California Pizza Kitchen

UNIVERSITY OF OREGON
INVESTMENT GROUP
February 26th, 2010

Consumer Goods
California Pizza Kitchen

BUY
Stock Data
Price (52 weeks)
Symbol/Exchange
Beta
Shares Outstanding
Average daily volume
(3 month average)
Current market cap
9.41 17.44
CPKI / NYSE
1.25
24,183,000
400,876
365,975,000
Current Price
Dividend
Dividend Yield
$15.07
$0.00
0%
Valuation (per share)

DCF Analysis
Comparables Analysis
Target Price
Current Price
$15.18
$17.73
$16.46
$15.07
Summary Financials
Revenue
Operating Cash Flow
Net Income
662M 2009A
44.6M 2009A
4.6M 2009A
BUSINESS OVERVIEW
California Pizza Kitchen was founded in 1985 by Rick Rosenfield and Larry Flax in Beverly Hills,
California. Twenty years later, California Pizza kitchen operates over 250 restaurants around the world and is
still run by its initial founders. The largest portion of CPKs restaurants are still located throughout
California, however they are now located in dozens of states as well as internationally in Asia, North America
and the Middle East. Almost all of California Pizza Kitchens revenues come from company owned full
Covering Analyst: Ari Siegel
Email: Asiegel@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational.
Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be.
Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIGs portfolio. In
addition, members of UOIG may attempt to obtain employment positions with firms held in UOIGs portfolio.
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http://uoig.uoregon.edu
service restaurants, however about fifty stores have been franchised

bearing the CPK name. Restaurant revenues tend to have very low
margins because of the high cost of goods sold. Fortunately, CPK also
generates higher margin revenue through a fairly recent franchising
agreement with Kraft foods to produce and distribute a line of premium
frozen pizzas. The compounded annual growth rate of Kraft franchise
revenues has been extremely high over the past five years. For now
however, Kraft franchise revenues are only 1% of CPKs annual
revenues. Other franchise revenue comprises about .72% of revenue,
while restaurant sales comprise about 98.31%.
BUSINESS AND GROWTH STRATEGIES
In the future, top line growth should be driven almost completely organically. While over this last
year CPK did not open any new stores due to poor economic conditions, there are currently 8 full service
store openings, 8 international franchised locations and 5 domestically franchised locations planned for 2010.
These newly opening stores should start CPKIs recovery from the recession. Part of top line growth strategy
going forward is to penetrate new target markets. Past stores have rarely been opened
on college campuses, and starting in the fiscal 4th quarter of 2009 stores have begun
to be opened more frequently in those areas. New fast-casual dining restaurants are
being opened in travel locations such as airports, which offer smaller menus to
people on the go, who still want a meal that is higher quality than fast food.
Management plans to emphasize geographic diversification in the future as a result of
past difficulty with Californias particularly poor economic environment dampening profitability. Currently,
none of the newly planned stores will be located in the California area. Throughout the recession, CPK
avoided broad menu price discounting in order to protect brand equity, while at the same time preventing
price increases. Going forward menu price inflation is expected to be as little as a percentage point a year.
Even with management projecting fairly stable menu prices in the future, average check per customer has
recently begun to increase. This is largely due to wine now being offered at all restaurants, and partially from
new and expanded menu offerings.
The segment with the largest revenue growth going forward will be its Kraft franchise royalty line. As
previously mentioned , the compounded annual growth rate of the Kraft royalty segment has been over 30%
annually over the past five years, and this growth should continue, albeit at a lesser rate than previous years.
In their most recent conference call, CEO Larry Flax strongly emphasized that going forward CPK will
contribute a larger amount of its attention and money to growing its higher margin revenue streams.
MANAGEMENT AND EMPLOYEE RELATIONS
Rich Rosenfield and Larry Flax managed CPK from 1985 to 1992, and from 2003 to present day. In
1992 the two managers sold their company to PepsiCo for about 100 million dollars. In 1997, Bruckmann,
Rosser, Cherill and Company bought out PepsiCos stake and took CPK public. Following issues with
management, Rich and Larry were then re-instated as managers. Even while not Corporate Officers Rick and
Larry were always involved with the company. The Board of Directors is made up of independent directors
and the two CEOs. Managers have a set salary, and also are awarded pay using equity incentive plans
including options and restricted stock awards.

