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Second Quarter Fiscal 2012 Results From CKE Restaurants, Inc.

2011-09-21

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CKE Restaurants Hardee’s® same-store sales increased 2.5% and Carl’s Jr.® same-store sales increased 2.0%.

CKE Restaurants, Inc. (“CKE”) announced its second fiscal quarter financial results for the twelve weeks ended August 15, 2011. The Company expects to file its Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”) on Wednesday, September 21, 2011 after the close of the financial markets.

“Hardee’s continued to generate positive same-store sales results during the second quarter. Including period seven, Hardee’s has now had nineteen consecutive periods of positive same-store sales. Carl’s Jr. also performed well, posting its second consecutive quarter of positive same-store sales”

As previously reported, on July 12, 2010, CKE Holdings, Inc., an affiliate of Apollo Management VII, L.P., acquired all of the outstanding shares of the Company (the “Merger”). As of August 15, 2011, the purchase price allocation related to the Merger has been completed.

All references to “Predecessor” relate to CKE and its consolidated subsidiaries for periods prior to the Merger and references to “Successor” relate to CKE and its consolidated subsidiaries for periods subsequent to the Merger. The discussion of the Company’s second quarter results compares the results of operations for the Successor twelve weeks ended August 15, 2011 to the combined Predecessor eight weeks ended July 12, 2010 and the Successor four weeks ended August 9, 2010. This discussion does not comply with U.S. GAAP; however, the Company believes this provides a more meaningful method of comparison.

Company-Operated Same-Store Sales and Average Unit Volumes

Blended same-store sales increased 2.2% in the second quarter of fiscal 2012. Hardee’s^® same-store sales increased 2.5% and Carl’s Jr.^® same-store sales increased 2.0%.

	Second quarter		Year-to-date
Brand	FY12	FY11	FY12	FY11
Carl's Jr.	2.0%	-7.4%	2.0%	-6.6%
Hardee's	2.5%	6.8%	6.4%	2.2%
Blended	2.2%	-1.1%	4.1%	-2.7%

At the end of the second quarter, the blended fifty-two week average unit volume for Carl’s Jr. and Hardee’s was $1,238,000. The fifty-two week average unit volumes for Carl’s Jr. and Hardee’s were $1,396,000 and $1,096,000, respectively.

To date, the Company’s blended same-store sales for the third quarter of fiscal 2012 are flat to slightly positive.

Second Quarter Results

The Company reported total revenue of $299.7 million for the fiscal 2012 second quarter, a decrease of $14.2 million, or 4.5%, compared to the fiscal 2011 second quarter. The decrease was attributable to the sale of the Carl’s Jr. distribution business on July 2, 2010. Total revenue, excluding the Carl’s Jr. distribution center revenue in the prior year quarter, increased by $10.8 million, or 3.7%.

“Hardee’s continued to generate positive same-store sales results during the second quarter. Including period seven, Hardee’s has now had nineteen consecutive periods of positive same-store sales. Carl’s Jr. also performed well, posting its second consecutive quarter of positive same-store sales,” said Andrew F. Puzder, Chief Executive Officer.

For the fiscal 2012 second quarter, company-operated restaurant-level adjusted EBITDA margin was 17.1%, a 120 basis point decrease compared to the prior year quarter. Food and packaging costs increased 90 basis points as a result of higher commodity costs for beef, ingredients containing cooking oil and dairy products. Occupancy and other expense, excluding depreciation and amortization, increased 30 basis points and advertising increased 10 basis points. These increases were offset by a 10 basis point decrease in labor costs. Refer to the further discussion of company-operated restaurant-level adjusted EBITDA margin under the heading “Non-GAAP Measures” below.

Adjusted EBITDA was $40.9 million in the second quarter of fiscal 2012, $1.4 million lower than the prior year quarter. Refer to the further discussion of Adjusted EBITDA under the heading “Non-GAAP Measures” below, which includes a reconciliation of net loss to Adjusted EBITDA.

As of August 15, 2011, cash and cash equivalents were $38.3 million and the Company had $68.1 million available under its credit facility.

