Edgar Filing: TRIARC COMPANIES INC

form10q_100907.htm

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 September 30, 2007

( )	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.)

1155 Perimeter Center West, Atlanta, Georgia		30338
(Address of principal executive offices)		(Zip Code)

(678) 514-4100

(Registrant’s telephone number, including area code)

280 Park Avenue, New York, New York 10017

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

There were 28,883,221 shares of the registrant’s Class A Common Stock and 63,884,280 shares of the registrant’s Class B Common Stock outstanding as of October 31, 2007.

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TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	3
ITEM 1: FINANCIAL STATEMENTS	3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)	3
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)	4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)	5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	7
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
INTRODUCTION AND EXECUTIVE OVERVIEW	20
PRESENTATION OF FINANCIAL INFORMATION	22
RESULTS OF OPERATIONS	23
LIQUIDITY AND CAPITAL RESOURCES	33
POTENTIAL DEERFIELD DIVESTITURE	38
LEGAL AND ENVIRONMENTAL MATTERS	38
APPLICATION OF CRITICAL ACCOUNTING POLICIES	39
SEASONALITY	39
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS	39
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	40
ITEM 4: CONTROLS AND PROCEDURES	44

PART II – OTHER INFORMATION	45
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS	45
ITEM 1A: RISK FACTORS	47
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	48
ITEM 5: OTHER INFORMATION	48
ITEM 6: EXHIBITS	49

SIGNATURES	50
EXHIBIT INDEX	51

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

TRIARC COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,			September 30,
	2006 (A)			2007
	(In Thousands)
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	148,152		$	134,572
Restricted cash equivalents		9,059			-
Short-term investments not pledged as collateral		113,950			23,159
Short-term investments pledged as collateral		8,168			5,122
Investment settlements receivable		16,599			17,452
Accounts and notes receivable		43,422			27,788
Inventories		10,019			9,744
Deferred income tax benefit		18,414			26,540
Prepaid expenses and other current assets		23,987			27,435
Total current assets		391,770			271,812
Restricted cash equivalents		1,939			39,544
Investments		60,197			82,705
Properties		488,484			512,268
Goodwill		521,055			524,816
Other intangible assets		70,923			66,174
Deferred income tax benefit		-			10,711
Other deferred costs and other assets		26,081			22,376
	$	1,560,449		$	1,530,406
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Notes payable	$	4,564		$	3,896
Current portion of long-term debt		18,118			17,844
Accounts payable		48,595			52,018
Accrued expenses and other current liabilities		150,045			156,683
Current liabilities relating to discontinued operations		9,254			9,027
Deferred compensation payable to related parties		-			36,163
Total current liabilities		230,576			275,631
Long-term debt		701,916			720,357
Deferred income		11,563			14,285
Deferred compensation payable to related parties		35,679			-
Deferred income taxes		15,532			-
Minority interests in consolidated subsidiaries		14,225			9,093
Other liabilities		73,145			82,531
Stockholders’ equity:
Class A common stock		2,955			2,955
Class B common stock		6,366			6,402
Additional paid-in capital		311,609			289,480
Retained earnings		185,726			142,020
Common stock held in treasury		(43,695	)		(16,806	)
Accumulated other comprehensive income		14,852			4,458
Total stockholders’ equity		477,813			428,509
	$	1,560,449		$	1,530,406

(A) Derived, reclassified and restated from the audited consolidated financial statements as of December 31, 2006.

See accompanying notes to condensed consolidated financial statements.

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TRIARC COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended						Nine Months Ended
	October 1,			September 30,			October 1,			September 30,
	2006			2007			2006			2007
	(In Thousands Except Per Share Amounts)
	(Unaudited)
Revenues:
Net sales	$	272,493		$	285,496		$	801,890		$	830,566
Royalties and franchise and related fees		21,403			21,777			61,025			62,855
Asset management and related fees		17,766			16,940			48,390			49,659
		311,662			324,213			911,305			943,080
Costs and expenses:
Cost of sales, excluding depreciation and amortization		197,582			210,940			583,983			610,799
Cost of services, excluding depreciation and amortization		7,313			6,562			18,743			19,760
Advertising and promotions		19,861			20,929			59,771			59,316
General and administrative, excluding depreciation and amortization		55,656			42,009			174,151			155,567
Depreciation and amortization, excluding amortization of deferred financing costs		16,250			20,022			44,314			54,411
Facilities relocation and corporate restructuring		2,165			1,807			3,743			81,254
Loss on settlement of unfavorable franchise rights		-			-			658			-
		298,827			302,269			885,363			981,107
Operating profit (loss)		12,835			21,944			25,942			(38,027	)
Interest expense		(34,426	)		(15,489	)		(100,048	)		(46,164	)
Loss on early extinguishments of debt		(194	)		-			(13,671	)		-
Investment income (loss), net		23,021			(1,083	)		74,767			39,690
Gain on sale of unconsolidated business		3			-			2,259			2,558
Other income, net		318			1,101			5,754			3,308
Income (loss) from continuing operations before income taxes and minority interests		1,557			6,473			(4,997	)		(38,635	)
(Provision for) benefit from income taxes		203			(4,174	)		3,135			24,385
Minority interests in (income) loss of consolidated subsidiaries		(976	)		1,432			(6,674	)		(2,832	)
Income (loss) from continuing operations		784			3,731			(8,536	)		(17,082	)
Loss from discontinued operations, net of income taxes:
Loss from operations		(97	)		-			(312	)		-
Loss on disposal		-			-			-			(149	)
Loss from discontinued operations		(97	)		-			(312	)		(149	)
Net income (loss)	$	687		$	3,731		$	(8,848	)	$	(17,231	)

Basic and diluted income (loss) from continuing operations and net income (loss) per share of Class A common stock and Class B common stock	$	0.01		$	0.04		$	(0.10	)	$	(0.19	)

See accompanying notes to condensed consolidated financial statements.

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TRIARC COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	October 1,			September 30,
	2006			2007
	(In Thousands)
	(Unaudited)
Cash flows from continuing operating activities:
Net loss	$	(8,848	)	$	(17,231	)
Adjustments to reconcile net loss to net cash provided by continuing operating activities:
Facilities relocation and corporate restructuring, net (payments) provision		(5,950	)		78,332
Depreciation and amortization of properties		37,247			42,244
Amortization of other intangible assets and certain other items		7,067			12,167
Amortization of deferred financing cost and original issue discount		1,633			1,509
Write-off of previously unamortized deferred financing costs on early extinguishments of debt		4,903			-
Share-based compensation provision		10,803			8,316
Straight-line rent accrual		4,532			4,746
Minority interests in income of consolidated subsidiaries		6,674			2,832
Receipt of deferred vendor incentive, net of amount recognized		8,573			2,241
Deferred compensation (reversal) provision		(274	)		1,016
Loss from discontinued operations		312			149
Deferred income tax benefit		(5,395	)		(24,872	)
Operating investment adjustments, net (see below)		563,706			(24,813	)
Payment of withholding taxes related to share-based compensation		(1,761	)		(4,793	)
Unfavorable lease liability recognized		(3,651	)		(3,301	)
Gain on sale of unconsolidated business		(2,259	)		(2,558	)
Equity in undistributed earnings of investees		(2,078	)		(873	)
Charge for common stock issued to induce effective conversions of convertible notes		3,719			-
Other, net		(2,259	)		1,489
Changes in operating assets and liabilities:
Accounts and notes receivables		18,057			15,328
Inventories		2,879			325
Prepaid expenses and other current assets		(1,000	)		(7,137	)
Accounts payable and accrued expenses and other current liabilities		(16,923	)		(44,946	)
Net cash provided by continuing operating activities (1)		619,707			40,170
Cash flows from continuing investing activities:
Capital expenditures		(52,591	)		(56,270	)
Cost of business acquisitions, less cash acquired		(1,824	)		(1,529	)
Investment activities, net (see below)		(420,820	)		33,013
Proceeds from dispositions of assets		7,003			2,615
Other, net		(2,581	)		457
Net cash used in continuing investing activities		(470,813	)		(21,714	)
Cash flows from continuing financing activities:
Dividends paid		(49,089	)		(24,162	)
Repayments of long-term debt and notes payable		(66,646	)		(15,948	)
Net distributions to minority interests in consolidated subsidiaries		(34,696	)		(7,911	)
Deferred financing costs		-			(1,164	)
Proceeds from issuance of long-term debt and a note payable		15,946			15,908
Proceeds from exercises of stock options		6,041			1,371
Net cash used in continuing financing activities		(128,444	)		(31,906	)
Net cash provided by (used in) continuing operations		20,450			(13,450	)
Net cash used in discontinued operations:
Operating activities		(172	)		(130	)
Investing activities		(685	)		-
Net cash used in discontinued operations		(857	)		(130	)
Net increase (decrease) in cash and cash equivalents		19,593			(13,580	)
Cash and cash equivalents at beginning of period		202,840			148,152
Cash and cash equivalents at end of period	$	222,433		$	134,572

