-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LYhXt3mLRGk6Lj+/x2dHnpNiWnbagWuh1l9ohocC1h3NbcZTGZ9keW6I98Rxi6n1 jSlK0nw943DkaglV8xuOyQ== 0000892569-96-001910.txt : 19960927 0000892569-96-001910.hdr.sgml : 19960927 ACCESSION NUMBER: 0000892569-96-001910 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960812 FILED AS OF DATE: 19960926 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CKE RESTAURANTS INC CENTRAL INDEX KEY: 0000919628 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 330602639 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11313 FILM NUMBER: 96634869 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 10-Q 1 FORM 10-Q FOR QUARTER ENDED AUGUST 12, 1996 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 August 12, 1996 ------------------------- 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: $.01 par value common-19,258,919 shares as of September 17, 1996 ---------------------------------------------------------------- 2 CKE RESTAURANTS, INC. INDEX
Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements: Consolidated Balance Sheets as of August 12, 1996 and January 29, 1996..... 2 Consolidated Statements of Income for the twelve and twenty-eight weeks ended August 12, 1996 and August 14, 1995.............................. 3 Consolidated Statements of Cash Flows for the twenty-eight weeks ended August 12, 1996 and August 14, 1995.................................... 4-5 Notes to Consolidated Financial Statements................................. 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 8-10 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders................... 11 Item 6. Exhibits and Reports on Form 8-K...................................... 11-12
1 3 PART 1. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
August 12, January 29, 1996 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 13,906 $ 23,429 Marketable securities 4,427 2,510 Accounts receivable 7,025 7,295 Related party receivables 1,360 977 Inventories 7,973 6,132 Deferred income taxes, net 15,088 10,056 Other current assets 7,193 5,656 -------- -------- Total current assets 56,972 56,055 Property and equipment, net 169,077 127,346 Property under capital leases, net 34,257 28,399 Long-term investments 26,041 19,814 Notes receivable 7,713 7,801 Related party notes receivable 715 969 Other assets 11,682 6,375 -------- -------- $306,457 $246,759 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,486 $ 8,575 Current portion of capital lease obligations 4,666 3,745 Accounts payable 22,611 15,824 Other current liabilities 48,488 31,756 -------- -------- Total current liabilities 79,251 59,900 -------- -------- Long-term debt 30,230 30,321 Capital lease obligations 48,171 40,233 Other long-term liabilities 25,279 15,116 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 19,831,469 and 19,200,141 shares 198 192 Additional paid-in capital 51,142 38,713 Retained earnings 77,295 67,393 Treasury stock, at cost; 670,300 shares and 670,300 shares (5,109) (5,109) -------- -------- Total stockholders' equity 123,526 101,189 -------- -------- $306,457 $246,759 ======== ========
2 4 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited)
Twelve Weeks Ended Twenty-eight Weeks Ended ------------------ ------------------------ August 12, August 14, August 12, August 14, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Company-operated restaurants $110,364 $ 91,483 $239,874 $207,515 Franchised and licensed restaurants 17,759 16,557 41,183 38,150 -------- -------- -------- -------- Total revenues 128,123 108,040 281,057 245,665 -------- -------- -------- -------- Operating costs and expenses: Restaurant operations: Food and packaging 34,212 27,291 73,967 63,180 Payroll and other employee benefits 29,381 25,459 65,012 59,272 Occupancy and other operating expenses 22,197 19,197 48,736 44,255 -------- -------- -------- -------- 85,790 71,947 187,715 166,707 Franchised and licensed restaurants 16,979 16,033 39,155 36,689 Advertising expenses 5,899 4,556 13,470 10,819 General and administrative expenses 9,363 8,950 20,549 19,632 -------- -------- -------- -------- Total operating costs and expenses 118,031 101,486 260,889 233,847 -------- -------- -------- -------- Operating income 10,092 6,554 20,168 11,818 Interest expense (2,149) (2,453) (4,744) (5,285) Other income, net 576 497 1,850 1,204 -------- -------- -------- -------- Income before income taxes 8,519 4,598 17,274 7,737 Income tax expense 3,327 1,790 6,749 3,014 -------- -------- -------- -------- Net income $ 5,192 $ 2,808 $ 10,525 $ 4,723 ======== ======== ======== ======== Net income per common and common equivalent share $ .27 $ .15 $ .55 $ .26 ======== ======== ======== ======== Common and common equivalent shares used in computing per share amounts 19,331 18,455 19,220 18,441 ======== ======== ======== ========
