-----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, D6imEEteUOw7b+UY2E6JVHQ2IBv/peuT04F/Hdo8f8OG7fULMD8wU/DpMP25672h eBgQucGYkMrNt4qxAOYdHA== 0000892569-96-002680.txt : 19961220 0000892569-96-002680.hdr.sgml : 19961220 ACCESSION NUMBER: 0000892569-96-002680 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961104 FILED AS OF DATE: 19961219 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: 96683188 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 10-Q 1 FORM 10-Q FOR PERIOD ENDED NOVEMBER 4, 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 November 4, 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 (I.R.S. Employer Identification No.) Incorporation or Organization) 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: 22,143,445 shares of Common stock, par value $.01 per share as of December 5, 1996 2 CKE RESTAURANTS, INC. INDEX
Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements: Consolidated Balance Sheets as of November 4, 1996 and January 29, 1996.......................... 2 Consolidated Statements of Income for the twelve and forty weeks ended November 4, 1996 and November 6, 1995.................................................. 3 Consolidated Statements of Cash Flows for the forty weeks ended November 4, 1996 and November 6, 1995........................................................ 4-5 Notes to Consolidated Financial Statements....................................................... 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 9-12 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................................................ 13-14
1 3 PART 1. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
November 4, January 29, 1996 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 15,614 $ 23,429 Marketable securities 2,512 2,510 Accounts receivable 7,682 7,295 Related party receivables 1,096 977 Inventories 8,996 6,132 Deferred tax asset, net 10,154 10,056 Other current assets 7,149 5,656 -------- --------- Total current assets 53,203 56,055 Property and equipment, net 215,402 119,128 Property under capital leases, net 33,836 28,399 Long-term investments 28,219 19,814 Notes receivable 6,501 7,801 Related party notes receivable 155 969 Other assets 26,371 14,593 -------- --------- $363,687 $ 246,759 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 16,486 $ 8,575 Current portion of capital lease obligations 4,802 3,745 Accounts payable 27,720 15,824 Other current liabilities 51,864 31,756 -------- --------- Total current liabilities 100,872 59,900 -------- --------- Long-term debt 55,128 30,321 Capital lease obligations 48,042 40,233 Other long-term liabilities 26,113 15,116 Minority interest 4,100 -- 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 19,267,611 and 19,200,141 shares 193 192 Additional paid-in capital 47,176 38,713 Retained earnings 82,063 67,393 Treasury stock, at cost; -0- and 670,300 shares -- (5,109) -------- --------- Total stockholders' equity 129,432 101,189 -------- --------- $363,687 $ 246,759 ======== =========
2 4 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited)
Twelve Weeks Ended Forty Weeks Ended ------------------------------- ----------------------------- November 4, November 6, November 4, November 6, 1996 1995 1996 1995 ------------- ------------- ------------- ------------ Revenues: Company-operated restaurants: Carl's Jr $ 106,106 $ 95,316 $ 339,544 $ 298,559 Taco Bueno 6,784 -- 6,784 -- JB's Restaurants 14,981 -- 17,512 -- HomeTown Buffet 8,760 -- 10,240 -- Other 6,825 -- 9,250 4,272 --------- --------- --------- --------- 143,456 95,316 383,330 302,831 --------- --------- --------- --------- Franchised and licensed restaurants: Carl's Jr 18,447 17,758 59,566 55,908 JB's Restaurants 388 -- 452 -- --------- --------- --------- --------- 18,835 17,758 60,018 55,908 --------- --------- --------- --------- Total revenues 162,291 113,074 443,348 358,739 --------- --------- --------- --------- Operating costs and expenses: Restaurant operations: Food and packaging 45,726 29,659 119,693 92,839 Payroll and other employee benefits 40,225 26,105 105,237 85,377 Occupancy and other operating expenses 30,488 19,364 79,224 63,619 --------- --------- --------- --------- 116,439 75,128 304,154 241,835 Franchised and licensed restaurants 16,951 16,695 56,106 53,384 Advertising expenses 7,003 4,498 20,473 15,317 General and administrative expenses 11,180 9,380 31,729 29,012 --------- --------- --------- --------- Total operating costs and expenses 151,573 105,701 412,462 339,548 --------- --------- --------- --------- Operating income 10,718 7,373 30,886 19,191 Interest expense (2,759) (2,300) (7,503) (7,585) Other income, net 1,299 254 3,149 1,458 --------- --------- --------- --------- Income before income taxes 9,258 5,327 26,532 13,064 Income tax expense 3,670 2,306 10,419 5,320 --------- --------- --------- --------- Net income $ 5,588 $ 3,021 $ 16,113 $ 7,744 ========= ========= ========= ========= Net income per common and common equivalent share $ .28 $ .16 $ .83 $ .42 ========= ========= ========= ========= Common and common equivalent shares used in computing per share amounts 19,823 18,706 19,466 18,596 ========= ========= ========= =========
3 5 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Forty Weeks Ended ------------------------ November 4, November 6, 1996 1995 -------- -------- Net cash flow from operating activities: Net income $ 16,113 $ 7,744 Adjustments to reconcile net income to net cash provided by operating activities, excluding the effect of acquisitions: Noncash franchise expense 19 131 Depreciation and amortization 18,158 16,058 Loss on sale of property and equipment and capital leases 848 1,600 Reversal of rent subsidy reserves -- (327) Loss on equity investments -- 2,733 Write-off of accounts and notes receivable 171 -- Net noncash investment and dividend income (661) (803) Deferred income taxes 547 -- Noncash decrease 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 (6,617) 1,261 Net change in other assets (2,299) (67) Net change in accounts payable and other current liabilities 9,777 (1,996) -------- -------- Net cash provided by operating activities 37,603 25,042 -------- -------- Cash flow from investing activities: Purchases of: Marketable securities (760) (686) Property and equipment (31,469) (22,396) Long-term investments (5,936) (1,670) Proceeds from sales of: Marketable securities 2,689 1,662 Property and equipment 3,779 21 Collections on leases receivable 139 122 Increase in notes receivable and related party notes receivable (120) (2,142) Collections on notes receivable and related party notes receivable 2,707 1,281 Acquisitions, net of cash acquired and minority interest (52,646) -- -------- -------- Net cash used in investing activities (81,617) (23,808) -------- -------- Cash flow from financing activities: Net change in bank overdraft 8,513 (11,285) Short-term borrowings 1,200 57,060 Repayments of short-term debt (1,200) (52,635) Long-term borrowings 58,000 9,175 Repayments of long-term debt (27,090) (6,343) Repayments of capital lease obligations (2,950) (2,326) Net change in other long-term liabilities (920) (1,400) Purchase of treasury stock -- (551) Payment of dividends (1,514) (1,460) Exercise of stock options 2,160 2,021 -------- -------- Net cash provided by (used in) financing activities 36,199 (7,744) -------- -------- Net decrease in cash and cash equivalents $ (7,815) $ (6,510) ======== ========
