In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Schlotzsky’s franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Schlotzsky’s franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Schlotzsky’s franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Schlotzsky’s outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Schlotzsky’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2019 and 2020 average, median, highest, and lowest net sales and weeks open for the 232 franchised Schlotzsky’s Covered Restaurants that were active franchises throughout the entire fiscal year 2019, and the 229 franchised Schlotzsky’s Covered Restaurants that were active franchises throughout the entire fiscal year 2020

• 2019 and 2020 average total gross sales, cost of goods sold, personnel expenses, advertising expenses, operating expenses, occupancy expenses, general and administrative expenses, and EBITDA for the 23 affiliate-owned Schlotzsky’s Covered Restaurants that were open for all weeks of fiscal year 2019, and the 22 affiliate-owned Schlotzsky’s Covered Restaurants that were open for all weeks of fiscal year 2020

Section I – Background Information

27 Things You Need to Know About the Schlotzsky’s Franchise

Tests Two New Prototypes With Smaller Footprints

1.  In early January 2021, Schlotzsky’s reported that it was testing two new store prototypes in response to the COVID-19 pandemic. Numerous brands have repositioned themselves during the pandemic, but Schlotzsky’s had a head start. Before most of the country even knew what COVID was, Schlotzsky’s was reducing slow menu items and concentrating on core pizza and sandwich offerings, or as COO Tory Bartlett calls it, “focusing on doing a few things great.” Operations were streamlined to improve speed of service and accuracy.

2.  Schlotzsky’s used Delphi Display Systems’ drive-thru timers to see from an enterprise level how stores were performing and to find opportunities throughout the customer journey. In addition, drive-thru menu boards were adjusted to suggestively sell items that would perform well and that could be produced quickly.

3.  The targeted efficiencies have meshed well with a system that already leans heavily into off-premises. Eighty-five percent of stores have a drive-thru, and nearly 100 percent participate in third-party delivery. Curbside pickup, which wasn’t available prior to COVID, is also available through the mobile app. When those are thrown into a bowl and mixed with mass closure of dining rooms, dollar signs begin to appear.

4.  Bartlett said, “So it was almost like we had a crystal ball because we got the franchise system working on [efficiencies], and it really helped us. So obviously with most of our dining rooms closed pretty much right away – and even today, we have some of them still closed – the business really shifted to the drive-thru and our other channels quickly. So the brand is doing really, really well.”

5.  Schlotzsky’s push toward drive-thru – a channel that’s grown 40 percent during COVID – is quite serious. It’s so significant that the brand had been working on prototypes for more than a year, even before the pandemic instructed it to do so. The COVID crisis simply reshaped the approach.

6.  “We started looking at the business and the trends and just realized that here’s a great opportunity for just really leaning into drive-thru,” Bartlett said. “Prior, the brand’s been building larger prototypes and larger restaurants. You see a lot of brands struggling to position themselves with real estate across a lot of different markets. And the markets that we were looking at, everybody is looking for an acre with ingress, regress. We just realized there’s an opportunity to build something smaller and maybe be able to take advantage of some of these partials that were leftovers, but are still really good real estate – 0.6, 0.7 of an acre.”

7.  The first prototype is a 1,000-square-foot drive-thru only concept that has pickup windows on two sides. One side is a traditional drive-thru with a six-car stack. The other side is flexible enough to be used as a second drive-thru, curbside pickup area, or for third-party delivery staging. The other prototype is 1,800 square feet with a traditional drive-thru and 35 seats. Bartlett said that with this layout, designers placed much thought into the guest journey as they come through the restaurant, including a view of freshly baked bread as customers walk inside.

8.  A company store in Oklahoma will open a prototype in late spring or early summer. Additionally, Midwest franchisee JJ Ramsey – who operates locations across Arkansas, Missouri, and Kansas – signed a deal to open four prototypes.

9.  Bartlett added, “By redesigning the building and setting the line up differently, we’re able to do what we do with less people, which is obviously important in today’s environment, but still be able to deliver the speed and the accuracy that the consumers demand.”

