California Pizza Kitchen

Title

.xls

” (UVA-F-1553)

, 2

UVA-S-F-15

This spreadsheet supports STUDENT analysis of the case, “

California Pizza Kitchen

March

Exh. 2

/31/06

assets

current assets

,408

,779

and Shareholders’

$ 274,254 $ 310,513 $ 339,779

Exhibit 2
						California Pizza Kitchen, Inc.
Consolidated Balance Sheet (in thousands)
As of
1/1/06		12		7/1/07
	Assets
		Current
Cash and cash equivalents	$ 11, Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	272	$ 8,	187	$ 7,1		78
Investments in marketable securities	11,	40
Other receivables	4,												109	7,876	10,	70
Inventories	3,776	4,745	4,5					96
Current deferred tax asset, net	8,4		37	11,721	11,834
Prepaid income tax	1,	428	8,769
Other prepaid expenses & other current assets	5,4							92	5,388	6,444
	Total	45,922	37,					91	49,5	30
Property and equipment, net		213	255,382	271,867
Noncurrent deferred tax asset, net	4,513	5,867	6,328
Goodwill and other intangibles	5,967	5,825	5,	75
Other assets	4,444	5,522	6,300
Total assets		$ 274,254		$ 310,513		$ 3	39
	Liabilities			Equity
Current liabilities
Accounts payable	$ 7,054	$ 15,044	$ 14,									115
Accrued compensation and benefits	13,0		68	15,042	15,572
Accrued rent	13,253	14,532	14,									97
Deferred rent credits	4,056	4,4				94	5,	135
Other accrued liabilities	9,	29	13,275	13,							98
Accrued income tax	3,	61	9,012
Total current liabilities	46,725	66,001	72,7			93
Other liabilities	5,383	8,683	8,662
Deferred rent credits, net of current portion	24,810	27,486	32,4		36
Shareholders’ equity:
Common stock		19		193		291
Additional paid-in-capital	231,1	59	221,	163	228,647
Accumulated deficit	(34,013)	(13,013)	(3,050)
Accumulated comprehensive loss	(7)
Total shareholders’ equity	197,336	208,3		43				225,888
Total liabilities & Shareholders’ Equity
Sources of data: Company Annual and Quarterly	Report

Exh. 3

California Pizza Kitchen, Inc.

s Ended

7/1/07

,738

,604

,813

,480

,702

,949

,558

,781

istrative

152

income

287 91

428

718 287 91

$ 0.20

168

193 213

Exhibit 3
Consolidated Income Statements (in thousands, except per-share data)
Fiscal Year(1)	Three	Month
	2003		2004		2005	2006	7/2/06
Restaurant sales	$ 356,		26	$ 418,7												99	$	474	$ 547,968	$				134	$ 156,592
Franchise and other revenues	3,627	3,	65	4,861	6,633	1,564	1,989
Total revenues	359,887	422,452	479,599	554,601	136,	168	158,581
Food, beverage and paper supplies	87,806			103																				118	135,848	33,0	90	38,426
Labor									129		152	173,751	199,744	49,272	56,912
Direct operating and occupancy	70,273	83,054	92,827																		108	26,214	30,773
Cost of Sales			287	339,816	385,058	444,150	108,576						126																111
General and ad			min	21,488	28,794	36,298	43,320	11,035	12,206
Depreciation and amortization	20,714	23,975	25,440	29,489	7,070	9,022
Pre-opening costs	4,147	737	4,051	6,964	800	852
Severance charges(2)	1,221
Loss on impairment of PP&E	18,984	1,	160
Store closure costs	2,700	707	768
Legal settlement reserve	1,333	600
Operating income	5,552	25,097	26,840	29,971	8,687	9,622
	Interest	317	571	739		718
Other income	1,													105
Equity in loss of unconsolidated JV	(349)	(143)	(22)
Total other income (expense)	(32)	1,822
Income before income tax provision	5,520	25,525	28,662	30,689	8,974	9,713
Income tax provision (benefit)	(82)	7,709	9,172	9,689	2,961	3,393
	Net income	$ 5,602	$ 17,816	$ 19,490	$ 21,000	$ 6,013	$ 6,320
Net income per common share:
Basic	$ 0.30	$	0.93	$	1.01	$ 1.08		$		0.20	$ 0.22
Diluted	$ 0.29	$	0.92	$ 0.99	$ 1.06	$ 0.21
Selected Operating Data:
Restaurants open at end of period	171	188	205
Company-owned open at end of period(3)	137	141	157	176	162	182
Avg weekly full service rest. sales(3)	$ 54,896	$ 57,509	$ 62,383	$ 65,406	$ 65,427	$ 68,535
18-mo. comparable rest. sales growth(3)			3.4%	8.0%		7.5%					5.9				4.8%		5.4%
		Notes:
(1) For the Years Ended December 31, 2006, January 1, 2006 and January 2, 2005, December 28, 2003.
(2) Severance charges represent payments to former President/CEO and former SVP/Senior Development Officer under terms of their separation agreements.
(3) Data for company-owned restaurants.
Sources of data: Company Annual and Quarterly Reports and quarterly company earnings conference calls.

Exh. 4

California Pizza Kitchen, Inc.

California Pizza Kitchen 3.4%

4.8% 5.9%

4.8%

4.0%

5.9%

6.9%

-2.1%

0.8%

1.6%

-2.1% 0.7% 4.6%

4.7%

2.9%

Seafood Restaurants, Inc.

1.1%

4.1%

2.9% 2.0% 2.8%

0.2% 2.7%

3.2% 2.8% 2.0% 0.0%

3.0%

1.3%

4.6%

2.8%

-1.0%

4.1% 7.5% 3.8% 4.8% 3.3% 0.8% 0.2% -0.5%

11.6%

6.8%

1.9%

1.6%

5.4% 5.5% 4.3% 4.0% 3.4% 2.0%

5.6% 6.4% 1.2% 2.3% 3.3% 0.9%

Markets

equity research.

Exhibit 4
Selected Historical Comparable Store Sales (Calendarized)
CY06	CY07
CY03	CY04	CY05		Q1	Q2	Q3	Q4
	9.3%		6.4%		5.6%		6.9%			4.7%
		Applebee’s International, Inc.				4.1%		1.8		2.6	-1.8%	–	2.3%	–	1.1%	–	4.0%
		BJ’s Restaurants, Inc.			3.3%			4.6%		6.8%	5.3%		5.5%
		Brinker International(1)		2.1				1.9		3.2%			2.7	–					2.0		-2.1%	-4.4%
		The Cheesecake Factory, Inc.		0.7%	3.9%				1.7	–		1.3	–		0.8%	–	1.6%	0.4%
		Chipotle Mexican Grill, Inc.	24.4%		13.3%	1			0.2%	1		9.7%	14.5%			11.6%		10.1%		8.3%
Darden Restaurants, Inc. — Red Lobster								0.0%	-3.9%	4.2%	9.4%
Darden Restaurants, Inc. — Olive Garden	2.2%	8.6%		5.7%	2.5%			2.9%	1.0%
		McCormick & Schmick’s			3.8%			3.0				2.8%
		Panera Bread Company	7.8%	9.0%
		P.F. Chang’s China Bistro		5.1%			1.2		-1.0%		-0.5%	–	0.9%	-2.5%
RARE — Longhorn Steakhouse		5.0%	3.7%	-0.4%	-0.3%	1.5%
		Red Robin Gourmet Burgers
		Ruth’s Chris Steak House, Inc.	1.4%	10.4%	6.0%			4.3%	7.4%
		Sonic Corporation	7.0%
		Texas Roadhouse, Inc.	3.5%	7.6%
	Note:
(1) Brinker’s comparable store sales is a blended rate for its various brands.
Source of data:	KeyBanc		Capital

Exh. 5

California Pizza Kitchen, Inc.