4 6 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Forty Weeks Ended ------------------------ November 4, November 6, 1996 1995 ----------- ---------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amounts capitalized) $ 7,325 $ 7,691 Income taxes 5,000 2,476 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 (540) (714) Stock issued in exchange for Summit Assets 11,412 -- Franchising and reorganization activities: Increase in property and equipment (1,904) (2,853) Decrease in various liabilities (75) -- Decrease in notes receivable and accounts receivable 547 2,683 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 $ -- ======== ======== Casa Bonita Acquisition: Tangible assets acquired at fair value 45,090 -- Cost in excess of net assets acquired 4,967 -- Liabilities assumed at fair value (8,057) -- -------- -------- Total purchase price $ 42,000 $ -- ======== ========
5 7 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 4, 1996 AND NOVEMBER 6, 1995 NOTE (A) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of CKE Restaurants, Inc. and its consolidated 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. Under 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 used to repay existing indebtedness. 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 companies, under the terms of which the Company may borrow from time to time up to $25.0 million. The Company borrowed $25.0 million under this revolving credit facility in connection with the acquisition of Casa Bonita on October 1, 1996, a portion of which amount, together with the outstanding principal amount of the term loan, was repaid subsequent to November 4, 1996, with the net proceeds of the Company's common stock offering (see Note F). The amounts advanced, if any, to the Company and remaining outstanding 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 replaced, would have expired on August 31, 1996. Subsequent to the quarter end, on November 8, 1996, the Company used $36.0 million of the net proceeds from its common stock offering (see Note F) to pay $20.0 million in borrowings outstanding under the term loan and $16.0 million in revolving credit line borrowings. The Company currently has an aggregate of $46.0 million in borrowings available to it under its credit facility, of which $30.0 million is available for working capital and other general corporate purposes and $16.0 million is available for permitted acquisitions of, or investments in, other companies. 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. 6 8 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 4, 1996 AND NOVEMBER 6, 1995 (Continued) 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 73 Company-operated and 24 franchised JB's Restaurants, 16 HomeTown Buffet restaurants and six Galaxy Diner restaurants. 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. On October 1, 1996, the Company acquired Casa Bonita Incorporated ("Casa Bonita"). Casa Bonita currently operates 108 Taco Bueno restaurants located in Texas and Oklahoma in addition to two Casa Bonita Restaurants and three Crystal's Pizza and Spaghetti Restaurants. The acquisition was completed by CBI Restaurants, Inc. ("CBI"), a newly-formed corporation in which the Company originally held an 80.0% equity interest. CBI paid $42.0 million in cash, which was financed by short-term loans of $9.0 million from the Company, $8.0 million from Fidelity National Financial, Inc. ("Fidelity"), and $5.0 million from Giant Group, Ltd. ("Giant"). The balance of the purchase price, $20.0 million, was financed through the Company's investment of $16.0 million in cash for an 80.0% equity interest in CBI, and Fidelity's investment of $4.0 million in cash for the remaining 20.0% equity interest in CBI. The Company's investment in CBI was funded out of borrowings under the Company's revolving acquisition facility. On December 3, 1996, the Company purchased Fidelity's 20.0% equity interest in CBI for $4.5 million, giving the Company 100.0% ownership of CBI and Casa Bonita. CBI also repaid the short-term loans of $8.0 million to Fidelity and $5.0 million to Giant. The purchase of Fidelity's equity interest and the repayment of short-term loans was provided by the net proceeds of the Company's common stock offering (see Note F). Selected unaudited pro forma combined results of operations for the 40-week periods ended November 4, 1996 and November 6, 1995, assuming the acquisitions occurred on January 31, 1995, are presented as follows:
Forty Weeks Ended ----------------------- November 4, November 6, 1996 1995 ----------- ---------- Total revenues $576,854 $515,344 Net income $ 16,184 $ 6,710 Net income per common and common equivalent share $ 0.82 $ 0.35
NOTE (E) RETIREMENT OF TREASURY STOCK On October 28, 1996, the Board of Directors of the Company retired 670,300 shares of the Company's common stock which were previously held as treasury stock. These shares had been repurchased by the Company during the two fiscal years ended January 29, 1996 at an aggregate cost of $5.1 million. 7 9 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 4, 1996 AND NOVEMBER 6, 1995 (Continued) NOTE (F) COMMON STOCK OFFERING Subsequent to the quarter end, on November 8, 1996, the Company issued 2,500,000 shares of its common stock at a public offering price of $28.625 per share. Proceeds from the offering, net of underwriting discounts and commissions and other related expenses estimated at $4.2 million, were $67.4 million. On December 4, 1996, the Underwriters elected to purchase an additional 375,000 shares of common stock pursuant to an over-allotment option granted in connection with the offering, generating an additional $10.2 million in net proceeds. The net proceeds were used to reduce the Company's existing indebtedness and for working capital and other general corporate purposes, including the Company's investments in Checkers Drive-In Restaurants, Inc. (see Note G) and additional investments in Rally's Hamburgers, Inc. (see Note H). NOTE (G) ACQUISITION OF DEBT On November 14, 1996, a group of investors including the Company purchased $35.8 million of aggregate principal amount of Checkers Drive-In Restaurants, Inc. ("Checkers") 13.75% senior secured debt, due on July 31, 1998, from certain current debt holders who retained approximately $6.0 million. The purchase price for this senior secured debt was $35.1 million. In addition to the Company, the investors included KCC Delaware, a wholly-owned subsidiary of Giant, Fidelity, The Travelers Indemnity Company ("Travelers") and certain