1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: JANUARY 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A TO N/A
COMMISSION FILE NUMBER: 0-10316
CARL KARCHER ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
CALIFORNIA 95-2415578
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
COMMON STOCK, NO PAR VALUE
Indicate by check mark 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1994 was $154,587,772.
The number of shares outstanding of each of the registrant's common stock,
as of March 31, 1994 was 18,757,246.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS IN WHICH
REFERENCED
--------------
Portions of the Company's Proxy Statement to be filed with the Commission III
within 120 days of January 31, 1994, prepared in connection with the Annual
Meeting of Shareholders to be held in 1994
The Exhibit Index is located on Page E-1.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
2
CARL KARCHER ENTERPRISES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
PART I
PAGE
----
Item 1. Business...................................................................... 1
Item 2. Properties.................................................................... 7
Item 3. Legal Proceedings............................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders........................... 8
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters......... 8
Item 6. Selected Financial Data....................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 9
Item 8. Financial Statements and Supplementary Data................................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant............................ 18
Item 11. Executive Compensation........................................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 19
Item 13. Certain Relationships and Related Transactions................................ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 20
3
PART I
ITEM 1. BUSINESS
Carl Karcher Enterprises, Inc. ("Enterprises" or the "Company"), is a
California business begun in the mid-1950's that operates, franchises and
licenses a quick-service restaurant chain under the name "Carl's Jr." Located
primarily in the Western United States, the Carl's Jr. chain consisted of 648
restaurants as of January 31, 1994, of which 376 were operated by Enterprises,
255 were operated by its franchisees and 17 were operated by its international
licensees.
In January 1994, Enterprises acquired from Boston Chicken, Inc. ("BCI"),
franchisors and operators of a fast-growing rotisserie-roasted chicken concept,
the rights to develop, own and operate up to 300 Boston Chicken stores in
Southern California and metropolitan Sacramento, the first of which is scheduled
to open in the summer of 1994. In February 1994, Boston Pacific, Inc. ("Boston
Pacific"), a California corporation, was formed by the Company to conduct these
Boston Chicken operations. At the upcoming Annual Meeting, the shareholders of
Enterprises will vote upon a proposed reincorporation transaction whereby
Enterprises and Boston Pacific will become wholly-owned subsidiaries of CKE
Restaurants, Inc. ("CKE Restaurants"), a Delaware holding company formed to
provide overall strategic direction to both Enterprises and Boston Pacific.
Since neither Boston Pacific nor CKE Restaurants were operating prior to January
31, 1994, the financial information in this report and the discussion and
analysis herein relates solely to Enterprises, unless otherwise indicated.
RECENT DEVELOPMENTS
The Company believes that it has two significant opportunities for growth.
First, the Company has implemented an aggressive strategic program designed to
increase restaurant sales and improve the cost structure of its Carl's Jr.
restaurant operations. This program includes marketing and pricing strategies
designed to improve consumer perceptions of value while at the same time
maintaining the Carl's Jr. reputation for superior food, service and
cleanliness. Second, the Company, through Boston Pacific, anticipates an
accelerated development of its Boston Chicken stores by initially converting a
number of selected Carl's Jr. restaurants.
STRATEGIC PROGRAM
The Company recruited a new president and chief executive officer in
December 1992. Recessionary economic conditions and a changing competitive
environment had resulted in a decline in the frequency of visits by fast-food
users at Carl's Jr. restaurants. With a team comprised of existing senior
management and several new executives, the Company implemented a strategic
program, which was based upon extensive analyses of Company operations and
consumer research. The strategic program's three main elements are to increase
restaurant sales by developing and implementing consumer-driven and
research-based marketing programs, to aggressively improve the restaurant-level
cost structure and to realign and invest in the organization and efficiency of
its human resources.
The program has yielded significant results to date. As part of its new
marketing and advertising strategy, the Company has hired a new advertising
agency to improve its advertising effectiveness and increased its spending on
radio and television media. In addition, the Company has strengthened its
consumer research and has recently introduced a simplified menu and a new
pricing structure designed to promote consumer perceptions of quality and value.
Through new labor-scheduling guidelines and enhanced technology, increased
outsourcing and downsizing, and improved safety programs and incentives, the
Company has also significantly reduced operating costs. As part of its
organizational realignment, the management structure from the restaurant level
through the regional vice president level has been streamlined, the headquarters
organization has been restructured, and key personnel have been added to
marketing and product development.
1
4
BOSTON CHICKEN AGREEMENT
The Company's agreement with BCI is the largest area development agreement
to date between BCI and a franchisee. Boston Pacific plans to open 60 Boston
Chicken stores by the end of fiscal 1996 and at least 200 by January 1999.
Boston Chicken stores specialize in complete meals featuring rotisserie-roasted
chicken, fresh vegetables and other side dishes. Boston Chicken stores offer the
convenience and value associated with fast food, and the quality and freshness
associated with traditional home cooking. Management believes that the Boston
Chicken store concept is well-suited to California consumer tastes. The
agreement with BCI provides the Company with the opportunity to participate in
one of the fastest-growing segments in the restaurant industry and to attract a
consumer market segment that is distinct from Carl's Jr. restaurant customers.
CARL'S JR.
COMPANY OPERATIONS
OVERVIEW
The Company believes that it is one of the leaders in offering a wide
variety of food in a quick-service restaurant with comfortable dining rooms and
partial table service. The Company was among the first to offer self-service
salad bars and all-you-can-drink beverage bars. The Carl's Jr. menu is
relatively uniform throughout the chain and features several charbroiled
hamburgers and chicken sandwiches, including the Famous Big Star, Western Bacon
Cheeseburger(R) and Charbroiler Chicken Sandwiches(R). Other entrees include a
fish sandwich, several baked potatoes and prepackaged salads. Side orders, such
as french fries, onion rings and fried zucchini, are also offered. Most
restaurants also have a breakfast menu including eggs, bacon, sausage, french
toast dips, orange juice, the Sunrise Sandwich(R) and the Breakfast Burrito.
The Company strives to maintain high standards in all materials used by its
restaurants as well as the operations related to food preparation, service and
cleanliness. Hamburgers and chicken sandwiches at Carl's Jr. restaurants are
generally prepared or assembled after the customer has placed an order and
served promptly. Hamburger patties and chicken breasts are charbroiled in a
gas-fired double broiler that sears the meat on both sides. The meat is conveyed
through the broiler automatically to maintain uniform heating and cooking time.
Each Company-operated restaurant is operated by a manager who has received
13 to 17 weeks of management training. This training program involves a
combination of classroom instruction and on-the-job training in specially
designated training restaurants. Other restaurant employees are trained by the
restaurant managers in accordance with Company guidelines. Restaurant managers
are supervised by a district manager, responsible for eleven to fourteen
restaurants. Approximately 30 district managers are under the supervision of
four regional vice presidents, all of whom regularly inspect the operations in
their respective districts and regions.
COST-REDUCTION PROGRAM; ELIMINATION OF NON-ESSENTIAL OPERATIONS
The Company's strategic program has focused on improving the
restaurant-level cost structure in order to enhance margins and fund
consumer-related investments, such as value pricing. Historically, the Company
manufactured many of its food products as a means of insuring high quality
standards. During fiscal year 1993, however, it was determined that overall food
costs could be lowered by purchasing food products from third party suppliers
without sacrificing these quality standards. Therefore, the Company initiated a
program to lower food costs through the termination of its manufacturing
operations. Sales of products to outside parties were also eliminated at this
time.
Through the elimination of non-essential operations and increased
outsourcing to selected third parties, the Company reduced the cost of providing
maintenance and repair services to its restaurants. In addition, the Company
redefined its cash management activities and liquidated a substantial portion of
its former investment portfolio, utilizing the proceeds to reduce overall bank
debt.
2
5
MARKETING
Advertising has become increasingly important to the Company. Management
believes that in order to successfully compete in today's quick-service
environment, the Company must complement its strong reputation for product
quality with a consumer perception of price value. In an effort to promote the
quality and value concept, the Company will allocate more of its advertising
budget to media spending. In April 1994, the Company initiated a broad-based
marketing campaign to promote the Carl's Jr. concept as the same great food at
lower everyday prices. The Company completed a review of its advertising efforts
in fiscal 1994 and retained a new advertising agency, whose compensation is a
combination of base remuneration plus incentives based on increases in Carl's
Jr. restaurant sales. The initial savings in advertising agency fees that will
result from this new arrangement will be reallocated to its budget for media
advertisements, such as radio and television commercials. Several steps have
also been taken to improve the Company's media advertising effectiveness. For
instance, recent Carl's Jr. television commercials feature more contemporary
castings and settings designed to appeal more to younger audiences. It is the
Company's intention to continue to target these customers because they are the
highest frequency fast-food users.
FRANCHISED AND LICENSED OPERATIONS
The Company's franchise strategy is designed to further the development of
the Carl's Jr. chain and reduce the total capital required of the Company for
development of new restaurants. Franchise arrangements with franchisees, who
operate in Arizona, California, Nevada, Oregon and Utah, generally provide for
initial fees and continuing royalty payments to the Company based upon a
percentage of sales. Additionally, franchisees may purchase food, paper and
other supplies from the Company. Franchisees may also be obligated to remit
lease payments for the use of Company-owned or leased restaurant facilities.
Under the terms of these leases, they are required to pay related occupancy
costs, which include maintenance, insurance and property taxes.
The Company receives notes from franchisees in connection with the sales of
Company-operated restaurants. Generally, these notes bear interest at 12.5%,
mature in five to 15 years and are secured by an interest in the restaurant
equipment sold.
The Company's franchising philosophy is such that only candidates with
appropriate experience are considered for the program. Specific net worth and
liquidity requirements must also be satisfied. Absentee ownership is not
permitted and franchise owners are encouraged to live within a one-hour drive of
their restaurants. Area development agreements generally require franchisees to
open a specified number of Carl's Jr. restaurants in a designated geographic
area.
In order to stimulate development of restaurants in underpenetrated
markets, the Company initiated a conversion program during fiscal 1991 under
which Company-operated restaurants were sold to franchisees. During fiscal 1993,
the Company sold 33 of its greater San Francisco Bay Area restaurants to
franchisees, substantially completing the conversion of this region. Two
additional such sales occurred during fiscal 1994. In total, since program
inception the Company has completed 70 such sales.
In an effort to expand the Carl's Jr. presence internationally, the Company
has entered into nine exclusive licensing agreements that allow licensees the
use of the Carl's Jr. name and trademarks and provide for initial fees and
continuing royalties based upon a percent of sales. As of January 31, 1994,
there were 11 licensed restaurants in operation in Mexico, 2 licensed
restaurants in operation in Japan and 4 licensed restaurants in operation in
Malaysia. None of the Company's licensing agreements generated material
royalties in the year ended January 31, 1994.
DISTRIBUTION CENTERS
The Company operates a distribution center at its corporate headquarters in
Anaheim, California and a smaller distribution facility in Manteca, California.
Produce, frozen meat patties, dairy and other food and supply items, excluding
bakery products, are distributed to Company-operated Carl's Jr. restaurants
generally twice a week. Many of these products are sold to franchisees, and in
some cases, to certain licensees. These
3
6
distribution centers are subject to frequent inspection by representatives of
the United States Department of Agriculture.
BOSTON CHICKEN
In January 1994, the Company entered into a Development Agreement with BCI
granting rights to the Company, as a franchisee of BCI, to develop and operate
200 Boston Chicken stores (with an option, at the Company's election, to develop
100 more stores, as discussed below) in three designated areas of California
(the "Designated Markets"). The Designated Markets comprise a specified market
area around Sacramento, the County of San Diego and nine counties in the Los
Angeles area (including the counties of Los Angeles, Orange, Riverside, Santa
Barbara and San Bernardino). Boston Pacific plans to achieve a rapid and cost-
effective roll-out of Boston Chicken stores by first converting a number of
Carl's Jr. restaurants. Of its first 50 Boston Chicken stores, Boston Pacific
anticipates that between 10 and 15 will be converted Carl's Jr. restaurants. By
converting these selected Carl's Jr. restaurants, management's strategy is
designed to accelerate the development of Boston Chicken stores in the
Designated Markets and to achieve a sales and profit shift to surrounding Carl's
Jr. locations and eliminate certain underperforming Carl's Jr. restaurants. The
Company does not currently anticipate converting any additional Carl's Jr.
restaurants to Boston Chicken stores after the initial 10 to 15 conversions are
completed.
The Boston Chicken menu features rotisserie-roasted chicken, fresh-baked
chicken pot pies, a variety of chicken sandwiches, chicken soup and fresh
vegetables, salads and other side dishes, including mashed potatoes made from
scratch, corn, stuffing and creamed spinach, as well as beverages and desserts.
The signature menu item is chicken that is marinated and then slow-roasted in
rotisserie ovens in full view of the customer. The Company believes that the
Boston Chicken store formula has proven to be successful to date in other areas
of the United States.
The first Boston Chicken store was opened in Newton, Massachusetts in 1985.
As of March 21, 1994, there were 257 Boston Chicken stores system-wide. By the
end of 1994, BCI expects to have approximately 450 restaurants in operation
system-wide. There can be no assurance that BCI or its area developers will be
able to achieve this goal.
The Company estimates that the initial investment for a Boston Chicken
store currently is approximately $800,000. This estimate includes development
and franchise fees, professional fees, deposits, leasehold improvements,
furniture, fixtures, equipment, opening inventory and supplies, architectural
and engineering fees, pre-opening costs, permit and impact fees, grand opening
expenses, computer and software expenses, and initial working capital. This
estimate does not include any land or additional costs which will depend on the
location and the nature of the site. The actual cost depends on, among other
factors, the size and location of the store, the type and quantity of equipment
installed, the level of pre-opening expenditures, and the amount of
improvements, less any applicable construction allowance. Costs of converting
existing Carl's Jr. restaurants to Boston Chicken stores are estimated to be
approximately $600,000 per restaurant.
AREA DEVELOPMENT AGREEMENT
Pursuant to the Development Agreement, Boston Pacific is obligated and
intends to develop and operate 200 Boston Chicken stores by January 15, 1999.
The Development Agreement requires Boston Pacific to open a number of Boston
Chicken stores in each Designated Market according to a specified schedule as of
January 15 and July 15 of each year, commencing on January 15, 1995 and ending
on January 15, 1999. Boston Pacific is obligated to open an aggregate of 20
Boston Chicken stores in the three Designated Markets by January 15, 1995, 60 by
January 15, 1996, 110 by January 15, 1997, 160 by January 15, 1998 and 200 by
January 15, 1999. The Company anticipates that its first Boston Chicken store
will open in the summer of 1994.
In consideration of the rights granted to the Company by BCI under the
Development Agreement, the Company paid Boston Chicken an initial fee of
$1,000,000 ($5,000 per planned Boston Chicken store). The Company also paid to
BCI a non-refundable deposit of $1,000,000, which will be applied as a credit of
$5,000 towards the Company's obligation to pay $35,000 to BCI as an initial
franchise fee upon the opening of each Boston Chicken store by the Company. Upon
opening a Boston Chicken store, the Company is obligated to
4
7
enter into a franchise agreement with BCI and pay BCI an annual royalty fee of
5% of the gross sales of that store.
The Development Agreement generally prohibits the Company, or any
affiliate, from engaging or having any interest in any business that competes
with Boston Chicken stores. The operation of Carl's Jr. restaurants is expressly
deemed not to be a business that competes with Boston Chicken stores so long as
such restaurants do not offer rotisserie chicken or other products prepared in
accordance with BCI's recipes or specifications.
The Development Agreement can be terminated by BCI upon the occurrence of
certain events that include, among others: (1) Boston Pacific's failure to
comply with its scheduled development of Boston Chicken stores in the Designated
Markets; (2) the Company's engaging in misconduct that adversely affects the
reputation of Boston Chicken stores or the goodwill associated with the BCI
trademarks; (3) the Company's violation of the prohibition on engaging in
competitive businesses, described above; (4) the failure by the Company to
comply with other provisions of the Development Agreement; and (5) the
insolvency of the Company.
