California Pizza Kitchen (CPKI) 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 29, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission file number 000-31149

California Pizza Kitchen, Inc.

(Exact name of registrant as specified in its charter)

Delaware	95-4040623
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

6053 West Century Boulevard, 11th Floor

Los Angeles, California 90045-6438

(Address of principal executive offices, including zip code)

(310) 342-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨ (do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    No  x

As of August 1, 2008, 24,531,721 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

California Pizza Kitchen, Inc. and Subsidiaries

TABLE OF CONTENTS

		Page No.
PART I - Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets at June 29, 2008 (unaudited) and December 30, 2007	3
	Consolidated Statements of Income for the Three and Six Months Ended June 29, 2008 and July 1, 2007 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 29, 2008 and July 1, 2007 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II - Other Information
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
Item 5.	Other Information	19
Item 6.	Exhibits	19
Signatures		20
Index to Exhibits		21

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

California Pizza Kitchen, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share data)

	June 29, 2008		December 30, 2007
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	8,921	$	10,795
Other receivables		7,691		12,351
Inventories		5,310		5,194
Current deferred tax asset, net		14,205		14,323
Prepaid income tax		695		—
Prepaid rent		4,553		4,289
Other prepaid expenses and other current assets		3,377		2,419
Total current assets		44,752		49,371
Property and equipment, net		302,854		297,856
Noncurrent deferred tax asset, net		6,954		6,444
Goodwill and other intangibles		9,449		8,777
Other assets		4,589		4,680
Total assets	$	368,598	$	367,128
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings	$	62,000	$	21,000
Accounts payable		12,632		18,236
Accrued compensation and benefits		18,682		16,892
Accrued rent		15,881		15,620
Deferred rent credits		5,617		5,598
Other accrued liabilities		21,604		19,418
Store closure reserve		375		3,596
Accrued income tax		5,481		971
Total current liabilities		142,272		101,331
Other liabilities		11,299		12,724
Deferred rent credits, net of current portion		33,347		34,936
Stockholders’ equity:
Common stock - $0.01 par value, 80,000,000 shares authorized, 24,845,887 and 28,357,582 shares issued and outstanding at June 29, 2008 and December 30, 2007, respectively		248		283
Additional paid-in capital		170,601		216,038
Retained earnings		10,831		1,816
Total stockholders’ equity		181,680		218,137
Total liabilities and stockholders’ equity	$	368,598	$	367,128

See accompanying notes

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California Pizza Kitchen, Inc. and Subsidiaries

Consolidated Statements of Income (unaudited)

(in thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 29, 2008		July 1, 2007		June 29, 2008			July 1, 2007
Revenues:
Restaurant sales	$	173,772	$	156,592	$	336,540		$	304,436
Royalties from Kraft licensing agreement		1,526		1,073		2,397			1,786
Domestic franchise revenues		740		664		1,400			1,186
International franchise revenues		589		252		1,007			540
Total revenues		176,627		158,581		341,344			307,948
Costs and expenses:
Food, beverage and paper supplies		43,468		38,426		83,155			74,802
Labor (1)		64,177		56,912		126,276			113,111
Direct operating and occupancy		34,124		30,773		67,311			59,468
Cost of sales		141,769		126,111		276,742			247,381
General and administrative (2)		13,066		12,206		26,126			24,997
Depreciation and amortization		10,481		9,022		21,432			17,563
Pre-opening costs		958		852		2,626			2,203
Store closure costs		839		768		839			768
Total costs and expenses		167,113		148,959		327,765			292,912
Operating income		9,514		9,622		13,579			15,036
Other income (expense):
Interest income (expense), net		179		91		(322	)		178
Total other income (expense)		179		91		(322	)		178
Income before income tax provision		9,693		9,713		13,257			15,214
Income tax provision		3,135		3,393		4,242			5,297
Net income	$	6,558	$	6,320	$	9,015		$	9,917
Net income per common share (3):
Basic	$	0.26	$	0.22	$	0.35		$	0.34
Diluted	$	0.26	$	0.21	$	0.34		$	0.33
Weighted average shares used in calculating net income per common share (3):
Basic		25,308		29,129		26,037			29,127
Diluted		25,436		30,236		26,132			30,163

(1) Labor expense for the three and six months ended June 29, 2008 includes approximately $191,000 and $401,000 of stock-based compensation, respectively, compared to $201,000 and $420,000 in the three and six months ended July 1, 2007, respectively.

(2) General and administrative expense for the three and six months ended June 29, 2008 includes approximately $1.6 million and $3.0 million of stock-based compensation, compared to $1.5 million and $3.5 million in the three and six months ended July 1, 2007, respectively.

(3) The Company effected a 3-for-2 stock split on June 19, 2007. All references to shares and per share amounts have been adjusted accordingly.

See accompanying notes

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California Pizza Kitchen, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Six Months Ended
	June 29, 2008			July 1, 2007
Operating activities:
Net income	$	9,015		$	9,917
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,432			17,563
Non-cash compensation expense		3,531			3,753
Tax benefit from employee stock option exercises		211			(384	)
Store closure costs		839			768
Change in net deferred tax assets		(603	)		(322	)
Change in liquor licenses included in goodwill and other intangibles		(743	)		(74	)
Change in deferred rent credits		1,267			7,966
Changes in operating assets and liabilities:
Other receivables		4,660			(2,833	)
Inventories		(116	)		149
Amortization of deferred rent credits		(2,837	)		(2,375	)
Prepaid expenses and other assets		(1,826	)		(10,529	)
Accounts payable		(5,086	)		(3,471	)
Accrued liabilities		8,168			7,858
Other liabilities		(4,646	)		(466	)
Net cash provided by operating activities		33,266			27,520
Investing activities:
Capital expenditures *		(27,348	)		(32,365	)
Net cash used in investing activities		(27,348	)		(32,365	)
Financing activities:
Short-term borrowings		41,000			—
Net proceeds from issuance of common stock		1,195			3,452
Stock repurchases		(49,987	)		—
Tax benefit from employee stock option exercises		—			384
Net cash (used in) provided by financing activities		(7,792	)		3,836
Net decrease in cash and cash equivalents		(1,874	)		(1,009	)
Cash and cash equivalents at beginning of period		10,795			8,187
Cash and cash equivalents at end of period	$	8,921		$	7,178
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$	1,027		$	8,769
Cash paid during the period for interest	$	1,114		$	3
Supplemental disclosure of non-cash investing activities:
* Property, plant and equipment purchased and included in accounts payable and other accrued liabilities	$	7,893		$	9,686

See accompanying notes

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California Pizza Kitchen, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 29, 2008

(unaudited)

1. Basis of Presentation

California Pizza Kitchen, Inc. (the “Company”) owns, operates, licenses or franchises 242 locations as of June 29, 2008 under the names California Pizza Kitchen, California Pizza Kitchen ASAP and LA Food Show.

