common stock from
affiliates of Victor Posner, (3) capital expenditures of approximately $11.3
million, (4) up to $2.2 million for the acquisition of Taormina Lighthouse,
including $1.9 million of foregone collection of accounts receivable and a note
receivable, and the cost of additional business acquisitions, if any, and (5)
repurchases, if any, of our Class A common stock for treasury. We anticipate
meeting all of these requirements through (1) an aggregate $239.0 million of
existing cash and cash equivalents, short-term investments and the April 3, 2000
collection of the receivable from the sale of a short-term investment, net of
$20.4 million of obligations for short- term investments sold but not yet
purchased included in "Accrued expenses" in our accompanying consolidated
balance sheet as of April 2, 2000, (2) cash flows from operations and (3) the
$59.9 million of availability as of April 2, 2000 under Triarc Consumer Products
Group's $60.0 million revolving credit facility.
Triarc
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon its (1) aggregate $187.2 million of cash and cash
equivalents, short-term investments and the April 3, 2000 collection of the
receivable from the sale of a short-term investment, net of $20.4 million of
obligations for short-term investments sold but not yet purchased, as of April
2, 2000, (2) investment income on its cash equivalents and short-term
investments and (3) cash flows from its subsidiaries including, (a)
reimbursement by certain subsidiaries to Triarc in connection with the providing
of certain management services, (b) payments under tax-sharing agreements with
certain subsidiaries and (c) loans, distributions and dividends. However,
Triarc's principal subsidiaries are currently unable to pay any dividends or
make any loans or advances to Triarc under the terms of their debt agreements.
Triarc had indebtedness to consolidated subsidiaries of $30.0 million as
of April 2, 2000 under a demand note payable to National Propane Corporation
which, as amended, bears interest payable semi-annually in cash at the specified
minimum interest rate under the Internal Revenue Code, which was 5.8% at April
2, 2000. While this note requires the payment of interest in cash, Triarc
currently expects to receive dividends from National Propane Corporation equal
to the cash interest. The note requires no principal payments during 2000,
assuming no demand is made thereunder, and none is anticipated. Triarc also has
other indebtedness principally under (1) the zero coupon convertible debentures
described above which require no amortization of principal during 2000 and (2)
the $18.0 million secured promissory note assumed in connection with the
acquisition of 280 Holdings which requires principal payments of $1.1 million
during the remainder of 2000.
Triarc's principal cash requirements during the remainder of 2000 are (1) a
payment of $42.3 million for the repurchase of 1,997,207 shares of our Class B
common stock from affiliates of Victor Posner, (2) capital expenditures of
approximately $3.0 million, (3) debt principal repayments of $1.3 million
primarily on the secured promissory note assumed in connection with the purchase
of 280 Holdings, (4) up to $2.2 million for the acquisition of Taormina
Lighthouse and the cost of additional business acquisitions by Triarc, if any,
(5) repurchases, if any, of our Class A common stock for treasury, and (6)
payments of general corporate expenses. Triarc expects to be able to meet all of
these cash requirements through (1) existing cash and cash equivalents and
short-term investments, (2) investment income and (3) receipts from its
subsidiaries under management services and tax-sharing agreements.
Legal and Environmental Matters
We are involved in stockholder litigation, other litigation, claims and
environmental matters incidental to our businesses. We have reserves for legal
and environmental matters of $2.6 million as of April 2, 2000. Although the
outcome of these matters cannot be predicted with certainty and some of these
matters may be disposed of unfavorably to us, based on currently available
information and given our reserves, we do not believe that these legal and
environmental matters will have a material adverse effect on our consolidated
financial position or results of operations.
Seasonality
Our beverage and restaurant franchising businesses are seasonal. In our
beverage businesses, the highest revenues occur during the spring and summer,
between April and September. Accordingly, our second and third quarters reflect
the highest revenues and our first and fourth quarters have lower revenues from
the beverage businesses. The royalty revenues of our restaurant franchising
business are somewhat higher in our fourth quarter and somewhat lower in our
first quarter. Accordingly, consolidated revenues will generally be highest
during the second and third fiscal quarters of each year. Our earnings before
interest, taxes, depreciation and amortization and operating profit are also
highest during the second and third fiscal quarters of each year and lowest in
the first fiscal quarter. This principally results from the higher beverage
revenues in the second and third fiscal quarters while general and
administrative expenses and depreciation and amortization, excluding
amortization of deferred financing costs, are generally recorded ratably in each
quarter either as incurred or allocated to quarters based on time expired. Our
first fiscal quarter earnings before interest, taxes, depreciation and
amortization and operating profit have also been lower due to advertising
production costs which typically are higher in the first quarter in anticipation
of the peak spring and summer beverage selling season and which are recorded the
first time the related advertising takes place.
