Back to GetFilings.com
[LOGO]
TRIARC COMPANIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 28, 1997
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________.
COMMISSION FILE NUMBER 1-2207
------------------------
TRIARC COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 38-0471180
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
280 PARK AVENUE
NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 451-3000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------------- ----------------------------
CLASS A COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the outstanding shares of the registrant's
Class A Common Stock (the only class of the registrant's voting securities) held
by non-affiliates of the registrant was approximately $494,750,000 as of March
15, 1998. There were 24,659,744 shares of the registrant's Class A Common Stock
and 5,997,622 shares of the registrant's Class B Common Stock outstanding as of
March 15, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this 10-K incorporates information by reference from an
amendment hereto or to the registrant's definitive proxy statement, in either
case which will be filed no later than 120 days after December 28, 1997.
________________________________________________________________________________
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Certain statements in this Annual Report on Form 10-K (this "Form 10-K"),
including statements under "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations," that
are not historical facts, including most importantly, 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 (the "Reform Act"). Such forward-looking
statements involve risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Triarc Companies, Inc. ("Triarc"
or the "Company") and its subsidiaries to be materially different from any
future results, performance or achievements express or implied by such
forward-looking statements. Such factors include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; development and operating costs; advertising and
promotional efforts; brand awareness; the existence or absence of adverse
publicity; market acceptance of new product offerings; new product and concept
development by competitors; changing trends in customer tastes; the success of
multi-branding; availability, location and terms of sites for restaurant
development; 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 and supplies;
changes in, or failure to comply with, government regulations; regional weather
conditions; changes in wholesale propane prices; the costs and other effects of
legal and administrative proceedings; pricing pressures from competitive
discounting; general economic, business and political conditions in countries
and territories where the Company operates; the impact of such conditions on
consumer spending; and other risks and uncertainties referred in this Form 10-K,
National Propane Partners, L.P.'s registration statement on Form S-1 and other
current and periodic filings by Triarc, RC/Arby's Corporation and National
Propane Partners, L.P. with the Securities and Exchange Commission. Triarc will
not undertake and specifically declines any obligation to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events. In addition, it is
Triarc's policy generally not to make any specific projections as to future
earnings, and Triarc does not endorse any projections regarding future
performance that may be made by third parties.
ITEM 1. BUSINESS.
INTRODUCTION
Triarc is predominantly a holding company which, through its subsidiaries,
is a consumer products company engaged in beverage and restaurant operations.
Triarc's beverage operations are conducted through the Triarc Beverage Group
("TBG"), which consists of Snapple Beverage Corp. ("Snapple"), which was
acquired by Triarc on May 22, 1997, Mistic Brands, Inc. ("Mistic"), Cable Car
Beverage Corporation ("Cable Car"), which was acquired by Triarc on November 25,
1997, and Royal Crown Company, Inc. ("Royal Crown"). The restaurant operations
are conducted through Arby's, Inc. (d/b/a Triarc Restaurant Group) ("TRG"). In
addition, Triarc has an equity interest in the liquefied petroleum gas business
through National Propane Corporation ("National Propane"), the managing general
partner of National Propane Partners, L.P. (the "Partnership") and its operating
subsidiary partnership, National Propane, L.P. (the "Operating Partnership").
Prior to December 23, 1997, Triarc also was engaged in the dyes and specialty
chemical business through C.H. Patrick & Co., Inc. ("C.H. Patrick"). On such
date, C.H. Patrick was sold. See "Item 1 -- Business -- Recent Dispositions."
For information regarding the revenues, operating profit and identifiable assets
for Triarc's businesses for the fiscal year ended December 28, 1997, see "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 23 to the Consolidated Financial Statements of Triarc
Companies, Inc. and Subsidiaries (the "Consolidated Financial Statements").
Triarc's corporate predecessor was incorporated in Ohio in 1929. Triarc
was reincorporated in Delaware, by means of a merger, in June 1994. Triarc's
principal executive offices are located at 280 Park Avenue, New York, New York
10017 and its telephone number is (212) 451-3000.
BUSINESS STRATEGY
The key elements of Triarc's business strategy include (i) focusing Triarc's
resources on its consumer products businesses -- beverages and restaurants, (ii)
building strong operating management teams for each of the businesses and (iii)
providing strategic leadership and financial resources to enable the management
teams to develop and implement specific, growth-oriented business plans.
The senior operating officers of Triarc's businesses have implemented
individual plans focused on increasing revenues and improving operating
efficiency. In addition, Triarc continuously evaluates and holds discussions
with third parties regarding various acquisitions and business combinations to
augment its businesses. The implementation of this business strategy may result
in increases in expenditures for, among other things, acquisitions and, over
time, marketing and advertising. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations." It is Triarc's
policy to publicly announce an acquisition only after an agreement with respect
to such acquisition has been reached.
RECENT ACQUISITIONS
Acquisition of Snapple Beverage Corp.
On May 22, 1997, Triarc acquired Snapple from The Quaker Oats Company
("Quaker") for approximately $300 million. Snapple, which markets ready-to-drink
teas, juice drinks and juices, is a market leader in the premium beverage
category. Snapple, together with Mistic, Royal Crown and Cable Car, operates as
part of TBG. In connection with the acquisition, Snapple and Mistic entered into
a bank financing, the proceeds of which were used to finance the Snapple
acquisition, to refinance existing indebtedness of Mistic and to pay certain
fees and expenses associated with the acquisition. See "Item 1.
Business -- Business Segments -- Beverages."
Stewart's Acquisition
On November 25, 1997, Triarc acquired Cable Car (the "Stewart's
Acquisition"), through a merger, for an aggregate of 1,566,858 shares of
Triarc's Class A Common Stock. Accordingly, following the merger, Cable Car
became a wholly-owned subsidiary of Triarc. Cable Car markets premium carbonated
soft drinks in the United States and Canada, primarily under the Stewart's(R)
brand ("Stewart's"). See "Item 1. Business -- Business Segments -- Beverages."
RECENT DISPOSITIONS
Sale of Company-Owned Restaurants
On May 5, 1997, subsidiaries of Triarc sold to an affiliate of RTM, Inc.
("RTM"), the largest franchisee in the Arby's system, all of the stock of two
corporations owning all of Triarc's 355 company-owned Arby's restaurants. The
purchase price was approximately $73 million (including approximately $2 million
of post-closing adjustments), consisting primarily of the assumption of
approximately $69 million in mortgage indebtedness and capitalized lease
obligations. In connection with the transaction, the Company received options to
purchase up to an aggregate of 20% of the common stock of the two corporations
owning such restaurants. RTM and certain affiliated entities have agreed to
indemnify and hold the Company harmless from, among other things, the assumed
debt and lease obligations. In addition, the two corporations that were sold
agreed to build an aggregate of 190 Arby's restaurants over 14 years pursuant to
a development agreement (in addition to a previous agreement by affiliates of
RTM to build 210 Arby's restaurants over a ten and one-half year period).
Sale of C.H. Patrick
On December 23, 1997, Triarc sold all of the outstanding capital stock of
C.H. Patrick (the "C.H. Patrick Sale"), its dyes and specialty chemicals
subsidiary, to The B.F. Goodrich Company for $72 million in cash resulting in
net proceeds of approximately $64.4 million, net of post-closing adjustments and
expenses. Triarc used approximately $32 million of the proceeds from the C.H.
Patrick Sale to repay certain borrowings of C.H. Patrick. With the sale of C.H.
Patrick, Triarc completed the sale of all of its wholly-owned non- consumer
businesses.
Sale of C&C Beverage Line
On July 18, 1997, Royal Crown and TriBev Corporation, subsidiaries of
Triarc, completed the sale of their rights to the C&C beverage line, including
the C&C trademark. In connection with the sale, Royal Crown also agreed to sell
concentrate for C&C products and to provide certain technical services to the
buyer for seven years. In consideration for the foregoing, Royal Crown and
TriBev Corporation will receive aggregate payments of approximately $9.4
million, payable over seven years.
ISSUANCE OF ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES
On February 9, 1998 Triarc sold $360 million principal amount at maturity of
its Zero Coupon Convertible Subordinated Debentures due 2018 (the "Debentures")
to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), as the initial
purchaser for an offering to "qualified institutional buyers" (as defined under
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"))
in compliance with Rule 144A. The Debentures were issued at a discount of
72.177% from the principal amount thereof payable at maturity. The issue price
represents a yield to maturity of 6.5% per annum (computed on a semi-annual bond
equivalent basis). The net proceeds from the sale of the Debentures, after
deducting placement fees of approximately $3.0 million, were approximately $97.2
million. The Debentures are convertible into shares of Triarc's Class A Common
Stock at a conversion rate of 9.465 shares per $1,000 principal amount at
maturity, which represents an initial conversion price of approximately $29.40
per share of Common Stock. The conversion price will increase over the life of
the Debentures at 6.5% per annum computed on a semi-annual bond equivalent
basis. The conversion of all of the Debentures into Triarc's Class A Common
Stock would result in the issuance of approximately 3.4 million shares of Class
A Common Stock. The Debentures are not redeemable by Triarc prior to February 9,
2003, but may be redeemed by Triarc at any time thereafter.
In connection with the sale of the Debentures, Triarc purchased from Morgan
Stanley 1,000,000 shares of Triarc's Class A Common Stock for approximately
$25.6 million. The balance of the net proceeds from the sale of Debentures will
be used by Triarc for general corporate purposes, which may include working
capital, repayment or refinancing of indebtedness, acquisitions and investments.
Neither the Debentures nor the Class A Common Stock issuable upon conversion
were initially registered under the Securities Act, and may not be offered or
sold within the United States, unless so registered, except pursuant to an
exemption from the Securities Act, or in a transaction not subject to the
registration requirements of the Securities Act. This Form 10-K shall not
constitute an offer to sell or a solicitation of an offer to buy the Debentures
or the Class A Common Stock.
CANCELLATION OF SPINOFF TRANSACTIONS
On October 29, 1996, Triarc announced that its Board of Directors approved a
plan to offer up to approximately 20% of the shares of its beverage and
restaurant businesses to the public through an initial public offering and to
spinoff the remainder of the shares of such businesses to Triarc's stockholders
(collectively, the "Spinoff Transactions"). In May 1997 Triarc announced it
would not proceed with the Spinoff Transactions as a result of the acquisition
of Snapple and other issues.
DECONSOLIDATION OF NATIONAL PROPANE MASTER LIMITED PARTNERSHIP
Upon completion of an initial public offering in July 1996 (the "Propane
IPO") and a subsequent private placement in November 1996, Triarc, through its
subsidiary National Propane, held an approximately 42.7% interest (on a combined
basis) in the Operating Partnership, and the public held the remaining interest.
National Propane and its subsidiary, National Propane SGP, Inc. ("SGP"),
contributed substantially all of their assets to the Operating Partnership as a
capital contribution and the Operating Partnership assumed substantially all of
the liabilities of National Propane and SGP (other than certain income tax
liabilities).
National Propane, as managing general partner, adopted certain amendments
to the partnership agreements of the Partnership and the Operating Partnership,
effective December 28, 1997. As a result, Triarc's 42.7% interest in the
Partnership as of the close of business on such date is accounted for utilizing
the equity method. The financial position, cash flows and results of operations
of the Partnership were included in Triarc's consolidated financial statements
for all prior periods. See "Item 1. Business -- Business Segments -- Liquefied
Petroleum Gas (National Propane)" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
CHANGE IN FISCAL YEAR
Effective January 1, 1997, Triarc adopted a 52/53 week fiscal convention for
itself and each subsidiary (other than National Propane) whereby its fiscal year
will end each year on the Sunday that is closest to December 31 of such year.
