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NEWS RELEASE
CONTACT: Kathy Polson
Sr. VP Finance
Dennis Lacey
EVP and CFO
714.778.7109
CKE RESTAURANTS, INC.'S THIRD QUARTER RESULTS NEAR BREAK-EVEN
SANTA BARBARA, Calif. -- December 6, 2001 -- CKE Restaurants, Inc. ("CKE"
or the "Company") (NYSE:CKR) today announced results for the 12- and 40-weeks
ended November 5, 2001.
HIGHLIGHTS FOR THE QUARTER
- - Net loss for the period is $1.7 million versus $29.4 million for the prior
year period
- - Excluding repositioning activities, pro forma income is $400,000 versus a
pro forma loss of $8.8 million in the prior year period
- - Excluding repositioning activities and the operating results of Taco
Bueno, and stores sold, closed or to be closed, pro forma net income is
$2.3 million versus a pro forma loss of $11.8 million in the prior year
period
- - Same-store sales increased 6.1% at Carl's Jr. and 1.0% at Hardee's
- - Carl's Jr. margins increased to 21.0% versus 17.6% in the prior year
period
- - Hardee's margins increased to 9.4% versus 5.7% in the prior year period
- - Letter of Intent signed to acquire Santa Barbara Restaurant Group, Inc.
(NASDAQ: SBRG) in a transaction expected to be accretive. For the 40-week
period ended October 1, 2001, SBRG reported revenue of $67.8 million, net
income of $2.6 million and EBITDA of $7.2 million.
2
EXECUTIVE COMMENTARY
"The reported net loss of $1.7 million, which is almost break-even and a
significant improvement from recent quarters, along with Hardee's posting
positive same-store sales for two consecutive quarters, supports our contention
that we are on our way to returning CKE to profitability," said Chief Executive
Officer, Andrew F. Puzder. "We recognize that there is still work to be done
with the Hardee's brand, but the results show we are making progress. We
attribute this success to (i) our operations improvement program at Hardee's
emphasizing quality, service and cleanliness, (ii) new products, (iii)
charbroiler installations (now in 48% of the company-operated system) and (iv)
remodeled restaurants (46% of the company-operated system). We completed the
system-wide rollout of the Six-Dollar Burger(TM) at Carl's Jr. and introduced
the sandwich at the beginning of the 4th quarter at Hardee's.
"We are pleased with our progress toward returning to profitability.
However, given the seasonality traditionally experienced by Hardee's during
December and January, we may report an operating loss in the fourth quarter,"
Puzder said. "Looking forward to next fiscal year, we hope to make a profit in
the first quarter, as well as next fiscal year, absent adjustments, if any, that
may be required as a result of adopting required new accounting rules. Such
results would occur irrespective of the acquisition of Santa Barbara Restaurant
Group, Inc., which we expect to be immediately accretive to earnings. We are
very excited about our pending acquisition of Santa Barbara Restaurant Group,
Inc. We believe the addition of the La Salsa and Green Burrito brands to CKE
provides us with an additional economical and profitable opportunity for
long-term development.
"As this quarter's results show, we have made substantial progress in
repositioning the Company and we are now focusing on longer-term plans for both
brands," Puzder said. "The next steps on our road to growing profits is (i)
building new restaurants for all brands, (ii) defining and developing Hardee's
brand identity with an emphasis on premium products and less use of discounting
and (iii) implementing new marketing strategies. These efforts will allow us to
grow our average unit volumes, which we hope will result in increased profit
margins. Improving shareholder value remains our primary focus and we believe we
are making steady and significant progress toward that goal."
SUMMARY OF REPORTED AND PRO FORMA RESULTS
CKE's results for its third quarter of fiscal 2002, its last fiscal quarter
(second quarter fiscal 2002, referred to as the "link quarter") and its third
quarter of the prior fiscal year, as well as its
3
year-to-date results, are summarized below. Pro forma amounts are shown after
applicable income taxes as if the Company (i) had not recorded net losses from
its repositioning activities and (ii) was able to record a deferred tax asset
for all periods presented.
