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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 29, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to _______________
Commission file number: 1-2207
------
TRIARC COMPANIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 38-0471180
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue, New York, New York 10017
----------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 451-3000
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(X) Yes ( ) No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
(X) Yes ( )No
There were 19,588,173 shares of the registrant's Class A Common Stock
outstanding as of July 31, 2003.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, June 29,
2002 (A) 2003
-------- ----
(In Thousands)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.........................................................$ 457,472 $ 561,948
Short-term investments............................................................ 175,161 192,697
Receivables....................................................................... 12,967 11,687
Inventories....................................................................... 2,274 2,348
Deferred income tax benefit....................................................... 15,037 15,477
Prepaid expenses and other current assets......................................... 6,471 7,399
---------- -----------
Total current assets........................................................... 669,382 791,556
Restricted cash equivalents............................................................ 32,476 32,469
Investments............................................................................ 34,717 34,740
Properties............................................................................. 115,224 110,902
Goodwill .............................................................................. 90,689 90,789
Other intangible assets................................................................ 8,291 8,182
Deferred costs and other assets........................................................ 16,604 21,837
---------- -----------
$ 967,383 $ 1,090,475
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................................$ 34,422 $ 34,589
Accounts payable ................................................................. 18,998 17,032
Accrued expenses.................................................................. 73,338 85,150
Net current liabilities relating to discontinued operations....................... 33,083 36,844
---------- -----------
Total current liabilities...................................................... 159,841 173,615
Long-term debt......................................................................... 352,700 501,192
Deferred compensation payable to related parties....................................... 25,706 27,665
Deferred income taxes.................................................................. 60,070 59,543
Other liabilities, deferred income and minority interests in a consolidated subsidiary. 36,324 34,417
Stockholders' equity:
Common stock...................................................................... 2,955 2,955
Additional paid-in capital........................................................ 131,708 133,727
Retained earnings................................................................. 360,995 357,597
Common stock held in treasury..................................................... (162,084) (208,673)
Deferred compensation payable in common stock..................................... -- 10,160
Accumulated other comprehensive deficit........................................... (832) (1,723)
---------- -----------
Total stockholders' equity..................................................... 332,742 294,043
---------- -----------
$ 967,383 $ 1,090,475
========== ===========
(A) Derived and reclassified from the audited consolidated financial
statements as of December 29, 2002.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 29, June 30, June 29,
2002 2003 2002 2003
---- ---- ---- ----
(In Thousands Except Per Share Amounts)
(Unaudited)
Revenues:
Net sales...............................................$ -- $ 51,398 $ -- $ 99,895
Royalties and franchise and related fees (A)............ 24,837 23,402 47,218 44,639
--------- --------- -------- ---------
24,837 74,800 47,218 144,534
--------- --------- -------- ---------
Costs and expenses:
Cost of sales, excluding depreciation and amortization.. -- 37,589 -- 73,844
Advertising and selling................................. 1,070 4,043 1,115 7,143
General and administrative.............................. 18,261 23,899 37,722 47,279
Depreciation and amortization, excluding amortization
of deferred financing costs........................... 1,674 3,414 3,255 6,797
--------- --------- -------- ---------
21,005 68,945 42,092 135,063
--------- --------- -------- ---------
Operating profit................................. 3,832 5,855 5,126 9,471
Interest expense............................................ (6,803) (9,367) (13,163) (17,825)
Insurance expense related to long-term debt................. (1,130) (1,046) (2,305) (2,138)
Investment income (loss), net............................... (4,915) 3,729 1,147 6,870
Loss on sale of businesses.................................. (1,218) -- (1,218) --
Other income (expense), net................................. 210 (512) (360) 45
--------- --------- --------- ---------
Loss before income taxes and minority interests.. (10,024) (1,341) (10,773) (3,577)
(Provision for) benefit from income taxes................... 1,267 (195) 970 67
Minority interests in loss of a consolidated subsidiary..... 1,246 112 1,246 112
--------- --------- -------- ---------
Net loss.........................................$ (7,511) $ (1,424) $ (8,557) $ (3,398)
========= ========= ======== =========
Basic and diluted loss per share............................$ (.37) $ (.07) $ (.42) $ (.17)
========= ========= ======== =========
Pro forma basic and diluted loss per share (B)..............$ (.12) $ (.02) $ (.14) $ (.06)
========= ========= ======== =========
(A) Includes royalties from Sybra, Inc. of $1,865,000 and $3,601,000 for the
three-month and six-month periods ended June 30, 2002, respectively,
whereas the royalties from Sybra, Inc. of $1,773,000 and $3,450,000 for
the three-month and six-month periods ended June 29, 2003, respectively,
were eliminated in consolidation.
(B) Reflects the effect of a stock distribution, as more fully disclosed in
Note 11, of two shares of class B common stock for each outstanding share
of class A common stock declared on August 11, 2003 with a distribution
date of September 4, 2003.
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
------------------------------
June 30, June 29,
2002 2003
---- ----
(In Thousands)
(Unaudited)
Cash flows from continuing operating activities:
Net loss................................................................................$ (8,557) $ (3,398)
Adjustments to reconcile net loss to net cash used in continuing operating activities:
Depreciation and amortization of properties.......................................... 2,834 6,157
Amortization of other intangible assets and certain other items...................... 421 640
Amortization of deferred financing costs and original issue discount................. 964 1,001
Collection of litigation settlement receivable....................................... 1,667 1,667
Deferred compensation provision ..................................................... 627 1,959
Operating investment adjustments, net (see below).................................... 5,767 (37,344)
Deferred vendor incentive recognized................................................. -- (941)
Equity in losses (earnings) of investees, net........................................ 705 (799)
Unfavorable lease liability recognized............................................... -- (766)
Deferred income tax benefit.......................................................... (1,985) (440)
Minority interests in loss of a consolidated subsidiary ............................. (1,246) (112)
Other, net........................................................................... 214 (411)
Changes in operating assets and liabilities:
Decrease in receivables........................................................... 164 7
Increase in inventories........................................................... -- (74)
(Increase) decrease in prepaid expenses and other current assets.................. 31 (928)
Decrease in accounts payable and accrued expenses................................. (9,400) (10,334)
---------- ----------
Net cash used in continuing operating activities................................ (7,794) (44,116)
---------- ----------
Cash flows from continuing investing activities:
Investment activities, net (see below).................................................. (42,397) 38,945
Capital expenditures.................................................................... (23) (1,870)
Adjustment to cost of business acquisition.............................................. -- (100)
Purchase of fractional interest in corporate aircraft................................... (1,200) --
Other................................................................................... 183 (201)
---------- ----------
Net cash provided by (used in) continuing investing activities.................. (43,437) 36,774
---------- ----------
Cash flows from continuing financing activities:
Issuance of long-term debt.............................................................. -- 175,000
Repayments of long-term debt............................................................ (11,962) (26,343)
Repurchases of common stock for treasury................................................ -- (41,700)
Deferred financing costs................................................................ -- (6,525)
Exercises of stock options.............................................................. 3,273 6,333
Transfers from restricted cash equivalents.............................................. 210 94
---------- ----------
Net cash provided by (used in) continuing financing activities.................. (8,479) 106,859
---------- ----------
Net cash provided by (used in) continuing operations........................................ (59,710) 99,517
Net cash provided by discontinued operations................................................ 442 4,959
---------- ----------
Net increase (decrease) in cash and cash equivalents........................................ (59,268) 104,476
Cash and cash equivalents at beginning of period............................................ 506,461 457,472
---------- ----------
Cash and cash equivalents at end of period..................................................$ 447,193 $ 561,948
========== ==========
Details of cash flows related to investments:
Operating investment adjustments, net:
Proceeds from sales of trading securities............................................$ 25,531 $ 113,226
Cost of trading securities purchased................................................. (25,601) (148,567)
Net recognized losses (gains)from trading securities and short positions in
securities ........................................................................ 90 (141)
Other net recognized losses (gains), including other than temporary losses, and
equity in an investment limited partnership........................................ 5,500 (1,914)
Net amortization of premium on debt securities....................................... 247 52
---------- ----------
$ 5,767 $ (37,344)
========== ==========
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended
------------------------------
June 30, June 29,
2002 2003
---- ----
(In Thousands)
(Unaudited)
Investing investment activities, net:
Proceeds from sales and maturities of available-for-sale securities and other
investments........................................................................$ 37,008 $ 98,089
Cost of available-for-sale securities and other investments purchased................ (81,667) (64,583)
Proceeds of securities sold short.................................................... 18,842 19,346
Payments to cover short positions in securities...................................... (16,580) (13,907)
----------- ----------
$ (42,397) $ 38,945
=========== ==========
See accompanying notes to condensed consolidated financial statements.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 29, 2003
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Triarc Companies, Inc. ("Triarc" and, together with its subsidiaries, the
"Company") have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC") and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America. In the opinion of the Company, however, the accompanying condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of December 29, 2002 and June 29, 2003, its results of
operations for the three and six-month periods ended June 30, 2002 and June 29,
2003 and its cash flows for the six-month periods ended June 30, 2002 and June
29, 2003 (see below). This information should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 2002 (the
"Form 10-K").
The Company reports on a fiscal year basis consisting of 52 or 53 weeks
ending on the Sunday closest to December 31. The Company's first half of fiscal
2002 commenced on December 31, 2001 and ended on June 30, 2002, with its second
quarter of 2002 commencing on April 1, 2002. The Company's first half of 2003
commenced on December 30, 2002 and ended on June 29, 2003, with its second
quarter of 2003 commencing on March 31, 2003. The periods from April 1, 2002 to
June 30, 2002 and December 31, 2001 to June 30, 2002 are referred to herein as
the three-month and six-month periods ended June 30, 2002, respectively. The
periods from March 31, 2003 to June 29, 2003 and December 30, 2002 to June 29,
2003 are referred to herein as the three-month and six-month periods ended June
29, 2003, respectively. Each quarter contained 13 weeks and each half contained
26 weeks.
Certain amounts included in the accompanying prior periods' condensed
consolidated financial statements have been reclassified to conform with the
current periods' presentation.
(2) Stock-Based Compensation
The Company maintains or maintained several equity plans (the "Equity
Plans") which collectively provide or provided for the grant of stock options to
certain officers, other key employees, non-employee directors and consultants
and shares of the Company's class A common stock (the "Class A Common Stock")
pursuant to automatic grants in lieu of annual retainer or meeting attendance
fees to non-employee directors.
The Company measures compensation costs for its employee stock-based
compensation under the intrinsic value method rather than the fair value method.
Accordingly, compensation cost for the Company's stock options is measured as
the excess, if any, of the market price of the Company's common stock at the
date of grant, or at any subsequent measurement date as a result of certain
types of modifications to the terms of its stock options, over the amount an
employee must pay to acquire the stock. Such amounts are amortized as
compensation expense over the vesting period of the related stock options. Any
compensation cost is recognized as expense only to the extent it exceeds
compensation expense previously recognized for such stock options.
A summary of the effect on net loss and net loss per share in each period
presented as if the fair value method had been applied to all outstanding and
unvested stock options that were granted commencing January 1, 1995 is as
follows (in thousands except per share data):
Three Months Ended Six Months Ended
------------------------ ---------------------------
June 30, June 29, June 30, June 29,
2002 2003 2002 2003
---- ---- ---- ----
Net loss, as reported....................................$ (7,511) $ (1,424) $ (8,557) $ (3,398)
Reversal of stock-based employee compensation expense
determined under the intrinsic value method included
in reported net loss, net of related income taxes...... 173 49 173 49
Recognition of total stock-based employee compensation
expense determined under the fair value method, net
of related income taxes................................ (1,207) (1,413) (2,678) (2,683)
---------- --------- ---------- ----------
Net loss, as adjusted....................................$ (8,545) $ (2,788) $ (11,062) $ (6,032)
========== ========= ========== ==========
Basic and diluted loss per share:
As reported............................................$ (.37) $ (.07) $ (.42) $ (.17)
As adjusted............................................ (.42) (.14) (.54) (.30)
Pro forma basic and diluted loss per share:
As reported ........................................... (.12) (.02) (.14) (.06)
As adjusted (Note 11).................................. (.14) (.05) (.18) (.10)
The fair value of these stock options granted under the Equity Plans on the
date of grant was estimated using the Black-Scholes option pricing model (the
"Black-Scholes Model") with the assumptions set forth below for options granted
during the three and six-month periods ended June 30, 2002 and June 29, 2003:
Three and Six Months Ended
--------------------------
June 30, June 29,
2002 2003
---- ----
Risk-free interest rate.................. 4.80% 2.90%
Expected option life in years............ 7 7
Expected volatility...................... 15.8% 17.5%
Dividend yield .......................... None None
During the three and six-month periods ended June 30, 2002 and June 29,
2003, the Company granted 28,000 and 24,000 stock options, respectively, under
the Equity Plans at exercise prices equal to the market price of the stock on
the grant date. The weighted average grant date fair values of these stock
options, using the Black-Scholes Model with the assumptions set forth above,
were $8.78 and $7.56, respectively.