Recently Issued Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." Statement 133 provides a comprehensive standard for the
recognition and measurement of derivatives and hedging activities. The standard
requires derivatives be recorded on the balance sheet at fair value and
establishes more restrictive criteria for hedge accounting. Statement 133 as
amended by Statement of Financial Accounting Standards No. 137, is effective for
our fiscal year beginning January 1, 2001. Although we have not yet completed
the process of identifying all of our derivative instruments, the derivatives we
have currently identified are the conversion component of our short-term
investments in convertible bonds, put and call options on equity and debt
securities and an interest rate cap agreement on certain of our long-term debt.
Since these derivatives, other than the interest rate cap agreement, are
currently carried at fair value, the accounting for them would not be impacted
by Statement 133 and, as such, the requirement to state them at fair value
should have no impact on our consolidated financial position or results of
operations. We historically have not had transactions to which hedge accounting
applied and, accordingly, the more restrictive criteria for hedge accounting in
Statement 133 should have no effect on our consolidated financial position or
results of operations. However, the provisions of Statement 133 are complex and
we are just beginning our evaluation of the implementation requirements of
Statement 133 and, accordingly, are unable to precisely determine at this time
the impact it will have on our consolidated financial position and results of
operations.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes, changes in the
market value of our investments and foreign currency fluctuations.
Policies and procedures -- In the normal course of business, we employ
established policies and procedures to manage our exposure to changes in
interest rates, changes in the market value of our investments and fluctuations
in the value of foreign currencies using financial instruments we deem
appropriate.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows. To achieve
our objectives, we assess the relative proportions of our debt under fixed
versus variable rates. We generally use purchased interest rate caps on a
portion of our variable-rate debt to limit our exposure to increases in
short-term interest rates. These cap agreements usually are at significantly
higher than market interest rates prevailing at the time the cap agreements are
entered into and are intended to protect against very significant increases in
short-term interest rates. We currently have one interest rate cap agreement
relating to interest on $234.2 million of our aggregate $468.4 million of
variable-rate term loans under our senior bank credit facility which provides
for a cap which was approximately 2% higher than the prevailing interest rate at
April 2, 2000. In addition to our variable and fixed-rate debt, our investment
portfolio includes debt securities that are subject to interest rate risk
reflecting the portfolio's maturities between one and thirty years. We are also
invested in certain hedge funds which invest primarily in short-term debt
securities, option contracts on government debt securities as well as interest
rate swaps. The fair market value of all of our investments in debt securities
will decline in value if interest rates increase. The fair market value of our
investments in certain hedge funds should not decline in value if interest rates
increase assuming there is a perfect hedge; however, if the hedge is other than
perfect such investments may decline in value if interest rates increase.
Equity Market Risk
Our objective in managing our exposure to changes in the market value of
our investments is also to balance the risk of the impact of such changes on
earnings and cash flows with our expectations for long-term investment returns.
Our primary exposure to equity price risk relates to our investments in equity
securities, equity derivatives, securities sold but not yet purchased and
investment limited partnerships and similar investment entities. We have
established policies and procedures governing the type and relative magnitude of
investments which we can make. We have a management investment committee whose
duty it is to oversee our continuing compliance with the restrictions embodied
in its policies.
