CPKI » Topics » Restaurant, Royalty and Franchise Revenues

These excerpts taken from the CPKI 10-K filed Mar 13, 2009.

Restaurant, Royalty and Franchise Revenues

Revenues from the operation of company-owned restaurants are recognized when sales occur. Royalty fees from our licensing agreement with Kraft are recognized on a quarterly basis and are based on a percentage of Kraft’s sales of our premium frozen products. Royalty fees from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants’ revenues are earned.

Restaurant, Royalty and Franchise Revenues

Revenues from the operation of company-owned restaurants are recognized when sales occur. Royalty fees from our licensing agreement with Kraft are recognized on a quarterly basis and are based on a percentage of Kraft’s sales of our premium frozen products. Royalty fees from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants’ revenues are earned.

Restaurant, Royalty and Franchise Revenues

Revenues from the operation of company-owned restaurants are recognized when sales occur. Royalty fees from our licensing agreement with Kraft Pizza Company (“Kraft”) are recognized on a quarterly basis and are based on a percentage of Kraft’s sales of our premium frozen products. Royalty fees from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants’ revenues are earned.

The Company sells gift cards and recognizes deferred revenue until the gift cards are redeemed, at which time revenue is recognized. Discounts and sales charges from distribution through third parties are expensed as incurred.

Restaurant, Royalty and Franchise Revenues

Revenues from the operation of company-owned restaurants are recognized when sales occur. Royalty fees from our licensing agreement with Kraft Pizza Company (“Kraft”) are recognized on a quarterly basis and are based on a percentage of Kraft’s sales of our premium frozen products. Royalty fees from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants’ revenues are earned.

The Company sells gift cards and recognizes deferred revenue until the gift cards are redeemed, at which time revenue is recognized. Discounts and sales charges from distribution through third parties are expensed as incurred.

Restaurant, Royalty and Franchise Revenues

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">Revenues from the operation of company-owned restaurants are recognized when sales occur. Royalty fees from our licensing agreement with Kraft Pizza
Company (“Kraft”) are recognized on a quarterly basis and are based on a percentage of Kraft’s sales of our premium frozen products. Royalty fees from franchise restaurants are based on a percentage of restaurant revenues and are
recognized in the period the related franchised restaurants’ revenues are earned.

The Company sells gift cards and recognizes
deferred revenue until the gift cards are redeemed, at which time revenue is recognized. Discounts and sales charges from distribution through third parties are expensed as incurred.

STYLE="margin-top:18px;margin-bottom:0px; margin-left:2%">Advertising Costs

The Company
expenses advertising costs as incurred. Advertising expenses for 2008, 2007 and 2006 totaled $6.6 million, $5.5 million and $4.9 million, respectively.

FACE="Times New Roman" SIZE="2">Operating Leases

The Company accounts for rent expense for its operating leases on the straight-line
basis in accordance with SFAS No. 13, “Accounting for Leases.” The Company leases restaurant and office facilities that have terms expiring between 2008 and 2023. The initial obligation period is generally 10 years. The lease term
includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty. The restaurant facilities primarily have renewal clauses
of 5 to 10 years exercisable at the option of the Company.

Most lease agreements contain one or more of the following: tenant improvement
allowances, rent holidays, rent escalation clauses and contingent rent provisions. The Company includes scheduled rent escalation clauses for the purposes of recognizing straight-line rent. Certain of these leases require the payment of contingent
rentals based on a percentage of gross revenues, as defined, and certain other rent escalation clauses are based on the Consumer Price Index.

SIZE="2">Rent is recognized on the straight-line basis, including the restaurant build-out period. This period is normally prior to the commencement of rent payments and is commonly called the rent holiday period. The build-out period generally
begins when the Company takes possession of the space and begins to make improvements in preparation for its intended use. The Company expenses rental costs incurred during this build-out period and classifies as pre-opening expenses. Tenant
improvement allowances are recorded as deferred rent credits and amortized over the terms of the related leases as reductions to rent expense.

SIZE="2">Pre-opening Costs

The Company follows Statement of Position (“SOP”) 98-5, “Reporting on the Costs of
Start-up Activities,” which provides guidance on the financial reporting of the start-up costs and organization costs. Pre-opening costs, which are expensed as incurred, currently consist of rent from the date construction begins through the
restaurant opening date, the costs of hiring and training the initial work force, travel, the cost of food used in training, marketing costs, the cost of the initial stocking of operating supplies and other direct costs related to the opening of a
restaurant.

 


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CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 


Restaurant, Royalty and Franchise Revenues

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">Revenues from the operation of company-owned restaurants are recognized when sales occur. Royalty fees from our licensing agreement with Kraft Pizza
Company (“Kraft”) are recognized on a quarterly basis and are based on a percentage of Kraft’s sales of our premium frozen products. Royalty fees from franchise restaurants are based on a percentage of restaurant revenues and are
recognized in the period the related franchised restaurants’ revenues are earned.

The Company sells gift cards and recognizes
deferred revenue until the gift cards are redeemed, at which time revenue is recognized. Discounts and sales charges from distribution through third parties are expensed as incurred.

STYLE="margin-top:18px;margin-bottom:0px; margin-left:2%">Advertising Costs

The Company
expenses advertising costs as incurred. Advertising expenses for 2008, 2007 and 2006 totaled $6.6 million, $5.5 million and $4.9 million, respectively.

FACE="Times New Roman" SIZE="2">Operating Leases

The Company accounts for rent expense for its operating leases on the straight-line
basis in accordance with SFAS No. 13, “Accounting for Leases.” The Company leases restaurant and office facilities that have terms expiring between 2008 and 2023. The initial obligation period is generally 10 years. The lease term
includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty. The restaurant facilities primarily have renewal clauses
of 5 to 10 years exercisable at the option of the Company.

Most lease agreements contain one or more of the following: tenant improvement
allowances, rent holidays, rent escalation clauses and contingent rent provisions. The Company includes scheduled rent escalation clauses for the purposes of recognizing straight-line rent. Certain of these leases require the payment of contingent
rentals based on a percentage of gross revenues, as defined, and certain other rent escalation clauses are based on the Consumer Price Index.

SIZE="2">Rent is recognized on the straight-line basis, including the restaurant build-out period. This period is normally prior to the commencement of rent payments and is commonly called the rent holiday period. The build-out period generally
begins when the Company takes possession of the space and begins to make improvements in preparation for its intended use. The Company expenses rental costs incurred during this build-out period and classifies as pre-opening expenses. Tenant
improvement allowances are recorded as deferred rent credits and amortized over the terms of the related leases as reductions to rent expense.

SIZE="2">Pre-opening Costs

The Company follows Statement of Position (“SOP”) 98-5, “Reporting on the Costs of
Start-up Activities,” which provides guidance on the financial reporting of the start-up costs and organization costs. Pre-opening costs, which are expensed as incurred, currently consist of rent from the date construction begins through the
restaurant opening date, the costs of hiring and training the initial work force, travel, the cost of food used in training, marketing costs, the cost of the initial stocking of operating supplies and other direct costs related to the opening of a
restaurant.

 


49







Table of Contents



CALIFORNIA PIZZA KITCHEN, INC. AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 


EXCERPTS ON THIS PAGE:

10-K (6 sections)
Mar 13, 2009
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