1. What is going on at CPK? What decisions does Susan Collyns face?

2. How does debt affect CPK?

Calculate the variables listed under exhibit 9 of the excel file when CPK is un levered and is levered at 10% 20% 30%

3. what should Collyns recommend?
 
 

 
 
 
 
 
 
 
 

Transcribed Image Text:

Applebee's, Wendy's, and Friendly's. These changes included the outright sale of the company, sales of noncore divisions, and closure of poor-performing locations. In response, other chains embarked on shareholder-friendly plans including initiat- ing share repurchase programs; increasing dividends; decreasing corporate expenditytres; and divesting secondary assets. Doug Brooks, chief executive of Brinker International Inc., which owned Chili's, noted at a recent conference: There is no shortage of interest in our industry these days, and much of the recent news has centered on the participation of activist shareholders ... but it is my job as CEO to act as our internal activist. In April 2007, Brinker announced it had secured a new $400 million unsecured, committed credit-facility to fund an accelerated share repurchase transaction in which approximately $300 million of its common stock would be repurchased. That followed a tender offer recapitalization in 2006 in which the company repurchased $50 million worth of common shares. Recent Developments CPK's positive second-quarter results would affirm many analysts' conclusions that the company was a safe haven in the casual dining sector. Exhibits 2 and 3 contain CPK's financial statements through July 1, 2007. Exhibit 4 presents comparable store sales trends for CPK and peers. Exhibit 5 contains selected analysts' forecasts for CPK, all of which anticipated revenue and earnings growth. A Morgan Keegan analyst commented in May: Despite increased market pressures on consumer spending. California Pizza Kitchen's concept continues to post impressive customer traffic gains. Traditionally appealing to a more dis- criminating, higher-income clientele, CPK's creative fare, low check average, and high service standards have uniquely positioned the concept for success in a tough consumer macroeconomic environment." While other restaurant companies experienced weakening sales and camings growth, CPK's revenues increased more than 16% to $159 million for the second quarter of 2007. Notably, royalties from the Kraft partnership and international franchises were up 37% and 21%, respectively, for the second quarter. Development plans for opening a total of 16 to 18 new locations remained on schedule for 2007. Funding CPK's 2007 growth plan was anticipated to require $85 million in capital expenditures. The company was successfully managing its two Ilargest expense items in an envi- ronment of rising labor and food costs. Labor costs had actually declined from 36.6% to 36.3% of total revenues from the second quarter of 2006 to the second quarter of 2007. Food, beverage, and paper-supply costs remained constant at roughly 24.5% of "SarhE Lockyer, "Whe's he Boss? Activiat laveston Drive Changes t Major Chain Compenies Pure "Shareholder-Friendly' Strategins in Response to Publie Presum." Naton's Retmurant News, 23 April 2007. "Destia M. Tompkla and Robert M. Derington, Morgan Kongn Bipty Recanh, Calfornia Pla Knhe Ine." May 11, 2007. Applebee's, Wendy's, and Friendly's. These changes included the outright sale of the company, sales of noncore divisions, and closure of poor-performing locations. In response, other chains embarked on shareholder-friendly plans including initiat- ing share repurchase programs; increasing dividends; decreasing corporate expenditytres; and divesting secondary assets. Doug Brooks, chief executive of Brinker International Inc., which owned Chili's, noted at a recent conference: There is no shortage of interest in our industry these days, and much of the recent news has centered on the participation of activist shareholders ... but it is my job as CEO to act as our internal activist. In April 2007, Brinker announced it had secured a new $400 million unsecured, committed credit-facility to fund an accelerated share repurchase transaction in which approximately $300 million of its common stock would be repurchased. That followed a tender offer recapitalization in 2006 in which the company repurchased $50 million worth of common shares. Recent Developments CPK's positive second-quarter results would affirm many analysts' conclusions that the company was a safe haven in the casual dining sector. Exhibits 2 and 3 contain CPK's financial statements through July 1, 2007. Exhibit 4 presents comparable store sales trends for