EXHIBIT 99.2
[AFC LOGO]
AFC ENTERPRISES FILES ANNUAL REPORT ON FORM 10-K FOR 2002 AND RESTATED
FINANCIAL STATEMENTS FOR 2000 AND 2001
Company Also Comments on Operational Drivers for 2004
ATLANTA, Dec. 15 -- AFC Enterprises, Inc. (Pink Sheets: AFCE), the franchisor
and operator of Popeyes(R) Chicken & Biscuits, Church's Chicken(TM), Cinnabon(R)
and the franchisor of Seattle's Best Coffee(R) in Hawaii, on military bases and
internationally, today announced the filing of its annual report on Form 10-K
for 2002, as well as its restated financial statements for the fiscal years 2001
and 2000.
Fiscal year 2002 versus fiscal year 2001, as restated, included:
- System-wide sales at AFC's 4,071 restaurants, bakeries and
cafes, including the Company's wholesale operations of
Cinnabon and Seattle Coffee Company, increased 4.7 percent to
$2.7 billion versus $2.6 billion in 2001.
- Franchise revenues increased 10.1 percent to $111.3 million
from $101.1 million in 2001. This increase was primarily
attributable to a net increase of 397 franchised units. As of
December 29, 2002, the Company had 3,532 franchised
restaurants, bakeries and cafes.
- Total revenues in 2002 were $619.6 million compared with
total revenues of $687.2 million in 2001. This decline was
primarily attributable to the sale of company-owned
restaurant units to franchise partners. During 2002, the
Company sold 175 of its company-operated units to franchisees
as part of its ongoing strategy to concentrate on
franchising.
- Consolidated operating profit was $38.7 million in 2002
compared with $53.9 million in 2001. The decrease in
consolidated operating profit was primarily the result of
$44.6 million in non-cash charges for impairment of
non-current assets, principally from the write-down of
goodwill in the Company's coffee segment.
- AFC reported $122.9 million in adjusted EBITDA, as defined,
versus $116.4 million in 2001. AFC's adjusted EBITDA
computation can be found in the attached charts.
- AFC reported a net loss of $(11.7) million, or $(0.37) per
diluted share in 2002, compared with net income of $15.6
million, or $.50 per diluted share in 2001. The net loss was
primarily the result of significant goodwill and other
impairment charges.
- AFC generated $93.8 million in cash flow from operating
activities in 2002 compared to $57.4 million in 2001,
representing a 63.4 percent increase over the prior year.
Chairman and CEO Frank Belatti stated, "The release of these results is a major
milestone that enables us to move forward as an organization. The Company is
firmly committed to driving operational performance and focusing our business
model on franchising. We strongly believe in the tremendous appeal of our
concepts and despite the challenges that AFC has confronted recently, we
continue to see strong opportunity for expanding our brands globally. We look
forward to 2004 as we continue to implement actions to improve results and
build a sustainable growth path for each of our brands."
Financial Performance Review
System-wide sales at AFC's 4,071 restaurants, bakeries and cafes were $2.7
billion which included Seattle Coffee Company's wholesale sales of $65.9
million in 2002 and Cinnabon wholesale sales of $3.6 million. This compared
with total system-wide sales of $2.6 billion in 2001, including wholesale sales
of $61.1 million for Seattle Coffee Company. Cinnabon did not implement its
pre-packaged cinnamon roll wholesale strategy until 2002.
For fiscal year 2002, franchise revenues increased 10.1 percent from 2001 to
$111.3 million. This franchise related revenue increase represented the
addition of 314 net domestic franchised units, including the conversion of 175
company-operated units to franchised units and 83 net new international
franchised units, despite a decrease in franchise royalties due to lower same
store sales performance. AFC's total revenue for fiscal year 2002 was $619.6
million compared to $687.2 million in 2001. The total revenue decrease was
primarily due to the sale of company-operated units to franchise partners as
part of AFC's conversion strategy.
Popeyes and Church's posted a record year of $108.1 million in operating profit
for 2002, an improvement from 2001 of approximately 18.5 percent. Operating
profit for Cinnabon decreased $8.7 million due to a decline in per- bakery
operating margins, softened same-store sales and a $3.1 million impairment of
tangible assets at certain under-performing bakeries.