Each fiscal year generally will be comprised of four 13 week fiscal quarters,
although in some years the fourth quarter will represent a 14 week period.
BUSINESS SEGMENTS
BEVERAGES
TRIARC BEVERAGE GROUP
TBG oversees Triarc's premium beverage operations, conducted by Snapple,
Mistic, and Cable Car, and its carbonated soft drink operations, conducted by
Royal Crown. TBG is headquartered in White Plains, New York.
PREMIUM BEVERAGES (SNAPPLE, MISTIC AND STEWART'S)
Snapple, acquired in May 1997, develops, produces and markets ready-to-drink
teas, juice drinks and juices and is a market leader in the premium beverage
category. Since acquiring Snapple, the Company has introduced several new
products, including Orange Tropic--Wendy's Tropical Inspiration(TM), three
herbal or green teas and Snapple Farms(TM), a line of 100% fruit juices which is
available in five flavors. In addition, Snapple has recently announced the
Spring 1998 introduction of WhipperSnapple(TM), a smoothie like beverage in
six flavors which is a proprietary blend of fruit juices and purees, dairy and
other natural ingredients packaged in a swirl shaped 10 oz. bottle.
Mistic's premium beverage business, acquired in August 1995, develops,
produces and markets a wide variety of premium beverages, including fruit
drinks, ready-to-drink teas, juices and sweetened seltzers under the Mistic(R),
Royal Mistic(R), Mistic Rain Forest(TM) and Mistic Fruit Blast(TM) brand names.
Since 1995, Mistic has introduced 34 new flavors, a line of 100% fruit juices,
various new bottle sizes and shapes and numerous new package designs. In
addition, Mistic's product offerings are being further enhanced with the March
1998 introduction of Mistic Potions(TM) beverages. These beverages contain
herbal additives, such as ginseng, ginko bilboa and echinachea.
The Stewart's premium beverage business, acquired in November 1997, sells
Stewart's(R) brand premium soft drinks (Root Beer, Orange N' Cream, Cream Ale,
Ginger Beer, Classic Key Lime, Lemon Meringue and Cherries N' Cream) to beverage
distributors throughout the United States and Canada. Stewart's has also
announced the April 1998 introduction of "Creamy Style Draft Cola", an old-
fashioned soda fountain style cola. Cable Car holds the exclusive worldwide
license to manufacture, distribute and sell Stewart's brand beverages. Cable
Car sells both concentrate to regional soft drink bottlers and finished goods
to distributors.
BUSINESS STRATEGY
TBG's management has developed and is implementing business strategies for
its premium beverage business that focus on: (i) capitalizing on the strength of
its well known brand names in its marketing and advertising efforts to increase
brand awareness and loyalty; (ii) developing new products; (iii) developing
innovative new packaging concepts, including labels and bottle shapes; (iv)
employing innovative advertising and promotions; (v) developing strong long-term
relationships with distributors; (vi) expanding and diversifying product
offerings through acquisitions; (vii) expanding distribution in existing and new
geographic markets and channels of trade; and (viii) enhancing promotional and
equipment programs.
PRODUCTS
TBG's premium beverage products compete in a number of product categories,
including fruit flavored beverages, iced teas, lemonades, carbonated sodas, 100%
fruit juices, nectars and flavored seltzers. These products are generally
available in some combination of 32 oz., 16 oz. or 12 oz. glass bottles, 32 oz.,
and 20 oz. PET (plastic) bottles and 12 oz. and 11.5 oz. cans.
CO-PACKING ARRANGEMENTS
TBG's premium beverage products are produced by co-packers or bottlers under
formulation requirements and quality control procedures specified by TBG. TBG
selects and monitors the producers to ensure adherence to TBG's production
procedures. TBG regularly analyzes samples from production runs and conducts
spot checks of production facilities. TBG and Triarc also purchase most
packaging and raw materials and arrange for their shipment to TBG's co-packers
and bottlers. TBG's three largest co-packers accounted for approximately 50% of
TBG's aggregate case production of premium beverages during 1997.
TBG's contractual arrangements with its co-packers for its premium beverage
products are typically for a fixed term and are renewable at TBG's option.
During the term of the agreement, the co-packer generally commits a certain
amount of its monthly production capacity to TBG. Under substantially all of its
contracts Snapple has committed to order certain guaranteed volumes. Should the
volume actually ordered be less than the guaranteed volume, Snapple is required
to pay the co-packer the product of (i) an amount per case specified in the
agreement and (ii) the difference between the volume actually ordered and the
guaranteed volume. At December 28, 1997, Snapple had reserves of approximately
$22 million for payments through 2000 under its long-term production contracts
with co-packers. Mistic has committed to order a certain guaranteed volume (in
two instances) or percentage of its products sold in a region (in another
instance) or to make payments in lieu thereof. There are no agreements
containing minimum purchase requirements for Cable Car. As a result of its
co-packing arrangements, TBG's operations have not required significant capital
expenditures or investments for bottling facilities or equipment, and
accordingly its production related fixed costs have been minimal.
TBG's management believes it has sufficient production capacity to meet its
1998 requirements and that, in general, the industry has excess production
capacity that it can utilize if required.
RAW MATERIALS
Most raw materials used in the preparation and packaging of TBG's premium
beverage products are purchased by TBG and Triarc and supplied to TBG's
co-packers. Adequate sources of such raw materials are available to TBG and
Triarc from multiple suppliers, however, TBG and Triarc have chosen, for quality
control and other purposes, to purchase certain raw materials (such as
aspartame) on an exclusive basis from single suppliers. TBG and Triarc purchase
all of TBG's flavor requirements from nine suppliers, although one supplier has
been designated as TBG's preferred supplier of flavors, and all of TBG's glass
bottles are purchased from three suppliers, although one supplier has the right
to supply up to 75% of TBG's requirements for certain specified packages. In
connection with the acquisition of Snapple, Quaker agreed to supply certain of
Snapple's requirements for 20 oz. PET bottles. Since the acquisition of Snapple,
TBG has been negotiating and continues to negotiate, new supply and pricing
arrangements with its suppliers. TBG and Triarc believe that, if required,
alternate sources of raw materials, flavors and glass bottles are available to
them.
DISTRIBUTION
TBG's premium beverages are currently sold through a network of
distributors that include specialty beverage, carbonated soft drink and licensed
beer/wine/spirits distributors. In addition, Snapple uses brokers for
distribution of some Snapple products in Florida and Georgia. International
distribution is primarily through one distributor in each country, other than in
Canada, where Perrier Group of Canada Ltd. is Snapple's master distributor and
where brokers and direct account selling are also used. Distributors are
typically granted exclusive rights to sell Snapple, Mistic and/or Stewart's
products within a defined territory. TBG has written agreements with
distributors who represent approximately 80% of TBG's volume. The agreements are
typically either for a fixed term renewable upon mutual consent or perpetual,
and are terminable by TBG for cause, upon certain defaults or failure to perform
under the agreement. The distributor, though, may generally terminate its
agreement upon specified prior notice. Snapple also owns two of its largest
distributors, Mr. Natural Inc. (New York) and Pacific Snapple Distributors, Inc.
(California).
Case sales to TBG's largest distributor (excluding Snapple-owned
distributors), represented approximately 4% of case sales in each of 1996 and
1997. TBG believes that, if required, there would be adequate alternative
distributors available if TBG's relationship with such distributor were to be
terminated.
Although TBG's products are sold primarily to convenience stores, small
retailers and delicatessens as a "single-serve, cold box" item, TBG has expanded
the distribution of its premium beverage products to include supermarkets and
other channels of distribution, such as mass merchandisers, national drug chains
and warehouse clubs.
International sales accounted for less than 10% of TBG's premium beverage
sales in each of 1995, 1996 and 1997. Since the acquisition of Snapple, Royal
Crown's international group has assumed responsibility for the sales and
marketing of TBG's premium beverages outside North America.
SALES AND MARKETING
Snapple, Mistic and Cable Car employ their own sales and marketing staffs
although there is some overlap of the Snapple and Mistic sales forces in certain
geographic areas where distributors sell both brands. The sales forces are
responsible for overseeing sales to distributors, monitoring retail account
performance and providing sales direction and trade spending support. Trade
spending includes price promotions, slotting fees and local consumer promotions.
The sales force handles most accounts on a regional basis with the exception of
large national accounts, which are handled by a national accounts group.
Snapple's and Mistic's sales forces are organized by geographic zones under the
direction of Zone Sales Vice Presidents, Division Managers, Regional Sales
Managers and Trade Development Managers. Cable Car's sales force is organized
into two divisions and is managed by Division Vice Presidents, Regional Sales
Managers and District Sales Managers. TBG's sales and marketing staff (excluding
that of Snapple-owned distributors) was approximately 260 as of December 28,
1997.
TBG intends to maintain consistent advertising campaigns for its brands as
an integral part of its strategy to stimulate consumer demand and increase brand
loyalty. In 1998, TBG plans to employ a combination of network advertising
complemented with local spot advertising in its larger markets; in most markets,
television is expected to be the primary advertising medium and radio the
secondary medium. TBG also employs outdoor, newspaper and other print media
advertising, as well as in-store point of sale promotions.
CARBONATED SOFT DRINKS (ROYAL CROWN)
Royal Crown produces and sells concentrates used in the production of soft
drinks which are sold domestically and internationally to independent, licensed
bottlers who manufacture and distribute finished beverage products. Royal
Crown's major products have significant recognition and include: RC Cola(R),
Diet RC Cola(R), Diet Rite Cola(R), Diet Rite(R) flavors, Nehi(R), Upper 10(R),
and Kick(R). Further, Royal Crown is the exclusive supplier of cola concentrate
and a primary supplier of flavor concentrates to Cott Corporation ("Cott") which
sells private label soft drinks to major retailers in the United States, Canada,
the United Kingdom, Australia, Japan, Spain and South Africa.
RC Cola is the third largest national brand cola and is the only national
brand cola available to bottlers who do not bottle either Coca-Cola or
Pepsi-Cola. Diet Rite is available in a cola as well as various other flavors
and is the only national brand that is sugar-free (sweetened with 100%
aspartame, a non-nutritive sweetener), sodium-free and caffeine-free. Diet RC
Cola is the no-calorie version of RC Cola containing aspartame as its sweetening
agent. Nehi is a line of approximately 20 flavored soft drinks, Upper 10 is a
lemon-lime soft drink and Kick is a citrus soft drink. Royal Crown's share of
the overall domestic carbonated soft drink market was approximately 1.9% in 1997
according to Beverage Digest/Maxwell estimates. Royal Crown's soft drink brands
have approximately a 1.7% share of national supermarket volume, as measured by
data of Information Resources, Inc. ("IRI").
BUSINESS STRATEGY
TBG's management is pursuing business strategies designed to strengthen
Royal Crown's distribution system, make more effective use of its marketing
resources, continue the expansion of its international and private label
businesses, develop new packages and concentrate resources on its core brands.
