XML 92 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
Related Parties
12 Months Ended
Dec. 30, 2012
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
15. Transactions with Related Parties
As part of the acquisition of certain restaurants from BKC in 2012, the Company issued to BKC 100 shares of Series A Convertible Preferred Stock which is convertible into 28.9% of the outstanding shares of common stock calculated on the date of the closing of the acquisition on a fully diluted basis. See Note 16—Preferred Stock for further information. As a result of the acquisition, BKC also has two representatives on the Company's board of directors.
Each of our Burger King restaurants operates under a separate franchise agreement with BKC. These franchise agreements generally provide for an initial term of twenty years and currently have an initial franchise fee of $50. Any franchise agreement, including renewals, can be extended at our discretion for an additional 20 year term, with BKC's approval, provided that, among other things, the restaurant meets the current Burger King image standard and the Company is not in default under terms of the franchise agreement. In addition to the initial franchise fee, the Company generally pays BKC a monthly royalty for both new restaurants and for renewed franchise agreements at a rate of 4.5% of sales. Royalty expense was $22.7 million, $14.0 million, and $14.1 million for the years ended December 30, 2012, January 1, 2012 and January 2, 2011, respectively.
The Company is also generally required to contribute 4% of restaurant sales from our Burger King restaurants to an advertising fund utilized by BKC for its advertising, promotional programs and public relations activities, and amounts for additional local advertising in markets that approve such advertising. Advertising expense associated with these expenditures was $21.3 million , $14.0 million and $14.4 million for the years ended December 30, 2012, January 1, 2012 and January 2, 2011, respectively.
As of December 30, 2012, the Company leased 297 of its restaurant locations from BKC, representing 51.9% of the total number of restaurants in operation. This includes subleases with BKC for 196 restaurants under terms substantially the same as BKC’s underlying leases for those properties with the third-party lessor. At both January 1, 2012 and January 2, 2011, the Company leased 20 of its restaurant locations from BKC. Aggregate rent under these BKC leases for the years ended December 30, 2012, January 1, 2012 and January 2, 2011 was and $16.6 million, $1.8 million, and $1.9 million, respectively. The Company believes the related party lease terms have not been significantly affected by the fact that the Company and BKC are deemed to be related parties.
As of December 30, 2012, the Company owed BKC $3.1 million associated with its purchase of the right of first refusal related to the acquisition of BKC restaurants and $4.5 million related to the payment of advertising, royalties and rent, which is remitted on a monthly basis.