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 July 3, 2005
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 23,923,541 shares of the registrant's Class A Common Stock and
52,383,051 shares of the registrant's Class B Common Stock outstanding as of
August 1, 2005.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 2, July 3,
2005 (A) 2005
------- ----
(In Thousands)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.........................................................$ 367,992 $ 318,789
Restricted cash equivalents....................................................... 16,272 196,285
Short-term investments............................................................ 198,218 628,674
Investment settlements receivable................................................. 30,116 210,820
Trade and other receivables....................................................... 34,215 21,648
Inventories....................................................................... 2,222 2,386
Deferred income tax benefit....................................................... 14,620 15,459
Prepaid expenses and other current assets......................................... 6,111 9,854
----------- -----------
Total current assets........................................................... 669,766 1,403,915
Restricted cash equivalents............................................................ 32,886 32,912
Investments............................................................................ 82,214 87,032
Properties............................................................................. 103,434 99,101
Goodwill .............................................................................. 118,264 118,566
Asset management contracts and other intangible assets................................. 38,896 35,975
Deferred costs and other assets........................................................ 21,513 27,181
----------- -----------
$ 1,066,973 $ 1,804,682
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.....................................................................$ 15,334 $ 9,150
Current portion of long-term debt................................................. 37,214 14,235
Accounts payable.................................................................. 13,261 19,296
Investment settlements payable.................................................... 9,651 40,751
Securities sold under agreements to repurchase.................................... 15,169 400,044
Other liability positions related to short-term investments....................... 10,624 368,967
Accrued expenses and other current liabilities.................................... 90,757 74,804
Current liabilities relating to discontinued operations........................... 13,834 13,290
----------- -----------
Total current liabilities...................................................... 205,844 940,537
Long-term debt......................................................................... 446,479 450,599
Deferred compensation payable to related parties....................................... 32,941 34,348
Deferred income taxes.................................................................. 20,002 20,549
Minority interests in consolidated subsidiaries........................................ 10,688 12,559
Other liabilities and deferred income.................................................. 47,880 45,985
Stockholders' equity:
Class A common stock.............................................................. 2,955 2,955
Class B common stock.............................................................. 5,910 5,910
Additional paid-in capital........................................................ 128,096 140,314
Retained earnings................................................................. 337,415 331,136
Common stock held in treasury..................................................... (227,822) (225,829)
Deferred compensation payable in common stock..................................... 54,457 54,457
Unearned compensation............................................................. (1,350) (10,481)
Accumulated other comprehensive income............................................ 3,478 1,643
----------- -----------
Total stockholders' equity..................................................... 303,139 300,105
----------- -----------
$ 1,066,973 $ 1,804,682
=========== ===========
(A) Derived and reclassified from the audited consolidated financial statements
as of January 2, 2005.
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 27, July 3, June 27, July 3,
2004 2005 2004 2005
---- ---- ---- ----
(In Thousands Except Per Share Amounts)
(Unaudited)
Revenues:
Net sales.......................................................$ 52,661 $ 54,989 $ 99,385 $ 106,179
Royalties and franchise and related fees ....................... 24,804 26,947 47,271 50,526
Asset management and related fees .............................. -- 11,787 -- 24,715
-------- --------- --------- ---------
77,465 93,723 146,656 181,420
-------- --------- --------- ---------
Costs and expenses:
Cost of sales, excluding depreciation and amortization.......... 41,604 41,038 78,989 80,227
Cost of services, excluding depreciation and amortization....... -- 4,614 -- 8,763
Advertising and selling......................................... 4,629 4,427 8,796 9,010
General and administrative, excluding depreciation and
amortization................................................. 24,472 35,374 48,782 69,188
Depreciation and amortization, excluding amortization of
deferred financing costs..................................... 3,464 5,541 6,815 11,067
-------- --------- --------- ---------
74,169 90,994 143,382 178,255
-------- --------- --------- ---------
Operating profit.......................................... 3,296 2,729 3,274 3,165
Interest expense..................................................... (9,004) (12,484) (18,638) (22,737)
Insurance expense related to long-term debt.......................... (958) (859) (1,949) (1,763)
Investment income, net............................................... 4,645 7,576 11,169 16,676
Gain on sale of businesses........................................... 6 3,056 22 12,664
Other income, net.................................................... 779 1,483 739 1,113
-------- --------- --------- ---------
Income (loss) from continuing operations before income
taxes and minority interests......................... (1,236) 1,501 (5,383) 9,118
(Provision for) benefit from income taxes............................ (50) (497) 941 (3,010)
Minority interests in (income) loss of consolidated subsidiaries..... 10 (1,056) 10 (3,481)
-------- --------- --------- ---------
Income (loss) from continuing operations.................. (1,276) (52) (4,432) 2,627
Gain on disposal of discontinued operations.......................... -- 471 -- 471
-------- --------- --------- ---------
Net income (loss).........................................$ (1,276) $ 419 $ (4,432) $ 3,098
======== ========= ========= =========
Basic and diluted income (loss) per share of Class A common stock
and Class B common stock:
Continuing operations.....................................$ (.02) $ -- $ (.07) $ .04
Discontinued operations................................... -- .01 -- .01
-------- --------- --------- ---------
Net income (loss).........................................$ (.02) $ .01 $ (.07) $ .05
======== ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
---------------------------
June 27, July 3,
2004 2005
---- ----
(In Thousands)
(Unaudited)
Cash flows from continuing operating activities:
Net income (loss)....................................................................$ (4,432) $ 3,098
Adjustments to reconcile net income (loss) to net cash provided by (used in)
continuing operating activities:
Operating investment adjustments, net (see below).............................. 21,768 (395,450)
Gain on sale of businesses..................................................... (22) (12,664)
Equity in undistributed earnings of investees.................................. (1,132) (1,225)
Deferred asset management fees recognized...................................... -- (986)
Unfavorable lease liability recognized......................................... (823) (581)
Gain on disposal of discontinued operations.................................... -- (471)
Depreciation and amortization of properties.................................... 6,172 7,596
Amortization of other intangible assets and certain other items................ 643 3,471
Amortization of deferred financing costs and original issue discount........... 1,294 1,264
Minority interests in income (loss) of consolidated subsidiaries............... (10) 3,481
Stock-based compensation provision............................................. -- 2,677
Deferred compensation expense.................................................. 1,004 678
Deferred income tax provision (benefit)........................................ (1,774) 620
Other, net ................................................................. 384 159
Changes in operating assets and liabilities:
(Increase) decrease in trade and other receivables......................... (904) 7,567
Increase in inventories.................................................... (68) (164)
Increase in prepaid expenses and other current assets...................... (1,626) (4,147)
Decrease in accounts payable and accrued expenses and other current
liabilities.............................................................. (10,250) (15,015)
------------- -----------
Net cash provided by (used in) continuing operating activities.......... 10,224 (400,092)(A)
------------ -----------
Cash flows from continuing investing activities:
Investment activities, net (see below)............................................... (55,025) 383,814
Collection of a note receivable...................................................... -- 5,000
Costs of business acquisitions....................................................... (431) (1,312)
Capital expenditures................................................................. (2,794) (3,142)
Other, net........................................................................... 79 (51)
------------ -----------
Net cash provided by (used in) continuing investing activities.......... (58,171) 384,309
------------ -----------
Cash flows from continuing financing activities:
Repayments of notes payable and long-term debt....................................... (17,345) (26,946)
Proceeds from issuance of a note payable............................................. -- 1,425
Dividends paid ..................................................................... (8,896) (9,377)
Net distributions to minority interests in consolidated subsidiaries................. -- (1,735)
Proceeds from exercises of stock options............................................. 9,308 2,075
Repurchases of common stock for treasury............................................. (1,381) --
Other................................................................................ 41 957
------------ -----------
Net cash used in continuing financing activities........................ (18,273) (33,601)
------------ -----------
Net cash used in continuing operations.................................................. (66,220) (49,384)
Net cash provided by (used in) discontinued operations.................................. (297) 181
------------ -----------
Net decrease in cash and cash equivalents............................................... (66,517) (49,203)
Cash and cash equivalents at beginning of period........................................ 560,510 367,992
------------ -----------
Cash and cash equivalents at end of period..............................................$ 493,993 $ 318,789
============ ===========
Detail of cash flows related to investments:
Operating investment adjustments, net:
Cost of trading securities purchased.............................................$ (114,384) $(1,569,171)
Proceeds from sales of trading securities and net settlements of trading
derivatives.................................................................... 139,255 1,174,866
Net recognized losses from trading securities and derivatives and short
positions in securities........................................................ 510 2,648
Other net recognized gains, including other than temporary losses................ (2,112) (2,883)
Accretion of discount on debt securities and short positions in securities, net
of distributions received...................................................... (1,501) (910)
------------ -----------
$ 21,768 $ (395,450)
============ ===========
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended
-----------------------------
June 27, July 3,
2004 2005
---- ----
(In Thousands)
(Unaudited)
Investing investment activities, net:
Net proceeds from sales of repurchase agreements.................................$ -- $ 384,239
Proceeds from securities sold short.............................................. 19,539 641,137
Payments to cover short positions in securities.................................. (17,719) (478,800)
Proceeds from sales and maturities of available-for-sale securities and other
investments.................................................................... 98,790 71,647
Cost of available-for-sale securities and other investments purchased............ (162,902) (54,396)
(Increase) decrease in restricted cash equivalents............................... 7,267 (180,013)
------------ -----------
$ (55,025) $ 383,814
============ ===========
(A) Net cash used in continuing operating activities reflects the significant
net purchases of trading securities and net settlements of trading
derivatives, which were principally funded by proceeds from net sales of
repurchase agreements and the net proceeds from securities sold short.
These purchases and sales were principally transacted through an investment
fund, Deerfield Opportunities Fund, LLC, which employs leverage in its
trading activities and which we consolidate in our condensed consolidated
financial statements. Under accounting principles generally accepted in the
United States of America, the net purchases of trading securities and the
net settlements of trading derivatives must be reported in continuing
operating activities. However, the net sales of repurchase agreements and
the net proceeds from securities sold short are reported in continuing
investing activities.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
July 3, 2005
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements (the
"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 ("GAAP"). In the opinion of the Company, however,
the Financial Statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Company's financial
position and results of operations as of and for the three-month and six-month
periods and its cash flows for the six-month periods set forth in the following
paragraph. The results of operations for the three-month and six-month periods
ended July 3, 2005 are not necessarily indicative of the results to be expected
for the full year. These Financial Statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2005
(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. However, Deerfield & Company LLC
("Deerfield"), in which the Company acquired a 63.6% capital interest on July
22, 2004 (see Note 3), Deerfield Opportunities Fund, LLC (the "Opportunities
Fund"), which commenced during the fourth quarter of 2004 and in which the
Company owns a 95.2% capital interest, and DM Fund, LLC which commenced during
the first quarter of 2005 and in which the Company owns a 93.3% capital interest
report on a calendar year ending on December 31. 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 Company's first half of fiscal
2005 commenced on January 3, 2005 and ended on July 3, 2005, with its second
quarter commencing on April 4, 2005, except that Deerfield, the Opportunities
Fund and DM Fund, LLC are included for the first half commencing on January 1,
2005 and ending on June 30, 2005, with the second quarter commencing on April 1,
2005. 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. The periods from April 4, 2005 to July 3,
2005 and January 3, 2005 to July 3, 2005 are referred to herein as the
three-month and six-month periods ended July 3, 2005, respectively. Each quarter
contained 13 weeks and each half contained 26 weeks. The effects of including
Deerfield, the Opportunities Fund and DM Fund, LLC in the Company's Financial
Statements for the periods from April 1, 2005 to June 30, 2005 and January 1,
2005 to June 30, 2005 instead of the Company's three-month and six-month periods
ended July 3, 2005, were not material. All references to quarters and
quarter-end(s) herein relate to fiscal quarters rather than calendar quarters,
except with respect to Deerfield, the Opportunities Fund and DM Fund, LLC.
Certain amounts included in the accompanying prior periods' 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,
including shares of the Company's common stock granted in lieu of annual
retainer or meeting attendance fees to non-employee directors.
The Company measures compensation costs for its employee stock-based
compensation, other than employee membership interests in future profits of a
subsidiary, under the intrinsic value method rather than the fair value method.
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 (the "Class A
Common Stock"), and/or class B common stock, series 1 (the "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 recognized as compensation expense over the vesting period of the related
stock options.
On March 14, 2005, the Company granted 149,000 and 731,000 contingently
issuable performance-based restricted shares of Class A Common Stock and Class B
Common Stock, respectively, (the "Restricted Shares") to certain officers and
key employees under its 2002 equity participation plan. The Restricted Shares
vest ratably over three years, subject to meeting, in each case, certain Class B
Common Stock market price targets of between $12.09 and $16.09 per share, or to
the extent not previously vested, on March 14, 2010 subject to meeting a Class B
Common Stock market price target of $18.50 per share. The prices of the
Company's Class A and Class B Common Stock on the March 14, 2005 grant date were
$15.59 and $14.75 per share, respectively. The Company's Restricted Shares are
accounted for as variable plan awards, since they vest only if the Company's
Class B Common Stock meets certain market price targets. The Company measures
compensation cost for its Restricted Shares by estimating the expected number of
shares that will ultimately vest based on the market price of its Class B Common
Stock at the end of each period. Such amounts are recognized ratably as
compensation expense over the vesting period of the related Restricted Shares
and are adjusted based on the market price of the Class B Common Stock at the
end of each period.
A summary of the effect on net income (loss) and net income (loss) per
share in each period presented as if the fair value method, calculated under the
Black-Scholes-Merton option pricing model (the "Black-Scholes Model"), had been
applied to all outstanding and unvested stock options and Restricted Shares is
as follows (in thousands except per share data):
Three Months Ended Six Months Ended
-------------------- --------------------
June 27, July 3, June 27, July 3,
2004 2005 2004 2005
---- ---- ---- ----
Net income (loss), as reported..................................$ (1,276) $ 419 $ (4,432) $ 3,098
Reversal of stock-based compensation expense determined
under the intrinsic value method included in reported net
income or loss, net of related income taxes................... 157 1,359 157 1,515
Recognition of stock-based compensation expense determined
under the fair value method, net of related income taxes...... (659) (3,659) (1,177) (5,536)
-------- -------- -------- --------
Net (loss), as adjusted.........................................$ (1,778) $ (1,881) $ (5,452) $ (923)
======== ======== ======== ========
Basic and diluted income (loss) per share of Class A Common
Stock and Class B Common Stock:
As reported................................................$ (.02) $ .01 $ (.07) $ .05
As adjusted................................................ (.03) (.03) (.09) (.01)
Stock options granted during the periods presented below 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 date of grant was estimated using
the Black-Scholes Model with the following weighted average assumptions:
Six Months Ended
--------------------------------------------
June 27, 2004 July 3, 2005
------------------- ---------------------
Class A Class B Class A Class B
Options Options Options Options
------- ------- ------- -------
Risk-free interest rate........................................ 3.96% 3.87% 3.86% 3.86%
Expected option life in years.................................. 7 7 7 7
Expected volatility............................................ 19.6% 32.7% 17.7% 28.1%
Dividend yield................................................. 2.41% 2.63% 2.23% 2.63%
During the six-month period ended June 27, 2004, the Company granted 43,000
Class A Options and 239,000 Class B Options and during the six-month period
ended July 3, 2005, the Company granted 28,000 Class A Options and 4,529,000
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
values of each of these stock options, using the Black-Scholes Model with the
assumptions set forth above, were $2.23, $3.33, $3.05 and $3.98 respectively.
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-option 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 estimates.
Therefore, in the opinion of the Company, the existing model does not
necessarily provide a reliable single measure of the fair value of the Company's
stock-option awards.
(3) Business Acquisitions
On July 22, 2004 the Company acquired a 63.6% capital interest in Deerfield
(the "Deerfield Acquisition") for an aggregate cost of $94,907,000, consisting
of payments of $86,532,000 to selling owners and estimated expenses of
$8,375,000, including expenses reimbursed to a selling owner. In connection with
the Deerfield Acquisition, effective August 20, 2004 Deerfield granted
membership interests in future profits to certain of its key employees, which
reduced the Company's interest in the profits of Deerfield subsequent to August
19, 2004 to 61.5%. The Company acquired Deerfield with the expectation of
growing the substantial value of Deerfield's historically profitable investment
advisory brand. Deerfield is an asset manager and represents a business segment
of the Company (see Note 10).
Deerfield's results of operations, less applicable minority interests, and
cash flows subsequent to the July 22, 2004 date of the Deerfield Acquisition
have been included in the Company's condensed consolidated statements of
operations and cash flows. As such, Deerfield's results of operations and cash
flows are included in the Company's consolidated results for the three-month and
six-month periods ended July 3, 2005, but are not included for the three-month
and six-month periods ended June 27, 2004.
The allocation of the purchase price of Deerfield to the assets acquired
and liabilities assumed included in Note 3 to the consolidated financial
statements contained in the Form 10-K is now final.
