(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

California Pizza Kitchen, Inc.
(Exact name of Registrant as Specified in its Charter)

 

California	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    90045-6442
(Address of Principal Executive Offices including Zip Code)

(310) 342-5000
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value (title of class)

      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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.    [X]

      The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2002, was approximately $460 million based upon the last sales price reported for such date on The Nasdaq Stock Market's National Market. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the registrant, have been excluded in that such persons may be deemed to be affiliates. This determination is not necessarily conclusive.

      As of March 12, 2003 there were 18,853,436 shares of the registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      The registrant has incorporated by reference into Part III of this Form 10-K portions of its proxy statement for the registrant's Annual Meeting of Stockholders to be held May 7, 2003.

California Pizza Kitchen, Inc.

2002 ANNUAL REPORT ON FORM 10-K

INDEX

Part I.		Page
Item 1.	Business	**
Item 2.	Properties	**
Item 3.	Legal Proceedings	**
Item 4.	Submission of Matters to a Vote of Security Holders	**
Part II.
Item 5.	Market for the Registrant's Common Equity and Related Stockholder Matters	**
Item 6.	Selected Consolidated Financial Data	**
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	**
Item 7a.	Quantitative and Qualitative Disclosures About Market Risks	**
Item 8.	Consolidated Financial Statements and Supplementary Data	**
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	**
Part III.
Item 10.	Directors and Executive Officers of the Registrant	**
Item 11.	Executive Compensation	**
Item 12.	Security Ownership of Certain Beneficial Owners and Management	**
Item 13.	Certain Relationships and Related Transactions	**
Item 14.	Controls and Procedures	**
Part IV.
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	**

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" 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.

Throughout this report, our fiscal years ended January 3, 1999, January 2, 2000, December 31, 2000, December 30, 2001 and December 29, 2002 are referred to as years 1998, 1999, 2000, 2001 and 2002, respectively. Our fiscal year consists of 52 or 53 weeks and ends on the Sunday closest to December 31 in each year. Fiscal year 1998 included 53 weeks. All other years shown are 52 weeks. Our fiscal quarters typically consist of 13 weeks.

California Pizza Kitchen is a leading casual dining restaurant chain with a particular focus on the premium pizza segment. As of March 14, 2003, we own, license or franchise 151 restaurants in 26 states, the District of Columbia and five foreign countries, of which 119 are company-owned and 32 operate under franchise or license arrangements. During our 18 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 broad consumer appeal. Our menu focuses on imaginative toppings and showcase recipes that capture tastes and flavors that customers readily identify, but do not typically associate with pizza, pasta or salads. The menu showcases such dishes as the Original BBQ Chicken Pizza, the Thai Chicken Pizza, Kung Pao Spaghetti and the Tricolore Salad. While we do offer traditional menu items, the success of our concept is due to our ability to interpret food trends on our platform of pizzas, pastas, salads and appetizers, and to offer items that appeal to a variety of tastes.

Our objective is to extend our leadership position in the restaurant and premium pizza market by selling innovative, high quality pizzas and related products and by providing exceptional customer service, thereby building a high degree of customer loyalty, brand awareness and superior returns for our shareholders. To reach these objectives, we plan to increase our market share by expanding our restaurant base in new and existing markets, leverage our partnerships in non-traditional and retail channels and offer innovative menu items on our platform of pizzas.

Our menu committee, which includes our co-founders Rick Rosenfield and Larry Flax, continuously experiments with food items and flavor combinations in an attempt to create selections that are innovative and capture distinctive tastes. We first applied our innovative approach to creating and defining a new category of pizza - the premium pizza. For example, our signature creation, the Original BBQ Chicken Pizza, utilizes barbecue sauce instead of tomato sauce, and adds toppings of marinated chicken breast, smoked Gouda and mozzarella cheeses, sliced red onion and fresh cilantro. Our Thai Chicken Pizza is created with a base of spicy peanut-ginger and sesame sauce, and topped with marinated chicken breast, mozzarella cheese, roasted peanuts, green onions, bean sprouts, julienne carrots and fresh cilantro. Our other innovative pizzas include the Carne Asada Pizza, Grilled Garlic Shrimp Pizza, Jamaican Jerk Chicken Pizza and Caramelized Pear and Gorgonzola Pizza.

We have broadened our menu beyond pizza to include pastas, salads, soups, appetizers and desserts, and we strive to bring the same level of creativity and innovation involved in developing our pizzas to our entire menu. Among our other signature menu items are Chicken Tequila Fettucine which captures Southwestern flavors in a rich tequila-lime and jalapeno cream sauce, our Original BBQ Chicken Chopped Salad which uses both barbecue sauce and garden-herb ranch dressing, Oriental Chicken Salad with crispy angel hair pasta, and our hearth-baked Tortilla Spring Roll Appetizers which are sprinkled with parmesan cheese and baked in our pizza ovens.

Our menu is also designed to satisfy customers who seek traditional, American-style, tomato sauce-based pizza or authentic, Italian-style Neapolitan pizza. For the traditionalist, we offer a variety of items such as the Mushroom, Pepperoni and Sausage Pizza, the Fresh Tomato, Basil and Garlic Pizza, and the Sweet and Spicy Italian Sausages Pizza which combines sweet Italian sausage and grilled spicy Italian sausage, a tomato sauce base, roasted red and yellow peppers and mild onions. Our Neapolitan pizzas are prepared on a thin, crisp crust and include our Classic Margherita Pizza with imported Italian tomatoes, fresh mozzarella cheese, fresh basil and parmesan cheese and our Rustica Pizza made with imported tomatoes, fresh mozzarella cheese, garlic, crushed chilies, capers and Mediterranean olives. Our menu similarly accommodates traditional tastes in pastas and salads, with a variety of tomato sauce-based pastas and our high quality versions of popular salads, including our Caesar Salad and Original Chopped Salad.

All of our menu items are prepared to order in our full service restaurants. This reinforces our customers' confidence in the freshness and quality of our preparations and allows us to customize any dish to accommodate specific dietary or taste preferences.

Our menu is continuously evolving to track the increasingly discriminating and sophisticated palate of the American public. We regularly review the sales mix of our menu items and replace lower selling items in each category with new menu items once or twice a year. Because of our ability to quickly adapt our menu, we believe that we are able to meet our customers' changing tastes and expectations. Our entrees generally range in price from $7.79 to $13.99 and our average guest check during 2002 was approximately $11.50, including alcoholic beverages. We offer a variety of wines by the bottle or the glass, as well as bottled and tap beers, primarily to complement our menu offerings.

Restaurant management. We currently have 18 regional directors and a regional Vice President of Operations who report to our Vice Presidents of Operations. Each regional director oversees three to eight restaurants and supervises the general manager for each restaurant within his or her area of control. The typical full service restaurant management team consists of a general manager, who oversees the entire operation of the restaurant, a kitchen manager and two other managers. Additionally, depending upon the size and sales volume of a restaurant, we may also employ another kitchen manager or a third manager in the dining area. Most of our full service restaurants employ approximately 50 to 75 hourly employees, many of whom work part-time. The general manager of each restaurant is responsible for the day-to-day operation of that restaurant, including hiring, training and development of personnel, as well as operating results. The kitchen manager is responsible for product quality, food costs and kitchen labor costs. Our full service restaurants are generally open Sunday through Thursday from 11:00 a.m. until 10:00 p.m., and on Friday and Saturday from 11:00 a.m. until 11:00 p.m.

