AFC Enterprises Reports Fiscal 2010 Fourth Quarter Operating Results; Increases Fiscal 2010 Earnings Guidance

AFC Enterprises, Inc. (NASDAQ: AFCE), the franchisor and operator of Popeyes® restaurants, today reported selected operating results for its fiscal 2010 fourth quarter and full year which ended December 26, 2010, and increased fiscal 2010 earnings guidance.

Global same-store sales increased 6.0 percent in the fourth quarter compared to a 1.0 percent decrease last year. For the full year 2010, global same-store sales increased 2.6 percent compared to a 0.7 percent increase in 2009, exceeding the Company’s previous guidance of positive 2.0 percent to 2.5 percent.

During the fourth quarter, the Popeyes system opened 22 domestic and 26 international restaurants, bringing full year 2010 openings to 106 restaurants, compared to 95 restaurants last year. Openings were lower than previous guidance of 120-130 restaurants due primarily to year-end construction delays resulting from poor weather and permitting delays. Management expects to have approximately 8 of these restaurants opened by the end of January. The Popeyes system permanently closed 67 restaurants in fiscal 2010, resulting in net unit growth of 39 restaurants, compared to 14 net restaurants in 2009.

AFC Enterprises Chief Executive Officer Cheryl Bachelder stated, “We continue to be pleased with our strong same-store sales momentum, which reflects our superior food and effective marketing campaigns in the U.S. and around the globe. Today our business model is stronger and more profitable to our franchise owners. While we missed our aggressive new unit opening goal by 14 units, we expect half of those units will be open in this month. We remain in a very good position to continue the acceleration of unit growth in 2011 and beyond.”

Based on the fourth quarter sales performance, the Company expects fiscal 2010 fourth quarter reported earnings will be $0.16-$0.17 per diluted share and full year reported earnings will be $0.88-$0.89 per diluted share. Adjusted earnings per diluted share for the fourth quarter is now expected to be $0.18-$0.19, bringing full year adjusted earnings per diluted share to $0.85-$0.86, compared to adjusted earnings per diluted share of $0.74 in fiscal 2009. This is an increase from the Company’s previous adjusted earnings per diluted share guidance of $0.81-$0.83. Adjusted earnings per diluted share is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”

Within this updated guidance, the Company continues to expect general and administrative expenses for the fourth quarter of 2010 will be in the range of $14.0-$14.5 million and full year 2010 general and administrative expenses will be approximately 3.0 percent of system-wide sales, among the lowest in the restaurant industry.

Management expects to provide fiscal 2011 guidance concurrent with the filing of the Company’s 2010 Annual Report on Form 10-K.

New Credit Facility

As previously announced, on December 23, 2010, the Company completed a new five-year $100 million credit facility, comprised of a $40 million term loan and a $60 million revolver. Proceeds from the refinancing together with available cash were used to retire approximately $63 million of the outstanding principal debt balance of its previous credit facility. At closing, $22 million was drawn on the revolver.

The rate of interest under the new facility is currently 2.8 percent and is determined using the LIBO Rate plus a spread of 250 basis points. The spread above the LIBO Rate can adjust from 225 to 325 basis points depending on the Company’s total leverage. In the fourth quarter of 2010, the Company will recognize approximately $0.6 million of interest charges and defer approximately $1 million of fees associated with the refinancing to be amortized over the life of the new facility.

The Company’s required quarterly principal payments will be $1.25 million for the first two years, $1.5 million for the third and fourth years and $4.5 million in the fifth year.

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 December 26, 2010, Popeyes had 1,977 operating restaurants in the United States, Guam, Puerto Rico, the Cayman Islands and 26 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. 

Management’s Use of Non-GAAP Financial Measures

Adjusted earnings per diluted share: Calculation and Definition

The Company calculates fiscal 2010 fourth quarter adjusted earnings per diluted share by excluding $0.6 million, or $0.02 per diluted share, of interest expense associated with refinancing the credit facility. The Company calculates fiscal 2010 full year adjusted earnings per diluted share by excluding $1.4 million, or $0.05 per diluted share, of tax benefit, and $0.6 million, or $0.02 per diluted share, of interest expense associated with refinancing the credit facility.

The Company defines adjusted earnings for fiscal 2009 as the Company’s reported net income after adjusting for certain non-operating items consisting of (i) other income, net (which for fiscal 2009 includes $3.3 million on the sale of assets partially offset by a $0.4 million loss on insurance recoveries related to asset damages, a $0.2 million impairment related to restaurant closures and $0.6 million related to impairments and disposals of fixed assets), (ii) the interest expense associated with the credit facility amendment, (iii) the tax effect of these adjustments. Adjusted earnings per diluted share provides the per share effect of adjusted net income on a diluted basis. The following table reconciles on a historical basis for fiscal 2009, the Company’s adjusted earnings per diluted share 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 to adjusted earnings per diluted share:

Management’s Use of Non-GAAP Financial Measures

The Company’s adjusted earnings per diluted share is a supplemental non-GAAP financial measure. The Company uses 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 measure used by management. The Company believes this measure is important indicator of its operational strength and performance of its business because it provides a link between profitability and operating cash flow. Adjusted earnings per diluted share as calculated by the Company is not necessarily comparable to similarly titled measures reported by other companies. In addition, adjusted earnings per diluted share: (a) does not represent net income, or earnings per share as defined by GAAP; (b) 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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