On July 15, 2011, the Company redeemed $40.0 million aggregate principal amount of its outstanding 11.375% Senior Secured Second Lien Notes due 2018 (the “Notes”) at a price equal to 103.0% of the principal amount of the Notes. Subsequent to the redemption, the remaining aggregate principal amount of the Notes was $560.0 million.

Capital expenditures for the fiscal 2012 second quarter were $14.5 million, of which $7.9 million related to new store openings, dual-branding and remodeling projects. For fiscal 2012, the Company expects capital expenditures to be between $60.0 million and $65.0 million.

As of August 15, 2011, the Company’s system-wide restaurant portfolio consisted of:

	Carl's Jr.	Hardee's	Other	Total
Company-operated	425	468	0	893
Franchised	684	1,226	10	1,920
Licensed	169	220	0	389
Total	1,278	1,914	10	3,202


CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)

	Successor			Successor/ Predecessor			Successor			Predecessor
	Twelve Weeks Ended August 15, 2011			Twelve Weeks Ended August 9, 2010			Four Weeks Ended August 9, 2010			Eight Weeks Ended July 12, 2010
Revenue:
Company-operated restaurants	$	262,991		$	255,477		$	85,951		$	169,526
Franchised and licensed restaurants and other		36,738			58,486			11,078			47,408
Total revenue		299,729			313,963			97,029			216,934
Operating costs and expenses:
Restaurant operating costs:
Food and packaging		80,231			75,802			25,309			50,493
Payroll and other employee benefits		75,310			73,508			24,372			49,136
Occupancy and other		63,393			59,906			20,522			39,384
Restaurant operating costs		218,934			209,216			70,203			139,013
Franchised and licensed restaurants and other		18,440			40,620			5,262			35,358
Advertising		15,399			14,678			4,848			9,830
General and administrative		29,346			40,116			19,728			20,388
Facility action charges, net		(70	)		(136	)		137			(273	)
Other operating expenses, net ⁽¹⁾⁽²⁾		194			23,342			19,661			3,681
Total operating costs and expenses		282,243			327,836			119,839			207,997
Operating income (loss)		17,486			(13,873	)		(22,810	)		8,937
Interest expense		(17,816	)		(9,572	)		(5,980	)		(3,592	)
Other (expense) income, net		(2,215	)		439			165			274
(Loss) income before income taxes		(2,545	)		(23,006	)		(28,625	)		5,619
Income tax (benefit) expense		(314	)		4,304			(5,737	)		10,041
Net loss	$	(2,231	)	$	(27,310	)	$	(22,888	)	$	(4,422	)

⁽¹⁾ Other operating expenses, net includes transaction-related costs consisting of accounting, investment banking, legal, and other costs of $194, $26,784 , $19,661, and $7,123 for the twelve weeks ended August 15, 2011, twelve weeks ended August 9, 2010 (Successor/Predecessor), four weeks ended August 9, 2010 (Successor) and eight weeks ended July 12, 2010 (Predecessor), respectively.

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


CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)

	Successor			Successor/ Predecessor			Successor			Predecessor
	Twenty-Eight Weeks Ended August 15, 2011			Twenty-Eight Weeks Ended August 9, 2010			Four Weeks Ended August 9, 2010			Twenty-Four Weeks Ended July 12, 2010
Revenue:
Company-operated restaurants	$	614,595		$	586,482		$	85,951		$	500,531
Franchised and licensed restaurants and other		85,717			162,666			11,078			151,588
Total revenue		700,312			749,148			97,029			652,119
Operating costs and expenses:
Restaurant operating costs:
Food and packaging		189,133			173,951			25,309			148,642
Payroll and other employee benefits		176,973			171,763			24,372			147,391
Occupancy and other		146,076			138,660			20,522			118,138
Restaurant operating costs		512,182			484,374			70,203			414,171
Franchised and licensed restaurants and other		44,318			120,382			5,262			115,120
Advertising		35,460			34,495			4,848			29,647
General and administrative		70,306			79,587			19,728			59,859
Facility action charges, net		441			727			137			590
Other operating expenses, net ⁽¹⁾⁽²⁾		545			29,910			19,661			10,249
Total operating costs and expenses		663,252			749,475			119,839			629,636
Operating income (loss)		37,060			(327	)		(22,810	)		22,483
Interest expense		(42,211	)		(14,597	)		(5,980	)		(8,617	)
Other (expense) income, net ⁽³⁾		(1,416	)		(13,444	)		165			(13,609	)
(Loss) income before income taxes		(6,567	)		(28,368	)		(28,625	)		257
Income tax (benefit) expense		(1,735	)		2,035			(5,737	)		7,772
Net loss	$	(4,832	)	$	(30,403	)	$	(22,888	)	$	(7,515	)

