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TheStreet Open House

AFC Enterprises Reports Earnings For Third Quarter 2012

Conference Call

The Company will host a conference call and internet webcast with the investment community at 9:00 A.M. Eastern Time on November 8, 2012, to review the results of the third quarter 2012. To access the Company’s webcast, go to www.afce.com, select “Investor Information” and then select “AFC Enterprises Third Quarter 2012 Earnings Conference Call.” A replay of the conference call will be available for 90 days at the Company’s website or through a dial-in number for a limited time following the call.

Corporate Profile

AFC Enterprises, Inc. is the franchisor and operator of Popeyes® restaurants, the world's second-largest quick-service chicken concept based on number of units. As of September 30, 2012, Popeyes had 2,060 operating restaurants in the United States, Guam, Puerto Rico, the Cayman Islands and 25 foreign countries. AFC’s primary objective is to deliver sales and profits by offering excellent investment opportunities in its Popeyes brand and providing exceptional franchisee support systems and services to its owners. AFC Enterprises can be found at www.afce.com.

Supplemental Financial Information on pages 7-16.

AFC Enterprises, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(In millions, except share data)
 
ASSETS 9/30/12   12/25/11  
Current assets:
Cash and cash equivalents $ 24.8 $ 17.6
Accounts and current notes receivable, net 6.7 7.0
Other current assets 3.6 4.8
Advertising cooperative assets, restricted 23.5   18.9  
Total current assets 58.6   48.3  
Long-term assets:
Property and equipment, net 29.2 27.4
Goodwill 11.1 11.1
Trademarks and other intangible assets, net 46.0 46.5
Other long-term assets, net 1.9   2.3  
Total long-term assets 88.2   87.3  
Total assets $ 146.8   $ 135.6  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3.1 $ 6.1
Other current liabilities 7.6 8.2
Current debt maturities 6.0 5.2
Advertising cooperative liabilities 23.5   18.9  
Total current liabilities 40.2   38.4  
Long-term liabilities:
Long-term debt 52.9 58.8
Deferred credits and other long-term liabilities 26.8   24.6  
Total long-term liabilities 79.7   83.4  
Total liabilities $ 119.9   $ 121.8  
 
Commitments and contingencies
Shareholders' equity:
Preferred stock ($.01 par value; 2,500,000 shares authorized; - -
0 shares issued and outstanding)
Common stock ($.01 par value; 150,000,000 shares authorized;
24,020,745 and 24,383,274 shares issued and outstanding 0.2 0.2
at September 30, 2012 and December 25, 2011, respectively)
Capital in excess of par value 89.0 97.6
Accumulated deficit (61.4 ) (83.2 )
Accumulated other comprehensive loss (0.9 ) (0.8 )
Total shareholders' equity 26.9   13.8  
 
Total liabilities and shareholders' equity $ 146.8   $ 135.6  
 
 
AFC Enterprises, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(In millions, except per share data)
 
12 Weeks Ended 40 Weeks Ended
  9/30/12     10/02/11   9/30/12     10/02/11
 
Revenues:
Sales by company-operated restaurants $ 13.5 $ 12.3 $ 47.6 $ 42.2
Franchise revenues 24.4 22.2 80.4 72.1
Rent and other revenues   1.0   0.9   3.3   3.2
Total revenues   38.9   35.4   131.3   117.5
 
Expenses:
Restaurant employee, occupancy and other
expenses 6.7 6.0 23.1 20.6
Restaurant food, beverages and packaging 4.6 4.2 16.0 14.1
Rent and other occupancy expenses 0.6 0.7 2.1 2.1
General and administrative expenses 14.7 14.1 49.7 46.2
Depreciation and amortization 1.1 0.9 3.5 3.2
Other expenses (income), net   0.1   0.3   0.2   -
Total expenses   27.8   26.2   94.6   86.2
 
Operating profit 11.1 9.2 36.7 31.3
Interest expense, net   0.7   0.8   2.7   2.8
 
Income before income taxes 10.4 8.4 34.0 28.5
Income tax expense   3.5   2.6   12.2   10.0
 
Net income $   6.9 $   5.8 $   21.8 $   18.5
 
Earnings per common share, basic: $   0.29 $   0.24 $   0.91 $   0.75
 
Earnings per common share, diluted: $   0.29 $   0.24 $   0.89 $   0.74
 
Weighted-average shares outstanding:
Basic 23.7 24.1 23.9 24.7
Diluted 24.2 24.5 24.4 25.1
 
Comprehensive Income $ 6.8 $ 5.5 $ 21.7 $ 17.6
 
 
AFC Enterprises, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(In millions)
 
