10-K 1 form10k_022808.htm form10k_022808.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2007
OR
(  ) 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 incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
1155 Perimeter Center West, Atlanta, Georgia
 
30338
(Address of principal executive offices)
 
(Zip Code)

Registrant's Telephone Number, Including Area Code: (678) 514-4100
------------------------
Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class
 
Name of Each Exchange on Which Registered
Class A Common Stock, $.10 par value
 
New York Stock Exchange
Class B Common Stock, Series 1, $.10 par value
 
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ýYes □No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  □Yes  ýNo
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. ýYes  □No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. □
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  ý
Accelerated filer □
Non-accelerated filer  □
Smaller reporting company □
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  □Yes ýNo
The aggregate market value of the registrant’s common equity held by non-affiliates of the registrant as of June 29, 2007 was approximately $1,009,949,681.  As of February 15, 2008, there were 28,884,858 shares of the registrant's Class A Common Stock and 63,885,043 shares of the registrant’s Class B Common Stock, Series 1, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Form 10-K, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after December 30, 2007.
 
 
 

 

PART 1
Special Note Regarding Forward-Looking Statements and Projections

Certain statements in this Annual Report on Form 10-K, including statements under “Item 1. Business” and “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are not historical facts, including, most importantly, information concerning possible or assumed future results of operations of Triarc Companies, Inc. and its subsidiaries (“Triarc”), and statements preceded by, followed by, or that include the words “may,” “believes,” “plans,” “expects,” “anticipates,” or the negation thereof, or similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).  All statements that address operating performance, events or developments that are expected or anticipated to occur in the future, including statements relating to revenue growth, earnings per share growth or statements expressing general optimism about future operating results, are forward-looking statements within the meaning of the Reform Act.  The forward-looking statements contained in this Form 10-K are based on our current expectations, speak only as of the date of this Form 10-K and are susceptible to a number of risks, uncertainties and other factors.  Our actual results, performance and achievements may differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.  For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act.  Many important factors could affect our future results and could cause those results to differ materially from those expressed in or implied by the forward-looking statements contained herein.  Such factors, all of which are difficult or impossible to predict accurately and many of which are beyond our control, include, but are not limited to, the following:

·
competition, including pricing pressures and the potential impact of competitors’ new units on sales by Arby’s® restaurants;

·
consumers’ perceptions of the relative quality, variety, affordability and value of the food products we offer;

·
success of operating initiatives;

·
development costs, including real estate and construction costs;

·
advertising and promotional efforts by us and our competitors;

·
consumer awareness of the Arby’s brand;

·
the existence or absence of positive or adverse publicity;

·
new product and concept development by us and our competitors, and market acceptance of such new product offerings and concepts;

·
changes in consumer tastes and preferences, including changes resulting from concerns over nutritional or safety aspects of beef, poultry, french fries or other foods or the effects of food-borne illnesses such as “mad cow disease” and avian influenza or “bird flu”;

·
changes in spending patterns and demographic trends, such as the extent to which consumers eat meals away from home;

·
adverse economic conditions, including high unemployment rates, in geographic regions that contain a high concentration of Arby’s restaurants;

·
the business and financial viability of key franchisees;

·
the timely payment of franchisee obligations due to us;

·
availability, location and lease terms of sites for restaurant development by us and our franchisees;

·
the ability of our franchisees to open new restaurants in accordance with their development commitments, including the ability of franchisees to finance restaurant development;

·
delays in opening new restaurants or completing remodels of existing restaurants;

·
the timing and impact of acquisitions and dispositions of restaurants;

·
our ability to successfully integrate acquired restaurant operations;

·
anticipated or unanticipated restaurant closures by us and our franchisees;

·
our ability to identify, attract and retain potential franchisees with sufficient experience and financial resources to develop and operate
Arby’s restaurants successfully;

 
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·
changes in business strategy or development plans, and the willingness of our franchisees to participate in our strategies and operating initiatives;

·
business abilities and judgment of our and our franchisees’ management and other personnel;

·
availability of qualified restaurant personnel to us and to our franchisees, and the ability to retain such personnel;

·
our ability, if necessary, to secure alternative distribution of supplies of food, equipment and other products to Arby’s restaurants at competitive rates and in adequate amounts, and the potential financial impact of any interruptions in such distribution;

·
changes in commodity (including beef and chicken), labor, supply, distribution and other operating costs;

·
availability and cost of insurance;

·
adverse weather conditions;

·
availability, terms (including changes in interest rates) and effective deployment of capital;

·
changes in legal or self-regulatory requirements, including franchising laws, accounting standards, environmental laws, payment card industry rules, overtime rules, minimum wage rates, government-mandated health benefits and taxation rates;

·
the costs, uncertainties and other effects of legal, environmental and administrative proceedings;

·
the impact of general economic conditions on consumer spending, including a slower consumer economy and the effects of war or terrorist activities;

·
the impact of our continuing investment in Deerfield Capital Corp. following our corporate restructuring; and

·
other risks and uncertainties affecting us and our subsidiaries referred to in this Form 10-K (see especially “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and in our other current and periodic filings with the Securities and Exchange Commission.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us.  We assume no obligation to update any forward-looking statements after the date of this Form 10-K as a result of new information, future events or developments, except as required by federal securities laws.  In addition, it is our policy generally not to make any specific projections as to future earnings, and we do not endorse any projections regarding future performance that may be made by third parties.

Item 1.    Business.

Introduction

We are a holding company and, through our subsidiary Arby’s Restaurant Group, Inc. (“ARG”), we are the franchisor of the Arby’s restaurant system.  The Arby’s restaurant system is comprised of approximately 3,700 restaurants, of which, as of December 30, 2007, 1,106 were owned and operated by our subsidiaries.  References in this Form 10-K to restaurants that we “own” or that are “company-owned” include owned and leased restaurants as well as one restaurant managed pursuant to a management agreement.  Our corporate predecessor was incorporated in Ohio in 1929.  We reincorporated in Delaware in June 1994.  Our principal executive offices are located at 1155 Perimeter Center West, Atlanta, Georgia 30338, and our telephone number is (678) 514-4100. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, as well as our annual proxy statement, available, free of charge, on our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.  Our website address is www.triarc.com.  Information contained on our website is not part of this Form 10-K.

Sale of Deerfield
 
    On December 21, 2007, in connection with our previously announced corporate restructuring and transition to a “pure play” restaurant company, we completed the sale of Deerfield & Company LLC (“Deerfield”) to Deerfield Capital Corp. (formerly known as Deerfield Triarc Capital Corp.), a real estate investment trust (“DFR” or the “REIT”), in a transaction we refer to as the “Deerfield Sale.” Deerfield is a holding company, the primary assets of which are the outstanding membership interests of Deerfield Capital Management LLC, a Chicago-based, fixed income asset manager that had been acting as the external manager of DFR.  In consideration for our interest in Deerfield, we received approximately $48 million in senior secured notes with a fair value of approximately $46 million and approximately 9.6 million shares of DFR convertible preferred stock with a fair value of approximately $88.4 million, both as of the date of the sale.  We also received approximately 206,000 shares of DFR common stock previously owned by Deerfield as a distribution prior to the sale.  Each share of DFR preferred stock will be convertible into one share of DFR common stock upon receipt of DFR stockholder approval of the issuance of the underlying common stock.  The DFR shareholder meeting to vote on such approval is currently scheduled to be held on March 11, 2008.  The DFR shares held by us as a result of the sale represent approximately 15% of DFR’s outstanding common stock on an as converted basis.  There can be no assurance, however, that DFR’s stockholders will approve the issuance of common stock in exchange for our DFR preferred stock.  See “Liquidity and Capital Resources – Deerfield Sale” for a detailed discussion of the Deerfield Sale.

 
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Business Strategy

The key elements of our business strategy include using our resources to grow our restaurant business and evaluating and making various acquisitions and business combinations in the restaurant industry.  The implementation of this business strategy may result in increases in expenditures for, among other things, construction of new units, acquisitions and related financing activities and, over time, marketing and advertising.  See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Unless circumstances dictate otherwise, it is our policy to publicly announce an acquisition or business combination only after a definitive agreement with respect to such acquisition or business combination has been reached.

On November 1, 2005, Nelson Peltz, our Chairman and former Chief Executive Officer, Peter W. May, our Vice Chairman and former President and Chief Operating Officer, and Edward P. Garden, our Former Vice Chairman and a member of our Board of Directors (collectively, the “Principals”), started a series of equity investment funds (the “Funds”) that are separate and distinct from Triarc and that are being managed by the Principals and certain other former senior officers and former employees of Triarc through a management company (the “Management Company”) formed by the Principals.  The investment strategy of the Funds is to achieve capital appreciation by investing in equity securities of publicly traded companies and effecting positive change in those companies through active influence and involvement.  Before agreeing to acquire more than 50% of the outstanding voting securities of a company in the quick service restaurant segment in which Arby’s operates, the Principals have agreed to offer us such acquisition opportunity, which may result in acquisition opportunities being made available to us from time to time.  See Note 28 to the Consolidated Financial Statements for additional information on our agreements with the Management Company.

Fiscal Year
    
    We use a 52/53 week fiscal year convention whereby our fiscal year ends each year on the Sunday that is closest to December 31 of that year.  Each fiscal year generally is comprised of four 13 week fiscal quarters, although in some years the fourth quarter represents a 14 week period.  Deerfield, through the date of its sale, reported on a calendar year basis.

Business Operations

During 2007, our operations were in two business segments.  We operate in the restaurant business through our Company-owned and franchised Arby’s restaurants and, until the Deerfield Sale, we also operated in the asset management business.  Financial information relating to the restaurants and asset management segments is included herein at Note 30 to the Consolidated Financial Statements.

The Arby’s Restaurant System
 
    We participate in the quick service restaurant segment of the restaurant industry.  Arby’s is the largest restaurant franchising system specializing in the roast beef sandwich segment of the quick service restaurant industry.  According to Nation’s Restaurant News, Arby’s is the 12th largest quick service restaurant chain in the United States.  We acquired our company-owned Arby’s restaurants principally through the acquisitions of Sybra, Inc. in December 2002 and the RTM Restaurant Group in July 2005.  We increase the number of our company-owned restaurants from time to time through acquisitions as well as the development and construction of new restaurants.  There are approximately 3,700 Arby’s restaurants in the United States and Canada.  As of December 30, 2007, there were 1,106 company-owned Arby’s restaurants and 2,582 Arby’s restaurants owned by 462 franchisees.  Of the 2,582 franchisee-owned restaurants, 2,458 operated within the United States and 124 operated outside the United States, principally in Canada.

ARG also owns the T.J. Cinnamons® concept, which consists of gourmet cinnamon rolls, gourmet coffees and other related products, and the Pasta Connection® concept, which includes pasta dishes with a variety of different sauces.  As of December 30, 2007, there were a total of 243 T.J. Cinnamons outlets, 225 of which are multi-branded with domestic Arby’s restaurants, and six Pasta Connection outlets, all of which are multi-branded with domestic Arby’s restaurants.  ARG is not currently offering to sell any additional Pasta Connection franchises.

 
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    In addition to various slow-roasted roast beef sandwiches, Arby’s offers an extensive menu of chicken, turkey and ham sandwiches, snack items and salads.  In 2001, Arby’s introduced its Market Fresh line of premium sandwiches on a nationwide basis.  Since its introduction, the Arby’s Market Fresh® line has grown to include fresh salads made with premium ingredients such as fresh apples, dried cranberries, corn salsa and black beans.  Arby’s also offers Market Fresh wrap sandwiches with the same ingredients as its Market Fresh sandwiches inside a tortilla wrap.  In 2007, Arby's added Toasted Subs to its sandwich selections, which is Arby’s largest menu revision since the 2001 introduction of its Market Fresh line.  Arby’s initial lineup of Toasted Sub offerings includes four varieties on toasted ciabatta rolls: the French Dip & Swiss Toasted Sub, the Philly Beef Toasted Sub, the Classic Italian Toasted Sub and the Turkey Bacon Club Toasted Sub.  Additional varieties of the Toasted Subs are being offered on a limited time basis.
 
    During 2007, ARG opened 51 new Arby’s restaurants and closed 15 generally underperforming Arby’s restaurants.  In addition, ARG acquired 11 existing Arby’s restaurants from its franchisees and sold two of its company-owned restaurants to new or existing franchisees. During 2007, Arby’s franchisees opened 97 new Arby’s restaurants and closed 30 generally underperforming Arby’s restaurants.  In addition, during 2007, Arby’s franchisees opened one and closed nine T.J. Cinnamons outlets located in Arby’s units, and franchisees closed an additional five T.J. Cinnamons outlets located outside of Arby’s units.  As of December 30, 2007, franchisees have committed to open 386 Arby’s restaurants over the next seven years.  You should read the information contained in “Item 1A. Risk Factors—Our restaurant business is significantly dependent on new restaurant openings, which may be affected by factors beyond our control.”

As of December 30, 2007, Canadian franchisees have committed to open six Arby’s restaurants over the next four years.  During 2007, one new Arby’s unit was opened in Canada and four Arby’s units in Canada were closed.  During 2007, no other Arby’s units were opened or closed outside the United States.

Overview

As the franchisor of the Arby’s restaurant system, ARG, through its subsidiaries, owns and licenses the right to use the Arby’s brand name and trademarks in the operation of Arby’s restaurants.  ARG provides Arby’s franchisees with services designed to increase both the revenue and profitability of their Arby’s restaurants.  The most important of these services are providing strategic leadership for the brand, product development, quality control, operational training and counseling regarding site selection.

The revenues from our restaurant business are derived from three principal sources: (1) sales at company-owned restaurants; (2) franchise royalties received from all Arby’s franchised restaurants; and (3) up-front franchise fees from restaurant operators for each new unit opened.

Arby’s Restaurants

Arby’s opened its first restaurant in Boardman, Ohio in 1964.  As of December 30, 2007, ARG and Arby’s franchisees operated Arby’s restaurants in 48 states, and four foreign countries.  As of December 30, 2007, the six leading states by number of operating units were: Ohio, with 291 restaurants; Michigan, with 196 restaurants; Indiana, with 181 restaurants; Florida, with 176 restaurants; Texas, with 167 restaurants; and Georgia, with 153 restaurants.  The country outside the United States with the most operating units is Canada with 115 restaurants as of December 30, 2007.

Arby’s restaurants in the United States and Canada typically range in size from 2,500 square feet to 3,000 square feet, and almost all of the freestanding system-wide restaurants feature drive-thru windows.  Restaurants typically have a manager, at least one assistant manager and as many as 30 full and part-time employees. Staffing levels, which vary during the day, tend to be heaviest during the lunch hours.

The following table sets forth the number of Arby’s restaurants at the beginning and end of each year from 2005 to 2007:

   
2005
   
2006
   
2007
 
Restaurants open at beginning of period
    3,461       3,506       3,585  
Restaurants opened during period
    101       131       148  
Restaurants closed during period
    56       52       45  
Restaurants open at end of period
    3,506       3,585       3,688  

During the period from January 3, 2005, through December 30, 2007, 380 Arby’s restaurants were opened and 153 generally underperforming Arby’s restaurants were closed.  We believe that closing underperforming Arby’s restaurants has contributed to an increase in the average annual unit sales volume of the Arby’s system, as well as to an improvement of the overall brand image of Arby’s.

As of December 30, 2007, ARG owned or operated 1,106 domestic Arby’s restaurants, of which 1,070 were freestanding units, 19 were in shopping malls, five were in office buildings/urban in-line locations, four were in convenience stores, five were in travel plazas and three were in strip center locations.

 
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Franchise Network

ARG seeks to identify potential franchisees that have experience in owning and operating quick service restaurant units, have a willingness to develop and operate Arby’s restaurants and have sufficient net worth.  ARG identifies applicants through its website, targeted mailings, maintaining a presence at industry trade shows and conventions, existing customer and supplier contacts and regularly placed advertisements in trade and other publications.  Prospective franchisees are contacted by an ARG sales agent and complete an application for a franchise.  As part of the application process, ARG requires and reviews substantial documentation, including financial statements and documents relating to the corporate or other business organization of the applicant.  Franchisees that already operate one or more Arby’s restaurants must satisfy certain criteria in order to be eligible to enter into additional franchise agreements, including capital resources commensurate with the proposed development plan submitted by the franchisee, a commitment by the franchisee to employ trained restaurant management and to maintain proper staffing levels, compliance by the franchisee with all of its existing franchise agreements, a record of operation in compliance with Arby’s operating standards, a satisfactory credit rating and the absence of any existing or threatened legal disputes with Arby’s.  The initial term of the typical “traditional” franchise agreement is 20 years.

ARG currently does not offer any financing arrangements to franchisees seeking to build new franchised units. In 2006, ARG terminated a program offered through CIT Group to provide remodel financing to Arby’s franchisees, with ARG having no financial obligations under the program.  ARG continues to evaluate potential new financial programs to assist franchisees in remodeling existing Arby’s restaurants.

ARG offers franchises for the development of both single and multiple “traditional” and “non-traditional” restaurant locations.  As compared to traditional restaurants, non-traditional restaurants generally occupy a smaller retail space, offer no or very limited seating, may cater to a captive audience, have a limited menu, and possibly have reduced services, labor and storage and different hours of operation.  Both new and existing franchisees may enter into a development agreement, which requires the franchisee to develop one or more Arby’s restaurants in a particular geographic area or at a specific site within a specific time period.  All franchisees are required to execute standard franchise agreements.  ARG’s standard U.S. franchise agreement for new Arby’s traditional restaurant franchises currently requires an initial $37,500 franchise fee for the first franchised unit, $25,000 for each subsequent unit and a monthly royalty payment equal to 4.0% of restaurant sales for the term of the franchise agreement.  ARG’s non-traditional restaurant franchise agreement requires an initial $12,500 franchise fee for the first and all subsequent units, and a monthly royalty payment ranging from 4.0% to 6.8%, depending upon the non-traditional restaurant category.  Franchisees of traditional restaurants typically pay a $10,000 commitment fee, and franchisees of non-traditional restaurants typically pay a $12,500 commitment fee, which is credited against the franchise fee during the development process for a new restaurant.

In 2007, ARG introduced a program designed to accelerate the development of traditional Arby’s restaurants in selected markets (our “SMI” program).  ARG’s franchise agreement for participants in the SMI program currently requires an initial $27,500 franchise fee for the first franchised unit, $15,000 for each subsequent unit and a monthly royalty payment equal to 1.0% of restaurant sales for the first 36 months the unit is open.  After 36 months, the monthly royalty rate reverts to the prevailing 4% rate for the remaining term of the agreement.  The commitment fee is $5,000 per restaurant, which is credited against the franchise fee during the development process.

Because of lower royalty rates still in effect under certain earlier agreements, the average royalty rate paid by U.S. franchisees was approximately 3.5% in 2005, 3.6% in 2006 and 3.6% in 2007.

Franchised restaurants are required to be operated under uniform operating standards and specifications relating to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and cleanliness of premises and customer service.  ARG monitors franchisee operations and inspects restaurants periodically to ensure that required practices and procedures are being followed.

Acquisitions and Dispositions of Arby’s Restaurants

As part of ARG’s continuous efforts to enhance the Arby’s brand, grow the Arby’s system and improve Arby’s system operations, ARG from time to time acquires or sells individual or multiple Arby’s restaurants.  ARG may use such transactions as a way of further developing a targeted market.  For example, ARG may sell a number of restaurants in a particular market to a franchisee and obtain a commitment from the franchisee to develop additional restaurants in that market.  Or, ARG may acquire restaurants from a franchisee demonstrating a limited desire to grow and then seek to further penetrate that market through the development of additional company-owned restaurants.  ARG believes that dispositions of multiple restaurants at once can also be an effective strategy for attracting new franchisees who seek to be multiple unit operators with the opportunity to benefit from economies of scale.  In addition, ARG may acquire restaurants from a franchisee who wishes to exit the Arby’s system.  When ARG acquires underperforming restaurants, it seeks to improve their results of operations and then either continues to operate them as company-owned restaurants or re-sells them to new or existing franchisees.

 
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Advertising and Marketing

Arby’s advertises nationally on several cable television networks.  In addition, from time to time, Arby’s will sponsor a nationally televised event or participate in a promotional tie-in for a movie.  Locally, Arby’s primarily advertises through regional network and cable television, radio and newspapers.  The AFA Service Corporation (the “AFA”), an independent membership corporation in which every domestic Arby’s franchisee is required to participate, was formed to create advertising and perform marketing for the Arby’s system.  ARG’s chief marketing officer currently serves as president of the AFA.  The AFA is managed by ARG pursuant to a management agreement, as described below.  The AFA is funded primarily through member dues, which have been increased beginning in 2008, as described below.  As of January 1, 2008, ARG and most domestic Arby’s franchisees must pay 1.8% of gross sales as dues to AFA.  Domestic franchisee participants in our SMI program pay an extra 1% (currently 2.8% total) of gross sales as AFA dues for the first 36 months of operation, then their dues revert to the lower prevailing rate.

During 2007, the AFA by-laws were amended to allow the AFA board of directors, at its discretion, to increase annual dues up to an additional 0.8% of gross sales for the period commencing January 1, 2008 and ending December 31, 2009, at which time the amendment is expected to be re-evaluated.  Following this amendment, the AFA board increased AFA dues from 1.2% of gross sales to 1.8% of gross sales effective January 1, 2008.  The increase was made in order to provide more funding for national advertising activities in 2008.  ARG believes that most operators, including ARG, will offset this increase by making a corresponding reduction in local advertising expenditures, subject to the requirement in Arby’s license agreements to expend at least 3% of gross sales on local marketing. There can be no assurance that the increased dues will continue to apply in 2009 or beyond.

Effective October 2005, ARG and the AFA entered into a management agreement (the “Management Agreement”) that ARG believes has enabled a closer working relationship between ARG and the AFA, allowed for improved collaboration on strategic marketing decisions and created certain operational efficiencies, thus benefiting the Arby’s system as a whole.  Pursuant to the Management Agreement, ARG assumed general responsibility for the day-to-day operations of the AFA, including preparing annual operating budgets, developing the brand marketing strategy and plan, recommending advertising agencies and media buying agencies, and implementing all marketing/media plans.  ARG performs these tasks subject to the approval of the AFA’s Board of Directors.  In addition to these responsibilities, ARG is obligated to pay for the general and administrative costs of the AFA, other than the cost of an annual audit of the AFA and certain other expenses specifically retained by the AFA.  ARG incurred expenses of approximately $6.8 million to cover the AFA’s general and administrative costs for 2007, a portion of which was offset by the AFA’s payment of $1.5 million to ARG, as required under the Management Agreement.  The AFA is required to pay $500,000 to ARG in 2008 to defray a portion of these costs.  Beginning in 2009 and for each year thereafter, the AFA will no longer be required to make any such payments to ARG.  Under the Management Agreement, ARG is also required to provide the AFA with appropriate office space at no cost to the AFA.  The Management Agreement with the AFA continues in effect until terminated by either party upon one year’s prior written notice.  In addition, the AFA may terminate the Management Agreement upon six months’ prior written notice if there is a change in the identity of any two of the individuals holding the titles of Chief Executive Officer, Chief Operating Officer or Chief Administrative Officer of ARG in any period of 36 months.  See Note 24 to the Consolidated Financial Statements for additional information on the Management Agreement with AFA.

In addition to their contributions to the AFA, ARG and Arby’s domestic franchisees are also required to spend a reasonable amount, but not less than 3% of gross sales of their Arby’s restaurants, for local advertising.  This amount is divided between (i) individual local market advertising expenses and (ii) expenses of a cooperative area advertising program.  Contributions to the cooperative area advertising program, in which both company-owned and franchisee-owned restaurants participate, are determined by the local cooperative participants and are generally in the range of 3% to 7% of gross sales.  Domestic franchisee participants in our SMI program are not, however, required to make any expenditure for local advertising until their restaurants have been in operation for 36 months.

