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 2, 2006
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number: 1-2207
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TRIARC COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-0471180
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
(212) 451-3000
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(Registrant's telephone number, including area code)
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(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.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
There were 27,772,376 shares of the registrant's Class A Common Stock and
60,672,679 shares of the registrant's Class B Common Stock outstanding as of
July 31, 2006.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 1, July 2,
2006 (A) 2006
------- ----
(In Thousands)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.........................................................$ 202,840 $ 190,433
Restricted cash equivalents....................................................... 344,060 1,081,790
Short-term investments pledged as collateral...................................... 556,492 1,059,934
Other short-term investments...................................................... 214,827 604,062
Investment settlements receivable................................................. 236,060 1,489,395
Accounts and notes receivable..................................................... 47,919 36,851
Inventories....................................................................... 11,101 8,685
Deferred income tax benefit....................................................... 21,706 18,608
Prepaid expenses and other current assets......................................... 20,281 20,661
----------- -----------
Total current assets........................................................... 1,655,286 4,510,419
Investments............................................................................ 85,086 69,147
Properties............................................................................. 443,857 458,708
Goodwill .............................................................................. 518,328 530,506
Other intangible assets................................................................ 75,696 76,198
Deferred costs and other assets........................................................ 31,236 29,273
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$ 2,809,489 $ 5,674,251
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.....................................................................$ 8,036 $ 5,046
Current portion of long-term debt................................................. 19,049 22,889
Accounts payable.................................................................. 64,450 52,707
Investment settlements payable.................................................... 124,199 1,344,882
Securities sold under agreements to repurchase.................................... 522,931 1,045,855
Other liability positions related to short-term investments....................... 457,165 1,626,393
Accrued expenses and other current liabilities.................................... 152,580 144,540
Current liabilities relating to discontinued operations........................... 10,449 10,414
----------- -----------
Total current liabilities...................................................... 1,358,859 4,252,726
Long-term debt......................................................................... 894,527 695,222
Deferred compensation payable to related parties....................................... 33,959 35,106
Deferred income........................................................................ 5,415 18,607
Deferred income taxes.................................................................. 9,423 3,112
Minority interests in consolidated subsidiaries........................................ 43,426 52,425
Other liabilities...................................................................... 68,310 82,409
Stockholders' equity:
Class A common stock.............................................................. 2,955 2,955
Class B common stock.............................................................. 5,910 6,063
Additional paid-in capital........................................................ 264,770 327,336
Retained earnings................................................................. 259,285 208,018
Common stock held in treasury..................................................... (130,179) (20,943)
Accumulated other comprehensive income............................................ 5,451 11,215
Unearned compensation............................................................. (12,103) --
Note receivable from non-executive officer........................................ (519) --
----------- -----------
Total stockholders' equity..................................................... 395,570 534,644
----------- -----------
$ 2,809,489 $ 5,674,251
=========== ===========
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(A) Derived and reclassified from the audited consolidated financial statements
as of January 1, 2006.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (A)
Three Months Ended Six Months Ended
----------------------- ----------------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
(In Thousands Except Per Share Amounts)
(Unaudited)
Revenues:
Net sales.......................................................$ 54,989 $ 270,767 $ 106,179 $ 529,726
Royalties and franchise and related fees ....................... 26,947 21,234 50,526 39,622
Asset management and related fees .............................. 11,787 15,828 24,715 30,624
-------- --------- --------- ---------
93,723 307,829 181,420 599,972
-------- --------- --------- ---------
Costs and expenses:
Cost of sales, excluding depreciation and amortization.......... 41,038 194,375 80,227 386,949
Cost of services, excluding depreciation and amortization....... 4,614 5,910 8,763 11,430
Advertising and selling......................................... 4,427 19,881 9,010 39,983
General and administrative, excluding depreciation and
amortization.................................................. 35,374 58,563 69,188 118,930
Depreciation and amortization, excluding amortization of
deferred financing costs...................................... 5,541 14,751 11,067 28,132
Facilities relocation and corporate restructuring............... -- 775 -- 1,578
Loss on settlement of unfavorable franchise rights.............. -- 658 -- 658
-------- --------- --------- ---------
90,994 294,913 178,255 587,660
-------- --------- --------- ---------
Operating profit.......................................... 2,729 12,916 3,165 12,312
Interest expense..................................................... (12,484) (38,246) (22,737) (65,622)
Insurance expense related to long-term debt.......................... (859) -- (1,763) --
Loss on early extinguishment of debt................................. -- (933) -- (13,477)
Investment income, net............................................... 7,576 30,796 16,676 51,746
Gain on sale of unconsolidated businesses............................ 3,056 -- 12,664 2,256
Other income, net.................................................... 1,483 3,699 1,113 5,436
-------- --------- --------- ---------
Income (loss) from continuing operations before income
taxes and minority interests........................... 1,501 8,232 9,118 (7,349)
Benefit from (provision for) income taxes............................ (497) (2,532) (3,010) 3,234
Minority interests in income of consolidated subsidiaries............ (1,056) (2,608) (3,481) (5,698)
-------- --------- --------- ---------
Income (loss) from continuing operations.................. (52) 3,092 2,627 (9,813)
Gain on disposal of discontinued operations.......................... 471 -- 471 --
-------- --------- --------- ---------
Net income (loss).........................................$ 419 $ 3,092 $ 3,098 $ (9,813)
======== ========= ========= =========
Basic income (loss) per share:
Class A common stock:
Continuing operations.....................................$ -- $ .03 $ .04 $ (.12)
Discontinued operations................................... .01 -- .01 --
-------- -------- --------- ---------
Net income (loss).........................................$ .01 $ .03 $ .05 $ (.12)
======== ======== ========= =========
Class B common stock:
Continuing operations.....................................$ -- $ .04 $ .04 $ (.12)
Discontinued operations................................... .01 -- .01 --
-------- -------- --------- ---------
Net income (loss).........................................$ .01 $ .04 $ .05 $ (.12)
======== ======== ========= =========
Diluted income (loss) per share of Class A common stock and
Class B common stock:
Continuing operations.....................................$ -- $ .03 $ .04 $ (.12)
Discontinued operations................................... .01 -- .01 --
-------- -------- --------- ---------
Net income (loss).........................................$ .01 $ .03 $ .05 $ (.12)
======== ======== ========= =========
- ------------------
(A) The results of operations for the three-month and six-month periods ended
July 2, 2006 include the results of operations of RTM Restaurant Group
effective July 25, 2005. See Note 2 for a discussion of the effect of this
acquisition.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
---------------------------
July 3, July 2,
2005 2006
---- ----
(In Thousands)
(Unaudited)
Cash flows from continuing operating activities:
Net income (loss)....................................................................$ 3,098 $ (9,813)
Adjustments to reconcile net income (loss) to net cash used in continuing
operating activities:
Operating investment adjustments, net (see below).............................. (394,814) (549,135)
Deferred income tax provision (benefit)........................................ 620 (4,740)
Gain on sale of unconsolidated businesses...................................... (12,664) (2,256)
Payment of withholding taxes related to stock compensation..................... -- (1,907)
Unfavorable lease liability recognized......................................... (581) (2,682)
Excess tax benefits from share-based payment arrangements...................... -- (1,407)
Equity in undistributed earnings of investees.................................. (1,225) (1,407)
Amortization of non-cash deferred asset management fees........................ (986) (668)
Depreciation and amortization of properties.................................... 7,596 23,381
Amortization of other intangible assets and certain other items................ 3,471 4,751
Amortization of deferred financing costs and original issue discount........... 1,264 1,125
Write-off of unamortized deferred financing costs on early extinguishment
of debt...................................................................... -- 4,783
Receipt of deferred vendor incentive, net of amount recognized................. -- 11,978
Share-based compensation provision............................................. 2,677 7,508
Minority interests in income of consolidated subsidiaries...................... 3,481 5,698
Charge for stock issued to induce effective conversion of convertible notes.... -- 3,719
Straight-line rent accrual..................................................... 370 3,077
Deferred compensation provision................................................ 678 1,147
Gain on disposal of discontinued operations.................................... (471) --
Other, net..................................................................... 518 (461)
Changes in operating assets and liabilities:
Decrease in accounts and notes receivables................................. 7,567 10,540
(Increase) decrease in inventories......................................... (164) 2,433
(Increase) decrease in prepaid expenses and other current assets........... (4,147) 120
Decrease in accounts payable and accrued expenses and other current
liabilities.............................................................. (15,651) (27,754)
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Net cash used in continuing operating activities (A).................... (399,363) (521,970)
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Cash flows from continuing investing activities:
Investment activities, net (see below)............................................... 383,814 603,990
Proceeds from dispositions of assets................................................. 5 4,518
Collections of notes receivable...................................................... 5,000 698
Capital expenditures................................................................. (3,142) (33,827)
Cost of business acquisitions........................................................ (1,312) (1,824)
Other, net........................................................................... 172 (906)
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Net cash provided by continuing investing activities.................... 384,537 572,649
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Cash flows from continuing financing activities:
Repayments of long-term debt and notes payable....................................... (26,946) (55,715)
Proceeds from issuance of long-term debt and a note payable.......................... 1,425 10,388
Dividends paid ..................................................................... (9,377) (28,277)
Proceeds from exercises of stock options............................................. 2,075 5,841
Net contributions from (distributions to) minority interests in consolidated
subsidiaries....................................................................... (1,735) 3,305
Excess tax benefits from share-based payment arrangements............................ -- 1,407
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Net cash used in continuing financing activities........................ (34,558) (63,051)
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Net cash used in continuing operations.................................................. (49,384) (12,372)
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Net cash provided by (used in) discontinued operations:
Operating activities................................................................. (292) (35)
Investing activities................................................................. 473 --
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181 (35)
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Net decrease in cash and cash equivalents............................................... (49,203) (12,407)
Cash and cash equivalents at beginning of period........................................ 367,992 202,840
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Cash and cash equivalents at end of period..............................................$ 318,789 $ 190,433
============ ===========
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended
----------------------------
July 3, July 2,
2005 2006
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(In Thousands)
(Unaudited)
Detail of cash flows related to investments:
Operating investment adjustments,net:
Cost of trading securities purchased.............................................$ (1,569,171) $(4,623,338)
Proceeds from sales of trading securities and net settlements of trading
derivatives.................................................................... 1,174,866 4,079,231
Net recognized losses from trading securities, derivatives and short positions
in securities.................................................................. 2,648 3,189
Other net recognized gains, net of other than temporary losses................... (2,883) (7,477)
Other............................................................................ (274) (740)
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$ (394,814) $ (549,135)
============ ===========
Investing investment activities, net:
Proceeds from securities sold short..............................................$ 641,137 $ 6,968,981
Payments to cover short positions in securities.................................. (478,800) (6,219,536)
Net proceeds from sales of repurchase agreements................................. 384,239 523,047
Proceeds from sales and maturities of available-for-sale securities and
other investments.............................................................. 71,647 137,277
Cost of available-for-sale securities and other investments purchased............ (54,396) (68,049)
Increase in restricted cash collateralizing securities obligations .............. (180,013) (737,730)
------------ -----------
$ 383,814 $ 603,990
============ ===========
(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 net proceeds from securities
sold short and net proceeds from sales of repurchase agreements. These
purchases and sales were principally transacted through an investment fund,
Deerfield Opportunities Fund, LLC (the "Opportunities Fund"), 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, while the net proceeds from
securities sold short and the net sales of repurchase agreements are
reported in continuing investing activities. Triarc Companies, Inc. (the
"Company") has notified the investment manager for the Opportunities Fund
of its intent to withdraw its entire investment in this fund effective
September 29, 2006. Assuming this withdrawal is consummated, the Company
will no longer consolidate the cash flows of the Opportunities Fund
subsequent to September 29, 2006.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
July 2, 2006
(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 2, 2006 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 1, 2006
(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 owns a 63.6% capital interest, Deerfield
Opportunities Fund, LLC (the "Opportunities Fund"), in which the Company owns an
aggregate 73.7% capital interest, and DM Fund, LLC (the "DM Fund") which
commenced on March 1, 2005 and in which the Company owns a 79.7% capital
interest, report on a calendar year ending on December 31. 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. The Company's first half of
fiscal 2006 commenced on January 2, 2006 and ended on July 2, 2006, with its
second quarter commencing on April 3, 2006. However, Deerfield, the
Opportunities Fund and the DM Fund are included on a calendar-period basis. 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. The periods from April 3, 2006 to July 2, 2006 and January
2, 2006 to July 2, 2006 are referred to herein as the three-month and six-month
periods ended July 2, 2006, respectively. Each quarter contained 13 weeks and
each half contained 26 weeks. The effect of including Deerfield, the
Opportunities Fund and the DM Fund in the Financial Statements on a
calendar-period basis, instead of the Company's fiscal-period basis, was not
material to the Company's consolidated financial position or results of
operations. All references to quarters, six-month periods, halves,
quarter-end(s) and six-month period end(s) herein relate to fiscal periods
rather than calendar periods, except with respect to Deerfield, the
Opportunities Fund and the DM Fund.
The Company's consolidated financial statements include the accounts of
Triarc and its subsidiaries, including the Opportunities Fund and the DM Fund.
The Company has notified the investment manager for the Opportunities Fund and
the DM Fund of its intent to withdraw its entire investment in each of these
funds effective September 29, 2006. Accordingly, assuming these withdrawals are
consummated, the Company will no longer consolidate the accounts of the
Opportunities Fund or DM Fund subsequent to September 29, 2006.
Certain amounts included in the accompanying prior periods' condensed
consolidated financial statements have been reclassified to conform with the
current periods' presentation.
(2) Business Acquisitions
RTM Restaurant Group and Indiana Restaurants Acquisitions
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"), as disclosed in more
detail in Note 3 to the Company's consolidated financial statements contained in
the Form 10-K. The purchase price for RTM remains subject to a post-closing
purchase price adjustment. RTM was the largest franchisee of Arby's restaurants
with 775 Arby's in 22 states as of the date of acquisition.
The allocation of the purchase price of RTM, which remains subject to the
resolution of a purchase price adjustment, if any, to the assets acquired and
the liabilities assumed at the date of the RTM Acquisition was finalized during
the three-month period ended July 2, 2006 and is summarized as follows (in
thousands):
Current assets..........................................................................$ 41,732
Properties.............................................................................. 312,429
Goodwill................................................................................ 412,083
Other intangible assets................................................................. 44,443
Deferred costs and other assets......................................................... 5,500
Note receivable from non-executive officer of a subsidiary of the Company reported
as a reduction of stockholders' equity prior to its settlement........................ 519
------------
Total assets acquired............................................................. 816,706
------------
Current liabilities, including current portion of long-term debt of $52,357............. 139,138
Long-term debt.......................................................................... 248,924
Deferred income taxes................................................................... 37,680
Other liabilities....................................................................... 39,314
------------
Total liabilities assumed......................................................... 465,056
------------
Net assets acquired.........................................................$ 351,650
============
A reconciliation of the change in goodwill from the preliminary allocation
of the purchase price of RTM to the consolidated financial statements in the
Form 10-K to the allocation set forth in the preceding table is summarized as
follows (in thousands):
Goodwill related to the RTM Acquisition in estimated preliminary allocation of
purchase price at January 1, 2006....................................................$ 397,814
Adjustments to estimated cost of RTM from a decrease in estimated expenses.............. (44)
Changes to fair values of assets acquired and liabilities assumed, principally as a
result of revisions to a preliminary estimated appraisal:
Decrease in current assets....................................................... 316
Decrease in properties........................................................... 2,398
Increase in other intangible assets.............................................. (823)
Increase in deferred costs and other assets...................................... (4)
Decrease in current liabilities.................................................. (1,348)
Increase in long-term debt....................................................... 4,454
Decrease in deferred income taxes................................................ (2,193)
Increase in other liabilities.................................................... 11,513
------------
Goodwill related to the RTM Acquisition in final allocation of purchase
price at July 2, 2006......................................................$ 412,083
============
On December 22, 2005, the Company completed the acquisition of the
operating assets, net of liabilities assumed, of 15 restaurants (the "Indiana
Restaurants") in the Indianapolis and South Bend, Indiana markets from entities
controlled by a franchisee (the "Indiana Restaurant Acquisition").
The results of operations and cash flows of RTM and the Indiana Restaurants
have been included in the accompanying consolidated statements of operations and
cash flows from their respective acquisition dates and, as such, are included
for the three-month and six-month periods ended July 2, 2006, but are not
included in the three-month and six-month periods ended July 3, 2005.
The following supplemental pro forma consolidated summary operating data
(the "As Adjusted Data") of the Company for the three-month and six-month
periods ended July 3, 2005 has been prepared by adjusting the historical data as
set forth in the accompanying condensed consolidated statement of operations to
give effect to the RTM Acquisition and the Indiana Restaurant Acquisition as if
they had been consummated as of January 3, 2005 (in thousands except per share
amounts):
Three Months Ended Six Months Ended
July 3, 2005 July 3, 2005
--------------------------- ----------------------------
As Reported As Adjusted As Reported As Adjusted
----------- ----------- ----------- -----------
Revenues................................................$ 93,723 $ 289,115 $ 181,420 $ 560,218
Operating profit........................................ 2,729 14,557 3,165 24,125
Income (loss) from continuing operations................ (52) 1,871 2,627 6,388
Net income.............................................. 419 2,342 3,098 6,859
Basic and diluted income per share of Class A
common stock:
Continuing operations............................... -- .02 .04 .07
Net income.......................................... .01 .03 .05 .08
Basic income per share of Class B common stock
Continuing operations............................... -- .02 .04 .09
Net income.......................................... .01 .03 .05 .10
Diluted income per share of Class B common stock:
Continuing operations............................... -- .02 .04 .08
Net income.......................................... .01 .03 .05 .09
This As Adjusted Data is presented for comparative purposes only and does
not purport to be indicative of the Company's actual results of operations had
the RTM Acquisition and the Indiana Restaurant Acquisition actually been
consummated as of January 3, 2005 or of the Company's future results of
operations.
Other Restaurant Acquisitions
During the six months ended July 2, 2006, the Company completed the
acquisitions of the operating assets, net of liabilities assumed, of ten
restaurants in two separate transactions. The total estimated consideration for
the acquisitions was $4,297,000 consisting of (1) $2,428,000 of cash (including
$34,000 for post-closing adjustments), (2) the assumption of $1,808,000 of debt
and (3) $61,000 of related estimated expenses. The total consideration for the
acquisitions represents $658,000 for the settlement loss from unfavorable
franchise rights and $3,639,000 for the aggregate purchase prices. Due to the
relative insignificance of these acquisitions during the first half of 2006,
disclosures of pro forma results of operations and purchase price allocations
have not been presented.
(3) Share-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, restricted shares of the Company's common stock and
restricted share units based on the Company's common stock to certain officers,
other key employees, non-employee directors and consultants and shares of the
Company's common stock granted in lieu of annual retainer or meeting attendance
fees to non-employee directors. In addition to stock options granted under the
Equity Plans, the Company also granted stock options to replace those held by
certain employees of RTM in July 2005 (the "Replacement Options"). The Company
has also granted certain other equity instruments to key employees as described
below.
The Company's outstanding nonvested stock options have maximum contractual
terms of ten years, principally vest ratably over three years and, except for
the Replacement Options, were granted at exercise prices equal to the market
price of the Company's common stock on the date of grant. The Replacement
Options were issued at exercise prices both below and above the market price of
the Company's common stock on the date of issuance in accordance with the terms
of the RTM Acquisition agreement. The Company's outstanding stock options are
exercisable for either (1) a package (the "Package Options") of one share of the
Company's class A common stock (the "Class A Common Stock" or "Class A Common
Shares") and two shares of the Company's class B common stock, series 1 (the
"Class B Common Stock" or "Class B Common Shares"), (2) one share of Class A
Common Stock (the "Class A Options") or (3) one share of Class B Common Stock
(the "Class B Options"). The Company's outstanding restricted shares under the
Equity Plans consist of contingently issuable performance-based restricted
shares of Class A Common Stock and Class B Common Stock (the "Restricted
Shares") which vest ratably over three years or, to the extent not previously
vested, on March 14, 2010 only if the Company's Class B Common Stock meets
certain market price targets as of each respective vesting date. The Company has
no outstanding tandem stock appreciation rights or restricted share units. The
equity instruments (the "Equity Interests") granted to certain key employees
consist of (1) certain minority interests in any profits of Deerfield commencing
with their grant on August 20, 2004, which required no payment by the employees
and vest either (a) ratably in each of twelve-month periods ended August 20,
2007, 2008 and 2009 or (b) 100% on August 20, 2007 and (2) Equity Interests in
two subsidiaries which hold the Company's respective interests in Deerfield and
Jurlique International Pty Ltd., an Australian cost method investee, each of
which consist of a capital portion reflecting the subscription price paid by
each employee which is not subject to vesting and a profits interest portion
commencing with their grant on November 10, 2005 which vests ratably over a
three-year period commencing retroactively as of February 15, 2005.