Seattle Coffee Company experienced a decline in operating profit primarily due
to the $33.3 million of asset impairments, reflecting the difference between
the fair value of the Company's continental U.S. coffee segment and its book
value. AFC completed the sale of the Seattle Coffee Company to Starbucks
Corporation for $72.0 million on July 14, 2003.
Consolidated operating profit for AFC was $38.7 million in 2002 compared to
$53.9 million in 2001. The decrease was primarily attributable to charges for
impairment of non-current assets.
AFC reported $122.9 million in adjusted EBITDA in 2002 compared to $116.4
million in 2001. This increase was primarily driven by the strong operating
performance of AFC's chicken brands. AFC's EBITDA computation and
reconciliation to GAAP measures is cited in detail on page 12.
For fiscal year 2002, AFC's diluted earnings per share of $(0.37) reflected a
decrease of $.87 in earnings per share compared to $.50 per diluted share in
2001. This decline is primarily the result of impairment charges.
For fiscal year 2002, AFC reported cash flow from operating activities of $93.8
versus $57.4 million in 2001 due to strong operating performance before
consideration of non-cash charges relating to asset write-downs, increase in
deferred taxes and favorable net fluctuations in operating asset and operating
liability balances.
Restatement of Financial Statements
The following is a summary of the adjustments to AFC's previously
issued financial statements for fiscal years 2000 and 2001.
(in millions)
Effect on Previously Reported
Earnings Increase (Decrease)
Issue 2001 2000
1) Gains associated with unit conversions $ (8.9) $(3.5)
2) Impairment of long-lived assets (8.4) (0.3)
3) Post-employment payments to a former officer (2.9) --
4) Cinnabon purchase accounting (2.4) (1.5)
5) Inventory adjustments at Seattle Coffee (1.8) (0.7)
6) Equipment placed at Seattle Coffee customers (1.4) (1.6)
7) Accrued liabilities (0.7) (1.0)
8) Capitalized interest (0.9) (0.4)
9) Business taxes and related professional fees (0.9) 0.2
10) Slotting fees at Seattle Coffee (0.9) (0.1)
11) Beverage rebates (0.8) 0.3
12) Rent expense (0.8) (1.0)
13) Sales allowances at Seattle Coffee (0.6) (0.2)
14) Recognition of re-imaging costs (0.6) 0.3
15) Future lease obligations - closed units 0.8 (1.3)
16) Advertising funds (0.4) (0.3)
17) Leasehold improvement - useful lives (0.3) (0.1)
18) Legal accrual -- 1.5
19) Capitalized expenses -- (1.3)
20) Workers' compensation accrual -- (1.3)
21) Group medical insurance accrual -- (1.0)
22) Other 0.3 0.1
Subtotal (31.6) (13.2)
Tax effect 10.3 4.0
Total $(21.3) $(9.2)
1) Gains Associated With Unit Conversions
AFC's prior accounting treatment regarding the sale of assets to a franchisee
in connection with a unit conversion was, in most cases, to recognize gains
immediately. The Company has determined that a portion of such gains should
have been deferred in circumstances where AFC maintains some continuing
involvement with the assets beyond the customary franchisor role. The
calculation of the gain was also decreased by the allocation of goodwill to
each unit conversion. The deferred amounts of these gains, or $19.1 million as
of December 29, 2002, are being recognized as income over the period of
continuing involvement.
2) Impairment of Long-Lived Assets
The Company's prior accounting treatment regarding impairment of long- lived
assets was to evaluate company-operated units on a market basis. AFC has
determined that the evaluation should have been performed on a site-by-site
basis which is the lowest level of identifiable cash flows as required by SFAS
121. Accordingly the Company adjusted its long-lived asset impairment charges
(including an adjustment to record $3.0 million and zero impairment of goodwill
allocated to the individual units in 2001 and 2000, respectively) to reflect
the evaluation on a site-by-site basis.
3) Post-Employment Payments to a Former Officer
Beginning in 2001, AFC expensed certain post-employment payments to a former
officer as the payments were made over the term of the ten-year agreement. The
Company has determined that the entire obligation to the former officer should
have been recorded when the agreement became effective, since no additional
services were required to be performed. Accordingly, AFC expensed the entire
obligation in 2001.