10.  Going forward, Schlotzsky’s expects 99 percent of new restaurants to have a drive-thru. Bartlett notes that current stores won’t be retrofitted because the 15 percent of stores that are non-drive-thru are usually in-line or constrained by real estate in some manner. Drive-thru restaurant visits grew by 26 percent in April, May, and June 2020, and represented more than 40 percent of visits in that three-month span, according to the NPD Group. Even after dining rooms reopened, drive-thru occasions grew by 13 percent in July, which was the highest growth among on-premises, carryout, and delivery channels.

11.  Because of that industry-wide growth, Schlotzsky’s isn’t alone in betting on the future of drive-thru. Major players like Chipotle, Shake Shack, and Qdoba are increasing their investment on the channel. With higher demand for land with drive-thru capabilities, flexibility will become crucial, Bartlett notes.

12.  “You’re going out and competing with not just restaurant space – I mean banks and all these others – for these hard corners and one-acre parcels,” Bartlett said. “And as developers come in and they develop these properties, there’s a lot of opportunity for these 0.6, 0.7-point acres. I wouldn’t even call them leftovers, but they’re hard-to-use spaces. That’s where our model sits in. Because if you have good visibility, you still have good ingress and regress, and can have your drive-thru, it could be a really nice addition to the developments where their main focus is selling these larger parcels.”

13.  The emphasis on drive-thru fits into Schlotzsky’s overall goal to reach 400 stores by the end of 2023. Bartlett said the brand is focused on the Midwest, Southeast, and Southwest and will look to fill in white space with both current and new franchisees. Bartlett said he isn’t sure the restaurant industry will ever return to normal. There will be some adjustments, but for the most part, he believes consumers have gotten used to the idea of convenience. Schlotzsky’s is simply preparing for that future.

14.  On a final note, Bartlett said, “That’s why we’re leaning pretty hard into these models. And obviously there’s still going to be a demand for consumers that want to come in and sit in and enjoy their meal at the table, and we’ll have that for them. But for our system to be successful, we have to recognize and understand that consumers are going to consume our food outside of our locations more than likely the majority of the time.”

Teams Up With Terry Bradshaw to Share Exercises to Get Customers Into Sandwich-Eating Shape

15.  At the end of April 2021, Schlotzsky’s announced its partnership with Pro Football Hall of Famer (and no stranger to training) Terry Bradshaw to develop and demonstrate a line of mouth muscle moving exercises, just in time for its new, meatier sandwiches that recently launched.

16.  According to Schlotzsky’s, the stress of the COVID-19 pandemic has caused many people to clench their jaws, which has increased jaw pain. The “Train for a Mouthful” routine consists of three exercises – The Breadlift, The Chew Chew, and The Stacks on Deck – all to help you prepare for a mouthful of sandwich:

• The Breadlift: Think bicep curl, but better. Instead of holding dumbbells, grab your Schlotzsky’s sandwich, curl at the elbows, stretch your jaw wide, and take a bite.

• The Chew Chew: This variation of the shoulder press will not only help your rotator cuff, but also your triceps! Hold two sandwich halves on either side of your head. Lift your hands up to the sky, lower back down, then rotate your neck to the left, and take a bite.

• The Stacks on Deck: To improve your arm strength and stretch out your core, grasp an Original in each hand, push your arms out to the side, bring the sandwiches back in and take a bite.

17.  Terry Bradshaw said, “It’s no secret that I always have a mouthful to say, so when the opportunity came up to help Schlotzsky’s fans train their mouths, I couldn’t say no. My family and I have been eating Schlotzsky’s sandwiches for years, so any workout where I can enjoy my go-to – The Original with jalapenos – is a workout made just for me.”

18.  Tory Bartlett, chief brand officer of Schlotzsky’s, added, “It’s been a stressful year, and we can all use a little bit of fun these days. That is why we’re excited to team up with sports legend Terry Bradshaw to create the Train for a Mouthful regimen. We are providing customers with an engaging way to prepare for and enjoy Schlotzsky’s new, meatier sandwiches. With even more protein piled high atop freshly baked sourdough bread, our sandwiches are a delicious mouthful that guests have been enjoying for 50 years.”

19.  For customers who want to try these new, enormous sandwiches for themselves, Schlotzsky’s was offering the “Bradshaw BOGO” promotion from April 29 through May 22. The “Bradshaw BOGO” offered guests with the Schlotzsky’s app a free medium sandwich with the purchase of a medium sandwich.