As a result, in January 1997 Triarc sold its interest in Saratoga Beverage
Group, Inc. ("Saratoga") and Royal Crown terminated its relationship with
Saratoga. In addition, in July 1997 Royal Crown completed the sale of its rights
to the C&C beverage line, including the C&C trademark. Royal Crown's license
relationship with Celestial Seasonings Inc. for ready to drink iced teas
terminated as of December 31, 1997.
ADVERTISING AND MARKETING
A principal determinant of success in the soft drink industry is the ability
to establish a recognized brand name, the lack of which serves as a significant
barrier to entry to the industry. Advertising, promotions and marketing
expenditures in 1995, 1996 and 1997 were approximately $73.7 million, $61.7
million and $56.1 million, respectively. Royal Crown believes that its products
continue to enjoy nationwide brand recognition.
ROYAL CROWN'S BOTTLER NETWORK
Royal Crown sells its flavoring concentrates for branded products to
independent licensed bottlers in the United States and 61 foreign countries,
including Canada. Consistent with industry practice, each bottler is assigned an
exclusive territory for bottled and canned products within which no other
bottler may distribute Royal Crown branded soft drinks. As of December 28, 1997,
Royal Crown products were packaged and/or distributed domestically in 152
licensed territories, by 172 licensees, covering 50 states. There were a total
of 45 production centers operating pursuant to 48 production and distribution
agreements and 126 distribution only agreements.
Royal Crown enters into a license agreement with each of its bottlers which
it believes is comparable to those prevailing in the industry. The duration of
the license agreements varies, but Royal Crown may terminate any such agreement
in the event of a material breach of the terms thereof by the bottler that is
not cured within a specified period of time.
Royal Crown's ten largest bottler groups accounted for approximately 68%
and 74% of Royal Crown's domestic unit sales of concentrate for branded products
during 1996 and 1997, respectively. The two largest bottler groups, the RC
Chicago Bottling Group and Beverage America, accounted for approximately 22% and
9%, respectively, of Royal Crown's domestic unit sales of concentrate for
branded products during 1996 and 27% and 9%, respectively, during 1997. Royal
Crown believes that, if required, there would be adequate alternative bottlers
available if Royal Crown's relationships with the RC Chicago Bottling Group and
Beverage America were terminated.
PRIVATE LABEL
Royal Crown believes that private label sales through Cott, a leading
supplier of private label soft drinks, represent an opportunity to benefit from
sales by retailers of store brands. Royal Crown's private label sales began in
late 1990. Unit sales of concentrate to Cott in 1997 increased by 4.6% over
sales in 1996. In 1995, 1996 and 1997, revenues from sales to Cott represented
approximately 12.1%, 12.6% and 15.8%, respectively, of Royal Crown's total
revenues.
Royal Crown provides concentrate to Cott pursuant to a concentrate supply
agreement entered into in 1994 (the "Cott Worldwide Agreement"). Under the Cott
Worldwide Agreement, Royal Crown is Cott's exclusive worldwide supplier of cola
concentrates for retailer-branded beverages in various containers. In addition,
Royal Crown also supplies Cott with non-cola carbonated soft drink concentrates.
The Cott Worldwide Agreement requires that Cott purchase at least 75% of its
total worldwide requirements for carbonated soft drink concentrates from Royal
Crown. The initial term of the Cott Worldwide Agreement is 21 years, with
multiple six-year extensions.
The Cott Worldwide Agreement provides that, as long as Cott purchases a
specified minimum number of units of private label concentrate in each year of
the Cott Worldwide Agreement, Royal Crown will not manufacture and sell private
label carbonated soft drink concentrates to parties other than Cott anywhere in
the world.
Through its private label program, Royal Crown develops new concentrates
specifically for Cott's private label accounts. The proprietary formulae Royal
Crown uses for its private label program are customer specific and differ from
those of Royal Crown's branded products. Royal Crown works with Cott to develop
flavors according to each trade customer's specifications. Royal Crown retains
ownership of the formulae for such concentrates developed after the date of the
Cott Worldwide Agreement, except upon termination of the Cott Worldwide
Agreement as a result of breach or non-renewal by Royal Crown.
PRODUCT DISTRIBUTION
Bottlers distribute finished soft drink products through four major
distribution channels: take home (consisting of supermarkets, drug stores, mass
merchandisers, warehouses and discount stores); convenience (consisting of
convenience stores and retail gas station mini-markets); fountain/food service
(consisting of fountain syrup sales and restaurant single drink sales); and
vending (consisting of bottle and can sales through vending machines). The take
home channel is the principal channel of distribution for Royal Crown products.
According to IRI data, the volume of Royal Crown products in supermarkets and
drug stores in 1997 declined approximately 14.6% and 19.9%, respectively, as
compared to 1996, while the volume of Royal Crown products in mass merchandisers
increased approximately 28.2% in 1997. Royal Crown brands historically have not
been broadly distributed through vending machines or convenience outlets; in
1997, the volume of Royal Crown products in the convenience channel was
relatively unchanged, down approximately 0.2% as compared to 1996.
INTERNATIONAL
Sales outside the United States accounted for approximately 9.6%, 10.3% and
11.5% of Royal Crown's sales in 1995, 1996, and 1997, respectively. Sales
outside the United States of branded concentrates accounted for approximately
10.2%, 12.3% and 13.9% of branded concentrate sales in 1995, 1996 and 1997,
respectively. As of December 28, 1997, 92 bottlers and 13 distributors sold
Royal Crown branded products outside the United States in 64 countries, with
international sales in 1997 distributed among Canada (8.1%), Latin America and
Mexico (32.1%), Europe (22.4%), the Middle East/Africa (18.6%) and the Far East
(18.8%). While the financial and managerial resources of Royal Crown have been
focused on the United States, TBG's management believes significant
opportunities exist for Royal Crown in international markets. New bottlers were
added in 1997 to the following international markets: Russia, Ukraine, Croatia,
Latvia, Brazil and Bangladesh.
PRODUCT DEVELOPMENT AND RAW MATERIALS
Royal Crown believes that it has a reputation as an industry leader in
product innovation. Royal Crown introduced the first national brand diet cola in
1961. The Diet Rite flavors line was introduced in 1988 to complement the cola
line and to target the non-cola segment of the market, which has been growing
faster than the cola segment due to a consumer trend toward lighter beverages.
In 1997, Royal Crown introduced a new version of Diet Rite Cola.
From time to time, Royal Crown purchases as much as a year's supply of
certain raw materials to protect itself against supply shortages, price
increases and/or political instabilities in the countries from which such raw
materials are sourced. Flavoring ingredients and sweeteners are generally
available on the open market from several sources. As noted above, TBG and
Triarc have agreed to purchase certain raw materials on an exclusive or
preferred basis from single suppliers.
RESTAURANTS (TRIARC RESTAURANT GROUP)
SALE OF COMPANY-OWNED RESTAURANTS
On May 5, 1997, subsidiaries of Triarc sold (the "Restaurant Sale") their
355 company-owned Arby's restaurants to an affiliate of RTM, the largest
franchisee in the Arby's system. See "Item 1. -- Business -- Recent
Dispositions." Focused solely as a franchisor, TRG has reduced from recent
historical levels the operating costs of the restaurant segment and
substantially eliminated capital expenditure requirements, thereby improving its
cash flows. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." TRG's role in the Arby's(R) system as the
franchisor is to enhance the strength of the Arby's brand by increasing the
number of restaurants in the Arby's system and by establishing a "cut above"
positioning for the Arby's brand through upgraded menu items and facilities,
while continuing to bring new concepts to the system, such as T.J. Cinnamons(R)
and p.t. Noodles(R).
GENERAL
Arby's is the world's largest franchise restaurant system specializing in
slow-roasted meat sandwiches with an estimated market share in 1997 of
approximately 73% of the roast beef sandwich segment of the quick service
sandwich restaurant category. In addition, Triarc believes that Arby's is the
10th largest quick service restaurant chain in the United States, based on
domestic system-wide sales. As of December 28, 1997, the Arby's restaurant
system consisted of 3,091 franchised restaurants, of which 2,913 operated within
the United States and 178 operated outside the United States. System-wide sales
were approximately $1.9 billion in 1995, approximately $2.0 billion in 1996 and
approximately $2.1 billion in 1997.
In addition to its various slow-roasted meat sandwiches, Arby's restaurants
also offer a selected menu of chicken, submarine sandwiches, side-dishes and
salads. A breakfast menu is also available at some Arby's restaurants. In
addition, Arby's currently multi-brands with T.J. Cinnamons products, primarily
gourmet cinnamon rolls, premium coffees and related products, and p.t. Noodle's
products, which are pasta dishes based on serving corkscrew or fettucine pasta
with a variety of different sauces. TRG intends to expand its multi-branding
efforts which will add other brands' items to Arby's menu items at such multi-
branded restaurants. See " -- Multi-Branding" below.
As a result of the sale of the company-owned restaurants to RTM, TRG's
revenues are derived from two principal sources: (i) royalties from franchisees
and (ii) franchise fees. Prior to the Restaurant Sale, TRG's revenues were
principally derived from sales at company-owned restaurants. During 1995, 1996,
and 1997 approximately 80%, 80% and 53%, respectively, of TRG's revenues were
derived from sales at company-owned restaurants and approximately 20%, 20% and
47%, respectively, were derived from royalties and franchise fees.
INDUSTRY
According to data compiled by the National Restaurant Association, total
domestic restaurant industry sales were estimated to be approximately $207
billion in 1996, of which approximately $98 billion were estimated to be in the
Quick Service Restaurant ("QSR") or fast food segment. Large chains are
continuing to gain a greater share of industry sales. According to Technomic,
Inc., the 100 largest restaurant chains accounted for approximately 48.4% of
restaurant industry sales in 1995, up from approximately 39.7% in 1980. The QSR
segment accounts for approximately 70% of sales and 83% of restaurant units
within the top 100 restaurant chains, according to a study by Franchise Finance
Corporation of America.
ARBY'S RESTAURANTS
The first Arby's restaurant opened in Youngstown, Ohio in 1964. As of
December 28, 1997, Arby's restaurants were being operated in 48 states and 10
foreign countries. At December 28, 1997, the six leading states by number of
operating units were: Ohio, with 234 restaurants; Texas, with 181 restaurants;
California, with 161 restaurants; Michigan, with 154 restaurants; and Georgia
and Indiana, with 152 restaurants each. The country outside the United States
with the most operating units is Canada, with 119 restaurants.
Arby's restaurants in the United States and Canada typically range in size
from 700 square feet to 4,000 square feet. Restaurants in other countries
typically are larger than U.S. and Canadian restaurants. Restaurants typically
have a manager, assistant manager and as many as 30 full and part-time
employees. Staffing levels, which vary during the day, tend to be heaviest
during the lunch hours.
The following table sets forth the number of company-owned and franchised
Arby's restaurants at December 31, 1995 and 1996 and at December 28, 1997.
DECEMBER 31, DECEMBER 28,
-------------- ------------
1995 1996 1997
----- ----- -----
Company-owned restaurants........................ 373 355 0
Franchised restaurants.................... ......2,577 2,667 3,091
----- ----- -----
Total restaurants................... 2,950 3,022 3,091
===== ===== =====
FRANCHISE NETWORK
At December 28, 1997, there were 574 Arby's franchisees operating 3,091
separate locations. The initial term of the typical "traditional" franchise
agreement is 20 years. As of December 28, 1997, TRG did not offer any financing
arrangements to its franchisees, except that in certain development agreements
TRG has made available extended payment terms.