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TRIARC COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	Nine Months Ended
	October 1,			September 30,
	2006			2007
	(In Thousands)
	(Unaudited)
Details of cash flows related to investments:
Operating investment adjustments, net:
Proceeds from sales of trading securities and net settlements of trading derivatives	$	7,399,884		$	6,018
Cost of trading securities purchased		(6,831,622	)		(230	)
Net recognized (gains) losses from trading securities, derivatives and short positions in securities		3,034			(1,842	)
Other net recognized gains, net of other than temporary losses		(7,766	)		(29,715	)
Other		176			956
	$	563,706		$	(24,813	)
Investing investment activities, net:
Proceeds from sales and maturities of available-for-sale securities and other investments	$	157,804		$	133,043
Cost of available-for-sale securities and other investments purchased		(76,379	)		(71,484	)
Proceeds from securities sold short		8,624,893			-
Payments to cover short positions in securities		(8,938,649	)		-
Payments under repurchase agreements, net		(521,356	)		-
Decrease (increase) in restricted cash collateralizing securities obligations or held for investment		332,867			(28,546	)
	$	(420,820	)	$	33,013

(1) Net cash provided by continuing operating activities for the nine months ended October 1, 2006 reflects the significant net sales of trading securities and net settlements of trading derivatives, the proceeds from which were principally used to cover short positions in securities and make payments under repurchase agreements. Of these activities, $569,028,000 of the net sales of trading securities and net settlements of trading derivatives and $309,448,000 of the net payments to cover short positions in securities and net payments under repurchase agreements were transacted through an investment fund, Deerfield Opportunities Fund, LLC (the “Opportunities Fund”), which employed leverage in its trading activities and which, through September 29, 2006, was consolidated in these condensed consolidated financial statements. As of September 29, 2006, Triarc Companies, Inc. (collectively with its subsidiaries, the “Company”) effectively redeemed its investment in the Opportunities Fund, which in turn had liquidated substantially all of its investment positions subsequent to that date. Accordingly, the Company does not have any cash flows associated with the Opportunities Fund for the nine months ended September 30, 2007. Under accounting principles generally accepted in the United States of America, the net sales of trading securities and the net settlements of trading derivatives must be reported in continuing operating activities, while the net payments to cover securities sold short and net payments under repurchase agreements are reported in continuing investing activities.

See accompanying notes to condensed consolidated financial statements.

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TRIARC COMPANIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2007

(Unaudited)

(1)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of Triarc Companies, Inc. (“Triarc” and, together with its subsidiaries, the “Company”) have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of the Company, however, the Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the three-month and nine-month periods and its cash flows for the nine-month periods, set forth in the following paragraph. The results of operations for the three-month and nine month periods ended September 30, 2007 are not necessarily indicative of the results to be expected for the full 2007 fiscal year. In that regard, if the potential divestiture of a significant subsidiary described in Note 3 occurs, it could, depending on the timing, impact the results for the fourth quarter of the 2007 fiscal year. In addition, the form of the potential divestiture could result in the presentation of the significant subsidiary as a discontinued operation in all current and historical financial statements. In addition, the significant corporate restructuring charges described in Note 6 affected the 2007 first nine months and, to a lesser extent, are expected to affect our corporate costs in the 2007 fourth quarter. These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (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. However, Deerfield & Company LLC (“Deerfield”), in which the Company owns a 63.6% capital interest (see Note 3), Deerfield Opportunities Fund, LLC (the “Opportunities Fund”), in which the Company owned a 73.7% capital interest prior to the effective redemption of its investment on September 29, 2006, and DM Fund, LLC (the “DM Fund”), in which the Company owned a 67% capital interest prior to the redemption of its investment on December 31, 2006, report or reported on a calendar year basis ending on December 31. The Company’s first nine months of fiscal 2006 commenced on January 2, 2006 and ended on October 1, 2006, with its third quarter commencing on July 3, 2006, except that Deerfield, the Opportunities Fund, through its effective redemption on September 29, 2006, and the DM Fund are included on a calendar-period basis. The Company’s first nine months of fiscal 2007 commenced on January 1, 2007 and ended on September 30, 2007, with its third quarter commencing on July 2, 2007, except that Deerfield is included on a calendar-period basis. The periods from July 3, 2006 to October 1, 2006 and January 2, 2006 to October 1, 2006 are referred to herein as the three-month and nine month periods ended October 1, 2006, respectively. The periods from July 2, 2007 to September 30, 2007 and January 1, 2007 to September 30, 2007 are referred to herein as the three-month and nine month periods ended September 30, 2007, respectively. Each quarter contained 13 weeks and each nine-month period contained 39 weeks. The effect of including Deerfield, the Opportunities Fund and the DM Fund, as applicable, in the Financial Statements on a calendar-period basis, instead of the Company’s fiscal-period basis, was not material to the Company’s condensed consolidated financial position or results of operations. All references to quarters, nine-month periods, quarter-end(s) and nine-month period end(s) herein relate to fiscal periods rather than calendar periods, except with respect to Deerfield, the Opportunities Fund and the DM Fund as disclosed above.

The Company’s consolidated financial statements include the accounts of Triarc and its subsidiaries, including the Opportunities Fund through the Company’s effective redemption of its investment on September 29, 2006 and the DM Fund through the Company’s redemption of its investment on December 31, 2006. The Company no longer consolidates the accounts of the Opportunities Fund and the DM Fund subsequent to September 29, 2006 and December 31, 2006, respectively.

Certain amounts included in the accompanying prior periods’ condensed consolidated financial statements have been reclassified either to report the results of operations and cash flows of two restaurants closed during the fourth quarter of 2006 as discontinued operations (see Note 8) or to conform with the current periods’ presentation. In addition, the Financial Statements have been restated, as applicable, for the adoption of the Financial Accounting Standards Board ("FASB") Staff Position No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities” (see Note 2).

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The effect of this restatement, as well as the adjustment to the beginning balance of retained earnings upon the adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” effective January 1, 2007 (see Note 2), is reflected in the following summary of the changes in retained earnings from December 31, 2006 through September 30, 2007 (in thousands):

Balance as reported at December 31, 2006	$	182,555
Cumulative effect of change in accounting for planned major aircraft maintenance activities		3,171
Balance as adjusted at December 31, 2006		185,726
Cumulative effect of change in accounting for uncertainty in income taxes		(2,275	)
Balance as adjusted at January 1, 2007		183,451
Net loss		(17,231	)
Cash dividends		(24,162	)
Accrued dividends on nonvested restricted stock		(38	)
Balance at September 30, 2007	$	142,020

(2)

Changes in Accounting Principles

Effective January 1, 2007, the Company adopted the provisions of FASB Staff Position No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities” (“FSP AIR-1”). As a result, the Company now accounts for scheduled major aircraft maintenance overhauls in accordance with the direct expensing method under which the actual cost of such overhauls is recognized as expense in the period it is incurred. Previously, the Company accounted for scheduled major maintenance activities in accordance with the accrue-in-advance method under which the estimated cost of such overhauls was recognized as expense in periods through the scheduled date of the respective overhaul with any difference between estimated and actual cost recorded in results from operations at the time of the actual overhaul. In accordance with FSP AIR-1, the Company accounted for the adoption of the direct expensing method retroactively with the cumulative effect of the change in accounting method as of January 2, 2006 of $2,774,000 increasing retained earnings as of that date, which is the beginning of the earliest period presented. The effect of this adoption on the Company’s accompanying condensed consolidated balance sheet as of December 31, 2006 is to reverse accruals for aircraft overhaul maintenance aggregating $4,955,000 and related income tax benefits of $1,784,000, with the net effect of $3,171,000 increasing retained earnings as of that date. The Company’s consolidated results of operations for the three month and nine month periods ended October 1, 2006 have been restated. For the three month period ended October 1, 2006, the restatement resulted in an increase in pre‑tax income of $217,000, or $139,000 net of income taxes, representing an increase in basic and diluted income per share of class A and class B common stock of less than $.01. For the nine month period ended October 1, 2006, the restatement resulted in a decrease in pre-tax loss of $651,000, or $417,000 net of income taxes, representing a reduction in basic and diluted loss per share of class A common stock and class B common stock of $.01. The pre-tax adjustments of $217,000 and $651,000 were reported as reductions of “General and administrative, excluding depreciation and amortization” expense in the accompanying condensed consolidated statements of operations for the three month and nine month periods ended October 1, 2006, respectively.

