john-william blessing wendy's valuation (bcor 420)
TRANSCRIPT
Blessing 1
December 8, 2013
Blessing Valuations LLC John-William Blessing
[WENDY’S CO. VALUATION AS OF SEPTEMER 8, 2013] This valuation will give you a general overview about the value of the Wendy’s Company. The valuations within this document a re self-researched and should not be taken into real consideration when investing in the Wendy’s Co.
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Table of Contents Section I: Valuation Summary ............................................................................................................................................... 4
Section II: Introduction ......................................................................................................................................................... 5
Disclaimer: ........................................................................................................................................................................ 5
Identity of Business:........................................................................................................................................................... 5
Ownership: ....................................................................................................................................................................... 5
Effective Dates: include due date of valuation and date of the most recent 10-k ................................................................... 5
Revenue Rule 59-60: .......................................................................................................................................................... 5
Disclaimer/Restrictions: ..................................................................................................................................................... 6
Important Business Information: ........................................................................................................................................ 6
Section III: Sources of Information ........................................................................................................................................ 6
Statement of Visited Facility ............................................................................................................................................... 6
Identification of Persons Interviewed.................................................................................................................................. 6
Financial Statements Analyzed ........................................................................................................................................... 6
Tax Information Analyzed................................................................................................................................................... 7
Industry, Market and Economic Data Analyzed .................................................................................................................... 7
Other Company Documents Analyzed ................................................................................................................................. 7
Assurance Procedure Statement......................................................................................................................................... 7
Identification of Other Sources/Documents Analyzed .......................................................................................................... 8
Section IV: Analysis of Company or Entity.............................................................................................................................. 8
Who Is Wendy’s/What Do They Do: .................................................................................................................................... 8
Company Background: ....................................................................................................................................................... 8
Facilities: ........................................................................................................................................................................... 8
Ownership Information: ..................................................................................................................................................... 9
Officers/Key Employees: .................................................................................................................................................... 9
Products: .......................................................................................................................................................................... 9
Geographic Markets: ......................................................................................................................................................... 9
Industry/Competition: ....................................................................................................................................................... 9
Business Risk: .................................................................................................................................................................. 10
Key Customers: ............................................................................................................................................................... 10
Key Supplies: ................................................................................................................................................................... 10
Section V. Analysis of Economic Conditions ......................................................................................................................... 10
U.S. Economic Conditions................................................................................................................................................. 10
Global Economic Conditions ............................................................................................................................................. 12
Future Outlook for Regions Industry Operates................................................................................................................... 12
Section VI. Analysis of Industry Conditions .......................................................................................................................... 12
Section VII: Financial Statement Analysis ............................................................................................................................ 14
Comparison..................................................................................................................................................................... 14
Adjustments .................................................................................................................................................................... 16
Discussion of Assets ......................................................................................................................................................... 16
Section VIII: Valuations Approaches and Methods Considered ............................................................................................. 16
Discounted Cash Flow Method ......................................................................................................................................... 16
Market Multiples: ............................................................................................................................................................ 17
Liquidation Value Method: ............................................................................................................................................... 18
Section IX: Valuation Approaches and Methods Used .......................................................................................................... 18
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Balance Sheet Adjustments .............................................................................................................................................. 18
Identify Work of Other Experts ......................................................................................................................................... 18
Detail of Valuation Method Used...................................................................................................................................... 18
Section X: Analysis of Risk ................................................................................................................................................... 20
Section XI: Consideration of Applicable Discounts or Premiums ........................................................................................... 21
Section XII: Non-operating and Excess Assets ...................................................................................................................... 21
Section XIII: Conclusion and Reconciliation.......................................................................................................................... 21
Section XIV: Appendices ..................................................................................................................................................... 23
Section XV: Valuation Representation or Certification and Signature of the Analyst (C.V.) .................................................... 37
XVI: Assumptions and Limiting Conditions........................................................................................................................... 38
Works Cited..........................................................................................................................................................................39
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Section I: Valuation Summary December 8, 2013
Dr. Paul J. Speaker
West Virginia University
College of Business & Economics
Morgantown, WV 26505
RE: The Wendy’s Corporation Valuation
Dr. Speaker,
As requested, Blessing Valuations LLC has prepared a valuation of The Wendy’s Corporations Fair Market Value with
100% ownership interest as of December 30, 2012.
The standard of value we at Blessing Valuations LLC used to value The Wendy’s Corporation was Fair Market Value.
Fair Market Value is the price that a potential investor would be willing to pay and the amount a potential seller would
accept. To use fair market value, both the buyer and seller would need reasonable knowledge about the relevant facts
and/or financials to make an informed business decision if the company was available for sale.
To arrive at our conclusion of Fair Market Value, Blessing Valuations LLC performed the following:
Collected The Wendy’s Corporations financial statements from the years 2003-2012
Analyzed the financial statements (Balance Sheet and Statement of Comprehensive Income) by calculating
common-size financial statements and relevant financial ratios for every year in order to detect any trends within
the data
Use historic data to calculate a free cash flows statement for the years 2003-2012, then using particular trend
growth rates to project the free cash flow statement to the year 2019
Apply the Discounted Cash Flow method to determine The Wendy’s Corporations Value
Based on the valuation in which Blessing Valuations LLC performed, it was determined through using the Fair Market
Value at 100% ownership and applying the discounted cash flows method that the value of Wendy’s operations as of
December 30, 2012 is $25,117,500. While computing the terminal value based off of the given weighted average cost of
capital, Blessing Valuations LLC has also determined The Wendy’s Corporation stock price per share should be valued
at $8.67, consistent with the current closing stock price.
Sincerely,
John-William P. Blessing, CEO
Blessing Valuations LLC
Electronic Signature: John-William P. Blessing
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Section II: Introduction
The objective of this business valuation is to determine whether our client, Professor Dr. Paul Speaker, should make an
educated investment decision in buying The Wendy’s Corporation Company stock. With this valuation, we will be able
to pass Finance 420: Business Valuation and graduate on-time in May of 2014. With completing this project, Blessing
Valuations LLC will have an example of a finished product in order to present for key employers and future clients.
Having a consistent production through our valuations will give Blessing Valuations LLC a reputation for future clients
which will demonstrate that “our products are unsurpassed by any other.”
Disclaimer:
This valuation contains information presented within The Wendy’s Co. (WEN) financial statements (Annual 10-K) and
should be reviewed on your own (Professor Speaker’s) accordance. Blessing Valuations LLC does not take any liability
and/or responsibility for the misinterpreted and incomplete transmission of our business valuations. The intended
purpose of this valuation is to present our client, Professor Speaker, with financial information in which we believe will
help him make an educated investment decision.
Identity of Business:
The Wendy’s Company is a major holding company within the large industry of “Fast-Food & Quick Services
Restaurants.” Through multiple subsidiaries, The Wendy’s Co. owns and franchises numerous Wendy’s restaurants
which can not only be found within the boundaries of the United States, but also globally. Wendy’s seemingly engages
in franchising, developing and operating technical systems through the quick-service distinctive title in which “fast-
food” helps endorse it. Wendy’s specializes in serving its customers top-notch hamburgers, chicken (crispy or grilled)
sandwiches, specialty salads, fresh and new “sea salt fries,” refreshments, and its ever famous “Frosty.” As of September
8, 2013, Wendy’s has approximately 6500 different franchises (company owned or franchised owned) operating within
the bounds of the United States and 27 different countries or U.S. Territories throughout the world. Formerly known as
the Wendy’s/Arby’s Group, Inc. the Wendy’s/Arby’s Group, Inc. changed their name to the Wendy’s Company as of
2011. Wendy’s is currently ranked the number two hamburger chain worldwide behind McDonald’s and in front of
number three Burger King.
Ownership:
Blessing Valuations LLC continually values companies at a 100% complete ownership. We believe at Blessing
Valuations LLC that in order to make a successful investment decision, you must know the all-around view of the
company and everything in which they do. Valuing an entire business will give you not only the information presented
within the 10-K every year, but the trends in which the Wendy’s Company moves throughout different economies.
Seeing the complete spectrum of information throughout different types of economies will help visualize how Wendy’s
value will be affected by a recession, normal, and boom economy.
Effective Dates: include due date of valuation and date of the most recent 10-k
This particular valuation will be presented for Professor Speaker’s review no later than the due date: December 8, 2013.
To give Professor Speaker the best opportunity to review his investment decision, it will need to be completed before
The Wendy’s Company’s fiscal year has ended. Wendy’s last filed their annual 10-k report on December 30, 2012. Data
pulled for the most recent years will be pulled directly from the SEC filings.
Revenue Rule 59-60:
“In valuing the stock of closely held corporations or the stock of corporations where market quotations are not available,
all other available financial data, as well as all relevant factors affecting the fair market value must be considered for
estate tax and gift tax purposes. No general formula may be given that is applicable to the many different valuation
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situations arising in the valuation of such stock. However, the general approach, methods, and factors which must be
considered in valuing such securities are outlined.” Blessing Valuations LLC follows in accordance to not only this
particular rule, but any SEC filed rule when forecasting financials. Valuing at fair market value gives the client a better
vision of how the company has done in the past, how the company is currently doing, and how the company will do in
the future through multiple projections made. The fair market value of Wendy’s is as of the Sunday closest to December
31 every year.
Disclaimer/Restrictions:
As stated previously, Blessing Valuations LLC is not responsible for the improper transmission or misinterpretations of
what is presented within this valuation. Our valuations consist of having a sole purpose of providing information in a
way in which the customer can look at the information clear and concise, see our comments and interpretations, and
correlate a business decision based upon their understanding of the material. Blessing Valuations provides advice on
which our employees believe the client should do, but are not responsible for the decision you make in investments.
Important Business Information:
The Wendy’s Company uses a 52/53 week end fiscal year. With a 52/53 week end fiscal year, the closing date of Quarter
4 is the Sunday which falls closest to December 31 of each year. Every fiscal year in which Wendy’s operates normally
consists of four 13-week quarters, although in some years in which your investment may take place, it will operate with a
14-week fourth quarter (Q4). This is important to know for the purpose of when SEC filings take place, and the open and
close of stock prices for years with a 14-week Q4.
Section III: Sources of Information
Statement of Visited Facility
One facility in which was visited was located in Morgantown, WV. Wendy’s is located in a busy, high traffic area which
helps generate a quick and easy place for customers to eat. Having Wendy’s placed in a high traffic area keeps profits
booming by gaining business from not only hungry customers, but impulse purchasers also. This facility was ran
efficiently as orders were taken and prepared in a timely manner for each and every customer. Sufficient staffing helped
keep the busy portions of the day running smoothly, and no complaints were made in the time being. The facility was
very clean and organized, helping the customer enjoy their Wendy’s experience in a friendly environment. The
environment in which Wendy’s portrays is a sit-down, café style fast food restaurant. Being able to connect to wireless
internet and having the ability to watch television while eating continually keeps customers happy. Wendy’s
environment appeals to a wide range of customers, which keeps their customer base as large as possible. In all, the
Wendy’s facility within the large college town, Morgantown, WV, is a facility that will continually generate revenues
due to its appeal to not only college crowds but the older customer base as well.
Identification of Persons Interviewed
N/A
Financial Statements Analyzed
The financial statements in which were analyzed for the valuation of the Wendy's Co. included the Consolidated Balance
Sheet and Statement of Operations. With these two important documents in which the Wendy's Co. filed through their
annual 10-k, Blessing Valuations LLC completed a common size balance sheet and statement of operations, free cash
flow statement, ratio report and growth report. Using Wendy's SEC filings from the years 2003-2012 will help us better
forecast future trends in which we believe Wendy's will incur. When analyzing down to our Net Operating Working
Capital, Blessing Valuations LLC decided to not include cash due to a significant increase during peak times of the
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recent economic recession. With interest rates being at next to nothing, the company would not be penalized by holding
cash throughout this period. When producing the free cash flow worksheet, the 2002 data was directly pulled from the
2002 filed 10-k, but is not shown in the appendices due to space constraints. Any questions about the particular financial
statements can be directly identified in the appendices where they will be found.