Training. We strive to maintain quality and consistency in each of our restaurants through the careful training and supervision of personnel and the establishment of, and adherence to, high standards relating to personal performance, food and beverage preparation and maintenance of facilities. We provide all new employees with complete orientation and training for their positions to ensure they are able to meet our high standards. Each location has certified trainers who provide classroom and on-the-job instruction. Employees are certified for their positions by passing a series of tests and evaluations. New restaurant managers are trained over a ten-week period at a certified training restaurant. Beginning January 2003, the Company extended its manager training program by two weeks for a total training period of 12 weeks. The additional two weeks will be dedicated solely to food, which is the essence of the California Pizza Kitchen experience. Training also includes service, kitchen and management responsibilities. An extensive series of interactive modules and on-line quizzes are used in conjunction with on-the-job training. Newly trained managers are then assigned to their home restaurant where they spend one additional training week with their general manager. We place a high priority on our continuing management development programs in order to ensure that qualified managers are available for our future openings. In addition, we have detailed written operating procedures, standards and controls, food quality assurance systems, and safety programs. Once a year we hold a general manager conference in which all of our general managers receive financial information and additional training on food preparation, hospitality and other relevant topics.

When we open a new restaurant, we provide varying levels of training to each employee as is necessary to ensure the smooth and efficient operation of a California Pizza Kitchen restaurant from the first day it opens to the public. Approximately two weeks prior to opening a new restaurant, our dedicated training/opening team travels to the location to begin intensive training of all new employees for that restaurant. Our training teams stay on site during the first two weeks of operation. We believe this additional investment in our new restaurants is important since it helps us provide our customers with a quality dining experience from day one. We also make on-site training teams available when our franchisees open new restaurants. After a restaurant has been opened and is operating smoothly, the general manager supervises the training of new employees.

Recruiting and retention. We seek to hire experienced general managers and staff. We support our employees by offering competitive wages, competitive benefits, including a 401(k) plan and salary deferral plan, both with a discretionary match, medical insurance for all of our employees, including part-time workers, generous discounts on dining, and an employee stock purchase plan which allows all employees to participate who have worked for us for at least a year and who work a minimum of 20 hours per week.

We attempt to motivate and retain our employees by providing them with opportunities for increased responsibilities and advancement, as well as performance-based cash incentives tied to sales, profitability and qualitative measures such as our mystery shoppers, who anonymously evaluate individual restaurants. Our most successful general managers are eligible for promotion to senior general manager status and are entitled to receive more lucrative compensation packages based on various performance criteria. We believe we also enjoy the recruiting advantage of offering our general managers restaurants that are easier to manage because they are generally smaller than those of our competitors, have hours that typically do not extend late into the night, and generally do not require management of a separate bar business. We believe these advantages offer our managers an excellent quality of life compared to many of our competitors.

Customer satisfaction. Customer satisfaction is critically important to us. To that end, we routinely solicit and analyze our customers' opinions through periodic surveys of 20,000 to 25,000 randomly selected guests and we routinely mystery shop our restaurants three to four times a month. These programs are a vital tool in our quality control efforts, from both food quality and customer service perspectives.

Our marketing strategy focuses on communicating the California Pizza Kitchen brand through many creative and non-traditional avenues. As one of the pioneers of premium pizza, we continue to benefit from national media attention, featuring our co-founders Rick Rosenfield and Larry Flax, which we believe provides us with a significant competitive advantage. New store openings, high profile fundraisers and media events currently serve as the focal point of our public relations and media efforts. Our openings are often featured on live local television and radio broadcasts and receive coverage in local newspapers. We employ a variety of marketing techniques in connection with our new restaurant openings, including charitable fund raising events with invitations to media personalities and community leaders. In addition, we donate 100% of all opening day pizza sales to worthwhile local charities. During 2002, the California Pizza Kitchen Foundation contributed over $100,000 to charities across the U.S.

Over the last year, we have appeared on the Today Show, CNN Moneyline and Forbes Magazine's "Best 200 Small Companies." We also engage to a limited extent in paid advertising for individual restaurant locations, including billboards, direct mail and mall kiosks. Ongoing marketing efforts include local kid's tours with schools and other children's organizations, concierge parties and on-going publicity programs. We utilize a variety of printed marketing materials, including restaurant location brochures, hotel concierge cards, take-out menus and direct and electronic mailings. In 2002, we spent an aggregate of 1.0% of restaurant sales on marketing efforts. We expect to continue investing approximately 1.0% of restaurant sales in marketing efforts in the future.

Our involvement in the community does not end once we have opened a restaurant. In each of the markets in which we operate, we continuously engage in a variety of charitable and civic causes and donate food and services on an on-going basis. We have developed two cookbooks and 100% of the proceeds from these cookbooks are donated to various children's charities. These cookbooks are sold at our restaurants, through national bookstore chains and through on-line retailers.

Our full service restaurants will continue to represent the majority of our growth in the near term and our expansion strategy focuses primarily on further penetrating existing markets. As such, we anticipate over the next several years that 70% to 80% of our new restaurants will be in existing markets. This clustering approach enables us to increase brand awareness and improve our operating and marketing efficiencies. For example, clustering enables us to reduce costs associated with regional supervision of restaurant operations and provides us with the opportunity to leverage marketing costs over a greater number of restaurants. We also believe this approach reduces the risks involved with opening new restaurants given that we better understand the competitive conditions, consumer tastes, demographics and discretionary spending patterns in our existing markets. In addition, our ability to hire qualified employees is enhanced in markets in which we are well known.

We believe that our site-selection strategy is critical to our success and we devote substantial effort to evaluating each potential site at the highest levels within our organization. We identify areas within our target markets that meet our demographic requirements, focusing on daytime and evening populations, shopping patterns, availability of personnel and household income levels. We only consider expanding to new markets that meet our strict demographic criteria. Our site selection criteria are flexible given that we operate restaurants in regional shopping malls, in-line shopping centers, retail and entertainment centers, free-standing buildings in commercial and residential neighborhoods, office buildings and hotels. Our prototype full service restaurant is approximately 4,800 to 5,200 square feet and has approximately 150 seats. However, we have the ability to operate a full service restaurant in less than 4,000 square feet, particularly if we are able to secure additional patio seating. We believe that the size and flexibility of our formats provide us with a competitive advantage in securing sites. We have several long-standing relationships with major mall developers and owners, and are therefore afforded the opportunity to negotiate multiple location deals.

We also own three California Pizza Kitchen ASAP restaurants which were opened in 2000. These sites are currently under evaluation.

In 2003, we intend to open a minimum of 22 company-owned, full service restaurants and have signed leases or letters of intent for all of these sites.

