-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, AvZSwCRqxNXAplEqqo/w/3PcfDYoPKxFphGhexKJzALHBf71WYupw/x/tFJA1SJ5 7yMhH5XlUNsP3wKVkmU7bw== 0000892569-94-000394.txt : 19941223 0000892569-94-000394.hdr.sgml : 19941223 ACCESSION NUMBER: 0000892569-94-000394 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941107 FILED AS OF DATE: 19941222 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CKE RESTAURANTS INC CENTRAL INDEX KEY: 0000919628 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 330602639 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11313 FILM NUMBER: 94565812 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 10-Q 1 CKE RESTAURANTS, INC. -- FORM 10-Q ENDING 11/7/94 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934. For the quarterly period ended November 7, 1994 ------------------------------ 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 1-13192 --------------- CKE RESTAURANTS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 33-0602639 - --------------------------------------------------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1200 North Harbor Boulevard, Anaheim, CA 92801 - ----------------------------------------------------------------------------------------------------------------- (Address of principal executive offices) (zip Code)
Registrant's telephone number, including area code (714) 774-5796 ------------------------- NOT APPLICABLE ------------------------------------------------------------------------ Former name, former address and former fiscal year, if changed since last report. Indicate by checkmark 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 18,589,121 $.01 par value common -- as of December 5, 1994 ----------------------------------------------------------- 1 2 CKE RESTAURANTS, INC. INDEX
Page Part I Financial Information Item 1. Financial Statements: Consolidated Balance Sheets as of November 7, 1994 and January 31, 1994 3 Consolidated Statements of Income for the twelve and forty weeks ended November 7, 1994 and November 1, 1993 4 Consolidated Statements of Cash Flows for the forty weeks ended November 7, 1994 and November 1, 1993 5-6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Part II Other Information Item 6. Exhibits and Reports on Form 8-K 13-14
2 3 CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
ITEM 1. FINANCIAL STATEMENTS -------------------- November 7, January 31, 1994 1994 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 6,726 $ 17,075 Marketable securities 3,847 9,064 Accounts receivable 7,751 8,956 Current portion of related party receivables 1,310 1,175 Inventories 6,372 7,485 Deferred tax asset, net 15,377 15,310 Other current assets 5,523 10,339 -------- -------- Total current assets 46,906 69,404 Property and equipment, net 122,555 113,212 Property under capital leases, net 31,257 33,608 Notes receivable 15,927 16,171 Related party notes receivable 841 1,976 Other assets 7,987 7,764 -------- -------- $225,473 $242,135 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit line $ 7,800 -- Current portion of long-term debt 5,947 $ 13,207 Current portion of capital lease obligations 3,524 3,354 Accounts payable 11,533 13,161 Other current liabilities 33,903 36,831 -------- -------- Total current liabilities 62,707 66,553 -------- -------- Long-term debt 13,715 17,414 Capital lease obligations 43,486 45,886 Other long-term liabilities 14,912 20,206 Stockholders' equity: Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued or outstanding -- -- Common stock, $.01 par value; authorized 50,000,000 shares; issued and outstanding 18,548,921 and 18,676,587 shares 185 187 Additional paid-in capital 34,518 33,741 Retained earnings 55,950 58,148 -------- -------- 90,653 92,076 -------- -------- $225,473 $242,135 ======== ========
3 4 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except per share Amounts) (Unaudited)
Twelve Weeks Ended Forty Weeks Ended ----------------------------- ----------------------------- November 7, November 1, November 7, November 1, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Revenues: Retail sales $ 87,066 $ 89,290 $285,646 $296,196 Franchised and licensed restaurants 16,725 17,850 58,459 60,709 -------- -------- -------- -------- Total revenues 103,791 107,140 344,105 356,905 -------- -------- -------- -------- Operating costs and expenses: Retail operations: Food and packaging 26,011 26,878 86,200 88,879 Payroll and other employee benefits 26,051 26,496 87,880 91,701 Occupancy and other operating expenses 19,722 18,468 63,470 66,134 -------- -------- -------- -------- 71,784 71,842 237,550 246,714 Franchised and licensed restaurants 15,929 16,704 55,578 56,739 Advertising expenses 4,408 4,977 15,442 15,289 General and administrative expenses 10,089 10,098 28,658 28,783 -------- -------- -------- -------- Total operating costs and expenses 102,210 103,621 337,228 347,525 -------- -------- -------- -------- Operating