<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934.
For the quarterly period ended August 12, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934.
for the transition period from to
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Commission file number 1-13192
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CKE RESTAURANTS, INC.
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(Exact name of registrant as specified in its charter)
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<CAPTION>
DELAWARE 33-0602639
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<S> <C>
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
1200 North Harbor Boulevard, Anaheim, CA 92801
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (714) 774-5796
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NOT APPLICABLE
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date:
$.01 par value common-19,258,919 shares as of September 17, 1996
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<PAGE> 2
CKE RESTAURANTS, INC.
INDEX
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Page
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Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of August 12, 1996 and January 29, 1996..... 2
Consolidated Statements of Income for the twelve and twenty-eight weeks
ended August 12, 1996 and August 14, 1995.............................. 3
Consolidated Statements of Cash Flows for the twenty-eight weeks ended
August 12, 1996 and August 14, 1995.................................... 4-5
Notes to Consolidated Financial Statements................................. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8-10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders................... 11
Item 6. Exhibits and Reports on Form 8-K...................................... 11-12
</TABLE>
1
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CKE RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
August 12, January 29,
1996 1996
---- ----
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ASSETS
Current assets:
Cash and cash equivalents $ 13,906 $ 23,429
Marketable securities 4,427 2,510
Accounts receivable 7,025 7,295
Related party receivables 1,360 977
Inventories 7,973 6,132
Deferred income taxes, net 15,088 10,056
Other current assets 7,193 5,656
-------- --------
Total current assets 56,972 56,055
Property and equipment, net 169,077 127,346
Property under capital leases, net 34,257 28,399
Long-term investments 26,041 19,814
Notes receivable 7,713 7,801
Related party notes receivable 715 969
Other assets 11,682 6,375
-------- --------
$306,457 $246,759
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,486 $ 8,575
Current portion of capital lease obligations 4,666 3,745
Accounts payable 22,611 15,824
Other current liabilities 48,488 31,756
-------- --------
Total current liabilities 79,251 59,900
-------- --------
Long-term debt 30,230 30,321
Capital lease obligations 48,171 40,233
Other long-term liabilities 25,279 15,116
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued or outstanding -- --
Common stock, $.01 par value; authorized
50,000,000 shares; issued and outstanding
19,831,469 and 19,200,141 shares 198 192
Additional paid-in capital 51,142 38,713
Retained earnings 77,295 67,393
Treasury stock, at cost; 670,300
shares and 670,300 shares (5,109) (5,109)
-------- --------
Total stockholders' equity 123,526 101,189
-------- --------
$306,457 $246,759
======== ========
</TABLE>
2
<PAGE> 4
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-eight Weeks Ended
------------------ ------------------------
August 12, August 14, August 12, August 14,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues:
Company-operated restaurants $110,364 $ 91,483 $239,874 $207,515
Franchised and licensed restaurants 17,759 16,557 41,183 38,150
-------- -------- -------- --------
Total revenues 128,123 108,040 281,057 245,665
-------- -------- -------- --------
Operating costs and expenses:
Restaurant operations:
Food and packaging 34,212 27,291 73,967 63,180
Payroll and other employee benefits 29,381 25,459 65,012 59,272
Occupancy and other operating expenses 22,197 19,197 48,736 44,255
-------- -------- -------- --------
85,790 71,947 187,715 166,707
Franchised and licensed restaurants 16,979 16,033 39,155 36,689
Advertising expenses 5,899 4,556 13,470 10,819
General and administrative expenses 9,363 8,950 20,549 19,632
-------- -------- -------- --------
Total operating costs and expenses 118,031 101,486 260,889 233,847
-------- -------- -------- --------
Operating income 10,092 6,554 20,168 11,818
Interest expense (2,149) (2,453) (4,744) (5,285)
Other income, net 576 497 1,850 1,204
-------- -------- -------- --------
Income before income taxes 8,519 4,598 17,274 7,737
Income tax expense 3,327 1,790 6,749 3,014
-------- -------- -------- --------
