Popeye's 2013 Annual Report Download - page 40

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(dollars in millions) 2013 2012
Fluctuatio
n
As a
Percent
Franchise operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54.7 $47.8 $6.9 14.4 %
Company-operated restaurants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 7.6 2.9 38.2 %
Operating profit before unallocated expenses . . . . . . . . . . . . . . . . . . . . . . 65.2 55.4 9.8 17.7 %
Less unallocated expenses:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 4.6 2.1 45.7 %
Other expenses (income), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 (0.5)0.8 (160.0)%
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58.2 $51.3 $6.9 13.5 %
The $6.9 million growth in franchise operations was primarily due to the $11.4 million increase in franchise revenue
partially offset by increases in general and administrative expenses related to international franchise development and
marketing support expenses, domestic new restaurant development expenses, marketing and menu development
expenses, stock-based compensation expense, leadership development, global supply chain, domestic franchisee
restaurant support and other expenses, net.
Company-operated restaurants segment operating profit was $10.5 million, a $2.9 million or 38.2% increase from
2012. The increase is segment operating profit was primarily due to a$3.6 million, or 32.4%, increase in company-
operated restaurant operating profit partially offset by increases in general and administrative expenses primarily related
to the multi-unit management expenses in the new Indianapolis and Charlotte company-operated restaurant markets.
Income Tax Expense
Income tax expense was $20.4 million,yielding an effective tax rate of 37.4%, compared to an effective tax rate of
36.3% in 2012.The higher effective tax rate in 2013 is primarily due to higher state income taxes and favorable
adjustments to estimated foreign income tax credit reserves in 2012 partially offset by higher worker opportunity and
research and development tax credits in 2013. The effective rates differ from statutory rates due to adjustments in
estimated tax reserves, tax credits and permanent differences between reported income and taxable income for tax
purposes. See Note 18 to our Consolidated Financial Statements included in this Form 10-K for the reconciliation of
the statutory rates to the Company's effective tax rates.
Comparisons of Fiscal Years 2012 and 2011
Sales by Company-Operated Restaurants
Sales by company-operated restaurants were $64.0 million in 2012, a$9.4 million increase from 2011. The increase
was primarily due to new restaurants opened and a 5.3% increase in same-store sales.
Franchise Royalties and Fees
Franchise revenues were $110.5 million in 2012, a$15.5 million increase from 2011. The increase was primarily
due to an increase in royalties, resulting primarily from an increase in franchise same-store sales of 7.5% during 2012
and new franchised restaurants.
Company Operated Restaurant Profit
Company-operated restaurant operating profit of $11.1 million was 17.3% of sales, compared to $10.2 million and
18.7% of sales in 2011. The $0.9 million increase in Company-operated restaurant operating profit was primarily due
to same-store sales of 5.3% and two new restaurant openings in 2011. The 2012 operating profit includes approximately
$0.3 million in pre-opening costs associated with opening 5 new restaurants. The 2011 restaurant operating profit
includes a$0.5 million favorable adjustment to insurance reserves. Excluding the effects of pre-opening costs in 2012
and the change in estimated insurance reserves in 2011, Company-operated restaurant operating profit margin would
have been 17.8% in both 2012 and 2011. Company-operated restaurant operating profit margin is a supplemental non-
GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”