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TRIARC COMPANIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
JANUARY 3, 1999
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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 JANUARY 3, 1999.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________.
COMMISSION FILE NUMBER 1-2207
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TRIARC COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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 $288,807,069 as of March
15, 1999. There were 23,320,629 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, 1999.
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 January 3, 1999.
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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 expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
following: competition, including product and pricing pressures; success of
operating initiatives; the ability to attract and retain customers; development
and operating costs; advertising and promotional efforts; brand awareness; the
existence or absence of 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 of restaurant development by franchisees; the ability of
franchisees to open new restaurants in accordance with their development
commitments; the performance by material customers of their obligations under
their purchase agreements; changes in business strategy or development plans;
quality of management; availability, terms and deployment of capital; business
abilities and judgment of personnel; availability of qualified personnel; labor
and employee benefit costs; availability and cost of raw materials and supplies;
the success of the Company in identifying systems and programs that are not Year
2000 compliant; unexpected costs associated with Year 2000 compliance or the
business risk associated with Year 2000 non-compliance by customers and/or
suppliers; general economic, business and political conditions in the countries
and territories in which the Company operates, including the ability to form
successful strategic business alliances with local participants; changes in, or
failure to comply with, government regulations (including accounting standards,
environmental laws and taxation requirements); regional weather conditions;
changes in wholesale propane prices; the costs and other effects of legal and
administrative proceedings; the impact of general economic conditions on
consumer spending; and other risks and uncertainties referred to in this Form
10-K and other current and periodic filings by Triarc 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 leading premium beverage company, a restaurant franchisor and a soft drink
concentrates producer. Our premium beverage operations are conducted through the
Triarc Beverage Group ("TBG", which consists of Snapple Beverage Corp.
("Snapple"), Mistic Brands, Inc. ("Mistic") and Cable Car Beverage Corporation
("Cable Car"). The restaurant operations are conducted through Arby's, Inc.
(d/b/a Triarc Restaurant Group) ("Arby's"), the franchisor of the Arby's(R)
restaurant system. The soft drink concentrates business is conducted through
Royal Crown Company, Inc. ("Royal Crown"). Snapple is a leading marketer and
distributor of premium beverages in the United States. Arby's is the world's
largest restaurant system specializing in slow-roasted roast beef sandwiches and
according to Nation's Restaurant News, the tenth largest quick service
restaurant chain in the United States, based on 1997 domestic systemwide sales.
In addition, we have 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"). For information regarding the revenues, operating profit and
identifiable assets for our businesses for the fiscal year ended January 3,
1999, see "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 24 to the Consolidated Financial Statements
of Triarc Companies, Inc. and Subsidiaries (the "Consolidated Financial
Statements").
Our corporate predecessor was incorporated in Ohio in 1929. We
reincorporated in Delaware, by means of a merger, in June 1994. Our principal
executive offices are located at 280 Park Avenue, New York, New York 10017 and
our telephone number is (212) 451-3000. Our website address is: www.triarc.com.
BUSINESS STRATEGY
The key elements of our business strategy include (i) focusing our resources
on our 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 our businesses have implemented individual
plans focused on increasing revenues and improving operating efficiency. In
addition, we continuously evaluate and hold discussions with third parties
regarding various acquisitions and business combinations to augment our
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 our policy to publicly announce an
acquisition or business combination only after an agreement with respect to such
acquisition has been reached.
WITHDRAWAL OF GOING PRIVATE PROPOSAL; DUTCH AUCTION TENDER OFFER
On October 12, 1998, we announced that our Board of Directors had formed a
Special Committee to evaluate a proposal we had received from Nelson Peltz and
Peter W. May, the Chairman and Chief Executive Officer and the President and
Chief Operating Officer, respectively, of the Company for the acquisition by an
entity to be formed by them of all of the outstanding shares of common stock of
the Company (other than the approximately 6.0 million shares owned by an
affiliate of Messrs. Peltz and May) for $18.00 per share payable in cash and
securities (the "Proposed Going Private Transaction"). On March 10, 1999, we
announced that we had been advised by Messrs. Peltz and May that they had
withdrawn the Proposed Going Private Transaction effective immediately because
they did not believe that it was in the best interests of our stockholders at
that time. On that date we also announced that our Board of Directors
unanimously approved a tender offer for up to 5.5 million shares of the
Company's Common Stock at a price of not less than $16 1/4 and not more than $18
1/4 per share, pursuant to a "Dutch Auction."
The tender offer commenced on March 12, 1999. The tender offer, proration
period and withdrawal rights will expire at 12:00 midnight, New York City time
on April 13, 1999, unless the tender offer is extended.
The tender offer is subject to various terms and conditions described in
offering materials that were mailed on or about March 12, 1999 to our
shareholders of record as of March 10, 1999. The tender offer is conditioned on
3,500,000 shares of Common Stock being tendered, unless we waive this condition.
Wasserstein Perella & Co., Inc. is acting as Dealer Manager for the offer
and Georgeson & Company Inc. is serving as Information Agent.
RECENT ACQUISITIONS
On February 26, 1999, Snapple acquired Millrose Distributors, Inc.
("Millrose") for $17.25 million in cash, subject to adjustment. Prior to the
acquisition, Millrose was the largest non-company owned distributor of
Snapple(R) products and the second largest distributor of Stewarts(R) products
in the United States. Millrose's distribution territory, which includes parts of
New Jersey, is contiguous to that of Mr. Natural, Inc. ("Mr. Natural"), our
company-owned New York City and Westchester County distributor. In 1998,
Millrose had net sales of approximately $39 million.
REFINANCING OF SUBSIDIARY INDEBTEDNESS
On February 25, 1999 our subsidiaries completed the sale of $300 million
principal amount 10 1/4% senior subordinated notes due 2009, pursuant to Rule
144A of the Securities Act and concurrently entered into a new $535 million
senior secured credit facility.
In addition, on such date our subsidiary RC/Arby's Corporation delivered a
notice of redemption to holders of its $275 million principal amount 9 3/4%
senior secured notes due 2000 (the "RC/Arby's Notes"). The redemption occurred
on March 30, 1999 at a redemption price of 102.786% of the principal amount,
plus accrued and unpaid interest.
Both financings were issued through our new wholly-owned subsidiary, Triarc
Consumer Products Group, LLC ("Triarc Consumer Products Group") and its
subsidiaries. Triarc Consumer Products Group owns our premium beverage (Snapple,
Mistic(R) and Stewart's), restaurant franchising (Arby's, T.J. Cinnamons(R) and
Pasta Connection(TM)) and soft drink concentrates (Royal Crown(R), Diet Rite(R)
and Nehi(R)) businesses.
Triarc Consumer Products Group has used the net proceeds from the financings
to: (a) redeem the RC/Arby's Notes (approximately $287.1 million); (b) refinance
the Triarc Beverage Group's credit facility ($284.3 million principal amount
outstanding); (c) pay for the acquisition of Millrose (approximately $17.3
million); (d) pay customary fees and expenses (approximately $28 million); and
(e) fund a distribution to Triarc with the remaining proceeds. We will use the
distribution for general corporate purposes, which may include working capital,
future acquisitions and investments, repayment or refinancing of indebtedness or
restructurings or repurchases of our securities, including the Dutch Auction
tender offer described above.
The notes issued pursuant to the private placement have not been registered
under the Securities Act, and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
Triarc Consumer Products Group is obligated to cause a registration statement
with respect to a registered exchange offer or with respect to resales of the
notes to be declared effective no later than August 24, 1999. This Annual Report
on Form 10-K shall not constitute an offer to sell or the solicitation of an
offer to buy, nor shall there be any sale of the notes in any state or
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any state or
jurisdiction.
ISSUANCE OF ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES
On February 9, 1998 we sold $360 million principal amount at maturity of
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
represented 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 and expenses of approximately $4.0 million, were
approximately $96.2 million. The Debentures are convertible into shares of our
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
our Class A Common Stock would result in the issuance of approximately 3.4
million shares of Class A Common Stock. We may not redeem the Debentures prior
to February 9, 2003, but we may redeem the Debentures at any time thereafter. In
connection with the sale of the Debentures, we purchased from Morgan Stanley
1,000,000 shares of our Class A Common Stock for approximately $25.6 million.
SALE OF NATIONAL PROPANE PARTNERS, L.P.