The following supplemental pro forma condensed consolidated summary
operating data (the "As Adjusted Data") of the Company for the three-month and
six-month periods ended June 27, 2004 has been prepared by adjusting the
historical data as set forth in the accompanying condensed consolidated
statements of operations to give effect to the Deerfield Acquisition as if it
had been consummated as of December 29, 2003 (in thousands except per share
amounts):
Three Months Ended Six Months Ended
June 27, 2004 June 27, 2004
--------------------------- ----------------------------
As Reported As Adjusted As Reported As Adjusted
----------- ----------- ----------- -----------
Revenues............................................... $ 77,465 $ 91,541 $ 146,656 $ 172,659
Operating profit....................................... 3,296 7,399 3,274 11,063
Income (loss) from continuing operations and net
income (loss)....................................... (1,276) 13 (4,432) (1,999)
Basic and diluted loss per share of Class A Common
Stock and Class B Common Stock from continuing
operations and net income (loss).................... (.02) -- (.07) (.03)
This As Adjusted Data is presented for comparative purposes only and does
not purport to be indicative of the Company's actual condensed consolidated
results of operations had the Deerfield Acquisition actually been consummated as
of December 29, 2003 or of the Company's future results of operations.
See Note 11 for disclosure of the acquisition of the RTM Restaurant Group
completed on July 25, 2005.
(4) Comprehensive Income (Loss)
The following is a summary of the components of comprehensive income
(loss), net of income taxes and minority interests (in thousands):
Three Months Ended Six Months Ended
------------------------- -----------------------
June 27, July 3, June 27, July 3,
2004 2005 2004 2005
---- ---- ---- ----
Net income (loss) ........................................$ (1,276) $ 419 $ (4,432) $ 3,098
Net change in unrealized gains and losses on available-
for-sale securities (see below)......................... (1,398) (1,200) (846) (1,875)
Net change in unrealized gains and losses on cash flow
hedges (see below)...................................... -- (387) -- 27
Net change in currency translation adjustment............. (6) (6) (9) 13
--------- -------- --------- --------
Comprehensive income (loss)...............................$ (2,680) $ (1,174) $ (5,287) $ 1,263
========= ======== ========= ========
The following is a summary of the components of the net change in
unrealized gains and losses on available-for-sale securities included in
comprehensive income (loss) (in thousands):
Three Months Ended Six Months Ended
------------------------- -----------------------
June 27, July 3, June 27, July 3,
2004 2005 2004 2005
---- ---- ---- ----
Unrealized holding gains (losses) arising during the
period..................................................$ (2,027) $ (960) $ (1,417) $ 62
Reclassifications of prior period unrealized holding
(gains) losses into "Investment income, net"............ (146) (2,075) 104 (2,709)
Equity in unrealized holding gains (losses) arising
during the period....................................... 1 806 (1) (557)
Equity in reclassifications of prior period unrealized
holding losses reported in "Other income, net".......... -- 302 -- 302
--------- -------- --------- --------
(2,172) (1,927) (1,314) (2,902)
Income tax benefit........................................ 774 655 468 1,032
Minority interests in a consolidated subsidiary........... -- 72 -- (5)
--------- -------- --------- --------
$ (1,398) $ (1,200) $ (846) $ (1,875)
========= ======== ========= ========
The following is a summary of the components of the net change in
unrealized gains and losses on cash flow hedges included in comprehensive income
(loss) (in thousands):
Three Six
Months Months
Ended Ended
July 3, July 3,
2005 2005
---- ----
Equity in unrealized (losses) on cash flow hedges arising during the period..............$ (684) $ (36)
Equity in reclassifications of prior period losses reported in "Other income, net"....... 78 78
Income tax benefit (provision) .......................................................... 219 (15)
--------- --------
$ (387) $ 27
========= ========
(5) Income (Loss) Per Share
Basic income (loss) per share has been computed by dividing the allocated
income or loss for the Company's Class A Common Stock and the Company's Class B
Common Stock by the weighted average number of shares of each class. Both
factors are presented in the tables below. The net loss for the three-month and
six-month periods ended June 27, 2004 was allocated equally among each weighted
average outstanding share of Class A Common Stock and Class B Common Stock,
resulting in the same loss per share for each class. Net income for the
three-month and six-month periods ended July 3, 2005 was allocated between the
Class A Common Stock and Class B Common Stock based on the actual dividend
payment ratio. The weighted average number of shares includes the weighted
average effect of the shares held in two deferred compensation trusts reported
in "Deferred compensation payable in common stock" as a component of
"Stockholders' Equity" in the accompanying condensed consolidated balance
sheets. These shares are not reported as outstanding shares for balance sheet
purposes.
Diluted income (loss) per share for the three-month and six-month periods
ended June 27, 2004 and the three-month period ended July 3, 2005 was the same
as basic income (loss) per share for each share of the Class A Common Stock and
Class B Common Stock since the Company reported a net loss from continuing
operations and, therefore, the effect of all potentially dilutive securities on
the loss from continuing operations per share would have been antidilutive.
Diluted income per share for the six-month period ended July 3, 2005 has been
computed by dividing the allocated income for the Class A Common Stock and Class
B Common Stock by the weighted average number of shares of each class plus the
potential common share effects on each class of (1) dilutive stock options,
computed using the treasury stock method, and (2) contingently issuable
performance-based Restricted Shares of Class A Common Stock and Class B Common
Stock that would be issuable based on the market price of the Class B Common
Stock as of July 3, 2005, as presented in the table below. The shares used to
calculate diluted income per share exclude any effect of the Company's
$175,000,000 of 5% convertible notes which would have been antidilutive since
the after-tax interest on the convertible notes per share of Class A Common
Stock and Class B Common Stock obtainable on conversion exceeds the reported
basic income from continuing operations per share. Such after-tax interest would
be added back to the allocated income for purposes of calculating diluted income
per share.
The only Company securities as of July 3, 2005 that could dilute basic
income per share for periods subsequent to July 3, 2005 are (1) outstanding
stock options which are exercisable into 3,566,000 shares and 13,405,000 shares
of the Company's Class A Common Stock and Class B Common Stock, respectively,
(2) the $175,000,000 of 5% convertible notes which are convertible currently
into 4,375,000 shares and 8,750,000 shares of the Company's Class A Common Stock
and Class B Common Stock, respectively, and (3) 149,000 and 730,000 contingently
issuable Restricted Shares of the Company's Class A Common Stock and Class B
Common Stock, respectively. Certain of the stock options set forth in (1) above
and certain of the contingently issuable Restricted Shares set forth in (3)
above were included in the calculation of diluted income per share for the
six-month period ended July 3, 2005 as set forth in the preceding paragraph and
as quantified in the second table below. In addition, in connection with the
acquisition of the RTM Restaurant Group on July 25, 2005 (see Note 11) the
Company issued 9,684,000 shares of the Company's Class B Common Stock that will
increase the number of shares used to calculate basic and diluted income or loss
per share for periods subsequent to July 25, 2005 and stock options which are
exercisable into 774,000 shares of the Company's Class B Common Stock that could
increase the number of shares used to calculate diluted income per share,
computed using the treasury stock method, subsequent to July 25, 2005.
Income (loss) per share has been computed by allocating the income or loss
as follows (in thousands):
Three Months Ended Six Months Ended
--------------------- --------------------
June 27, July 3, June 27, July 3,
2004 2005 2004 2005
---- ---- ---- ----
Class A Common Stock:
Continuing operations.....................................$ (452) $ (17) $ (1,523) $ 865
Discontinued operations................................... -- 155 -- 155
--------- --------- --------- --------
Net income (loss).........................................$ (452) $ 138 $ (1,523) $ 1,020
========= ========= ========= ========
Class B Common Stock:
Continuing operations.....................................$ (824) $ (35) $ (2,909) $ 1,762
Discontinued operations................................... -- 316 -- 316
--------- --------- --------- --------
Net income (loss).........................................$ (824) $ 281 $ (2,909) $ 2,078
========= ========= ========= ========
The number of shares used to calculate basic and diluted income (loss) per
share were as follows (in thousands):
Three Months Ended Six Months Ended
--------------------- --------------------
June 27, July 3, June 27, July 3,
2004 2005 2004 2005
---- ---- ---- ----
Class A Common Stock:
Weighted average shares
Outstanding............................................... 21,153 22,054 20,385 22,034
Held in deferred compensation trusts...................... 1,166 1,695 771 1,695
--------- --------- --------- --------
Basic shares........................................... 22,319 23,749 21,156 23,729
Dilutive effect of stock options.......................... -- -- -- 1,103
Contingently issuable Restricted Shares................... -- -- -- 81
--------- --------- --------- --------
Diluted shares......................................... 22,319 23,749 21,156 24,913
========= ========= ========= ========
Class B Common Stock:
Weighted average shares
Outstanding............................................... 38,343 38,531 38,872 38,492
Held in deferred compensation trusts...................... 2,332 3,390 1,543 3,390
--------- --------- --------- --------
Basic shares........................................... 40,675 41,921 40,415 41,882
Dilutive effect of stock options.......................... -- -- -- 2,378
Contingently issuable Restricted Shares................... -- -- -- 396
--------- --------- --------- --------
Diluted shares......................................... 40,675 41,921 40,415 44,656
========= ========= ========= ========
(6) Discontinued Operations
Prior to 2004 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 interest in a partnership and subpartnership comprising the Company's
former propane business segment (the "Propane Discontinued Operations"). The
Beverage, SEPSCO and Propane Discontinued Operations have been accounted for as
discontinued operations by the Company. There remain certain obligations not
transferred to the buyers of these discontinued businesses to be liquidated.
During the three-month period ended July 3, 2005, the Company recorded an
additional gain on the disposal of the SEPSCO Discontinued Operations of
$471,000, net of $254,000 of income taxes, resulting from the gain on sale of a
former refrigeration property that had been held for sale and the reversal of a
related reserve for potential environmental liabilities associated with the
property that were assumed by the buyer.
Current liabilities relating to the discontinued operations consisted of
the following (in thousands):
January 2, July 3,
2005 2005
---- ----
Accrued expenses, including accrued income taxes, of the Beverage
Discontinued Operations.........................................................$ 12,455 $ 12,216
Liabilities relating to the SEPSCO and Propane Discontinued Operations............ 1,379 1,074
----------- -----------
$ 13,834 $ 13,290
=========== ===========
The Company expects that the liquidation of these remaining liabilities
will not have a material adverse effect on its consolidated financial position
or results of operations. To the extent any estimated amounts included in
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 on disposal of
discontinued operations.
(7) 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 27, July 3, June 27, July 3,
2004 2005 2004 2005
---- ---- ---- ----
Service cost (consisting entirely of plan expenses).$ 23 $ 23 $ 45 $ 47
Interest cost....................................... 60 59 121 118
Expected return on the plans' assets................ (71) (70) (142) (140)
Amortization of unrecognized net loss............... 8 13 16 25
----------- ----------- ----------- -----------
Net periodic pension cost...........................$ 20 $ 25 $ 40 $ 50
=========== =========== =========== ===========
(8) Transactions with Related Parties
Prior to 2004 the Company provided incentive compensation of $22,500,000,
in the aggregate, to the Chairman and Chief Executive Officer and the 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 $1,004,000 and $662,000 was
recognized in the six-month periods ended June 27, 2004 and July 3, 2005,
respectively, for increases in the fair value of the investments in the Deferred
Compensation Trusts. Under GAAP, the Company recognizes 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 (loss)
from investments in the Deferred Compensation Trusts of $662,000 and $(133,000)
in the six-month periods ended June 27, 2004 and July 3, 2005, respectively. The
net investment income during the six-month period ended June 27, 2004 consisted
of an $828,000 realized gain from the sale of a cost-method investment in the
Deferred Compensation Trusts, which included increases in value prior to the
six-month period ended June 27, 2004 of $777,000, and $6,000 of interest income,
less $172,000 of investment management fees. The net investment loss during the
six-month period ended July 3, 2005 consisted of investment management fees of
$190,000, less interest income of $57,000. Realized gains, interest income and
investment management fees are included in "Investment income, net" and deferred
compensation expense is included in "General and administrative, excluding
depreciation and amortization" expenses in the accompanying condensed
consolidated statements of operations. As of July 3, 2005, the obligation to the
Executives related to the Deferred Compensation Trusts is $32,386,000 and is
included in "Deferred compensation payable to related parties" in the
accompanying condensed consolidated balance sheet. As of July 3, 2005, the
assets in the Deferred Compensation Trusts consisted of $21,501,000 included in
"Investments," which does not reflect the unrealized increase in the fair value
of the investments and $3,913,000 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.
In December 2004, the Company purchased 1,000,000 shares of Deerfield
Triarc Capital Corp., a real estate investment trust (the "REIT") for which the
Company acts as investment manager, at a price of $15.00 per share before
issuance costs of $0.91 per share. These shares represented an ownership
percentage in the REIT of 3.7% at January 2, 2005. The Company accounts for its
investment in the REIT under the equity method of accounting due to the
Company's significant influence over the operational and financial policies of
the REIT, principally reflecting the Company's greater than 20% representation
on the REIT's board of directors and the management of the REIT by the Company.
In June 2005, the REIT sold 25,000,000 shares (including 679,285 shares sold by
shareholders in the REIT other than the Company and certain of its officers who
did not sell any shares) in an initial public offering at a price of $16.00 per
share before issuance costs of $1.05 per share (the "REIT IPO"). As a result of
the REIT IPO, the Company's ownership percentage in the REIT decreased to 1.9%
and the Company recorded a non-cash gain of $481,000 representing the Company's
equity in the excess of the $14.95 net per share proceeds to the REIT over the
Company's carrying value per share attributed to the decrease in the Company's
ownership percentage. This gain is included in "Gain on sale of businesses" in
the accompanying condensed consolidated statements of operations.
The Company continues to have additional related party transactions of the
same nature and general magnitude as those described in Note 24 to the
consolidated financial statements contained in the Form 10-K.
(9) 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 1970s. 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 during 2004 the work under that plan was completed.
Adams submitted its contamination assessment report to the FDEP in March 2004.
In August 2004, the FDEP agreed to a monitoring plan consisting of two sampling
events which occurred in January and June 2005 and the results have been
submitted to the FDEP for its review, after which it will reevaluate the need
for additional assessment or remediation. Based on provisions made prior to
2004, of $1,667,000 for those costs and after taking into consideration various
legal defenses available to the Company, including Adams, Adams has provided for
its estimate of its remaining liability for completion of this matter.
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 then 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, 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 that was subsequently dismissed in October 2002 and is no
longer being appealed. Through July 3, 2005, 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 $1,200,000 as of July 3,
2005. Although the outcome of such matters cannot be predicted with certainty
and some of these matters may be disposed of unfavorably to the Company, based
on currently available information, including legal defenses available to Triarc
and/or its subsidiaries, and given the aforementioned reserves, the Company does
not believe that the outcome of such legal and environmental matters will have a
material adverse effect on its consolidated financial position or results of
operations.
(10) Business Segments
The Company manages and internally reports its operations as two business
segments: (1) the operation and franchising of restaurants ("Restaurants") and
(2) asset management (see Note 3). The Company evaluates segment performance and
allocates resources based on each segment's earnings before interest, taxes,
depreciation and amortization ("EBITDA"). EBITDA has been computed as operating
profit plus depreciation and amortization, excluding amortization of deferred
financing costs ("Depreciation and Amortization"). Operating profit has been
computed as revenues less operating expenses. In computing EBITDA and operating
profit, interest expense and non-operating income and expenses have not been
considered. Identifiable assets by segment are those assets used in the
Company's operations of each segment. General corporate assets consist primarily
of cash and cash equivalents, short-term investments, receivables, non-current
investments and properties.
The following is a summary of the Company's segment information (in
thousands):
Three Months Ended Six Months Ended
-------------------------- -------------------------
June 27, July 3, June 27, July 3,
2004 2005 2004 2005
---- ---- ---- ----
Revenues:
Restaurants.........................................$ 77,465 $ 81,936 $ 146,656 $ 156,705
Asset management.................................... -- 11,787 -- 24,715
----------- ----------- ----------- -----------
Consolidated revenues..........................$ 77,465 $ 93,723 $ 146,656 $ 181,420
=========== =========== =========== ===========
EBITDA:
Restaurants.........................................$ 17,200 $ 22,432 $ 31,211 $ 39,495
Asset management.................................... -- 1,645 -- 5,568
General corporate................................... (10,440) (15,807) (21,122) (30,831)
----------- ------------ ----------- -----------
Consolidated EBITDA............................ 6,760 8,270 10,089 14,232
----------- ----------- ----------- -----------
Less Depreciation and Amortization:
Restaurants......................................... 2,333 2,553 4,348 5,489
Asset management.................................... -- 1,534 -- 2,617
General corporate................................... 1,131 1,454 2,467 2,961
----------- ----------- ----------- -----------
Consolidated Depreciation and Amortization..... 3,464 5,541 6,815 11,067
----------- ----------- ----------- -----------
Operating profit (loss):
Restaurants......................................... 14,867 19,879 26,863 34,006
Asset management.................................... -- 111 -- 2,951
General corporate................................... (11,571) (17,261) (23,589) (33,792)
----------- ----------- ----------- -----------
Consolidated operating profit.................. 3,296 2,729 3,274 3,165
Interest expense........................................ (9,004) (12,484) (18,638) (22,737)
Insurance expense related to long-term debt............. (958) (859) (1,949) (1,763)
Investment income, net.................................. 4,645 7,576 11,169 16,676
Gain on sale of businesses.............................. 6 3,056 22 12,664
Other income, net....................................... 779 1,483 739 1,113
----------- ----------- ----------- -----------
Consolidated income (loss) from continuing
operations before income taxes and
minority interests...........................$ (1,236) $ 1,501 $ (5,383) $ 9,118
=========== =========== =========== ===========
January 2, July 3,
2005 2005
---- ----
Identifiable assets:
Restaurants..........................................................................$ 209,856 $ 216,460
Asset management..................................................................... 138,818 124,630
General corporate.................................................................... 718,299 1,463,592
----------- -----------
Consolidated total assets........................................................$ 1,066,973 $ 1,804,682
=========== ===========
(11) Subsequent Event - Acquisition of RTM Restaurant Group and Related
Refinancing of Debt
On July 25, 2005, the Company completed the acquisition (the "RTM
Acquisition") of substantially all of the equity interests or the assets of the
entities comprising the RTM Restaurant Group ("RTM"). RTM was Arby's largest
franchisee with 775 Arby's restaurants in 22 states. The aggregate purchase
price for RTM is currently estimated to be $369,209,000 consisting of (1)
$175,000,000 in cash, subject to a post-closing adjustment, (2) 9,684,000 shares
of the Company's Class B Common Stock issued from treasury with a fair value of
$145,265,000 as of July 25, 2005 based on the closing price of the Company's
Class B Common Stock on such date of $15.00 per share, (3) $21,817,000 of debt,
including related accrued interest and prepayment penalties, assumed but not an
obligation of the entities included in the RTM Acquisition (4) stock options to
purchase 774,000 shares of the Company's Class B Common Stock with a fair value
of $4,127,000 as of July 25, 2005, calculated using the Black-Scholes Model,
issued in exchange for existing RTM stock options and (5) $23,000,000 of related
estimated expenses.
