Highlights of Papa Murphy’s Item 19 Financial Performance Representations (2013 FDD)
Explanatory Notes for System Store Performance
- All stores included in this System Store Performance section are traditional stores, in that the stores are not located within another retailer’s space, such as a grocery or department store.
- As of December 31, 2012 (the end of Papa Murphy’s 2012 fiscal year), there were 1,329 stores open. Of the 1,329 stores open, 1,243 traditional Papa Murphy’s Take ‘N’ Bake Pizza stores were open and operating during the entire period of the company’s fiscal year, and 86 stores were either non-traditional or were not open for the full fiscal year.
- The following statements are based on information reported by the 1,243 traditional Papa Murphy’s Take ‘N’ Bake Pizza stores, both franchise-owned and company-owned, in operation as of December 31, 2012. These stores represent 54 company-owned stores and 1,189 franchise-owned stores (collectively referred to herein as “System Stores”).
- The System Stores were divided into three groups with the same number of stores in each group, except for one more store in the Medium Group based on Net Sales results: top third (“High”), middle third (“Medium”), and lower third (“Low”).
Explanatory Notes for Benchmark Costs
- This section is based on the sales and operating costs of 534 franchised stores that were open and operating for all of the trailing 52 weeks ending on October 1, 2012, the company’s fiscal third quarter of 2012, and that submitted profit and loss statements in the appropriate format for this period (“Benchmark Stores”).
- Note: As franchised stores have 90 days to submit year-end financial statements, fiscal year 2012 sales and operating costs are not currently available.
- The table of Benchmark Stores’ sales and average food and labor costs is based upon the self-reported profit and loss statements submitted by a portion of the System Stores.
- Average Gross Sales. The gross sales figures set forth below represent all food and beverage sales before any coupons or other discounts taken. It does not include sales taxes collected.
- Discount Percentages. The percentages included below include coupons and discounts offered on promotional items or offers. This percentage may also include any discount offered to employees. The percentage is calculated on gross sales.
- Average Net Sales. The sales figures set forth below represent all food and beverage sales, net of discounts. This is the amount on which you will calculate your royalty payments.
- Cost of Goods Sold (“COGS”). Average COGS includes all food inventory and packaging delivered to the store and used in creating the product for sale, but excludes cleaning supplies and similar items. Papa Murphy’s negotiates contracts for quantity and price for both beverages and certain food products to take advantage of volume discounts.
- Employee Labor. Hourly wages, both regular and overtime (including crew, assistant managers, shift leaders), for food preparation and service. No corporate management personnel are included in labor costs. Labor includes wages only and does not include payroll taxes, medical or workers’ compensation insurance, or 401(k) plan contributions.
- Management Costs. Management costs include payroll expenses (salaries, bonuses for meeting performance objectives, and vacation) for the Franchised Store manager.
- Payroll Taxes. Unemployment taxes (both federal and state), FICA, employee injury insurance, or workers’ compensation when required.
- Advertising: This category is comprised of four types of expenditures: (a) local store marketing and merchandising, (b) contribution to the Advertising and Development Fund, (c) contribution to the Sales Building Print Plan, and (d) your Franchised Store’s designated percentage contribution to your local advertising cooperative, which can be different for each designated marketing area.
- Rent and Common Area Maintenance (CAM). Rent and CAM includes rent and lease costs, common area maintenance expenses, and tax and insurance due the landlord. Rent and lease costs include the base rent and any percentage rent. Common area maintenance costs typically include the franchisee’s pro rata charges for parking lot maintenance, lighting, real estate taxes, taxes on the common areas, and costs of maintaining the common areas.
- Other Store Expenses. Other store expenses include the cost of direct supervision, bank fees, accounting and payroll services, utilities, repairs and maintenance, telephone, employee benefits, insurance, janitorial, smallwares, taxes and licenses, broadband/internet, point-of-sale system costs, credit card processing charges, uniforms, and laundry and supplies.
- Royalties. Royalties include a royalty and services fee equal to 5 percent of your Franchised Store Net Sales.
- Store Contribution. The store contribution represents revenue less expenses described herein, and this figure does not reflect other costs which you may incur as a franchisee, which may include general and administrative costs, depreciation, and financing costs, if any.
Explanatory Notes for Statement of Average Annual Net Sales Percentage Increase
- This statement includes the average Net Sales percentage increase for Papa Murphy’s Take ‘N’ Bake Pizza Stores based on a comparison of Net Sales:
- (i) in 2007 and 2006 for stores that were in operation for the entire 12-month period ended December 31, 2007;
- (ii) in 2008 and 2007 for stores that were in operation for the entire 12-month period ended December 29, 2008;
- (iii) in 2009 and 2008 for stores that were in operation for the entire 12-month period ended December 28, 2009;
- (iv) in 2010 and 2009 for stores that were in operation for the entire 12-month period ended January 3, 2011;
- (v) in 2011 and 2010 for stores that were in operation for the entire 12-month period ended January 2, 2012;
- (vi) in 2012 and 2011 for stores that were in operation for the entire 12-month period ended December 31, 2012;
- Only stores that were open all weeks in both years are compared.