Report

Revenues EPS Revenues EPS

NA NA NA

NA NA

KeyBanc Capital Markets

NA NA

5/11/07 37

5/11/07 NA

1.33

NA NA

5/11/07 39 647.5

NA NA

Exhibit 5
Selected Forecasts for California Pizza Kitchen
	Date	Price	2007E	2008E	2009E
Firm	Target				Revenue			EPS
Oppenheimer and Co. Inc.	4/9/07	$ 40	$ 652.9	$	1.33				NA
CIBC World Markets	4/12/07		647.5	1.29	755.1	1.57
			5/11/07		1.28	1.55
RBC Capital Markets	650.7	1.31	75	3.1	1.59	878.2	1.90
Morgan Keegan & Co., Inc.	644.2	742.1	1.58
MKM Partners	1.34	754.3	1.69
Source of data: Selected firms’ equity research.

Exh. 6

Date

California Pizza Kitchen, Inc.

100

99 99

97 98

96 97

100 97

103

98 92

97 92

98 92

96 92

99 94

94 91

95 90

97 93

98 95

96 92

95 90

95 91

97 91

94 90

93 91

95 92

95 93

96 92

100 92

95 90

98 91

97 92

99 94

105 98

105 99

Note:

102 98

2007 50% stock dividend. With such a dividend, an owner of two shares of CPK stock was given an additional share.

101 98

99 97

97 96

100 97

102 99

100

104 99

100

106 101

103 99

102 99

104 100

104 101

109 104

109 105

106

108 105

109 105

110 106

109 105

109 106

111 106

111 105

109 104

110 104

111 104

109

118 109

117 109

118 109

117 108

115 107

110

120 111

112

120 111

110

118 109

119 110

120 111

120 112

118 110

120 111

118 110

109

115 109

112 106

118 108

119 109

116 107

108

111 108

112 110

112 111

111 112

112 111

111

113 111

112 111

108 108

112 108

116 109

115 109

115 108

118 111

116 111

116 110

118 110

119 110

119 109

120 109

119 109

119 108

118 108

118 109

117 109

120 110

111

122 111

122 110

110

122 108

123 108

124 109

126 110

112

134 112

112

111

110

129 110

129 109

129 110

130 111

129 109

130 108

131 109

130 111

131 112

132 112

131 111

130 112

131 112

130 111

129 111

130 112

129 113

120 113

120 115

123 117

122 117

122 118

121 116

116 112

117 113

116 111

114 109

118 111

117 111

117 112

117 110

118 111

117 111

115 110

117 111

116 113

115 113

118 112

117 112

117 111

118 111

120 112

122 114

120 113

121 113

119 113

117 112

119 112

120 112

122 114

121 114

121 113

122 112

124 114

113

121 113

121 114

122 114

124 113

122 110

-07

124 111

126 112

125 112

123 112

125 113

124 113

126 113

125 111

135 113

132 112

130 111

130 112

111

129 112

134 113

133 113

132 113

133 112

133 113

134 113

135 114

135 115

134 114

132 111

126 109

128 110

126 109

124 108

124 109

124 110

125 110

124 110

123 109

121 108

118 105

117 104

115 104

117 106

117 105

118 104

121 105

Exhibit 6

CPK

S&P SmallCap 600 Restaurants

3-Jul-06

100

Stock Price Comparison

5-Jul-06

6-Jul-06

7-Jul-06

10-Jul-06

101

11-Jul-06

12-Jul-06

13-Jul-06

14-Jul-06

17-Jul-06

18-Jul-06

19-Jul-06

20-Jul-06

21-Jul-06

24-Jul-06

25-Jul-06

26-Jul-06

27-Jul-06

28-Jul-06

31-Jul-06

1-Aug-06

2-Aug-06

3-Aug-06

4-Aug-06

7-Aug-06

8-Aug-06

9-Aug-06

10-Aug-06

11-Aug-06

14-Aug-06

15-Aug-06

102

16-Aug-06

17-Aug-06

18-Aug-06

21-Aug-06

Adjusted for the

June

22-Aug-06

The effect was to increase CPK shares by a third yet maintain the overall capitalization of the equity.

23-Aug-06

24-Aug-06

Sources of data: Yahoo! Finance and Datastream.

25-Aug-06

28-Aug-06

29-Aug-06

30-Aug-06

104

31-Aug-06

1-Sep-06

106

5-Sep-06

6-Sep-06

7-Sep-06

8-Sep-06

11-Sep-06

12-Sep-06

13-Sep-06

14-Sep-06

15-Sep-06

110

18-Sep-06

19-Sep-06

20-Sep-06

112

107

21-Sep-06

22-Sep-06

25-Sep-06

26-Sep-06

27-Sep-06

28-Sep-06

29-Sep-06

2-Oct-06

3-Oct-06

4-Oct-06

117

5-Oct-06

6-Oct-06

9-Oct-06

10-Oct-06

11-Oct-06

12-Oct-06

120

13-Oct-06

16-Oct-06

121

17-Oct-06

18-Oct-06

19-Oct-06

119

20-Oct-06

23-Oct-06

24-Oct-06

25-Oct-06

26-Oct-06

27-Oct-06

30-Oct-06

31-Oct-06

1-Nov-06

116

2-Nov-06

3-Nov-06

6-Nov-06

7-Nov-06

8-Nov-06

9-Nov-06

10-Nov-06

114

13-Nov-06

14-Nov-06

15-Nov-06

16-Nov-06

17-Nov-06

20-Nov-06

113

21-Nov-06

22-Nov-06

24-Nov-06

27-Nov-06

28-Nov-06

29-Nov-06

30-Nov-06

1-Dec-06

4-Dec-06

5-Dec-06

6-Dec-06

7-Dec-06

8-Dec-06

11-Dec-06

12-Dec-06

13-Dec-06

14-Dec-06

15-Dec-06

18-Dec-06

19-Dec-06

20-Dec-06

21-Dec-06

22-Dec-06

26-Dec-06

27-Dec-06

122

28-Dec-06

29-Dec-06

3-Jan-07

123

4-Jan-07

124

5-Jan-07

8-Jan-07

9-Jan-07

10-Jan-07

11-Jan-07

131

12-Jan-07

16-Jan-07

133

17-Jan-07

132

18-Jan-07

130

19-Jan-07

22-Jan-07

23-Jan-07

24-Jan-07

25-Jan-07

26-Jan-07

29-Jan-07

30-Jan-07

31-Jan-07

1-Feb-07

2-Feb-07

5-Feb-07

6-Feb-07

7-Feb-07

8-Feb-07

9-Feb-07

12-Feb-07

13-Feb-07

14-Feb-07

15-Feb-07

16-Feb-07

20-Feb-07

21-Feb-07

22-Feb-07

23-Feb-07

26-Feb-07

27-Feb-07

28-Feb-07

1-Mar-07

2-Mar-07

5-Mar-07

6-Mar-07

7-Mar-07

8-Mar-07

9-Mar-07

12-Mar-07

13-Mar-07

14-Mar-07

15-Mar-07

16-Mar-07

19-Mar-07

20-Mar-07

21-Mar-07

22-Mar-07

23-Mar-07

26-Mar-07

27-Mar-07

28-Mar-07

29-Mar-07

30-Mar-07

2-Apr-07

3-Apr-07

4-Apr-07

5-Apr-07

9-Apr-07

10-Apr-07

11-Apr-07

12-Apr-07

13-Apr-07

16-Apr-07

17-Apr-07

18-Apr-07

19-Apr-07

20-Apr-07

23-Apr-07

125

24-Apr-07

25-Apr-07

26-Apr-07

27-Apr-07

30-Apr-07

May

2-May-07

3-May-07

4-May-07

7-May-07

8-May-07

9-May-07

10-May-07

11-May-07

14-May-07

15-May-07

16-May-07

17-May-07

128

18-May-07

21-May-07

22-May-07

23-May-07

24-May-07

25-May-07

29-May-07

30-May-07

31-May-07

1-Jun-07

4-Jun-07

5-Jun-07

6-Jun-07

7-Jun-07

8-Jun-07

11-Jun-07

12-Jun-07

13-Jun-07

14-Jun-07

15-Jun-07

18-Jun-07

19-Jun-07

20-Jun-07

21-Jun-07

22-Jun-07

25-Jun-07

26-Jun-07

27-Jun-07

28-Jun-07

29-Jun-07

2-Jul-07

Exh. 6

CPK
S&P SmallCap 600 Restaurants
Value of $100 invested in CPK and S&P SmallCap 600 Restaurants Index

Exh. 7

California Pizza Kitchen, Inc.