The Company has an option, exercisable at least 12 months prior to the
expiration of the initial development term on January 15, 1999 (or, if earlier,
the date by which Boston Pacific has opened the required number of Boston
Chicken stores in each Designated Market), to develop an additional 100 Boston
Chicken stores in the Designated Markets. If the Company exercises this option,
the Company and BCI will, at that time, determine the appropriate allocation of
the additional 100 Boston Chicken stores among the Designated Markets and the
appropriate time schedule for developing those restaurants. After the expiration
of the term of the Development Agreement, BCI, or any third party to whom it
grants development rights, will be entitled to develop Boston Chicken stores in
the Designated Markets, subject to certain negotiation rights the Company has
during the first 12 months after the expiration of such term.
FRANCHISE AGREEMENT
The form of franchise agreement to be entered into between the Company and
BCI upon the opening of each Boston Chicken store provides for a term of 15
years and also provides for payment of a $35,000 per store franchise fee (less
the $5,000 deposit), a 5% royalty on gross sales (minus sales/service taxes,
customer refunds and coupons, and the portion of employee meals not charged to
the employee), a 2% national advertising fund contribution, 3.5% local
advertising fund contribution, and a $10,000 grand opening expenditure. The
agreement also permits, upon notice from BCI, an annual 0.25% increase in the
local advertising fund requirement so long as the local advertising fund
contribution does not exceed 5% of sales.
The franchise agreement provides for an area of limited exclusivity
surrounding each Boston Chicken store in which BCI may neither develop nor grant
to others the right to develop additional Boston Chicken stores, except that BCI
reserves the right to engage in special distribution arrangements and, in the
event that the Company does not choose to develop them, to develop regional
shopping mall sites and sites acquired by BCI from others and held for two years
which meet the standards for a Boston Chicken store within the Company's
designated territory. Specified territories in suburban locations are generally
a one-mile radius surrounding the Boston Chicken store, while urban locations
generally have a smaller (e.g., one-half mile) radius or a trade-area-specific
designated territory.
The franchise agreement requires that the stores be operated in accordance
with the operating procedures and menu established by BCI. BCI will conduct
regular inspections of the Company's Boston Chicken stores to determine whether
the stores meet applicable quality, service and cleanliness standards, will work
with Boston Pacific to improve substandard performance or any items of
non-compliance revealed in the course of its inspection, and may terminate the
franchise agreement if the Company does not comply with such standards.
The Company has prepared the information herein concerning BCI from its own
analyses and publicly available historical information regarding BCI. BCI has no
responsibility for the Company's statements, estimates, projections, or
disclosures concerning the Company's proposed Boston Chicken operations or the
results or timing thereof.
5
8
SOURCES OF RAW MATERIALS
The Company's ability to maintain consistent quality throughout the Carl's
Jr. chain depends in part upon its ability to acquire and distribute food
products, restaurant equipment, signs, fixtures and supplies from reliable
sources in accordance with Company specifications. The Company, its franchisees
and its licensees have not experienced any material shortages of these items
which the Company purchases from numerous independent suppliers. Alternate
sources of these items are generally available.
TRADEMARKS AND PATENTS
The Company has registered trademarks and service marks which are of
material importance to the Company's business, including the "Carl's Jr." name,
the "Star" logo and proprietary names for a number of the Carl's Jr. menu items.
"Boston Chicken" and the Boston Chicken logo are registered trademarks of BCI
which may be utilized by the Company in accordance with applicable provisions of
the Development Agreement and franchise agreements thereunder.
SEASONALITY
The Company's Carl's Jr. business is moderately seasonal. Average
restaurant sales are normally higher in the summer months than during the winter
months.
WORKING CAPITAL PRACTICES
Historically, current assets included marketable securities and restaurant
property costs to be sold and leased back. Subsequent to January 25, 1993, as
part of its strategic initiatives, the Company began liquidating a significant
portion of its former investment portfolio, using the proceeds to repay its
borrowings under the Company's revolving credit line. The sale/leaseback program
is no longer emphasized, and thus existing inventories of restaurant property
costs to be sold and leased back have been significantly reduced.
The Company does not carry significant amounts of inventory, experience
material returns of merchandise, or generally provide extended payment terms to
its franchisees or licensees. Cash from operations, along with cash, cash
equivalents and marketable securities on hand, should enable the Company to meet
its financing requirements.
CUSTOMERS
No material part of the Company's business is dependent upon a single
customer or a few customers.
BACKLOG
Backlog orders are not material to the Company's business.
GOVERNMENT CONTRACTS
The Company has no material contracts with the United States government or
any of its agencies.
COMPETITION
Major chains, which have substantially greater financial resources than the
Company, dominate the quick-service restaurant industry. Certain of these major
chains have increasingly offered selected food items and combination meals,
temporarily or permanently at discounted prices. A change in the pricing or
other marketing strategies of one or more of these competitors could have an
adverse impact on the Company's Carl's Jr. sales and earnings in affected
markets.
The Company believes that its particular emphasis on higher quality foods
that appeal to a broad consumer base, allows the Company to compete effectively
with significantly larger quick-service restaurant chains. Careful attention to
dining accommodations, including periodic upgrading of existing facilities, also
plays an important role.
RESEARCH AND DEVELOPMENT
The Company maintains a test kitchen for its Carl's Jr. operations at its
headquarters in which new products and production concepts are developed on an
ongoing basis. While these efforts are critical to the Company, amounts expended
for these activities are not considered material. There are no customer
sponsored research and development activities.
6
9
ENVIRONMENTAL MATTERS
Compliance with federal, state and local environmental provisions
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment did not have a material effect on capital
expenditures, earnings or the competitive position of the Company in fiscal
1994. The Company cannot predict the effect on its operations from possible
future legislation or regulation.
NUMBER OF EMPLOYEES
The Company employs approximately 10,400 persons in its Carl's Jr.
operations, of whom approximately 9,800 are hourly restaurant, distribution or
clerical employees, and approximately 600 are managerial, salaried employees
engaged in administrative and supervisory capacities. A majority of the hourly
employees are employed on a part-time basis to provide service necessary during
peak periods of restaurant operations.
None of the Company's employees are currently covered by a collective
bargaining agreement. The Company has never experienced a work stoppage
attributable to labor disputes and believes its employee relations to be good.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wage requirements, overtime and other working conditions. A
large portion of the Company's food service personnel are paid at a minimum wage
level and, accordingly, increases in the federal or state minimum wage affect
the Company's labor costs. The California minimum wage is currently $4.25 and is
equal to the established federal minimum wage.
ITEM 2. PROPERTIES.
Most Carl's Jr. restaurants are freestanding, ranging in size from 2,500 to
4,000 square feet, with a seating capacity of 65 to 115 persons. Some
restaurants are located in shopping malls and other in-line facilities.
Currently, several building plan types are in use system-wide, depending upon
operational needs. Most restaurants are constructed with drive-thru facilities.
A majority of Company-operated restaurants are leased from others. The
following table sets forth the type of real estate interest that the Company had
in its Carl's Jr. restaurants in operation at January 31, 1994:
TYPE OF INTEREST
----------------
Lease land and building................................ 338
Lease land only (building owned)....................... 23
Own land and building.................................. 15
---
376
---
---
The Company subleases certain sites to its franchisees and owns an
additional 33 restaurant properties which are leased primarily to franchisees.
The terms of the Company's leases or subleases generally range between
three and 35 years and primarily expire through fiscal 2026. The expiration of
these leases is not expected to have a material impact on the Company's
operations in any particular year as the expiration dates are staggered over a
number of years and many of the leases contain renewal options.
Once a potential Carl's Jr. restaurant site is identified, the Company's
real estate personnel either seek to negotiate with the owner to construct a
restaurant to the Company's specifications and enter into a long-term lease of
the premises, or the site is purchased. Spaces for restaurants in shopping malls
and in-line buildings are typically leased and developed to the Company's
specifications with the Company owning the leasehold improvements. The Company
generally performs the construction management function while utilizing outside
general contractors to construct its buildings.
7
10
The following table summarizes the California regions in which the
Company's Carl's Jr. restaurants are located:
Los Angeles and Orange County.......................... 264
Sacramento............................................. 40
San Diego.............................................. 39
Fresno................................................. 23
Bakersfield............................................ 9
San Francisco.......................................... 1
---
376
---
---
The Company's corporate headquarters and distribution center, located in
Anaheim, California, are leased and occupy approximately 78,000 and 102,000
square feet, respectively. The Manteca, California distribution facility has
42,000 square feet and is owned by the Company.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits incidental to its business.
Management does not believe that the outcome of such litigation will have a
material adverse effect upon the operations or financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
As of April 25, 1994, shares of the Company's Common Stock were traded on
the New York Stock Exchange under the symbol "CKR." Prior to that date, the
Company's Common Stock was regularly quoted on the NASDAQ National Market System
under the symbol "CARL." At January 31, 1994, there were approximately 2,600
record holders of the Company's Common Stock. The high and low closing prices,
during each quarter, for the last two fiscal years were as follows:
QUARTER 1ST 2ND 3RD 4TH
----------------------------------------------------- ---- --- ---- ----
Fiscal 1994
High............................................... $8 7/8 $8 5/8 $9 5/8 $14 1/4
Low................................................ 7 3/4 6 3/4 7 3/8 8 7/8
Fiscal 1993
High............................................... 10 1/4 8 3/8 10 7/8 11
Low................................................ 8 1/8 6 3/4 7 1/4 7 3/4
During fiscal 1994 and 1993, the Company paid four consecutive quarterly
dividends of $.02 per share of Common Stock, for a total of $.08 per share per
year. The Company recently changed its dividend policy to provide for
semi-annual payments of dividends.
8
11
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth below should be read in conjunction with the
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Form 10-K.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
System-wide sales:
Company-operated restaurants...... $381,733 $414,510 $466,198 $469,449 $468,329
Franchised restaurants............ 190,434 184,658 138,664 105,297 81,208
Internationally licensed
restaurants.................... 18,780 17,451 9,535 4,082 903
-------- -------- -------- -------- --------
Total system-wide sales........ $590,947 $616,619 $614,397 $578,828 $550,440
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Revenues(1)......................... $460,368 $502,632 $540,370 $527,580 $515,809
Income (loss) before cumulative
effect of changes in accounting
principles........................ 4,433 (3,057) 13,038 13,036 5,551
Net income (loss)................... 3,665 (5,507) 13,038 13,036 5,551
Income (loss) per share before
cumulative effect of changes in
accounting principles............. .24 (.17) .72 .72 .30
Net income (loss) per share......... .20 (.31) .72 .72 .30
Cash dividends paid per common
share............................. .08 .08 .08 .08 .08
Total assets(1)..................... 242,135 268,924 294,375 305,965 309,223
Long-term debt, including capital
lease obligations................. 63,300 80,254 102,074 117,137 124,637
Shareholders' equity................ $ 92,076 $ 84,732 $ 89,679 $ 78,818 $ 66,632
Ratio of debt to equity(2).......... 0.9x 1.3x 1.5x 1.9x 2.3x
Number of restaurants at year end:
Company-operated.................. 376 379 414 424 454
Franchised........................ 255 244 196 149 86
Internationally licensed.......... 17 19 12 5 1
-------- -------- -------- -------- --------
Total system-wide
restaurants.................. 648 642 622 578 541
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- - ---------------
(1) Prior year amounts have been reclassified to conform with the fiscal 1994
presentation.
(2) Debt, as defined in this computation, includes long-term debt, capital lease
obligations and their related current portions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements and related notes and "Selected Financial Data" included elsewhere in
this Form 10-K.
OVERVIEW
Net income for fiscal 1994, a 53-week reporting period, was $3.7 million,
or $.20 per share, compared with a net loss in fiscal 1993, a 52-week reporting
period, of $5.5 million, or ($.31) per share. Fiscal 1994 included a
nonrecurring, pre-tax charge of $3.0 million related to an arbitration
settlement for an alleged breach of contract involving an investor group which
had been negotiating for the purchase of several existing Carl's Jr.
restaurants. Fiscal 1993 included an $11.1 million pre-tax, nonrecurring charge
related to the
9
12
Company's strategic initiatives, workforce reductions and certain lease
subsidies (see Results of Operations -- General and Administrative Expenses) as
well as a $5.1 million pre-tax charge resulting from a Company-commissioned
independent actuarial valuation of the Company's self-insured workers'
compensation reserve during that year. Excluding the effects of all of these
charges, operating income increased $4.5 million, or 50.5%, to $13.5 million in
fiscal 1994 from fiscal 1993.
The key components of the Company's strategic program, which was largely
initiated in January 1993 and aggressively pursued throughout fiscal 1994, were
as follows:
- To develop and implement new marketing programs that rely upon
extensive consumer research and are designed to improve consumers'
price/value perceptions and, in turn, improve restaurant sales trends. This
effort included better coordination of consumer research with the product
development and pricing process and a more contemporary, compelling
advertising approach;
- To improve the Company's restaurant-level margin and cost structure
by, among other things, increasing restaurant labor productivity and
decreasing repair and maintenance and other costs; and
- To streamline and consolidate the Company's workforce, eliminate
non-essential business activities and increase the organizational
effectiveness of the Company.
The aim of two of the components of this strategic program, improving the
restaurant-level cost structure and streamlining the Company's workforce and
eliminating non-essential business activities, was to reduce operating costs,
primarily salaries and wages, by approximately $10 million during fiscal 1994.
Although the full benefits of the strategic program have yet to be
realized, implementation of this program allowed the Company to achieve the $10
million cost reduction goal, returning it to profitability and significantly
increasing its operating earnings in fiscal 1994. In addition, ongoing
test-marketing activities and consumer research have led to the development of a
new value-pricing program and simplified menu that is currently being introduced
throughout the Carl's Jr. system. A new advertising agency selected in December
1993 has been assisting the Company in its repositioning of the Carl's Jr.
chain.
The most significant evidence of the Company's progress in fiscal 1994 was
the substantial reduction in the costs associated with operating its Carl's Jr.
restaurants. Although the Company operated 11 fewer restaurants on a
weighted-average basis in fiscal 1994 and same-store sales fell 6.5% from fiscal
1993, restaurant operating profits increased 25.8% to $65.2 million in fiscal
1994. The Company-restaurant operating profit margin increased in fiscal 1994 to
17.1% from 12.5% in fiscal 1993.
The following table summarizes the improvement in Company-restaurant
operating profits for fiscal years 1994, 1993 and 1992:
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1994 1993 1992
----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
Sales by Company-operated
restaurants........................ $381,733 100.0% $414,510 100.0% $466,198 100.0%
-------- ----- -------- ----- -------- -----
Operating costs and expenses:
Food and packaging................. 115,444 30.2 127,148 30.7 150,351 32.2
Payroll and other employee
benefits........................ 118,774 31.1 141,870 34.2 146,759 31.5
Occupancy and other operating
expenses........................ 82,321 21.6 93,651 22.6 100,949 21.7
-------- ----- -------- ----- -------- -----
Total operating costs and
expenses...................... 316,539 82.9 362,669 87.5 398,059 85.4
-------- ----- -------- ----- -------- -----
Company-restaurant operating profit
margin............................. $ 65,194 17.1% $ 51,841 12.5% $ 68,139 14.6%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
Major cost savings were achieved during fiscal 1994 in several areas. The
Company reduced its direct labor costs in part through new labor-scheduling
guidelines and enhanced restaurant-level technology, which were implemented
during the second quarter of fiscal 1994. As a percentage of restaurant sales,
these costs
10
13
decreased to 19.9% in the fourth quarter of fiscal 1994 from 22.4% in the same
prior year period. In addition, workers' compensation costs (exclusive of the
$5.1 million charge related to the independent actuarial valuation commissioned
in fiscal 1993) were reduced an additional $2.8 million largely through new
safety programs and other awareness and incentive programs. Total repair and
maintenance costs were reduced by $5.2 million, or 27.6%, through outsourcing
and down-sizing. Further cost savings were achieved through the elimination of
the Company's manufacturing operations and the outsourcing of products to third
party suppliers.
