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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 1, 2001
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
(212) 451-3000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
There were 20,275,678 shares of the registrant's Class A Common Stock and
1,999,207 shares of the registrant's Class B Common Stock outstanding as of
April 30, 2001.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, April 1,
2000 (A) 2001
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(In thousands)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................................................$ 596,135 $ 300,158
Short-term investments............................................................... 314,017 318,940
Receivables.......................................................................... 14,565 20,494
Deferred income tax benefit ......................................................... 9,659 10,399
Prepaid expenses .................................................................... 677 600
----------- ----------
Total current assets............................................................... 935,053 650,591
Restricted cash equivalents.............................................................. 32,684 32,773
Investments.............................................................................. 11,595 29,594
Properties............................................................................... 40,097 39,969
Unamortized costs in excess of net assets of acquired companies.......................... 18,764 18,554
Other intangible assets.................................................................. 6,070 5,914
Deferred costs and other assets.......................................................... 23,161 23,983
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$ 1,067,424 $ 801,378
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....................................................$ 17,017 $ 18,186
Accounts payable..................................................................... 11,923 2,210
Accrued expenses..................................................................... 65,365 47,167
Net current liabilities relating to discontinued operations.......................... 244,429 4,634
----------- ----------
Total current liabilities.......................................................... 338,734 72,197
Long-term debt........................................................................... 291,718 286,604
Deferred compensation payable to related parties......................................... 22,500 22,647
Deferred income taxes.................................................................... 69,922 69,922
Deferred income and other liabilities.................................................... 18,397 18,932
Forward purchase obligation for common stock............................................. 43,843 43,843
Stockholders' equity:
Common stock......................................................................... 3,555 3,555
Additional paid-in capital........................................................... 211,967 212,089
Retained earnings.................................................................... 350,561 358,769
Treasury stock....................................................................... (242,772) (244,762)
Common stock to be acquired.......................................................... (43,843) (43,843)
Accumulated other comprehensive income............................................... 2,842 1,425
----------- ----------
Total stockholders' equity ........................................................ 282,310 287,233
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$ 1,067,424 $ 801,378
=========== ==========
(A) Derived from the audited consolidated financial statements as of December 31, 2000
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
Three Months Ended
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April 2, April 1,
2000 2001
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(In thousands except per share amounts)
(Unaudited)
Revenues, investment income and other income:
Royalties and franchise fees..........................................................$ 19,268 $ 20,671
Investment income, net................................................................ 15,921 15,257
Other income, net..................................................................... 368 749
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Total revenues, investment income and other income................................. 35,557 36,677
--------- ----------
Costs and expenses:
General and administrative............................................................ 18,783 12,734
Depreciation and amortization, excluding amortization of deferred financing
costs.............................................................................. 1,349 1,754
Interest expense ..................................................................... 672 6,548
Insurance expense related to long-term debt........................................... -- 1,241
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Total costs and expenses........................................................... 20,804 22,277
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Income from continuing operations before income taxes........................ 14,753 14,400
Provision for income taxes................................................................ (6,324) (6,192)
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Income from continuing operations............................................ 8,429 8,208
Loss from discontinued operations......................................................... (5,709) --
--------- ----------
Net income...................................................................$ 2,720 $ 8,208
========= ==========
Basic income (loss) per share:
Continuing operations........................................................$ .35 $ .37
Discontinued operations...................................................... (.24) --
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Net income...................................................................$ .11 $ .37
========= ==========
Diluted income (loss) per share:
Continuing operations........................................................$ .34 $ .35
Discontinued operations...................................................... (.23) --
--------- ----------
Net income...................................................................$ .11 $ .35
========= ==========
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
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April 2, April 1,
2000 2001
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(In thousands)
(Unaudited)
Cash flows from continuing operating activities:
Net income...............................................................................$ 2,720 $ 8,208
Adjustments to reconcile net income to net cash used in continuing
operating activities:
Depreciation and amortization of properties......................................... 814 857
Amortization of costs in excess of net assets of acquired companies,
other intangible assets and certain other items .................................. 535 897
Amortization of deferred financing costs and original issue discount................ 2 699
Litigation settlement receivable.................................................... -- (3,333)
Operating investment adjustments, net (see below)................................... (10,190) (1,557)
Loss from discontinued operations................................................... 5,709 --
Other, net.......................................................................... 932 667
Changes in operating assets and liabilities:
Decrease (increase) in receivables................................................ 2,330 (4,122)
Decrease in prepaid expenses...................................................... 262 77
Decrease in accounts payable and accrued expenses ............................... (3,637) (22,266)
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Net cash used in continuing operating activities............................. (523) (19,873)
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Cash flows from continuing investing activities:
Investment activities, net (see below)................................................... 21,681 (28,936)
Capital expenditures..................................................................... (9,633) (729)
Other.................................................................................... 1,400 --
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Net cash provided by (used in) continuing investing activities............... 13,448 (29,665)
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Cash flows from continuing financing activities:
Repayments of long-term debt............................................................. (759) (3,945)
Repurchases of common stock for treasury................................................. -- (3,703)
Proceeds from stock option exercises .................................................... 1,999 1,561
Deferred financing costs................................................................. -- (557)
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Net cash provided by (used in) continuing financing activities.............. 1,240 (6,644)
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Net cash provided by (used in) continuing operations......................................... 14,165 (56,182)
Net cash used in discontinued operations..................................................... (26,251) (239,795)
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Net decrease in cash and cash equivalents.................................................... (12,086) (295,977)
Cash and cash equivalents at beginning of period............................................. 127,843 596,135
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Cash and cash equivalents at end of period...................................................$ 115,757 $ 300,158
============ =========
Supplemental disclosures of cash flow information:
Operating investment adjustments, net:
Proceeds from sales of trading securities...........................................$ 21,314 $ 33,326
Cost of trading securities purchased................................................ (17,972) (29,363)
Net recognized (gains) losses from trading securities............................... (1,279) 752
Net recognized gains from transactions in other than trading securities,
including equity in investment limited partnerships, and short positions........ (12,253) (3,992)
Accretion of discount on United States government debt securities................... -- (2,280)
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$ (10,190) $ (1,557)
============ =========
Investing investment activities, net:
Proceeds from sales of available-for-sale securities and other investments..........$ 38,586 $ 18,582
Cost of available-for-sale securities and other investments purchased............... (15,100) (43,296)
Proceeds from securities sold short................................................. 14,059 5,339
Payments to cover short positions in securities..................................... (15,864) (9,561)
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$ 21,681 $ (28,936)
============ =========
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
April 1, 2001
(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 December 31, 2000 and
April 1, 2001 and its results of operations and cash flows for the three-month
periods ended April 2, 2000 and April 1, 2001 (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 December 31, 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 "Special Note
Regarding Forward-Looking Statements and Projections" in "Part II - Other
Information" preceding "Item 6."