income 1,581 3,519 6,877 9,380 Interest expense (2,143) (2,443) (7,091) (7,991) Other income, net 795 1,029 2,705 4,988 -------- -------- -------- -------- Income before income taxes and cumulative effect of change in accounting principle 233 2,105 2,491 6,377 Income tax expense (benefit) (53) 499 685 1,486 -------- -------- -------- -------- Income before cumulative effect of change in accounting principle 286 1,606 1,806 4,891 Cumulative effect of change in accounting principle -- -- -- (768) -------- -------- -------- -------- Net income $ 286 $ 1,606 $ 1,806 $ 4,123 ======== ======== ======== ======== Net income per share: Income before cumulative effect of change in accounting principle $ .02 $ .09 $ .10 $ .26 Cumulative effect of change in accounting principle -- -- -- (.04) ----- ----- ----- ----- Net income $ .02 $ .09 $ .10 $ .22 ===== ===== ===== ===== Weighted average shares outstanding: 18,693 18,468 18,827 18,451 ====== ====== ====== ======
4 5 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Forty Weeks Ended ----------------------------- November 7, November 1, 1994 1993 ----------- ----------- Net cash flow from operating activities: Net income $ 1,806 $ 4,123 Adjustments to reconcile net income to net cash provided by operating activities: Noncash franchise revenues 152 (151) Depreciation and amortization 16,919 17,510 Loss on sale of property and equipment 1,865 339 Reversal of rent subsidy reserves (2,680) -- Write-off of accounts receivable -- 267 Net noncash investment income (210) (19) Deferred income taxes -- (807) Noncash post-employment benefit charges -- 1,668 Cumulative effect of change in accounting principle -- 768 Payment of arbitration settlement (3,000) -- Net change in marketable securities reserve -- (210) Net change in receivables, inventories and other current assets (183) 1,436 Net change in other assets (328) (331) Net change in accounts payable and other current liabilities (513) (2,239) -------- -------- Net cash provided by operating activities 13,828 22,354 -------- -------- Cash flow from investing activities: Construction of restaurant property to be reimbursed or sold and leased back -- (1,257) Sale of or reimbursement on restaurant property to be sold and leased back -- 333 Purchases of: Marketable securities (3,212) (11,725) Property and equipment (24,599) (9,366) Proceeds from sales of: Marketable securities 14,777 28,976 Property and equipment 37 251 Collections on leases receivable 110 96 Increase in notes receivable and related party notes receivable (1,173) -- Collections on notes receivable and related party notes receivable 1,952 4,003 -------- -------- Net cash provided by (used in) investing activities (12,108) 11,311 -------- -------- Cash flow from financing activities: Net change in bank overdraft (776) 1,552 Net change in obligations secured by marketable securities -- (2,422) Short-term borrowings 19,056 15,150 Repayments of short-term debt (11,256) (33,250) Repayments of long-term debt (11,636) (10,237) Repayments of capital lease obligations (2,140) (1,962) Net change in other long-term liabilities (2,614) (293) Repurchase and retirement of common stock -- (422) Purchase of treasury stock (1,979) -- Exercise of stock options 775 953 Payment of dividends (1,499) (1,089) -------- -------- Net cash used in financing activities (12,069) (32,020) -------- -------- Net increase (decrease) in cash and cash equivalents $(10,349) $ 1,645 ======== ========
5 6 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Forty Weeks Ended ---------------------------- November 7, November 1, 1994 1993 ----------- ----------- Supplemental disclosures of cash flow information: Cash paid during period for: Interest (net of amount capitalized) $ 7,011 $8,198 Income taxes 645 777 Noncash investing and financing activities: Investing activities: Transfer of marketable securities to other assets -- 6,776 Transfer of other current assets to marketable securities 6,776 -- Other investing activities: Net change in marketable securities from noncash transactions (210) (55) Net change in dividends receivable -- 36 Leasing activities: Capital lessor additions -- 538 Capital lessee additions -- 505 Other leasing activities: Decrease in property under capital leases 91 -- Decrease in capital lease obligations (90) -- Reversal of certain lease subsidy reserves 2,680 -- Franchising and reorganization activities: (Increase) decrease in property and equipment (1,289) 344 Sale of inventory -- 11 Write-off of accounts receivable -- 267 Assumption of various liabilities -- 55 (Increase) decrease in notes receivable 1,441 (551) Increase in other long-term liabilities -- 7,521 Sale/leaseback activities: Transfer of restaurant property costs to property and equipment -- 6,110