The Company refinanced substantially all of the $268,381,000 existing
indebtedness of its restaurant segment and $212,752,000 debt of RTM with a
substantial portion of the $620,000,000 of proceeds from borrowings under a new
credit facility. The refinanced debt of the restaurant segment includes
$198,121,000 of 7.44% insured non-recourse securitization notes, $67,344,000 of
leasehold notes, mortgage notes and equipment notes relating to our
Company-owned restaurants and $2,916,000 of other debt. The credit facility
includes a senior secured term loan facility which provides for term loans (the
"Term Loan") in the aggregate principal amount of $620,000,000 and a senior
secured revolving credit facility of $100,000,000 which matures on July 25, 2011
pursuant to a credit agreement (the "Credit Agreement"). The Term Loan is due
$3,100,000 in 2005, $6,200,000 in 2006 through 2010, $294,500,000 in 2011 and
$291,400,000 in 2012, in each case payable in quarterly installments with the
first payment due on September 30, 2005, and matures on July 25, 2012. However,
the term loan requires prepayments of principal amounts resulting from certain
events and beginning in 2007 a portion of the excess cash flow of the restaurant
segment as determined under the Credit Agreement. The Term Loan bears interest
at the Company's option at either (1) LIBOR plus 2.00% or 2.25% depending on the
leverage ratio or (2) the higher of a base rate determined by the administrative
agent for the Credit Agreement or the Federal Funds rate plus 0.50%, in either
case plus 1.00% or 1.25% depending on the leverage ratio. However, the Credit
Agreement requires the Company to provide protection against interest rate
fluctuations on at least 33% of the outstanding principal amount under the Term
Loan by November 22, 2005 for a period of two years. The Company is currently
evaluating the form and level of protection it will obtain, but expects to
utilize interest rate cap and/or interest rate swap agreements. The Company
incurred $13,000,000 of estimated expenses related to the Credit Agreement which
will be amortized as interest expense using the interest rate method over the
life of the Term Loan.
The obligations under the Credit Agreement are secured by substantially all
of the assets, other than real property, of the Company's restaurant segment and
are also guaranteed by substantially all of the entities comprising the
restaurant segment. Triarc, however, is not a party to the guarantees. In
addition, the Credit Agreement contains various covenants relating to the
Company's restaurant segment, the most restrictive of which (1) require periodic
financial reporting, (2) require meeting certain leverage and interest coverage
ratio tests and (3) restrict, among other matters, (a) the incurrence of
indebtedness, (b) certain asset dispositions, (c) certain affiliate
transactions, (d) certain investments, (e) certain capital expenditures and (f)
the payment of dividends indirectly to Triarc.
In connection with its debt refinancing, the Company incurred approximately
$49,000,000 of costs, including prepayment penalties and fees of approximately
$30,000,000 relating to its restaurant segment debt outstanding prior to the RTM
Acquisition and approximately $13,800,000 relating to RTM debt. These costs also
include the write-off of $4,982,000 of previously unamortized deferred financing
costs on outstanding debt of the restaurant segment prior to the RTM
Acquisition. The Company will record a charge to interest expense of
approximately $35,000,000, before income tax benefit of approximately
$14,000,000, in connection with the refinancing of the restaurant segment debt
outstanding prior to the RTM Acquisition, in its quarter ended October 3, 2005.
The Company is currently evaluating the appropriate accounting for the
$13,800,000 of prepayment penalties and fees relating to the RTM debt, which may
result in an additional charge to interest expense for some or all of this
amount in its quarter ended October 3, 2005. In addition, the Company will incur
employee related severance, retention and relocation expenses during the
remainder of 2005 and extending into 2006 currently estimated to aggregate
approximately $10,000,000, before income tax benefit of approximately
$4,000,000, as a result of combining the Company's restaurant operations with
RTM and the relocation of the corporate office of the restaurant segment to
Atlanta, Georgia.
RTM's results of operations and cash flows subsequent to the July 25, 2005
acquisition date will be included in the Company's consolidated results of
operations and cash flows. Summarized financial information of RTM, which
includes certain assets that were not acquired and related income and expenses,
as of and for the year ended May 30, 2004, the most recent year available, from
its audited combined financial statements and as of and for the forty weeks
ended March 6, 2005, the end of RTM's third fiscal quarter, from its unaudited
combined financial statements is as follows (in thousands):
Forty Weeks
Year Ended Ended
May 30, March 6,
2004 2005
---- ----
Net sales.........................................................................$ 739,996 $ 606,295
Income from continuing operations................................................. 939 4,817
Net income........................................................................ 12,191 8,333
Total assets...................................................................... 446,195 458,970
Capital deficiency................................................................ (39,862) (41,349)
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 January 2, 2005. Item 7 of our
2004 Form 10-K describes our contractual obligations and the application of our
critical accounting policies. There have been no significant changes as of July
3, 2005 pertaining to these topics, although there have been significant changes
in our contractual obligations resulting from the acquisition of RTM Restaurant
Group that we made on July 25, 2005 discussed below and under "Liquidity and
Capital Resources - RTM Acquisition." 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 1."
We currently operate in two business segments. We operate in the restaurant
business through our franchised and Company-owned Arby's restaurants and,
effective with the July 2004 acquisition of Deerfield & Company, LLC, which we
refer to as Deerfield, we operate in the asset management business.
On July 22, 2004 we completed the acquisition of a 63.6% capital interest
in Deerfield, in a transaction we refer to as the Deerfield Acquisition.
Deerfield, through its wholly-owned subsidiary Deerfield Capital Management LLC,
is an asset manager offering a diverse range of fixed income and credit-related
strategies to institutional investors. Deerfield provides asset management
services for investors through (1) collateralized debt obligation vehicles,
which we refer to as CDOs, and (2) investment funds and private investment
accounts, which we refer to as Funds, including Deerfield Triarc Capital Corp.,
a real estate investment trust formed in December 2004, which we refer to as the
REIT. Deerfield's results of operations, less applicable minority interests, and
cash flows are included in our consolidated results for the three-month and
six-month periods ended July 3, 2005, but are not included for the three-month
and six-month periods ended June 27, 2004.
In our restaurant business, 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 Arby's 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 July 3, 2005. In our
asset management business, we derive revenues in the form of asset management
and related fees from our management of CDOs and Funds and we may expand the
types of investments that we offer and manage.
We derived investment income throughout the periods presented principally
from the investment of our excess cash. In that regard, in October 2004 we
invested $100.0 million to seed a multi-strategy hedge fund, Deerfield
Opportunities Fund, LLC, which we refer to as the Opportunities Fund, which is
managed by Deerfield and currently accounted for as a consolidated subsidiary of
ours, with minority interests to the extent of participation by investors other
than us (see "Consolidation of Opportunities Fund"). When we refer to Deerfield
or the effect of the Deerfield Acquisition in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations," we mean only
Deerfield & Company, LLC and not the Opportunities Fund. The Opportunities Fund
principally invests in various fixed income securities and their derivatives, as
opportunities arise, and employs leverage in its trading activities, including
securities sold with an obligation to purchase or under agreements to
repurchase. In March 2005 we withdrew $4.8 million of our investment from the
Opportunities Fund to seed another new fund, called DM Fund, LLC, managed by
Deerfield and consolidated by us with minority interests.
Our goal is to enhance the value of our Company by increasing the revenues
of the Arby's restaurant business and our recently acquired asset management
business. We are continuing to focus on growing the number of restaurants in the
Arby's system, adding new menu offerings and implementing operational
initiatives targeted at service levels and convenience. We plan to grow
Deerfield's assets under management by utilizing the value of its historically
profitable investment advisory brand and increasing the types of assets under
management, such as the REIT, thereby increasing Deerfield's asset management
fee revenues.
As discussed below under "Liquidity and Capital Resources - Investments and
Potential Acquisitions," we continue to evaluate our options for the use of our
significant cash and investment position, including business acquisitions,
repurchases of our common stock and investments. In recent years we evaluated a
number of business acquisition opportunities, including Deerfield and RTM
Restaurant Group, 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, on July 25, 2005 we completed the
acquisition of RTM Restaurant Group, Arby's largest franchisee with 775 Arby's
restaurants in 22 states as of that date, in a transaction we refer to as the
RTM Acquisition. Commencing on July 26, 2005, our consolidated results of
operations and cash flows will include RTM's results and cash flows but will not
include royalties and franchise and related fees from RTM, which will be
eliminated in consolidation. See below under "Liquidity and Capital Resources -
RTM Acquisition" for a more detailed discussion of the RTM Acquisition.
We are exploring the feasibility, as well as the risks and opportunities,
of a possible corporate restructuring involving the spin off of our
non-restaurant operations, primarily Deerfield, to our shareholders. We are also
reviewing options for our other remaining non-restaurant net assets, which could
include the allocation of these net assets between our two businesses and/or a
special dividend or distribution to our shareholders. The goal of our
restructuring would be to enhance value to our shareholders by allowing them to
hold shares in two industry-specific public companies thereby potentially
unlocking the value of both independently-managed businesses.
In recent periods our restaurant business has experienced the following
trends:
o Growing U.S. adult population, our principal customer demographic;
o Addition of selected higher-priced quality items to menus, which appeal
more to adult tastes;
o Increased consumer preference for premium sandwiches with perceived higher
levels of freshness, quality and customization along with increased
competition in the premium sandwich category;
o Increased price competition, as evidenced by value menu concepts, which
offer comparatively lower prices on some menu items; combination meal
concepts, which offer a complete meal at an aggregate price lower than the
price of the individual food and beverage items; and use of coupons and
other price discounting;
o 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 availability to consumers of new product choices, including low
calorie, low carbohydrate and/or low fat products driven by a greater
consumer awareness of nutritional issues;
o Competitive pressures from operators outside the quick service restaurant
industry, such as the deli sections and in-store cafes of several major
grocery store chains, convenience stores and casual dining outlets offering
prepared food purchases;
o Increases in beef and other commodity costs, although in recent months
these costs have stabilized at levels which we anticipate will continue in
the foreseeable future; and
o Legislative activity on both the federal and state level, which could
result in higher (1) wages and related fringe benefits, including health
care and other insurance costs, and (2) 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.
In recent periods, our asset management business has experienced the
following trends, including trends prior to our entrance into the asset
management business through the Deerfield Acquisition:
o Growth in the hedge fund market as investors appear to be increasing their
investment allocations to hedge funds, with particular interest recently in
hedge strategies that focus on specific areas of growth in domestic and
foreign economies such as oil, commodities, interest rates, equities, etc.;
o Increased competition in the hedge fund industry in the form of new hedge
funds offered by both new and established asset managers to meet the
increasing demand of hedge fund investors;
o Continued growth of the CDO market as it opens to the individual investor,
in addition to the institutional investors which it has mainly served in
the past, with CDOs that offer more simplified income tax reporting for the
investor;
o Increased competition in the fixed income investment markets resulting in
higher demand for, and costs of, investments purchased by CDOs resulting in
the need to continuously develop new investment strategies with the goal of
maintaining acceptable risk-adjusted returns to investors; and
o Increased merger and acquisition activity, resulting in additional risks
and opportunities in the credit markets.
Presentation of Financial Information
We report on a fiscal year consisting of 52 or 53 weeks ending on the
Sunday closest to December 31. However, Deerfield, the Opportunities Fund and DM
Fund, LLC report on a calendar year ending on December 31. 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. Our first half of fiscal 2005
commenced on January 3, 2005 and ended on July 3, 2005 with our second quarter
commencing April 4, 2005. 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. When we refer to the
"three months ended July 3, 2005," or the "2005 second quarter," and the "six
months ended July 3, 2005," or the "2005 first half" we mean the periods from
April 4, 2005 to July 3, 2005 and January 3, 2005 to July 3, 2005, respectively.
Each quarter contained 13 weeks and each half contained 26 weeks. All references
to years, halves and quarters relate to fiscal periods rather than calendar
periods, except for Deerfield, the Opportunities Fund and DM Fund, LLC.
Results of Operations
Presented below is a table that summarizes our results of operations and
compares the amount and percent of the change (1) between the 2004 second
quarter and the 2005 second quarter and (2) between the 2004 first half and the
2005 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 27, July 3, ----------------- June 27, July 3, ----------------
2004 2005 Amount Percent 2004 2005 Amount Percent
---- ---- ------ ------- ---- ---- ------ -------
(In Millions Except Percents)
Revenues:
Net sales...............................$ 52.7 $ 55.0 $ 2.3 4 % $ 99.4 $ 106.2 $ 6.8 7 %
Royalties and franchise and related fees 24.8 26.9 2.1 8 % 47.3 50.5 3.2 7 %
Asset management and related fees....... -- 11.8 11.8 n/m -- 24.7 24.7 n/m
--------- -------- -------- ------- -------- --------
77.5 93.7 16.2 21 % 146.7 181.4 34.7 24 %
--------- -------- -------- ------- -------- --------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization...................... 41.6 41.0 (0.6) (1) % 79.0 80.2 1.2 2 %
Cost of services, excluding depreciation
and amortization...................... -- 4.6 4.6 n/m -- 8.8 8.8 n/m
Advertising and selling................. 4.6 4.4 (0.2) (4) % 8.8 9.0 0.2 2 %
General and administrative, excluding
depreciation and amortization......... 24.5 35.4 10.9 44 % 48.8 69.2 20.4 42 %
Depreciation and amortization, excluding
amortization of deferred financing
costs................................. 3.5 5.6 2.1 60 % 6.8 11.0 4.2 62 %
-------- --------- -------- ------- -------- --------
74.2 91.0 16.8 23 % 143.4 178.2 34.8 24 %
--------- -------- -------- ------- -------- --------
Operating profit.................... 3.3 2.7 (0.6) (18) % 3.3 3.2 (0.1) (3) %
Interest expense........................... (9.0) (12.5) (3.5) (39) % (18.6) (22.7) (4.1) (22) %
Insurance expense related to long-term
debt.................................... (1.0) (0.9) 0.1 10 % (1.9) (1.8) 0.1 5 %
Investment income, net..................... 4.7 7.6 2.9 62 % 11.2 16.7 5.5 49 %
Gain on sale of businesses................. -- 3.1 3.1 n/m -- 12.6 12.6 n/m
Other income, net.......................... 0.8 1.5 0.7 88 % 0.7 1.1 0.4 57 %
--------- -------- -------- ------- -------- --------
Income (loss) from continuing
operations before income taxes
and minority interests............ (1.2) 1.5 2.7 n/m (5.3) 9.1 14.4 n/m
(Provision for) benefit from income taxes.. (0.1) (0.5) (0.4) n/m 0.9 (3.0) (3.9) n/m
Minority interests in (income) loss of
consolidated subsidiaries............... -- (1.1) (1.1) n/m -- (3.5) (3.5) n/m
--------- -------- -------- ------- -------- --------
Income (loss) from continuing
operations........................ (1.3) (0.1) 1.2 92 % (4.4) 2.6 7.0 n/m
Gain on disposal of discontinued
operations.............................. -- 0.5 0.5 n/m -- 0.5 0.5 n/m
--------- -------- -------- ------- ------- ------
Net income (loss)...................$ (1.3) $ 0.4 $ 1.7 n/m $ (4.4) $ 3.1 $ 7.5 n/m
========= ======== ======== ======= ======= ======
Three Months Ended July 3, 2005 Compared with Three Months Ended June 27, 2004
Net Sales
Our net sales, which were generated entirely from the Company-owned
restaurants, increased $2.3 million, or 4%, to $55.0 million for the three
months ended July 3, 2005 from $52.7 million for the three months ended June 27,
2004. This increase was principally attributable to a 4% growth in same-store
sales of the Company-owned restaurants in the 2005 second quarter compared with
the 2004 second quarter. 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 increase in same-store sales reflected (1) introductions
of new Market Fresh(TM) wraps and sandwiches since the second quarter of 2004,
(2) improved marketing reflecting (a) the implementation of new menu boards
focused on combination meals, a complete meal offered at an aggregate price
lower than the price of the individual food and beverage items, (b) a more
effective national television advertising campaign implemented in the 2005 first
quarter and (c) more effective and targeted local marketing programs during the
2005 second quarter as compared with the 2004 second quarter and (3) operational
initiatives targeting continued improvement in customer service levels and
convenience.
