CKE Restaurants Reports Second Quarter Fiscal 2011 Results

CARPINTERIA, Calif.--(BUSINESS WIRE)--CKE Restaurants, Inc. announced today its second fiscal quarter results and the filing of its Report on Form 10-Q with the Securities and Exchange Commission ("SEC") for the twelve weeks ended August 9, 2010.

As previously reported, on July 12, 2010, Columbia Lake Acquisition Holdings, Inc., an affiliate of Apollo Management VII, L.P., acquired all of the outstanding shares of the Company (the "Acquisition"). The accompanying condensed consolidated statements of operations and related information present the Company's results of operations during the second fiscal quarter for both the period preceding the Acquisition (the "Predecessor" period) and the period succeeding the Acquisition (the "Successor" period). The discussion below compares the results of operations of the combined Successor and Predecessor entities for the twelve weeks ended August 9, 2010 to the results of the Predecessor entity for the twelve weeks ended August 10, 2009. This discussion does not comply with generally accepted accounting principles; however, the Company believes that it provides a more meaningful method of comparison.

Second Fiscal Quarter Results

The Company reported total revenue of $313.9 million for the fiscal 2011 second quarter, a decrease of $22.1 million, or 6.6% compared to the fiscal 2010 second quarter. The decrease was primarily attributable to the sale of the Carl's Jr.® distribution business on July 2, 2010. Total revenue, excluding Carl's Jr. distribution center revenue, decreased 0.9%.

Blended same-store sales decreased 1.1% in the fiscal 2011 second quarter. Hardee's® same-store sales increased 6.8% and Carl's Jr. same-store sales declined 7.4%. To date, the Company's third quarter blended same-store sales trend is slightly positive.

                    Q2            Year-to-date
             -----------------  -----------------
Brand          FY11     FY10      FY11     FY10
----------   -------- --------  -------- --------
Carl's Jr.   -7.4 %   -6.1 %    -6.6 %   -5.6 %
----------   ---- --  ---- --   ---- --  ---- --
Hardee's      6.8 %   -2.7 %     2.2 %    0.2 %
----------   ---- --  ---- --   ---- --  ---- --
Blended      -1.1 %   -4.6 %    -2.7 %   -3.1 %
----------   ---- --  ---- --   ---- --  ---- --

"While the weak U.S. economic environment, particularly the ongoing high unemployment rate among our core target audience of young men, continued to impact same-store sales at Carl's Jr., we experienced a significant improvement in same-store sales at Hardee's. Through period 7, the last period of our second quarter, Hardee's has now had six consecutive periods of positive same-store sales. We have maintained market share and our restaurant adjusted EBITDA margins remain strong at both brands," said Andrew F. Puzder, chief executive officer of CKE Restaurants. "We remain focused on maintaining our premium-quality brands and improving same-store sales with innovative products and cutting edge advertising that focuses on the taste, quality, and value of our products."

Company-operated restaurant-level adjusted EBITDA margin decreased 120 basis points, primarily due to a 100 basis point increase in food and packaging costs as a result of higher commodity costs for beef, cheese, potatoes, and pork. Labor increased 70 basis points, primarily due to the impact of sales deleveraging at Carl's Jr. restaurants. These cost increases were partially offset by a 50 basis point decrease in occupancy and other expense, resulting from lower repair and maintenance expense and reductions in other operating expenses. The Company defines company-operated restaurant-level adjusted EBITDA margin as company-operated restaurant-level adjusted EBITDA divided by company-operated restaurants revenue. Company-operated restaurant-level adjusted EBITDA is company-operated restaurants revenue less restaurant operating costs, plus depreciation and amortization expense, less advertising expenses, and excludes general and administrative expenses and facility action charges.

General and administrative expense for the second quarter of fiscal 2011 increased $8.7 million from the prior year quarter, primarily due to a $10.9 million increase in share-based compensation expense mainly related to the accelerated vesting of stock options and restricted stock awards in connection with the Acquisition, partially offset by a reduction in other general and administrative expenses.

For the quarter, other operating expenses, net includes $26.8 million in transaction-related costs. These charges are partially offset by a $3.4 million gain related to the sale of the Carl's Jr. distribution centers.

Based on definitions in the Company's credit facility and indenture agreement, share-based compensation expense, transaction-related costs and the gain on the sale of the distribution center do not affect Adjusted EBITDA.

Adjusted EBITDA was $42.2 million in the second quarter of fiscal 2011 compared to $43.3 million in the same quarter of the prior year. A discussion of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA accompany the schedule of Adjusted EBITDA included below.