Unit level economics

For 2002, sales of our 96 full service restaurants open for the entire fiscal year averaged $2.9 million and generated average restaurant-level pre-tax cash flow of $571,000 per store. Our prototype full service restaurant is approximately 4,800 to 5,200 square feet and has approximately 150 seats. Our average cash investment, net of landlord contributions, was approximately $1.3 million for the 18 full service restaurants opened in fiscal 2002, excluding pre-opening costs which averaged approximately $185,000 per restaurant. We expect that in the future our cash investment, net of landlord contributions, will average approximately $1.3 million, excluding pre-opening costs, which are anticipated to be approximately $180,000 to $185,000 per restaurant.

As part of our strategy to expand and leverage the California Pizza Kitchen brand, we introduced and franchised the concept of 'California Pizza Kitchen ASAP' in 1996. Our ASAP restaurants are designed specifically for the 'grab and go' customer in non-traditional locations and are typically 600 to 1,000 square feet in size with a limited menu and common area seating. In addition to our franchised ASAP concept, we franchise on a limited basis our full service restaurants. Our largest ASAP franchisee, Host Marriott Services (hereafter referred to as "HMSHost"), operates 20 California Pizza Kitchen ASAP restaurants, primarily in airports, throughout the United States under a development and franchise arrangement. MGM Mirage operates one full service California Pizza Kitchen restaurant in a high-profile resort in Las Vegas, Nevada. We also have a franchisee operating one ASAP restaurant in Thousand Oaks, California and one full service restaurant in Ventura, California; an international franchisee operating five full service restaurants with two in Singapore and one each in Malaysia, Indonesia and Hong Kong; and another international franchisee operating four full service restaurants in the Philippines. The Hong Kong restaurant opened in February 2003 and is the only international franchise expected to open this year.

Our development agreement with HMSHost grants it limited exclusive rights to open new ASAP restaurants in airports, travel plazas along toll-roads and in mall food court locations; however, any location proposed by HMSHost is subject to approval by us in our sole discretion. If HMSHost determines not to submit a bid or proposal for a new airport, travel plaza or mall location or determines not to include us in the proposal or bid, we are free to bid ourselves or to license another party to operate an ASAP in that location. Under our agreement, HMSHost may only develop a franchised restaurant in a mall when it obtains a master concessionaire agreement with the landlord to provide all food services within the food court or other multiple-concept area. Once we have agreed to HMSHost development of an ASAP restaurant in an airport or travel plaza location, we may not license or operate a full service restaurant ourselves at that location. There is no corresponding prohibition with respect to mall locations.

We have extended HMSHost's limited exclusive rights for the development of ASAP restaurants until May 2004. HMSHost pays an initial franchise fee of $20,000 for each ASAP restaurant at a new location and $10,000 for each additional ASAP restaurant at an existing location, and continuing royalties at rates of 5% to 5.5% of gross sales. The HMSHost franchise agreement typically terminates at the same time as a HMSHost concessionaire agreement to operate at an airport or mall terminates.

Our territorial development agreements with our other franchisees grant them the exclusive right to an identified territory subject to meeting development obligations. Our basic franchise agreement with these franchisees generally requires payment of an initial fee of between $55,000 and $65,000 for a full service restaurant, as well as continuing royalties at a rate of 5% to 6% of gross revenue. Most of our franchise agreements contain a ten- or 20-year term.

We have entered into a strategic alliance with Kraft Pizza Company (hereafter referred to as "Kraft") to manufacture and distribute a line of California Pizza Kitchen premium frozen pizzas in the United States and Canada. Kraft currently makes and distributes frozen versions of seven of our pizzas: the Five Cheese and Tomato Pizza; Original BBQ Chicken Pizza; Garlic Chicken Pizza; Rosemary Chicken Potato Pizza; Portobello Mixed Mushroom Pizza; Sausage, Pepperoni & Mushroom Pizza and Thai Chicken Pizza. Our frozen pizzas are currently sold in 44% of U.S. markets including Los Angeles, San Francisco, Chicago, Denver, New York, Boston and Atlanta to name just a few. We intend to continue to expand our distribution area to include additional selected markets, with a continued focus on those markets in which our restaurants are located.

All of our restaurants use computerized management information systems, which are designed to improve operating efficiencies, provide corporate management timely access to financial and marketing data, and reduce restaurant and corporate administrative time and expense. Our restaurant systems include a point-of-sale system, which facilitates the movement of customer food and beverage orders from the dining areas to the appropriate menu item preparation area within the restaurant. The data captured by our restaurant level systems include restaurant sales, cash and credit card receipts, quantities of each menu item sold, customer counts and daily labor expense. This information is generally transmitted to the corporate office daily. Each week, every restaurant prepares a flash profit and loss statement that is compared to budget and the prior year.

Our corporate information systems provide management with operating reports that show restaurant performance comparisons with budget and prior year results both for the current accounting period and year-to-date. These systems allow us to closely monitor restaurant sales, cost of sales, labor expense and other restaurant trends on a daily, weekly and monthly basis. We believe these systems enable both restaurant and corporate management to adequately manage the operational and financial performance of our restaurants as necessary to support our planned expansion.

Our purchasing staff procures all of our food ingredients, products and supplies. We seek to obtain the highest quality ingredients, products and supplies from reliable sources at competitive prices. To that end, we continually research and evaluate various food ingredients, products and supplies for consistency and compare them to our detailed specifications. Specific, qualified manufacturers and growers are then inspected and approved for use. This process is repeated at least once a year. To maximize our purchasing efficiencies and obtain the lowest possible prices for our ingredients, products and supplies, while maintaining the highest quality, our centralized purchasing staff generally negotiates all prices based on one of two formats: (a) fixed price contracts generally with terms of between one month to one year; or (b) monthly commodity pricing formulas.

In order to provide the freshest ingredients and products, and to maximize operating efficiencies between purchase and usage, each restaurant's kitchen manager determines its daily usage requirements for food ingredients, products and supplies. The kitchen manager orders accordingly from approved local vendors and our national master distributor. The kitchen managers also inspect all deliveries daily to ensure that the items received meet our quality specifications and negotiated prices. We have competitively priced, high quality alternative manufacturers, vendors, growers and distributors available should the need arise.

As of March 12, 2003, we have approximately 8,400 employees, including approximately 98 employees located at our corporate headquarters. Our employees are not covered by any collective bargaining agreement. We consider our employee relations to be very good.

The restaurant industry is intensely competitive. We compete on the basis of the taste, quality and price of food offered, customer service, ambiance, location and overall dining experience. We believe that our concept, attractive price-value relationship and quality of food and service enable us to differentiate ourselves from our competitors. Although we believe we compete favorably with respect to each of these factors, many of our direct and indirect competitors are well-established national, regional or local chains and some have substantially greater financial, marketing, and other resources than we do. We also compete with many other restaurant and retail establishments for site locations and restaurant level employees. The packaged food industry is also intensely competitive.