20.  Schlotzsky’s also recently launched their first-ever national integrated campaign “It’s a Mouthful.” The campaign unveiled larger, meatier sandwiches at all Schlotzsky’s restaurants across the country and nods to its beloved name that alone is a mouthful. The hero of the campaign is the abundant and flavorful sandwich that started it all in 1971, The Original. The Original has 13 unique ingredients including lean smoked ham with Genoa & cotto salamis, cheddar, mozzarella & parmesan cheeses, black olives, red onion, lettuce, tomato, mustard, and Schlotzsky’s signature sauce – all served on Schlotzsky’s toasted house-made sourdough bun.

Company History

21.  Schlotzsky’s was founded in 1971 by Don and Dolores Dissman in Austin, Texas. The Dissmans initially only offered one product, an 8-inch Muffuletta stuffed with three meats, cheeses, lettuce, tomato, olives, and dressing served on hot freshly-made sourdough bread. The couple had first come across the Muffuletta sandwich in an Italian grocery store in New Orleans. The sandwich was so unique to Austin that Schlotzsky’s was a hit with locals.

22.  After a few years, the Dissmans began franchising Schlotzsky’s in 1977. By 1981, the company had grown to 100 locations. That same year, the Dissmans retired and sold Schlotzsky’s to Austin real estate investors John and Jeff Wooley and Gary Bradley. Less than a year later, Bradley left the company and the Wooleys continued to run the business.

23.  Under the leadership of the Wooleys, Schlotzsky’s expanded its menu to include specialty pizzas, toasted wraps, freshly tossed salads, gourmet soups, Panini, and other items. In 1988, Schlotzsky’s opened its first international stores in Canada.

24.  Over the next few decades, Schlotzsky’s continued to grow and the company hit its peak in 2001. However, Schlotzsky’s began to struggle and in 2004, the company filed for voluntary Chapter 11 protection in U.S. Bankruptcy Court in San Antonio, Texas, reporting liabilities of approximately $71.3 million and assets of approximately $111.7 million. New management streamlined Schlotzsky’s menu and strengthened its franchise operations.

25.  Two years later, in 2006, Schlotzsky’s was acquired by Focus Brands, an affiliate of private equity firm Roark Capital Group, parent company of Moe’s Southwest Grill, McAlister’s Deli, Carvel, Cinnabon, Jamba, and Auntie Anne’s. In 2016, Schlotzsky’s introduced a new restaurant chain called Schlotzsky’s Austin Eatery, which targets Millennials with a menu featuring Austin-inspired food from the city.

26.  Today, there are Schlotzsky’s locations primarily around the Southern and Southwestern United States, but the brand has been expanding into other regions of the country.

Entrepreneur’s Franchise 500

27.  Schlotzsky’s ranked No. 374 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Schlotzsky’s franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Schlotzsky’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  343
• Outlets at the End of the Year:  346
• Net Change:  +3

2019

• Outlets at the Start of the Year:  346
• Outlets at the End of the Year:  327
• Net Change:  -19

2020

• Outlets at the Start of the Year:  327
• Outlets at the End of the Year:  310
• Net Change:  -17

Company-Owned

2018

• Outlets at the Start of the Year:  25
• Outlets at the End of the Year:  25
• Net Change:  0

2019

• Outlets at the Start of the Year:  25
• Outlets at the End of the Year:  24
• Net Change:  -1

2020

• Outlets at the Start of the Year:  24
• Outlets at the End of the Year:  23
• Net Change:  -1

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• This Item 19 presents information about the financial performance of certain Covered Restaurants during the fiscal year ended December 29, 2019 (“Fiscal Year 2019”) and the fiscal year ended December 27, 2020 (“Fiscal Year 2020”).

• Schlotzsky’s has not made permanent, material changes to its concept as a result of the COVID-19 pandemic.

• “Covered Restaurants” include Restaurants with a drive-thru that are located in traditional locations, including strip shopping centers and power centers.

• “Excluded Restaurants” include all other Restaurant formats, such as (i) Restaurants that are located in non-traditional locations, including airports, colleges, convenience stores, government buildings, hospitals, hotels, lifestyle centers, malls (including open air, traditional, and outlet malls), military bases, office building interiors, theme parks, transit hubs, and travel plazas and (ii) Restaurants without a drive-thru that are located in traditional locations, including strip shopping centers and power centers.

