WEN

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended April 1, 2001, for Triarc Companies, Inc. (Triarc). The Company operates primarily as a restaurant franchisor (Arby's) and an investment holding company. A significant structural change occurred in the prior year with the October 25, 2000, sale of its premium beverage and soft drink concentrate businesses (Snapple, Royal Crown) to Cadbury Schweppes plc. These operations are reported as discontinued operations. The 2001 first quarter results reflect the Company's continuing operations without the beverage segment.

Key Financial Metrics

Cash Flow: Net cash used in continuing operating activities was $19.9 million, driven by a $22.3 million decrease in accounts payable and accrued expenses (primarily due to incentive compensation payments) and a $4.1 million increase in receivables. Net cash used in investing activities was $29.7 million, primarily due to net purchases of investments. Net cash used in financing activities was $6.6 million, including $3.7 million in stock repurchases.

Material Changes vs. Prior Period

• Revenue Growth: Royalties and franchise fees increased 7% to $20.7 million, driven by a net increase of 87 franchised restaurants. Investment income decreased 4% to $15.3 million, largely due to the absence of a $10.3 million non-recurring gain on the sale of Ascent Entertainment Group recorded in Q1 2000.
• Expense Reduction: General and administrative expenses dropped 32% to $12.7 million. This was primarily due to a $5.0 million reduction in compensation expense resulting from a litigation settlement with executives.
• Interest Expense: Interest expense surged to $6.5 million from $0.7 million, attributable to $5.4 million in interest on $290 million of Securitization Notes issued in November 2000.
• Discontinued Operations: Q1 2000 included a $5.7 million loss from discontinued beverage operations. Q1 2001 had no discontinued operations loss, though the Company paid $239.3 million in estimated income taxes related to the prior year's beverage sale.

Outlook, Risks, and Management Commentary

Guidance and Outlook: Management expects positive cash flows from operations for the remainder of 2001, noting that the significant cash outflows in Q1 related to operating assets and liabilities were non-recurring. The Company is evaluating options for its significant cash position ($640 million in cash and investments), including business acquisitions and share repurchases.

Capital Requirements: Key cash requirements for the remainder of 2001 include a mandatory $43.8 million repurchase of Class B common stock from affiliates of the former CEO by August 2001, scheduled debt repayments of $12.6 million, and potential repurchases under a $50.4 million remaining stock buyback authorization.

Risks and Contingencies:

• Tax Election: The Company and Cadbury intend to make a Section 338(h)(10) election regarding the beverage sale. If executed, Triarc expects to pay $165-$175 million in taxes and report $25-$35 million in income from discontinued operations. A default by either party would result in a $30 million penalty.
• Guarantees: Triarc guarantees $6.7 million of senior notes for MCM Capital Group, Inc., an investee facing liquidity difficulties. Management believes payment is possible but not probable. Triarc also holds contingent liabilities related to the sale of company-owned restaurants and propane business interests.
• Market Risk: The Company holds a significant portfolio of investments exposed to interest rate, equity price, and foreign currency fluctuations. Sensitivity analysis indicates potential fair value declines in the event of adverse market movements.

Investor Verification Checklist

• Tax Liability Realization: Verify the status of the Section 338(h)(10) election with Cadbury and the timing of the remaining $160-$170 million tax payment.
• MCM Capital Group Exposure: Monitor the financial health of MCM Capital Group and the likelihood of Triarc being called upon to honor its $6.7 million note guarantee.
• Share Repurchase Obligations: Confirm the execution of the mandatory $43.8 million Class B stock repurchase by August 2001 and the utilization of the remaining $50.4 million discretionary buyback program.
• Investment Portfolio Performance: Review the composition and unrealized gains/losses of the $640 million investment portfolio, particularly given the volatility in equity markets.
• Franchise Growth: Validate the sustainability of the 3% increase in franchised restaurants driving royalty revenue growth.