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TRIARC COMPANIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________.
COMMISSION FILE NUMBER 1-2207
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TRIARC COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------
DELAWARE 38-0471180
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
280 PARK AVENUE 10017
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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
------------------- -------------------
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 $364,523,640 as of
March 15, 2001. There were 20,250,469 shares of the registrant's Class A Common
Stock and 1,999,207 shares of the registrant's Class B Common Stock outstanding
as of March 15, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this 10-K incorporates information by reference from an
amendment hereto or to the registrant's definitive proxy statement, in either
case which will be filed no later than 120 days after December 31, 2000.
________________________________________________________________________________
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Certain statements in this Annual Report on 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, information concerning possible or assumed future
results of operations of Triarc Companies, Inc. and its subsidiaries and those
statements preceded by, followed by, or that include the words 'may,'
'believes,' 'expects,' 'anticipates,' or the negation thereof, or similar
expressions, constitute 'forward-looking statements' within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements which address
operating performance, events or developments that are expected or anticipated
to occur in the future, including statements relating to revenue growth,
earnings per share growth or statements expressing general optimism about future
operating results, are forward-looking statements within the meaning of the
Reform Act. These forward-looking statements are based on our current
expectations, speak only as of the date of this Form 10-K and are susceptible to
a number of risks, uncertainties and other factors. Our actual results,
performance and achievements may differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. For those statements, we claim the protection of the safe-harbor for
forward-looking statements contained in the Reform Act. Many important factors
could affect our future results and could cause those results to differ
materially from those expressed in the forward-looking statements contained
herein. Such factors include, but are not limited to, the following:
Competition, including new product and concept development and pricing
pressures resulting from competitive discounting;
Success of operating initiatives;
The ability to attract and retain franchisees;
Development and operating costs;
The effectiveness of advertising and promotional efforts;
Brand awareness;
The existence or absence of adverse publicity;
Market acceptance of new product offerings;
Changing trends in consumer tastes and preferences (including changes
resulting from health or safety concerns with respect to the consumption of
beef) and in spending and demographic patterns;
The business viability of our key franchisees;
Availability, location and terms of sites for restaurant development by
franchisees;
The ability of franchisees to open new restaurants in accordance with their
development commitments, including the ability of franchisees to finance
restaurant development;
The performance by material suppliers of their obligations under their
supply agreements with franchisees;
Changes in business strategy or development plans;
Quality of the Company's and franchisees' management;
Availability, terms and deployment of capital;
Business abilities and judgment of the Company's and franchisees'
personnel;
Availability of qualified personnel to the Company and to franchisees;
Labor and employee benefit costs;
Availability and cost of raw materials, ingredients and supplies and the
potential impact on royalty revenues and franchisees' restaurant level
sales that could arise from interruptions in the distribution of supplies
of food and other products to franchisees;
General economic, business and political conditions in the countries and
territories in which franchisees operate;
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Changes in, or failure to comply with, government regulations, including
franchising laws, accounting standards, environmental laws and taxation
requirements;
The costs, uncertainties and other effects of legal and administrative
proceedings;
The impact of general economic conditions on consumer spending;
Adverse weather conditions; and
Other risks and uncertainties referred to in this Form 10-K and in our
other current and periodic filings with the Securities and Exchange
Commission, all of which are difficult or impossible to predict accurately
and many of which are beyond our control.
We will not undertake and specifically decline any obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. In
addition, it is our policy generally not to make any specific projections as to
future earnings, and we do not endorse any projections regarding future
performance that may be made by third parties.
ITEM 1. BUSINESS.
INTRODUCTION
We are a holding company and, through our subsidiaries, a restaurant
franchisor. Through our subsidiary Arby's, Inc. (which does business as the
Triarc Restaurant Group) and its subsidiaries, we are the franchisor of the
Arby's'r' restaurant system.
Our corporate predecessor was incorporated in Ohio in 1929. We
reincorporated in Delaware 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. Information contained on
our website is not part of this Annual Report on Form 10-K.
BUSINESS STRATEGY
The key elements of our business strategy include (i) focusing our resources
on our restaurant franchising business, (ii) evaluating and making various
acquisitions and business combinations to augment our current and future
businesses, (iii) building strong operating management teams for each of our
current and future businesses and (iv) providing strategic leadership and
financial resources to enable such management teams to develop and implement
specific, growth-oriented business plans. 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 or business
combination has been reached.
Taking into account the recently completed sale of the Snapple Beverage
Group and the consummation of the Arby's securitization (each described below in
this Item 1), the Company's cash, cash equivalents (including restricted cash)
and investment position, net of current cash tax liabilities related to the
beverage group sale, at December 31, 2000 was approximately $705 million.
At such date, the Company's consolidated indebtedness was approximately $309
million, including approximately $289 million of Arby's non-recourse debt.
The Company's cash, cash equivalents and investments (other than approximately
$30.7 million of restricted cash) do not secure such Arby's debt. The Company
is evaluating its options for the use of this significant cash and investment
position, including acquisitions, share repurchases and investments.
SALE OF BEVERAGE BUSINESS
On October 25, 2000, we completed the sale of our beverage business by
selling all the outstanding capital stock of Snapple Beverage Group, Inc. and
Royal Crown Company, Inc. to affiliates of Cadbury Schweppes plc for
approximately $896 million in cash, subject to post-closing adjustment, plus the
assumption by such affiliates of Cadbury of approximately $425 million of debt.
Approximately $427 million of the cash received was used to repay outstanding
amounts under a senior bank credit facility maintained by Snapple Beverage
Corp., Mistic Brands, Inc., Stewart's Beverages, Inc., Royal Crown and RC/Arby's
Corporation. The
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transaction included the sale of the Snapple Beverage Group's premium beverage
business -- Snapple'r', Mistic'r' and Stewart's'r' -- and soft drink
concentrates business -- Royal Crown'r', Diet Rite'r', RC Edge and Nehi'r'.
ARBY'S SECURITIZATION
On November 21, 2000 our subsidiary Arby's Franchise Trust, a newly formed
special purpose financing vehicle, completed an offering of $290 million of
7.44% non-recourse fixed rate insured notes due 2020 pursuant to Rule 144A of
the Securities Act of 1933, as amended. The notes are secured by Arby's'r'
branded United States and Canadian franchise royalty payments and fees. The
notes are rated Aaa, AAA and AAA by Moody's Investors Services, Inc., Standard &
Poor's Ratings Services and Fitch, Inc., respectively. Timely payment of
interest and the remaining outstanding principal of the notes on the legal final
payment date are guaranteed by a financial guaranty insurance policy issued by
Ambac Assurance Corporation, reinsured on a first loss basis by European
Reinsurance Company of Zurich, Bermuda branch, a subsidiary of Swiss Re Group.
Triarc received net cash available proceeds of approximately $250 million from
the financing, which is net of approximately $30 million of proceeds that are in
a reserve account, as well as transaction fees and expenses.
In connection with the financing, Arby's engaged in a corporate
restructuring pursuant to which it formed a wholly-owned Delaware statutory
business trust, Arby's Franchise Trust, which became the franchisor of the
Arby's restaurant system in the United States and Canada. Arby's contributed its
U.S. and Canadian franchise agreements, development agreements, license option
agreements and the rights to the revenues from those agreements to Arby's
Franchise Trust. Arby's also formed a new wholly-owned Delaware statutory
business trust, Arby's IP Holder Trust, and contributed to it all of the
intellectual property, including the Arby's trademark, necessary to operate the
Arby's franchise system in the United States and Canada. Arby's IP Holder Trust
has granted Arby's Franchise Trust a 99-year exclusive license to use such
intellectual property. Arby's continues to service the franchise agreements
relating to U.S. franchises, and Arby's of Canada, Inc., a wholly-owned
subsidiary of Arby's, services the franchise agreements relating to Canadian
franchises with the assistance of Arby's. The servicing functions are performed
pursuant to separate servicing agreements with Arby's Franchise Trust pursuant
to which the servicers receive servicing fees from Arby's Franchise Trust equal
to their expenses, subject to a specified cap for any 12-month period. Any
residual cash flow received by Arby's Franchise Trust, after taking into account
all required monthly payments under the notes, including interest and targeted
principal repayments, may be distributed by Arby's Franchise Trust to Arby's.
See Note 9 to our Consolidated Financial Statements.
The Notes are not registered and will not be registered under the Securities
Act, and may not be offered or sold within the United States except pursuant to
an exemption from the Securities Act, or in a transaction not subject to the
registration requirements of the Securities Act. This Form 10-K shall not
constitute an offer to sell or a solicitation of an offer to buy such Notes, nor
shall there be any sale of 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 such state or jurisdiction.
REPURCHASE OF CLASS B COMMON STOCK
On August 19, 1999, we announced that our Board of Directors had unanimously
approved a stock purchase agreement between the Company and two entities
controlled by Victor Posner, Victor Posner Trust No. 6 and Security Management
Corp., pursuant to which we will acquire from the Posner entities all of the
5,997,622 issued and outstanding shares of our non-voting Class B Common Stock
in three separate transactions. Pursuant to the agreement we acquired one-third
of the shares (1,999,208 shares) on August 19, 1999, at a price of $20.44 per
share (which was the trading price of our Class A Common Stock at the time the
transaction was negotiated), for an aggregate cost of approximately $40.9
million and one-third of the shares (1,999,207 shares) on August 10, 2000, at a
price of $21.18 per share, for an aggregate cost of approximately $42.3 million.
We will acquire the remaining shares (1,999,207 shares) on or before August 19,
2001, subject to extension in certain limited circumstances, at a price of
$21.93 per share (an aggregate cost of approximately $43.8 million). The Posner
entities have placed the shares to be acquired at the subsequent closing in
escrow pending their repurchase.