Foreign Currency Risk
Our objective in managing our exposure to foreign currency fluctuations is
also to limit the impact of such fluctuations on earnings and cash flows. Our
primary exposure to foreign currency risk relates to our investments in certain
investment limited partnerships and similar investment entities that hold
foreign securities, including those of entities based in emerging market
countries and other countries which experience volatility in their capital and
lending markets. To a more limited extent, we have foreign currency exposure
when our investment managers buy or sell foreign currencies or financial
instruments denominated in foreign currencies for our account or the accounts of
our investments in investment limited partnerships and similar investment
entities. We monitor these exposures and periodically determine our need for use
of strategies intended to lessen or limit our exposure to these fluctuations. We
also have a relatively limited amount of exposure to (1) export sales revenues
and related receivables denominated in foreign currencies and (2) investments in
foreign subsidiaries which are subject to foreign currency fluctuations. Our
primary export sales exposures relate to sales in Canada, the Caribbean and
Europe. However, foreign export sales and foreign operations for our most recent
full fiscal year ended January 2, 2000 represented only 5% of our revenues and
an immediate 10% change in foreign currency exchange rates versus the United
States dollar from their levels at January 2, 2000 would not have had a material
effect on our consolidated financial position or results of operations.
Overall Market Risk
With regard to overall market risk, we attempt to mitigate our exposure to
such risks by assessing the relative proportion of our investments in cash and
cash equivalents and the relatively stable and risk-minimized returns available
on such investments. We periodically interview asset managers to ascertain the
investment objectives of such managers and invest amounts with selected managers
in order to avail ourselves of higher but more risk inherent returns from the
selected investment strategies of these managers. We seek to identify
alternative investment strategies also seeking higher returns with attendant
increased risk profiles for a portion of our investment portfolio. We
periodically review the returns from each of our investments and may maintain,
liquidate or increase selected investments based on this review of past returns
and prospects for future returns.
We maintain investment portfolio holdings of various issuers, types and
maturities. As of April 2, 2000, such investments consist of the following (in
thousands):
Cash equivalents included in "Cash and cash equivalents" on
the accompanying condensed consolidated balance sheet.......$ 121,375
Short-term investments......................................... 108,227
Non-current investments........................................ 16,179
----------
$ 245,781
==========
Such investments are classified in the following general types or
categories:
Investments at
Investments Fair Value or Carrying
Type at Cost Equity Value Percentage
---- ------- ------ ----- ----------
(In thousands)
Cash equivalents ...............................$ 121,375 $ 121,375 $ 121,375 49.4%
Company-owned securities accounted for as:
Trading securities........................ 23,593 26,728 26,728 10.9%
Available-for-sale securities............. 24,631 25,404 25,404 10.3%
Investments in investment limited partnerships
and similar investment entities accounted
for at:
Cost...................................... 48,380 54,679 48,380 19.7%
Equity.................................... 6,841 12,380 12,380 5.0%
Other non-current investments accounted for at:
Cost...................................... 4,550 4,550 4,550 1.9%
Equity.................................... 6,114 6,964 6,964 2.8%
--------- --------- --------- --------
Total cash equivalents and long investment
positions....................................$ 235,484 $ 252,080 $ 245,781 100.0%
========= ========= ========= ========
Securities sold with an obligation for us to
purchase accounted for as trading
securities..................................$ (17,197) $ (20,386) $ (20,386) N/A
========= ========= ========= ========
Our marketable securities are classified and accounted for either as
"available-for-sale" or "trading" and are reported at fair market value with the
related net unrealized gains or losses reported as a component of other
comprehensive loss, net of income tax benefit, reported as a component of
stockholders' deficit or included as a component of net income, respectively.
Investment limited partnerships and similar investment entities and other non-
current investments in which we do not have significant influence over the
investee are accounted for at cost. Realized gains and losses on investment
limited partnerships and other non-current investments recorded at cost are
reported as investment income or loss in the period in which the securities are
sold. We review such investments carried at cost and in which we have unrealized
losses for any unrealized losses deemed to be other than temporary. We recognize
an investment loss currently for any such other than temporary losses. The cost
of such investments as reflected in the table above represents original cost
less unrealized losses that were deemed to be other than temporary. Investment
limited partnerships and similar investment entities and other non-current
investments in which we have significant influence over the investee are
accounted for in accordance with the equity method of accounting under which our
results of operations include our share of the income or loss of such investees.
