Transcript: do the right thing, always. It’s easy to say. But not always easy to do. http://www.nytimes.com/2013/01/06/business/california-pizza-kitchens-chief-on-6-steps-to-leadership.html?_r=0 http://bi.galegroup.com/essentials/article/GALE%7CI2501310008/bc3db001291e0029524b4923de0ca9d2?u=mlin_b_fisher http://info.cpk.com/press_releases/cpk_fact_sheet_10-11.pdf http://www.cpk.com/company/ The sixth is that it’s ultimately about serving the people you lead SIX STEPS TO LEADERSHIP Courage is an interesting one because any leadership role is about stepping out and having the courage to be different, because you have to be different to be a leader. 20th anniversary celebration In 1998 they partnered with Kraft Food Inc to produce frozen pizzas to be sold in stores. struggled learning English lead with your heart first sold 50% ownership to PepsiCo Fourth thing can be the hardest for young leaders: to trust the people you lead. was captain of every sports team he played on HISTORY 249 full service restaurants in 33 states and 10 foreign countries founded in 1985 by Rick Rosenfield and Larry Flax 59 kiosks at malls and airports California Pizza was inspired by Spago moved his way up to a general manager by the time he was 21 moved to Virgina from the Netherlands when he was 5 years old G.J. Hart is C.E.O., president and executive chairmen The second thing is to dream, and dream big. California Pizza Kitchen Inc. The first step is to be the very best that you can be, because you can’t lead anybody if you can’t lead yourself. competing with Papa Johns, Domino's and P.F. Changs Currently by 1994 they had 70 restaurants open in 33 states G. J. Hart (from Left) Larry and Joan Flax, Rick and Esther Rosenfield in 1997 Fredrick Hipp took over as C.E.O
Transcript: The Cheesecake Factory Net Profit Margin: 5.83% CPK was a public company that recently went into the control of private investors. Because of this change, the current annual reports are not readily available. While the latest private report was released on May 25, 2011, the report available to us through several online websites and resources was of January 2nd, 2011 entailing the financial information of 2010. G.J. Hart (CEO) Kenneth Diekroeger 1992, PepsiCo bought 67% of CPK's shares. 1997, the private equity firm Bruckmann, Rosser, Sherrill & Company bought PepsiCo's shares. 2003, Flax and Rosenfield resumed control of CPK. 2011, Golden Gate Capital bought out CPK. In 1985, two attorneys decided to leave law, and open up a pizza restaurant with a west coast twist. CPK's fiscal year ends on December 31st every year. Current Ratio: 0.53 Casual Restaurant Checklist: You sit down at a table You make an order You are served at this table Your check is usually between $15 and $20 per person Compensation List CPK Net Profit Margin: -0.12% Conclusion: :( Total Sales Revenue - Cost of Goods Sold Unique Cuisine By 1992, there were 26 CPKs throughout southern California. Today, there are over 300 locations worldwide. The Most Important (yet most boring) Job Award goes to... Audit Committee The Audit Committee is primarily concerned with the oversight of our financial reporting and preparation of our financial statements by our internal accounting staff. This committee’s function, among other things, is to review our quarterly and annual financial statements with our independent registered public accountants and management, review the scope and results of the examination of our financial statements by the independent registered public accountants, approve all professional services performed by the independent registered public accountants and related fees, exclusive authority to hire our independent registered public accountants and periodically review our accounting policies. The Audit Committee is also responsible for overseeing our internal controls over financial reporting, including review of our internal audit function. The Audit Committee is governed by a written charter that is publicly available on our website at www.cpk.com. 1. Larry Flax and Rick Rosenfield: $3,000,000 (each) 2. Susan Collyns: $1,970,691 3. Sarah Goldsmith-Grover: $373,261 Wild Card: G.J. Hart: $1.7 Million as CEO of Roadhouse Grill Thomas Beck CPK's Hitlist: Chili's The Cheesecake Factory Bloomin' Brands (Outback