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                  TRIARC COMPANIES, INC.
   FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996







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            SECURITIES AND EXCHANGE COMMISSION
                  WASHINGTON, D.C.  20549

                         FORM 10-K
(MARK ONE)
(X)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [FEE REQUIRED]

     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.

                            OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

     FOR THE TRANSITION PERIOD FROM _____________ TO ______________.

               COMMISSION FILE NUMBER 1-2207
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                  TRIARC COMPANIES, INC.

  (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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         DELAWARE                   38-0471180
     (STATE OR OTHER JURISDICTION OF(I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

     280 PARK AVENUE
     NEW YORK, NEW YORK             10017
     (ADDRESS OF PRINCIPAL EXECUTIVE(ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 451-3000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                             NAME OF EACH EXCHANGE
     TITLE OF EACH CLASS                     ON WHICH REGISTERED
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     CLASS A COMMON STOCK, $.10 PAR VALUE    NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                           NONE

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The aggregate  market value of the outstanding  shares of the  registrant's
Class A Common Stock (the only class of the registrant's voting securities) held
by non-affiliates  of the registrant was approximately  $286,000,000 as of March
15, 1997. There were 24,112,109 shares of the registrant's  Class A Common Stock
and 5,997,622 shares of the registrant's  Class B Common Stock outstanding as of
March 15, 1997.

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"ARBY'S," "RC COLA," "DIET RC," "ROYAL CROWN," "ROYAL CROWN
DRAFT COLA," "DIET RITE," "NEHI," "NEHI LOCKJAW," "UPPER 10," "KICK,"
  "THIRST THRASHER," "MISTIC," "ROYAL MISTIC" AND "PATCO"
ARE REGISTERED TRADEMARKS OF TRIARC COMPANIES, INC. OR ITS SUBSIDIARIES.











                          PART I

     SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

   Certain  statements  in this Annual  Report on Form 10-K (this "Form  10-K"),
including  statements  under  "Item  1.  Business"  and  "Item  7.  Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations,"
constitute  "forward-looking  statements"  within  the  meaning  of the  Private
Securities  Litigation  Reform  Act of 1995 (the  "Reform  Act").  Such  forward
looking  statements  involve known and unknown  risks,  uncertainties  and other
factors  which may cause the actual  results,  performance  or  achievements  of
Triarc  Companies,  Inc.  ("Triarc")  and  its  subsidiaries  to  be  materially
different  from any  future  results,  performance  or  achievements  express or
implied by such  forward-looking  statements.  Such factors include, but are not
limited  to,  the   following:   general   economic  and  business   conditions;
competition; success of operating initiatives;  development and operating costs;
advertising and promotional efforts;  brand awareness;  the existence or absence
of adverse publicity;  acceptance of new product  offerings;  changing trends in
customer tastes; the success of multi-branding;  changes in business strategy or
development plans; quality of management;  availability, terms and deployment of
capital; business abilities and judgment of personnel; availability of qualified
personnel;  Triarc not receiving from the Internal  Revenue  Service a favorable
ruling  that the  spinoff  referred to herein will be tax-free to Triarc and its
stockholders or the failure to satisfy other customary conditions to closing for
transactions of the types referred to herein;  labor and employee benefit costs;
availability  and cost of raw materials and supplies;  changes in, or failure to
comply with,  government  regulations;  regional weather conditions;  changes in
wholesale propane prices;  operating hazards and risks associated with handling,
storing  and  delivering  combustible  liquids  such  as  propane;  construction
schedules;  trends in and strength of the textile industry;  the costs and other
effects  of  legal  and   administrative   proceedings;   and  other  risks  and
uncertainties  referred in this Form 10-K,  National  Propane  Partners,  L.P.'s
registration  statement on Form S-1 and other  current and  periodic  filings by
Triarc,  RC/Arby's  Corporation  and National  Propane  Partners,  L.P. with the
Securities and Exchange  Commission.  Triarc will not undertake and specifically
declines any  obligation to publicly  release the result of any revisions  which
may be made to any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.

ITEM 1.    BUSINESS.