Effective January 2, 2006, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payment"
("SFAS 123(R)"), which revised SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As a result, the Company now measures 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 at the date of grant rather than its intrinsic value,
the method the Company previously used. The Company is using the modified
prospective application method under SFAS 123(R) and has elected not to use
retrospective application. Thus, amortization of the fair value of all nonvested
grants as of January 2, 2006, as determined under the previous pro forma
disclosure provisions of SFAS 123 except as adjusted for estimated forfeitures,
is included in the Company's results of operations commencing January 2, 2006,
and prior periods are not restated. As required under SFAS 123(R), the Company
has reversed the "Unearned compensation" component of "Stockholders' equity"
with an equal offsetting reduction of "Additional paid-in capital" as of January
2, 2006 and is now increasing "Additional paid-in capital" for share-based
compensation costs recognized during the period. Additionally, effective with
the adoption of SFAS 123(R), the Company recognizes share-based compensation
expense net of estimated forfeitures, determined based on historical experience,
rather than as the forfeitures occur as presented under the previous pro forma
disclosure provisions of SFAS 123 subsequently set forth in this footnote.
Employee stock compensation grants or grants modified, repurchased or cancelled
on or after January 2, 2006 are valued in accordance with SFAS 123(R). Under
SFAS 123(R), the Company has chosen (1) the Black-Scholes-Merton option pricing
model (the "Black-Scholes Model") for purposes of determining the fair value of
stock options granted commencing January 2, 2006 and (2) to continue recognizing
compensation costs ratably over the requisite service period for each separately
vesting portion of the award.
Total share-based compensation expense and related income tax benefit and
minority interests recognized in the Company's condensed consolidated statements
of operations were as follows (in thousands):
Three Months Ended Six Months Ended
------------------ ----------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
Share-based compensation expense recognized in "General
and administrative, excluding depreciation and
amortization" expenses........................................$ 2,280 $ 3,659 $ 2,677 $ 7,508
Income tax benefit.............................................. (765) (1,059) (852) (1,970)
Minority interests.............................................. (60) (63) (119) (125)
-------- -------- -------- --------
Share-based compensation expense, net of related income
taxes and minority interests................................$ 1,455 $ 2,537 $ 1,706 $ 5,413
======== ======== ======== ========
A summary of the effect of adopting SFAS 123(R) on selected reported items
for the three and six-month periods ended July 2, 2006 and the amounts those
items would have been under the intrinsic value method previously used by the
Company and the differences is as follows (in thousands except per share
amounts):
Three Months Ended July 2, 2006 Six Months Ended July 2, 2006
--------------------------------------- --------------------------------------
Under Under
Intrinsic Intrinsic
As Reported Value Method Difference As Reported Value Method Difference
----------- ------------ ---------- ----------- ------------ ----------
Income (loss) from continuing
operations before income
taxes and minority interests..$ 8,232 $ 10,496 $ 2,264 $ (7,349) $ (6,446) $ 903
Net income (loss)...............$ 3,092 $ 4,476 $ 1,384 $ (9,813) $ (9,305) $ 508
Basic net income (loss) per
share:
Class A Common Stock..........$ .03 $ .05 $ .02 $ (.12) $ (.11) $ .01
Class B Common Stock..........$ .04 $ .05 $ .01 $ (.12) $ (.11) $ .01
Diluted net income (loss) per
share of Class A Common
Stock and Class B Common
Stock.........................$ .03 $ .05 $ .02 $ (.12) $ (.11) $ .01
Net cash used in continuing
operating activities.......... $(521,970) $ (520,563) $ 1,407
Net cash used in continuing
financing activities.......... $ (63,051) $ (64,458) $ (1,407)
As of July 2, 2006, there was $13,627,000 of total unrecognized
compensation cost related to nonvested share-based compensation grants which is
expected to be amortized over a weighted-average period of 1.4 years.
A summary of the Company's outstanding stock options as of and for the
six-month period ended July 2, 2006 is as follows:
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value (a)
Options Price Term (In Years) (In Thousands)
------- ----- -------------- -------------
Package Options
---------------
Outstanding at January 2, 2006............... 2,548,703 $ 23.39
Exercised ................................... (92,668) $ 24.51 $ 2,184
----------- =========
Outstanding at July 2, 2006.................. 2,456,035 $ 23.35 4.3 $ 59,531
=========== =========
Exercisable at July 2, 2006.................. 2,456,035 $ 23.35 4.3 $ 59,531
=========== =========
Class A Options
---------------
Outstanding at January 2, 2006............... 1,299,943 $ 16.55
Granted ..................................... 32,000 $ 17.21
-----------
Outstanding at July 2, 2006.................. 1,331,943 $ 16.56 3.5 $ 265
=========== =========
Exercisable at July 2, 2006.................. 1,270,943 $ 16.56 3.2 $ 253
=========== =========
Class B Options
---------------
Outstanding at January 2, 2006............... 9,387,617 $ 13.96
Granted ..................................... 1,496,100 $ 16.56
Exercised ................................... (304,696) $ 11.84 $ 1,253
=========
Forfeited.................................... (142,967) $ 13.58
-----------
Outstanding at July 2, 2006.................. 10,436,054 $ 14.40 7.4 $ 13,828
=========== =========
Exercisable at July 2, 2006.................. 8,150,846 $ 14.33 6.9 $ 10,678
=========== =========
(a) Intrinsic value for purposes of this table represents the amount by which
the fair value of the underlying stock, based on the respective market
prices at July 2, 2006 or, if exercised, the exercise dates, exceeds the
exercise prices of the respective options which, for outstanding options,
represents only those expected to vest.
The weighted-average grant date fair values of the Class A Options and
Class B Options granted during the six-month period ended July 2, 2006, at
exercise prices equal to the market price of the stock on the grant dates, were
$4.78 and $4.90, respectively, calculated under the Black-Scholes Model with the
weighted-average assumptions set forth as follows:
Class A Class B
Options Options
------- -------
Risk-free interest rate................................................................. 5.04% 4.96%
Expected option life in years........................................................... 8.4 7.4
Expected volatility..................................................................... 20.7% 27.4%
Expected dividend yield................................................................. 2.08% 2.44%
The risk-free interest rate represents the U.S. Treasury zero-coupon bond
yield approximating the expected option life of stock options granted during the
period. The expected option life represents the period of time that the stock
options granted during the period are expected to be outstanding based on the
Company's historical exercise trends for similar grants. The expected volatility
is based on the historical market price volatility of the Company's Class A
Common Stock and Class B Common Stock for Class A Options and Class B Options,
respectively, granted during the period. The expected dividend yield represents
the Company's annualized average yield for regular quarterly dividends declared
prior to the respective stock option grant dates.
A summary of the Company's nonvested Restricted Shares as of and for the
six-month period ended July 2, 2006 is as follows:
Class A Common Stock Class B Common Stock
------------------------- ------------------------
Grant Date Grant Date
Shares Fair Value Shares Fair Value
------ ---------- ------ ----------
Nonvested at January 2, 2006.................. 149,155 $ 15.59 729,920 $ 14.75
Vested ....................................... (49,718) $ 15.59 (243,305) $ 14.75
---------- --------
Nonvested at July 2, 2006..................... 99,437 $ 15.59 486,615 $ 14.75
========== ========
The total fair value of Restricted Shares and Equity Interests which vested
during the six-month period ended July 2, 2006 was $4,936,000 and $3,633,000,
respectively, as of the respective vesting dates.
The accompanying condensed consolidated statements of operations for the
three and six-month periods ended July 3, 2005 were not restated since the
Company elected not to use retrospective application under SFAS 123(R). A
summary of the effect on net income and net income per share for the three and
six months ended July 3, 2005 as if the Company had applied the fair value
recognition provisions of SFAS 123 to share-based compensation for all
outstanding and nonvested stock options (calculated using the Black-Scholes
Model), Restricted Shares and Equity Interests is as follows (in thousands
except per share data):
Three Months Six Months
Ended Ended
July 3, July 3,
2005 2005
---- ----
Net income, as reported..................................................................$ 419 $ 3,098
Reversal of share-based compensation expense determined under
the intrinsic value method included in reported net income,
net of related income taxes and minority interests..................................... 1,455 1,706
Recognition of share-based compensation expense determined under
the fair value method, net of related income taxes and minority interests.............. (3,755) (5,727)
--------- --------
Net loss, as adjusted....................................................................$ (1,881) $ (923)
========= ========
Basic and diluted net income (loss) per share of Class A Common Stock and
Class B Common Stock:
As reported.........................................................................$ .01 $ .05
As adjusted......................................................................... (.03) (.01)
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 were
$3.05 and $3.98, respectively, calculated under the Black-Scholes Model with the
weighted average assumptions set forth as follows:
Class A Class B
Options Options
------- -------
Risk-free interest rate............................................................... 3.86% 3.86%
Expected option life in years......................................................... 7 7
Expected volatility................................................................... 17.7% 28.1%
Expected dividend yield............................................................... 2.23% 2.63%
The Black-Scholes Model has limitations on its effectiveness including that
it was developed for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable and that the model
requires the use of highly subjective assumptions including expected stock price
volatility. The Company's stock-option awards to employees have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimates.
(4) Comprehensive Income (Loss)
The following is a summary of the components of comprehensive income
(loss), net of income taxes and minority interests (in thousands):
Three Months Ended Six Months Ended
------------------------- -----------------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
Net income (loss) ........................................$ 419 $ 3,092 $ 3,098 $ (9,813)
Net change in unrealized gains and losses on available-
for-sale securities (see below)......................... (1,200) 871 (1,875) 2,781
Net change in unrealized gains and losses on cash flow
hedges (see below)...................................... (387) 1,149 27 2,973
Net change in currency translation adjustment............. (6) (39) 13 10
--------- -------- --------- ----------
Comprehensive income (loss)..........................$ (1,174) $ 5,073 $ 1,263 $ (4,049)
========= ======== ========= ==========
The following is a summary of the components of the net change in
unrealized gains and losses on available-for-sale securities included in other
comprehensive income (loss) (in thousands):
Three Months Ended Six Months Ended
------------------------- -----------------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
Unrealized holding gains (losses) arising during the
period.................................................$ (960) $ 3,178 $ 62 $ 6,689
Reclassifications of prior period unrealized holding
(gains) losses into net income or loss.................. (2,075) (547) (2,709) 67
Equity in change in unrealized holding gains (losses)
arising during the period............................... 1,108 (1,338) (255) (2,499)
--------- --------- --------- ----------
(1,927) 1,293 (2,902) 4,257
Income tax benefit (provision)............................ 655 (492) 1,032 (1,570)
Minority interests in (increase) decrease in unrealized
holding gains of a consolidated subsidiary.............. 72 70 (5) 94
--------- -------- --------- ----------
$ (1,200) $ 871 $ (1,875) $ 2,781
========= ======== ========= ==========
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 Months Ended Six Months Ended
------------------------- -----------------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
Unrealized holding gains arising during the period........$ -- $ 1,471 $ -- $ 3,495
Reclassifications of prior period unrealized holding
gains into net income or loss........................... -- (316) -- (404)
Equity in change in unrealized holding gains (losses)
arising during the period............................... (606) 727 42 1,695
--------- -------- --------- ----------
(606) 1,882 42 4,786
Income tax benefit (provision)............................ 219 (733) (15) (1,813)
--------- -------- --------- ----------
$ (387) $ 1,149 $ 27 $ 2,973
========= ======== ========= ==========
(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. Net income for the three-month and
six-month periods ended July 3, 2005 and the three-month period ended July 2,
2006 was allocated between the Class A Common Stock and Class B Common Stock
based on the actual dividend payment ratio. The net loss for the six-month
period ended July 2, 2006 was allocated equally among each share of Class A
Common Stock and Class B Common Stock, resulting in the same loss per share for
each class. The weighted average number of shares for the three-month and
six-month periods ended July 3, 2005 includes the weighted average effect of the
shares that were held in two deferred compensation trusts, which were released
in December 2005 and which prior thereto were not reported as outstanding shares
in the Company's balance sheets.
Diluted income (loss) per share for the three-month period ended July 3,
2005 and the six-month period ended July 2, 2006 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 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 and the three-month period
ended July 2, 2006 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 and Class B
Common Stock that would have been issuable based on the market prices of the
Company's Class B Common Stock as of July 3, 2005 and July 2, 2006,
respectively, both as presented in the table below. The shares used to calculate
diluted income per share exclude any effect of the Company's 5% convertible
notes due 2023 (the "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 per share.
In February 2006, $165,776,000 of the Convertible Notes were effectively
converted into 4,144,000 and 8,289,000 shares of the Company's Class A Common
Stock and Class B Common Stock, respectively, and, in May and June 2006, an
additional $1,604,000 of the Convertible Notes were converted, for which 25,000
and 50,000 shares of the Company's Class A Common Stock and Class B Common
Stock, respectively, were issued as of July 2, 2006 and 15,000 and 30,000 shares
of the Company's Class A Common Stock and Class B Common Stock, respectively,
were issued subsequent to July 2, 2006, as disclosed in Note 7. The weighted
average effect of these shares is included in the basic income (loss) per share
calculations for the three-month and six-month periods ended July 2, 2006 from
the dates of their issuance.
The only Company securities as of July 2, 2006 that could dilute basic
income per share for periods subsequent to July 2, 2006 are (1) outstanding
stock options which can be exercised into 3,788,000 and 15,348,000 shares of the
Company's Class A Common Stock and Class B Common Stock, respectively, (2)
99,000 and 487,000 contingently issuable Restricted Shares of Class A Common
Stock and Class B Common Stock, respectively, (3) $7,620,000 of Convertible
Notes which are convertible into 191,000 and 381,000 shares of the Company's
Class A Common Stock and Class B Common Stock, respectively, and (4) the 15,000
and 30,000 shares of the Company's Class A Common Stock and Class B Common
Stock, respectively, issued subsequent to July 2, 2006 disclosed above.
Income (loss) per share has been computed by allocating the net income or
loss as follows (in thousands):
Three Months Ended Six Months Ended
------------------------- -----------------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
Class A Common Stock:
Continuing operations.................................$ (17) $ 934 $ 865 $ (3,096)
Discontinued operations............................... 155 -- 155 --
--------- --------- -------- ---------
Net income (loss).....................................$ 138 $ 934 $ 1,020 $ (3,096)
========= ========= ======== =========
Class B Common Stock:
Continuing operations.................................$ (35) $ 2,158 $ 1,762 $ (6,717)
Discontinued operations............................... 316 -- 316 --
--------- --------- -------- ---------
Net income (loss).....................................$ 281 $ 2,158 $ 2,078 $ (6,717)
========= ========= ======== =========
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
------------------------- -----------------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
Class A Common Stock:
Weighted average shares
Outstanding........................................ 22,054 27,622 22,034 26,795
Held in deferred compensation trusts............... 1,695 -- 1,695 --
--------- --------- --------- --------
Basic shares............................................ 23,749 27,622 23,729 26,795
Dilutive effect of stock options................... -- 867 1,103 --
Contingently issuable Restricted Shares............ -- 94 81 --
--------- --------- --------- --------
Diluted shares.......................................... 23,749 28,583 24,913 26,795
========= ========= ========= ========
Class B Common Stock:
Weighted average shares
Outstanding........................................ 38,531 59,939 38,492 58,141
Held in deferred compensation trusts............... 3,390 -- 3,390 --
--------- --------- --------- --------
Basic shares............................................ 41,921 59,939 41,882 58,141
Dilutive effect of stock options................... -- 2,418 2,378 --
Contingently issuable Restricted Shares............ -- 459 396 --
--------- --------- --------- --------
Diluted shares.......................................... 41,921 62,816 44,656 58,141
========= ========= ========= ========
(6) Facilities Relocation and Corporate Restructuring
As described in more detail in Note 17 to the financial statements
contained in the Form 10-K, the Company recognized facilities relocation and
corporate restructuring charges during the second half of fiscal 2005 consisting
of charges related to the Company's restaurant business segment of $11,961,000
and to general corporate charges of $1,547,000. During the six-month period
ended July 2, 2006, the Company's restaurant business segment recognized
$578,000 of additional net charges related to combining our existing restaurant
operations with those of RTM following the RTM acquisition and relocating the
corporate office of the restaurant group from Fort Lauderdale, Florida to new
offices in Atlanta, Georgia. The Company's general corporate segment recognized
an additional $1,000,000 associated with the Company's decision in December 2005
not to relocate Triarc's corporate offices from New York City to a recently
leased office facility in Rye Brook, New York. This charge represents an
adjustment for the estimated costs from increasing the estimated marketing time
to sublease the space from the Company's previous estimate based on the sublease
status as of July 2, 2006. The components of facilities relocation and corporate
restructuring charges during the six-month period ended July 2, 2006 and an
analysis of activity in the facilities relocation and corporate restructuring
accruals during the six-month period ended July 2, 2006 is as follows (in
thousands):
Total Expected
Balance Balance and
January 1, Provisions July 2, Incurred
2006 (Reductions) Payments 2006 to Date
---- ------------ -------- ---- -------
Restaurant Business Segment:
Cash obligations:
Severance and retention incentive
compensation...................... $ 3,812 $ 730 $ (2,874) $ 1,668 $ 5,264
Employee relocation costs........... 1,544 (146) (a) (610) 788 4,234
Office relocation costs............. 260 (33) (a) (114) 113 1,521
Lease termination costs............. 774 27 (258) 543 801
---------- --------- ---------- ---------- -----------
6,390 578 (3,856) 3,112 11,820
---------- --------- ---------- ---------- -----------
Non-cash charges:
Compensation expense from
modified stock awards............. -- -- -- -- 612
Loss on fixed assets................ -- -- -- -- 107
---------- --------- ---------- ---------- -----------
-- -- -- -- 719
---------- --------- ---------- ---------- -----------
Total restaurant business
segment........................ 6,390 578 (3,856) 3,112 12,539
General Corporate:
Cash obligations:
Duplicative rent.................... 1,535 1,000 (754) 1,781 2,547
---------- --------- ---------- ---------- -----------
$ 7,925 $ 1,578 $ (4,610) $ 4,893 $ 15,086
=========== ========= ========== ========== ===========
- ------------------
(a) Reflects change in estimate of total cost to be incurred.
(7) Loss on Early Extinguishment of Debt
The Company recorded losses on early extinguishment of debt aggregating
$933,000 and $13,477,000 in the three-month and six-month periods ended July 2,
2006, respectively, consisting of (1) $34,000 and $12,578,000, respectively,
related to conversions of the Company's Convertible Notes and (2) in the
three-month period ended July 2, 2006, $899,000 related to a prepayment of term
loans (the "Term Loans") under the Company's senior secured term loan facility.
In February 2006, an aggregate of $165,776,000 principal amount of the
Company's Convertible Notes were effectively converted into an aggregate of
4,144,000 Class A Common Shares and 8,289,000 Class B Common Shares. In order to
induce such effective conversion, the Company paid negotiated premiums
aggregating $8,694,000 to the converting noteholders consisting of cash of
$4,975,000 and 226,000 Class B Common Shares with an aggregate fair value of
$3,719,000 based on the closing market price of the Company's Class B Common
Stock on the dates of the effective conversions in lieu of cash to certain of
those noteholders. In addition, the Company issued an additional 46,000 Class B
Common Shares to those noteholders who agreed to receive such shares in lieu of
a cash payment for accrued and unpaid interest. In May and June 2006, an
additional $1,604,000 principal amount of Convertible Notes were converted, for
which 25,000 Class A Common Shares and 50,000 Class B Common Shares were issued
prior to July 2, 2006 and 15,000 Class A Common Shares and 30,000 Class B Common
Shares were issued subsequent to July 2, 2006. In connection with the
conversions of the Convertible Notes, the Company recorded a loss on early
extinguishment of debt of $12,578,000 in the six-month period ended July 2,
2006, including $34,000 in the three-month period ended July 2, 2006, consisting
of the premiums aggregating $8,694,000 and the write-off of $3,884,000 of
related unamortized deferred financing costs, including $34,000 in the
three-month period ended July 2, 2006.
In June 2006, the Company prepaid $45,000,000 principal amount of the Term
Loans. In connection with this prepayment, the Company recorded a loss on early
extinguishment of debt of $899,000 in the three-month period ended July 2, 2006
representing the write-off of related unamortized deferred financing costs.