The total system-wide number of Carl's Jr. restaurants in operation during
each of the years in the three-year period ended January 31, 1994 were as
follows:
COMPANY FRANCHISED LICENSED TOTAL
------- ---------- -------- -----
Balance at January 31, 1991................... 424 149 5 578
New restaurant openings..................... 19 18 7 44
Restaurants sold to franchisees............. (32) 32 -- --
Franchised restaurants returning to Company
ownership................................ 3 (3) -- --
--
------- --- -----
Balance at January 31, 1992................... 414 196 12 622
New restaurant openings..................... 7 14 12 33
Restaurants sold to franchisees............. (34) 34 -- --
Closures.................................... (8) -- (5) (13)
--
------- --- -----
Balance at January 31, 1993................... 379 244 19 642
New restaurant openings..................... 3 12 7 22
Restaurants sold to franchisees............. (2) 2 -- --
Closures.................................... (4) (3) (9) (16)
--
------- --- -----
Balance at January 31, 1994................... 376 255 17 648
--
--
------- --- -----
------- --- -----
In January 1994, the Company acquired the rights to develop and operate up
to 300 Boston Chicken stores in Southern California and metropolitan Sacramento.
Boston Pacific, Inc. ("Boston Pacific") was formed in February 1994 to develop,
own and operate these Boston Chicken stores. A reincorporation transaction in
which the Company and Boston Pacific will become wholly-owned subsidiaries of a
new holding company, CKE Restaurants, Inc. ("CKE Restaurants"), and the
shareholders of the Company will become stockholders of CKE Restaurants, will be
submitted for approval at the Company's upcoming Annual Meeting of shareholders.
CKE Restaurants, as a successor to the Company, will provide overall strategic
direction to Enterprises, which will continue to operate and franchise Carl's
Jr. restaurants, and Boston Pacific, which will operate Boston Chicken stores.
The Company's first Boston Chicken store is scheduled to open in the summer of
1994.
RESULTS OF OPERATIONS
REVENUES
The following table presents information regarding the components of the
Company's revenues:
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
Revenues:
Sales by Company-operated
restaurants........................ $381,733 82.9% $414,510 82.5% $466,198 86.3%
Revenues from franchised and licensed
restaurants........................ 78,635 17.1 75,262 15.0 60,025 11.1
Revenue from other outside parties.... -- -- 12,860 2.5 14,147 2.6
-------- ----- -------- ----- -------- -----
$460,368 100.0% $502,632 100.0% $540,370 100.0%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
11
14
COMPANY-OPERATED RESTAURANTS
Sales by Company-operated restaurants fell 7.9% in fiscal 1994 to $381.7
million and 11.1% in fiscal 1993 to $414.5 million due to lower average sales
per restaurant and fewer restaurants in operation in both fiscal 1994 and 1993.
On a same-store basis, these sales, which are calculated using only restaurants
open for the full two years being compared, declined 6.5% in fiscal 1994 to
$366.2 million, following a 5.6% decrease during fiscal 1993 to $376.0 million
from $398.1 million in fiscal 1992. The Company's restaurant sales were
adversely affected in both fiscal 1994 and fiscal 1993 by aggressive promotions
and price reductions by the Company's principal competitors, and the continued
weakness in the California economy. During 1993, the major quick-service
restaurant chains intensified their promotions of value-priced meals and
continued to discount prices of selected menu items.
FRANCHISED AND LICENSED RESTAURANTS
Revenues from franchised and licensed restaurants in both fiscal 1994 and
fiscal 1993 were mainly comprised of sales of food and supplies to franchisees,
initial franchise fees, annual franchise royalties and rents and other
occupancy-related amounts collected from many of the Company's franchisees.
Overall, these revenues increased 4.5% to $78.6 million in fiscal 1994,
following a 25.4% increase to $75.3 million in fiscal 1993. These changes were
largely due to 21 and 63 more franchised restaurants in operation on a weighted-
average basis in fiscal 1994 and fiscal 1993, respectively.
OTHER OUTSIDE PARTIES
Revenues from other outside parties were eliminated in fiscal 1993 in
connection with the Company's strategy to focus on its core business of
operating and franchising Carl's Jr. restaurants, and to eliminate non-essential
lines of business such as its manufacturing and outside sales operations.
OPERATING COSTS AND EXPENSES
COMPANY-OPERATED RESTAURANTS
Company-operated restaurant costs decreased 12.7% to $316.5 million in
fiscal 1994 due to several factors. First, the Company operated, on a
weighted-average basis, 2.8% fewer restaurants in fiscal 1994. Second, Company
initiatives led to a 3.1% reduction in payroll and other employee benefit
expenses as a percentage of Company-operated restaurant sales and a 1.0%
reduction in occupancy expenses as a percentage of these sales. These labor and
payroll expense decreases were due in part to improved labor productivity
related to the Company's strategic program. Also contributing to the improvement
in Company-operated restaurant costs were decreases in food and packaging
expenses of 9.2% and 15.4% in fiscal 1994 and fiscal 1993, respectively.
Food and packaging costs as a percentage of Company-operated restaurant
sales were 30.2%, 30.7% and 32.2% in fiscal years 1994, 1993 and 1992,
respectively. The reductions in these costs from 1992 to 1993 were a result of
the Company's outsourcing program initiated in fiscal 1993. The Company's
decision to exit the manufacturing business was an initiative of the strategic
program begun in fiscal 1993 and continued in fiscal 1994.
As a percentage of sales by Company-operated restaurants, payroll and other
employee benefits were 31.1%, 34.2% and 31.5% in fiscal years 1994, 1993 and
1992, respectively. Reductions in the direct labor component of payroll and
other employee benefits over the past three years have been due to cost and
productivity efficiencies, offset by an increase in workers' compensation costs
in fiscal 1993. As a result of a study of claims and reserve levels by an
independent actuary during fiscal 1993, the Company increased its workers'
compensation reserve by $5.1 million in the fourth quarter of fiscal 1993.
Management is encouraged by a drop in the incident rate of 41.2% in its workers'
compensation claims during fiscal 1994.
Occupancy and other operating expenses as a percentage of sales were 21.6%,
22.6% and 21.7% in fiscal years 1994, 1993 and 1992, respectively. With fewer
restaurants in operation and reductions in repair and
12
15
maintenance costs, occupancy and other costs have decreased, more than
offsetting selected rent and other increases. In fiscal year 1993, however,
these generally fixed costs increased as a percentage of sales due to the drop
in Company-operated restaurant sales.
FRANCHISED AND LICENSED RESTAURANTS
Franchised and licensed restaurant costs are closely tied to franchise
revenues. These costs increased 8.8% in fiscal 1994 to $73.6 million, following
a 28.9% increase in fiscal 1993 to $67.6 million due primarily to the increase
in the number of franchised restaurants. The margins on sales of food and
supplies to franchisees declined over the past three years, particularly in
fiscal 1994, as a result of the lowering of prices of food and other products
supplied to franchisees. These prices were significantly reduced in fiscal 1993
following the outsourcing of the Company's manufacturing business in late fiscal
1993. Also contributing to the increases in these costs in both fiscal 1993 and
fiscal 1994 were increases in occupancy costs associated with the leasing or
subleasing of restaurants to franchisees.
OTHER OUTSIDE PARTIES
Costs associated with the revenues from other outside parties were
eliminated in fiscal 1993 with the termination of this line of business in that
year.
ADVERTISING EXPENSES
As a percentage of Company-operated restaurant sales, advertising expenses
were 5.0%, 4.6% and 4.3%, in fiscal years 1994, 1993 and 1992, respectively.
Advertising expenditures have become increasingly important in the current
competitive environment and have therefore grown as a percentage of Company-
operated restaurant sales over the past three years. As discussed in the
Overview section above, a key component of the Company's strategic program is
the enhancement of consumer research activities and a revamping of the Company's
overall marketing strategy, aimed at more effectively promoting its high-quality
menu items at competitive prices.
GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1994 general and administrative expenses included a $1.7 million
charge representing the net present value of future retirement benefits granted
to Carl N. Karcher in October 1993. Fiscal 1993 general and administrative
expenses included an $11.1 million restructuring charge related primarily to the
Company's strategic initiatives described in the Overview section above.
Excluding the effects of these nonrecurring charges, general and
administrative expenses amounted to $36.0 million, $36.6 million and $36.2
million in fiscal years 1994, 1993 and 1992, respectively, which represented
7.8%, 7.3% and 6.7% of total revenues in those years. These costs are not solely
related to fluctuations in sales volumes as a substantial portion of these
expenses are compensation and benefits for management and administrative
personnel.
The Company's strategic program generated a net savings in general and
administrative expenses of approximately $2.4 million in fiscal 1994. These
savings were largely offset by selected additions to management in the areas of
strategic planning, information systems and marketing.
There have been no material changes to the strategic measures and other
restructuring activities contemplated by the fiscal 1993 restructuring charge or
the costs associated with these measures. The components of this $11.1 million
charge were as follows:
Corporate Severance and Outplacement Costs -- Severance and outplacement
costs related to the termination of 53 corporate employees in January 1993
amounted to $1.9 million, including an $843,000 noncash charge arising from the
extension and remeasurement of stock options granted to former key management
personnel. These terminated employees were identified and the termination plan
was approved by the Company's Board of Directors on January 20, 1993.
Substantially all of these required severance and outplacement payments were
made in fiscal 1994.
13
16
Lease Subsidies -- In prior years, the Company initiated restructuring
programs to dispose of or franchise its Arizona and Texas operations. As of
January 31, 1994 and 1993, $11.5 million and $12.6 million was accrued for these
reserves, respectively. These balances were mainly comprised of estimated losses
on equipment and estimated lease subsidies. The lease subsidy component of the
restructuring charges represents the net present value of the excess of future
lease payments over estimated sublease income. The remaining unamortized
discount to present value of these lease subsidies at January 31, 1994 was $9.5
million and will be amortized to operations over the remaining sublease terms,
which range up to 22 years. The carrying value of the related equipment
represents the net realizable value of these assets as of January 31, 1994 and
1993. The estimate of certain Arizona lease subsidies (to be paid over the
remaining lease terms ranging from one to 17 years) was increased $4.9 million
as part of the fiscal 1993 restructuring charge because the Company reduced its
sublease rental income projections associated with these restaurants. These
projections are based entirely upon the restaurant sales of the franchisees,
which have been declining as a result of the continued softness in the Arizona
economy.
Store Closures -- A total of $2.3 million of estimated equipment losses and
appropriate lease subsidies was recognized related to the closure of certain
underperforming restaurants, which should be completed in fiscal 1995. The
equipment cannot be used in the Company's operations any longer and provides no
future utility to the Company.
Elimination of Manufacturing Operations -- The elimination of the Company's
manufacturing operations, which was largely completed during fiscal 1993,
included losses on the disposition of the equipment previously used in that
operation and severance costs related to the termination of 232 manufacturing
employees, and required a $2.0 million charge in fiscal 1993.
ARBITRATION SETTLEMENT
As discussed in the Overview section above, in fiscal 1994 the Company
incurred a $3.0 million charge in connection with the settlement of an
arbitration proceeding.
INTEREST EXPENSE
Lower average debt levels throughout fiscal 1994 and fiscal 1993 resulted
in a $3.2 million, or 23.8%, decrease in interest expense in fiscal 1994 and a
$3.1 million, or 18.4% decrease in fiscal 1993. Declining interest rates in
fiscal 1993 also contributed to the decrease in that year.
OTHER INCOME, NET
Other income, net, decreased 54.8% in fiscal 1994 to $6.1 million and 12.5%
in fiscal 1993 to $13.6 million. The fiscal 1994 decrease was due largely to a
decrease in investment income resulting from the redefining of the Company's
cash management activities in connection with its strategic program (see
Financial Condition -- Overview). The fiscal 1993 decrease was mainly due to
fewer gains on sales of restaurants as compared with fiscal 1992.
CHANGES IN ACCOUNTING PRINCIPLES
Effective as of the beginning of fiscal 1994, the Company recognized a
$768,000 cumulative effect charge, net of a $512,000 tax benefit, related to a
change in the method used to discount the Company's estimated workers'
compensation liability (see Note 9). Effective as of the beginning of fiscal
1993, the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." The cumulative effect of this change in
accounting principle resulted in a $2.4 million charge to operations and is
described further in Note 16.
14
17
FINANCIAL CONDITION
OVERVIEW
The Company's current ratio was 1.0 and 1.1 as of January 31, 1994 and
1993, respectively, reflecting the cash-intensive nature of the quick-service
restaurant industry.
As of January 31, 1994, total cash available to the Company was $26.1
million, which included $13.6 million of idle cash invested in money market
funds (a cash equivalent) and short-term marketable securities. As part of its
strategic program, the Company redefined its cash management function and
liquidated a substantial portion of its former investment portfolio during
fiscal 1994. The securities on hand as of January 31, 1994 consisted primarily
of holdings in investment-grade money market funds, government debt, preferred
stock and mutual funds and were invested in accordance with the Company's new
investment policy. This new policy is designed to maintain a diversified, highly
liquid portfolio with minimal interest rate risk which will generally not
include margined securities.
Restaurant property costs to be sold and leased back were largely
reclassified to property and equipment in fiscal 1994 as management no longer
intends to actively pursue this means of financing new Company-operated
restaurants.
Prior to the refocusing of the Company's investing activities, the Company
maintained a long-term investment portfolio, which was comprised of preferred
stocks, debt and other securities valued individually at cost and written down
when a decline in market value was deemed other than temporary. Long-term
investments were reclassified to current marketable securities prior to the sale
of such a security, which occurred primarily in connection with redemptions and
tender offers made by the issuers of the securities or when the Company's
long-term price objectives had been achieved.
As of January 31, 1994, the other current assets caption in the
accompanying balance sheets included $6.8 million of additional investment
securities which were held in trust by the State of California as of that date
in connection with the Company's self-insured workers' compensation program.
Proceeds from the liquidation of the former investment portfolio were used to
purchase these securities. The State requires the Company to secure its
potential workers' compensation claims each year by providing a prescribed
amount either through one or more standby letters of credit or an equivalent
amount of cash or investment securities. The requirement for the upcoming period
beginning May 1, 1994 was decreased to $12.1 million from $14.7 million and the
Company recently obtained from its bank a standby letter of credit for this
entire amount. Accordingly, the $6.8 million of investment securities on deposit
with the State as of January 31, 1994 was returned to the Company in April 1994.
The remaining proceeds from the liquidation of the former investment
portfolio were largely used to repay the Company's $18.1 million revolving
credit line borrowings and $2.4 million of obligations secured by marketable
securities during fiscal 1994. This reduction of current liabilities was
partially offset by a $3.9 million reclassification of bank debt in recognition
of certain upcoming fiscal 1995 maturity dates.
As of January 31, 1994, the Company was not in compliance with certain of
the covenants governing its revolving credit line, the $6.4 million term loan
maturing in December 1994, and both of the standby letters of credit expiring in
April 1994 related to the Company's workers' compensation program. In March
1994, the Company negotiated with its bank to provide a $15.0 million credit
line through June 1995 under which $12.1 million will be committed to a single
standby letter of credit to satisfy the State's current requirement related to
the Company's workers' compensation program. This renegotiation resulted in the
elimination of one of the previously issued standby letters of credit, thereby
curing any of its related covenant violations. In addition, a waiver of the
requirements of the remaining covenant violations was received and more
favorable covenants were negotiated in their place that will apply to future
measurement periods.
Long-term debt decreased $14.3 million in fiscal 1994 largely as a result
of $11.5 million of principal payments ($1.7 million of which was from the
proceeds from the liquidation of the former investment portfolio) and the $3.9
million reclassification of bank debt to current portion of long-term debt.
Further prepayment of long-term debt is not anticipated as the Company's
remaining debt agreements require sizable prepayment penalties.
15
18
LIQUIDITY AND CAPITAL RESOURCES
The need for capital arises, principally, for the construction and
remodeling of Carl's Jr. restaurants, the payment of lease obligations, the
repayment of debt and, beginning in fiscal 1995, the development of Boston
Chicken stores. During fiscal 1994, the Company's working capital needs and
other capital requirements were financed primarily through internally generated
funds.
Cash flows from operating activities have generally consisted of net income
or loss, adjusted for certain noncash revenues and expenses, including
depreciation, amortization, restructuring charges, other nonrecurring charges
and deferred taxes, as well as changes in certain current asset and liability
accounts. Net cash provided by operating activities increased $3.5 million to
$27.7 million in fiscal 1994, largely as a result of improved operating results
for the year. Lower operating earnings in fiscal 1993 as compared with fiscal
1992 led to a $9.0 million decrease in net cash provided by operating earnings
in that year.
