We believe overall labor inflation, along with various labor initiatives we intend to implement, including
service enhancements and employing more full-time versus part-time team members, and higher health care costs will increase our company-operated restaurant labor costs. The Department of Labor (DOL) has considered regulations related to
overtime and exempt versus
non-exempt
classification, and our company-operated restaurant labor costs could increase further if new regulations are adopted and implemented. In addition, our employee turnover,
which results in inefficiencies and higher labor costs, increased significantly in fiscal 2017 at company-operated restaurants and could negatively impact the future performance of our company-operated restaurants.
Company-operated Restaurant Operating Costs
Company-operated restaurant operating costs include all other company-operated restaurant-level operating expenses, such as repairs and maintenance, utilities,
credit and debit card processing, occupancy expenses and other restaurant operating costs. In addition, our advertising costs are included in company-operated restaurant operating costs and are comprised of our company-operated restaurants
portion of spending on all advertising which includes, but is not limited to, television, radio, social media, billboards,
point-of-sale
materials, sponsorships, and
creation of media, such as commercials and marketing campaigns.
Company-operated Restaurant Depreciation and Amortization
Company-operated restaurant depreciation and amortization primarily consists of the depreciation of property and equipment and amortization of intangible
assets at the company-operated restaurant level. Company-operated restaurant count, as well as restaurant remodels, investments in technology and other initiatives, impacts company-operated restaurant depreciation and amortization.
Franchise Marketing and
Co-op
Advertising Costs
Franchise marketing and
co-op
advertising costs include our franchisees portion of marketing advertising expenses
incurred in connection with the marketing and
co-op
advertising funds we manage.
Costs Associated with
Properties and Equipment Rentals
Costs associated with properties and equipment rentals primarily consists of rental expense associated with
properties and equipment leased or subleased to franchisees.
General and Administrative Expenses
General and administrative expenses include expenses associated with corporate and administrative functions that support our operations, including compensation
and benefits, travel expense, stock-based compensation expense, legal and professional fees, training, and other corporate costs. We expect we will incur incremental increases in general and administrative expenses as a result of being a public
company.
Other Depreciation and Amortization
Other depreciation and amortization primarily consists of the depreciation of property and equipment and amortization of intangible assets not directly located
at company-operated restaurants. System-wide restaurant count, as well as investments in technology and other initiatives, impacts other depreciation and amortization.
Impairment
Long-lived assets such as property,
equipment and intangible assets are reviewed on a
unit-by-unit
basis for impairment. When circumstances indicate a carrying value of the assets may not be recoverable,
an appropriate impairment is recorded. Impairments could increase if performance of company-operated restaurants is not sufficient to recover the carrying amount of the related long-lived assets.
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