INTRODUCTION

     Triarc is a holding company which, through its subsidiaries,  is engaged in
four  businesses:  beverages,  restaurants,  dyes and  specialty  chemicals  and
liquefied  petroleum gas. The beverage  operations  are conducted  through Royal
Crown Company,  Inc.  ("Royal Crown") and Mistic Brands,  Inc.  ("Mistic");  the
restaurant   operations  are  conducted  through  Arby's,   Inc.  (d/b/a  Triarc
Restaurant Group)  ("Arby's");  the dyes and specialty  chemical  operations are
conducted through C.H. Patrick & Co., Inc. ("C.H.  Patrick");  and the liquefied
petroleum gas  operations are conducted  through  National  Propane  Corporation
("National Propane"), the managing general partner of National Propane Partners,
L.P. (the  "Partnership")  and its operating  subsidiary  partnership,  National
Propane,  L.P.  (the  "Operating  Partnership").  Prior  to June 29,  1995,  the
liquefied  petroleum  gas  operations  were also  conducted  through  Public Gas
Company ("Public Gas") which, on such date was merged with National Propane.  At
the time of such merger, Public Gas was an indirect  wholly-owned  subsidiary of
Southeastern  Public Service  Company  ("SEPSCO"),  which in turn is an indirect
wholly-owned subsidiary of Triarc (National Propane and Public Gas are sometimes
collectively referred to herein as the "LP Gas Companies").  In addition,  prior
to April 29,  1996,  Triarc was also  engaged in the  textile  business  through
Graniteville Company  ("Graniteville").  On such date the textile related assets
of Graniteville  were sold. See "Item 1.-- Business -- Strategic  Alternatives."
For information regarding the revenues, operating profit and identifiable assets
for Triarc's four  businesses for the year ended December 31, 1996, see "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations"  and Note 29
[LOGO] TRIARC COMPANIES, INC. FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997 ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997. OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ______________. COMMISSION FILE NUMBER 1-2207 ------------------------ TRIARC COMPANIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 38-0471180 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 280 PARK AVENUE NEW YORK, NEW YORK 10017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 451-3000 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------------- ---------------------------- CLASS A COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the outstanding shares of the registrant's Class A Common Stock (the only class of the registrant's voting securities) held by non-affiliates of the registrant was approximately $494,750,000 as of March 15, 1998. There were 24,659,744 shares of the registrant's Class A Common Stock and 5,997,622 shares of the registrant's Class B Common Stock outstanding as of March 15, 1998. DOCUMENTS INCORPORATED BY REFERENCE Part III of this 10-K incorporates information by reference from an amendment hereto or to the registrant's definitive proxy statement, in either case which will be filed no later than 120 days after December 28, 1997. ________________________________________________________________________________ PART I SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS Certain statements in this Annual Report on Form 10-K (this "Form 10-K"), including statements under "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," that are not historical facts, including most importantly, those statements preceded by, followed by, or that include the words "may," "believes," "expects," "anticipates," or the negation thereof, or similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of Triarc Companies, Inc. ("Triarc" or the "Company") and its subsidiaries to be materially different from any future results, performance or achievements express or implied by such forward-looking statements. Such factors include, but are not limited to, the following: general economic and business conditions; competition; success of operating initiatives; development and operating costs; advertising and promotional efforts; brand awareness; the existence or absence of adverse publicity; market acceptance of new product offerings; new product and concept development by competitors; changing trends in customer tastes; the success of multi-branding; availability, location and terms of sites for restaurant development; changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; business abilities and judgment of personnel; availability of qualified personnel; labor and employee benefit costs; availability and cost of raw materials and supplies; changes in, or failure to comply with, government regulations; regional weather conditions; changes in wholesale propane prices; the costs and other effects of legal and administrative proceedings; pricing pressures from competitive discounting; general economic, business and political conditions in countries and territories where the Company operates; the impact of such conditions on consumer spending; and other risks and uncertainties referred in this Form 10-K, National Propane Partners, L.P.'s registration statement on Form S-1 and other current and periodic filings by Triarc, RC/Arby's Corporation and National Propane Partners, L.P. with the Securities and Exchange Commission. Triarc will not undertake and specifically declines any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. In addition, it is Triarc's policy generally not to make any specific projections as to future earnings, and Triarc does not endorse any projections regarding future performance that may be made by third parties. ITEM 1. BUSINESS. INTRODUCTION Triarc is predominantly a holding company which, through its subsidiaries, is a consumer products company engaged in beverage and restaurant operations. Triarc's beverage operations are conducted through the Triarc Beverage Group ("TBG"), which consists of Snapple Beverage Corp. ("Snapple"), which was acquired by Triarc on May 22, 1997, Mistic Brands, Inc. ("Mistic"), Cable Car Beverage Corporation ("Cable Car"), which was acquired by Triarc on November 25, 1997, and Royal Crown Company, Inc. ("Royal Crown"). The restaurant operations are conducted through Arby's, Inc. (d/b/a Triarc Restaurant Group) ("TRG"). In addition, Triarc has an equity interest in the liquefied petroleum gas business through National Propane Corporation ("National Propane"), the managing general partner of National Propane Partners, L.P. (the "Partnership") and its operating subsidiary partnership, National Propane, L.P. (the "Operating Partnership"). Prior to December 23, 1997, Triarc also was engaged in the dyes and specialty chemical business through C.H. Patrick & Co., Inc. ("C.H. Patrick"). On such date, C.H. Patrick was sold. See "Item 1 -- Business -- Recent Dispositions." For information regarding the revenues, operating profit and identifiable assets for Triarc's businesses for the fiscal year ended December 28, 1997, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 23 to the Consolidated Financial Statements of Triarc Companies, Inc. and Subsidiaries (the "Consolidated Financial Statements"). See "Item 1. Business -- General -- Discontinued and Other Operations" for a discussion of certain remaining ancillary businesses which Triarc intends to dispose of or liquidate as part of its business strategy. Triarc's corporate predecessor was incorporated in Ohio in 1929. Triarc was reincorporated in Delaware, by means of a merger, in June 1994. Triarc's principal executive offices are located at 280 Park Avenue, New York, New York 10017 and its telephone number is (212) 451-3000. BUSINESS STRATEGY The key elements of Triarc's business strategy include (i) focusing Triarc's resources on its consumer products businesses -- beverages and restaurants, (ii) building strong operating management teams for each of the businesses and (iii) providing strategic leadership and financial resources to enable the management teams to develop and implement specific, growth-oriented business plans. The senior operating officers of Triarc's businesses have implemented individual plans focused on increasing revenues and improving operating efficiency. In addition, Triarc continuously evaluates and holds discussions with third parties regarding various acquisitions and business combinations to augment its businesses. The implementation of this business strategy may result in increases in expenditures for, among other things, acquisitions and, over time, marketing and advertising. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." It is Triarc's policy to publicly announce an acquisition only after an agreement with respect to such acquisition has been reached. RECENT ACQUISITIONS Acquisition of Snapple Beverage Corp. On May 22, 1997, Triarc acquired Snapple from The Quaker Oats Company ("Quaker") for approximately $300 million. Snapple, which markets ready-to-drink teas, juice drinks and juices, is a market leader in the premium beverage category. Snapple, together with Mistic, Royal Crown and Cable Car, operates as part of TBG. In connection with the acquisition, Snapple and Mistic entered into a bank financing, the proceeds of which were used to finance the Snapple acquisition, to refinance existing indebtedness of Mistic and to pay certain fees and expenses associated with the acquisition. See "Item 1. Business -- Business Segments -- Beverages." Stewart's Acquisition On November 25, 1997, Triarc acquired Cable Car (the "Stewart's Acquisition"), through a merger, for an aggregate of 1,566,858 shares of Triarc's Class A Common Stock. Accordingly, following the merger, Cable Car became a wholly-owned subsidiary of Triarc. Cable Car markets premium carbonated soft drinks in the United States and Canada, primarily under the Stewart's(R) brand ("Stewart's"). See "Item 1. Business -- Business Segments -- Beverages." RECENT DISPOSITIONS Sale of Company-Owned Restaurants On May 5, 1997, subsidiaries of Triarc sold to an affiliate of RTM, Inc. ("RTM"), the largest franchisee in the Arby's system, all of the stock of two corporations owning all of Triarc's 355 company-owned Arby's restaurants. The purchase price was approximately $73 million (including approximately $2 million of post-closing adjustments), consisting primarily of the assumption of approximately $69 million in mortgage indebtedness and capitalized lease obligations. In connection with the transaction, the Company received options to purchase up to an aggregate of 20% of the common stock of the two corporations owning such restaurants. RTM and certain affiliated entities have agreed to indemnify and hold the Company harmless from, among other things, the assumed debt and lease obligations. In addition, the two corporations that were sold agreed to build an aggregate of 190 Arby's restaurants over 14 years pursuant to a development agreement (in addition to a previous agreement by affiliates of RTM to build 210 Arby's restaurants over a ten and one-half year period). Sale of C.H. Patrick On December 23, 1997, Triarc sold all of the outstanding capital stock of C.H. Patrick (the "C.H. Patrick Sale"), its dyes and specialty chemicals subsidiary, to The B.F. Goodrich Company for $72 million in cash resulting in net proceeds of approximately $64.4 million, net of post-closing adjustments and expenses. Triarc used approximately $32 million of the proceeds from the C.H. Patrick Sale to repay certain borrowings of C.H. Patrick. With the sale of C.H. Patrick, Triarc completed the sale of all of its wholly-owned non- consumer businesses. Sale of C&C Beverage Line On July 18, 1997, Royal Crown and TriBev Corporation, subsidiaries of Triarc, completed the sale of their rights to the C&C beverage line, including the C&C trademark. In connection with the sale, Royal Crown also agreed to sell concentrate for C&C products and to provide certain technical services to the buyer for seven years. In consideration for the foregoing, Royal Crown and TriBev Corporation will receive aggregate payments of approximately $9.4 million, payable over seven years. ISSUANCE OF ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES On February 9, 1998 Triarc sold $360 million principal amount at maturity of its Zero Coupon Convertible Subordinated Debentures due 2018 (the "Debentures") to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), as the initial purchaser for an offering to "qualified institutional buyers" (as defined under Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")) in compliance with Rule 144A. The Debentures were issued at a discount of 72.177% from the principal amount thereof payable at maturity. The issue price represents a yield to maturity of 6.5% per annum (computed on a semi-annual bond equivalent basis). The net proceeds from the sale of the Debentures, after deducting placement fees of approximately $3.0 million, were approximately $97.2 million. The Debentures are convertible into shares of Triarc's Class A Common Stock at a conversion rate of 9.465 shares per $1,000 principal amount at maturity, which represents an initial conversion price of approximately $29.40 per share of Common Stock. The conversion price will increase over the life of the Debentures at 6.5% per annum computed on a semi-annual bond equivalent basis. The conversion of all of the Debentures into Triarc's Class A Common Stock would result in the issuance of approximately 3.4 million shares of Class A Common Stock. The Debentures are not redeemable by Triarc prior to February 9, 2003, but may be redeemed by Triarc at any time thereafter. In connection with the sale of the Debentures, Triarc purchased from Morgan Stanley 1,000,000 shares of Triarc's Class A Common Stock for approximately $25.6 million. The balance of the net proceeds from the sale of Debentures will be used by Triarc for general corporate purposes, which may include working capital, repayment or refinancing of indebtedness, acquisitions and investments. Neither the Debentures nor the Class A Common Stock issuable upon conversion were initially registered under the Securities Act, and may not be offered or sold within the United States, unless so registered, except pursuant to an exemption from the Securities Act, or in a transaction not subject to the registration requirements of the Securities Act. This Form 10-K shall not constitute an offer to sell or a solicitation of an offer to buy the Debentures or the Class A Common Stock. CANCELLATION OF SPINOFF TRANSACTIONS On October 29, 1996, Triarc announced that its Board of Directors approved a plan to offer up to approximately 20% of the shares of its beverage and restaurant businesses to the public through an initial public offering and to spinoff the remainder of the shares of such businesses to Triarc's stockholders (collectively, the "Spinoff Transactions"). In May 1997 Triarc announced it would not proceed with the Spinoff Transactions as a result of the acquisition of Snapple and other issues. DECONSOLIDATION OF NATIONAL PROPANE MASTER LIMITED PARTNERSHIP Upon completion of an initial public offering in July 1996 (the "Propane IPO") and a subsequent private placement in November 1996, Triarc, through its subsidiary National Propane, held an approximately 42.7% interest (on a combined basis) in the Operating Partnership, and the public held the remaining interest. National Propane and its subsidiary, National Propane SGP, Inc. ("SGP"), contributed substantially all of their assets to the Operating Partnership as a capital contribution and the Operating Partnership assumed substantially all of the liabilities of National Propane and SGP (other than certain income tax liabilities). National Propane, as managing general partner, adopted certain amendments to the partnership agreements of the Partnership and the Operating Partnership, effective December 28, 1997. As a result, Triarc's 42.7% interest in the Partnership as of the close of business on such date is accounted for utilizing the equity method. The financial position, cash flows and results of operations of the Partnership were included in Triarc's consolidated financial statements for all prior periods. See "Item 1. Business -- Business Segments -- Liquefied Petroleum Gas (National Propane)" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." CHANGE IN FISCAL YEAR Effective January 1, 1997, Triarc adopted a 52/53 week fiscal convention for itself and each subsidiary (other than National Propane) whereby its fiscal year will end each year on the Sunday that is closest to December 31 of such year. Each fiscal year generally will be comprised of four 13 week fiscal quarters, although in some years the fourth quarter will represent a 14 week period. BUSINESS SEGMENTS BEVERAGES TRIARC BEVERAGE GROUP TBG oversees Triarc's premium beverage operations, conducted by Snapple, Mistic, and Cable Car, and its carbonated soft drink operations, conducted by Royal Crown. TBG is headquartered in White Plains, New York. PREMIUM BEVERAGES (SNAPPLE, MISTIC AND STEWART'S) Snapple, acquired in May 1997, develops, produces and markets ready-to-drink teas, juice drinks and juices and is a market leader in the premium beverage category. Since acquiring Snapple, the Company has introduced several new products, including Orange Tropic--Wendy's Tropical Inspiration(TM), three herbal or green teas and Snapple Farms(TM), a line of 100% fruit juices which is available in five flavors. In addition, Snapple has recently announced the Spring 1998 introduction of WhipperSnapple(TM), a smoothie like beverage in six flavors which is a proprietary blend of fruit juices and purees, dairy and other natural ingredients packaged in a swirl shaped 10 oz. bottle. Mistic's premium beverage business, acquired in August 1995, develops, produces and markets a wide variety of premium beverages, including fruit drinks, ready-to-drink teas, juices and sweetened seltzers under the Mistic(R), Royal Mistic(R), Mistic Rain Forest(TM) and Mistic Fruit Blast(TM) brand names. Since 1995, Mistic has introduced 34 new flavors, a line of 100% fruit juices, various new bottle sizes and shapes and numerous new package designs. In addition, Mistic's product offerings are being further enhanced with the March 1998 introduction of Mistic Potions(TM) beverages. These beverages contain herbal additives, such as ginseng, ginko bilboa and echinachea. The Stewart's premium beverage business, acquired in November 1997, sells Stewart's(R) brand premium soft drinks (Root Beer, Orange N' Cream, Cream Ale, Ginger Beer, Classic Key Lime, Lemon Meringue and Cherries N' Cream) to beverage distributors throughout the United States and Canada. Stewart's has also announced the April 1998 introduction of "Creamy Style Draft Cola", an old- fashioned soda fountain style cola. Cable Car holds the exclusive worldwide license to manufacture, distribute and sell Stewart's brand beverages. Cable Car sells both concentrate to regional soft drink bottlers and finished goods to distributors. BUSINESS STRATEGY TBG's management has developed and is implementing business strategies for its premium beverage business that focus on: (i) capitalizing on the strength of its well known brand names in its marketing and advertising efforts to increase brand awareness and loyalty; (ii) developing new products; (iii) developing innovative new packaging concepts, including labels and bottle shapes; (iv) employing innovative advertising and promotions; (v) developing strong long-term relationships with distributors; (vi) expanding and diversifying product offerings through acquisitions; (vii) expanding distribution in existing and new geographic markets and channels of trade; and (viii) enhancing promotional and equipment programs. PRODUCTS TBG's premium beverage products compete in a number of product categories, including fruit flavored beverages, iced teas, lemonades, carbonated sodas, 100% fruit juices, nectars and flavored seltzers. These products are generally available in some combination of 32 oz., 16 oz. or 12 oz. glass bottles, 32 oz., and 20 oz. PET (plastic) bottles and 12 oz. and 11.5 oz. cans. CO-PACKING ARRANGEMENTS TBG's premium beverage products are produced by co-packers or bottlers under formulation requirements and quality control procedures specified by TBG. TBG selects and monitors the producers to ensure adherence to TBG's production procedures. TBG regularly analyzes samples from production runs and conducts spot checks of production facilities. TBG and Triarc also purchase most packaging and raw materials and arrange for their shipment to TBG's co-packers and bottlers. TBG's three largest co-packers accounted for approximately 50% of TBG's aggregate case production of premium beverages during 1997. TBG's contractual arrangements with its co-packers for its premium beverage products are typically for a fixed term and are renewable at TBG's option. During the term of the agreement, the co-packer generally commits a certain amount of its monthly production capacity to TBG. Under substantially all of its contracts Snapple has committed to order certain guaranteed volumes. Should the volume actually ordered be less than the guaranteed volume, Snapple is required to pay the co-packer the product of (i) an amount per case specified in the agreement and (ii) the difference between the volume actually ordered and the guaranteed volume. At December 28, 1997, Snapple had reserves of approximately $22 million for payments through 2000 under its long-term production contracts with co-packers. Mistic has committed to order a certain guaranteed volume (in two instances) or percentage of its products sold in a region (in another instance) or to make payments in lieu thereof. There are no agreements containing minimum purchase requirements for Cable Car. As a result of its co-packing arrangements, TBG's operations have not required significant capital expenditures or investments for bottling facilities or equipment, and accordingly its production related fixed costs have been minimal. TBG's management believes it has sufficient production capacity to meet its 1998 requirements and that, in general, the industry has excess production capacity that it can utilize if required. RAW MATERIALS Most raw materials used in the preparation and packaging of TBG's premium beverage products are purchased by TBG and Triarc and supplied to TBG's co-packers. Adequate sources of such raw materials are available to TBG and Triarc from multiple suppliers, however, TBG and Triarc have chosen, for quality control and other purposes, to purchase certain raw materials (such as aspartame) on an exclusive basis from single suppliers. TBG and Triarc purchase all of TBG's flavor requirements from nine suppliers, although one supplier has been designated as TBG's preferred supplier of flavors, and all of TBG's glass bottles are purchased from three suppliers, although one supplier has the right to supply up to 75% of TBG's requirements for certain specified packages. In connection with the acquisition of Snapple, Quaker agreed to supply certain of Snapple's requirements for 20 oz. PET bottles. Since the acquisition of Snapple, TBG has been negotiating and continues to negotiate, new supply and pricing arrangements with its suppliers. TBG and Triarc believe that, if required, alternate sources of raw materials, flavors and glass bottles are available to them. DISTRIBUTION TBG's premium beverages are currently sold through a network of distributors that include specialty beverage, carbonated soft drink and licensed beer/wine/spirits distributors. In addition, Snapple uses brokers for distribution of some Snapple products in Florida and Georgia. International distribution is primarily through one distributor in each country, other than in Canada, where Perrier Group of Canada Ltd. is Snapple's master distributor and where brokers and direct account selling are also used. Distributors are typically granted exclusive rights to sell Snapple, Mistic and/or Stewart's products within a defined territory. TBG has written agreements with distributors who represent approximately 80% of TBG's volume. The agreements are typically either for a fixed term renewable upon mutual consent or perpetual, and are terminable by TBG for cause, upon certain defaults or failure to perform under the agreement. The distributor, though, may generally terminate its agreement upon specified prior notice. Snapple also owns two of its largest distributors, Mr. Natural Inc. (New York) and Pacific Snapple Distributors, Inc. (California). Case sales to TBG's largest distributor (excluding Snapple-owned distributors), represented approximately 4% of case sales in each of 1996 and 1997. TBG believes that, if required, there would be adequate alternative distributors available if TBG's relationship with such distributor were to be terminated. Although TBG's products are sold primarily to convenience stores, small retailers and delicatessens as a "single-serve, cold box" item, TBG has expanded the distribution of its premium beverage products to include supermarkets and other channels of distribution, such as mass merchandisers, national drug chains and warehouse clubs. International sales accounted for less than 10% of TBG's premium beverage sales in each of 1995, 1996 and 1997. Since the acquisition of Snapple, Royal Crown's international group has assumed responsibility for the sales and marketing of TBG's premium beverages outside North America. SALES AND MARKETING Snapple, Mistic and Cable Car employ their own sales and marketing staffs although there is some overlap of the Snapple and Mistic sales forces in certain geographic areas where distributors sell both brands. The sales forces are responsible for overseeing sales to distributors, monitoring retail account performance and providing sales direction and trade spending support. Trade spending includes price promotions, slotting fees and local consumer promotions. The sales force handles most accounts on a regional basis with the exception of large national accounts, which are handled by a national accounts group. Snapple's and Mistic's sales forces are organized by geographic zones under the direction of Zone Sales Vice Presidents, Division Managers, Regional Sales Managers and Trade Development Managers. Cable Car's sales force is organized into two divisions and is managed by Division Vice Presidents, Regional Sales Managers and District Sales Managers. TBG's sales and marketing staff (excluding that of Snapple-owned distributors) was approximately 260 as of December 28, 1997. TBG intends to maintain consistent advertising campaigns for its brands as an integral part of its strategy to stimulate consumer demand and increase brand loyalty. In 1998, TBG plans to employ a combination of network advertising complemented with local spot advertising in its larger markets; in most markets, television is expected to be the primary advertising medium and radio the secondary medium. TBG also employs outdoor, newspaper and other print media advertising, as well as in-store point of sale promotions. CARBONATED SOFT DRINKS (ROYAL CROWN) Royal Crown produces and sells concentrates used in the production of soft drinks which are sold domestically and internationally to independent, licensed bottlers who manufacture and distribute finished beverage products. Royal Crown's major products have significant recognition and include: RC Cola(R), Diet RC Cola(R), Diet Rite Cola(R), Diet Rite(R) flavors, Nehi(R), Upper 10(R), and Kick(R). Further, Royal Crown is the exclusive supplier of cola concentrate and a primary supplier of flavor concentrates to Cott Corporation ("Cott") which sells private label soft drinks to major retailers in the United States, Canada, the United Kingdom, Australia, Japan, Spain and South Africa. RC Cola is the third largest national brand cola and is the only national brand cola available to bottlers who do not bottle either Coca-Cola or Pepsi-Cola. Diet Rite is available in a cola as well as various other flavors and is the only national brand that is sugar-free (sweetened with 100% aspartame, a non-nutritive sweetener), sodium-free and caffeine-free. Diet RC Cola is the no-calorie version of RC Cola containing aspartame as its sweetening agent. Nehi is a line of approximately 20 flavored soft drinks, Upper 10 is a lemon-lime soft drink and Kick is a citrus soft drink. Royal Crown's share of the overall domestic carbonated soft drink market was approximately 1.9% in 1997 according to Beverage Digest/Maxwell estimates. Royal Crown's soft drink brands have approximately a 1.7% share of national supermarket volume, as measured by data of Information Resources, Inc. ("IRI"). BUSINESS STRATEGY TBG's management is pursuing business strategies designed to strengthen Royal Crown's distribution system, make more effective use of its marketing resources, continue the expansion of its international and private label businesses, develop new packages and concentrate resources on its core brands. As a result, in January 1997 Triarc sold its interest in Saratoga Beverage Group, Inc. ("Saratoga") and Royal Crown terminated its relationship with Saratoga. In addition, in July 1997 Royal Crown completed the sale of its rights to the C&C beverage line, including the C&C trademark. Royal Crown's license relationship with Celestial Seasonings Inc. for ready to drink iced teas terminated as of December 31, 1997. ADVERTISING AND MARKETING A principal determinant of success in the soft drink industry is the ability to establish a recognized brand name, the lack of which serves as a significant barrier to entry to the industry. Advertising, promotions and marketing expenditures in 1995, 1996 and 1997 were approximately $73.7 million, $61.7 million and $56.1 million, respectively. Royal Crown believes that its products continue to enjoy nationwide brand recognition. ROYAL CROWN'S BOTTLER NETWORK Royal Crown sells its flavoring concentrates for branded products to independent licensed bottlers in the United States and 61 foreign countries, including Canada. Consistent with industry practice, each bottler is assigned an exclusive territory for bottled and canned products within which no other bottler may distribute Royal Crown branded soft drinks. As of December 28, 1997, Royal Crown products were packaged and/or distributed domestically in 152 licensed territories, by 172 licensees, covering 50 states. There were a total of 45 production centers operating pursuant to 48 production and distribution agreements and 126 distribution only agreements. Royal Crown enters into a license agreement with each of its bottlers which it believes is comparable to those prevailing in the industry. The duration of the license agreements varies, but Royal Crown may terminate any such agreement in the event of a material breach of the terms thereof by the bottler that is not cured within a specified period of time. Royal Crown's ten largest bottler groups accounted for approximately 68% and 74% of Royal Crown's domestic unit sales of concentrate for branded products during 1996 and 1997, respectively. The two largest bottler groups, the RC Chicago Bottling Group and Beverage America, accounted for approximately 22% and 9%, respectively, of Royal Crown's domestic unit sales of concentrate for branded products during 1996 and 27% and 9%, respectively, during 1997. Royal Crown believes that, if required, there would be adequate alternative bottlers available if Royal Crown's relationships with the RC Chicago Bottling Group and Beverage America were terminated. PRIVATE LABEL Royal Crown believes that private label sales through Cott, a leading supplier of private label soft drinks, represent an opportunity to benefit from sales by retailers of store brands. Royal Crown's private label sales began in late 1990. Unit sales of concentrate to Cott in 1997 increased by 4.6% over sales in 1996. In 1995, 1996 and 1997, revenues from sales to Cott represented approximately 12.1%, 12.6% and 15.8%, respectively, of Royal Crown's total revenues. Royal Crown provides concentrate to Cott pursuant to a concentrate supply agreement entered into in 1994 (the "Cott Worldwide Agreement"). Under the Cott Worldwide Agreement, Royal Crown is Cott's exclusive worldwide supplier of cola concentrates for retailer-branded beverages in various containers. In addition, Royal Crown also supplies Cott with non-cola carbonated soft drink concentrates. The Cott Worldwide Agreement requires that Cott purchase at least 75% of its total worldwide requirements for carbonated soft drink concentrates from Royal Crown. The initial term of the Cott Worldwide Agreement is 21 years, with multiple six-year extensions. The Cott Worldwide Agreement provides that, as long as Cott purchases a specified minimum number of units of private label concentrate in each year of the Cott Worldwide Agreement, Royal Crown will not manufacture and sell private label carbonated soft drink concentrates to parties other than Cott anywhere in the world. Through its private label program, Royal Crown develops new concentrates specifically for Cott's private label accounts. The proprietary formulae Royal Crown uses for its private label program are customer specific and differ from those of Royal Crown's branded products. Royal Crown works with Cott to develop flavors according to each trade customer's specifications. Royal Crown retains ownership of the formulae for such concentrates developed after the date of the Cott Worldwide Agreement, except upon termination of the Cott Worldwide Agreement as a result of breach or non-renewal by Royal Crown. PRODUCT DISTRIBUTION Bottlers distribute finished soft drink products through four major distribution channels: take home (consisting of supermarkets, drug stores, mass merchandisers, warehouses and discount stores); convenience (consisting of convenience stores and retail gas station mini-markets); fountain/food service (consisting of fountain syrup sales and restaurant single drink sales); and vending (consisting of bottle and can sales through vending machines). The take home channel is the principal channel of distribution for Royal Crown products. According to IRI data, the volume of Royal Crown products in supermarkets and drug stores in 1997 declined approximately 14.6% and 19.9%, respectively, as compared to 1996, while the volume of Royal Crown products in mass merchandisers increased approximately 28.2% in 1997. Royal Crown brands historically have not been broadly distributed through vending machines or convenience outlets; in 1997, the volume of Royal Crown products in the convenience channel was relatively unchanged, down approximately 0.2% as compared to 1996. INTERNATIONAL Sales outside the United States accounted for approximately 9.6%, 10.3% and 11.5% of Royal Crown's sales in 1995, 1996, and 1997, respectively. Sales outside the United States of branded concentrates accounted for approximately 10.2%, 12.3% and 13.9% of branded concentrate sales in 1995, 1996 and 1997, respectively. As of December 28, 1997, 92 bottlers and 13 distributors sold Royal Crown branded products outside the United States in 64 countries, with international sales in 1997 distributed among Canada (8.1%), Latin America and Mexico (32.1%), Europe (22.4%), the Middle East/Africa (18.6%) and the Far East (18.8%). While the financial and managerial resources of Royal Crown have been focused on the United States, TBG's management believes significant opportunities exist for Royal Crown in international markets. New bottlers were added in 1997 to the following international markets: Russia, Ukraine, Croatia, Latvia, Brazil and Bangladesh. PRODUCT DEVELOPMENT AND RAW MATERIALS Royal Crown believes that it has a reputation as an industry leader in product innovation. Royal Crown introduced the first national brand diet cola in 1961. The Diet Rite flavors line was introduced in 1988 to complement the cola line and to target the non-cola segment of the market, which has been growing faster than the cola segment due to a consumer trend toward lighter beverages. In 1997, Royal Crown introduced a new version of Diet Rite Cola. From time to time, Royal Crown purchases as much as a year's supply of certain raw materials to protect itself against supply shortages, price increases and/or political instabilities in the countries from which such raw materials are sourced. Flavoring ingredients and sweeteners are generally available on the open market from several sources. As noted above, TBG and Triarc have agreed to purchase certain raw materials on an exclusive or preferred basis from single suppliers. RESTAURANTS (TRIARC RESTAURANT GROUP) SALE OF COMPANY-OWNED RESTAURANTS On May 5, 1997, subsidiaries of Triarc sold (the "Restaurant Sale") their 355 company-owned Arby's restaurants to an affiliate of RTM, the largest franchisee in the Arby's system. See "Item 1. -- Business -- Recent Dispositions." Focused solely as a franchisor, TRG has reduced from recent historical levels the operating costs of the restaurant segment and substantially eliminated capital expenditure requirements, thereby improving its cash flows. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." TRG's role in the Arby's(R) system as the franchisor is to enhance the strength of the Arby's brand by increasing the number of restaurants in the Arby's system and by establishing a "cut above" positioning for the Arby's brand through upgraded menu items and facilities, while continuing to bring new concepts to the system, such as T.J. Cinnamons(R) and p.t. Noodles(R). GENERAL Arby's is the world's largest franchise restaurant system specializing in slow-roasted meat sandwiches with an estimated market share in 1997 of approximately 73% of the roast beef sandwich segment of the quick service sandwich restaurant category. In addition, Triarc believes that Arby's is the 10th largest quick service restaurant chain in the United States, based on domestic system-wide sales. As of December 28, 1997, the Arby's restaurant system consisted of 3,091 franchised restaurants, of which 2,913 operated within the United States and 178 operated outside the United States. System-wide sales were approximately $1.9 billion in 1995, approximately $2.0 billion in 1996 and approximately $2.1 billion in 1997. In addition to its various slow-roasted meat sandwiches, Arby's restaurants also offer a selected menu of chicken, submarine sandwiches, side-dishes and salads. A breakfast menu is also available at some Arby's restaurants. In addition, Arby's currently multi-brands with T.J. Cinnamons products, primarily gourmet cinnamon rolls, premium coffees and related products, and p.t. Noodle's products, which are pasta dishes based on serving corkscrew or fettucine pasta with a variety of different sauces. TRG intends to expand its multi-branding efforts which will add other brands' items to Arby's menu items at such multi- branded restaurants. See " -- Multi-Branding" below. As a result of the sale of the company-owned restaurants to RTM, TRG's revenues are derived from two principal sources: (i) royalties from franchisees and (ii) franchise fees. Prior to the Restaurant Sale, TRG's revenues were principally derived from sales at company-owned restaurants. During 1995, 1996, and 1997 approximately 80%, 80% and 53%, respectively, of TRG's revenues were derived from sales at company-owned restaurants and approximately 20%, 20% and 47%, respectively, were derived from royalties and franchise fees. INDUSTRY According to data compiled by the National Restaurant Association, total domestic restaurant industry sales were estimated to be approximately $207 billion in 1996, of which approximately $98 billion were estimated to be in the Quick Service Restaurant ("QSR") or fast food segment. Large chains are continuing to gain a greater share of industry sales. According to Technomic, Inc., the 100 largest restaurant chains accounted for approximately 48.4% of restaurant industry sales in 1995, up from approximately 39.7% in 1980. The QSR segment accounts for approximately 70% of sales and 83% of restaurant units within the top 100 restaurant chains, according to a study by Franchise Finance Corporation of America. ARBY'S RESTAURANTS The first Arby's restaurant opened in Youngstown, Ohio in 1964. As of December 28, 1997, Arby's restaurants were being operated in 48 states and 10 foreign countries. At December 28, 1997, the six leading states by number of operating units were: Ohio, with 234 restaurants; Texas, with 181 restaurants; California, with 161 restaurants; Michigan, with 154 restaurants; and Georgia and Indiana, with 152 restaurants each. The country outside the United States with the most operating units is Canada, with 119 restaurants. Arby's restaurants in the United States and Canada typically range in size from 700 square feet to 4,000 square feet. Restaurants in other countries typically are larger than U.S. and Canadian restaurants. Restaurants typically have a manager, assistant manager and as many as 30 full and part-time employees. Staffing levels, which vary during the day, tend to be heaviest during the lunch hours. The following table sets forth the number of company-owned and franchised Arby's restaurants at December 31, 1995 and 1996 and at December 28, 1997. DECEMBER 31, DECEMBER 28, -------------- ------------ 1995 1996 1997 ----- ----- ----- Company-owned restaurants........................ 373 355 0 Franchised restaurants.................... ......2,577 2,667 3,091 ----- ----- ----- Total restaurants................... 2,950 3,022 3,091 ===== ===== ===== FRANCHISE NETWORK At December 28, 1997, there were 574 Arby's franchisees operating 3,091 separate locations. The initial term of the typical "traditional" franchise agreement is 20 years. As of December 28, 1997, TRG did not offer any financing arrangements to its franchisees, except that in certain development agreements TRG has made available extended payment terms. As of December 28, 1997, TRG had received prepaid commitments for the opening of up to 592 new domestic franchised restaurants over the next ten years. TRG also expects that 15 new franchised restaurants outside of the United States will open in 1998. TRG also has territorial agreements with international franchisees in four countries at December 28, 1997. Under the terms of these territorial agreements, many of the international franchisees have the exclusive right to open Arby's restaurants in specific regions or countries. TRG's management expects that future international franchise agreements will more narrowly limit the geographic exclusivity of the franchisees and prohibit sub-franchise arrangements. TRG offers franchises for the development of both single and multiple "traditional" restaurant locations. All franchisees are required to execute standard franchise agreements. TRG's standard U.S. franchise agreement currently requires an initial $37,500 franchise fee for the first franchised unit and $25,000 for each subsequent unit and a monthly royalty payment equal to 4.0% of restaurant sales for the term of the franchise agreement. As a result of lower royalty rates still in effect under earlier agreements, the average royalty rate paid by franchisees during 1997 was 3.2%. Franchisees typically pay a $10,000 commitment fee, credited against the franchise fee referred to above, during the development process for a new traditional restaurant. Franchised restaurants are required to be operated in accordance with uniform operating standards and specifications relating to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and cleanliness of premises and customer service. TRG continuously monitors franchisee operations and inspects restaurants periodically to ensure that company practices and procedures are being followed. MULTI-BRANDING TRG has developed a multi-branding strategy, which allows a single restaurant to offer the consumer distinct, but complementary, brands at the same restaurant. Collaborating to offer a broader menu is intended to increase sales per square foot of facility space, a key measure of return on investment in retail operations. Because lunchtime customers account for the majority of sales at Arby's restaurants, TRG seeks multi-branding concepts that it expects will attract higher breakfast or dinner traffic. TRG currently has two multi-brand concepts: T.J. Cinnamons and p.t. Noodles. T.J. Cinnamons offers gourmet cinnamon rolls, premium coffees and related products. p.t. Noodles offers a variety of Italian and American dishes based on serving corkscrew or fettucine pasta with a variety of different sauces. As of December 28, 1997, 127 Arby's restaurants were multi-brand locations, including 119 that offered T.J. Cinnamons' products and eight that offered p.t. Noodles' products. ADVERTISING AND MARKETING TRG advertises primarily through regional television, radio and newspapers. Payment for advertising time and space is made by local advertising cooperatives in which owners of local franchised restaurants participate. Franchisees contribute 0.7% of gross sales to the Arby's Franchise Association ("AFA"), which produces advertising and promotion materials for the system. Each franchisee is also required to spend a reasonable amount, but not less than 3% of its monthly gross sales, for local advertising. This amount is divided between the franchisee's individual local market advertising expense and the expenses of a cooperative area advertising program with other franchisees who are operating Arby's restaurants in that area. Contributions to the cooperative area advertising program are determined by the participants in the program and are generally in the range of 3% to 5% of monthly gross sales. As a result of the Restaurant Sale in May 1997, TRG's expenditures for advertising and marketing in support of what were then company-owned restaurants, were approximately $9.0 million in 1997, as compared to approximately $25.8 million and $22.7 million in 1996 and 1995, respectively. QUALITY ASSURANCE TRG has developed a quality assurance program designed to maintain standards and uniformity of the menu selections at each of its franchised restaurants. A full-time quality assurance employee is assigned to each of the five independent processing facilities that process roast beef for Arby's domestic restaurants. The quality assurance employee inspects the roast beef for quality and uniformity. In addition, a laboratory at TRG's headquarters tests samples of roast beef periodically from franchisees. Each year, representatives of TRG conduct unannounced inspections of operations of a number of franchisees to ensure that Arby's policies, practices and procedures are being followed. TRG's field representatives also provide a variety of on-site consultative services to franchisees. PROVISIONS AND SUPPLIES Arby's roast beef is provided by five independent meat processors. Franchise operators are required to obtain roast beef from one of the five approved suppliers. ARCOP, Inc. ("ARCOP"), a non-profit purchasing cooperative, negotiates contracts with approved suppliers on behalf of Arby's franchisees, and has entered into "cost-plus" contracts with these suppliers. TRG believes that satisfactory arrangements could be made to replace any of the current roast beef suppliers, if necessary, on a timely basis. Franchisees may obtain other products, including food, beverage, ingredients, paper goods, equipment and signs, from any source that meets TRG's specifications and approval, which products are available from numerous suppliers. Food, proprietary paper and operating supplies are also made available, through national contracts employing volume purchasing, to Arby's franchisees through ARCOP. LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE) National Propane, as managing general partner of the Partnership and the Operating Partnership, is engaged primarily in (i) the retail marketing of liquefied petroleum gas ("propane") to residential, commercial and industrial, and agricultural customers and to dealers that resell propane to residential and commercial customers and (ii) the retail marketing of propane related supplies and equipment, including home and commercial appliances. Triarc believes that the Partnership is the sixth largest retail marketer of propane in terms of volume in the United States. As of December 28, 1997, the Partnership had 159 full service centers supplying markets in 24 states. The Partnership's operations are located primarily in the Midwest, Northeast, Southeast, and West regions of the United States. As noted above, effective as of the close of business on December 28, 1997, Triarc's interest in the Partnership is accounted for utilizing the equity method. See "Item 1. Business -- Deconsolidation of National Propane Master Limited Partnership." BUSINESS STRATEGY The Partnership's operating strategy is to increase efficiency, profitability and competitiveness, while better serving its customers, by building on the efforts it has already undertaken to improve pricing management, marketing and purchasing. In addition, the Partnership's strategies for growth involve expanding its operations and increasing its market share through internal growth and possibly through acquisitions. The Partnership also intends to continue to expand its business by opening new service centers, known as "scratch-starts," in areas where there is relatively little competition. Scratch-starts typically involve minimal startup costs because the infrastructure of the new service center is developed as the customer base expands and the Partnership can, in many circumstances, transfer existing assets, such as storage tanks and vehicles, to the new service center. During 1997, the Partnership opened five new scratch-start service centers. The Partnership intends to take two approaches to acquisitions: (i) primarily to build on its broad geographic base by acquiring smaller, independent competitors that operate within the Partnership's existing geographic areas and (ii) to acquire propane businesses in areas in the United States outside of its current geographic base where it believes there is growth potential. In 1997 the Partnership acquired eight propane businesses for an aggregate purchase price of approximately $9.2 million. PRODUCTS, SERVICES AND MARKETING The Partnership distributes its propane through a nationwide distribution network integrating 159 full service centers located in 23 states. Typically, service centers are found in suburban and rural areas where natural gas is not readily available. Generally, such locations consist of an office and a warehouse and service facility, with one or more 18,000 to 30,000 gallon storage tanks on the premises. Each service center is managed by a district manager and also typically employs a customer service representative, a service technician and one or two bulk truck drivers. However, new "scratch-start" service centers may not have offices, warehouses or service facilities and are typically staffed initially by one or two employees. Retail deliveries of propane are usually made to customers by means of bulk and cylinder trucks. Propane is pumped from the bulk truck into a stationary storage tank on the customer's premises. Typically, service centers deliver propane to most of their residential customers at regular intervals, based on estimates of such customers' usage, thereby eliminating the customers' need to make affirmative purchase decisions. The Partnership also delivers propane to retail customers in portable cylinders. The Partnership also delivers propane to certain other retail customers, primarily dealers and large commercial accounts, in larger trucks. Propane is generally transported from refineries, pipeline terminals and storage facilities (including the Partnership's underground storage facilities in Hutchinson, Kansas and Loco Hills, New Mexico) to the Partnership's bulk plants by a combination of common carriers, owner-operators, railroad tank cars and, in certain circumstances, the Partnership's own highway transport fleet. In 1997 the Partnership served approximately 250,000 active customers. No single customer accounted for 10% or more of the Partnership's revenues in 1996 or 1997. Year-to-year demand for propane is affected by the relative severity of the winter and other climatic conditions. The Partnership also sells, leases and services equipment related to its propane distribution business. In the residential market, the Partnership sells household appliances, such as cooking ranges, water heaters, space heaters, central furnaces and clothes dryers, as well as barbecue equipment and gas logs. In the industrial market, the Partnership sells or leases specialized equipment for the use of propane as fork lift truck fuel, in metal cutting and atmospheric furnaces and for portable heating for construction. In the agricultural market, specialized equipment is leased or sold for the use of propane as engine fuel and for chicken brooding and crop drying. The sale of specialized equipment, service income and rental income represented less than 10% of the Partnership's gross income during 1997. Parts and appliance sales, installation and service activities are conducted through a wholly-owned corporate subsidiary of the Operating Partnership. PROPANE SUPPLY AND STORAGE Contracts for the supply of propane are typically made on a year-to-year basis, but the price of the propane to be delivered depends upon market conditions at the time of delivery. Worldwide availability of both gas liquids and oil affects the supply of propane in domestic markets, and from time to time the ability to obtain propane at attractive prices may be limited as a result of market conditions, thus affecting price levels to all distributors of propane. There may be times when the Partnership will be unable to fully pass on cost increases to its customers. Consequently, the Partnership's profitability will be sensitive to changes in wholesale propane prices, and a substantial increase in the wholesale cost of propane could adversely affect the Partnership's margins and profitability. The Partnership utilizes a hedging program which is designed to protect margins on fixed price retail sales and to mitigate the potential impact of sudden wholesale price increases for propane. The Partnership purchased propane from over 35 domestic and Canadian suppliers during 1997, primarily major oil companies and independent producers of both gas liquids and oil, and it also purchased propane on the spot market. In 1997, the Partnership purchased approximately 90% and 10% of its propane supplies from domestic and Canadian suppliers, respectively. Approximately 95% of all propane purchases by the Partnership in 1997 were on a contractual basis (generally, under one year agreements subject to annual renewal), but the percentage of contract purchases may vary from year to year as determined by National Propane. Supply contracts generally do not lock in prices but rather provide for pricing in accordance with posted prices at the time of delivery or the current prices established at major storage points, such as Mont Belvieu, Texas and Conway, Kansas. The Partnership is not currently a party to any supply contracts containing "take or pay" provisions. Warren Petroleum Company ("Warren") supplied 16% of the Partnership's propane in 1997 and Amoco and Conoco each supplied approximately 10%. The Partnership believes that if supplies from Warren, Amoco or Conoco were interrupted, it would be able to secure adequate propane supplies from other sources without a material disruption of its operations; however, the Partnership believes that the cost of procuring replacement supplies might be materially higher, at least on a short-term basis. The Partnership owns underground storage facilities in Hutchinson, Kansas and Loco Hills, New Mexico, leases property for above ground storage facilities in Crandon, Wisconsin and Orlando, Florida, and owns or leases smaller storage facilities in other locations throughout the United States. As of December 28, 1997, the Partnership's total storage capacity was approximately 33.1 million gallons (including approximately one million gallons of storage capacity currently leased to third parties). GENERAL TRADEMARKS Triarc and its affiliates (including the Partnership and the Operating Partnership) own numerous trademarks that are considered material to their business, including Snapple(R), Made From The Best Stuff On Earth(R), Mistic, Royal Mistic, Mistic Rain Forest, Mistic Fruit Blast, Fountain Classics(R), RC Cola, Diet RC, Royal Crown, Diet Rite, Nehi, Upper 10, Kick, Arby's, and National PropaneTM. Cable Car licenses the Stewart's trademark on an exclusive basis for soft drinks and considers it to be material to its business. In addition, TBG considers its finished product and concentrate formulae, which are not the subject of any patents, to be trade secrets. Pursuant to its standard franchise agreement, TRG grants each of its franchisees the right to use Arby's trademarks, service marks and trade names in the manner specified therein. Many of the material trademarks of Snapple, Mistic, Royal Crown, Cable Car, and TRG are registered trademarks in the U.S. Patent and Trademark Office and various foreign jurisdictions. Registrations for such trademarks in the United States will last indefinitely as long as the trademark owners continue to use and police the trademarks and renew filings with the applicable governmental offices. No challenges have arisen to Snapple's, Mistic's, Royal Crown's, Cable Car's or TRG's right to use any of their material trademarks in the United States. COMPETITION Triarc's businesses operate in highly competitive industries. Many of the major competitors in these industries have substantially greater financial, marketing, personnel and other resources than does Triarc. TBG's premium beverage products and soft drink products compete generally with all liquid refreshments and in particular with numerous nationally-known soft drinks such as Coca-Cola and Pepsi-Cola and New Age beverages. TBG also competes with ready to drink brewed iced tea competitors such as Nestea Iced Tea (pursuant to a long-term license granted by Nestle S.A. to The Coca-Cola Company) and Lipton Original Iced Tea (distributed by a joint venture between PepsiCo, Inc. and Thomas J. Lipton Company, a subsidiary of Unilever Plc). TBG competes with other beverage companies not only for consumer acceptance but also for shelf space in retail outlets and for marketing focus by distributors, most of which also distribute other beverage brands. The principal methods of competition in the beverage industry include product quality and taste, brand advertising, trade and consumer promotions, marketing agreements (including so called calendar marketing agreements), pricing, packaging and the development of new products. TRG faces direct and indirect competition from numerous well established competitors, including national and regional fast food chains, such as McDonalds, Burger King and Wendy's. In addition, TRG competes with locally owned restaurants, drive-ins, diners and other food service establishments. Key competitive factors in the QSR industry are price, quality of products, quality and speed of service, advertising, name identification, restaurant location and attractiveness of facilities. In recent years, both the soft drink and restaurant businesses have experienced increased price competition resulting in significant price discounting throughout these industries. Price competition has been especially intense with respect to sales of soft drink products in supermarkets, with bottlers (and, in particular, competitive cola bottlers) granting significant discounts and allowances off wholesale prices in order to, among other things, maintain or increase market share in the supermarket segment. While the net impact of price discounting in the soft drink and restaurant industries cannot be quantified, such practices, if continued, could have an adverse impact on Triarc. Most of the Operating Partnership's service centers compete with several marketers or distributors of propane and certain service centers compete with a large number of marketers or distributors. The principal competitive factors affecting this industry are reliability of service, responsiveness to customers and the ability to maintain competitive prices. Propane competes primarily with natural gas, electricity and fuel oil as an energy source, principally on the basis of price, availability and portability. Propane serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of the product is required. Although the extension of natural gas pipelines tends to displace propane distribution in the areas affected, National Propane believes that new opportunities for propane sales arise as more geographically remote areas are developed. In addition, the use of alternative fuels, including propane, is mandated in certain specified areas of the United States that do not meet federal air quality standards. WORKING CAPITAL Cable Car's, Royal Crown's and TRG's working capital requirements are generally met through cash flow from operations. Accounts receivable of Cable Car and Royal Crown are generally due in 30 days and TRG's franchise royalty fee receivables are due within 10 days after each month end. Snapple's and Mistic's working capital requirements are generally met through cash flow from operations, supplemented by advances under a credit facility entered into in connection with the acquisition of Snapple which initially provided Snapple and Mistic with a $300 million term loan facility (approximately $296.5 million principal amount outstanding at March 1, 1998) and an $80 million revolving credit facility (of which approximately $35.7 million was available at March 1, 1998). Accounts receivable of Snapple and Mistic are generally due in 30 days. In addition, TBG receives extended payment terms with respect to purchases from one of its preferred suppliers. Working capital requirements for the Operating Partnership are generally met through cash flow from operations supplemented by advances under a revolving working capital facility which provides the Operating Partnership with a $15 million line of credit (of which $9.8 million was available at March 1, 1998). Accounts receivable are generally due in 30 days. GOVERNMENTAL REGULATIONS Each of Triarc's businesses is subject to a variety of federal, state and local laws, rules and regulations. The production and marketing of TBG's beverages are subject to the rules and regulations of various federal, state and local health agencies, including the United States Food and Drug Administration (the "FDA"). The FDA also regulates the labeling of TBG's products. In addition, TBG's dealings with its bottlers and/or distributors may, in some jurisdictions, be subject to state laws governing licensor-licensee or distributor relationships. TRG is subject to regulation by the Federal Trade Commission and state laws governing the offer and sale of franchises and the substantive aspects of the franchisor-franchisee relationship. In addition, TRG franchisees are subject to the Fair Labor Standards Act and the Americans with Disabilities Act, which requires that all public accommodations and commercial facilities meet certain federal requirements related to access and use by disabled persons, and various state laws governing such matters as minimum wages, overtime and other working conditions. National Propane and the Operating Partnership are subject to various federal, state and local laws and regulations governing the transportation, storage and distribution of propane, and the health and safety of workers, the latter of which are primarily governed by the Occupational Safety and Health Act and the regulations promulgated thereunder. On August 18, 1997, the U.S. Department of Transportation (the "DOT") published its Final Rule for Continued Operation of the Present Propane Trucks (the "Final Rule"). The Final Rule is intended to address perceived risks during the transfer of propane. The Final Rule required certain immediate changes in the Partnership's operating procedures including retrofitting the Operating Partnership's cargo tanks. The Partnership, as well as the National Propane Gas Association and the propane industry in general, believe that the Final Rule cannot practicably be complied with in its current form. Accordingly, on October 15, 1997, the Partnership joined four other multi-state propane marketers in filing an action against the DOT in the United States District Court for the Western District of Missouri seeking to enjoin enforcement of the Final Rule. On February 13, 1998, the court preliminary enjoined the DOT from enforcing the Final Rule pending the final outcome of the litigation. At this time, the Partnership cannot determine the likely outcome of the litigation or what the ultimate long-term cost of compliance with the Final Rule will be. Except as described herein, Triarc is not aware of any pending legislation that in its view is likely to have a material adverse effect on the operations of Triarc's subsidiaries. Triarc believes that the operations of its subsidiaries comply substantially with all applicable governmental rules and regulations. ENVIRONMENTAL MATTERS Certain of Triarc's operations are subject to federal, state and local environmental laws and regulations concerning the discharge, storage, handling and disposal of hazardous or toxic substances. Such laws and regulations provide for significant fines, penalties and liabilities, in certain cases without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of such hazardous or toxic substances. In addition, third parties may make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous or toxic substances. Triarc cannot predict what environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or interpreted. Triarc cannot predict the amount of future expenditures which may be required in order to comply with any environmental laws or regulations or to satisfy any such claims. Triarc believes that its operations comply substantially with all applicable environmental laws and regulations. Based on currently available information and the current reserve levels, Triarc does not believe that the ultimate outcome of any of the matters discussed below will have a material adverse effect on its consolidated financial position or results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." As a result of certain environmental audits in 1991, Southeastern Public Service Company, a subsidiary of Triarc ("SEPSCO"), became aware of possible contamination by hydrocarbons and metals at certain sites used in the ice and cold storage operations of SEPSCO's former refrigeration business. SEPSCO has engaged in certain remediation in connection therewith. Such remediation varied from site to site, ranging from testing of soil and ground water for contamination, development of remediation plans and removal in certain instances of certain contaminated soils. Remediation is required at thirteen sites which were sold to or leased by the purchaser of the ice operations. Remediation has been completed on ten of these sites and is ongoing at three others. The purchaser of the ice operations has satisfied its obligation to pay up to $1,000,000 of such remediation costs. Remediation is also required at seven cold storage sites which were sold to the purchaser of the cold storage operations. Remediation has been completed at one site, and is ongoing at four other sites. Remediation is expected to commence on the remaining two sites in 1998 and 1999. Such remediation is being made in conjunction with such purchaser who is responsible for the first $1,250,000 of such costs. In addition, there were fifteen additional inactive properties of the former refrigeration business where remediation has been completed or is ongoing and which have either been sold or are held for sale separate from the sales of the ice and cold storage operations. Of these, twelve have been remediated at an aggregate cost of $1,035,000 through December 28, 1997. In addition, during the environmental remediation efforts on idle properties, SEPSCO became aware of one site which may require demolition in the future. In 1997 SEPSCO undertook an environmental assessment of a property located in Fort Myers, Florida that had previously been used in connection with SEPSCO's ice operations. As a result, SEPSCO became aware of certain petroleum-type substances and metals in the soil and ground water of such property. SEPSCO notified the State of Florida of its findings and the State of Florida has requested that SEPSCO undertake further investigatory efforts to define the nature and extent of its findings. SEPSCO believes that such substances and metals may also be found on an adjacent property. SEPSCO believes that the contamination may have occurred prior to its ownership of the property. A former owner of the property (who also currently owns the adjacent property) has agreed to undertake certain further investigation at its own expense, thereby potentially minimizing the cost to SEPSCO. Based on their preliminary findings, SEPSCO's environmental consultants believe that it may cost between $200,000 and $250,000 to remediate the property. However, such findings are preliminary and the amount required to remediate the property may vary depending upon the nature and extent of the contamination and the method of remediation that is actually required. In May 1994 National Propane was informed of coal tar contamination which was discovered at one of its properties in Wisconsin. National Propane purchased the property from a company (the "Successor") which had purchased the assets of a utility which had previously owned the property. National Propane believes that the contamination occurred during the use of the property as a coal gasification plant by such utility. To assess the extent of the problem, National Propane engaged environmental consultants in 1994. Based upon the information compiled to date, which is not yet complete, it appears that the likely remedy will involve treatment of groundwater and treatment of the soil, installation of a soil cap and, if necessary, excavation, treatment and disposal of contaminated soil. As a result, the environmental consultants' current range of estimated costs for remediation is from $0.7 million to $1.7 million. National Propane will have to agree upon the final remediation plan with the State of Wisconsin. Accordingly, the precise remediation method to be used is unknown. Based on the preliminary results of the ongoing investigation, there is a potential that the contaminants may extend to locations down gradient from the original site. If it is ultimately confirmed that the contaminant plume extends under such properties and if such plume is attributable to contaminants emanating from the Wisconsin property, there is the potential for future third-party claims. National Propane has engaged in discussions of a general nature with the Successor, who has denied any liability for the costs of remediation of the Wisconsin property or of satisfying any related claims. However, National Propane, if found liable for any of such costs, would still attempt to recover such costs from the Successor. National Propane has notified its insurance carriers of the contamination and the possibility of related claims. Pursuant to a lease related to the Wisconsin facility, the ownership of which was not transferred by National Propane to the Operating Partnership at the time of the closing of the Propane IPO, the Operating Partnership has agreed to be liable for any costs of remediation in excess of amounts received from the Successor and from insurance. Because the remediation method to be used is unknown, no amount within the cost ranges provided by the environmental consultants can be determined to be a better estimate. In 1993 Royal Crown became aware of possible contamination from hydrocarbons in groundwater at two closed facilities. In 1994, hydrocarbons were discovered in the groundwater at a former Royal Crown distribution site in Miami, Florida. Assessment is proceeding under the direction of the Dade County Department of Environmental Resources Management to determine the extent of the contamination. Remediation has commenced at this site, and management estimates that total remediation costs (in excess of amounts incurred through December 28, 1997) will be approximately $59,000 depending on the actual extent of the contamination. Additionally, in 1994 the Texas Natural Resources Conservation Commission approved the remediation of hydrocarbons in the groundwater by Royal Crown at its former distribution site in San Antonio, Texas. Remediation has commenced at this site. Management estimates the total cost of remediation to be approximately $60,000 (in excess of amounts incurred through December 28, 1997), of which 60-70% is expected to be reimbursed by the State of Texas Petroleum Storage Tank Remediation Fund. Royal Crown has incurred actual costs of $714,000, in the aggregate, through December 28, 1997 for these matters. In 1987, Graniteville Company ("Graniteville") (the assets of which were sold to Avondale Mills, Inc. ("Avondale") in April 1996) was notified by the South Carolina Department of Health and Environmental Control (the "DHEC") that it discovered certain contamination of Langley Pond ("Langley Pond") near Graniteville, South Carolina and that Graniteville may be one of the responsible parties for such contamination. In 1990 and 1991, Graniteville provided reports to DHEC summarizing its required study and investigation of the alleged pollution and its sources which concluded that pond sediments should be left undisturbed and in place and that other less passive remediation alternatives either provided no significant additional benefits or themselves involved adverse effects. In 1995, Graniteville submitted a proposal regarding periodic monitoring of the site, to which DHEC responded with a request for additional information. Graniteville provided such information to DHEC in February 1996. Triarc is unable to predict at this time what further actions, if any, may be required in connection with Langley Pond or what the cost thereof may be. In addition, Graniteville owned a nine acre property in Aiken County, South Carolina (the "Vaucluse Landfill"), which was operated jointly by Graniteville and Aiken County as a landfill from approximately 1950 to 1973. The United States Environmental Protection Agency conducted an Expanded Site Inspection (an "ESI") in January 1994 and Graniteville conducted a supplemental investigation in February 1994. In response to the ESI, DHEC indicated its desire to have an investigation of the Vaucluse Landfill performed. In August 1995, DHEC requested that Graniteville enter into a consent agreement to conduct an investigation. Graniteville responded that a consent agreement was inappropriate considering Graniteville's demonstrated willingness to cooperate with DHEC requests and asked DHEC to approve Graniteville's April, 1995 conceptual investigation approach. Triarc believes that Graniteville and DHEC continue to negotiate regarding the appropriate administrative agreement to govern performance of the additional investigation requested. The cost of the study proposed by Graniteville was estimated in 1995 to be between $125,000 and $150,000. Since an investigation has not yet commenced, Triarc is currently unable to predict what further actions, if any, will be necessary to remediate the landfill. In connection with the sale of Graniteville to Avondale, the Company has agreed to indemnify Avondale for certain costs incurred by it in connection with the foregoing matters that are in excess of applicable reserves. SEASONALITY Triarc's beverage, restaurant and propane businesses are seasonal. In the beverage and restaurant businesses, the highest sales occur during spring and summer (April through September). Propane operations are subject to the seasonal influences of weather which vary by region. Generally, the demand for propane during the six-month peak heating season (October through March) is substantially greater than during the summer months at both the retail and wholesale levels, and is significantly affected by climatic variations. As a result of the deconsolidation of National Propane (see "Item 1. Business -- Deconsolidation of National Propane Master Limited Partnership"), it is expected that in the future Triarc's revenues will be highest during the second and third fiscal quarters of each year. INSURANCE OPERATIONS Historically, Chesapeake Insurance Company Limited ("Chesapeake Insurance"), an indirect wholly-owned subsidiary of Triarc, (i) provided certain property insurance coverage for Triarc and certain of its former affiliates; (ii) reinsured a portion of certain insurance coverage which Triarc and such former affiliates maintained with unaffiliated insurance companies (principally workers' compensation, general liability, automobile liability and group life); and (iii) reinsured insurance risks of unaffiliated third parties through various group participations. During the fiscal year ended April 30, 1993, Chesapeake Insurance ceased writing reinsurance of risks of unaffiliated third parties, and during the transition period from May 1, 1993 to December 31, 1993, Chesapeake Insurance ceased writing insurance or reinsurance of any kind for periods beginning on or after October 1, 1993. Chesapeake Insurance continues to wind down its operations and settle the remaining existing insurance claims of third parties. For information regarding Triarc's insurance loss reserves relating to Chesapeake's operations, see Note 1 to the Consolidated Financial Statements. EMPLOYEES As of December 28, 1997, Triarc and its subsidiaries employed approximately 2,000 personnel, including approximately 1,100 salaried personnel and approximately 900 hourly personnel. Triarc's management believes that employee relations are satisfactory. At December 28, 1997, approximately 200 of the total of Triarc's employees were covered by various collective bargaining agreements expiring from time to time from the present through 1999. ITEM 2. PROPERTIES. Triarc maintains a large number of diverse properties. Management believes that these properties, taken as a whole, are generally well maintained and are adequate for current and foreseeable business needs. The majority of the properties are owned. Except as set forth below, substantially all of Triarc's materially important physical properties are being fully utilized. Certain information about the major plants and facilities maintained by each of Triarc's business segments, as well as Triarc's corporate headquarters, as of December 28, 1997 is set forth in the following table: APPROXIMATE SQ. FT. OF ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE - ----------------- ------------------- ---------- ----------- Triarc Corporate Headquarters..... New York, NY 1 leased 26,600 Beverages........ Concentrate Mfg: Columbus, GA 1 owned 216,000 (including office) TBG Headquarters White Plains, NY 1 leased 53,600 Cable Car Headquarters Denver, CO 1 leased 4,200 Office/Warehouse Facilities 6 leased 577,000* (various locations) Restaurants...... TRG Headquarters 1 leased 47,300** Ft. Lauderdale, FL Propane.......... Headquarters 1 leased 17,000 159 Full Service Centers 193 owned 550,000 105 Storage Facilities 71 leased *** (various locations throughout the United States) 2 Underground storage terminals 2 Above ground storage terminals - ------------ * Includes 180,000 square feet of warehouse space that is subleased to a third party. ** Royal Crown subleases approximately 3,500 square feet of this space from TRG. *** The propane facilities have approximately 33.1 million gallons of storage capacity (including approximately one million gallons of storage capacity currently leased to third parties). See "Item 1. Business -- Recent Dispositions" and "-- Business Segments -- Liquefied Petroleum Gas (National Propane)." TRG also owns six and leases 24 properties which are leased or sublet principally to franchisees and has leases for 11 inactive properties. Other subsidiaries of the Company also own or lease a few inactive facilities and undeveloped properties, none of which are material to the Company's financial condition or results of operations. Substantially all of the properties used in the beverage and propane businesses are pledged as collateral for certain debt. ITEM 3. LEGAL PROCEEDINGS. In the fall of 1995, Granada Investments, Inc., Victor Posner ("Posner") and the three former court-appointed members of a special committee of the Triarc Board ("the Triarc Special Committee") asserted claims (the "Granada Action") against Triarc for money damages and declaratory relief, and, in the case of the former court-appointed directors, additional fees. On January 30, 1996, the court held that it had no jurisdiction and dismissed all proceedings in this matter. In October 1995, Triarc commenced an action (the "Posner Action") against Posner and a Posner affiliate in the United States District Court for the Southern District of New York in which it asserted breaches by them of their reimbursement obligations under a 1995 settlement agreement among Triarc, Posner and certain affiliates of Posner (the "Settlement Agreement"). The defendants asserted certain affirmative defenses and a counterclaim for a declaratory judgment. On December 11, 1995, Triarc and Chesapeake commenced a proceeding in the Bankruptcy Court under section 1144 of the Bankruptcy Code, naming Posner, Security Management Corporation and APL Corporation ("APL") as defendants, and naming the official committee of unsecured creditors of APL as a nominal defendant (the "1144 Proceeding"). In addition, Triarc and Chesapeake Insurance asserted claims (the "APL Bankruptcy Claims") against the debtor in the APL bankruptcy proceeding (the "APL Bankruptcy Proceeding"). On June 6, 1997, Triarc entered into a settlement agreement (the "1997 Settlement Agreement") with Posner and two affiliated entities (including APL). Pursuant to the 1997 Settlement Agreement, among other things, (1) Posner and an affiliated entity paid a total of $2.5 million to Triarc and Chesapeake; (2) the parties dismissed with prejudice each of the foregoing actions; (3) Triarc and Chesapeake waived the APL Bankruptcy Claims; and (4) the parties entered into releases with respect to the claims and counterclaims asserted in the Posner Action, the Granada Action, the 1144 Proceeding and the APL Bankruptcy Proceeding. In November, 1995, the Company commenced an action in New York State court alleging that the three former court-appointed directors violated the release/agreements they executed in March 1995 by seeking additional fees of $3.0 million. The action was removed to federal court in New York. The defendants have filed a third-party complaint against Nelson Peltz, the Company's Chairman and Chief Executive Officer, seeking judgment against him for any amounts recovered by Triarc from them. On December 9, 1996, the court denied Triarc's motion for summary judgment. Discovery in the action has commenced. On June 27, 1996, the three former court-appointed directors commenced an action against Nelson Peltz, Victor Posner and Steven Posner in the United States District Court for the Northern District of Ohio seeking an order returning the plaintiffs to Triarc's Board of Directors, a declaration that the defendants bear continuing obligations to refrain from certain financial transactions under a February 9, 1993 undertaking given by DWG Acquisition Group, L.P., and a declaration that Mr. Peltz must honor all provisions of the undertaking. On May 1, 1997, the court transferred the case to the Southern District of New York as a related matter to a pending New York action brought by the company against the three former court appointed directors (described above). On May 20, 1997, plaintiffs filed a purported amended complaint asserting additional claims against each of the defendants. The amended complaint alleges, among other things, that the defendants conspired to mislead the United States District Court for the Northern District of Ohio in connection with the change of control of Triarc in 1993 and the termination of the consent decree pursuant to which plaintiffs were initially named to Triarc's Board of Directors. The amended complaint also alleges that Mr. Peltz and Steven Posner conspired to frustrate collection of amounts owed by Steven Posner to the United States. The amended complaint seeks, among other relief, damages against Mr. Peltz and Steven Posner in an amount not less than $4.5 million; an order stating that plaintiffs must be returned to Triarc's Board of Directors; and rescission of the 1993 change of control transaction. Mr. Peltz's time to respond to the amended complaint has not yet expired. In July 1997, plaintiffs voluntarily dismissed their claims against Victor Posner without prejudice. On February 19, 1996, Arby's Restaurants S.A. de C.V. ("AR"), the master franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico against Arby's for breach of contract. AR alleged that a non-binding letter of intent dated November 9, 1994 between AR and Arby's constituted a binding contract pursuant to which Arby's had obligated itself to repurchase the master franchise rights from AR for $2.85 million and that Arby's had breached a master development agreement between AR and Arby's. Arby's commenced an arbitration proceeding since the franchise and development agreements each provided that all disputes arising thereunder were to be resolved by arbitration. In September 1997, the arbitrator ruled that (i) the November 9, 1994 letter of intent was not a binding contract and (ii) the master development agreement was properly terminated. AR has challenged the arbitrator's decision. In March 1998, the civil court of Mexico ruled that the November 9, 1994 letter of intent was a binding contract and ordered Arby's to pay AR $2.85 million, plus interest and value added tax. Arby's has appealed the civil court's decision. Arby's believes that it has a strong basis for an appeal because, among other things, the civil court's decision ignored the arbitration provisions of the franchise and development agreements and the language of the November 9, 1994 letter. In May 1997, AR commenced an action against Arby's in the United States District Court for the Southern District of Florida alleging that (i) Arby's had engaged in fraudulent negotiations with AR in 1994- 1995, in order to force AR to sell the master franchise rights for Mexico to Arby's cheaply and (ii) Arby's had tortiously interfered with an alleged business opportunity that AR had with a third party. Arby's has moved to dismiss that action. Arby's is vigorously contesting AR's various claims and believes it has meritorious defenses to such claims. On November 4, 1996, the bankruptcy trustee appointed in the case of Prime Capital Corporation ("Prime") (formerly known as Intercapital Funding Resources, Inc.) made a demand on Chesapeake Insurance and SEPSCO, seeking the return of payments aggregating $5.3 million which Prime allegedly made to those entities during 1994 and suggesting that litigation would be commenced against SEPSCO and Chesapeake Insurance if these monies were not returned. The trustee commenced avoidance actions against SEPSCO and Chesapeake Insurance (as well as actions against certain current and former officers of Triarc or their spouses with respect to payments made directly to them) in January 1997, claiming the payments to them were preferences or fraudulent transfers. (SEPSCO and Chesapeake Insurance had entered into separate joint ventures with Prime, and the payments at issue were made in connection with termination of the investments in such joint ventures.) The bankruptcy trustee and each of the defendants agreed to a settlement of the actions, which was approved by the bankruptcy court on November 18, 1997. Pursuant to the settlement, on December 5, 1997 SEPSCO and Chesapeake Insurance collectively returned approximately $3,550,000. Snapple and Quaker were defendants in a breach of contract case filed on April 16, 1997 (prior to Triarc's acquisition of Snapple) in Rhode Island Superior Court by Rhode Island Beverage Packing Company, L.P. ("RIB"). RIB and Snapple disagreed as to whether the co-packing agreement between them had been amended to (a) change the end of the term from December 30, 1997 to December 30, 1999 and (b) more than double Snapple's take or pay obligations thereunder. RIB set forth various causes of action in its complaint and sought reformation of the contract, compliance with promises, consequential damages including lost profits, attorney's fees and punitive damages. On February 11, 1998, Snapple, RIB and certain affiliates of RIB executed a settlement agreement relating to this action and certain other outstanding issues among the parties. Pursuant to such settlement agreement, the foregoing action is to be dismissed with prejudice, and Snapple is to be released from all claims and counterclaims that could have been asserted in the action. Snapple will also be released from all of its obligations with respect to RIB (including an alleged obligation to acquire the other outstanding interests in RIB for $8 million) and will be indemnified and held harmless for any liabilities of RIB (in each case, subject to certain limited retained liabilities). In consideration of, among other things, the foregoing, Snapple paid an aggregate of approximately $8.2 million (which amount was fully reserved at the time of the Snapple acquisition) and agreed to deliver to RIB and the general partner of RIB all of Snapple's interests in RIB and such general partner. On June 3, 1997, ZuZu, Inc. ("ZuZu") and its subsidiary, ZuZu Franchising Corporation ("ZFC") commenced an action against Arby's, Inc. ("Arby's") and Triarc in the District Court of Dallas County, Texas. Plaintiffs allege that Arby's and Triarc conspired to steal the ZuZu Speedy Tortilla concept and convert it to their own use. ZuZu seeks actual damages in excess of $70.0 million and punitive damages of not less than $200.0 million against Triarc for its alleged appropriation of trade secrets, conversion and unfair competition. Additionally, plaintiffs seek injunctive relief against Arby's and Triarc enjoining them from disclosing or using ZuZu's trade secrets. ZFC also made a demand for arbitration with the Dallas, Texas office of the American Arbitration Association ("AAA") against Arby's alleging that Arby's had breached a Master Franchise Agreement between ZFC and Arby's. Arby's and Triarc have moved to dismiss or, in the alternative, abate the Texas court action on the ground that a Stock Purchase Agreement between Triarc and ZuZu required that disputes be subject to mediation in Wilmington, Delaware and that any litigation be brought in the Delaware courts. On July 16, 1997, Arby's and Triarc commenced a declaratory judgment action against ZuZu and ZFC in Delaware Chancery Court for New Castle County seeking a declaration that the claims in both the litigation and the arbitration must be subject to mediation in Wilmington, Delaware. In the arbitration proceeding, Arby's has asserted counterclaims against ZuZu for unjust enrichment, breach of contract and breach of the duty of good faith and fair dealing and has successfully moved to transfer the proceeding to the Atlanta, Georgia office of the AAA. An arbitrator has been chosen and discovery is taking place. The arbitration is expected to commence in April 1998. Arby's and Triarc are vigorously contesting plaintiffs' claims in both the litigation and the arbitration and believe that plaintiffs' various claims are without merit. In a related case, on March 13, 1998 ZuZu franchisees Gregg Katz, Susan Katz Zweig and ZuZu of Orlando, LLC commenced an action against Arby's, ZuZu, ZFC and Triarc in the Superior Court of Fulton County Georgia. Plaintiffs allege, in connection with the ZuZu handmade Mexican food concept and the ZuZu Speedy Tortilla concept, that, among other things, the various defendants breached the development and franchise agreements between the plaintiffs and ZuZu, as well as other oral agreements, made false representations, intentionally failed to disclose material information, and violated several Florida and Texas business opportunity and similar statutes. The plaintiffs seek actual damages of not less than $600,000, consequential damages, punitive damages, treble damages and other fees, costs and expenses. While Triarc and Arby's have not yet filed an answer in this action, they believe the claims are without merit. On June 25, 1997, Kamran Malekan and Daniel Mannion commenced a purported class and derivative action against the directors and certain former directors of the Company (and naming the Company as a nominal defendant) in the Delaware Court of Chancery, New Castle County. The plaintiffs in that action and one related action filed a consolidated amended complaint on December 15, 1997. The amended complaint alleges that the defendants breached their fiduciary duties and duties of good faith and fair dealing to the Company and its shareholders in connection with the granting in 1996 of special bonuses to Nelson Peltz and Peter May, and the granting of options to Messrs. Peltz and May in March 1997. The amended complaint also alleges that the granting of such compensation breached promises made to the Company's shareholders in its 1994 Proxy Statement with respect to the conditions of performance options granted to Messrs. Peltz and May, and that defendants breached their fiduciary duties to the Company's shareholders in connection with its 1994 Proxy Statement. The amended complaint seeks, among other remedies, rescission of all option grants to Messrs. Peltz and May which allegedly contravene the representations made in the Company's 1994 Proxy Statement; an order directing Messrs. Peltz and May to repay to the Company their 1996 special bonuses, and enjoining defendants from awarding or paying compensation to Messrs. Peltz and May in contravention of the promises and representations made in the 1994 Proxy Statement; and an order directing the defendants to account to the Company for all damages sustained as a result of the matters complained of. The Company's present directors, and certain former directors, have filed answers generally denying the substantive allegations of the amended complaint. On January 13, 1998, the three former court-appointed directors filed a notice of removal of the action to the federal district court. Plaintiffs subsequently dismissed the claims against those defendants voluntarily and moved to remand the action to state court. Two former directors (Messrs. Pallot and Prendergast ) have opposed the plaintiff's motion and have moved to transfer the action to the Southern District of New York. Those motions have not been decided. On August 13, 1997, Ruth LeWinter and Calvin Shapiro commenced a purported class and derivative action against certain current and former directors of the Company (and naming the Company as a nominal defendant) in the United States District Court for the Southern District of New York which is substantially identical to the Maleken action discussed above. On October 2, 1997, five former directors of Triarc, who are named as defendants in the LeWinter action (including the three former court-appointed directors), filed an answer and cross-claims against Triarc and Nelson Peltz. The cross-claims allege that (1) Mr. Peltz has violated an Undertaking and Agreement given by DWG Acquisition Group, L.P. on February 9, 1993; (2) Mr. Peltz has conspired with Steven Posner to violate a court order prohibiting Mr. Posner from serving as an officer or director of Triarc; and (3) the cross-claimants are entitled to indemnification from Triarc in the action. The cross-claims seek: specific enforcement of an indemnification agreement between the cross-claimants and Triarc; damages in an unspecified amount in excess of $75,000; and their costs and expenses in the action, including attorney's fees. On November 3, 1997, the Company and its current directors and certain of its former directors moved to dismiss or stay the action pending the resolution of the Delaware action discussed above. On November 26, 1997, Triarc and Mr. Peltz moved to dismiss the cross-claims asserted by the former directors. On February 11, 1998, the five former directors moved for an order specifically enforcing the alleged indemnification agreements with the Company. The Company has opposed the motion. All of the foregoing motions are pending. In October 1997, Mistic commenced an action (the "Action") against Universal Beverages Inc. ("Universal"), a former Mistic co-packer, Leesburg Bottling & Production, Inc. ("Leesburg"), an affiliate of Universal, and Jonathan O. Moore ("Moore"), an individual affiliated with Universal and Leesburg, in the Circuit Court for Duval County, Florida. The Action, which was subsequently amended to add additional defendants, seeks, inter alia, damages and injunctive relief arising out of the fraudulent disposition of certain raw materials, finished product and equipment owned by Mistic. In their answer, counterclaim and third party complaint, certain defendants have alleged various causes of action against Mistic, Snapple and Triarc, and seek damages of $6 million relating to an alleged oral agreement by Snapple and Mistic to have Universal and/or Leesburg contract manufacture Snapple and Mistic products, including breach of contract, fraud in the inducement and negligent misrepresentation. These defendants also seek to recover various amounts totaling approximately $440,000 allegedly owed to Universal for co-packing and other services rendered. Mistic, Snapple and Triarc vigorously deny and intend to defend against the allegations contained in defendants counterclaim. Other matters have arisen in the ordinary course of Triarc's business, and it is the opinion of management that the outcome of any such matter will not have a material adverse effect on Triarc's consolidated financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Triarc held its 1997 Annual Meeting of Shareholders on June 4, 1997. The matters acted upon by the shareholders at that meeting were reported in Triarc's quarterly report on Form 10-Q/A for the quarter ended June 29, 1997. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The principal market for Triarc's Class A Common Stock is the New York Stock Exchange ("NYSE") (symbol: TRY). The high and low market prices for Triarc's Class A Common Stock, as reported in the consolidated transaction reporting system, are set forth below: MARKET PRICE -------------------------- FISCAL QUARTERS HIGH LOW - -------------------------------------------------------------------------------- 1996 FIRST QUARTER ENDED MARCH 31................. $14 3/8 $10 7/8 SECOND QUARTER ENDED JUNE 30................. 13 3/8 11 1/2 THIRD QUARTER ENDED SEPTEMBER 30............. 12 7/8 10 FOURTH QUARTER ENDED DECEMBER 31............. 12 3/4 10 3/4 1997 FIRST QUARTER ENDED MARCH 30................. $11 $18 SECOND QUARTER ENDED JUNE 29................. 23 5/8 15 7/8 THIRD QUARTER ENDED SEPTEMBER 28............. 23 1/8 18 FOURTH QUARTER ENDED DECEMBER 28............. 25 1/4 17 5/8 Triarc did not pay any dividends on its common stock in 1996, fiscal 1997 or in the current year to date and does not presently anticipate the declaration of cash dividends on its common stock in the near future. As of March 15, 1998, there were 5,997,622 shares of Triarc's Class B Common Stock outstanding, all of which were owned by Posner and an entity controlled by Posner (together with Posner, the "Posner Entities"). All such shares of Class B Common Stock can be converted without restriction into shares of Class A Common Stock if they are sold to a third party unaffiliated with the Posner Entities. Triarc, or its designee, has certain rights of first refusal if such shares are sold to an unaffiliated third party. There is no established public trading market for the Class B Common Stock. Triarc has no class of equity securities currently issued and outstanding except for the Class A Common Stock and the Class B Common Stock. Because Triarc is predominantly a holding company, its ability to meet its cash requirements (including required interest and principal payments on its indebtedness) is primarily dependent upon (in addition to its cash, cash equivalents and short term investments on hand) cash flows from its subsidiaries, including loans, cash dividends and reimbursement by subsidiaries to Triarc in connection with its providing certain management services and payments by subsidiaries under certain tax sharing agreements. Under the terms of various indentures and credit arrangements, Triarc's principal subsidiaries (other than Cable Car and National Propane) are currently unable to pay any dividends or make any loans or advances to Triarc. In addition, National Propane has agreed to forgo future distributions from the Partnership on its subordinated units ("Subordinated Distributions") in order to facilitate the Partnership's compliance with a covenant restriction in its bank facility agreement. The Partnership will resume paying such Subordinated Distributions when such payment will not impact compliance with such covenant. National Propane's agreement will limit the funds that it will have available to dividend or loan to Triarc. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note 8 to the Consolidated Financial Statements. On October 13, 1997, Triarc announced that its management was authorized, when and if market conditions warranted, to purchase from time to time during the twelve month period commencing on the business day following consummation of the Stewart's Acquisition (i.e., November 26, 1997) up to $20 million of its outstanding Class A Common Stock. In March 1998 such amount was increased to $30 million. As of March 15, 1998, Triarc had repurchased approximately 138,700 shares of Class A Common Stock at an aggregate cost of approximately $3.5 million under such repurchase program. In connection with the issuance by Triarc of the Debentures, on February 9, 1998 Triarc purchased from Morgan Stanley 1,000,000 shares of Triarc's Class A Common Stock for an aggregate price of approximately $25.6 million. See Item 1. "Business--Issuance of Zero Coupon Convertible Subordinated Debentures." As of March 15, 1998, there were approximately 6,550 holders of record of Triarc's Class A Common Stock and two holders of record of Triarc's business strategy include (i) focusing Triarc's resources on its four businesses -- beverages, restaurants, dyes and specialty chemicals and liquefied petroleum gas, (ii) building strong operating management teams for each of the businesses, and permitting each of these teams to operate in a decentralized environment, (iii) providing strategic leadership and financial resources to enable the management teams to develop and implement specific, growth-oriented business plans and (iv) rationalizing Triarc's organizational structure. In March 1995, Triarc retained investment banking firms to review strategic alternatives to maximize the value of its specialty chemicals, textile and liquefied petroleum gas operations. In April 1996, Triarc consummated the sale of its textile business and in July 1996 formed a master limited partnership to hold its propane business and sold approximately 57.3% of the master limited partnership to the public. In October 1996, Triarc announced that its Board of Directors approved a plan to offer up to approximately 20% of the shares of its beverage and restaurant businesses to the public through an initial public offering and to spinoff the remainder of the shares of such businesses to Triarc's stockholders. Consummation of such spinoff is subject to receipt of a favorable ruling from the Internal Revenue Service (the "IRS") that the spinoff will be tax-free to Triarc and its stockholders. The request for the ruling from the IRS contains several complex issues and there can be no assurance that Triarc will receive the ruling or consummate the spinoff. In addition, in February 1997, Triarc announced that certain of its subsidiaries, including Arby's, had entered into an agreement with RTM, Inc. ("RTM"), the largest franchisee in the Arby's system, to sell to an affiliate of RTM all of the 355 company-owned Arby's restaurants owned by such subsidiaries. On March 27, 1997, Triarc announced that it had entered into a definitive agreement to acquire Snapple Beverage Corp. ("Snapple") from The Quaker Oats Company for $300 million in cash, subject to certain post-closing adjustments. The acquisition, which is expected to be consummated during the second quarter of 1997, is subject to customary closing conditions, including Hart-Scott-Rodino antitrust clearance. See "Item 1. Business -- Strategic Alternatives." The senior operating officers of Triarc's businesses have implemented individual plans focused on increasing revenues and improving operating efficiency. In addition, Triarc continuously evaluates acquisitions and business combinations to augment its businesses. The implementation of this business strategy may result in increases in expenditures for, among other things, capital projects and acquisitions and, over time, marketing and advertising. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." STRATEGIC ALTERNATIVES Acquisition of Snapple Beverage Corp. On March 27, 1997, Triarc announced that it had entered into a definitive agreement to acquire Snapple from The Quaker Oats Company for $300 million in cash, subject to certain post-closing adjustments. The acquisition, which is expected to be consummated during the second quarter of 1997, is subject to customary closing conditions, including Hart-Scott-Rodino antitrust clearance. Snapple, with its ready-to-drink teas and juice drinks, is a market leader in the premium beverage category. Snapple had 1996 sales of approximately $550 million. Triarc, which owns Mistic, will operate Snapple and Mistic under the leadership of Michael Weinstein, chief executive officer of the Triarc Beverage Group. See "Item 1. Business -- Business Segments -- Beverages." Spinoff Transactions On October 29, 1996, Triarc announced that its Board of Directors approved a plan to offer up to approximately 20% of the shares of its beverage and restaurant businesses to the public through an initial public offering and to spinoff the remainder of the shares of such businesses to Triarc's stockholders (collectively, the "Spinoff Transactions"). In connection with the Spinoff Transactions, it is expected that National Propane may be merged with and into Triarc, with Triarc becoming the managing partner, and National Propane SGP, Inc., a subsidiary of National Propane ("SGP"), remaining the special general partner of the Partnership and the Operating Partnership. Consummation of the Spinoff Transactions will be subject to, among other things, receipt of a favorable ruling from the IRS that the Spinoff Transactions will be tax-free to Triarc and its stockholders. The request for the ruling from the IRS contains several complex issues and there can be no assurance that Triarc will receive the ruling or that Triarc will consummate the Spinoff Transactions. The Spinoff Transactions are not expected to occur prior to the end of the second quarter of 1997. Triarc is currently evaluating the impact, if any, of the proposed acquisition of Snapple on the anticipated structure of the Spinoff Transactions. A registration statement has not been filed with the Securities and Exchange Commission with respect to the proposed offering of common stock of Triarc's restaurant and beverage businesses. The offering of common stock will be made only by means of a prospectus. The common stock may not be sold, nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Form 10-K does not constitute an offer to sell or the solicitation of an offer to buy such common stock, nor will there be any sale of the common stock in any state in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Sale of Company-Owned Restaurants On February 13, 1997, Triarc announced that Arby's, Arby's Restaurant Development Corporation ("ARDC"), Arby's Restaurant Holding Company ("ARHC") and Arby's's Restaurant Operations Company ("AROC"), each an indirect wholly-owned subsidiary of Triarc, entered into a stock purchase agreement with RTM and RTM Partners Inc. ("Holdco") pursuant to which Holdco would acquire from ARDC, ARHC and AROC (the "Sellers") all of the stock of two corporations ("Newco") owning all of the Sellers' 355 company-owned Arby's restaurants. The purchase price is approximately $71 million, consisting primarily of the assumption of approximately $69 million in mortgage indebtedness and capitalized lease obligations. The consummation of the transaction is subject to customary closing conditions, including receipt of necessary consents and regulatory approvals. In connection with the transaction, the sellers will receive options to purchase from Holdco up to an aggregate of 20% of the common stock of Newco. RTM, Holdco and two affiliated entities also agreed to enter into a guarantee in favor of the sellers and Triarc guaranteeing payment of, among other things, the assumed debt obligations. RTM has also agreed to cause Newco to build an additional 190 Arby's restaurants over the next 14 years pursuant to a development agreement. This is in addition to a previous commitment RTM entered into in 1996 to build an additional 210 Arby's restaurants. Arby's future role in the Arby's system as a franchisor will be to enhance the strength of the Arby's brand by increasing the number of restaurants in the Arby's system and by establishing a "cut above" positioning for the Arby's brand through upgraded menu items and facilities, while continuing to bring new concepts to the system, such as P.T. Noodles, ZuZu and T.J. Cinnamons. See " Item 1. -- Business Segments -- Restaurants." Graniteville Sale On April 29, 1996 Triarc and Graniteville sold (the "Graniteville Sale") to Avondale Mills, Inc. ("Avondale"), Graniteville's textile business, other than the assets and operations of C.H. Patrick and certain other excluded assets, for a net purchase price of $243 million in cash. Pursuant to the Asset Purchase Agreement, Avondale assumed all liabilities relating to the textile business, other than income taxes, long-term debt (which was repaid at closing) and certain other specified liabilities. In connection with the Graniteville Sale, Avondale and C.H. Patrick entered into a 10-year supply agreement (the "Supply Agreement") pursuant to which C.H. Patrick has the right, subject to certain bidding procedures, to supply to the combined Graniteville/Avondale textile operations certain of its dyes and chemicals. See "Item 1. Business -- Business Segments -- Dyes and Specialty Chemicals." Formation of National Propane Master Limited Partnership In July 1996 National Propane Partners, L.P., a master limited partnership ("MLP") formed by National Propane, completed an initial public offering (the "IPO") of approximately 6.3 million common units representing limited partner interests and received therefrom net proceeds aggregating approximately $117.4 million. Upon completion of the IPO, National Propane held an approximate 44.6% interest in the MLP (on a combined basis) and the public held the remaining interest. Concurrently with the closing of the IPO, both National Propane and SGP contributed substantially all of their assets to the Operating Partnership (the "Conveyance") as a capital contribution and the Operating Partnership assumed substantially all of the liabilities of National Propane and SGP (other than certain income tax liabilities). Immediately thereafter, National Propane and SGP conveyed their limited partner interests in the Operating Partnership to the Partnership. As a result of such contributions, each of National Propane and SGP have a 1.0% general partner interest in the Partnership and a 1.0101% general partner interest in the Operating Partnership. In addition, National Propane received in exchange for its contribution to the Partnership 4,533,638 subordinated units and the right to receive certain incentive distributions. Also immediately prior to the closing of the IPO, National Propane issued $125 million aggregate principal amount of 8.54% first mortgage notes due 2010 (the "First Mortgage Notes") to certain institutional investors in a private placement. Approximately $59.3 million of the net proceeds from the sale of the First Mortgage Notes (the entire net proceeds of which were approximately $118.4 million) were used by National Propane to pay a dividend to Triarc. The remainder of the net proceeds from the sale of the First Mortgage Notes (approximately $59.1 million) were contributed by National Propane to the Operating Partnership to repay a portion of National Propane's then existing bank debt and certain other indebtedness of National Propane and its subsidiaries. After the repayment of the indebtedness described above, the net proceeds of the IPO were contributed to the Operating Partnership which used such proceeds to repay all remaining indebtedness under National Propane's then existing bank debt, to make a $40.7 million loan to Triarc (the "Partnership Loan") and to pay certain accrued management fees and tax sharing payments due to Triarc from National Propane. Concurrently with the closing of the IPO, the Operating Partnership also entered into a bank credit facility, which includes a $15 million revolving credit facility to the used for working capital and other general partnership purposes and a $40 million acquisition facility. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." On November 7, 1996, the Partnership issued and sold an additional 400,000 common units in a private placement and received net proceeds of approximately $7.4 million. Upon completion of the private placement, National Propane's interest in the MLP (on a combined basis) was reduced to approximately 42.7%. See "Item 1. Business -- Business Segments -- Liquefied Petroleum Gas." CHANGE IN FISCAL YEAR Effective January 1, 1997, Triarc adopted a 52/53 week fiscal convention for itself and each subsidiary (other than National Propane) pursuant to which Triarc's fiscal year (and that of such subsidiaries) will end on the last Sunday in December in each 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. ORGANIZATIONAL STRUCTURE The following chart sets forth the current organizational structure of Triarc. Triarc directly or indirectly owns 100% of all of its subsidiaries and approximately 42.7% of the Partnership and the Operating Partnership, on a combined basis. As noted above Triarc has entered into a definitive agreement to purchase 100% of the capital stock of Snapple. See "Item 1. Business -- Strategic Alternatives." [The organizational chart shows the following: (i) Triarc owns 75.7% of National Propane, the other 24.3% of which is owned by SEPSCO; (ii) Triarc owns 94.6% of CFC Holdings Corp., the other 5.4% of which is owned by SEPSCO; (iii) Triarc owns 100% of Mistic Brands, Inc.; (iv) Triarc owns 100% of GS Holdings, Inc., which owns 100% of SEPSCO and 50% of GVT Holdings, Inc., the other 50% of which is owned by SEPSCO; (v) GVT Holdings, Inc. owns (indirectly) 100% of C.H. Patrick; (vi) CFC Holdings Corp. owns 100% of RC/Arby's Corporation, which owns 100% of Royal Crown Company, Inc., Arby's, Inc., Arby's Restaurant Development Corporation, Arby's Restaurant Holding Company and Arby's Restaurant Operations Company; (vii) National Propane owns 100% of National Propane SGP, Inc., which owns a 1.0% unsubordinated general partner interest in the Partnership and a l.01% unsubordinated general partner interest in the Operating Partnership; (viii) National Propane owns a 1.0% unsubordinated general partner interest, a 39.5% subordinated general partner interest in the Partnership and a 1.01% unsubordinated general partner interest in the Operating Partnership; and (ix) the Partnership owns a 97.98% limited partner interest in the Operating Partnership.] BUSINESS SEGMENTS BEVERAGES (ROYAL CROWN AND MISTIC) TRIARC BEVERAGE GROUP On October 29, 1996, Triarc announced the establishment of the Triarc Beverage Group, which oversees the operations of Triarc's two beverage subsidiaries, Royal Crown and Mistic. Michael Weinstein, the chief executive officer of Mistic and Royal Crown is the chief executive officer of the Triarc Beverage Group and has direct operating responsibility for both companies. John Carson, the chairman of Royal Crown, is chairman of the Triarc Beverage Group and oversees international operations, private label sales, domestic strategic franchising and industry affairs. The Triarc Beverage Group is in the process of consolidating its headquarters operations in White Plains, New York. Royal Crown and Mistic continue to operate independent sales and marketing operations to serve their different distribution systems and marketplace needs. The finance, administrative and operational functions of the two companies are being consolidated to maximize efficiencies. ACQUISITION OF SNAPPLE BEVERAGE CORP. On March 27 1997, Triarc, announced that it had entered into a definitive agreement to acquire Snapple from The Quaker Oats Company for $300 million in cash, subject to certain post-closing adjustments. The acquisition, which is expected to be consummated during the second quarter of 1997, is subject to customary closing conditions, including Hart-Scott-Rodino antitrust clearance. Snapple, with its ready-to-drink juice drinks, is a market leader in the premium beverage category. Snapple had 1996 sales of approximately $550 million. See "Item 1. Business -- Strategic Alternatives." ROYAL CROWN Royal Crown produces and sells concentrates used in the production of soft drinks which are sold domestically and internationally to independent, licensed bottlers who manufacture and distribute finished beverage products. Royal Crown's major products have significant recognition and include: RC COLA, DIET RC COLA, DIET RITE COLA, DIET RITE flavors, NEHI, UPPER 10, and KICK. Further, Royal Crown is the exclusive supplier of cola concentrate to Cott Corporation ("Cott") which sells private label soft drinks to major retailers in the United States, Canada, the United Kingdom, Australia, Japan, Spain and South Africa. RC Cola is the third largest national brand cola and is the only national brand cola available to non-Coca-Cola and non-Pepsi-Cola bottlers. DIET RITE is available in a cola as well as various other flavors and formulations and is the only national brand that is sugar-free (sweetened with 100% aspartame, a non-nutritive sweetener), sodium-free and caffeine-free. DIET RC COLA is the no-calorie version of RC COLA containing aspartame as its sweetening agent. NEHI is a line of approximately 20 flavored soft drinks, UPPER 10 is a lemon-lime soft drink and KICK is a citrus soft drink. Royal Crown's share of the overall domestic carbonated soft drink market was approximately 1.9% in 1996 according to Beverage Digest/Maxwell estimates. Royal Crown's soft drink brands have approximately a 2.1% share of national supermarket volume, as measured by data of Information Resources, Inc. ("IRI"). BUSINESS STRATEGY Royal Crown's management is pursuing business strategies designed to strengthen its distribution system, make more effective use of its marketing resources, continue the expansion of its international and private label businesses, develop new packages and concentrate resources on its core brands. Additionally, in January 1997, Triarc sold its interest in Saratoga Beverage Group, Inc. ("Saratoga") and Royal Crown terminated its relationship with Saratoga. Royal Crown has also decided to discontinue selling Royal Crown Draft Cola as a finished product. Royal Crown is evaluating the possibility of selling concentrate for that product. ADVERTISING AND MARKETING A principal determinant of success in the soft drink industry is the ability to establish a recognized brand name, the lack of which serves as a significant barrier to entry to the industry. Advertising, promotions and marketing expenditures in 1994, 1995 and 1996 were approximately $78.2 million, $86.2 million and $76.8 million, respectively. Royal Crown believes that its products continue to enjoy nationwide brand recognition. ROYAL CROWN'S BOTTLER NETWORK Royal Crown sells its flavoring concentrates for branded products to independent licensed bottlers in the United States and 61 foreign countries, including Canada. Consistent with industry practice, each bottler is assigned an exclusive territory within which no other bottler may distribute Royal Crown branded soft drinks. As of December 31, 1996, Royal Crown products were packaged and/or distributed domestically in 156 licensed territories, by 174 licensees, covering 50 states. There were a total of 56 production centers operating pursuant to 49 production and distribution agreements and 124 distribution only agreements. Royal Crown enters into a license agreement with each of its bottlers which it believes is comparable to those prevailing in the industry. The duration of the license agreements varies, but Royal Crown may terminate any such agreement in the event of a material breach of the terms thereof by the bottler that is not cured within a specified period of time. Royal Crown's ten largest bottler groups accounted for 63.6% and 68.4% of Royal Crown's domestic unit sales of concentrate for branded products during 1995 and 1996, respectively. The two largest bottler groups, Chicago Bottling Group, and Beverage America, accounted for 20.1% and 10.2%, respectively, of Royal Crown's domestic unit sales of concentrate for branded products during 1995 and 21.9% and 9.3%, respectively, during 1996. PRIVATE LABEL Royal Crown believes that private label sales through Cott, a leading supplier of private label soft drinks, represent an opportunity to benefit from the increased emphasis by national retailers on the development and marketing of quality store brand merchandise at competitive prices. Royal Crown's private label sales began in late 1990 and, as Cott's business expanded, more than tripled from calendar year 1992 to calendar year 1994. Unit sales to Cott declined in 1995, according to Cott, as a result of a significant reduction in worldwide Cott system inventories and a slowing of the rapid growth Cott's business has experienced. In 1996, sales to Cott rebounded as Cott's business grew and its inventory normalized as Cott increased its purchases from Royal Crown for certain non-cola concentrates. In 1994, 1995 and 1996, revenues from the Cott business represented approximately 14.2%, 12.1% and 12.6%, respectively, of Royal Crown's total revenues. Royal Crown provides concentrate to Cott pursuant to a concentrate supply agreement entered into in 1994 (the "Cott Worldwide Agreement"). Under the Cott Worldwide Agreement, Royal Crown is Cott's exclusive worldwide supplier of cola concentrates for retailer-branded beverages in various containers. In addition, Royal Crown also supplies Cott with non-cola carbonated soft drink concentrates. The Cott Worldwide Agreement requires that Cott purchase at least 75% of its total worldwide requirements for carbonated soft drink concentrates from Royal Crown. The initial term of the Cott Worldwide Agreement is 21 years, with multiple six-year extensions. Cott delivers the private label concentrate and packaging materials to independent bottlers for bottling. The finished private label product is then shipped to Cott's trade customers, including major retailers such as Wal-Mart, A&P and Safeway. The Cott Worldwide Agreement provides that, as long as Cott purchases a specified minimum number of units of private label concentrate in each year of the Cott Worldwide Agreement, Royal Crown will not manufacture and sell private label carbonated soft drink concentrates to parties other than Cott anywhere in the world. Through its private label program, Royal Crown develops new concentrates specifically for Cott's private label accounts. The proprietary formulae Royal Crown uses for its private label program are customer specific and differ from those of Royal Crown's branded products. Royal Crown works with Cott to develop a concentrate according to each trade customer's specifications. Royal Crown retains ownership of the formulae for such concentrates developed after the date of the Cott Worldwide Agreement, except upon termination of the Cott Worldwide Agreement as a result of breach or non-renewal by Royal Crown. PRODUCT DISTRIBUTION Bottlers distribute finished product through four major distribution channels: take home (consisting of food stores, drug stores, mass merchandisers, warehouses and discount stores); convenience (consisting of convenience stores and retail gas station mini-markets); fountain/food service (consisting of fountain syrup sales and restaurant single drink sales); and vending (consisting of bottle and can sales through vending machines). The take home channel is the principal channel of distribution for Royal Crown products. According to IRI data, the volume of Royal Crown products in food stores and drug stores in 1996 was down approximately 7% and 9%, respectively, as compared to 1995, while the volume of Royal Crown products in mass merchandisers was down approximately 12% in 1996. Royal Crown brands historically have not been broadly distributed through vending machines or convenience outlets; in 1996, the volume of Royal Crown products in the convenience channel was down approximately 10% as compared to 1995. INTERNATIONAL Sales outside the United States accounted for approximately 9.9% , 9.6% and 10.3% of Royal Crown's sales in 1994, 1995, and 1996, respectively. Sales outside the United States of branded concentrates accounted for approximately 8.9%, 10.2% and 12.3% of branded concentrate sales in 1994, 1995 and 1996, respectively. As of December 31, 1996, 90 bottlers and 13 distributors sold Royal Crown brand products outside the United States in 61 countries, with international sales in 1996 distributed among Canada 11.3%, Latin America and Mexico 29.8%, Europe 33.3%, the Middle East/Africa 14.7% and the Far East 10.9%. While the financial and managerial resources of Royal Crown have been focused on the United States and Canada, Royal Crown's management believes significant opportunities exist in international markets. In those countries where Royal Crown brands are currently distributed, Royal Crown traditionally has provided limited advertising support due to capital constraints. New bottlers were added in 1996 to the following international markets: Brazil (2), Sweden, Poland, Argentina, Korea, Syria and the C.I.S/Baltics (2). PRODUCT DEVELOPMENT AND RAW MATERIALS Royal Crown believes that it has a reputation as an industry leader in product innovation. Royal Crown introduced the first national brand diet cola in 1961. The DIET RITE flavors line was introduced in 1988 to complement the cola line and to target the non-cola segment of the market, which has been growing faster than the cola segment due to a consumer trend toward lighter beverages. In 1997, Royal Crown introduced a new version of DIET RITE COLA. From time to time, Royal Crown purchases as much as a year's supply of certain raw materials to protect itself against supply shortages, price increases and/or political instabilities in the countries from which such raw materials are sourced. Flavoring ingredients and sweeteners are generally available on the open market from several sources. MISTIC Mistic's premium beverage business, acquired by Triarc in August 1995, has expanded rapidly since its formation in late 1989 by increasing market penetration in its original core markets located in the Northeast and mid-Atlantic regions and, since 1991, by expanding distribution into other domestic regional markets and selected international markets. Mistic develops, produces and markets a wide variety of premium non-alcoholic beverages, including non-carbonated and carbonated fruit drinks, ready-to-drink brewed iced teas and naturally flavored sparkling waters under the Mistic, Royal Mistic, Mistic Breeze and Mistic Rain Forest brand names. Mistic products are manufactured by independent bottlers or co-packers and are sold in all 50 states in the United States and in Canada, as well as in a number of foreign countries through a network of approximately 225 beverage distributors. Mistic's products are distributed through various channels including channels in which sales are not measured by industry surveys. Mistic believes that, based on sales, it is among the three leading premium beverage brands. Mistic's management has developed and is implementing business strategies that focus on: (i) improving distributor relations by, among other things, developing long term relationships with key distributors; (ii) expanding distribution in existing and new geographic markets and channels of trade; (iii) enhancing promotional and equipment programs; (iv) improving advertising and advertising efficiencies; and (v) developing new products. PRODUCTS Mistic products compete in a number of premium beverage product categories, including carbonated and noncarbonated beverages, nectars (introduced in July 1996), teas and flavored teas, flavored seltzers and natural spring water. These products are generally available in some combination of 16, 20 and 24 ounce glass bottles, 20 and 32 ounce PET (plastic) bottles and 12 ounce cans. Approximately 80% of Mistic's 1996 sales consisted of non-carbonated fruit flavored beverages and 14% consisted of teas and lemonade. CO-PACKING ARRANGEMENTS Mistic's products are produced by co-packers or bottlers under formulation requirements and quality control procedures specified by Mistic. Mistic selects and monitors the producers to ensure adherence to Mistic's production procedures. Mistic regularly analyzes samples from production runs and conducts spot checks of the production facilities. Mistic also purchases most raw materials and arranges for their shipment to its co-packers and bottlers. Mistic's three largest co-packers accounted for 44% of its aggregate case production during 1996. Mistic's contractual arrangements with its co-packers are typically for a fixed term renewable at Mistic's option. During the term of the agreement, the co-packer generally commits a certain amount of its monthly production capacity to Mistic. Mistic has committed to order a certain guaranteed volume (in one case) or percentage of its products sold in a region (in another case) or make payments in lieu thereof. As a result of its co-packing arrangements, Mistic's operations have not required significant capital expenditures or investments for bottling facilities or equipment, and its production related fixed costs have been minimal. Mistic's management believes it has sufficient production capacity to meet its 1997 requirements and that, in general, the industry has excess production capacity that it can utilize if required. RAW MATERIALS Most raw materials used in the preparation and packaging of Mistic's products are purchased by Mistic and supplied to its co-packers. Mistic has available adequate sources of such raw materials, which are available from multiple suppliers, although Mistic has chosen, for quality control purposes, to purchase certain raw materials on an exclusive basis from single suppliers. Mistic purchases all of its glass bottles from two suppliers, the largest of which (representing approximately 80% of Mistic's purchases) was recently sold in bankruptcy (in part to the smaller supplier). Mistic is currently negotiating new supply and pricing arrangements with each of these suppliers and with third parties. Mistic believes that alternate sources of glass bottles are available to it. DISTRIBUTION Mistic's beverages are currently sold through a network of distributors, that include specialty beverage, carbonated soft drink and licensed beer distributors. Such distributors are typically granted exclusive rights to sell Mistic products within a defined territory. Mistic has written agreements with distributors who represent over 80% of Mistic's volume. Such agreements are typically for a fixed term, are renewable at Mistic's option and are generally terminable by the distributor upon specified prior notice. Approximately 44.2%, 41.9% and 42.1% of Mistic's net sales in 1994, 1995, and 1996, respectively, were attributable to sales to Mistic's ten largest distributors. Net sales to its largest distributor represented approximately 11% of Mistic's net sales during each of 1995 and 1996. Although Mistic's products historically have been sold primarily to convenience stores, convenience store chains and delicatessens as a "single-serve, cold box" item, Mistic has significantly expanded its distribution to include supermarkets and other channels of distribution, such as club store and national drug and convenience store chains (e.g., Sam's Wholesale Clubs, Walgreens and 7-Eleven). Sales to supermarkets accounted for approximately 15% to 20% of total net sales at December 31, 1996. Mistic's international sales and distribution increased significantly in 1996 with entry into a new Korean distribution arrangement involving local production, to Mistic's standards, by the distributor. SALES AND MARKETING Mistic's sales and marketing staff was approximately 90 as of December 31, 1996. Mistic's sales force is organized by zones under the direction of Zone Sales Vice Presidents, Division Managers, Regional Sales Managers and Trade Development Managers. Mistic uses a mix of consumer and trade promotions as well as radio and television advertising to market its products. Advertising and promotional activities include Mistic's "Show Your Colors" campaign, commercials involving NBA player Dennis Rodman (commencing late Spring 1997) and advertising on the show of radio personality Howard Stern. Mistic intends to maintain a consistent advertising campaign in its core and expansion markets as an integral part of its strategy to stimulate consumer demand and increase brand loyalty. In 1997 Mistic plans to employ a combination of network advertising complemented with local spot advertising in its larger markets; in most markets, television will be the primary medium and radio secondary. RESTAURANTS (ARBY'S) TRIARC RESTAURANT GROUP On June 6, 1996, Triarc announced that Arby's would do business under the name Triarc Restaurant Group to reflect the company's commitment to the multi-branded restaurant concept. See " -- Multi-Branding" below. SALE OF COMPANY-OWNED RESTAURANTS On February 13, 1997, Triarc announced that Arby's, ARDC, ARHC and AROC, each an indirect wholly-owned subsidiary of Triarc, entered into a stock purchase agreement with RTM and Holdco pursuant to which Holdco would acquire from the Sellers (ARDC, ARHC and AROC) all of the stock of Newco which will own all of the Sellers' 355 company-owned Arby's restaurants. The purchase price is approximately $71 million, consisting primarily of the assumption of approximately $69 million in mortgage indebtedness and capitalized lease obligations. The consummation of the transaction is subject to customary closing conditions, including receipt of necessary consents and regulatory approvals. See "Item 1. --Business -- Strategic Alternatives." GENERAL Arby's is the world's largest franchise restaurant system specializing in slow-roasted meat sandwiches with an estimated market share in 1996 of approximately 73% of the roast beef sandwich segment of the quick service sandwich restaurant category. In addition, Triarc believes that Arby's is the 11th largest quick service restaurant chain in the United States, based on domestic system-wide sales. As of December 31, 1996, Arby's restaurant system consisted of 3,022 restaurants, of which 2,859 operated within the United States and 163 operated outside the United States. As of December 31, 1996, Arby's owned and operated 355 restaurants and the remaining 2,667 restaurants were owned and operated by franchisees. At December 31, 1996, all but 16 restaurants outside the United States were franchised. System-wide sales were approximately $1.8 billion in 1994, approximately $1.9 billion in 1995 and approximately $2.0 billion in 1996. In addition to its various slow-roasted meat sandwiches, Arby's restaurants also offer a selected menu of chicken, submarine sandwiches, side-dishes and salads. A breakfast menu is also available at some Arby's restaurants. In addition, Arby's has entered into agreements with three multi-branding partners and intends to expand its multi-branding efforts which will add other brands' items to Arby's menu items at such multi-branded restaurants. See " -- Multi-Branding" below. Arby's revenues are derived from three principal sources: (i) sales at company-owned restaurants (which will terminate upon the closing of the transaction with RTM, see "--Sale of Company-Owned Restaurants"); (ii) royalties from franchisees and (iii) one-time franchise fees from new franchisees. During 1994, 1995, and 1996 approximately 77% , 80% and 80% respectively, of Arby's revenues were derived from sales at company-owned restaurants and approximately 23% , 20%, and 20% respectively, were derived from royalties and franchise fees. INDUSTRY The U.S. restaurant industry is highly fragmented, with approximately 415,000 units nationwide. Industry surveys indicate that the largest chains accounted for approximately 18% of all units and 30% of all industry sales in 1996. According to data compiled by the National Restaurant Association, total domestic restaurant industry sales were estimated to be approximately $200 billion in 1996, of which approximately $98 billion was estimated to be in the quick service restaurant ("QSR") or fast food segment. ARBY'S RESTAURANTS The first Arby's restaurant opened in Youngstown, Ohio in 1964. As of December 31, 1996, Arby's restaurants were being operated in 48 states and 13 foreign countries. At December 31, 1996, the five leading states by number of operating units were: Ohio, with 234 restaurants; Texas, with 183 restaurants; California, with 166 restaurants; Michigan, with 155 restaurants; and Florida, with 150 restaurants. The leading country outside the United States is Canada with 111 restaurants. Arby's restaurants in the United States and Canada typically range in size from 700 square feet to 4,000 square feet. Restaurants in other countries typically are larger than U.S. and Canadian restaurants. Restaurants typically have a manager, assistant manager and as many as 20 full and part-time employees. Staffing levels, which vary during the day, tend to be heaviest during the lunch hours. The following table sets forth the number of company-owned and franchised Arby's restaurants at December 31, 1994, 1995 and 1996. THROUGH DECEMBER 31, 1996 ---------------------------- 1994 1995 1996 ----- ----- ----- Company-owned restaurants.. 288 373 355 Franchised restaurants..... 2,500 2,577 2,667 ------ ----- ------ Total restaurants..... 2,788 2,950 3,022 From April 1993 through December 31, 1995, Arby's had an accelerated program of opening company-owned restaurants. Arby's opened 49 company-owned restaurants in 1995, as compared to nine company-owned restaurants in 1994 and five company-owned restaurants in Transition 1993. In 1996, new restaurant openings slowed down as management focused resources on converting existing restaurants to multi-brand restaurants and upgrading facilities offering an expanded menu. In 1996 Arby's opened three company-owned restaurants. In order to facilitate new company-owned restaurant openings, in 1995 and 1996, RC/Arby's, ARDC and ARHC entered into a series of transactions including loan agreements with FFCA Mortgage Corp. (formerly known as FFCA Acquisition Corp.), a subsidiary of Franchise Finance Corporation of America, pursuant to which they borrowed, in the aggregate, $62.7 million ($58.4 million of which was outstanding as of December 31, 1996), of the $87.3 million available under such agreements. In February 1997, Triarc announced that it had entered into an agreement with RTM to sell to an affiliate of RTM all of the 355 company-owned Arby's restaurants. See "Item 1. Business -- Strategic Alternatives." FRANCHISE NETWORK At December 31, 1996, there were 571 Arby's franchisees operating 2,667 separate locations. The initial term of the typical "traditional" franchise agreement is 20 years. As of December 31, 1996, Arby's did not offer any financing arrangements to its franchisees, except that in certain development agreements Arby's has made available extended payment terms. As of December 31, 1996, Arby's had received prepaid commitments for the opening of up to 429 new domestic franchised restaurants over the next ten years. Arby's plans opening approximately 115 new domestic franchised restaurants in 1997. Arby's also expects that 20 new franchised restaurants outside of the United States will open in 1997. In addition, as noted above, RTM has agreed to cause Newco to build an additional 190 Arby's restaurants pursuant to a development agreement. See "Item 1. -- Business -- Strategic Alternatives." Arby's also has territorial agreements with international franchisees in five countries at December 31, 1996. 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, and, in some cases, the right to sub-franchise Arby's restaurants. Arby's management expects that future international franchise agreements will more narrowly limit the geographic exclusivity of the franchisees and prohibit sub-franchise arrangements. Arby's offers franchises for the development of both single and multiple "traditional" restaurant locations. All franchisees are required to execute standard franchise agreements. Arby's standard U.S. franchise agreement currently provides for, among other things, an initial $37,500 franchise fee for the first franchised unit and $25,000 for each subsequent unit and a monthly royalty payment based on 4.0% of restaurant sales for the term of the franchise agreement. As a result of lower royalty rates still in effect under earlier agreements, the average royalty rate paid by franchisees during 1996 was 3.1%. Franchisees typically pay a $10,000 commitment fee, credited against the franchise fee referred to above, during the development process for a new traditional restaurant. In December 1994, Arby's began granting development agreements which give developers rights to develop Arby's limited menu restaurants in conjunction with either an existing operating food service or other business in non-traditional locations for a specified term. These agreements require a $1,000 development deposit per store which is then applied toward royalties which are to be paid at a rate of 10% of sales (which includes the AFA contribution referred to below). The developer/franchisee is required to sign an individual franchise agreement for a term of five years. As of December 31, 1996, there were 30 franchised limited menu restaurants in operation. Franchised restaurants are operated in accordance with uniform operating standards and specifications relating to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and cleanliness of premises and customer service. Arby's continuously monitors franchisee operations and inspects restaurants periodically to ensure that company practices and procedures are being followed. MULTI-BRANDING Arby's continues to pursue the development of a multi-branding strategy, which allows a single restaurant to offer the consumer distinct, but complementary, brands at the same restaurant. Collaborating to offer a broader menu is intended to increase sales per square foot of facility space, a key measure of return on investment in retail operations. Arby's has obtained exclusive worldwide rights to operate or grant franchises to operate ZuZu restaurants, which offer handmade Mexican food, at multi-brand locations. In addition, in 1995 Arby's acquired P.T. Noodle's, which offers a variety of Asian, Italian and American dishes based on serving corkscrew noodles with a variety of different sauces. In August 1996, Arby's completed the purchase of the tradenames, trademarks, service marks, logos, signs, recipes, secret formulas and technical information of T.J. Cinnamons, Inc., an operator and franchisor of retail bakeries specializing in gourmet cinnamon rolls and related products. As of March 1, 1997, 22 company-owned Arby's restaurants were multi-brand locations, including 14 that offer P.T. Noodles' products, five that offer ZuZu's products and three that offer T.J. Cinnamons' products. While multi-branding with ZuZu continues, Triarc has determined to write-off its approximately $5.4 investment in the equity of ZuZu, Inc. ADVERTISING AND MARKETING Arby's 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 and Arby's, to the extent that it owns local company-owned restaurants, participate. Franchisees and Arby's contribute 0.7% of gross sales to the Arby's Franchise Association ("AFA"), which produces advertising and promotion materials for the system. Each franchisee is also required to spend a reasonable amount, but not less than 3% of its monthly gross sales, for local advertising. This amount is divided between the franchisee's individual local market advertising expense and the expenses of a cooperative area advertising program with other franchisees who are operating Arby's restaurants in that area. Contributions to the cooperative area advertising program are determined by the participants in the program and are generally in the range of 3% to 5% of monthly gross sales. In 1994, 1995 and 1996, Arby's expenditures for advertising and marketing in support of company-owned stores were $17.2 million, $22.4 million, and $25.8 million, respectively. 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. A full-time quality assurance employee is assigned to each of the four independent processing facilities that process roast beef for Arby's domestic restaurants. The quality assurance employee inspects the roast beef for quality and uniformity. In addition, a laboratory at Arby's headquarters tests samples of roast beef periodically from each franchisee. Each year, representatives of Arby's conduct unannounced inspections of operations of each franchisee 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. PROVISIONS AND SUPPLIES Arby's roast beef is provided by four independent meat processors. Franchise operators are required to obtain roast beef from one of the four approved suppliers. Arby's, through the non-profit purchasing cooperative ARCOP, Inc. ("ARCOP"), which negotiates contracts with approved suppliers on behalf of Arby's and its franchisees, has entered into "cost-plus" contracts and purchases with these suppliers. Arby's believes that satisfactory arrangements could be made to replace any of its 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, which products are available from numerous suppliers. Food, proprietary paper and operating supplies are also made available, through national contracts employing volume purchasing, to Arby's franchisees through ARCOP. DYES AND SPECIALTY CHEMICALS (C.H. PATRICK) GENERAL C.H. Patrick produces and markets dyes and specialty chemicals primarily to the textile industry. In April 1996, Triarc and Avondale completed the sale of the textile business of Graniteville to Avondale for a net purchase price of $243 million in cash. C.H. Patrick and certain other non-textile related assets were excluded from the transaction.In connection with the Graniteville Sale, Avondale and C.H. Patrick entered into the Supply Agreement pursuant to which C.H. Patrick has the right, subject to certain bidding procedures, to supply the combined Graniteville/Avondale textile operations certain of its dyes and chemicals. See "Item 1. Business -- Strategic Alternatives." BUSINESS STRATEGY C.H. Patrick believes that it has a reputation in the textile industry as both a consistent producer of quality products and an innovator of new products to meet the changing needs of its customers. The management of C.H. Patrick has developed and is implementing business strategies that focus on developing new products and markets and developing relationships with new clients who previously chose not to do business with an operation directly related to a competitor. Prior to the Graniteville Sale, C.H. Patrick was a wholly-owned subsidiary of Graniteville. PRODUCTS AND MARKETS C.H. Patrick develops, manufactures and markets dyes and specialty chemicals, primarily to the textile industry. Management believes that C.H. Patrick has earned a reputation for producing high quality, innovative dyes and specialty chemicals. During each of 1994 and 1995, approximately 59% of C.H. Patrick's sales were to non-affiliated manufacturers and 41% were to Graniteville. In connection with the Graniteville Sale, C.H. Patrick and Avondale entered into the Supply Agreement, pursuant to which C.H. Patrick has the right, subject to certain bidding procedures, to supply to the combined Graniteville/Avondale textile operations certain of its dyes and chemicals. See "Item 1. Business--Strategic Alternatives." In 1996, approximately 59% of C.H. Patrick's sales were to non-affiliated manufacturers and 41% were to Graniteville/Avondale. C.H. Patrick processes dye presscakes and other basic materials to produce and sell indigo, vat, sulfur and disperse liquid dyes, as well as disperse, vat and aluminum powder dyes. The majority of C.H. Patrick's dye products are used in the continuous dyeing of cotton and polyester/cotton blends. C.H. Patrick also manufactures various textile softeners, surfactants, dyeing auxiliaries and permanent press resins, as well as several acrylic polymers used in textile finishing as soil release agents. In August 1994, C.H. Patrick acquired a minority interest in Taysung Enterprise Company, Ltd., ("Taysung") a Taiwanese manufacturer of dyes and chemicals. C.H. Patrick also obtained exclusive distribution rights in North, Central and South America for Taysung products for a period of five years. In 1995 C.H. Patrick wrote off its investment in Taysung. In February 1997, C.H. Patrick was advised that Taysung is considering winding down its business and/or selling a substantial portion of its business. See Note 20 to the Consolidated Financial Statements. MARKETING AND SALES Major dye customers rely on bidding systems to obtain the most competitive pricing. The bidding might be quarterly, semi-annual or annual. Generally, the bids are non-binding purchase orders. Historically, these agreements have been honored. In the chemical business, customers normally do not use a bidding procedure but order on an as-needed basis. Generally, C.H. Patrick's sales are to domestic customers primarily based in the Southeast, where most of the U.S. textile industry is concentrated. C.H. Patrick has six salespeople and five technical service representatives, based in North Carolina, South Carolina and Georgia, who work closely with customers and C.H. Patrick's technical and quality management groups. Field personnel are supported by C.H. Patrick's laboratory staff who perform services such as competitive product analysis through such methods as gas chromatography, high pressure liquid chromatography, infrared analysis, nuclear magnetic resonance and elemental analysis. C.H. Patrick advertises on a regular basis in textile trade journals. Direct mail campaigns have been used in past years to market vat and sulfur dyes as well as dyeing and preparation chemicals. C.H. Patrick has utilized both telemarketing and direct mail to introduce its services to the marketplace. C.H. Patrick distributes its products through its own salesforce. C.H. Patrick owns a fleet of nine tanktrucks, two box trailers, three tractors, and two smaller trucks which deliver Patrick's products to customers from its plants. Common carriers are also used both for bulk deliveries and drum shipments. RAW MATERIALS C.H. Patrick purchases various raw materials, including indigo, vat and sulfur crude presscakes and glyoxal, from a number of suppliers and does not rely on a sole source to any material extent. C.H. Patrick does not foresee any significant difficulties in obtaining necessary raw materials or supplies. LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE) National Propane, as managing general partner of the Partnership and the Operating Partnership, is engaged primarily in (i) the retail marketing of liquefied petroleum gas ("propane") to residential, commercial and industrial, and agricultural customers and to dealers that resell propane to residential and commercial customers and (ii) the retail marketing of propane related supplies and equipment, including home and commercial appliances. Triarc believes that the Partnership is the sixth largest retail marketer of LP gas in terms of volume in the United States. As of December 31, 1996, the Partnership had 166 service centers supplying markets in 25 states. The Partnership's operations are located primarily in the Midwest, Northeast, Southeast, and Southwest regions of the United States. Since April 1993, National Propane has, among other things, consolidated its operations into a single company with a national brand and logo. As part of such consolidation, Public Gas was merged with and into National Propane during the second quarter of 1995. Prior to such merger, Public Gas (which had been owned 99.7% by SEPSCO) became a wholly-owned subsidiary of SEPSCO. In connection therewith, on February 22, 1996, SEPSCO redeemed all of its outstanding 11-7/8% Senior Subordinated Debentures due February 1, 1998 (the "SEPSCO 11-7/8% Debentures"). See Note 13 to the Consolidated Financial Statements. In July 1996 National Propane completed an initial public offering of common units in the MLP. See "Item 1 -- Business -- Strategic Alternatives." BUSINESS STRATEGY The Partnership's operating strategy is to increase efficiency, profitability and competitiveness, while better serving its customers, by building on the efforts it is already undertaken to improve pricing management, marketing and purchasing and to consolidate its operations. In addition, the Partnership's strategies for growth involve expanding its operations and increasing its market share through strategic acquisitions and internal growth, including the opening of new service centers. The Partnership intends to take two approaches to acquisitions: (i) primarily to build on its broad geographic base by acquiring smaller, independent competitors that operate within the Partnership's existing geographic areas and incorporating them into the Partnership's distribution network and (ii) to acquire propane businesses in areas in the United States outside of its current geographic base where it believes there is growth potential and where an attractive return on its investment can be achieved. In 1996 and 1997 National Propane and the Partnership acquired six propane businesses for an aggregate purchase price of approximately $3.0 million. In addition to pursuing expansion through acquisition, the Partnership intends to pursue internal growth at its existing service centers and to expand its business by opening new service centers. The Partnership believes that it can attract new customers and expand its market base by (i) providing superior service, (ii) introducing innovative marketing programs and (iii) focusing on population growth areas. The Partnership also intends to continue to expand its business by opening new service centers, known as "scratch-starts," in areas where there is relatively little competition. Scratch-starts are newly opened service centers generally staffed with one or two employees, which typically involve minimal startup costs because the infrastructure of the new service center is developed as the customer base expands and the Partnership can, in many circumstances, transfer existing assets, such as storage tanks and vehicles, to the new service center. Under this program, by December 31, 1996, the Partnership had opened three new service centers in California and one in each of Idaho, Georgia and South Carolina. PRODUCTS, SERVICES AND MARKETING The Partnership distributes its propane through a nationwide distribution network integrating 166 service centers located in 24 states. The Partnership's operations are located primarily in the Midwest, Northeast, Southeast and Southwest regions of the United States. Typically, service centers are found in suburban and rural areas where natural gas is not readily available. Generally, such locations consist of an office and a warehouse and service facility, with one or more 18,000 to 30,000 gallon storage tanks on the premises. Each service center is managed by a district manager and also typically employs a customer service representative, a service technician and one or two bulk truck drivers. However, new service centers established under the Partnership's "scratch start" program may not have offices, warehouses or service facilities and are typically staffed initially by one or two employees. In 1996 the Partnership served approximately 250,000 active customers. No single customer accounted for 10% or more of the Partnership's revenues in 1995 or 1996. Generally, the number of customers increases during the fall and winter and decreases during the spring and summer. Historically, approximately 67% of the Partnership's retail propane volume has been sold during the six-month season from October through March, as many customers use propane for heating purposes. Consequently, sales, gross profits and cash flows from operations are concentrated in the Partnership's first and fourth fiscal quarters. Year-to-year demand for propane is affected by the relative severity of the winter and other climatic conditions. For example, while the frigid temperatures that were experienced by the United States in January and February of 1994 significantly increased the overall demand for propane, the warm weather during the winter of 1994-1995 significantly reduced such demand. The Partnership believes, however, that the geographic diversity of its areas of operations helps to reduce its exposure to regional weather patterns. In addition, sales to the commercial and industrial markets, while affected by economic patterns, are not as sensitive to variations in weather conditions as sales to residential and agricultural markets. Retail deliveries of propane are usually made to customers by means of bobtail and rack trucks. Propane is pumped from the bobtail truck, which generally holds 2,800 gallons of propane, into a stationary storage tank on the customer's premises. The capacity of these tanks usually ranges from approximately 50 to approximately 1,000 gallons, with a typical tank having a capacity of 250 to 500 gallons. Typically, service centers deliver propane to most of their residential customers at regular intervals, based on estimates of such customers' usage, thereby eliminating the customers' need to make affirmative purchase decisions. The Partnership also delivers propane to retail customers in portable cylinders, which typically have a capacity of 23.5 gallons. When these cylinders are delivered to customers, empty cylinders are picked up for replenishment at the Partnership's distribution locations or are refilled in place. The Partnership also delivers propane to certain other retail customers, primarily dealers and large commercial accounts, in larger trucks known as transports, which have an average capacity of approximately 9,000 gallons. Propane is generally transported from refineries, pipeline terminals and storage facilities (including the Partnership's underground storage facilities in Hutchinson, Kansas and Loco Hills, New Mexico) to the Partnership's bulk plants by a combination of common carriers, owner-operators, railroad tank cars and, in certain circumstances, the Partnership's own highway transport fleet. The Partnership also sells, leases and services equipment related to its propane distribution business. In the residential market, the Partnership sells household appliances such as cooking ranges, water heaters, space heaters, central furnaces and clothes dryers, as well as less traditional products such as barbecue equipment and gas logs. In the industrial market, the Partnership sells or leases specialized equipment for the use of propane as fork lift truck fuel, in metal cutting and atmospheric furnaces and for portable heating for construction. In the agricultural market, specialized equipment is leased or sold for the use of propane as engine fuel and for chicken brooding and crop drying. The sale of specialized equipment, service income and rental income represented less than 10% of the Partnership's operating revenues during 1996. Parts and appliance sales, installation and service activities are conducted through a wholly-owned corporate subsidiary of the Operating Partnership. PROPANE SUPPLY AND STORAGE The profitability of the Partnership is dependent upon the price and availability of propane as well as seasonal and climatic factors. Contracts for the supply of propane are typically made on a year-to-year basis, but the price of the propane to be delivered depends upon market conditions at the time of delivery. Worldwide availability of both gas liquids and oil affects the supply of propane in domestic markets, and from time to time the ability to obtain propane at attractive prices may be limited as a result of market conditions, thus affecting price levels to all distributors of propane. Generally, when the wholesale cost of propane declines, the Partnership believes that its margins on its retail propane distribution business would increase in the short-term because retail prices tend to change less rapidly than wholesale prices. Conversely, when the wholesale cost of propane increases, retail marketing profitability will likely be reduced at least for the short-term until retail prices can be increased. Since 1993, the Partnership has generally been successful in maintaining retail gross margins on an annual basis despite changes in the wholesale cost of propane. There may be times, however, when the Partnership will be unable to fully pass on cost increases to its customers. Consequently, the Partnership's profitability will be sensitive to changes in wholesale propane prices, and a substantial increase in the wholesale cost of propane could adversely affect the Partnership's margins and profitability. Except for occasional opportunistic buying and storage of propane, the Partnership has not engaged in any significant hedging activities with respect to its propane supply requirements. The Partnership purchased propane from over 35 domestic and Canadian suppliers during 1996, primarily major oil companies and independent producers of both gas liquids and oil, and it also purchased propane on the spot market. In 1996, the Partnership purchased approximately 82% and 18% of its propane supplies from domestic and Canadian suppliers, respectively. Approximately 95% of all propane purchases by the Partnership in 1996 were on a contractual basis (generally, under one year agreements subject to annual renewal), but the percentage of contract purchases may vary from year to year as determined by the Managing General Partner. Supply contracts generally do not lock in prices but rather provide for pricing in accordance with posted prices at the time of delivery or the current prices established at major storage points, such as Mont Belvieu, Texas and Conway, Kansas. The Partnership is not currently a party to any supply contracts containing "take or pay" provisions. Warren Petroleum Company ("Warren"), supplied 16% of the Partnership's propane in 1996 and Amoco and Conoco each supplied approximately 10%. The Partnership believes that if supplies from Warren, Amoco or Conoco were interrupted, it would be able to secure adequate propane supplies from other sources without a material disruption of its operations; however, the Partnership believes that the cost of procuring replacement supplies might be materially higher, at least on a short-term basis. No other single supplier provided more than 10% of the Partnership's total propane supply during 1996. The Partnership owns underground storage facilities in Hutchinson, Kansas and Loco Hills, New Mexico, leases above ground storage facilities in Crandon, Wisconsin and Orlando, Florida, and owns or leases smaller storage facilities in other locations throughout the United States. As of December 31, 1996, the Partnership's total storage capacity was approximately 33.1 million gallons (including approximately one million gallons of storage capacity currently leased to third parties). For a further description of these facilities, see "Item 2. Properties." GENERAL TRADEMARKS Royal Crown considers its concentrate formulae, which are not the subject of any patents, to be trade secrets. In addition, RC COLA, DIET RC, ROYAL CROWN, ROYAL CROWN DRAFT COLA, DIET RITE, NEHI, NEHI LOCKJAW, UPPER 10, KICK, and THIRST THRASHER are registered as trademarks in the United States, Canada and a number of other countries. Royal Crown believes that its trademarks are material to its business. Mistic is the owner of the MISTIC, ROYAL MISTIC, MISTIC BREEZE and MISTIC RAIN FOREST trademarks and considers them to be material to its business. Arby's is the sole owner of the ARBY'S trademark and considers it, and certain other trademarks owned or licensed by Arby's, to be material to its business. Pursuant to its standard franchise agreement, Arby's grants each of its franchisees the right to use Arby's trademarks, service marks and trade names in the manner specified therein. C.H. Patrick is the sole owner of the PATCO trademark and considers it to be material to its business. The Partnership and the Operating Partnership utilize a number of trademarks and tradenames which they own (including "National PropaneTM"), some of which have a significant value in the marketing of their products. The material trademarks of Royal Crown, Mistic, Arby's and C.H. Patrick are registered in the U.S. Patent and Trademark Office and various foreign jurisdictions. Royal Crown's, Arby's, Mistic's and C.H. Patrick's rights to such trademarks in the United States will last indefinitely as long as they continue to use and police the trademarks and renew filings with the applicable governmental offices. No challenges have arisen to Royal Crown's, Mistic's, Arby's or C.H. Patrick's right to use the foregoing trademarks in the United States. COMPETITION Triarc's four businesses operate in highly competitive industries. Many of the major competitors in these industries have substantially greater financial, marketing, personnel and other resources than does Triarc. Royal Crown's soft drink products and Mistic's premium beverage products compete generally with all liquid refreshments and in particular with numerous nationally-known soft drinks such as Coca-Cola and Pepsi-Cola and New Age beverages such as Snapple and AriZona iced teas. Royal Crown and Mistic compete with other beverage companies not only for consumer acceptance but also for shelf space in retail outlets and for marketing focus by Royal Crown's and Mistic's distributors, most of which also distribute other beverage brands. The principal methods of competition in the beverage industry include product quality and taste, brand advertising, trade and consumer promotions, pricing, packaging and the development of new products. Arby's faces direct and indirect competition from numerous well established competitors, including national and regional fast food chains, such as McDonalds, Burger King, Wendy's and Boston Market. In addition, Arby's competes with locally owned restaurants, drive-ins, diners and other food service establishments. Key competitive factors in the QSR industry are price, quality of products, quality and speed of service, advertising, name identification, restaurant location and attractiveness of facilities. In recent years, both the beverage and restaurant businesses have experienced increased price competition resulting in significant price discounting throughout these industries. Price competition has been especially intense with respect to sales of beverage products in food stores, with local bottlers granting significant discounts and allowances off wholesale prices in order to maintain or increase market share in the food store segment. When instituting its own discount promotions, Arby's has experienced increases in sales but, with respect to company-owned restaurant operations, lower gross margins. While the net impact of price discounting in the soft drink and QSR industries cannot be quantified, such practices could have an adverse impact on Triarc. C.H. Patrick has many competitors, including large chemical companies and smaller concerns. No single manufacturer dominates the industry in which C.H. Patrick participates. The principal elements of competition include quality, price and service. Most of the Operating Partnership's service centers compete with several marketers or distributors of LP gas and certain service centers compete with a large number of marketers or distributors. Each of the Operating Partnership's service centers operate in its own competitive environment because retail marketers tend to locate in close proximity to customers in order to lower the cost of providing service. The principle competitive factors affecting this industry are reliability of service, responsiveness to customers and the ability to maintain competitive prices. LP gas competes primarily with natural gas, electricity and fuel oil as an energy source, principally on the basis of price, availability and portability. LP gas serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of the product is required. LP gas is generally more expensive than natural gas in locations served by natural gas, although LP gas is sold in such areas as a standby fuel for use during peak demand periods or during interruptions in natural gas service. Although the extension of natural gas pipelines tends to displace LP gas distribution in the areas affected, National Propane believes that new opportunities for LP gas sales arise as more geographically remote areas are developed. LP gas is generally less expensive to use than electricity for space heating, water heating, clothes drying and cooking. Although LP gas is similar to fuel oil in certain applications, as well as in market demand and price, LP gas and fuel oil have generally developed their own distinct geographic markets, reducing competition between such fuels. In addition, the use of alternative fuels, including LP gas, is mandated in certain specified areas of the United States that do not meet federal air quality standards. WORKING CAPITAL Royal Crown's and Arby's working capital requirements are generally met through cash flow from operations. Accounts receivable of Royal Crown are generally due in 30 days and Arby's franchise royalty fee receivables are due within 10 days after each month end. Mistic's working capital requirements are generally met through cash flow from operations, supplemented by advances under a credit facility entered into in connection with the Mistic Acquisition (as subsequently amended, the "Mistic Credit Agreement") which initially provided Mistic with a $60 million term loan facility ($54 million at March 1, 1997) and a $20 million ($12 million at March 1, 1997) revolving credit facility (of which approximately $15 million was available at March 1, 1997). Accounts receivable of Mistic are generally due in 30 days. Working capital requirements for C.H. Patrick are generally met from operating cash flow supplemented by advances under a credit facility entered into following the Graniteville Sale, which provides for a $35 million term loan ($33.8 million at March 1, 1997) and a $15 million ($0.5 million at March 1, 1997) revolving credit facility (of which approximately $14.5 million was available at March 1, 1997). Trade receivables of C.H. Patrick are generally due in 30 days. Working capital requirements for the Operating Partnership fluctuate due to the seasonal nature of its business. Typically, in late summer and fall, inventories are built up in anticipation of the heating season and are depleted over the winter months. During the spring and early summer, inventories are at low levels due to lower demand. Accounts receivable reach their highest levels in the middle of the winter and are gradually reduced as the volume of LP gas sold declines during the spring and summer. Working capital requirements are generally met through cash flow from operations supplemented by advances under a revolving working capital facility which provides the Operating Partnership with a $15 million line of credit (of which $8.3 million was available at March 1, 1997). Accounts receivable are generally due within 30 days of delivery. See "Item 1. Business -- Strategic Alternatives" and "Business Segments -- Liquefied Petroleum Gas." GOVERNMENTAL REGULATIONS Each of Triarc's businesses is subject to a variety of federal, state and local laws, rules and regulations. Arby's is subject to regulation by the Federal Trade Commission and state laws governing the offer and sale of franchises and the substantive aspects of the franchisor-franchisee relationship. In addition, Arby's is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime and other working conditions. Pursuant to an amendment to the Fair Labor Standards Act, the federal minimum wage was increased from $4.25 per hour to $4.75 per hour, effective October 1, 1996, with an additional increase to $5.15 per hour to become effective on September 1, 1997. Significant numbers of the food service personnel at Arby's restaurants are paid at rates related to the federal and state minimum wage, and increases in the minimum wage may therefore increase the labor costs of Arby's and its franchisees. Arby's is also subject to the Americans with Disabilities Act (the "ADA"), which requires that all public accommodations and commercial facilities meet certain federal requirements related to access and use by disabled persons. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants. Although Arby's management believes that its facilities are substantially in compliance with these requirements, Arby's may incur additional costs to comply with the ADA. However, Triarc does not believe that such costs will have a material adverse effect on Triarc's consolidated financial position or results of operations. From time to time, Arby's has received inquiries from federal, state and local regulatory agencies or has been named as a party to administrative proceedings brought by such regulatory agencies. Triarc does not believe that any such inquiries or proceedings will have a material adverse effect on Triarc's consolidated financial position or results of operations. The production and marketing of Royal Crown and Mistic beverages are subject to the rules and regulations of various federal, state and local health agencies, including the United States Food and Drug Administration (the "FDA"). The FDA also regulates the labeling of Royal Crown and Mistic products. In addition, Royal Crown's and Mistic's dealings with their licensees and/or distributors may, in some jurisdictions, be subject to state laws governing licensor-licensee or distributor relationships. National Propane and the Operating Partnership are subject to various federal, state and local laws and regulations governing the transportation, storage and distribution of LP gas, and the health and safety of workers, primarily OSHA and the regulations promulgated thereunder. On February 19, 1997, the U.S. Department of Transportation published its Interim Final Rule for Continued Operation of Present Propane Trucks (the "Interim Rule"). The Interim Rule is intended to address perceived risks during the transfer of propane. The Interim Rule required certain immediate changes in the Partnership's operating procedures, and in the next six to 12 months, may require (i) some or all of the Partnership's cargo tanks to be retrofitted and (ii) some modifications to the Partnership's bulk plants. The Partnership, as well as the National Propane Gas Association and the propane industry in general, is in the process of studying the Interim Rule and the appropriate response thereto. At this time, the Partnership is not in a position to determine what the ultimate long-term cost of compliance with the Interim Rule will be. Except as described herein, Triarc is not aware of any pending legislation that in its view is likely to affect significantly the operations of Triarc's subsidiaries. Triarc believes that the operations of its subsidiaries comply substantially with all applicable governmental rules and regulations. ENVIRONMENTAL MATTERS Certain of Triarc's operations are subject to federal, state and local environmental laws and regulations concerning the discharge, storage, handling and disposal of hazardous or toxic substances. Such laws and regulations provide for significant fines, penalties and liabilities, in certain cases without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of such hazardous or toxic substances. In addition, third parties may make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous or toxic substances. Triarc cannot predict what environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or interpreted. Triarc cannot predict the amount of future expenditures which may be required in order to comply with any environmental laws or regulations or to satisfy any such claims. Triarc believes that its operations comply substantially with all applicable environmental laws and regulations. As a result of certain environmental audits in 1991, SEPSCO became aware of possible contamination by hydrocarbons and metals at certain sites of SEPSCO's ice and cold storage operations of the refrigeration business and has filed appropriate notifications with state environmental authorities and in 1994 completed a study of remediation at such sites. SEPSCO has removed certain underground storage and other tanks at certain facilities of the refrigeration operations and has engaged in certain remediation in connection therewith. Such removal and environmental remediation involved a variety of remediation actions at various facilities of SEPSCO located in a number of jurisdictions. Such remediation varied from site to site, ranging from testing of soil and ground water for contamination, development of remediation plans and removal in certain instances of certain contaminated soils. Remediation is required at thirteen sites which were sold to or leased by the purchaser of the ice operations. Remediation has been completed on five of these sites and is ongoing at eight others. Such remediation is being made in conjunction with the purchaser, which has satisfied its obligation to pay up to $1,000,000 of such remediation costs. Remediation is also required at seven cold storage sites which were sold to the purchaser of the cold storage operations. Remediation has been completed at one site, and is ongoing at three other sites. Remediation is expected to commence on the remaining three sites in 1997 and 1998. Such remediation is being made in conjunction with such purchaser who is responsible for the first $1,250,000 of such costs. In addition, there were fifteen additional inactive properties of the former refrigeration business where remediation has been completed or is ongoing and which have either been sold or are held for sale separate from the sales of the ice and cold storage operation. Of these, ten have been remediated at an aggregate cost of $952,000 through December 31, 1996. In addition, during the environmental remediation efforts on idle properties, SEPSCO became aware of two sites which may require demolition in the future. Based on currently available information and the current reserve levels, Triarc does not believe that the ultimate outcome of the remediation and/or removal and demolition will have a material adverse effect on its consolidated financial position or results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." In May 1994 National Propane was informed of coal tar contamination which was discovered at its properties in Marshfield, Wisconsin. National Propane purchased the property from a company which had purchased the assets of a utility that had previously owned the property. National Propane believes that the contamination occurred during the use of the property as a coal gasification plant by such utility. In order to assess the extent of the problem, National Propane engaged environmental consultants who began work in August 1994. In December 1994, the environmental consultants issued a report to National Propane which estimated the range of potential remediation costs to be between $0.4 million and $0.9 million, depending upon the actual extent of impacted soils, the presence and extent, if any, of impacted ground water and the remediation method actually required to be implemented. In February 1996, based upon new information, National Propane's environmental consultants issued a second report which presented the two most likely remediation methods and revised estimates of the costs of such methods. The report estimated the range of costs for the first method, which involved treatment of groundwater and excavation, treatment and disposal of contaminated soil, to be from $1.6 million to $3.3 million. The range for the second method, which involved treatment of ground water and building a containment wall, was from $0.4 million to $0.8 million. As of March 1, 1997, National Propane's environmental consultants have begun but have not completed additional testing. Based upon the new information compiled to date, which is not yet complete, it appears that the containment wall remedy is no longer appropriate, and the likely remedy will involve treatment of ground water and treatment by soil-vapor extraction of certain contaminated "hot spots" in the soil, installation of a soil cap and, if necessary, excavation, treatment and disposal of contaminated soil. As a result, the environmental consultants have revised the range of estimated costs for the remediation to be from $0.8 million to $1.6 million. Based on discussions with National Propane's environmental consultants, an acceptable remediation plan should fall within this range. National Propane will have to agree upon the final plan with the State of Wisconsin. Since receiving notice of the contamination, National Propane has engaged in discussions of a general nature concerning remediation with the State of Wisconsin. These discussions are ongoing and there is no indication as yet of the time frame for a decision by the State of Wisconsin on the method of remediation. Accordingly, it is unknown what remediation method will be used. Based on the preliminary results of the ongoing investigation, there is a potential that the contaminant plume may extend to locations downgradient from the original site. If it is ultimately confirmed that the contaminant plume extends under such properties and if such plume is attributable to contaminants emanating from the Marshfield property, there is the potential for future third-party claims. National Propane is also engaged in ongoing discussions of a general nature with the successor to the utility that operated a coal gasification plant on the property. The successor has denied any liability for the costs of remediation of the Marshfield property or of satisfying any related claims. If National Propane is found liable for any of such costs, it will attempt to recover them from the successor owner. National Propane has notified its insurance carriers of the contamination and the likely incurrence of costs to undertake remediation and the possibility of related claims. Pursuant to a lease relating to the Marshfield facility, the ownership of which was not transferred to the Operating Partnership at the closing of the IPO, the Partnership has agreed to be liable for any costs of remediation in excess of amounts recovered from such successor or from insurance. Since the remediation method to be used is unknown, no amount within the cost ranges provided by the environmental consultants can be determined to be a better estimate. Triarc does not believe that the outcome of this matter will have a material adverse effect on Triarc's consolidated results of operations or financial position. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." In 1993 Royal Crown became aware of possible contamination from hydrocarbons in groundwater at two abandoned bottling facilities. In 1994, as a result of tests necessitated by the removal of four underground storage tanks at Royal Crown's no longer used distribution site in Miami, Florida, hydrocarbons were discovered in the groundwater. Assessment is proceeding under the direction of the Dade County Department of Environmental Resources Management ("DERM") to determine the extent of the contamination. Remediation has commenced at this site, and management estimates that total remediation costs (in excess of amounts incurred through December 31, 1996) will be approximately $135,000, depending on the actual extent of the contamination. Additionally, in 1994 the Texas Natural Resources Conservation Commission approved the remediation of hydrocarbons in the groundwater by Royal Crown at its former distribution site in San Antonio, Texas. Remediation has commenced at this site. Management estimates the total cost of remediation to be approximately $110,000 (in excess of amounts incurred through December 31, 1996), of which 60-70% is expected to be reimbursed by the State of Texas Petroleum Storage Tank Remediation Fund. Royal Crown has incurred actual costs of $439,000, in the aggregate, through December 31, 1996 for these matters. Triarc does not believe that the outcome of these matters will have a material adverse effect on Triarc's consolidated results of operations or financial position. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." In 1987 Graniteville was notified by the South Carolina Department of Health and Environmental Control (the "DHEC") that it discovered certain contamination of Langley Pond ("Langley Pond") near Graniteville, South Carolina and that Graniteville may be one of the responsible parties for such contamination. In 1990 and 1991, Graniteville provided reports to DHEC summarizing its required study and investigation of the alleged pollution and its sources which concluded that pond sediments should be left undisturbed and in place and that other less passive remediation alternatives either provided no significant additional benefits or themselves involved adverse effects. In March 1994 DHEC appeared to conclude that while environmental monitoring at Langley Pond should be continued, the most reasonable alternative was to leave the pond sediments undisturbed and in place. In 1995 Graniteville submitted a proposal regarding periodic monitoring of the site to which DHEC responded with a request for additional information. This information was provided to DHEC in February 1996. Triarc is unable to predict at this time what further actions, if any, may be required in connection with Langley Pond or what the cost thereof may be. In addition, Graniteville owns a nine acre property in Aiken County, South Carolina (the "Vaucluse Landfill"), which was used as a landfill from approximately 1950 to 1973. The Vaucluse Landfill was operated jointly by Graniteville and Aiken County. The United States Environmental Protection Agency conducted an Expanded Site Inspection (an "ESI") in January 1994 and Graniteville conducted a supplemental investigation in February 1994. In response to the ESI, DHEC indicated its desire to have an investigation of the Vaucluse Landfill. On August 22, 1995 DHEC requested that Graniteville enter into a consent agreement to conduct an investigation. Graniteville responded to DHEC that a consent agreement was inappropriate considering Graniteville's demonstrated willingness to cooperate with DHEC requests and asked DHEC to approve Graniteville's April, 1995 conceptual investigation approach. The cost of the study proposed by Graniteville is estimated to be between $125,000 and $150,000. Since an investigation has not yet commenced, Triarc is currently unable to estimate the cost, if any, to remediate the landfill. Such cost could vary based on the actual parameters of the study. In connection with the Graniteville Sale, the Company has agreed to indemnify Avondale for certain costs incurred by it in connection with the foregoing matters that are in excess of the applicable reserves. Based on currently available information, Triarc does not believe that the outcome of these matters will have a material adverse effect on Triarc's consolidated results of operations or financial position. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." SEASONALITY Of Triarc's four businesses, the beverages, restaurants and LP gas businesses are seasonal. In the beverage and restaurants businesses, the highest sales occur during spring and summer (April through September). LP gas operations are subject to the seasonal influences of weather which vary by region. Generally, the demand for LP gas during the winter months, November through April, is substantially greater than during the summer months at both the retail and wholesale levels, and is significantly affected by climatic variations. As a result of the foregoing, Triarc's revenues are highest during the first and fourth calendar quarters of the year. DISCONTINUED AND OTHER OPERATIONS Triarc continues to own a few ancillary business assets. Consistent with Triarc's strategy of focusing resources on its four principal businesses, from 1994 to 1996 SEPSCO completed its sale or discontinuance of substantially all of its ancillary business assets. These sales or liquidations will not have a material impact on Triarc's consolidated financial position or results of operations. The precise timetable for the sale or liquidation of Triarc's remaining ancillary business assets will depend upon Triarc's ability to identify appropriate purchasers and to negotiate acceptable terms for the sale of such businesses. Insurance Operations: Historically, Chesapeake Insurance Company Limited ("Chesapeake Insurance"), an indirect wholly-owned subsidiary of Triarc, (i) provided certain property insurance coverage for Triarc and certain of its former affiliates; (ii) reinsured a portion of certain insurance coverage which Triarc and such former affiliates maintained with unaffiliated insurance companies (principally workers' compensation, general liability, automobile liability and group life); and (iii) reinsured insurance risks of unaffiliated third parties through various group participations. During Fiscal 1993, Chesapeake Insurance ceased writing reinsurance of risks of unaffiliated third parties, and during Transition 1993 Chesapeake Insurance ceased writing insurance or reinsurance of any kind for periods beginning on or after October 1, 1993. Chesapeake Insurance continues to wind down its operations and settle the remaining existing insurance claims of third parties. In March 1994, Chesapeake Insurance consummated an agreement (which agreement was effective as of December 31, 1993) with AIG Risk Management, Inc. ("AIG") concerning the commutation to AIG of all insurance previously underwritten by AIG on behalf of Triarc and its subsidiaries and affiliated companies for the years 1977-1993, which insurance had been reinsured by Chesapeake Insurance. In connection with such commutation, AIG received an aggregate of approximately $63.5 million, consisting of approximately $29.3 million of commercial paper, common stock and other marketable securities of unaffiliated third parties, and a promissory note of Triarc in the original principal amount of approximately $34.2 million. In December 1995, such promissory note was amended and restated in order to reflect the forgiveness of $3.0 million of such indebtedness in April 1995. In July 1996 Triarc paid $27.2 million in return for the cancellation of the promissory note. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." For information regarding Triarc's insurance loss reserves relating to Chesapeake's operations, See Note 1 to the Consolidated Financial Statements. Discontinued Operations: In the Consolidated Financial Statements, Triarc reports as "discontinued operations" a few ancillary business assets, including certain idle properties owned by SEPSCO. In 1994, SEPSCO completed its sale or discontinuance of substantially all of its ancillary business assets. In February 1995, SEPSCO sold to a former member of its management team the stock of Houston Oil & Gas Company, Inc., a subsidiary which was engaged in the natural gas and oil business ("HOG"), for an aggregate purchase price of $800,000, consisting of $729,500 in cash, a waiver of certain bonuses payable by SEPSCO to such former management member and a six month promissory note in the original principal amount of $48,000, which has been paid in full. Since January 1996, SEPSCO has sold seven idle properties for an aggregate price of approximately $485,000. In addition, in January, 1997, SEPSCO completed the sale of a 42,000 square foot parcel of land located in Miami, Florida to a real estate developer for a gross purchase price of approximately $1.6 million. EMPLOYEES As of December 31, 1996, Triarc and its four business segments employed approximately 8,650 personnel, including approximately 1,610 salaried personnel and approximately 7,040 hourly personnel. Triarc's management believes that employee relations are satisfactory. At December 31, 1996, approximately 172 of the total of Triarc's employees were covered by various collective bargaining agreements expiring from time to time from the present through 1999. ITEM 2. PROPERTIES. Triarc maintains a large number of diverse properties. Management believes that these properties, taken as a whole, are generally well maintained and are adequate for current and foreseeable business needs. The majority of the properties are owned. Except as set forth below, substantially all of Triarc's materially important physical properties are being fully utilized. Certain information about the major plants and facilities maintained by each of Triarc's four business segments, as well as Triarc's corporate headquarters, as of December 31, 1996 is set forth in the following table: APPROXIMATE SQ. FT. OF ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE - -------------------------------------------------------------------------------- Corporate Headquarters.......New York, NY 1 leased 26,600 Beverages....................Concentrate Mfg: Columbus, GA 1 owned 216,000 (including office) Cincinnati, OH 1 leased 23,000 Royal Crown Corporate Headquarters Ft. Lauderdale, FL 1 leased 19,180* Mistic Corporate Headquarters White Plains, NY 1 leased 32,320** Restaurant...................355 Restaurants 75 owned *** (all but 16 locations 280 leased throughout the United States) Corporate Headquarters 1 leased 58,429 Ft. Lauderdale, FL Specialty Chemical and Dyes..Greenville, SC 2 owned 103,000 Williston, SC 1 owned 75,000 LP Gas.......................Office 1 leased 17,000 166 Service Centers 185 owned 532,000 81 Storage Facilities 62 leased **** (various locations throughout the United States) 2 Underground storage terminals 2 Above ground storage terminals APPROXIMATE SQ. FT. OF INACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE - ------------------------------------------------------------------------------- Restaurant...................Restaurants 1 owned *** 10 leased Textiles.....................Fabric Mfg. 2 owned 382,000 - ------------ * Royal Crown and Arby's also share 18,759 square feet of common space at the headquarters of their parent corporation, RC/Arby's. ** In connection with the formation of the Triarc Beverage Group, approximately one-half of the lease obligation for Mistic's headquarters has been assumed by Royal Crown. See "Item 1. Business--Business Segments -- Beverages." *** While Arby's restaurants range in size from approximately 700 square feet to 4,000 square feet, the typical company-owned Arby's restaurant in the United States is approximately 2,750 square feet. It is expected that all of the company-owned Arby's restaurants will be sold. See "Item 1. Business - Strategic Alternatives and "Business Segments -- Restaurants." **** The LP gas facilities have approximately 33 million gallons of storage capacity (including approximately one million gallons of storage capacity currently leased to third parties). All such properties were transferred to the Operating Partnership. See "Item 1. Business -- Strategic Alternatives" and "-- Business Segments -- Liquefied Petroleum Gas." Arby's also owns seven and leases fifteen restaurants which are leased or sublet principally to franchisees. Substantially all of the properties used in the and propane and dyes and specialty chemicals segments are pledged as collateral for certain debt. In addition, substantially all of the properties used by Mistic and certain of the properties used in the restaurant segment are pledged as collateral for certain debt. All other properties owned by Triarc are without significant encumbrances. Certain information about the materially important physical properties of Triarc's discontinued and other operations as of December 31, 1996 is set forth in the following table: APPROXIMATE SQ.FT. OF INACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE FLOOR SPACE - ------------------------------------------------------------------------------- Refrigeration..... Ice mfg. and cold storage 4 owned 92,000 Ice mfg. 13 owned 173,000 National Propane.. Undeveloped land 3 owned N/A ITEM 3. LEGAL PROCEEDINGS. In the fall of 1995, Granada Investments, Inc., Victor Posner and the three former court-appointed members of a special committee of the Triarc Board ("the Triarc Special Committee") formed in 1993 by order of the United States District Court for the Northern District of Ohio (which order was subsequently terminated) asserted claims against Triarc for money damages and declaratory relief, and, in the case of the former court-appointed directors, additional fees. On January 30, 1996 the court held that it had no jurisdiction and dismissed all proceedings in this matter. Posner filed a notice of appeal, but subsequently withdrew the appeal voluntarily. In October 1995 Triarc commenced an action against Posner and a Posner Entity in the United States District Court for the Southern District of New York in which it asserted breaches by them of their reimbursement obligations under the Settlement Agreement (see "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.") The defendants have asserted certain affirmative defenses and a counterclaim seeking a declaratory judgment that $2.9 million of a $6.0 million settlement payment paid by defendants to Triarc pursuant to the Settlement Agreement should be credited against defendants' obligations, if any, to reimburse Triarc's fees and expenses under the Settlement Agreement. Cross-motions for summary judgment have been filed and are pending. In November, 1995, the Company commenced an action in New York State court alleging that the three former court-appointed directors violated the release/agreements they executed in March 1995 by seeking additional fees of $3.0 million. The action was removed to federal court in New York. The defendants have filed a third-party complaint against Nelson Peltz, the Company's Chairman and Chief Executive Officer, seeking judgment against him for any amounts recovered by Triarc against them. On December 9, 1996, the court denied Triarc's motion for summary judgment. Discovery in the action has commenced. On December 6, 1995, the three former court-appointed members of the Triarc Special Committee commenced an action in the United States District Court for the Northern District of Ohio seeking (among other things), an adjudication of certain parties' actual or potential claims with respect to certain shares of Triarc's Class A Common Stock held by the plaintiffs, an order restoring the plaintiffs to Triarc's Board of Directors and additional fees. On February 6, 1996, the court dismissed the action without prejudice. The plaintiffs filed a notice of appeal, but subsequently dismissed the appeal voluntarily. On June 27, 1996, the three former court-appointed directors commenced an action against Nelson Peltz, Victor Posner and Steven Posner in the United States District Court for the Northern District of Ohio seeking an order returning the plaintiffs to Triarc's Board of Directors, a declaration that the defendants bear continuing obligations to refrain from certain financial transactions under a February 9, 1993 undertaking given by DWG Acquisition Group, L.P., and a declaration that Mr. Peltz must honor all provisions of the undertaking. On October 10, 1996, Mr. Peltz moved for judgment on the pleadings, or, in the alternative, for a stay of the proceedings pending a resolution of the New York action described above. The motion is pending. In addition to the matters described immediately above and the matters referred to or described under "Item 1. Business -- General -- Environmental Matters," Triarc and its subsidiaries are involved in claims, litigation and administrative proceedings and investigations of various types in several jurisdictions. As discussed below, certain of these matters relate to transactions involving companies which, prior to April 1993 were affiliates of Triarc and which subsequent to April 1993 became debtors in bankruptcy proceedings. In connection with certain former cost sharing arrangements, advances, insurance premiums, equipment leases and accrued interest, Triarc had receivables due from APL Corporation, a former affiliate until April 1993, aggregating $38,120,000 as of April 30, 1992, against which a valuation allowance of $34,713,000 was recorded. In July 1993 APL became a debtor in a proceeding under Chapter 11 of the Bankruptcy Code (the "APL Proceeding"). In February 1994 the official committee of unsecured creditors of APL filed a complaint (the "APL Litigation") against Triarc and certain companies formerly or presently affiliated with Victor Posner or with Triarc, alleging causes of action arising from various transactions allegedly caused by the named former affiliates. The Chapter 11 trustee of APL was subsequently added as a plaintiff. The complaint asserts various claims against Triarc and seeks an undetermined amount of damages from Triarc as well as certain other relief. In April 1994 Triarc responded to the complaint by filing an Answer and Proposed Counterclaims and Set-Offs (the "Answer"). In the Answer, Triarc denies the material allegations in the complaint and asserts counterclaims and set-offs against APL. On June 8, 1995, the United States Bankruptcy Court for the Southern District of Florida (the "Bankruptcy Court") entered an order confirming the Creditors' Committee's First Amended Plan of Reorganization (the "Plan") in the APL Proceeding. The Plan provides, among other things, that Security Management Corporation ("SMC"), a company controlled by Victor Posner, will own all of the common stock of APL and that SMC, among other entities, is authorized to object to claims made in the APL Proceeding. The Plan also provides for the dismissal with prejudice of the APL Litigation. In August, 1995, SMC filed an objection (the "Objection") to the claims against APL filed by Triarc and Chesapeake Insurance. On September 5, 1995, Triarc and Chesapeake Insurance filed responses to the Objection denying the material allegations in the Objection. In addition, Triarc and Chesapeake Insurance filed a motion to dismiss the Objection on the basis that SMC is barred from making the Objections because of the dismissal with prejudice of the APL Litigation under the Plan. The Bankruptcy Court entered an order that, among other things, dismissed the APL Litigation and dismissed the Objection. In December 1995, APL filed a motion for rehearing and reconsideration of the final judgment of dismissal of the APL Litigation and SMC filed a motion for rehearing and reconsideration of the order dismissing the Objection. On March 12, 1996, the Bankruptcy Court denied APL's and SMC's motions for rehearing. SMC and APL have appealed, and their appeal is pending. On December 11, 1995, Triarc and Chesapeake commenced a proceeding in the Bankruptcy Court under section 1144 of the Bankruptcy Code, naming Victor Posner, SMC and APL as defendants, and naming the official committee of unsecured creditors of APL as a nominal defendant (the "1144 Proceeding"). Triarc commenced the 1144 proceeding because of motions pending on December 11, 1995 (the final date on which such a proceeding could be commenced under the Bankruptcy Code), in which APL and SMC sought to continue prosecuting the APL Litigation against Triarc and Chesapeake Insurance notwithstanding that the Plan required the dismissal of the APL Litigation with prejudice. In the event APL and SMC were to prevail in such attempts, Triarc would seek to have the confirmation order revoked or modified in certain respects, including to prevent the prosecution of the APL Litigation against Triarc and Chesapeake Insurance. On January 25, 1996, SMC and APL filed a motion to dismiss the 1144 Proceeding. On February 26, 1996, the committee of unsecured creditors of APL filed an answer and affirmative defenses to the complaint in the 1144 Proceeding, denying that the Plan required the dismissal of the APL Litigation. On April 15, 1996, the court granted SMC's and APL's motion to dismiss on the ground that the action was moot. Plaintiffs have appealed, and the appeal is pending. On February 19, 1996, Arby's Restaurants S.A. de C.V. ("AR"), the master franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico against Arby's for breach of contract. AR alleged that a non-binding letter of intent dated November 9, 1994 between AR and Arby's constituted a binding contract pursuant to which Arby's had obligated itself to repurchase the master franchise rights from AR for $2.5 million. AR also alleged that Arby's had breached a master development agreement between AR and Arby's. Arby's promptly commenced an arbitration proceeding on the ground that the franchise and development agreements each provided that all disputes arising thereunder were to be resolved by arbitration. Arby's is seeking a declaration in the arbitration to the effect that the November 9, 1994 letter of intent was not a binding contract and therefore AR has no valid breach of contract claim, as well as a declaration that AR's commencement of suspension of payments proceedings in February 1995 had automatically terminated the master development agreement. In the civil court proceeding, the court denied a motion by Arby's to suspend the proceedings pending the results of the arbitration, and Arby's has appealed that ruling. In the arbitration, some evidence has been taken but proceedings have been suspended by the court handling the suspension of payments proceedings. Arby's is contesting AR's claims vigorously and believes that it has meritorious defenses to AR's claims. On November 4, 1996, the bankruptcy trustee appointed in the case of Prime Capital Corporation ("Prime") (formerly known as Intercapital Funding Resources, Inc.) made a demand on Chesapeake Insurance and SEPSCO, seeking the return of payments aggregating $5.3 million which Prime allegedly made to those entities during 1994 and suggesting that litigation would be commenced against SEPSCO and Chesapeake Insurance if these monies were not returned. The trustee has commenced avoidance actions against SEPSCO and Chesapeake Insurance (as well as actions against certain current and former officers of Triarc or their spouses with respect to payments made directly to them) in January 1997, claiming the payments to them were preferences or fraudulent transfers. (SEPSCO and Chesapeake Insurance had entered into separate joint ventures with Prime, and the payments at issue were made in connection with termination of the investments in such joint ventures.) Triarc believes, based on advice of counsel, that SEPSCO and Chesapeake Insurance have meritorious defenses to the trustee's claims and that discovery may reveal additional defenses. Accordingly, SEPSCO and Chesapeake Insurance intend to vigorously contest the claims asserted by the trustee. However, it is possible that the trustee may be successful in recovering the payments. The maximum amount of SEPSCO's and Chesapeake Insurance's aggregate liability is approximately $5.3 million plus interest; however, to the extent SEPSCO or Chesapeake Insurance return to Prime's estate any amount of the challenged payments, they will be entitled to an unsecured claim against such estate. The court has scheduled a trial for the week of May 27, 1997. Other matters arise in the ordinary course of Triarc's business, and it is the opinion of management that the outcome of any such matter will not have a material adverse effect on Triarc's consolidated financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Triarc held its 1996 Annual Meeting of Shareholders on June 6, 1996. The matters acted upon by the shareholders at that meeting were reported in Triarc's quarterly report on Form 10-Q for the quarter ended June 30, 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The principal market for Triarc's Class A Common Stock is the New York Stock Exchange ("NYSE") (symbol: TRY). On June 29, 1995, at Triarc's request, the Class A Common Stock was delisted from trading on the Pacific Stock Exchange. The high and low market prices for Triarc's Class A Common Stock, as reported in the consolidated transaction reporting system, are set forth below: MARKET PRICE -------------------- FISCAL QUARTERS HIGH LOW - ------------------------------------------------------------------------------- 1995 FIRST QUARTER ENDED MARCH 31.......................... $13 1/4 $ 11 1/8 SECOND QUARTER ENDED JUNE 30.......................... 16 3/4 13 1/8 THIRD QUARTER ENDED SEPTEMBER 30...................... 15 5/8 12 3/8 FOURTH QUARTER ENDED DECEMBER 31...................... 14 1/4 9 1/2 1996 FIRST QUARTER ENDED MARCH 31.......................... $14 3/8 $ 10 7/8 SECOND QUARTER ENDED JUNE 30.......................... 13 3/8 11 1/2 THIRD QUARTER ENDED SEPTEMBER 30...................... 12 7/8 10 FOURTH QUARTER ENDED DECEMBER 31...................... 12 3/4 10 3/4 Triarc did not pay any dividends on its common stock in Fiscal 1995, Fiscal 1996 or in the current year to date and does not presently anticipate the declaration of cash dividends on its common stock in the near future. On April 23, 1993, DWG Acquisition Group, L.P. ("DWG Acquisition"), a Delaware limited partnership the sole general partners of which are Nelson Peltz and Peter W. May, acquired shares of common stock of Triarc (then known as DWG Corporation ("DWG")) from Victor Posner ("Posner") and certain entities controlled by Posner (together with Posner, the "Posner Entities"), representing approximately 28.6% of Triarc's then outstanding common stock. As a result of such acquisition and a series of related transactions which were also consummated on April 23, 1993, the Posner Entities no longer hold any shares of voting stock of Triarc or any of its subsidiaries. Pursuant to a Settlement Agreement dated as of January 9, 1995 (the "Settlement Agreement") among Triarc and Posner and certain Posner Entities, a Posner Entity converted the $71.8 million stated value of Triarc's 8-1/8% Redeemable Convertible Preferred Stock (which paid an aggregate dividend of approximately $5.8 million per annum) owned by it into 4,985,722 shares of Triarc's non-voting Class B Common Stock. In addition, an additional 1,011,900 shares of Triarc's Class B Common Stock were issued to Posner and a Posner Entity (which shares are, among other things, subject to a right of first refusal in favor of Triarc or its designee). Such conversion and issuance of Class B Common Stock resulted in an aggregate increase of approximately $83.8 million in Triarc's common shareholders' equity. All such shares of Class B Common Stock can be converted without restriction into shares of Class A Common Stock if they are sold to a third party unaffiliated with the Posner Entities. Triarc, or its designee, has certain rights of first refusal if such shares are sold to an unaffiliated third party. There is no established public trading market for the Class B Common Stock. Triarc has no class of equity securities currently issued and outstanding except for the Class A Common Stock and the Class B Common Stock. Because Triarc is a holding company, its ability to meet its cash requirements (including required interest and principal payments on the Partnership Loan) is primarily dependent upon its cash on hand and marketable securities and cash flows from its subsidiaries including loans and cash dividends and reimbursement by subsidiaries to Triarc in connection with its providing certain management services and payments by subsidiaries under certain tax sharing agreements. In connection with the Spinoff Transactions it is expected that Triarc will retain all or substantially all of its cash on hand and marketable securities. Upon completion of the Spinoff Transactions, however, it is expected that Triarc will no longer be entitled to receive cash dividends or tax sharing payments (relating to the period subsequent to the Spinoff Transactions) from its restaurant and beverage businesses. It is anticipated that Triarc may enter into a management and administrative services agreement with the businesses that are spun-off. Under the terms of various indentures and credit arrangements, Triarc's principal subsidiaries (other than National Propane) are currently unable to pay any dividends or make any loans or advances to Triarc. The relevant restrictions of such debt instruments are described under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations --Liquidity and Capital Resources" and in Note 13 to the Consolidated Financial Statements. On July 8, 1996, Triarc announced that its management was authorized, when and if market conditions warranted, to purchase from time to time during the twelve month period commencing July 8, 1996, up to $20 million of its outstanding Class A Common Stock. As of March 15, 1997, Triarc had repurchased 44,300 shares of Class A Common Stock at an aggregate cost of approximately $496,500. As of March 15, 1997, there were approximately 5,650 holders of record of the Class A Common Stock and two holders of record of the Class B Common Stock. ITEM 6. SELECTED FINANCIAL DATA
(1) FISCAL EIGHT MONTHS YEAR ENDED FISCALENDED YEAR ENDED DECEMBER 31, YEAR ENDED APRIL 30, DECEMBER YEAR ENDED31, ------------------------------------------ DECEMBER 31, ----------------------------- ---------- ---------------------------------------------- 1992 (1)28, 1993 1993 (3) 1994 1995 1996 ---- ---- -----1997 (3) ---- ---- ---- ---- ---- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenues................$1,074,703 $1,058,2741,023,249 $676,908 $1,022,671 $1,142,011 $ 703,541 $1,062,521 $1,184,221 $ 989,249928,185 $861,321 Operating profit (loss). 58,552 34,459 (4) 29,969(5) 68,93324,581 (5) 21,038 (6) 33,98954,446 (7) (6,979)(9)23,145 (8) (17,853)(10) 26,962 (11) Loss from continuing operations............. (10,207) (44,549)(4) (30,439)(50,690) (5) (2,093)(35,935) (6) (36,994)(10,612) (7) (8,485)(9)(39,433) (8) (13,698)(10) (20,553)(11) Income (loss) from discontinued operations net ................... 2,705 (2,430) (8,591) (3,900) -- --3,711 (3,095) 4,619 2,439 5,213 20,718 Extraordinary items .... -- (6,611) (448) (2,116) -- (5,416) (3,781) Cumulative effect of changes in accounting principles, net........ (6,388) -- (6,388) -- -- -- -- Net loss................ (7,502) (59,978)(4) (39,478)(5) (8,109)(39,478) (6) (36,994)(8,109) (7) (36,994) (8) (13,901)(9)(10) (3,616)(11) Preferred stock dividend requirements (2)....... (11) (121) (3,889) (5,833) -- -- -- Net loss applicable to common stockholders.... (7,513) (60,099) (43,367) (13,942) (36,994) (13,901) (3,616) Loss per share:share (4): Continuing operations.. (.39) (1.73) (1.62) (.34) (1.24) (.28)(1.97) (1.87) (.71) (1.32) (.46) (.68) Discontinued operations .10 (.09) (.40) (.17) -- --.15 (.15) .20 .08 .18 .69 Extraordinary items.... -- (.26) (.02) (.09) -- (.18) (.13) Cumulative effect of changes in accounting principles........... (.25) -- (.25) -- -- -- -- Net loss per share..... (.29) (2.33) (2.04) (.60) (1.24) (.46) (.12) Total assets............ 821,170 910,662 897,246 922,167 1,085,966 854,404907,333 887,380 911,236 1,077,173 831,785 1,004,873 Long-term debt.......... 289,758 488,654 575,161 612,118 763,346 500,529571,350 606,374 758,292 469,154 604,830 Redeemable preferred stock --stock................. 71,794 71,794 71,794 -- (8)(9) -- -- Stockholders' equity (deficit) 86,482............ (35,387) (75,981) (31,783) 20,650 (8)(9) 6,765 43,988 (12) Weighted-average common shares outstanding..... 25,867 25,808 21,260 23,282 29,764 29,898 30,132
(1) Selected Financial Data for the periods prior to the fiscal year ended April 30, 1992 hasDecember 28, 1997 have been retroactively restated to reflect the discontinuance of the Company's utilitydyes and municipal services and refrigeration operationsspecialty chemicals business sold in 1993.December 1997. (2) The Company has not paid any dividends on its common shares during any of the periods presented. (3) The Company changed its fiscal year from a fiscal year ending April 30 to a calendar year ending December 31 effective for the eight-month transition period ended December 31, 1993 ("Transition 1993"). The Company changed its fiscal year to a calendar year consisting of 52 or 53 weeks ending on the Sunday closest to December 31 effective for the 1997 fiscal year which commenced January 1, 1997 and ended on December 28, 1997. (4) Basic and diluted loss per share are the same for all periods presented since all potentially dilutive securities would have had an antidilutive effect for all such periods. (5) Reflects certain significant charges recorded during the fiscal year ended April 30, 1993 as follows: $51,689,000 charged to operating profit representing $43,000,000 of facilities relocation and corporate restructuring relating to a change in control of the Company and $8,689,000 of other net charges; $48,698,000 charged to loss from continuing operations representing the aforementioned $51,689,000 charged to operating profit, $8,503,000 of other net charges, less $19,391,000 of income tax benefit and minority interest effect relating to the aggregate of the above charges, and plus $7,897,000 of provision for income tax contingenciescontingencies; and $67,060,000 charged to net loss representing the aforementioned $48,698,000 charged to operating profit, a $5,363,000 write-down relating to the impairment of certain unprofitable operations and accruals for environmental remediation and losses on certain contracts in progress, net of income tax benefit and minority interests, a $6,611,000 extraordinary charge from the early extinguishment of debt and $6,388,000 cumulative effect of changes in accounting principles. - ------------------------------------------- (5)(6) Reflects certain significant charges recorded during Transition 1993 as follows: $12,306,000 charged to operating profit principally representing $10,006,000 of increased insurance reserves; $25,617,000 charged to loss from continuing operations representing the aforementioned $12,306,000 charged to operating profit, $5,050,000 of certain litigation setttlementsettlement costs, $3,292,000 of reduction to net realizable value of certain assets held for sale other than discontinued operations, less $2,231,000 of income tax benefit and minority interest effect relating to the aggregate of the above charges, and plus a $7,200,000 provision for income tax contingencies; and $34,437,000 charged to net loss representing the aforementioned $25,617,000 charged to loss from continuing operations and an $8,820,000 loss fromon disposal of discontinued operations. (6)(7) Reflects certain significant charges recorded during 1994 as follows: $9,972,000 charged to operating profit representing $8,800,000 of facilities relocation and corporate restructuring and $1,172,000 of advertising production costs that in prior periods were deferred; $4,782,000 charged to loss from continuing operations representing the aforementioned $9,972,000 charged to operating profit, $7,000,000 of costs of a proposed acquisition not consummated less $6,043,000 of gain on sale of natural gas and oil business, less income tax benefit relating to the aggregate of the above charges of $6,147,000; and $10,798,000 charged to net loss representing the aforementioned $4,782,000 charged to loss from the early extinguishment of debt from continuing operations, $3,900,000 loss fromon disposal of discontinued operations and a $2,116,000 extraordinary charge from the early extinguishment of debt. (7)(8) Reflects certain significant charges recorded during 1995 as follows: $19,331,000 charged to operating profit representing a $14,647,000 charge for a reduction in the carrying value of long-lived assets impaired or to be disposed of, $2,700,000 of facilities relocation and corporate restructuring and $1,984,000$3,331,000 of accelerated vesting of restricted stock, less $1,347,000 of other net charges;credits; and $15,199,000$11,004,000 charged to loss from continuing operations and net loss representing the aforementioned $19,331,000 charged to operating profit, $7,794,000$1,000,000 of equity in losses and write-down of investments in affiliates,an investee, less $15,088,000 of net gains consisting of $11,945,000 of gain on sale of excess timberland and $3,143,000 of other net gains, less $2,938,000$339,000 of income tax benefit relating to the aggregate of the above charges and plus a $6,100,000 provision for income tax contingencies. (8)contingencies; and $15,199,000 charged to net loss representing the aforementioned $11,004,000 charged to loss from continuing operations and $6,794,000 of equity in losses and write-down of an investment in an investee included in discontinued operations less $2,599,000 of income tax benefit relating thereto. (9) In 1995 all of the redeemable preferred stock was converted into class B common stock and an additional 1,011,900 class B common shares were issued (see Notes 16 and 17 to the Consolidated Financial Statements) resulting in an $83,811,000 improvement in stockholders' equity (deficit). (9)(10) Reflects certain significant charges and credits recorded during 1996 as follows: $73,100,000 charged to operating profitloss representing a $64,300,000 charge for a reduction in the carrying value of long-lived assets impaired or to be disposed of and $8,800,000 of facilities relocation and corporate restructuring; $1,279,000 charged to loss from continuing operations representing the aforementioned $73,100,000 charged to operating loss, $77,000,000 of gains on sale of businesses, net and plus $5,179,000 of income tax provision relating to the aggregate of the above net credits; and $6,695,000 charged to net loss representing the aforementioned $1,279,000 charged to loss from continuing operations and a $5,416,000 extraordinary charge from the early extinguishment of debt. (11) Reflects certain significant charges and credits recorded during 1997 as follows: $38,890,000 charged to operating profit representing a $31,815,000 charge for acquisition related costs and $7,075,000 of facilities relocation and corporate restructuring; $20,444,000 charged to loss from continuing operations representing the aforementioned $38,890,000 charged to operating profit, $4,955,000 of gain on sale of businesses, net and less $13,491,000 of income tax benefit relating to the aggregate of the above net charges; and $4,716,000 charged to net loss representing the aforementioned $73,100,000$20,444,000 charged to operating profit, $77,000,000loss from continuing operations, $19,509,000 of gainsgain on saledisposal of businesses, net (see Note 19 todiscontinued operations and a $3,781,000 extraordinary charge from the Consolidated Financial Statements)early extinguishment of debt. (12) In 1997, in connection with the Stewart's acquisition, the Company issued 1,566,858 shares of its common stock with a value of $37,409,000 for all of the outstanding stock of Cable Car and plus $5,179,000154,931 stock options with a value of income tax provision on$2,788,000 in exchange for all of the above net credits. outstanding stock options of Cable Car resulting in an increase in stockholders' equity of $40,197,000. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION This "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the consolidated financial statements included herein of Triarc Companies, Inc. ("Triarc" or, collectively with its subsidiaries, the "Company"). Certain statements under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" under the Reform Act. See "Special Note Regarding Forward-Looking Statements"Statements and Projections" in "Part I" preceding "Item 1". Effective January 1, 1997 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. In accordance therewith, the Company's 1997 fiscal year commenced January 1, 1997 and ended on December 28, 1997. As used herein, "1996", "1995""1997" refers to the period January 1, 1997 through December 28, 1997 and "1994""1996" and "1995" refer to the calendar years ended December 31, 1996 and 1995, respectively. The discussion below reflects the operations of C.H. Patrick & Co., Inc. ("C.H. Patrick"), formerly included in the Company's textile segment, as discontinued operations as the result of the sale (the "C.H. Patrick Sale") of C.H. Patrick on December 23, 1997 (see below under "Liquidity and 1994, respectively.Capital Resources" for further discussion). RESULTS OF OPERATIONS The diversity of the Company's business segments precludes any overall generalization about trends for the Company. Trends affecting the beverage segment in recent years have included the increased market share of private label beverages, increased price competition throughout the industry, the development of proprietary packaging and the proliferation of new products being introduced including "premium" beverages. Trends affecting the restaurant segment in recent years include consistent growth of the restaurant industry as a percentage of total food-related spending, with the quick service restaurant ("QSR"), or fast food segment, in which the Company operates (see below), being the fastest growing segment of the restaurant industry. In addition, there has been increased price competition in the QSR industry, particularly evidenced by the value menu concept which offers comparatively lower prices on certain 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. Some QSR's have been adding selected higher-priced premium quality items to their menus, which appeal more to adult tastes and recover some of the margins lost in the discounting of other menu items. Assuming consummationHowever, following the sale of all of the 355 company-owned Arby's restaurants on May 5, 1997 (the "RTM Sale") to an affiliate of RTM, saleInc. ("RTM"), the largest franchisee in the Arby's system (see discussion below under "Liquidity and Capital Resources"), the Company'seffects of the trends on the restaurant operations will be exclusively franchising.segment are currently limited to their impact on franchise fees and royalties. Propane, relative to other forms of energy, is gaining recognition as an environmentally superior, safe, convenient, efficient and easy-to-use energy source in many applications. The other significant trend affecting the propane segment in recent years is the energy conservation trend, which from time to time has negatively impacted the demand for energy by both residential and commercial customers. However, following the December 28, 1997 adoption of certain amendments to the partnership agreements of National Propane Partners, L.P. (the "Partnership") and a subpartnership, National Propane, L.P. (the "Operating Partnership"), although National Propane is the sole managing general partner, the Company no longer has substantative control over the Partnership to the point where it now exercises only significant influence and, accordingly, accounts for its investment in the Partnership on the equity basis. As a result, the trends affecting the propane segment in the future will continue to affect consolidated results of operations through the Company's equity in earnings or losses of the Partnership. 1997 COMPARED WITH 1996 Revenues decreased $66.9 million to $861.3 million for 1997 principally reflecting a $157.5 million decrease due to the April 29, 1996 sale of the Company's textile business segment other than its specialty dyes and chemicals business (the "Textile Business") and a $154.4 million decrease due to the May 5, 1997 sale of the company-owned stores of the restaurant segment. The dyereduction in revenues as a result of these business dispositions was partially offset by sales in 1997 associated with (i) Snapple Beverage Corp. ("Snapple"), a producer and chemical businessseller of premium beverages acquired by the Company from The Quaker Oats Company ("Quaker") on May 22, 1997 (the "Snapple Acquisition") of $284.2 million and (ii) Cable Car Beverage Corporation ("Cable Car"), a marketer of premium soft drinks acquired by the Company on November 25, 1997 (the "Stewart's Acquisition") of $1.3 million (see further discussion below under "Liquidity and Capital Resources"). Aside from the effects of these transactions, revenues decreased $40.5 million. A discussion of such change in revenues by segment is as follows: Beverages - Aside from the effects of the Snapple Acquisition and the Stewart's Acquisition in the 1997 period, revenues decreased $38.9 million (12.6%) due to decreases in sales of finished goods ($31.3 million) and concentrate ($7.6 million). The decrease in sales of finished goods principally reflects (i) the absence in the 1997 period of 1996 sales to MetBev, Inc. ("MetBev"), a former distributor of the Company's beverage products in the New York City metropolitan area, and a volume decrease in sales of branded finished products of Royal Crown Company, Inc. ("Royal Crown"), a wholly-owned subsidiary of the Company, in areas other than those serviced by MetBev (where in both instances the Company now sells concentrate rather than finished goods), (ii) lower sales of premium beverages exclusive of Snapple, (iii) a volume decrease in sales of the C&C beverage line of mixers, colas and flavors (where the Company now sells concentrate to the purchaser of the C&C beverage line rather than finished goods), the rights to which (including the C&C trademark) were sold in July 1997 (the "C&C Sale") as described below and (iv) a volume reduction in the sales of finished Royal Crown Premium Draft Cola ("Draft Cola") which the Company no longer sells. Sales of concentrate decreased, despite the shift in sales to concentrate from finished goods noted above, principally reflecting (i) a decrease in branded sales due to volume declines, which were adversely affected by lower bottler case sales and (ii) an overall lower average concentrate selling price. Restaurants - Aside from the effect on sales of the RTM Sale, revenues increased $6.5 million (4.8%) to $140.4 million due to a $9.0 million (15.7%) increase in royalties and franchise fees partially offset by a $2.5 million (3.2%) decrease in net sales of company-owned Arby's restaurants through the date of the May 5, 1997 RTM Sale, compared with the comparable 1996 period. The increase in royalties and franchise fees is due to (i) incremental royalties of $6.2 million for the period from May 5, 1997 through December 28, 1997 from the 355 restaurants sold to RTM, (ii) a net increase of 69 (2.6%) franchised restaurants other than from the RTM Sale and (iii) a 1.7% increase in same-store sales of franchised restaurants. Propane - Revenues decreased $8.1 million (4.7%) due to (i) the effect of lower propane volume reflecting warmer weather in the 1997 period and customer energy conservation and customer turnover due to higher propane selling prices, which factors were partially offset by additional sales volume from acquisitions of propane distributorships and the opening of new service centers, (ii) a decrease in average selling prices due to a shift in customer mix toward lower-priced non-residential accounts and (iii) a decrease in revenues from other product lines. Gross profit (total revenues less cost of sales) increased $68.1 million to $389.4 million in 1997 reflecting in part gross profit in 1997 associated with Snapple ($119.9 million) and Cable Car ($0.4 million), partially offset by the nonrecurring 1996 gross profit associated with the Textile Business ($16.7 million) and the company-owned Arby's restaurants sold to RTM ($36.9 million). Aside from the effects of these transactions, gross profit increased $1.4 million due to higher overall gross margins substantially offset by the lower overall revenues discussed above. A discussion of the changes in gross margins by segment, which increased in the aggregate to 46.7% from 43.4% aside from the effects of the transactions noted above, is as follows: Beverages - Aside from the effects of the Snapple Acquisition and Stewart's Acquisition in 1997, margins increased to 56.8% from 54.0% principally due to the shift in product mix to higher- margin concentrate sales compared with finished product sales discussed above. Restaurants - Aside from the effect on sales of the RTM Sale, margins increased to 57.8% from 44.9% primarily due to (i) the higher percentage of royalties and franchise fees (with no associated cost of sales) to total revenues in 1997 due to the RTM Sale discussed above and (ii) the absence in 1997 of depreciation and amortization on all long-lived restaurant assets which had been written down to their estimated fair values as of December 31, 1996 and were no longer depreciated or amortized through their May 5, 1997 date of sale. Propane - Margins decreased to 20.9% from 23.4% due to (i) the shift in customer mix to non-residential customers for whom margins are lower and (ii) an increase in operating costs (other than propane) which are not variable with revenues within a certain range. Advertising, selling and distribution expenses increased $42.4 million to $180.5 million in 1997 reflecting (a) the expenses of Snapple, (b) higher promotional costs related to Mistic Rain Forest Nectars, a recently introduced product line, and (c) other increased advertising and promotional costs for the premium beverages line other than Snapple, all partially offset by (a) a decrease in the expenses of the restaurant segment principally due to the cessation of local restaurant advertising and marketing expenses resulting from the RTM Sale, (b) a decrease in the expenses of the beverage segment exclusive of Snapple principally due to (i) lower bottler promotional reimbursements resulting from the decline in sales volume, (ii) the elimination of advertising expenses for Draft Cola and (iii) planned reductions in connection with the aforementioned decreases in sales of other Royal Crown and C&C branded finished products, and (c) nonrecurring expenses from the 1996 period related to the Textile Business sold in April 1996. General and administrative expenses increased $15.1 million to $143.0 million in 1997 due to (i) the expenses of Snapple, (ii) a nonrecurring credit in 1996 for the release of casualty insurance reserves and (iii) other inflationary increases, all partially offset by (i) expenses in 1996 related to the Textile Business, (ii) reduced spending levels related to administrative support, principally payroll, no longer required for the sold restaurants as a result of the RTM Sale and (iii) reduced travel activity in the restaurant segment prior to the RTM Sale. The 1997 facilities relocation and corporate restructuring charge of $7.1 million principally consists of employee severance and related termination costs and employee relocation associated with restructuring the restaurant segment in connection with the RTM Sale and, to a lesser extent, costs associated with the relocation (the "Royal Crown Relocation") of the Fort Lauderdale, Florida headquarters of Royal Crown, which has been centralized in the White Plains, New York headquarters of the Triarc Beverage Group (consisting of Mistic Brands, Inc. ("Mistic"), a wholly-owned subsidiary of the Company, and Snapple). The 1996 facilities relocation and corporate restructuring charge of $8.8 million results from (i) estimated losses on planned subleases (principally for the write-off of nonrecoverable unamortized leasehold improvements and furniture and fixtures) of surplus office space as a result of the then planned sale of company-owned restaurants and the Royal Crown Relocation, (ii) employee severance costs associated with the Royal Crown Relocation, (iii) costs of terminating a beverage distribution agreement, (iv) costs of the shutdown of the beverage segment's Ohio production facility and other asset disposals, (v) consultant fees paid associated with combining certain operations of Royal Crown and Mistic and (vi) costs related to the then planned spinoff of the Company's restaurant/beverage group (see below under "Liquidity and Capital Resources"). Acquisition related costs of $31.8 million in 1997 are attributed to the Snapple Acquisition and the Stewart's Acquisition during 1997 and consist of (i) a write-down of glass front vending machines based on the Company's change in estimate of their value considering the Company's plans for their future use, (ii) a provision for additional reserves for legal matters based on the Company's change in Quaker's estimate of the amounts required reflecting the Company's plans and estimates of costs to resolve such matters, (iii) a provision for additional reserves for doubtful accounts of Snapple and the effect of the Snapple Acquisition on MetBev based on the Company's change in estimate of the related write-off to be incurred, (iv) a provision for fees paid to Quaker pursuant to a transition services agreement whereby Quaker provided certain operating and accounting services for Snapple through the end of the Company's second quarter, (v) the portion of the textile segmentpost-acquisition period promotional expenses the Company estimates is related to the pre-acquisition period as a result of the Company's current operating expectations, (vi) a provision for certain costs in connection with the successful consummation of the acquisition of Snapple and the Mistic refinancing in connection with entering into the Credit Agreement (see below under "Liquidity and Capital Resources"), (vii) a provision for costs, principally for independent consultants, incurred in connection with the data processing implementation of the accounting systems for Snapple (under Quaker, Snapple did not have its own independent data processing accounting systems), including costs incurred relating to an alternative system that was not implemented and (viii) an acquisition related sign-on bonus. No provision for reduction in carrying value of long-lived assets impaired or to be disposed of was required for 1997. The 1996 reduction in carrying value of long-lived assets impaired or to be disposed of is discussed below under "1996 Compared with 1995". Interest expense was relatively unchanged in 1997, decreasing $0.6 million to $71.6 million. Lower average levels of debt reflecting (a) the full year effect of 1996 repayments prior to maturity of (i) $191.4 million of debt of the Textile Business in connection with its sale on April 29, 1996, (ii) $34.7 million principal amount of a 9 1/2% promissory note (the "9 1/2% Note") on July 1, 1996 and (iii) $36.0 million principal amount of the Company's 11 7/8% senior subordinated debentures due February 1, 1998 (the "11 7/8% Debentures") on February 22, 1996 and (b) the 1997 assumption by RTM of an aggregate $69.6 million of mortgage and equipment notes payable and capitalized lease obligations in connection with the RTM Sale on May 5, 1997, were substantially offset by the effects of borrowings by Snapple (see below under "Liquidity and Capital Resources") in connection with the May 22, 1997 Snapple Acquisition ($222.4 million outstanding as of December 28, 1997). Gain on sale of businesses, net, of $5.0 million in 1997 consists of (i) a gain from the receipt by Triarc of distributions from National Propane Partners, L.P. (the "Partnership"), a limited partnership 42.7% owned by National Propane Corporation ("National Propane"), a wholly-owned subsidiary of the Company, in excess of its 42.7% equity in earnings of the Partnership (see further discussion below under "Liquidity and Capital Resources") and (ii) a gain on the C&C Sale, partially offset by a loss on the RTM Sale. Gain on sale of businesses, net of $77.0 million in 1996 resulted from a pretax gain from the July 1996 sale of a 55.8% interest in the Partnership (such percentage increased to 57.3% as a result of the sale of an additional 0.4 million common units representing limited partner interests (the "Common Units") in November 1996) partially offset by (i) a pretax loss on the sale of the Textile Business and (ii) a pretax loss associated with the write-down of MetBev. Investment income, net increased $4.7 million to $12.8 million in 1997 principally reflecting an increase in realized gains on the sales of short-term investments in 1997 which may not recur in future periods. Other income (expense), net improved $4.0 million to income of $3.9 million in 1997 principally due to (i) a reversal of legal fees incurred in prior years as a result of a cash settlement received from Victor Posner ("Posner"), the former Chairman and Chief Executive Officer of the Company, and an affiliate of Posner during 1997, (ii) a gain on lease termination for a portion of the space no longer required in the Fort Lauderdale facility due to staff reductions as a result of the RTM Sale and the Royal Crown Relocation, (iii) other income, net of Snapple since its acquisition in May 1997 consisting principally of equity in the earnings of investees and rental income and (iv) increased gains on other asset sales, all partially offset by a provision for a settlement during 1997 in connection with the Company's investment in a joint venture with Prime Capital Corporation. The Company's benefit from income taxes for 1997 represented an effective rate of 21% which differs from the Federal income tax statutory rate of 35% principally due to the effect of the amortization of nondeductible costs in excess of net assets of acquired companies ("Goodwill"). The Company had a provision for income taxes in 1996 despite a pretax loss due to (i) a nondeductible loss on the sale of the Textile Business associated with the write-off of unamortized Goodwill, (ii) an additional provision for income tax contingencies, (iii) the effect of the amortization of nondeductible Goodwill and (iv) the effect of net operating losses for which no tax benefit was available. The minority interests in net income of a consolidated subsidiary (the Partnership) increased $0.4 million to $2.2 million due to the full year effect in 1997 of the limited partners' 57.3% interests (principally sold in July 1996) in the net income of the Partnership partially offset by lower net income of the Partnership (excluding an extraordinary charge in 1996 which was allocated entirely to the Company with no minority interest). As discussed further below under "Liquidity and Capital Resources", effective December 28, 1997 the Company accounts for its interest in the Partnership using the equity method of accounting. Income from discontinued operations increased $15.5 million to $20.7 million in 1997 due to the gain, net of income taxes, on the C.H. Patrick Sale, partially offset by lower income from the operations of C.H. Patrick. Such lower income from operations principally reflected the effects of price competition pressures and a cyclical downturn in the denim segment of the textile industry in which C.H. Patrick's dyes are used. The extraordinary charges in 1997 result from (i) the May 1997 assumption by RTM of mortgage and equipment notes payable in connection with the RTM Sale, (ii) the refinancing of the bank facility of Mistic and (iii) the repayment of all borrowings under the credit agreement of C.H. Patrick in connection with its sale (see "Liquidity and Capital Resources"). The extraordinary charges in the 1996 period result from the early extinguishment of (i) almost all of the long-term debt of National Propane refinanced in connection with the formation of the Partnership, (ii) the 9 1/2% Note, (iii) all debt of the Textile Business and (iv) the 11 7/8% Debentures. 1996 COMPARED WITH 1995 Revenues decreased $213.8 million to $928.2 million in 1996 principally reflecting a $348.2 million decrease due to the April 29, 1996 sale of the Textile Business) is subject to cyclical economic trends and foreign competition that affect the domestic textile industry. This competition creates pricing pressure which is passed along to the suppliers of the textile industry who are then forced to absorb price decreases or surrender business. This situation has been further exacerbatedBusiness partially offset by (i) the rapid growth of producers in China and India resulting in exports to the United States markets in the domestic dye and chemical industry and (ii) the establishment by European dye and chemical and fabric manufacturers of joint ventures in Asian countries where labor, raw material and environmental costs are lower. 1996 COMPARED WITH 1995 Revenues, excluding sales of $505.7 million and $157.5 million for 1995 and 1996, respectively, associated with the Textile Business sold on April 29, 1996 (see below), increased $153.2 million (22.6%) to $831.8 million in 1996. Beverages - Revenues increased $94.6 million (44.1%) to $309.1 million due to (i) $89.2$89.1 million of higher revenues from Mistic Brands, Inc. ("Mistic"), the Company's premium beverage business, reflecting the 1996 full year effect of the Mistic acquisition on August 9, 1995 (ii) a $6.9Mistic acquisition. Aside from the effects of these transactions, revenues increased $45.3 million. A discussion of such change by segment is as follows: Beverages - Revenues increased $5.4 million (3.1%) to $178.1 million due to (i) an increase in finished beverage product sales (as opposed to concentrate) and (iii)(ii) a $1.7 million volume increase in private label concentrate sales, allboth partially offset by a $3.2 million decrease in branded concentrate sales. Restaurants - Revenues increased $15.6 million (5.7%) to $288.3 million due to (i) a $14.1 millionan increase in net sales principally resulting from the inclusion in 1996 of a full year of net sales for the 85 company-owned restaurants added in 1995 (net of closings) and a 0.5%an increase in same-store sales and (ii) a $1.5 millionan increase in royalties and franchise fees primarily resulting from a net increase of 90 (3.5%) franchised restaurants, a 0.8% increase in same-store sales of franchised restaurants and a 2.0% increase in average royalty rates due to the declining significance of older franchise agreements with lower rates, the effects of which were partially offset by a $1.8 million decrease in franchise fees resulting from fewer franchise store openings in 1996. Propane - Revenues increased $24.3 million (16.3%) to $173.3 million due to the effect of higher selling prices of $15.8 million resulting from passing on a portion of higher propane costs to customers and higher volume of $9.4 million primarily resulting from an increase in gallons sold to non-residential customers, both partially offset by a $0.9 million decrease in revenues from other product lines. Textiles - (including specialty dyes and chemicals) - As discussed further below in "Liquidity and Capital Resources", on April 29, 1996 the Company sold its textile business segment other than its specialty dyes and chemical business and certain other excluded assets and liabilities (the "Textile Business"). Principally as a result of such sale, revenues of the Textile Business decreased $329.3Gross profit increased $14.6 million (60.1%) to $218.6 million. In addition, lower revenues ($16.3 million) of the Textile Business in the four-month period ended April 1996 compared with the comparable 1995 period contributed to the decrease principally reflecting lower volume due to weak demand for utility wear fabrics ($15.9 million). Overall revenues of the specialty dyes and chemicals business decreased $0.6 million (0.9%) while revenues of this business reported in consolidated "Net sales" in the accompanying condensed consolidated statements of operations increased $18.9 million (44.7%) to $61.1$321.3 million in 1996 as revenues from sales of $19.2principally reflecting a $33.9 million to the purchaser of the Textile Business subsequent to the April 29, 1996 sale of the Textile Business were no longer eliminatedincrease in consolidation as intercompany sales. Gross profit (total revenues less cost of sales), excluding gross profit of $44.9 million and $16.9 million for 1995 and 1996, respectively, associated with the Textile Business, increased $40.9 million to $320.3 million in 1996. Such increase is principally due to $34.0 million of higher gross profit due to the full year effect of the Mistic acquisition in 1996. In addition, gross profit was positively impacted by overall higher revenues in the Company's other businesses partially offset by lower overall gross margins in such businesses. Beverages - Margins decreased to 54.0% from 61.5% due to the full year effect in 1996 of Mistic partially offset by a $28.0 million decrease principally due to the nonrecurring gross profit of the Textile Business for the period from April 29, 1995 through December 31, 1995 resulting from its sale. Aside from the inclusioneffects of these transactions, gross profit increased $8.7 million. A discussion of gross margins by segment, which decreased in the aggregate to 39.7% from 41.3% aside from the effects of the transactions noted above, is as follows: Beverages - Margins decreased to 65.4% from 66.9% due to the increased sales of lower-margin finished product sales principally associated with Mistic (38.5% gross margin in 1996) compared with margins from concentrate sales.noted above and lower average selling prices for branded concentrate. Restaurants - Margins increased to 33.7% from 33.0% primarily due to lower beef costs and health insurance costs and an improvement in labor efficiencies due to fewer new store openings and related start-up costs in 1996 versus 1995, the effects of which were partially offset by a slightly lower percentage of royalties and franchise fees (with no associated cost of sales) to total revenues. Propane - Margins decreased to 23.4% from 26.8% due to higher propane costs that could not be fully passed through to customers, a shift in customer mix toward lower-margin commercial accounts, slightly higher operating expenses attributable to the increased cost of fuel for delivery vehicles and start-up costs of six new propane plants opened in the last quarter of 1995 and the first half of 1996. Textiles - As noted above, the Textile Business was sold in April 1996. As a result, for the year ended December 31, 1996, margins for this segment increased to 14.9% from 11.4% reflecting the higher-margin revenues of the remaining specialty dyes and chemicals business. Margins for the specialty dyes and chemicals business decreased to 22.3% from 24.6% due to weak pricing reflecting competitive pressures currently being experienced in the textile industry. Advertising, selling and distribution expenses increased $10.5$10.1 million to $139.7$138.1 million in 1996 due to (i) $21.4 million of expenses associated with Mistic resulting from (a) the 1996 full year effect of its August 1995 acquisition and, to a lesser extent, (b) the nonrecurring effect of cooperative advertising reimbursements to Mistic by distributors in 1995 which program was discontinued in 1996 and replaced by increased selling prices and (ii) $3.4 million of higher advertising costs in the restaurant segment primarily in response to competitive pressures, a larger company-owned store base and multi-brand restaurant development. Such increases were partially offset by (i) $9.4 million of decreases related to the beverage segment other than Mistic reflecting (a) a net reduction in media spending for branded concentrate products and Royal Crown Premium Draft Cola ("Draft Cola"), for which there had been higher costs in connection with its launch in mid-1995 and (b) lower beverage coupon costs reflecting reduced bottler utilization and (ii) a $5.1 million decrease reflecting the sale of the Textile Business in April 1996. General and administrative expenses decreased $15.5$13.3 million to $131.4$127.9 million in 1996 resulting from $16.4 million of lower expenses of the textile segment primarily reflecting the sale of the Textile Business and net decreases in the remaining operations of the Company principally reflecting the effect of cost reduction efforts and non-recurring 1995 charges including (i) $2.7 million relating to the settlement of a patent infringement lawsuit, (ii) $2.2 million of increased amortization of restricted stock reflecting $3.3 million of accelerated vesting in 1995 of all grants of such stock and (iii) $2.1 million(ii) charges for the closing of certain unprofitable restaurants. Such decreases were partially offset by $8.6 million of higher expenses resulting from the full year effect of Mistic in 1996. The 1995 and 1996 reductions in carrying value of long-lived assets impaired or to be disposed of result from the application of the evaluation measurement requirements under Statement of Financial Accounting Standards No.121,("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which was adopted in 1995. The 1996 provision of $64.3 million was recorded principally to reduce the carrying value of certain long-lived assets and certain identifiable intangibles to estimated fair value principally relating to the estimated loss on the anticipated disposal of long-lived assets in connection with the planned sale of all company-owned restaurants (see further discussion below under "Liquidity and Capital Resources").restaurants. The reduction in carrying value of long-lived assets impaired or to be disposed of in the amount of $14.6 million in 1995 reflects a $12.0 million reduction in the net carrying value of certain restaurants and other long-lived restaurant assets which were determined to be impaired and a $2.6 million reduction in the net carrying value of certain other restaurants and equipment to be disposed of. The 1996 facilities relocation and corporate restructuring charge of $8.8 million results from (i) $3.7 million of estimated losses on planned subleases (principally for the write-off of nonrecoverable unamortized leasehold improvements and furniture and fixtures) of surplus office space in excess of anticipated sublease proceeds as a result of the planned sale of company-owned restaurantsis discussed below under "Liquidity and Capital Resources" and the relocation of the headquarters of Royal Crown Company, Inc. ("Royal Crown") which are being centralized with Mistic's offices in White Plains, New York, (ii) $2.2 million of employee severance costs associated with the relocation of Royal Crown's headquarters, (iii) $1.3 million for terminating a beverage distribution agreement, (iv) $0.6 million for the shutdown of the beverage segment's Ohio production facility and other asset disposals, (v) $0.6 million for consultant fees paid associated with combining certain operations of Royal Crown and Mistic and (vi) $0.4 million of costs related to the planned spinoff of the Company's restaurant/beverage group discussed below under "Liquidity and Capital Resources".above. The 1995 charge of $2.7 million principally reflected severance costs for terminated corporate employees. Prior to 19941995 the Company had fully reserved for secured receivables from Pennsylvania Engineering Corporation ("PEC"), a former affiliate which had filed for protection under the bankruptcy code. In 1995 the Company received $3.0 million with respect to amounts owed to the Company by PEC representing the Company's allocated portion of the bankruptcy settlement; such amount was classified as "Recovery of doubtful accounts of affiliates and former affiliates" in the accompanying consolidated statement of operations. Interest expense decreased $10.8$13.1 million to $73.4$71.0 million in 1996 due to lower average levels of debt reflecting repayments prior to maturity of (i) $191.4 million of debt of the Textile Business in connection with its sale on April 29, 1996, (ii) the $36.0 million principal amount of the Company's 11 7/8% senior subordinated debentures due February 1, 1998 (the "11 7/8% Debentures")Debentures on February 22, 1996 and (iii) $34.7 million principal amount of athe 9 1/2% promissory note (the "9 1/2% Note")Note on July 1, 1996, partially offset by (i) the full year effect in 1996 of (a)(i) borrowings resulting from the Mistic acquisition ($68.7 million outstanding as of December 31, 1996) and (b)(ii) financing for capital spending at the restaurant segment principally during the second through fourth quarters of 1995 ($58.4 million outstanding as of December 31, 1996) and (ii) borrowings under the Patrick Facility (see discussion below under "Liquidity and Capital Resources") entered into in May 1996 ($33.9 million outstanding as of December 31, 1996). Gain on salessale of businesses, net of $77.0 million in 1996 resulted from an $85.2 million pretax gain resulting from the sale of a 57.3% interest in National Propane Partners, L.P. (the "Partnership"), a partnership formed by National Propane Corporation ("National Propane"), a wholly-owned subsidiary of the Company, to acquire, own and operate the propane business (see further discussion below under "Liquidity and Capital Resources") partially offset by (i) a $4.5 million pretax loss on the sale of the Textile Business and (ii) a $3.7 million pretax loss associated with the write-down of MetBev, Inc. ("MetBev"), a distributor of the Company's beverage products in the New York City metropolitan area.is discussed above. Loss on sale of businesses, net in 1995 of $0.1 million reflects a $1.0 million write-down of MetBev substantially offset by $0.9 million of gains related to the sales of the natural gas and oil businesses. OtherInvestment income, net decreased $4.3increased $5.7 million to $8.0$8.1 million in 1996. This was1996 principally due to a nonrecurring 1995 gain of $11.9 million on the sale of excess timberland partially offset by (i) increased interest income of $5.1 million from the Company's increased portfolio of cash equivalents and debt securities as a result of proceeds in connection with the sale of (a) a(i) the 57.3% interest in the Partnership and (b)(ii) the Textile Business and (ii) otherBusiness. Other income, net improvements.decreased $16.9 million to expense of $0.1 million in 1996 due to nonrecurring 1995 gains principally from the sale of excess timberland. The Company's provision fromfor income taxes for 1996 represented an effective rate of 244% which differs from the Federal income tax statutory rate of 35% principally due to (i) a non-deductible loss on the sale of the Textile Business of $2.9 million, or 63%, (ii) an additional provision for income tax contingencies of $2.6 million, or 56%, (iii) the effect of the amortization of nondeductible costs in excess of net assets of acquired companies ("Goodwill") of $2.2 million, or 47%, and (iv) the effect of net operating losses for which no tax benefit is available of $1.3 million, or 27%.discussed above. The Company's benefit from income taxes for 1995 represented an effective rate of 3%6% which was significantly less than the statutory rate principally due to (i) a provision for income tax contingencies relating to the examination of the Company's income tax returns for the years 1989 through 1992, of $6.1 million, or 16%, (ii) nondeductible amortization of Goodwill of $2.3 million, or 6% and (iii) nondeductible amortization of restricted stockstock. Income from discontinued operations increased $2.8 million to $5.2 million in 1996 reflecting nonrecurring 1995 charges of $1.4 million, or 4%.C.H. Patrick consisting of (i) equity in losses and write-off of an equity investment and (ii) a charge relating to the settlement of a patent infringement lawsuit, partially offset by the effects of an increase in interest expense and weak pricing due to competitive pressures. The minority interests in net income of consolidated subsidiary of $1.8 million in 1996 represent the limited partners' interest in the net income of the Partnership since the sale of such interest in July 1996 (see further discussion below under "Liquidity and Capital Resources"). The extraordinary items aggregating a charge of $5.4 million in 1996 result from the early extinguishment of the 11 7/8% Debentures on February 22, 1996, all of the debt of TXL Corp. ("TXL", formerly Graniteville Company), a wholly-owned subsidiary of the Company,Textile Business, including its credit facility, in connection with theits sale of the Textile Business on April 29, 1996, and substantially all of the long-term debt of National Propane and the 9 1/2% Note in July 1996, and consist of (i) the write-off of $10.4 million of unamortized deferred financing costs and $1.8 million of unamortized original issue discount, (ii) the payment of prepayment penalties and related costs of $5.7 million and (iii) fees, of $0.3 million, partially offset by (i) discount from principal of $9.2 million on the early extinguishment of the 9 1/2% Note and (ii) income tax benefit of $3.6 million. 1995 COMPARED WITH 1994 Revenues increased $121.7 million (11.5%) to $1,184.2 million in 1995. Restaurants - Revenues increased $49.6 million (22.2%) due to (i) $50.1 million of net sales resulting from 85 additional company-owned restaurants (including acquired restaurants) to a total of 373 at the end of 1995, partially offset by a $5.3 million decrease in company-owned store sales due primarily to increased competitive discounting and a decline in customer orders, (ii) a $3.5 million increase in royalties resulting from a net increase of 77 franchised restaurants, a 3.3% increase in average royalty rates due to the declining significance of older franchise agreements with lower rates, and a 0.9% increase in franchised same-store sales and (iii) a $1.3 million increase in franchise fees and other revenues. Beverages - Revenues increased $63.8 million (42.3%) consisting principally of (i) $41.9 million of revenues from Mistic and (ii) $20.8 million of finished beverage product sales (as opposed to concentrate) arising from the Company's January 1995 acquisition of TriBev Corporation ("TriBev"). The remaining increase reflected sales from the launch of Draft Cola in the New York and Los Angeles metropolitan areas during the second quarter of 1995. Textiles - Revenues increased $11.0 million (2.0%) principally reflecting higher sales of indigo-dyed sportswear ($33.8 million) and utility wear ($8.9 million) significantly offset by lower sales of piece- dyed sportswear ($27.6 million) and specialty products ($3.7 million). Selling prices for the utility wear and sportswear product lines rose reflecting the partial pass-through of higher cotton and polyester costs and indigo-dyed sportswear was positively impacted by higher volume amounting to $21.1 million due to improved market conditions reflecting the continued turnaround (since late 1994) in the denim market. The decrease in piece-dyed sportswear revenue was attributable to a poor retail market. Propane - Revenues decreased $2.7 million principally due to reduced propane sales volume reflecting the exceptionally warm weather in the first quarter of 1995 partially offset by the impact of acquisitions. Gross profit increased $11.7 million to $324.3 million in 1995 due to the operating results of the 1995 acquisition of (i) Mistic ($16.5 million) and (ii) TriBev ($2.4 million), offset by lower margins in the existing businesses. Restaurants - Margins decreased to 33.0% from 37.3% due primarily to (i) $3.0 million of costs associated with replacing the point-of-sale register system in all domestic company-owned restaurants and (ii) start-up costs associated with the significantly higher number of new restaurant openings (49 in 1995 versus 9 in 1994). Also affecting margins was the lower percentage of royalties and franchise fees to total revenues. Beverages - Margins decreased to 61.5% from 76.5% principally due to the inclusion in 1995 of the lower-margin finished product sales associated with Mistic (39.3%) and TriBev (11.4%) and lower margins associated with the finished product sales of Draft Cola noted above. Textiles - Margins decreased to 11.4% from 13.4% principally due to the higher raw material cost of cotton (which reached its highest levels this century) and polyester and other manufacturing cost increases in 1995 which could not be fully passed on to customers in the form of higher selling prices. Propane - Margins decreased to 26.8% from 27.7% due to higher propane costs which could only be partially passed on to customers in the form of higher selling prices because of increased competition as a result of the continuing effects of the substantially warmer weather in the first quarter of 1995. Advertising, selling and distribution expenses increased $19.5 million to $129.2 million in 1995, of which $10.3 million relates to the results of the acquired beverage operations. The remaining increase of $9.2 million reflects (i) higher expenses in the beverage segment, reflecting increased spending in connection with the introduction of Draft Cola, and (ii) higher expenses in the restaurant segment primarily attributable to the increased number of company-owned restaurants and increased promotional food costs relating to competitive discounting. General and administrative expenses increased $21.7 million to $146.8 million in 1995 of which $7.5 million relates to the results of the Mistic acquisition. Among the factors causing the remaining increase of $14.2 million are (i) $7.0 million of increases in the restaurant and beverage segments in employee compensation, relocation and severance costs principally associated with building an infrastructure to facilitate the then growth plans primarily in the restaurant segment, (ii) a $2.7 million charge relating to the settlement of a patent infringement lawsuit, (iii) a $2.2 million increase in amortization of restricted stock reflecting $3.3 million of accelerated vesting in 1995 of all grants of such stock, (iv) a $2.1 million provision for the closing of certain unprofitable restaurants and (v) other general inflationary increases. The 1995 $14.6 million reduction in carrying value of long-lived assets impaired or to be disposed of, the $2.7 million facilities relocation and corporate restructuring charge and the $3.0 million recovery of doubtful accounts of affiliates and former affiliates are discussed above. The 1994 facilities relocation and corporate restructuring charges of $8.8 million consisted of (i) costs associated with the relocation of Triarc's corporate office from West Palm Beach, Florida to New York City and (ii) severance costs related to terminated corporate employees. Interest expense increased $11.2 million to $84.2 million in 1995 due to higher average levels of debt reflecting the Mistic acquisition and financing for higher capital spending at the restaurant segment and, to a lesser extent, higher interest rates on certain of the Company's floating rate debt. Loss on sale of businesses, net in 1995 of $0.1 million is discussed above. Gain on sale of businesses in 1994 of $6.0 million resulted from the sale of the Company's natural gas and oil business. Other income, net increased $13.5 million to $12.3 million in 1995 principally due to the $11.9 million gain on sale of excess timberland. The Company's benefit from income taxes for 1995 represented an effective rate of 3% which differed from the statutory rate due to the reasons previously discussed. The 1994 rate of 199% differed due to (i) the amortization of Goodwill and (ii) state income taxes which exceed pretax losses due to the effect of losses in certain states for which no benefit is available, partially offset by the release of valuation allowances in connection with the utilization of operating loss, depletion and tax credit carryforwards from prior periods. The minority interest in income of consolidated subsidiaries of $1.3 million in 1994 represents the minority interest in the income of Southeastern Public Service Company ("SEPSCO"), a 71.1% owned subsidiary of Triarc until the 28.9% minority ownership was acquired on April 14, 1994 (see Note 26 to the consolidated financial statements). The loss from discontinued operations of $3.9 million in 1994 reflects the revised estimate of the loss on disposal of the Company's utility and municipal services and refrigeration businesses. Such loss reflects increased estimates of $6.4 million from the nonrecognition of notes received as partial proceeds on the sale of certain businesses and operating losses of $2.0 million through their respective dates of disposal, less minority interests and income tax benefit aggregating $4.5 million. The additional operating loss reflects delays in disposing of the businesses from the estimated disposal dates as of December 31, 1993. The extraordinary charge in 1994 of $2.1 million represents a loss, net of tax benefit, resulting from the early extinguishment in October 1994 of National Propane's 13 1/8% senior subordinated debentures due March 1, 1999 which were refinanced with a revolving credit and term loan facility. Such charge was comprised of the write-offs of unamortized deferred financing costs of $0.9 million and of unamortized original issue discount of $2.6 million offset by $1.4 million of income tax benefit. LIQUIDITY AND CAPITAL RESOURCES Consolidated cash and cash equivalents (collectively "cash") and short-term investments increased $134.5decreased $30.3 million during 19961997 to $206.1$175.6 million of which cash increased $90.2decreased $24.7 million to $154.4$129.5 million. Such increasedecrease in cash primarily reflects cash provided byused in (i) operatinginvesting activities of $34.8$260.6 million and (ii) investing activitiesdiscontinued operations of $161.0$23.7 million, and the effect of the deconsolidation of the propane business (the "Deconsolidation") of $4.6 million, partially offset by cash used inprovided by (i) financing activities of $107.3$210.2 million and (ii) operating activities of $54.0 million. The net cash used in investing activities reflects (i) $311.9 million for the Snapple Acquisition (see below), (ii) other business acquisitions of $6.7 million and (iii) capital expenditures of $13.9 million, partially offset by (i) net proceeds from the C.H. Patrick Sale of $64.4 million, (ii) proceeds from sales of non-core businesses and properties of $4.4 million, (iii) net sales of investments of $2.5 million and (iv) other of $0.6 million. The cash used in discontinued and deconsolidated operations principally reflects the repayment of $31.4 million of C.H. Patrick's long-term debt. The net cash provided by financing activities reflects proceeds of $314.8 million from issuances of long-term debt including $300.0 million of term loan borrowings principally used to finance the Snapple Acquisition and to refinance the debt of Mistic under a new $380.0 million credit agreement (see below), partially offset by (i) long-term debt repayments of $79.0 million, including $70.9 million of Mistic's debt refinanced (ii) payment of deferred financing costs of $11.5 million, including $11.4 million in connection with the new $380.0 million credit agreement and (iii) $14.1 million of distributions paid on the common units in the Partnership. The net cash provided by operating activities principally reflects (a) non-cash charges for (i) the reduction in carrying value of long-lived assets of $64.3$59.2 million (ii)principally for depreciation and amortization of $52.7$44.3 million and (b) $12.7provision for acquisition related costs, net of payments, of $24.9 million less the reclassification of other adjustmentsincome from discontinued operations to reconcile net loss to net"Net cash provided by operating activities, partially offset byused in discontinued operations" of $20.7 million, the net loss of $13.9$3.6 million and an aggregate $77.0 million pretax gain on sale of businesses, net (the proceeds of which are reported as financing and investing activities, respectively,- see further discussion below) and cash used inby changes in operating assets and liabilities of $4.0$1.6 million. The cash used inby changes in operating assets and liabilities of $4.0$1.6 million reflects increases in inventories of $15.8 million and receivables of $12.2 million substantially offset by $23.2 million increase in accounts payable and accrued expenses. The increase in receivables reflected increased consolidated revenues, exclusive of those attributable to the Textile Business, in the fourth quarter of 1996 compared with the fourth quarter of 1995. The increase in inventories principally reflected higher inventories (i) of the textile segment prior to the April 29, 1996 sale of the Textile Business resulting from lower sales of the Textile Business in the first quarter of 1996 compared with the last quarter of 1995, (ii) of Mistic due to lower than expected sales reflecting a relatively cool and rainy peak spring and summer selling season (April to September) and (iii) of the propane segment reflecting higher product costs. The increasedecrease in accounts payable and accrued expenses was principallyof $31.4 million primarily due to the paydown of payables and accruals subsequent to the RTM Sale and C&C Sale which related to those sold operations and a decrease in the propane segment's payables (exclusive of the effect of the Deconsolidation, as discussed below) resulting from lower propane costs and timing of payments, partially offset by (i) a decrease in receivables of $17.4 million mainly due to a $21.9 million increase in accounts payable reflecting higher product costsdecrease in the propane segmentsegment's receivables due to the effect of lower selling prices and improved collections and a decrease in receivables of Snapple since its acquisition in May 1997 due to seasonally lower sales volume during the fourth quarterwinter months, (ii) a decrease in inventories of 1996 versus$5.8 million due to the fourth quarterseasonally lower requirements of 1995Snapple and higher consolidatedreduced quantities and unit costs of propane inventories other than the Textile Business, at December 31, 1996 compared28, 1997 and (iii) a decrease in prepaid expenses and other current assets of $6.6 million principally associated with December 31, 1995.the write-off of promotional materials of the beverage segment, prepaid rent no longer applicable as a result of the RTM Sale and the release of restricted cash. The Company expects continued positive cash flows from operations during 1997. The net cash provided by investing activities principally reflected net proceeds from the sale of the Textile Business discussed below of $236.8 million partially offset by (i) net purchases of short-term investments of $42.8 million, (ii) capital expenditures of $30.1 million and (iii) business acquisitions of $4.0 million. The net cash used in financing activities reflects long-term debt repayments of $413.2 million, including $191.4 million repaid in connection with the sale of the Textile Business (see below), and $128.5 million repaid in connection with the sale of partnership units in the Partnership in July 1996 (see below) and the refinancing of the propane business, partially offset by (i) the $124.7 million net proceeds from the sale of units in the Partnership, (ii) proceeds from long-term debt borrowings of $164.0 million including $125.0 million associated with the refinancing of the propane business and (iii) $30.0 million of restricted cash used to pay long-term debt.1998. Working capital (current assets less current liabilities) was $195.2$130.1 million at December 31, 1996,28, 1997, reflecting a current ratio (current assets divided by current liabilities) of 1.8:1.6:1. Such amount represents an increasea decrease in working capital of $36.9$65.1 million from December 31, 1996 reflecting (i) the $30.3 million decrease in cash and short-term investments discussed above, (ii) a $22.8 million net decrease in working capital associated with the provision for acquisition related costs, net of payments, (iii) $7.2 million associated with the Deconsolidation and (iv) other of $4.8 million which is net of $1.6 million of net increases in working capital from changes in operating assets and liabilities described above. The effects on working capital of business acquisitions and dispositions were mostly offsetting. In furtherance of the Company's growth strategy, the Company considers selective business acquisitions, as appropriate, to grow strategically and explores other alternatives to the extent it has available resources to do so. As described below, during 1997 the Company acquired Snapple for $311.9 million and Cable Car in exchange for Triarc class A common stock (the"Class A Common Stock"). In addition, the propane segment acquired six propane distributors for an aggregate of $9.2 million including cash of $8.5 million. On May 22, 1997 the Company acquired Snapple, a producer and seller of premium beverages, from Quaker for $311.9 million consisting of cash of $300.1 million, $9.3 million of fees and expenses and $2.5 million of deferred purchase price. The purchase price for the Snapple Acquisition was funded from (i) $75.0 million of cash and cash equivalents on hand and contributed by Triarc to Triarc Beverage Holdings Corp. ("TBHC"), a wholly-owned subsidiary of the Company and the parent of Snapple and Mistic, and (ii) $250.0 million of borrowings by Snapple on May 22, 1997 under a $380.0 million credit agreement, as amended (the "Credit Agreement"), entered into by Snapple, Mistic and TBHC (collectively, the "Borrowers"). On November 25, 1997 the Company acquired Cable Car, a marketer of premium soft drinks in the United States and Canada, primarily under the Stewart's (R) brand. The cost of the Stewart's Acquisition was $40.8 million consisting of (i) the $37.4 million value as of November 25, 1997 of 1,566,858 shares of Class A Common Stock issued in exchange for all of the outstanding stock of Cable Car, (ii) the $2.8 million value as of November 25, 1997 of 154,931 stock options issued in exchange for all of the outstanding stock options of Cable Car and (iii) $0.6 million of expenses. On July 18, 1997, the Company completed the C&C Sale consisting of its rights to the C&C beverage line of mixers, colas and flavors, including the C&C trademark and equipment related to the operation of the C&C beverage line, to Kelco Sales & Marketing Inc., for consideration of $0.8 million in cash and an $8.6 million note (the "Kelco Note") with a discounted value of $6.0 million consisting of $3.6 million relating to the C&C Sale and $2.4 million relating to future revenues for services to be performed over seven years. The Kelco Note is due in monthly installments of varying amounts of approximately $0.1 million through August 2004. On May 5, 1997 certain subsidiaries of the Company sold to RTM all of the 355 company-owned Arby's restaurants. The sales price consisted of cash and a promissory note (discounted value) aggregating $3.5 million (including $2.1 million of post-closing adjustments) and the assumption by RTM of mortgage and equipment notes payable to FFCA Mortgage Corporation ("FFCA") of $54.7 million (the "FFCA Borrowings") and capitalized lease obligations of $14.9 million. RTM now operates the 355 restaurants as a franchisee and pays royalties to the Company at a rate of 4% of those restaurants' net sales. As a result of the RTM Sale, the Company's remaining restaurant operations are exclusively franchising. The restaurant segment, without the operation of the company-owned restaurants, has begun to experience and will continue to benefit from improved cash flow as a result of (i) substantially reduced capital expenditures, (ii) higher royalty fees as a result of the aforementioned royalties relating to the restaurants sold to RTM and (iii) the reduction of operating costs, a process begun in the second quarter and whose full year effect should be realized in 1998. On December 23, 1997 the Company sold the stock of C.H. Patrick, its dyes and specialty chemicals subsidiary, to The B.F. Goodrich Company for $64.4 million in cash, net of estimated post-closing adjustments of $3.9 million and expenses of $3.7 million. The Company used a portion of such proceeds to repay all of the outstanding long-term debt of C.H. Patrick ($31.4 million) and accrued interest thereon ($0.6 million). The Credit Agreement consists of (i) a $300.0 million term facility of which $225.0 million and $75.0 million of loans (the "Term Loans") were borrowed by Snapple and Mistic, respectively, at the Snapple Acquisition date ($222.4 million and $74.1 million, respectively, outstanding at December 28, 1997) and (ii) an $80.0 million revolving credit line (the "Revolving Credit Line") which provides for revolving credit loans (the "Revolving Loans") by Snapple, Mistic or TBHC of which $25.0 million and $5.0 million were borrowed on the Snapple Acquisition date by Snapple and Mistic, respectively. The Revolving Loans were repaid prior to December 28, 1997 and no Revolving Loans were outstanding at December 28, 1997. The aggregate $250.0 million borrowed by Snapple was principally used to fund a portion of the purchase price for Snapple. The aggregate $80.0 million borrowed by Mistic was principally used to repay all of the $70.9 million then outstanding borrowings under Mistic's former bank credit facility plus accrued interest thereon. The borrowing base for Revolving Loans is the sum of 80% of eligible accounts receivable and 50% of eligible inventory. As of December 28, 1997, there was $32.5 million of borrowing availability under the revolving credit line in accordance with limitations due to such borrowing base. The Term Loans are due $9.5 million in 1998, $14.5 million in 1999, $19.5 million in 2000, $24.5 million in 2001, $27.0 million in 2002, $61.0 million in 2003, $94.0 million in 2004 and $46.5 million in 2005 and any Revolving Loans would be due in full in June 2003. The Borrowers must also make mandatory prepayments in an amount, if any, equal to 75% of excess cash flow, as defined. Under the definition of excess cash flow as of December 28, 1997, the Borrowers would have been obligated to make a mandatory prepayment in 1998 of $25.6 million plus an additional $15.9 million in 1998 attributable to those acqusition related costs which affect the working capital at December 31, 1995 of $158.3 million, which represented a current ratio of 1.6:1. The increase in working capital principally reflects an aggregate net increase in cash, cash equivalents and short-term investments reflecting net proceeds from sales of businesses (see further discussion below) substantially offset by (i) the working capital as of December 31, 1995 of the Textile Business sold in April 1996 and (ii) the effect of the proposed sale of restaurants to RTM (see below) consistingcomponent of the excess cash flow calculation. However, on March 25, 1998 the Borrowers obtained an amendment to the Credit Agreement dated March 23, 1998 revising the definition of (a) long-term debt to be assumed byexcess cash flow for the purchaser reclassified to current, (b) the accrualperiod May 22, 1997 through December 28, 1997 resulting in a reduction of the required prepayment to $2.8 million. Accordingly, the $2.8 million the Company is required to pay has been classified as current portion of operating lease payments not being assumed bylong-term debt in the purchaseraccompanying consolidated balance sheet at December 28, 1997 and (c) the accrualremaining $38.7 million that would have been required to be prepaid under the prior definition of other costs related to the sale, over the reclassification to current assets of assets held for sale.excess cash flow has been classified as non-current long-term debt. The $275.0 million aggregate principal amount of 9 3/4% senior secured notes due 2000 (the "9 3/4% Senior Notes") of RC/Arby's Corporation ("RCAC"), a wholly-owned subsidiary of Triarc, mature on August 1, 2000 and do not require any amoritzationamortization of the principal amount thereof prior to such date. Mistic maintains an $80.0The Company has $3.8 million credit agreement (as amended December 30, 1996, the "Mistic Bank Facility") with a group of banks. The Mistic Bank Facility consists of a $20.0and $0.5 million, revolving credit facility and a $60.0 million term facility. Borrowings under the revolving credit facility are due in their entirety in August 1999. However, Mistic must reduce the borrowings under the revolving credit facility for a period of thirty consecutive days between October 1 and March 31 of each year to less than or equal to (a) $12.5 million between October 1, 1996 and March 31, 1997 (such requirement has been met in February/March 1997) and (b) zero between October 1 and the following March 31 for each of the two years thereafter. There were $15.0 million of outstanding borrowings under the revolving credit facility and $53.8 million under the term facilityrespectively, as of December 31, 1996. The $53.8 million outstanding amount28, 1997 of the term facility amortizes $6.2 million in 1997, $10.0 million in 1998, $11.3 million in 1999, $15.0 million in 2000 and $11.3 million in 2001. As of December 31, 1996 Mistic effectively had no availability under the Mistic Bank Facility due to the fact that it was required to pay down its revolving credit borrowings to $12.5 million for thirty consecutive days prior to March 31. Following the paydown, Mistic had availability of approximately $2.0 million as of March 31, 1997. Two subsidiaries of RCAC maintain loan and financing agreements withremaining FFCA Mortgage Corporation ("FFCA") which, as amended, permit borrowings in the form of mortgage notes (the "Mortgage Notes") and equipment notes (the "Equipment Notes") aggregating $87.3 million (the "FFCA Loan Agreements"). The Mortgage Notesafter the assumption of the FFCA Borrowings. Such mortgage and Equipment Notesequipment notes are repayable in equal monthly installments, including interest, over twenty years and seven years, through 2016 and 2003, respectively. AsAmounts due under these notes in 1998 aggregate $0.7 million consisting of December 31, 1996, borrowings under the FFCA Loan Agreements aggregated $62.7$0.6 million (including cumulative repayments of $4.3to be assumed by RTM (and offset against a receivable from RTM for an equal amount) and $0.1 million through December 31, 1996) resultingto be paid in remaining availability of $24.6cash. The Company has a $40.7 million through December 31, 1997 to finance new company-owned restaurants whose sites are identifiedloan due to the lender by September 30, 1997 on terms similar to thosePartnership (the "Partnership Loan") which is due in annual installments of outstanding borrowings.approximately $5.1 million commencing 2003 through 2010 and, accordingly, does not require any principal payments in 1998. The assets of one ofPartnership Loan is included in the borrowers, Arby's Restaurant Development Corporation, will not be available to pay creditors of Triarc, RCAC or RCAC's subsidiary Arby's, Inc. ("Arby's") until all loans under the FFCA Loan Agreements have been repaid in full. As discussed below, in February 1997 the Company entered into an agreement to sell all of its restaurants and, if such sale is consummated on terms as they currently exist, the buyer would assume $54.7 million of borrowings under the FFCA Loan Agreements, and the Company would have no further availability under these financing agreements. On May 16, 1996 C.H. Patrick & Co., Inc. ("C.H. Patrick"), a wholly-owned subsidiary of TXL, entered into a $50.0 million credit agreement (the "Patrick Facility") consisting of a $15.0 million revolving credit facility with no outstanding borrowingsCompany's long-term debt as of December 31, 1996 and28, 1997 as a term loan facility consistingresult of two term loans (the "Term Loans") with aggregate outstanding balances of $33.9 million as of December 31, 1996. C.H. Patrick had $15.0 million of availability under the Patrick Facility as of December 31, 1996. The remaining balance of Term Loans amortizes $3.2 million in 1997, $2.9 million in 1998, $3.8 million in 1999, $4.4 million in 2000, $6.1 million in 2001, $10.4 million in 2002 and $3.1 million in 2003. On July 2, 1996, National (see below) issued $125.0 million of 8.54% first mortgage notes due June 30, 2010 (the "First Mortgage Notes") and repaid $128.5 million of National's long-term debt (including $123.2 million of outstanding borrowings under National's then existing bank facility (the "Former Propane Facility"). The First Mortgage Notes amortize in equal annual installments of $15.625 million commencing June 2003 through June 2010. On July 2, 1996, National entered into a $55.0 million bank credit facility (the "Propane Bank Credit Facility") with a group of banks. The Propane Bank Credit Facility includes a $15.0 million working capital facility (the "Working Capital Facility") and a $40.0 million acquisition facility (the "Acquisition Facility"), the use of which is restricted to business acquisitions and capital expenditures for growth. There were $6.0 million of outstanding borrowings under the Working Capital Facility and $1.9 million under the Acquisition Facility as of December 31, 1996 leaving remaining availability of $9.0 million and $38.1 million, respectively, as of December 31, 1996. Borrowings under the Working Capital Facility mature in their entirety in July 1999. However, the Partnership must reduce the borrowings under the Working Capital Facility to zero for a period of at least 30 consecutive days in each year between March 1 and August 31. The Acquisition Facility converts to a term loan in July 1998 and amortizes thereafter in twelve equal quarterly installments through July 2001.Deconsolidation. Under the Company's various debt agreements, substantially all of Triarc's and its subsidiaries' assets other than cash, and short-term investments and the assets of Cable Car are pledged as security. In addition, (i) obligations under (i) the 9 3/4% Senior Notes have been guaranteed by RCAC's wholly-owned subsidiaries, Royal Crown and Arby's, Inc. (d/b/a Triarc Restaurant Group - "TRG"), (ii) obligationsthe $125.0 million of 8.54% first mortgage notes due June 30, 2010 of the Partnership and $20.5 million outstanding under the First Mortgage Notes and the Propanea $55.0 million bank credit facility (the "Propane Bank Credit FacilityFacility") maintained by National Propane, L.P. (the "Operating Partnership"), a subpartnership of the Partnership, have been guaranteed by National Propane, a general partner of the Partnership and (iii) obligationsborrowings under loan agreements with FFCA (the "FFCA Loan Agreements") including (a) the Mistic Bank Facility, the Patrick Facility,FFCA Borrowings (approximately $53.1 million outstanding as of December 28, 1997) and $24.7(b) $4.3 million of borrowings underdebt retained by the FFCA Loan AgreementsCompany, have been guaranteed by Triarc. Assuming consummation of the RTM sale (see below), Triarc would remain contingently liable under the guarantee upon the failure, if any, of RTM and its acquisition entity to satisfy such obligation. As collateral for suchthe guarantees, all of the stock of Royal Crown Arby's, Mistic and C.H. PatrickTRG is pledged as well as approximatelyNational Propane's 2% unsubordinated general partner interest (see below). Although Triarc has not guaranteed the obligations under the Credit Agreement, all of the Unsubordinated General Partner Interest (see below).stock of Snapple, Mistic and TBHC is pledged as security for payment of such obligations. Although the stock of National Propane is not pledged in connection with any guarantyguarantee of debt obligations, itthe 75.7% of such stock owned by Triarc directly is pledged in connection withas security for obligations under the Partnership Loan (see below). The Company's debt instruments require aggregate principal payments of $24.5 million during 1997. Such repayments consist of (i) $6.3 million and $2.5 million of term loan repayments under the Mistic Bank Facility and the Patrick Facility, respectively, (ii) $6.0 million and $2.5 million, respectively, of required paydowns, as discussed above, on the Partnership's Working Capital Facility and Mistic's revolving credit facility, respectively, and (iii) $7.2 million of other debt repayments. In July 1996 the Partnership consummated an initial public offering (the "Offering") of an aggregate of approximately 6.3 million of its common units representing limited partner interests (the "Common Units"), representing an approximate 55.8% interest in the Partnership, for an offering price of $21.00 per Common Unit aggregating $117.4 million net of $15.0 million of underwriting discounts and commissions and other estimated expenses related to the Offering. In November 1996 the Partnership sold an additional 400 thousand Common Units through a private placement (the "Equity Private Placement") at a price of $21.00 per Common Unit aggregating $8.4 million before related fees of $1.0 million resulting in net proceeds to the Partnership of $7.4 million. The combined sales of the Common Units resulted in a pretax gain to the Company in 1996 of $85.2 million before a provision for income taxes of $33.2 million. Concurrently with the Offering, the Partnership issued to National Propane approximately 4.5 million subordinated units (the "Subordinated Units"), representing an approximate 38.7% subordinated general partner interest in the Partnership after giving effect to the Equity Private Placement. In addition, National Propane and a subsidiary hold a combined aggregate 4.0% unsubordinated general partner interest (the "Unsubordinated General Partner Interest") in the Partnership and a subpartnership, National Propane, L.P. (the "Operating Partnership"). In connection therewith, National Propane transferred substantially all of its propane-related assets and liabilities (principally all assets and liabilities other than a receivable from Triarc, deferred financing costs and net income tax liabilities of $81.4 million, $4.1 million and $21.6 million, respectively), aggregating net liabilities of $88.2 million, to the Operating Partnership. The entity representative of both the operations of (i) National Propane prior to such transfer of assets and liabilities and (ii) the Partnership subsequent thereto, is referred to herein as "National". On April 29, 1996, the Company completed the sale (the "Graniteville Sale") of the Textile Business to Avondale Mills, Inc. ("Avondale") for $236.8 million in cash, net of expenses of $8.4 million and net of $12.3 million of post-closing adjustments. Avondale assumed all liabilities relating to the Textile Business other than income taxes, long-term debt of $191.4 million which was repaid at the closing and certain other specified liabilities. In February 1997 the principal subsidiaries comprising the Company's restaurant segment entered into an agreement (the "RTM Agreement") with RTM, Inc. ("RTM"), the largest franchisee in the Arby's system, to sell to an affiliate of RTM all of the 355 company-owned Arby's restaurants. The purchase price consists of cash and a promissory note aggregating $2.0 million and the assumption of approximately $69.7 million in mortgage and equipment notes and substantially all capitalized lease obligations. The consummation of the sale is subject to customary closing conditions, including receipt of necessary consents and regulatory approvals, and is expected to occur during the second quarter of 1997. After the consummation of the sale, RTM's affiliate will operate the 355 restaurants as a franchisee and will pay royalties to the Company at a rate of 4% of those restaurants' net sales. As part of the transaction, RTM has agreed to build an additional 190 Arby's restaurants over the next 14 years pursuant to a development agreement. This is in addition to a previous commitment RTM entered into last year to build an additional 210 Arby's restaurants. Consolidated capital expenditures including $0.2 million of capital leases, amounted to $30.3$13.9 million in 1996.1997, including $7.8 million attributable to the propane segment. The Company expects that capital expenditures will approximate $8.8 million during 1997,1998, exclusive of those of the propane segment which will approximate $9.5 million. These anticipated expenditures include expenditures of (i) $4.0not be consolidated in 1998 (see below) and $4.6 million RCAC was required to reinvest in core business assets pursuant to the restaurant segmentindenture pursuant to which is significantly less than 1996the 9 3/4% Senior Notes were issued (the "Senior Note Indenture") as a result of the cessationC&C Sale and certain other asset disposals. In addition to capital expenditures, the Company completed its purchases of restaurant-related spending as a result of the planned sale to RTM, (ii) $3.0 million for the specialty dyes and chemical business, (iii) $2.0 milliontwo ownership interests in corporate aircraft in the beverage segment and (iv) $0.5 million at the corporate headquarters. In addition, 1997 capital expendituresfirst quarter of 1998 for the propane segment for growth capital and maintenance capital expenditures are anticipated to be $6.0$3.6 million. As of December 31, 199628, 1997 there were approximately $2.8 million ofno outstanding commitments for such estimated capital expenditures.expenditures other than the $4.6 million reinvestment requirement made in January 1998. The Company, anticipates that it will meetthrough its capital expenditure requirements through existing cash, cash flows from operationsownership of Snapple, owned 50% of Rhode Island Beverage Packing Company, L.P. ("RIB"). Snapple and leasing arrangements. In furtheranceQuaker were defendants in a breach of the Company's growth strategy, the Company considers selective acquisitions, as appropriate, to grow strategically and explore other alternativescontract case filed in April 1997 by RIB, prior to the extent it has available resources to do so. During 1996 the Company consummated several business acquisitions, principally restaurant operationsSnapple Acquisition (the "RIB Matter"). The RIB Matter was settled in February 1998 and propane businessesin accordance therewith, among other things, Snapple paid RIB $8.2 million. Such amount was fully provided for $4.0 millionas of cash and the issuance of $1.8 million of debt. More significantly, on March 27, 1997 Triarc announced that it has entered into a definitive agreement to acquire Snapple Beverage Corp. ("Snapple") from The Quaker Oats Company for $300 million subject to certain post-closing adjustments. The acquisition is expected to be consummated during the second quarter of 1997, subject to customary closing conditions, including antitrust clearance. Triarc will seek third party financing for a portion of the purchase price. Snapple is a producer and seller of premium beverages and had sales for the year ended December 31, 1996 of approximately $550 million.28, 1997. The Federal income tax returns of the Company have been examined by the Internal Revenue Service (the "IRS") for the tax years 1989 through 1992 and the IRS has issued notices of proposed adjustments increasing taxable income by approximately $145$145.0 million. The Company has resolved approximately $102.0 million of such proposed adjustments and, in connection therewith, the Company paid $5.3 million, including interest, during the fourth quarter of 1997 and subsequent to December 28, 1997 paid an additional $8.1 million, including interest. The Company intends to contest the unresolved adjustments of approximately $43.0 million, the tax effect of which has not yet been determined. The Company is contestingdetermined, at the majorityappellate division of the proposed adjustmentsIRS and accordingly, the amount of any payments required as a result thereof cannot presently be determined. However, managementOn February 9, 1998 the Company sold zero coupon convertible subordinated debentures (the "Debentures") with a principal amount at maturity of $360.0 million to Morgan Stanley & Co. Incorporated ("Morgan Stanley") as the initial purchaser for an offering to "qualified institutional buyers", which are due 2018 without any amortization of the principal amount required prior thereto. The Debentures were issued at a discount of 72.177% from principal and resulted in proceeds to the Company expectsof $100.2 million, before placement fees of $3.0 million and other related fees and expenses. The net proceeds from the sale of Debentures were used to purchase 1,000,000 treasury shares (see below) and the remainder will be required to make paymentsused by Triarc for general corporate purposes, which may include working capital requirements, repayment or refinancing of indebtedness, acquisitions and investments. The Debentures are convertible into Class A Common Stock at a conversion rate of 9.465 shares per $1,000 principal amount at maturity, which represents an initial conversion price of approximately $29.40 per share of Class A Common Stock. The conversion of all of the Debentures into Class A Common Stock would result in the latter partissuance of 1997 relating3,407,000 shares of Class A Common Stock. The Company has agreed to file a registration statement with the portionSecurities and Exchange Commission no later than May 10, 1998 to register the Debentures and the Class A Common Stock issuable upon any conversion of the adjustments that are agreed to.Debentures. Outstanding Debentures will not affect basic earnings per share but will increase the number of shares utilized to calculate diluted earnings per share in periods with net income. Under a program originally announced in July 1996, management ofOctober 1997 and amended in March 1998, the Company has beenis currently authorized, when and if market conditions warrant, to repurchase until July 1997,November 1998, up to $20.0$30.0 million of its Class A Common Stock. During 1996,1997 the Company had repurchased 44,30067,200 shares of its Class A Common Stock at an aggregate cost of $1.6 million and, subsequent to December 28, 1997, repurchased in January 1998 an additional 71,500 shares of its Class A Common Stock at an aggregate cost of $1.9 million under this program. There can be no assurance that the Company will repurchase the full $30.0 million of its Class A Common Stock authorized under this program. In addition to this program, subsequent to December 28, 1997 the Company used a portion of the proceeds from the sale of the Debentures to purchase 1,000,000 shares of Class A Common Stock for an aggregate costprice of $0.5 million. Additional purchases may be made until June 1997 when and if market conditions warrant.