During fiscal 1994, $9.5 million of net cash was provided by investing
activities, which consisted primarily of $30.2 million of proceeds from the
liquidation of the Company's former investment portfolio and $4.8 million of
notes receivable collections, offset by $13.9 million of purchases of property
and equipment and the reinvestment of $12.7 million of idle cash in accordance
with the Company's new investment policy. During fiscal 1993, $3.8 million of
net cash was provided by investing activities, which was due to the Company's
sale/leaseback program, which generated $4.7 million of net cash, collections of
notes receivable totaling $3.6 million, the Company's former investment
portfolio yielding $2.7 million of net cash and the sales of certain
Company-operated restaurants, which generated $2.1 million of cash. Purchases of
property and equipment totaling $9.3 million in fiscal 1993 partially offset
these inflows.
Net cash used in financing activities amounted to $31.7 million and $27.5
million in fiscal 1994 and fiscal 1993, respectively. The Company's net $18.1
million revolving credit line borrowings were repaid in fiscal 1994, and the
repayment of long-term debt totaled $11.5 million in that year. Fiscal 1993
included $19.9 million of long-term debt repayments. Cash was also paid in both
fiscal 1994 and fiscal 1993 principally for the repayment of obligations due
brokers, which were paid in full in fiscal 1994, the repayment of capital lease
obligations and dividends.
New Carl's Jr. restaurant openings have been slowed while management
focuses on improving the sales and operating profits of its existing
restaurants. A total of six new Carl's Jr. restaurants are planned for the
coming fiscal year.
Under the terms of its development agreement with Boston Chicken, Inc., the
Company is obligated to open an aggregate of 200 Boston Chicken Stores in
designated markets by January 15, 1999. In order to comply with this development
agreement, the Company will be required to develop 40 to 50 Boston Chicken
stores per year over the next five years. The Company also has the option to
develop 100 additional Boston Chicken stores in the markets designated in the
development agreement, the appropriate time schedule for which will be
determined upon exercise of this option.
Of the first 50 Boston Chicken stores, the Company anticipates that it will
convert approximately 10 to 15 Carl's Jr. restaurants to Boston Chicken stores.
By converting these selected Carl's Jr. restaurants, management's strategy is
designed to accelerate the development of Boston Chicken stores and achieve a
sales and profit shift to surrounding Carl's Jr. locations and eliminate certain
underperforming Carl's Jr. restaurants. The Company does not currently
anticipate converting any additional Carl's Jr. restaurants to Boston Chicken
stores after the initial 10 to 15 conversions are completed.
The Company estimates that the initial costs associated with the opening of
each new Boston Chicken store will be approximately $800,000. This estimate
includes, among other things, leasehold improvements, equipment, opening
inventory and supplies, and initial working capital. This estimate does not
include any land or additional costs which may be necessary, depending on the
location and the nature of each individual site. The costs of converting
existing Carl's Jr. restaurants to Boston Chicken stores are estimated to be
approximately $600,000 per conversion.
16
19
A shelf registration statement has been filed by CKE Restaurants (which
assumes the reincorporation proposal described in the Overview section is
completed) covering up to $75 million of debt, convertible debt or preferred
stock. The Company is also currently negotiating with its bank to increase the
amount available under its credit facility.
The Company believes that the cash generated from its operations, along
with the $26.1 million of cash, cash equivalents and short-term marketable
securities on hand as of January 31, 1994, the $6.8 million of investment
securities recently returned to the Company from the State, and a combination of
proceeds from possible offerings under the shelf registration statement and
additional borrowings from banks or other financial institutions will provide
the Company the funds necessary to meet all of its obligations, including the
payment of maturing indebtedness and the development of Carl's Jr. restaurants
and Boston Chicken stores.
IMPACT OF INFLATION
Management recognizes that inflation has an impact on food, construction,
labor and benefit costs, all of which can significantly affect Company
operations. High interest rates can negatively affect lease payments for new
restaurants, as well. Historically, the Company has been able to offset the
effects of inflation through periodic price increases. However, given the
competitive pressures within the quick-service restaurant industry and the
recessionary environment, management has emphasized cost controls rather than
price increases during fiscal 1994.
NEW ACCOUNTING PRONOUNCEMENTS
The adoption of Statements of Financial Accounting Standards Nos. 112 and
114, "Employers' Accounting for Postemployment Benefits" and "Accounting by
Creditors for Impairment of a Loan," respectively, are not expected to have a
material effect on the results of operations or financial condition of the
Company.
The Company is required to adopt Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," as of February 1, 1994. SFAS 115 requires the inclusion in
income or shareholders' equity of unrealized gains and losses resulting from the
fair value accounting of investments in debt and equity securities except for
debt securities intended to be held to maturity. The adoption of SFAS 115 is not
expected to have a material effect on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules, and Reports of Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
17
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing in the "Information Concerning Nominees" section
of the Company's Proxy Statement prepared in connection with the Annual Meeting
of Shareholders to be held in 1994, to be filed with the Commission within 120
days of January 31, 1994, is hereby incorporated by reference. The executive
officers of the Company and Boston Pacific are listed below.
NAME AGE POSITION(S)
- - ------------------- --- --------------------------------------------------------------
Donald E. Doyle 47 President and Chief Executive Officer of the Company
Rory J. Murphy 46 Senior Vice President, Operations of the Company
Loren C. Pannier 52 Senior Vice President, Chief Financial Officer of the Company
Kerry W. Coin 46 Senior Vice President and General Manager of Boston Pacific
Laurie A. Ball 35 Vice President, Controller of the Company
Richard C. Celio 43 Vice President, General Counsel of the Company
Karen B. Eadon 40 Vice President, Marketing of the Company
James D. Mizes 38 Vice President, Operations of Boston Pacific
Roger D. Shively 46 Vice President, Human Resources of the Company
Donald E. Doyle became a Director, President and Chief Executive Officer of
the Company in December 1992. Prior to that time, he served as President and
Chief Executive Officer of the Greater Louisville Economic Development
Partnership. Mr. Doyle was employed by Kentucky Fried Chicken Corporation from
1973 until 1988 in several capacities, including, between 1984 and 1988,
President of KFC-USA, the principal operating company for Kentucky Fried Chicken
company-owned and franchised restaurants.
Rory J. Murphy has been the Senior Vice President, Operations, of the
Company for the past two years. He has been employed by the Company in various
positions for 15 years.
Loren C. Pannier has been the Senior Vice President and Chief Financial
Officer of the Company for the past 13 years and has been employed by the
Company for 22 years.
Kerry W. Coin became Senior Vice President and General Manager of Boston
Pacific in February 1994. Mr. Coin joined the Company as Vice President,
Strategic Development in February 1993. Prior to joining the Company, he was a
principal with A. T. Kearney Inc., a nationally recognized business consulting
firm, for five years. While at A. T. Kearney, he was the project leader for two
major consulting assignments at the Company.
Laurie A. Ball became Vice President, Controller in January 1993, and has
been employed by the Company in various positions for more than the past six
years.
Richard C. Celio joined the Company as Vice President, General Counsel in
January 1989. Prior to joining the Company, he was an attorney at law and
partner of the law firm of Holden, Fergus & Celio for seven years, a firm which
provided various legal services, and acted as General Counsel for the Company.
Karen B. Eadon joined the Company as Vice President, Marketing in April
1993. Prior to joining the Company, she was employed at Taco Bell Corporation
for eight years, where she held various positions in advertising, product
development and most recently as Vice President of Operations Services.
James D. Mizes joined Boston Pacific as Vice President, Operations in March
1994. Prior to joining Boston Pacific, he was employed at Taco Bell Corporation
for six years, where he held various positions in operations, and most recently
was Vice President of Operations Services.
Roger D. Shively joined the Company as Vice President, Human Resources in
August 1991. Prior to joining the Company, Mr. Shively was employed by Denny's,
Inc. for more than seven years in several capacities, including Vice President,
Human Resources.
18
21
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the "Executive Compensation," "Summary
Compensation Table," "Option Grants in Last Fiscal Year," "Aggregate Option
Exercises in Fiscal 1994 and Fiscal 1994 Year-End Option Values," "Employment
Agreements," "Incentive Compensation Plan," "Transactions with Officers and
Directors," "Key Employee Stock Option Plan" and "1993 Employee Stock Incentive
Plan" sections of the Company's Proxy Statement prepared in connection with the
Annual Meeting of Shareholders to be held in 1994, to be filed with the
Commission within 120 days of January 31, 1994, is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing in the "Ownership of the Company's Securities"
section of the Company's Proxy Statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1994, to be filed with the Commission
within 120 days of January 31, 1994, is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in the "Transactions with Officers and Directors"
section of the Company's Proxy Statement prepared in connection with the Annual
Meeting of Shareholders to be held in 1994, to be filed with the Commission
within 120 days of January 31, 1994, is hereby incorporated by reference.
19
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE
(A)(1) INDEX TO FINANCIAL STATEMENTS: NUMBER
------
Independent Auditors' Report............................................ F-1
Balance Sheets -- as of January 31, 1994 and 1993....................... F-2
Statements of Operations -- for the years ended January 31, 1994, 1993
and 1992................................................................ F-3
Statements of Shareholders' Equity -- for the years ended January 31,
1994, 1993
and 1992................................................................ F-4
Statements of Cash Flows -- for the years ended January 31, 1994, 1993
and 1992................................................................ F-5
Notes to Financial Statements........................................... F-6
(A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
Schedule I -- Marketable Securities..................................... S-1
Schedule II -- Amounts Receivable from Related Parties.................. S-2
Schedule V -- Property and Equipment.................................... S-3
Schedule VI -- Accumulated Depreciation and Amortization of Property
and Equipment........................................................... S-4
Schedule IX -- Short-term Borrowings.................................... S-5
Schedule X -- Supplementary Income Statement Information................ S-6
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements
and notes hereto.
(A)(3) EXHIBITS:
An "Exhibit Index" has been filed as a part of this Form 10-K beginning
on
page E-1 hereof and is incorporated herein by reference.
(B) CURRENT REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended January 31,
1994.
20
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CARL KARCHER ENTERPRISES, INC.
By /s/ DONALD E. DOYLE
Donald E. Doyle
President and Chief Executive
Officer
Date April 29, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- - --------------------------------------------- -------------------------------- ---------------
/s/ WILLIAM P. FOLEY II Chairman of the Board April 29, 1994
- - ---------------------------------------------
William P. Foley II
/s/ DONALD E. DOYLE President and Chief Executive April 29, 1994
- - --------------------------------------------- Officer and Director (Principal
Donald E. Doyle Executive Officer)
/s/ LOREN C. PANNIER Senior Vice President, April 29, 1994
- - --------------------------------------------- Chief Financial Officer
Loren C. Pannier (Principal Financial Officer)
/s/ LAURIE A. BALL Vice President, Controller April 29, 1994
- - --------------------------------------------- (Principal Accounting Officer)
Laurie A. Ball
/s/ PETER CHURM Director April 29, 1994
- - ---------------------------------------------
Peter Churm
/s/ DANIEL W. HOLDEN Director April 29, 1994
- - ---------------------------------------------
Daniel W. Holden
/s/ CARL L. KARCHER Director April 29, 1994
- - ---------------------------------------------
Carl L. Karcher
/s/ CARL N. KARCHER Director April 29, 1994
- - ---------------------------------------------
Carl N. Karcher
/s/ DANIEL D. (Ron) LANE Director April 29, 1994
- - ---------------------------------------------
Daniel D. (Ron) Lane
/s/ KENNETH O. OLSEN Director April 29, 1994
- - ---------------------------------------------
Kenneth O. Olsen
/s/ ELIZABETH A. SANDERS Director April 29, 1994
- - ---------------------------------------------
Elizabeth A. Sanders
21
24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Carl Karcher Enterprises, Inc.
We have audited the accompanying financial statements of Carl Karcher
Enterprises, Inc. as listed in the accompanying index. In connection with our
audits of the financial statements, we also have audited the financial statement
schedules as listed in the accompanying index. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carl Karcher Enterprises,
Inc. as of January 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the years in the three-year period ended January 31, 1994
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 9 to the financial statements, the Company changed the
method used to discount its workers' compensation reserve in fiscal 1994.
As discussed in Notes 1 and 16 to the financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in fiscal 1993.
KPMG Peat Marwick
Orange County, California
March 21, 1994
F-1
25
CARL KARCHER ENTERPRISES, INC.
BALANCE SHEETS
ASSETS
JANUARY 31,
---------------------
1994 1993
-------- --------
(DOLLARS IN
THOUSANDS)
Current assets:
Cash and cash equivalents............................................ $ 17,075 $ 11,505
Marketable securities................................................ 9,064 32,930
Accounts receivable.................................................. 8,956 12,855
Related party receivables............................................ 1,175 1,555
Inventories.......................................................... 7,485 6,383
Restaurant property costs to be reimbursed or sold and leased back... 262 7,427
Deferred tax asset, net.............................................. 15,310 13,690
Other current assets................................................. 10,077 4,217
-------- --------
Total current assets......................................... 69,404 90,562
Property and equipment, net............................................ 113,212 115,064
Property under capital leases, net..................................... 33,608 35,558
Notes receivable....................................................... 16,171 20,543
Related party notes receivable......................................... 1,976 2,514
Other assets........................................................... 7,764 4,683
-------- --------
$242,135 $268,924
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 13,207 $ 28,467
Obligations secured by marketable securities......................... -- 2,422
Current portion of capital lease obligations......................... 3,354 3,158
Accounts payable..................................................... 13,161 14,531
Other current liabilities............................................ 36,831 36,419
-------- --------
Total current liabilities.................................... 66,553 84,997
-------- --------
Long-term debt......................................................... 17,414 31,742
Capital lease obligations.............................................. 45,886 48,512
Other long-term liabilities............................................ 20,206 18,941
Shareholders' equity:
Preferred stock, no par value; authorized 2,000,000 shares; none
issued or outstanding............................................. -- --
Common stock, no par value; authorized 22,500,000 shares; issued and
outstanding 18,676,587 shares and 18,090,742 shares............... 33,928 28,793
Retained earnings.................................................... 58,148 55,939
-------- --------
Total shareholders' equity................................... 92,076 84,732
-------- --------
$242,135 $268,924
-------- --------
-------- --------
See accompanying notes to financial statements.
F-2
26
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
Revenues:
Sales by Company-operated restaurants.................... $381,733 $414,510 $466,198
Revenues from franchised and licensed restaurants........ 78,635 75,262 60,025
Revenues from other outside parties...................... -- 12,860 14,147
-------- -------- --------
Total revenues...................................... 460,368 502,632 540,370
-------- -------- --------
Operating costs and expenses:
Company-operated restaurants:
Food and packaging.................................... 115,444 127,148 150,351
Payroll and other employee benefits................... 118,774 141,870 146,759
Occupancy and other operating expenses................ 82,321 93,651 100,949
-------- -------- --------
316,539 362,669 398,059
Franchised and licensed restaurants...................... 73,551 67,590 52,448
Other outside parties.................................... -- 12,690 13,669
Advertising expenses..................................... 19,104 19,200 19,963
General and administrative expenses...................... 37,666 47,749 36,218
Arbitration settlement................................... 3,000 -- --
-------- -------- --------
Total operating costs and expenses.................. 449,860 509,898 520,357
-------- -------- --------
Operating income (loss).................................... 10,508 (7,266) 20,013
Interest expense........................................... (10,387) (13,630) (16,703)
Other income, net.......................................... 6,148 13,592 15,541
-------- -------- --------
Income (loss) before income taxes and cumulative effect of
changes in accounting principles......................... 6,269 (7,304) 18,851
Income tax expense (benefit)............................... 1,836 (4,247) 5,813
-------- -------- --------
Income (loss) before cumulative effect of changes in
accounting principles.................................... 4,433 (3,057) 13,038
Cumulative effect of changes in accounting principles (net
of income tax benefit of $512 in 1994)................... (768) (2,450) --
-------- -------- --------
Net income (loss).......................................... $ 3,665 $ (5,507) $ 13,038
-------- -------- --------
-------- -------- --------
Net income (loss) per common share:
Income (loss) before cumulative effect of changes in
accounting principles................................. $ .24 $(.17) $.72
Cumulative effect of changes in accounting principles.... (.04) (.14) --
-------- -------- --------
Net income (loss)................................... $ .20 $(.31) $.72
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding........................ 18,567 18,034 18,208
-------- -------- --------
-------- -------- --------
See accompanying notes to financial statements.