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FISCAL YEAR
Effective January 1, 1997, we adopted a 52/53 week fiscal year convention
for the Company and our subsidiaries (other than National Propane Corporation)
whereby our fiscal year ends 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 SEGMENT
RESTAURANT FRANCHISING SYSTEM (ARBY'S)
THE ARBY'S RESTAURANT SYSTEM
Through the Arby's restaurant franchising business, we participate in the
approximately $100 billion quick service restaurant segment of the domestic
restaurant industry. There are over 3,200 Arby's restaurants in the United
States and Canada and Arby's is the largest restaurant franchising system
specializing in the roast beef sandwich segment of the quick service restaurant
industry. Arby's celebrated its 36th anniversary in 2000 and according to
Nation's Restaurant News, is the 10th largest quick service restaurant chain in
the United States. In addition to various slow-roasted roast beef sandwiches,
Arby's also offers an extensive menu of chicken, turkey, ham and submarine
sandwiches, side-dishes and salads. In 2001, Arby's is introducing its Market
Fresh'TM' line of premium sandwiches on a nationwide basis. Arby's also owns the
T.J. Cinnamons'r' concept, which consists of gourmet cinnamon rolls, gourmet
coffees and other related products, and the Pasta Connection'r' concept, which
includes pasta dishes with a variety of different sauces. Some Arby's
franchisees multi-brand with T.J. Cinnamons or Pasta Connection within their
Arby's restaurants. Currently, all of the Arby's restaurants are owned and
operated by franchisees. As of December 31, 2000, 409 franchisees operated 3,319
separate restaurants, of which 3,153 operate within the United States and 166
operate outside the United States. Of the domestic restaurants, approximately
325 are multi-branded locations that sell T.J. Cinnamons products and
approximately 65 are multi-branded locations that sell Pasta Connection
products. At December 31, 2000, T.J. Cinnamons gourmet coffees were also sold in
an additional approximately 1,440 Arby's restaurants. Arby's is not currently
offering to sell any additional Pasta Connection franchises.
From 1996 to 2000, Arby's system-wide sales grew at a compound annual growth
rate of 5.7% to $2.5 billion. Through December 31, 2000, the Arby's system has
experienced four consecutive years of domestic same store sales growth compared
to the prior year. During 2000, our franchisees opened 156 new Arby's and closed
65 underperforming Arby's. In addition, Arby's franchisees opened 25 T.J.
Cinnamons units and six Pasta Connection units in Arby's units in 2000. As of
December 31, 2000, franchisees have committed to open approximately 970 Arby's
restaurants over the next 10 years. You should read the information contained in
'Risk Factors -- Arby's is Dependent on Restaurant Revenues and Openings.'
GENERAL
As the franchisor of the Arby's restaurant system, Arby's, through its
subsidiaries, licenses the owners and operators of independent businesses to use
the Company's brand name and trademarks in the operation of Arby's restaurants.
The Company provides its franchisee customers with services designed to increase
their revenue and the profitability of the Arby's restaurants that they own. The
more important of these services are providing quality control services,
operational training and counseling regarding, and approval of, site selection.
Because Arby's owns no restaurants, it avoids the significant capital costs
and real estate and operating risks associated with restaurant operations.
Arby's and its subsidiaries derive their revenues from two principal sources:
(i) franchise royalties received from all Arby's restaurants; and (ii) up-front
franchise fees from its restaurant operators for each new unit opened. Arby's
current domestic franchise royalty rate is 4.0%. Because of lower royalty rates
still in effect under earlier agreements, the average royalty rate paid by
franchisees was approximately 3.3% during both 1999 and 2000.
On November 21, 2000 Arby's Franchise Trust completed an offering of $290
million of 7.44% non-recourse fixed rate insured notes due 2020 pursuant to
Rule 144A of the Securities Act. As a result of the financing and related
restructuring, Arby's continues to service the franchise agreements relating to
U.S. franchises and a subsidiary services the franchise agreements relating to
Canadian franchises with the assistance of Arby's. (See 'Item 1.
Business -- Arby's Securitization').
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ARBY'S RESTAURANTS
Arby's opened its first restaurant in Youngstown, Ohio in 1964. As of
December 31, 2000, franchisees operated Arby's restaurants in 49 states and 8
foreign countries. As of December 31, 2000, the six leading states by number of
operating units were: Ohio, with 253 restaurants; Michigan, with 170
restaurants; Indiana, with 169 restaurants; Texas, with 169 restaurants;
California, with 159 restaurants; and Georgia, with 159 restaurants. With 125
restaurants, Canada is the country outside the United States with the most
operating units.
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 1998 to 2000:
1998 1999 2000
---- ---- ----
Restaurants open at beginning of period......... 3,092 3,135 3,228
Restaurants opened during period................ 130 159 156
Restaurants closed during period................ 87 66 65
----- ----- -----
Restaurants open at end of period............... 3,135 3,228 3,319
----- ----- -----
----- ----- -----
During the period from January 1, 1998 through December 31, 2000, 445 new
Arby's restaurants were opened and 218 underperforming Arby's restaurants have
closed. We believe that closing underperforming Arby's restaurants has
contributed to an increase in the average annual unit sales volume of the Arby's
system, as well as to an improvement of the overall brand image of Arby's.
FRANCHISE NETWORK
Arby's seeks to identify potential franchisees that have experience in
owning and operating multiple quick-service restaurant units, have a willingness
to develop and operate multiple Arby's restaurants and have a significant net
worth. Arby's identifies applicants through targeted mailings, maintaining a
presence at industry trade shows and conventions, existing customer and supplier
contacts and regularly placed advertisements in trade and other publications.
Prospective franchisees are contacted by an Arby's sales agent and complete an
application for a franchise. As part of the application process, Arby's requires
and reviews substantial documentation, including financial statements and
documents relating to the corporate or other business organization of the
applicant. Franchisees that already operate one or more Arby's restaurants must
satisfy certain criteria in order to be eligible to enter into additional
franchise agreements, including capital resources commensurate with the proposed
development plan submitted by the franchisee, a commitment by the franchisee to
employ trained restaurant management and to maintain proper staffing levels,
compliance by the franchisee with all of its existing franchise agreements, a
record of operation in compliance with Arby's operating standards, a
satisfactory credit rating and the absence of any existing or threatened legal
disputes between Arby's and such franchisee. 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 16 new restaurants in seven foreign countries
during 2000. Arby's also has territorial agreements with international
franchisees in three countries as of December 31, 2000. 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 offers franchises for the development of both single and multiple
'traditional' restaurant locations. Both new and existing franchisees may enter
into either a master development agreement, which requires the franchisee to
develop two or more Arby's restaurants in a particular geographic area within a
specified time period, or a license option agreement that grants the franchisee
the option, exercisable for a one year period, to build an Arby's restaurant on
a specified site. 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
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restaurant sales for the term of the franchise agreement. Franchisees typically
pay a $10,000 commitment fee, credited against the franchise fee during the
development process for a new restaurant. Because of lower royalty rates still
in effect under earlier agreements, the average royalty rate paid by franchisees
was approximately 3.3% during both 1999 and 2000.
Franchised restaurants are required to be operated under 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 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 0.7% of net sales to
the AFA Service Corporation, which produces advertising and promotional
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 by franchisees 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. Arby's and AFA Service Corporation have entered
into an agreement pursuant to which the Arby's system will have eight flights of
national advertising over the 2001-2003 period. Under the agreement, Arby's will
contribute $8.2 million over the three-year period for the eight flights.
Franchisees will be required to contribute incremental dues to AFA Service
Corporation equal to 0.5% of net sales to help fund the program, and AFA Service
Corporation will contribute an additional $2.8 million to the program.
PROVISIONS AND SUPPLIES
Five independent meat processors 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. You should read the information contained in
'Item. 1. -- Risk Factors -- Arby's is Dependent on Restaurant Revenues and
Openings.'
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 and uniformity and to assure compliance with quality and safety
specifications of the United States Department of Agriculture and the United
States Food and Drug Administration. In addition, a laboratory at Arby's
headquarters tests samples of roast beef periodically 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.
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GENERAL
TRADEMARKS
We own several trademarks that are considered material to our business,
including Arby's, T.J. Cinnamons, Pasta Connection and Satisfy Your Grown Up
Tastes'TM'.
Our material trademarks 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. There are no challenges pending to our right to
use any of our material trademarks in the United States.
COMPETITION
Arby's faces direct and indirect competition from numerous well-established
competitors, including national and regional fast food chains, for example,
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.
Many of our competitors have substantially greater financial, marketing,
personnel and other resources than we do.
GOVERNMENTAL REGULATIONS
Various state laws and the Federal Trade Commission regulate Arby's
franchising activities. The Federal Trade Commission requires that franchisors
make extensive disclosure to prospective franchisees before 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. Furthermore,
the United States Congress has also considered, and there is currently pending,
legislation governing various aspects of the franchise relationship. 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 federal requirements related to
access and use by disabled persons, and various state laws governing matters
that include, for example, minimum wages, overtime and other working conditions.
We cannot predict the effect on our operations, particularly on our relationship
with franchisees, of any pending or future legislation. We believe that the
operations of our subsidiaries comply substantially with all applicable
governmental rules and regulations.
ENVIRONMENTAL MATTERS
Our past and present operations are governed by federal, state and local
environmental laws and regulations concerning the discharge, storage, handling
and disposal of hazardous or toxic substances. These laws and regulations
provide for significant fines, penalties and liabilities, sometimes without
regard to whether the owner or operator of the property knew of, or was
responsible for, the release or presence of the 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
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laws or regulations will be administered or interpreted. We similarly cannot
predict the amount of future expenditures which may be required to comply with
any environmental laws or regulations or to satisfy any claims relating to
environmental laws or regulations. We currently own no restaurants and lease our
material facilities (see 'Item 2. Properties' below). We believe that our
operations comply substantially with all applicable environmental laws and
regulations. Accordingly, the environmental matters in which we are involved
generally relate either to properties that we own, but on which we no longer
have any operations, or properties that we have sold to third parties, but for
which we remain liable or contingently liable for any related environmental
costs. Based on currently available information and our current reserve levels,
we do not believe that the ultimate outcome of any environmental matters in
which we are involved 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' below.