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and six-month periods ended June 29, 2008 are not necessarily indicative of the results that may be expected for the year ending December 28, 2008.

The consolidated balance sheet at December 30, 2007 has been derived from the audited consolidated financial statements at that date, but does not include all the information and footnotes required by U.S. GAAP for complete financial statements.

The preparation of financial statements in accordance with U.S. GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.

2. Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company adopted SFAS No. 159 as of the beginning of fiscal year 2008 and has determined that it does not have a material effect on the consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This Statement defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. This Statement becomes effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted SFAS No. 157 as of the beginning of fiscal year 2008 and has determined that it does not have a material effect on the consolidated financial statements.

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3. Common Stock

The Company effected a three-for-two stock split on June 19, 2007 in the form of a 50% stock dividend on the Company’s common stock by issuing one additional share for every two shares held by stockholders of record as of June 11, 2007. In connection with this stock split, $97,000 was transferred to common stock from additional paid-in capital and $1,000 was paid to stockholders for fractional shares. All references in the consolidated financial statements to shares of common stock, weighted average number of shares, per share amounts and stock option plan data, including prior period data as appropriate, have been adjusted to reflect the stock split.

On January 15, 2008, employees purchased 51,080 shares of common stock from the Company under the Company’s employee stock purchase plan. The net proceeds to the Company were $533,000. Additionally, employees exercised options to purchase 49,218 shares of common stock during the first six months ended June 29, 2008, which resulted in net proceeds to the Company of $662,000.

On January 11, 2006, 105,000 shares of restricted stock were granted to each of Richard L. Rosenfield and Larry S. Flax, our co-founders, co-Chairmen of the Board of Directors and co-Chief Executive Officers. Of the total grant, 9,375 restricted shares vested for each of them in the first six months ended June 29, 2008.

On January 15, 2007, employees purchased 30,543 shares of common stock from the Company under the Company’s employee stock purchase plan. The net proceeds to the Company were $464,000. Additionally, employees exercised options to purchase 199,623 shares of common stock during the first six months ended July 1, 2007, which resulted in net proceeds to the Company of $3.0 million.

Since August 2004, the Board of Directors has authorized several stock repurchase programs to acquire the Company’s common stock from time to time in the open market and through privately negotiated transactions. Through the third quarter of 2007, 2,604,706 shares were repurchased for an aggregate purchase price of $48.5 million. The average purchase price per share was $18.61. The Company did not repurchase any of its equity securities during the second quarter of 2007.

On August 7, 2007, the Board of Directors authorized a stock repurchase program (“August 2007 Program”) to acquire the Company’s common stock from time to time in the open market and through privately negotiated transactions. Under the August 2007 Program, up to $50.0 million of the Company’s common stock could be reacquired from time to time over a 24-month period. 334,963 shares were repurchased in the open market for an aggregate price of $3.7 million prior to February 1, 2008.

On February 1, 2008, the Company entered into a collared accelerated share repurchase agreement (“ASR”) with Bank of America, N.A. (“Bank of America”), an unrelated third party, under which the Company repurchased the remaining $46.3 million of common stock under the August 2007 Program. On February 1, 2008, the Company made a payment of $46.3 million to Bank of America for the shares to be acquired under the ASR. The Company funded this payment from borrowings under its revolving credit facility and available cash balances. The payment was recorded as a reduction to stockholders’ equity. Through the conclusion of the program on June 19, 2008, Bank of America delivered to the Company 3,297,574 shares of common stock. The average price paid for the all shares repurchased during the ASR was $14.03. The average price paid for all shares under the August 2007 Program was $13.76. The Company accounted for this transaction in accordance with Emerging Issues Task Force (EITF) Issue No. 99-7, “Accounting for an Accelerated Share Repurchase Program.”

4. Long-term Debt and Credit Facilities

In January 2008, the Company entered into a Second Amendment to its Amended and Restated Credit Agreement (the “Amendment”) with Bank of America, N.A. to amend the Amended and Restated Credit Agreement dated June 30, 2004 (the “Original Credit Agreement”). The Amendment increased the revolving line of credit from $75.0 million to $100.0 million. The line of credit bears interest at either the bank base rate minus 75 basis points or LIBOR plus 80 basis points and expires on June 30, 2009. Other than the increased maximum borrowing capacity, there were no other material changes to the terms of the Original Credit Agreement.

On May 7, 2008, the Company replaced its $100.0 million credit facility by entering into a new five-year revolving credit facility (the “Facility”) with a syndicate of banks, featuring a maximum available borrowing capacity of $150.0 million. The Facility contains an uncommitted option to increase, subject to satisfaction of certain conditions, the maximum borrowing capacity by up to an additional $50.0 million. The Facility contains certain restrictive and financial covenants, including that the Company maintain a minimum consolidated fixed charge coverage ratio and a maximum lease adjusted leverage ratio. The Facility is guaranteed by one of the Company’s subsidiaries and stipulates certain events of default. Borrowings under the Facility bear interest at either the London Interbank Offering Rate (LIBOR) or the prime rate, at the Company’s option, plus a spread ranging from 100 to 150 basis points for LIBOR loans or zero to 25 basis points for prime rate loans. The Company also pays a commitment fee on the unused facility ranging from 20 to 30 basis points per annum. Both the interest rate spread and the commitment fee level depend on the lease adjusted leverage ratio as defined in the terms of the Facility. The Facility also includes a $15.0 million sublimit for standby letters of credit. As of June 29, 2008, the Company had borrowings outstanding under the Facility totaling $62.0 million with an average annual interest rate of 3.93%. Availability under the line of credit is also reduced by outstanding letters of credit used to support the Company’s self-insurance programs, which totaled $6.1 million as of June 29, 2008. Available borrowings under the line of credit were $81.9 million as of June 29, 2008. The Facility matures in May 2013.