As of December 28, 1997, TRG had received prepaid commitments for the
opening of up to 592 new domestic franchised restaurants over the next ten
years. TRG also expects that 15 new franchised restaurants outside of the United
States will open in 1998. TRG also has territorial agreements with international
franchisees in four countries at December 28, 1997. Under the terms of these
territorial agreements, many of the international franchisees have the exclusive
right to open Arby's restaurants in specific regions or countries. TRG's
management expects that future international franchise agreements will more
narrowly limit the geographic exclusivity of the franchisees and prohibit
sub-franchise arrangements.
TRG offers franchises for the development of both single and multiple
"traditional" restaurant locations. All franchisees are required to execute
standard franchise agreements. TRG's standard U.S. franchise agreement currently
requires an initial $37,500 franchise fee for the first franchised unit and
$25,000 for each subsequent unit and a monthly royalty payment equal to 4.0% of
restaurant sales for the term of the franchise agreement. As a result of lower
royalty rates still in effect under earlier agreements, the average royalty rate
paid by franchisees during 1997 was 3.2%. Franchisees typically pay a $10,000
commitment fee, credited against the franchise fee referred to above, during the
development process for a new traditional restaurant.
Franchised restaurants are required to be operated in accordance with
uniform operating standards and specifications relating to the selection,
quality and preparation of menu items, signage, decor, equipment, uniforms,
suppliers, maintenance and cleanliness of premises and customer service. TRG
continuously monitors franchisee operations and inspects restaurants
periodically to ensure that company practices and procedures are being followed.
MULTI-BRANDING
TRG has developed a multi-branding strategy, which allows a single
restaurant to offer the consumer distinct, but complementary, brands at the same
restaurant. Collaborating to offer a broader menu is intended to increase sales
per square foot of facility space, a key measure of return on investment in
retail operations. Because lunchtime customers account for the majority of sales
at Arby's restaurants, TRG seeks multi-branding concepts that it expects will
attract higher breakfast or dinner traffic. TRG currently has two multi-brand
concepts: T.J. Cinnamons and p.t. Noodles. T.J. Cinnamons offers gourmet
cinnamon rolls, premium coffees and related products. p.t. Noodles offers a
variety of Italian and American dishes based on serving corkscrew or fettucine
pasta with a variety of different sauces. As of December 28, 1997, 127 Arby's
restaurants were multi-brand locations, including 119 that offered T.J.
Cinnamons' products and eight that offered p.t. Noodles' products.
ADVERTISING AND MARKETING
TRG advertises primarily through regional television, radio and
newspapers. Payment for advertising time and space is made by local advertising
cooperatives in which owners of local franchised restaurants participate.
Franchisees contribute 0.7% of gross sales to the Arby's Franchise Association
("AFA"), which produces advertising and promotion materials for the system. Each
franchisee is also required to spend a reasonable amount, but not less than 3%
of its monthly gross sales, for local advertising. This amount is divided
between the franchisee's individual local market advertising expense and the
expenses of a cooperative area advertising program with other franchisees who
are operating Arby's restaurants in that area. Contributions to the cooperative
area advertising program are determined by the participants in the program
and are generally in the range of 3% to 5% of monthly gross sales. As a
result of the Restaurant Sale in May 1997, TRG's expenditures for
advertising and marketing in support of what were then company-owned
restaurants, were approximately $9.0 million in 1997, as compared to
approximately $25.8 million and $22.7 million in 1996 and 1995, respectively.
QUALITY ASSURANCE
TRG has developed a quality assurance program designed to maintain
standards and uniformity of the menu selections at each of its franchised
restaurants. A full-time quality assurance employee is assigned to each of the
five independent processing facilities that process roast beef for Arby's
domestic restaurants. The quality assurance employee inspects the roast beef for
quality and uniformity. In addition, a laboratory at TRG's headquarters tests
samples of roast beef periodically from franchisees. Each year, representatives
of TRG conduct unannounced inspections of operations of a number of franchisees
to ensure that Arby's policies, practices and procedures are being followed.
TRG's field representatives also provide a variety of on-site consultative
services to franchisees.
PROVISIONS AND SUPPLIES
Arby's roast beef is provided by five independent meat processors.
Franchise operators are required to obtain roast beef from one of the five
approved suppliers. ARCOP, Inc. ("ARCOP"), a non-profit purchasing cooperative,
negotiates contracts with approved suppliers on behalf of Arby's franchisees,
and has entered into "cost-plus" contracts with these suppliers. TRG believes
that satisfactory arrangements could be made to replace any of the current roast
beef suppliers, if necessary, on a timely basis.
Franchisees may obtain other products, including food, beverage,
ingredients, paper goods, equipment and signs, from any source that meets TRG's
specifications and approval, which products are available from numerous
suppliers. Food, proprietary paper and operating supplies are also made
available, through national contracts employing volume purchasing, to Arby's
franchisees through ARCOP.
LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE)
National Propane, as managing general partner of the Partnership and the
Operating Partnership, is engaged primarily in (i) the retail marketing of
liquefied petroleum gas ("propane") to residential, commercial and industrial,
and agricultural customers and to dealers that resell propane to residential and
commercial customers and (ii) the retail marketing of propane related supplies
and equipment, including home and commercial appliances. Triarc believes that
the Partnership is the sixth largest retail marketer of propane in terms of
volume in the United States. As of December 28, 1997, the Partnership had 159
full service centers supplying markets in 24 states. The Partnership's
operations are located primarily in the Midwest, Northeast, Southeast, and West
regions of the United States.
As noted above, effective as of the close of business on December 28,
1997, Triarc's interest in the Partnership is accounted for utilizing the equity
method. See "Item 1. Business -- Deconsolidation of National Propane Master
Limited Partnership."
BUSINESS STRATEGY
The Partnership's operating strategy is to increase efficiency,
profitability and competitiveness, while better serving its customers, by
building on the efforts it has already undertaken to improve pricing management,
marketing and purchasing. In addition, the Partnership's strategies for growth
involve expanding its operations and increasing its market share through
internal growth and possibly through acquisitions. The Partnership also
intends to continue to expand its business by opening new service centers, known
as "scratch-starts," in areas where there is relatively little competition.
Scratch-starts typically involve minimal startup costs because the
infrastructure of the new service center is developed as the customer base
expands and the Partnership can, in many circumstances, transfer existing
assets, such as storage tanks and vehicles, to the new service center.
During 1997, the Partnership opened five new scratch-start service centers.
The Partnership intends to take two approaches to acquisitions: (i)
primarily to build on its broad geographic base by acquiring smaller,
independent competitors that operate within the Partnership's existing
geographic areas and (ii) to acquire propane businesses in areas in the United
States outside of its current geographic base where it believes there is
growth potential. In 1997 the Partnership acquired eight propane businesses
for an aggregate purchase price of approximately $9.2 million.
PRODUCTS, SERVICES AND MARKETING
The Partnership distributes its propane through a nationwide
distribution network integrating 159 full service centers located in 23 states.
Typically, service centers are found in suburban and rural areas where natural
gas is not readily available. Generally, such locations consist of an office and
a warehouse and service facility, with one or more 18,000 to 30,000 gallon
storage tanks on the premises. Each service center is managed by a district
manager and also typically employs a customer service representative, a service
technician and one or two bulk truck drivers. However, new "scratch-start"
service centers may not have offices, warehouses or service facilities and are
typically staffed initially by one or two employees.
Retail deliveries of propane are usually made to customers by means of
bulk and cylinder trucks. Propane is pumped from the bulk truck into a
stationary storage tank on the customer's premises. Typically, service centers
deliver propane to most of their residential customers at regular intervals,
based on estimates of such customers' usage, thereby eliminating the customers'
need to make affirmative purchase decisions. The Partnership also delivers
propane to retail customers in portable cylinders. The Partnership also delivers
propane to certain other retail customers, primarily dealers and large
commercial accounts, in larger trucks. Propane is generally transported from
refineries, pipeline terminals and storage facilities (including the
Partnership's underground storage facilities in Hutchinson, Kansas and Loco
Hills, New Mexico) to the Partnership's bulk plants by a combination of common
carriers, owner-operators, railroad tank cars and, in certain circumstances, the
Partnership's own highway transport fleet.
In 1997 the Partnership served approximately 250,000 active customers.
No single customer accounted for 10% or more of the Partnership's revenues in
1996 or 1997. Year-to-year demand for propane is affected by the relative
severity of the winter and other climatic conditions.
The Partnership also sells, leases and services equipment related to its
propane distribution business. In the residential market, the Partnership sells
household appliances, such as cooking ranges, water heaters, space heaters,
central furnaces and clothes dryers, as well as barbecue equipment and gas logs.
In the industrial market, the Partnership sells or leases specialized equipment
for the use of propane as fork lift truck fuel, in metal cutting and atmospheric
furnaces and for portable heating for construction. In the agricultural market,
specialized equipment is leased or sold for the use of propane as engine fuel
and for chicken brooding and crop drying. The sale of specialized equipment,
service income and rental income represented less than 10% of the Partnership's
gross income during 1997. Parts and appliance sales, installation and service
activities are conducted through a wholly-owned corporate subsidiary of the
Operating Partnership.
PROPANE SUPPLY AND STORAGE
Contracts for the supply of propane are typically made on a year-to-year
basis, but the price of the propane to be delivered depends upon market
conditions at the time of delivery. Worldwide availability of both gas liquids
and oil affects the supply of propane in domestic markets, and from time to time
the ability to obtain propane at attractive prices may be limited as a result of
market conditions, thus affecting price levels to all distributors of propane.
There may be times when the Partnership will be unable to fully pass on cost
increases to its customers. Consequently, the Partnership's profitability will
be sensitive to changes in wholesale propane prices, and a substantial increase
in the wholesale cost of propane could adversely affect the Partnership's
margins and profitability. The Partnership utilizes a hedging program which is
designed to protect margins on fixed price retail sales and to mitigate the
potential impact of sudden wholesale price increases for propane.
The Partnership purchased propane from over 35 domestic and Canadian
suppliers during 1997, primarily major oil companies and independent producers
of both gas liquids and oil, and it also purchased propane on the spot market.
In 1997, the Partnership purchased approximately 90% and 10% of its propane
supplies from domestic and Canadian suppliers, respectively. Approximately 95%
of all propane purchases by the Partnership in 1997 were on a contractual basis
(generally, under one year agreements subject to annual renewal), but the
percentage of contract purchases may vary from year to year as determined by
National Propane. Supply contracts generally do not lock in prices but rather
provide for pricing in accordance with posted prices at the time of delivery or
the current prices established at major storage points, such as Mont Belvieu,
Texas and Conway, Kansas. The Partnership is not currently a party to any supply
contracts containing "take or pay" provisions.
Warren Petroleum Company ("Warren") supplied 16% of the Partnership's
propane in 1997 and Amoco and Conoco each supplied approximately 10%. The
Partnership believes that if supplies from Warren, Amoco or Conoco were
interrupted, it would be able to secure adequate propane supplies from other
sources without a material disruption of its operations; however, the
Partnership believes that the cost of procuring replacement supplies might be
materially higher, at least on a short-term basis.
