(6) Fair Value of Financial Instruments

6 Months Ended

Jul. 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.

As of July 1, 2012, the carrying amounts and estimated fair values of The Wendy’s Company’s financial instruments, for which the disclosure of fair values is required, are as follows:

	Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Non-current cost investments (a)	$	25,349	$	34,993	Level 3
Interest rate swaps (b)	10,254		10,254		Level 2
Financial liabilities
Long-term debt, including current portion:
Term Loan, due in 2019	$	619,691	$	621,941	Level 2
Senior Notes, repaid in July 2012	433,598		469,425		Level 2
6.20% senior notes, due in 2014	225,600		248,529		Level 2
7% debentures, due in 2025	82,917		89,300		Level 2
Capitalized lease obligations (c)	30,303		31,277		Level 3
Sale-leaseback obligations (c)	1,462		1,528		Level 3
Other	707		707		Level 3
Total long-term debt, including current portion	$	1,394,278	$	1,462,707

Guarantees of:
Franchisee loans obligations (d)	$	740	$	740	Level 3

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(a) The fair value of our indirect investment in Arby’s is based on its sale in July 2011 and our subsequent review of Arby’s current unaudited financial information. The fair value of the remaining investments 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, we relied on our review of valuations performed by the investment managers or investees or third-party appraisals.

(b) The interest rate swaps (and cash and cash equivalents as described below) are the only financial assets and liabilities measured and recorded at fair value on a recurring basis.

(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 has 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 of 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 six months ended July 1, 2012 on a non-recurring basis. Total losses include losses recognized from all non-recurring fair value measurements during the six months ended July 1, 2012. See Note 7 for more information on the impairment of our long-lived assets.

			Fair Value Measurements
	July 1, 2012		Level 1		Level 2		Level 3		Six Months Ended  July 1, 2012 Total Losses
Properties (a)	$	4,604	$	—	$	—	$	4,604	$	6,150
Other intangible assets	—		—		—		—		3
Aircraft (b)	6,741		—		—		6,741		1,628
Total	$	11,345	$	—	$	—	$	11,345	$	7,781

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(a) The fair values of impaired assets were generally estimated based on the present values of the associated cash flows and market values with respect to land. The impaired assets consist of land and buildings, are classified as held-for-sale and included in “Prepaid expenses and other current assets.”

(b) The carrying value of the aircraft, which reflects current market conditions, approximated its fair value.

Interest rate swaps

Our derivative instruments for the periods presented included interest rate swaps on our 6.20% senior notes with notional amounts totaling $225,000 that were all designated as fair value hedges. At July 1, 2012 and January 1, 2012, the fair value of these interest rate swaps of $10,254 and $11,695, respectively, was included in “Deferred costs and other assets” and as an adjustment to the carrying amount of our 6.20% senior notes. Interest income on the interest rate swaps was $1,404 and $2,730 for the three and six months ended July 1, 2012, respectively, and $1,435 and $2,848 for the three and six months ended July 3, 2011, respectively.