<PAGE> 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0602639
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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
------------------
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:
41,927,570 shares of Common Stock, par value $.01 per share,
as of September 16, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
CKE RESTAURANTS, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
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
</TABLE>
1
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CKE RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
August 11, January 27,
1997 1997
---------- -----------
<S> <C> <C>
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
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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 11, August 12, August 11, August 12,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 5
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
---------- ----------
August 11, August 12,
1997 1996
---------- ----------
<S> <C> <C>
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)
========= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 6
CKE RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
---------------------------
August 11, August 12,
1997 1996
--------- ----------
<S> <C> <C>
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 $ --
========= ========
</TABLE>
5
<PAGE> 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:
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
---------------------------
August 11, August 12,
1997 1996
-------- ----------
<S> <C> <C>
Total revenues $819,010 $680,004
Net income (loss) $ 25,102 $ (3,177)
Net income (loss) per common
and common equivalent share $ .58 $ (.09)
</TABLE>
6
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Shares Voted Authority To Vote
"FOR" "WITHHELD"
------------ -----------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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).
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<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 11, August 12, August 11, August 12,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
<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 11, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
AUGUST 11, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-26-1998
<PERIOD-START> JAN-28-1997
<PERIOD-END> AUG-11-1997
<CASH> 37,927
<SECURITIES> 196
<RECEIVABLES> 44,158
<ALLOWANCES> 0
<INVENTORY> 17,670
<CURRENT-ASSETS> 97,564
<PP&E> 896,065
<DEPRECIATION> 249,575
<TOTAL-ASSETS> 919,043
<CURRENT-LIABILITIES> 176,323
<BONDS> 0
0
0
<COMMON> 419
<OTHER-SE> 458,268
<TOTAL-LIABILITY-AND-EQUITY> 919,043
<SALES> 216,877
<TOTAL-REVENUES> 242,259
<CGS> 175,258
<TOTAL-COSTS> 223,455
<OTHER-EXPENSES> (3,497)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,711
<INCOME-PRETAX> 17,590
<INCOME-TAX> 7,045
<INCOME-CONTINUING> 10,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,545
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