PORTFOLIO INFORMATION
The Tall Firs, Svigals and DADCO portfolios are all currently underweight consumer goods and small cap
RECENT NEWS
February 18th, 2010 California Pizza kitchen announces financial results for the fourth quarter and
fiscal year 2009
o
February 4th, 2010 - California Pizza Kitchen Creates Big Flavors in Small Cravings
o
California Pizza Kitchen reported revenue and net income for the fourth quarter and fiscal year 2009
ending January 3rd, 2010. Overall, total revenue and net income slightly decreased from previous
years largely reflecting a still recovering industry.
California Pizza Kitchen announced February 4th the introduction of a new small cravings menu.
This menu includes the same quality of dish that customers are used to eating at CPKI in smaller
portions. Up to the time of this report, this additional menu has seen success among customers.
This type of product introduction is an example of the ways restaurant sales growth will be
strengthened going in future years.
January 25th, 2010 - California Pizza Kitchen Opens at Stony Brook University
o
California Pizza Kitchen announced January 25th the opening of a new quick-serve store on the
campus of Stony Brook University, located 60 miles east of New York City. It is a franchised
location that will allow a student population of over 24,000 to order a premium selection of CPKs
pastas, salads, soups & pizzas. This store opening is an example of CPKs move towards higher
margin franchised revenue as well as new quick-serve locations.
INDUSTRY
The full services restaurant industry is composed of businesses that provide food and other services to
customers who order and are served by waiters while seated. Some of the subcategories in this industry
include Asian, Traditional
American, Pizza, European,
Latin, Middle Eastern and
Casual Dining restaurants.
Overall, the industry can be
broken down into full service
restaurants, which comprise
34% of the industry, quick
service restaurants, which
comprise 31% of the industry,
and an other category which
comprises the remaining 35%.
Recently high growth in the
United States has been in the Asian category, followed by Middle Eastern. The highest growth has been in
traditional North American food.
About 80% of industry revenue comes from household expenditure on restaurant meals. The US
census has suggested that households with incomes of more than fifty thousand dollars account for more
than two thirds of personal expenditure on food away from home although this number does not stay
exactly the same in the more specific restaurant industry. The remaining 20% of the industrys revenue
comes from businesses, and business travelers.
3

Over the past few years the restaurant industry has been dealing with declining revenues, in line with
the overall global recession. This decline in revenues has led many companies to close underperforming
stores as well as offer increased discounting to attract more customers. The restaurant industrys success is
particularly dependant on a few key factors which include the consumer sentiment index, expenditure by
household income and per capita disposable income. All three of these factors have been negatively affected
by the recession, however all three should begin to improve as unemployment and the overall global
economy begins to recover.
More specifically, real GDP growth should increase to about 1% in 2010 and continue to slowly increase
from that rate over the next few years. Unfortunately for the industry, unemployment tends to recover at a
lag from GDP, and so unemployment is expected to remain fairly high in the short term. Unemployment is a
key factor in determining the consumer sentiment index, house hold expenditure and disposable income per
capita.
In general, the restaurant business will trend towards increased use of technology and more efficient
operations in order to cut down on costs and improve profitability. While existing chains will continue to
consolidate and attempt to maintain a competitive advantage in this saturated market, barriers to entry have
been and will continue to be low. Continued new entrants into the market are guaranteed.
S.W.O.T. ANALYSIS
Strengths
Recognizable Brand Name
Strong Balance sheet, consistent reduction in long term debt
Variety of different products and ways in which the CPK brand is being marketed
Price competitive without having had to discount menu prices through the recession
Weaknesses
Lack of geographic diversification, currently 40% of company operated stores are located within California