SUMMARY OF REPORTED AND PRO FORMA RESULTS FOR THE QUARTER
(Dollars in millions, except Third quarter FY Second quarter FY Third quarter FY
per share data) 2002 2002 2001
(Current quarter) (Last quarter) (Prior year
quarter)
---------------- ---------------- ----------------
Dollars EPS Dollars EPS Dollars EPS
------- ------ ------- ------ ------- ------
Reported net loss under generally
accepted accounting principles $(1.7) $(0.03) $(36.8) $(0.73) $(29.4) $(0.58)
Less: repositioning activities and (2.1) (0.04) (34.4) (0.68) (20.6) (0.41)
taxes ----- ------ ------ ------ ------ ------
Pro forma net income/(loss) $ 0.4 $ 0.01 $ (2.4) $(0.05) $ (8.8) $(0.17)
===== ====== ====== ====== ====== ======
SUMMARY OF REPORTED AND PRO FORMA RESULTS FOR THE YEAR-TO-DATE
(Dollars in millions, except 40-weeks ended 40-weeks ended
per share data) November 5, 2001 November 6, 2000
----------------- ----------------
Dollars EPS Dollars EPS
------- ------ ------- ------
Reported net loss under generally
accepted accounting principles $(75.6) $(1.50) $(45.8) $(0.91)
Less: repositioning activities and tax
benefit (71.1) (1.41) (31.3) (0.62)
------ ------ ------ ------
Pro forma net loss $(4.5) $(0.09) $(14.5) $(0.29)
====== ====== ====== ======
FACTORS AFFECTING COMPARABILITY OF PRO FORMA QUARTERLY RESULTS
The pro forma results shown above reflect the fact that, excluding certain
repositioning activities described further below, the Company would have
reported a small pro forma profit. This pro forma profit reflects an improvement
over the link quarter and the prior year third quarter. For all periods
presented, repositioning activities have been restated to include only facility
action charges, severance and write-offs of deferred loan costs. Although
earnings are impacted by many factors, the following table is a condensed
presentation of the pro forma results from period to period. All amounts are
approximate and in thousands:
4
Increase (decrease) to Increase (decrease) to
the pro forma the pro forma
income/(loss)for the income/(loss) for the
current quarter vs. the current quarter vs. the
Category link quarter prior year third quarter
- ------------------------------------------------------------ ----------------------- ------------------------
Self-insurance program reserves $ 4,900 $ 2,700
Provision for doubtful accounts 2,900 0
Interest expense 700 4,000
Corporate overhead and marketing (2,800) 800
Store repair and maintenance expense (1,400) (1,100)
Approximate net impact of product discounting at Hardee's (700) (600)
Approximate operating (income) losses of stores involved in (700) 5,000
facility actions
Taco Bueno operations (1,100) (3,200)
Supplier rebate relating to prior periods at Carl's Jr 800 800
Approximate store margin improvement, exclusive of items
identified separately above -- 2,700
Carl's Jr. franchising -- 1,700
Hardee's franchise agreement termination settlement fee 1,800 1,800
All other, net (700) 2,300
-------- --------
Subtotal $ 4,400 $ 15,300
Approximate tax effect of above items 1,600 6,100
-------- --------
Change in reported quarterly pro forma net income (loss) $ 2,800 $ 9,200
======== ========
Comments regarding these changes are included in the discussions below regarding
each Brand and the Repositioning Activities.
CARL'S JR. BRAND
- - Nearly 80 Six-Dollar Burgers(TM) have been sold, on average, in each
restaurant each day during the quarter.
- - During the third quarter 2002, the Company sold 4 restaurants to
franchisees and opened one new restaurant. Carl's Jr. franchisees and
licensees opened 4 restaurants, acquired 4 from the Company and closed 2.
Table 1 reconciles the activity in restaurant count for the quarter.
- - For the 12-week period ended November 5, 2001, Carl's Jr. company-operated
restaurant revenue decreased 15.5% from the prior year comparable period.
The decrease in Carl's Jr. revenue is primarily due to the sale of
company-operated stores to franchisees as well as the closure of
company-operated stores, offset by a 6.1% increase in same-store sales.
While
5
revenue from company-operated stores are down, franchising income has
increased nearly 50%, due to the increase in the number of
franchisee-operated restaurants.
Company-operated restaurant margins for Carl's Jr. for the third quarter
2002, the link quarter and third quarter 2001 were 21.0%, 17.4% and 17.6%,
respectively. The increase in margins for the third quarter 2002 is due to
(i) the fact that the current quarter did not require an increase in
self-insurance reserves, (ii) reduced restaurant operating costs primarily
as a result of renegotiating several service contracts, (iii) reduced
depreciation levels, due to cumulative asset impairment charges reducing
the depreciable base of stores and (iv) the supplier rebate identified
above. These improvements were partially offset by increased repair and
maintenance costs.
- - For the 40-week period ended November 5, 2001, Carl's Jr. company-operated
restaurant revenue decreased 15.5% from the prior year comparable period.
The decrease in Carl's Jr. revenue is primarily due to the sale of
company-operated stores to franchisees as well as the closure of
company-operated stores. While revenue from company-operated stores is
down, franchising income has increased more than 50%, as described above.
Although there were variations in the individual components of operating
costs, restaurant margins remained relatively consistent at 19.6% and
20.2% for the third quarter year-to-date 2001 and 2002, respectively.