Our registered trademarks and service marks include, among others, the word mark "California Pizza Kitchen", "California Pizza Kitchen ASAP" and our stylized logo set forth on the front and back pages of this report. We have registered all of our marks with the United States Patent and Trademark Office. We have registered our most significant trademarks and service marks in more than 20 foreign countries, in addition to the Benelux Customs Union and the European Union. In order to better protect our brand, we have also registered our ownership of the Internet domain names "www.cpk.com" and "www.californiapizzakitchen.com". We believe that our trademarks, service marks and other proprietary rights have significant value and are important to our brand-building efforts and the marketing of our restaurant concepts. We have vigorously protected our proprietary rights in the past and expect to continue to do so. We cannot predict, however, whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation of these rights or the use by others of restaurant features based upon, or otherwise similar to, our concept. It may be difficult for us to prevent others from copying elements of our concept and any litigation to enforce our rights will likely be costly.

Our internet address is www.cpk.com. At this internet website we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.

Our restaurants are subject to licensing and regulation by state and local health, sanitation, safety, fire and other authorities, including licensing and regulation requirements for the sale of alcoholic beverages and food. To date, we have not experienced an inability to obtain or maintain any necessary licenses, permits or approvals, including restaurant, alcoholic beverage and retail licensing. The development and construction of additional restaurants will also be subject to compliance with applicable zoning, land use and environmental regulations. We are also subject to federal regulation and state laws that regulate the offer and sale of franchises and substantive aspects of a licensor-licensee relationship. Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates, workers' compensation rates, citizenship requirements and sales taxes.

We are subject to federal and state environmental regulations, but these rules have not had a material effect on our operations. Various laws concerning the handling, storage, and disposal of hazardous materials, such as cleaning solvents and the operation of restaurants in environmentally sensitive locations may impact aspects of our operations. During fiscal 2002 there were no material capital expenditures for environmental control facilities and no such expenditures are anticipated.

Our facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990 ("ADA") and related state statutes. The ADA prohibits discrimination on the basis of disability with respect to public accommodations and employment. Under the ADA and related state laws, when constructing new restaurants or undertaking significant remodeling of existing restaurants, we must make the restaurants more readily accessible to disabled persons. We must also make reasonable accommodations for the employment of disabled persons.

We have a significant number of hourly restaurant employees that receive tip income. We have elected to voluntary participate in a Tip Rate Alternative Commitment ("TRAC") agreement with the Internal Revenue Service. By complying with the educational and other requirements of the TRAC agreement, we reduce the likelihood of potential employer-only FICA assessments for unreported or underreported tips.

Risk Factors

Our growth strategy requires us to open new restaurants at an accelerated pace. We may not be able to achieve this planned expansion.

We are pursuing an accelerated, but disciplined, growth strategy which to be successful depends on our ability, and the ability of our franchisees and licensees, to open new restaurants and to operate these new restaurants on a profitable basis. The success of our planned expansion will be dependent upon numerous risk factors, many of which are beyond our control, including the hiring, training and retention of qualified operating personnel, especially managers, identification and availability of suitable restaurant sites, competition for restaurant sites, negotiation of favorable lease terms, timely development of new restaurants, including the availability of construction materials and labor, management of construction and development costs of new restaurants, securing required governmental approvals and permits, competition in our markets, and general economic conditions. If any of these risk factors actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected.

Our success depends on our ability to locate a sufficient number of suitable new restaurant sites.

One of our biggest challenges in meeting our growth objectives will be to secure an adequate supply of suitable new restaurant sites. We have experienced delays in opening some of our restaurants and may experience delays in the future. There can be no assurance that we will be able to find sufficient suitable locations for our planned expansion in any future period. Delays or failures in opening new restaurants could materially adversely affect our business, financial condition, operating results or cash flows.

We could face labor shortages, which could slow our growth.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and servers, necessary to keep pace with our expansion schedule. Qualified individuals of the requisite caliber and number needed to fill these positions are in short supply in some areas. Although we have not experienced any significant problems in recruiting or retaining employees, any future inability to recruit and retain sufficient individuals may delay the planned openings of new restaurants. Any such delays or any material increases in employee turnover rates in existing restaurants could have a material adverse effect on our business, financial condition, operating results or cash flows. Additionally, competition for qualified employees could require us to pay higher wages to attract sufficient employees, which could result in higher labor costs.

Our expansion into new markets may present increased risks due to our unfamiliarity with the area.

As part of our expansion strategy we will be opening up restaurants in markets in which we have no prior operating experience. These new markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our restaurants in our existing markets. In addition, our new restaurants will typically take several months to reach budgeted operating levels due to problems associated with new restaurants, including lack of market awareness, inability to hire sufficient staff and other factors. Although we have attempted to mitigate these factors by paying careful attention to training and staffing needs, there can be no assurance that we will be successful in operating new restaurants on a profitable basis.

Our expansion may strain our infrastructure, which could slow our restaurant development.

We also face the risk that our existing systems and procedures, restaurant management systems, financial controls, and information systems will be inadequate to support our planned expansion. We cannot predict whether we will be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and these systems and controls. If we fail to continue to improve our information systems and financial controls or to manage other factors necessary for us to achieve our expansion objectives, our business, financial condition, operating results or cash flows could be materially adversely affected.

Our restaurant expansion strategy focuses primarily on further penetrating existing markets. This strategy can cause sales in some of our existing restaurants to decline.

In accordance with our expansion strategy, we intend to open new restaurants primarily in our existing markets. Since we typically draw customers from a relatively small radius around each of our restaurants, the sales performance and customer counts for restaurants near the area in which a new restaurant opens may decline due to cannibalization of the existing restaurant's customer base.

Our operations are susceptible to changes in food and supply costs, which could adversely affect our margins.

Our profitability depends, in part, on our ability to anticipate and react to changes in food and supply costs. Our centralized purchasing staff negotiates prices for all of our ingredients and supplies through either contracts (terms of one month up to one year) or commodity pricing formulas. Our national master distributor delivers goods at a set, flat fee per case twice a week to all of our restaurants. Our contract with our national master distributor, Meadowbrook Meat Company, Inc., expires in June 2004. Furthermore, various factors beyond our control, including adverse weather conditions and governmental regulations, could also cause our food and supply costs to increase. We cannot predict whether we will be able to anticipate and react to changing food and supply costs by adjusting our purchasing practices. A failure to do so could adversely affect our operating results or cash flows.

Changes in consumer preferences or discretionary consumer spending could negatively impact our results.

Our restaurants feature pizzas, pastas, salads and appetizers in an upscale, family-friendly, casual environment. Our continued success depends, in part, upon the popularity of these foods and this style of informal dining. Shifts in consumer preferences away from this cuisine or dining style could materially adversely affect our future profitability. Also, our success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in these factors could reduce customer traffic or impose practical limits on pricing, either of which could materially adversely affect our business, financial condition, operating results or cash flows. Like other restaurant chains, we can also be materially adversely affected by negative publicity concerning food quality, illness, injury, publication of government or industry findings concerning food products served by us, or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants.

Forty percent of our U.S. based restaurants are located in California. As a result, we are highly sensitive to negative occurrences in that state.

Our franchisees and we, currently operate a total of 57 restaurants in California (49 are company owned and eight are owned by franchisees), of which 43 are concentrated in the greater Los Angeles and San Diego metropolitan areas. As a result, we are particularly susceptible to adverse trends and economic conditions in California, including adverse consequences stemming from higher energy prices for gas and electricity. In addition, given our geographic concentration, negative publicity regarding any of our restaurants in California could have a material adverse effect on our business and operations, as could other regional occurrences such as local strikes, earthquakes or other natural disasters.