Opportunities
Franchised Restaurants and frozen pizzas have the possibility of improving overall margins in the long run
Management has hinted there is a chance of marketing products other than just frozen pizzas through Kraft
Company will be introducing quick serve restaurants, and catering services in addition to their traditional
restaurants
New target markets such as college campuses can be accessed
Threats
Restaurant sales are sensitive to timing of weather, holidays and other special events
Depending on Nestles opinion of CPKs frozen pizzas, continued marketing of the product may be
threatened
PORTERS 5 FORCES ANALYSIS
Supplier Power
There is a low amount of supplier power. The industry has a wide variety of places to obtain the different
ingredients used in making food.
Barriers to Entry
There are very low barriers to entry within the industry. A large number of people can afford to lease
buildings and equipment, so initial capital start up costs are very low
Buyer Power
There is a high amount of buyer power within the industry. While to a certain extent people are willing to
pay higher prices for good meals at a restaurant they trust, it is not too long before sales are hurt by a high
price elasticity of demand
Threat of Substitutes
There is a high threat of substitutes within the restaurant industry. Over the recession people have
substituted towards more home cooked meals as disposable income per capita decreased
Degree of Rivalry
There is a high degree of rivalry within the industry. Tens of thousands of restaurants within the industry all
compete for the same customers
COMPARABLES ANALYSIS
There were a few criteria used for selecting comparable companies. First, they had to operate in the restaurant
industry for the purpose of ease of comparison. After this, they were chosen if growth, cash flow and risk
characteristics were similar to California Pizza Kitchens outlook. This process should give a relatively clear picture of
what the market is currently pricing a company with a similar profile to California Pizza Kitchen.

The three multiples used to calculate the implied price were EV/Revenue, EV/EBITDA and EV/OCF.
EV/Revenue is a measure of how well a company produces revenue relative to its enterprise value, and is
fundamentally affected by how good a companys margins, growth and risk are. EV/EBIDTA is a good proxy for
how well cash flow is produced relative to enterprise value and is also fundamentally affected by expected growth and
risk. EV/OCF is also an estimate of how well a company produces cash flows relative to enterprise value, and will be
affected by factors similar to the previous two multiples. Given that the three multiples used are affected by the
fundamentals in similar ways, they were all weighted equally in the comparables analysis.
The Cheesecake Factory Inc. (CAKE) 20%

The Cheesecake Factory is an upscale casual dining restaurant chain located
throughout the United States. The companys full service restaurants offer over 200
items on their menus, with offerings ranging from pizza, seafood and salads to
omelets, baked goods and steak. There are currently more than 150 stores bearing
the cheesecake factory name, none of which are y franchised locations.
While the Cheesecake Factory is a slightly more risky company than California Pizza
Kitchen, it has similar growth and cash flows and thus makes a more than
reasonable comparable. The higher beta is likely due to the company being a slightly more upscale dining experience
than CPK. For example, in 2008 its average check size per guest was $18.50 in 2008 as compared to about $14 at
CPK. Like most casual dining restaurants within the United States, the Cheese Cake Factory operates in a highly
competitive environment, and faces a large amount of competition.
PF Changs China Bistro Inc. (PFCB) 20%

PF Changs owns and operates two chains of casual dining restaurants the PF
Chang chain and the Pei Wei Asian Diner (which is more of a quick service chain).
The company currently operates 189 full service PF Chang restaurants and 159 Pei
Wei restaurants. While the majority of these restaurants are located within the United
States, the company has development and license agreements to develop restaurants
in Mexico and the Middle East.
PF Changs has slightly lower risk , most likely due to having better geographic diversification as compared to CPK.
An average check size of $8 at its Pei Wei Restaurants also likely contributes to the lower risk. Its margins and
growth potential are also very similar to California Pizza Kitchen.
Red Robin Gourmet Burgers Inc. (RRGB) 30%

Red Robin develops, operates and franchises casual dining restaurants within the
United States and Canada. In 2008, approximately 423 restaurants were operated, 294
of which were company owned and 129 of which were operated under a franchise
agreement. Its average check size is about $11.50, which is similar to California Pizza
Kitchens.
Red Robins overall risk profile is very similar to California Pizza Kitchens with a beta
of 1.36. While RRGBs beta is likely lower when unleveraged, in past years it has

taken on a large amount of debt to finance quick expansion and this has also increased its levered beta. However
more recently, its revenue growth has stabilized to levels comparable to CPKs, and its margins are also similar.
Brinker International Inc. (EAT) 30%