Net income $ 5,192 $ 2,808 $ 10,525 $ 4,723
======== ======== ======== ========
Net income per common and common
equivalent share $ .27 $ .15 $ .55 $ .26
======== ======== ======== ========
Common and common equivalent shares used
in computing per share amounts 19,331 18,455 19,220 18,441
======== ======== ======== ========
</TABLE>
3
<PAGE> 5
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
------------------------
August 12, August 14,
1996 1995
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<S> <C> <C>
Net cash flow from operating activities:
Net income $ 10,525 $ 4,723
Adjustments to reconcile net income to net
cash provided by operating activities,
excluding the effect of acquisitions:
Noncash franchise income (35) (242)
Depreciation and amortization 11,509 11,131
Loss on sale of property and equipment and capital leases 481 1,954
Reversal of rent subsidy reserves -- (327)
Write-off of accounts and notes receivable 47 --
Write-down of long-term investment -- 1,459
Net noncash investment and dividend income (95) (559)
Deferred income taxes 582 220
Noncash increase in reserves 297 --
Write-down of long-lived assets 1,250 --
Settlement of notes receivable -- (1,292)
Net change in receivables, inventories and other current assets (5,016) (608)
Net change in other assets (942) (266)
Net change in accounts payable and other current liabilities 12,481 (2,183)
-------- --------
Net cash provided by operating activities 31,084 14,010
-------- --------
Cash flow from investing activities:
Purchases of:
Marketable securities (760) --
Property and equipment (19,608) (16,932)
Long-term investments (4,114) (715)
Proceeds from sales of:
Marketable securities 793 879
Property and equipment 3,254 21
Collections on leases receivable 91 80
Increase in notes receivable and related party notes receivable (120) (70)
Collections on notes receivable and related party notes receivable 991 935
Acquisition of Summit, net of cash acquired (14,731) --
-------- --------
Net cash used in investing activities (34,204) (15,802)
-------- --------
Cash flow from financing activities:
Net change in bank overdraft 2,718 (11,265)
Short-term borrowings 1,200 38,460
Repayments of short-term debt (1,200) (33,910)
Long-term borrowings 20,000 9,175
Repayments of long-term debt (27,049) (4,529)
Repayments of capital lease obligations (1,623) (1,543)
Net change in other long-term liabilities (729) (939)
Purchase of treasury stock -- (551)
Payment of dividends (743) (727)
Exercise of stock options 1,023 746
-------- --------
Net cash used in financing activities (6,403) (5,083)
-------- --------
Net decrease in cash and cash equivalents $ (9,523) $ (6,875)
======== ========
</TABLE>
4
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CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
------------------------
August 12, August 14,
1996 1995
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<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 4,730 $ 5,382
Income taxes 1,969 1,611
Noncash investing and financing activities:
Investing activities:
Transfer of inventory, current assets and
property and equipment to other assets -- 20,877
Sale of property and equipment 2,469 --
Increase in long-term investments (2,469) --
Other investing activities:
Net change in dividends receivable (360) --
Stock issued in exchange for Summit Assets 11,412 --
Franchising and reorganization activities:
(Increase) decrease in property and equipment 1,904 (3,418)
Decrease in various liabilities (75) (296)
Decrease in notes receivable and accounts receivable 495 3,714
Increase in debt 1,451 --
Summit Acquisition:
Tangible assets acquired at fair value 59,908 --
Cost in excess of net assets acquired 2,268 --
Liabilities assumed at fair value (33,120) --
-------- -------
Total purchase price $ 29,056 $ --
======== =======
</TABLE>
5
<PAGE> 7
CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 12, 1996 AND AUGUST 14, 1995
NOTE (A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of CKE Restaurants, Inc. and its wholly-owned subsidiaries (the
"Company" or "CKE") and have been prepared in accordance with generally accepted
accounting principles, the instructions to Form 10-Q, and Article 10 of
Regulation S-X. These statements should be read in conjunction with the audited
consolidated financial statements presented in the Company's 1996 Annual Report
to Stockholders. In the opinion of management, all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of financial
position and results of operations for the interim periods presented have been
reflected herein. The results of operations for such interim periods are not
necessarily indicative of results to be expected for the full year or for any
other future periods. Certain reclassifications have been made to the fiscal
1996 consolidated financial statements to conform to the fiscal 1997
presentation.
