-----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, VSaeMkbYD0TU5DcnNDtBhDBGCCfwGr+37gadBGvjT1HyZcWRPGHrmU25zxSkKdt1 co1XlMuKt/8x6SBJpGu7wg== 0000892569-97-002622.txt : 19970925 0000892569-97-002622.hdr.sgml : 19970925 ACCESSION NUMBER: 0000892569-97-002622 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970811 FILED AS OF DATE: 19970924 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: SEC FILE NUMBER: 001-11313 FILM NUMBER: 97684876 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED AUGUST 11, 1997 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 11, 1997 ------------------------- 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 Incorporation or Organization) 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: 41,927,570 shares of Common Stock, par value $.01 per share, as of September 16, 1997 - -------------------------------------------------------------------------------- 2 CKE RESTAURANTS, INC. INDEX
Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements: Consolidated Balance Sheets as of August 11, 1997 and January 27, 1997.......... 2 Consolidated Statements of Income for the twelve and twenty-eight weeks ended August 11, 1997 and August 12, 1996................................... 3 Consolidated Statements of Cash Flows for the twenty-eight weeks ended August 11, 1997 and August 12, 1996......................................... 4-5 Notes to Consolidated Financial Statements...................................... 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 9-13 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders....................... 14 Item 6. Exhibits and Reports on Form 8-K..........................................14-15
1 3 PART 1. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
August 11, January 27, 1997 1997 ---------- ----------- ASSETS Current assets: Cash and cash equivalents $ 37,927 $ 46,330 Marketable securities 196 180 Accounts receivable 21,594 7,942 Related party receivables 1,264 2,088 Inventories 17,670 9,223 Deferred income taxes, net 7,214 7,214 Other current assets and prepaid expenses 11,699 7,220 -------- -------- Total current assets 97,564 80,197 Property and equipment, net 646,490 208,099 Property under capital leases, net 38,804 37,115 Long-term investments 47,246 33,268 Notes receivable 14,115 6,210 Related party receivables 7,185 9,325 Costs in excess of net assets acquired, net 52,953 25,560 Other assets 14,686 10,593 -------- -------- $919,043 $410,367 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 20,798 $ 735 Current portion of capital lease obligations 5,549 4,766 Accounts payable 60,560 41,515 Other current liabilities 89,416 36,108 -------- -------- Total current liabilities 176,323 83,124 -------- -------- Long-term debt 129,515 33,770 Capital lease obligations 50,947 48,141 Other long-term liabilities 103,571 30,528 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 41,850,606 and 33,218,751 shares 419 332 Additional paid-in capital 350,279 126,279 Retained earnings 107,989 88,193 -------- -------- Total stockholders' equity 458,687 214,804 -------- -------- $919,043 $410,367 ======== ========
See Accompanying Notes to Consolidated Financial Statements. 2 4 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited)
Twelve Weeks Ended Twenty-eight Weeks Ended ------------------------ -------------------------- August 11, August 12, August 11, August 12, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Revenues: Company-operated restaurants: Carl's Jr $ 112,953 $ 103,928 $ 257,780 $ 233,438 Hardee's 53,898 -- 53,898 -- Taco Bueno 17,690 -- 40,078 -- JB's Restaurants 15,166 2,531 35,856 2,531 HomeTown Buffet 9,082 1,480 22,252 1,480 Other 8,088 2,425 17,916 2,425 --------- --------- --------- --------- 216,877 110,364 427,780 239,874 --------- --------- --------- --------- Franchised and licensed restaurants: Carl's Jr 18,459 17,695 42,677 41,119 Hardee's 6,612 -- 6,612 -- JB's Restaurants 311 64 660 64 --------- --------- --------- --------- 25,382 17,759 49,949 41,183 --------- --------- --------- --------- Total revenues 242,259 128,123 477,729 281,057 --------- --------- --------- --------- Operating costs and expenses: Restaurant operations: Food and packaging 66,361 33,459 130,070 72,330 Payroll and other employee benefits 64,132 29,381 123,738 65,012 Occupancy and other operating expenses 44,765 22,197 87,951 48,736 --------- --------- --------- --------- 175,258 85,037 341,759 186,078 Franchised and licensed restaurants 18,960 16,979 41,456 39,155 Advertising expenses 12,719 6,652 24,857 15,107 General and administrative expenses 16,518 9,363 32,622 20,549 --------- --------- --------- --------- Total operating costs and expenses 223,455 118,031 440,694 260,889 --------- --------- --------- --------- Operating income 18,804 10,092 37,035 20,168 Interest expense (4,711) (2,149) (7,582) (4,744) Other income, net 3,497 576 5,802 1,850 --------- --------- --------- --------- Income before income taxes 17,590 8,519 35,255 17,274 Income tax expense 7,045 3,327 14,124 6,749 --------- --------- --------- --------- Net income $ 10,545 $ 5,192 $ 21,131 $ 10,525 ========= ========= ========= ========= Net income per common and common equivalent share $ .28 $ .18 $ .58 $ .37 ========= ========= ========= ========= Common and common equivalent shares used in computing per share amounts 37,940 28,997 36,218 28,830 ========= ========= ========= =========
See Accompanying Notes to Consolidated Financial Statements. 3 5 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Twenty-eight Weeks Ended ---------- ---------- August 11, August 12, 1997 1996 ---------- ---------- Net cash flow from operating activities: Net income $ 21,131 $ 10,525 Adjustments to reconcile net income to net cash provided by operating activities, excluding the effect of acquisitions: Depreciation and amortization 20,753 11,520 Loss on sale of property and equipment and capital leases 2,126 481 Write-down of long-lived assets -- 1,250 Net noncash investment and dividend income (1,899) (78) Deferred income taxes -- 582 (Gain) loss on noncurrent asset and liability transactions (481) 309 Net change in receivables, inventories and other current assets and prepaid expenses (2,623) (4,785) Net change in accounts payable and other current liabilities (176) 12,925 --------- -------- Net cash provided by operating activities 38,831 32,729 --------- -------- Cash flow from investing activities: Purchases of: Marketable securities (393) (760) Property and equipment (39,266) (19,694) Long-term investments (14,199) (4,130) Proceeds from sale of: Marketable securities and long-term investments 393 793 Property and equipment 36 3,254 Collections on leases receivable 87 91 Increase in notes receivable and related party receivables (382) (120) Collections on notes receivable and related party receivables 4,544 991 Net change in other assets 867 69 Acquisitions, net of cash acquired (323,878) (15,358) --------- -------- Net cash used in investing activities (372,191) (34,864) --------- -------- Cash flow from financing activities: Net proceeds from common stock offering 222,141 -- Net change in bank overdraft (2,671) 2,630 Short-term borrowings 5,000 1,200 Repayments of short-term debt -- (1,200) Long-term borrowings 129,389 20,000 Repayments of long-term debt (20,287) (27,049) Repayments of capital lease obligations (2,407) (1,623) Deferred financing costs (4,278) -- Net change in other long-term liabilities (2,541) (714) Payment of dividends (1,335) (743) Exercise of stock options 1,946 1,023 --------- -------- Net cash provided by (used in) financing activities 324,957 (6,476) --------- -------- Net decrease in cash and cash equivalents $ (8,403) $ (8,611) ========= ========
