FDD Talk 2013: Average Sales, Cost of Sales, Labor, and Controllable Expenses for Freddy’s Frozen Custard and Steakburgers Restaurants (2013 FDD)

Highlights of Freddy’s Frozen Custard and Steakburgers’ Item 19 Financial Performance Representations (2013 FDD)

Explanatory Notes for Table 1 – Sales for Affiliate-Owned and Franchised Freddy’s Frozen Custard and Steakburgers Restaurants

• As of December 26, 2012, there were 9 restaurants which are operated by the franchisor’s affiliate, FFC, under the name “Freddy’s Frozen Custard and Steakburgers” and there were 73 franchisee restaurants.

• The FFC operating restaurants and the franchisee restaurants are a mix of stand-alone units located in former restaurant or other retail buildings, stand-alone and in-line new construction, and in-line in former restaurant or other retail sites.

• This financial performance representation is based on the actual operating results of the 8 FFC stores and the franchisee-reported sales of the 48 franchise stores that were open prior to the beginning of the fiscal year ended December 26, 2012, although no accountant independently audited the specific data from which the following information was derived.

• The section below shows figures from the fiscal year ended December 26, 2012. It shows the average weekly gross receipts for stores open prior to the beginning of the fiscal year then ended.

• Beginning in Period 6, one of the affiliate stores was sold and became a franchise store. Its sales for the year have been reclassified as franchise sales.

• One of the franchise stores closed in Period 12. The store has been excluded from all counts and calculations.

• Item 19 does not include the franchise location in Joplin, MO. The Joplin, MO store was destroyed by the Joplin tornado. The franchisee and Freddy’s are working together to find a new location and the franchise agreement is still in place.

Explanatory Notes for Table 2 – Cost of Sales, Labor, and Controllable Expenses of Affiliate-Owned Restaurants

• The information provided below is based on a number of conditions and assumptions that may not be applicable to you. For example, each store for which information is provided below is located in the Midwest. The cost of labor, including the pay scale, bonus plans, and other benefits you choose to provide your employees or that may be mandated by local law for the market in which your restaurant would be located may or may not be comparable to these restaurants. Cost of inventory and supplies may or may not be comparable to those obtainable in these DMAs.

• Additionally, the information provided in this section is derived from affiliate-owned restaurants. The costs and expenses associated with an affiliate-owned restaurant may differ from those of your restaurant.

• The section below depicts Cost of Sales, Labor, and Controllable Expense averages within certain sales ranges for Freddy’s 8 affiliate-owned stores opened prior to the beginning of the company’s fiscal year ended December 26, 2012, as percentages of total gross receipts for the fiscal year ended December 26, 2012.

• The percentages do not include certain non-recurring, opening, and pre-opening costs such as grand opening advertising; initial employee training; real estate acquisition costs/rent; real estate or leasehold improvements; computer and points of sale equipment and software; equipment, furniture, fixtures, and decor; signage and neon; opening inventory and supplies; insurance; utility deposits; licenses and business permits; other prepaid expenses; legal and other professional fees; and recruitment.

• Cost of Sales (as a percentage of Gross Receipts) includes all costs associated with food, beverage, and disposable paper and plastic, but does not include costs, including rental payments, associated with equipment, fixtures, and decor.

• Labor (as a percentage of Gross Receipts) includes all salaries and wages paid to employees, and includes short-term management incentive pay of 6% of store net profit, but excludes federal, state, and local payroll taxes, health insurance, and any other employee benefits.

• Labor expenses do not include deferred management compensation of 5% of store net profit, phantom stock bonuses, owners’ draws, or management expenses not directly attributable to a restaurant, such as an area manager’s salary.

• Freddy’s believes that its management short-term and deferred incentive pay plans reduce turnover and are integral to the operations of the restaurants. It strongly encourages its licensees to adopt the same or similar plans.

• Controllable Expenses (as a percentage of Gross Receipts) includes maintenance, supplies, utilities, uniforms, bank and credit card fees, equipment rental, and other miscellaneous expenses. It does not include items such as fixed costs, advertising, professional and accounting fees, licenses, insurance, or taxes, nor does it include rent, other real estate costs, depreciation, or amortization.

• Because these stores are not franchise stores, they are not subject to franchise fees or, at this time, minimum required Marketing and Advertising Fund or advertising cooperative contributions and, accordingly, the figures below do not include any of these.

• Based on the company’s experience, the restaurants experience seasonal fluctuations, with greater sales occurring during the months of March through August and lesser sales occurring during the months of September through February.

Table 1 – Sales for Affiliate-Owned and Franchised Freddy’s Frozen Custard and Steakburgers Restaurants

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