Brinker International owns, develops, operates and franchises various restaurant
chains within the United States. The chains it owns include Chillis Grill & Bar and
On the Border Mexican Grill restaurants. It currently operates or has franchised
1689 restaurants, most of which are Chillis. Brinkers is fairly geographically
diversified, having locations throughout Europe, South America, Asia and the
Middle East.
Brinkers has a risk profile that is fairly comparable to California Pizza Kitchens.
The slight premium on its beta is likely due to its relatively higher proportion of debt. Its margins are similar to
CPKs, however its revenue has actually been decreasing in recent years. This top line growth is somewhat deceiving
however, as its EBITDA growth has been comparable to the industrys.
DISCOUNTED CASH FLOW ANALYSIS
Line Items were projected out to 2020 in the DCF analysis. After this point there was not a lot of value to be gained
from further projections due to lack of information. However, from 2019 to 2020 nominal free cash flow is growing
at a bit under 10% a year, and so an intermediate terminal growth rate of 5% a year was used until 2025. Line items
were generally projected as a percent of revenues.
Revenues
In order to project total revenue for coming years, top line sales were broken down into three segments Restaurant
Sales, Franchised Restaurant Sales and Kraft Sales.
Restaurant Sales have experienced negative growth in recent years as a result of the recession, however they will begin
to see signs of growth as the overall economy improves. While 2010 nominal growth will be negative, this is largely
because of a shift from a 53 week fiscal 2009 to a 52 week fiscal 2010. This change alone will cause about a negative
1.5% difference in sales. Not including this effect, sales in 2010 increase by over 1%. CPK is currently planning to
open 8 full service restaurants in 2010, and so restaurant sales growth will trend towards historic levels starting in
2011. Revenues will then begin to trail off towards the terminal year as CPK puts more focus on franchise revenue
and the market for CPK restaurants becomes more saturated.
Kraft Royalty growth should take a hit in the short term as a result of Nestles purchase of Kraft. While Nestle goes
through the merger with Kraft, there will not be as much of a focus on marketing CPK frozen pizzas. However, in
the long term, Nestle has the intention of continuing to sell CPKs products; so growth should increase back to a
slight discount of historic rates. Management has even hinted at the possibility of an agreement to sell more than just
pizzas with Nestle.
Restaurant Franchise Growth should be higher than company owned restaurant sales going into the future, largely due
to management focus on this segment. In 2010, there are plans to open 13 new franchised restaurants. 8 of these
restaurants will be within the United States, while the other 5 will be opened internationally. As CPK currently only

receives royalties from a little over 50 franchised restaurants, this growth should increase significantly within a few
years and then trend downwards towards the terminal year.
Cost of Goods Sold
Costs of Goods Sold was projected by being broken down into its separate components. Each component was then
projected as a percent of revenue.
Food, Beverage & Paper supplies should make a small spike upwards next year due to managements issues with
buying cheese futures. After this point, this cost should trend towards historical levels before decreasing very slightly
towards the terminal year as more revenues begin to come from royalties.
Labor as a percent of revenue should stay similar to 2009s due to salary increases cancelling out with revenue per
store increasing. After this point, labor costs should trend back to historical levels partially as a result of revenue per
store increasing, and partially as a result of total revenue trends towards an increased amount of royalties.
Direct Operating & Occupancy Costs should also trend back towards historical levels as the economy recovers, as
well as trend slightly downwards due to higher royalty revenues.
General & Administrative Expenses
General & Administrative Expenses have stayed relatively consistent over time, and thus their percent of revenue over
the DCF was projected as an average of their historical percent of revenues.
Pre-Opening Costs
Pre-Opening Costs were abnormally low over the past few years as a result of reduced store openings. These costs
should increase to slightly less than their historic levels as CPK begins to open larger amounts of restaurants again.
Store Closure Costs
Store Closure Costs were historically very low before the recession. These costs were projected at an average of
percent of revenues of the years prior to 2007
Depreciation
Depreciation rose in 2009 due to an accounting change that accelerated the depreciation of several of CPKs assets.
Depreciation was projected to increase slowly over time, as theoretically Depreciation and Capital Expenditures
should converge in perpetuity.
Net Working Capital
Current Assets were first adjusted by removing cash and marketable securities. After this point, Adjusted Current
Assets and Liabilities were projected as averages of their historical years percent of revenues. It should be noted that
2007 was treated as an outlier for current liabilities.