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5. Stock-Based Compensation

Stock-based compensation expense includes compensation expense, recognized over the applicable vesting periods, for stock-based awards granted after January 2, 2006 and for stock-based awards granted prior to, but not yet vested as of the Company’s adoption of SFAS No. 123(R), “Share-Based Payment.”

The impact of stock-based compensation to the consolidated statement of income for the quarter ended June 29, 2008 on income before income tax provision and net income was $1.8 million and $1.2 million, respectively, or $0.07 and $0.05 on diluted earnings per share, respectively. The impact to the consolidated statement of income for the six months ended June 29, 2008 on income before income tax provision and net income was $3.4 million and $2.3 million, respectively, or $0.13 and $0.09 on diluted earnings per share, respectively.

Reported stock-based compensation was classified as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 29, 2008			July 1, 2007			June 29, 2008			July 1, 2007
Labor	$	191		$	201		$	401		$	420
General and administrative		1,562			1,457			2,972			3,528
Total stock-based compensation		1,753			1,658			3,373			3,948
Tax benefit		(566	)		(579	)		(1,068	)		(1,371	)
Total stock-based compensation, net of tax	$	1,187		$	1,079		$	2,305		$	2,577

No options were issued in each of the second quarters of 2008 and 2007.

The weighted average fair value at the grant date using the Black-Scholes valuation model for options issued in the first six months of 2008 and 2007 was $7.83 and $6.73 per option, respectively. The fair value of options issued at the date of grant was estimated using the following weighted average assumptions for the first six months of 2008 and 2007, respectively: (a) no dividend yield on our common stock for both periods; (b) expected stock price volatility of 68.64% and 28.29%; (c) a risk-free interest rate of 2.72% and 4.71%; and (d) an expected option term of 4.0 years for both periods.

The expected term of the options represents the estimated period of time until exercise and is based on the Company’s historical experience of similar option grants, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. For fiscal 2008, expected stock price volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury bill rate in effect at the time of grant with an equivalent expected term or life. The Company has not paid cash dividends in the past and does not currently plan to pay any cash dividends in the future.

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Information regarding activity for stock options under our plans is as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 30, 2007	5,545,157		$	16.37
Options granted	557,268			14.66
Options exercised	(49,218	)		13.47
Options cancelled	(209,535	)		18.65
Outstanding at June 29, 2008	5,843,672			16.15	6.92	$	44,498
Vested and exercisable at June 29, 2008	3,512,130			15.62

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 29, 2008. This amount changes based on the fair market value of our stock. Total intrinsic value of options exercised for the six months ended June 29, 2008 was $127,000.

A summary of the status of the Company’s nonvested options as of June 29, 2008, and changes during the six months ended June 29, 2008, is as follows:

	Nonvested Shares
	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 30, 2007	2,436,971		$	5.88
Options granted	557,268			7.83
Options vested	(572,806	)		5.63
Options cancelled	(89,891	)		6.85
Nonvested at June 29, 2008	2,331,542			6.38

As of June 29, 2008, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $12.8 million, which is expected to be recognized over a weighted average period of approximately 1.2 years. As of June 29, 2008, there were 0.7 million shares of common stock available for issuance pursuant to future stock awards.

Information regarding activity for restricted shares under our plans is as follows:

	Shares		Weighted Average Grant Date Fair Value
Outstanding at December 30, 2007	134,374		$	20.73
Restricted shares granted	—			—
Restricted shares vested	(18,750	)		21.56
Restricted shares cancelled	(9,999	)		15.98
Outstanding at June 29, 2008	105,625			21.03

Fair value of our restricted shares is based on our closing stock price on the date of grant. As of June 29, 2008, total unrecognized stock-based compensation related to nonvested restricted shares was $1.8 million, which is expected to be recognized over a weighted average period of approximately 1.3 years.

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6. Income Taxes

In July 2006, the FASB issued Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes”(“SFAS No. 109”). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The Company adopted FIN 48 beginning January 1, 2007.

As of March 30, 2008, the Company had recorded $717,000 in unrecognized tax benefits. During the second quarter of 2008, the Company settled audits with various states, thereby releasing FIN 48 liability of approximately $350,000. As of June 29, 2008, the Company had $367,000 in unrecognized tax benefits, $239,000 of which would impact the Company’s effective tax rate if recognized.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of March 30, 2008 and June 29, 2008, the Company accrued interest and penalties related to uncertain tax benefits of $254,000 and $187,000, respectively.

The Company estimates that unrecognized tax benefits of $12,000 related to state taxes will decrease in the next twelve months due to expiration of statute of limitations. The tax years 2003 to 2007 remain open to examination by major taxing jurisdictions.

7. Net Income Per Common Share

Reconciliation of the components included in the computation of basic and diluted net income per common share in accordance with SFAS No. 128, “Earnings Per Share,” for the three and six months ended June 29, 2008 and July 1, 2007, respectively, is as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Numerator for basic and diluted net income per common share	$	6,558	$	6,320	$	9,015	$	9,917
Denominator:
Denominator for basic net income per common share weighted average shares		25,308		29,129		26,037		29,127
Employee stock options		128		1,107		95		1,036
Denominator for diluted net income per common share weighted average shares		25,436		30,236		26,132		30,163

8. Subsequent Events

On July 9, 2008, the Board of Directors authorized a new stock repurchase program (“July 2008 Program”) to acquire the Company’s common stock from time to time in the open market and through privately negotiated transactions. Under the July 2008 Program, up to $50.0 million of the Company’s common stock could be reacquired from time to time over a 24-month period. The July 2008 Program follows three similar stock repurchase programs over the last four years that totaled $100.0 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as “expects,” “anticipates,” “intends,” “plans” and similar expressions. Our actual results could differ materially from those discussed in these statements. Factors that could contribute to these differences include those discussed under “Risk Factors” of our 2007 Annual Report on Form 10-K and elsewhere in this report. The cautionary statements made in this report should be read as being applicable to all forward-looking statements wherever they appear in this report.

