WEN

Business Context and Reporting Period

This Form 10-K covers Triarc Companies, Inc. for the fiscal year ended December 31, 2006. Triarc operates as a holding company with two primary business segments: Restaurant Franchising and Operations (Arby's) and Asset Management (Deerfield & Company LLC). As of December 31, 2006, the Arby's system comprised approximately 3,600 restaurants, with Triarc owning and operating 1,061 units. The asset management segment, Deerfield, managed approximately $13.2 billion in assets, focusing on fixed income and credit-related strategies.

Management is actively exploring a corporate restructuring that may involve the disposition of the asset management operations (Deerfield) via sale or spin-off. In anticipation of this, the company paid special cash dividends totaling $0.45 per share in 2006.

Key Financial Metrics

Segment Performance:

• Restaurants: Net sales increased to $1,073.3 million (from $570.8 million in 2005), driven by the full-year inclusion of the RTM Restaurant Group acquisition and 22 net new company-owned restaurants. Same-store sales for company-owned restaurants increased 1%.
• Asset Management: Fees increased to $88.0 million (from $65.3 million in 2005), a 35% increase, driven by higher assets under management and improved performance fees.

Material Changes Versus Prior Period

• Revenue Growth: Total revenues increased by $516.0 million (71%) compared to 2005. This was primarily due to the full-year impact of the RTM acquisition (completed July 2005) and growth in asset management fees.
• Profitability Improvement: Operating profit swung from a loss of $32.1 million in 2005 to a profit of $44.0 million in 2006. This $76.1 million improvement was largely due to the absence of one-time charges incurred in 2005 related to the RTM acquisition, including a $17.2 million loss on settlements of unfavorable franchise rights and a $35.8 million loss on early extinguishments of debt.
• Debt Reduction: Long-term debt decreased by approximately $192.6 million, reflecting the conversion of $172.9 million of 5% convertible notes into common stock and prepayments of $51.0 million on the senior secured term loan.
• Dividends: In 2006, the company paid regular quarterly dividends totaling $30.5 million and special cash dividends totaling $39.5 million ($0.45 per share), compared to $22.5 million in regular dividends in 2005 with no special dividends.

Guidance, Outlook, and Risks

Outlook: Management anticipates positive same-store sales growth for 2007 for both company-owned and franchised restaurants, driven by value programs, new menu items, and price increases implemented in late 2006. The company plans to open approximately 50 new company-owned restaurants in 2007. Asset management fees are expected to increase due to anticipated growth in assets under management.

Corporate Restructuring: The company is exploring a restructuring to dispose of its asset management business. If completed, this could involve significant severance payments and a change in senior management, with Arby's management taking the lead. There is no assurance regarding the timing or form of this restructuring.

Key Risks:

• Competition: Intense competition in the quick-service restaurant industry, including pricing pressures and competition from grocery stores and convenience stores.
• Commodity Costs: Exposure to fluctuations in beef, chicken, and fuel prices, which could impact margins if not passed on to consumers.
• Franchisee Performance: A significant portion of revenue is derived from franchise royalties; poor performance by franchisees directly impacts Triarc's results.
• Asset Management Volatility: Revenue from Deerfield is tied to assets under management and investment performance, which are subject to market volatility and potential client withdrawals.
• Legal/Environmental: Ongoing litigation regarding ADA compliance at acquired restaurants (estimated $1.0 million annual capital expenditure) and environmental remediation at a former subsidiary property.

Important Facts for Investor Verification

• Restructuring Status: Verify the progress and definitive terms of the potential spin-off or sale of the Deerfield asset management business, as this fundamentally alters the company's future profile.
• Debt Covenants: Confirm continued compliance with the Credit Agreement covenants, particularly leverage and interest coverage ratios, given the significant debt load ($720 million total).
• Same-Store Sales Trends: Monitor the sustainability of the 1% same-store sales growth in company-owned restaurants, especially given the economic weakness in key markets like Michigan and Ohio.
• Convertible Note Conversions: Review the impact of the $172.9 million convertible note conversion on share count and potential future dilution from remaining options and warrants.
• ADA Compliance Costs: Track the actual capital expenditures required for the ADA settlement regarding the 775 acquired restaurants to ensure they align with the estimated $1.0 million annual cost.