• Schlotzsky’s has not included in this Item 19 any data related to Excluded Restaurants, because certain aspects of their operations can vary significantly from the Covered Restaurants that are represented in this Item 19.

• “Net Sales” includes all revenues generated by a Restaurant or conducted from or with respect to a Restaurant, whether the sales are evidenced by cash, check, credit, charge, account, barter, or exchange, but does not include (a) the initial sales or reloading of gift cards, (b) discounts, (c) the sale of food or merchandise for which refunds have been made in good faith to customers, (d) the discounted portion of employee meals, (e) sales, meals, use, or excise tax imposed by a governmental authority directly on sales and collected from customers, provided that the amount for the tax is added to the selling price or absorbed therein and is actually paid by you to a governmental authority, (f) the sale of equipment used in the operation of the Store, or (g) tips.

• To the extent that Restaurants also operate a Cinnabon Express Bakery, sales made from the Bakery are included in Net Sales.

• The Fiscal Year 2020 data includes 229 franchised Covered Restaurants that were active franchises throughout the entire Fiscal Year 2020 (out of 310 franchised Restaurants that were active franchises as of the end of Fiscal Year 2020).

• It includes franchised Covered Restaurants that were temporarily closed for periods of Fiscal Year 2020 for any reason, which could include, for example, temporary closures for renovations, repairs, or personal reasons, as well as temporary closures due to the COVID-19 pandemic and related government restrictions on the operation of restaurants.

• The Fiscal Year 2019 data includes 232 franchised Covered Restaurants that were active franchises throughout the entire Fiscal Year 2019 (out of 327 franchised Covered Restaurants that were active franchises as of the end of Fiscal Year 2019).

• It includes franchised Covered Restaurants that were temporarily closed for periods of Fiscal Year 2019 for any reason, which could include, for example, temporary closures for renovations, repairs, or personal reasons.

• These sales figures do not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the gross revenue or gross sales figures to obtain your net income or profit.

Part 1 – Average Net Sales by Quarter for Franchised Covered Restaurants for Fiscal Year 2019 and Fiscal Year 2020

Fiscal Year 2020 – Franchised Covered Restaurants (229 Locations)

Quarter 1

• Average Net Sales:  $214,701
• Percentage Change from 2019:  -8%
• Number and Percentage at or Above Average Net Sales:  103/45%
• Median Net Sales:  $203,076
• Lowest Net Sales:  $0
• Highest Net Sales:  $472,639
• Average Weeks Open:  12.89
• Median Weeks Open:  13
• Lowest Weeks Open:  0
• Highest Weeks Open:  13
• Number Open All Weeks:  227

Quarter 2

• Average Net Sales:  $232,232
• Percentage Change from 2019:  -4%
• Number and Percentage at or Above Average Net Sales:  112/49%
• Median Net Sales:  $230,248
• Lowest Net Sales:  $0
• Highest Net Sales:  $463,817
• Average Weeks Open:  12.80
• Median Weeks Open:  13
• Lowest Weeks Open:  0
• Highest Weeks Open:  13
• Number Open All Weeks:  222

Quarter 3

• Average Net Sales:  $250,822
• Percentage Change from 2019:  8%
• Number and Percentage at or Above Average Net Sales:  112/49%
• Median Net Sales:  $247,238
• Lowest Net Sales:  $0
• Highest Net Sales:  $524,516
• Average Weeks Open:  12.76
• Median Weeks Open:  13
• Lowest Weeks Open:  0
• Highest Weeks Open:  13
• Number Open All Weeks:  221

Quarter 4

• Average Net Sales:  $236,942
• Percentage Change from 2019:  7%
• Number and Percentage at or Above Average Net Sales:  109/48%
• Median Net Sales:  $231,949
• Lowest Net Sales:  $0
• Highest Net Sales:  $514,892
• Average Weeks Open:  12.84
• Median Weeks Open:  13
• Lowest Weeks Open:  0
• Highest Weeks Open:  13
• Number Open All Weeks:  222

Full Year

• Average Net Sales:  $934,698
• Percentage Change from 2019:  1%
• Number and Percentage at or Above Average Net Sales:  109/48%
• Median Net Sales:  $915,862
• Lowest Net Sales:  $2,639
• Highest Net Sales:  $1,975,864
• Average Weeks Open:  51.30
• Median Weeks Open:  52
• Lowest Weeks Open:  1
• Highest Weeks Open:  52
• Number Open All Weeks:  215