(8) Discontinued Operations
Prior to 2005 the Company sold (1) the stock of the companies comprising
the Company's former premium beverage and soft drink concentrate business
segments (collectively, 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 $254,000 of income taxes, resulting from the gain on sale of a
former refrigeration property that had been held for sale and the reversal of a
related reserve for potential environmental liabilities associated with the
property that were assumed by the purchaser.
Current liabilities relating to the discontinued operations consisted of
the following (in thousands):
January 1, July 2,
2006 2006
---- ----
Accrued expenses, including accrued income taxes, of the Beverage
Discontinued Operations....................................................$ 9,400 $ 9,395
Liabilities relating to the SEPSCO and Propane Discontinued Operations....... 1,049 1,019
----------- -----------
$ 10,449 $ 10,414
=========== ===========
The Company expects that the liquidation of these remaining current
liabilities associated with all of these discontinued operations as of July 2,
2006 will not have any material adverse impact on its consolidated financial
position or results of operations. To the extent any estimated amounts included
in the current liabilities relating to the discontinued operations are
determined to be in excess of the requirement to liquidate the associated
liability, any such excess will be released at that time as a component of gain
or loss on disposal of discontinued operations.
(9) 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 based on an actuarial report with a one-year lag.
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
------------------------- -----------------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
Service cost (consisting entirely of plan administrative
expenses)...............................................$ 23 $ 23 $ 47 $ 47
Interest cost............................................. 59 55 118 109
Expected return on the plans' assets...................... (70) (65) (140) (131)
Amortization of unrecognized net loss..................... 13 12 25 24
---------- --------- -------- ---------
Net periodic pension cost.........................$ 25 $ 25 $ 50 $ 49
========== ========= ======== =========
(10) Transactions with Related Parties
Prior to 2005 the Company provided aggregate incentive compensation of
$22,500,000 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 $662,000 and $1,147,000 was recognized
in the six-month periods ended July 3, 2005 and July 2, 2006, 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 $(96,000) and $141,000 in the six-month periods ended
July 3, 2005 and July 2, 2006, respectively. The net investment loss during the
six-month period ended July 3, 2005 consisted of investment management fees of
$153,000, less interest income of $57,000. The net investment income during the
six-month period ended July 2, 2006 consisted of interest income of $158,000 and
a $1,000 adjustment to the realized gain from the sale of a cost-method
investment in the Deferred Compensation Trusts, less investment management fees
of $18,000. Interest income, investment management fees and the adjustment to
the realized gain 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 2, 2006, the obligation to the
Executives related to the Deferred Compensation Trusts was $35,106,000 reported
as "Deferred compensation payable to related parties" in the accompanying
condensed consolidated balance sheet. As of July 2, 2006, the assets in the
Deferred Compensation Trusts consisted of $23,159,000 included in "Investments,"
which does not reflect the net unrealized increase in the fair value of the
investments and $4,325,000 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.
As disclosed in the Form 10-K, on November 1, 2005, the Executives and the
Company's Vice Chairman (collectively, the "Principals") started a series of
equity investment funds that are separate and distinct from the Company and that
are being managed by the Principals and other senior officers of the Company
(the "Employees") through a management company (the "Management Company") formed
by the Principals. The Principals and the Employees continue to serve as
officers of, and receive their compensation from, the Company. The Company is
making available the services of the Principals and the Employees, as well as
certain support services, to the Management Company. The length of time that
these services will be provided has not yet been determined. The Company is
being reimbursed by the Management Company for the allocable cost of these
services. Such allocated costs for the three-month and six-month periods ended
July 2, 2006 amounted to $1,068,000 and $1,768,000, respectively, and have been
recognized as reductions of "General and administrative, excluding depreciation
and amortization" expenses in the accompanying condensed consolidated statements
of operations. Amounts due from the Management Company to the Company amounted
to $775,000 and $942,000 as of January 1, 2006 and July 2, 2006, respectively,
and are included in "Accounts and notes receivable" in the accompanying
consolidated balance sheets. A special committee comprised of independent
members of the Company's board of directors has reviewed and considered these
arrangements.
In March 2006, the Company sold nine of its restaurants to a former officer
of its restaurant segment for a cash sale price of $3,400,000, which resulted in
a pretax gain of $608,000 recognized as a reduction of "Depreciation and
amortization, excluding amortization of deferred financing costs," net of the
write-off of, among other assets and liabilities, allocated goodwill of
$2,091,000. The Company believes that such sale price represented the then fair
value of the nine restaurants.
The Company had a note receivable of $519,000 from a selling stockholder of
RTM who became a non-executive officer of a subsidiary of the Company as a
result of the RTM Acquisition. The principal amount of the note was reported as
the "Note receivable from non-executive officer" component of "Stockholders'
equity" in the Company's consolidated balance sheet as of January 1, 2006. The
note, along with $41,000 of accrued interest, was repaid by the officer during
the three months ended July 2, 2006. The Company recorded $21,000 of interest
income on this note during the six months ended July 2, 2006.
As disclosed in the Form 10-K, as of January 1, 2006 the Company had
reflected $5,099,000 in "Accounts payable" for costs incurred by the RTM selling
stockholders in connection with the RTM Acquisition which the Company is
obligated to reimburse to them under the terms of the related agreement. As of
July 2, 2006, such amount included in "Accounts payable" is $9,136,000,
reflecting an increase of $4,037,000 representing a Federal income tax refund
received during the three months ended July 2, 2006 which the Company is
obligated to pay to the RTM selling shareholders under the terms of the related
agreement.
The Company continues to have additional related party transactions of the
same nature and general magnitude as those described in Note 27 to the
consolidated financial statements contained in the Form 10-K.
(11) 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 were submitted to
the FDEP for its review. In November 2005, Adams received a letter from the FDEP
identifying certain open issues with respect to the property. The letter did not
specify whether any further actions are required to be taken by Adams and Adams
has sought clarification from, and continues to expect to have additional
conversations with, the FDEP in order to attempt to resolve this matter. Based
on provisions made prior to 2005 of $1,667,000 for all of these 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 sought,
among other relief, monetary damages in an unspecified amount. In October 2005,
the action was dismissed as moot, but in December 2005 the plaintiffs filed a
motion seeking reimbursement of $256,000 of legal fees and expenses. In March
2006, the court awarded the plaintiffs $75,000 in fees and expenses, but in
April 2006 the defendants appealed. In June 2006, the parties entered into an
agreement pursuant to which, among other things, the Company paid $76,000 for
the fees and expenses, plus interest, and the defendants withdrew their appeal.
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 $700,000 as of July 2,
2006. Although the outcome of such matters cannot be predicted with certainty
and some of these matters may be disposed of unfavorably to the Company, based
on currently available information, including legal defenses available to Triarc
and/or its subsidiaries, and given the aforementioned reserves, the Company does
not believe that the outcome of such legal and environmental matters will have a
material adverse effect on its condensed consolidated financial position or
results of operations.
(12) Business Segments
The Company manages and internally reports its operations as two business
segments: (1) the operation and franchising of restaurants ("Restaurants") and
(2) asset management ("Asset Management"). Restaurants include RTM effective
with the RTM Acquisition on July 25, 2005. The Company evaluates segment
performance and allocates resources based on each segment's earnings before
interest, taxes, depreciation and amortization ("EBITDA"). EBITDA has been
computed as operating profit plus depreciation and amortization, excluding
amortization of deferred financing costs ("Depreciation and Amortization").
Operating profit (loss) has been computed as revenues less operating expenses.
In computing EBITDA and operating profit, interest expense and non-operating
income and expenses have not been considered. Identifiable assets by segment are
those assets used in the Company's operations of each segment. General corporate
assets consist primarily of cash and cash equivalents, restricted cash
equivalents, short-term investments, investment settlements receivables,
non-current investments and properties.
The following is a summary of the Company's segment information (in
thousands):
Three Months Ended Six Months Ended
-------------------------- -------------------------
July 3, July 2, July 3, July 2,
2005 2006 2005 2006
---- ---- ---- ----
Revenues:
Restaurants.........................................$ 81,936 $ 292,001 $ 156,705 $ 569,348
Asset Management.................................... 11,787 15,828 24,715 30,624
----------- ----------- ----------- -----------
Consolidated revenues..........................$ 93,723 $ 307,829 $ 181,420 $ 599,972
=========== =========== =========== ===========
EBITDA:
Restaurants.........................................$ 22,432 $ 39,025 $ 39,495 $ 68,865
Asset Management.................................... 1,645 3,096 5,568 5,204
General corporate................................... (15,807) (14,454) (30,831) (33,625)
----------- ----------- ----------- -----------
Consolidated EBITDA............................ 8,270 27,667 14,232 40,444
----------- ----------- ----------- -----------
Less Depreciation and Amortization:
Restaurants......................................... 2,553 12,251 5,489 23,064
Asset Management.................................... 1,534 1,448 2,617 2,931
General corporate................................... 1,454 1,052 2,961 2,137
----------- ----------- ----------- -----------
Consolidated Depreciation and Amortization..... 5,541 14,751 11,067 28,132
----------- ----------- ----------- -----------
Operating profit (loss):
Restaurants......................................... 19,879 26,774 34,006 45,801
Asset Management.................................... 111 1,648 2,951 2,273
General corporate................................... (17,261) (15,506) (33,792) (35,762)
----------- ----------- ----------- -----------
Consolidated operating profit.................. 2,729 12,916 3,165 12,312
Interest expense........................................ (12,484) (38,246) (22,737) (65,622)
Insurance expense related to long-term debt............. (859) -- (1,763) --
Loss on early extinguishment of debt.................... -- (933) -- (13,477)
Investment income, net.................................. 7,576 30,796 16,676 51,746
Gain on sale of unconsolidated businesses............... 3,056 -- 12,664 2,256
Other income, net....................................... 1,483 3,699 1,113 5,436
----------- ----------- ----------- -----------
Consolidated income (loss) from continuing
operations before income taxes and
minority interests..........................$ 1,501 $ 8,232 $ 9,118 $ (7,349)
=========== =========== =========== ===========
January 1, July 2,
2006 2006
---- ----
Identifiable assets:
Restaurants.........................................................................$ 1,044,199 $ 1,046,423
Asset Management.................................................................... 149,247 140,809
General corporate................................................................... 1,616,043 4,487,019
----------- -----------
Consolidated total assets....................................................$ 2,809,489 $ 5,674,251
=========== ===========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 our accompanying
condensed consolidated financial statements included elsewhere herein 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
1, 2006. Item 7 of our 2005 Form 10-K describes the application of our critical
accounting policies. There have been no significant changes as of July 2, 2006
pertaining to that topic. 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."
Introduction and Executive Overview
We currently operate in two business segments. We operate in the restaurant
business through our franchised and Company-owned Arby's restaurants and in the
asset management business through Deerfield & Company LLC, which we refer to as
Deerfield.
On July 25, 2005 we completed the acquisition of substantially all of the
equity interests or the assets of the entities comprising the 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 include
RTM's results of operations and cash flows but do not include royalties and
franchise and related fees from RTM, which are now eliminated in consolidation.
Accordingly, RTM's results of operations and cash flows are included in our
consolidated results for the three-month and six-month periods ended July 2,
2006 but are not included in our consolidated results for the three-month and
six-month periods ended July 3, 2005.
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 65% 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 2, 2006. In our
asset management business, we derive revenues in the form of asset management
and related fees from our management of (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, which we refer to as the REIT,
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, we have investments in
(1) a multi-strategy hedge fund, Deerfield Opportunities Fund, LLC, which we
refer to as the Opportunities Fund, and (2) DM Fund LLC, which we refer to as
the DM Fund, both of which are managed by Deerfield and currently accounted for
as consolidated subsidiaries of ours, with minority interests to the extent of
participation by investors other than us (see below under "Consolidation of
Opportunities Fund and DM Fund"). We also have an investment in the REIT. When
we refer to Deerfield, we mean only Deerfield & Company, LLC and not the
Opportunities Fund, the DM Fund or the REIT. 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. We have notified the investment manager for the Opportunities Fund
and the DM Fund of our intent to withdraw our entire investment in each of these
funds effective September 29, 2006. Accordingly, assuming these withdrawals are
consummated, we will no longer consolidate the accounts of the Opportunities
Fund or DM Fund subsequent to September 29, 2006.
Our goal is to enhance the value of our Company by increasing the revenues
of the Arby's restaurant business and Deerfield's 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
thereby increasing Deerfield's asset management fee revenues. As discussed below
under "Liquidity and Capital Resources - Investments and Acquisitions," we
continue to evaluate our options for the use of our significant cash and
investment position, including repurchases of our common stock, investments and
special cash dividends to our shareholders.
However, we are continuing to explore the feasibility, as well as the risks
and opportunities, of a corporate restructuring involving our asset management
business and other non-restaurant net assets. See "Liquidity and Capital
Resources - Potential Corporate Restructuring" for a detailed discussion of the
potential corporate restructuring and certain potential impacts thereof on our
results of operations and our liquidity and capital resources.
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 which has
constrained the pricing of these products;
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; the use of
coupons and other price discounting and many recent product promotions
focused on the lower prices of certain menu items;
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 recent increases in
the cost of borrowing alternatives in the lending markets typically
used to finance new unit development;
o Increased availability to consumers of new product choices, including
additional healthy products focused on freshness driven by a greater
consumer awareness of nutritional issues as well as new products that
tend to include larger portion sizes and more ingredients, and a wider
variety of snack products and non-carbonated beverages;
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 Higher fuel prices which cause a decrease in many consumers'
discretionary income;
o Extended hours of operation by many quick service restaurants
including both breakfast and late night hours;
o Legislative activity on both the federal and state level, which could
result in higher wages and related fringe benefits, including health
care and other insurance costs, and higher packaging costs; and
o Competitive pressures from an increasing number of franchise
opportunities seeking to attract qualified franchisees.
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:
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 and other specific areas;
o Increased demand for securities, partly due to an increase in the
number of hedge funds, resulting in higher purchase prices of certain
securities and, during periods of asset liquidation by those hedge
funds, potentially lower sales prices, which can negatively impact our
returns;
o Short-term interest rates continue to increase while long-term
interest rates have increased to a much lesser extent, representing a
flatter yield curve, resulting in higher funding costs for our
securities purchases, which can negatively impact our margins within
our managed funds, potentially lowering our asset management fees and
assets under management; 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
the DM Fund, which commenced on March 1, 2005, report on a calendar year ending
on December 31. Our first half of fiscal 2005 commenced on January 3, 2005 and
ended on July 3, 2005, with our second quarter commencing on April 4, 2005. Our
first half of fiscal 2006 commenced on January 2, 2006 and ended on July 2,
2006, with our second quarter commencing on April 3, 2006. However, Deerfield,
the Opportunities Fund and the DM Fund are included on a calendar-period basis.
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. When we refer to the "three months ended July 2, 2006,"
or the "2006 second quarter," and the "six months ended July 2, 2006" or the
"2006 first half" we mean the periods from April 3, 2006 to July 2, 2006 and
January 2, 2006 to July 2, 2006, 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 the DM Fund.
Results of Operations
Presented below is a table that summarizes our results of operations and
compares the amount of the change (1) between the 2005 second quarter and the
2006 second quarter and (2) between the 2005 first half and the 2006 first half.
Three Months Ended Six Months Ended
------------------------------ ------------------------------
July 3, July 2, July 3, July 2,
2005 2006 Change 2005 2006 Change
---- ---- ------ ---- ---- ------
(In Millions)
Revenues:
Net sales..........................................$ 55.0 $ 270.8 $ 215.8 $106.2 $ 529.7 $ 423.5
Royalties and franchise and related fees........... 26.9 21.2 (5.7) 50.5 39.6 (10.9)
Asset management and related fees.................. 11.8 15.8 4.0 24.7 30.6 5.9
-------- ------- ------- ------ ------- -------
93.7 307.8 214.1 181.4 599.9 418.5
-------- ------- ------- ------ ------- -------
Costs and expenses:
Cost of sales, excluding depreciation and
amortization..................................... 41.0 194.3 153.3 80.2 386.9 306.7
Cost of services, excluding depreciation and
amortization..................................... 4.6 5.9 1.3 8.8 11.4 2.6
Advertising and selling............................ 4.4 19.9 15.5 9.0 40.0 31.0
General and administrative, excluding depreciation
and amortization................................. 35.4 58.6 23.2 69.2 118.9 49.7
Depreciation and amortization, excluding
amortization of deferred financing costs ........ 5.6 14.7 9.1 11.0 28.1 17.1
Facilities relocation and corporate restructuring.. -- 0.8 0.8 -- 1.6 1.6
Loss on settlement of unfavorable franchise rights. -- 0.7 0.7 -- 0.7 0.7
-------- ------- ------- ------ ------- -------
91.0 294.9 203.9 178.2 587.6 409.4
-------- ------- ------- ------ ------- -------
Operating profit............................... 2.7 12.9 10.2 3.2 12.3 9.1
Interest expense ..................................... (12.5) (38.2) (25.7) (22.7) (65.6) (42.9)
Insurance expense related to long-term debt........... (0.9) -- 0.9 (1.8) -- 1.8
Loss on early extinguishment of debt.................. -- (0.9) (0.9) -- (13.4) (13.4)
Investment income, net................................ 7.6 30.8 23.2 16.7 51.7 35.0
Gain on sale of unconsolidated businesses............. 3.1 -- (3.1) 12.6 2.3 (10.3)
Other income, net..................................... 1.5 3.7 2.2 1.1 5.4 4.3
-------- ------- ------- ------ ------- -------
Income (loss) from continuing operations
before income taxes and minority interests... 1.5 8.3 6.8 9.1 (7.3) (16.4)
Benefit from (provision for) income taxes............. (0.5) (2.6) (2.1) (3.0) 3.2 6.2
Minority interests in income of consolidated
subsidiaries....................................... (1.1) (2.6) (1.5) (3.5) (5.7) (2.2)
-------- ------- -------- ------ ------- -------
Income (loss) from continuing operations....... (0.1) 3.1 3.2 2.6 (9.8) (12.4)
Gain on disposal of discontinued operations........... 0.5 -- (0.5) 0.5 -- (0.5)
-------- ------- ------- ------ ------- -------
Net income (loss)..............................$ 0.4 $ 3.1 $ 2.7 $ 3.1 $ (9.8) $ (12.9)
======== ======= ======= ====== ======= =======
Three Months Ended July 2, 2006 Compared with Three Months Ended July 3, 2005
Net Sales
Our net sales, which were generated entirely from the Company-owned
restaurants, increased $215.8 million to $270.8 million for the three months
ended July 2, 2006 from $55.0 million for the three months ended July 3, 2005,
primarily reflecting the effect of the RTM Acquisition.
In the 2006 second quarter, net sales of our Company-owned restaurants were
positively impacted by the factors affecting same-store sales of our franchisees
as noted below under "Royalties and Franchise and Related Fees." However,
same-store sales of our Company-owned restaurants were relatively flat while the
same-store sales of franchised restaurants grew 3%, primarily due to the
disproportionate number of Company-owned restaurants in the economically-weaker
Michigan and Ohio regions which continue to underperform the system. 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.
Our net sales for the remainder of 2006 will be higher than the comparable
period of 2005 as a result of the RTM Acquisition. We currently expect positive
same-store sales growth for the remainder of 2006 of both Company-owned and
franchised restaurants, despite the weak economy in Michigan and Ohio, driven by
the anticipated performance of various initiatives such as (1) value oriented
promotions primarily on some of our roast beef sandwiches and limited time menu
offerings with discounted prices on certain premium and limited time menu items,
(2) planned additions of other new limited time menu items and (3) the continued
sales of Arby's Chicken Naturals(TM), a line of menu offerings made with 100
percent all natural chicken launched in March 2006. We presently plan to open 30
new Company-owned restaurants during the remainder of 2006. 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, we have 28
restaurants where the facilities leases either are scheduled for renewal or
expire during the second half of 2006 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, decreased $5.7 million to $21.2 million for the
three months ended July 2, 2006 from $26.9 million for the three months ended
July 3, 2005, reflecting $7.6 million of royalties and franchise and related
fees from RTM recognized in the 2005 second quarter whereas royalties and
related franchise fees from RTM are eliminated in consolidation subsequent to
the RTM Acquisition. Aside from the effect of the RTM Acquisition, royalties and
franchise and related fees increased $1.9 million in the 2006 second quarter,
reflecting (1) a $1.2 million net increase in royalties from the 83 restaurants
opened since July 3, 2005, with generally higher than average sales volumes, and
the 9 restaurants sold to a franchisee in the first quarter of 2006 replacing
the royalties from the 48 generally underperforming restaurants closed since
July 3, 2005, the elimination of royalties from 15 restaurants we acquired from
a franchisee in December 2005 and the lesser royalties from the 10 restaurants
acquired from franchisees during the second quarter of 2006, (2) a $0.5 million
improvement in royalties due to a 3% increase in same-store sales of the
franchised restaurants in the 2006 second quarter compared with the 2005 second
quarter and (3) a $0.2 million increase in franchise and related fees. The
increase in same-store sales of the franchised restaurants reflects (1) more
effective and targeted local marketing campaigns, including increased couponing
by our franchisees, (2) recent marketing initiatives, including new menu boards,
and (3) the launch of Arby's Chicken Naturals(TM). Partially offsetting these
positive factors was the effect of higher fuel prices on consumers'
discretionary income which we believe had a negative impact on sales of our
franchisees and of our Company-owned restaurants beginning in the second half of
2005.