6
HARDEE'S BRAND
- - During the third quarter 2002, Hardee's introduced the Six-Dollar
Burger(TM) in certain test markets and the French Dip sandwich.
Additionally, Hardee's began offering The Hillshire Farms(TM) Smoked
Sausage Biscuit as part of its breakfast menu.
- - During the third quarter 2002, the Company sold 11 restaurants to
franchisees, closed two restaurants and acquired four restaurants from
franchisees. Hardee's franchisees and licensees opened 4 restaurants,
acquired 11 from the Company and closed 37. During the quarter, Hardee's
added 42 charbroilers and remodeled 34 restaurants to the Star Hardee's
format. Hardee's franchisees remodeled 3 Hardee's restaurants to the Star
Hardee's format. Table 1 reconciles the activity in restaurant count for
the quarter.
- - For the 12-week period ended November 5, 2001, Hardee's company-operated
revenue decreased 26.2% from the prior year comparable period. The
decrease in Hardee's revenue is primarily due to the sale of
company-operated restaurants to franchisees and the closure of
company-operated restaurants.
Company-operated restaurant margins for Hardee's for the third quarter
2002, the link quarter and the third quarter 2001 were 9.4%, 10.0 % and
5.7%, respectively. The increase in margins in the third quarter 2002
versus the comparable prior year period was primarily due to the fact that
the current quarter did not require an increase in self-insurance
reserves, coupled with the closure of unprofitable stores. The slight
decrease in margins compared to the link quarter was primarily due to
increased use of product discounting and increased repair and maintenance
expense, offset by the fact that the current quarter did not require an
increase in self-insurance reserves.
Franchising income increased during the current quarter due to (i) the
settlement fee included in the above, (ii) the fact that the Company did
not need to make any adjustments to the allowance for doubtful accounts
this quarter and (iii) an increase in the number of franchise stores.
7
- - For the 40-week period ended November 5, 2001, Hardee's company-operated
revenue decreased 31.3% from the prior year comparable period. The
decrease in Hardee's revenue is primarily due to the sale of
company-operated restaurants to franchisees as well as the closure of
company-operated restaurants.
For the 40-week period, company-operated restaurant margins for Hardee's
for the third 2002 and third quarter 2001 were 9.2% and 8.5%,
respectively. This improvement is due to the closing of unprofitable
stores, partially offset by higher utility and commodity costs during the
first half of the year. Franchising income is less than the prior year due
to decreased revenue from Hardee's Equipment Division as franchisees have
completed fewer remodels in the current year.
REPOSITIONING ACTIVITIES
- - During the third quarter of fiscal 2002, the Company recorded
repositioning charges of $2.1 million, which were primarily non-cash
facility action charges. The net facility action charges consisted of (i)
an impairment charge of $400,000 for restaurants that the company plans to
continue to operate, but for which the net book value is not supported by
current estimated future cash flows, (ii) an impairment charge and store
closure expense, principally for Hardees restaurants, that the Company has
closed or plans to close, consisting of asset impairments of $1.7 million
and $500,000 for additional store closure expense reserves, (iii) a
Hardee's regional office closure charge of $900,000 and (iv) net gains on
the sale of restaurants to franchisees and surplus properties of $1.4
million. During the third quarter of fiscal 2001, the Company recorded
facility action charges of $34.3 million relating primarily to net losses
on the sale of certain restaurants.
For the 40-week period, the Company recorded repositioning charges of
$65.7 million which consisted of (i) net facility action charges of $60.8
million, (ii) a charge of $3.9 million recorded as interest expense
reflecting the write-off of deferred loan costs primarily as a result of
the modification of the Company's senior credit facility and (iii) $1
million relating to severance payments. For the prior-year 40-week period,
the Company's repositioning charges were $52.1 million.
- - The asset sales arising from the repositioning activities have resulted,
and will continue to result, in a decline in restaurant revenue and costs
simply because the Company operates fewer stores. In addition, the sale of
the Taco Bueno brand has, and will continue to result in less operating
income than reported in prior periods. As a result of these circumstances,
general and administrative costs have declined $2.8 million or 9.5% and
$20.2 million or 18.9% for the 12- and 40-week periods, respectively,
compared to the prior year. This is primarily due to the Company's
rebalancing effort to align its cost structure with its reduced portfolio
of stores. General and administrative expenses for the current period
compared to the link period are approximately flat, after adjusting for
non-cash litigation reserves, which were materially decreased in the link
quarter and modestly increased in the current quarter.
- - Exclusive of the write-off of deferred loan costs reflected in interest
expense, interest expense was $11.8 million and $46.8 million for the
12-week and 40-week periods, respectively and $16.3 million and $53.5
million in the 12-week and 40-week prior-year periods, respectively. The
revolver has generally not had a daily outstanding balance during the
third quarter. However, due to the timing of rent payments and the
semi-annual interest payment on senior debt, the Company did draw
approximately $6 million dollars at the end of the third quarter. As of
yesterday, the balance was $0.