4) Cinnabon Purchase Accounting
In the 1998 acquisition of Cinnabon, AFC accrued certain costs as acquisition
costs and recorded 100% of the purchase price in excess of the fair value of
the net assets acquired as goodwill. The Company has determined that certain of
the acquisition costs accrued should have been expensed as incurred. In
addition, the Company has determined that the allocation of the purchase price
to the fair values of acquired bakeries and identifiable intangible assets were
understated. AFC has reversed certain costs initially accrued in the
acquisition and the expenses are recorded in the Company's statements of
operations as incurred. The purchase price allocation has been adjusted for the
respective identifiable assets and the related depreciation and amortization
expenses have been adjusted in the statements of operations.
5) Inventory Adjustments at Seattle Coffee
In the third quarter of 2002, AFC identified errors relating to Seattle
Coffee's inventory costing. The Company has determined that the adjustments
relate to 2001 and 2000 and, accordingly, has reflected such adjustments in
those years.
6) Equipment Placed at Seattle Coffee Customers
Historically, Seattle Coffee has placed certain equipment at customer
locations, the cost of which was capitalized. AFC determined that such costs
should have been recognized as marketing expenses. Accordingly, the Company
recorded adjustments to expense the cost of such equipment in the periods it
was placed in service.
7) Accrued Liabilities
AFC corrected accrual accounts for errors in computation and timing of expense
recognition. Accounts affected by these adjustments include accruals for
business insurance, employee relocations, advertising, management bonuses and
other miscellaneous accounts. The Company made adjustments to record the
associated accruals based on correct computations and in the appropriate
periods.
8) Capitalized Interest
The Company's computation of interest to be
capitalized was based upon applying an interest rate to a group of assets which
included completed projects. As a result, AFC determined the calculation should
be adjusted using only those assets where construction was in progress and all
other amounts were expensed as interest expense.
9) Business Taxes and Professional Fees
AFC's prior accounting treatment was to accrue professional tax fees in the
Company's tax liability accounts. Adjustments were made to reclassify these
professional fees to general liability accounts and expense business taxes and
related professional fees as incurred.
10) Slotting Fees at Seattle Coffee
Seattle Coffee capitalized amounts paid to its wholesale customers for
favorable shelf positioning for its products and amortized the amounts over a
two-year period. AFC has determined that when the specified term of the
slotting agreement was not expressed in a written contract, the payments made
to customers should have been expensed as sales discounts when incurred.
Accordingly, the Company has expensed these amounts in the periods incurred
unless an underlying written contract supports capitalization and amortization
over a specified term.
11) Beverage Rebates
The Company's prior accounting treatment was to record rebates from beverage
vendors when received. AFC has determined that these rebates should have been
recorded in the periods earned. Accordingly, adjustments have been made to
recognize the rebates in the periods earned.
12) Rent Expense
AFC recorded rent expense on a straight-line basis over the initial lease term
for certain of its leases. The Company has determined that rent expense for all
leases should be calculated using the straight-line basis over the lease term
(inclusive of renewal options the Company was reasonably expected to exercise).
Accordingly, the Company has adjusted rent expense during 2001 and 2000 to
record rent expense on the straight-line basis. The effect of this adjustment
on years prior to 2000 reduced shareholders' equity at December 26, 1999 by
$3.8 million before giving effect to income taxes.
13) Sales Allowances at Seattle Coffee
Seattle Coffee recorded certain sales discounts and allowances that were
offered to customers in the period when such discounts were paid. AFC has
determined that such discounts and allowances should have been estimated and
accrued in the period of the associated sales. Accordingly, the Company has
adjusted its provisions for sales allowances and returns to recognize the
expense in the period that the related revenue was earned.
14) Recognition of Re-imaging Costs
The Company's accounting treatment for the recognition of reimaging costs was
based upon accruing those costs on the planned dates of the reimaging
activities. AFC determined that the reimaging costs should have been recorded
based upon the actual dates of the reimaging activities. Accordingly, the
Company adjusted the reimaging costs to record the costs in the period
incurred.
15) Future Lease Obligations - Closed Units
The Company recorded lease obligations associated with closed units net of
anticipated sublease rental income. AFC determined that the sublease rental
income was not reasonably supported. Accordingly, the Company recalculated the
estimated future lease obligation for certain closed units using 100% of the
remaining lease obligation.