The Black-Scholes Model has limitations on its effectiveness including that
it was developed for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable and that the model
requires the use of highly subjective assumptions including expected stock price
volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in the opinion of the Company, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock-based awards to
employees.
(3) Acquisition of Sybra
On December 27, 2002, the Company completed the acquisition (the "Sybra
Acquisition") of all of the voting equity interests of Sybra, Inc. ("Sybra")
from I.C.H. Corporation ("ICH") as disclosed in more detail in Note 3 to the
Company's consolidated financial statements contained in the Form 10-K. Sybra
owned and operated 239 Arby's restaurants in nine states as of the date of the
Sybra Acquisition and, prior to the acquisition, was the second largest
franchisee of Arby's restaurants. The aggregate purchase price paid for Sybra by
the Company was $9,850,000 (originally estimated at $9,750,000 as of December
29, 2002) consisting of $8,219,000 of payments to ICH's creditors and $1,631,000
of estimated fees and expenses.
The allocation of the original estimate of the purchase price of Sybra to
the assets acquired and the liabilities assumed at the date of the Sybra
Acquisition is set forth in Note 3 to the consolidated financial statements
contained in the Form 10-K. This allocation of the purchase price of Sybra is on
a preliminary basis and remains subject to finalization.
Sybra's results of operations and cash flows have been included in the
accompanying condensed consolidated statements of operations and cash flows for
the first half ended June 29, 2003 but have not been included for the first half
ended June 30, 2002. However, royalties and franchise and related fee revenues
from Sybra, which are no longer included in the accompanying condensed
consolidated statements of operations and cash flows for the first half ended
June 29, 2003, were included for the first half ended June 30, 2002.
The following pro forma condensed consolidated summary operating
information (the "As Adjusted for the Acquisition" information) of the Company
for the first half ended June 30, 2002 has been prepared by adjusting the
historical data as set forth in the accompanying condensed consolidated
statement of operations to give effect to the Sybra Acquisition as if it had
been consummated on December 31, 2001 (in thousands except per share amounts):
Six Months Ended June 30, 2002
------------------------------
As Adjusted
As Reported for the Acquisition
----------- -------------------
Revenues......................................................................$ 47,218 $ 147,492
Operating profit.............................................................. 5,126 3,509
Net loss...................................................................... (8,557) (13,133)
Basic and diluted loss per share.............................................. (.42) (.64)
Pro forma basic and diluted loss per share (Note 11).......................... (.14) (.21)
This pro forma information is presented for comparative purposes only and
does not purport to be indicative of the Company's actual results of operations
had the Sybra Acquisition actually been consummated on December 31, 2001 or of
the Company's future results of operations.
(4) Long-Term Debt and Stockholders' Equity
On May 19, 2003 the Company issued (the "Offering") $175,000,000 aggregate
principal amount of 5% convertible notes due 2023 (the "Convertible Notes") in a
private placement. The Company used a portion of the $175,000,000 proceeds from
the Offering to purchase 1,500,000 shares of Class A Common Stock for treasury
for $41,700,000 (the "Treasury Stock Purchase") and to pay estimated fees and
expenses associated with the Offering of $6,525,000. The balance of the net
proceeds from the Offering are being used by the Company for general corporate
purposes, which may include working capital, repayment of indebtedness,
acquisitions, additional share repurchases and investments.
The Convertible Notes are convertible under specified circumstances into an
aggregate 4,375,000 shares of the Company's Class A Common Stock at a conversion
rate of 25 shares per $1,000 principal amount of Convertible Notes, subject to
adjustment in certain circumstances, which represents an initial conversion
price of $40 per share. However, the conversion terms will be adjusted based on
a stock distribution declared on August 11, 2003, as disclosed in more detail in
Note 11. The Convertible Notes are redeemable at the Company's option commencing
May 20, 2010 and at the option of the holders on May 15, 2010, 2015 and 2020 or
upon the occurrence of a fundamental change, as defined, of the Company, in each
case at a price of 100% of the principal amount of the Convertible Notes plus
accrued interest. In July 2003, a registration statement covering the resale of
the Convertible Notes and the Class A Common Stock issuable upon any conversion
of the Convertible Notes was declared effective by the SEC. The indenture
pursuant to which the Convertible Notes were issued does not contain any
significant financial covenants.
The following pro forma operating information (the "As Adjusted for the
Offering" information) of the Company for the six months ended June 29, 2003 has
been prepared by adjusting the historical information set forth in the
accompanying condensed consolidated statement of operations to give effect to
the Offering and the Treasury Stock Purchase (which affects only the weighted
average number of common shares and the loss per share) prior to the May 19,
2003 Offering date as if such transactions had been consummated on December 30,
2002 and does not reflect incremental interest income or any other benefit of
the excess proceeds of the Offering (in thousands except per share amounts):
Six Months Ended June 29, 2003
------------------------------
As Adjusted
As Reported For the Offering
----------- ----------------
Interest expense...............................................................$ 17,825 $ 21,549
Net loss....................................................................... (3,398) (5,781)
Basic and diluted loss per share............................................... (.17) (.30)
Weighted average number of common shares used for calculation of basic
and diluted loss per share................................................ 20,294 19,140
Pro forma basic and diluted loss per share (Note 11)........................... (.06) (.10)
This pro forma information is presented for information purposes only and
does not purport to be indicative of the Company's actual results of operations
had the Offering actually occurred on December 30, 2002 or of the Company's
future results of operations.
(5) Income Taxes
The Company's Federal income tax returns for the years subsequent to 1993
have not been examined by the Internal Revenue Service (the "IRS"). However, the
Company has been notified by the IRS of its intent to examine the Company's
Federal income tax returns for the years ended December 31, 2000 and December
30, 2001. Management of the Company believes that adequate aggregate provisions
have been made in prior periods for any tax liabilities, including interest,
that may result from the completion of this examination.
(6) Comprehensive Loss
The following is a summary of the components of comprehensive loss, net of
income taxes (in thousands):
Three Months Ended Six Months Ended
------------------------ -------------------------
June 30, June 29, June 30, June 29,
2002 2003 2002 2003
---- ---- ---- ----
Net loss................................................. $ (7,511) $ (1,424) $ (8,557) $ (3,398)
Net change in unrealized holding gains or losses on
available-for-sale securities (see below).............. 1,875 (972) (1,109) (903)
Net change in currency translation adjustment............ (29) 6 (26) 12
--------- ---------- --------- ----------
Comprehensive loss.......................................$ (5,665) $ (2,390) $ (9,692) $ (4,289)
========= ========== ========= ==========
The following is a summary of the components of the net change in the
unrealized holding gains or losses on available-for-sale securities included in
other comprehensive loss (in thousands):
Three Months Ended Six Months Ended
------------------------ -------------------------
June 30, June 29, June 30, June 29,
2002 2003 2002 2003
---- ---- ---- ----
Net change in unrealized appreciation or depreciation
of available-for-sale securities during the period.....$ (86) $ (1,444) $ (422) $ (1,590)
(Less) plus reclassification of prior period net
(appreciation) depreciation included in net loss....... 3,014 (84) (1,334) 178
--------- ---------- --------- ----------
2,928 (1,528) (1,756) (1,412)
Equity in change in unrealized gain on a retained
interest .............................................. (23) (9) 55 (16)
Equity in change in unrealized gain on available-for-
sale securities........................................ 2 (5) 2 (3)
Income tax (provision) benefit........................... (1,032) 570 590 528
--------- ---------- --------- ----------
$ 1,875 $ (972) $ (1,109) $ (903)
========= ========== ========= ==========
(7) Discontinued Operations
In October 2000 the Company sold (the "Snapple Beverage Sale") the stock of
the companies comprising the Company's former premium beverage and soft drink
concentrate business segments (the "Beverage Discontinued Operations") to
affiliates of Cadbury Schweppes plc ("Cadbury"). Prior thereto, the Company sold
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. The
Beverage Discontinued Operations and the SEPSCO Discontinued Operations have
been accounted for as discontinued operations since their respective dates of
sale.
The consideration paid to the Company in the Snapple Beverage Sale
consisted of (1) cash, which is subject to further post-closing adjustment as
described below and (2) the assumption by Cadbury of debt and related accrued
interest. The Snapple Beverage Sale purchase and sale agreement provides for a
post-closing adjustment, the amount of which is in dispute. Cadbury has stated
that it currently believes that it is entitled to receive from the Company a
post-closing adjustment of $23,189,000 plus interest at 7.19% from the October
25, 2000 sale date while the Company, on the other hand, has stated that it
currently believes that no post-closing adjustment is required. The Company is
in arbitration with Cadbury to determine the amount of the post-closing
adjustment, if any. The Company currently expects the arbitration process to be
completed by December 28, 2003.
Net current liabilities relating to discontinued operations consisted of
the following (in thousands):
December 29, June 29,
2002 2003
---- ----
Accrued expenses, including accrued income taxes, of the Beverage
Discontinued Operations....................................................$ 30,316 $ 34,134 (a)
Net liabilities of SEPSCO Discontinued Operations (net of assets held
for sale of $234).......................................................... 2,767 2,710
----------- -----------
$ 33,083 $ 36,844
=========== ===========
(a) Increase is principally due to the collection during 2003 of income tax receivables.
(8) Loss Per Share
Basic and diluted loss per share have been computed by dividing the net
loss by the weighted average number of common shares outstanding of 20,486,000
and 20,175,000 for the three-month periods ended June 30, 2002 and June 29,
2003, respectively, and 20,454,000 and 20,294,000 for the six-month periods
ended June 30, 2002 and June 29, 2003, respectively. The weighted average common
shares for the three and six-month periods ended June 29, 2003 include the
weighted-average effect commencing April 23, 2003 of the shares held in deferred
compensation trusts (see Note 9). Diluted loss per share for the three and
six-month periods ended June 30, 2002 and June 29, 2003 is the same as basic
loss per share since the Company reported a net loss for each of these periods
and, therefore, the effect of all potentially dilutive securities on the net
loss per share would have been antidilutive. Pro forma basic and diluted loss
per share reflecting the effect of the stock distribution declared on August 11,
2003 have been computed as disclosed in Note 11.
The only remaining Company securities as of June 29, 2003 that could dilute
basic income per share for periods subsequent to June 29, 2003 are (1) 7,961,489
outstanding stock options and (2) $175,000,000 of 5% convertible notes which are
convertible into 4,375,000 shares of the Company's Class A Common Stock (see
Note 4).
(9) Transactions with Related Parties
Prior to 2002 the Company provided incentive compensation of $22,500,000 to
the Chairman and Chief Executive Officer and President and Chief Operating
Officer of the Company (the "Executives") which was invested in two deferred
compensation trusts (the "Deferred Compensation Trusts") for their benefit.
Deferred compensation expense of $627,000 and $1,959,000 was recognized in the
six-month periods ended June 30, 2002 and June 29, 2003, respectively, for the
increase in the fair value of the investments in the Deferred Compensation
Trusts. Under accounting principles generally accepted in the United States of
America, the Company was not able to recognize any investment income on
unrealized increases in the fair value of the investments in the Deferred
Compensation Trusts during the six-month periods ended June 30, 2002 and June
29, 2003. However, during the six-month period ended June 29, 2003, the Company
sold one of the investments in the Deferred Compensation Trusts and recognized a
previously unrealized gain of $452,000, which included increases in value prior
to the 2003 first half. The cumulative disparity between 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
deferred compensation expense without any offsetting losses recognized in
investment income. Recognized gains are included in "Investment income (loss),
net" and deferred compensation expense is included in "General and
administrative" in the accompanying condensed consolidated statements of
operations. The obligation to the Executives is reported as "Deferred
compensation payable to related parties" in the accompanying condensed
consolidated balance sheets. The assets in the Deferred Compensation Trusts
which are reflected in the accompanying condensed consolidated balance sheet as
of June 29, 2003 consisted of $22,384,000 included in "Investments," which does
not reflect the unrealized increase in the fair value of the investments,
$204,000 included in "Cash and cash equivalents" and $495,000 included in
"Receivables."
In April 2003 the Executives exercised an aggregate 1,000,000 stock options
under the Company's Equity Plans and paid the exercise price utilizing shares of
the Company's Class A Common Stock the Executives already owned for more than
six months. These exercises resulted in aggregate deferred gains to the
Executives of $10,160,000, represented by an additional 360,795 shares of the
Company's Class A Common Stock based on the market price at the date of
exercise. Such shares are being held in deferred compensation trusts. The
Executives had previously elected to defer the receipt of the 360,795 shares
until no earlier than January 3, 2005. The resulting obligation of $10,160,000
is reported as the "Deferred compensation payable in common stock" component of
"Stockholders' equity" in the accompanying condensed consolidated balance sheet
as of June 29, 2003.
