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Incorporating Additional Information. Module 10. Wendy’s Overview. One of the largest quick-service restaurants in the hamburger sandwich segment Operates 6,542 restaurants in 26 countries 1,418 company owned restaurants 5,124 franchises. Why Seek Further Information?.
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Incorporating Additional Information Module 10
Wendy’s Overview • One of the largest quick-service restaurants in the hamburger sandwich segment • Operates 6,542 restaurants in 26 countries • 1,418 company owned restaurants • 5,124 franchises
Why Seek Further Information? • In prior modules, the basis for Wendy’s forecasting is rather general • Further information allows us to: • Better segregate enterprise and financing activities • Allow for more precise forecasts
Prepaid Expenses and Other Current Assets • Primarily comprised of assets held for sale • Restaurant net assets held for sale • Acquired franchised restaurants • Restricted cash equivalents represent collateral supporting letters of credit
Wendy’s Deferred Taxes • Discrepancy between amount reported on balance sheet and amount reported in footnotes • The implied additional asset quantifies this discrepancy, and occurs from combining deferred taxes with other accounts
Advertising Funds Restricted Assets and Liabilities • In the United States and Canada, Wendy’s advertises on a national and regional basis • Contributions to theses advertising funds are required to be made from both company-owned and franchised restaurants and are based on a percent of restaurant retail sales
Properties • Capital leases principally include buildings and improvements • Includes accelerated depreciation to reflect shortened estimated useful lives for certain long-lived assets as a result of company reimaging
Goodwill • Goodwill impairment is wholly applicable to international franchise reporting unit. • This impairment is driven by lower projected growth rates and profitability levels than previously anticipated.
Other Intangible Assets • Favorable leases enable Wendy’s to rent property for less than market value
Deferred Costs and Other Assets • Largely undefined • Several items were identified throughout the 10-K, as shown below
Accrued Expenses and Other Current Liabilities • What makes up other?
Other Liabilities • Hoped to find information on this account • Details were not found in 10-K • Account had a value of $176M @ 2013 YE
Pension (Implications) • Current retirement plan is a 401(k) defined contribution plan • Wendy’s contributions classified as compensation expense within general and administrative expenses • Maintains two domestic qualified defined benefit plans • Benefits were frozen in 1988 • No unrecognized prior service cost • Future required contributions to the plan expected to be insignificant
Sales • “Wendy’s” sales represent the revenue generated by company-owned restaurants • “Bakery and other” sales represent the sales of bakery items and kids’ meal promotional items to franchisees and others
Franchise Revenues • No specific quantitative details beyond figures on P&L • Franchise revenues include: • Royalties • Continuing source of revenue; based on a percentage of net sales of the franchised restaurant • Franchise fees • One-time source of revenue (generally) • Franchise renewal fees generate a periodic revenue source • Rental income • Continuing source of revenue earned from properties owned and leased by Wendy’s and leased or subleased to franchisees.
General and Administrative Expenses • Largely undefined • Known figures include: • Share-based compensation • 2013: $19,613 • 2012: $11,473 • Employee compensation and related expenses (portion related to 401(k)) • 2013: $8,235 • 2012: $8,887 • Changes are shown
Facilities Action Charges, Net • The “System optimization initiative” is a brand transformation, which includes a plan to sell approximately 425 company-owned restaurants to franchisees by the end of the first quarter of 2014. • “Facilities relocation and other transition costs” are related to the relocation of the Atlanta restaurant support center to Ohio.
End • Questions?