F-3
27
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK
------------------- TOTAL
NUMBER OF RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- ------- -------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Balance at January 31, 1991........................... 18,017 $27,532 $ 51,286 $ 78,818
Cash dividends ($.08 per share)..................... -- -- (1,433) (1,433)
Exercise of stock options........................... 171 1,104 -- 1,104
Tax benefit associated with exercise of stock
options.......................................... -- 170 -- 170
Repurchase and retirement of shares................. (270) (2,018) -- (2,018)
Net income.......................................... -- -- 13,038 13,038
------ ------- -------- --------
Balance at January 31, 1992........................... 17,918 26,788 62,891 89,679
Cash dividends ($.08 per share)..................... -- -- (1,445) (1,445)
Exercise of stock options........................... 173 1,008 -- 1,008
Tax benefit associated with exercise of stock
options.......................................... -- 154 -- 154
Remeasurement of stock options...................... -- 843 -- 843
Net income.......................................... -- -- (5,507) (5,507)
------ ------- -------- --------
Balance at January 31, 1993........................... 18,091 28,793 55,939 84,732
Cash dividends ($.08 per share)..................... -- -- (1,456) (1,456)
Exercise of stock options........................... 646 4,366 -- 4,366
Tax benefit associated with exercise of stock
options.......................................... -- 1,191 -- 1,191
Repurchase and retirement of shares................. (60) (422) -- (422)
Net income.......................................... -- -- 3,665 3,665
------ ------- -------- --------
Balance at January 31, 1994........................... 18,677 $33,928 $ 58,148 $ 92,076
------ ------- -------- --------
------ ------- -------- --------
See accompanying notes to financial statements.
F-4
28
CARL KARCHER ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
1994 1993 1992
-------- --------- ---------
(IN THOUSANDS)
Net cash flows from operating activities:
Net income (loss)................................................ $ 3,665 $ (5,507) $ 13,038
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Noncash franchise revenue..................................... (151) (488) (605)
Depreciation and amortization................................. 22,842 25,161 26,573
Restructuring charge.......................................... -- 11,124 --
Arbitration settlement........................................ 3,000 -- --
(Gain) loss on sale of property and equipment and capital
leases....................................................... 613 (451) (4,059)
Write-off of accounts and notes receivable.................... 406 -- --
Write-down of marketable securities........................... 213 452 681
Net noncash investment income................................. (63) (328) (1,151)
Deferred income taxes......................................... (1,675) (8,226) (2,149)
Post-employment benefits...................................... 1,668 -- --
Cumulative effect of changes in accounting principles......... 768 2,450 --
Net change in marketable securities reserve................... (479) 651 (31)
Net change in receivables, inventories and other current
assets....................................................... 4,257 1,498 1,386
Net change in other assets.................................... (2,699) 160 201
Net change in accounts payable and other current
liabilities.................................................. (4,617) (2,285) (716)
-------- --------- ---------
Net cash provided by operating activities..................... 27,748 24,211 33,168
-------- --------- ---------
Cash flows from investing activities:
Construction of restaurant property to be reimbursed or sold
and leased back............................................... -- (9,422) (12,795)
Sale of or reimbursement on restaurant property to be sold
and leased back............................................... 487 14,086 11,128
Purchases of:
Marketable securities......................................... (12,722) (42,426) (36,772)
Property and equipment........................................ (13,865) (9,329) (24,287)
Long-term investments......................................... -- (3,054) (4,441)
Proceeds from sale of:
Marketable securities......................................... 30,177 46,831 44,023
Property and equipment........................................ 490 2,121 1,983
Long-term investments......................................... -- 1,352 8,863
Collections on leases receivable................................. 129 102 269
Collections on notes receivable and related party notes
receivable.................................................... 4,824 3,562 5,377
-------- --------- ---------
Net cash provided by (used in) investing activities........... 9,520 3,823 (6,652)
-------- --------- ---------
Cash flows from financing activities:
Net change in bank overdraft..................................... 170 2,109 (2,018)
Net change in obligations secured by marketable securities
and long-term investments..................................... (2,422) (6,197) (1,305)
Short-term borrowings............................................ 15,150 123,017 110,000
Repayments of short-term debt.................................... (33,250) (123,917) (109,200)
Long-term borrowings............................................. -- 755 220
Repayments of long-term debt..................................... (11,488) (19,890) (9,627)
Repayments of capital lease obligations.......................... (2,650) (2,365) (2,212)
Net change in other long-term liabilities........................ (887) (682) (2,325)
Repurchase and retirement of common stock........................ (422) -- (2,018)
Payment of dividends............................................. (1,456) (1,445) (1,433)
Exercise of stock options........................................ 4,366 1,008 1,104
Tax benefit associated with the exercise of stock options........ 1,191 154 170
-------- --------- ---------
Net cash used in financing activities......................... (31,698) (27,453) (18,644)
-------- --------- ---------
Net increase in cash and cash equivalents........................ $ 5,570 $ 581 $ 7,872
-------- --------- ---------
-------- --------- ---------
See accompanying notes to financial statements.
F-5
29
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
A summary of certain significant accounting policies not disclosed
elsewhere in the footnotes to the financial statements is set forth below.
Fiscal Year -- The Company utilizes a 52-or 53-week accounting period which
ends on the last Monday in January each year. The year ended January 31, 1994
was a 53-week year. The years ended January 25, 1993 and January 27, 1992 were
52-week years. For clarity of presentation, the Company has described all
periods presented as if the fiscal year ended January 31.
Cash Equivalents -- The Company considers short-term investments which have
an original maturity of three months or less to be cash equivalents for purposes
of reporting cash flows.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out) or market.
Deferred Pre-opening Costs -- Deferred pre-opening costs consist of the
direct and incremental costs associated with the opening of restaurants and are
deferred and amortized over the first year a given restaurant is in operation.
Such costs include uniforms and promotional costs related to the grand opening
of a restaurant. Additionally, these costs include initial food, beverage,
supply and direct labor costs associated with the testing of all equipment and
recipes, and the simulation of other operational procedures shortly before a
restaurant opens.
Deferred pre-opening costs also include, if significant, the cost of
required training classes for new managers, assistant managers and regional
managers; airfare and lodging related to this training; and the salaries of
these individuals during their training classes and prior to the opening of
their respective Carl's Jr. restaurants or Boston Chicken stores. Such costs,
including training, were not significant in the years presented. Since there is
not an existing employee base from which to hire Boston Pacific store management
and the training related to the opening of Boston Pacific stores is conducted
outside of California, these costs are expected to be significant in future
years.
Investment in Joint Venture -- In fiscal 1994, the Company entered into a
joint venture agreement with a Mexican company to operate a Carl's Jr.
restaurant in Baja California. The Company owns a 50% interest in this joint
venture, which is accounted for by the equity method and is not considered
material to the Company's financial statements.
Income Taxes -- The Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," effective as of
the beginning of fiscal 1993. Under this method, income tax assets and
liabilities are recognized using enacted tax rates for the expected future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. A change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to fiscal 1993, deferred income taxes were recognized for income and
expense items that were reported in different years for financial reporting
purposes and income tax purposes using the deferral method.
Earnings (Loss) per Share -- Earnings (loss) per share is computed based on
the weighted average number of common shares outstanding during the year, after
consideration of the dilutive effect of outstanding stock options. The
outstanding stock options were not included in the per share computations for
fiscal 1993 as the effect would have been antidilutive. For all years presented,
primary earnings per share approximate fully diluted earnings per share.
Reclassifications -- Certain prior year amounts in the accompanying
financial statements have been reclassified to conform to the fiscal 1994
presentation.
F-6
30
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- BOSTON PACIFIC, INC.
In January 1994, the Company acquired rights to develop, own and operate up
to 300 Boston Chicken stores from Boston Chicken, Inc. In consideration for
these rights, the Company paid an initial development fee of $1,000,000 and also
paid a non-refundable deposit of $1,000,000, which will be applied as a credit
($5,000 per store) towards the Company's obligation to pay $35,000 as an initial
franchise fee upon the opening of each Boston Chicken store by the Company. The
development fee will be amortized over the five-year life of the development
agreement and the franchise fees will be amortized over each individual 15-year
franchise agreement. Both amounts were included in other assets as of January
31, 1994.
Under the development agreement, the Company is obligated to open a number
of Boston Chicken stores according to a specific schedule, commencing on January
15, 1995 and ending on January 15, 1999. The stores will be located in
metropolitan Sacramento, the County of San Diego, and nine counties in the
greater Los Angeles area.
NOTE 3 -- MARKETABLE SECURITIES
During fiscal 1994, as part of its strategic program, the Company began
liquidating a significant portion of its marketable securities. As such, as of
January 31, 1993, all long-term investments were classified as current
marketable securities.
Marketable securities are stated at the lower of aggregate cost or market
value. Market values are based on quoted market prices where available. For
marketable securities not actively traded, market values are estimated using
values obtained from independent sources. At both January 31, 1994 and 1993,
marketable securities were carried at aggregate cost. The aggregate market
values as of January 31, 1994 and 1993 were $9,483,000 and $34,364,000,
respectively. Gross unrealized gains and unrealized (losses) as of January 31,
1994 were $480,000 and $(61,000), respectively.
Marketable securities consist primarily of holdings in investment-grade
government debt securities, preferred stock and mutual funds which largely
invest in securities issued or guaranteed by the U. S. government. These
securities consisted of the following:
1994 1993
------ -------
(IN THOUSANDS)
Adjustable rate preferred stock........................... $ 583 $ 3,885
Fixed rate preferred stock................................ 2,937 13,051
Debt securities........................................... 2,635 9,630
Mutual funds and common stock............................. 2,909 6,364
------ -------
$9,064 $32,930
------ -------
------ -------
Dividend income is recorded on the ex-dividend date and interest income is
recorded as earned. Securities transactions are accounted for on the trade date,
or the date the order to buy or sell is executed. Realized gains and losses from
securities transactions are determined on a specific identification basis.
The Company is required to adopt Statement of Financial Accounting
Standards No. 115, ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities," as of February 1, 1994. SFAS 115 requires the inclusion in
income or shareholders' equity of unrealized gains and losses resulting from the
fair value accounting of investments in debt and equity securities except for
debt securities intended to be held to maturity. The adoption of SFAS 115 is not
expected to have a material effect on the Company's financial statements.
F-7
31
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS
Details of accounts receivable and other current assets were as follows:
1994 1993
------- -------
(IN THOUSANDS)
Accounts receivable:
Trade receivables...................................... $ 4,885 $ 7,783
Income tax receivable.................................. 2,261 3,231
Notes receivable, current.............................. 1,607 1,665
Other.................................................. 203 176
------- -------
$ 8,956 $12,855
------- -------
------- -------
Other current assets:
Cash held in trust..................................... $ 6,776 --
Prepaid expenses and other............................. 3,301 $ 4,217
------- -------
$10,077 $ 4,217
------- -------
------- -------
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization, and was comprised of the following:
ESTIMATED
USEFUL LIFE 1994 1993
----------- -------- --------
(IN THOUSANDS)
Land............................................. $ 19,804 $ 14,571
Leasehold improvements........................... 4-25 years 81,875 79,266
Buildings and improvements....................... 7-30 years 27,082 23,566
Equipment, furniture and fixtures................ 3-10 years 116,299 115,713
-------- --------
245,060 233,116
Less: Accumulated depreciation and
amortization................................... 131,848 118,052
-------- --------
$113,212 $115,064
-------- --------
-------- --------
Leasehold improvements are amortized on a straight-line basis over the
shorter of the useful life of the improvement or the term of the lease.
Buildings and improvements and equipment, furniture and fixtures are depreciated
on a straight-line basis over the estimated useful lives of these assets.
NOTE 6 -- LEASES
The Company occupies land and buildings under terms of numerous lease
agreements expiring on various dates primarily through 2026. Many of these
leases provide for future rent escalations and renewal options. In addition,
contingent rentals, determined as a percentage of sales in excess of specified
levels, is often stipulated. Most of these leases obligate the Company to pay
the costs of maintenance, insurance and property taxes.
Property under capital leases was comprised of the following:
1994 1993
------- -------
(IN THOUSANDS)
Buildings................................................ $66,587 $66,336
Less: Accumulated amortization........................... 32,979 30,778
------- -------
$33,608 $35,558
------- -------
------- -------
F-8
32
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amortization is calculated on the straight-line method over the shorter of
the lease term or estimated useful life of the asset.
Minimum lease payments for all leases and the present value of net minimum
lease payments for capital leases as of January 31, 1994 were as follows:
FISCAL YEAR CAPITAL OPERATING
----------- -------- ---------
(IN THOUSANDS)
1995................................................ $ 8,704 $ 28,489
1996................................................ 8,616 27,744
1997................................................ 8,419 26,951
1998................................................ 8,096 26,023
1999................................................ 7,805 25,195
Thereafter............................................ 54,818 232,447
-------- ---------
Total minimum lease payments..................... 96,458 $366,849
---------
---------
Less: Amount representing interest.................... 47,218
--------
Present value of minimum lease payments............... 49,240
Less: Current portion................................. 3,354
--------
Capital lease obligations, excluding current
portion........................................ $ 45,886
--------
--------
Total minimum lease payments have not been reduced by minimum sublease
rentals of $46,370,000 due in the future under certain operating subleases.
The Company has leased and subleased land and buildings to others,
primarily as a result of the franchising of certain restaurants. Many of these
leases provide for fixed payments with contingent rent when sales exceed certain
levels, while others provide for monthly rentals based on a percentage of sales.
Lessees generally bear the cost of maintenance, insurance and property taxes.
Components of the net investment in leases receivable, included in other assets,
were as follows:
1994 1993
------- -------
(IN THOUSANDS)
Net minimum lease payments receivable.................... $11,497 $10,699
Less: Unearned income.................................... 6,433 6,044
------- -------
Net investment................................. $ 5,064 $ 4,655
------- -------
------- -------
Minimum future rentals to be received as of January 31, 1994 were as
follows:
CAPITAL OPERATING
LEASES OR LESSOR
FISCAL YEAR SUBLEASES LEASES
----------- --------- ---------
(IN THOUSANDS)
1995............................................... $ 807 $ 235
1996............................................... 803 237
1997............................................... 803 237
1998............................................... 804 237
1999............................................... 809 238
Thereafter........................................... 7,471 2,171
--------- ---------
Total minimum future rentals............... $11,497 $ 3,355
--------- ---------
--------- ---------
Total minimum future rentals do not include contingent rentals which may be
received under certain leases.
F-9
33
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company's investment in land under operating leases at January 31, 1994
and 1993 was $1,804,000 and $2,031,000, respectively.
Aggregate rents under noncancelable operating leases were as follows:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Minimum rentals............................... $28,989 $28,139 $26,087
Contingent rentals............................ 1,583 2,323 2,675
Less: Sublease rentals........................ 4,812 4,688 4,770
------- ------- -------
$25,760 $25,774 $23,992
------- ------- -------
------- ------- -------
NOTE 7 -- OTHER CURRENT LIABILITIES
Other current liabilities were comprised of the following:
1994 1993
------- -------
(IN THOUSANDS)
Salaries, wages and other benefits....................... $ 7,754 $ 7,151
Self-insured workers' compensation reserve (see Note
9)..................................................... 7,650 8,673
Other self-insurance reserves............................ 2,638 2,827
Sales tax payable........................................ 2,770 5,729
Restructuring charges (see Note 9)....................... 2,119 4,604
Arbitration settlement and other litigation.............. 3,554 --
Other accrued liabilities................................ 10,346 7,435
------- -------
$36,831 $36,419
------- -------
------- -------
In March 1994, the Company was found liable in a $3,000,000 binding
arbitration judgment for alleged breach of contract involving an investor group
which had been negotiating for the purchase of several existing Carl's Jr.
restaurants. The settlement, payable during fiscal 1995, was accrued in other
current liabilities as of January 31, 1994.