16) Advertising Funds
Historically, the Popeyes' and Church's advertising funds were not consolidated
in the Company's financial statements. AFC determined that these accounts
should have been consolidated because the Company has control of certain
activities. Accordingly, the advertising funds' accounts have been consolidated
in accordance with SFAS 45, Accounting for Franchise Fee Revenue. Contributions
received from franchisees related to the funds and the associated expenses of
the funds are accounted for using the agency method.
17) Leasehold Improvements - Useful Lives
The Company's depreciable lives used for leasehold improvements were based upon
the useful lives of the assets. AFC determined that for certain leasehold
improvements, the depreciable life was longer than the remaining term of the
associated lease. Accordingly, the Company adjusted depreciation expense to
recognize the effect of reducing the depreciable life to the lease term.
18) Legal Accrual
The Company was under accrued for legal reserves at the end of 1999 and made an
adjustment to increase the accrual in 2000. AFC has determined that the
adjustment should have been made in 1999 and, accordingly, reflected the
adjustment in the appropriate period.
19) Capitalized Expenses
The Company had capitalized certain amounts including construction overhead
costs and other amounts which the Company determined should have been expensed
as incurred. Accordingly, the Company has made adjustments to expense those
items in the period the costs were incurred.
20) Workers' Compensation Accrual
The Company's workers' compensation accrual at the end of 1999 was overstated
and an adjustment was made to decrease the accrual in 2000. AFC has determined
that the adjustment should have been made in 1999. Accordingly, the Company has
reflected the adjustment in the appropriate period.
21) Group Medical Insurance Accrual
The Company's group medical insurance accrual at the end of 1999 was overstated
and an adjustment was made to decrease the accrual in 2000. AFC has determined
that the adjustment should have been made in 1999. Accordingly, the Company has
reflected the adjustment in the appropriate period.
22) Other
Other adjustments were made, none of which were individually material.
2001 and 2000 Statements of Operations Restatement Comparison.
The following table compare previously reported amounts with restated amounts
for fiscal years 2001 and 2000.
(in millions, except 2001 2000
per share data) As As
Previously As Previously As
Reported Restated Reported Restated
Revenues:
Sales by company-operated
restaurants $507.0 $507.0 $567.4 $567.4
Franchise revenues 106.3 101.1 90.4 88.7
Wholesale revenues 64.8 61.1 56.7 55.9
Other revenues 14.5 18 10.7 11.2
Total revenues 692.6 687.2 725.2 723.2
Expenses:
Restaurant employee, occupancy
and other expenses 257.8 260.1 292.5 299.1
Restaurant food, beverages and
packaging 148 147.1 162.5 159
General and administrative expenses 108 116 102.4 103.3
Wholesale cost of sales and
operating expenses 51.7 54.3 43.5 46.3
Depreciation and amortization 41.3 40.3 41.8 41.2
Impairment charges and other -- 15.5 0.9 7
Total expenses 606.8 633.3 643.6 655.9
Operating profit 85.8 53.9 81.6 67.3
Interest expense, net 23.2 24.6 33.9 33.3
Income before income taxes 62.6 29.3 47.7 34
Income tax expense 24.7 13.7 20 15.7
Income from continuing operations 37.9 15.6 27.7 18.3
Extraordinary loss on debt
extinguishments, net of taxes 1.0 -- 0.2 --
Discontinued operations, net of
taxes -- -- -- --
Net income $ 36.9 $ 15.6 $ 27.5 $ 18.3
Other Business Matters
Share Repurchase Program
On July 22, 2002, AFC's board of directors approved a share repurchase program
of up to $50 million, effective as of such date. On October 7, 2002, AFC's
board of directors approved an increase to this program from $50 million to
$100 million. The program, which is open-ended, allows the Company to
repurchase its shares from time to time in accordance with the requirements of
the Securities and Exchange Commission. As of December 29, 2002, AFC
repurchased 3,692,963 shares of its stock for $77.9 million under this program.
These purchases were funded from the proceeds of the Company's bank credit
facility and internally generated funds. The average weighted shares
outstanding for 2002 were 30.0 million shares.
AFC has not repurchased any additional shares in 2003. While the Company
expects to continue with its repurchase program once it is fully compliant with
the Securities and Exchange Commission reporting requirements, there are no
assurances with regard to the number of shares the Company may repurchase nor
the timing of when the additional repurchases will occur.