On April 5, 1999, the Partnership and Columbia Propane Corporation
("Columbia"), a subsidiary of Columbia Energy Group, signed an agreement whereby
Columbia would acquire the outstanding general and limited partnership interests
in the Partnership. Consummation of the acquisition is subject to a number of
conditions. See "Item 1. -- Business -- Liquefied Petroleum Gas -- Recent
Developments."
FISCAL YEAR
Effective January 1, 1997, we adopted a 52/53 week fiscal convention for the
Company and each subsidiary (other than National Propane) whereby our 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
Snapple, Mistic, and Cable Car conduct our premium beverage operations,
Royal Crown conducts our soft drink concentrate operations, and Arby's conducts
our franchise restaurant operations.
PREMIUM BEVERAGES (SNAPPLE, MISTIC AND STEWART'S)
Through Snapple, Mistic and Cable Car, we are a leader in the approximately
$3.0 billion wholesale premium beverage market. According to A.C. Nielsen data,
in 1998 our premium beverage brands had the leading share (34%) of premium
beverage sales volume in grocery stores, mass merchandisers and convenience
stores.
Snapple
Snapple markets and distributes all-natural ready-to-drink teas, juice
drinks and juices. During 1998, Snapple sales represented approximately 79% of
our total premium beverage case sales. According to A.C. Nielsen data, in 1998
Snapple had the leading share (26%) of premium beverage sales volume in grocery
stores, mass merchandisers and convenience stores. Snapple has a stable base of
core products that are consistently Snapple's top sellers. Snapple's current top
twenty products have contributed approximately 70% of Snapple's sales in each of
the last three years.
Since acquiring Snapple in May 1997, we have strengthened our distributor
relationships, improved promotional initiatives and significantly increased new
product introductions and packaging innovations. These activities contributed to
an increase in Snapple case sales of 8.4% in 1998 over 1997. The most
important product introduction in 1998 was WhipperSnapple(R), a smoothie-like
beverage which, in 1998, was named Convenience Store News Magazine beverage
product of the year and won the American Marketing Association's Edison Award
for best new beverage. WhipperSnapple is a shelf stable product containing dairy
ingredients and a blend of fruit juices and purees. Since 1997, we have
introduced various new products and flavors in addition to WhipperSnapple,
including several herbal and green teas and Snapple Farms(R), a line of 100%
fruit juices which is available in five flavors. In April 1999, Snapple expects
to introduce Snapple Elements(TM), a line of all natural juice drinks and teas
enhanced with herbal ingredients. In addition, Snapple expects to introduce
another major new product line during the Spring of 1999.
Mistic
Mistic markets and distributes a wide variety of premium beverages,
including fruit drinks, ready-to-drink teas, juices and flavored seltzers under
the Mistic, Mistic Rain Forest Nectars(R) and Mistic Fruit Blast(TM) brand
names. Since acquiring Mistic in August 1995, we have introduced more than 35
new flavors, a line of 100% fruit juices, various new bottle sizes and shapes
and numerous new package designs. During 1999, Mistic expects to introduce
several new products and packages, including a smoothie-like beverage using the
WhipperSnapple technology.
Stewart's
Cable Car, the exclusive soft drink licensee of the Stewart's trademark,
markets and distributes Stewart's brand premium soft drinks, including Root
Beer, Orange N' Cream, Cream Ale, Ginger Beer, Creamy Style Draft Cola, Classic
Key Lime, Lemon Meringue, Cherries N' Cream and Grape. Cable Car holds the
exclusive perpetual worldwide license to manufacture, distribute and sell
Stewart's brand beverages and owns the Fountain Classics(R) trademark. Through
the fourth quarter of 1998, Stewart's has experienced 25 consecutive quarters of
double-digit percentage case sales increases compared to the prior year's
comparable quarter. We acquired Cable Car in November 1997 and have grown
Stewart's case sales by 17% in 1998 over 1997 primarily by increasing
penetration in existing markets, entering new markets and continuing product
innovation.
Products
Our premium beverage products compete in a number of product categories,
including fruit flavored beverages, iced teas, lemonades, carbonated sodas,
100% fruit juices, smoothies, nectars and flavored seltzers. These products are
generally available in the United States in some combination of 16 oz., 12 oz.
or 10 oz. glass bottles, 32 oz. or 20 oz. PET (plastic) bottles and 11.5 oz.
cans.
Co-Packing Arrangements
More than 20 co-packers strategically located throughout the United States
produce our premium beverage products for us under formulation requirements and
quality control procedures that we specify. We select and monitor the producers
to ensure adherence to our production procedures. We regularly analyze samples
from production runs and conduct spot checks of production facilities. We
purchase most packaging and raw materials and arrange for their shipment to our
co-packers and bottlers. Our three largest co-packers accounted for
approximately 50% of our aggregate case production of premium beverages in 1998.
Our contractual arrangements with our co-packers are typically for a fixed
term that is automatically renewable for successive one year periods. During the
term of the agreement, the co-packer generally commits a certain amount of its
monthly production capacity to us. Snapple has committed to order certain
guaranteed volumes under substantially all of its contracts. If the volume
actually ordered is less than the guaranteed volume, Snapple is typically
required to pay the co-packer the product of (1) an amount per case specified in
the agreement and (2) the difference between the volume actually ordered and the
guaranteed volume. At January 3, 1999, Snapple had reserves of approximately
$4.6 million for payments through 2000 under its long-term production contracts
with co-packers. We paid approximately $5.9 million under such take-or-pay
agreements during the seven months in 1997 that we owned Snapple and $11.3
million in 1998, primarily related to obligations entered into by the prior
owners of Snapple. 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. Cable Car has no
agreements requiring it to make minimum purchases. As a result of these co-
packing arrangements, we have generally avoided significant capital expenditures
or investments for bottling facilities or equipment, and accordingly our
production related fixed costs have been minimal.
We believe we have arranged for sufficient production capacity to meet our
1999 requirements and that, in general, the industry has excess production
capacity that we could use. We also expect that in 1999 we will meet
substantially all of our minimum production requirements under our co-packing
agreements.
Raw Materials
We purchase most raw materials used in the preparation and packaging of our
premium beverage products and supply them to our co-packers. We have chosen, for
quality control and other purposes, to purchase certain raw materials, such as
aspartame, on an exclusive basis from single suppliers although we believe that
adequate sources of such raw materials are available from multiple suppliers. We
purchase substantially all of our flavor requirements from six suppliers,
although we have designated one supplier as our preferred supplier of flavors.
We purchase all of our glass from three suppliers and all of plastic (PET)
bottles from four suppliers, although one glass supplier has the right to supply
up to 75% of our requirements for certain specified packaging, one glass
supplier has the right to supply up to 95% of certain packaging to Cable Car and
one supplier has the right, subject to certain conditions, to supply any new
plastic containers used by Snapple or Mistic. Since the acquisition of Snapple,
we have been negotiating and continue to negotiate, new supply and pricing
arrangements with our suppliers. We believe that, if required, alternate sources
of raw materials, flavors and glass bottles are available.
Distribution
We currently sell our premium beverages 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. We distribute our
products internationally primarily through one distributor in each country,
other than in Canada, where Perrier Group of Canada Ltd. is Snapple's master
distributor and where we also use brokers and direct account selling. We
typically grant distributors exclusive rights to sell Snapple, Mistic and/or
Stewart's products within a defined territory. We have written agreements with
distributors who represent approximately 70% of our volume. The agreements are
typically either for a fixed term renewable upon mutual consent or are
perpetual, and are terminable by us 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 owns three of its largest
distributors, Mr. Natural (New York Metropolitan area), Pacific Snapple
Distributors, Inc. (parts of Southern California) and Millrose (parts of New
Jersey).
No non-company owned distributor accounted for more than 5% of total case
sales in 1996, 1997 or 1998. We believe that we could find alternative
distributors if our relationships with our largest distributors were terminated.
International sales accounted for less than 10% of our premium beverage
sales in each of 1996, 1997 and 1998. Since we acquired Snapple, Royal Crown's
international group has been responsible for the sales and marketing of our
premium beverages outside North America.
Sales And Marketing
Snapple and Mistic have a combined sales and marketing staff. Cable Car has
its own sales and marketing staff. 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. We combined the
Snapple/Mistic sales forces by geographic zones. We organized Cable Car's sales
force into two divisions. We employed a sales and marketing staff, excluding
that of Snapple-owned distributors, of approximately 233 as of January 3, 1999.