Our net sales will increase significantly for the remainder of 2005 as a
result of the RTM Acquisition. RTM had net sales of $740.0 million for its
fiscal year ended May 30, 2004 and $606.3 million for its forty-week period
ended March 6, 2005. In addition, following the RTM Acquisition we presently
plan to open approximately 25 new Company-owned restaurants during the remainder
of 2005. We will evaluate whether to close any underperforming Company-owned
restaurants and continually review the performance of each of those restaurants,
particularly in connection with the decision to renew or extend their leases.
Specifically, following the RTM Acquisition we have 13 restaurants where the
facilities leases either are scheduled for renewal or expire during the
remainder of 2005 and we currently anticipate the renewal or extension of most
of these leases.
Royalties and Franchise and Related Fees
Our royalties and franchise and related fees, which were generated entirely
from the franchised restaurants, increased $2.1 million, or 8%, to $26.9 million
for the three months ended July 3, 2005 from $24.8 million for the three months
ended June 27, 2004. This increase principally reflects (1) a $0.7 million
improvement in royalties due to a 3% growth in same-store sales of the
franchised restaurants during the 2005 second quarter compared with the 2004
second quarter and (2) a $0.6 million increase in royalties from the 86
restaurants opened since June 27, 2004, with generally higher than average sales
volumes, replacing the royalties from the 62 generally underperforming
restaurants closed since June 27, 2004. The increase in same-store sales of the
franchised restaurants reflects (1) the new Market Fresh wraps and sandwiches
introduced since the second quarter of 2004 discussed above under "Net Sales,"
(2) improved marketing reflecting (a) the implementation of new menu boards
focused on combination meals, (b) a more effective national television
advertising campaign implemented in the 2005 first quarter and (c) more
effective and targeted local marketing programs funded by both franchised and
Company-owned restaurants and (3) operational initiatives targeting continued
improvement in customer service levels and convenience.
Our royalties and franchise and related fees will decrease significantly
for the remainder of 2005 as a result of the RTM Acquisition and the elimination
in consolidation of future royalties and franchise and related fees from RTM. We
recorded royalties and franchise and related fees from RTM of $29.3 million for
our fiscal year ended January 2, 2005 and $14.4 million for our 2005 first half,
which represented 29% of our consolidated royalties and franchise and related
fees during each of those periods. We expect to continue to experience positive
same-store sales growth of the remaining franchised restaurants for the 2005
second half due to the anticipated continuation of the same factors that
benefited the 2005 second quarter. However, the same-store sales growth for the
2005 third quarter is expected to be relatively flat because of the strong
same-store sales performance experienced by the franchised restaurants in the
third quarter of 2004.
Asset Management and Related Fees
Our asset management and related fees of $11.8 million for the 2005 second
quarter resulted entirely from the management of CDOs and Funds reflecting the
Deerfield Acquisition. Our asset management related fees will be favorably
affected by an increase in assets under management for the REIT, which completed
an initial public stock offering in late June 2005, and a new CDO which
commenced in July 2005. Assets under management for the REIT increased by $363.5
million to $728.7 million as a result of the initial public stock offering, upon
which the Company receives a 1.75% per annum management fee plus a quarterly
incentive fee if a specified rate of return is met.
Cost of Sales, Excluding Depreciation and Amortization
Our cost of sales, excluding depreciation and amortization resulted
entirely from the Company-owned restaurants. Cost of sales decreased $0.6
million, or 1%, to $41.0 million for the three months ended July 3, 2005,
resulting in a gross margin of 25%, from $41.6 million for the three months
ended June 27, 2004, resulting in a gross margin of 21%. We define gross margin
as the difference between net sales and cost of sales divided by net sales. The
decrease in cost of sales, despite the increase in net sales discussed above, is
primarily due to the improvement in gross margin in the second quarter of 2005
compared with the second quarter of 2004. This improvement in gross margin is
primarily attributable to (1) improved product mix reflecting higher sales of
combination meals, with higher average margins, which are emphasized in our new
menu board marketing, (2) improved oversight and training of store management,
(3) improved operational reporting made available by the new back office and
point-of-sale restaurant systems implemented in the latter part of 2004, which
facilitated reduced food waste and labor efficiencies and (4) the impact of
price increases implemented in the second half of 2004 for some of our menu
items. Partially offsetting these improvements were higher costs related to
incentive compensation as a result of improved performance of the restaurants.
We expect that our gross margin for the remainder of 2005 will be favorably
impacted as a result of the RTM Acquisition because RTM's gross margins,
excluding the effect of their royalty expense which will be eliminated in
consolidation, have been historically higher than our gross margins due to RTM's
relatively more effective operational efficiencies.
Cost of Services, Excluding Depreciation and Amortization
Our cost of services, excluding depreciation and amortization of $4.6
million for the 2005 second quarter resulted entirely from the management of
CDOs and Funds by Deerfield.
Our royalties and franchise and related fees have no associated cost of
services.
General and Administrative, Excluding Depreciation and Amortization
Our general and administrative expenses, excluding depreciation and
amortization, increased $10.9 million, partially reflecting $5.5 million of
general and administrative expenses of Deerfield. Aside from the effect of the
Deerfield Acquisition, general and administrative expenses increased $5.4
million principally due to (1) a $5.2 million increase in employee compensation
reflecting (a) higher incentive compensation costs, (b) to a much lesser extent,
increased headcount and (c) in the 2005 second quarter, a provision for
stock-based compensation related to 149,000 and 731,000 shares of our
contingently issuable performance-based restricted class A and class B common
stock, respectively, granted on March 14, 2005, as discussed below, and (2)
other inflationary increases. These increases were partially offset by a $0.6
million decrease in severance charges.
The provision for stock-based compensation related to the restricted stock
was $2.1 million during the 2005 second quarter and may vary significantly
during the second half of 2005. These restricted shares vest ratably over three
years, subject to meeting, in each case, certain class B common share market
price targets of between $12.09 and $16.09 per share, or to the extent not
previously vested, on March 14, 2010 subject to meeting a class B common share
market price target of $18.50 per share. The provision for stock-based
compensation during the remainder of 2005 will vary depending on the market
price of our class B common stock in relation to the market price targets upon
which vesting of the restricted shares is contingent and will be adjusted based
on the market price of the class B common stock at the end of each quarter.
We are required to adopt Statement of Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" which we refer to as SFAS 123(R), no
later than our 2006 fiscal first quarter. As a result, we will be required to
measure the cost of employee services received in exchange for an award of
equity instruments, including grants of employee stock options and restricted
stock, based on the fair value of the award rather than its intrinsic value, the
method we are currently using. We currently expect that the adoption of this
accounting policy will materially increase the amount of compensation expense
recognized over the periods that the respective stock options and restricted
stock vest. Had we used the fair value alternative under the original Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," our pretax compensation expense using the Black-Scholes-Merton
option pricing model would have been $3.6 million higher for the 2005 second
quarter, or $2.3 million on an after-tax basis as set forth in the pro forma
disclosure in Note 2 to our accompanying condensed consolidated financial
statements. However, we are presently unable to determine whether the effect of
adopting SFAS 123(R) will result in future increases that are similar to these
amounts since we have not yet determined the fair value model, the recognition
method or adoption method we will use under SFAS 123(R).
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $2.1 million, principally reflecting $1.5 million of
depreciation and amortization related to Deerfield. Aside from the effect of the
Deerfield Acquisition, depreciation and amortization increased $0.6 million
primarily due to an increase in depreciation and amortization of properties and
amortization of software including amounts related to our new back office and
point-of-sale restaurant systems installed in the second half of 2004.
Interest Expense
Interest expense increased $3.5 million principally due to a $3.6 million
increase in interest expense on debt securities sold with an obligation to
purchase or under agreements to repurchase in connection with the use of
leverage in the Opportunities Fund and a $0.4 million favorable effect in the
2004 second quarter of the change in fair value of an interest rate swap
agreement on one of our term loans which did not recur in the 2005 second
quarter. These increases were partially offset by a $0.7 million decrease
attributable to lower outstanding amounts of a majority of our long-term debt.
Our interest expense will increase significantly for the remainder of 2005
due to the RTM Acquisition and the related refinancing of substantially all of
the debt obligations of our restaurant segment, including pre-acquisition debt
of RTM, discussed below under "Liquidity and Capital Resources - New Credit
Agreement." The RTM Acquisition and related debt financing will add
approximately $522.0 million to our consolidated long-term debt, although at a
variable interest rate presently lower than the average fixed rate on the
refinanced debt. In addition, we will expense approximately $30.0 million of
prepayment penalties and fees and write-off $5.0 million of deferred financing
costs in our 2005 third quarter related to our restaurant segment debt
outstanding prior to the RTM Acquisition. We are currently evaluating the
appropriate accounting for an additional $13.8 million of prepayment penalties
and fees relating to the refinanced RTM debt, which may result in an additional
charge to interest expense for some or all of this amount in our 2005 third
quarter.
Investment Income, Net
The following table summarizes and compares the major components of
investment income, net:
Three Months Ended
------------------------
June 27, July 3,
2004 2005 Change
---- ---- ------
(In Millions)
Interest income.............................................$ 4.3 $ 9.5 $ 5.2
Recognized net gains (losses)............................... 2.6 (2.5) (5.1)
Other than temporary unrealized losses...................... (2.8) -- 2.8
Distributions, including dividends.......................... 0.8 0.8 --
Other....................................................... (0.2) (0.2) --
--------- -------- ---------
$ 4.7 $ 7.6 $ 2.9
========= ======== =========
Interest income increased $5.2 million partially reflecting $0.7 million of
interest income of Deerfield. Aside from the effect of the Deerfield
Acquisition, interest income increased $4.5 million primarily due to higher
average balances of our interest-bearing investments and, to a lesser extent, an
increase in average rates on our interest-bearing investments from 2.7% in the
2004 second quarter to 3.4% in the 2005 second quarter. The higher average
balances of our interest-bearing investments was due to the use of leverage in
the Opportunities Fund. However, the average balances of our interest-bearing
investments, net of related leveraging liabilities, decreased principally due to
the liquidation of some of those investments to provide cash for the Deerfield
Acquisition. The increase in the average rates was principally due to our
investing through the Opportunities Fund in some higher yielding, but more
risk-inherent, debt securities with the objective of improving the overall
return on our interest-bearing investments and the general increase in the money
market and short-term interest rate environment. Our recognized net gains
(losses) include (1) realized gains and losses on sales of our
available-for-sale securities and our investments accounted for under the cost
method of accounting and (2) realized and unrealized gains and losses on changes
in the fair values of our trading securities and our securities sold short with
an obligation to purchase. The $5.1 million deterioration in our recognized net
gains to recognized net losses was principally due to realized and unrealized
net losses on our securities sold short with an obligation to purchase during
the 2005 second quarter. All of 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. We
recognized $2.8 million of other than temporary unrealized losses in the 2004
second quarter reflecting an impairment charge based on a significant decline in
market value of one of our more risk-inherent available-for-sale debt
securities, whereas we had no similar charge in the 2005 second quarter. Any
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-method investments and may or may not
recur in future periods.
As of July 3, 2005, we had unrealized holding gains and (losses) on
available-for-sale marketable securities before income taxes and minority
interests of $5.6 million and $(1.4) million, respectively, included in
accumulated other comprehensive income. We evaluated the unrealized losses to
determine whether these losses were other than temporary and concluded that they
were not. 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.
We expect that the interest income component of our investment income will
decrease during the remainder of 2005 due to our net reduction of approximately
$130.0 million of interest-bearing cash equivalents in order to fund a portion
of the purchase price for the RTM Acquisition.
Gain on Sale of Businesses
The gain on sale of businesses of $3.1 million for the 2005 second quarter
consists of (1) a $2.4 million gain on a sale of a portion of our investment in
Encore Capital Group, Inc., an equity investee of ours which we refer to as
Encore, and (2) $0.7 million of non-cash gains from our equity in the net
proceeds to both the REIT and Encore from their sales of stock, including
exercises of stock options, over the portion of our respective carrying values
allocable to the decrease in the respective ownership percentages. We recognize
non-cash gains in accordance with our accounting policy under which we recognize
a gain or loss upon sale by an equity investee of any previously unissued stock
to third parties to the extent of the decrease in our ownership of the investee
to the extent realization of the gain is reasonably assured.
Other Income, Net
Other income, net, increased $0.7 million principally due to (1) $0.3
million of foreign currency transaction and derivative gains related to our July
2004 investment in Jurlique International Pty. Ltd., which we refer to as
Jurlique, an Australian company, and (2) a $0.3 million recovery upon collection
of a fully reserved non-trade note receivable of Sybra, Inc., our subsidiary
that owns our Company-owned restaurants, which predated our December 2002
acquisition of Sybra.
Income (Loss) From Continuing Operations Before Income Taxes and Minority
Interests
Our income (loss) from continuing operations before income taxes and
minority interests increased $2.7 million to income of $1.5 million for the
three months ended July 3, 2005 from a loss of $1.2 million for the three months
ended June 27, 2004 due to the effect of the variances discussed in the captions
above.
We expect to incur employee severance, retention and relocation expenses
during the remainder of 2005 and extending into 2006 as a result of the RTM
Acquisition currently estimated to total approximately $10.0 million as a result
of combining our restaurant operations with RTM and the relocation of the
corporate office of the restaurant segment to Atlanta, Georgia.
(Provision For) Benefit From Income Taxes
The provision for income taxes represented an effective rate of 33% for the
three months ended July 3, 2005. The effective provision rate in the 2005 second
quarter is lower than the Federal statutory rate of 35% due to the effect of
minority interests in income of consolidated subsidiaries which are not taxable
to us but which are not deducted from the pretax income used to calculate the
effective tax rate. This effect is partially offset by (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. We had a provision for income taxes for the three months ended June 27,
2004 despite a pretax loss principally due to (1) the effect of non-deductible
compensation costs and (2) state income taxes, net of Federal income tax
benefit, for the reason discussed above.
Minority Interests in Income of Consolidated Subsidiaries
The minority interests in income of consolidated subsidiaries of $1.1
million in the 2005 second quarter related entirely to Deerfield.
Gain on Disposal of Discontinued Operations
During the 2005 second quarter, we recorded an additional gain of $0.5
million on the disposal of the former utility and municipal services and
refrigeration business segments of a wholly-owned subsidiary, resulting from the
gain on sale of a former refrigeration property that had been held for sale and
the reversal of a related reserve for potential environmental liabilities
associated with the property that were assumed by the buyer.
Six Months Ended July 3, 2005 Compared with Six Months Ended June 27, 2004
Net Sales
Our net sales, which were generated entirely from the Company-owned
restaurants, increased $6.8 million, or 7%, to $106.2 million for the six months
ended July 3, 2005 from $99.4 million for the six months ended June 27, 2004.
This increase principally reflects $6.4 million attributable to a 6% growth in
same-store sales of the Company-owned restaurants in the 2005 first half
compared with the relatively flat same-store sales performance of the 2004 first
half. The increase in same-store sales reflected (1) introductions of new Market
Fresh wraps, sandwiches and salads since the second quarter of 2004, (2)
improved marketing reflecting (a) an increase in print media advertising,
primarily couponing, and other marketing initiatives in the 2005 first quarter,
(b) the implementation of new menu boards focused on combination meals, (c) a
more effective national television advertising campaign implemented in the 2005
first quarter and (d) more effective and targeted local marketing programs
during the 2005 second quarter as compared with the 2004 second quarter and (3)
operational initiatives targeting continued improvement in customer service
levels and convenience.
The 6% growth in same-store sales of Company-owned restaurants in the 2005
first half compared with the 2004 first half exceeds the 3% growth in same-store
sales of franchised restaurants discussed below under "Royalties and Franchise
and Related Fees" primarily due to the increased use of couponing in the
Company-owned restaurants in the 2005 first quarter.
Our net sales will increase significantly for the remainder of 2005 as a
result of the RTM Acquisition and, to a lesser extent, expected openings of
Company-owned restaurants, as discussed 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 $3.2 million, or 7%, to $50.5 million
for the six months ended July 3, 2005 from $47.3 million for the six months
ended June 27, 2004. This increase consisted of (1) a $1.4 million improvement
in royalties due to a 3% growth in same-store sales of the franchised
restaurants during the 2005 first half compared with the 2004 first half, (2) a
$1.2 million increase in royalties from the 86 restaurants opened since June 27,
2004, with generally higher than average sales volumes, replacing the royalties
from the 62 generally underperforming restaurants closed since June 27, 2004 and
(3) a $0.6 million improvement in royalties as a result of a slightly higher
average royalty rate in the 2005 first half as compared with the 2004 first
half. The increase in same-store sales of the franchised restaurants reflects
(1) the new Market Fresh wraps, sandwiches and salads introduced since the
second quarter of 2004 discussed above under "Net Sales," (2) improved marketing
reflecting (a) the implementation of new menu boards focused on combination
meals, (b) a more effective national television advertising campaign implemented
in the 2005 first quarter and (c) more effective and targeted local marketing
programs funded by both franchised and Company-owned restaurants and (3)
operational initiatives targeting continued improvement in customer service
levels and convenience. Franchise and related fees were relatively unchanged
between the six-month periods.
Our royalties and franchise and related fees will decrease significantly
for the remainder of 2005 as a result of the RTM Acquisition, as discussed in
the comparison of the three-month periods. Also as discussed in the comparison
of the three-month periods, we expect that same-store sales growth of franchised
restaurants will be positive for the remainder of 2005, although the same-store
sales growth for the 2005 third quarter is expected to be relatively flat.
Asset Management and Related Fees
Our asset management and related fees of $24.7 million for the 2005 first
half resulted entirely from the management of CDOs and Funds reflecting the
Deerfield Acquisition. Our asset management and related fees will be favorably
affected by an increase in assets under management for the REIT and a new CDO,
as discussed in the comparison of the three-month periods.