Sensitivity Analysis
For purposes of this disclosure, market risk sensitive instruments are
divided into two categories: instruments entered into for trading purposes and
instruments entered into for purposes other than trading. Our measure of market
risk exposure represents an estimate of the potential change in fair market
value of our financial instruments. Market risk exposure is presented for each
class of financial instruments held by us at April 2, 2000 for which an
immediate adverse market movement represents a potential material impact on our
financial position or results of operations. We believe that the various rates
of adverse market movements described below represent the hypothetical loss to
future earnings and do not represent the maximum possible loss nor any expected
actual loss, even under adverse conditions, because actual adverse fluctuations
would likely differ. In addition, since our investment portfolio is subject to
change based on its portfolio management strategy as well as in response to
changes in market conditions, these estimates are not necessarily indicative of
the actual results which may occur.
The following tables reflect the estimated effects on the market value of
our financial instruments as of April 2, 2000 based upon assumed immediate
adverse effects as noted below.
Trading Portfolio:
Carrying Equity
Value Price Risk
----- ----------
(In thousands)
Equity securities .................................$22,674 $ (2,268)
Debt securities.................................... 4,054 (405)
Securities sold but not yet purchased..............(20,386) 2,039
The debt securities included in the trading portfolio are predominately
investments in convertible bonds which primarily trade on the conversion feature
of the securities rather than the stated interest rate and, as such, there is no
material interest rate risk since a change in interest rates of one percentage
point would not have a material impact on our consolidated financial position or
results of operations. The securities included in the trading portfolio do not
include any investments denominated in foreign currency and, accordingly, there
is no foreign currency risk.
The sensitivity analysis of financial instruments held for trading
purposes assumes an instantaneous 10% decrease in the equity markets in which we
invest from their levels at April 2, 2000, with all other variables held
constant. For purposes of this analysis, our debt securities, primarily
convertible bonds, were assumed to primarily trade based upon the conversion
feature of the securities and be perfectly correlated with the assumed equity
index.
Other Than Trading Portfolio:
Carrying Interest Equity Foreign
Value Rate Risk Price Risk Currency Risk
----- --------- ---------- -------------
(In thousands)
Cash equivalents ............$ 121,375 $ -- $ -- $ --
Available-for-sale equity
securities ................ 17,328 -- (1,733) --
Available-for-sale debt
securities................. 8,076 (888) -- --
Other investments............ 72,274 (817) (3,452) (1,130)
Long-term debt............... 909,612 (4,684) -- --
The cash equivalents are short-term in nature with a maturity of three
months or less when acquired and, as such, a change in interest rates of one
percentage point would not have a material impact on our consolidated financial
position or results of operations.
The sensitivity analysis of financial instruments held for purposes other
than trading assumes an instantaneous increase in market interest rates of one
percentage point from their levels at April 2, 2000 and an instantaneous 10%
decrease in the equity markets in which we are invested from their levels at
April 2, 2000, both with all other variables held constant. The increase of one
percentage point with respect to our available-for-sale debt securities
represents an assumed average 11% decline in earnings as the weighted average
interest rate of such debt securities at April 2, 2000 approximated 9%. The
increase of one percentage point with respect to our long-term debt (1)
represents an assumed average 10% decline in earnings as the weighted average
interest rate of our variable-rate debt at April 2, 2000 approximated 10% and
(2) relates only to our variable-rate debt since a change in interest rates
would not affect interest expense on our fixed-rate debt. The interest rate risk
presented with respect to long-term debt represents the potential impact the
indicated change in interest rates would have on our consolidated results of
operations and not our consolidated financial position. The analysis also
assumes an instantaneous 10% change in the foreign currency exchange rates
versus the United States dollar from their levels at April 2, 2000, with all
other variables held constant. For purposes of this analysis, with respect to
investments in investment limited partnerships and similar investment entities
accounted for at cost, (1) the investment mix for each such investment between
equity versus debt securities and securities denominated in United States
dollars versus foreign currencies was assumed to be unchanged since January 2,
2000 since more current information was not available and (2) the decrease in
the equity markets and the change in foreign currency were assumed to be other
than temporary. Further, this analysis assumed no market risk for other
investments, other than investment limited partnerships and similar investment
entities and investments which trade in public equity markets.
