WEN

Business Context and Reporting Period

This Form 10-Q covers Triarc Companies, Inc. (parent of Wendy's Co/Arby's) for the quarterly period ended September 30, 2007, and the nine-month period ended September 30, 2007. The Company operates two primary segments: Restaurants (Arby's) and Asset Management (Deerfield & Company LLC). The reporting period is characterized by a major corporate restructuring involving the transfer of headquarters operations from New York to Atlanta and the termination of a definitive agreement to sell the Deerfield asset management segment due to credit market instability.

Key Financial Metrics

Material Changes vs. Prior Period

• Restructuring Charges: The nine-month period included a massive $81.3 million charge for facilities relocation and corporate restructuring, compared to only $3.7 million in the prior year. This was driven by severance payments to former executives and the closing of the New York headquarters.
• Operating Profit: While the third quarter operating profit improved to $21.9 million (up from $12.8 million in Q3 2006), the nine-month operating result swung to a loss of $38.0 million (down from a profit of $25.9 million in the prior year) due to the restructuring charges.
• Investment Income: Net investment income dropped significantly to a loss of $1.1 million in Q3 2007 from $23.0 million in Q3 2006. This is largely due to the redemption of the "Opportunities Fund" in late 2006, which previously generated significant leveraged trading income.
• Restaurant Sales: Net sales from company-owned restaurants increased 5% in Q3 and 4% for the nine months, driven by 54 net new units, though same-store sales declined 1% in Q3 due to competitive pressures and weather.

Guidance, Outlook, and Risks

• Deerfield Divestiture: The definitive agreement to sell the Deerfield asset management segment to a REIT was mutually terminated in October 2007 because the REIT could not secure financing due to credit market instability. The Company is exploring revised terms, a sale to another buyer, or a spin-off to shareholders. No assurance exists that a transaction will occur.
• Corporate Restructuring: The Company expects to incur an additional $3.0 million in severance and consulting fees related to the New York headquarters closure in Q4 2007 and early 2008. Cash flows from operations are expected to use cash in Q4 2007 due to these payments.
• Restaurant Outlook: Management anticipates positive same-store sales growth for company-owned restaurants in Q4 2007, driven by new product introductions and price increases. However, they expect asset management fees to be lower in Q4 2007 due to a lack of arbitrage opportunities and reduced incentive fees.
• Liquidity: The Company has a working capital deficit of $3.8 million. It maintains $92.3 million in availability under its revolving credit facility and expects to meet cash requirements through liquid assets and borrowings.
• Risks: Key risks include the uncertainty of the Deerfield sale, continued volatility in credit markets affecting asset management fees, and competitive pressures in the quick-service restaurant industry.

Investor Verification Checklist

• Deerfield Transaction Status: Verify if a new buyer or spin-off plan for the Deerfield asset management segment has been finalized, as this represents a significant portion of the business.
• Restructuring Costs: Confirm the final total cost of the corporate restructuring and the timing of the remaining $3.0 million in expected severance payments.
• Same-Store Sales: Monitor Q4 2007 same-store sales trends to see if the anticipated growth materializes despite competitive pricing pressures.
• Liquidity Position: Review the Q4 cash flow statement to ensure the working capital deficit does not widen significantly due to restructuring payouts.
• Investment Portfolio: Assess the valuation of the "Equities Account" and other investments, noting the Company's exposure to market volatility and the potential for "other than temporary" impairment charges.