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 2000 commenced January 3, 2000 and ended April 2,
2000 and the Company's first quarter of 2001 commenced January 1, 2001 and ended
April 1, 2001. For purposes of these condensed consolidated financial
statements, such periods are referred to herein as the three-month periods ended
April 2, 2000 and April 1, 2001, respectively.
As disclosed in more detail in Note 2, on October 25, 2000 the Company
completed the sale of its premium beverage and soft drink concentrate
businesses. Accordingly, the accompanying condensed consolidated income
statement and statement of cash flows for the three-month period ended April 2,
2000 have been reclassified to report the premium beverage and soft drink
concentrate businesses as discontinued operations.
(2) Discontinued Operations
On October 25, 2000, the Company completed the sale (the "Snapple Beverage
Sale") of Snapple Beverage Group, Inc. ("Snapple Beverage Group"), the parent
company of Snapple Beverage Corp. ("Snapple"), Mistic Brands, Inc. ("Mistic")
and Stewart's Beverages, Inc. ("Stewart's"), and Royal Crown Company, Inc.
("Royal Crown") to affiliates of Cadbury Schweppes plc (collectively "Cadbury").
Snapple Beverage Group represented the operations of our former premium beverage
business and Royal Crown represented the operations of our former soft drink
concentrate business. The consideration paid to the Company consisted of (1)
cash of $896,250,000, subject to any additional post-closing adjustment, and (2)
the assumption of $425,112,000 of debt and related accrued interest. The assumed
debt and accrued interest consists of (1) $300,000,000 of 10 1/4% senior
subordinated notes due 2009 co-issued by Triarc Consumer Products Group, LLC
("TCPG"), the former parent company of Snapple Beverage Group and Royal Crown
and a subsidiary of Triarc, and Snapple Beverage Group, (2) $119,130,000, net of
unamortized original issue discount of $240,870,000, of Triarc's zero coupon
convertible subordinated debentures due 2018 (the "Debentures") and (3)
$5,982,000 of accrued interest. Of the cash proceeds, $426,594,000 was utilized
to repay outstanding obligations under a senior bank credit facility maintained
by Snapple, Mistic, Stewart's, Royal Crown and RC/Arby's Corporation, the former
parent company of Royal Crown and a subsidiary of TCPG.
As set forth in Note 1, these beverage businesses have been accounted for
as discontinued operations and, accordingly, the accompanying condensed
consolidated income statement and statement of cash flows for the three-month
period ended April 2, 2000 have been reclassified in conjunction therewith.
The loss from operations of the discontinued operations for the three-month
period ended April 2, 2000 consisted of the following (in thousands):
Revenues, interest income and other income.....................$ 171,153
Loss before income taxes....................................... (8,710)
Benefit from income taxes...................................... 3,001
Net loss....................................................... (5,709)
Net current liabilities relating to discontinued operations consisted of
the following (in thousands):
December 31, April 1,
2000 2001
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Accrued (prepaid) income taxes (Note 3)...........$ 235,529 $ (3,738)
Other accrued liabilities......................... 5,872 5,367
Net liabilities of certain discontinued
operations of SEPSCO, LLC, a subsidiary
of the Company (net of assets held for
sale of $234)................................. 3,028 3,005
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$ 244,429 $ 4,634
========= ========
(3) Income Taxes
In connection with the Snapple Beverage Sale, the Company entered into a
tax agreement with Cadbury whereby both the Company and Cadbury intend to
jointly elect to treat certain portions of the transaction as an asset sale in
lieu of a stock sale under the provisions of section 338 (h)(10) of the United
States Internal Revenue Code (the "338 Election"). Assuming the 338 Election is
executed by both parties to the agreement, the Company will be paid $200,000,000
by Cadbury. The Company now estimates that it will incur between approximately
$165,000,000 and $175,000,000 with respect to income taxes as a result of the
338 Election and will report income from discontinued operations of
approximately $25,000,000 to $35,000,000 upon realization. Should either the
Company or Cadbury default on this tax agreement and not make the 338 Election,
the defaulting party would owe $30,000,000 to the other party.
During the three-month period ended April 1, 2001, the Company paid
$239,267,000 of estimated Federal and state income taxes relating to the Snapple
Beverage Sale. Such payment has been reflected as a reduction of "Net current
liabilities relating to discontinued operations" in the accompanying condensed
balance sheet as of April 1, 2001.
(4) Comprehensive Income (Loss)
The following is a summary of the components of comprehensive income
(loss), net of income taxes (in thousands):
Three months ended
------------------------
April 2, April 1,
2000 2001
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Net income ...............................................................................$ 2,720 $ 8,208
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Net change in unrealized gains on available-for-sale securities:
Change in unrealized appreciation of available-for-sale securities..................... 1,013 (375)
Less reclassification adjustments for prior period appreciation of
securities sold during the period.................................................. (5,667) (894)
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(4,654) (1,269)
Equity in the decrease in unrealized gain on a retained interest ...................... (12) (159)
---------- ----------
(4,666) (1,428)
Net change in currency translation adjustment............................................. (10) 11
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(4,676) (1,417)
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Comprehensive income (loss)...............................................................$ (1,956) $ 6,791
========== ==========
(5) Income (Loss) Per Share
Basic income (loss) per share for the three-month periods ended April 2,
2000 and April 1, 2001 has been computed by dividing the income or loss by the
weighted average number of common shares outstanding of 23,806,000 and
22,258,000, respectively. Diluted income (loss) per share for the three-month
periods ended April 2, 2000 and April 1, 2001 has been computed by dividing the
income (loss) by an aggregate 25,100,000 and 23,535,000 shares, respectively.