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Overview

California Pizza Kitchen, Inc. (referred to hereafter as the “Company” or in the first person notations “we” and “our”) is a leading casual dining restaurant chain. As of August 1, 2008, we own, operate, license or franchise 243 locations under the names California Pizza Kitchen, California Pizza Kitchen ASAP (“CPK/ASAP”) and LA Food Show in 30 states, the District of Columbia and eight foreign countries. We have 43 locations that operate under franchise or license agreements and use the California Pizza Kitchen and California Pizza Kitchen ASAP brand names and trademarks. We opened our first restaurant in 1985 in Beverly Hills, California and during our 23 years of operating history, we have developed a recognized consumer brand and demonstrated the appeal of our concept in a wide variety of geographic areas. Our restaurants, which feature an exhibition-style kitchen centered around an open-flame oven, provide a distinctive casual dining experience that is family friendly and has a broad consumer appeal.

We manage our operations by restaurant and have aggregated our operations into one reportable segment. For analytical purposes, we have broken this segment into three concepts. As of June 29, 2008, we had 1) 190 company-owned full service California Pizza Kitchen restaurants; 2) nine company-owned CPK/ASAP restaurants and 3) one company-owned LA Food Show restaurant.

We intend to open 12 full service restaurants during 2008, eight of which were opened in the first six months of 2008. We have signed lease agreements for all new full service restaurants planned for the remainder of fiscal 2008. The majority of these new restaurants require, on average, a gross cash investment of approximately $2.8 million for inline restaurants and $3.2 million for freestanding restaurants. Tenant improvement allowances, most of which are generally associated with inline restaurants, average approximately $500,000 and are recorded as reductions to future rent over the initial lease term. In addition, pre-opening costs are expected to be approximately $350,000 per new full service restaurant, including the impact of Staff Position No. FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period” (“FSP 13-1”).

It is common in the restaurant industry for new restaurant locations to initially open with sales volumes in excess of their sustainable run-rate levels. This initial “honeymoon” effect usually results from promotional and other consumer awareness activities that generate abnormally high customer traffic for our new restaurants. During the several months following the opening of a new restaurant, customer traffic generally settles into its normal pattern, resulting in sales volumes that gradually adjust downward to their expected sustained run-rate level. Additionally, our new restaurants usually require a 90- to 120-day period after opening to reach their targeted restaurant-level operating margin due to cost of sales and labor inefficiencies commonly associated with new restaurants. As a result, a significant number of restaurant openings or delays in those openings in any single fiscal quarter, accompanied with their associated pre-opening costs, could have a significant impact on our consolidated results of operations for that period. Therefore, our results of operations for any single fiscal quarter are not necessarily indicative of the results to be expected for any other fiscal quarter or for a full fiscal year.

Cost of sales is comprised of food, beverage and paper supplies, labor and direct operating and occupancy expenses. The components of food, beverage and paper supplies are variable and increase with sales volume. Labor costs include direct hourly and management wages, stock-based compensation, bonuses and taxes and benefits for restaurant employees. Direct operating and occupancy costs include restaurant supplies, marketing costs, fixed rent, percentage rent, common area maintenance charges, utilities, real estate taxes, repairs and maintenance and other related restaurant costs. Direct operating and occupancy costs generally increase with sales volume but decline as a percentage of restaurant sales.

General and administrative costs include all corporate and administrative functions that support existing operations and provide infrastructure to facilitate our future growth. Components of this category include management, supervisory and staff salaries and related employee benefits, stock-based compensation, travel and relocation costs, information systems, training, corporate rent and professional and consulting fees. Depreciation and amortization principally includes depreciation on capital expenditures for restaurants. Pre-opening costs, which are expensed as incurred, consist of rent from the date construction begins through the restaurant opening date, the costs of hiring and training the initial workforce, travel, the cost of food used in training, marketing costs, the cost of the initial stocking of operating supplies and other direct costs related to the opening of a restaurant.

Our fiscal year consists of 52 or 53 weeks and ends on the Sunday closest to December 31 in each year. The three- and six-month periods ended June 29, 2008 and July 1, 2007 each consisted of 13 and 26 weeks, respectively. In calculating company-owned comparable restaurant sales, we include a restaurant in the comparable base once it has been open for 18 months. As of June 29, 2008, we had 171 company-owned restaurants that met this criterion.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our unaudited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. When we prepare these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to investments, self-insurance, leasing activities, deferred tax assets, intangible assets, long-lived assets and stock-based compensation. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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Results of Operations

Our operating results for the three and six months ended June 29, 2008 and July 1, 2007 are expressed as a percentage of revenues below, except for cost of sales which is expressed as a percentage of restaurant sales:

	Three Months Ended				Six Months Ended
	June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Revenues:
Restaurant sales	98.4	%	98.7	%	98.6	%	98.9	%
Royalties from Kraft licensing agreement	0.9	%	0.7	%	0.7	%	0.6	%
Domestic franchise revenues	0.4	%	0.4	%	0.4	%	0.3	%
International franchise revenues	0.3	%	0.2	%	0.3	%	0.2	%
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Food, beverage and paper supplies	25.0	%	24.5	%	24.7	%	24.6	%
Labor (1)	36.9	%	36.3	%	37.5	%	37.2	%
Direct operating and occupancy	19.6	%	19.7	%	20.0	%	19.5	%
Cost of sales	81.6	%	80.5	%	82.2	%	81.3	%
General and administrative (2)	7.4	%	7.7	%	7.7	%	8.1	%
Depreciation and amortization	5.9	%	5.7	%	6.3	%	5.7	%
Pre-opening costs	0.5	%	0.5	%	0.8	%	0.7	%
Store closure costs	0.5	%	0.5	%	0.2	%	0.2	%
Total costs and expenses	94.6	%	93.9	%	96.0	%	95.1	%
Operating income	5.4	%	6.1	%	4.0	%	4.9	%
Other income (expense):
Interest income (expense), net	0.1	%	0.1	%	-0.1	%	0.1	%
Total other income (expense)	0.1	%	0.1	%	-0.1	%	0.1	%
Income before income tax provision	5.5	%	6.1	%	3.9	%	4.9	%
Income tax provision	1.8	%	2.1	%	1.3	%	1.7	%
Net income	3.7	%	4.0	%	2.6	%	3.2	%

(1) Labor percentage includes approximately 10 basis points attributable to stock-based compensation in both the three and six months ended June 29, 2008 and the three and six months ended July 1, 2007.

