(13) Fair Value of Financial Instruments

12 Months Ended

Jan. 01, 2012

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.

	Year End 2011
	Wendy’s Restaurants		Corporate		The Wendy’s Company
Financial assets
Carrying Amount:
Non-current cost investments	$	22,832	$	4,620	$	27,452
Interest rate swaps	11,695		—		11,695
Fair Value:
Non-current cost investments (a)	$	25,794	$	36,702	$	62,496
Interest rate swaps (b)	11,695		—		11,695

	Year End 2010
	Wendy’s Restaurants		Corporate		The Wendy’s Company
Financial assets
Carrying Amount:
Non-current cost investments	$	3,775	$	4,817	$	8,592
Interest rate swaps	9,623		—		9,623
Fair Value:
Non-current cost investments (a)	$	5,555	$	14,540	$	20,095
Interest rate swaps (b)	9,623		—		9,623

	Year End
	2011				2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities
Long-term debt, including current portion:
Senior Notes (c)	$	554,901	$	621,500	$	553,258	$	620,370
Term Loan (c)	466,062		466,940		495,226		505,000
6.20% senior notes (c)	224,643		231,750		217,855		229,500
7% debentures (c)	82,342		84,000		81,204		86,500
Capitalized lease obligations (d)	15,222		16,431		86,670		91,015
Sale-leaseback obligations (d)	1,466		1,692		121,884		128,171
Other	1,060		1,072		3,634		3,806
Total Wendy’s Restaurants long-term debt,      including current portion	1,345,696		1,423,385		1,559,731		1,664,362
6.54% aircraft term loan (d)	11,303		11,367		12,671		13,010
Total The Wendy’s Company long-term debt,      including current portion	$	1,356,999	$	1,434,752	$	1,572,402	$	1,677,372

Guarantees of:
Franchisee loans obligations (e)	$	1,275	$	1,275	$	373	$	373

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(a) The fair value of our investment in Jurlique was based upon an agreement with a third party to purchase Jurlique. The fair value of our indirect investment in Arby’s is based on the fair value as determined in connection with its sale in July 2011. The fair value of the remaining 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 adjusted for a history of defaults.

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 January 1, 2012 by the valuation hierarchy as defined in the fair value guidance:

			Fair Value Measurements
	January 1, 2012		Level 1		Level 2		Level 3
Interest rate swaps (included in “Deferred     costs and other assets”)	$	11,695	$	—	$	11,695	$	—

The following tables present the fair values for those assets and liabilities of continuing operations measured at fair value during 2011 and 2010 on a non-recurring basis. Total losses include losses recognized from all non-recurring fair value measurements during the years ended January 1, 2012 and January 2, 2011. The carrying value of properties presented in the tables below substantially represents the remaining carrying value of land for Wendy’s properties that were impaired in 2011 and 2010. See Note 19 for more information on the impairment of our long-lived assets.

			Fair Value Measurements						2011 Total Losses
	January 1, 2012		Level 1		Level 2		Level 3
Properties	$	575	$	—	$	—	$	575	$	10,120
Other intangible assets	—		—		—		—		2,763
	$	575	$	—	$	—	$	575	$	12,883

			Fair Value Measurements						2010 Total Losses
	January 2, 2011		Level 1		Level 2		Level 3
Properties	$	250	$	—	$	—	$	250	$	21,201
Other intangible assets	—		—		—		—		5,125
	$	250	$	—	$	—	$	250	$	26,326

Derivative instruments

The Companies’ primary objective for entering into derivative instruments is to manage their exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt.

During the third quarter of 2009, we entered into eight interest rate swaps with notional amounts totaling $361,000 to swap the fixed rate interest rates on the 6.20% and 6.25% Wendy’s senior notes for floating rates. The interest rate swaps were designated as fair value hedges of the related debt and qualified to be accounted for under the short-cut method according to the applicable guidance.

During the first quarter of 2010, we entered into an interest rate swap with a notional amount of $39,000 on Wendy’s 6.20% senior notes. At its inception, the interest rate swap was designated as an effective fair value hedge and is tested for effectiveness quarterly.

In connection with the redemption of the Wendy’s 6.25% senior notes, as discussed above in Note 12, we cancelled four interest rate swaps with notional amounts totaling $175,000. Upon cancellation, we recognized a gain of $1,875 in the second quarter of 2010, which is included in “Interest expense” for the year ended January 2, 2011.

At January 1, 2012 and January 2, 2011, the fair value of the interest rate swaps on the 6.20% Wendy’s senior notes was $11,695 and $9,623, respectively, and has been included in “Deferred costs and other assets” and as an adjustment to the carrying amount of the 6.20% Wendy’s senior notes.

(The Wendy’s Company)

Prior to their expiration in 2009, The Wendy’s Company also had put options on equity securities. The Wendy’s Company did not designate these derivatives as hedging instruments, and accordingly, these derivative instruments were recorded at fair value with changes in fair value recorded in the The Wendy’s Company’s results of operations.

The following items were recognized by the Companies related to derivative activity during each of the periods presented below:

	2011			2010			2009
Interest income:
Interest rate swaps (a)	$	(5,611	)	$	(7,880	)	$	(2,865	)
Total Wendy’s Restaurants	(5,611		)	(7,880		)	(2,865		)
Investment income, net:
Put and call option combinations on equity securities	—			—			(286		)
Total The Wendy’s Company	$	(5,611	)	$	(7,880	)	$	(3,151	)

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(a) 2010 includes a gain of $1,875 on the cancellation of four interest rate swaps discussed above.