Fiscal Year 2019 – Franchised Covered Restaurants (232 Locations)

Quarter 1

• Average Net Sales:  $232,764
• Number and Percentage at or Above Average Net Sales:  100/43%
• Median Net Sales:  $220,163
• Lowest Net Sales:  $67,226
• Highest Net Sales:  $533,218
• Average Weeks Open:  12.99
• Median Weeks Open:  13
• Lowest Weeks Open:  11
• Highest Weeks Open:  13
• Number Open All Weeks:  231

Quarter 2

• Average Net Sales:  $241,855
• Number and Percentage at or Above Average Net Sales:  103/44%
• Median Net Sales:  $228,281
• Lowest Net Sales:  $4,419
• Highest Net Sales:  $541,527
• Average Weeks Open:  12.94
• Median Weeks Open:  13
• Lowest Weeks Open:  1
• Highest Weeks Open:  13
• Number Open All Weeks:  229

Quarter 3

• Average Net Sales:  $232,026
• Number and Percentage at or Above Average Net Sales:  104/45%
• Median Net Sales:  $219,795
• Lowest Net Sales:  $0
• Highest Net Sales:  $521,574
• Average Weeks Open:  12.91
• Median Weeks Open:  13
• Lowest Weeks Open:  0
• Highest Weeks Open:  13
• Number Open All Weeks:  230

Quarter 4

• Average Net Sales:  $220,617
• Number and Percentage at or Above Average Net Sales:  108/47%
• Median Net Sales:  $206,756
• Lowest Net Sales:  $0
• Highest Net Sales:  $496,507
• Average Weeks Open:  12,92
• Median Weeks Open:  13
• Lowest Weeks Open:  0
• Highest Weeks Open:  13
• Number Open All Weeks:  228

Full Year

• Average Net Sales:  $927,262
• Number and Percentage at or Above Average Net Sales:  102/44%
• Median Net Sales:  $882,253
• Lowest Net Sales:  $299,124
• Highest Net Sales:  $2,092,826
• Average Weeks Open:  51.76
• Median Weeks Open:  52
• Lowest Weeks Open:  25
• Highest Weeks Open:  52
• Number Open All Weeks:  225

Part 2 – Profit and Loss Statement for Affiliate-Owned Covered Restaurants for Fiscal Year 2019 and Fiscal Year 2020

• This financial performance representation reflects the average Fiscal Year 2019 and Fiscal Year 2020 Gross Sales, Cost of Goods Sold, Personnel Expenses, Advertising, Operating Expenses, Occupancy Expenses, General and Administrative Expenses, and EBITDA, as Schlotzsky’s describes those terms below, for affiliate-owned Covered Restaurants that were open continuously during the applicable fiscal year (“P&L Statement”).

• The Fiscal Year 2020 data includes average financial performance for the 22 affiliate-owned Covered Restaurants that were open for all weeks of Fiscal Year 2020. While there were 23 affiliate-owned Covered Restaurants that were active franchises at the end of Fiscal Year 2020, one was excluded because it was not open for all weeks of Fiscal Year 2020.

• The Fiscal Year 2019 data includes average financial performance for the 23 affiliate-owned Covered Restaurants that were open for all weeks of Fiscal Year 2019. While there were 24 affiliate-owned Covered Restaurants that were active franchises at the end of Fiscal Year 2019, one was excluded because it was an Excluded Restaurant.

• Schlotzsky’s excluded the results of franchised Restaurants from this financial performance representation, because franchisees provide some, but not all, of this data to Schlotzsky’s, and because Schlotzsky’s franchisees vary in how they calculate various expense information. Schlotzsky’s determined that providing data on only affiliate-owned Restaurants allows for more uniform reporting.

• With respect to the affiliate-owned Restaurants, as a multi-unit operator, Schlotzsky’s affiliate, SFL, may have a number of advantages that an individual franchisee may not have, such as increased financial resources, greater experience with real estate, operations and staffing, increased buying power, etc.

• In addition, many of the affiliate-owned Restaurants are mature Restaurants and all but one are located in Texas and Oklahoma, which are core markets for the brand. Because of the concentration of Restaurants in these markets, there is strong brand awareness and brand development in these markets, which may not be the case in other markets. As a result, your performance may differ from the affiliate-owned Restaurants.

