Assuming an initial public offering price of $15.00 per share, the midpoint
of the range set forth on the cover page of this prospectus, we estimate that
we will receive net proceeds from this offering of approximately $92.0
million, after deducting underwriting discounts and commissions and other
estimated expenses of $8.0 million payable by us. We will not receive any
net proceeds from the sale by the selling stockholder.
Each $1.00 increase (decrease) in the assumed initial public offering price
of $15.00 per share would increase (decrease) the net proceeds to us from
this offering by approximately $6.3 million, assuming the number of shares
offered by us, as set forth on the cover page of this prospectus, remains
the same and after deducting the estimated underwriting discounts and
commissions and estimated expenses payable by us. An increase (decrease)
of 1,000,000 in the number of shares we are offering would increase
(decrease) the net proceeds to us from this offering, after deducting the
estimated underwriting discounts and commissions and estimated expenses
payable by us, by approximately $14.1 million, assuming the initial public
offering price per share remains the same.
We intend to use the net proceeds that we receive (i) to redeem approximately
$82.1 million aggregate principal amount of the Senior Secured Notes and to
pay the related early redemption premiums (for a total redemption price of
approximately $91.5 million, not including accrued and unpaid interest) and
(ii) for general corporate purposes. The indenture governing the Senior
Secured Notes allows us to redeem up to 35% of the original aggregate
principal amount of those notes with the net proceeds of certain equity
offerings, including this offering, at a redemption price of 111.375% of
the aggregate principal amount of the Senior Secured Notes being redeemed
(plus the payment of accrued and unpaid interest to the redemption date);
provided that at least 65% of the original aggregate principal amount of
the Senior Secured Notes ($390 million) remains outstanding after such
redemption. The Senior Secured Notes were issued in connection with the
Merger. The Senior Secured Notes mature on July 15, 2018, and bear interest
at a rate of 11.375% per annum. In addition, upon the completion of this
offering, we will pay from cash on hand Apollo Management or its affiliates
a fee of approximately $13.8 million (plus any unreimbursed expenses) in
connection with the termination of our management services agreement.
The restaurant business and the QSR industry are intensely competitive and
affected by many factors, including changes in geographic competition,
changes in the public’s eating habits and preferences, local and national
economic conditions affecting consumer spending habits, population trends
and local traffic patterns. Key elements of competition in our industry
are the price, quality and value of food products offered; quality and
speed of service; advertising effectiveness; brand name awareness; media
spending levels; restaurant location and convenience; and attractiveness
of facilities.
We primarily compete with major restaurant chains, some of which dominate
the QSR industry, and also compete with a variety of other take-out
foodservice companies and fast-food restaurants. The four largest hamburger
QSRs are McDonald’s, Burger King, Jack in the Box and Wendy’s. Our
competitors also include a variety of mid-price, full-service casual-dining
restaurants; health and nutrition-oriented restaurants; delicatessens and
prepared food restaurants; supermarkets; and convenience stores. In selling
franchises, we compete with many other restaurant franchisors, some of
which have substantially greater financial resources and higher franchise
AUVs.
Company Description
We are one of the world’s largest operators and franchisors of quick service
restaurants (“QSR”) with 3,263 owned or franchised locations operating in 42
states and 25 foreign countries primarily under our Carl’s Jr. R and Hardee’s
R brands. We believe we offer innovative, premium products that
we develop
for a target demographic we refer to as “young, hungry guys” but that we
believe also appeal to a broader customer base of individuals who aspire
to be youthful. Our target demographic of 18 to 34 year old males who enjoy
premium food at a reasonable price makes up a large portion of the global
QSR market, which is currently estimated to generate $225 billion in sales
annually ($141 billion in the United States). In our domestic markets, adult
males under the age of 34 account for the most expenditures of any demographic
group at approximately one-quarter of all QSR expenditures, and have the
highest frequency of any demographic group at approximately 15 visits per
month. We believe our focus on this customer type is anchored by our menu
of high quality, premium products, and enhanced through edgy, breakthrough
advertising. According to QSR Magazine (Top 50 Rankings, March 7, 2012), we
are the fifth largest hamburger QSR operator globally. We have a large and
rapidly growing international presence (consisting of 441 restaurants in 25
foreign countries, an 85% increase in the number of international restaurants
since the end of fiscal 2007) and believe there are significant opportunities
to continue to grow our brands in various markets around the world.
As of May 21, 2012, the end of our first quarter of fiscal 2013, our
system-wide restaurant portfolio consisted of:
Carl's Jr. Hardee's Other Total
Company-operated 424 468 - 892
Domestic franchised 694 1,227 9 1,930
International franchised 204 237 - 441
Total 1,322 1,932 9 3,263
Our primary brands, Carl’s Jr. and Hardee’s , both have a rich heritage
dating back over 50 years, when Carl Karcher opened the first Carl’s Jr.
restaurant in 1956 and Wilbur Hardee opened the first Hardee’s restaurant
in 1960. We believe Carl’s Jr. and Hardee’s are both well recognized for
their high-quality product offerings. Sandelman Quick Track reports for the
first calendar quarter of 2012 ranked each of our brands #1 or #2 in their
markets among national or regional hamburger QSRs in taste or flavor of
food, quality of ingredients and temperature of food. Although we operate
under two brands, the management, menus, operations, marketing campaigns
and logos of our two primary brands are substantially similar. We are
evolving into a national chain operating under two banners because each
has long-standing brand equity in its respective markets. The brands often
market identical new products with identical advertising campaigns and use
national cable to promote these products in ads that identify both brands.
Our business objective is to continue growing our average unit volumes
(“AUV”), calculated as described below, and expanding both Carl’s Jr.
and Hardee’s in new and existing markets throughout the world by leveraging
what we believe to be distinct brand positioning, high-quality product
offerings, compelling restaurant economics and an established global
footprint. Our business strategy focuses on the growth of our franchise
restaurant base, which provides a more stable, capital efficient income
stream than company-operated restaurants. Franchise royalties are based
on a percentage of our franchisees’ sales, and are thus not susceptible
to fluctuations in restaurant operating costs. In addition, franchisees
are responsible for making capital investments, enabling us to accelerate
the growth of our restaurant system without incremental capital
expenditures. From the end of fiscal 2007 through May 21, 2012, we have
grown our franchise restaurants from 1,904 units (64% of total) to 2,371
units (73% of total), and we have grown our international restaurants by
85% from 238 units (8% of total) to 441 units (14% of total) over the same
period.
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Our principal executive offices are located at 6307 Carpinteria Avenue,
Suite A, Carpinteria, California, 93013, and our telephone number is
(805) 745-7500. We also maintain an Internet site at www.ckr.com.