Wendy's International (WEN)

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 31, 2006 our notes payable and long-term debt, including current portion, aggregated $724.6 million and consisted of $569.1 million of variable-rate debt, $147.6 million of capitalized lease and sale-leaseback obligations, $4.6 million of variable-rate notes payable and $3.3 million of fixed-rate debt. At December 31, 2006, we have $559.7 million of term loan borrowings outstanding under a variable-rate seven-year senior secured term loan facility. 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 London Interbank Offered Rate (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 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 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 31, 2006. 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 $5.4 million principal amount was outstanding as of December 31, 2006, 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 31, 2006. 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.

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 January 1, 2006 our notes payable and long-term debt, including current portion, aggregated $921.6 million and consisted of $625.5 million of variable-rate debt, $183.5 million of fixed-rate debt, $104.6 million of capitalized lease and sale-leaseback obligations and $8.0 million of variable-rate notes payable. We did not have any interest rate cap agreements outstanding as of January 1, 2006. In connection with our acquisition of RTM Restaurant Group on July 25, 2005, we borrowed $620.0 million under a new variable-rate seven-year senior secured term loan facility of which $616.9 million is outstanding as of January 1, 2006. We used a substantial portion of the term loan to refinance $268.4 million of our then existing fixed-rate debt and $212.0 million of RTM debt that we assumed. 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 entered into three interest rate swap agreements during the year ended January 1, 2006 that fixed the LIBOR 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 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 component of stockholders' equity in our accompanying consolidated balance sheet to the extent of the effectiveness of these hedges. Any ineffective portion of the change in fair value of these hedges, of which there was none through January 1, 2006, would be recorded in our results of operations. In addition, we have an interest rate swap agreement, with an embedded written call option, in connection with our variable-rate bank loan of which $8.6 million principal amount was outstanding as of January 1, 2006, which effectively establishes a fixed interest rate on this debt so long as the one-month LIBOR is below 6.5%. The fair value of our fixed-rate debt will increase if interest rates decrease. In addition to our fixed-rate and variable-rate debt, our investment portfolio includes debt securities that are subject to interest rate risk with remaining maturities which range from less than ninety days to approximately thirty-one years. See below for a discussion of how we manage this risk. The fair market value of our investments in fixed-rate debt securities will decline if interest rates increase.