Status of 2003 10-Q Filings
Work on the Company's 10-Q filings for the current 2003 fiscal year is
underway. The Company intends to make every effort to file its Quarterly
Reports on Form 10-Q for the first three quarters of 2003 as soon as possible.
Key Operational Measures: 2004 Outlook
AFC previously reported the Company's operational expectations for the full
year 2003 in a press release dated November 4, 2003. The following highlights
AFC's key operational projections for 2004:
Domestic Same-store Sales Growth
AFC is projecting full year 2004 blended domestic same-store sales to be up
1.0-2.0 percent. By brand, AFC is estimating domestic same-store sales growth
for 2004 to be up 1.0-2.0 percent for Popeyes, flat to up 1.0 percent for
Church's and up 2.5-3.5 percent for Cinnabon.
New System-wide Openings
The Company is anticipating that 315-345 new unit openings will occur in 2004.
This figure is comprised of the addition of 170-180 Popeyes units, 55- 65
Church's units, 65-70 Cinnabon units, and 25-30 Seattle's Best Coffee
international units. Net new units for 2004 are projected to be 175-215 units
as a result of approximately 130-140 unit closings.
Commitments
AFC is expecting a recovery in the sale of new commitments for future
development in 2004. The Company is projecting to sign 550-600 new commitments
with Popeyes recording 325-350, Church's with 125-135 and Cinnabon with
100-115. However, the 2004 domestic commitments will be dependent on the timing
of the Company's franchise offering circulars and state franchise
registrations, which are expected to be executed no later than the end of the
first quarter of 2004.
The Company will provide financial performance guidance for 2004 after the
filing of Quarterly Reports on AFC's Form 10-Q for the first three quarters of
2003.
Dick Holbrook, President and COO of AFC Enterprises, stated, "We continue to
see a modest recovery in the business as we focus on action-oriented solutions
to improve brand performance. We expect this trend to continue into 2004 but
have taken a conservative position in our overall operational performance
outlook to make sure that our initiatives continue to prove successful, and to
allow AFC to return to a more normalized level of business activity once we are
able to fully engage in our franchise sales activities."
Conference Call and Internet Webcast
AFC will host a conference call and internet web cast with the investment
community, at 10:00 AM eastern time, on Tuesday, December 16, 2003, to discuss
in-depth the contents of this release. To access the Company's web cast, go to
www.afce.com, select "Investor Information" and then select "10-K Review."
Corporate Profile
AFC Enterprises, Inc. is the franchisor and operator of 4,077 restaurants,
bakeries and cafes as of November 30, 2003, in the United States, Puerto Rico
and 35 foreign countries under the brand names Popeyes(R) Chicken & Biscuits,
Church's Chicken(TM) and Cinnabon(R), and the franchisor of Seattle's Best
Coffee(R) in Hawaii, on military bases and internationally. AFC's primary
objective is to be the world's Franchisor of Choice(R) by offering investment
opportunities in highly recognizable brands and exceptional franchisee support
systems and services. AFC Enterprises had system-wide sales of approximately
$2.7 billion in 2002 and can be found on the World Wide Web at www.afce.com.
AFC Enterprises, Inc.
Consolidated Balance Sheets
As of December 29, 2002 and December 30, 2001
(In millions, except share data)
2002 2001
As Restated
ASSETS
Current assets:
Cash and cash equivalents $ 9.6 $ 5.1
Accounts and current notes
receivable, net 36.2 27.7
Inventories 14.9 15.9
Prepaid income taxes 20.6 12.2
Other current assets 14.5 13.6
Total current assets 95.8 74.5
Long-term assets:
Property and equipment, net 213.8 238.2
Goodwill 27.9 67
Trademarks and other intangible
assets, net 115.4 114.8
Other long-term assets, net 34.4 30.8
Total long-term assets 391.5 450.8
Total assets $487.3 $525.3
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 58 $ 59
Accrued liabilities 19.1 17.8
Current debt maturities 17.6 33.7
Total current liabilities 94.7 110.5
Long-term liabilities:
Long-term debt 209 175.8
Deferred credits and other
long-term liabilities 73.8 51.7
Total long-term liabilities 282.8 227.5
Total liabilities 377.5 338.0
Commitments and contingencies
Shareholders' equity:
Preferred stock ($.01 par
value; 2,500,000 shares
authorized; 0 issued and
outstanding) -- --
Common stock ($.01 par value;
150,000,000 shares authorized;
27,478,744 and 30,441,887
shares issued and outstanding
at the end of fiscal
years 2002 and 2001,
respectively) 0.3 0.3
Capital in excess of par value 144.7 212.1
Notes receivable from officers,
including accrued interest (6.1) (7.7)
Accumulated losses (29.1) (17.4)
Total shareholders' equity 109.8 187.3
Total liabilities and
shareholders' equity $487.3 $525.3
AFC Enterprises, Inc.
