UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2004
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)
(212) 451-3000
(Registrant's telephone number, including area code)
-----------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(X) Yes ( ) No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
(X) Yes ( ) No
There were 23,140,429 the registrant's Class A Common Stock and 41,048,677
the registrant's Class B Common Stock outstanding as of July 30, 2004.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 28, June 27,
2003 (A) 2004
------- ----
(In Thousands)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.........................................................$ 560,510 $ 493,993
Short-term investments............................................................ 173,127 205,148
Receivables ..................................................................... 13,070 22,391
Inventories....................................................................... 2,416 2,484
Deferred income tax benefit....................................................... 11,284 11,751
Prepaid expenses, restricted cash and other current assets........................ 12,575 6,934
----------- -----------
Total current assets........................................................... 772,982 742,701
Restricted cash equivalents............................................................ 32,467 32,462
Investments............................................................................ 37,363 39,160
Properties............................................................................. 106,231 102,273
Goodwill .............................................................................. 64,153 64,153
Other intangible assets................................................................ 8,115 7,838
Deferred costs and other assets........................................................ 21,654 20,937
----------- -----------
$ 1,042,965 $ 1,009,524
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................................$ 35,637 $ 36,296
Accounts payable ................................................................. 16,314 13,843
Accrued expenses and other current liabilities.................................... 86,462 78,650
Current liabilities relating to discontinued operations........................... 24,004 23,707
----------- -----------
Total current liabilities...................................................... 162,417 152,496
Long-term debt......................................................................... 483,280 465,278
Deferred compensation payable to related parties....................................... 29,144 30,694
Deferred income taxes.................................................................. 48,697 45,048
Other liabilities, deferred income and minority interests in a consolidated subsidiary. 31,821 31,305
Stockholders' equity:
Class A common stock.............................................................. 2,955 2,955
Class B common stock.............................................................. 5,910 5,910
Additional paid-in capital........................................................ 129,572 131,754
Retained earnings................................................................. 341,642 328,314
Common stock held in treasury..................................................... (203,168) (227,463)
Deferred compensation payable in common stock..................................... 10,160 43,553
Accumulated other comprehensive income (deficit).................................. 535 (320)
----------- -----------
Total stockholders' equity..................................................... 287,606 284,703
----------- -----------
$ 1,042,965 $ 1,009,524
=========== ===========
(A) Derived from the audited consolidated financial statements as of December 28, 2003.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
------------------------ ------------------------
June 29, June 27, June 29, June 27,
2003 2004 2003 2004
---- ---- ---- ----
(In Thousands Except Per Share Amounts)
(Unaudited)
Revenues:
Net sales...............................................$ 51,398 $ 52,661 $ 99,895 $ 99,385
Royalties and franchise and related fees................ 23,402 24,804 44,639 47,271
--------- --------- -------- ---------
74,800 77,465 144,534 146,656
--------- --------- -------- ---------
Costs and expenses:
Cost of sales, excluding depreciation and amortization.. 37,589 41,604 73,844 78,989
Advertising and selling................................. 4,043 4,629 7,143 8,796
General and administrative.............................. 23,899 24,472 47,279 48,782
Depreciation and amortization, excluding amortization
of deferred financing costs........................... 3,414 3,464 6,797 6,815
--------- --------- -------- ---------
68,945 74,169 135,063 143,382
--------- --------- -------- ---------
Operating profit................................. 5,855 3,296 9,471 3,274
Interest expense............................................ (9,367) (9,004) (17,825) (18,638)
Insurance expense related to long-term debt................. (1,046) (958) (2,138) (1,949)
Investment income, net...................................... 3,729 4,645 6,870 11,169
Costs related to proposed business acquisitions not
consummated............................................. (930) (14) (930) (767)
Other income, net........................................... 418 799 975 1,528
--------- --------- -------- ---------
Loss before income taxes and minority
interests.................................... (1,341) (1,236) (3,577) (5,383)
(Provision for) benefit from income taxes................... (195) (50) 67 941
Minority interests in loss of a consolidated subsidiary..... 112 10 112 10
--------- --------- -------- ---------
Net loss.........................................$ (1,424) $ (1,276) $ (3,398) $ (4,432)
========= ========= ======== =========
Basic and diluted loss per share:
Class A common stock...................................$ (.02) $ (.02) $ (.06) $ (.07)
========= ========= ======== =========
Class B common stock...................................$ (.02) $ (.02) $ (.06) $ (.07)
========= ========= ======== =========
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
-------------------------------
June 29, June 27,
2003 2004
---- ----
(In Thousands)
(Unaudited)
Cash flows from continuing operating activities:
Net loss..............................................................................$ (3,398) $ (4,432)
Adjustments to reconcile net loss to net cash provided by (used in)
continuing operating activities:
Operating investment adjustments, net (see below).............................. (37,344) 21,768
Depreciation and amortization of properties.................................... 6,157 6,172
Amortization of other intangible assets and certain other items................ 640 643
Amortization of deferred financing costs and original issue discount........... 1,003 1,294
Deferred compensation provision ............................................... 1,959 1,004
Deferred income tax benefit.................................................... (440) (1,774)
Equity in earnings of investee................................................. (799) (1,132)
Unfavorable lease liability recognized......................................... (770) (823)
Deferred vendor incentive recognized........................................... (941) (438)
Minority interest in loss of a consolidated subsidiary......................... (112) (10)
Collection of non-current receivables.......................................... 1,667 378
Other, net..................................................................... (409) 422
Changes in operating assets and liabilities:
Decrease (increase) in receivables......................................... 7 (904)
Increase in inventories.................................................... (74) (68)
Increase in prepaid expenses and other current assets...................... (928) (1,626)
Decrease in accounts payable and accrued expenses and other
current liabilities..................................................... (10,334) (10,250)
------------- -----------
Net cash provided by (used in) continuing operating activities.......... (44,116) 10,224
------------- -----------
Cash flows from continuing investing activities:
Investment activities, net (see below)................................................ 39,797 (55,025)
Capital expenditures.................................................................. (1,870) (2,794)
Costs of business acquisition subsequently consummated................................ - (431)
Adjustment to cost of business acquisition............................................ (100) -
Other, net............................................................................ (201) 79
------------ -----------
Net cash provided by (used in) continuing investing activities.......... 37,626 (58,171)
------------ -----------
Cash flows from continuing financing activities:
Repayments of long-term debt.......................................................... (26,343) (17,345)
Issuance of long-term debt............................................................ 175,000 -
Dividends paid ...................................................................... -- (8,896)
Repurchases of common stock for treasury.............................................. (41,700) (1,381)
Exercises of stock options............................................................ 6,333 9,308
Deferred financing costs.............................................................. (6,525) -
Transfers from restricted cash equivalents collateralizing long-term debt............. 94 41
------------ -----------
Net cash provided by (used in) continuing financing activities.......... 106,859 (18,273)
------------ -----------
Net cash provided by (used in) continuing operations.................................... 100,369 (66,220)
Net cash provided by (used in) discontinued operations.................................. 4,959 (297)
------------ -----------
Net increase (decrease) in cash and cash equivalents.................................... 105,328 (66,517)
Cash and cash equivalents at beginning of period........................................ 456,388 560,510
------------ -----------
Cash and cash equivalents at end of period..............................................$ 561,716 $ 493,993
============ ===========
Detail of cash flows related to investments:
Operating investment adjustments, net:
Proceeds from sales of trading securities........................................$ 113,226 $ 139,255
Cost of trading securities purchased............................................. (148,567) (114,384)
Net recognized losses (gains) from trading securities and short
positions in securities....................................................... (141) 510
Other net recognized gains, net of other than temporary losses .................. (1,914) (2,112)
Net (accretion of discount) amortization of premium on debt securities........... 52 (1,501)
------------ -----------
$ (37,344) $ 21,768
============ ===========
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended
--------------------------------
June 29, June 27,
2003 2004
---- ----
(In Thousands)
(Unaudited)
Investing investment activities, net:
Proceeds from sales and maturities of available-for-sale securities and other
investments.........................................................................$ 98,089 $ 98,790
Cost of available-for-sale securities and other investments purchased................. (64,583) (162,902)
Proceeds of securities sold short..................................................... 19,346 19,539
Payments to cover short positions in securities....................................... (13,907) (17,719)
Decrease in restricted cash collateralizing obligations for short positions
in securities....................................................................... 852 7,267
------------ -----------
$ 39,797 $ (55,025)
============ ===========
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 27, 2004
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Triarc Companies, Inc. ("Triarc" and, together with its subsidiaries, the
"Company") have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC") and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America. In the opinion of the Company, however, the accompanying condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of December 28, 2003 and June 27, 2004, its results of
operations for the three-month and six-month periods ended June 29, 2003 and
June 27, 2004 and its cash flows for the six-month periods ended June 29, 2003
and June 27, 2004 (see below). This information should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2003
(the "Form 10-K").
The Company reports on a fiscal year consisting of 52 or 53 weeks ending on
the Sunday closest to December 31. The Company's first half of fiscal 2003
commenced on December 30, 2002 and ended on June 29, 2003, with its second
quarter commencing on March 31, 2003. The Company's first half of fiscal 2004
commenced on December 29, 2003 and ended on June 27, 2004, with its second
quarter commencing on March 29, 2004. The periods from March 31, 2003 to June
29, 2003 and December 30, 2002 to June 29, 2003 are referred to herein as the
three-month and six-month periods ended June 29, 2003, respectively. The periods
from March 29, 2004 to June 27, 2004 and December 29, 2003 to June 27, 2004 are
referred to herein as the three-month and six-month periods ended June 27, 2004,
respectively. Each quarter contained 13 weeks and each half contained 26 weeks.
Loss per share amounts in the accompanying condensed consolidated financial
statements and notes thereto for the three and six-month periods ended June 29,
2003 have been retroactively adjusted for the effect of a stock distribution
(the "Stock Distribution") during the third quarter of 2003 of two shares of the
Company's class B common stock, series 1 (the "Class B Common Stock" or "Class B
Common Shares") for each share of the Company's class A common stock (the "Class
A Common Stock" or "Class A Common Shares") as if the Stock Distribution had
occurred at the beginning of 2003 as described in more detail in Note 4 to the
consolidated financial statements contained in the Form 10-K. Certain amounts
included in the accompanying condensed consolidated financial statements have
been reclassified to conform with the current period's presentation.
(2) Stock-Based Compensation
The Company maintains several equity plans (the "Equity Plans") which
collectively provide or provided for the grant of stock options, tandem stock
appreciation rights and restricted shares of the Company's common stock to
certain officers, other key employees, non-employee directors and consultants
and shares of the Company's common stock pursuant to automatic grants in lieu of
annual retainer or meeting attendance fees to non-employee directors.
The Company measures compensation costs for its employee stock-based
compensation under the intrinsic value method rather than the fair value method.
Accordingly, compensation cost for the Company's stock options is measured as
the excess, if any, of the market price of the Company's Class A Common Stock
and/or Class B Common Stock, as applicable, at the date of grant, or at any
subsequent measurement date as a result of certain types of modifications to the
terms of its stock options, over the amount an employee must pay to acquire the
stock. Such amounts are amortized as compensation expense over the vesting
period of the related stock options. Any compensation cost is recognized as
expense only to the extent it exceeds compensation expense previously recognized
for such stock options.
A summary of the effect on net loss and loss per share in each period
presented as if the fair value method had been applied to all outstanding and
unvested stock options that were granted commencing January 1, 1995 is as
follows (in thousands except per share data):
Three Months Ended Six Months Ended
------------------------ --------------------------
June 29, June 27, June 29, June 27,
2003 2004 2003 2004
---- ---- ---- ----
Net loss, as reported..................................................$ (1,424) $ (1,276) $ (3,398) $ (4,432)
Reversal of stock-based employee compensation expense
determined under the intrinsic value method included
in reported net loss, net of related income taxes.................... 49 157 49 157
Recognition of total stock-based employee compensation
expense determined under the fair value method, net
of related income taxes.............................................. (1,413) (659) (2,683) (1,177)
---------- --------- --------- ----------
Net loss, as adjusted..................................................$ (2,788) $ (1,778) $ (6,032) $ (5,452)
========== ========= ========= ==========
Basic and diluted loss per share of Class A Common Stock and Class B
Common Stock:
As reported.......................................................$ (.02) $ (.02) $ (.06) $ (.07)
As adjusted....................................................... (.05) (.03) (.10) (.09)
Stock options granted prior to the Stock Distribution, as adjusted for the
Stock Distribution, are each exercisable for one share of Class A Common Stock
and two shares of Class B Common Stock (the "Package Options"). Stock options
granted subsequent to the Stock Distribution are exercisable for one share of
Class A Common Stock (the "Class A Options") or one share of Class B Common
Stock (the "Class B Options"). The fair value of these stock options granted
under the Equity Plans on the dates of grant were estimated using the
Black-Scholes option pricing model (the "Black-Scholes Model") with the
following weighted average assumptions for options granted during the six-month
periods ended June 29, 2003 and June 27, 2004:
Six Months Ended
------------------------------------------
June 29, 2003 June 27, 2004
------------------ ------------------
Package Class A Class B
Options Options Options
------- -------- -------
Risk-free interest rate....................................... 2.90 % 3.96 % 3.87 %
Expected option life in years................................. 7 7 7
Expected volatility........................................... 17.5 % 19.6 % 32.7 %
Dividend yield................................................ none(a) 2.41 % 2.63 %
- ------------------
(a) The grants of Package Options occurred prior to the commencement in the
third quarter of 2003 of the payment of quarterly cash dividends.
The Black-Scholes Model has limitations on its effectiveness including that
it was developed for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable and that the model
requires the use of highly subjective assumptions including expected stock price
volatility. The Company's stock-based awards to employees have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate.
Therefore, in the opinion of the Company, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock-based awards to
employees.
During the six-month period ended June 29, 2003, the Company granted 24,000
Package Options and during the six-month period ended June 27, 2004, the Company
granted 43,000 Class A Options and 239,000 Class B Options under the Equity
Plans at exercise prices equal to the market price of the stock on the grant
dates. The weighted average grant date fair value of each of these stock
options, using the Black-Scholes Model with the assumptions set forth above,
were $7.56, $2.23 and $3.33, respectively.