We intend to maintain consistent advertising campaigns for our brands as an
integral part of our strategy to stimulate consumer demand and increase brand
loyalty. In 1999, we plan to employ a combination of network advertising
complemented with local spot advertising in our larger markets. We expect that
in most markets Snapple will use television as the primary advertising medium
and radio as the secondary medium. Mistic will use radio as its primary
advertising medium. We also employ outdoor, newspaper and other print media
advertising, as well as in-store point of sale promotions.
SOFT DRINK CONCENTRATES (ROYAL CROWN)
Through Royal Crown we participate in the retail carbonated soft drink
market. Royal Crown produces and sells concentrates used in the production of
carbonated soft drinks. Royal Crown sells these concentrates to independent,
licensed bottlers who manufacture and distribute finished beverage products
domestically and internationally. Royal Crown's products include: RC Cola(R),
Diet RC Cola(R), Cherry RC Cola(R), RC Edge(TM), Diet Rite Cola(R), Diet Rite
flavors, Nehi, Upper 10(R), and Kick(R). RC Cola is the largest national brand
cola available to the independent bottling system (bottlers who do not bottle
either Coca-Cola or Pepsi-Cola).
Royal Crown is the exclusive supplier of cola concentrate and a primary
supplier of flavor concentrates to Cott Corporation, which, based on public
disclosures by Cott, is the largest supplier of premium retailer branded
beverages in the United States, Canada and the United Kingdom. We also sell our
products internationally. Our international export business has grown at an 18%
compound annual growth rate over the five years ended 1997, although growth
slowed to 4% in 1998 due to adverse economic conditions in some of our markets,
especially Russia. Royal Crown's share of the overall domestic carbonated soft
drink market was approximately 1.7% in 1997 according to Beverage Digest/Maxwell
estimates. During 1998, Royal Crown's soft drink brands had approximately a 1.6%
share of national supermarket volume.
Royal Crown's Bottler Network
Royal Crown sells its flavoring concentrates for branded products to
independent licensed bottlers in the United States and 65 foreign countries,
including Canada. Consistent with industry practice, Royal Crown assigns each
bottler an exclusive territory for bottled and canned products within which no
other bottler may distribute Royal Crown branded soft drinks. As of January 3,
1999, Royal Crown products were packaged and/or distributed domestically by 150
licensees, covering 50 states and Puerto Rico. As of January 3, 1999, Royal
Crown's independent bottlers operated a total of 35 production centers pursuant
to 108 production and distribution agreements and operated under 42
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.
Royal Crown's ten largest bottler groups accounted for approximately 79% of
Royal Crown's domestic revenues from concentrate for branded products during
1997 and 79% during 1998. RC Chicago Bottling Group accounted for approximately
23% of Royal Crown's domestic revenues from concentrate for branded products
during 1998. American Bottling Company accounted for approximately 18%
of such revenues during 1998. Although we believe that Royal Crown could find
new bottlers to license the RC Cola brand to, in the short term Royal Crown's
sales would decline if these major bottlers stopped selling RC Cola brand
products.
Private Label
Royal Crown believes that private label sales through Cott 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
1998 decreased by 15% over sales in 1997 due primarily to inventory reduction
programs of Cott. Royal Crown's revenues from sales to Cott were approximately
12.6% of its total revenues in 1996, 15.8% in 1997 and 17.2% in 1998.
Royal Crown sells concentrate to Cott under a concentrate supply agreement
signed in 1994. Under the Cott agreement, (1) Royal Crown is Cott's exclusive
worldwide supplier of cola concentrates for retailer-branded beverages in
various containers; (2) Cott must purchase from Royal Crown at least 75% of its
total worldwide requirements for carbonated soft drink concentrates for
beverages sold in such containers; (3) the initial term is 21 years and there
are multiple six-year extensions; and (4) as long as Cott purchases a specified
minimum number of units of private label concentrate in each year of the
agreement, Royal Crown will not manufacture and sell private label carbonated
soft drink concentrates to parties other than Cott anywhere in the world.
In addition, Royal Crown supplies Cott with non-cola carbonated soft drink
concentrates. Through its private label program, Royal Crown develops new
concentrates specifically for Cott's private label accounts. The proprietary
formulae Royal Crown uses for this 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 agreement, except, in most cases, upon termination of the
Cott agreement as a result of breach or non-renewal by Royal Crown.
Distribution
Bottlers distribute finished soft drink products through the take home
channel -- comprised of supermarkets, the convenience channel -- comprised of
convenience stores and other small retailers; fountain/food service channel --
comprised of fountain syrup sales and restaurant single drink sales; and vending
channel -- consisting of bottle and can sales through vending machines. Royal
Crown's bottlers distribute their products primarily through the take-home
channel.
International
Royal Crown's sales outside the United States were approximately 8.7% of its
total revenues in 1996, 10.9% in 1997 and 11.3% in 1998. Sales outside the
United States of branded concentrates were approximately 12.3% of Royal Crown's
total branded concentrate sales in 1996, 13.9% in 1997 and 13.6% in 1998. The
decreases in percentages for 1998 are mainly attributable to economic conditions
in Russia. As of January 3, 1999, 105 bottlers and 14 distributors sold Royal
Crown branded products outside the United States in 65 countries, with
international export sales in 1998 distributed among Canada (7.4%), Latin
America and Mexico (33.4%), Europe (16.0%), the Middle East/Africa (23.6%) and
the Far East/Pacific Rim (19.6%). While the financial and managerial resources
of Royal Crown have been focused on the United States, we believe significant
opportunities exist for Royal Crown in international markets. New bottlers were
added in 1998 to the following markets: Russia, Ukraine, Croatia, Latvia,
Brazil, Spain, Syria and the Dominican Republic.
Product Development And Raw Materials
Royal Crown believes that it has a history 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 and in 1998 Royal Crown
introduced two new Diet Rite flavors, Iced Mocha and Lemon Sorbet and began to
use sucralose in Diet RC Cola.
Flavoring ingredients and sweeteners are generally available on the open
market from several sources, although as noted above, we have agreed to purchase
certain raw materials on an exclusive or preferred basis from single suppliers.
FRANCHISE RESTAURANT SYSTEM (ARBY'S)
Through the Arby's franchise business, we participate in the approximately
$100 billion quick service restaurant segment of the domestic restaurant
industry. Arby's, which will celebrate its 35th anniversary in 1999, enjoys a
high level of brand recognition. In 1998, Arby's had a market share of
approximately 73% of the roast beef sandwich segment of the quick service
restaurant category. In addition to various slow-roasted roast beef sandwiches,
Arby's also offers a selected menu of chicken, turkey, ham and submarine
sandwiches, side-dishes and salads. Arby's also currently offers franchisees the
opportunity to multi-brand at Arby's locations with T.J. Cinnamons products,
which are primarily gourmet cinnamon rolls, gourmet coffees and other related
products. Arby's expects to offer franchisees the opportunity to multi-brand
with Pasta Connection products, which are pasta dishes with a variety of
different sauces, after we complete the final stages of test marketing in 1999.
As of January 3, 1999, the Arby's restaurant system consisted of 3,135
franchised restaurants, of which 2,965 operated within the United States and 170
operated outside the United States. Of the domestic restaurants, approximately
300 were multi-branded locations that also sell T.J.
Cinnamons products.
Currently all of the Arby's restaurants are owned and operated by
franchisees. Because we own no restaurants, we avoid the significant capital
costs and real estate and operating risks associated with restaurant operations.
As a franchisor we receive franchise royalties from all Arby's restaurants and
upfront franchise fees from our restaurant operators for each new unit opened.
Our average franchise royalty rate in 1998 was 3.2% of franchise revenues, which
included royalties of 4% from most existing units and all new domestic units
opened.
From 1996 to 1998, Arby's system-wide sales grew at a compound annual growth
rate of 6.1% to $2.2 billion. Through January 3, 1999 the Arby's system has
experienced eight consecutive quarters of domestic same store sales growth
compared to the prior year's comparable quarter. During 1998, our franchisees
opened 130 new Arby's and closed 87 underperforming Arby's. In addition, our
franchisees opened 199 multi-branded T.J. Cinnamons in Arby's units in 1998. As
of January 3, 1999, franchisees have committed to open up to 1,011 Arby's
restaurants over the next 12 years.
In May 1997, Arby's sold all of the stock of the two corporations owning all
of the 355 company-owned Arby's restaurants to RTM, Inc. ("RTM"), the largest
franchisee in the Arby's system. Arby's now derives its revenues from two
principal sources: (1) royalties from franchisees and (2) franchise fees. Prior
to this sale, Arby's primarily derived its revenues from sales at company-owned
restaurants.