Rising insurance costs could negatively impact profitability.

The cost of insurance (workers compensation insurance, general liability insurance, health insurance and directors and officers liability) have risen significantly in the past year and are expected to continue to increase in 2003. These increases could have a negative impact on our profitability if we are not able to negate the effect of such increases by continuing to improve our operating efficiencies.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq Stock Market rules, has required an increased amount of management attention and external resources. We remain committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

The restaurant industry is affected by litigation and publicity concerning food quality, health and other issues, which can cause customers to avoid our restaurants and result in liabilities.

We are sometimes the subject of complaints or litigation from customers or employees alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from these allegations may materially adversely affect our restaurants, regardless of whether the allegations are valid or whether California Pizza Kitchen is liable. In fact, we are subject to the same risks of adverse publicity resulting from these sorts of allegations even if the claim involves one of our franchisees or licensees. Further, employee claims against us based on, among other things, wage discrimination, harassment or wrongful termination may divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. We have been subject to these employee claims before, and a significant increase in the number of these claims or any increase in the number of successful claims could materially adversely affect our business, financial condition, operating results or cash flows. We also are subject to some states' "dram shop" statutes. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

Future changes in financial accounting standards may cause adverse unexpected operating results and affect our reported results of operations.

A change in accounting standards can have a significant effect on our reported results and may affect our reporting of transactions completed before the change is effective. As an example, any changes requiring that we record compensation expense in our consolidated statement of operations for employee stock options using the fair value method could have a significant negative effect on our reported results. New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future. Changes to existing accounting rules or the questioning of current accounting practices may adversely affect our reported financial results.

Our corporate headquarters are located in Los Angeles, California. We occupy this facility under a lease, which was renewed effective September 1, 2002 and extends until August 2012. We lease the majority of our restaurant facilities, although we own our restaurants in: Alpharetta, Georgia; Grapevine, Texas; Scottsdale, Arizona; Schaumburg, Illinois; and one location in Atlanta, Georgia. The majority of our leases are for ten- or fifteen-year terms and include options to extend the terms. The majority of our leases also include both minimum rent and percentage-of-sales rent provisions.

As of March 14, 2003, we own 119 restaurants in 25 states and the District of Columbia. We franchise or license our concept to other restaurant operators including: HMSHost Corporation, which operates 20 California Pizza Kitchen ASAP restaurants; MGM Mirage, which operates one full service restaurant in a Las Vegas casino; a franchisee, which operates one ASAP and one full service restaurant in California; and two franchisees, which currently operate a total of nine full service restaurants in Hong Kong, Indonesia, Malaysia, Singapore and the Philippines.

                                      Franchised/
                                       Licensed    Franchised
                      Company-Owned  Full service     ASAP
       Region         Restaurants(1)  Restaurants  Restaurants  Total
- --------------------- -------------- ------------- ----------- -------
   Domestic
   Alabama...........             1        --           --          1
   Arizona...........             4        --               1       5
   California........            49             1           7      57
   Colorado..........             4        --           --          4
   Conneticut........             1        --           --          1
   Florida...........             7        --               3      10
   Georgia...........             3        --           --          3
   Hawaii............             3        --           --          3
   Illinois(2).......             6        --           --          6
   Indiana...........       --             --               1       1
   Kentucky..........             1        --           --          1
   Maryland..........             3        --           --          3
   Massachusetts.....             4        --           --          4
   Michigan..........             3        --           --          3
   Minnesota.........             1        --               1       2
   Missouri..........             4        --               2       6
   Nevada............             1             1       --          2
   New Jersey........             2        --           --          2
   New York..........             4        --           --          4
   North Carolina....             2        --               2       4
   Ohio..............             2        --           --          2
   Pennsylvania......             1        --           --          1
   Texas.............             7        --           --          7
   Utah..............             1        --               1       2
   Virginia..........             2        --               1       3
   Washington........             2        --           --          2
   Washington, D.C...             1        --               2       3

   International
   Hong Kong.........       --                  1       --          1
   Indonesia.........       --                  1       --          1
   Malaysia..........       --                  1       --          1
   Singapore.........       --                  2       --          2
   Philippines.......       --                  4       --          4
                      -------------- ------------- ----------- -------
     Totals..........           119            11          21     151

1. All of our company owned restaurants are full service, except for three ASAP restaurants, which are located in California.
2. Includes one restaurant in the Chicago area in which we are the general partner and own approximately 70% of the total partnership interests.

On February 10, 2003, one of our former servers filed a class action complaint against us in Orange County Superior Court in California. The plaintiff alleges that we failed to give our food servers, bussers, runners and bartenders rest and meal breaks as required by California law. Under the California Labor Code, an employer must pay each employee one additional hour of pay at the employee's regular rate of compensation for each work day that the required meal or rest period is not provided. The plaintiff also alleges that additional penalties are owed as a consequence of our resulting failure to pay all wages due at the time of termination of employment and under theories characterizing these alleged breaches as unfair business practices. If the plaintiff is able to achieve class certification and prevails on the merits of the case, we could potentially be liable for significant amounts. We are still investigating the claims and have not yet responded to the complaint. No discovery has taken place and no date has been set for a hearing on class certification or for trial. We believe that all of our employees were provided with the opportunity to take all required meal and rest breaks, and as such we intend to vigorously defend our position.

We are also subject to other 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 foodservice 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 or not 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 will not have a material adverse effect on our financial position, results of operations or liquidity.

None.

Our common stock is quoted on the Nasdaq National Market under the symbol "CPKI." The following table sets forth, for the two most recent fiscal years, the high and low sales prices as reported on the Nasdaq National market.

                                                                High         Low
                                                             -----------  ----------

   Fiscal 2001:
     First Quarter......................................... $     33.00  $    19.88
     Second Quarter........................................       28.12       18.89
     Third Quarter.........................................       25.20       14.21
     Fourth Quarter........................................       26.10       15.00

   Fiscal 2002:
     First Quarter......................................... $     26.08  $    18.75
     Second Quarter........................................       26.67       21.85
     Third Quarter.........................................       25.32       17.85
     Fourth Quarter........................................       28.03       19.71

As of March 12, 2003, there were approximately 167 holders of record of common stock. On March 12, 2003, the last sale price reported on the Nasdaq National Market for our common stock was $22.29 per share.

We currently intend to retain all future earnings for the operation and expansion of our business and do not anticipate paying cash dividends on our common stock in the foreseeable future. We have not paid any cash dividends since 1992 when dividends were paid in connection with PepsiCo, Inc.'s acquisition of a controlling interest in the Company.

We have a $20.0 million line of credit agreement with Bank of America, N.A. that expires on June 30, 2004. Our credit agreement with Bank of America, N.A. currently prohibits us from declaring or paying any dividends or other distributions on any shares of our capital stock other than dividends payable solely in shares of capital stock or the stock of our subsidiaries. Any payment of cash dividends in the future will be at the discretion of our board of directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions contained in our credit agreement with Bank of America, N.A., or other agreements, and other factors deemed relevant by our board.