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). As a result, the Company now measures income tax uncertainties in accordance with a two-step process of evaluating a tax position. The Company first determines if it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is then measured as the largest amount that has a greater than fifty percent likelihood of being realized upon effective settlement. In accordance with this method, as of January 1, 2007 the Company recognized an increase in its reserves for uncertain income tax positions of $4,820,000 and an increase in its liability for interest and penalties related to uncertain income tax positions of $734,000, both partially offset by an increase in its deferred income tax benefit of $3,200,000 and a reduction in the tax related liabilities of discontinued operations of $79,000, with the net effect of $2,275,000 decreasing retained earnings as of that date.

In conjunction with the adoption of FIN 48, the Company recognized $482,000 and $1,448,000 of interest related to uncertain income tax positions during the three month and nine month periods ended September 30, 2007, respectively, included in “Interest expense” in the accompanying condensed consolidated statements of operations. The Company has approximately $1,956,000 and $3,404,000 of accrued interest and penalties at January 1, 2007 and September 30, 2007, respectively, associated with its reserves for uncertain income tax positions. The accrued interest at September 30, 2007 consists of $759,000 included in “Accrued expenses and other current liabilities” and $2,645,000 included in “Other liabilities” in the accompanying condensed consolidated balance sheet.

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The statute of limitations for examination by the Internal Revenue Service (the “IRS”) of the Company’s Federal income tax return for the year ended December 28, 2003 expired during 2007 and years prior thereto are no longer subject to examination. The Company’s Federal income tax returns for years subsequent to December 28, 2003 are not currently under examination by the IRS although some of its state income tax returns are currently under examination. The Company has received notices of proposed tax adjustments aggregating $6,424,000 in connection with certain of these state income tax returns principally relating to discontinued operations. However, the Company is contesting these proposed adjustments and, accordingly, cannot determine the ultimate amount of any resulting tax liability or any related interest and penalties.

At January 1, 2007 and September 30, 2007, the Company had $13,157,000 and $14,074,000, respectively, of reserves for uncertain income tax positions related to continuing operations, all of which would affect the Company’s effective income tax rate if they are not utilized. The Company does not currently anticipate that total reserves for uncertain income tax positions will significantly change as a result of the settlement of income tax audits and the expiration of statute of limitations for examining the Company’s income tax returns prior to September 28, 2008.

(3)

Potential Deerfield Divestiture

On April 19, 2007, the Company entered into a definitive agreement, which the parties mutually terminated on October 19, 2007, whereby Deerfield Triarc Capital Corp. (the “REIT”), a real estate investment trust managed by Deerfield, would have acquired Deerfield. Deerfield represents substantially all of the Company’s asset management business segment (see Note 12). At September 30, 2007, the Company owned 2.6% of the REIT and accounts for its investment in the REIT in accordance with the equity method. On August 9, 2007, the REIT stockholders approved the acquisition of Deerfield, which had been expected to close in the third quarter of 2007. Due to instability in the credit markets, the REIT was not able to complete, on acceptable terms, the financing for the cash portion of the purchase price necessary to consummate the transaction. The Company is continuing to explore with the REIT revised terms and conditions as well as other options, including a sale of its interest in Deerfield to another buyer or a spin-off to the Company’s shareholders. However, there can be no assurance that any of these options (collectively, the “Potential Deerfield Divestiture”) will occur.

Two of Deerfield’s executives, one of whom is a former director of the Company, in the aggregate currently hold approximately one-third of the capital interests and profit interests in Deerfield. Those executives have rights (the “Put Rights”) under Deerfield’s existing operating agreement to require the Company to acquire, for cash, a substantial portion of their interests in Deerfield under certain circumstances. In that regard, the Put Rights of one of those executives was exercisable upon the sale of Deerfield and in May 2007 that executive gave notice exercising his right to require the Company to purchase his approximate one-quarter interest in Deerfield concurrent with the closing of the sale of Deerfield contemplated by the April 19, 2007 definitive agreement (the “Put Exercise”). However, the Put Exercise terminated concurrently with the mutual termination of the definitive agreement. The Put Rights continue to be available to these executives under certain circumstances.

(4)

Comprehensive Income (Loss)

The following is a summary of the components of comprehensive income (loss), net of income taxes and minority interests (in thousands):

	Three Months Ended						Nine Months Ended
	October 1,			September 30,			October 1,			September 30,
	2006			2007			2006			2007

Net income (loss)	$	687		$	3,731		$	(8,848	)	$	(17,231	)
Net unrealized gains (losses), including reclassification of prior period unrealized losses (gains), on available-for-sale securities (see below)		2,868			(1,569	)		5,649			(8,636	)
Net unrealized gains (losses) on cash flow hedges (see below)		(2,750	)		(2,543	)		223			(2,409	)
Net change in currency translation adjustment		11			381			21			651
Comprehensive income (loss)	$	816		$	-		$	(2,955	)	$	(27,625	)

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The following is a summary of the components of the net unrealized gains (losses) on available-for-sale securities included in other comprehensive income (loss) (in thousands):

	Three Months Ended						Nine Months Ended
	October 1,			September 30,			October 1,			September 30,
	2006			2007			2006			2007

Unrealized holding gains (losses) arising during the period	$	2,695		$	(2,145	)	$	8,064		$	3,639
Reclassifications of prior period unrealized holding gains into net income or loss		(1,537	)		(426	)		(150	)		(16,782	)
Unrealized holding gain arising from the reclassification of an investment accounted for under the equity method to an available-for-sale investment		-			-			-			550
Equity in change in unrealized holding gains (losses) arising during the period		2,622			301			123			(821	)
		3,780			(2,270	)		8,037			(13,414	)
Income tax (provision) benefit		(1,607	)		861			(3,177	)		4,860
Minority interests in change in unrealized holding gains and losses of a consolidated subsidiary		695			(160	)		789			(82	)
	$	2,868		$	(1,569	)	$	5,649		$	(8,636	)

The following is a summary of the components of the net unrealized gains (losses) on cash flow hedges included in other comprehensive income (loss) (in thousands):

	Three Months Ended						Nine Months Ended
	October 1,			September 30,			October 1,			September 30,
	2006			2007			2006			2007

Unrealized holding gains (losses) arising during the period	$	(1,943	)	$	(1,094	)	$	1,552		$	(296	)
Reclassifications of prior period unrealized holding gains into net income or loss		(557	)		(513	)		(961	)		(1,546	)
Equity in change in unrealized holding losses arising during the period		(1,910	)		(2,440	)		(215	)		(2,006	)
		(4,410	)		(4,047	)		376			(3,848	)
Income tax (provision) benefit		1,660			1,504			(153	)		1,439
	$	(2,750	)	$	(2,543	)	$	223		$	(2,409	)

(5)

Income (Loss) Per Share

Basic income (loss) per share has been computed by dividing the allocated income or loss for the Company’s class A common stock (the “Class A Common Stock” or “Class A Common Shares”) and the Company’s class B common stock (the “Class B Common Stock” or “Class B Common Shares”) by the weighted average number of shares of each class. Both factors are presented in the tables below. Net income for the three month periods ended October 1, 2006 and September 30, 2007 was allocated between the Class A Common Stock and Class B Common Stock based on the actual dividend payment ratio. Net loss for the nine month periods ended October 1, 2006 and September 30, 2007 was allocated equally among each share of Class A Common Stock and Class B Common Stock, resulting in the same loss per share for each class for each of these respective periods.