NOTE (B) NEW ACCOUNTING PRONOUNCEMENT
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires the assessment of
certain long-lived assets for possible impairment when events or circumstances
indicate their carrying amounts may not be recoverable. The adoption of SFAS 121
resulted in a $1.3 million noncash pretax charge, equivalent to $0.04 per share,
to restaurant operations in the first quarter of fiscal 1997.
NOTE (C) LONG TERM DEBT
Effective August 12, 1996, the Company entered into a Credit Agreement (the
"Credit Agreement") with a group of financial institutions. In accordance with
the terms of the Credit Agreement, the Company borrowed the principal amount of
$20.0 million pursuant to a five-year, fully amortizing term loan, the proceeds
of which were primarily used to repay existing indebtedness of the Company.
The Credit Agreement also provides the Company with (i) a revolving credit
facility for working capital and other general corporate purposes, under the
terms of which the Company may borrow from time to time up to $30.0 million
(including a letter of credit subfacility of up to $20.0 million), and (ii) a
revolving credit facility for the purpose of financing investments in and
acquisitions of other entities, under the terms of which the Company may borrow
from time to time up to $25.0 million. The amounts advanced, if any, to the
Company under the revolving acquisition facility will convert after two years
into a three-year fully amortizing term loan. Both of the foregoing revolving
credit facilities will mature on July 31, 2001. The existing credit facility,
which this new facility replaces, would have expired on August 31, 1996.
The Credit Agreement also includes customary affirmative and negative
covenants which, among other things, restrict the Company's ability to (i) incur
or create liens on or with respect to its properties, (ii) incur additional
indebtedness, (iii) merge or consolidate with other entities, (iv) sell assets,
and (v) declare or pay dividends or repurchase shares of capital stock, subject
in each of the foregoing cases to certain exceptions. In addition, the Credit
Agreement requires the Company to maintain certain specified financial ratios
and operating results.
NOTE (D) ACQUISITIONS
On July 15, 1996, the Company completed its acquisition of Summit Family
Restaurants Inc. ("Summit"). Summit has restaurant operations in nine western
states, including 76 Company-operated and 24 franchised JB's Restaurants, 16
HomeTown Buffet restaurants and six Galaxy Diner restaurants.
6
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CKE RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 12, 1996 AND AUGUST 14, 1995
(Continued)
In connection with the acquisition, each of the 4,809,446 outstanding
shares of Summit common stock was converted into the right to receive 0.1043
shares of the Company's common stock (and cash in lieu of fractional shares) and
cash in the amount of $2.63. Accordingly, the aggregate number of shares of
common stock of the Company issued in the acquisition was 501,388. The source of
funds for the cash portion of the consideration was cash on hand and borrowings
under the Company's then existing revolving credit facilities.
Selected unaudited pro forma combined results of operations for the 28-week
periods ended August 12, 1996 and August 14, 1995, assuming the acquisition
occurred on January 31, 1995, are presented as follows:
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Twenty-eight Weeks Ended
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August 12, August 14,
1996 1995
---- ----
<S> <C> <C>
Total revenues $349,789 $310,821
Net income $ 9,613 $ 3,328
Net income per common
and common equivalent share $ .49 $ .18
</TABLE>
NOTE (E) PROPOSED ACQUISITION OF CASA BONITA INCORPORATED
On August 27, 1996, the Company entered into a Stock Purchase Agreement
(the "Purchase Agreement") with Casa Bonita Holdings, Inc., a Delaware
corporation and an indirect subsidiary of Unigate PLC ("Seller"), to acquire
from the Seller all of the issued and outstanding shares of capital stock of
Casa Bonita Incorporated ("Casa Bonita").
Casa Bonita, based in Dallas, Texas, owns and operates the "Taco Bueno"
concept in the Mexican food segment of the quick-service restaurant market, with
109 Taco Bueno restaurants located in Texas and Oklahoma. Casa Bonita also
operates two full-service "Casa Bonita" Mexican food restaurants and three
Crystal's Pizza restaurants.