6 7 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 7, 1994 AND NOVEMBER 1, 1993 NOTE (A) BASIS OF PRESENTATION In June 1994, a plan of reorganization and agreement of merger were approved by the shareholders of Carl Karcher Enterprises, Inc. ("Enterprises") whereby Enterprises and Boston Pacific, Inc. ("Boston Pacific") became wholly-owned subsidiaries of CKE Restaurants, Inc. ("Restaurants" and collectively with its subsidiaries, the "Company") and the shareholders of Enterprises became stockholders of the Company. Restaurants is a Delaware corporation formed to provide overall strategic direction and finance, legal and administrative support to Enterprises, operator and franchisor of approximately 650 Carl's Jr. restaurants, and Boston Pacific, an area developer of Boston Chicken, Inc. that will develop and operate up to 300 Boston Chicken stores. The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes which would be presented were such consolidated financial statements prepared in accordance with generally accepted accounting principles. These statements should be read in conjunction with the audited financial statements presented in Enterprises' 1994 Annual Report to Shareholders. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of financial position and results of operations for the interim periods presented have been reflected herein. The results of operations for such interim periods are not necessarily indicative of results to be expected for the full year. The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany profits, transactions and balances have been eliminated. Since Boston Pacific began its start-up operations in February 1994 and Restaurants did not commence its operations until June 1994, most of the financial performance for the current fiscal year and all of the financial performance for the prior fiscal year discussed and analyzed in this Form 10-Q are comprised of the operations of Enterprises, unless otherwise indicated. NOTE (B) NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities," as of February 1, 1994, the adoption of which did not have a material effect on the Company's consolidated financial statements. SFAS 115 requires the inclusion in income or stockholders' equity of unrealized gains and losses resulting from the fair value accounting of investments in debt and equity securities, except for debt securities classified as "held to maturity." Net income for the first three quarters of fiscal 1994 has been restated from that previously reported to reflect a charge of $768,000, which represented the cumulative effect related to a change in the method used to discount the Company's workers' compensation reserve. NOTE (C) COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Company is subject to various claims, lawsuits and other disputes with third parties incidental to its operations. While certain of these matters involve claims for substantial amounts, the Company intends to defend these actions vigorously and it is the opinion of the Company's management that their ultimate resolution will not have a material adverse affect on the Company's consolidated financial statements. NOTE (D) RECLASSIFICATIONS Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform to the fiscal 1995 presentation. 7 8 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW In June 1994, a plan of reorganization and agreement of merger were approved by the shareholders of Carl Karcher Enterprises, Inc. ("Enterprises") whereby Enterprises and Boston Pacific, Inc. ("Boston Pacific") became wholly-owned subsidiaries of CKE Restaurants, Inc. ("Restaurants" and collectively with its subsidiaries, the "Company") and the shareholders of Enterprises became stockholders of the Company. Restaurants is a Delaware corporation formed to provide overall strategic direction and finance, legal and administrative support to Enterprises, operator and franchisor of approximately 650 Carl's Jr. restaurants, and Boston Pacific, an area developer of Boston Chicken, Inc. that will develop and operate up to 300 Boston Chicken stores in the next several years. In October 1994, the Company's president and chief executive officer, Donald E. Doyle, resigned and Chairman William P. Foley II was named the Company's chief executive officer. Additionally, long-time Carl's Jr. franchisee C. Thomas Thompson was appointed president and chief operating officer of Enterprises. The management team was further strengthened with the appointment of board member Daniel D. (Ron) Lane, who has an extensive background in developing real estate, as chief executive officer of Boston Pacific. The focus of this new management team will be to improve the operating performance of the Company's Carl's Jr. restaurants and aggressively develop the Boston Chicken concept in the Company's designated California markets. An image enhancement program aimed at revitalizing the Company's Carl's Jr. restaurants will be among the first objectives of this new management team. Plans are underway to test several designs that would upgrade the appearance of the Company's