CPK and peers. Exhibit 5 contains selected analysts' forecasts for CPK, all of which anticipated revenue and earnings growth. A Morgan Keegan analyst commented in May: Despite increased market pressures on consumer spending. California Pizza Kitchen's concept continues to post impressive customer traffic gains. Traditionally appealing to a more dis- criminating, higher-income clientele, CPK's creative fare, low check average, and high service standards have uniquely positioned the concept for success in a tough consumer macroeconomic environment." While other restaurant companies experienced weakening sales and camings growth, CPK's revenues increased more than 16% to $159 million for the second quarter of 2007. Notably, royalties from the Kraft partnership and international franchises were up 37% and 21%, respectively, for the second quarter. Development plans for opening a total of 16 to 18 new locations remained on schedule for 2007. Funding CPK's 2007 growth plan was anticipated to require $85 million in capital expenditures. The company was successfully managing its two Ilargest expense items in an envi- ronment of rising labor and food costs. Labor costs had actually declined from 36.6% to 36.3% of total revenues from the second quarter of 2006 to the second quarter of 2007. Food, beverage, and paper-supply costs remained constant at roughly 24.5% of "SarhE Lockyer, "Whe's he Boss? Activiat laveston Drive Changes t Major Chain Compenies Pure "Shareholder-Friendly' Strategins in Response to Publie Presum." Naton's Retmurant News, 23 April 2007. "Destia M. Tompkla and Robert M. Derington, Morgan Kongn Bipty Recanh, Calfornia Pla Knhe Ine." May 11, 2007. Applebee's, Wendy's, and Friendly's. These changes included the outright sale of the company, sales of noncore divisions, and closure of poor-performing locations. In response, other chains embarked on shareholder-friendly plans including initiat- ing share repurchase programs; increasing dividends; decreasing corporate expenditytres; and divesting secondary assets. Doug Brooks, chief executive of Brinker International Inc., which owned Chili's, noted at a recent conference: There is no shortage of interest in our industry these days, and much of the recent news has centered on the participation of activist shareholders ... but it is my job as CEO to act as our internal activist. In April 2007, Brinker announced it had secured a new $400 million unsecured, committed credit-facility to fund an accelerated share repurchase transaction in which approximately $300 million of its common stock would be repurchased. That followed a tender offer recapitalization in 2006 in which the company repurchased $50 million worth of common shares. Recent Developments CPK's positive second-quarter results would affirm many analysts' conclusions that the company was a safe haven in the casual dining sector. Exhibits 2 and 3 contain CPK's financial statements through July 1, 2007. Exhibit 4 presents comparable store sales trends for CPK and peers. Exhibit 5 contains selected analysts' forecasts for CPK, all of which anticipated revenue and earnings growth. A Morgan Keegan analyst commented in May: Despite increased market pressures on consumer spending. California Pizza Kitchen's concept continues to post impressive customer traffic gains. Traditionally appealing to a more dis- criminating, higher-income clientele, CPK's creative fare, low check average, and high service standards have uniquely positioned the concept for success in a tough consumer macroeconomic environment." While other restaurant companies experienced weakening sales and camings growth, CPK's revenues increased more than 16% to $159 million for the second quarter of 2007. Notably, royalties from the Kraft partnership and international franchises were up 37% and 21%, respectively, for the second quarter. Development plans for opening a total of 16 to 18 new locations remained on schedule for 2007. Funding CPK's 2007 growth plan was anticipated to require $85 million in capital expenditures. The company was successfully managing its two Ilargest expense items in an envi- ronment of rising labor and food costs. Labor costs had actually declined from 36.6% to 36.3% of total revenues from the second quarter of 2006 to the second quarter of 2007. Food, beverage, and paper-supply costs remained constant at roughly 24.5% of "SarhE Lockyer, "Whe's he Boss? Activiat laveston Drive Changes t Major Chain Compenies Pure "Shareholder-Friendly' Strategins in Response to Publie Presum." Naton's Retmurant News, 23 April 2007. "Destia M. Tompkla and Robert M. Derington, Morgan Kongn Bipty