F-10
34
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt was comprised of the following:
1994 1993
------- -------
(IN THOUSANDS)
Revolving credit line with bank, unsecured............................... -- $18,100
Notes payable:
Unsecured note payable to bank, principal payments in specified amounts
monthly through 1994, interest at 9.26%............................. $ 6,417 13,417
Secured notes payable to bank, principal payments in specified amounts
annually through 1999, interest at 12.95%........................... 6,099 7,597
Secured note payable, principal payments in specified amounts annually
through 2000, interest at 13.5%..................................... 6,108 6,812
Secured notes payable to bank, principal payments in specified amounts
monthly through 1995, interest based on the prime rate plus .25%
beginning in fiscal 1995; interest based on the prime rate plus
.25%, not to exceed 14.75% nor less than 10.25% for prior years..... 5,428 5,697
Industrial Revenue Bonds, payable in 1999, variable interest rate
averaging 2.37% in fiscal 1994 and 2.66% in fiscal 1993............. 3,600 3,600
Other.................................................................. 2,969 4,986
------- -------
30,621 60,209
Less: Current portion.................................................. 13,207 28,467
------- -------
$17,414 $31,742
------- -------
------- -------
Notes payable mature in fiscal years ending after January 31, 1994 as
follows:
(IN THOUSANDS)
--------------
Fiscal Year:
1995..................... $ 13,207
1996..................... 3,997
1997..................... 2,322
1998..................... 2,039
1999..................... 1,445
Thereafter................. 7,611
--------------
$ 30,621
--------------
--------------
As of January 31, 1994, the Company was not in compliance with certain of
the covenants governing its revolving credit line, the $6,417,000 term loan
maturing in December 1994, and both of the standby letters of credit expiring in
April 1994 related to the Company's workers' compensation program. In March
1994, the Company negotiated with its bank to provide a $15,000,000 credit line
through June 1995 under which $12,148,000 will be committed to a single standby
letter of credit to satisfy the State's current requirement related to the
Company's workers' compensation program. This renegotiation resulted in the
elimination of one of the previously issued standby letters of credit, thereby
curing any of its related covenant violations. In addition, a waiver of the
requirements of the remaining covenant violations was received and more
favorable covenants were negotiated in their place that will apply to future
measurement periods. Interest on the revolving line will be calculated at the
bank's prime rate, which was 6% as of January 31, 1994, or based on the bank's
offshore rate, at the option of the Company.
Secured notes payable are collateralized by certain restaurant property
deeds of trust, with a carrying value at January 31, 1994 of $19,834,000.
F-11
35
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities were as follows:
1994 1993
-------- --------
(IN THOUSANDS)
Self-insured workers' compensation reserve............. $ 8,460 $ 6,441
Restructuring charges.................................. 10,105 10,859
Other.................................................. 1,641 1,641
-------- --------
$ 20,206 $ 18,941
-------- --------
-------- --------
A total of $16,110,000 and $15,114,000 was accrued as of January 31, 1994
and 1993, respectively, representing the current and long-term portion of the
net present value of an independent actuarial valuation of the Company's
workers' compensation claims in both years. These amounts are net of a discount
of $1,771,000 and $3,585,000 in fiscal years 1994 and 1993, respectively. The
independent actuarial valuation in the fourth quarter of fiscal 1993 resulted in
a $5,114,000 increase to the workers' compensation reserve in that year.
In the fourth quarter of fiscal 1994, the method used by the Company to
discount the actuarial projection of losses to be paid in connection with its
existing workers' compensation claims was changed from its incremental borrowing
rate to the Company's risk-free interest rate of 5%. The Company accounted for
this change as a change in accounting principle, effective as of the beginning
of fiscal 1994. The first quarter of fiscal 1994 has been restated, to reflect
the cumulative effect of this adoption, which resulted in a decrease in net
income of $786,000, which was net of an income tax benefit of $512,000.
In prior years, the Company initiated restructuring programs to dispose of
or franchise its Arizona and Texas operations. As of January 31, 1994 and 1993,
$11,542,000 and $12,630,000, respectively, was accrued for these reserves,
including the current portion. These balances were mainly comprised of estimated
losses on equipment and estimated lease subsidies. The lease subsidy component
of the restructuring charges represents the net present value of the excess of
future lease payments over estimated sublease income. The remaining unamortized
discount to present value of these lease subsidies at January 31, 1994 was
$9,537,000 and will be amortized to operations over the remaining sublease
terms, which range up to 22 years. The carrying value of the related equipment
represents the net realizable value of these assets at January 31, 1994 and
1993.
In fiscal 1993, the Company recognized an $11,124,000 charge related to its
strategic initiatives, workforce reductions and certain lease subsidies.
Components of this charge were as follows:
- Severance and outplacement costs related to the termination of 53
corporate employees in January 1993 amounted to $1,918,000, including an
$843,000 noncash charge arising from the extension and remeasurement of
stock options to former key management personnel. These terminated
employees were identified and the termination plan was approved by the
Company's Board of Directors on January 20, 1993. Substantially all of
these required severance and outplacements payments were made in fiscal
1994;
- The estimate of certain Arizona lease subsidies (part of the
restructuring program described above and paid over the remaining lease
terms ranging from one to 17 years) was increased $4,855,000 because the
Company reduced its sublease rental income projections associated with
these restaurants. These projections are based entirely upon the
restaurant sales of the franchisees, which have been declining as a
result of the continued softness in the Arizona economy;
- A total of $2,299,000 of estimated equipment losses and appropriate lease
subsidies was recognized related to the closure of certain
underperforming restaurants, which should be completed in fiscal 1995.
F-12
36
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The equipment cannot be used in the Company's operations any longer and
provides no future utility to the Company. A total of $967,000 remained accrued
as of January 31, 1994 related to these losses; and
- The elimination of the Company's manufacturing operations, which was
largely completed during fiscal 1993, included losses on the disposition
of equipment previously used in that operation and severance costs
related to the termination of 232 manufacturing employees, and required a
$2,052,000 charge in that year.
NOTE 10 -- COMMON STOCK
In connection with his employment, the Company's President and Chief
Executive Officer was awarded 12,121 shares of the Company's common stock valued
at $100,000, at a market price of $8.25 per share, on January 6, 1993. These
shares vest at a rate of 33 1/3% per year on each of the three anniversaries
following the grant date, therefore $33,000 was included in compensation expense
during the fiscal year ended January 31, 1994.
During the second quarter of fiscal 1994, the Company purchased a total of
59,750 shares from the Carl N. and Margaret M. Karcher Trust for an aggregate
purchase price of $422,000. All shares purchased were canceled and retired.
NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments have been
determined by the Company using appropriate market information and valuation
methodologies. Considerable judgment is required to develop the estimates of
fair value, thus, the estimates provided herein are not necessarily indicative
of the amounts that could be realized in a current market exchange.
The carrying values of cash, cash equivalents and financial instruments
included in other current assets and other current liabilities approximated
their fair values due to the short-term maturities of these instruments. The
carrying amounts and fair values of the Company's other financial instruments
were as follows:
1994 1993
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------- ------- -------
(IN THOUSANDS)
Financial assets:
Marketable securities......................... $ 9,064 $ 9,483 $32,930 $34,364
Notes receivable.............................. 20,000 21,029 25,001 26,998
Financial liabilities:
Long-term debt................................ 28,084 27,487 57,646 56,557
The valuation methods and assumptions are summarized as follows:
Marketable securities: The fair values of marketable securities were
estimated using quoted market prices.
Notes receivable: The fair values of notes receivable were estimated by
discounting future cash flows using current rates at which similar loans would
be made to borrowers with similar credit ratings.
Long-term debt: The fair value of long-term debt was estimated using rates
currently available to the Company for debt with similar terms and remaining
maturities.
F-13
37
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- RELATED PARTY TRANSACTIONS
Certain members of the Karcher family are franchisees of the Company. A
total of 26 restaurants have been sold to these individuals, none of which
occurred during fiscal 1994 or fiscal 1993. As part of these transactions, the
Company received cash and accepted $6,480,000 of interest-bearing notes.
Additionally, these franchisees regularly purchase food and other products from
the Company on the same terms and conditions as other franchisees. Details of
amounts outstanding were as follows:
1994 1993
------ ------
(IN THOUSANDS)
12.0% Secured notes........................................ $ 341 $ 387
12.5% Secured notes........................................ 1,881 2,406
------ ------
2,222 2,793
Less: Long-term portion.................................... 1,976 2,514
------ ------
246 279
Trade receivables.......................................... 929 1,276
------ ------
$1,175 $1,555
------ ------
------ ------
In fiscal 1991, as part of its Arizona restructuring program, the Company
leased six of its Arizona restaurants to a Karcher family member and former
officer. The terms of the lease include an option to buy one of these
restaurants and require the purchase of the remaining five restaurants, and are
subject to ongoing negotiations. A total of $1,143,000 was included in the
Arizona restructuring reserve (see Note 9) and remained accrued as of January
31, 1994 in anticipation of future losses to be realized as a result of this
transaction.
The Company leases various properties, including its corporate
headquarters, distribution facility and three of its restaurants, from Carl N.
Karcher. Included in capital lease obligations was $5,286,000 and $5,904,000,
representing the present value of lease obligations related to these various
properties at January 31, 1994 and 1993, respectively. Lease payments under
these leases for fiscal 1994, 1993 and 1992 amounted to $1,515,000, $1,612,000,
and $1,548,000, respectively. This was net of sublease rentals of $171,000,
$64,000 and $63,000 in fiscal 1994, 1993 and 1992, respectively. In November
1993, the Company purchased two restaurants from Carl N. Karcher for an
aggregate purchase price of $848,000. A third restaurant site is in escrow, for
which the Company has paid a $250,000 deposit.
In October 1993, Carl N. Karcher was granted future retirement benefits for
past services consisting principally of payments of $200,000 per year for life
and supplemental health benefits, which had a net present value of $1,668,000 as
of that date. This amount was computed using certain actuarial assumptions,
including a discount rate of 7%. A total of $1,652,000 remained accrued in other
current liabilities at January 31, 1994. The Company anticipates funding these
obligations as they become due.
As of January 31, 1993, the Company was a signatory with Carl N. Karcher on
a promissory note agreement with an insurance company. The note was payable
monthly through March 1993, at an interest rate of 9.25%, and was primarily
secured by leased property under capital leases with a net book value of
$2,295,000 at January 31, 1993. The agreement contained restrictions on working
capital, incurrence of additional debt and leases, and payment of dividends.
Carl N. Karcher paid the note on March 2, 1993, releasing the Company from any
future obligation or signatory responsibilities.
NOTE 13 -- FRANCHISED AND LICENSED OPERATIONS
Franchise arrangements, with franchisees who operate in Arizona,
California, Nevada, Oregon and Utah, generally provide for initial fees and
continuing royalty payments to the Company based upon a percent of
F-14
38
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
sales. The Company generally charges an initial franchisee fee for each new
franchised restaurant that is added to its system, and in some cases, an area
development fee, which grants exclusive rights to develop a specified number of
Carl's Jr. restaurants in a designated geographic area. Similar fees are charged
in connection with the Company's international licensing operations. These fees
are recognized ratably when substantially all the services required of the
Company are complete and the restaurants covered by these agreements commence
operations.
Franchisees may also purchase food, paper and other supplies from the
Company. Additionally, franchisees may be obligated to remit lease payments for
the use of restaurant facilities owned or leased by the Company, generally for a
period of 20 years. Under the terms of these leases they are required to pay
related occupancy costs which include maintenance, insurance and property taxes.
The Company receives notes from franchisees in connection with the sales of
Company-operated restaurants. Generally, these notes bear interest at 12.5%,
mature in five to 15 years and are secured by an interest in the restaurant
equipment sold.
Revenues from franchised and licensed restaurants were comprised of the
following:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Food service.......................................... $60,979 $57,503 $46,396
Rental income......................................... 10,575 9,601 6,761
Royalties............................................. 6,253 5,517 4,680
Initial fees.......................................... 297 1,095 969
Other................................................. 531 1,546 1,219
------- ------- -------
$78,635 $75,262 $60,025
------- ------- -------
------- ------- -------
Operating costs and expenses for franchised and licensed restaurants were
comprised of the following:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Food service.......................................... $60,827 $54,947 $43,931
Occupancy and other operating expenses................ 12,724 12,643 8,517
------- ------- -------
$73,551 $67,590 $52,448
------- ------- -------
------- ------- -------
NOTE 14 -- INTEREST EXPENSE
Interest expense was comprised of the following:
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
Notes payable and revolving credit lines........... $ (3,472) $ (5,941) $ (7,889)
Capital lease obligations.......................... (6,454) (6,809) (7,458)
Obligations secured by marketable securities....... (60) (581) (984)
Capitalized interest............................... 19 89 234
Other.............................................. (420) (388) (606)
-------- -------- --------
$(10,387) $(13,630) $(16,703)
-------- -------- --------
-------- -------- --------
F-15
39
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- OTHER INCOME, NET
Other income, net was comprised of the following:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Net gains (losses) on sales of restaurants............ $ (162) $ 867 $ 4,767
Gains on sales of investments......................... 2,675 8,839 9,003
Losses on sales of investments........................ (1,325) (3,422) (5,548)
Dividend income....................................... 559 2,513 3,388
Interest income....................................... 4,401 5,714 3,931
Other................................................. -- (919) --
------- ------- -------
$ 6,148 $13,592 $15,541
------- ------- -------
------- ------- -------
NOTE 16 -- INCOME TAXES
In the fourth quarter of fiscal 1993, the Company adopted SFAS 109. The
cumulative effect of this change in accounting principle of $2,450,000 included
a $500,000 valuation allowance. Had the Company implemented SFAS 109 in the
first quarter of fiscal 1993, net income and earnings per share would have been
reduced by $2,450,000 and $.14, respectively. The pro forma effects on net
income (loss) by adopting SFAS 109, assuming the adoption was applied
retroactively to 1990, would have been to reduce the net loss in fiscal 1993 by
$2,450,000, or $.14 per share, and would have been immaterial in fiscal 1992 and
fiscal 1991.
Income tax expense (benefit) was comprised of the following:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Current:
Federal............................................. $ 2,327 $ 2,996 $ 5,944
State............................................... 672 983 2,018
------- ------- -------
2,999 3,979 7,962
------- ------- -------
Deferred:
Federal............................................. (1,471) (7,422) (2,149)
State............................................... (204) (804) --
------- ------- -------
(1,675) (8,226) (2,149)
------- ------- -------
1,324 (4,247) 5,813
Tax effect of cumulative effect of change in
accounting principle................................ 512 -- --
------- ------- -------
$ 1,836 $(4,247) $ 5,813
------- ------- -------
------- ------- -------
Significant components of the deferred income tax benefit were as follows:
1994 1993
------- -------
(IN THOUSANDS)
Deferred tax benefit (primarily related to the arbitration
settlement in 1994 and restructuring charges and increases to
the workers' compensation reserve in 1993)..................... $ (850) $(8,181)
Increase in targeted jobs tax credit carryforward................ (1,025) (840)
Increase in the valuation allowance for the net deferred tax
asset.......................................................... 200 795
------- -------
$(1,675) $(8,226)
------- -------
------- -------
F-16
40
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the year ended January 31, 1992, deferred income taxes resulted from
differences in the timing of recognition of revenue and expenses for financial
reporting and tax purposes. The sources and tax effects of those timing
differences are presented below:
(IN THOUSANDS)
Depreciation........................................................... $ (828)
Safe harbor leases..................................................... (268)
Capital leases......................................................... (411)
State income taxes..................................................... (134)
Capital losses......................................................... 369
Restructuring accrual.................................................. 267
General liability insurance accrual.................................... (830)
Other, net............................................................. (314)
-------
$(2,149)
-------
-------
A reconciliation of income tax expense (benefit) at the federal statutory
rate of 34% to the Company's provision for taxes on income is as follows:
1994 1993 1992
------ ------- ------
(IN THOUSANDS)
Income taxes at statutory rate.......................... $2,131 $(2,483) $6,409
State income taxes, net of federal income tax benefit... 306 (950) 1,332
Dividend exclusion...................................... (161) (475) (667)
Targeted jobs tax credits............................... (774) (1,033) (1,190)
Remeasurement of stock options.......................... -- 287 --
Increase in the valuation allowance for the net deferred
tax asset............................................. 200 795 --
Other, net.............................................. 134 (388) (71)
------ ------- ------
$1,836 $(4,247) $5,813
------ ------- ------
------ ------- ------
Temporary differences and carryforwards gave rise to a significant amount
of deferred tax assets and liabilities as follows:
1994 1993
------- -------
(IN THOUSANDS)
Deferred tax asset:
Restructuring charges.......................................... $ 4,997 $ 7,196
Capitalized leases............................................. 8,449 8,223
Workers' compensation reserve.................................. 6,976 6,544
Targeted jobs tax credit carryforward.......................... 2,137 1,112
Arbitration settlement and other litigation.................... 1,539 --
Other.......................................................... 5,612 5,579
------- -------
29,710 28,654
Less: Valuation allowance...................................... 1,495 1,295
------- -------
Total deferred tax asset............................... 28,215 27,359
------- -------
Deferred tax liability:
Depreciation................................................... 10,210 10,676
Safe harbor leases............................................. 1,461 1,815
Other.......................................................... 1,234 1,178
------- -------
Total deferred tax liability........................... 12,905 13,669
------- -------
Net deferred tax asset........................................... $15,310 $13,690
------- -------
------- -------
F-17
41
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Based on the Company's current and historical pre-tax earnings, management
believes it is more likely than not that the Company will realize the majority
of the benefit of the existing net deferred tax asset as of January 31, 1994.
