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Related Parties (Notes)
9 Months Ended
Sep. 30, 2018
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 approximately 20.5% 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 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 $12.8 million and $12.2 million in the three months ended September 30, 2018 and October 1, 2017, respectively and was $37.3 million and $34.2 million in the nine months ended September 30, 2018 and October 1, 2017, 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 additional local advertising in markets that approve such advertising. Advertising expense associated with these expenditures was $11.8 million and $11.4 million in the three months ended September 30, 2018 and October 1, 2017, respectively and was $34.8 million and $32.1 million in the nine months ended September 30, 2018 and October 1, 2017, respectively.
As of September 30, 2018, the Company leased 245 of its restaurant locations from BKC and 117 of these locations are subleased by BKC from a third-party lessor. Aggregate rent under these BKC leases was $6.8 million and $7.0 million for the three months ended September 30, 2018 and October 1, 2017, respectively and $20.3 million and $20.4 million in the nine months ended September 30, 2018 and October 1, 2017, 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 September 30, 2018, the Company owed BKC $9.4 million related to the payment of advertising, royalties and rent, which is remitted on a monthly basis.