Recanh, Calfornia Pla Knhe Ine." May 11, 2007. Applebee's, Wendy's, and Friendly's. These changes included the outright sale of the company, sales of noncore divisions, and closure of poor-performing locations. In response, other chains embarked on shareholder-friendly plans including initiat- ing share repurchase programs; increasing dividends; decreasing corporate expenditytres; and divesting secondary assets. Doug Brooks, chief executive of Brinker International Inc., which owned Chili's, noted at a recent conference: There is no shortage of interest in our industry these days, and much of the recent news has centered on the participation of activist shareholders ... but it is my job as CEO to act as our internal activist. In April 2007, Brinker announced it had secured a new $400 million unsecured, committed credit-facility to fund an accelerated share repurchase transaction in which approximately $300 million of its common stock would be repurchased. That followed a tender offer recapitalization in 2006 in which the company repurchased $50 million worth of common shares. Recent Developments CPK's positive second-quarter results would affirm many analysts' conclusions that the company was a safe haven in the casual dining sector. Exhibits 2 and 3 contain CPK's financial statements through July 1, 2007. Exhibit 4 presents comparable store sales trends for CPK and peers. Exhibit 5 contains selected analysts' forecasts for CPK, all of which anticipated revenue and earnings growth. A Morgan Keegan analyst commented in May: Despite increased market pressures on consumer spending. California Pizza Kitchen's concept continues to post impressive customer traffic gains. Traditionally appealing to a more dis- criminating, higher-income clientele, CPK's creative fare, low check average, and high service standards have uniquely positioned the concept for success in a tough consumer macroeconomic environment." While other restaurant companies experienced weakening sales and camings growth, CPK's revenues increased more than 16% to $159 million for the second quarter of 2007. Notably, royalties from the Kraft partnership and international franchises were up 37% and 21%, respectively, for the second quarter. Development plans for opening a total of 16 to 18 new locations remained on schedule for 2007. Funding CPK's 2007 growth plan was anticipated to require $85 million in capital expenditures. The company was successfully managing its two Ilargest expense items in an envi- ronment of rising labor and food costs. Labor costs had actually declined from 36.6% to 36.3% of total revenues from the second quarter of 2006 to the second quarter of 2007. Food, beverage, and paper-supply costs remained constant at roughly 24.5% of "SarhE Lockyer, "Whe's he Boss? Activiat laveston Drive Changes t Major Chain Compenies Pure "Shareholder-Friendly' Strategins in Response to Publie Presum." Naton's Retmurant News, 23 April 2007. "Destia M. Tompkla and Robert M. Derington, Morgan Kongn Bipty Recanh, Calfornia Pla Knhe Ine." May 11, 2007. Applebee's, Wendy's, and Friendly's. These changes included the outright sale of the company, sales of noncore divisions, and closure of poor-performing locations. In response, other chains embarked on shareholder-friendly plans including initiat- ing share repurchase programs; increasing dividends; decreasing corporate expenditytres; and divesting secondary assets. Doug Brooks, chief executive of Brinker International Inc., which owned Chili's, noted at a recent conference: There is no shortage of interest in our industry these days, and much of the recent news has centered on the participation of activist shareholders ... but it is my job as CEO to act as our internal activist. In April 2007, Brinker announced it had secured a new $400 million unsecured, committed credit-facility to fund an accelerated share repurchase transaction in which approximately $300 million of its common stock would be repurchased. That followed a tender offer recapitalization in 2006 in which the company repurchased $50 million worth of common shares. Recent Developments CPK's positive second-quarter results would affirm many analysts' conclusions that the company was a safe haven in the casual dining sector. Exhibits 2 and 3 contain CPK's financial statements through July 1, 2007. Exhibit 4 presents comparable store sales trends for CPK and peers. Exhibit 5 contains selected analysts' forecasts for CPK, all of which anticipated revenue and earnings growth. A Morgan Keegan analyst commented in May: Despite increased market pressures on consumer spending. California Pizza Kitchen's