affiliated individual investors. The Company paid $12.9 million for a 35.75% share of the debt. On November 22, 1996, the investors completed the restructuring of $35.8 million aggregate principal amount of indebtedness of Checkers under its existing credit agreement. Pursuant to the restructuring, the term of the credit agreement has been extended by one year until July 31, 1999 and the fixed interest rate on such indebtedness has been reduced to 13.0%. The investors agreed to modify certain financial covenants and the timing and amount of principal payments due under the credit agreement. The Company, KCC Delaware and Travelers also agreed to provide a short-term revolving line of credit of up to $2.5 million to Checkers, which is fully utilized. In connection with the restructuring, Checkers issued to the investors warrants to purchase an aggregate of 20.0 million shares of common stock of Checkers at an exercise price of $.75 per share. Further, in the event that up to three monthly extensions of the revolving line of credit are requested and extended, the Company, KCC Delaware and Travelers will receive 333,333 additional warrants per each month of extension provided. NOTE (H) LONG-TERM INVESTMENT IN RALLY'S HAMBURGERS, INC. Effective August 31, 1996, the Company participated in Rally's Hamburgers, Inc. ("Rally's") Rights Offering, pursuant to which the Company received one Right for each share of the 2.4 million shares of Rally's common stock the Company already 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 for 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 in cash and acquired 775,488 shares of Rally's common stock in connection with the Rights Offering, with Warrants to acquire another 775,488 shares. As of November 4, 1996, the Company's long-term investment in Rally's was $5.9 million and during the third quarter the Company began using the equity method of accounting for its investment in Rally's. Additionally, subsequent to quarter end, on November 29, 1996, the Company elected to exercise the first series of 587,607 options to purchase common stock of Rally's from Giant at $3.00 per share for a total of approximately $1.8 million. 8 10 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Consolidated net income for the third fiscal quarter increased 85.0% to $5.6 million, or $.28 per share compared with net income of $3.0 million, or $.16 per share, for the prior year. Net income for the 40-week period ended November 4, 1996 more than doubled to $16.1 million, or $.83 per share, from $7.7 million, or $.42 per share, for the same period last year. 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 40-week period would have been $16.9 million, or $.87 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 in its Carl's Jr. restaurants, increased advertising and continued improvements in operating efficiencies in the Company's Carl's Jr. restaurants, and the additional operations of the recently acquired concepts which were all profitable during the quarter. The operating results for the current 40-week period reflect 18 weeks of operations for the 27 Rally's restaurants that the Company commenced operating on July 2, 1996, 14 weeks of operations of Summit which was acquired on July 15, 1996 and five weeks of operations of Casa Bonita, which was acquired on October 1, 1996. The Company is continuing with the conversion of several of its existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants, pursuant to an agreement with GB Foods Corporation. As of November 4, 1996, there were 54 Company-operated and five franchised dual-brand restaurants operating. Post-conversion revenues in the 54 Company-operated restaurants converted to the Carl's Jr./Green Burrito dual-brand restaurants (including restaurants converted during the period) were approximately 25% higher than same-store sales in the comparable prior year period. In December 1996, the Company will introduce its first new Green Burrito product, the "Burrito Bowl", to the existing menu in these dual-brand locations. As part of the Company's chain-wide Carl's Jr. restaurant remodeling program, approximately 166 remodels (including dual-brand conversion remodels) have been completed as of the end of the third quarter. The Company is continuing to experience increased sales in these remodeled restaurants. Currently, the Company is remodeling four restaurants per week, which consist of three standard image enhancement remodels and one dual-brand remodel. The Company expects to have half of all Company-operated Carl's Jrs. remodeled by year-end and the remainder completed by the end of fiscal 1998. 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; advertising and promotional efforts; adverse publicity; availability, changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; the results of financing efforts; 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. RESULTS OF OPERATIONS Revenues from Company-operated restaurants, comprised mainly of sales from Carl's Jr. restaurants, increased $48.1 million, or 50.5% and $80.5 million, or 26.6% in the 12- and 40-week periods ended November 4, 1996 to $143.5 million and $383.3 million, respectively. Carl's Jr. revenues for the 12- and 40-week periods ended November 4, 1996 accounted for sales increases of $10.8 million and $41.0 million, respectively. Rally's, Summit and Casa Bonita accounted for $4.2 million, $25.2 million and $7.9 million, respectively, of revenues for the 12-week period ended November 4, 1996, and $6.3 million, $29.5 million and $7.9 million, respectively, of revenues for the 40-week period ended November 4, 1996. On a same-store sales basis (calculated using only restaurants in operation for the full periods being compared), revenues from Company-operated Carl's Jr. restaurants increased 8.4% in the 12-week period ended November 4, 1996 as compared with a 9.0% increase in the comparable prior year period. Same-store sales for the 40-week period ended November 4, 1996 increased 10.7% compared with a 3.2% increase a year ago. Per store averages in Company-operated Carl's Jr. restaurants continue to increase and reached 9 11 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) $1,089,000 on a 13-period rolling basis. The increase in revenues from Company-operated Carl's Jr. restaurants is primarily the result of the continued momentum in the Company's various sales enhancement programs which include the image enhancement of its restaurants through a chain-wide remodeling program, the continuation of its conversion of existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants and the continued focus on promoting great tasting new and existing food products through increased advertising. Higher average sales and transaction counts per restaurant and an increase in the number of Company-operated restaurants operating in fiscal 1997 as compared with the prior year also contributed to the increase in revenues from Company-operated Carl's Jr. restaurants. Revenues from