In 2007, Arby’s was a primary sponsor of Roush Racing’s NASCAR® team led by driver Matt Kenseth and his #17 Ford® race car in 13 Busch® Series events and one Nextel Cup® Series event.  The Arby’s/NASCAR relationship was supported through national and local television advertising, radio, print, in-store merchandising and the Arby’s website.  In 2008, Arby’s is continuing its relationship with Matt Kenseth in two Nationwide Series (formerly Busch Series) events, with support through local television advertising, radio, print, in-store and web merchandising and public relations efforts.

Provisions and Supplies

As of December 30, 2007, two independent meat processors supplied all of Arby’s beef for roasting in the United States.  Franchise operators are required to obtain beef for roasting from these approved suppliers.

ARCOP, Inc., a not-for-profit purchasing cooperative, negotiates contracts with approved suppliers on behalf of ARG and Arby’s franchisees.  Suppliers to the Arby’s system must comply with United States Department of Agriculture (“USDA”) and United States Food and Drug Administration (“FDA”) regulations governing the manufacture, packaging, storage, distribution and sale of all food and packaging products.  Franchisees may obtain other products, including food, ingredients, paper goods, equipment and signs, from any source that meets ARG’s specifications and approval.  Through ARCOP, ARG and Arby’s franchisees purchase food, beverage, proprietary paper and operating supplies under national contracts with pricing based upon total system volume.

 
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Quality Assurance

ARG has developed a quality assurance program designed to maintain standards and the uniformity of menu offerings at all Arby’s restaurants.  ARG assigns a quality assurance employee to each of the independent facilities that process beef for domestic Arby’s restaurants. The quality assurance employee inspects the beef for quality and uniformity and to assure compliance with quality and safety requirements of the USDA and the FDA.  In addition, ARG periodically evaluates randomly selected samples of beef and other products from its supply chain.  Each year, ARG representatives conduct unannounced inspections of operations of a number of franchisees to ensure that required policies, practices and procedures are being followed. ARG field representatives also provide a variety of on-site consulting services to franchisees.  ARG has the right to terminate franchise agreements if franchisees fail to comply with quality standards.

Trademarks

ARG, through its subsidiaries, owns several trademarks that we consider to be material to our restaurant business, including Arby’s®, Arby’s Market Fresh®, Market Fresh®, Horsey Sauce® and Sidekickers®.

ARG’s material trademarks are registered in the U.S. Patent and Trademark Office and various foreign jurisdictions.  Our registrations for such trademarks in the United States will last indefinitely as long as ARG continues to use and police the trademarks and renew filings with the applicable governmental offices. There are no pending challenges to ARG’s right to use any of its material trademarks in the United States.

Competition

Arby’s faces direct and indirect competition from numerous well-established competitors, including national and regional non-burger sandwich chains, such as Panera Bread®, Subway® and Quiznos®, as well as hamburger chains, such as McDonald’s®, Burger King® and Wendy’s®, and other quick service restaurant chains, such as Taco Bell®, Chick-Fil-A® and Kentucky Fried Chicken®.  In addition, Arby’s competes with locally owned restaurants, drive-ins, diners and other similar establishments. Key competitive factors in the quick service restaurant industry are price, quality of products, quality and speed of service, advertising, brand awareness, restaurant location and attractiveness of facilities.  Arby’s also competes within the food service industry and the quick service restaurant sector not only for customers, but also for personnel, suitable real estate sites and qualified franchisees.

Many of the leading restaurant chains have focused on new unit development as one strategy to increase market share through increased consumer awareness and convenience. This has led to increased competition for available development sites and higher development costs for those sites.  Competitors also employ strategies such as frequent use of price discounting, frequent promotions and heavy advertising expenditures.  Continued price discounting in the quick service restaurant industry and the emphasis on value menus could have an adverse impact on us.  In addition, the growth of fast casual chains and other in-line competitors could cause some fast food customers to “trade up” to a more traditional dining out experience while keeping the benefits of quick service dining.

Other restaurant chains have also competed by offering higher quality sandwiches made with fresh ingredients and artisan breads.  Several chains have also sought to compete by targeting certain consumer groups, such as capitalizing on trends toward certain types of diets (e.g., low carbohydrate or low trans fat) by offering menu items that are promoted as being consistent with such diets.

Additional competitive pressures for prepared food purchases come from operators outside the restaurant industry.  A number of major grocery chains offer fully prepared food and meals to go as part of their deli sections.  Some of these chains also have in-store cafes with service counters and tables where consumers can order and consume a full menu of items prepared especially for that portion of the operation.  Additionally, convenience stores and retail outlets at gas stations frequently offer sandwiches and other foods.

Many of our competitors have substantially greater financial, marketing, personnel and other resources than we do.

Governmental Regulations

Various state laws and the Federal Trade Commission regulate ARG’s franchising activities.  The Federal Trade Commission requires that franchisors make extensive disclosure to prospective franchisees before the execution of a franchise agreement. Several states require registration and disclosure in connection with franchise offers and sales and have “franchise relationship laws” that limit the ability of franchisors to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements.  In addition, ARG and Arby’s franchisees must comply with the federal Fair Labor Standards Act and the Americans with Disabilities Act (the “ADA”), which requires that all public accommodations and commercial facilities meet federal requirements related to access and use by disabled persons, and various state and local laws governing matters that include, for example, the handling, preparation and sale of food and beverages, minimum wages, overtime and other working and safety conditions.  Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants. As described more fully under “Item 3. Legal Proceedings,” one of ARG’s subsidiaries was a defendant in a lawsuit alleging failure to comply with Title III of the ADA at approximately 775 company-owned restaurants acquired as part of the July 2005 acquisition of the

 
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RTM Restaurant Group.  Under a court approved settlement of that lawsuit, we estimate that ARG will spend approximately $1.15 million per year of capital expenditures over a seven-year period commencing in 2008 to bring these restaurants into compliance with the ADA, in addition to paying certain legal fees and expenses.  We do not believe that the costs related to this matter or any other costs relating to compliance with the ADA will have a material adverse effect on the Company’s consolidated financial position or results of operations.  We cannot predict the effect on our operations, particularly on our relationship with franchisees, of any pending or future legislation.

General

Environmental Matters

Our past and present operations are governed by federal, state and local environmental laws and regulations concerning the discharge, storage, handling and disposal of hazardous or toxic substances. These laws and regulations provide for significant fines, penalties and liabilities, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. In addition, third parties may make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous or toxic substances. We cannot predict what environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or interpreted. We similarly cannot predict the amount of future expenditures that may be required to comply with any environmental laws or regulations or to satisfy any claims relating to environmental laws or regulations. We believe that our operations comply substantially with all applicable environmental laws and regulations. Accordingly, the environmental matters in which we are involved generally relate either to properties that our subsidiaries own, but on which they no longer have any operations, or properties that we or our subsidiaries have sold to third parties, but for which we or our subsidiaries remain liable or contingently liable for any related environmental costs.  Our company-owned Arby’s restaurants have not been the subject of any material environmental matters.  Based on currently available information, including defenses available to us and/or our subsidiaries, and our current reserve levels, we do not believe that the ultimate outcome of the environmental matter discussed below or other environmental matters in which we are involved will have a material adverse effect on our consolidated financial position or results of operations. See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” below.

 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 this option and no decision has been made on a course of action based on the FDEP’s offer.  In January 2008, Adams replied to the FDEP requesting an extension of time to April 30, 2008 to respond to the May 1, 2007 letter while Adams continues to work on potential solutions to the matter.  Nonetheless, based on amounts spent prior to 2006 of approximately $1.7 million 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.  See “Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations--Legal and Environmental Matters.”

In addition to the environmental matter described above, we are involved in other litigation and claims incidental to our current and prior businesses.  We and our subsidiaries have reserved for all of our legal and environmental matters aggregating $0.7 million as of December 30, 2007.  Although the outcome of these matters cannot be predicted with certainty and some of these matters may be disposed of unfavorably to us, based on currently available information, including legal defenses available to us and/or our subsidiaries, and given the aforementioned reserves and our insurance coverages, we do not believe that the outcome of these legal and environmental matters will have a material adverse effect on our consolidated financial position or results of operations.

Seasonality

Our consolidated results are not significantly impacted by seasonality.  However, our restaurant revenues are somewhat lower in our first quarter.

 
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Employees

As of December 30, 2007, we had a total of 26,605 employees, including 3,382 salaried employees and 23,223 hourly employees.  As of December 30, 2007, none of our employees was covered by a collective bargaining agreement.  We believe that our employee relations are satisfactory.

Item 1A. Risk Factors.

We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-K, the following important factors, among others, sometimes have affected, or in the future could affect, our actual results and could cause our actual consolidated results during 2008, and beyond, to differ materially from those expressed in any forward-looking statements made by us or on our behalf.
Risks Related to Triarc

A substantial amount of our shares of Class A Common Stock and Class B Common Stock is concentrated in the hands of certain stockholders.

As of February 15, 2008, Nelson Peltz, our Chairman and former Chief Executive Officer, and Peter May, our Vice Chairman and former President and Chief Operating Officer, beneficially owned shares of our outstanding Class A Common Stock and Class B Common Stock, Series 1, that collectively constituted approximately 36.7% of our Class A Common Stock, 21.3% of our Class B Common Stock and 34.0% of our total voting power.

Messrs. Peltz and May may from time to time acquire additional shares of Class A Common Stock, including by exchanging some or all of their shares of Class B Common Stock for shares of Class A Common Stock.  Additionally, we may from time to time repurchase shares of Class A Common Stock or Class B Common Stock.  Such transactions could result in Messrs. Peltz and May together owning more than a majority of our outstanding voting power.  If that were to occur, Messrs. Peltz and May would be able to determine the outcome of the election of members of our board of directors and the outcome of corporate actions requiring majority stockholder approval, including mergers, consolidations and the sale of all or substantially all of our assets.  They would also be in a position to prevent or cause a change in control of us.  In addition, to the extent we issue additional shares of our Class B Common Stock for acquisitions, financings or compensation purposes, such issuances would not proportionally dilute the voting power of existing stockholders, including Messrs. Peltz and May.

Our success depends substantially upon the continued retention of certain key personnel.

We believe that over time our success has been dependent to a significant extent upon the efforts and abilities of our senior management team.  The failure by us to retain members of our senior management team, including our Chief Executive Officer, Roland Smith, could adversely affect our ability to build on the efforts we have undertaken to increase the efficiency and profitability of our businesses.

Acquisitions have been a key element of our business strategy, but we cannot assure you that we will be able to identify appropriate acquisition targets in the future and that we will be able to successfully integrate any future acquisitions into our existing operations.

Acquisitions involve numerous risks, including difficulties assimilating new operations and products.  In addition, acquisitions may require significant management time and capital resources.  We cannot assure you that we will have access to the capital required to finance potential acquisitions on satisfactory terms, that any acquisition would result in long-term benefits to us or that management would be able to manage effectively the resulting business.  Future acquisitions, if any, are likely to result in the incurrence of additional indebtedness, which could contain restrictive covenants, or the issuance of additional equity securities, which could dilute our existing stockholders.
 
  Our investment of excess funds in accounts managed by third parties is subject to risks associated with the underlying investment strategy of the accounts .
 
  From time to time we place our excess cash in investment funds or accounts managed by third parties (including the Management Company).  These funds or accounts are subject to inherent risks associated with the underlying investment strategy, which may include significant exposure to the equity markets, the use of leverage and a lack of diversification.
 
In the future, we may have to take actions that we would not otherwise take so as not to be subject to tax as a “personal holding company.”

If at any time during the last half of our taxable year, five or fewer individuals own or are deemed to own more than 50% of the total value of our shares and if during such taxable year we receive 60% or more of our gross income, as specially adjusted, from specified passive sources, we would be classified as a “personal holding company” for U.S. federal income tax purposes.  If this were the case, we would be subject to additional taxes at the rate of 15% on a portion of our income, to the extent this income is not distributed to stockholders.  We do not currently expect to have any liability in 2008 for tax under the personal holding company rules.  However, we cannot assure you that we will not become liable for such tax in the future.  Because we do not wish to be classified as a personal holding company or to incur any personal holding company tax, we may be required in the future to take actions that we would not otherwise take. These actions may influence our strategic and business decisions, including causing us to conduct our business and acquire or dispose of investments differently than we otherwise would.

 
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Our certificate of incorporation contains certain anti-takeover provisions and permits our board of directors to issue preferred stock and additional series of Class B Common Stock without stockholder approval.

Certain provisions in our certificate of incorporation are intended to discourage or delay a hostile takeover of control of us.  Our certificate of incorporation authorizes the issuance of shares of “blank check” preferred stock and additional series of Class B Common Stock, which will have such designations, rights and preferences as may be determined from time to time by our board of directors.  Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock and/or Class B Common Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power and other rights of the holders of our Class A Common Stock and Class B Common Stock.  The preferred stock and additional series of Class B Common Stock could be used to discourage, delay or prevent a change in control of us that is determined by our board of directors to be undesirable.  Although we have no present intention to issue any shares of preferred stock or additional series of Class B Common Stock, we cannot assure you that we will not do so in the future.

Risks Related to Arby’s

Our restaurant business is significantly dependent on new restaurant openings, which may be affected by factors beyond our control.

Our restaurant business derives earnings from sales at company-owned restaurants, franchise royalties received from franchised Arby’s restaurants and franchise fees from restaurant operators for each new unit opened.  Growth in our restaurant revenues and earnings is significantly dependent on new restaurant openings.  Numerous factors beyond our control may affect restaurant openings.  These factors include but are not limited to:

 
·
our ability to attract new franchisees;
 
·
the availability of site locations for new restaurants;
 
·
the ability of potential restaurant owners to obtain financing;
 
·
the ability of restaurant owners to hire, train and retain qualified operating personnel;
 
·
the availability of construction materials and labor;
 
·
construction and development costs of new restaurants, particularly in highly-competitive markets;
 
·
the ability of restaurant owners to secure required governmental approvals and permits in a timely manner, or at all; and
 
·
adverse weather conditions.

Although as of December 30, 2007, franchisees had signed commitments to open 386 Arby’s restaurants over the next seven years and have made or are required to make non-refundable deposits of $10,000 per restaurant, we cannot assure you that franchisees will meet these commitments and that they will result in open restaurants.  See “Item 1. Business--Business Operations—Franchise Network.”

Arby’s franchisees could take actions that could harm our business.

Arby’s franchisees are contractually obligated to operate their restaurants in accordance with the standards ARG sets through its agreements with them.  ARG also provides training and support to franchisees.  However, franchisees are independent third parties that ARG does not control, and the franchisees own, operate and oversee the daily operations of their restaurants.  As a result, the ultimate success and quality of any franchise restaurant rests with the franchisee.  If franchisees do not successfully operate restaurants in a manner consistent with required standards, royalty payments to us will be adversely affected, the Arby’s image and reputation could be harmed, which in turn could hurt ARG’s business and operating results.

ARG’s success depends on Arby’s franchisees’ participation in ARG’s strategy.

Arby’s franchisees are an integral part of ARG’s business.  ARG may be unable to successfully implement ARG’s brand strategies that it believes are necessary for further growth if Arby’s franchisees do not participate in that implementation.  The failure of ARG’s franchisees to focus on the fundamentals of restaurant operations such as quality, service and cleanliness would have a negative impact on ARG’s success.

 
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ARG’s financial results are affected by the financial results of Arby’s franchisees.

ARG receives revenue in the form of royalties and fees from Arby’s franchisees, which are generally based on a percentage of sales at franchised restaurants.  Accordingly, a substantial portion of ARG’s financial results is to a large extent dependent upon the operational and financial success of Arby’s franchisees.  If sales trends or economic conditions worsen for Arby’s franchisees, their financial results may worsen and ARG’s royalty revenues may decline.  When ARG sells company-owned restaurants, ARG is often required to remain responsible for lease payments for these restaurants to the extent that the purchasing franchisees default on their leases.  Additionally, if Arby’s franchisees fail to renew their franchise agreements, or if ARG decides to restructure franchise agreements in order to induce franchisees to renew these agreements, then ARG’s royalty revenues may decrease.

ARG may be unable to manage effectively its strategy of acquiring and disposing of Arby’s restaurants, which could adversely affect ARG’s business and financial results.

ARG’s strategy of acquiring Arby’s restaurants from franchisees and eventually “re-franchising” these restaurants by selling them to new or existing franchisees is dependent upon the availability of sellers and buyers as well as ARG’s ability to negotiate transactions on terms that ARG deems acceptable.  In addition, the operations of restaurants that ARG acquires may not be integrated successfully, and the intended benefits of such transactions may not be realized.  Acquisitions of Arby’s restaurants pose various risks to ARG’s operations, including:
 
 
·
diversion of management attention to the integration of acquired restaurant operations;
 
·
increased operating expenses and the inability to achieve expected cost savings and operating efficiencies;
 
·
exposure to liabilities arising out of sellers’ prior operations of acquired restaurants; and
 
·
incurrence or assumption of debt to finance acquisitions or improvements and/or the assumption of long-term, non-cancelable leases.
 
In addition, engaging in acquisitions and dispositions places increased demands on ARG’s operational, financial and management resources and may require ARG to continue to expand these resources.  If ARG is unable to manage the acquisition and disposition strategy effectively, its business and financial results could be adversely affected.

ARG does not exercise ultimate control over advertising and purchasing for the Arby’s restaurant system, which could hurt sales and the Arby’s brand.

Arby’s franchisees control the provision of national advertising and marketing services to the Arby’s franchise system through the AFA, a company controlled by Arby’s franchisees.  Subject to ARG’s right to protect its trademarks, and except to the extent that ARG participates in the AFA through its company-owned restaurants, the AFA has the right to approve all significant decisions regarding the national marketing and advertising strategies and the creative content of advertising for the Arby’s system.  Although ARG has entered into a management agreement pursuant to which ARG, on behalf of the AFA, manages the day-to-day operations of the AFA, many areas are still subject to ultimate approval by the AFA’s independent board of directors, and the management agreement may be terminated by either party for any reason upon one year’s prior notice.  See “Item 1. Business--Business Operations—Advertising and Marketing.”  In addition, local cooperatives run by operators of Arby’s restaurants in a particular local area (including ARG) make their own decisions regarding local advertising expenditures, subject to spending the required minimum amounts.  ARG’s lack of control over advertising could hurt sales and the Arby’s brand.

In addition, although ARG ensures that all suppliers to the Arby’s system meet quality control standards, Arby’s franchisees control the purchasing of food, proprietary paper, equipment and other operating supplies from such suppliers through ARCOP, Inc., a not-for-profit entity controlled by Arby’s franchisees.  ARCOP negotiates national contracts for such food, equipment and supplies.  ARG is entitled to appoint one representative on the board of directors of ARCOP and participate in ARCOP through its company-owned restaurants, but otherwise does not control the decisions and activities of ARCOP except to ensure that all suppliers satisfy Arby’s quality control standards.  If ARCOP does not properly estimate the needs of the Arby’s system with respect to one or more products, makes poor purchasing decisions, or decides to cease its operations, system sales and operating costs could be adversely affected and the financial condition of ARG or the financial condition of Arby’s franchisees could be hurt.

Shortages or interruptions in the supply or delivery of perishable food products could damage the Arby's brand reputation and adversely affect ARG's operating results.
 
ARG and Arby's franchisees are dependent on frequent deliveries of perishable food products that meet ARG’s specifications. Shortages or interruptions in the supply of perishable food products caused by unanticipated demand, problems in production or distribution, disease or food-borne illnesses, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients, which could lower ARG's revenues, increase ARG’s operating costs, damage Arby's reputation and otherwise harm ARG's business and the businesses of Arby’s franchisees.

 
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Additional instances of mad cow disease or other food-borne illnesses, such as bird flu or salmonella, could adversely affect the price and availability of beef, poultry or other meats and create negative publicity, which could result in a decline in sales.

Additional instances of mad cow disease or other food-borne illnesses, such as bird flu, salmonella, e-coli or hepatitis A, could adversely affect the price and availability of beef, poultry or other meats.  Additional incidents may cause consumers to shift their preferences to other meats. As a result, Arby’s restaurants could experience a significant increase in food costs if there are additional instances of mad cow disease or other food-borne illnesses.

In addition to losses associated with higher prices and a lower supply of our food ingredients, instances of food-borne illnesses could result in negative publicity for Arby’s.  This negative publicity, as well as any other negative publicity concerning types of food products Arby’s serves, may reduce demand for Arby’s food and could result in a decrease in guest traffic to Arby’s restaurants.  A decrease in guest traffic to Arby’s restaurants as a result of these health concerns or negative publicity could result in a decline in sales at company-owned restaurants or in ARG’s royalties from sales at franchised restaurants.

Changes in consumer tastes and preferences and in discretionary consumer spending could result in a decline in sales at company-owned restaurants and in the royalties that ARG receives from franchisees.

The quick service restaurant industry is often affected by changes in consumer tastes, national, regional and local economic conditions, discretionary spending priorities, demographic trends, traffic patterns and the type, number and location of competing restaurants. ARG’s success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income.  Accordingly, ARG may experience declines in sales during economic downturns.  Any material decline in the amount of discretionary spending or a decline in family food-away-from-home spending could hurt ARG’s revenues, results of operations, business and financial condition.

In addition, if company-owned and franchised restaurants are unable to adapt to changes in consumer preferences and trends, ARG and Arby’s franchisees may lose customers and the resulting revenues from company-owned restaurants and the royalties that ARG receives from its franchisees may decline.

Changes in food and supply costs could harm ARG’s results of operations.

ARG’s profitability depends in part on its ability to anticipate and react to changes in food and supply costs.  Any increase in food prices, especially those of beef or chicken, could harm ARG’s operating results.   Recently, ARG has experienced higher product costs as a result of (1) increased fuel costs, (2) the weak U.S. dollar, which has resulted in greater foreign demand for U.S. food products, and (3) the increased demand for ethanol as a fuel alternative.  Ethanol production has increased the cost of corn, which has raised corn oil prices and contributed to higher beef and chicken prices stemming from increased corn feed pricing.  The increase in fuel costs has also contributed to an increase in distribution costs from the distribution centers to the restaurants.  In addition, ARG is susceptible to increases in food costs as a result of other factors beyond its control, such as weather conditions, food safety concerns, product recalls and government regulations.  Additionally, prices for feed ingredients used to produce beef and chicken could be adversely affected by changes in global weather patterns, which are inherently unpredictable.  ARG cannot predict whether it will be able to anticipate and react to changing food costs by adjusting its purchasing practices and menu prices, and a failure to do so could adversely affect ARG’s operating results.  In addition, ARG may not seek to or be able to pass along price increases to its customers.

Competition from other restaurant companies could hurt ARG.

The market segments in which company-owned and franchised Arby’s restaurants compete are highly competitive with respect to, among other things, price, food quality and presentation, service, location, and the nature and condition of the restaurant facility.  Arby’s restaurants compete with a variety of locally-owned restaurants, as well as competitive regional and national chains and franchises.  Several of these chains compete by offering high quality sandwiches and/or menu items that are targeted at certain consumer groups.  Additionally, many of our competitors have introduced lower cost, value meal menu options.  ARG’s revenues and those of Arby’s franchisees may be hurt by this product and price competition.

Moreover, new companies, including operators outside the quick service restaurant industry, may enter Arby’s market areas and target Arby’s customer base.  For example, additional competitive pressures for prepared food purchases have come from deli sections and in-store cafes of a number of major grocery store chains, as well as from convenience stores and casual dining outlets.  Such competitors may have, among other things, lower operating costs, lower debt service requirements, better locations, better facilities, better management, more effective marketing and more efficient operations.  Many of our competitors have substantially greater financial, marketing, personnel and other resources than we do, which may allow them to react to changes in pricing and marketing strategies in the quick service restaurant industry better than we can.  Many of our competitors spend significantly more on advertising and marketing than we do, which may give them a competitive advantage over Arby’s through higher levels of brand awareness among consumers.  All such competition may adversely affect ARG’s revenues and profits by reducing revenues of company-owned restaurants and royalty payments from franchised restaurants.

 
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Current Arby's restaurant locations may become unattractive, and attractive new locations may not be available for a reasonable price, if at all.
 