restaurants during the coming months. The Company hopes to finalize these tests, identifying those changes that will help increase guest traffic, and begin an aggressive implementation program for remodeling its restaurants during the second quarter of next year. The marketing strategy for Enterprises will also be a key area scrutinized by the new management team. An executive search for a new vice president of marketing will be conducted following the less than desired results of the quality/value repositioning program introduced in April 1994. Designed to improve customers' price/value perceptions and increase the frequency of their visits, this repositioning program resulted in lower prices and a more streamlined menu in most Carl's Jr. restaurants. A new advertising campaign was introduced late in the first quarter of this year to support this program and consumer research was conducted to aid in evaluating the success of this program. While early results were positive, portions of this program will more than likely be modified in the coming months because the desired long-term increases in retail sales have not been achieved. As part of the repositioning program, new menu boards that prominently display photographs of a variety of products were installed, making the menu easier to read, and allowing for more effective promotion of "combo meal" sales. New drive-thru timers were also installed to help the operators improve their speed of service. Finally, to ensure that any increases in sales and transactions resulting from this program did not negatively affect the Company's high standards for guest service, staffing levels were higher than usual during the introductory weeks of this program. In an effort to increase further its retail sales, the Company is also aggressively exploring and testing a variety of new products, concepts and other opportunities for its Carl's Jr. restaurants. Ongoing resources have been devoted to a new product development program which should result in the introduction of several new products each year. Another such opportunity, currently being tested in one Company-operated restaurant and two franchised restaurants, is the offering of other branded products, such as those of Green Burrito(R), from within Carl's Jr. restaurants. Initial customer response has been favorable, and the Company is continuing to evaluate the feasibility of this opportunity. 8 9 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Since February 1994, the Company has successfully opened seven Boston Chicken stores, four of which opened during the third quarter of this year. Six of these stores were formerly Carl's Jr. restaurants and one additional Carl's Jr. restaurant will be converted to a Boston Chicken store this year. This final conversion site is scheduled to open, along with at least 12 new sites, in the coming quarter. Preliminary sales generated by the Company's first Boston Chicken stores are encouraging. On an annualized basis, retail sales for these stores range from approximately $1.1 million to $1.8 million per store. These levels are particularly noteworthy because media advertising in the Company's markets has not yet begun (and is not scheduled to begin until 1995) and many of the stores that have opened thus far were Carl's Jr. conversions that allowed for rapid expansion but may not be the most favorable sites for Boston Chicken stores. The Company estimates that the initial costs associated with the opening of each new Boston Chicken store will be approximately $600,000 to $800,000 per store. This estimate includes, among other things, leasehold improvements, equipment, opening inventory and supplies, and initial working capital. This estimate does not include any land or additional costs which may be necessary, depending on the location and the nature of each individual site. The costs of converting existing Carl's Jr. restaurants to Boston Chicken stores are estimated to be approximately $600,000 per conversion. The Company believes that the cash generated from its operations, along with the $10.6 million of cash, cash equivalents and short-term marketable securities on hand as of November 7, 1994, the $65.0 million revolving credit line with its bank and additional borrowings from banks or other financial institutions will provide the Company the funds necessary to meet all of its obligations, including the payment of maturing indebtedness and the development of Carl's Jr. restaurants and Boston Chicken stores. The Company believes that it has a significant growth opportunity in the development of its Boston Chicken operations. As such, a special committee of the Board of Directors was formed in December 1994 to explore options to create or enhance shareholder value as it relates to this opportunity, as well as alternative ways to raise the capital necessary to develop the Company's Boston Chicken operations. Since Boston Pacific began its