3 5 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Twenty-eight Weeks Ended ------------------------ August 12, August 14, 1996 1995 ---- ---- Net cash flow from operating activities: Net income $ 10,525 $ 4,723 Adjustments to reconcile net income to net cash provided by operating activities, excluding the effect of acquisitions: Noncash franchise income (35) (242) Depreciation and amortization 11,509 11,131 Loss on sale of property and equipment and capital leases 481 1,954 Reversal of rent subsidy reserves -- (327) Write-off of accounts and notes receivable 47 -- Write-down of long-term investment -- 1,459 Net noncash investment and dividend income (95) (559) Deferred income taxes 582 220 Noncash increase in reserves 297 -- Write-down of long-lived assets 1,250 -- Settlement of notes receivable -- (1,292) Net change in receivables, inventories and other current assets (5,016) (608) Net change in other assets (942) (266) Net change in accounts payable and other current liabilities 12,481 (2,183) -------- -------- Net cash provided by operating activities 31,084 14,010 -------- -------- Cash flow from investing activities: Purchases of: Marketable securities (760) -- Property and equipment (19,608) (16,932) Long-term investments (4,114) (715) Proceeds from sales of: Marketable securities 793 879 Property and equipment 3,254 21 Collections on leases receivable 91 80 Increase in notes receivable and related party notes receivable (120) (70) Collections on notes receivable and related party notes receivable 991 935 Acquisition of Summit, net of cash acquired (14,731) -- -------- -------- Net cash used in investing activities (34,204) (15,802) -------- -------- Cash flow from financing activities: Net change in bank overdraft 2,718 (11,265) Short-term borrowings 1,200 38,460 Repayments of short-term debt (1,200) (33,910) Long-term borrowings 20,000 9,175 Repayments of long-term debt (27,049) (4,529) Repayments of capital lease obligations (1,623) (1,543) Net change in other long-term liabilities (729) (939) Purchase of treasury stock -- (551) Payment of dividends (743) (727) Exercise of stock options 1,023 746 -------- -------- Net cash used in financing activities (6,403) (5,083) -------- -------- Net decrease in cash and cash equivalents $ (9,523) $ (6,875) ======== ========
4 6 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Twenty-eight Weeks Ended ------------------------ August 12, August 14, 1996 1995 ---- ---- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amounts capitalized) $ 4,730 $ 5,382 Income taxes 1,969 1,611 Noncash investing and financing activities: Investing activities: Transfer of inventory, current assets and property and equipment to other assets -- 20,877 Sale of property and equipment 2,469 -- Increase in long-term investments (2,469) -- Other investing activities: Net change in dividends receivable (360) -- Stock issued in exchange for Summit Assets 11,412 -- Franchising and reorganization activities: (Increase) decrease in property and equipment 1,904 (3,418) Decrease in various liabilities (75) (296) Decrease in notes receivable and accounts receivable 495 3,714 Increase in debt 1,451 -- Summit Acquisition: Tangible assets acquired at fair value 59,908 -- Cost in excess of net assets acquired 2,268 -- Liabilities assumed at fair value (33,120) -- -------- ------- Total purchase price $ 29,056 $ -- ======== =======
5 7 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AUGUST 12, 1996 AND AUGUST 14, 1995 NOTE (A) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of CKE Restaurants, Inc. and its wholly-owned subsidiaries (the "Company" or "CKE") and have been prepared in accordance with generally accepted accounting principles, the instructions to Form 10-Q, and Article 10 of Regulation S-X. These statements should be read in conjunction with the audited consolidated financial statements presented in the Company's 1996 Annual Report to Stockholders. 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 or for any other future periods. Certain reclassifications have been made to the fiscal 1996 consolidated financial statements to conform to the fiscal 1997 presentation. NOTE (B) NEW ACCOUNTING PRONOUNCEMENT The Company has adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires the assessment of certain long-lived assets for possible impairment when events or circumstances indicate their carrying amounts may not be recoverable. The adoption of SFAS 121 resulted in a $1.3 million noncash pretax charge, equivalent to $0.04 per share, to restaurant operations in the first quarter of fiscal 1997. NOTE (C) LONG TERM DEBT Effective August 12, 1996, the Company entered into a Credit Agreement (the "Credit Agreement") with a group of financial institutions. In accordance with the terms of the Credit Agreement, the Company borrowed the principal amount of $20.0 million pursuant to a five-year, fully amortizing term loan, the proceeds of which were primarily used to repay existing indebtedness of the Company. The Credit Agreement also provides the Company with (i) a revolving credit facility for working capital and other general corporate purposes, under the terms of which the Company may borrow from time to time up to $30.0 million (including a letter of credit subfacility of up to $20.0 million), and (ii) a revolving credit facility for the purpose of financing investments in and acquisitions of other entities, under the terms of which the Company may borrow from time to