The success of any restaurant depends in substantial part on its location. There can be no assurance that current Arby's locations will continue to be attractive as demographic patterns change. Neighborhood or economic conditions where Arby's restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations. In addition, rising real estate prices, particularly in the Northeastern region of the U.S. and in California, may restrict the ability of ARG or Arby's franchisees to purchase or lease new desirable locations. If desirable locations cannot be obtained at reasonable prices, ARG's ability to effect its growth strategies will be adversely affected.
 
ARG’s business could be hurt by increased labor costs or labor shortages.

Labor is a primary component in the cost of operating our company-owned restaurants.  ARG devotes significant resources to recruiting and training its managers and hourly employees.  Increased labor costs due to competition, increased minimum wage or employee benefits costs or other factors would adversely impact ARG’s cost of sales and operating expenses.  In addition, ARG’s success depends on its ability to attract, motivate and retain qualified employees, including restaurant managers and staff.  If ARG is unable to do so, its results of operations may be hurt.

ARG's leasing and ownership of significant amounts of real estate exposes it to possible liabilities and losses, including liabilities associated with environmental matters.
 
As of December 30, 2007, ARG leased or owned the land and/or the building for over 1,100 Arby's restaurants. Accordingly, ARG is subject to all of the risks associated with leasing and owning real estate. In particular, the value of our real property assets could decrease, and ARG's costs could increase, because of changes in the investment climate for real estate, demographic trends, supply or demand for the use of the restaurants, which may result from competition from similar restaurants in the area, and liability for environmental matters.

ARG is subject to federal, state and local environmental, health and safety laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances. These environmental laws provide for significant fines, penalties and liabilities, sometimes without regard to whether the owner, operator or occupant of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third parties may also make claims against owners, operators or occupants of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances.  A number of ARG's restaurant sites were formerly gas stations or are adjacent to current or former gas stations, or were used for other commercial activities that can create environmental impacts. ARG may also acquire or lease these types of sites in the future. ARG has not conducted a comprehensive environmental review of all of its properties. ARG may not have identified all of the potential environmental liabilities at its leased and owned properties, and any such liabilities identified in the future could cause ARG to incur significant costs, including costs associated with litigation, fines or clean-up responsibilities.
 
ARG leases real property generally for initial terms of 20 years with two to four additional options to extend the term of the leases in consecutive five-year increments. Many leases provide that the landlord may increase the rent over the term of the lease and any renewals thereof. Most leases require ARG to pay all of the costs of insurance, taxes, maintenance and utilities. ARG generally cannot cancel these leases. If an existing or future restaurant is not profitable, and ARG decides to close it, ARG may nonetheless be committed to perform its obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of ARG's leases expires, ARG may fail to negotiate additional renewals or renewal options, either on commercially acceptable terms or at all, which could cause ARG to close stores in desirable locations.

Complaints or litigation may hurt ARG.

Occasionally, ARG’s customers file complaints or lawsuits against it alleging that ARG is responsible for an illness or injury they suffered at or after a visit to an Arby’s restaurant, or alleging that there was a problem with food quality or operations at an Arby’s restaurant.  ARG is also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims, claims from franchisees and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters.  ARG could also become subject to class action lawsuits related to these matters in the future.  Regardless of whether any claims against ARG are valid or whether ARG is found to be liable, claims may be expensive to defend and may divert management’s attention away from operations and hurt ARG’s performance.  A judgment significantly in excess of ARG’s insurance coverage for any claims could materially adversely affect ARG’s financial condition or results of operations.  Further, adverse publicity resulting from these allegations may hurt ARG and Arby’s franchisees.

Additionally, the restaurant industry has been subject to a number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers.  Adverse publicity resulting from these allegations may harm the reputation of Arby’s restaurants, even if the allegations are not directed against Arby’s restaurants or are not valid, and even if ARG is not found liable or the concerns relate only to a single restaurant or a limited number of restaurants.  Moreover, complaints, litigation or adverse publicity experienced by one or more of Arby’s franchisees could also hurt ARG’s business as a whole.

 
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ARG’s current insurance may not provide adequate levels of coverage against claims it may file.

ARG currently maintains insurance it believes is customary for businesses of its size and type.  However, there are types of losses it may incur that cannot be insured against or that ARG believes are not economically reasonable to insure, such as losses due to natural disasters or acts of terrorism.  In addition, ARG currently self-insures a significant portion of expected losses under its workers compensation, general liability and property insurance programs.  Unanticipated changes in the actuarial assumptions and management estimates underlying ARG’s reserves for these losses could result in materially different amounts of expense under these programs, which could harm ARG’s business and adversely affect its results of operations and financial condition.

Changes in governmental regulation may hurt ARG’s ability to open new restaurants or otherwise hurt ARG’s existing and future operations and results.

Each Arby’s restaurant is subject to licensing and regulation by health, sanitation, safety and other agencies in the state and/or municipality in which the restaurant is located.  State and local government authorities may enact laws, rules or regulations that impact restaurant operations and the cost of conducting those operations.  For example, recent efforts to require the listing of specified nutritional information on menus and menu boards could adversely affect consumer demand for our products, could make our menu boards less appealing and could increase our costs of doing business.  There can be no assurance that ARG and/or Arby’s franchisees will not experience material difficulties or failures in obtaining the necessary licenses or approvals for new restaurants, which could delay the opening of such restaurants in the future.  In addition, more stringent and varied requirements of local governmental bodies with respect to tax, zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations.  ARG, and Arby’s franchisees, are also subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime and other working conditions, along with the ADA, family leave mandates and a variety of other laws enacted by the states that govern these and other employment law matters.  As described more fully under “Item 3. Legal Proceedings,” one of our subsidiaries was a defendant in a lawsuit alleging failure to comply with Title III of the ADA at approximately 775 company-owned restaurants acquired as part of the RTM acquisition in July 2005.  Under a court approved settlement of that lawsuit, ARG estimates that it will spend approximately $1.15 million per year of capital expenditures over a seven-year period commencing in 2008 to bring these restaurants into compliance with the ADA, in addition to paying certain legal fees and expenses.  ARG cannot predict the amount of any other future expenditures that may be required in order to permit company-owned restaurants to comply with any changes in existing regulations or to comply with any future regulations that may become applicable to ARG’s business.

ARG’s operations could be influenced by weather conditions.

Weather, which is unpredictable, can impact Arby’s restaurant sales.  Harsh weather conditions that keep customers from dining out result in lost opportunities for Arby’s restaurants.  A heavy snowstorm in the Northeast or Midwest or a hurricane in the Southeast can shut down an entire metropolitan area, resulting in a reduction in sales in that area.  Our first quarter includes winter months and historically has a lower level of sales at company-owned restaurants.  Because a significant portion of ARG’s restaurant operating costs is fixed or semi-fixed in nature, the loss of sales during these periods hurts ARG’s operating margins, and can result in restaurant operating losses.  For these reasons, a quarter-to-quarter comparison may not be a good indication of ARG’s performance or how it may perform in the future.

Due to the concentration of Arby’s restaurants in particular geographic regions, ARG’s business results could be impacted by the adverse economic conditions prevailing in those regions regardless of the state of the national economy as a whole.

As of December 30, 2007 ARG and Arby’s franchisees operated Arby’s restaurants in 48 states and four foreign countries.  As of December 30, 2007, the six leading states by number of operating units were: Ohio, with 291 restaurants; Michigan, with 196 restaurants; Indiana, with 181 restaurants; Florida, with 176 restaurants; Texas, with 167 restaurants; and Georgia, with 153 restaurants.  This geographic concentration can cause economic conditions in particular areas of the country to have a disproportionate impact on ARG’s overall results of operations.  It is possible that adverse economic conditions in states or regions that contain a high concentration of Arby’s restaurants could have a material adverse impact on ARG’s results of operations in the future.

ARG and its subsidiaries are subject to various restrictions, and substantially all of their assets are pledged, under a credit agreement.

Under its credit agreement, substantially all of the assets of ARG and its subsidiaries (other than real property) are pledged as collateral security. The credit agreement also contains financial covenants that, among other things, require ARG and its subsidiaries to maintain certain financial ratios and restrict their ability to incur debt, pay dividends or make other distributions, enter into certain fundamental transactions (including sales of assets and certain mergers and consolidations) and create or permit liens. If ARG and its subsidiaries are unable to generate sufficient cash flow or otherwise obtain the funds necessary to make required payments of interest or principal under, or are unable to comply with covenants of, the credit agreement, then they would be in default under the terms of the credit agreement, which would preclude the payment of dividends to Triarc, restrict access to ARG’s revolving line of credit and, under certain circumstances, permit the lenders to accelerate the maturity of the indebtedness.  You should read the information in Note 11 to the Consolidated Financial Statements.

 
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We may not be able to adequately protect our intellectual property, which could harm the value of our brands and hurt our business.

Our intellectual property is material to the conduct of our business.  We rely on a combination of trademarks, copyrights, service marks, trade secrets and similar intellectual property rights to protect our brands and other intellectual property.  The success of our business strategy depends, in part, on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products in both existing and new markets. If our efforts to protect our intellectual property are not adequate, or if any third party misappropriates or infringes on our intellectual property, either in print or on the Internet, the value of our brands may be harmed, which could have a material adverse effect on our business, including the failure of our brands to achieve and maintain market acceptance.  This could harm our image, brand or competitive position and, if we commence litigation to enforce our rights, cause us to incur significant legal fees.

We franchise our restaurant brands to various franchisees.  While we try to ensure that the quality of our brands is maintained by all of our franchisees, we cannot assure you that these franchisees will not take actions that hurt the value of our intellectual property or the reputation of the Arby’s restaurant system.

We have registered certain trademarks and have other trademark registrations pending in the United States and certain foreign jurisdictions.  The trademarks that we currently use have not been registered in all of the countries outside of the United States in which we do business or may do business in the future and may never be registered in all of these countries.  We cannot assure you that all of the steps we have taken to protect our intellectual property in the United States and foreign countries will be adequate.  The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.

 In addition, we cannot assure you that third parties will not claim infringement by us in the future.  Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing new menu items or investment products or require us to enter into royalty or licensing agreements.  As a result, any such claim could harm our business and cause a decline in our results of operations and financial condition.

Other Risks

The value of our interest in DFR is subject to risks related to that business.

At December 30, 2007, as a result of the Deerfield Sale, we hold approximately $48 million principal amount of senior secured notes of DFR and beneficially own approximately 15% of DFR’s outstanding common stock, assuming conversion of all convertible preferred stock we own.  DFR is a diversified financial company that invests in real estate investments, primarily mortgage-backed securities, as well as corporate investments.  At December 30, 2007, the aggregate carrying value of our investment in DFR was approximately $118.5 million.  Our investment in the convertible preferred stock of DFR currently is non-marketable; however, it is mandatorily redeemable in seven years from issuance.  We value the preferred shares based on the quoted market price of the common shares of DFR into which they are convertible.  If those shares should decline in value other than on a temporary basis, then in the reporting period in which it is determined that the decline is other than temporary, all or a portion of the decline would be required to be recognized in our statement of operations.  Payments to us of principal and interest under the senior secured notes, which mature in December 2012, are dependent on the cash flow of DFR.  DFR’s investment portfolio is comprised primarily of fixed income investments, including mortgage-backed securities and corporate debt.  Among the factors that may adversely affect DFR’s ability to make payments under the senior secured notes are the current weakness in the mortgage sector in particular and the broader financial markets in general.  This weakness could adversely affect DFR and one or more of its lenders, which could result in increases in their borrowing costs, reductions in their liquidity and reductions in the value of the investments in their portfolio, all of which could reduce DFR’s cash flow and adversely affect its ability to make payments to us under the senior secured notes.  Such a condition could result in an impairment charge by us or a provision by us for uncollectible notes receivable which could be material.
 
    See Note 32 to the Consolidated Financial Statement for a subsequent event related to our investments in DFR.

One of our subsidiaries remains contingently liable with respect to certain obligations relating to a business that we have sold.

In July 1999, we sold 41.7% of our then remaining 42.7% interest in National Propane Partners, L.P. and a sub-partnership, National Propane, L.P. to Columbia Energy Group, and retained less than a 1% special limited partner interest in AmeriGas Eagle Propane, L.P. (formerly known as National Propane, L.P. and as Columbia Propane, L.P.).  As part of the transaction, our subsidiary, National Propane Corporation, agreed that while it remains a special limited partner of AmeriGas, it would indemnify the owner of AmeriGas for any payments the owner makes under certain debt of AmeriGas (aggregating approximately $138.0 million as of December 30, 2007), if AmeriGas is unable to repay or refinance such debt, but only after recourse to the assets of AmeriGas.  Either National Propane Corporation or AmeriGas Propane, L.P., the owner of AmeriGas, may require AmeriGas to repurchase the special limited partner interest.  However, we believe it is unlikely that either party would require repurchase prior to 2009 as either AmeriGas Propane, L.P. would owe us tax indemnification payments or we would accelerate payment of deferred taxes, which amount to approximately $35.9 million as of December 30, 2007, associated with our sale of the propane business.

 
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Although we believe that it is unlikely that we will be called upon to make any payments under the indemnification described above, if we are required to make such payments it could have a material adverse effect on our financial position and results of operations.  You should read the information in “Item. 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources” and in Note 27 to the Consolidated Financial Statements.

Changes in environmental regulation may adversely affect our existing and future operations and results.

Certain of our current and past operations are or have been subject to federal, state and local environmental laws and regulations concerning the discharge, storage, handling and disposal of hazardous or toxic substances that provide for significant fines, penalties and liabilities, in certain cases without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of such hazardous or toxic substances.  In addition, third parties may make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous or toxic substances.  Although we believe that our operations comply in all material respects with all applicable environmental laws and regulations, we cannot predict what environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or interpreted.  We cannot predict the amount of future expenditures that may be required in order to comply with any environmental laws or regulations or to satisfy any such claims.  See “Item 1. Business--General--Environmental Matters.”

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

We believe that our properties, taken as a whole, are generally well maintained and are adequate for our current and foreseeable business needs. We lease each of our material properties.

The following table contains information about our material facilities as of December 30, 2007:

ACTIVE FACILITIES
 
FACILITIES-LOCATION
 
LAND TITLE
 
APPROXIMATE SQ. FT. OF FLOOR SPACE
Corporate Headquarters
 
Atlanta, GA
 
Leased
 
134,748*
Former Corporate Headquarters
 
New York, NY
 
Leased
 
31,237**

*
ARCOP, the independent Arby’s purchasing cooperative, and the Arby’s Foundation, a not-for-profit charitable foundation in which ARG has non-controlling representation on the board of directors, sublease approximately 2,680 and 5,000 square feet, respectively, of this space from ARG.
**
The Management Company subleases approximately 18,734 square feet of this space from us.

ARG also owns 15 and leases 120 properties that are either leased or sublet principally to franchisees.  Our other subsidiaries also own or lease a few inactive facilities and undeveloped properties, none of which are material to our financial condition or results of operations.

At December 30, 2007, our company-owned Arby’s restaurants were located in the following states: 113 in Michigan, 104 in Ohio, 99 in Indiana, 95 in Georgia, 89 in Florida, 86 in Pennsylvania, 81 in Minnesota, 70 in Alabama, 64 in Texas, 58 in North Carolina, 54 in Tennessee, 36 in Kentucky, 33 in Utah, 25 in Washington, 24 in Oregon,  17 in New Jersey, 13 in South Carolina, 12 in Maryland, 12 in Connecticut, 5 in Illinois, 4 in Wisconsin, 4 in Missouri, 2 in Mississippi, 2 in Virginia, 1 in California, 1 in New York, 1 in West Virginia and 1 in Wyoming.  ARG owns the land and/or the building with respect to 138 of these restaurants and leases or subleases the remainder.  ARG has regional offices in: Atlanta, Georgia; Indianapolis, Indiana; Flint, Michigan; Middleburg Heights, Ohio; Sinking Springs, Pennsylvania; Plano, Texas and Missasauga, Canada.

Item 3. Legal Proceedings.

In November 2002, Access Now, Inc. and Edward Resnick, later replaced by Christ Soter Tavantzis, on their own behalf and on the behalf of all those similarly situated, brought an action in the United States District Court for the Southern District of Florida against RTM Operating Company (“RTM”), which became a subsidiary of ours following our acquisition of the RTM Restaurant Group in July 2005.  The complaint alleged that the approximately 775 Arby’s restaurants owned by RTM and its affiliates failed to comply with Title III of the ADA.  The plaintiffs requested class certification and injunctive relief requiring RTM and such affiliates to comply with the ADA in all of their restaurants.  The complaint did not seek monetary damages, but did seek attorneys’ fees.  Without admitting liability, RTM entered into a settlement agreement with the plaintiffs on a class-wide basis, which was approved by the court on August 10, 2006.  The settlement agreement calls for the restaurants owned by RTM and certain of its affiliates to be brought into ADA compliance over an eight year period at a rate of approximately 100 restaurants per year.  The settlement agreement also applies to restaurants subsequently acquired by RTM and such affiliates.  ARG estimates that it will spend approximately $1.15 million per year of capital expenditures over a seven-year period commencing in 2008 to bring the restaurants into compliance under the settlement agreement, in addition to paying certain legal fees and expenses.

 
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In addition to the legal matters described above and the environmental matter described under “Item 1. Business--General--Environmental Matters”, we are involved in other litigation and claims incidental to our current and prior businesses.  We and our subsidiaries have reserves for all of our legal and environmental matters aggregating $700,000 as of December 30, 2007.  Although the outcome of these matters cannot be predicted with certainty and some of these matters may be disposed of unfavorably to us, based on our currently available information, including legal defenses available to us and/or our subsidiaries, and given the aforementioned reserves and our insurance coverages, we do not believe that the outcome of these legal and environmental matters will have a material adverse effect on our consolidated financial position or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders.

On June 5, 2007, Triarc held its Annual Meeting of Stockholders.  The matters acted upon by the stockholders at that meeting were reported in our Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2007.

 
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PART II

Item 5.   Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The principal market for our Class A Common Stock and Class B Common Stock is the New York Stock Exchange (symbols: TRY and TRY.B, respectively).  The high and low market prices for our Class A Common Stock and Class B Common Stock, as reported in the consolidated transaction reporting system, are set forth below:

   
MARKET PRICE
 
FISCAL QUARTERS
 
CLASS A
   
CLASS B
 
   
HIGH
   
LOW
   
HIGH
   
LOW
 
2006
                       
First Quarter ended April 2
    18.50       16.44       17.48       14.80  
Second Quarter ended July 2
    18.70       15.60       17.84       14.55  
Third Quarter ended October 1
    17.70       14.35       16.50       12.86  
Fourth Quarter ended December 31
    22.42       16.28       20.56       14.50  
                                 
2007
                               
First Quarter ended April 1
    21.99       18.13       20.55       16.65  
Second Quarter ended July 1
    19.74       15.64       18.99       15.25  
Third Quarter ended September 30
    16.22       12.17       16.90       11.38  
Fourth Quarter ended December 30
    14.50       7.89       15.00       7.82  

Our Class B Common Stock is entitled to one-tenth of a vote per share and our Class A Common Stock is entitled to one vote per share on all matters on which stockholders are entitled to vote.  Our Class B Common Stock is also entitled to vote as a separate class with respect to any merger or consolidation in which Triarc is a party unless each holder of a share of Class B Common Stock receives the same consideration as a holder of Class A Common Stock, other than consideration paid in shares of common stock that differ as to voting rights, liquidation preference and dividend preference to the same extent that our Class A and Class B Common Stock differ.  In accordance with the Certificate of Designation for our Class B Common Stock, and resolutions adopted by our board of directors on June 5, 2007, our Class B Common Stock was entitled, through December 30, 2007, to receive regular quarterly cash dividends equal to at least 110% of any regular quarterly cash dividends paid on our Class A Common Stock.  However, our board of directors has determined that for the first fiscal quarter of 2008 we will continue to pay regular quarterly cash dividends at that higher rate on our Class B Common Stock when regular quarterly cash dividends are paid on our Class A Common Stock.  Thereafter, each share of our Class B Common Stock is entitled to at least 100% of the regular quarterly cash dividend paid on each share of our Class A Common Stock.  In addition, our Class B Common Stock has a $.01 per share preference in the event of any liquidation, dissolution or winding up of Triarc and, after each share of our Class A Common Stock also receives $.01 per share in any such liquidation, dissolution or winding up, our Class B Common Stock would thereafter participate equally on a per share basis with our Class A Common Stock in any remaining assets of Triarc.

During our 2006 and 2007 fiscal years, we paid regular quarterly cash dividends of $0.08 and $0.09 per share on our Class A Common Stock and Class B Common Stock, respectively.  On January 29, 2008, our board of directors declared regular quarterly cash dividends of $0.08 and $0.09 per share on our Class A Common Stock and Class B Common Stock, respectively, payable on March 14, 2008 to holders of record on March 1, 2008.

In connection with our corporate restructuring, we paid special cash dividends during 2006 aggregating $0.45 per share on our Class A Common Stock and Class B Common Stock.  The special cash dividends were paid in three installments of $0.15 per share on March 1, 2006, July 14, 2006 and December 20, 2006.

Although we currently intend to continue to declare and pay regular quarterly cash dividends, there can be no assurance that any additional regular quarterly cash dividends will be declared or paid or the amount or timing of such dividends, if any.  Any future dividends will be made at the discretion of our board of directors and will be based on such factors as our earnings, financial condition, cash requirements and other factors.  Our board of directors has not yet made any determination of the relative amounts of any regular quarterly cash dividends that will be paid on the Class A Common Stock and Class B Common Stock after the first fiscal quarter of 2008. We have no class of equity securities currently issued and outstanding except for our Class A Common Stock and Class B Common Stock, Series 1.  However, we are currently authorized to issue up to 100 million shares of preferred stock.

Because we are a holding company, our ability to meet our cash requirements is primarily dependent upon our cash, cash equivalents and short-term investments on hand, cash flows from ARG, including loans, cash dividends, reimbursement by ARG to us in connection with providing certain management services, and payments by ARG under a tax sharing agreement, as well as dividend payments on the preferred shares and interest on the senior secured notes, both received in connection with the Deerfield Sale. Our cash requirements include, but are not limited to, interest and principal payments on our indebtedness as well as required quarterly payments to a management company, to which we refer to as the Management Company, formed by certain former executives of ours.  Under the terms of ARG’s credit agreement (see “Item 1A. Risk Factors—Risks Related to Arby’s – ARG and its subsidiaries are subject to various restrictions, and substantially all of their assets are pledged, under a credit agreement”), there are restrictions on the ability of ARG and its subsidiaries to pay any dividends or make any loans or advances to us.  The ability of ARG to pay cash dividends or make any loans or advances as well as to make payments for the management services and under the tax sharing agreement to us is also dependent upon its ability to achieve sufficient cash flows after satisfying its cash requirements, including debt service. You should read the information in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources” and Note 11 to our Consolidated Financial Statements.

 
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As of February 15, 2008, there were approximately 2,169 holders of record of our Class A Common Stock and 2,009 holders of record of our Class B Common Stock.

The following table provides information with respect to repurchases of shares of our common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) during the fourth fiscal quarter of 2007:

Issuer Repurchases of Equity Securities

Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share (1)
Total Number of Shares Purchased As Part of Publicly Announced Plan (2)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan (2)
October 1, 2007
through
October 28, 2007
---
---
---
$50,000,000
October 29, 2007
through
November 25, 2007
---
---
---
$50,000,000
November 26, 2007
through
December 30, 2007
---
---
---
$50,000,000
Total
---
---
---
$50,000,000

(1)
There were no shares tendered as payment of (i) the exercise price of employee stock options or (ii) tax withholding obligations in respect of such exercises.

(2)
On June 30, 2007, our then existing $50 million stock repurchase program expired, and on July 1, 2007 a new stock repurchase program became effective pursuant to which we may repurchase up to $50 million of our Class A Common Stock and/or Class B Common Stock, Series 1 during the period from July 1, 2007 through and including December 28, 2008 when and if market conditions warrant and to the extent legally permissible.  No transactions were effected under our stock repurchase program during the fourth fiscal quarter of 2007.