SEASONALITY
Our restaurant franchising business is seasonal. The royalty revenues of our
restaurant franchising business are somewhat higher in our fourth quarter and
somewhat lower in our first quarter. Accordingly, consolidated revenues will
generally be highest during the fourth fiscal quarter of each year. Our EBITDA
and operating profit are also highest during the fourth fiscal quarter of each
year and lowest in the first fiscal quarter.
EMPLOYEES
As of December 31, 2000, we had approximately 216 employees, including 192
salaried employees and 24 hourly employees. We believe that employee relations
are satisfactory. As of December 31, 2000, none of our employees were covered by
a collective bargaining agreement.
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, or in the future could affect, our actual
results and could cause our actual consolidated results during 2001, and beyond,
to differ materially from those expressed in any forward-looking statements made
by us or on our behalf.
HOLDING COMPANY STRUCTURE
Because we are 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.
Under the terms of the indenture relating to the notes issued in the Arby's
securitization, there are restrictions on the ability of certain of our
subsidiaries 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 December 31, 2000, our
subsidiaries had aggregate indebtedness of approximately $309 million excluding
intercompany indebtedness.
WE WILL HAVE BROAD DISCRETION IN THE USE OF THE PROCEEDS OF THE DISPOSITION
OF OUR BEVERAGE BUSINESS AND THE ARBY'S SECURITIZATION.
We have not designated any specific use for the proceeds we received in
connection with the sale of our beverage business and the Arby's securitization
(see 'Item 1. Business -- Sale of Beverage Business' and ' -- Arby's
Securitization'). We are evaluating options for the use of these proceeds,
including acquisitions,
8
share repurchases and investments. We have significant flexibility in selecting
the opportunities that we will pursue.
ACQUISITIONS ARE A KEY ELEMENT OF OUR BUSINESS STRATEGY, BUT WE CANNOT
ASSURE YOU THAT WE WILL BE ABLE TO IDENTIFY APPROPRIATE ACQUISITION TARGETS
IN THE FUTURE AND THAT WE WILL BE ABLE TO SUCCESSFULLY INTEGRATE ANY FUTURE
ACQUISITIONS INTO OUR EXISTING OPERATIONS.
Acquisitions involve numerous risks, including difficulties assimilating new
operations and products. In addition, our acquisition program may require
significant management time and capital resources. 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 are likely to result in the incurrence of
additional indebtedness or the issuance of additional equity securities.
WE MAY HAVE TO TAKE ACTIONS THAT WE WOULD NOT OTHERWISE TAKE SO AS NOT TO BE
DEEMED AN 'INVESTMENT COMPANY'.
The Investment Company Act of 1940, as amended (the '1940 Act'), requires
the registration of, and imposes various restrictions on, companies that do not
meet certain financial tests regarding the composition of their assets and
source of income. A company may be deemed to be an investment company if it owns
'investment securities' with a value exceeding 40% of its total assets
(excluding government securities and cash items) or if more than 45% of its
total assets consists of, or more than 45% of its income/loss is derived from,
securities of companies it does not control. Our acquisition strategy may
require us to take actions that we would not otherwise take so as not to be
deemed an 'investment company' under the 1940 Act. Investment companies are
subject to registration under, and compliance with, the 1940 Act unless a
particular exclusion or safe harbor provision applies. If we were to be deemed
an investment company, we would become subject to the requirements of the 1940
Act. We intend to make acquisitions and other investments in a manner so as not
to be deemed an investment company. As a result, we may forego investments that
we might otherwise make or retain or dispose of investments or assets that we
might otherwise sell or hold on to.
IN THE FUTURE WE MAY HAVE TO TAKE ACTIONS THAT WE WOULD NOT OTHERWISE TAKE
SO AS NOT TO BE SUBJECT TO TAX AS A 'PERSONAL HOLDING COMPANY'.
If at any time during the last half of our taxable year, five or fewer
individuals own or are deemed to own more than 50% of the total value of our
shares and if during such taxable year we receive 60% or more of our gross
income from specified passive sources, we would be classified as a 'personal
holding company' for the U.S. federal income tax purposes. If this were the
case, we would be subject to additional taxes at the rate of 39.6% on a portion
of our income, to the extent this income is not distributed to shareholders. We
do not currently expect to have any liability for tax under the personal holding
company rules in 2001. However, we cannot assure you that we will not become
liable for such tax in the future. Because we do not wish to be classified as a
personal holding company or to incur any personal holding company tax, we may be
required in the future to take actions that we would not otherwise take. These
actions may influence our strategic and business decisions, including causing us
to conduct our business and acquire or dispose of investments differently than
we otherwise would.
OUR SUBSIDIARIES ARE SUBJECT TO VARIOUS RESTRICTIONS, AND SUBSTANTIALLY ALL
OF THEIR ASSETS ARE PLEDGED, UNDER CERTAIN DEBT AGREEMENTS.
Under our subsidiaries' debt agreements, substantially all of our
subsidiaries' assets, other than cash, cash equivalents and short term
investments, are pledged as collateral security. The indenture relating to the
notes issued in the Arby's securitization contains financial covenants that,
among other things, require Arby's Franchise Trust to maintain certain financial
ratios and restrict its ability to incur debt, enter into certain fundamental
transactions (including sales of all or substantially all of its assets and
certain mergers and consolidations) and create or permit liens. If Arby's
Franchise Trust is unable to generate sufficient cash flow or otherwise obtain
the funds necessary to make required payments of interest or principal under, or
are unable to comply with covenants of, the indenture, we would be in default
under the terms thereof which would, under
9
certain circumstances, permit the insurer of the notes to accelerate the
maturity of the balance thereof. You should read the information we have
included in Note 9 to the Consolidated Financial Statements.
ARBY'S IS DEPENDENT ON RESTAURANT REVENUES AND OPENINGS
Arby's and its subsidiaries' principal source of revenues are royalty fees
received from franchisees. Accordingly, Arby's and its subsidiaries' 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. In
January 2000, the major distributor of food and other products to Arby's
franchisees filed for bankruptcy. That bankruptcy and the subsequent change of
distributors by franchisees did not have a significant adverse effect on us.
However, it is possible that interruptions in the distribution of supplies to
Arby's franchisees could adversely affect sales by such franchisees and cause a
decline in the royalty fees that we receive from them.
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
December 31, 2000 franchisees had signed commitments to open approximately 970
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. In addition, we cannot assure you that our
franchisees will successfully develop and operate their restaurants in a manner
consistent with our standards.
ARBY'S FRANCHISE REVENUES DEPEND, TO A LARGE EXTENT, ON A SMALL NUMBER OF
LARGE FRANCHISEES AND A DECLINE IN THEIR REVENUE MAY INDIRECTLY ADVERSELY
AFFECT US.
During 2000, Arby's received approximately 27% of its royalties from RTM,
Inc. and its affiliates, which are franchisees of approximately 780 Arby's
restaurants, and received approximately 6% 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 9 and 21
to the Consolidated Financial Statements.
COMPETITION FROM RESTAURANT COMPANIES COULD ADVERSELY AFFECT US
The sole source of Arby's revenues is royalties and fees paid to it by
franchisees. The business sectors in which Arby's franchisees compete are highly
competitive (e.g., with respect to price, food quality and presentation,
service, location, and the nature and condition of the financed business
unit/location), and are affected by changes in tastes and eating habits, local,
regional and national economic conditions and population and traffic patterns.
Arby's franchisees compete with a variety of locally-owned restaurants, as well
as competitive regional and national chains and franchises. In addition, Arby's
franchisees may be at risk of competition from restaurants within the Arby's
system. Moreover, new companies may enter the franchisees' respective market
area and target sales audience. Such competition may have, among other things,
lower operating costs, lower debt service requirements, better locations, better
facilities, better management, more effective marketing and more efficient
operations. All such competition may adversely affect Arby's franchisees'
revenues and profits and the ability of franchisees to make required payments to
Arby's. Furthermore, Arby's franchisees face competition for competent employees
and high levels of employee turnover, which also can have
10
an adverse effect on the operations and revenues of the franchisees and on their
respective abilities to make required payments to Arby's. Many of Arby's
competitors have substantially greater financial, marketing, personnel and other
resources than Arby's.
CHANGES IN CONSUMER TASTES AND PREFERENCES AND IN SPENDING AND DEMOGRAPHIC
PATTERNS, AS WELL AS CONCERNS ABOUT FOOD QUALITY, COULD RESULT IN A LOSS OF
CUSTOMERS AND REDUCE THE ROYALTIES THAT WE RECEIVE.
The quick service restaurant industry is often affected by changes in
consumer tastes, national, regional and local economic conditions, discretionary
spending priorities, demographic trends, traffic patterns and the type, number
and location of competing restaurants. Consumer preferences could also be
affected by health or safety concerns with respect to the consumption of beef.
We and our franchisees are, from time to time, the subject of complaints or
litigation from customers alleging illness, injury or other food quality, health
or operational concerns. Adverse publicity resulting from these allegations may
harm the reputation of Arby's restaurants, regardless of whether the allegations
are valid, we are found liable or those concerns relate only to a single
restaurant or a limited number of restaurants. Moreover, complaints, litigation
or adverse publicity experienced by one or more of our franchisees could also
adversely affect our business as a whole. If Arby's is unable to adapt to
changes in consumer preferences and trends, or we have adverse publicity due to
any of these concerns, our franchisees may lose customers and the resulting
royalties that Arby's receives from its franchisees may decline.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, WHICH
COULD HARM THE VALUE OF OUR BRANDS AND ADVERSELY AFFECT OUR BUSINESS.