The shares used for diluted income (loss) per share consist of the weighted
average number of common shares outstanding and potential common shares
reflecting (1) the 744,000 and 1,277,000 share effect of dilutive stock options
for the three-month periods ended April 2, 2000 and April 1, 2001, respectively,
computed using the treasury stock method and (2) the 550,000 share effect for
the three-month period ended April 2, 2000 of a forward purchase obligation for
common stock (the "Forward Purchase Obligation") under which the Company
repurchased 1,999,207 shares of its Class B common stock (the "Class B Shares")
for $42,343,000 on August 10, 2000 and must repurchase an additional 1,999,207
Class B Shares for $43,843,000 on or before August 19, 2001. The shares for
diluted income (loss) per share exclude any effect of (1) the assumed conversion
of the Debentures through the date of their assumption by Cadbury and (2) a
written call option for common stock which commenced following the assumption of
the Debentures by Cadbury since the effect of each of these on income from
continuing operations would have been antidilutive. In addition, the shares for
diluted income (loss) per share for the three-month period ended April 1, 2001
exclude any effect of the Forward Purchase Obligation since the effect on income
from continuing operations in that quarter would have been antidilutive.
(6) Derivative Instruments
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," issued by the Financial Accounting
Standards Board. SFAS 133, as amended by Statements of Financial Accounting
Standards Nos. 137 and 138, 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. The only derivatives
that the Company presently have that are affected by SFAS 133 are the conversion
components of its short-term investments in convertible debt securities, which
securities had an aggregate carrying value of $1,745,000 as of April 1, 2001. In
addition, the Company enters into put and call options on equity and debt
securities, although it did not have any at April 1, 2001. The Company enters
into these derivatives as part of its overall investment portfolio strategy.
This strategy includes balancing the relative proportion of its investments in
cash equivalents with their relative stability and risk minimized returns with
opportunities to avail the Company to higher but more risk inherent returns
associated with these investments, including the convertible debt securities and
put and call options. Since all of these derivatives are stated at fair value
with the corresponding changes in fair value recorded in results of operations,
the requirement of SFAS 133 to state the conversion component of the Company's
investments in convertible debt securities and the put and call options at fair
value has had no impact on the Company's consolidated financial position or
results of operations for the three months ended April 1, 2001. The Company
historically has not had transactions to which hedge accounting applied and did
not have any during the three months ended April 1, 2001. Accordingly, the more
restrictive criteria for hedge accounting in SFAS 133 has had no effect on the
Company's consolidated financial position or results of operations during the
three months ended April 1, 2001.
(7) Transactions with Related Parties
The Company maintains several equity plans (the "Equity Plans") which
collectively provide or provided for, among other items, the grant of stock
options to certain officers, key employees, consultants and non-employee
directors. During December 2000, certain of the Company's officers and a
director exercised stock options under the Equity Plans and the Company
repurchased the 1,045,834 shares of its Class A common stock received by these
individuals upon such exercises on the respective exercise dates. Shares
repurchased from two officers of the Company on December 29, 2000 for an
aggregate cost of $7,429,000 were not settled until January 2, and 3, 2001 and
are included in "Accounts payable" in the accompanying condensed consolidated
balance sheet as of December 31, 2000.
On June 25, 1997 a class action lawsuit was filed which asserted, among
other things, claims relating to certain awards of compensation to the Chairman
and Chief Executive Officer and the President and Chief Operating Officer of the
Company (the "Executives") in 1994 through 1997. In August 2000 the parties to
the lawsuit entered into a settlement agreement whereby (1) the case would be
dismissed with prejudice, (2) the Company would receive a note receivable (the
"Executives' Note") from the Executives in the aggregate amount of $5,000,000
receivable in three equal installments due March 31, 2001, 2002 and 2003 and (3)
the Executives would surrender an aggregate of 775,000 stock options awarded to
them in 1994. On January 30, 2001, the court entered an order and final judgment
approving the settlement in full, which became effective March 1, 2001. The
Company recorded the $5,000,000 as a reduction of compensation expense included
in "General and administrative" in the accompanying condensed consolidated
income statement for the three-month period ended April 1, 2001 since the
settlement effectively represents an adjustment of prior period compensation
expense. The Executives' Note bears interest initially at 6%, which is adjusted
on March 31, 2002 and 2003 with respect to the preceding annual period by the
difference, if any, between the then 30-day London Interbank Offered Rate and
such rate on March 31, 2001 of 6.1325%. In accordance therewith, the Company
recorded interest income of $25,000 on the Executives' Note for the three months
ended April 1, 2001. On March 30, 2001, the Company collected the first
principal installment of $1,667,000 on the Executives' Note.
In connection with the consummation of the Snapple Beverage Sale and the
issuance of $290,000,000 principal amount of insured securitization notes during
2000, Triarc recorded incentive compensation of $22,500,000 during 2000 to the
Executives which was invested in a deferred compensation trust (the "Trust") for
their benefit in January 2001. The deferred compensation payable is adjusted
thereafter for any increase or decrease in the fair value of the investments in
the Trust and as of April 1, 2001 aggregated $22,647,000. Such obligation is
reported as "Deferred compensation payable to related parties" in the
accompanying condensed consolidated balance sheets.
The Company leases a helicopter from a subsidiary of Triangle Aircraft
Services Corporation ("TASCO"), a company owned by the Executives under a dry
lease which, subject to renewal, expires in 2002. Annual rent for the helicopter
was $369,000 from January 19, 2000 through September 30, 2000 and increased to
$382,000 as of October 1, 2000 as a result of an annual cost of living
adjustment. In connection with such lease the Company had rent expense of
$92,000 and $95,000 for the three-month periods ended April 2, 2000 and April 1,
2001, respectively. Pursuant to this dry lease, the Company pays the operating
expenses, including repairs and maintenance, of the helicopter directly to third
parties. Through January 19, 2000 the Company also leased an airplane from TASCO
pursuant to the dry lease under which the Company is leasing the helicopter. On
that date the Company acquired the airplane through its acquisition of 280
Holdings, LLC, a then subsidiary of TASCO. Rental expense attributable to the
airplane, including amortization of a $2,500,000 option entered into in 1997
relating to the lease, for the period January 3, 2000 to January 19, 2000
amounted to $202,000. On January 19, 2000 the Company received $1,200,000 from
TASCO representing the return of substantially all of the remaining unamortized
amount paid for this option.
(8) Legal Matters
The Company is involved in stockholder litigation, other litigation and
claims incidental to its businesses. The Company has reserves for such legal
matters aggregating $1,532,000 as of April 1, 2001. 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 matters will have a material adverse effect on its consolidated
financial position or results of operations.
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 December 31, 2000 of Triarc
Companies, Inc. The recent trends affecting our restaurant franchising business
are described in Item 7 of our Form 10-K.
Certain statements under this caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" constitute "forward-looking
statements" under the Private Securities Litigation Reform Act. Such forward-
looking statements involve risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. For these statements, we claim the protection
of the safe harbor for forward-looking statements contained in the Reform Act.