See Accompanying Notes to Consolidated Financial Statements. 4 6 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Twenty-eight Weeks Ended --------------------------- August 11, August 12, 1997 1996 --------- ---------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amounts capitalized) $ 5,135 $ 4,730 Income taxes 4,483 1,969 Noncash investing and financing activities: Investing activities: Sale of property and equipment -- 2,469 Increase in long-term investments -- (2,469) Stock issued in exchange for Summit Assets -- 11,412 Summit Acquisition: Tangible assets acquired at fair value $ -- $ 59,772 Cost in excess of net assets acquired -- -- Liabilities assumed at fair value -- (30,716) --------- -------- Total purchase price $ -- $ 29,056 ========= ======== Hardee's Acquisition: Tangible assets acquired at fair value $ 461,978 $ -- Cost in excess of net assets acquired 24,848 -- Liabilities assumed at fair value (159,826) -- --------- -------- Total purchase price $ 327,000 $ -- ========= ========
5 7 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AUGUST 11, 1997 AND AUGUST 12, 1996 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 1997 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 1997 consolidated financial statements to conform to the fiscal 1998 presentation. Share and per share information has been retroactively adjusted to reflect the three-for-two stock split which occurred in January 1997. NOTE (B) LONG-TERM INVESTMENT IN CHECKERS DRIVE-IN RESTAURANTS, INC. On February 19, 1997, the Company purchased 6,162,299 shares of Checkers Drive-In Restaurants, Inc. ("Checkers") common stock at $1.14 per share and 61,636 shares of Checkers Series A preferred stock at $114.00 per share for an aggregate purchase price of $14.1 million in connection with a private placement of Checkers' securities to the Company and other investors, including certain related parties. Registration rights with respect to the common stock will commence one year from the date of purchase. The shares of Series A preferred stock acquired by the Company were converted into 6,592,586 additional shares of Checkers common stock. Assuming full exercise of warrants to purchase 7,350,428 additional shares of Checkers common stock owned by the Company, the Company would beneficially own approximately 26.0% of Checkers' outstanding shares. NOTE (C) ACQUISITION OF HARDEE'S FOOD SYSTEMS, INC. On July 15, 1997, the Company acquired Hardee's Food Systems, Inc., the operator and franchisor of the Hardee's(R) quick-service hamburger restaurant concept ("Hardee's"). In connection with the acquisition, which was accounted for as a purchase, the Company acquired all of the issued and outstanding shares of Hardee's, for cash consideration of $327.0 million. The purchase price remains subject to adjustment to an amount to be agreed upon by the Company and Imasco Holdings, Inc. which represents the net asset value of Hardee's as of July 15, 1997. On July 15, 1997, the Company also (i) completed the sale of 8,337,500 shares of the Company's Common Stock to the public for net proceeds of $222.1 million, and (ii) entered into a new bank credit facility and incurred borrowings of $133.9 million thereunder (see Note (D)). The net proceeds of the public offering and such borrowings were primarily used to finance the acquisition of Hardee's. Selected unaudited pro forma combined results of operations for the 28-week periods ended August 11, 1997 and August 12, 1996, assuming the acquisition occurred on January 30, 1996, using actual restaurant-level margins and general and administrative expenses prior to the acquisition are presented as follows:
Twenty-eight Weeks Ended --------------------------- August 11, August 12, 1997 1996 -------- ---------- Total revenues $819,010 $680,004 Net income (loss) $ 25,102 $ (3,177) Net income (loss) per common and common equivalent share $ .58 $ (.09)
6 8 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AUGUST 11, 1997 AND AUGUST 12, 1996 (Continued) NOTE (D) LONG-TERM DEBT Effective July 15, 1997, the Company entered into a new bank credit facility (the "New Credit Facility"), which replaced the unsecured bank credit facility entered into by the Company in July 1996. The New Credit Facility consists of a $75.0 million term loan facility and a $225.0 million revolving credit facility (which includes a $40.0 million letter of credit subfacility). On July 15, 1997, the Company incurred $75.0 million of borrowings under the term loan facility and $58.9 million of borrowings under the revolving credit facility to finance a portion of the consideration required to acquire Hardee's. Principal repayments under the term loan facility are due in equal quarterly installments of $3.75 million, commencing on October 15, 1997 and continuing thereafter until the final maturity of the New Credit Facility in July 2002. Additional borrowings under the revolving credit facility may be used for working capital and other general corporate purposes, including permitted investments and acquisitions, and any outstanding amounts thereunder will become due in July 2002. The Company is required to repay borrowings under the New Credit Facility with the proceeds from certain asset sales (unless the net proceeds of such sales are reinvested in the Company's business), from the issuance of certain equity securities or from the issuance of additional indebtedness. Of the various options the Company has regarding interest rates, it has selected LIBOR plus a margin (1.375% initially), with margin adjustments dependent on certain financial ratios from time to time. Borrowings and other obligations of the Company under the New Credit Facility are general unsubordinated obligations of the Company and are secured by a pledge of the capital stock of certain of the Company's present and future subsidiaries, which subsidiaries have also guaranteed such borrowings and other obligations, and are also secured by certain franchise rights, accounts receivable, contract rights, general intangibles (including trademarks) and other assets of the Company and such subsidiaries. The New Credit Facility also contains a number of significant covenants that, among other things, (i) restrict