Month

Revenue

Margin

Per Share Per Share

California Pizza Kitchen

3.8%

Applebee’s International, Inc. Dec.

0.20

BJ’s Restaurants, Inc. Dec.

4.1%

0.00

Brinker International(1) June

4.7%

0.20

Dec.

13.3%

0.93 0.00

The Cheesecake Factory, Inc. Dec.

0.00

Chipotle Mexican Grill, Inc. Dec.

5.0% 1.28 0.00

May

5.9%

1.00

May

291

1.78

McCormick & Schmick’s Dec.

9.7% 4.3% 0.92 0.00

1.10

Panera Bread Company Dec.

0.00

P.F. Chang’s China Bistro Dec.

0.00

1.10

Dec.

11.6% 5.1%

0.00

Red Robin Gourmet Burgers Dec.

0.00

1.05

Ruth’s Chris Steak House, Inc. Dec.

272

1.01 0.00

Sonic Corporation

0.00

0.90

Texas Roadhouse, Inc. Dec.

5.7% 0.44 0.00

0.90

Current Current Total

Interest

Assets Liabilities Debt Equity Capital

Capital Equity

California Pizza Kitchen

0.0%

2.7 10.1% 10.1%

Applebee’s International, Inc. 105 187

2.0

BJ’s Restaurants, Inc. 96 36 0

0.0% NMF 1.2 4.9% 4.9%

Brinker International(1)

2.6 13.2% 18.0%

Buffalo Wild Wings, Incorporated 75 26 0 116 0.0% NMF

14.0% 14.0%

The Cheesecake Factory, Inc. 203 163 0

0.0% NMF 1.8 11.4% 11.4%

Chipotle Mexican Grill, Inc.

61 0 474 0.0% NMF 1.7

8.7%

Darden Restaurants, Inc.(2)

3.1

Frisch’s Restaurants, Inc. 12 31 43 101

5.9 2.0

McCormick & Schmick’s 30 40 0 160 0.2% NMF 1.9 8.3% 8.3%
Panera Bread Company 128 110 0

0.0% NMF 2.1

15.1%

P.F. Chang’s China Bistro 65 104 19

6.2% NMF 3.0

RARE Hospitality International Inc.(3) 125 134

31.6%

1.9

Red Robin Gourmet Burgers 29 70 114

7.7 1.7 9.3% 12.5%

Ruth’s Chris Steak House, Inc. 26 59 68 68

12.8 2.0

Sonic Corporation 43 78

1.3

Texas Roadhouse, Inc. 53 78 36

1.7 9.7% 10.7%

Notes:

Exhibit 7
Comparative Restaurant Financial Data, 2006 Fiscal Year (in millions, except per-share data)
Fiscal Year End	7/2/07	EBITDA	Net Profit	Earnings	Dividends	Book Value
Share Price		Margin			Per Share	Beta
											Dec.	$ 22.10	$ 555	10.7%	$ 0.71	$	0.00	$ 7.20	0.85
24.28	1,338	15.9%	6.5%	1.17	6.49	0.80
20.05	239	9.6%	0.41		7.7		1.05
29.37	4,151	12.0%	1.49	8.59			0.90
	Buffalo Wild Wings, Incorporated	4	1.78	278	5.8%	6.61			1.10
24.57	1,315	12.2%		6.2%	1.02	9.09		1.00
86.00	823	13.0%	14.56
	Darden Restaurants, Inc.(2)	44.14	5,721		13.2%	2.16	0.40	8.37
	Frisch’s Restaurants, Inc.	30.54		31.6%	3.1%		0.44	19.84	0.60
25.66	308	11.20
46.02	829	16.3%	7.2%	1.87	12.53	1.25
35.37	938	10.5%	3.6%	1.24	11.41
	RARE Hospitality International Inc.(3)	26.76	987	1.45	11.17	0.57
40.19	619	13.7%			4.9%	1.82	14.68
16.80	15.6%		8.7%	2.93
	Aug.	22.00	693	24.9%			11.4%	0.88	4.66
	12.8	597		12.5%	4.30
Shr.			Debt	T. Capital	Return On
Coverage	Turnover
$ 38	$ 66	$0	$ 208							NMF
175	487	26.5%	11.7			14.0%		18.0%
	203
242	497	502	1,076	31.8%	14.4
2.4
712
179	8.8%
378	1,026	645	1,230	34.4%	10.9	20.6%	27.5%
30.1%	7.9%	9.1%
398		15.1%
290	11.1%	11.5%
166	360	29.2	9.8%	13.9%
244	31.9%
50.0%	18.6%	34.9%
159	392	28.9%	15.0	15.3%	20.1%
319	10.2%	19.9
(1) Brinker’s restaurant brands include Chili’s Grill & Bar, Romano’s Macaroni Grill, On The Border and Maggiano’s.
(2) Darden’s restaurant brands include Red Lobster and The Olive Garden.
(3) RARE’s restaurant brands include LongHorn Steakhouse, The Capital Grille and Bugaboo Creek Steak House.
Sources of data: Value Line Investment Survey, 2007; Standard & Poor’s Stock Report, 2007 and company Annual Reports and websites.

Exh. 8

California Pizza Kitchen, Inc.

Average

3-month

2003

……

2004

……

2005

……

3.63%

……

4.51% 4.61%

4.72%

4.99%

4.72%

June

5.11% 5.15%

5.09%

5.85%

5.49%

Aug.

4.99%

8.25%

4.82%

4.72% 4.85% 5.51%

8.25%

4.89%

4.72% 4.73% 4.85% 5.51%

8.25% 5.37%

4.95% 4.96% 4.64%

4.69%

8.25% 5.37%

Dec. 4.85% 4.88%

4.68%

6.22% 8.25%

4.96%

4.79%

4.85% 5.40%

8.25% 5.36%

Feb. 5.02% 4.97%

4.72% 4.82%

8.25% 5.36%

Mar. 4.97% 4.90% 4.51% 4.56% 4.72%

6.27% 8.25% 5.35%

Apr. 4.88%

4.60% 4.69% 4.87%

6.39% 8.25% 5.36%

May.

4.69% 4.75% 4.90% 5.47% 6.39% 8.25% 5.36%

June

4.77% 5.00%

5.20%

8.25% 5.36%

min 0

max 0
min 0
avg 0
max 0
min 0
avg 0

Exhibit 8
Interest Rates and Yields
U.S. Treasury Securities		Average
Bills	Notes & Bonds	Corporate bonds (Moody’s)	Prime	LIBOR
	3-month	6-month	3-year	10-year	30-year	Aaa 3	Baa	Lending
2000		5.85%	5.92%		6.22%	6.03%	5.94%	7.62%	8.36%	9.23%	6.55%
2001	3.45%	3.39%	4.09%		5.02%		5.49%	7.08%	7.95%	6.91%		3.63%
2002	1.62%	1.69%	3.	10%		4.61%					……	6.49%	7.80%	4.67%	1.79%
1.02%	1.06%	2.10%	4.01%	5.67%	6.77%	4.12%	1.22%
1.38%	1.58%	2.78%	4.27%	5.63%			6.39%	4.34%	1.67%
3.16%	3.40%	3.93%	4.29%	5.24%	6.06%	6.19%
2006: Jan.	4.	20%	4.	30%	4.35%	4.42%	5.29%	6.24%	7.38%		4.68%
	Feb.	4.41%			4.51%		4.64%	4.57%	4.54%		5.35%		6.27%	7.50%		4.82%
	Mar.	4.74%							4.72%		4.73%	5.53%	6.41%	7.63%		4.99%
	Apr.	4.59%		4.89%	5.06%	5.84%	6.68%	7.75%		5.15%
	May.	4.81%			4.97%		5.11%		5.20%	5.95%	6.75%	7.88%	5.23%
	4.79%		4.95%			5.09%	5.89%	6.78%	7.13%			5.51%
July			4.96%	5.07%	5.13%	6.76%											8.25%
4.98%					4.85%			4.88%		5.00%	5.68%	6.59%		5.40%
Sept.			4.90%				4.69%	6.43%			5.37%
Oct.	4.91%	6.42%
Nov.		4.60%	5.33%	6.20%
4.58%		4.56%	5.32%						5.36%
2007: Jan.	4.94%	4.76%	6.34%
	4.75%	5.39%	6.28%
5.30%
	4.87%		5.47%
	4.77%	4.80%
4.63%	5.10%	5.79%	6.70%
Sources of data: Economic Report of the President and Fannie Mae website.
		max
		avg

