CARPINTERIA, Calif., December 7, 2010. CKE Restaurants, Inc. announced today its third fiscal quarter results for the twelve weeks ended November 1, 2010. The Company expects to file its Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”) on Wednesday December 8, 2010 after the close of the financial markets.
As previously reported, on July 12, 2010, Columbia Lake Acquisition Holdings, Inc., an affiliate of Apollo Management VII, L.P., acquired all of the outstanding shares of the Company (the “Acquisition”). The discussion of the Company’s third fiscal quarter results compares the results of operations for the twelve weeks ended November 1, 2010 (the “Successor” period) to the results of operations for the twelve weeks ended November 2, 2009 (the “Predecessor” period), which precedes the Acquisition. The accompanying condensed consolidated statement of operations for the forty weeks ended November 1, 2010 and related information have been prepared by adding the operating results for the Successor sixteen weeks ended November 1, 2010 and the Predecessor twenty-four weeks ended July 12, 2010. This presentation does not comply with generally accepted accounting principles; however, the Company believes that it provides a meaningful method of comparison.
Third Fiscal Quarter Results The Company reported total revenue of $284.5 million for the fiscal 2011 third quarter, a decrease of $39.7 million, or 12.2%, compared to the fiscal 2010 third quarter. The decrease was primarily attributable to the sale of the Carl’s Jr. distribution business on July 2, 2010. Total revenue, excluding Carl’s Jr. distribution center revenue, increased 1.5%.
Blended same-store sales for Company-operated restaurants increased 0.9% in the fiscal 2011 third quarter. Hardee’s same-store sales increased 8.3% and Carl’s Jr. same-store sales declined 5.0%. To date, the Company’s fourth fiscal quarter blended same-store sales are tracking positive in the low single digit range.
Q3
Year-to-date
FY11
FY10
FY11
FY10
Brand
Carl’s Jr.
-5.0%
-5.2%
-6.2%
-5.5%
Hardee’s
8.3%
-1.8%
4.0%
-0.4%
Blended
0.9%
-3.7%
-1.7%
-3.3%
“Hardee’s continued to generate strong same-store sales results during the third quarter. Including period 10, the last period of our third quarter, Hardee’s has now had nine consecutive periods of positive same-store sales. Carl’s Jr. same-store sales results have been challenged by difficult economic conditions, especially the high unemployment rate among our core target audience of young men in the state of California, where 86% of our company-operated restaurants are located. Third quarter Adjusted EBITDA was $38.5 million representing an increase of nearly $2.6 million over the prior year quarter,” said Andrew F. Puzder, Chief Executive Officer. “We remain focused on maintaining our premium quality brands and improving same-store sales with innovative products and cutting edge advertising that focuses on the taste, quality, and value of our products.”
Company-operated restaurant-level adjusted EBITDA margin decreased 80 basis points, primarily due to a 130 basis point increase in food and packaging costs as a result of higher commodity costs for beef, pork and cheese. Occupancy and other expense, excluding depreciation and amortization, increased 20 basis points as the unfavorable impacts of acquisition accounting more than offset the net favorable impact of sales leverage. These cost increases were partially offset by decreases in labor and advertising expenses. Labor decreased 30 basis points, primarily due to the impact of sales leverage at Hardee’s restaurants and a temporary reduction in employer payroll taxes due to recently enacted legislation, partially offset by the impact of sales deleveraging at Carl’s Jr. restaurants. Advertising expense decreased by 40 basis points due to incremental media spending in the prior year quarter that did not recur in the current year quarter. Refer to further discussion of company-operated restaurant-level adjusted EBITDA margin within “Non-GAAP Measures” included below.
General and administrative expense for the fiscal 2011 third quarter decreased $1.0 million from the prior year quarter.
Adjusted EBITDA was $38.5 million in the fiscal 2011 third quarter compared to $35.9 million in the same quarter of the prior year. The schedule of Adjusted EBITDA is included below, along with a discussion of Adjusted EBITDA and a reconciliation of net (loss) income to Adjusted EBITDA.
At November 1, 2010, cash and cash equivalents were $49.5 million and the Company had $65.1 million available under its credit facility.
Capital expenditures for the forty weeks ended November 1, 2010 were $52.3 million, of which $31.1 million related to new store openings, dual-branding, and remodeling projects. Capital expenditures for the forty weeks ended November 2, 2009 were $77.6 million.
Unit Count by Brand as of November 1, 2010
Carl’s Jr.
Hardee’s
Total
Company-operated
424
467
891
Domestic franchised
675
1,222
1,897
Total domestic
1,099
1,689
2,788
International licensed
146
207
353
Total franchised and licensed
821
1,429
2,250
Total
1,245
1,896
3,141
1
Conference Call Information The Company will host its third fiscal quarter conference call on Wednesday, December 8, 2010, at 12:00 p.m. (PST). The call-in number is (857) 350-1683. The access code is 88268670. You may also access the conference call via the Company’s website atwww.ckr.com under “Investors”.