franchised and licensed restaurants for the 12- and 40-week periods ended November 4, 1996 increased 6.1% and 7.4% to $18.8 million and $60.0 million, respectively, over the same prior year periods. This increase is largely due to increased royalties from, and food purchases by, franchisees as a result of higher sales volume at franchised Carl's Jr. restaurants, partially offset by a decrease in the number of franchised and licensed Carl's Jr. restaurants operating as compared with the prior year. Carl's Jr. franchises are experiencing same-store sale increases of approximately 9.5% on a year-to-date basis. While restaurant-level margins of the Company restaurant operations decreased in the 12-week period ended November 4, 1996 by 2.4% as compared with the prior year period, restaurant-level margins increased 0.5% to 20.7% for the 40-week period ended November 4, 1996 over the prior year period. The margins in the 12-week period ended November 4, 1996 reflect the impact of higher costs from Summit's family-style restaurant operations. The family-style restaurant segment of the restaurant industry typically has lower margins than the quick-service segment of the industry, due primarily to increased labor and food costs. Excluding the effect of the adoption of SFAS 121 during the first quarter of the current year, restaurant-level margins would have been 21.0% for the 40-week period ended November 4, 1996. Restaurant-level margins of the Company-operated Carl's Jr. restaurant operations increased approximately 0.5% and 1.7% to 21.7% and 22.0% for the 12- and 40-week periods ended November 4, 1996, respectively, as compared with the corresponding periods of the prior year. These improved results in the Company's Carl's Jr. 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 Carl's Jr. restaurants, payroll and other employee benefits and occupancy and other operating expenses have decreased 1.5% in the 40-week period ended November 4, 1996 as compared with the same period a year ago, despite the October 1, 1996 increase in the federal minimum wage. Food and packaging costs have increased as a percentage of revenues from Company-operated restaurants due to increased pressure from commodity prices and the promotion of larger, more expensive sandwiches. 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. Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws. Recent legislation increasing the federal minimum wage as of October 1, 1996 has resulted in higher labor costs to the Company and its franchisees. An additional increase in the federal minimum wage will become effective in September 1997. Further, as a result of recent California state law legislation, there will be an increase in the state minimum wage in California effective in March 1997. The Company anticipates that increases in the minimum wage may be offset through pricing and other cost control efforts; however, there can be no assurance that the Company or its franchisees will be able to pass such additional costs on to customers in whole or in part. Franchised and licensed restaurant costs have followed a comparable pattern during the 12- and 40-week periods ended November 4, 1996 to the revenues from franchised and licensed restaurants. These costs have increased 1.5% and 5.1% for the 12- and 40-week periods ended November 4, 1996, respectively, over the same periods of the prior year. The increase is primarily due to increased food purchases by Carl's Jr. franchisees, partially offset by a decrease in the number of franchised and licensed Carl's Jr. restaurants in operation in the current periods as compared with the same periods in the prior year. Advertising expenses increased $2.5 million and $5.2 million for the 12- and 40-week periods ended November 4, 1996, respectively, over the same prior year periods. Advertising expenses have become increasingly important in the current competitive environment and, as a result, have increased in terms of 10 12 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) dollars spent in fiscal 1997 as compared with the prior year. Since the Company began its innovative advertising campaign in May 1995, the Company has seen positive same-store sales increases in each subsequent quarter. General and administrative expenses increased $1.8 million and $2.7 million to $11.2 million and $31.7 million for the 12- and 40-week periods ended November 4,1996, respectively, over the applicable prior year periods. However, as a percentage of total revenues, these expenses decreased 1.4% and 0.9%, respectively, as compared with the same prior year periods. The increase in general and administrative expenses in the 12 and 40-week periods ended November 4, 1996 is primarily the result of recording incentive compensation accruals for regional restaurant management and selected corporate employees as a result of improved restaurant operating performance. Also contributing to the increase were increased amortization expense and various corporate legal expenses. General and administrative expenses were unfavorably impacted in the prior year by the inclusion of approximately $1.9 million of expenses associated with the Company's Boston Market operations. Interest expense for the 12-week period ended November 4, 1996 increased 20.0% to $2.8 million as compared with the prior period, primarily due to new borrowings in connection with the Summit and Casa Bonita acquisitions (see Notes C and D of Notes to the Consolidated Financial Statements). Interest expense for the year-to-date period decreased 1.1% to $7.5 million, as compared with the same periods in the prior year as a result of lower levels of borrowings outstanding in the first two quarters of the fiscal year, the prepayment of certain indebtedness earlier in the year and lower interest rates. After the end of the quarter ended November 4, 1996, $49.0 million aggregate principal amount of indebtedness was repaid by the Company. Other income, net, in the 12- and 40-week periods of fiscal 1996 and fiscal 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 $1.0 million and $1.7 million from the 12 and 40-week periods of fiscal 1996, respectively, 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 40-week period ended November 4, 1996, the Company generated cash flows from operating activities of $37.6 million, compared with $25.0 million for the same period of the prior year. Cash and cash equivalents in the current period decreased $7.8 million from January 29, 1996, as the Company used cash flows from operations to fund capital additions of approximately $31.5 million, to complete the acquisitions of Summit for $14.7 million (net of cash acquired) and of Casa Bonita for $37.9 million (net of cash acquired and minority interest), and to pay dividends to its shareholders of approximately $1.5 million. The increase in new borrowings of $58.0 million was primarily used to fund the acquisition of Casa Bonita and to replace an existing credit facility of $20.0 million. The repayments of