(3) Comprehensive Loss
The following is a summary of the components of comprehensive loss, net of
income taxes (in thousands):
Three Months Ended Six Months Ended
------------------------ ---------------------------
June 29, June 27, June 29, June 27,
2003 2004 2003 2004
---- ---- ---- ----
Net loss.......................................................$ (1,424) $ (1,276) $ (3,398) $ (4,432)
Unrealized losses on available-for sale securities
(see below).................................................. (972) (1,398) (903) (846)
Net change in currency translation adjustment.................. 6 (6) 12 (9)
---------- ---------- ---------- -----------
Comprehensive loss.............................................$ (2,390) $ (2,680) $ (4,289) $ (5,287)
========== ========= ========== ==========
The following is a summary of the components of the unrealized losses on
available-for-sale securities included in other comprehensive loss (in
thousands):
Three Months Ended Six Months Ended
------------------------ ---------------------------
June 29, June 27, June 29, June 27,
2003 2004 2003 2004
---- ---- ---- ----
Unrealized holding losses arising during the period............$ (1,444) $ (2,027) $ (1,590) $ (1,417)
Reclassification of prior period net unrealized holding
(gains) losses included in net loss.......................... (84) (146) 178 104
---------- ---------- ---------- ----------
(1,528) (2,173) (1,412) (1,313)
Equity in change in unrealized gain on a retained interest..... (9) - (16) (2)
Equity in change in unrealized gain on available-for-sale
securities................................................... (5) 1 (3) 1
Income tax benefit............................................. 570 774 528 468
---------- --------- ---------- ----------
$ (972) $ (1,398) $ (903) $ (846)
========== ========= ========== ==========
(4) Loss Per Share
Basic and diluted loss per share has been computed by dividing the
allocated loss for the Class A Common Shares and Class B Common Shares by the
weighted average number of shares of each class. Net loss for the three and
six-month periods ended June 29, 2003 and June 27, 2004 was allocated equally
among each share of Class A Common Stock and Class B Common Stock. The weighted
average number of shares was adjusted for the Stock Distribution and includes
the effect commencing April 23, 2003 of the shares held in the additional
deferred compensation trusts which are not reported as outstanding shares for
financial statement purposes (see Note 9).
Diluted loss per share for the three and six-month periods ended June 29,
2003 and June 27, 2004 was the same as basic loss per share for each of the
Class A and Class B Common Shares since the Company reported a net loss for each
of these periods and, therefore, the effect of all potentially dilutive
securities on the loss per share would have been antidilutive.
The only remaining Company securities as of June 27, 2004 that could dilute
basic income per share for periods subsequent to June 27, 2004 are (1)
outstanding stock options which are exercisable into 4,307,000 shares and
8,972,000 shares of the Company's Class A Common Stock and Class B Common Stock,
respectively, and (2) $175,000,000 of 5% convertible notes which are convertible
into 4,375,000 shares and 8,750,000 shares of the Company's Class A Common Stock
and Class B Common Stock, respectively.
The number of shares used to calculate basic and diluted loss per share
were as follows (in thousands):
Three Months Ended Six Months Ended
------------------------ ---------------------------
June 29, June 27, June 29, June 27,
2003 2004 2003 2004
---- ---- ---- ----
Class A Shares:
Weighted average shares
Outstanding....................................... 19,905 21,153 20,159 20,385
Held in deferred compensation trusts.............. 270 1,166 135 771
---------- --------- ---------- ----------
Basic and diluted shares.............................. 20,175 22,319 20,294 21,156
========== ========= ========== ==========
Class B Shares (adjusted for the Stock Distribution):
Weighted average shares
Outstanding....................................... 39,810 38,343 40,318 38,872
Held in deferred compensation trusts.............. 540 2,332 270 1,543
---------- --------- ---------- ----------
Basic and diluted shares.............................. 40,350 40,675 40,588 40,415
========== ========= ========== ==========
(5) Capital Stock
In June 2004 the Company increased its authorized shares of Class B Common
Stock from 100,000,000 shares to 150,000,000 shares.
(6) Income Taxes
The Company's Federal income tax returns for the years ended December 31,
2000 and December 30, 2001 are in the process of an Internal Revenue Service
examination. The Company has not received any notices of proposed adjustments.
However, should any income taxes or interest be assessed as a result of this
examination or any state examination for periods through the October 25, 2000
date of the sale of the Company's former beverage businesses (see Note 7), the
purchaser has agreed to pay up to $4,984,000 of any resulting income taxes or
associated interest relating to the operations of those former beverage
businesses. Management of the Company believes that adequate aggregate
provisions have been made in prior periods for any liabilities, including
interest that may result from the completion of this examination.
(7) Discontinued Operations
Prior to 2003 the Company sold (1) the stock of the companies comprising
the Company's former premium beverage and soft drink concentrate business
segments (the "Beverage Discontinued Operations"), (2) the stock or the
principal assets of the companies comprising the former utility and municipal
services and refrigeration business segments (the "SEPSCO Discontinued
Operations") of SEPSCO, LLC, a subsidiary of the Company, and (3) substantially
all of its interests in a partnership and a subpartnership comprising the
Company's former propane business segment (the "Propane Discontinued
Operations"). There remain certain obligations not transferred to the buyers of
the Beverage, SEPSCO and Propane Discontinued Operations to be liquidated. The
Beverage, SEPSCO and Propane Discontinued Operations have been accounted for as
discontinued operations by the Company.
Current liabilities relating to the discontinued operations consisted of
the following (in thousands):
December 28, June 27,
2003 2004
---- ----
Accrued expenses, including accrued income taxes, of the Beverage
Discontinued Operations....................................................$ 22,460 $ 22,283
Liabilities relating to the SEPSCO and the Propane Discontinued Operations... 1,544 1,424
----------- -----------
$ 24,004 $ 23,707
=========== ===========
The Company expects that the liquidation of these remaining liabilities
associated with all of these discontinued operations will not have any material
adverse impact on its financial position or results of operations. To the extent
any estimated amounts included in the current liabilities relating to the
discontinued operations are determined to be in excess of the requirement to
liquidate the associated liability, any such excess will be released at that
time as a component of gain or loss on disposal of discontinued operations.
(8) Retirement Benefit Plans
The Company maintains two defined benefit plans, the benefits under which
were frozen in 1992. After recognizing a curtailment gain upon freezing the
benefits, the Company has no unrecognized prior service cost related to these
plans. The measurement date used by the Company in determining the components of
pension expense is December 31.
The components of the net periodic pension cost incurred by the Company
with respect to these plans are as follows (in thousands):
Three Months Ended Six Months Ended
------------------------ ---------------------------
June 29, June 27, June 29, June 27,
2003 2004 2003 2004
---- ---- ---- ----
Service cost (consisting entirely of plan expenses)......$ 21 $ 23 $ 42 $ 45
Interest cost............................................ 62 60 124 121
Expected return on the plans' assets..................... (66) (71) (132) (142)
Amortization of unrecognized net loss.................... 17 8 34 16
---------- --------- ---------- ----------
Net periodic pension cost..............................$ 34 $ 20 $ 68 $ 40
========== ========= ========== ==========
The Company currently expects to contribute an aggregate $264,000 to its
two defined benefit plans for all of 2004, of which $94,000 was contributed
during the six-month period ended June 27, 2004.
(9) Transactions with Related Parties
Prior to 2003 the Company provided incentive compensation of $22,500,000,
in the aggregate, to the Chairman and Chief Executive Officer and President and
Chief Operating Officer of the Company (the "Executives") which was invested in
two deferred compensation trusts (the "Deferred Compensation Trusts") for their
benefit. Deferred compensation expense of $1,959,000 and $1,004,000 was
recognized in the six-month periods ended June 29, 2003 and June 27, 2004,
respectively, for increases in the fair value of the investments in the Deferred
Compensation Trusts. Under accounting principles generally accepted in the
United States of America, the Company is permitted to recognize investment
income for any interest or dividend income on investments in the Deferred
Compensation Trusts and realized gains on sales of investments in the Deferred
Compensation Trusts, but is unable to recognize any investment income for
unrealized increases in the fair value of the investments in the Deferred
Compensation Trusts because these investments are accounted for under the cost
method of accounting. Accordingly, the Company recognized net investment income
from investments in the Deferred Compensation Trusts of $376,000 and $662,000
during the six-month periods ended June 29, 2003 and June 27, 2004,
respectively. Such net investment income during the six-month periods ended June
29, 2003 and June 27, 2004 consisted of $452,000 and $828,000, respectively, of
realized gains from the sale of certain cost-method investments in the Deferred
Compensation Trusts, which included increases in value of $297,000 and $777,000
prior to the six-month periods ended June 29, 2003 and June 27, 2004,
respectively, and $5,000 and $6,000, respectively, of interest income less
$81,000 and $172,000, respectively, of investment fees. Recognized gains and
interest income are included in "Investment income, net" and deferred
compensation expense is included in "General and administrative" in the
accompanying condensed consolidated statements of operations. As of June 27,
2004, the obligation to the Executives related to the Deferred Compensation
Trusts is $30,147,000 and is included in "Deferred compensation payable to
related parties" in the accompanying condensed consolidated balance sheets. As
of June 27, 2004, the assets in the Deferred Compensation Trusts consisted of
$22,196,000 included in "Investments," which does not reflect the unrealized
increase in the fair value of the investments, and $1,931,000 included in "Cash
and cash equivalents" in the accompanying condensed consolidated balance sheet.
The cumulative disparity between (1) deferred compensation expense and net
recognized investment income and (2) the obligation to the Executives and the
carrying value of the assets in the Deferred Compensation Trusts will reverse in
future periods as either (1) additional investments in the Deferred Compensation
Trusts are sold and previously unrealized gains are recognized without any
offsetting increase in compensation expense or (2) the fair values of the
investments in the Deferred Compensation Trusts decrease resulting in the
recognition of a reversal of compensation expense without any offsetting losses
recognized in investment income.
During the six months ended June 27, 2004, the Executives exercised an
aggregate 2,850,000 Package Options (see Note 2) under the Company's Equity
Plans and paid the exercise prices utilizing shares of the Company's Class B
Common Stock received by the Executives in connection with the Stock
Distribution and effectively owned by the Executives for more than six months at
the date the options were exercised. These exercises resulted in aggregate
deferred gains to the Executives of $33,393,000, represented by an additional
1,047,450 shares of Class A Common Stock and 2,094,887 shares of Class B Common
Stock based on the market prices at the dates of exercise. Such shares are being
held in two additional deferred compensation trusts (the "Additional Deferred
Compensation Trusts"). The Executives had previously elected to defer the
receipt of the shares held in the Additional Deferred Compensation Trusts until
no earlier than January 2, 2005 and, during the 2004 second quarter, elected to
further defer the receipt of these shares until no earlier than January 2, 2008.
The resulting obligation of $33,393,000 is included in the "Deferred
compensation payable in common stock" component of "Stockholders' equity" in the
accompanying condensed consolidated balance sheet as of June 27, 2004. The cash
equivalents funded from cumulative dividends paid on shares held by the
Additional Deferred Compensation Trusts of $546,000 are included in "Cash and
cash equivalents," and the related obligation is included in "Deferred
compensation payable to related parties" in the accompanying condensed
consolidated balance sheet as of June 27, 2004.
The Company continues to have additional related party transactions of the
same nature and general magnitude as those described in Note 23 to the
consolidated financial statements contained in the Form 10-K.
(10) Legal and Environmental Matters
In 2001, a vacant property owned by Adams Packing Association, Inc.
("Adams"), an inactive subsidiary of the Company, was listed by the United
States Environmental Protection Agency on the Comprehensive Environmental
Response, Compensation and Liability Information System ("CERCLIS") list of
known or suspected contaminated sites. The CERCLIS listing appears to have been
based on an allegation that a former tenant of Adams conducted drum recycling
operations at the site from some time prior to 1971 until the late 1970's. The
business operations of Adams were sold in December 1992. In February 2003, Adams
and the Florida Department of Environmental Protection (the "FDEP") agreed to a
consent order that provided for development of a work plan for further
investigation of the site and limited remediation of the identified
contamination. In May 2003, the FDEP approved the work plan submitted by Adams'
environmental consultant and, as of June 27, 2004, the work at the site has been
completed. Adams submitted its contamination assessment report to the FDEP in
March 2004 and has recommended that no additional assessment and/or remedial
action be required and that the property be monitored in accordance with an
approved natural attenuation monitoring plan. The FDEP has agreed to a
monitoring plan, subject to a reevaluation of the need for additional assessment
at the end of two monitoring events. Based on an original cost estimate of
approximately $1,000,000 for completion of the work plan developed by Adams'
environmental consultant, and after taking into consideration various legal
defenses available to the Company, including Adams, Adams has provided for its
estimate of its liability for this matter, including related legal and
consulting fees prior to 2003.
In 1998, a number of class action lawsuits were filed on behalf of the
Company's stockholders. Each of these actions named the Company, the Executives
and other members of the Company's board of directors as defendants. In 1999,
certain plaintiffs in these actions filed a consolidated amended complaint
alleging that the Company's tender offer statement filed with the SEC in 1999,
pursuant to which the Company repurchased 3,805,015 shares of its Class A Common
Stock for $18.25 per share, failed to disclose material information. The amended
complaint seeks, among other relief, monetary damages in an unspecified amount.
In 2000, the plaintiffs agreed to stay this action pending determination of a
related stockholder action which was subsequently dismissed in October 2002 and
is no longer being appealed. Through June 27, 2004, no further action has
occurred with respect to the remaining class action lawsuit and such action
remains stayed.
In addition to the environmental matter and stockholder lawsuit described
above, the Company is involved in other litigation and claims incidental to its
current and prior businesses. Triarc and its subsidiaries have reserves for all
of their legal and environmental matters aggregating $2,000,000 as of June 27,
2004. Although the outcome of such matters cannot be predicted with certainty
and some of these matters may be disposed of unfavorably to the Company, based
on currently available information, including legal defenses available to Triarc
and/or its subsidiaries, and given the aforementioned reserves, the Company does
not believe that the outcome of such legal and environmental matters will have a
material adverse effect on its consolidated financial position or results of
operations.
(11) Subsequent Event
On July 22, 2004 the Company acquired (the "Acquisition") a 63.6% interest
(representing in excess of 90% of the outstanding voting interests) in Deerfield
& Company LLC ("Deerfield") for an aggregate $94,532,000, including estimated
expenses, of which $431,000 had been paid as of June 27, 2004. Deerfield,
through its subsidiary Deerfield Capital Management LLC, is an alternative asset
manager with over $8 billion of assets under management as of June 30, 2004. In
connection with the Acquisition, the Company also committed to invest
$100,000,000 to seed a new multi-strategy hedge fund to be managed by Deerfield.