Capital Expenditures
While in the short term Capital Expenditures are projected to remain similar to recent levels, in the longer term they
should theoretically somewhat converge with depreciation, and so Cap Ex is projected to decrease as a percent of
revenues over time.
Cost of Capital and Beta
California Pizza Kitchen has undergone somewhat significant changes in its capital structure over the last 5 years. Up
until 2008, it was relatively debt free at which point it took out about 75 million dollars worth of debt. By 2009 that
debt had decreased to half of its original amount. At the time of this report, CPKs debt level is currently at 22.3
million dollars. Management has stated that they plan to pay off the rest of this debt by the 3rd quarter of 2010. As a
result of this, a 5 year regression on CPKs stock price and the S & P 500 was not appropriate. Instead the Hamada
formula was applied to find CPKs beta. Because CPK should have no debt by the time the first year of relevant cash
flows is over, free cash flow was discounted at the cost of equity after 2011. This cost of equity was calculated using
CPKs unlevered beta from the Hamada formula, as oppose to its levered beta. 2010s WACC was calculated using
CPKs levered beta, as well as the assumption that the debt was paid off at the end of 2010 (instead of in the third
quarter).
RECOMMENDATION
California Pizza Kitchen has relatively strong growth
potential within the casual dining industry. Its valuable
DCF
brand name and high quality food services are reflected in
Comps
the DCF and Comparables analysis. Combined, the
Implied price of California Pizza Kitchen is $16.48, which Implied Price
suggests an undervaluation of 9.34%. Given this
Current Price
undervaluation, and the fact that our three portfolios are
Undervalued
underweight small cap and consumer goods, Im
recommending a BUY for the Tall Firs, Svigals & DADCO.
Our portfolios can benefit from an undervalued company with
a higher beta as the overall economy begins to improve.
Price
$15.18
$17.73
$16.46
$15.07
9.20%
Weight
0.5
0.5

APPENDIX 1 COMPARABLES ANALYSIS
CPKI
CPKI
Weight
Price
15.07
Shares Outstanding
24
Market Cap
365.975
Long Term Debt (MRQ)
22.3
Cash(MRQ)
14.3
Enterprise Value
373.975
Revenue(ttm)
658.6
Gross Profit(ttm)
80.4
EBITDA(ttm)
48.9
OCF
66.22
Net Income(ttm)
8.7
Weight
Beta
1.2
EV/Rev
EV/EBITDA
EV/OCF
Weight
0.57
7.65
5.65
CAKE
PFCB
RRGB
EAT
Mean
Implied Price Weight
CAKE
PFCB
RRGB
EAT
20.00%
20.00%
30.00%
30.00%
23.65
41.88
20.02
18.25
24.59
60
23
16
102
52.00
1419
963.24
320.32
1861.5 1130.99
150
153.6
178.2
727
332.28
82.3
23.1
10
123.9
61.25
1486.7 1093.74
488.52
2464.6 1402.02
1,601.70
1196.3
857.4
3246.7 1790.83
993.20
213.15
103.2
2180.7
926.44
164.3
138.8
92.6
378.1
201.83
169.2
139.8
91.16
336
189.95
49.9
39.2
21.8
79.2
48.12
0.25
0.25
0.25
0.25
1.92
0.9
1.36
1.69
1.48
Multiples
0.93
0.91
0.57
0.76
0.77
$20.48
33.33%
9.05
7.88
5.28
6.52
6.92
$13.61
33.33%
8.79
7.82
5.36
7.34
7.13
$19.11
33.33%
Implied Price
17.73
0.20
0.20
0.30
0.30
Undervalued
17.68%
10