long-term debt include the $20.0 million repayment for the existing credit facility and $6.5 million of early repayment of indebtedness. Also contributing to the decrease in cash and cash equivalents was the purchase of the long-term investment in Rally's for approximately $5.9 million. The decrease in cash and cash equivalents was partially offset by cash generated from the sale of property and equipment of approximately $3.8 million, the sale of marketable securities of approximately $2.7 million, collections on notes receivable and related party notes receivable of approximately $2.7 million, and the exercise of stock options which generated approximately $2.2 million. Total cash and cash equivalents available to the Company as of November 4, 1996 was $18.1 million, which included $2.5 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 (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 11 13 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) credit facility for the purpose of financing investments in and acquisitions of other companies, under the terms of which the Company may borrow from time to time up to $25.0 million. The amounts advanced to the Company and remaining outstanding under the revolving acquisition facility will convert after two years into a three-year, fully amortizing loan. The Company's revolving credit facility matures on July 31, 2001. The Credit Agreement also includes customary affirmative and negative covenants which, among other things, restrict the Company's ability to (i) incur or create indebtedness 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. Subsequent to quarter-end, on November 8, 1996, the Company issued 2,500,000 shares of its common stock at a public offering price of $28.625 per share. Proceeds from the offering, net of underwriting discounts and commissions and other related expenses estimated at $4.2 million, were $67.4 million. On December 4, 1996, the Underwriters elected to purchase an additional 375,000 shares of common stock pursuant to an over-allotment option granted in connection with the offering, generating an additional $10.2 million in net proceeds. The Company's primary source of liquidity is its revenues 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, and the conversion of certain restaurants to the Carl's Jr./Green Burrito dual-brand concept. The Company plans to open up to ten new Carl's Jr. restaurants during the fourth quarter of fiscal 1997 and up to 30 new restaurants in fiscal 1998. The Company also intends to open up to seven new Taco Bueno restaurants in fiscal 1998. During the remainder of fiscal 1997, the Company also expects to continue with its schedule to remodel four Carl's Jr. restaurants per week, including three image enhancement remodels and one dual-concept conversion. The Company believes that the net cash proceeds from the common stock offering, together with cash generated from its various restaurants concept operations, cash and marketable securities on hand as of November 4, 1996 and amounts available under the Company's revolving credit facilities, will be sufficient to satisfy the Company's capital spending and working capital requirements for at least the next 12 months. If those sources of capital are insufficient to satisfy the Company's capital spending and working capital requirements, or if the Company determines to make any significant acquisitions of or investments in other businesses, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. The sales, if any, of additional equity or convertible debt securities could result in additional dilution to the Company's stockholders. 12 14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: 10.42 First Amendment to Credit Agreement dated September 30, 1996 by and between CKE Restaurants, Inc.; NationsBank of Texas, N.A.; and other parties. 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 August 20, 1996, August 27, 1996 and October 1, 1996 were filed during the third quarter of the fiscal year to report the Credit Agreement entered into with NationsBank of Texas, N.A. and a group of financial institutions, to report the stock purchase agreement entered into with Casa Bonita Holdings, Inc. relating to the acquisition of Casa Bonita Incorporated, and to report the closing of the acquisition of Casa Bonita Incorporated and file the related financial statements of Casa Bonita Incorporated and proforma financial information, 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) December 18, 1996 /s/ Joseph N. Stein - ----------------- --------------------------- Date Senior Vice President and Chief Financial Officer 13 EX-10.42 2 FIRST AMENDMENT TO CREDIT AGREEMENT 1 Exhibit 10.42 FIRST AMENDMENT TO CKE RESTAURANTS, INC. CREDIT AGREEMENT DATED AS OF SEPTEMBER 30, 1996 This FIRST AMENDMENT (this "Amendment") is among CKE RESTAURANTS, INC., a Delaware corporation (the "Borrower"), the Financial Institutions party to the Credit Agreement referred to below (the "Lenders"), and NATIONSBANK OF TEXAS, N.A., as agent (the "Agent") for the Lenders thereunder. PRELIMINARY STATEMENTS: 1. The Borrower, the Lenders and the Agent have entered into a Credit Agreement dated as of August 1, 1996 (the "Credit Agreement"; capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the Credit Agreement). 2. The Borrower has requested that the Agent and the Lenders (i) consent to a specified Designated Investment and a specified Permitted Acquisition which, when combined, are in excess of amounts currently permitted under the Credit Agreement, and (ii) amend the Credit Agreement to permit the consummation of Permitted Acquisition Financing with respect to such Permitted Acquisition after the consummation of such Permitted Acquisition. 3. The Agent and the Lenders are willing to grant the request of the Borrower on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, effective concurrently with the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (a) The definitions of the terms "Designated Investment" and "Permitted Acquisition Financing" contained in Section 1.01 of the Credit Agreement are hereby amended and restated in their entirety to read as follows: "`DESIGNATED INVESTMENT' means any Investment by the Borrower or any of its Subsidiaries made after the date hereof in a Person which is not a Subsidiary of the Borrower and which is engaged, at the time of such Investment, primarily in the business that the Borrower is engaged in on the date hereof. `PERMITTED ACQUISITION FINANCING' means financing for, or the refinancing of, a portion of the purchase price of the CBI Acquisition consisting of either (a) Debt incurred by CBI or CBI Acquisition Subsidiary, which Debt may be incurred in connection with such Permitted Acquisition, or (b) a sale-leaseback transaction involving the sale for cash and for fair market value of assets of CBI and its Subsidiaries (and not any other assets of the Borrower and its Subsidiaries) with a fair market value not in excess of $22,000,000 and the