concept continues to post impressive customer traffic gains. Traditionally appealing to a more dis- criminating, higher-income clientele, CPK's creative fare, low check average, and high service standards have uniquely positioned the concept for success in a tough consumer macroeconomic environment." While other restaurant companies experienced weakening sales and camings growth, CPK's revenues increased more than 16% to $159 million for the second quarter of 2007. Notably, royalties from the Kraft partnership and international franchises were up 37% and 21%, respectively, for the second quarter. Development plans for opening a total of 16 to 18 new locations remained on schedule for 2007. Funding CPK's 2007 growth plan was anticipated to require $85 million in capital expenditures. The company was successfully managing its two Ilargest expense items in an envi- ronment of rising labor and food costs. Labor costs had actually declined from 36.6% to 36.3% of total revenues from the second quarter of 2006 to the second quarter of 2007. Food, beverage, and paper-supply costs remained constant at roughly 24.5% of "SarhE Lockyer, "Whe's he Boss? Activiat laveston Drive Changes t Major Chain Compenies Pure "Shareholder-Friendly' Strategins in Response to Publie Presum." Naton's Retmurant News, 23 April 2007. "Destia M. Tompkla and Robert M. Derington, Morgan Kongn Bipty Recanh, Calfornia Pla Knhe Ine." May 11, 2007. Applebee's, Wendy's, and Friendly's. These changes included the outright sale of the company, sales of noncore divisions, and closure of poor-performing locations. In response, other chains embarked on shareholder-friendly plans including initiat- ing share repurchase programs; increasing dividends; decreasing corporate expenditytres; and divesting secondary assets. Doug Brooks, chief executive of Brinker International Inc., which owned Chili's, noted at a recent conference: There is no shortage of interest in our industry these days, and much of the recent news has centered on the participation of activist shareholders ... but it is my job as CEO to act as our internal activist. In April 2007, Brinker announced it had secured a new $400 million unsecured, committed credit-facility to fund an accelerated share repurchase transaction in which approximately $300 million of its common stock would be repurchased. That followed a tender offer recapitalization in 2006 in which the company repurchased $50 million worth of common shares. Recent Developments CPK's positive second-quarter results would affirm many analysts' conclusions that the company was a safe haven in the casual dining sector. Exhibits 2 and 3 contain CPK's financial statements through July 1, 2007. Exhibit 4 presents comparable store sales trends for CPK and peers. Exhibit 5 contains selected analysts' forecasts for CPK, all of which anticipated revenue and earnings growth. A Morgan Keegan analyst commented in May: Despite increased market pressures on consumer spending. California Pizza Kitchen's concept continues to post impressive customer traffic gains. Traditionally appealing to a more dis- criminating, higher-income clientele, CPK's creative fare, low check average, and high service standards have uniquely positioned the concept for success in a tough consumer macroeconomic environment." While other restaurant companies experienced weakening sales and camings growth, CPK's revenues increased more than 16% to $159 million for the second quarter of 2007. Notably, royalties from the Kraft partnership and international franchises were up 37% and 21%, respectively, for the second quarter. Development plans for opening a total of 16 to 18 new locations remained on schedule for 2007. Funding CPK's 2007 growth plan was anticipated to require $85 million in capital expenditures. The company was successfully managing its two Ilargest expense items in an envi- ronment of rising labor and food costs. Labor costs had actually declined from 36.6% to 36.3% of total revenues from the second quarter of 2006 to the second quarter of 2007. Food, beverage, and paper-supply costs remained constant at roughly 24.5% of "SarhE Lockyer, "Whe's he Boss? Activiat laveston Drive Changes t Major Chain Compenies Pure "Shareholder-Friendly' Strategins in Response to Publie Presum." Naton's Retmurant News, 23 April 2007. "Destia M. Tompkla and Robert M. Derington, Morgan Kongn Bipty Recanh, Calfornia Pla Knhe Ine." May 11, 2007.

Answer rating: 100% (QA)

1 California Pizza Kitchen has been in California since 1985 and as of June 2007 it had 213 retail outlets in the Us and abroad The capacity is 500 fu... View the full answer