Steakhouse, Flemmings, Roys) Ruby Tuesday P.F. Changs Red Robin Chipotle So what does the casual restaurant industry look like? Net Income After Taxes Financial Statistics MD&A: Management Discussion and Analysis General Statement about CPK Our Restaurants Intended restaurant level in 90 to 120 days Overview Revenue and Costs involved Larry Flax Would You Like to Work Here? Gross Margin Audit Committee As per the 2010 income statement... Earnings per Share: -$0.02 A Brief Background of Larry Flax Quality Atmosphere The 50 largest companies only account for 20% of the market. Leslie Bider, Marshall Geller, and Alan I. Rothenburg! Key Finacial Statistics Casual The company considered a variety of factors to be key financial results. Revenues (sales, royalties, domestic and international franchise revenue) played an important role. Expenses ranged from food, beverage and paper supplies to labor costs and occupancy expenses. Other important financial results and expenses included general and administrative, depreciation and amortization as well as litigation settlements. Rick Rosenfield Fiscal Year and Financial Reporting Net Income: -$0.41 million CPK revenue: $642.23 million $200,000,000,000 industry Compared to The Cheesecake Factory... Find it at your finest shopping centers, and in the freezer section! Susan Collyns (CFO) Presents... Total revenue (restaurant sales mainly) Meet the Board! Peter Gillette Some Ratios for Your Viewing Pleasure Sarah Goldsmith-Grover Rick Rosenfield California Pizza Kitchen Plans New Prototype The Organizational History of CPK Article: Pros: Ethics Incentives Potential Cons: Low influentiability Timely promotions How does CPK differentiate itself? The Cheescake Factory revenue: $1757.62 million Key Messages in MD&A Joshua Olshansky Any statistics realting to food, beverage and paper supplies as well as those labor costs.
Transcript: Uniform "Top down" Target Market: middle class Young families w/ kids Average Check: $25-$40 5-7 hour shifts Benefits: employee meals healthcare 401k Seats 250 people Four Keys of Success About By Jimmy Brown, Casper Lau, Jennifer Hernandez, Kelsey Szerlip, Kristina Wu HRT 350 Section 2 Fall 2013 1985 Rick Rosenfield and Larry Flax Mouth-watering pizzas 260 service locations 13 countries Group interview Room with Trainer, and Assistant Manager/ HR representative Short written test Ingredient/Food/Wine Knowledge Short intro of company Training EEOC Do NOT discriminate Many different types of people Two Videos "Sky is the Limit" "Sexual Harassment" Be PERFECT! Uniform Code of California Pizza Kitchen Black dress shirt - no pockets Black casual pants - if the pants has pockets then it has to have buttons, if the pants has belt loops you must wear a black belt with a silver or silver painted gold buckle Black Socks - higher than your ankle, if you sit and your skin is showing it's to short Earring cannot be bigger than a dime Shoes - black and non slid] Part 2 Called back for Interview One-on-one Trainer and Assistant Manager Questions Work History, Open Ended, "What If" Diversity Through Hiring Part 1 Interview Process "Respect Simply said, all voices matter, and our focus on respect ensures that all voices are heard. Opportunity Through exciting career growth and cross training, we're always looking to develop and refine our top talent to drive the business and lead others. Communication We have an open-door policy and a culture where everyone is known on a first name basis and always welcome to speak up. Kindness Kindness defines the energy and spirit of California Pizza Kitchen." Get to Know CPK BreakDown! Location Assigned to trainer One-on-one, on the job Employee handbook Server Workbook Lists menu items Conduct Diversity through: Hiring Training Workplace ROCK Philosophy Diversity in the Workplace Equal Employment Opportunity All backgrounds, races, sexual orientation Interview California Pizza Kitchen: DIVERSITY PROJECT Training Continued.. • "The First Key is our employees: we make CPK a great place to work. • The Second Key is our guests: we strive to amaze every guest every time. • The Third Key is our focus on sales and profit growth: it's important for everyone to achieve financial success. • The Fourth Key is community: we are deeply committed to supporting our local communities."
