ITEM 19 FINANCIAL PERFORMANCE REPRESENTATIONS*
The FTC’s Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the Disclosure Document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances.
This financial performance representation is based on historical sales and other financial information from the First Aid Service vans (Vans‚) operated by our affiliate, HART Health and Safety, Inc. (HHSI). HHSI operates Vans in Portland, Oregon and in Seattle, Washington.
HHSI Van operations in the Seattle area commenced in 1997 and in the Portland area in June 1999. As of the beginning of 2008, there were six Vans in operation in the Seattle and Portland areas. The number of vans was reduced to five at the end of April 2009 and a sixth Van was added in Portland in June 2010. Each Van operates in a designated territory. At the end of 2010, the four vans operating in the Seattle area averaged approximately 285 active customers. At the of end 2010, the two vans operating in the Portland area averaged approximately 153 active customers.
The financial information contained in Table 1, below, represents the average Gross Sales per Van for a three year period. The information contained in Table 2, below, represents the Average Annual Gross Sales and certain Average Expenses per Van, for all Vans operated by HHSI, for the periods January 1, 2008 to December 31, 2008, January 1, 2009 to December 31, 2009 and January 1, 2010 to December 31, 2010. The financial and other information contained in this financial performance representation has been neither reviewed nor audited by a certified public accountant.
Table 1: Gross Sales Per Van
Six vans were operating in 2008, thus total Gross Sales for the six vans in operation during 2008 was divided by 6 to determine the average Gross Sales per Van for 2008. Since the number of Vans was reduced from six to five at the end of April, 2009, total Gross Sales for all six Vans was divided by 5.33 to determine the average Gross Sales per Van for 2010. Since an additional van was added in June 2010, sales for all six vans was divided by 5.5 to determine the average Gross Sales per van.
The products sold by our HHFI affiliate-owned and operated Vans are similar to those that you will offer in your Territory. The Vans were operated in territories that included both urban and suburban areas.
Because this financial performance representation is based on the experience of our affiliate- owned Vans and not franchised operated Vans, it does not incorporate all costs related to the establishment and operation of a franchised business. Such costs would include, without limitation, van and equipment acquisition costs, general and administrative expenses such as business liability insurance, internet access charges and office telephone costs in addition to labor costs which may be incurred by you. Our affiliate-owned Vans also incurred additional costs that are not included in the tables below, including cost of labor paid to employees and corporate administrative costs, which are expected to be different for franchisee operations. You should consult with your advisors and determine your general and administrative expenses, labor costs and other costs and expenses that you may incur.
Table 2: Average Annual Gross Sales And Certain Average Expenses Per Van
1) Gross Sales includes all Gross Sales from the Vans, but excludes any sales taxes. Credit card processing fees are accounted for in Other Expenses. Sales volume will vary from territory to territory due to differences in competition, pricing and other factors in different markets.
2) Cost of Goods Sold includes the cost of all products sold. These figures may vary substantially from territory to territory depending on the product mix and the geographic area. In order to determine the average Cost of Goods Sold, Fuel, Vehicle Repairs, Insurance, Telephone, Advertising, Samples, Bad Debt and Other Expenses per van, the total cost or expense for each of these categories for the: (i) 6 vans operating for the entire year in 2008, was divided by 6, (ii) 6 vans operating in 2009, including the partial year operation of the sixth van, was divided by 5.33, and (iii) 6 vans operating in 2010, including the partial year operation of the sixth van was divided by 5.5.
3) Gross Margin is calculated by taking the difference between Gross Sales and Cost of Sales. Gross Margin does not take into account Labor Costs, Fuel, Vehicle Repairs and Other Expenses, as described below. The number and percentage of Vans attaining or exceeding the Average Gross Margin in 2010 is 4 (80%), in 2009 is 4 (80%) and in 2008 is 5 (83%).
4) Fuel includes gasoline and oil required to operate and maintain the van. Your actual costs could vary significantly due to differences in local market costs and the volatility of the price of gasoline.
5) Vehicle Repairs includes the cost of maintaining the Vans in good operating condition, but do not include the cost of fuel and oil, as described above. Vehicle repairs also include the cost to restore the Van to working order following a motor vehicle accident. These costs will vary significantly depending on the age and condition of your Van, and local market costs for repairs. Vehicle repair costs can be expected to increase as the Van ages.
6) Insurance includes the cost of liability and uninsured motorist coverage for the Vans. Several factors will affect your insurance costs, including liability rates in your local market, the amount of coverage you select (this is subject to the minimum coverage that we require) and whether or not you have comprehensive and/or collision coverage (coverage on the van itself). If you are leasing or purchasing a van through a finance company, you may be required to provide comprehensive coverage.
7) Telephone includes the cost of cellular phone service, including applicable long distance charges and related taxes.. Telephone cost could vary significantly depending on local market rates and the type of service you have.
8¬†Advertising includes all costs incurred to promote the business, other than the cost of sample products, including marketing materials, Yellow Page listings, trade shows, etc. Your costs will vary significantly depending on the type and extent of the advertising you choose to do. Our affiliate was not required to expend any fixed percentage of revenues on local advertising. Compare these figures to Item 6 of the Disclosure Document that explains a franchisee’s advertising expenses.