time up to $25.0 million. The amounts advanced, if any, to the Company under the revolving acquisition facility will convert after two years into a three-year fully amortizing term loan. Both of the foregoing revolving credit facilities will mature on July 31, 2001. The existing credit facility, which this new facility replaces, would have expired on August 31, 1996. The Credit Agreement also includes customary affirmative and negative covenants which, among other things, restrict the Company's ability to (i) incur or create liens on or with respect to its properties, (ii) incur additional indebtedness, (iii) merge or consolidate with other entities, (iv) sell assets, and (v) declare or pay dividends or repurchase shares of capital stock, subject in each of the foregoing cases to certain exceptions. In addition, the Credit Agreement requires the Company to maintain certain specified financial ratios and operating results. NOTE (D) ACQUISITIONS On July 15, 1996, the Company completed its acquisition of Summit Family Restaurants Inc. ("Summit"). Summit has restaurant operations in nine western states, including 76 Company-operated and 24 franchised JB's Restaurants, 16 HomeTown Buffet restaurants and six Galaxy Diner restaurants. 6 8 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AUGUST 12, 1996 AND AUGUST 14, 1995 (Continued) In connection with the acquisition, each of the 4,809,446 outstanding shares of Summit common stock was converted into the right to receive 0.1043 shares of the Company's common stock (and cash in lieu of fractional shares) and cash in the amount of $2.63. Accordingly, the aggregate number of shares of common stock of the Company issued in the acquisition was 501,388. The source of funds for the cash portion of the consideration was cash on hand and borrowings under the Company's then existing revolving credit facilities. Selected unaudited pro forma combined results of operations for the 28-week periods ended August 12, 1996 and August 14, 1995, assuming the acquisition occurred on January 31, 1995, are presented as follows:
Twenty-eight Weeks Ended ------------------------ August 12, August 14, 1996 1995 ---- ---- Total revenues $349,789 $310,821 Net income $ 9,613 $ 3,328 Net income per common and common equivalent share $ .49 $ .18
NOTE (E) PROPOSED ACQUISITION OF CASA BONITA INCORPORATED On August 27, 1996, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with Casa Bonita Holdings, Inc., a Delaware corporation and an indirect subsidiary of Unigate PLC ("Seller"), to acquire from the Seller all of the issued and outstanding shares of capital stock of Casa Bonita Incorporated ("Casa Bonita"). Casa Bonita, based in Dallas, Texas, owns and operates the "Taco Bueno" concept in the Mexican food segment of the quick-service restaurant market, with 109 Taco Bueno restaurants located in Texas and Oklahoma. Casa Bonita also operates two full-service "Casa Bonita" Mexican food restaurants and three Crystal's Pizza restaurants. The Purchase Agreement provides for the purchase and sale of Casa Bonita for a purchase price of $42.0 million (subject to adjustment). The Company plans to form a new entity, which would include one or more third party investors, to own and operate Casa Bonita's restaurant businesses. The Company expects to finance the acquisition, at least in part, with borrowings under its revolving credit facilities. The acquisition is expected to be completed in October. 7 9 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Consolidated net income for the second fiscal quarter increased 85% to $5.2 million, or $.27 per share, compared with net income of $2.8 million, or $.15 per share, for the same period of the prior year. Net income for the 28-week period ended August 12, 1996 more than doubled to $10.5 million, or $.55 per share, from $4.7 million, or $.26 per share, for the same period a year ago. During the first quarter of the current year, the Company adopted SFAS 121, resulting in a $1.3 million non-recurring charge to restaurant operations; net income for the 28-week period would have been $11.3 million, or $.59 per share, excluding the effect of this adoption. These positive results were primarily due to increased sales growth resulting from the Company's dual-branding and image enhancement programs, increased advertising and continued improvements in operating efficiencies in the Company's Carl's Jr. restaurants. The Company is continuing with the conversion of certain existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants, pursuant to an agreement with GB Foods Corporation. As of August 12, 1996, there were 46 dual-brand restaurants operating, with sales in these converted units for the 28-week period ended August 12, 1996 tracking approximately 25% over same-store sales in the comparable prior year period. As part of the Company's chain-wide Carl's Jr. restaurant remodeling program, approximately 68 remodels have been completed as of the end of the second quarter. The Company has seen improved sales results in these remodeled restaurants. Currently, three restaurants per week are being remodeled and the Company anticipates that a total of