 
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Item 6.               Selected Financial Data.

   
Year-Ended(1)
 
   
December 28, 2003(2)
   
January 2, 2005(2)(3)
   
January 1, 2006(2)(3)
   
December 31, 2006(2)(3)
   
December 30, 2007(3)
 
   
(In thousands except per share amounts)
 
                               
Revenues
  $ 293,620     $ 328,579     $ 727,334     $ 1,243,278     $ 1,263,717  
Operating profit (loss)
    103 (6)     2,562       (31,363 )(8)     44,627       19,900 (10)
Income (loss) from continuing operations
    (12,248 )(6)     1,367 (7)     (58,457 )(8)     (10,803 )(9)     15,086 (10)
Income (loss) from discontinued operations
    2,245       12,464       3,285       (129 )     995  
Net income (loss)
    (10,003 )(6)     13,831 (7)     (55,172 )(8)     (10,932 )(9)     16,081 (10)
Basic income (loss) per share(4):
                                       
Class A common stock:
                                       
Continuing operations
    (.21 )     .02       (.84 )     (.13 )     .15  
Discontinued operations
    .04       .18       .05       -       .01  
Net income (loss)
    (.17 )     .20       (.79 )     (.13 )     .16  
Class B common stock:
                                       
Continuing operations
    (.21 )     .02       (.84 )     (.13 )     .17  
Discontinued operations
    .04       .21       .05       -       .01  
Net income (loss)
    (.17 )     .23       (.79 )     (.13 )     .18  
Diluted income (loss) per share(4):
                                       
Class A common stock:
                                       
Continuing operations
    (.21 )     .02       (.84 )     (.13 )     .15  
Discontinued operations
    .04       .17       .05       -       .01  
Net income (loss)
    (.17 )     .19       (.79 )     (.13 )     .16  
Class B common stock:
                                       
Continuing operations
    (.21 )     .02       (.84 )     (.13 )     .17  
Discontinued operations
    .04       .20       .05       -       .01  
Net income (loss)
    (.17 )     .22       (.79 )     (.13 )     .18  
Cash dividends per share:
                                       
Class A common stock
    .13       .26       .29       .77       .32  
Class B common stock
    .15       .30       .33       .81       .36  
Working capital (deficiency)
   
610,854
      462,618       295,567       161,194       (36,909 )
Total assets
    1,042,965       1,066,973       2,809,489       1,560,449       1,454,567  
Long-term debt
    483,280       446,479       894,527       701,916       711,531  
Stockholders’ equity
    290,035       305,458       398,344       477,813       448,874  
Weighted average shares outstanding(5):
                                       
Class A common stock
    20,003       22,233       23,766       27,301       28,836  
Class B common stock
    40,010       40,840       46,245       59,343       63,523  

 
(1)
Triarc Companies, Inc. and its subsidiaries (the “Company”) reports on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31.  Deerfield & Company LLC (Deerfield), in which the Company held a 63.6% capital interest from July 22, 2004 through its sale on December 21, 2007, Deerfield Opportunities Fund, LLC (the “Opportunities Fund”), which commenced on October 4, 2004 and in which our investment was effectively redeemed on September 29, 2006, and DM Fund LLC, which commenced on March 1, 2005 and in which our investment was effectively redeemed on December 31, 2006, reported on a calendar year ending on December 31 through their respective sale or redemption dates.  In accordance with this method, each of the Company’s fiscal years presented above contained 52 weeks except for the 2004 fiscal year which contained 53 weeks.  All references to years relate to fiscal years rather than calendar years.

 
(2)
In conjunction with the adoption of the provisions of Financial Accounting Standards Board Staff Position No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities” (“FSP AIR-1”), 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 the retroactive application of FSP AIR-1, the Company has credited (charged) $1,304,000, ($172,000), $711,000 and $620,000 to operating profit (loss) and $835,000, ($110,000), $455,000 and $397,000 to income (loss) from continuing operations and net income (loss) for 2003, 2004, 2005 and 2006, respectively.

 
- 20 -

 

 
(3)
Selected financial data reflects the operations of RTM Restaurant Group (“RTM”) commencing with its acquisition by the Company on July 25, 2005.

 
(4)
Income (loss) per share amounts reflect the effect of a stock distribution (the “Stock Distribution”) on September 4, 2003 of two shares of the Company’s class B common stock, series 1, for each share of the Company’s class A common stock issued as of August 21, 2003, as if the Stock Distribution had occurred at the beginning of the year ended December 28, 2003.  For the purposes of calculating income per share, net income subsequent to the date of the Stock Distribution was allocated between the class A common shares and class B common shares based on the actual dividend payment ratio.  For the purposes of calculating loss per share, the net loss for any year was allocated equally.

 
(5)
The weighted average shares outstanding reflect the effect of the Stock Distribution.  The number of shares used in the calculation of diluted income (loss) per share are the same as basic income (loss) per share for the years 2003, 2005 and 2006 since all potentially dilutive securities would have had an antidilutive effect based on the loss from continuing operations for each of those years.  The number of shares used in the calculation of diluted income per share of class A and class B common stock for 2004 are 23,415,000 and 43,206,000, respectively.  The numbers of shares used in the calculation of diluted income per share of class A and class B common stock for 2007 are 28,965,000 and 64,282,000, respectively. These shares used for the calculation of diluted income per share in 2004 and 2007 consist of the weighted average common shares outstanding for each class of common stock and potential common shares reflecting the effect of dilutive stock options and nonvested restricted shares of 1,182,000 for class A common stock and 2,366,000 for class B common stock in 2004 and, in 2007, 129,000 for class A common stock and 759,000 for class B common stock.

 
(6)
Reflects certain significant charges and credits recorded during 2003 as follows: $22,000,000 charged to operating loss representing an impairment of goodwill; $11,799,000 charged to loss from continuing operations representing the aforementioned $22,000,000 charged to operating loss partially offset by (1) a $5,834,000 gain on sale of unconsolidated business arising principally from the sale by the Company of a portion of its investment in an equity method investee and a non-cash gain to the Company from the public offering by the investee of its common stock and (2) $4,367,000 of income tax benefit relating to the above net charges; and $9,554,000 charged to net loss representing the aforementioned $11,799,000 charged to loss from continuing operations partially offset by a $2,245,000 credit to income from discontinued operations principally resulting from the release of reserves, net of income taxes, in connection with the settlement of a post-closing sales price adjustment related to the sale of the Company’s beverage businesses.

 
(7)
Reflects certain significant credits recorded during 2004 as follows: $17,333,000 credited to income from continuing operations representing (1) $14,592,000 of income tax benefit due to the release of income tax reserves which were no longer required upon the finalization of the examination of the Company’s Federal income tax returns for the years ended December 31, 2000 and December 30, 2001, the finalization of a state income tax examination and the expiration of the statute of limitations for the examination of certain of the Company’s state income tax returns and (2) a $2,741,000 credit, net of a $1,601,000 income tax provision, representing the release of related interest accruals no longer required; and $29,797,000 credited to net income representing the aforementioned $17,333,000 credited to income from continuing operations and $12,464,000 of additional gain on disposal of the Company’s beverage businesses sold in 2000 resulting from the release of income tax reserves related to discontinued operations which were no longer required upon finalization of an Internal Revenue Service examination of the Federal income tax returns for the years ended December 31, 2000 and December 30, 2001 and the expiration of the statute of limitations for examinations of certain of the Company’s state income tax returns.

 
(8)
Reflects certain significant charges and credits recorded during 2005 as follows: $58,939,000 charged to operating loss representing (1) share-based compensation charges of $28,261,000 representing the intrinsic value of stock options which were exercised by the Chairman and then Chief Executive Officer and the Vice Chairman and then President and Chief Operating Officer and subsequently replaced on the date of exercise, the grant of contingently issuable performance-based restricted shares of the Company’s class A and class B common stock and the grant of equity interests in two of the Company’s subsidiaries, (2) a $17,170,000 loss on settlements of unfavorable franchise rights representing the cost of settling franchise agreements acquired as a component of the acquisition of RTM with royalty rates below the current 4% royalty rate that the Company receives on new franchise agreements and (3) facilities relocation and corporate restructuring charges of $13,508,000; $67,526,000 charged to loss from continuing operations representing the aforementioned $58,939,000 charged to operating loss and a $35,809,000 loss on early extinguishments of debt upon a debt refinancing in connection with the acquisition of RTM, both partially offset by $27,222,000 of income tax benefit relating to the above charges; and $64,241,000 charged to net loss representing the aforementioned $67,526,000 charged to loss from continuing operations partially offset by income from discontinued operations of $3,285,000 principally resulting from the release of reserves for state income taxes no longer required.

 
(9)
Reflects a significant charge recorded during 2006 as follows: $9,005,000 charged to loss from continuing operations and net loss representing a $14,082,000 loss on early extinguishments of debt related to conversions or effective conversions of the Company’s 5% convertible notes due 2023 and prepayments of term loans under the Company’s senior secured term loan facility, partially offset by an income tax benefit of $5,077,000 related to the above charge.

 
(10)
Reflects certain significant charges and credits recorded during 2007 as follows: $45,224,000 charged to operating profit; consisting of facilities relocation and corporate restructuring costs of $85,417,000 less $40,193,000 from the gain on sale of the Company’s interest in Deerfield; $16,596,000 charged to income from continuing operations and net income representing the aforementioned $45,224,000 charged to operating profit offset by $15,828,000 of income tax benefit related to the above charge; and a $12,800,000 previously unrecognized prior year contingent tax benefit related to certain severance obligations to certain of the Company’s former executives.

 
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Item 7.
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., and its subsidiaries, which we refer to as Triarc, should be read in conjunction with our consolidated financial statements included elsewhere herein.  Certain statements we make under this Item 7 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  See “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1.”
 
Introduction and Executive Overview
 
During 2007, our operations were in two business segments. We operate in the restaurant business through our Company-owned and franchised Arby’s restaurants and, through December 21, 2007, we also operated in the asset management business through our 63.6% capital interest in Deerfield & Company LLC, which we refer to as Deerfield.  On December 21, 2007, we sold our entire capital interest in Deerfield, which we refer to as the Deerfield Sale, to Deerfield Capital Corp. (formerly known as Deerfield Triarc Capital Corp.), a real estate investment trust, which we refer to as DFR or the REIT.  See “Liquidity and Capital Resources—Deerfield Sale” for a detailed discussion of the Deerfield Sale and its effect on our investment in the REIT.

In April 2007, concurrent with the original announcement of the intended sale of our asset management business, we announced that we would be closing our New York headquarters and combining our corporate operations with our restaurant operations in Atlanta, Georgia, which we refer to as the Corporate Restructuring. The Corporate Restructuring includes the transfer of substantially all of Triarc’s senior executive responsibilities to the ARG executive team in Atlanta, Georgia. This transition is expected to be completed in early 2008.  Accordingly, to facilitate this transition, the Company entered into negotiated contractual settlements, which we refer to as the Contractual Settlements, with our Chairman, who was also the then Chief Executive Officer, and our Vice Chairman, who  was the then President and Chief Operating Officer, who we refer to collectively as the Former Executives, evidencing the termination of their employment agreements and providing for their resignation as executive officers as of June 29, 2007, which we refer to as the Separation Date. Additionally, in connection with the Corporate Restructuring, we incurred severance and consulting fees with respect to other New York headquarters’ executives and employees and a loss on properties and other assets at our former New York headquarters, principally reflecting assets for which the fair value was less than the book value, sold to an affiliate of the Former Executives.  See “Results of Operations—2007 Compared with 2006—Facilities Relocation and Corporate Restructuring” for a detailed discussion of the charges related to our Corporate Restructuring.

    On July 25, 2005 we completed the acquisition of substantially all of the equity interests or the assets of the entities comprising the RTM Restaurant Group, Arby’s then largest franchisee with 775 Arby’s restaurants in 22 states as of that date, in a transaction we refer to as the RTM Acquisition.  Accordingly, RTM’s results of operations and cash flows are included in our 2005 consolidated results subsequent to the July 25, 2005 date of the RTM Acquisition and are included in our 2006 and 2007 consolidated results for the full years. Commencing on July 26, 2005, franchise revenues from RTM are eliminated in consolidation.

In our restaurant business, we derive revenues in the form of sales by our Company-owned restaurants and franchise revenues which include royalty income from franchisees, franchise and related fees and rental income from properties leased to franchisees.  While over 70% of our existing Arby’s royalty agreements and substantially all of our new domestic royalty agreements provide for royalties of 4% of franchise revenues, our average royalty rate was 3.6% for the year ended December 30, 2007.  In our former asset management business, revenues were derived through the date of the Deerfield Sale in the form of asset management and related fees from our management of (1) collateralized debt and collateralized loan 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.

In our discussions of “Net Sales” and “Franchise Revenues” below, we discuss same-store sales.  When we refer to same-store sales, we mean only sales of those restaurants which were open during the same months in both of the comparable periods.  Historically, and including the 2007 fiscal year, the calculation of same-store sales commenced after a store was open for twelve continuous months.   Beginning in our 2008 fiscal year, we will be reporting same-store sales commencing after a store has been open for fifteen continuous months, which we refer to as the Fifteen Month Method, in order that our externally reported information will be consistent with the metrics used by our management for internal reporting and analysis. The same-store sales discussion for the current year below provides our historical presentation as well as the same store sales data on the basis of reporting that we will utilize in 2008.  There would have been no difference in the increase or decrease in same-store sales between those previously reported on a quarterly basis in 2007 and those computed on the Fifteen Month Method.  The same-store sales discussion for our 2006 fiscal year as compared to our 2005 fiscal year, however, only provides our historical presentation and does not also present same-store sales information under the Fifteen Month Method.

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 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.  In addition, the Equities Account invests in market put options in order to lessen the impact of significant market downturns.  The Equities Account, including restricted cash equivalents, had a fair value of $99.3 million as of December 30, 2007.  We also had 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 2005, we invested $100.0 million in the Opportunities Fund and later transferred $4.8 million of that amount to the DM Fund in March 2005.  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.

 
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Our goal is to enhance the value of our Company by increasing the revenues of our restaurant business, which may include growth through acquisitions.  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.

In recent years our restaurant business has experienced the following trends:
 
 
·
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
 
·
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 prices of certain menu items
 
·
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 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;
 
·
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;
 
·
High fuel costs which cause a decrease in many consumers’ discretionary spending as well as the effect of falling home prices on consumer confidence;
 
·
Increases in our utility costs as well as the cost of goods we purchase under distribution contracts that became effective in the third quarter of 2007 as a result of higher fuel costs;
 
·
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 have and are expected to 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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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 reported on a calendar year ending on December 31 until their respective sale or redemption dates.    Our 2005 fiscal year commenced on January 3, 2005 and ended on January 1, 2006 except that (a) RTM is included commencing July 26, 2005 and (b) Deerfield, the Opportunities Fund and, commencing March 1, 2005, the DM fund are included on a calendar year basis.  Our 2006 fiscal year commenced on January 2, 2006 and ended on December 31, 2006 except that (a) Deerfield and the DM Fund are included on a calendar year basis and (b) the Opportunities Fund is included from January 1, 2006 through its September 29, 2006 redemption date. Our 2007 fiscal year commenced on January 1, 2007 and ended on December 30, 2007 except that Deerfield is included from January 1, 2007 through its December 21, 2007 sale date.  All references to years relate to fiscal years rather than calendar years, except for Deerfield, the Opportunities Fund and the DM Fund.
 
Results of Operations
 
Presented below is a table that summarizes our results of operations and compares the amount of the change between (1) 2005 and 2006, which we refer to as the 2006 Change, and (2) 2006 and 2007, which we refer to as the 2007 Change.

   
2005
   
2006
   
2007
   
2006 Change
   
2007 Change
 
   
(In Millions)
 
Revenues:
                             
Net sales
  $ 570.8     $ 1,073.3     $ 1,113.4     $ 502.5     $ 40.1  
Franchise revenues
    91.2       82.0       87.0       (9.2 )     5.0  
Asset management and related fees
    65.3       88.0       63.3       22.7       (24.7 )
      727.3       1,243.3       1,263.7       516.0       20.4  
Costs and expenses:
                                       
Cost of sales, excluding depreciation and amortization
    418.0       778.6        815.2        360.6       36.6  
Cost of services, excluding depreciation and amortization
    24.8       35.3        25.2        10.5       (10.1 )
Advertising and promotions
    43.5       78.6       79.3       35.1       0.7  
General and administrative, excluding depreciation and amortization
    205.1       235.8        205.4        30.7       (30.4 )
Depreciation and amortization, excluding amortization of deferred financing costs
    36.6       66.2       73.3       29.6        7.1  
Facilities relocation and corporate restructuring
    13.5       3.3       85.4       (10.2 )     82.1  
Loss on settlements of unfavorable franchise rights
    17.2       0.9        0.2       (16.3 )     (0.7 )
Gain on sale of consolidated business
    -       -       (40.2 )     -       (40.2 )
      758.7       1,198.7       1,243.8       440.0       45.1  
Operating profit (loss)
    (31.4 )     44.6       19.9       76.0       (24.7 )
Interest expense
    (68.8 )     (114.1 )     (61.3 )     (45.3 )     52.8  
Insurance expense related to long-term debt
    (2.3 )     -       -       2.3       -  
Loss on early extinguishments of debt
    (35.8 )     (14.1 )     -       21.7       14.1  
Investment income, net
    55.3       80.2       52.2       24.9       (28.0 )
Gain (loss) on sale of unconsolidated businesses
    13.1       4.0       (0.3 )     (9.1 )     (4.3 )
Other income (expense), net
    3.9       4.7       (1.1 )     0.8       (5.8 )
Income (loss) from continuing operations before income taxes and minority interests
    (66.0 )     5.3         9.4          71.3          4.1  
(Provision for) benefit from income taxes
    16.3       (4.6 )     8.4       (20.9 )     13.0  
Minority interests in income of consolidated subsidiaries
    (8.8 )     (11.5 )     (2.7 )     (2.7 )      8.8  
Income (loss) from continuing operations
    (58.5 )     (10.8 )     15.1       47.7       25.9  
Income (loss) from discontinued operations, net of income taxes:
                                       
Loss from operations
    -       (0.4 )     -       (0.4 )     0.4  
Gain on disposal
    3.3       0.3       1.0       (3.0 )     0.7  
Income (loss) from discontinued operations
    3.3       (0.1 )     1.0       (3.4 )     1.1  
Net income (loss)
  $ (55.2 )   $ (10.9 )   $ 16.1     $ 44.3     $ 27.0  
 
 
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2007 Compared with 2006

Net Sales
 
    Our net sales, which were generated entirely from our Company-owned restaurants, increased $40.1 million, or 4% to $1,113.4 million for 2007 from $1,073.3 million for 2006, due to the $56.3 million increase in net sales from the 45 net Company-owned restaurants we added during 2007.   We opened 51 new restaurants, with generally higher than average sales volumes, and we acquired 11 restaurants from franchisees during 2007 as compared with 15 generally underperforming restaurants we closed and 2 restaurants we sold to franchisees during 2007.  This increase was partially offset by a $16.2 million, or 2% (1% on the Fifteen Month Method) decrease in same-store sales of our Company-owned restaurants. Same store sales of our Company-owned restaurants decreased principally due to lower sales volume from a decline in customer traffic as a result of (1) increased price discounting by other larger quick service restaurants and (2) the introduction of a new value program as well as a major new product launch that accounted for a large percentage of our sales but drove less traffic than expected.  These negative factors were partially offset by the effect of selective price increases that were implemented in late 2006 and during 2007.  Same-store sales of our Company-owned restaurants declined while same-store sales of our franchised restaurants discussed below grew 1% primarily due to (1) the franchised restaurants implementing certain selective price increases earlier in 2007 than the Company-owned restaurants, and (2) the use throughout 2007 by franchised restaurants of incremental marketing and print advertising initiatives which we were already using for the Company-owned restaurants.  These positive impacts on same-store sales of franchised restaurants more than offset declines in traffic.
We anticipate positive same-store sales growth, as calculated on the Fifteen Month Method, for 2008 of both Company-owned and franchised restaurants as a result of (1) a significant increase in national advertising, (2) a strong product and promotional calendar for the year which includes some new product offerings and improvements to existing product offerings as well as additional value offers and (3) a shift in our advertising approach to focus on the unique qualities and benefits of our food.  In addition to the anticipated positive effect of same-store sales growth, net sales should also be positively impacted by an increase in Company-owned restaurants. We presently plan to open approximately 50 new Company-owned restaurants in 2008.  We continually review the performance of any underperforming Company-owned restaurants and evaluate whether to close those restaurants, particularly in connection with the decision to renew or extend their leases.  Specifically, we have 52 restaurant leases that are scheduled for renewal or expiration during 2008.  We currently anticipate the renewal or extension of all but approximately 10 of those leases.

Franchise Revenues

Our franchise revenues, which were generated entirely from the franchised restaurants, increased $5.0 million, or 6%, to $87.0 million for 2007 from $82.0 million for 2006.  Excluding $2.2 million of rental income from properties leased to franchisees being included in franchise revenues in 2007, franchise revenues increased $2.8 million reflecting higher royalties of (1) $2.5 million from the 97 franchised restaurants opened during 2007, with generally higher than average sales volumes, and the 2 restaurants sold to franchisees during 2007 replacing the royalties from the 30 generally underperforming franchised restaurants closed and the elimination of royalties from the 11 restaurants we acquired from franchisees during 2007 and (2) $0.7 million from a 1% increase (1% on the Fifteen Month Method) in same-store sales of the franchised restaurants in 2007 as compared with 2006.  These increases in royalties were partially offset by a $0.4 million decrease in franchise and related fees.

We expect that our franchise revenues will increase during 2008 as compared with 2007 due to anticipated positive same-store sales growth of franchised restaurants from the expected performance of the various initiatives described above under “Net Sales” and the positive effect of net new restaurant openings by our franchisees.

Asset Management and Related Fees

Our asset management and related fees, which were generated entirely from the management of CDOs and Funds by Deerfield and which ceased with the Deerfield Sale on December 21, 2007, decreased $24.7 million, or 28%, to $63.3 million for 2007, through December 21, 2007, from $88.0 million for 2006.  This decrease principally reflects (1) a $16.6 million decrease in incentive fees related to a certain Fund due to a decline in its performance during 2007, (2) a $7.4 million net decrease in incentive fees from one CDO principally due to the decrease in the amount of contingent fees recognized primarily as a result of a call on that CDO in 2006, (3) a $3.6 million decrease in management fees from the REIT as a result of the decline in value of the REIT stock and stock options granted to us and a decrease in the REIT’s net assets on which a portion of our fees are based and (4) a $2.1 million decrease in incentive fees from the REIT as a result of the REIT not meeting certain performance thresholds during  2007.  These decreases were partially offset by (1) a $4.0 million increase in management fees from existing CDOs and Funds, (2) a $0.7 million net increase in management fees from the net addition of five CDOs and one Fund during 2007 and (3) a $0.3 million increase in structuring and other related fees associated with new CDOs.  Due to the Deerfield Sale, we will recognize no asset management and related fees in future periods.

 
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Cost of Sales, Excluding Depreciation and Amortization

Our cost of sales, excluding depreciation and amortization resulted entirely from the Company-owned restaurants.  Cost of sales increased $36.6 million, or 5%, to $815.2 million for 2007 from $778.6 million for 2006, resulting in a gross margin of 27% for each year.  We define gross margin as the difference between net sales and cost of sales divided by net sales.  The increase in cost of sales is primarily attributable to the effect of the 45 net Company-owned restaurants added during 2007.  Our gross margin was impacted by the effects of (1) the price discounting associated with the value program discussed under “Net Sales” above, (2) increases in our cost of beef and other menu items, (3) increased costs under new distribution contracts that became effective in the third quarter of 2007 and reflect the effects of higher fuel costs and (4) increased labor costs due to the Federal and state minimum wage increases implemented in 2007. These negative factors were offset by the effects of (1) selective price increases discussed under “Net Sales” above and (2) decreased beverage costs partially due to the full year effect of increased rebates earned from a new beverage supplier we were in the process of converting to during 2006.