Taxable income generated in prior years is available to offset a portion of the
net deferred asset. Recognition of the remaining balance will require generation
of future taxable income over the next several years, none of which is
concentrated in any given year. There can be no assurance that the Company will
generate any earnings or any specific level of earnings in future years. Certain
tax planning or other strategies could be implemented, if necessary, to
supplement income from operations to fully realize recorded net tax benefits.
The Company had targeted jobs tax credit carryforwards of $2,137,000
available at January 31, 1994 which expire in 2007, 2008 and 2009.
NOTE 17 -- RETIREMENT PLANS
The Company maintains a voluntary contributory profit sharing plan and a
savings plan for all eligible employees other than operations hourly employees.
The annual profit sharing contribution is determined at the discretion of the
Company's Board of Directors and up to 4% of employee savings are matched by the
Company. Total Company contributions to this plan for fiscal 1994, 1993 and 1992
were $813,000, $429,000 and $1,263,000, respectively.
The Company also maintains a defined benefit pension plan covering
substantially all operations employees qualified as to age and service. For
fiscal years 1994, 1993 and 1992, pension contributions were $442,000, $348,000
and $228,000, respectively. Under the terms of the defined benefit plan, pension
expense is computed based upon an independent actuarial valuation study. Company
contributions under this plan are funded quarterly. As of the start of fiscal
1994, the accumulated benefit obligation related to the plan was $1,323,000.
NOTE 18 -- STOCK OPTION PLANS
The Company's 1993 stock incentive plan was approved by the shareholders in
June 1993. Awards granted to employees under this plan are not restricted as to
any specified form or structure, with such form, vesting and pricing provisions
determined by the Compensation and Stock Option Committee of the Board of
Directors. The 1993 plan also provides for the automatic award of stock options
to non-employee Directors annually. These options generally have a term of five
years, become exercisable at a rate of 33 1/3% per year following the grant date
and are priced at an amount equal to or greater than the fair market value at
the date of grant. A total of 1,750,000 shares are available for grants of
options or other awards under this plan, of which 575,751 stock options were
outstanding as of January 31, 1994. The exercise price of options outstanding
under this plan ranges from $7.13 per share to $8.13 per share.
The Company's 1982 stock option plan expired in September 1992. Under this
plan, stock options were granted to key employees to purchase up to 3,000,000
shares of its common stock at a price equal to or greater than the fair market
value at the date of grant. The options generally had a term of 10 years from
the grant date and become exercisable at a rate of 25%, 35% and 40% per year
following the grant date. The exercise price of the 796,883 options outstanding
as of January 31, 1994 under this plan ranges from $5.21 per share to $13.38 per
share.
F-18
42
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions under both plans were as follows:
NUMBER OF SHARES 1994 1993 1992
-------------------------------------------------- --------- --------- ---------
Outstanding at beginning of year.................. 1,554,766 1,840,440 2,103,796
Granted........................................... 579,812 134,230 4,000
Canceled.......................................... (116,349) (247,476) (96,454)
Exercised......................................... (645,595) (172,428) (170,902)
--------- --------- ---------
Outstanding at end of year........................ 1,372,634 1,554,766 1,840,440
--------- --------- ---------
--------- --------- ---------
Exercisable at end of year........................ 745,310 1,332,136 1,376,685
--------- --------- ---------
--------- --------- ---------
NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows:
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Interest (net of amount capitalized).................. $10,558 $13,860 $16,478
Income taxes.......................................... 1,675 5,584 7,300
Noncash investing and financing activities for each of the years in the
three-year period ended January 31, 1994 were as follows:
1994 1993 1992
------ ------- -------
(IN THOUSANDS)
Noncash investing and financing activities:
Transfers of marketable securities to long-term
investments....................................... -- -- $ 4,567
Transfers of marketable securities to other current
assets............................................ $6,776 -- --
Transfers of long-term investments to marketable
securities........................................ -- $ 6,184 5,871
Other investing activities:
Net change in marketable securities from noncash
transactions.................................... (99) (474) (3,181)
Net change in long-term investments from noncash
transactions.................................... -- 5 2,036
Net change in dividends receivable................ 36 141 1,130
Net change in obligations secured by marketable
securities and long-term investments............ -- -- (1,136)
Leasing activities:
Capital lessee additions............................. 505 1,048 1,075
Capital lessor activities............................ 538 628 --
Other leasing activities:
Decrease in leases receivable..................... -- -- 1,819
Increase in property and equipment................ -- -- (1,924)
Decrease in property under capital leases......... 169 671 4,512
Decrease in capital lease obligations............. (285) (1,561) (6,051)
Franchising and other disposition activities:
Sale of property and equipment....................... 344 7,304 6,893
Sale of inventory.................................... 11 139 183
Increase in notes receivable......................... (551) (7,203) (8,501)
Net change in restructuring reserve and other current
liabilities....................................... 45 4,698 2,464
Increase in other long-term liabilities.............. -- 4,855 --
Remeasurement of stock options....................... -- 843 --
Sale/leaseback activities:
Transfer of restaurant property costs to property and
equipment......................................... 6,750 1,553 2,159
Sale/leaseback transaction resulting in an increase
to notes receivable............................... -- 1,300 --
F-19
43
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results.
QUARTER 1ST 2ND 3RD 4TH
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 1994
Total revenues........................................ $139,915 $108,177 $106,436 $105,840
Operating income...................................... 1,412 4,449 3,519 1,128
Income (loss) before cumulative effect of change in
accounting principle................................ 926 2,359 1,606 (458)
Cumulative effect of change in accounting principle
(net of income tax benefit of $512)................. (768) -- -- --
-------- -------- -------- --------
Net income (loss)........................... $ 158 $ 2,359 $ 1,606 $ (458)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle............................. $ .05 $.13 $.09 $(.02)
Cumulative effect of change in accounting
principle........................................ (.04) -- -- --
----- ---- ---- -----
Net income (loss)........................... $ .01 $.13 $.09 $(.02)
----- ---- ---- -----
----- ---- ---- -----
FISCAL 1993
Total revenues........................................ $161,606 $119,931 $115,350 $105,745
Operating income (loss)............................... 4,220 3,141 1,950 (16,577)
Income (loss) before cumulative effect of change in
accounting principle................................ 3,226 3,228 1,253 (10,764)
Cumulative effect of change in accounting principle... (2,450) -- -- --
-------- -------- -------- --------
Net income (loss)........................... $ 776 $ 3,228 $ 1,253 $(10,764)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle............................. $.18 $.18 $.07 $(.60)
Cumulative effect of change in accounting
principle........................................ (.14) -- -- --
----- ---- ---- -----
Net income (loss)........................... $.04 $.18 $.07 $(.60)
----- ---- ---- -----
----- ---- ---- -----
Quarterly operating results are not necessarily representative of
operations for a full year for various reasons, including the seasonal nature of
the quick-service restaurant industry, unpredictable adverse weather conditions
which may affect sales volume and food costs, and the fact that all quarters
have 12-week accounting periods, except the first quarters of fiscal years 1994
and 1993, which had 16-week accounting periods, and the fourth quarter of fiscal
1994 which had 13 weeks.
The first quarter of fiscal 1994 has been restated to reflect the
cumulative effect of a change in accounting principle, related to a change in
the method used to discount the workers' compensation reserve. The second and
third quarters have been restated to reflect the impact of this adoption. See
Note 9.
Operating results for the fourth quarter of fiscal 1994 included a
$3,000,000 charge in connection with the settlement of an arbitration proceeding
(or $1,800,000 net of tax). See Note 7.
The first quarter of fiscal 1993 was restated to reflect the adoption of
SFAS 109. The impact of the adoption was not material in subsequent quarters.
See Note 16.
F-20
44
CARL KARCHER ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Operating results for the fourth quarter of fiscal 1993 included a
$9,192,000 charge for the Company's restructuring program and a $5,114,000
charge related to the Company's self-insured workers' compensation reserve (or
$5,515,000 and $3,068,000, net of tax, respectively). See Note 9.
NOTE 21 -- CONTINGENT LIABILITIES
The Company presently self-insures for group insurance, workers'
compensation and fire and comprehensive protection on most equipment and certain
other assets. In the opinion of management, past experience plus the wide
dispersion of restaurants indicates that the Company is assuming a minimal risk
by self-insuring and, if any loss should occur, it would not have a material
effect on the Company's financial position or results of operations.
Subsequent to January 31, 1994, the Company obtained a $12,148,000 standby
letter of credit related to its self-insured workers' compensation program,
which will expire on June 30, 1995 (see Note 8). The State of California
requires that the Company provide this letter of credit each year based on its
existing claims experience, or set aside a comparable amount of cash or
investment securities in a trust account.
The Company's standby letter of credit agreements with various banks expire
as follows:
(IN THOUSANDS)
August 1994............................ $ 3,852
June 1995.............................. 12,148
April 2000............................. 275
--------
$ 16,275
--------
--------
F-21
45
CARL KARCHER ENTERPRISES, INC.
SCHEDULE I -- MARKETABLE SECURITIES
NUMBER
OF SHARES COST OF MARKET VALUE CARRYING VALUE
OR UNITS EACH ISSUE OF EACH ISSUE OF EACH ISSUE
--------- ---------- -------------- --------------
(IN THOUSANDS)
January 31, 1994:
Preferred stock............................ 174 $3,520 $3,813 $3,520
Debt securities............................ 14 610 836 610
Government debt securities................. 20 2,025 2,019 2,025
Mutual funds and common stock.............. 274 2,909 2,815 2,909
---------- ------- -------
$9,064 $9,483 $9,064
---------- ------- -------
---------- ------- -------
- - ------------------
No individual issue exceeds 2% of assets.
S-1
46
CARL KARCHER ENTERPRISES, INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
BALANCE AT DEDUCTIONS BALANCE AT END OF YEAR
BEGINNING ------------------------ -----------------------------
OF YEAR ADDITIONS PAYMENTS WRITTEN OFF CURRENT(1)(2) LONG-TERM(2)
---------- --------- -------- ----------- ------------- ------------
(IN THOUSANDS)
January 31, 1994:
Bernard W. Karcher...... $ 849 $ 3,562 $ (4,199) -- $ 212 $ --
Carl L. Karcher......... 902 6,753 (6,874) -- 404 377
Carl N. Karcher......... 19 115 (134) -- -- --
Franklin J. Karcher..... 1,581 2,581 (2,596) -- 273 1,293
Joseph C. Karcher....... 218 1,324 (1,358) -- 184 --
Gary L. Wiles........... 500 2,305 (2,397) -- 102 306
------ ------- -------- -------- ------ ------
$4,069 $16,640 $(17,558) -- $1,175 $1,976
------ ------- -------- -------- ------ ------
------ ------- -------- -------- ------ ------
January 31, 1993:
Bernard W. Karcher...... $ 872 $ 3,221 $ (3,244) -- $ 492 $ 357
Carl L. Karcher......... 911 7,832 (7,841) -- 494 408
Carl N. Karcher......... -- 127 (108) -- 19 --
Franklin J. Karcher..... 1,615 2,692 (2,726) -- 206 1,375
Joseph C. Karcher....... 361 1,199 (1,342) -- 218 --
Gary L. Wiles........... 622 2,368 (2,490) -- 126 374
------ ------- -------- -------- ------ ------
$4,381 $17,439 $(17,751) -- $1,555 $2,514
------ ------- -------- -------- ------ ------
------ ------- -------- -------- ------ ------
January 31, 1992:
Bernard W. Karcher...... $ 699 $ 3,123 $ (2,950) -- $ 470 $ 402
Carl L. Karcher......... 2,835 8,952 (10,876) -- 476 435
Franklin J. Karcher..... 1,639 3,060 (3,084) -- 227 1,388
Joseph C. Karcher....... 195 870 (704) -- 361 --
Gary L. Wiles........... 654 2,825 (2,857) -- 194 428
------ ------- -------- -------- ------ ------
$6,022 $18,830 $(20,471) -- $1,728 $2,653
------ ------- -------- -------- ------ ------
------ ------- -------- -------- ------ ------
- - ------------------
(1) Includes accounts receivable, which consists primarily of amounts due from
related party franchisees for sales of food and equipment.
(2) Related party notes receivable arise primarily from the sales of restaurants
to related party franchisees. The terms of these notes range from 60 to 180
months and are due on various dates through 2002. Interest on these notes
range from 12.0% to 12.5%. These notes are typically collateralized by the
property and equipment sold.
S-2
47
CARL KARCHER ENTERPRISES, INC.
SCHEDULE V -- PROPERTY AND EQUIPMENT
BALANCE
AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR AT COST RETIREMENTS END OF YEAR
--------- --------- ------------ ------------
(DOLLARS IN THOUSANDS)
Year Ended January 31, 1994:
Land....................................... $ 14,571 $ 6,376 $ 1,143 $ 19,804
Leasehold improvements..................... 79,266 4,765 2,156 81,875
Buildings and improvements................. 23,566 3,567 51 27,082
Equipment, furniture and fixtures.......... 115,713 6,014 5,428 116,299
-------- ------- -------- --------
233,116 20,722 8,778 245,060
Property under capital leases.............. 66,336 1,296 1,045 66,587
-------- ------- -------- --------
$299,452 $22,018 $ 9,823 $311,647
-------- ------- -------- --------
-------- ------- -------- --------
Year Ended January 31, 1993:
Land....................................... $ 14,193 $ 1,228 $ 850 $ 14,571
Leasehold improvements..................... 84,943 1,444 7,121 79,266
Buildings and improvements................. 24,479 500 1,413 23,566
Equipment, furniture and fixtures.......... 126,835 7,076 18,198 115,713
-------- ------- -------- --------
250,450 10,248 27,582 233,116
Property under capital leases.............. 65,695 2,653 2,012 66,336
-------- ------- -------- --------
$316,145 $12,901 $ 29,594 $299,452
-------- ------- -------- --------
-------- ------- -------- --------
Year Ended January 31, 1992:
Land....................................... $ 14,299 $ 1,559 $ 1,665 $ 14,193
Leasehold improvements..................... 81,707 8,067 4,831 84,943
Buildings and improvements................. 19,386 6,197 1,104 24,479
Equipment, furniture and fixtures.......... 120,728 14,660 8,553 126,835
-------- ------- -------- --------
236,120 30,483 16,153 250,450
Property under capital leases.............. 71,458 1,075 6,838 65,695
-------- ------- -------- --------
$307,578 $31,558 $ 22,991 $316,145
-------- ------- -------- --------
-------- ------- -------- --------
S-3
48
CARL KARCHER ENTERPRISES, INC.