(2) General and administrative percentage includes approximately 90 basis points attributable to stock-based compensation in each of the three and six months ended June 29, 2008, compared to 90 and 110 basis points in the three and six months ended July 1, 2007, respectively.

The following table details the number of locations at the end of the second quarter of 2008:

Second Quarter 2008	Total Units at March 30, 2008	Opened	Acquired	Closed	Total Units at June 29, 2008
Company-owned full service domestic	188	3	—	1	190
Company-owned ASAP domestic	9	—	—	—	9
Company-owned LA Food Show	1	—	—	—	1
Franchised domestic	17	—	—	—	17
Franchised international	19	3	—	—	22
Sports and entertainment venues	3	—	—	—	3
Total	237	6	—	1	242

Three months ended June 29, 2008 compared to the three months ended July 1, 2007

Total Revenues. Total revenues increased by $18.0 million, or 11.3%, to $176.6 million in the second quarter of 2008 from $158.6 million in the second quarter of 2007 due to a $17.2 million increase in restaurant sales and a $0.9 million increase in franchise and other revenues. The increase in restaurant sales was primarily due to the addition of 21 full service restaurants since the end of the second quarter of 2007. The 18-month comparable base restaurant increase was 1.4%, driven by the Company’s successful

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Thank You Card Program, a 4.9% increase in pricing, 3.3% decrease in guest counts and a 0.2% decrease in menu mix. The increase in franchise and other revenues was primarily due to increased royalties from Kraft’s distribution of our frozen pizza and the opening of seven international franchises since the second quarter of 2007.

Food, beverage and paper supplies. Food, beverage and paper supplies increased by $5.1 million, or 13.3%, to $43.5 million in the second quarter of 2008 from $38.4 million in the second quarter of 2007. Food, beverage and paper supplies as a percentage of restaurant sales was 25.0% in the second quarter of 2008 compared to 24.5% in the second quarter of 2007. The increase in food, beverage and paper supplies as a percentage of restaurant sales was primarily due to higher grocery, dairy, seafood and fuel surcharge costs partially offset by lower bread costs and higher purchase rebates.

Labor. Labor increased by $7.3 million, or 12.8%, to $64.2 million in the second quarter of 2008 from $56.9 million in the second quarter of 2007. As a percentage of restaurant sales, labor was 36.9% in the second quarter of 2008 compared to 36.3% in the second quarter of 2007. The dollar increase in labor was primarily due to increased hourly labor associated with minimum wage increases in nine states that represent 60% of our base, new store inefficiencies, higher payroll taxes and medical benefit costs.

Direct operating and occupancy. Direct operating and occupancy costs increased by $3.3 million, or 10.7%, to $34.1 million in the second quarter of 2008 from $30.8 million in the second quarter of 2007. Direct operating and occupancy costs as a percentage of restaurant sales was 19.6% in the second quarter of 2008 compared to 19.7% in the second quarter of 2007. The dollar increase in direct operating and occupancy costs was primarily due to increased rent, utility and common area maintenance expenses and higher credit card charges.

General and administrative. General and administrative costs increased by $0.9 million, or 7.4%, to $13.1 million in the second quarter of 2008 from $12.2 million in the second quarter of 2007. General and administrative costs as a percentage of total revenue decreased to 7.4% in the second quarter of 2008 from 7.7% in the second quarter of 2007. The dollar increase in general and administrative expenses was primarily a result of additional personnel to support restaurant operations, and increased office expenses and professional services.

Depreciation and amortization. Depreciation and amortization increased by $1.5 million, or 16.7%, to $10.5 million in the second quarter of 2008 from $9.0 million in the second quarter of 2007. The increase in the second quarter of 2008 was primarily due to the addition of 21 full service restaurants since the end of the second quarter of 2007.

Pre-opening costs. Pre-opening costs increased by $0.1 million to $1.0 million in the second quarter of 2008 from $0.9 million in the second quarter of 2007. We opened three full service restaurants in the second quarter of 2008 compared to opening two full service restaurants in the second quarter of 2007. Included in the $1.0 million pre-opening costs is $0.3 million associated with FSP 13-1, compared to $0.4 million in the second quarter of 2007.

Store closure costs.Store closure costs increased by $71,000 to $839,000 in the second quarter of 2008 from $768,000 in the second quarter of 2007. Store closure costs in the second quarter of 2008 related to the impairment of one full service restaurant. Store closure costs in the second quarter of 2007 related to early termination costs for one unopened CPK/ASAP that included a lease buyout and construction write-off.

Interest income (expense), net.Interest income increased by $88,000 to $179,000 in the second quarter of 2008 from $91,000 in the second quarter of 2007. The net increase was the effect of lower interest expense due to the capitalization of interest for new restaurants under construction in accordance with FASB SFAS No. 34, “Capitalization of Interest Cost” (“SFAS No. 34”).

Income tax provision. The effective income tax rate was 32.3% for the second quarter of 2008 compared to 34.9% for the second quarter of 2007. The decrease in the effective income tax rate is primarily the result of a larger tax rate benefit from tax credits, driven by lower expected earnings before income taxes compared to the prior year due to the challenging state of the economy. The tax rate was also impacted by the completion of various tax audits and an adjustment to deferred taxes.

Net income. Net income increased by $0.3 million to $6.6 million in the second quarter of 2008 from $6.3 million in the second quarter of 2007. Net income as a percentage of revenues decreased to 3.7% in the second quarter of 2008 from 4.0% in the prior year.

Six months ended June 29, 2008 compared to the six months ended July 1, 2007

Total Revenues. Total revenues increased by $33.4 million, or 10.8%, to $341.3 million in the first six months of 2008 from $307.9 million in the first six months of 2007 due to a $32.1 million increase in restaurant sales and a $1.3 million increase in franchise and other revenues. The increase in restaurant sales was due to 11.4% sales growth for full service restaurants, 4.6% increase in weekly sales average for CPK/ASAP restaurants and $2.0 million in sales derived from LA Food Show. The 18-month comparable base restaurant increase was 1.0%, driven by the Company’s successful Thank You Card Program, a 5.1% increase in pricing and a 4.1% decrease in guest counts. The increase in franchise and other revenues was primarily due to increased royalties from Kraft’s distribution of our frozen pizza and the opening of seven international franchises since the second quarter of 2007.