Consolidated Statements of Operations
For Fiscal Years 2002, 2001 and 2000
(In millions, except per share data)
2002 2001 2000
As Restated As Restated
Revenues
Sales by company-operated
restaurants $ 413.3 $ 507.0 $ 567.4
Franchise revenues 111.3 101.1 88.7
Wholesale revenues 69.5 61.1 55.9
Other revenues 25.5 18.0 11.2
Total revenues 619.6 687.2 723.2
Expenses
Restaurant employee, occupancy and
other expenses 218.3 260.1 299.1
Restaurant food, beverages and
packaging 116.9 147.1 159.0
General and administrative expenses 110.4 116.0 103.3
Wholesale cost of sales and
operating expenses 56.1 54.3 46.3
Depreciation and amortization 29.6 40.3 41.2
Impairment charges and other 49.6 15.5 7.0
Total expenses 580.9 633.3 655.9
Operating profit 38.7 53.9 67.3
Interest expense, net 22.6 24.6 33.3
Income before income taxes and
accounting change 16.1 29.3 34.0
Income tax expense 16.0 13.7 15.7
Income before accounting change 0.1 15.6 18.3
Loss from the cumulative effect of
an accounting change (11.8) -- --
Net (loss) income $ (11.7) $ 15.6 $ 18.3
Basic (loss) earnings per common
share:
Income before accounting change $ -- $ 0.53 $ 0.7
Loss from the cumulative effect of
an accounting change (0.39) -- --
Net (loss) income $ (0.39) $ 0.53 $ 0.7
Diluted (loss) earnings per common share:
Income before accounting change $ -- $ 0.5 $ 0.64
Loss from the cumulative effect of
an accounting change (0.37) -- --
Net (loss) income $ (0.37) $ 0.5 $ 0.64
AFC Enterprises, Inc.
Consolidated Statements of Cash Flows
For Fiscal Years 2002, 2001 and 2000
2002 2001 2000
As Restated As Restated
Cash flows provided by (used in)
operating activities:
Net income $(11.7) $15.60 $18.30
Adjustments to reconcile net (loss)
income to net cash
provided by operating activities:
Depreciation and amortization 29.6 40.3 41.2
Impairment and other write-downs of
non-current assets 44.6 13.5 7.5
Cumulative effect of an accounting
change 11.8 -- --
Deferred income taxes 12.9 (1.6) 6.8
Non-cash interest, net 3.8 1.6 1.6
Net loss (gain) on sale of assets 4.0 1.3 (6.4)
Provision for credit losses 2.1 1.3 1.2
Compensatory expense for stock
options 0.3 0.4 1.8
Change in operating assets and
liabilities:
Accounts receivable (9.6) (8.0) (0.6)
Prepaid income taxes (8.4) (9.5) (1.8)
Inventories and other operating
assets (3.4) (2.3) 1.6
Accounts payable and other
operating liabilities 17.8 4.8 (11.3)
Net cash provided by
operating activities 93.8 57.4 59.9
Cash flows provided by (used in)
investing activities:
Capital expenditures (49.7) (58.0) (50.0)
Proceeds from disposition of property
and equipment 35.4 39.9 28.9
Other, net 0.7 0.6 1.2
Net cash used in investing
activities (13.6) (17.5) (19.9)
Cash flows provided by (used in)
financing activities:
Proceeds from 2002 Credit Facility 250 -- --
Principal and premium payments -
Senior Subordinated Notes (133.4) (24.3) (16.9)
Principal payments - 1997 Credit
Facility (78.7) (79.9) (12.6)
Principal payments - 2002 Credit
Facility (27.1) -- --
Principal payments - capital lease
obligations (0.3) (2.0) (4.6)
Net (repayments) borrowings -
SouthTrust Line of Credit (1.7) 1.7 --
Issuance of common stock, net 0.3 46 --
Stock repurchases (77.9) -- (0.1)