At August 9, 2010, cash and cash equivalents were $31.0 million and the Company had $65.1 million available under its credit facility.

Capital expenditures for the twenty-eight weeks ended August 9, 2010 were $38.4 million, of which $22.8 million related to new store openings, dual-branding, and remodeling projects. Capital expenditures for the twenty-eight weeks ended August 10, 2009 were $57.7 million.

         Unit Count by Brand as of August 9, 2010

                               Carl's Jr.  Hardee's  Total
                               ----------  --------  -----
Company-operated                      423       472    895
Domestic Franchised                   673     1,222  1,895
                               ----------  --------  -----
Total Domestic                      1,096     1,694  2,790
International Licensed                143       204    347
                               ----------  --------  -----
Total Franchised and Licensed         816     1,426  2,242
                               ----------  --------  -----
Total                               1,239     1,898  3,137
                               ==========  ========  =====

Conference Call Information

The Company will host its second quarter conference call on September 29, 2010, at 10:00 a.m. (PDT). The call-in number is (617) 213-8841. The access code is 52683921. You may also access the conference call at http://www.ckr.com under "Investors."

Company Overview

CKE Restaurants, Inc. is a privately held company headquartered in Carpinteria, Calif. As of the end of its second quarter of fiscal 2011, CKE, through its subsidiaries, had a total of 3,149 franchised, licensed or company-operated restaurants in 42 states and in 18 countries, including 1,239 Carl's Jr. Restaurants and 1,898 Hardee's restaurants. For more information about CKE, please visit http://www.ckr.com.

Forward-looking Statements:

Matters discussed in this press release contain forward-looking statements relating to the Company's strategies to maintain its brand and improve same-store sales, which are based on management's current beliefs and assumptions. Such statements are subject to risks and uncertainties that are often difficult to predict and beyond the Company's control. Factors that could cause the Company's results to differ materially from those described include, but are not limited to, the Company's ability to compete with other restaurants, delicatessens, supermarkets and convenience stores for customers, employees, restaurant locations and franchisees; changes in consumer preferences, perceptions and spending patterns; the ability of the Company's key suppliers to continue to deliver premium-quality products to the Company at moderate prices; the Company's ability to successfully enter new markets, complete remodels of existing restaurants and complete construction of new restaurants; changes in general economic conditions and the geographic concentration of the Company's restaurants, which may affect the Company's business; the Company's ability to attract and retain key personnel; the Company's franchisees' willingness to participate in the Company's strategy; the operational and financial success of the Company's franchisees; the Company's ability to expand into international markets and the risks associated with operating in international locations; changes in the price or availability of commodities; the effect of the media's reports regarding food-borne illnesses, food tampering and other health-related issues on the Company's reputation and its ability to procure or sell food products; the seasonality of the Company's operations; the Company's ability to hire and retain qualified personnel; the effect of increasing labor costs including healthcare related costs; increased insurance and/or self-insurance costs; the Company's ability to comply with existing and future health, employment, environmental and other government regulations; the potentially conflicting interests of the Company's sole stockholder and the Company's creditors, the Company's substantial leverage which could limit its ability to raise capital, react to economic changes or meet obligations under its indebtedness; the effect of restrictive covenants in the Company's indenture and credit facility on the Company's business; and other factors as discussed in the Company's filings with the Securities and Exchange Commission.

                                                      CKE RESTAURANTS, INC.
                                         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  FOR THE TWELVE WEEKS ENDED AUGUST 9, 2010 AND AUGUST 10, 2009

                                                         (In thousands)

                                                           (Unaudited)