start-up operations in February 1994 and Restaurants did not commence its operations until June 1994, most of the financial performance for the current fiscal year and all of the financial performance for the prior fiscal year discussed and analyzed below are comprised of the operations of Enterprises, unless otherwise indicated. FINANCIAL CONDITION The development of, and other start-up costs associated with, the Company's Boston Chicken operations required the substantial use of cash during the 40 weeks ended November 7, 1994. New menu boards and drive- thru timers installed at the Company's Carl's Jr. restaurants also required the use of cash. Additionally, a nonrecurring $3.0 million cash payment was made related to an arbitration settlement for which an accrual had been recognized at the end of the prior fiscal year. Thus, cash and cash equivalents decreased a total of $10.3 million since the end of fiscal 1994. Total cash, cash invested in money market funds (a cash equivalent) and short-term marketable securities, which are invested in a diversified, highly-liquid investment portfolio containing minimal interest rate risk, amounted to $10.6 million as of the end of the third quarter. Other current assets decreased during the current fiscal year largely as a result of the reclassification of $6.8 million of investment securities to marketable securities. These funds, which had been held in trust by the State of California in connection with the Company's self-insured workers' compensation program, were returned to the Company in April 1994. The State requires the Company to secure its potential workers' compensation claims each year by providing a prescribed amount through any combination of standby letters of credit, cash or investment securities. The requirement for the period beginning May 1, 1994 is $12.1 million and the Company negotiated with its bank in October 1994 to provide a single standby letter of credit to satisfy this requirement. In October 1994, the Company's revolving credit line with its bank was increased to $65.0 million, of which $16.0 million is committed to two standby letters of credit, one related to the Company's workers' compensation program and the other related to the Company's loan on its distribution facility in Northern California. The Company's borrowings under this line totaled $7.8 million at November 7, 1994 and were included in current liabilities in the accompanying consolidated balance sheet although this line of credit does not expire until January 1997. 9 10 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of November 7, 1994, the Company was not in compliance with two of the covenants governing its credit agreement, which includes the revolving credit line, a $583,000 term loan which was paid in full in December 1994, and the two letters of credit discussed above. The Company is currently negotiating with its bank for a waiver of the requirements of these covenants and more favorable covenants going forward that will apply to measurement periods after that date. In the event the Company is unable to obtain this waiver, the Company believes that it can obtain alternative sources of financing. In addition, although the revolving line of credit would become due on demand in the event this waiver is not obtained, classification of the Company's consolidated balance sheet would not change because this debt is already classified as a current liability. During the first quarter of fiscal 1995, the Company reacquired several Carl's Jr. restaurants from a former franchisee which resulted in the reversal of $2.7 million of lease subsidy reserves that had previously been established. In May 1994, the Board of Directors adopted a new stock incentive plan under which various incentives including stock or stock options may be awarded to eligible employees and non-employee directors to purchase up to 1,750,000 shares of the Company's common stock. This plan, approved by the shareholders at the Company's 1994 annual meeting, provides for certain automatic grants of stock options each year to non- employee directors, priced at an amount equal to or greater than the fair market value on the grant date. A total of 50,000 options have been granted under this new plan. In July 1994, the Board of Directors authorized the repurchase of up to two million shares of the Company's common stock. A total of 243,600 shares of stock were repurchased during the second and third quarters of this year, which included the purchase of 62,500 shares from the Chairman Emeritus at a price of $9.13 per share. The balance of these shares were purchased in a series of open market transactions for an aggregate purchase price of $1.4 million. All of the shares purchased are being held as treasury stock. In September 1994, the Board of Directors adopted a new employee stock purchase plan under which eligible employees may voluntarily purchase up to 500,000 shares of