The Partnership owns underground storage facilities in Hutchinson,
Kansas and Loco Hills, New Mexico, leases property for above ground storage
facilities in Crandon, Wisconsin and Orlando, Florida, and owns or leases
smaller storage facilities in other locations throughout the United States. As
of December 28, 1997, the Partnership's total storage capacity was approximately
33.1 million gallons (including approximately one million gallons of storage
capacity currently leased to third parties).
GENERAL
TRADEMARKS
Triarc and its affiliates (including the Partnership and the Operating
Partnership) own numerous trademarks that are considered material to their
business, including Snapple(R), Made From The Best Stuff On Earth(R), Mistic,
Royal Mistic, Mistic Rain Forest, Mistic Fruit Blast, Fountain Classics(R), RC
Cola, Diet RC, Royal Crown, Diet Rite, Nehi, Upper 10, Kick, Arby's, and
National PropaneTM. Cable Car licenses the Stewart's trademark on an exclusive
basis for soft drinks and considers it to be material to its business. In
addition, TBG considers its finished product and concentrate formulae, which are
not the subject of any patents, to be trade secrets. Pursuant to its standard
franchise agreement, TRG grants each of its franchisees the right to use Arby's
trademarks, service marks and trade names in the manner specified therein.
Many of the material trademarks of Snapple, Mistic, Royal Crown, Cable
Car, and TRG are registered trademarks in the U.S. Patent and Trademark Office
and various foreign jurisdictions. Registrations for such trademarks in the
United States will last indefinitely as long as the trademark owners continue to
use and police the trademarks and renew filings with the applicable governmental
offices. No challenges have arisen to Snapple's, Mistic's, Royal Crown's,
Cable Car's or TRG's right to use any of their material trademarks in the United
States.
COMPETITION
Triarc's businesses operate in highly competitive industries. Many of
the major competitors in these industries have substantially greater financial,
marketing, personnel and other resources than does Triarc.
TBG's premium beverage products and soft drink products compete
generally with all liquid refreshments and in particular with numerous
nationally-known soft drinks such as Coca-Cola and Pepsi-Cola and New Age
beverages. TBG also competes with ready to drink brewed iced tea competitors
such as Nestea Iced Tea (pursuant to a long-term license granted by Nestle S.A.
to The Coca-Cola Company) and Lipton Original Iced Tea (distributed by a joint
venture between PepsiCo, Inc. and Thomas J. Lipton Company, a subsidiary of
Unilever Plc). TBG competes with other beverage companies not only for consumer
acceptance but also for shelf space in retail outlets and for marketing focus by
distributors, most of which also distribute other beverage brands. The principal
methods of competition in the beverage industry include product quality and
taste, brand advertising, trade and consumer promotions, marketing agreements
(including so called calendar marketing agreements), pricing, packaging and the
development of new products.
TRG faces direct and indirect competition from numerous well established
competitors, including national and regional fast food chains, such as
McDonalds, Burger King and Wendy's. In addition, TRG competes with locally owned
restaurants, drive-ins, diners and other food service establishments. Key
competitive factors in the QSR industry are price, quality of products, quality
and speed of service, advertising, name identification, restaurant location and
attractiveness of facilities.
In recent years, both the soft drink and restaurant businesses have
experienced increased price competition resulting in significant price
discounting throughout these industries. Price competition has been especially
intense with respect to sales of soft drink products in supermarkets, with
bottlers (and, in particular, competitive cola bottlers) granting significant
discounts and allowances off wholesale prices in order to, among other things,
maintain or increase market share in the supermarket segment. While the net
impact of price discounting in the soft drink and restaurant industries cannot
be quantified, such practices, if continued, could have an adverse impact on
Triarc.
Most of the Operating Partnership's service centers compete with several
marketers or distributors of propane and certain service centers compete with a
large number of marketers or distributors. The principal competitive factors
affecting this industry are reliability of service, responsiveness to customers
and the ability to maintain competitive prices. Propane competes primarily with
natural gas, electricity and fuel oil as an energy source, principally on the
basis of price, availability and portability. Propane serves as an alternative
to natural gas in rural and suburban areas where natural gas is unavailable or
portability of the product is required. Although the extension of natural gas
pipelines tends to displace propane distribution in the areas affected, National
Propane believes that new opportunities for propane sales arise as more
geographically remote areas are developed. In addition, the use of alternative
fuels, including propane, is mandated in certain specified areas of the United
States that do not meet federal air quality standards.
WORKING CAPITAL
Cable Car's, Royal Crown's and TRG's working capital requirements are
generally met through cash flow from operations. Accounts receivable of Cable
Car and Royal Crown are generally due in 30 days and TRG's franchise royalty fee
receivables are due within 10 days after each month end.
Snapple's and Mistic's working capital requirements are generally met
through cash flow from operations, supplemented by advances under a credit
facility entered into in connection with the acquisition of Snapple which
initially provided Snapple and Mistic with a $300 million term loan facility
(approximately $296.5 million principal amount outstanding at March 1, 1998) and
an $80 million revolving credit facility (of which approximately $35.7 million
was available at March 1, 1998). Accounts receivable of Snapple and Mistic are
generally due in 30 days. In addition, TBG receives extended payment terms with
respect to purchases from one of its preferred suppliers.
Working capital requirements for the Operating Partnership are generally
met through cash flow from operations supplemented by advances under a revolving
working capital facility which provides the Operating Partnership with a $15
million line of credit (of which $9.8 million was available at March 1, 1998).
Accounts receivable are generally due in 30 days.
GOVERNMENTAL REGULATIONS
Each of Triarc's businesses is subject to a variety of federal, state
and local laws, rules and regulations.
The production and marketing of TBG's beverages are subject to the rules
and regulations of various federal, state and local health agencies, including
the United States Food and Drug Administration (the "FDA"). The FDA also
regulates the labeling of TBG's products. In addition, TBG's dealings with its
bottlers and/or distributors may, in some jurisdictions, be subject to state
laws governing licensor-licensee or distributor relationships.
TRG is subject to regulation by the Federal Trade Commission and state
laws governing the offer and sale of franchises and the substantive aspects of
the franchisor-franchisee relationship. In addition, TRG franchisees are subject
to the Fair Labor Standards Act and the Americans with Disabilities Act, which
requires that all public accommodations and commercial facilities meet certain
federal requirements related to access and use by disabled persons, and various
state laws governing such matters as minimum wages, overtime and other working
conditions.
National Propane and the Operating Partnership are subject to various
federal, state and local laws and regulations governing the transportation,
storage and distribution of propane, and the health and safety of workers, the
latter of which are primarily governed by the Occupational Safety and Health Act
and the regulations promulgated thereunder. On August 18, 1997, the U.S.
Department of Transportation (the "DOT") published its Final Rule for Continued
Operation of the Present Propane Trucks (the "Final Rule"). The Final Rule is
intended to address perceived risks during the transfer of propane. The Final
Rule required certain immediate changes in the Partnership's operating
procedures including retrofitting the Operating Partnership's cargo tanks. The
Partnership, as well as the National Propane Gas Association and the propane
industry in general, believe that the Final Rule cannot practicably be complied
with in its current form. Accordingly, on October 15, 1997, the Partnership
joined four other multi-state propane marketers in filing an action against the
DOT in the United States District Court for the Western District of Missouri
seeking to enjoin enforcement of the Final Rule. On February 13, 1998, the court
preliminary enjoined the DOT from enforcing the Final Rule pending the final
outcome of the litigation. At this time, the Partnership cannot determine the
likely outcome of the litigation or what the ultimate long-term cost of
compliance with the Final Rule will be.
Except as described herein, Triarc is not aware of any pending
legislation that in its view is likely to have a material adverse effect on the
operations of Triarc's subsidiaries. Triarc believes that the operations of its
subsidiaries comply substantially with all applicable governmental rules and
regulations.
ENVIRONMENTAL MATTERS
Certain of Triarc's operations are subject to federal, state and local
environmental laws and regulations concerning the discharge, storage, handling
and disposal of hazardous or toxic substances. Such laws and regulations provide
for significant fines, penalties and liabilities, in certain cases without
regard to whether the owner or operator of the property knew of, or was
responsible for, the release or presence of such hazardous or toxic substances.
In addition, third parties may make claims against owners or operators of
properties for personal injuries and property damage associated with releases of
hazardous or toxic substances. Triarc cannot predict what environmental
legislation or regulations will be enacted in the future or how existing or
future laws or regulations will be administered or interpreted. Triarc cannot
predict the amount of future expenditures which may be required in order to
comply with any environmental laws or regulations or to satisfy any such claims.
Triarc believes that its operations comply substantially with all applicable
environmental laws and regulations. Based on currently available information and
the current reserve levels, Triarc does not believe that the ultimate outcome of
any of the matters discussed below will have a material adverse effect on its
consolidated financial position or results of operations. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
As a result of certain environmental audits in 1991, Southeastern Public
Service Company, a subsidiary of Triarc ("SEPSCO"), became aware of possible
contamination by hydrocarbons and metals at certain sites used in the ice and
cold storage operations of SEPSCO's former refrigeration business. SEPSCO has
engaged in certain remediation in connection therewith. Such remediation varied
from site to site, ranging from testing of soil and ground water for
contamination, development of remediation plans and removal in certain instances
of certain contaminated soils. Remediation is required at thirteen sites which
were sold to or leased by the purchaser of the ice operations. Remediation has
been completed on ten of these sites and is ongoing at three others. The
purchaser of the ice operations has satisfied its obligation to pay up to
$1,000,000 of such remediation costs. Remediation is also required at seven cold
storage sites which were sold to the purchaser of the cold storage operations.
Remediation has been completed at one site, and is ongoing at four other sites.
Remediation is expected to commence on the remaining two sites in 1998 and 1999.
Such remediation is being made in conjunction with such purchaser who is
responsible for the first $1,250,000 of such costs. In addition, there were
fifteen additional inactive properties of the former refrigeration business
where remediation has been completed or is ongoing and which have either been
sold or are held for sale separate from the sales of the ice and cold storage
operations. Of these, twelve have been remediated at an aggregate cost of
$1,035,000 through December 28, 1997. In addition, during the environmental
remediation efforts on idle properties, SEPSCO became aware of one site which
may require demolition in the future.
In 1997 SEPSCO undertook an environmental assessment of a property
located in Fort Myers, Florida that had previously been used in connection with
SEPSCO's ice operations. As a result, SEPSCO became aware of certain
petroleum-type substances and metals in the soil and ground water of such
property. SEPSCO notified the State of Florida of its findings and the State of
Florida has requested that SEPSCO undertake further investigatory efforts to
define the nature and extent of its findings. SEPSCO believes that such
substances and metals may also be found on an adjacent property. SEPSCO believes
that the contamination may have occurred prior to its ownership of the property.
A former owner of the property (who also currently owns the adjacent property)
has agreed to undertake certain further investigation at its own expense,
thereby potentially minimizing the cost to SEPSCO. Based on their preliminary
findings, SEPSCO's environmental consultants believe that it may cost between
$200,000 and $250,000 to remediate the property. However, such findings are
preliminary and the amount required to remediate the property may vary depending
upon the nature and extent of the contamination and the method of remediation
that is actually required.