Cost of Sales, Excluding Depreciation and Amortization
Our cost of sales, excluding depreciation and amortization resulted
entirely from the Company-owned restaurants. Cost of sales increased $1.2
million, or 2%, to $80.2 million for the six months ended July 3, 2005,
resulting in a gross margin of 24%, from $79.0 million for the six months ended
June 27, 2004, resulting in a gross margin of 21%. The increase in cost of sales
is due to the higher sales in the 2005 first half compared with the 2004 first
half, as discussed above under "Net Sales." The improvement in gross margin in
the 2005 first half compared with the 2004 first half is primarily attributable
to (1) improved product mix reflecting higher sales of combination meals, with
higher average margins, which are emphasized in our new menu board marketing,
(2) improved oversight and training of store management, (3) improved
operational reporting made available by the new back office and point-of-sale
restaurant systems implemented in the latter part of 2004, which facilitated
reduced food waste and labor efficiencies and (4) the impact of price increases
implemented in the second half of 2004 for some of our menu items. Partially
offsetting these improvements were higher costs related to incentive
compensation as a result of improved performance of the restaurants.
We expect that our gross margin for the remainder of 2005 will be favorably
impacted as a result of the RTM Acquisition, as discussed in the comparison of
the three-month periods.
Cost of Services, Excluding Depreciation and Amortization
Our cost of services, excluding depreciation and amortization of $8.8
million for the 2005 first half resulted entirely from the management of CDOs
and Funds by Deerfield.
Our royalties and franchise and related fees have no associated cost of
services.
General and Administrative, Excluding Depreciation and Amortization
Our general and administrative expenses, excluding depreciation and
amortization increased $20.4 million, partially reflecting $10.4 million of
general and administrative expenses of Deerfield. Aside from the effect of the
Deerfield Acquisition, general and administrative expenses increased $10.0
million principally due to (1) a $10.5 million increase in employee compensation
reflecting (a) higher incentive compensation costs, (b) to a much lesser extent,
increased headcount and (c) in the 2005 first half, a provision for stock-based
compensation related to 149,000 and 731,000 shares of our contingently issuable
performance-based restricted class A and class B common stock, respectively, as
discussed below, granted on March 14, 2005, and (2) a $0.4 million increase in
charitable contributions. These increases were partially offset by (1) a $1.2
million decrease in severance charges and (2) a $0.3 million decrease in
deferred compensation expense. Deferred compensation expense of $1.0 million in
the 2004 first half and $0.7 million in the 2005 first half 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 our President and Chief Operating
Officer, whom we refer to as the Executives, as explained in more detail below
under "Income (Loss) from Continuing Operations Before Income Taxes and Minority
Interests."
The provision for stock-based compensation related to the restricted stock
was $2.3 million during the 2005 first half and, as explained in more detail in
the comparison of the three-month periods, may vary significantly during the
second half of 2005. Also, as explained in more detail in the comparison of the
three-month periods, we currently expect that the adoption of SFAS 123(R) no
later than our 2006 first quarter will materially increase the amount of
compensation expense recognized over the periods that our outstanding stock
options and restricted stock vest.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs increased $4.2 million, principally reflecting $2.6 million of
depreciation and amortization related to Deerfield. Aside from the effect of the
Deerfield Acquisition, depreciation and amortization increased $1.6 million
primarily due to an increase in depreciation and amortization of properties and
amortization of software including amounts related to our new back office and
point-of-sale restaurant systems installed in the second half of 2004.
Interest Expense
Interest expense increased $4.1 million principally due to a $4.9 million
increase in interest expense on debt securities sold with an obligation to
purchase or under agreements to repurchase in connection with the use of
leverage in the Opportunities Fund and a $0.3 million less favorable effect of
the change in fair value of an interest rate swap agreement on one of our term
loans in the 2005 first half compared with the 2004 first half. These increases
were partially offset by a $1.4 million decrease attributable to lower
outstanding amounts of a majority of our long-term debt.
Our interest expense will increase significantly for the remainder of 2005
and we will expense approximately $30.0 million of prepayment penalties and fees
and write off $5.0 million of deferred financing costs in our 2005 third quarter
related to our restaurant segment debt outstanding prior to the RTM Acquisition
and the refinancing of debt, all as discussed in the comparison of the
three-month periods. We are currently evaluating the appropriate accounting for
an additional $13.8 million of prepayment penalties and fees relating to the
refinanced RTM debt, which may result in an additional charge to interest
expense for some or all of this amount in our 2005 third quarter.
Investment Income, Net
The following table summarizes and compares the major components of
investment income, net:
Six Months Ended
------------------------
June 27, July 3,
2004 2005 Change
---- ---- ------
(In Millions)
Interest income.............................................$ 8.4 $ 15.8 $ 7.4
Recognized net gains........................................ 4.4 0.6 (3.8)
Other than temporary unrealized losses...................... (2.8) (0.3) 2.5
Distributions, including dividends.......................... 1.5 1.0 (0.5)
Other....................................................... (0.3) (0.4) (0.1)
--------- -------- ---------
$ 11.2 $ 16.7 $ 5.5
========= ======== =========
Interest income increased $7.4 million partially reflecting $1.4 million of
interest income of Deerfield. Aside from the effect of the Deerfield
Acquisition, interest income increased $6.0 million primarily due to higher
average balances of our interest-bearing investments and, to a lesser extent, an
increase in average rates on our interest-bearing investments from 2.6% in the
2004 second half to 3.4% in the 2005 second half. The higher average balances of
our interest-bearing investments was due to the use of leverage in the
Opportunities Fund. However, the average balances of our interest-bearing
investments, net of related leveraging liabilities, decreased principally due to
the liquidation of some of those investments to provide cash for the Deerfield
Acquisition. The increase in the average rates was principally due to our
investing through the Opportunities Fund in some higher yielding, but more
risk-inherent, debt securities with the objective of improving the overall
return on our interest-bearing investments and the general increase in the money
market and short-term interest rate environment. Our recognized net gains, as
discussed in detail in the comparison of the three-month periods, decreased $3.8
million principally due to an increase in realized and unrealized net losses on
our securities sold short with an obligation to purchase during the 2005 second
half. In addition, during the 2004 first half our recognized net gains included
a $0.8 million realized gain from the sale of a cost-method investment held in
the Deferred Compensation Trusts as discussed in more detail below under "Income
(Loss) from Continuing Operations 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
investments in the Deferred Compensation Trusts, or the changes in the value of
our investments, as applicable. Our other than temporary unrealized losses, as
described in more detail in the comparison of the three-month periods, decreased
$2.5 million 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 securities compared with $0.3 million
of other than temporary unrealized losses in the 2005 first quarter reflecting
impairment charges based on significant declines in the market values of two of
our available-for-sale equity investments in publicly traded companies.
As of July 3, 2005, we had pretax unrealized holding gains and (losses) on
available-for-sale marketable securities, before income taxes and minority
interests, of $5.6 million and $(1.4) million, respectively, included in
accumulated other comprehensive income. We evaluated the unrealized losses to
determine whether these losses were other than temporary and concluded that they
were not. 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.
We expect that the interest income component of our investment income will
decrease during the remainder of 2005 due to the RTM Acquisition, as discussed
in the comparison of the three-month periods.
Gain on Sale of Businesses
The gain on sale of businesses of $12.6 million for the 2005 first half
consists of (1) $11.7 million of gains on sales of a portion of our investment
in Encore and (2) $0.9 million of non-cash gains from our equity in the net
proceeds to both the REIT and Encore from their sales of stock, including
exercises of stock options, over the portion of our respective carrying values
allocable to the decrease in the respective ownership percentages, as discussed
in more detail in the comparison of the three-month periods.
Other Income, Net
Other income, net increased $0.4 million principally due to (1) the effect
of $0.8 million of costs recognized in the 2004 first quarter related to a
proposed business acquisition that we decided not to pursue which did not recur
in the 2005 period, (2) $0.4 million of foreign currency transaction and
derivative gains related to our July 2004 investment in Jurlique, (3) $0.4
million of equity in earnings of the REIT, in which we made an investment in
December 2004, during the 2005 first half and (4) a $0.3 million recovery in the
2005 second quarter upon collection of a fully-reserved non-trade note
receivable of Sybra which predated our December 2002 acquisition of Sybra, all
partially offset by $1.5 million of costs recognized in the 2005 first half
related to our decision not to pursue a certain financing alternative in
connection with the RTM Acquisition.
Income (Loss) From Continuing Operations Before Income Taxes and Minority
Interests
Our income (loss) from continuing operations before income taxes and
minority interests increased $14.4 million to income of $9.1 million for the six
months ended July 3, 2005 from a loss of $5.3 million for the six months ended
June 27, 2004 due to the effect of the variances discussed in the captions
above.
As discussed above, we recognized deferred compensation expense of $1.0
million in the 2004 first half and $0.7 million in the 2005 first half, within
general and administrative expenses, 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. We recognized net investment income (loss) from
investments in the Deferred Compensation Trusts of $0.6 million in the 2004
first half and $(0.1) million in the 2005 first half. The net investment income
during the 2004 first half consisted of a $0.8 million realized gain from the
sale of a cost-method investment in the Deferred Compensation Trusts referred to
above under "Investment Income, Net," which represented increases in value prior
to that period, less $0.2 million of investment management fees. The net
investment loss during the 2005 first half consisted of investment management
fees of $0.2 million, less interest income of $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.
As discussed in more detail in the comparison of the three-month periods,
we expect to incur employee severance, retention, and relocation expenses during
the remainder of 2005 and extending into 2006 as a result of the RTM Acquisition
estimated to total approximately $10.0 million.
(Provision For) Benefit From Income Taxes
The provision for income taxes represented an effective rate of 33% for the
six months ended July 3, 2005 and the benefit from income taxes represented an
effective rate of 17% for the six months ended June 27, 2004. The effective
provision rate in the 2005 first half is lower than the Federal statutory rate
of 35% due to the effect of minority interests in income of consolidated
subsidiaries which are not taxable to us but which are not deducted from the
pretax income used to calculate the effective tax rate. This effect is partially
offset by (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. The effective benefit rate in the 2004
first half was lower than the Federal statutory rate principally due to (1) the
effect of non-deductible compensation costs and (2) state income taxes, net of
Federal income tax benefit, for the reason discussed above.
Minority Interests in Income of Consolidated Subsidiaries
The minority interests in income of consolidated subsidiaries of $3.5
million in the 2005 first half principally consisted of $3.0 million related to
Deerfield.
Gain on Disposal of Discontinued Operations
During the 2005 first half, we recorded an additional gain of $0.5 million
on the disposal of the former utility and municipal services and refrigeration
business segments of a wholly-owned subsidiary, as discussed in more detail in
the comparison of the three-month periods.
Liquidity and Capital Resources
Cash Flows from Continuing Operating Activities
Our consolidated operating activities from continuing operations used cash
and cash equivalents, which we refer to in this discussion as cash, of $400.1
million during the six months ended July 3, 2005 principally reflecting net
income of $3.1 million offset by net operating investment adjustments of $395.5
million.
The net operating investment adjustments principally reflect net purchases
of trading securities and net settlements of trading derivatives, which were
principally funded by proceeds from net sales of repurchase agreements and the
net proceeds from securities sold short. Under accounting principles generally
accepted in the United States of America, the net purchases of trading
securities and the net settlements of trading derivatives must be reported in
continuing operating activities in the accompanying condensed consolidated
statements of cash flows. However, the net sales of repurchase agreements and
the net proceeds from securities sold short are reported in continuing investing
activities in the accompanying condensed consolidated statements of cash flows.
The cash used by changes in operating assets and liabilities primarily reflects
a $15.0 million decrease in accounts payable and accrued expenses due to the
annual payment of previously accrued incentive compensation, partially offset by
a $7.6 million decrease in trade and other receivables resulting from
collections of asset management incentive fees receivable. Other adjustments
were principally due to non-cash adjustments for depreciation and amortization
of $12.3 million and minority interests in income of consolidated subsidiaries
of $3.5 million, partially offset by the classification of a gain on sale of
businesses of $12.7 million as an investing activity.
Due to the potential significant effects of net operating investment
adjustments, which represent the discretionary investment of excess cash and
proceeds from the use of leverage, we are currently unable to estimate whether
or not we will have positive cash flows from our continuing operating activities
during the second half of 2005.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$463.4 million at July 3, 2005, reflecting a current ratio, which equals current
assets divided by current liabilities, of 1.5:1. Working capital at July 3, 2005
was relatively unchanged from the $463.9 million at January 2, 2005.
Our total capitalization at July 3, 2005 was $774.1 million, consisting of
stockholders' equity of $300.1 million, long-term debt of $464.8 million,
including current portion, and notes payable of $9.2 million. Our total
capitalization at July 3, 2005 decreased $28.0 million from $802.1 million at
January 2, 2005 principally due to (1) long-term debt and notes payable
repayments of $26.9 million and (2) dividend payments of $9.4 million, both
partially offset by (1) net income of $3.1 million, (2) amortization of
stock-based compensation reducing unearned compensation of $2.5 million and (3)
proceeds from stock option exercises of $2.1 million. Our total capitalization
will increase as a result of the acquisition of RTM Restaurant Group (see
below).
RTM Acquisition
On July 25, 2005, we completed the acquisition of substantially all of the
equity interests or assets of entities comprising the RTM Restaurant Group,
excluding certain assets, which we refer to as the RTM Acquisition. RTM was
Arby's largest franchisee with 775 Arby's restaurants in 22 states. The
aggregate purchase price for RTM is currently estimated to be $369.2 million
consisting of (1) $175.0 million in cash, subject to a post-closing adjustment,
(2) 9,684,000 shares of our class B common stock issued from treasury with a
fair value of $145.3 million as of July 25, 2005 based on the closing price of
our class B common stock on that date of $15.00 per share, (3) $21.8 million of
debt, including related accrued interest and prepayment penalties, assumed but
not an obligation of the entities included in the RTM Acquisition (4) stock
options to purchase 774,000 shares of our class B common stock with a fair value
of $4.1 million as of July 25, 2005, calculated using the Black-Scholes-Merton
option pricing model, issued in exchange for existing RTM stock options and (5)
$23.0 million of related estimated expenses. RTM's results of operations and
cash flows subsequent to the July 25, 2005 acquisition date will be included in
our consolidated results of operations and cash flows.
New Credit Agreement
In connection with the RTM Acquisition, on July 25, 2005, we refinanced
substantially all of the $268.4 million existing indebtedness of our restaurant
segment and debt of $212.8 million of RTM with a substantial portion of the
$620.0 million of proceeds from borrowings under a new credit facility. The
credit facility includes a senior secured term loan facility which provides for
term loans, which we refer to as the Term Loan, in the aggregate principal
amount of $620.0 million and a senior secured revolving credit facility of
$100.0 million which matures on July 25, 2011 pursuant to a credit agreement,
which we refer to as the Credit Agreement. The Term Loan is due $3.1 million in
2005, $6.2 million in 2006 through 2010, $294.5 million in 2011 and $291.4
million in 2012, in each case payable in quarterly installments with the first
payment due on September 30, 2005, and matures on July 25, 2012. However, the
term loan requires prepayments of principal amounts resulting from certain
events and beginning in 2007 a portion of the excess cash flow of the restaurant
segment as determined under the Credit Agreement. We incurred $13.0 million of
estimated expenses related to the Credit Agreement which will be amortized as
interest expense using the interest rate method over the life of the Term Loan.
The obligations under the Credit Agreement are secured by substantially all of
the assets, other than real property, of our restaurant segment and are also
guaranteed by substantially all of the entities comprising the restaurant
segment. Triarc, however, is not party to the guarantees.
Convertible Notes
We have outstanding $175.0 million of 5% convertible notes due 2023, which
we refer to as the Convertible Notes, which do not have any scheduled principal
repayments prior to 2023. However, the Convertible Notes are redeemable at our
option commencing May 20, 2010 and at the option of the holders on May 15, 2010,
2015 and 2020 or upon the occurrence of a fundamental change, as defined,
relating to us, in each case at a price of 100% of the principal amount of the
Convertible Notes plus accrued interest.
Other Long-Term Debt
We have a secured bank term loan payable through 2008 with an outstanding
principal amount of $10.0 million as of July 3, 2005. We also have a secured
promissory note payable through 2006 with an outstanding principal amount of
$8.3 million as of July 3, 2005.
Refinanced Debt
As of July 3, 2005, we have outstanding $200.1 million of insured
non-recourse securitization notes, which we refer to as Securitization Notes,
$67.4 million of leasehold notes, equipment notes and mortgage notes relating to
our Company-owned restaurants, and $2.9 million of other debt related to our
restaurant segment. As indicated above, in connection with the July 25, 2005 RTM
Acquisition, all of this debt was refinanced with a new Term Loan. However,
prior to the refinancing we made payments of $2.0 million during the third
quarter of 2005.
Notes Payable
We have outstanding $9.2 million of notes payable as of July 3, 2005 which
relate to Deerfield and are secured by short-term investments in preferred
shares of CDOs with a carrying value of $15.1 million as of July 3, 2005. These
notes must be repaid from a portion or all of the distributions on, or sales
proceeds from, those investments and a portion of the total asset management
fees received from the respective CDOs.
Revolving Credit Facilities
We do not have any revolving credit facilities as of July 3, 2005. In
connection with the RTM Acquisition, on July 25, 2005 we entered into a $100.0
million six-year senior secured revolving credit facility, all of which is
currently available.