Arby's Restaurants
Arby's opened its first restaurant in Youngstown, Ohio in 1964. As of
January 3, 1999, franchisees operated Arby's restaurants in 48 states and 10
foreign countries. As of January 3, 1999, the six leading states by number of
operating units were: Ohio, with 242 restaurants; Texas, with 174 restaurants;
Michigan, with 161 restaurants; Indiana, with 157 restaurants; California, with
156 restaurants; and Florida with 151 restaurants. Canada is the country outside
the United States with the most operating units, with 118 restaurants.
Arby's restaurants in the United States and Canada typically range in size
from 2,500 square feet to 3,000 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 Arby's restaurants at the
beginning and end of each year from 1995 to 1998.
1995 1996 1997 1998
----- ----- ----- -----
Restaurants open at beginning of period........2,790 2,955 3,030 3,092
Restaurants opened during period............. ...222 132 125 130
Restaurants closed during period..................57 57 63 87
-- -- -- --
Restaurants open at end of period..............2,955 3,030 3,092 3,135
===== ===== ===== =====
Since January 1, 1995, 609 new Arby's were opened and 264 underperforming Arby's
restaurants have closed. We believe that this has contributed to the average
annual unit volume increase of the Arby's system, as well as to an improvement
of the overall brand image of Arby's.
Franchise Network
At January 3, 1999, 530 Arby's franchisees operated 3,135 separate
restaurants. The initial term of the typical "traditional" franchise agreement
is 20 years. Arby's does not offer any financing arrangements to its
franchisees.
Arby's franchisees opened 15 new restaurants outside of the United
States during 1998. Arby's also had territorial agreements with international
franchisees in five countries at January 3, 1999. 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. Arby's
management expects that future international franchise agreements will more
narrowly limit the geographic exclusivity of the franchisees and prohibit
sub-franchise arrangements.
Arby's offers franchises for the development of both single and multiple
"traditional" restaurant locations. All franchisees are required to execute
standard franchise agreements. Arby'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 was 3.2% in 1998. Franchisees typically pay a
$10,000 commitment fee, credited against the franchise fee referred to above,
during the development process for a new restaurant. At January 3, 1999, we had
commitments from franchisees to open 1,011 new Arby's restaurants over the next
twelve years.
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. Arby's
continuously monitors franchisee operations and inspects restaurants
periodically to ensure that company practices and procedures are being followed.
Advertising And Marketing
The Arby's system through its franchisees 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 approximately .7%
of net sales to the Arby's Franchise Association, 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 net 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 net sales. As a result of the sale of company-owned restaurants to
RTM, Arby's has no expenditures for advertising and marketing in support of
company-owned restaurants, as compared to approximately $9.0 million in 1997
and $25.8 million in 1996.
Quality Assurance
Arby's has developed a quality assurance program designed to maintain
standards and uniformity of the menu selections at each of its franchised
restaurants. Arby's assigns a full-time quality assurance employee to each of
the five independent processing facilities that processes roast beef for Arby's
domestic restaurants. The quality assurance employee inspects the roast beef for
quality, uniformity and performance. In addition, on a quarterly basis, Arby's,
through an independent outside laboratory, tests samples of roast beef from
franchisees. Each year, Arby's representatives conduct unannounced inspections
of operations of a number of franchisees to ensure that Arby's policies,
practices and procedures are being followed. Arby's field representatives also
provide a variety of on-site consultative services to franchisees. Arby's has
the right to terminate franchise agreements if franchisees fail to comply with
quality standards.
Provisions And Supplies
Five independent meat processing facilities provide all of Arby's roast
beef in the United States. Franchise operators are required to obtain roast beef
from one of the five approved suppliers. ARCOP, Inc., a non-profit purchasing
cooperative, negotiates contracts with approved suppliers on behalf of Arby's
franchisees. Arby's 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 Arby's
specifications and approval. Through ARCOP, Arby's franchisees purchase food,
proprietary paper and operating supplies through national contracts employing
volume purchasing.
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. We believe that the
Partnership is the seventh largest retail marketer of propane in terms of volume
in the United States. As of January 3, 1999, the Partnership had 155 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.
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
the Consolidated Financial Statements.
Recent Developments
As has previously been announced, we have been considering various
strategic alternatives to maximize the value of the Partnership and we have been
in active discussions with several third parties concerning a sale or merger of
the Partnership. On April 5, 1999, the Partnership and Columbia signed a
definitive purchase agreement pursuant to which Columbia Propane, L.P. will
commence a tender offer to acquire (the "Partnership Sale") all of the out-
standing common units of the Partnership for $12.00, in cash per common unit,
which tender offer is the firststep of a two-step transaction. In the second
step, subject to the terms and conditions of the purchase agreement, Columbia
Propane, L.P. would acquire general partner interests and subordinated units
of the Partnership from National Propane and a subsidiary of National Propane
in consideration for $2.1 million in cash and the forgiveness of approximately
$15.8 million of a $30.7 million note owed by us to the Operating Partnership,
and the Partnership would merge into Columbia Propane, L.P. As part of the
second step, any remaining common unitholders of the Partnership would receive,
in cash, $12.00 per common unit and we would repay the remainder of such note
(approximately $14.9 million).
The Board of Directors of National Propane, acting on the recommendation
of its Special Committee (formed to evaluate and make a recommendation on behalf
of the Partnership's common unitholders with respect to the transaction) has
unanimously approved the transaction with Columbia and unanimously recommended
that the Partnership's unitholders tender their units pursuant to the offer.
The tender offer is expected to commence on April 9, 1999. The offer for
the common units will be subject to certain conditions, including there being
validly tendered by the expiration date, and not withdrawn, at least a majority
of the outstanding common units on a fully diluted basis. We cannot assure you
that the transaction with Columbia will be consummated.
At December 31, 1998 the Operating Partnership was not in compliance
with a covenant under its bank credit facility and is forecasting non-compliance
with the same covenant as of March 31, 1999 (the "Forecasted Non-Compliance").
The Operating Partnership has received an unconditional waiver of such
non-compliance from the lenders under its credit facility (the "Lenders"), with
respect to the non-compliance as of December 31, 1998, and a conditional waiver
with respect to future covenant non-compliance with such covenant through August
31, 1999. A number of the conditions to such waiver are directly related to the
Partnership Sale. Should the conditions not be met or the waiver expire, and the
Operating Partnership be in default of its bank facility, the Operating
Partnership would also be in default of its First Mortgage Notes by virtue of
cross-default provisions. As a result of the Forecasted Non-Compliance, the
conditions of the waiver and the cross-default provisions of the First Mortgage
Notes, we understand that the Partnership intends to classify all of its
indebtedness as a current liability as of December 31, 1998. In addition, we
understand that as a result of the Forecasted Non-Compliance, the conditional
nature of the waiver and its effectiveness only through August 31, 1999 with
respect to the Forecasted Non-Compliance and the fact that the Partnership Sale
may not be consummated, the Partnership's independent auditors intend to render
an opinion on the Partnership's financial statements for the year ended December
31, 1998 with an explanatory paragraph concerning doubt as to the Partnership's
ability to continue as a going concern for a reasonable period of time. If the
Partnership Sale is not consummated and the lenders are unwilling to extend the
waiver, (i) the Partnership could seek to otherwise refinance its indebtedness,
(ii) we might consider buying the banks' loans to the Operating Partnership
(approximately $16.0 million principal amount outstanding as of January 3, 1999)
or (iii) the Partnership could be forced to seek protection under the Federal
bankruptcy laws. In such latter event, National Propane may be required to honor
its guarantee of the Operating Partnership's indebtedness under its bank
facility and the First Mortgage Notes. As a result, we may be required to pay a
$30.0 million demand note payable to National Propane, and National Propane
would be required to surrender the note (if we have not yet paid it) or the
proceeds from the note, as well as its interests in the Partnership and the
Operating Partnership, to the Lenders.
Products, Services And Marketing
The Partnership distributes its propane through a nationwide
distribution network integrating 155 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.
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. 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 1998 the Partnership served over 210,000 active customers. No single
customer accounted for 10% or more of the Partnership's revenues in 1997 or
1998. Year-to-year demand for propane is affected by the relative severity of
the winter and other climatic conditions.