Our royalties and franchise and related fees may decrease in the third
quarter of 2006 as compared with the third quarter of 2005 due to the
elimination in consolidation of royalties and franchise and related fees from
RTM which were $1.9 million in the third quarter of 2005 preceding the RTM
Acquisition. In addition, we believe that the higher fuel prices will continue
to temper sales performance. However, we expect positive same-store sales growth
of existing franchised restaurants for the remainder of 2006 due to the
anticipated performance of the various initiatives for the second half of 2006
described above under "Net Sales."
Asset Management and Related Fees
Our asset management and related fees, which were generated entirely from
the management of CDOs and Funds by Deerfield, increased $4.0 million, or 34%,
to $15.8 million for the three months ended July 2, 2006 from $11.8 million for
the three months ended July 3, 2005. This increase is principally attributed to
(1) a $1.5 million increase in management and incentive fees from the REIT
reflecting the full period effect of a $363.5 million increase in assets under
management for the REIT resulting from an initial public stock offering in June
2005, (2) new CDOs and Funds contributing $1.1 million in additional fees and
(3) an increase of $0.9 million in incentive fees earned on CDOs. Assets under
management for the REIT were $763.8 million as of July 2, 2006, upon which we
receive a 1.75% per annum management fee and 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 increased $153.3
million to $194.3 million for the three months ended July 2, 2006, resulting in
a gross margin of 28%, from $41.0 million for the three months ended July 3,
2005, resulting in a gross margin of 25%. This increase is entirely attributable
to the restaurants acquired in the RTM Acquisition and 32 net restaurants added
since the acquisition, which combined had a gross margin of 29%. The gross
margin for these stores was significantly higher than that of the stores we
owned prior to the RTM Acquisition principally due to RTM's relatively more
effective operational efficiencies resulting from management and procedural
advantages as well as higher average unit sales volumes which result in more
favorable cost leverage. Cost of sales were relatively flat for the stores we
owned prior to the RTM Acquisition, with a gross margin for these stores of 24%
in the 2006 second quarter compared with 26% in the 2005 second quarter. We
define gross margin as the difference between net sales and cost of sales
divided by net sales. The decrease of 2% in gross margin of the stores we owned
prior to the RTM Acquisition is primarily attributable to (1) increased labor
costs as a result of an increase in restaurant managers, partially in
anticipation of planned unit openings, increased staffing levels during peak
periods and, to a lesser extent, increases in the minimum wage in several states
and (2) increased utility costs as a result of higher gas and electric costs.
These increases were partially offset by reduced food and paper costs as a
result of improved monitoring of food variances and increased beverage rebates
in the 2006 second quarter resulting from the new agreement for Pepsi beverage
products.
We expect our overall gross margin for the remainder of 2006 will continue
to be favorably impacted as a result of the RTM Acquisition. We anticipate that
the operational efficiency and gross margins of the stores we owned prior to the
RTM Acquisition will improve over the next year as we continue to implement the
more effective operating procedures of RTM in these stores.
Cost of Services, Excluding Depreciation and Amortization
Our cost of services, excluding depreciation and amortization, which
resulted entirely from the management of CDOs and Funds by Deerfield, increased
$1.3 million, or 28%, to $5.9 million for the three months ended July 2, 2006
from $4.6 million for the three months ended July 3, 2005 principally due to the
hiring of additional personnel to support our current and anticipated growth in
assets under management.
Our royalties and franchise and related fees have no associated cost of
services.
Advertising and Selling
Our advertising and selling expenses increased $15.5 million due to
advertising expenses attributable to the stores acquired in the RTM Acquisition.
General and Administrative, Excluding Depreciation and Amortization
Our general and administrative expenses, excluding depreciation and
amortization increased $23.2 million, reflecting a $24.2 million increase in
general and administrative expenses of our restaurant segment principally
relating to RTM. Such increase in our restaurant segment reflects (1) higher
employee related costs, including recruiting, as a result of increased headcount
due to the RTM Acquisition and the strengthening of its infrastructure, (2)
severance and related charges of $4.0 million in connection with the replacement
of three senior restaurant executives during our 2006 second quarter, (3)
increased costs related to outside consultants that we utilized to assist with
the integration of RTM and a related ongoing computer systems implementation,
(4) increased corporate office rent and related occupancy costs due to the
relocation of the restaurant corporate office to a new facility and (5)
increased employee share-based compensation resulting from the adoption of
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment," which we refer to as SFAS 123(R), which we adopted effective January
2, 2006 (see discussion in following paragraph). Aside from the increase
attributable to our restaurant segment, general and administrative expenses
decreased $1.0 million primarily due to (1) a $1.1 million allocation of our
expenses to a management company formed by our Chairman and Chief Executive
Officer and President and Chief Operating Officer, whom we refer to as the
Executives, and our Vice Chairman, for the allocable cost of services provided
by us to the management company in the 2006 second quarter and (2) a $0.4
million decrease in employee share-based compensation resulting from the
adoption of SFAS 123(R), both partially offset by a $0.6 million increase in
salaries resulting from additional personnel to support growth in our asset
management business.
As indicated above, effective January 2, 2006 we adopted SFAS 123(R), which
revised Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," which we refer to as SFAS 123. As a result, we now
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 at the date of grant rather than its
intrinsic value, the method we previously used. We are using the modified
prospective application method under SFAS 123(R) and have elected not to use
retrospective application. Thus, amortization of the fair value of all nonvested
grants as of January 2, 2006, as determined under the previous pro forma
disclosure provisions of SFAS 123 except as adjusted for estimated forfeitures,
is included in our results of operations commencing January 2, 2006, and prior
periods are not restated. Employee stock compensation grants or grants modified,
repurchased or cancelled on or after January 2, 2006 are valued in accordance
with SFAS 123(R). Had we used the fair value alternative under SFAS 123 during
the 2005 second quarter, our pretax compensation expense using the
Black-Scholes-Merton option pricing model would have been $3.6 million higher,
or $2.3 million after taxes and minority interests, determined from the pro
forma disclosure in Note 3 to our accompanying condensed consolidated financial
statements. The adoption of SFAS 123(R) increased the amount of compensation
expense we recognized in our 2006 second quarter from what we would have
recognized under the intrinsic value method by $2.3 million, principally due to
the differing accounting for stock options under the two methods. As of July 2,
2006, there was $13.6 million of total unrecognized compensation cost related to
nonvested share-based compensation grants which is expected to be amortized over
a weighted-average period of 1.4 years. The adoption of SFAS 123(R) may also
materially affect our share-based compensation expense in future periods as a
result of any share-based compensation grants subsequent to July 2, 2006.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs increased $9.1 million due to depreciation and amortization of
RTM.
Facilities Relocation and Corporate Restructuring
Our facilities relocation and corporate restructuring charges of $0.8
million in the 2006 second quarter represent a $1.0 million increase associated
with our decision not to move our corporate offices to a leased facility in Rye
Brook, New York, representing an adjustment for the estimated costs from
increasing the estimated marketing time to sublease the space, partially offset
by $0.2 million of net reductions of previously recognized estimated charges for
employee and office relocation costs in connection with combining our existing
restaurant operations with those of RTM.
Loss on Settlement of Unfavorable Franchise Rights
During the 2006 second quarter, we recognized a loss on settlement of
unfavorable franchise rights of $0.7 million in connection with an acquisition
of nine restaurants in April 2006. This loss was recognized in accordance with
accounting principles generally accepted in the United States of America that
require any preexisting business relationship between the parties to a business
combination be evaluated and accounted for separately. Under this accounting
guidance, the franchise agreements acquired in this restaurant acquisition with
royalty rates below the current 4% royalty rate that we receive on new franchise
agreements were required to be valued and recognized as an expense and excluded
from the purchase price paid for the business. The amount of the settlement loss
represents the estimated amount of royalties by which the royalty rate is
unfavorable over the remaining life of the franchise agreements.
Interest Expense
Interest expense increased $25.7 million reflecting (1) a $19.7 million
increase in interest expense on debt securities sold with an obligation to
purchase or under agreements to repurchase in connection with the significant
increase in the use of leverage in the Opportunities Fund, (2) a $5.2 million
net increase in interest expense relating to our term loan borrowings, which we
refer to as the Term Loans, in connection with the RTM Acquisition compared with
the interest expense on the previous debt of our restaurant segment which we
refinanced with a portion of the Term Loans at a lower interest rate in July
2005 and (3) $3.0 million of interest expense relating to sales-leaseback and
capitalized lease obligations of RTM which were acquired but which were not
refinanced and, to a much lesser extent, additional obligations incurred by RTM
for new restaurants opened subsequent to the RTM Acquisition. These increases
were partially offset by a $2.3 million decrease in interest expense related to
our 5% convertible notes due 2023, which we refer to as the Convertible Notes,
due to the effective conversion of an aggregate $167.4 million principal amount
of the Convertible Notes into shares of our class A and class B common stock
almost entirely in February 2006, as discussed in more detail below under
"Liquidity and Capital Resources - Convertible Notes."
We have provided notice to the investment manager for the Opportunities
Fund of our intent to withdraw our investment in this fund effective September
29, 2006, which we refer to as the Withdrawal. Assuming consummation of the
Withdrawal, interest expense on debt securities sold with an obligation to
purchase or under agreements to repurchase, which relates entirely to this fund,
and related investment income, net will not recur after September 29, 2006,
substantially reducing interest expense. Interest expense and investment income,
net associated with the Opportunities Fund were $23.4 million and $25.4 million,
respectively, for the three months ended July 2, 2006.
On June 30, 2006, we made a prepayment from excess cash of $45.0 million
principal amount of Term Loans, which we refer to as the Term Loans Prepayment,
which will reduce our future interest expense for the Term Loans.
Insurance Expense Related to Long-Term Debt
Insurance expense related to long-term debt of $0.9 million in the 2005
second quarter did not recur in the 2006 second quarter due to its settlement
upon the repayment of the related debt as part of the July 2005 refinancing of
most of our restaurant segment's debt.
Loss on Early Extinguishment of Debt
The loss on early extinguishment of debt of $0.9 million in the 2006 second
quarter principally related to the write-off of previously unamortized deferred
financing costs in connection with the previously discussed Term Loans
Prepayment of $45.0 million.
Investment Income, Net
The following table summarizes and compares the major components of
investment income, net:
Three Months Ended
-----------------------
July 3, July 2,
2005 2006 Change
---- ---- ------
(In Millions)
Interest income.............................................$ 9.5 $ 29.3 $ 19.8
Recognized net gains (losses)............................... (2.5) 1.5 4.0
Distributions, including dividends.......................... 0.8 0.4 (0.4)
Other than temporary unrealized losses...................... -- (0.1) (0.1)
Other....................................................... (0.2) (0.3) (0.1)
--------- -------- --------
$ 7.6 $ 30.8 $ 23.2
========= ======== ========
Interest income increased $19.8 million principally due to higher average
outstanding balances of our interest-bearing investments due to the use of
leverage in the Opportunities Fund. Average rates on our investments increased
from 3.6% in the 2005 second quarter to 5.1% in the 2006 second quarter. 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. 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
principally for the RTM Acquisition in July 2005. Our recognized net gains
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, including derivatives, and our securities sold short
with an obligation to purchase. The $4.0 million increase in our recognized net
gains (losses) was principally due to an increase in realized and unrealized net
gains on our securities sold short with an obligation to purchase, partially
offset by an increase in realized and unrealized net losses on our trading
securities during the 2006 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. 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.
Assuming consummation of the Withdrawal, both investment income, net and
interest expense after September 29, 2006 will be lower as discussed above under
"Interest Expense." Investment income, net and interest expense associated with
the Opportunities Fund were $25.4 million and $23.4 million, respectively, for
the three months ended July 2, 2006.
Gain on Sale of Unconsolidated Businesses
We did not have any gain on sale of unconsolidated businesses in the 2006
second quarter. The gain on sale of unconsolidated businesses of $3.1 million
for the 2005 second quarter principally relates to our investment in Encore
Capital Group, Inc., an equity investee of ours which we refer to as Encore,
and, to a much lesser extent the REIT, principally due to cash sales of a
portion of our investment in Encore.
Other Income, Net
Other income, net increased $2.2 million, of which $1.5 million relates to
RTM principally for rental income on restaurants not operated by RTM. Aside from
the effect of the RTM Acquisition, other income, net increased $0.7 million
principally due to $1.7 million of gains recognized in the 2006 second quarter
due to a sale of a portion of our investment in Jurlique International Pty Ltd.,
a privately held Australian skin and beauty products company, which we refer to
as Jurlique, partially offset by the $0.6 million effect of a change from $0.2
million of gains in the 2005 second quarter to $0.4 million of losses in the
2006 second quarter from a foreign currency transaction and derivative related
to Jurlique.
Income (Loss) From Continuing Operations Before Income Taxes and Minority
Interests
Our income (loss) from continuing operations before income taxes and
minority interests increased $6.8 million to $8.3 million for the three months
ended July 2, 2006 from $1.5 million for the three months ended July 3, 2005 due
to the effect of the variances explained in the captions above.
Benefit From (Provision For) Income Taxes
The provisions for income taxes represented effective rates of 33% and 31%
for the three months ended July 3, 2005 and July 2, 2006, respectively. The
effective rates in both quarters are 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
forecasted pretax income used to calculate the effective tax rates. This effect
is partially offset by (1) the effect of non-deductible expenses 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 basis.
Minority Interests in Income of Consolidated Subsidiaries
The minority interests in income of consolidated subsidiaries increased
$1.5 million, principally reflecting increases of (1) $0.7 million due to the
increased participation of investors other than us in increased income of the
Opportunities Fund and (2) $0.7 million due to higher income of Deerfield in the
2006 second quarter compared with the 2005 second quarter.
Net Income
Our net income increased $2.7 million to $3.1 million in the 2006 second
quarter from $0.4 million in the 2005 second quarter due to the after tax
effects of the variances discussed in the captions above.
Six Months Ended July 2, 2006 Compared with Six Months Ended July 3, 2005
Net Sales
Our net sales, which were generated entirely from the Company-owned
restaurants, increased $423.5 million to $529.7 million for the six months ended
July 2, 2006 from $106.2 million for the six months ended July 3, 2005,
primarily reflecting the effect of the RTM Acquisition.
In the 2006 second half, net sales of our Company-owned restaurants were
positively impacted by the factors noted below under "Royalties and Franchise
and Related Fees." However, same-store sales of our Company-owned restaurants
were relatively flat while the same-store sales of franchised restaurants grew
5%, primarily due to the disproportionate number of Company-owned restaurants in
the economically-weaker Michigan and Ohio regions which continue to underperform
the system. 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.
Our net sales for the remainder of 2006 will be higher than the comparable
period of 2005 as a result of the full-period effect in the 2006 second half of
the RTM Acquisition and other factors 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, decreased $10.9 million to $39.6 million for
the six months ended July 2, 2006 from $50.5 million for the six months ended
July 3, 2005, reflecting $14.4 million of royalties and franchise and related
fees from RTM recognized in the 2005 first half whereas royalties and franchise
and related fees from RTM are eliminated in consolidation subsequent to the RTM
Acquisition. Aside from the effect of the RTM Acquisition, royalties and
franchise and related fees increased $3.5 million in the 2006 first half,
reflecting (1) a $1.6 million improvement in royalties due to a 5% increase in
same-store sales of the franchised restaurants in the 2006 first half compared
with the 2005 first half, (2) a $1.4 million net increase in royalties from the
83 restaurants opened since July 3, 2005, with generally higher than average
sales volumes, and the 9 restaurants sold to a franchisee in the first quarter
of 2006 replacing the royalties from the 48 generally underperforming
restaurants closed since July 3, 2005, the elimination of royalties from 15
restaurants we acquired from a franchisee in December 2005 and the lesser
royalties from the 10 restaurants acquired from franchisees during the second
quarter of 2006 and (3) a $0.5 million increase in franchise and related fees.
The increase in same-store sales of the franchised restaurants reflects (1) more
effective and targeted local marketing campaigns, including increased couponing
by our franchisees, (2) recent marketing initiatives, including new menu boards,
and (3) the launch of Arby's Chicken Naturals(TM). Partially offsetting these
positive factors was the effect of higher fuel prices on consumers'
discretionary income which we believe had a negative impact on sales of our
franchisees and of our Company-owned restaurants beginning in the second half of
2005.
As discussed in the comparison of the three-month periods, we expect
positive same-store sales growth of existing franchised restaurants for the
remainder of 2006, although our royalties and franchise and related fees may
decrease in the third quarter of 2006 as a result of the RTM Acquisition.
Asset Management and Related Fees
Our asset management and related fees, which were generated entirely from
the management of CDOs and Funds by Deerfield, increased $5.9 million, or 24%,
to $30.6 million for the 2006 first half from $24.7 million for the 2005 first
half. This increase is attributed to (1) a $3.7 million increase in management
and incentive fees from the REIT reflecting the full period effect of a $363.5
million increase in assets under management for the REIT resulting from an
initial public stock offering in June 2005, as discussed in the comparison of
the three-month periods and (2) new CDOs and Funds contributing $2.3 million in
additional fees. The increase in incentive fees on CDOs in the 2006 second
quarter did not impact the comparison of the six-month periods due to an
offsetting decrease in those fees in the 2005 first quarter.
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 $306.7
million to $386.9 million for the six months ended July 2, 2006, resulting in a
gross margin of 27%, from $80.2 million for the six months ended July 3, 2005,
resulting in a gross margin of 24%. Of this increase, $302.4 million is
attributable to the stores acquired in the RTM Acquisition and 32 net
restaurants added since the acquisition, which combined had a gross margin of
28%. The gross margin for these stores was significantly higher than that of the
stores we owned prior to the RTM Acquisition principally due to RTM's relatively
more effective operational efficiencies resulting from management and procedural
advantages as well as higher average unit sales volumes which result in more
favorable cost leverage. Cost of sales increased $4.3 million for the stores we
owned prior to the RTM Acquisition, resulting in a gross margin for these stores
of 23% in the 2006 first half compared with 25% in the 2005 first half. The
decrease of 2% in gross margin of these stores is primarily attributable to (1)
increased labor costs as a result of an increase in restaurant managers,
partially in anticipation of planned unit openings, increased staffing levels
during peak periods and, to a lesser extent, increases in the minimum wage in
several states, (2) increased utility costs as a result of higher gas and
electric costs and (3) increased spending for repairs and maintenance, partially
as a result of costs related to the conversion to Pepsi beverage products in the
2006 first quarter. These increases were partially offset by reduced food and
paper costs as a result of improved monitoring of food variances and increased
beverage rebates in the 2006 first half resulting from the new agreement for
Pepsi beverage products.
As discussed in the comparison of the three-month periods, we expect our
overall gross margin for the remainder of 2006 will continue to be favorably
impacted as a result of the direct and indirect effects of the RTM Acquisition.
Cost of Services, Excluding Depreciation and Amortization
Our cost of services, excluding depreciation and amortization, which
resulted entirely from the management of CDOs and Funds by Deerfield, increased
$2.6 million, or 30%, to $11.4 million for the 2006 first half from $8.8 million
for the 2005 first half principally due to the hiring of additional personnel to
support our current and anticipated growth in assets under management.
Our royalties and franchise and related fees have no associated cost of
services.
Advertising and Selling
Our advertising and selling expenses increased $31.0 million due to
advertising expenses attributable to the stores acquired in the RTM Acquisition.
General and Administrative, Excluding Depreciation and Amortization
Our general and administrative expenses, excluding depreciation and
amortization increased $49.7 million, reflecting a $44.3 million increase in
general and administrative expenses of our restaurant segment principally
relating to RTM. Factors affecting this increase are discussed in more detail in
the comparison of the three-month periods. Aside from the increase attributable
to our restaurant segment, general and administrative expenses increased $5.4
million primarily due to (1) a $3.3 million increase due to a $2.0 million
increase in incentive compensation and a $1.3 million increase in salaries
resulting from additional personnel to support growth in our asset management
business, (2) a $2.7 million increase in employee share-based compensation
resulting from the adoption of SFAS 123(R), (3) a $0.4 million increase in
deferred compensation expense and (4) other inflationary increases. Deferred
compensation expense of $0.7 million in the 2005 first half and $1.1 million in
the 2006 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 the Executives, as explained in more detail below
under "Income (Loss) From Continuing Operations Before Income Taxes and Minority
Interests." These increases were partially offset by a $1.8 million allocation
of our expenses to the management company formed by the Executives and our Vice
Chairman for the allocable cost of services provided by us to the management
company in the 2006 first half.