The Company received a $5,000,000 interest-bearing note (the "Executives'
Note") from the Executives prior to 2002 as part of a settlement of a class
action lawsuit receivable in three equal installments. The Executives' Note bore
interest at 4.92% during the twelve-month period ended March 31, 2002 and at
1.75% thereafter through maturity. The Company recorded interest income on the
Executives' Note of $48,000 and $7,000 for the six-month periods ended June 30,
2002 and June 29, 2003, respectively. In March of 2002 and 2003 the Company
collected the second and third installments aggregating $3,334,000 on the
Executives' Notes and also collected related interest of $163,000 and $29,000,
respectively.
As disclosed in more detail in Note 23 ("Note 23") to the consolidated
financial statements contained in the Form 10-K regarding related party
transactions, the Company has provided certain of its management officers and
employees, including its executive officers, the opportunity to co-invest with
the Company in certain investments and made related loans to management prior to
2002. The Company did not enter into any new co-investments subsequent to 2001
and the co-investment policy no longer permits any new loans. During the quarter
ended December 29, 2002, the Company provided an allowance of $176,000 for the
uncollectible non-recourse portion of the notes owed by management in connection
with their co-investments in EBT Holding Company, LLC ("EBT") due to the
worthlessness of the investment owned by EBT. Such non-recourse notes were
subsequently forgiven in March 2003. During the six-month period ended June 29,
2003, the Company collected the remaining $176,000 of the recourse portion of
the notes with respect to EBT and $2,000 of related accrued interest. Under the
Company's co-investment policy, as of June 29, 2003 the Company had in total
$1,994,000 of remaining co-investment notes receivable from management, of which
$997,000 was non-recourse, less a $452,000 remaining allowance for the
uncollectible non-recourse portion of the notes, of which $393,000 was provided
during the quarter ended December 29, 2002 and $59,000 was provided for during
the six months ended June 29, 2003. These notes, net of the related allowance,
are included in "Deferred costs and other assets" in the accompanying condensed
consolidated balance sheets.
Also, as disclosed in more detail in Note 23, the Company and certain of
its officers, including entities controlled by them, have invested in Encore
Capital Group, Inc. ("Encore"), an investment accounted for by the Company under
the equity method. The Company and other stockholders of Encore, including the
present and former officers of the Company who have invested in Encore prior to
an initial public offering by Encore of its common stock in July 1999, on a
joint and several basis, had entered into guarantees (the "Bank Guarantees")
and/or certain related agreements to guarantee up to $15,000,000 of revolving
credit borrowings of a subsidiary of Encore. The $15,000,000 revolving credit
line had been scheduled to expire in April 2003. In April 2003, the maturity
date for any revolving credit borrowings was extended until April 15, 2004, but
the maximum amount available was reduced from $15,000,000 to $5,000,000. This
effectively reduced the Bank Guarantees to $5,000,000, of which the Company
would be responsible for approximately $600,000 assuming the full $5,000,000 was
borrowed and all of the parties, besides the Company, to the Bank Guarantees and
the related agreements fully perform thereunder. As of Encore's second quarter
ended June 30, 2003, Encore had no outstanding revolving credit borrowings.
Prior to the April 2003 extension, the Company had an interest-bearing bank
custodial account at the financial institution providing the revolving credit
line with a balance of $15,019,000, which was subject to set off under certain
circumstances if the parties to the Bank Guarantees and related agreements
failed to perform their obligations thereunder. The interest-bearing bank
account was included in "Cash and cash equivalents" in the accompanying
condensed consolidated balance sheet as of December 29, 2002. However, such
funds were subsequently withdrawn by the Company following the April 2003
extension of the revolving credit line. In addition, the Company continues to
guarantee the obligations under the senior notes of Encore as disclosed in more
detail in Note 23.
The Company continues to have additional related party transactions of the
same nature and general magnitude as those described in Note 23 to the
consolidated financial statements contained in the Form 10-K.
(10) Legal and Environmental Matters
In 2001, a vacant property owned by Adams Packing Association, Inc.
("Adams"), an inactive subsidiary of the Company, was listed by the United
States Environmental Protection Agency on the Comprehensive Environmental
Response, Compensation and Liability Information System ("CERCLIS") list of
known or suspected contaminated sites. The CERCLIS listing appears to have been
based on an allegation that a former tenant of Adams conducted drum recycling
operations at the site from some time prior to 1971 until the late 1970's. The
business operations of Adams were sold in December 1992. In February 2003, Adams
and the Florida Department of Environmental Protection (the "FDEP"), agreed to a
consent order that provides 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 work has begun at the site. Based on a preliminary
cost estimate of approximately $1,000,000 for completion of the work plan
developed by Adams' environmental consultant, and after taking into
consideration various legal defenses available to the Company, including Adams,
Adams has provided for its estimate of its liability for this matter, including
related legal and consulting fees. Such provision was made primarily during the
three-month period ended June 30, 2002 principally as "Loss on sale of
businesses" in the accompanying condensed consolidated statement of operations
since the provision represented an adjustment to the previously recorded gain on
the sale of Adams.
In October 1998, various class action lawsuits were filed on behalf of the
Company's stockholders. Each of these actions named the Company, the Executives
and members of the Company's board of directors as defendants. On March 26,
1999, certain plaintiffs in these actions filed an amended complaint which
alleged that the Company's tender offer statement filed with the SEC in 1999,
pursuant to which the Company repurchased 3,805,015 shares of its Class A Common
Stock for $18.25 per share, was materially false and misleading. The amended
complaint seeks, among other items, damages in an unspecified amount. In October
2000, the plaintiffs agreed to stay this action pending determination of a
similar stockholder action which was subsequently dismissed in October 2002 and
is no longer being appealed. Through June 29, 2003, no further action has
occurred with respect to the remaining class action lawsuit.
In addition to the environmental matter and stockholder lawsuit described
above, the Company is involved in other litigation and claims incidental to its
business. Triarc and its subsidiaries have reserves for all of their legal and
environmental matters aggregating $2,400,000 as of June 29, 2003. 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 its legal and environmental matters will have a
material adverse effect on its consolidated financial position or results of
operations.
(11) Subsequent Events
On August 11, 2003, the Company declared a stock distribution of two shares
of a newly designated series of its previously authorized class B common stock
(the "Class B Common Stock") for each outstanding share of Class A Common Stock
held on August 21, 2003, with a distribution date of September 4, 2003. The
Class B Common Stock will be entitled to one-tenth of a vote per share, will
have a $.01 per share liquidation preference and will be entitled to receive
cash dividends per share of at least 110% of any regular quarterly cash
dividends per share when, as and if, declared on the Class A Common Stock
through September 4, 2006. Thereafter, the Class B Common Stock will participate
equally on a per share basis with the Class A Common Stock in any cash
dividends. Following the stock distribution, each $1,000 principal amount of
Convertible Notes will be convertible into a combination of 25 shares of Class A
Common Stock and 50 shares of Class B Common Stock and each stock option
outstanding under the Equity Plans will be exercisable for a combination of one
share of Class A Common Stock and two shares of Class B Common Stock. Loss per
share amounts in the accompanying condensed consolidated financial statements
and notes thereto have been set forth on both a pre-distribution and a pro forma
post-distribution basis, since the distribution has been declared but has not
yet been made.
Pro forma basic and diluted loss per share have been computed by dividing
the net loss attributable to the Class A Common Shares and Class B Common Shares
by the weighted average number of shares of each class assuming the stock
distribution had occurred at the beginning of each period presented. Since there
were no dividends declared or contractually payable in any of the periods
presented, the net loss was allocated one-third to the Class A Common Shares and
two-thirds to the Class B Common Shares based on how each class would have
shared in the net loss in accordance with the stock distribution. The weighted
average number of Class A Common Shares is unchanged from those disclosed in
Note 8 and the weighted average number of Class B Common Shares is twice that of
the Class A Common Shares. Pro forma loss per share is the same for each of the
two classes of common stock since there were no dividends declared or
contractually payable. Pro forma basic and diluted loss per share are the same
since the Company reported a net loss for each period presented.
On August 11, 2003, the Company also declared an initial regular quarterly
cash dividend of $0.065 and $0.075 per share on its Class A and Class B Common
Stock, respectively, both payable on September 25, 2003 to holders of record on
September 15, 2003. The Company currently intends to continue to declare and pay
quarterly cash dividends, however, there can be no assurance that any dividends
will be declared or paid in the future or the amount or timing of such
dividends, if any.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
We currently operate in one business, franchising and operating Arby's
restaurants.
On December 27, 2002, we completed the acquisition of Sybra, Inc. in a
transaction we refer to as the Sybra Acquisition. Sybra owns and operates 238
Arby's restaurants in nine states as of June 29, 2003 and, prior to the Sybra
Acquisition, was the second largest franchisee of Arby's restaurants. As a
result of the Sybra Acquisition, our consolidated results of operations and cash
flows for the 2003 first half include Sybra's results and cash flows but do not
include royalties and franchise and related fees from Sybra which are eliminated
in consolidation. Our consolidated results of operations and cash flows for the
2002 first half, however, include royalties and franchise and related fees from
Sybra but do not include Sybra's results and cash flows.
Presentation of Financial Information
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of Triarc Companies, Inc., which we refer to as Triarc,
and its subsidiaries should be read in conjunction with the accompanying
condensed consolidated financial statements and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our Annual
Report on Form 10-K for the fiscal year ended December 29, 2002. Item 7 of our
Form 10-K describes the recent trends affecting our restaurant business,
contractual obligations and the application of our critical accounting policies.
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 5."
We report on a fiscal year basis consisting of 52 or 53 weeks ending on the
Sunday closest to December 31. Our first half of fiscal 2002 commenced on
December 31, 2001 and ended on June 30, 2002, with our second quarter of 2002
commencing on April 1, 2002. Our first half of fiscal 2003 commenced on December
30, 2002 and ended on June 29, 2003, with our second quarter of 2003 commencing
on March 31, 2003. When we refer to the "three months ended June 30, 2002," or
the "2002 second quarter," and the "six months ended June 30, 2002," or the
"2002 first half," we mean the periods from April 1, 2002 to June 30, 2002 and
December 31, 2001 to June 30, 2002, respectively. When we refer to the "three
months ended June 29, 2003," or the "2003 second quarter," and the "six months
ended June 29, 2003," or the "2003 first half," we mean the periods from March
31, 2003 to June 29, 2003 and December 30, 2002 to June 29, 2003, respectively.
Each quarter contained 13 weeks and each half contained 26 weeks.
Certain amounts presented in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for the three and six months
ended June 30, 2002 have been reclassified to conform with the current periods'
presentation.
Results of Operations
Presented below is a table that summarizes our results of operations and
compares the amount and percent of the change between (1) the 2002 second
quarter and the 2003 second quarter and (2) the 2002 first half and the 2003
first half. We consider certain percentage changes between these periods to be
not measurable or not meaningful, and we refer to these as "n/m." The percentage
changes used in the following discussion have been rounded to the nearest whole
percent.
Three Months Ended Six Months Ended
--------------------- Change -------------------- Change
June 30, June 29, --------------- June 30, June 29, -----------------
2002 2003 Amount Percent 2002 2003 Amount Percent
---- ---- ------ ------- ---- ---- ------ -------
(In Millions Except Percents)
Revenues:
Net sales.....................................$ -- $ 51.4 $ 51.4 n/m $ -- $ 99.9 $ 99.9 n/m
Royalties and franchise and related fees (a).. 24.8 23.4 (1.4) (6)% 47.2 44.6 (2.6) (5)%
--------- -------- ------- ------- ------- -------
24.8 74.8 50.0 n/m 47.2 144.5 97.3 n/m
-------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of sales, excluding depreciation
and amortization .......................... -- 37.6 37.6 n/m -- 73.8 73.8 n/m
Advertising and selling...................... 1.1 4.1 3.0 n/m 1.1 7.2 6.1 n/m
General and administrative .................. 18.2 23.9 5.7 31 % 37.7 47.3 9.6 25 %
Depreciation and amortization, excluding
amortization of deferred financing costs... 1.7 3.4 1.7 100 % 3.3 6.8 3.5 109 %
-------- ------- ------- ------- ------- -------
21.0 69.0 48.0 n/m 42.1 135.1 93.0 n/m
-------- ------- ------- -------- ------- -------
Operating profit ........................ 3.8 5.8 2.0 53 % 5.1 9.4 4.3 85 %
Interest expense ............................... (6.8) (9.3) (2.5) (38)% (13.2) (17.8) (4.6) (35)%
Insurance expense related to long-term debt..... (1.1) (1.0) 0.1 7 % (2.3) (2.1) 0.2 7 %
Investment income (loss), net................... (4.9) 3.7 8.6 n/m 1.1 6.9 5.8 n/m
Loss on sale of businesses...................... (1.2) -- 1.2 100 % (1.2) -- 1.2 100 %
Other income (expense), net..................... 0.2 (0.5) (0.7) n/m (0.3) -- 0.3 100 %
-------- ------- ------- ------- ------- -------
Loss before income taxes and
minority interests..................... (10.0) (1.3) 8.7 87 % (10.8) (3.6) 7.2 67 %
(Provision for) benefit from income taxes....... 1.3 (0.2) (1.5) n/m 1.0 0.1 (0.9) (93)%
Minority interests in loss of a consolidated
subsidiary................................... 1.2 0.1 (1.1) (91)% 1.2 0.1 (1.1) (91)%
-------- ------- ------- ------- ------- -------
Net loss.................................$ (7.5) $ (1.4) $ 6.1 81 % $ (8.6) $ (3.4) $ 5.2 60 %
======== ======= ======= ======= ======== =======
(a) Includes royalties from Sybra of $1.9 million and $3.6 million for the 2002 second quarter and first half, respectively,
whereas the royalties from Sybra of $1.8 million and $3.5 million for the 2003 second quarter and first half, respectively,
were eliminated in consolidation.