Exh. 9

10% 20% 30%

6.16% 6.16% 6.16%

32.5% 32.5% 32.5%

30,054 30,054 30,054

30,054

Net income

Debt 0

Equity 225,888

225,888 225,888 225,888 225,888

0 22,589 45,178 67,766

643,773

Notes:

Exhibit 9
CALIFORNIA PIZZA KITCHEN
Pro Forma Tax Shield Effect of Recapitalization Scenarios
(Dollars in thousands, except share data; figures based on end of June 2007)
Debt/Total Capital
Actual
Interest rate (1)				6.16%
Tax rate				32.5%
Earnings before income taxes and interest(2)					30,054
Interest expense	1,391	2,783	4,174
Earnings before taxes	28,663	27,271	25,880
Income taxes	9,755	9,303	8,852	8,400
20,299	19,359	18,419	17,480
Book value:
	22,589		45,178		67,766
203,299	180,710	158,122
Total capital
Market value:
Debt(3)
Equity(4)		643,773	628,516	613,259	598,002
Market value of capital	651,105	658,437	665,769
(1) Interest rate of CPK’s credit facility with Bank of America: LIBOR + 0.80%.
(2) EBIT includes interest income.
(3) Market values of debt equal book values.
(4) Actual market values of equity equals the share price ($22.10) multiplied by the current number of shares outstanding (29.13 million).
Source: Case writer analysis based on CPK financial data.

UVA-F-1553

This case was written by Elizabeth W. Shumadine (MBA ’01), under the supervision of Professor Michael J. Schill,
and is based on public information. Funding provided by the L. White Matthews Fund for Finance case writing.
Copyright © 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved.
To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—
electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School
Foundation. ◊

CALIFORNIA PIZZA KITCHEN

Everyone knows that 95% of restaurants fail in the first two years, and a lot of
people think it’s “location, location, location.” It could be, but my experience is
you have to have the financial staying power. You could have the greatest idea,
but many restaurants do not start out making money—they build over time. So it’s
really about having the capital and the staying power.

—Rick Rosenfield, Co-CEO, California Pizza Kitchen1

In early July 2007, the financial team at California Pizza Kitchen (CPK), led by Chief
Financial Officer Susan Collyns, was compiling the preliminary results for the second quarter of
2007. Despite industry challenges of rising commodity, labor, and energy costs, CPK was about
to announce near-record quarterly profits of over $6 million. CPK’s profit expansion was
explained by strong revenue growth with comparable restaurant sales up over 5%. The
announced numbers were fully in line with the company’s forecasted guidance to investors.

The company’s results were particularly impressive when contrasted with many other
casual dining firms, which had experienced sharp declines in customer traffic. Despite the strong
performance, industry difficulties were such that CPK’s share price had declined 10% during the
month of June to a current value of $22.10. Given the price drop, the management team had
discussed repurchasing company shares. With little money in excess cash, however, a large share
repurchase program would require debt financing. Since going public in 2000, CPK’s
management had avoided putting any debt on the balance sheet. Financial policy was
conservative to preserve what co-CEO Rick Rosenfeld referred to as staying power. The view
was that a strong balance sheet would maintain the borrowing ability needed to support CPK’s
expected growth trajectory. Yet with interest rates on the rise from historical lows, Collyns was
aware of the benefits of moderately levering up CPK’s equity.

1 Richard M. Smith, “Rolling in Dough; For the Creators of California Pizza Kitchen, Having Enough Capital

Was the Key Ingredient to Success,” Newsweek, June 25, 2007.

This document is authorized for use by Suhan Patel, from 1/7/2018 to 4/7/2018, in the course:
MBA 7294: Advanced Financial Analysis – John Bish 2018, Wilmington University.

Any unauthorized use or reproduction of this document is strictly prohibited*.

UVA-F-1553

-2-

California Pizza Kitchen

Inspired by the gourmet pizza offerings at Wolfgang Puck’s celebrity-filled restaurant,
Spago, and eager to flee their careers as white-collar criminal defense attorneys, Larry Flax and
Rick Rosenfield created the first California Pizza Kitchen in 1985 in Beverly Hills, California.
Known for its hearth-baked barbecue-chicken pizza, the “designer pizza at off-the-rack prices”
concept flourished. Expansion across the state, country, and globe followed in the subsequent
two decades. At the end of the second quarter of 2007, the company had 213 locations in 28
states and 6 foreign countries. While still very California-centric (approximately 41% of the U.S.
stores were in California), the casual dining model had done well throughout all U.S. regions
with its family-friendly surroundings, excellent ingredients, and inventive offerings.

California Pizza Kitchen derived its revenues from three sources: sales at company-
owned restaurants, royalties from franchised restaurants, and royalties from a partnership with
Kraft Foods to sell CPK-branded frozen pizzas in grocery stores. While the company had
expanded beyond its original concept with two other restaurant brands, its main focus remained
on operating company-owned full-service CPK restaurants, of which there were 170 units.

Analysts conservatively estimated the potential for full-service company-owned CPK
units at 500. Both the investment community and management were less certain about the
potential for the company’s chief attempt at brand extension, its ASAP restaurant concept. In
1996, the company first developed the ASAP concept in a franchise agreement with HMSHost.
The franchised ASAPs were located in airports and featured a limited selection of pizzas and
“grab-n-go” salads and sandwiches. While not a huge revenue source, management was pleased
with the success of the airport ASAP locations, which currently numbered 16. In early 2007,
HMSHost and CPK agreed to extend their partnership through 2012. But the sentiment was more
mixed regarding its company-owned ASAP locations. First opened in 2000 to capitalize on the
growth of fast casual dining, the company-owned ASAP units offered CPK’s most-popular
pizzas, salads, soups, and sandwiches with in-restaurant seating. Sales and operations at the
company-owned ASAP units never met management’s expectations. Even after retooling the
concept and restaurant prototype in 2003, management decided to halt indefinitely all ASAP
development in 2007 and planned to record roughly $770,000 in expenses in the second quarter
to terminate the planned opening of one ASAP location.

Although they had doubts associated with the company-owned ASAP restaurant chain,
the company and investment community were upbeat about CPK’s success and prospects with
franchising full-service restaurants internationally. At the beginning of July 2007, the company
had 15 franchised international locations, with more openings planned for the second half of
2007. Management sought out knowledgeable franchise partners who would protect the
company’s brand and were capable of growing the number of international units. Franchising
agreements typically gave CPK an initial payment of $50,000 to $65,000 for each location
opened and then an estimated 5% of gross sales. With locations already in China (including
Hong Kong), Indonesia, Japan, Malaysia, the Philippines, and Singapore, the company planned
to expand its global reach to Mexico and South Korea in the second half of 2007.