Tax Information Analyzed
The tax rate in which Blessing Valuations LLC presents is the effective tax rate which was found on advfn.com. The
effective tax rate is the average tax rate in which a corporation within a particular industry is taxed. From advfn.com we
were able to find the effective tax rate to be at 31.1%. This tax rate will be taxed to our findings of Earnings Before
Interest & Tax, so we will be able to compute our Net Operating Profit After Taxes. The federal corporate average tax
rate in which corporations incur is around 35% and can vary significantly due to different state rates.
Industry, Market and Economic Data Analyzed
With valuing a steady company such as Wendy's, within the financial statement analysis section we explain the years of
2008-2012 in which the United States was in the heart of the "Great Recession" and beginning recovery. With the
insufficient economy, every industry was significantly impacted. Through many tough economic times, much of the
population turns to inexpensive meals in which fast food restaurants can supply. Even though during some recessions in
which helps the fast food industry thrive, longer and drawn out recessions tend to hurt the industry. During the 2008
recession, Arby’s and Wendy’s merged creating the third largest fast food chain in the U.S. The merger happened during
an economic struggle because the merger helped Wendy’s grab more of the market share and increase their profits when
the economy began to return to normalcy. Commodity prices are always a primary factor in determining prices fast food
restaurants charge for their meals. The cheaper the commodity prices, the less the industry can charge for meals without
cutting profits.
Other Company Documents Analyzed
The company documents in which Blessing Valuations LLC is not only limited to the SEC filed Annual 10-k’s. After
researching the 10-k report from the SEC website, Blessing Valuations LLC used the Wendy’s homepage to analyze the
investor relations section and news section in which helps us see the most recent published materials. We at Blessing
Valuations LLC try to review only documents in which were directly published by the Wendy’s Co. and only reference
other material if needed.
Assurance Procedure Statement
Blessing Valuations LLC has performed review procedures to provide assurance on the following aspects of the
Wendy’s Co. The accuracy and completeness of the information provided are subject to review and strict limitations for
determining particular calculations for future estimations. Blessing Valuations LLC’s responsibility is to provide a
concise conclusion on the value of investment of the Wendy’s Co in accordance with any regulations. Our assurance
procedures include the following work:
Evaluation of Consolidated Statement of Operations (Years 2003-2012)
Evaluation of Consolidated Balance Sheets (Years 2003-2012)
Completion of Common Size Balance Sheet and Statement of Operations (Years 2003-2012)
Completion of Ratio Worksheet to help Value company (Years 2003-2012)
Completion of Company Growth Worksheet (Years 2003-2012)
Completion of Free Cash Flow Worksheet (Years 2003-2012)
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Blessing Valuations LLC completes this work so we can be in a positive position when determining investment
decisions. Evaluating data in multiple formats not only helps us visually see performance, but helps our customers
understand the company in a whole new format from just reading particular financial statements. As stated previously,
Blessing Valuations LLC will not be held liable for the misinterpretation and miscommunication of data and
recommendations.
The auditing group, Deloitte and Touche, LLP has consistently given an unqualified opinion as the Wendy’s Co. has
kept an effective internal control. Deliotte and Touche, LLP’s opinion came from the obtaining and understanding of
internal control over financial reporting, assessing risks, testing internal control, and performing other procedures.
Wendy’s effective internal control has helped the company flourish, keeping management always doing what is in the
company’s best interest.
Identification of Other Sources/Documents Analyzed
Blessing Valuations used minimal other sources throughout this process. Yahoo! Finance, Google Finance, and
advfn.com were the three sites in which were consistently visited. These sites were visited to figure out which tax rate to
use, which ratios work best when evaluating fast food companies, and daily stock price checks. The hard data in which
was used for the evaluation of the Wendy’s Co. was directly pulled from their SEC filings.
Section IV: Analysis of Company or Entity
Who Is Wendy’s/What Do They Do:
The Wendy’s Company (“Formerly Wendy/Arby’s Group” (The Wendy's Company)) is the second largest hamburger
chain restaurant within the United States. It is in a close second behind world leader number one, McDonald’s. Wendy’s
produces not only hamburgers and cheeseburgers, but a wide variety of chicken sandwiches, salads, and fries. Unlike
many chain restaurants who serve milk shakes and ice-cream cones, Wendy’s serves its world-famous Frosty.
Company Background:
On November 15, 1969 the United States had been introduced to the first Wendy’s restaurant, started by a great
entrepreneur, named Dave Thomas. After starting up in 1969, Wendy’s decided to go public in the year of 1976 after the
chain had grown to 500 stores nationwide. Within three years of going public, more than 1500 chains had been
introduced and the company in which he believed would be successful continually grew. Twelve years after Dave
Thomas had started the first Wendy’s, Wendy’s hit the New York Stock Exchange in 1981. This was a huge step in the
growth which Wendy’s was about to endure. By 1986, their campaign “Where’s the beef” had swept the nation, helping
them introduce their well-known burger “The Big Classic.” Between the years 1988-1990, Wendy’s took an even more
dramatic step than going public, by taking its company global. The world was now seeing the power in which this fast-
food conglomerate had. A merger between Wendy’s and Tim Horton took place in the year of 1995, showing the power
and wealth of Wendy’s. By 2006, Wendy’s had sponsored a Ladies Professional Golf Association event, expanded their
menu significantly, and opened 6000 stores worldwide. As of 2013, Wendy’s has quickly grown into the second largest
hamburger chain in the world.
Facilities:
The headquarters of The Wendy’s Company are located outside of Columbus, OH in Dublin, OH. Wendy’s has around
6500 facilities in 27 different countries and U.S. Territories. The plant/facility size in which Wendy’s own or rents is an
astonishing 324,025 square feet. Wendy’s employs around 44,000 worldwide throughout its 6500 facilities. The large
number of facilities helps Wendy’s serve a vast amount of customers on a daily basis. As of 2011, Wendy’s has 1,417
company owned locations, and an astonishing 5,177 franchised locations.
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With Wendy’s being a publicly traded company on the New York Stock Exchange, 7% of all shares are held by insiders
and owners, 76% of the company is held by different institutional and mutual fund owners, and 82% of Float is held by
institutional and mutual funds. There are 222 different institutional funds which hold share of Wendy’s stock. A major
direct holder of Wendy’s (WEN) stock is the chairman, Nelson Peltz. Nelson holds an abundance of stock, surpassing
the 15 million share mark. With being a chairman and major direct holder, he is considered to an insider and is able to
vote in control of the company. Other than one major chairman stockholder, Peter May, holds the second largest as a
direct holder with over 8 million shares. Peter May, even though owns less than three percent of the overall market share,
could still be influential throughout the Wendy’s organization. The top two institutional holders include Southeastern
Asset Management Inc. and Horizon Kinetics LLC. The two institutional holders combined own over 64 million shares
of Wendy’s stock, which adds up to be a shocking 16.31%.
Officers/Key Employees:
The officers of every major corporation play a vital role in the success and growth of the company. Wendy’s President
and Corporate Executive Officer, Emil J. Brolick has driven great success in the increase in sales and growth of the
corporation using consumer insights throughout his successful track record within the Fast Food Industry. Stephen E.
Hare, the Senior Vice President and Chief Financial Officer, has been with the company and in an executive position
since 2008. His direct role in working with financials has driven results which continually help strengthen the company’s
profile and value. Each executive in which Wendy’s employees has had multiple years of work experience in which
their productivity were unmatched. Being able to obtain key executives in which can be successful within their industry
will only help Wendy’s better their future growth and success for many years to come.
Products:
Wendy’s is a fast-food restaurant that serves a large variety on their menu. As previously stated, Wendy’s serves a
numerous amount of hamburgers/cheeseburgers for which they are mostly known. Currently Wendy’s is running off the
slogan for their hamburgers which states, “Always fresh, never frozen.” This gives them an upper-hand on their
competition against the likes of McDonald’s and Burger King. This “fresh” idea has caught the public’s attention and
given customers more insight on their products. Not only does Wendy’s serve a famous hamburger, they also serve a
variety of different chicken selections. Chicken can be found on everything, from sandwiches and wraps to salads, they
have portrayed their chicken as better than the competitions. Unlike most fast food chains, Wendy’s serves a famous
“Frosty” dessert instead of the typical ice-cream. For promotional purposes, Wendy’s has moved the “frosty” into new
items such as a “Frosty Float” and “Frosty Cone.” Being able to constantly promote new items in which they create from
their ever famous “Frosty” helps them always stay in the public’s interest.
Geographic Markets:
As of 2012, The Wendy’s Co. has opened over 350 stores in countries/areas such as the Philippines, Russia, the Eastern
Caribbean, Singapore, Canada, and others. Wendy’s has taken over the globe efficiently and effectively. This wide
market enables Wendy’s to serve customers from not only different portions of the United States, but serve customers
with different backgrounds who enjoy simple menu items.
Industry/Competition:
Wendy’s operates in the large sector of services. The industry in which they operate is Restaurants, with the exact
wording as “Fast-Food & Quick Services Restaurants.” Key competition within the “Fast-Food & Quick Services
Restaurants” industry is McDonalds, YUM! Brands and Burger King. When looking at annual sales, these companies
add up to a hefty 46.05 billion. Other companies in which Wendy’s competes heavily against are Dairy Queen, Sonic
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Corp., Jack in the Box, and Chipotle. Even though some of these restaurants serve a different style of food, they still play
a key role in Wendy’s average sales and growth.
Business Risk:
Operating in a diverse market, there are many risks in which Wendy’s will face on a year-end and year-out basis. One
risk in which they will face is competition from other restaurant companies or poor experiences in which the customer
might incur. Putting the customer first in every situation possible is a way to eliminate a bad experience they may face.
Being able to always satisfy the customer in every way or shape possible will give them an upper-hand on the
competition. Wendy’s must watch for new and improved companies who enter the market. The market is changing very
rapidly, and Wendy’s must keep in mind that new entrance is possible. New entrants into the industry will not only hurt
their annual sales, but could be detrimental to their market share. Living in an uncertain economy, you never know how
the customer may change its opinion on spending money at restaurants. With this being said, a down economy may hurt
the annual sales in which Wendy’s normally incurs. Changes in the cost of commodities such as chicken, beef, lettuce,
etc. may impact the prices in which Wendy’s sell their food. In a down economy, people are less likely to spend money
on “fast-food” when they see a rise in prices.
As you can see, Wendy’s has a vast amount of risk in which it can incur. Wendy’s must stick to the core values in which
they currently operate if they want to see future growth. Being able to have particular methods to counteract such
problems will be beneficial.
Key Customers:
Wendy’s does a terrific job of keeping their customer base as broad as possible. Not only Wendy’s, but fast food in
general, targets customers anywhere from the age of 5 to the age 60. Keeping this wide customer base is vital to keeping
Wendy’s future bright. Being able to customize any order at Wendy’s, keeps the older adult population happy by being
able to make “healthier” choices. When talking about eyeing in of key customers, Wendy’s has adopted the “Open Late”
window, in which college kids can hit the drive through after late night studying. Opening franchises on college
campuses has been beneficial in targeting a large portion of the young adult market. The kid’s meal with a toy appeals to
the younger eyes, always wanting to see what kind of “prize” they may receive in their meal. Wendy’s has always been
appealing to a vast majority of different customers, and with continual promotions and changes they will keep their
image fresh to consumers.