- - During the first three quarters of fiscal 2001, the Company recorded a
deferred tax asset for the tax benefit of operating losses, which served
to reduce the net loss reflected in the Statement of Operations.
Commencing with the fourth quarter of last fiscal year, the Company ceased
8
to record a deferred tax asset because of the Company's recurring
operating losses. As such, the current year periods' Statement of
Operations do not reflect a tax benefit from the operating loss, as was
the case in the prior fiscal year.
BUSINESS OUTLOOK
The following table is based on current expectations for the remainder of the
current fiscal year and initial expectations for next fiscal year. This table
contains forward-looking information and actual results could differ materially
(see "Safe Harbor Disclosure" below). The table does not include: (i) the impact
of the Santa Barbara Restaurant Group acquisition, which is expected to close in
the first quarter of fiscal 2003, (ii) adjustments that will arise from Enron's
recently announced Chapter 11 filing and, (iii) adjustments, if any, from the
adoption of FAS 141, 142 and 144 in the first quarter of fiscal 2003.
Fourth Quarter, 2002 Fiscal 2003
-------------------- -----------------
Carl's Jr. Anticipated new company stores None 5 - 15
Anticipated new franchise stores 5 - 10 Up to 40
Same-store sales growth 1.0% - 2.0% 2.0% - 4.5%
Restaurant-level margins Approx. 20.0% 20% - 21%
Hardee's Anticipated new company stores None 5 - 15
Anticipated new franchise stores Up to 5 Up to 30
Same-store sales growth Approx. 1.0% 1.0%
Restaurant-level margins Approx. 7.0% 10% - 13.5%
Consolidated Interest expense Approx. $12 million $40 - $42 million
Capital expenditures $10 - $18 million $40 - $60 million
9
FINANCIAL TABLES
TABLE 1: SUMMARY OF SYSTEM-WIDE RESTAURANT ACTIVITY
Franchised/
Company Licensed Total
------ ------ ------
CARL'S JR.:
Beginning of quarter 444 524 968
Opened 1 4 5
Acquired from franchisees/company 0 0 0
Sold to franchisees/company (4) 4 0
Closed (0) (2) (2)
------ ------ ------
End of quarter 441 530 971
====== ======
Company stores scheduled to close 0
------
Pro forma level 441
======
HARDEE'S:
Beginning of quarter 760 1,732 2,492
Opened 0 4 4
Acquired from franchisees/company 4 (4) 0
Sold to franchisees/company/mgmt. agmt. (11) 11 0
Closed (2) (37) (39)
------ ------ ------
End of quarter 751 1,706 2,457
====== ======
Company stores scheduled to close 22
------
Pro forma level 729
======
TOTAL:
Beginning of quarter 1,204 2,256 3,460
Opened 1 8 9
Acquired from franchisees/company 4 (4) 0
Sold to franchisees/company/mgmt. agmt. (15) 15 0
Closed (2) (39) (41)
------ ------ ------
End of quarter 1,192 2,236 3,428
====== ======
Company stores scheduled to close 22
------
Pro forma level 1,170
======
10
TABLE 2: STATEMENTS OF OPERATIONS IN MANAGEMENT REPORTING FORMAT
(Dollars in thousands) Third quarter
------------------------------------------
FY 2002 FY 2001
Percent Percent
------------------------------------------
Dollars (Note 1) Dollars (Note 1)
------- -------- ------- --------
A. RESULTS OF OPERATIONS EXCLUDING
REPOSITIONING ACTIVITIES AND STORES SOLD,
CLOSED OR TO BE CLOSED AND TACO BUENO:
Revenue from:
Company-operated restaurants 255,471 244,750
Franchisee-operated restaurants 67,016 51,295
------ ------
Total revenue 322,487 296,045
------- -------
Restaurant operating costs:
Food and packaging 78,314 30.7% 75,192 30.7%
Payroll and other employee benefits 80,712 31.6% 79,234 32.4%
Occupancy and other operating 56,894 22.3% 57,031 23.3%
------ ----- ------ -----
expenses
Total operating costs 215,921 84.5% 211,457 86.4%
Franchised and licensed restaurant
expense 49,613 36,082
Advertising expense 15,451 6.0% 15,337 6.3%
General and administrative expenses 26,990 8.4% 25,471 8.6%
------ ---- ------ ----
Total operating costs and expenses 307,975 288,347
------- --------
Operating income 14,511 7,699
Interest expense (11,752) (16,266)
Other income (expense), net (467) (3,302)
------- --------
INCOME (LOSS) EXCLUDING REPOSITIONING
ACTIVITIES AND STORES SOLD, CLOSED OR 2,292 (11,869)
TO BE CLOSED AND TACO BUENO (A) ------- --------
B. RESULTS OF BUSINESS REPOSITIONING ACTIVITY
Net business repositioning activities $(2,121) $(34,343)
Operating results of stores sold,
closed or to be closed (1,565) (4,337)
Operating results of Taco Bueno 0 964
------- --------
INCOME (LOSS) FROM REPOSITIONING
ACTIVITIES AND STORES SOLD, CLOSED AND