This document is authorized for use by Suhan Patel, from 1/7/2018 to 4/7/2018, in the course:
MBA 7294: Advanced Financial Analysis – John Bish 2018, Wilmington University.
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UVA-F-1553

-3-

Management saw its Kraft partnership as another initiative in its pursuit of building a
global brand. In 1997, the company entered into a licensing agreement with Kraft Foods to
distribute CPK-branded frozen pizzas. Although representing less than 1% of current revenues,
the Kraft royalties had a 95% pretax margin, one equity analyst estimated.2 In addition to the
high-margin impact on the company’s bottom line, management also highlighted the marketing
requirement in its Kraft partnership. Kraft was obligated to spend 5% of gross sales on marketing
the CPK frozen pizza brand, more than the company often spent on its own marketing.

Management believed its success in growing both domestically and internationally, and
through ventures like the Kraft partnership, was due in large part to its “dedication to guest
satisfaction and menu innovation and sustainable culture of service.”3 A creative menu with high-
quality ingredients was a top priority at CPK, with the two co-founders still heading the menu-
development team. Exhibit 1 contains a selection of CPK menu offerings. “Its menu items offer
customers distinctive, compelling flavors to commonly recognized foods,” A Morgan Keegan
analyst wrote.4 While the company had a narrower, more-focused menu than some of its peers,
the chain prided itself on creating craved items, such as Singapore Shrimp Rolls, that
distinguished its menu and could not be found at its casual dining peers. This strategy was
successful, and internal research indicated a specific menu craving that could not be satisfied
elsewhere prompted many patron visits. To maintain the menu’s originality, management
reviewed detailed sales reports twice a year and replaced slow-selling offerings with new items.
Some of the company’s most recent menu additions in 2007 had been developed and tested at the
company’s newest restaurant concept, the LA Food Show. Created by Flax and Rosenfield in
2003, the LA Food Show offered a more upscale experience and expansive menu than CPK.
CPK increased its minority interest to full ownership of the LA Food Show in 2005 and planned
to open a second location in early 2008.

In addition to crediting its inventive menu, analysts also pointed out that its average
check of $13.30 was below that of many of its upscale dining casual peers, such as P.F. Chang’s
and the Cheesecake Factory. Analysts from RBC Capital Markets labeled the chain a “Price–
Value–Experience” leader in its sector.5

CPK spent 1% of its sales on advertising, far less than the 3% to 4% of sales that casual
dining competitors, such as Chili’s, Red Lobster, Olive Garden, and Outback Steakhouse, spent
annually. Management felt careful execution of its company model resulted in devoted patrons
who created free, but far more-valuable word-of-mouth marketing for the company. Of the actual
dollars spent on marketing, roughly 50% was spent on menu-development costs, with the other
half consumed by more typical marketing strategies, such as public relations efforts, direct mail
offerings, outdoor media, and on-line marketing.

2 Jeffrey D. Farmer, CIBC World Markets Equity Research Earnings Update, “California Pizza Kitchen, Inc.;
Notes from West Coast Investor Meetings: Shares Remain Compelling,” April 12, 2007.

3 Company press release, February 15, 2007.
4 Destin M. Tompkins, Robert M. Derrington, and S. Brandon Couillard, Morgan Keegan Equity Research,

“California Pizza Kitchen, Inc.,” April 19, 2007.

5 Larry Miller, Daniel Lewis, and Robert Sanders, RBC Capital Markets Research Comment, “California Pizza

Kitchen: Back on Trend with Old Management,” September 14, 2006.

UVA-F-1553

-4-

CPK’s clientele was not only attractive for its endorsements of the chain, but also
because of its demographics. Management frequently highlighted that its core customer had an
average household income of more than $75,000, according to a 2005 guest satisfaction survey.
CPK contended that its customer base’s relative affluence sheltered the company from
macroeconomic pressures, such as high gas prices, that might lower sales at competitors with
fewer well-off patrons.

Restaurant Industry

The restaurant industry could be divided into two main sectors: full service and limited
service. Some of the most popular subsectors within full service included casual dining and fine
dining, with fast casual and fast food being the two prevalent limited-service subsectors.
Restaurant consulting firm Technomic Information Services projected the limited-service
restaurant segment to maintain a five-year compound annual growth rate (CAGR) of 5.5%,
compared with 5.1% for the full-service restaurant segment.6 The five-year CAGR for CPK’s
subsector of the full-service segment was projected to grow even more at 6.5%. In recent years, a
number of forces had challenged restaurant industry executives, including:

• Increasing commodity prices;

• Higher labor costs;

• Softening demand due to high gas prices;

• Deteriorating housing wealth;

• Intense interest in the industry by activist shareholders.

High gas prices not only affected demand for dining out, but also indirectly pushed a
dramatic rise in food commodity prices. Moreover, a national call for the creation of more
biofuels, primarily corn-produced ethanol, played an additional role in driving up food costs for
the restaurant industry. Restaurant companies responded by raising menu prices in varying
degrees. The restaurants believed that the price increases would have little impact on restaurant
traffic given that consumers experienced higher price increases in their main alternative to dining
out—purchasing food at grocery stores to consume at home.

Restaurants not only had to deal with rising commodity costs, but also rising labor costs.
In May 2007, President Bush signed legislation increasing the U.S. minimum wage rate over a
three-year period beginning in July 2007 from $5.15 to $7.25 an hour. While restaurant
management teams had time to prepare for the ramifications of this gradual increase, they were
ill-equipped to deal with the nearly 20 states in late 2006 that passed anticipatory wage increases
at rates higher than those proposed by Congress.

6 Destin M. Tompkins, Robert M. Derrington, and S. Brandon Couillard, Morgan Keegan Equity Research,

“California Pizza Kitchen, Inc.,” April 19, 2007.
This document is authorized for use by Suhan Patel, from 1/7/2018 to 4/7/2018, in the course:
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UVA-F-1553

-5-

In addition to contending with the rising cost of goods sold (COGS), restaurants faced
gross margins that were under pressure from the softening demand for dining out. A recent AAA
Mid-Atlantic survey asked travelers how they might reduce spending to make up for the elevated
gas prices, and 52% answered that food expenses would be the first area to be cut.7 Despite that
news, a Deutsche Bank analyst remarked, “Two important indicators of consumer health—
disposable income and employment—are both holding up well. As long as people have jobs and
incomes are rising, they are likely to continue to eat out.”8

The current environment of elevated food and labor costs and consumer concerns
highlighted the differences between the limited-service and full-service segments of the
restaurant industry. Franchising was more popular in the limited-service segment and provided
some buffer against rising food and labor costs because franchisors received a percentage of
gross sales. Royalties on gross sales also benefited from any pricing increases that were made to
address higher costs. Restaurant companies with large franchising operations also did not have
the huge amount of capital invested in locations or potentially heavy lease obligations associated
with company-owned units. Some analysts included operating lease requirements when
considering a restaurant company’s leverage.9 Analysts also believed limited-service restaurants
would benefit from any consumers trading down from the casual dining sub-sector of the full-
service sector.10 The growth of the fast-casual subsector and the food-quality improvements in
fast food made trading down an increasing likelihood in an economic slowdown.

The longer-term outlook for overall restaurant demand looked much stronger. A study by
the National Restaurant Association projected that consumers would increase the percentage of
their food dollars spent on dining out from the 45% in recent years to 53% by 2010.11 That long-
term positive trend may have helped explain the extensive interest in the restaurant industry by
activist shareholders, often the executives of private equity firms and hedge funds. Activist
investor William Ackman with Pershing Square Capital Management initiated the current round
of activist investors forcing change at major restaurant chains. Roughly one week after Ackman
vociferously criticized the McDonald’s corporate organization at a New York investment
conference in late 2005, the company declared it would divest 1,500 restaurants, repurchase $1
billion of its stock, and disclose more restaurant-level performance details. Ackman advocated
all those changes and was able to leverage the power of his 4.5% stake in McDonald’s by using
the media. His success did not go unnoticed, and other vocal minority investors aggressively
pressed for changes at numerous chains including Applebee’s, Wendy’s, and Friendly’s. These

7 Amy G. Vinson and Ted Hillard, Avondale Partners, LLC, “Restaurant Industry Weekly Update,” June 11,

2007.
8 Jason West, Marc Greenberg, and Andrew Kieley, Deutsche Bank Global Markets Research, “Transferring

Coverage–Reservations Available,” June 7, 2007.
9 As of July 1, 2007, CPK had $154.3 million in minimum lease payments required over the next five years with

$129.6 million due in more than five years.
10 Jeff Omohundro, Katie H. Willett, and Jason Belcher, Wachovia Capital Markets, LLC Equity Research,

“The Restaurant Watch,” July 3, 2007.
11 Destin M. Tompkins, Robert M. Derrington, and S. Brandon Couillard, Morgan Keegan Equity Research,

UVA-F-1553

-6-

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 initiating
share repurchase programs; increasing dividends; decreasing corporate expenditures; 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.12

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 discriminating, 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.13

While other restaurant companies experienced weakening sales and earnings 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.

