(6) Fair Value of Financial Instruments

9 Months Ended

Oct. 02, 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.

	October 2, 2011
	Wendy’s Restaurants		Corporate		The Wendy’s Company
Financial assets
Carrying Amount:
Non-current cost investments	$	22,812	$	4,598	$	27,410
Interest rate swaps	13,014		—		13,014
Fair Value:
Non-current cost investments (a)	$	25,219	$	20,600	$	45,819
Interest rate swaps (b)	13,014		—		13,014

	October 2, 2011
	Carrying Amount		Fair Value
Financial liabilities
Long-term debt, including current portion:
10% senior notes (c)	$	554,474	$	602,855
Wendy’s Restaurants term loan (c)	467,163		466,718
6.20% senior notes (c)	224,777		234,000
Sale-leaseback obligations (d)	1,460		1,732
Capitalized lease obligations (d)	14,151		15,585
7% debentures (c)	82,056		87,500
Other	1,060		1,088
Total Wendy’s Restaurants long-term debt, including current portion	1,345,141		1,409,478
6.54% aircraft term loan (d)	11,654		11,840
Total The Wendy’s Company long-term debt, including current portion	$	1,356,795	$	1,421,318

Guarantees of:
Franchisee loans obligations (e)	$	420	$	420

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(a) 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.

(b) 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.

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

(d) 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.

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

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 October 2, 2011 by the valuation hierarchy as defined in the fair value guidance:

			Fair Value Measurements
	October 2, 2011		Level 1		Level 2		Level 3
Interest rate swaps (included in “Deferred costs      and other assets”)	$	13,014	$	—	$	13,014	$	—

The following table presents the fair values for those assets and liabilities of continuing operations measured at fair value during the nine months ended October 2, 2011 on a non-recurring basis. Total losses include losses recognized from all non-recurring fair value measurements during the nine months ended October 2, 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 in the first quarter of 2011. See Note 7 for more information on the impairment of our long-lived assets.

									Nine Months Ended October 2, 2011 Total Losses
			Fair Value Measurements
	October 2, 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 third quarter of 2011 included interest rate swaps on Wendy’s 6.20% senior notes with notional amounts totaling $225,000 that were all designated as fair value hedges. At October 2, 2011 and January 2, 2011, the fair value of these interest rate swaps of $13,014 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 $1,402 and $4,250 for the three months and nine months ended October 2, 2011, respectively, and $1,320 and $6,396 for the three months and nine months ended October 3, 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 nine months ended October 3, 2010.