the Company's common stock through payroll deductions. Such purchases will be matched by Company contributions of one-third to one-half of the total stock purchased. Purchases of shares under this plan are scheduled to begin in the coming months. RESULTS OF OPERATIONS Retail sales, comprised mainly of Carl's Jr. restaurant sales, decreased 2.5% and 3.6% in the 12- and 40-week periods ended November 7, 1994 to $87.1 million and $285.6 million, respectively, primarily due to lower per store volumes but also because the number of Carl's Jr. restaurants operating in both current year periods decreased slightly. On a same-store basis, these restaurant sales, which are calculated using only restaurants open for the full periods being compared, declined approximately 3% in the third quarter of this year, following approximately 4% and 1% declines in the first and second quarters of this year, respectively. The declines in the current year are a marked improvement as compared with the decline in the prior fiscal year, which averaged approximately 8% throughout the first three quarters of that year. Although the negative sales trends have not been completely reversed by the Company's repositioning program, the Company believes its Carl's Jr. restaurant sales were positively affected by improving customer price/value perceptions as a result of this program. 10 11 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Revenues from franchised restaurants, including sales of food service products by the Company's distribution centers, rental income, royalties and initial franchise fees accounted for nearly 95% of total revenues from franchised and licensed restaurants for all periods presented. Despite an approximate 3% year to date increase in the weighted-average number of franchised restaurants, sales of food service products by the Company decreased 3.7% as compared with the comparable year ago periods because of declines in the franchisees' retail sales. Also contributing to the decrease in food service sales was a reduction in prices charged by the Company as a result of lower commodity costs and successful contract renegotiations with certain of its vendors. Royalties rose in connection with scheduled increases in royalty rates, particularly in the current 40-week period, and an increase in the franchised restaurant base. These increases were more than offset year to date by the decrease in other fees related to the sales of and repairs and maintenance on certain franchise equipment. These sales and services were discontinued near the end of the second quarter of fiscal 1994. The Company has continued to focus on improving the cost structure of its Carl's Jr. restaurants during fiscal 1995. For the 40 weeks ended November 7, 1994, Company-operated restaurant margins improved to 17.1% from 16.7% a year ago despite slight declines in the Company-operated restaurant base and a 2.7% decline in same-store sales during the current year. Nearly 80% of all operating costs associated with franchised and licensed restaurants in both current year periods were related to the sales of food service products to franchisees. Gross margins for franchised and licensed restaurants decreased slightly due to the Company's decision to share decreases in commodity costs and other savings with its franchisees. Advertising expenses decreased nearly 11% for the 12-week period ended November 7, 1994, but were unchanged for the current 40-week period. Although sales by Company-operated restaurants decreased in both current year periods, year to date advertising expenses remained relatively constant compared to the prior year, due primarily to accelerated spending in the current first and second quarters in association with the repositioning program. General and administrative expenses were slightly lower in the 12-week quarter as compared with the same period a year ago. In the current year, these expenses included the start-up costs related to the Company's Boston Chicken operations and costs associated with enhancing several key areas of the Company, including marketing, strategic planning and information systems. Additional expenses were incurred in this quarter in connection with the design and implementation of dual concept tests and certain severance costs. General and administrative expenses for the current year 40-week period were similarly affected by these costs as well as the write-off of the former menu boards, which totaled $957,000. These costs were offset by a reversal of certain previously established lease subsidy reserves totaling $2.7 million in connection with the reacquisition of several Carl's Jr. franchised restaurants during the first quarter of this year. The prior year twelve-week quarter included a $1.7 million charge for the grant of retirement benefits to the Chairman Emeritus. Overall, operating earnings, particularly in the most recent 12-week quarter, were significantly affected by the start-up costs associated with the Company's Boston Chicken operations. Had the Company not incurred any such start-up costs, operating earnings for the current year would have been near year ago levels, on 5% fewer retail sales as compared with the prior year. The Company believes that these start-up costs will continue to impact the operations of the Company in the upcoming quarter, but believes that as the Boston Chicken operations mature the impact will be minimized. The Company's total debt continued to steadily decline in fiscal 1995 and as such, interest expense decreased nearly 12% in both current year periods. 