CKE Q3 Blended Sales Up 1.9%

CKE Restaurants, Inc. announced its third fiscal quarter financial results for the twelve weeks ended November 7, 2011.

“Hardee’s continued to generate positive same-store sales results during the third quarter. Including period ten and the third quarter, Hardee’s has now had twenty-two consecutive periods and six consecutive quarters of positive same-store sales. Carl’s Jr. also performed well, posting its third consecutive quarter of positive same-store sales”

Company-Operated Same-Store Sales and Average Unit Volumes

Blended same-store sales increased 1.9% in the third quarter of fiscal 2012. Carl’s Jr.^® same-store sales increased 2.0% and Hardee’s^® same-store sales increased 1.8%.

		Third Quarter						Year to Date
Brand		FY12			FY11			FY12			FY11
Carl's Jr.		2.0	%		-5.0	%		2.0	%		-6.2	%
Hardee's		1.8	%		8.3	%		5.0	%		4.0	%
Blended		1.9	%		0.9	%		3.4	%		-1.7	%

At the end of the third quarter, the blended fifty-two week average unit volume for Carl’s Jr. and Hardee’s was $1,246,000. The fifty-two week average unit volumes for Carl’s Jr. and Hardee’s were $1,405,000 and $1,102,000, respectively.

To date, the Company’s blended same-store sales for the fourth quarter of fiscal 2012 are positive in the low single digit range.

Third Quarter Results

The Company reported total revenue of $292.6 million for the fiscal 2012 third quarter, an increase of $7.8 million, or 2.8%, compared to the fiscal 2011 third quarter.

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

For the fiscal 2012 third quarter, company-operated restaurant-level adjusted EBITDA margin was 16.9%, a 30 basis point decrease compared to the prior year quarter. Food and packaging costs increased 110 basis points, primarily as a result of higher commodity costs for beef, oil and cheese products. Advertising increased 20 basis points. These increases were offset by a 50 basis point decrease in labor costs and a 50 basis point decrease in occupancy and other expense, excluding depreciation and amortization. Refer to the further discussion of company-operated restaurant-level adjusted EBITDA margin under the heading “Non-GAAP Measures” below.

Adjusted EBITDA was $37.9 million in the third quarter of fiscal 2012, $0.6 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) income to Adjusted EBITDA.

As of November 7, 2011, cash and cash equivalents were $61.1 million and the Company had $68.5 million available under its credit facility with no borrowings outstanding.

During the third quarter of fiscal 2012, the Company purchased $8.2 million of the principal amount of its outstanding 11.375% Senior Secured Second Lien Notes due 2018 (the “Notes”) at par value in an open market transaction and paid the associated accrued and unpaid interest on these purchased Notes of $0.2 million. The Company recognized a loss of $0.3 million on the early extinguishment of these Notes. Subsequent to the purchase, and as of November 7, 2011, the aggregate principal amount of the Notes outstanding was $551.8 million.

This fiscal year, through November 7, 2011, the Company has entered into agreements with independent third parties under which the Company sold and leased back 29 restaurant properties. The Company received pre-tax net proceeds of $40.7 million in connection with these transactions. During the third quarter of fiscal 2012, the Company entered into 18 of these transactions, generating pre-tax net proceeds of $24.7 million.

In accordance with the indenture governing the Notes, the Company is required to make an offer to repurchase its Notes with a portion of the net proceeds received from sale-leaseback transactions. Pursuant to these requirements, on December 1, 2011, the Company commenced a tender offer to purchase up to $27.9 million of the principal amount of the Notes (“Tender Offer”) at a redemption price of 103%, which expires on December 29, 2011. In addition to the Tender Offer, on December 1, 2011, the holders of the Notes were notified that the Company will redeem on January 4, 2012, conditioned in part on the result of the Tender Offer, up to $20.0 million aggregate principal amount of the Notes outstanding on January 4, 2012 (“Redemption”) at a redemption price of 103% pursuant to the terms of the indenture governing the Notes. Pursuant to the Redemption, the Notes to be redeemed will be reduced so that the total principal amount of Notes purchased in both the Tender Offer and Redemption will not exceed $30.0 million.

Capital expenditures for the fiscal 2012 third quarter were $16.3 million, of which $6.7 million related to new store openings, dual-branding and remodeling projects. For fiscal 2012, the Company expects capital expenditures to be between $55.0 million and $60.0 million.

As of November 7, 2011, the Company’s system-wide restaurant portfolio consisted of:

			Carl's Jr.			Hardee's			Other			Total
Company-operated			425			469			0			894
Franchised			692			1,225			10			1,927
Licensed			175			223			0			398
Total			1,292			1,917			10			3,219

Merger

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”). 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.

CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
		Successor
		Twelve Weeks Ended November 7, 2011				Twelve Weeks Ended November 1, 2010
Revenue:
Company-operated restaurants		$	256,976			$	250,097
Franchised and licensed restaurants and other			35,643				34,690
Total revenue			292,619				284,787
Operating costs and expenses:
Restaurant operating costs:
Food and packaging			78,763				73,879
Payroll and other employee benefits			72,485				71,701
Occupancy and other			62,926				61,756
Restaurant operating costs			214,174				207,336
Franchised and licensed restaurants and other			17,907				16,995
Advertising			15,698				14,880
General and administrative			30,570				30,033
Facility action charges, net			262				822
Other operating expenses(1)			—				167
Total operating costs and expenses			278,611				270,233
Operating income			14,008				14,554
Interest expense			(17,415	)			(18,055	)
Other (expense) income, net			(252	)			803
Loss before income taxes			(3,659	)			(2,698	)
Income tax benefit			(2,142	)			(2,743	)
Net (loss) income		$	(1,517	)		$	45

⁽¹⁾ Other operating expenses includes transaction-related costs consisting of accounting, investment banking, legal, and other costs of $167 for the twelve weeks ended November 1, 2010.

CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
		Successor				Successor/ Predecessor				Successor				Predecessor
		Forty Weeks Ended November 7, 2011				Forty Weeks Ended November 1, 2010				Sixteen Weeks Ended November 1, 2010				Twenty-Four Weeks Ended July 12, 2010
Revenue:
Company-operated restaurants		$	871,571			$	836,579			$	336,048			$	500,531
Franchised and licensed restaurants and other			121,360				197,356				45,768				151,588
Total revenue			992,931				1,033,935				381,816				652,119
Operating costs and expenses:
Restaurant operating costs:
Food and packaging			267,896				247,830				99,188				148,642
Payroll and other employee benefits			249,458				243,464				96,073				147,391
Occupancy and other			209,002				200,416				82,278				118,138
Restaurant operating costs			726,356				691,710				277,539				414,171
Franchised and licensed restaurants and other			62,225				137,377				22,257				115,120
Advertising			51,158				49,375				19,728				29,647
General and administrative			100,876				109,620				49,761				59,859
Facility action charges, net			703				1,549				959				590
Other operating expenses, net (1)(2)			545				30,077				19,828				10,249
Total operating costs and expenses			941,863				1,019,708				390,072				629,636
Operating income (loss)			51,068				14,227				(8,256	)			22,483
Interest expense			(59,626	)			(32,652	)			(24,035	)			(8,617	)
Other (expense) income, net (3)			(1,668	)			(12,641	)			968				(13,609	)
(Loss) income before income taxes			(10,226	)			(31,066	)			(31,323	)			257
Income tax (benefit) expense			(3,877	)			(708	)			(8,480	)			7,772
Net loss		$	(6,349	)		$	(30,358	)		$	(22,843	)		$	(7,515	)

⁽¹⁾ Other operating expenses, net includes transaction-related costs consisting of accounting, investment banking, legal, and other costs of $545, $33,519, $19,828, and $13,691 for the forty weeks ended November 7, 2011 (Successor), forty weeks ended November 1, 2010 (Successor/Predecessor), sixteen weeks ended November 1, 2010 (Successor) and twenty-four weeks ended July 12, 2010 (Predecessor), respectively.

⁽²⁾ The forty weeks ended November 1, 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 forty weeks ended November 1, 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
		November 7, 2011				January 31, 2011
ASSETS
Current assets:
Cash and cash equivalents		$	61,075			$	42,586
Accounts receivable, net of allowance for doubtful accounts of $72 as of November 7, 2011 and $92 as of January 31, 2011			27,059				27,533
Related party trade receivables			150				216
Inventories			16,733				14,526
Prepaid expenses			14,246				14,219
Assets held for sale			—				196
Advertising fund assets, restricted			17,481				18,464
Deferred income tax assets, net			16,503				17,079
Other current assets			3,824				4,065
Total current assets			157,071				138,884
Notes receivable, net			—				172
Property and equipment, net of accumulated depreciation and amortization of $90,792 as of November 7, 2011 and $36,342 as of January 31, 2011			625,971				640,194
Property under capital leases, net of accumulated amortization of $8,397 as of November 7, 2011 and $3,638 as of January 31, 2011			33,200				36,156
Goodwill			208,885				207,817
Intangible assets, net			436,874				448,499
Other assets, net			21,509				24,444
Total assets		$	1,483,510			$	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			8,220				7,434
Accounts payable			38,805				41,442
Advertising fund liabilities			17,481				18,464
Other current liabilities			105,311				81,958
Total current liabilities			169,820				149,327
Bank indebtedness and other long-term debt, less current portion			542,799				589,987
Capital lease obligations, less current portion			36,626				41,082
Deferred income tax liabilities, net			151,101				151,828
Other long-term liabilities			169,575				139,173
Total liabilities			1,069,921				1,071,397
Stockholder’s equity:
Common stock, $0.01 par value; 100 shares authorized, issued and outstanding as of November 7, 2011 and January 31, 2011			—				—
Additional paid-in capital			456,190				452,659
Investment in Parent Notes			(8,362	)			—
Accumulated deficit			(34,239	)			(27,890	)
Total stockholder’s equity			413,589				424,769
Total liabilities and stockholder’s equity		$	1,483,510			$	1,496,166

Non-GAAP Measures

Adjusted EBITDA and Adjusted EBITDAR

Adjusted EBITDA represents income (loss) before 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, the effects of acquisition accounting adjustments, and certain non-cash and unusual items. The Company calculates Adjusted EBITDAR by adjusting Adjusted EBITDA to exclude the Company’s aggregate cash rent expense, less rental income from franchisees and third parties, subject to certain adjustments and exclusions.