Company Overview CKE Restaurants, Inc. is a privately held company headquartered in Carpinteria, Calif. As of the end of its third quarter of fiscal 2011, CKE, through its subsidiaries, had a total of 3,153 franchised, licensed or company-operated restaurants in 42 states and in 18 countries, including 1,245 Carl’s Jr.® Restaurants and 1,896 Hardee’s® restaurants. For more information about CKE, please visitwww.ckr.com.
Forward-looking Statements Matters discussed in this press release contain forward-looking statements relating to the Company’s strategies to maintain its brand and improve same-store sales, which are based on management’s current beliefs and assumptions. Such statements are subject to risks and uncertainties that are often difficult to predict and beyond the Company’s control. Factors that could cause the Company’s results to differ materially from those described include, but are not limited to, the Company’s ability to compete with other restaurants, delicatessens, supermarkets and convenience stores for customers, employees, restaurant locations and franchisees; changes in consumer preferences, perceptions and spending patterns; the ability of the Company’s key suppliers to continue to deliver premium-quality products to the Company at moderate prices; the Company’s ability to successfully enter new markets, complete remodels of existing restaurants and complete construction of new restaurants; changes in general economic conditions and the geographic concentration of the Company’s restaurants, which may affect the Company’s business; the Company’s ability to attract and retain key personnel; the Company’s franchisees’ willingness to participate in the Company’s strategy; the operational and financial success of the Company’s franchisees; the Company’s ability to expand into international markets and the risks associated with operating in international locations; changes in the price or availability of commodities; the effect of the media’s reports regarding food-borne illnesses, food tampering and other health-related issues on the Company’s reputation and its ability to procure or sell food products; the seasonality of the Company’s operations; the Company’s ability to hire and retain qualified personnel; the effect of increasing labor costs including healthcare related costs; increased insurance and/or self-insurance costs; the Company’s ability to comply with existing and future health, employment, environmental and other government regulations; the potentially conflicting interests of the Company’s sole stockholder and the Company’s creditors, the Company’s substantial leverage which could limit its ability to raise capital, react to economic changes or meet obligations under its indebtedness; the effect of restrictive covenants in the Company’s indenture and credit facility on the Company’s business; and other factors as discussed in the Company’s filings with the SEC.
Contact Information Beth Mansfield, Public Relations Phone : (805) 745-7741, E-mail, bmansfield@ckr.com
2
CKE RESTAURANTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE WEEKS ENDED NOVEMBER 1, 2010 AND NOVEMBER 2, 2009 (In thousands) (Unaudited)
Successor
Predecessor
Twelve Weeks Ended
Twelve Weeks Ended
November 1, 2010
November 2, 2009
Revenue:
Company-operated restaurants
$
250,097
$
246,696
Franchised and licensed restaurants and other
34,430
77,521
Total revenue
284,527
324,217
Operating costs and expenses:
Restaurant operating costs:
Food and packaging
73,879
69,665
Payroll and other employee benefits
71,592
71,386
Occupancy and other
62,567
60,874
Total restaurant operating costs
208,038
201,925
Franchised and licensed restaurants and other
16,943
58,854
Advertising
14,880
15,679
General and administrative
29,977
30,977
Facility action charges, net
770
520
Other operating expenses, net
167
—
Total operating costs and expenses
270,775
307,955
Operating income
13,752
16,262
Interest expense
(17,685
)
(6,430
)
Other income, net
748
704
(Loss) income before income taxes
(3,185
)
10,536
Income tax (benefit) expense
(2,855
)
4,379
Net (loss) income
$
(330
)
$
6,157
3
CKE RESTAURANTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FORTY WEEKS ENDED NOVEMBER 1, 2010 AND NOVEMBER 2, 2009 (In thousands) (Unaudited)
Successor/
Successor
Predecessor
Predecessor
Predecessor
Sixteen Weeks
Twenty-Four Weeks
Forty Weeks
Forty Weeks
Ended
Ended
Ended
Ended
November 1, 2010
July 12, 2010
November 1, 2010
November 2, 2009
Revenue:
Company-operated restaurants
$
336,048
$
500,531
$
836,579
$
847,654
Franchised and licensed restaurants and other
45,419
151,588
197,007
259,334
Total revenue
381,467
652,119
1,033,586
1,106,988
Operating costs and expenses:
Restaurant operating costs:
Food and packaging
99,188
148,992
248,180
242,066
Payroll and other employee benefits
95,940
147,187
243,127
241,142
Occupancy and other
83,393
119,076
202,469
201,461
Total restaurant operating costs
278,521
415,255
693,776
684,669
Franchised and licensed restaurants and other
22,178
115,089
137,267
196,680
Advertising
19,728
29,647
49,375
51,451
General and administrative
49,641
58,806
108,447
103,061
Facility action charges, net
907
590
1,497
3,022
Other operating expenses, net (1,2)
19,828
10,249
30,077
—
Total operating costs and expenses
390,803
629,636
1,020,439
1,038,883
Operating (loss) income
(9,336
)
22,483
13,147
68,105
Interest expense
(23,541
)
(8,617
)
(32,158
)
(14,834
)
Other income (expense), net (3)
896
(13,609
)
(12,713
)
1,991
(Loss) income before income taxes
(31,981
)
257
(31,724
)
55,262
Income tax (benefit) expense
(8,626
)
7,772
(854
)
22,460
Net (loss) income
$
(23,355
)
$
(7,515
)
$
(30,870
)
$
32,802
(1) Other operating expenses, net includes transaction-related costs consisting of accounting, investment banking, legal, and other costs of $19,828, $13,691, and $33,519 for the sixteen weeks ended November 1, 2010 (Successor), twenty-four weeks ended July 12, 2010 (Predecessor), and forty weeks ended November 1, 2010 (Successor/Predecessor), respectively.