Three Months Ended June 29, 2003 Compared with Three Months Ended June 30, 2002
Net Sales
Our net sales of $51.4 million for the three months ended June 29, 2003
resulted entirely from our operation of the Arby's restaurants acquired in the
Sybra Acquisition.
Royalties and Franchise and Related Fees
Our royalties and franchise and related fees, which were generated entirely
from our restaurant franchising operations, were reduced by $1.4 million, or 6%,
to $23.4 million for the three months ended June 29, 2003 from $24.8 million for
the three months ended June 29, 2002. This reduction reflects that we no longer
include royalties from the restaurants we acquired in the Sybra Acquisition
whereas we included $1.9 million of royalties from Sybra in the 2002 second
quarter. Aside from the effect of the Sybra Acquisition, royalties and franchise
and related fees increased $0.5 million in the 2003 second quarter compared with
the 2002 second quarter reflecting a $0.3 million, or 1%, increase in royalties
and a $0.2 million, or 18%, increase in franchise and related fees. The increase
in royalties consisted of a $0.9 million improvement resulting from the
royalties from the 124 restaurants opened since June 30, 2002, with generally
higher than average sales volumes, replacing the royalties from the 63 generally
underperforming restaurants closed since June 30, 2002, partially offset by a
$0.6 million reduction due to a 3% decline in same-store sales of franchised
restaurants during the 2003 second quarter compared with the 2002 second
quarter. Franchise and related fees increased due to the opening of 9 more
franchised restaurants in the 2003 second quarter compared with the 2002 second
quarter.
The 3% decline in same-store sales of franchised restaurants in the 2003
second quarter followed a 3% decline in the 2002 fourth quarter and a 2% decline
in the 2003 first quarter. We believe these declines were affected by price
discounting in the quick service restaurant industry, the generally sluggish
economy, strong same-store sales comparisons of the prior years' comparable
quarters and, in the 2002 fourth quarter and 2003 first quarter, the adverse
effects of worse weather conditions. The same-store sales comparison during the
2003 fourth quarter will be more favorable due to the weak same-store sales in
the 2002 fourth quarter.
Cost of Sales, Excluding Depreciation and Amortization
Our cost of sales, excluding depreciation and amortization, of $37.6
million for the three months ended June 29, 2003 resulted entirely from our
operation of the Arby's restaurants acquired in the Sybra Acquisition.
Our royalties and franchise fees have no associated cost of sales.
Advertising and Selling
Our advertising and selling expenses increased $3.0 million reflecting $3.4
million of advertising expenses of Sybra. Aside from the effect of the Sybra
Acquisition, advertising and selling expenses decreased $0.4 million due to a
recovery of doubtful accounts upon realization in the 2003 second quarter of
collections on two fully-reserved notes from a franchisee.
General and Administrative
Our general and administrative expenses increased $5.7 million reflecting
$4.5 million of general and administrative expenses related to Sybra. Aside from
the effect of the Sybra Acquisition, general and administrative expenses
increased $1.2 million principally due to a $1.5 million increase in deferred
compensation expense. Deferred compensation expense, which increased to an
expense of $1.2 million for the three months ended June 29, 2003 from a reversal
of expense of $0.3 million for the three months ended June 30, 2002, represents
the increase and decrease, respectively, in the fair value of investments in two
deferred compensation trusts, which we refer to as the Trusts, for the benefit
of our Chairman and Chief Executive Officer and President and Chief Operating
Officer, whom we refer to as the Executives, as explained in more detail under
"Loss Before Income Taxes and Minority Interests."
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $1.7 million for the three months ended June 29, 2003
entirely due to depreciation and amortization related to Sybra.
Interest Expense
Interest expense increased $2.5 million reflecting $2.3 million of interest
expense of Sybra. Aside from the effect of the Sybra Acquisition, interest
expense increased $0.2 million, or 4%, principally due to interest expense of
$1.1 million on the $175.0 million principal amount of our 5% convertible notes,
which we refer to as the Convertible Notes, issued on May 19, 2003, partially
offset by (1) a $0.4 million decrease due to lower outstanding balances of our
7.44% insured non-recourse securitization notes, which we refer to as the
Securitization Notes, and (2) a $0.3 million decrease in interest expense
related to the change in fair value of an interest rate swap agreement on one of
our term loans.
Investment Income (Loss), Net
The following table summarizes and compares the major components of
investment income (loss), net:
Three Months Ended
------------------
June 30, June 29,
2002 2003 Change
---- ---- ------
(In Millions)
Other than temporary unrealized losses....................$ (8.0) $ (0.3) $ 7.7
Recognized net gains...................................... -- 1.5 1.5
Interest income........................................... 2.8 2.0 (0.8)
Distributions, including dividends........................ 0.5 0.6 0.1
Other..................................................... (0.2) (0.1) 0.1
-------- ------ --------
$ (4.9) $ 3.7 $ 8.6
======== ====== ========
Our recognized net gains and other than temporary unrealized losses are
dependent upon the underlying economics and/or volatility in the value of our
investments in available-for-sale securities and cost basis investments and/or
the timing of the sales of those investments and may not recur in future periods
(see further discussion below). The decrease in interest income is due to a
decline in average rates of our interest-bearing investments partially offset by
higher average amounts of these investments. Average rates on our
interest-bearing investments declined from 1.9% in the 2002 second quarter to
1.3% in the 2003 second quarter principally due to the general decline in the
money market and short-term interest rate environment. The average amount of our
interest-bearing investments increased principally due to the investment of a
portion of the net proceeds from the May 2003 issuance of the Convertible Notes.
As of June 29, 2003, we had pretax unrealized holding gains and (losses) on
available-for-sale marketable securities of $1.6 million and $(2.8) million,
respectively, included in accumulated other comprehensive deficit, which we
presently believe are not other than temporary. Should either (1) we decide to
sell any of these investments or (2) any of the unrealized losses continue such
that we believe they have become other than temporary, we would recognize the
gains or losses on the related investments at that time. In addition, through
280 BT Holdings LLC, a 57.4%-owned consolidated subsidiary, we hold a $1.4
million cost basis investment in Scientia Health Group Limited, an entity which
we refer to as Scientia, representing original cost less adjustments for
unrealized losses in investments made by Scientia that were deemed to be other
than temporary. The amount of this investment is before related minority
interests of $0.6 million. In addition, as of June 29, 2003 we have notes
receivable from management officers and employees relating to a portion of their
investments in 280 BT Holdings of which $0.8 million is non-recourse, less an
allowance of $0.5 million for uncollectible amounts. If the value of Scientia
declines further and, accordingly, we recognize additional other than temporary
losses, we would also provide additional allowances relating to the non-recourse
notes receivable in "General and administrative" expenses.
Loss on Sale of Businesses
The loss on sale of businesses of $1.2 million in the three months ended
June 30, 2002 represents a reduction of a gain related to a business previously
sold due to a charge for estimated environmental clean-up and related costs.
Other Income (Expense), Net
Other income (expense), net, decreased $0.7 million to an expense of $0.5
million for the three months ended June 29, 2003 from income of $0.2 million for
the three months ended June 30, 2002 principally due to a $0.8 million increase
in costs of proposed business acquisitions not consummated, partially offset by
a $0.2 million increase in equity in earnings of Encore Capital Group, Inc., an
equity investee of ours which we refer to as Encore.
Loss Before Income Taxes and Minority Interests
Our loss before income taxes and minority interests decreased $8.7 million
to $1.3 million for the three months ended June 29, 2003 from $10.0 million for
the three months ended June 30, 2002 due to the effect of the variances
explained in the captions above.
As disclosed above, we recognized compensation expense of $1.2 million in
the 2003 second quarter and a reversal of compensation expense of $0.3 million
in the 2002 second quarter within general and administrative expenses for the
increase and decrease, respectively, in the fair value of investments in the
Trusts, in which we invested prior to 2002 for the benefit of the Executives.
Under accounting principles generally accepted in the United States of America,
we were unable to recognize any investment income or loss on unrealized
increases or decreases, respectively, in the fair value of the investments in
the Trusts during those quarters. The cumulative disparity between compensation
expense and net recognized investment income will reverse in future periods as
either (1) investments in the 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 Trusts decrease, as they did in the
2002 second quarter, resulting in the recognition of a reversal of deferred
compensation expense without any offsetting losses recognized in investment
income.
(Provision For) Benefit From Income Taxes
We had a provision for income taxes for the three months ended June 29,
2003 despite a pretax loss principally due to (1) the effect of non-deductible
compensation costs and (2) state income taxes, net of Federal income tax
benefit, due to the differing mix of pretax income or loss among the
consolidated entities which file state tax returns on an individual company
basis. The benefit from income taxes for the three months ended June 30, 2002
represented a rate of 13% which was lower than the United States Federal
statutory rate of 35% principally due to the impact of the same items on a
higher pretax loss. In addition, the 2002 effective rate reflects the catch-up
effect of the ability to determine the estimated full-year 2002 effective tax
benefit rate of 9% from an actual tax provision of 40% in connection with the
2002 first quarter pretax loss. The change for the 2002 quarter reflects the
fact that as of the end of the first quarter we projected a full year tax
provision despite a full year pretax loss whereas as of June 30, 2002 we
projected a full year tax benefit due to a higher projected full year pretax
loss.
Minority Interests in Loss of a Consolidated Subsidiary
The minority interests in loss of a consolidated subsidiary of $0.1 million
and $1.2 million for the three-month periods ended June 29, 2003 and June 30,
2002, respectively, reflect provisions for unrealized losses by 280 BT Holdings
on its cost basis investments deemed to be other than temporary.
Six Months Ended June 29, 2003 Compared with Six Months Ended June 30, 2002
Net Sales
Our net sales of $99.9 million for the six months ended June 29, 2003
resulted entirely from our operation of the Arby's restaurants acquired in the
Sybra Acquisition.
Royalties and Franchise and Related Fees
Our royalties and franchise and related fees, which were generated entirely
from our restaurant franchising operations, were reduced by $2.6 million, or 5%,
to $44.6 million for the six months ended June 29, 2003 from $47.2 million for
the six months ended June 30, 2002. This reduction reflects that we no longer
include royalties from the restaurants we acquired in the Sybra Acquisition
whereas we included $3.6 million of royalties from Sybra in the 2002 first half.
Aside from the effect of the Sybra Acquisition, royalties and franchise and
related fees increased $1.0 million in the 2003 first half compared with the
2002 first half reflecting a $0.8 million, or 2%, increase in royalties and a
$0.2 million, or 16%, increase in franchise and related fees. The increase in
royalties consisted of a $1.7 million improvement resulting from the royalties
from the 124 restaurants opened since June 30, 2002, with generally higher than
average sales volumes, replacing the royalties from the 63 generally
underperforming restaurants closed since June 30, 2002, partially offset by a
$0.9 million reduction due to a 2% decline in same-store sales of franchised
restaurants during the 2003 first half compared with the 2002 first half.
Franchise and related fees increased due to the opening of 8 more franchised
restaurants in the 2003 first half compared with the 2002 first half.
The 2% decline in same-store sales of franchised restaurants in the 2003
first half followed a 3% decline in the 2002 fourth quarter. We believe these
declines were affected by the same factors discussed in the comparison of the
three-month periods. The same-store sales comparison during the 2003 fourth
quarter will be more favorable due to the weak same-store sales in the 2002
fourth quarter.
Cost of Sales, Excluding Depreciation and Amortization
Our cost of sales, excluding depreciation and amortization, of $73.8
million for the six months ended June 29, 2003 resulted entirely from our
operation of the Arby's restaurants acquired in the Sybra Acquisition.
Our royalties and franchise fees have no associated cost of sales.
