Wendy's 2012 Annual Report Download - page 90

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THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company’s financial
instruments at December 30, 2012 and January 1, 2012:
December 30,
2012
January 1,
2012
Carrying
Amount Fair Value
Carrying
Amount Fair Value Fair Value Measurements
Financial assets
Non-current cost method investments (a) . . $ 23,913 $ 50,761 $ 27,452 $ 62,496 Level 3
Interest rate swaps (b) .................. 8,169 8,169 11,695 11,695 Level 2
Financial liabilities
Term Loan, due in 2019 (c) ............. 1,114,826 1,130,434 — — Level 2
Senior Notes, repaid in July 2012 (c) ...... — — 554,901 621,500 Level 2
2010 Term Loan, repaid in May 2012 (c) . . — — 466,062 466,940 Level 2
6.20% senior notes, due in 2014 (c) ....... 225,940 240,750 224,643 231,750 Level 2
7% debentures, due in 2025 (c) .......... 83,496 99,900 82,342 84,000 Level 2
Capital lease obligations (d) ............. 32,594 33,299 16,688 18,123 Level 3
6.54% aircraft term loan, repaid in June
2012 (d) .......................... — — 11,303 11,367 Level 3
Other .............................. 706 707 1,060 1,072 Level 3
Guarantees of franchisee loan obligations (e) . . 940 940 1,275 1,275 Level 3
(a) The fair value of our indirect investment in Arby’s is based on a review of its current unaudited financial
information. The fair values of the remaining investments were principally based on quoted market or
broker/dealer prices. To the extent that some of these investments, including the underlying investments in
investment limited partnerships, do not have available quoted market or broker/dealer prices, we relied on our
review of valuations performed by the investment managers or investees or third party appraisals. The fair value of
our investment in Jurlique at January 1, 2012 was based upon an agreement with a third party to purchase
Jurlique (which was completed in February 2012). See Note 8 for more information related to the sale of
Jurlique.
(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.
(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. 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 and cash equivalents, accounts payable and accrued expenses approximated fair
value due to the short-term maturities 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
The Company’s primary objective for entering into derivative instruments is to manage its exposure to changes
in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt.
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