Wendy's 2010 Annual Report Download - page 111

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
The Credit Facility expires not later than May 24, 2015. An unused commitment fee of 50 basis points per
annum is payable quarterly on the average unused amount of the Credit Facility until the maturity date.
The interest rate on the Term Loan is based on the Eurodollar Rate as defined in the Credit Agreement (but not
less than 1.50%), plus 3.50%, or a Base Rate, as defined in the Credit Agreement (but not less than 2.50%), plus
2.50%. Since the inception of the Term Loan, we have elected to use the Eurodollar Rate, which resulted in an
interest rate on the Term Loan of 5.00% as of January 2, 2011.
The Companies incurred approximately $16,353 in costs related to the Credit Agreement, which is being
amortized to interest expense over the Term Loan’s term utilizing the effective interest rate method.
Proceeds from the Term Loan were used to (1) repay approximately $253,849 of existing indebtedness, including
fees and interest, under the then existing Wendy’s/Arby’s Restaurants amended senior secured term loan which
replaced the prior Arby’s credit agreement in March 2009 and which was scheduled to be due in 2012, (2) redeem
the Wendy’s 6.25% senior notes scheduled to be due in 2011, and (3) pay fees and expenses related to the Credit
Agreement. The remaining Term Loan proceeds were used for working capital and other general corporate purposes.
The Companies recognized a loss on early extinguishment of debt of $26,197 in the second quarter of 2010
related to the repayment of debt from the proceeds of the Term Loan. This loss consisted of (1) a $14,953
premium payment required to redeem the Wendy’s 6.25% senior notes, (2) $5,477 for the write-off of the
unaccreted discount of the Wendy’s 6.25% senior notes (recorded in connection with the Wendy’s Merger), and
(3) $5,767 for the write-off of deferred costs associated with the repayment of the prior senior secured term loan.
The affirmative and negative covenants in the Credit Agreement include, among others, preservation of corporate
existence; payment of taxes; and maintenance of insurance; and limitations on: indebtedness (including guarantee
obligations of other indebtedness); liens; mergers, consolidations, liquidations and dissolutions; sales of assets;
dividends and other payments in respect of capital stock; investments; payments of certain indebtedness;
transactions with affiliates; changes in fiscal year; negative pledge clauses and clauses restricting subsidiary
distributions; and material changes in lines of business. The financial covenants contained in the Credit
Agreement are (i) a consolidated interest coverage ratio, (ii) a consolidated senior secured leverage ratio, and (iii) a
consolidated senior secured lease adjusted leverage ratio. The covenants generally do not restrict Wendy’s/Arby’s
or any of Wendy’s/Arby’s subsidiaries that are not subsidiaries of Wendy’s/Arby’s Restaurants. Wendy’s/Arby’s
Restaurants was in compliance with all covenants of the Credit Agreement as of January 2, 2011.
(c) Wendy’s 6.20% senior notes were reduced to fair value at the date of and in connection with the Wendy’s
Merger based on outstanding principal of $225,000 and an effective interest rates of 7.0%. The fair value
adjustment is being accreted and the related charge included in “Interest expense” until the notes mature. The
value of the Wendy’s senior notes is adjusted to reflect the fair value of interest rate swaps associated with this
debt. As of January 2, 2011 and January 3, 2010, this adjustment increased the value of the 6.20% senior notes
by $9,623 and $682, respectively. These notes are unsecured and are redeemable prior to maturity at our option.
The Wendy’s senior notes contain covenants that restrict the incurrence of indebtedness secured by liens and sale-
leaseback transactions. Wendy’s was in compliance with these covenants as of January 2, 2011.
(d) Wendy’s 7% debentures are unsecured and were reduced to fair value at the date of and in connection with the
Wendy’s Merger based on their outstanding principal of $100,000 and an effective interest rate of 8.6%. The fair
value adjustment is being accreted and the related charge included in “Interest expense” until the debentures
mature. These debentures contain covenants that restrict the incurrence of indebtedness secured by liens and sale-
leaseback transactions. Wendy’s was in compliance with these covenants as of January 2, 2011.
(e) During 2008, Wendy’s/Arby’s entered into a $20,000 financing facility for an aircraft. The facility requires
monthly payments, including interest, of approximately $180 through August 2013 with a final balloon payment
of approximately $10,180 due September 2013. During the first quarter of 2010, we made a $5,000 prepayment
on the loan. This loan is secured by an aircraft with a net book value of $9,183 and $10,812 as of January 2,
2011 and January 3, 2010, respectively.
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