APPENDIX 2 DISCOUNTED CASH FLOWS ANALYSIS
Line Items
Revenues
% Growth Rate
Cost of Products Sold
% of Revenue
Gross Profit
Gross Margin
Operating Items
General and Administrative Expense

% of revenue
Pre-Opening Costs
% of revenue
Store Closure Costs
% of revenue
Depreciation & Amortization
% of revenue
Operating Income
EBIT
Income tax provision

Tax Rate
Net Income
Net Margin
Add Back: Depreciation & Amortization

Cash from Operations
Cash and Marketable Securities
Current Assets
Total Adjusted Current Assets
% of Revenue
Current Liabilities
% of Revenue
Net Working Capital (NWC)
% of revenue
Change in Working Capital
Capital Expenditures
% of Revenue
Free Cash Flow
Present Value of FCF
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2016E
554601
632884
677074
664,686 662014.425 705725.18 756465.87 815395.105 875167.295 939777.433 1008609.915
15.64%
14.12%
6.98%
-1.83%
-0.40%
6.60%
7.19%
7.79%
7.33%
7.38%
7.32%
444150
507094
553169
543504 542189.814 571637.39 607063.86 651704.538 696633.167 745008.56 798819.0527
80.08%
80.12%
81.70%
81.77%
81.90%
81.00%
80.25%
79.93%
79.60%
79.28%
79.20%
110451
125790
123905
121182 119824.611 134087.78 149402.01 163690.567 178534.128 194768.873 209790.8623
19.92%
19.88%
18.30%
18.23%
18.10%
19.00%
19.75%
20.08%
20.40%
20.73%
20.80%
52400 52134.0079 55576.254
7.88%
7.88%
7.88%
1843 4634.10098 5292.9388
0.28%
0.70%
0.75%
539 526.87139 561.65907
0.08%
0.08%
0.08%
40181 40051.8727 43402.098
6.05%
6.05%
6.15%
26,219
22,478
29,255
37,032
41,343
46,343
52,349
79428.59739 85169.91463 91325.85278 97502.79929

7.88%
7.88%
7.88%
7.88%
7060.269406
7029.84757 6958.110578 7428.731717
0.70%
0.65%
0.60%
0.60%
802.7131853 860.7354997 922.9480136
985.37284
0.08%
0.08%
0.08%
0.08%
65559.64448
70298.4757 75379.53126 80477.92693
6.50%
6.50%
6.50%
6.50%
56,940
62,407
68,368
77,016
103649.519
7.88%
7897.04987
0.60%
1047.49219
0.08%
85551.3736
6.50%
82,858
30,689
21,444
11,057
9689
31.57%
6660
31.06%
2395
21.66%
-2091 7090.21687 9227.9271

83.98%
31.54%
31.54%
21,000
14,784
8,662
4,581
15,388
20,027
25,351
28,302
31,725
35,836
38,979
42,722
46,802
52,722
56,722
3.79%
2.34%
1.28%
0.69%
2.32%
2.84%
3.35%
3.47%
3.63%
3.81%
3.86%
3.95%
4.04%
4.26%
4.31%
29489
50980
8200
1.48%
37900
29700
5.36%
66000
11.90%
-36300
6.55%
37146
51880
10800
1.71%
49400
38600
6.10%
101300
16.01%
-62700
9.91%
-12842
63712
11.49%
110
-26400
83433
13.18%
-5153
40299
40181 40051.8727 43402.098
61260
44636
55439
63429
14400
21,400
2.13%
3.22%
37500
23100 32755.95288 32624.2968 34778.378
3.41%
4.93%
4.93%
4.93%
79500 73956.17487 73658.9225 78522.392
11.74%
11.13%
11.13%
11.13%
-56400 -41200.222 -41034.6258 -43744.014
8.33%
-6.20%
-6.20%
-6.20%
74008.0008
7.88%
7048.33075
0.75%
747.932105
0.08%
60615.6444
6.45%
52,349
2020E
1316174.98
6.30%
1035171.62
78.65%
281003.358
21.35%
52378
7.74%
4478
0.66%
1033
0.15%
40299
5.95%
12,381
29,255
68919.9161
7.88%
7001.33836
0.80%
696.511423
0.08%
55573.1232
6.35%
46,343
2019E
1238121.953
6.76%
974711.5073
78.73%
263410.4455
21.28%
50691
8.01%
7167
1.13%
9269
1.46%
37146
5.87%
21,517
22,478
64212.8226
7.88%
6523.16084
0.80%
648.941074
0.08%
50962.1941
6.25%
41,343
2018E
1159685.096
7.23%
916731.0686
79.05%
242954.0277
20.95%
43320
7.81%
6964
1.26%
707
0.13%
29489
5.32%
29,971
2,490
59572.112
7.88%
5673.494
0.75%
602.0416
0.08%
46522.651
6.15%
37,032
2017E
1081515.011
7.23%
855748.7523
79.13%
225766.2585
20.88%
56,940
62,407
68,368
77,016
82,858
11681.007 13041.0701 14618.1668 16512.5683 17960.61604 19685.29004 21565.36274 24293.23291 26136.0873

