Highlights of East Coast Wings & Grill’s Item 19 Financial Performance Representations (2014 FDD) – Part 2
Explanatory Notes for Part III – Average of Certain Expenses for Full-Service Restaurants
- The following expense information was aggregated from all franchisee and franchisor-owned full-service restaurants that were in operation for more than 12 months (“Restaurants”) as of December 31, 2013 (“Period”) who timely reported their financial information to East Coast Wings & Grill and were operated continuously throughout the period by the same ownership group.
- Plan B prototypes are not included in this sample. Plan B prototypes are units East Coast Wings & Grill approves to operate primarily with counter service and food expeditors versus traditional wait staff. East Coast Wings & Grill no longer develops Plan B prototypes.
- This analysis was constructed using the arithmetic mean (average) annual sales and expenses of the Restaurants during the entire Period. However, in the case of Restaurants owned by East Coast Wings & Grill or any of its affiliates, certain charges which you will be required to pay to it under the franchise agreement and other differences in the expenses of a franchised Restaurant are included in the table, as noted below.
- The High EBITDA Unit and the Low EBITDA Unit disclosures are the actual results for the period for the highest and lowest EBITDA Restaurant included in the sample. The EBITDA is calculated as Earnings Before Interest, Taxes, Depreciation, and Amortization. The High EBITDA Unit may not be the unit with the highest net sales. Rather, it is the unit with the highest EBITDA.
- As of the 12-month period ended December 31, 2013, the average time in operation of the Restaurants included in this analysis is 3 years. The restaurants used in the 2013 statement are located in North Carolina.
- Net Sales. The net sales are based on the average volume of the Restaurants, which includes all revenue less sales tax.
- Cost of Goods Sold (COGS). This line represents the average cost of goods sold (food, liquor, beer, wine, and paper products). The cost of items such as produce, which are often purchased locally, may vary according to the location of the Restaurant. Additionally, freight and shipping costs and the amount of mark-up imposed by suppliers will also vary.
- Space Expense. This includes the average cost of all real estate-related expenses for the Restaurants, including rent and CAM charges, utilities, repairs, insurance, and taxes.
- Operational Expense. Includes all expenses other than those included in one of the other categories. You will be required to pay a continuing royalty fee equal to 5% of Net Sales per month as described in the Disclosure Document. Additionally, this line represents average actual advertising costs incurred by the Restaurants of at least 2% of Net Sales and includes National Fund contributions.
- Payroll Expense. Average cost of labor for a Restaurant generally necessitates a range of 25-40 employees, including both full-time and part-time workers. This category includes amounts for payroll and payroll taxes for the employer’s share of federal, state, and local withholdings, such as FICA, Social Security, unemployment taxes, and Medicare taxes. The costs of labor and related payroll expenses may vary substantially depending on the geographic location of the Restaurant. Does not include owner’s salary or draws.
- Miscellaneous. The miscellaneous expense item includes the average for trade vendor interest expense, professional services, office expenses, and the annual cost paid to Retail Systems.
- EBITDA. The average EBITDA is calculated by subtracting from Net Sales each of the expense items disclosed. EBITDA does not include the cost of any debt service.
Explanatory Notes for Part IV – Average Transaction Ticket
- The following table provides the annual average customer transaction ticket (“Average Ticket”) for the year beginning January 1, 2013 and ending December 31, 2013 for all restaurants in operation during the period who timely submitted their financial information.
- The table provides the Average Ticket for all restaurants operating during the period. The table also lists the number of restaurants included in the Average Ticket figure, and the percentage of locations achieving the average.
- “Average Ticket” reflects the total average annual sales for the restaurants included in the sample divided by the number of customer transactions during the period; East Coast Wings & Grill does not include sales tax.
Part III – Average of Certain Expenses for Full-Service Restaurants
Statement of Average Revenue and Expenses (Unaudited) of East Coast Wings & Grill Full-Service Restaurants in Operation More Than 12 Months (for the 12-Month Period Ended December 31, 2013)
Average EBITDA Unit