Key Supplies:
Wendy’s key supplies include but are not limited to: hamburgers, chicken, lettuce, dairy products and potatoes. When
working in the fast food industry, commodity prices are constantly changing, producing higher or lower than average
costs for ingredients. When the price of beef increases, you see a slight rise in prices, and vice versa. Even though there
may be a slight increase in commodity prices, the fast food industry products are very inelastic due to their inexpensive
prices relative to other restaurants, especially during rough economic periods. A slight increase in supplies and/or
commodities, which happens very often, seemingly never dictates the fast food industry. This in general is a positive
attribute of a key industry in which dominates our country.
Section V. Analysis of Economic Conditions
U.S. Economic Conditions
Through the second quarter of 2013, the Real Gross Domestic Product of the United States has increased an astounding
2.5% in the second quarter, adding to a total increase for the two quarters of 3.6%. The constant increase is due to higher
business investments and an upsurge in goods exports. With a sharp increase in business investment and good exports,
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imports picked up significantly and consumer spending decreased throughout the second quarter for nondurable goods
and services. With the decrease in spending for nondurable goods and services, personal income and savings increased
.4% to an overall 4.5%. The increase in business investment is due to an increase in corporate profits from a declining
first quarter. The bounce back has given investors a new hope in that their investments will pay “dividends” in the long
run. Comparing to the second quarter from 2012, corporate profits also rose an astonishing 4.5%.
Regionally, Real Gross Domestic Product was raised in 49 out of 50 states, as the manufacturing of durable goods,
wholesale trade and finance/insurance led the way. Durable goods help contribute to an increase in GDP in 22 different
states and was the lead contributor overall. Finance and Insurance led real GDP in the Mideast region, while wholesale
trade contributed to growth in 48 states and the District of Columbia.
Personal income plays a vital role in the nation’s economy rose an average of 1.0% throughout the 50 states, bouncing
back from a 1.3% decrease in the first quarter. When thinking about a consumer market of nondurable goods, such as the
fast-food industry, when people’s income is increasing, they typically spend the extra money which in turn helps add
more value and boost particular markets in which are being hurt by a poor economy or recession.
Table 1: Current Economic Standing/Change of U.S. from the Federal Reserve Website
2012 2013
I II III IV I II
Current dollars:
Gross domestic product $51,182 $51,473 $51,996 $52,101 $52,382 $52,690
Gross national product $51,973 $52,297 $52,783 $52,917 $53,134 $53,471
Personal income $43,227 $43,483 $43,557 $44,654 $44,115 $44,480
Disposable personal income $38,560 $38,769 $38,800 $39,727 $38,955 $39,215
Personal consumption expenditures $35,157 $35,355 $35,585 $35,809 $36,048 $36,138
Goods $11,899 $11,907 $12,032 $12,140 $12,202 $12,171
Durable goods $3,779 $3,788 $3,835 $3,905 $3,943 $3,977
Nondurable goods $8,120 $8,119 $8,197 $8,235 $8,258 $8,194
Services $23,258 $23,448 $23,552 $23,668 $23,846 $23,967
Chained (2009) dollars:
Gross domestic product $49,076 $49,139 $49,383 $49,307 $49,368 $49,587
Gross national product $49,773 $49,867 $50,073 $50,021 $50,020 $50,264
Disposable personal income $36,561 $36,661 $36,538 $37,260 $36,438 $36,692
Personal consumption expenditures $33,334 $33,434 $33,510 $33,585 $33,719 $33,813
Goods $11,154 $11,195 $11,275 $11,357 $11,442 $11,510
Durable goods $3,892 $3,913 $3,985 $4,078 $4,129 $4,185
Nondurable goods $7,286 $7,307 $7,321 $7,319 $7,356 $7,374
Services $22,178 $22,236 $22,232 $22,226 $22,274 $22,300
Population (midperiod, thousands) $313,425 $313,960 $314,564 $315,162 $315,671 $316,206
According to the Bureau of Labor Statistics (http://www.bls.gov/eag/eag.us.htm), productivity has increased from -1.7%
in the first quarter of 2013 to an astonishing 2.3% in quarter 2. The unemployment rate in the United States is on a steady
decline and is down .3% since April 2013. In contrast with a declining unemployment rate, hourly average earnings are
on a steady rise from $23.89 to $24.09 as of September 2013.
As you can see, the overall U.S. Economy is beginning to recover from the recent “Great Recession.” With an increase in
Real Gross Domestic Product, Personal Income, and other variables the dramatic increases show the U.S. Economy is
slowly getting back to normalcy. This normalcy may never be the same as it was pre-recession due to the idiocracy in
Washington. The Federal Reserve’s current monetary policy believes that consistently pumping billions of dollars in to
the economy will make people “better off” which in turn just creates higher inflation and a constant change in prices.
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With the debt ceiling debate creeping closer in Washington, the U.S. has the chance to default and lose the credibility in
which we have built up over the years. This decision coming forth can impact the United States economy significantly
and change how the world views us as an economic power. Unless the United States can get a strict consistency between
the Federal Reserve and Washington, this current economic state will struggle to get back to a once “normal” economy.
Global Economic Conditions
With the United States being one of the largest and most important economies in the world, global economies seemingly
mimic the United States. When the United States economy is struggling, the world economy also struggles to an extent.
Currently, Spain is emerging from a rough two year recession, which affected their country similar to how the “Great
Recession” affected the United States’ economy. The recession in Spain left nearly one-in-four workers unemployed,
which killed public finances and industry. After nine consecutive quarters of declining economic output, Spain saw a
change of just .1% which is a climb from rock bottom. Many analysts indicate that even though the economy is taking a
turn for the better, high household debt and unemployment is still unfavorable in the short-run.
Another European country whose economy is currently struggling is Greece. With the Greece debt crisis lasting six
years, a boost in the tourism industry and lower trade deficits is showing promise of climbing out of debt in which
essentially decimated the country. The European Union and International Monetary fund both project a decrease in the
economy by 4.2 per cent this year with a .6 marginal growth per cent in the coming year 2014.
China’s economy has become the world’s second largest economy, meaning it is just as important if not more important
in some instances than the United States economy. During times of recession throughout the world, China’s economy
was booming to an increase in infrastructure efficiency, which drove a growth of 7.8 per cent in the third quarter.
Increasing the amount of money allowed for borrowing and investment by banks and different financial institutions is the
major player in which the economy in China has continued a steady growth pattern. Another contributor to China’s large
growth in the third quarter is looser monetary policy. China believes that their old economic model of large amounts of
exports and heavy investment is becoming obsolete. Leaders in China are currently working to integrate a steady and
consumption-led growth pattern.
The global economy is indirectly affected by how the United States and China’s economy is doing. With the United
States and China being the top two largest economies in the world, when one or both of the economies falter the world
economy as a whole falters. It is soon to be said that China will pass the United States as the world’s largest economy,
and that will be very detrimental to the United States.
Future Outlook for Regions Industry Operates
As previously stated, the outlook for the fast food industry is promising. With a bettering economy and higher average
family incomes, more nondurable goods will seemingly be purchased in the future. Constant growth will be needed for
the particular industry to prosper, but even in tough economic times the fast food industry does not take as big of a hit as
other industries. This outlook for the future is promising for corporations operating within the fast food industry.
Section VI. Analysis of Industry Conditions
The restaurant industry features numerous restaurants, either categorized as fast food or casual dining. The restaurant
industry is extremely competitive, and while a few companies may appear to have a dominant advantage, there are no
companies that stand above and beyond the rest. The key to success in the fast food industry is convenience. By owning
and operating more locations, fast food companies have the opportunity to create a competitive advantage and attract a
higher amount of customers than their competitors. Every restaurant faces competition from at least one, and sometimes
` Blessing 13
many, nearby chains and/or local businesses. Restaurant purchases are viewed as discretionary since cheaper options
(cooking at home, for instance) exist, and therefore the restaurant industry can be viewed as cyclical in growth.
As discussed in the Analysis of Economic Conditions, the current economic outlook is fairly positive. The United
States’ Real Gross Domestic Product has increased at an above-average rate so far this year, along with corporate profits
in general. Although the economy does appear to be trending in a somewhat stable, positive direction, due to the current
U.S. monetary policy it is hard to believe that the economy will reach its pre-recession level of normalcy.
It can be noted that since fast food restaurants tend to offer much cheaper options than casual dining, fast food
restaurants are less sensitive to economic factors and therefore more stable in times of poor economic performance. For
instance, when the economy is in a recession, the general public is more strapped for cash and tends to view fast food
restaurants as more attractive alternatives to casual dining restaurants. The best way for fast food restaurants to survive a
recession is by advertising their value menu. In addition, fast-food restaurants tend to attract customers that otherwise
would have cooked for themselves at home due to the convenience factor of low-cost menu options.
On the other hand, when the economy is doing well and there is more money in the hands of the public, the restaurant
industry tends to see an increase in sales greater than that during normal states and recessions. Since personal income in
the U.S. rose on average of 1.0% over the past quarter, the restaurant industry should expect to see a slight increase in
sales as well.
Obesity is one of the largest issues (no pun intended) in America today, and as childhood obesity becomes more and
more prevalent, the public continues to question who and what can stop this. Congress has passed legislation in recent
years to require fast food restaurants to clearly display nutrition information for their menu items. Fast food restaurants
offered the option to make any meal an extra-large for an upcharge, but due to political and public opposition, the fast
food industry has decided to make a change towards healthier options. There has not been any other recent government
regulations passed that affects the restaurant industry and fast food in general. However, there are some possible industry
risks that may lead to new regulations over the coming years.
The largest risk in the restaurant industry is competition. New fast food restaurants do not break into the market often,
but one thing that can help a new company gain market share is product differentiation. In addition to competition, one
of the biggest risks this industry faces is negative publicity through both traditional and social media. If a customer has a
poor experience at a given restaurant, that customer may post a picture and/or negative review about that restaurant,
which could potentially go viral and damage the restaurant’s reputation.
One current risk that the restaurant industry faces is government regulation concerning the use of “pink slime,” or
processed meat. Pink slime is made by taking beef, and just about everything else that can be taken from a cow, and
grinding it down and processing it into patties that look like 100% beef. Pink slime has been in the recent spotlight, and
it is believed that the majority of fast food restaurants use meats that are made from pink slime. The increased public
awareness of this issue has led many to call for Congress to pass legislation to make pink slime illegal.
Another big risk in the restaurant industry is opening locations in other countries. When a firm is planning to open a
location in a new country, the firm must keep in mind what kind of food the natives eat, what words and phrases will
translate to their language properly, and what the natives’ perception is of the firm. Fast food restaurants in the past have
failed in new countries because their customers simply were not interested in what they had to offer, or because the
chicken sandwich on their menu translates directly to something along the lines of “smelly feet”.
` Blessing 14
Any lawsuits that a firm may face are big risks as well, as litigation expenses can be very costly. Along with the cost of
litigation, the negative publicity that goes along with it can be detrimental. In addition, changes in economic and market
conditions can pose a risk to the restaurant industry, but as noted earlier, the fast food industry is fairly stable in times of
economic hardship.
With all of this information, it is safe to say that the fast food industry will continue to perform at its expected level in
the near future. The U.S. economy is functioning fairly well, and production appears to be growing steadily. Even if we
were to experience a recession in upcoming years, the fast food industry will not have to worry much, as consumers will
turn to fast food for its price and convenience. While firms in the restaurant industry constantly have to worry about
competition, there are not enough new companies emerging with product differentiation to run anyone out of business.