lease of such assets by such Person for lease payments not exceeding $3,500,000 in any period of 12 consecutive months; provided, however, that (i) the Obligations in respect of the Permitted Acquisition Financing may not be guaranteed or otherwise supported by the Borrower or any of its Subsidiaries (other than the obligor in respect of such Permitted Acquisition Financing) unless such guarantee or other support obligation is subordinated to the 2 prior payment in full in cash of the Advances on, and is otherwise subject to, terms and provisions acceptable to the Agent and the Required Lenders, (ii) the Obligations in respect of the Permitted Acquisition Financing must be incurred, if at all, on or prior to December 31, 1996, and (iii) there may not be more than one Permitted Acquisition Financing during the term of this Agreement." (b) Section 1.01 of the Credit Agreement is hereby further amended by adding thereto the following defined terms in the appropriate alphabetical order: "`FIRST AMENDMENT' means the First Amendment to this Agreement, dated as of September 30, 1996. `CBI' means Casa Bonita Incorporated, a Texas corporation. `CBI ACQUISITION' means the Acquisition by CBI Acquisition Subsidiary of 100% of the capital stock of CBI. `CBI ACQUISITION SUBSIDIARY' means a Subsidiary of the Borrower, of which the Borrower owns not less than 80% of the Voting Stock, formed for purposes of acquiring the capital stock of CBI in connection with the CBI Acquisition. `CBI SHAREHOLDER/INVESTOR LOANS' means loans to CBI Acquisition Subsidiary from its shareholders and other investors in an aggregate principal amount not to exceed $22,000,000 which are subordinated to the prior payment in full in cash of the Advances on, and which are otherwise subject to, terms and provisions acceptable to the Agent and the Required Lenders. `SUBORDINATED DEBT' means (i) the Debt in respect of the CBI Shareholder/Investor Loans (including any guarantee of such Debt), and (ii) Permitted Subordinated Debt." (c) Section 2.05(b)(iii) of the Credit Agreement is hereby amended by (i) adding the parenthetical "(as to which the provisions of Section 2.05(b)(v) shall be applicable)" at the end of clause (A)(4) of such Section, and (ii) adding the clause "(1) the provisions of Section 2.05(b)(v) shall be applicable to any Permitted Acquisition Financing, and (2)" immediately following the words "it being understood that" appearing in clause (B) of such Section. (d) Section 2.05(b) of the Credit Agreement is hereby further amended by adding thereto a new Section 2.05(b)(v) to read as follows: "(V) NET CASH PROCEEDS OF PERMITTED ACQUISITION FINANCING. The Borrower shall, on the date of receipt by the Borrower or any of its Subsidiaries of the Net Cash Proceeds from any Permitted Acquisition Financing (other than any Permitted Acquisition Financing which is consummated prior to or concurrently with the CBI Acquisition and the Net Cash Proceeds of which reduce the purchase price payable in connection with the CBI Acquisition by an amount equal to such Net Cash Proceeds), prepay an aggregate principal amount of the Revolving B Advances (or, if no Revolving B Advances are then outstanding, the Term Advances) equal to the greater of (A) the principal amount of any CBI Shareholder/Investor Loans made by the Borrower and its Subsidiaries to CBI Acquisition Subsidiary, and (B) 100% of such Net Cash Proceeds minus the principal amount of CBI Shareholder/Investor Loans made by Persons other than the Borrower and its Subsidiaries and repaid with the proceeds of such Permitted Acquisition Financing as permitted under Section 6.02(k). Such prepayment shall be applied first to the outstanding Revolving B Advances until such Advances are paid in full and, thereafter, to the Term Advances and the installments 2 3 thereof in inverse order of maturity. (e) Section 6.01 of the Credit Agreement is hereby amended by adding thereto a new Section 6.01(m) to read as follows: "(M) CONSUMMATION OF EQUITY OFFERING OR PERMITTED ACQUISITION FINANCING; REPAYMENT OF CBI SHAREHOLDER/INVESTOR LOANS. On or prior to December 31, 1996, (i) either (A) the Borrower shall have consummated a new public offering of its common stock resulting in Net Cash Proceeds to the Borrower of not less than $42,000,000, or (B) CBI or CBI Acquisition Subsidiary shall have consummated the Permitted Acquisition Financing resulting in proceeds to the obligor thereunder of not less than $22,000,000, and (ii) upon consummation of such equity offering or such Permitted Acquisition Financing (and only upon such consummation) CBI Acquisition Subsidiary shall repay in full the CBI Shareholder/Investor Loans (it being understood and agreed that the obligations under this Section 6.01(m) are in addition to any obligations the Borrower may have under Section 2.05 to prepay the Advances with the Net Cash Proceeds of any such equity offering or Permitted Acquisition Financing). The provisions of this Section 6.01(m) are for the benefit of the Agent and the Lenders only (and may be waived by the Agent and the Required Lenders) and shall not, under any circumstances, be construed as conferring any rights in favor of any holder of CBI Shareholder/Investor Loans and no such holder of CBI Shareholder/Investor Loans shall be a third party beneficiary of the provisions of this Section 6.01(m)." (f) Section 6.02(a)(vii) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(vii) Liens securing Permitted Acquisition Financing so long as such Liens extend only to the assets of CBI and its Subsidiaries (and, in the case of a sale-leaseback transaction, only to the assets the subject of such sale-leaseback) and do not extend to the capital stock of any of the Borrower's Subsidiaries; and " (g) Clause (3) of Section 6.02(b)(iii)(D) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(3) Debt of CBI or CBI Acquisition Subsidiary in respect of (I) the CBI Shareholder/Investor Loans, and (II) the Permitted Acquisition Financing, in an aggregate principal amount for all Debt described in this clause (3) not to exceed $22,000,000," (h) Section 6.02(b)(iii) of the Credit Agreement is hereby further amended by (i) deleting the word "and" appearing at the end of clause (E) of such Section, (ii) deleting the period appearing at the end of clause (F) of such Section and replacing it with a comma and (iii) adding thereto new Sections 6.02(b)(iii)(G), (H) and (I) to read as follows: "(G) unsecured Debt of the Borrower or any of its Subsidiaries owing to former franchisees and representing the deferred purchase price (or a deferred portion of such purchase price) payable by the Borrower or such Subsidiary to such former franchisee in connection with the purchase by the Borrower or such Subsidiary of one or more retail outlets from such former franchisee in an aggregate principal amount for all such Debt not to exceed $3,000,000 at any one time outstanding, (H) unsecured Debt of the Borrower or any of its Subsidiaries consisting of guarantees of not