Transcript: Background Challenges in Restaurant Industry: Increasing commodity prices High gas prices Higher labor costs Deteriorating housing wealth Intense interest in the industry by activist shareholders By: Marshall LaCroix, Ryan Buehler, Hanna Boyd, Erin Maloney ROE Cost of Equity Share Price WACC Arguments Against Effect of Leverage Ultimately... signal to the market of positive future expectations expected higher value in the future cost of debt that would be needed for repurchase is low CPK opened in 1985 in Beverly Hills, CA Company revenue generated by: Company-owned restaurants Royalties franchised restaurants partnerships with Kraft 2007 - 213 locations in 28 states & 15 international franchises 1. No repurchase of shares keep business as usual and do not take on any debt. 2. 10% debt/total capital ratio, $22,589,000 of debt financing allowing for a 1,022,126 share repurchase. 3. 20% debt/total capital ratio, $45,178,000 of debt financing allowing for a 2,044,253 share repurchase. 4. 30% debt/total capital ratio, $67,766,000 of debt financing allowing for a 3,066,334 share repurchase. "We find no better investment than in our own company." - CPK Group Restaurant Industry Stock Repurchase: BOD authorized $50M repurchase CPK Announces Financial Results for the Second Quarter of '07 Highlights for the second quarter of '07: 16.4% ($158.6M) growth in restaurant sales; 5.4% of comparables Net income of $6.3M ($0.21 per diluted share) Including $800k ($0.02 per diluted share) in early termination costs related to unopened ASAP location 3-for-2 stock split effective June 19, '07 (Diluted share calculations were adjusted for this) Possible Solutions What CPK Actually Did Benefits of Repurchasing Shares A "Safe Haven" in Casual Dining Debt for stock buybacks = CONTROVERSIAL Companies buy stock at what appeared to be low prices then shares sink more OR buybacks are announced to juice the stock, but never carried out Share repurchases can signal problems in the business: Slow-growth environment Competitive pressures Product-cycle issues Weak operating execution Lagging ROE Factors could portend further L-T credit deterioration July 2007: quarterly profit of over $6M revenue growth > 16% Royalties: 37% - Kraft partnership 31% - inter'l franchises $85M in capital expenditure to fund growth Share = $22.10, declined 10% Should the company take on debt to repurchase shares, and if so how much?
Transcript: California Pizza Kitchen Case Summary IN JULY 2007, CPK GOT: Profit over 6 million Strong Revenue in restaurant sales up over 15 % Strong balanced Sydney Ayon Yosselin Castillo Carlos Franco CALIFORNIA PIZZA KITCHEN - CASUAL DINING RESTAURANT CHAIN THAT SPECIALIZES IN CALIFORNIA - STYLE PIZZA CPK DERIVED ITS REVENUE FROM 3 RESOURCES : Sales at company owned restaurant Royalties from franchised restaurant Royalties from a partnership with Kraft Foods
Transcript: Preserving co-CEO, Rick Rosenfield's "staying power" Two large issues: 1. How to finance expansion 2. CPK's optimal capital structure Four options provided: 1. Keep existing capital structure 2. 10% of debt to total capital 3. 20% of debt to total capital 4. 30% of debt to total capital Cost of Capital Cost of Capital Financial team led by CFO, Susan Collyns Share price dropped to $22.10 Discussion of repurchasing company shares ASAP franchise agreement with HMSHost "Grab-n-go" pizzas, salads, sandwiches, and soups Payments of $50,000 to $65,000 and 5% gross sales Created in 1985 by Larry Flax and Rick Rosenfield "Designer pizza at off-the-rack prices" 213 locations in 28 states and 6 foreign countries Revenues derived from three sources: 1. Sales at company owned restaurants 2. Royalties from franchised restaurants 3. Royalties from Kraft Foods Revenues increased to 16% for the second quarter of 2007 Royalties from Kraft increased