We anticipate that our gross margin in 2008 will be comparable to 2007 as a result of the positive effects of (1) the full year effect on our net sales of the selective price increases that were implemented during 2007 and (2) changes in our product offerings which are expected to increase gross margin that will be offset by (1) the full year effect of the cost increases from the distribution contracts  entered into during the third quarter of 2007, (2) the expiration of favorable commodity supply contracts which expired primarily in late 2007 which will increase the cost of a number of our commodities and (3) the full year effect of the 2007, as well as of the additional 2008, Federal and state minimum wage increases.

Cost of Services, Excluding Depreciation and Amortization

Our cost of services, excluding depreciation and amortization, which resulted entirely from the management of CDOs and Funds by Deerfield, decreased $10.1 million, or 29%, to $25.2 million for 2007, through December 21, 2007, from $35.3 million for 2006 principally due to a net decrease of $9.1 million in incentive compensation for existing employees related to Deerfield’s weaker performance during 2007 as well as a $1.0 million reversal of incentive compensation which had been recorded in prior quarters of 2007, but will not be paid, for employees who left Deerfield in September 2007. We will not incur any cost of services in 2008 due to the Deerfield Sale.

Our franchise revenues have no associated cost of services.

Advertising and Promotions

Our advertising and promotions expenses consist of third party costs for local and national television, radio, direct mail and outdoor advertising as well as point of sale materials and local restaurant marketing.  These expenses increased $0.7 million, or 1% but remained unchanged as a percentage of net sales.  We expect that our advertising and promotions expenditures will increase during 2008 as compared with 2007 due to a higher number of planned national media advertising events but that it will remain comparable, as a percentage of net sales, in 2008 as compared to 2007.

General and Administrative, Excluding Depreciation and Amortization

In accordance with Financial Accounting Standards Board Staff Position No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities,” which we refer  to as FSP AIR-1, we accounted for the adoption of the direct expensing method retroactively.  As such, our general and administrative expenses, excluding depreciation and amortization, have been restated for 2006.

Our general and administrative expenses, excluding depreciation and amortization decreased $30.4 million, or 13%, principally due to (1) a $17.0 million decrease in corporate general and administrative expenses principally related to (a) the resignation effective in June 2007 of the Former Executives and certain other officers and employees of Triarc who became employees of the Management Company and are no longer employed by us and (b) our sublease to the Management Company of one of the floors of our New York headquarters, both partially offset by the fees for professional and strategic services provided to us under a two-year transition services agreement, which we refer to as the Services Agreement, we entered into with the Management Company which commenced on June 30, 2007, (2) an $8.1 million decrease in incentive compensation due to weaker than planned performance at our business segments, (3) a $5.9 million decrease in outside consultant fees at our restaurant segment partially offset by a $2.1 million increase in salaries, which partially replaced those fees, primarily attributable to the strengthening of the infrastructure of that segment following the RTM Acquisition, (4) a $4.0 million reduction of severance and related charges in connection with the replacement of three senior restaurant executives during 2006 that did not recur in 2007, (5) a $1.8 million decrease in recruiting fees at our restaurant segment associated with the strengthening of the infrastructure in 2006 following the RTM Acquisition and (6) a $1.7 million reduction of training and travel costs at our restaurant segment as part of an expense reduction initiative.  These decreases were partially offset by (1) a $2.6 million severance charge in 2007 for one of our asset management executives and (2) a $2.3 million increase in relocation costs in our restaurant segment principally attributable to additional estimated declines in market value and increased carrying costs related to homes we purchased for resale from relocated employees.

 
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Our general and administrative expenses will be lower during 2008 as compared to 2007 as a result of the completion of the transition of our corporate headquarters to Atlanta and the Deerfield Sale.

Depreciation and Amortization, Excluding Amortization of Deferred Financing Costs

Our depreciation and amortization, excluding amortization of deferred financing costs increased $7.1 million, or 11%, principally reflecting (1) a $3.0 million asset impairment charge related to an internally developed financial model that our asset management segment did not use and that was subsequently sold, (2) $2.7 million related to the 45 net restaurants added during 2007, (3) a $0.4 million increase in asset impairment charges related to our TJ Cinnamons brand and (4) depreciation on additions to properties at existing restaurants.  These increases were partially offset by (1) a $1.8 million decrease in asset impairment charges related to underperforming restaurants and (2) a $1.1 million decrease related to amortization of CDO contracts at our former asset management segment.

We expect our depreciation and amortization expense will be lower during 2008 as compared to 2007 as we no longer operate in the asset management segment as a result of the Deerfield Sale.  This decrease, however, will be partially offset by increases related to the addition of new restaurants.

Facilities Relocation and Corporate Restructuring
 
   The charge of $85.4 million in 2007 consisted of general corporate charges of $84.8 million and a $0.6 million additional charge for employee relocation costs in connection with combining our then existing restaurant operations with those of RTM following the RTM Acquisition.  The general corporate charges of $84.8 million were principally related to the Corporate Restructuring discussed above under “Introduction and Executive Overview” and consist of (1) the payment entitlements under the Contractual Settlements of $72.8 million,  including the additional $1.6 million total payments described below, of which $3.5 million is included in “General and administrative, excluding depreciation and amortization” expenses as incentive compensation, (2) severance for two other former executives of $12.9 million, excluding incentive compensation that is due to them for their 2007 period of employment with the Company, both including applicable employer payroll taxes, (3) severance and consulting fees of $1.8 million with respect to other New York headquarters’ executives and employees and (4) a loss of approximately $0.8 million on properties and other assets at our former New York headquarters, principally reflecting assets for which the fair value was less than the book value, sold during the 2007 third quarter to the Management Company. Under the terms of the Contractual Settlements, our Chairman, who is also our former Chief Executive Officer, was entitled to a payment consisting of cash and investments which had a fair value of $50.3 million as of July 1, 2007 ($47.4 million upon distribution on December 30, 2007) and our Vice Chairman, who is also our former President and Chief Operating Officer, was entitled to a payment consisting of cash and investments which had a fair value of $25.1 million as of July 1, 2007 ($23.7 million upon distribution on December 30, 2007), both subject to applicable withholding taxes, during the 2007 fourth quarter.  We had funded the severance payment obligations to the Former Executives, net of estimated withholding taxes, by the transfer of cash and investments to rabbi trusts, which we refer to as the 2007 Trusts, in the second quarter of 2007.  The $4.3 million decline in value of the assets in the 2007 Trusts reduced our general corporate charges since it resulted in a corresponding reduction of the payment obligations under the Contractual Settlements.  Funding the 2007 Trusts net of estimated withholding taxes provided us with additional operating liquidity, but reduced the amounts that otherwise would have been held in the 2007 Trusts for the benefit of the Former Executives.  Accordingly, the former Chief Executive Officer and former President and Chief Operating Officer were paid $1.1 million and $0.5 million, respectively, representing an interest component on the amounts that otherwise would have been included in the 2007 Trusts.  The charges of $3.3 million in 2006 included $3.2 million of general counsel corporate expense principally representing a fee related to our decision in 2006 to terminate the lease of an office facility in Rye Brook, New York rather than continue our efforts to sublease the facility.
 
We currently expect to incur approximately $0.7 million of general corporate severance charges in 2008 in connection with the Corporate Restructuring.

Loss on Settlements of Unfavorable Franchise Rights

The loss of $0.9 million in 2006 related to certain of the 13 franchised restaurants we acquired during that year.   The loss of $0.2 million in 2007 related to one of the franchised restaurants we acquired during 2007.  Under accounting principles generally accepted in the United States of America, which we refer to as GAAP, we are required to record as an expense and exclude from the purchase price of acquired restaurants the value of any franchise agreements that is attributable to royalty rates below the current 4% royalty rate that we receive on new franchise agreements.  The amounts of the settlement losses represent the present value of the estimated amount of future royalties by which the royalty rate is unfavorable over the remaining life of the franchise agreements.

Gain on Sale of Consolidated Business

    The gain on sale of consolidated business of $40.2 million in 2007 relates to the sale of our 63.6% capital interest in Deerfield. The gain reflects the excess of the fair value of the REIT’s preferred stock, which we refer to as the REIT Preferred Stock, and senior secured notes, which we refer to as the REIT Notes, received as consideration over the carrying value of our interest, net of expenses of the sale, and has been reduced by the portion of the gain representing our continuing interest in the preferred and common shares of the REIT.  See “Liquidity and Capital Resources—Deerfield Sale” for a detailed discussion of the Deerfield Sale.

 
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Interest Expense

Interest expense decreased $52.8 million, or 46%, principally reflecting a $54.2 million decrease in interest expense on debt securities sold with an obligation to purchase or under agreements to repurchase due to the effective redemption of our investment in the Opportunities Fund as of September 29, 2006, which we refer to as the Redemption.  We no longer consolidate the Opportunities Fund subsequent to the Redemption.  Accordingly, interest expense and related net investment income are no longer affected by the significant leverage associated with the Opportunities Fund.

In connection with the RTM Acquisition, we entered into a credit agreement in 2005, which we refer to as the Credit Agreement, for our restaurant segment.  In accordance with the terms of the Credit Agreement, we entered into three interest rate swap agreements, which we refer to as the Term Loan Swap Agreements and which expire in September 2008 and October 2008, that fixed the LIBOR interest rate on a total of $205.0 million of the outstanding principal amount of three 2005 advances pursuant to the term loans, which we refer to as the Term Loan.  The Term Loan borrowing provided financing for the RTM Acquisition and refinanced then existing higher interest rate debt of our restaurant segment, which we refer to as the Refinancing.  The expiration of the Term Loan Swap Agreements during 2008 could have a material impact on our interest expense; however, we cannot determine any potential impact at this time because it is dependent on (1) our entry into future swap agreements and (2)  the direction and magnitude of any changes in the variable interest rate environment.

Loss on Early Extinguishments of Debt

The loss on early extinguishments of debt of $14.1 million in 2006 consisted of (1) $13.1 million which resulted from the conversion or effective conversion of an aggregate $172.9 million principal amount of our 5% convertible notes due 2023, which we refer to as the Convertible Notes, into shares of our class A and class B common stock mostly in February 2006, which we refer to as the Convertible Notes Conversions, and consisted of $9.0 million of negotiated inducement premiums that we paid in cash and shares of our class B common stock, the write-off of $4.0 million of related previously unamortized deferred financing costs and $0.1 million of fees related to the conversions and (2) a $1.0 million write-off of previously unamortized deferred financing costs in connection with principal repayments of the Term Loan from excess cash, which we refer to as the Term Loan Prepayments.  There were no early extinguishments of debt in 2007.

Investment Income, Net

The following table summarizes and compares the major components of investment income, net:

   
2006
   
2007
   
Change
 
   
(In Millions)
 
Interest income
  $ 72.5     $ 9.1     $ (63.4 )
Recognized net gains
    10.6       51.4       40.8  
Other than temporary unrealized losses
    (4.1 )     (9.9 )     (5.8 )
Distributions, including dividends
    1.5       1.8       0.3  
Other
    (0.3 )     (0.2 )     0.1  
    $ 80.2     $ 52.2     $ (28.0 )

Our interest income decreased $63.4 million due to lower average outstanding balances of our interest-bearing investments principally as a result of the Redemption whereby our net investment income and interest expense are no longer affected by the significant leverage associated with the Opportunities Fund after September 29, 2006.  Our recognized net gains increased $40.8 million and included (1) a $15.2 million realized gain on the sale in 2007 of two of our available-for-sale securities, (2) $13.9 million of realized gains on the sale in 2007 of two of our cost method investments, (3) $8.4 million of gains realized on the transfer of several cost method investments from two deferred compensation trusts, which we refer to as the “Deferred Compensation Trusts,” to the Former Executives as a result of the Contractual Settlements during 2007 and (4) $2.7 million  of unrealized gains on derivatives other than trading. All of these recognized gains and losses may vary significantly in future periods depending upon changes in the value of our investments and, for available-for-sale securities, the timing of the sales of our investments.  The increase in other than temporary unrealized losses of $5.8 million primarily reflects the recognition of impairment charges related to the significant decline in the market values of certain of our available-for-sale investments in CDOs in 2007, through the date of the Deerfield Sale, compared with the significant decline in market value in 2006 of one of our cost method investments in the Deferred Compensation Trusts and one of our available-for-sale investments.  Any other than temporary unrealized losses are dependant upon the underlying economics and/or volatility in the value of our investments in available-for-sale securities and cost method investments and may or may not recur in future periods.

As of December 30, 2007, we had unrealized holding gains and (losses) on available-for-sale marketable securities before income taxes and minority interests of $7.6 million and ($11.1) million (which related primarily to the preferred stock we received from the REIT as consideration in the Deerfield Sale), respectively, included in “Accumulated other comprehensive income (loss).”  We evaluated the unrealized losses to determine whether these losses were other than temporary and concluded that they were not.  Should either (1) we decide to sell any of these investments with unrealized losses or (2) any of the unrealized losses continue such that we believe they have become other than temporary, we would recognize the losses on the related investments at that time.
 
    See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources – Deerfield Sale” for first quarter 2008 information related to the Company’s investment in the REIT.
 
 
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Gain (Loss) on Sale of Unconsolidated Businesses

The gain (loss) on sale of unconsolidated businesses decreased $4.3 million to a loss of ($0.3) million in 2007 from a gain of $4.0 million in 2006.  This decrease reflects a (1) a $2.9 million loss in 2007 on the REIT common shares distributed from the 2007 Trusts and (2) a $1.7 million gain in 2006 which did not recur in 2007 on the sale of a portion of our investment in Jurlique International Pty Ltd., an Australian company which we refer to as Jurlique.  These decreases were partially offset by $0.3 million of higher gains in 2007 compared with 2006 on sales of portions of our investment in Encore Capital Group, Inc., a former investee of ours, which we refer to as Encore.

Other Income (Expense), Net

Other income (expense), net, decreased $5.8 million in 2007 as compared to 2006, principally reflecting (1) a $4.0 million decrease in our equity in the REIT’s operations for the respective years, (2) a $0.9 million decrease in equity in earnings of Encore, which we no longer accounted for under the equity method subsequent to May 10, 2007, the date of the sale of substantially all our investment and (3) a $0.5 million increase in the loss from a foreign currency derivative related to Jurlique which matured on July 5, 2007.  These decreases were partially offset by a $2.1 million decrease in costs recognized related to strategic business alternatives that were not pursued.

Income (Loss) From Continuing Operations Before Income Taxes and Minority Interests

    Our income from continuing operations before income taxes and minority interests increased $4.1 million to $9.4 million in 2007 from $5.3 million in 2006.  The increase is attributed principally to the $40.8 million increase in recognized net gains included in our investment income, partially offset by the $24.7 million decline in our operating profit largely attributable to the $82.1 million increase in our facilities relocation and corporate restructuring charges, and the effect of the $40.2 million gain before taxes and minority interests on the Deerfield Sale, as well as the other variances discussed above.

    We recognized deferred compensation expense within “General and administrative, excluding depreciation and amortization” of $1.7 million in 2006 and $1.0 million in 2007, net of a $1.5 million settlement of a lawsuit in 2007 related to an investment which was included in the Deferred Compensation Trusts, for the net increases in the fair value of investments in the Deferred Compensation Trusts, for the benefit of the Former Executives.  The related obligation was settled in 2007 following 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.  We recognized net investment losses from investments in the Deferred Compensation Trusts of $1.0 million in 2006 and net investment income of $7.1 million in 2007.  The $1.0 million of net investment losses in 2006 consisted principally of an other than temporary loss of $2.1 million related to an investment fund within the Deferred Compensation Trusts which experienced a significant decline in market value, partially offset by a total of $1.0 million that is comprised of other realized gains and the equity in earnings of an investment purchased and sold during 2006.  The net investment income of $7.1 million in 2007 consisted of $8.4 million of realized gains on investments that were accounted for under the cost method of accounting and $0.2 million of interest income, net of the $1.5 million settlement of the lawsuit described above.

(Provision For) Benefit From Income Taxes

    In 2007, the Company had income from continuing operations before minority interests of $9.4 million and an income tax benefit of $8.4 million.  This resulted in an effective tax benefit rate of 89% compared to a provision for income taxes representing an effective rate of 86% in 2006. In 2007, the Company recognized a previously unrecognized contingent tax benefit of $12.8 million in connection with the settlement of certain obligations to the Former Executives relating to the Deferred Compensation Trusts during 2007, for which the related expense was principally recognized in prior years for financial statement purposes.  In connection with a simplification of our subsidiary structure in 2007, we incurred a one-time tax charge of $1.0 million.

    Additionally, the effective rates in both years include the effects of (1) non-deductible expenses, (2) adjustments related to prior year tax matters, (3) minority interests in income of consolidated subsidiaries which are not taxable to us but which are not deducted from the pre-tax income used to calculate the effective tax rates and (4) state income taxes, net of Federal income tax benefit, due to the differing mix of pre-tax income or loss among the consolidated entities which file state tax returns on an individual basis, the effects of which are lower in 2007 as compared to 2006 due to the pre-tax income or loss in the respective periods.

Minority Interests in Income of Consolidated Subsidiaries

Minority interests in income of consolidated subsidiaries decreased by $8.8 million principally reflecting a decrease of $9.1 million as a result of lower income of Deerfield through December 21, 2007, the date of the Deerfield Sale, as compared with 2006.

 
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Income (Loss) From Discontinued Operations

The loss from discontinued operations of $0.1 million in 2006 consists of a $1.3 million loss from operations related to our closing two underperforming restaurants, substantially offset by (1) the release of $0.7 million of reserves for state income taxes no longer required upon the expiration of a state income tax statute of limitations and (2) the release of $0.5 million of certain other accruals as a result of revised estimates to liquidate the remaining liabilities.  The income from discontinued operations of $1.0 million in 2007 consists of a $1.1 million release of an accrual for state income taxes no longer required after the settlement of a state income tax audit partially offset by an additional $0.1 million loss relating to the finalization of the leasing arrangements of the two closed restaurants mentioned above.

Net Income (Loss)

    Our net results improved $27.0 million from a loss of $10.9 million in 2006 to income of $16.1 million in 2007.  This increase is a result of the after-tax and applicable minority interest effects of the variances discussed above.

2006 Compared with 2005

Net Sales

Our net sales, which were generated entirely from our Company-owned restaurants, increased $502.5 million to $1,073.3 million for 2006 from $570.8 million for 2005, primarily due to the effect of including RTM in our results for all of 2006 but only for the portion of 2005 following the July 25, 2005 acquisition date.  In addition, net sales were favorably affected by 22 net Company-owned restaurants added during 2006.

Same-store sales of our Company-owned restaurants increased 1% in 2006.  Same-store sales of our Company-owned restaurants were positively impacted by (1) our 2006 marketing initiatives, including value oriented menu offerings, an enhanced menu board design and new promotions, (2) the launch in March 2006 of Arby’s Chicken Naturals®, a line of menu offerings made with 100 percent all natural chicken breast and (3) selective price increases implemented in November 2006.  Partially offsetting these positive factors was the effect of higher fuel prices on consumers’ discretionary income which we believe had a negative impact on our sales beginning in the second half of 2005, although the effect moderated in the second half of 2006.  Same-store sales growth of our Company-owned restaurants was less than the 5% same-store sales growth of our franchised restaurants discussed below primarily due to (1) the introduction and use throughout 2006 of local marketing initiatives by our franchisees similar to those initiatives which we were already using for Company-owned restaurants in 2005, including more effective local television advertising and increased couponing, and (2) the disproportionate number of Company-owned restaurants in the economically-weaker Michigan and Ohio regions which underperformed the system.

Franchise Revenues

Our franchise revenues, which were generated entirely from the franchised restaurants, decreased $9.2 million to $82.0 million for 2006 from $91.2 million for 2005, reflecting $16.3 million of franchise revenues from RTM recognized in 2005 for the period prior to the RTM Acquisition whereas franchise revenues from RTM are eliminated in consolidation for the full year of 2006.  Aside from the effect of the RTM Acquisition, franchise revenues increased $7.1 million in 2006, reflecting (1) a $3.2 million improvement in royalties due to a 5% increase in same-store sales of the franchised restaurants in 2006 as compared with 2005, (2) a $2.9 million net increase in royalties from the 94 franchised restaurants opened in 2006, with generally higher than average sales volumes, and the 16 restaurants sold to franchisees in 2006 replacing the royalties from the 40 generally underperforming restaurants closed and the elimination of royalties from 13 restaurants we acquired from franchisees in 2006 and (3) a $1.0 million increase in franchise and related fees.  The increase in same-store sales of the franchised restaurants reflects the factors affecting same-store sales of our Company-owned restaurants as well as the additional factors affecting the franchised restaurants compared with our Company-owned restaurants discussed above under “Net Sales.”

Asset Management and Related Fees

Our asset management and related fees, which were generated entirely from the management of CDOs and Funds by Deerfield, increased $22.7 million, or 35%, to $88.0 million for 2006 from $65.3 million for 2005.  This increase reflects (1) a $5.7 million increase in incentive fees from Funds other than the REIT, principally related to one of the Funds which experienced improved performance, including the impact of higher assets under management, (2) $4.6 million in management and related fees from new CDOs and Funds, (3) a $4.4 million increase in management and incentive fees from the REIT principally reflecting the full year effect in 2006 of a $363.5 million increase in assets under management for the REIT resulting from an initial public stock offering in June 2005, (4) a $4.1 million increase in incentive fees from CDOs principally due to the recognition of contingent fees upon the early termination of a particular CDO and (5) a $3.9 million increase in management fees principally reflecting higher assets under management of previously existing CDOs and Funds other than the REIT.

 
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Cost of Sales, Excluding Depreciation and Amortization

Our cost of sales, excluding depreciation and amortization resulted entirely from the Company-owned restaurants.  Cost of sales increased $360.6 million to $778.6 million for 2006 from $418.0 million for 2005, resulting in a gross margin of 27% for each year.  The increase in cost of sales is primarily attributable to the full year effect in 2006 of the restaurants acquired in the RTM Acquisition and the effect of the 22 net restaurants added in 2006.  Our overall gross margin was positively affected by (1) the inclusion of restaurants acquired in the RTM Acquisition with their higher gross margins for the full year 2006 compared with only the portion of 2005 following the July 25, 2005 acquisition date, (2) our continuing implementation of the more effective operational procedures of the RTM restaurants at the restaurants we owned prior to the RTM Acquisition, (3) increased beverage rebates resulting from the agreement for Pepsi beverage products effective January 1, 2006 and (4) decreases in our cost of beef.  These positive effects were substantially offset by the effect of increased price discounting principally in the second half of 2006 associated with our value oriented menu offerings.

Cost of Services, Excluding Depreciation and Amortization

Our cost of services, excluding depreciation and amortization, which resulted entirely from the management of CDOs and Funds by Deerfield, increased $10.5 million, or 42%, to $35.3 million for 2006 from $24.8 million for 2005 principally due to the hiring of additional personnel to support our current and anticipated growth in assets under management and increased incentive compensation levels.

Our franchise revenues have no associated cost of services.

Advertising and Promotions

Our advertising and promotions expenses consist of third party costs for local and national television, radio, direct mail and outdoor advertising as well as point of purchase materials and local restaurant marketing.  These expenses increased $35.1 million principally due to the full year effect on advertising and promotions in 2006 of the restaurants acquired in the RTM Acquisition.  However, advertising and promotions expenses as a percentage of net sales decreased slightly from 7.6% in 2005 to 7.3% in 2006.

General and Administrative, Excluding Depreciation and Amortization

In accordance with FSP AIR-1 we accounted for the adoption of the direct expensing method retroactively.  As such, our general and administrative expenses, excluding depreciation and amortization have been restated for both years presented.