Our intellectual property is material to the conduct of our business. We
rely on a combination of trademarks, copyrights, service marks, trade secrets
and similar intellectual property rights to protect our brands and other
intellectual property. The success of our business strategy depends, in part, on
our continued ability to use our existing trademarks and service marks in order
to increase brand awareness and further develop our branded products in both
domestic and international markets. If our efforts to protect our intellectual
property are not adequate, or if any third party misappropriates or infringes on
our intellectual property, either in print or on the Internet, the value of our
brands may be harmed, which could have a material adverse effect on our
business, including the failure of our brands to achieve and maintain market
acceptance.
We franchise our restaurants to various franchisees. While we try to ensure
that the quality of our brands is maintained by all of our franchisees, we
cannot assure you that these franchisees will not take actions that adversely
affect the value of our intellectual property or the reputation of the Arby's
restaurant system.
We have registered certain trademarks and have other trademark registrations
pending in the U.S. and certain foreign jurisdictions. The trademarks that we
currently use have not been registered in all of the countries in which we do
business and may never be registered in all of these countries.
We cannot assure you that all of the steps we have taken to protect our
intellectual property in the U.S. and foreign countries will be adequate. In
addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the U.S.
GEOGRAPHIC CONCENTRATIONS.
Approximately 33% of Arby's restaurants are located in the states of Ohio,
Texas, Michigan, Indiana, Georgia and California. In general, these geographic
concentrations of Arby's franchisees increase the exposure of Arby's to adverse
economic or other developments in these states, including extended periods of
adverse weather conditions, which may decrease the amount of royalties and fees
to be paid to Arby's.
ENVIRONMENTAL LIABILITIES.
Certain of our current and past operations are or have been 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
11
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.
Although we believe that our operations 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.
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 each of our material properties.
The following table contains information about our material facilities as of
December 31, 2000:
APPROXIMATE
SQ. FT. OF
ACTIVE FACILITIES FACILITIES--LOCATION LAND TITLE FLOOR SPACE
----------------- -------------------- ---------- -----------
Triarc Corporate Headquarters............... New York, NY 1 leased 30,670
Restaurant Franchising Headquarters......... Ft. Lauderdale, FL 1 leased 47,300*
- ---------
* Approximately 3,500 square feet of this space is subleased from Arby's by a
third party.
Arby's also owns three and leases four properties which are leased or sublet
principally to franchisees and has leases for five 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.
ITEM 3. LEGAL PROCEEDINGS.
We are 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, we 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 our favor.
In November 1995, we commenced the first of the consolidated actions, in the
New York State Supreme Court, New York County, 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. In June 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 our Board and rescission of the 1993 change
of control transaction. In February 1999, the court granted Mr. Peltz's motion
for summary judgment with respect to all the claims against him in the
consolidated actions. In September 1999, the three former directors filed a
notice of appeal from the dismissal of their claims against Mr. Peltz. In
October 1999, the District Court entered an order agreed to by the parties
dismissing the remaining claims without prejudice. In March 2000 the District
Court entered an order dismissing the former court appointed directors' appeal
for failure to comply with the Court's scheduling order. In August 2000, the
Court of Appeals affirmed the decision of the District Court. In
September 2000, the Court of Appeals denied the plaintiff's request for a
rehearing.
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 purported to
12
assert claims on behalf of the Company and a class of all persons who held stock
of the Company on April 25, 1994. The plaintiffs alleged 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, our Chairman and Chief
Executive Officer, and Peter May, our President and Chief Operating Officer, in
1994-1997, including special bonuses to Messrs. Peltz and May in 1996. The
plaintiffs further alleged that the 1994 Proxy Statement contained false and
misleading statements concerning the Company's compensation plans. The amended
complaint sought, among other remedies, rescission of all option grants to
Messrs. Peltz and May that allegedly contravened the representations 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. In August 2000, the
parties entered into a settlement agreement pursuant to which, among other
things, (i) the Malekan case would be dismissed with prejudice;
(ii) Messrs. Peltz and May would deliver a note to the Company in the amount of
$5.0 million, the principal of which is payable in three equal installments on
March 31, 2001, March 31, 2002 and March 31, 2003; and (iii) Messrs. Peltz and
May would surrender an aggregate of 775,000 performance options awarded to them
in 1994. On January 30, 2001, the Chancery Court entered an Order and Final
Judgment approving the settlement in full and the deadline for an appeal has
passed. Accordingly, the settlement became effective on March 1, 2001.
Messrs. Peltz and May denied culpability, and the Order and Final Judgment did
not contain any evidence or admission by any party that any acts of wrongdoing
had been committed. The Order and Final Judgment also dismissed the action with
prejudice as to all parties, including the directors and certain former
directors of the Company named as defendants.
On August 13, 1997, Ruth LeWinter and Calvin Shapiro, both allegedly Company
stockholders, commenced a purported class and derivative action in the United
States District Court for the Southern District of New York that is
substantially identical to the Malekan action discussed above. In October 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 seeking indemnification in connection with the LeWinter action,
damages in an unspecified amount in excess of $75,000, and costs and attorneys'
fees. 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. In September 1999, the court entered an order staying
that case pending a resolution of the Malekan action described above. On
March 15, 2001, the court entered an order agreed to by the parties dismissing
this action with prejudice and without costs and attorneys' fees to any party.
In October 1998 we received a proposal from Nelson Peltz and Peter W. May
for the acquisition by an entity to be formed by them of all of the outstanding
shares of our common stock, other than those owned by an affiliate of
Messrs. Peltz and May. Various class actions were brought on behalf of our
stockholders in the Court of Chancery of the State of Delaware challenging that
proposal. 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
our directors, that the proposed consideration to be paid for our 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. In March 1999, Messrs. Peltz and May withdrew their proposal and we
commenced a 'Dutch Auction' self-tender offer to acquire up to 5.5 million
shares of our common stock. 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 our stockholders by failing to disclose, in
connection with the self-tender offer, that the Special Committee of the Board
of Directors that had been formed to evaluate the proposal by Messrs. Peltz and
May had allegedly determined that the proposed going private transaction was
unfair. The Dutch Auction self-tender offer was completed in April 1999. The
amended complaint seeks an injunction enjoining consummation of the self-tender
offer unless the alleged disclosure violations are cured, and requiring us to
provide additional disclosure, together with damages in an unspecified amount.
In October 2000 the parties agreed to stay this action pending determination of
the Salsitz action that is described below.
On March 23, 1999, Norman Salsitz, allegedly a stockholder of Triarc, filed
a complaint in the United States District Court for the Southern District of New
York against Triarc, 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
13
1934, as amended, on behalf of all persons who held our stock as of March 10,
1999. The complaint alleges that our 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 Triarc, which the
complaint alleges showed that the self-tender price was unfair to our
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. In June 1999, the Company, Mr. Peltz and
Mr. May moved to dismiss the complaint or alternatively to stay the Salsitz
action pending the resolution of the Delaware action. In March 2000, the court
denied the motion for a stay and granted in part and denied in part the motion
to dismiss. In April 2000, Salsitz filed an amended complaint. In addition to
the matters alleged in the original complaint, the amended complaint seeks an
order permitting all shareholders who tendered their shares in the Dutch Auction
Tender Offer to rescind the transaction. In May 2000, the defendants filed an
answer to the amended complaint. Discovery has commenced in the action.
On September 14, 1999, William Pallot filed a purported derivative action
against our directors and other defendants, and naming us as a nominal
defendant, in the Supreme Court of the State of New York, New York County. The
complaint alleges that the defendants breached their fiduciary duties and aided
and abetted breaches of fiduciary duties by causing us to enter into an
agreement to purchase shares of the Company's Class B common stock owned by
affiliates of Victor Posner. The complaint seeks, among other relief, damages in
an unspecified amount, a declaration that the stock purchase agreement is void,
rescission of our purchase of shares pursuant to the stock purchase agreement
and an injunction against consummating additional purchases under the agreement,
and removal of Messrs. Peltz and May as directors and officers of Triarc. In
November 1999, we and the director defendants filed a motion to dismiss the
complaint. On February 2, 2000, the plaintiff filed an amended complaint, which,
in addition, to reiterating the allegations discussed above, alleged that the
defendants violated their fiduciary duties and wasted corporate assets by
approving the Company's lease and purchase of aircraft from Triangle Aircraft
Services Corporation. The amended complaint further alleges that between 1994
and 1997, the directors caused Triarc to award Messrs. Peltz and May
unauthorized compensation. In addition to the relief sought in the original
complaint, the amended complaint seeks an award of damages against the
defendants, purportedly on behalf of the Company, in an unspecified amount. On
February 17, 2000, before the defendants had responded to the amended complaint,
the plaintiffs filed a second amended complaint containing additional factual
allegations relating to the matters asserted in the original and first amended
complaint, and seeking additional equitable relief, including rescission of the
aircraft and helicopter lease and purchase transactions. In March 2000 the
defendants moved to dismiss the second amended complaint. On October 31, 2000
the court granted the defendants motion to dismiss the action. On November 13,
2000, Mr. Pallot served a notice of appeal to the Appellate Division of the
Supreme Court of the State of New York.
It is our opinion that the outcome of any of the matters described above or
any of the other matters that have arisen in the ordinary course of our business
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 2000 Annual Meeting of Stockholders on June 22, 2000. The
matters acted upon by the stockholders at that meeting were reported in our
Quarterly Report on Form 10-Q for the quarter ended October 31, 2000.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market for our Class A Common Stock is the New York Stock
Exchange ('NYSE') (symbol: TRY). The high and low market prices for our Class A
Common Stock, as reported in the consolidated transaction reporting system, are
set forth below:
MARKET PRICE
------------------------------
FISCAL QUARTERS HIGH LOW
--------------- ---- ---
1999
First Quarter ended April 4........................ $17 7/16 $14 3/4
Second Quarter ended July 4........................ 21 13/16 16 15/16
Third Quarter ended October 3...................... 22 1/8 19 7/8
Fourth Quarter ended January 2, 2000............... 21 7/16 17 1/4
2000
First Quarter ended April 2........................ $22 3/4 $16 13/16
Second Quarter ended July 2........................ 22 7/16 18 15/16
Third Quarter ended October 1...................... 28 20 5/8
Fourth Quarter ended December 31................... 25 15/16 22 7/8
We did not pay any dividends on our common stock in 1999, 2000 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. 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 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. Under the terms of
the indenture relating to the notes issued in the Arby's securitization (see
'Item 1. Business -- Arby's Securitization'), the ability of Arby's to pay any
dividends or make any loans or advances to us is limited by the debt service
requirements of its subsidiaries. You should read the information we have
included in 'Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources' and Note 9 to our
Consolidated Financial Statements.