31.54%
31.54%
31.54%
31.54%
31.54%
31.54%
31.54%
31.54%
31.54%
46522.651 50962.1941 55573.1232 60615.6444 65559.64448

71873
79265
87298
96452
104539
70298.4757 75379.53126 80477.92693 85551.3736

113020
122182
133200
142273
37278.896 40182.949 43128.5429 46312.5526 49704.64076 53297.42876 57149.67724 61015.07229 64861.5521

4.93%
4.93%
4.93%
4.93%
4.93%
4.93%
4.93%
4.93%
4.93%
84168.047 90724.7978 97375.3404 104564.176 112222.8109 120334.5839 129032.1652 137759.4287 146443.985
11.13%
11.13%
11.13%
11.13%
11.13%
11.13%
11.13%
11.13%
11.13%
-46889.15 -50541.849 -54246.7975 -58251.6239 -62518.17009 -67037.15519
-71882.488 -76744.3564 -81582.4334
-6.20%
-6.20%
-6.20%
-6.20%
-6.20%
-6.20%
-6.20%
-6.20%
-6.20%
6300 15199.77801 165.596211 -2709.3886 -3145.1361 -3652.6984 -3704.94866 -4004.82639 -4266.546207 -4518.985097
-4845.3328 -4861.86846 -4838.07693
56601
53174.88 52961.154 56458.014
60517.27 57077.6573 61261.7107 65784.4203 70602.69406
70298.4757 75379.53126 80477.92693 85551.3736
8.36%
8.00%
8.00%
8.00%
8.00%
7.00%
7.00%
7.00%
7.00%
6.50%
6.50%
6.50%
6.50%
-1641
-798
2313
9680
14501
25840
29741
34672
38203
47241
51648
57584
61560
2065.34472 7702.693
10285.83 16338.2439 16763.5432 17420.996 17110.59234 18861.51243 18381.96548 18269.65976 17410.4223
11

APPENDIX 3 DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS

2011 & Forward WACC
Beta
Market Risk Premium
10 yr Bond
Return on Equity
Cost of Debt
Equity
Debt
Wacc
Terminal Growth
Shares Oustanding
Current Price
Weighted Implied
Sum of FCF
Terminal Value
PV of Terminal Value
Implied Value Per Share
1.2
7%
3.78%
12.18%
3.76%
365974.95
0.00%
12.18%
3%
24285
15.07
16.46
219799.77
839556.1299
149733.233
15.18
2010 WACC
Beta
Market Risk Premium
10 yr Bond
Cost of Equity
Cost of Debt
Equity
Debt
WACC
1.25
7.00%
3.78%
12.53%
4.18%
365974.95
22,300
11.97%
APPENDIX 4 BETA SENSITIVITY ANALYSIS

Standard Error
Beta
2
1.5
1
0.5
0
-0.5
-1
-1.5
-2
1.884
1.713
1.542
1.371
1.2
1.029
0.858
0.687
0.516
Implied Price
8.78
9.88
11.25
12.96
15.22
18.13
22.21
28.17
36.57
12