Section VII: Financial Statement Analysis
Comparison Table 2 Comparison of Revenues and Cost of Expenses 2008-2012
In Thousands, Except Per Share
Data 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Revenues
$
1,822,761
$
3,580,835
$
3,416,414
$
2,431,358
$
2,505,242
Total Cost of Expenses
$
2,236,411
$
3,468,859
$
3,284,026
$
2,294,237
$
2,382,495
As you can see, besides 2008, there has been a pretty a pretty stable correlation between revenues and cost of expenses. The direct correlation could be due to the industry in which Wendy's participates in. The more product in which they
sell, the more they must expense due to a fluctuating and price sensitive industry. As you can see through the comparison chart, the gross profit (revenues - expenses) is a little over a $100,000 (in thousands) with a slight consistent growth.
Wendy's operating results were greatly affected by several external factors, including by not limited to, high unemployment, negative economic trends and an increase in price competition. Through 2003-2012 general and administrative expenses, cost of sales, and depreciation and amortization have been stable (See Appendices Common
Size Statement of Operations). The significant increase in revenues from 2009-2010 is due to the Wendy's merger with Wendy's International, Inc. With an increase in revenues, the merger also helped increase the restaurant margin, which
was attributable to labor improvement and controllable costs.
Table 3 Comparison of Cash for 2008-2012
The years 2008-2012 had a significant increase in the holding of cash. During this period, due to the recession and the
low interest rates, major corporations were not penalized for holding cash and trying to keep the company as liquid as
possible. In 2009, Wendy's went through corporate restructuring, entered new service agreements, and issued $565.0
million of senior notes. The senior notes in which were offered take priority over all other debt in which the Wendy's Co.
has incurred. Senior notes are often secured by different forms of collateral and typically covers the assets of the
corporation. The large variation in cash from 2008-2009 can be also linked to the acquisition between Wendy’s and
Arby’s. This merger will directly affect the cash in which the company is holding.
In Thousands, Except Per Share Data 12/28/2008 1/3/2010 1/2/2011 1/1/2012 12/30/2012
Assets:
Cash and Cash Equivalents 90,090$ 591,719$ 198,686$ 475,231$ 453,361$
` Blessing 15
Table 4 Common Stock 2008-2012
In Thousands 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Common Stock Held In
Treasury
$
(15,944)
$
(85,971)
$
(155,000)
$
(395,947)
$
(382,926)
In September of 2009, a merger was completed, significantly an all stock-transaction, in which Wendy's shareholders
received 4.25 shares of Wendy's/Arby's Class A common stock for each share of Wendy's common stock they owned.
Immediately following, each share of Class B common stock was converted into Class A common stock. As you can see
there is a trend, as you progress your common stock held in treasury becomes even more negative. This is a positive sign
because it shows Wendy's is giving their capital back to their shareholders. This also can be portrayed through
shareholders equity, in which is seemingly stable and always positive.
Table 5 Free Cash Flow 2008-2012
12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
NOPAT -$285,005 $77,151 $91,215 $94,476 $84,573
Net Plant, Property, and Equipment $1,265,498
-
$151,124 -$77,395
-
$349,653 $58,138
Net Operating Working Capital $597,207 $723,531 $628,280 $575,877 $449,335
Free Cash Flow
-
$2,147,710
-
$495,256
-
$459,670
-
$131,748
-
$422,900
𝑁𝑂𝑃𝐴𝑇: 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒 × (1 − 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒)
∆𝑁𝑃, 𝑃, 𝐸: 𝑃𝑃𝐸𝑡 − 𝑃𝑃𝐸𝑡−1
∆𝑁𝑂𝑊𝐶: (𝐶𝐴𝑡 − 𝐶𝐿𝑡) − (𝐶𝐴𝑡−1 − 𝐶𝐿 𝑡−1)
𝐹𝐶𝐹: 𝑁𝑂𝑃𝐴𝑇 − 𝑁𝑒𝑡 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 − 𝑁𝑒𝑡 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
The free cash flows from 2009-2012 have been consistently in the upper to lower $400,000. This negative free cash flow
means that the Wendy's Co. will have to raise more cash through issue more debt or selling securities. Wendy’s
Acquisition in 2008 is the significant reason to why their free cash flow is so negative. The acquisition was made during
a rough economic time, and with taking a hit profit wise, the merger increased their debt significantly.
Table 6 Liquidity Ratios 2008-2012
Ratios 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Liquidity
Current 0.76 1.85 1.07 2.18 2.47
Quick 0.71 1.80 1.02 2.15 2.43
Working Capital $ 2,383,291 $ 2,336,339 $ 1,776,630 $ 1,996,069 $ 1,985,855
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜:𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜: (𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠)
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
` Blessing 16
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Throughout the five years of data presented here, Wendy's overall liquidity is sufficient. Having a steady working capital
shows Wendy's operational efficiency will enable them to continue operations for years to come. The quick ratio from
2009-2012 shows a significant increase in Wendy's short-term liquidity. The ability of Wendy's to pay its short-term
obligation is measured by the current ratio, which has a positive increase from 2009-2012 like the quick ratio.
Table 7 Efficiency Ratios 2008-2012
Efficiency 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Profit Margin -26.32% 0.14% -0.13% 0.41% 0.38%
Gross Profit Margin -22.69% 3.13% 3.88% 5.64% 4.90%
𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛: 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛: 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
Profit margin indicates how much a business is making in comparison to the costs it incurs. Profit margins for the Fast-
Food industry vary significantly through different economic times. When raw material costs or labor costs increase, it
can affect profit margins greatly. When looking at the year 2008, you can see a negative gross profit margin due to the
heart of the recent recession. Throughout the heart of the recession, less people were eating at fast-food restaurants
impacting not only Wendy's but the entire industries profit margin. Commodity prices also directly affected the profit
margin. As the United State climbed out of the last recession, profit margins sky rocketed. 2009-2012 show as table
gross profit margin with slight increases which is a good sign for Wendy’s future.
Adjustments
When looking through the financial statements, Blessing Valuations LLC decided to not make any adjustments to the
balance sheet or statement of operations. Overall the Wendy’s Co. was very stable, with the only “blip” being found in
year 2008, which was due not only to the economic recession but also the merger with Arby’s.
Discussion of Assets
Blessing Valuations LLC has noticed a very stable pattern for the amount of assets in which the Wendy’s Co. possesses.
The investments in which Wendy’s has made has significantly increased steadily through the years 2003-2012, which
shows the company has grown and will continue to grow. Wendy’s has also increased the amount of properties greatly,
which in turn shows company strength and growth.
Section VIII: Valuations Approaches and Methods Considered A variety of valuation methods were used to value the Wendy’s Corporation (WEN). These valuation methods described
below are: Discounted Cash Flow Method, Market Multiplies Method, and Liquidation Value Method.
Discounted Cash Flow Method
The Discounted Cash Flow (DCF) Method is used to evaluate the potential of an investment. The DCF analysis is used
by determining the present value of cash flows over the lifespan of the company. A company is expected to have an
` Blessing 17
infinite life. Therefore, a DCF valuation discounts future cash flows by using the weighted average cost of capital
(WACC) to compute the present value of a company.
𝐷𝐶𝐹 = 𝐹𝐶𝐹1/ (1 + 𝑊𝐴𝐶𝐶)1 + 𝐹𝐶𝐹2/(1 + 𝑊𝐴𝐶𝐶)2 + 𝐹𝐶𝐹3/(1 + 𝑊𝐴𝐶𝐶)3. . . + 𝑇𝑉0
The DCF method is comprised of two parts which consist of: the forecast period of the investment and the terminal
value. Free cash flow (FCF) is the expected cash flows a company acquires after the cost of paying for operating costs.
𝐹𝐶𝐹 = 𝑁𝑂𝑃𝐴𝑇 − ∆𝑃𝑃&𝐸 − ∆𝑁𝑂𝑊𝐶
Net Operating Profits (NOPAT) after tax is a company’s after tax profit. Net Property, Plant and Equipment (PP&E) is
the physical capital used to run the company which tends to depreciate as the company gets older. Net Operating
Working Capital (NOWC) is equal to the current operating assets minus current operating liabilities.
The Weighted Average Cost of Capital (WACC) is the cost of a company’s capital structure which consists of common
equity, preferred equity, and long term debt. Each source is weighted by the market value of that source. WACC is used
to find the discount rate in the Discounted Cash Flow Method.
𝑊𝐴𝐶𝐶 = 𝑤𝑑 𝑟𝑑 (1 − 𝑇) + 𝑤𝑒 𝑟𝑒 + 𝑤𝑝𝑠 𝑟𝑝𝑠
The terminal value (TV) is the value of future cash flows taking place after the final year of the projected period in a
Discounted Cash Flow Method. The terminal value is essential to the DCF approach because it accounts for a large
portion of the total cash flow of the company.
𝑇𝑉 = 𝐹𝐶𝐹𝑛 + 1 / (𝑊𝐴𝐶𝐶 − 𝑔)
Market Multiples:
The Market Multiple Valuation Method is used when a company lacks enough financial information. When using this method, one compares the company to several companies of the same caliber that are publicly traded. We do this so we
can see how the market is valuing the companies based on certain benchmarks. The multiples used to compare the companies should be highly correlated with the market, and frequently used by the markets. This approach is simplistic,
but can be deceptive at times. Companies that seem to be very similar could be different. The differences would come in the internal workings of the company or its financial statements. The company you are using to compare may have a different revenue structure or may be more risk averse. It is important to find a company in all aspects. The Market
Multiple approach will be used for Burger King because they recently went public. Multiples used are EBIT, Price to Earnings, Price to Revenue, and Gross Cash Flows.
The EBIT Multiple is defined as: 𝐸𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒 𝑉𝑎𝑙𝑢𝑒
𝐸𝐵𝐼𝑇 It measures a firm’s profitability that takes away the effects of different
tax rates the firms have.
The Price to Earnings Multiple is defined as: 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 It compares the current price per share to the earnings per
share.
The Price to Revenue Multiple is defined as: 𝑆ℎ𝑎𝑟𝑒 𝑃𝑟𝑖𝑐𝑒
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 It values the stock and doesn’t account for any debt or
expenses the company has on its books.
The Gross Cash Flow Multiple is defined as: 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 It gives us an idea on how financially stable the company
will be going forward.
` Blessing 18 Liquidation Value Method:
When using the Liquidation Value Method, one values how much the company could get for its assets if they had to have
a fire sale at any point in time. This Approach is generally used on firms whose operating prospects are unpredictable. Assets sold during a fire sale, are sold at a discount relative to the market price. The prices differ based on the appraiser.
A fire sale can happen for several reasons, the main reasons are usually because a firm is in financial distress, or needs to get rid of damaged products. There are various ways to break down the company, whether it be by regions, divisions, machines, or broad categories, values of the assets will vary by the way they are broken up. Sometimes when using the
liquidation method, some intangible assets are ignored.
The methods discussed above will be utilized to evaluate the Wendy’s Corporation in the following sections.
Section IX: Valuation Approaches and Methods Used
Balance Sheet Adjustments
While analyzing the balance sheet and income statement, Blessing Valuations LLC determined that adjustments were not
needed. While analyzing the balance sheet, there was consistent stability or increases from the years 2003-2012. In 2008,
when the recession hit the economy the hardest, Wendy’s was able to increase their property, plant and equipment and
other intangible assets significantly to help keep their assets significantly higher than what they had previously been in
2007. Even with the significant increase of assets in 2008, Wendy’s was able to keep their assets greater than their
liabilities by over $2 billion as the country’s economy continued to decline. Wendy’s balance sheet showed the strength,
even throughout the recession, to grow at a constant rate. The stability throughout the 10 years of analysis showed no
determining factors in adjusting the balance sheet accordingly.