In addition, the Company formed jointly with Deerfield an investment
advisor, TDM Advisors LLC ("TDM"), to manage the assets of Triarc Deerfield
Investment Corporation ("TDIC"), a newly-formed business development company. In
connection with the Acquisition, TDM became a wholly-owned subsidiary of
Deerfield and an indirect subsidiary of Triarc. TDIC has filed an amended
registration statement, with the SEC, which has not yet become effective,
relating to a proposed $500,000,000 initial public offering of its common stock
(the "TDIC IPO"). TDM has agreed to pay a one-time fee to the underwriters and
other fees related to the TDIC IPO, along with organization expenses,
aggregating between approximately $25,700,000 and $29,300,000. The Company will
fund amounts to TDM to permit TDM to pay such expenses. As a result of this
arrangement, the Company will record an expense of the approximate $25,700,000
to $29,300,000 without any minority interest benefit upon the closing of the
TDIC IPO. The TDIC IPO is currently expected to close during the second half of
2004; however, there can be no assurance that the TDIC IPO will be completed.
Commencing July 22, 2004, the Company will account for Deerfield as a
consolidated subsidiary with a minority interest. Summarized financial
information of Deerfield as of and for the year ended December 31, 2003 from its
audited consolidated financial statements and as of and for the six months ended
June 30, 2004 from its unaudited consolidated financial statements is as follows
(in thousands):
Six Months
Year Ended Ended
December 31, June 30,
2003 2004
---- ----
Total revenues...............................................................$ 36,888 $ 27,604
Net income (a) .............................................................. 11,113 12,815
Total assets................................................................. 37,423 32,533
Members' equity.............................................................. 11,963 9,115
- ------------------
(a) Does not reflect any provision for Federal income taxes since Deerfield is
a limited liability company and, accordingly, its income is includable in
the Federal income tax returns of its members.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction and Executive Overview
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of Triarc Companies, Inc., which we refer to as Triarc,
and its subsidiaries should be read in conjunction with the accompanying
condensed consolidated financial statements and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our Annual
Report on Form 10-K for the fiscal year ended December 28, 2003. Item 7 of our
2003 Form 10-K describes our contractual obligations and the application of our
critical accounting policies. There have been no significant changes as of June
27, 2004 pertaining to these topics. Certain statements we make under this Item
2 constitute "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. See "Special Note Regarding Forward-Looking
Statements and Projections" in "Part II - Other Information" preceding "Item 2."
We operated solely in the restaurant business through our franchised and
Company-owned Arby's restaurants throughout the periods presented. We derive
revenues in the form of royalties and franchise and related fees and from sales
by our Company-owned restaurants. While over 60% of our existing royalty
agreements and all of our new domestic royalty agreements provide for royalties
of 4% of franchise revenues, our average royalty rate was 3.5% for the six
months ended June 27, 2004. We also derived investment income throughout the
periods presented principally from the investment of our excess cash.
We intend to enhance the value of our company by increasing the revenues of
the Arby's restaurant business. In April 2004, we began adding new Arby's menu
items such as salads and low carbohydrate offerings and we are continuing to
focus on growing the number of restaurants in the Arby's system, additional new
menu offerings and implementing new operational initiatives targeted at service
levels and convenience.
As discussed below under "Liquidity and Capital Resources - Acquisitions
and Investments," we continue to evaluate our options for the use of our
significant cash, cash equivalent and investment position, including business
acquisitions, repurchases of our common shares and investments. In recent
periods we evaluated a number of business acquisition opportunities and we
intend to continue our disciplined search for potential business acquisitions
that we believe have the potential to create significant value to our
stockholders. In that regard, as discussed further in that section, in July 2004
we acquired a controlling interest in an alternative asset management company
for an aggregate $94.5 million, including expenses, and committed to invest
$100.0 million to seed a new multi-strategy hedge fund to be managed by that
company.
In recent periods our restaurant business has experienced the following
trends:
o Continued growth of food consumed away from home as a percentage
of total food-related spending;
o Increases in the cost and overall difficulty of developing new
units in many areas of the country, primarily as a result of
increased competition among quick service restaurant competitors
and other retail food operators for available development sites,
higher development costs associated with those sites and continued
tightening in the lending markets typically used to finance
new unit development;
o Increased price competition in the quick service restaurant
industry, particularly as evidenced by the value menu
concept which offers comparatively lower prices on some menu
items, the combination meals concept which offers a combination
meal at an aggregate price lower than the individual food and
beverage items, couponing and other price discounting;
o The continuing proliferation of competitors in the higher
end of the sandwich category, many of whom are competing with
Arby's in the offering of higher-priced sandwiches with
perceived higher levels of freshness, quality and customization;
o Competition from new product choices, offering a variety of
options which include low calorie, low carbohydrate and/or low
fat products as a result of a greater consumer awareness on
nutrition;
o Additional competitive pressures for prepared food purchases
from operators outside the quick service restaurant industry
such as deli sections and in-store cafes of several major grocery
store chains, convenience stores and casual dining outlets;
o The addition of selected higher-priced quality items to menus,
which appeal more to adult tastes;
o Increases in beef and other commodity costs resulting from reduced
supplies and increased demand; and
o Legislative activity on both the Federal and state level, which
could result in higher wages, fringe benefits, health care and
other insurance and packaging costs.
We experience the effects of these trends directly to the extent they
affect the operations of our Company-owned restaurants and indirectly to the
extent they affect sales by our franchisees and, accordingly, impact the
royalties and franchise fees we receive from them.
Presentation of Financial Information
We report on a fiscal year consisting of 52 or 53 weeks ending on the
Sunday closest to December 31. Our first half of fiscal 2003 commenced on
December 30, 2002 and ended on June 29, 2003, with our second quarter commencing
on March 31, 2003. Our first half of fiscal 2004 commenced on December 29, 2003
and ended on June 27, 2004, with our second quarter commencing on March 29,
2004. When we refer to the "three months ended June 29, 2003," or the "2003
second quarter," and the "six months ended June 29, 2003," or the "2003 first
half," we mean the periods from March 31, 2003 to June 29, 2003 and December 30,
2002 to June 29, 2003, respectively. When we refer to the "three months ended
June 27, 2004," or the "2004 second quarter," and the "six months ended June 27,
2004," or the "2004 first half," we mean the periods from March 29, 2004 to June
27, 2004 and December 29, 2003 to June 27, 2004, respectively. Each quarter
contained 13 weeks and each half contained 26 weeks. Our 2004 fiscal year will
end on January 2, 2005 and will contain 53 weeks compared with 52 weeks in 2003.
Accordingly, our results of operations for the second half of fiscal 2004 will
contain one more week than the comparable period of fiscal 2003. All references
to years, halves and quarters relate to fiscal periods rather than calendar
periods.
Results of Operations
Presented below is a table that summarizes our results of operations and
compares the amount and percent of the change between the (1) 2003 second
quarter and the 2004 second quarter and (2) the 2003 first half and the 2004
first half. We consider certain percentage changes between these periods to be
not measurable or not meaningful, and we refer to these as "n/m." The percentage
changes used in the following discussion have been rounded to the nearest whole
percent.
Three Months Ended Six Months Ended
--------------------- Change -------------------- Change
June 29, June 27, ---------------- June 29, June 27, ----------------
2003 2004 Amount Percent 2003 2004 Amount Percent
---- ---- ------ ------- ---- ---- ------ -------
(In Millions Except Percents)
Revenues:
Net sales.....................................$ 51.4 $ 52.7 $ 1.3 3 % $ 99.9 $ 99.4 $ (0.5) (1)%
Royalties and franchise and related fees...... 23.4 24.8 1.4 6 % 44.6 47.3 2.7 6 %
------ ------ ------ ------- ------- -------
74.8 77.5 2.7 4 % 144.5 146.7 2.2 2 %
------ ------ ------ ------- ------- -------
Costs and expenses
Cost of sales, excluding depreciation
and amortization............................ 37.6 41.6 4.0 11 % 73.8 79.0 5.2 7 %
Advertising and selling....................... 4.1 4.6 0.5 12 % 7.2 8.8 1.6 22 %
General and administrative ................... 23.9 24.5 0.6 3 % 47.3 48.8 1.5 3 %
Depreciation and amortization, excluding
amortization of deferred financing costs ... 3.4 3.5 0.1 3 % 6.8 6.8 - - %
------ ------ ------ ------- ------- -------
69.0 74.2 5.2 8 % 135.1 143.4 8.3 6 %
------ ------ ------ ------- ------- -------
Operating profit.......................... 5.8 3.3 (2.5) (43)% 9.4 3.3 (6.1) (65)%
Interest expense ................................ (9.3) (9.0) 0.3 3 % (17.8) (18.6) (0.8) (4)%
Insurance expense related to long-term debt...... (1.0) (1.0) - - % (2.1) (1.9) 0.2 10 %
Investment income, net........................... 3.7 4.7 1.0 27 % 6.9 11.2 4.3 62 %
Costs related to proposed business acquisitions
not consummated............................... (0.9) - 0.9 100 % (0.9) (0.8) 0.1 11 %
Other income, net................................ 0.4 0.8 0.4 100 % 0.9 1.5 0.6 67 %
------ ------ ------ ------- ------- -------
Loss before income taxes
and minority interests.................. (1.3) (1.2) 0.1 8 % (3.6) (5.3) (1.7) (47)%
(Provision for) benefit from income taxes........ (0.2) (0.1) 0.1 50 % 0.1 0.9 0.8 n/m
Minority interests in loss of a consolidated
subsidiary..................................... 0.1 - (0.1) (100)% 0.1 - (0.1) (100)%
------ ------ ------ ------- ------- -------
Net loss..................................$ (1.4) $ (1.3) $ 0.1 7 % $ (3.4) $ (4.4) $ (1.0) (29)%
====== ====== ====== ======= ======= =======
Three Months Ended June 27, 2004 Compared with Three Months Ended June 29, 2003
Net Sales
Our net sales, which were generated entirely from the Company-owned Arby's
restaurants, increased $1.3 million, or 3%, to $52.7 million for the three
months ended June 27, 2004 from $51.4 million for the three months ended June
29, 2003.
This increase reflects a $1.6 million improvement due to a 3% growth in
same-store sales of the Company-owned restaurants in the 2004 second quarter
compared with the weak same-store sales performance of the 2003 second quarter
slightly offset by a $0.3 million decrease due to the closing of three
underperforming Company-owned restaurants since June 29, 2003. When we refer to
same-store sales, we mean only sales of those restaurants which were open during
the same months in both of the comparable periods. The growth in same-store
sales resulted principally from a new line of salads and low carbohydrate menu
offerings introduced in April 2004. Same-store sales in the 2004 second quarter
also reflect increased price promotions compared with the 2003 second quarter,
although we are unable to determine if the incremental effect on sales volume of
the price promotions was sufficient to exceed or partially offset the
unfavorable effect on pricing.
We expect that same-store sales of the Company-owned restaurants for the
remainder of 2004 will exceed the weak same-store sales of the comparable period
of 2003. We expect that this sales growth will result from the new salad and low
carbohydrate menu offerings introduced during the 2004 second quarter,
additional salad, sandwich and wrap offerings introduced in July 2004 and new
operational initiatives targeted at service levels and convenience. We will
support the introduction of our new menu offerings with local and, as
appropriate, cable television advertising as well as various, although more
limited, price promotions. We presently expect to open one new Company-owned
restaurant during the remainder of 2004 and will continue to evaluate whether to
close any underperforming restaurants. Specifically, we have seven restaurants
where the leases for the facilities reach an expiration or renewal option date
during the remainder of 2004. We anticipate closing two of these restaurants and
we will review the performance of each of the other five restaurants in
connection with the decision to extend or renew the leases. However, we
currently anticipate the extension or renewal of most of these five leases.
Royalties and Franchise and Related Fees
Our royalties and franchise and related fees, which were generated entirely
from the franchised restaurants, increased $1.4 million, or 6%, to $24.8 million
for the three months ended June 27, 2004 from $23.4 million for the three months
ended June 29, 2003, reflecting a $1.6 million, or 7%, increase in royalties
slightly offset by a $0.2 million decrease in franchise and related fees. The
increase in royalties consisted of (1) a $0.9 million improvement resulting from
the royalties from the 114 restaurants opened since June 29, 2003, with
generally higher than average sales volumes, replacing the royalties from the 78
generally underperforming restaurants closed since June 29, 2003 and (2) a $0.7
million improvement due to a 4% increase in same-store sales of the franchised
restaurants in the 2004 second quarter compared with the weak same-store sales
performance of the 2003 second quarter. The decrease in franchise and related
fees principally reflects a $0.3 million decrease due to the opening of 12 fewer
franchised restaurants in the 2004 second quarter compared with the 2003 second
quarter.
We expect that same-store sales of the franchised restaurants during the
remainder of 2004 will continue to be higher than the comparable period of 2003
due to the new salad and low carbohydrate menu offerings already introduced
through June 27, 2004, additional salad, sandwich and wrap menu offerings
introduced in July 2004, new operational initiatives targeted at service levels
and convenience and weak same-store sales performance of the comparable period
of 2003.
Cost of Sales, Excluding Depreciation and Amortization
Our cost of sales, excluding depreciation and amortization, which resulted
entirely from the Company-owned Arby's restaurants, increased $4.0 million, or
11%, to $41.6 million, representing a gross margin of 21%, for the three months
ended June 27, 2004 from $37.6 million, representing a gross margin of 27%, for
the three months ended June 29, 2003. We define gross margin as the difference
between net sales and cost of sales divided by net sales. The decrease in gross
margins is due principally to (1) the new menu offerings which have relatively
higher costs than our other products and for which we experienced additional
costs during the roll-out period, (2) increased price discounting of some of our
other products primarily through increased use of coupons and (3) higher roast
beef costs, the largest component of our menu offerings, as well as higher costs
for other commodities, resulting from overall decreased supplies and increased
demand. We currently anticipate that gross margins for the second half of 2004
will be lower than the comparable period of 2003 due to the continuing effects
of the factors discussed in the preceding sentence. However, we currently
anticipate gross margins will begin improving in the 2004 second half compared
with the 2004 second quarter due to (1) initiatives to improve operating
efficiencies that have recently commenced which will be supported by the planned
implementation of new restaurant systems during the 2004 fourth quarter and (2)
pricing improvements from both price increases implemented early in the 2004
third quarter for some of our new and existing menu items and more limited price
promotions.
Our royalties and franchise fees have no associated cost of sales.