The Purchase Agreement provides for the purchase and sale of Casa Bonita
for a purchase price of $42.0 million (subject to adjustment). The Company plans
to form a new entity, which would include one or more third party investors, to
own and operate Casa Bonita's restaurant businesses. The Company expects to
finance the acquisition, at least in part, with borrowings under its revolving
credit facilities. The acquisition is expected to be completed in October.
7
<PAGE> 9
CKE RESTAURANTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Consolidated net income for the second fiscal quarter increased 85% to $5.2
million, or $.27 per share, compared with net income of $2.8 million, or $.15
per share, for the same period of the prior year. Net income for the 28-week
period ended August 12, 1996 more than doubled to $10.5 million, or $.55 per
share, from $4.7 million, or $.26 per share, for the same period a year ago.
During the first quarter of the current year, the Company adopted SFAS 121,
resulting in a $1.3 million non-recurring charge to restaurant operations; net
income for the 28-week period would have been $11.3 million, or $.59 per share,
excluding the effect of this adoption. These positive results were primarily due
to increased sales growth resulting from the Company's dual-branding and image
enhancement programs, increased advertising and continued improvements in
operating efficiencies in the Company's Carl's Jr. restaurants.
The Company is continuing with the conversion of certain existing Carl's
Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants, pursuant to
an agreement with GB Foods Corporation. As of August 12, 1996, there were 46
dual-brand restaurants operating, with sales in these converted units for the
28-week period ended August 12, 1996 tracking approximately 25% over same-store
sales in the comparable prior year period.
As part of the Company's chain-wide Carl's Jr. restaurant remodeling
program, approximately 68 remodels have been completed as of the end of the
second quarter. The Company has seen improved sales results in these remodeled
restaurants. Currently, three restaurants per week are being remodeled and the
Company anticipates that a total of approximately 190 restaurants will be
remodeled this fiscal year.
The Company began operating four new restaurant concepts this quarter with
the acquisition of Summit and an agreement with Rally's Hamburgers, Inc.
("Rally's") to operate its 28 restaurants in California and Arizona. The Company
also converted a Los Angeles Rally's location to the first Carl's Jr. "Jr.,"
which offers a limited Carl's Jr. menu in a double drive-thru and walk-up
service format.
Shortly after the quarter end, the Company entered into a Stock Purchase
Agreement with Casa Bonita Holdings, Inc., pursuant to which the Company agreed
to acquire all of the issued and outstanding shares of capital stock of Casa
Bonita Incorporated for a purchase price of $42.0 million. See Note (E) of Notes
to Consolidated Financial Statements.
Additionally, subsequent to August 12, 1996, the Company participated in
Rally's Rights Offering, pursuant to which the Company received one Right for
each share of Rally's common stock owned. In accordance with the terms of the
Rights Offering, holders of Rights were entitled to purchase one Unit for each
3.25 Rights surrendered and a cash payment of $2.25 per Unit. Each Unit consists
of one share of Rally's common stock and one Warrant to purchase an additional
share of Rally's common stock upon payment of a $2.25 exercise price. The
Company contributed approximately $1.7 million and acquired approximately
776,000 shares of Rally's common stock in connection with the Rights Offering.
This Quarterly Report on Form 10-Q contains forward looking statements,
which are subject to known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance, or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; the
impact of competitive products and pricing; success of operating initiatives;
development and operating costs; advertising and promotional efforts; adverse
publicity; acceptance of new product offerings; consumer trial and frequency;
availability, locations, and terms of sites for restaurant development; changes
in business strategy or development plans; quality of management; availability,
terms, and deployment of capital; the results of financing efforts; business
abilities and judgment of personnel; availability of qualified personnel; food,
labor, and employee benefit costs; changes in, or the failure to comply with,
government regulations; weather conditions; construction schedules; and risks
that sales growth resulting from the Company's current and future remodeling and
dual-branding of restaurants and other operating strategies can be sustained at
the current levels experienced.