approximately 190 restaurants will be remodeled this fiscal year. The Company began operating four new restaurant concepts this quarter with the acquisition of Summit and an agreement with Rally's Hamburgers, Inc. ("Rally's") to operate its 28 restaurants in California and Arizona. The Company also converted a Los Angeles Rally's location to the first Carl's Jr. "Jr.," which offers a limited Carl's Jr. menu in a double drive-thru and walk-up service format. Shortly after the quarter end, the Company entered into a Stock Purchase Agreement with Casa Bonita Holdings, Inc., pursuant to which the Company agreed to acquire all of the issued and outstanding shares of capital stock of Casa Bonita Incorporated for a purchase price of $42.0 million. See Note (E) of Notes to Consolidated Financial Statements. Additionally, subsequent to August 12, 1996, the Company participated in Rally's Rights Offering, pursuant to which the Company received one Right for each share of Rally's common stock owned. In accordance with the terms of the Rights Offering, holders of Rights were entitled to purchase one Unit for each 3.25 Rights surrendered and a cash payment of $2.25 per Unit. Each Unit consists of one share of Rally's common stock and one Warrant to purchase an additional share of Rally's common stock upon payment of a $2.25 exercise price. The Company contributed approximately $1.7 million and acquired approximately 776,000 shares of Rally's common stock in connection with the Rights Offering. This Quarterly Report on Form 10-Q contains forward looking statements, which are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; the impact of competitive products and pricing; success of operating initiatives; development and operating costs; advertising and promotional efforts; adverse publicity; acceptance of new product offerings; consumer trial and frequency; availability, locations, and terms of sites for restaurant development; changes in business strategy or development plans; quality of management; availability, terms, and deployment of capital; the results of financing efforts; business abilities and judgment of personnel; availability of qualified personnel; food, labor, and employee benefit costs; changes in, or the failure to comply with, government regulations; weather conditions; construction schedules; and risks that sales growth resulting from the Company's current and future remodeling and dual-branding of restaurants and other operating strategies can be sustained at the current levels experienced. 8 10 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS Revenues from Company-operated restaurants increased 20.6% and 15.6%, respectively, in the 12- and 28-week periods ended August 12, 1996 to $110.4 million and $239.9 million, respectively, over the same prior year periods. Carl's Jr. revenues alone for the current and year-to-date periods accounted for sales increases of $12.4 million and $30.2 million, respectively. Rally's and Summit accounted for approximately $2.2 million and $4.3 million, respectively, of revenues in the second fiscal quarter of fiscal 1997. On a same-store sales basis (calculated using only restaurants in operation for the full periods being compared), the Company's Carl's Jr. sales increased 10.3% in the current quarterly period as compared with a 3% increase in the comparable prior year period. The Company's dual branding and image enhancement programs and increased advertising contributed to the increase in revenues in the Company-owned Carl's Jr. restaurants. Higher average sales and transaction counts per restaurant and an increase in the weighted average number of Company restaurants operating in fiscal 1997 as compared with fiscal 1996 also contributed to the increase in revenues. Revenues from franchised and licensed restaurants for all periods presented include sales of food service products by the Company's distribution centers, rental income, royalties, and initial franchise fees. Revenues from franchised and licensed restaurants for the 12- and 28-week periods ended August 12, 1996 increased 7.3% and 8.0%, respectively, to $17.8 million and $41.2 million, respectively, over the same prior year periods. This increase was due to increased royalties and food purchases from franchisees as a result of higher sales volume at franchised restaurants, and was partially offset by a decrease in the weighted average number of restaurants open as compared with the prior year. Restaurant-level margins of the Company's restaurant operations increased approximately 0.9% and 2.1% to 22.3% and 21.7% for the 12- and 28-week periods, respectively, ended August 12, 1996, as compared with the corresponding periods of the prior fiscal year. Excluding the effect of the adoption of SFAS 121 during the first quarter of the current year, restaurant-level margins would have been 22.3% for the 28-week period ended August 12, 1996. The restaurant-level margins for the Carl's Jr. operations alone increased 2.0% and 2.2% to 23.3% and 22.2% for the 12- and 28-week periods, respectively, ended August 12, 1996 compared to the same periods of the prior year. These improved results in the Company's