A wholly-owned corporate subsidiary of the Operating Partnership also
sells, leases and services equipment related to the propane distribution
business, including household appliances and specialized equipment for the use
of propane as fuel. The sale of specialized equipment, service income and rental
income represented less than 10% of the Partnership's gross income during 1998.
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 the cost
increases to its customers. Consequently, the Partnership's profitability is
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 50 domestic and Canadian
suppliers during 1998, primarily major oil companies and independent producers
of both gas liquids and oil, and it also purchased propane on the spot market.
Approximately 95% of all propane purchases by the Partnership in 1998 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.
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.
Dynegy Liquids Marketing and Trade ("Dynegy") and Conoco Inc. ("Conoco")
each supplied approximately 11% of the Partnership's propane in 1998 and Amoco
Oil Company ("Amoco") supplied approximately 10%. The Partnership believes that
if supplies from Dynegy, Conoco or Amoco 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.
GENERAL
Trademarks
We and our affiliates (including the Partnership and the Operating
Partnership) own numerous trademarks that are considered material to our
businesses, including Snapple, Made From The Best Stuff On Earth(R),
WhipperSnapple, Snapple Farms, Snapple Refreshers(R), Mistic, Mistic Rain Forest
Nectars, Fountain Classics, RC Cola, Diet RC, Cherry RC Cola, RC Edge, Royal
Crown, Diet Rite, Nehi, Upper 10, Kick, Arby's, T.J. Cinnamons and National
Propane(TM). Mistic licenses the Fruit Blast trademark. Cable Car licenses the
Stewart's trademark on an exclusive perpetual basis for soft drinks and
considers it to be material to its business. In addition, we consider our
finished product and concentrate formulae, which are not the subject of any
patents, to be trade secrets.
Many of the material trademarks of Snapple, Mistic, Cable Car, Royal
Crown, and Arby's 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, Cable
Car's, Royal Crown's or Arby's right to use any of their material trademarks in
the United States.
Competition
Our businesses operate in highly competitive industries. Many of the
major competitors in these industries have substantially greater financial,
marketing, personnel and other resources than we do.
Our premium beverage products and soft drink concentrate products
compete generally with all liquid refreshments and in particular with numerous
nationally-known soft drinks such as Coca-Cola and Pepsi-Cola. We also compete
with ready to drink brewed iced tea competitors such as Nestea Iced Tea, which
is produced pursuant to a long-term license granted by Nestle S.A. to The
Coca-Cola Company, and Lipton Original Iced Tea, which is distributed by a joint
venture between PepsiCo, Inc. and Thomas J. Lipton Company, a subsidiary of
Unilever Plc. We compete 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.
In recent years, 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, 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 us.
The Coca-Cola Company and PepsiCo, Inc. are also making increased use of
exclusionary marketing agreements which prevent or limit the marketing and sale
of competitive beverage products at various locations such as colleges, schools,
and convenience and grocery store chains.
Arby's faces direct and indirect competition from numerous
well-established competitors, including national and regional fast food chains,
such as McDonald's, Burger King and Wendy's. In addition, Arby's competes with
locally owned restaurants, drive-ins, diners and other similar establishments.
Key competitive factors in the quick service restaurant industry are price,
quality of products, quality and speed of service, advertising, name
identification, restaurant location and attractiveness of facilities.
Many of the leading restaurant chains have focused on new unit
development as one strategy to increase market share through increased consumer
awareness and convenience. This has led operators to employ other strategies,
including frequent use of price promotions and heavy advertising expenditures.
Additional competitive pressures for prepared food purchases have come
more recently from operators outside the restaurant industry. Several major
grocery chains have begun offering fully prepared food and meals to go as part
of their deli sections. Some of these chains also have added in-store cafes with
service counters and tables where consumers can order and consume a full menu of
items prepared especially for this portion of the operation.
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.
Governmental Regulations
Each of our businesses is subject to a variety of federal, state and
local laws, rules and regulations.
The production and marketing of our beverages are subject to the rules
and regulations of various federal, state and local agencies, including the
United States Food and Drug Administration (the "FDA"). The FDA also regulates
the labeling of our products. In addition, our dealings with our bottlers and/or
distributors may, in some jurisdictions, be subject to state laws governing
licensor-licensee or distributor relationships.
Various state laws and the Federal Trade Commission (the "FTC") regulate
Arby's franchising activities. The FTC requires that franchisors make extensive
disclosure to prospective franchisees prior to the execution of a franchise
agreement. Several states require registration and disclosure in connection with
franchise offers and sales and have "franchise relationship laws" that limit the
ability of franchisors to terminate franchise agreements or to withhold consent
to the renewal or transfer of these agreements. In addition, national, state and
local laws affect Arby's ability to provide financing to franchisees. In
addition, Arby's franchisees must comply with 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. As initially
proposed, the Final Rule required certain immediate changes in the Partnership's
operating procedures including retrofitting the Operating Partnership's cargo
tanks. The Partnership believes that, as a result of the substantially completed
negotiated rulemaking involving the DOT, the propane industry and other
interested parties, that it will not incur material increases to its cost of
operations in complying with the Final Rule.
Except as described above, we are not aware of any pending legislation
that in our view is likely to have a material adverse effect on the operations
of our subsidiaries. We believe that the operations of our subsidiaries comply
substantially with all applicable governmental rules and regulations.
Environmental Matters
We 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.
We 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. We similarly 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. We believe that our operations comply
substantially with all applicable environmental laws and regulations. Based on
currently available information and the current reserve levels, we do not
believe that the ultimate outcome of any of the matters discussed below will
have a material adverse effect on our 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."
In 1991 our subsidiary Southeastern Public Service Company ("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. Remediation has been completed on twelve of the sites
which were sold to or leased by the purchaser of the ice operations and is
ongoing at one other. The purchaser of the ice operations has satisfied its
obligation to pay up to $1,000,000 of such remediation costs. Remediation has
been completed at three cold storage sites which were sold to the purchaser of
the cold storage operations sites, and is ongoing at two other sites.
Remediation is expected to commence on the remaining two sites in 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
approximately $1,235,000 through January 3, 1999. 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 undertaken certain further investigation at its own expense. Based on
preliminary findings, SEPSCO's environmental consultants believe that it may
cost between $250,000 and $300,000 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. Application has been made for the site to
enter Florida's Petroleum Cleanup Participation Program. If accepted, funds from
this program may defer a portion of the cost of remediation.
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. Remediation has been continuing at this site, and management
estimates that total remediation costs in excess of amounts incurred through
January 3, 1999 will be approximately $28,600 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 been continuing at this site. After 1998, ground water
sampling will proceed on a semi-annual basis and a formal report will be filed
with the state annually. When contaminants in the one remaining monitoring well
fall below detection limits, Royal Crown will proceed toward closure. Until that
occurs, Royal Crown expects that quarterly remediation costs will be
approximately $27,500. Royal Crown has incurred actual costs of $853,000, in the
aggregate, through January 3, 1999 for the foregoing 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 "DSHEC") 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 that other 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 a site investigation in 1991 and an Expanded Site Inspection (an
"ESI") in January 1994. Graniteville conducted a groundwater quality
investigation in 1992 and a supplemental site assessment in 1994. Based on these
investigations, DHEC requested that Graniteville enter into a
consent agreement providing for comprehensive assessment of the nature
and extent of soil and groundwater contamination at the site, if any, and an
evaluation of appropriate remedial alternatives. DHEC and Avondale entered
into a consent agreement in December 1997. In its public filings, Avondale
estimated the cost of the comprehensive assessment required by the consent
agreement to be between $200,000 and $400,000. Because Avondale's
public filings indicate that this investigation has not concluded, we are
currently unable to predict what further actions, if any, will be necessary to
address the landfill. In connection with the sale of Graniteville to Avondale,
we agreed to indemnify Avondale for certain costs incurred by it in connection
with the foregoing matters that are in excess of applicable reserves.
Seasonality
Our beverage, restaurant and propane businesses are seasonal. In our
beverage businesses, the highest revenues occur during spring and summer (April
through September). The royalty revenues of our restaurant business are somewhat
higher in our fourth quarter and somewhat lower in the first quarter. 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.
Insurance Operations
Historically, our subsidiary Chesapeake Insurance Company Limited
("Chesapeake Insurance"), (i) provided certain property insurance coverage for
us and certain of our former affiliates; (ii) reinsured a portion of certain
insurance coverage which we 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. On December 30, 1998 we sold all of our interest in Chesapeake
Insurance to International Advisory Services Ltd.