In May 1994 National Propane was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. National Propane
purchased the property from a company (the "Successor") which had purchased the
assets of a utility which had previously owned the property. National Propane
believes that the contamination occurred during the use of the property as a
coal gasification plant by such utility. To assess the extent of the problem,
National Propane engaged environmental consultants in 1994. Based upon the
information compiled to date, which is not yet complete, it appears that the
likely remedy will involve treatment of groundwater and treatment of the soil,
installation of a soil cap and, if necessary, excavation, treatment and disposal
of contaminated soil. As a result, the environmental consultants' current range
of estimated costs for remediation is from $0.7 million to $1.7 million.
National Propane will have to agree upon the final remediation plan with the
State of Wisconsin. Accordingly, the precise remediation method to be used is
unknown. Based on the preliminary results of the ongoing investigation, there is
a potential that the contaminants may extend to locations down gradient from the
original site. If it is ultimately confirmed that the contaminant plume extends
under such properties and if such plume is attributable to contaminants
emanating from the Wisconsin property, there is the potential for future
third-party claims. National Propane has engaged in discussions of a general
nature with the Successor, who has denied any liability for the costs of
remediation of the Wisconsin property or of satisfying any related claims.
However, National Propane, if found liable for any of such costs, would still
attempt to recover such costs from the Successor. National Propane has notified
its insurance carriers of the contamination and the possibility of related
claims. Pursuant to a lease related to the Wisconsin facility, the ownership of
which was not transferred by National Propane to the Operating Partnership at
the time of the closing of the Propane IPO, the Operating Partnership has agreed
to be liable for any costs of remediation in excess of amounts received from the
Successor and from insurance. Because the remediation method to be used is
unknown, no amount within the cost ranges provided by the environmental
consultants can be determined to be a better estimate.
In 1993 Royal Crown became aware of possible contamination from
hydrocarbons in groundwater at two closed facilities. In 1994, hydrocarbons were
discovered in the groundwater at a former Royal Crown distribution site in
Miami, Florida. Assessment is proceeding under the direction of the Dade County
Department of Environmental Resources Management to determine the extent of the
contamination. Remediation has commenced at this site, and management estimates
that total remediation costs (in excess of amounts incurred through December 28,
1997) will be approximately $59,000 depending on the actual extent of the
contamination. Additionally, in 1994 the Texas Natural Resources Conservation
Commission approved the remediation of hydrocarbons in the groundwater by Royal
Crown at its former distribution site in San Antonio, Texas. Remediation has
commenced at this site. Management estimates the total cost of remediation to be
approximately $60,000 (in excess of amounts incurred through December 28, 1997),
of which 60-70% is expected to be reimbursed by the State of Texas Petroleum
Storage Tank Remediation Fund. Royal Crown has incurred actual costs of
$714,000, in the aggregate, through December 28, 1997 for these matters.
In 1987, Graniteville Company ("Graniteville") (the assets of which were
sold to Avondale Mills, Inc. ("Avondale") in April 1996) was notified by the
South Carolina Department of Health and Environmental Control (the "DHEC") that
it discovered certain contamination of Langley Pond ("Langley Pond") near
Graniteville, South Carolina and that Graniteville may be one of the responsible
parties for such contamination. In 1990 and 1991, Graniteville provided reports
to DHEC summarizing its required study and investigation of the alleged
pollution and its sources which concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects. In 1995, Graniteville submitted a proposal regarding periodic
monitoring of the site, to which DHEC responded with a request for additional
information. Graniteville provided such information to DHEC in February 1996.
Triarc is unable to predict at this time what further actions, if any, may be
required in connection with Langley Pond or what the cost thereof may be. In
addition, Graniteville owned a nine acre property in Aiken County, South
Carolina (the "Vaucluse Landfill"), which was operated jointly by Graniteville
and Aiken County as a landfill from approximately 1950 to 1973. The United
States Environmental Protection Agency conducted an Expanded Site Inspection (an
"ESI") in January 1994 and Graniteville conducted a supplemental investigation
in February 1994. In response to the ESI, DHEC indicated its desire to have an
investigation of the Vaucluse Landfill performed. In August 1995, DHEC requested
that Graniteville enter into a consent agreement to conduct an investigation.
Graniteville responded that a consent agreement was inappropriate considering
Graniteville's demonstrated willingness to cooperate with DHEC requests and
asked DHEC to approve Graniteville's April, 1995 conceptual investigation
approach. Triarc believes that Graniteville and DHEC continue to negotiate
regarding the appropriate administrative agreement to govern performance of the
additional investigation requested. The cost of the study proposed by
Graniteville was estimated in 1995 to be between $125,000 and $150,000. Since
an investigation has not yet commenced, Triarc is currently unable to predict
what further actions, if any, will be necessary to remediate the landfill. In
connection with the sale of Graniteville to Avondale, the Company has agreed
to indemnify Avondale for certain costs incurred by it in connection with
the foregoing matters that are in excess of applicable reserves.
SEASONALITY
Triarc's beverage, restaurant and propane businesses are seasonal. In
the beverage and restaurant businesses, the highest sales occur during spring
and summer (April through September). Propane operations are subject to the
seasonal influences of weather which vary by region. Generally, the demand for
propane during the six-month peak heating season (October through March) is
substantially greater than during the summer months at both the retail and
wholesale levels, and is significantly affected by climatic variations. As a
result of the deconsolidation of National Propane (see "Item 1. Business --
Deconsolidation of National Propane Master Limited Partnership"), it is
expected that in the future Triarc's revenues will be highest during the second
and third fiscal quarters of each year.
INSURANCE OPERATIONS
Historically, Chesapeake Insurance Company Limited ("Chesapeake
Insurance"), an indirect wholly-owned subsidiary of Triarc, (i) provided certain
property insurance coverage for Triarc and certain of its former affiliates;
(ii) reinsured a portion of certain insurance coverage which Triarc and such
former affiliates maintained with unaffiliated insurance companies (principally
workers' compensation, general liability, automobile liability and group life);
and (iii) reinsured insurance risks of unaffiliated third parties through
various group participations. During the fiscal year ended April 30, 1993,
Chesapeake Insurance ceased writing reinsurance of risks of unaffiliated third
parties, and during the transition period from May 1, 1993 to December 31, 1993,
Chesapeake Insurance ceased writing insurance or reinsurance of any kind for
periods beginning on or after October 1, 1993. Chesapeake Insurance continues to
wind down its operations and settle the remaining existing insurance claims of
third parties. For information regarding Triarc's insurance loss reserves
relating to Chesapeake's operations, see Note 1 to the Consolidated Financial
Statements.
EMPLOYEES
As of December 28, 1997, Triarc and its subsidiaries employed
approximately 2,000 personnel, including approximately 1,100 salaried personnel
and approximately 900 hourly personnel. Triarc's management believes that
employee relations are satisfactory. At December 28, 1997, approximately 200 of
the total of Triarc's employees were covered by various collective bargaining
agreements expiring from time to time from the present through 1999.
ITEM 2. PROPERTIES.
Triarc maintains a large number of diverse properties. Management
believes that these properties, taken as a whole, are generally well maintained
and are adequate for current and foreseeable business needs. The majority of the
properties are owned. Except as set forth below, substantially all of Triarc's
materially important physical properties are being fully utilized.
Certain information about the major plants and facilities maintained by
each of Triarc's business segments, as well as Triarc's corporate headquarters,
as of December 28, 1997 is set forth in the following table:
APPROXIMATE
SQ. FT. OF
ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- ----------------- ------------------- ---------- -----------
Triarc Corporate
Headquarters..... New York, NY 1 leased 26,600
Beverages........ Concentrate Mfg:
Columbus, GA 1 owned 216,000
(including office)
TBG Headquarters
White Plains, NY 1 leased 53,600
Cable Car Headquarters
Denver, CO 1 leased 4,200
Office/Warehouse Facilities 6 leased 577,000*
(various locations)
Restaurants...... TRG Headquarters 1 leased 47,300**
Ft. Lauderdale, FL
Propane.......... Headquarters 1 leased 17,000
159 Full Service Centers 193 owned 550,000
105 Storage Facilities 71 leased ***
(various locations
throughout the
United States)
2 Underground storage
terminals
2 Above ground
storage terminals
- ------------
* Includes 180,000 square feet of warehouse space that is subleased to a
third party.
** Royal Crown subleases approximately 3,500 square feet of this space from
TRG.
*** The propane facilities have approximately 33.1 million gallons of
storage capacity (including approximately one million gallons of storage
capacity currently leased to third parties). See "Item 1. Business --
Recent Dispositions" and "-- Business Segments -- Liquefied Petroleum
Gas (National Propane)."
TRG also owns six and leases 24 properties which are leased or sublet
principally to franchisees and has leases for 11 inactive properties. Other
subsidiaries of the Company also own or lease a few inactive facilities and
undeveloped properties, none of which are material to the Company's financial
condition or results of operations.
Substantially all of the properties used in the beverage and propane
businesses are pledged as collateral for certain debt.
ITEM 3. LEGAL PROCEEDINGS.
In the fall of 1995, Granada Investments, Inc., Victor Posner ("Posner")
and the three former court-appointed members of a special committee of the
Triarc Board ("the Triarc Special Committee") asserted claims (the "Granada
Action") against Triarc for money damages and declaratory relief, and, in the
case of the former court-appointed directors, additional fees. On January 30,
1996, the court held that it had no jurisdiction and dismissed all proceedings
in this matter. In October 1995, Triarc commenced an action (the "Posner
Action") against Posner and a Posner affiliate in the United States District
Court for the Southern District of New York in which it asserted breaches by
them of their reimbursement obligations under a 1995 settlement agreement among
Triarc, Posner and certain affiliates of Posner (the "Settlement Agreement").
The defendants asserted certain affirmative defenses and a counterclaim for a
declaratory judgment. On December 11, 1995, Triarc and Chesapeake commenced a
proceeding in the Bankruptcy Court under section 1144 of the Bankruptcy Code,
naming Posner, Security Management Corporation and APL Corporation ("APL") as
defendants, and naming the official committee of unsecured creditors of APL as a
nominal defendant (the "1144 Proceeding"). In addition, Triarc and Chesapeake
Insurance asserted claims (the "APL Bankruptcy Claims") against the debtor in
the APL bankruptcy proceeding (the "APL Bankruptcy Proceeding"). On June 6,
1997, Triarc entered into a settlement agreement (the "1997 Settlement
Agreement") with Posner and two affiliated entities (including APL). Pursuant to
the 1997 Settlement Agreement, among other things, (1) Posner and an affiliated
entity paid a total of $2.5 million to Triarc and Chesapeake; (2) the parties
dismissed with prejudice each of the foregoing actions; (3) Triarc and
Chesapeake waived the APL Bankruptcy Claims; and (4) the parties entered into
releases with respect to the claims and counterclaims asserted in the Posner
Action, the Granada Action, the 1144 Proceeding and the APL Bankruptcy
Proceeding.
In November, 1995, the Company commenced an action in New York State
court alleging that the three former court-appointed directors violated the
release/agreements they executed in March 1995 by seeking additional fees of
$3.0 million. The action was removed to federal court in New York. The
defendants have filed a third-party complaint against Nelson Peltz, the
Company's Chairman and Chief Executive Officer, seeking judgment against him for
any amounts recovered by Triarc from them. On December 9, 1996, the court denied
Triarc's motion for summary judgment. Discovery in the action has commenced.