the ability of the Company and its subsidiaries to incur additional indebtedness and incur liens on their assets, in each case subject to specified exceptions, (ii) impose specified financial tests as a precondition to the Company's and its subsidiaries' acquisition of other businesses and (iii) limit the Company and its subsidiaries from making capital expenditures and certain restricted payments (including dividends and repurchases of stock), subject in certain circumstances to specified financial tests. In addition, the Company is required by the New Credit Facility to comply with specified financial ratios and tests. NOTE (E) NEW ACCOUNTING PRONOUNCEMENTS In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), effective for fiscal years ending after December 15, 1997. SFAS 128 introduces and requires the presentation of "basic" earnings per share which represents net earnings divided by the weighted average shares outstanding excluding all common stock equivalents. Dual presentation of "diluted" earnings per share, reflecting the dilutive effects of all common stock equivalents, will also be required. The diluted presentation is similar to the current presentation of fully diluted earnings per share. Management has not determined whether the adoption of SFAS 128 will have a material impact on the Company's combined financial position or results of operations. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS 130 requires all items that are required to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period covered by that financial statement. SFAS 130 requires an enterprise to (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Management has not determined whether the adoption of SFAS 130 will have a material impact on the Company's combined financial position or results of operations. 7 9 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AUGUST 11, 1997 AND AUGUST 12, 1996 (Continued) In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special disclosure requirements for previously unconsolidated subsidiaries. SFAS 131 requires, among other items, that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets, information about the revenues derived from the enterprise's products or services, and major customers. SFAS 131 also requires that the enterprise report descriptive information about the way that the operating segments were determined and the products and services provided by the operating segments. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. SFAS 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Management has not determined whether the adoption of SFAS 131 will have a material impact on the Company's segment reporting. 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 12-week period ended August 11, 1997 increased 103.1% to $10.5 million, or $0.28 per share as compared with net income of $5.2 million, or $0.18 per share for the prior year quarter. Net income for the 28-week period ended August 11, 1997, increased 100.8% to $21.1 million, or $0.58 per share as compared with net income of $10.5 million, or $0.37 per share for the comparable prior year period. These positive results were primarily due to continued 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-operated Carl's Jr. restaurants, and the additional operations of the Company's recently acquired subsidiaries, all of which were profitable during the second quarter of fiscal 1998. The Company is continuing with the conversion of certain of its existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants, pursuant to an amended agreement with GB Foods Corporation. As of August 11, 1997, there were 82 Company-operated and 10 franchised Carl's Jr./Green Burrito dual-brand restaurants operating. Post-conversion revenues in the second quarter of fiscal 1998 for the 38 Company-operated Carl's Jr./Green Burrito dual-brand restaurants were approximately 23.5% higher than pre-conversion same-store sales in the comparable prior year period. As part of the Company's chain-wide Carl's Jr. restaurant remodeling program, over 300 remodels have been completed as of the end of the second quarter, representing over 70% of the Company-operated Carl's Jr. restaurants. The Company expects to have substantially all Company-operated Carl's Jr. units remodeled by December 1997. During the 12 weeks ended August 11, 1997, the Company acquired all of the issued and outstanding shares of Hardee's Food Systems, Inc., the operator and franchisor of the Hardee's(R) quick-service hamburger restaurant concept. See Notes (C) and (D) of Notes to the Company's consolidated financial statements as of and for the periods ended August 11, 1997. As of July 15, 1997, the Hardee's system included 3,119 restaurants of which 782 were operated by Hardee's and 2,337 were operated by Hardee's franchisees and licensees. In order to facilitate the integration of Hardee's, the Company named Rory J. Murphy, formerly Executive Vice President, Restaurant Operations of the Company, as President and Chief Operating Officer of Hardee's. The Company's results of operations as of and for the 12 weeks ended August 11, 1997 include the results of operations of the acquired Hardee's restaurants and franchise operations for four weeks and the effects of the related financing transactions, including the issuance of 8,337,500 shares of Common Stock in a public offering and a significant increase in long-term indebtedness. 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; changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; changes in prevailing interest rates and the availability of financing; food, labor, and employee benefit costs; changes in, or the failure to comply with, government regulations; weather conditions; construction schedules; demands placed on management and capital resources by the substantial increase in the size of the Company resulting from the acquisition of Hardee's; changes in the Company's integration plans for Hardee's and its expansion plans; and risks that sales growth resulting for 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 $106.5 million or 96.5% and $187.9 million or 78.3% for the 12- and 28-week periods ended August 11, 1997 to $216.9 million and $427.8 million, respectively. Carl's Jr. revenues for the 12- and 28-week periods accounted for sales increases of $9.0 million and $24.3 million, respectively. Also 9 11 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) contributing to the overall increase were the operations of Summit and Rally's which were added in the second quarter of fiscal 1997. Revenues from Company-operated restaurants for these two operations increased $21.3 million and $1.0 million for the 12-week period ended August 11, 1997, respectively, and $56.9 million and $5.5 million for the 28-week period ended August 11, 1997, respectively. Additionally, Hardee's Company-operated restaurants added another $53.9 million to revenues and Casa Bonita Incorporated contributed $21.3 million and $47.3 million for the 12- and 28-week periods ended August 11, 1997, respectively. 