Diluted income per share for the three month periods ended October 1, 2006 and September 30, 2007 have been computed by dividing the allocated income for the Class A Common Stock and Class B Common Stock by the weighted average number of shares of each class plus the potential common share effects on each class of (1) dilutive stock options and in the three month period ended September 30, 2007, nonvested restricted Class B Common Shares granted in 2007 (the “Nonvested Shares”), each computed using the treasury stock method, and (2) contingently issuable performance-based restricted shares of Class A Common Stock and Class B Common Stock (the “Restricted Shares”), to the extent they are dilutive, as of October 1, 2006 and September 30, 2007, as applicable, each as presented in the table below. The shares used to calculate diluted income per share for the three month periods ended October 1, 2006 and September 30, 2007 exclude any effect of the Company’s 5% convertible notes due 2023 (the “Convertible Notes”) which would have been antidilutive since the after-tax interest on the Convertible Notes per share of Class A Common Stock and Class B Common Stock obtainable on conversion exceeded the reported basic income from continuing operations per share. Diluted loss per share for the nine month periods ended October 1, 2006 and September 30, 2007 was the same as basic loss per share for each share of the Class A Common Stock and Class B Common Stock since the Company reported a loss from continuing operations and, therefore, the effect of all potentially dilutive securities on the loss from continuing operations per share would have been antidilutive. The basic and diluted loss from discontinued operations per share for the three-month and nine month periods ended October 1, 2006 and the nine month period ended September 30, 2007 was less than $.01 and, therefore, such effect is not presented on the condensed consolidated statements of operations. In addition, the reported basic and diluted income per share for each of the three month periods ended October 1, 2006 and September 30, 2007 are the same for each respective class of common stock since the difference is less than $.01.

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During the nine months ended October 1, 2006, an aggregate of $167,380,000 of the Convertible Notes were converted or effectively converted into 4,184,000 and 8,369,000 shares of the Company’s Class A Common Stock and Class B Common Stock, respectively, as disclosed in Note 7. The weighted average effect of these shares is included in the basic and diluted income (loss) per share calculations from the dates of their issuance after their respective conversion dates.

The only Company securities as of September 30, 2007 that could dilute basic income per share for periods subsequent to September 30, 2007 are (1) outstanding stock options which can be exercised into 459,000 shares and 4,881,000 shares of the Company’s Class A Common Stock and Class B Common Stock, respectively, (2) 193,000 Nonvested Shares which were granted in 2007 and vest over three years, (3) 33,000 Restricted Shares of the Company’s Class B Common Stock which were granted in 2007 and (4) $2,100,000 principal amount of remaining Convertible Notes which are convertible into 52,000 shares and 105,000 shares of the Company’s Class A Common Stock and Class B Common Stock, respectively.

Income (loss) per share has been computed by allocating the income or loss as follows (in thousands):

	Three Months Ended					Nine Months Ended
	October 1,			September 30,		October 1,			September 30,
	2006			2007		2006			2007
Class A Common Stock:
Continuing operations	$	227		$	1,072	$	(2,692	)	$	(5,334	)
Discontinued operations		(28	)		-		(98	)		(47	)
Net income (loss)	$	199		$	1,072	$	(2,790	)	$	(5,381	)

Class B Common Stock:
Continuing operations	$	557		$	2,659	$	(5,844	)	$	(11,748	)
Discontinued operations		(69	)		-		(214	)		(102	)
Net income (loss)	$	488		$	2,659	$	(6,058	)	$	(11,850	)

The number of shares used to calculate basic and diluted income (loss) per share were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	October 1,		September 30,		October 1,		September 30,
	2006		2007		2006		2007
Class A Common Stock:
Basic weighted average shares outstanding		27,672		28,882		27,087		28,821
Dilutive effect of stock options		957		115		-		-
Contingently issuable Restricted Shares		87		-		-		-
Diluted shares		28,716		28,997		27,087		28,821

Class B Common Stock:
Basic weighted average shares outstanding		60,184		63,655		58,822		63,478
Dilutive effect of stock options		2,246		650		-		-
Contingently issuable Restricted Shares		427		29		-		-
Dilutive effect of Nonvested Shares		-		28		-		-
Diluted shares		62,857		64,362		58,822		63,478

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(6)

Facilities Relocation and Corporate Restructuring

The facilities relocation and corporate restructuring charges for the nine month period ended October 1, 2006 consisted of $578,000 related to the Company’s restaurant business segment and $3,165,000 of general corporate charges. The charges for the nine month period ended September 30, 2007 consist of $315,000 related to the Company’s restaurant business segment and $80,939,000 of general corporate charges. The charges in the restaurant segment in each period principally related to additional charges associated with the Company combining its existing restaurant operations with those of the RTM Restaurant Group (“RTM”) following the acquisition of RTM in July 2005, including relocating the corporate office of the restaurant group from Fort Lauderdale, Florida to new offices in Atlanta, Georgia. The general corporate charge for the nine month period ended October 1, 2006 relates to the Company’s decision in December 2005 not to relocate Triarc’s corporate offices from New York City to Rye Brook, New York and principally represents a lease termination fee the Company incurred to be released from the Rye Brook lease during the 2006 third quarter. The Company recognized additional facilities relocation adjustments in our restaurant business segment during the remainder of fiscal 2006 as described in more detail in Note 18 to the consolidated financial statements contained in the Form 10-K.

The general corporate charge for the nine month period ended September 30, 2007 principally related to the ongoing transfer of substantially all of Triarc’s senior executive responsibilities to the Arby’s Restaurant Group, Inc. (“ARG”) executive team in Atlanta, Georgia (the “Corporate Restructuring”). In April 2007, when the Company entered into the definitive agreement to sell Deerfield to the REIT as described in Note 3, it announced that it will be closing its New York headquarters and combining its corporate operations with its restaurant operations in Atlanta, Georgia, which is expected to be completed in early 2008. Accordingly, to facilitate this transition, the Company entered into negotiated contractual settlements (the “Contractual Settlements”) with its Chairman, who was also the then Chief Executive Officer, and its Vice Chairman, who was the then President and Chief Operating Officer, (the “Former Executives”) evidencing the termination of their employment agreements and providing for their resignation as executive officers as of June 29, 2007 (the “Separation Date”). Under the terms of the Contractual Settlements, the Chairman and former Chief Executive Officer is entitled to a payment consisting of cash and investments with a fair value of $50,289,000 as of July 1, 2007 ($46,773,000 at September 30, 2007) and the Vice Chairman and former President and Chief Operating Officer is entitled to a payment consisting of cash and investments with a fair value of $25,144,000 as of July 1, 2007 ($23,386,000 at September 30, 2007), both subject to applicable withholding taxes. The Company has funded the payment obligations to the Former Executives, net of applicable withholding taxes, by the transfer of cash and investments to deferred compensation trusts (the “2007 Trusts”) held by the Company (see Note 10 for detailed disclosure of the 2007 Trusts). The general corporate charge of $1,746,000 for the three month period ended September 30, 2007 includes severance due to a current executive, excluding incentive compensation that is due to him for his 2007 period of employment with the Company and including applicable employer payroll taxes, partially offset by a $5,274,000 decline in the fair value of the investments underlying the payment entitlements under the Contractual Settlements. Under GAAP, we are unable to recognize investment losses for unrealized net decreases in the fair value of the investments in the 2007 Trusts that are accounted for under the cost method of accounting until the 2007 Trust assets are distributed. The general corporate charge of $80,939,000 for the nine months ended September 30, 2007 includes the fair value of the cash and investments placed in the 2007 Trusts under the Contractual Settlements as of July 1, 2007, partially offset by a decline of $5,274,000 in the fair value of the investments underlying those payment entitlements, as well as severance due to another former executive and a current executive, as described above. The three and nine-month periods also include a loss of $835,000 on properties and other assets at the Company’s former New York headquarters, principally reflecting assets for which the appraised value was less than book value, sold during the 2007 third quarter to an affiliate of the Former Executives (see Note 10), all as part of the Corporate Restructuring. The Company expects to incur additional severance and consulting fees of $2,984,000 with respect to other New York headquarters’ executives and employees principally during the fourth quarter of 2007 and the first half of 2008. The mutual termination of the sale agreement disclosed in Note 3 will have no effect on the completion of the transfer of responsibilities to ARG.