                                                     Successor         Predecessor    Successor/ Predecessor      Predecessor
                                                 ---------------   ----------------   ---------------------   -----------------
                                                 Four Weeks Ended   Eight Weeks Ended   Twelve Weeks Ended    Twelve Weeks Ended
                                                 ---------------   ----------------   ---------------------   -----------------
                                                     9-Aug-10           12-Jul-10            9-Aug-10              10-Aug-09
                                                 ---------------   ----------------   ---------------------   -----------------
Revenue:
  Company-operated restaurants                    $85,951          $169,526              $255,477              $257,794
  Franchised and licensed restaurants and other    10,990            47,408                58,398                78,173
                                                 --------          --------           -----------             ---------
        Total revenue                              96,941           216,934               313,875               335,967
                                                 --------          --------           -----------             ---------
Operating costs and expenses:
  Restaurant operating costs:
      Food and packaging                           25,309            50,608                75,917                73,899
      Payroll and other employee benefits          24,348            49,081                73,429                72,387
      Occupancy and other                          20,148            39,685                59,833                61,750
                                                 --------          --------           -----------             ---------
        Total restaurant operating costs           69,805           139,374               209,179               208,036
  Franchised and licensed restaurants and other     5,206            35,322                40,528                58,333
  Advertising                                       4,848             9,830                14,678                15,005
  General and administrative                       19,656            20,063                39,719                30,971
  Facility action charges, net                        137              (273 )                (136 )               1,454
  Other operating expenses, net (1,2)              19,661             3,681                23,342                    --
                                                 --------          --------           -----------             ---------
        Total operating costs and expenses        119,313           207,997               327,310               313,799
                                                 --------          --------           -----------             ---------
Operating (loss) income                           (22,372 )           8,937               (13,435 )              22,168
Interest expense                                   (5,856 )          (3,592 )              (9,448 )              (2,060 )
Other income, net                                     144               274                   418                   425
                                                 --------          --------           -----------             ---------
(Loss) income before income taxes                 (28,084 )           5,619               (22,465 )              20,533
Income tax (benefit) expense                       (5,437 )          10,041                 4,604                 8,283
                                                 --------          --------           -----------             ---------
Net (loss) income                                $(22,647 )         $(4,422 )            $(27,069 )             $12,250
                                                 ========          ========           ===========             =========

(1) Other operating expenses, net includes
transaction-related costs consisting of accounting, investment
banking, legal, and other costs of $19,661, $7,123, and $26,784
for the four weeks ended August 9, 2010 (Successor), eight weeks
ended July 12, 2010 (Predecessor), and twelve weeks ended August
9, 2010 (Successor/Predecessor), respectively.

(2) The eight weeks ended July 12, 2010 (Predecessor)
and twelve weeks ended August 9, 2010 (Successor/Predecessor) also
include a $3,442 gain on the sale of the distribution center
assets.

                                                             CKE RESTAURANTS, INC.

                                                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                        FOR THE TWENTY-EIGHT WEEKS ENDED AUGUST 9, 2010 AND AUGUST 10,

                                                                     2009

                                                                (In thousands)

                                                                  (Unaudited)

                                                    Successor            Predecessor        Successor/ Predecessor          Predecessor
                                                ---------------   ----------------------   -----------------------   -----------------------
                                                Four Weeks Ended   Twenty-Four Weeks Ended Twenty-Eight Weeks Ended  Twenty-Eight Weeks Ended
                                                ---------------   ----------------------   -----------------------   -----------------------
                                                    9-Aug-10              12-Jul-10                9-Aug-10                  10-Aug-09
                                                ---------------   ----------------------   -----------------------   -----------------------
Revenue:
  Company-operated restaurants                   $85,951             $500,531                  $586,482                  $600,958
  Franchised and licensed restaurants and other   10,990              151,588                   162,578                   181,813
                                                --------          -----------              ------------              ------------
        Total revenue                             96,941              652,119                   749,060                   782,771
                                                --------          -----------              ------------              ------------
Operating costs and expenses:
  Restaurant operating costs:
      Food and packaging                          25,309              148,992                   174,301                   172,401
      Payroll and other employee benefits         24,348              147,187                   171,535                   169,756
      Occupancy and other                         20,148              119,076                   139,224                   140,587
                                                --------          -----------              ------------              ------------
        Total restaurant operating costs          69,805              415,255                   485,060                   482,744
  Franchised and licensed restaurants and other    5,206              115,089                   120,295                   137,826
  Advertising                                      4,848               29,647                    34,495                    35,772
  General and administrative                      19,656               58,806                    78,462                    72,084
  Facility action charges, net                       137                  590                       727                     2,502
  Other operating expenses, net (1,2)             19,661               10,249                    29,910                        --
                                                --------          -----------              ------------              ------------
        Total operating costs and expenses       119,313              629,636                   748,949                   730,928
                                                --------          -----------              ------------              ------------
Operating (loss) income                          (22,372 )             22,483                       111                    51,843
Interest expense                                  (5,856 )             (8,617 )                 (14,473 )                  (8,404 )
Other income (expense), net (3)                      144              (13,609 )                 (13,465 )                   1,287
                                                --------          ----------- -----------  ------------ -----------  ------------
(Loss) income before income taxes                (28,084 )                257                   (27,827 )                  44,726
Income tax (benefit) expense                      (5,437 )              7,772                     2,335                    18,081
                                                -------- -------  -----------              ------------              ------------
Net (loss) income                               $(22,647 )            $(7,515 )                $(30,162 )                 $26,645
                                                ======== =======  =========== ===========  ============ ===========  ============