Identify Work of Other Experts
According to Seeking Alpha Columnist, Delian Naydenov, Wendy’s offers some of the best investing opportunities for
companies within the Fast Food Restaurant Industry. This determination from Naydenov is based off of Wendy’s growth
opportunity and low valuation of its stock. Wendy’s current position of being the smallest of the Fast Food Restaurants
(McDonald’s and Burger King being the largest) gives WEN easier ways to grow and become even more flexible.
According the Naydenov’s article, Wendy’s position in decreasing stores has also been consistently increasing the other
stores sales. The Wendy’s Corporation is a viable investment for those trying to invest in the Fast Food Industry despite
its small size in accordance to YUM!, McDonald’s and Burger King.
Detail of Valuation Method Used
Blessing Valuations LLC determined the best way in which to value The Wendy’s Corporation was to use the discounted
cash flow method. We began by producing a free cash flow statement for the years 2003-2012. A version of the free cash
flow statement can be found in the appendices as table 17.
𝑉𝑜 = 𝐹𝐶𝐹1/ (1 + 𝑊𝐴𝐶𝐶)1 + 𝐹𝐶𝐹2/(1 + 𝑊𝐴𝐶𝐶)2 + 𝐹𝐶𝐹3/(1 + 𝑊𝐴𝐶𝐶)3. . . + 𝑇𝑉0
For the projection of 2013, we found the numbers from the 2013 Wendy’s 10-Q for the first three quarters then used an
average for the fourth quarter. Fourth quarter estimates for changes in property, plant and equipment and net operating
working capital were found by using an arithmetic average in accordance to the standard growth rate. For our forecasted
free cash flow statement, Blessing Valuations LLC determined that Wendy’s will continue to increase revenues by 4%
since it is a mature company. With a 4% growth in revenues, Wendy’s recently has cut down expenses for Selling,
General and Administrative to around a steady 2.5% growth. With these growth rates put in place, the forecasted free
cash flow statement can be found as table 18 within the appendices.
` Blessing 19
Blessing Valuations LLC used an effective tax rate of 31.10% (advfn.com), a rate of debt found on Morningstar of
3.15%, a 20-year risk free treasury rate of 3.50% found on the federal reserve website, a projected market risk premium
of 12.0% similar to that of McDonald’s, and a beta of .67 which was also found on Morningstar.
In determining the cost of equity, Blessing Valuations LLC used the Capital Asset Pricing Model Approach. The cost of
equity was found to be 11.5% by using risk free treasury rate of 3.50%, market risk premium of 12.0% and beta of .67.
Cost of equity was found by multiplying the beta (.67) and market risk premium (12.0%) then adding the risk free
treasury rate (3.50%).
Ex: 11.5% = (12.0% ∗ .67) + 3.50%
To determine the value of debt, we obtained Wendy’s bond information from Morningstar. Wendy’s had one bond which
matured in 2023 in the amount of $175 million. To compute the value of debt we took the $175 million and multiplied it
by the price of $124.1 then divided it by $1000 to get the value into thousands. In determining the value of equity, we
just used Wendy’s market cap ($3.4 billion) which was found on the Morningstar site as well. When adding the value of
equity to the value of debt, we were able to determine Wendy’s value of operations to be, in thousands, $25,117,500.
To obtain a weighted average cost of capital for The Wendy’s Corporation Blessing Valuations LLC used the WACC
formula presented in Section XIII. After computing the WACC, we found that Wendy’s has a relatively low WACC of
3.44%.
Ex: 3.44% = ($21,717,500 ∗ 3.15%) ∗ (1 − 31.10%) + ($3,400,000 ∗ 11.5%)
Table 8: WACC Computation
WACC 3.4%
Vd
$21,717,500
Ve $3,400,000
Wd
0.86
We
0.14
Rd 3.15%
Re 11.5%
Effective Tax Rate 31.10%
Market Cap $3,400,000
Risk Free Rate 3.50%
Market Risk Premium 12.00%
Beta
0.67
Growth Rate 4%
Diluted Avg. Shared
Outstanding
392,140
To determine the current price of Wendy’s stock for the valuation, Blessing Valuations LLC took the value of equity
($3.4 billion) and divided the current diluted outstanding shares (392,140) to obtain a stock price of $8.67.
Ex: $8.67 = 3,400,000,000/ 392,140
` Blessing 20
Blessing Valuations LLC determined to produce a chart to portray the terminal values for the years 2013 and 2016.
These can also be found in the appendices as tables 19 and 20, or shown below. When changing the 2013 rates of equity
by adding or subtracting a percent, we were able to change the WACC by about .14%. With this change in WACC, stock
priced varied from increasing to $9.73 and decreasing to only $8.04. We at Blessing Valuations believe the price will
steadily increase due to our computation of a terminal value starting in 2016. Using the same weighted average costs of
capital, and differences in rates of equity, we were able to determine with a continual increase in the value of operations,
the price of Wendy’s stock will increase to anywhere between $19.30- $26.23. This is rapid growth for a 3 year period,
and will make investors significant amounts of money.
Table 9: Terminal Value Starting 2016
Terminal Value starting 2016
WACC 3.30% 3.44% 3.57%
Value of Operations
$32,003,940
$29,286,866
$25,454,181
Value of Debt $21,717,500 $21,717,500 $21,717,500
Value of Equity $10,286,440 $7,569,366 $3,736,681
Price of Stock $26.23 $19.30 $9.53
weight of debt
0.86
0.86
0.86
weight of equity
0.14
0.14
0.14
rate of debt 3.15% 3.15% 3.15%
rate of equity 10.54% 11.54% 12.54%
beta 0.67 0.67 0.67
As of November 29, 2013 Wendy’s stock closed at the price of $8.61. Blessing Valuations LLC believe that Wendy’s
stock is adequately valued, and can be considered a conservative buy for a bearish investor. For a bullish investor,
Blessing Valuations LLC considers Wendy’s stock to be a strong buy. When looking at the terminal value charts in the
appendices, it is easy to see that in just three years, Wendy’s stock price will be at least doubled if not tripled in price.
This determination can also be helped by the advice of other experts such as Delian Naydenov, who also believe that
Wendy’s has great investment potential.
As previously stated Blessing Valuations LLC valuation method for Wendy’s is for academic exercise only and should
not be used to invest professionally. We at Blessing Valuations LLC will not be held accountable for any
misinterpretation of data which may result in heavy risk and reward opportunities of clients.
Section X: Analysis of Risk There are many factors that could dramatically influence the cash flows, weighted average cost of capital and the
valuation of Wendy’s. When thinking of an overall factor that could be detrimental to corporations, it is certainly the
economy. When the United States and global economies are doing well the fast food industry typically is in a good and
constant growth period. When the United States and global economies are in a recession, such as the recent “Great
Recession,” restaurants in the fast food industry is still turning some profit. With the economy influencing revenues,
during recessions profits are typically lower than average because of the insensitivity of the industry to the economy.
This may not seem like a risk but the current move of Wendy’s to eliminate the “value menu” will hurt them in the long
` Blessing 21
run. People eat fast food because it is cheap, and even though the value menu may turn fewer profits then the regular
meals, the recognition of having a value menu is what brings customers in such as college students and senior citizens.
The elimination of the “value menu” will not only make Wendy’s more sensitive to recessions, but the entire industry.
The sensitive economy around the world will dictate the cash flows for Wendy’s greatly throughout the different types of
economies consumers will face.
The weighted average cost of capital can be affected through many different ways. One way in which it can be affected
is through the issuance of debt. The more debt in which Wendy’s issues will affect the weight of debt and equity in
which help you find the WACC. If we adjusted the weight of debt by lowering it with keeping everything consistent, the
weighted average cost of capital significantly increases. Any sort of change in the market risk premium, beta, growth
rates or weights of equity and debt will either increase or decrease the weighted average cost of capital that Wendy’s
incurs. When the weighted average cost of capital is changed, the higher it goes the more the company’s stock price
decreases and vice versa when the WACC is lessened.
With even a slight change in the cash flows and weighted average cost of capital, the entire valuatio n will be changed
dramatically. The higher the WAC means the less potential investors are looking to invest in a given company. With
Wendy’s having such a low WACC gives investors the assurance that Blessing Valuations LLC, in accordance to other
works of experts, has performed the duty of producing a thorough valuation that includes evident potential risks.
Section XI: Consideration of Applicable Discounts or Premiums
After calculating the new price per share through the discounted cash flow model to be $8.67, this is very close to the
most recent closing price of $8.61. With this valuation, it should be noted that the weighted average cost of capital for
Wendy’s should not be adjusted because of the size of the corporation, the industry in which it operates, or minority
ownership.
Section XII: Non-operating and Excess Assets Blessing Valuations has determined that no earning assets need to be removed from the valuation of The Wendy’s
Corporation. Everything from Wendy’s financial statements indicates that the stability of assets does not need to be
changed or reconciled.
With not removing any earning assets, everything found within this valuation can be directly correlated to the annual
Wendy’s 10-k report filed with the Securities and Exchange Commission.
Section XIII: Conclusion and Reconciliation
From the calculation that found the new price per share of Wendy’s stock to be $8.67, you can see a marginal 1% change
in cost of equity ranges the stock price from a small decrease to $8.04 to a large increase in value making the stock
priced at $9.73. This can be show that Wendy’s current stock price is adequately valued, and would give the typical
investor a reason to buy at this point in time. When taking a look at a forecasted 2016 terminal value (table 22 in
appendices) the stock price will increase significantly in only three years.
` Blessing 22 Table 10: Terminal Value 2013
Terminal Value starting 2013
WACC 3.30% 3.44% 3.57%
Value of Operations $25,533,454
$25,117,500
$24,869,650
Value of Debt $21,717,500 $21,717,500 $21,717,500
Value of Equity $3,815,954 $3,400,000 $3,152,150
Price of Stock $9.73 $8.67 $8.04
weight of debt
0.86
0.86
0.86
weight of equity
0.14
0.14
0.14
rate of debt 3.15% 3.15% 3.15%
rate of equity 10.54% 11.54% 12.54%
beta 0.67 0.67 0.67
The information provided through the financial analysis and method of discounted cash flows gives Blessing Valuations
LLC the implication that with Wendy’s constant growth and good financial statements it is a good purchase for any
investor.