See "Special Note Regarding Forward-Looking Statements and Projections in "Part
II - Other Information" preceding "Item 6."
We report on a fiscal year consisting of 52 or 53 weeks ending on the
Sunday closest to December 31. Our first three months of fiscal 2000 commenced
January 3, 2000 and ended April 2, 2000 and our first three months of fiscal
2001 commenced January 1, 2001 and ended April 1, 2001. 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 and when we refer to the "three
months ended April 1, 2001" or the "2001 first quarter," we mean the period from
January 1, 2001 to April 1, 2001.
As discussed in more detail in Note 2 to the accompanying condensed
consolidated financial statements, on October 25, 2000 we completed the sale,
which we refer to as the Snapple Beverage Sale, of Snapple Beverage Group, Inc.,
the parent company of Snapple Beverage Corp., Mistic Brands, Inc. and Stewart's
Beverages, Inc., and Royal Crown Company, Inc. to affiliates of Cadbury
Schweppes plc, (collectively referred to herein as Cadbury). Our former premium
beverage business consisted of Snapple Beverage Group and our former soft drink
concentrate business consisted of Royal Crown Company. These beverage businesses
have been accounted for as discontinued operations and, accordingly, the
accompanying condensed consolidated income statement and statement of cash flows
for the three months ended April 2, 2000 have been reclassified in conjunction
therewith.
Results of Operations
Royalties and Franchise Fees
Our royalties and franchise fees, which are generated entirely from our
restaurant franchising business, increased $1.4 million, or 7%, to $20.7 million
for the three months ended April 1, 2001 from $19.3 million for the three months
ended April 2, 2000 reflecting higher royalty revenue and slightly higher
franchise fee revenue. The increase in royalty revenue resulted almost entirely
from an average net increase of 87, or 3%, franchised restaurants.
Our royalties and franchise fees have no associated cost of sales.
Investment Income, Net
Investment income, net decreased $0.6 million, or 4%, to $15.3 million for
the three months ended April 1, 2001 from $15.9 million for the three months
ended April 2, 2000. This decrease reflects (1) $10.4 million of lower
recognized net gains, realized or unrealized as applicable, on our investments
to $3.4 million in the 2001 first quarter from $13.8 million in the 2000 first
quarter, primarily attributable to our $10.3 million non-recurring gain on the
sale of Ascent Entertainment Group, Inc. during the 2000 first quarter and (2) a
$1.4 million decrease to a loss of $0.1 million in the 2001 first quarter from
income of $1.3 million in the 2000 first quarter in our net equity in the income
or losses of investment limited partnerships and similar investment entities
accounted for under the equity method. Such decreases were partially offset by a
$9.6 million increase to $11.9 million in the 2001 first quarter from $2.3
million in the 2000 first quarter 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 investments deemed to be other than
temporary which did not recur in the 2001 first quarter. The increased interest
income is due to higher average amounts of cash equivalents and short-term
investments in the 2001 first quarter compared with the 2000 first quarter as a
result of the cash provided from the Snapple Beverage Sale and the $277.0
million of proceeds, net of $13.0 million of expenses, resulting from our
issuance of 7.44% insured non-recourse securitization notes, which we refer to
as the Securitization Notes, on November 21, 2000. The recognized net gains on
our securities may not recur in future periods.
Other Income, Net
Other income, net increased $0.4 million, or 104%, to $0.8 million for the
three months ended April 1, 2001 from $0.4 million for the three months ended
April 2, 2000. This increase was principally due to the $0.4 million reduction
in the fair value of a written call option on our Class A common stock
effectively established on October 25, 2000 in connection with the assumption by
Cadbury in the Snapple Beverage Sale of our zero coupon convertible subordinated
debentures due 2018, which we refer to as the Debentures. Although the
Debentures were assumed by Cadbury, they remain convertible into our Class A
common stock and as such we have recorded the liability for such conversion at
fair value and the reduction in the fair value of the liability during the 2001
first quarter was recognized in other income.
General and Administrative
Our general and administrative expenses decreased $6.1 million, or 32%, to
$12.7 million for the three months ended April 1, 2001 from $18.8 million for
the three months ended April 2, 2000. This decrease principally reflects (1) a
$5.0 million reduction in compensation expense related to a note receivable from
our Chairman and Chief Executive Officer and President and Chief Operating
Officer that we received in the 2001 first quarter in connection with the
settlement, effective March 1, 2001, of a class action shareholder lawsuit which
asserted claims relating to certain awards of compensation to such executives,
(2) a $0.7 million decrease in brand development costs in our restaurant
franchising business related to programs implemented to improve the efficiency
of the franchised restaurants and (3) provisions of $0.5 million in the 2000
first quarter, which did not recur in the 2001 first quarter, for costs to
support a change in distributors for a majority of franchisees in our restaurant
franchising business for food and other products. The $5.0 million gain from the
settlement of the class action shareholder lawsuit disclosed above was included
as a reduction of general and administrative expenses since the gain effectively
represents an adjustment of prior period compensation expense.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $0.4 million, or 30%, to $1.8 million for the three
months ended April 1, 2001 from $1.4 million for the three months ended April 2,
2000. This increase in depreciation and amortization principally reflects the
accelerated amortization of our costs related to the purchase of interests in
aircrafts, net of redemption value, under timeshare agreements resulting from
the anticipated early termination of the related timeshare agreements.
Interest Expense
Interest expense increased $5.8 million to $6.5 million for the three
months ended April 1, 2001 from $0.7 million for the three months ended April 2,
2000. This increase in interest expense is primarily attributable to interest of
$5.4 million in the three months ended April 1, 2001 on our Securitization Notes
issued on November 21, 2000 and $0.7 million of amortization of related deferred
financing costs on the Securitization Notes.
Insurance Expense Related to Long-Term Debt
The insurance expense related to long-term debt of $1.2 million in the
three months ended April 1, 2001 related to insuring the payment of principal
and interest on the Securitization Notes. There was no similar charge in the
2000 first quarter.
Income Taxes
The provision for income taxes represented effective rates of 43% for both
the three months ended April 1, 2001 and the three months ended April 2, 2000.
The effective rate is higher than the United States Federal statutory rate of
35% in both periods principally due to the effect of non-deductible compensation
costs and state income taxes, net of Federal income tax benefit.
Discontinued Operations
Loss from discontinued operations was $5.7 million for the three months
ended April 2, 2000 and represents the net loss from operations of our
discontinued beverage businesses during that period.