Our general and administrative expenses, excluding depreciation and amortization increased $30.7 million, reflecting a $54.9 million increase in general and administrative expenses of our restaurant segment principally relating to the full year effect of the RTM Acquisition on 2006.  Such increase in our restaurant segment reflects (1) a $26.8 million increase in salaries and incentive compensation as a result of increased headcount due to the RTM Acquisition and the strengthening of the infrastructure of our restaurant segment, (2) a $10.3 million increase in fringe benefits, recruiting, travel, training and other employee-related costs resulting from the increased headcount, (3) a $7.6 million increase in costs related to outside consultants that we utilized to assist with the integration of RTM, including compliance with the Sarbanes-Oxley Act of 2002 and the integration of computer systems, (4) a $5.6 million increase in severance and related charges of which $4.0 million was in connection with the replacement of three senior restaurant executives during 2006 and (5) a $4.7 million increase in employee share-based compensation resulting from the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment,” which we refer to as SFAS 123(R), which we adopted effective January 2, 2006 (see discussion in following paragraphs).  Aside from the increase attributable to our restaurant segment, general and administrative expenses decreased $24.2 million primarily due to (1) an $18.4 million decrease in share-based compensation (see the discussion in the following paragraphs), (2) a $3.6 million increase in the reimbursement of our expenses by the Management Company for the allocable cost of services provided by us to the Management Company and (3) a $0.5 million decrease in deferred compensation expense, from $2.2 million in 2005 to $1.7 million in 2006.  The deferred compensation expense represents the net increase in the fair value of investments in the Deferred Compensation Trusts.  The decrease from 2005 includes the effect of a $2.1 million impairment charge related to a significant decline in value of one of the investments in the Deferred Compensation Trusts recognized in 2006 with a corresponding equal reduction of “Investment income, net.”

As indicated above, effective January 2, 2006, we adopted SFAS 123(R) which revised Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation,” which we refer to as SFAS 123.  As a result, we now measure the cost of employee services received in exchange for an award of equity instruments, including grants of employee stock options and restricted stock, based on the fair value of the award at the date of grant rather than its intrinsic value, the method we previously used.  We are using the modified prospective application method under SFAS 123(R) and elected not to use retrospective application.  Thus, amortization of the fair value of all nonvested grants as of January 2, 2006, as determined under the previous pro forma disclosure provisions of SFAS 123, except as adjusted for estimated forfeitures, is included in our results of operations commencing January 2, 2006, and prior periods are not restated.  Employee stock compensation grants or grants modified, repurchased or cancelled on or after January 2, 2006 are valued in accordance with SFAS 123(R).  Had we used the fair value alternative under SFAS 123 during 2005, our pretax compensation expense using the Black-Scholes-Merton option pricing model would have been $15.6 million higher, or $10.0 million after taxes and minority interests.

 
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The Company’s total share-based compensation included in general and administrative expenses in 2006 decreased $13.7 million, reflecting a $4.7 million increase in our restaurant segment more than offset by an $18.4 million decrease excluding our restaurant segment as disclosed above.  The $13.7 million net decrease principally reflects a $16.4 million provision in 2005 for the intrinsic value of stock options exercised by the Executives that were replaced by us on the date of exercise, as compared with a $1.8 million provision in 2006 for the fair value of stock options granted by us to replace stock options exercised by two senior executive officers other than the Executives, in each case for our own tax planning reasons.  We also recognized $4.2 million of lower share-based compensation on equity instruments of certain subsidiaries and our contingently issuable performance-based restricted shares of our class A and class B common stock granted in 2005 due to the declining amounts of compensation expense, which is recognized ratably over their vesting periods, principally as a result of vesting during 2006.  These decreases were partially offset by the additional compensation expense of $6.9 million for the fair value of stock options recognized in 2006 under SFAS 123(R).

Depreciation and Amortization, Excluding Amortization of Deferred Financing Costs

Our depreciation and amortization, excluding amortization of deferred financing costs increased $29.6 million, principally reflecting the full year effect in 2006 of the RTM Acquisition and, to a much lesser extent, a $3.6 million increase in asset impairment charges principally related to underperforming restaurants and early termination of certain asset management contracts for CDOs.

Facilities Relocation and Corporate Restructuring

The charges of $3.3 million in 2006 included $3.2 million of general corporate expense principally representing a fee related to our decision in 2006 to terminate the lease of an office facility in Rye Brook, New York rather than continue our efforts to sublease the facility. The charges of $13.5 million in 2005 consisted of $12.0 million related to our restaurant segment and $1.5 million of general corporate charges.  The $12.0 million of charges in our restaurant segment principally related to combining our existing restaurant operations with those of RTM following the RTM Acquisition and relocating the corporate office of the restaurant group from Fort Lauderdale, Florida to new offices in Atlanta, Georgia.  RTM and AFA Service Corporation, an independently controlled advertising cooperative, which we refer to as AFA, concurrently relocated from their former facilities in Atlanta to the new offices in Atlanta.  The charges consisted of severance and employee retention incentives, employee relocation costs, lease termination costs and office relocation expenses.  The general corporate charges of $1.5 million related to our decision in December 2005 not to move our corporate offices from New York City to the newly leased office facility in Rye Brook, New York.  This charge represented our estimate as of the end of 2005 of all future costs, net of estimated sublease rental income, related to the Rye Brook lease subsequent to the decision not to move the corporate offices.

Loss on Settlements of Unfavorable Franchise Rights

The loss of $0.9 million in 2006 related to certain of the 13 franchised restaurants we acquired during the year and the loss of $17.2 million in 2005 consisted principally of $17.0 million in connection with the RTM Acquisition.

Interest Expense

Interest expense increased $45.3 million reflecting (1) a $33.6 million increase in interest expense on debt securities sold with an obligation to purchase or under agreements to repurchase in connection with the significant increase in the use of leverage in the Opportunities Fund prior to the Redemption as of September 29, 2006, (2) an $11.2 million net increase in interest expense reflecting the higher average debt of our restaurant segment following the Term Loan and (3) $8.8 million of interest expense principally relating to the full year effect in 2006 of an increase in sale-leaseback and capitalized lease obligations due to the obligations assumed in the RTM Acquisition and obligations entered into subsequently both for new restaurants opened and the renewal of expiring leases.  These increases were partially offset by an $8.4 million decrease in interest expense related to the convertible notes conversions, as discussed in more detail below under “Liquidity and Capital Resources – Convertible Notes.”  As a result of the Redemption we no longer consolidate the Opportunities Fund subsequent to September 29, 2006.

Insurance Expense Related to Long-Term Debt

Insurance expense related to long-term debt of $2.3 million in 2005 did not recur in 2006 due to the repayment of the related debt as part of the Refinancing.

Loss on Early Extinguishments of Debt

The loss on early extinguishments of debt of $35.8 million in 2005 resulted from the Refinancing and consisted of $27.4 million of prepayment penalties, $4.8 million of write-offs of previously unamortized deferred financing costs and original issue discount, $3.5 million of accelerated insurance payments related to the extinguished debt and $0.1 million of fees.  The loss on early extinguishments of debt of $14.1 million in 2006 consisted of (1) $13.1 million which resulted from the Convertible Notes Conversions and consisted of $9.0 million of negotiated inducement premiums that we paid in cash and shares of our class B common stock, the write-off of $4.0 million of related previously unamortized deferred financing costs and $0.1 million of fees related to the conversions and (2) a $1.0 million write-off of previously unamortized deferred financing costs in connection with the Term Loan Prepayments.

 
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Investment Income, Net

The following table summarizes and compares the major components of investment income, net:

   
2005
   
2006
   
Change
 
   
(In Millions)
 
Interest income
  $ 42.7     $ 72.5     $ 29.8  
Other than temporary unrealized losses
    (1.5 )     (4.1 )     (2.6 )
Recognized net gains
    12.7       10.6       (2.1 )
Distributions, including dividends
    1.9       1.5       (0.4 )
Other
    (0.5 )     (0.3 )     0.2  
    $ 55.3     $ 80.2     $ 24.9  

Interest income increased $29.8 million principally due to higher average outstanding balances of our interest-bearing investments reflecting the use of significant leverage in the Opportunities Fund prior to the Redemption (see the paragraph below).  In addition, we experienced an increase in average rates principally due to our investing through the use of leverage in the Opportunities Fund in some higher yielding, but more risk-inherent, debt securities with the objective of improving the overall return on our interest-bearing investments and the general increase in the money market and short-term interest rate environment.  Despite the higher outstanding balances of our interest-bearing investments, these balances, net of related leveraging liabilities, decreased principally due to the liquidation of some of those investments to provide cash principally for the RTM Acquisition in July 2005.  Our other than temporary unrealized losses increased $2.6 million, reflecting the recognition of a $2.1 million impairment charge related to the significant decline in the market value of one of the investments in the Deferred Compensation Trusts in 2006.  The $2.1 million impairment charge related to the Deferred Compensation Trusts had a corresponding equal reduction of “General and administrative, excluding depreciation and amortization.”  Any other than temporary unrealized losses are dependant upon the underlying economics and/or volatility in the value of our investments in available-for-sale securities and cost method investments and may or may not recur in future periods.  Our recognized net gains include (1) realized gains and losses on sales of our available-for-sale securities and our investments accounted for under the cost method of accounting and (2) realized and unrealized gains and losses on changes in the fair values of our trading securities, including derivatives, and our securities sold short with an obligation to purchase, which were principally recognized by the Opportunities Fund and the DM Fund.  The $2.1 million decrease in our recognized net gains is principally due to lesser gains realized on the sales of two investment limited partnerships in 2006 compared with the gains realized on the sales of two investment limited partnerships in 2005, partially offset by a gain realized on the sale of another cost method investment in 2006 which did not occur in 2005.  All of these recognized gains and losses may vary significantly in future periods depending upon the timing of the sales of our investments, or the changes in the value of our investments, as applicable.

As a result of the Redemption, our net investment income and interest expense are no longer affected by the significant leverage associated with the Opportunities Fund after September 29, 2006.

Gain on Sale of Unconsolidated Businesses

The gain on sale of unconsolidated businesses decreased $9.1 million to $4.0 million for 2006 from $13.1 million for 2005.  This decrease principally reflects (1) a $9.5 million decrease in gains on sales of portions of our investment in Encore and (2) a $1.3 million decrease in non-cash gains from (a) our equity in the net proceeds to both the REIT in 2005 and Encore in 2005 and 2006 from their sales of stock, including shares issued for an Encore business acquisition in 2005 and exercises of stock options, over the portion of our respective carrying values allocable to our decrease in ownership percentages and (b) the final amortization in 2005 of deferred gain on a restricted Encore stock award to a former officer of ours.  In accordance with our accounting policy, we recognize a non-cash gain or loss upon sale by an equity investee of any previously unissued stock to third parties to the extent of the decrease in our ownership of the investee to the extent realization of the gain is reasonably assured.  These decreases were partially offset by a $1.7 million gain on sale of a portion of our cost basis investment in Jurlique in 2006.

Other Income, Net

Other income, net increased $0.8 million, principally due to (1) $1.5 million of costs recognized in 2005 related to our decision not to pursue a certain financing alternative in connection with the RTM Acquisition and (2) $1.4 million of costs incurred in 2005 related to a business acquisition proposal we submitted but was not accepted.  The positive effect of these factors on other income in 2006 were partially offset by (1) $2.1 million of costs recognized in 2006 related to a strategic business alternative that was not pursued, (2) a $0.9 million decrease from the foreign currency transaction and derivatives related to Jurlique from gains of $0.5 million in 2005 to losses of $0.4 million in 2006, (3) a $0.7 million gain recognized in 2005 on lease termination of an underperforming Company-owned restaurant and (4) a $0.3 million recovery in 2005 upon collection of a fully-reserved non-trade note receivable held by a subsidiary which predated our acquisition of that subsidiary.

 
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Income (Loss) From Continuing Operations Before Income Taxes and Minority Interests

Our income (loss) from continuing operations before income taxes and minority interests improved $71.3 million to income of $5.3 million in 2006 from a loss of $66.0 million in 2005.  Both fiscal years reflect the retroactive adjustment of FSP AIR-1.  This improvement is attributed principally to the decrease in certain significant charges in 2006 as compared with 2005, including (1) a $21.7 million decrease in the loss on early extinguishments of debt, reflecting higher charges associated with the Refinancing in 2005 as compared with the charges associated with our Convertible Notes Conversions and Term Loan Prepayments in 2006, (2) a $16.3 million decrease in the loss on settlements of unfavorable franchise rights principally reflecting a $17.0 million loss in 2005 in connection with the RTM Acquisition, (3) a $14.3 million decrease in total share-based compensation, of which $13.7 million was reflected in general and administrative expenses, including $16.4 million of compensation expense in 2005 for the intrinsic value of stock options exercised by the Executives and replaced by us and (4) a $10.2 million decrease in facilities relocation and corporate restructuring charges principally in connection with combining our existing restaurant operations with those of RTM following the RTM Acquisition.  The effects of the other variances are discussed in the captions above.

As discussed above, we recognized deferred compensation expense of $2.2 million in 2005 and $1.7 million in 2006, within general and administrative expenses, for net increases in the fair value of investments in the Deferred Compensation Trusts.  Under GAAP, we were unable to recognize any investment income for unrealized increases in the fair value of those investments in the Deferred Compensation Trusts that were accounted for under the cost method of accounting.  Accordingly, we recognized net investment income from investments in the Deferred Compensation Trusts of $1.8 million in 2005 and net investment losses of $1.0 million in 2006.  The net investment income in 2005 consisted of realized gains from the sale of certain cost method investments in the Deferred Compensation Trusts of $2.0 million, which included increases in value prior to 2005 of $1.6 million, interest income of $0.1 million, less management fees of $0.3 million.  The net investment loss during 2006 consisted of an impairment charge of $2.1 million related to an investment fund within the Deferred Compensation Trusts which experienced a significant decline in market value which we deemed to be other than temporary and management fess of less than $0.1 million, less realized gains from the sale of certain cost method investments of $0.6 million, which included increases in value prior to 2006 of $0.4 million, equity in earnings of an equity method investment purchased and sold during 2006 of $0.4 million and interest income of $0.2 million.  The cumulative disparity between (1) deferred compensation expense and net recognized investment income and (2) the obligation to the Executives and the carrying value of the assets in the Deferred Compensation Trusts reversed in 2007 when previously unrealized gains were recognized upon the transfer of the investments in the Deferred Compensation Trusts to the Executives.

(Provision For) Benefit From Income Taxes

The benefit from income taxes represented an effective rate of 25% in 2005 and the provision for income taxes represented an effective rate of 86% in 2006 on the respective income (loss) from continuing operations before income taxes and minority interests.  The effective benefit rate in 2005 was lower than, and the effective provision rate in 2006 was higher than, the United States Federal statutory rate of 35% principally due to (1) the effect of non-deductible compensation and other non-deductible expenses, (2) state income taxes, net of Federal income tax benefit, due to the differing mix of pretax income or loss among the consolidated subsidiaries which file state tax returns on an individual company basis and (3) in 2005 the non-deductible loss on settlements of unfavorable franchise rights discussed above.  These effects were partially offset by the effect of minority interests in income of consolidated subsidiaries which were not taxable to us but which are not deducted from the pretax income (loss) used to calculate the effective tax rates.  The effects of each of these items on the effective tax and benefit rates were significantly different in 2005 and 2006 due to the relative levels of income (loss) from continuing operations before income taxes and minority interests in each of those years.

Minority Interests in Income of Consolidated Subsidiaries

The minority interests in income of consolidated subsidiaries increased $2.7 million, principally reflecting (1) an increase of $2.6 million due to increased income of Deerfield exclusive of costs discussed below in which we did not participate and (2) an increase of $1.3 million due to the increased participation of investors other than us in increased income of the Opportunities Fund prior to the Redemption on September 29, 2006.  These increases were partially offset by $1.2 million of costs related to a strategic business alternative that was not pursued that were incurred on behalf of and allocated entirely to the minority shareholders of Deerfield and, accordingly, are reflected as a reduction of minority interests in income of consolidated subsidiaries in 2006.

Income (Loss) From Discontinued Operations

The income (loss) from discontinued operations declined $3.4 million from income of $3.3 million for 2005 to a loss of $0.1 million for 2006.  The loss in 2006 consists of a $1.3 million loss from operations related to our closing two underperforming restaurants, substantially offset by gains on disposal consisting of (1) the release of $0.7 million of reserves for state income taxes no longer required upon the expiration of a state income tax statute of limitations and (2) the release of $0.5 million of certain other accruals as a result of revised estimates to liquidate the remaining liabilities.  During 2005 we recorded an additional gain on disposal of $3.3 million resulting from (1) the release of $2.8 million of reserves for state income taxes no longer required upon the expiration of the statute of limitations for examinations of certain of our state income tax returns and (2) a $0.5 million gain from a sale of a former refrigeration property that had been held for sale and a reversal of a related reserve for potential environmental liabilities associated with the property that were assumed by the purchaser.

 
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Net Loss

Our net loss decreased $44.3 million to $10.9 million in 2006 from $55.2 million in 2005.  This decrease is due to the after-tax and applicable minority interest effects of the variances discussed above.

Liquidity and Capital Resources

Cash Flows From Continuing Operating Activities

Our consolidated operating activities from continuing operations provided cash and cash equivalents, which we refer to in this discussion as cash, of $20.8 million during 2007 reflecting our net income of $16.1 million and non-cash adjustments for depreciation and amortization of $75.4 million, our share-based compensation of $10.0 million, and straight-line rent, net of $5.9 million, all partially offset by our $40.2 million gain from the Deerfield Sale, $33.5 million of net operating investment adjustments and a deferred income tax benefit of $10.8 million.

In addition, the cash provided by changes in operating assets and liabilities of $3.5 million principally reflects a $15.0 million decrease in accounts and notes receivable due to collections of incentive fees outstanding as of December 31, 2006 in our former asset management segment which did not recur as of December 30, 2007 due to the Deerfield Sale, partially offset by a $7.4 million decrease in accounts payable and accrued expenses and other current liabilities due to (1) decreases in our incentive compensation accruals as a result of the resignation of the Former Executives and other corporate officers and employees as part of the Corporate Restructuring and as a result of weaker than planned performance and (2) amounts related to our former asset management segment included in the gain on the Deerfield Sale, offset by obligations remaining related to the Corporate Restructuring of $12.2 million.

The net operating investment adjustments in 2007 principally reflect $37.8 million of other net recognized gains, net of other than temporary losses, and include realized gains on the sale of our investments of $47.7 million during 2007 offset by other than temporary losses of $9.9 million.  The other than temporary losses included $8.7 million of impairment charges on certain investments in CDOs at our former asset management segment and $1.1 million of impairment charges based on the significant decline in the market value of one of our available-for-sale securities.

We expect positive cash flows from continuing operating activities during 2008 notwithstanding the remaining charges related to the Corporate Restructuring.

Working Capital and Capitalization

Working capital, which equals current assets less current liabilities, was a deficiency of ($36.9) million at December 30, 2007, reflecting a current ratio, which equals current assets divided by current liabilities, of 0.8:1.  Working capital at December 30, 2007 decreased $198.1 million from $161.2 million at December 31, 2006, primarily due to (1) the reclassification of $91.8 million of net current assets in the Equities Account as non-current in connection with our entering into an agreement with the Management Company whereby we will not withdraw our investment from the Equities Account prior to December 31, 2010 and (2) the payment of $72.8 million under the Contractual Settlements and (3) dividends paid of $32.1 million.

Our total capitalization at December 30, 2007 was $1,188.2 million, consisting of stockholders’ equity of $448.9 million and long-term debt of $739.3 million, including current portion.  Our total capitalization at December 30, 2007 decreased $14.2 million from $1,202.4 million at December 31, 2006, as restated for FSP AIR-1, principally reflecting (1) dividends paid of $32.1 million and (2) the components of comprehensive loss that bypass net income of $17.0 million principally reflecting the reclassification of prior period unrealized holding gains into net income upon our sales of available for sale securities, all partially offset by (1) our $16.1 million net income and (2) a $14.7 million net increase in long-term debt, including current portion and notes payable.

Credit Agreement

The Credit Agreement includes the Term Loan with a remaining principal balance of $555.1 million as of December 30, 2007 and a senior secured revolving credit facility of $100.0 million, under which there were no borrowings as of December 30, 2007.  However, the availability under the facility as of December 30, 2007 was $92.3 million, which is net of a reduction of $7.7 million for outstanding letters of credit.  Of the Term Loan balance, including the excess cash flow payment as described below, approximately $18.8 million is due in 2008, $6.2 million in 2009, $7.8 million in 2010, $294.5 million in 2011 and $227.8 million in 2012.  The Term Loan requires prepayments of principal amounts resulting from certain events and from excess cash flow of the restaurant segment as determined under the Credit Agreement, which we refer to as the Excess Cash Flow Payment. The excess cash flow calculation results in a payment of approximately $12.5 million that is due in the first half of 2008.

 
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Sale-Leaseback Obligations

We have outstanding $105.9 million of sale-leaseback obligations as of December 30, 2007, which relate to our restaurant segment and are due through 2028, of which $2.4 million is due in 2008.

Capitalized Lease Obligations

We have outstanding $72.3 million of capitalized lease obligations as of December 30, 2007, which relate to our restaurant segment and extend through 2036, of which $4.4 million is due in 2008.

Other Long-Term Debt

We have outstanding a secured bank term loan payable in 2008 in the amount of $2.2 million as of December 30, 2007.  Additionally, we have outstanding $1.8 million of leasehold notes as of December 30, 2007, which are due through 2018, of which $0.1 million is due in 2008.

Convertible Notes

We have outstanding as of December 30, 2007, $2.1 million of Convertible Notes which do not have any scheduled principal repayments prior to 2023 and are convertible into 52,000 shares of our class A common stock and 105,000 shares of our class B common stock.  The Convertible Notes are redeemable at our option commencing May 20, 2010 and at the option of the holders on May 15, 2010, 2015 and 2020 or upon the occurrence of a fundamental change, as defined, relating to us, in each case at a price of 100% of the principal amount of the Convertible Notes plus accrued interest.

In 2006, an aggregate of $172.9 million principal amount of the Convertible Notes was converted or effectively converted into an aggregate of 4,323,000 shares of our class A common stock and 8,645,000 shares of our class B common stock.  In order to induce the effective conversions, we paid negotiated premiums aggregating $9.0 million to some converting noteholders consisting of cash of $5.0 million and 244,000 shares of our class B common stock with an aggregate fair value of $4.0 million based on the closing market price of our class B common stock on the dates of the effective conversions in lieu of cash to certain of those noteholders.

Revolving Credit Facilities
 
    We have $92.3 million available for borrowing under our restaurant segment’s $100.0 million revolving credit facility as of December 30, 2007, which is net of the reduction of $7.7 million for outstanding letters of credit noted above.  The revolving credit facility expires on July 25, 2011.  In addition, our restaurant segment has a $30.0 million conditional funding commitment for sale-leaseback financing, of which the full amount was available as of December 30, 2007, from a real estate finance company for development and operation of Arby’s restaurants which is cancellable on 60 days notice and expires on July 31, 2008.  Additionally, AFA has $3.5 million available for borrowing under its $3.5 million line of credit.
 
Debt Repayments and Covenants

Our total scheduled long-term debt and notes payable repayments during 2008 are $27.8 million consisting of $18.7 million under our Term Loans, including the Excess Cash Flow Payment, $4.4 million relating to capitalized leases, $2.4 million relating to sale-leaseback obligations, $2.2 million under our secured bank term loan and $0.1 million under our leasehold notes.

Our Credit Agreement contains various covenants, as amended during 2007 to make them less restrictive, relating to our restaurant segment, the most restrictive of which (1) require periodic financial reporting, (2) require meeting certain leverage and interest coverage ratio tests and (3) restrict, among other matters, (a) the incurrence of indebtedness, (b) certain asset dispositions, (c) certain affiliate transactions, (d) certain investments, (e) certain capital expenditures and (f) the payment of dividends indirectly to Triarc.  We were in compliance with all of these covenants as of December 30, 2007 and we expect to remain in compliance with all of these covenants during 2008.  As of December 30, 2007 there was $5.0 million available for the payment of dividends indirectly to Triarc under the covenants of the Credit Agreement.

