Popeye's 2015 Annual Report Download - page 39

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.
Liquidity and Capital Resources
We finance our business activities primarily with cash flows generated from our operating activities and borrowings under
our credit facility.
Based primarily upon our generation of cash flows from operations, coupled with its existing cash reserves of $9.1 million
and $25.9 million available borrowings under its credit facility as of December 27, 2015, the Company believes that it will have
adequate cash flow (primarily from operating cash flows) to meet its anticipated future requirements for working capital, various
contractual obligations and expected capital expenditures for 2016. Furthermore, the Company's new credit facility discussed
below will provide additional resources to meet commitments.
Our franchise model provides strong, diverse and reliable cash flows. Net cash provided by operating activities of the
Company was $62.7 million and $59.6 million for 2015 and 2014, respectively. The $3.1 million increase in cash flows from
operating activities was primarily due to a $9.3 million increase in Operating EBITDA, a $1.4 million increase in stock-based
compensation, and $0.6 million in changes to other operating activities, net, partially offset by a $5.0 million increase in excess
tax benefits from stock-based compensation and a $3.2 million increase in tax payments related to restricted stock award vestings.
See our Company’s Consolidated Statements of Cash Flows in our Consolidated Financial Statements included in this Form 10-
K.
Our cash flows and available borrowings allow us to pursue our growth strategies. Our priorities in the use of available cash
are:
• reinvestment in core business activities that promote the Company’s strategic initiatives,
• repurchase shares of our common stock, and
• reduction of long-term debt.
Our investment in core business activities includes our obligation to maintain and re-image our Company-operated
restaurants, construct Company-operated restaurants and provide operations support to our franchise system. Substantially all
of our capital expenditures have been financed using cash provided from operating activities and borrowings under our bank
credit facilities.
Our capital expenditures consist primarily of new restaurant construction, equipment replacements, re-imaging activities
associated with Company-operated restaurants, investments in information technology and other capital assets. Capital
expenditures related to re-imaging activities consist of significant renovations, upgrades and improvements, which on a per
restaurant basis typically cost between $0.1 million and $0.2 million. Capital expenditures associated with new freestanding
restaurant construction typically cost, on a per restaurant basis, between $1.0 million and $1.5 million.
Net cash used in investing activities was $12.6 million and $68.3 million in 2015 and 2014, respectively. The $55.7 million
decrease in cash used in investing activities was primarily due to the purchase of the the recipes and formulas from Diversified
for $41.8 million during 2014, a $15.0 decrease in investments in capital expenditures due to a decrease in Company-operated
restaurant openings and a $1.1 million decrease in proceeds from dispositions of property and equipment in 2015 compared to
2014.
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