Effective January 2, 2006, we adopted SFAS 123 (R) which revised SFAS 123,
as discussed in the comparison of the three-month periods. Had we used the fair
value alternative under SFAS 123 during the 2005 first half, our pretax
compensation expense using the Black-Scholes-Merton option pricing model would
have been $6.3 million higher, or $4.0 million after taxes and minority
interests determined from the pro forma disclosure in Note 3 to our accompanying
condensed consolidated financial statements. The adoption of SFAS 123(R)
increased the amount of compensation expense we recognized in our 2006 first
half from what we would have recognized under the intrinsic value method by $0.9
million principally due to the differing accounting for stock options under the
two methods. As of July 2, 2006, there was $13.6 million of total unrecognized
compensation cost related to nonvested share-based compensation grants which is
expected to be amortized over a weighted-average period of 1.4 years. The
adoption of SFAS 123(R) may also materially effect our share-based compensation
expense in future periods as a result of any share-based compensation grants
subsequent to July 2, 2006.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs increased $17.1 million due to depreciation and amortization of
RTM.
Facilities Relocation and Corporate Restructuring
Our facilities relocation and corporate restructuring charges of $1.6
million in the 2006 first half consist of $1.0 million of general corporate
charges related to the decision not to move our corporate offices to a leased
facility in Rye Brook, New York, as discussed in the comparison of the
three-month periods, and $0.6 million related principally to additional
severance and retention incentive compensation in connection with combining our
restaurant operations.
Loss on Settlement of Unfavorable Franchise Rights
During the 2006 first half we recognized a loss on settlement of
unfavorable franchise rights of $0.7 million in connection with an acquisition
of nine restaurants in April 2006, as discussed in more detail in the comparison
of the three-month periods.
Interest Expense
Interest expense increased $42.9 million reflecting (1) a $30.5 million
increase in interest expense on debt securities sold with an obligation to
purchase or under agreements to repurchase in connection with the significant
increase in the use of leverage in the Opportunities Fund, (2) a $10.2 million
net increase in interest expense relating to our Term Loans in connection with
the RTM Acquisition compared with the interest expense on the previous debt of
our restaurant segment which we refinanced with a portion of the Term Loans at a
lower interest rate in July 2005 and (3) $5.5 million of interest expense
relating to sales-leaseback and capitalized lease obligations of RTM which were
acquired but which were not refinanced and, to a much lesser extent, additional
obligations incurred by RTM for new restaurants opened subsequent to the RTM
Acquisition. These increases were partially offset by a $3.7 million decrease in
interest expense due to the effective conversion of our Convertible Notes
discussed above in the comparison of the three-month periods.
As discussed in more detail in the comparison of the three-month periods,
we expect our future interest expense and related investment income, net to be
reduced as a result of the Withdrawal anticipated on September 29, 2006 and the
Term Loan Repayments. Interest expense and investment income, net associated
with the Opportunities Fund were $35.5 million and $41.9 million, respectively,
for the 2006 first half.
Insurance Expense Related to Long-Term Debt
Insurance expense related to long-term debt of $1.8 million in the 2005
first half did not recur in the 2006 first half due to its settlement upon the
repayment of the related debt as part of the July 2005 refinancing of most of
our restaurant segment's debt.
Loss on Early Extinguishment of Debt
The loss on early extinguishment of debt of $13.4 million in the 2006 first
half consisted of (1) $12.5 million which resulted from the effective conversion
of an aggregate $167.4 million of our Convertible Notes, as discussed in more
detail below under "Liquidity and Capital Resources - Convertible Notes," and
consisted of $8.7 million of negotiated inducement premiums that we paid in cash
and shares of our class B common stock and the write-off of $3.8 million of
related previously unamortized deferred financing costs and (2) a $0.9 million
write-off of previously unamortized deferred financing costs in connection with
the Term Loans Prepayment of $45.0 million.
Investment Income, Net
The following table summarizes and compares the major components of
investment income, net:
Six Months Ended
-----------------------
July 3, July 2,
2005 2006 Change
---- ---- ------
(In Millions)
Interest income.............................................$ 15.8 $ 47.3 $ 31.5
Recognized net gains........................................ 0.6 4.4 3.8
Distributions, including dividends.......................... 1.0 0.6 (0.4)
Other than temporary unrealized losses...................... (0.3) (0.1) 0.2
Other....................................................... (0.4) (0.5) (0.1)
--------- -------- --------
$ 16.7 $ 51.7 $ 35.0
========= ======== ========
Interest income increased $31.5 million principally due to higher average
outstanding balances of our interest-bearing investments due to the use of
leverage in the Opportunities Fund. Average rates on our investments increased
from 3.6% in the 2005 first half to 4.9% in the 2006 first half. 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. 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 principally for the RTM
Acquisition in July 2005. Our recognized net gains as discussed in detail in the
comparison of the three-month periods, increased $3.8 million principally due to
realized gains on sales of available-for-sale securities and a cost method
investment in the 2006 first half. The increase in realized and unrealized net
gains on securities sold short with an obligation to purchase net of an increase
in realized and unrealized net losses on our trading securities, including
derivatives, during the three months ended July 2, 2006 was substantially offset
by net losses on the similar securities during the three months ended April 2,
2006. 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. Any other than temporary
unrealized losses are dependant 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 discussed in more detail in the comparison of the three-month periods,
we expect our future investment income, net and interest expense to be reduced
as a result of the Withdrawal anticipated on September 29, 2006. Investment
Income, net and interest expense associated with the Opportunities Fund were
$41.9 million and $35.5 million, respectively, for the 2006 first half.
Gain on Sale of Unconsolidated Businesses
The gain on sale of unconsolidated businesses decreased $10.3 million to
$2.3 million for the 2006 first half from $12.6 million for the 2005 first half.
These gains principally relate to our investment in Encore and, to a much lesser
extent the REIT, principally due to cash sales of a portion of our investment in
Encore.
Other Income, Net
Other income, net increased $4.3 million, of which $2.4 million relates to
RTM principally for rental income on restaurants not operated by RTM. Aside from
the effect of the RTM Acquisition, other income, net increased $1.9 million
principally due to (1) $1.7 million of gains recognized in the 2006 second
quarter due to a sale of a portion of our investment in Jurlique and (2) $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
which did not recur in the 2006 first half. These increases were partially
offset by (1) a $0.6 million decrease from the foreign currency transaction and
derivative related to Jurlique from gains of $0.4 million in the 2005 first half
to losses of $0.2 million in the 2006 first half and (2) a $0.3 million recovery
in 2005 upon collection of a fully reserved non-trade note receivable of Sybra
which did not recur in the 2006 first half.
Income (Loss) From Continuing Operations Before Income Taxes and Minority
Interests
Our income (loss) from continuing operations before income taxes and
minority interests decreased $16.4 million to a loss of $7.3 million for the six
months ended July 2, 2006 from income of $9.1 million for the six months ended
July 3, 2005 attributed to a $13.4 million loss on early extinguishment of debt
and the effect of the other variances discussed in the captions above.
As discussed above, we recognized deferred compensation expense of $0.7
million in the 2005 first half and $1.1 million in the 2006 first half, within
general and administrative expenses, for 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. Accordingly, we recognized net investment loss from
investments in the Deferred Compensation Trusts of $0.1 million in the 2005
first half and net investment income of $0.1 million in the 2006 first half
principally consisting of interest income and investment management fee expense.
The cumulative disparity between deferred compensation expense and net
recognized investment income will reverse in future periods as either (1)
additional investments in the Deferred Compensation Trusts are sold and
previously unrealized gains are recognized without any offsetting increase in
compensation expense or (2) the fair values of the investments in the Deferred
Compensation Trusts decrease resulting in the recognition of a reversal of
compensation expense without any offsetting losses recognized in investment
income.
Benefit From (Provision For) 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 44% for the six months ended July 2, 2006. The effective
benefit rate in the 2006 first half reflects an annual effective rate which was
based on forecasted pretax income for the 2006 full year despite the loss from
continuing operations before income taxes and minority interests for the six
months ended July 2, 2006. The effect of (1) non-deductible expenses 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 have impacted the rates higher than the
Federal statutory rate of 35% and the effect of minority interests in income of
consolidated subsidiaries which are not taxable to us but which are not deducted
from the forecasted pretax income used to calculate the effective tax rates have
impacted the rates lower. The effective rate is higher in 2006 due to
significantly higher forecasted non-deductible expenses for the 2006 full year.
Minority Interests in Income of Consolidated Subsidiaries
The minority interests in income of consolidated subsidiaries increased
$2.2 million, principally reflecting an increase of $1.9 million due to the
increased participation of investors other than us in increased income of the
Opportunities Fund.
Net Income (Loss)
Our net income (loss) declined $12.9 million to a net loss of $9.8 million
in the 2006 first half from net income of $3.1 million in the 2005 first half
attributed to the $8.6 million after tax effect of the loss on early
extinguishment of debt, as well as the after tax effects of the other variances
discussed in the captions above.
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 $522.0
million during the six months ended July 2, 2006 principally reflecting a net
loss of $9.8 million and net operating investment adjustments of $549.1 million.
The net operating investment adjustments principally reflect net purchases
of trading securities and net settlements of trading derivatives, which were
principally funded by net proceeds from securities sold short and net sales of
repurchase agreements. 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 consolidated statements of cash flows. However,
net proceeds from securities sold short and net sales of repurchase agreements
are reported in continuing investing activities in the accompanying consolidated
statements of cash flows. The cash used by changes in current assets and
liabilities associated with operating activities of $14.7 million principally
reflects a $27.8 million decrease in accounts payable and accrued expenses and
other current liabilities partially offset by a $10.5 million decrease in
accounts and notes receivable. The decrease in accounts payable and accrued
expenses and other current liabilities was principally due to the payment of
previously accrued incentive compensation. The decrease in accounts and notes
receivable principally resulted from collections of asset management incentive
fees receivable. Other adjustments to reconcile the net loss to the cash used in
continuing operating activities were principally comprised of non-cash
adjustments for depreciation and amortization of $29.3 million, a receipt of a
deferred vendor incentive payment, net of amount recognized, of $12.0 million, a
stock-based compensation provision of $7.5 million, minority interests in income
of consolidated subsidiaries of $5.7 million, write-off of unamortized deferred
financing costs of $4.8 million and a charge for stock issued to induce
effective conversion of the Convertible Notes of $3.7 million, all partially
offset by a deferred tax benefit of $4.7 million.
Excluding the effect of the net purchases of trading securities and net
settlements of trading derivatives, which represent the discretionary investment
of excess cash, our continuing operating activities provided cash of $22.1
million in the six months ended July 2, 2006. We expect positive cash flows from
continuing operating activities during the second half of 2006, excluding the
effect, if any, of net sales or purchases of trading securities since we expect
improved operating results before net non-cash charges during the second half of
2006.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$257.7 million at July 2, 2006, reflecting a current ratio, which equals current
assets divided by current liabilities, of 1.1:1. Working capital at July 2, 2006
decreased $38.7 million from $296.4 million at January 1, 2006, primarily
resulting from our Term Loans Prepayment of $45.0 million.
Our total capitalization at July 2, 2006 was $1,257.7 million, consisting
of stockholders' equity of $534.6 million, long-term debt of $718.1 million,
including current portion, and notes payable of $5.0 million. Our total
capitalization at July 2, 2006 decreased $59.5 million from $1,317.2 million at
January 1, 2006 principally reflecting net repayments of long-term debt and
notes payable of $45.3 million and dividends of $28.3 million, partially offset
by the stock-based compensation provision of $7.2 million credited to
"Additional paid-in capital."
Credit Agreement
In connection with the RTM Acquisition, we entered into a credit agreement,
which we refer to as the Credit Agreement, for our restaurant business segment.
The Credit Agreement includes the Term Loans with a remaining principal balance
of $568.8 million as of July 2, 2006, of which $3.1 million is due during the
second half of 2006, and a senior secured revolving credit facility of $100.0
million. There were no borrowings under the revolving credit facility as of July
2, 2006, however, the availability under the facility was $89.0 million, which
is net of a reduction of $11.0 million for outstanding letters of credit.
Convertible Notes
We had outstanding at July 2, 2006, $7.6 million of Convertible Notes which
do not have any scheduled principal repayments prior to 2023 and are convertible
into 191,000 shares of our class A common stock and 381,000 shares of our class
B common stock. 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.
In February 2006, an aggregate of $165.8 million principal amount of the
Convertible Notes were effectively converted into an aggregate of 4,144,000
shares of our class A common stock and 8,289,000 shares of our class B common
stock. In order to induce this conversion, we paid negotiated premiums
aggregating $8.7 million to the converting noteholders consisting of cash of
$5.0 million and 226,000 shares of our class B common stock with an aggregate
fair value of $3.7 million based on the closing market price of our class B
common stock on the dates of the effective conversions in lieu of cash to
certain of those noteholders. In May and June 2006, an additional $1.6 million
principal amount of Convertible Notes were converted, for which 25,000 shares of
our class A common stock and 50,000 shares of our class B common stock were
issued prior to July 2, 2006 and 15,000 shares of our class A common stock and
30,000 shares of our class B common stock were issued subsequent to July 2,
2006. In connection with these conversions, which we refer to as the Convertible
Notes Conversions, we recorded pretax charges aggregating $12.6 million,
consisting of the premiums aggregating $8.7 million and the write-off of $3.9
million of related unamortized deferred financing costs in the 2006 first half.
Sale-Leaseback Obligations
We have outstanding $69.2 million of sale-leaseback obligations as of July
2, 2006, which relate principally to RTM and are due through 2026, of which $0.7
million is due during the second half of 2006.
Capitalized Lease Obligations
We have outstanding $54.5 million of capitalized lease obligations as of
July 2, 2006, which principally relate to RTM and extend through 2036, of which
$0.5 million is due during the second half of 2006.
Other Long-Term Debt
We have outstanding a secured bank term loan payable through 2008 in the
amount of $6.7 million as of July 2, 2006, of which $1.3 million is due during
the second half of 2006, and a secured promissory note payable due during the
second half of 2006 in the amount of $6.0 million as of July 2, 2006. We also
have outstanding $1.3 million of leasehold notes as of July 2, 2006, which are
due through 2014, of which $0.1 million is due during the second half of 2006.
Notes Payable
We have outstanding $5.0 million of non-recourse notes payable as of July
2, 2006 which relate to Deerfield and are secured by our short-term investments
in preferred shares of CDOs with a carrying value of $8.9 million as of July 2,
2006. These notes have no stated maturities but must be repaid from either a
portion or all of the distributions we receive on, or sales proceeds from, those
investments and a portion of the asset management fees to be paid to us from the
respective CDOs.
Revolving Credit Facilities
We have $89.0 million available for borrowing under our restaurant
segment's $100.0 million revolving credit facility as of July 2, 2006, which is
net of the reduction of $11.0 million for outstanding letters of credit noted
above. In addition, on July 1, 2006 we entered into a $30.0 million agreement
with CNL Restaurant Capital, LP, which we refer to as CNL, for sale-leaseback
financing from CNL for development and operation of Arby's restaurants, all of
which was available on July 2, 2006. This agreement ends on December 31, 2006;
however, we have an option to extend the agreement for an additional six months.
In February 2006, our asset management segment entered into a $10.0 million
revolving note agreement, of which $6.0 million was available as of July 2, 2006
after $4.0 million was borrowed under the agreement during the 2006 second
quarter.
Debt Repayments and Covenants
Our total scheduled long-term debt and notes payable repayments during the
second half of 2006 are $13.7 million consisting of $6.0 million under our
secured promissory note, $3.1 million under our Term Loans, $2.0 million
expected to be paid under our notes payable, $1.3 million under our secured bank
term loan, $0.7 million relating to sale-leaseback obligations, $0.5 million
relating to capitalized leases and $0.1 million under our leasehold notes.
Our Credit Agreement contains various covenants relating to our 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 to Triarc. We
were in compliance with all of these covenants as of July 2, 2006. In June 2006,
we made the Term Loans Prepayment of $45.0 million. We may make additional
prepayments of Term Loans during the remainder of 2006 under certain
circumstances, including if those prepayments would be necessary for continued
compliance with the covenants of the Credit Agreement. As of July 2, 2006 there
was $19.7 million available for the payment of dividends indirectly to Triarc
under the covenants of the Credit Agreement.
A significant number of the underlying leases for our sale-leaseback
obligations, capitalized lease obligations and operating leases require periodic
financial reporting of certain subsidiary entities within our restaurant
business segment or of individual restaurants, which in many cases has not been
prepared or reported. We have negotiated alternative covenants with a number of
our most significant lessors which substitute consolidated financial reporting
of our restaurant segment for financial reporting of individual subsidiary
entities and which modify restaurant level reporting requirements. We are in the
process of negotiating similar alternative covenants with additional lessors.
Nevertheless, as of July 2, 2006 we were not in compliance with the original
reporting requirements under a substantial number of these leases. However, none
of our lessors has asserted that we are in default of any of these lease
agreements and we do not believe that this non-compliance will have a material
adverse effect on our consolidated financial position or results of operations.
Contractual Obligations
The only significant changes to our contractual obligations since January
1, 2006, as disclosed in Item 7 of our 2005 Form 10-K, resulted from (1) the
Convertible Notes Conversions and (2) the Term Loans Prepayment of $45.0
million. Our expected payments of long-term debt in the periods after 2010
decreased by $212.4 million due to the Convertible Notes Conversions and the
Term Loans Prepayment.
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, National Propane 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 2, 2006, 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 2, 2006. We
believe it is unlikely that we will be called upon to make any payments under
this indemnity. In 2001 AmeriGas Propane, L.P., which we refer to as AmeriGas
Propane, purchased all of the interests in AmeriGas Eagle other than National
Propane's special limited partner interest. Either National Propane or AmeriGas
Propane may require AmeriGas Eagle to repurchase the special limited partner
interest. However, we believe it is unlikely that either party would require
repurchase prior to 2009 as either AmeriGas Propane would owe us tax
indemnification payments if AmeriGas Propane required the repurchase or we would
accelerate payment of deferred taxes of $36.0 million as of July 2, 2006,
associated with the sale and other tax basis differences, prior to 2005, of our
propane business if National Propane required the repurchase. As of July 2,
2006, we have net operating loss tax carryforwards sufficient to offset these
deferred taxes.
Prior to the RTM Acquisition, RTM guaranteed the lease obligations, which
we refer to as the Affiliate Lease Guarantees, of 24 restaurants then operated
by affiliates of RTM not acquired by us. The RTM selling stockholders have
indemnified us with respect to the guarantee of these lease obligations. In
addition, the purchasers of 23 restaurants sold in various transactions by RTM
prior to the RTM Acquisition assumed the associated lease obligations, although
RTM remains contingently liable if the respective purchasers do not make the
required lease payments which, collectively with the Affiliate Lease Guarantees,
we refer to as the Lease Guarantees. All those lease obligations, which extend
through 2025 including all then existing extension or renewal option periods,
could aggregate a maximum of approximately $40.0 million as of July 2, 2006,
including approximately $34.0 million under the Affiliate Lease Guarantees,
assuming all scheduled lease payments have been made by the respective tenants
through July 2, 2006. The estimated fair value of the Lease Guarantees was $1.5
million as of the date of the RTM Acquisition, as determined in accordance with
an independent appraisal based on the net present value of the probability
adjusted payments which may be required to be made by us. Such amount is being
amortized as other income based on the decline in the net present value of those
probability adjusted payments in excess of any actual payments made over time.
There remains an unamortized carrying amount of $1.2 million as of July 2, 2006
with respect to the Lease Guarantees.
Capital Expenditures
Cash capital expenditures amounted to $33.8 million during the 2006 first
half. We expect that cash capital expenditures will be approximately $40.0
million during the second half of 2006 principally relating to (1) the opening
of an estimated 30 new Company-owned restaurants, (2) remodeling some of our
existing restaurants and (3) maintenance capital expenditures for our
Company-owned restaurants. We have $14.6 million of outstanding commitments for
these capital expenditures as of July 2, 2006.