Employees
As of January 3, 1999, we had approximately 1,880 employees, including
1,055 salaried employees and 845 hourly employees. We believe that employee
relations are satisfactory. As of January 3, 1999, approximately 192 of our
employees were covered by various collective bargaining agreements expiring from
time to time from the present through 2001. A collective bargaining agreement
that expired March 15, 1999 is currently the subject of negotiations.
Risk Factors
We wish to caution readers that in addition to the important factors
described elsewhere in this Form 10-K, the following important factors, among
others, sometimes have affected, and in the future could affect, our actual
results and could cause our actual consolidated results during 1999, and beyond,
to differ materially from those expressed in any forward-looking statements made
by, or on behalf of, us.
Our Substantial Leverage May Adversely Affect Us
We have a significant amount of indebtedness. On an unconsolidated
basis, our indebtedness at January 3, 1999 was $138.0 million (excluding
intercompany debt other than a $30.7 million note owed to the Operating
Partnership). In addition, at January 3, 1999 our total consolidated
indebtedness was $709.0 million.
In addition to the above indebtedness, our subsidiaries may borrow an
additional $60.0 million of revolving credit loans under the new credit
facility, subject to certain limitations contained in the credit facility, the
indenture and instruments governing our other debt. (See "Item 1 -- Business --
Refinancing of Subsidiary Indebtedness.") If new debt is added to our current
debt levels, the related risks that we face could increase. In addition, under
our various debt agreements, substantially all of our assets, other than cash,
cash equivalents and short term investments, are pledged as collateral security.
Our subsidiaries' new credit facility contains financial covenants that,
among other things, require our subsidiaries to maintain certain financial
ratios and restrict our subsidiaries' ability to incur debt, enter into certain
fundamental transactions (including certain mergers and consolidations) and
create or permit liens. If our subsidiaries are unable to generate sufficient
cash flow or otherwise obtain the funds necessary to make required payments of
principal and interest under, or are unable to comply with covenants of, the new
credit facility or the new indenture, we would be in a default under the terms
thereof which would permit the lenders under the new credit facility and, by
reason of a cross default provision, the indenture, to accelerate the maturity
of the balance thereof. You should read the information we have included in
Notes 8 and 26 to the Consolidated Financial Statements.
Holding Company Structure
Because we are predominantly a holding company, our ability to service
debt and pay dividends, including dividends on our common stock, is primarily
dependent upon (in addition to our cash, cash equivalents and short term
investments on hand) cash flows from our subsidiaries, including loans, cash
dividends and reimbursement by subsidiaries to us in connection with providing
certain management services and payments by subsidiaries under certain tax
sharing agreements. At January 3, 1999, on an unconsolidated basis, our total
cash, cash equivalents and short-term investments were approximately $169.3
million.
Under the terms of various indentures and credit arrangements which
govern our principal subsidiaries, our subsidiaries are subject to certain
restrictions on their ability to pay dividends and/or make loans or advances to
us. The ability of any of our subsidiaries to pay cash dividends and/or make
loans or advances to us is also dependent upon the respective abilities of such
entities to achieve sufficient cash flows after satisfying their respective cash
requirements, including debt service, to enable the payment of such dividends or
the making of such loans or advances.
In addition, our equity interests in our subsidiaries rank junior to all
of the respective indebtedness, whenever incurred, of such entities in the event
of their respective liquidation or dissolution. As of January 3, 1999, our
subsidiaries had aggregate long-term indebtedness of approximately $571.0
million (excluding intercompany indebtedness).
Successful Completion and Integration of Acquisitions
One element of our business strategy is to continuously evaluate
acquisitions and business combinations to augment our businesses. We cannot
assure you that we will identify and complete suitable acquisitions or, if
completed, that such acquisitions will be successfully integrated into our
operations. Acquisitions involve numerous risks, including difficulties
assimilating new operations and products. We cannot assure you that we will have
access to the capital required to finance potential acquisitions on satisfactory
terms, that any acquisition would result in long-term benefits to us or that
management would be able to manage effectively the resulting business. Future
acquisitions may result in the incurrence of additional indebtedness or the
issuance of additional equity securities.
We May Not Be Able to Continue to Improve Snapple's Operations
On May 22, 1997, we acquired all of the outstanding capital stock of
Snapple for approximately $300 million. Snapple's performance deteriorated sig-
nificantly after the prior owners acquired it in December 1994 for approximately
$1.7 billion. Case sales declined from 72.0 million cases in 1994 to 49.6
million cases for the 12 months ended March 31, 1997, and revenues declined
from $675.8 million in 1994 to $550.8 million in 1996. However, Snapple's
case sales increased by approximately 8.4% in 1998 compared to 1997. We believe
that Snapple's improved results since we acquired it are largely attributable
to the following factors: (1) relationships with distributors have improved
significantly; (2) new product introductions have increased dramatically;
(3) Snapple's marketing campaigns; and (4) Snapple has been able to improve the
profitability of its international business. We cannot assure you that our
efforts to improve Snapple's business will continue to be successful.
We May Not Be Able to Develop Successful New Beverage Products
Part of our strategy is to increase our sales through the development of
new beverage products. Although we have successfully launched a number of new
beverage products in 1997 and 1998, we cannot assure you that we will be able to
develop, market and distribute future beverage products that will enjoy market
acceptance. The failure to develop new beverage products that gain market
acceptance would have an adverse impact on our growth and materially adversely
affect us.
Arby's is Dependent on Restaurant Revenues and Openings
Arby's principal source of revenues are royalty fees received from its
franchisees. Accordingly, Arby's future revenues will be highly dependent on the
gross revenues of Arby's franchisees and the number of Arby's restaurants that
its franchisees operate.
Gross Revenues of Arby's Restaurants
Competition among national brand franchisors and smaller chains in the
restaurant industry to grow their franchise systems is intense. Arby's
franchisees are generally in competition for customers with franchisees of other
national and regional fast food chains and locally owned restaurants. We cannot
assure you that the level of gross revenues of Arby's franchisees, upon which
our royalty fees are dependent, will continue.
Number of Arby's Restaurants
Numerous factors beyond our control affect restaurant openings. These
factors include the ability of a potential restaurant owner to obtain financing,
locate an appropriate site for a restaurant and obtain all necessary state and
local construction, occupancy or other permits and approvals. Although as of
January 3, 1999 franchisees have signed commitments to open approximately 1,011
Arby's restaurants and have made or are required to make non-refundable deposits
of $10,000 per restaurant, we cannot assure you that these commitments will
result in open restaurants.
Arby's Reliance on Certain Customers May Adversely Affect Us; We Remain
Contingently Liable on Certain Obligations.
During 1998, Arby's received approximately 27% of its royalties from RTM
and its affiliates, which are franchisees of over 700 Arby's restaurants, and
received approximately 5% of its royalties from each of two other franchisees.
Arby's franchise royalties could decline from their present levels if any of
these franchisees suffered significant declines in their businesses.
In addition, RTM has assumed certain lease obligations and indebtedness
in connection with the restaurants that it acquired from Arby's. We remain
contingently liable if RTM fails to make payments on those leases and
indebtedness. You should read the information we have included in Notes 3
and 21 to the Consolidated Financial Statements.
Royal Crown's Reliance on Certain Customers and Bottlers May Adversely
Affect Us
Private Label Sales
Royal Crown relies to a significant extent upon sales of beverage
concentrates to Cott Corporation under a concentrate supply agreement signed in
1994. Royal Crown's revenues from sales to Cott were approximately 12.6% of its
total revenues in 1996, 15.8% in 1997 and 17.2% in 1998. If Cott's business
declines, or if Royal Crown's supply agreement with Cott is terminated, Royal
Crown's sales could be adversely affected.
Bottlers
Royal Crown relies upon its relationships with certain key bottlers. For
example:
$ RC Chicago Bottling Group accounted for approximately 23% of
Royal Crown's domestic revenues from concentrate for branded
products during 1998; American Bottling Company accounted for
approximately 18% of such sales during 1998.
$ Royal Crown's ten largest bottler groups accounted for
approximately 79% of Royal Crown's domestic revenues from
concentrate for branded products during 1998.
Royal Crown's sales would decline from their present levels if any of these
major bottlers stopped selling RC Cola brand products unless and until Royal
Crown established a comparable relationship with one or more new bottlers. We
cannot assure you that new bottlers would provide Royal Crown with the level of
sales that these bottlers have.