(1) Other operating expenses, net includes
transaction-related costs consisting of accounting, investment
banking, legal, and other costs of $19,661, $13,691, and $33,352
for the four weeks ended August 9, 2010 (Successor), twenty-four
weeks ended July 12, 2010 (Predecessor), and twenty-eight weeks
ended August 9, 2010 (Successor/Predecessor), respectively.
(2) The twenty-four weeks ended July 12, 2010
(Predecessor) and twenty-eight weeks ended August 9, 2010
(Successor/Predecessor) also include a $3,442 gain on the sale of
the distribution center assets.
(3) Other income (expense), net includes
transaction-related costs, related to the termination of a prior
merger agreement, of $14,283 for both the twenty-four weeks ended
July 12, 2010 (Predecessor) and twenty-eight weeks ended August 9,
2010 (Successor/Predecessor).

                                 CKE RESTAURANTS, INC. AND SUBSIDIARIES

                                  CONDENSED CONSOLIDATED BALANCE SHEETS

                              (In thousands, except shares and par values)

                                               (Unaudited)

                                                                         Successor        Predecessor
                                                                      -------------    ---------------
                                                                      August 9, 2010   January 31, 2010
                                                                      -------------    ---------------
                                ASSETS
Current assets:
 Cash and cash equivalents                                               $31,009        $18,246
 Accounts receivable, net of allowance for doubtful accounts of $9 as     33,478         35,016
 of August 9, 2010 and $358 as of January 31, 2010
 Related party trade receivables                                              --          5,037
 Inventories, net                                                         14,095         24,692
 Prepaid expenses                                                         12,180         13,723
 Assets held for sale                                                        572            500
 Advertising fund assets, restricted                                      16,681         18,295
 Deferred income tax assets, net                                          17,488         26,517
 Other current assets                                                      4,012          3,829
                                                                      ----------       --------
   Total current assets                                                  129,515        145,855
Notes receivable, net of allowance for doubtful accounts of $0 as of         902          1,075
August 9, 2010 and $379 as of January 31, 2010
Property and equipment, net of accumulated depreciation and              643,400        568,334
amortization of $3,974 as of August 9, 2010 and $445,033 as of
January 31, 2010
Property under capital leases, net of accumulated amortization of         33,169         32,579
$439 as of August 9, 2010 and $46,090 as of January 31, 2010

Deferred income tax assets, net                                               --         40,299
Goodwill                                                                 188,194         24,589
Intangible assets, net                                                   443,003          2,317
Other assets, net                                                         22,684          8,495
                                                                      ----------       --------
   Total assets                                                       $1,460,867       $823,543
                                                                      ========== ===   ======== =======

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Current portion of bank indebtedness and other long-term debt               $28        $12,262
 Current portion of capital lease obligations                              5,284          7,445
 Accounts payable                                                         40,391         65,656
 Advertising fund liabilities                                             16,681         18,295
 Other current liabilities                                                83,459         95,605
                                                                      ----------       --------

   Total current liabilities                                             145,843        199,263
Bank indebtedness and other long-term debt, less current portion         589,567        266,202
Capital lease obligations, less current portion                           33,331         43,099
Deferred income tax liabilities, net                                     179,648             --
Other long-term liabilities                                               84,951         78,804
                                                                      ----------       --------
   Total liabilities                                                   1,033,340        587,368
                                                                      ----------       --------
Stockholders' equity:
 Predecessor: Common stock, $0.01 par value; 100,000,000 shares               --            553
 authorized; 55,290,626 shares issued and outstanding as of January
 31, 2010

 Successor: Common stock, $0.01 par value; 100 shares authorized,             --             --
 issued and outstanding as of August 9, 2010
 Additional paid-in capital                                              450,174        282,904
 Accumulated deficit                                                     (22,647 )      (47,282 )
                                                                      ---------- ---   -------- -------
   Total stockholders' equity                                            427,527        236,175
                                                                      ----------       --------
   Total liabilities and stockholders' equity                         $1,460,867       $823,543
                                                                      ========== ===   ======== ======

Net income (loss) reconciliation to Adjusted EBITDA

Adjusted EBITDA represents net income (loss) before provision for income taxes, interest income and expense, asset impairments, facility action charges, depreciation and amortization, management fees, pro-forma cost savings as a result of becoming privately held, and certain non-cash and unusual items. Management uses Adjusted EBITDA as an important tool to assess operating performance. Management considers Adjusted EBITDA to be a useful measure in highlighting trends in the Company’s business and in analyzing the profitability of similar enterprises. Management believes that Adjusted EBITDA is effective, when used in conjunction with net income (loss), in evaluating asset performance, and differentiating efficient operators in the industry. Furthermore, management believes that Adjusted EBITDA provides useful information to potential investors and analysts because it provides insight into management’s evaluation of the Company’s results of operations. The calculation of Adjusted EBITDA may not be consistent with “EBITDA” for the purpose of the covenants in the agreements governing the Company’s indebtedness.

