Wendy's 2014 Annual Report Download - page 58

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Foreign Currency Risk
Our exposures to foreign currency risk are primarily related to fluctuations in the Canadian dollar relative to the
U.S. dollar for our Canadian operations. 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 have exposure related to our investment
in a Canadian subsidiary which is subject to foreign currency fluctuations. Our Canadian subsidiary exposures relate
to its restaurants and administrative operations. The exposure to Canadian dollar exchange rates on the Company’s
cash flows primarily includes imports paid for by Canadian operations in U.S. dollars and payments from the
Company’s Canadian operations to the Company’s U.S. operations in U.S. dollars. Revenues from our Canadian
franchise operations for the years ended December 28, 2014 and December 29, 2013 represented 7% and 6% of our
total franchise revenues, respectively. Revenues from our Canadian operations for the years ended December 28, 2014
and December 29, 2013 represented 12% and 10% of our total revenues, respectively. Accordingly, an immediate
10% change in Canadian dollar exchange rates versus the U.S. dollar from their levels at December 28, 2014 and
December 29, 2013 would not have a material effect on our consolidated financial position or results of operations.
Sensitivity Analysis
Market risk exposure for the Company is presented for each class of financial instruments held by the Company
at December 28, 2014 and December 29, 2013 for which an immediate adverse market movement would cause a
potentially material impact on its financial position or results of operations. We believe that the adverse market
movements described below represent the hypothetical loss to our financial position or our results of operations and
do not represent the maximum possible loss nor any expected actual loss, even under adverse conditions, because
actual adverse fluctuations would likely differ. As of December 28, 2014, we did not hold any market-risk sensitive
instruments, which were entered into for trading purposes.
As such, the table below reflects the risk for those financial instruments entered into as of December 28, 2014
and December 29, 2013 based upon assumed immediate adverse effects as noted below (in millions):
Year End 2014
Carrying
Value
Interest
Rate Risk
Cash flow hedges .................................................. $ (3.3) $(11.1)
Variable-rate long-term debt, excluding capital lease obligations .............. (1,301.5) (48.3)
Fixed-rate long-term debt, excluding capital lease obligations ................ (85.8) 9.3
Year End 2013
Carrying
Value
Interest
Rate Risk
Cash flow hedges .................................................. $ 1.2 $(12.7)
Variable-rate long-term debt, excluding capital lease obligations .............. (1,338.1) (61.1)
Fixed-rate long-term debt, excluding capital lease obligations ................ (85.0) (0.1)
The sensitivity analysis of financial instruments held at December 28, 2014 and December 29, 2013 assumes
an instantaneous one percentage point adverse change in market interest rates from their levels at December 28, 2014
and December 29, 2013, with all other variables held constant.
As of December 28, 2014 and December 29, 2013, the Company had both fixed and variable interest rate debt
outstanding. The interest rate risk presented above for variable-rate debt represents the potential impact an increase in
interest rates of one percentage point has on our results of operations related to our $1,301.5 million and
$1,338.1 million of variable interest rate long-term debt outstanding as of December 28, 2014 and
December 29, 2013, respectively. As discussed under “Interest Rate Risk,” the Company has forward starting interest
rate swaps on $450.0 million of its variable-rate debt presented above which are effective beginning on June 30, 2015.
As such, the interest rate risk presented in the table above, excludes the effect of the cash flow hedges. The Company’s
variable-rate long-term debt outstanding as of December 28, 2014 had a weighted average remaining maturity of
approximately four years. The interest rate risk presented above for fixed-rate debt represents the potential impact a
decrease in interest rates of one percentage point has on the fair value of our $85.8 million and $85.0 million
fixed-rate debt as of December 28, 2014 and December 29, 2013, respectively, and not on the Company’s financial
position or results of operations.
54