Revenues, interest income and other income of the beverage businesses were
$171.2 million in the 2000 first quarter. Such revenues, interest income and
other income reflected (1) the recent product introduction of Snapple
Elements(TM), a product platform of herbally enhanced drinks introduced in April
1999, (2) strong demand for diet teas and other diet beverages and juice drinks,
(3) the positive effect on sales of Stewart's products as a result of increased
distribution in their existing and new markets and (4) the positive effect of an
increased focus by two premium beverage distributors on sales of our products as
a result of our ownership of these distributors from February 25, 1999 and
January 2, 2000, respectively. Revenues of the soft drink concentrate business,
however, were weak due to continued competitive pricing pressures experienced by
our bottlers.
The beverage businesses generated a pretax loss of $8.7 million in the 2000
first quarter principally reflecting the historical seasonality of the
businesses.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Continuing Operations
Our consolidated operating activities from continuing operations used cash
and cash equivalents, which we refer to in this discussion as cash, of $19.9
million during the three months ended April 1, 2001 reflecting (1) cash used by
changes in operating assets and liabilities of $26.3 million, (2) notes
receivable from litigation settlement included in pretax income, net of payment
received, of $3.3 million and (3) operating investment adjustments of $1.6
million. These uses were partially offset by (1) net income of $8.2 million and
(2) non-cash charges of $3.1 million, principally depreciation and amortization.
The cash used by changes in operating assets and liabilities of $26.3
million principally reflects a decrease in accounts payable and accrued expenses
of $22.3 million and an increase in receivables of $4.1 million. The decrease in
accounts payable and accrued expenses is primarily due to (1) a $17.1 million
reduction in accrued compensation and related benefits principally due to the
payment of previously accrued incentive compensation and (2) a $7.4 million
payment of a previously recorded payable for common shares repurchased from two
of our officers which had been issued upon exercise of stock options. The
increase in receivables was primarily due to a $4.4 million increase in
receivables for marketable securities sold in the 2001 first quarter but not
settled until the 2001 second quarter.
Despite the $19.9 million of cash used in operating activities in the 2001
first quarter, we expect positive cash flows from operations during the
remainder of 2001 due to (1) the expectation of continuing profitable operations
for the remainder of the year and (2) the significant factors impacting the cash
used in the 2001 first quarter for operating assets and liabilities which should
not recur during the remainder of 2001.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$578.4 million at April 1, 2001, reflecting a current ratio, which equals
current assets divided by current liabilities, of 9.0:1. Working capital
decreased $17.9 million from $596.3 million at December 31, 2000 principally due
to purchases of non-current investments.
Our total capitalization at April 1, 2001 was $635.8 million consisting of
stockholders' equity of $287.2 million, $304.8 million of long-term debt,
including current portion, and a $43.8 million forward purchase obligation for
common stock discussed below under "Treasury Stock Purchases." Our total
capitalization increased $1.0 million from $634.8 million at December 31, 2000
principally due to (1) net income of $8.2 million and (2) proceeds of $1.6
million from stock option exercises, both partially offset by (1) repayments of
long-term debt of $3.9 million, (2) repurchases of $3.7 million of our common
stock discussed below under "Treasury Stock Purchases" and (3) adjustments of
$1.4 million in deriving comprehensive income from net income.
Securitization Notes
We have, through our ownership of Arby's Franchise Trust, Securitization
Notes with a remaining principal balance of $285.3 million as of April 1, 2001
which are due no later than December 2020. However, based on current projections
and assuming the adequacy of available funds, as defined under the indenture for
the Securitization Notes, which we refer to as the Indenture, we currently
estimate that we will repay $11.3 million during the remaining nine months of
fiscal 2001 with increasing annual payments to $37.4 million in 2011 in
accordance with a targeted principal payment schedule. Available funds to Arby's
Franchise Trust to pay principal on the Securitization Notes are franchisee
fees, royalties and other payments received by Arby's Franchise Trust under all
domestic and Canadian Arby's restaurant franchising agreements after (1)
operating expenses of Arby's Franchise Trust, (2) servicing fees payable to our
subsidiary, Arby's, Inc., and one of its subsidiaries to cover the costs of
administering the franchise license agreements, (3) insurance premiums related
to insuring the payment of principal and interest on the Securitization Notes
and (4) interest on the Securitization Notes have been paid. Any remaining cash
is available for distribution by Arby's Franchise Trust to its parent as long as
Arby's Franchise Trust meets the minimum debt service coverage ratio, as defined
under the Indenture. That requirement is initially 1.2:1 subject to increases to
a maximum of 1.7:1. The Securitization Notes are subject to mandatory redemption
if the Arby's Franchise Trust debt service coverage ratio is less than 1.2:1,
until such time as the ratio exceeds 1.2:1 for six consecutive months. The debt
service coverage ratio is based on the preceding four calendar months of
activity and was 1.5:1 for the four months ended March 31, 2001. The
Securitization Notes are redeemable by us at an amount equal to remaining
principal, accrued interest and the excess, if any, of the discounted value of
the remaining principal and interest payments over the principal amount of the
Securitization Notes.
Obligations under the Securitization Notes are insured by a financial
guarantee company and are collateralized by cash, including a cash reserve
account of $30.8 million as of April 1, 2001, and royalty receivables of Arby's
Franchise Trust, with a total book value of $45.3 million as of April 1, 2001.
The Indenture contains various covenants which (1) require periodic
financial reporting, (2) require meeting the debt service coverage ratio test
and (3) restrict, among other matters, (a) the incurrence of indebtedness, (b)
asset dispositions and (c) the payment of distributions. We were in compliance
with all of such covenants as of April 1, 2001. As of April 1, 2001 Arby's
Franchise Trust had $1.3 million available for the payment of distributions
indirectly to Arby's which, in turn, would be available to Arby's to pay
management service fees or Federal income tax liabilities to Triarc or, to the
extent of any excess, make distributions to Triarc through Arby's parent.
Other Long-Term Debt
We have an 8.95% secured promissory note payable through 2006 in an
outstanding principal amount of $16.2 million as of April 1, 2001 of which $1.2
million is due during the remaining nine months of fiscal 2001.
Our total scheduled long-term debt repayments during the remaining nine
months of fiscal 2001 are $12.6 million consisting principally of the $11.3
million due under the Securitization Notes and the $1.2 million due on the 8.95%
secured promissory note.
