Wendy's 2012 Annual Report Download - page 91

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
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. In connection with the
redemption of the Wendy’s 6.25% senior notes in 2010, we cancelled four interest rate swaps with notional amounts
totaling $175,000. Upon cancellation, we recognized a gain of $1,875 in the second quarter of 2010, which is
included in “Interest expense” for the year ended January 2, 2011.
At December 30, 2012 and January 1, 2012, the fair value of the interest rate swaps on the 6.20% Wendy’s
senior notes was $8,169 and $11,695, respectively, and has been included in “Deferred costs and other assets” and as
an adjustment to the carrying amount of the 6.20% Wendy’s senior notes. Interest income on the interest rate swaps
was $5,510, $5,611 and $7,880 for the years ended December 30, 2012, January 1, 2012 and January 2, 2011,
respectively. No ineffectiveness has been recorded to net income related to our fair value hedges for the years ended
December 30, 2012, January 1, 2012 and January 2, 2011. Our interest rate swaps (and cash and cash equivalents as
described above) are the only financial assets and liabilities measured and recorded at fair value on a recurring basis.
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; however we do monitor the credit standing of the counterparties.
The following tables present the fair values for those assets and liabilities of continuing operations measured at
fair value during 2012 and 2011 on a non-recurring basis and the resulting impact in the consolidated statements of
operations. Total losses reflect the impact of all fair value measurements which were recorded to “Impairment of
long-lived assets” in the consolidated statements of operations for the years ended December 30, 2012 and January 1,
2012. The fair value of long-lived assets presented in the tables below substantially represents the remaining carrying
value of land for Wendy’s properties that were impaired in 2012 and 2011 and were estimated based on current
market values as determined by sales prices of comparable properties and current market trends. As of December 30,
2012, the carrying value of the aircraft, which reflects current market conditions, approximated its fair value. See
Note 1 and Note 18 for more information on the impairment of our long-lived assets.
Fair Value Measurements
December 30,
2012 Level 1 Level 2 Level 3
2012
Total Losses
Long-lived assets ................................... $ 7,311 $— $— $ 7,311 $19,469
Aircraft .......................................... 5,926 — — 5,926 1,628
Total ........................................ $13,237 $— $— $13,237 $21,097
Fair Value Measurements
January 1,
2012 Level 1 Level 2 Level 3
2011
Total Losses
Long-lived assets ................................... $ 575 $— $— $ 575 $12,883
Total ........................................ $ 575 $— $— $ 575 $12,883
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