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The components of the facilities relocation and corporate restructuring charges and an analysis of activity in the facilities relocation and corporate restructuring accrual during the nine month periods ended October 1, 2006 and September 30, 2007 are as follows (in thousands):

	Nine Months Ended
	October 1, 2006
	Balance								Balance
	January 1,		Provisions						October 1,
	2006		(Reductions)			Payments			2006

Restaurant Business Segment:
Cash obligations:
Severance and retention incentive compensation	$	3,812	$	668		$	(3,602	)	$	878
Employee relocation costs		1,544		(136	)		(837	)		571
Office relocation costs		260		(33	)		(124	)		103
Lease termination costs		774		79			(430	)		423
Total Restaurant Business Segment		6,390		578			(4,993	)		1,975
General Corporate:
Cash obligations:
Lease termination costs		1,535		3,165			(4,700	)		-
	$	7,925	$	3,743		$	(9,693	)	$	1,975

	Nine Months Ended
	September 30, 2007
																	Total
	Balance											Balance			Total		Expected
	December 31,								Asset			September 30,			Incurred		to be
	2006		Provisions			Payments			Write-offs			2007			to Date		Incurred
Restaurant Business Segment:
Cash obligations:
Severance and retention incentive compensation	$	340	$	-		$	(277	)	$	-		$	63		$	5,174	$	5,174
Employee relocation costs		134		315	(a)		(115	)		-			334			4,209		4,209
Office relocation costs		45		-			(45	)		-			-			1,463		1,463
Lease termination costs		302		-			(302	)		-			-			819		819
		821		315			(739	)		-			397			11,665		11,665
Non-cash charges:
Compensation expense from modified stock awards		-		-			-			-			-			612		612
Loss on disposal of properties		-		-			-			-			-			107		107
		-		-			-			-			-			719		719
Total Restaurant Business Segment		821		315			(739	)		-			397			12,384		12,384
General Corporate:
Cash obligations:
Severance and retention incentive compensation and consulting fees		-		80,104	(b)		(2,183	)(c)		-			77,921			80,104		83,088
Non-cash charges:
Loss on sale of properties and other assets		-		835			-			(835	)		-			835		835
Total general corporate		-		80,939			(2,183	)		(835	)		77,921			80,939		83,923
	$	821	$	81,254		$	(2,922	)	$	(835	)	$	78,318	(d)	$	93,323	$	96,307

(a)

Reflects change in estimate of total cost to be incurred.

(b)

Includes original value of investments underlying the Contractual Settlements as of June 29, 2007, as adjusted primarily for a decline in their fair value of $5,274,000 recorded during the third quarter of 2007.

(c)

Represents payroll taxes for the Former Executives in connection with the Contractual Settlements.

(d)

Balance consists of $36,163,000 reported as “Deferred compensation payable to related parties” included in current liabilities and $42,155,000 included in “Accrued expenses and other current liabilities” in the accompanying condensed consolidated balance sheet as of September 30, 2007.

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(7)

Loss on Early Extinguishments of Debt

The Company recorded losses on early extinguishments of debt aggregating $194,000 and $13,671,000 in the three month and nine month periods ended October 1, 2006, respectively, consisting of (1) $74,000 and $12,652,000, respectively, related to conversions of the Company’s Convertible Notes and (2) $120,000 and $1,019,000, respectively, related to prepayments of term loans (the “Term Loans”) under the Company’s senior secured term loan facility.

During the nine months ended October 1, 2006, an aggregate of $167,380,000 principal amount of the Company’s Convertible Notes were converted or effectively converted into an aggregate of 4,184,000 Class A Common Shares and 8,369,000 Class B Common Shares. In order to induce such effective conversions, the Company paid negotiated premiums aggregating $8,694,000 to the converting noteholders consisting of cash of $4,975,000 and 226,000 Class B Common Shares with an aggregate fair value of $3,719,000 based on the closing market price of the Company’s Class B Common Stock on the dates of the effective conversions in lieu of cash to certain of those noteholders. In addition, the Company issued an additional 46,000 Class B Common Shares to those noteholders who agreed to receive such shares in lieu of a cash payment for accrued and unpaid interest. In connection with these conversions and effective conversions of the Convertible Notes, the Company recorded a loss on early extinguishments of debt of $12,652,000 during the nine month period ended October 1, 2006 consisting of the premiums aggregating $8,694,000, the write-off of $3,884,000 of related previously unamortized deferred financing costs and $74,000 of legal fees related to the conversions.

In June and September 2006, the Company prepaid $45,000,000 and $6,000,000, respectively, of principal amount of the Term Loans from excess cash. In connection with these prepayments, the Company recorded losses on early extinguishments of debt of $120,000 and $1,019,000 during the three month and nine month periods ended October 1, 2006, respectively, representing the write-off of related previously unamortized deferred financing costs.

(8)

Discontinued Operations

During the fourth quarter of 2006, the Company closed two restaurants (the “Restaurant Discontinued Operations”) which were opened in 2005 and 2006, and which were reported within the Company’s restaurant segment. These two restaurants have been accounted for as discontinued operations in 2006 through their respective dates of closing since (1) their results of operations and cash flows have been eliminated from the Company’s ongoing operations as a result of the closings and (2) the Company does not have any significant continuing involvement in the operations of the restaurants after their closings. The accompanying condensed consolidated statements of operations and cash flows have been reclassified to report the results of operations and cash flows of the two closed restaurants as discontinued operations for the three month and nine month periods ended October 1, 2006.

Prior to 2006 the Company sold (1) the stock of the companies comprising the Company’s former premium beverage and soft drink concentrate business segments (collectively, the “Beverage Discontinued Operations”) and (2) the stock or the principal assets of the companies comprising the former utility and municipal services and refrigeration business segments (the “SEPSCO Discontinued Operations”). The Beverage and SEPSCO Discontinued Operations have also been accounted for as discontinued operations by the Company.

During the three month period ended April 1, 2007, the Company recorded additional loss on disposal of the Restaurant Discontinued Operations relating to finalization of the leasing arrangements for the two closed restaurants.

The loss from discontinued operations consisted of the following (in thousands):

	Three Months
	Ended			Nine Months Ended
	October 1,			October 1,			September 30,
	2006			2006			2007

Net sales	$	215		$	544		$	-
Loss from operations before benefit from income taxes		(161	)		(521	)		-
Benefit from income taxes		64			209			-
		(97	)		(312	)		-
Loss on disposal of businesses before benefit from income taxes		-			-			(247	)
Benefit from income taxes		-			-			98
		-			-			(149	)
	$	(97	)	$	(312	)	$	(149	)

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Certain of the Company’s state income tax returns that relate to discontinued operations are currently under examination. The Company has received notices of proposed tax adjustments aggregating $6,352,000 in connection with certain of these state income tax returns. However, the Company is contesting these proposed adjustments.

Current liabilities remaining to be liquidated relating to the discontinued operations result from certain obligations not transferred to the respective buyers and consisted of the following (in thousands):

	December 31,		September 30,
	2006		2007

Accrued expenses, including accrued income taxes, of the Beverage
Discontinued Operations	$	8,496	$	8,416
Liabilities relating to the SEPSCO Discontinued Operations		556		525
Liabilities relating to the Restaurant Discontinued Operations		202		86
	$	9,254	$	9,027

The Company expects that the liquidation of the remaining liabilities associated with all of these discontinued operations as of September 30, 2007 will not have any material adverse impact on its condensed consolidated financial position or results of operations. To the extent any estimated amounts included in the current liabilities relating to discontinued operations are determined to be in excess of the requirement to liquidate the associated liability, any such excess will be released at that time as a component of gain or loss on disposal of discontinued operations.

(9)

Retirement Benefit Plans

The Company maintains two defined benefit plans, the benefits under which were frozen in 1992 and for which the Company has no unrecognized prior service cost. The components of the net periodic pension cost incurred by the Company with respect to these plans are as follows (in thousands):

	Three Months Ended						Nine Months Ended
	October 1,			September 30,			October 1,			September 30,
	2006			2007			2006			2007

Service cost (consisting entirely of plan administrative expenses)	$	24		$	22		$	71		$	67
Interest cost		54			55			163			165
Expected return on the plans’ assets		(66	)		(58	)		(197	)		(174	)
Amortization of unrecognized net loss		12			7			36			20
Net periodic pension cost	$	24		$	26		$	73		$	78

(10)

Transactions with Related Parties

In connection with the Corporate Restructuring referred to in Note 6, the Company entered into a series of agreements with the Former Executives and a management company (the “Management Company”) formed by the Former Executives and a director, who is also the former Vice Chairman of the Company (collectively, the “Principals”). These agreements are described in the paragraphs set forth below.