9) Samples include the cost of actual products given to customers or potential customers. Your cost will vary significantly depending on the extent to which you rely on the use of product samples.
10) Bad Debt is the amount of sales for which you are unable to collect the amount due. Your actual bad debt costs will vary significantly depending on your ability to manage your accounts receivable and limit your financial exposure.
11) Other Expenses includes the cost of uniforms, dues, vehicle licenses and other costs associated with the operation of the Vans. Other expenses also include the cost of processing credit card transactions. You may have additional other expenses.
12) Advertising Contribution and Local Advertising Allocation of 1% of Gross Sales for the Advertising Contribution and 1% of Gross Sales for the Local Advertising Allocation was not paid by affiliate-owned Vans. The amount is included here solely for the purpose of illustrating the earnings potential had these Vans been operated by a franchisee. As of the date of this Disclosure Document, we do not collect the Advertising Contribution.
13) Other Fees includes a total dollar amount for a group of fees that are based on a percentage of Gross Sales. These Other Fees were not paid by affiliate-owned Vans. The amount is included here solely for the purpose of illustrating expenses which would be incurred had these Vans been operated by a franchisee. Each of the following fees is computed based on a percentage of Gross Sales. These fees include a Royalty Fee of 5%; a Technology Support and Maintenance Fee of 2%; a Collections Fee of 1%; a Marketing and Sales Support Fee of 1%; and a Billing Fee of 2%. See Item 6, Other Fees, in the Franchise Disclosure Document.
14) Earnings before interest, taxes, depreciation, amortization, labor costs, office overhead and other costs represents the average earnings per Van from operations after accounting for directly related variable expenses associated with those operations. This represents the amount of earnings available to cover other expenses, such as your labor costs, other administrative costs, depreciation, taxes, interest and the cost of maintaining an office. The costs associated with financing your business will depend heavily on the amount of money you borrow, the current interest rate and the amount of collateral you pledge. Non-cash expenses, such as depreciation of equipment and amortization of start-up cost will be dependent on current tax laws and your tax strategy. The number and percentage of Vans attaining or exceeding the average earnings before interest, taxes, depreciation, amortization, labor costs, office overhead and other costs in 2010 is 4 (80%), in 2009 is 4 (80%) and in 2008 is 5 (83%).
The sales, expenses and profits (if any) of your business will be affected by many factors, including: (1) competition in the local first aid market; (2) the location of your territory; (3) general and local business and economic climate and conditions; (4) changes in the laws relating to occupational health and safety; (5) changes in product costs due to shortages, inflation and other causes; (6) population and traffic patterns; (7) demographic trends; (8) general employment and wage benefit levels in the service industry, which may be affected by changes in federal and local minimum wage requirements or by federally or locally mandated health insurance benefits; (9) product mix; (10) quality of management and service provided; (11) discretionary expenditures, including advertising and labor costs and (12) other factors.
The territories included in this statement are all located in the Seattle, Washington and Portland, Oregon areas within 200 miles of one another. Your territory may be located outside this area or in another state, and the geography, demographics, and economy in your area may produce different results. In addition, you must factor in the length of time these vans have been operating, the market recognition of the hart health brand in its existing markets and the substantial experience of our affiliate and the operators of these vans when reviewing these results. Because you will not have the same operating history, your results may differ.
None of the information is intended as a representation of what actual, average, projected, forecasted or potential sales or profits you can expect to achieve or product or other costs you can expect to incur at any particular location. Actual results vary from territory to territory, and we cannot estimate the results of any particular franchise. Neither we nor any other person can guarantee the success of a franchisee’s territory, and we caution that a franchisee’s territory may lose money or fail. We do not warrant or promise that you can expect to attain these sales and cost figures. You are urged to consult with appropriate financial, business and legal advisors in connection with the information set forth in this financial performance representation.
The financial information in the financial performance representation does not include any costs related to federal income tax that would be payable or the state and local income tax or sales taxes that may be applicable to the particular jurisdiction in which the business is located. You are strongly urged to consult with your tax and other advisors regarding the impact that federal, state and local taxes will have on the amounts shown.
Some Businesses have sales, earnings and costs in the amounts referenced in this financial performance representation. Your results may differ. There is no assurance that you will sell or earn as much or have the same costs.
Written substantiation for the financial performance representation will be made available to you at our corporate headquarters upon reasonable request.
Other than the financial performance representation set forth above, HART Health does not make any financial performance representations. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, we may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future income, you should report it to the franchisor’s management by contacting HART Health Franchising, Inc., Attn: Controller, 4310 South 131st Place, Seattle, Washington 98168-3200, telephone: (800) 234-4278, the Federal Trade Commission, and the appropriate state regulatory agencies.
*This information is excerpted from Item 19 of the HART Health Franchise Disclosure Document dated March 21, 2011. We update this information on an annual basis. You should read this excerpt in the context of the entire Franchise Disclosure Document.