A significant number of the underlying leases for our sale-leaseback obligations and our capitalized lease obligations, as well as our operating leases, require or required periodic financial reporting of certain subsidiary entities within our restaurant segment or of individual restaurants, which in many cases has not been prepared or reported.  We have negotiated waivers and alternative covenants with our most significant lessors which substitute consolidated financial reporting of our restaurant segment for that of individual subsidiary entities and which modify restaurant level reporting requirements for more than half of the affected leases.  Nevertheless, as of December 30, 2007, we were not in compliance, and remain not in compliance, with the reporting requirements under those leases for which waivers and alternative financial reporting covenants have not been negotiated.  However, none of the lessors has asserted that we are in default of any of those lease agreements.  We do not believe that this non-compliance will have a material adverse effect on our consolidated financial position or results of operations.

 
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Contractual Obligations

The following table summarizes the expected payments under our outstanding contractual obligations at December 30, 2007:

   
Fiscal Years
 
   
2008
     
2009-2010
     
2011-2012
   
After 2012
   
Total
 
   
(In Millions)
 
Long-term debt (a)
  $ 21.0     $ 14.3     $ 522.9     $ 2.9     $ 561.1  
Sale-leaseback obligations (b)
    2.4       6.1       10.1       87.3       105.9  
Capitalized lease obligations (b)
    4.4       10.1       8.1       49.7       72.3  
Operating leases (c)
    77.5       138.8       119.4       404.6       740.3  
Purchase obligations (d)
    24.7       18.5       18.9       35.6       97.7  
Severance obligations (e)
    11.3       0.7       0.2       -       12.2  
Total (f)
  $ 141.3     $ 188.5     $ 679.6     $ 580.1     $ 1,589.5  
 
(a)
Includes in 2008, the excess cash flow payment of $12.5 million; excludes sale-leaseback and capitalized lease obligations, which are shown separately in the table, and interest.

(b)
Excludes interest; also excludes related sublease rental receipts of $10.8 million on sale-leaseback obligations and $3.6 million on capitalized lease obligations, respectively.

(c)
Represents the future minimum rental obligations, including $37.6 million of unfavorable lease amounts included in “Other liabilities” in our consolidated balance sheet as of December 30, 2007 which will reduce our rent expense in future periods.  Also, these amounts have not been decreased by $50.1 million of related sublease rental obligations due to us.

(d)
Includes (1) an approximate $73.4 million remaining obligation for our Company-owned restaurants to purchase PepsiCo, Inc. beverage products under an agreement to serve PepsiCo beverage products in all of our Company-owned and franchised restaurants, (2) $22.9 million of purchase obligations for expected future capital expenditures and (3) $1.4 million of other purchase obligations.

(e)
Represents severance for two former senior executives and severance and consulting fees with respect to our New York headquarters employees in connection with the Corporate Restructuring.

(f)
Excludes Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” which we refer to as “FIN 48”, obligations of $12.3 million.  The Company is unable to predict when, and if, payment of any of this accrual will be required.

Guarantees and Commitments

Our wholly-owned subsidiary, National Propane Corporation, which we refer to as National Propane, retains a less than 1% special limited partner interest in our former propane business, now known as AmeriGas Eagle Propane, L.P., which we refer to as AmeriGas Eagle.  National Propane agreed that while it remains a special limited partner of AmeriGas Eagle, National Propane would indemnify the owner of AmeriGas Eagle for any payments the owner makes related to the owner’s obligations under certain of the debt of AmeriGas Eagle, aggregating approximately $138.0 million as of December 30, 2007, if AmeriGas Eagle is unable to repay or refinance such debt, but only after recourse by the owner to the assets of AmeriGas Eagle.  National Propane’s principal asset is an intercompany note receivable from Triarc in the amount of $50.0 million as of December 30, 2007.  We believe it is unlikely that we will be called upon to make any payments under this indemnity.  Prior to 2005, AmeriGas Propane, L.P., which we refer to as AmeriGas Propane, purchased all of the interests in AmeriGas Eagle other than National Propane’s special limited partner interest.  Either National Propane or AmeriGas Propane may require AmeriGas Eagle to repurchase the special limited partner interest.  However, we believe it is unlikely that either party would require repurchase prior to 2009 as either AmeriGas Propane would owe us tax indemnification payments if AmeriGas Propane required the repurchase or we would accelerate payment of deferred taxes of $35.9 million as of December 30, 2007, including $34.5 million associated with the gain on sale of the propane business and the remainder associated with other tax basis differences, prior to 2005, of our propane business if National Propane required the repurchase.  As of December 30, 2007, we have net operating loss tax carryforwards sufficient to offset substantially all of the remaining deferred taxes.

RTM guarantees the lease obligations of 10 RTM restaurants formerly operated by affiliates of RTM as of December 30, 2007, which we refer to as the Affiliate Lease Guarantees.  The RTM selling stockholders have indemnified us with respect to the guarantee of the remaining lease obligations.  Our obligation related to 13 additional leases operated by affiliates of RTM was released during 2007 in conjunction with their assignment and/or termination.  In addition, RTM remains contingently liable for 17 leases for restaurants sold by RTM prior to the RTM Acquisition if the respective purchasers do not make the required lease payments.  Our obligation related to 4 additional leases that had been sold by RTM prior to the RTM Acquisition was released during 2007 in conjunction with their assignment and/or termination.  All of these lease obligations, which extend through 2025, including all existing extension or renewal option periods, could aggregate a maximum of approximately $18.0 million as of December 30, 2007, including approximately $14.0 million under the Affiliate Lease Guarantees, assuming all scheduled lease payments have been made by the respective tenants through December 30, 2007.

 
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During January 2008, we purchased 41 existing franchised Arby’s restaurants for an aggregate net purchase price of approximately $15.0 million, including the payment of approximately $9.2 million of cash and an assumption of approximately $5.8 million of debt.  Prior to the closing of the purchase, we were the sublessor for approximately 27 of the locations that were purchased.

AFA incurred costs in December for a national advertising event which resulted in advertising expenses in excess of dues collected for 2007.  To partially fund the deficit resulting from the December 2007 advertising event, Arby’s prepaid an aggregate of $3.5 million of its 2008 dues to AFA in January 2008.  The prepayment will be recouped by reducing future payments of dues by our restaurant segment to AFA, with the total expected to be recouped before the end of the 2008 third quarter.

Capital Expenditures
 
    In 2007, cash capital expenditures amounted to $73.0 million and non-cash capital expenditures consisting of capitalized leases and certain sale-leaseback obligations, which we refer to as “Non-Cash Capital Expenditures”, amounted to $14.5 million.  In 2008, we expect that cash capital expenditures will be approximately $56.0 million, and Non-Cash Capital Expenditures will be approximately $33.0 million, and will principally relate to (1) the opening of an estimated 50 new Company-owned restaurants, (2) remodeling some of our existing restaurants and (3) maintenance capital expenditures for our Company-owned restaurants.  We have $22.9 million of outstanding commitments for capital expenditures as of December 30, 2007, of which $15.9 million is expected to be paid in 2008.
 
Deerfield Sale
 
On December 21, 2007, we sold our 63.6% capital interest in Deerfield, our former asset management business, to the REIT. The Deerfield Sale resulted in proceeds to us aggregating $134.6 million consisting of (1) 9,629,368 preferred shares, which we refer to as the “Preferred Stock,” of the REIT with an estimated fair value of $88.4 million before expenses of the sale and the amount excluded from the gain as described below and (2) $48.0 million principal amount of senior secured notes of the REIT due 2012, which we refer to as the “REIT Notes,” with an estimated fair value of $46.2 million. The Preferred Stock contains a mandatory redemption feature seven years after their issuance and, as such, are being accounted for as available-for-sale debt securities. The Deerfield Sale resulted in an approximate pretax gain of $40.2 million, net of the $6.9 million unrecognized gain due to our continuing interest in the REIT, and is net of $2.3 million of related fees and expenses. The recorded gain on the date of sale excluded $7.7 million that we could not recognize because of our then approximate 16% continuing interest in Deerfield through our ownership of the Preferred Stock and common stock of the REIT we already owned. As a result of the subsequent distribution of the 1,000,000 REIT common shares previously owned by the Company, our ownership in the REIT decreased to approximately 15% and we recognized $0.8 million of the originally unrecognized gain. The fees and expenses include $0.8 million representing a portion of the additional fees that are attributable to our utilization of Management Company personnel in connection with the provision of services in excess of the amount originally contemplated by the parties under the Services Agreement.  Expenses related to the Deerfield Sale incurred after September 30, 2007 are being paid either by Deerfield or from a $0.3 million fund paid by the REIT to us at closing, as the representative of the sellers. The payment of those expenses remain a liability of ours but should they not be paid by the REIT, we are entitled to be reimbursed for any payments made by us on their behalf.  The proceeds are subject to finalization of a post-closing purchase price adjustment, if any, pursuant to provisions of the Deerfield Sale agreement.
 
In response to unanticipated credit and liquidity events in 2008, the REIT announced that it is repositioning its investment portfolio to focus on agency only mortgage-backed securities and on fee-based management activities.  In addition, the REIT announced that during the first quarter of 2008, its portfolio was adversely impacted by the further deterioration of the global credit markets and that, as a result, it has sold a significant portion of its mortgage-backed securities and significantly reduced the net notional amount of interest rate swaps used to hedge a portion of its mortgage-backed securities, all at a net loss of approximately $233.0 million to the REIT.

    We are currently evaluating the impact these changes in the REIT’s investment holdings will have on the fair value and carrying value of our various investments in the REIT.  We continue to monitor the situation in order to determine whether it will be necessary to record future impairment charges with respect to our investments in the REIT.

Dividends

During 2007 we paid regular quarterly cash dividends of $0.08 and $0.09 per share on our class A and class B common stock, respectively, aggregating $32.1 million.  On January 30, 2008, we declared regular quarterly cash dividends of $0.08 and $0.09 per share on our class A common stock and class B common stock, respectively, payable on March 14, 2008 to holders of record on March 1, 2008.  Our board of directors has determined that regular quarterly cash dividends paid on each share of class B common stock will be at least 110% of the regular quarterly cash dividends paid on each share of class A common stock through the first fiscal quarter of 2008, but has not yet made any similar determination beyond that date.  We currently intend to continue to declare and pay regular quarterly cash dividends; however, there can be no assurance that any regular quarterly dividends will be declared or paid in the future or of the amount or timing of such dividends, if any.  If we pay regular quarterly cash dividends for the remainder of 2008 at the same rate as declared in our 2008 first quarter and do not pay any special cash dividends, our total cash requirement for dividends for all of 2008 would be approximately $32.2 million based on the number of our class A and class B common shares outstanding at February 15, 2008.

Income Taxes

The statute of limitations for examination by the Internal Revenue Service, which we refer to as the IRS, of our Federal income tax return for the year ended December 28, 2003 expired during 2007 and years prior thereto are no longer subject to examination.  Our Federal income tax returns for years subsequent to December 28, 2003 are not currently under examination by the IRS although some of our state income tax returns are currently under examination.   We have received notices of proposed tax adjustments aggregating $4.1 million in connection with certain of these state income tax returns.  However, we have disputed these notices and, accordingly, cannot determine the ultimate amount of any resulting tax liability or any related interest and penalties.

 
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Treasury Stock Purchases

Our management is currently authorized, when and if market conditions warrant and to the extent legally permissible, to repurchase through December 28, 2008 up to a total of $50.0 million of our class A and class B common stock.  We did not make any treasury stock purchases during 2007 and we cannot assure you that we will repurchase any shares under this program in the future.

Universal Shelf Registration Statement

Prior to 2005, the Securities and Exchange Commission declared effective a Triarc universal shelf registration statement in connection with the possible future offer and sale, from time to time, of up to $2.0 billion of our common stock, preferred stock, debt securities and warrants to purchase any of these types of securities.  Unless otherwise described in the applicable prospectus supplement relating to any offered securities, we anticipate using the net proceeds of each offering for general corporate purposes, including financing of acquisitions and capital expenditures, additions to working capital and repayment of existing debt.  We have not presently made any decision to issue any specific securities under this universal shelf registration statement.

Cash Requirements

Our consolidated cash requirements for continuing operations for 2008, exclusive of operating cash flow requirements, consist principally of (1) cash capital expenditures of approximately $56.0 million, (2) a maximum of an aggregate $50.0 million of payments for repurchases, if any, of our class A and class B common stock for treasury under our current stock repurchase program, (3) regular quarterly cash dividends aggregating approximately $32.2 million, (4) scheduled debt principal repayments aggregating $27.8 million, including the Excess Cash Flow Payment, (5) the costs of any business acquisitions, including the $9.2 million cash portion of the purchase price of 41 restaurants purchased in January 2008 and  (6) any additional prepayments under our Credit Agreement.  We anticipate meeting all of these requirements through (1) cash flows from continuing operating activities, (2) borrowings under our restaurant segment’s revolving credit facility of which $92.3 million is unused as of December 30, 2007, (3) the $30.0 million conditional funding commitment for sale-leaseback financing from the real estate finance company, all of which is unused as of December 30, 2007 and (4) proceeds from sales, if any, of up to $2.0 billion of our securities under the universal shelf registration statement.

Legal and Environmental Matters
 
    In 2001, a vacant property owned by Adams Packing Association, Inc., which we refer to as Adams Packing, an inactive subsidiary of ours, was listed by the United States Environmental Protection Agency on the Comprehensive Environmental Response, Compensation and Liability Information System, which we refer to as 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 Packing conducted drum recycling operations at the site from some time prior to 1971 until the late 1970s.  The business operations of Adams Packing were sold in December 1992.  In February 2003, Adams Packing and the Florida Department of Environmental Protection, which we refer to as 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 Packing’ environmental consultant and during 2004 the work under that plan was completed.  Adams Packing 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 Packing 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 Packing.  Adams Packing 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 Packing 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.  We, our consultants and our outside counsel are presently reviewing this option and no decision has been made on a course of action based on the FDEP’s offer.  In January 2008, Adams Packing replied to the FDEP requesting an extension of time to April 30, 2008 to respond to the May 1, 2007 letter while Adams Packing continues to work on potential solutions to the matter.  Nonetheless, based on amounts spent prior to 2006 of $1.7 million for all of these costs and after taking into consideration various legal defenses available to us, including Adams Packing, we expect that the final resolution of this matter will not have a material effect on our financial position or results of operations.
 
In addition to the environmental matter described above, we are involved in other litigation and claims incidental to our current and prior businesses.  We and our subsidiaries have reserves for all of our legal and environmental matters aggregating $0.7 million as of December 30, 2007.  Although the outcome of these matters cannot be predicted with certainty and some of these matters may be disposed of unfavorably to us, based on currently available information, including legal defenses available to us and/or our subsidiaries, and given the aforementioned reserves and our insurance coverages, we do not believe that the outcome of these legal and environmental matters will have a material adverse effect on our consolidated financial position or results of operations.

 
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Application of Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions in applying our critical accounting policies that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period.  Our estimates and assumptions concern, among other things, uncertainties for tax, legal and environmental matters, the valuations of some of our investments and impairment of long-lived assets.  We evaluate those estimates and assumptions on an ongoing basis based on historical experience and on various other factors which we believe are reasonable under the circumstances.

We believe that the following represent our more critical estimates and assumptions used in the preparation of our consolidated financial statements:

 
·
Recognition of income tax benefits and estimated accruals for the resolution of income tax matters which are subject to future examinations of our Federal and state income tax returns by the Internal Revenue Service or state taxing authorities, including remaining provisions included in “Current liabilities relating to discontinued operations” in our consolidated balance sheets:

Effective January 1, 2007, we adopted Financial Accounting Standards Board, which we refer to as the FASB, Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, which we refer to as “FIN 48”.  As a result, we now measure income tax uncertainties in accordance with a two-step process of evaluating a tax position.  We first determine 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.  With the adoption of FIN 48, at January 1, 2007 we recognized an increase in our reserves for uncertain income tax positions of $4.8 million, an increase in our liability for interest of $0.5 million and an increase in our liability for penalties of $0.2 million related to uncertain income tax positions.  These increases were partially offset by an increase in a deferred income tax benefit of $3.2 million.  There was also a reduction in the tax related liabilities of discontinued operations of $0.1 million.  The net effect of all these adjustments was a decrease in retained earnings of $2.2 million.  The Company has unrecognized tax benefits of $13.2 million and $12.3 million at January 1, 2007 and December 30, 2007.

The Company recognizes interest accrued related to uncertain tax positions in “Interest expense” and penalties in “General and administrative expenses, excluding depreciation and amortization”.  At January 1, 2007 and December 30, 2007 the Company had $1.8 million and $3.4 million accrued for the payment of interest and $0.2 million and $0.2 million accrued for penalties, both respectively.

Our Federal income tax returns are not currently under examination by the Internal Revenue Service although certain of our state income tax returns are currently under examination.  We believe that adequate provisions have been made for any liabilities, including interest and penalties, that may result from the completion of these examinations.  To the extent uncertain tax positions pertaining to the former beverage businesses that we sold in October 2000 are determined to be less than or in excess of the amounts included in “Current liabilities relating to discontinued operations” in the accompanying consolidated balance sheets, any such material difference will be recorded at that time as a component of gain or loss on disposal of discontinued operations.

 
·
Reserves which total $0.7 million at December 30, 2007 for the resolution of all of our legal and environmental matters as discussed immediately above under “Legal and Environmental Matters”:

Should the actual cost of settling these matters, whether resulting from adverse judgments or otherwise, differ from the reserves we have accrued, that difference will be reflected in our results of operations when the matter is resolved or when our estimate of the cost changes.

 
·
Valuations of some of our investments:

Our investments in marketable securities are valued principally based on quoted market prices, broker/dealer prices or statements of account received from investment managers which are principally based on quoted market or broker/dealer prices.  Accordingly, we do not anticipate any significant changes from the valuations of these marketable investments.  Our other investments accounted for under the cost method are valued almost entirely based on statements of account received from the investment managers or the investees which are principally based on quoted market or broker/dealer prices.  To the extent that some of these investments, including the underlying investments in investment limited partnerships, do not have available quoted market or broker/dealer prices, we rely on unobservable inputs (that are not corroborated by observable market data) that reflect assumptions market participants would use in pricing the investment.  These inputs are subjective and thus subject to estimates which could change significantly from period to period.  Those changes in estimates in these cost investments would be recognized only to the extent of losses which are deemed to be other than temporary.  The total carrying value of the cost investments not valued based on quoted market or broker/dealer prices was approximately $4.2 million as of December 30, 2007.  In addition, we have an $8.5 million cost investment in Jurlique, an Australian company not publicly traded, for which we currently believe the carrying amount is recoverable as a result of the sale during 2006 of a portion of our investment in Jurlique at a higher valuation than that reflected in the carrying value.  We also have $1.3 million of non-marketable cost investments in securities for which it is not practicable to estimate fair value because the investments are non-marketable and are principally in start-up enterprises for which we currently believe the carrying amount is recoverable.

 
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Our investment in the preferred stock of the REIT received in connection with the Deerfield Sale is currently non-marketable; however, it is mandatorily redeemable in seven years from issuance. We value that investment, less the unrecognized portion of the gain due to our continuing ownership in the REIT, based on the quoted market price of the common shares of the REIT into which those preferred shares are convertible on a one-for-one basis upon approval by the REIT common shareholders.  The REIT filed a preliminary Form S-3 with the Securities and Exchange Commission in January 2008 in order to register the preferred shares it issued in connection with the Deerfield Sale. We anticipate that the REIT’s shareholders will approve the conversion of the preferred stock into common stock at a shareholder meeting during the first quarter of 2008.

 
·
Provision for uncollectible notes receivable:

                The repayment of the $48.0 million principal amount of notes receivable due in 2012 received in connection with the Deerfield Sale and the payment of related interest are dependent on the cash flow of the REIT including Deerfield.  The REIT’s investment portfolio is comprised primarily of fixed income investments, including mortgage-backed securities and corporate debt and its activities also include the asset management business of Deerfield. Among the factors that may affect the REIT’s ability to continue to pay the notes receivable and related interest is the current dislocation in the sub-prime mortgage sector and the current weakness in the broader financial market, both of which could adversely affect the REIT and one or more of its lenders, which could result in increases in its borrowing costs, reductions in its liquidity and reductions in the value of its investments in its portfolio, all of which could reduce cash flows and may result in an impairment charge or a provision for uncollectible notes receivable.  In initially determining the fair value of those notes, we made estimates of the projected future cash flows of the REIT, including Deerfield, which indicated that the notes and related interest would be collectible.

 
·
Provisions for unrealized losses on certain investments deemed to be other than temporary:

We review all of our investments that have unrealized losses for any that we might deem other than temporary.  The losses we have recognized were deemed to be other than temporary due to declines in the market value of or liquidity problems associated with specific securities.  This includes the underlying investments of any of our investment limited partnerships and similar investment entities in which we have an overall unrealized loss.  This process is subjective and subject to estimation.  In determining whether an investment has suffered an other than temporary loss, we consider such factors as the length of time the carrying value of the investment was below its market value, the severity of the decline, the investee’s financial condition and the prospect for future recovery in the market value of the investment, including our ability and intent to hold the investments for a period of time sufficient for a forecasted recovery.  The use of different judgments and estimates could affect the determination of which securities suffered an other than temporary loss and the amount of that loss.  We have aggregate unrealized holding losses on our available-for-sale marketable securities of $11.1 million almost solely related to the REIT Preferred Stock, as of December 30, 2007 which, if not recovered, may result in the recognition of future losses.  Also, should any of our investments accounted for under the cost method totaling approximately $14.0 million experience declines in value due to conditions that we deem to be other than temporary, we may recognize additional other than temporary losses.  We have permanently reduced the cost basis component of the investments for which we have recognized other than temporary losses of $1.5 million, $4.1 million and $9.9 million during 2005, 2006 and 2007, respectively.  As such, recoveries in the value of investments, if any, and to the extent they remain in our portfolio after the Deerfield Sale, will not be recognized in income until the investments are sold.

 
·
Provisions for impairment of goodwill and long-lived assets:

As of December 30, 2007, our goodwill of $468.8 million relates entirely to our restaurant segment, of which $451.2 million is associated with the Company-owned restaurant operating unit with the balance associated with our franchising unit.  We test the goodwill of each of our Company-owned restaurant and restaurant franchising business reporting units for impairment annually.  We recognize a goodwill impairment charge, if any, for any excess of the net carrying amount of the respective goodwill over the implied fair value of the goodwill.  The implied fair value of the goodwill is determined in the same manner as the existing goodwill was determined substituting the fair value for the cost of the reporting unit.  The fair value of each reporting unit has been estimated to be the present value of the anticipated cash flows associated with that reporting unit.  The recoverability of the goodwill in 2005, 2006 and 2007 was based on estimates we made regarding the present value of the anticipated cash flows associated with each reporting unit.  Those estimates are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.  Should actual cash flows and our future estimates vary adversely from those estimates we used, we may be required to recognize goodwill impairment charges in future years.  Further, fair value of the reporting unit can be determined under several different methods, of which discounted cash flows is one alternative.  Had we utilized an alternative method, the amount of any potential goodwill impairment charge might have differed significantly from the amounts as determined.  Based upon our analyses of the fair values of our reporting units, we did not record any goodwill impairment in 2005, 2006 or 2007.