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Food, beverage and paper supplies. Food, beverage and paper supplies increased by $8.4 million, or 11.2%, to $83.2 million in the first six months of 2008 from $74.8 million in the first six months of 2007. Food, beverage and paper supplies as a percentage of restaurant sales increased to 24.7% in the first six months of 2008 from 24.6% in the fist six months of 2007. The slight increase of food, beverage and paper supplies as a percentage of restaurant sales was primarily due to higher seafood and dairy costs, offset by improved management of meat and bread costs.

Labor. Labor increased by $13.2 million, or 11.7%, to $126.3 million in the first six months of 2008 from $113.1 million in the first six months of 2007. As a percentage of restaurant sales, labor increased to 37.5% in the first six months of 2008 from 37.2% in the first six months of 2007. The increase in labor as a percentage of restaurant sales was primarily due to increased hourly labor associated with minimum wage increases in nine states that represent 60% of our base and increased management labor and medical benefit costs.

Direct operating and occupancy. Direct operating and occupancy costs increased by $7.8 million, or 13.1%, to $67.3 million in the first six months of 2008 from $59.5 million in the first six months of 2007. Direct operating and occupancy costs as a percentage of restaurant sales increased to 20.0% in the first six months of 2008 from 19.5% in the first six months of 2007. The dollar increase in direct operating and occupancy costs was primarily due to increased rent, utility, and common area maintenance expenses and higher credit card charges.

General and administrative. General and administrative costs increased by $1.1 million, or 4.4%, to $26.1 million in the first six months of 2008 from $25.0 million in the first six months of 2007. General and administrative costs as a percentage of total revenue decreased to 7.7% in the first six months of 2008 from 8.1% in the first six months of 2007. The dollar increase in general and administrative expenses was primarily a result of additional personnel to support restaurant operations and increased professional services.

Depreciation and amortization. Depreciation and amortization increased by $3.8 million, or 21.6%, to $21.4 million in the first six months of 2008 from $17.6 million in the first six months of 2007. The increase in the first six months of 2008 was primarily due to the addition of 21 full service restaurants since the end of the second quarter of 2007.

Pre-opening costs. Pre-opening costs increased by $0.4 million to $2.6 million in the first six months of 2008 from $2.2 million in the first six months of 2007. We opened eight full service restaurants in the first six months of 2008 compared to opening four full service restaurants and two CPK/ASAP restaurants in the first six months of 2007. Pre-opening costs also included $0.6 million in the first six months of 2008 related to the impact of FSP 13-1, compared to $0.7 million in the first six months of 2007.

Store closure costs.Store closure costs increased by $71,000 to $839,000 in the first six months of 2008 from $768,000 in the first six months of 2007. Store closure costs in the first six months of 2008 related to the impairment of one full service restaurant. Store closure costs in the first six months of 2007 related to early termination costs for one unopened CPK/ASAP that included a lease buyout and construction write-off.

Interest income (expense), net.Interest expense was $322,000 in the first six months of 2008 compared to interest income of $178,000 in the first six months of 2007. Interest expense relates to borrowings against our line of credit in the first six months of 2008, a portion of which was capitalized for new restaurants under construction in accordance with SFAS No. 34. There were no borrowings in the first six months of 2007.

Income tax provision. The effective income tax rate was 32.0% for the first six months of 2008 compared to 34.8% for the first six months of 2007. The decrease in the effective tax rate over the prior year was primarily a result of a larger tax rate benefit from tax credits driven by lower than expected earnings before income taxes compared to the prior year due to the challenging state of the economy. In addition, the tax rate in the prior year was impacted to a greater degree by limitations on deductibility of stock-based compensation.

Net income. Net income decreased by $0.9 million to $9.0 million in the first six months of 2008 from $9.9 million in the first six months of 2007. Net income as a percentage of revenues decreased to 2.6% in the first six months of 2008 from 3.2% in the prior year.

Liquidity and capital resources

We fund our capital requirements principally through cash flow from operations and borrowings from our line of credit. For the first six months of 2008, net cash flows provided by operating activities were $33.3 million compared to $27.5 million for the first six months of 2007. Net cash flows provided by operating activities for the first six months of 2008 were higher than the first six months of 2007 primarily due to increased depreciation and a net increase in the changes in operating assets and liabilities.

Net cash flows used in investing activities for the first six months of 2008 decreased to $27.3 million from $32.4 million for the first six months of 2007 due to decreased capital expenditures related to new restaurants, minor remodels and capitalized maintenance.

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We opened eight new full service restaurants in the first six months of 2008. The new full service restaurants are larger than our pre-2004 restaurants and require, on average, a higher net investment than our pre-2004 restaurants due to their increased size. However, we have seen and expect corresponding sales to be higher and to ultimately generate a higher restaurant cash flow. Pre-opening costs for each of these new full service restaurants are approximately $350,000; however, any unexpected delays in construction, labor shortages or other factors could result in higher than anticipated pre-opening costs. CPK/ASAPs are approximately half the size of our full service restaurants. We currently have 9 CPK/ASAP restaurants and are re-engineering the concept. The CPK/ASAP restaurants will benefit from re-engineering efforts that include menu, marketing and speed of service enhancements.

Net proceeds from issuance of common stock were $1.2 million for the first six months of 2008 compared to $3.5 million for the first six months of 2007 and consisted of purchases under our employee stock purchase plan of $0.5 million for both six month periods, and common stock option exercises of $0.7 million and $3.0 million, respectively.

Since August 2004, the Board of Directors has authorized several stock repurchase programs to acquire the Company’s common stock from time to time in the open market and through privately negotiated transactions. Through the third quarter of 2007, 2,604,706 shares were repurchased for an aggregate purchase price of $48.5 million. The average purchase price per share was $18.61. The Company did not repurchase any of its equity securities during the second quarter of 2007.