Competition from Other Beverage and Restaurant Companies
Could Adversely Affect Us
The premium beverage, carbonated soft drink and restaurant industries
are highly competitive. Many of our competitors have substantially greater
financial, marketing, personnel and other resources that we do. You should read
the information we have included in "Item 1. Business -- Competition."
Weather Conditions Affect the Demand for Propane
Weather conditions, which can vary substantially from year to year, have
a significant impact on the demand for propane for both heating and agricultural
purposes. Many customers of the Operating Partnership rely heavily on propane as
a heating fuel. Accordingly, the volume of propane sold is at its highest during
the six-month peak heating season of October through March and is directly
affected by the severity of the winter weather. Actual weather conditions,
therefore, may significantly affect the Operating Partnership's financial
performance. Furthermore, despite the fact that overall weather conditions may
be normal, variations in weather in one or more regions in which the Operating
Partnership operates can significantly affect the total volume of propane sold
by the Operating Partnership, and consequently, the Operating Partnership's
results of operations.
Environmental Liabilities
Certain of our 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 re-
gard 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 re-
leases of hazardous or toxic substances. Although we believe that our opera-
tions comply in all material respects with all applicable environmental
laws and regulations, we 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. We 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.
Possible Disruption of Business Due to Year 2000 Problem
Many computer systems and software products will not function properly
in the year 2000 and beyond due to a once-common programming standard that
represents years using two digits. Alleviating this problem is often referred to
as becoming year 2000 compliant. We are undertaking a study of our computer
systems to determine whether they are year 2000 compliant and, if they are not
year 2000 compliant, what modifications are required. We believe that the
majority of our systems are currently year 2000 compliant, including all
significant systems in our restaurant business. However, certain significant
systems in our beverage business, primarily Royal Crown's order processing,
inventory control and production scheduling system, required remediation which
was completed in the first quarter of 1999. As a result, we have no reason to
believe that any of our mission critical systems are not year 2000 compliant.
However, if final testing and implementation steps reveal any year 2000
compliance problems which cannot be corrected prior to January 1, 2000, a
material impact on our operations could result. We have inquired as to the year
2000 compliance of significant third parties that we have relationships with,
such as our suppliers, banking institutions, customers, and payroll processors.
We are also subject to certain risks if these third parties are not year 2000
compliant. We have engaged consultants to review the compliance efforts of each
of our operating businesses. The consultants are assisting us to complete
inventory of critical applications and complete formal documentation of year
2000 compliance of hardware and software as well as mission critical customers,
vendors and service providers. We cannot determine the impact on our results of
operations in the event that these third parties are not year 2000 compliant. As
of January 3, 1999, we had incurred $0.7 million to be year 2000 compliant. The
current estimated additional cost to complete such remediation is $1.3 million.
You should read the information we have included under the caption "Item 7.
- --Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
ITEM 2. PROPERTIES.
We believe that our properties, taken as a whole, are generally well
maintained and are adequate for our current and foreseeable business needs. We
lease a majority of the properties.
We have set forth in the following table certain information about the
major plants and facilities of each of our business segments, as well as our
corporate headquarters, as of January 3, 1999:
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 7 leased 656,000*
(various locations)
Restaurants..........Headquarters 1 leased 47,300**
Ft. Lauderdale, FL
Propane..............Headquarters 1 leased 17,000
155 Full Service Centers and 193 owned 550,000
100 Remote Storage Facilities 62 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
Arby's.
*** 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).
Arby's also owns four and leases eleven properties which are leased or
sublet principally to franchisees and has leases for nine inactive properties.
Our other subsidiaries also own or lease a few inactive facilities and
undeveloped properties, none of which are material to our financial condition or
results of operations.
Substantially all of the properties used in our businesses are pledged
as collateral for certain debt.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to two consolidated actions in the United States
District Court for the Southern District of New York involving three former
court appointed directors of the Company's Board. In March 1995, the Company
paid fees to the former directors for their services as court appointed
directors and, in connection with the payment of those fees, the former
directors executed release/agreements in favor of the Company.
In November 1995, the Company commenced the first of the consolidated
actions, in New York State court, alleging that the former court appointed
directors violated the release/agreements by initiating legal proceedings,
subsequently dismissed, for the purpose of obtaining additional fees of $3.0
million. The former directors filed a third-party complaint in that action
against Nelson Peltz for indemnification. On June 27, 1996, the former court
appointed directors commenced the second of the consolidated actions in the
United States District Court for the Northern District of Ohio, asserting claims
against Nelson Peltz and others. In an amended complaint, the former court
appointed directors alleged, among other things, that the defendants conspired
to mislead a federal court in connection with the change of control of Triarc in
April 1993 and in connection with the payment of the former court appointed
directors' fees. The former court appointed directors also alleged that Mr.
Peltz and Steven Posner conspired to frustrate collection of amounts owed by
Steven Posner to the United States. The amended complaint sought, among other
relief, damages in an amount not less than $4.5 million, an order returning the
former court appointed directors to the Company's Board and rescission of the
1993 change of control transaction. By order dated February 10, 1999, the court
granted Mr. Peltz's motion for summary judgment with respect to all the claims
against him in the consolidated actions. The court has granted the former
court appointed directors' permission to move for reconsideration as to certain
of their claims. No trial date has been set for the remaining claims.
On February 19, 1996, Arby's Restaurants S.A. de C.V., the master
franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico
against Arby's. The plaintiff alleged that a non-binding letter of intent dated
November 9, 1994 between the plaintiff and Arby's constituted a binding contract
pursuant to which Arby's had obligated itself to repurchase the master franchise
rights from the plaintiff for $2.85 million and that Arby's had breached a
master development agreement between the plaintiff and Arby's. Arby's commenced
an arbitration proceeding pursuant to the terms of the franchise and development
agreements. In September 1997, the arbitrator ruled that the November 9, 1994
letter of intent was not a binding contract and the master development agreement
was properly terminated. The plaintiff challenged the arbitrator's decision and
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 the plaintiff $2.85
million, plus interest and value added tax. In May 1997, the plaintiff commenced
an action against Arby's in the United States District Court for the Southern
District of Florida alleging that Arby's had engaged in fraudulent negotiations
with the plaintiff in 1994-1995, in order to force the plaintiff to sell the
master franchise rights for Mexico to Arby's cheaply and Arby's had tortiously
interfered with an alleged business opportunity that the plaintiff had with a
third party. Arby's has moved to dismiss that action. The parties have agreed to
settle all the litigation including the Mexican court case and on December 4,
1998 entered into an escrow agreement pursuant to which Arby's deposited $1.65
million in escrow. Under the terms of the escrow agreement, as amended, the
funds will be released to the plaintiff if by July 1, 1999 a definitive
settlement agreement has been executed by the parties and, if necessary,
approved by a Mexican court presiding over the plaintiff's suspension of
payments proceeding. If the definitive settlement agreement has not been
executed by July 1, 1999, the escrowed funds will be returned to Arby's. During
the pendency of the escrow arrangement, the parties will stay all proceedings in
the United States and, to the extent possible, not pursue the proceedings in
Mexico.
On June 3, 1997, ZuZu, Inc. ("ZuZu") and its subsidiary, ZuZu
Franchising Corporation ("ZFC") commenced an action (the "ZuZu Action") against
Arby's, Inc. ("Arby's") and Triarc in the District Court of Dallas County,
Texas. ZuZu sought 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 sought injunctive relief against Arby's and Triarc enjoining them
from disclosing or using ZuZu's trade secrets. ZFC also made a demand for
arbitration in which it alleged that Arby's had breached a Master Franchise
Agreement between ZFC and Arby's. In the arbitration proceeding, Arby's asserted
counterclaims against ZuZu for unjust enrichment, breach of contract and breach
of the duty of good faith and fair dealing. In the arbitration proceeding, ZFC
was awarded damages of $765,000 on its claims and Arby's was awarded $75,000 on
a counterclaim, resulting in a net damages award of $690,000 for ZFC. In a
related case, on March 13, 1998 Gregg Katz, Susan Katz Zweig and ZuZu of
Orlando, LLC, a ZuZu franchisee and the owners/investors of the franchisee
corporation, commenced an action (the "Katz Action") against Arby's, ZuZu, ZFC
and Triarc in the Superior Court of Fulton County Georgia. Plaintiffs alleged
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 sought actual damages of not
less than $600,000, consequential damages, punitive damages, treble damages and
other fees, costs and expenses. On November 30, 1998, both the ZuZu Action and
the Katz Action were settled for an aggregate payment of $820,000.