Increase in bank overdrafts, net (7.8) 4.4 (2.6)
Debt issuance costs (4.9) -- (0.1)
Proceeds from exercise of employee
stock options and other, net 5.8 4.1 (3.5)
Net cash used in financing
activities (75.7) (50.0) (40.4)
Net increase in cash and cash
equivalents 4.5 (10.1) (0.4)
Cash and cash equivalents at
beginning of period 5.1 15.2 15.6
Cash and cash equivalents at end of
period $ 9.6 $ 5.1 $ 15.2
Adjusted EBITDA: Calculation and Definition
The following table reconciles adjusted EBITDA on a consolidated basis to the
line on our consolidated statement of operations entitled net income, which we
believe is the line on our consolidated statement of operations most directly
comparable GAAP measure to adjusted EBITDA:
2002 2001 2000
Net income (loss) $(11.7) $ 15.60 $ 18.30
Interest expense, net 22.6 24.6 33.3
Estimated interest within rental
expense, net 6.0 7.4 8.5
Income tax expense 16.0 13.7 15.7
Depreciation and amortization 29.6 40.3 41.2
Impairment and other write-downs of 44.6 13.5 7.5
non-current assets
Loss (gain) on sale of assets, net 4.0 1.3 (6.4)
Reversal of an environmental reserve -- -- (6.0)
Cumulative effect of an accounting
change 11.8 -- --
Adjusted EBITDA, as defined $122.9 $ 116.4 $ 112.1
Adjusted EBITDA is a supplemental non-GAAP financial measure. EBITDA is
commonly defined as net income plus (a) interest expense, (b) income taxes and
(c) depreciation and amortization. Our definition of adjusted EBITDA is
different from EBITDA because we also add the following items to net income:
(a) an estimate of interest within rental expense, (b) impairments and other
write-downs of non-current assets, (c) gains and losses on the sale of assets,
(d) the reversal of an environmental reserve and (e) the cumulative effect of
accounting changes. We use adjusted EBITDA, in addition to net income,
operating profit and cash flows from operating activities, to assess our
performance and believe it is important for investors to be able to evaluate us
using the same measures used by management. We believe this measure is an
important indicator of our operational strength and performance of our business
because it provides a link between profitability and operating cash flow. In
addition, we use adjusted EBITDA, as opposed to EBITDA, because adjusted EBITDA
adds back items to net income which we believe are generally not operational in
nature and not indicative of core operating performance of our continuing
operations. We also believe that adjusted EBITDA is a supplemental measurement
tool used by analysts and investors to help evaluate a company's overall
operating performance by including only transactions related to core cash
operating business activities.
Adjusted EBITDA as calculated by us is not necessarily comparable to similarly
titled measures reported by other companies. In addition, adjusted EBITDA: (a)
does not represent net income or cash flows from operations as defined by GAAP;
(b) is not necessarily indicative of cash available to fund our cash flow
needs; and (c) should not be considered as an alternative to net income,
operating profit, cash flows from operating activities or our other financial
information determined under GAAP.