On August 7, 2007, the Board of Directors authorized a new stock repurchase program (“August 2007 Program”) to acquire the Company’s common stock from time to time in the open market and through privately negotiated transactions. Under the August 2007 Program, up to $50.0 million of the Company’s common stock could be reacquired from time to time over a 24-month period. 334,963 shares were repurchased in the open market for the aggregate price of $3.7 million prior to February 1, 2008.

On February 1, 2008, the Company entered into a collared accelerated share repurchase agreement (“ASR”) with Bank of America, N.A. (“Bank of America”), an unrelated third party, under which the Company repurchased the remaining $46.3 million of common stock under the August 2007 Program. On February 1, 2008, the Company made a payment of $46.3 million to Bank of America for the shares to be acquired under the ASR. The Company funded this payment from borrowings under its revolving credit facility and available cash balances. The payment was recorded as a reduction to stockholders’ equity. Through the conclusion of the program on June 19, 2008, Bank of America delivered to the Company 3,297,574 shares of common stock. The average price paid for the all shares repurchased during the ASR was $14.03. The average price paid for all shares under the August 2008 Program was $13.76. The Company has accounted for this transaction in accordance with Emerging Issues Task Force (EITF) Issue No. 99-7, “Accounting for an Accelerated Share Repurchase Program.”

In January 2008, the Company entered into a Second Amendment to its Amended and Restated Credit Agreement (the “Amendment”) with Bank of America, N.A. to amend the Amended and Restated Credit Agreement dated June 30, 2004 (the “Original Credit Agreement”). The Amendment increased the revolving line of credit from $75.0 million to $100.0 million. The line of credit bears interest at either the bank base rate minus 75 basis points or LIBOR plus 80 basis points and expires on June 30, 2009. Other than the increased maximum borrowing capacity, there were no other material changes to the terms of the Original Credit Agreement.

On May 7, 2008, the Company replaced its $100.0 million credit facility by entering into a new five-year revolving credit facility (the “Facility”) with a syndicate of banks, featuring a maximum available borrowing capacity of $150.0 million. The Facility contains an uncommitted option to increase, subject to satisfaction of certain conditions, the maximum borrowing capacity by up to an additional $50.0 million. The Facility contains certain restrictive and financial covenants, including that the Company maintain a minimum consolidated fixed charge coverage ratio and a maximum lease adjusted leverage ratio. The Facility is guaranteed by one of the Company’s subsidiaries and stipulates certain events of default. Borrowings under the Facility bear interest at either the London Interbank Offering Rate (LIBOR) or the prime rate, at the Company’s option, plus a spread ranging from 100 to 150 basis points for LIBOR loans or zero to 25 basis points for prime rate loans. The Company also pays a commitment fee on the unused facility ranging from 20 to 30 basis points per annum. Both the interest rate spread and the commitment fee level depend on the lease adjusted leverage ratio as defined in the terms of the Facility. The Facility also includes a $15.0 million sublimit for standby letters of credit. As of June 29, 2008, the Company had borrowings outstanding under the Facility totaling $62.0 million with an average annual interest rate of 3.93%. Availability under the line of credit is also reduced by outstanding letters of credit used to support the Company’s self-insurance programs, which totaled $6.1 million as of June 29, 2008. Available borrowings under the line of credit were $81.9 million as of June 29, 2008. The Facility matures in May 2013.

Our capital requirements, including costs related to opening additional restaurants, have been and will continue to be significant. Our future cash requirements and the adequacy of available funds will depend on many factors, including the pace of expansion, real estate markets, site locations and the nature of the arrangements negotiated with landlords. We believe that our current cash balances, together with anticipated cash flows from operations and funds anticipated to be available from our credit facility, will be sufficient to satisfy our working capital and capital expenditure requirements on a short-term and long-term basis. Changes in our operating plans, acceleration of our expansion plans, lower than anticipated sales, increased expenses, non-compliance with our credit facility, financial and non-financial covenant requirements or other events may cause us to seek additional financing sooner than anticipated. Additional financing may not be available on acceptable terms, or at all. Failure to obtain additional financing as needed could have a material adverse effect on our business and results of operations.

As of June 29, 2008, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties. Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.

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Contractual Obligations

The following table summarizes our contractual obligations as of June 29, 2008 (in millions):

			Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating Lease Obligations (1)	$	281.7	$	19.5	$	77.2	$	69.4	$	115.6
Short-term borrowings		62.0		62.0		—		—		—
Purchase obligations (2)		9.0		9.0		—		—		—
FIN 48 Liability		0.4		—		0.4		—		—
	$	353.1	$	90.5	$	77.6	$	69.4	$	115.6

(1) Represents aggregate minimum lease payments. Most of the leases also require contingent rent in addition to the minimum rent based on a percentage of sales and require expenses incidental to the use of the property, which are not included.

(2) Purchase obligations represent estimated construction commitments and exclude agreements that are cancelable without significant penalty.

Inflation

The primary inflationary factors affecting our operations are food and labor costs. A large number of our restaurant personnel are paid at rates based on the applicable minimum wage, and increases in the minimum wage directly affect our labor costs. Many of our leases require us to pay for taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. We believe inflation has not had a material impact on our results of operations in recent years.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk exposures are related to our cash and cash equivalents and marketable securities. Cash and cash equivalents are invested in highly liquid short-term investments with maturities of less than three months as of the date of purchase. We are exposed to market risk from changes in market prices related to our investments in marketable securities. As of June 29, 2008, we did not hold any marketable securities. Changes in interest rates affect the investment income we could earn on our investments and, therefore, impact our cash flows and results of operations.

In May 2008, the Company entered into the Facility with a syndicate of banks, which increased the maximum available borrowing capacity to $150.0 million. Borrowings under the Facility bear interest at either the London Interbank Offering Rate (LIBOR) or the prime rate, at the Company’s option, plus a spread ranging from 100 to 150 basis points for LIBOR loans or zero to 25 basis points for prime rate loans. The Company will also pay a commitment fee on the unused facility ranging from 20 to 30 basis points annually. Both the interest rate spread and commitment fee level depend on the Company’s lease adjusted leverage ratio as defined in the credit agreement. As of June 29, 2008, the Company had borrowings outstanding under the Facility totaling $62.0 million with an average annual interest rate of 3.93%. Availability under the line of credit is also reduced by outstanding letters of credit used to support the Company’s self-insurance programs, which totaled $6.1 million as of June 29, 2008. Available borrowings under the line of credit were $81.9 million as of June 29, 2008. The Facility contains certain restrictive and financial covenants, including that the Company maintain a minimum consolidated fixed charge coverage ratio and a maximum lease adjusted leverage ratio, with which the Company was in compliance as of June 29, 2008. The Facility matures in May 2013.

