Popeye's 2013 Annual Report Download - page 70

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Popeyes Louisiana Kitchen, Inc.
Notes to Consolidated Financial Statements
For Fiscal Years 2013, 2012, and 2011 — (Continued)
54
The Company records rent expense for leases that contain scheduled rent increases on astraight-line basis over the
lease term, including any option periods considered in the determination of that lease term. Contingent rentals are
generally based on sales levels in excess of stipulated amounts, and thus are not considered minimum lease payments
and are included in rent expense as they accrue.
Tenant improvement allowances and other lease incentives are recognized as reductions to rent expense on astraight-
line basis over the lease term.
Accumulated Other Comprehensive Income (Loss). Comprehensive income (loss) is net income plus the change
in fair value of the Company’s cash flow hedge discussed in Note 9 plus derivative (gains) or losses realized in earnings
during the period. Amounts included in accumulated other comprehensive income (loss) for the Company’sderivative
instruments are recorded net of the related income tax effects.
As of December 29, 2013, accumulated other comprehensive loss consisted of net unrealized losses on interest rate
swap agreements settled in cash. Unrealized derivative gains or losses on terminated swap agreements are amortized
as interest expense over the remaining term of the original swap agreement. The Company expects approximately $0.7
million of net pre-tax derivative losses included in accumulated other comprehensive income at December 29, 2013
will be reclassified into earnings within the next twelve months. As of December 30, 2012, accumulated other
comprehensive loss consisted of net unrealized loss on interest rate swap agreements. See Note 9for further discussion
of the Company’sinterest rate swap agreements.
Revenue Recognition — Sales by Company-Operated Restaurants. Revenues from the sale of food and beverage
products are recognized on a cash basis. The Company presents sales net of sales tax and other sales related taxes.
Revenue Recognition — Franchise Operations. Revenues from franchising activities include development fees
associated with a franchisee’s planned development of a specified number of restaurants within a defined geographic
territory, franchise fees associated with the opening of new restaurants, and ongoing royalty fees which are generally
based on five percent of net restaurant sales. Development fees and franchise fees are recorded as deferred franchise
revenue when received and are recognized as revenue when the restaurants covered by the fees are opened or all material
services or conditions relating to the fees have been substantially performed or satisfied by the Company.The Company
recognizes royalty revenues as earned. Franchise renewal fees are recognized when a renewal agreement becomes
effective.
Rent from Franchised Restaurants. Rent from franchised restaurants is composed of rental income associated with
properties leased or subleased to franchisees. Our typical restaurant leases to franchisees are triple net to the franchisee,
requiring them to pay minimum rent or percentage rent based on sales in excess of specified amounts or both minimum
rent and percentage rent plus real estate taxes, maintenance costs and insurance premiums. These leases are typically
cross-defaulted with the corresponding franchise agreement for the restaurant. Minimum rents are recognized on the
straight-line basis over the lease term. Percentage rents based on sales are recognized as earned.
Cash Consideration from Vendors. The Company has entered into long-term beverage supply agreements with
certain major beverage vendors. Pursuant to the terms of these arrangements, marketing rebates are provided to the
Company and its advertising fund from the beverage vendors based upon the dollar volume of purchases for company-
operated restaurants and franchised restaurants. For Company-operated restaurants, these incentives are recognized as
earned throughout the year and are classified as a reduction of “Restaurant food, beverages and packaging” in the
Consolidated Statements of Operations. The incentives recognized by company-operated restaurants were
approximately $1.1 million,$0.6 million, and $0.6 million,in 2013, 2012, and 2011, respectively. Rebates earned and
contributed to the cooperative advertising fund are excluded from the Company’sConsolidated Statements of
Operations.