Advertising and Selling
Our advertising and selling expenses increased $0.5 million, or 12%, due to
(1) a $0.4 million increase in advertising expenses of our Company-owned
restaurants primarily for the new menu offerings introduced in April 2004 and
(2) a $0.4 million recovery of a fully-reserved franchisee note receivable in
the 2003 second quarter which did not recur in the 2004 second quarter, both
partially offset by a $0.3 million decrease due to the timing within each year
of our contractual commitment as the Arby's franchisor for advertising support,
as explained in more detail in the comparison of the six-month periods. We
contributed and expensed $0.7 million toward the Arby's national cable
television advertising campaign in the 2004 second quarter compared with $1.0
million in the 2003 second quarter.
General and Administrative
Our general and administrative expenses increased $0.6 million, or 3%,
principally reflecting (1) a $1.1 million increase in severance, recruiting and
relocation costs attributable to personnel changes and (2) a $0.6 million
increase in professional fees primarily in connection with our compliance with
the Sarbanes-Oxley Act of 2002, both partially offset by a $1.1 million decrease
in deferred compensation expense. Deferred compensation expense, which decreased
from $1.2 million for the three months ended June 29, 2003 to $0.1 million for
the three months ended June 27, 2004, represents the increase in the fair value
of investments in two deferred compensation trusts, which we refer to as the
Deferred Compensation Trusts, for the benefit of our Chairman and Chief
Executive Officer and President and Chief Operating Officer, whom we refer to as
the Executives, as explained in more detail below under "Loss Before Income
Taxes and Minority Interests."
Interest Expense
Interest expense decreased $0.3 million due to (1) a $0.9 million decrease
attributable to lower outstanding amounts of a majority of our long-term debt in
the 2004 second quarter, (2) a $0.4 million favorable effect of the change in
fair value of an interest rate swap agreement on one of our term loans in the
2004 second quarter and (3) $0.3 million of interest expense in the 2003 second
quarter relating to a post-closing sales price adjustment settled in December
2003 in connection with the October 2000 sale of our former beverage businesses.
These decreases were partially offset by a $1.3 million increase in interest
expense, including related amortization of deferred financing costs, due to the
full period effect in the 2004 second quarter of the $175.0 million principal
amount of our 5% convertible notes, which we refer to as the Convertible Notes,
issued on May 19, 2003.
Investment Income, Net
The following table summarizes and compares the major components of
investment income, net:
Three Months Ended
------------------------
June 29, June 27,
2003 2004 Change
---- ---- ------
(In Millions)
Interest income.............................................$ 2.0 $ 4.3 $ 2.3
Recognized net gains........................................ 1.5 2.6 1.1
Other than temporary unrealized losses ..................... (0.3) (2.8) (2.5)
Distributions, including dividends.......................... 0.6 0.8 0.2
Other....................................................... (0.1) (0.2) (0.1)
--------- -------- ---------
$ 3.7 $ 4.7 $ 1.0
========= ======== =========
The increase in interest income is due almost entirely to an increase in
average rates on our interest-bearing investments from 1.3% in the 2003 second
quarter to 2.7% in the 2004 second quarter principally due to our investing in
some higher yielding, but more risk-inherent, debt securities with the objective
of improving the overall return on our interest-bearing investments. Our
recognized net gains include realized gains and losses on sales of our
available-for-sale securities and cost-basis investments and unrealized gains
and losses on changes in the fair values of our trading securities and our
securities sold short with an obligation to repurchase. Our recognized net gains
increased $1.1 million principally related to the sale of available-for-sale
securities in the 2004 second quarter. These recognized gains and losses may
vary significantly in future periods depending upon the timing of the sales of
our investments or the changes in the value of our investments, as applicable.
Our other than temporary unrealized losses are dependent upon the underlying
economics and/or volatility in the value of our investments in
available-for-sale securities and cost-basis investments and may or may not
recur in future periods. Our other than temporary losses increased $2.5 million
due principally to the recognition of a $2.8 million impairment charge in the
2004 second quarter based on a significant decline in market value of one of our
more risk-inherent available-for-sale debt securities.
As of June 27, 2004, we had pretax unrealized holding gains and (losses) on
available-for-sale marketable securities of $5.8 million and $(5.1) million,
respectively, included in accumulated other comprehensive deficit. We presently
believe that the unrealized losses are not other than temporary. Should either
(1) we decide to sell any of these investments with unrealized losses or (2) any
of the unrealized losses continue such that we believe they have become other
than temporary, we would recognize the losses on the related investments at that
time.
Costs Related to Proposed Business Acquisitions Not Consummated
In the 2003 second quarter we expensed $0.9 million of costs related to a
proposed business acquisition that we decided not to pursue and did not
consummate.
Other Income, Net
Other income, net increased $0.4 million due to an increase in our equity
in the earnings of Encore Capital Group, Inc., an equity investee of ours which
we refer to as Encore, and a gain on sale of an inactive property.
Loss Before Income Taxes and Minority Interests
Our loss before income taxes and minority interests decreased $0.1 million
to $1.2 million for the three months ended June 27, 2004 from $1.3 million for
the three months ended June 29, 2003 due to the effect of the variances
explained in the captions above.
As discussed above, we recognized deferred compensation expense of $1.2
million in the 2003 second quarter and $0.1 million in the 2004 second quarter,
within general and administrative expenses in the accompanying condensed
consolidated statements of operations, for the increases in the fair value of
investments in the Deferred Compensation Trusts. Under accounting principles
generally accepted in the United States of America, we recognize investment
income for any interest or dividend income on investments in the Deferred
Compensation Trusts and realized gains on sales of investments in the Deferred
Compensation Trusts, but are unable to recognize any investment income for
unrealized increases in the fair value of the investments in the Deferred
Compensation Trusts because these investments are accounted for under the cost
method of accounting. During the 2003 and 2004 second quarters, investment
income from the investments in the Deferred Compensation Trusts was less than
$0.1 million. The cumulative disparity between deferred compensation expense and
net recognized investment income will reverse in future periods as either (1)
additional investments in the Deferred Compensation Trusts are sold and
previously unrealized gains are recognized without any offsetting increase in
compensation expense or (2) the fair values of the investments in the Deferred
Compensation Trusts decrease resulting in the recognition of a reversal of
compensation expense without any offsetting losses recognized in investment
income.
Provision For Income Taxes
We had provisions for income taxes for the three months ended June 29, 2003
and June 27, 2004 despite pretax losses due principally to (1) the effect of
non-deductible compensation costs and (2) state income taxes, net of Federal
income tax benefit, due to the differing mix of pretax income or loss among the
consolidated entities which file state tax returns on an individual company
basis.
Six Months Ended June 27, 2004 Compared with Six Months Ended June 29, 2003
Net Sales
Our net sales, which were generated entirely from the Company-owned Arby's
restaurants, decreased $0.5 million, or 1%, to $99.4 million for the six months
ended June 27, 2004 from $99.9 million for the six months ended June 29, 2003.
This decrease reflects a $0.7 million decrease due to the closing of three
underperforming Company-owned restaurants since June 29, 2003 partially offset
by a $0.2 million increase in same-store sales of the Company-owned restaurants.
Same-store sales were relatively flat principally as a result of improvement
from the new line of salads and the low carbohydrate menu offerings introduced
in April 2004 which was partially offset by unfavorable performance primarily
during the 2004 first quarter in our restaurants in the Michigan region, an area
where approximately one-third of our Company-owned restaurants are located which
was particularly impacted by high unemployment. Same-store sales in the 2004
first half also reflect increased price promotions compared with the 2003 first
half, although we are unable to determine if the incremental effect on sales
volume of the price promotions was sufficient to exceed or partially offset the
unfavorable effect on pricing.
We expect that same-store sales of the Company-owned restaurants for the
remainder of 2004 will exceed the comparable periods for 2003, as explained in
the comparison of the three-month periods.
Royalties and Franchise and Related Fees
Our royalties and franchise and related fees, which were generated entirely
from the franchised restaurants, increased $2.7 million, or 6%, to $47.3 million
for the six months ended June 27, 2004 from $44.6 million for the six months
ended June 29, 2003. This increase consisted of (1) a $1.6 million improvement
resulting from the royalties from the 114 restaurants opened since June 29,
2003, with generally higher than average sales volumes, replacing the royalties
from the 78 generally underperforming restaurants closed since June 29, 2003 and
(2) a $1.1 million improvement due to a 2% increase in same-store sales of the
franchised restaurants in the 2004 first half compared with the weak same-store
sales performance of the 2003 first half. Franchise and related fees were
relatively unchanged compared with the 2003 first half reflecting a $0.2 million
decrease due to the opening of seven fewer franchised restaurants in the 2004
first half compared with the 2003 first half offset principally by a decrease in
franchise fee credits earned by franchisees under a remodeling incentive program
discontinued in 2000 and which expires in our fiscal 2004.
We expect that same-store sales of franchised restaurants during the
remainder of 2004 will continue to be higher than the comparable period of 2003,
as explained in the comparison of the three-month periods.
Cost of Sales, Excluding Depreciation and Amortization
Our cost of sales, excluding depreciation and amortization, which resulted
entirely from the Company-owned Arby's restaurants, increased $5.2 million, or
7%, to $79.0 million, representing a gross margin of 21%, for the six months
ended June 27, 2004 from $73.8 million, representing a gross margin of 26%, for
the six months ended June 29, 2003. The decrease in gross margins is due
principally to (1) the new menu offerings which have relatively higher costs
than our other products and for which we experienced additional costs during the
roll-out period, (2) increased price discounting of some of our other products
primarily through increased use of coupons and (3) higher roast beef costs, the
largest component of our menu offerings, as well as higher costs for other
commodities, resulting from overall decreased supplies and increased demand.
We currently anticipate that gross margins will be lower during the second
half of 2004 compared with the comparable 2003 period, although we expect gross
margins to start improving in the 2004 second half compared with the 2004 first
half, as explained in the comparison of the three-month periods.
Our royalties and franchise fees have no associated cost of sales.
Advertising and Selling
Our advertising and selling expenses increased $1.6 million, or 22%, due to
(1) a $0.7 million increase in advertising expenses of our Company-owned
restaurants primarily for the new menu offerings introduced in April 2004, (2) a
$0.5 million increase due to the timing within each year of our contractual
commitment as the Arby's franchisor for advertising support and (3) a $0.4
million recovery of a fully-reserved franchisee note receivable in the 2003
second half which did not recur in the 2004 second half. We contributed and
expensed $1.5 million toward the Arby's national television advertising campaign
in the 2004 first half compared with $1.0 million in the 2003 first half. Our
overall advertising costs for this campaign for the full years 2004 and 2003 are
anticipated to be relatively unchanged since we expect to contribute and expense
$1.5 million during the second half of 2004 compared with $2.1 million of
expense under our previous commitment during the comparable period of 2003.
General and Administrative
Our general and administrative expenses increased $1.5 million, or 3%,
principally reflecting (1) a $1.9 million increase in severance, recruiting and
relocation costs attributable to personnel changes and (2) a $1.1 million
increase in professional fees principally as a result of our compliance with the
Sarbanes-Oxley Act of 2002 and, to lesser extent, higher legal fees, both
partially offset by a $1.0 million decrease in deferred compensation expense.
Deferred compensation expense, which decreased from $2.0 million for the six
months ended June 29, 2003 to $1.0 million for the six months ended June 27,
2004, represents the increase in the fair value of investments in the Deferred
Compensation Trusts, for the benefit of the Executives, as explained in more
detail below under "Loss Before Income Taxes and Minority Interests."
Interest Expense
Interest expense increased $0.8 million reflecting a $3.6 million increase
in interest expense, including related amortization of deferred financing costs,
due to the full period effect in the 2004 first half of the $175.0 million
principal amount of our Convertible Notes issued on May 19, 2003. This increase
was partially offset by (1) a $1.9 million decrease attributable to lower
outstanding amounts of our other long-term debt, (2) $0.5 million of interest
expense in the 2003 first half which did not recur in the 2004 first half
relating to a post-closing sales price adjustment settled in December 2003 in
connection with the October 2000 sale of our former beverage businesses and (3)
a $0.4 million favorable effect of the change in fair value of an interest rate
swap agreement on one of our term loans in the 2004 first half which did not
occur in the 2003 first half.
Investment Income, Net
The following table summarizes and compares the major components of
investment income, net:
Six Months Ended
------------------------
June 29, June 27,
2003 2004 Change
---- ---- ------
(In Millions)
Interest income.............................................$ 4.0 $ 8.4 $ 4.4
Recognized net gains........................................ 2.5 4.4 1.9
Other than temporary unrealized losses ..................... (0.4) (2.8) (2.4)
Distributions, including dividends.......................... 1.0 1.5 0.5
Other....................................................... (0.2) (0.3) (0.1)
--------- -------- ---------
$ 6.9 $ 11.2 $ 4.3
========= ======== =========
The increase in interest income is primarily due to an increase in average
rates on our interest-bearing investments from 1.3% in the 2003 second half to
2.6% in the 2004 second half principally due to our investing in some higher
yielding, but more risk-inherent, debt securities with the objective of
improving the overall return on our interest-bearing investments. Our recognized
net gains, as described in detail in the comparison of the three-month periods,
increased $1.9 million due in part from the sale of available-for-sale
securities in the 2004 second half. In addition, during the 2003 second half and
2004 second half our recognized net gains included $0.5 million and $0.8
million, respectively, of realized gains from the sale of certain cost-method
investments in the Deferred Compensation Trusts, as explained in more detail
below under "Loss Before Income Taxes and Minority Interests." All of these
recognized gains and losses may vary significantly in future periods depending
upon the timing of the sales of our investments, including the investments in
the Deferred Compensation Trusts, or the changes in the value of our
investments, as applicable. Our other than temporary unrealized losses, also as
described in detail in the comparison of the three-month periods, increased $2.4
million principally reflecting the recognition of a $2.8 million impairment
charge in the 2004 second quarter based on a significant decline in market value
of one of our more risk-inherent available-for-sale debt securities.
As of June 27, 2004, we had pretax unrealized holding gains and (losses) on
available-for-sale marketable securities of $5.8 million and $(5.1) million,
respectively, included in accumulated other comprehensive deficit. We presently
believe that the unrealized losses are not other than temporary. Should either
(1) we decide to sell any of these investments with unrealized losses or (2) any
of the unrealized losses continue such that we believe they have become other
than temporary, we would recognize the losses on the related investments at that
time.
Costs Related to Proposed Business Acquisitions Not Consummated
Our costs related to proposed business acquisitions not consummated were
$0.9 million for the six months ended June 29, 2003 compared with $0.8 million
for the six months ended June 27, 2004. These costs related to proposed business
acquisitions that we decided not to pursue and did not consummate.
