Wendy's International (WEN)

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 $255.4 million to $418.0 million for 2005, resulting in a gross margin of 27%, from $162.6 million for 2004, resulting in a gross margin of 21%. Of this increase, $254.8 million is attributable to the restaurants acquired in the RTM Acquisition and the 31 net restaurants added during 2005 after the RTM Acquisition, which had a gross margin of 29%. Aside from the effect of (1) the RTM Acquisition and the 31 net restaurants added thereafter and (2) a $2.4 million effect of the inclusion of the 53rd week in 2004 which did not recur in 2005, cost of sales increased $3.0 million, or 2%, resulting in a gross margin of 24% in 2005 compared with 21% in 2004. The increase in cost of sales of the restaurants we already owned prior to the RTM Acquisition was due to their increased net sales discussed above. The improvement of 3% in gross margin of those restaurants is primarily attributable to (1) improved product mix reflecting higher sales of combination meals, which result in more sales of higher margin components and are emphasized in our then new menu board marketing, (2) improved oversight and training of store management, (3) improved operational reporting made available by the back office and point-of-sale restaurant systems implemented in the latter part of 2004, which facilitated reduced food waste and increased labor efficiencies and (4) the impact of price increases implemented primarily in the second half of 2004 for some of our menu items. Partially offsetting these improvements were higher costs related to incentive compensation as a result of

47

improved performance of those restaurants. The gross margin for the restaurants acquired in the RTM Acquisition was significantly higher than that of the restaurants we already owned prior to the RTM Acquisition due to RTM’s relatively more effective operational efficiencies resulting from management and procedural advantages as well as higher average unit sales volumes of the RTM restaurants which result in more favorable cost leverage.

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 $11.0 million, or 7%, to $162.6 million for 2004, resulting in a gross margin of 21%, from $151.6 million for 2003, resulting in a gross margin of 25%. The decrease in gross margin is due principally to (1) higher costs for roast beef, the largest component of our menu offerings, as well as higher costs for other commodities, (2) new menu offerings with relatively higher costs than our other products and for which we experienced additional costs during the roll-out period in the second quarter of 2004 and (3) increased price discounting of some of our other products primarily through increased use of coupons. The increase in cost of sales also reflects $2.4 million due to the inclusion of the 53rd week in 2004.