12 Sarah E. Lockyer, “Who’s the Boss? Activist Investors Drive Changes at Major Chains: Companies Pursue

‘Shareholder-Friendly’ Strategies in Response to Public Pressure,” Nation’s Restaurant News, April 23, 2007.
13 Destin M. Tompkins and Robert M. Derrington, Morgan Keegan Equity Research, “California Pizza Kitchen,

Inc.,” May 11, 2007.

UVA-F-1553

-7-

The company was successfully managing its two largest expense items in an environment
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 total revenue in both the second
quarter of 2006 and 2007. The company was implementing a number of taskforce initiatives to
deal with the commodity price pressures, especially as cheese prices increased from $1.37 per
pound in April to almost $2.00 a pound by the first week of July. Management felt that much of
the cost improvements had been achieved through enhancements in restaurant operations.

Capital Structure Decision

CPK’s book equity was expected to be around $226 million at the end of the second
quarter. With a share price in the low 20s, CPK’s market capitalization stood at $644 million.
The company had recently issued a 50% stock dividend, which had effectively split CPK shares
on a 3-for-2 shares basis. CPK investors received one additional share for every two shares of
common stock held. Adjusted for the stock dividend, Exhibit 6 shows the performance of CPK
stock relative to that of industry peers.

Despite the challenges of growing the number of restaurants by 38% over the last five
years, CPK consistently generated strong operating returns. CPK’s return on equity (ROE),
which was 10.1% for 2006, did not benefit from financial leverage.14 Financial policy varied
across the industry, with some firms remaining all equity capitalized and others levering up to
half debt financing. Exhibit 7 depicts selected financial data for peer firms. Because CPK used
the proceeds from its 2000 initial public offering (IPO) to pay off its outstanding debt, the
company completely avoided debt financing. CPK maintained borrowing capacity available
under an existing $75 million line of credit. Interest on the line of credit was calculated at
LIBOR plus 0.80%. With LIBOR currently at 5.36%, the line of credit’s interest rate was 6.16%
(see Exhibit 8).

The recent 10% share price decline seemed to raise the question of whether this was an
ideal time to repurchase shares and potentially leverage the company’s balance sheet with ample
borrowings available on its existing line of credit. One gain from the leverage would be to reduce
the corporate income-tax liability, which had been almost $10 million in 2006.

Exhibit 9

provides pro forma financial summaries of CPK’s tax shield under alternative capital structures.
Still, CPK needed to preserve its ability to fund the strong expansion outlined for the company.
Any use of financing to return capital to shareholders needed to be balanced with management’s
goal of growing the business.

14 By a familiar decomposition equation, a firm’s ROE could be decomposed into three components: operating

margin, capital turnover, and leverage. More specifically, the algebra of the decomposition was as follows:
ROE = Profit ÷ Equity = (Profit ÷ Revenue) × (Revenue ÷ Capital) × (Capital ÷ Equity).

UVA-F-1553

-8-

Exhibit 1

CALIFORNIA PIZZA KITCHEN
Selected Menu Offerings

Appetizers

Avocado Club Egg Rolls: A fusion of East and West with fresh avocado, chicken, tomato,
Monterey Jack cheese, and applewood smoked bacon, wrapped in a crispy wonton roll. Served
with ranchito sauce and herb ranch dressing.

Singapore Shrimp Rolls: Shrimp, baby broccoli, soy-glazed shiitake mushrooms,
romaine, carrots, noodles, bean sprouts, green onion, and cilantro wrapped in rice paper. Served
chilled with a sesame ginger dipping sauce and Szechuan slaw.

Pizzas

The Original BBQ Chicken: CPK’s most-popular pizza, introduced in their first restaurant
in Beverly Hills in 1985. Barbecue sauce, smoked gouda and mozzarella cheeses, BBQ chicken,
sliced red onions, and cilantro.

Carne Asada: Grilled steak, fire-roasted mild chilies, onions, cilantro pesto, Monterey

Jack, and mozzarella cheeses. Topped with fresh tomato salsa and cilantro. Served with a side of
tomatillo salsa.

Thai Chicken: This is the original! Pieces of chicken breast marinated in a spicy peanut
ginger and sesame sauce, mozzarella cheese, green onions, bean sprouts, julienne carrots,
cilantro, and roasted peanuts.

Milan: A combination of grilled spicy Italian sausage and sweet Italian sausage with
sautéed wild mushrooms, caramelized onions, fontina, mozzarella, and parmesan cheeses.
Topped with fresh herbs.

Pasta

Shanghai Garlic Noodles: Chinese noodles wok-stirred in a garlic ginger sauce with
snow peas, shiitake mushrooms, mild onions, red and yellow peppers, baby broccoli, and green
onions. Also available with chicken and/or shrimp.

Chicken Tequila Fettuccine: The original! Spinach fettuccine with chicken, red, green,
and yellow peppers, red onions, and fresh cilantro in a tequila, lime, and jalapeño cream sauce.

Source: California Pizza Kitchen Web site, http://www.cpk.com/menu (accessed on August 12, 2008).

UVA-F-1553

-9-

Exhibit 2

CALIFORNIA PIZZA KITCHEN
Consolidated Balance Sheets

(in thousands of dollars)

As of
1/1/06 12/31/06 7/1/07

Assets
Current assets
Cash and cash equivalents 11,272$ 8,187$ 7,178$
Investments in marketable securities 11,408
Other receivables 4,109 7,876 10,709
Inventories 3,776 4,745 4,596
Current deferred tax asset, net 8,437 11,721 11,834
Prepaid income tax 1,428 8,769
Other prepaid expenses & other current assets 5,492 5,388 6,444
Total current assets 45,922 37,917 49,530

Property and equipment, net 213,408 255,382 271,867
Noncurrent deferred tax asset, net 4,513 5,867 6,328
Goodwill and other intangibles 5,967 5,825 5,754
Other assets 4,444 5,522 6,300
Total assets 274,254$ 310,513$ 339,779$

Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable 7,054$ 15,044$ 14,115$
Accrued compensation and benefits 13,068 15,042 15,572
Accrued rent 13,253 14,532 14,979
Deferred rent credits 4,056 4,494 5,135
Other accrued liabilities 9,294 13,275 13,980
Accrued income tax 3,614 9,012
Total current liabilities 46,725 66,001 72,793

Other liabilities 5,383 8,683 8,662
Deferred rent credits, net of current portion 24,810 27,486 32,436

Shareholders’ equity:
Common stock 197 193 291
Additional paid-in-capital 231,159 221,163 228,647
Accumulated deficit (34,013) (13,013) (3,050)
Accumulated comprehensive loss (7)
Total shareholders’ equity 197,336 208,343 225,888

Total liabilities & Shareholders’ Equity 274,254$ 310,513$ 339,779$

Sources of data: Company annual and quarterly reports.