Other Income, Net
Other income, net increased $0.6 million principally due to an increase in
our equity in the earnings of Encore and a gain on sale of an inactive property.
Loss Before Income Taxes and Minority Interests
Our loss before income taxes and minority interests increased $1.7 million
to $5.3 million for the six months ended June 27, 2004 from $3.6 million for the
six months ended June 29, 2003 due to the effect of the variances explained in
the captions above.
As discussed above, we recognized deferred compensation expense of $2.0
million in the 2003 first half and $1.0 million in the 2004 first half, within
general and administrative expenses in the accompanying condensed consolidated
statements of operations, for the increases in the fair value of investments in
the Deferred Compensation Trusts. Under accounting principles generally accepted
in the United States of America, we recognize investment income for any interest
or dividend income on investments in the Deferred Compensation Trusts and
realized gains on sales of investments in the Deferred Compensation Trusts, but
are unable to recognize any investment income for unrealized increases in the
fair value of the investments in the Deferred Compensation Trusts because these
investments are accounted for under the cost method of accounting. During the
2003 first half and 2004 first half we recognized net investment income from
investments in the Deferred Compensation Trusts of $0.4 million and $0.6
million, respectively, consisting of the $0.5 million and $0.8 million of
realized gains from the sale of certain cost-method investments in the Deferred
Compensation Trusts referred to above under "Investment Income, Net," including
increases in value of $0.3 million and $0.8 million, respectively, prior to the
respective periods, less $0.1 million and $0.2 million, respectively, of
investment fees. The cumulative disparity between deferred compensation expense
and net recognized investment income will reverse in future periods as either
(1) additional investments in the Deferred Compensation Trusts are sold and
previously unrealized gains are recognized without any offsetting increase in
compensation expense or (2) the fair values of the investments in the Deferred
Compensation Trusts decrease resulting in the recognition of a reversal of
compensation expense without any offsetting losses recognized in investment
income.
Benefit From Income Taxes
The benefit from income taxes represented rates of 2% and 17% for the six
months ended June 29, 2003 and June 27, 2004, respectively. The benefit rate is
higher in the 2004 first half due principally to the higher pretax loss and the
resulting lower effect, as well as lesser magnitude, of (1) non-deductible
compensation costs and (2) state income taxes, net of Federal income tax
benefit, due to the differing mixes of pretax income or loss among the
consolidated entities which file state tax returns on an individual company
basis.
Liquidity And Capital Resources
Cash Flows from Continuing Operating Activities
Our consolidated operating activities from continuing operations provided
cash and cash equivalents, which we refer to in this discussion as cash, of
$10.2 million during the six months ended June 27, 2004 reflecting (1) net
operating investment adjustments of $21.8 million and (2) net non-cash charges
of $5.7 million, both partially offset by (1) cash used by changes in operating
assets and liabilities of $12.9 million and (2) a net loss of $4.4 million.
The net operating investment adjustments of $21.8 million principally
reflected $24.9 million of proceeds from sales of trading securities in excess
of purchases. The net non-cash charges of $5.7 million principally relate to
depreciation and amortization of $8.1 million, partially offset by a deferred
income tax benefit of $1.8 million. The cash used by changes in operating assets
and liabilities of $12.9 million principally reflected (1) a $5.2 million
reduction in accrued compensation and related benefits principally due to the
annual payment of previously accrued incentive compensation, (2) a $2.7 million
decrease in accounts payable principally due to (a) the settlement of trading
securities purchased during late 2003 and (b) the acceleration of payments to a
major distributor to obtain more favorable pricing terms and (3) a $1.5 million
increase in prepaid advertising and convention costs.
Excluding the effect of the net sales of trading securities, which
represent cash provided from the discretionary sale of investments, our
continuing operating activities used cash of $14.7 million in the 2004 first
half. We expect that our continuing operating activities excluding the effect,
if any, of net sales or purchases of trading securities, for the second half of
2004 will require the net use of cash principally due to our expected payment of
approximately $25.7 million to $29.3 million for fees and expenses in connection
with the initial public offering of common stock and organization of a
newly-formed business development company, as discussed in more detail below
under "Acquisitions and Investments." We expect to meet this operating cash flow
requirement through the use of our existing cash and cash equivalents.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$590.2 million at June 27, 2004, reflecting a current ratio, which equals
current assets divided by current liabilities, of 4.9:1. Working capital
decreased $20.4 million from $610.6 million at December 28, 2003 principally due
to (1) long-term debt repayments of $17.3 million and (2) dividends paid of $8.9
million, both partially offset by proceeds from stock option exercises of $9.3
million.
Our total capitalization at June 27, 2004 was $786.3 million, consisting of
stockholders' equity of $284.7 million and long-term debt of $501.6 million,
including current portion. Our total capitalization decreased $20.2 million from
$806.5 million at December 28, 2003 principally due to (1) long-term debt
repayments of $17.3 million, (2) dividend payments of $8.9 million and (3) the
net loss of $4.4 million, all partially offset by the proceeds from stock option
exercises of $9.3 million.
Securitization Notes
We have outstanding, through our ownership of Arby's Franchise Trust, 7.44%
insured non-recourse securitization notes, which we refer to as the
Securitization Notes, with a remaining principal balance of $223.2 million as of
June 27, 2004, which are due no later than December 2020. However, based on
current projections and assuming the adequacy of available funds, as defined
under the indenture for the Securitization Notes, which we refer to as the
Securitization Indenture, we currently estimate that we will repay $11.3 million
during the second half of 2004 with increasing annual payments to $37.4 million
in 2011 in accordance with a targeted principal payment schedule.
Restaurant Notes
We have outstanding, through our ownership of Sybra, Inc., leasehold notes,
equipment notes and mortgage notes relating to our Company-owned restaurants
with a total remaining principal balance of $74.8 million as of June 27, 2004.
Other Long-Term Debt
We have outstanding $175.0 million of 5% Convertible Notes due 2023 which
do not have any scheduled principal repayments prior to 2023. We have a secured
bank term loan payable through 2008 with an outstanding principal amount of
$13.4 million as of June 27, 2004. We also have a secured promissory note
payable through 2006 with an outstanding principal amount of $10.5 million as of
June 27, 2004. In addition, we have mortgage notes payable through 2016 related
to restaurants we sold in 1997 with outstanding principal amounts totaling $2.8
million as of June 27, 2004.
Revolving Credit Facilities
We did not have any revolving credit facilities as of June 27, 2004.
Debt Repayments and Covenants
Our total scheduled long-term debt repayments during the second half of
2004 are $17.9 million consisting principally of the $11.3 million expected to
be paid under the Securitization Notes, $3.4 million under the restaurant
leasehold, equipment and mortgage notes, $1.6 million under the secured bank
term loan and $1.0 million under the secured promissory note.
The various note agreements and indentures contain various covenants, the
most restrictive of which (1) require periodic financial reporting, (2) require
meeting certain debt service coverage ratio tests and (3) restrict, among other
matters, (a) the incurrence of indebtedness by certain of our subsidiaries, (b)
certain asset dispositions and (c) the payment of distributions by Arby's
Franchise Trust and Sybra. We were in compliance with all of these covenants as
of June 27, 2004.
In accordance with the Securitization Indenture, as of June 27, 2004 Arby's
Franchise Trust had no amounts available for the payment of distributions.
However, on July 20, 2004, $1.8 million relating to cash flows for the calendar
month of June 2004 became available for the payment of distributions by Arby's
Franchise Trust through its parent to Arby's which, in turn, would be available
to Arby's to pay management service fees or Federal income tax-sharing payables
to Triarc or, to the extent of any excess, make distributions to Triarc. Under
the plan of reorganization of Sybra confirmed by a United States Bankruptcy
Court under which we acquired Sybra, we agreed that Sybra would not pay any
distributions prior to December 27, 2004.
Sybra is required to maintain a fixed charge coverage ratio under the
agreements for the leasehold notes and mortgage notes and Sybra was in
compliance with this ratio as of June 27, 2004.
Guarantees and Commitments
Our wholly-owned subsidiary, National Propane Corporation, retains a less
than 1% special limited partner interest in our former propane business, now
known as AmeriGas Eagle Propane, L.P., which we refer to as AmeriGas Eagle.
National Propane agreed that while it remains a special limited partner of
AmeriGas Eagle, it would indemnify the owner of AmeriGas Eagle for any payments
the owner makes related to the owner's obligations under certain of the debt of
AmeriGas Eagle, aggregating approximately $138.0 million as of June 27, 2004, if
AmeriGas Eagle is unable to repay or refinance such debt, but only after
recourse by the owner to the assets of AmeriGas Eagle. National Propane's
principal asset is an intercompany note receivable from Triarc in the amount of
$50.0 million as of June 27, 2004. We believe it is unlikely that we will be
called upon to make any payments under this indemnity. In August 2001, AmeriGas
Propane, L.P., which we refer to as AmeriGas Propane, purchased all of the
interests in AmeriGas Eagle other than National Propane's special limited
partner interest. Either National Propane or AmeriGas Propane may require
AmeriGas Eagle to repurchase the special limited partner interest. However, we
believe it is unlikely that either party would require repurchase prior to 2009
as either AmeriGas Propane would owe us tax indemnification payments if AmeriGas
Propane required the repurchase or we would accelerate payment of deferred
taxes, which would amount to $37.8 million as of June 27, 2004, associated with
our 1999 sale of the propane business if National Propane required the
repurchase. In the event the interest is not repurchased prior to 2009, we
estimate our actual related taxes payable to be $1.7 million during the second
half of 2004 with insignificant payments in 2005 through 2008 reducing the taxes
payable in 2009 to approximately $35.8 million.
Triarc guarantees mortgage notes payable through 2015 of approximately
$40.0 million as of June 27, 2004 related to 355 restaurants sold by us in 1997.
The purchaser of the restaurants also assumed substantially all of the
associated lease obligations which extend through 2031, including all then
existing extension or renewal option periods, although Arby's remains
contingently liable if the purchaser does not make the required future lease
payments. Those lease obligations could total a maximum of approximately $55.0
million as of June 27, 2004, assuming the purchaser has made all scheduled
payments under those lease obligations through that date.
Capital Expenditures
Cash capital expenditures amounted to $2.8 million during the 2004 first
half. We expect that cash capital expenditures will be approximately $9.3
million for the second half of 2004, principally relating to the Company-owned
restaurants for (1) remodel and maintenance capital expenditures, (2) computer
hardware required for the implementation of new restaurant systems and
technology and (3) a planned restaurant opening. There were $4.2 million of
outstanding commitments for capital expenditures as of June 27, 2004.
Computer Software Expenditures
Cash expenditures for computer software were $0.3 million in the 2004 first
half and are included in "Other net" under "Cash flows from continuing investing
activities" in the accompanying condensed consolidated statement of cash flows.
We expect to make cash expenditures of approximately $1.1 million for the second
half of 2004 for computer software, principally relating to the new restaurant
systems and technology. There were $0.7 million of outstanding commitments for
computer software as of June 27, 2004.
Acquisitions and Investments
As of June 27, 2004, we have $717.2 million of cash, cash equivalents and
investments, including $39.2 million of investments classified as non-current
and $8.9 million of receivables from the sale of securities which had not
settled as of June 27, 2004 and net of $30.0 million of securities sold with an
obligation for us to purchase included in "Accrued expenses and other current
liabilities" in our accompanying condensed consolidated balance sheet. The cash
equivalents and non-current investments include $24.7 million of investments, at
cost, in deferred compensation trusts designated to satisfy deferred
compensation. We also had $32.5 million of restricted cash and cash equivalents
including $30.5 million related to the Securitization Notes. We continue to
evaluate strategic opportunities for the use of our significant cash and
investment position, including business acquisitions, repurchases of Triarc
common shares (see "Treasury Stock Purchases" below) and investments.
In that regard, on July 22, 2004 we acquired a 63.6% interest (representing
in excess of 90% of the outstanding voting interests) in Deerfield & Company
LLC, which we refer to as Deerfield, for an aggregate $94.5 million, including
estimated expenses, of which $0.4 million had been paid as of June 27, 2004.
Deerfield, through its subsidiary Deerfield Capital Management LLC, is an
alternative asset manager with over $8 billion of assets under management as of
June 30, 2004. We will account for Deerfield as a consolidated subsidiary with a
minority interest. In connection with the Deerfield acquisition, we also
committed to invest $100.0 million to seed a new multi-strategy hedge fund to be
managed by Deerfield.
In addition, we formed jointly with Deerfield an investment advisor, TDM
Advisors LLC, which we refer to as TDM, to manage the assets of Triarc Deerfield
Investment Corporation, a newly-formed business development company. In
connection with the Deerfield acquisition, TDM became a wholly-owned subsidiary
of Deerfield and our indirect subsidiary. Triarc Deerfield Investment
Corporation has filed an amended registration statement with the Securities and
Exchange Commission, which has not yet become effective, relating to a proposed
$500.0 million initial public offering of its common stock, which we refer to as
the IPO. TDM has agreed to pay a one-time fee to the underwriters and other fees
related to the IPO, along with organization expenses, totaling between
approximately $25.7 million and $29.3 million, all of which will be funded by
us. As a result of this arrangement, we will record an expense of the
approximate $25.7 million to $29.3 million without any minority interest benefit
upon the closing of the IPO. The IPO is currently expected to close during the
second half of 2004; however, there can be no assurance that the IPO will be
completed.
In addition, on July 8, 2004 we acquired a 25% equity interest (14.3%
general voting interest) in Jurlique International Pty Ltd., a privately held
Australian skin and beauty products company which we refer to as Jurlique, for
$25.3 million, plus expenses. We will account for Jurlique under the cost method
of accounting since our voting stock interest of 14.3% does not provide us the
ability to exercise significant influence over operating and financial policies
of Jurlique. At the acquisition date, we paid half of the purchase price, with
the remainder, plus interest, payable in Australian dollars in July 2005. In
order to limit the related foreign currency risk, we entered into a forward
contract whereby we fixed the exchange rate for payment of this liability. In
addition, we entered into a put and call arrangement on a portion of our total
cost related to this investment whereby we have limited the overall foreign
currency risk of holding the investment for three years following the
investment.
Income Taxes
Our Federal income tax returns for the years ended December 31, 2000 and
December 30, 2001 are in the process of an Internal Revenue Service examination.
We have not received any notices of proposed adjustments and, accordingly, the
amount of payments, if any, required as a result of this examination cannot be
determined. However, we do not currently believe any related tax payments will
be required during the second half of 2004. Moreover, should any income taxes or
interest be assessed as the result of this examination or any state examination
for periods through the October 25, 2000 date of the sale of our former beverage
businesses, the purchaser has agreed to pay up to $5.0 million of any resulting
income taxes or associated interest relating to the operations of those former
beverage businesses.