Dividends
On March 15, 2006 and June 15, 2006, we paid regular quarterly cash
dividends of $0.08 and $0.09 per share on our class A and class B common stock,
respectively, aggregating $15.2 million. In addition, on March 1, 2006 we paid a
special cash dividend of $0.15 per share on our class A common stock and class B
common stock, aggregating $13.1 million. On May 11, 2006, we declared special
cash dividends of $0.15 per share on our class A common stock and class B common
stock, aggregating $13.2 million, to holders of record on June 30, 2006. These
special cash dividends were paid on July 14, 2006. We also announced our
intention to pay an additional special cash dividend in the fourth quarter of
2006 of $0.15 per share on our class A common stock and class B common stock. On
August 10, 2006, we declared regular quarterly cash dividends of $0.08 and $0.09
per share on our class A common stock and class B common stock, respectively, to
holders of record on September 1, 2006 and payable on September 15, 2006. Our
board of directors has determined that until December 31, 2006 regular quarterly
cash dividends paid on each share of class B common stock will be at least 110%
of the regular quarterly cash dividend paid on each share of class A common
stock. Our board of directors has not yet made any determination of the relative
amounts of any regular quarterly cash dividends that will be paid on the class A
common stock and class B common stock after December 31, 2006. After December
31, 2006 the class B common stock would be entitled to receive regularly
quarterly cash dividends equal to those paid, if any, on the class A common
stock. We currently intend to continue to declare and pay regular quarterly cash
dividends. However, there can be no assurance that any additional 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 2006 at the
same rate as declared for the 2006 third quarter and we pay an additional
installment of the special cash dividends at the same rate as paid on July 14,
2006 our total cash requirement for the regular and special cash dividends for
the second half of 2006 would be $41.8 million, based on the actual dividends
paid on July 14, 2006 and, for the remainder of the year, the same number of
class A and class B common shares outstanding as of July 31, 2006.
Investments and Acquisitions
As of July 2, 2006, we had $447.0 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 $95.2 million invested
in the Opportunities Fund and $4.8 million in DM Fund which are both managed by
Deerfield and consolidated by us. As discussed above under "Introduction and
Executive Overview," we intend to withdraw our entire investments from these
funds on September 29, 2006. We continue to evaluate strategic opportunities for
the use of our significant cash and investment position, including a potential
corporate restructuring as discussed below under "Potential Corporate
Restructuring," repurchases of Triarc common stock (see "Treasury Stock
Purchases" below), the payment of the remaining two installments of the special
cash dividends during the second half of 2006, of which one was paid on July 14,
2006, and investments.
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,
2007 up to a total of $50.0 million of our class A and class B common stock.
However, due to the previously announced potential corporate restructuring,
previously discussed above under "Introduction and Executive Overview," we
expect to be precluded from repurchasing shares at certain times. We did not
make any treasury stock purchases during the 2006 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 2006, exclusive of operating cash flow requirements, consist principally
of (1) 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, (2) regular and special cash dividends aggregating
approximately $41.8 million, (3) cash capital expenditures of approximately
$40.0 million, (4) scheduled debt principal repayments aggregating $13.7
million, (5) prepayments under our Credit Agreement, if any, and (6) the cost of
business acquisitions, if any. We anticipate meeting all of these requirements
through (1) the use of our liquid net current assets, (2) cash flows from
continuing operating activities, if any, (3) borrowings under our restaurant
segment's revolving credit facility of which $89.0 million is currently
available, (4) the sale-leaseback financing agreement with CNL of which $30.0
million is currently available, (5) borrowings under our asset management
segment's revolving credit note agreement of which $6.0 million is currently
available and (6) 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.
Potential Corporate Restructuring
As previously reported in our Form 10-K, we are continuing to explore the
feasibly, as well as the risks and opportunities, of a corporate restructuring
that may involve the spin-off to our stockholders or other disposition of our
ownership interest in our asset management business. In connection with the
potential restructuring, on January 26, 2006, in addition to our regular
quarterly dividends, we announced our intention to declare and pay during 2006
special cash dividends aggregating $0.45 per share on each outstanding share of
our class A common stock and class B common stock, as discussed in more detail
above under "Dividends." Options for our other non-restaurant net assets are
also under review and could include the allocation of these net assets between
our asset management and restaurant businesses and/or additional special
dividends or distribution to our shareholders.
If we proceed with a restructuring, various arrangements relating to the
separation of the affected businesses would be necessary, the terms of which
would depend on the nature of the restructuring. We also have employment
agreements and severance arrangements with certain of our executive officers and
corporate employees. A restructuring could also entail significant severance or
contractual settlement payments under these agreements and arrangements. In the
case of certain of our executive officers, any payments will be subject to
negotiation and approval by a special committee comprised of independent members
of our board of directors. There can be no assurance that the corporate
restructuring will occur or of the form, terms or timing of such restructuring
if it does occur. The Board of Directors has not reached any definitive
conclusions concerning the scope, benefits or timing of the corporate
restructuring.
Consolidation of Opportunities Fund and DM Fund
We consolidate the Opportunities Fund and DM Fund since we currently have
majority voting interests of 73.7% and 79.7%, respectively. Our voting interest
in the Opportunities Fund decreased from 76.4% at January 1, 2006 due to
investments from third party investors during the first half of 2006. We have
notified the investment manager for the Opportunities Fund and the DM Fund of
our intent to withdraw our entire investment in each of these funds effective
September 29, 2006. Accordingly, assuming these withdrawals are consummated, we
will no longer consolidate the accounts of the Opportunities Fund or DM Fund
subsequent to September 29, 2006. The deconsolidation of the Opportunities Fund
will have a significant material impact on our consolidated financial position
due to the significant leverage used in its investment strategy which leverage
will be eliminated upon these withdrawals.
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 were submitted to the Florida DEP for its review. In
November 2005, Adams Packing received a letter from the Florida DEP identifying
certain open issues with respect to the property. The letter did not specify
whether any further actions are required to be taken by Adams Packing and Adams
Packing has sought clarification from, and continues to expect to have
additional conversations with, the Florida DEP in order to attempt to resolve
this matter. Based on provisions made prior to 2005 of $1.7 million for all of
these 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 sought, among
other relief, monetary damages in an unspecified amount. In October 2005, the
action was dismissed as moot, but in December 2005 the plaintiffs filed a motion
seeking reimbursement of $0.3 million of legal fees and expenses. In March 2006,
the court awarded the plaintiffs $75,000 in fees and expenses, but in April 2006
the defendants appealed. In June 2006, the parties entered into an agreement
pursuant to which, among other things, we paid $76,000 for the fees and
expenses, plus interest, and the defendants withdrew their appeal.
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 $0.7 million as of July 2, 2006. 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 February 2006, the Financial Accounting Standards Board, which we refer
to as the FASB, issued Statement No. 155, "Accounting for Certain Hybrid
Financial Instruments," which we refer to as SFAS 155. SFAS 155 amends FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which we refer to as SFAS 133, and FASB Statement 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS 155 resolves issues addressed in SFAS 133 Implementation
Issue No. D1, "Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets." SFAS 155 is effective commencing with our first
quarter of 2007 although early adoption is permitted. Since we do not currently
hold or plan to hold any financial instruments of the type to which SFAS 155
applies, we currently do not believe that the adoption of SFAS 155 will have any
effect on our consolidated financial position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes," which we refer to as Interpretation 48.
Interpretation 48 clarifies how uncertainties in income taxes should be
reflected in financial statements in accordance with SFAS 109, "Accounting for
Income Taxes." Interpretation 48 prescribes a recognition threshold and
measurement attribute for financial statement recognition and measurement of
potential tax benefits associated with tax positions taken or expected to be
taken in the income tax returns. Interpretation 48 also provides guidance on
derecognition, classification, interest and penalties, accounting for interim
periods, disclosure and transition. Interpretation 48 prescribes a two-step
process of evaluating a tax position, whereby an entity first determines if it
is more likely than not that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation processes, based on
the technical merits of the position. A tax position that meets the
more-likely-than-not recognition threshold is then measured for purposes of
financial statement recognition as the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate settlement. The
disclosure provisions of Interpretation 48 include a rollforward of tax benefits
taken that do not qualify for financial statement recognition, the amount of
unrecognized tax benefits that, if recognized, would impact the effective tax
rate, the total amounts and financial statement classifications of interest and
penalties recognized in the balance sheet and statement of operations and a
description of tax years that remain subject to examination by major tax
jurisdictions. For positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly increase or decrease
within twelve months of the reporting date, an entity should disclose the nature
of the uncertainty, the nature of the event that could occur in the next twelve
months that would cause the change and an estimate of the range of the
reasonably possible change or a statement that an estimate of the range cannot
be made. All disclosures required by Interpretation 48 must be included in each
interim financial statement in the year of adoption. Interpretation 48 is
effective commencing with our first fiscal quarter of 2007. As described above,
we will be required to provide additional financial statement disclosures upon
adoption of Interpretation 48, however, since Interpretation 48 was only
recently issued, we have not yet been able to estimate the effects that adopting
Interpretation 48 will have on our consolidated financial position and results
of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
This "Quantitative and Qualitative Disclosures about Market Risk" has been
presented in accordance with Item 305 of Regulation S-K promulgated by the
Securities and Exchange Commission and 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 1, 2006. 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 2, 2006.
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. As of July 2, 2006 our notes payable and
long-term debt, including current portion, aggregated $723.1 million and
consisted of $579.5 million of variable-rate debt, $123.7 million of capitalized
lease and sale-leaseback obligations, $14.9 million of fixed-rate debt and $5.0
million of variable-rate notes payable. We continue to have three interest rate
swap agreements that fix the London Interbank Offered Rate (LIBOR) component of
the interest rate at 4.12%, 4.56% and 4.64% on $100.0 million, $50.0 million and
$55.0 million, respectively, of the $568.8 million outstanding principal amount
of our variable-rate senior secured term loan borrowings until September 30,
2008, October 30, 2008 and October 30, 2008, respectively. The interest rate
swap agreements related to the term loans were designated as cash flow hedges
and, accordingly, are recorded at fair value with changes in fair value recorded
through the accumulated other comprehensive income component of stockholders'
equity in our accompanying consolidated balance sheet to the extent of the
effectiveness of these hedges. Any ineffective portion of the change in fair
value of these hedges, of which there was none through July 2, 2006, would be
recorded in our results of operations. In addition, we continue to have an
interest rate swap agreement, with an embedded written call option, in
connection with our variable-rate bank loan of which $6.7 million principal
amount was outstanding as of July 2, 2006, which effectively establishes a fixed
interest rate on this debt so long as the one-month LIBOR is below 6.5%. The
fair value of our fixed-rate debt will increase if interest rates decrease. The
fair market value of our investments in fixed-rate debt securities will decline
if interest rates increase. See below for a discussion of how we manage this
risk.
Foreign Currency Risk
We had no significant changes in our management of, or our exposure to,
foreign currency fluctuations during the first half of 2006. However, on April
26, 2006 we received a return of capital from our investment in Jurlique
International Pty Ltd., an Australian company which we refer to as Jurlique, and
sold a portion of our investment in Jurlique representing an aggregate $21.7
million reduction in the carrying value of the investment to $8.5 million. We
continue to have a put and call arrangement whereby we have limited the overall
foreign currency risk of holding this investment through July 5, 2007. In
connection with these April 2006 transactions, we terminated a portion of the
put and call arrangement so that the remaining notional amount approximated the
value of the remaining 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 have previously adjusted 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 multi-strategy hedge fund, Deerfield Opportunities Fund, LLC, which we
refer to as the Opportunities Fund, which is managed by Deerfield and Company,
LLC, a subsidiary of ours which we refer to as Deerfield, 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. We currently intend to withdraw our
entire investments in the Opportunities Fund and the other fund managed by
Deerfield effective September 29, 2006 which would result in our no longer
consolidating the accounts of those funds. In December 2005 we invested $75.0
million in an account, which we refer to as the Equities Account, which is
managed by a management company formed by our Chairman and Chief Executive
Officer, our President and Chief Operating Officer and our Vice Chairman. The
Equities Account was invested principally in the equity securities of a limited
number of publicly-traded companies and cash equivalents as of July 2, 2006. As
of July 2, 2006, the derivatives held in our short-term investment portfolios,
principally through the Opportunities Fund and the Equities Account, consisted
of (1) interest rate swaps, (2) credit default swaps, (3) futures contracts
relating to interest rates, foreign currencies and United States government debt
securities, (4) put and call option combinations on an equity security, (5)
stock options, (6) options on foreign currency contracts and interest rate
futures and (7) bank loan total return swaps. We did not designate any of these
strategies as hedging instruments and, accordingly, all of these derivative
instruments were recorded at fair value with changes in fair value recorded in
our results of operations.
We maintain investment portfolio holdings of various issuers, types and
maturities. As of July 2, 2006 these investments were classified in our
condensed consolidated balance sheet as follows (in thousands):
Cash equivalents included in "Cash and cash equivalents"...................................$ 164,281
Short-term investments pledged as collateral............................................... 1,059,934
Other short-term investments............................................................... 604,062
Investment settlements receivable.......................................................... 1,489,395
Current and non-current restricted cash equivalents (a).................................... 1,083,729
Non-current investments.................................................................... 69,147
-------------
$ 4,470,548
=============
Certain liability positions related to investments:
Investment settlements payable..........................................................$ (1,344,882)
Securities sold under agreements to repurchase ......................................... (1,045,855)
Securities sold with an obligation to purchase included in "Other liability positions
related to short-term investments".................................................... (1,624,185)
Derivatives held in trading portfolios in liability positions included in
"Other liability positions related to short-term investments"......................... (2,208)
-------------
$ (4,017,130)
=============
- ----------------
(a) Includes non-current restricted cash equivalents of $1,939,000 included in
"Deferred costs and other assets."
Our cash equivalents are short-term, highly liquid investments with
maturities of three months or less when acquired. The cash equivalents included
in "Cash and cash equivalents" consisted principally of cash in mutual fund and
bank money market accounts, cash in interest-bearing brokerage and bank accounts
with a stable value, securities purchased under agreements to resell the
following day collateralized by United States government and government agency
debt securities and United States government debt securities. The current and
non-current restricted cash equivalents consisted principally of securities
purchased under agreements to resell within 5 days collateralized by United
States government debt securities.
At July 2, 2006 our investments were classified in the following general
types or categories (in thousands):
Carrying Value
At Fair ----------------------
Type At Cost Value (d) Amount Percent
---- ------- --------- ------ -------
Cash equivalents (a)............................$ 164,281 $ 164,281 $ 164,281 4%
Investment settlements receivable (b)........... 1,489,395 1,489,395 1,489,395 33%
Restricted cash equivalents..................... 1,083,729 1,083,729 1,083,729 24%
Investments accounted for as:
Available-for-sale securities (c).......... 85,504 101,336 101,336 2%
Trading securities......................... 1,554,319 1,541,370 1,541,370 34%
Trading derivatives........................ 246 2,249 2,249 --%
Non-current investments held in deferred
compensation trusts accounted for at cost..... 23,159 30,781 23,159 1%
Other current and non-current investments in
investment limited partnerships and similar
investment entities accounted for at cost..... 25,060 35,804 25,060 1%
Other current and non-current investments
accounted for at:
Cost....................................... 14,504 16,164 14,504 --%
Equity..................................... 17,699 27,096 21,169 1%
Fair value ................................ 4,127 4,296 4,296 --%
------------ ------------ ------------ -----
Total cash equivalents and long
investment positions..........................$ 4,462,023 $ 4,496,501 $ 4,470,548 100%
============ ============ ============ ====
Certain liability positions related to investments:
Investment settlements payable (b).........$ (1,344,882) $ (1,344,882) $ (1,344,882) N/A
Securities sold under agreements to
repurchase.............................. (1,044,403) (1,045,855) (1,045,855) N/A
Securities sold with an obligation to
purchase................................ (1,629,441) (1,624,185) (1,624,185) N/A
Derivatives held in trading portfolios in
liability positions..................... (41) (2,208) (2,208) N/A
------------ ------------ ------------
$ (4,018,767) $ (4,017,130) $ (4,017,130)
============ ============ ============
(a) Includes $1,325,000 of cash equivalents held in deferred compensation
trusts.
(b) Represents unsettled security trades as of July 2, 2006 principally in the
Opportunities Fund.
(c) Includes $8,914,000 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 $5,046,000.
(d) 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 two public companies, one of which is 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 2, 2006 for which an immediate adverse market movement causes a potential
material impact on our financial position or results of operations. We believe
that the 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
2, 2006 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............................................... $ 2,164 $ -- $ (216) $ --
Debt securities................................................. 1,539,206 (55,281) -- --
Trading derivatives in asset positions.......................... 2,249 (1,723) -- (413)
Trading derivatives in liability positions...................... (2,208) (156) (4) (77)
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 2, 2006, 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 equivalents.....................................$ 164,281 $ (2) $ -- $ --
Investment settlements receivable.................... 1,489,395 -- -- --
Restricted cash equivalents.......................... 1,083,729 (77) -- --
Available-for-sale equity securities................. 72,157 -- (7,216) --
Available-for-sale preferred shares of CDOs.......... 20,273 (1,279) -- --
Available-for-sale debt mutual fund.................. 8,906 (178) -- --
Investment in Jurlique............................... 8,504 -- (850) (603)
Other investments.................................... 79,684 (2,937) (6,024) (125)
Interest rate swaps in an asset position............. 5,057 (4,168) -- --
Foreign currency put and call arrangement in a net
liability position................................. (228) -- -- (801)
Investment settlements payable....................... (1,344,882) -- -- --
Securities sold under agreements to repurchase....... (1,045,855) (362) -- --
Securities sold with an obligation to purchase....... (1,624,185) (54,713) (612) --
Notes payable and long-term debt, excluding
capitalized lease and sale-leaseback obligations... (599,482) (26,901) -- --
The sensitivity analysis of financial instruments held at July 2, 2006 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 2, 2006, 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 (a)...................................................... 16 days 16 days
Restricted cash equivalents (a)........................................... 5 days - 16 days 5 days
CDOs underlying preferred shares.......................................... 1 year - 7 3/4 years 4 years
Debt mutual fund.......................................................... 1 day - 35 years 2 years
Debt securities included in other investments (principally
held by investment limited partnerships and similar
investment entities).................................................... (b) 10 years
- -----------------
(a) Excludes money market funds, interest-bearing brokerage and bank
accounts and securities purchased under agreements to resell the
following day which were assumed to have no interest rate risk.
(b) 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 $159.5 million and $520.1
million, respectively, as of July 2, 2006 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 securities sold under
agreements to repurchase and securities sold with an obligation to repurchase,
which are all financial instruments held almost entirely by the Opportunities
Fund, represents the potential impact an adverse change in interest rates of one
percentage point would have on the fair value of those respective instruments
and on our financial position and results of operations. The securities sold
under agreements to repurchase, although bearing fixed rates, principally have
maturities of 26 days or less which significantly limit the effect of a change
in interest rates on the respective fair values of these instruments. As of July
2, 2006, the securities sold with an obligation to repurchase represent $1,618.1
million of fixed income securities, with a weighted-average remaining maturity
of approximately 11 years, and $6.1 million of equity securities. The adverse
effects on the fair value of the respective instruments were determined based on
market standard pricing models applicable to those particular instruments which
consider variables such as coupon rate and frequency, maturity date(s), yield
and prepayment assumptions.
As of July 2, 2006, a majority of our debt was variable-rate debt and
therefore the interest rate risk presented with respect to our $584.5 million of
variable-rate notes payable and long-term debt, excluding capitalized lease and
sale-leaseback obligations, represents the potential impact an increase in
interest rates of one percentage point has on our results of operations. Our
variable-rate notes payable and long-term debt outstanding as of July 2, 2006
had a weighted average remaining maturity of approximately 5 1/2 years. However,
as discussed above under "Interest Rate Risk," we have four interest rate swap
agreements, one with an embedded written call option, on a portion of our
variable-rate debt. The interest rate risk of our variable-rate debt presented
in the table above excludes the $205.0 million for which we designated interest
rate swap agreements as cash flow hedges for the terms of the swap agreements.
As interest rates decrease, the fair market values of the interest rate swap
agreements and the written call option all decrease, but not necessarily by the
same amount in the case of the written call option and related interest rate
swap agreement. The interest rate risks presented with respect to the interest
rate swap agreements represent the potential impact the indicated change has on
the net fair value of the swap agreements and embedded written call option and
on our financial position and, with respect to the interest rate swap agreement
with the embedded written call option which was not designated as a cash flow
hedge, also our results of operations. We have only $14.9 million of fixed-rate
debt as of July 2, 2006 for which a potential impact of a decrease in interest
rates of one percentage point would have an immaterial impact on the fair value
of such debt, and is not reflected in the table above.
