Popeye's 2015 Annual Report Download - page 37

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Company-operated restaurants segment operating profit was $16.4 million, a $3.9 million or 31.2% increase from 2014. The
increase in segment operating profit was primarily due to a $3.5 million increase in Company-operated restaurant operating
profit and a $0.4 million decrease in pre-opening expenses of Company-operated restaurants due to lower openings in 2015.
Interest Expense, Net
Interest expense, net was $3.7 million in 2015, a $0.7 million increase from 2014. This increase was primarily due to a higher
outstanding debt balance under the 2013 Revolving Credit Facility during 2015 and higher effective interest rates under our
credit facility after consideration of the impacts from interest rate swap agreements.
Income Tax Expense
Income tax expense was $26.5 million, yielding an effective tax rate of 37.5%, compared to an effective tax rate of 38.5%
in 2014. The lower effective tax rate in 2015 is primarily due to a $0.5 million out-of-period adjustment to its deferred tax liability
associated with its indefinite lived intangible assets in 2014. 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 2014 and 2013
Sales by Company-Operated Restaurants
Sales by company-operated restaurants were $97.2 million in 2014, a $18.5 million increase from 2013. The increase was
primarily due to new restaurant openings in 2014 and 2013 and an increase in same-store sales of 5.7%.
Franchise Royalties and Fees
Franchise revenues were $131.3 million in 2014, a $9.4 million increase from 2013. The increase was primarily due to a
$13.0 million increase in royalties, resulting from an increase in franchise same-store sales of 6.2% during 2014 and new
franchised restaurants, and a $1.9 million increase in transfer fees and other franchise revenues, net, partially offset by a $5.5
million decrease from 2013 one-time franchise fees associated with the conversion and franchising of California and Minnesota
restaurant properties acquired in 2012.
Rent from Franchised Restaurants
Rent from franchised restaurants was $7.1 million in 2014, a $1.7 million increase from 2013. The increase was primarily
due to $0.9 million in lease termination fees from properties sold to franchise operators and $0.7 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.
Company-Operated Restaurant Operating Profit
Company-operated restaurant operating profit was $18.4 million in 2014 compared to $14.7 million in 2013. The $3.7 million
increase in Company-operated restaurant operating profit was primarily due to an increase in same-store sales of 5.7% and new
restaurant openings in 2014 and 2013. Company-operated restaurant operating profit margin was 18.9% of sales in 2014
compared to 18.7% of sales in 2013. The higher restaurant operating profit margin was primarily due to overall lower food and
commodity prices and labor efficiencies partially offset by lower beverage rebates and an increase in rent, insurance, taxes, and
other occupancy expenses. 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.”
Occupancy Expenses - Franchised Restaurants
Occupancy expenses - franchised restaurants was $3.2 million in 2014, a $0.2 million decrease from 2013. The decrease
was primarily due to lower occupancy expenses associated with the 26 restaurant properties converted and leased to franchisees
in Minnesota and California under percentage rent arrangements and lower occupancy expenses from properties sold or leases
assigned to franchise operators.
General and Administrative Expenses
General and administrative expenses were $78.9 million in 2014, a $5.5 million increase from 2013. This increase was
primarily attributable to:
21