11 12 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other income, net, in both fiscal 1995 and fiscal 1994 was comprised of investment income, gains or losses on sales of restaurants, interest on notes and leases receivable and other miscellaneous interest income. As of February 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As a result of adopting this new standard, net unrealized gains (losses) on the Company's marketable securities portfolio are included in stockholders' equity while such gains (losses) a year ago were included in other income, net. For the 12- and 40-week current year periods, total investment income was $167,000 and $1.2 million lower than last year, respectively, due principally to the liquidation of the investment portfolio initiated in the prior year. Fewer sales of restaurants in the current year as compared with the first three quarters of fiscal 1994 and a first quarter loss of $450,000 related to the termination of a restaurant lease in the current year resulted in decreased gains on sales of restaurants, particularly in the 40-week period. Interest income from notes and leases receivable decreased in both current year periods due largely to lower average franchisee balances outstanding. Lower income before income taxes in the first three quarters of fiscal 1995 resulted in lower tax expense as compared with the same fiscal 1994 period. Net income for the first three quarters of fiscal 1994 has been restated from that previously reported to reflect a charge of $768,000, which represented the cumulative effect related to a change in the method used to discount the Company's workers' compensation reserve. 12 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: None ITEM 2. CHANGES IN SECURITIES: None ITEM 3. DEFAULTS UPON SENIOR SECURITIES: None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11 Calculation of Earnings per Share (b) A report on Form 8-K was filed on November 3, 1994, stating that effective October 31, 1994, Donald E. Doyle resigned as president, chief executive officer and director of CKE Restaurants, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CKE RESTAURANTS, INC. ------------------------------ (Registrant) December 21, 1994 \s\ Loren C. Pannier - ----------------- ----------------------------- Date Senior Vice President, Chief Financial Officer and Duly Authorized Officer 13 EX-11 2 CALCULATION OF EARNINGS PER SHARE 1 EXHIBIT 11 CKE RESTAURANTS, INC. CALCULATION OF EARNINGS PER SHARE (In Thousands Except Per Share Amounts)
Twelve Weeks Ended Forty Weeks Ended ----------------------------- ---------------------------- November 7, November 1, November 7, November 1, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- PRIMARY EARNINGS PER SHARE - -------------------------- Net income $ 286 $ 1,606 $ 1,806 $ 4,123 ======== ======= ======= ======= Weighted average shares outstanding: Common stock outstanding from beginning of period 18,771 18,097 18,677 18,091 Pro-Rata Shares: Exercise of stock options 2 48 87 55 Repurchase of shares (122) -- (40) (18) Dilutive effect of outstanding stock options 42 246 103 196 ------ ------ ------ ------ 18,693 18,391 18,827 18,324 ====== ====== ====== ====== Primary earnings per share $ .02 $ .09 $ .10 $ .23 ======= ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE - -------------------------------- Net income $ 286 $ 1,606 $ 1,806 $ 4,123 ======= ======= ======= ======= Weighted average shares outstanding: Common stock outstanding from beginning of period 18,771 18,097 18,677 18,091 Pro-Rata Shares: Exercise of stock options 2 48 87 55 Repurchase of shares (122) -- (40) (18) Dilutive effect of outstanding stock options 42 323 103 323 ------ ------ ------ ------ 18,693 18,468 18,827 18,451 ====== ====== ====== ====== Fully diluted earnings per share $ .02 $ .09 $ .10 $ .22 ======= ======= ======= =======
14 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AS OF AND FOR THE FORTY WEEKS ENDED NOVEMBER 7, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 7, 1994 1,000 QTR-3 JAN-30-1995 FEB-01-1994 NOV-07-1994 6,726 3,847 25,829 0 6,372 46,906 263,987 141,432 225,473 62,707 0 185 0 0 90,468 225,473 285,646 344,105 237,550 337,228 (2,705) 0 7,091 2,491 685 1,806 0 0 0 1,806 .10 .10
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