Guarantees and Commitments
In July 1999 we sold through our wholly-owned subsidiary, National Propane
Corporation, 41.7% of our remaining 42.7% interest in our former propane
business retaining a 1% special limited partner interest in National Propane,
L.P. National Propane Corporation, whose principal asset following the sale of
the propane business is a $30.0 million intercompany note receivable from
Triarc, agreed that while it remains a special limited partner of National
Propane, L.P., it would indemnify the purchaser of National Propane, L.P. for
any payments the purchaser makes related to the purchaser's obligations under
certain of the debt of National Propane, L.P., aggregating approximately $138.0
million as of April 1, 2001, 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 sold all of its company-owned restaurants in 1997. The purchaser of
the restaurants assumed certain operating and capitalized lease payments
(approximately $79.0 million as of April 1, 2001, assuming such purchaser has
made all scheduled payments through that date) for which Arby's remains
contingently liable if the purchaser does not make the required payments. In
connection with such sale, Triarc guaranteed the repayment of mortgage and
equipment notes payable to FFCA Mortgage Corporation that were assumed by the
purchaser (approximately $46.0 million as of April 1, 2001, assuming the
purchaser has made all scheduled repayments through that date). Triarc is also a
guarantor of $0.5 million (as of April 1, 2001) of mortgage and equipment notes
for which one of our subsidiaries is co-obligor with the purchaser of the
restaurants. The purchaser is primarily responsible for repaying such notes.
In January 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
the guarantee, we received a fee of $0.2 million and warrants to purchase
100,000 shares of MCM Capital Group common stock at $.01 per share with an
estimated fair value on the date of grant of $0.3 million. The $10.0 million
guaranteed amount has been reduced to $6.7 million as of April 1, 2001 and will
be further reduced by (1) any repayments of the notes, (2) any purchases of the
notes by us and (3) the amount of certain 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 owned approximately 17.4% of MCM Capital Group as of April 1, 2001.
These officers 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 up to $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 the full $15.0
million was borrowed and all of the parties to the guarantees of the revolving
credit borrowings and certain related agreements fully perform thereunder. As of
April 1, 2001 MCM Capital Group had $13.2 million of outstanding revolving
credit borrowings. At April 1, 2001 we had $15.2 million of highly liquid United
States government debt securities in a custodian account at the financial
institution providing the revolving credit facility. Such securities under the
guaranties of the revolving credit borrowings are subject to set off under
certain circumstances if the parties to these guaranties of the revolving credit
borrowings and related agreements fail to perform their obligations thereunder.
MCM Capital Group has encountered cash flow and liquidity difficulties. We
currently believe that it is possible, but not probable, that we will be
required to make payments under the note guaranty and/or the bank guarantees.
In addition to the guarantees described above, we and our officers who
invested in MCM Capital Group prior to the initial public offering and certain
of its other stockholders, through a newly formed limited liability company, CTW
Funding, LLC, made available to MCM Capital Group a $2.0 million revolving
credit facility which presently extends through June 30, 2001 to meet working
capital requirements. We own an 8.7% interest in CTW Funding and should any
borrowings under this revolving credit facility occur, all members of CTW
Funding are required to fund the borrowings in accordance with their percentage
interests. In return CTW Funding has received warrants to purchase an aggregate
of 150,000 shares of MCM common stock at $.01 per share. Subsequent to June 30,
2001, the revolving credit facility may be renewed quarterly through December
31, 2001 by MCM Capital Group for additional warrants to purchase 50,000 shares
of its common stock at $.01 per share for each three-month period. Any
borrowings under the MCM revolving credit facility bear interest at 12% and are
due on December 31, 2001; however through April 1, 2001 there have been no
borrowings under this revolving credit facility.
Capital Expenditures
Cash capital expenditures amounted to $0.7 million during the three months
ended April 1, 2001. We expect that cash capital expenditures will approximate
$0.8 million for the remaining nine months of fiscal 2001 for which there were
$0.1 million of outstanding commitments as of April 1, 2001.
Acquisitions and Investments
As of April 1, 2001, we have $640.0 million of cash, cash equivalents and
investments, including $29.6 million of investments classified as non-current.
We are presently evaluating our options for the use of our significant cash and
investment position, including business acquisitions, repurchases of Triarc
common shares (see "Treasury Stock Purchases" below) and investments.
Income Taxes
During the three months ended April 1, 2001, we paid $239.3 million of
estimated Federal and state income taxes related to the Snapple Beverage Sale,
which is reflected in net cash used in discontinued operations in the
accompanying condensed consolidated statement of cash flows for that period.
In connection with the Snapple Beverage Sale, we have entered into a tax
agreement with Cadbury whereby we and Cadbury intend to jointly elect to treat
certain portions of the transaction as an asset sale in lieu of a stock sale
under the provisions of section 338 (h)(10) of the United States Internal
Revenue Code. Assuming this election is executed by both parties to the
agreement, we will be paid $200.0 million by Cadbury. We now estimate our taxes
currently payable under this election of between approximately $140.0 million
and $150.0 million. We estimate that between approximately $160.0 million and
$170.0 million will be paid during the remaining nine months of fiscal 2001 and
approximately $20.0 million will be received as either a refund subsequent to
2001, or as an offset against taxes otherwise payable in 2001. In connection
therewith, the Company expects to report income from discontinued operations of
between approximately $25.0 million and $35.0 million upon realization. Should
either we or Cadbury default on this tax agreement and not make the election,
the defaulting party would owe $30.0 million to the other party.
Treasury Stock Purchases
Our management has been authorized, when and if market conditions warrant,
to repurchase up to $80.0 million of our Class A common stock under a $30.0
million stock repurchase program that ends on May 25, 2001 and a $50.0 million
stock repurchase program that ends on January 18, 2002. Under the $30.0 million
stock repurchase program, we repurchased 1,045,834 shares for a total cost of
$25.9 million during 2000 and an additional 150,600 shares for a total cost of
$3.7 million during the three months ended April 1, 2001. Through April 1, 2001
we have not repurchased any shares under the $50.0 million stock repurchase
program. We cannot assure you that we will repurchase any additional shares
under the remaining $50.4 million authorized under these stock repurchase
programs.