Blessing 23
Section XIV: Appendices Table 11: Consolidated Balance Sheet: Assets
In Thousands 12/28/2003 1/2/2005 1/1/2006 12/31/2006 12/30/2007 12/28/2008 1/3/2010 1/2/2011 1/1/2012 12/30/2012
Assets:
Cash and Cash Equivalents
$560,510
$367,992
$202,840
$148,152
$78,116
$90,090
$591,719
$198,686
$475,231
$453,361
Restricted Cash Equivalents
7,267
16,272
344,060
9,059
-
20,792
1,114
-
-
-
Accounts and Notes Receivable
13,070
64,331
47,919
43,422
27,610
97,258
88,004
83,352
68,349
61,164
Short-Term Investment
173,127
198,218
556,492
8,168
-
-
-
-
-
-
Other Short- Term Investment
-
-
214,827
113,950
-
-
-
-
-
-
Investment Settlement Receivable
-
-
236,060
16,599
-
-
-
-
-
-
Inventories
2,416
2,222
11,101
10,019
11,067
24,646
23,024
22,694
12,903
13,805
Prepaid Expenses/Other Current
Assets
5,308
6,111
20,281
23,987
28,540
28,990
28,098
24,032
27,397
24,231
Deferred Income Tax Benefit
11,284
14,620
21,706
18,414
24,921
37,923
66,557
45,067
80,970
91,489
Advertising Funds
-
-
-
-
-
81,139
80,476
76,553
70,547
65,777
Total Current Assets
772,982
669,766
1,655,286
391,770
170,254
380,838
878,992
450,384
735,397
709,827
Properties
106,231
103,434
443,857
488,484
504,874
1,770,372
1,619,248
1,541,853
1,192,200
1,250,338
Goodwill
64,153
118,264
518,328
521,055
468,778
853,775
881,019
1,358,574
870,431
876,201
Other Intangible Assets
8,115
38,896
75,696
70,923
45,318
1,411,473
1,392,883
888,921
1,304,288
1,301,537
Investments
37,363
82,214
85,086
60,197
141,909
133,052
107,020
102,406
119,271
113,283
Restricted Cash Equivalents
32,467
32,886
-
-
45,295
34,032
6,242
-
-
-
Notes Recievable
-
-
-
-
46,429
34,608
39,295
12,612
-
-
Deffered Income Tax Benefit
-
-
-
-
4,050
-
-
-
-
-
Deffered Costs and Other Assets
21,654
21,513
31,236
28,020
27,660
27,470
50,717
61,947
67,542
52,013
Total Assets
$1,042,965
$1,066,973
$2,809,489
$1,560,449
$1,454,567
$4,645,620
$4,975,416
$4,416,697
$4,289,129
$4,303,199
Blessing 24 Table 12: Consolidated Balance Sheet: Liabilities
In Thousands 12/28/2003 1/2/2005 1/1/2006 12/31/2006 12/30/2007 12/28/2008 1/3/2010 1/2/2011 1/1/2012 12/30/2012
Liabilities
Current Portion of LT Debt
$35,637
$37,214
$19,049
$18,118
$27,802
$30,426
$22,127
$17,047
$6,597
$12,911
Notes Payable
-
15,334
8,036
4,564
-
-
-
-
-
-
Accounts Payable
16,314
22,912
64,450
48,595
54,297
139,340
103,454
81,148
81,301
70,826
Accrued Expenses.
86,307
116,550
152,580
149,873
117,785
247,334
269,090
244,300
178,298
137,348
Advertising Funds
-
-
-
-
-
81,139
80,476
76,553
70,547
65,777
Investment Settlement Payable
-
-
124,199
12
-
-
-
-
-
-
Securities Sold
-
-
522,931
-
-
-
-
-
-
-
Liabilities to ST Position
-
-
457,165
160
-
-
-
-
-
-
Liabilities Related to Disc. Ops
24,004
13,834
10,449
9,254
7,279
4,250
-
-
-
-
Total Current Liabilities
162,262
205,844
1,358,859
230,576
207,163
502,489
475,147
419,048
336,743
286,862
Long-Term Debt
483,280
446,479
894,527
701,916
711,531
1,081,151
1,500,784
1,542,684
1,350,402
1,444,651
Due to Wendy's/Arbys
-
-
-
-
-
-
-
30,808
-
-
Deferred Compensation
Payable
29,299
32,941
33,959
35,679
-
-
-
-
-
-
Deferred Income
-
-
5,415
11,563
10,861
16,859
13,195
11,460
-
-
Deferred Income Taxes
26,130
20,002
9,423
13,748
-
475,243
475,538
478,472
458,107
438,217
Minority Interest
599
10,688
43,426
14,225
-
-
-
-
-
-
Other Liabilities
53,789
47,880
68,310
78,100
76,138
186,587
174,413
157,595
147,808
147,614
Total Liabilities
$755,359
$763,834
$2,413,919
$1,085,807
$1,005,693
$2,262,329
$2,639,077
$2,640,067
$2,293,060
$2,317,344
` Blessing 25 Table 13: Consolidated Balance Sheet- Stockholder's Equity
Stockholder's Equity 12/28/2003 1/2/2005 1/1/2006 12/31/2006 12/30/2007 12/28/2008 1/3/2010 1/2/2011 1/1/2012 12/30/2012
In Thousands
Common Stock $.10 Par Value
$ -
$ -
$ -
$ -
$ -
$ -
$47,042
$ -
$47,052
$47,042
Class A Common Stock $.10
2,955
2,955
2,955
2,955
2,955
47,042
-
-
-
-
Class B Common Stock $.10
5,910
5,910
5,910
6,366
6,402
-
-
-
-
-
Member Interest, $.01
-
-
-
-
-
-
-
-
-
-
Additional Paid-In Capital
129,572
128,096
264,770
311,609
291,122
2,752,987
2,761,433
2,423,459
2,779,871
2,782,765
Retained Earnings
341,642
337,415
259,285
182,555
-
-
-
-
-
-
Accumulated Deficit
-
-
-
-
167,267
(357,541)
(380,480)
(499,500)
(434,999)
(467,007)
Common Stock - In Treasury
(203,168)
(227,822)
(130,179)
(43,695)
(16,774)
(15,944)
(85,971)
(155,000)
(395,947)
(382,926)
Unearned Compensation
-
(1,350)
(12,103)
-
-
-
-
-
-
-
Notes Recievable
-
-
(519)
-
-
-
-
-
-
-
Deferred Comp.
10,160
54,457
-
-
-
-
-
-
-
-
Other Comprehensive Inc.
535
3,478
5,451
14,852
(2,098)
(43,253)
(5,685)
7,671
102
5,981
Total Stocholder's Equity
287,606
303,139
395,570
474,642
448,874
2,383,291
2,336,339
1,776,630
1,996,079
1,985,855
Total Liabilities and S.E.
$1,042,965
$1,066,973
$2,809,489
$1,560,449
$1,454,567
$4,645,620
$4,975,416
$4,416,697
$4,289,139
$4,303,199
` Blessing 26 Table 14: Consolidated Statement of Operations
In Thousands 12/28/2003 1/2/2005 1/1/2006 12/31/2006 12/30/2007 12/28/2008 1/3/2010 1/2/2011 1/1/2012 12/30/2012
Revenues
Net Sales
$201,484
$205,590
$570,846
$1,073,271
$1,113,436
$1,662,291
$3,198,348
$3,045,317
$2,126,544
$2,198,323
Royalties and Franchise
92,136
100,928
91,163
82,001
86,981
160,470
382,487
371,097
304,814
306,919
Asset Management
-
22,061
65,325
88,006
63,300
-
-
-
-
-
Revenues
293,620
328,579
727,334
1,243,278
1,263,717
1,822,761
3,580,835
3,416,414
2,431,358
2,505,242
Cost and Expenses
Cost of Sales
151,612
162,597
417,975
857,211
894,450
1,415,534
2,728,484
2,610,761
1,816,109
1,881,248
Cost of Services
-
7,794
24,816
35,277
25,183
-
-
-
-
-
Advertising and Selling
16,115
16,587
43,472
-
-
-
-
-
-
-
General and Admin.,
91,043
118,582
205,797
235,776
205,375
248,718
452,713
416,606
292,390
287,808
Depr. And Amort
14,051
20,285
36,670
66,227
66,277
88,315
190,251
182,172
122,992
146,976
Goodwill Impairment
22,000
-
-
-
-
460,075
-
-
-
-
Impairment of other Long-Lived Assets
-
-
-
-
7,045
19,203
82,132
69,477
12,883
21,097
Facilities Relocation and Restructure
-
-
13,508
3,273
85,417
3,913
11,024
-
45,711
41,031
Gain on Sale Consolidated Business
-
-
-
-
(40,193)
-
-
-
-
-
Loss on Settlement/Other Op. Exp, Net
-
-
17,170
887
263
653
4,255
5,010
4,152
4,335
Total Cost of Expenses
294,821
325,845
759,408
1,198,651
1,243,817
2,236,411
3,468,859
3,284,026
2,294,237
2,382,495
Gross Profit
(1,201)
2,734
(32,074)
44,627
19,900
(413,650)
111,976
132,388
137,121
122,747
Interest Expense
(37,225)
(34,171)
(68,789)
(114,088)
(61,331)
(67,009)
(126,708)
(137,229)
(114,110)
(98,604)
Insurance Exp. Related to L-T Debt
(4,177)
(3,874)
(2,294)
-
-
-
-
-
-
-
Loss on Early Extinguishment of Debt
-
-
(35,809)
(14,082)
-
3,656
-
(26,197)
-
(75,076)
Investment Income, Net
17,251
21,662
55,336
84,318
62,110
9,438
(3,008)
5,261
484
36,243
Gain (costs) related to Acquisitions
` Blessing 27
2,064 (793) - - - - - - - -
Gain/Loss on Sale of Business
5,834
154
13,068
-
-
-
-
-
-
-
Other Than Temp. Loss on Investment
-
-
-
(4,120)
(9,909)
(112,741)
(3,916)
-
-
-
Other Income, Net
2,881
1,199
3,879
8,677
(1,356)
(606)
1,523
3,782
945
1,565
Loss Before Continuing Operations
(14,573)
(13,089)
(66,683)
5,332
9,414
(580,912)
(20,133)
(21,995)
24,440
(13,125)
Benefit From Income Tax
1,371
17,483
16,533
(4,612)
8,354
99,294
23,649
17,670
(6,528)
21,083
Minority Interest of Consolidated
Subsidaries
119
(2,917)
(8,762)
(11,523)
(2,682)
(340)
-
-
-
-
Income (Loss) From Continuing Ops.
(13,083)
1,477
(58,912)
(10,803)
15,086
(481,958)
3,516
(4,325)
17,912
7,958
Gain on Disposal of Disc. Operations
2,245
12,464
3,285
(129)
995
2,217
1,546
-
(8,037)
1,509
Net Income (Loss)
(10,838)
13,941
(55,627)
(10,932)
16,081
(479,741)
5,062
(4,325)
9,875
9,467
Net Income: Non-Controlling Interests
-
-
-
-
-
-
-
-
-
(2,384)
Net Income Attributable to Wendy's
Co.
