Wendy's International (WEN)

Royalties and Franchise and Related Fees

Our royalties and franchise and related fees, which were generated entirely from the franchised restaurants, decreased $9.7 million to $91.2 million for 2005 from $100.9 million for 2004, reflecting a $13.0 million decrease in royalties and franchise and related fees from RTM from $29.3 million in 2004 to $16.3 million in 2005. This decrease was principally due to the elimination in consolidation of royalties and franchise and related fees from RTM for the portion of 2005 subsequent to the RTM Acquisition. Excluding the royalties and franchise and related fees from RTM and an estimated $1.3 million effect of the inclusion of the 53rd week in 2004 which did not recur in 2005, royalties and franchise and related fees increased $4.6 million, reflecting (1) a $2.3 million net increase in royalties from the 76 franchised restaurants opened in 2005, with generally higher than average sales volumes, replacing the royalties from the 46 generally underperforming restaurants closed in 2005, (2) a $1.4 million improvement in royalties due to a 2% increase in same-store sales of the franchised restaurants, excluding the stores acquired in the RTM Acquisition, in 2005 as compared with 2004 and (3) a $0.9 million improvement in royalties as a result of slightly higher average royalty rates. The increase in same-store sales of the franchised restaurants reflects (1) the impact of new Market Fresh sandwiches and wraps and other menu items introduced in 2005, (2) improved marketing reflecting (a) the implementation of new menu boards, primarily by our larger franchisees, focused on combination meals, and (b) more targeted and value oriented local marketing programs and (3) operational initiatives targeting continued improvement in customer service levels and convenience. 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 franchisees’ sales in the second half of 2005. Franchise and related fees, excluding those from RTM, were relatively unchanged between the years.

Royalties and Franchise and Related Fees

       Our royalties and franchise and related fees, which were generated entirely from the franchised restaurants, increased $8.8 million, or 10%, to $100.9 million, including $29.3 million from RTM, for 2004 from $92.1 million, including $27.3 million from RTM, for 2003. This increase consisted of (1) a $4.0 million improvement in royalties due to a 4% increase in same-store sales of the franchised restaurants during 2004 compared with the weak same-store sales performance during 2003, (2) a $3.5 million improvement in royalties from the 93 restaurants opened in 2004 with generally higher than average sales volumes, replacing the royalties from the 79 generally underperforming restaurants closed in 2004 and (3) an estimated $1.3 million increase as a result of the 53rd week in 2004.