40 Weeks Ended
  9/30/12         10/02/11  
Cash flows provided by (used in) operating activities:
Net income $ 21.8 $ 18.5
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3.5 3.2
Asset write-downs 0.2 0.3
Net gain on sale of assets (0.1 ) (0.7 )
Deferred income taxes 1.9 0.2
Non-cash interest expense, net 0.3 0.4
Provision for credit losses (0.1 ) (0.2 )
Excess tax benefits from stock-based compensation (0.3 ) -
Stock-based compensation expense 3.5 2.2
Change in operating assets and liabilities:
Accounts receivable 0.4 (0.9 )
Other operating assets 1.4 0.8
Accounts payable and other operating liabilities   (4.3 )   (2.0 )
Net cash provided by operating activities   28.2     21.8  
 
Cash flows provided by (used in) investing activities:
Capital expenditures (5.0 ) (2.7 )
Proceeds from dispositions of property and equipment - 0.7
Proceeds from notes receivable and other investing activities   -     0.3  
Net cash used in investing activities   (5.0 )   (1.7 )
 
Cash flows provided by (used in) financing activities:
Principal payments - 2010 credit facility (term loan) (5.0 ) (3.8 )
Borrowings under 2010 revolving line of credit - 2.0
Share repurchases (11.5 ) (22.3 )
Proceeds from exercise of employee stock options 0.5 0.5
Excess tax benefits from stock-based compensation 0.3 -
Other financing activities, net   (0.3 )   (0.3 )
Net cash used in financing activities   (16.0 )   (23.9 )
 
Net increase (decrease) in cash and cash equivalents 7.2 (3.8 )
Cash and cash equivalents at beginning of year   17.6     15.9  
Cash and cash equivalents at end of quarter $ 24.8   $ 12.1  
 
 
AFC Enterprises, Inc.
Same-store sales and restaurant count
       
12 Weeks ended       Year-to-date
9/30/12         10/02/11         9/30/12         10/02/11  
Same-store sales growth      
Company-operated restaurants 1.9 % (1.9 %) 4.7 % 1.9 %
Domestic franchised restaurants 7.0 % 1.8 % 7.9 % 2.2 %
Total domestic (company-operated and franchised restaurants) 6.8 % 1.7 % 7.8 % 2.2 %
International franchised restaurants 2.5 % 1.8 % 2.0 % 2.8 %
Total global system 6.3 % 1.7 % 7.1 % 2.2 %
 
Company-operated restaurants (all domestic)
Restaurants at beginning of period 40 38 40 38
New restaurant openings - - - -
Permanent closings - - - -
Temporary (closings)/re-openings, net -   -   -   -  
Restaurants at end of period 40 38 40 38
 
Franchised restaurants (domestic)
Restaurants at beginning of period 1,597 1,557 1,587 1,542
New restaurant openings 18 11 42 41
Permanent closings (14 ) (10 ) (23 ) (25 )
Temporary (closings)/re-openings, net 5   2   -   2  
Restaurants at end of period 1,606 1,560 1,606 1,560
 
Franchised restaurants (international)
Restaurants at beginning of period 412 405 408 397
New restaurant openings 10 15 37 47
Permanent closings (9 ) (15 ) (33 ) (39 )
Temporary (closings)/re-openings, net 1   (5 ) 2   (5 )
Restaurants at end of period 414 400 414 400
 
Total restaurant count at end of period 2,060   1,998   2,060   1,998  
 
 

Management’s Use of Non-GAAP Financial Measures

Company-operated restaurant operating profit margins, Operating EBITDA, free cash flow and adjusted earnings per diluted share are supplemental non-GAAP financial measures. The Company uses Company-operated restaurant operating profit margins, Operating EBITDA, free cash flow and adjusted earnings per diluted share, in addition to net income, operating profit and cash flows from operating activities, to assess its performance and believes it is important for investors to be able to evaluate the Company using the same measures used by management. The Company believes these measures are important indicators of its operational strength and performance of its business. Company-operated restaurant operating profit margins, Operating EBITDA, free cash flow and adjusted earnings per diluted share as calculated by the Company are not necessarily comparable to similarly titled measures reported by other companies. In addition, Company-operated restaurant operating profit margins, Operating EBITDA, free cash flow and adjusted earnings per diluted share: (a) do not represent net income, cash flows from operations or earnings per share as defined by GAAP; (b) are not necessarily indicative of cash available to fund cash flow needs; and (c) should not be considered as an alternative to net income, earnings per share, operating profit, cash flows from operating activities or other financial information determined under GAAP.

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