As of March 15, 2001, there were 1,999,207 shares of our Class B Common
Stock outstanding, all of which were owned by entities controlled by Victor
Posner. All of the 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 Victor Posner or such entities. In August 1999, we
entered into an agreement pursuant to which we are obligated to acquire all of
the outstanding shares of Class B Common Stock on or prior to August 19, 2001,
subject to extension in certain limited circumstances. Pursuant to that
agreement, in August 1999 we repurchased 1,999,208 shares of our Class B Common
Stock for an aggregate purchase price of approximately $40.9 million and in
August 2000 we repurchased 1,999,207 shares of our Class B Common Stock for an
aggregate purchase price of approximately $42.3 million. We are obligated to
repurchase the remaining 1,999,207 shares of our Class B Common Stock on or
before August 19, 2001, subject to extension in certain limited circumstances.
You should read the information we have included in 'Item 1.
Business -- Repurchase of Class B Common Stock'.
Our management has been authorized, when and if market conditions warrant,
to purchase from time to time up to an aggregate of $80 million worth of our
Class A Common Stock pursuant to a $30 million stock repurchase program that
ends on May 25, 2001 and a $50 million stock repurchase program that ends on
January 18, 2002. Through March 15, 2001, we had repurchased 1,196,434 shares,
at an average cost of approximately $24.78 per share (including commissions),
for an aggregate cost of approximately $29,646,000, pursuant to the $30 million
stock repurchase program. Through March 15, 2001 we have not repurchased any
shares pursuant to the $50 million stock repurchase program. We cannot assure
you that we will repurchase any additional shares pursuant to either of these
stock repurchase programs.
As of March 15, 2001, there were approximately 3,714 holders of record of
our Class A Common Stock and two holders of record of our Class B Common Stock.
15
ITEM 6. SELECTED FINANCIAL DATA(1)
YEAR ENDED
------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 28, JANUARY 3, JANUARY 2, DECEMBER 31,
1996 1997(2) 1999(2) 2000(2) 2000(2)
---- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues and other $452,791 $152,601 $ 88,964 $ 102,161 $ 118,856
earnings...............
Income (loss) from
continuing operations
before income taxes.... (85,177)(5) (2,607)(6) 8,019 24,854 (9) 2,211 (11)
Income (loss) from
continuing
operations............. (58,682)(5) (3,660)(6) 3,187 17,702 (9) (10,157)(11)
Income from discontinued
operations............. 50,197 3,825 11,449 4,519 472,078
Extraordinary charges.... (5,416) (3,781) -- (12,097) (20,680)
Net income (loss)........ (13,901)(5) (3,616)(6) 14,636(8) 10,124 (9) 441,241 (11)
Basic income (loss) per
share (3):
Continuing
operations......... (1.96) (.12) .11 .68 (.44)
Discontinued
operations......... 1.68 .13 .37 .18 20.32
Extraordinary
charges............ (.18) (.13) -- (.47) (.89)
Net income (loss).... (.46) (.12) .48 .39 18.99
Diluted income (loss) per
share (3):
Continuing
operations......... (1.96) (.12) .10 .66 (.44)
Discontinued
operations......... 1.68 .13 .36 .16 20.32
Extraordinary
charges............ (.18) (.13) -- (.45) (.89)
Net income (loss).... (.46) (.12) .46 .37 18.99
Total assets............. 552,724 481,681 462,417 378,424 1,067,424
Long-term debt........... 281,110 279,606 279,226 3,792 291,718
Stockholders' equity
(deficit)(4)........... 6,765 44,521 (7) 11,272 (166,726)(10) 282,310 (12)
Weighted-average common
shares outstanding..... 29,898 30,132 30,306 26,015 (10) 23,232
- ---------
(1) Selected Financial Data for the years prior to the fiscal year ended
December 31, 2000 have been reclassified to reflect the discontinuance of
the Company's beverage businesses sold in October 2000. In addition,
Selected Financial Data for the years ended on or prior to the fiscal year
ended January 2, 2000 reflect the discontinuance of the Company's propane
business sold in July 1999 and for the years ended on or prior to the
fiscal year ended December 28, 1997 reflect the discontinuance of the
Company's dyes and specialty chemicals business sold in December 1997.
(2) The Company changed its fiscal year from a calendar year to a year
consisting of 52 or 53 weeks ending on the Sunday closest to December 31
effective for the 1997 fiscal year. In accordance with this method, the
Company's 1997, 1999 and 2000 fiscal years contained 52 weeks and its
fiscal year 1998 contained 53 weeks.
(3) Basic and diluted income (loss) per share are the same for each of the
years in the two-year period ended December 28, 1997 and for the year ended
December 31, 2000 since all potentially dilutive securities would have had
an antidilutive effect for each of those years. The shares used in the
calculation of diluted income (loss) per share for the years ended
January 3, 1999 (31,527,000) and January 2, 2000 (26,943,000) consist of
the weighted average common shares outstanding and potential common shares
reflecting the effect of dilutive stock options of 1,221,000 and 818,000,
respectively, and for the year ended January 2, 2000 the effect of a
dilutive forward purchase obligation for common stock of 110,000 shares.
(4) The Company has not paid any dividends on its common shares during any of
the years presented.
(footnotes continued on next page)
16
(footnotes continued from previous page)
(5) Reflects certain significant charges and credits recorded during 1996 as
follows: $71,300,000 charged to loss from continuing operations before
income taxes representing (1) a $64,300,000 charge for impairment of
long-lived assets, principally company-owned restaurants and related exit
costs, (2) a $2,500,000 charge for facilities relocation and corporate
restructuring and (3) a $4,500,000 loss on sale of business; $46,974,000
charged to loss from continuing operations representing the aforementioned
$71,300,000 less $24,326,000 of related income tax benefit; and $6,695,000
charged to net loss representing (1) the aforementioned $46,974,000 charged
to loss from continuing operations, (2) $6,317,000 included in the loss
from operations of the discontinued businesses consisting of
(a) $6,300,000 of facilities relocation and corporate restructuring charges
and (b) $3,675,000 of loss on sale of business, both less $3,658,000 of
related income tax benefit and (3) a $5,416,000 extraordinary charge from
the early extinguishment of debt, all less $52,012,000 of gain on disposal
of discontinued operations.
(6) Reflects certain significant charges and credits recorded during 1997 as
follows: $9,698,000 charged to loss from continuing operations before
income taxes representing (1) a $5,609,000 charge to facilities relocation
and corporate restructuring costs and (2) $4,089,000 of loss on sale of
business; $5,865,000 charged to loss from continuing operations
representing the aforementioned $9,698,000 less $3,833,000 of related
income tax benefit; and $4,716,000 charged to net loss representing
(1) the aforementioned $5,865,000 charged to loss from continuing
operations, (2) $19,999,000 included in the loss from operations of the
discontinued businesses consisting of (a) $31,815,000 of charges for
post-acquisition related transition, integration and changes to business
strategies and (b) $1,466,000 of facilities relocation and corporate
restructuring charges, less (a) $576,000 of gain on sale of business and
(b) $12,706,000 of related income tax benefit and (3) a $3,781,000
extraordinary charge from the early extinguishment of debt, all less
$24,929,000 of gain on disposal of discontinued operations.
(7) In connection with the acquisition of Stewart's Beverages, Inc., the
Company issued 1,566,858 shares of its common stock with a value of
$37,409,000 for all of the then outstanding stock of Stewart's and issued
154,931 stock options with a value of $2,788,000 in exchange for all of the
outstanding stock options of Stewart's resulting in an increase in
stockholders' equity, net of expenses, of $39,547,000. In October 2000,
Stewart's was sold as part of the sale of the beverage businesses.
(8) Reflects certain significant credits recorded during 1998 as follows:
$7,074,000 credited to net income representing (1) $3,067,000 included in
the income from operations of the discontinued businesses consisting of
$5,016,000 of gain on sale of businesses less $1,949,000 of related income
taxes and (2) $4,007,000 of gain on disposal of discontinued operations.
(9) Reflects certain significant charges and credits recorded during 1999 as
follows: $926,000 credited to income from continuing operations before
income taxes representing $3,052,000 of reversal of excess interest expense
accruals for interest due the Internal Revenue Service in connection with
the consummation of their examinations of the Company's Federal income tax
returns for prior years less a $2,126,000 charge for a capital structure
reorganization related charge related to equitable adjustments made to the
terms of outstanding stock options for stock of a former subsidiary held by
corporate employees; $5,789,000 credited to income from continuing
operations representing (1) the aforementioned $926,000 credited to income
from continuing operations before income taxes less $264,000 of related
income taxes and (2) $5,127,000 of release of excess reserves for income
taxes in connection with the consummation of IRS examinations of the
Company's Federal income tax returns; and $3,897,000 credited to net income
representing (1) the aforementioned $5,789,000 credited to income from
continuing operations, (2) $15,102,000 of gain on disposal of discontinued
operations, less (i) $4,897,000 of charges reported in income from
operations of the discontinued businesses consisting of (a) a $3,348,000
charge for a capital structure reorganization related charge, similar to
the charge in continuing operations, relating to option holders who were
employees of the sold businesses, (b) $411,000 of provision for interest
due the IRS in connection with the consummation of their examination of the
Company's Federal income tax returns, both less $1,464,000 of related
income taxes and (c) $2,602,000 of provision for income taxes in connection
with the consummation of IRS examinations of the Company's Federal income
tax returns and (ii) a $12,097,000 extraordinary charge from the early
extinguishment of debt.