Dividends
On March 16, 2004 and June 16, 2004 we paid regular quarterly cash
dividends of $0.065 and $0.075 per share on our class A and class B common
stock, respectively, aggregating $8.9 million. We currently intend to continue
to declare and pay quarterly cash dividends, however, there can be no assurance
that any dividends will be declared or paid in the future or of the amount or
timing of such dividends, if any. If we pay quarterly cash dividends for the
second half of 2004 at the same rate as declared and/or paid in our 2004 first
half, based on the number of our class A and class B common shares outstanding
as of July 30, 2004, our total cash requirement for dividends would be $9.2
million for the second half of 2004.
Treasury Stock Purchases
Our management is currently authorized, when and if market conditions
warrant and to the extent legally permissible, to repurchase through January 18,
2005 up to a total of $48.6 million of our class A and class B common stock as
of June 27, 2004. We paid $1.4 million during the 2004 first quarter to settle
the repurchase of 125,000 shares of our class A common stock through a trade
entered into prior to December 28, 2003. We cannot assure you that we will
repurchase any additional shares under this program.
Universal Shelf Registration Statement
In December 2003, the Securities and Exchange Commission declared effective
a Triarc universal shelf registration statement in connection with the possible
future offer and sale, from time to time, of up to $2.0 billion of our common
stock, preferred stock, debt securities and warrants to purchase any of these
types of securities. Unless otherwise described in the applicable prospectus
supplement relating to the offered securities, we anticipate using the net
proceeds of each offering for general corporate purposes, including financing of
acquisitions and capital expenditures, additions to working capital and
repayment of existing debt. We have not presently made any decision to issue any
specific securities under this universal shelf registration statement.
Cash Requirements
As of June 27, 2004, our consolidated cash requirements for continuing
operations for the second half of 2004, exclusive of operating cash flow
requirements, consist principally of (1) an aggregate of approximately $207.0
million in connection with the July 2004 acquisition of Deerfield, the
investment in Jurlique and the commitment to seed a new multi-strategy hedge
fund, and the cost of other business acquisitions, if any, (2) a maximum of an
aggregate $48.6 million of payments for repurchases of our class A and class B
common stock for treasury under our current stock repurchase program, (3)
scheduled debt principal repayments aggregating $17.9 million, (4) capital
expenditures of approximately $9.3 million, (5) regular quarterly cash dividends
aggregating approximately $9.2 million and (6) computer software expenditures of
approximately $1.1 million. We anticipate meeting all of these requirements
through (1) the use of our aggregate $678.0 million of existing cash and cash
equivalents, short-term investments and receivables from the sale of securities
which had not settled as of June 27, 2004, net of $30.0 million of short-term
investments sold with an obligation for us to purchase and (2) if necessary for
any business acquisitions and if market conditions permit, proceeds from sales,
if any, of up to $2.0 billion of our securities under the universal shelf
registration statement.
Legal and Environmental Matters
In 2001, a vacant property owned by Adams Packing Association, Inc., an
inactive subsidiary of ours, was listed by the United States Environmental
Protection Agency on the Comprehensive Environmental Response, Compensation and
Liability Information System, which we refer to as CERCLIS, list of known or
suspected contaminated sites. The CERCLIS listing appears to have been based on
an allegation that a former tenant of Adams Packing conducted drum recycling
operations at the site from some time prior to 1971 until the late 1970's. The
business operations of Adams Packing were sold in December 1992. In February
2003, Adams Packing and the Florida Department of Environmental Protection,
which we refer to as the Florida DEP, agreed to a consent order that provided
for development of a work plan for further investigation of the site and limited
remediation of the identified contamination. In May 2003, the Florida DEP
approved the work plan submitted by Adams Packing's environmental consultant
and, as of June 27, 2004, the work at the site has been completed. Adams Packing
submitted its contamination assessment report to the Florida DEP in March 2004
and has recommended that no additional assessment and/or remedial action be
required and that the property be monitored in accordance with an approved
natural attenuation monitoring plan. The Florida DEP has agreed to a monitoring
plan, subject to a reevaluation of the need for additional assessment at the end
of two monitoring events. Based on an original cost estimate of approximately
$1.0 million for completion of the work plan developed by Adams Packing's
environmental consultant, and after taking into consideration various legal
defenses available to us, including Adams Packing, Adams Packing has provided
for its estimate of its liability for this matter, including related legal and
consulting fees prior to 2003.
In 1998, a number of class action lawsuits were filed on behalf of our
stockholders. Each of these actions named us, the Executives and the other
members of our board of directors as defendants. In 1999, certain plaintiffs in
these actions filed a consolidated amended complaint alleging that our tender
offer statement filed with the Securities and Exchange Commission in 1999,
pursuant to which we repurchased 3,805,015 shares of our class A common stock
for $18.25 per share, failed to disclose material information. The amended
complaint seeks, among other relief, monetary damages in an unspecified amount.
In 2000, the plaintiffs agreed to stay this action pending determination of a
related stockholder action which was subsequently dismissed in October 2002 and
is no longer being appealed. Through June 27, 2004, no further action has
occurred with respect to the remaining class action lawsuit and such action
remains stayed.
In addition to the environmental matter and stockholder lawsuit described
above, we are involved in other litigation and claims incidental to our current
and prior businesses. We and our subsidiaries have reserves for all of our legal
and environmental matters aggregating $2.0 million as of June 27, 2004. Although
the outcome of these matters cannot be predicted with certainty and some of
these matters may be disposed of unfavorably to us, based on currently available
information, including legal defenses available to us and/or our subsidiaries,
and given the aforementioned reserves, we do not believe that the outcome of
these legal and environmental matters will have a material adverse effect on our
consolidated financial position or results of operations.
Seasonality
Our continuing operations are not significantly impacted by seasonality.
However, our restaurant revenues are somewhat higher in our fourth quarter and
somewhat lower in our first quarter.
Recently Issued Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." Statement 150
is already effective for all financial instruments covered by the statement,
except for mandatorily redeemable non-controlling interests in subsidiaries that
would not be liabilities under Statement 150 for the subsidiary itself, such as
minority interests in a consolidated subsidiary or partnership with a limited
life. Financial Accounting Standards Board Staff Position No. 150-3, "Effective
Date, Disclosures and Transition for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests Under FASB Statement No. 150," deferred indefinitely
the effective date for applying the provisions of Statement 150 for these
mandatorily redeemable noncontrolling interests in subsidiaries described above.
Statement 150 requires a financial instrument that is within its scope which
companies have historically presented in their financial statements as either
equity or between the liabilities section and the equity section (sometimes
referred to as mezzanine reporting) to be classified as a liability. The
deferred provisions of Statement 150 would have required that mandatorily
redeemable noncontrolling interests in subsidiaries be initially valued at fair
value and subsequently valued at the cash that would be paid as if settlement
occurred at the reporting date. Subsequent changes in the values of these
financial instruments would be recognized in earnings as interest expense. If
Statement 150 becomes effective with respect to the mandatorily redeemable
noncontrolling interests in subsidiaries, we will evaluate at that time whether
its application will have an effect on our consolidated financial position or
results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
This "Quantitative and Qualitative Disclosures about Market Risk" should be
read in conjunction with "Item 7A. Quantitative and Qualitative Disclosures
about Market Risk" in our annual report on Form 10-K for the fiscal year ended
December 28, 2003. Item 7A of our Form 10-K describes in more detail our
objectives in managing our "Interest Rate Risk" with respect to long-term debt
and our "Foreign Currency Risk," both as referred to below.
Certain statements we make under this Item 3 constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. See
"Special Note Regarding Forward-Looking Statements and Projections" in "Part II
- - Other Information" preceding "Item 2."
We are exposed to the impact of interest rate changes, changes in the
market value of our investments and, to a lesser extent, foreign currency
fluctuations.
Policies and procedures - In the normal course of business, we employ
established policies and procedures to manage our exposure to changes in
interest rates, changes in the market value of our investments and fluctuations
in the value of foreign currencies using financial instruments we deem
appropriate.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to limit
their impact on our earnings and cash flows. We have historically used interest
rate cap and/or interest rate swap agreements on a portion of our variable-rate
debt to limit our exposure to the effects of increases in short-term interest
rates on our earnings and cash flows. We did not enter into any new interest
rate caps or swaps during the 2004 first half. As of June 27, 2004, our
long-term debt, including current portion, aggregated $501.6 million and
consisted of $488.2 million of fixed-rate debt, including $1.5 million of
capitalized leases, and $13.4 million of a variable-rate bank loan. The fair
market value of our fixed-rate debt will increase if interest rates decrease. In
addition to our fixed-rate and variable-rate debt, our investment portfolio
includes debt securities that are subject to interest rate risk with remaining
maturities which range from less than ninety days to approximately thirty years.
The fair market value of all of our investments in debt securities will decline
if interest rates increase.
Equity Market Risk
Our objective in managing our exposure to changes in the market value of
our investments is to balance the risk of the impact of these changes on our
earnings and cash flows with our expectations for long-term investment returns.
Our primary exposure to equity price risk relates to our investments in equity
securities, equity derivatives, securities sold with an obligation for us to
purchase and investment limited partnerships and similar investment entities.
Our board of directors has established certain policies and procedures governing
the type and relative magnitude of investments we may make. We have a management
investment committee which supervises the investment of certain funds not
currently required for our operations but has delegated the discretionary
authority to our Chairman and Chief Executive Officer and President and Chief
Operating Officer to make certain investments. In addition, our board of
directors also delegated authority to these two officers to direct the
investment of a portion of our funds.
Foreign Currency Risk
We had no significant changes in our management of, or our exposure to,
foreign currency fluctuations during the 2004 first half. However, subsequent to
the 2004 first half, our exposure to foreign currency risk has increased as a
result of a $25.3 million investment in Jurlique International Pty Ltd., an
Australian company, for which half the purchase price, which is payable in
Australian dollars, is not due until July 2005. However, in order to limit the
related foreign currency risk, we entered into a forward contract whereby we
fixed the exchange rate for payment of this liability. In addition, we entered
into a put and call arrangement on a portion of our total cost related to this
investment whereby we have limited the overall foreign currency risk of holding
the investment for three years following the investment.
Overall Market Risk
We balance our exposure to overall market risk by investing a portion of
our portfolio in cash and cash equivalents with relatively stable and
risk-minimized returns. We periodically interview and select asset managers to
avail ourselves of higher, but more risk-inherent, returns from the investment
strategies of these managers. We also seek to identify alternative investment
strategies that may earn higher returns with attendant increased risk profiles
for a portion of our investment portfolio. We periodically review the returns
from each of our investments and may maintain, liquidate or increase selected
investments based on this review and our assessment of potential future returns.
In response to the continued low interest rate environment, we began in the
latter part of 2003 to invest in some higher yielding, but more risk inherent,
debt securities with the objective of improving the overall return on our
interest-bearing investments. During the 2004 second quarter, we recognized an
unrealized loss deemed to be other than temporary of $2.8 million based on a
significant decline in market value of one of these more risk-inherent debt
securities. However, we are continuing to adjust our asset allocation to
increase the portion of our investments which offer the opportunity for higher,
but more risk inherent, returns. In that regard, in July 2004 we committed to
invest $100.0 million to seed a new multi-strategy hedge fund to be managed by a
subsidiary of Deerfield & Company, LLC, an alternative asset management company
in which we acquired a controlling interest in July 2004. Until that
multi-strategy hedge fund is established, the $100.0 million will be held
temporarily in United States government and government agency debt securities.
We maintain investment portfolio holdings of various issuers, types and
maturities. As of June 27, 2004 these investments consisted of the following (in
thousands):
Cash equivalents included in "Cash and cash equivalents" on our
condensed consolidated balance sheet......................................$ 489,261
Short-term investments....................................................... 205,148
------------
Total cash equivalents and short-term investments......................... 694,409
Restricted cash equivalents.................................................. 32,462
Non-current investments...................................................... 39,160
------------
$ 766,031
============
Securities sold with an obligation for us to purchase........................$ (30,030)
============
Our cash equivalents are short-term, highly liquid investments with
maturities of three months or less when acquired and consisted principally of
cash in mutual fund and bank money market accounts, United States government
debt securities, interest-bearing brokerage and bank accounts with a stable
value and commercial paper of high credit-quality entities.
At June 27, 2004 our investments were classified in the following general
types or categories (in thousands):
Carrying Value
At Fair ----------------------
Type At Cost Value (b) Amount Percent
---- ------- -------- ------ -------
Cash equivalents (a)............................$ 489,261 $ 489,261 $ 489,261 64%
Restricted cash equivalents..................... 32,462 32,462 32,462 4%
Securities accounted for as:
Trading securities......................... 23,418 24,740 24,740 3%
Available-for-sale securities.............. 156,173 156,864 156,864 20%
Non-current investments held in deferred
compensation trusts accounted for at cost..... 22,196 28,242 22,196 3%
Participations in commercial term loans......... 6,032 5,654 6,032 1%
Other current and non-current investments in
investment limited partnerships and similar
investment entities accounted for at cost..... 23,542 40,010 23,542 3%
Other non-current investments accounted for at:
Cost....................................... 3,756 3,756 3,756 1%
Equity..................................... 900 27,339 7,178 1%
----------- ----------- ---------- -----
Total cash equivalents and long investment
positions.....................................$ 757,740 $ 808,328 $ 766,031 100%
=========== =========== ========== ====
Securities sold with an obligation for us to
purchase......................................$ (28,470) $ (30,030) $ (30,030) N/A
=========== =========== ==========
(a) Includes $2,477,000 of cash equivalents held in deferred compensation
trusts and does not include $8,852,000 (included in "Receivables" in the
accompanying condensed consolidated balance sheet as of June 27, 2004)
of reinvestments from proceeds from the sale of securities which had not
settled as of June 27, 2004.
(b) There can be no assurance that we would be able to sell certain of
these investments at these amounts.
Our marketable securities are reported at fair market value and are
classified and accounted for either as "available-for-sale" or "trading" with
the resulting net unrealized holding gains or losses, net of income taxes,
reported either as a separate component of comprehensive income or loss
bypassing net income or net loss or included as a component of net income or net
loss, respectively. Investment limited partnerships and similar investment
entities and other current and non-current investments in which we do not have
significant influence over the investee are accounted for at cost. Realized
gains and losses on investment limited partnerships and similar investment
entities and other current and non-current investments recorded at cost are
reported as investment income or loss in the period in which the securities are
sold. A non-current common stock investment in which we have significant
influence over the investee is accounted for in accordance with the equity
method of accounting under which our results of operations include our share of
the income or loss of the investee. We review all of our investments in which we
have unrealized losses and recognize investment losses currently for any
unrealized losses we deem to be other than temporary. The cost-basis component
of investments reflected in the table above represents original cost less a
permanent reduction for any unrealized losses that were deemed to be other than
temporary.