restaurant-level operating margins reflect the Company's continued commitment to improve the cost structure of its Carl's Jr. restaurants, particularly in the areas of improving labor productivity and reducing workers' compensation costs. As a percentage of revenues from Company-operated restaurants, payroll and other employee benefits and occupancy and other operating expenses decreased in the 12-week period as compared with the same period of the prior year. Restaurant-level margins in the first quarter of the prior year were unfavorably impacted by the start-up nature of the Company's Boston Market operations. Franchised and licensed restaurant costs have followed a comparable pattern during the current quarter to the revenues from franchised and licensed restaurants. These costs have increased 5.9% and 6.7% for the current 12- and 28-week periods, respectively, over the same periods of the prior year. The increase was primarily due to increased food purchases from franchisees and was partially offset by a decrease in the weighted average number of franchised and licensed restaurants in operation in the current periods as compared with the same periods in the prior year. Advertising expenses, as a percentage of Company-operated restaurant revenues, increased 0.4% to 5.4% and 0.4% to 5.6% for the 12- and 28-week periods, respectively, ended August 12, 1996 over the same prior year periods. Advertising expenses have become increasingly important in the current competitive environment, and as a result, have increased as a percentage of sales in fiscal 1997 compared with the prior year. The Company began its innovative advertising campaign in May 1995, and same-store sales have increased in each consecutive quarter thereafter as compared with the same quarters of the prior year. General and administrative expenses increased $0.4 million to $9.4 million and $0.9 million to $20.5 million for the 12- and 28-week periods, respectively, ended August 12,1996 over the comparable prior year periods. However, as a percentage of total revenues, these expenses decreased 1.0% and 0.7%, respectively, as compared with the same prior year periods. General and administrative expenses were unfavorably impacted in the prior year by the inclusion of approximately $1.8 million of expenses associated with the Company's Boston Market operations. The increase in general and administrative expenses in the current fiscal year 12- and 28- 9 11 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) week periods was primarily the result of recording incentive compensation accruals for regional restaurant management and selected corporate employees in support of higher revenues from Company-operated restaurants and improved restaurant operating performance, increased amortization expense, and various corporate legal expenses. Interest expense for the 12- and 28-week periods of the current fiscal year decreased 12.4% and 10.2%, respectively, to $2.1 million and $4.7 million, respectively, as compared with the same periods in the prior year as a result of lower levels of borrowings outstanding, the prepayment of certain indebtedness and lower interest rates. Other income, net, in the 12- and 28-week periods of fiscal 1996 and 1997 was primarily comprised of investment income, interest on notes and leases receivable, gains and losses on sales of restaurants, and other non-recurring income. Other income, net, increased $79,000 and $646,000 from the 12- and 28-week periods, respectively, of fiscal 1996 primarily due to lease income generated from the leasing of certain equipment and real property following the formation of Boston West, L.L.C. ("Boston West"), in April 1995, which contains the Company's former Boston Market operations. FINANCIAL CONDITION For the 28-week period ended August 12, 1996, the Company generated cash flows from operating activities of $31.1 million, compared with $14.0 million for the same period of the prior year. Cash and cash equivalents in the current period decreased $9.5 million from January 29, 1996, as the Company used cash flows from operations to fund capital additions of approximately $19.6 million, to complete the acquisition of Summit for $14.7 million in cash (net of cash acquired) and to repay long-term debt and capital lease obligations, net of new borrowings, of approximately $8.7 million, of which $6.5 million represented the early repayment of certain indebtedness. Also contributing to the decrease in cash and cash equivalents was the purchase of a long-term investment in Rally's for approximately $4.1 million during the first quarter of fiscal 1997. The decrease in cash and cash equivalents was partially offset by cash generated from the sale of property and equipment of approximately $3.3 million, collections on notes receivable and related party notes receivable of approximately $1.0 million, and the exercise of stock options, which generated approximately $1.0 million. Total cash and cash equivalents available to the Company as of August 12, 1996 was $18.3 million, which included $4.4 million invested in marketable securities. Effective August 12, 1996, the Company entered into a new Credit