8
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CKE RESTAURANTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Revenues from Company-operated restaurants increased 20.6% and 15.6%,
respectively, in the 12- and 28-week periods ended August 12, 1996 to $110.4
million and $239.9 million, respectively, over the same prior year periods.
Carl's Jr. revenues alone for the current and year-to-date periods accounted for
sales increases of $12.4 million and $30.2 million, respectively. Rally's and
Summit accounted for approximately $2.2 million and $4.3 million, respectively,
of revenues in the second fiscal quarter of fiscal 1997. On a same-store sales
basis (calculated using only restaurants in operation for the full periods
being compared), the Company's Carl's Jr. sales increased 10.3% in the current
quarterly period as compared with a 3% increase in the comparable prior year
period. The Company's dual branding and image enhancement programs and increased
advertising contributed to the increase in revenues in the Company-owned Carl's
Jr. restaurants. Higher average sales and transaction counts per restaurant and
an increase in the weighted average number of Company restaurants operating in
fiscal 1997 as compared with fiscal 1996 also contributed to the increase in
revenues.
Revenues from franchised and licensed restaurants for all periods presented
include sales of food service products by the Company's distribution centers,
rental income, royalties, and initial franchise fees. Revenues from franchised
and licensed restaurants for the 12- and 28-week periods ended August 12, 1996
increased 7.3% and 8.0%, respectively, to $17.8 million and $41.2 million,
respectively, over the same prior year periods. This increase was due to
increased royalties and food purchases from franchisees as a result of higher
sales volume at franchised restaurants, and was partially offset by a decrease
in the weighted average number of restaurants open as compared with the prior
year.
Restaurant-level margins of the Company's restaurant operations increased
approximately 0.9% and 2.1% to 22.3% and 21.7% for the 12- and 28-week periods,
respectively, ended August 12, 1996, as compared with the corresponding periods
of the prior fiscal year. Excluding the effect of the adoption of SFAS 121
during the first quarter of the current year, restaurant-level margins would
have been 22.3% for the 28-week period ended August 12, 1996. The
restaurant-level margins for the Carl's Jr. operations alone increased 2.0% and
2.2% to 23.3% and 22.2% for the 12- and 28-week periods, respectively, ended
August 12, 1996 compared to the same periods of the prior year. These improved
results in the Company's restaurant-level operating margins reflect the
Company's continued commitment to improve the cost structure of its Carl's Jr.
restaurants, particularly in the areas of improving labor productivity and
reducing workers' compensation costs. As a percentage of revenues from
Company-operated restaurants, payroll and other employee benefits and occupancy
and other operating expenses decreased in the 12-week period as compared with
the same period of the prior year. Restaurant-level margins in the first quarter
of the prior year were unfavorably impacted by the start-up nature of the
Company's Boston Market operations.
Franchised and licensed restaurant costs have followed a comparable pattern
during the current quarter to the revenues from franchised and licensed
restaurants. These costs have increased 5.9% and 6.7% for the current 12- and
28-week periods, respectively, over the same periods of the prior year. The
increase was primarily due to increased food purchases from franchisees and was
partially offset by a decrease in the weighted average number of franchised and
licensed restaurants in operation in the current periods as compared with the
same periods in the prior year.
Advertising expenses, as a percentage of Company-operated restaurant
revenues, increased 0.4% to 5.4% and 0.4% to 5.6% for the 12- and 28-week
periods, respectively, ended August 12, 1996 over the same prior year periods.
Advertising expenses have become increasingly important in the current
competitive environment, and as a result, have increased as a percentage of
sales in fiscal 1997 compared with the prior year. The Company began its
innovative advertising campaign in May 1995, and same-store sales have increased
in each consecutive quarter thereafter as compared with the same quarters of the
prior year.