On June 27, 1996, the three former court-appointed directors commenced
an action against Nelson Peltz, Victor Posner and Steven Posner in the United
States District Court for the Northern District of Ohio seeking an order
returning the plaintiffs to Triarc's Board of Directors, a declaration that the
defendants bear continuing obligations to refrain from certain financial
transactions under a February 9, 1993 undertaking given by DWG Acquisition
Group, L.P., and a declaration that Mr. Peltz must honor all provisions of the
undertaking. On May 1, 1997, the court transferred the case to the Southern
District of New York as a related matter to a pending New York action brought by
the company against the three former court appointed directors (described
above). On May 20, 1997, plaintiffs filed a purported amended complaint
asserting additional claims against each of the defendants. The amended
complaint alleges, among other things, that the defendants conspired to mislead
the United States District Court for the Northern District of Ohio in connection
with the change of control of Triarc in 1993 and the termination of the consent
decree pursuant to which plaintiffs were initially named to Triarc's Board of
Directors. The amended complaint also alleges that Mr. Peltz and Steven Posner
conspired to frustrate collection of amounts owed by Steven Posner to the United
States. The amended complaint seeks, among other relief, damages against Mr.
Peltz and Steven Posner in an amount not less than $4.5 million; an order
stating that plaintiffs must be returned to Triarc's Board of Directors; and
rescission of the 1993 change of control transaction. Mr. Peltz's time to
respond to the amended complaint has not yet expired. In July 1997, plaintiffs
voluntarily dismissed their claims against Victor Posner without prejudice.
On February 19, 1996, Arby's Restaurants S.A. de C.V. ("AR"), the master
franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico
against Arby's for breach of contract. AR alleged that a non-binding letter of
intent dated November 9, 1994 between AR and Arby's constituted a binding
contract pursuant to which Arby's had obligated itself to repurchase the master
franchise rights from AR for $2.85 million and that Arby's had breached a
master development agreement between AR and Arby's. Arby's commenced an
arbitration proceeding since the franchise and development agreements
each provided that all disputes arising thereunder were to be resolved by
arbitration. In September 1997, the arbitrator ruled that (i) the November 9,
1994 letter of intent was not a binding contract and (ii) the master development
agreement was properly terminated. AR has challenged the arbitrator's
decision. In March 1998, the civil court of Mexico ruled that the November 9,
1994 letter of intent was a binding contract and ordered Arby's to pay AR
$2.85 million, plus interest and value added tax. Arby's has appealed the
civil court's decision. Arby's believes that it has a strong basis for an appeal
because, among other things, the civil court's decision ignored the arbitration
provisions of the franchise and development agreements and the language of the
November 9, 1994 letter. In May 1997, AR commenced an action against Arby's in
the United States District Court for the Southern District of Florida alleging
that (i) Arby's had engaged in fraudulent negotiations with AR in 1994- 1995, in
order to force AR to sell the master franchise rights for Mexico to Arby's
cheaply and (ii) Arby's had tortiously interfered with an alleged business
opportunity that AR had with a third party. Arby's has moved to dismiss that
action. Arby's is vigorously contesting AR's various claims and believes it has
meritorious defenses to such claims.
On November 4, 1996, the bankruptcy trustee appointed in the case of
Prime Capital Corporation ("Prime") (formerly known as Intercapital Funding
Resources, Inc.) made a demand on Chesapeake Insurance and SEPSCO, seeking the
return of payments aggregating $5.3 million which Prime allegedly made to those
entities during 1994 and suggesting that litigation would be commenced against
SEPSCO and Chesapeake Insurance if these monies were not returned. The trustee
commenced avoidance actions against SEPSCO and Chesapeake Insurance (as well as
actions against certain current and former officers of Triarc or their spouses
with respect to payments made directly to them) in January 1997, claiming the
payments to them were preferences or fraudulent transfers. (SEPSCO and
Chesapeake Insurance had entered into separate joint ventures with Prime, and
the payments at issue were made in connection with termination of the
investments in such joint ventures.) The bankruptcy trustee and each of the
defendants agreed to a settlement of the actions, which was approved by the
bankruptcy court on November 18, 1997. Pursuant to the settlement, on December
5, 1997 SEPSCO and Chesapeake Insurance collectively returned approximately
$3,550,000.
Snapple and Quaker were defendants in a breach of contract case filed on
April 16, 1997 (prior to Triarc's acquisition of Snapple) in Rhode Island
Superior Court by Rhode Island Beverage Packing Company, L.P. ("RIB"). RIB and
Snapple disagreed as to whether the co-packing agreement between them had been
amended to (a) change the end of the term from December 30, 1997 to December 30,
1999 and (b) more than double Snapple's take or pay obligations thereunder. RIB
set forth various causes of action in its complaint and sought reformation of
the contract, compliance with promises, consequential damages including lost
profits, attorney's fees and punitive damages. On February 11, 1998, Snapple,
RIB and certain affiliates of RIB executed a settlement agreement relating to
this action and certain other outstanding issues among the parties. Pursuant to
such settlement agreement, the foregoing action is to be dismissed with
prejudice, and Snapple is to be released from all claims and counterclaims that
could have been asserted in the action. Snapple will also be released from all
of its obligations with respect to RIB (including an alleged obligation to
acquire the other outstanding interests in RIB for $8 million) and will be
indemnified and held harmless for any liabilities of RIB (in each case, subject
to certain limited retained liabilities). In consideration of, among other
things, the foregoing, Snapple paid an aggregate of approximately $8.2 million
(which amount was fully reserved at the time of the Snapple acquisition) and
agreed to deliver to RIB and the general partner of RIB all of Snapple's
interests in RIB and such general partner.
On June 3, 1997, ZuZu, Inc. ("ZuZu") and its subsidiary, ZuZu Franchising
Corporation ("ZFC") commenced an action against Arby's, Inc. ("Arby's") and
Triarc in the District Court of Dallas County, Texas. Plaintiffs allege that
Arby's and Triarc conspired to steal the ZuZu Speedy Tortilla concept and
convert it to their own use. ZuZu seeks actual damages in excess of $70.0
million and punitive damages of not less than $200.0 million against Triarc for
its alleged appropriation of trade secrets, conversion and unfair competition.
Additionally, plaintiffs seek injunctive relief against Arby's and Triarc
enjoining them from disclosing or using ZuZu's trade secrets. ZFC also made a
demand for arbitration with the Dallas, Texas office of the American Arbitration
Association ("AAA") against Arby's alleging that Arby's had breached a Master
Franchise Agreement between ZFC and Arby's. Arby's and Triarc have moved to
dismiss or, in the alternative, abate the Texas court action on the ground that
a Stock Purchase Agreement between Triarc and ZuZu required that disputes be
subject to mediation in Wilmington, Delaware and that any litigation be brought
in the Delaware courts. On July 16, 1997, Arby's and Triarc commenced a
declaratory judgment action against ZuZu and ZFC in Delaware Chancery Court for
New Castle County seeking a declaration that the claims in both the litigation
and the arbitration must be subject to mediation in Wilmington, Delaware. In the
arbitration proceeding, Arby's has asserted counterclaims against ZuZu for
unjust enrichment, breach of contract and breach of the duty of good faith and
fair dealing and has successfully moved to transfer the proceeding to the
Atlanta, Georgia office of the AAA. An arbitrator has been chosen and discovery
is taking place. The arbitration is expected to commence in April 1998. Arby's
and Triarc are vigorously contesting plaintiffs' claims in both the litigation
and the arbitration and believe that plaintiffs' various claims are without
merit.
In a related case, on March 13, 1998 ZuZu franchisees Gregg Katz, Susan
Katz Zweig and ZuZu of Orlando, LLC commenced an action against Arby's, ZuZu,
ZFC and Triarc in the Superior Court of Fulton County Georgia. Plaintiffs
allege, in connection with the ZuZu handmade Mexican food concept and the ZuZu
Speedy Tortilla concept, that, among other things, the various defendants
breached the development and franchise agreements between the plaintiffs and
ZuZu, as well as other oral agreements, made false representations,
intentionally failed to disclose material information, and violated several
Florida and Texas business opportunity and similar statutes. The plaintiffs seek
actual damages of not less than $600,000, consequential damages, punitive
damages, treble damages and other fees, costs and expenses. While Triarc and
Arby's have not yet filed an answer in this action, they believe the claims are
without merit.
On June 25, 1997, Kamran Malekan and Daniel Mannion commenced a
purported class and derivative action against the directors and certain former
directors of the Company (and naming the Company as a nominal defendant) in the
Delaware Court of Chancery, New Castle County. The plaintiffs in that action and
one related action filed a consolidated amended complaint on December 15, 1997.
The amended complaint alleges that the defendants breached their fiduciary
duties and duties of good faith and fair dealing to the Company and its
shareholders in connection with the granting in 1996 of special bonuses to
Nelson Peltz and Peter May, and the granting of options to Messrs. Peltz and May
in March 1997. The amended complaint also alleges that the granting of such
compensation breached promises made to the Company's shareholders in its 1994
Proxy Statement with respect to the conditions of performance options granted to
Messrs. Peltz and May, and that defendants breached their fiduciary duties to
the Company's shareholders in connection with its 1994 Proxy Statement. The
amended complaint seeks, among other remedies, rescission of all option grants
to Messrs. Peltz and May which allegedly contravene the representations made in
the Company's 1994 Proxy Statement; an order directing Messrs. Peltz and May to
repay to the Company their 1996 special bonuses, and enjoining defendants from
awarding or paying compensation to Messrs. Peltz and May in contravention of the
promises and representations made in the 1994 Proxy Statement; and an order
directing the defendants to account to the Company for all damages sustained as
a result of the matters complained of. The Company's present directors, and
certain former directors, have filed answers generally denying the substantive
allegations of the amended complaint. On January 13, 1998, the three former
court-appointed directors filed a notice of removal of the action to the federal
district court. Plaintiffs subsequently dismissed the claims against those
defendants voluntarily and moved to remand the action to state court. Two former
directors (Messrs. Pallot and Prendergast ) have opposed the plaintiff's motion
and have moved to transfer the action to the Southern District of New York.
Those motions have not been decided.
On August 13, 1997, Ruth LeWinter and Calvin Shapiro commenced a
purported class and derivative action against certain current and former
directors of the Company (and naming the Company as a nominal defendant) in the
United States District Court for the Southern District of New York which is
substantially identical to the Maleken action discussed above. On October 2,
1997, five former directors of Triarc, who are named as defendants in the
LeWinter action (including the three former court-appointed directors), filed an
answer and cross-claims against Triarc and Nelson Peltz. The cross-claims allege
that (1) Mr. Peltz has violated an Undertaking and Agreement given by DWG
Acquisition Group, L.P. on February 9, 1993; (2) Mr. Peltz has conspired with
Steven Posner to violate a court order prohibiting Mr. Posner from serving as an
officer or director of Triarc; and (3) the cross-claimants are entitled to
indemnification from Triarc in the action. The cross-claims seek: specific
enforcement of an indemnification agreement between the cross-claimants and
Triarc; damages in an unspecified amount in excess of $75,000; and their costs
and expenses in the action, including attorney's fees. On November 3, 1997,
the Company and its current directors and certain of its former directors
moved to dismiss or stay the action pending the resolution of the Delaware
action discussed above. On November 26, 1997, Triarc and Mr. Peltz moved
to dismiss the cross-claims asserted by the former directors. On February
11, 1998, the five former directors moved for an order specifically enforcing
the alleged indemnification agreements with the Company. The Company has
opposed the motion. All of the foregoing motions are pending.