(2) The twenty-four weeks ended July 12, 2010 (Predecessor) and forty weeks ended November 1, 2010 (Successor/Predecessor) also include a $3,442 gain on the sale of the distribution center assets.
(3) Other income (expense), net includes transaction-related costs, related to the termination of a prior merger agreement of $14,283 for both the twenty-four weeks ended July 12, 2010 (Predecessor) and forty weeks ended November 1, 2010 (Successor/Predecessor).
4
CKE RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except shares and par values) (Unaudited)
Successor
Predecessor
November 1, 2010
January 31, 2010
ASSETS
Current assets:
Cash and cash equivalents
$
49,494
$
18,246
Accounts receivable, net of allowance for doubtful accounts of $46 as of November 1, 2010 and $358 as of January 31, 2010
34,995
35,016
Related party trade receivables
324
5,037
Inventories, net
14,077
24,692
Prepaid expenses
13,417
13,723
Assets held for sale
451
500
Advertising fund assets, restricted
18,510
18,295
Deferred income tax assets, net
17,183
26,517
Other current assets
4,032
3,829
Total current assets
152,483
145,855
Notes receivable, net of allowance for doubtful accounts of $0 as of November 1, 2010 and $379 as of January 31, 2010
473
1,075
Property and equipment, net of accumulated depreciation and amortization of $19,771 as of November 1, 2010 and $445,033 as of January 31, 2010
630,637
568,334
Property under capital leases, net of accumulated amortization of $1,741 as of November 1, 2010 and $46,090 as of January 31, 2010
31,761
32,579
Deferred income tax assets, net
—
40,299
Goodwill
193,443
24,589
Intangible assets, net
439,561
2,317
Other assets, net
23,006
8,495
Total assets
$
1,471,364
$
823,543
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of bank indebtedness and other long-term debt
$
29
$
12,262
Current portion of capital lease obligations
5,367
7,445
Accounts payable
38,908
65,656
Advertising fund liabilities
18,510
18,295
Other current liabilities
100,592
95,605
Total current liabilities
163,406
199,263
Bank indebtedness and other long-term debt, less current portion
589,765
266,202
Capital lease obligations, less current portion
31,924
43,099
Deferred income tax liabilities, net
172,913
—
Other long-term liabilities
85,246
78,804
Total liabilities
1,043,254
587,368
Stockholders’ equity:
Predecessor: Common stock, $0.01 par value; 100,000,000 shares authorized; 55,290,626 shares issued and outstanding as of January 31, 2010
—
553
Successor: Common stock, $0.01 par value; 100 shares authorized, issued and outstanding as of November 1, 2010
—
—
Additional paid-in capital
451,465
282,904
Accumulated deficit
(23,355
)
(47,282
)
Total stockholders’ equity
428,110
236,175
Total liabilities and stockholders’ equity
$
1,471,364
$
823,543
Non-GAAP Measures
Adjusted EBITDA
Adjusted EBITDA represents net (loss) income before provision for income taxes, interest income and expense, asset impairments, facility action charges, depreciation and amortization, management fees, pro-forma cost savings as a result of becoming privately held, and certain non-cash and unusual items. Management uses Adjusted EBITDA as an important tool to assess operating performance. Management considers Adjusted EBITDA to be a useful measure in highlighting trends in the Company’s business and in analyzing the profitability of similar enterprises. Management believes that Adjusted EBITDA is effective, when used in conjunction with net (loss) income, in evaluating asset performance, and differentiating efficient operators in the industry. Furthermore, management believes that Adjusted EBITDA provides useful information to potential investors and analysts because it provides insight into management’s evaluation of the Company’s results of operations. The calculation of Adjusted EBITDA may not be consistent with “EBITDA” for the purpose of the covenants in the agreements governing the Company’s indebtedness.