The foreign currency risk presented for our investment in Jurlique as of
July 2, 2006 excludes the portion of risk that is hedged by the foreign currency
put and call arrangement. For investments held since January 1, 2006 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.
RTM Restaurant Group
We acquired the RTM Restaurant Group ("RTM") on July 25, 2005. Prior to our
acquisition, RTM was privately held and had no previous public reporting
obligations with the Securities and Exchange Commission. We previously reported
in Item 9A to our Annual Report on Form 10-K for the year ended January 1, 2006
and our Quarterly Report on Form 10-Q for the three months ended April 2, 2006,
that there were certain significant deficiencies in RTM's systems, procedures
and internal control over financial reporting. Although we have made progress in
the remediation of certain of those deficiencies, significant deficiencies
continued to exist during the period covered by this Quarterly Report. To ensure
that our financial statements for the period covered by this Quarterly Report
were materially correct, we performed supplemental procedures in addition to the
normal recurring control procedures and closing processes. Based on the
additional procedures to supplement RTM's existing internal controls and
procedures, as well as the additional reviews and procedures performed by us at
the parent company (Triarc) level, we have concluded that our financial
statements as of and for the three and six months ended July 2, 2006 fairly
present, in all material respects, our financial condition, results of
operations and cash flows.
Our process of remediating these deficiencies has included the hiring of
additional staff and the planning, design and implementing of enhanced controls
and procedures. We are also in the process of documenting RTM's controls and
procedures in order to meet the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 and related regulations with respect to RTM. In that
process, we have begun to make additional control improvements to remediate
deficiencies and enable completion of the required year-end 2006 assessment of
our internal control over financial reporting and have discovered additional
deficiencies which we are also in the process of evaluating and remediating. In
addition to these initiatives, we are continuing the planning for the conversion
to new, more robust accounting systems to be used by our restaurant business,
including RTM, which we currently anticipate will be implemented in the first
half of 2007. Since these initiatives are ongoing, we cannot be certain that
additional deficiencies will not be discovered or that the existing deficiencies
or our implementation of new controls and procedures will not result in a delay
in the filing of any future periodic reports. Until our assessment is complete
and related remediation is effected, we will continue to perform supplemental
procedures necessary to ensure that our financial statements fairly present, in
all material respects, our financial condition, results of operations and cash
flows.
Change in Internal Control Over Financial Reporting
As reported in our Quarterly Report on Form 10-Q for the three months ended
April 2, 2006, we substantially completed the combination of our existing
restaurant operations with those of RTM and the relocation of the corporate
office of our restaurant group from Ft. Lauderdale, FL to new offices in
Atlanta, GA. In connection with these actions, certain of the personnel
performing the accounting procedures and executing the internal control over
financial reporting changed. Additionally, certain accounting and control
procedures relating to our existing restaurant operations are now integrated
into those procedures being performed by RTM. To the extent practicable, we have
maintained the consistency of our accounting and control procedures. We have
continued to perform supplemental procedures with respect to the accounting for
our existing restaurant operations to the extent our controls have been
integrated into those procedures of RTM. We anticipate that the ongoing
remediation associated with the significant deficiencies noted above will
continue to have a material effect on our internal control over financial
reporting. There were no other changes in our internal control over financial
reporting made during our most recent fiscal quarter that materially affected,
or are 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 and oral statements made from time to
time by representatives of the Company may contain or incorporate 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. Our forward-looking statements
are based on our expectations at the time such statements are made, speak only
as of the dates they are made 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 our forward-looking statements. For all of
our forward-looking 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 our forward-looking statements, including
those contained herein. Such factors include, but are not limited to, the
following:
o competition, including pricing pressures and the potential impact of
competitors' 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 adverse economic conditions, including high unemployment rates, in
geographic regions that contain a high concentration of Arby's
restaurants;
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 the timing and impact of acquisitions and dispositions of restaurants;
o our ability to successfully integrate acquired restaurant operations;
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 successfully;
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 (or lack of
availability of additional key personnel if needed for expansion),
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, inability to hire the necessary additional personnel 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 or the triggering of certain structural
protections built into CDOs;
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 the payment of the future installment of the special cash dividends
referred to in Item 5 below and elsewhere in this Form 10-Q (including
the amount or timing thereof) and any other future dividends, are
subject to applicable law and will be made at the discretion of our
Board based on such factors as our earnings, financial condition, cash
requirements and other factors, including whether such future
installment of the special cash dividends would result in a material
adjustment to the conversion price of our 5% Convertible Notes due 2023;
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
1, 2006 (see especially "Item 1A. 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
As previously reported in our Annual Report on Form 10-K for the fiscal
year ended January 1, 2006 (the "Form 10-K") and in our Quarterly Report for the
fiscal quarter ended April 2, 2006 (the "First Quarter Form 10-Q"), in 1998 a
number of class action lawsuits were filed on behalf of our stockholders in the
Court of Chancery of the State of Delaware in and for New Castle County. Each of
these actions named Triarc, Messrs. Nelson Peltz, our Chairman and Chief
Executive Officer and a director of Triarc, and Peter W. May, our President and
Chief Operating Officer and a director of Triarc, and the other then directors
of Triarc 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 sought, 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. On
October 24, 2005, plaintiffs filed a motion asking the court to dismiss the
action as moot, but to retain jurisdiction for the limited purpose of
considering a subsequent application by plaintiffs for legal fees and expenses.
The plaintiffs' motion to dismiss the action as moot was granted on October 27,
2005. On December 13, 2005, plaintiffs filed a motion seeking $250,000 in fees
and $6,225 for reimbursement of expenses. On March 29, 2006, the court entered
an order awarding plaintiffs $75,000 in fees and expenses. On April 28, 2006,
defendants filed a notice of appeal. On June 9, 2006, the parties entered into
an agreement pursuant to which, among other things, Triarc paid the $75,000 of
fees and expenses awarded by the court and the defendants withdrew their appeal.
As previously reported in our Form 10-K and our First Quarter Form 10-Q, in
November 2002, Access Now, Inc. and Edward Resnick, later replaced by Christ
Soter Tavantzis, on their own behalf and on the 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 ours following our acquisition of the 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 their restaurants. The complaint does not seek monetary damages, but
does seek attorneys' fees. Without admitting liability, RTM entered into a
settlement 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. ARG 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 agreement
was submitted to the court for approval on August 13, 2004. On April 7, 2005 the
court held a fairness hearing on the matter. Prior to the fairness hearing, the
parties jointly amended the proposed settlement agreement to clarify certain
provisions and to add new provisions regarding policies, training programs and
invoicing requirements. By orders dated January 30, 2006 and April 7, 2006, the
court granted the parties leave to make the amendments and a fairness hearing
regarding the amendments was held on June 14, 2006. The court has not yet ruled
on the proposed settlement.
Item 1A. Risk Factors.
In addition to the information contained in this report, you should
carefully consider the risk factors disclosed in our Form 10-K, which could
materially affect our business, financial condition or future results. There
were no material changes from the risk factors previously disclosed in our Form
10-K during the fiscal quarter ended July 2, 2006.
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 2006:
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 Per Publicly Announced Plan May Yet Be Purchased
Period Shares Purchased Share (1) Under the Plan (1)
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
April 3, 2006 --- --- --- $50,000,000
through
April 30, 2006
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
May 1, 2006 2,268 Class B(2) $16.70 ---
through $50,000,000
May 28, 2006
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
May 29, 2006
through --- --- --- $50,000,000
July 2, 2006
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
Total 2,268 Class B(2) $16.70 --- $50,000,000
- -------------------------- ---------------------- --------------------------- -------------------------- -------------------------
<FN>
(1) On May 11, 2006, 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, 2007 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, Series 1.
During the third fiscal quarter of 2005, we repurchased one share of Class
A Common Stock and two shares of Class B Common Stock, Series 1. No
transactions were effected under our stock repurchase program during the
second fiscal quarter of 2006.
(2) Reflects an aggregate of 2,268 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.
</FN>
During the second fiscal quarter, $1,604,000 principal amount of our 5%
Convertible Notes due 2023 were converted in accordance with the indenture for
such notes. In connection with such conversion we issued 25,000 shares of Class
A Common Stock and 50,000 shares of Class B Common Stock, Series 1 prior to July
2, 2006 and 15,100 shares of Class A Common Stock and 30,200 shares of Class B
Common Stock, Series 1 subsequent to July 2, 2006.
Item 4. Submission of Matters to a Vote of Security Holders.
On June 7, 2006, 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., Russell V. Umphenour, Jr. and
Jack G. Wasserman were elected to serve as Directors. Stockholders also approved
Proposal 2, an amendment to the Company's Amended and Restated 2002 Equity
Participation 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 31,414,540.0 351,701.0
Peter W. May 31,476,822.0 289,419.0
Hugh L. Carey 31,476,378.0 289,863.0
Clive Chajet 31,087,967.0 678,274.0
Edward P. Garden 31,445,777.0 320,464.0
Joseph A. Levato 30,515,967.0 1,247,274.0
Gregory H. Sachs 31,443,764.0 322,477.0
David E. Schwab II 31,087,507.0 678,734.0
Raymond S. Troubh 30,643,164.0 1,123,077.0
Gerald Tsai, Jr. 30,922,219.0 844,022.0
Russell V. Umphenour, Jr. 30,992,798.0 773,443.0
Jack G. Wasserman 31,123,413.0 642,828.0
Proposal 2 - There were 24,617,588 votes for, 2,866,666 votes against
and 397,441 abstentions. There were 3,884,546 broker non-votes
for this item.
Proposal 3 - There were 31,655,855 votes for, 83,918 votes against and
26,468 abstentions. There were no broker non-votes for this
item.
Item 5. Other Information.
Potential Corporate Restructuring; Declaration of Special Dividend
As previously reported in our Form 10-K, we are continuing to explore the
feasibility, as well as the risks and opportunities, of a corporate
restructuring that may involve the spin-off to our stockholders or other
disposition of our ownership interest in Deerfield, our alternative asset
management business. In connection with the potential restructuring, on January
26, 2006, in addition to our regular quarterly dividends, we announced our
intention to declare and pay during 2006 special cash dividends aggregating
$0.45 per share on each outstanding share of our Class A Common Stock and Class
B Common Stock, Series 1, the first installment of which, in the amount of $0.15
per share, was paid on March 1, 2006 and the second installment of which, in the
amount of $0.15 per share, was paid on July 14, 2006 to holders of record on
June 30, 2006. Although it is currently contemplated that the third and final
installment of such special cash dividends aggregating $0.15 per share on each
outstanding share of our Class A Common Stock and Class B Common Stock will be
paid in the fourth fiscal quarter of 2006, the declaration and payment of such
additional special cash dividends is subject to applicable law, will be made at
the discretion of our Board of Directors and will be based on such factors as
our earnings, financial condition, cash requirements and other factors,
including whether such future installments of the special dividends will result
in a material adjustment to the conversion price of the Notes. Accordingly,
there can be no assurance that such third and final installment of such
additional special cash dividends will be declared or paid, or of the amount or
timing of such dividends, if any. Options for our other non-restaurant assets
and liabilities are also under review and could include the allocation of these
other assets and liabilities between our two businesses (Arby's and Deerfield)
and/or additional special dividends or distributions to shareholders.
If we proceed with a restructuring, various arrangements relating to the
separation of the affected businesses would be necessary, the terms of which
would depend on the nature of the restructuring. We also have employment
agreements and severance arrangements with certain of our executive officers and
corporate employees. A restructuring could also entail significant severance or
contractual settlement payments under these agreements and arrangements. In the
case of certain of our executive officers, any payments will be subject to
negotiation and approval by a special committee comprised of independent members
of our Board of Directors. There can be no assurance that the corporate
restructuring will occur or of the form, terms or timing of such restructuring
if it does occur. Other than as described herein, as of the date hereof, the
Board of Directors has not reached any definitive conclusions concerning the
scope, benefits or timing of the corporate restructuring.
Regular Quarterly Cash Dividends
On August 10, 2006 our Board of Directors approved the payment of regular
quarterly cash dividends of $0.08 per share on our Class A Common Stock and
$0.09 per share on our Class B Common Stock, Series 1. The record date for the
regular quarterly cash dividends is September 1, 2006 and the payment date is
September 15, 2006. While the Certificate of Designation for the Class B Common
Stock, Series 1 provides that the Class B Common Stock, Series 1 is entitled,
through September 4, 2006, to receive regular quarterly cash dividends that are
at least 110% of any regular quarterly cash dividends that are paid on the Class
A Common Stock, on August 10, 2006 our Board determined that until December 31,
2006 the Company will continue to pay regular quarterly cash dividends at that
higher rate on the Class B Common Stock, Series 1, if any regular quarterly cash
dividends are paid on our Class A Common Stock. Our Board of Directors has not
yet made any determination of the relative amounts of any regular quarterly cash
dividends that will be paid on the Class A Common Stock and Class B Common
Stock, Series 1 after December 31, 2006. There can be no assurance that any
additional regular quarterly cash dividends will be declared or paid, or of the
amount or timing of such dividends, if any.
Item 6. Exhibits.
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).
10.1 Amendment and Waiver No. 1, dated as of May 1, 2006 to that certain 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, 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. *
10.2 Employment Agreement dated April 13, 2006 between Arby's Restaurant Group,
Inc. and Roland C. Smith, incorporated herein by reference to Exhibit 10.1
to Triarc's Current Report on Form 8-K dated April 17, 2006 (SEC file no.
1-2207).
10.3 Letter Agreement dated April 14, 2006 between Arby's Restaurant Group, Inc.
and Douglas N. Benham, incorporated herein by reference to Exhibit 10.2 to
Triarc's Current Report on Form 8-K dated April 17, 2006 (SEC file no.
1-2207).
10.4.Letter Agreement dated April 28, 2006 between Triarc and Francis T.
McCarron, incorporated herein by reference to Exhibit 10.1 to Triarc's
Current Report on Form 8-K dated May 2, 2006 (SEC file no. 1-2207).
10.5 Amendment No. 1 to Triarc Companies, Inc. Amended and Restated 2002 Equity
Participation Plan, incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated June 7, 2006 (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 11, 2006 By:/s/FRANCIS T. MCCARRON
--------------------------------------
Francis T. McCarron
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
Date: August 11, 2006 By: /s/ FRED H. SCHAEFER
--------------------------------------
Fred H. Schaefer
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Exhibit Index
-------------
Exhibit
No. Description
- ------- -----------
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).
10.1 Amendment and Waiver No. 1, dated as of May 1, 2006 to that certain 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, 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. *
10.2 Employment Agreement dated April 13, 2006 between Arby's Restaurant Group,
Inc. and Roland C. Smith, incorporated herein by reference to Exhibit 10.1
to Triarc's Current Report on Form 8-K dated April 17, 2006 (SEC file no.
1-2207).
10.3 Letter Agreement dated April 14, 2006 between Arby's Restaurant Group, Inc.
and Douglas N. Benham, incorporated herein by reference to Exhibit 10.2 to
Triarc's Current Report on Form 8-K dated April 17, 2006 (SEC file no.
1-2207).
10.4.Letter Agreement dated April 28, 2006 between Triarc and Francis T.
McCarron, incorporated herein by reference to Exhibit 10.1 to Triarc's
Current Report on Form 8-K dated May 2, 2006 (SEC file no. 1-2207).
10.5 Amendment No. 1 to Triarc Companies, Inc. Amended and Restated 2002 Equity
Participation Plan, incorporated herein by reference to Exhibit 10.1 to
Triarc's Current Report on Form 8-K dated June 7, 2006 (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 10.1
AMENDMENT AND WAIVER NO. 1
AMENDMENT AND WAIVER N0. 1 (this "Amendment"), dated as of May 1,
2006, to that certain CREDIT AGREEMENT (the "Credit Agreement;" terms used
herein without definition herein having the meanings assigned thereto therein),
dated as of July 25, 2005, among ARBY'S RESTAURANT GROUP, INC., a Delaware
corporation ("Borrower"), ARBY'S RESTAURANT HOLDINGS, LLC, a Delaware limited
liability company ("Co-Borrower" and, together with Borrower, "Borrowers"),
TRIARC RESTAURANT HOLDINGS, LLC, a Delaware limited liability company, the
Lenders, the Issuers, CITICORP NORTH AMERICA, INC., as administrative agent for
the Lenders and the Issuers (in such capacity, the "Administrative Agent") and
as collateral agent for the Secured Parties (in such capacity, the "Collateral
Agent"), BANK OF AMERICA, N.A. and CREDIT SUISSE, CAYMAN ISLANDS BRANCH, as
co-syndication agents for the Lenders and the Issuers, and Wachovia Bank,
National Association, SunTrust Bank and GE CAPITAL FRANCHISE FINANCE
CORPORATION, as co-documentation agents for the Lenders and the Issuers.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested additional time to comply with
Section 6.1 of the Credit Agreement with respect to the Fiscal Year ended
January 1, 2006;
WHEREAS, pursuant to Section 11.1 of the Credit Agreement the Lenders
desire to enter into this Amendment;
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION One - Waiver. Subject to the satisfaction of the conditions
set forth in Section Three hereof, the Borrower need not furnish the items
required by Sections 6.1(b), 6.1(c) and 6.1(d) with respect to the Fiscal Year
ended January 1, 2006 until 135 days after the end of such Fiscal Year.
SECTION Two - Amendment. Subject to the satisfaction of the conditions
set forth in Section Three hereof:
(a) Section 6.1(a) of the Credit Agreement is amended in its entirety
to read as follows:
Quarterly Reports. Within 60 days after the end of each of the first
three Fiscal Quarters of each Fiscal Year (or within three Business
Days following such earlier date on which Co-Borrower, Parent or
Borrower is required to file a Form 10-Q under the Exchange Act),
financial information regarding Borrower and its Subsidiaries
consisting of Consolidated unaudited balance sheets of Borrower and
its Subsidiaries as of the close of such quarter and the related
statements of income and cash flow for such quarter and that portion
of the Fiscal Year ending as of the close of such quarter setting
forth in comparative form the figures for the corresponding period in
the prior year (provided that Borrower shall not be required to
provide comparative figures for any such corresponding period ended
prior to September 30, 2005), and budgeted amounts, in each case
(other than budgeted amounts) certified by a Responsible Officer of
Borrower as fairly presenting in all material respects the
Consolidated financial position of Borrower and its Subsidiaries as at
the dates indicated and the results of their operations and cash flow
for the periods indicated in accordance with GAAP (subject to the
absence of footnote disclosure and normal year-end audit adjustments).
In addition, Borrower shall provide a separate schedule displaying a
consolidating balance sheet and statements of income and cash flows
separating out Co-Borrower, Parent, Borrower and each Unrestricted
Subsidiary (which shall be required only if Borrower has, or during
such Fiscal Quarter had, any Unrestricted Subsidiaries) certified by a
Responsible Officer of Borrower as fairly presenting in all material
respects the information set forth therein in a manner consistent with
Borrower's internal consolidating schedules that support the
Consolidated financial statements of Borrower referred to above.
(b) Section 6.1(b) of the Credit Agreement is amended in its entirety
to read as follows:
Annual Reports. Within 120 days after the end of each Fiscal Year (or
within three Business Days following such earlier date on which
Co-Borrower, Parent or Borrower is required to file a Form 10-K under
the Exchange Act), financial information regarding Borrower and its
Subsidiaries consisting of Consolidated balance sheets of Borrower and
its Subsidiaries as of the end of such year and related statements of
income and cash flows of Borrower and its Subsidiaries for such Fiscal
Year, and notes thereto, all prepared in accordance with GAAP and
audited, without qualification, by Borrower's Accountants, together
with the report of such accounting firm stating that (i) such
Financial Statements fairly present in all material respects the
Consolidated financial position of Borrower and its Subsidiaries as at
the dates indicated and the results of their operations and cash flow
for the periods indicated in accordance with GAAP applied on a basis
consistent with prior years (except for changes with which Borrower's
Accountants shall concur and that shall have been disclosed in the
notes to the Financial Statements) and (ii) the examination by
Borrower's Accountants in connection with such Consolidated Financial
Statements has been made in accordance with generally accepted
auditing standards. In addition, Borrower shall provide a separate
schedule displaying a consolidating balance sheet and statements of
income and cash flows separating out Co-Borrower, Parent, Borrower and
each Unrestricted Subsidiary (if Borrower has, or during such Fiscal
Year had, any Unrestricted Subsidiaries) certified by a Responsible
Officer of Borrower as fairly presenting in all material respects the
information set forth therein in a manner consistent with Borrower's
internal consolidating schedules that support the Consolidated
financial statements of Borrower referred to above.