Total Domestic Same-store Sales
Year Year
4Q Ended 4Q Ended Ended Ended
12/30/2001 12/29/2002 12/30/2001 12/29/2002
Popeyes
Company 4.4% 2.4% 4.8% 1.1%
Franchised 5.1% (2.0%) 4.1% 0.6%
Total Domestic 5.0% (1.7%) 4.2% 0.7%
International (4.2%) (5.4%) (6.9%) (5.4%)
Church's
Company 3.3% (4.2%) 2.8% (1.3%)
Franchised 3.9% (5.0%) 2.0% (1.7%)
Total Domestic 3.7% (4.8%) 2.3% (1.6%)
International 2.0% (4.4%) 0.0% (1.4%)
Cinnabon
Company (2.3%) (7.8%) 1.1% (2.6%)
Franchised (7.6%) (7.2%) (1.9%) (6.9%)
Total Domestic (5.5%) (7.4%) (0.7%) (5.7%)
International (26.1%) (14.4%) (21.6%) (23.3%)
Seattle Coffee Company
Company (7.4%) (1.3%) (1.9%) (5.9%)
Franchised (2.9%) 0.7% (2.3%) 3.7%
Total Domestic (6.2%) (0.3%) (2.0%) (1.8%)
International 3.8% (13.5%) 3.1% (7.9%)
Total 3.3% (3.2%) 3.0% (0.7%)
New Unit Openings
Year Year
4Q Ended 4Q Ended Ended Ended
12/30/2001 12/29/2002 12/30/2001 12/29/2002
Popeyes
Company 1 1 3 2
Franchised 32 20 103 87
Total Domestic 33 21 106 89
International 19 23 71 80
Total Global 52 44 177 169
Church's
Company 1 0 2 1
Franchised 16 22 53 54
Total Domestic 17 22 55 55
International 10 26 24 55
Total Global 27 48 79 110
Cinnabon
Company 4 0 11 5
Franchised 16 16 50 43
Total Domestic 20 16 61 48
International 23 19 60 54
Total Global 43 35 121 102
Seattle Coffee Company
Company 5 0 10 0
Franchised 1 9 12 27
Total Domestic 6 9 22 27
International 13 14 30 43
Total Global 19 23 52 70
Total 141 150 429 451
New Commitments
Year Year
4Q Ended 4Q Ended Ended Ended
12/30/2001 12/29/2002 12/30/2001 12/29/2002
Popeyes
Franchised 77 58 253 183
International 0 253 108 363
Total Global 77 311 361 546
Church's
Franchised 58 40 115 138
International 115 53 169 101
Total Global 173 93 284 239
Cinnabon
Franchised 18 11 75 76
International 53 37 150 65
Total Global 71 48 225 141
Seattle Coffee Company
Franchised 1 3 28 33
International 14 20 86 50
Total Global 15 23 114 83
Total 336 475 984 1,009
Unit Conversions
($ in millions) 2002 2001 2000
Popeyes -- 27 36
Church's 111 70 25
Cinnabon 63 36 10
Seattle Coffee 1 -- --
Total unit conversions 175 133 71
Gains (losses) recognized (4.0) (1.3) 6.4
Gains deferred 10.3 6.4 2.9
Franchise and conversion fees 8 4.9 1.8
Unit Count
Year Ended Year Ended
12/30/2001 12/29/2002
Popeyes
Company 96 96
Franchised 1,231 1,298
Total Domestic 1,327 1,394
International 293 318
Total Global 1,620 1,712
Church's
Company 397 284
Franchised 845 963
Total Domestic 1,242 1,247
International 275 262
Total Global 1,517 1,509
Cinnabon
Company 152 84
Franchised 270 369
Total Domestic 422 453
International 122 159
Total Global 544 612
Seattle Coffee Company
Company 77 75
Franchised 49 79
Total Domestic 126 154
International 50 84
Total Global 176 238
Total 3,857 4,071
Forward-Looking Statement: Certain statements in this release, and other
written or oral statements made by or on behalf of AFC or its brands are
"forward-looking statements" within the meaning of the federal securities laws.
Statements regarding future events and developments and our future performance,
as well as management's expectations, beliefs, plans, estimates or projections
relating to the future, are forward-looking statements within the meaning of
these laws. These forward-looking statements are subject to a number of risks
and uncertainties. Among the important factors that could cause actual results
to differ materially from those indicated by such forward-looking statements
are the restatement of the our financial statements, the delisting of our
securities from the Nasdaq National Market, adverse effects of litigation or
regulatory actions arising in connection with the restatement of our financial
statements, the inability to attract and retain additional qualified management
personnel, our ability to comply with covenants contained in our credit
facility, the cost and availability of our principal food products, labor
shortages or increased labor costs, our ability to franchise new units and
expand our brands, our ability and our franchisees' ability to successfully
operate existing units and open new units, changes in consumer preferences and
demographic trends, competition, general economic, political and regulatory
conditions and the risk factors detailed in our Annual Report on Form 10-K for
the year ended December 29, 2002 and the other documents we file with the
Securities and Exchange Commission. You should not place undue reliance on any
forward-looking statements, since those statements speak only as of the date
they are made.