TO BE CLOSED AND TACO BUENO (B) (3,686) (37,716)
------- --------
Loss before taxes (A)+(B) (1,394) (49,585)
Income tax expense (benefit) 337 (20,161)
------- --------
LOSS REPORTED UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES $(1,731) $(29,424)
======== =========
(Dollars in thousands) Year-to-date
----------------------------------------
FY 2002 FY 2001
Percent Percent
----------------------------------------
Dollars (Note 1) Dollars (Note 1)
------- -------- ------- --------
A. RESULTS OF OPERATIONS EXCLUDING
REPOSITIONING ACTIVITIES AND STORES SOLD,
CLOSED OR TO BE CLOSED AND TACO BUENO:
Revenue from:
Company-operated restaurants 833,081 813,838
Franchisee-operated restaurants 205,845 159,895
------- -------
Total revenue 1,038,926 973,733
------- -------
Restaurant operating costs:
Food and packaging 253,191 30.4% 249,702 30.7%
Payroll and other employee benefits 267,331 32.1% 251,857 31.1%
Occupancy and other operating 183,279 22.0% 182,028 22.5%
------- ----- ------- -----
expenses
Total operating costs 703,801 84.5% 683,587 84.3%
Franchised and licensed restaurant
expense 158,028 115,649
Advertising expense 52,578 6.3% 50,427 6.2%
General and administrative expenses 82,969 7.9% 95,216 9.5%
------ ---- ------ ----
Total operating costs and expenses 997,376 944,879
------- -------
Operating income 41,550 28,854
Interest expense (42,644) (53,511)
Other income (expense), net 360 (1,087)
------- -------
INCOME (LOSS) EXCLUDING REPOSITIONING
ACTIVITIES AND STORES SOLD, CLOSED OR (734) (25,744)
TO BE CLOSED AND TACO BUENO (A) ------- -------
B. RESULTS OF BUSINESS REPOSITIONING ACTIVITY
Net business repositioning activities $(65,965) $(52,114)
Operating results of stores sold,
closed or to be closed (10,436) (3,977)
Operating results of Taco Bueno 3,693 4,721
------- -------
INCOME (LOSS) FROM REPOSITIONING
ACTIVITIES AND STORES SOLD, CLOSED AND
TO BE CLOSED AND TACO BUENO (B) (72,708) (51,370)
-------- --------
Loss before taxes (A)+(B) (73,442) (77,114)
Income tax expense (benefit) 2,204 (30,499)
------- -------
LOSS REPORTED UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES $(75,646) $(46,615)
========= =========
Note (1)
Stated as a percentage of company-operated revenue except for general and
administrative expenses, which are stated as a percentage of total revenue.
11
TABLE 3: RESULTS OF PRINCIPAL OPERATING SEGMENTS
(Dollars in thousands, except average check data) Third quarter FY 2002
---------------------------------------------
Carl's Jr. Hardee's Other Total
------- ------ ------- -------
Number of restaurants:
Company-operated 441 751 1,192
Franchised domestic 490 1,564 2,054
Licensed international 40 142 182
------- ------ -------
Total 971 2,457 3,428
======= ====== =======
Company-operated restaurant sales $120,644 $138,968 $259,612
======= ====== =======
Company-operated average unit volumes (trailing 13-periods) 1,175 741
======= ======
Average check $5.13 $3.74
======= ======
Company-operated same-store sales increase (decrease) 6.1% 1.0%
Franchisee-operated same-store sales increase (decrease) 5.5% (1.2)%
Co-oper. same-store sales increase (decrease) excluding
stores sold, closed or to be closed 6.2% 1.0%
Company-operated average unit volumes, excluding stores
sold, closed or to be closed 1,131 756
Operating costs (as a % of co.-operated sales)
Food and paper 28.76% 32.34%
Payroll and other employee benefits 28.47% 34.57%
Occupancy and other operating costs 21.77% 23.73%
------- ------
Gross margin 21.00% 9.36%
Franchising revenue:
Royalties $4,872 $8,932 $13,804
Distribution centers 33,543 3,754 37,297
Other 6,957 8,958 15,915
------- ------ -------
Total $45,372 $21,644 $67,016
======= ====== =======
Net franchising income $4,918 $6,669 $11,587
======= ====== =======
Oper. income (loss) excluding facility action charges $15,787 $759 $(3,600) $12,946
Facility action charges (gains) (961) 3,082 0 2,121
------- ------ ------- -------
Operating income (loss) $16,748 $(2,323) $(3,600) $10,825
======= ======= ======= =======
EBITDA $21,534 $6,262 $(1,597) $26,199
Facility action charges (gains) (961) 3,082 0 2,121
------- ------ ------- -------
EBITDA excluding facility action charges $20,573 $9,344 $(1,597) $28,320
======= ====== ======== =======
EBITDA excl. stores sold, closed or to be closed and
facility action charges $20,516 $10,593 $(1,597) $29,512
======= ======= ======= =======
(Dollars in thousands, except average check data) Third quarter FY 2001
-------------------------------------------
