Wendy's International (WEN)

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 $602.1 million during 2006 principally reflecting operating investment adjustments of $574.4 million.

The net operating investment adjustments principally reflect $579.3 million of net proceeds from sales of trading securities and settlements of trading derivatives which were used for the net payments to cover securities sold short and to make net payments under repurchase agreements. Under GAAP, the net sales of trading securities and the net settlements of trading derivatives must be reported in continuing operating activities in the accompanying consolidated statements of cash flows. However, net amounts to cover securities sold short and net payments under repurchase agreements are reported in continuing investing activities in the accompanying consolidated statements of cash flows. The cash used by changes in current assets and liabilities associated with operating activities of $7.2 million principally reflects an $8.4 million decrease in accounts payable and accrued expenses and other current liabilities principally due to accelerated payments to vendors in 2006 and unusually high balances at year-end 2005 due to strategic purchases of fountain beverage products in late 2005. Other adjustments to reconcile the $11.3 million net loss to the cash provided by continuing operating activities were principally comprised of non-cash adjustments for depreciation and amortization of $68.3 million, a share-based compensation provision of $15.9 million and minority interests in income of consolidated subsidiaries of $11.5 million, all partially offset by payments of $56.6 million of withholding taxes relating to stock compensation for which the Company withheld as payment, at the option of the respective employees, shares of its common stock that would otherwise have been issuable upon the exercises of stock options and vesting of restricted stock.

Excluding the effect of the net sales of trading securities and net settlements of trading derivatives, which represent the liquidation of discretionary investments of excess cash, our continuing operating activities provided cash of $22.8 million in 2006. We expect positive cash flows from continuing operating activities again during 2007, excluding the effect, if any, of (1) net sales or purchases of trading securities and (2) possible severance and contractual settlement payments in connection with a potential corporate restructuring as discussed below under “Potential Corporate Restructuring.”

Cash Flows From Continuing Operating Activities

       Our consolidated operating activities from continuing operations used cash and cash equivalents, which we refer to in this discussion as cash, of $586.2 million during 2005 principally reflecting a net loss of $55.6 million and net operating investment adjustments of $546.5 million.

       The net operating investment adjustments principally reflect net purchases of trading securities and net settlements of trading derivatives, which were principally funded by proceeds from net sales of repurchase agreements and the net proceeds from securities sold short. Under accounting principles generally accepted in the United States of America, the net purchases of trading securities and the net settlements of trading derivatives must be reported in continuing operating activities in the accompanying consolidated statements of cash flows. However, the net sales of repurchase agreements and the net proceeds from securities sold short are reported in continuing investing activities in the accompanying consolidated statements of cash flows. The cash provided by changes in current assets and liabilities associated with operating activities of $18.7 million

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principally reflects a $36.0 million increase in accounts payable and accrued expenses and other current liabilities partially offset by an $8.3 million increase in accounts and notes receivable and a $7.5 million increase in prepaid expenses and other current assets. The increase in accounts payable and accrued expenses and other current liabilities was principally due to an $18.0 million increase in accrued incentive compensation. The increase in accounts and notes receivable reflected an increase in accrued interest receivable on a higher level of interest-bearing investments in the Opportunities Fund due to a greater use of leverage. The increase in prepaid expenses and other current assets was due to an increase in prepaid advertising costs. Other adjustments to reconcile the net loss to the cash used in continuing operating activities were principally comprised of a $49.9 million payment of withholding taxes relating to stock compensation and non-cash adjustments for a deferred tax benefit of $17.0 million and the classification of a gain on sale of unconsolidated businesses of $13.1 million as an investing activity, all partially offset by non-cash adjustments for depreciation and amortization of $39.6 million, a stock-based compensation provision of $30.3 million and minority interests in income of consolidated subsidiaries of $8.8 million.

       Excluding the effect of the net purchases of trading securities and net settlements of trading derivatives, which represent the discretionary investment of excess cash, our continuing operating activities used cash of $51.2 million in 2005. We expect positive cash flows from continuing operating activities during 2006, excluding the effect, if any, of net sales or purchases of trading securities, reflecting improved operating results before net non-cash charges since we do not expect certain significant charges related to the RTM Acquisition and a related debt refinancing (see “New Credit Agreement” below) and the significant payment of withholding taxes relating to stock compensation to recur in 2006.