Pursuant to a contract entered into in August 1999, we have a final
remaining purchase to be made of 1,999,207 shares of our Class B common stock
held by affiliates of Victor Posner, our former Chairman and Chief Executive
Officer, on or before August 19, 2001 for $43.8 million. This remaining purchase
is at a negotiated fixed price of $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 1, 2001, our consolidated cash requirements for the remaining
nine months of fiscal 2001, exclusive of operating cash flow requirements,
consist principally of (1) a payment of $43.8 million for the repurchase of
1,999,207 shares of our Class B common stock from affiliates of Victor Posner,
(2) a maximum $50.4 million of payments, if any, for repurchases of our Class A
common stock for treasury under our existing stock repurchase programs, (3)
scheduled debt principal repayments aggregating $12.6 million, (4) capital
expenditures of approximately $0.8 million and (5) the cost of business
acquisitions, if any. We anticipate meeting all of these requirements through
(1) an aggregate $610.4 million of existing cash and cash equivalents and
short-term investments, net of $8.7 million of obligations for short-term
investments sold but not yet purchased included in "Accrued expenses" in our
accompanying condensed consolidated balance sheet as of April 1, 2001, and (2)
cash flows from operations.
Legal Matters
We are involved in stockholder litigation, other litigation and claims
incidental to our businesses. We have reserves for all of such legal matters
aggregating $1.5 million as of April 1, 2001. Although the outcome of such
matters cannot be predicted with certainty and some of these may be disposed of
unfavorably to us, based on currently available information and given our
aforementioned reserves, we do not believe that such legal matters will have a
material adverse effect on our consolidated financial position or results of
operations.
Seasonality
Our continuing operations are not significantly impacted by seasonality,
however our restaurant franchising royalty revenues are somewhat higher in our
fourth quarter and somewhat lower in our first quarter.
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. In connection
with the Snapple Beverage Sale on October 25, 2000, substantially all of our
then existing long-term debt was repaid or assumed by Cadbury. However,
historically we generally use 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. At April 1, 2001 all of our debt is fixed rate and, since we
have no variable-rate debt, we have no interest rate cap agreements outstanding.
In addition to our fixed-rate debt, our investment portfolio includes debt
securities that are subject to interest rate risk reflecting the portfolio's
maturities between six months and nineteen years. The fair market value of all
of our investments in debt securities will decline in value if interest rates
increase.
Equity Market Risk
Our objective in managing our exposure to changes in the market value of
our investments is also to balance the risk of the impact of such changes on
earnings and cash flows with our expectations for long-term investment returns.
Our primary exposure to equity price risk relates to our investments in equity
securities, equity derivatives, securities sold but not yet purchased and
investment limited partnerships and similar investment entities. We have
established policies and procedures governing the type and relative magnitude of
investments which we can make. We have a management investment committee whose
duty it is to oversee our continuing compliance with the restrictions embodied
in our policies.
Foreign Currency Risk
Our objective in managing our exposure to foreign currency fluctuations is
also to limit the impact of such fluctuations on earnings and cash flows. Our
primary exposure to foreign currency risk relates to our investments in certain
investment limited partnerships and similar investment entities that hold
foreign securities, including those of entities based in emerging market
countries and other countries which experience volatility in their capital and
lending markets. To a more limited extent, we have foreign currency exposure
when our investment managers buy or sell foreign currencies or financial
instruments denominated in foreign currencies for our account or the accounts of
investment limited partnerships and similar investment entities in which we have
invested. We monitor these exposures and periodically determine our need for use
of strategies intended to lessen or limit our exposure to these fluctuations. We
also have a relatively limited amount of exposure to (1) investments in foreign
subsidiaries and (2) export revenues and related receivables denominated in
foreign currencies which are subject to foreign currency fluctuations. Our
primary foreign subsidiary exposures relate to operations in Canada and, prior
to the Snapple Beverage Sale, related to operations in Canada and Europe. Our
primary export revenue exposures relate to royalties in Canada and, prior to the
Snapple Beverage Sale, related to sales in Canada, the Caribbean and Europe. As
a result of the Snapple Beverage Sale, a portion of such foreign operations and
such export sales are included as a component of "Loss from discontinued
operations" in the accompanying condensed consolidated income statement for the
three-month period ended April 2, 2000. Foreign operations and foreign export
revenues of continuing operations for our most recent full fiscal year ended
December 31, 2000 represented only 4% of our total revenues and an immediate 10%
change in foreign currency exchange rates versus the United States dollar from
their levels at December 31, 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 1, 2001, such investments consisted of the following (in
thousands):
Cash equivalents included in "Cash and cash equivalents"
on the accompanying condensed consolidated balance sheet...$ 296,943
Short-term investments......................................... 318,940
Restricted cash equivalents.................................... 32,773
Non-current investments........................................ 29,594
---------
$ 678,250
=========
Our cash equivalents are short-term, highly liquid investments and consist
principally of United States government agency debt securities with a maturity
of three months or less when acquired and stable value money market funds. Our
short-term investments include $248,294,000 of United States government agency
debt securities with a maturity of six to twelve months when acquired. These
highly liquid investments constitute over 88% of our combined cash equivalents
and short term investments.
Our investments are classified in the following general types or
categories:
Investments at
Investments Fair Value or Carrying
Type at Cost Equity Value Percentage
---- ------- ------ ----- ----------
(In thousands)
Cash equivalents .............................................$ 296,943 $ 296,943 $ 296,943 44%
Restricted cash equivalents................................... 32,773 32,773 32,773 5
Company-owned securities accounted for as:
Trading securities......................................... 14,753 12,788 12,788 2
Available-for-sale securities.............................. 271,671 274,238 274,238 40
Investments in investment limited partnerships and similar
investment entities accounted for at:
Cost.................................................... 52,744 61,321 52,744 8
Equity.................................................. 1,500 1,846 1,846 --
Other non-current investments accounted for at:
Cost.................................................... 5,360 5,360 5,360 1
Equity.................................................. 3,280 1,558 1,558 --
----------- ----------- ----------- -------
Total cash equivalents and long investment positions .........$ 679,024 $ 686,827 $ 678,250 100%
=========== =========== =========== =======
Securities sold with an obligation for us to
purchase accounted for as trading securities................$ (10,166) $ (8,715) $ (8,715) 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 income or loss, net of income taxes, reported as a component of
stockholders' equity or included as a component of net income or loss,
respectively. Investment limited partnerships and similar investment entities
and other non-current investments in which we do not have significant influence
over the investee are accounted for at cost. Realized gains and losses on
investment limited partnerships and similar investment entities and other
non-current investments recorded at cost are reported as investment income or
loss in the period in which the securities are sold. 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. We review
all of our investments 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.