$25.6 million from Morgan Stanley. The Company maintains two defined benefit pension plans under which benefits are frozen. Whilereceived quarterly distributions on the Subordinated Units (the "Subordinated Distributions") from the Partnership and quarterly distributions on the Unsubordinated General Partners' Interests (the "General Partner Distributions") of $9.5 million and $1.0 million, respectively, in 1997. The Company also received Subordinated Distributions and General Partner Distributions of $2.4 million and $0.2 million, respectively, in February 1998 with respect to the fourth quarter of 1997. However, the Company has no current plansagreed to terminateforego any additional Subordinated Distributions in order to facilitate the plans, should interest rates increase toPartnership's compliance with a level at which there would be an insignificant cash cost tocovenant restriction contained in its bank facility agreement. Accordingly, the Company does not expect to terminatereceive any additional Subordinated Distributions for the plans,remainder of 1998. Such Subordinated Distributions will be resumed when their payment will not impact compliance with such covenant. General Partner Distributions are expected to continue and should amount to $0.7 million for the Company may decideremainder of 1998. Accordingly, aggregate Subordinated Distributions and General Partner Distributions will be limited to do so.$3.3 million in 1998, including the $2.6 million received in February 1998. As of December 31, 1996, based on28, 1997, the 4.75% interest rate as currently recommended by the Pension Benefit Guaranty Corporation (the "PBGC") for purposes of such calculation, the Company would have incurred a cash outlay of $2.8 million. Such liability upon plan termination is significantly dependent upon the interest rate assumed for such calculation purposes and, within a reasonable range, such contingent liability increases (decreases) by approximately $0.5 million for each 1/2% decrease (increase) in the assumed interest rate. Based upon current interest rates, the Company believes it would be able to liquidate the pension obligations for less than the $2.8 million determined using the PBGC rate should it choose to terminate the plans. As of December 31, 1996 the Company's most significant cash requirement for 1997 is funding for the proposed Snapple acquisition which it expects to meet through a combination of (i) existing cash and cash equivalents and short-term investments ($206.1 million at December 31, 1996) and (ii) third party financing. The Company's remaining principal cash requirements, exclusive of operations,operating cash flow requirements, for 19971998 consist principally of (i) the $25.6 million used to repurchase 1,000,000 shares of treasury stock from Morgan Stanley, (ii) capital expenditures, excluding thoseincluding expenditures for the propane segment,ownership interests in corporate aircraft, of approximately $9.5$17.0 million, capital expenditures for the propane segment of $6.0 million,(iii) debt principal payments currently aggregating $24.5$13.6 million quarterly distributions by(including $9.5 million of scheduled repayments under the PartnershipTerm Loans, the $2.8 million accelerated payment discussed above and $0.1 million under the FFCA Loan Agreements), (iv) the $8.2 million payment for the RIB settlement, (v) the Federal income tax payment of $8.1 million made subsequent to holdersDecember 28, 1997 resulting from the IRS examination of the Common Units estimated to be $24.6 million (see below), acquisitions other than Snapple,Company's 1989 through 1992 income tax returns and additional payments, if any, related to the portion$43.0 million of proposed adjustments agreed to from income tax examinationssuch examination being contested and (vi) the cost of business acquisitions and additional treasury stock purchases,repurchases, if any. The Company anticipates meeting all of such requirements through existing cash and cash equivalents and short-term investments (aggregating $175.6 million as of December 28, 1997), cash flows from operations, net proceeds from the February 1998 sale of Debentures and availability under the Propane BankRevolving Credit Facility and the Patrick Facility and financing a portion of its capital expenditures through capital lease arrangements. On October 29, 1996, Triarc announced that its Board of Directors approved a plan to offer up to approximately 20% of the shares of its beverage and restaurant businesses (operated through Mistic and RCAC) to the public through an initial public offering and to spin off the remainder of the shares of such businesses to Triarc stockholders (collectively, the "Spinoff Transactions"). Consummation of the Spinoff Transactions will be subject to, among other things, receipt of a favorable ruling from the IRS that the Spinoff Transactions will be tax-free to the Company and its stockholders. The request for the ruling from the IRS contains several complex issues and there can be no assurance that Triarc will receive the ruling or that Triarc will consummate the Spinoff Transactions. The Spinoff Transactions are not expected to occur prior to the end of the second quarter of 1997. Triarc is currently evaluating the impact, if any, of the proposed acquisition of Snapple on the anticipated structure of the Spinoff Transactions.Line. TRIARC Triarc is a holding company whose ability to meet its cash requirements is primarily dependent upon its (i) cash on handand cash equivalents and short-term investments ($175.2(aggregating $114.7 million as of December 31, 1996)28, 1997), (ii) investment income on its cash equivalents and short-term investments and (iii) cash flows from its subsidiaries including loans, distributions and cash dividends (see limitations below) and reimbursement by certain subsidiaries to Triarc in connection with the (a) providing of certain management services and (b) payments under certain tax sharingtax-sharing agreements with certain subsidiaries. In connection with the issuance of the First Mortgage Notes and the Partnership's Offering discussed above, on July 2, 1996 Triarc received an aggregate of $112.2 million from National. Such amount consisted of a dividend of $59.3 million (from the proceeds of the First Mortgage Notes), a loan from the Partnership of $40.7 million (the "Partnership Loan") and payment of previously unpaid management fees, tax sharing payments and certain other intercompany indebtedness aggregating $12.2 million. The Partnership Loan bears interest at 13 1/2% payable in cash and is due in equal annual amounts of approximately $5.1 million commencing 2003 through 2010. Concurrent with the above transactions, an $81.4 million non-interest bearing advance payable to National Propane was reduced to $30.0 million and converted to a demand note payable bearing interest at 13 1/2% payable in cash (the "$30 Million Note"). Triarc does not anticipate it will be required to make any principal payments on the $30 Million Note during 1997; however, if it should be required to do so, Triarc believes it has adequate cash on hand to make such payments. Triarc's principal subsidiaries, other than Cable Car, CFC Holdings Corp. ("CFC"CFC Holdings"), the parent of RCAC, and National Propane, are unable to pay any dividends or make any loans or advances to Triarc during 19971998 under the terms of the various indentures and credit arrangements. While there are no restrictions applicable to National Propane, National Propane is dependent upon cash flows from the Partnership to pay dividends. Such cash flows are principally quarterly distributionsSubordinated Distributions and General Partner Distributions (aggregating $10.5 million for 1997) from the Partnership (see above for restrictions on thepaying Subordinated Units and the Unsubordinated General Partner Interest (see below)Distributions in 1998). While there are no restrictions applicable to CFC Holdings, CFC Holdings would beis dependent upon cash flows from RCAC to pay dividends and, as of December 31, 1996,28, 1997, RCAC was unable to pay any dividends or make any loans or advances to CFC Holdings. Triarc's operating activities provided $44.4 million of cash flows in 1997 principally due to $54.5 million of dividends from subsidiaries. Included in those dividends are a nonrecurring $40.0 million dividend from C.H. Patrick and $10.5 million representing dividends from subsidiaries provided by the pass-through of Subordinated Distributions and General Partner Distributions. As set forth above Triarc has received $2.4 million and $0.2 million of Subordinated Distributions and General Partner Distributions, respectively, in February 1998 but does not anticipate any additional Subordinated Distributions for the remainder of 1998. However, Triarc anticipates higher investment income in 1998 from its securities portfolio as a result of the investment of the net proceeds from the sale of the Debentures less the $25.6 million utilized for the repurchase of the 1,000,000 shares of treasury stock. As a result of the net effect of the nonrecurring dividends from subsidiaries and the higher investment income, Triarc does not expect its significant cash flows from operations to recur in 1998 but anticipates operating cash flows to be approximately break-even. Triarc's indebtedness to subsidiaries has been significantly reducedas of December 28, 1997 decreased $38.6 million to $33.8 million compared with $72.4 million as of December 31, 1996 compared with $229.3 million as of December 31, 1995 principally as1996. Such decrease is a result of dividends or cancellations of such indebtedness in connection with the Graniteville Sale and the Partnership's issuance of the Common Units. Such $72.4 million of indebtedness consists ofexcluding the $40.7 million Partnership Loan from indebtedness of subsidiaries as of December 28, 1997 as a result of the $30Deconsolidation. Such indebtedness consists of a $30.0 million demand note payable to National Propane bearing interest at 13 1/2% payable in cash (the "$30 Million Note andNote"), a $1.7$2.0 million demand note to a subsidiary of RCAC and requires no principal payments in 1997, assuming no demand is made under the $30 Million Note or the $1.7a $1.8 million note payable to a subsidiary of RCAC. Triarc's sources of cash consist principally of cash and cash equivalents on hand and short-term investments ($175.2 million as of December 31, 1996), reimbursement of general corporate expenses from subsidiaries in connection with management services agreements, distributions from the Partnership, net payments received under tax-sharing agreements with certain subsidiaries and investment income on its cash equivalents and short-term investments. As a result of the Graniteville Sale and the Partnership's issuance of the Common Units discussed above, payments received under tax sharing agreements and the reimbursement of general corporate expenses by the Textile Business have been eliminated and payments from National Propane and the Partnership are limited. Management fees and tax-sharing payments from C.H. Patrick (which prior to April 29, 1996 were a component of the payments from the Textile Business) and distributions, if any, from the Partnership and full year earnings on the additional cash equivalents and short-term investments resulting from cash flows to Triarc resulting from the Graniteville Sale and the Partnership's Offering will partially offset such decreases. As a result, Triarc is expected to experience negative cash flows from operations for its general corporate expenses for 1997. Triarc's principal cash requirements are a portion of the funding for the proposed acquisition of Snapple, general corporate expenses, any required advances to RCAC and Mistic (see below), capital expenditures estimated to be approximately $0.5 million, payments related to the portion of proposed adjustments agreed to from income tax examinations and interest due on the $30 Million Note and the Partnership Loan. Such interest will be higher in 1996 compared with 1995 due to the full year effect of (i) changing the terms on the $30 Million Note to require cash interest and (ii) the issuance of the Partnership Loan, both in July 1996. Although Triarc probably will experience negative cash flows from operations, considering its cash and cash equivalents and short-term investments, Triarc should be able to meet all of its 1997 cash requirements discussed above. RCAC As of December 31, 1996, RCAC's cash requirements for 1997 consist principally of capital expenditures of approximately $6.0 million, funding for acquisitions, if any, and debt (including capitalized leases and an affiliated note) principal repayments of $19.1 million, subject to Triarc's requirement for RCAC to repay any or all of the outstanding balance under a $12.0 million demand promissory note (the "Demand Note") included in the $19.1 million and the assumption of debt obligations by RTM with respect to the RTM Agreement. RCAC anticipates meeting such requirements through existing cash and/or cash flows from operations, and, to the extent cash is required other than for repayments to Triarc under the Demand Note, borrowings from Triarc to the extent available. RCAC may be required to make repayments under the Demand Note to the extent of its remaining cash balances in excess of its ongoing requirements for working capital. MISTIC As of December 31, 1996, Mistic's principal cash requirements for 1997 consist principally of $6.3 million of term loan payments and the required reduction of its revolving credit loans under its bank facility. Mistic anticipates meeting such requirements through cash flows from operations and borrowings from Triarc to the extent available ($3.5 million was borrowed from Triarc in February 1997). THE PARTNERSHIP As of December 31, 1996, the Partnership's principal cash requirements for 1997 consist of quarterly distributions estimated to be $24.6 million (see below), capital expenditures of approximately $6.0 million, (including $3.5 million for maintenance and $2.5 million for growth), funding for acquisitions (including $1.0 million paid in January 1997), and the $6.0 million required reduction of its Working Capital Facility. The Partnership expects to meet such requirements through a combination of cash flows from operations, availability under the Propane Bank Credit Facility and interest income on the Partnership Loan. The Partnership must make quarterly distributions of its cash balances in excess of reserve requirements, as defined, to holders of the Common Units, the Subordinated Units and the Unsubordinated General Partner Interest within 45 days after the end of each fiscal quarter. Accordingly, positive cash flows will generally be used to make such distributions. On February 14, 1997 the Partnership paid a quarterly distribution for the quarter ended December 31, 1996 of $.525 per Common and Subordinated Unit with a proportionate amount for the Unsubordinated General Partner Interest, or an aggregate of $6.1 million, including $2.6 million paid to National Propane related to the Subordinated Units and the Unsubordinated General Partner Interest. C.H. PATRICK As of December 31, 1996, C.H. Patrick's principal cash requirements for 1997 consist principally of principal payments under its Term Loans of $2.5 million and capital expenditures of $3.0 million. C.H. Patrick anticipates meeting such requirements through cash flows from operations. Should C.H. Patrick need to supplement its cash flows, it has $15.0 million of availability under the revolving credit portion of the Patrick Facility. DISCONTINUED OPERATIONS As of December 31, 1996, the Company has completed the sale of substantially all of its discontinued operations but there remain certain liabilities to be liquidated (the estimates of which have been accrued) as well as certain contingent assets (principally a note from the sale of the cold storage business) which may be collected, the benefits of which, however, have not been recorded. CONTINGENCIES In July 1993 APL Corporation ("APL"), which was affiliated with the Company until an April 1993 change in control, became a debtor in a proceeding under Chapter 11 of the Federal Bankruptcy Code (the "APL Proceeding"). In February 1994 the official committee of unsecured creditors of APL filed a complaint (the "APL Litigation") against the Company and certain companies formerly or presently affiliated with Victor Posner, the former Chief Executive Officer of the Company ("Posner"), or with the Company, alleging causes of action arising from various transactions allegedly caused by the named former affiliates. The Chapter 11 trustee of APL was subsequently added as a plaintiff. The complaint asserts various claims and seeks an undetermined amount of damages from the Company, as well as certain other relief. In April 1994 the Company responded to the complaint by filing an answer and proposed counterclaims and set-offs denying the material allegations in the complaint and asserting counterclaims and set-offs against APL. In June 1995 the bankruptcy court confirmed the plaintiffs' plan of reorganization (the "APL Plan") in the APL Proceeding. The APL Plan provides, among other things, that affiliates of Posner (the "Posner Entities") will own all of the common stock of APL and are authorized to object to claims made in the APL Proceeding. The APL Plan also provides for the dismissal of the APL Litigation. Previously, in January 1995 Triarc received an indemnification pursuant to a settlement agreement entered into by the Company and the Posner Entities on January 9, 1995 (the "Posner Settlement") relating to, among other things, the APL Litigation. The Posner Entities have filed motions asserting that the APL Plan does not require the dismissal of the APL Litigation. In November 1995 the bankruptcy court denied the motions and in March 1996 the court denied the Posner Entities' motion for reconsideration. Posner and APL have appealed and their appeal is pending. On December 6, 1995 the three former court-appointed members of a special committee of Triarc's Board of Directors commenced an action in the United States District Court for the Northern District of Ohio seeking, among other things, additional fees of $3.0 million. On February 6, 1996 the court dismissed the action without prejudice. The plaintiffs filed a notice of appeal, but subsequently dismissed the appeal voluntarily. In 1987 TXL was notified by the South Carolina Department of Health and Environmental Control ("DHEC") that DHEC discovered certain contamination of Langley Pond ("Langley Pond") near Graniteville, South Carolina and DHEC asserted that TXL may be one of the parties responsible for such contamination. In 1990 and 1991 TXL provided reports to DHEC summarizing its required study and investigation of the alleged pollution and its sources which concluded that pond sediments should be left undisturbed and in place and that other less passive remediation alternatives either provided no significant additional benefits or themselves involved adverse effects. In March 1994 DHEC appeared to conclude that while environmental monitoring at Langley Pond should be continued, based on currently available information, the most reasonable alternative is to leave the pond sediments undisturbed and in place. In April 1995 TXL, at the request of DHEC, submitted a proposal concerning periodic monitoring of sediment dispositions in the pond. In February 1996 TXL responded to a DHEC request for additional information on such proposal. TXL is unable to predict at this time what further actions, if any, may be required in connection with Langley Pond or what the cost thereof may be. In addition, TXL owned a nine acre property in Aiken County, South Carolina (the "Vaucluse Landfill"), which was used as a landfill from approximately 1950 to 1973. The Vaucluse Landfill was operated jointly by TXL and Aiken County and may have received municipal waste and possibly industrial waste from TXL as well as sources other than TXL. The United States Environmental Protection Agency conducted an Expanded Site Inspection in January 1994 and in response thereto DHEC indicated its desire to have an investigation of the Vaucluse Landfill. In April 1995 TXL submitted a conceptual investigation approach to DHEC. Subsequently, the Company responded to an August 1995 DHEC request that TXL enter into a consent agreement to conduct an investigation indicating that a consent agreement is inappropriate considering TXL's demonstrated willingness to cooperate with DHEC requests and asked DHEC to approve TXL's April 1995 conceptual investigation approach. The cost of the study proposed by TXL is estimated to be between $125.0 thousand and $150.0 thousand. Since an investigation has not yet commenced, TXL is currently unable to estimate the cost, if any, to remediate the landfill. Such cost could vary based on the actual parameters of the study. In connection with the Graniteville Sale, the Company agreed to indemnify the purchaser for certain costs, if any, incurred in connection with the foregoing matters that are in excess of specified reserves, subject to certain limitations. As a result of certain environmental audits in 1991, SEPSCO became aware of possible contamination by hydrocarbons and metals at certain sites of SEPSCO's ice and cold storage operations of the refrigeration business and has filed appropriate notifications with state environmental authorities and in 1994 completed a study of remediation at such sites. SEPSCO has removed certain underground storage and other tanks at certain facilities of its refrigeration operations and has engaged in certain remediation in connection therewith. Such removal and environmental remediation involved a variety of remediation actions at various facilities of SEPSCO located in a number of jurisdictions. Such remediation varied from site to site, ranging from testing of soil and groundwater for contamination, development of remediation plans and removal in some instances of certain contaminated soils. Remediation is required at thirteen sites which were sold to or leased by the purchaser of the ice operations. Remediation has been completed on five of these sites and is ongoing at eight others. Such remediation is being made in conjunction with the purchaser who has satisfied its obligation to pay up to $1.0 million of such remediation costs. Remediation is also required at seven cold storage sites which were sold to the purchaser of the cold storage operations. Remediation has been completed at one site and is ongoing at three other sites. Remediation is expected to commence on the remaining three sites in 1997 and 1998. Such remediation is being made in conjunction with the purchaser who is responsible for the first $1.25 million of such costs. In addition, there are fifteen additional inactive properties of the former refrigeration business where remediation has been completed or is ongoing and which have either been sold or are held for sale separate from the sales of the ice and cold storage operations. Of these, ten have been remediated through December 31, 1996 at an aggregate cost of $1.0 million. In addition, during the environmental remediation efforts on idle properties, SEPSCO became aware that plants on two of the fifteen sites may require demolition in the future. In May 1994 National was informed of coal tar contamination which was discovered at one of its properties in Wisconsin. National purchased the property from a company (the "Successor") which had purchased the assets of a utility which had previously owned the property. National believes that the contamination occurred during the use of the property as a coal gasification plant by such utility. In order to assess the extent of the problem, National engaged environmental consultants in 1994. As of March 1, 1997, National's environmental consultants have begun but not completed their testing. Based upon the new information compiled to date which is not yet complete, it appears the likely remedy will involve treatment of groundwater and treatment of the soil, installation of a soil cap and, if necessary, excavation, treatment and disposal of contaminated soil. As a result, the environmental consultants' current range of estimated costs for remediation is from $0.8 million to $1.6 million. National will have to agree upon the final plan with the state of Wisconsin. Since receiving notice of the contamination, National has engaged in discussions of a general nature concerning remediation with the state of Wisconsin. These discussions are ongoing and there is no indication as yet of the time frame for a decision by the state of Wisconsin or the method of remediation. Accordingly, the precise remediation method to be used is unknown. Based on the preliminary results of the ongoing investigation, there is a potential that the contaminants may extend to locations downgradient from the original site. If it is ultimately confirmed that the contaminant plume extends under such properties and if such plume is attributable to contaminants emanating from the Wisconsin property, there is the potential for future third-party claims. National is also engaged in ongoing discussions of a general nature with the Successor. The Successor has denied any liability for the costs of remediation of the Wisconsin property or of satisfying any related claims. However, National, if found liable for any of such costs, would still attempt to recover such costs from the Successor. National has notified its insurance carriers of the contamination, the likely incurrence of costs to undertake remediation and the possibility of related claims. Pursuant to a lease related to the Wisconsin facility, the ownership of which was not transferred to the Operating Partnership at the closing of Offering, the Partnership has agreed to be liable for any costs of remediation in excess of amounts recovered from the Successor or from insurance. Since the remediation method to be used is unknown, no amount within the cost ranges provided by the environmental consultants can be determined to be a better estimate. In 1993 Royal Crown became aware of possible contamination from hydrocarbons in groundwater at two abandoned bottling facilities. Tests have confirmed hydrocarbons in the groundwater at both of the sites and remediation has commenced. Remediation costs estimated by Royal Crown's environmental consultants aggregate $0.56 million to $0.64 million with approximately $125 thousand to $145 thousand expected to be reimbursed by the State of Texas Petroleum Storage Tank Remediation Fund at one of the two sites. In 1994 Chesapeake Insurance Company Limited ("Chesapeake Insurance"), a wholly-owned subsidiary of the Company, and SEPSCO invested approximately $5.1Company. While the $30 Million Note requires the payment of interest in cash, Triarc currently expects to receive dividends from National Propane equal to such cash interest. Triarc must pay $0.5 million in a joint venture with Prime Capital Corporation ("Prime"). Subsequently in 1994, SEPSCO andof principal on the note due to Chesapeake Insurance terminated their investments in such joint venture. In March 1995 three creditors of Prime filed an involuntary bankruptcy petitionduring 1998; Triarc's other intercompany indebtedness requires no principal payments during 1998, assuming no demand is made under the $30 Million Note, and none is anticipated, or the $2.0 million note payable to a subsidiary of RCAC. Triarc's principal cash requirements for 1998 are (i) payments of general corporate expenses, (ii) interest due on the Partnership Loan, (iii) the $25.6 million repurchase of 1,000,000 shares of treasury stock from Morgan Stanley, (iv) the previously discussed Federal bankruptcy code against Prime. In November 1996income tax payment of $8.1 million made subsequent to December 28, 1997 resulting from the bankruptcy trustee appointed in the Prime bankruptcy case made a demand on Chesapeake Insurance and SEPSCO for returnIRS examination of the approximate $5.3 million. In January 1997 the bankruptcy trustee commenced avoidance actions against Chesapeake InsuranceCompany's 1989 through 1992 income tax returns and SEPSCO seeking the return of the approximate $5.3 million allegedly received by Chesapeake Insurance and SEPSCO during 1994 and alleging suchadditional payments, from Prime were preferential or constituted fraudulent transfers. The Company believes, based on advice of counsel, that it has meritorious defenses to these claims and intends to vigorously contest them. However, it is possible that the trustee will be successful in recovering the payments. The maximum amount of SEPSCO's and Chesapeake Insurance's aggregate liability is the approximate $5.3 million plus interest; however,if any, related to the extent SEPSCO or Chesapeake Insurance return to Prime any amount$43.0 million of proposed adjustments from such examination being contested, (v) the challenged payments, they will be entitled to an unsecured claim$4.1 million of capital expenditures and expenditures for such amount. The court has scheduled a trial forownership interests in corporate aircraft and (vi) the weekcost of May 27, 1997. On February 19, 1996, Arby's Restaurantes S.A. de C.V. ("AR"), the master franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico against Arby's for breach of contract. AR alleged that a non-binding letter of intent dated November 9, 1994 between ARbusiness acquisitions and Arby's constituted a binding contract pursuant to which Arby's had obligated itself to repurchase the master franchise rights from AR for $2.5 million. AR also alleged that Arby's had breached a master development agreement between AR and Arby's. Arby's promptly commenced an arbitration proceeding since the franchise and development agreements each provided that all disputes arising thereunder wereadditional treasury stock repurchases, if any. Triarc expects to be resolved by arbitration. Arby's is seeking a declaration in the arbitrationable to the effect that the November 9, 1994 letter of intent was not a binding contract and, therefore, AR has no valid breach of contract claim, as well as a declaration that the master development agreement has been automatically terminated as a result of AR's commencement of suspension of payments proceedings in February 1995. In the civil court proceeding, the court denied Arby's motion to suspend such proceedings pending the results of the arbitration, and Arby's has appealed that ruling. In the arbitration, some evidence has been taken but proceedings have been suspended by the court handling the suspension of payments proceedings. Arby's is vigorously contesting AR's claims and believes it has meritorious defenses to such claims. The Company has accruals formeet all of the above matters aggregating approximately $4.3 million. Based on currently available information and given (i) DHEC's apparent conclusion in 1994 with respect to the Langley Pond matter, (ii) the indemnification limitations with respect to the SEPSCO cold storage operations, Langley Pond and the Vaucluse Landfill, (iii) potential reimbursements by other partiesits cash requirements as discussed above for 1998 through its cash and (iv)cash equivalents and short-term investments ($114.7 million as of December 28, 1997) and the Company's aggregate$97.2 million of net proceeds from the February 1998 sale of the Debentures. LEGAL AND ENVIRONMENTAL MATTERS The Company is involved in litigation, claims and environmental matters incidental to its business. The Company has reserves for such legal and environmental matters aggregating approximately $10.3 million as of December 28, 1997. Although the outcome of such matters cannot be predicted with certainty and some of these may be disposed of unfavorably to the Company, based on currently available information and given the Company's aforementioned reserves, the Company does not believe that thesuch legal and environmental matters referred to above, as well as ordinary routine litigation incidental to its businesses, will have a material adverse effect on its consolidated results of operations or financial position. YEAR 2000 The Company has undertaken a study of its functional application systems to determine their compliance with year 2000 issues and, to the extent of noncompliance, the required remediation. An assessment of the readiness of third party entities with which the Company has relationships, such as its suppliers, customers and payroll processor and others, is ongoing. As a result of such study, the Company believes the majority of its systems are year 2000 compliant. However, certain systems, which are significant to the Company, require remediation. The Company currently estimates it will complete the required remediation by the end of the first half of 1999. The current estimated cost of such remediation is approximately $2.0 million, including computer software costs. Such costs, other than software, will be expensed as incurred. INFLATION AND CHANGING PRICES Management believes that inflation did not have a significant effect on gross margins during 1994, 1995, 1996 and 1996,1997, since inflation rates generally remained at relatively low levels. Historically, the Company has been successful in dealing with the impact of inflation to varying degrees within the limitations of the competitive environment of each segment of its business. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In October 1996,June 1997 the Financial Accounting Standards Executive CommitteeBoard (the "FASB") issued SFAS No. 130 ("SFAS 130") "Reporting Comprehensive Income". SFAS 130 requires that all items which are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is defined as the change in the stockholders' equity during a period exclusive of stockholder investments and distributions to stockholders. For the Company, in addition to net income (loss), comprehensive income includes changes in net unrealized gains (losses) on "available-for-sale" marketable securities, unearned compensation and currency translation adjustment. In June 1997 the FASB also issued SFAS No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information" which supersedes SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise". SFAS 131 requires disclosure in the Company's consolidated financial statements (including quarterly condensed consolidated financial statements) of financial and descriptive information by operating segment as used internally for evaluating segment performance and deciding how to allocate resources to segments. SFAS 130 and SFAS 131 are effective for the Company's fiscal year beginning December 29, 1997 (exclusive of the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities" ("SOP 96-1"). SOP 96-1 provides guidance for the recognition and measurement of environmental liabilities andquarterly segment data under SFAS 131 which is effective as of January 1, 1997. While an evaluationthe following fiscal year) and require comparative information for earlier periods presented. The application of the impactprovisions of SOP 96-1 hasboth SFAS 130 and SFAS 131 will require an additional financial statement and may result in changes to segment disclosures but will not been completed,have any effect on the Company does not believe it will have a material impact on itsCompany's reported consolidated financial position and results of operations or financial position. operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS PAGE Independent Auditors' Report.....................................Report...................................... Consolidated Balance Sheets as of December 31, 19951996 and 1996.....December 28, 1997.......................................... Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996......................................................1996 and the fiscal year ended December 28, 1997................................... Consolidated Statements of Additional Capital for the years ended December 31, 1994, 1995 and 1996.................................................1996 and the fiscal year ended December 28, 1997............................ Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996..................................................1996 and the fiscal year ended December 28, 1997............................................... Notes to Consolidated Financial Statements....................... Statements........................ INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of TRIARC COMPANIES, INC.: New York, New York We have audited the accompanying consolidated balance sheets of Triarc Companies, Inc. and subsidiaries (the "Company") as of December 28, 1997 and December 31, 1996, and 1995, and the related consolidated statements of operations, additional capital, and cash flows for each of the three fiscal years in the period ended December 31, 1996.28, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 1997 and December 31, 1996, and 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 31, 199628, 1997 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1995 the Company changed its method of accounting for impairment of long-lived assets and for long-lived assets to be disposed of. DELOITTE & TOUCHE LLP New York, New York March 31, 1997 10, 1998 (March 25, 1998 as to Note 8)
TRIARC COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBERDecember 31, ------------ 1995December 28, 1996 1997 ---- ---- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents ($45,965,000139,573,000 and $134,869,000)...............$122,131,000)................$ 64,205154,190 $ 154,405 Restricted cash and cash equivalents (Note 4) ......................... 34,033 3,057129,480 Short-term investments (Note 5)....................................... 7,397......................................... 51,711 46,165 Receivables, net (Note 6).............................................. 168,534 80,613................................................ 70,963 77,882 Inventories (Note 7)................................................... 118,549 55,3406)..................................................... 39,585 57,394 Assets held for sale (Note 1)..........................................3)............................................ 71,116 -- 71,116 Deferred income tax benefit (Note 15).................................. 8,848 16,40910).................................... 16,084 38,120 Prepaid expenses and other current assets.............................. 11,262 13,011 -----------assets................................ 16,068 6,718 Net current assets of discontinued operations (Note 17).................. 16,304 -- --------- ---------- Total current assets.............................................. 412,828 445,662assets................................................ 436,021 355,759 Investments (Note 7)........................................................ 500 31,449 Properties, net (Note 8).................................................. 331,589 107,2726).................................................... 98,968 33,833 Unamortized costs in excess of net assets of acquired companies (Note 9).. 227,825 203,9146).... 200,841 279,225 Trademarks (Note 10)...................................................... 57,1466)......................................................... 57,257 269,201 Deferred costs and other assets (Note 11)................................. 56,578 40,299 -----------6).................................... 38,198 35,406 --------- ---------- $ 1,085,966 $ 854,404 ===========831,785 $1,004,873 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Notes 138 and 14)....................9)........................$ 83,53191,067 $ 93,56714,182 Accounts payable ...................................................... 61,908 52,437........................................................ 50,431 63,237 Accrued expenses (Note 12)............................................. 109,119 104,483 -----------6)................................................ 99,348 148,254 --------- ---------- Total current liabilities......................................... 254,558 250,487liabilities........................................... 240,846 225,673 Long-term debt (Notes 138 and 14).......................................... 763,346 500,529 Insurance loss reserves .................................................. 9,398 9,8289).............................................. 469,154 604,830 Deferred income taxes (Note 15)........................................... 24,013 34,45510)............................................. 35,943 92,577 Deferred income and other liabilities..................................... 14,001 18,616liabilities....................................... 28,444 37,805 Minority interests (Note 19)..............................................3)................................................. 33,724 -- 33,724Net non-current liabilities of discontinued operations (Note 17)............ 16,909 -- Commitments and contingencies (Notes 15, 23, 2410, 19, 20 and 25)21) Stockholders' equity (Notes 5, 16 and 17)(Note 11): Class A common stock, $.10 par value; authorized 100,000,000 shares, issued 27,983,805 and 29,550,663 shares ................................................................... 2,798 2,7982,955 Class B common stock, $.10 par value; authorized 25,000,000 shares, issued 5,997,622 shares..........................................shares............................................ 600 600 Additional paid-in capital............................................. 162,020capital............................................... 161,170 204,291 Accumulated deficit.................................................... (97,923)deficit...................................................... (111,824) (115,440) Less Class A common stock held in treasury at cost; 4,067,3804,097,606 and 4,097,606 shares................................................. (45,931)3,951,265 shares................................................... (46,273) Other.................................................................. (914)(45,456) Other.................................................................... 294 -----------(2,962) --------- ---------- Total stockholders' equity ...................................... 20,650........................................ 6,765 -----------43,988 --------- ---------- $ 1,085,966 $ 854,404 ===========831,785 $1,004,873 ========= ========== See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBERYear Ended December 31, Year Ended ------------------------ 1994December 28, 1995 1996 1997 ---- ---- ---- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenues: Net sales.......................................... $ 1,011,428 $1,128,3901,086,180 $ 931,920870,856 $ 794,790 Royalties, franchise fees and other revenues....... 51,093 55,831 57,329 66,531 ----------- ---------- ----------- 1,062,521 1,184,221 989,2491,142,011 928,185 861,321 ----------- ---------- ----------- Costs and expenses: Cost of sales (Note 7)6)............................. 749,930 859,928 652,109835,367 606,913 471,937 Advertising, selling and distribution (Note 1)..... 109,669 129,164 139,662127,954 138,088 180,529 General and administrative......................... 125,189 146,842 131,357141,247 127,937 143,003 Reduction in carrying value of long-lived assets impaired or to be disposed of (Note 1)3).......... -- 14,647 64,300 -- Facilities relocation and corporate restructuring (Note 18)12)....................................... 8,800 2,700 8,800 7,075 Acquisition related (Note 13)...................... -- -- 31,815 Recovery of doubtful accounts from affiliates and former affiliates (Note 28).................22)............................ (3,049) -- (3,049) -- ----------- ---------- ----------- 993,588 1,150,232 996,2281,118,866 946,038 834,359 ----------- ---------- ----------- Operating profit (loss)...................... 68,933 33,989 (6,979)23,145 (17,853) 26,962 Interest expense .................................... (72,980) (84,227) (73,379)(84,126) (71,025) (71,648) Gain (loss) on sale of businesses, net (Note 19)14)..... 6,043 (100) 77,000 4,955 Investment income, net (Note 15)..................... 2,324 8,069 12,771 Other income (expense), net (Note 20)16)................ (1,185) 12,314 7,99616,781 (126) 3,870 ----------- ---------- ----------- Income (loss)Loss from continuing operations before income taxes and minority interests 811 (38,024) 4,638interests....... (41,976) (3,935) (23,090) Benefit from (provision for) income taxes (Note 15)10).. (1,612) 1,030 (11,294)2,543 (7,934) 4,742 Minority interests in income of a consolidated subsidiariessubsidiary (Note 19)........................... (1,292)3).............................. -- (1,829) (2,205) ----------- ---------- ----------- Loss from continuing operations.............. (2,093) (36,994) (8,485) Loss(39,433) (13,698) (20,553) Income from discontinued operations (Note 21).......... (3,900) -- --17)........ 2,439 5,213 20,718 ----------- ---------- ----------- LossIncome (loss) before extraordinary items.............. (5,993)items..... (36,994) (8,485) 165 Extraordinary items (Note 22)18)........................ (2,116) -- (5,416) (3,781) ----------- ---------- ----------- Net loss..................................... (8,109) (36,994) (13,901) Preferred stock dividend requirements (Note 16)...... (5,833) -- -- ----------- ---------- ----------- Net loss applicable to common stockholders... $ (13,942) $ (36,994) $ (13,901) $ (3,616) =========== ========== =========== Loss per share (Note 1)4): Continuing operations........................ $ (.34)(1.32) $ (1.24)(.46) $ (.28)(.68) Discontinued operations...................... (.17) -- --.08 .18 .69 Extraordinary items.......................... (.09) -- (.18) (.13) ----------- ---------- ----------- Net loss..................................... $ (.60) $ (1.24) $ (.46) $ (.12) =========== ========== =========== See accompanying notes to consolidated financial statements.statements
TRIARC COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF ADDITIONAL CAPITAL YEAR ENDED DECEMBER 31, ----------------------- 1994YEAR ENDED ---------------------- DECEMBER 28, 1995 1996 1997 ---- ---- ---- (IN THOUSANDS) Additional paid-in capital: Additional paid-in capital: Balance at beginning of period................................................ $ 50,654 year....................................................$ 79,497 $ 162,020 $ 161,170 Common stock issued (Note 17)11): Excess of fair value over par value, net of expenses, from issuance of common shares in connection with the Posner Settlement (Note 11) in 1995 and the Stewart's acquisition in 1997 (Note 3)....................... 11,915 -- 36,602 Excess (deficiency) of exercise prices for options or fair value for restricted stock of shares issued from treasury over average cost of treasury shares in connection with: Exercises of stock options ........................................... -- (5) 82 Grants of restricted stock............................................ (8) -- -- Excess of book value of redeemable preferred stock over par value of common stock issued upon conversion in connection with the Posner Settlement (Note 16) ....................... --11)...................................................... 71,296 -- Excess of fair value over par value from issuance of common shares in connection with the Posner Settlement (Note 28) ......................... -- 11,915 -- Other issuances ........................................................... 6issuances............................................................. 17 -- Excess (deficiency) of fair7 41 Fair value of sharesstock options issued from treasury stock over average cost of treasury shares in connection with: SEPSCO MergerCable Car acquisition (Note 26) ............................................... 25,4923)............ -- -- Grants of restricted stock ............................................ 601 (8) --2,788 Excess of fair value at date of grant of common shares over the option price for stock options granted (forfeited) (Note 17) ..................... 3,00011)....................... (588) (852) Other ........................................................................ (256)2,413 Tax benefit from exercises of stock options (Note 11)........................... -- -- 613 Equity in excess of fair value at date of grant of partnership units of propane subsidiary over the option price for unit options granted (Note 11)................................................................... -- -- 582 Other........................................................................... (109) 2 --------- --------- ----------- -- ----------- ------------ ----------- Balance at end of period...................................................... $ 79,497 year..........................................................$ 162,020 $ 161,170 ========= ========= =========$ 204,291 =========== ============ =========== Accumulated deficit: Balance at beginning of period................................................ $ (46,987) year....................................................$ (60,929) $ (97,923) $ (111,824) Net loss ..................................................................... (8,109)loss........................................................................ (36,994) (13,901) Dividends on preferred stock ................................................. (5,833) -- -- --------- --------- ---------(3,616) ----------- ------------ ----------- Balance at end of period...................................................... $ (60,929) year..........................................................$ (97,923) $(111,824) ========= ========= =========$ (111,824) $ (115,440) =========== ============ =========== Treasury stock (Note 17)11): Balance at beginning of period................................................ $ (75,150) year....................................................$ (45,473) $ (45,931) Shares issued for SEPSCO Merger (Note 26) .................................... 30,364 -- -- Grants of restricted stock ................................................... 775 76 --$ (46,273) Purchases of common shares in open market transactions ....................... (1,025)transactions.......................... (489) (496) Other ........................................................................ (437)(1,594) Issuance of shares from treasury at average cost in connection with: Exercises of stock options.................................................. -- 113 2,351 Grants of restricted stock.................................................. 76 -- -- Other........................................................................... (45) 154 --------- --------- ---------41 60 ----------- ------------ ----------- Balance at end of period...................................................... $ (45,473) year..........................................................$ (45,931) $ (46,273) ========= ========= =========$ (45,456) =========== ============ =========== Other (Note 17)11): Unearned compensation: Balance at beginning of period............................................. $ (7,304) year................................................$ (7,416) $ (1,013) Grants of restricted stock ................................................ (1,376) (68) -- Forteiture$ (305) Forfeiture (grant) of below market stock options including equity in (grant) of units of propane subsidiary (Note 11).......................... (3,000) 319 219 (3,270) Amortization of below market stock options ................................ 907including equity in amortization associated with options of propane subsidiary (Note 11) 761 489 1,592 Grants of restricted stock.................................................. (68) -- -- Amortization of restricted stock: Scheduled amortization .................................................. 3,357 1,950stock (Note 11).................................. 5,281 -- Accelerated vesting ..................................................... -- 3,331 -- Other ..................................................................... --Other....................................................................... 110 -- --------- --------- ---------- ----------- ------------ ----------- Balance at end of period .................................................. (7,416)year...................................................... (1,013) (305) --------- --------- --------(1,983) ----------- ------------ ----------- Net unrealized gains (losses) on "available-for-sale" marketable securities (Note 5): Balance at beginning of period ............................................ 8year ............................................... (260) 99 Net change in unrealized599 Unrealized gains (losses) on marketable securities .......... (268)for the year...................................... 359 500 --------- --------- ---------(1,336) ----------- ------------ ----------- Balance at end of period .................................................. (260)year...................................................... 99 599 --------- --------- --------- $ (7,676)(737) ----------- ------------ ----------- Currency translation adjustment: Balance at beginning of year................................................ -- -- -- Net change in currency translation adjustment............................... -- -- (242) ----------- ------------ ----------- Balance at end of year...................................................... -- -- (242) ----------- ------------ ----------- $ (914) $ 294 ========= ========= =========$ (2,962) =========== ============ =========== See accompanying notes to consolidated financial statements.statements
TRIARC COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, ----------------------- 1994YEAR ENDED ------------------------ DECEMBER 28, 1995 1996 1997 ---- ---- ---- (IN THOUSANDS) Cash flows from operating activities: Net loss ........................................................................ $ (8,109)loss................................................................ $ (36,994) $ (13,901) $ (3,616) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: (Gain) loss on saleProvision for acquisition related costs, net of businesses ............................................ (6,043) 100 (77,000) Reduction in carrying value of long-lived assets .............................payments............ -- 14,647 64,300 Depreciation and amortization of properties .................................. 33,901 38,893 30,685-- 24,883 Amortization of costs in excess of net assets of acquired companies, trademarks and other amortization...................... 17,100 16,237 21,661 Depreciation and amortization ............................... 11,125 17,100 16,317of properties......................... 37,884 29,587 17,658 Reduction in carrying value of long-lived assets.................... 14,647 64,300 -- Amortization of original issue discount and deferred financing costs ......... 6,957.................................................. 7,558 5,733 5,014 Write-off of deferred financing costs and in 1996 original issue discount.................................................... -- 12,245 6,178 Discount from principal on early extinguishment of debt............. -- (9,237) -- Provision for doubtful accounts .............................................. 1,021 4,067 6,104accounts..................................... 4,659 5,680 5,003 Income from discontinued operations................................. (2,439) (5,213) (20,718) (Gain) loss on sale of businesses................................... 100 (77,000) (4,955) (Gain) loss on sale of assets, net ........................................... (975) (10,264) 32net.................................. (10,261) 36 (1,051) Other, net ................................................................... (2,754) 2,110 6,547net.......................................................... (1,564) 2,792 5,499 Changes in operating assets and liabilities: Decrease (increase) in restricted cash and cash equivalents ...................... 548 2,771 976 Increase in receivables ................................................ (18,079) (12,812) (12,214)receivables............................ (13,636) (6,290) 17,423 Decrease (increase) in inventories ..................................... 2,544 (2,484) (15,765)inventories............................ 2,184 (17,562) 5,814 Decrease (increase) in prepaid expenses and other current assets ....... 2,776 (677) (190)assets......... 2,094 786 6,618 Increase (decrease) in accounts payable and accrued expenses ........... (29,196) (9,453) 23,164 --------- --------- ---------................................................... (9,087) 22,022 (31,400) ------------ ------------- --------------- Net cash provided by (used in) operating activities............... (6,284) 14,562 34,788 --------- --------- ---------12,245 30,215 54,011 ------------ ------------- --------------- Cash flows from investing activities: Acquisition of Mistic Brands, Inc., net of cash acquired of $2,067,000 in 1995 and Snapple Beverage Corp. in 1997................. (92,257) -- (311,915) Other business acquisitions, net of cash acquired of $2,409,000 in 1997............................................................... (18,947) (4,018) (6,721) Net proceeds from sale of the dyes and specialty chemicals business.............................................................. -- -- 64,410 Net proceeds from the sale of the textile business .............................. --..................... -- 236,824 Business acquisitions, net of cash acquired of $2,067,000 in 1995 ............... (18,790) (111,204) (4,018)-- Proceeds from sales of non-core businesses and properties........................ 39,077 19,599 2,196 Capital expenditures ............................................................ (61,639) (69,974) (30,079)properties............... 19,596 2,183 4,370 Cost of short-term investments purchased ........................................ (10,308)............................... (27,490) (64,409) (54,623) Proceeds from short-term investments sold ....................................... 11,033.............................. 29,805 21,598 Investments in affiliates ....................................................... (7,368)62,919 Capital expenditures ................................................... (68,576) (29,340) (13,906) Cost of non-current investments ........................................ (6,340) -- Other ........................................................................... (633) 254 (1,077) --------- --------- ---------(5,750) Other................................................................... -- (376) 592 ------------ ------------- --------------- Net cash provided by (used in) investing activities .............. (48,628) (165,350) 161,035 --------- --------- ---------activities........................................... (164,209) 162,462 (260,624) ------------ ------------- --------------- Cash flows from financing activities: Proceeds from long-term debt ........................................... 208,871 129,026 314,762 Repayments of long-term debt .................................................... (90,899) (31,953) (413,176) Proceeds from long-term debt .................................................... 121,232 208,871 164,026........................................... (31,263) (412,051) (78,993) Restricted cash (from the proceeds of) used to repay long-term debt..............debt........................................................ (30,000) 30,000 -- (30,000) 30,000Distributions paid on propane partnership common units.................. -- (3,309) (14,073) Deferred financing costs................................................ (9,244) (7,299) (11,479) Net proceeds from sale of partnership units in the propane subsidiary ........... --........................................................... -- 124,749 Distributions paid on partnership units of propane subsidiary.................... -- -- (3,309) Deferred financing costs ........................................................ (5,573) (9,244) (9,129) Payment of preferred dividends .................................................. (5,833) -- -- Other ........................................................................... (1,281)Other................................................................... (1,226) (438) --------- --------- ---------(54) -------------- -------------- -------------- Net cash provided by (used in) financing activities ............. 17,646 136,448 (107,277) --------- --------- ---------activities........................................... 137,138 (139,322) 210,163 Net cash provided by (used in) continuing operations .............................. (37,266) (14,340) 88,546operations....................... (14,826) 53,355 3,550 Net cash provided by (used in) discontinued operations ............................ (1,471) (1,519) 1,654 --------- --------- ---------operations..................... (1,038) 36,788 (23,644) Decrease in cash due to deconsolidation of propane business................ -- -- (4,616) --------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents .............................. (38,737) (15,859) 90,200equivalents....................... (15,864) 90,143 (24,710) Cash and cash equivalents at beginning of period .................................. 118,801 80,064 64,205 --------- --------- ---------period........................... 79,911 64,047 154,190 --------------- -------------- -------------- Cash and cash equivalents at end of period ........................................ ................................$ 80,06464,047 $ 64,205154,190 $ 154,405 ========= ========= =========129,480 =============== ============== ============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest...................................................................... or: Interest...........................................................$ 64,63473,286 $ 73,91866,537 $ 67,880 ========== ========== =========63,823 =============== ============== ============== Income taxes, net............................................................. $ 5,925 net..................................................$ 6,911 $ 1,529 ========== ========== =========$ 5,688 =============== ============== ============== Supplemental schedule of noncash investing and financing activities: Total capital expenditures.................................................... expenditures..........................................$ 65,83169,822 $ 71,22029,581 $ 30,32013,906 Amounts representing capitalized leases and other secured financing........... (4,192)financing................................................. (1,246) (241) ---------- ----------- ------------ --------------- -------------- -------------- Capital expenditures paid in cash............................................. cash...................................$ 61,63968,576 $ 69,97429,340 $ 30,079 ========== =========== ========== Due to their noncash nature, the following transactions are also not reflected in the respective consolidated statements of cash flows: Pursuant to a settlement agreement, in January 1995 Triarc Companies, Inc. ("Triarc") issued 4,985,722 shares of its Class B Common Stock in exchange for all of its then outstanding redeemable convertible preferred stock owned by an affiliate of Victor Posner, the former Chairman and Chief Executive Officer of Triarc ("Posner"), resulting in a decrease in redeemable preferred stock of $71,794,000 and equal aggregate increases in Class B Common Stock of $498,000 and additional paid-in capital of $71,296,000. Further, an additional 1,011,900 shares of Class B Common Stock valued at $12,016,000 were issued to entities controlled by Posner pursuant to such agreement in settlement of, among other matters, a $12,326,000 previously accrued liability owed to an affiliate of Posner, resulting in a gain of $310,000. See Note 28 to the consolidated financial statements for further discussion. In April 1994 Triarc acquired the 28.9% minority interest in its subsidiary, Southeastern Public Service Company, that it did not already own through the issuance of 2,691,824 shares of its Class A Common Stock. See Note 2613,906 =============== ============== ==============
Due to their noncash nature, the following transactions are also not reflected in the respective consolidated statements of cash flows: On November 25, 1997 Triarc issued 1,566,858 shares of Class A Common Stock in exchange for all of the outstanding stock of Cable Car Beverage Corporation ("Cable Car") and issued 154,931 stock options in exchange for all of the outstanding stock options of Cable Car. See Note 3 to the consolidated financial statements for further discussion of this acquisition. Effective December 28, 1997 the Company adopted certain amendments to the partnership agreements of National Propane Partners, L.P. (the "Partnership") and its subpartnership such that the Company no longer has substantive control over the Partnership (see Note 7 to the consolidated financial statements) and, accordingly, deconsolidated the Partnership as of such date (the "Deconsolidation"). The effect of the Deconsolidation is not reflected in the statement of cash flows for the year ended December 28, 1997. Pursuant to a settlement agreement, in January 1995 Triarc Companies, Inc. ("Triarc") issued 4,985,722 shares of its Class B Common Stock in exchange for all of its then outstanding redeemable convertible preferred stock owned by an affiliate of Victor Posner, the former Chairman and Chief Executive Officer of a predecessor corporation to Triarc ("Posner"), resulting in a decrease in redeemable preferred stock of $71,794,000 and equal aggregate increases in Class B Common Stock of $498,000 and additional paid-in capital of $71,296,000. Further, an additional 1,011,900 shares of Class B Common Stock valued at $12,016,000 were issued to entities controlled by Posner pursuant to such agreement in settlement of, among other matters, a $12,326,000 previously accrued liability owed to an affiliate of Posner, resulting in a gain of $310,000. See Note 11 to the consolidated financial statements for further discussion. See accompanying notes to consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 199628, 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Triarc Companies, Inc. (referred to herein as "Triarc" and, collectively with its subsidiaries, as the "Company") and its principal subsidiaries. The principal subsidiaries of the Company, all wholly-owned as of December 31, 1996,28, 1997, are Triarc Beverage Holdings Corp. ("TBHC" - newly-formed in 1997), CFC Holdings Corp. ("CFC Holdings"), National Propane Corporation ("National Propane"), Cable Car Beverage Corporation ("Cable Car" - 98.4% owned prior to April 14, 1994)acquired November 25, 1997), TXL Corp. ("TXL") and Southeastern Public Service Company ("SEPSCO"). TBHC has as its wholly-owned subsidiaries Snapple Beverage Corp. ("Snapple" - acquired May 22, 1997) and Mistic Brands, Inc. ("Mistic" - acquired August 9, 1995), TXL Corp. ("TXL", formerly Graniteville Company - 85.8% owned prior to April 14, 1994), National Propane Corporation ("National Propane") and Southeastern Public Service Company ("SEPSCO" - 71.1% owned prior to April 14, 1994). CFC Holdings has as its wholly-owned subsidiaries Chesapeake Insurance Company Limited ("Chesapeake Insurance") and RC/Arby's Corporation ("RCAC"), and RCAC has as its principal wholly-owned subsidiaries Arby's, Inc. ("Arby's") and Royal Crown Company, Inc. ("Royal Crown") and Arby's, Inc. (d/b/a Triarc Restaurant Group - "TRG"). Additionally, RCAC has three wholly-owned subsidiaries which, ownprior to the May 1997 sale of all company-owned restaurants, owned and/or operateoperated Arby's restaurants, consisting of Arby's Restaurant Development Corporation ("ARDC"), Arby's Restaurant Holding Company ("ARHC") and Arby's Restaurant Operations Company. TXL has as its principal wholly-owned subsidiary C.H. Patrick & Co., Inc. ("C.H. Patrick") and operated the Textile Business prior to the sale of such business in April 1996 (see Note 19). National Propane and its subsidiary National Propane SGP Inc. ("SGP") own a combined 42.7% interest in National Propane Partners, L.P. (the "Partnership"), a limited partnership organized in 1996 to acquire, own and operate the propane business of National Propane, and a subpartnership. National Propane and SGP are the general partners of the Partnership. The entity representative of both the operations of (i) National Propane prior to a July 2, 1996 conveyance of certain of its assets and liabilities (see Note 19)3) to a subsidiary partnership of the Partnership and (ii) the Partnership subsequent thereto, is referred to herein as "National". TXL owned C.H. Patrick & Co., Inc. ("C.H. Patrick") prior to its sale on December 23, 1997 and operated the Textile Business (see Note 3) prior to the sale of such business in April 1996. All significant intercompany balances and transactions have been eliminated in consolidation. See Note 193 for a discussion of the April 1996 sale of the Textile Business,acquisitions and dispositions referred to above. See Note 277 for a discussion of the August 1995 Mistic acquisition and Note 26 for a discussiondeconsolidation (the "Deconsolidation") of the April 1994 merger pursuantPartnership effective December 28, 1997. CHANGE IN FISCAL YEAR Effective January 1, 1997 the Company changed its fiscal year from a calendar year to which Triarc acquireda year consisting of 52 or 53 weeks ending on the remaining 28.9% of SEPSCOSunday closest to December 31. In accordance therewith, the Company's 1997 fiscal year commenced January 1, 1997 and ended on December 28, 1997. Such period is referred to herein as a result, the 14.2% of TXL that it did not already own."the year ended December 28, 1997" or "1997". December 28, 1997 and December 31, 1996 are referred to herein as "Year-End 1997" and "Year-End 1996", respectively. CASH EQUIVALENTS All highly liquid investments with a maturity of three months or less when acquired are considered cash equivalents. The Company typically invests its excess cash in commercial paper of high credit-quality entities and repurchase agreements with high credit-quality financial institutions. Securities pledged as collateral for repurchase agreements are segregated and held by the financial institution until maturity of each repurchase agreement. While the market value of the collateral is sufficient in the event of default, realization and/or retention of the collateral may be subject to legal proceedings in the event of default or bankruptcy by the other party to the agreement. SHORT-TERM INVESTMENTS The Company'sShort-term investments include marketable securities with readily determinable fair values and investments in equity securities which are not readily marketable. The Company's marketable securities are classified and accounted for as "available for sale""available-for-sale" and, as such, are reported at fair market value with resulting net unrealized gains or losses are reported as a separate component of stockholders' equity. Investments in equity securities which are not readily marketable are accounted for at cost. The cost of securities sold for all marketable securities is determined using the specific identification method. INVENTORIES The Company's inventories are stated at the lower of cost or market. After the April 1996 sale of the Textile Business and the December 1997 sale of C.H. Patrick (see Note 3), for which the cost of certain inventories was determined on the last-in, first-out ("LIFO") basis, and the Deconsolidation (effective December 28, 1997) of the Partnership for which the cost of inventories is determined on the average cost basis which approximated the first-in, first-out ("FIFO") basis, the cost of the inventories of the remaining businesses of the Company is determined on the first-in, first-outFIFO basis. INVESTMENTS The Company's non-current investments include investments in which it has significant influence over the investee ("FIFO"Equity Investments") and which are accounted for in accordance with the equity method of accounting under which the consolidated results include the Company's share of income or loss of such investees. Investments in investees in which the Company does not have such influence are accounted for at cost. The excess, if any, of the Company's investment in Equity Investments over the underlying equity in net assets of each investee is being amortized on a straight line basis (74%over 35 years. See Note 7 for further discussion of inventories as of December 31, 1996), the average cost basis (25% of inventories) which approximated the FIFO basis and the LIFO basis (1% of inventories).Company's non-current investments. PROPERTIES AND DEPRECIATION AND AMORTIZATION Properties are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of properties is computed principally on the straight-line basis using the estimated useful lives of the related major classes of properties: 3 to 8 years for transportation equipment; 3 to 30 years for machinery and equipment; and 1415 to 6040 years for buildings. Leased assets capitalized and leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the respective leases. AMORTIZATION OF INTANGIBLES Costs in excess of net assets of acquired companies ("Goodwill") arising after November 1, 1970 are being amortized on the straight-line basis over 15 to 40 years; Goodwill arising prior to that date is not being amortized.years. Trademarks are being amortized on the straight-line basis principally over 15 to 35 years. Deferred financing costs and original issue debt discount (in 1995) are being amortized as interest expense over the lives of the respective debt using the interest rate method. IMPAIRMENTS Intangible Assets The amount of impairment, if any, in unamortized Goodwill is measured based on projected future results of operations. To the extent future results of operations of those subsidiaries to which the Goodwill relates through the period such Goodwill is being amortized are sufficient to absorb the related amortization, the Company has deemed there to be no impairment of Goodwill. Long-Lived Assets Effective October 1, 1995 the Company adopted SFASStatement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In 1996 the Company recorded a provision of $64,300,000 in order to reduce the carrying value of certain long-lived assets and identifiable intangibles principally relating to the estimated loss on the anticipated sale of all company-owned restaurantsrecoverable (see Note 3). DERIVATIVE FINANCIAL INSTRUMENTINSTRUMENTS The Company enters into interest rate cap agreements ("Caps") in order to protect against significant interest rate increases on certain of its floating-rate debt. The costs of such agreements are amortized over the lives of the respective agreements. Such Caps as of December 28, 1997 are at least 2% higher than the current interest rate on the related debt. The Company had an interest rate swap agreement (see Note 8) entered into in order to synthetically alter the interest rate of certain of the Company's fixed-rate debt (see Note 13) until the swap'sagreement's maturity in 1996. The Company calculated the estimated remaining amount to be paid or received under the interest rate swap agreement for the period from the periodic settlement date immediately prior to the financial statement date through the end of the agreement based on the interest rate applicable at the financial statement date and recognized such amount which applied to the period from the last periodic settlement date through the financial statement date as a component of interest expense. TheThus the recognition of gain or loss from the interest rate swap agreement was effectively correlated with the underlying debt. A payment received at the inception of the agreement, which was deemed to be a fee to induce the Company to enter into the agreement, was amortized over the full life of the agreement since the Company was not at risk for any gain or loss on such payment. STOCK-BASED COMPENSATION In 1996 the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of accounting for employee stock-based compensation and encourages adoption of that method of accounting but permits accounting under the intrinsic value method prescribed by an accounting pronouncement prior to SFAS 123. The Company has elected to continue to measure compensation costs for its employee stock-based compensation under the intrinsic value method. Accordingly, compensation cost for the Company's stock options and restricted stock is measured as the excess, if any, of the market price of the Company's stock at the date of grant over the amount, if any, an employee must pay to acquire the stock. Compensation cost for stock appreciation rights is recognized currently based on the change in the market price of the Company's common stock during each period. FOREIGN CURRENCY TRANSLATION Financial statements of foreign subsidiaries are prepared in their respective local currencies and translated into United States dollars at the current exchange rates for assets and liabilities and an average rate for the year for revenues, costs and expenses. Net gains or losses resulting from the translation of foreign financial statements are charged or credited directly to the "Currency translation adjustment" component of "Stockholders' equity." ADVERTISING COSTS The Company accounts for advertising production costs by expensing such production costs the first time the related advertising takes place. Advertising costs amounted to $86,091,000, $101,251,000$39,323,000, $39,386,000 and $108,728,000$41,740,000 for 1994, 1995, 1996 and 1997, respectively. In addition the Company supports its beverage bottlers and distributors with promotional allowances, a portion of which is utilized for indirect advertising by such bottlers and distributors. Promotional allowances amounted to $61,928,000, $69,342,000 and $98,713,000 for 1995, 1996 and 1997, respectively. INCOME TAXES The Company files a consolidated Federal income tax return with all of its subsidiaries except Chesapeake Insurance, a foreign corporation, and prior to April 14, 1994, TXL and SEPSCO.corporation. The income of the Partnership, other than that of a corporate subsidiary, is taxable to its partners and not the Partnership and, accordingly, income taxes are not provided on the income of the Partnership only to the extent of its minority ownership.ownership by the Company. Deferred income taxes are provided to recognize the tax effect of temporary differences between the bases of assets and liabilities for tax and financial statement purposes. REVENUE RECOGNITION The Company records sales principally when inventory is shipped or delivered. Prior to the 1996 sale of the Textile Business (see Note 3), the Company also recorded sales to a lesser extent (7%, 6%(6% and 2% of consolidated revenues for 1994, 1995 and 1996, respectively) on a bill and hold basis. In accordance with such policy, the goods are completed, packaged and ready for shipment; such goods are effectively segregated from inventory which is available for sale; the risks of ownership of the goods have passed to the customer; and such underlying customer orders are supported by written confirmation. Franchise fees are recognized as income when a franchised restaurant is opened. Franchise fees for multiple area developments represent the aggregate of the franchise fees for the number of restaurants in the area development and are recognized as income when each restaurant is opened in the same manner as franchise fees for individual restaurants. Royalties are based on a percentage of restaurant sales of the franchised outlet and are accrued as earned. INSURANCE LOSS RESERVES Insurance loss reserves (included within "Deferred income and other liabilities") include reserves for incurred but not reported claims of $2,056,000$2,469,000 and $2,469,000$2,839,000 as of December 31, 19951996 and 1996,December 28, 1997, respectively. Such reserves for current and former affiliated company business are based on either actuarial studies using historical loss experience or the Company's calculations when historical loss information is not available. The balance of the reserves for non-affiliated company business were either reported by unaffiliated reinsurers, calculated by the Company or based on claims adjustors' evaluations. Management believes that the reserves are fairly stated. Adjustments to estimates recorded resulting from subsequent actuarial evaluations or ultimate payments are reflected in the operations of the periods in which such adjustments become known. The Company no longer insureshas not insured or reinsuresreinsured any risks for periods commencing on or aftersince October 1, 1993. LOSS PER SHARE Loss per share has been computed by dividing the net loss applicable to common stockholders (net loss plus dividend requirements on Triarc's then outstanding preferred stocks in 1994) by the weighted average number of outstanding shares of common stock during the period. Such weighted averages were 23,282,000, 29,764,000 and 29,898,000 for 1994, 1995 and 1996, respectively. Common stock equivalents were not used in the computation of loss per share because such inclusion would have been antidilutive. Fully diluted loss per share is not applicable since the inclusion of contingent shares would also be antidilutive. RECLASSIFICATIONS Certain amounts included in the prior years' consolidated financial statements have been reclassified to conform with the current year's presentation. (2) SIGNIFICANT RISKS AND UNCERTAINTIES NATURE OF OPERATIONS The Company is predominantly a holding company which is engaged in fourthree lines of business (each with the indicated percentage of the Company's consolidated revenues for the year ended December 31, 1996)28, 1997): beverages (31%(65%), restaurants (29%(16%), dyes and chemicals (included inpropane (19%). Prior to the textile business segment)sales of C.H. Patrick and the Textile Business until its sale(see next paragraph), the Company had operations in April 1996 (22%) and propane (18%).the textile business. The beverage segment produces and sells a broad selection of concentrates and, to a much lesser extent, carbonated beverages and concentrates under the principal brand names RC COLA, DIETCola(R), Diet RC ROYAL CROWN, ROYAL CROWN DRAFT COLA, DIET RITE, NEHI, NEHI LOCKJAW, UPPER 10, KICKCola(R), Diet Rite Cola(R), Diet Rite(R) flavors, Nehi(R), Upper 10(R) and THIRST THRASHERKick(R) and premium beverages andand/or ready-to-drink brewed iced teas under the principal brand names MISTIC, ROYAL MISTIC, MISTIC RAIN FORESTSnapple(R), Mistic(R), Royal Mistic(R), Mistic Rain Forest(R), Mistic Fruit Blast(R) and MISTIC BREEZE.Stewart's(R). The restaurant segment primarily franchises and operates (see Note 3 regarding the February 1997 agreement to sell all company-owned restaurants) Arby's quick service restaurants representing the largest franchise restaurant system specializing in roast beef sandwiches. Prior to the May 1997 sale of all company-owned restaurants, the Company also operated Arby's(R) restaurants (see Note 3). The propane segment is engaged primarily in the retail marketing of propane to residential customers, commercial and industrial customers, agricultural customers and resellers. The propane segment also markets propane-related supplies and equipment including home and commercial appliances. TheEffective December 28, 1997 the Company no longer consolidates the Partnership (see Note 7). Prior to the December 1997 sale of C.H. Patrick, the textile segment producesproduced and marketsmarketed dyes and specialty chemicals primarily for the textile industry and, prior to the 1996 sale of the Textile Business (see Note 19)3), the textile segment also manufactured, dyed and finished cotton, synthetic and blended (cotton and polyester) apparel fabrics principally for (i) utility wear and (ii) sportswear, casual wear and outerwear. The aforementioned sale of C.H. Patrick was accounted for as a discontinued operation (see Note 17) and, as such, the revenues, costs and expenses of C.H. Patrick are reported as "Income from discontinued operations" and the assets and liabilities are reported as "Net current assets of discontinued operations" and "Net non-current liabilities of discontinued operations" in the accompanying consolidated financial statements. The Company's operations principally are throughout the United States. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. SIGNIFICANT ESTIMATES The Company's significant estimates are for costs related to (i) insurance loss reserves (see Note 1), and (ii) provisions for examinations of its income tax returns by the Internal Revenue Service ("IRS") (see Note 15), (iii) provisions for impairment of long-lived assets and for long-lived assets to be disposed of (see Note 3) and (iv) provisions for environmental and other legal contingencies (see Note 25)10). CERTAIN RISK CONCENTRATIONS The Company'sCompany believes that its vulnerability to risk concentrations related to significant customers and vendors, products sold and sources of its raw materials areis somewhat mitigated due to the diversification of its businesses. Although beverages accounted for 65% of revenues in 1997, the segments,Company believes that the risks from concentrations within such segment are mitigated for several reasons. No customer of which nonethe beverage segment accounted for more than 31%3% of consolidated revenues in 1996.1997. While the beverage segment has chosen to purchase certain raw materials (such as aspartame) on an exclusive basis from single suppliers, the Company believes that, if necessary, adequate raw materials can be obtained from alternate sources. The beverage segment product offerings are varied, including fruit flavored beverages, iced teas, lemonades, carbonated sodas, 100% fruit juices, nectars and sweetened seltzers. Risk of geographical concentration for all of the Company's businesses is also minimized since each of the segmentssuch businesses generally operates throughout the United States with minimal foreign exposure. (3) PLANNEDBUSINESS ACQUISITIONS AND DISPOSITIONS 1997 TRANSACTIONS SPINOFFAcquisition of Snapple On October 29, 1996,May 22, 1997 Triarc acquired (the "Snapple Acquisition") Snapple, a producer and seller of premium beverages, from The Quaker Oats Company ("Quaker") for $311,915,000 consisting of cash of $300,126,000 (including $126,000 of post-closing adjustments), $9,260,000 of fees and expenses and $2,529,000 of deferred purchase price. The purchase price for the Snapple Acquisition was funded from (i) $75,000,000 of cash and cash equivalents on hand which was contributed by Triarc to TBHC, and (ii) $250,000,000 of borrowings by Snapple on May 22, 1997 under a $380,000,000 credit agreement, as amended (the "Credit Agreement" - see Note 8), entered into by Snapple, Mistic and TBHC (collectively, the "Borrowers"). The Snapple Acquisition was accounted for in accordance with the purchase method of accounting. See below under "Purchase Price Allocations of Acquisitions" for the allocation of the $311,915,000 purchase price of Snapple to the Snapple balance sheet as of May 22, 1997. The results of operations of Snapple from the May 22, 1997 date of the Snapple Acquisition through December 28, 1997 have been included in the accompanying consolidated statements of operations. See below under "Pro Forma Operating Data" for the unaudited supplemental pro forma condensed consolidated summary operating data of the Company announced that its Board(the "Pro Forma Data") (a) for the year ended December 28, 1997 giving effect to (i) the Snapple Acquisition and related transactions, (ii) the RTM Sale (see below) and (iii) the Stewart's Acquisition (see below) and the C&C Sale (see below) combined and (b) for the year ended December 31, 1996 giving effect to the Graniteville Sale (see below) and the Propane Sale (see below) combined as well as the above transactions reflected in the 1997 pro forma information. Stewart's Acquisition On November 25, 1997 the Company acquired (the "Stewart's Acquisition") Cable Car, a marketer of Directors approved a planpremium soft drinks in the United States and Canada, primarily under the Stewart's(R) brand. Pursuant to offer up to approximately 20% of the Stewart's Acquisition, Triarc issued 1,566,858 shares of its beverage and restaurant businesses (operated through Mistic and RCAC)class A common stock (the "Class A Common Stock") with a value of $37,409,000 as of November 25, 1997 based on the closing price of the Class A Common Stock on such date of $23.875 per share, in exchange for all of the outstanding stock of Cable Car. Triarc also issued 154,931 stock options (see Note 11) with a value of $2,788,000 as of November 25, 1997, in exchange for all of the outstanding stock options of Cable Car. Such issuances represented 0.1722 shares of Class A Common Stock or Triarc stock options for each outstanding Cable Car share or stock option as of November 25, 1997. The Company incurred $1,300,000 of expenses related to the public through an initial public offering andStewart's Acquisition, of which $650,000 was attributable to spin off the remainderregistration of the 1,566,858 shares of such businessesClass A Common Stock under the Securities Act of 1933 and, accordingly, was charged to Triarc stockholders (collectively,"Additional paid-in capital." The Stewart's Acquisition was accounted for in accordance with the "Spinoff Transactions"). Consummationpurchase method of accounting. See below under "Purchase Price Allocations of Acquisitions" for the allocation of the Spinoff Transactions will be subject$40,847,000 purchase price of Cable Car to the Cable Car balance sheet as of November 25, 1997. See below under "Pro Forma Operating Data" for the Pro Forma Data giving effect to, among other things, receipttransactions, the Stewart's Acquisition. Sale of a favorable ruling from the IRS that the Spinoff Transactions will be tax-free toRestaurants On May 5, 1997 certain subsidiaries of the Company and its stockholders. The request for the ruling from the IRS contains several complex issues and there can be no assurance that Triarc will receive the ruling or that Triarc will consummate the Spinoff Transactions. The Spinoff Transactions are not expectedsold to occur prior to the endan affiliate of the second quarter of 1997. Triarc is currently evaluating the impact, if any, of the proposed acquisition of Snapple Beverage Corp. (see Note 31) on the anticipated structure of the Spinoff Transactions. SALE OF RESTAURANTS In February 1997 the principal subsidiaries comprising the Company's restaurant segment entered into an agreement (the "RTM Agreement") with RTM, Inc. ("RTM"), the largest franchisee in the Arby's system, to sell to an affiliate of RTM all of the 355 company-owned restaurants.restaurants (the "RTM Sale"). The purchasesales price consists of $50,000consisted of cash and a promissory note (discounted value) aggregating $2,000,000$3,471,000 (including $2,092,000 of post-closing adjustments) and the assumption by RTM of approximately $69,735,000an aggregate $54,682,000 in mortgage and equipment notes payable to FFCA Mortgage Corporation (see Note 13) and $14,955,000 in capitalized lease obligations. The consummationRTM now operates the 355 restaurants as a franchisee and pays royalties to the Company at a rate of 4% of those restaurants' net sales effective May 5, 1997. In 1997 the Company recorded a $4,089,000 loss on the sale included in "Gain (loss) on sale of businesses, net" (see Note 14) (i) which includes a $1,457,000 provision for the fair value of the Company's effective guarantee of future lease commitments and debt repayments assumed by RTM for which it remains contingently liable if the payments are not made by RTM and (ii) is exclusive of an extraordinary charge in connection with the early extinguishment of debt (see Note 18). The results of operations of the sold restaurants have been included in the accompanying consolidated statements of operations until the May 5, 1997 date of sale. Following the RTM sale is subjectthe Company continues as the franchisor of the more than 3,000 store Arby's system. See below under "Pro Forma Operating Data" for the Pro Forma Data giving effect to, customary closing conditions, including receipt of necessary consents and regulatory approvals, and is expected to occur duringamong other transactions, the second quarter of 1997.RTM Sale. In 1996 the Company recorded a $58,900,000 charge included in "Reduction in carrying value of long-lived assets impaired or to be disposed of" to (i) reduce the carrying value of the long-lived assets to be sold (reported as "Assets held for sale" in the accompanying consolidated balance sheet as of December 31, 1996) by approximately $46,000,000 to estimated fair value consisting of adjustments to "Properties, net" of $36,343,000, "Unamortized costs in excess of net assets of acquired companies" of $5,214,000 and "Deferred costs and other assets" of $4,443,000 and (ii) provide for associated net liabilities of approximately $12,900,000, principally reflecting the present value of certain equipment operating lease obligations which willwould not be assumed by the purchaser and estimated closing costs. The estimated fair value was determined based on the terms of the February 1997 agreement for the RTM AgreementSale including the then anticipated sales price. During 1996 the operations of the restaurants to be disposed of had net sales of $231,041,000 and a pretax loss of $3,897,000. Such loss reflectsreflected $10,071,000 of allocated general and administrative expenses and $8,692,000 of interest expense related to the mortgage and equipment notes and capitalized lease obligations directly related to the operations of the restaurants being sold to RTM. In 1995 the Company recorded a provision of $14,647,000 in its restaurant segment consisting of a $12,019,000 reduction in the net carrying value of certain restaurants and other restaurant-related long-lived assets which were determined to be impaired and a $2,628,000 reduction to a net carrying value of $975,000 of certain restaurants and related equipment to be disposed. Such provision reduced "Properties, net" by $12,425,000, "Unamortized costs in excess of net assets of acquired companies" by $1,260,000 and "Deferred costs and other assets" by $962,000 to reflect the fair value of the respective assets. The fair value was generally determined by applying a fair market capitalization rate to the estimated expected future annual cash flows. The results of operations of the restaurants to be disposed as of December 31, 1995 resulted in a pre-taxpretax loss of $806,000 for the year ended December 31, 1995. (4) RESTRICTED CASH AND CASH EQUIVALENTS The following is a summaryC&C Sale On July 18, 1997 the Company completed the sale (the "C&C Sale") of its rights to the C&C beverage line of mixers, colas and flavors, including the C&C trademark and equipment related to the operation of the components of restrictedC&C beverage line, to Kelco Sales & Marketing Inc. ("Kelco") for $750,000 in cash and cash equivalents (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Indemnity escrow account relating to sale of business (Note 21).................$ 500 $ 464 Deposits securing outstanding letters of credit principally for the purpose of securing certain performance and other bonds and payments due under leases............................................................... 3,533 2,593 Borrowings restricted to the February 22, 1996 redemption of long-term debt (Note 13)...................................................... 30,000 -- ---------- --------- $ 34,033 $ 3,057 ========== =========