Carl's Jr. Hardee's Other Total
------- ------- ------- -------
Number of restaurants:
Company-operated 554 1,027 146 1,727
Franchised domestic 389 1,566 0 1,955
Licensed international 30 131 0 161
------- ------- ------- -------
Total 973 2,724 146 3,843
======= ======= ======== =======
Company-operated restaurant sales $142,686 $188,110 $25,458 $356,254
======= ======= ======== =======
Company-operated average unit volumes (trailing 13-periods) 1,150 732
======= =======
Average check $4.77 $4.08
======= =======
Company-operated same-store sales increase (decrease) 1.1% (6.3)%
Franchisee-operated same-store sales increase (decrease) 5.1% (3.14)%
Co-oper. same-store sales increase (decrease) excluding
stores sold, closed or to be closed 1.4% (4.3)%
Company-operated average unit volumes, excluding stores
sold, closed or to be closed 1,129 788
Operating costs (as a % of co.-operated sales)
Food and paper 29.58% 32.49%
Payroll and other employee benefits 30.10% 35.70%
Occupancy and other operating costs 22.77% 26.10%
------- -------
Gross margin 17.55% 5.71%
Franchising revenue:
Royalties $3,173 $10,292 $13,465
Distribution centers 21,673 5,931 27,604
Other 5,568 4,658 10,226
------- ------- -------
Total $30,414 $20,881 $51,295
======= ======= =======
Net franchising income $7,711 $12,101 $19,812
======= ======= =======
Oper. income (loss) excluding facility action charges $8,294 $(2.467) $(3,311) $2,516
Facility action charges (gains) (2,098) 36,441 0 34,343
------- ------- ------- -------
Operating income (loss) $10,392 $(38,908) $(3,311) $(31,827)
======= ======== ======= ========
EBITDA $17,632 $(24,991) $(1,321) $(8,680)
Facility action charges (gains) (2,098) 36,441 0 34,343
------- ------- ------- -------
EBITDA excluding facility action charges $15,534 $11,450 $(1,321) $25,663
======= ======= ======== =======
EBITDA excl. stores sold, closed or to be closed and
facility action charges $11,363 $14,922 $(3,339) $22,496
======= ======= ======= =======
12
TABLE 3: RESULTS OF PRINCIPAL OPERATING SEGMENTS (CONTINUED)
(Dollars in thousands, except average check data) Year-to-date third quarter FY 2002
-------------------------------------------------------------
Carl's Jr. Hardee's Other Total
----------- ----------- ----------- -----------
Company-operated restaurant sales $ 402,619 $ 486,229 $ 43,095 $ 931,943
=========== =========== =========== ===========
Operating costs (as a % of co.-operated sales)
Food and paper 29.06% 31.79%
Payroll and other employee benefits 29.39% 35.20%
Occupancy and other operating costs 22.00% 23.76%
----------- -----------
Gross margin 19.55% 9.24%
Franchising revenue:
Royalties $ 15,281 $ 33,631 $ 48,912
Distribution center 105,065 11,184 116,249
Other 23,855 16,829 40,684
----------- ----------- -----------
Total $ 144,201 $ 61,644 $ 205,845
=========== =========== ===========
Net franchising income $ 16,602 $ 31,215 $ 47,817
=========== =========== ===========
Operating income (loss) $ 44,245 $ (58,686) $ (12,581) $ (27,022)
Facility action charges (gains) 710 55,410 4,707 60,827
----------- ----------- ----------- -----------
Oper. income (loss) excluding facility action charges $ 44,955 $ (3,276) $ (7,874) $ 33,805
=========== =========== =========== ===========
EBITDA $ 60,866 $ (26,221) $ (4,075) $ 30,570
Facility action charges (gains) 710 55,410 4,707 60,827
----------- ----------- ----------- -----------
EBITDA excluding facility action charges $ 61,576 $ 29,189 $ 632 $ 91,397
=========== =========== =========== ===========
EBITDA excluding stores sold, closed or to be closed and
facility action charges $ 61,022 $ 37,003 $ (3,061) $ 94,964
=========== =========== =========== ===========
(Dollars in thousands, except average check data) Year-to-date third quarter FY 2001
-----------------------------------------------------------
Carl's Jr. Hardee's Other Total
----------- ----------- ----------- -----------
Company-operated restaurant sales $ 476,655 $ 708,419 $ 85,404 $ 1,270,478
=========== =========== =========== ===========
Operating costs (as a % of co.-operated sales)
Food and paper 29.54% 32.23%
Payroll and other employee benefits 28.39% 34.59%
Occupancy and other operating costs 21.86% 24.64%
----------- -----------
Gross margin 20.21% 8.54%
Franchising revenue:
Royalties $ 10,083 $ 32,388 $ 42,471
Distribution center 69,002 18,776 87,778
Other 16,571 13,075 29,646
----------- ----------- -----------
Total $ 95,656 $ 64,239 $ 159,895