Advertising and Selling
Our advertising and selling expenses increased $6.1 million reflecting $6.5
million of advertising expenses of Sybra. Aside from the effect of the Sybra
Acquisition, advertising and selling expenses decreased $0.4 million due to a
recovery of doubtful accounts upon realization in the 2003 second quarter of
collections on two fully-reserved notes from a franchisee.
General and Administrative
Our general and administrative expenses increased $9.6 million reflecting
$8.4 million of general and administrative expenses related to Sybra. Aside from
the effect of the Sybra Acquisition, general and administrative expenses
increased $1.2 million principally due to a $1.4 million increase in deferred
compensation expense. Deferred compensation expense, which increased to $2.0
million for the six months ended June 29, 2003 from $0.6 million for the six
months ended June 30, 2002, represents the increase in the fair value of
investments in the Trusts as explained in more detail in the comparison of the
three-month periods.
Depreciation and Amortization, Excluding Amortization of Deferred Financing
Costs
Our depreciation and amortization, excluding amortization of deferred
financing costs, increased $3.5 million for the six months ended June 29, 2003
entirely due to depreciation and amortization related to Sybra.
Interest Expense
Interest expense increased $4.6 million reflecting $4.6 million of interest
expense of Sybra. Aside from the effect of the Sybra Acquisition, interest
expense was unchanged, reflecting interest expense of $1.1 million on the
Convertible Notes issued on May 19, 2003, entirely offset by (1) a $0.8 million
decrease due to lower outstanding balances of the Securitization Notes and (2)
$0.3 million of other decreases in interest expense.
Investment Income (Loss), Net
The following table summarizes and compares the major components of
investment income (loss), net:
Six Months Ended
----------------
June 30, June 29,
2002 2003 Change
---- ---- ------
(In Millions)
Other than temporary unrealized losses....................$ (8.1) $ (0.4) $ 7.7
Interest income........................................... 5.7 4.0 (1.7)
Distributions, including dividends........................ 1.2 1.0 (0.2)
Recognized net gains...................................... 2.4 2.5 0.1
Other..................................................... (0.1) (0.2) (0.1)
-------- ------ --------
$ 1.1 $ 6.9 $ 5.8
======== ====== ========
Our recognized net gains and other than temporary unrealized losses are
dependent upon the underlying economics and/or volatility in the value of our
investments in available-for-sale securities and cost basis investments and/or
the timing of the sales of those investments and may not recur in future periods
(see further discussion below). The decrease in interest income is due to a
decline in average rates of our interest-bearing investments partially offset by
higher average amounts of these investments. Average rates on our
interest-bearing investments declined from 1.9% in the 2002 second half to 1.3%
in the 2003 second half principally due to the general decline in the money
market and short-term interest rate environment. The average amount of our
interest-bearing investments increased principally due to the investment of a
portion of the net proceeds from the May 2003 issuance of the Convertible Notes.
As of June 29, 2003, we had pretax unrealized holding gains and (losses) on
available-for-sale marketable securities of $1.6 million and $(2.8) million,
respectively, included in accumulated other comprehensive deficit, which we
presently believe are not other than temporary. Should either (1) we decide to
sell any of these investments or (2) any of the unrealized losses continue such
that we believe they have become other than temporary, we would recognize the
gains or losses on the related investments at that time. In addition, as
explained in more detail in the comparison of the three-month periods, we hold a
$1.4 million cost basis investment, before related minority interests of $0.6
million, for which an additional other than temporary loss could possibly occur
in future periods and which could result in additional losses relating to the
non-recourse portion of notes from management officers and employees of up to a
maximum of $0.3 million.
Loss on Sale of Business
The loss on sale of businesses of $1.2 million in the six months ended June
30, 2002 represents a reduction of a gain related to a business previously sold
due to a charge for estimated environmental clean-up and related costs.
Other Income (Expense), Net
Other income (expense), net improved by $0.3 million in the six months
ended June 29, 2003 principally reflecting a $1.5 million improvement in our
equity in the earnings (losses) of Encore, partially offset by a $0.8 million
increase in costs of proposed business acquisitions not consummated. During the
first quarter of the 2002 first half, we recognized $0.7 million in previously
unrecorded equity in losses of Encore upon our investment of $0.9 million in
newly-issued convertible preferred stock of Encore. The equity in these losses
had not been recorded as we had previously reduced our investment in Encore to
zero. During the 2003 first half we recognized $0.8 million of equity in
earnings of Encore, including $0.3 million relating to a litigation settlement.
Loss Before Income Taxes and Minority Interests
Our loss before income taxes and minority interests decreased $7.2 million
to $3.6 million for the six months ended June 29, 2003 from $10.8 million for
the six months ended June 30, 2002 due to the effect of the variances explained
in the captions above.
Income Taxes
Our benefit from income taxes for the six months ended June 29, 2003
represents a rate of 2% which is substantially lower than the United States
Federal statutory rate of 35% principally due to (1) the effect of
non-deductible compensation costs and (2) state income taxes, net of Federal
income tax benefit, due to the differing mix of pretax income or loss among the
consolidated entities which file state tax returns on an individual company
basis. Our benefit from income taxes for the six months ended June 30, 2002
represented an effective rate of 9% which was lower than the United States
Federal statutory rate of 35% principally due to the impact of the same items
which affected the provision in the 2003 first half.
Minority Interests in Loss of a Consolidated Subsidiary
The minority interests in loss of a consolidated subsidiary of $0.1 million
and $1.2 million for the six-month periods ended June 29, 2003 and June 30,
2002, respectively, reflect provisions for unrealized losses by 280 BT Holdings
as previously explained in the comparison of the three-month periods.
Liquidity And Capital Resources
Cash Flows from Continuing Operating Activities
Our consolidated operating activities from continuing operations used cash
and cash equivalents, which we refer to in this discussion as cash, of $44.1
million during the six months ended June 29, 2003 reflecting (1) net operating
investment adjustments of $37.3 million, (2) cash used by changes in operating
assets and liabilities of $11.3 million and (3) a net loss of $3.4 million, all
partially offset by (1) net non-cash charges of $6.2 million and (2) the
collection of a litigation settlement receivable of $1.7 million.
The net operating investment adjustments of $37.3 million principally
reflected $35.3 million of net purchases of trading securities in excess of
sales. The cash used by changes in operating assets and liabilities of $11.3
million principally reflected (1) a $6.5 million reduction in accrued
compensation and related benefits principally due to the annual payment of
previously accrued incentive compensation, partially offset by the current year
accrual, and (2) a $6.3 million reduction of Sybra's accounts payable and
accrued expenses, other than accrued compensation and related benefits,
principally to satisfy a portion of Sybra's net negative working capital assumed
as contemplated as part of the Sybra Acquisition. The net non-cash charges of
$6.2 million principally relate to $7.8 million of depreciation and
amortization.
Excluding the effect of any net purchases of trading securities, which
represent the discretionary investment of excess cash and represented $35.3
million of the $44.1 million of cash used in operating activities during the
2003 first half, we expect positive cash flows from continuing operating
activities during the second half of 2003. This is due to our expectation that
the annual payment of incentive compensation impacting the $11.3 million of cash
used in the 2003 first half by changes in operating assets and liabilities
discussed above should not recur during the second half of 2003 and, to an
extent, should reverse. However, our continuing operating activities may require
a net use of cash for the full year 2003, exclusive of the net purchases of
trading securities, due to the $8.8 million used during the 2003 first half
principally to fund a portion of Sybra's net negative working capital assumed in
the Sybra Acquisition.
Working Capital and Capitalization
Working capital, which equals current assets less current liabilities, was
$617.9 million at June 29, 2003, reflecting a current ratio, which equals
current assets divided by current liabilities, of 4.6:1. Working capital
increased $108.4 million from $509.5 million at December 29, 2002 principally
due to the net proceeds of $126.8 million, after a related repurchase of $41.7
million of our common stock, from our issuance on May 19, 2003 of $175.0 million
principal amount of the Convertible Notes, discussed below under "Convertible
Notes" and "Treasury Stock Purchases," less the reclassification of $26.5
million of long-term debt to current.
Our total capitalization at June 29, 2003 was $829.8 million consisting of
stockholders' equity of $294.0 million and $535.8 million of long-term debt,
including current portion. Our total capitalization increased $110.0 million
from $719.8 million at December 29, 2002 principally due to (1) the issuance of
the Convertible Notes of $175.0 million and (2) proceeds of $6.3 million from
stock option exercises, both partially offset by (1) the repurchase of $41.7
million of our common stock and (2) repayments of long-term debt of $26.3
million.
Stock Distribution
On August 11, 2003, we declared a stock distribution of two shares of a
newly designated series of our previously authorized class B common stock for
each outstanding share of our class A common stock held on August 21, 2003, with
a distribution date of September 4, 2003. The class B common stock will be
entitled to one-tenth of a vote per share, will have a $.01 per share
liquidation preference and will be entitled to receive cash dividends per share
of at least 110% of any regular quarterly cash dividends per share when, as and
if, declared on the class A common stock through September 4, 2006. Thereafter,
the class B common stock will participate equally on a per share basis with the
class A common stock in any cash dividends.
Securitization Notes
We have outstanding, through our ownership of Arby's Franchise Trust,
Securitization Notes with a remaining principal balance of $244.7 million as of
June 29, 2003 which are due no later than December 2020. However, based on
current projections and assuming the adequacy of available funds, as defined
under the indenture for the Securitization Notes, which we refer to as the Note
Indenture, we currently estimate that we will repay $10.5 million during the
second half of 2003 with increasing annual payments to $37.4 million in 2011 in
accordance with a targeted principal payment schedule.
Sybra Notes
We have outstanding, through our ownership of Sybra, leasehold notes,
equipment notes and mortgage notes with total remaining principal balances of
$81.5 million as of June 29, 2003. The leasehold notes have a remaining
principal of $72.5 million and are due in equal monthly installments including
interest through 2021, of which $2.6 million is due during the second half of
2003. The equipment notes have a remaining principal of $5.7 million and are due
in equal monthly installments including interest through 2009, of which $0.7
million is due during the second half of 2003. The mortgage notes have a
remaining principal of $3.3 million and are due in equal monthly installments
including interest through 2018, of which $0.1 million is due during the second
half of 2003.
Convertible Notes
On May 19, 2003 we issued $175.0 million principal amount of 5% Convertible
Notes due 2023 in a private placement, which we refer to as the Offering. 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. We
used a portion of the $175.0 million proceeds from the Offering to purchase
1,500,000 shares of our class A common stock for treasury for $41.7 million and
to pay estimated fees and expenses associated with the Offering of $6.5 million.
The balance of the net proceeds from the Offering are being used by us for
general corporate purposes, which may include working capital, repayment of
indebtedness, acquisitions, additional share repurchases and investments.
Other Long-Term Debt
We have a secured bank term loan payable through 2008 with an outstanding
principal amount of $16.7 million as of June 29, 2003, of which $1.6 million is
due during the second half of 2003. We also have an 8.95% secured promissory
note payable through 2006 with an outstanding principal amount of $12.4 million
as of June 29, 2003, of which $1.0 million is due during the second half of
2003.
Revolving Credit Facilities
We did not have any revolving credit facilities as of June 29, 2003.
Debt Repayments and Covenants
Our total scheduled long-term debt repayments during the second half of
2003 are $16.9 million consisting principally of the $10.5 million expected to
be paid under the Securitization Notes, $3.4 million under Sybra's leasehold,
equipment and mortgage notes, $1.6 million under the secured bank term loan and
$1.0 million under the 8.95% secured promissory note.
The various note agreements and indentures contain various covenants, the
most restrictive of which (1) require periodic financial reporting, (2) require
meeting certain debt service coverage ratio tests and (3) restrict, among other
matters, (a) the incurrence of indebtedness, (b) certain asset dispositions and
(c) the payment of distributions by Arby's Franchise Trust and Sybra. The
Company was in compliance with all of these covenants as of June 29, 2003.
In accordance with the Note Indenture, as of June 29, 2003 Arby's Franchise
Trust had no amounts available for the payment of distributions. However, on
July 21, 2003, $2.1 million relating to cash flows for the calendar month of
June 2003 became available for the payment of distributions by Arby's Franchise
Trust through its parent to Arby's which, in turn, would be available to Arby's
to pay management service fees or Federal income tax sharing payables to Triarc
or, to the extent of any excess, make distributions to Triarc. Under the plan of
reorganization of Sybra confirmed by a United States Bankruptcy Court under
which we acquired Sybra, we agreed that Sybra would not pay any distributions
prior to December 27, 2004.
Guarantees and Commitments
Our wholly-owned subsidiary, National Propane Corporation, retains a less
than 1% special limited partner interest in our former propane business, now
known as AmeriGas Eagle Propane, L.P., which we refer to as AmeriGas Eagle.