APPENDIX 5 REVENUE & COST OF GOODS SOLD PROJECTIONS
Revenue Projections
Sales
% growth
Kraft Franchise Revenue
% growth
Other Franchise Revenue
% growth
Total Revenue
% growth
Cost of Goods Sold Projections

Costs of Sales
% of revenue
Food, Beverage & Paper Supplies
% of revenue
Labor
% of revenue
Direct Operating & Occupancy
% of revenue
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
547968
624324
665616
652,185 648924.075 691104.14 739481.43 794942.537 850588.514 910129.71 973838.7902 1042007.506 1114948.031 1187419.653 1258664.83
15.43%
13.93%
6.61%
-2.02%
-0.50%
6.50%
7.00%
7.50%
7.00%
7.00%
7.00%
7.00%
7.00%
6.50%
6.00%
3691
4710
6580
7739 8280.73 9522.8395 11427.407 14284.2593 17855.3241 22319.1551 26782.98609 30800.43401 35420.49911 40733.57398 46843.6101
82.00%
27.61%
39.70%
17.61%
7.00% 15.00% 20.00% 25.00%
25.00%
25.00%
20.00%
15.00%
15.00%
15.00%
15.00%
2942
3850
4878
4762 4809.62 5098.1972 5557.0349 6168.30879 6723.45658 7328.56768 7988.138767 8707.071256 9316.566244 9968.725881 10666.5367
3.85%
30.86%
26.70%
-2.38%
1%
6%
9%
11%
9%
9%
9%
9%
7%
7%
7%
554601
632884
677074
664686 662014.425 705725.18 756465.87 815395.105 875167.295 939777.433 1008609.915 1081515.011 1159685.096 1238121.953 1316174.98
15.64%
14.12%
6.98%
-1.83%
-0.40%
6.60%
7.19%
7.79%
7.33%
7.38%
7.32%
7.23%
7.23%
6.76%
6.30%
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
444150
507094
553169
543504 542189.814 571637.39 607063.86 651704.538 696633.167 745008.56 798819.0527 855748.7523 916731.0686 974711.5073 1035171.62
80.08%
80.12%
81.70%
81.77%
81.90% 81.00% 80.25%
79.93%
79.60%
79.28%
79.20%
79.13%
79.05%
78.73%
78.65%
135848
153954
165526
154181 156897.419 169374.04 183442.97 195694.825 207852.233 220847.697 237023.33 254156.0275 272525.9976 287863.354 306010.683
24.49%
24.33%
24.45%
23.20%
23.70% 24.00% 24.25%
24.00%
23.75%
23.50%
23.50%
23.50%
23.50%
23.25%
23.25%
199744
228664
247276
247350 246269.366 261118.32 276110.04 297211.516 318560.895 341609.097 366125.3992 392049.1914 419806.0049 447581.0859 475139.167
36.02%
36.13%
36.52%
37.21%
37.20% 37.00% 36.50%
36.45%
36.40%
36.35%
36.30%
36.25%
36.20%
36.15%
36.10%
108558
124476
140367
141973 139023.029 141145.04 147510.85 158798.197 170220.039 182551.766 195670.3235 209543.5333 224399.0661 239267.0674 254021.771
19.57%
19.67%
20.73%
21.36%
21.00% 20.00% 19.50%
19.48%
19.45%
19.43%
19.40%
19.38%
19.35%
19.33%
19.30%
APPENDIX 6 HAMADA BETA
Company
CAKE
PFCB
RRGB
EAT
Mean
Pure Business Beta
Sample D/E
Unlevered Business Beta
CPKI D/E
CPKI BETA
Beta
1.92
0.9
1.36
1.69
D/E ratio
S/E
Weight
0.09991341
0.301
20%
0.15572723
0.293
20%
0.53947687
0.392
30%
0.36617306
0.342
30%
1.479 0.32282311
0.339
1.479
0.322823
1.203217
0.058642
1.253314
APPENDIX 6 SOURCES
-
IBIS World
Finace.Yahoo.com
FactSet
Etrade.com
CPK 10-k, 10-Q & Conference Calls
13

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UNIVERSITY OF OREGON

February 26th, 2010