Popeye's 2015 Annual Report Download - page 68

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Popeyes Louisiana Kitchen, Inc.
Notes to Consolidated Financial Statements
For Fiscal Years 2015, 2014, and 2013 — (Continued)
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.
(in millions) 2015 2014 2013
Franchise royalties $ 138.7 $ 125.1 $ 112.1
Franchise fees 5.3 6.2 9.8
Franchise royalties and fees $ 144.0 $ 131.3 $ 121.9
Rent from Franchised Restaurants. Rent from franchised restaurants is composed of rental income and other fees 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 $1.4 million, $1.1 million, and $1.1 million in 2015, 2014,
and 2013, respectively. Rebates earned and contributed to the cooperative advertising fund are excluded from the Company’s
Consolidated Statements of Operations.
Gains and Losses Associated With Re-franchising. From time to time, the Company engages in re-franchising transactions.
Typically, these transactions involve the sale of a company-operated restaurant to an existing or new franchisee.
The Company defers gains on the sale of company-operated restaurants when the Company has continuing involvement in
the assets sold beyond the customary franchisor role. The Company’s continuing involvement generally includes seller financing
or the leasing of real estate to the franchisee. Deferred gains are recognized over the remaining term of the continuing involvement.
Losses are recognized immediately.
There were no sales of company-operated restaurants in 2015, 2014, or 2013. During 2015, 2014 and 2013, previously deferred
gains of approximately $0.3 million, $0.2 million, and $0.1 million, respectively, were recognized in income as a component of
“Other expenses (income), net” in the accompanying Consolidated Statements of Operations. As of December 27, 2015, the
Company had $0.5 million in deferred gains on unit conversions reported as a component of "Deferred Credits and Other Long-
Term Liabilities".
Research and Development. Research and development costs are expensed as incurred. During 2015, 2014, and 2013 such
costs were approximately $2.3 million, $2.3 million, and $2.2 million, respectively.
Foreign Currency Transactions. Substantially all of the Company’s foreign-sourced revenues (principally royalties from
international franchisees) are recorded in U.S. dollars. The aggregate effects of any exchange gains or losses are included in the
accompanying Consolidated Statements of Operations as a component of “General and administrative expenses.” The net foreign
currency losses were $0.1 million in 2015 and 2014 and insignificant in 2013.
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