National Propane agreed that while it remains a special limited partner of
AmeriGas Eagle, it would indemnify the owner of AmeriGas Eagle for any payments
the owner makes related to the owner's obligations under certain of the debt of
AmeriGas Eagle, aggregating approximately $138.0 million as of June 29, 2003, if
AmeriGas Eagle is unable to repay or refinance such debt, but only after
recourse by the owner to the assets of AmeriGas Eagle. National Propane's
principal asset is an intercompany note receivable from Triarc in the amount of
$50.0 million as of June 29, 2003. We believe it is unlikely that we will be
called upon to make any payments under this indemnity. In August 2001, AmeriGas
Propane, L.P., which we refer to as AmeriGas Propane, purchased all of the
interests in AmeriGas Eagle other than National Propane's special limited
partner interest. Either National Propane or AmeriGas Propane may require
AmeriGas Eagle to repurchase the special limited partner interest. However, we
believe it is unlikely that either party would require repurchase prior to 2009
as either AmeriGas Propane would owe us tax indemnification payments if AmeriGas
Propane required the repurchase or we would accelerate payment of deferred
taxes, which would amount to $41.4 million as of June 29, 2003, associated with
our July 1999 sale of the propane business if National Propane required the
repurchase. In the event the interest is not repurchased prior to 2009, we
estimate our actual related taxes payable to be $2.0 million during the second
half of 2003 with further payments in 2004 through 2008 reducing the taxes
payable in 2009 to approximately $36.0 million.
Triarc guarantees mortgage and equipment notes payable through 2015 of
approximately $41.0 million as of June 29, 2003 related to 355 restaurants sold
by us in 1997. The purchaser of the restaurants also assumed substantially all
of the associated lease obligations which extend through 2031, including all
then existing extension or renewal option periods, although Arby's remains
contingently liable if the purchaser does not make the required future lease
payments. Those lease obligations total approximately $62.0 million as of June
29, 2003, assuming the purchaser has made all scheduled payments through that
date under those lease obligations.
We guarantee up to $6.7 million of senior notes that mature in January 2007
issued by Encore to a major financial institution. The outstanding principal
amount of these notes was $7.2 million as of June 29, 2003. Our guarantee will
be reduced by (1) any repayments of these senior notes, (2) any purchases of
these senior notes by us and (3) the amount of certain investment banking or
financial advisory services fees paid to the financial institution by us, Encore
or another significant stockholder of Encore or any of their affiliates. Some of
our present and former officers, including entities controlled by them, who
collectively owned 15.7% of Encore at the time of Encore's initial public
offering in July 1999, are not parties to this note guarantee and could
indirectly benefit from it.
In addition to the note guarantee, we and other stockholders of Encore,
including our present and former officers referred to above who had invested in
Encore prior to its initial public offering, on a joint and several basis, had
entered into guarantees and/or related agreements to guarantee up to $15.0
million of revolving credit borrowings of a subsidiary of Encore. The $15.0
million revolving credit line had been scheduled to expire in April 2003. In
April 2003, the maturity date for any revolving credit borrowings was extended
until April 15, 2004, but the maximum amount available was reduced from $15.0
million to $5.0 million. This effectively reduced the guarantees to $5.0
million, of which we would be responsible for approximately $0.6 million
assuming the full $5.0 million was borrowed and all of the parties, besides us,
to the guarantees and the related agreements fully perform thereunder. As of
Encore's second quarter ended June 30, 2003, Encore had no outstanding revolving
credit borrowings. Prior to the April 2003 extension, we had an interest-bearing
bank custodial account at the financial institution providing the revolving
credit line with a balance of $15.0 million, which was subject to set off under
certain circumstances if the parties to the guarantees and related agreements
failed to perform their obligations thereunder. However, these funds were
subsequently withdrawn by us following the April 2003 extension of the revolving
credit line.
Capital Expenditures
Cash capital expenditures amounted to $1.9 million during the 2003 first
half. We expect that cash capital expenditures will be approximately $4.3
million for the second half of 2003, principally for maintenance and remodel
capital expenditures for company-owned restaurants, for which there were $0.4
million of outstanding commitments as of June 29, 2003.
Acquisitions and Investments
As of June 29, 2003, we have $771.3 million of cash, cash equivalents and
investments, including $34.7 million of investments classified as non-current
and net of $18.1 million of securities sold with an obligation for us to
purchase included in "Accrued expenses" in our accompanying condensed
consolidated balance sheet. We also had $32.5 million of restricted cash
equivalents including $30.5 million held in a reserve account related to the
Securitization Notes. The cash equivalents and non-current investments include
$22.6 million of investments, at cost, in the Trusts designated to satisfy
deferred compensation. We continue to evaluate strategic opportunities for the
use of our significant cash and investment position, including business
acquisitions, repurchases of Triarc common shares (see "Treasury Stock
Purchases" below) and investments.
Income Taxes
Our Federal income tax returns for years subsequent to 1993 have not been
examined by the Internal Revenue Service, which we refer to as the IRS. However,
we have been notified by the IRS of its intent to examine our Federal income tax
returns for the years ended December 31, 2000 and December 30, 2001. Should any
income taxes or associated interest be assessed as the result of any Federal or
state examinations for periods through the October 25, 2000 date of sale of our
former beverage businesses, the purchaser has agreed to pay up to $5.0 million
of any resulting income taxes or interest relating to the operations of the
former beverage businesses.
Dividends
On August 11, 2003, we declared an initial regular quarterly cash dividend
of $0.065 and $0.075 per share on our class A and class B common stock,
respectively, both payable on September 25, 2003 to holders of record on
September 15, 2003. We currently intend to continue to declare and pay regular
quarterly cash dividends, however, there can be no assurance that any dividends
will be declared or paid in the future or the amount or timing of such
dividends, if any. If we were to pay cash dividends in the 2003 fourth quarter
at the same rate as declared in our 2003 third quarter, based on the number of
common shares outstanding on July 31, 2003 as adjusted for the class B common
stock distribution, our cash requirement for dividends would be $8.4 million for
the 2003 second half.
Treasury Stock Purchases
Our management is currently authorized, when and if market conditions
warrant and to the extent legally permissible, to repurchase up to $50.0 million
of our class A and class B common stock under a program that, as extended, ends
on January 18, 2005. Under this program, we repurchased 1,500,000 shares of
class A common stock for a total cost of $41.7 million during the 2003 first
half in connection with the issuance of the Convertible Notes discussed above.
Following this purchase, the amount permissible for repurchase of shares under
this program was replenished to $50.0 million. We cannot assure you that we will
repurchase any additional shares under this program.
Discontinued Operations
The agreement relating to the October 25, 2000 sale of our former beverage
businesses provides for a post-closing adjustment, the amount of which is in
dispute. The purchaser has stated that it currently believes that it is entitled
to receive from us a post-closing adjustment of $23.2 million plus interest at
7.19% from October 25, 2000 while we, on the other hand, have stated that we
currently believe that no post-closing adjustment is required. We are in
arbitration with the purchaser to determine the amount of the post-closing
adjustment, if any. We currently expect the arbitration process to be completed
by December 28, 2003.
Cash Requirements
As of June 29, 2003, our consolidated cash requirements for continuing
operations for the second half of 2003, exclusive of operating cash flow
requirements, consist principally of (1) a maximum of $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) scheduled debt principal repayments
aggregating $16.9 million, (3) regular cash dividends of $8.4 million, (4)
capital expenditures of approximately $4.3 million and (5) the cost of business
acquisitions, if any. Our consolidated cash requirements relating to
discontinued operations for the second half of 2003 consist principally of the
post-closing adjustment, if any, of up to $23.2 million related to the sale of
our former beverage businesses, excluding related accrued interest which will be
included in operating cash flows. We anticipate meeting all of these
requirements through (1) the use of our aggregate $736.6 million of existing
cash and cash equivalents and short-term investments, net of $18.1 million of
short-term investments sold with an obligation for us to purchase and (2) cash
flows from continuing operating activities.
Legal and Environmental Matters
In 2001, a vacant property owned by Adams Packing Association, Inc., an
inactive subsidiary of ours, was listed by the United States Environmental
Protection Agency on the Comprehensive Environmental Response, Compensation and
Liability Information System, which we refer to as CERCLIS, list of known or
suspected contaminated sites. The CERCLIS listing appears to have been based on
an allegation that a former tenant of Adams Packing conducted drum recycling
operations at the site from some time prior to 1971 until the late 1970's. The
business operations of Adams Packing were sold in December 1992. In February
2003, Adams Packing and the Florida Department of Environmental Protection,
which we refer to as the Florida DEP, agreed to a consent order that provides
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
work has begun at the site. Based on a preliminary cost estimate of
approximately $1.0 million for completion of the work plan developed by Adams
Packing's environmental consultant, and after taking into consideration various
legal defenses available to us, including Adams Packing, Adams Packing has
provided for its estimate of its liability for this matter, including related
legal and consulting fees.
In October 1998, various class action lawsuits were filed on behalf of our
stockholders. Each of these actions named us, the Executives and members of our
board of directors as defendants. On March 26, 1999, certain plaintiffs in these
actions filed an amended complaint which alleged that our tender offer statement
filed with the Securities and Exchange Commission in 1999, pursuant to which we
repurchased 3,805,015 shares of our class A common stock for $18.25 per share,
was materially false and misleading. The amended complaint seeks, among other
items, damages in an unspecified amount. In October 2000, the plaintiffs agreed
to stay this action pending determination of a similar stockholder action which
was subsequently dismissed in October 2002 and is no longer being appealed.
Through June 29, 2003, no further action has occurred with respect to the
remaining class action lawsuit.
In addition to the environmental matter and stockholder lawsuit described
above, we are involved in other litigation and claims incidental to our
business. We and our subsidiaries have reserves for all of our legal and
environmental matters aggregating $2.4 million as of June 29, 2003. 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.
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 "Consolidation of Variable Interest Entities," an
interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements." Variable interest entities, which were formerly referred to as
special purpose entities, are generally entities that either (1) have equity
investors that do not provide significant financial resources for the entity to
sustain its activities or (2) have equity investors without voting rights. Under
Interpretation No. 46 variable interest entities must be consolidated by the
primary beneficiary. The primary beneficiary is generally defined as having the
majority of the risks and rewards of ownership arising from the variable
interest entity. Interpretation No. 46 also requires certain disclosures if a
significant, but not majority, variable interest is held. Interpretation No. 46
already applies for variable interests in entities created or obtained after
January 31, 2003 and, commencing with our third quarter ending September 28,
2003, applies for variable interests in entities acquired before February 1,
2003. Since we do not presently have interests in any variable interest
entities, the application of Interpretation No. 46 will not have any immediate
effect on our consolidated financial position or results of operations.
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." Statement 149 amends and
clarifies accounting for derivative instruments, including certain embedded
derivative instruments, and for hedging activities under Statement 133. The
provisions of Statement 149 are generally effective for contracts entered into
or modified after June 30, 2003. We have historically not had transactions to
which hedge accounting applied and have only a few derivative instruments which
limits the potential effect of this statement on us. However, since the
provisions of Statement 149 generally are to be applied prospectively, the
adoption of Statement 149 will not have any immediate effect on our consolidated
financial position or results of operations.
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." Statement 150
establishes standards for classifying and measuring certain specific
freestanding financial instruments with characteristics of both liabilities and
equity. It requires a financial instrument that is within its scope which
companies have historically presented in their financial statements as either
equity or between the liabilities section and the equity section (sometimes
referred to as mezzanine reporting) to be classified as a liability (or an asset
in some circumstances). Financial instruments within the scope of Statement 150
include (1) mandatorily redeemable financial instruments, (2) obligations to
repurchase the issuer's equity shares by transferring assets and (3) certain
obligations to issue a variable number of shares. Unless otherwise specified by
Statement 150 or other generally accepted accounting principles, these financial
instruments must be initially valued at fair value and subsequently valued
either at (1) fair value, (2) the present value of the amount to be paid at
settlement or (3) the cash that would be paid if settlement occurred at the
reporting date, depending on the type of financial instrument. Subsequent
changes in the values of these financial instruments generally are to be
recognized in earnings, with changes in the present value of mandatorily
redeemable financial instruments and certain other instruments specifically
recognized in interest cost along with any amounts paid or to be paid to holders
of those contracts in excess of the initial measurement amount. Statement 150 is
already effective for financial instruments entered into or modified after May
31, 2003 and is otherwise effective for pre-existing financial instruments
commencing with our third quarter ending September 28, 2003. Since we do not
presently have any financial instruments with characteristics of both
liabilities and equity, the application of Statement 150 will not have any
immediate effect on our consolidated financial position or results of
operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
This "Quantitative and Qualitative Disclosures about Market Risk" should be
read in conjunction with "Item 7A. Quantitative and Qualitative Disclosures
about Market Risk" in our annual report on Form 10-K for the fiscal year ended
December 29, 2002. Item 7A of our Form 10-K describes in more detail our
objectives in managing our "Interest Rate Risk" with respect to long-term debt
and our "Foreign Currency Risk," both as referred to below.