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 4% in the 12-week period ended August 11, 1997 on top of an 10% increase in the second quarter of fiscal 1997. Per store averages in Company-operated Carl's Jr. restaurants continue to increase and reached $1,140,300 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 continuation of its conversion of existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants, the continued focus on promoting great tasting new and existing food products through increased innovative advertising, and the image enhancement of its restaurants through a chain-wide remodeling program. Higher average sales and transaction counts per restaurant and an increase in the number of Company-operated restaurants operating in the current year 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 28-week periods ended August 11, 1997 increased 42.9% to $25.4 million and 21.3% to $49.9 million, respectively, over the same prior year periods. The increase is due to the royalties earned by Hardee's franchise system and to increased royalties from, and food purchases by, franchisees of Carl's Jr. 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. Restaurant-level margins of the Company's consolidated restaurant operations decreased in the 12- and 28-week periods ended August 11, 1997 by 3.8% and 2.3%, respectively, as compared with the prior year periods, primarily reflecting the impact of higher operating costs at Summit's family-style restaurant concepts, which were acquired in the latter half of the second quarter of fiscal 1997, and at the Hardee's quick-service hamburger restaurants, which were acquired in the current quarter. The family-style segment of the restaurant industry typically has lower margins than the quick-service segment of the industry, mainly due to increased labor and food costs. With only four weeks of operations included in the Company's second quarter results, Hardee's is beginning to see improvements in its restaurant-level margins, which are generally lower than the Company's other quick-service restaurant concepts. The Company anticipates improving Hardee's margins through many of the same cost saving measures it has implemented at its Carl's Jr. restaurants over the past three to four years. While the Company's consolidated restaurant-level margins decreased during the first two quarters of fiscal 1998, restaurant-level margins for the Company's Carl's Jr. restaurants chain continued to increase, reaching 24.6% and 24.2% for the 12- and 28-week periods ended August 11, 1997, respectively. 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 increased purchasing efficiencies for food and paper, improving labor productivity and reducing workers' compensation costs. As a percentage of revenues from Company-operated Carl's Jr. restaurants, food and paper have decreased 0.4% to 29.7%, and 0.3% to 29.8%, respectively, for the 12- and 28-week periods ended August 11, 1997 as compared with the same periods a year ago, despite increased pressure from commodity prices and a change in the product mix as a result of the promotion of larger, more expensive sandwiches. As a percentage of revenues from Company-operated Carl's Jr. restaurants, payroll and other employee benefits have decreased 0.8% to 25.3%, and 1.2% to 25.7%, respectively, for the 12- and 28-week periods ended August 11, 1997 as compared with the same periods a year ago, notwithstanding the October 1, 1996 increase in the federal minimum wage and the additional March 1997 increase in California state minimum wage level. Occupancy and other operating expenses as a percentage of revenues from Company-operated restaurants have increased 0.6% to 20.4% and 0.1% to 20.3%, respectively, for the 12- and 28-week periods as compared with the same periods in the prior year, mainly due to increased equipment costs as the Company implements updated data technology at its restaurants. 10 12 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws. 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 became effective in September 1997. Moreover, as a result of recent legislation in California, the California state minimum wage was increased effective 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 increased 11.7% and 5.9% for the 12- and 28-week periods ended August 11, 1997, respectively, over the same periods of the prior year. The increase is primarily due to additional costs from Hardee's franchise operations. As a percentage of franchised and licensed revenues, these costs have decreased 20.9% and 12.1% for the 12- and 28-week periods ended August 11, 1997, respectively, over the same prior year periods. Hardee's earns the majority of its income from franchised and licensed restaurants through royalties, whereas Carl's Jr. earns the majority of its income from food purchases by franchisees. As a result, the cost structure associated with Hardee's revenue from franchised and licensed restaurants is significantly lower than that associated with Carl's Jr. franchise operations. Advertising expenses increased $6.1 million and $9.8 million for the 12- and 28-week periods ended August 11, 1997, 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 dollars spent in fiscal 1998 as compared with fiscal 1997 while remaining relatively consistent as a percentage of Company-operated revenues. The Company has seen positive same-store sales growth in its Carl's Jr. restaurants in each subsequent quarter since the Company began its innovative advertising campaign in May 1995. General and administrative expenses increased $7.2 million and $12.1 million to $16.5 million and $32.6 million, respectively, for the 12- and 28-week periods ended August 11, 1997 over the comparable prior year periods. However, as a percentage of total revenues, these expenses decreased 0.5% as compared with the same prior year periods, reflecting the economies of scale the Company is realizing by absorbing certain costs from acquired businesses into the Company's existing infrastructure. The increase in general and administrative expenses in the 12-and 28-week periods ended August 11, 1997 is primarily the result of adding the expenses associated with support of the operations of the newly acquired concepts, recording incentive compensation accruals for regional restaurant management and selected corporate employees as a result of improved restaurant operating performance, and increased goodwill amortization expense. Interest expense for the 12- and 28-week periods ended August 11, 1997 increased $2.6 million and $2.8 million, respectively, as compared with the prior year periods, primarily as a result of additional borrowings required to complete the acquisition of Hardee's and the write-off of certain loan fees associated with the termination or repayment of certain of the Company's previous credit agreements. Other