=========== =========== ===========
Net franchising income $ 8,524 $ 35,722 $ 44,246
=========== =========== ===========
Operating income (loss) $ 42,620 $ (58,825) $ (5,504) $ (21,709)
Facility action charges (gains) (4,272) 55,582 0 51,310
----------- ----------- ----------- -----------
Oper. income (loss) excluding facility action charges $ 38,348 $ (3,243) $ (5,504) $ 29,601
=========== =========== =========== ===========
EBITDA $ 65,517 $ (5,797) $ 4,028 $ 63,748
Facility action charges (gains) (4,272) 55,582 0 51,310
----------- ----------- ----------- -----------
EBITDA excluding facility action charges $ 61,245 $ 49,785 $ 4,028 $ 115,058
=========== =========== =========== ===========
EBITDA excluding stores sold, closed or to be closed and
facility action charges $ 46,159 $ 47,116 $ (4,165) $ 89,110
=========== =========== =========== ===========
13
TABLE 4: CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) Third quarter Fourth Quarter
Fiscal 2002 Fiscal 2001
----------- -----------
Cash $14,179 $16,860
Other current assets 69,279 173,813
-------- ----------
Total current assets 83,458 190,673
Property, plant & equipment 551,529 700,698
Costs in excess of net assets acquired, net 190,658 203,900
All other assets 123,019 118,758
-------- ----------
Total assets $948,664 $1,214,029
======== ==========
Senior credit facility $6,750 $67,000
All other current liabilities 142,836 146,981
-------- ----------
Total current liabilities 149,586 213,981
Notes, senior credit facility and capital
lease obligations 437,180 547,158
All other liabilities 87,734 103,333
-------- ----------
Total liabilities 674,500 864,472
Stockholders' equity 274,164 349,557
-------- ----------
Liabilities and stockholders' equity $948,664 $1,214,029
======== ==========
TABLE 5: CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Year-to-Date Year-to-Date
Fiscal 2002 Fiscal 2001
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(75,644) $(45,810)
Depreciation and amortization 61,367 86,255
All other additions/subtractions to income 97,130 (34,789)
--------- --------
Cash flow from operating activities 82,853 5,656
--------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (16,012) (37,588)
Proceeds from repositioning activities 124,932 79,206
All other investing cash flow (8,088) 4,513
--------- --------
Cash flow from investing activities 100,832 46,131
--------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net debt repayment (169,904) (59,599)
All other financing activities (16,462) (2,919)
--------- --------
Cash flow used in financing activities (186,366) (62,518)
--------- --------
Decrease in cash (2,681) (10,731)
Cash at beginning of year 16,860 36,505
--------- --------
Cash at end of quarter $14,179 $25,744
========= ========
14
TABLE 6 - STATEMENTS OF OPERATIONS IN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
FORMAT
Twelve Weeks Ended Forty Weeks Ended
(Dollars in thousands, except per share data) November 5, November 6, November 5, November 6,
2001 2000 2001 2000
---- ---- ---- ----
Revenue:
Company-operated restaurants $ 259,612 $ 356,254 $ 931,943 $ 1,270,478
Franchised and licensed restaurants 67,016 51,295 205,845 159,895
----------- ----------- ----------- -----------
Total revenue 326,628 407,549 1,137,788 1,430,373
----------- ----------- ----------- -----------
Operating costs and expenses:
Restaurant operations:
Food and packaging 79,629 110,564 284,392 393,906
Payroll and other employee benefits 82,389 118,728 303,545 407,990
Occupancy and other operating expenses 59,266 86,507 212,226 294,410
----------- ----------- ----------- -----------
221,284 315,799 800,163 1,096,306
Franchised and licensed restaurants 49,613 36,082 158,028 115,650
Advertising expenses 15,696 22,305 59,022 79,340
General and administrative expenses 27,089 30,847 86,770 109,476
Facility action charges, net 2,121 34,343 60,827 51,310
----------- ----------- ----------- -----------
Total operating costs and expenses 315,803 439,376 1,164,810 1,452,082
----------- ----------- ----------- -----------
Operating income (loss) 10,825 (31,827) (27,022) (21,709)
Interest expense (11,752) (16,265) (46,783) (53,510)
Other income (expense), net (467) (1,494) 362 1,084
----------- ----------- ----------- -----------
Loss before income taxes (1,394) (49,586) (73,443) (76,303)
Income tax expense (benefit) 337 (20,157) 2,204 (30,493)
----------- ----------- ----------- -----------
Net loss ($ 1,731) ($ 29,429) ($ 75,647) ($ 45,810)
