(5) Fair Value of Financial Instruments

3 Months Ended

Apr. 01, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect 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 carrying amounts and estimated fair values of the Companies’ financial instruments for which the disclosure of fair values is required are as follows:

	April 1, 2012
	Wendy’s Restaurants		Corporate		The Wendy’s Company
Financial assets
Carrying Amount:
Non-current cost investments	$	21,924	$	4,210	$	26,134
Interest rate swaps	11,153		—		11,153
Fair Value:
Non-current cost investments - Level 3 (a)	$	25,221	$	8,381	$	33,602
Interest rate swaps - Level 2 (b)	11,153		—		11,153

	April 1, 2012
	Carrying Amount		Fair Value		Fair Value Measurements
Financial liabilities
Long-term debt, including current portion:
Senior Notes	$	555,339	$	623,195	Level 2
Term Loan	464,960		469,021		Level 2
6.20% senior notes	225,300		251,903		Level 2
7% debentures	82,629		90,300		Level 2
Capitalized lease obligations (c)	14,940		15,024		Level 3
Sale-leaseback obligations (c)	1,470		1,448		Level 3
Other	707		705		Level 3
Total Wendy’s Restaurants long-term debt,      including current portion	1,345,345		1,451,596
6.54% aircraft term loan (c)	7,047		7,040		Level 3
Total The Wendy’s Company long-term debt,      including current portion	$	1,352,392	$	1,458,636

Guarantees of:
Franchisee loans obligations (d)	$	759	$	759	Level 3

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(a) 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 and our review of their current audited financial information. We are basing the fair value of the remaining investments on our review of 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 its review of valuations performed by the investment managers or investees in valuing those investments or third-party appraisals.

(b) Our interest rate swaps (and cash and cash equivalents as described below) are the Companies’ only financial assets and liabilities whose carrying value is determined on a recurring basis by the valuation hierarchy as defined in the fair value guidance.

(c) 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.

(d) 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.

The following table presents the fair values for those assets and liabilities of continuing operations measured at fair value during the three months ended April 1, 2012 on a non-recurring basis. Total losses include losses recognized from all non-recurring fair value measurements during the quarter ended April 1, 2012. The carrying value of properties presented in the table below represents the remaining carrying value of land for Wendy’s properties that were impaired in the first quarter of 2012 and our Company-owned aircraft. See Note 6 for more information on the impairment of our long-lived assets.

			Fair Value Measurements						Three Months Ended April 1, 2012 Total Losses
	April 1, 2012		Level 1		Level 2		Level 3
Properties	$	495	$	—	$	—	$	495	$	2,880
Other intangible assets	—		—		—		—		3
Total Wendy’s Restaurants	495		—		—		495		2,883
Aircraft	7,148		—		—		7,148		1,628
Total Wendy’s Company	$	7,643	$	—	$	—	$	7,643	$	4,511

Interest rate swaps

The Companies’ derivative instruments in the first quarter of 2012 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 April 1, 2012 and January 1, 2012, the fair value of these interest rate swaps of $11,153 and $11,695, respectively, 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. Interest income on interest rate swaps was $1,326 and $1,413 for the three months ended April 1, 2012 and April 3, 2011, respectively.