Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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.

Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at September 29, 2013 and December 30, 2012:



	September 29, 2013				December 30, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Cash equivalents	$	317,058	$	317,058	$	264,925	$	264,925	Level 1
Non-current cost method investments (a)	22,397		47,121		23,913		50,761		Level 3
Interest rate swaps (b)	4,123		4,123		8,169		8,169		Level 2

Financial liabilities
Term A Loan, due in 2018 (c)	350,000		349,563		—		—		Level 2
Term B Loan, due in 2019 (c)	769,375		766,490		1,114,826		1,130,434		Level 2
6.20% Senior Notes, due in 2014 (c)	225,586		233,438		225,940		240,750		Level 2
7% debentures, due in 2025 (c)	84,373		97,750		83,496		99,900		Level 2
Capital lease obligations (d)	37,538		36,080		32,594		33,299		Level 3
Guarantees of franchisee loan obligations (e)	892		892		940		940		Level 3

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(a)

The fair value of our indirect investment in Arby’s is based on a review of its most recent unaudited financial information. The fair values of our remaining investments were based on our review of information provided by the investment managers or investees which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments.


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


(c)	The fair values were based on quoted market prices in markets that are not considered active markets. See Note 5 for information on the redemption of the 6.20% Senior Notes subsequent to the third quarter of 2013.


(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 has provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt facility arrangements for new restaurant development and equipment financing. In 2012, Wendy’s provided a guarantee to a lender for a franchisee in connection with the refinancing of the franchisee’s debt. We have accrued a liability for the fair value of these guarantees, the calculation of which was based upon a weighted average risk percentage established at inception adjusted for a history of defaults.

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

Derivative Instruments

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. The fair value of our interest rate swaps of $4,123 and $8,169 at September 29, 2013 and December 30, 2012, respectively, are 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 $1,429 and $4,319 for the three and nine months ended September 29, 2013, respectively, and $1,283 and $4,013 for the three and nine months ended September 30, 2012, respectively. No ineffectiveness has been recorded to net income related to our fair value hedges for the nine months ended September 29, 2013 and September 30, 2012.

In connection with the redemption of the 6.20% Senior Notes on October 24, 2013, during the fourth quarter we terminated the related interest rate swaps with notional amounts totaling $225,000. See Note 5 for more information on our redemption of the 6.20% Senior Notes and the termination of the interest rate swaps.

Non-Recurring Fair Value Measurements

The following tables present the fair values for those assets and liabilities measured at fair value on a non-recurring basis during the nine months ended September 29, 2013 and the year ended December 30, 2012 and the resulting impact on the consolidated statements of operations.

Total losses for the nine months ended September 29, 2013 reflect the impact of remeasuring long-lived assets (including land, buildings, leasehold improvements and favorable lease assets) at certain company-owned restaurants to fair value as a result of the Company’s decision to lease and/or sublease the land and/or buildings and sell certain other restaurant assets to franchisees. Such losses totaling $18,359 have been presented as System Optimization Remeasurement and included in “Facilities action charges, net” in our condensed consolidated statement of operations for the nine months ended September 29, 2013. The fair value of long-lived assets presented in the table below represents the remaining carrying value of the long-lived assets discussed above and was based upon discounted cash flows of future anticipated lease and sublease income. See Note 2 for more information on our system optimization initiative and the related activity included in “Facilities action charges, net” including System Optimization Remeasurement.

Total losses for the nine months ended September 29, 2013 also includes the impact of remeasuring our company-owned aircraft to fair value as a result of the Company’s decision to sell these aircraft and classify them as held for sale. Additionally, total losses includes $500 resulting from remeasuring land and buildings to fair value in connection with closing company-owned restaurants and classifying such properties as held for sale. Such losses have been presented as “Impairment of long-lived assets” in our condensed consolidated statements of operations. The fair values of long-lived assets and the aircraft presented in the table below represent the remaining carrying value and were estimated based on current market values. See Note 7 for more information on the impairment of our long-lived assets.

Total losses for the year ended December 30, 2012 reflect the impact of remeasuring long-lived assets at company-owned restaurants and a company-owned aircraft to fair value and were recorded to “Impairment of long-lived assets” in the consolidated statements of operations. The fair value of long-lived assets presented in the table below substantially represents the remaining carrying value of land for Wendy’s properties that were impaired in 2012 and were estimated based on current market values as determined by sales prices of comparable properties and current market trends. As of December 30, 2012, the carrying value of the aircraft, which reflected current market conditions, approximated its fair value.



			Fair Value Measurements						Nine Months Ended September 29, 2013 Total Losses
	September 29, 2013		Level 1		Level 2		Level 3		Nine Months Ended September 29, 2013 Total Losses
Long-lived assets	$	7,803	$	—	$	—	$	7,803	$	18,859
Aircraft	9,000		—		—		9,000		4,827
Total	$	16,803	$	—	$	—	$	16,803	$	23,686



			Fair Value Measurements						2012 Total Losses
	December 30, 2012		Level 1		Level 2		Level 3		2012 Total Losses
Long-lived assets	$	7,311	$	—	$	—	$	7,311	$	19,469
Aircraft	5,926		—		—		5,926		1,628
Total	$	13,237	$	—	$	—	$	13,237	$	21,097