(footnotes continued on next page)
17
(footnotes continued from previous page)
(10) In 1999 the Company repurchased for treasury 3,805,015 shares of its
Class A common stock and 1,999,208 shares of Class B common stock for
$117,160,000 and recorded a forward purchase obligation for two future
purchases of Class B common stock that occurred or are to occur on August
10, 2000 and on or before August 19, 2001 for $42,343,000 and $43,843,000,
respectively. These transactions resulted in an aggregate $203,346,000
reduction to stockholders' equity in 1999 resulting in a stockholders'
deficit as of January 2, 2000 and a reduction of 3,376,000 shares in the
weighted-average common shares outstanding.
(11) Reflects certain significant charges and credits recorded during 2000 as
follows: $36,432,000 charged to income from continuing operations before
income taxes representing (1) a $26,010,000 charge for capital market
transaction related compensation and (2) a $10,422,000 charge resulting
from the Company's repurchase of 1,045,834 shares of its Class A common
stock which certain of the Company's officers and a director received upon
exercises of stock options within six months after exercise of the related
stock options; $32,914,000 charged to loss from continuing operations
representing the aforementioned $36,432,000 less $3,518,000 of related
income tax benefit; and $427,352,000 credited to net income representing
$480,946,000 of gain on disposal of discontinued operations less (1) the
aforementioned $32,914,000 charged to loss from continuing operations and
(2) a $20,680,000 extraordinary charge from the early extinguishment of
debt.
(12) The increase in stockholders' equity during 2000 principally reflects net
income of $441,241,000 which includes a gain on disposal of discontinued
operations of $480,946,000.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
We currently operate in one business, the franchising of Arby's restaurants,
from which we derive our revenues principally in the form of franchise royalties
and franchise fees. While over half of our existing royalty agreements and all
of our new domestic royalty agreements are for 4% of franchise revenues, our
average rate was 3.3% in 2000. We also derive investment income from our
investment portfolio of cash equivalents, short-term investments and non-current
investments. As discussed below under 'Liquidity and Capital Resources,' we are
presently evaluating our options for the use of our significant cash, cash
equivalent and investment position, including business acquisitions, repurchases
of Triarc common shares and investments.
We incur general and administrative, depreciation and amortization and
interest expense, but no cost of goods sold, in our restaurant franchising
business. In addition, we incur general corporate expenses, including investment
activity related expenses, in those same expense categories. Our restaurant
franchising business does not require significant capital expenditures since we
do not own any restaurants.
We previously operated in the premium beverage and soft drink concentrate
businesses. On October 25, 2000 we completed the sale, which we refer to as the
Snapple Beverage Sale, of Snapple Beverage Group, Inc., the parent company of
Snapple Beverage Corp., Mistic Brands, Inc. and Stewart's Beverages, Inc., and
Royal Crown Company, Inc. to affiliates of Cadbury Schweppes plc, which we refer
to as Cadbury. Our former premium beverage business consisted of Snapple
Beverage Group and our former soft drink concentrate business consisted of Royal
Crown Company. The premium beverage and soft drink concentrate businesses,
formerly reported as business segments, have been accounted for as discontinued
operations in 2000 through the date of sale and the consolidated financial
statements included elsewhere herein for 1998 and 1999 have been reclassified
accordingly.
On July 19, 1999 we completed the sale of 41.7% of our remaining 42.7%
interest in National Propane Partners L.P. and a subpartnership, National
Propane, L.P., which operated a propane business, retaining a 1% limited partner
interest. Accordingly, the propane business, formerly reported as a business
segment, was accounted for as a discontinued operation in 1999 through the date
of sale and the consolidated financial statements included elsewhere herein for
1998 were previously reclassified accordingly.
In recent years our restaurant franchising business has experienced the
following trends:
Consistent growth of the restaurant industry as a percentage of total
food-related spending
Increased competitive pressures from the emphasis by competitors on new
unit development to increase market share leading to frequent use of
price promotions and heavy advertising expenditures within the industry
Increased price competition in the quick service restaurant industry,
particularly as evidenced by the value menu concept which offers
comparatively lower prices on some menu items, the combination meals
concept which offers a combination meal at an aggregate price lower
than the individual food and beverage items, couponing and other price
discounting
Additional competitive pressures for prepared food purchases from
operations outside the restaurant industry such as deli sections and
in-store cafes of several major grocery store chains
The addition of selected higher-priced premium quality items to menus,
which appeal more to adult tastes and recover some of the margins lost
in the discounting of other menu items
We experience the effects of these trends only to the extent they affect our
royalties and franchise fees.
PRESENTATION OF FINANCIAL INFORMATION
This 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' should be read in conjunction with our consolidated
financial statements included elsewhere herein. Certain statements we make
constitute 'forward-looking statements' under the Private Securities Litigation
Reform Act of 1995. See 'Special Note Regarding Forward-Looking Statements and
Projections' in 'Part I' preceding 'Item 1.'
We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday
closest to December 31. Our 1998 fiscal year commenced December 29, 1997 and
ended on January 3, 1999, our 1999 fiscal year
19
commenced January 4, 1999 and ended on January 2, 2000 and our 2000 fiscal year
commenced on January 3, 2000 and ended on December 31, 2000. As a result of our
fiscal year convention, our 1999 and 2000 fiscal years contained 52 weeks and
our 1998 fiscal year contained 53 weeks. We do not believe the extra week in the
1998 fiscal year has a material impact on the discussion below of our results of
operations. When we refer to '1998' we mean the period from December 29, 1997 to
January 3, 1999; when we refer to '1999' we mean the period from January 4, 1999
to January 2, 2000; and when we refer to '2000' we mean the period from
January 3, 2000 to December 31, 2000.
RESULTS OF OPERATIONS
2000 COMPARED WITH 1999
Royalties and Franchise Fees
Our royalties and franchise fees, which are generated entirely from our
restaurant franchising business, increased $6.0 million, or 7.4%, to $87.2
million in 2000 from $81.2 million in 1999 reflecting higher royalty revenue and
slightly higher franchise fee revenue. The increase in royalty revenue resulted
from an average net increase of 91, or 2.8%, franchised restaurants and a 0.9%
increase in same-store sales of franchised restaurants.
Our royalties and franchise fees have no associated cost of sales.
Investment Income, Net
Investment income, net increased $13.8 million, or 81.7%, to $30.7 million
in 2000 from $16.9 million in 1999. This increase reflects (1) $10.4 million of
higher recognized net gains, realized or unrealized as applicable, on our
investments, primarily our gain on the sale of Ascent Entertainment Group, Inc.,
(2) a $4.2 million increase in interest income on cash equivalents and
short-term investments, (3) a $0.9 million decrease in the provision recognized
in 2000 compared with 1999 for unrealized losses on investments deemed to be
other than temporary and (4) a $0.8 million increase in distributions, including
dividends, from certain of our investments. Such increases were partially offset
by a $2.3 million decrease to a loss of $0.1 million in 2000 from income of $2.2
million in 1999 in equity in earnings or losses of investment limited
partnerships and similar investment entities accounted for under the equity
method. The increased interest income is due to higher average amounts of cash
equivalents and short-term investments in 2000 compared with 1999 as a result of
the cash provided from the Snapple Beverage Sale and the securitization of
Arby's franchise fees and royalties. The recognized net gains on our securities
and the provision for other than temporary losses on our securities may not
recur in future periods.
Gain on Sale of Business
Gain on sale of business of $1.2 million in 1999 was recognized from the
reduction in our percentage ownership of MCM Capital Group, Inc., an investment
accounted for under the equity method, as a result of the sale of common stock
issued by MCM.
Other Income, Net
Other income, net decreased $1.9 million, or 68.4%, to $0.9 million in 2000
from $2.8 million in 1999. This decrease was principally due to (1) a loss of
$2.3 million in 2000 in our net equity in the income or losses of investees
other than investment limited partnerships and similar investment entities
compared with an essentially break-even position in 1999 and (2) non-recurring
interest income of $1.3 million in 1999 for the receipt of interest income
relating to both income tax refunds and casualty insurance collateral. The
reduction in the equity in the income or loss of investees was principally due
to an aggregate $1.8 million of equity in the write-down of certain assets of an
investee in 2000. The decreases of $3.6 million were partially offset by
(1) the collection in 2000 of $0.9 million of a receivable from a former
affiliate which was written off in years prior to 1998 due to such company
filing for bankruptcy protection and (2) a $0.7 million reduction in the fair
value of a written call option on our Class A common stock effectively
established in connection with the assumption by the purchaser in the Snapple
Beverage Sale of our zero coupon convertible subordinated debentures due 2018,
which we refer to as the Debentures. Although the Debentures were assumed by
20
Cadbury, they remain convertible into our Class A common stock and as such we
have recorded the liability for such conversion at fair value and the reduction
in the fair value of the liability from the October 25, 2000 date of sale to
December 31, 2000 was recognized in other income.