⁽¹⁾ Other operating expenses, net includes transaction-related costs consisting of accounting, investment banking, legal, and other costs of $545, $33,352, $19,661, and $13,691 for the twenty-eight weeks ended August 15, 2011, twenty-eight weeks ended August 9, 2010 (Successor/Predecessor), four weeks ended August 9, 2010 (Successor) and twenty-four weeks ended July 12, 2010 (Predecessor), respectively.

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

⁽³⁾Other (expense) income, net includes transaction-related costs, related to the termination of a prior merger agreement, of $14,283 for both the twenty-eight weeks ended August 9, 2010 (Successor/Predecessor) and twenty-four weeks ended July 12, 2010 (Predecessor).


CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and par values)
(Unaudited)

	Successor
	August 15, 2011			January 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	38,258		$	42,586
Accounts receivable, net of allowance for doubtful accounts of $161 as of August 15, 2011 and $92 as of January 31, 2011		26,440			27,533
Related party trade receivables		73			216
Inventories		17,850			14,526
Prepaid expenses		12,353			14,219
Assets held for sale		—			196
Advertising fund assets, restricted		21,791			18,464
Deferred income tax assets, net		16,687			17,079
Other current assets		3,508			4,065
Total current assets		136,960			138,884
Notes receivable, net		—			172
Property and equipment, net of accumulated depreciation and amortization of $74,614 as of August 15, 2011 and $36,342 as of January 31, 2011		628,217			640,194
Property under capital leases, net of accumulated amortization of $6,940 as of August 15, 2011 and $3,638 as of January 31, 2011		34,588			36,156
Goodwill		208,885			207,817
Intangible assets, net		440,628			448,499
Other assets, net		22,330			24,444
Total assets	$	1,471,608		$	1,496,166

LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Current portion of bank indebtedness and other long-term debt	$	3		$	29
Current portion of capital lease obligations		8,117			7,434
Accounts payable		45,420			41,442
Advertising fund liabilities		21,791			18,464
Other current liabilities		81,826			81,958
Total current liabilities		157,157			149,327
Bank indebtedness and other long-term debt, less current portion		550,618			589,987
Capital lease obligations, less current portion		38,478			41,082
Deferred income tax liabilities, net		153,812			151,828
Other long-term liabilities		149,138			139,173
Total liabilities		1,049,203			1,071,397


Stockholder’s equity:
Common stock, $0.01 par value; 100 shares authorized, issued and outstanding as of August 15, 2011 and January 31, 2011		—			—
Additional paid-in capital		455,127			452,659
Accumulated deficit		(32,722	)		(27,890	)
Total stockholder’s equity		422,405			424,769
Total liabilities and stockholder’s equity	$	1,471,608		$	1,496,166

CKE RESTAURANTS, INC.
ADJUSTED EBITDA AND ADJUSTED EBITDAR
(In thousands)
(Unaudited)

	Successor			Predecessor/ Successor			Successor			Predecessor/ Successor
	Twelve Weeks Ended			Twelve Weeks Ended			Twenty-Eight Weeks Ended			Twenty-Eight Weeks Ended
	15-Aug-11			9-Aug-10			15-Aug-11			9-Aug-10