Adjusted EBITDA is not a measure of financial performance under U.S. GAAP, is not intended to represent cash flow from operations under U.S. GAAP and should not be used as an alternative to net (loss) income as an indicator of operating performance or to cash flow from operating, investing or financing activities as a measure of liquidity. Management compensates for the limitations of using Adjusted EBITDA by using it only to supplement the Company’s U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the Company’s business. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of the Company’s results as reported under U.S. GAAP.
Some of the limitations of Adjusted EBITDA are:
•
Adjusted EBITDA does not reflect cash used for capital expenditures;
•
Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and Adjusted EBITDA does not reflect the cash requirements for such replacements;
•
Adjusted EBITDA does not reflect changes in, or cash requirements for, the Company’s working capital requirements; and
•
Adjusted EBITDA does not reflect the cash necessary to make payments of interest or principal on the Company’s indebtedness.
While Adjusted EBITDA is frequently used as a measure of operations and the ability to meet indebtedness service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation.
5
CKE RESTAURANTS, INC. ADJUSTED EBITDA FOR THE FOUR QUARTERS ENDED AUGUST 9, 2010 THE TWELVE WEEKS ENDED NOVEMBER 1, 2010 AND NOVEMBER 2, 2009 AND THE FOUR QUARTERS ENDED NOVEMBER 1, 2010 (In thousands) (Unaudited)
Successor/
Successor/
Predecessor
Successor
Predecessor
Predecessor
Four Quarters
Twelve Weeks
Twelve Weeks
Four Quarters
Ended
Ended
Ended
Ended
August 9, 2010
November 1, 2010
November 2, 2009
November 1, 2010
Net (loss) income
$
(8,609
)
$
(330
)
$
6,157
$
(15,096
)
Interest expense
25,323
17,685
6,430
36,578
Income tax (benefit) expense
(768
)
(2,855
)
4,379
(8,002
)
Depreciation and amortization
71,907
17,817
16,505
73,219
Facility action charges, net
2,920
770
520
3,170
Gain on sale of distribution center assets
(3,442
)
—
—
(3,442
)
Transaction-related costs(1)
48,458
167
—
48,625
Management fees(2)
62
575
—
637
Share-based compensation expense(3)
19,385
1,291
2,000
18,676
Losses on asset and other disposals
3,905
307
511
3,701
Difference between U.S. GAAP rent and cash rent
292
1,317
268
1,341
Cost savings(4)
1,403
—
204
1,199
Other, net(5)
(2,791
)
1,743
(1,071
)
23
Adjusted EBITDA
$
158,045
$
38,487
$
35,903
$
160,629
(1) Transaction-related costs include investment banking, legal, and other costs related to the Acquisition, as well as costs related to the termination of a prior merger agreement.
(2) Management fees are paid to Apollo Management per the management services agreement by and among the Company, Columbia Lake Acquisition Holdings, Inc. and Apollo Management VII, L.P. and are included in general and administrative expense.
(3)
Share-based compensation expense includes $12,108 resulting from accelerated vesting of stock options and restricted stock awards in connection with the Acquisition for the fifty-two weeks ended November 1, 2010 and is included in general and administrative expense.
(4)
Cost savings reflects pro-forma cost savings amounts expected to be realized as a result of becoming a privately held company.
(5)
Other, net includes the net impact of purchase accounting, executive retention bonus, disposition business expense, and adjusted EBITDA from the Company’s distribution business, which it no longer owns or operates.
Company-operated restaurant-level adjusted EBITDA is expressed in dollars and defined as company-operated restaurants revenue less restaurant operating costs excluding depreciation and amortization expense and including advertising expense. Restaurant operating costs are the expenses incurred directly by company-operated restaurants in generating revenues and do not include advertising costs, general and administrative expenses or facility action charges. Company-operated restaurant-level adjusted EBITDA margin is expressed as a percentage and defined as company-operated restaurant-level adjusted EBITDA divided by company-operated restaurants revenue.
Company-operated restaurant-level adjusted EBITDA and company-operated restaurant-level adjusted EBITDA margin are non-GAAP measures utilized by management internally to evaluate and compare the Company’s operating performance for company-operated restaurants between periods. Because not all companies calculate these measures identically, the Company’s presentation of such measures may not be comparable to similarly titled measures of other companies. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measures.
The following is a reconciliation of company-operated restaurant-level adjusted EBITDA and company-operated restaurant-level adjusted EBITDA margin (unaudited):
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