Many of the food products purchased by us are affected by changes in weather, production, availability, seasonality and other factors outside our control. In an effort to control some of this risk, we have entered into some fixed price purchase commitments with terms of no more than one year. In addition, we believe that almost all of our food and supplies are available from several sources, which helps to control food commodity risks.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures – We conducted an evaluation under the supervision and with the participation of our management, including our co-Chief Executive Officers (“co-CEOs”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, our Company’s co-CEOs and CFO concluded that our disclosure controls and procedures are effective, as of the end of the period covered by this report, in ensuring that material information relating to California Pizza Kitchen, Inc., including its consolidated subsidiaries, required to be disclosed in reports we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to our management, including our co-CEOs and CFO, as appropriate to allow timely decisions regarding required disclosure.

Change in Internal Control Over Financial Reporting – There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 29, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 21, 2007, a class action lawsuit was filed in the San Diego Superior Court against California Pizza Kitchen. The lawsuit was filed by a former restaurant employee who purported to represent approximately 17,000 current and former non-exempt California employees. The lawsuit alleged violations of state wage and hour laws involving meal and rest breaks, and sought an unspecified amount in damages. The amount of potential damages, if any, associated with the claim did not exceed 10% of the Company’s current assets.

On March 6, 2008, the Company entered into a tentative settlement of all claims in action. The settlement will enable the Company to avoid lengthy, burdensome litigation as well as substantial continuing legal and other administrative expenses. The Company does not admit any liability or wrongdoing in connection with the settlement. On May 2, 2008, a judge granted preliminary approval to the class action settlement. The administration process commenced on May 12, 2008 and will last approximately eleven months total. The settlement, subject to final court approval, will result in the dismissal of the lawsuit's claims against the Company. Under the proposed settlement, class members can submit claims pursuant to a Court approved process whereby the Company would pay an aggregate amount not to exceed $3.2 million to settle claims asserted on behalf of the class. The purported class representative alleges that there were violations of wage and hour laws related to meal and rest breaks. The Company believes that the actual number of violations, if any, were relatively low in number and it believes that the relatively low actual number will be reflected in the number of individual claims. The Company believes this will result in a net payment less than the $3.2 million figure, however, the specific net payment cannot be determined at this time.

The Company accrued a legal settlement reserve of $2.3 million in fiscal 2007 based on an estimate of the maximum costs that are expected to be incurred in connection with this case. The Company cannot provide any assurances that the Court will provide final approval to the proposed settlement.

We are also subject to certain private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. Such claims typically involve claims from guests, employees and others related to operational issues common to the food service industry. A number of such claims may exist at any given time. We could be affected by adverse publicity resulting from such allegations, regardless of whether such allegations are valid or whether we are determined to be liable. From time to time, we are also involved in lawsuits with respect to infringements of, or challenges to, our registered trademarks. We believe that the final disposition of such lawsuits and claims, if determined adversely for the Company, will not have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS

A description of the risk factors associated with the Company is contained in Item 1A, “Risk Factors,” of our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008 and incorporated herein by reference. There is no update to the risk factors described in the 10-K for the year ended December 30, 2007 required for the quarter ended June 29, 2008. The cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to Company purchases made of California Pizza Kitchen, Inc. common stock during the second quarter of 2008:

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
03/31/08-05/04/08	341,783	(2	)	341,783	(2	)
05/05/08-06/01/08	—	—		—	—
06/02/08-06/29/08	530,791	(2	)	530,791	(2	)
Total	872,574			872,574	—

(1) On August 7, 2007, the Board of Directors authorized a stock repurchase program ("August 2007 Program") to acquire the Company's common stock from time to time in the open market and through privately negotiated transactions. Under the August 2007 Program, up to $50.0 million of the Company's common stock could be reacquired from time to time over a 24-month period.

(2) All shares purchased during the second quarter of 2008 were purchased under an accelerated share repurchase program (“ASR”), which concluded on June 19, 2008. Under the ASR, the aggregate price paid was $46.3 million and the average price per share was $14.03.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 21, 2008, we held our Annual Meeting of Stockholders. The matters submitted for vote and related election results were as follows:

1. To elect: William C. Baker, Leslie E. Bider, Larry S. Flax, Marshall S. Geller, Charles G. Phillips, Richard L. Rosenfield and Alan I. Rothenberg, to our Board of Directors until our next annual meeting of stockholders and until their successors are elected. The results of votes cast in the election were as follows:

	Votes For	Votes Withheld
William C. Baker	20,901,877	2,104,568
Leslie E. Bider	22,876,343	130,102
Larry S. Flax	22,367,121	639,324
Marshall S. Geller	22,027,616	978,829
Charles G. Phillips	22,855,131	151,314
Richard L. Rosenfield	21,971,398	1,035,047
Alan I. Rothenberg	22,746,749	259,696

2. To ratify the appointment of Ernst & Young LLP as our independent registered public accountants for the fiscal year ending December 28, 2008. The results of votes cast were as follows:

Votes For	Votes Against	Abstained
22,220,378	783,855	2,212

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The Exhibit Index on page 21 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 8, 2008

	CALIFORNIA PIZZA KITCHEN, INC.
By:	/s/ LARRY S. FLAX
	Larry S. Flax
	Co-Chairman of the Board, Co-Chief Executive Officer, Co-President and Director
	(Principal Executive Officer)
By:	/s/ RICHARD L. ROSENFIELD
	Richard L. Rosenfield
	Co-Chairman of the Board, Co-Chief Executive Officer, Co-President and Director
	(Principal Executive Officer)
By:	/s/ SUSAN M. COLLYNS
	Susan M. Collyns
	Chief Financial Officer, Chief Accounting Officer and Senior Vice President of Finance
	(Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

3.1(A)	Certificate of Incorporation
3.2(A)	Bylaws
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3	Certification of Principal Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.3	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(A) Incorporated by reference to the registrant’s current report on Form 8-K filed December 22, 2004

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