Debt Repayments and Covenants
Our total scheduled long-term debt and note payable repayments during the
second half of 2005, as adjusted to reflect the RTM Acquisition and our debt
refinancing, are $19.9 million consisting principally of $2.0 million paid on
our refinanced debt prior to refinancing, $3.1 million under our $620.0 million
term loan facility, $6.8 million relating to sale-leaseback obligations, $2.6
million relating to capitalized leases, $1.3 million under our secured bank term
loan, $1.1 million under our secured promissory note and $3.0 million expected
to be paid under our notes payable.
Our various note agreements and indentures as of July 3, 2005 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. We were in compliance with all of these
covenants as of July 3, 2005. Following the debt refinancing on July 25, 2005,
we now have certain covenants relating to the Credit Agreement, the most
restrictive of which (1) require periodic financial reporting, (2) require
meeting certain leverage and interest coverage ratio tests and (3) restrict,
among other matters, (a) the incurrence of indebtedness, (b) certain asset
dispositions, (c) certain affiliate transactions, (d) certain investments, (e)
certain capital expenditures and (f) the payment of dividends indirectly to
Triarc.
Contractual Obligations
As of July 3, 2005 there were no significant changes in our contractual
obligations since January 2, 2005 as discussed in Item 7 of our 2004 Form 10-K.
However, in connection with the RTM Acquisition and our debt refinancing on July
25, 2005, our contractual obligations related to our debt obligations increased
by approximately $522.0 million, including $128.0 million of sale-leaseback
obligations and $42.0 million of capitalized lease obligations, and our
operating lease commitments increased by approximately $410.0 million.
Guarantees and Commitments
Our wholly-owned subsidiary, National Propane Corporation, which we refer
to as National Propane, 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 July 3, 2005, 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 July 3, 2005. We
believe it is unlikely that we will be called upon to make any payments under
this indemnity. Either National Propane or AmeriGas Propane L.P., which we refer
to as 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 of $36.1 million as of July 3, 2005,
associated with the sale, prior to 2004, of our former propane business if
National Propane required the repurchase.
Triarc guaranteed mortgage notes payable through 2015 of approximately
$38.0 million as of July 3, 2005 related to 355 restaurants we sold to RTM in
1997. As a result of our debt refinancing, on July 26, 2005 the mortgage notes
were repaid and, accordingly, we no longer have the related guarantee. RTM also
assumed substantially all of the associated lease obligations, although Arby's,
LLC remained contingently liable if RTM did not make the required lease
payments. Those lease obligations approximated $49.0 million as of July 3, 2005.
As a result of the RTM Acquisition we are now directly responsible for these
lease obligations.
Capital Expenditures
Cash capital expenditures amounted to $3.1 million during the 2005 first
half. We expect that cash capital expenditures and non-cash capital
expenditures, including those relating to RTM, will be approximately $40.0
million and $20.0 million, respectively, during the second half of 2005
principally relating to (1) the opening of 25 new Company-owned restaurants and
remodeling some of our existing restaurants, (2) leasehold improvements for our
and the restaurant segment's newly leased corporate office facilities and (3)
maintenance capital expenditures for our Company-owned restaurants. We have $0.7
million of outstanding commitments for these capital expenditures as of July 3,
2005.
Investments and Potential Acquisitions
In July 2004 we acquired a 25% equity interest, with a 14.3% general voting
interest, in Jurlique, a privately held Australian skin and beauty products
company, for $25.6 million, including expenses of $0.4 million. In July 2004 we
paid $13.3 million, including expenses of $0.4 million, and in July 2005 we made
the final payment of $12.3 million. On July 28, 2005, we made an additional
investment in Jurlique of $4.5 million increasing our equity interest to 29%,
with a 15.0% general voting interest. We are accounting for Jurlique under the
cost method since our voting stock interest of 14.3% as of July 3, 2005 and
15.0% after July 28, 2005 does not provide us the ability to exercise
significant influence over Jurlique's operating and financial policies. In
addition, we entered into a put and call arrangement on a portion of our
investment whereby we have limited the overall foreign currency risk of holding
the investment through July 2007.
As of July 3, 2005, we had $614.7 million of cash and cash equivalents,
restricted cash equivalents, investments other than investments held in deferred
compensation trusts and receivables from sales of investments, net of
liabilities related to investments. This amount includes $32.9 million of
noncurrent restricted cash equivalents, including $30.6 million related to the
Securitization Notes. This amount also includes $95.2 million invested in the
Opportunities Fund and $4.8 million in DM Fund, LLC, which are both managed by
Deerfield and consolidated by us and which we have agreed not to withdraw before
October 4, 2006. In connection with the RTM Acquisition and related refinancing
our cash balance was reduced by approximately $130.0 million. We continue to
evaluate strategic opportunities for the use of our significant cash and
investment position, including additional business acquisitions, a potential
corporate restructuring as discussed above under "Introduction and Executive
Overview," repurchases of Triarc common stock (see "Treasury Stock Purchases"
below) and investments.
Dividends
On March 15, 2005 and June 15, 2005, 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 $9.4 million. On August 11, 2005, we declared
regular quarterly cash dividends of $0.08 and $0.09 per share on our class A and
class B common stock, respectively, to holders of record on September 1, 2005
and payable on September 15, 2005. 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 fourth
quarter of 2005 at the same rate as declared for the 2005 third quarter, based
on the number of our class A and class B common shares outstanding as of August
1, 2005, which includes the 9,684,000 shares of our class B common stock issued
in connection with the RTM Acquisition, our total cash requirement for dividends
would be $13.1 million for the second half of 2005.
Treasury Stock Purchases
Our management is currently authorized, when and if market conditions
warrant and to the extent legally permissible, to repurchase through June 30,
2006 up to a total of $50.0 million of our class A and class B common stock as
of July 3, 2005. We did not make any treasury stock purchases during the 2005
first half and we cannot assure you that we will repurchase any shares under
this program in the future.
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
Our consolidated cash requirements for continuing operations for the second
half of 2005, exclusive of operating cash flow requirements but adjusted to
reflect the RTM Acquisition and the related refinancing, consist principally of
(1) approximately $537.0 million to refinance substantially all of the existing
indebtedness of our restaurant segment and RTM, including approximately $44.0
million for prepayment penalties and fees and $13.0 million of estimated
expenses, (2) $175.0 million to fund the RTM Acquisition, $21.8 million to repay
debt, including related accrued interest and prepayment penalties, assumed but
not an obligation of the entities included in the RTM Acquisition and $23.0
million of estimated expenses relating to the RTM Acquisition, (3) a maximum of
an aggregate $50.0 million of payments for repurchases of our class A and class
B common stock for treasury under our current stock repurchase program, (4) cash
capital expenditures of approximately $40.0 million, (5) scheduled debt
principal repayments, as adjusted for our debt refinancing, aggregating $19.9
million, (6) payments for investments in Jurlique of $16.8 million, (7) regular
quarterly cash dividends aggregating approximately $13.1 million and (8) the
cost of additional business acquisitions, if any. We anticipate meeting all of
these requirements through (1) the proceeds from our $620.0 million Term Loan,
(2) the use of our liquid net current assets, (3) cash flows from continuing
operating activities, if any, (4) our $100.0 million revolving credit facility
and (5) if necessary for any business acquisitions and if market conditions
permit, borrowings including proceeds from sales, if any, of up to $2.0 billion
of our securities under the universal shelf registration statement.
Consolidation of Opportunities Fund
We consolidate the Opportunities Fund since we currently have a majority
voting interest of 95.2%. However, the Opportunities Fund is being marketed to
other investors. Should the sales of equity shares of the Opportunities Fund
result in us owning less than a majority voting interest, we would no longer
consolidate the Opportunities Fund. However, no assurance can be given that this
will occur. If this does occur, we will account for our investment in the
Opportunities Fund under the equity method of accounting on a prospective basis
from the date of deconsolidation.
Legal and Environmental Matters
In 2001, a vacant property owned by Adams Packing Association, Inc., which
we refer to as Adams Packing, 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 during 2004 the work under that
plan was completed. Adams Packing submitted its contamination assessment report
to the Florida DEP in March 2004. In August 2004, the Florida DEP agreed to a
monitoring plan consisting of two sampling events which occurred in January and
June 2005 and the results have been submitted to the Florida DEP for its review,
after which it will reevaluate the need for additional assessment or
remediation. Based on provisions made prior to 2004 of $1.7 million for those
costs and after taking into consideration various legal defenses available to
us, including Adams Packing, Adams Packing has provided for its estimate of its
remaining liability for completion of this matter.
In 1998, a number of class action lawsuits were filed on behalf of our
stockholders. Each of these actions named us, the Executives and other members
of our then 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,
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
that was subsequently dismissed in October 2002 and is no longer being appealed.
Through July 3, 2005, 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 $1.2 million as of July 3, 2005. 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 lower in our first quarter.
Further, while our asset management business is not directly affected by
seasonality, our asset management revenues are higher in our fourth quarter as a
result of our revenue recognition accounting policy for incentive fees related
to the Funds which are based upon performance and are recognized when the
amounts become fixed and determinable upon the close of a performance period.
Recently Issued Accounting Pronouncements
In March 2004, the FASB ratified the consensus reached by the Emerging
Issues Task Force on issue 03-1, "The Meaning of Other-Than-Temporary Impairment
and its Application to Certain Investments" ("EITF 03-1"). EITF 03-1 provides
guidance on evaluating whether an investment is other-than-temporarily impaired.
The recognition and measurement provisions of EITF 03-1, which were to be
effective for periods beginning after June 15, 2004, were delayed by the FASB
pending further guidance. During the period of delay, we will continue to
evaluate our investments as required by existing authoritative guidance,
including Securities and Exchange Commission Staff Accounting Bulletin Topic 5M,
"Other Than Temporary Impairment of Certain Investments in Debt and Equity
Securities." We do not expect that the recognition and measurement provisions of
EITF 03-1 will have a significant effect on our financial position or results of
operations if and when they become effective, since the principles we use to
measure any other than temporary impairment losses are generally consistent with
those proposed in EITF 03-1.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which
revises SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
and supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). The requirements of SFAS 123(R) are similar to
those of SFAS 123, except that SFAS 123(R) generally requires companies to
measure the cost of employee services received in exchange for an award of
equity instruments, including grants of employee stock options and restricted
stock, based on the fair value of the award. We currently use the intrinsic
value method of measuring these awards under APB 25, which will no longer be an
alternative to the fair value method under SFAS 123(R). In April 2005, the
Securities and Exchange Commission adopted an amendment to Rule 4-01(a) of
Regulation S-X that defers the required effective date of SFAS 123(R) for us to
no later than our fiscal first quarter of 2006. Under SFAS 123(R), we must
determine the appropriate fair value model to be used in our circumstances, the
recognition method for compensation cost and the transition method to be used
upon adoption. We are evaluating the requirements of SFAS 123(R) and expect that
the adoption of SFAS 123(R) will have a material effect on our consolidated
results of operations and income (loss) per share. We have not yet determined
the fair value model, the recognition method or adoption method we will use.
Accordingly, we are unable to estimate the effect of adopting SFAS 123(R) or
whether the adoption will result in future expense amounts that are similar to
those included in our pro forma disclosures under SFAS 123.
In May 2005, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154"). SFAS 154 replaces Accounting Principles Board
Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements" and changes the requirements for the
accounting for and reporting of a change in accounting principle. SFAS 154
applies to all voluntary changes in accounting principles and to changes
required by an accounting pronouncement when specific transition provisions are
not provided. SFAS 154 requires retrospective application to prior periods'
financial statements for a change in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. Under SFAS 154, a change in the method of applying an
accounting principle would also be considered a change in accounting principle.
SFAS 154 is effective commencing with our first fiscal quarter of 2006. We
presently do not believe that the adoption of SFAS 154 will have any immediate
effect on our consolidated financial position or result of operations since we
do not currently anticipate changing any accounting methods or principles except
for the adoption of SFAS 123 (R) which provides specific transition provisions.
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
January 2, 2005. 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, as
referred to below, our commodity price risk, our equity market risk and our
foreign currency risk.
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 1."
We are exposed to the impact of interest rate changes, changes in commodity
prices, changes in the market value of our investments and, to a lesser extent,
foreign currency fluctuations. In the normal course of business, we employ
established policies and procedures to manage our exposure to these changes
using financial instruments we deem appropriate. We had no significant changes
in our management of, or our exposure to, commodity price risk, equity market
risk or foreign currency risk during the six months ended July 3, 2005.
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 relating to our long-term debt during the six months ended
July 3, 2005. As of July 3, 2005, our notes payable and long-term debt,
including current portion, aggregated $474.0 million and consisted of $454.8
million of fixed-rate debt, $10.0 million of a variable-rate bank loan and $9.2
million of variable-rate notes payable. The fair value of our fixed-rate debt
will increase if interest rates decrease. However, we continue to have an
interest rate swap agreement, with an embedded written call option, in
connection with our variable-rate bank loan which effectively establishes a
fixed interest rate on this debt so long as the one-month London Interbank
Offered Rate is below 6.5%. Subsequent to July 3, 2005, in connection with our
acquisition of RTM Restaurant Group, we borrowed $620.0 million under a new
variable-rate seven-year senior secured term loan facility, a substantial
portion of which was or will be used to refinance $268.4 million of our existing
fixed-rate debt and debt of $212.8 million of RTM that we assumed, other than
approximately $170.0 million of sale-leaseback and capitalized lease
obligations. We are required under the related credit agreement to provide
protection against interest rate fluctuations on at least 33% of the outstanding
principal amount under this term loan facility by November 22, 2005 for a period
of two years. We are currently evaluating what form and level of protection we
will obtain, but expect to utilize interest rate cap and/or interest rate swap
agreements. 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-one years. See below for a discussion of how we manage this risk. The
fair market value of our investments in fixed-rate debt securities will decline
if interest rates increase.
Foreign Currency Risk
We had no significant changes in our management of, or our exposure to,
foreign currency fluctuations during the 2005 first half. However, subsequent to
July 3, 2005 we paid the second half of the purchase price in Australian dollars
for our investment in Jurlique International Pty Ltd., an Australian company,
and settled a forward contract whereby we had fixed the exchange rate for
payment of this liability. In addition, subsequent to July 3, 2005 our exposure
to foreign currency risk has increased as a result of an additional $4.5 million
investment in Jurlique. Our existing put and call arrangement on a portion of
our original cost related to this investment, whereby we have limited the
overall foreign currency risk of holding the investment through July 5, 2007,
does not relate to the additional $4.5 million 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 potentially 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 regularly 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. We are continuing to adjust our asset allocation to increase the
portion of our investments that offers the opportunity for higher, but more risk
inherent, returns. In that regard, in October 2004 we invested $100.0 million to
seed a new multi-strategy hedge fund, Deerfield Opportunities Fund, LLC, which
we refer to as the Opportunities Fund, which is managed by a subsidiary of ours
and is currently consolidated by us with minority interests to the extent of
participation by investors other than us. The Opportunities Fund invests
principally in various fixed income securities and their derivatives, as
opportunities arise. Further, the Opportunities Fund employs leverage in its
trading activities, including securities sold with an obligation to purchase or
under agreements to repurchase as well as the effective leverage represented by
the notional amounts of its various derivatives. The investments of the
Opportunities Fund are subject to interest rate risk and the inherent credit
risk related to the underlying creditworthiness of the various issuers. The
Opportunities Fund uses hedging strategies, including the derivatives it holds
and other asset/liability management strategies, to generally minimize its
overall interest rate risk while retaining an acceptable level of credit risk as
part of its technical trading strategies. The Opportunities Fund monitors its
overall credit risk and attempts to maintain an acceptable level of exposure
through diversification of credit positions by industry, credit rating and
individual issuer concentrations. In March 2005 we withdrew $4.8 million of our
investment from the Opportunities Fund to seed another new fund managed by
Deerfield and consolidated by us with minority interests. As of July 3, 2005,
the derivatives held in our short-term investment trading portfolios,
principally through the Opportunities Fund, consisted of (1) credit default
swaps, (2) bank loan total return swaps, (3) an option on an interest rate swap,
(4) options on foreign currency and interest rate futures contracts, (5) futures
contracts relating to interest rates and foreign currencies and (6) forward
contracts on foreign currencies. We did not designate any of these strategies as
hedging instruments and, accordingly, all of these derivative instruments were
recorded at fair value with changes in fair value recorded in our results of
operations.
We maintain investment holdings of various issuers, types and maturities.
As of July 3, 2005 these investments were classified in our condensed
consolidated balance sheet as follows (in thousands):
Cash equivalents included in "Cash and cash equivalents"...................................$ 295,719
Short-term investments..................................................................... 628,674
Investment settlements receivable.......................................................... 210,820
Current and non-current restricted cash equivalents........................................ 229,197
Non-current investments.................................................................... 87,032
-------------
$ 1,451,442
=============
Certain liability positions related to investments:
Investment settlements payable..........................................................$ (40,751)
Securities sold under agreements to repurchase ......................................... (400,044)
Securities sold with an obligation to purchase included in "Other liability positions
related to short-term investments".................................................. (366,572)
Derivatives held in trading portfolios in liability positions included in "Other
liability positions related to short-term investments".............................. (2,395)
Installment payment due subsequent to July 3, 2005 for investment in Jurlique,
included in "Accrued expenses and other current liabilities"........................ (13,555)
-------------
$ (823,317)
=============
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, securities purchased under
agreements to resell the following day collateralized by United States
government and government agency debt securities, interest-bearing brokerage and
bank accounts with a stable value and commercial paper of high credit-quality
entities.