General and Administrative
Our general and administrative expenses increased $11.7 million, or 17.1%,
to $80.2 million in 2000 from $68.5 million in 1999. This increase principally
reflects (1) stock option compensation costs of $11.4 million in 2000 consisting
of (a) $10.4 million resulting from our repurchase of Class A common stock from
certain officers and a director within six months of the exercise of related
stock options by such officers and director and (b) $1.0 million resulting from
other stock option activity relating to the Snapple Beverage Sale, (2) higher
expenses of $1.4 million from $6.7 million in 1999 to $8.1 million in 2000
related to the full period effect in 2000 compared with the period from May 3,
1999 to January 2, 2000 in 1999 of executive salary arrangements and an
executive bonus plan effective May 3, 1999, (3) higher charitable contributions
of $1.4 million, (4) provisions of $1.2 million in 2000 for costs to support a
change in distributors for a majority of franchisees in our restaurant
franchising business for food and other products and (5) other inflationary
increases. These increases were partially offset by (1) non-recurring 1999
expenses of $2.9 million related to our lease of an airplane from Triangle
Aircraft Services Corporation, a company owned by our Chairman and Chief
Executive Officer and President and Chief Operating Officer, through
January 19, 2000 at which time we acquired 280 Holdings, LLC, the entity that at
the time of the acquisition owned the airplane and (2) the recognition in 2000
of a $1.5 million note receivable that we received as a portion of the sales
proceeds of an insurance subsidiary that we sold in 1998 as a result of the
collection of the note in 2000 due to favorable settlement of insurance claims
by the purchaser of the insurance subsidiary. The $1.5 million note received in
connection with the sale of a former insurance subsidiary had not been
previously recognized due to uncertainty surrounding its collection which was
dependent on the favorable settlement of insurance claims. The gain from
realization of the note was included as a reduction of general and
administrative expenses since the gain effectively represents an adjustment of
prior period insurance reserves.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, decreased $0.1 million, or 2.0%, to $5.3 million in 2000 from
$5.4 million in 1999. This decrease in depreciation and amortization principally
reflects (1) a decrease in amortization of $1.5 million reflecting (a) an
increase in the estimated useful lives on $8.9 million of airplane leasehold
improvements as a result of the acquisition of 280 Holdings on January 19, 2000
and (b) the termination of amortization effective January 2000 on a $2.5 million
payment made in 1997 principally for the option to continue to lease the
airplane for five years since the remaining unamortized portion was repaid to us
in connection with the acquisition of 280 Holdings and (2) a decrease in the
amortization of below market stock options of $0.3 million in 2000 as those
stock options became fully vested in March 2000. These decreases were almost
entirely offset by the 2000 depreciation of $1.7 million on the airplane
commencing with the acquisition of 280 Holdings on January 19, 2000.
Capital Market Transaction Related Compensation
The capital market transaction related compensation charge of $26.0 million
in 2000 resulted from incentive compensation costs directly related to the
completion of the Snapple Beverage Sale and the issuance in November 2000 of
insured non-recourse securitization notes in the principal amount of $290.0
million. Such compensation consisted of $22.5 million to the Chairman and Chief
Executive Officer and the President and Chief Operating Officer which was
invested in deferred compensation trusts for their benefit in January 2001 and
$3.5 million paid to other officers and employees in January 2001. There was no
similar charge in 1999.
Capital Structure Reorganization Related Charge
The capital structure reorganization related charge decreased $1.8 million,
or 85.6%, to $0.3 million in 2000 from $2.1 million in 1999. Such charges
reflect equitable adjustments that were made in 1999 to the terms of then
outstanding options under the stock option plan of Snapple Beverage Group to the
extent the option holders were employees of Triarc.
21
The Snapple Beverage Group stock option plan provided for an equitable
adjustment of options in the event of a recapitalization or similar event. The
exercise prices of then outstanding options under the Snapple Beverage Group
plan were equitably adjusted in 1999 to adjust for the effects of net
distributions of $91.3 million, principally consisting of transfers of cash and
deferred tax assets from Snapple Beverage Group to Triarc partially offset by
the effect of the contribution of Stewart's to Snapple Beverage Group effective
May 17, 1999. We have accounted for the equitable adjustment in accordance with
the intrinsic value method. In addition to reducing the exercise prices of the
Snapple Beverage Group stock options which did not result in the recognition of
any expense because those modifications to the options did not create a new
measurement date under the intrinsic value method, a cash payment of $51.34 per
share for the options outstanding at December 31, 1997 and $39.40 per share for
the options granted in 1998 was due from us to the option holder following the
exercise of the stock options and the occurrence of certain other events. The
initial charge relating to the cash payment portion of these equitable
adjustments was recorded in the 1999 first quarter and, therefore, the charge of
$2.1 million in 1999 includes the portion of the aggregate cash payment which
was due from us to the extent of the vesting of the stock options through
January 2, 2000. The $0.3 million charge recognized in 2000 represents the
portion of the cash due in connection with the exercise of the stock options to
the extent of the vesting of the options during the period from January 3, 2000
to October 25, 2000, the date of the Snapple Beverage Sale, net of credits for
forfeitures of non-vested stock options of terminated employees. As a result of
the Snapple Beverage Sale, all outstanding Snapple Beverage Group stock options
remained the responsibility of Snapple Beverage Group under Cadbury's ownership
and are no longer our responsibility. The accrual for such cash payment
recognized by Triarc, which was $2.4 million as of October 25, 2000, was
reversed in the 2000 fourth quarter as a component of the gain on sale of the
beverage businesses included in discontinued operations.
Interest Expense
Interest expense increased $3.5 million, or 281.3%, to $4.8 million in 2000
from $1.3 million in 1999. This increase in interest expense is primarily
attributable to (1) the reversal in 1999 of $3.1 million of interest accruals
relating to income tax matters due to the finalization of our income tax
liabilities resulting from the consummation of Internal Revenue Service
examinations of our income tax returns for the fiscal years from 1989 to 1992
and the tentative completion of the examinations of our income tax returns for
fiscal 1993 and the eight-month transition period ended December 31, 1993 during
1999, (2) interest of $2.4 million in 2000 on 7.44% insured non-recourse
securitization notes in the principal amount of $290.0 million issued on
November 21, 2000 and (3) interest of $1.5 million in 2000 on an $18.0 million
secured promissory note assumed in connection with the acquisition of 280
Holdings on January 19, 2000. These increases were partially offset by (1) $1.4
million of 1999 interest expense on $300.0 million of 10 1/4% senior
subordinated notes due 2009 co-issued by Snapple Beverage Group and Triarc
Consumer Products Group, LLC, a subsidiary of ours, which was allocated to our
restaurant franchising business in 1999 but which was no longer allocated in
2000 and (2) non-recurring 1999 interest of $1.4 million on $275.0 million of
9 3/4% senior secured notes due 2000 of RC/Arby's Corporation, the former parent
company of Royal Crown and Arby's, Inc., reported in continuing operations
consisting of the portion related to Arby's and RC/Arby's. The 9 3/4% notes were
repaid in the first quarter of 1999 in connection with a debt refinancing which
consisted of (1) the co-issuance by Snapple Beverage Group and Triarc Consumer
Products Group of $300.0 million of 10 1/4% senior subordinated notes due 2009
and (2) $475.0 million borrowed by the beverage businesses under a senior bank
credit facility and the repayment of (1) $284.3 million under a prior credit
facility of Snapple Beverage Group and (2) the $275.0 million of 9 3/4% notes.
Outstanding borrowings under the credit facility of Snapple Beverage Group and
the 10 1/4% notes were repaid by us or assumed by Cadbury, as applicable, in
connection with the Snapple Beverage Sale.
Income Taxes
The provision for income taxes represented effective rates of 559% in 2000
and 29% in 1999. The effective rate is unusually high in 2000 principally due to
the relatively low amount of pretax income and the effect thereon of
non-deductible compensation costs, which were significantly higher in 2000
compared with 1999. The effective rate is lower than the United States Federal
statutory rate of 35% in 1999 principally due to the 1999 release of excess
income tax reserves of $5.1 million as a result of the settlement of Internal
22
Revenue Service examinations of our tax returns for fiscal 1989 to 1992 and the
tentative completion of Internal Revenue Service examinations of our tax returns
for fiscal 1993 and the eight-month transition period ended December 31, 1993
during 1999, partially offset by the effect of non-deductible compensation costs
and state income taxes.
Discontinued Operations
Income from discontinued operations was $472.0 million in 2000 compared with
$4.5 million in 1999. Such income from discontinued operations includes the loss
from operations of the discontinued businesses and the gain on disposal of the
discontinued businesses. The loss from operations component improved $1.7
million to a loss of $8.9 million in 2000 from a loss of $10.6 million in 1999.
The gain on disposal component increased $465.8 million to $480.9 million in
2000 from $15.1 million in 1999.
The improvement in the loss from operations of the discontinued businesses
of $1.7 million was due to the non-recurring $1.6 million after-tax equity in
the loss from discontinued operations of the former propane business in 1999 and
a $0.1 million decrease in the net loss of our discontinued beverage businesses
in 2000. See below for a discussion of the operating results of the discontinued
beverage businesses.
The gain on disposal of discontinued businesses of $480.9 million in 2000
entirely results from the Snapple Beverage Sale. The gain on disposal of
discontinued businesses of $15.1 million in 1999 results from (1) a $12.4
million gain relating to the sale of our propane business consisting of (a) an
$11.2 million gain from the July 1999 sale of 41.7% of our then remaining 42.7%
interest in National Propane Partners and (b) the recognition in 1999 of $1.2
million of previously deferred gains from the 1996 sale of 57.3% of our interest
in National Propane Partners and (2) a $2.7 million reduction of previously
recognized estimated disposal losses related to certain discontinued operations
of SEPSCO, LLC, a subsidiary of ours. The $2.7 million adjustment relating to
SEPSCO in 1999 was principally due to the receipt by SEPSCO of an income tax
refund and the release of income tax reserves no longer required based on the
results of Internal Revenue Service examinations of our tax returns for the
fiscal years from 1989 through 1993.
Revenues and other earnings of the beverage businesses decreased $94.0
million, or 12.1%, to $681.0 million in 2000 from $775.0 million in 1999
reflecting a decrease of $75.5 million, or 11.6%, for the premium beverage
business and an $18.5 million, or 15.1%, decrease for the soft drink concentrate
business. The decrease in revenues and other earnings for both the premium
beverage business and the soft drink concentrate business was due to the Snapple
Beverage Sale on October 25, 2000 whereby our 2000 results reflect the
operations of the beverage businesses only through the date of sale compared
with a full year in 1999. Revenues and other earnings for the period
October 26, 1999 to January 2, 2000 amounted to $93.0 million for the premium
beverage business and $19.8 million for the soft drink concentrate business.
