(6) Fair Value of Financial Instruments

6 Months Ended

Jul. 03, 2011

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Below are the carrying amounts and estimated fair values of the Companies’ financial instruments for which the disclosure of fair values is required.

	July 3, 2011
	Wendy’s Restaurants		Corporate		The Wendy’s Company
Financial assets
Carrying Amount:
Cash and cash equivalents	$	222,753	$	269,695	$	492,448
Restricted cash equivalents:
Current - included in “Prepaid expenses and other      current assets”	769		—		769
Non-current - included in “Deferred costs and      other assets”	3,482		686		4,168
Non-current cost investments	3,792		4,590		8,382
Interest rate swaps	10,493		—		10,493
Fair Value:
Cash and cash equivalents (a)	$	222,753	$	269,695	$	492,448
Restricted cash equivalents (a):
Current	769		—		769
Non-current	3,482		686		4,168
Non-current cost investments (b)	5,596		14,002		19,598
Interest rate swaps (c)	10,493		—		10,493

	July 3, 2011
	Carrying Amount		Fair Value
Financial liabilities
Long-term debt, including current portion:
10% senior notes (d)	$	554,058	$	626,020
Wendy’s Restaurants term loan (d)	468,265		471,662
6.20% senior notes (d)	221,070		233,550
Sale-leaseback obligations (e)	1,488		1,518
Capitalized lease obligations (e)	15,224		15,608
7% debentures (d)	81,771		93,000
Other	1,060		1,073
Total Wendy’s Restaurants long-term debt, including current portion	1,342,936		1,442,431
6.54% aircraft term loan (e)	11,884		11,937
Total The Wendy’s Company long-term debt, including current portion	$	1,354,820	$	1,454,368

Guarantees of:
Franchisee loans obligations (f)	$	362	$	362

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(a) The carrying amounts approximated fair value due to the short-term maturities of the cash equivalents or restricted cash equivalents.

(b) Fair value of these investments was based entirely on statements of account received from investment managers or investees which were principally based on quoted market or broker/dealer prices. To the extent that some of these investments, including the underlying investments in investment limited partnerships, do not have available quoted market or broker/dealer prices, the Companies relied on valuations performed by the investment managers or investees in valuing those investments or third-party appraisals.

(c) The fair values were based on information provided by the bank counterparties that is model-driven and whose inputs were observable or whose significant value drivers were observable.

(d) The fair values were based on quoted market prices.

(e) The fair values were determined by discounting the future scheduled principal payments using an interest rate assuming the same original issuance spread over a current U.S. Treasury bond yield for securities with similar durations.

(f) Wendy’s provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt facility arrangements for new store development and equipment financing. Wendy’s has accrued a liability for the fair value of these guarantees, the calculation for which was based upon a weighted average risk percentage established at the inception of each program.

The carrying amounts of current accounts, notes receivable and non-current notes receivable approximated fair value due to the effect of related allowances for doubtful accounts and notes receivable. The carrying amounts of accounts payable and accrued expenses approximated fair value due to the short-term maturities of those items.

Valuation techniques under the accounting guidance related to fair value measurements were based on observable and unobservable inputs. Observable inputs reflected readily obtainable data from independent sources, while unobservable inputs reflected our market assumptions. These inputs are classified into the following hierarchy:

Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets.

Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation.

The following table presents the Companies’ financial assets and liabilities (other than cash and cash equivalents) measured at fair value on a recurring basis as of July 3, 2011 by the valuation hierarchy as defined in the fair value guidance:

			Fair Value Measurements
	July 3, 2011		Level 1		Level 2		Level 3
Interest rate swaps (included in “Deferred costs and    other assets”)	$	10,493	$	—	$	10,493	$	—

The following table presents the fair values for those assets and liabilities of continuing operations measured at fair value during the six months ended July 3, 2011 on a non-recurring basis. Total losses include losses recognized from all non-recurring fair value measurements during the six months ended July 3, 2011. The carrying value of properties presented in the table below substantially represents the remaining carrying value of land for Wendy’s properties that were impaired. See Note 7 for more information on the impairment of our long-lived assets.

									Six Months Ended July 3, 2011 Total Losses
			Fair Value Measurements
	July 3, 2011		Level 1		Level 2		Level 3
Properties	$	575	$	—	$	—	$	575	$	6,449
Other intangible assets	—		—		—		—		1,813
	$	575	$	—	$	—	$	575	$	8,262

Derivative instruments

The Companies’ derivative instruments in the second quarter of 2011 included interest rate swaps with notional amounts totaling $225,000 that were all designated as fair value hedges on Wendy’s 6.20% senior notes. At July 3, 2011 and January 2, 2011, the fair value of these interest rate swaps of $10,493 and $9,623, respectively, has been included in “Deferred costs and other assets” and as an adjustment to the carrying amount of the Wendy’s 6.20% senior notes.

Interest income on interest rate swaps was $1,435 and $2,848 for the three months and six months ended July 3, 2011, respectively and $3,264 and $5,076 for the three months and six months ended July 4, 2010, respectively. In connection with the redemption of the Wendy’s 6.25% senior notes during the second quarter of 2010, we recognized a gain of $1,875 on the cancellation of four interest rate swaps with notional amounts totaling $175,000, which is included in the amounts above for the three months and six months ended July 4, 2010.