$(10,838)
$13,941
$(55,627)
$(10,932)
$16,081
$(479,741)
$5,062
$(4,325)
$9,875
$7,083
` Blessing 28 Table 15 Common Size Balance Sheet: Assets
In Thousands, Except Per Share Data 12/28/03 01/02/05 01/01/06 12/31/06 12/30/07 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Assets:
Cash and Cash Equivalents 53.74% 34.49% 7.22% 9.49% 5.37% 1.94% 11.89% 4.50% 11.08% 10.54%
Restricted Cash Equivalents 0.70% 1.53% 12.25% 0.58% 0.00% 0.45% 0.02% 0.00% 0.00% 0.00%
Accounts and Notes Receivable 1.25% 6.03% 1.71% 2.78% 1.90% 2.09% 1.77% 1.89% 1.59% 1.42%
Short-Term Investment 16.60% 18.58% 19.81% 0.52% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Short- Term Investment 0.00% 0.00% 7.65% 7.30% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Investment Settlement Receivable 0.00% 0.00% 8.40% 1.06% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Inventories 0.23% 0.21% 0.40% 0.64% 0.76% 0.53% 0.46% 0.51% 0.30% 0.32%
Prepaid Expenses/ Other Current Assets 0.51% 0.57% 0.72% 1.54% 1.96% 0.62% 0.56% 0.54% 0.64% 0.56%
Deferred Income Tax Benefit 1.08% 1.37% 0.77% 1.18% 1.71% 0.82% 1.34% 1.02% 1.89% 2.13%
Advertising Funds Restricted Assets 0.00% 0.00% 0.00% 0.00% 0.00% 1.75% 1.62% 1.73% 1.64% 1.53%
Properties 10.19% 9.69% 15.80% 31.30% 34.71% 38.11% 32.54% 34.91% 27.80% 29.06%
Goodwill 6.15% 11.08% 18.45% 33.39% 32.23% 18.38% 17.71% 30.76% 20.29% 20.36%
Other Intangible Assets 0.78% 3.65% 2.69% 4.55% 3.12% 30.38% 28.00% 20.13% 30.41% 30.25%
Investments 3.58% 7.71% 3.03% 3.86% 9.76% 2.86% 2.15% 2.32% 2.78% 2.63%
Restricted Cash Equivalents 3.11% 3.08% 0.00% 0.00% 3.11% 0.73% 0.13% 0.00% 0.00% 0.00%
Notes Receivable 0.00% 0.00% 0.00% 0.00% 3.19% 0.74% 0.79% 0.29% 0.00% 0.00%
Deferred Income Tax Benefit 0.00% 0.00% 0.00% 0.00% 0.28% 0.00% 0.00% 0.00% 0.00% 0.00%
Deferred Costs and Other Assets 2.08% 2.02% 1.11% 1.80% 1.90% 0.59% 1.02% 1.40% 1.57% 1.21%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
` Blessing 29 Table 16 Common Size Balance Sheet: Liabilities/ Stockholders Equity
Liabilities 12/28/03 01/02/05 01/01/06 12/31/06 12/30/07 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Current Portion of Long-Term Debt 3.42% 3.49% 0.68% 1.16% 1.91% 0.65% 0.44% 0.39% 0.15% 0.30%
Notes Payable 0.00% 1.44% 0.29% 0.29% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Accounts Payable 1.56% 2.15% 2.29% 3.11% 3.73% 3.00% 2.08% 1.84% 1.90% 1.65%
Accrued Expenses and Other Current Liab. 8.28% 10.92% 5.43% 9.60% 8.10% 5.32% 5.41% 5.53% 4.16% 3.19%
Advertising Funds Restricted Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 1.75% 1.62% 1.73% 1.64% 1.53%
Investment Settlement Payable 0.00% 0.00% 4.42% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Securities Sold Under Agreements 0.00% 0.00% 18.61% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Liabilities to Short Term Position 0.00% 0.00% 16.27% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Liabilities Related to Disc. Operations 2.30% 1.30% 0.37% 0.59% 0.50% 0.09% 0.00% 0.00% 0.00% 0.00%
Total Current Liabilities 15.56% 19.29% 48.37% 14.78% 14.24% 10.82% 9.55% 9.49% 7.85% 6.67%
Long-Term Debt 46.34% 41.85% 31.84% 44.98% 48.92% 23.27% 30.16% 34.93% 31.48% 33.57%
Due to Wendy's/Arby’s 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.70% 0.00% 0.00%
Deferred Compensation Payable 2.81% 3.09% 1.21% 2.29% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Deferred Income 0.00% 0.00% 0.19% 0.74% 0.75% 0.36% 0.27% 0.26% 0.00% 0.00%
Deferred Income Taxes 2.51% 1.87% 0.34% 0.88% 0.00% 10.23% 9.56% 10.83% 10.68% 10.18%
Minority Interest 0.06% 1.00% 1.55% 0.91% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Liabilities 5.16% 4.49% 2.43% 5.00% 5.23% 4.02% 3.51% 3.57% 3.45% 3.43%
Total Liabilities 72.42% 71.59% 85.92% 69.58% 69.14% 48.70% 53.04% 59.77% 53.46% 53.85%
Stockholder's Equity
Common Stock $.10 Par Value 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.95% 0.00% 1.10% 1.09%
Class A Common Stock $.10 Par Value 0.28% 0.28% 0.11% 0.19% 0.20% 1.01% 0.00% 0.00% 0.00% 0.00%
Class B Common Stock $.10 Par Value 0.57% 0.55% 0.21% 0.41% 0.44% 0.00% 0.00% 0.00% 0.00% 0.00%
Member Interest, $.01 Par Value 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Additional Paid-In Capital 12.42% 12.01% 9.42% 19.97% 20.01% 59.26% 55.50% 54.87% 64.81% 64.67%
Retained Earnings 32.76% 31.62% 9.23% 11.70% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Accumulated Deficit 0.00% 0.00% 0.00% 0.00% 11.50% -7.70% -7.65% -11.31% -10.14% -10.85%
Common Stock Held In Treasury -19.48% -21.35% -4.63% -2.80% -1.15% -0.34% -1.73% -3.51% -9.23% -8.90%
Unearned Compensation 0.00% -0.13% -0.43% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Notes Receivable from Non-Exec Officers 0.00% 0.00% -0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Deferred Compensation (Common Stock) 0.97% 5.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Accumulated Other Comprehensive Inc. 0.05% 0.33% 0.19% 0.95% -0.14% -0.93% -0.11% 0.17% 0.00% 0.14%
Total Stockholder’s Equity 27.58% 28.41% 14.08% 30.42% 30.86% 51.30% 46.96% 40.23% 46.54% 46.15%
Total Liabilities and S.E. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
` Blessing 30
Table 17 Common Size Statement of Operations
In Thousands, Except Per Share Data 12/28/03 01/02/05 01/01/06 12/31/06 12/30/07 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Revenues
Net Sales 68.6% 62.6% 78.5% 86.3% 88.1% 91.2% 89.3% 89.1% 87.5% 87.7%
Royalties and Franchise 31.4% 30.7% 12.5% 6.6% 6.9% 8.8% 10.7% 10.9% 12.5% 12.3%
Asset Management 0.0% 6.7% 9.0% 7.1% 5.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost and Expenses
Cost of Sales, excl. Deprecation and Amort. 51.6% 49.5% 57.5% 68.9% 70.8% 77.7% 76.2% 76.4% 74.7% 75.1%
Cost of Services, exlc. Depr. And Amort. 0.0% 2.4% 3.4% 2.8% 2.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Advertising and Selling 5.5% 5.0% 6.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
General and Admin., exlc. Depr. And Amort. 31.0% 36.1% 28.3% 19.0% 16.3% 13.6% 12.6% 12.2% 12.0% 11.5%
Depr. And Amort 4.8% 6.2% 5.0% 5.3% 5.2% 4.8% 5.3% 5.3% 5.1% 5.9%
Goodwill Impairment 7.5% 0.0% 0.0% 0.0% 0.0% 25.2% 0.0% 0.0% 0.0% 0.0%
Impairment of other Long-Lived Assets 0.0% 0.0% 0.0% 0.0% 0.6% 1.1% 2.3% 2.0% 0.5% 0.8%
Facilities Relocation and Restructure 0.0% 0.0% 1.9% 0.3% 6.8% 0.2% 0.3% 0.0% 1.9% 1.6%
Gain on Sale Consolidated Business 0.0% 0.0% 0.0% 0.0% -3.2% 0.0% 0.0% 0.0% 0.0% 0.0%
Loss on Settlement/Other Op. Exp, Net 0.0% 0.0% 2.4% 0.1% 0.0% 0.0% 0.1% 0.1% 0.2% 0.2%
Total Cost of Expenses 100.4% 99.2% 104.4% 96.4% 98.4% 122.7% 96.9% 96.1% 94.4% 95.1%
Gross Profit -0.4% 0.8% -4.4% 3.6% 1.6% -22.7% 3.1% 3.9% 5.6% 4.9%
Interest Expense -12.7% -10.4% -9.5% -9.2% -4.9% -3.7% -3.5% -4.0% -4.7% -3.9%
Insurance Exp. Related to L-T Debt -1.4% -1.2% -0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Loss on Early Extinguishment of Debt 0.0% 0.0% -4.9% -1.1% 0.0% 0.2% 0.0% -0.8% 0.0% -3.0%
Investment Income, Net 5.9% 6.6% 7.6% 6.8% 4.9% 0.5% -0.1% 0.2% 0.0% 1.4%
Gain (costs) related to Acquisitions 0.7% -0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Gain/Loss on Sale of Business 2.0% 0.0% 1.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Other Than Temp. Loss on Investment 0.0% 0.0% 0.0% -0.3% -0.8% -6.2% -0.1% 0.0% 0.0% 0.0%
Other Income, Net 1.0% 0.4% 0.5% 0.7% -0.1% 0.0% 0.0% 0.1% 0.0% 0.1%
Loss Before Continuing Operations -5.0% -4.0% -9.2% 0.4% 0.7% -31.9% -0.6% -0.6% 1.0% -0.5%
Benefit From Income Tax 0.5% 5.3% 2.3% -0.4% 0.7% 5.4% 0.7% 0.5% -0.3% 0.8%
Minority Interest of Consolidated Subsidiaries 0.0% -0.9% -1.2% -0.9% -0.2% 0.0% 0.0% 0.0% 0.0% 0.0%
Income (Loss) From Continuing Operations -4.5% 0.4% -8.1% -0.9% 1.2% -26.4% 0.1% -0.1% 0.7% 0.3%
Gain on Disposal of Disc. Operations 0.8% 3.8% 0.5% 0.0% 0.1% 0.1% 0.0% 0.0% -0.3% 0.1%
Net Income (Loss) -3.7% 4.2% -7.6% -0.9% 1.3% -26.3% 0.1% -0.1% 0.4% 0.4%
Net Income to Non-Controlling Interests 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.1%
Net Income Attributable to Wendy's Co. -3.7% 4.2% -7.6% -0.9% 1.3% -26.3% 0.1% -0.1% 0.4% 0.3%
` Blessing 31 Table 18 Growth
Growth 12/28/03 01/02/05 01/01/06 12/31/06 12/30/07 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Revenues 197.3% 11.9% 121.4% 70.9% 1.6% 44.2% 96.5% -4.6% -28.8% 3.0%
Total Cost of Expenses 155.5% 10.5% 133.1% 57.9% 3.7% 79.8% 55.1% -5.3% -30.1% 3.8%
Gross Profit -87.7% -327.6% -1273.2% -237.2% -54.8% -2178.6% -127.1% 18.2% 3.6% -10.5%
Net Income -907.0% -228.6% -499.0% -79.6% -241.9% -3083.3% -101.1% -185.4% -328.3% -4.1%
` Blessing 32 Table 19 Ratios
Ratios 12/28/03 01/02/05 01/01/06 12/31/06 12/30/07 12/28/08 01/03/10 01/02/11 01/01/12 12/30/12
Liquidity
Current 4.76 3.25 1.22 1.70 0.82 0.76 1.85 1.07 2.18 2.47
Quick 4.75 3.24 1.21 1.66 0.77 0.71 1.80 1.02 2.15 2.43
Working Capital
$
287,606
$
303,139
$
395,570
$
474,642
$
448,874
$
2,383,291
$
2,336,339
$
1,776,630
$
1,996,069
$
1,985,855
Efficiency
Profit Margin -3.69% 4.24% -7.65% -0.91% 1.27% -26.32% 0.14% -0.13% 0.41% 0.38%
Gross Profit Margin -0.41% 0.83% -4.41% 3.54% 1.57% -22.69% 3.13% 3.88% 5.64% 4.90%
Net Profit Margin -3.69% 4.24% -7.65% -0.91% 1.27% -26.32% 0.14% -0.13% 0.41% 0.38%
Effectiveness
Total Asset Turnover 0.10 0.10 0.20 0.34 0.31 0.40 0.80 0.79 0.57 0.58
Return on Assets -1.04% 1.31% -1.98% -0.73% 1.11% -10.33% 0.10% -0.10% 0.23% 0.22%
Inventory Turnover 83.40 92.52 51.42 107.12 100.61 67.45 138.91 134.19 164.81 159.24
Profitability
Return on Equity -3.77% 4.60% -14.06% -2.39% 3.58% -20.13% 0.22% -0.24% 0.49% 0.48%
Risk
Leverage 2.69 2.21 4.18 0.83 0.38 0.16 0.38 0.25 0.37 0.36