=========== =========== =========== ===========
Basic and diluted net loss per common share ($ 0.03) ($ 0.58) ($ 1.50) ($ 0.91)
=========== =========== =========== ===========
Basic and diluted weighted average shares outstanding 50,505 50,501 50,503 50,501
=========== =========== =========== ===========
15
SAFE HARBOR DISCLOSURE
Matters discussed in this news release contain certain forward-looking
statements that are based on management's beliefs and assumptions derived from
information currently known to the Company's management. Forward-looking
statements may include, but are not limited to, descriptions of plans or
objectives of the Company's management for future or past operations, products
or services, earnings or other measures of economic performance including
statements of profitability of business segments and subsidiaries, estimates of
recoverability of long-lived assets, current bank relationships, and current
repositioning activities including anticipated store closures. Such statements
reflect the view of the Company's management with respect to future events and
are subject to risks and uncertainties, such as changes in the fast food
industry and changes to the Company's plans, objectives, expectations and
intentions. Should one or more of these risks materialize or should underlying
beliefs or assumptions prove incorrect, the Company's actual results could
differ materially from those discussed in this news release. Factors that could
cause or contribute to such differences are consumers' concerns or adverse
publicity regarding the Company's products, effectiveness of operating
initiatives and advertising and promotional efforts, changes in economic
conditions, changes in commodity prices, availability and cost of energy,
workers' compensation and general liability claim experience, the impact of
competitive products and pricing, changes in the Company's suppliers' ability to
provide quality and timely products to the Company, delays in opening new
restaurants or completing remodels, the operational success of the Company's
franchisees, availability of financing for the Company and its franchisees,
unfavorable outcomes on litigation, changes in accounting policies and
practices, new legislation or government regulation and other factors as
discussed in the Company's filings with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date they are made. CKE
does not undertake to update forward-looking statements to reflect circumstances
or events that occur after the date the forward-looking statements are made.
Without limiting the foregoing, CKE undertakes no obligation to update Business
Outlook guidance including any of the factors that influence earnings.
16
DISCLOSURE RELATING TO THE UPCOMING PROXY SOLICITATION
CKE Restaurants and Santa Barbara Restaurant Group will be jointly
filing relevant documents concerning the merger of SBRG into CKE with the
Securities and Exchange Commission. CKE URGES ITS AND SBRG'S STOCKHOLDERS TO
READ THESE DOCUMENTS BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Stockholders of
either company will be able to obtain the documents free of charge at the SEC's
website, www.sec.gov. In addition, documents filed with the Securities and
Exchange Commission by CKE Restaurants and Santa Barbara Restaurant Group will
be available free of charge from both the Corporate Secretary of CKE Restaurants
at 3916 State St., Suite 300, Santa Barbara, California 93105, telephone (714)
774-5796, and the Corporate Secretary of Santa Barbara Restaurant Group at 3938
State Street, Suite 200, Santa Barbara, California 93105, telephone (805)
563-3644. The directors and executive officers of both companies may be deemed
to be participants in the solicitation of proxies. The direct or indirect
interests of such participants, by security holdings or otherwise, will be
included in the joint proxy statement to be filed with the SEC. In addition, you
can review related information set forth in CKE Restaurants' proxy statement for
its Annual Meeting of Stockholders held June 12, 2001, as filed with the SEC on
May 14, 2001, and in Santa Barbara Restaurant Group's proxy statement for its
Annual Meeting of Stockholders held August 6, 2001, as filed with the SEC on
July 13, 2001. STOCKHOLDERS OF BOTH CKE RESTAURANTS AND SANTA BARBARA RESTAURANT
GROUP SHOULD READ CAREFULLY THESE PROXY STATEMENTS AND OTHER DOCUMENTS FILED
WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION.
# # #
17