Wendy's 2011 Annual Report Download - page 103

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)
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.
The following table presents the Companies’ financial assets and liabilities (other than cash and cash
equivalents) measured at fair value on a recurring basis as of January 1, 2012 by the valuation hierarchy as defined in
the fair value guidance:
Fair Value Measurements
January 1,
2012 Level 1 Level 2 Level 3
Interest rate swaps (included in “Deferred costs and other assets”) .......... $11,695 $— $11,695 $—
The following tables present the fair values for those assets and liabilities of continuing operations measured at
fair value during 2011 and 2010 on a non-recurring basis. Total losses include losses recognized from all
non-recurring fair value measurements during the years ended January 1, 2012 and January 2, 2011. The carrying
value of properties presented in the tables below substantially represents the remaining carrying value of land for
Wendy’s properties that were impaired in 2011 and 2010. See Note 19 for more information on the impairment of
our long-lived assets.
January 1,
2012
Fair Value Measurements 2011
Total LossesLevel 1 Level 2 Level 3
Properties ............................................. $575 $— $— $575 $10,120
Other intangible assets ................................... — — — — 2,763
$575 $— $— $575 $12,883
January 2,
2011
Fair Value Measurements 2010
Total LossesLevel 1 Level 2 Level 3
Properties ............................................. $250 $— $— $250 $21,201
Other intangible assets ................................... — — — — 5,125
$250 $— $— $250 $26,326
Derivative instruments
The Companies’ primary objective for entering into derivative instruments is to manage their exposure to
changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt.
During the third quarter of 2009, we entered into eight interest rate swaps with notional amounts totaling
$361,000 to swap the fixed rate interest rates on the 6.20% and 6.25% Wendy’s senior notes for floating rates. The
interest rate swaps were designated as fair value hedges of the related debt and qualified to be accounted for under the
short-cut method according to the applicable guidance.
During the first quarter of 2010, we entered into an interest rate swap with a notional amount of $39,000 on
Wendy’s 6.20% senior notes. At its inception, the interest rate swap was designated as an effective fair value hedge
and is tested for effectiveness quarterly.
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