Net loss	$	(2,231	)	$	(27,310	)	$	(4,832	)	$	(30,403	)
Interest expense		17,816			9,572			42,211			14,597
Income tax (benefit) expense		(314	)		4,304			(1,735	)		2,035
Depreciation and amortization		18,905			16,981			43,843			39,625
Facility action charges, net		(70	)		(136	)		441			727
Gain on sale of distribution center assets		-			(3,442	)		-			(3,442	)
Transaction-related costs ⁽¹⁾		194			26,784			545			47,635
Management fees⁽²⁾		575			62			1,342			62
Share-based compensation expense		999			13,284			2,468			15,471
Losses on asset and other disposals		283			901			996			2,181
Difference between U.S. GAAP rent and cash rent		659			467			1,277			904
Cost savings ⁽³⁾		-			282			-			970
Other, net ⁽⁴⁾		4,055			496			5,815			(983	)
Adjusted EBITDA	$	40,871		$	42,245		$	92,371		$	89,379

Net Rent⁽⁵⁾		11,923			11,407			27,283			26,307
Adjusted EBITDAR	$	52,794		$	53,652		$	119,654		$	115,686

____

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

⁽²⁾ Represents the amounts associated with the management services agreement with Apollo Management VII, L.P. for on-going investment banking, consulting, and financial planning services, which are included in general and administrative expense.

⁽³⁾Cost savings reflects pro-forma cost savings amounts expected to be realized as a result of becoming a privately held company.

⁽⁴⁾Other, net includes the net impact of purchase accounting, executive retention bonus and disposition business expense. For the twenty-eight weeks ended August 9, 2010 (Successor/Predecessor), other, net also included adjusted EBITDA from the Company’s distribution business, which it no longer owns or operates.

⁽⁵⁾ Represents aggregate cash rent expense of the Company less rental income from franchisees and third parties, subject to certain adjustments and exclusions.

Company-Operated Restaurant-Level Non-GAAP Measures

Company-operated restaurant-level adjusted EBITDA is expressed in dollars and defined as company-operated restaurants revenue less restaurant operating costs excluding depreciation and amortization expense and including advertising expense. Restaurant operating costs are the expenses incurred directly by company-operated restaurants in generating revenues and do not include advertising costs, general and administrative expenses or facility action charges. Company-operated restaurant-level adjusted EBITDA margin is expressed as a percentage and defined as company-operated restaurant-level adjusted EBITDA divided by company-operated restaurants revenue.

Company-operated restaurant-level adjusted EBITDA and company-operated restaurant-level adjusted EBITDA margin are non-GAAP measures utilized by management internally to evaluate and compare the Company’s operating performance for company-operated restaurants between periods. In addition, management believes that these financial measures provide useful information to potential investors and analysts because they provide insight into management’s evaluation of the Company’s results of operations. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measures. These non-GAAP measures have certain limitations including the following:

Because not all companies calculate these measures identically, the Company’s presentation of such measures may not be comparable to similarly titled measures of other companies;
These measures exclude certain general and administrative and other operating costs, which should also be considered when assessing the Company’s operating performance; and
These measures exclude depreciation and amortization, and although they are non-cash charges, the assets being depreciated or amortized will often have to be replaced and new investments made to support the operations of the Company’s restaurant portfolio.

The following is a reconciliation of company-operated restaurant-level adjusted EBITDA and company-operated restaurant-level adjusted EBITDA margin (unaudited):

	Successor			Successor/ Predecessor			Successor			Successor/ Predecessor
	Twelve Weeks Ended August 15, 2011			Twelve Weeks Ended August 9, 2010			Twenty-Eight Weeks Ended August 15, 2011			Twenty-Eight Weeks Ended August 9, 2010
Company-operated restaurant-level adjusted EBITDA:
Company-operated restaurants revenue	$	262,991		$	255,477		$	614,595		$	586,482
Less: restaurant operating costs		(218,934	)		(209,216	)		(512,182	)		(484,374	)
Add: depreciation and amortization expense		16,387			15,068			37,987			35,444
Less: advertising expense		(15,399	)		(14,678	)		(35,460	)		(34,495	)
Company-operated restaurant-level adjusted EBITDA	$	45,045		$	46,651		$	104,940		$	103,057
Company-operated restaurant-level adjusted EBITDA margin		17.1	%		18.3	%		17.1	%		17.6	%