WEN

Business Context and Reporting Period

This Form 8-K, filed on August 13, 2003, reports the financial results for Triarc Companies, Inc. (parent of Wendy's Co/Arby's) for the fiscal quarter and six months ended June 29, 2003. Triarc operates as a holding company and franchisor for the Arby's restaurant system. As of June 29, 2003, the company operated 238 company-owned Arby's restaurants in the United States, following the December 2002 acquisition of Sybra, Inc., a major franchisee.

Key Financial Metrics

Liquidity and Debt: In May 2003, the company issued $175 million in 5% convertible notes due 2023. The company also assumed approximately $98 million of Sybra debt at the beginning of the 2003 fiscal year. Management noted a significant cash and investment position following the convertible note sale and a concurrent repurchase of 1.5 million shares of Class A common stock.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased significantly year-over-year, primarily driven by the inclusion of net sales from 238 company-owned restaurants acquired via the Sybra purchase ($51.4 million in Q2 2003). This was partially offset by the elimination of intercompany royalties previously paid by Sybra ($1.8 million in Q2 2003).
• Operating Profit: Operating profit rose to $5.9 million in Q2 2003 from $3.8 million in Q2 2002. Restaurant operations profit increased to $18.3 million, reflecting a $2.5 million positive net impact from the Sybra acquisition.
• Same Store Sales: Systemwide domestic same store sales declined 3.0% in Q2 2003, contrasting with a 3.9% increase in Q2 2002. The decline was attributed to industry-wide discounting, sluggish economic conditions, and severe weather in the first quarter of 2003.
• Net Loss Reduction: The net loss narrowed substantially to $1.4 million in Q2 2003 from $7.5 million in Q2 2002. This improvement was driven by higher operating profits and a swing in investment income from a $4.9 million loss in 2002 to a $3.7 million gain in 2003, partially offset by higher interest expenses.

Guidance, Outlook, and Risks

Management Commentary: CEO Nelson Peltz highlighted the successful completion of the $175 million convertible note sale and stock repurchase, emphasizing increased financial flexibility for future acquisitions. COO Peter May outlined initiatives to bridge the gap between fast food and fast casual, including the reintroduction of Market Fresh deli sandwiches and the test marketing of a new Bistro gourmet line.

Outlook: As of June 30, 2003, Arby's had franchisee commitments to build approximately 530 new units through 2011. In Q2 2003, the system opened 33 new units and closed 18 underperforming units.

Risks and Contingencies: The filing includes extensive forward-looking statement disclaimers. Key risks identified include competition and pricing pressures, consumer taste changes (specifically regarding beef and food safety), franchisee financial viability, labor and energy costs, and the impact of general economic conditions or terrorist activities on consumer spending.

Investor Verification Checklist

• Verify the sustainability of the 3.0% decline in same-store sales amidst industry discounting.
• Confirm the integration progress and profitability of the 238 acquired Sybra restaurants.
• Assess the impact of the new $175 million convertible notes and $98 million Sybra debt on future interest coverage ratios.
• Monitor the success of new product initiatives (Market Fresh and Bistro lines) in reversing sales trends.
• Review the execution of the 530-unit franchisee development commitment through 2011.