Sensitivity Analysis
For purposes of this disclosure, market risk sensitive instruments are
divided into two categories: instruments entered into for trading purposes and
instruments entered into for purposes other than trading. Our measure of market
risk exposure represents an estimate of the potential change in fair value of
our financial instruments. Market risk exposure is presented for each class of
financial instruments held by us at April 1, 2001 for which an immediate adverse
market movement represents a potential material impact on our financial position
or results of operations. We believe that the rates of adverse market movements
described below represent the hypothetical loss to future earnings and do not
represent the maximum possible loss nor any expected actual loss, even under
adverse conditions, because actual adverse fluctuations would likely differ. In
addition, since our investment portfolio is subject to change based on our
portfolio management strategy as well as in response to changes in market
conditions, these estimates are not necessarily indicative of the actual results
which may occur.
The following tables reflect the estimated effects on the market value of
our financial instruments as of April 1, 2001 based upon assumed immediate
adverse effects as noted below.
Trading Portfolio:
Carrying Equity
Value Price Risk
----- ----------
(In thousands)
Equity securities .............................$ 11,043 $ (1,104)
Debt securities................................ 1,745 (175)
Securities sold but not yet purchased.......... (8,715) 872
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 1, 2001, 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 ...................................$ 296,943 $ (366) $ -- $ --
Restricted cash equivalents......................... 32,773 (81) -- --
Available-for-sale equity securities ............... 18,266 -- (1,827) --
Available-for-sale government debt securities....... 248,294 (1,973) -- --
Available-for-sale debt mutual fund................. 7,503 (218) -- --
Available-for-sale corporate debt securities........ 175 (18) -- --
Other investments .................................. 61,508 (1,667) (3,469) (1,206)
Long-term debt...................................... 304,790 (14,797) -- --
The sensitivity analysis of financial instruments held for purposes other
than trading assumes an instantaneous change in market interest rates of one
percentage point from their levels at April 1, 2001 and an instantaneous 10%
decrease in the equity markets in which we are invested from their levels at
April 1, 2001, both with all other variables held constant. Our cash equivalents
and restricted cash equivalents are short-term in nature with a maturity of
three months or less when acquired and, for purposes of this sensitivity
analysis, have been assumed to have average maturities of 45 days and 90 days,
respectively. Our available-for-sale government debt securities are short-term
in nature with a maturity of six to twelve months when acquired and, for
purposes of this sensitivity analysis, have been assumed to have an average
maturity of 290 days. For purposes of this sensitivity analysis our
available-for-sale debt mutual fund and our available-for-sale corporate debt
securities are assumed to have an average maturity of 2 years and 9 months and
10 years, respectively. The interest rate risk reflects, for each of these
investments, the effect of the assumed decrease of one percentage point in
market interest rates over the average maturity of each of these investments. To
the extent interest rates continue to be one percentage point below their levels
at April 1, 2001 at the time these securities mature and assuming the Company
reinvested in similar securities, the effect of the interest rate risk would
continue beyond the maturities assumed. The interest rate risk presented with
respect to long-term debt represents the potential impact the indicated change
has on the fair value of such debt and on our financial position and not our
results of operations since all of our debt at April 1, 2001 is fixed-rate debt.
The analysis also assumes an instantaneous 10% change in the foreign currency
exchange rates versus the United States dollar from their levels at April 1,
2001, 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 December 31, 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.
Pursuant to a contract entered into in 1999, as of April 1, 2001 we had a
remaining obligation to repurchase an aggregate of 1,999,207 shares of our Class
B common stock on or before August 19, 2001. At April 1, 2001 the aggregate
obligation of $43,843,000 related to this remaining purchase has been reflected
as a separate line item between the liabilities and stockholders' equity
sections in the accompanying condensed consolidated balance sheet with an equal
offsetting decrease to stockholders' equity. Although these purchases were
negotiated at fixed prices, any decrease in the equity market in which our stock
is traded would have a negative impact on the fair value of the recorded
obligation. However, that same decrease would have a corresponding positive
impact on the fair value of the offsetting amount included in stockholders'
equity. 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
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
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 those statements preceded by, followed by, or that include the
words "may," "believes," "expects," "anticipates," or the negation thereof, or
similar expressions, constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements which
address operating performance, events or developments that are expected or
anticipated to occur in the future, including statements relating to 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
current expectations, speak only as of the date of this Form 10- Q and are
susceptible to a number of risks, uncertainties and other factors. Our actual
results, performance and 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:
o Competition, including new product and concept development and pricing
pressures resulting from competitive discounting;
o Success of operating initiatives;
o The ability to attract and retain franchisees;
o Development and operating costs;
o The effectiveness of advertising and promotional efforts;
o Brand awareness;
o The existence or absence of adverse publicity;
o Market acceptance of new product offerings;
o Changing trends in consumer tastes and preferences (including changes
resulting from health or safety concerns with respect to the
consumption of beef) and in spending and demographic patterns;
o The business viability of our key franchisees;
o Availability, location and terms of sites for restaurant development by
franchisees;
o The ability of franchisees to open new restaurants in accordance with
their development commitments, including the ability of franchisees to
finance restaurant development;
o The performance by material suppliers of their obligations under
their supply agreements with franchisees;
o Changes in business strategy or development plans;
o Quality of the Company's and franchisees' management;
o Availability, terms and deployment of capital;
o Business abilities and judgment of the Company's and franchisees'
personnel;
o Availability of qualified personnel to the Company and to franchisees;
o Labor and employee benefit costs;
o Availability and cost of raw materials, ingredients and supplies and
the potential impact on royalty revenues and franchisees' restaurant
level sales that could arise from interruptions in the distribution
of supplies of food and other products to franchisees;
o General economic, business and political conditions in the countries
and territories in which franchisees operate;
o Changes in, or failure to comply with, government regulations,
including franchising laws, accounting standards, environmental laws
and taxation requirements;
o The costs, uncertainties and other effects of legal and administrative
proceedings;
o The impact of general economic conditions on consumer spending;
o Adverse weather conditions; and
o Other risks and uncertainties referred to in Triarc's Annual Report on
Form 10-K and in our other current and periodic filings 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 result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. In
addition, it is 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 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on January 3, 2001, which
included information under Item 9 of such form.
The Registrant filed a report on Form 8-K on March 30, 2001, which included
information under Item 7 of such form.
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 15, 2001 By: /S/ JOHN L. BARNES, JR.
----------------------------
John L. Barnes, Jr.
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
By: /S/ FRED H. SCHAEFER
-------------------------
Fred H. Schaefer
Senior Vice President and
Chief Accounting Officer
(Principal accounting officer)