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
BALANCE
AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR AT COST RETIREMENTS END OF YEAR
-------- ------- ----------- -----------
(DOLLARS IN THOUSANDS)
Year Ended January 31, 1994:
Leasehold improvements...................... $ 38,512 $ 6,936 $ 1,469 $ 43,979
Buildings and improvements.................. 7,009 844 51 7,802
Equipment, furniture and fixtures........... 72,531 12,057 4,521 80,067
-------- ------- ----------- -----------
118,052 19,837 6,041 131,848
Property under capital leases............... 30,778 3,005 804 32,979
-------- ------- ----------- -----------
$148,830 $22,842 $ 6,845 $ 164,827
-------- ------- ----------- -----------
-------- ------- ----------- -----------
Year Ended January 31, 1993:
Leasehold improvements...................... $ 34,979 $ 6,889 $ 3,356 $ 38,512
Buildings and improvements.................. 5,784 1,310 85 7,009
Equipment, furniture and fixtures........... 71,349 13,860 12,678 72,531
-------- ------- ----------- -----------
112,112 22,059 16,119 118,052
Property under capital leases............... 29,017 3,102 1,341 30,778
-------- ------- ----------- -----------
$141,129 $25,161 $17,460 $ 148,830
-------- ------- ----------- -----------
-------- ------- ----------- -----------
Year Ended January 31, 1992:
Leasehold improvements...................... $ 28,209 $ 8,042 $ 1,272 $ 34,979
Buildings and improvements.................. 5,044 789 49 5,784
Equipment, furniture and fixtures........... 61,763 14,494 4,908 71,349
-------- ------- ----------- -----------
95,016 23,325 6,229 112,112
Property under capital leases............... 28,061 3,248 2,292 29,017
-------- ------- ----------- -----------
$123,077 $26,573 $ 8,521 $ 141,129
-------- ------- ----------- -----------
-------- ------- ----------- -----------
S-4
49
CARL KARCHER ENTERPRISES, INC.
SCHEDULE IX -- SHORT-TERM BORROWINGS
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
AT END INTEREST DURING THE DURING THE RATE DURING
OF PERIOD(1) RATE PERIOD PERIOD(2) THE PERIOD(3)
------------ -------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
Year Ended January 31, 1994.............. $ -- --% $ 2,422 $ 296 5.3%
------ --- ------- ------- ---
------ --- ------- ------- ---
Year Ended January 31, 1993.............. $2,422 5.6% $19,146 $13,441 4.5%
------ --- ------- ------- ---
------ --- ------- ------- ---
Year Ended January 31, 1992.............. $8,619 5.9% $18,717 $12,275 7.3%
------ --- ------- ------- ---
------ --- ------- ------- ---
- - ---------------
(1) Amount represents obligations secured by marketable securities and, prior to
fiscal 1993, long-term investments.
(2) The average amount outstanding during the period was computed by averaging
the month-end balances outstanding during the year.
(3) The weighted average interest rate during the period was computed by
averaging the month-end rates in effect during the period the debt was
outstanding.
S-5
50
CARL KARCHER ENTERPRISES, INC.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
CHARGED TO COSTS AND EXPENSES
----------------------------------------------------------
FISCAL YEAR ENDED
----------------------------------------------------------
JANUARY 31, 1994 JANUARY 31, 1993 JANUARY 31, 1992
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
Maintenance and repairs........................ $13,628 $18,816 $19,749
S-6
51
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
CARL KARCHER ENTERPRISES, INC.
EXHIBIT INDEX
FOR THE YEAR ENDED JANUARY 31, 1994
FORM 10-K
EXHIBITS
3-2, 10-77 THROUGH 10-89, 10-91, 10-92, 11-1, 12-1, 23-1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
52
EXHIBITS
3-1 Articles of Incorporation of Carl Karcher Enterprises, Inc., and amendments
thereto, filed as exhibit 3-1 to the Company's Registration Statement on
Form S-1, file No. 2-73695, and is hereby incorporated by reference.
3-2 Bylaws of Carl Karcher Enterprises, Inc. as amended, and amendments
thereto, filed as exhibit 3-2 to Amendment No. 3 to the Company's
Registration Statement on Form S-1, file No. 2-73695.(1)
10-1 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended, filed as
exhibit 10-21 to the Company's Registration Statement on Form S-1, file No.
2-73695, and is hereby incorporated by reference.(2)
10-2 Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan, filed as
exhibit 10-24 to the Company's Registration Statement on Form S-1, file No.
2-80283, and is hereby incorporated by reference.(2)
10-3 Agreement of Sale, dated May 17, 1984, filed as exhibit 10-25 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985,
and is hereby incorporated by reference.
10-4 Agreement of Sale, dated May 17, 1984, filed as exhibit 10-26 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985,
and is hereby incorporated by reference.
10-5 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-27 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985,
and is hereby incorporated by reference.
10-6 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-28 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1985,
and is hereby incorporated by reference.
10-7 Note Purchase Agreement, dated January 3, 1985, filed as exhibit 10-29 to
the Company's Form 10-K Annual Report for fiscal year ended January 25,
1985, and is hereby incorporated by reference.
10-8 Change in Control Agreement by and between Carl Karcher Enterprises, Inc.
and Loren C. Pannier, dated June 8, 1988, filed as exhibit 10-48 to the
Company's Form 10-K Annual Report for fiscal year ended January 30, 1989,
and is hereby incorporated by reference.(2)
10-9 Franchise Development Agreement dated May 17, 1985 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-53 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-10 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (13010 Palm Drive), filed as exhibit
10-54 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-11 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (57222 29 Palms Highway), filed as
exhibit 10-55 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-12 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (73-125 Highway 111), filed as
exhibit 10-56 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
E-1
53
10-13 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (68980 Highway 111), filed as
exhibit 10-57 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-14 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (81-770 Highway 111), filed as
exhibit 10-58 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-15 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (2520 Palm Canyon Drive), filed as
exhibit 10-59 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-16 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
enterprises, Inc. and Carl Leo Karcher (102 North Sunrise Way), filed as
exhibit 10-60 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-17 Franchise Agreement dated May 17, 1985 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (72840 Highway 111), filed as
exhibit 10-61 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-18 Sublease dated May 15, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Unit 323/730), filed as exhibit 10-62 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-19 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher, as amended by Amendment to Sublease dated December
18, 1990 (Unit 447/731), filed as exhibit 10-63 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-20 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Unit 300/729), filed as exhibit 10-64 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-21 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher (Unit 300/729), filed as exhibit 10-65 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-22 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher, as amended by the Amendment to Sublease dated
December 18, 1990 (Unit 207/725), filed as exhibit 10-66 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992,
and is hereby incorporated by reference.
10-23 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher, as amended (Unit 206/724), filed as exhibit 10-67 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-24 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc.
and Carl Leo Karcher, as amended by the First Amendment to Sublease dated
April 24, 1987 (Unit 289/728), filed as exhibit 10-68 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
E-2
54
10-25 Franchise Agreement dated December 31, 1985 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 456/768), filed as exhibit
10-69 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-26 Land and Building Sublease Agreement dated December 31, 1985 by and between
Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-71
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-27 Franchise Agreement dated January 25, 1986 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 188/769), filed as exhibit
10-72 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-28 Franchise Agreement dated January 25, 1986 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 382/771), filed as exhibit
10-73 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-29 Franchise Agreement dated January 25, 1986 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 342/770), filed as exhibit
10-74 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-30 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated
March 3, 1987 (1489 Adams Avenue), filed as exhibit 10-75 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992,
and is hereby incorporated by reference.
10-31 License Agreement dated January 27, 1987 by and between Carl Karcher
Enterprises, Inc. and CLK, Inc., as amended by the Amendment to License
Agreement dated October 10, 1990, filed as exhibit 10-76 to the Company's
Form 10-K Annual Report as amended for fiscal year ended January 27, 1992,
and is hereby incorporated by reference.
10-32 Continuing Guaranty dated January 27, 1987 executed by Carl Leo Karcher,
filed as exhibit 10-77 to, the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-33 Franchise Agreement dated March 3, 1987 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (1489 Adams Avenue), filed as exhibit 10-78 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-34 Franchise Agreement dated July 6, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Varner Road), filed as exhibit
10-79 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-35 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated October 5, 1987, filed as
exhibit 10-80 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-36 Lease Agreement dated September 25, 1987 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher, as amended by the Amendment to Lease dated
October 19, 1990 (Brawley), filed as exhibit 10-81 to the Company's Form
10-K Annual Report as amended for fiscal year ended January 27, 1992, and
is hereby incorporated by reference.
E-3
55
10-37 Sublease Agreement dated September 25, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Bullhead City), filed as exhibit
10-82 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-38 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 772), filed as exhibit 10-83
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-39 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 482/794), filed as exhibit
10-84 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-40 Franchise Agreement dated October 27, 1987 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 722), filed as exhibit 10-85
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-41 Franchise Agreement dated October 27, 1987 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 794), filed as exhibit 10-86
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-42 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated October 27, 1987 (Brawley),
filed as exhibit 10-87 to the Company's Form 10-K Annual Report as amended
for fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-43 Franchise Agreement dated June 14, 1988 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Bermuda Dunes), filed as exhibit 10-88 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-44 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General
Release and Continuing Guaranty each dated August 1, 1988, filed as exhibit
10-89 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-45 Franchise Agreement dated June 26, 1989 between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (I-8 Business Loop), filed as exhibit 10-92 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-46 Assignment of Franchise Agreement and Sublease Agreement by Carl Leo
Karcher to CLK, Inc. to CLK, Inc. and Continuing Guaranty each dated August
17, 1989 (Unit 730), filed as exhibit 10-93 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-47 Assignment of Franchise Agreement and Lease Agreement by Carl Leo Karcher
to CLK, Inc. dated August 17, 1989 (Unit 726), filed as exhibit 10-94 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-48 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK,
Inc. dated November 28, 1989 (Rivera, Arizona), filed as exhibit 10-95 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
E-4
56
10-49 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK,
Inc. General Release and Continuing Guaranty each dated January 9, 1990
(I-8 Business Loop), filed as exhibit 10-96 to the Company's Form 10-K
Annual Report as amended for fiscal year ended January 27, 1992, and is
hereby incorporated by reference.
10-50 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc.
and Carl Karcher Enterprises, Inc. (Unit 770), filed as exhibit 10-97 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-51 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc.
and Carl Karcher Enterprises, Inc. (Unit 771), filed as exhibit 10-98 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-52 Franchise Agreement dated November 12, 1990 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 873), filed as exhibit 10-99
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-53 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated November 13, 1990 (Unit 873), filed as
exhibit 10-100 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-54 Conditional Assignment of Lease dated December 18, 1990 by and between CLK,
Inc. and Carl Karcher Enterprises, Inc. (Unit 726), filed as exhibit 10-101
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-55 Development Agreement dated March 22, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-102 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-56 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK,
Inc. Release and Continuing Guaranty each dated April 5, 1991, filed as
exhibit 10-103 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-57 Franchise Development Agreement dated December 15, 1991 by and between Carl
Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment
to Franchise Development Agreement dated December 17, 1991, filed as
exhibit 10-104 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-58 Assignment of Franchise Development Agreement by Carl Leo Karcher to CLK,
Inc., Release and Continuing Guaranty each dated December 16, 1991, filed
as exhibit 10-105 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
10-59 Franchise Agreement dated December 16, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit
10-107 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-60 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK,
Inc. Release and Continuing Guaranty each dated December 16, 1991, filed as
exhibit 10-108 to the Company's Form 10-K Annual Report as amended for
fiscal year ended January 27, 1992, and is hereby incorporated by
reference.
E-5
57
10-61 Sublease Agreement dated December 16, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher, as amended by the First Amendment
to Sublease dated December 24, 1991, filed as exhibit 10-109 to the
Company's Form 10-K Annual Report as amended for fiscal year ended January
27, 1992, and is hereby incorporated by reference.
10-62 Promissory Note executed by Carl Leo Karcher in favor of Carl Karcher
Enterprises, Inc, filed as exhibit 10-110 to the Company's Form 10-K Annual
Report as amended for fiscal year ended January 27, 1992, and is hereby
incorporated by reference.
10-63 Security Agreement dated December 16, 1991 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit
10-111 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-64 Franchise Agreement dated January 10, 1992 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Havasu), filed as exhibit 10-112 to
the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-65 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated January 10, 1992, filed as exhibit
10-113 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-66 Franchise Agreement dated January 20, 1992 between Carl Karcher
Enterprises, Inc. and Carl Leo Karcher (Unit 7038), filed as exhibit 10-114
to the Company's Form 10-K Annual Report as amended for fiscal year ended
January 27, 1992, and is hereby incorporated by reference.
10-67 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty each dated January 20, 1992, filed as exhibit
10-115 to the Company's Form 10-K Annual Report as amended for fiscal year
ended January 27, 1992, and is hereby incorporated by reference.
10-68 Employment Agreement dated January 14, 1993 by and between Carl Karcher
Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-116 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-69 Addendum to Employment Agreement dated January 14, 1993 by and between Carl
Karcher Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-117 to
the Company's Form 10-K Annual Report for fiscal year ended January 25,
1993, and is hereby incorporated by reference.(2)
10-70 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Loren C. Pannier, filed as exhibit 10-118 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-71 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Rory J. Murphy, filed as exhibit 10-119 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-72 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Richard C. Celio, filed as exhibit 10-120 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
E-6
58
10-73 Employment Agreement dated January 15, 1993 by and between Carl Karcher
Enterprises, Inc. and Roger D. Shively, filed as exhibit 10-121 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-74 Employment Agreement dated February 1, 1993 by and between Carl Karcher
Enterprises, Inc. and Kerry W. Coin, filed as exhibit 10-122 to the
Company's Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)
10-75 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan, filed as
exhibit 10-123 to the Company's Form 10-K Annual Report for fiscal year
ended January 25, 1993, and is hereby incorporated by reference.(2)
10-76 Amendment to Employment Agreement dated May 4, 1993 by and between Carl
Karcher Enterprises, Inc. and Donald E. Doyle, filed as exhibit 10-124 to
the Company's Form 10-K Annual Report for fiscal year ended January 25,
1993, and is hereby incorporated by reference.(2)
10-77 Amended and Restated Credit Agreement dated November 20, 1992, by and
between Carl Karcher Enterprises, Inc. and Bank of America National Trust
and Savings Association.(1)
10-78 Amendment No. 1 to Amended and Restated Credit Agreement dated April 28,
1993, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-79 Amendment No. 2 to Amended and Restated Credit Agreement dated September
27, 1993, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-80 Amendment No. 3 to Amended and Restated Credit Agreement dated December 15,
1993, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-81 Amendment No. 4 to Amended and Restated Credit Agreement dated January 19,
1994, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-82 Amendment No. 5 to Amended and Restated Credit Agreement dated March 15,
1994, by and between Carl Karcher Enterprises, Inc. and Bank of America
National Trust and Savings Association.(1)
10-83 Purchase Agreement and Escrow Instructions dated February 8, 1993, by and
between Carl Karcher Enterprises, Inc. and the Carl N. and Margaret M.
Karcher Trust.(1)
10-84 First Amendment to Purchase Agreement dated November 1, 1993, by and
between Carl Karcher Enterprises, Inc. and the Carl N. and Margaret M.
Karcher Trust.(1)
10-85 Franchise Agreement dated April 7, 1993, between Carl Karcher Enterprises,
Inc. and Carl Leo Karcher (Unit 7085).(1)
10-86 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release
and Continuing Guaranty, each dated April 7, 1993.(1)
10-87 Restricted Stock Agreement dated January 6, 1993, by and between Carl
Karcher Enterprises, Inc. and Donald E. Doyle.(1)(2)
10-88 Employment Agreement dated April 27, 1993, by and between Carl Karcher
Enterprises, Inc. and Karen B. Eadon.(1)(2)
10-89 Employment Agreement dated January 1, 1994, by and between Carl Karcher
Enterprises, Inc. and Carl N. Karcher.(1)(2)
E-7
59
10-90 Form of Development and Franchise Agreement dated January 14, 1994, by and
between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(3)
10-91 Addendum No. 1 to Boston Chicken, Inc. Franchise Agreement, by and between
Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(1)
10-92 Addendum No. 1 to Boston Chicken, Inc. Area Development Agreement dated
January 14, 1994, by and between Carl Karcher Enterprises, Inc. and Boston
Chicken, Inc.(1)
11-1 Computation of Earnings Per Share.(1)
12-1 Computation of Ratios.(1)
23-1 Consent of KPMG Peat Marwick.(1)
- - ---------------
(1) Filed herewith.
(2) A management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
(3) Incorporated by reference to Exhibit 99 to Boston Chicken, Inc.'s
Registration Statement on Form S-1, file No. 33-69256, filed by Boston
Chicken, Inc. on September 22, 1993.
E-8