(5) SHORT-TERM INVESTMENTSan $8,650,000 note (the "Kelco Note") with a discounted value of $6,003,000 consisting of $3,623,000 relating to the C&C Sale and $2,380,000 relating to future revenues. The Company's short-term investments are stated at fair value, except$2,380,000 of deferred revenues consists of (i) $2,096,000 relating to minimum take-or-pay commitments for an investment in limited partnerships which is stated at cost.sales of concentrate for C&C products to Kelco and (ii) $284,000 relating to future technical services to be performed for Kelco by the Company, both under the contract with Kelco. The cost (amortized cost for corporate debt securities), gross unrealized gains and losses, fair value and carrying value, as appropriate,excess of the Company's short-term investments at December 31, 1995 and 1996 are as follows (in thousands):
1995 1996 ------------------------------------------ -------------------------------------------------- CARRYING GROSS GROSS VALUE AND GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE VALUE ---- ----- ------ ----- ---- ----- ------ ----- ----- Marketable securities: Equity securities..............$ 661 $ 103 $ (63) $ 701 $ 14,373 $ 982 $ (424) $ 14,931 $ 14,931 Corporate debt securities...... 5,732 116 (40) 5,808 16,113 24 (36) 16,101 16,101 Mutual fund.................... -- -- -- -- 10,312 367 -- 10,679 10,679 Debt securities issued by foreign governments.......... 873 15 -- 888 -- -- -- -- -- ------- ------ -------- ------- -------- -------- ------- --------- --------- Total marketable securities............. 7,266 $ 234 $ (103) 7,397 40,798 $ 1,373 $ (460) $ 41,711 41,711 ====== ======== ======== ======= ========= Investment in limited partnerships................... -- -- 10,000 10,000 ------- ------- -------- --------- $ 7,266 $ 7,397 $ 50,798 $ 51,711 ======= ======= ======== =========
Maturitiesproceeds of corporate debt securities (all of which are classified as available-for-sale) are as follows at December 31, 1996 (in thousands):
AMORTIZED FAIR COST VALUE ---- ----- Due within one year..................................... $ 3,086 $ 3,089 Due after one year through five years................... 12,670 12,657 Due after five years through eight years................ 357 355 ------- -------- $16,113 $16,101 ======= ========
Gross realized gains and gross realized losses on sales of marketable securities are included in "Other income (expense), net" (see Note 20) in the accompanying consolidated statements of operations and are as follows (in thousands): 1994 1995 1996 ---- ---- ---- Gross realized gains...................$ 404 $ 314 $1,034 Gross realized losses.................. (539) (568) (333) ------ ----- ------ $ (135) $(254) $ 701 ====== ===== ====== The net unrealized gains on marketable securities (all of which are classified as available-for-sale) consist of the following (in thousands): DECEMBER 31, ------------ 1995 1996 ---- ---- Net unrealized gains............................$ 131 $ 913 Income tax provision............................ (32) (314) ------ ------ $ 99 $ 599 ====== ====== The net changes in the unrealized after tax gain (loss) on marketable securities included as a component of stockholders' equity were $(268,000), $359,000 and $500,000 in 1994, 1995 and 1996, respectively. (6) RECEIVABLES, NET The following is a summary of the components of receivables (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Receivables: Trade............................................. $ 160,920 $ 81,161 Other............................................. 15,109 6,649 --------- --------- 176,029 87,810 Less allowance for doubtful accounts (trade)...... 7,495 7,197 --------- --------- $ 168,534 $ 80,613 ========= =========
Substantially all receivables are pledged as collateral for certain debt (see Note 13). (7) INVENTORIES The following is a summary of the components of inventories (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Raw materials....................................................$ 40,195 $ 25,405 Work in process.................................................. 6,976 467 Finished goods................................................... 71,378 29,468 --------- -------- $ 118,549 $ 55,340 ========= ========
The current cost of LIFO inventories exceeded$4,373,000 over the carrying value thereof by approximately $8,739,000 and $330,000 at December 31, 1995 and 1996, respectively. In 1994 and 1995 certain inventory quantities were reduced, resulting in liquidations of LIFO inventory quantities carried at lower costs from prior years. The effect of such liquidations was to decrease cost of sales by $2,462,000 and $1,206,000, respectively. There was no such liquidation in 1996; the lower LIFO inventories resulted from the April 1996 sale of the Textile Business (see Note 19). Substantially all inventories are pledged as collateral for certain debt (see Note 13). (8) PROPERTIES The following is a summaryC&C trademark of the components of properties, at cost (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Land .......................................................... $ 32,441 $ 9,199 Buildings and improvements and leasehold improvements.......... 147,505 31,932 Machinery and equipment ....................................... 329,886 157,237 Transportation equipment ...................................... 27,262 24,950 Leased assets capitalized ..................................... 19,296 888 --------- --------- 556,390 224,206 Less accumulated depreciation and amortization ................ 224,801 116,934 --------- --------- $ 331,589 $ 107,272 ========= =========
The decrease in properties from December 31, 1995 to December 31, 1996 principally resulted from (i) the April 1996 sale of the Textile Business and (ii) the 1996 reduction in carrying value of certain long-lived assets to be disposed of and reclassification as of December 31, 1996 of such assets to "Assets held for sale" (see Note 3). Substantially all properties are pledged as collateral for certain debt (see Note 13). (9) UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES The following is a summary of the components of the unamortized costs in excess of net assets of acquired companies (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Costs in excess of net assets of acquired companies (Notes 19, 26 and 27)................$ 290,630 $ 274,037 Less accumulated amortization...................... 62,805 70,123 ---------- ---------- $ 227,825 $ 203,914 ========== ==========
(10)TRADEMARKS The following is a summary of the components of trademarks (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Trademarks (Note 27)....................................$ 59,021 $ 63,348 Less accumulated amortization........................... 1,875 6,091 --------- --------- $ 57,146 $ 57,257 ========= =========
(11)DEFERRED COSTS AND OTHER ASSETS The following is a summary of the components of deferred costs and other assets (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Deferred financing costs................................$ 45,802 $ 34,102 Other................................................... 27,259 17,712 --------- --------- 73,061 51,814 Less accumulated amortization of deferred financing costs 16,483 11,515 --------- --------- $ 56,578 $ 40,299 ========= =========
(12)ACCRUED EXPENSES The following is a summary of the components of accrued expenses (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Accrued interest................................................. $ 27,370 $ 25,563 Accrued compensation and related benefits ....................... 23,181 20,511 Accrued advertising ............................................. 11,357 12,504 Net current liabilities of discontinued operations (Note 21)..... 3,462 3,589 Other ........................................................... 43,749 42,316 --------- --------- $ 109,119 $ 104,483 ========= =========
TRIARC COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (13)LONG-TERM DEBT
Long-term debt consisted of the following (in thousands): DECEMBER 31, ------------ 1995 1996 ---- ---- 9 3/4% senior secured notes due 2000 (a)................................................$ 275,000 $ 275,000 8.54% first mortgage notes due June 30, 2010 (b)........................................ -- 125,000 Mistic Bank Facility (c) Term loan, bearing interest at a weighted average rate of 8.28% at December 31, 1996................................................................ 58,750 53,750 Revolving loan, bearing interest at a weighted average rate of 8.45% at December 31, 1996................................................................ 6,500 14,950 Mortgage notes payable to FFCA Mortgage Corporation ("FFCA"), bearing interest at a weighted average rate of 11.09% as of December 31, 1996, due through 2016 (d)...................................................................... 51,685 52,136 Equipment notes payable to FFCA, bearing interest at a weighted average rate of 10.89% at December 31, 1996, due through 2003 (d)............................ 6,545 6,236 Patrick Facility term loans, bearing interest at a weighted average rate of 9.20% as of December 31, 1996, due through 2002 (e).................................. -- 33,875 Propane Bank Credit Facility (f) Working capital facility, bearing interest at a rate of 8 1/4% at December 31, 1996............................................................... -- 6,000 Acquisition facility, bearing interest at a weighted average rate of 7.16% at December 31, 1996...................................................... -- 1,885 Graniteville Credit Facility repaid in April 1996 prior to maturity (g) Revolving loan...................................................................... 113,435 -- Term loan .......................................................................... 85,200 -- Former Propane Facility repaid in July 1996 prior to maturity (b) Term loan .......................................................................... 84,083 -- Revolving loan ..................................................................... 43,229 -- 11 7/8% senior subordinated debentures due February 1, 1998 repaid in February 1996 (less unamortized original issue discount of $1,920) (h)................ 43,080 -- 9 1/2% promissory note repaid in July 1996 (i) ......................................... 37,697 -- Notes, bearing interest at 7.94% to 13 1/2%, due through 2002 secured by equipment ............................................................................ 13,651 3,436 Capitalized lease obligations (j) ..................................................... 19,143 15,974 Other................................................................................ 8,879 5,854 ------------ ------------ Total debt ......................................................... 846,877 594,096 Less amounts payable within one year............................................ 83,531 93,567 ------------ ------------ $ 763,346 $ 500,529 ============ ============
Aggregate annual maturities of long-term debt, including capitalized lease obligations, are as follows as of December 31, 1996 (in thousands): YEAR ENDING DECEMBER 31, ------------------------ 1997................................................ $ 93,567 1998................................................ 27,330 1999................................................ 17,049 2000................................................ 296,391 2001................................................ 17,006 Thereafter.......................................... 142,753 --------- $ 594,096 ========= (a) In September 1993 RCAC entered into a three-year interest rate swap agreement (the "Swap Agreement") in the amount of $137,500,000. Under the Swap Agreement, interest on $137,500,000 was paid by RCAC at a floating rate (the "Floating Rate") based on the 180-day London Interbank Offered Rate ("LIBOR") and RCAC received interest at a fixed rate of 4.72%. The Floating Rate was set at the inception of the Swap Agreement through January 31, 1994 and thereafter was retroactively reset at the end of each six-month calculation period through July 31, 1996 and on September 24, 1996. The transaction effectively changed RCAC's interest rate on $137,500,000 of the 9 3/4% senior secured notes due 2000 (the "9 3/4% Senior Notes") from a fixed-rate to a floating-rate basis. Under the Swap Agreement during 1994 RCAC received $614,000 which was determined at the inception of the Swap Agreement. Thereafter RCAC paid (i) $439,000 during 1994 in connection with the six-month reset period ended July 31, 1994, (ii) $2,271,000 during 1995 in connection with such year's two six-month reset periods and (iii) $1,631,000 during 1996 in connection with such year's two six-month reset periods$1,575,000 and the reset period ending with the agreement's termination daterelated equipment of September 24, 1996. (b) On July 2, 1996 National issued $125,000,000 of 8.54% first mortgage notes due June 30, 2010 (the "First Mortgage Notes") and repaid the $123,188,000 of then outstanding borrowings under its former revolving credit and term loan facility (the "Former Propane Facility"). The First Mortgage Notes amortize in equal annual installments of $15,625,000 commencing June 2003 through June 2010. (c) During 1995 Mistic entered into an $80,000,000 credit agreement (as amended by an amendment dated December 30, 1996, the "Mistic Bank Facility") with a group of banks. The Mistic Bank Facility consists of a $20,000,000 revolving credit facility and a $60,000,000 term facility. Borrowings under the Mistic Bank Facility bore interest at the prime rate through October 16, 1995 and thereafter, at Mistic's option, at either (i) 30, 60, 90 or 180-day LIBOR (5.5% to 5.6% as of December 31, 1996) plus 2 3/4% or (ii) the higher of (a) the prime rate or (b) the Federal funds rate plus 1/2%, in either case, plus 1 1/2%. Borrowings under the revolving credit facility are due in their entirety in August 1999. However, Mistic must reduce the borrowings under the revolving credit facility for a period of thirty consecutive days between October 1 and March 31 of each year to less than or equal to (a) $12,500,000 between October 1, 1996 and March 31, 1997 and (b) zero between October 1 and the following March 31 for each of the two years thereafter (such requirement was met in February/March 1997 for the period between October 1, 1996 and March 31, 1997). Mistic must also make mandatory prepayments in an amount equal to 75% for the year ended December 31, 1997 and 50% thereafter of excess cash flow, as defined. The term loans amortize in installments of $6,250,000 in 1997, $10,000,000 in 1998, $11,250,000 in 1999, $15,000,000 in 2000 and $11,250,000 in 2001. In connection with the amendment dated December 30, 1996, commencing February 28, 1997, the borrowing base for the revolving credit facility is the sum of 80% of eligible accounts receivable and 50% of eligible inventory, both as defined. (d) During 1995 ARDC and ARHC entered into loan and financing agreements with FFCA Mortgage Corporation ("FFCA") which, as amended, permit borrowings in the form of mortgage notes (the "Mortgage Notes") and equipment notes (the "Equipment Notes") aggregating $87,294,000 (the "FFCA Loan Agreements"). The Mortgage Notes and Equipment Notes bear interest at rates in effect at the time of the borrowings ranging from 10 1/8% to 11 1/2% plus, with respect to the Mortgage Notes, participating interest to the extent gross sales of the financed restaurants exceed certain defined levels which are in excess of current levels. The Mortgage Notes and Equipment Notes are repayable in equal monthly installments, including interest, over twenty years and seven years, respectively. As of December 31, 1996, borrowings under the FFCA Loan Agreements aggregated $62,697,000 (including cumulative repayments of $4,325,000 through December 31, 1996) resulting in remaining availability of $24,597,000 through December 31, 1997 to finance new company-owned restaurants whose sites are identified to FFCA by September 30, 1997 on terms similar to those of outstanding borrowings. The assets of ARDC of approximately $37,000,000 will not be available to pay creditors of Triarc, RCAC or Arby's until all loans under the FFCA Loan Agreements have been repaid in full. As discussed in Note 3, in February 1997 the Company entered into an agreement to sell all of its restaurants and, if such sale is consummated on terms as they currently exist, the purchaser would assume $54,709,000 of borrowings under the FFCA Loan Agreements. (e) On May 16, 1996 C.H. Patrick entered into a $50,000,000 credit agreement (the "Patrick Facility") consisting of a $15,000,000 revolving credit facility with no outstanding borrowings as of December 31, 1996 and a $35,000,000 term facility consisting of two term loans (the "Term Loans"). Borrowings under the Patrick Facility bore interest at the higher of the prime rate or 1/2% over the Federal funds rate (the "Base Rate") through July 29, 1996. Subsequent thereto, one of the Term Loans with an outstanding balance of $14,000,000 as of December 31, 1996 and borrowings under the revolving credit facility ("Revolving Loans") bear interest, at the option of C.H. Patrick, at (i) 30, 60, 90 or 180-day LIBOR plus 2 3/4% or (ii) the Base Rate plus 1 3/4%, and the other Term Loan with an outstanding balance of $19,875,000 as of December 31, 1996 bears interest at (i) 30, 60, 90 or 180-day LIBOR plus 3 1/4% or (ii) the Base Rate plus 2 1/4%. The remaining $33,875,000 of Term Loans amortizes $3,187,000 in 1997, $2,938,000 in 1998, $3,750,000 in 1999, $4,375,000 in 2000, $6,125,000 in 2001, $10,438,000 in 2002 and $3,062,000 in 2003. C.H. Patrick must also make mandatory prepayments in an amount equal to 75% of excess cash flow, as defined (no such prepayments were required in 1996). The borrowing base for revolving credit loans is the sum of (i) 85% of eligible accounts receivable, as defined (excludes accounts receivable due from the buyer of the Textile Business - see Note 19), (ii) 75% of accounts receivable due from the buyer of the Textile Business, (iii) the lesser of (a) 50% of eligible inventory, as defined and (b) $10,000,000 and (iv) any amounts deposited with the lenders in respect of letter of credit liabilities, less $50,000. (f) On July 2, 1996 National entered into a $55,000,000 bank credit facility (the "Propane Bank Credit Facility") with a group of banks. The Propane Bank Credit Facility includes a $15,000,000 working capital facility (the "Working Capital Facility") and a $40,000,000 acquisition facility (the "Acquisition Facility"), the use of which is restricted to business acquisitions and capital expenditures for growth. The Propane Bank Credit Facility bears interest, at National's option, at either (i) 30, 60, 90 or 180-day LIBOR plus a margin generally ranging from 1% to 1 3/4% depending on National's financial condition (such margin was 1 1/4% with respect to borrowings under the Working Capital Facility and 1 1/2% with respect to borrowings under the Acquisition Facility at December 31, 1996) or (ii) the higher of (a) the prime rate and (b) the Federal funds rate plus 1/2 of 1%, in either case, plus a margin of up to 1/4%. Borrowings under the Working Capital Facility mature in their entirety in July 1999. However, the Partnership must reduce the borrowings under the Working Capital Facility to zero for a period of at least 30 consecutive days in each year between March 1 and August 31. The Acquisition Facility converts to a term loan in July 1998 and amortizes thereafter in twelve equal quarterly installments through July 2001. (g) In April 1996 all then outstanding obligations under a senior secured credit facility (the "Graniteville Credit Facility") maintained by TXL and C.H. Patrick with a commercial lender aggregating $180,243,000 were repaid concurrently with the sale of the Textile Business (see Note 19). (h) On February 22, 1996 the 11 7/8% senior subordinated debentures due February 1, 1998 (the "11 7/8% Debentures") were redeemed. The cash for such redemption came from the proceeds of $30,000,000 of 1995 borrowings, which were restricted to the redemption of the 11 7/8% Debentures, under National Propane's former revolving credit and term loan facility, liquidation of marketable securities and existing cash balances. (i) On July 1, 1996 Triarc paid $27,250,000 to National Union Fire Insurance Company of Pittsburgh, PA ("National Union") in full satisfaction of a 9 1/2% promissory note payable to National Union (the "National Union Note") with a then outstanding balance of $36,487,000 (including accrued interest of $1,790,000). If the settlement of certain insurance liabilities commuted to National Union effective December 31, 1993 did not exceed certain predetermined levels, the National Union Note was to be reduced by up to $3,000,000 in each of 1995 and 1996. Prior to the repayment of the National Union Note, the Company received such $3,000,000 in the form of reductions in the principal of the National Union Note in each of 1995 and 1996 and recorded such amounts as reductions of "General and administrative" in the accompanying consolidated statements of operations. (j) As discussed in Note 3, in February 1997 the Company entered into an agreement to sell all of its restaurants and, if such sale is consummated on terms as they currently exist, the purchaser would assume all capitalized lease obligations associated with the restaurants currently estimated to be $15,025,000. Under the Company's various debt agreements, substantially all of Triarc's and its subsidiaries' assets other than cash and short-term investments are pledged as security. In addition, (i) obligations under the 9 3/4% Senior Notes have been guaranteed by Royal Crown and Arby's, (ii) obligations under the First Mortgage Notes and the Propane Bank Credit Facility have been guaranteed by National Propane and (iii) obligations under the Mistic Bank Facility, the Patrick Facility and $24,698,000 of borrowings under the FFCA Loan Agreements have been guaranteed by Triarc. Assuming consummation of the RTM sale (see Note 3) Triarc would remain contingently liable under its guarantee upon the failure, if any, of RTM and its acquisition entity to satisfy such obligation. As collateral for such guarantees, all of the stock of Royal Crown, Arby's, Mistic and C.H. Patrick is pledged as well as approximately 2% of the unsubordinated general partner interest in the Partnership (see Note 19). Although the stock of National Propane is not pledged in connection with any guaranty of debt obligations, it is pledged in connection with a $40,700,000 intercompany loan payable by Triarc to the Partnership. The Company's debt agreements contain various covenants which (a) require meeting certain financial amount and ratio tests; (b) limit, among other matters, (i) the incurrence of indebtedness, (ii) the retirement of certain debt prior to maturity, (iii) investments, (iv) asset dispositions, (v) capital expenditures and (vi) affiliate transactions other than in the normal course of business; and (c) restrict the payment of dividends by Triarc's principal subsidiaries to Triarc. Triarc's principal subsidiaries, other than CFC Holdings and National Propane, are unable to pay any dividends or make any loans or advances to Triarc during 1997 under the terms of the various indentures and credit arrangements. While there are no restrictions applicable to National Propane, National Propane is dependent upon cash flows from the Partnership, principally quarterly distributions from the Partnership on the Subordinated Units and the 4% unsubordinated general partner interest (see Note 19), to pay dividends. While there are no restrictions applicable to CFC Holdings, CFC Holdings would be dependent upon cash flows from RCAC to pay dividends and as of December 31, 1996 RCAC was unable to pay any dividends or make any loans or advances to CFC Holdings. (14)FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of the Company's financial instruments for which such amounts differ in total are as follows (in thousands):
DECEMBER 31, ------------ 1995 1996 ------------------------- ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- Long-term debt (Note 13): 9 3/4% Senior Notes.................$ 275,000 $ 226,000 $ 275,000 $ 283,000 First Mortgage Notes ............... -- -- 125,000 125,000 Mistic Bank Facility................ 65,250 65,250 68,700 68,700 FFCA Loan Agreements................ 58,230 61,264 58,372 61,814 Patrick Facility.................... -- -- 33,875 33,875 Propane Bank Credit Facility........ -- -- 7,885 7,885 Graniteville Credit Facility........ 198,635 198,635 -- -- Former Propane Facility............. 127,312 127,312 -- -- 11 7/8% Debentures.................. 43,080 45,000 -- -- National Union Note ................ 37,697 36,128 -- -- Other long-term debt ............... 41,673 41,673 25,264 25,264 ----------- ----------- ------------ ---------- $ 846,877 $ 801,262 $ 594,096 $ 605,538 =========== =========== ============ ========== Swap Agreement (liability) (Note 13).....$ (684) $ (896) $ -- $ -- =========== =========== ============ ==========
The fair values of the 9 3/4% Senior Notes are based on quoted market prices at the respective reporting dates. The fair value of the First Mortgage Notes was assumed to reasonably approximate their carrying value due to their recent issuance in July 1996 and an insignificant change in borrowing rates since that time. The fair values of the revolving loans and the term loans under the Mistic Bank Facility and the Patrick Facility at December 31, 1995 and 1996, the Propane Bank Credit Facility at December 31, 1996 and the Graniteville Credit Facility and the Former Propane Facility at December 31, 1995 approximated their carrying values due to their floating interest rates. The fair value of the Mortgage Notes and Equipment Notes under the FFCA Loan Agreements at December 31, 1995 and 1996 was determined by discounting the future monthly payments using the rate of interest available under such agreements at December 31, 1995 and 1996. The aggregate par value of the outstanding 11 7/8% Debentures as of December 31, 1995 was assumed to approximate fair value since all were redeemed at par on February 22, 1996. The fair value of the National Union Note as of December 31, 1995 was determined by using a discounted cash flow analysis based on an estimate of the Company's then current borrowing rate for a similar security. The fair values of all other long-term debt were assumed to reasonably approximate their carrying amounts since (i) for capitalized lease obligations, the weighted average implicit interest rate approximates current levels and (ii) for equipment notes, the remaining maturities are relatively short-term. The fair value of the Swap Agreement at December 31, 1995 represented the estimated amount RCAC would have paid to terminate the Swap Agreement, as quoted by the counterparty. (15)INCOME TAXES The income (loss) from continuing operations before income taxes and minority interests in income of consolidated subsidiaries consisted of the following components (in thousands): 1994 1995 1996 ---- ---- ---- Domestic.............................$ (1,659) $ (36,076) $ 8,046 Foreign.............................. 2,470 (1,948) (3,408) --------- ---------- ---------- $ 811 $ (38,024) $ 4,638 ========= ========== ========== The provision (benefit) for income taxes from continuing operations consists of the following components (in thousands): 1994 1995 1996 ---- ---- ---- Current: Federal.............................$ 2,167 $ (965) $ 2,888 State............................... 2,310 1,091 5,725 Foreign............................. 2,228 357 370 -------- --------- --------- 6,705 483 8,983 -------- -------- --------- Deferred: Federal............................ (4,985) (69) 7,547 State.............................. 645 (1,444) (5,236) Foreign............................ (753) -- -- --------- --------- --------- (5,093) (1,513) 2,311 --------- --------- --------- Total....................$ 1,612 $ (1,030) $ 11,294 ========= ========= ========= The net current deferred income tax asset and the net non-current deferred income tax (liability) resulted from the following components (in thousands):
DECEMBER 31, ------------ 1995 1996 ---- ---- Current deferred income tax assets (liabilities): Accrued employee benefit costs................ $ 4,799 $ 4,218 Facilities relocation and corporate restructuring............................... 2,221 2,366 Allowance for doubtful accounts .............. 2,474 2,135 Closed facilities reserves.................... 1,252 1,059 Other, net.................................... (99) 8,430 --------- --------- 10,647 18,208 Valuation allowance........................... (1,799) (1,799) --------- --------- 8,848 16,409 Non-current deferred income tax assets (liabilities): Reserve for income tax contingencies and other tax matters................................ (26,065) (29,005) Gain on sale of propane business (see Note 19) -- (33,163) Net operating loss and alternative minimum tax credit carryforward........................ 41,524 23,954 Depreciation and other properties basis differences................................. (36,328) 9,743 Insurance losses not deducted................. 7,061 7,061 Other, net.................................... 7,433 4,593 --------- --------- (6,375) (16,817) Valuation allowance........................... (17,638) (17,638) --------- --------- (24,013) (34,455) --------- --------- $ (15,165) $ (18,046) ========= =========
As of December 31, 1996 Triarc had a net operating loss carryforward for Federal income tax purposes of approximately $19,000,000 expiring in the year 2008, the utilization of which is subject to annual limitations through 1998. In addition, the Company has (i) alternative minimum tax credit carryforwards of approximately $6,900,000 and (ii) depletion carryforwards of approximately $600,000, both of which have an unlimited carryforward period. A "valuation allowance" is provided when it is more likely than not that some portion of deferred tax assets will not be realized. The Company has established valuation allowances principally for that portion of the net operating loss carryforwards and other net deferred tax assets related to Chesapeake Insurance which entity as set forth in Note 1 is not included in Triarc's consolidated income tax return. The difference between the reported income tax provision (benefit) and the tax provision (benefit) that would result from applying the 35% Federal statutory rate to the income (loss) from continuing operations before income taxes and minority interests is reconciled as follows (in thousands):
1994 1995 1996 ---- ---- ---- Income tax (benefit) computed at Federal statutory rate.....................$ 284 $ (13,308) $ 1,623 Increase (decrease) in Federal taxes resulting from: Non-deductible loss on sale of Textile Business (see Note 19).......... -- -- 2,928 Provision for income tax contingencies and other tax matters........... -- 6,100 2,582 Amortization of non-deductible Goodwill ............................... 2,171 2,286 2,166 Effect of net operating losses for which no tax carryback benefit is available (utilization of operating loss, depletion and tax credit carryforwards)............................................... (3,643) 986 1,269 State taxes (benefit), net of Federal income tax benefit (provision)... 1,921 (229) 318 Foreign tax rate in excess of United States Federal statutory rate and foreign withholding taxes, net of Federal income tax benefit.... 479 307 241 Minority interests..................................................... -- -- (640) Non-deductible amortization of restricted stock........................ -- 1,440 -- Other non-deductible expenses.......................................... 324 1,340 807 Other, net............................................................. 76 48 -- ---------- ------------ ----------- $ 1,612 $ (1,030) $ 11,294 ========== ============ ===========
The Federal income tax returns of the Company have been examined by the IRS for the tax years 1985 through 1988. The Company has resolved all issues related to such audit and in connection therewith paid $5,182,000 and $674,000 in 1994 and 1996, respectively, in final settlement of such examination. Such amounts had been fully reserved in years prior to 1994. The IRS has completed its examination of the Company's Federal income tax returns for the tax years from 1989 through 1992 and has issued notices of proposed adjustments increasing taxable income by approximately $145,000,000, the tax effect of which has not yet been determined. The Company is contesting the majority of the proposed adjustments and, accordingly, the amount of any payments required as a result thereof cannot presently be determined. During 1995 and 1996 the Company provided $6,100,000 and $2,582,000, respectively, included in "Benefit from (provision for) income taxes" and during 1994, 1995 and 1996 provided $1,400,000, $2,900,000, and $2,000,000, respectively, included in "Interest expense" relating to such examinations and other tax matters. Management of the Company believes that adequate aggregate provisions have been made in 1996 and prior periods for any tax liabilities, including interest, that may result from the 1989 through 1992 examination and other tax matters. (16)REDEEMABLE PREFERRED STOCK The Company had 5,982,866 shares of its Redeemable Preferred Stock outstanding at December 31, 1994, with a stated value of $12.00 per share, bearing a cumulative annual dividend of 8 1/8% payable semi-annually, convertible into 4,985,722 shares of class B common stock (the "Class B Common Stock") (see Note 17) at $14.40 per share and requiring mandatory redemption on April 23, 2005 at $12.00 per share. All of such Redeemable Preferred Stock was owned by one of the affiliates (the "Posner Entities") of Victor Posner ("Posner"), the Company's former Chairman and Chief Executive Officer before an April 1993 change in control. Pursuant to a settlement agreement entered into by the Company and the Posner Entities on January 9, 1995 (the "Posner Settlement"), all of the Redeemable Preferred Stock was converted into 4,985,722 shares of Class B Common Stock issued to a Posner Entity (the "Conversion" - see Note 17). In connection therewith, the Company has no further obligation to declare or pay dividends on the Redeemable Preferred Stock subsequent to the last payment date of September 30, 1994. (17)STOCKHOLDERS' EQUITY The Company's class A common stock (the "Class A Common Stock") and its Class B Common Stock are identical, except that Class A Common Stock has one vote per share and Class B Common Stock is non-voting. Class B Common Stock issued to the Posner Entities can only be sold subject to a right of first refusal in favor of the Company or its designee. If held by a person(s) not affiliated with Posner, each share of Class B Common Stock is convertible into one share of Class A Common Stock. There were no changes in the 27,983,805 issued shares of Class A Common Stock during 1994, 1995 and 1996. Prior to January 9, 1995 no shares of Class B Common Stock had been issued. On January 9, 1995 pursuant to the Posner Settlement the Company issued (i) 4,985,722 shares of Class B Common Stock as a result of the Conversion and (ii) an additional 1,011,900 shares of Class B Common Stock to the Posner Entities with an aggregate fair value of $12,016,000 in consideration for, among other matters, (i) the settlement of all amounts due to the Posner Entities in connection with the termination of the lease for the Company's former headquarters effective February 1, 1994 and (ii) an indemnification by certain of the Posner Entities of any claims or expenses incurred after December 1, 1994 involving certain litigation relating to NVF Company and APL Corporation (see Note 25) and any potential litigation relating to the bankruptcy filing of Pennsylvania Engineering Corporation (see Note 28). A summary of the changes in the number of shares of Class A Common Stock held in treasury is as follows (in thousands):
1994 1995 1996 ---- ---- ---- Number of shares at beginning of period...................................... 6,661 4,028 4,067 Common shares acquired in open market transactions........................... 91 42 45 Restricted stock exchanged (see below) or reacquired......................... 40 11 4 Common shares issued from treasury upon exercise of stock options............ -- -- (10) Common shares issued from treasury to directors.............................. (3) (7) (8) Common shares issued from treasury in the SEPSCO Merger (Note 26)............(2,692) -- -- Restricted stock grants from treasury (see below)............................ (69) (7) -- ------ ------- ------- Number of shares at end of period............................................ 4,028 4,067 4,098 ====== ======= =======
The Company has 25,000,000 authorized shares of preferred stock including 5,982,866 designated as Redeemable Preferred Stock, none of which were issued as of December 31, 1995 and 1996. The Company maintains a 1993 Equity Participation Plan (the "Equity Plan"), which provides for the grant of stock options and restricted stock to certain officers, key employees, consultants and non-employee directors. In addition, non-employee directors are eligible to receive shares of Class A Common Stock in lieu of retainer or meeting attendance fees. The Equity Plan provides for a maximum of 10,000,000 shares of Class A Common Stock to be issued on the exercise of options, granted as restricted stock or issued to non-employee directors in lieu of fees and there remain 1,049,902 shares available for future grants under the Equity Plan as of December 31, 1996. A summary of changes in outstanding stock options is as follows (weighted average option price data is not presented for periods prior to December 31, 1995 since such data was not required until the adoption of SFAS 123 in 1996):
WEIGHTED AVERAGE OPTIONS OPTION PRICE OPTION PRICE ------- ------------ ------------ Outstanding at January 1, 1994.......... 1,972,500 $ 18.00 - $ 30.75 Granted during 1994..................... 5,753,400 $ 10.75 - $ 24.125 Terminated during 1994.................. (156,000) $ 18.00 - $ 30.75 ------------ Outstanding at December 31, 1994........ 7,569,900 $ 10.75 - $ 30.00 Granted during 1995..................... 1,239,500 $ 10.125- $ 16.25 Terminated during 1995.................. (210,700) $ 10.75 - $ 30.00 ------------ Outstanding at December 31, 1995........ 8,598,700 $ 10.125- $ 30.00 $17.19 Granted during 1996 (a)................. 136,000 $ 11.00 - $ 13.00 $12.16 Exercised during 1996................... (9,999) $10.75 $10.75 Terminated during 1996.................. (293,869) $ 10.125- $ 30.00 $13.51 ------------ Outstanding at December 31, 1996........ 8,430,832 $ 10.125- $ 30.00 $17.24 ============ Exercisable at December 31, 1996........ 3,476,486 $ 10.125- $ 30.00 $15.86 ============
(a) The weighted average grant date fair value of stock options granted during 1996 was $6.81 (see discussion of stock option valuation below). The following table sets forth information relating to stock options outstanding at December 31, 1996:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE ---------------------------------------------------------------------------- -------------------------------------- OUTSTANDING AT WEIGHTED AVERAGE WEIGHTED AVERAGE OUTSTANDING AT WEIGHTED AVERAGE OPTION PRICE DECEMBER 31, 1996 YEARS REMAINING OPTION PRICE DECEMBER 31, 1996 OPTION PRICE ------------ ----------------- --------------- ------------ ----------------- ------------ $ 10.125- $ 10.75 1,945,999 8.4 $10.43 1,192,820 $10.54 $ 11.00 - $ 16.25 396,500 8.6 $13.78 106,833 $15.02 $ 18.00 - $ 20.00 1,827,500 6.4 $18.23 1,600,832 $18.17 $20.125 3,850,000 7.3 $20.13 350,000 $20.13 $ 21.00 - $ 30.00 410,833 7.2 $21.32 226,001 $21.33 ---------- ---------- 8,430,832 7.4 3,476,486 ========== ==========
Stock options under the Equity Plan generally have maximum terms of ten years and vest ratably over periods not exceeding five years from date of grant. However, an aggregate 3,500,000 performance stock options granted on April 21, 1994 to the Chairman and Chief Executive Officer and the President and Chief Operating Officer vest in one-third increments upon attainment of each of the three closing price levels for the Class A Common Stock for 20 out of 30 consecutive trading days by the indicated dates as follows: ON OR PRIOR TO APRIL 21, PRICE ------------ ----- 1999...................................................... $ 27.1875 2000...................................................... $ 36.25 2001...................................................... $ 45.3125 Each option not previously vested, should such price levels not be attained no later than each indicated date, will vest on October 21, 2003. In addition to the 3,500,000 performance stock options discussed above, 350,000 of such stock options were granted on April 21, 1994 to the Vice Chairman of the Company since April 1993 (the "Vice Chairman"). In December 1995, it was decided that the Vice Chairman's employment contract would not be extended and as of January 1, 1996 the Vice Chairman resigned as a director, officer and employee of the Company and entered into a consulting agreement pursuant to which no substantial services are expected to be provided. In accordance therewith, effective January 1, 1996 all of the 513,333 non-vested stock options previously issued to the Vice Chairman (including 350,000 performance stock options which were granted April 21, 1994) were vested in full. In January 1997 Triarc paid the Vice Chairman $353,000 in consideration of the cancellation of all 680,000 stock options previously granted to him. Such amount was included in the "Facilities relocation and corporate restructuring" provision in 1995 (see Note 18). Stock options under the Equity Plan are generally granted at not less than the fair market value of the Class A Common Stock at the date of grant. However, options granted, net of terminations, prior to 1994 included 275,000 options issued at an option price of $20.00 which was below the $31.75 fair market value of the Class A Common Stock at the date of grant representing an aggregate difference of $3,231,000. Such amount is being recorded as compensation expense over the applicable vesting period of one to five years. Prior to 1994, $231,000 of the aggregate difference was recognized as compensation expense. Effective January 1, 1994 the Company recorded the remaining $3,000,000 of the aggregate difference as unearned compensation and during 1994, 1995 and 1996, $907,000, $761,000 and $489,000, respectively, was amortized to compensation expense and credited to "Other stockholders' equity". During 1995 and 1996 certain below market options were forfeited. Such forfeitures resulted in decreases to (i) the "Unearned compensation" component of "Other stockholders' equity" of $319,000 in 1995 and $219,000 in 1996 representing the reversals of the unamortized values at the dates of forfeiture, (ii) "Additional paid-in capital" of $588,000 in 1995 and $852,000 in 1996 representing the reversal of the initial value of the forfeited below market stock options and (iii) "General and administrative" of $269,000 in 1995 and $633,000 in 1996 representing the reversal of previous amortization of unearned compensation relating to forfeited below market stock options. The remaining unamortized balance relating to below market stock options included in "Unearned compensation" is $305,000 at December 31, 1996. A summary of the changes in the outstanding shares of restricted stock granted by the Company from treasury stock is as follows: Outstanding at January 1, 1994........................ 429,500 Granted during 1994................................... 68,750 Converted to Rights (see below) during 1994........... (26,000) Repurchased by the Company............................ (3,500) -------- Outstanding at December 31, 1994...................... 468,750 Granted during 1995................................... 6,700 Converted to Rights (see below) during 1995........... (4,550) Forfeited during 1995................................. (6,700) Vested during 1995 (see below)........................ (464,200) -------- Outstanding at December 31, 1995 and 1996............. -- ======== Grants of restricted stock, which provided for vesting over periods of three to four years, resulted in aggregate unearned compensation of $1,376,000 and $68,000 for 1994 and 1995, respectively, based upon the market value of the Company's Class A Common Stock at the respective dates of grant which ranged from $10.125 to $24.125. The vesting of 150,000 shares of restricted stock granted prior to 1994 to three court-appointed members of a special committee of Triarc's Board of Directors (the "Special Committee Members") was accelerated in connection with their decision not to stand for re-election as directors of the Company at the 1995 annual stockholders meeting resulting in a charge for amortization of unearned compensation in 1995 of $1,691,000 (including $723,000 which would have otherwise been amortized during the post-acceleration 1995 period). On December 7, 1995 the Compensation Committee of Triarc's Board of Directors authorized management of the Company to accelerate the vesting of all of the then outstanding shares of restricted stock. On January 16, 1996 management of the Company accelerated the vesting and the Company recorded the resulting additional amortization of unearned compensation of $1,640,000 in its entirety in 1995 which together with the $1,691,000 related to the Special Committee Members, resulted in aggregate amortization of unearned compensation in connection with accelerated vesting of $3,331,000. Prior to these accelerated vestings of the restricted stock, the unearned compensation was being amortized over the applicable vesting period and together with the amortization of unearned compensation related to the accelerated vesting, was recorded as "General and administrative". Such compensation expense was $3,122,000 in 1994 and $1,950,000 in 1995 (excluding the $3,331,000 relating to the previously discussed accelerated vesting of restricted stock). Effective January 1, 1996 the Company adopted SFAS 123. In accordance with the intrinsic value method of accounting for stock options, the Company has not recognized any compensation expense for stock options granted in 1995 and 1996 since the option price for all of such stock options was equal to the fair market value of the Class A Common Stock at the respective dates of grant. Had compensation expense been recognized for such 1995 and 1996 stock option grants based on the fair value method as provided for in SFAS 123, the Company's net loss and loss per share would have been as follows (in thousands except per share data): 1995 1996 ---- ---- Net loss......................... $ (37,284) $ (16,356) Loss per share................... (1.25) (.55) The fair value of stock options granted on the date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: Risk-free interest rate..................... 5.74% Expected option life........................ 7 years Expected volatility......................... 45.56% Dividend yield.............................. None Prior to 1994 and during the years ended December 31, 1994 and 1995, the Company agreed to pay to employees terminated during each such period and directors who were not reelected during 1994 and 1995 who held restricted stock and/or stock options, an amount in cash equal to the difference between the market value of Triarc's Class A Common Stock and the base value (see below) of such restricted stock and stock options (the "Rights") in exchange for such restricted stock or stock options. Such exchanges for restricted stock were for 10,000, 26,000 and 4,550 Rights prior to 1994 and in 1994 and 1995, respectively, and for stock options were 40,000, 126,000, 97,700 and 12,500 Rights prior to 1994 and in 1994, 1995 and 1996, respectively. All such exchanges were for an equal number of shares of restricted stock or stock options except that the 4,550 Rights granted in 1995 were in exchange for 11,250 shares of restricted stock. The Rights which resulted from the exchange of stock options have base prices ranging from $10.75 to $30.75 per share and the Rights which resulted from the exchange of restricted stock all have a base price of zero. The restricted stock for which Rights were granted (exclusive of the 6,700 shares for which Rights were not granted) was fully vested upon termination of the employees. As a result of such accelerated vesting the Company incurred charges representing unamortized unearned compensation of $331,000 and $13,000 during 1994 and 1995, respectively, included in "General and administrative". Of the 316,750 Rights granted, (i) 36,000 and 4,550 relating to restricted stock were exercised in 1995 and 1996, respectively, (ii) 16,000, 55,000 and 108,700 relating to stock options expired in 1994, 1995 and 1996, respectively and (iii) 16,500 relating to stock options were exercised in 1996. The remaining 80,000 Rights expire in 1997. Upon issuance of the Rights the Company recorded a liability equal to the excess of the then market value of the Class A Common Stock over the base price of the stock options or restricted stock exchanged. Such liability has been adjusted to reflect changes in the fair market value of Class A Common Stock subject to a lower limit of the base price of the Rights. (18) FACILITIES RELOCATION AND CORPORATE RESTRUCTURING The "Facilities relocation and corporate restructuring" set forth in the accompanying consolidated statements of operations for 1994, 1995 and 1996 consists of the following charges (in thousands):
1994(A) 1995(B) 1996(C) ------- ------- ------- Estimated costs related to sublease of excess office space .................$ -- $ -- $ 3,700 Estimated restructuring charges associated with employee severance costs.......................................................... 1,700 510 2,200 Costs of terminating beverage distribution agreement........................ -- -- 1,300 Estimated costs of beverage plant closing and other asset disposals......... -- -- 600 Consulting fees paid associated with combining certain operations of Royal Crown and Mistic and other........................... -- -- 600 Costs related to the planned spinoff of the Company's restaurant/beverage group................................................ -- -- 400 Cost related to consulting agreements between the Company and its former Vice Chairman ............................................ -- 2,500 -- Employee relocation costs................................................... 3,800 -- -- Estimated costs (reductions) to relocate the Company's headquarters......... 3,300 (310) -- -------- --------- --------- $ 8,800 $ 2,700 $ 8,800 ======== ========= =========
(a) The 1994 facilities relocation and corporate restructuring charges principally related to the 1994 closing of the Company's former corporate office in West Palm Beach, Florida, including the estimated loss ($3,300,000) on the sublease of such office space in 1994 and the write-off of unamortized leasehold improvements, severance costs related to corporate employees terminated during 1994 and the relocation during 1994 of certain employees formerly located in that facility either to another South Florida location or the New York City corporate office. (b) The 1995 facilities relocation and corporate restructuring charge related to (i) a $310,000 reduction of the estimated costs provided prior to 1994 to terminate the lease on the Company's then existing corporate facilities resulting from the Posner Settlement (see Note 28) and (ii) severance costs associated with the resignation of the Vice Chairman of Triarc, who had served from April 23, 1993 to December 31, 1995 (see Note 17), and the 1995 termination of other corporate employees in conjunction with a reduction in corporate staffing. (c) The 1996 facilities relocation and corporate restructuring charge principally relates to costs associated with (i) estimated losses on planned subleases (principally for the write-off of nonrecoverable unamortized leasehold improvements and furniture and fixtures) of excess office space in excess of anticipated sublease proceeds as a result of the RTM sale (see Note 3) and the relocation of Royal Crown's headquarters which is being centralized with Mistic's offices in White Plains, New York, (ii) employee severance costs associated with the relocation of Royal Crown's headquarters, (iii) terminating a beverage distribution agreement, (iv) the shutdown of the beverage segment's Ohio production facility and other asset disposals, (v) consultant fees paid associated with combining certain operations of Royal Crown and Mistic and (vi) the planned spinoff of the Company's restaurant/beverage group (see Note 3). (19) GAIN (LOSS) ON SALES OF BUSINESSES, NET AND MINORITY INTEREST The "Gain (loss) on sales of businesses, net" as reflected in the accompanying consolidated statements of operations was $6,043,000, $(100,000) and $77,000,000 in 1994, 1995 and 1996, respectively. During 1994 the Company sold substantially all of the operating assets of SEPSCO's natural gas and oil business for cash of $16,250,000 net of $750,000 initially held in escrow to cover certain indemnities given to the buyer resulting in a pretax gain of $6,043,000. During 1995 $250,000 of such escrow was released and a gain of such amount was recognized. Also in 1995, the Company (i) sold the remaining natural gas and oil assets for net proceeds of $728,000 which$2,000 resulted in a pretax gain of $650,000$2,796,000 which, commencing in the third quarter of 1997, is being recognized pro rata between the gain on sale and (ii) wrote off its then investmentthe carrying value of the assets sold based on the cash proceeds and collections under the Kelco Note since realization of the Kelco Note is not yet fully assured. Accordingly, a gain of $576,000 was recognized in MetBev"Gain (loss) on sale of businesses, net" (see Note 28), a beverage distributor14) in the New York metropolitan area whenaccompanying consolidated statement of operations for the year ended December 28, 1997. See below under "Pro Forma Operating Data" for the Pro Forma Data giving effect to, among other transactions, the C&C Sale. Sale of C.H. Patrick On December 23, 1997 the Company determinedsold (the "C.H. Patrick Sale") the declinestock of C.H. Patrick to The B.F. Goodrich Company for $68,114,000 in valuecash, net of such investment was other than temporary$3,886,000 of estimated post-closing adjustments. As a result of the C.H. Patrick Sale, the results of C.H. Patrick, which resulted in a pretax loss of $1,000,000. The gain in 1996 consisted of (i) a pretax loss of $4,500,000 fromrepresent the saleremaining operations of the Company's textile businesssegment, have been reclassified in the accompanying financial statements as discontinued operations (see below), (ii)further discussion in Note 17). Accordingly, pro forma information reflecting the C.H. Patrick Sale is not applicable. Included in "Income from discontinued operations" for the year ended December 28, 1997 is a pretax$19,509,000 gain on the C.H. Patrick Sale, net of $85,175,000 from$3,703,000 of related fees and expenses and $13,768,000 of provision for income taxes. Such gain is exclusive of an extraordinary charge in connection with the saleearly extinguishment of debt (see Note 18) and reflects the write-off of $2,718,000 of Goodwill which has no tax benefit. The Company used a portion of the Partnership (see below)proceeds of the C.H. Patrick Sale to repay all of the outstanding long-term debt of C.H. Patrick and (iii)accrued interest thereon, aggregating $32,025,000. See below under "Pro Forma Operating Data" for the Pro Forma Data giving effect to, among other transactions, the C.H. Patrick Sale. Cancellation of Spinoff Transactions In October 1996 the Company had announced that its Board of Directors approved a pretax lossplan to offer up to approximately 20% of $3,675,000 associatedthe shares of its beverage and restaurant businesses (then operated through Mistic and RCAC) to the public through an initial public offering and to spin off the remainder of the shares of such businesses to Triarc stockholders (collectively, the "Spinoff Transactions"). In May 1997 the Company announced it would not proceed with the write-downSpinoff Transactions as a result of MetBev (see Note 28). SALE OF TEXTILE BUSINESS ------------------------the Snapple Acquisition and other issues. 1996 TRANSACTIONS Sale of Textile Business On April 29, 1996 the Company completed the sale (the "Graniteville Sale") of its textile business segment other than the specialty dyes and chemicals business of C.H. Patrick (see Sale of C.H. Patrick above) and certain other excluded assets and liabilities (the "Textile Business"), to Avondale Mills, Inc. ("Avondale"), for $236,824,000 in cash, net of expenses of $8,437,000 and post-closing adjustments of expenses and $12,250,000 of post-closing adjustments.$12,250,000. Avondale assumed all liabilities relating to the Textile Business other than income taxes, long-term debt of $191,438,000 which was repaid at the closing and certain other specified liabilities. In connection with the Graniteville Sale, Avondale and C.H. Patrick have entered into a 10-year supply agreement pursuant to which C.H. Patrick is supplying certain textile dyes and chemicals to the combined Textile Business/Avondale entity. C.H. Patrick's right to supply Avondale is conditioned upon certain bidding procedures which could result in Avondale purchasing the products from another seller. As a result of the Graniteville Sale, the Company recorded a pre-taxpretax loss in 1996 of $4,500,000 included in "Gain (loss) on sale of businesses, net" (see Note 14) (including an $8,367,000 write-off of unamortized Goodwill which has no tax benefit) and an income tax provision of $1,500,000 resulting in an after-tax loss of $6,000,000 exclusive of an extraordinary charge in connection with the early extinguishment of debt (see Note 22)18). As previously set forth, theThe results of operations of the Textile Business have been included in the accompanying consolidated statements of operations through April 29, 1996. See below under "Pro Forma Operating Data" for supplemental pro forma informationPro Forma Data for the year ended December 31, 1996 giving effect to, among other transactions, the sale of the Textile Business. The assets and liabilitiesSale of the TextilePropane Business sold and a reconciliation to the net cash proceeds received from the sale of the Textile Business, net of post-closing adjustments and expenses paid of $20,805,000, are as follows (in thousands):
Receivables, net..................................................... $ 91,135 Inventories.......................................................... 76,294 Prepaid expenses and other current assets............................ 1,421 Accounts payable and accrued expenses................................ (46,060) Properties, net...................................................... 111,039 Unamortized costs in excess of net assets of acquired companies...... 8,367 Other non-current liabilities, net................................... (872) ----------- Net assets of the Textile Business................................ 241,324 Pre-tax loss on sale of Textile Business............................. (4,500) ----------- Net cash proceeds from sale of the Textile Business .............. $ 236,824 ===========
SALE OF PROPANE BUSINESS ------------------------ In July 1996 the Partnership consummated an initial public offering (the "Offering""IPO") and in November 1996 a subsequent private placement (the "Private Placement" and together with the IPO the "Offerings" or the "Propane Sale") of units in the Partnership. The Offerings comprised an aggregate 6,301,550 of its6,701,550 common units representing limited partner interests (the "Common Units"), representing an approximate 55.8%57.3% interest in the Partnership, for an offering price of $21.00 per Common Unit aggregating $117,382,000$124,749,000 net of $14,951,000$15,984,000 of underwriting discounts and commissions and other expenses related to the offering. In November 1996 the Partnership sold an additional 400,000 Common Units through a private placement (the "Private Placement Offering") at a price of $21.00 per Common Unit aggregating $7,367,000 net of fees and expenses of $1,033,000.Offerings. The sales of the Common Units resulted in a pretax gain to the Company in 1996 of $85,175,000 (see Note 14) and a provision for income taxes of $33,163,000. Concurrently with the Offering,IPO, the Partnership issued to National Propane 4,533,638 subordinated units (the "Subordinated Units"), representing an approximate 38.7% subordinated general partner interest in the Partnership (after giving effect to the subsequent July and November sales)Private Placement). In addition, National Propane and a subsidiary (the "General Partners") hold a combined aggregate 4.0% unsubordinated general partner interest (the "Unsubordinated General PartnerPartners' Interest") in the Partnership and a subpartnership, National Propane, L.P. (the "Operating Partnership" and, together with the Partnership, the "Partnerships"). In connection therewith, National Propane transferred (the "Operating Partnership Transfer") substantially all of its propane-related assets and liabilities (principally all assets and liabilities other than a receivable from Triarc, deferred financing costs and net income tax liabilities amounting to $81,392,000, $4,127,000 and $21,615,000, respectively), aggregating net liabilities of $88,222,000, to the Operating Partnership. The $36,527,000 excess of the aggregate net proceeds from the sales of the Common Units of $124,749,000 over the $88,222,000 of aggregate net liabilities contributed to the Operating Partnership less (i) $1,323,000 of 1996 Partnership distributions to the General Partners over the General Partners' interest in the net income of the Partnership, included in the $85,175,000 pretax gain noted above and (ii) $3,309,000 of 1996 distributions relating to the Common Units, plus the $1,829,000 minority interest in 1996 (see below), iswas recorded as "Minority interest" in the accompanying consolidated balance sheets at December 31, 1996. In accordance with amendments to the partnership agreements of the Partnerships effective December 28, 1997 (see further discussion in Note 7), the Company no longer has substantive control over the Partnership to the point where it now exercises only significant influence and, accordingly, no longer consolidates the Partnership. As a result there is no minority interest liability at December 31, 1996.28, 1997. In 1997 the Company recognized $8,468,000 of deferred pretax gain on the sale of the Common Units, reflecting the 1997 Partnership distributions to the General Partners in excess of the General Partners' interest in the net income of the Partnership and a provision for income taxes of $3,048,000. Such gain is included in "Gain (loss) on sale of businesses, net" (see Note 14). To the extent the Partnership has net positive cash flows, it must make quarterly distributions of its cash balances in excess of reserve requirements, as defined, to holders of the Common Units, the Subordinated Units and the Unsubordinated General PartnerPartners' Interest within 45 days after the end of each fiscal quarter. On November 14,Commencing with the fourth quarter of 1996, the Partnership paid a distributionquarterly distributions of $0.525 per Common and Subordinated Unit with a proportionate amount for the Unsubordinated General PartnerPartners' Interest, or an aggregate $5,924,000 and $24,572,000 in 1996 and 1997, respectively, including $2,616,000 and $10,499,000 to the General Partners. See Note 7 for discussion of restrictions on 1998 distributions by the Partnership on the Subordinated Units. MINORITY INTEREST The 1996 and 1997 minority interest in income of a consolidated subsidiary of $1,829,000 and $2,205,000, respectively, represents the limited partners' weighted average interest in the net income of the Operating Partnership since it commenced operations in July 1996. PRO FORMA OPERATING DATA (UNAUDITED) The following unaudited supplemental pro forma condensed consolidated summary operating dataPro Forma Data of the Company for the years ended December 28, 1997 and December 31, 1996 giveshave been prepared by adjusting the historical data as set forth in the accompanying consolidated statements of operations to give effect to the sale ofSnapple Acquisition and related transactions, the Textile BusinessRTM Sale (together with the Snapple Acquisition, "Snapple and RTM") and, on a combined basis, the Stewart's Acquisition and the repayment of related debt (see above)C&C Sale (collectively with Snapple and in a second step,RTM and the formation ofStewart's Acquisition, the Partnership,"1997 Transactions") and, for 1996, the Offering,Graniteville Sale and the Private Placement Offering, the issuance of the First Mortgage Notes, the repayment of existing indebtedness and certain related transactionsPropane Sale (collectively, the "Propane"1996 Transactions") as if all of such transactions had been consummated as ofon January 1, 1996. The pro forma effects of the Propane Transactions include (i) the additioneach of the estimated stand-alone general and administrative costs associated with the operation of the propane business as a partnership, (ii) net decreases to interest expense reflecting (a) the elimination of interest expense on the refinanced debt partially offset by the interest expense associated with the First Mortgage Notes and (b) the reduction in interest expense resulting from the assumed repayment of other debt of the Company with the $114,680,000 net proceeds of the Offering1997 Transactions and the Private Placement Offering ($124,749,000)1996 Transactions is set forth in the notes to the Pro Forma Data. Such Pro Forma Data is presented for comparative purposes only and the issuance of the First Mortgage Notes ($118,400,000, net of $6,600,000 of related deferred debt costs), net of the repayment of existing debt ($128,469,000), (iii) the net benefit from income taxes and increase in minority interest in income of consolidated subsidiaries resulting from the effects of the above transactions and related transactions which do not affect consolidated pretax earnings. Such pro forma information does not purport to be indicative of the Company's actual results of operations had such transactions actually been consummated on January 1, 1996 or of the Company's future results of operations and are as follows (in thousands except per share amounts):
PRO FORMA FOR PRO FORMA PRO FORMA FOR THE SALE OFFOR FOR THE AS SNAPPLE SNAPPLE AND 1997 REPORTED ACQUISITION (A) RTM (B) TRANSACTIONS (C) -------- --------------- ------- ---------------- 1997 (UNAUDITED) Revenues.........................................$ 861,321 $ 1,033,821 $ 962,594 $ 980,254 Operating profit................................. 26,962 24,933 29,894 31,290 Loss from continuing operations.................. (20,553) (28,490) (21,609) (21,409) Loss from continuing operations per share........ (.68) (.95) (.72) (.68)
PRO FORMA PRO FORMA PRO FORMA PRO FORMA FOR THE FOR THE SALE OF TEXTILE BUSINESSFOR THE FOR THE 1996 TRANSACTIONS 1996 TRANSACTIONS 1996 TRANSACTIONS (D) AS 1996 AND THE TEXTILESNAPPLE AND SNAPPLE AND THE PROPANE BUSINESSREPORTED TRANSACTIONS (D) ACQUISITION (A) AND RTM (B) 1997 TRANSACTIONS (C) -------- ---------------------------- --------------- ----------- --------------------- Revenues................................... $841,240 1996 (UNAUDITED) Revenues..................$ 841,240928,185 $ 780,176 $ 1,330,976 $ 1,112,066 $ 1,119,836 Operating loss............................. (13,024) (13,774)loss............ (17,853) (24,648) (72,253) (7,651) (5,954) Loss before extraordinary items............ (6,467) (7,703)from continuing operations.............. (13,698) (12,916) (60,198) (15,581) (14,618) Loss before extraordinary itemsfrom continuing operations per share.. (.22) (.26)share.... (.46) (.43) (2.01) (.52) (.46)
MINORITY INTEREST -----------------(a) Reflects (i) the operations of Snapple for the year ended December 31, 1996 and the pre-acquisition period from January 1 to May 22, 1997 (the "Pre-Acquisition Period"), (ii) the income statement effects of the allocation of the purchase price including the amortization of the adjusted intangible assets, (iii) the recognition of interest expense and amortization of deferred financing costs related to borrowings under the Credit Agreement at the Snapple Acquisition date less such amounts related to Mistic's former bank facility which were repaid at the Snapple Acquisition date and (iv) the income tax effects of the above. (b) Reflects (i) the elimination of revenues and expenses (including the reduction in carrying value of long-lived assets impaired or to be disposed of for 1996 and the elimination of loss on sale for 1997) related to the sold Arby's restaurants, (ii) a decrease to interest expense associated with the assumption of debt by RTM and (iii) the income tax effects of the above. The 1994effect of the elimination of income and expenses of the sold restaurants is significantly greater in 1996 as compared with 1997 principally due to two 1996 eliminations which did not recur in 1997 for (i) a $58,900,000 reduction in carrying value of long-lived assets associated with the restaurants sold and (ii) depreciation and amortization on the long-lived restaurant assets sold, which had been written down to their estimated fair values as of December 31, 1996 and were no longer depreciated or amortized while they were held for sale. (c) Reflects in addition to (a) and (b) above, (i) the effects of the Stewart's Acquisition consisting of (a) the operations of Cable Car for the year ended December 31, 1996 and the pre-acquisition period from January 1 to November 25, 1997, (b) the income statement effects of the allocation of the purchase price consisting of the amortization of the adjusted intangible assets, (c) the income tax effects of the above and (d) the effect on loss from continuing operations per share from the issuance of 1,566,858 shares of Class A Common Stock in the Stewart's Acquisition and (ii) the effects of the C&C Sale consisting of (a) elimination of revenues and expenses related to the C&C beverage line, (b) realization of deferred revenues based on the portion of the minimum take-or-pay commitment for sales of concentrate for C&C products to Kelco and from fees related to technical services performed, both under the contract with Kelco, (c) imputation of interest expense on the deferred revenues, (d) recognition of the cost of the concentrate to be sold, (e) elimination of the aforementioned $576,000 gain on the sale of C&C recorded in 1997, (f) accretion of the discount on the portion of the Kelco Note relating to the C&C Sale and (g) the income tax effects of the above. (d) Reflects (a) the elimination of the results of operations related to the Textile Business and (b) the effects of the Propane Sale including (i) the addition of the estimated stand-alone general and administrative costs associated with the operation of the propane business as a partnership in connection with the Operating Partnership Transfer, (ii) net decreases to interest expense reflecting (a) the elimination of interest expense on the refinanced debt partially offset by the interest expense associated with $125,000,000 of new borrowings (see Note 8) and (b) the reduction in interest expense resulting from the assumed repayment of other debt of the Company with the net proceeds of the Offerings ($124,749,000) and the net proceeds from the issuance of the $125,000,000 of new borrowings ($118,400,000), net of the repayment of then existing debt ($128,469,000) and (iii) the effects of income taxes and minority interest in income of a consolidated subsidiariessubsidiary resulting from (a) the effects of $1,292,000 consiststhe above transactions and (b) additional related transactions which eliminate in consolidation. 1995 TRANSACTIONS Mistic Acquisition On August 9, 1995 Mistic, a wholly-owned subsidiary of minorityTriarc, acquired (the "Mistic Acquisition") substantially all of the assets and operations, subject to related operating liabilities, as defined, of certain companies which developed, marketed and sold carbonated and non-carbonated fruit drinks, ready-to-drink brewed iced teas and naturally flavored seltzers under various trademarks and tradenames including MISTIC and ROYAL MISTIC. The purchase price for the Mistic Acquisition, aggregating $98,324,000 (including $2,067,000 of cash acquired) consisted of (i) $93,000,000 in cash, (ii) $1,000,000 paid in eight equal quarterly installments from 1995 through 1997, (iii) non-compete agreement payments to the seller aggregating $3,000,000 and (iv) $1,324,000 of related expenses. The non-compete agreement payments were or are payable $900,000 in August 1996, 1997 and 1998 and $300,000 in December 1998. In accordance with the Mistic Acquisition agreement, the non-compete payment due in 1996 was offset against amounts due from the seller. The Mistic Acquisition was financed through (i) $71,500,000 of borrowings under Mistic's former bank facility (see Note 8) and (ii) $25,000,000 of borrowings under the former credit facility of the Textile Business. PURCHASE PRICE ALLOCATIONS OF ACQUISITIONS In addition to the acquisitions discussed above, the Company consummated several additional business acquisitions during 1995, 1996 and 1997, principally restaurant operations and propane businesses, for cash of $18,947,000, $4,018,000 and $8,480,000, respectively. All such acquisitions, as well as the aforementioned Snapple Acquisition, Stewart's Acquisition and Mistic Acquisition, have been accounted for in accordance with the purchase method of accounting. In accordance therewith, the following table sets forth the allocation of the aggregate purchase prices and a reconciliation to "Business Acquisitions, net of cash acquired" in the accompanying consolidated statements of cash flows (in thousands):
1995 1996 1997 ---- ---- ---- Current assets..............................................................$ 31,560 $ 257 $ 114,460 Properties.................................................................. 12,641 838 25,366 Goodwill (a)................................................................ 34,438 162 106,160 Trademarks.................................................................. 58,100 3,950 221,300 Other assets................................................................ 6,501 1,107 28,612 Current liabilities ........................................................ (24,790) (358) (69,608) Long-term debt assumed including current portion............................ (3,180) -- (686) Other liabilities........................................................... (4,066) (188) (66,014) ------------- ------------- ----------- 111,204 5,768 359,590 Less: Long-term debt issued to sellers....................................... -- (1,750) (757) Triarc Class A Common Stock issued to sellers and stock options issued to employees, net of stock registration costs......... -- -- (40,197) ------------- ------------- ----------- $ 111,204 $ 4,018 $ 318,636 ============= ============= =========== (a) Amortized over 25 to 35 years.
(4) LOSS PER SHARE In the fourth quarter of 1997 the Company adopted SFAS No. 128 "Earnings Per Share" ("SFAS 128"). This standard requires the presentation of "basic" and "diluted" earnings per share, which replace the "primary" and "fully diluted" earnings per share measures required under prior accounting pronouncements. Basic and diluted loss per share are the same for 1995, 1996 and 1997 since all potentially dilutive securities (principally stock options) would have had an antidilutive effect for all such periods. The loss per share has been computed by dividing the net loss by the weighted average number of outstanding shares of common stock during the period. Such weighted averages were 29,764,000, 29,898,000 and 30,132,000 for 1995, 1996 and 1997, respectively. Although SFAS 128 requires restatement of all prior periods, the standard has had no effect on the Company's reported net loss per share for 1995 and 1996 since all potentially dilutive securities were antidilutive. At December 28, 1997 the Company has outstanding stock options that, if exercised, could dilute basic earnings per share in the future assuming the Company reports income from continuing operations. In addition, subsequent to December 28, 1997 the Company issued convertible debentures (see Note 25) that, if converted, could dilute basic earnings per share in the future. (5) SHORT-TERM INVESTMENTS The Company's short-term investments are stated at fair value, except for an investment in limited partnerships which is stated at cost. The cost (amortized cost for corporate debt securities), gross unrealized gains and losses, fair value and carrying value, as appropriate, of the Company's short-term investments at December 31, 1996 and December 28, 1997 were as follows (in thousands):
1996 ---------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING COST GAINS LOSSES VALUE VALUE ---- ----- ------ ----- ----- Marketable securities: Equity securities.......... $ 14,373 $ 982 $ (424) $ 14,931 $ 14,931 Corporate debt securities.. 16,113 24 (36) 16,101 16,101 Mutual fund................ 10,312 367 -- 10,679 10,679 -------- ------- --------- -------- -------- Total marketable securities........ 40,798 $ 1,373 $ (460) 41,711 41,711 ======= ========= Investment in limited partnerships................ 10,000 11,391 10,000 ------- -------- ------- $ 50,798 $ 53,102 $51,711 ======== ======== ======= 1997 ------------------------------------------------------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING COST GAINS LOSSES VALUE VALUE ---- ----- ------ ----- ----- Marketable securities: Equity securities.......... $ 19,434 $ 815 $ (1,971) $ 18,278 $18,278 Corporate debt securities.. 17,861 98 (72) 17,887 17,887 Mutual fund................ -- -- -- -- -- -------- ------ --------- --------- ------- Total marketable securities........ 37,295 $ 913 $ (2,043) 36,165 36,165 ====== ========= Investment in limited partnerships................ 10,000 15,329 10,000 ------- ---------- -------- $47,295 $ 51,494 $ 46,165 ======= ========== ========
Corporate debt securities at December 28, 1997 (all of which are classified as available-for-sale) mature as follows (in thousands):
AMORTIZED FAIR YEARS COST VALUE ----- ---- ----- 1999 - 2002........................................................................... $ 10,499 $ 10,538 2003 - 2006........................................................................... 7,362 7,349 ----------- ---------- $ 17,861 $ 17,887 =========== ==========
Gross realized gains and gross realized losses on sales of marketable securities are included in "Investment income, net" (see Note 15) in the accompanying consolidated statements of operations and are as follows (in thousands):
1995 1996 1997 ---- ---- ---- Gross realized gains.....................................................$ 314 $ 1,034 $ 5,187 Gross realized losses.................................................... (568) (333) (338) --------- --------- --------- $ (254) $ 701 $ 4,849 ========= ========= =========
The net unrealized gain (loss) on marketable securities (all of which are classified as available-for-sale) consisted of the following (in thousands):
YEAR-END ----------------------------------- 1996 1997 ---- ---- Net unrealized gain (loss)........................................................$ 913 $ (1,130) Income tax (provision) benefit.................................................... (314) 393 ------------- ------------ $ 599 $ (737) ============= ============
(6) BALANCE SHEET DETAIL RECEIVABLES, NET The following is a summary of the components of receivables (in thousands):
YEAR-END --------------------------------- 1996 1997 ---- ---- Receivables: Trade.................................................................... $ 71,000 $ 75,460 Other.................................................................... 6,510 13,663 ------------ ------------ 77,510 89,123 Less allowance for doubtful accounts (trade)........................ .... 6,547 11,241 ------------ ------------ $ 70,963 $ 77,882 ============ ============ Substantially all receivables are pledged as collateral for certain debt (see Note 8).
INVENTORIES The following is a summary of the components of inventories (in thousands):
YEAR-END ----------------------------------- 1996 1997 ---- ---- Raw materials........................................................................$ 15,240 $ 22,573 Work in process...................................................................... 467 214 Finished goods....................................................................... 23,878 34,607 ------------- ------------ $ 39,585 $ 57,394 ============= ============
Certain inventory quantities in 1995 were reduced, resulting in a liquidation of LIFO inventory quantities carried at lower costs from prior years the effect of which was to decrease cost of sales by $1,223,000. There was no such liquidation in 1996 or 1997. Substantially all inventories are pledged as collateral for certain debt (see Note 8). PROPERTIES, NET The following is a summary of the components of properties, at cost (in thousands):
YEAR-END ---------------------------------- 1996 1997 ---- ---- Land ............................................................................$ 8,732 $ 2,421 Buildings and improvements and leasehold improvements................................ 27,631 16,591 Machinery and equipment.............................................................. 147,139 30,510 Transportation equipment ............................................................ 23,835 2,159 Leased assets capitalized............................................................ 888 788 -------------- ------------ 208,225 52,469 Less accumulated depreciation and amortization....................................... 109,257 18,636 -------------- ------------ $ 98,968 $ 33,833 ============== ============
The decrease in properties from December 31, 1996 to December 28, 1997 principally resulted from the Deconsolidation and the C.H. Patrick Sale. Substantially all properties are pledged as collateral for certain debt (see Note 8). UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES The following is a summary of the components of unamortized costs in excess of net assets of acquired companies (in thousands):
YEAR-END ---------------------------------- 1996 1997 ---- ---- Costs in excess of net assets of acquired companies (Note 3)......................$ 270,733 $ 355,889 Less accumulated amortization..................................................... 69,892 76,664 -------------- ------------ $ 200,841 $ 279,225 ============== ============
TRADEMARKS The following is a summary of the components of trademarks (in thousands):
YEAR-END ---------------------------------- 1996 1997 ---- ---- Trademarks (Note 3)....................................................................$ 63,348 $ 282,701 Less accumulated amortization.......................................................... 6,091 13,500 -------------- ------------ $ 57,257 $ 269,201 ============== ============
DEFERRED COSTS AND OTHER ASSETS The following is a summary of the components of deferred costs and other assets (in thousands):
YEAR-END ---------------------------------- 1996 1997 ---- ---- Deferred financing costs..............................................................$ 32,272 $ 30,374 Other ............................................................................. 17,198 18,287 -------------- ------------ 49,470 48,661 Less accumulated amortization of deferred financing costs............................. 11,272 13,255 -------------- ------------ $ 38,198 $ 35,406 ============== ============
ACCRUED EXPENSES The following is a summary of the components of accrued expenses (in thousands):
YEAR-END --------------------------------- 1996 1997 ---- ---- Accrued interest......................................................................$ 24,827 $ 27,680 Accrued compensation and related benefits............................................. 20,256 22,771 Accrued production contract losses.................................................... -- 13,022 Accrued advertising ................................................................. 12,504 12,671 Accrued promotions.................................................................... 874 12,183 Accrued legal settlements and environmental matters (Note 21)......................... 975 10,274 Net current liabilities of discontinued operations (Note 17).......................... -- 4,339 Other ............................................................................. 39,912 45,314 -------------- ------------ $ 99,348 $ 148,254 ============== ============
(7) INVESTMENTS The following is a summary of the components of investments (non-current)(in thousands):
INVESTMENT YEAR-END PERCENTAGE OWNED ----------------- YEAR-END 1996 1997 1997 ---- ---- ---- The Partnership...............................................................$ -- $ 5,748 42.7% Deferred gain from sale of Partnership units (see below)...................... -- (5,748) Select Beverages.............................................................. -- 24,926 20.0% Rhode Island Beverages........................................................ -- 550 50.0% Limited partnerships, at equity............................................... 500 3,723 18.0% to 37.4% Limited partnerships, at cost................................................. -- 2,250 --------- ---------- $ 500 $ 31,449 ========= ==========
The Company's consolidated equity in the earnings (losses) of investees accounted for under the equity method for 1997 (none for 1995 and 1996) and included in "Other income (expense), net" (see Note 16) in the accompanying consolidated statement of operations consisted of the following components (in thousands): Select Beverages...........................................$ 862 Limited partnerships, at equity............................ (277) --------- $ 585 ========= The gross amount of the Company's investment in the Partnership equals the underlying equity in the Partnership's net assets. The Company's investment in Select Beverages, Inc. ("Select Beverages") exceeds the underlying equity in Select Beverage's net assets by $14,609,000 as of December 28, 1997. Since the commencement of the Partnership's operations and IPO on July 2, 1996 and through December 27, 1997, the assets, liabilities, revenues and expenses of the Partnership were included in the consolidated financial statements of the Company. Effective December 28, 1997 the Company adopted certain amendments to the partnership agreements of the Partnership and the Operating Partnership such that the Company no longer has substantive control over the Partnership to the point where it now exercises only significant influence and, accordingly, no longer consolidates the Partnership. The Company's 42.7% interest in the 1994 net incomePartnership as of SEPSCO untilDecember 28, 1997 is accounted for using the 28.9% minority interestequity method of accounting in accordance with the Deconsolidation. The Company's investment in the Partnership of $5,748,000 at December 28, 1997 is fully offset by an equal amount of deferred gain on the Offerings. Such deferred gain is recognized as the Company receives quarterly distributions on the Subordinated Units ("Subordinated Distributions") and the Unsubordinated General Partners' Interest (the "General Partner Distributions") which were $9,521,000 and $978,000, respectively, for 1997, in excess of its 42.7% equity in earnings of the Partnership. The Company also received Subordinated Distributions and General Partner Distributions of $2,380,000 and $244,000, respectively, in February 1998 with respect to the fourth quarter of 1997. However, the Company has agreed to forego any additional Subordinated Distributions in order to facilitate the Partnership's compliance with a covenant restriction contained in its bank facility agreement. Accordingly, the Company does not expect to receive any additional Subordinated Distributions for the remainder of 1998. Such Subordinated Distributions will be resumed when their payment will not impact compliance with such covenant. The Company, through its ownership of Snapple, owned 50% of the stock of Rhode Island Beverage Packing Company, L.P. ("Rhode Island Beverages" or "RIB"). Snapple and Quaker were defendants in a breach of contract case filed in April 1997 by RIB, prior to the Snapple Acquisition (the "RIB Matter"). The RIB Matter was acquired on April 14, 1994settled in February 1998 and in accordance therewith Snapple surrendered (i) its 50% investment in RIB ($550,000) and (ii) certain properties ($1,202,000) and paid RIB $8,230,000. The settlement amounts were fully provided for in a combination of (i) historical Snapple legal reserves as of the Snapple Acquisition and additional legal reserves provided in "Acquisition Related Costs" (see Note 26)13) and (ii) reserves for losses in long-term production contracts established in the Snapple Acquisition purchase accounting (see Note 3). Summary unaudited consolidated balance sheet information for the Partnership at December 31, 1997, the Partnership's year end, and for Select Beverages as of January 3, 1998, Select Beverage's year end, is as follows (in thousands):