income, net, is primarily comprised of investment income, interest on notes and leases receivable, gains and losses on sales of restaurants, income and loss on long-term investments, and other non-recurring income. Other income, net, increased $2.9 million and $4.0 million, respectively, from the 12- and 28-week periods ended August 12, 1996, generally from interest income earned on the Company's note receivable from Checkers and amortization of the related discount in addition to dividend and lease income recorded from the Company's long-term investment in Boston West, L.L.C. FINANCIAL CONDITION For the 28-week period ended August 11, 1997, the Company generated cash flows from operating activities of $38.8 million, compared with $32.7 million for the same period of the prior year. This increase was primarily due to increased sales levels from the newly acquired concepts and increased operating margins in the Company's Carl's Jr. restaurants. Cash and cash equivalents in the current period 11 13 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) decreased $8.4 million from January 27, 1997, as the Company used cash flows from operations to fund capital additions of approximately $39.3 million, to fund the Company's long-term investment in Checkers of $14.1 million, to pay dividends to its stockholders of approximately $1.3 million, and to reduce the Company's bank overdraft by $2.7 million. The increase in new long-term and short-term borrowings of $129.4 million and $5.0 million, respectively, combined with the net proceeds from the common stock offering of $222.1 million were primarily used to fund the acquisition of Hardee's for $320.6 million (net of cash acquired) and to replace existing long-term debt of $20.0 million. The decrease in cash and cash equivalents was partially offset by cash generated from collections on notes receivable and related party receivables of approximately $4.5 million and the exercise of stock options which generated approximately $1.9 million. Total cash and cash equivalents available to the Company as of August 11, 1997 was $37.9 million. Effective July 15, 1997, the Company entered into a new bank credit facility (the "New Credit Facility"), which replaced the unsecured bank credit facility entered into by the Company in July 1996. The New Credit Facility consists of a $75.0 million term loan facility and a $225.0 million revolving credit facility (which includes a $40.0 million letter of credit subfacility). On July 15, 1997, the Company incurred $75.0 million of borrowings under the term loan facility and $58.9 million of borrowings under the revolving credit facility to finance a portion of the consideration required to acquire Hardee's. Principal repayments under the term loan facility are due in equal quarterly installments of $3.75 million, commencing on October 15, 1997 and continuing thereunder until the final maturity of the New Credit Facility in July 2002. Additional borrowings under the revolving credit facility may be used for working capital and other general corporate purposes, including permitted investments and acquisitions, and any outstanding amounts thereunder will become due in July 2002. The Company is required to repay borrowings under the New Credit Facility with the proceeds from certain asset sales (unless the net proceeds of such sales are reinvested in the Company's business), from the issuance of certain equity securities or from the issuance of additional indebtedness. Of the various options the Company has regarding interest rates, it has selected LIBOR plus a margin (1.375% initially), with margin adjustments dependent on certain financial ratios from time to time. Borrowings and other obligations of the Company under the New Credit Facility are general unsubordinated obligations of the Company and are secured by a pledge of the capital stock of certain of the Company's present and future subsidiaries, which subsidiaries have also guaranteed such borrowings and other obligations, and are also secured by certain franchise rights, accounts receivable, contract rights, general intangibles (including trademarks) and other assets of the Company and such subsidiaries. The New Credit Facility also contains a number of significant covenants that, among other things, (i) restrict the ability of the Company and its subsidiaries to incur additional indebtedness and incur liens on their assets, in each case subject to specified exceptions, (ii) impose specified financial tests as a precondition to the Company's and its subsidiaries' acquisition of other businesses and (iii) limit the Company and its subsidiaries from making capital expenditures and certain restricted payments (including dividends and repurchases of stock), subject in certain circumstances to specified financial tests. In addition, the Company is required by the New Credit Facility to comply with specified financial ratios and tests. The Company's primary source of liquidity is its revenues from Company-operated restaurants, which are generated in cash and which are usually received well before related accounts payable for food, beverages and supplies become due. Future capital needs will arise primarily for the acquisition or construction of new restaurants, the remodeling of existing restaurants, the conversion of certain restaurants to the Carl's Jr./Green Burrito dual-brand concept and capital expenditures to be incurred in connection with the Company's integration of Hardee's. The Company plans to open up to 33 new Company-operated Carl's Jr. restaurants and 22 franchised Carl's Jr. restaurants and up to four new Taco Bueno restaurants in fiscal 1998. The Company also expects to continue with its schedule to remodel substantially all of the remaining Company-operated Carl's Jr. restaurants, and to convert up to 60 Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants each year during the extended term of the Company's agreement with GB Foods Corporation. 12 14 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company believes that cash generated from its various restaurants operations, along with cash and cash equivalents on hand as of August 11, 1997 and amounts available under the New Credit Facility, will provide the Company with the funds necessary to meet all of its 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 debt securities could result in additional dilution to the Company's stockholders. 13 15 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 18, 1997, for the purpose of electing certain members of the board of directors. Management's nominees for directors were elected by the following vote:
Shares Voted Authority To Vote "FOR" "WITHHELD" ------------ ----------------- William P. Foley II 30,294,591 103,046 Carl N. Karcher 30,281,241 116,396 W. Howard Lester 30,016,087 381,550