Sensitivity Analysis
For purposes of this disclosure, market risk sensitive instruments are
divided into two categories: instruments entered into for trading purposes and
instruments entered into for purposes other than trading. Our estimate of market
risk exposure is presented for each class of financial instruments held by us at
June 27, 2004 for which an immediate adverse market movement causes a potential
material impact on our financial position or results of operations. We believe
that the rates of adverse market movements described below represent the
hypothetical loss to future earnings and do not represent the maximum possible
loss nor any expected actual loss, even under adverse conditions, because actual
adverse fluctuations would likely differ. In addition, since our investment
portfolio is subject to change based on our portfolio management strategy as
well as market conditions, these estimates are not necessarily indicative of the
actual results which may occur.
The following tables reflect the estimated market risk exposure as of June
27, 2004 based upon assumed immediate adverse effects as noted below (in
thousands):
Trading Purposes:
Carrying Equity
Value Price Risk
-------- ----------
Equity securities..........................................................$24,740 $ (2,474)
The sensitivity analysis of financial instruments held at June 27, 2004 for
trading purposes assumes an instantaneous 10% decrease in the equity markets in
which we are invested from their levels at June 27, 2004 and with all other
variables held constant. The securities included in the trading portfolio do not
include any investments in debt securities or investments denominated in foreign
currency and, accordingly, there is no interest rate risk or foreign currency
risk.
Other Than Trading Purposes:
Carrying Interest Equity Foreign
Value Rate Risk Price Risk Currency Risk
---------- --------- ---------- -------------
Cash equivalents..................................$ 489,261 $ (195) $ -- $ --
Restricted cash equivalents....................... 32,462 -- -- --
Available-for-sale corporate debt securities,
other than commercial paper.................... 54,599 (2,457) -- --
Available-for-sale equity securities.............. 43,657 -- (4,366) --
Available-for-sale asset-backed securities........ 25,091 (2,342) -- --
Available-for-sale United States government
and government agency debt securities.......... 14,927 (87) -- --
Available-for-sale commercial paper............... 10,059 (17) -- --
Available-for-sale debt mutual fund............... 8,531 (171) -- --
Participations in commercial term loans........... 6,032 (59) (408) --
Other investments................................. 56,672 (700) (4,234) (66)
Securities sold with an obligation to purchase.... (30,030) -- 3,003 --
Long-term debt, excluding capitalized lease
obligations.................................... 500,131 (20,991) -- --
Interest rate swap agreement in a payable
position....................................... 439 (234) -- --
The sensitivity analysis of financial instruments held at June 27, 2004 for
purposes other than trading assumes (1) an instantaneous change in market
interest rates of one percentage point, (2) an instantaneous 10% decrease in the
equity markets in which we are invested and (3) an instantaneous 10% decrease in
the foreign currency exchange rates versus the United States dollar, each from
their levels at June 27, 2004 and with all other variables held constant. The
equity price risk reflects the impact of a 10% decrease in the carrying value of
our equity securities, including those in "Other investments" in the table
above. We have also assumed equity price risk for those participations in
commercial term loans where the loan is in default and for which we expect to
receive stock in exchange for our investment. The sensitivity analysis also
assumes that the decreases in the equity markets and foreign exchange rates are
other than temporary. We have not reduced the equity price risk for
available-for-sale investments and cost investments to the extent of unrealized
gains on certain of those investments, which would limit or eliminate the effect
of the indicated market risk on our results of operations and, for cost
investments, our financial position.
For purposes of this analysis, our debt investments with interest rate risk
had a range of remaining maturities and were assumed to have weighted average
remaining maturities as of June 27, 2004 as follows:
Range Weighted Average
----- ----------------
Cash equivalents (other than money market funds and interest-
bearing brokerage and bank accounts).............................. 2 days-86 days 54 days
United States government and government agency debt securities...... 3 months-11 months 7 months
Commercial paper.................................................... 10 days-3 1/2 months 2 months
Other corporate debt securities..................................... 1 year-6 3/4 years 4 1/2 years
Asset-backed securities............................................. 2 years-30 1/2 years 9 1/3 years
Debt mutual fund.................................................... 1 day-36 years 2 years
Participations in commercial term loans............................. 6 months-3 1/2 years 3 years
Debt securities included in other investments (principally held by
investment limited partnerships and similar investment entities).. (a) 10 years
- ------------------
(a) Information is not available for the underlying debt investments of these entities.
The interest rate risk reflects, for each of these debt investments, the
impact on our results of operations. Assuming we reinvest in similar securities
at the time these securities mature, the effect of the interest rate risk of an
increase of one percentage point above the existing levels would continue beyond
the maturities assumed. Our cash equivalents included $356.9 million of mutual
fund and bank money market accounts and interest-bearing brokerage and bank
accounts which are designed to maintain a stable value and, as a result, were
assumed to have no interest rate risk. Our restricted cash equivalents were
invested in money market funds and are assumed to have no interest rate risk
since those funds are designed to maintain a stable value.
The interest rate risk presented with respect to our long-term debt,
excluding capitalized lease obligations, relates only to our fixed-rate debt and
represents the potential impact a decrease in interest rates of one percentage
point has on the fair value of this debt and not on our financial position or
our results of operations. The fair value of our variable-rate debt approximates
the carrying value since the floating interest rate resets monthly. However, we
have an interest rate swap agreement but with an embedded written call option on
our variable-rate debt. As interest rates decrease, the fair market values of
the interest rate swap agreement and the written call option both decrease, but
not necessarily by the same amount. The interest rate risk presented with
respect to the interest rate swap agreement represents the potential impact the
indicated change has on the net fair value of the swap agreement and embedded
written call option and on our financial position and results of operations.
For investments held since December 28, 2003 in investment limited
partnerships and similar investment entities, all of which are accounted for at
cost, and other non-current investments included in "Other investments" in the
table above, the sensitivity analysis assumes that the investment mix for each
such investment between equity versus debt securities and securities denominated
in United States dollars versus foreign currencies was unchanged since that date
since more current information was not readily available. To the extent such
entities invest in convertible bonds which trade primarily on the conversion
feature of the securities rather than on the stated interest rate, this analysis
assumed equity price risk but no interest rate risk. The foreign currency risk
presented excludes those investments where the investment manager has fully
hedged the risk.
Item 4. Controls and Procedures
Our management, including our Chairman and Chief Executive Officer and our
Chief Financial Officer, evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this quarterly report. Based upon that evaluation,
our Chairman and Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of such period, our disclosure controls and procedures are
effective to ensure that information required to be included in the reports we
file or submit under the Exchange Act is recorded, processed, summarized and
reported as and when required. No change in our internal control over financial
reporting was made during our most recent fiscal quarter that materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Part II. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This Quarterly Report on Form 10-Q contains or incorporates by reference
certain statements that are not historical facts, including, most importantly,
information concerning possible or assumed future results of operations of
Triarc Companies, Inc. and its subsidiaries (collectively "Triarc" or the
"Company"), and those statements preceded by, followed by, or that include the
words "may," "believes," "expects," "anticipates," or the negation thereof, or
similar expressions, that constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). All statements that address operating performance, events or developments
that are expected or anticipated to occur in the future, including statements
relating to revenue growth, earnings per share growth or statements expressing
general optimism about future operating results, are forward-looking statements
within the meaning of the Reform Act. These forward-looking statements are based
on our current expectations, speak only as of the date of this Form 10-Q and are
susceptible to a number of risks, uncertainties and other factors. Our actual
results, performance and achievements may differ materially from any future
results, performance or achievements expressed or implied by such
forward-looking statements. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Reform Act. Many
important factors could affect our future results and could cause those results
to differ materially from those expressed in the forward-looking statements
contained herein. Such factors include, but are not limited to, the following:
o competition, including pricing pressures, the potential impact of
competitors' new units on sales by Arby's(R) restaurants and
consumers' perceptions of the relative quality, variety and value
of the food products offered;
o success of operating initiatives;
o development costs;
o advertising and promotional efforts;
o brand awareness;
o the existence or absence of positive or adverse publicity;
o new product and concept development by the Company and its
competitors, and market acceptance of such new product offerings
and concepts;
o changes in consumer tastes and preferences, including changes
resulting from concerns over nutritional or safety aspects of beef,
poultry, french fries or other foods or the effects of food-borne
illnesses such as "mad cow disease" and avian influenza
or "bird flu";
o changes in spending patterns and demographic trends;
o the business and financial viability of key franchisees;
o the timely payment of franchisee obligations due to the Company;
o availability, location and terms of sites for restaurant development
by the Company and its franchisees;
o the ability of franchisees to open new restaurants in accordance
with their development commitments, including the ability of
franchisees to finance restaurant development;
o delays in opening new restaurants or completing remodels;
o anticipated or unanticipated restaurant closures by the Company
and its franchisees;
o the ability to identify, attract and retain potential franchisees
with sufficient experience and financial resources to develop
and operate Arby's restaurants;
o changes in business strategy or development plans, and the
willingness of franchisees to participate in the Company's strategy;
o business abilities and judgment of the Company's and franchisees'
management and other personnel;
o availability of qualified restaurant personnel to the Company and
to franchisees;
o the Company's ability, if necessary, to secure alternative
distribution of supplies of food, equipment and other products to
Arby's restaurants at competitive rates and in adequate amounts,
and the potential financial impact of any interruptions in such
distribution;
o adverse weather conditions;
o changes in commodity (including beef), labor, supplies and other
operating costs and availability and cost of insurance;
o significant reductions in the Company's client assets under
management (and thus in the Company's advisory fee revenue), due to
such factors as weak performance of the Company's investment
products (either on an absolute basis or relative to the Company's
competitors), substantial illiquidity or volatility in the fixed
income instruments that the Company trades, loss of key portfolio
management personnel, reduced investor demand for alternative fixed
income investment products, and loss of investor confidence due to
adverse publicity;
o increased competition from other alternative fixed income
investment managers;
o pricing pressure on the advisory fees that the Company can charge
for its investment advisory services;
o difficulty in increasing assets under management, or managing
existing assets, due to market-related constraints on trading
capacity;
o the removal of the Company as investment manager of one or more of
the collateral debt obligations (CDOs) it manages, or the reduction
in the Company's CDO management fees because of payment defaults by
issuers of the underlying collateral;
o availability, terms (including changes in interest rates) and
deployment of capital;
o changes in national, regional and local economic, market, business
or political conditions in the countries and other territories in
which the Company and its franchisees operate;
o changes in government regulations, including franchising laws,
accounting standards, environmental laws, minimum wage rates and
taxation rates;
o the costs, uncertainties and other effects of legal, environmental
and administrative proceedings;
o the impact of general economic conditions on consumer spending,
including a slower consumer economy and the effects of war or
terrorist activities;
o our ability to identify appropriate acquisition targets in the
future and to successfully integrate any future acquisitions into
our existing operations; and
o other risks and uncertainties affecting the Company and its
subsidiaries referred to in our Annual Report on Form 10-K for the
fiscal year ended December 28, 2003 (see especially "Item 1.
Business--Risk Factors" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations") and in
our other current and periodic filings with the Securities and
Exchange Commission, all of which are difficult or impossible to
predict accurately and many of which are beyond our control.
We do not undertake and specifically decline any obligation to release
publicly the result of any revisions that may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. In
addition, it is our policy generally not to make any specific projections as to
future earnings, and we do not endorse any projections regarding future
performance that may be made by third parties.
Item 2. Changes in Securities, Use of Proceeds And Issuer Purchases of Equity
Securities.
The following table provides information with respect to repurchases of
shares of our common stock by us and our "affiliated purchasers" (as defined in
Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) during
the first and second fiscal quarters of 2004:
Issuer Repurchases of Equity Securities (1)
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
Total Number of Shares Approximate Dollar
Purchased As Part of Value of Shares That
Total Number of Average Price Paid Publicly Announced Plan May Yet Be Purchased
Period Shares Purchased (2) Per Share (2) (1) (2) Under the Plan (1)
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
December 29, 2003 through
January 25, 2004 681,000 --- --- $48,618,750
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
January 26, 2004 through
February 22, 2004 236,487 $11.10 --- $48,618,750
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
February 23, 2004
through --- --- --- $48,618,750
March 28, 2004
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
March 29, 2004
through 5,242,890 $10.46 --- $48,618,750
April 25, 2004
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
April 26, 2004
through --- --- --- $48,618,750
May 23, 2004
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
May 24, 2004
through --- --- --- $48,618,750
June 27, 2004
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
(1) On June 3, 2003, we announced that our existing stock repurchase
program had been extended until January 18, 2005 and that the amount
available under the program had been replenished to permit the purchase
of up to $50 million of our Class A Common Stock. On August 11, 2003,
we announced that the stock repurchase program had been amended to
permit us to use the $50 million to repurchase shares of our Class B
Common Stock, Series 1. No transactions were effected under our stock
repurchase program during the first and second fiscal quarters of 2004.
(2) Reflects (i) 681,000 shares of Class A Common Stock acquired by
affiliated purchasers in a private transaction consisting of an
exchange, by such affiliated purchasers with a third party, of Class B
Common Stock, Series 1 and cash for such Class A Common Stock; and (ii)
an aggregate of 5,479,377 shares of Class B Common Stock tendered as
payment of the exercise price of employee stock options under the
Company's 1993 Equity Participation Plan.
Item 4. Submission of Matters to a Vote of Security Holders.
On June 9, 2004, we held our Annual Meeting of Stockholders. As previously
announced, at the Annual Meeting Nelson Peltz, Peter W. May, Hugh L. Carey,
Clive Chajet, Joseph A. Levato, David E. Schwab II, Raymond S. Troubh, Gerald
Tsai, Jr. and Jack G. Wasserman were elected to serve as Directors. Stockholders
also approved Proposal 2, to amend our Certificate of Incorporation to increase
the total number of shares of capital stock that we have authority to issue from
three hundred million to three hundred fifty million shares and to increase the
total number of authorized shares of Class B Common Stock from one hundred
million to one hundred fifty million shares, Proposal 3, to re-approve the
Performance Goals Bonus Awards portion of our 1999 Executive Bonus Plan, which
was originally approved by our stockholders in September 1999, and Proposal 4,
ratifying the appointment of Deloitte & Touche LLP as our independent certified
public accountants.
