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:



	March 29, 2015				December 28, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Measurements
Financial assets
Cash equivalents	$	49,708	$	49,708	$	61,450	$	61,450	Level 1
Non-current cost method investments (a)	6,264		153,708		4,264		147,760		Level 3

Financial liabilities
Cash flow hedges (b)	7,311		7,311		3,343		3,343		Level 2
Term A Loans, due in 2018 (c)	534,510		533,508		541,733		540,717		Level 2
Term B Loans, due in 2019 (c)	757,834		756,650		759,758		752,160		Level 2
7% debentures, due in 2025 (c)	86,153		105,500		85,853		104,250		Level 2
Guarantees of franchisee loan obligations (d)	990		990		968		968		Level 3

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(a)

The fair value of our indirect investment in Arby’s Restaurant Group, Inc. (“Arby’s”) is based on applying a multiple to Arby’s earnings before income taxes, depreciation and amortization per its current unaudited financial information. The carrying value of our indirect investment in Arby’s was reduced to zero during 2013 in connection with the receipt of a dividend. The fair values of our remaining investments are not significant and are 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 developed using market observable data for all significant inputs.


(c)	The fair values were based on quoted market prices in markets that are not considered active markets.

(d)

Wendy’s has provided loan guarantees to various lenders on behalf of franchisees entering into debt arrangements for new restaurant development and equipment financing. In addition during 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. Our derivative instruments, cash and cash equivalents and guarantees are the only financial assets and liabilities measured and recorded at fair value on a recurring basis.

Derivative Instruments

The Company’s primary objective for entering into interest rate swap agreements is to manage its exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt.

Our derivative instruments as of March 29, 2015 and December 28, 2014 consist of seven forward starting interest rate swap agreements to change the floating rate interest payments associated with $350,000 and $100,000 in borrowings expected to be outstanding under our Term A Loans and Term B Loans, respectively, to fixed interest rate obligations beginning on June 30, 2015 and maturing on December 31, 2017. At inception, the forward starting swap agreements were designated as cash flow hedges and are evaluated for effectiveness quarterly.

As of March 29, 2015 and December 28, 2014, the fair value of the cash flow hedges resulted in a liability of $7,311 and $3,343, respectively, which was included in “Other liabilities” and a corresponding offset to “Accumulated other comprehensive loss.” Through March 29, 2015, no hedge ineffectiveness has occurred relating to these cash flow hedges. A pre-tax derivative loss of $4,206 based upon interest rates at March 29, 2015 is expected to be recognized in “Interest expense” in the next 12 months.

The Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts. We anticipate that the counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support derivative financial instruments subject to credit risk and our interest rate swaps are not cleared through a central clearinghouse; however we do monitor the credit standing of the counterparties. All of the Company’s financial instruments were in a liability position as of March 29, 2015 and December 28, 2014 and therefore presented gross in the condensed consolidated balance sheets.

Non-Recurring Fair Value Measurements

Assets and liabilities remeasured to fair value on a non-recurring basis during the three months ended March 29, 2015 and the year ended December 28, 2014 resulted in impairment which we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations.

Total losses for the three months ended March 29, 2015 and the year ended December 28, 2014 reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements and favorable lease assets) to fair value as a result of (1) the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants and (2) declines in operating performance at company-owned restaurants. The fair value of long-lived assets held and used presented in the tables below represents the remaining carrying value and was estimated based on either discounted cash flows of future anticipated lease and sublease income or current market values.

Total losses for the three months ended March 29, 2015 and the year ended December 28, 2014 also include the impact of remeasuring long-lived assets held for sale which primarily include surplus properties. The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values. See Note 7 for more information on impairment of our long-lived assets.



			Fair Value Measurements						Three Months Ended March 29, 2015 Total Losses
	March 29, 2015		Level 1		Level 2		Level 3		Three Months Ended March 29, 2015 Total Losses
Held and used	$	214	$	—	$	—	$	214	$	1,179
Held for sale	1,218		—		—		1,218		758
Total	$	1,432	$	—	$	—	$	1,432	$	1,937



			Fair Value Measurements						2014 Total Losses
	December 28, 2014		Level 1		Level 2		Level 3		2014 Total Losses
Held and used	$	8,651	$	—	$	—	$	8,651	$	17,139
Held for sale	4,967		—		—		4,967		2,474
Total	$	13,618	$	—	$	—	$	13,618	$	19,613