General and administrative expenses increased $0.4 million to $9.4 million
and $0.9 million to $20.5 million for the 12- and 28-week periods, respectively,
ended August 12,1996 over the comparable prior year periods. However, as a
percentage of total revenues, these expenses decreased 1.0% and 0.7%,
respectively, as compared with the same prior year periods. General and
administrative expenses were unfavorably impacted in the prior year by the
inclusion of approximately $1.8 million of expenses associated with the
Company's Boston Market operations. The increase in general and administrative
expenses in the current fiscal year 12- and 28-
9
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CKE RESTAURANTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
week periods was primarily the result of recording incentive compensation
accruals for regional restaurant management and selected corporate employees in
support of higher revenues from Company-operated restaurants and improved
restaurant operating performance, increased amortization expense, and various
corporate legal expenses.
Interest expense for the 12- and 28-week periods of the current fiscal year
decreased 12.4% and 10.2%, respectively, to $2.1 million and $4.7 million,
respectively, as compared with the same periods in the prior year as a result of
lower levels of borrowings outstanding, the prepayment of certain indebtedness
and lower interest rates.
Other income, net, in the 12- and 28-week periods of fiscal 1996 and 1997
was primarily comprised of investment income, interest on notes and leases
receivable, gains and losses on sales of restaurants, and other non-recurring
income. Other income, net, increased $79,000 and $646,000 from the 12- and
28-week periods, respectively, of fiscal 1996 primarily due to lease income
generated from the leasing of certain equipment and real property following the
formation of Boston West, L.L.C. ("Boston West"), in April 1995, which contains
the Company's former Boston Market operations.
FINANCIAL CONDITION
For the 28-week period ended August 12, 1996, the Company generated cash
flows from operating activities of $31.1 million, compared with $14.0 million
for the same period of the prior year. Cash and cash equivalents in the current
period decreased $9.5 million from January 29, 1996, as the Company used cash
flows from operations to fund capital additions of approximately $19.6 million,
to complete the acquisition of Summit for $14.7 million in cash (net of cash
acquired) and to repay long-term debt and capital lease obligations, net of new
borrowings, of approximately $8.7 million, of which $6.5 million represented the
early repayment of certain indebtedness. Also contributing to the decrease in
cash and cash equivalents was the purchase of a long-term investment in Rally's
for approximately $4.1 million during the first quarter of fiscal 1997. The
decrease in cash and cash equivalents was partially offset by cash generated
from the sale of property and equipment of approximately $3.3 million,
collections on notes receivable and related party notes receivable of
approximately $1.0 million, and the exercise of stock options, which generated
approximately $1.0 million. Total cash and cash equivalents available to the
Company as of August 12, 1996 was $18.3 million, which included $4.4 million
invested in marketable securities.
Effective August 12, 1996, the Company entered into a new Credit Agreement
with a group of financial institutions. Under the terms of the Credit Agreement,
the Company borrowed the principal amount of $20.0 million under a five-year,
fully amortizing term loan, the proceeds of which were used to repay existing
indebtedness. The Credit Agreement also provides the Company with up to an
additional $55.0 million in revolving credit facilities. See Note (C) of Notes
to Consolidated Financial Statements.
The Company's primary source of liquidity is its retail sales from
Company-operated restaurants, which are generated in cash. Future capital needs
will arise primarily for the construction of new Carl's Jr. restaurants, the
remodeling of existing restaurants, the conversion of certain restaurants to the
Carl's Jr./Green Burrito dual-brand concept, the conversion of selected Rally's
restaurants to Carl's Jr. "Jr." restaurants, the payment of capital lease
obligations, the repayment of debt, the purchase of Rally's common stock in
connection with its Rights Offering, and the anticipated closing of the Casa
Bonita acquisition. During the remaining portion of fiscal 1997, the Company
plans to open 14 new Carl's Jr. restaurants, to continue to remodel
approximately three existing restaurants per week under the Company's image
enhancement program and to complete one Carl's Jr./Green Burrito dual-brand
conversion per week.
The Company believes that cash generated from its various restaurant
concept operations, along with cash and marketable securities on hand as of
August 12, 1996 and amounts available under the Company's revolving credit
facilities, will provide the Company with the funds necessary to meet all of its
obligations, including the payment of maturing indebtedness and capital leases,
the further development of its Carl's Jr. operations and other obligations
described above.