As discussed in Note 28 to the consolidated financial statements contained in the Form 10-K, on November 1, 2005 the Principals started a series of equity investment funds (the “Equity Funds”) that are separate and distinct from the Company and that are being managed by the Principals and other former senior executives of the Company (the “Employees”) through the Management Company formed by the Principals. Until June 29, 2007, the Principals and the Employees continued to receive their regular compensation from the Company and the Company made available the services of the Principals and the Employees, as well as certain support services, to the Management Company. Through June 29, 2007 (see below) the Company was reimbursed by the Management Company for the allocable cost of these services. Such allocated costs for the nine month periods ended October 1, 2006 and September 30, 2007 amounted to $2,827,000 and $2,515,000, respectively, and have been recognized as reductions of “General and administrative, excluding depreciation and amortization” expense in the accompanying condensed consolidated statements of operations. Subsequent to June 29, 2007, the Company is continuing to provide, and is being reimbursed for, some minimal support services to the Management Company. As discussed further below, effective June 29, 2007 the Principals and the Employees became employees of the Management Company and are no longer employed by the Company. The Company has reduced its incentive compensation expense during the nine month period ended September 30, 2007 by $2,700,000 representing the Company’s current estimate of the Management Company’s allocable portion of the estimated incentive compensation attributable to the Employees for the first six months of 2007. In addition, in July 2007 the Company paid $171,000 to the Management Company representing the accrued vacation of the Employees as of June 29, 2007, the obligation for which was assumed by the Management Company. A special committee comprised of independent members of the Company’s board of directors has reviewed these arrangements.

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As part of the agreement with the Former Executives and in connection with the Corporate Restructuring, the Company has entered into a two-year transition services agreement (the “Services Agreement”) with the Management Company beginning June 30, 2007 pursuant to which the Management Company provides the Company with a range of professional and strategic services. Under the Services Agreement, the Company is paying the Management Company $3,000,000 per quarter for the first year of services and $1,750,000 per quarter for the second year of services. The Company incurred $3,000,000 of such service fees for the nine month period ended September 30, 2007, which are included in “General and administrative, excluding depreciation and amortization” in the accompanying condensed consolidated statements of operations.

In December 2005, the Company invested $75,000,000 in an account (the “Equities Account”) which is managed by the Management Company and co-invests on a parallel basis with the Equity Funds and had a carrying value of $99,267,000 as of September 30, 2007. As part of the agreements with the Former Executives, in April 2007 the Company entered into an agreement under which the Management Company will continue to manage the Equities Account until at least December 31, 2010, the Company will not withdraw its investment from the Equities Account prior to December 31, 2010 and, beginning January 1, 2008, the Company will pay management and incentive fees to the Management Company in an amount customary for other unaffiliated third party investors with similarly sized investments. In accordance therewith, the amounts held in the Equities Account as of September 30, 2007 are reported as noncurrent assets in the accompanying condensed consolidated balance sheet and principally consist of $61,296,000 included in “Investments” and $37,605,000 included in “Restricted cash equivalents.”

Prior to 2006 the Company provided aggregate incentive compensation of $22,500,000 to the Former Executives which had been invested in two deferred compensation trusts (the “Deferred Compensation Trusts”) for their benefit. As of December 31, 2006 the obligation to the Former Executives related to the Deferred Compensation Trusts was $35,679,000 and was reported as noncurrent “Deferred compensation payable to related parties” in the accompanying condensed consolidated balance sheet. Deferred compensation expense (reversal) of $(274,000) and $2,516,000 was recognized in the nine month periods ended October 1, 2006 and September 30, 2007, respectively, for the net changes in the fair value of the investments in the Deferred Compensation Trusts. This obligation was settled effective July 1, 2007 as a result of the Former Executives’ resignation and the assets in the Deferred Compensation Trusts were either distributed to the Former Executives or used to satisfy withholding taxes. In addition, the Former Executives paid $801,000 to the Company during the third quarter of 2007 which represented the balance of withholding taxes payable on their behalf and which had been recorded during the second quarter of 2007. As of the settlement date, the obligation was $38,195,000 which represented the then fair value of the assets held in the Deferred Compensation Trusts. As of December 31, 2006, the assets in the Deferred Compensation Trusts consisted of $13,409,000 included in “Investments,” which did not reflect the unrealized net increase in the fair value of the investments of $9,309,000 because the investments were carried under the cost method of accounting, $1,884,000 included in “Cash and cash equivalents” and $11,077,000 included in “Investment settlements receivable” in the accompanying condensed consolidated balance sheet. Under GAAP, the Company was unable to recognize any investment income for unrealized net increases in the fair value of those investments in the Deferred Compensation Trusts that were accounted for under the cost method of accounting. Accordingly, the Company recognized net investment income (loss) from investments in the Deferred Compensation Trusts of $(1,943,000) and $8,653,000 in the nine month periods ended October 1, 2006 and September 30, 2007, respectively. The net investment losses during the nine month period ended October 1, 2006 consisted of an impairment charge of $2,093,000 related to an investment fund within the Deferred Compensation Trusts which experienced a significant decline in market value which the Company deemed to be other than temporary and management fees of $27,000, less interest income of $176,000 and a $1,000 adjustment to the realized gain from the sale of a cost-method investment in the Deferred Compensation Trusts. The net investment income (loss) during the nine month period ended September 30, 2007 consisted of $8,449,000 of realized gains almost entirely attributable to the transfer of the investments to the Former Executives and $222,000 of interest income, less investment management fees of $18,000. The other than temporary loss, realized gains, interest income and investment management fees are included in “Investment income, net” and deferred compensation expense (reversal) is included in “General and administrative, excluding depreciation and amortization” expense in the accompanying condensed consolidated statements of operations. The unrealized net increase in the fair value of the investment retained by the Company of $2,929,000 at September 30, 2007 will be recognized when that investment is sold.

In October 2007, there was a settlement of a lawsuit related to an investment that had been included in the Deferred Compensation Trusts. The terms of the Contractual Settlements disclosed in Note 6 included provisions pursuant to which the Former Executives would be responsible for any settlement amounts under this lawsuit. As a result, the Former Executives are responsible for the approximate $1,500,000 settlement cost. The Company reduced both its deferred compensation expense included in “General and administrative, excluding depreciation and amortization” and its net investment income in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2007 to reflect the responsibility of the Former Executives for the settlement. We received the reimbursement from the Former Executives, net of applicable taxes withheld which are expected to be refunded to us in connection with the respective payroll tax return filings in early 2008, and paid the settlement amount during the fourth quarter of 2007.

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On June 29 and July 1, 2007, the Company funded the payment of the obligations due to the Former Executives under the Contractual Settlements disclosed in Note 6, net of applicable withholding taxes of $33,994,000, in the 2007 Trusts. The payment of the amounts in the 2007 Trusts, including any investment income or less any investment loss, will be made to the Former Executives on December 30, 2007, six months following their June 29, 2007 Separation Date. As of September 30, 2007, the aggregate obligation to the Former Executives related to the 2007 Trusts was $36,163,000 and is reported as “Deferred compensation payable to related parties” classified as a current liability in the accompanying condensed consolidated balance sheet. A reversal of corporate restructuring charges of $5,274,000 was recognized in the three month period ended September 30, 2007 for net decreases in the fair value of the investments held in the 2007 Trusts underlying the payment entitlements under the Contractual Settlements primarily related to a decrease in value of the REIT shares held in the 2007 Trusts. As of September 30, 2007, the assets in the 2007 Trusts consist of $20,543,000 included in “Short-term investments not pledged as collateral” (which had a fair value of $23,553,000), and $12,610,000 included in “Cash and cash equivalents” in the accompanying condensed consolidated balance sheet.

In July 2007, as part of the Corporate Restructuring, the Company sold substantially all of the properties and other assets it owned and used at its former New York headquarters to the Management Company for an aggregate purchase price of $1,808,000, including $140,000 of sales taxes. The assets sold included computers and other electronic equipment and furniture and furnishings. The Company recognized a loss of $835,000, which is included in the corporate restructuring charge as disclosed in Note 6, with respect to the assets sold, principally reflecting assets for which the appraised value was less than book value.

In July 2007, the Company entered into an agreement under which the Management Company is subleasing (the “Sublease”) one of the floors of the Company’s New York headquarters effective July 1, 2007. Under the terms of the Sublease, the Management Company is paying the Company approximately $119,000 per month which includes an amount equal to the rent the Company pays plus a fixed amount reflecting a portion of the increase in the fair market value of the Company’s leasehold interest as well as amounts for property taxes and the other costs related to the use of the floor. Either the Management Company or the Company may terminate the Sublease upon sixty days notice. The Company recognized $358,000 from the Management Company under the Sublease for the nine month period ended September 30, 2007 which has been recorded as a reduction of “General and administrative, excluding depreciation and amortization” in the accompanying condensed consolidated statement of operations.