more than 20% of the principal amount of Debt of a franchisee incurred to finance a remodeling, construction or purchase of a retail unit of such franchisee, and (I) unsecured Debt of the Borrower consisting of the guarantee of not 3 4 more than $5,000,000 in principal amount of the CBI Shareholder/Investor Loans so long as such guarantee is subordinated to the prior payment in full in cash of the Advances on, and is otherwise subject to, terms and provisions acceptable to the Agent and the Required Lenders." (i) Section 6.02(e) of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (iii) of such Section, (ii) deleting clause (iv) of such Section in its entirety, and (iii) adding thereto new clauses (iv) and (v) to read as follows: "(iv) if the Permitted Acquisition Financing is a sale-leaseback transaction, the sale by CBI and its Subsidiaries of the assets of CBI and its Subsidiaries (and not of the Borrower or any of the Borrower's other Subsidiaries) which are the subject of such sale-leaseback transaction for cash and for fair market value; provided that the Borrower shall, on the date of such sale, prepay the Advances pursuant to, and in the amount and order of priority set forth in, Section 2.05(b)(v); and (v) so long as no Default shall occur and be continuing, the grant of any option or other right to purchase any asset in a transaction which would be permitted under the provisions of the preceding clauses (ii), (iii) and (iv)." (j) Section 6.02(f)(i) of the Credit Agreement is hereby amended by (i) deleting the words "wholly-owned" appearing in the second line thereof, and (ii) deleting the phrase "in an aggregate amount invested from the date hereof not to exceed $5,000,000" and replacing it with the words "which are Loan Parties". (k) Section 6.02(f)(iii) of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (B) of such Section and (ii) adding a new clause (D) to such Section to read as follows: ", and (D) Investments consisting of guarantees permitted under Section 6.02(b)(iii)(H)" (l) Section 6.02(f)(iv) of the Credit Agreement is hereby amended by (i) deleting the word "or" appearing in clause (B)(II) of such Section and inserting in lieu thereof the words "and consideration paid or refinanced with the proceeds of the" and (ii) adding a new clause (B)(III) to read as follows: "and (III) in the case of a Permitted Acquisition by a Subsidiary of the Borrower which is not a wholly-owned Subsidiary of the Borrower, the consideration paid by such Subsidiary with the proceeds of equity contributions to such Subsidiary by Persons other than the Borrower and its Subsidiaries" (m) Section 6.02(f)(v)(G) of the Credit Agreement is hereby amended by (i) deleting the word "or" appearing in clause (II) of such Section and inserting in lieu thereof the words "and consideration paid or refinanced with the proceeds of the" and (ii) adding thereto a new clause (III) to read as follows: "and (III) in the case of a Permitted Acquisition by a Subsidiary of the Borrower which is not a wholly-owned Subsidiary of the Borrower, the consideration paid by such Subsidiary with the proceeds of equity contributions to such Subsidiary by Persons other than the Borrower and its Subsidiaries" (n) Section 6.02(g) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(G) DIVIDENDS, ETC. Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its capital stock or any warrants, rights or 4 5 options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such, or permit any of its Subsidiaries to declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of such Subsidiaries' capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such, or purchase, redeem, retire, defease or otherwise acquire for value any capital stock of the Borrower or any warrants, rights or options to acquire such capital stock or to issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, except that: (i) so long as no Default shall have occurred and be continuing, the Borrower and its Subsidiaries may declare and deliver dividends and distributions payable only in common stock of the Borrower or such Subsidiary, as the case may be; (ii) so long as no Default shall have occurred and be continuing, the Borrower may declare and pay cash dividends to its stockholders and purchase, redeem, retire or otherwise acquire shares of its own outstanding capital stock for cash if after giving effect thereto the aggregate amount of such dividends, purchases, redemptions, retirements and acquisitions paid or made after the date hereof would be less than the sum of $5,000,000 plus 50% of Consolidated Net Income of the Borrower for the fiscal year immediately preceding the year in which such dividend, purchase, redemption, retirement or acquisition is paid or made; (iii) any wholly-owned Subsidiary of the Borrower may declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of such Subsidiary's capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholder as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholder as such; and (iv) so long as no Default has occurred and is continuing, any Subsidiary of the Borrower that is not a wholly-owned Subsidiary of the Borrower may declare and pay cash dividends to the extent, and only to the extent, of any cumulative positive net income (after deducting any negative net income) of such Subsidiary arising after the date such Subsidiary became a Subsidiary of the Borrower so long as such dividends are payable to all of its equity holders on a ratable basis." (o) Section 6.02(k) of the Credit Agreement is hereby amended by deleting the phrase "and (ii)" appearing in the fourth line of such Section and replacing it with the following: ", (ii) CBI or CBI Acquisition Subsidiary may repay outstanding CBI Shareholder/Investor Loans as required by Section 6.01(m) and, with respect to the promissory note issued by CBI Acquisition Subsidiary to Giant Group, Ltd., as may be required by Section 2 of such promissory note on or after November 30, 1996, and (iii)" (p) Section 7.01(c) of the Credit Agreement is hereby amended by deleting the phrase "Section 6.01(e) or (f)," appearing in the second line of such Section and replacing it with the phrase "Section 6.01(e), (f) or (m),". (q) Section 9.01 of the Credit Agreement is hereby amended by deleting the phrase "Sections 2.05(b)(ii) and (iii)" appearing in the fifteenth and sixteenth lines thereof and replacing it with the phrase "Sections 2.05(b)(ii), (iii) and (v)". 