UVA-F-1553

-10-

Exhibit 3

CALIFORNIA PIZZA KITCHEN
Consolidated Income Statements

(in thousands of dollars, except per-share data)

Fiscal Year(1) Three Months Ended
2003 2004 2005 2006 7/2/06 7/1/07

Restaurant sales 356,260$ 418,799$ 474,738$ 547,968$ 134,604$ 156,592$
Franchise and other revenues 3,627 3,653 4,861 6,633 1,564 1,989
Total revenues 359,887 422,452 479,599 554,601 136,168 158,581
Food, beverage and paper supplies 87,806 103,813 118,480 135,848 33,090 38,426
Labor 129,702 152,949 173,751 199,744 49,272 56,912
Direct operating and occupancy 70,273 83,054 92,827 108,558 26,214 30,773
Cost of Sales 287,781 339,816 385,058 444,150 108,576 126,111
General and administrative 21,488 28,794 36,298 43,320 11,035 12,206
Depreciation and amortization 20,714 23,975 25,440 29,489 7,070 9,022
Pre-opening costs 4,147 737 4,051 6,964 800 852
Severance charges(2) 1,221
Loss on impairment of PP&E 18,984 1,160
Store closure costs 2,700 152 707 768
Legal settlement reserve 1,333 600
Operating income 5,552 25,097 26,840 29,971 8,687 9,622
Interest income 317 571 739 718 287 91
Other income 1,105
Equity in loss of unconsolidated JV (349) (143) (22)
Total other income (expense) (32) 428 1,822 718 287 91
Income before income tax provision 5,520 25,525 28,662 30,689 8,974 9,713
Income tax provision (benefit) (82) 7,709 9,172 9,689 2,961 3,393
Net income 5,602$ 17,816$ 19,490$ 21,000$ 6,013$ 6,320$
Net income per common share:
Basic 0.30$ 0.93$ 1.01$ 1.08$ 0.20$ 0.22$
Diluted 0.29$ 0.92$ 0.99$ 1.06$ 0.20$ 0.21$
Selected Operating Data:
Restaurants open at end of period 168 171 188 205 193 213
Company-owned open at end of period(3) 137 141 157 176 162 182
Avg weekly full service rest. sales(3) 54,896$ 57,509$ 62,383$ 65,406$ 65,427$ 68,535$
18-mo. comparable rest. sales growth(3) 3.4% 8.0% 7.5% 5.9% 4.8% 5.4%

Notes:

(1) For the years ended December 31, 2006, January 1, 2006, and January 2, 2005, December 28, 2003.
(2) Severance charges represent payments to former president/CEO and former senior vice president/senior

development officer under the terms of their separation agreements.
(3) Data for company-owned restaurants.

Sources of data: Company annual and quarterly reports and quarterly company earnings conference calls.

UVA-F-1559

-11-

Exhibit 4

CALIFORNIA PIZZA KITCHEN
Selected Historical Comparable Store Sales

(calendarized)

CY06 CY07
CY03 CY04 CY05 Q1 Q2 Q3 Q4 Q1

California Pizza Kitchen 3.4% 9.3% 6.4% 4.8% 5.9% 5.6% 6.9% 4.7%
Applebee’s International, Inc. 4.1% 4.8% 1.8% 2.6% −1.8% −2.3% −1.1% −4.0%
BJ’s Restaurants, Inc. 3.3% 4.0% 4.6% 6.8% 5.9% 5.3% 5.5% 6.9%
Brinker International(1) 2.1% 1.9% 3.2% 2.7% −2.0% −2.1% −2.1% −4.4%
The Cheesecake Factory, Inc. 0.7% 3.9% 1.7% −1.3% −0.8% −1.6% 0.8% 0.4%
Chipotle Mexican Grill, Inc. 24.4% 13.3% 10.2% 19.7% 14.5% 11.6% 10.1% 8.3%
Darden Restaurants, Inc.—Red Lobster 0.0% −3.9% 4.2% 1.6% 9.4% −2.1% 0.7% 4.6%
Darden Restaurants, Inc.—Olive Garden 2.2% 4.7% 8.6% 5.7% 2.5% 2.9% 2.9% 1.0%
McCormick & Schmick’s Seafood Restaurants, Inc. 1.1% 3.8% 3.0% 4.1% 2.8% 2.9% 2.0% 2.8%
Panera Bread Company 0.2% 2.7% 7.8% 9.0% 3.2% 2.8% 2.0% 0.0%
P. F. Chang’s China Bistro 5.1% 3.0% 1.2% 1.3% −1.0% −0.5% −0.9% −2.5%
RARE–Longhorn Steakhouse 4.6% 5.0% 2.8% 3.7% −0.4% −0.3% 1.5% −1.0%
Red Robin Gourmet Burgers 4.1% 7.5% 3.8% 4.8% 3.3% 0.8% 0.2% −0.5%
Ruth’s Chris Steak House, Inc. 1.4% 11.6% 10.4% 6.8% 6.0% 4.3% 7.4% 1.9%
Sonic Corporation 1.6% 7.0% 5.4% 5.5% 4.3% 4.0% 3.4% 2.0%
Texas Roadhouse, Inc. 3.5% 7.6% 5.6% 6.4% 1.2% 2.3% 3.3% 0.9%

Note:

(1) Brinker’s comparable store sales were a blended rate for its various brands.

Source of data: KeyBanc Capital Markets equity research.

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UVA-F-1553

-12-

Exhibit 5

CALIFORNIA PIZZA KITCHEN
Selected Forecasts for California Pizza Kitchen

Date of Price 2007E 2008E 2009E
Firm Report Target Revenues EPS Revenues EPS Revenues EPS

Oppenheimer and Co. Inc. 4/9/07 40$ 652.9$ 1.33$ NA NA NA NA
CIBC World Markets 4/12/07 37 647.5 1.29 755.1 1.57 NA NA
KeyBanc Capital Markets 5/11/07 NA NA 1.28 NA 1.55 NA NA
RBC Capital Markets 5/11/07 37 650.7 1.31 753.1 1.59 878.2 1.90
Morgan Keegan & Co., Inc. 5/11/07 NA 644.2 1.33 742.1 1.58 NA NA
MKM Partners 5/11/07 39 647.5 1.34 754.3 1.69 NA NA

Source of data: Selected firms’ equity research.

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UVA-F-1553

-13-

Exhibit 6

CALIFORNIA PIZZA KITCHEN
Stock Price Comparison

Note: Adjusted for the June 2007 50% stock dividend. With such a dividend, an owner of two shares of CPK stock was given an
additional share. The effect was to increase CPK shares by one-third, yet maintain the overall capitalization of the equity.

Sources of data: Yahoo! Finance and Datastream.

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UVA-F-1553

-14-

Exhibit 7

CALIFORNIA PIZZA KITCHEN
Comparative Restaurant Financial Data, 2006 Fiscal Year

(in millions of dollars, except per-share data)

Fiscal Year
End

7/2/2007
Share EBITDA Net Profit Earnings Dividends Book Value

Month Price Revenue Margin Margin
per

Share per Share per Share Beta
California Pizza Kitchen Dec. $22.10 $55 10.7% 3.8% $0.71 $ 0.00 $7.20 0.85
Applebee’s International, Inc. Dec. 24.28 1,338 15.9% 6.5% 1.17 0.20 6.49 0.80
BJ’s Restaurants, Inc. Dec. 20.05 239 9.6% 4.1% 0.41 0.00 7.78 1.05
Brinker International(1) June 29.37 4,151 12.0% 4.7% 1.49 0.20 8.59 0.90
Buffalo Wild Wings, Inc. Dec. 41.78 278 13.3% 5.8% 0.93 0.00 6.61 1.10
The Cheesecake Factory, Inc. Dec. 24.57 1,315 12.2% 6.2% 1.02 0.00 9.09 1.00
Chipotle Mexican Grill, Inc. Dec. 86.00 823 13.0% 5.0% 1.28 0.00 14.56 NA
Darden Restaurants, Inc.(2) May 44.14 5,721 13.2% 5.9% 2.16 0.40 8.37 1.00
Frisch’s Restaurants, Inc. May 30.54 291 31.6% 3.1% 1.78 0.44 19.84 0.60
McCormick & Schmick’s Dec. 25.66 308 9.7% 4.3% 0.92 0.00 11.20 1.10
Panera Bread Company Dec. 46.02 829 16.3% 7.2% 1.87 0.00 12.53 1.25
P.F. Chang’s China Bistro Dec. 35.37 938 10.5% 3.6% 1.24 0.00 11.41 1.10
RARE Hospitality Int’l Inc.(3) Dec. 26.76 987 11.6% 5.1% 1.45 0.00 11.17 0.57
Red Robin Gourmet Burgers Dec. 40.19 619 13.7% 4.9% 1.82 0.00 14.68 1.05
Ruth’s Chris Steak House, Inc. Dec. 16.80 272 15.6% 8.7% 1.01 0.00 2.93 NA
Sonic Corporation Aug. 22.00 693 24.9% 11.4% 0.88 0.00 4.66 0.90
Texas Roadhouse, Inc. Dec. 12.81 597 12.5% 5.7% 0.44 0.00 4.30 0.90