As of June 30, 2007, the Company assigned the lease for a corporate facility to the Management Company such that after that date, other than with respect to the Company’s security deposit applicable to the lease, the Company has no further rights or obligations with respect to the lease. The security deposit of $113,000 will remain the property of the Company and, upon the expiration of the lease on July 31, 2010, is to be returned to the Company in full.

In August 2007, the Company entered into time share agreements whereby the Principals and the Management Company may use the Company’s corporate aircraft in exchange for payment of the incremental flight and related costs of such aircraft. As of September 30, 2007, the Company was due $406,000, which is included in “Accounts and notes receivable” in the accompanying condensed consolidated balance sheet, from the Principals and the Management Company for their use of the aircraft. The amount due was recorded as a reduction of “General and administrative, excluding depreciation and amortization” in the accompanying condensed consolidated statement of operations for the nine month period ended September 30, 2007.

The Company intends to assign its 25% fractional interest in a helicopter to the Management Company, although the terms of such assignment have not yet been finalized. Pending that assignment, the Management Company has been paying the monthly management fee and other costs related to the fractional interest in the helicopter since July 1, 2007 on behalf of the Company. It is expected that subsequent to the assignment, the Company will have no further rights or obligations under the agreements applicable to the fractional interest.

All of these agreements with the Former Executives and the Management Company were negotiated and approved by a special committee of independent members of the Company’s board of directors. The special committee was advised by independent outside counsel and worked with the compensation committee and the performance compensation subcommittee of the Company’s board of directors and its independent outside counsel and independent compensation consultant.

In addition to the related party transactions described above, during the third quarter of 2007 the Company paid $1,600,000 to settle a post-closing purchase price adjustment provided for in the agreement and plan of merger pursuant to which the Company acquired RTM. The sellers of RTM included certain current officers of a subsidiary of the Company and a current director of the Company. The Company has reflected such payment as an increase in “Goodwill.”

The Company continues to have additional related party transactions of the same nature and general magnitude as those described in Note 28 to the consolidated financial statements contained in the Form 10-K.

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(11)

Legal and Environmental Matters

In 2001, a vacant property owned by Adams Packing Association, Inc. (“Adams”), an inactive subsidiary of the Company, was listed by the United States Environmental Protection Agency on the Comprehensive Environmental Response, Compensation and Liability Information System (“CERCLIS”) list of known or suspected contaminated sites. The CERCLIS listing appears to have been based on an allegation that a former tenant of Adams conducted drum recycling operations at the site from some time prior to 1971 until the late 1970s. The business operations of Adams were sold in December 1992. In February 2003, Adams and the Florida Department of Environmental Protection (the “FDEP”) agreed to a consent order that provided for development of a work plan for further investigation of the site and limited remediation of the identified contamination. In May 2003, the FDEP approved the work plan submitted by Adams’ environmental consultant and during 2004 the work under that plan was completed. Adams submitted its contamination assessment report to the FDEP in March 2004. In August 2004, the FDEP agreed to a monitoring plan consisting of two sampling events which occurred in January and June 2005 and the results were submitted to the FDEP for its review. In November 2005, Adams received a letter from the FDEP identifying certain open issues with respect to the property. The letter did not specify whether any further actions are required to be taken by Adams. Adams sought clarification from the FDEP in order to attempt to resolve this matter. On May 1, 2007, the FDEP sent a letter clarifying their prior correspondence and reiterated the open issues identified in their November 2005 letter. In addition, the FDEP offered Adams the option of voluntarily taking part in a recently adopted state program that could lessen site clean up standards, should such a clean up be required after a mandatory further study and site assessment report. The Company, its consultants and outside counsel are presently reviewing these new options and no decision has been made on a course of action based on the FDEP’s offer. Nonetheless, based on amounts spent prior to 2006 of $1,667,000 for all of these costs and after taking into consideration various legal defenses available to the Company, including Adams, the Company expects that the final resolution of this matter will not have a material effect on the Company’s financial position or results of operations.

In addition to the environmental matter described above, the Company is involved in other litigation and claims incidental to its current and prior businesses. Triarc and its subsidiaries have reserves for all of their legal and environmental matters aggregating approximately $800,000 as of September 30, 2007. Although the outcome of such matters cannot be predicted with certainty and some of these matters may be disposed of unfavorably to the Company, based on currently available information, including legal defenses available to Triarc and/or its subsidiaries, and given the aforementioned reserves, the Company does not believe that the outcome of such legal and environmental matters will have a material adverse effect on its financial position or results of operations.

(12)

Business Segments

The Company manages and internally reports its operations as two business segments: (1) the operation and franchising of restaurants (“Restaurants”) and (2) asset management (“Asset Management”) (see Note 3 regarding the potential divestiture of substantially all of the Asset Management segment). The Company evaluates segment performance and allocates resources based on each segment’s earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA has been computed as operating profit plus depreciation and amortization, excluding amortization of deferred financing costs (“Depreciation and Amortization”). Operating profit (loss) has been computed as revenues less operating expenses. In computing EBITDA and operating profit (loss), interest expense, including amortization of deferred financing costs, and non-operating income and expenses have not been considered. Identifiable assets by segment are those assets used in the Company’s operations of each segment. General corporate assets consist primarily of cash and cash equivalents, short-term investments, investment settlements receivable, non-current restricted cash equivalents, non-current investments and properties.

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The following is a summary of the Company’s segment information (in thousands):

	Three Months Ended						Nine Months Ended
	October 1,			September 30,			October 1,			September 30,
	2006			2007			2006			2007
Revenues:
Restaurants	$	293,896		$	307,273		$	862,915		$	893,421
Asset Management		17,766			16,940			48,390			49,659
Consolidated revenues	$	311,662		$	324,213		$	911,305		$	943,080
EBITDA:
Restaurants	$	39,349		$	44,507		$	108,506		$	119,820
Asset Management		3,760			5,551			8,964			11,880
General corporate (a)		(14,024	)		(8,092	)		(47,214	)		(115,316	)
Consolidated EBITDA		29,085			41,966			70,256			16,384
Less Depreciation and Amortization:
Restaurants		13,459			14,661			36,455			43,146
Asset Management		1,698			4,289			4,629			8,003
General corporate		1,093			1,072			3,230			3,262
Consolidated Depreciation and Amortization		16,250			20,022			44,314			54,411
Operating profit (loss):
Restaurants		25,890			29,846			72,051			76,674
Asset Management		2,062			1,262			4,335			3,877
General corporate (a)		(15,117	)		(9,164	)		(50,444	)		(118,578	)
Consolidated operating profit (loss)		12,835			21,944			25,942			(38,027	)
Interest expense		(34,426	)		(15,489	)		(100,048	)		(46,164	)
Loss on early extinguishments of debt		(194	)		-			(13,671	)		-
Investment income (loss), net		23,021			(1,083	)		74,767			39,690
Gain on sale of unconsolidated business		3			-			2,259			2,558
Other income, net		318			1,101			5,754			3,308
Consolidated income (loss) from continuing operations before income taxes and minority interests	$	1,557		$	6,473		$	(4,997	)	$	(38,635	)

(a)

General corporate EBITDA and Operating loss includes charges described in Note 6 for facilities relocation and corporate restructuring of $2,165 and $1,746 for the three months ended October 1, 2006 and September 30, 2007, respectively, and $3,165 and $80,939 for the nine months ended October 1, 2006 and September 30, 2007, respectively.

	December 31,		September 30,
	2006		2007
Identifiable assets:
Restaurants	$	1,079,509	$	1,128,475
Asset Management		183,733		131,247
General corporate		297,207		270,684
Consolidated total assets	$	1,560,449	$	1,530,406

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Triarc Companies, Inc., which we refer to as Triarc, and its subsidiaries should be read in conjunction with our accompanying condensed consolidated financial statements included elsewhere herein and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which we refer to as the Form 10-K. Item 7 of our Form 10-K describes 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 1A.”

Introduction and Executive Overview

We currently operate in two business segments. We operate in the restaurant business through our Company-owned and franchised Arby’s restaurants and in the asset management business through our 63.6% capital interest in Deerfield & Company LLC, which we refer to as Deerfield. In April 2007 we entered into a definitive agreement to sell our entire interest in Deerfield to Deerfield Triarc Capital Corp., a real estate investment trust managed by Deerfield which we refer to as the REIT. In October 2007, this agreement was mutually terminated by the parties because the REIT was unable to complete, on acceptable terms, the financing for the cash portion of the purchase price necessary to consummate the transaction due to instability in the credit markets. We are continuing to explore, with the REIT, revised terms and conditions as well as other options, including a sale of our interest in Deerfield to another buyer or a spin-off to our shareholders. Upon the completion of any of these options, which we refer to as the Potential Deerfield Divestiture, we will no longer earn any asset management and related fees, have any other items of income and expense related to Deerfield or have any minority interests in the results of Deerfield’s operations. However, there can be no assurance that the Potential Deerfield Divestiture will occur.