The following selected consolidated financial and operating data for each of the five fiscal years in the period ended December 29, 2002 are derived from our audited consolidated financial statements. The audited consolidated financial statements and accompanying notes for each of the three fiscal years in the period ended December 29, 2002, and the report of independent auditors on those years, are included elsewhere in this report. This selected consolidated financial and operating data should be read in conjunction with the consolidated financial statements and accompanying notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere in this report.

                                                                     Fiscal Year
                                                -----------------------------------------------------
                                                  2002       2001       2000       1999       1998
                                                ---------  ---------  ---------  ---------  ---------
Statement of Operations  Data:
Revenues:
 Restaurant sales............................. $ 303,427  $ 246,445  $ 208,322  $ 176,933  $ 165,028
 Franchise and other revenues.................     2,895      2,817      2,482      2,260      2,013
                                                ---------  ---------  ---------  ---------  ---------
   Total revenues.............................   306,322    249,262    210,804    179,193    167,041
Costs and expenses:
 Cost of sales................................    73,756     60,950     51,748     44,740     43,201
 Labor........................................   110,151     88,898     74,341     63,701     58,547
 Direct operating and occupancy...............    60,652     49,344     41,079     35,848     34,171
                                                ---------  ---------  ---------  ---------  ---------
   Total restaurant operating costs...........   244,559    199,192    167,168    144,289    135,919

 General and administrative...................    18,161     15,489     14,349     13,123     13,890
 Depreciation and amortization................    14,971     11,996      9,568      8,234      7,543
 Pre-opening costs............................     3,355      2,867      1,650        763        234
 Loss on impairment of property and
  equipment and restaurant closures...........     2,380         --      1,839        200         85
 Non-recurring  compensation charge(1)........        --         --      1,949         --         --
                                                ---------  ---------  ---------  ---------  ---------
Operating income .............................    22,896     19,718     14,281     12,584      9,370

Other income (expense):
  Bank financing fees.........................        --         --         --       (998)        --
  Interest income ............................       368        632        469        306         56
  Interest expense............................        --        (25)    (1,881)    (3,721)    (4,012)
                                                ---------  ---------  ---------  ---------  ---------
   Total other income (expense)...............       368        607     (1,412)    (4,413)    (3,956)
                                                ---------  ---------  ---------  ---------  ---------
Income before income tax
 benefit (provision)..........................    23,264     20,325     12,869      8,171      5,414
Income tax benefit (provision)(2).............    (7,934)    (7,114)    (4,504)    (2,772)     5,139
                                                ---------  ---------  ---------  ---------  ---------
Net income ...................................    15,330     13,211      8,365      5,399     10,553
Redeemable preferred stock accretion..........        --         --     (3,512)    (5,147)    (4,478)
                                                ---------  ---------  ---------  ---------  ---------
Net income attributable to
 common shareholders(3)....................... $  15,330  $  13,211  $   4,853  $     252  $   6,075
                                                =========  =========  =========  =========  =========

Net income per common share(4):
   Basic...................................... $    0.82  $    0.72  $    0.35       0.02       0.60
   Diluted.................................... $    0.81  $    0.71  $    0.35       0.02       0.58
Shares used in computing net income
 per common share (in thousands)(4):
   Basic......................................    18,585     18,308     13,703     10,800     10,113
   Diluted....................................    18,871     18,611     14,013     11,168     10,528

Selected Operating Data:
System-wide restaurants open at end of year...       149        131        112         96         90
Company-owned restaurants open
 at end of year...............................       117         99         82         70         67
Average weekly company-owned full
 service restaurant sales..................... $  55,712  $  54,438  $  53,809  $  49,490     47,490
Comparable company-owned
 restaurant sales increase(5).................       4.3%       3.3%       7.8%       4.1%       6.1%

                                                                 Fiscal Year End
                                                -----------------------------------------------------
                                                  2002       2001       2000       1999       1998
                                                ---------  ---------  ---------  ---------  ---------
Selected Balance Sheet Data:
Cash and cash equivalents..................... $  31,261  $  19,788  $  12,649  $   5,686  $  14,553
Total assets..................................   168,445    145,335    116,977     94,750     96,155
Total debt, including current portion.........        --         --         47     40,085     45,385
Redeemable preferred stock....................        --         --         --     43,921     38,774
Shareholders' equity (deficiency).............   134,121    114,106     92,318     (9,829)   (10,439)

                                               2002        2001        2000
                                            ----------  ----------  ----------
Revenues:
  Restaurant sales........................       99.1 %      98.9 %      98.8 %
  Franchise and other revenues............        0.9         1.1         1.2
                                            ----------  ----------  ----------
    Total revenues........................      100.0       100.0       100.0

Costs and expenses:
  Cost of sales...........................       24.3        24.7        24.8
  Labor...................................       36.3        36.1        35.7
  Direct operating and occupancy..........       20.0        20.0        19.7
                                            ----------  ----------  ----------
    Total restaurant operating costs......       80.6        80.8        80.2
  General and administrative..............        5.9         6.2         6.8
  Depreciation and amortization...........        4.9         4.8         4.5
  Pre-opening costs.......................        1.1         1.2         0.8
  Loss on impairment of property and
   equipment and restaurant closures......        0.8          --         0.9
  Non-recurring  compensation charge......         --          --         0.9
                                            ----------  ----------  ----------
Operating income..........................        7.5         7.9         6.8
                                            ----------  ----------  ----------
Other income (expense) :
  Interest income ........................        0.1         0.3         0.2
  Interest expense........................         --          --        (0.9)
                                            ----------  ----------  ----------
    Total other income (expense)..........        0.1         0.2        (0.7)
                                            ----------  ----------  ----------
Income before income tax provision........        7.6         8.2         6.1
Income tax provision......................       (2.6)       (2.9)       (2.1)
                                            ----------  ----------  ----------
Net income................................        5.0 %       5.3 %       4.0 %
                                            ==========  ==========  ==========

   Fiscal year ending:
     2003.................................... $  17,721
     2004....................................    17,845
     2005....................................    17,913
     2006....................................    17,659
     2007....................................    17,236
     Thereafter..............................    70,081
                                               ---------
                                              $ 158,455
                                               =========

                                                                                  2002       2001
                                                                                ---------  ---------
                                    Assets
Current assets:
  Cash and cash equivalents................................................... $  31,261  $  19,788
  Accounts receivable.........................................................     2,933      4,741
  Inventories.................................................................     2,466      1,777
  Prepaid expenses and other current assets...................................     1,216        877
                                                                                ---------  ---------
Total current assets..........................................................    37,876     27,183
Property and equipment, net...................................................   126,356    109,530
Deferred taxes, net...........................................................     2,404      6,241
Other assets..................................................................     1,809      2,381
                                                                                ---------  ---------
Total assets.................................................................. $ 168,445  $ 145,335
                                                                                =========  =========
                     Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable............................................................ $   3,858  $   3,246
  Accrued compensation and benefits...........................................    10,955      9,117
  Accrued rent................................................................     6,952      5,870
  Other accrued liabilities...................................................     8,105      6,959
  Accrued income tax .........................................................     1,444      3,460
                                                                                ---------  ---------
Total current liabilities.....................................................    31,314     28,652
Commitments and Contingencies.................................................
Other liabilities.............................................................     3,010      2,577
Shareholders' equity:
  Common Stock--$0.01 par value, 80,000,000 shares authorized,
   18,743,439 and 18,425,343 shares issued and outstanding
   at December 29, 2002 and December 30, 2001, respectively...................       187        184
  Additional paid-in capital..................................................   211,306    206,624
  Accumulated deficit.........................................................   (77,372)   (92,702)
                                                                                ---------  ---------
Total shareholders' equity ...................................................   134,121    114,106
                                                                                ---------  ---------
Total liabilities and shareholders' equity ................................... $ 168,445  $ 145,335
                                                                                =========  =========