Certain statements we make under this Item 3 constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. See
"Special Note Regarding Forward-Looking Statements and Projections" in "Part II
- - Other Information" preceding "Item 5."
We are exposed to the impact of interest rate changes, changes in the
market value of our investments and, to a lesser extent, foreign currency
fluctuations.
Policies and procedures - In the normal course of business, we employ
established policies and procedures to manage our exposure to changes in
interest rates, changes in the market value of our investments and fluctuations
in the value of foreign currencies using financial instruments we deem
appropriate.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to limit
the impact of interest rate changes on earnings and cash flows. We generally use
interest rate caps or interest rate swap agreements on a portion of our
variable-rate debt to limit our exposure to the effects of increases in
short-term interest rates on our earnings and cash flows. We did not enter into
any new interest rate caps or swaps during the 2003 first half. As of June 29,
2003, our long-term debt, including current portion, aggregated $535.8 million
and consisted of $519.1 million of fixed-rate debt, including $2.2 million of
capitalized leases, and $16.7 million of a variable-rate bank loan. The fair
market value of our fixed-rate debt will increase if interest rates decrease. In
addition to our fixed-rate and variable-rate debt, our investment portfolio
includes debt securities that are subject to interest rate risk with maturities
which range from less than ninety days to nearly thirty years. The fair market
value of all of our investments in debt securities will decline if interest
rates increase.
Equity Market Risk
Our objective in managing our exposure to changes in the market value of
our investments is to balance the risk of the impact of these changes on our
earnings and cash flows with our expectations for long-term investment returns.
Our primary exposure to equity price risk relates to our investments in equity
securities, equity derivatives, securities sold with an obligation for us to
purchase and investment limited partnerships and similar investment entities. We
have established policies and procedures governing the type and relative
magnitude of investments we may make. We have a management investment committee
which supervises the investment of certain funds not currently required for our
operations and our board of directors has established certain investment
policies to be followed with respect to the investment of funds.
Foreign Currency Risk
We had no significant changes in our management of, or our exposure to,
foreign currency fluctuations during the 2003 first half.
Overall Market Risk
We balance our exposure to overall market risk by investing a portion of
our portfolio in cash and cash equivalents with relatively stable and
risk-minimized returns. We periodically interview and select asset managers to
avail ourselves of higher, but more risk-inherent, returns from the investment
strategies of these managers. We also seek to identify alternative investment
strategies that may earn higher returns with attendant increased risk profiles
for a portion of our investment portfolio. We continue to evaluate whether to
adjust our asset allocations to increase the portion of our investments which
offer the opportunity for higher, but more risk-inherent, returns and lower the
portion of our risk-minimized investments. We periodically review the returns
from each of our investments and may maintain, liquidate or increase selected
investments based on this review and our assessment of potential future returns.
We maintain investment portfolio holdings of various issuers, types and
maturities. As of June 29, 2003 these investments consisted of the following (in
thousands):
Cash equivalents included in "Cash and cash equivalents" on
the accompanying condensed consolidated balance sheet........$ 556,062
Short-term investments.......................................... 192,697
----------
Total cash equivalents and short-term investments............ 748,759
Restricted cash equivalents..................................... 32,469
Non-current investments......................................... 34,740
----------
$ 815,968
==========
Our cash equivalents are short-term, highly liquid investments with
maturities of three months or less when acquired and consisted principally of
money market mutual funds, United States government debt securities, commercial
paper of high credit-quality entities and interest-bearing brokerage and bank
accounts with a stable value. Our short-term investments included $72.2 million
of United States government and government agency debt securities with
maturities ranging from six months to two years when acquired. The $72.2 million
together with our cash equivalents were highly liquid investments that combined
constituted 84% of our total cash equivalents and short-term investments shown
above.
At June 29, 2003 our investments are classified in the following general
types or categories (in thousands):
Carrying Value
At Fair ----------------------
Type At Cost Value (c) Amount Percent
---- ------- -------- ------ -------
Cash equivalents (a)............................$ 556,062 $ 556,062 $ 556,062 68%
Restricted cash equivalents..................... 32,469 32,469 32,469 4%
Securities accounted for as:
Trading securities......................... 51,538 51,362 51,362 6%
Available-for-sale securities (b).......... 125,623 124,435 124,435 15%
Non-current investments held in deferred
compensation trusts accounted for at cost..... 22,384 26,988 22,384 3%
Other current and non-current investments in
investment limited partnerships and similar
investment entities accounted for at cost..... 23,169 37,820 23,169 3%
Other non-current investments accounted for at:
Cost....................................... 4,629 19,823 4,629 1%
Equity..................................... 895 4,660 1,458 --
----------- ----------- ---------- -----
Total cash equivalents and long investment
positions.....................................$ 816,769 $ 853,619 $ 815,968 100%
=========== =========== ========== ====
Securities sold with an obligation for us to
purchase......................................$ (16,106) $ (18,114) $ (18,114) N/A
=========== =========== ==========
(a) Includes $204,000 of cash equivalents held in deferred compensation trusts.
(b) Includes $10,850,000 of invesments for which the purchase had not settled as of June 29, 2003.
(c) There can be no assurance that we would be able to sell certain of these investments at these amounts.
Our marketable securities are classified and accounted for either as
"available-for-sale" or "trading" and are reported at fair market value with the
resulting net unrealized holding gains or losses, net of income taxes, reported
as a separate component of comprehensive loss bypassing net loss or included as
a component of net loss, respectively. Investment limited partnerships and
similar investment entities and other non-current investments in which we do not
have significant influence over the investee are accounted for at cost (see
below). Realized gains and losses on investment limited partnerships and similar
investment entities and other non-current investments recorded at cost are
reported as investment income or loss in the period in which the securities are
sold. A non-current common stock investment in which we have significant
influence over the investee is accounted for in accordance with the equity
method of accounting under which our results of operations include our share of
the earnings of the investee. We review all of our investments in which we have
unrealized losses and recognize an investment loss currently for any unrealized
losses we deem to be other than temporary. The cost basis component of
investments reflected in the table above represents original cost less a
permanent reduction for any unrealized losses that were deemed to be other than
temporary.
Sensitivity Analysis
For purposes of this disclosure, market risk sensitive instruments are
divided into two categories: instruments entered into for trading purposes and
instruments entered into for purposes other than trading. Our estimate of market
risk exposure is presented for each class of financial instruments held by us at
June 29, 2003 for which an immediate adverse market movement causes a potential
material impact on our financial position or results of operations. We believe
that the rates of adverse market movements described below represent the
hypothetical loss to future earnings and do not represent the maximum possible
loss nor any expected actual loss, even under adverse conditions, because actual
adverse fluctuations would likely differ. In addition, since our investment
portfolio is subject to change based on our portfolio management strategy as
well as market conditions, these estimates are not necessarily indicative of the
actual results which may occur.
The following tables reflect the estimated market risk exposure as of June
29, 2003 based upon assumed immediate adverse effects as noted below (in
thousands):
Trading Purposes:
Carrying Interest Equity
Value Rate Risk Price Risk
----- --------- ----------
Debt securities.................................................$ 25,704 $ (298) $ (73)
Equity securities............................................... 25,658 -- (2,566)
The sensitivity analysis of financial instruments held at June 29, 2003 for
trading purposes assumes (1) an instantaneous increase in market interest rates
of one percentage point and (2) an instantaneous 10% decrease in the equity
markets in which we are invested, each from their levels at June 29, 2003 and
with all other variables held constant. The securities included in the trading
portfolio do not include any investments denominated in foreign currency and,
accordingly, there is no foreign currency risk.
The debt securities in our trading portfolio as of June 29, 2003 consisted
of $25.0 million of United States government debt securities with an average
remaining maturity of 15 months and $0.7 million of convertible bonds. The
interest rate risk with respect to the United States government debt securities
reflects the effect of the assumed interest rate increase on the fair value of
those securities. The convertible bonds were assumed to trade primarily on the
conversion feature of those securities rather than on the stated interest rate
and, accordingly, are assumed to have equity price risk but no interest rate
risk.
Other Than Trading Purposes:
Carrying Interest Equity Foreign
Value Rate Risk Price Risk Currency Risk
----- --------- ---------- -------------
Cash equivalents..................................$ 556,062 $ (121) $ -- $ --
Restricted cash equivalents....................... 32,469 -- -- --
Available-for-sale United States government
and government agency debt securities.......... 47,271 (158) -- --
Available-for-sale corporate debt securities...... 13,839 (761) -- (199)
Available-for-sale asset-backed securities........ 23,525 (2,823) --
Available-for-sale equity securities.............. 31,308 -- (3,131) --
Available-for-sale debt mutual fund............... 8,492 (127) -- --
Other investments................................. 51,640 (1,271) (3,522) (74)
Securities sold with an obligation to purchase... (18,114) -- 1,811 --
Long-term debt, excluding capitalized lease
obligations.................................... (533,580) (27,610) -- --
Interest rate swap agreement in a payable position (1,215) (391) -- --
The sensitivity analysis of financial instruments held at June 29, 2003 for
purposes other than trading assumes (1) an instantaneous change in market
interest rates of one percentage point, (2) an instantaneous 10% decrease in the
equity markets in which we are invested and (3) an instantaneous 10% decrease in
the foreign currency exchange rates versus the United States dollar, each from
their levels at June 29, 2003 and with all other variables held constant. The
equity price risk reflects the impact of a 10% decrease in the carrying value of
our equity securities, including those in "Other investments" in the table
above. The sensitivity analysis also assumes that the decreases in the equity
markets and foreign exchange rates are other than temporary. For purposes of
this analysis, our debt investments with interest rate risk had a maturities
range and were assumed to have weighted average remaining maturities as follows:
Remaining Maturities
--------------------
Range Weighted Average
----- ----------------
Cash equivalents (other than money market funds and interest-
bearing brokerage and bank accounts)............................... 4 days - 67 days 45 days
United States government and government agency debt securities....... 1 day - 11 months 4 months
Corporate debt securities (domestic corporate debt securities,
foreign corporate convertible debt and commercial paper)........... 25 days - 7 years 5 1/2years
Asset-backed securities..............................................57 days - 30 years 12 years
Debt mutual fund..................................................... (a) 1 1/2years
Debt securities included in other investments (principally held by
investment limited partnerships and similar investment entities)... (b) 10 years
(a) This fund has underlying investments with an average duration of one and one-half years.
(b) Information is not available for the underlying debt investments of these funds.
The interest rate risk reflects, for each of these debt investments, the
impact on our results of operations. At the time these securities mature and,
assuming we reinvest in similar securities, the effect of the interest rate risk
of one percentage point above their levels at June 29, 2003 would continue
beyond the maturities assumed. Our cash equivalents included $457.8 million of
money market funds and interest-bearing brokerage and bank accounts which are
designed to maintain a stable value and, as a result, were assumed to have no
interest rate risk. Our restricted cash equivalents were invested in money
market funds and are assumed to have no interest rate risk since those funds are
designed to maintain a stable value.
The interest rate risk presented with respect to our long-term debt,
excluding capitalized lease obligations, relates only to our fixed-rate debt and
represents the potential impact the indicated change has on the fair value of
this debt and not on our financial position or our results of operations. The
fair value of our variable-rate debt approximates the carrying value since the
floating interest rate resets monthly. However, we have an interest rate swap
agreement but with an embedded written call option on our variable-rate debt. As
interest rates decrease, the fair market values of the interest rate swap
agreement and the written call option both decrease, but not necessarily by the
same amount. The interest rate risk presented with respect to the interest rate
swap agreement represents the potential impact the indicated change has on the
net fair value of the swap agreement and embedded written call option and on our
financial position and results of operations.
For investments held since December 29, 2002 in investment limited
partnerships and similar investment entities accounted for at cost included in
"Other investments" in the table above, the sensitivity analysis assumes the
investment mix for each such investment between equity versus debt securities
and securities denominated in United States dollars versus foreign currencies
generally was unchanged since that date since more current information was not
readily available. To the extent those 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.
TRIARC COMPANIES, INC. AND SUBSIDIARIES
Item 4. Controls and Procedures
Our management, including our Chairman and Chief Executive Officer and our
Chief Financial Officer, evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this quarterly report. Based upon that evaluation,
our Chairman and Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of such period, our disclosure controls and procedures are
effective to ensure that information required to be included in the reports we
file or submit under the Exchange Act is recorded, processed, summarized and
reported as and when required. No change in our internal control over financial
reporting was made during our most recent fiscal quarter that materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Part II. Other Information
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This Quarterly Report on Form 10-Q contains or incorporates by reference
certain statements that are not historical facts, including, most importantly,
information concerning possible or assumed future results of operations of
Triarc Companies, Inc. and its subsidiaries (collectively "Triarc" or the
"Company") and those statements preceded by, followed by, or that include the
words "may," "believes," "expects," "anticipates," or the negation thereof, or
similar expressions, that constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). All statements which address operating performance, events or
developments that are expected or anticipated to occur in the future, including
statements relating to revenue growth, earnings per share growth or statements
expressing general optimism about future operating results, are forward-looking
statements within the meaning of the Reform Act. These forward-looking
statements are based on our current expectations, speak only as of the date of
this Form 10-Q and are susceptible to a number of risks, uncertainties and other
factors. Our actual results, performance and achievements may differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. For those statements, we claim the protection
of the safe-harbor for forward-looking statements contained in the Reform Act.