Debt Ratio 0.72 0.72 0.86 0.70 0.69 0.49 0.53 0.60 0.53 0.54
Long-Term Debt/Equity 2.63 2.52 6.10 2.29 2.24 0.95 1.13 1.49 1.15 1.17
DuPont
Return on Equity -3.77% 4.60% -14.06% -2.39% 3.58% -20.13% 0.22% -0.24% 0.49% 0.48%
Profit Margin -3.69% 4.24% -7.65% -0.91% 1.27% -26.32% 0.14% -0.13% 0.41% 0.38%
Total Asset Turnover 0.10 0.10 0.20 0.34 0.31 0.40 0.80 0.79 0.57 0.58
Leverage 2.69 2.21 4.18 0.83 0.38 0.16 0.38 0.25 0.37 0.36
` Blessing 33 Table 20: Free Cash Flows 2003-2013
Free Cash Flow 12/28/2003 1/2/2005 1/1/2006 12/31/2006 12/30/2007 12/28/2008 1/3/2010 1/2/2011 1/1/2012 12/30/2012 12/29/2013
Revenues $293,620 $328,579 $727,334 $1,243,278 $1,263,717 $1,822,761 $3,580,835 $3,416,414 $2,431,358 $2,505,242 $2,526,733
Cost of Sales $151,612 $162,597 $417,975 $857,211 $894,450 $1,415,534 $2,728,484 $2,610,761 $1,816,109 $1,881,248 $1,871,133
Cost of Services $0 $7,794 $24,816 $35,277 $25,183 $0 $0 $0 $0 $0 $0
Advertising and Selling $16,115 $16,587 $43,472 $0 $0 $0 $0 $0 $0 $0 $0
SG&A $91,043 $118,582 $205,797 $235,776 $205,375 $248,718 $452,713 $416,606 $292,390 $287,808 $288,800
Depr. And Amort $14,051 $20,285 $36,670 $66,227 $66,277 $88,315 $190,251 $182,172 $122,992 $146,976 $179,773
Goodwill Impairment $22,000 $0 $0 $0 $0 $460,075 $0 $0 $0 $0 $0
Impair. Long-Lived Assets $0 $0 $0 $0 $7,045 $19,203 $82,132 $69,477 $12,883 $21,097 $7,107
Facility Reloc. And
Restruc $0 $0 $13,508 $3,273 $85,417 $3,913 $11,024 $0 $45,711 $41,031 $42,333
Gain on Sale $0 $0 $0 $0 -$40,193 $0 $0 $0 $0 $0 $0
Loss on Settlement $0 $0 $17,170 $887 $263 $653 $4,255 $5,010 $4,152 $4,335 -$4,057
Total Cost of Expenses $294,821 $325,845 $759,408 $1,198,651 $1,243,817 $2,236,411 $3,468,859 $3,284,026 $2,294,237 $2,382,495 $2,385,089
Operating Income -$1,201 $2,734 -$32,074 $44,627 $19,900 -$413,650 $111,976 $132,388 $137,121 $122,747 $141,644
NOPAT -$827 $1,884 -$22,099 $30,748 $13,711 -$285,005 $77,151 $91,215 $94,476 $84,573 $97,593
-$8,993 -$2,797 $340,423 $44,627 $16,390 $1,265,498 -$151,124 -$77,395 -$349,653 $58,138 -$145,758
$188,174 $224,438 $313,952 $373,166 $320,926 $597,207 $723,531 $628,280 $575,877 $449,335 $512,606
Free Cash Flows -$180,008 -$219,757 -$676,474 -$387,045 -$323,605 -$2,147,710 -$495,256 -$459,670 -$131,748 -$422,900 -$269,256
` Blessing 34 Table 21: Forecasted Free Cash Flows: 2014-2019
Free Cash Flow 12/28/2014 1/3/2015 1/1/2016 12/31/2017 12/30/2018 12/29/2019
Revenues $2,627,803 $2,732,915 $2,842,231 $2,955,921 $3,074,157 $3,197,124
Cost of Sales $1,908,556 $1,946,727 $1,985,662 $2,025,375 $2,065,882 $2,107,200
Cost of Services $0 $0 $0 $0 $0 $0
Advertising and Selling $0 $0 $0 $0 $0 $0
SG&A $297,464 $306,388 $315,580 $325,047 $334,798 $344,842
Depr. And Amort $184,268 $188,874 $193,596 $198,436 $203,397 $208,482
Goodwill Impairment $0 $0 $0 $0 $0 $0
Impair. Long-Lived Assets $7,320 $7,539 $7,766 $7,999 $8,239 $8,486
Facility Reloc. And Restruc $43,603 $44,911 $46,259 $47,647 $49,076 $50,548
Gain on Sale $0 $0 $0 $0 $0 $0
Loss on Settlement -$4,179 -$4,304 -$4,434 -$4,567 -$4,704 -$4,845
Total Cost of Expenses $2,437,032 $2,490,136 $2,544,428 $2,599,937 $2,656,689 $2,714,714
Operating Income $190,771 $242,779 $297,803 $355,984 $417,469 $482,410
NOPAT $131,441 $167,275 $205,186 $245,273 $287,636 $332,381
-$43,810 -$94,784 -$69,297 -$82,040 -$75,668 -$78,854
$480,971 $496,788 $488,879 $492,834 $490,857 $491,845
Free Cash Flows -$305,720 -$234,730 -$214,396 -$165,521 -$127,552 -$80,610
` Blessing 35 Table 22: Terminal Value Starting 2013
Terminal Value starting 2013
WACC 3.30% 3.44% 3.57%
Value of Operations
$29,579,095
$25,117,500
$24,869,650
Value of Debt $21,717,500 $21,717,500 $21,717,500
Value of Equity $7,861,595 $3,400,000 $3,152,150
Price of Stock $20.05 $8.67 $8.04
weight of debt
0.86
0.86
0.86
weight of equity
0.14
0.14
0.14
rate of debt 3.15% 3.15% 3.15%
rate of equity 10.54% 11.54% 12.54%
beta 0.67 0.67 0.67
Table 23: Terminal Value Starting 2016
Terminal Value starting 2016
WACC 3.30% 3.44% 3.57%
Value of Operations
$32,003,940
$29,286,866
$25,454,181
Value of Debt $21,717,500 $21,717,500 $21,717,500
Value of Equity $10,286,440 $7,569,366 $3,736,681
Price of Stock $26.23 $19.30 $9.53
weight of debt
0.86
0.86
0.86
weight of equity
0.14
0.14
0.14
rate of debt 3.15% 3.15% 3.15%
rate of equity 10.54% 11.54% 12.54%
beta 0.67 0.67 0.67
` Blessing 36 Table 24: WACC Computation
WACC 3.4%
Vd
$
21,717,500
Ve $3,400,000
Wd
0.86
We
0.14
Rd 3.15%
Re 11.5%
Effective Tax Rate 31.10%
Market Cap $3,400,000
Risk Free Rate 3.50%
Market Risk Premium 12.00%
Beta
0.67
Growth Rate 4%
Diluted Avg. Shared
Outstanding
392,140
Blessing 37
Section XV: Valuation Representation or Certification and Signature of the Analyst (C.V.) Permanent Address: Campus Address:
4 White Oak Drive 2113 University Avenue
Batesville, Indiana 47006 Morgantown, WV
[email protected] (812) 212-2817
EMPLOYMENT HISTORY Present Lockouts by Blessing, Morgantown, WV; Business Partner & Lockout Professional
Start-up Business by my partner, Brandon Blessing, in response to the police in my area not being able to perform the common car or house lockout.
Responsible for the financial aspects of the business while working with legal documents Take part in the actual lockout service when my partner is unavailable
Summer 2013 Hill-Rom, Batesville, IN; Financial Analyst – Summer Intern
Provided financial support for the Global Supply Chain and Product Development and North American Acute Care leadership team and other staff
Identified and communicated key business drivers and trends
Offered recommendations of appropriate actions to maximize operational and financial performances.
Summer 2012 West Virginia University, Morgantown, WV; New Student Orientation Leader
Assisted as orientation leader for the largest incoming freshman class in WVU’s history
Served as the first student contact for orientation participants
Responsible for the vast knowledge of West Virginia University’s history, policies, academics, and other student offerings
This role plays an important part in not only the incoming students first view of West Virginia University, but plays a vital role in potential enrollment for future semesters.
EDUCATION May 2014 West Virginia University, Morgantown, WV; Bachelors of Science in Business Administration
Major in Finance
Minor in Economics
Dean’s List (Multiple Semesters)
Overall GPA: 3.4/4.0
Major GPA: 3.75/4.0
CIVIC ACTIVITIES 2012-Present West Virginia University Inter-Fraternal Council Treasurer.
Collect dues, maintain the Fraternal Community accounts and keep a balanced budget for the entire Fraternal community.
Active member of Sigma Alpha Epsilon, WV Gamma Chapter.
SKILLS Able to multi-task and see projects or programs through to the end through the usage of different
Financial tools Motivated to take projects, evaluate, and increase their future values through profitability indexes
and present values
Able to understand economical and financial concepts and apply as needed
Very personable an able to work well with others on various projects through team leadership skills to meet required project deadlines.
` Blessing 38
XVI: Assumptions and Limiting Conditions
As previously mentioned, Blessing Valuations LLC is not responsible for the improper transmission or
misinterpretations of the information which is being presented within this valuation of The Wendy’s Corporation. Our
valuations consist of the sole purpose of providing information in a way in which the customer can look at in a clear and
concise way, see our comments and interpretations, and correlate a business decision based upon their personal
understanding of the material. Blessing Valuations provides advice on which our employees believe the client should do,
but are not responsible for the decision you make with personal investments. This exercise has been done for academic
purposes only and so that Dr. Speaker can grade our knowledge of finance and how we are able to value companies.
` Blessing 39
Works Cited Global Economy. (2013, October 23). Retrieved October 23, 2013, from Financial Times: http://www.ft.com/intl/global -economy
National Income and Product Accounts Tables. (2013, October 23). Retrieved October 23, 2013, from U.S. Bureau of Economic
Analysis: http://www.bea.gov/iTable/iTable.cfm?reqid=9&step=1&acrdn=2#reqid=9&step=3&isuri=1&903=264
The Wendy's Co. (WEN). (2013). Retrieved September 4, 2013, from Yahoo! Finance:
http://finance.yahoo.com/q;_ylt=AiLj43xUuZWKSaT97dw3E_GiuYdG;_ylu=X3oDMTBwdm1qNzVjBHNlYwNVSCAzIERlc2t0b
3AgU2VhcmNoIDI;_ylg=X3oDMTBucmRhZWhqBGxhbmcDZW4tVVMEcHQDcG1oBHRlc3QD;_ylv=3;_ylc=X1MDMjE0MjQ3O
Dk0OARfcgMyBGZyA3VoM19maW5hbmNlX3dlYgRmcjIDc2EtZ3AEZ3ByaW
Wendy's. (2013). Retrieved September 4, 2013, from Wendy's: http://www.wendys.com/
Wendy's Co. (2013, November 29). Retrieved December 1, 2013, from advfn.com:
http://www.advfn.com/exchanges/NASDAQ/WEN/financials
Wendy's International, Inc. (2013, September 24). Retrieved September 25, 2013, from ADVFN.com:
http://www.advfn.com/exchanges/NASDAQ/WEN/financials
Naydenov, D. (2013, June 13). Wendy's Mix Of Growth And Value Is A Cut Above. Retrieved December 1, 2013, from Seeking
Alpha: http://seekingalpha.com/article/1500982-wendys-mix-of-growth-and-value-is-a-cut-above
The Wendy's Company. (n.d.). Retrieved September 4, 2013, from Hoovers A D&B Company:
http://subscriber.hoovers.com.www.libproxy.wvu.edu/H/company360/overview.html?companyId=11863000000000
Wendy's Co. . (n.d.). Retrieved September 4, 2013, from U.S. Securities and Exchange Commision: http://www.sec.gov/cgi -
bin/browse-edgar?CIK=WEN&Find=Search&owner=exclude&action=getcompany