                                               2002        2001        2000
                                            ----------  ----------  ----------
Revenues:
  Restaurant sales........................ $  303,427  $  246,445  $  208,322
  Franchise and other revenues............      2,895       2,817       2,482
                                            ----------  ----------  ----------
    Total revenues........................    306,322     249,262     210,804

Costs and expenses:
  Cost of sales...........................     73,756      60,950      51,748
  Labor...................................    110,151      88,898      74,341
  Direct operating and occupancy..........     60,652      49,344      41,079
                                            ----------  ----------  ----------
    Total restaurant operating costs......    244,559     199,192     167,168
  General and administrative..............     18,161      15,489      14,349
  Depreciation and amortization...........     14,971      11,996       9,568
  Pre-opening costs.......................      3,355       2,867       1,650
  Loss on impairment of property and
   equipment and restaurant closures......      2,380          --       1,839
  Non-recurring  compensation charge......         --          --       1,949
                                            ----------  ----------  ----------
Operating income..........................     22,896      19,718      14,281
                                            ----------  ----------  ----------
Other income (expense) :
  Interest income ........................        368         632         469
  Interest expense........................         --         (25)     (1,881)
                                            ----------  ----------  ----------
    Total other income (expense)..........        368         607      (1,412)
                                            ----------  ----------  ----------

Income before income tax provision........     23,264      20,325      12,869
Income tax provision......................     (7,934)     (7,114)     (4,504)
                                            ----------  ----------  ----------
Net income................................     15,330      13,211       8,365
Redeemable preferred stock accretion......         --          --      (3,512)
                                            ----------  ----------  ----------
Net income attributable to common
 shareholders............................. $   15,330  $   13,211  $    4,853
                                            ==========  ==========  ==========
Net income per common share:
  Basic................................... $     0.82  $     0.72  $     0.35
                                            ==========  ==========  ==========
  Diluted................................. $     0.81  $     0.71  $     0.35
                                            ==========  ==========  ==========
Shares used in calculating net income per
 common share:
  Basic...................................     18,585      18,308      13,703
                                            ==========  ==========  ==========
  Diluted.................................     18,871      18,611      14,013
                                            ==========  ==========  ==========

                                               Common Stock     Additional
                                          --------------------   Paid-in    Accumulated
                                            Shares     Amount    Capital     Deficit    Total
                                          -----------  -------  ----------  ---------  --------
Balances at January 2, 2000.............. 10,896,570  $   109  $  104,340  $(114,278) $  (9,829)
 Exercise of employee stock
  options................................    111,583        1          49         --         50
 Issuance of common stock, net
  of issuance costs of $7,594............  5,300,000       53      71,853         --     71,906
 Conversion of preferred stock
  into common stock......................  1,580,938       16      23,698         --     23,714
 Compensation expense from stock
  option exercise, net...................         --       --       1,624         --      1,624
 Preferred stock accretion...............         --       --      (3,512)        --     (3,512)
 Net income..............................         --       --          --      8,365      8,365
                                          -----------  -------  ----------  ---------  --------
Balances at December 31, 2000............ 17,889,091      179     198,052   (105,913)    92,318
 Exercise of employee stock
  options................................    206,871        2       1,104         --      1,106
 Shares redeemed upon exercise of
  employee stock option..................     (9,160)      --          --         --         --
 Issuance of common stock, net
  of issuance costs of $844..............    200,000        2       4,339         --      4,341
 Issuance of common stock, under
  employee stock purchase plan...........    138,541        1       1,774         --      1,775
 Tax benefit from employee stock option
 exercises and employee stock purchase
  plan disqualifying dispositions........         --       --       1,355         --      1,355
 Net income..............................         --       --          --     13,211     13,211
                                          -----------  -------  ----------  ---------  --------
Balances at December 30, 2001............ 18,425,343      184     206,624    (92,702)   114,106
 Exercise of employee stock
  options................................    189,493        2       2,022         --      2,024
 Issuance of common stock, under
  employee stock purchase plan...........    128,603        1       1,701         --      1,702
 Tax benefit from employee stock option
 exercises and employee stock purchase
  plan disqualifying dispositions........         --       --         959         --        959
 Net income..............................         --       --          --     15,330     15,330
                                          -----------  -------  ----------  ---------  --------
Balances at December 29, 2002............ 18,743,439  $   187  $  211,306  $ (77,372) $ 134,121
                                          ===========  =======  ==========  =========  ========

                                                             2002      2001      2000
                                                           --------  --------  --------
Operating activities:
Net income............................................... $ 15,330  $ 13,211  $  8,365
Adjustments to reconcile net income to net
 cash provided by operating activities:
  Depreciation and amortization..........................   14,971    11,996     9,568
  Minority interest in limited partnerships..............       --        --        38
Loss on impairment of property and
   equipment and restaurant closures.....................    2,380        --     1,839
  Non-recurring compensation charge......................       --        --     1,949
  Change in deferred tax asset...........................    3,837      (288)   (1,199)
  Changes in operating assets and liabilities:
    Accounts receivable..................................    1,808    (1,246)   (2,003)

    Inventories..........................................     (689)     (168)     (388)
    Prepaid expenses and other assets....................      233     1,243      (795)
    Accounts payable.....................................      612      (227)     (204)
    Accrued liabilities..................................    1,733     8,144     2,962
    Other liabilities....................................    1,029        54     1,108
                                                           --------  --------  --------
Net cash provided by operating activities................   41,244    32,719    21,240
                                                           --------  --------  --------
Investing activities:
Capital expenditures.....................................  (33,497)  (32,755)  (22,323)
                                                           --------  --------  --------
Net cash used in investing activities....................  (33,497)  (32,755)  (22,323)
                                                           --------  --------  --------
Financing activities:
Payments on long-term debt...............................       --       (47)  (40,038)
Net proceeds from issuance of common stock...............    3,726     7,222    71,956
Payment and variable accounting charge for stock options.       --        --      (325)
Redemption of preferred stock............................       --        --   (23,719)
                                                           --------  --------  --------
Net cash provided by financing activities................    3,726     7,175     7,874
                                                           --------  --------  --------
Net increase in cash and cash
 equivalents.............................................   11,473     7,139     6,791
Cash and cash equivalents at beginning of year...........   19,788    12,649     5,686
Cash from consolidation of investment
   in limited partnership................................       --        --       172
                                                           --------  --------  --------
Cash and cash equivalents at end of year................. $ 31,261  $ 19,788  $ 12,649
                                                           ========  ========  ========
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest............................................. $     --  $     25  $  2,037
    Income taxes......................................... $  5,088  $  3,737  $  4,673

