Popeye's 2014 Annual Report Download - page 39

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Operating Profit
Operating profit in 2014 was $64.8 million, a $6.6 million increase compared to 2013. Fluctuations in the components of
revenue and expense giving rise to this change are discussed above. The following is an analysis of the fluctuations in operating
profit by business segment. Operating profit for each reportable segment includes operating results directly attributable to each
segment.
(Dollars in millions) 2014 2013 Fluctuation
As a
Percent
Franchise operations $ 62.2 $ 54.7 $ 7.5 13.7%
Company-operated restaurants 12.5 10.5 2.0 19.0%
Operating profit before unallocated expenses 74.7 65.2 9.5 14.6%
Less unallocated expenses:
Depreciation and amortization 8.7 6.7 2.0 29.9%
Other expenses (income), net 1.2 0.3 0.9 300.0%
Total $ 64.8 $ 58.2 $ 6.6 11.3%
The $7.5 million growth in franchise operations was primarily due to the $9.4 million increase in franchise revenue partially
offset by increases in general and administrative expenses related to the corporate support center, domestic franchise restaurant
support, new restaurant development expenses and expenses supporting the Company's Develop Servant Leaders strategy.
Company-operated restaurants segment operating profit was $12.5 million, a $2.0 million or 19.0% increase from 2013. The
increase in segment operating profit was primarily due to a $3.7 million, or 25.2%, increase in company-operated restaurant
operating profit partially offset by increases in general and administrative expenses primarily related to expenses in the new
Indianapolis and Charlotte company-operated restaurant markets.
Income Tax Expense
Income tax expense was $23.8 million, yielding an effective tax rate of 38.5%, compared to an effective tax rate of 37.4% in
2013. The higher effective tax rate in 2014 is primarily due to higher state income taxes and a $0.5 million out-of-period adjustment
to its deferred tax liability associated with its indefinite lived intangible assets. 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. The explanation for the out-of-period adjustment is in Note 2 to our Consolidated
Financial Statements included in the Form 10K.
Comparisons of Fiscal Years 2013 and 2012
Sales by Company-Operated Restaurants
Sales by company-operated restaurants were $78.7 million in 2013, a $14.7 million increase from 2012. The increase was
primarily due to new restaurant openings in 2013 and 2012 and an increase in same-store sales of 2.3% partially offset by the $1.2
million sales impact of the 53rd week in 2012.
Franchise Royalties and Fees
Franchise revenues were $121.9 million in 2013, a $11.4 million increase from 2012. The increase was primarily due to a $7.8
million increase in royalties, resulting from an increase in franchise same-store sales of 3.8% during 2013 and new franchised
restaurants, and a $5.0 million increase in one-time franchise fees associated with the conversion and franchising of California
and Minnesota restaurant properties acquired in 2012 partially offset by a $1.4 million decrease in transfer fees and other franchise
revenues, net.
Rent from Franchised Restaurants
Rent from franchised restaurants was $5.4 million in 2013, a $1.1 million increase from 2012. The increase was primarily due
to $1.9 million in rents from twenty-six restaurant properties converted and leased to franchisees in Minnesota and California
under percentage rent arrangements partially offset by lower rents from properties sold or leases assigned to franchisee operators.