Management uses Adjusted EBITDA and Adjusted EBITDAR because it believes that they are important measures of operating performance. In particular, management considers Adjusted EBITDA and Adjusted EBITDAR to be useful financial measures that highlight trends in the Company’s business and provide a comparable measure of profitability of similar enterprises. In addition, management believes that Adjusted EBITDA and Adjusted EBITDAR are effective, when used in conjunction with net loss or loss before income taxes, in evaluating asset performance, and differentiating efficient operators in the industry. Furthermore, management believes that Adjusted EBITDA and Adjusted EBITDAR provide useful information to potential investors and analysts because these measures provide insight into management’s evaluation of the Company’s results of operations. The calculations of Adjusted EBITDA and Adjusted EBITDAR may not be consistent with “EBITDA” and “EBITDAR” for the purpose of the covenants in the agreements governing the Company’s indebtedness.

Adjusted EBITDA and Adjusted EBITDAR are not measures of financial performance under U.S. GAAP, are not intended to represent cash flows from operations under U.S. GAAP and should not be used as alternatives to net loss, or loss before income taxes, as indicators of operating performance, or as alternatives to cash flow from operating, investing or financing activities as a measure of liquidity. Management compensates for the limitations of using Adjusted EBITDA and Adjusted EBITDAR by using them 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 and Adjusted EBITDAR have limitations as analytical tools, and you should not consider these measures 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 and Adjusted EBITDAR are:

• Adjusted EBITDA and Adjusted EBITDAR do 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 and Adjusted EBITDAR do not reflect the cash requirements for such replacements;
• Adjusted EBITDA and Adjusted EBITDAR do not reflect changes in, or cash requirements for, the Company’s working capital requirements;
• Adjusted EBITDA and Adjusted EBITDAR do not reflect the cash necessary to make payments of interest or principal on the Company’s indebtedness; and

• Adjusted EBITDAR does not reflect the cash necessary to make payments of rent under the Company’s lease obligations.

While Adjusted EBITDA and Adjusted EBITDAR are frequently used as measures of operations and the ability to meet indebtedness service requirements, these measures as calculated by the Company are not necessarily directly comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation.

CKE RESTAURANTS, INC.
ADJUSTED EBITDA AND ADJUSTED EBITDAR
(In thousands)
(Unaudited)
		Successor				Successor				Successor				Successor/ Predecessor
		Twelve Weeks Ended				Twelve Weeks Ended				Forty Weeks Ended				Forty Weeks Ended
		7-Nov-11				1-Nov-10				7-Nov-11				1-Nov-10
Net (loss) income		$	(1,517	)		$	45			$	(6,349	)		$	(30,358	)
Interest expense			17,415				18,055				59,626				32,652
Income tax benefit			(2,142	)			(2,743	)			(3,877	)			(708	)
Depreciation and amortization			19,030				17,796				62,873				57,421
Facility action charges, net			262				822				703				1,549
Gain on sale of distribution center assets			-				-				-				(3,442	)
Transaction-related costs (1)			-				167				545				47,802
Management fees (2)			574				575				1,916				637
Share-based compensation expense			1,063				1,291				3,531				16,762
Losses on asset and other disposals			343				350				1,339				2,531
Difference between U.S. GAAP rent and cash rent			570				1,317				1,847				2,221
Cost savings (3)			-				-				-				970
Other, net (4)			2,256				812				8,071				(171	)
Adjusted EBITDA		$	37,854			$	38,487			$	130,225			$	127,866
Net Rent (5)			11,650				10,783				38,933				37,090
Adjusted EBITDAR		$	49,504			$	49,270			$	169,158			$	164,956

____

⁽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, severance costs and disposition business expense. For the forty weeks ended November 1, 2010 (Successor/Predecessor), other, net also includes 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				Successor				Successor/ Predecessor
		Twelve Weeks Ended November 7, 2011				Twelve Weeks Ended November 1, 2010				Forty Weeks Ended November 7, 2011				Forty Weeks Ended November 1, 2010
Company-operated restaurant-level adjusted EBITDA:
Company-operated restaurants revenue		$	256,976			$	250,097			$	871,571			$	836,579
Less: restaurant operating costs			(214,174	)			(207,336	)			(726,356	)			(691,710	)
Add: depreciation and amortization expense			16,376				15,180				54,363				50,624
Less: advertising expense			(15,698	)			(14,880	)			(51,158	)			(49,375	)
Company-operated restaurant-level adjusted EBITDA		$	43,480			$	43,061			$	148,420			$	146,118
Company-operated restaurant-level adjusted EBITDA margin			16.9	%			17.2	%			17.0	%			17.5	%

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