Wendy's 2011 Annual Report Download - page 100

THE WENDY’S COMPANY AND SUBSIDIARIES
WENDY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
$24,874 was paid in the first quarter of 2011. An excess cash flow payment was not required for fiscal 2011. In
addition, Wendy’s Restaurants was not required to utilize any portion of the proceeds from the sale of Arby’s
described in Note 2 as a Term Loan prepayment.
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 1, 2012.
The Companies incurred approximately $16,410 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 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 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 merger with Wendy’s),
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 Credit Agreement contains the following financial
covenants (1) a consolidated interest coverage ratio, (2) a consolidated senior secured leverage ratio, and (3) a
consolidated senior secured lease adjusted leverage ratio. At January 1, 2012 and January 2, 2011 Wendy’s
Restaurants was in compliance with the covenants of the Credit Agreement including the consolidated interest
coverage ratio, our most restrictive financial covenant, which requires that we maintain a minimum consolidated
interest coverage ratio of 2.50. The covenants generally do not restrict The Wendy’s Company or any of The
Wendy’s Company’s subsidiaries that are not subsidiaries of Wendy’s Restaurants.
(c) Wendy’s 6.20% senior notes were reduced to fair value in connection with the merger with Wendy’s in September
2008 based on outstanding principal of $225,000 and an effective interest rate of 7.0%. The fair value adjustment is
being accreted and the related charge included in “Interest expense” until the notes mature. The carrying 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 1, 2012 and January 2, 2011, this adjustment increased the carrying value of the 6.20% senior notes by
$11,695 and $9,623, 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 1, 2012.
(d) Wendy’s 7% debentures are unsecured and were reduced to fair value in connection with the merger with
Wendy’s in September 2008 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 1, 2012.
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