Pursuant to a contract entered into in 1999, we have a remaining
obligation to repurchase an aggregate of 3,998,416 shares of our Class B common
stock of which 1,999,207 shares are required to be purchased on or before each
of August 19, 2000 and August 19, 2001. At April 2, 2000 the aggregate
$86,186,000 obligation related to these remaining purchases has been recorded as
a long-term liability with an equal offsetting increase in stockholders'
deficit. Although these purchases were negotiated at fixed prices, any decrease
in the equity market in which our stock is traded would have a negative impact
on the fair value of the recorded liability. However, that same decrease would
have a corresponding positive impact on the fair value of the offsetting amount
included in stockholders' deficit. Accordingly, since any change in the equity
markets would have an offsetting effect upon our financial position, no market
risk has been assumed for this financial instrument.
Part II. Other Information
This Quarterly Report on Form 10-Q contains or incorporates by reference
certain statements that are not historical facts, including, most importantly,
information concerning possible or assumed future results of operations of
Triarc Companies, Inc. and its subsidiaries (collectively, "Triarc" or "the
Company") and statements preceded by, followed by or that include the words
"may," "believes," "expects," "anticipates," or the negation thereof, or similar
expressions, which constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All
statements which address operating performance, events or developments that are
expected or anticipated to occur in the future, including statements relating to
volume and revenue growth, earnings per share growth or statements expressing
general optimism about future operating results, are forward-looking statements
within the meaning of the Reform Act. These forward-looking statements are based
on our expectations and are susceptible to a number of risks, uncertainties and
other factors and our actual results, performance or achievements may differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Reform Act. Many important factors could affect our future results and could
cause those results to differ materially from those expressed in the
forward-looking statements contained herein. Such factors include, but are not
limited to, the following: competition, including product and pricing pressures;
success of operating initiatives; the ability to attract and retain customers;
development and operating costs; advertising and promotional efforts; brand
awareness; the existence or absence of positive or adverse publicity; market
acceptance of new product offerings; new product and concept development by
competitors; changing trends in consumer tastes and demographic patterns; the
success of multi-branding; availability, location and terms of sites for
restaurant development by franchisees; the ability of franchisees to open new
restaurants in accordance with their development commitments, including the
ability of franchisees to finance restaurant development; the performance by
material customers of their obligations under their purchase agreements; changes
in business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and cost of raw materials, ingredients and supplies; the potential
impact on franchisees' store level sales and resulting royalty revenues that
could arise from interruptions in the distribution of supplies of food and other
products to franchisees; general economic, business and political conditions in
the countries and territories where the Company operates, including the ability
to form successful strategic business alliances with local participants; changes
in, or failure to comply with, government regulations, including franchising
laws, accounting standards, environmental laws and taxation requirements; the
costs, uncertainties and other effects of legal and administrative proceedings;
the impact of general economic conditions on consumer spending; and other risks
and uncertainties affecting the Company and its subsidiaries detailed in our
other current and periodic reports filed with the Securities and Exchange
Commission, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. We will not undertake and specifically
decline any obligation to publicly release the results of any revisions which
may be made to any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events. In addition, it is our policy generally not to make any
specific projections as to future earnings, and we do not endorse any
projections regarding future performance that may be made by third parties.
Item 1. Legal Proceedings
As reported in the Company's Annual Report on Form 10-K for the year ended
January 2, 2000 (the "Form 10-K"), three former court-appointed directors have
asserted claims against Nelson Peltz, a director and the Chairman and Chief
Executive Officer of Triarc, seeking, among other things, an order reinstating
them to the Company's Board of Directors. As reported in the Form 10-K, by order
dated February 10, 1999, the Court granted Mr. Peltz's motion for summary
judgment with respect to all the claims against him asserted in the actions, and
on September 29, 1999, the three former directors filed a notice of appeal from
the dismissal of their claims. On March 15, 2000, the Court entered an order
dismissing the former directors' appeal for failure to comply with the Court's
scheduling order. By order dated April 13, 2000, the Court reinstated the
appeal. The appeal is being briefed.
As reported in the Form 10-K, various class actions have been brought
purportedly on behalf of the Company's stockholders in the Court of Chancery of
the State of Delaware challenging the Dutch Auction Tender Offer made by the
Company on March 12, 1999. Since the filing of the Form 10-K, the plaintiffs
have advised the Court that they consider the matter moot and asked that the
Court to dismiss their claims voluntarily. Plantiffs' counsel have advised us
that they intend to apply to the Court for an award of attorneys' fees in an
undisclosed amount.
