Popeye's 2014 Annual Report Download - page 48

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Free cash flow: Calculation and Definition
The Company defines free cash flow as net income plus depreciation and amortization plus stock-based compensation expense
minus maintenance capital expenditures which includes: for fiscal 2014, $0.6 million in company-operated restaurant reimages,
$0.8 million of information technology hardware and software and $2.6 million in other capital assets to maintain, replace and
extend the lives of company-operated restaurant and corporate facilities and equipment, and for fiscal 2013, $1.7 million in
company-operated restaurant reimages, $0.9 million of information technology hardware and software and $1.1 million in other
capital assets to maintain, replace and extend the lives of company-operated restaurant facilities. In 2014, maintenance capital
expenditures exclude $20.9 million for the construction of new company-operated restaurants and $2.9 million related to the
acquired restaurants in Minnesota and California. In 2013, maintenance capital expenditures exclude $15.5 million for the
construction of new company-operated restaurants and $13.6 million related to the acquired restaurants in Minnesota and California .
The following table reconciles on a historical basis for fiscal years 2014 and 2013, the Company’s free cash flow on a consolidated
basis to the line on its consolidated statement of operations entitled net income, which the Company believes is the most directly
comparable GAAP measure on its consolidated statement of operations.
(dollars in millions) 2014 2013
Net income $ 38.0 $ 34.1
Depreciation and amortization 8.7 6.7
Stock-based compensation expense 5.3 5.4
Maintenance capital expenditures (4.0)(3.7)
Free cash flow $ 48.0 $ 42.5
The 2013 maintenance capital expenditures have been revised to conform with the current year presentation. Company-operated
restaurant reimages expenditures decreased by $0.5 million which increased free cash flow by $0.5 million. See Note 2 of our
Condensed Consolidated Financial Statements for further explanation of the revision.
Consolidated Total Leverage Ratio: Calculation and Definition
The Company uses Consolidated Total Leverage Ratio (“total leverage ratio”) to measure compliance with its covenants and
borrowing capacity under its 2013 Credit Facility. The Company also believes that its total leverage ratio is a helpful measure for
investors to assess its overall debt leverage which affects its ability to refinance its long-term debt as it matures, the cost of existing
debt, the capacity to incur additional debt to invest in its strategic initiatives, and the ability to repurchase and retire its common
shares.
The Company calculates Consolidated Total Leverage Ratio, in accordance with its 2013 Credit Facility, as the ratio of
Consolidated Total Indebtedness divided by Consolidated EBITDA. Consolidated Total Indebtedness is generally defined under
the 2013 Credit Facility as total indebtedness reflected on our balance sheet plus outstanding letters of credit. Consolidated EBITDA
is defined in the 2013 Credit Facility as earnings before interest expense, taxes, depreciation and amortization, other expenses
(income), net, and stock-based compensation expense for the four immediately preceding fiscal quarters.
Set forth below is the calculation of Consolidated Total Leverage Ratio as of December 28, 2014 and December 29, 2013 and
the reconciliations of Consolidated Total Indebtedness and Consolidated EBITDA to their most comparable GAAP measures:
current debt maturities and long-term debt, for Consolidated Indebtedness, and net income, for Consolidated EBITDA.