                                                       2002        2001
                                                    ----------  ----------
   Land........................................... $    5,786  $    5,786
   Buildings......................................      9,506       9,231
   Furniture, fixtures and equipment..............     80,095      66,751
   Leasehold improvements.........................    116,274      97,354
   Construction-in-progress.......................      4,897       3,939
                                                    ----------  ----------
                                                      216,558     183,061
   Less accumulated depreciation and amortization.     90,202      73,531
                                                    ----------  ----------
                                                   $  126,356  $  109,530
                                                    ==========  ==========

                                                    2002        2001         2000
                                                 ----------  -----------  ----------
   Current:
     Federal................................... $   (2,747) $    (6,280) $   (4,775)
     State.....................................     (1,350)      (1,122)       (829)
                                                 ----------  -----------  ----------
                                                    (4,097)      (7,402)     (5,604)
                                                 ----------  -----------  ----------
   Deferred:
     Federal...................................     (3,612)         264         997
     State.....................................       (225)          24         103
                                                 ----------  -----------  ----------
                                                    (3,837)         288       1,100
                                                 ----------  -----------  ----------
                                                $   (7,934) $    (7,114) $   (4,504)
                                                 ==========  ===========  ==========

                                                    2002        2001         2000
                                                 ----------  -----------  ----------
   Statutory rate..............................      (35.0)%      (35.0)%     (35.0)%
   State income taxes, net of federal benefit..       (4.0)        (3.6)       (4.2)
   General business and tip tax credit.........        8.0          8.4         7.2
   Other.......................................       (3.1)        (4.8)       (3.0)
                                                 ----------  -----------  ----------
                                                     (34.1)%      (35.0)%     (35.0)%
                                                 ==========  ===========  ==========

                                                                2002         2001
                                                             -----------  ----------
   Deferred tax assets:
     Asset impairment reserves............................. $     4,055  $      710
     Insurance reserves....................................         352         241
     Vacation reserves.....................................         688         559
     Other accruals........................................         806       1,624
     Tax credits...........................................         381         315
     Accrued rent..........................................         359         376
     Book depreciation (under)/over tax depreciation.......      (4,793)      1,924
     Partnership basis.....................................         556         492

                                                             -----------  ----------
       Net deferred tax asset.............................. $     2,404  $    6,241
                                                             ===========  ==========

                                                                  Weighted
                                                                  Average
                                                                  Exercise
                                                      Shares       Price
                                                    -----------  ----------
   Outstanding at January 2, 2000..................    673,157  $     4.78
   Granted.........................................    503,500       14.83
   Exercised.......................................   (111,583)       0.45
   Canceled........................................    (18,452)       6.46
                                                    -----------
   Outstanding at December 31, 2000................  1,046,622       10.05
   Granted.........................................    606,000       21.46
   Exercised.......................................   (206,871)       6.37
   Canceled........................................   (200,262)      14.86
                                                    -----------
   Outstanding at December 30, 2001................  1,245,489       15.43
   Granted.........................................    583,000       20.64
   Exercised.......................................   (189,493)      10.68
   Canceled........................................    (22,231)      19.68
                                                    -----------
   Outstanding at December 29, 2002................  1,616,765  $    17.81
                                                    ===========

                                Weighted                 Number
                                 Average    Weighted  Exercisable   Weighted
                      Number    Remaining    Average     as of       Average
     Range of           of     Contractual  Exercise  December 29,  Exercise
  Exercise Prices     Shares      Life        Price       2002        Price
- ------------------- ---------- -----------  --------- ------------  ---------
$2.50..............    61,246        5.64  $    2.50       61,246  $    2.50
 6.54 -- 9.26......   145,458        6.79       8.55       86,641       8.61
 15.00.............   368,436        5.15      15.00      252,208      15.00
 19.65 -- 19.96....   558,975        9.01      19.89       66,352      19.87
 22.00 -- 23.51....   482,650        8.43      22.28      124,150      22.04
                    ----------                        ------------
                    1,616,765        7.63  $   17.81      590,597  $   14.79
                    ==========                        ============

                                                   2002       2001      2000
                                                 ---------  --------  --------
Net income as reported......................... $  15,330  $ 13,211  $  4,853
Deduct:
  Total stock-based employee compensation
   expense determined under fair value methods
   for all awards, net of related tax effects..     2,166     1,245       335
                                                 ---------  --------  --------
Pro forma net income........................... $  13,164  $ 11,966  $  4,518
                                                 =========  ========  ========
Net income per share:
  Basic, as reported........................... $    0.82  $   0.72  $   0.35

  Basic, pro forma............................. $    0.71  $   0.65  $   0.33

  Diluted, as reported......................... $    0.81  $   0.71  $   0.35

  Diluted, pro forma........................... $    0.70  $   0.64  $   0.32

Weighted average shares used in computation:
  Basic........................................    18,585    18,308    13,703
  Diluted......................................    18,871    18,611    14,013

                                                   2002       2001      2000
                                                 ---------  --------  --------

   Risk free interest rate.....................      2.53 %    5.00 %    5.20 %
   Expected lives (in years)...................      5.00      5.00      5.00
   Dividend yield..............................        -- %      -- %      -- %
   Expected volatility.........................      0.42 %    0.35 %    0.35 %

                                                   2002       2001      2000
                                                 ---------  --------  --------
Numerator for basic and diluted net income
 per share attributable to common
 shareholders..................................    15,330    13,211     4,853
                                                 =========  ========  ========
Denominator (in thousands):
  Denominator for basic net income per
   common share--weighted average shares.......    18,585    18,308    13,703
  Employee stock options.......................       286       303       310
                                                 ---------  --------  --------
  Denominator for diluted net income per
   common share--weighted average shares.......    18,871    18,611    14,013
                                                 =========  ========  ========

   Fiscal year ending:
     2003...................................... $  17,721
     2004......................................    17,845
     2005......................................    17,913
     2006......................................    17,659
     2007......................................    17,236
     Thereafter................................    70,081
                                                 ---------
                                                $ 158,455
                                                 =========

Quarter Ended:                              Mar 31, 2002  June 30, 2002  Sept 29, 2002  Dec 29, 2002
                                            ------------  -------------  -------------  -------------

   Total revenues......................... $     70,216  $      75,626  $      78,944  $      81,536
   Operating income....................... $      5,666  $       6,595  $       4,445  $       6,190
   Net income............................. $      3,736  $       4,344  $       3,005  $       4,245
   Diluted net income per share........... $       0.20  $        0.23  $        0.16  $        0.22


Quarter Ended:                              Apr 1, 2001   July 1, 2001   Sept 30, 2001  Dec 30, 2001
                                            ------------  -------------  -------------  -------------

   Total revenues......................... $     57,027  $      60,329  $      64,271  $      67,635
   Operating income....................... $      4,873  $       4,946  $       5,056  $       4,843
   Net income............................. $      3,308  $       3,325  $       3,368  $       3,210
   Diluted net income per share........... $       0.18  $        0.18  $        0.18  $        0.17