Agreement with a group of financial institutions. Under the terms of the Credit Agreement, the Company borrowed the principal amount of $20.0 million under a five-year, fully amortizing term loan, the proceeds of which were used to repay existing indebtedness. The Credit Agreement also provides the Company with up to an additional $55.0 million in revolving credit facilities. See Note (C) of Notes to Consolidated Financial Statements. The Company's primary source of liquidity is its retail sales from Company-operated restaurants, which are generated in cash. Future capital needs will arise primarily for the construction of new Carl's Jr. restaurants, the remodeling of existing restaurants, the conversion of certain restaurants to the Carl's Jr./Green Burrito dual-brand concept, the conversion of selected Rally's restaurants to Carl's Jr. "Jr." restaurants, the payment of capital lease obligations, the repayment of debt, the purchase of Rally's common stock in connection with its Rights Offering, and the anticipated closing of the Casa Bonita acquisition. During the remaining portion of fiscal 1997, the Company plans to open 14 new Carl's Jr. restaurants, to continue to remodel approximately three existing restaurants per week under the Company's image enhancement program and to complete one Carl's Jr./Green Burrito dual-brand conversion per week. The Company believes that cash generated from its various restaurant concept operations, along with cash and marketable securities on hand as of August 12, 1996 and amounts available under the Company's revolving credit facilities, will provide the Company with the funds necessary to meet all of its obligations, including the payment of maturing indebtedness and capital leases, the further development of its Carl's Jr. operations and other obligations described above. 10 12 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: The Annual Meeting of Stockholders of CKE Restaurants, Inc. was held on June 19, 1996, for the purpose of electing certain members of the board of directors, and to consider and approve amendments to the Company's 1994 Employee Stock Purchase Plan and the Company's 1994 Stock Incentive Plan. Management's nominees for directors were elected by the following vote:
Shares Voted Authority To Vote "FOR" "WITHHELD" ----- ---------- Peter Churm 16,249,376 340,613 Daniel D. (Ron) Lane 16,309,688 280,301
The proposals to approve amendments to the Company's 1994 Employee Stock Purchase Plan and the Company's 1994 Stock Incentive Plan were approved by the following vote:
Shares Voted Shares Voted Abstentions and "FOR" "AGAINST" Broker non-votes ----- --------- ---------------- 1994 Employee Stock 16,058,539 483,838 47,350 Purchase Plan 1994 Stock Incentive Plan 9,777,203 4,495,316 471,720
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: 11 Calculation of Earnings per Share 27 Financial Data Schedule (included in electronic filing only). (b) Current Reports on Form 8-K: Current Reports on Form 8-K dated June 12, 1996 and July 15, 1996 were filed during the second quarter of the fiscal year to report the Company's operating results for the first quarter of fiscal 1997 and to report the Company's acquisition of Summit, respectively. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CKE RESTAURANTS, INC. --------------------- (Registrant) September 25, 1996 /s/ Joseph N. Stein -------------------- --------------------------- Date Senior Vice President, Chief Financial Officer and Duly Authorized Officer 11 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 Twenty-eight Weeks Ended ------------------ ------------------------ August 12, August 14, August 12, August 14, 1996 1995 1996 1995 ---- ---- ---- ---- PRIMARY EARNINGS PER SHARE Net income $ 5,192 $ 2,808 $10,525 $ 4,723 ======= ======= ======= ======= Weighted average number of common shares outstanding during the period 18,817 18,211 18,694 18,277 Incremental common shares attributable to exercise of outstanding options 514 156 446 86 Repurchase of shares -- -- -- (80) ------- ------- ------- ------- Total shares 19,331 18,367 19,140 18,283 ======= ======= ======= ======= Primary earnings per share $ .27 $ .15 $ .55 $ .26 ======= ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE Net income $ 5,192 $ 2,808 $10,525 $ 4,723 ======= ======= ======= ======= Weighted average number of common shares outstanding during the period 18,817 18,211 18,694 18,277 Incremental common shares attributable to exercise of outstanding options 514 244 526 244 Repurchase of shares -- -- -- (80) ------- ------- ------- ------- Total shares 19,331 18,455 19,220 18,441 ======= ======= ======= ======= Fully diluted earnings per share $ .27 $ .15 $ .55 $ .26 ======= ======= ======= =======
12 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 TWELVE WEEKS ENDED AUGUST 12, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 12, 1996. 1,000 3-MOS JAN-27-1997 JAN-30-1996 AUG-12-1996 13,906 4,427 16,813 0 7,973 56,972 367,919 198,842 306,457 79,251 0 0 0 198 123,328 306,457 110,364 128,123 85,790 118,031 (576) 0 2,149 8,519 3,327 5,192 0 0 0 5,192 .27 .27
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