Related Parties (Notes)

6 Months Ended

Jul. 02, 2017

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Transactions with Related Parties

In connection with an acquisition of restaurants from BKC in 2012, the Company issued to BKC 100 shares of Series A Convertible Preferred Stock which is convertible into 9,414,580 shares of the Company's Common Stock, which currently constitutes approximately 20.7% of the outstanding shares of the Company's common stock on a fully diluted basis. Pursuant to the terms of the Series A Convertible Preferred Stock, BKC also has two representatives on the Company's board of directors.

Each of the Company's 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 fifty thousand dollars. Any franchise agreement, including renewals, can be extended at the Company's discretion for an additional twenty-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 at a rate of 4.5% of sales. Royalty expense was $11.9 million and $10.2 million in the three months ended July 2, 2017 and July 3, 2016, respectively and $22.1 million and $19.6 million for the six months endedJuly 2, 2017 and July 3, 2016, respectively.

The Company is also generally required to contribute 4% of restaurant sales from its restaurants to an advertising fund utilized by BKC for its advertising, promotional programs and public relations activities, and additional amounts for participation in local advertising campaigns in markets that approve such additional spending. Advertising expense related to BKC was $11.2 million and $10.5 million in the three months ended July 2, 2017 and July 3, 2016, respectively, and $20.8 million and $19.5 million for the six months endedJuly 2, 2017 and July 3, 2016, respectively.

As of July 2, 2017, the Company leased 262 of its restaurant locations from BKC and 136 of these locations are subleased by BKC from a third-party lessor. Aggregate rent related to BKC leases was $6.8 million and $7.2 million for the three months ended July 2, 2017 and July 3, 2016, respectively and $13.4 million and $14.5 million for the six months endedJuly 2, 2017 and July 3, 2016, respectively. The Company believes the related party lease terms have not been significantly affected by the fact that the Company and BKC are deemed related parties.

As of July 2, 2017, the Company owed BKC $8.1 million related to the payment of advertising, royalties and rent, which is remitted on a monthly basis and recorded as a current liability within accounts payable on the consolidated interim balance sheet as of July 2, 2017.