As reported in the Form 10-K, on March 23, 1999, Norman Salsitz, allegedly
a stockholder of Triarc, filed a complaint in the United States District Court
for the Southern District of New York against the Company, Nelson Peltz and
Peter May, a director and the President and Chief Operating Officer of Triarc,
challenging the Dutch Auction Tender Offer. On April 5, 2000, Salsitz filed an
amended complaint. In addition to the matters alleged in the original complaint,
the amended complaint seeks an order permitting all shareholders who tendered
their shares in the Dutch Auction Tender Offer to rescind the transaction. On
May 5, 2000, the defendants filed an answer to the amended complaint. Discovery
has commenced in this action, but no trial date has been set.
Item 5. Other Information
Stock Repurchase Program
On April 29, 1999, we announced that our management has been authorized,
when and if market conditions warrant and to the extent legally permissible, to
purchase over the twelve-month period commencing on May 7, 1999, up to $30
million worth of Triarc's Class A Common Stock. Pursuant to the stock repurchase
program, which expired on May 7, 2000, we repurchased 295,334 shares, at an
average cost of $20.96 per share (including commissions), for an aggregate cost
of approximately $6.2 million. We may, upon the authorization of our Board of
Directors, continue to repurchase Class A Common Stock, when and if market
conditions warrant and to the extent legally permissable.
Recent Acquisition
On May 16, 2000, we acquired certain of the assets of Northern Glacier Ltd.
d/b/a Taormina Lighthouse, including the distribution rights for Mistic products
in certain counties in New Jersey, for an aggregate purchase price of $2.2
million, subject to post-closing adjustment. The assets that we acquired were
contributed to our subsidiary Millrose, L.P.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 - First Amendment dated as of April 1, 2000 to Credit Agreement
dated as of February 25, 1999 among Snapple Beverage Corp.,
Mistic Brands, Inc., Stewart's Beverages, Inc.(f/k/a Cable Car
Beverage Corporation), RC/Arby's Corporation and Royal Crown
Company, Inc., as the Borrowers, various financial institutions,
as the Lenders, DLJ Capital Funding, Inc., as the Syndication
Agent for the Lenders, Morgan Stanley Senior Funding, Inc., as
the Documentation Agent for the Lenders, and The Bank of New
York, as the Administrative Agent for the Lenders.
27.1 - Financial Data Schedule for the three-month period ended April
2, 2000, submitted to the Securities and Exchange Commission in
electronic format.
27.2 - Financial Data Schedule for the three-month period ended April 4,
1999, on a restated basis, submitted to the Securities and
Exchange Commission in electronic format.
(b) Reports on Form 8-K
None
Exhibit Index
Exhibit
No. Description Page No.
- --------- ----------- --------
4.1 - First Amendment dated as of April 1, 2000 to Credit
Agreement dated as of February 25, 1999 among Snapple
Beverage Corp., Mistic Brands, Inc., Stewart's Beverages,
Inc.(f/k/a Cable Car Beverage Corporation), RC/Arby's
Corporation and Royal Crown Company, Inc., as the Borrowers,
various financial institutions, as the Lenders, DLJ
Capital Funding, Inc., as the Syndication Agent for
the Lenders, Morgan Stanley Senior Funding, Inc., as the
Documentation Agent for the Lenders, and The Bank of New
York, as the Administrative Agent for the Lenders.
27.1 - Financial Data Schedule for the three-month period
ended April 2, 2000, submitted to the Securities and
Exchange Commission in electronic format.
27.2 - Financial Data Schedule for the three-month period
ended April 4, 1999, on a restated basis, submitted to
the Securities and Exchange Commission in electronic format.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIARC COMPANIES, INC.
(Registrant)
Date: May 17, 2000 By: /S/ JOHN L. BARNES, JR.
---------------------------
John L. Barnes, Jr.
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
By: /S/ FRED H. SCHAEFER
------------------------------
Fred H. Schaefer
Vice President and
Chief Accounting Officer
(Principal accounting officer)