On June 25, 1997, Kamran Malekan and Daniel Mannion, allegedly
stockholders of the Company, commenced an action in the Delaware Court of
Chancery, New Castle County against the directors and certain former directors
of the Company, and naming the Company as a nominal defendant. The action
purports to assert claims on behalf of the Company and a class of all persons
who held stock of the Company on April 25, 1994. In an amended complaint, the
plaintiffs allege that the defendants violated their fiduciary duties and duties
of good faith to the Company and its stockholders and violated representations
in the Company's 1994 Proxy Statement by granting certain compensation to Nelson
Peltz and Peter May in 1994- 1997, including special bonuses to Messrs. Peltz
and May in 1996. The plaintiffs further allege that the 1994 Proxy Statement
contained false and misleading statements concerning the Company's compensation
plans. The amended complaint seeks, among other remedies, rescission of all
option grants to Messrs. Peltz and May that allegedly contravene the repre-
sentations in the 1994 Proxy Statement, an order directing Messrs. Peltz and
May to repay to the Company their 1996 special bonuses, an order enjoining
the defendants from awarding compensation to Messrs. Peltz and May in
violation of the representations in the 1994 Proxy Statement and damages. Dis-
covery has commencedin the action.
On August 13, 1997, Ruth LeWinter and Calvin Shapiro, both allegedly
Company stockholders, 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. The complaint asserts substantially the same claims, and seeks
substantially the same relief, as the amended complaint in the Malekan action
discussed above. The Company, its current directors, and certain of its former
directors have moved to dismiss or stay the LeWinter action pending the
resolution of the Malekan action. That motion is pending. On October 2, 1997,
five former directors of the Company, including the three former court-appointed
directors, filed cross-claims in the LeWinter action against the Company and
Nelson Peltz. The cross-claims alleged that Mr. Peltz violated an undertaking
given to a federal court in February 1993 by failing to vote his shares to keep
the former directors on the Company's Board, and that he conspired with Steven
Posner to violate a court order prohibiting Mr. Posner from serving as an
officer or director of the Company. The former directors seek indemnification in
connection with the LeWinter action; damages in an unspecified amount in excess
of $75,000; and costs and attorney's fees. The Company and Mr. Peltz have moved
to dismiss the cross-claims, and the former directors have moved for specific
enforcement of their claim for indemnification. By order dated October 8, 1998,
the court denied the motion for specific enforcement as to the three former
court appointed directors, and granted the motion as to the other two former
directors. The Company's motion to dismiss the remaining cross-claims is
pending. There has been no discovery in the action to date.
In October 1997, Mistic commenced an 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, among other things, 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, and also allege 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.
In connection with the Proposed Going Private Transaction, various class
actions had been brought on behalf of Triarc's stockholders in the Court of
Chancery of the State of Delaware challenging the offer by Messrs. Peltz and
May. These class actions name Triarc, Messrs. Peltz and May and directors of
Triarc as defendants. The class actions allege that consummation of the offer by
Messrs. Peltz and May would constitute a breach of the fiduciary duties of
Triarc's directors, that the proposed consideration to be paid for the Triarc
common stock in the Proposed Going Private Transaction was unfair, and demand,
in addition to damages and costs, that consummation of the offer by Messrs.
Peltz and May be enjoined. On March 26, 1999, four of the plaintiffs in the
foregoing actions filed an amended complaint alleging that the defendants
violated fiduciary duties owed to the Company's stockholders by failing to
disclose, in connection with the Company's Dutch Auction self-tender offer, that
the Special Committee had allegedly determined that the Proposed Going Private
Transaction was unfair. The amended complaint seeks an injunction enjoining
consummation of the self-tender offer unless the alleged disclosure violations
are cured, and requiring the Company to provide additional disclosure, together
with damages in an unspecified amount.
On March 23, 1999, Norman Salsitz, allegedly a stockholder of the
Company, filed a complaint in the United States District Court for the Southern
District of New York against the Company, Nelson Peltz, and Peter May. The
complaint purports to assert a claim for alleged violation of Section 14(e) of
the Securities Exchange Act of 1934, as amended, on behalf of all persons who
held stock in the Company as of March 10, 1999. The complaint alleges that the
Company's tender offer statement filed with the Securities and Exchange
Commission in connection with the proposed Dutch Auction self-tender offer was
materially false and misleading in that, among other things, it failed to
disclose alleged recent valuations of the Company, which the complaint alleges
showed that the self-tender price was unfair to the Company's stockholders. The
complaint seeks damages in an amount to be determined, together with prejudgment
interest, the costs of suit, including attorneys' fees, and unspecified other
relief.
Other matters have arisen in the ordinary course of our business, and it
is the opinion of management that the outcome of any such matter will not have a
material adverse effect on our consolidated financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our 1998 Annual Meeting of Stockholders on May 6, 1998. The
matters acted upon by the stockholders at that meeting were reported in our
Quarterly Report on Form 10-Q for the quarter ended March 29, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The principal market for 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
- -----------------------------------------------------------------------------
1997
First Quarter ended March 30................ $18 $11
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
1998
First Quarter ended March 29................. 28 1/4 23
Second Quarter ended June 28................. 27 3/4 21 1/2
Third Quarter ended September 27............. 23 1/4 14 1/2
Fourth Quarter ended January 3, 1999......... 16 1/2 12 3/8
We did not pay any dividends on our common stock in 1997, 1998 or in the
current year to date and do not presently anticipate the declaration of cash
dividends on our common stock in the near future.
As of March 15, 1999, there were 5,997,622 shares of our Class B Common
Stock outstanding, all of which were owned by Victor Posner and an entity con-
trolled by Victor Posner (together, 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. We, or our designee, have 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. We have no class of equity
securities currently issued and outstanding except for the Class A Common Stock
and the Class B Common Stock.
Because we are predominantly a holding company, our ability to meet our
cash requirements (including required interest and principal payments on our
indebtedness) is primarily dependent upon (in addition to our cash, cash
equivalents and short term investments on hand) cash flows from our
subsidiaries, including loans, cash dividends and reimbursement by subsidiaries
to us in connection with our providing certain management services and payments
by subsidiaries under certain tax sharing agreements. Under the terms of various
indentures and credit arrangements, our principal subsidiaries are currently
unable to pay any dividends or make any loans or advances to us. In addition, in
connection with a waiver of the covenant default, in February 1999 the Operating
Partnership agreed that it will not make any distributions directly or through
the Partnership to the holders of common units of the Partnership until all of
its obligations under its bank facility agreement have been repaid in full and
the obligations of the lenders thereunder are terminated. National Propane has
also agreed to forego 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. Under the partnership agreement of the Partnership, the Partnership
may not make Subordinated Distributions until all arrearages on its common units
have been paid in full. At January 3, 1999, the aggregate arrearage on the
common units was approximately $5.3 million. The foregoing will limit the funds
that National Propane will have available to dividend or loan to us. See "Item
1. Business -- Liquefied Petroleum Gas (National Propane)," "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 7 to the Consolidated
Financial Statements.
On October 13, 1997, we announced that our management was authorized,
when and if market conditions warranted, to purchase from time to time during
the twelve month period ending November 26, 1998 up to $20 million of our
outstanding Class A Common Stock. In March 1998 such amount was increased to $30
million. On July 28, 1998, we announced that the stock repurchase program had
been increased, bringing the then total availability under the stock repurchase
program to $50 million. In addition, the term of the stock repurchase program
was extended until July 27, 1999. As of July 28, 1998, we had repurchased
348,700 shares of Class A Common Stock at an aggregate cost of approximately
$8.9 million under the then existing stock repurchase program. In light of the
Proposed Going Private Transaction (described above), we suspended repurchasing
shares under the stock repurchase program and, in light of the Dutch Auction
tender offer described above, on March 10, 1999 the $50 million stock repurchase
program was terminated. Through such date, we repurchased 1,391,350 shares of
Class A Common Stock, at an aggregate cost of approximately $21.8 million, under
the $50 million stock repurchase program. In addition to the shares repurchased
pursuant to the stock repurchase program, in connection with the completion of
the sale by us in February 1998 of $360 million principal amount at maturity of
Debentures (described above), we repurchased from the purchaser of the
Debentures one million shares of our Class A Common