The voting on the above matters is set forth below:
Nominee Votes For Votes Withheld
- ------- --------- --------------
Nelson Peltz 20,444,651 942,818
Peter W. May 20,445,195 942,274
Hugh L. Carey 20,373,694 1,013,774
Clive Chajet 20,426,133 961,336
Joseph A. Levato 17,313,104 4,074,365
David E. Schwab II 20,420,464 967,005
Raymond S. Troubh 20,417,374 970,094
Gerald Tsai, Jr. 20,425,553 961,916
Jack G. Wasserman 20,447,692 939,776
Proposal 2 - There were 19,092,759 votes for, 2,265,708 votes against and
29,000 abstentions. There were no broker non-votes for this item.
Proposal 3 - There were 19,257,607 votes for, 2,029,332 votes against and
100,527 abstentions. There were no broker non-votes for this item.
Proposal 4 - There were 21,298,241 votes for, 75,528 votes against and 13,700
abstentions. There were no broker non-votes for this item.
Item 5. Other Information.
On July 22, 2004, we completed our acquisition of a majority interest in
Deerfield & Company LLC ("Deerfield"), a Chicago-based alternative asset
manager, from Sachs Capital Management LLC ("SCM"), Deerfield Partners Fund II
LLC ("DPF II"), Scott A. Roberts and Marvin Shrear. Deerfield, through Deerfield
Capital Management LLC ("DCM"), its operating subsidiary, offers a diverse range
of alternative fixed income strategies to institutional investors. As of July 1,
2004, DCM had over $8.1 billion in assets under management. Deerfield generated
revenues of approximately $36.9 million for the 12 months ended December 31,
2003.
The purchased interests represent approximately 63.6% of the outstanding
membership interests and in excess of 90% of the outstanding voting power of
Deerfield. The remainder of the economic and voting interests in Deerfield are
owned by senior management of Deerfield or their affiliates.
The purchase price for the acquisition was approximately $86.5 million,
which reflects an enterprise value of approximately $145 million, subject to
adjustment based on the amount of unrestricted cash on hand and indebtedness as
of the closing date, as provided in the definitive purchase agreement. The
purchase price was paid in cash at the closing from our cash on hand.
As further described in the Fourth Amended and Restated Operating Agreement
of Deerfield, dated as of June 26, 2004 (as amended, the "Operating Agreement"),
a copy of which was filed as Exhibit 10.4 to our Current Report on Form 8-K
filed with the SEC on June 28, 2004, we are entitled to designate a majority of
the members of the board of directors of Deerfield. Deerfield's current
management, including its Chairman and Chief Executive Officer Gregory H. Sachs,
its President Scott Roberts and its Chief Investment Officer Jonathan Trutter,
and portfolio management teams, remain intact and will continue to oversee
Deerfield's day-to-day operations.
The Operating Agreement further provides that, commencing on the fifth
anniversary of the closing of the acquisition, we will have certain rights to
acquire the membership interests of Deerfield owned by Mr. Sachs (the "Sachs
Interest") and Mr. Roberts (the "Roberts Interest"), which represent in the
aggregate approximately 35% of the outstanding membership interests. In
addition, commencing on the third anniversary of the closing of the transaction,
Messrs. Sachs and Roberts will have certain rights to require us to acquire the
Sachs Interest and the Roberts Interest. In each case, the rights are
exercisable at a price equal to the then current fair market value of the Sachs
Interest or the Roberts Interest (subject to certain exceptions in the case of
the Sachs Interest). Our right to acquire the Sachs Interest and the Roberts
Interest, and Messrs. Sachs' and Roberts' rights to require us to acquire such
interests, may be accelerated in full upon the occurrence of certain specified
events.
In connection with the acquisition, and as further described in a
Commitment Agreement, dated as of June 26, 2004, among Triarc, SCM, Roberts and
DCM (the "Commitment Agreement"), a copy of which was filed as Exhibit 10.5 to
our Current Report on Form 8-K filed with the SEC on June 28, 2004, we have also
committed to invest $100 million to seed a new multi-strategy hedge fund to be
managed by Deerfield.
In addition, Mr. Sachs, the Chairman and Chief Executive Officer of DCM and
Deerfield, entered into a new five year employment agreement with Deerfield and
DCM, a copy of the agreement and a supplement thereto were filed as Exhibits
10.6 and 10.7 to our Current Report on Form 8-K filed with the SEC on July 22,
2004. As previously reported, a portion of the compensation payable to Mr. Sachs
pursuant to the agreement is subject to the adoption by our stockholders of an
amendment to our 1999 Executive Bonus Plan.
Triarc and Deerfield previously formed an investment adviser, TDM Advisors
LLC ("TDM"), to manage the assets of Triarc Deerfield Investment Corporation
("Triarc Deerfield"), a newly-formed business development company that, as
previously announced, filed a registration statement with the Securities and
Exchange Commission relating to a proposed $500 million initial public offering
of its common stock. As a result of our acquisition of a majority interest in
Deerfield, TDM is now a wholly-owned subsidiary of Deerfield and an indirect
subsidiary of Triarc.
On July 12, 2004, Triarc Deerfield filed an amendment to its registration
statement on Form N-2 in connection with its proposed public offering. In the
registration statement, Triarc Deerfield disclosed that it will not pay a sales
load in connection with the offering. Instead, TDM has agreed to pay a one-time
fee to the underwriters upon the closing of the offering equal to 4.75% of the
offering price or $0.95 per share ($23,750,000, based on an offering of
25,000,000 shares or $27,312,500 if the underwriters' over-allotment option is
exercised in full). Triarc Deerfield also disclosed that TDM has agreed to pay
the expenses of the proposed offering, which it estimates to be approximately
$1,670,125, and organizational expenses (which are non-recurring), which it
estimates to be approximately $250,000.
TDM will borrow the funds to make the foregoing payments from us, and will
be obligated to repay us over a six year period. TDM currently expects to obtain
the funds to repay the loan from the management fees paid to it by Triarc
Deerfield.
If the offering is completed and TDM pays the foregoing expenses, we expect
to record a pre-tax expense for accounting purposes equal to the amount paid by
TDM for such underwriting compensation and offering and organizational expenses.
The offering is currently expected to close during the second half of 2004 and
such expense would be recorded at such time.
There can be no assurance that the initial public offering of common stock
of Triarc Deerfield will be completed or, if completed, that the terms of such
offering will not change from those described in the registration statement
previously filed with the Securities and Exchange Commission.
A registration statement relating to the securities to be issued by Triarc
Deerfield has been filed with the Securities and Exchange Commission but has not
yet become effective. These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes effective. This
Quarterly Report on Form 10-Q is not an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State. Investors should
consider the investment objectives, risks, charges and expenses of Triarc
Deerfield carefully before investing. This and other information about Triarc
Deerfield will be contained in a prospectus that may be obtained, once
available, from Triarc Deerfield. The prospectus should be read carefully before
investing. The information in the registration statement filed with the
Securities and Exchange Commission in any preliminary prospectus and in this
Quarterly Report on Form 10-Q is not complete and may be changed.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Purchase Agreement, dated as of June 26, 2004, by and among Triarc
Companies, Inc., Sachs Capital Management LLC, Deerfield Partners Fund II
LLC, Scott A. Roberts, Marvin Shrear and Gregory H. Sachs, incorporated
herein by reference to Exhibit 2.1 to Triarc's Current Report on Form 8-K
dated June 28, 2004 (SEC file no. 1-2207).
3.1 Certificate of Incorporation of Triarc Companies, Inc., as currently in
effect, incorporated herein by reference to Exhibit 3.1 to Triarc's Current
Report on Form 8-K dated June 9, 2004 (SEC file no. 1-2207).
10.1 Fourth Amended and Restated Operating Agreement of Deerfield & Company LLC,
dated as of June 26, 2004, incorporated herein by reference to Exhibit 10.4
to Triarc's Current Report on Form 8-K dated June 28, 2004 (SEC file no.
1-2207).
10.2 Commitment Agreement, dated as of June 26, 2004, by and among Triarc
Companies, Inc., Sachs Capital Management LLC, Scott A. Roberts and
Deerfield Capital Management LLC, incorporated herein by reference to
Exhibit 10.5 to Triarc's Current Report on Form 8-K dated June 28, 2004
(SEC file no. 1-2207).
10.3 Employment Agreement, dated as of June 26, 2004, by and among Deerfield &
Company LLC, Deerfield Capital Management LLC and Gregory H. Sachs,
incorporated herein by reference to Exhibit 10.6 to Triarc's Current Report
on Form 8-K dated July 22, 2004 (SEC file no. 1-2207).
10.4 Supplement, dated as of July 14, 2004, to the Employment Agreement, dated
as of June 26, 2004, by and among Deerfield & Company LLC, Deerfield
Capital Management LLC and Gregory H. Sachs, incorporated herein by
reference to Exhibit 10.7 to Triarc's Current Report on Form 8-K dated July
22, 2004 (SEC file no. 1-2207).
10.5 First Amendment to Purchase Agreement, dated as of July 22, 2004, by and
among Triarc Companies, Inc., Sachs Capital Management LLC, Deerfield
Partners Fund II LLC, Scott A. Roberts, Marvin Shrear and Gregory H. Sachs,
incorporated herein by reference to Exhibit 10.8 to Triarc's Current Report
on Form 8-K dated July 22, 2004 (SEC file no. 1-2207).
10.6 First Supplement to Fourth Amended and Restated Operating Agreement of
Deerfield & Company LLC, dated as of July 22, 2004, incorporated herein by
reference to Exhibit 10.9 to Triarc's Current Report on Form 8-K dated July
22, 2004 (SEC file no. 1-2207). 31.1 Certification of the Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an
exhibit to this report on Form 10-Q.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on June 10, 2004, which included
information under Item 7 of such form.
The Registrant furnished a report on Form 8-K on May 7, 2004, which
included information under Item 12 of such form.
The Registrant filed a report on Form 8-K on April 19, 2004, which
included information under Item 5 of such form.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIARC COMPANIES, INC.
(Registrant)
Date: August 6, 2004 By: /S/ FRANCIS T. McCARRON
--------------------------------
Francis T. McCarron
Senior Vice President and
Chief Financial Officer
(On behalf of the Company)
Date: August 6, 2004 By: /S/ FRED H. SCHAEFER
--------------------------------
Fred H. Schaefer
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Exhibit Index
-------------
Exhibit
No. Description Page No.
- ------- ----------- --------
2.1 Purchase Agreement, dated as of June 26, 2004,
by and among Triarc Companies, Inc., Sachs Capital
Management LLC, Deerfield Partners Fund II LLC,
Scott A. Roberts, Marvin Shrear and Gregory H. Sachs,
incorporated herein by reference to Exhibit 2.1 to
Triarc's Current Report on Form 8-K dated June 28, 2004
(SEC file no. 1-2207).
3.1 Certificate of Incorporation of Triarc Companies, Inc.,
as currently in effect, incorporated herein by reference
to Exhibit 3.1 to Triarc's Current Report on Form 8-K
dated June 9, 2004 (SEC file no. 1-2207).
10.1 Fourth Amended and Restated Operating Agreement of
Deerfield & Company LLC, dated as of June 26, 2004,
incorporated herein by reference to Exhibit 10.4 to
Triarc's Current Report on Form 8-K dated June 28, 2004
(SEC file no. 1-2207).
10.2 Commitment Agreement, dated as of June 26, 2004, by and
among Triarc Companies, Inc., Sachs Capital Management
LLC, Scott A. Roberts and Deerfield Capital Management
LLC, incorporated herein by reference to Exhibit 10.5
to Triarc's Current Report on Form 8-K dated June 28,
2004 (SEC file no. 1-2207).
10.3 Employment Agreement, dated as of June 26, 2004, by
and among Deerfield & Company LLC, Deerfield Capital
Management LLC and Gregory H. Sachs, incorporated
herein by reference to Exhibit 10.6 to Triarc's Current
Report on Form 8-K dated July 22, 2004 (SEC file no.
1-2207).
10.4 Supplement, dated as of July 14, 2004, to the Employment
Agreement, dated as of June 26, 2004, by and among
Deerfield & Company LLC, Deerfield Capital Management
LLC and Gregory H. Sachs, incorporated herein by
reference to Exhibit 10.7 to Triarc's Current Report
on Form 8-K dated July 22, 2004 (SEC file no. 1-2207).
..
10.5 First Amendment to Purchase Agreement, dated as of
July 22, 2004, by and among Triarc Companies, Inc.,
Sachs Capital Management LLC, Deerfield Partners
Fund II LLC, Scott A. Roberts, Marvin Shrear and
Gregory H. Sachs, incorporated herein by reference
to Exhibit 10.8 to Triarc's Current Report on Form
8-K dated July 22, 2004 (SEC file no. 1-2207).
..
10.6 First Supplement to Fourth Amended and Restated
Operating Agreement of Deerfield & Company LLC,
dated as of July 22, 2004, incorporated herein
by reference to Exhibit 10.9 to Triarc's Current
Report on Form 8-K dated July 22, 2004
(SEC file no. 1-2207).
31.1 Certification of the Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of the Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification of the Chief Executive Officer
and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, furnished
as an exhibit to this report on Form 10-Q.
EXHIBIT 31.1
CERTIFICATIONS
I, Nelson Peltz, the Chairman and Chief Executive Officer of Triarc
Companies, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triarc Companies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 6, 2004 /S/ NELSON PELTZ
------------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, Francis T. McCarron, the Senior Vice President and Chief Financial
Officer of Triarc Companies, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triarc Companies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 6, 2004 /S/ FRANCIS T. McCARRON
-------------------------------------------------
Francis T. McCarron
Senior Vice President and Chief Financial Officer
EXHIBIT 32.1
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of section 1350, chapter 63 of title 18, United States Code), each of
the undersigned officers of Triarc Companies, Inc., a Delaware corporation (the
"Company"), does hereby certify, to the best of such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 27, 2004 (the
"Form 10-Q") of the Company fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained
in the Form 10-Q fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: August 6, 2004 /S/ NELSON PELTZ
------------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
Dated: August 6, 2004 /S/ FRANCIS T. McCARRON
------------------------------------
Francis T. McCarron
Senior Vice President and Chief
Financial Officer
A signed original of this written statement required by Section 906, or
other document authenticating, acknowledging or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to Triarc Companies, Inc.
and will be retained by Triarc Companies, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to section
906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,
chapter 63 of title 18, United States Code) and is not being filed as part of
the Form 10-Q or as a separate disclosure document.