At July 3, 2005 our investments were classified in the following general
types or categories (in thousands):
Carrying Value
At Fair ----------------------
Type At Cost Value (e) Amount Percent
---- ------- -------- ------ -------
Cash equivalents (a)............................$ 295,719 $ 295,719 $ 295,719 20%
Investment settlements receivable (b)........... 210,820 210,820 210,820 15%
Restricted cash equivalents..................... 229,197 229,197 229,197 16%
Investments accounted for as:
Available-for-sale securities (c).......... 119,124 123,345 123,345 8%
Trading securities......................... 482,197 482,550 482,550 33%
Trading derivatives........................ 874 1,672 1,672 --%
Non-current investments held in deferred
compensation trusts accounted for at cost..... 21,501 28,499 21,501 2%
Other current and non-current investments in
investment limited partnerships and similar
investment entities accounted for at cost..... 22,920 34,768 22,920 2%
Other current and non-current investments
accounted for at:
Cost....................................... 35,887 38,403 35,887 2%
Equity..................................... 15,109 36,105 20,472 1%
Fair value ................................ 7,359 7,359 7,359 1%
----------- ----------- ----------- -----
Total cash equivalents and long investment
positions.....................................$ 1,440,707 $ 1,488,437 $1,451,442 100%
=========== =========== ========== ====
Certain liability positions related to
investments:
Investment settlements payable (b).........$ (40,751) $ (40,751) $ (40,751) N/A
Securities sold under agreements to
repurchase.............................. (399,408) (400,044) (400,044) N/A
Securities sold with an obligation to
purchase................................ (361,962) (366,572) (366,572) N/A
Derivatives held in trading portfolios in
liability positions..................... -- (2,395) (2,395) N/A
Installment payment due subsequent to
July 3, 2005 for investment in
Jurlique (d)............................ (12,308) (13,555) (13,555) N/A
----------- ----------- -----------
$ (814,429) $ (823,317) $ (823,317) N/A
=========== =========== ===========
(a) Includes $5,875,000 of cash equivalents held in deferred compensation
trusts.
(b) Represents unsettled security trades as of July 3, 2005 principally in the
Opportunities Fund.
(c) Includes $15,058,000 of preferred shares of collateralized debt obligation
vehicles, which we refer to as CDOs, which, if sold, would require us to
use the proceeds to repay our related notes payable of $9,150,000.
(d) The fair value of this liability does not reflect the offsetting effect of
a related foreign currency forward contract in an asset position which had
a fair value of $1,517,000.
(e) 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. Our investments in preferred shares of CDOs are accounted
for similar to debt securities and are classified as available-for-sale.
Investment limited partnerships and similar investment entities and other
current and non-current investments in which we do not have significant
influence over the investees are accounted for at cost. Derivative instruments
held in trading portfolios are similar to and classified as trading securities
which are accounted for as described above. 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. Investments in
which we have significant influence over the investees are 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 investees. Our
investments accounted for under the equity method consist of non-current
investments in (1) a public company and (2) a real estate investment trust
managed by a subsidiary of ours. We also hold restricted stock and stock options
in the real estate investment trust that we manage, which we received as
stock-based compensation and account for at fair value. 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
July 3, 2005 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 July
3, 2005 based upon assumed immediate adverse effects as noted below (in
thousands):
Trading Purposes:
Carrying Interest Equity Foreign
Value Rate Risk Price Risk Currency Risk
-------- --------- ---------- -------------
Equity securities............................................... $ 22 $ -- $ (2) $ --
Debt securities................................................. 482,528 (12,186) -- --
Trading derivatives in asset positions.......................... 1,672 (1,137) -- (36)
Trading derivatives in liability positions...................... (2,395) (50) -- (101)
The sensitivity analysis of financial instruments held for trading purposes
assumes (1) an instantaneous 10% adverse change in the equity markets in which
we are invested, (2) an instantaneous one percentage point adverse change in
market interest rates and (3) an instantaneous 10% adverse change in the foreign
currency exchange rates versus the United States dollar, each from their levels
at July 3, 2005, with all other variables held constant.
The interest rate risk with respect to our debt securities and trading
derivatives reflects the effect of the assumed adverse interest rate change on
the fair value of each of those securities or derivative positions and does not
reflect any offsetting of hedged positions. The adverse effects on the fair
values of the respective securities and derivatives were determined based on
market standard pricing models applicable to those particular instruments. Those
models consider variables such as coupon rate and frequency, maturity date(s),
yield and, in the case of derivatives, volatility, price of the underlying
instrument, strike price, expiration, prepayment assumptions and probability of
default.
Other Than Trading Purposes:
Carrying Interest Equity Foreign
Value Rate Risk Price Risk Currency Risk
-------- --------- ---------- -------------
Cash held in a foreign currency account..........$ 13,755 $ -- $ -- $ (1,376)
Cash equivalents................................. 295,719 (3) -- --
Investment settlements receivable................ 210,820 -- -- --
Restricted cash equivalents...................... 229,197 (32) -- --
Available-for-sale equity securities............. 39,559 -- (3,956) --
Available-for-sale asset-backed securities....... 26,761 (2,408) -- --
Available-for-sale preferred shares of CDOs...... 19,856 (1,039) -- --
Available-for-sale United States government and
government agency debt securities............. 13,086 (55) -- --
Available-for-sale commercial paper.............. 12,317 (31) -- --
Available-for-sale debt mutual fund.............. 8,725 (175) -- --
Available-for-sale corporate debt securities,
other than commercial paper................... 3,041 (114) -- --
Investment in Jurlique........................... 25,611 -- (2,561) (1,241)
Other investments................................ 82,528 (867) (5,846) (42)
Foreign currency forward contract in an asset
position...................................... 1,517 -- -- (1,377)
Foreign currency put and call arrangement in a
net liability position........................ (390) -- -- (1,143)
Investment settlements payable................... (40,751) -- -- --
Securities sold under agreements to repurchase... (400,044) (8) -- --
Securities sold with an obligation to purchase... (366,572) (11,386) (885) --
Installment payment due subsequent to
July 3, 2005 for investment in Jurlique....... (13,555) -- -- (1,356)
Notes payable and long-term debt, excluding
capitalized lease obligations................. (473,175) (19,276) -- --
Interest rate swap agreement in a payable
position...................................... (151) (143) -- --
The sensitivity analysis of financial instruments held at July 3, 2005 for
purposes of other than trading assumes (1) an instantaneous one percentage point
adverse change in market interest rates, (2) an instantaneous 10% adverse change
in the equity markets in which we are invested and (3) an instantaneous 10%
adverse change in the foreign currency exchange rates versus the United States
dollar, each from their levels at July 3, 2005, 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. 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.
Our investments in debt securities and preferred shares of CDOs with
interest rate risk had a range of remaining maturities and, for purposes of this
analysis, were assumed to have weighted average remaining maturities as follows:
Range Weighted Average
----- ----------------
Cash equivalents (other than money market funds
and interest-bearing brokerage and bank accounts
and securities purchased under agreements to resell)................... 24 days - 85 days 55 days
Restricted cash equivalents............................................... 19 days - 25 days 20 days
Asset-backed securities...................................................2 3/4 years - 31 years 9 years
CDOs underlying preferred shares.......................................... 2 years - 7 3/4 years 4 3/4 years
United States government and government agency debt
securities............................................................. 19 days - 11 months 5 months
Commercial paper.......................................................... 2 days - 7 months 3 months
Debt mutual fund.......................................................... 1 day - 35 years 2 years
Corporate debt securities, other than commercial paper.................... 3 years - 4 years 3 3/4 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 investments in debt
securities and the preferred shares of CDOs, 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. The interest rate risk for our preferred shares of CDOs excludes those
portions of the CDOs for which the risk has been fully hedged. Our cash
equivalents and restricted cash equivalents included $293.6 million and $171.0
million, respectively, of mutual fund and bank money market accounts and/or
interest-bearing brokerage and bank accounts which are designed to maintain a
stable value and securities purchased under agreements to resell the following
day which, as a result, were assumed to have no interest rate risk.
The interest rate risk presented with respect to our notes payable and
long-term debt, excluding capitalized lease obligations, relates only to our
fixed-rate debt outstanding as of July 3, 2005 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. It does not take into consideration the refinancing of $268.4
million of this fixed-rate debt with variable-rate debt subsequent to July 3,
2003 in connection with the acquisition of RTM. The fair value of our
variable-rate debt, as well as almost all of our obligations for securities sold
under agreements to repurchase, approximates the carrying value since the
floating interest rate resets daily, monthly or quarterly and, as a result, we
assumed no associated interest rate risk. However, as discussed above under
"Interest Rate Risk," we have an interest rate swap agreement with an embedded
written call option on our variable-rate bank loan. 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.
The foreign currency risk presented for our investment in Jurlique as of
July 3, 2005 excludes the portion of risk that is hedged by the foreign currency
put and call arrangement and by the portion of Jurlique's operations which are
denominated in United States dollars. The foreign currency risk presented with
respect to the foreign currency forward contract and foreign currency put and
call arrangement represents the potential impact the indicated change has on the
net fair value of each of these respective financial instruments and on our
financial position and results of operations and has been determined by an
independent broker/dealer. For investments held since January 2, 2005 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. The analysis also assumed that the decrease in the equity markets and
the change in foreign currency were other than temporary with respect to these
investments. 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
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chairman and Chief Executive
Officer and our Executive Vice President and Chief Financial Officer, carried
out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as 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 on that
evaluation, our Chairman and Chief Executive Officer and our Executive Vice
President and Chief Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act was recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission.
Change in Internal Control Over Financial Reporting
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.
Inherent Limitations on Effectiveness of Controls
There are inherent limitations in the effectiveness of any control system,
including the potential for human error and the circumvention or overriding of
the controls and procedures. Additionally, judgments in decision-making can be
faulty and breakdowns can occur because of simple error or mistake. An effective
control system can provide only reasonable, not absolute, assurance that the
control objectives of the system are adequately met. Accordingly, our
management, including our Chairman and Chief Executive Officer and our Executive
Vice President and Chief Financial Officer, does not expect that our control
system can prevent or detect all error or fraud. Finally, projections of any
evaluation or assessment of effectiveness of a control system to future periods
are subject to the risks that, over time, controls may become inadequate because
of changes in an entity's operating environment or deterioration in the degree
of compliance with policies or procedures.
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," "plans," "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
competitor's new units on sales by Arby's(R) restaurants;
o consumers' perceptions of the relative quality, variety and value of the
food products we offer;
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 us and our 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 us;
o availability, location and terms of sites for restaurant development by us
and our franchisees;
o the ability of our 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 us and our franchisees;
o our 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
our franchisees to participate in our strategy;
o business abilities and judgment of our and our franchisees' management and
other personnel;
o availability of qualified restaurant personnel to us and to our
franchisees;
o our 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 changes in commodity (including beef), labor, supplies and other operating
costs and availability and cost of insurance;
o adverse weather conditions;
o significant reductions in our client assets under management (which would
reduce our advisory fee revenue), due to such factors as weak performance
of our investment products (either on an absolute basis or relative to our
competitors or other investment strategies), substantial illiquidity or
price volatility in the fixed income instruments that we trade, loss of key
portfolio management or other personnel, reduced investor demand for the
types of investment products we offer, and loss of investor confidence due
to adverse publicity;
o increased competition from other asset managers offering similar types of
products to those we offer;
o pricing pressure on the advisory fees that we can charge for our investment
advisory services;
o difficulty in increasing assets under management, or efficiently managing
existing assets, due to market-related constraints on trading capacity or
lack of potentially profitable trading opportunities;
o our removal as investment manager of one or more of the collateral debt
obligation vehicles (CDOs) or other accounts we manage, or the reduction in
our 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 legal or self-regulatory requirements, including franchising
laws, investment management regulations, accounting standards,
environmental laws, overtime rules, 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 or
securities investing, 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 acquisitions into our existing operations; and
o other risks and uncertainties affecting us and our subsidiaries referred to
in our Annual Report on Form 10-K for the fiscal year ended January 2, 2005
(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.
All future written and oral forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. New risks
and uncertainties arise from time to time, and it is impossible for us to
predict these events or how they may affect us. We assume no obligation to
update any forward-looking statements after the date of this Quarterly Report on
Form 10-Q as a result of new information, future events or developments, except
as required by federal securities laws. In addition, it is our policy generally
not to make any specific projections as to future earnings, and we do not
endorse any projections regarding future performance that may be made by third
parties.
Item 1. Legal Proceedings
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 1970s. 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
the work under that plan has been completed. Adams Packing submitted its
contamination assessment report to the Florida DEP in March 2004. In August
2004, the Florida DEP agreed to a monitoring plan consisting of two sampling
events after which it will reevaluate the need for additional assessment or
remediation. The results of the sampling events, which occurred in January and
June 2005, have been submitted to the Florida DEP for its review. Based on
provisions made prior to 2004 of approximately $1.7 million for costs associated
with this matter, and after taking into consideration various legal defenses
available to us, Adams Packing has provided for its estimate of its liability
for this matter, including related legal and consulting fees. Accordingly, this
matter is not expected to have a material adverse effect on our consolidated
financial position or results of operations. See "Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations--Legal
and Environmental Matters."
In November 2002, Access Now, Inc. and Edward Resnick, later replaced by
Christ Soter Tavantzis, on their own behalf and on behalf of all those similarly
situated, brought an action in the United States District Court for the Southern
District of Florida against RTM Operating Company ("RTM"), which became a
subsidiary of the Company following the acquisition of RTM Restaurant Group in
July 2005. The complaint alleges that the approximately 775 Arby's restaurants
owned by RTM and its affiliates failed to comply with Title III of the Americans
with Disabilities Act (the "ADA"). The plaintiffs are requesting class
certification and injunctive relief requiring RTM and such affiliates to comply
with the ADA in all of its restaurants. The complaint does not seek monetary
damages, but does seek attorneys' fees. Without admitting liability, RTM entered
into an agreement with the plaintiffs on a class-wide basis which is subject to
court approval. The proposed agreement calls for the restaurants owned by RTM
and certain of its affiliates to be brought into ADA compliance over an eight
year period at a rate of approximately 100 restaurants per year. The proposed
agreement would also apply to restaurants subsequently acquired by RTM and such
affiliates. The Company estimates that it will spend approximately $1.0 million
per year of capital expenditures to bring the restaurants into compliance under
the proposed agreement and pay certain legal fees. The proposed settlement was
submitted to the court for approval on August 13, 2004. On April 7, 2005 the
court held a fairness hearing on the matter. The court has not yet ruled on the
proposed settlement.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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 second fiscal quarter of 2005:
Issuer Repurchases of Equity Securities
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
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 (1) Per Share (1) (2) Under the Plan (2)
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
April 4, 2005
through --- --- --- $50,000,000
May 1, 2005
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
May 2, 2005
through --- --- --- $50,000,000
May 29, 2005
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
May 30, 2005 3,388 Class B, $14.39 (Class B,
through Series 1 Series 1) --- $50,000,000
July 3, 2005
- ------------------------------- ---------------------- --------------------- --------------------------- -------------------------
(1) Reflects 3,388 shares of Class B Common Stock, Series 1, tendered as
payment of the exercise price of stock options under the Company's Amended
and Restated 1993 Equity Participation Plan. The shares were valued at the
closing price of the Class B Common Stock, Series 1, on the date of
exercise of the stock options.
(2) On December 16, 2004, we announced that our existing stock repurchase
program, which was originally approved by our board of directors on January
18, 2001, had been extended until June 30, 2006 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 and Class B Common Stock. No
transactions were effected under our stock repurchase program during the
second fiscal quarter of 2005.
Item 4. Submission of Matters to a Vote of Security Holders.
On June 1, 2005, we held our Annual Meeting of Stockholders. As previously
announced, at the Annual Meeting Nelson Peltz, Peter W. May, Hugh L. Carey,
Clive Chajet, Edward P. Garden, Joseph A. Levato, Gregory H. Sachs, 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, an
amendment to the performance goal bonus award portion of the Company's 1999
Executive Bonus Plan as described in the proxy statement, and Proposal 3,
ratifying the appointment of Deloitte & Touche LLP as our independent registered
public accountants.
The voting on the above matters is set forth below:
Nominee Votes For Votes Withheld
------------------ ------------ ---------------
Nelson Peltz 25,885,002.5 519,232.5
Peter W. May 25,885,822.7 518,952.3
Hugh L. Carey 25,930,744.6 473,396.7
Clive Chajet 25,920,442.2 483,699.1
Edward P. Garden 25,890,143.0 514,092.0
Joseph A. Levato 25,690,668.1 713,566.9
Gregory H. Sachs 25,840,736.5 563,498.5
David E. Schwab II 25,869,438.0 534,703.3
Raymond S. Troubh 25,820,466.7 583,674.6
Gerald Tsai, Jr. 25,877,258.9 526,882.4
Jack G. Wasserman 25,966,318.0 437,823.3
Proposal 2 - There were 25,718,756.1 votes for, 659,118 votes against and
26,265 abstentions. There were no broker non-votes for this item.
Proposal 3 - There were 26,351,508.6 votes for, 41,878.6 votes against and
10,754.1 abstentions. There were no broker non-votes for this item.
Item 5. Other Information.
RTM Acquisition
On July 25, 2005, the Company completed its acquisition of RTM Restaurant
Group ("RTM"). RTM is the largest Arby's(R) franchisee, with 775 Arby's
restaurants in 22 states. The Company, through its subsidiaries, is the
franchisor of the Arby's restaurant system and, as a result of the transaction,
is the owner and operator of over 1,000 Arby's restaurants located in the United
States.