10
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The Annual Meeting of Stockholders of CKE Restaurants, Inc. was held on
June 19, 1996, for the purpose of electing certain members of the board of
directors, and to consider and approve amendments to the Company's 1994 Employee
Stock Purchase Plan and the Company's 1994 Stock Incentive Plan.
Management's nominees for directors were elected by the following vote:
<TABLE>
<CAPTION>
Shares Voted Authority To Vote
"FOR" "WITHHELD"
----- ----------
<S> <C> <C>
Peter Churm 16,249,376 340,613
Daniel D. (Ron) Lane 16,309,688 280,301
</TABLE>
The proposals to approve amendments to the Company's 1994 Employee
Stock Purchase Plan and the Company's 1994 Stock Incentive Plan were approved by
the following vote:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Abstentions and
"FOR" "AGAINST" Broker non-votes
----- --------- ----------------
<S> <C> <C> <C>
1994 Employee Stock 16,058,539 483,838 47,350
Purchase Plan
1994 Stock Incentive Plan 9,777,203 4,495,316 471,720
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
11 Calculation of Earnings per Share
27 Financial Data Schedule (included in electronic filing
only).
(b) Current Reports on Form 8-K:
Current Reports on Form 8-K dated June 12, 1996 and July 15, 1996
were filed during the second quarter of the fiscal year to report
the Company's operating results for the first quarter of fiscal
1997 and to report the Company's acquisition of Summit,
respectively.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CKE RESTAURANTS, INC.
---------------------
(Registrant)
September 25, 1996 /s/ Joseph N. Stein
-------------------- ---------------------------
Date Senior Vice President,
Chief Financial Officer and
Duly Authorized Officer
11
<PAGE> 1
EXHIBIT 11
CKE RESTAURANTS, INC.
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-eight Weeks Ended
------------------ ------------------------
August 12, August 14, August 12, August 14,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income $ 5,192 $ 2,808 $10,525 $ 4,723
======= ======= ======= =======
Weighted average number of common
shares outstanding during the period 18,817 18,211 18,694 18,277
Incremental common shares attributable
to exercise of outstanding options 514 156 446 86
Repurchase of shares -- -- -- (80)
------- ------- ------- -------
Total shares 19,331 18,367 19,140 18,283
======= ======= ======= =======
Primary earnings per share $ .27 $ .15 $ .55 $ .26
======= ======= ======= =======
FULLY DILUTED EARNINGS PER SHARE
Net income $ 5,192 $ 2,808 $10,525 $ 4,723
======= ======= ======= =======
Weighted average number of common
shares outstanding during the period 18,817 18,211 18,694 18,277
Incremental common shares attributable
to exercise of outstanding options 514 244 526 244
Repurchase of shares -- -- -- (80)
------- ------- ------- -------
Total shares 19,331 18,455 19,220 18,441
======= ======= ======= =======
Fully diluted earnings per share $ .27 $ .15 $ .55 $ .26
======= ======= ======= =======
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE
RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
INCOME AS OF AND FOR THE TWELVE WEEKS ENDED AUGUST 12, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
AUGUST 12, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-27-1997
<PERIOD-START> JAN-30-1996
<PERIOD-END> AUG-12-1996
<CASH> 13,906
<SECURITIES> 4,427
<RECEIVABLES> 16,813
<ALLOWANCES> 0
<INVENTORY> 7,973
<CURRENT-ASSETS> 56,972
<PP&E> 367,919
<DEPRECIATION> 198,842
<TOTAL-ASSETS> 306,457
<CURRENT-LIABILITIES> 79,251
<BONDS> 0
0
0
<COMMON> 198
<OTHER-SE> 123,328
<TOTAL-LIABILITY-AND-EQUITY> 306,457
<SALES> 110,364
<TOTAL-REVENUES> 128,123
<CGS> 85,790
<TOTAL-COSTS> 118,031
<OTHER-EXPENSES> (576)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,149
<INCOME-PRETAX> 8,519
<INCOME-TAX> 3,327
<INCOME-CONTINUING> 5,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,192
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
