Popeye's 2015 Annual Report Download - page 79

Note 14 — 401(k) Savings Plan
The Company maintains a qualified retirement plan (“Plan”) under Section 401(k) of the Internal Revenue Code of 1986, as
amended, for the benefit of employees meeting certain eligibility requirements as outlined in the Plan document. All Company
employees are subject to the same contribution and vesting schedules. Under the Plan, non-highly compensated employees may
contribute up to 75.0% of their eligible compensation to the Plan on a pre-tax basis up to statutory limitations. Highly compensated
employees are limited to 5.0% of their eligible compensation. The Company may make both voluntary and matching contributions
to the Plan. The Company expensed approximately $0.6 million, $0.4 million, and $0.5 million, during 2015, 2014, and 2013,
respectively, for its contributions to the Plan.
Note 15 — Commitments and Contingencies
Supply Contracts. Supplies are generally provided to Popeyes franchised and company-operated restaurants, pursuant to
supply agreements negotiated by Supply Management Services, Inc. (“SMS”), a not-for-profit purchasing cooperative of which
the Company is a member. The Company and its franchisees hold membership interests in SMS in proportion to the number of
restaurants they own. At December 27, 2015, the Company held two of seven board seats. The operations of SMS are not included
in the Consolidated Financial Statements.
The principal raw material for a Popeyes restaurant operation is fresh chicken. Company-operated and franchised restaurants
purchase their chicken from suppliers who service Popeyes and its franchisees from various plant locations. These costs are
significantly impacted by increases in the cost of fresh chicken, which can result from a number of factors, including increases
in the cost of grain, disease, declining market supply of fast-food sized chickens and other factors that affect availability.
In order to ensure favorable pricing for fresh chicken purchases and to maintain an adequate supply of fresh chicken for the
Popeyes system, SMS has entered into chicken purchasing contracts with chicken suppliers. The contracts, which pertain to the
vast majority of our system-wide purchases for Popeyes are “cost-plus” contracts that utilize prices based upon the cost of feed
grains plus certain agreed upon non-feed and processing costs. In order to stabilize pricing for the Popeyes system, SMS has
entered into commodity pricing agreements for certain commodities including corn and soy, which impact the price of poultry
and other food cost.
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 franchisees from the beverage vendors
based upon the dollar volume of purchases for company-operated restaurants and franchised restaurants, respectively, which
will vary according to their demand for beverage syrup and fluctuations in the market rates for beverage syrup.
Formula and Supply Agreements with Former Owner. In June 2014, the Company purchased the formulas (the "formulas")
it uses in the preparation on many of its core menu items from Diversified Foods and Seasonings, L.L.C. ("Diversified") for
$43.0 million. In connection with the formula purchase, the Company and Diversified terminated the existing royalty and supply
agreement which gave the Company worldwide exclusive rights to the formulas and replaced it with a new supply agreement.
The new supply agreement provides that the Company agrees to utilize, and to require its franchisees to utilize Diversified as
the exclusive supplier of certain agreed upon core products. The term of the new supply agreement continues until March 2034,
unless earlier terminated in accordance with the terms of the agreement.
The old royalty and supply agreement required the Company to pay Diversified an annual royalty for the use of the formulas
of approximately $3.1 million. The Company expensed $1.4 million and $3.1 million in 2014 and 2013 under the old agreement.
Business Process Services. Certain accounting and information technology services are provided to the Company under an
agreement with a third party provider which expires April 30, 2018. At December 27, 2015, future minimum payments under
this contract are approximately $1.4 million during 2016 and 2017 and approximately $0.4 million in 2018. During 2015, 2014
and 2013, the Company expensed $1.7 million, $1.8 million, and $1.7 million, respectively, under this agreement.
Information Technology Outsourcing. Certain information technology services are provided to the Company under managed
information technology services agreements with certain third party providers. At December 27, 2015, future minimum payments
under these contracts are $0.7 million during 2016. During 2015, 2014, and 2013, the Company expensed $1.7 million, $1.6
million, and $2.6 million, respectively, under these agreements.
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