to 37% Developing 16 to 18 new locations in 2007 Growth plan required $85 million in capital expenditures Labor costs declined from 36.6% to 36.3% Food, beverage, and paper-supply cost 24.5% of total revenue Divided into two sectors: 1. Full service 2. Limited service The industry faced a number of challanges: 1. High gas prices 2. Increased commodity prices 3. Increased labor costs 4. Total wealth 5. Intense interest in the industry Cost of Capital = 5.03% Debt Financing Rate = 6.16% Re = Rf + B(Rm - Rf) Rf = 5.2% (30-Year Rate) Rm = 5% (S&P SmallCap 600 Restaurants) 5.03% = 0.052 + 0.85(0.05 - 0.052) Re = 5.03% Increasing with more added debt Pricing method: Share Price = Total Market Value of Equity/Current # of Shares Outstanding Present Value = Payment/Rate Net Present Value = Dividend + Present Value Leveraged Value = Unleveraged Value + Taxes * Dividend Michelle Lewis, Drake Dines, Burton Kearns, Mingxuan Yang, Kirsten Way Restaurant Industry EBIT Breakeven Point Background Return on Equity Calculated with current market prices and conditions Market equity's valued at $31.90 CPK equity valued at $22.10 Cost of Capital = 5.03% Debt Financing Rate = 6.16% Re = Rf + B(Rm - Rf) Rf = 5.2% (30-Year Rate) Rm = 5% (S&P SmallCap 600 Restaurants) 5.03% = 0.052 + 0.85(0.05 - 0.052) Re = 5.03% Susan Collyn's Problems California Pizza Kitchen Introduction Recommendation EBIT Tables Issue debt with repurchasing shares Implied tax shield and increased value of CPK Increased return to shareholders Increased share value (due to fewer shares) Recent Developments
Transcript: Justin Suggestions CPK no longer top company to work for Outside help with diversity (Littler Mendleson) Reputation is everything Employees enjoy going to work because of who they work with Connor Hynes Jeff Lorenz Daniel Beeunas Thomas Keady Justin Kerzner Background First store opened in Beverly Hills 1985 Founders Rick Rosenfield and Larry Flax Reason for immediate success was their "California twist" on pizza flavoring Today: CPK has expanded to more than 260 locations in 11 countries Annual revenue for 2010 exceeded $642 million Background What We Learned Miscellaneous Create a diversity policy Rooney Rule Annual Diversity Training Integration with R.O.C.K. Diversity Audit (every 5 years) Weaknesses Multi-National Corporation Brand Recognition Customer Satisfaction Product Diversity Continuously shift between public and private company CPK "Thank You Cards" FUNdraising- beneficial for both parties CPK Foundation not that impressive Behind in the recycled materials movement Improve ethics policy Provide concrete examples Integration with R.O.C.K. principles Emphasize the integration through posters/flyers Started a Sustainability Program Employees Enjoy Working Community Involvement Merge CPK Foundation with FUNdraising program Organize charity events themselves- sponsor schools & nonprofits Allow employees to work enough to receive benefits Reinstate 401k programs. Questions? Charity is underfunded and undersupported No Diversity Policy in place to protect employees Cutting benefits and resticting hours R.O.C.K. Philosophy is stressed but not fully followed Nutrition Guide given on request only Gluten Free Pizza Strengths Strengths kk 1992 - PepsiCo purchases two-thirds of CPK ...revenues decreased almost immediately after opening 45 restaurants in one year Fresh v. Frozen dilemma 1997 - Buyout by BRS & Co with intention of going public and expanding the franchise 2000 - CPK goes public and doubles restaurant locations 2003 - COO and CDO are fired... Flax and Rosenfeld resume control 2011 - Buyout by Golden Gate Capital for $470 million Sometimes employees make mistakes on purpose so they can eat free food Restaurant never officially closes California Pizza Kitchen
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