Many important factors could affect our future results and could cause those
results to differ materially from those expressed in the forward-looking
statements contained herein. Such factors include, but are not limited to, the
following:
o Competition, including pricing pressures, the potential impact of
competitors' new units on sales by Arby's(R) restaurants and consumers'
perceptions of the relative quality, variety and value of the food
products offered;
o Success of operating initiatives;
o Development and operating costs;
o Advertising and promotional efforts;
o Brand awareness;
o The existence or absence of positive or adverse publicity;
o Market acceptance of new product offerings;
o New product and concept development by competitors;
o Changing trends in consumer tastes and preferences (including changes
resulting from health or safety concerns with respect to the
consumption of beef, french fries or other foods or the effects of
food-borne illnesses) and in spending and demographic patterns;
o The business and financial viability of key franchisees;
o Availability, location and terms of sites for restaurant development
by the Company and its franchisees;
o The ability of franchisees to open new restaurants in accordance with
their development commitments, including the ability of franchisees to
finance restaurant development;
o Delays in opening new restaurants or completing remodels;
o Anticipated and unanticipated restaurant closures by the Company and
its franchisees;
o The ability to identify, attract and retain potential franchisees with
sufficient experience and financial resources to develop and operate
Arby's restaurants;
o Changes in business strategy or development plans;
o Quality of the Company's and franchisees' management;
o Availability, terms (including changes in interest rates) and
deployment of capital;
o Business abilities and judgment of the Company's and franchisees'
personnel;
o Availability of qualified personnel to the Company and to
franchisees;
o Labor and employee benefit costs;
o Availability and cost of energy, raw materials, ingredients and
supplies;
o The potential impact that interruptions in the distribution of supplies
of food and other products to Arby's restaurants could have on sales at
Company-owned restaurants and the royalties that the Company receives
from franchisees;
o Availability and cost of workers' compensation and general liability
premiums and claims experience;
o Changes in national, regional and local economic, market, business or
political conditions in the countries and other territories in which
the Company and its franchisees operate;
o Changes in government regulations, including franchising laws,
accounting standards, environmental laws, minimum wage rates and
taxation requirements;
o The costs, uncertainties and other effects of legal, environmental and
administrative proceedings;
o The impact of general economic conditions on consumer spending,
including a slower consumer economy, and the effects of war or
terrorist activities;
o Adverse weather conditions; and
o Other risks and uncertainties referred to in Triarc's Annual Report on
Form 10-K for the fiscal year ended December 29, 2002 (see especially
"Item 1. Business - Risk Factors" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations") and in
our other current and periodic filings with the Securities and Exchange
Commission, all of which are difficult or impossible to predict
accurately and many of which are beyond our control.
We will not undertake and specifically decline any obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. In
addition, it is our policy generally not to make any specific projections as to
future earnings, and we do not endorse any projections regarding future
performance that may be made by third parties.
Item 5. Other Events
Declaration of Dividends
------------------------
On August 11, 2003, our Board of Directors approved the payment of an
initial regular quarterly cash dividend of $0.065 per share on our Class A
Common Stock. Our Board of Directors also approved a special stock dividend of
two shares of a newly designated Class B Common Stock, Series 1 (the "Class B
Common Stock") for each share of Class A Common Stock as well as the payment of
an initial regular quarterly cash dividend of $0.075 per share on the Class B
Common Stock.
Until September 4, 2006, the Class B Common Stock will be entitled to at
least 110% of the Class A Common Stock regular quarterly cash dividend when and
if dividends are declared. The Class B Common Stock will also be entitled to
1/10 vote per share. The Class B Common Stock will also be entitled to a $.01
per share preference upon the liquidation or winding-up of Triarc and, after
each share of Class A Common Stock receives $.01 per share, will share ratably
with the Class A Common Stock in the remaining assets of Triarc.
The record date for the stock dividend on the Class A Common Stock is
August 21, 2003 and the payment date for such stock dividend is September 4,
2003. The record date for the cash dividends on each of the Class A Common Stock
and Class B Common Stock will be September 15, 2003 and the payment date for
each of the cash dividends will be September 25, 2003.
Application has been made to the New York Stock Exchange for listing the
Class B Common Stock, which will trade under the symbol TRY.B. The Class A
Common Stock will continue to trade under the symbol TRY. A registration
statement under the Exchange Act will be filed with the Securities and Exchange
Commission. Additionally, appropriate adjustments for the stock dividend will be
made with respect to the conversion feature of Triarc's recently issued 5%
Convertible Notes due 2023 (the "Convertible Notes") and with respect to all
outstanding options under Triarc's stock option plans. Following the stock
dividend, each Convertible Note (having a principal amount of $1,000) will be
convertible into 25 shares of Class A Common Stock and 50 shares of Class B
Common Stock, and outstanding options will be exercisable for one share of Class
A Common Stock and two shares of Class B Common Stock. Option holders will be
required to exercise each outstanding option for Class A Common Stock and Class
B Common Stock at the same time. Shares of Class B Common Stock have been
reserved for both future conversions of the Convertible Notes and exercises of
stock options.
Although Triarc currently intends to declare and pay regular quarterly cash
dividends, the actual declaration and payment of subsequent quarterly cash
dividends and the timing and amount thereof are in the sole discretion of the
Board of Directors and there can be no assurance that quarterly cash dividends
will be declared or paid in any subsequent quarters, or of the amount or timing
of such dividends, if any.
Issuance of 5% Convertible Notes due 2023
-----------------------------------------
As previously reported, on May 19, 2003, we completed the sale of $175
million principal amount of Convertible Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 (the "Securities Act").
That amount included $25 million principal amount of the Convertible Notes
issued pursuant to an option granted to the initial purchaser. The Convertible
Notes are convertible into shares of the Company's Class A Common Stock and, as
noted under "Declaration of Dividends" above, into shares of Class B Common
Stock, under certain circumstances specified in the indenture relating to the
Convertible Notes.
In connection with the sale of the Convertible Notes, we repurchased 1.5
million shares of our Class A Common Stock from the purchasers of the
Convertible Notes for $41.7 million (or $27.80 per share) under the terms of our
previously announced $50 million stock repurchase program.
On July 9, 2003 the registration statement on Form S-3, relating to the
Convertible Notes and the shares of our Class A Common Stock issuable upon
conversion of the Convertible Notes, was declared effective by the Securities
and Exchange Commission (the "SEC"). The registration statement was filed to
permit resales of the Convertible Notes by the then current holders. We will not
receive any proceeds from the resale of the Convertible Notes or the underlying
shares of Class A Common Stock. In connection with the stock dividend and the
related adjustment to the Convertible Notes, we will file with the SEC a
post-effective amendment to the registration statement. Until such time as the
post-effective amendment is declared effective by the SEC, no securities may be
sold pursuant to the registration statement.
This Quarterly Report on Form 10-Q shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to the registration or qualification under the securities laws of
any such state.
Stock Repurchase Program
------------------------
On January 18, 2001, our management was authorized, when and if market
conditions warrant, and to the extent legally permissible, to purchase from time
to time up to an aggregate of $50 million of our Class A Common Stock pursuant
to a $50 million stock repurchase program that was scheduled to end on January
18, 2003. In January 2003, the term of the stock repurchase program was extended
until January 18, 2004 and the amount available under the stock repurchase
program was replenished to permit the Company to repurchase a total of $50
million worth of our Class A Common Stock on or after January 18, 2003 (in
addition to the $10.5 million previously spent under the program). As noted
above, in May 2003 we repurchased 1.5 million shares of our Class A Common Stock
for an aggregate cost of $41.7 million in connection with, and using a portion
of the proceeds from, the issuance of the Convertible Notes. On June 3, 2003 the
stock repurchase program was further extended until January 18, 2005 and the
amount available under the program was again replenished to permit us to
purchase up to $50 million of our Class A Common Stock beginning June 3, 2003.
On August 11, 2003, the stock repurchase program was amended to also permit us
to use the $50 million to repurchase shares of our Class B Common Stock
following the issuance of the Class B Common Stock on September 4, 2003. We have
not repurchased any shares of our Class A Common Stock pursuant to the stock
repurchase program since June 3, 2003. We cannot assure you that we will
repurchase any additional shares pursuant to this stock repurchase program.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation, incorporated herein by reference to
Exhibit 3.1 to Triarc's Current Report on Form 8-K dated
November 9, 2001 (SEC file no. 1-2207).
3.2 Certificate of Designation of the Class B Common Stock, Series 1,
incorporated herein by reference to Exhibit 3.3 to Triarc's Current
Report on Form 8-K dated August 11, 2003 (SEC file no. 1-2207).
4.1 Indenture, dated as of May 19, 2003, between Triarc Companies, Inc.
and Wilmington Trust Company, as Trustee, incorporated herein by
reference to Exhibit 4.1 to Triarc's Registration Statement on Form S-3
dated June 19, 2003 (SEC file no. 1-2207).
4.2 Registration Rights Agreement, dated as of May 19, 2003, by and among
Triarc Companies, Inc. and Morgan Stanley & Co. Incorporated,
incorporated herein by reference to Exhibit 4.2 to Triarc's
Registration Statement on Form S-3 dated June 19, 2003 (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.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on June 3, 2003, which included
information under Item 7 of such form.
The Registrant filed a report on Form 8-K on May 19, 2003, which included
information under Items 5 and 7 of such form.
The Registrant filed a report on Form 8-K on May 14, 2003, which included
information under Items 5 and 7 of such form.
The Registrant furnished a report on Form 8-K on May 12, 2003, which
included information under Item 9 of such form.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIARC COMPANIES, INC.
(Registrant)
Date: August 13, 2003 By: /S/ FRANCIS T. MCCARRON
-----------------------------
Francis T. McCarron
Senior Vice President and
Chief Financial Officer
(On behalf of the Company)
Date: August 13, 2003 By: /S/ FRED H. SCHAEFER
-----------------------------
Fred H. Schaefer
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Exhibit Index
Exhibit
No. Description Page No.
--- ----------- --------
3.1 Certificate of Incorporation, incorporated herein by
reference to Exhibit 3.1 to Triarc's Current Report
on Form 8-K dated November 9, 2001 (SEC file no. 1-2207).
3.2 Certificate of Designation of the Class B Common Stock,
Series 1, incorporated herein by reference to Exhibit 3.3
to Triarc's Current Report on Form 8-K dated August 11,
2003 (SEC file no. 1-2207).
4.1 Indenture, dated as of May 19, 2003, between Triarc
Companies, Inc. and Wilmington Trust Company, as Trustee,
incorporated herein by reference to Exhibit 4.1 to Triarc's
Registration Statement on Form S-3 dated June 19, 2003
(SEC file no. 1-2207).
4.2 Registration Rights Agreement, dated as of May 19, 2003,
by and among Triarc Companies, Inc. and Morgan Stanley &
Co. Incorporated, incorporated herein by reference to Exhibit
4.2 to Triarc's Registration Statement on Form S-3 dated
June 19, 2003 (SEC file no. 1-2207).
31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished as an exhibit to
this report on Form 10-Q.
EXHIBIT 31.1
CERTIFICATIONS
I, Nelson Peltz, the Chairman and Chief Executive Officer of Triarc
Companies, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triarc Companies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 13, 2003
/S/ NELSON PELTZ
------------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, Francis T. McCarron, the Senior Vice President and Chief Financial
Officer of Triarc Companies, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triarc Companies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 13, 2003
/S/ FRANCIS T. MCCARRON
------------------------------------
Francis T. McCarron
Senior Vice President and Chief Financial Officer
EXHIBIT 32.1
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of section 1350, chapter 63 of title 18, United States Code), each of
the undersigned officers of Triarc Companies, Inc., a Delaware corporation (the
"Company"), does hereby certify, to the best of such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 29, 2003 (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 13, 2003 /S/ NELSON PELTZ
------------------------------------
Nelson Peltz
Chairman and Chief Executive Officer
Dated: August 13, 2003 /S/ FRANCIS T. MCCARRON
------------------------------------
Francis T. McCarron
Senior Vice President and
Chief Financial Officer
A signed original of this written statement required by Section 906, or
other document authenticating, acknowledging or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to Triarc Companies, Inc.
and will be retained by Triarc Companies, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
section 1350, chapter 63 of title 18, United States Code) and is not being filed
as part of the Form 10-Q or as a separate disclosure document.