PARTNERSHIP SELECT ----------- ------ Current assets.......................................................................$ 30,160 $ 73,482 Partnership Loan (see Note 8)........................................................ 40,700 -- Properties, net...................................................................... 80,346 48,538 Other assets......................................................................... 26,031 77,449 -------------- ------------ $ 177,237 $ 199,469 ============== ============ Current liabilities.................................................................$ 24,978 $ 46,721 Long-term debt...................................................................... 136,131 94,274 Other liabilities................................................................... 2,674 6,891 Partners' capital/stockholders' equity.............................................. 13,454 51,583 -------------- ------------ $ 177,237 $ 199,469 ============== ============
Summary consolidated income statement information for the Partnership is not presented since the results of operations of the Partnership were consolidated through December 28, 1997. Summary unaudited consolidated income statement information for Select Beverages for the period from May 22, 1997 (the Snapple Acquisition date) to January 3, 1998 is as follows (in thousands):
Revenues.............................................................................$ 215,242 Operating profit..................................................................... 14,574 Net income........................................................................... 4,311
(8) LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
YEAR-END --------------------------------- 1996 1997 ---- ---- 9 3/4% senior secured notes due 2000 (a).................................................$ 275,000 $ 275,000 Triarc Beverage Holdings Corp. Credit Agreement (b) Term loans bearing interest at a weighted average rate of 9.72% at December 28, 1997................................................................ -- 296,500 Note payable to the Partnership, bearing interest at 13 1/2% (c)......................... -- 40,700 Mortgage notes payable to FFCA Mortgage Corporation, bearing interest at a weighted average rate of 10.35% as of December 28, 1997, due through 2016 (d)............................................................. 52,136 3,818 Equipment notes payable to FFCA, bearing interest at 10 1/2% at December 28, 1997, due through 2003 (d)................................................ 6,236 479 8.54% first mortgage notes due June 30, 2010 (e)......................................... 125,000 -- Mistic bank facility repaid in 1997 prior to maturity (b) Term loan........................................................................... 53,750 -- Revolving loan...................................................................... 14,950 -- Propane Bank Credit Facility (f)......................................................... 7,885 -- Capitalized lease obligations (g)........................................................ 15,974 719 Other.................................................................................... 9,290 1,796 -------------- ------------ Total debt..................................................................... 560,221 619,012 Less amounts payable within one year........................................... 91,067 14,182 -------------- ------------ $ 469,154 $ 604,830 ============== ============
Aggregate annual maturities of long-term debt, including capitalized lease obligations, were as follows as of December 28, 1997 (in thousands): 1998................................... $ 14,182 1999................................... 15,490 2000................................... 294,709 2001................................... 24,731 2002................................... 27,258 Thereafter............................. 242,642 ------------- $ 619,012 ============= (a) Prior to 1995 RCAC entered into a three-year interest rate swap agreement (the "Swap Agreement") in the amount of $137,500,000. Under the Swap Agreement, interest on $137,500,000 was paid by RCAC at a floating rate (the "Floating Rate") based on the 180-day London Interbank Offered Rate ("LIBOR") and RCAC received interest at a fixed rate of 4.72%. The Floating Rate was set at the inception of the Swap Agreement through January 31, 1994 and thereafter was retroactively reset at the end of each six-month calculation period through July 31, 1996 minorityand at the maturity of the Swap Agreement on September 24, 1996. The transaction effectively changed RCAC's interest rate on $137,500,000 of $1,829,000the 9 3/4% senior secured notes due 2000 (the "9 3/4% Senior Notes") from a fixed-rate to a floating-rate basis through September 24, 1996. Under the Swap Agreement during 1994 RCAC received $614,000 which was determined at the inception of the Swap Agreement. Subsequently, RCAC paid (i) $2,271,000 during 1995 in connection with such year's two six-month reset periods and (ii) $1,631,000 during 1996 in connection with such year's two six-month reset periods and the reset period ending with the agreement's maturity on September 24, 1996. (b) The Credit Agreement consists of a $300,000,000 term facility of which $225,000,000 and $75,000,000 of loans (the "Term Loans") were borrowed by Snapple and Mistic, respectively, at the Snapple Acquisition date ($222,375,000 and $74,125,000, respectively, outstanding at December 28, 1997) and an $80,000,000 revolving credit facility which provides for revolving credit loans (the "Revolving Loans") by Snapple, Mistic or TBHC of which $25,000,000 and $5,000,000 were borrowed on the Snapple Acquisition date by Snapple and Mistic, respectively. The Revolving Loans were repaid prior to December 28, 1997 and no Revolving Loans were outstanding at December 28, 1997. The aggregate $250,000,000 borrowed by Snapple was principally used to fund a portion of the purchase price for Snapple (see Note 3). The aggregate $80,000,000 borrowed by Mistic was principally used to repay all of the $70,850,000 then outstanding borrowings under Mistic's former bank credit facility (the "Mistic Bank Facility") plus accrued interest thereon. Borrowings under the Credit Agreement bear interest, at the Company's option, at rates based on either the 30, 60, 90 or 180-day LIBOR (ranging from 5.91% to 6% at December 28, 1997) or an alternate base rate (the "ABR"). The interest rates on LIBOR-based loans are reset at the end of the period corresponding with the duration of the LIBOR selected. The interest rates on ABR-based loans are reset at the time of any change in the ABR. The ABR (8 1/2% at December 28, 1997) represents the limited partners' weighted averagehigher of the prime rate or 1/2% over the Federal funds rate. Revolving Loans and one class of the Term Loans with an outstanding balance of $97,500,000 at December 28, 1997 bear interest at 2 1/2% over LIBOR or 1 1/4% over ABR until such time as such margins may be subject to downward adjustment by up to 1% based on the respective Borrowers' leverage ratio, as defined. The other two classes of Term Loans each with outstanding balances of $99,500,000 at December 28, 1997 bear interest at 3% and 3 1/4%, respectively, over LIBOR or 2 1/4% and 2 1/2%, respectively, over the ABR. The interest rates of all the term loans outstanding at December 28, 1997 are based on LIBOR. The borrowing base for Revolving Loans is the sum of 80% of eligible accounts receivable and 50% of eligible inventory. At December 28, 1997 there was $32,511,000 of borrowing availability under the revolving credit facility in accordance with limitations due to such borrowing base. The Term Loans are due $9,500,000 in 1998, $14,500,000 in 1999, $19,500,000 in 2000, $24,500,000 in 2001, $27,000,000 in 2002, $61,000,000 in 2003, $94,000,000 in 2004 and $46,500,000 in 2005 and any Revolving Loans would be due in full in June 2003. The Borrowers must also make mandatory prepayments in an amount, if any, equal to 75% of excess cash flow, as defined. Under the definition of excess cash flow as of December 28, 1997, the Borrowers would have been obligated to make a mandatory prepayment in 1998 of $25,600,000 plus an additional $15,900,000 in 1998 attributable to those acquisition related costs which affect the working capital component of the excess cash flow calculation. However, on March 25, 1998 the Borrowers obtained an amendment to the Credit Agreement dated March 23, 1998 revising the definition of excess cash flow for the period May 22, 1997 through December 28, 1997 resulting in a reduction of the required prepayment to $2,800,000. Accordingly, the $2,800,000 the Company is required to pay has been classified as current portion of long-term debt in the accompanying consolidated balance sheet at December 28, 1997 and the remaining $38,700,000 that would have been required to be prepaid under the prior definition of excess cash flow has been classified as non-current long-term debt. (c) On July 2, 1996 the Operating Partnership made a $40.7 million loan (the "Partnership Loan") to Triarc. The Partnership Loan bears interest payable in cash semiannually and is due in eight equal annual installments of approximately $5,087,000 commencing 2003 through 2010. The Partnership Loan is included in the Company's long-term debt at December 28, 1997 as a result of the Deconsolidation. (d) ARDC and ARHC maintained loan and financing agreements with FFCA Mortgage Corporation which permitted borrowings in the form of mortgage notes (the "Mortgage Notes") and equipment notes (the "Equipment Notes" and, collectively with the Mortgage Notes, the "FFCA Loan Agreements"). As discussed in Note 3, in May 1997 RTM assumed an aggregate $54,682,000 of Mortgage Notes and Equipment Notes in connection with the RTM Sale. The remaining Mortgage Notes and Equipment Notes are repayable in equal monthly installments, including interest, over twenty and seven years through 2016 and 2003, respectively. (e) On July 2, 1996 National issued $125,000,000 of 8.54% first mortgage notes due June 30, 2010 (the "First Mortgage Notes") and repaid the $123,188,000 of then outstanding borrowings under its former revolving credit and term loan facility. The First Mortgage Notes amortize in equal annual installments of $15,625,000 commencing June 2003 through June 2010. In accordance with the Deconsolidation, the $125,000,000 outstanding amount of the First Mortgage Notes is no longer included in the Company's long-term debt at December 28, 1997. (f) National maintains a bank credit facility (the "Propane Bank Credit Facility") with a group of banks. In accordance with the Deconsolidation, the outstanding borrowings under the Propane Bank Credit Facility of $20,498,000 are no longer included in the Company's long-term debt at December 28, 1997. (g) As discussed in Note 3, in May 1997 RTM assumed $14,955,000 of capitalized lease obligations associated with the restaurants sold. Under the Company's various debt agreements, substantially all of Triarc's and its subsidiaries' assets other than cash, short-term investments and the assets of Cable Car are pledged as security. In addition, (i) obligations under the 9 3/4% Senior Notes have been guaranteed by Royal Crown and TRG, (ii) obligations under the First Mortgage Notes and the Propane Bank Credit Facility have been guaranteed by National Propane and (iii) borrowings under the FFCA Loan Agreements have been guaranteed by Triarc. Triarc remains contingently liable under its guarantee for the borrowings under the FFCA Loan Agreements which were assumed by RTM in connection with the RTM Sale upon the failure, if any, of RTM to satisfy such obligations. As collateral for such guarantees, all of the stock of Royal Crown and TRG is pledged as well as National Propane's 2% unsubordinated general partner interest in the Partnership (see Note 3). Although Triarc has not guaranteed the obligations under the Credit Agreement, all of the stock of Snapple, Mistic and TBHC is pledged as security for payment of such obligations. Although the stock of National Propane is not pledged in connection with any guarantee of debt obligations, the 75.7% of such stock owned by Triarc directly is pledged as security for obligations under the Partnership Loan. The Company's debt agreements contain various covenants which (a) require meeting certain financial amount and ratio tests; (b) limit, among other matters, (i) the incurrence of indebtedness, (ii) the retirement of certain debt prior to maturity, (iii) investments, (iv) asset dispositions, (v) capital expenditures and (vi) affiliate transactions other than in the normal course of business; and (c) restrict the payment of dividends to Triarc. As of December 28, 1997 the Company was in compliance with all such covenants. Triarc's principal subsidiaries, other than Cable Car, CFC Holdings and National Propane, are unable to pay any dividends or make any loans or advances to Triarc during 1998 under the terms of the various indentures and credit arrangements. While there are no restrictions applicable to National Propane, National Propane is dependent upon cash flows from the Partnership, principally the distributions from the Partnership, to pay dividends. (See Note 7 for restrictions on paying Subordinated Distributions in 1998). While there are no restrictions applicable to CFC Holdings, CFC Holdings would be dependent upon cash flows from RCAC to pay dividends and, as of December 28, 1997, RCAC was unable to pay any dividends or make any loans or advances to CFC Holdings. (9) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has the following financial instruments for which the disclosure of fair values is required: cash and cash equivalents, accounts receivable and payable, accrued expenses, short-term investments, investments in limited partnerships, at cost and long-term debt. The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses approximated fair value due to the short-term maturities of such assets and liabilities. The carrying amount of accounts receivable approximated fair value due to the related allowance for doubtful accounts. The fair values of short-term investments are based on quoted market prices and statements of account received from investment managers and are set forth in Note 5. The carrying amounts of investments in limited partnerships, at cost and long-term debt were as follows (in thousands):
YEAR-END ------------------------------------------------------------ 1996 1997 ---------------------------- ---------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ----------- ------------ -------------- ------------- Investments in limited partnerships, at cost (Note 7).....$ -- $ -- $ 2,250 $ 1,901 ============ ============= ============== ============ Long-term debt (Note 8): 9 3/4% Senior Notes..................................$ 275,000 $ 283,000 $ 275,000 $ 279,000 TBHC Credit Agreement................................ -- -- 296,500 296,500 Partnership Loan..................................... -- -- 40,700 43,321 FFCA Loan Agreements................................. 58,372 61,814 4,297 4,612 First Mortgage Notes ................................ 125,000 125,000 -- -- Mistic Bank Facility................................. 68,700 68,700 -- -- Propane Bank Credit Facility......................... 7,885 7,885 -- -- Other long-term debt ................................ 25,264 25,264 2,515 2,515 ------------ ------------- -------------- ------------ $ 560,221 $ 571,663 $ 619,012 $ 625,948 ============ ============= ============== ============
The fair values of the Company's investments in limited partnerships, at cost are based on statements of account received from such partnerships. The fair values of the 9 3/4% Senior Notes are based on quoted market prices at the respective reporting dates. The fair values of the Term Loans under the Credit Agreement at December 28, 1997 approximated their carrying values due to their floating interest rates. The fair value of the Partnership Loan as of December 28, 1997 was determined by using a discounted cash flow analysis based on an estimate of the Company's then current borrowing rate for a similar security. The fair values of the Mortgage Notes and Equipment Notes under the FFCA Loan Agreements were determined by discounting the future monthly payments using the then rate of interest available under such agreements at December 31, 1996 and a rate assumed to be available given the same spread over a current Treasury bond yield for securities with similar durations at December 28, 1997. The fair value of the First Mortgage Notes was assumed to reasonably approximate their carrying value as of December 31, 1996 due to their then recent issuance on July 2, 1996 and an insignificant change in borrowing rates from July 2, 1996 to December 31, 1996. The fair values of the revolving loans and the term loans under the Mistic Bank Facility and the Propane Bank Credit Facility at December 31, 1996 approximated their carrying values due to their floating interest rates. The fair values of all other long-term debt were assumed to reasonably approximate their carrying amounts since (i) for capitalized lease obligations, the weighted average implicit interest rate approximates current levels and (ii) for all other debt, the remaining maturities are relatively short-term. (10) INCOME TAXES The income (loss) from continuing operations before income taxes and minority interests in income of a consolidated subsidiary consisted of the following components (in thousands): 1995 1996 1997 ---- ---- ---- Domestic.............. $ (40,028) $ (527) $ (23,769) Foreign............... (1,948) (3,408) 679 ---------- ---------- ---------- $ (41,976) $ (3,935) $ (23,090) ========== ========== ========== The benefit from (provision for) income taxes from continuing operations consisted of the following components (in thousands):
1995 1996 1997 ---- ---- ---- Current: Federal.............................................................$ 4,775 $ (7) $ 5,225 State............................................................... (518) (5,292) 2,481 Foreign............................................................. (357) (370) (805) ------------ ----------- --------- 3,900 (5,669) 6,901 ------------ ----------- --------- Deferred: Federal............................................................. (2,426) (7,507) 867 State............................................................... 1,069 5,242 (3,026) ------------ ----------- --------- (1,357) (2,265) (2,159) ------------ ----------- --------- Total.........................................................$ 2,543 $ (7,934) $ 4,742 ============ =========== =========
The net current deferred income tax asset and the net non-current deferred income tax (liability) resulted from the following components (in thousands):
YEAR-END --------------------------------- 1996 1997 ---- ---- Current deferred income tax assets (liabilities): Accrued employee benefit costs...........................................$ 4,141 $ 5,561 Accrued production contract losses....................................... -- 4,588 Allowance for doubtful accounts ......................................... 1,886 4,095 Accrued legal settlements and environmental matters...................... 174 3,643 Glass front vending machines written off................................. -- 2,925 Accrued advertising and promotions....................................... 628 2,468 Facilities relocation and corporate restructuring........................ 2,366 2,049 Closed facilities reserves............................................... 892 1,919 Other, net............................................................... 7,796 12,671 ------------ ----------- 17,883 39,919 Valuation allowance...................................................... (1,799) (1,799) ------------ ----------- 16,084 38,120 ------------ ----------- Non-current deferred income tax assets (liabilities): Trademarks basis differences............................................. -- (53,929) Gain on sale of propane business (see Note 3)............................ (33,163) (36,211) Reserve for income tax contingencies and other tax matters........................................................... (29,005) (27,596) Depreciation and other properties basis differences ..................... 11,073 (14,632) Net operating loss and alternative minimum tax credit carryforwards......................................................... 23,954 42,980 Insurance losses not deducted............................................ 7,061 7,061 Accrued production contract losses....................................... -- 3,471 Other, net............................................................... 1,775 3,917 ------------ ----------- (18,305) (74,939) Valuation allowance...................................................... (17,638) (17,638) ------------ ----------- (35,943) (92,577) ------------ ----------- $ (19,859) $ (54,457) ============ ===========
The increase in the net deferred income tax liabilities from $19,859,000 at December 31, 1996 to $54,457,000 at December 28, 1997, or an increase of $34,598,000, differs from the provision for deferred income taxes of $2,159,000 for 1997. Such difference is principally due to the recognition of net deferred income tax liabilities in connection with the Snapple Acquisition of $31,452,000 (see Note 3). As of December 28, 1997 Triarc had net operating loss carryforwards for Federal income tax purposes of approximately $73,000,000, the utilization of $18,000,000 of which is subject to annual limitations through 1998. Such carryforwards will expire approximately $1,000,000 in the years 2000 through 2003 and $18,000,000, $3,000,000 and $51,000,000 in 2008, 2009 and 2012, respectively. In addition, the Company has (i) alternative minimum tax credit carryforwards of approximately $5,700,000 and (ii) depletion carryforwards of approximately $4,400,000, both of which have an unlimited carryforward period. A "valuation allowance" is provided when it is more likely than not that some portion of deferred tax assets will not be realized. The Company has established valuation allowances principally for that portion of the net operating loss carryforwards and other net deferred tax assets related to Chesapeake Insurance which entity as set forth in Note 1 is not included in Triarc's consolidated income tax return. The difference between the reported benefit from (provision for) income taxes and the tax benefit (provision) that would result from applying the 35% Federal statutory rate to the loss from continuing operations before income taxes and minority interests is reconciled as follows (in thousands):
1995 1996 1997 ---- ---- ---- Income tax benefit computed at Federal statutory rate......................... $ 14,692 $ 1,377 $ 8,082 Increase (decrease) in Federal tax benefit resulting from: Amortization of non-deductible Goodwill ................................. (2,286) (2,153) (2,481) Foreign tax rate in excess of United States Federal statutory rate and foreign withholding taxes, net of Federal income tax benefit...... (307) (241) (433) State income (taxes) benefit, net of Federal income tax effect........... 358 (33) (354) Effect of net operating losses for which no tax carryback benefit is available.................................................. (986) (1,269) (273) Minority interests....................................................... -- 640 772 Non-deductible loss on sale of Textile Business (see Note 3)............. -- (2,928) -- Provision for income tax contingencies and other tax matters............. (6,100) (2,582) -- Non-deductible amortization of restricted stock.......................... (1,440) -- -- Other non-deductible expenses............................................ (1,340) (745) (664) Other, net............................................................... (48) -- 93 -------- --------- ---------- $ 2,543 $ (7,934) $ 4,742 ======== ========= ==========
The Federal income tax returns of the Company have been examined by the IRS for the tax years 1985 through 1988. The Company has resolved all issues related to such audit and in connection therewith paid $674,000 in 1996 in final settlement of such examination. Such amount had been fully reserved in years prior to 1995. The IRS has completed its examination of the Company's Federal income tax returns for the tax years from 1989 through 1992 and has issued notices of proposed adjustments increasing taxable income by approximately $145,000,000. The Company has resolved approximately $102,000,000 of such proposed adjustments and, in connection therewith, the Company paid $5,298,000 including interest, during the fourth quarter of 1997 and subsequent to December 28, 1997 paid an additional $8,136,000, including interest. The Company intends to contest the unresolved adjustments of approximately $43,000,000, the tax effect of which has not yet been determined, at the appellate division of the IRS. During 1995 and 1996 the Company provided $6,100,000 and $2,582,000, respectively, included in "Benefit from (provision for) income taxes" and during 1995, 1996 and 1997 provided $2,900,000, $2,000,000 and $3,000,000 respectively, included in "Interest expense", relating to such examinations and other tax matters. Management of the Company believes that adequate aggregate provisions have been made in 1997 and prior periods for any tax liabilities, including interest, that may result from the 1989 through 1992 examination and other tax matters. (11) STOCKHOLDERS' EQUITY Throughout 1995 and 1996 the Company had 27,983,805 issued shares of its Class A Common Stock and there were no changes therein in each of those years. As discussed in Note 3, in 1997 Triarc issued 1,566,858 shares of Class A Common Stock in connection with the Stewart's Acquisition, resulting in 29,550,663 issued shares as of December 28, 1997. Prior to January 9, 1995 no shares of the Company's class B common stock ("Class B Common Stock") had been issued. On January 9, 1995, pursuant to a settlement agreement (the "1995 Posner Settlement") entered into by the Company and affiliates (the "Posner Entities") of Victor Posner ("Posner"), the former Chairman and Chief Executive Officer of a predecessor corporation to Triarc, the Company issued to the Posner Entities (i) 4,985,722 shares of Class B Common Stock as a result of the conversion of all of its then outstanding 5,982,866 shares of redeemable preferred stock all of which had been owned by the Posner Entities at $14.40 per share and (ii) 1,011,900 shares of Class B Common Stock with an aggregate fair value of $12,016,000 in consideration for, among other matters, (a) the settlement of certain liabilities due to the Posner Entities and (b) an indemnification by certain of the Posner Entities of any claims or expenses involving certain litigation. The Company's Class A Common Stock and Class B Common Stock are identical, except that Class A Common Stock has one vote per share and Class B Common Stock is non-voting. Class B Common Stock issued to the Posner Entities can only be sold subject to a right of first refusal in favor of the Company or its designee. If held by a person(s) not affiliated with Posner, each share of Class B Common Stock is convertible into one share of Class A Common Stock. A summary of the changes in the number of shares of Class A Common Stock held in treasury is as follows (in thousands):
1995 1996 1997 ---- ---- ---- Number of shares at beginning of year.......................................... 4,028 4,067 4,098 Common shares acquired in open market transactions............................. 42 45 67 Common shares issued from treasury upon exercise of stock options.............. -- (10) (208) Common shares issued from treasury to directors................................ (7) (8) (6) Restricted stock exchanged (see below) or reacquired........................... 11 4 -- Restricted stock grants from treasury (see below).............................. (7) -- -- --------- -------- --------- Number of shares at end of year................................................ 4,067 4,098 3,951 ========= ======== =========
The Company has 25,000,000 authorized shares of preferred stock including 5,982,866 designated as redeemable preferred stock, none of which were issued as of December 31, 1996 and December 28, 1997. Prior to 1995 the Company adopted the 1993 Equity Participation Plan, in 1997 the Company adopted the 1997 Equity Participation Plan and in 1997 the Company effectively adopted the Stock Option Plan for Cable Car Employees (the "Cable Car Plan" and collectively with the 1993 and 1997 Equity Participation Plans, the "Equity Plans") in connection with the consummation of the Stewart's Acquisition. The Equity Plans collectively provide for the grant of stock options and restricted stock to certain officers, key employees, consultants and non-employee directors. In addition, non-employee directors are eligible to receive shares of Class A Common Stock pursuant to automatic grants and in lieu of annual retainer or meeting attendance fees. The Equity Plans provide for a maximum of 10,654,931 shares of Class A Common Stock to be issued upon the exercise of options, granted as restricted stock or issued to non-employee directors in lieu of fees and there remain 285,689 shares available for future grants under the Equity Plans as of December 28, 1997. Subsequent to December 28, 1997, the Company's Board of Directors approved, subject to shareholder approval, the 1998 Equity Participation Plan providing for a maximum 5,000,000 shares of Class A Common Stock to be issued upon the exercise of options, granted as restricted stock or issued to non-employee directors pursuant to automatic grants and in lieu of fees. A summary of changes in outstanding stock options under the Equity Plans is as follows:
WEIGHTED AVERAGE OPTIONS OPTION PRICE OPTION PRICE ------- ------------ ------------ Outstanding at January 1, 1995......................... 7,569,900 $ 10.75 - $ 30.00 $18.27 Granted during 1995.................................... 1,241,000 $10.125 - $ 16.25 $10.57 Terminated during 1995................................. (210,700) $ 10.75 - $ 30.00 $17.38 -------------- Outstanding at December 31, 1995....................... 8,600,200 $10.125 - $ 30.00 $17.18 Granted during 1996 (a)................................ 136,000 $11.00 - $13.00 $12.16 Exercised during 1996.................................. (9,999) $10.75 $10.75 Terminated during 1996................................. (293,869) $10.125 - $30.00 $13.51 -------------- Outstanding at December 31, 1996....................... 8,432,332 $10.125 - $30.00 $17.24 Granted during 1997: (a) At market price.................................... 871,500 $20.4375 - $23.6875 $23.11 Below market price................................. 1,351,000 $12.375 - $21.00 $12.77 Replacement Options issued to Cable Car employees (b)...................................... 154,931 $4.07 - $11.61 $7.20 Exercised during 1997.................................. (208,159) $10.125 - $15.75 $11.69 Terminated during 1997................................. (248,168) $10.125 - $24.125 $14.12 Stock options settled other than through the issuance of stock.............................. (727,000) $10.125 - $21.00 $17.37 -------------- Outstanding at December 28, 1997....................... 9,626,436 $4.07 - $30.00 $17.17 ============== Exercisable at December 28, 1997....................... 3,380,904 $4.07 - $30.00 $14.95 ============== (a) The weighted average grant date fair values of stock options granted during 1996 and 1997 were as follows (see discussion of stock option valuation below):
1996 1997 ---- ---- Options whose exercise price equals the market price of the stock on the grant date.............................................$ 6.81 $ 12.17 Options whose exercise price is less than the market price of the stock on the grant date.......................................... None $ 8.72
(b) As of the November 25, 1997 date of the Stewart's Acquisition, Triarc issued 154,931 stock options (the "Replacement Options") to Cable Car employees in exchange for all of the then outstanding Cable Car stock options in accordance with the Cable Car Plan. The $2,788,000 fair value of the Replacement Options was accounted for as additional purchase price for Cable Car and was credited to "Additional paid-in-capital". The following table sets forth information relating to stock options outstanding and exercisable at December 28, 1997:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE ----------------------------------------------------------------------------------- ---------------------------------- OUTSTANDING AT WEIGHTED WEIGHTED OUTSTANDING AT WEIGHTED YEAR-END AVERAGE YEARS AVERAGE YEAR-END AVERAGE OPTION PRICE 1997 REMAINING OPTION PRICE 1997 OPTION PRICE ------------ ---- --------- ------------ ---- ------------ $4.07 - $10.75...................... 1,663,216 7.1 $10.12 1,357,520 $ 10.09 $11.61 - $16.25...................... 1,577,720 8.8 $12.78 195,053 $ 14.06 $18.00 - $20.00...................... 1,666,500 5.5 $18.21 1,540,832 $ 18.18 $20.125.......................... 3,500,000 6.3 $20.13 -- $ -- $20.4375 - $30.00 ..................... 1,219,000 8.9 $22.55 287,499 $ 21.20 ------------- -------------- 9,626,436 7.0 3,380,904 ============= ==============
Stock options under the Equity Plan generally have maximum terms of ten years and vest ratably over periods not exceeding five years from date of grant. However, an aggregate 3,500,000 performance stock options granted on April 21, 1994 to the Chairman and Chief Executive Officer and the President and Chief Operating Officer vest in one-third increments upon attainment of each of the three closing price levels for the Class A Common Stock for 20 out of 30 consecutive trading days by the indicated dates as follows: ON OR PRIOR TO APRIL 21, PRICE ----------- ----- 1999........................................ $ 27.1875 2000........................................ $ 36.25 2001........................................ $ 45.3125 Each option not previously vested, should such price levels not be attained no later than each indicated date, will vest on October 21, 2003. In addition to the 3,500,000 performance stock options discussed above, 350,000 of such stock options were granted on April 21, 1994 to the Vice Chairman of the Company from April 1993 to December 31, 1995 (the "Vice Chairman"). In December 1995, it was decided that the Vice Chairman's employment contract would not be extended and as of January 1, 1996 the Vice Chairman resigned as a director, officer and employee of the Company and entered into a consulting agreement pursuant to which no substantial services are expected to be provided. In accordance therewith, effective January 1, 1996 all of the 513,333 non-vested stock options of the aggregate 680,000 stock options previously issued to the Vice Chairman (including 350,000 performance stock options which were granted April 21, 1994) were vested in full. In January 1997 the Company paid the Vice Chairman $353,000 in consideration of the cancellation of all 680,000 stock options previously granted to him. Such amount had been estimated and previously provided in 1995 "Facilities relocation and corporate restructuring" (see Note 12). Stock options under the Equity Plan are generally granted at not less than the fair market value of the Class A Common Stock at the date of grant. However, options granted, net of terminations, prior to 1995 included 275,000 options issued at an option price of $20.00 per share which was below the $31.75 fair market value of the Class A Common Stock at the date of grant resulting in aggregate unearned compensation of $3,231,000. Additionally, options granted in 1997 included 1,331,000 options issued at a weighted average option price of $12.70; such option price was below the weighted average fair market value of the Class A Common Stock on the respective dates of grant of $14.82, resulting in aggregate unearned compensation of $2,823,000. Such amounts are reported in the "Unearned compensation" component of "Other stockholders' equity." Such unearned compensation is being amortized as compensation expense over the applicable vesting period of one to five years. During 1995, 1996 and 1997, $761,000, $489,000 and $1,543,000, respectively, of unearned compensation was amortized to compensation expense and credited to "Unearned compensation". In addition, $96,000 of compensation expense was recognized in 1997 representing the excess of fair market value over the option prices for 20,000 options granted in 1997 which were vested upon grant. During 1995, 1996 and 1997 certain below market options were forfeited. Such forfeitures resulted in decreases to (i) "Unearned compensation" of $319,000, $219,000 and $135,000 in 1995, 1996 and 1997, respectively, representing the reversals of the unamortized amounts at the dates of forfeiture, (ii) "Additional paid-in capital" of $588,000, $852,000 and $506,000 in 1995, 1996 and 1997, respectively, representing the reversal of the initial value of the forfeited below market stock options and (iii) "General and administrative" of $269,000, $633,000 and $371,000 in 1995, 1996 and 1997, respectively, representing the reversal of previous amortization of unearned compensation relating to forfeited below market stock options. The remaining unamortized balance relating to Triarc's below market stock options included in "Unearned compensation" is $1,450,000 at December 28, 1997. TBHC adopted the Triarc Beverage Holdings Corp. 1997 Stock Option Plan (the "TBHC Plan") in 1997 which provides for the grant of options to purchase TBHC common shares to key employees, officers, directors and consultants of TBHC and the Company and their affiliates. Stock options under the TBHC Plan have maximum terms of ten years. The TBHC Plan provides for a maximum of 150,000 TBHC common shares to be issued upon the exercise of stock options and there remain 73,750 shares available for future grants under the TBHC Plan as of December 28, 1997. During 1997, 76,250 stock options were granted under the TBHC Plan with an exercise price equal to fair market value ($147.30) as determined by an independent appraisal. The 74,250 stock options granted on August 19, 1997 vest ratably on July 1 of 1999, 2000 and 2001. The 2,000 stock options granted later in 1997 will vest ratably upon the second, third and fourth anniversaries of the grant date. The weighted average grant date fair value of such 1997 grants was $50.75. All such options are outstanding as of December 28, 1997 and none are exercisable. The weighted average years remaining for the TBHC options is 9.6 years. In addition, National Propane adopted the National Propane Corporation 1996 Unit Option Plan (the "Propane Plan") in 1996 which provides for the grant of options to purchase Common Units and Subordinated Units of the Partnership and Common Unit appreciation rights to National Propane directors, officers and employees. Such options have maximum terms of ten years. Any expenses recognized resulting from grants under the Propane Plan are allocated to the Partnership. National Propane granted 315,000 unit options during 1997 at an option price of $17.30 which was below the fair market value of the Common Units of $21.625 at the date of grant. Such difference resulted in aggregate unearned compensation to the Partnership of $1,362,000, of which $582,000 represented the Company's 42.7% interest and was recognized in the "Unearned compensation" component of "Other stockholders' equity" of the Company. Such unearned compensation is being amortized over the applicable service period of three to five years. During 1997, $115,000 was amortized to compensation expense of the Partnership, of which $49,000 related to the Company's 42.7% interest, and, accordingly, was credited to "Unearned compensation." The Company's portion of the remaining unamortized balance relating to National Propane's below market unit options included in "Unearned compensation" is $533,000 at December 28, 1997. In 1995 the Company granted the syndicated lending bank in connection with the Mistic Bank Facility (see Note 8) and two senior officers of Mistic stock appreciation rights (the "Mistic Rights") for the equivalent of 3% and 9.7%, respectively, of Mistic's outstanding common stock plus the equivalent shares represented by such stock appreciation rights. The Mistic Rights granted to the syndicating lending bank were immediately vested and of those granted to the senior officers, one-third vested over time and two-thirds vested depending on Mistic's performance. The Mistic Rights provided for appreciation in the per-share value of Mistic common stock above a base price of $28,637 per share, which was equal to the Company's per-share capital contribution to Mistic in connection with the Mistic Acquisition (see Note 3). The value of the Mistic Rights granted to the syndicating lending bank was recorded as deferred financing costs. The Company recognized periodically the estimated increase or decrease in the value of the Mistic Rights; such amounts were not significant in 1995, 1996 or 1997. In connection with the refinancing of the Mistic Bank Facility in May 1997, the Mistic Rights granted to the syndicating lending bank were repurchased by the Company for $492,000; the $177,000 excess of such cost over the then recorded value of such rights of $315,000 was recorded as "Interest expense" during 1997. In addition, the Mistic Rights granted to the two senior officers were canceled in 1997 in consideration for, among other things, their participation in the TBHC Plan. Effective January 1, 1996 the Company adopted SFAS 123. In accordance with the intrinsic value method of accounting for stock options, the Company has not recognized any compensation expense for those stock options granted in 1995, 1996 and 1997 at option prices equal to the fair market value of the Class A Common Stock at the respective dates of grant. The following pro forma net loss and net loss per share adjusts such data as set forth in the accompanying consolidated statements of operations to reflect for the Equity Plans, the TBHC Plan and the Propane Plan (i) compensation expense for all 1995, 1996 and 1997 stock option grants, including those granted at below market option prices, based on the fair value method as provided for in SFAS 123, (ii) the reduction in compensation expense recorded in accordance with the intrinsic value method by eliminating the amortization of unearned compensation associated with options granted at below market option prices and (iii) the income tax effects thereof (in thousands except per share data):
1995 1996 1997 ---- ---- ---- Net loss...................................................... $ (37,280) $ (16,313) $ (7,810) Loss per share................................................ (1.25) (.55) (.26)
The above pro forma disclosures are not likely to be representative of the effects on net income and net income per common share in future years because pro forma compensation expense for grants (i) prior to 1995 is not considered, (ii) under the TBHC Plan did not occur prior its adoption in 1997 and (iii) under the Propane Plan will not be included after 1997 as the Partnership will be accounted for under the equity method of accounting commencing in 1998 (see Note 7). The fair value of stock options granted on the date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
1995 1996 1997 ----------- ------------ -------------------------------- EQUITY EQUITY EQUITY TBHC PROPANE PLAN PLAN PLAN PLAN PLAN ---- ---- ---- ---- ----- Risk-free interest rate............. 5.68% 6.66% 6.36% 6.22% 6.00% Expected option life................ 7 years 7 years 7 years 7 years 7 years Expected volatility................. 45.72% 43.23% 40.26% N/A 19.40% Dividend yield...................... None None None None 10.28%
A summary of the Operatingchanges in the outstanding shares of restricted stock granted by the Company from treasury stock is as follows: Outstanding at January 1, 1995.......................... 468,750 Granted during 1995..................................... 6,700 Converted to Rights (see below) during 1995............. (4,550) Forfeited during 1995................................... (6,700) Vested during 1995 (see below).......................... (464,200) ---------- Outstanding at December 31, 1995, 1996 and 1997......... -- ========== Grants of restricted stock resulted in unearned compensation included in the "Unearned compensation" component of "Other stockholders' equity" equal to the number of shares granted multiplied by the market value of the Company's Class A Common Stock on the grant date. The 1995 grant of 6,700 shares of restricted stock resulted in additional unearned compensation of $68,000 based upon the market value of the Company's Class A Common Stock at the date of grant of $10.125. Restricted stock vested over three to four years, other than the 1995 addition which vested upon grant. The related unearned compensation was amortized over the applicable vesting period, prior to the accelerated vestings of restricted stock described below, and, together with the amortization of unearned compensation related to the accelerated vesting, was recorded as "General and administrative". The vesting of 150,000 shares of restricted stock held by the three court-appointed members of a special committee of Triarc's Board of Directors (the "Special Committee Members") was accelerated in connection with their decision not to stand for re-election as directors of the Company at the 1995 annual stockholders meeting resulting in a charge for amortization of unearned compensation in 1995 of $1,691,000 (including $723,000 which would have otherwise been amortized during the post-acceleration 1995 period). On December 7, 1995 the Compensation Committee of Triarc's Board of Directors authorized management of the Company to accelerate the vesting of the remaining 307,500 shares of restricted stock. On January 16, 1996 management of the Company accelerated the vesting and the Company recorded the resulting additional amortization of unearned compensation of $1,640,000 in its entirety in 1995 which together with the $1,691,000 related to the Special Committee Members, resulted in aggregate amortization of unearned compensation in connection with accelerated vesting of $3,331,000. Compensation expense for the aggregate amortization of unearned compensation was $5,281,000 in 1995 (including the $3,331,000 relating to the previously discussed accelerated vesting of restricted stock). Prior to 1995 and during the year ended December 31, 1995, the Company agreed to pay to employees terminated during each such period and directors who were not reelected during 1994 and 1995 who held restricted stock and/or stock options, an amount in cash equal to the difference between the market value of Triarc's Class A Common Stock and the base value (see below) of such restricted stock and stock options (the "Rights") in exchange for such restricted stock or stock options. Such exchanges for restricted stock were for 36,000 and 4,550 Rights prior to 1995 and in 1995, respectively, and for stock options were 166,000, 97,700 and 12,500 Rights prior to 1995 and in 1995 and 1996, respectively. All such exchanges were for an equal number of shares of restricted stock or stock options except that the 4,550 Rights granted in 1995 were in exchange for 11,250 shares of restricted stock. The Rights which resulted from the exchange of stock options had base prices ranging from $10.75 to $30.75 per share and the Rights which resulted from the exchange of restricted stock all had a base price of zero. The restricted stock for which Rights were granted was fully vested upon termination of the employees. As a result of such accelerated vesting the Company incurred charges representing unamortized unearned compensation of $13,000 during 1995 included in "General and administrative". Of the 316,750 Rights granted, (i) 36,000 and 4,550 relating to restricted stock were exercised in 1995 and 1996, respectively, (ii) 71,000, 108,700 and 80,000 relating to stock options expired prior to 1995 and in 1996 and 1997, respectively and (iii) 16,500 relating to stock options were exercised in 1996. Upon issuance of the Rights the Company recorded a liability equal to the excess of the then market value of the Class A Common Stock over the base price of the stock options or restricted stock exchanged. Such liability was adjusted to reflect changes in the fair market value of Class A Common Stock subject to a lower limit of the base price of the Rights. (12) FACILITIES RELOCATION AND CORPORATE RESTRUCTURING Facilities relocation and corporate restructuring consisted of the following (in thousands):
1995(A) 1996(B) 1997(C) ------- ------- ------- Estimated restructuring charges associated with employee severance and related termination costs.....................................$ 510 $ 2,200 $ 5,426 Employee relocation costs...................................................... -- -- 1,337 Write-off of certain beverage distribution rights.............................. -- -- 300 Costs related to the then planned spinoff of the Company's restaurant/beverage group (Note 3).......................................... -- 400 12 Estimated costs related to sublease of excess office space .................... -- 3,700 -- Costs of terminating a beverage distribution agreement......................... -- 1,300 -- Estimated costs of beverage plant closing and other asset disposals............ -- 600 -- Consulting fees paid associated with combining certain operations of Royal Crown and Mistic ($500) and other costs ($100)..................... -- 600 -- Costs related to a consulting agreement between the Company and a former Vice Chairman ................................................. 2,500 -- -- Reduction to estimated costs provided prior to 1995 to relocate the Company's headquarters...................................................... (310) -- -- ---------- ---------- ----------- $ 2,700 $ 8,800 $ 7,075 ========== ========== ===========
(a) The 1995 facilities relocation and corporate restructuring charge related to (i) a $310,000 reduction of the estimated costs, provided prior to 1995, to terminate the lease on the Company's then existing corporate facilities in Miami Beach with one of the Posner Entities, resulting from the 1995 Posner Settlement (see Note 11) and (ii) severance costs associated with the resignation of the Vice Chairman of Triarc, who had served from April 23, 1993 to December 31, 1995 (see Note 11), and the 1995 termination of other corporate employees in conjunction with a reduction in corporate staffing. (b) The 1996 facilities relocation and corporate restructuring charge principally related to (i) estimated losses on planned subleases (principally for the write-off of nonrecoverable unamortized leasehold improvements and furniture and fixtures) of surplus office space as a result of the then planned sale of company-owned restaurants and the relocation (the "Royal Crown Relocation") of Royal Crown's headquarters which were centralized with TBHC's offices in White Plains, New York, (ii) employee severance costs associated with the Royal Crown Relocation, (iii) terminating a beverage distribution agreement, (iv) the shutdown of the beverage segment's Ohio production facility and other asset disposals, (v) consultant fees paid associated with combining certain operations of Royal Crown and Mistic and (vi) the then planned spinoff of the Company's restaurant/beverage group (see Note 3). (c) The 1997 facilities relocation and corporate restructuring charge principally related to (i) employee severance and related termination costs and employee relocation associated with restructuring the restaurant segment in connection with the RTM Sale (see Note 3), (ii) costs associated with the Royal Crown Relocation and (iii) the write-off of the remaining unamortized costs of certain beverage distribution rights reacquired in prior years and no longer being utilized by the Company as a result of the sale or liquidation of the assets and liabilities of MetBev, Inc., an affiliate (see Note 22). (13) ACQUISITION RELATED COSTS Acquisition related costs are attributed to the Snapple Acquisition and the Stewart's Acquisition during 1997 and consisted of the following (in thousands):
Write down glass front vending machines based on the Company's change in estimate of their value considering the Company's plans for their future use..................................................$ 12,557 Provide additional reserves for legal matters based on the Company's change in Quaker's estimate of the amounts required reflecting the Company's plans and estimates of costs to resolve such matters....... 6,697 Provide additional reserves for doubtful accounts related to Snapple ($2,254) and the effect of the Snapple Acquisition ($975) on MetBev, Inc. (see Note 22) based on the Company's change in estimate of the related write-off to be incurred............................................................ 3,229 Provide for fees paid to Quaker pursuant to a transition services agreement.................................... 2,819 Reflects the portion of promotional expenses relating to the Pre-Acquisition Period as a result of the Company's current operating expectations...................................................... 2,510 Provide for certain costs in connection with the successful consummation of the Snapple Acquisition and the Mistic refinancing in connection with entering into the Credit Agreement............................ 2,000 Provide for costs, principally for independent consultants, incurred in connection with the conversion of Snapple to the Company's operating and financial information systems.......................... 1,603 Sign-on bonus.................................................................................................. 400 ----------- $ 31,815 ===========
(14) GAIN (LOSS) ON SALE OF BUSINESSES, NET The "Gain (loss) on sale of businesses, net" as reflected in the accompanying consolidated statements of operations was $(100,000), $77,000,000 and $4,955,000 in 1995, 1996 and 1997, respectively. The loss in 1995 resulted from the writeoff of the Company's then investment in MetBev (see Note 22), a beverage distributor in the New York metropolitan area when the Company determined the decline in value of such investment was other than temporary which resulted in a pretax loss of $1,000,000 less $900,000 of gains relating to sales of assets of the natural gas and oil businesses. The gain in 1996 resulted from a pretax gain of $85,175,000 from the Offerings in the Partnership since it commenced operations(see Note 3) less (i) a pretax loss of $4,500,000 from the Graniteville Sale (see Note 3), and (ii) a pretax loss of $3,675,000 associated with the write-down of MetBev (see Note 22). The gain in July 1996. (See further discussion above under "Sale1997 consisted of Propane Business")(i) $8,468,000 of recognition of deferred gain from the Offerings in the Partnership, and (ii) $576,000 of recognized gain on the C&C Sale (see Note 3) less $4,089,000 of loss from the RTM Sale (see Note 3). (20)(15) INVESTMENT INCOME, NET Investment income consisted of the following components (in thousands):
1995 1996 1997 ---- ---- ---- Interest income ........................................................ $ 2,578 $ 7,299 $ 7,540 Realized gain (loss) on marketable securities........................... (254) 700 4,849 Dividend income......................................................... -- 70 382 ----------- ------------- ------------ $ 2,324 $ 8,069 $ 12,771 =========== ============= ============
(16) OTHER INCOME (EXPENSE), NET Other income (expense), net consistsconsisted of the following components (in thousands):
1994 1995 1996 1997 ---- ---- ---- Interest income ..................................................................................................... $ 4,664988 $ 3,5471,264 $ 8,612 Net realized gain (loss) on sales of marketable securities (Note 5)........................................ (135) (254) 7011,529 Posner Settlements (a).................................................. 2,312 -- 1,935 Gain on sale of excess timberland ................................................................. 11,945 -- 11,945 -- Net gain (loss) on other sales of assets..................... 975 (1,681) (34) Posner Settlement (a)........................................assets................................ (1,684) (38) 1,344 Gain on lease termination............................................... -- 2,312 -- 892 Equity in earnings of investees (Note 7) ............................... -- -- 585 Joint venture investment settlement (b)................................. -- (1,500) (3,665) Insurance settlement for fire-damaged equipment..............equipment......................... 1,875 -- 1,875 -- Columbia Gas Settlement (b).................................. --(c)............................................. 1,856 -- Equity in losses of affiliate ............................... (573) (2,170) -- Write-down of investment in Taysung (c)...................... -- (4,624) -- Costs of a proposed acquisition not consummated (d).......... (7,000) -- -- Other, net .................................................. 884 (492) (1,283) ----------............................................................. (511) 148 1,250 ----------- ----------------------- ------------ $ (1,185)16,781 $ 12,314(126) $ 7,996 ==========3,870 =========== ======================= ============
(a) Pursuant to the 1995 Posner Settlement, Posner paid the Company $6,000,000 in January 1995 in exchange for, among other things, the release by the Company of the Posner Entities from certain claims that it may have with respect to (i) legal fees in connection with a modification to certain litigation against the Company and certain of the present and former directors (see Note 25), (ii) fees payable to the court-appointed members of a special committee of the Company's Board of Directors and (iii) legal fees paid or payable with respect to matters referred to in the Posner Settlement,Entities, subject to the satisfaction by the Posner Entities of certain obligations under the Posner Settlement. The Company used a portion of such funds to pay (i) $2,000,000 to the court-appointed members of thea special committee of the Company's Board of Directors for services rendered in connection with the consummation of the Posner Settlement and (ii) $1,150,000 of other expenses, including related attorney's fees of $850,000, in connection with such modification, (iii) $200,000 in connection with the settlement of certain litigation and (iv) $100,000 of other expenses resulting in a gainpretax excess of $2,850,000, of which $538,000 reduced "General and administrative" as a recovery of legal expenses originally reported therein and $2,312,000 was credited to "Other income (expense), net" as reimbursement to the Company for certain legal fees incurred prior to 1995 in connection with matters relating to the Posner Settlement. In June 1997 the Company entered into another settlement agreement with the Posner Entities pursuant to which the Posner Entities paid the Company $2,500,000 in exchange for, among other things, dismissal of claims against the Posner Entities. The $2,500,000, less $356,000 of related legal expenses and reimbursement of previously incurred costs, resulted in a pretax gain of $2,144,000, of which $209,000 reduced "General and administrative" as a recovery of legal expenses originally reported therein and $1,935,000 was reported as "Other income (expense), net". (b) In 1994 Chesapeake Insurance and SEPSCO invested approximately $5,100,000 in a joint venture with Prime Capital Corporation ("Prime"). Subsequently in 1994, SEPSCO and Chesapeake Insurance terminated their investments in such joint venture and received in return an aggregate amount of approximately $5,300,000. In March 1995 three creditors of Prime filed an involuntary bankruptcy petition under the Federal bankruptcy code against Prime. In November 1996 the bankruptcy trustee appointed in the Prime bankruptcy case made a demand on Chesapeake Insurance and SEPSCO for return of the approximate $5,300,000. In January 1997 the bankruptcy trustee commenced adversary proceedings against Chesapeake Insurance and SEPSCO seeking the return of the approximate $5,300,000 alleging such payments from Prime were preferential or constituted fraudulent transfers. In November 1997 Chesapeake Insurance, SEPSCO and the bankruptcy trustee agreed to a settlement of the actions and, in conjunction therewith, in December 1997 SEPSCO and Chesapeake Insurance collectively returned $3,550,000 to Prime. In 1996 the Company recorded its then estimate of the minimum costs to defend its position or settle the action of $1,500,000. In 1997 the Company recorded the remaining costs of $3,665,000, reflecting an aggregate $1,615,000 of related legal and expert fees. (c) The Company was a party to a class action lawsuit brought against Columbia Gas System, Inc. ("Columbia Gas") in which the claimants charged that Columbia Gas had overcharged the claimants for purchases of propane gas. During the fourth quarter of 1995 the Company received $2,406,000 in full settlement of the lawsuit which resulted in a gain of $1,856,000 net of estimated expenses (the "Columbia Gas Settlement"). (c) The Taiwanese joint venture investment made by the Company in 1994 ("Taysung") was written off in 1995 when the Company determined the decline in value of such investment was other than temporary. (d) In 1994 the Company entered into a definitive merger agreement with Long John Silver's Restaurants, Inc. ("LJS"), an owner, operator and franchisor of quick service fish and seafood restaurants, whereby the Company would acquire all of the outstanding stock of LJS. In December 1994 the Company decided not to proceed with the acquisition of LJS due to the higher interest rate environment and difficult capital markets which would have resulted in significantly higher than anticipated costs and unacceptable terms of financing. Accordingly, the Company recorded a charge of $7,000,000 in 1994 for the expenses relating to the failed acquisition of LJS representing commitment fees, legal, consulting and other costs. (21)expenses. (17) DISCONTINUED OPERATIONS On July 22, 1993 SEPSCO's BoardDecember 23, 1997 the Company consummated the C.H. Patrick Sale (see Note 3) and C.H. Patrick has been accounted for as a discontinued operation in 1997 and the accompanying 1995 and 1996 consolidated financial statements have been reclassified accordingly. In addition, prior to 1995 the Company sold the stock or the principal assets of Directors authorized the sale or liquidation ofcompanies comprising SEPSCO's utility and municipal services and refrigeration business segments (consisting of ice and cold storage operations)(the "SEPSCO Discontinued Operations") which have been accounted for as discounted operations and of which there remain certain obligations not transferred to the buyers of the discontinued businesses to be liquidated and incidental plants and properties of the refrigeration business to be sold. The income from discontinued operations in the Company's consolidated financial statements. Prior to 1994 the Company sold the assets or stockconsisted of the companies comprising SEPSCO's utility and municipal services business segment.following (in thousands):
1995 1996 1997 ---- ---- ---- Income from discontinued operations net of income taxes of $1,513, $3,360 and $943 .................................. $ 2,439 $ 5,213 $ 1,209 Gain on disposal of discontinued operations net of income taxes of $13,768............................................ -- -- 19,509 ----------- ----------- ---------- $ 2,439 $ 5,213 $ 20,718 =========== =========== ==========
The income from discontinued operations to the December 23, 1997 sale of onedate consisted of the businesses was subject to certain deferred purchase price adjustments which were settled in March 1995 for (i) cash paymentsfollowing (in thousands):
1995 1996 1997 ---- ---- ---- Revenues.................................................................. $ 42,210 $ 61,064 $ 65,227 Operating income.......................................................... 10,844 10,874 5,405 Income before income taxes................................................ 3,952 8,573 35,429 Provision for income taxes................................................ (1,513) (3,360) (14,711) Net income................................................................ 2,439 5,213 20,718
The net current assets (liabilities) of $500,000discontinued operations and net non-current liabilities (none as of which $300,000 was collected in 1995 and $200,000 was collected in 1996 plus (ii)December 28, 1997) of discontinued operations consisted of the proceeds from the salefollowing (in thousands):
1996 1997 ---- ---- Current assets (liabilities) Cash.................................................................................. $ 215 $ -- Receivables, net...................................................................... 9,650 -- Inventories........................................................................... 15,755 -- Other current assets.................................................................. 325 -- Current portion of long-term debt..................................................... (2,500) -- Accounts payable...................................................................... (2,006) -- Accrued expenses...................................................................... (1,546) -- Net current liabilities of SEPSCO Discontinued Operations (included in "Accrued expenses" at December 28, 1997)......................................... (3,589) (a) (4,339) (a) -------- -------- $ 16,304 $ (4,339) ======== ======== Non-current assets (liabilities) Properties, net....................................................................... $ 8,304 Unamortized costs in excess of net assets of acquired companies....................... 3,073 Other non-current assets.............................................................. 3,089 Long-term debt........................................................................ (31,375) -------- $(16,909) ========
(a) Exclusive of a property which was sold$3,000,000 note receivable due in May 1996 for $164,000. Recognition of such proceedsfull in 19952000, bearing interest at 8% and 1996 has been deferred. In April 1994 the Company sold substantially all of the operating assets of the ice operations to unrelated third parties and in December 1994 sold the stock or operating assets of the companies comprising the cold storage operations todue from National Cold Storage, Inc., a company formed by two then officers of SEPSCO. Such sales resulted in aggregate losses of approximately $9,300,000, excluding any considerationSEPSCO to purchase one of the then remaining $6,881,000 aggregate principal payments then due on notes fromrefrigeration businesses, which has not been recognized since at the buyerstime of such businesses, since theirsale collection thereof was not reasonably assured. The note relating to the sale of the ice operations (the "Ice Note") had an original principal of $4,295,000 and bore interest at 5% and the note relating to the sale of the cold storage operations (the "CS Note") had an original principal of $3,000,000 and bears interest at 8%. Collections by the Company on the Ice Note were $120,000 of scheduled principal payments and $294,000 of principal payments in advance during 1995 and $120,000 of scheduled principal payments and $2,245,000 (discounted from $3,761,000) of principal payments in advance during 1996 (of which $450,000 is being held in escrow for future environmental spending). Recognition of such proceeds from the Ice Note has been deferred. The CS Note is due in full in 2000. In connectionLosses associated with the dispositions referred to above, SEPSCO reevaluated the estimated losses from the sale of its discontinued operationsDiscontinued Operations were provided for in their entirety in years prior to 1994 and the Company provided $8,400,000 ($3,900,000 net of minority interests of $2,425,000 and income tax benefit of $2,075,000) for the revised estimated loss during 1994. The revised estimate in 1994 results from additional unanticipated losses on disposal of the businesses of $6,400,000 and operating losses from discontinued operations through their respective dates of disposal of $2,000,000 principally reflecting delays in disposing of the businesses from their estimated disposal dates. The increased loss on disposal was principally due to nonrecognition of the Ice Note and the CS Note compared with the previously anticipated full recognition of all proceeds from the sales of such business once the businesses were sold.1995. After consideration of the amounts provided in prior years, the Company expects the liquidation of the remaining liabilities associated with the discontinued operationsSEPSCO Discontinued Operations as of December 28, 1997 will not have any material adverse impact on its financial position or results of operations. The loss from operations during 1994, which had been recognized prior thereto, consisted of the following (in thousands): Revenues ................................................ $ 11,432 Operating loss .......................................... (80) Loss before income taxes and net loss ................... (405) The principal remaining accounts of the discontinued operations relate to liquidating obligations not transferred to the buyers of the discontinued businesses and are reflected as net current liabilities of discontinued operations aggregating $3,461,000 and $3,589,000 included in "Accrued expenses" (see Note 12). (22)(18) EXTRAORDINARY ITEMS In connection with the early extinguishment of the Company's 13 1/8% debentures in 1994 andThe 1996 extraordinary items resulted from the early extinguishment of (i) the Company's 11 7/8% Debenturessenior subordinated debentures due February 1, 1998, onin February 22, 1996, (ii) all of the debt of TXL, including the Graniteville Credit Facility,Textile Business in connection with the sale of the Textile BusinessGraniteville Sale (see Note 19) on3) in April 29, 1996, (iii) substantially all of the long-term debt of National Propane including the Former Propane Facility (see Note 13) on July 2, 1996 in connection with the Propane Sale (see Note 3) and (iv) the National Union Notea 9 1/2% promissory note payable with an outstanding balance of $36,487,000 (including accrued interest of $1,790,000) for cash of $27,250,000 on July 1, 19961996. The 1997 extraordinary items resulted from the early extinguishment or assumption of (i) mortgage and equipment notes payable assumed by RTM in connection with the RTM Sale (see Note 13)3), (ii) obligations under Mistic's former credit facility in May 1997 refinanced in connection with entering into the Company recognizedCredit Agreement (see Note 8) and (iii) obligations under C.H. Patrick's credit facility in December 1997 in connection with the C.H. Patrick Sale (see Note 3). The components of such extraordinary charges consisting of the followingitems were as follows (in thousands):
1994 1996 1997 ---- ---- Write-off of unamortized deferred financing costs........costs............................. $ (875) $(10,469)(10,469) $ (6,178) Write-off of unamortized original issue discount......... (2,623)discount.............................. (1,776) -- Prepayment penalties.....................................penalties.......................................................... (5,744) -- (5,744) Fees....................................................Fees.......................................................................... (250) -- (250) Discount from principal on early extinguishment.........extinguishment............................... 9,237 -- 9,237 ---------- ---------- (3,498)----------- --------- (9,002) (6,178) Income tax benefit....................................... 1,382benefit............................................................ 3,586 ---------- ---------- $ (2,116)2,397 ----------- --------- $ (5,416) ========== ==========$ (3,781) =========== =========
(23)(19) PENSION AND OTHER BENEFIT PLANS The Company maintains several 401(k) defined contribution plans (the "Plans") covering all employees who meet certain minimum requirements and elect to participate including certain employees of Snapple subsequent to May 22, 1997 and Mistic subsequent to January 1, 1996 and excluding certain employees of Cable Car (eligibility expected to commence in 1998) and those employees covered by plans under certain union contracts. EmployeesUnder the provisions of the Plans, employees may contribute various percentages of their compensation ranging up to a maximum of 15%, subject to certain limitations. The plansPlans provide for Company matching contributions at either 25% or 50% of employee contributions up to the first 5% thereof or at 100% of an employee's contributions.employee contributions up to the first 3% thereof. The plansPlans also provide for additional annual additionalCompany contributions either equal to 1/4% of 1% of employee's total compensation or an arbitrary aggregate amount to be determined by the employer. In connection with these employer contributions, the Company provided $2,200,000, $3,024,000, $1,885,000 and $1,885,000$1,731,000 in 1994, 1995, 1996 and 1996,1997, respectively. The decrease fromin contributions subsequent to 1995 to 1996 is principally due to the effect of the April 1996 sale of the Textile Business. The Company provides or provided defined benefit plans for employees of certain subsidiaries. Prior to 19941995 all of the plans were frozen. The components of the net periodic pension cost arewere as follows (in thousands):
1994 1995 1996 1997 ---- ---- ---- Current service cost (represents plan expenses).............. $ 177......................... $ 151 $ 160 $ 151 Interest cost on projected benefit obligation................ 466obligation........................... 503 481 467 Return on plan assets (gain) loss............................ 138.................................................. (1,445) (762) (1,216) Net amortization and deferrals............................... (654)deferrals.......................................... 993 240 658 --------- -------- ------- --------------- Net periodic pension cost ............................... $ 127......................................... $ 202 $ 119 $ 60 ========= ======== ======= ===============
The following table sets forth the plans' funded status (in thousands):
AGGREGATE OF PLANS WHOSE -------------------------------------------------------------------------------------------------- ASSETS EXCEEDED ACCUMULATED BENEFITS ACCUMULATED BENEFITS EXCEEDED ASSETS DECEMBER 31, DECEMBER 31, -------------------- -------------------- 1995(A) YEAR-END YEAR-END 1996 19951997 1996 ---- ---- ---- ---- Actuarial present value of benefit obligations Vested benefit obligation.........................$ 2,386 obligation......................................$ 2,227 $ 4,7116,755 $ 4,634 Non-vested benefit obligation.....................obligation.................................. -- -- 1916 18 --------- --------- --------- ---------------------- ----------- ---------- Accumulated and projected benefit obligation...... 2,386obligation.............. 2,227 4,7306,771 4,652 Plan assets at fair value......................... (2,762)value...................................... (2,751) (3,941)(7,661) (4,351) --------- --------- --------- ---------------------- ----------- ---------- Funded status..................................... (376)status.................................................. (524) 789(890) 301 Unrecognized net gain from plan experience........ 488experience..................... 629 721,383 230 --------- --------- --------- ---------------------- ----------- ---------- Accrued pension cost..........................$ 112 cost......................................$ 105 $ 861493 $ 531 ========= ========= ========= ====================== =========== ========== (a) at December 28, 1997 the assets exceeded the accumulated benefits for all plans.
Significant assumptions used in measuring the net periodic pension cost for the plans included the following: (i) the expected long-term rate of return on plan assets was 8% and (ii) the discount rate was 7% for 1994, 8% for 1995, and 7% for 1996.1996, and 7 1/2% for 1997. The discount rate used in determining the benefit obligations above was 7 1/2% at December 31, 1996 and 7% at December 31, 1995 and 7.5% at December 31, 1996.28, 1997. The effects of the 1995 increase1996 decrease and the 1996 decrease1997 increase in the discount rate did not materially affect the net periodic pension cost. The 1996 increase1997 decrease in the discount rate used in determining the benefit obligation resulted in a decreasean increase in the accumulated and projected benefit obligation of $253,000.$315,000. Plan assets as of December 31, 199628, 1997 are invested in managed portfolios consisting of government and government agency obligations (51%), common stock (39%(37%), corporate debt securities (5%(10%) and other investments (5%(2%). Under certain union contracts, the Company is required to make payments to the unions' pension funds based upon hours worked by the eligible employees. In connection with these union plans, the Company provided $756,000 in 1994 and $669,000 in each of 1995 and 1996.1996, and $614,000 in 1997. Information from the administrators of the plans is not available to permit the Company to determine its proportionate share of unfunded vested benefits, if any. The Company maintains unfunded postretirement medical and death benefit plans for a limited number of employees who have retired and have provided certain minimum years of service. The medical benefits are principally contributory while death benefits are noncontributory. Prior to the April 1996 sale of the Textile Business, a limited number of active employees, upon retirement, were also covered. The net postretirement benefit cost for 1994, 1995, 1996 and 19961997, as well as the accumulated postretirement benefit obligation as of December 31, 199628, 1997, were insignificant. (24)(20) LEASE COMMITMENTS The Company leases buildings and improvements and machinery and equipment. SomePrior to the RTM Sale, some leases provideprovided for contingent rentals based upon sales volume. In connection with the RTM Sale in May 1997, substantially all operating and capitalized lease obligations associated with the sold restaurants were assumed by RTM, although the Company remains contingently liable if the future lease payments (which could potentially aggregate a maximum of approximately $100,000,000 as of December 28, 1997) are not made by RTM. The Company provided $9,677,000 in "Reduction in carrying value of long-lived assets impaired or to be disposed of" in 1996 representing the present value of future operating lease payments relating to certain equipment transferred to RTM but the obligations for which remain with the Company. Rental expense under operating leases consistsconsisted of the following components (in thousands): 1994 1995 1996 ---- ---- ---- Minimum rentals............. $ 20,218 $ 25,898 $ 28,795 Contingent rentals.......... 1,454 987 794 ---------- ----------- ---------- 21,672 26,885 29,589 Less sublease income........ 3,459 5,358 5,460 ---------- ----------- ---------- $ 18,213 $ 21,527 $ 24,129 ========== =========== ==========
1995 1996 1997 ---- ---- ---- Minimum rentals.................................................. $ 25,784 $ 28,377 $ 20,934 Contingent rentals............................................... 987 794 204 ----------- ------------- ------------ 26,771 29,171 21,138 Less sublease income............................................. 5,358 5,460 6,027 ----------- ------------- ------------ $ 21,413 $ 23,711 $ 15,111 =========== ============= ============
The Company's future minimum rental payments and sublease rental income for leases having an initial lease term in excess of one year as of December 31, 1996 are set forth below. Such future minimum rental payments exclude an aggregate $11,540,00028, 1997, excluding $7,925,000 of those future operating lease payments relating to equipment to be transferred to RTM assuming consummation of the RTM sale (see Note 3) but the obligations for which will remain with the Company. As such the Company has provided for the present value of $9,677,000 of such lease payments in "Reduction in carrying value of long-lived assets impaired or to be disposed of". Such future minimum rental payments include an aggregate $105,165,000 ($9,844,000, $9,264,000, $8,403,000, $7,828,000, $7,476,000 and $62,350,000 in 1997, 1998, 1999, 2000, 2001 and thereafter, respectively) of future operating lease payments and, in addition, substantially all of the future capitalized lease payments which will be assumed by RTM assuming consummation of the sale to RTM. Such rental payments and sublease rental income wereas set forth above, are as follows (in thousands):
RENTAL PAYMENTS SUBLEASE INCOME ---------------------- -------------------------------------------------- ------------------------- CAPITALIZED OPERATING CAPITALIZED OPERATING LEASES LEASES LEASES LEASES ------ ------ ------ ------ 1997.............................................1998.......................................................$ 16,170197 $ 22,35013,935 $ 8160 $ 5,925 1998............................................. 105 17,0984,566 1999....................................................... 140 11,042 60 3,639 1999............................................. 87 13,857 60 1,898 2000............................................. 87 12,038 57 973 2001............................................. 87 10,994 43 342 Thereafter....................................... 397 85,344 219 1,300 ------------ ---------- ---------- ---------2,404 2000....................................................... 122 9,738 55 1,639 2001....................................................... 122 9,379 41 1,464 2002....................................................... 122 8,501 44 616 Thereafter................................................. 393 35,948 160 1,337 -------------- ----------- ----------- ----------- Total minimum payments........................... 16,933payments................................... 1,096 $ 161,68188,543 $ 520420 $ 14,077 ========== ========== =========12,026 =========== =========== =========== Less interest.................................... 959 ------------interest.............................................. 377 -------------- Present value of minimum capitalized lease payments.................................payments........$ 15,974 ============719 ==============
The present value of minimum capitalized lease payments is included, as applicable, with long-term debt"Long-term debt" or the current"Current portion of long-term debtdebt" in the accompanying consolidated balance sheets (see Note 13)8). In August 1994 the Company completed the sale and leaseback of the land and buildings of fourteen company-owned restaurants. The net cash sale price of such properties was $6,703,000. The Company has entered into individual twenty-year land and building leases for such properties and has capitalized the building portion of such leases while the land portion is being accounted for as operating leases, reflected in the table above. Such sale resulted in a gain of $605,000 which is being amortized to income over the twenty-year lives of the leases. (25)(21) LEGAL AND ENVIRONMENTAL MATTERS In July 1993 APL Corporation ("APL"), which was affiliated with theThe Company until an April 1993 changeis involved in control, became a debtor in a proceeding under Chapter 11 of the Federal Bankruptcy Code (the "APL Proceeding"). In February 1994 the official committee of unsecured creditors of APL filed a complaint (the "APL Litigation") against the Company and certain companies formerly or presently affiliated with Posner or with the Company, alleging causes of action arising from various transactions allegedly caused by the named former affiliates. The Chapter 11 trustee of APL was subsequently added as a plaintiff. The complaint asserts variouslitigation, claims and seeks an undetermined amount of damages from the Company, as well as certain other relief. In April 1994 the Company respondedenvironmental matters incidental to the complaint by filing an answer and proposed counterclaims and set-offs denying the material allegations in the complaint and asserting counterclaims and set-offs against APL. In June 1995 the bankruptcy court confirmed the plaintiffs' plan of reorganization (the "APL Plan") in the APL Proceeding. The APL Plan provides, among other things, that the Posner Entities will own all of the common stock of APL and are authorized to object to claims made in the APL Proceeding. The APL Plan also provides for the dismissal of the APL Litigation. Previously, in January 1995 Triarc received an indemnification pursuant to the Posner Settlement relating to, among other things, the APL Litigation. The Posner Entities have filed motions asserting that the APL Plan does not require the dismissal of the APL Litigation. In November 1995 the bankruptcy court denied the motions and in March 1996 the court denied the Posner Entities' motion for reconsideration. Posner and APL have appealed and their appeal is pending. On December 6, 1995 the three former court-appointed members of a special committee of Triarc's Board of Directors commenced an action in the United States District Court for the Northern District of Ohio seeking, among other things, additional fees of $3,000,000. On February 6, 1996 the court dismissed the action without prejudice. The plaintiffs filed a notice of appeal, but subsequently dismissed the appeal voluntarily. In 1987 TXL was notified by the South Carolina Department of Health and Environmental Control ("DHEC") that DHEC discovered certain contamination of Langley Pond ("Langley Pond") near Graniteville, South Carolina and DHEC asserted that TXL may be one of the parties responsible for such contamination. In 1990 and 1991 TXL provided reports to DHEC summarizing its required study and investigation of the alleged pollution and its sources which concluded that pond sediments should be left undisturbed and in place and that other less passive remediation alternatives either provided no significant additional benefits or themselves involved adverse effects. In March 1994 DHEC appeared to conclude that while environmental monitoring at Langley Pond should be continued, based on currently available information, the most reasonable alternative is to leave the pond sediments undisturbed and in place. In April 1995 TXL, at the request of DHEC, submitted a proposal concerning periodic monitoring of sediment dispositions in the pond. In February 1996 TXL responded to a DHEC request for additional information on such proposal. TXL is unable to predict at this time what further actions, if any, may be required in connection with Langley Pond or what the cost thereof may be. In addition, TXL owned a nine acre property in Aiken County, South Carolina (the "Vaucluse Landfill"), which was used as a landfill from approximately 1950 to 1973. The Vaucluse Landfill was operated jointly by TXL and Aiken County and may have received municipal waste and possibly industrial waste from TXL as well as sources other than TXL. The United States Environmental Protection Agency conducted an Expanded Site Inspection in January 1994 and in response thereto the DHEC indicated its desire to have an investigation of the Vaucluse Landfill. In April 1995 TXL submitted a conceptual investigation approach to DHEC. Subsequently, the Company responded to an August 1995 DHEC request that TXL enter into a consent agreement to conduct an investigation indicating that a consent agreement is inappropriate considering TXL's demonstrated willingness to cooperate with DHEC requests and asked DHEC to approve TXL's April 1995 conceptual investigation approach. The cost of the study proposed by TXL is estimated to be between $125,000 and $150,000. Since an investigation has not yet commenced, TXL is currently unable to estimate the cost, if any, to remediate the landfill. Such cost could vary based on the actual parameters of the study. In connection with the Graniteville Sale, the Company agreed to indemnify the purchaser for certain costs, if any, incurred in connection with the foregoing matters that are in excess of specified reserves, subject to certain limitations. As a result of certain environmental audits in 1991, SEPSCO became aware of possible contamination by hydrocarbons and metals at certain sites of SEPSCO's ice and cold storage operations of the refrigeration business and has filed appropriate notifications with state environmental authorities and in 1994 completed a study of remediation at such sites. SEPSCO has removed certain underground storage and other tanks at certain facilities of its refrigeration operations and has engaged in certain remediation in connection therewith. Such removal and environmental remediation involved a variety of remediation actions at various facilities of SEPSCO located in a number of jurisdictions. Such remediation varied from site to site, ranging from testing of soil and groundwater for contamination, development of remediation plans and removal in some instances of certain contaminated soils. Remediation is required at thirteen sites which were sold to or leased by the purchaser of the ice operations (see Note 21). Remediation has been completed on five of these sites and is ongoing at eight others. Such remediation is being made in conjunction with the purchaser who has satisfied its obligation to pay up to $1,000,000 of such remediation costs. Remediation is also required at seven cold storage sites which were sold to the purchaser of the cold storage operations (see Note 21). Remediation has been completed at one site and is ongoing at three other sites. Remediation is expected to commence on the remaining three sites in 1997 and 1998. Such remediation is being made in conjunction with the purchaser who is responsible for the first $1,250,000 of such costs. In addition, there are fifteen additional inactive properties of the former refrigeration business where remediation has been completed or is ongoing and which have either been sold or are held for sale separate from the sales of the ice and cold storage operations. Of these, ten have been remediated through December 31, 1996 at an aggregate cost of $952,000. In addition, during the environmental remediation efforts on idle properties, SEPSCO became aware that plants on two of the fifteen sites may require demolition in the future. In May 1994 National was informed of coal tar contamination which was discovered at one of its properties in Wisconsin. National purchased the property from a company (the "Successor") which had purchased the assets of a utility which had previously owned the property. National believes that the contamination occurred during the use of the property as a coal gasification plant by such utility. In order to assess the extent of the problem, National engaged environmental consultants in 1994. As of March 1, 1997, National's environmental consultants have begun but not completed their testing. Based upon the new information compiled to date which is not yet complete, it appears the likely remedy will involve treatment of groundwater and treatment of the soil, installation of a soil cap and, if necessary, excavation, treatment and disposal of contaminated soil. As a result, the environmental consultants' current range of estimated costs for remediation is from $764,000 to $1,559,000. National will have to agree upon the final plan with the state of Wisconsin. Since receiving notice of the contamination, National has engaged in discussions of a general nature concerning remediation with the state of Wisconsin. These discussions are ongoing and there is no indication as yet of the time frame for a decision by the state of Wisconsin or the method of remediation. Accordingly, the precise remediation method to be used is unknown. Based on the preliminary results of the ongoing investigation, there is a potential that the contaminants may extend to locations downgradient from the original site. If it is ultimately confirmed that the contaminant plume extends under such properties and if such plume is attributable to contaminants emanating from the Wisconsin property, there is the potential for future third-party claims. National is also engaged in ongoing discussions of a general nature with the Successor. The Successor has denied any liability for the costs of remediation of the Wisconsin property or of satisfying any related claims. However, National, if found liable for any of such costs, would still attempt to recover such costs from the Successor. National has notified its insurance carriers of the contamination, the likely incurrence of costs to undertake remediation and the possibility of related claims. Pursuant to a lease related to the Wisconsin facility, the ownership of which was not transferred to the Operating Partnership at the closing of Offering, the Partnership has agreed to be liable for any costs of remediation in excess of amounts recovered from the Successor or from insurance. Since the remediation method to be used is unknown, no amount within the cost ranges provided by the environmental consultants can be determined to be a better estimate. In 1993 Royal Crown became aware of possible contamination from hydrocarbons in groundwater at two abandoned bottling facilities. Tests have confirmed hydrocarbons in the groundwater at both of the sites and remediation has commenced. Remediation costs estimated by Royal Crown's environmental consultants aggregate $560,000 to $640,000 with approximately $125,000 to $145,000 expected to be reimbursed by the State of Texas Petroleum Storage Tank Remediation Fund at one of the two sites. In 1994 Chesapeake Insurance and SEPSCO invested approximately $5,100,000 in a joint venture with Prime Capital Corporation ("Prime"). Subsequently in 1994, SEPSCO and Chesapeake Insurance terminated their investments in such joint venture. In March 1995 three creditors of Prime filed an involuntary bankruptcy petition under the Federal bankruptcy code against Prime. In November 1996 the bankruptcy trustee appointed in the Prime bankruptcy case made a demand on Chesapeake Insurance and SEPSCO for return of the approximate $5,300,000. In January 1997 the bankruptcy trustee commenced avoidance actions against Chesapeake Insurance and SEPSCO seeking the return of the approximate $5,300,000 allegedly received by Chesapeake Insurance and SEPSCO during 1994 and alleging such payments from Prime were preferential or constituted fraudulent transfers.businesses. The Company believes, based on advice of counsel, that it has meritorious defenses to these claims and intends to vigorously contest them. However, it is possible that the trustee will be successful in recovering the payments. The maximum amount of SEPSCO's and Chesapeake Insurance's aggregate liability is the approximate $5,300,000 plus interest; however, to the extent SEPSCO or Chesapeake Insurance return to Prime any amount of the challenged payments, they will be entitled to an unsecured claim for such amount. The court has scheduled a trial for the week of May 27, 1997. On February 19, 1996, Arby's Restaurantes S.A. de C.V. ("AR"), the master franchisee of Arby's in Mexico, commenced an action in the civil court of Mexico against Arby's for breach of contract. AR alleged that a non-binding letter of intent dated November 9, 1994 between AR and Arby's constituted a binding contract pursuant to which Arby's had obligated itself to repurchase the master franchise rights from AR for $2,500,000. AR also alleged that Arby's had breached a master development agreement between AR and Arby's. Arby's promptly commenced an arbitration proceeding since the franchise and development agreements each provided that all disputes arising thereunder were to be resolved by arbitration. Arby's is seeking a declaration in the arbitration to the effect that the November 9, 1994 letter of intent was not a binding contract and, therefore, AR has no valid breach of contract claim, as well as a declaration that the master development agreement has been automatically terminated as a result of AR's commencement of suspension of payments proceedings in February 1995. In the civil court proceeding, the court denied Arby's motion to suspend such proceedings pending the results of the arbitration, and Arby's has appealed that ruling. In the arbitration, some evidence has been taken but proceedings have been suspended by the court handling the suspension of payments proceedings. Arby's is vigorously contesting AR's claims and believes it has meritorious defenses to such claims. The Company has accruals for all of the above matters aggregating approximately $4,300,000. Based on currently available information and given (i) the DHEC's apparent conclusion in 1994 with respect to the Langley Pond matter, (ii) the indemnification limitations with respect to the SEPSCO cold storage operations, Langley Pond and the Vaucluse Landfill, (iii) potential reimbursements by other parties as discussed above and (iv) the Company's aggregate reserves for such legal and environmental matters aggregating approximately $10,274,000 (see Note 6) as of December 28, 1997. Although the outcome of such matters cannot be predicted with certainty and some of these may be disposed of unfavorably to the Company, based on currently available information and given the Company's aforementioned reserves, the Company does not believe that thesuch legal and environmental matters referred to above, as well as ordinary routine litigation incidental to its businesses, will have a material adverse effect on its consolidated results of operations or financial position. (26) SEPSCO MERGER AND LITIGATION SETTLEMENT In December 1990 a purported shareholder derivative suit (the "SEPSCO Litigation") was brought against SEPSCO's directors at that time and certain corporations, including Triarc, in the United States District Court for the Southern District of Florida (the "District Court"). On January 11, 1994 the District Court approved a settlement agreement with the plaintiff in the SEPSCO Litigation. In conjunction therewith, on April 14, 1994 SEPSCO's shareholders other than the Company approved an agreement and plan of merger between Triarc and SEPSCO (the "SEPSCO Merger") pursuant to which on that date a subsidiary of Triarc was merged into SEPSCO in accordance with a transaction in which each holder of shares of SEPSCO's common stock (the "SEPSCO Common Stock") other than the Company, aggregating a 28.9% minority interest in SEPSCO, received in exchange for each share of SEPSCO Common Stock, 0.8 shares of Triarc's Class A Common Stock or an aggregate 2,691,824 shares. Following the SEPSCO Merger, the Company owns 100% of the SEPSCO Common Stock. All settlement and related legal costs were principally accrued in 1993 since it was during such period that the Company determined that the litigation settlement was more likely than not to be approved by the District Court. The fair value as of April 14, 1994 of the 2,691,824 shares of Class A Common Stock issued in the SEPSCO Merger, net of $3,750,000 of such consideration which the Company estimated represented settlement costs of the SEPSCO Litigation, aggregated $52,105,000 (the "Merger Consideration"). The SEPSCO Merger was accounted for in accordance with the purchase method of accounting and the Company's minority interest in SEPSCO of $28,217,000 was eliminated. In accordance therewith, the excess of the Merger Consideration over the Company's minority interest in SEPSCO of $23,888,000 was assigned to "Properties" ($8,684,000), investment in the natural gas and oil business sold in August 1994 (see Note 19) ($2,455,000), "Net current liabilities of discontinued operations" ($2,425,000 - see Note 12) and "Deferred income taxes" ($2,485,000) with the excess of $17,659,000 recorded as Goodwill. (27) ACQUISITIONS On August 9, 1995 Mistic, a wholly-owned subsidiary of Triarc, acquired (the "Mistic Acquisition") substantially all of the assets and operations, subject to related operating liabilities, as defined, of certain companies which develop, market and sell carbonated and non-carbonated fruit drinks, ready-to-drink brewed iced teas and naturally flavored sparkling waters under various trademarks and tradenames including MISTIC and ROYAL MISTIC. The purchase price for the Mistic Acquisition, aggregating $98,324,000 (including $2,067,000 of cash acquired) consisted of (i) $93,000,000 in cash, (ii) $1,000,000 to be paid in eight equal quarterly installments which commenced in November 1995, (iii) non-compete agreement payments to the seller aggregating $3,000,000 and (iv) $1,324,000 of related expenses. The non-compete agreement payments were or are payable $900,000 in August 1996, 1997 and 1998 and $300,000 in December 1998. In accordance with the Mistic acquisition agreement, the non-compete payment due in 1996 was offset against amounts due from the seller. The Mistic Acquisition was financed through (i) $71,500,000 of borrowings under the Mistic Bank Facility (see Note 13) and (ii) $25,000,000 of borrowings under the Graniteville Credit Facility. The Company granted the syndicating lending bank in connection with the Mistic Bank Facility agreement and two senior officers of Mistic stock appreciation rights (the "Mistic Rights") for the equivalent of 3% and 9.7%, respectively, of Mistic's outstanding common stock plus the equivalent shares represented by such stock appreciation rights. The Mistic Rights granted to the syndicating lending bank were immediately vested and of those granted to the senior officers, one-third vest over time and two-thirds vest depending on the performance of Mistic. The Mistic Rights provide for appreciation in the per-share value of Mistic common stock above a base price of $28,637 per share, which is equal to the Company's per share capital contribution to Mistic in connection with the Mistic Acquisition. The Company recognizes periodically the estimated increase or decrease in the value of the Mistic Rights; such amounts, which are being charged or credited to "Interest expense" and "General and administrative" for the Mistic Rights granted to the syndicating lending bank and the two senior officers, respectively, were not significant in 1995 or 1996. In addition to the Mistic Acquisition, the Company consummated several additional business acquisitions during 1994, 1995 and 1996 principally restaurant operations and propane businesses for cash of $18,790,000, $18,947,000 and $4,018,000, respectively, and the issuance of debt in 1994 of $3,763,000 and in 1996 of $1,750,000. All such acquisitions, including the Mistic acquisition, have been accounted for in accordance with the purchase method of accounting and in accordance therewith the purchase price was assigned as follows (in thousands):