In October 1997, Mistic commenced an action (the "Action") against
Universal Beverages Inc. ("Universal"), a former Mistic co-packer, Leesburg
Bottling & Production, Inc. ("Leesburg"), an affiliate of Universal, and
Jonathan O. Moore ("Moore"), an individual affiliated with Universal and
Leesburg, in the Circuit Court for Duval County, Florida. The Action, which was
subsequently amended to add additional defendants, seeks, inter alia, damages
and injunctive relief arising out of the fraudulent disposition of certain raw
materials, finished product and equipment owned by Mistic. In their answer,
counterclaim and third party complaint, certain defendants have alleged various
causes of action against Mistic, Snapple and Triarc, and seek damages of $6
million relating to an alleged oral agreement by Snapple and Mistic to have
Universal and/or Leesburg contract manufacture Snapple and Mistic products,
including breach of contract, fraud in the inducement and negligent
misrepresentation. These defendants also seek to recover various amounts
totaling approximately $440,000 allegedly owed to Universal for co-packing and
other services rendered. Mistic, Snapple and Triarc vigorously deny and intend
to defend against the allegations contained in defendants counterclaim.
Other matters have arisen in the ordinary course of Triarc's business,
and it is the opinion of management that the outcome of any such matter will not
have a material adverse effect on Triarc's consolidated financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Triarc held its 1997 Annual Meeting of Shareholders on June 4, 1997. The
matters acted upon by the shareholders at that meeting were reported in Triarc's
quarterly report on Form 10-Q/A for the quarter ended June 29, 1997.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market for Triarc's Class A Common Stock is the New York
Stock Exchange ("NYSE") (symbol: TRY). The high and low market prices for
Triarc's Class A Common Stock, as reported in the consolidated transaction
reporting system, are set forth below:
MARKET PRICE
--------------------------
FISCAL QUARTERS HIGH LOW
- --------------------------------------------------------------------------------
1996
FIRST QUARTER ENDED MARCH 31................. $14 3/8 $10 7/8
SECOND QUARTER ENDED JUNE 30................. 13 3/8 11 1/2
THIRD QUARTER ENDED SEPTEMBER 30............. 12 7/8 10
FOURTH QUARTER ENDED DECEMBER 31............. 12 3/4 10 3/4
1997
FIRST QUARTER ENDED MARCH 30................. $11 $18
SECOND QUARTER ENDED JUNE 29................. 23 5/8 15 7/8
THIRD QUARTER ENDED SEPTEMBER 28............. 23 1/8 18
FOURTH QUARTER ENDED DECEMBER 28............. 25 1/4 17 5/8
Triarc did not pay any dividends on its common stock in 1996, fiscal 1997
or in the current year to date and does not presently anticipate the declaration
of cash dividends on its common stock in the near future.
As of March 15, 1998, there were 5,997,622 shares of Triarc's Class B
Common Stock outstanding, all of which were owned by Posner and an entity
controlled by Posner (together with Posner, the "Posner Entities"). All such
shares of Class B Common Stock can be converted without restriction into shares
of Class A Common Stock if they are sold to a third party unaffiliated with the
Posner Entities. Triarc, or its designee, has certain rights of first refusal if
such shares are sold to an unaffiliated third party. There is no established
public trading market for the Class B Common Stock. Triarc has no class of
equity securities currently issued and outstanding except for the Class A Common
Stock and the Class B Common Stock.
Because Triarc is predominantly a holding company, its ability to meet its
cash requirements (including required interest and principal payments on its
indebtedness) is primarily dependent upon (in addition to its cash, cash
equivalents and short term investments on hand) cash flows from its
subsidiaries, including loans, cash dividends and reimbursement by subsidiaries
to Triarc in connection with its providing certain management services and
payments by subsidiaries under certain tax sharing agreements. Under the terms
of various indentures and credit arrangements, Triarc's principal subsidiaries
(other than Cable Car and National Propane) are currently unable to pay any
dividends or make any loans or advances to Triarc. In addition, National Propane
has agreed to forgo future distributions from the Partnership on its
subordinated units ("Subordinated Distributions") in order to facilitate the
Partnership's compliance with a covenant restriction in its bank facility
agreement. The Partnership will resume paying such Subordinated Distributions
when such payment will not impact compliance with such covenant. National
Propane's agreement will limit the funds that it will have available to dividend
or loan to Triarc. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 8 to the Consolidated Financial Statements.
On October 13, 1997, Triarc announced that its management was authorized,
when and if market conditions warranted, to purchase from time to time during
the twelve month period commencing on the business day following consummation of
the Stewart's Acquisition (i.e., November 26, 1997) up to $20 million of its
outstanding Class A Common Stock. In March 1998 such amount was increased to $30
million. As of March 15, 1998, Triarc had repurchased approximately 138,700
shares of Class A Common Stock at an aggregate cost of approximately $3.5
million under such repurchase program.
In connection with the issuance by Triarc of the Debentures, on February 9,
1998 Triarc purchased from Morgan Stanley 1,000,000 shares of Triarc's Class A
Common Stock for an aggregate price of approximately $25.6 million. See Item 1.
"Business--Issuance of Zero Coupon Convertible Subordinated Debentures."
As of March 15, 1998, there were approximately 6,550 holders of record of
Triarc's Class A Common Stock and two holders of record of Triarc's Class B
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA (1)
FISCAL EIGHT MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31, YEAR ENDED
APRIL 30, DECEMBER 31, ------------------------------------------ DECEMBER 28,
1993 1993 (3) 1994 1995 1996 1997 (3)
---- ---- ---- ---- ---- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues................$1,023,249 $676,908 $1,022,671 $1,142,011 $ 928,185 $861,321
Operating profit (loss). 24,581 (5) 21,038 (6) 54,446 (7) 23,145 (8) (17,853)(10) 26,962 (11)
Loss from continuing
operations............. (50,690) (5) (35,935) (6) (10,612) (7) (39,433) (8) (13,698)(10) (20,553)(11)
Income (loss) from
discontinued operations 3,711 (3,095) 4,619 2,439 5,213 20,718
Extraordinary items .... (6,611) (448) (2,116) -- (5,416) (3,781)
Cumulative effect of
changes in accounting
principles, net........ (6,388) -- -- -- -- --
Net loss................ (59,978) (5) (39,478) (6) (8,109) (7) (36,994) (8) (13,901)(10) (3,616)(11)
Preferred stock dividend
requirements (2)....... (121) (3,889) (5,833) -- -- --
Net loss applicable to
common stockholders.... (60,099) (43,367) (13,942) (36,994) (13,901) (3,616)
Loss per share (4):
Continuing operations.. (1.97) (1.87) (.71) (1.32) (.46) (.68)
Discontinued operations .15 (.15) .20 .08 .18 .69
Extraordinary items.... (.26) (.02) (.09) -- (.18) (.13)
Cumulative effect of
changes in accounting
principles........... (.25) -- -- -- -- --
Net loss per share..... (2.33) (2.04) (.60) (1.24) (.46) (.12)
Total assets............ 907,333 887,380 911,236 1,077,173 831,785 1,004,873
Long-term debt.......... 488,654 571,350 606,374 758,292 469,154 604,830
Redeemable preferred
stock................. 71,794 71,794 71,794 -- (9) -- --
Stockholders' equity
(deficit)............ (35,387) (75,981) (31,783) 20,650 (9) 6,765 43,988 (12)
Weighted-average common
shares outstanding..... 25,808 21,260 23,282 29,764 29,898 30,132
(1) Selected Financial Data for the periods prior to the fiscal year ended
December 28, 1997 have been retroactively restated to reflect the
discontinuance of the Company's dyes and specialty chemicals business sold
in December 1997.
(2) The Company has not paid any dividends on its common shares during any of
the periods presented.
(3) The Company changed its fiscal year from a fiscal year ending April 30 to
a calendar year ending December 31 effective for the eight-month
transition period ended December 31, 1993 ("Transition 1993"). The Company
changed its fiscal year to a calendar year consisting of 52 or 53 weeks
ending on the Sunday closest to December 31 effective for the 1997 fiscal
year which commenced January 1, 1997 and ended on December 28, 1997.
(4) Basic and diluted loss per share are the same for all periods presented
since all potentially dilutive securities would have had an antidilutive
effect for all such periods.
(5) Reflects certain significant charges recorded during the fiscal year ended
April 30, 1993 as follows: $51,689,000 charged to operating profit
representing $43,000,000 of facilities relocation and corporate
restructuring relating to a change in control of the Company and
$8,689,000 of other net charges; $48,698,000 charged to loss from
continuing operations representing the aforementioned $51,689,000 charged
to operating profit, $8,503,000 of other net charges, less $19,391,000 of
income tax benefit and minority interest effect relating to the aggregate
of the above charges, and plus $7,897,000 of provision for income tax
contingencies; and $67,060,000 charged to net loss representing the
aforementioned $48,698,000 charged to operating profit, a $5,363,000
write-down relating to the impairment of certain unprofitable operations
and accruals for environmental remediation and losses on certain contracts
in progress, net of income tax benefit and minority interests, a
$6,611,000 extraordinary charge from the early extinguishment of debt and
$6,388,000 cumulative effect of changes in accounting principles.
(6) Reflects certain significant charges recorded during Transition 1993 as
follows: $12,306,000 charged to operating profit principally representing
$10,006,000 of increased insurance reserves; $25,617,000 charged to loss
from continuing operations representing the aforementioned $12,306,000
charged to operating profit, $5,050,000 of certain litigation settlement
costs, $3,292,000 of reduction to net realizable value of certain assets
held for sale other than discontinued operations, less $2,231,000 of
income tax benefit and minority interest effect relating to the aggregate
of the above charges, and plus a $7,200,000 provision for income tax
contingencies; and $34,437,000 charged to net loss representing the
aforementioned $25,617,000 charged to loss from continuing operations and
an $8,820,000 loss on disposal of discontinued operations.
(7) Reflects certain significant charges recorded during 1994 as follows:
$9,972,000 charged to operating profit representing $8,800,000 of
facilities relocation and corporate restructuring and $1,172,000 of
advertising production costs that in prior periods were deferred;
$4,782,000 charged to loss from continuing operations representing the
aforementioned $9,972,000 charged to operating profit, $7,000,000 of costs
of a proposed acquisition not consummated less $6,043,000 of gain on sale
of natural gas and oil business, less income tax benefit relating to the
aggregate of the above charges of $6,147,000; and $10,798,000 charged to
net loss representing the aforementioned $4,782,000 charged to loss from
continuing operations, $3,900,000 loss on disposal of discontinued
operations and a $2,116,000 extraordinary charge from the early
extinguishment of debt.
(8) Reflects certain significant charges recorded during 1995 as follows:
$19,331,000 charged to operating profit representing a $14,647,000 charge
for a reduction in the carrying value of long-lived assets impaired or to
be disposed of, $2,700,000 of facilities relocation and corporate
restructuring and $3,331,000 of accelerated vesting of restricted stock,
less $1,347,000 of other net credits; and $11,004,000 charged to loss from
continuing operations representing the aforementioned $19,331,000 charged
to operating profit, $1,000,000 of equity in losses of an investee, less
$15,088,000 of net gains consisting of $11,945,000 of gain on sale of