Adjusted EBITDA is not a measure of financial performance under U.S. GAAP, is not intended to represent cash flow from operations under U.S. GAAP and should not be used as an alternative to net income (loss) as an indicator of operating performance or to cash flow from operating, investing or financing activities as a measure of liquidity. Management compensates for the limitations of using Adjusted EBITDA by using it only to supplement the Company’s U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the Company’s business. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of the Company’s results as reported under U.S. GAAP.

Some of the limitations of Adjusted EBITDA are:

  • Adjusted EBITDA does not reflect cash used for capital expenditures;
  • Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and Adjusted EBITDA does not reflect the cash requirements for such replacements;
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, the Company’s working capital requirements; and
  • Adjusted EBITDA does not reflect the cash necessary to make payments of interest or principal on the Company’s indebtedness.
  • While Adjusted EBITDA is frequently used as a measure of operations and the ability to meet indebtedness service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation.

While management believes that this measure provides useful information to investors, the SEC may require that Adjusted EBITDA be presented differently or not at all in future filings the Company will make with the SEC.

                                                           CKE RESTAURANTS, INC.
                                                              ADJUSTED EBITDA
                                                FOR THE FIFTY-TWO WEEKS ENDED MAY 17, 2010
                                         THE TWELVE WEEKS ENDED AUGUST 9, 2010 AND AUGUST 10, 2009
                                               AND THE FIFTY-TWO WEEKS ENDED AUGUST 9, 2010

                                                              (In thousands)

                                                                (Unaudited)

                                                      Predecessor      Successor/ Predecessor      Predecessor     Successor/ Predecessor
                                                --------------------   ---------------------   -----------------   ---------------------
                                                 Fifty-two Weeks Ended   Twelve Weeks Ended    Twelve Weeks Ended   Fifty-two Weeks Ended
                                                --------------------   ---------------------   -----------------   ---------------------
                                                       17-May-10              9-Aug-10              10-Aug-09             9-Aug-10
                                                --------------------   ---------------------   -----------------   ---------------------
Net income (loss)                                  $30,710                $(27,069 )             $12,250               $(8,609 )
Interest expense                                    17,935                   9,448                 2,060                25,323
Income tax expense (benefit)                         2,911                   4,604                 8,283                  (768 )
Depreciation and amortization                       72,410                  16,011                16,514                71,907
Facility action charges, net                         4,510                    (136 )               1,454                 2,920
Gain on sale of distribution center assets               -                  (3,442 )                   -                (3,442 )
Transaction-related costs(1)                        21,674                  26,784                     -                48,458
Management fees(2)                                       -                      62                     -                    62
Share-based compensation expense(3)                  8,491                  13,284                 2,390                19,385
Losses on asset and other disposals                  3,171                   1,119                   385                 3,905
Difference between U.S. GAAP rent and cash rent        752                     467                   927                   292
Cost savings(4)                                      1,332                     282                   211                 1,403
Other, net(5)                                       (4,796 )                   831                (1,174 )              (2,791 )
Adjusted EBITDA                                   $159,100                 $42,245               $43,300              $158,045

(1) Transaction-related costs include investment
banking, legal, and other costs related to the Acquisition, as
well as costs related to the termination of a prior merger
agreement.

(2) Management fees are paid to Apollo Management per
the management services agreement by and among the Company,
Columbia Lake Acquisition Holdings, Inc. and Apollo Management
VII, L.P.

(3) Share-based compensation expense includes $12,108
resulting from accelerated vesting of stock options and restricted
stock awards in connection with the Acquisition for both the
twelve and fifty-two weeks ended August 9, 2010.

(4) Cost savings reflects pro-forma cost savings
amounts expected to be realized as result of becoming a privately
held company.

(5) Other, net includes the net impact of purchase
accounting, executive retention bonus, disposition business
expense, and adjusted EBITDA from the Company's distribution
business, which it no longer owns or operates.

SOURCE: CKE Restaurants, Inc.

###

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