5 6 SECTION 2. CONSENTS. Effective concurrently with the satisfaction of the conditions precedent set forth in Section 3 hereof and notwithstanding the provisions of Sections 6.02(f)(iv) and 6.02(f)(v)(G) of the Credit Agreement, the Lenders hereby consent to: (a) the consummation of the CBI Acquisition for an aggregate purchase price payable by the Borrower and its Subsidiaries (after deducting from such purchase price the equity contributions of, and CBI Shareholder/Investor Loans made by, Persons other than the Borrower and its Subsidiaries) not to exceed $25,000,000 (subject to adjustment as set forth in Section 2(c) the Stock Purchase Agreement dated August 27, 1996 between the Borrower and Casa Bonita Holdings, Inc. relating to the CBI Acquisition) but only if (i) such acquisition otherwise constitutes a Permitted Acquisition under, and is otherwise consummated in accordance with the terms of, the Credit Agreement (it being understood that upon such consummation such acquisition shall constitute a Permitted Acquisition under the Credit Agreement), (ii) the aggregate equity contribution by the Borrower and its Subsidiaries in connection with such acquisition does not exceed $16,000,000 and the Borrower and its Subsidiaries receive in exchange therefor not less than 80% of the Voting Stock of CBI Acquisition Subsidiary, and (iii) the financing for such acquisition is substantially as set forth in Step 1 of the CBI Acquisition Financing Flow Worksheet provided to the Agent with the Borrower's cover letter dated September 20, 1996 (and the Agent and each Lender, by its execution hereof, acknowledges that the terms and provisions (including those relating to subordination) of the CBI Shareholder/Investor Loans and of the guarantee of the Borrower relating thereto as set forth in the draft Stock Purchase and Loan Agreement among CBI Restaurants, Inc., the Borrower and Fidelity National Financial, Inc. and in the promissory note to be issued by CBI Restaurants, Inc. in favor of Giant Group, Ltd. and the guaranty of the Borrower relating to such promissory note, in each case as provided to the Lenders prior to the execution hereof, are acceptable to the Agent or such Lender, as the case may be); and (b) the consummation of the purchase of common stock of Rally's Hamburger's, Inc. in connection with its rights offering as contemplated prior to the date of the First Amendment for an aggregate purchase price not to exceed $2,500,000 (it being understood that upon such consummation such purchase shall constitute a Designated Investment under the Credit Agreement). SECTION 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective when: (a) the Agent has executed this Amendment and has received counterparts of this Amendment executed by the Borrower and the Required Lenders; and (b) the Agent has received counterparts of the Consent appended hereto (the "Consent") executed by each of the Guarantors (such Guarantors, together with the Borrower, each a "Loan Party" and, collectively, the "Loan Parties"). SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as follows: (a) AUTHORITY. The Borrower and each other Loan Party has the requisite corporate power and authority to execute and deliver this Amendment or the Consent, as applicable, and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Amendment and by each other Loan Party of the Consent, and the performance by each Loan Party of each Loan Document (as amended or modified hereby) to which it is a part have been duly approved by all necessary corporate action of such Loan Party and no other corporate proceedings on the part of 6 7 such Loan Party are necessary to consummate such transactions. (b) ENFORCEABILITY. This Amendment has been duly executed and delivered by the Borrower. The Consent has been duly executed and delivered by each Guarantor. This Amendment and each Loan Document (as amended or modified hereby) is the legal, valid and binding obligation of each Loan Party party hereto or thereto, enforceable against such Loan Party in accordance with its terms, and is in full force and effect. (c) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. (d) NO DEFAULT. No event has occurred and is continuing that constitutes a Default. SECTION 5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment or the Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. SECTION 7. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of California. [Signature Pages Follow] 7 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. CKE RESTAURANTS, INC. By:__________________________________ Title: NATIONSBANK OF TEXAS, N.A., as Agent By:__________________________________ Title: LENDERS: NATIONSBANK OF TEXAS, N.A. By:__________________________________ Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:__________________________________ Title: MELLON BANK, N.A. By:__________________________________ Title: S-1 9 SUMITOMO BANK OF CALIFORNIA, N.A. By:________________________________ Title: U. S. NATIONAL BANK OF OREGON By:________________________________ Title: WELLS FARGO BANK, N.A. By:________________________________ Title: S-2 10 CONSENT DATED AS OF SEPTEMBER 30, 1996 The undersigned, as Guarantors under the Guaranty (as such terms are defined in and under the Credit Agreement referred to in the foregoing First Amendment), each hereby consents and agrees to the said First Amendment and hereby confirms and agrees that the Guaranty is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after the date of, the said First Amendment, each reference in the Guaranty to the Credit Agreement, "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by the said First Amendment. CARL KARCHER ENTERPRISES, INC. By:__________________________________ Title: SUMMIT FAMILY RESTAURANTS INC. By:__________________________________ Title: HTB RESTAURANTS, INC. By:__________________________________ Title: BOSTON PACIFIC, INC. By:__________________________________ Title: EX-11 3 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 4, November 6, November 4, November 6, 1996 1995 1996 1995 ---------- --------- ---------- ---------- PRIMARY EARNINGS PER SHARE - -------------------------- Net income $ 5,588 $ 3,021 $16,113 $ 7,744 ======= ======= ======= ======= Weighted average number of common shares outstanding during the period 19,230 18,363 18,873 18,253 Incremental common shares attributable to exercise of outstanding options 593 298 495 156 ------- ------- ------- ------- Total shares 19,823 18,661 19,368 18,409 ======= ======= ======= ======= Primary earnings per share $ .28 $ .16 $ .83 $ .42 ======= ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE - -------------------------------- Net income $ 5,588 $ 3,021 $16,113 $ 7,744 ======= ======= ======= ======= Weighted average number of common shares outstanding during the period 19,230 18,363 18,873 18,253 Incremental common shares attributable to exercise of outstanding options 593 343 593 343 ------- ------- ------- ------- Total shares 19,823 18,706 19,466 18,596 ======= ======= ======= ======= Fully diluted earnings per share $ .28 $ .16 $ .83 $ .42 ======= ======= ======= =======
14 EX-27 4 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 NOVEMBER 4, 1996. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 4, 1996. 1,000 3-MOS JAN-27-1997 JAN-30-1996 NOV-04-1996 15,614 2,512 15,434 0 8,996 53,203 465,846 250,444 363,687 100,872 0 0 0 193 129,239 363,687 143,456 162,291 116,439 151,573 (1,299) 0 2,759 9,258 3,670 5,588 0 0 0 5,588 .28 .28
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