DECEMBER 31, ------------ 1994 1995 1996 ---- ---- ---- Current assets....................................... $ -- $ 31,560 $ 257 Properties........................................... 14,803 12,641 838 Goodwill............................................. 8,414 34,438 162 Trademarks........................................... -- 58,100 3,950 Other intangible assets.............................. 1,711 5,373 1,107 Other assets......................................... 351 1,128 -- Current liabilities ................................. -- (24,790) (358) Long-term debt assumed including current portion..... (2,726) (3,180) -- Other liabilities.................................... -- (4,066) (188) --------- ----------- ---------- $ 22,553 $ 111,204 $ 5,768 ========= =========== ==========
(28)(22) TRANSACTIONS WITH RELATED PARTIES Until January 31, 1994 Triarc leased office space in Miami Beach, both for its former corporate headquarters and on behalf of its subsidiaries and former affiliates from one of the Posner Entities. Triarc gave notice to terminate the lease prior to 1994 and all remaining lease obligations subsequent to the termination were provided as facilities relocation and corporate restructuring prior to 1994. Pursuant to the Posner Settlement (see note 16), all payments due to the Posner Entities in connection with the termination of such lease were settled resulting in a reduction of "Facilities relocation and corporate restructuring" of $310,000 in 1995 (see Note 18). Such gain represented the excess of a net accrued liability for the lease termination of $12,326,000 ($13,000,000 less a security deposit of $674,000) over the fair value of the 1,011,900 shares of Class B Common Stock issued (see Note 17) of $12,016,000. In addition, the Company reversed to "Interest expense" a 1994 accrual for interest of $638,000 on the lease termination obligation. The Company leases aircraft owned by Triangle Aircraft Services Corporation ("TASCO"), a company owned by Messrs. Peltzthe Chairman and MayChief Executive Officer and the President and Chief Operating Officer of the Company, for ana base annual rent, as of January 1, 1994 of $2,200,000, pluscommencing at $1,800,000 in October 1993 which is indexed for annual indexed cost of living adjustments. Effective October 1, 1994In accordance with a May 1997 lease amendment, the originalbase rent was reduced $400,000 reflectingincreased $1,250,000 and the termination ofCompany paid TASCO $2,500,000 for (i) an option to continue the lease for an additional five years effective September 30, 1997 and (ii) the agreement by TASCO to replace one of the aircraft which was sold. In connection withcovered under the sale oflease. Such $2,500,000 is being amortized to rental expense over the aircraft the Company paid $130,000 of related costs on behalf of TASCO.five-year period commencing October 1, 1997. In connection with such lease the Company had rent expense of $2,100,000, $1,910,000, $1,973,000 and $1,973,000$2,876,000 for 1994, 1995, 1996 and 1996,1997, respectively. Pursuant to this arrangement, the Company also pays the operating expenses of the aircraft directly to third parties. The Company subleased through January 31, 1996 from an affiliate of Messrs. Peltz and May approximately 26,800 square feet of furnished office space in New York, New York owned by an unaffiliated third party (subsequent thereto and through December 1996, the Company subleased the same office facility from an unaffiliated third party). In addition, the Company subleased through its expiration in September 1994 from another affiliate of Messrs. Peltz and May approximately 15,000 square feet of office space in West Palm Beach, Florida owned by an unaffiliated landlord. The aggregate amounts paid by the Companyparty. Rental expense during 1994, 1995 and 1996 with respect to affiliates of Messrs. Peltz and May for such subleases, including operating expenses, but net of amounts received by the Company for its sublease of a portion of such space through January 1996 (see below - $358,000, $357,000($357,000 and $30,000, respectively) were $1,620,000,was $1,350,000 and $1,100,000 respectively, whichrespectively. Such amounts are less than the aggregate amountsrents such affiliates paid to the unaffiliated landlords but represent amounts the Company believes it would pay tohave paid an unaffiliated third party for similar improved office space. On December 20, 1994 the Company sold either the stock or operating assets of the companies comprising the cold storage operations of SEPSCO's refrigeration business segment to National Cold Storage, Inc. ("NCS"), a company formed by two then officers of SEPSCO, for cash of $6,500,000, a $3,000,000 note and the assumption by the buyer of certain liabilities of $2,750,000. Such sale, excluding any consideration of the $3,000,000 note from NCS since its collection is not reasonably assured, resulted in approximately $3,600,000 of the $9,300,000 of losses on disposition of the refrigeration business segment (see Note 21). The Company had secured receivables from Pennsylvania Engineering Corporation ("PEC"), a former affiliate, aggregating $6,664,000 which were fully reserved prior to 1994.1995. PEC had filed for protection under the bankruptcy code and, moreover, the Company had significant doubts as to the net realizability of the underlying collateral. During the fourth quarter of 1995, the Company received $3,049,000 with respect to amounts owed from PEC representing the Company's allocated portion of the bankruptcy settlement (the "PEC Settlement").reported as "Recovery of doubtful accounts from former affiliates" in the accompanying consolidated statements of operations. During 1995 the Company paid $1,000,000 and contributed a license for a period of five years for the Royal Crown distribution rights for its products in New York City and certain surrounding counties to MetBev, Inc. ("MetBev") in exchange for preferred stock in MetBev representing a 37.5% voting interest and a warrant to acquire 37.5% of the common stock of MetBev. The remaining 62.5% was owned by other parties and was subject to certain vesting provisions. Upon consummation of the sale of the MetBev distribution rights (see below), Triarc'sthe Company's voting interest in MetBev was 44.7% principally due to the cancellation of nonvested stock. Additionally, pursuant to a revolving credit agreement between Triarc and MetBev, Triarc loaned $2,000,000 and $2,475,000 to MetBev in 1995 and 1996, respectively, which loans were secured by the receivables and inventories of MetBev. MetBev has incurred significant losses from its inception and had stockholders' deficits as of December 31, 1995 and 1996 of $2,524,000 and $8,943,000, respectively. In December 1996 the distribution rights of MetBev were sold to a third party for minimum payments over a three-year period aggregating $1,050,000 and MetBev commenced the liquidation of its remaining assets and liabilities. During 1997 the Company advanced MetBev an additional $539,000 for costs incurred in liquidating the remaining assets and liabilities and related close-down costs of its facility. The Company has not received any payments on the $1,050,000 from the purchaser of MetBev's distributor rights and does not expect to collect due to financial difficulties of the purchaser which the Company believes is due to competitive pressures on the purchaser following the Snapple Acquisition and the Company's revitalization of Snapple. In connection therewith, in 1995 the Company provided a reserve of $800,000 (included in "General and administrative") relating to its loans to MetBev and wrote off its $1,000,000 investment (see Note 19)14) and in 1996 wrote down the remaining $3,675,000 (see Note 19).14) since MetBev had incurred significant losses from its inception and had a stockholders' deficit as of December 31, 1996 of $8,943,000. Further, the Company provided $1,751,000$1,745,000 and $2,000,000 (included in "General and administrative" and "Advertising, selling and distribution") in 1995 and 1996, respectively, for uncollectible receivables from sales (with minimal gross profit) of finished product to MetBev and(and in 1995 a guarantee of a MetBev third party accounts payable.payable) resulting in remaining accounts receivable of $997,000. In 1997 the Company wrote off its remaining receivables from MetBev, after offsetting amounts otherwise payable to the purchaser, amounting to $975,000 (included in "Acquisition related costs" - see Note 13). See also Notes 16, 177, 8, 11 and 1812 with respect to other transactions with related parties. (29)(23) BUSINESS SEGMENTS The Company operates in fourcurrently has three major segments, beverages, restaurants textiles and propane (see Note 2 for a description of each segment). and prior to the sales of C.H. Patrick and the Textile Business (see Note 3) the Company operated in the textile business. The beverage segment includes the operations acquired in (i) the Mistic Acquisition commencing August 9, 1995, (ii) the Snapple Acquisition commencing May 22, 1997 and (iii) the Stewart's Acquisition commencing November 25, 1997 (see Note 27)3). The textile segment represents only the chemicals and dyes business afterTextile Business until its sale on April 29, 1996 since the sale of the Textile BusinessC.H. Patrick was accounted for as a discontinued operation (see Note 19) on April 29, 1996.17). Information concerning the various segments in which the Company operatesoperates(d) is shown in the table below. Operating profit (loss) is total revenuerevenues less operating expenses. In computing operating profit or loss, interest expense, general corporate expenses and non-operating income and expenses, including interestinvestment income, have not been considered. Operating profitloss for the restaurant segment reflects provisions in 1995 and 1996 reflects provisions of $14,647,000 and $64,300,000, respectively, for reductions in carrying value of long livedlong-lived assets impaired or to be disposed of (see Note 3). Operating profit for the beverage segment in 1997 reflects $31,815,000 of acquisition related costs (see Note 13). Identifiable assets by segment are those assets that are used in the Company's operations in each segment.segment; however, there are no identifiable assets for the propane segment as of December 28, 1997 due to the Deconsolidation (see Note 7). General corporate assets consist primarily of cash and cash equivalents, (including restricted cash), short-term investments and other non-current investments, properties and deferred financing costs. No customer accounted for more than 10% of consolidated revenues in 1994, 1995, 1996 or 1996.1997.
1994 1995 1996 1997 ---- ---- ---- (IN THOUSANDS) Revenues: Beverages...............................$ 150,750 Beverages...........................................$ 214,587 $ 309,142 Restaurants............................. 223,155$ 555,723 Restaurants......................................... 272,739 288,293 Textiles................................ 536,918 547,897 218,554 Propane................................. 151,698140,429 Propane............................................. 148,998 173,260 ----------- ------------ -------------165,169 Textiles............................................ 505,687 157,490 -- --------------- -------------- -------------- Consolidated revenues...............revenues..........................$ 1,062,5211,142,011 $ 1,184,221928,185 $ 989,249 =========== ============ =============861,321 =============== ============== ============== Operating profit: Beverages...............................$ 14,607Beverages.......................................... $ 4,662 $ 17,195 Restaurants............................. 15,542$ 1,489 Restaurants......................................... (6,437) (48,741) Textiles................................ 33,955 23,544 15,190 Propane................................. 20,37828,532 Propane............................................. 14,516 15,586 ----------- ------------ -------------9,607 Textiles............................................ 13,720 5,316 -- --------------- -------------- -------------- Segment operating profit (loss)..... 84,482 36,285 (770)................ 26,461 (10,644) 39,628 Interest expense........................ (72,980) (84,227) (73,379)expense.................................... (84,126) (71,025) (71,648) Non-operating income, net................ 4,858 12,214 84,996net........................... 19,005 84,943 21,596 General corporate expenses.............. (15,549) (2,296) (6,209) ----------- ------------ -------------expenses.......................... (3,316) (7,209) (12,666) --------------- -------------- -------------- Consolidated income (loss)loss from continuing operations before income taxes and minority interests ........................ (41,976) $ 811(3,935) $ (38,024) $ 4,638 =========== ============ =============(23,090) =============== ============== ============== Identifiable assets: Beverages ..............................$ 190,568 $.......................................... 306,349 $ 304,538 Restaurants............................. 137,943$ 774,943 Restaurants ........................................ 180,734 132,296 Textiles................................ 327,793 328,726 39,243 Propane................................. 133,32151,759 Propane............................................. 139,025 156,192 ------------- Textiles............................................ 295,345 -- -- ------------ --------------------------- -------------- Total identifiable assets........... 789,625 954,834 632,269assets...................... 921,453 593,026 826,702 General corporate assets................ 132,542assets............................ 131,132 222,135 -----------222,455 178,171 Discontinued operations............................. 24,588 16,304 -- ------------ --------------------------- -------------- Consolidated assets.................assets............................ 1,077,173 $ 922,167831,785 $ 1,085,966 $ 854,404 ===========1,004,873 ============ =========================== ============== Capital expenditures: Beverages...............................$ 1,309Beverages.......................................... $ 1,656 $ 1,529 Restaurants............................. 34,875$ 3,241 Restaurants........................................ 47,444 15,584 Textiles................................ 22,965 13,097 1,715 Propane................................. 6,599963 Propane............................................ 8,966 6,973 Corporate............................... 837,793 Textiles........................................... 11,699 976 -- Corporate.......................................... 57 4,519 ----------- ------------1,909 ------------- -------------- -------------- Consolidated capital expenditures...expenditures............. $ 65,83169,822 $ 71,22029,581 $ 30,320 =========== ============13,906 ============= ============== ============== Depreciation and amortization of properties: Beverages ..............................$ 772......................................... $ 1,005 $ 1,480 Restaurants............................. 9,335$ 5,663 Restaurants........................................ 12,927 13,096 Textiles................................ 13,867 15,082 5,953 Propane................................. 9,337702 Propane............................................ 9,546 10,017 Corporate............................... 59010,596 Textiles........................................... 14,073 4,855 -- Corporate.......................................... 333 139 ----------- ------------697 ------------- -------------- -------------- Consolidated depreciation and amortization......................amortization.... $ 33,90137,884 $ 38,89329,587 $ 30,685 =========== ============17,658 ============= ============== ==============
(30)(24) QUARTERLY INFORMATION (UNAUDITED)
THREE MONTHS ENDED ---------------------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, (A) DECEMBER 31,(A) --------- -------- ------------- --------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1995 Revenues.......................................$ 297,993 $ 279,281 $ 291,875 $ 315,072 Gross profit................................... 85,046 75,556 81,193 82,498 Operating profit (loss)........................ 24,741 12,279 12,713 (15,744) Net income (loss).............................. 6,719 1,010 (5,776) (38,947) Income (loss) per share (b).................... 0.23 0.03 (0.19) (1.30)
THREE MONTHS ENDED ------------------ MARCH 31, JUNE 30, SEPTEMBER 30, (D) DECEMBER 31,(E)(B) --------- -------- ----------------- --------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1996 Revenues........................................Revenues.........................................$ 328,893318,417 $ 246,477229,424 $ 206,447188,487 $ 207,432191,857 Gross profit.................................... 92,970 86,948 77,800 79,422profit..................................... 89,228 82,100 73,719 76,225 Operating profit (loss)......................... 25,420 17,710 11,385 (61,494).......................... 22,718 14,188 8,407 (63,166) Income (loss) before extraordinaryfrom continuing operations ........ 127 (5,437) 46,076 (54,464) Discontinued operations.......................... 1,658 1,854 1,256 445 Extraordinary items ....... 1,785 (3,583) 47,332 (54,019) Extraordinary charge (Note 22)..................18).................... (1,387) (7,151) 3,122 -- Net income (loss)............................................................... 398 (10,734) 50,454 (54,019) IncomeBasic and diluted income (loss) per share (b)(c): Before extraordinary charge.....................Continuing operations........................ -- (.18) 1.54 (1.82) Discontinued operations...................... .06 (.12) 1.50 (1.81).06 .04 .01 Extraordinary items (c)......................... (.05) (.24) .10.11 -- Net income (loss)........................................................... .01 (.36) 1.601.69 (1.81)
(a) The results for the three months ended December 31, 1995 were materially affected by charges of $25,308,000 or $17,347,000 net of income tax benefit of $7,961,000. Such net charges included (i) a reduction in carrying value of long-lived assets impaired or to be disposed of amounting to $14,647,000 (see Note 3), (ii) an aggregate $7,798,000 consisting of equity in losses and writedown of investments in affiliates of $5,247,000 and related provision for additional MetBev related losses of $2,551,000 (see Note 28), (iii) facilities relocation and corporate restructuring charges of $3,010,000 (see Note 18), (iv) costs related to the settlement of a patent infringement lawsuit of $1,718,000, (v) accelerated vesting of restricted stock of $1,640,000 (see Note 17) and (vi) interest accruals related to income tax contingencies of $1,400,000 (see Note 15) less the PEC Settlement (see Note 28) and the Columbia Gas Settlement (see Note 20) aggregating $4,905,000. Additionally, the results for the three months ended December 31, 1995 include a provision for income tax contingencies of $6,100,000 (see Note 15). (b) The shares for income (loss) per share purposes represent the weighted average shares outstanding plus, with respect to the three months ended September 30, 1996, 2,519,000 shares for the effect of dilutive stock options. Net income for income per share purposes for such period was increased by $1,335,000 from the assumed reduction in interest expense, net of income taxes, resulting from the utilization of the proceeds from the assumed exercise of certain stock options to repurchase debt and eliminate the related interest expense. Fully diluted income (loss) per share was not applicable to any period since contingent issuances of common shares would have been antidilutive. (c) The results for the three months ended March 31, 1996, June 30, 1996 and September 30, 1996 include extraordinary (charges) income in connection with the early extinguishment of debt consisting of the following (in thousands):
THREE MONTHS ENDED ------------------------------------------------------------------------------------ MARCH 31,30, JUNE 30,29, (D) SEPTEMBER 30,28, DECEMBER 28, (E) --------- -------------------- ------------- Write-off of unamortized deferred financing costs.--------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1997 Revenues.........................................$ (358)189,156 $ (5,985)208,287 $ (4,126) Write-off of unamortized original issue discount.. (1,776)258,562 $ 205,316 Gross profit..................................... 76,755 93,216 124,582 94,831 Operating profit (loss).......................... 15,984 (31,118) 23,534 18,562 Income (loss) from continuing operations ........ (1,638) (31,973) 10,301 2,757 Discontinued operations.......................... 461 804 639 18,814 Extraordinary charge (Note 18)................... -- (2,954) -- Prepayment penalties..............................(827) Net income (loss)................................ (1,177) (34,123) 10,940 20,744 Basic income (loss) per share: Continuing operations........................ (.06) (1.07) .34 .09 Discontinued operations...................... .02 .03 .02 .62 Extraordinary items ......................... -- (5,519) (225) Fees..............................................(.10) -- (.03) Net income (loss)............................ (.04) (1.14) .36 .68 Diluted income (loss) per share (c): Continuing operations........................ (.06) (1.07) .33 .09 Discontinued operations...................... .02 .03 .02 .59 Extraordinary items (g)...................... -- (250) Discount from principal on early extinguishment...(.10) -- -- 9,237 ---------- ----------- ---------- (2,134) (11,504) 4,636 Income tax (provision) benefit.................... 747 4,353 (1,514) ---------- ----------- ----------- $ (1,387) $ (7,151) $ 3,122 =========== =========== ==========(.03) Net income (loss)............................ (.04) (1.14) .35 .65
(d)(a) The results for the three months ended September 30, 1996 were materially affected by a net gain from the sale of businesses of $77,123,000 or $46,899,000 net of income tax benefit of $30,224,000. Such net gains consisted of an $83,447,000 gain on the Offering,IPO, partially offset by a $3,500,000 loss on the sale of the Textile Business and a $2,825,000 loss associated with the write-down of MetBev. See Note 19 for further discussion. (e)Notes 3 and 22. (b) The results for the three months ended December 31, 1996 were materially affected by (i) facilities relocation and corporate restructuring charges of $7,500,000 (see Note 18) or $4,701,000 net of $2,799,000 of income tax benefit and (ii) a provision for the reduction in carrying value of long-lived assets to be disposed of amounting to $64,300,000 (see Note 3) or $39,444,000 net of income tax benefit of $24,856,000 and (ii) facilities relocation and corporate restructuring charges (see Note 12) of $7,500,000 or $4,701,000 net of income tax benefit of $2,799,000. (c) Basic and diluted earnings (loss) per share are the same for the 1996 quarters since potentially dilutive stock options had either insignificant (three months ended March 31 and September 30) or antidilutive (three months ended June 30 and December 31) effects. Basic and diluted loss per share are the same for the three months ended March 30, 1997 and June 29, 1997 since potentially dilutive stock options had an antidilutive effect. The weighted average shares for diluted earnings per share for the three months ended September 28, 1997 and December 28, 1997 were increased by 933,000 and 1,293,000 shares, respectively, for the effect of dilutive stock options. (d) The results for the three months ended June 29, 1997 were materially affected by (i) acquisition related charges (see Note 13) of $32,440,000 or $19,789,000 net of $12,651,000 of income tax benefit and (ii) facilities relocation and corporate restructuring charges (see Note 12) of $5,467,000 or $3,362,000 net of $2,105,000 of income tax benefit. (31)(e) The results for the three months ended December 28, 1997 were materially affected by a gain on disposal of discontinued operations relating to the C.H. Patrick Sale of $33,277,000 (see Note 3) or $19,509,000 net of income tax provision of $13,768,000. (25) SUBSEQUENT EVENT On March 27, 1997 Triarc announced that itFebruary 9, 1998 the Company sold zero coupon convertible subordinated debentures due 2018 (the "Debentures") with a principal amount at maturity of $360,000,000 to Morgan Stanley & Co. Incorporated ("Morgan Stanley") as the initial purchaser for an offering to "qualified institutional buyers". The Debentures were issued at a discount of 72.177% from principal resulting in proceeds to the Company of $100,163,000 before placement fees of $3,006,000 and other related fees and expenses. The issue price represents an annual yield to maturity of 6.5%. The Debentures are convertible into Class A Common Stock at a conversion rate of 9.465 shares per $1,000 principal amount at maturity, which represents an initial conversion price of approximately $29.40 per share of Common Stock. The conversion price will increase over the life of the Debentures at an annual rate of 6.5%. The conversion of all of the Debentures into Class A Common Stock would result in the issuance of 3,407,000 shares of Class A Common Stock. The Debentures are redeemable by the Company commencing February 9, 2003 at the original issue price plus accrued original issue discount to the date of any such redemption. The Company has entered intoagreed to file a definitive agreementregistration statement with the Securities and Exchange Commission no later than May 10, 1998 to acquire Snapple Beverage Corp. fromregister the Debentures and the Class A Common Stock issuable upon any conversion of the Debentures. Outstanding Debentures will not affect basic earnings per share but will increase the number of shares utilized to calculate diluted earnings per share in periods with net income. The Quaker Oats Company for $300,000,000, subject to certain post-closing adjustments. The acquisition is expected to be consummated during the second quarter of 1997, subject to customary closing conditions, including antitrust clearance. Triarc will seek third party financing forused a portion of the proceeds from the sale of the Debentures to purchase price. Snapple is a producer1,000,000 shares of Class A Common Stock for treasury for $25,563,000 from Morgan Stanley. The balance of the net proceeds from the sale of Debentures will be used by Triarc for general corporate purposes, which may include working capital requirements, repayment or refinancing of indebtedness, acquisitions and seller of premium beverages and had sales for the year ended December 31, 1996 of approximately $550,000,000. investments. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEMS 10, 11, 12 AND 13. ItemsThe information required by items 10, 11, 12 and 13 towill be furnished by amendment hereto on or prior to April 30, 199727, 1998 (and is hereby incorporated by reference) by an amendment hereto or Triarc will otherwise have filedpursuant to a definitive proxy statement involving the election of directors pursuant to Regulation 14A which will contain such information. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) 1. Financial Statements: See Index to Financial Statements (Item 8). 2. Financial Statement Schedules: Independent Auditors' Report Schedule I -- Condensed Balance Sheets (Parent Company Only) -- as of December 31, 19951996 and 1996;December 28, 1997; Condensed Statements of Operations (Parent Company Only) -- for the fiscal years ended December 31, 1994, 1995 and 1996;1996 and December 28, 1997; Condensed Statements of Cash Flows (Parent Company Only) -- for the fiscal years ended December 31, 1994, 1995 and 1996 and December 28, 1997 Schedule II -- Valuation and Qualifying Accounts for the fiscal years ended December 31, 1994, 1995 and 1996 and December 28, 1997 Schedule V -- Supplemental Information Concerning Property Casualty Insurance Operations for the fiscal years ended December 31, 1994, 1995 and 1996 and December 28, 1997 All other schedules have been omitted since they are either not applicable or the information is contained elsewhere in "Item 8. Financial Statements and Supplementary Data." 3. Exhibits: Copies of the following exhibits are available at a charge of $.25 per page upon written request to the Secretary of Triarc at 280 Park Avenue, New York, New York 10017. EXHIBIT NO. DESCRIPTION ------- ----------------------------------------------------------------- 2.1-- Stock Purchase Agreement dated as of October 1, 1992 among DWG Acquisition, Victor Posner, Security Management Corp. and Victor Posner Trust No. 20, incorporated herein by reference to Exhibit 10 to Amendment No. 4 to Triarc's Current Report on Form 8-K dated October 5, 1992 (SEC file No. 1-2207). 2.2 -- Amendment dated as of October 1, 1992 between Triarc and DWG Acquisition, incorporated herein by reference to Exhibit 11 to Amendment No. 4 to Triarc's Current Report on Form 8-K dated October 5, 1992 (SEC file No. 1-2207). 2.3 -- Exchange Agreement dated as of October 1, 1992 between Triarc and Security Management Corp., incorporated herein by reference to Exhibit 12 to Amendment No. 4 to Triarc's Current Report on Form 8-K dated October 5, 1992 (SEC file No. 1-2207). 2.4 -- Asset Purchase Agreement dated as of March 31, 1996 by and among Avondale Mills Inc., Avondale Incorporated, Graniteville Company and the Registrant incorporated herein by reference to Exhibit 2.1 to the Triarc's Current Report on Form 8-K dated April 18, 1996 (SEC file No. 1-2207). 2.5 -- Asset Purchase Agreement dated as of August 9, 1995 among Mistic Brands, Inc., Joseph Victori Wines, Inc., Best Flavors, Inc., Nature's Own Beverage Company and Joseph Umbach, the Companies, and Joseph Umbach, incorporated herein by reference to Exhibit 2.1 to Triarc's Quarterly Report on Form 8-K dated August 9, 1995 (SEC file No. 1-2207). 2.6 -- Stock Purchase Agreement dated as of March 27, 1997 between The Quaker Oats Company and Triarc, incorporated herein by reference to Exhibit 2.1 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 3.1 -- Certificate of Incorporation of Triarc, as currently in effect, incorporated herein by reference to Exhibit B3.1 to the 1994 ProxyTriarc's Registration Statement on Form S-4 dated October 22, 1997 (SEC file No. 1-2207). 3.2 -- By-laws of Triarc, incorporated herein by reference to Exhibit 3.1 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 4.1 -- Note Purchase Agreement dated as of April 23, 1993 among RCAC, Triarc, RCRB Funding, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, incorporated herein by reference to Exhibit 4 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file No. 1-2207). 4.2 -- Indenture dated as of April 23,August 1, 1993 among RCAC, Royal Crown, Arby's, and The Bank of New York, incorporated herein by reference to Exhibit 5 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file No. 1-2207). 4.3 -- Form of Indenture among RCAC, Royal Crown, Arby'sInc. ("Arby's") and The Bank of New York, as Trustee, relating to the 9 3/4% Senior Secured Notes Due 2000, incorporated herein by reference to Exhibit 4.14.2 to RCAC'sTriarc's Registration Statement on Form S-1S-4 dated May 13, 1993 SECOctober 22, 1997 (SEC file No. 33-62778)1-2207). 4.44.2 -- Amended and Restated Loan Agreement dated as of October 13, 1995 by and between FFCA Acquisition Corporation and Arby's Restaurant Development Corporation, incorporated herein by reference to Exhibit 10.1 to RC/Arby's Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (SEC file No. 0-20286). 4.5 -- Loan Agreement dated as of October 13, 1995 by and between FFCA Acquisition Corporation and Arby's Restaurant Holding Company, incorporated herein by reference to Exhibit 10.2 to RC/Arby's Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (SEC file No. 0-20286). 4.6 -- Credit Agreement dated as of August 9, 199515, 1997 among Mistic, Brands,Snapple and Triarc Beverage Holdings Corp., as the Borrowers, Various Financial Institutions, as the Lenders, Donaldson, Lufkin & Jenrette Securities Corporation, as the arranger for the Lenders, Morgan Stanley Senior Funding, Inc. as co-arranger and as the Documentation Agent for the Lenders, DLJ Capital Funding, Inc., as the Syndication Agent for the Lenders, and The Chase Manhattan Bank (National Association)of New York, as agent, andAdministrative Agent for the other lenders party thereto (the "Mistic Credit Agreement"),Lenders, incorporated herein by reference to Exhibit 10.1 to Triarc's CurrentQuarterly Report on Form 8-K10-Q/A dated August 9, 1995 (SEC file No. 1-2207). 4.7 -- Letter Agreement dated December 15, 1995 among Arby's Restaurant Holding Company, Arby's Restaurant Development Corporation and FFCA Acquisition Corporation, incorporated herein by reference to Exhibit 4.25 to Triarc's Annual Report on Form 10-K for the year ended December 31, 1995 (SEC file No. 1-2207). 4.8 -- Amendment Agreement dated as of October 6, 1995 among Mistic Brands, Inc., The Chase Manhattan Bank, incorporated herein by reference to Exhibit 4.26 to Triarc's Annual Report on Form 10-K for the year ended December 31, 1995 (SEC file No. 1-2207). 4.9 -- Second Amendment Agreement dated as of March 15, 1996 among Mistic Brands, Inc., The Chase Manhattan Bank, N.A., as agent, and the other lenders party to the Mistic Credit Agreement incorporated herein by reference to Exhibit 4.27 to Triarc's Annual Report on Form 10-K for the year ended December 31, 1995 (SEC file No. 1-2207). 4.10 -- Third Amendment Agreement dated as of December 30, 1996 among Mistic Brands, Inc.,The Chase Manhattan Bank, N.A., as agent, and the other lenders party to the Mistic Credit Agreement, incorporated herein by reference to Exhibit 4.4 to Triarc's Current Report on Form 8-K dated March 31,September 29, 1997 (SEC file No. 1-2207). 4.114.3 -- Credit Agreement, dated as of June 26, 1996, among National Propane, L.P., The First National Bank of Boston, as administrative agent and a lender, Bank of America NT & SA, as a lender, and BA Securities, Inc., as syndication agent, incorporated herein by reference to Exhibit 10.1 to Current Report of National Propane Partners, L.P. (the "Partnership") on Form 8-K dated August 13, 1996 (SEC file No. 1-11867). 4.124.4 -- Note Purchase Agreement, dated as of June 26, 1996 ("Note Purchase Agreement"), among National Propane, L.P. and each of the Purchasers listed in Schedule A thereto relating to $125 million aggregate principal amount of 8.54% First Mortgage Notes due June 30, 2010, incorporated herein by reference to Exhibit 10.2 to the Partnership's Current Report on Form 8-K dated August 13, 1996 (SEC file No. 1-11867). 4.134.5 -- Consent, Waiver and Amendment dated November 5, 1996 among National Propane, L.P. and each of the Purchasers under the Note Purchase Agreement, incorporated herein by reference to Exhibit 4.1 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 4.144.6 -- Second Consent, Waiver and Amendment dated January 14, 1997 among National Propane, L.P. and each of the Purchasers under the Note Purchase Agreement, incorporated herein by reference to Exhibit 4.2 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 4.15 -- Credit Agreement dated as of May 16, 1996 between: CH. Patrick & Co., Inc., the Registrant, each of the lenders party thereto, Internationale Nederlanden (U.S.) Capital Corporation, as agent, and The First National Bank of Boston, as co-agent, incorporated herein by reference to Exhibit 4.3 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 4.164.7 -- Note dated July 2, 1996 of Triarc, payable to the order of National Propane, L.P., incorporated herein by reference to Exhibit 10.5 to the Partnership's Current Report on Form 8-K dated August 13, 1996 (SEC file No. 1-11867). 4.174.8 -- LoanMaster Agreement dated as of SeptemberMay 5, 1996 by and between1997, among Franchise Finance Corporation of America, FFCA Acquisition Corporation, FFCA Mortgage Corporation, andTriarc, Arby's Restaurant Development Corporation ("ARDC"), Arby's Restaurant Holding Company incorporated herein by reference to Exhibit 4.1 to RC/Arby's Corporation's Current Report on Form 8-K dated November 14, 1996 (SEC file No. 0-20286). 4.18 -- Supplement to Loan Agreement as of June 26, 1996 among FFCA Acquisition Corporation,("ARHC"), Arby's Restaurant Operations Company ("AROC"), Arby's, RTM Operating Company, RTM Development Company, RTM Partners, Inc. ("Holdco"), RTM Holding Company, Arby's Restaurant Development CorporationInc., RTM Management Company, LLC and the Registrant, incorporated herein by reference to Exhibit 4.2 to RC/Arby's Corporation's Current Report on Form 8-K dated November 14, 1996 (SEC file No. 0-20286). 4.19 -- Agreement Regarding Cross Collateralization and Cross-Default Provisions as of June 26, 1996 by and among FFCA Acquisition Corporation, Arby's Restaurant Development Corporation, Arby's Restaurant Holding Company and Arby's,RTM, Inc.("RTM"), incorporated herein by reference to Exhibit 4.34.16 to RC/Arby's Corporation's Current ReportTriarc's Registration Statement on Form 8-KS-4 dated November 14, 1996October 22, 1997 (SEC file No. 0-020286)1-2207). 4.204.9 -- First Amendment dated as of March 27, 1997, to the Credit Agreement dated as of June 26, 1996 (the "National Propane Credit Agreement"), among National Propane, L.P., The First National Bank of Boston, as administrative agent and a lender, Bank of America NT & SA, as a lender, and BA Securities, Inc., as syndication agent, incorporated herein by reference to Exhibit 10.3 to National Propane Partners, L.P.'s Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1- 11867)1-11867). 10.14.10 -- Employment AgreementIndenture dated as of April 24, 1993February 9, 1998 between Donald L. PierceTriarc Companies, Inc. and Arby's,The Bank of New York, as Trustee, incorporated herein by reference to Exhibit 74.1 to Triarc's Current Report on Form 8-K/A dated March 6, 1998 (SEC File No. 1-2207). 4.11 -- Registration Rights Agreement dated as of February 4, 1998 by and among Triarc and Morgan Stanley & Co. Incorporated, incorporated herein by reference to Exhibit 4.2 to Triarc's Current Report on Form 8-K/A dated March 6, 1998 (SEC File No. 1-2207). 4.12 -- Second Amendment dated as of April 22, 1997 to the National Propane Credit Agreement among National Propane, L.P., the Lenders (as defined therein), The First National Bank of Boston, as Administrative Agent and a Lender, Bank of America NT&SA, as a Lender, and BA Securities, Inc. as Syndication Agent, incorporated herein by reference to Exhibit 10.1 to National Propane Partners, L.P.'s Current Report on Form 8-K dated May 15, 1997 (SEC file No. 1-11867). 4.13 -- Third Amendment dated as of March 23, 1998 to the National Propane Credit Agreement among National Propane, L.P., the Lenders (as defined therein), BankBoston, N.A., as Administrative Agent and a Lender, and BancAmerica Robertson Stephens, as Syndication Agent, incorporated herein by reference to Exhibit 10.1 to National Propane Partners, L.P.'s Current Report on Form 8-K dated March 25, 1998 (SEC file No. 1-11867). 4.14 -- First Amendment to Credit Agreement dated as of March 23, 1998 among Mistic, Snapple, Triarc Beverage Holdings Corp., the Lenders (as defined therein), DLJ Capital Funding, Inc., as syndication agent, Morgan Stanley Senior Funding, Inc., as documentation agent, and The Bank of New York, as administrative agent, incorporated herein by reference to Exhibit 4.1 to Triarc's Current Report on Form 8-K dated April 23, 1993March 26, 1998 (SEC file No. 1-2207). 10.29.1 -- Stockholders Agreement dated June 24, 1997 by and among Triarc and each of the parties signatory thereto, incorporated herein by reference to Appendix B-2 to the Proxy Statement/Prospectus filed as part of Triarc's Registration Statement on Form S-4 dated October 22, 1997 (SEC file No. 1-2207). 9.2 -- Amendment No. 1 to Stockholders Agreement date as of July 9, 1997 by and among Triarc and each of the parties signatory thereto, incorporated herein by reference to Appendix B-2 to the Proxy Statement/Prospectus filed as part of Triarc's Registration Statement on Form S-4 dated October 22, 1997 (SEC file No. 1-2207). 10.1 -- Employment Agreement dated as of April 24, 1993 among John C. Carson, Royal Crown and Triarc, incorporated herein by reference to Exhibit 8 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file No. 1-2207). 10.3 -- Employment Agreement dated as of April 24, 1993 between Ronald D. Paliughi and National Propane Corporation (the "Paliughi Employment Agreement"), incorporated herein by reference to Exhibit 9 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file No. 1-2207). 10.4 -- Memorandum of Understanding dated September 13, 1993 between Triarc and William Ehrman, individually and derivatively on behalf of SEPSCO, incorporated herein by reference to Exhibit 10.1 to Triarc's Current Report on Form 8-K dated September 13, 1993 (SEC file No. 1-2207). 10.5 -- Stipulation of Settlement of Ehrman Litigation dated as of October 18, 1993, incorporated herein by reference to Exhibit 1 to Triarc's Current Report on Form 8-K dated October 15, 1993 (SEC File No. 1-2207). 10.610.2 -- Triarc's 1993 Equity Participation Plan, as amended, incorporated herein by reference to Exhibit 10.1 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 10.710.3 -- Form of Non-Incentive Stock Option Agreement under Triarc's Amended and Restated 1993 Equity Participation Plan, incorporated herein by reference to Exhibit 10.2 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 10.810.4 -- Form of Restricted Stock Agreement under Triarc's Amended and Restated 1993 Equity Participation Plan, incorporated herein by reference to Exhibit 13 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file No. 1-2207). 10.910.5 -- Consulting Agreement dated as of April 23, 1993 between Triarc and Steven Posner, incorporated herein by reference to Exhibit 10.8 to Triarc's Annual Report on Form 10-K for the fiscal year ended April 30, 1993 (SEC file No. 1-2207). 10.10 -- Form of New Management Services Agreement dated as of April 23, 1993 between Triarc and certain of its subsidiaries, incorporated herein by reference to Exhibit 10.11 to Triarc's Annual Report on Form 10-K for the fiscal year ended April 30, 1993 (SEC file No. 1-2207). 10.1110.6 -- Concentrate Sales Agreement dated as of January 28, 1994 between Royal Crown and Cott -- Confidential treatment has been granted for portions of the agreement -- incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to Triarc's Registration Statement on Form S-4 dated March 11, 1994 (SEC file No. 1-2207). 10.1210.7 -- Form of Indemnification Agreement, between Triarc and certain officers, directors, and employees of Triarc, incorporated herein by reference to Exhibit F to the 1994 Proxy (SEC file No. 1-2207). 10.13 -- Amendment No. 1, dated December 7, 1994 to the Paliughi Employment Agreement, incorporated herein by reference to Exhibit 10.1 to Triarc's Current Report on Form 8-K dated March 29, 1995 (SEC file No. 1-2207). 10.1410.8 -- Settlement Agreement, dated as of January 9, 1995, among Triarc, Security Management Corp., Victor Posner Trust No. 6 and Victor Posner, incorporated herein by reference to Exhibit 99.1 to Triarc's Current Report on Form 8-K dated January 11, 1995 (SEC file No. 1-2207). 10.1510.9 -- Employment Agreement, dated as June 29, 1994, between Brian L. Schorr and Triarc, incorporated herein by reference to Exhibit 10.2 to Triarc's Current Report on Form 8-K dated March 29, 1995 (SEC file No. 1-2207). 10.16 -- Amendment No. 2, dated as of March 27, 1995, to the Paliughi Employment Agreement, incorporated herein by reference to Exhibit 10.20 to Triarc's Annual Report on Form 10-K for the year ended December 31, 1995 (SEC file No. 1-2207). 10.17 --10.10-- Letter Agreement, dated as of January 1, 1996 between Triarc and Leon Kalvaria incorporated herein by reference to Exhibit 10.21 to Triarc's Annual Report on Form 10-K for the year ended December 31, 1995 (SEC file No. 1-2207). 10.18 --10.11-- Amended and Restated Employment and SAR Agreement dated as of August 9, 1995June 1, 1997 by and between Snapple, Mistic Brands, Inc. and Michael Weinstein,.incorporated incorporated herein by reference to Exhibit 10.210.3 to Triarc's AnnualCurrent Report on Form 10-K for the year ended December 31, 19958-K/A dated March 16, 1998 (SEC file No. 1-2207). 10.19 --10.12-- Amended and Restated Employment and SAR Agreement dated as of August 9, 1995June 1, 1997 by and between Snapple, Mistic Brands, Inc. and Ernest J. Cavallo, incorporated herein by reference to Exhibit 10.2310.4 to Triarc's AnnualCurrent Report on Form 10-K for the year ended December 31, 19958-K/A dated March 16, 1998 (SEC file No. 1-2207). 10.20 -- Amendment to Employment Agreement of Ronald D. Paliughi dated of June 10, 1996, incorporated herein by reference to Exhibit 10.7 to Partnership's Current Report on Form 8- K dated August 13, 1996. (SEC file No. 1-11867). 10.21 --10.13-- Stock Purchase Agreement dated February 13, 1997 by and among Arby's Inc., Arby's Restaurant Development Corporation, Arby's Restaurant Holding Company, Arby's Restaurant Operations Company, RTM Partners, Inc.ARDC, ARHC, AROC, Holdco and RTM, Inc., incorporated herein by reference to Exhibit 10.1 to RCAC's Current Report on Form 8-K dated February 20, 1997 (SEC file No. 0-20286). 10.22 -- Purchase Agreement among the Partnership, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Janney Montgomery Scott Inc., Rauscher Pierce Refsnes, Inc..and the Robinson-Humphrey Company, Inc., incorporated herein by reference to Exhibit1.1 to the Partnership's Current Report on Form 8-K dated August 13, 1996 (SEC file No. 1-11867). 10.23 -- Contribution and Assumption Agreement among the Partnership, National Propane, National Propane SGP, Inc. and National Sales & Service, Inc., incorporated herein by reference to Exhibit 10.4 to the Partnership's Current Report on Form 8-K dated August 13, 1996 (SEC file No. 1-11867). 10.24 -- Conveyance, Contribution and Assumption Agreement among the Partnership, National Propane and National Propane SGP, Inc., incorporated herein by reference to Exhibit 10.3 to the Partnership's Current Report on Form 8-K dated August 13, 1996 (SEC file No. 1- 11867). 10.25 -- Purchase Agreement dated November 7, 1996 between the Partnership and the buyer named therein (the "Buyer"), incorporated herein by reference to Exhibit 10.1 to the Partnership's Current Report on Form 8-K dated November 14, 1996 (SEC file No. 1-11867). 10.26 -- Registration Agreement dated November 7, 1996 between the Partnership and the Buyer, incorporated herein by reference to Exhibit 10.2 to the Partnership's Current Report on Form 8-K dated November 14, 1996 (SEC file No. 1-11867). 10.27-- Supply Agreement dated as of March 31, 1996 by and between Avondale Mills, Inc. and C.H. Patrick & Co., Inc. -- Confidential treatment has been granted for portions of the Supply Agreement -- is incorporated herein by reference to Exhibit 10 to Triarc's Current Report on Form 8-K/A dated June 25, 1996 (SEC file No. 1-2207). 10.28 --10.14-- Employment Agreement dated as of April 29, 1996 between Triarc and John L. Barnes, Jr., incorporated herein by reference to Exhibit 10.3 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 10.15-- Stock Purchase Agreement dated as of October 1, 1992 among DWG Acquisition, Victor Posner, Security Management Corp. and Victor Posner Trust No. 20, incorporated herein by reference to Exhibit 10 to Amendment No. 4 to Triarc's Current Report on Form 8-K dated October 5, 1992 (SEC file No. 1-2207). 10.16-- Amendment dated as of October 1, 1992 between Triarc and DWG Acquisition, incorporated herein by reference to Exhibit 11 to Amendment No. 4 to Triarc's Current Report on Form 8-K dated October 5, 1992 (SEC file No. 1-2207). 10.17-- Exchange Agreement dated as of October 1, 1992 between Triarc and Security Management Corp., incorporated herein by reference to Exhibit 12 to Amendment No. 4 to Triarc's Current Report on Form 8-K dated October 5, 1992 (SEC file No. 1-2207). 10.18-- Asset Purchase Agreement dated as of March 31, 1996 by and among Avondale Mills Inc., Avondale Incorporated, Graniteville Company and Triarc, incorporated herein by reference to Exhibit 2.1 to the Triarc's Current Report on Form 8-K dated April 18, 1996 (SEC file No. 1-2207). 10.19-- Stock Purchase Agreement dated as of March 27, 1997 between The Quaker Oats Company and Triarc, incorporated herein by reference to Exhibit 2.1 to Triarc's Current Report on Form 8-K dated March 31, 1997 (SEC file No. 1-2207). 10.20-- Agreement and Plan of Merger dated as of June 24, 1997 between Cable Car Beverage Corporation ("Cable Car"), Triarc and CCB Merger Corporation ("CCB"), incorporated herein by reference to Exhibit 2.1 to Triarc's Current Report on Form 8-K dated June 24, 1997 (SEC file No. 1-2207). 10.21-- Amendment No. 1 to Agreement and Plan of Merger, dated as of September 30, 1997, between Cable Car, Triarc and CCB, incorporated herein by reference to Appendix B-1 to the Proxy Statement/Prospectus filed pursuant to Triarc's Registration Statement on Form S-4 dated October 22, 1997 (SEC file No. 1-2207). 10.22-- Option granted by Holdco in favor of ARHC, together with a schedule identifying other documents omitted and the material details in which such documents differ, incorporated herein by reference to Exhibit 10.30 to Triarc's Registration Statement on Form S-4 dated October 22, 1997 (SEC file No. 1-2207). 10.23-- Guaranty dated as of May 5, 1997 by RTM, RTM Parent, Holdco, RTMM and RTMOC in favor of Arby's, ARDC, ARHC, AROC and Triarc, incorporated herein by reference to Exhibit 10.31 to Triarc's Registration Statement on Form S-4 dated October 22, 1997 (SEC file No. 1-2207). 10.24-- Settlement Agreement dated as of June 6, 1997 between Triarc, Victor Posner, Security Management Corporation and APL Corporation, incorporated herein by reference to Exhibit 10.5 to Triarc's Quarterly report on Form 10-Q for the quarter ended June 29, 1997 (SEC file No. 1-2207). 10.25-- Triarc Companies, Inc. 1997 Equity Participation Plan (the "1997 Equity Plan"), incorporated herein by reference to Exhibit 10.5 to Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC file No. 1-2207). 10.26-- Form of Non-Incentive Stock Option Agreement under the 1997 Equity Plan, incorporated herein by reference to Exhibit 10.6 to Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC File No. 1-2207). 10.27-- Triarc Companies, Inc. Stock Option Plan for Cable Car Employees, incorporated herein by reference to Exhibit 4.3 to Triarc's Registration Statement on Form S-8 dated January 22, 1998 (Registration No. 333-44711). 10.28-- Triarc Beverage Holdings Corp. 1997 Stock Option Plan (the "TBHC Option Plan"), incorporated herein by reference to Exhibit 10.1 to Triarc's Current Report on Form 8-K dated March 16, 1998 (SEC file No. 1-2207). 10.29-- Form of Non-Qualified Stock Option Agreement under the TBHC Option Plan, incorporated herein by reference to Exhibit 10.2 to Triarc's Current Report on Form 8-K dated March 16, 1998 SEC file No. 1-2207). 10.30-- Agreement dated as of March 23, 1998 by and among National Propane Partners, L.P., National Propane Corporation, Triarc, the Lenders (as defined therein), BankBoston, N.A., as Administrative Agent, and BancAmerica Robertson Stephens, as Syndication Agent, incorporated herein by reference to Exhibit 10.2 to National Propane Partners, L.P.'s Current Report on Form 8-K dated March 25, 1998 (SEC file No. 1-11867). 21.1 -- Subsidiaries of the Registrant* 23.1 -- Consent of Deloitte & Touche LLP* 27.1 -- Financial Data Schedule for the fiscal year ended December 28, 1997, submitted to the Securities and Exchange Commission in electronic format.* 27.2 -- Financial Data Schedule for the years ended December 31, 1995 and 1996 and the quarters ended March 31, June 30 and September 30, 1996, submitted to the Securities and Exchange Commission in electronic format.* 27.3 -- Financial Data Schedule for the fiscal quarters ended March 30, June 29 and September 28, 1997, submitted to the Securities and Exchange Commission in electronic format.* 99.1 -- Order of the United States District Court for the Northern District of Ohio, dated February 7, 1995, incorporated herein by reference to Exhibit 99.1 to Triarc's Current Report on Form 8-K dated March 29, 1995 (SEC file No. 1-2207). - ----------------------- * Filed herewith (B) Reports on Form 8-K: Not applicable.On October 27, 1997, Triarc filed a Current Report on Form 8-K, which included information under Item 5 and exhibits under Item 7 of such form. On December 10, 1997 Triarc filed a Current Report on Form 8-K, which included information under Items 2 and 5 and exhibits under Item 7 of such form. On December 24, 1997 Triarc filed a Current Report on Form 8-K, which included information under Item 2 and exhibits under Item 7 of such form. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRIARC COMPANIES, INC. (Registrant) NELSON PELTZ -------------------------------- NELSON PELTZ CHAIRMAN AND CHIEF EXECUTIVE OFFICER Dated: March 31, 199726, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 31, 199726, 1998 by the following persons on behalf of the registrant in the capacities indicated. SIGNATURE TITLES - ----------------- ----------------------------------------------------------- ---------- ----------------------------------- NELSON PELTZ ----------------------------- Chairman and Chief Executive Officer .................. AndNelson Peltz and Director (Principal Executive Officer) (NELSON PELTZ) PETER W. MAY President and Chief Operating Officer, and .................PETER W. MAY Director (Principal Operating Officer) (PETER---------------------------- Peter W. MAY) JOHN L. BARNES, JR.May Senior Vice President and Chief Financial .................JOHN L. BARNES, JR. Officer (Principal Financial Officer) (JOHN---------------------------- John L. BARNES, JR.) FRED H. SCHAEFERBarnes, Jr. Vice President and Chief Accounting Officer .................FRED H. SCHAEFER (Principal Accounting Officer) (FRED--------------------------- Fred H. SCHAEFER)Schaefer Director HUGH L. CAREY Director ...................... (HUGH--------------------------- Hugh L. CAREY)Carey Director CLIVE CHAJET -------------------------- Clive Chajet Director ............................ (CLIVE CHAJET) STANLEY R. JAFFE Director .......................... (STANLEY--------------------------- Stanley R. JAFFE)Jaffe Director JOSEPH A. LEVATO Director ......................... (JOSEPH--------------------------- Joseph A. LEVATO) M.L. LOWENKRONLevato Director ......................... (M. L. LOWENKRON) DAVID E. SCHWAB II Director ........................... (DAVID--------------------------- David E. SCHWAB II)Schwab II Director RAYMOND S. TROUBH Director ............................ (RAYMOND-------------------------- Raymond S. TROUBH)Troubh Director GERALD TSAI, JR. Director ............................ (GERALD TSAI, JR.) --------------------------- Gerald Tsai, Jr. INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES To the Board of Directors and Stockholders of TRIARC COMPANIES, INC.: New York, New York We have audited the consolidated financial statements of Triarc Companies, Inc. and subsidiaries (the "Company") as of December 28, 1997 and December 31, 1996, and 1995, and for each of the three fiscal years in the period ended December 31, 1996,28, 1997, and have issued our report thereon dated March 31, 1997 (which report includes an explanatory paragraph as to a changeappears in the method of accounting for impairment of long-lived assets and for long-lived assets to be disposed of); such consolidated financial statements and report are included elsewhereItem 8 in this Form 10-K. Our audits also includedwere conducted for the consolidatedpurpose of forming an opinion on the basic financial statementstatements taken as a whole. The supplemental schedules listed in the table of contents are presented for the purpose of additional analysis and are not a required part of the Company, listed in Item 14(A)2.basic financial statements. These financial statement schedules are the responsibility of the Company's management. Our responsibility isSuch schedules have been subjected to express an opinion based onthe auditing procedures applied in our audits. Inaudits of the basic financial statements and, in our opinion, such consolidated financial statement schedules,are fairly stated in all material respects when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.whole. DELOITTE & TOUCHE LLP New York, New York March 31, 1997 10, 1998 (March 25, 1998 as to Note 8 to the consolidated financial statements)
SCHEDULE I TRIARC COMPANIES, INC. (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS December 31, ------------ 1995December 28, 1996 1997 ---- ---- (In thousands)--- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents ..................................................$ 12,550 ....................................................................$ 123,535 Restricted cash and cash equivalents........................................ 23,385 376$ 86,821 Short-term investments...................................................... 18investments........................................................................ 51,629 27,887 Due from subsidiaries ...................................................... 29,763........................................................................ 32,148 Other receivables, net...................................................... 4,564 75671,259 Deferred income tax benefit................................................. 4,264benefit................................................................... 3,483 3,936 Prepaid expenses and other current assets................................... 301 3,324 --------- ---------assets..................................................... 4,456 1,515 ------------ ------------- Total current assets..................................................... 74,845assets..................................................................... 215,251 --------- ---------191,418 Note receivable from subsidiary ................................................ 18,375................................................................... 18,715 200 Investments in consolidated subsidiaries, at equity............................. 208,043equity................................................ -- 20,399 Properties, net................................................................. 186net.................................................................................... 4,558 Deferred income tax benefit..................................................... 15,964 --5,794 Other assets ................................................................... 8,997...................................................................................... 4,144 --------- --------- $ 326,4105,831 ------------ ------------- $ 242,668 ========= =========$ 223,642 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: CurrentDemand notes and current portion of long-term debt...........................................notes payable to subsidiaries.............................$ 5,27431,650 $ 32,625 Note payable.................................................................................. 3,000 -- Accounts payable............................................................ 1,456payable.............................................................................. 2,598 16,272 Due to subsidiaries......................................................... 14,515subsidiaries........................................................................... 15,596 18,528 Accrued expenses............................................................ 21,955expenses.............................................................................. 19,865 --------- ---------42,569 ------------ ------------- Total current liabilities................................................ 43,200 41,059 --------- ---------liabilities................................................................ 72,709 109,994 ------------ ------------- Note payable to National Propane, L.P.............................................................. 40,700 40,700 Notes payable to subsidiaries................................................... 229,300 72,350 9 1/2% promissory note payable ................................................. 32,423subsidiaries...................................................................... -- 1,125 Accumulated reductions in stockholders' equity of subsidiaries in excess of investment (a)........................................................................ 78,487 -- 78,487 Deferred income taxes........................................................... --taxes.............................................................................. 43,370 27,398 Other liabilities............................................................... 837liabilities.................................................................................. 637 437 Commitments and contingencies Stockholders' equity: Class A common stock, $.10 par value; authorized 100,000,000 shares, issued 27,983,805 shares..................................................and 29,550,663................................................................... 2,798 2,7982,955 Class B common stock, $.10 par value; authorized 25,000,000 shares, issued 5,997,622 shares...................................................shares............................................................................ 600 600 Additional paid-in capital.................................................. 162,020capital.................................................................... 161,170 204,291 Accumulated deficit......................................................... (97,923)deficit........................................................................... (111,824) (115,440) Less Class A common stock held in treasury at cost; 4,067,3804,097,606 and 4,097,606 shares......................................................... (45,931)3,951,265 shares............ (46,273) Other....................................................................... (914)(45,456) Other......................................................................................... 294 --------- ---------(2,962) ------------ ------------- Total stockholders' equity .............................................. 20,650.............................................................. 6,765 --------- --------- $ 326,41043,988 ------------ ------------- $ 242,668 ========= =========$ 223,642 ============ =============
- ---------------- (a) The "Accumulated reductions in stockholders' equity of subsidiaries in excess of investment" includes all of Triarc's direct and indirect owned subsidiaries. The investment in subsidiaries has a negative balance as a result of December 31, 1996 due to aggregate distributions from subsidiaries and forgiveness of Triarc debt to subsidiaries in excess of the investment in the subsidiaries.
SCHEDULE I (CONTINUED)(Continued) TRIARC COMPANIES, INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, Year Ended ----------------------- 1994December 28, 1995 1996 1997 ---- ---- ---- (In thousands except per share amounts)(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Income and (expenses): Equity in net income (losses)losses of continuing operations of subsidiaries ..................................................subsidiaries............. $ 29,610 $(26,078) $(50,190)(28,517) $ (55,403) $ (19,329) Investment income......................................................... 698 6,506 10,747 Gain on sale of businesses, net..................................net........................................... -- 81,500 8,468 Merger and acquisition fee from subsidiary................................ -- -- 81,500 Interest income.................................................. 707 797 6,0284,000 General and administrative expenses ...................................... (2,072) (4,449) (14,939) Interest expense ................................................ (28,807) (15,794) (8,235)on debt to subsidiaries ................................. (12,160) (4,529) (8,582) Other interest expense.................................................... (3,634) (3,706) (2,015) Acquisition related costs................................................. -- -- (2,000) Facilities relocation and corporate restructuring......................... (2,700) (1,000) (12) Reduction in carrying value of long-lived assets impaired or to be disposed of ............................................. --............................................................ -- (5,400) General and administrative expenses ............................. (6,660) (2,072) (4,449) Facilities relocation and corporate restructuring................ (8,800) (2,700) (1,000)-- Recovery of doubtful accounts from affiliates and former affiliates..................................................... --affiliate....................... 3,049 -- Cost of a proposed acquisition not consummated................... (5,480) -- -- Shareholder litigation and other expenses ....................... (500) (24) -- Other income (expense) .......................................... (199) 2,305 492 -------- -------- --------............................................................. 2,380 14 2,599 ------------ ------------ ------------ Income (loss) from continuing operations before income taxes... (20,129) (40,517) 18,746taxes........... (42,956) 13,533 (21,063) Benefit (provision) from income taxes ............................... 18,036......................................... 3,523 (27,231) -------- -------- --------510 ------------ ------------ ------------ Loss from continuing operations................................ (2,093) (36,994) (8,485)operations........................................ (39,433) (13,698) (20,553) Equity in losses ofincome from discontinued operations of subsidiaries ......... (3,900) -- -- Extraordinary items.................................................. -- -- 5,752................. 2,439 5,213 20,718 Equity in extraordinary charges of subsidiaries...................... (2,116)subsidiaries................................ -- (11,168) -------- -------- --------(3,781) Extraordinary items............................................................ -- 5,752 -- ------------ ------------ ------------ Net loss....................................................... (8,109)loss............................................................... $ (36,994) $ (13,901) Preferred stock dividend requirements................................ (5,833) -- -- -------- -------- -------- Net loss applicable to common stockholders .................... $(13,942) $(36,994) $(13,901) ======== ======== ========$ (3,616) ============ ============ ============ Loss per share: Continuing operations............................................operations..................................................... $ (.34)(1.32) $ (1.24)(.46) $ (.28)(.68) Discontinued operations.......................................... (.17) -- --operations................................................... .08 .18 .69 Extraordinary charges............................................ (.09)charges..................................................... -- (.18) -------- -------- --------(.13) ------------ ------------ ------------ Net loss....................................................... $ (.60)loss............................................................... $ (1.24) $ (.46) ======== ======== ========$ (.12) ============ ============ ============
SCHEDULE I (CONTINUED)(Continued) TRIARC COMPANIES, INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, Year Ended ----------------------- 1994December 28, 1995 1996 1997 ---- ---- ---- (IN THOUSANDS) Cash flows from operating activities: Net loss ........................................................... $ (8,109)loss................................................................... $ (36,994) $ (13,901) $ (3,616) Adjustments to reconcile net loss to net cash provided by operating activities: Dividends from subsidiaries............................................. 22,721 126,059 54,506 Equity in net losses (income) of subsidiaries ................... (23,594)subsidiaries.................................... 26,078 60,444 Dividends from subsidiaries ..................................... 40,000 22,721 126,05961,358 2,392 Gain on sale of businesses, net ................................. --net......................................... -- (81,500) Discount from principal on early extinguishment of debt ......... -- -- (9,237)(8,468) Deferred income tax provision (benefit) ......................... (2,899)................................. (382) 36,558 (15,351) Realized gains on marketable securities................................. -- (586) (4,795) Change in due from/to subsidiaries and other affiliates including capitalized interest ($21,017 in 1994 and $9,569 in 1995) ..... 33,034................ 1,332 2,203 (4,676) Discount from principal on early extinguishment of debt................. -- (9,237) -- Other, net ...................................................... 8,991net.............................................................. 3,808 (1,576) Decrease (increase) in receivables .............................. (649) (4,715) 133 Decrease (increase) in restricted cash .......................... (498) (166) 288(1,904) (5,074) Decrease (increase) in prepaid expenses and other current assets ........................................................ 2,399 (214) (23)assets................................................................ (5,095) 398 231 Increase (decrease) in accounts payable and accrued expenses ...................................................... (18,249)expenses.............................................................. 4,522 20,901 --------- --------- ---------29,286 ------------- ------------ ----------- Net cash provided by operating activities .................. 30,426activities.......................... 15,990 140,349 --------- --------- ---------44,435 ------------- ------------ ----------- Cash flows from investing activities: Acquisition of Mistic Brands, Inc. in 1995 and Snapple Beverage Corp. in 1997........................................................... (25,000) -- (75,000) Other business acquisitions................................................ (4,240) -- (650) Cost of short-term investments purchased ...........................purchased................................... -- -- (61,381) (54,623) Proceeds from short-term investments sold ..........................sold.................................. -- 11,244 62,833 Capital contributed to subsidiaries........................................ (8,865) -- 11,244(6,204) Loans to subsidiaries, net of repayments ........................... --repayments................................... (18,375) (340) Business acquisitions ..............................................(4,635) Investments................................................................ (5,340) -- (29,240) --(3,250) Capital expenditures ............................................... (83)expenditures....................................................... (57) (4,519) Investment in an affiliate ......................................... -- (5,340) -- Capital contributed to a subsidiary ................................ -- (8,865) -- --------- --------- ---------(1,909) ------------- ------------ ----------- Net cash used in investing activities ...................... (83)activities.............................. (61,877) (54,996) --------- --------- ---------(83,438) ------------- ------------ ----------- Cash flows from financing activities: RepaymentsProceeds from exercises of long-term debt .......................................stock options................................... -- -- (27,250)108 2,433 Borrowings from subsidiaries, net of repayments ....................repayments............................ 45,900 30,600 2,100 Purchases of common shares in open market transactions..................... (1,170) (496) (1,594) Repayments of long-term debt .............................................. -- 45,900 30,600(27,250) -- Cash restricted for debt repayment paid by subsidiary in 1996....... --1996.............. (22,721) 22,721 Purchases of common shares in open market tranactions .............. (344) (1,170) (496) Payment of preferred dividends ..................................... (5,833) -- -- Other .............................................................. --Other...................................................................... (56) 57 --------- --------- ---------(51) (650) ------------- ------------ ----------- Net cash provided by (used in) financing activities ....... (6,177)activities......................... 21,953 25,632 --------- --------- ---------2,289 ------------- ------------ ----------- Net increase (decrease) in cash and cash equivalents ................... 24,166........................... (23,934) 110,985 (36,714) Cash and cash equivalents at beginning of period ....................... 12,318period..................................................... 36,484 12,550 --------- --------- ---------123,535 ------------- ------------ ----------- Cash and cash equivalents at end of period ............................. $ 36,484period........................................................... $ 12,550 $ 123,535 ========= ========= =========$ 86,821 ============= ============ =========== NOTE: Cash as used herein includes cash and cash equivalents
SCHEDULE II TRIARC COMPANIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Additions ----------------------------- Balance at Charged to Charged to Deductions Balance at Beginning Costs and Other from End of Description of PeriodYear Expenses Accounts Reserves PeriodYear ----------- --------- ----------- -------- -------- -------- --------------- (IN THOUSANDS) Year ended December 31, 1994: Receivables - allowance for doubtful accounts: Trade ............................... $ 6,969 $ 1,021 $ 111 (1) $(2,711)(2) $ 5,390 ========= ========= ========= ======= =========== Insurance loss reserves................... $ 13,511 $ -- $ -- $(2,684)(3) $ 10,827 ========= ========= ========= ======= =========== Year ended December 31, 1995: Receivables - allowance for doubtful accounts: Trade................................Trade............................. $ 5,3905,249 $ 3,2673,308 $ 327 (1) $(2,840)$ (2,840)(2) $ 6,144 Affiliate............................6,044 Affiliate......................... -- 1,351 -- -- 1,351 --------- --------- --------- ------------------ ----------- ----------- ------------ ---------- Total.............................Total.......................... $ 5,3905,249 $ 4,6184,659 $ 327 $(2,840) $ 7,495 ========= ========= ========= =======(2,840) $ 7,395 =========== =========== =========== ============ ========== Insurance loss reserves...................reserves.................. $ 10,827 $ 110 $ -- $(1,539)$ (1,539)(3) $ 9,398 ========= ========= ========= ================== =========== =========== ============ ========== Year ended December 31, 1996: Receivables - allowance for doubtful accounts: Trade ........................................................... $ 6,1446,044 $ 4,1043,680 $ 331205 (1) $ (5,933)(4) $ 4,646 Affiliate............................3,996 Affiliate......................... 1,351 5,675 -- (4,475)(2) 2,551 --------- --------- --------- ------------------- ----------- ----------- ------------ ---------- Total.............................Total.......................... $ 7,4957,395 $ 9,7799,355 $ 331 $(10,408)205 $ 7,197 ========= ========= ========= ========(10,408) $ 6,547 =========== =========== =========== ============ ========== Insurance loss reserves...................reserves.................. $ 9,398 $ 763 $ -- $ (333)(3) $ 9,828 ========= ========= ========= =================== =========== =========== ============ ========== Year ended December 28, 1997: Receivables - allowance for doubtful accounts: Trade ............................ $ 3,996 $ 7,257 $ 725 (1) $ (4,007)(5) $ 7,971 Affiliate......................... 2,551 975 -- (256)(2) 3,270 ----------- ----------- ----------- ------------ ---------- Total.......................... $ 6,547 $ 8,232 $ 725 $ (4,263) $ 11,241 =========== =========== =========== ============ ========== Insurance loss reserves.................. $ 9,828 $ 39 $ -- $ (1,446)(3) $ 8,421 =========== =========== =========== ============ ==========
(1) Recoveries of accounts previously determined to be uncollectible. (2) Accounts determined to be uncollectible. (3) Payment of claims and/or reclassification to "Accounts payable". (4) Consists of $4,125,000 attributable to the sale of the Textile Business (see Note 193 to the consolidated financial statements included elsewhere herein) and $1,808,000 of accounts determined to be uncollectible. (5) Consists of $1,179,000 attributable to the deconsolidation of National Propane (see Note 7 to the consolidated financial statements included elsewhere herein) and $2,828,000 of accounts determined to be uncollectible.
SCHEDULE V TRIARC COMPANIES, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS RESERVES CLAIMS AND CLAIM RESERVES ADJUSTMENT FOR UNPAID EXPENSES INCURREDADJUSTMENT PAID CLAIMS AND RELATED TOEXPENSES INCURRED CLAIMS AND CLAIM NET ----------RELATED TO CLAIM ADJUSTMENT EARNED INVESTMENT CURRENT PRIOR ADJUSTMENT PREMIUMS AFFILIATION WITH REGISTRANT EXPENSES (1) PREMIUMS INCOME YEAR YEARS EXPENSES WRITTEN - --------------------------- ------------ -------- ------ ---- ----- -------- ------- (IN THOUSANDS) Consolidated property-casualty entities: Consolidated property-casualty entities: Year ended December 31, 1994.........1995........................................ $ 10,8279,398 $ 120486 $ 529564 $ 48 $ 386 $ 2,880 $ 120 ========= ======== ========= ======== ========= ========= =========1,539 =========== ========== =========== ========== Year ended December 31, 1995.........1996........................................ $ 9,3989,828 $ --505 $ 486763 $ 34 $ 530 $ 1,540 $ -- ========= ======== ========= ======== ========= ========= =========333 =========== ========== =========== ========== Year ended December 31, 1996.........28, 1997........................................ $ 9,8288,421 $ --666 $ 50539 $ 48 $ 715 $ 333 $ -- ========= ======== ========= ======== ========= ========= =========
1,446 =========== ========== =========== ========== (1) Does not include claims losses of $1,610,000, $1,343,000, and $835,000 and $699,000 at December 31, 1994, 1995, and 1996 and December 28, 1997, respectively, which have been classified as "Accounts payable". EXHIBIT Exhibit 21.1 TRIARC COMPANIES, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT MARCH 31, 1997 The subsidiaries of Triarc Companies, Inc., their respective states or jurisdictions of organization and the names under which such subsidiaries do business are as follows:15, 1998 STATE OR JURISDICTION UNDER WHICH ORGANIZED Triarc Beverage Holdings Corp............................. Delaware Mistic Brands, Inc.................................... Delaware Snapple Beverage Corp................................. Delaware Snapple International Corp........................ Delaware Snapple Beverages de Mexico, S.A. de C.V.(1)... Mexico Snapple Beverage (UK) Holdings Limited......... United Kingdom Snapple Beverage (Europe) Limited.......... United Kingdom Snapple Europe Limited............................ United Kingdom Snapple Canada, Ltd............................... Canada Snapple Worldwide Corp............................ Delaware Southwest Snapple Corp............................ Delaware Southwest Snapple Holdings Corp................... Delaware Snapple Finance Corp.............................. Delaware Pacific Snapple Distributors, Inc................. Delaware Mr. Natural, Inc.................................. Delaware Snapple Caribbean Corp............................ Delaware CFC Holdings Corp.(2)..................................... Florida Chesapeake Insurance Company Limited(3)............... Bermuda RC/Arby's Corporation (formerly Royal Crown Corporation).......................................... Delaware RCAC Asset Management, Inc........................ Delaware Arby's, Inc....................................... Delaware Arby's Building and Construction Co............ Georgia Arby's of Canada Inc........................... Canada Daddy-O's Express, Inc......................... Georgia Arby's (Hong Kong) Limited..................... Hong Kong Arby's De Mexico S.A. de CV.................... Mexico Arby's Immobiliara......................... Mexico Arby's Servicios........................... Mexico TJ Holding Company, Inc........................ Delaware Arby's Restaurants, Limited....................... United Kingdom Arby's Limited.................................... United Kingdom Arby's Restaurant Construction Company............ Delaware Arby's Restaurant Development Corporation......... Delaware Arby's Restaurant Holding Company................. Delaware Arby's Restaurants, Inc........................... Delaware Arby's Restaurant Operations Company.............. Delaware RC-8, Inc. (formerly Tyndale, Inc.)............... Indiana RC-11, Inc. (formerly National Picture & Frame Co.)...................................... Mississippi Promociones Corona Real, S.A. de C.V.............. Mexico TRIARC COMPANIES, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT MARCH 15, 1998 STATE OR JURISDICTION UNDER WHICH ORGANIZED RC Leasing, Inc................................... Delaware Royal Crown Nederland B.V......................... Netherland RC Cola Canada Limited (formerly Nehi Canada Limited)........................................ Canada Royal Crown Bottling Company of Texas (formerly Royal Crown Bottlers of Texas, Inc.).............. Delaware Royal Crown Company, Inc. (formerly Royal Crown Cola Co.)....................................... Delaware RC Services Limited(4)......................... Ireland Retailer Concentrate Products, Inc............. Florida TriBev Corporation............................. Delaware Madison West Associates Corp.............................. Delaware Cable Car Beverage Corporation............................ Delaware Old San Francisco Seltzer, Inc........................ Colorado Fountain Classics, Inc................................ Colorado National Propane Corporation*....................................Corporation (5).......................... Delaware National Propane SGP, Inc....................................Inc............................. Delaware National Propane Partners, L.P.**........................ (6)............... Delaware National Propane, L.P.**..............................(7)...................... Delaware National Sales & Service, Inc.....................Inc.............. Delaware Carib Gas Corporation of St. Croix (formerly LP Gas Corporation of St. Croix)......................... Delaware Carib Gas Corporation of St. Thomas (formerly LP Gas Corporation of St.Thomas)......................... Delaware NPC Leasing Corp.................................................Corp.......................................... New York Citrus Acquisition Corporation...................................Corporation............................ Florida Adams Packing Association, Inc. (formerly New Adams, Inc.)................................................................................... Delaware Groves Company, Inc. (formerly New Texsun, Inc.)................... Delaware Home Furnishing Acquisition Corporation..........................Corporation................... Delaware 1725 Contra Costa Property, Inc. (formerly Couroc of Monterey, Inc.)....................................................................... Delaware Hoyne Industries, Inc. (formerly New Hoyne, Inc.)................. Delaware Hoyne Industries of Canada Limited........................... Canada Hoyne International (U.K.), Inc..............................Inc....................... Delaware GS Holdings Inc.................................................I, Inc........................................ Delaware GVT Holdings, Inc.***........................................ (8)................................ Delaware TXL Corp. ...............................................(formerly Graniteville Company) ......... South Carolina TXL International Sales, Inc.............................Inc................... South Carolina GTXL, Inc................................................Inc...................................... Delaware TXL Holdings, Inc........................................Inc.............................. Delaware C.H. Patrick & Co., Inc............................... South Carolina Southeastern Public Service Company..........................Company................... Delaware Crystal Ice & Cold Storage, Inc.......................Inc................ Delaware Southeastern Gas Company..............................Company....................... Delaware GeotechGeotec Engineers, Inc............................Inc...................... West Virginia Triarc Holdings 1, Inc...........................................Inc.................................... Delaware Triarc Holdings 2, Inc...........................................Inc.................................... Delaware Triarc Development Corporation...................................Corporation............................ Delaware Triarc Acquisition Corporation...................................Corporation............................ Delaware Mistic Brands, Inc............................................... Delaware TRIARC COMPANIES, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT MARCH 31, 1997 STATE OR JURISDICTION UNDER WHICH ORGANIZED- ------------- (1) 99% owned by Snapple International Corp. and 1% owned by Snapple Worldwide Corp. (2) 94.6% owned by Triarc Companies, Inc. and 5.4% owned by Southeastern Public Service Company. (3) Common Stock 100% owned by CFC Holdings Corp.****........................................... Florida Chesapeake Insurance Company Limited*****.................... BermudaHoldings; Preferred Stock is owned 38.5% by RC/Arby's Corporation, (formerly Royal Crown Corporation)................................................. Delaware RCAC Asset Management, Inc............................... Delaware Arby's, Inc.............................................. Delaware Arby's Building23% by Southeastern Public Service Company and Construction Co................... Georgia Arby's Canada Inc..................................... Canada Daddy-O's Express, Inc................................ Georgia Arby's (Hong Kong) Limited............................ Hong Kong Arby's De Mexico S.A. de CV........................... Mexico Arby's Immobiliara................................ Mexico Arby's Servicios.................................. Mexico TJ Holding Company, Inc............................... Delaware Arby's Restaurants, Limited.............................. United Kingdom Arby's Limited........................................... United Kingdom Arby's Restaurant Construction Company................... Delaware Arby's Restaurant Development Corporation................ Delaware Arby's Restaurant Holding Company........................ Delaware Arby's Restaurants, Inc.................................. Delaware Arby's Restaurant Operations Company..................... Delaware RC-8, Inc. (formerly Tyndale, Inc.)...................... Indiana RC-11, Inc. (formerly National Picture & Frame Co.)............................................. Mississippi Promociones Corona Real, S.A. de C.V..................... Mexico RC Leasing, Inc.......................................... Delaware Royal Crown Nederland B.V................................ Netherland RC Cola Canada Limited (formerly Nehi Canada Limited)............................................... Canada Royal Crown Bottling Company of Texas (formerly Royal Crown Bottlers of Texas, Inc.)..................... Delaware38.5% by TXL Corp. (4) 99% owned by Royal Crown Company, Inc. (formerly Royal Crown Cola Co.).............................................. Delaware RC Services Limited******............................. Ireland Retailer Concentrate Products, Inc.................... Florida TriBev Corporation.................................... Delaware - ------------- *and 1% owned by RC/Arby's Corporation. (5) 24.3% owned by Southeastern Public Service Company and 75.7% owned by Triarc Companies, Inc. **(6) National Propane Corporation is the managing general partner of both partnerships and holds a combined 2%. unsubordinated general partner interest therein and a 38.7% subordinated general partner interest in National Propane Partners, L.P. National Propane SGP, Inc. is the special general partner of both partnerships and holds a combined 2% unsubordinated general partner interest therein. The public owns a 57.3% limited partner interest in National Propane Partners, L.P. National Propane Partners, L.P. is the sole limited partner of National Propane, L.P. ***(7) 50% owned by GS Holdings I, Inc. and 50% owned by Southeastern Public Service Company. **** 94.6% owned by Triarc Companies, Inc. and 5.4% owned by Southeastern Public Service Company. ***** Common Stock 100% owned by CFC Holdings; Preferred Stock is owned 38.5% by RC/Arby's Corporation, 23% by Southeastern Public Service Company and 38.5% by TXL Corp. ****** 99% owned by Royal Crown Company, Inc. and 1% owned by RC/Arby's Corporation. EXHIBITExhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No.Nos. 33-60551 of Triarc Companies, Inc.and 333-44711 on Form S-8 of our reportsreport dated March 31, 1997 (which express an unqualified opinion and includes an explanatory paragraph10, 1998 (March 25, 1998 as to a change in the method of accounting for impairment of long-lived assets and for long-lived assets to be disposed of)Note 8), appearing in thisthe Annual Report on Form 10-K of Triarc Companies, Inc. for the year ended December 31, 1996.28, 1997. DELOITTE & TOUCHE LLP New York, New York March 31, 1997 26, 1998