SECTION Three - Conditions to Effectiveness. This Amendment shall
become effective when, and only when, the Administrative Agent shall have
received counterparts of this Amendment executed by the Borrowers and consents
to this Amendment executed by the Requisite Lenders. The effectiveness of this
Amendment (other than Sections Six, Seven and Eight hereof) is conditioned upon
the accuracy of the representations and warranties set forth in Section Four
hereof. This Amendment, when effective shall be deemed effective as of April 21,
2006.
SECTION Four - Representations and Warranties; Covenants. In order to
induce the Lenders to enter into this Amendment, the Borrowers represent and
warrant to each of the Lenders and the Agents that after giving effect to this
Amendment, (x) no Default or Event of Default has occurred and is continuing
under the Credit Agreement; and (y) the representations and warranties made by
the Borrowers in the Credit Agreement are true and correct in all material
respects (except that any representation or warranty that is qualified as to
"materiality" or "Material Adverse Effect" is true and correct in all respects)
on and as of the date hereof with the same force and effect as if made on and as
of the date hereof (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific date).
SECTION Five - Reference to and Effect on the Credit Agreement. On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof" or words of like import
referring to the Credit Agreement shall mean and be a reference to the Credit
Agreement, as amended by this Amendment. The Credit Agreement as specifically
amended by this amendment is and shall continue to be in full force and effect
and is hereby in all respects ratified and confirmed. The execution, delivery
and effectiveness of this Amendment shall not, except as expressly provided
herein, operate as an amendment or waiver of any right, power or remedy of any
Lender or any Agent under the Credit Agreement, nor constitute an amendment or
waiver of any provision of the Credit Agreement.
SECTION Six - Costs, Expenses and Taxes. The Borrowers agree to pay
all reasonable costs and expenses of the Agents in connection with the
preparation, execution and delivery of this Amendment (including, without
limitation, the reasonable fees and expenses of Cahill Gordon & Reindel LLP), if
any, in accordance with the terms of Section 11.3 of the Credit Agreement.
SECTION Seven - Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by facsimile shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION Eight - Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the day and year first above written.
ARBY'S RESTAURANT GROUP, INC.,
as Borrower
By: /s/TODD WEYHRICH
--------------------------------------
Name: Todd Weyhrich
Title: Chief Financial Officer
ARBY'S RESTAURANT HOLDINGS, LLC,
as Co-Borrower
By: /s/TODD WEYHRICH
---------------------------------------
Name: Todd Weyhrich
Title: Chief Financial Officer
CITICORP NORTH AMERICA, INC.,
as Administrative Agent
By: /s/ROB ZIEMER
--------------------------------------
Name: Rob Ziemer
Title: Vice President
ACA CLO 2005-1, Limited
ACA Management, LLC as
Investment Advisor
As a Lender
By: /s/VINCENT INGATO
--------------------------------------
Name: Vincent Ingato
Title: Managing Director
AMMC CDO II, LIMITED
By: American Money Management Corp.,
as Collateral Manager
By: /s/CHESTER M. ENG
-------------------------------------
Name: Chester M. Eng
Title: Senior Vice President
AMMC CLO III, LIMITED
By: American Money Management Corp.,
as Collateral Manager
By: /s/CHESTER M. ENG
------------------------------------
Name: Chester M. Eng
Title: Senior Vice President
AMMC CLO IV, LIMITED
By: American Money Management Corp.,
as Collateral Manager
By: /s/CHESTER M. ENG
--------------------------------------
Name: Chester M. Eng
Title: Senior Vice President
AMMC CLO V, LIMITED
By: American Money Management Corp.,
as Collateral Manager
By: /s/CHESTER M. ENG
------------------------------------
Name: Chester M. Eng
Title: Senior Vice President
AVENUE CLO FUND, LIMITED
AVENUE CLO II, LIMITED
as a Lender
By: /s/RICHARD D'ADDARIO
------------------------------------
Name: Richard D'Addario
Title: Senior Portfolio Manager
BALLANTYNE FUNDING LLC
As a Lender
By: /s/CHRISTINA L. RAMSEUR
--------------------------------------
Name: Christina L. Ramseur
Title: Assistant Vice President
BANK OF AMERICA, N.A.
As a Lender
By: /s/JAY R. GOLDSTEIN
------------------------------------
Name: Jay R. Goldstein
Title: Principal
CROSS CREEK FUNDING LLC
As a Lender
By: /s/CHRISTINA L. RAMSEUR
--------------------------------------
Name: Christina L. Ramseur
Title: Assistant Vice President
BLUE MOUNTAIN CLO LTD.
As a Lender
By: /s/CHARLES KOBOYASHI
------------------------------------
Name: Charles Koboyashi
Title: Director
ATLAS LOAN FUNDING (Navigator), LLC
By: Atlas Capital Funding, Ltd.
By: Structured Asset Investors, LLC
Its Investment Manager
By: /s/DIANA M. HIMES
------------------------------------
Name: Diana M. Himes
Title: Associate
ATLAS LOAN FUNDING 2, LLC
By: Atlas Capital Funding, Ltd.
By: Structured Asset Investors, LLC
Its Investment Manager
By: /s/DIANA M. HIMES
-------------------------------------
Name: Diana M. Himes
Title: Associate
CPL CBNA LOAN FUNDING LLC, for
itself or as agent for
CPL CFPI LOAN FUNDING, LLC,
As a Lender
By: /s/ROY HYKAL
------------------------------------
Name: Roy Hykal
Title: Attorney-in-fact
WB LOAN FUNDING 4, LLC
By: /s/DIANA M. HIMES
------------------------------------
Name: Diana M. Himes
Title: Associate
WHITNEY CLO I, LTD.
As a Lender
By: /s/JOHN M. CAMPARIAN
-------------------------------------
Name: John M. Camparian
Title: Chief Operating Officer
(Manager)
Central Pacific, LLC
CITICORP NORTH AMERICA INC.
As a Lender
By: /s/PETER BENOIST
------------------------------------
Name: Peter Benoist
Title: Vice President
COMMERZBANK AG, New York and Grand Cayman Branches,
As a Lender
By: /s/ISABEL S. ZEISSIG
------------------------------------
Name: Isabel S. Zeissig
Title: Vice President
By: /s/CHARLES W. POLET
-----------------------------------
Name: Charles W. Polet
Title: Assistant Treasurer
ATRIUM CDO
As a Lender
By: /s/LINDA R. KARN
------------------------------------
Name: Linda R. Karn
Title: Authorized Signatory
ATRIUM IV
As a Lender
By: /s/LINDA R. KARN
------------------------------------
Name: Linda R. Karn
Title: Authorized Signatory
ATRIUM V
As a Lender
By: /s/LINDA R. KARN
------------------------------------
Name: Linda R. Karn
Title: Authorized Signatory
CASTLE GARDEN FUNDING
As a Lender
By: /s/LINDA R. KARN
-----------------------------------
Name: Linda R. Karn
Title: Authorized Signatory
CREDIT SUISSE INTERNATIONAL
As a Lender
By: /s/Authorized Signatory
------------------------------
Name:
Title:
By: /s/STEVE MARTIN
----------------------------------
Name: Steve Martin
Title: Vice President
CREDIT SUISSE, CAYMAN ISLANDS
As a Lender
By: /s/BILL O'DALY
------------------------------------
Name: Bill O'Daly
Title: Director
By: /s/RIANKA MOHAN
-----------------------------------
Name: Rianka Mohan
Title: Associate
CSAM FUNDING II
As a Lender
By: /s/LINDA R. KARN
-----------------------------------
Name: Linda R. Karn
Title: Authorized Signatory
MADISON PARK FUNDING II, LTD.
As a Lender
By: /s/LINDA R. KARN
-----------------------------------
Name: Linda R. Karn
Title: Authorized Signatory
MADISON PARK FUNDING III, LTD.
As a Lender
By: /s/LINDA R. KARN
------------------------------------
Name: Linda R. Karn
Title: Authorized Signatory
ROBSON TRUST
As a Lender
By: /s/LINDA R. KARN
------------------------------------
Name: Linda R. Karn
Title: Authorized Signatory
CYPRESSTREE CLAIF FUNDING LLC
As a Lender
By: /s/CHRISTINA L. RAMSEUR
---------------------------------------
Name: Christina L. Ramseur
Title: Assistant Vice President
HEWETT'S ISLAND CLO III, LTD.
By: CypressTree Investment Management
Company, Inc.,
As Portfolio Manager
By: /s/ROBERT WEEDEN
------------------------------------
Name: Robert Weeden
Title: Managing Director
INVESTORS BANK & TRUST COMPANY
AS SUB-CUSTODIAN AGENT OF
CYPRESSTREE INTERNATIONAL LOAN
HOLDING COMPANY LIMITED
By: /s/MARTHA HADELER
------------------------------------
Name: Martha Hadeler
Title: Managing Director
By: /s/ROBERT WEEDEN
------------------------------------
Name: Robert Weeden
Title: Managing Director
DUANE STREET CLO 1, LTD.
By: DiMaio Ahmad Capital LLC,
As Collateral Manager
By: /s/PAUL TRAVERS
------------------------------------
Name: Paul Travers
Title: Managing Director
BALLYROCK CLO III LIMITED
By: BALLYROCK INVESTMENT
ADVISORS LLC,
As Collateral Manager
By: /s/LISA RYMUT
------------------------------------
Name: Lisa Rymut
Title: Assistant Treasurer
FIDELITY ADVISOR SERIES II:
FIDELITY ADVISOR FLOATING RATE
HIGH INCOME FUND
As a Lender
By: /s/JOHN H. COSTELLO
------------------------------------
Name: John H. Costello
Title: Assistant Treasurer
FIDELITY CENTRAL INVESTMENT
PORTFOLIOS LLC: FIDELITY FLOATING
RATE CENTRAL INVESTMENT PORTFOLIO
As a Lender
By: /s/JOHN H. COSTELLO
------------------------------------
Name: John H. Costello
Title: Assistant Treasurer
NANTUCKET CLO I LTD
By: Fortis Investment Management USA, Inc.,
As Attorney-in-Fact
As a Lender
By: /s/JEFFREY MAGAR
------------------------------------
Name: Jeffrey Magar
Title: Vice President
BLUE SHIELD OF CALIFORNIA
As a Lender
By: /s/DAVID ARDINI
-----------------------------------
Name: David Ardini
Title: Vice President
FRANKLIN CLO II, LIMITED
As a Lender
By: /s/DAVID ARDINI
-----------------------------------
Name: David Ardini
Title: Vice President
FRANKLIN CLO IV, LIMITED
As a Lender
By: /s/DAVID ARDINI
------------------------------------
Name: David Ardini
Title: Vice President
FRANKLIN CLO V, LTD
As a Lender
By: /s/DAVID ARDINI
------------------------------------
Name: David Ardini
Title: Vice President
FRANKLIN FLOATING RATE
DAILY ACCESS FUND
As a Lender
By: /s/RICHARD HSU
------------------------------------
Name: Richard Hsu
Title: Vice President
FRANKLIN FLOATING RATE
MASTER SERIES
As a Lender
By: /s/RICHARD HSU
-----------------------------------
Name: Richard Hsu
Title: Vice President
GE CAPITAL FRANCHISE FINANCE
CORPORATION
As a Lender
By: /s/GAVRAV RANIWALA
------------------------------------
Name: Gavrav Raniwala
Title: Authorized Signatory
GREENWICH INTERNATIONAL LTD.
As a Lender
By: /s/KEVIN CAVANAUGH
------------------------------------
Name: Kevin Cavanaugh
Title: Senior Vice President
GSC PARTNERS CDO FUND IV, LIMITED
As a Lender
By: GSCP (NJ), L.P., as Collateral Manager
By: /s/SETH KATZENSTEIN
------------------------------------
Name: Seth Katzenstein
Title: Authorized Signatory
GSC Partners
GSC PARTNERS CDO FUND VI, LIMITED
As a Lender
By: GSCP (NJ), L.P., as Collateral Manager
By: /s/SETH KATZENSTEIN
------------------------------------
Name: Seth Katzenstein
Title: Authorized Signatory GSC Partners
GSC PARTNERS CDO FUND VII, LIMITED
As a Lender
By: GSCP (NJ), L.P., as Collateral Manager
By: /s/SETH KATZENSTEIN
------------------------------------
Name: Seth Katzenstein
Title: Authorized Signatory
GSC Partners
GSC CAPITAL CORP. LOAN FUNDING 2005-1,
As a Lender
By: GSCP (NJ), L.P., as Collateral Manager
By: /s/SETH KATZENSTEIN
------------------------------------
Name: Seth Katzenstein
Title: Authorized Signatory
GSC Partners
HARCH CLO II LIMITED
As a Lender
By: /s/MICHAEL E. LEWITT
------------------------------------
Name: Michael E. Lewitt
Title: Authorized Signatory
ING CAPITAL LLC
As a Lender
By: /s/LINA A. GARCIA
-----------------------------------
Name: Lina A. Garcia
Title: Vice President
AIM FLOATING RATE FUND
By: INVESCO Senior Secured Management, Inc.
As Sub-Adviser
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
ALZETTE EUROPEAN CLO S.A.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
CHAMPLAIN CLO, LTD.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
CHARTER VIEW PORTFOLIO
By: INVESCO Senior Secured Management, Inc.
As Investment Advisor
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
DIVERSIFIED CREDIT PORTFOLIO LTD.
By: INVESCO Senior Secured Management, Inc.
As Investment Advisor
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
INVESCO EUROPEAN CDO I.S.A.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
KATONAH V, LTD.
By: INVESCO Senior Secured Management, Inc.
As Investment Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
LOAN FUNDING IX LLC, for itself or as agent for Corporate
Loan Funding IX LLC
By: INVESCO Senior Secured Management, Inc.
As Portfolio Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
MOSELLE CLO S.A.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
NAUTIQUE FUNDING LTD.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
PETRUSSE EUROPEAN CLO S.A.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
SAGAMORE CLO LTD.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
SARATOGA CLO I, LIMITED
By: INVESCO Senior Secured Management, Inc.
As the Asset Manager
By: /s/THOMAS H.B. EWALD
------------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
SEQUILS-LIBERTY, LTD.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
-----------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
KATONAH VII CLO LTD.
As a Lender
By: /s/DANIEL GILLIGAN
------------------------------------
Name: Daniel Gilligan
Title: Authorized Officer
Katonah Debt Advisors, LLC
As Manager
KATONAH VIII CLO LTD.
As a Lender
By: /s/DANIEL GILLIGAN
------------------------------------
Name: Daniel Gilligan
Title: Authorized Officer
Katonah Debt Advisors, LLC
As Manager
Sparks CFPI Loan Funding LLC
By: /s/ROY HYKAL
------------------------------------
Name: Roy Hykal
Title: Attorney-in-fact
Premium Loan Trust I, Ltd.
Light Point CLO III, Ltd.
Light Point CLO IV, Ltd.
Light Point CLO V, Ltd.
As a Lender
By: /s/TIMOTHY S. VAN KIRK
------------------------------------
Name: Timothy S. Van Kirk
Title: Managing Director
Latitude CLO I, Ltd.
As a Lender
By: /s/CHAUNCEY LUFKIN
------------------------------------
Name: Chauncey Lufkin
LCM I LIMITED PARTNERSHIP
By: Lyon Capital Management LLC,
As Collateral Manager
As a Lender
By: /s/ALEXANDER B. KENNA
--------------------------------------
Name: Lyon Capital Management LLC
Alexander B. Kenna
Portfolio Manager
LCM II LIMITED PARTNERSHIP
By: Lyon Capital Management LLC,
As Collateral Manager
As a Lender
By: /s/ALEXANDER B. KENNA
--------------------------------------
Name: Lyon Capital Management LLC
Alexander B. Kenna
Portfolio Manager
LCM III, Ltd.
By: Lyon Capital Management LLC,
As Collateral Manager
As a Lender
By: /s/ALEXANDER B. KENNA
--------------------------------------
Name: Lyon Capital Management LLC
Alexander B. Kenna
Portfolio Manager
LCM IV, Ltd.
By: Lyon Capital Management LLC,
As Collateral Manager
As a Lender
By: /s/ALEXANDER B. KENNA
---------------------------------------
Name: Lyon Capital Management LLC
Alexander B. Kenna
Portfolio Manager
Venture CDO 2002,
Limited By its
investment advisor,
MJX Asset Management
LLC As a Lender
By: /s/HANS L. CHRISTENSEN
------------------------------------
Name: Hans L. Christensen
Title: Chief Investment Officer
Venture II CDO 2002,
Limited By its
investment advisor,
MJX Asset Management
LLC As a Lender
By: /s/HANS L. CHRISTENSEN
------------------------------------
Name: Hans L. Christensen
Title: Chief Investment Officer
Venture III CDO
Limited By its
investment advisor,
MJX Asset Management
LLC As a Lender
By: /s/HANS L. CHRISTENSEN
------------------------------------
Name: Hans L. Christensen
Title: Chief Investment Officer
Venture IV CDO
Limited By its
investment advisor,
MJX Asset Management
LLC As a Lender
By: /s/HANS L. CHRISTENSEN
------------------------------------
Name: Hans L. Christensen
Title: Chief Investment Officer
Venture V CDO
Limited By its
investment advisor,
MJX Asset Management
LLC As a Lender
By: /s/HANS L. CHRISTENSEN
------------------------------------
Name: Hans L. Christensen
Title: Chief Investment Officer
Vista Leveraged Income Fund
By its investment advisor,
MJX Asset Management LLC
As a Lender
By: /s/HANS L. CHRISTENSEN
------------------------------------
Name: Hans L. Christensen
Title: Chief Investment Officer
Addison CDO, Limited
By: Pacific Investment Management Company LLC, as its
Investment Advisor
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
Fairway Loan Funding Company
By: Pacific Investment Management Company LLC, as its
Investment Advisor
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
Global Enhanced Loan Fund S.A.
By: Pacific Investment Management Company LLC, as its
Investment Advisor
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
Loan Funding III LLC
By: Pacific Investment Management Company LLC, as its
Investment Advisor
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
PIMCO Floating Rate Income Fund
By: Pacific Investment Management Company LLC, as its
Investment Advisor, acting through Investors
Fiduciary Trust
Company in the Nominee Name of IFTCO
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
PIMCO Floating Rate Strategy Fund
By: Pacific Investment Management Company LLC, as its
Investment Advisor, acting through Investors
Fiduciary Trust
Company in the Nominee Name of IFTCO
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
SEQUILS-MAGNUM, LTD.
By: Pacific Investment Management Company LLC, as its
Investment Advisor
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
Southport CLO, Limited
By: Pacific Investment Management Company LLC, as its
Investment Advisor
By: /s/MOHAN V. PHANSALKAR
----------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
Waveland - INGOTS, LTD.
By: Pacific Investment Management Company LLC, as its
Investment Advisor
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
Wrigley CDO, Ltd.
By: Pacific Investment Management Company LLC, as its
Investment Advisor
By: /s/MOHAN V. PHANSALKAR
---------------------------------------
Name: Mohan V. Phansalkar
Title: Managing Director
Vernizs CLO II, Ltd.
as a Lender
By: /s/JOHN RANDOLPH WATKINS
-------------------------------------------
Name: John Randolph Watkins
Title: Executive Director
HUDSON STRAITS CLO 2004, LTD.
By: GSO Capital Partners LP
as Collateral Manager
By: /s/LEE M. SHAIMAN
----------------------------------
Name: Lee M. Shaiman
Title: Authorized Signatory
Sun Life Assurance Company of Canada (US)
By: GSO Capital Partners LP as Sub-Advisor
By: /s/LEE M. SHAIMAN
----------------------------------
Name: Lee M. Shaiman
Title: Authorized Signatory
SunTrust Bank
As a Lender
By: /s/SUSAN M. HALL
----------------------------
Name: Susan M. Hall
Title: Managing Director
AVALON CAPITAL LTD. 3
By: INVESCO Senior Secured Management, Inc.
As Asset Manager
By: /s/THOMAS H.B. EWALD
----------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
BELHURST CLO LTD.
By: INVESCO Senior Secured Management, Inc.
As Collateral Manager
By: /s/THOMAS H.B. EWALD
----------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
CHARTER VIEW PORTFOLIO
By: INVESCO Senior Secured Management, Inc.
As Investment Advisor
By: /s/THOMAS H.B. EWALD
----------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
DIVERSIFIED CREDIT PORTFOLIO LTD.
By: INVESCO Senior Secured Management, Inc.
As Investment Advisor
By: /s/THOMAS H.B. EWALD
----------------------------------
Name: Thomas H.B. Ewald
Title: Authorized Signatory
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 11, 2006
/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 11, 2006
/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 2, 2006 (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 11, 2006
/s/ NELSON PELTZ
-----------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
Dated: August 11, 2006
/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.