Fiscal Year 2020 – Affiliate-Owned Covered Restaurants (22 Locations)

• Average Total Gross Sales:  $1,494,175 (100.0%)
• Average Cost of Goods Sold:  $378,443 (25.3%)
• Average Personnel Expenses:  $441,565 (29.6%)
• Average Advertising Expenses:  $110,903 (7.4%)
• Average Operating Expenses:  $228,183 (15.3%)
• Average Occupancy Expenses:  $130,330 (8.7%)
• Average General and Administrative Expenses:  $28,939 (1.9%)
• Average EBITDA:  $175,812 (11.8%)

Fiscal Year 2019 – Affiliate-Owned Covered Restaurants (23 Locations)

• Average Total Gross Sales:  $1,634,462 (100.0%)
• Average Cost of Goods Sold:  $419,585 (25.7%)
• Average Personnel Expenses:  $491,001 (30.0%)
• Average Advertising Expenses:  $162,901 (10.0%)
• Average Operating Expenses:  $236,698 (14.5%)
• Average Occupancy Expenses:  $133,160 (8.1%)
• Average General and Administrative Expenses:  $31,686 (1.9%)
• Average EBITDA:  $159,431 (9.8%)

• “Total Gross Sales” is calculated as total Net Sales, plus the amount of any discounts from redemptions of coupons or other reductions made to calculate Net Sales.

• “Cost of Goods Sold” (“COGS”) includes the cost of food, beverages, merchandise, packaging, and other products included in the preparation and sale of food, beverages, and other products to customers. The Cost of Goods Sold may vary considerably based on whether a Store is located within the geographical area serviced by Schlotzsky’s Approved Suppliers and distributors.

• “Personnel Expenses” includes wages paid to management and employees of a Restaurant, including managers and shift supervisors, management bonuses, payroll taxes, health insurance, workers’ compensation, vacation, other employee benefits, and associated payroll taxes paid to employees.

• COVID-19 premium/relief pay and associated benefits for frontline workers (often referred to as “Hero Pay”), which averaged approximately $9,300 per Restaurant in Fiscal Year 2020, is not reflected in the data.

• “Advertising” includes Advertising Contributions, contributions to Co-ops, local marketing, discounts, coupons, and sponsorships.

• “Operating Expenses” includes costs for supplies, including smallwares, paper supplies, cleaning supplies; waste removal; controllable expenses like employee uniforms, repairs and maintenance on the equipment and Store premises, service contracts, computer expenses, office supplies, utilities, janitorial services, and imputed Royalty Fees.

• “Imputed Royalty Fees” includes a royalty fee equal to 6% of Net Sales that Schlotzsky’s imputed into this category. Schlotzsky’s affiliate-owned Restaurants do not pay a Royalty Fee and do not incur this expense. Schlotzsky’s has included this expense to reflect the costs that a franchisee would incur.

• “Occupancy Expenses” includes base rent, percentage rent, common area maintenance, real estate taxes, equipment lease expenses, and other miscellaneous expenses.

• “General and Administrative Expenses” includes non-controllable expenses like credit card fees, payroll processing fees, accounting and other professional fees, employee recruiting costs, general liability insurance, business licenses and fees, and bank service charges.

• “EBITDA” means Restaurant level earnings before interest, taxes, depreciation, and amortization. In addition to those items, this category does not include pre-opening expenses and other miscellaneous expenses a franchisee may incur. Schlotzsky’s does not include costs for interest and other debt service costs, taxes, depreciation, or amortization, because they vary considerably depending on the particular organization and typically are excluded when calculating the free cash flow from a Restaurant’s operation.

• There may be other expenses in operating a Restaurant that are not identified in the P&L Statements.

• Some Stores have sold or earned this amount. Your individual results may differ. There is no assurance that you will sell or earn as much.

• Schlotzsky’s calculated the figures in the tables in these financial performance representations using financial reports submitted by franchisees. Schlotzsky’s has not audited or independently verified these financial reports nor has it asked questions of the submitting franchisees to determine whether they are in fact accurate and complete, although Schlotzsky’s has no information or other reason to believe that they are unreliable. No certified public accountant has audited these figures or expressed his or her opinion concerning their content or form.

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