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: 10.46 Employment agreement dated July 15, 1997, by and between Hardee's Food Systems, Inc. and Rory J. Murphy. 11 Calculation of Earnings per Share. 27 Financial Data Schedule (included in electronic filing only). (b) Current Reports on Form 8-K: A Current Report on Form 8-K dated July 15, 1997 was filed during the second quarter of the fiscal year to report the Company's acquisition of Hardee's. 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. Date: September 24, 1997 By: /s/ Carl A. Strunk ------------------------------------- Executive Vice President, and Chief Financial Officer 14 16 EXHIBIT INDEX Exhibit Number Description ------- ----------- 10.46 Employment agreement dated July 15, 1997, by and between Hardee's Food Systems, Inc. and Rory J. Murphy. 11 Calculation of Earnings per Share. 27 Financial Data Schedule (included in electronic filing only). EX-10.46 2 EMPLOYMENT AGREEMENT BETWEEN HARDEE'S/R.J. MURPHY 1 EMPLOYMENT AGREEMENT HARDEE'S FOOD SYSTEMS, INC. AGREEMENT, this 15th day of July, 1997 by and between HARDEE'S FOOD SYSTEMS, INC., a North Carolina corporation (the "Company") at 1233 Hardee's Boulevard, P.O. Box 1619, Rocky Mount, North Carolina 97802-1619, and RORY J. MURPHY (the "Executive") presently residing at 18772 Ridegwood Lane, Villa Park, California 92861. WITNESSETH: WHEREAS, CKE Restaurants, Inc. ("CKE") is purchasing the Company from its current owner; and WHEREAS, upon the consummation of such purchase, the Company desires to employ the Executive and the Executive desires to be employed to provide his services to the Company, all on the terms and subject to the conditions, as hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT. The Company agrees to employ the Executive as its President and Chief Operating Officer during the Employment Term (as defined in paragraph 3) and the Executive hereby accepts such employment and agrees to serve the Company subject to the general supervision, advice and direction of the Chief Executive Officer upon the terms and conditions set forth in this Agreement. 2. DUTIES. During the Employment Term, the Executive shall perform such services and duties as would normally be ascribed to a person with the position of President and Chief Operating Officer. The Executive shall devote the Executive's full time and best efforts to the business affairs of the Company; however, with the approval of the Board of Directors, the Executive may devote reasonable time and attention to: a. serving as a director or member of a committee of any not-for-profit organization or engaging in other charitable or community activities; b. serving as a director of a corporation or as a member of a committee of an organization; provided that the Executive agrees to be bound by the conflict of interests policy of the Company and may not accept employment or any engagement with any other individual or other entity, or engage in any other venture which is in conflict with the business of the Company. 3. EMPLOYMENT TERM. The Executive shall be employed under this Agreement for a period of two (2) years from the date of this Agreement (the "Employment Term"), unless sooner terminated as provided in paragraphs 6, 7, 8, 9 or 10. 2 4. COMPENSATION. a. Base Compensation. During the Employment Term, the Company will pay the Executive an annual base salary as compensation for his services hereunder of $425,000 for year one and $450,000 for year two (the "Base Salary"), payable in equal installments not less often than once in each calendar month. b. Bonus. As additional compensation to Executive, Company shall pay a bonus in year one and year two of the agreement based on the following criteria: i. Year One Only (1) Fifty percent (50%) of Executive's bonus (a maximum of $250,000) shall be based upon up to a 5% reduction in direct cost of sales on a same store comparison basis (expressed as a percentage of sales) (which includes food, paper, total labor and management, benefits, payroll taxes and workers' compensation), for the twelve months ending on the first anniversary of this Agreement, as compared to the direct cost of sales on a same store comparison basis (expressed as a percentage of sales) for the prior twelve month period. This portion of the bonus shall be calculated as follows: 1% reduction = $50,000 bonus 2% reduction = $100,000 bonus 3% reduction = $150,000 bonus 4% reduction = $200,000 bonus 5% reduction = $250,000 bonus (2) Fifty percent (50%) of Executive's bonus or an amount up to $250,000 shall be based upon a reduction in Corporate and Regional General and Administrative expense ("G and A costs") in the first year of the Agreement and will be payable as follows: Base FY '96 $79.6 Million (a) G&A at $49.5 million -- 1/3rd of $250,000 or $83,333 will be paid. (b) G&A at $48.5 million -- 2/3rds of $250,000 or $166,666 in bonus will be paid. (c) G&A at $47.5 million -- $250,000 bonus paid. 2 3 ii Year Two Only. (1) Executive shall receive $23,333 for each point by which CKE stock exceeds $25 per share based upon the average closing price on the New York Stock Exchange of such stock for the ten (10) business days prior to the second anniversary date of this Agreement. Such bonus shall be payable to a maximum amount of $350,000 (i.e., up to $40 per share). Any fractional amounts shall be divided into $23,333 and added to Executive's bonus. For example, if CKE's average closing price for the 10 business days prior to the second anniversary of this Agreement is $30.25, Executive's bonus shall be $122,498.25 ($30.25 - 25.00 = $5.25 x $23,333 = $122,498.25). If CKE's average closing price for the 10 business days prior to the second anniversary of this Agreement is $40.00, Executive's bonus shall be $350,000 (15 ((maximum amount)) x $23,333 = $350,000). (2) Executive shall receive up to $250,000 in bonus based upon an additional 3% reduction (that is a total reduction of 5% for Year One plus 3% for Year Two) in direct costs of sales on a same store comparison basis (expressed as a percentage of sales) for the twelve months ending on the second anniversary of this Agreement as compared to the direct cost of sales on a same store comparison basis (expressed as a percentage of sales) for the first year of this Agreement. Second year bonus will be paid if two year combined improvement from FY '96 base number is over 8% -- from 72.7 to 64.7. If in year two of the Agreement the reduction in direct costs of sales is 2% Executive shall receive $166,666 in bonus. If in year two the reduction in direct cost of sales is 1% Executive shall receive $83,333 in bonus. (3) Vacation. During each year of the Employment Term, the Executive shall be entitled to take paid vacation time for such length of time as determined by the Chief Executive Officer consistent with vacation time taken by other executives of CKE. (4) Benefits. During the Employment Term, the Executive shall be entitled to participate in all pension, profit sharing and other retirement plans, all incentive compensation plans and all group health, hospitalization and disability insurance plans and other employee welfare benefit plans in which other executives of the Company participate which benefits shall be comparable to those currently offered by CKE. (5) Medical Examination. Executive agrees to submit, at any time requested by the Company, to a medical examination by a physician selected by the company. The cost of said examination shall be borne by the Company. (6) Personal Travel Expenses. Executive will be reimbursed for up to $25,000 in travel expenses actually incurred for his immediate family to travel to and from North Carolina in each of years one and two of this Agreement (total potential reimbursement at $50,000). In the event that Executive relocates to North Carolina at any time during this Agreement the family travel reimbursement shall cease and the move will be covered by the CKE relocation policy. 