Total consideration in the RTM acquisition consisted of $175 million in
cash, subject to post closing adjustment, plus approximately 9.7 million shares
of the Company's Class B Common Stock, Series 1, and options to purchase
approximately 774,000 shares of the Companys Class B Common Stock, Series 1
(weighted average exercise price of $8.92), which were issued in replacement of
existing RTM stock options. The combined value of the shares and options issued
by the Company in connection with the RTM acquisition was approximately $150
million, based on a closing price of $15.00 per share on July 25, 2005. In
connection with the RTM acquisition, Arby's Restaurant Group, Inc. ("ARG"), a
wholly owned subsidiary of the Company, also assumed approximately $400 million
of RTM net debt, including approximately $180 million of RTM capitalized lease
and financing obligations.
The Company provided $135 million in cash to fund the acquisition. ARG
funded the remaining cash needed to complete the acquisition, including
transaction costs, and refinanced substantially all of its and RTM's existing
indebtedness, with the proceeds from a new $720 million credit facility
(consisting of a $620 million senior term loan B facility and a $100 million
senior revolving credit facility, with a $30 million subfacility for letters of
credit). This refinancing included the repayment of approximately $234 million
of RTM third-party debt and approximately $71 million of ARG third-party debt as
well as the defeasance of the Arby's Franchise Trust, 7.44% insured non-recourse
securitization notes (total principal amount of $198 million), which will be
redeemed in full on August 22, 2005, and the payment of related prepayment
penalties.
Potential Corporate Restructuring
As previously reported, the Company is continuing to explore a corporate
restructuring that would separate our non-restaurant operations (primarily our
ownership interest in our alternative asset management business, Deerfield &
Company LLC) from Triarc, through a spin-off of such operations to the Company's
shareholders. Options for the Company's other remaining assets are also under
review and could include the allocation of the Company's cash, cash equivalents,
short term and other investments, including funds, between its operations and/or
a special dividend or distribution to shareholders. If the corporate
restructuring is completed through a spin-off of Deerfield & Company, it is
expected that Triarc would be renamed Arby's. As a result, the Company's
shareholders would then hold shares in two "pure play" public companies: Arby's
(formerly known as Triarc), which following the completion of the acquisition of
RTM is a fully integrated stand-alone restaurant company, and Deerfield &
Company, an asset management business that had approximately $10.2 billion in
assets under management as of August 1, 2005.
The Company's senior officers are also continuing to actively explore the
creation of one or more equity investment funds, which would be managed and
owned by such officers, and which would be separate and distinct from Triarc and
the spun-off businesses. A portion of the economics generated by the fund(s) may
be paid to Triarc (which would be renamed Arby's) and/or Deerfield & Company.
Triarc's Board of Directors has formed a special committee of independent
directors to review and consider related-party issues in connection with the
restructuring and the formation of the equity investment fund(s). The special
committee consists of the following directors: David E. Schwab II (Chairman),
Joseph A. Levato (Vice Chairman), Clive Chajet and Raymond S. Troubh.
If the corporate restructuring is completed and the equity investment
fund(s) are successfully launched, following a transition period, Arby's would
be led by its current President and Chief Executive Officer, Douglas N. Benham,
and Deerfield & Company would be led by its current Chairman and Chief Executive
Officer, Gregory H. Sachs. In addition, Nelson Peltz and Peter W. May, currently
Triarc's Chairman and Chief Executive Officer and President and Chief Operating
Officer, respectively, who together beneficially owned an aggregate of
approximately 30.5% of the shares of Triarc's Class A Common Stock and Class B
Common Stock, Series 1, as of August 1, 2005, would continue to be large
shareholders and directors of the two new public companies. It is also
anticipated that Messrs. Peltz and May would be Chairman and Vice Chairman,
respectively, of Arby's, that Mr. Peltz would continue in his role as Chairman
of Deerfield Triarc Capital Corp. ("DTCC"), a publicly traded mortgage REIT
managed by Deerfield Capital Management LLC ("Deerfield"), an indirect
majority-owned subsidiary of the Company, and that Messrs. Peltz and May and
Triarc's current Vice Chairman, Edward P. Garden, would continue in their roles
on the DTCC investment committee.
There can be no assurance that the spin-off or the creation of the equity
investment fund(s) will be consummated.
Item 6. Exhibits.
2.1 Agreement and Plan of Merger, dated as of May 27, 2005, by and among Triarc
Companies, Inc., Arby's Acquisition Co., Arby's Restaurant, LLC, RTM
Restaurant Group, Inc. and Russell V. Umphenour, Jr., Dennis E. Cooper and
J. Russell Welch, incorporated herein by reference to Exhibit 2.1 to
Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC file no.
1-2207).
2.2 Membership Interest Purchase Agreement, dated as of May 27, 2005, by and
among Triarc Companies, Inc., Arby's Restaurant Group, Inc., each of the
members of RTM Acquisition Company, L.L.C. and Russell V. Umphenour, Jr.,
Dennis E. Cooper and J. Russell Welch, incorporated herein by reference to
Exhibit 2.3 to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC
file no. 1-2207).
2.3 Asset Purchase Agreement, dated as of May 27, 2005, by and among Triarc
Companies, Inc., Arby's Restaurant Group, Inc., RTMMC Acquisition, LLC, RTM
Management Company, L.L.C., each of the members of RTM Management Company,
L.L.C. and Russell V. Umphenour, Jr., Dennis E. Cooper and J. Russell
Welch, incorporated herein by reference to Exhibit 2.5 to Triarc's Current
Report on Form 8-K dated July 25, 2005 (SEC file no. 1-2207).
2.4 Side Letter Agreement to the RTMRG Merger Agreement, dated as of July 25,
2005, by and among Triarc Companies, Inc., Arby's Acquisition Co., Arby's
Restaurant, LLC, RTM Restaurant Group, Inc. and Russell V. Umphenour, Jr.,
Dennis E. Cooper and J. Russell Welch, incorporated herein by reference to
Exhibit 2.2 to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC
file no. 1-2207).
2.5 First Amendment to Membership Interest Purchase Agreement, dated as of July
25, 2005, by and among Triarc Companies, Inc. Arby's Restaurant Group,
Inc., each of the members of RTM Acquisition Company, L.L.C. and Russell V.
Umphenour, Jr., Dennis E. Cooper and J. Russell Welch, incorporated herein
by reference to Exhibit 2.4 to Triarc's Current Report on Form 8-K dated
July 25, 2005 (SEC file no. 1-2207).
2.6 First Amendment to Asset Purchase Agreement, dated as of July 25, 2005, by
and among Triarc Companies, Inc., Arby's Restaurant Group, Inc., RTMMC
Acquisition, LLC, RTM Management Company, L.L.C., each of the members of
RTM Management Company, L.L.C. and Russell V. Umphenour, Jr., Dennis E.
Cooper and J. Russell Welch, incorporated herein by reference to Exhibit
2.6 to Triarc's Current Report on Form 8-K dated July 25, 2005 (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).
3.2 By-laws 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 November 5, 2004 (SEC file no. 1-2207).
3.3 Certificate of Designation of Class B Common Stock, Series 1, dated as of
August 11, 2003, incorporated herein by reference to Exhibit 3.3 to
Triarc's Current Report on Form 8-K dated August 11, 2003 (SEC file no.
1-2207).
4.1 Registration Rights Agreement, dated as of July 25, 2005, among Triarc
Companies, Inc. and certain stockholders of Triarc Companies, Inc.,
incorporated herein by reference to Exhibit 4.1 to Triarc's Current Report
on Form 8-K dated July 25, 2005 (SEC file no. 1-2207).
4.2 First Supplemental Indenture, dated as of July 13, 2005, among Arby's
Franchise Trust, Ambac Assurance Corporation, as Insurer and as Controlling
Party, and BNY Midwest Trust Company, as Indenture Trustee, incorporated
herein by reference to Exhibit 4.2 to Triarc's Current Report on Form 8-K
dated July 25, 2005 (SEC file no. 1-2207).
10.1 Amended and Restated 1993 Equity Participation Plan of Triarc Companies,
Inc., incorporated herein by reference to Exhibit 10.1 to Triarc's Current
Report on Form 8-K dated May 19, 2005 (SEC file no. 1-2207).
10.2 Amended and Restated 1997 Equity Participation Plan of Triarc Companies,
Inc., incorporated herein by reference to Exhibit 10.2 to Triarc's Current
Report on Form 8-K dated May 19, 2005 (SEC file no. 1-2207).
10.3 Amended and Restated 1998 Equity Participation Plan of Triarc Companies,
Inc., incorporated herein by reference to Exhibit 10.3 to Triarc's Current
Report on Form 8-K dated May 19, 2005 (SEC file no. 1-2207).
10.4 Amended and Restated 2002 Equity Participation Plan of Triarc Companies,
Inc., incorporated herein by reference to Exhibit 10.4 to Triarc's Current
Report on Form 8-K dated May 19, 2005 (SEC file no. 1-2207).
10.5 Amendment to the Triarc Companies, Inc. 1999 Executive Bonus Plan, dated as
of June 22, 2004, incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated June 1, 2005 (SEC file no.
1-2207).
10.6 Credit Agreement, dated as of July 25, 2005, among Arby's Restaurant Group,
Inc., Arby's Restaurant Holdings, LLC, Triarc Restaurant Holdings, LLC, the
Lenders and Issuers party thereto, Citicorp North America, Inc., as
Administrative Agent and Collateral Agent, Bank of America Securities LLC
and Credit Suisse, Cayman Islands Branch, as joint lead arrangers and joint
book-running managers, Bank of America, N.A. and Credit Suisse, Cayman
Islands Branch, as co-syndication agents, and Wachovia Bank, National
Association, Suntrust Bank and GE Capital Franchise Finance Corporation, as
co-documentation agents, incorporated herein by reference to Exhibit 10.1
to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC file no.
1-2207).
10.7 Employment Agreement, dated July 25, 2005, by and between Douglas N. Benham
and Arby's Restaurant Group, Inc., incorporated herein by reference to
Exhibit 10.2 to Triarc's Current Report on Form 8-K dated July 25, 2005
(SEC file no. 1-2207).
10.8 Transaction Support Agreement, dated as of May 27, 2005, by and among
Triarc Companies, Inc., certain stockholders of RTM Restaurant Group, Inc.
listed on the signature pages thereto and Russell V. Umphenour, Dennis E.
Cooper and J. Russell Welch, incorporated herein by reference to Exhibit
10.3 to Triarc's Current Report on Form 8-K dated July 25, 2005 (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. *
_______________________
* Filed herewith.
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 12, 2005 By: /s/FRANCIS T. MCCARRON
------------------------------
Francis T. McCarron
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
Date: August 12, 2005 By: /s/FRED H. SCHAEFER
------------------------------
Fred H. Schaefer
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Exhibit Index
-------------
Exhibit
No. Description
- --------- -----------
2.1 Agreement and Plan of Merger, dated as of May 27, 2005, by and among Triarc
Companies, Inc., Arby's Acquisition Co., Arby's Restaurant, LLC, RTM
Restaurant Group, Inc. and Russell V. Umphenour, Jr., Dennis E. Cooper and
J. Russell Welch, incorporated herein by reference to Exhibit 2.1 to
Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC file no.
1-2207).
2.2 Membership Interest Purchase Agreement, dated as of May 27, 2005, by and
among Triarc Companies, Inc., Arby's Restaurant Group, Inc., each of the
members of RTM Acquisition Company, L.L.C. and Russell V. Umphenour, Jr.,
Dennis E. Cooper and J. Russell Welch, incorporated herein by reference to
Exhibit 2.2 to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC
file no. 1-2207).
2.3 Asset Purchase Agreement, dated as of May 27, 2005, by and among Triarc
Companies, Inc., Arby's Restaurant Group, Inc., RTMMC Acquisition, LLC, RTM
Management Company, L.L.C., each of the members of RTM Management Company,
L.L.C. and Russell V. Umphenour, Jr., Dennis E. Cooper and J. Russell
Welch, incorporated herein by reference to Exhibit 2.3 to Triarc's Current
Report on Form 8-K dated July 25, 2005 (SEC file no. 1-2207).
2.4 Side Letter Agreement to the RTMRG Merger Agreement, dated as of July 25,
2005, by and among Triarc Companies, Inc., Arby's Acquisition Co., Arby's
Restaurant, LLC, RTM Restaurant Group, Inc. and Russell V. Umphenour, Jr.,
Dennis E. Cooper and J. Russell Welch, incorporated herein by reference to
Exhibit 2.2 to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC
file no. 1-2207).
2.5 First Amendment to Membership Interest Purchase Agreement, dated as of July
25, 2005, by and among Triarc Companies, Inc. Arby's Restaurant Group,
Inc., each of the members of RTM Acquisition Company, L.L.C. and Russell V.
Umphenour, Jr., Dennis E. Cooper and J. Russell Welch, incorporated herein
by reference to Exhibit 2.4 to Triarc's Current Report on Form 8-K dated
July 25, 2005 (SEC file no. 1-2207).
2.6 First Amendment to Asset Purchase Agreement, dated as of July 25, 2005, by
and among Triarc Companies, Inc., Arby's Restaurant Group, Inc., RTMMC
Acquisition, LLC, RTM Management Company, L.L.C., each of the members of
RTM Management Company, L.L.C. and Russell V. Umphenour, Jr., Dennis E.
Cooper and J. Russell Welch, incorporated herein by reference to Exhibit
2.6 to Triarc's Current Report on Form 8-K dated July 25, 2005 (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).
3.2 By-laws 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 November 5, 2004 (SEC file no. 1-2207).
3.3 Certificate of Designation of Class B Common Stock, Series 1, dated as of
August 11, 2003, incorporated herein by reference to Exhibit 3.3 to
Triarc's Current Report on Form 8-K dated August 11, 2003 (SEC file no.
1-2207).
4.1 Registration Rights Agreement, dated as of July 25, 2005, among Triarc
Companies, Inc. and certain stockholders of Triarc Companies, Inc.,
incorporated herein by reference to Exhibit 4.1 to Triarc's Current Report
on Form 8-K dated July 25, 2005 (SEC file no. 1-2207).
4.2 First Supplemental Indenture, dated as of July 13, 2005, among Arby's
Franchise Trust, Ambac Assurance Corporation, as Insurer and as Controlling
Party, and BNY Midwest Trust Company, as Indenture Trustee, incorporated
herein by reference to Exhibit 4.2 to Triarc's Current Report on Form 8-K
dated July 25, 2005 (SEC file no. 1-2207).
10.1 Amended and Restated 1993 Equity Participation Plan of Triarc Companies,
Inc., incorporated herein by reference to Exhibit 10.1 to Triarc's Current
Report on Form 8-K dated May 19, 2005 (SEC file no. 1-2207).
10.2 Amended and Restated 1997 Equity Participation Plan of Triarc Companies,
Inc., incorporated herein by reference to Exhibit 10.2 to Triarc's Current
Report on Form 8-K dated May 19, 2005 (SEC file no. 1-2207).
10.3 Amended and Restated 1998 Equity Participation Plan of Triarc Companies,
Inc., incorporated herein by reference to Exhibit 10.3 to Triarc's Current
Report on Form 8-K dated May 19, 2005 (SEC file no. 1-2207).
10.4 Amended and Restated 2002 Equity Participation Plan of Triarc Companies,
Inc., incorporated herein by reference to Exhibit 10.4 to Triarc's Current
Report on Form 8-K dated May 19, 2005 (SEC file no. 1-2207).
10.5 Amendment to the Triarc Companies, Inc. 1999 Executive Bonus Plan, dated as
of June 22, 2004, incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated June 1, 2005 (SEC file no.
1-2207).
10.6 Credit Agreement, dated as of July 25, 2005, among Arby's Restaurant Group,
Inc., Arby's Restaurant Holdings, LLC, Triarc Restaurant Holdings, LLC, the
Lenders and Issuers party thereto, Citicorp North America, Inc., as
Administrative Agent and Collateral Agent, Bank of America Securities LLC
and Credit Suisse, Cayman Islands Branch, as joint lead arrangers and joint
book-running managers, Bank of America, N.A. and Credit Suisse, Cayman
Islands Branch, as co-syndication agents, and Wachovia Bank, National
Association, Suntrust Bank and GE Capital Franchise Finance Corporation, as
co-documentation agents, incorporated herein by reference to Exhibit 10.1
to Triarc's Current Report on Form 8-K dated July 25, 2005 (SEC file no.
1-2207).
10.7 Employment Agreement, dated July 25, 2005, by and between Douglas N. Benham
and Arby's Restaurant Group, Inc., incorporated herein by reference to
Exhibit 10.2 to Triarc's Current Report on Form 8-K dated July 25, 2005
(SEC file no. 1-2207).
10.8 Transaction Support Agreement, dated as of May 27, 2005, by and among
Triarc Companies, Inc., certain stockholders of RTM Restaurant Group, Inc.
listed on the signature pages thereto and Russell V. Umphenour, Dennis E.
Cooper and J. Russell Welch, incorporated herein by reference to Exhibit
10.3 to Triarc's Current Report on Form 8-K dated July 25, 2005 (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. *
_______________________
* Filed herewith.
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)) and internal control over financial
reporting (as defined in Exchange Act Rules~13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) 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
d) 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 12, 2005
/s/NELSON PELTZ
------------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, Francis T. McCarron, the Executive 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)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) 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
d) 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 12, 2005
/s/FRANCIS T. MCCARRON
---------------------------
Francis T. McCarron
Executive 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 July 3, 2005 (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 12, 2005 /s/NELSON PELTZ
------------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
Dated: August 12, 2005 /s/FRANCIS T. MCCARRON
------------------------------------
Francis T. McCarron
Executive 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.