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UVA-F-1553

-15-

Exhibit 7 (continued)

Current Current Total Share Debt/ Interest
Total

Capital Return on
Assets Liabilities Debt Equity Capital Coverage Turnover Capital Equity

California Pizza Kitchen $38 $66 $ 0 $ 208 0.0% NMF 2.7 10.1% 10.1%
Applebee’s International, Inc. 105 187 175 487 26.5% 11.7 2.0 14.0% 18.0%
BJ’s Restaurants, Inc. 96 36 0 203 0.0% NMF 1.2 4.9% 4.9%
Brinker International(1) 242 497 502 1,076 31.8% 14.4 2.6 13.2% 18.0%
Buffalo Wild Wings, Inc. 75 26 0 116 0.0% NMF 2.4 14.0% 14.0%
The Cheesecake Factory, Inc. 203 163 0 712 0.0% NMF 1.8 11.4% 11.4%
Chipotle Mexican Grill, Inc. 179 61 0 474 0.0% NMF 1.7 8.8% 8.7%
Darden Restaurants, Inc.(2) 378 1,026 645 1,230 34.4% 10.9 3.1 20.6% 27.5%
Frisch’s Restaurants, Inc. 12 31 43 101 30.1% 5.9 2.0 7.9% 9.1%
McCormick & Schmick’s 30 40 0 160 0.2% NMF 1.9 8.3% 8.3%
Panera Bread Company 128 110 0 398 0.0% NMF 2.1 15.1% 15.1%
P.F. Chang’s China Bistro 65 104 19 290 6.2% NMF 3.0 11.1% 11.5%
RARE Hospitality Int’l Inc.(3) 125 134 166 360 31.6% 29.2 1.9 9.8% 13.9%
Red Robin Gourmet Burgers 29 70 114 244 31.9% 7.7 1.7 9.3% 12.5%
Ruth’s Chris Steak House, Inc. 26 59 68 68 50.0% 12.8 2.0 18.6% 34.9%
Sonic Corporation 43 78 159 392 28.9% 15.0 1.3 15.3% 20.1%
Texas Roadhouse, Inc. 53 78 36 319 10.2% 19.9 1.7 9.7% 10.7%

Notes:

(1) For the years ended December 31, 2006, January 1, 2006 and January 2, 2005, December 28, 2003.
(2) Severance charges represent payments to former president/CEO and former senior vice president/senior development officer under the terms of their

separation agreements.
(3) Data for company-owned restaurants.

Sources of data: Company annual and quarterly reports and conference calls.

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UVA-F-1553

-16-

Exhibit 8

CALIFORNIA PIZZA KITCHEN
Interest Rates and Yields

U.S. Treasury Securities Average Average

Bills Notes & Bonds Corporate bonds (Moody’s) Prime LIBOR
3-month 6-month 3-year 10-year 30-year Aaa 3 Baa Lending 3-month

2000 5.85% 5.92% 6.22% 6.03% 5.94% 7.62% 8.36% 9.23% 6.55%
2001 3.45% 3.39% 4.09% 5.02% 5.49% 7.08% 7.95% 6.91% 3.63%
2002 1.62% 1.69% 3.10% 4.61% …… 6.49% 7.80% 4.67% 1.79%
2003 1.02% 1.06% 2.10% 4.01% …… 5.67% 6.77% 4.12% 1.22%
2004 1.38% 1.58% 2.78% 4.27% …… 5.63% 6.39% 4.34% 1.67%
2005 3.16% 3.40% 3.93% 4.29% …… 5.24% 6.06% 6.19% 3.63%

2006: Jan. 4.20% 4.30% 4.35% 4.42% …… 5.29% 6.24% 7.38% 4.68%
Feb. 4.41% 4.51% 4.64% 4.57% 4.54% 5.35% 6.27% 7.50% 4.82%
Mar. 4.51% 4.61% 4.74% 4.72% 4.73% 5.53% 6.41% 7.63% 4.99%
Apr. 4.59% 4.72% 4.89% 4.99% 5.06% 5.84% 6.68% 7.75% 5.15%
May. 4.72% 4.81% 4.97% 5.11% 5.20% 5.95% 6.75% 7.88% 5.23%

June 4.79% 4.95% 5.09% 5.11% 5.15% 5.89% 6.78% 7.13% 5.51%
July 4.96% 5.09% 5.07% 5.09% 5.13% 5.85% 6.76% 8.25% 5.49%

Aug. 4.98% 4.99% 4.85% 4.88% 5.00% 5.68% 6.59% 8.25% 5.40%
Sept. 4.82% 4.90% 4.69% 4.72% 4.85% 5.51% 6.43% 8.25% 5.37%
Oct. 4.89% 4.91% 4.72% 4.73% 4.85% 5.51% 6.42% 8.25% 5.37%
Nov. 4.95% 4.96% 4.64% 4.60% 4.69% 5.33% 6.20% 8.25% 5.37%
Dec. 4.85% 4.88% 4.58% 4.56% 4.68% 5.32% 6.22% 8.25% 5.36%
2007: Jan. 4.96% 4.94% 4.79% 4.76% 4.85% 5.40% 6.34% 8.25% 5.36%
Feb. 5.02% 4.97% 4.75% 4.72% 4.82% 5.39% 6.28% 8.25% 5.36%
Mar. 4.97% 4.90% 4.51% 4.56% 4.72% 5.30% 6.27% 8.25% 5.35%
Apr. 4.88% 4.87% 4.60% 4.69% 4.87% 5.47% 6.39% 8.25% 5.36%
May. 4.77% 4.80% 4.69% 4.75% 4.90% 5.47% 6.39% 8.25% 5.36%

June 4.63% 4.77% 5.00% 5.10% 5.20% 5.79% 6.70% 8.25% 5.36%

Sources of data: Economic Report of the President and Fannie Mae Web site.

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-17-

Exhibit 9

CALIFORNIA PIZZA KITCHEN
Pro Forma Tax Shield Effect of Recapitalization Scenarios

(dollars in thousands, except share data; figures based on end of June 2007)

Debt/Total Capital
Actual 10% 20% 30%

Interest rate (1) 6.16% 6.16% 6.16% 6.16%
Tax rate 32.5% 32.5% 32.5% 32.5%

Earnings before income taxes and interest(2) 30,054 30,054 30,054 30,054
Interest expense 0 1,391 2,783 4,174
Earnings before taxes 30,054 28,663 27,271 25,880
Income taxes 9,755 9,303 8,852 8,400
Net income 20,299 19,359 18,419 17,480

Book value:
Debt 0 22,589 45,178 67,766
Equity 225,888 203,299 180,710 158,122
Total capital 225,888 225,888 225,888 225,888

Market value:
Debt(3) 0 22,589 45,178 67,766
Equity(4) 643,773 628,516 613,259 598,002
Market value of capital 643,773 651,105 658,437 665,769

Notes:
(1) Interest rate of CPK’s credit facility with Bank of America: LIBOR + 0.80%.
(2) Earnings before interest and taxes (EBIT) include interest income.
(3) Market values of debt equal book values.
(4) Actual market value of equity equals the share price ($22.10) multiplied by the current number of shares

outstanding (29.13 million).

Source: Case writer analysis based on CPK financial data.

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