3 4 5. REIMBURSEMENT OF EXPENSES INCURRED IN PERFORMANCE OF EMPLOYMENT. In addition to the compensation provided for under paragraph 4 hereof, upon submission of proper vouchers, the Company shall pay or reimburse the Executive for all normal and reasonable expenses, including travel expenses, incurred by the Executive prior to the termination of the Employment Term in connection with the Executive's responsibilities to the Company. 6. TERMINATION FOR CAUSE. The Company may dismiss Executive for good and valid cause and shall then and thereafter be relieved of its obligations hereunder. In such event Executive shall not receive any severance pay or pro-rata portion of any bonus compensation otherwise payable pursuant to paragraph 4 hereof. As used herein, "good and valid cause" shall mean a breach of material duty by Executive in the course of his employment, the habitual neglect of his duties, or the commission by Executive of any act of a fraudulent or criminal nature (excluding minor traffic violations or other infractions of a non-serious nature). 7. TERMINATION WITHOUT CAUSE BY THE COMPANY. If Executive is terminated for reasons other than cause as defined in paragraph 6 hereof, the Company will pay Executive, not later than 30 days after such termination, in a lump sum, his Base Salary for the remaining term of this Agreement, but not less than for a six month period, together with all accrued but unpaid compensation and benefits pursuant to paragraph 4 hereof including prorated bonus (if any), through the date of the Executive's termination. The date of termination of employment by the Company under paragraphs 6 and 7 shall be the date specified in a written notice of termination by the Chairman of the Board. 8. RESIGNATION. In the event, at any time during the term of this Agreement, Executive resigns for reasons other than as specified in paragraph 9, Company shall then and thereafter be relieved from its obligations hereunder including no prorated bonus. 9. CHANGE OF CONTROL. In the event, at any time during the term of this Agreement, CKE or Hardee's is acquired by or merged with another corporation or entity (or a subsidiary thereof) such that the direction or control of the CKE or Hardee's is acquired, or all or substantially all of the assets of CKE or Hardee's are acquired in a transaction or series of transactions, by an individual, entity or group of individuals or entities acting together that had no such direction or control prior to such acquisition or merger and in anticipation of that acquisition or after it is completed, the Executive is terminated for other than cause or Executive resigns within ninety days after such change in control, then the Executive shall be entitled to receive in a lump sum payment all amounts provided for by paragraph 4(a) above, plus all other compensation and all benefits that would have been payable or available to Executive in the event of a termination under Section 7 of this Agreement. For purposes of this Section 9, a merger, consolidation, or other transaction involving Hardee's on the one hand, and CKE or as an affiliate of CKE on the other, shall not constitute a change in control. 4 5 10. DISABILITY OR DEATH. a. Disability of the Executive. If Executive for any reason whatsoever becomes permanently disabled so that the Executive is unable to perform the duties described in paragraph 2 herein, the Company agrees to pay Executive fifty percent (50%) of Executive's monthly Base Salary payable in the same manner as provided for the payment of salary herein for the remainder of the Employment Term provided for herein. No prorated bonus shall be paid. "Permanent Disability" shall mean the Executive is unable to perform the duties contemplated by this Agreement by reason of a physical or mental disability or infirmity which has continued for more than 90 consecutive calendar days. Executive agrees to submit such medical evidence regarding such disability or infirmity as may be requested by the Company. b. Death of Executive. Upon the death of the Executive for any reason whatsoever, Executive's outstanding CKE options will immediately vest in full and be exercisable for a period of 90 days from Executive's death. The Company shall then and thereafter be released from any other obligations hereunder. 11. PROTECTED INFORMATION; PROHIBITED SOLICITATION. a. The Executive hereby recognizes and acknowledges that during the course of his employment by the Company, the Company has disclosed and will furnish, disclose or make available to the Executive confidential or proprietary information related to the Company's business, including, without limitation, customer lists, ideas, processes, inventions and devices, that such confidential or proprietary information has been developed and will be developed through the expenditure by the Company of substantial time and money and that all such confidential information shall constitute trade secrets, and further agrees to use such confidential proprietary information only for the purpose of carrying out his duties with the Company and not otherwise to disclose such information. No information otherwise in the public domain shall be considered confidential. b. The Executive hereby agrees, in consideration of his employment hereunder and in view of the confidential position to be held by the Executive hereunder, that during the Employment Term and for the period ending on the date which is one (1) year after the later of (A) the termination of the Employment Term and (B) the date on which the Company is no longer required to provide the payments and benefits described in paragraph 4, the Executive shall not, without the written consent of the Company, knowingly solicit, entice or persuade any other employees of the Company or any affiliate of the Company to leave the services of the Company or such affiliate for any reason. c. So long as the Executive is employed by the Company and so long as the restrictions of this paragraph 11 apply, prior to accepting any engagement to act as an employee, officer, director, trustee, principal, agent or representative of any type of business or service (other than as an employee of the Company), the Executive shall (A) disclose such engagement 5 6 in writing to the Company, and (B) disclose to the other entity to which he has agreed to act as an employee, officer, director, trustee, agent or representative, or to other principals together with whom he proposes to act as a principal in such business or service, the existence of the covenants set forth in this paragraph 11 and the provisions of paragraph 12 hereof. d. The restrictions of this paragraph 11 shall survive the termination of this Agreement and shall be in addition to any restrictions imposed upon the Executive by statute or at common law. 12. INJUNCTIVE RELIEF. The Executive hereby expressly acknowledges that any breach or threatened breach by the Executive of any of the terms set forth in paragraph 11 of this Agreement may result in significant and continuing injury to the Company, the monetary value of which would be impossible to establish. Therefore, the Executive agrees that the Company shall be entitled to apply for injunctive relief in a court of appropriate jurisdiction. The provisions of this paragraph 12 shall survive the Employment Term. 13. PARTIES BENEFITED: ASSIGNMENTS. This Agreement shall be binding upon the Executive, the heirs and personal representative or representatives of the Executive and upon the Company and its successors and assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned by the Executive. 14. NOTICES. Any notice required or permitted by this Agreement shall be in writing, sent by personal delivery or be registered or certified mail, return receipt requested, addressed to the Chief Executive Officer of the Company at the Company's then principal office with a copy to its General Counsel, or to the Executive at the address set forth in the preamble, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose of a notice given to the other parties in compliance with this paragraph 14. Notice shall be deemed given when received. 15. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina without regard to conflict of law principles. 16. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES. The Company will indemnify the Executive to the fullest extent permitted by the laws of the State of North Carolina, as in effect at the time of the subject act or omission, and the Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers insuring against all costs, charges and expenses whatsoever incurred or sustained by the Executive in connection with any action, suit or proceedings to which the Executive may be made a party by reason of being or having been an officer or 6 7 employee of the Company or any of its subsidiaries or serving or having served any other enterprises at the request of the Company (other than any dispute, claim or controversy described in paragraph 11 of this Agreement except, that the Executive shall be entitled to reimbursement of reasonable attorneys' fees and expenses if the Executive is the prevailing party). 17. OPTIONS. Executive shall receive a grant of an option to purchase 200,000 shares of CKE stock under the appropriate CKE Stock Option Plan. Such options shall vest 1/3 immediately on the Effective Date of this agreement, 1/3 on the first anniversary of this Agreement, and 1/3 on the second anniversary of this Agreement. Vesting of such options shall accelerate to the date of termination pursuant to paragraph 7, and Executive shall have ninety (90) days after such termination within which to exercise the options. In the event of a change of control pursuant to paragraph 9, Executive shall have the right to cause the immediate acceleration of all of his options. In the event of any conflict or inconsistency between the Plan (and any agreements thereunder) and this Agreement, this Agreement shall control. 18. SOURCE OF PAYMENTS. All payments provided under this Agreement, shall be paid in cash from the general funds of the Company and no special or separate fund shall be established and no other segregation of assets made to assure payment. To the extent that any person acquired a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. 19. MISCELLANEOUS. This Agreement contains or refers to the entire agreement of the parties relating to the subject matter hereof. The Agreement supersedes any prior written or oral agreements or understandings between the parties relating to the subject matter hereto including, but not limited to, the Prior Agreement. No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same of any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provision of this Agreement, or the application thereof to any person or circumstance, shall for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. The compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive's estate or legal representative. 7 8 The headings in this Agreement are inserted for convenience of reference only and shall not be part or control or affect the meaning of any provision hereof. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written. HARDEE'S FOOD SYSTEMS, INC. By: /s/ C. THOMAS THOMPSON -------------------------------- Its: ______________________________ CKE RESTAURANTS, INC. By: /s/ C. THOMAS THOMPSON -------------------------------- Its: ______________________________ EXECUTIVE /s/ RORY J. MURPHY ----------------------------------- RORY J. MURPHY 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 Twenty-eight Weeks Ended ------------------------ ------------------------ August 11, August 12, August 11, August 12, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- PRIMARY EARNINGS PER SHARE Net income $10,545 $ 5,192 $21,131 $10,525 ======= ======= ======= ======= Weighted average number of common shares outstanding during the period 36,762 28,226 35,040 28,041 Incremental common shares attributable to exercise of outstanding options 1,107 771 996 669 ------- ------- ------- ------- Total shares 37,869 28,997 36,036 28,710 ======= ======= ======= ======= Primary earnings per share $ .28 $ .18 $ .59 $ .37 ======= ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE Net income $10,545 $ 5,192 $21,131 $10,525 ======= ======= ======= ======= Weighted average number of common shares outstanding during the period 36,762 28,226 35,040 28,041 Incremental common shares attributable to exercise of outstanding options 1,178 771 1,178 789 ------- ------- ------- ------- Total shares 37,940 28,997 36,218 28,830 ======= ======= ======= ======= Fully diluted earnings per share $ .28 $ .18 $ .58 $ .37 ======= ======= ======= =======
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 AUGUST 11, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 11, 1997. 1,000 6-MOS JAN-26-1998 JAN-28-1997 AUG-11-1997 37,927 196 44,158 0 17,670 97,564 896,065 249,575 919,043 176,323 0 0 0 419 458,268 919,043 216,877 242,259 175,258 223,455 (3,497) 0 4,711 17,590 7,045 10,545 0 0 0 10,545 .28 .28
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