XML 36 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
Related Parties
12 Months Ended
Dec. 31, 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 as of December 31, 2017 is convertible into approximately 20.7% of the outstanding shares of the Company's common stock on a fully diluted basis. See Note 12—Stockholder's Equity for further information. 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 $50. Any franchise agreement, including renewals, can be extended at the Company's 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 at a rate of 4.5% of sales. Royalty expense was $46.4 million, $40.0 million, and $36.2 million for the years ended December 31, 2017, January 1, 2017 and January 3, 2016, respectively.
The Company is also generally required to contribute 4% of restaurant sales from the Company's 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 $43.5 million, $40.2 million and $32.0 million for the years ended December 31, 2017, January 1, 2017 and January 3, 2016, respectively.
As of December 31, 2017, January 1, 2017, and January 3, 2016, the Company leased 251, 275 and 293 of its restaurant locations from BKC, respectively. As of December 31, 2017, for 125 of the restaurants, the terms and conditions of the lease with BKC are identical to those between BKC and their third-party lessor. Aggregate rent under these BKC leases for the years ended December 31, 2017, January 1, 2017 and January 3, 2016 was $27.6 million, $27.8 million, and $28.4 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 31, 2017, the Company owed BKC $7.5 million related to the payment of advertising, royalties and rent, which is remitted on a monthly basis.