In our restaurant business, we derive revenues in the form of sales by our Company-owned restaurants and from royalties and franchise and related fees. While over 70% of our existing Arby’s royalty agreements and all of our new domestic royalty agreements provide for royalties of 4% of franchise revenues, our average royalty rate was 3.6% for the nine months ended September 30, 2007. In our asset management business, we derive revenues in the form of asset management and related fees from our management of (1) collateralized debt obligation vehicles, which we refer to as CDOs, and (2) investment funds and private investment accounts, which we refer to as Funds, including the REIT.

We derive investment income principally from the investment of our excess cash. In that regard, in December 2005 we invested $75.0 million in an account, which we refer to as the Equities Account, which is managed by a management company, which we refer to as the Management Company, formed by our Chairman, who is also our former Chief Executive Officer, and our Vice Chairman, who is also our former President and Chief Operating Officer, whom we refer to as the Former Executives, and a director, who is also our former Vice Chairman, all of whom we refer to as the Principals. The Equities Account is invested principally in the equity securities, including through derivative instruments, of a limited number of publicly-traded companies. The Equities Account, including cash equivalents, had a fair value of $99.3 million as of September 30, 2007. We had also invested in several funds managed by Deerfield, including Deerfield Opportunities Fund, LLC, which we refer to as the Opportunities Fund, and DM Fund LLC, which we refer to as the DM Fund. Prior to 2006, we invested $100.0 million in the Opportunities Fund and later transferred $4.8 million of that amount to the DM Fund. We redeemed our investments in the Opportunities Fund and the DM Fund effective September 29, 2006 and December 31, 2006, respectively. The Opportunities Fund through September 29, 2006 and the DM Fund through December 31, 2006, were accounted for as consolidated subsidiaries of ours, with minority interests to the extent of participation by investors other than us. The Opportunities Fund was a multi-strategy hedge fund that principally invested in various fixed income securities and their derivatives and employed substantial leverage in its trading activities which significantly impacted our consolidated financial position, results of operations and cash flows. We also have an investment in the REIT. When we refer to Deerfield, we mean only Deerfield & Company, LLC and not the Opportunities Fund, the DM Fund or the REIT.

Our goal is to enhance the value of our Company by increasing the revenues of both our restaurant business, which may include acquisitions, and, until any Potential Deerfield Divestiture is completed, Deerfield’s asset management business. We are continuing to focus on growing the number of restaurants in the Arby’s system, adding new menu offerings and implementing operational initiatives targeted at improving service levels and convenience. Historically our goals have also included growing Deerfield’s assets under management by utilizing the value of its profitable investment advisory brand and increasing the types of assets under management, thereby increasing Deerfield’s asset management fee revenues. However, recent trends including reduced liquidity in the credit markets could materially limit Deerfield’s ability to increase assets under management while those conditions persist.

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We are currently in the process of a corporate restructuring involving the Potential Deerfield Divestiture and the disposition of certain other non-restaurant net assets. See the discussions of “Facilities Relocation and Corporate Restructuring” under “Results of Operations” and “Potential Deerfield Divestiture” following “Liquidity and Capital Resources” for a detailed discussion of the corporate restructuring and certain of its impacts on our results of operations and our liquidity and capital resources.

In recent periods our restaurant business has experienced the following trends:

Addition of selected higher-priced quality items to menus, which appeal more to adult tastes;

Increased consumer preference for premium sandwiches with perceived higher levels of freshness, quality and customization along with increased competition in the premium sandwich category which has constrained the pricing of these products;

Increased price competition, as evidenced by (1) value menu concepts, which offer comparatively lower prices on some menu items, (2) combination meal concepts, which offer a complete meal at an aggregate price lower than the price of the individual food and beverage items, (3) the use of coupons and other price discounting and (4) many recent product promotions focused on the lower price of certain menu items;

Increased competition among quick service restaurant competitors and other businesses for available development sites, higher development costs associated with those sites and higher borrowing costs in the lending markets typically used to finance new unit development;

Increased availability to consumers of new product choices, including (1) additional healthy products focused on freshness driven by a greater consumer awareness of nutritional issues, (2) new products that tend to include larger portion sizes and more ingredients and (3) beverage programs which offer a selection of premium non-carbonated beverage choices, including coffee and tea products;

Competitive pressures from operators outside the quick service restaurant industry, such as the deli sections and in-store cafes of several major grocery store chains, convenience stores and casual dining outlets offering prepared food purchases;

Higher fuel costs which cause a decrease in many consumers’ discretionary income as well as consumer concerns about the effect of falling home prices on consumer confidence;

Higher fuel costs which have increased our utility costs as well as the cost of goods we purchase under distribution contracts that became effective in the third quarter of 2007;

Competitive pressures due to extended hours of operation by many quick service restaurant competitors particularly during the breakfast hours as well as during late night hours;

Federal, state and local legislative activity, such as minimum wage increases and mandated health and welfare benefits which could continue to result in increased wages and related fringe benefits, including health care and other insurance costs;

Competitive pressures from an increasing number of franchise opportunities seeking to attract qualified franchisees;

Legal or regulatory activity related to nutritional content or product labeling which could result in increased costs; and

Higher commodity prices which have increased our food cost.

We experience the effects of these trends directly to the extent they affect the operations of our Company-owned restaurants and indirectly to the extent they affect sales by our franchisees and, accordingly, the royalties and franchise fees we receive from them.

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Our asset management segment has been affected by current credit market conditions which make it difficult to separate short-term market reactions from developing longer term trends. However, in recent periods, our asset management business has experienced the following market events which may develop into longer term trends:

Increased volatility and widening of interest rate spreads recently experienced by the credit markets triggered by the higher delinquency and default rates in the subprime mortgage markets, which is negatively impacting our management and related fees from CDOs as well as the fair value of our CDO investments and recently has, and could continue to, negatively impact our incentive fees from the REIT.

Greater volatility in market interest rates which will place greater reliance on the effectiveness of our interest rate hedging strategies in the REIT and other Funds we manage;

Decreased ability to create new CDO transactions due to reduced investor demand for the debt obligations typically used to fund those transactions;

Tighter lending standards imposed by financial institutions which could result in either (1) a diminished ability to finance some security positions in CDOs, the REIT and other Funds or (2) financing on less favorable terms; and

Reduced liquidity in the credit markets which could materially limit our ability to increase assets under management while such conditions persist, thereby limiting our ability to increase, or in some cases maintain, asset management fees.

Presentation of Financial Information

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31. However, Deerfield, the Opportunities Fund and the DM Fund report or reported on a calendar year ending on December 31. Our first nine-month period of fiscal 2006 commenced on January 2, 2006 and ended on October 1, 2006, with our third quarter commencing on July 3, 2006, except that Deerfield, the Opportunities Fund through our effective redemption on September 29, 2006 and the DM Fund are included on a calendar-period basis. Our first nine-month period of fiscal 2007 commenced on January 1, 2007 and ended on September 30, 2007, with our third quarter commencing on July 2, 2007, except that Deerfield is included on a calendar-period basis. When we refer to the “three months ended October 1, 2006,” or the “2006 third quarter,” and the “nine months ended October 1, 2006” or the “first nine months of 2006,” we mean the periods from July 3, 2006 to October 1, 2006 and January 2, 2006 to October 1, 2006, respectively. When we refer to the “three months ended September 30, 2007,” or the “2007 third quarter,” and the “nine months ended September 30, 2007,” or the “first nine months of 2007,” we mean the periods from July 2, 2007 to September 30, 2007 and January 1, 2007 to September 30, 2007, respectively. Each quarter contained 13 weeks and each nine-month period contained 39 weeks. All references to years, first nine months and quarters relate to fiscal periods rather than calendar periods, except for Deerfield, the Opportunities Fund and the DM Fund.

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Results of Operations

Presented below is a table that summarizes our results of operations and compares the amount and percent of the change (1) between the 2006 third quarter and the 2007 third quarter and (2) between the first nine months of 2006 and the first nine months of 2007. 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.