 
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We review our long-lived assets, other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If that review indicates an asset may not be recoverable based upon forecasted, undiscounted cash flows, an impairment loss is recognized for the excess of the carrying amount over the fair value of the asset.  The fair value is estimated to be the present value of the associated cash flows.  Our critical estimates in this review process include the anticipated future cash flows of each of our Company-owned restaurants used in assessing the recoverability of their respective long-lived assets. We recognized related impairment losses of $1.9 million, $5.5 million and $7.0 million in 2005, 2006 and 2007, respectively, of which $0.9 million, $3.6 million and $1.8 million of the losses in 2005, 2006 and 2007, respectively, related to long-lived assets of certain restaurants which were determined to not be fully recoverable.  Of the remaining losses, $0.5 million, $0.4 million and $0.8 million in 2005, 2006 and 2007, respectively, related to the TJ Cinnamons brand.  In addition, $0.5 million, $1.5 million and $1.4 million of the losses in 2005, 2006 and 2007, respectively, related to the write-off of the value of asset management contracts.   The remaining loss in 2007 consisted of a $3.0 million write-off of an internally developed financial model that our asset management segment did not use and was subsequently sold.  The fair values of the impaired assets were estimated to be the present value of the anticipated cash flows associated with each affected Company-owned restaurant, the trademark and the asset management contracts.  Those estimates are or were subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.  Should actual cash flows and our future estimates vary adversely from those estimates we used, we may be required to recognize additional impairment charges in future years.  Further, fair value of the long-lived assets can be determined under several different methods, of which discounted cash flows is one alternative.  Had we utilized an alternative method, the amounts of the respective impairment charges might have differed significantly from the charges reported.  As of December 30, 2007, the remaining net carrying value of the Company-owned restaurant long-lived assets were $474.1 million.  We no longer have any asset management contracts following the Deerfield Sale. The Company-owned restaurant long-lived assets could require testing for impairment should future events or changes in circumstances indicate they may not be recoverable.

Our estimates of each of these items historically have been adequate.  Due to uncertainties inherent in the estimation process, it is reasonably possible that the actual resolution of any of these items could vary significantly from the estimate and, accordingly, there can be no assurance that the estimates may not materially change in the near term.

Inflation and Changing Prices

We believe that inflation did not have a significant effect on our consolidated results of operations during 2005, 2006 and 2007 since inflation rates generally remained at relatively low levels.

Seasonality

Our continuing operations are not significantly impacted by seasonality.  However, our restaurant revenues are somewhat lower in our first quarter.  Prior to the Deerfield Sale, our asset management business was not directly affected by seasonality, but our asset management revenues generally were higher in our fourth quarter as a result of our revenue recognition accounting policy for incentive fees related to the Funds which were based upon performance and were recognized when the amounts became fixed and determinable upon the close of a performance period. As discussed above in “Asset Management and Related Fees” under “Results of Operations—2007 Compared with 2006,” we experienced a decrease in the level of our incentive fees during 2007.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” which we refer to as SFAS 157.  SFAS 157 addresses issues relating to the definition of fair value, the methods used to measure fair value and expanded disclosures about fair value measurements.  SFAS 157 does not require any new fair value measurements.  The definition of fair value in SFAS 157 focuses on the price that would be received to sell an asset or paid to transfer a liability, not the price that would be paid to acquire an asset or received to assume a liability.  The methods used to measure fair value should be based on the assumptions that market participants would use in pricing an asset or a liability.  SFAS 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to adoption.  The FASB has issued several proposed FASB Staff Positions, which we refer to as FSPs, that give further guidance related to SFAS 157; however, none of these FSPs have been finalized at this time.  The FASB has issued FSP No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, ” which we refer to as FSP FAS 157-1, which states that SFAS 157 does not apply under Statement of Financial Accounting Standards No. 13, “Accounting for Leases,” which we refer to as SFAS 13 and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS 13.  In addition, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157,” which we refer to as FSP FAS 157-2.  FAS 157-2 defers the application of FAS 157 to nonfinancial assets and nonfinancial liabilities, as defined, for those items that are recognized or disclosed at fair value in an entity’s financial statement on a recurring basis which is defined as at least annually, until our 2009 fiscal year.  SFAS 157 is, with some limited exceptions, to be applied prospectively and is effective commencing with our first fiscal quarter of 2008 ,with the exception of the areas under which exemptions to or deferrals of the application of certain aspects of FAS 157 have been granted by the FSPs mentioned above.  Our adoption of SFAS 157 in the first quarter of 2008 will not result in any change in the methods we use to measure the fair value of those financial assets and liabilities we currently hold that require measurement at fair value.  We will, however, be required to present the expanded fair value disclosures of SFAS 157, as amended by the FSP FAS 157-2, commencing in the first quarter of 2008.

 
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In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115,” which we refer to as SFAS 159.  SFAS 159 does not mandate but permits the measurement of many financial instruments and certain other items at fair value in order to provide reporting entities the opportunity to mitigate volatility in reported earnings, without having to apply complex hedge accounting provisions, caused by measuring related assets and liabilities differently.  SFAS 159 will require the reporting of unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  SFAS 159 will also require expanded disclosures related to its application.  SFAS 159 is effective commencing with our first fiscal quarter of 2008.  We do not expect to elect the fair value option described in SFAS 159 for financial instruments and certain other items upon its initial adoption. We will, however, adopt the provisions of SFAS 159 which relate to the amendment of FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” which applies to all entities with available-for-sale and trading securities in the first quarter of 2008.  These provisions of SFAS 159 require separate presentations of the fair value of available for sale securities and trading securities.  In addition, cash flows from trading security transactions will be classified based on the nature and purpose for which the securities were acquired.  We do not expect that adopting these provisions will have a material impact on our consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(revised 2007), “Business Combinations,” which we refer to as SFAS141(R), and Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51,” which we refer to as SFAS 160.  These statements change the way companies account for business combinations and noncontrolling interests by, among other things, requiring (1) more assets and liabilities to be measured at fair value as of the acquisition date, including a valuation of the entire company being acquired regardless of percentage being acquired, (2) an acquirer in preacquisition periods to expense all acquisition-related costs and (3) noncontrolling interests in subsidiaries initially to be measured at fair value and classified as a separate component of equity.  These statements are to be applied prospectively beginning with our 2009 fiscal year.  However, SFAS 160 requires entities to apply the presentation and disclosure requirements retrospectively for all periods presented.  Both standards prohibit early adoption.  Together these statements are not currently expected to have a significant impact on our consolidated financial statements, with the exception of the effect from the application of SFAS 160 on certain of our historical consolidated financial statements whereby minority interests in consolidated subsidiaries, which are currently reported as a liability, will be reclassified as a component of stockholders’ equity.  A significant impact may, however, result from any future business acquisitions.  The amounts of such impact will depend upon the nature and terms of such future acquisitions, if any.

 
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Certain statements we make under this Item 7A constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  See “Special Note Regarding Forward-Looking Statements and Projections” in “Part I” preceding “Item 1.”

We are exposed to the impact of interest rate changes, changes in commodity prices, changes in the market value of our investments and, to a lesser extent, foreign currency fluctuations.  In the normal course of business, we employ established policies and procedures to manage our exposure to these changes using financial instruments we deem appropriate.

Interest Rate Risk

Our objective in managing our exposure to interest rate changes is to limit their impact on our earnings and cash flows.  We have historically used interest rate cap and/or interest rate swap agreements on a portion of our variable-rate debt to limit our exposure to the effects of increases in short-term interest rates on our earnings and cash flows.  As of December 30, 2007 our long-term debt, including current portion, aggregated $739.3 million and consisted of $557.2 million of variable-rate debt, $178.2 million of capitalized lease and sale-leaseback obligations and $3.9 million of fixed-rate debt.  At December 30, 2007, we have $555.1 million of term loan borrowings outstanding under a variable-rate senior secured term loan facility due through 2012.  The term loan currently bears interest at the London Interbank Offered Rate (LIBOR) plus 2.25%.  In connection with the terms of the related credit agreement, we have three interest rate swap agreements that fix the LIBOR component of the interest rate at 4.12%, 4.56% and 4.64% on $100.0 million, $50.0 million and $55.0 million, respectively, of the outstanding principal amount until September 30, 2008, October 30, 2008 and October 30, 2008, respectively.  The expiration of these interest rate swap agreements during 2008 could have a material impact on our interest expense; however, we cannot determine any potential impact at this time because it is dependent on (1) our entry into future swap agreements and (2) the direction and magnitude of any changes in the variable interest rate environment.  The interest rate swap agreements related to the term loans were designated as cash flow hedges and, accordingly, are recorded at fair value with changes in fair value recorded through the accumulated other comprehensive income (loss) component of stockholders’ equity in our accompanying consolidated balance sheet to the extent of the effectiveness of these hedges.  There was no ineffectiveness from these hedges through December 30, 2007.  If a hedge or portion thereof is determined to be ineffective, any changes in fair value would be recognized in our results of operations.  In addition, we continue to have an interest rate swap agreement, with an embedded written call option, in connection with our variable-rate bank loan of which $2.2 million principal amount was outstanding as of December 30, 2007 and is due in 2008, which effectively establishes a fixed interest rate on this debt so long as the one-month LIBOR is below 6.5%.  We did not have any interest rate cap agreements outstanding as of December 30, 2007.  The fair value of our fixed-rate debt will increase if interest rates decrease.  The fair market value of our investments in fixed-rate debt securities will decline if interest rates increase.  See below for a discussion of how we manage this risk.

Commodity Price Risk

We purchase certain food products, such as beef, poultry, pork and cheese, that are affected by changes in commodity prices and, as a result, we are subject to variability in our food costs.  Our ability to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate.  Management monitors our exposure to commodity price risk.  However, we do not enter into financial instruments to hedge commodity prices or hold any significant inventories of these commodities.  In order to ensure favorable pricing for beef, poultry, pork, cheese and other food products, as well as maintain an adequate supply of fresh food products, a purchasing cooperative with our franchisees negotiates contracts with approved suppliers on behalf of the Arby's system.  These contracts establish pricing arrangements, and historically have limited the variability of these commodity costs, but do not establish any firm purchase commitments by us or our franchisees.

Equity Market Risk

Our objective in managing our exposure to changes in the market value of our investments is to balance the risk of the impact of these changes on our earnings and cash flows with our expectations for long-term investment returns.  Our primary exposure to equity price risk relates to our investments in equity securities, investment limited partnerships and similar investment entities and equity derivatives.  Our board of directors has established certain policies and procedures governing the type and relative magnitude of investments we may make.  We have a capital and investment committee that is comprised of the Chairman and Vice Chairman of our Board of Directors and our Chief Executive Officer, which supervises the investment of certain funds not currently required for our operations.  It has delegated the discretionary authority to our Chief Executive Officer to make certain investment decisions.  Any decisions which the Chief Executive Officer cannot make within his authority must be made by the committee or the Board of Directors.

Foreign Currency Risk

Our objective in managing our exposure to foreign currency fluctuations is to limit the impact of these fluctuations on earnings and cash flows. As of December 30, 2007, our primary exposure to foreign currency risk related to our cost-method investment in Jurlique International Pty Ltd., an Australian company which we refer to as Jurlique.  On July 5, 2007 the put and call arrangement whereby we had limited the overall foreign currency risk on our investment in Jurlique matured.  In connection with the maturity, we made a net payment of $1.3 million.  We currently have exposure to foreign currency risk related to our entire remaining investment in Jurlique, which has a carrying value of $8.5 million.  To a more limited extent, we have exposure to foreign currency risk relating to our investments in certain investment limited partnerships and similar investment entities that hold foreign securities and a total return swap with respect to a foreign equity security.  The fixed payment reflected in the total return swap is denominated in the same foreign currency as the underlying security thereby also mitigating the foreign currency risk.  We monitor these exposures and periodically determine our need for the use of strategies intended to lessen or limit our exposure to these fluctuations.  We also have a relatively limited amount of exposure to (1) investments in one foreign subsidiary and (2) export revenues and related receivables denominated in foreign currencies, both of which are subject to foreign currency fluctuations.  Our foreign subsidiary exposures relate to administrative operations in Canada and our export revenue exposures relate to royalties earned from Arby’s franchised restaurants in Canada.  Foreign operations and foreign export revenues for both of the years ended December 31, 2006 and December 30, 2007 together represented only 4%, of our total franchise revenues and represented less than 1% of our total revenues.  Accordingly, an immediate 10% change in foreign currency exchange rates versus the United States dollar from their levels at December 31, 2006 and December 30, 2007 would not have a material effect on our consolidated financial position or results of operations.

 
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Overall Market Risk

Our overall market risk as of December 30, 2007 includes the investments which we received in connection with the Deerfield Sale as well as the investments in accounts, which we refer to collectively as the Equities Account, that are managed by a management company formed by certain former executives, which we refer to as the “Management Company.”

At December 30, 2007, as a result of the Deerfield Sale, we hold approximately 9.6 million shares of convertible preferred stock of the REIT with a carrying value of approximately $70.4 million, which we refer to as the REIT Preferred Stock, approximately $46.2 million in senior secured notes of the REIT, which we refer to as the REIT Notes and, and approximately 206,000 shares of common stock of the REIT, which we refer to as the REIT Common Stock, with a carrying value of approximately $1.9 million. On an as-if converted basis, these investments would represent approximately 14.7% of the REIT’s outstanding common stock. As of December 30, 2007, the aggregate carrying value of our investment in REIT is approximately $118.5 million. Our investment in the REIT Preferred Stock is currently non-marketable; however, it is mandatorily redeemable in seven years from issuance.  We value the REIT Preferred Stock based on the quoted market price of the REIT common stock into which it is convertible.  If those shares should decline in value other than on a temporary basis, which would relate to our investment in both the REIT Preferred Stock and the REIT Common Stock, then in the reporting period in which it is determined that the decline is other than temporary all or a portion of the decline would be required to be included in our results of operations and cash flow.  The payment of the REIT Notes and related interest are dependent on the cash flow of the REIT. The REIT’s investment portfolio is comprised primarily of fixed income investments, including mortgage-backed securities and corporate debt.  Among the factors that may affect the REIT’s ability to pay the REIT Notes and related interest are the current dislocation in the mortgage sector and the current weakness in the broader financial market, both of which could adversely affect the REIT and one or more of their lenders, which could result in increases in their borrowing costs, reductions in their liquidity and reductions in the value of the investments in their portfolio, all of which could reduce the REIT’s cash flow.  That, in turn, could result in an impairment charge by us or a provision by us for uncollectible notes receivable.

Our Equities Account investments are primarily in underperforming companies which the Management Company believes provide opportunity for increases in fair value and in cash equivalents.  In order to partially mitigate the exposure of the portfolio to market risk, the Management Company employs a hedging program which utilizes a put option on a market index.  In December 2005 we invested $75.0 million in the Equities Account, and in April 2007, as part of the agreements with the Former Executives, we entered into an agreement under which the Management Company will continue to manage the Equities Account until at least December 31, 2010, we will not withdraw our investment from the Equities Account prior to December 31, 2010 and, beginning January 1, 2008, we will pay management and incentive fees to the Management Company in an amount customary for other unaffiliated third party investors with similarly sized investments.  The Equities Account is invested principally in the equity securities of a limited number of publicly-traded companies, cash equivalents and equity derivatives and had a fair value of $99.3 million as of December 30, 2007.  As of December 30, 2007, the derivatives held in our Equities Account investment portfolio consisted of (1) a put option on a market index, (2) a total return swap on an equity security and (3) put and call option combinations on equity securities.  We did not designate any of these strategies as hedging instruments and, accordingly, all of these derivative instruments were recorded at fair value with changes in fair value recorded in our results of operations.

We balanced our exposure to overall market risk in 2006 by investing a portion of our portfolio in cash and cash equivalents with relatively stable and risk-minimized returns.  In addition, through September 29, 2006 we had an investment in a multi-strategy hedge fund, the Opportunities Fund, which was managed by a then subsidiary of ours, and was consolidated by us with minority interests to the extent of participation by investors other than us.  As a result of the effective redemption on September 29, 2006 of our investment in the Opportunities Fund, we no longer consolidated the accounts of this fund subsequent to that date, and therefore no longer bore the associated risks as of September 30, 2006.

 
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We maintain investment holdings of various issuers, types and maturities.  As of December 31, 2006 and December 30, 2007, these investments were classified in our consolidated balance sheets as follows (in thousands):

   
Year-End
 
   
2006
   
2007
 
Cash equivalents included in “Cash” in our consolidated balance sheets
  $ 124,455     $ 60,466  
Current restricted cash equivalents
    9,059       -  
Short-term investments
    122,118       2,608  
Investment settlements receivable
    16,599       252  
Non-current restricted cash equivalents
    1,939       45,295  
Non-current investments
    60,197       141,909  
    $ 334,367     $ 250,530  
                 
Certain liability positions related to investments included in “Accrued expenses” in 2006 and “Other liabilities” in 2007:
               
Investment settlements payable
  $ (12 )        
Derivatives in liability positions
    (160 )   $ (310 )
    $ (172 )   $ (310 )

Our cash equivalents are short-term, highly liquid investments with maturities of three months or less when acquired and consisted principally of cash in bank money market and mutual fund money market accounts, cash in interest-bearing brokerage and bank accounts and commercial paper of high credit-quality entities.

At December 31, 2006 our investments were classified in the following general types or categories (in thousands):

               
Carrying Value
 
Type
 
At Cost
   
At Fair Value (a)
   
Amount
   
Percent
 
Cash equivalents (b)
  $ 124,455     $ 124,455     $ 124,455      
37%
 
Investment settlements receivable
    16,599       16,599       16,599      
5%
Current and non-current restricted cash equivalents
    10,998       10,998       10,998      
3%
 
Investments accounted for as:
                               
Available-for-sale securities (c)
    79,642       101,762       101,762      
31%
 
Trading securities
    272       273       273      
-%
 
Non-current investments held in deferred compensation trusts accounted for at cost
    13,409       22,718       13,409      
4%
 
Other current and non-current investments in investment limited partnerships and similar investment entities accounted for at cost
    24,812       38,856       24,812      
8%
 
Other current and non-current investments accounted for at:
                               
Cost
    14,386       17,687       14,386      
4%
 
Equity
    20,289       34,684       24,639      
7%
 
Fair value
    2,997       3,034       3,034      
1%
 
Total cash equivalents and long investment positions
  $ 307,859     $ 371,066     $ 334,367      
100%
 
Certain liability positions related to investments:
                               
Investment settlements payable
  $ (12 )   $ (12 )   $ (12 )    
N/A
 
Derivatives in liability positions
    (2 )     (160 )     (160 )    
N/A
 
    $ (14 )   $ (172 )   $ (172 )        

(a)
There was no assurance at December 30, 2006 that we would have been able to sell certain of these investments at these amounts.
(b)
Included $1.9 million of cash equivalents held in deferred compensation trusts
(c)
Fair value and carrying value included $8.2 million of preferred shares of CDOs, which, if sold, would have required us to use the proceeds to repay our related notes payable of $4.6 million.  Those amounts also included $15.4 million of unrealized gain with respect to an investment in one thinly-traded equity security.

 
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At December 30, 2007 our investments were classified in the following general types or categories (in thousands):

               
Carrying Value
 
Type
 
At Cost
   
At Fair Value (a)(b)
   
Amount
   
Percent
 
Cash equivalents
  $ 60,466     $ 60,466     $ 60,466      
24%
 
Investment settlements receivable
    252       252       252      
-%
 
Current and non-current investments accounted for as available-for-sale securities (c)
    124,587       121,054       121,055      
48%
 
Other current and non-current investments in investment limited partnerships and similar investment entities accounted for at cost
    2,085       2,342       2,085      
1%
 
Other current and non-current investments accounted for at:
                               
Cost
    11,908       16,456       11,908      
5%
 
Equity
    1,888       1,651       1,862      
1%
 
Fair value
    5,936       7,607       7,607      
3%
 
Non-current restricted cash equivalents
    45,295       45,295       45,295      
18%
 
Total cash equivalents and long investment positions
  $ 252,417     $ 255,123     $ 250,530      
100%
 
Certain liability positions related to investments:
                               
Derivatives in liability positions
  $ -     $ (310 )   $ (310 )    
N/A
 

(a)
There can be no assurance that we would be able to sell certain of these investments at these amounts.
(b)
Includes fair value of $48.1 million of non-current available-for-sale securities, $7.6 million non-current investment derivatives, $0.3 million non-current cost investments, $43.4 million of the restricted cash equivalents net of $0.3 million non-current derivatives in liability positions that are being managed in the Equities Account by the Management Company until at least December 31, 2010.
(c)
In addition to the Equities Account information included in footnote (b), non-current investments accounted for as available-for-sale securities includes $70.4 million of the carrying and fair value of REIT Preferred Stock, net of unrecognized gain.

Our marketable securities are reported at fair market value and are classified and accounted for as “available-for-sale” or “trading securities” with the resulting net unrealized holding gains or losses, net of income taxes, reported as a separate component of comprehensive income or loss bypassing net income or as a component of net income or loss.  Investment limited partnerships and similar investment entities and other current and non-current investments in which we do not have significant influence over the investees are accounted for at cost.  Derivative instruments unrealized holding gains or losses, net of income taxes, are reported as a component of net income or loss.  Realized gains and losses on investment limited partnerships and similar investment entities and other current and non-current investments recorded at cost are reported as investment income or loss in the period in which the securities are sold.  Investments in which we have significant influence over the investees are accounted for in accordance with the equity method of accounting under which our results of operations include our share of the income or loss of the investees.  Our investments accounted for under the equity method consist of a non-current investment in the common stock of the REIT in both fiscal 2006 and 2007 and included Encore in 2006 and 2007 until we disposed of substantially all of our interest in May 2007. We review all of our investments in which we have unrealized losses and recognize investment losses currently for any unrealized losses we deem to be other than temporary.  The cost-basis component of investments reflected in the tables above represents original cost less a permanent reduction for any unrealized losses that were deemed to be other than temporary.

Sensitivity Analysis

For purposes of this disclosure, market risk sensitive instruments are divided into two categories: instruments entered into for trading purposes and instruments entered into for purposes other than trading. Our estimate of market risk exposure is presented for each class of financial instruments held by us at December 31, 2006 and December 30, 2007 for which an immediate adverse market movement causes a potential material impact on our financial position or results of operations. We believe that the adverse market movements described below represent the hypothetical loss to future earnings and do not represent the maximum possible loss nor any expected actual loss, even under adverse conditions, because actual adverse fluctuations would likely differ. In addition, since our investment portfolio is subject to change based on our portfolio management strategy as well as market conditions, these estimates are not necessarily indicative of the actual results which may occur.

 
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The following tables reflect the estimated market risk exposure as of December 31, 2006 and December 30, 2007 (we have no trading securities in our investments as of December 30, 2007) based upon assumed immediate adverse effects as noted below (in thousands):

Trading Purposes:

   
Year-End 2006
 
   
Carrying Value
   
Equity Price Risk
 
Equity securities
  $ 273     $ (27 )
Trading derivatives in liability positions
    (2 )     (3 )

The sensitivity analysis of financial instruments held for trading purposes assumes an instantaneous 10% adverse change in the equity markets in which we are invested from their levels at December 31, 2006 with all other variables held constant.

Other Than Trading Purposes:

   
Year-End 2006
 
   
Carrying Value
   
Interest Rate Risk
   
Equity Price Risk
   
Foreign Currency Risk
 
Cash equivalents
  $ 124,455     $ (2 )                
Investment settlements receivable
    16,599       -                  
Restricted cash equivalents
    10,998       -                  
Available-for-sale equity securities
    77,710       -     $ (7,771 )        
Available-for-sale preferred shares of CDOs
    14,903       (1,344 )     -     $ (73 )
Available-for-sale debt mutual fund
    9,149       (229 )     -       -  
Investment in Jurlique
    8,504       -       (850 )     (603 )
Other investments
    71,776       (2,199 )     (5,209 )     (149 )
Interest rate swaps in an asset position
    2,570       (3,252 )     -       -  
Foreign currency put and call arrangement in a net liability position
    (449 )     -       -       (935 )
Investment settlements payable
    (12 )     -       -       -  
Put and call option combinations on equity securities
    (158 )     -       (1,300 )     -  
Notes payable and long-term debt, excluding capitalized lease and sale-leaseback obligations
    (576,972 )     (24,646 )     -       -  

   
Year-End 2007
 
   
Carrying Value
   
Interest Rate Risk
   
Equity Price Risk
   
Foreign Currency Risk
 
Cash equivalents
  $ 60,466                          
Investment settlements receivable
    252                          
Restricted cash equivalents – non-current
    45,295