Adjusting our 1999 results by excluding the revenues and other earnings of the
beverage businesses for the period from October 26, 1999 to January 2, 2000,
revenues and other earnings of the beverage businesses increased $18.8 million,
or 2.8%, for the comparable periods through October 25 of each year reflecting
an increase of $17.5 million, or 3.1%, for the premium beverage business and an
increase of $1.3 million, or 1.3% for the soft drink concentrate business. The
$17.5 million increase for the premium beverage business was principally due to
increased sales volume resulting from newer product introductions such as
Snapple Elements'TM', a product platform of herbally enhanced drinks introduced
in April 1999, and Mistic Zotics'TM' introduced in April 2000 and increased
cases sold to retailers through two premium beverage distributors principally
reflecting the effect of an increased focus on our products as a result of our
ownership of these distributors from February 25, 1999 and January 2, 2000,
respectively, until the sale of the premium beverage business on October 25,
2000. These increases were partially offset by decreased sales volume of Whipper
Snapple'r' and Mistic tropical fruit juices. The $1.3 million increase for the
soft drink concentrate business was principally due to (1) a shift primarily
during the first half of 2000 in private label sales to sales of higher priced
flavor concentrates from sales of lower priced cola concentrates and (2) an
increase in international branded concentrate volume. Domestic branded
concentrate sales remained relatively unchanged as the effect of higher average
selling prices resulting from domestic concentrate price increases effective
November 1999 was offset entirely by a decline in domestic branded concentrate
volume.
The pretax loss of the beverage businesses increased $4.8 million, or
150.6%, to $8.0 million in 2000 from $3.2 million in 1999. The pretax loss for
the period October 26, 1999 to January 2, 2000 amounted to $4.6 million.
Adjusting our 1999 results by excluding the pretax loss of the beverage
businesses for the period
23
from October 26, 1999 to January 2, 2000, the pretax income (loss) of the
beverage businesses declined $9.4 million to a loss of $8.0 million in 2000 from
income of $1.4 million in 1999 for the comparable periods through October 25 of
each year principally due to a $28.2 million increase in costs and expenses of
the beverage businesses partially offset by an $18.8 million increase in their
revenues and other earnings, as described in the preceding paragraph. The $28.2
million increase in costs and expenses of the beverage businesses was due to
(1) an $8.0 million increase in interest expense principally as a result of
higher average interest rates in the 2000 period and, to a lesser extent, higher
average levels of debt during the 2000 period due to the full period effect of
increases from a February 25, 1999 debt refinancing discussed above under
'Interest Expense' and (2) a $22.9 million increase in operating costs and
expenses, including amortization of costs in excess of net assets of acquired
companies, which we refer to as Goodwill, trademarks and other intangibles,
primarily as a result of the acquisition of two premium beverage distributors on
February 25, 1999 and January 2, 2000, respectively, as well as other increases
approximately proportionate to the increase in revenues and other earnings. Such
increases were partially offset by (3) a $2.7 million decrease in the capital
structure reorganization charge recognized by Snapple Beverage Group, comparable
to the related charge recognized by Triarc which is explained in detail under
'Capital Structure Reorganization Related Charge' above.
The beverage businesses had provisions for income taxes of $0.9 million in
2000 and $5.8 million in 1999 despite a loss before income taxes principally due
to (1) the amortization of non-deductible Goodwill and (2) the differing impact
of the mix of pretax loss or income among the combined entities since we file
state income tax returns on an individual company basis.
Extraordinary Charges
The extraordinary charges of $20.7 million in 2000 resulted from the early
assumption by Cadbury or extinguishment by us, as applicable, of (1) borrowings
under a senior bank credit facility maintained by Snapple, Mistic, Stewart's,
Royal Crown and RC/Arby's, (2) $300.0 million of 10 1/4% senior subordinated
notes due 2009 co-issued by Triarc Consumer Products Group and Snapple Beverage
Group and (3) zero coupon convertible subordinated debentures due 2018. These
extraordinary charges consisted of (1) the write-off of previously unamortized
deferred financing costs of $27.5 million and (2) the payment of prepayment
penalties and fees of $5.5 million, both less income tax benefit of $12.3
million. The extraordinary charges of $12.1 million in 1999 resulted from the
early extinguishment of borrowings under a prior credit facility of Snapple
Beverage Group and RC/Arby's 9 3/4% notes and consisted of (1) the write-off of
previously unamortized (a) deferred financing costs of $11.3 million and
(b) interest rate cap agreement costs of $0.1 million and (2) the payment of a
$7.7 million redemption premium on RC/Arby's 9 3/4% notes, both less income tax
benefit of $7.0 million.
1999 COMPARED WITH 1998
Royalties and Franchise Fees
Our royalties and franchise fees increased $3.1 million, or 4.0%, to $81.2
million in 1999 from $78.1 million in 1998 reflecting higher royalty revenue and
slightly higher franchise fee revenue. The increase in royalty revenue resulted
from an average net increase of 70, or 2.3%, franchised restaurants and a 2.0%
increase in same-store sales of franchised restaurants.
Investment Income, Net
Investment income, net increased $7.0 million, or 71.4%, to $16.9 million in
1999 from $9.9 million in 1998. This increase reflects (1) reduced provisions of
$4.7 million recognized in 1999 compared with 1998 for unrealized losses on
short-term investments and other investments deemed to be other than temporary,
(2) a $2.7 million increase in 1999 in interest income on cash equivalents and
short-term investments resulting from the investment of excess proceeds from the
first quarter 1999 debt refinancing discussed above under 'Interest Expense' in
the comparison of the years 2000 and 1999 and (3) a $1.6 million increase in
equity in earnings of investment limited partnerships and similar investment
entities accounted for under the equity method. Such increases were partially
offset by $2.0 million of lower net recognized gains, realized or unrealized as
applicable, on our investments to $6.8 million in 1999.
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Gain on Sale of Business
The gain on sale of business of $1.2 million in 1999 was recognized from the
reduction in our ownership of MCM, as previously discussed in the comparison of
the years 2000 and 1999.
Other Income, Net
Other income, net increased $1.8 million, or 175.4%, to $2.8 million in 1999
from $1.0 million in 1998 primarily due to $1.3 million of interest income in
1999 from the receipt of interest income relating to both income tax refunds and
casualty insurance collateral. There was no comparable interest income
recognized in 1998 due to the timing of the income tax refunds and the
uncertainty of the realization of interest income on the casualty insurance
collateral.
General and Administrative
Our general and administrative expenses increased $5.5 million, or 8.7%, to
$68.5 million in 1999 from $63.0 million in 1998. This increase principally
reflects (1) expenses of $6.7 million in 1999 related to new executive salary
arrangements and an executive bonus plan effective May 3, 1999 and (2) other
increases in compensation and benefit costs, all partially offset by
non-recurring provisions in 1998 of (1) $2.5 million relating to legal
settlements consisting of (a) the then anticipated settlement of a lawsuit with
Arby's Mexican master franchisee which was ultimately settled in October 1999
and (b) the settlement of a lawsuit with ZuZu, Inc., a former affiliate with
which we were developing dual-branding strategies and (2) $1.5 million for a
severance arrangement under the last of our 1993 employment agreements.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $0.5 million, or 10.3%, to $5.4 million in 1999 from
$4.9 million in 1998 principally due to $1.1 million of amortization of
leasehold improvements made during 1999 to a corporate airplane which was leased
from an affiliate partially offset by (1) a $0.5 million decrease in
amortization of below market stock options due to a portion of those options
becoming fully vested in the first quarter of 1999 and (2) non-recurring 1998
amortization of $0.3 million of certain franchise rights and a non-compete
agreement of the restaurant franchising business becoming fully amortized in
1998.
Capital Structure Reorganization Related Charge
The capital structure reorganization related charge of $2.1 million in 1999
related to equitable adjustments that were made in 1999 to the terms of then
outstanding options under a stock option plan of Snapple Beverage Group to the
extent the option holders were employees of Triarc, as previously discussed in
more detail in the comparison of the years 2000 and 1999. The initial charge
relating to the cash payment portion of these equitable adjustments was recorded
in the 1999 first quarter and, therefore, the charge of $2.1 million for all of
1999 includes the portion of the aggregate cash which was due from us to the
extent of the vesting of the stock options through January 2, 2000. There was no
similar charge in 1998 since the equitable adjustments did not occur until the
first quarter of 1999.
Interest Expense
Interest expense decreased $11.7 million, or 90.3%, to $1.3 million in 1999
from $13.0 million in 1998 principally due to (1) a $5.8 million decrease in
interest to $1.4 million in 1999 and a $2.0 million decrease in amortization of
deferred financing costs resulting from the first quarter 1999 repayment of
$275.0 million of RC/Arby's 9 3/4% notes and (2) the reversal in 1999 of $3.1
million of interest accruals relating to income tax matters, as previously
discussed in the comparison of the years 2000 and 1999, compared with a
provision for interest relating to income tax matters of $2.0 million in 1998.
These decreases were partially offset by $1.4 million of 1999 interest expense
on the $300.0 million of 10 1/4% notes which was allocated to our restaurant
franchising business. Interest expense on the RC/Arby's 9 3/4% notes reported in
continuing operations consists of the portion relating to Arby's and RC/Arby's.
The RC/Arby's 9 3/4% notes were repaid in the first quarter of 1999 in
connection with a debt refinancing as previously discussed in the comparison of
the years 2000 and
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1999. As a result of the debt refinancing, the decrease in interest expense from
continuing operations was more than offset by an increase in interest expense
included in discontinued operations. See below under the discussion of
'Discontinued Operations.'
Provision for Income Taxes
The provision for